,
by Robert Ashford and Rodney Shakespeare, University Press of America,
Lanham, Maryland: 1999 (464 pp., Cloth $45.00, Paper $24.50)
Not many people are aware that the Employee Stock Ownership
Plan (ESOP) was hatched from a macro-economic theory which qualifies
in every respect as a genuinely new paradigm in economics. Louis Kelso
himself took awhile to realize this. Almost until the end of his life
he believed that he had merely corrected an error in the classical model.
This was a critical error, since it is responsible for the historical
bottleneck in the private property free market system that prevents
market-sourced income from flowing to the many who want and need to
consume its products.
In Binary Economics: The New Paradigm, Robert Ashford
and Rodney Shakespeare, an American law professor and an English historian
respectively, explain the premises and principles which Louis Kelso
first discovered and then developed and refined into a logically coherent
model of the free market system during his long career (more than 50
years) as a lawyer and investment banker. Although academic economists
have either ignored Kelso or dismissed him as an "amateur crank"
(Paul Samuelson's famous epithet), his binary paradigm explains, as
theirs do not, such "anomalies" as the economic decline of
the middle class, growing social alienation, and our inability to transfer
technology to the emerging nations in ways that do not create bubble
economies that inevitably burst.
Most unsettling, conventional economists neither understand
the cause of depression nor how to prevent the next one except through
massive applications of the standard Keynesian remedies which even the
European welfare states are repudiating because of their negative effects
on monetary integrity, motivation and property. Not long ago, Lester
Thurow, a superstar of his profession, writing on the Asian crisis,
admitted without apology: "Economic collapses are an intrinsic
part of capitalism."
The most urgent problem conventional economists are at
a loss to solve is economic growth - how to bring it about in the poor
countries, or how to restore the "magic" at home after it
has gone. (Cf. Paul Krugman, Peddling Prosperity,
1994, p. 9.) Economic growth is essential to modern industrial economies
whose political commitment to full employment is constantly assaulted
by technological change. It is the rising tide that is supposed to lift
all the boats. As John Diebold pointed out in Beyond
Automation (1970), economic growth is essential to the painless
introduction of technological change. When economists assert, as they
have done since the beginning of the Industrial Revolution, that technological
change creates more jobs than it destroys, their tacit assumption is
that economic growth will proceed at a fast enough clip to restore the
employment lost. The conventional economic paradigm chains the full
employment economy to perpetual expansion. It offers no surcease or
escape from this overriding necessity.
Louis Kelso's binary paradigm, on the other hand, shows
the way to both accelerate economic growth and to liberate the economy
from the relentless pressure to expand. Ashford and Shakespeare devote
much of their book to these two problems. The key is to unblock the
purchasing power created by the free market but not distributed to consumers
with current needs and wants. And the way to do this is to end the monopoly
of capital credit so that the poor and the middle class can buy and
pay for productive capital the way the rich always have, from its earnings.
Restructuring our "unfree economy" to widen economic participation
through owning and employing both factors of production -- productive
capital as well as labor - would conform to all the rules of market
logic, most importantly, private property.
Here are fresh, new ideas, meticulously and faithfully
explained, for benignly correcting the maldistribution of the productive
power of capital that has kept the free market from working for the
many as well as it has for the few.
-- Originally published in "Owners
At Work," the newsletter of the Ohio Employee Ownership Center,
Kent State University
