The ancient Greek poet Archilochus observed: “The fox knows many
things, but the hedgehog knows one big thing.” Although the meaning
of this enigmatic fragment has been lost in time, the late British philosopher
Isaiah Berlin, in a celebrated essay,1 made the fox and the hedgehog
symbols of a deep temperamental divide between thinkers and writers,
and perhaps human beings in general.
Berlin thought that a great chasm exists between “those, on one
side, who relate everything to a single central vision, one system … a
single, universal organizing principle … and, on the other side,
those who pursue many ends, often unrelated and even contradictory, connected,
if at all, only in some de facto way … related by no moral or
aesthetic principle.”
The hedgehog, then, is holistic, the fox pragmatic. In Berlin’s
taxonomy, Plato is a hedgehog, Ar-istotle a fox, and Tolstoi a fox who
wants to be a hedgehog. As the author of an important biography of Karl
Marx, an arch-hedgehog if ever there was one, Berlin might well have
extended his analysis to economists. Their thinking reflects the same
temperamental split.
Louis Kelso was a hedgehog. As a political economist and visionary social
thinker, he knew one big thing—an overarchingly momentous thing
that illuminates the social landscape like flashes of summer lightning,
a transformational big thing that generations of economists, with one
possible ex-ception, Jean Baptiste Say, had inexplicably overlooked.
He knew that capital is an input factor on the production side of the
free market equation, and thus performs work and earns income just as
human labor does. And he knew the momentous social implications of this
revolutionary discovery.
Louis O. Kelso (1913-91) was a political economist in the classical
tradition of Smith, Marx and Keynes. He was also a corporate and financial
lawyer, author, lecturer and merchant banker who is chiefly remembered
today as the inventor and pioneer of the Employee Stock Ownership Plan
(ESOP), the prototype of the leveraged buy-out which Kelso invented to
enable working people without savings to buy stock in their employer
company and pay for it out of its future dividend yield.
Kelso invented the ESOP in 1956 to enable the employees of a closely-held
newspaper chain to buy out its retiring owners. Two years later Kelso
and his co-author, the philosopher Mortimer J. Adler, explained the
macro-economic theory on which the ESOP was based in The Capitalist
Manifesto (Random House, 1958). In The New Capitalists (Random
House, 1961), the two authors present Kelso’s financial tools
for democratizing capital ownership in a private property, market economy.
These ideas were further elaborated and refined in Two-Factor Theory:
The Economics of Reality (Random House, 1967) and Democracy
and Economic Power: Extending the ESOP Revolution Through Binary Economics (Ballinger
Publishing Company, Cambridge, MA, 1986; reprinted University Press
of America, Lanham MD, 1991), both co-authored by Patricia Hetter Kelso,
his collaborator since 1963.
Kelso’s next financing innovation, the Consumer Stock Ownership
Plan (CSOP), in 1958 enabled a consortium of farmers in the Central
Valley to finance and start up an anhydrous ammonia fertilizer plant.
Despite fierce opposition from the major oil companies who dominated
the industry, Valley Nitrogen Producers was a resounding success. Substantial
dividends first paid for the stock and then drastically reduced fertilizer
costs for the farmer-shareholders.
Kelso regarded the ESOP and CSOP as pragmatic proof that his revolutionary
revision of classical economic theory, and the financial techniques
he derived from this new perspective, were sound and workable in the
economic and business world. As a corporate and financial lawyer, and
later as senior partner in the law firm he founded, Kelso well understood
this world. He was further motivated by his conviction that lawyers
had a special responsibility to maintain and improve society’s
institutions in the light of its democratic values. He further believed
that the business corporation was society’s greatest social invention
and that its executives had a fiduciary responsibility to exercise
its vast power.
