published: June 1, 2020, 10:47 p.m.
The concept of Binary Economics was first laid out in the 1950s in the book "The Capitalist Manifesto" by Louis Kelso. The "binary" comes from looking at the economy as two categories that are independent of each other. One being things produced by labor and other being things produced by capital. So from the binary economics lense, there are two ways you can make money, you can be in the Labor Boat were through selling the labor you provide to a company or person you receive a wage. Or you can be in the Ownership Boat, where you make money off of Capital you own in the form of something like return on stocks or maybe rent paid on your land. In the view of Adam Smith, the forefather of capitalism, this was a distinction without a difference. Whether you were in the Labor Boat or the Ownership Boat, it wouldn't matter, you would still be raised equally by the tide of economic growth. But from a binary perspective, this is not always the case. They look at the Labor Boat and Ownership Boat as being independent of each other. Some things will cause them both to rise or fall at the same time, but they are not inherently linked.
What stands out to me binary economics is that it is not radically different than the current system at all. It is almost difficult to see what this is proposing compared to what already exists. I think that the main thing it provides is a different way to think about things. Traditionally we think of capital as just a tool that allows people to get the most out of labor. This seemed pretty intuitive back in the adam smith days when a reasonable example of labor and capital working together would a farmer with a hoe. The farmer provides the labor and the hoe being an object that is used in the production of goods and services is the capital. If the farmer can dig two ditches with the hoe and only one without it, then it would seem reasonable to say that the hoe doubled the farmer's efficiency. But from a binary economics perspective, it would be adding to the farmer's efficiency, not multiplying it. The farmer would be responsible for one ditch and the hoe responsible for the other, bringing the total to two ditches. This seems odd because the farmer has agency. Its weird to think of the hoe as doing anything since it can't think, the farmer consciousness flows through it. It's like that old saying "guns don't kill people, people kill people". Hoes don't dig things, people dig things. But now with automation, this feels less and less true. When an automated hoe drone comes into the picture and can dig ten ditches at once without a farmer even having to be in the field, it doesn't seem like the hoe drone is multiplying the farmer's efficiency by anything. It seems more intuitive now that the equation is the 10 ditches dug by the hoe drone plus the farmer's 0 gives us the total.
Okay so whether capital acts as a multiplier to labor or whether it adds to it seems like a formality, why does it matter? Well because once we start thinking about the relationship between the capital and labor through this lens it allows us to contextualize modern problems like automation. All automation is just the capital's part of the sum of total output getting larger. The problem isn't "automation" the problem is that most people aren't making money from Capital Boat that is being risen by the tide of automation. So why aren't we on this Capital Boat? We all love capitalism after all but most people make only a small fraction of their income from capital. This is the key problem that binary economics aims to solve. It is a very American dreamy thing to think that people work hard at a job and save up money and then invest that money. But reality shows that the vast majority of the money invested as capital is either inherited or the return from previously invested capital. It a self-fulfilling prophecy, the more capital that you have the more return you can get on your capital, which will allow you to get more capital.
Louis Kelso, the founder of binary economics also created Employee Stock Option Plans (ESOPs) in the 1950s. There are over eleven thousand of them in America today. Companies that implement these don't just pay their employees wages but also give them capital in the form of the companies stock. This allows employees to get a foothold in that Capital Boat. The more radical solution is based on the idea of the binary property right, which states it is right of every person to acquire, on market principles, private (individual and joint) ownership of wealth-creating capital assets. That doesn't sound like its an unusual deal. Currently, there is no law preventing anyone who has the means from buying wealth-creating capital assets. But built into the binary assumption is that not having the means to buy any capital assets violates someone's rights. The thinking is that everyone has a right to have there money make money. The solution proposed is interest-free loans that are given out to people so they can go out and invest it in capital. The future returns from whatever investment they made will pay off the loans completely and then leave them as owners for whatever they bought into, placing them in the Ownership Boat. Most of the capital today is acquired by large companies, and when they buy it is mostly coming from loans or the returns of previous investments. The idea of interest-free loans is to allow for average Joes to use these same mechanics. There is no Soviet-style central planning going on. The loans are all expected to be paid off in full so it's not like the state is injecting money into the system.
If I had to invent a libertarian strawman he might say that interest rates are set by the market, and giving out interest-free loans would be the state is interfering with our free market ecosystem. A common analogy is that our capitalist system is like a game and the state acts as a referee. The players are all on the field and the competition between them brings out the best of them. The ref is only intervening in the game if someone is blatantly breaking the rules, any intervention otherwise would be unfair. Kelso compared it to a game too but in a slightly less romantic way:
"The Roman arena was technically a level playing field. But on one side were the lions with all the weapons, and on the other the Christians with all the blood. That's not a level playing field. That's a slaughter. And so is putting people into the economy without equipping them with capital, while equipping a tiny handful of people with hundreds and thousands of times more than they can use"
The beautiful thing about the free market is that it can allocate resources far more efficiently than the best centrally planned economy ever could, and that is why we like this game Kelso and my Libertarian strawman talk about. It's why we took such pride in it when we compare it to the Soviet Union or the Venezuelans. But while many economists would agree markets are efficient, this efficiency is based on the assumption of competitive markets, and that requires some of the following conditions:
When we look at this in terms of the Labor and Capital Boat there is a barrier to entry in the form that most people don't have any way to acquire capital, and as wealth accumulates more and more in the hands of the few it becomes more monopolistic. Giving everyone access to loans that allow them to own capital it breaks down any barriers and spreading ownership out, not allowing monopolies to form. This not only allows more people to play in the game but by nudging our economy closer to a competitive market, it makes the outcome of the game more efficient. So from a binary economics perspective, the referee is not interfering with the game, they are creating an environment that makes the game worth playing.
The key thing that makes binary economics different is it treats ownership as a basic right. Just as some governments treat healthcare as a right and provide services allowing there citizens access to it, a government ran by binary economists would provide services allowing the citizens access to ownership. By creating a system where everyone is an owner it makes the visions of the future as AI dominated automation dystopia much less scary. Instead of being replaced by robots, we would all be owning a stake in the increased efficiency that they would bring.