Robert Ashford

Beyond austerity and stimulus:

democratizing capital acquisition with
the earnings of capital as a means to
sustainable growth
Abstract: To enhance (1) the earnings of poor and middle-class people and (2)
sustainable growth, this article recommends broadening competitive market opportunities to acquire capital with the earnings of capital. The prospect of more
broadly distributed capital earnings in future years provides incentives to profitably
employ more labor and capital in earlier years. Without redistribution, modest
changes in the system of corporate finance will enable market participants to
price the value of more broadly distributed capital acquisition and thereby provide
market incentives to produce (1) enhanced earnings for poor and middle-class
people, (2) enhanced corporate profits and growth, (3) reduced need for welfare
dependence, government spending, borrowing, and taxes, and (4) enhanced sovereign creditworthiness. The approach advanced in this article rests on a theory
of fuller employment that operates in the long run as well as the short run. It is
somewhat similar to Keynesian theory and yet also distinct and complementary.
If the approach is implemented either alone or in conjunction with Keynesian
policies, the fuller employment and broader distributive benefits may surpass expectations based on Keynesian theory and may make both austerity and stimulus
strategies more affordable and politically feasible.
Key words: Adam Smith, binary economics, broadening ownership, corporate
finance, full employment, economic opportunity, economic recovery, Kelso, Keynes,
price theory, productiveness, property rights, wealth distribution, welfare.

In response to the great financial crisis that began in 2007 and emerged
full-blown in 2008, efforts to achieve sustainable recovery in the United
States, Europe, and most of the world seem polarized in a political and
economic debate between proponents of austerity and stimulus. As an
alternative to the economic theories that underlie this debate, this article
Robert Ashford is a professor of law at Syracuse University College of Law, Syracuse,
New York.
Journal of Post Keynesian Economics/Winter 201314, Vol. 36, No. 2179
2014 M.E. Sharpe, Inc. All rights reserved. Permissions: www.copyright.com
ISSN 01603477 (print)/ISSN 15577821 (online)
DOI: 10.2753/PKE0160-3477360201

180 JOURNAL OF POST KEYNESIAN ECONOMICS

advances a market approach offered to achieve more broadly distributed

prosperity and enhanced, sustainable growth by democratizing (i.e., by
extending to poor and middle-class people) competitive market opportunities to acquire capital with the earnings of capital.1
The approach described in this article, based on principles of binary
economics,2 calls for an implementation of a voluntary, ownershipbroadening system of corporate finance that would require no taxes,
redistribution, borrowing, or government command. Corporations would
be free to continue to meet their capital requirements as before, but they
would have an additional, potentially more profitable, market means to
do so. This additional means could be voluntarily employed to:
1. enhance the earning capacity of the participating companies, their
shareholders, their employees, and their customers;
2. promote more sustainable, environmentally friendly, and more
broadly shared growth and prosperity;
3. reduce poverty, welfare dependence, and the need for government
expenditures, taxes, and other transfer payments;
4. enhance the value of equity investments and reduce the risk of
borrowing; and
5. enhance the creditworthiness of national governments and their
ability to raise revenue.
The binary, ownership-broadening approach may be viewed as complementary to the Keynesian approach to fuller employment but differs
from it in a number of respects. Several are set forth as follows: first,
the enhanced growth predicted by Keynesian analysis materializes in the
short and (at most) intermediate runa time frame in which capital is
fixed and labor is the only independent productive variable. In contrast,
the enhanced growth predicted by binary analysis (hereinafter referred to
as binary growth) materializes in the short run and long run. Second,
the binary analysis recognizes that values and prices are materially

1 As used in this article, capital includes land, animals, structures, and machines
anything capable of being owned and employed in production. It does not include
financial capital, which is a claim on, or ownership interest in, real capital.
2The approach that came to be known as binary economics was first advanced in the
writings of corporate finance attorney, investment banker, and philosopher, Louis Kelso
(see Kelso and Adler, 1958, 1961; Kelso and Hetter, 1967; Kelso and Kelso, 1986,
1991). The authoritative and most complete source of writings by Louis Kelso can be
found on the Web site of the Kelso Institute (available at www.kelsoinstitute.org).

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 181

influenced by the distribution of competitive access to capital acquisition

with the earnings of capital. Third, the binary growth principle (based on
the broader distribution of capital acquisition with the earnings of capital)
requires no government redistribution, taxation, borrowing, command,
or other market intervention. Unlike the growth predicted by Keynesian
analysis (which makes no fundamental distinction between the markets
distribution of income and the redistribution of income), the analysis
supporting binary growth materializes without redistribution, as a direct
result of corporations voluntarily deciding, based on the binary understanding of growth, to operate in a potentially more profitable manner
by including their employees, customers, neighbors, and others in the
process by which they acquire capital with the earnings of capital.
One referees comment on an earlier draft of this paper noted that in
the General Theory, Keynes emphasized that the two outstanding faults
of the economic society in which we live are its failure to provide full
employment and itsarbitrary and inequitable distribution of income and
wealth. The bearing of the foregoing [general] theory on the first is obvious (see Keynes, 1936, p. 372). The binary approach provides a theory
that suggests that the solution tothe second fault identified by Keynes
will also help solve the first fault.
Before setting forth three fundamental principles of binary economics,
it would be well to set forth a number of principles that the binary approach shares with most conventional schools of economics and finance.
Thus, the voluntary, ownership-broadening approach to corporate finance
begins with several widely shared propositions:
1. Corporations seek to employ labor and capital according to their
relative contribution to production.
2. One goal of profit maximization is to produce more with more
productive capital and less labor so that production generally becomes increasingly more capital intensive.
3. Profitable business planning requires investing in capital that
competitively pays for itself (i.e., earns a competitive return for
the financial investment needed to acquire it).
4. A major purpose of corporate finance is to enable corporations to
acquire capital before they have earned the money to pay for it.
5. By way of corporate finance, major corporations and their shareholders grow richer by acquiring capital with the earnings of capital
roughly in proportion to their existing wealth. Notably, by this
process millions of shareholders grow richer even as they sleep.

182 JOURNAL OF POST KEYNESIAN ECONOMICS

6. This process of capital acquisition with the earnings of capital, and

the resultant distribution of capital earnings, is highly concentrated
(Wolf, 1995a, 1995b, 2011).
7. Corporate finance planning is forward looking, it contemplates
three periods: (1) investment today; (2) production tomorrow, and
(3) sales to meet expected demand the day after tomorrow.
8. Demand for capital (and the labor to create and employ it) depends
on expected consumer demand in a future period.
Based on principles of binary economics, the voluntary, ownershipbroadening approach to corporate finance continues with several propositions that may prove controversial because they seemingly defy widely
shared preconceptions regarding the mainstream analysis of production,
distribution, and growth. These propositions are set forth and discussed
below.
Overview of binary economics
Three basic principles of binary economics
Based on the less widely understood binary economic approach to lay
the conceptual foundation for a voluntary, ownership-broadening system
of corporate finance, three additional propositions can be added to the
ones set forth above:
1. Both labor and capital do work.3
2. Although advancing technology may be understood to make labor
more productive, advancing technology may also be understood to
make capital more productive than labor in task after taskthat is,
the capital cost per unit of output decreases more rapidly than the
unit labor cost (which helps to explain why profitable corporations
continually employ capital to replace and vastly supplement the
work of labor).
3. The prospect of a broader distribution of capital acquisition with
the earnings of capital carries with it the prospect of more broadly
3The assertion that capital does work does not negate the fact that both labor and
capital are generally needed to complete specific kinds of work, or the fact that labor
is needed to invent, build, install, operate, maintain, store, repair, manage, and finance
capital. But the labor work involved in inventing, building, creating, installing, operating, maintaining, storing, repairing, managing, and financing capital is not the work
of the capital itself. And in a market system, people would not be compensated for the
labor work needed to employ capital if the employed capital did not do much more
work than the labor work needed to employ it.

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 183

distributed capital earning capacity and earnings in future years,

which in turn will provide the market incentives to profitably employ more labor and capital in earlier years. In other words, the
more broadly capital is acquired with the earnings of capital, the
more an economy will grow. This principle is called the principle
of binary growth.
Productivity and productiveness distinguished
One reason why these propositions may seem controversial to many
people is that beginning with Adam Smith and continuing through John
M. Keynes, to the present day, most people believe that the primary role
of capital in contributing to per capita economic growth is to increase
labor productivity. Consider, for example, the work of sawing boards.
A person can saw 10 boards per hour with a hand saw, and 100 boards
per hour with a machine saw. Working with a machine saw rather than a
hand saw, the worker can saw ten times as many boards in the same time
and therefore has become ten times as productive and has ten times the
productivity. One can also say that capital productivity has also increased
by a factor of ten. But when sawing each board with the machine saw,
the worker is doing much less work. Per unit of production, the work
of the sawyer (i.e., labor productiveness) has decreased and the work
of the saw (i.e., capital productiveness) has increased. And given the
total production done in one hour, the machine saw is doing essentially
all of the extra work. Thus, there is another (binary) way to understand
the primary role of capital in contributing to per capita economic growth:
namely, to do an increasing portion of the total work done.
Thus, binary economics distinguishes between:
1. productivity (which is the ratio of the output of all factors of production, divided by the input of one factor, usually labor), and
2. productiveness (a special focus of binary economics, which
retrospectively means work done and prospectively means
productive capacity).
The productiveness of capital is more clearly revealed in the work
hauling sacks: a person can haul one sack one mile in one hour and is
exhausted; (1) with a horse, 10 sacks can be hauled four times as far
(yielding a fortyfold increase in production), and (2) with a truck, 500
sacks can be hauled forty times as far (yielding a 20,000-fold increase
in production). According to the binary perspective, the horse and truck
do more than increase labor productivity; the horse and truck are doing
essentially all of the extra work.

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Accordingly, per capita growth can be understood as capital increasing labor productivity but can also be understood as capital doing an
ever increasing portion of the total work done and as being capable of
distributing (via property rights) an increasing portion of the income
derived from production.
Binary growth
Another reason why the three binary principles set forth above may be
controversial is that the principle of binary growth is not found in the
works of Adam Smith, Karl Marx, Alfred Marshall, John M. Keynes,
Milton Friedman, John K. Galbraith, Joseph Schumpeter, Robert Solow,
Michael Roemer, Robert Lucas, or any of their followers. According
to the economic approach employed by the aforementioned writers,
whether the distribution of capital acquisition is broader or more narrow
among the people within an economy makes no fundamental difference
with regard to the fuller employment of labor and capital. Thus, the
principle of binary growth advances a distinct cause of economic growth
uniquely premised on the productiveness of capital and the distribution
of capital acquisition with the earnings of capital. This growth principle
is foreign to the analyses advanced by antecedent writers because there
is nothing explicit in those analyses that would logically lead to itjust
as there is nothing in the analyses of the motion of physical bodies prior
to Isaac Newton that would lead to the proposition that force equals mass
times acceleration. To understand a fundamentally new concept, one must
be prepared to accept (at least as hypotheses for consideration) principles
beyond the confines of antecedent analysis even if they conflict with, or
seem superfluous to, that analysis.
Labor productivity growth distinguished
It is important to note that the asserted positive relationship between
the distribution of capital acquisition and growth (i.e., the principle of
binary growth) is not based on the behavioral premise that people will
work more productively if they (1) own more capital, (2) own the land,
tools, and/or businesses they work with, and/or (3) have an ownership
stake in their employers businesses. Such productivity gains are independent of binary growth. Although most binary economists accept this
behavioral premise as true, this behavioral premise (that broader ownership will increase labor productiveness, and therefore cause growth)
is neither unique to binary economics nor inconsistent with the growth
theories of mainstream economics. Rather, the unique binary premise
is that the promise of broader capital acquisition with the earnings of

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 185

capital will, in and of itself, result in the fuller employment of existing

capacity (both labor and capital) and greater growth by increasing the
distribution of capital income among people and thereby increasing their
ability to consume.
Treating labor and capital as independent productive variables
The recognition that by doing work, capital does more than increase labor
productivity has a fundamental impact on the mathematical foundation
of mainstream economics. It requires a mathematical foundation that
treats labor and capital as two independent variablesthat is, each factor
makes a distinct or independent contribution to production. The binary
approach therefore stands in contrast to the mathematical foundation of
the conventional economic approach of Adam Smith who viewed the
productive powers of labor as the fundamental source of production and
capital merely as the means to increase those powers.4
Likewise, the binary approach to fuller employment differs from the
Keynesian approach, which focuses on the short run in which labor is
the only independent productive variable.5
Keyness long run is not analytically different from Smiths. In efficient markets, with competition, the long-run earning capacity of capital
decreases to zero, although it is doing an ever-increasing portion of the
work. Therefore, the distribution of its ownership has no fundamental
bearing on growth. Thus, like Smith, the Keynesian approach does not
treat capital as a second (binary) independent variable in either the short
run or long run. As previously noted, in contrast to Keyness short-run
focus, the binary approach focuses on the long run as well as the short run.
By focusing also on the long run, in which capital is a second independent
4

The annual produce of the land and labor of any nation can be increased in its
value by no other means, but by increasing either the number of its productive labourers, or the productive powers of the number of those labourers who had before
been employed. . . . The productive powers of the same number of labourers cannot
be increased, but in consequence of either some addition and improvement of those
machines and instrument, which facilitate and abridge labour, of a more proper division and distribution of employment (Smith, 1937, p. 326). Based on his labor-only
theory of production and growth, Smith also saw labor as the only fundamental source
of value and therefore prices, with the productive powers of capital and the distribution
of its ownership playing no fundamental role. See footnote 6 and accompanying text.
5 It is preferable to regard labour, including of course, the personal services of the
entrepreneur and his assistants, as the sole factor of production, operating in given
environment of technique, natural resources, capital equipment and effective demand.
This is why we have been able to take labour as the sole physical unit which we require in our economic system, apart from units of money and of time (Keynes, 1936,
pp. 213214).

186 JOURNAL OF POST KEYNESIAN ECONOMICS

productive variable, both doing work and distributing income through

property rights, the binary analysis recognizes that the distribution of
capital acquisition has a dynamic impact in both the short run and long
run on (1) the future distribution of aggregate demand for both consumer
and producer goods, (2) the present demand for the employment of labor
and capital, and (3) the expression of value (by workers and owners) and
consequent prices.
Appreciating the work of capital quantitatively
Although some economists insist that economic analysis is best structured by considering that capital itself does no work but rather merely
facilitates and amplifies the work of labor, others readily concede that
capital does work, pointing, for example, to the increasing employment
of robots. However, it is one thing to recognize qualitatively that capital
does work and quite another to recognize quantitatively (even if only in
approximate or heuristic terms) how much work capital does (and how
much more income it could distribute if it were more widely acquired
and therefore more fully employed) in a present-day, high-technology
economy and eventually in a highly robotic economy.
Notably, even Adam Smith recognized the productive power of nonhuman agents in agriculture where the work of the farmer is assisted
at every turn by nature: sun, rain, and soil convert seed to edible fruits
and vegetables; and farm animals convert vegetation to milk and meat.
But considering his scant mention of the work of agricultural capital,
he apparently did not see it doing a great deal of the work compared to
labor. Moreover, having seen only rudimentary steam engines, and never
having seen the immense growth in farm, factory, and other capitalintensive production witnessed by Karl Marx seventy-five years later,
Smith declared in manufactures . . . nature does nothing; man does it
all (Smith, 1937, pp. 344345).
Contemporary ecological understanding reveals the anthropocentric
flaw in this aspect of Smiths analysis. No more in manufacturing than
in farming, can it be accurately said that man does it all. The energies of sun, wind, water, oil, coal, and many other natural resources
contribute immensely more to production than the work of humans not
only in agriculture but in all economic activity. Likewise, advancing
technology not only makes labor more productive, it continually makes
capital assets much more productive than labor in task after task, thereby
enabling the owners of capital to employ capital and labor to both replace
and vastly supplement the work of labor not only by doing much more,

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 187

more quickly, and more cheaply the kind of work previously done by
labor, but also by doing vastly more kinds of work than labor (working
either alone or with less productive capital) can ever do. Nevertheless,
as explained more fully below, even among those present-day economists who recognize that capital is doing ever more of the work, the full
potential of capital to distribute demand as its ownership is broadened
goes largely unrecognized today even when aided by the analysis of J.M.
Keynes and his followers.
The six powers of capital
To appreciate more fully how capital contributes to per capita growth
in ways beyond the causal effect of mere increases in labor productivity, it is helpful to consider some productive powers of capital and the
implications that flow from them. Based on its binary productiveness as
an independent variable, capital has six powers important to production,
distribution, and growth. Capital can:
1. replace labor (by doing what was formerly done by labor);
2. vastly supplement the work of labor by doing much more of the
kind of work that humans can do;
3. do work that labor alone can never do (e.g., elevators lift tons
hundreds of feet in seconds; airplanes [and drones] fly; scientific
instruments unleash forces that create computer chips that cannot
be made by hand; chickens lay eggs and fruit trees make fruit while
all farmers can do is assist in the process);
4. work without labor (as in the case of washing machines, automatic
bank tellers, gasoline dispensers, vending machines, automated
factories, all forms of robotics, and fruit-bearing trees);
5. pay for itself with its future earnings (the basic rule of business
investment); and
6. distribute income roughly equal to the value of its output.
The first four powers concern what might be considered the real
economy powers of capital; the latter two are powers that are most
clearly revealed in a private property, market economy with a stable
credit system protected by a reliable legal system.
The work of capital vastly supplements the work of labor
From the foregoing consideration of the six identified powers of capital,
it follows that characterizing the per capita growth impact of increasingly
capital-intensive production as the result of the substitution of capital for

188 JOURNAL OF POST KEYNESIAN ECONOMICS

labor is a fundamental misconception (just as is characterizing that per

capita growth as the result of increasing labor productivity. In considering
the accumulating wealth of nations that Smith was trying to explain in 1776,
and in explaining the far greater accumulation of wealth that has continued
to the present day, the work of capital has done (and continues to do) far
more than substitute for the work of labor. In reality, the work of capital not
only substitutes for, but also vastly supplements, the work of labor.
Production (work) is income
It is no less true on an economy of billions of people, than on Robinson
Crusoes island, that work (i.e., production) is income. But work is done by
both people and things; and capital works on both sides of the production
consumption economic equation by providing vastly increased:
1. productive capacity and production, and
2. capacity to distribute income and leisure.
Thus, in a communist society in which capital is owned by the state,
the income from capital is also owned by the state; and it can be distributed to people through wages and state-provided benefits. In a private
property economy, capital income legally belongs to its owners except
to the extent it is taxed or outlawed.
According to binary economics, in a private property, market economy,
it is the capacity of capital both to do much more work and to distribute
much more income and leisure that helps to explain how broadening
capital acquisition with the earnings of capital promotes much greater
employment of existing capacity (both labor and capital), capital accumulation, and growth than would result from merely redistributing a portion
of the earning capacity of capital that is formed if it is more narrowly
acquired. Accordingly, if an important cause of recessions and anemic
growth is related to the future distribution of earnings among the people
expected to purchase what could be produced by labor and capital if fully
employed at full potential, then private and public market structures and
strategies for increasing the earnings of poor and middle-class people
should not limit those people, as a practical matter, to labor earnings
and a redistribution of a portion of the earnings of capital based on its
earning capacity when more narrowly acquired. Rather such structures
and strategies should include those people as a practical matter in the
competitive opportunity to acquire capital (which is increasingly more
productive than labor in task after task) with the earnings of capital and
thereby distribute to those people with far greater individual earning
capacity and far greater aggregate demand.

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 189

Two theories of production and growth

Since Adam Smith first published his inquiry regarding the accumulating wealth of nations, when analyzing how production and productive
capacity have grown since the first publication of Smiths Wealth of
Nations in 1776, conventional market economics interprets the role of
capital as primarily facilitative: capital increases labor productivity,
thereby allowing for a rise in output per unit of labor, the employment
of more labor, the payment of higher wages, the distribution of more
demand, and the investment in more capital, which in a virtuous cycle
of growth would promote more of the same. In analyzing this hoped-for
virtuous long-term cycle of growth, the ability of capital to do work and
distribute income (through property rights) is not identified as a distinct
cause of growth.
According to binary economics, however, in contributing to economic
growth, capital does much more than increase the productivity of the people
who work with it. Increasingly capital is doing both ever more and an increasing portion of the work, and therefore, absent redistribution and institutional
restraints on its broader acquisition, would be distributing an increasing
portion of the income. Per unit of output, a major economic incentive is
generally to produce more with more productive capital and less labor. And
as capital does ever more of the work, the recognition of its increasing ability to do work (its productive capacity) and distribute the income it earns
or could earn if more broadly acquired (its distributive capacity) becomes
increasingly important to achieving a virtuous cycle of growth.
In comprehending growth, the difference between the productivity approach
and the productiveness approach can be illustrated by Figure 1a and Figure 1b,
which depict growth as a function of technological advance over time.
Figure 1a, depicting the productivity view, shows both labor and capital
productivity growing in a relatively constant ratio relative to each other
based on the relatively stable (though in recent years, declining) ratio of
labor/capital factor shares of total income in the United States. Figure 1b,
depicting the binary view, shows labor productiveness remaining roughly
constant while capital productiveness increases significantly, thereby accounting for a growing ratio of total production.
Obviously, if income is pay for production, it cannot be simultaneously true that:
1. capital is doing most of the work,
2. labor is earning most of the income, and
3. markets are efficiently pricing the value of labor and capital contributions to production.

190 JOURNAL OF POST KEYNESIAN ECONOMICS

Figure 1 Economic growth

(a) The productivity view of the laborcapital relationship
30 percent
capital

productivity
Total
growth

70 percent labor
productivity

Technological advance over time

(b) The productiveness view of the laborcapital relationship

Labor productiveness
remains fairly constant
but contributes a
declining percentage
of total productiveness
Total
growth

Capital productiveness
grows and contributes a
growing percentage of
total productiveness

Technological advance over time

Productiveness, efficiency, and neoclassical growth theory

Each of the six powers of capital set forth above, when actually reflected
in production, contributes to growth (including mere labor replacement,
which produces the same physical output, plus leisure, or unemployment
and/or welfare dependence, depending in large part on who acquires the
capital), but only the first power directly involves the mere substitution
of capital for labor. The productive power of capital to vastly supplement
the work of labor and thereby increase the income of its owners (and to
a lesser extent the labor income of some of those employed) occasions a
growth that is not the result of efficient resource and labor employment
allocations at the margin of some hypothetical equilibrium that (in the

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 191

context of technological advance) never materializes. Thus, although

many economists and policy advocates use the marginal efficiency theory
of neoclassical economics as the foundation for (or the primary component of) a general theory of growth, the capital/labor substitution process
is only one component of growth; and from the binary perspective, the
wealth enhancing contribution of market pricing and resource allocation is severely limited so long as the distribution of capital acquisition
remains narrow (see the next section). Although productivity ratios, and
the prices associated with them, may be helpful theoretically and practically in guiding market participants regarding the relative employment
of capital and labor, their role in determining the distribution of income
from production and in producing and distributing demand for growth is
not well specified by the neoclassical analysis that supports the wealth
maximization promised by allocational efficiency.
Productiveness, values, prices, and market efficiency
The binary approach offers a new perspective on the impact of the broader
distribution of capital acquisition on value, price, and market efficiency.
In an assumed efficient market in which labor is assumed to be the only
independent productive variable, most consumer goods and services will
be worth the work people are willing to do by their labor to acquire them.
This expression of the basic connection between prices and the payment
needed to employ labor is (1) how Adam Smith and John Maynard Keynes
saw it, (2) the foundation of price theory,6 (3) the foundation for the argument that given the limits of production possibility, an efficient allocation
of resources maximizes the size of the pie, and (4) in an economy in
6 The real value of all the different component parts of price, it must be observed, is measured by the quantity of labour which they can, each of them purchase or command. Labour measures the value not only of that part of the price
which resolves itself into labour, but of that which resolves itself into rent, and of
that which resolves itself into profit ( Smith, 1937, p . 50).
The real price of every thing, what every thing really costs to the man who
wants to acquire it, is the toil and trouble of acquiring it (ibid., p. 30).
The value of any commodity, therefore, to the person who possesses it, and
who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labor which it enables him to purchase or
command.
The value of wealth . . . to those who possess it, and who want to exchange it for
new productions, is precisely equal to the labor it can enable them to purchase or
command (ibid., pp. 3031).
Labour, therefore, it appears evidently, is the only universal, as well as the only
accurate measure of value, or the only standard by which we can compare the values of different commodities at all times and at all places (ibid., p. 36).

192 JOURNAL OF POST KEYNESIAN ECONOMICS

which capital ownership is highly concentrated so that the vast majority

of people earn almost entirely from their labor, the theoretical basis for the
consequential empirical measure of (a) the price of labor, capital, and all
goods and services, and (b) the factor shares of aggregate income.
However, the willingness of people to work at a given wage depends
on their competitive opportunity to acquire capital with its earnings and
then to receive its full net return (Ashford, 2011a, 2011b).
In an economy in which capital acquisition is much more broadly distributed, the value of goods and services is not limited to the work people
are willing and able to do by way of their labor, but also includes the work
they are willing and able to employ their capital to do. Without a horse,
few sacks are worth hauling before the hauler becomes exhausted. With
a horse, many more sacks are worth hauling; and the economy of sack
hauling will grow as horse (and truck) ownership becomes more broadly
distributed. Expanding this single-product economic model to include
all the goods and services (which per unit over time are produced with
ever more productive capital and less labor) does not alter the analysis.
Any economy will grow with a broader distribution of capital acquisition because people can express value not only by the work they do but
also by the work they employ their capital to do. Moreover, the broader
distribution of capital income will produce not only a greater but also a
different distribution of demand.
Thus, from a binary perspective, (1) the technical relationship used
in marginal productivity analysis regarding the relative employment
of capital and labor in production; and (2) the factor income shares
derived from production are significantly dependent on the distribution
of the opportunity to acquire capital with the earnings of capital. From
a conventional economic perspective, in terms of its impact on prices,
capital/labor substitution, employment, and factor income shares, the
market distribution of capital acquisition is either irrelevant or of only
minor consequence.
Competitive market prices require (1) no barriers to entry, (2) voluntary
(rather than coerced) exchange, and (3) no monopolization of the means
of production. The recognition that (1) labor and capital both do work,
(2) capital is increasingly more productive than labor in performing task
after task, (3) capital can increasingly repay its acquisition cost with its
future earnings, reveals (1) not only how the distribution of its ownership and future income can become progressively more concentrated,
(2) but also how (with a system of corporate finance that promotes
capital acquisition with the earnings of capital primarily in proportion

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 193

of existing wealth) wealth will become progressively more concentrated

(absent redistribution). Thus, (1) presently there are prevailing, largely
unexamined, conceptual and institutional impediments to a voluntary
ownership-broadening system of corporate finance that would enable
market participants to price the value of broadening capital ownership,
and (2) these impediments must be identified and removed before (a)
the presumed theoretical, allocational benefits of efficient pricing can
be fully realized, and (b) available labor and capital can be employed
at its full potential.
Policy implications of binary economic analysis
Mainstream and binary strategies compared
The mainstream strategy for promoting economic recovery is a composite mainstream left- and right-wing mix of government policies to
promote (1) capital acquisition with the earnings of capital primarily
for corporations and well-capitalized persons (generally in proportion
to their existing wealth), and (2) primarily jobs (but by no means the
best or highest paying jobs) and various forms of welfare redistribution
for poor and middle-class people. If the binary analysis has validity,
then in a market economy in which production is becoming ever more
capital intensive, sufficient earning capacity to purchase all that can be
produced cannot be distributed by jobs and welfare alone. The missing
element in these strategies (that could easily be added without extra
cost to anyone) is an understanding of the need to open the existing
system of corporate finance to provide poor and middle-class people
with practical, competitive access to the same institutions of corporate
finance, banking, insurance, loans and guaranties, and favorable tax
and monetary policy (presently routinely provided to corporations and
people to acquire capital with the earnings of capital primarily in proportion to their existing wealth) so that poor and middle-class people
can also enhance their earning capacity by way of capital acquisition
with the earnings of capital but in proportions not limited by their existing wealth. Major creditworthy companies are uniquely positioned
to provide this access in a profitable way.
Their incentives for doing so in the aggregate are discussed in the subsections below. Their incentives for doing so on the microeconomic level
and the related first-actor-collective-action impediments are discussed
in the next section under that heading.

194 JOURNAL OF POST KEYNESIAN ECONOMICS

Private implementation of ownership-broadening corporate finance

To understand, first on the aggregate level, how ownership-broadening
corporate finance7 might be in the interest of major corporations and their
shareholders, consider the largest 3,000 or so creditworthy corporations in
the United States, which own more than 90 percent of the nations investable capital.8
At diminishing unit costs, most of these corporations could profitably
produce much more of the goods and services that people would purchase
if they had the earnings to do so. Presently, almost all capital acquired
by these corporations is acquired with the earnings of capital, and much
of it is acquired with borrowed money.9
At the same time, the ownership of this corporate wealth is highly
concentrated: Approximately 1 percent of the people own 4050 percent
of the wealth and 10 percent own 90 percent of the wealth, leaving 90
percent owning little or none (see Wolff, 1995a, 1995b, 2011). Thus,
capital returns its value at a rate reflective of its long-term (suppressed)
earning capacity as it pays for its acquisition cost primarily for a small
minority of the population.
Because present demand for the employment of labor and capital is
dependent on demand for consumer goods in a future period, a voluntary pattern of steadily broadening capital acquisition promises more
production-based consumer demand in future years and therefore more
demand for a fuller employment of labor and capital in earlier years. Thus,
if the techniques of corporate finance were opened competitively to all
people, then the present demand for capital investment and employment
would increase in anticipation of the broadening distribution of capital
income to poor and middle-class people with unsatisfied consumer needs
and wants. Accordingly, a broader distribution of capital acquisition and
income strengthens the promise of capital to pay for itself with its future
earnings, makes profitable the employment of more capital and labor, and
7 For a fuller description, see Ashford (1996, 2010); Ashford, Ashford, and Hall
(2011, 638651); Ashford and Shakespeare (1999, pp. 236272). For an analysis
of the impact of binary financing in standard micro- and macroeconomic terms, see
Ashford and Kantarelis (2008).
8 Source: Russell Investment, Russell U.S. Indexes, www.russell.com/Indexes/data/
US_Equity/Russell_US_equity_indexes.asp.
9 During the fifteen-year period from 1989 through 2003, in the case of major
American companies, the sources of funds for capital acquisition, in approximate
terms, reveal that annually retained earnings accounted for at least 70 percent and
more usually 80 percent of the capital acquisition. Borrowing accounted for almost all
of the rest. Sale of stock as a source of funds never exceeded 5 percent and was negative in most years (see Brealey et al., ch. 14, pp. 561563).

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 195

enhances the prospects of sustainable economic recovery and enhanced

growth. It will also therefore increase the market value of well-run corporations and their shareholders within the growing economy.
Corporate fiduciary duties
The primary duty of corporate fiduciaries is to not to maximize share
price at every moment in time (sometimes referred to as short-termism),
but to develop relatively long-term business plans to maximize corporate
wealth and thereby to enhance shareholder wealth.10
In good economic times, and even in periods of sluggish growth or recessions, many if not most, major corporations have capital acquisition plans
that they might finance with (1) retained earnings (which might otherwise
be distributed as dividends to shareholders), (2) borrowed money, and/or
(3) sale of shares; and directors are duty-bound to choose the method that
optimizes corporate wealth. Any creditworthy capital acquisition plan can
usually be financed with borrowed money, but using retained earnings or
selling shares might often better serve corporations and their shareholders.
Given synergistic potential between a corporation and would-be shareholders, it might be in a corporations interest to forgo the use of retained earnings and borrowed funds and instead raise the necessary funds for capital
acquisition by selling shares to investors, for example, to Warren Buffet
or Bill Gates. To purchase such shares, if Warren and Bill prefer not to
liquidate existing holdings, they might borrow the money to purchase the
shares; and in light of their net worth, they are in a position to do so. The
share-selling corporation would not care if the source of cash is borrowed
money rather than the purchasers own assets. The lender would normally
insist that the shares be pledged as security until the loan is repaid and
would normally insist on additional security from the borrower usually in
the form of the borrowers assets (collateral). But the additional security
need not be assets of the wealthy borrower, but rather could be supplied
in the form of capital credit insurance11 (payable to the lender in the event
10 See, for example, Paramount Communications v. QVC. Network, Inc., 637 A. 2d
34 (Delaware Supreme Court 1994).
11 Although perhaps less familiar to some readers than other institutions that facilitate corporate finance, capital credit insurance has been available for centuries. Lloyds
of London and AIG are well-known examples. And while the AIG debacle is certain
evidence that capital credit insurance can be abused and corrupted, few people familiar with the benefits of commerce are suggesting that the institution should be abolished. To the contrary, the government of the United States has taken steps to preserve
and fortify that institution for the benefit of those who routinely participate in capital
acquisition with the earnings of capital even as they sleep. In light of the beneficial
impact of ownership-broadening capital acquisition, that benefit should also be routinely extended to poor and middle-class people.

196 JOURNAL OF POST KEYNESIAN ECONOMICS

of default) with insurance premiums paid either directly by the borrower

or by the lender with the cost passed to the borrower via a higher interest
rate. The binary approach provides an understanding of how poor and
middle-class people can also obtain such insurance.
Using existing private institutions
To acquire capital with the earnings of capital, well-capitalized corporations and people use:
1. the earnings of capital;
2. collateral;
3. nonrecourse corporate credit; and
4. market and insurance mechanisms to diversify and reduce risk.
They also benefit from a proactive government role in protecting
individual freedom and property rights, and maintaining public goods
including physical, financial, and monetary infrastructure.
The same institutions that can work profitably for well-capitalized
corporations and people can also work profitably as poor and middleclass people are included in the capital acquisition process. Moreover, in
an economy operating at less than full capacity, the principle of binary
growth indicates that if capital can competitively pay for its acquisition
costs out of its future earnings primarily for existing owners, it can do
so even more profitably if all people are included in the capital acquisition process.
Just as investment trustees can act for Warren and/or Bill, so they can
also act for poor and middle-class people. If poor and middle-class people,
represented by qualified trustees, are able to compete with existing owners
for the acquisition of corporate shares representing the capital requirements of creditworthy companies, they would bring to the bargaining
table corporate wealth-enhancing opportunities that well-capitalized
people generally cannot offer (namely, a pent-up appetite to purchase
the necessities and simple luxuries of life that richer people have long
enjoyed from capital income). After the acquisition debt obligations are
repaid with the dividends on the binary stock, the distributed earnings
of capital acquired by members of poor and middle-class people will
create more production-based consumer demand than if that capital had
been acquired by richer people. More of the capital earnings, if acquired
by richer people, would be invested in investment opportunities, but the
investment opportunities would not be as great in the context of a narrower distribution of capital ownership and a consequential relatively
weaker consumer demand.

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 197

Figure 2 Projecting binary growth

100%
75%

80%

80%

83.4% 85.7%

88.7% 89.9% 90%

66.7%
60%

Percentage of annual capital acquisitions

fully paid and distributing income to owners

50%

40%
20%
0%
0%
0

0%
7

14

21

28

35

42

49

56

63

70

Broader distribution without redistribution

Lest one confuse the binary approach with the Keynesian approach, it
should be noted that if one or more of the corporations decided to sell
shares to Warren rather than Bill as the most competitive offer (i.e.,
most consistent with corporate wealth-maximizing goals), Bill could
not complain that the transaction was a redistribution. Likewise, nor
could Warren, Bill, or any other investors complain of redistribution if
the directors determined that the sale of shares to trustees for the benefit
of the binary beneficiaries is the most competitive offer.
Figure 2 illustrates the aggregate growth-sustaining feature of an
ownership-broadening economy. Based on the assumptions specified below,
Figure 2 shows the number of years of annual ownership-broadening acquisitions that will have paid for themselves over time. Figure 2 assumes:
1. a seven-year cost recovery period for capital investment;
2. in every year after the implementation of the binary economy,
some number, N, of an economys creditworthy companies have
profitably utilized binary financing to acquire some percentage, X,
of their capital investments;
3. the capital credit insurance is profitably priced to repay the lending
banks for those financings that fail to repay their acquisition loans
so that X is net of those failures; and

198 JOURNAL OF POST KEYNESIAN ECONOMICS

4. N, X, and the rate of return on capital remain constant throughout

the period.
Although beginning slowly, the broadening distribution of capital
acquisition and income will increase steadily and thereby provide the
basis for binary growth. Each year after the initial cost recovery period,
an addition year of binary capital will have paid for itself and will be
distributing capital income to poor and working people. Consistent with
the conservative assumption of a seven-year capital cost recovery period,
Figure 2 shows the steady growth in fully paid-for annual capital acquisitions. In the eighth year, the first annual acquisition of capital will have
paid for itself and will begin paying its full return to the new owners. In
the ninth year, the second annual capital acquisition will be fully paid
for and will therefore begin paying its full return to the new owners. In
fourteen years, 50 percent, and in the twenty-eighth year 75 percent, of
the annual capital acquisitions will have paid for themselves, and will
begin paying their full annual return to the new owners, and so on. In
the long run, the linkage between supply (in the form of the incremental
productiveness of capital) and demand (resulting from the increasing
widespread market distribution of capital income to consumers) approaches 100 percent. The more binary financing that is undertaken,
the greater are the distributional growth effects. If the rate of return on
capital investment increases (as binary principles predict would occur
in an ownership-broadening economy) then the curve shown in Figure 2
would rise more steeply and approach the specified percentages sooner
in time.
Maintaining market share in a growing economy
To maintain market share in the projected growing economy, based on
their capital investment planning horizon, producers will have to increase
production and productive capacity before binary income begins to be
distributed to its new owners. Because present demand for capital goods
is positively affected by anticipated future demand for consumer goods,
the broader distribution of capital acquisition and capital income should
be reflected in increased employment of labor and capital within producers capital investment planning horizon. With a capital cost recovery
period of seven years, and a capital investment planning horizon of five
years, market incentives for increased capital investment by producers of
consumer goods might materialize for some producers in the third year.
Furthermore, the producers of capital goods needed by the producers of
consumer goods to increase their productive capacity may experience

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 199

market incentives for increased capital spending and labor employment

as early as the first year.
Some additional effects
Some additional effects of broader capital acquisition (logically flowing
from the binary principles) that offer a reasonable expectation to enhance
the prospects of sustainable economic recovery and growth, and that may be
immediately reflected in light of the prospects of a binary economy, are:
1. Reduction in welfare dependence and welfare expense: As capital
income is more broadly distributed to welfare-dependent people,
government transfer payments can be reduced, thereby providing
a basis for lower general tax rates.
2. Increase in government revenues and reduction in tax rates: As
capital income is more broadly distributed to individual taxpayers, they will pay more in taxes, thereby increasing government
revenues and providing a basis for lower general tax rates.
3. Tax benefits for participating corporations: Participating corporations whose shares (1) provide binary beneficiaries with additional
taxable income, or (2) allow for a reduction in welfare payments,
may receive a tax deduction representing some portion of the increased government revenues and/or reduced government spending
occasioned by the earnings distributed to binary beneficiaries as
dividends on the binary stock of the participating corporations.
4. With enhanced corporate profitability, wealth, and share-value, and
with lower need for government spending, private and governmentsponsored retirement security will be enhanced.
5. Enhanced sovereign credit ratings: The binary projections portend
a beneficial impact on widely shared concerns regarding creditworthiness of a number of nations based on their perceived inability to
repay their sovereign debt. This concern is based on troublesome
financial indicators reflected both in present data and trends projected over the terms of government bonds, which frequently span
ten or more years. The troublesome financial indicators include
relevant ratios among (1) government revenues, (2) government
debt, (3) government expenditures, and (4) gross domestic product.
Other national statistics bearing on these indicators include trends
in (1) corporate profits and balance sheets, (2) the value of publicly
traded equity, (3) employment, and (4) personal income, savings,
and debt. In light of binary principles, based on the sustained effect of ownership-broadening financing on these indicators and

200 JOURNAL OF POST KEYNESIAN ECONOMICS

statistics, the creditworthiness of the sovereign debt of countries

that employ the binary approach will increase.
6. Greener growth: Although binary growth may raise environmental
concerns, emergence of a competitive ownership-broadening alternative and the resultant broader distribution of capital income will
make greener technologies (presently unutilized and underutilized)
more affordable to those consumers who would prefer them and
more easily financed.
Thus, with a widely shared understanding of the binary growth that
would logically follow from a broader distribution of capital acquisition
with the earnings of capital, the trends of all of the factors set forth above
used to evaluate the economic projections, growth potential, and the creditworthiness of individuals, corporations, and nations would be positively
affected. With the binary understanding, people and their governments
would have a blueprint for the binary market reforms that would improve
projections made by proponents of austerity and stimulus; market participants would have an enhanced confidence and optimism regarding the
creditworthiness of sovereign debt and the future of the global economy;
the sustained effect of ownership-broadening financing set forth above will
make both austerity and stimulus measures more affordable and more easily harmonized politically to the extent deemed desirable; and the market
effect resulting from that understanding would be immediate.
The first-actor-collective-action problem
However, even under such conditions, a first-actor-collective-action problem would remain that inhibits ownership-broadening binary financing
because there is no guarantee (and good reason to doubt) that such projected
aggregate benefits from ownership-broadening capital acquisition would be
enjoyed proportionally by participating corporations whose more broadly
distributed shares gave rise to the more broadly distributed income. For
example, if General Motors were to encapitalize its employees, customers, and neighbors, those beneficiaries would likely spend much of their
enhanced earnings at least initially on immediate needs of food, clothing,
shelter, and so on, and to the extent they use it to purchase automobiles,
they might purchase cars made by competitors. Moreover, although there
is an optimistic logic to the prediction that binary growth would in the
aggregate be greener growth (because greener technologies will be more
affordable and more easily financed, many poor and middle-class people
may prefer to spend their enhanced capital income on brown rather than

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 201

greener products and services. Nevertheless, as explained below, there is

reason to believe that with cooperative planning among major corporations and with government leadership, both of these problems may be
effectively addressed.
The collective-action problem would be somewhat mitigated by the
encapitalization of customers in proportion to their patronage of the goods
and services produced by the participating corporation.12 It would also be
mitigated by any tax benefits given to participating corporations whose
dividends on binary shares yield increased government tax revenues
and reduced welfare payments. It would also be mitigated in company
towns and city neighborhoods in which the greater wealth of neighbor
residents of the participating corporations result in benefits to the participating corporations such as (1) lower property and/or other local tax
rates, (2) improved neighborhoods, schools, and hiring conditions, and
(3) lower crime and insurance rates. There would also be a mitigating
direct benefit resulting from the good will that might be engendered from
the public toward corporations willing to broaden their share ownership
by way of the ownership-broadening trusts.
But the collective-action problem would not be wholly eliminated by
these mitigating effects. Even if the binary approach were widely understood and accepted as theoretically beneficial in the aggregate, it is therefore
reasonable to assume that it would not be voluntarily instituted by many
corporations until there is sufficient support on the part of other market
participants committed to its implementation. This critical support would
include (1) sufficient participation in binary financing by the producers
of food, clothing, shelter, health care, transportation, communication, entertainment, and other goods and services that poor and working people
would purchase more of if they had the earning capacity to do so, and (2)
sufficient support on the part of investors in those producers.
Nevertheless, this collective action problem is not a prisoners dilemma
in which the actors decisions are kept from one another. To the contrary,
if the binary analysis is accepted and deemed a desirable approach to
corporate finance in the aggregate as described above (which is admittedly
unlikely to occur until economists begin teaching it), then the expected
benefits are greater as the approach is more broadly understood and
implemented in a coordinated fashion. If the principle of binary growth
is valid, then it would seem that most market participants would benefit
12 Somewhat like many frequent-flier programs, customers who have a continuing
relationship with corporations like energy utilities, telephone companies, Internet and
entertainment access companies, airlines, major retailers, and banks can be paid dividends in the form of credits against future purchases.

202 JOURNAL OF POST KEYNESIAN ECONOMICS

from its widespread implementation; and it would be in their rational interest to promote coordinated implementation. No major high-technology
economy is without trade and business associations that regularly meet,
plan, lobby, and act in concert to improve the business climate for their
profit-seeking activities.
Government policy
The basic logic underlying the benefits that seemingly flow from voluntary
ownership-broadening binary financing springs from the confluence of (1)
the three basic principles of binary economics, (2) other commonly shared
principles of finance, (3) the corporate wealth-maximizing duties of corporate
fiduciaries, and (4) the enlightened self-interest of investors. Nevertheless,
to facilitate the benefits of broadening the distribution of capital acquisition
with the earnings of capital, several government actions would likely be
practically necessary and several others would seemingly be desirable.
The most notable facilitative government action would be to eliminate
the corporate tax on corporate income paid to the ownership-broadening
trusts to enable them to repay the lender and to pay dividends to binary
beneficiaries. This tax relief can be wholly justified on grounds of both
economics and justice. Because the corporations have no use of the income that it passes on to the trustees, there is no reason to tax it on the
corporate level. Moreover, taxing that corporate income would severely
retard the repayment of the acquisition debt and reduce the enhanced
earning capacity of the beneficiaries, which is precisely the economic
impetus for the benefits outlined above. It is also noteworthy that there
are many ways that existing owners receive access to the pretax (untaxed) earnings of capital by way of investment tax credits, deductions
for research and development, depreciation (often accelerated), offshore
(usually capital) income, executive compensation, and other strategies
for zeroing out corporate income. These provide substantial benefits
largely in proportion to existing wealth. These many ways provide little
or no benefit to people with little or no capital ownership. Taxing the
corporate income that would deny poor and middle-class people access
to the first round of pretax capital acquisition with the earnings of
capital and thereby would have the effect of perpetuating this severe
disparity in the economic opportunity to acquire capital with the earnings of capital.
Moreover, as with any government-facilitated program to extend opportunity to people, eligibility and antidiscrimination rules for determining
beneficiary participation would be needed. Likewise, rules governing
the qualification and duties of binary trustees, lenders, and capital credit

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 203

insurers would be needed, as they are for other special types of fiduciary,
credit, and insurance providers.
Beyond such actions, the government could take an active role with
respect to the collective action and environmental sustainability issues.
First, dividends might be paid in the form of special script usable only
for the goods and services of qualified producers. Once so used, the script
could then be exchanged by participating corporations for general currency or bank credit. Second, to facilitate the availability and reduce the
cost of private capital credit insurance, the government might establish a
national ownership-broadening capital credit reinsurance entity modeled
after the FHA home loan reinsurance program (which might or might
not be backed by the full faith and credit of the government). Third,
legislation could authorize the constituency trust to trade and thereby
diversify the investments of binary beneficiaries so as to diversify their
share ownership. Fourth to bring down the cost of credit for ownershipbroadening financing, a nations central bank might monetize ownershipbroadening loans until they are retired.13 To benefit from the advantages
of government reinsurance and monetization, qualified binary financing
might be restricted to the economic basics (the essential needs) such as
food, clothing, shelter, health care, education, and energy) and restrictions might also be based on ecological concerns.
Conclusion
By focusing on the long run as well as the short run, the ownership-broadening binary approach offers an alternative path to fuller employment
of labor and capital beyond, and yet complementary to, those suggested
by the polarized austerity-stimulus debates. It is based on an economic
understanding of growth built on the premises that capital (1) does work
and distributes income, (2) is doing ever much more of the work and
could produce and distribute more broadly ever much more income as
more people are enabled to acquire it with its earnings, and (3) if broadly
acquired, will thereby promote a fuller employment of labor and capital
over the short run and the long run than an identical economy in which
the market participants are exposed only to a classical, neoclassical, and
Keynesian understanding of growth.
In reading an earlier draft of this paper, one referees comment raised the
question of whether the same benefits promised by the binary approach
13For a description of the financial and economic aspect of central bank monetization of ownership broadening financing, see the authorities set forth in note 7.

204 JOURNAL OF POST KEYNESIAN ECONOMICS

might be achieved via stimulus, redistribution, tax policy, and other

Keynesian measures to increase aggregate demand without broadening
capital acquisition with the earnings of capital. Such a question assumes
the two approaches are competitive or in some sense mutually exclusive. Yet, when one considers that the binary approach (1) is voluntary
and involves no taxation or government intervention, (2) addresses the
problem of aggregate demand not only in the short run but also in the
long run, and (3) works to benefit people not only with greater demand
for employment but also with access to property rights in capital income
(usually more stable than labor rights to income), it seems more likely
that the binary impact on fuller employment will be complementary to
benefits derived from Keynesian policies. Moreover, if capital is capable
of doing ever more of the work and distributing ever more of the income,
then the Keynesian logic that (1) suggests that fuller employment effects
and distributive benefits to poor and middle-class people will result from
redistributing only a portion of the income of capital (2) also suggests
that those effects and benefits will likely be even greater if an increasing
portion of the income of more broadly distributed capital acquisition is
added over the short run and the long run to the short-run expected aggregate Keynesian increase in demand.
In justifying his focus on the short-run it is true that Keynes said in the
long run we are all dead. However, his proposition is not true. In the long
run (the period in which capital investment is variable), the vast majority
of people are still alive and in need of income not only from labor, but
from capital. The people include babies, preschool children, students (every
generation of which graduates deeper in debt), young adults, people in their
thirties, forties, fifties, and sixties (far too many deeply in debt and struggling to make ends meet on jobs and welfare alone), ever more expected
to live into their seventies, eighties, and beyond, then mostly unable to
earn from labor but certainly able to earn from their capital if enabled to
acquire it with the earnings of capital. Thus the economic well-being of
virtually all people includes a strategic market relationship to the longrun in which capital can acquire capital with the earnings of capital and
thereafter distribute capital income to its owners.
On the subject of the long term, another referees comment read astutely
as follows: Clearly in a fully robotic economysimilar to the one depicted by Woody Allen in his movie Sleepers in which all work is done
by robotsthe question is then how to distribute the income produced
by these robots to the general public. The binary answer is: through the
private property system, (using the same institutions that enrich people
presently primarily in proportion to their existing wealth) but aided by

BEYOND AUSTERITY AND STIMULUS: DEMOCRATIZING CAPITAL ACQUISITION 205

a long-run theory of growth that holds that the prospect of more broadly
distributed capital earnings in future years provides incentives to profitably employ more labor and capital in earlier years.
Economists certainly perform an important social purpose when they
advocate conscientiously in the public interest; but they also have an important role in teaching people what other approaches are available so that
people can decide for themselves what economic policies they prefer and
what representatives they might elect to serve their interests.
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