Using Christian Principles to Enhance Economic Theory and Practice

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  • 1. Grace Trumps Karma and the Law: God’s Covenant of Grace distinguishes Christianity
    from the Law of Judaism (eye for an eye and tooth for a tooth) and from the Karma principle of
    Buddhism (what goes around comes around). From the Christian point of view, Grace trumps both
    Karma and the retributive Judgment of the Law. An important aspect of Grace is that it is a generous
    gift reflecting God’s love and mercy; Grace is not a product of human effort.
    2. God Is the Source of All Good: Jesus teaches that the source of all human good comes
    from God. Human will produces good only when consistent with God’s will. The sun, the rain, earth,
    plants, and animals (and not human labor) are the fundamental source of production and growth; humans
    make their contributions to production but primarily by unleashing and guiding the far greater lifesustaining
    powers that God has bestowed in nature.
    3. God Promises Abundance: Christianity holds that God’s love and will for people is
    revealed in the principle of abundance. In the material world, the abundance was manifested in the
    Garden of Eden but was lost by human disobedience to God’s will in the exercise of human free will.
    Economic deprivations, injustices and other evils are not a failure in God’s power or will, but the result
    of human free will that deviates from God’s perfect will. Nevertheless based on God’s Grace, Jesus
    teaches, seek first the Kingdom of Heaven, and all needs will be met.
    4. God’s Will Is Inclusive: God made the sun to shine and the rain to fall on the good
    and bad alike. Likewise, trees and plants produce oxygen, food, and medicines, and animals produce
    food and medicine and do other work, for the good and bad alike.
    5. Inclusion Yields Abundance: When Jesus shared bread and fish with thousands,
    there was more (not less) remaining after everyone was invited to participate in the meal. Inclusive
    participation in God’s material creation yields abundance; whereas exclusionary participation
    (hoarding) yields scarcity.
    6. Individual Responsibility, Private Property, and Judgment: Jesus assures us of an
    afterlife where individuality endures (like the angels in Heaven though not in marriage). God’s salvation
    is bestowed on individuals, not families, groups, communities, cliques, collectives, committees,
    organizations, corporations, governments, churches, or races. A part of God’s material gift to human
    beings is in the form of dominion over land, animals, plants, and other things. Such dominion is
    reflected individually by the institution of private property. Private property is an expression of people’s
    rights and responsibilities with respect to things. Just as people may do good or bad by employing and
    not employing their labor, so too they may do good or bad by employing and not employing the things
    they own (i.e., their “capital.”) As Jesus’s lesson of the talents teaches, just as people will be judged
    by the work done (and not done) by their labor so to will they be judged by the work done (and not done)
    by their capital. For those seeking the Kingdom of Heaven, Jesus specifically cautions people to use
    their worldly wealth wisely and warns that people cannot serve both God and money.
    B. Examining Economic Paradigms Based On Christian Principles
    The Christian principles of (1) Grace, (2) God as the source of good, (3) abundance, (4) loving
    inclusion, and (5) individual responsibility manifested by participation in the opportunities and
    responsibilities of life provide a good starting point for evaluating conflicting approaches to economics.
    Just as Jesus’s inclusive sharing of the bread and fish produced more (not less), economic practices and
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    institutions that promote the voluntary broadening of participation in economic activity will yield
    more abundance than institutions that discourage or impede a broadening of participation.
    Grace promises more than a zero sum game. Many conventional economists premise their
    homocentric analysis
    (1) on the assumption of perfect efficiency (although only God is perfect and human
    institutions inevitably fall short of that perfection) and
    (2) the supposition that there is no such thing as a free lunch (although every day free
    lunches stream down on earth from sun, rain and other benefits of nature).
    When Godly principles of economics are understood and implemented, the unnatural scarcity that
    prevails today will be replaced by God’s natural abundance without the supposed need for coerced
    redistribution.
    Conventional economics (classical, neoclassical, and Keynesian) is premised on scarcity and the
    homocentric notion that human productivity is the fundamental or primary source of production, wealth,
    and growth. In contrast, Christianity and binary economics rest on principles of universal, individual
    participation in the necessities, opportunities, and responsibilities of life and on the abundance that flows
    primarily from power beyond human will.
    The Christian principle that God’s will, not human will, is the source of good reveals that
    materially there are two categorical factors of production:
    (1) the human (directed by human will, which may or may not be in harmony with God’s
    will) and
    (2) all non-human creation (the sun, rain, earth, animals, plants and other things which,
    having no free will of their own, are entirely reflections of God’s will.)
    Accordingly, consistent with the concept of Grace (which is not earned by human effort), the Christian
    understanding of material production is a binary understanding of production which necessarily
    distinguishes between the human and the non-human factors in a fundamental categorical way.
    Conventional economics subordinates the non-human contributors to production (which
    inevitably work according to God’s perfect will) to the human factor (which inevitably falls short of
    perfection). Adam Smith taught that the primary role of capital is to make labor more productive and to
    enable the profitable employment of more laborers. Karl Marx, Alfred Marshall, John Maynard Keynes,
    and their followers did not disagree. In describing the great growth in output experienced since 1776,
    when Smith published the Wealth of Nations, conventional economics relies primarily on the idea that
    capital makes labor more productive.
    This conventional conception of production (as most fundamentally a function of labor
    productivity) is a homocentric view of production which obscures the idea that
    (1) capital is doing ever more of the work and
    (2) the distribution of capital ownership has an important, fundamental, positive relation to
    growth not caused by an increase in human work or productivity or the redistribution of
    demand.
    In harmony with these Christian principles, according to binary economics,
    (1) labor and capital are independent (i.e, binary) factors of production (although they may
    cooperate with each other, just as two people may cooperate with each other, but are
    nevertheless independently productive);
    (2) technology makes capital much more productive than labor; and
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    (3) capital has a potent distributive relationship to growth such that the more broadly capital
    is acquired the more profitably it can be employed to increase output.
    Compared to conventional economics [which holds that
    (1) labor is the primary source of production and growth and
    (2) broader capital ownership has no positive relationship to growth unless it increases
    human productivity],
    the binary premises
    (1) that capital is the primary source of production and growth, and
    (2) that broadening participation in capital acquisition promotes growth,
    are more consistent with Jesus's teaching on the source of good and the abundance that results from
    loving inclusion. The abundance of God’s Grace does not depend on labor theory of value or
    production.
    The binary emphasis on universal, individual, participation in capital acquisition as an essential
    part of the individual right to life is also more consistent with the Christian emphasis on individuality
    than the conventional economic approach. Jesus’s teachings that
    (1) individuality endures in Heaven,
    (2) salvation is achieved by individuals, not groups,
    (3) people will be judged by their use of the capital entrusted to them, and
    (4) God’s abundance is augmented by human practices of inclusion indicate that the
    opportunities for capital ownership (like the opportunities provided by labor and leisure)
    offer benefits and responsibilities for personal and spiritual growth not to be
    monopolized by a few.
    In conflict with these principles, conventional economics does not view universal, individual
    capital ownership as a necessary condition for a free market system (which is supposed to be open to all).
    Consistent with these principles, binary economics holds that the promise of supposedly free markets
    will fall far short of full productive potential without universal, individual participation in capital
    acquisition.
    Jesus teaches that the truth of God’s word is proven by its effect. The principles of Grace,
    abundance, and inclusion apply to human institutions as well as to individuals. Human institutions are
    expressions of human will, and are therefore subject to the imperfections of human will. As long as
    human institutions involved in the production, distribution and consumption of material wealth operate
    contrary to God’s inclusive will, there will be unnecessary scarcity, suffering, injustice, and degradation
    of human beings and their environment. Institutions that promote the voluntary broadening of
    participation in economic activity will yield more abundance than institutions that hoard and discourage
    or impede a broadening of participation.
    For those with an abiding concern for the economically disadvantaged, contemporary
    industrial economies (based on a patchwork of compromised classical, neoclassical, Keynesian and
    socialist principles) leave much to be desired. The failure of economic institutions to reflect God’s
    promise of inclusive abundance is glaringly revealed in the persistence of poverty and economic
    deprivation notwithstanding the unutilized productive capacity to reduce and even eliminate them. The
    failure is further revealed in the great concentration of wealth in the hands of a few while most people
    live in economic insecurity or desperation no matter how hard they work.
    Even in the most prosperous contemporary economies, there is
    4 In the U.S.A. for example, the three thousand or so largest corporations own approximately 95%
    of investable assets.
    5 In the case of major prime credit-worthy companies in the U.S.A., the source of funds for
    capital acquisition, in approximate terms, are as follows: 70% with retained earnings, 23% with debt and
    7% with direct issuance of shares. See R. Brealey & S. Myers, Principles of Corporate Finance (2nd
    edition, 1984); Lynn A. Stout, The Unimportance of Being Efficient: an Economic analysis of Stock Market
    Pricing and Securities Regulation, (87 Mich. L. Rev., 613 at 648, 1988).
    6 Edward N. Wolff, Top Heavy: A Study of Increasing Inequality in America (New York,
    Twentieth Century Fund, 1995) and Edward N. Wolff, "How the Pie is Sliced: America's Growing
    Concentration of Wealth," The American Prospect, No. 22, (Summer 1995), pp. 58-64.
    Page 8 of 34
    (1) persistent and seemingly growing unutilized productive capacity in the face of persistent
    unmet needs and wants and
    (2) a distribution of wealth that excludes most people from any hope of acquiring substantial
    capital ownership no matter how hard they work.
    In light of
    (1) the Christian mandate to love one’s neighbors, go the extra mile, provide for the least of
    these, and use worldly wealth wisely and
    (2) God’s will for inclusive abundance for his children,
    the persistence of unutilized capacity in the face of need and want and the persistent exclusion of most people
    from capital ownership (notwithstanding reform efforts of well-meaning people for centuries) is a sign that
    something in economic affairs is operating contrary to the will of God and is therefore in need of correction.
    In what way can the integration of Christian principles into economics enhance economic understanding to
    enable the economic system to employ the unutilized capacity to produce greater and more widely distributed
    abundance?
    Consistent with the Christian principles of abundance, inclusion, and individual participation in life’s
    opportunities, binary economics seeks to increase abundance by expanding individual participation in the
    process by which capital is acquired with the earnings of capital. Binary analysis observes that
    (1) major corporations own most of the capital in virtually every economy;4
    (2) almost all capital owned by those corporations is acquired with the earnings of capital;
    (3) much of it is acquired with borrowed money;
    (4) virtually all of it is acquired with the indispensable foundation consisting of a stable
    property, monetary, credit, and market system dependent on government protection; 5
    and
    (5) relatively little capital is acquired with the earnings of labor.
    At the same time, in terms of corporate wealth, 1% of people own 50% of the capital; and 10% own
    90% of the capital, leaving 90% of the people owning little or nothing.6
    Thus, under the prevailing system of corporate finance, as corporate assets grow and continually
    buy additional assets with their earnings, they benefit people primarily in proportion to existing wealth.
    Under this approach, the rich benefit the most; the middle class benefit less; and the poor benefit least
    of all. Looking at the economy as a whole, the system offers
    (1) growing capital ownership and most of the best jobs to the well-capitalized,
    (2) the remaining jobs and welfare to others, and
    (3) products to anyone with money or credit to buy them
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    (4) while the negative effects of corporate production are “externalized” so that the are
    borne to the extent possible, by persons other than the corporation’s investors and
    privileged employees.
    Those who own little or nothing are offered jobs, welfare, and cheaper products as their participation in
    economic growth; but they are effectively denied the governmental incentives and policies that assist
    well-capitalized owners in acquiring additional capital with the earnings of capital.
    This system (that works primarily for the ownership benefit of relatively few people) is
    advanced by many economists as a primary cause of the material success of the western-style capitalism
    and the defeat of communism. But Jesus’s Covenant of Grace and abundance is not intended only for
    the rich. God's laws are universally applicable. The mechanisms that enrich the few can also enrich
    everyone as participation in capital acquisition is broadened in a holy way. To acquire capital with the
    earnings of capital, the rich use the pre-tax earnings of capital, collateral, credit, market and insurance
    mechanisms to diversify and reduce risk, and a monetary policy intended to protect private property.
    By God’s laws, the same institutions and practices that work profitably for the well-capitalized can also
    work profitably for all people.
    Christian principles (of inclusion, individuality, abundance, and the true source of growth)
    indicate 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 individually included in the
    acquisition process. Conversely, the economic theories, practices and institutions that presently
    dominate economic teaching, research and scholarship effectively exclude most people from capital
    acquisition and suppress the creation of abundance by monopolizing and hoarding the full productive
    capacity of capital.
    Binary economic institutions and practices are therefore more in harmony with Christian principles
    and promise broader inclusion and greater abundance than conventional economic approaches based on
    principles of scarcity and exclusion and on homocentric theories of growth premised primarily on the notion
    that the primary function of capital is to increase human productivity. Accordingly, this paper explains how
    binary economic theory and practice can be used to enhance mainstream economic understanding and be
    applied to reform the system of corporate finance to produce greater, more broadly shared abundance by way
    of the efficient broadening of capital ownership.
    III. OVERVIEW OF BINARY ECONOMICS
    Binary economics simultaneously offers a unique
    (1) conception of economics and
    (2) prescription for establishing a more inclusive, competitive and democratic private property
    system.
    It offers a new paradigm for understanding economic efficiency, growth, and justice that is foundationally
    distinct from classical, neoclassical, Keynesian, and socialist economics. Focusing on a great anomaly left
    unexplained or poorly explained classical, neoclassical, and Keynesian economics (i.e., the persistence
    of unutilized productive capacity in a context in which markets are supposedly becoming more efficient)
    and left unremedied by any approach yet applied, Binary economics specifically offers both a
    foundationally distinct explanation and a market-based solution that promises a means to produce much
    greater and broadly shared abundance.
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    As an economic theory, binary economics holds that broad-based capital acquisition on market
    principles has a potent (but presently untapped) distributive relationship to growth that is independent of
    productivity gains and governmental strategies to redistribute or regulate demand. (This proposition is
    known as the principle of binary growth). In other words, the distribution of capital ownership is positively
    related to growth in important ways not comprehended by conventional economic theory. Like no other
    economic paradigm, binary economics
    (1) reveals important market connection between unutilized productive capacity and wealth
    concentration, and
    (2) offers unique strategies to achieve the goals of efficiency, broadly shared growth, and
    economic justice by way of widespread, and eventually universal, individual, capital
    ownership.
    By relaxing one unproven (and generally unstated) assumption of conventional economics (the
    assumption that the distribution of capital ownership has no substantial positive relationship to growth
    that cannot be comprehended by productivity or the redistribution of income and capital), the anomaly
    disappears: As a first-order approximation, unutilized productive capacity is simply the flip side of
    concentrated ownership. Unutilized productive capacity and wealth concentration are correlative
    manifestations of the fact that capital
    (1) is independently productive,
    (2) contributes far more to growth than results from its substitution for labor,
    (3) routinely returns its investment (or “buys itself”) primarily for a
    relatively small group of existing owners while excluding the vast
    majority of people from the capital acquisition process and
    (4) is thereby prevented from distributing the consumer income that would
    provide market incentives to employ its unutilized productive capacity.
    A number of remarkable implications flow from the principle of binary growth. One practical
    implication is that much of the capital presently owned by America's three thousand or so largest
    companies, that historically have returned their inflation adjusted value every five to seven years
    primarily for existing owners, could do so even more profitably if all people were allowed entry into the
    capital acquisition process by way of competitive capital acquisition rights. A second implication is that
    with modest reform of the existing markets for capital acquisition, in an under-capacity producing
    economy, substantial growth and more broadly shared wealth can be achieved without the involuntary
    redistribution of income or capital. In other words to address the problem of poverty and the needs of
    the economically disadvantaged (which has defied conventional solutions based on left-wing, right-wing
    and centrist economic and political theory), God’s way is easy. It merely requires an opening of the
    capital acquisition system so that all people (not only the well-capitalized and a very few others) can
    participate individually in the production of God’s bounty not only as laborers, but also as owners of
    productive capital.
    IV. THE ANOMALY OF UNUTILIZED PRODUCTIVE CAPACITY
    Of particular interest to those who value Christian teaching, binary economics provides a new
    understanding and suggests new strategies regarding the persistence of vast (and many would say growing)
    unutilized productive capacity to reduce and eliminate economic deprivation in markets that are supposedly
    becoming more competitive and efficient. Particularly noteworthy as a matter of public policy is the
    unutilized productive capacity of the assets owned by major prime-credit-worthy corporations. This is where
    an enlightened approach to corporate economic policy can have its greatest impact on industry, shareholder
    wealth, working people, and the material well-being of every individual.
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    Thus, if asked to determine the facts, the general counsel of most prime credit-worthy companies
    would (after completing the due diligence of consulting with all appropriate experts) conclude that their
    companies (even as they determine the need to effect major downsizings, plant closings, and lay-offs)
    owned the productive capacity (with available capital assets and labor) to profitably increase output by
    perhaps 10-20% if there were only the customers with money to buy what could be readily produced at
    even lower unit costs. This would apply not only to consumer goods but also to producer goods, so that
    within existing unutilized productive capacity, there is the capacity to create even more unutilized
    productive capacity.
    There are of course different definitions of unutilized productive capacity, depending upon the
    purpose of economic inquiry. Mainstream economic analysis generally employs a narrow and frequently
    documented “static” approach to unutilized productive capacity that focuses primarily on existing assets and
    available labor at a given wage. The presently unemployed portion of each existing or available factor is the
    “static unutilized productive capacity” for that factor. But from the perspective of corporate fiduciaries the
    question is what business strategy should be pursued to most profitably employ available capital and labor
    over time. If some measure of unutilized productive capacity could be profitably employed, corporate
    profits and shareholder wealth would increase accordingly. A central question for the corporation and
    corporate fiduciaries is what approach to unutilized productive capacity will best serve to maximize corporate
    wealth.
    The importance of employing unutilized capacity is also a central issue for people concerned about
    the welfare of the economically disadvantaged and for government policy makers vested with a responsibility
    in matters of economic welfare. The unutilized productive capacity of an economy’s corporations means a
    capacity to provide more basic necessities (such as food, clothing, shelter, transportation, and health care) and
    more simple comforts and conveniences, by way of greener and more socially responsible industrial processes
    and practices. The ever-present threat of plant closings, downsizing, and layoff is a reflection of unutilized
    productive capacity. Many economic assaults on the environment resulting from destructive production
    technologies (that continue despite the know-how to ameliorate or replace them with greener technologies)
    can be understood as reflections of unutilized productive capacity. Despite neoclassical assumptions of
    diminishing returns, much of the unused productive capacity is generally marked by diminishing unit costs
    and increasing economies of production made unprofitable only by insufficient consumer demand even at
    discount prices.
    Mainstream economics divides into different schools on the existence, extent, and significance of
    unutilized productive capacity and what to do about it. These schools offer different guidance to private
    corporations and public policy makers. Neoclassical economics assumes perfect competition and efficiency
    as the starting point of analysis. In the world of perfect neoclassical efficiency, unutilized capacity (beyond
    need for peaks in market demand and an insurance for emergencies beyond the predictable) should not persist
    for long. As previously noted, if markets are truly efficient, persistent unutilized productive capacity is an
    anomaly and should not persist for long. Unproductive assets should be sold, even at salvage if necessary.
    Even before they become partially or totally unutilized, assets not earning competitive returns for their owners
    should be sold to those whose rate of return can be enhanced by the acquisition.
    Moreover, according to neoclassical economics, as markets become more competitive, unutilized
    productive capacity should decrease, not increase. But to most observers, these conclusions are belied by
    experience. Major companies today boast that they are ready to feed, clothe, and shelter the world if there
    were only sufficient income to buy what can be readily produced. However true this boast is today, it was
    less true in 1900 and still less true in 1800. Driven by a political ideology that confuses a neoclassical theory
    of marginal efficiency with an unnamed (but essentially classical) macro-economic theory of growth, so7
    Keynes, General Theory of Employment Interest and Money, Harcourt, Brace & World, Inc.
    (1936) pp. 213-214.
    8 Note that the Keynesian approach is not in harmony with the law of private property, which
    sees capital and labor as independent earners, and which necessarily distinguishes between the distribution
    and redistribution of income and capital.
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    called free market reforms have been initiated on the national and international level supposedly to make
    markets more competitive. Nevertheless, as markets have globalized and supposedly become more
    competitive, unutilized productive capacity of the world’s major corporation has seemingly, in the eyes of
    many people, paradoxically have increased rather than decreased. The neoclassical generic solution of simply
    deregulating markets, without regard for remaining, embedded, institutional advantages (that enrich some
    while excluding others) is therefore suspect in this context.
    According to Keynesian analysis, there is indeed persistent unutilized productive capacity which
    belies the neoclassical assumptions of near-perfect efficiency: untapped growth potential, unutilized
    productive capacity and underemployment of labor and capital persist despite classical and neoclassical
    economic theory to the contrary. Markets are far from perfectly competitive, and their operation results in
    a persistent shortfall in “effective demand.” The result is an endemic under-utilization of people and resources
    which can be at least partially corrected by government action. But in addressing unutilized productive
    capacity, the Keynesian analysis attaches no special significance to the distribution of capital ownership.
    Indeed, Keynes specifically says that in understanding his approach:
    “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,”7
    Accordingly, Keynesian analysis
    (1) attaches no special significance to the distribution of capital ownership (because in Keynes’s
    model capital earns no independent income, and has no value apart from labor) and
    (2) by focusing on effective demand, makes no fundamental distinction between the distribution
    and redistribution of income and capital.8
    Moreover, although Keynesian strategies may remain a central element in the workings of every major
    economy, unutilized productive capacity persists and is seemingly growing in the USA and most industrial
    economies (although we are simultaneously being told that the relevant markets are becoming more
    competitive).
    Nevertheless, although they differ in many respects, all mainstream approaches to unutilized
    productive capacity share basic assumptions (namely assumptions of [1] scarcity, [2] human productivity as
    the fundamental source of production and growth, and [3] no substantial positive relationship between the
    capital ownership distribution and growth) which are contrary to Christian and binary economic principles.
    Economic principles that are consistent with Christian principles and the scientific method and that offer the
    win-win possibility of ownership-distribution-based growth should not be excluded from mainstream
    economic analysis. Of particular importance in this context is the third assumption (generally unstated) that
    all mainstream economic approaches share in common: namely, the assumption that the distribution of capital
    9 H.G. Moulton, The Formation of Capital (1975, 1935) (Originally published in 1935 as
    Publication Number 59 of the Institute of Economics of the Brookings Institution).
    Page 13 of 34
    ownership has no fundamental independent causal relationship to the persistence of unutilized productive
    capacity and the potential for economic growth.
    V. THE BINARY HYPOTHESIS REGARDING UNUTILIZED PRODUCTIVE CAPACITY
    By relaxing the unproven assumption that capital has no potent distributive relationship to growth,
    the contrary binary assumption (that capital has a potent distributive relationship to growth) provides an
    alternative explanation for unutilized productive capacity. The binary hypothesis is that unutilized productive
    capacity and concentrated ownership are the direct market consequences of faulty market institutions and
    practices that:
    (1) concentrate capital ownership, by effectively excluding market participation by non-owners
    in the process of acquiring capital with the earnings of capital, and
    (2) thereby monopolize and suppress the true productive capacity of capital, by preventing
    capital from
    (a) being acquired more broadly and rapidly, and
    (b) thereafter distributing to consumers the income to purchase what can increasingly
    be produced by capital.
    Demand for capital investment is derivative of demand for consumer goods. It arises in anticipation of future
    consumer demand.9 In an economy operating at less than full capacity, a voluntary pattern of steadily
    broadening ownership promises more production based consumer demand in future years and therefore more
    demand for capital goods in earlier years. Accordingly, if markets were structured to diffuse ownership
    voluntarily (by enabling all people to acquire capital with the earnings of capital), then within the time frame
    of capital investment projections of major U.S. corporations (usually approximately five years) increasing
    consumer demand (more widely distributed through the acquisition of productive capital) will profitably
    employ unutilized productive capacity and produce growth.
    For example, within a period of perhaps five to fourteen years, if members of the poor and
    middle classes are enabled to compete with existing owners for the acquisition of corporate shares
    representing the capital requirements of companies worthy of prime credit, these poor and middle-class
    people would bring to the corporate finance bargaining table a chip not possessed by existing owners:
    a pent up appetite for more of the necessities and simple luxuries of life that richer people enjoy. After
    the capital has paid for itself (repaid its acquisition debt obligations) the earnings of capital acquired by
    members of the poor and middle class, if paid to them, will distribute more consumer demand than if that
    capital had been acquired by the wealthy. Had that capital been acquired by existing owners, its income
    would have been courted for additional investment, but in the context of less consumer demand. In an
    economy operating at less than full capacity, compared to the investment opportunities that would have
    existed without the availability of ownership-broadening market mechanisms, the broader market
    distribution of capital and income generated in a binary economy will create greater investment
    opportunities for existing owners as well as for the new binary owners.
    VI. BINARY ECONOMICS AS A DISTINCT PARADIGM
    A. On Paradigms
    10 People first adopt paradigms, and then perform their theoretical and empirical analysis.
    Thomas Kuhn, The Structure of Scientific Revolutions (2nd ed. 1970).
    11 Aristarchus of Samos, in a remarkable insight, first proposed the sun-centred solar system
    in the third century AD. For Aristarchus’s work, see T.L. Heath, Aristarchus of Samos, the Ancient
    Copernicus (1913). Presently, the concept is taught to grade school children.
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    Jesus offered people a New Covenant, based on God’s Grace and human faith, as a new paradigm
    to help people understand their relationship to God, how to live their lives, and how to achieve individual
    salvation. In living the good life, Jesus taught the importance of starting on a proper foundation. Consider
    for example, the house built on a rock foundation, the seeds in fertile soil, and the vine and the branches.
    Therefore, perhaps the most important beneficial consequence that can come from integrating Christian faith
    with economic understanding is at the foundation of economics (where it connects and must be in accord with
    the fundamental principles of God’s creation.) It is always good to work to improve theory and practice in
    the branches of a discipline, where interstitial improvements certainly can have a substantial cumulative
    positive impact; but in the light of (1) the great need and unfulfilled potential of billions of people, (2) the
    unexplained and unremedied persistence of unutilized (and therefore hoarded) productive capacity, and (3)
    Jesus’s teaching of the critical need to build on the correct foundation, a reexamination of the foundation of
    mainstream economics is also called for if God’s promise of abundance that naturally results from the
    inclusion of all people in God’s intended benefits, including capital acquisition, is to be taken seriously.
    Consistent with Jesus’s teaching, today most scientists recognize that even the most “scientific”
    knowledge is contingent on the models or paradigms of thought upon which they rest.10 Historically, major
    new paradigms change the way people understand reality. Sometimes they dispel illusions and establish the
    foundation for major new discoveries. For example, every day, people see the sun rise and the sun set, but
    what they see is a grand illusion built on a faulty paradigm resting on a false assumption. Some principles
    that were difficult to understand by almost everyone in one era can be taught to grade school children in the
    next.11 When the earth-centered paradigm for the solar system was replaced by the sun-centered paradigm,
    a false assumption resting on an illusion was replaced by a true assumption based on facts, and the foundation
    was laid for the discovery of Newton’s laws (which make no sense in an earth-centered solar system) and
    much of modern science.
    It is important to note, moreover, that alternate paradigms need not be mutually consistent to be
    useful. Sometimes paradigms complement and supplement understanding, as exemplified by the distinct
    conceptual contributions to physics made for example by Newton, Planck, Heisenberg, and Einstein.
    Sometimes paradigms conflict and are yet informative of different aspects of the “same” reality, as in wave
    theory and particle theory, which are both used to describe the properties of electrons. Indeed, much
    economic theory and practice make use of conflicting classical, neoclassical, Keynesian, behavioral,
    institutional and other models often to explain the same behavior. Binary economics should not therefore
    be excluded from the array of conceptual tools used to understand economic behavior merely because
    its premises conflict with conventional theory or because it explains supposedly the same economic
    behavior in a fundamentally different way. Whatever one thinks of the classical, neoclassical and Keynesian
    paradigms, binary economics will provide important insights regarding the persistence of unutilized
    productive capacity and how it might be profitably employed to reduce economic deprivation while
    benefitting everyone. For those moved by Christian values, this conclusion is reenforced by the
    recognition that when compared to the mainstream economic paradigms in the light of Jesus’s teaching,
    binary economics qualifies as the most Christian way.
    12 Note the choice of the word “automobile” (i.e., self-moving”) to express in words the
    independent productiveness of the then marvelous “horseless carriage.” In the context of the prevailing
    economic theory, objections to the binary concept of independent capital productiveness have sometimes been
    expressed by observations like “capital is not an independent producer because it takes the person to operate
    the capital.” However, even though motor cars then did not generally drive themselves without a driver,
    people thought of them as “self-moving” and therefore independently productive, no less than the horse
    whose work it replaced and vastly supplemented with work of its own.
    Page 15 of 34
    B. The Binary Economic Fundamentals
    As an economic theory, three related principles can be used to establish binary economics as a
    paradigm distinct from conventional economic theory:
    (1) labor and capital are independently productive;
    (2) technology makes capital much more productive than labor, and
    (3) capital has a potent distributive relationship to growth such that the more broadly capital
    is acquired the more profitably it can be employed to increase output.
    Thus, binary economics derives its name from the premise that capital and labor are independent (or “binary”)
    factors of production. Although they cooperate together (just as two people cooperate when working
    together), each factor does its own work, has its own productive capacity, and demonstrates its own
    “independent productiveness.”
    In teaching people, Jesus spoke in concrete parables and metaphors to illustrate God’s lessons.
    What simple concrete metaphors will serve to help people understand the relation of capital and labor
    to increased production and greater abundance? In comprehending this relation, the central concept of
    conventional economic theory (that capital makes labor more productive) can be illustrated by the
    example of sawing ten boards in one hour with a hand saw as compared with sawing one hundred boards
    in an hour with an electric saw. The conventional approach views the human factor as the most
    fundamental factor of production, and capital as a dependent factor that can be employed to make labor
    more productive. After all it takes the person to operate the saw, whether manual or mechanical.
    However, from a binary perspective, human labor is much more dependent on the non-human
    factor than the other way around. The sun shines and rain falls without human effort. With help from
    the sun, rain, and earth (and countless worms and other organisms) vegetation produces oxygen, food,
    and medicines; animals produce food and medicines, do other work, and provide other benefits. Physical
    structures and materials support and protect us. Humans make contributions to the process, but their
    capacity is limited and mostly made by learning to unleash and guide the far greater, independently
    productive powers of the non-human contributions that are available by discovering and employing the
    natural laws of creation.
    A good example of the independent productiveness of capital (and a better illustration of the
    relationship between capital, labor and increased production) are revealed by the work of human
    transportation. Walking can be good exercise and fun; but when it is done for reasons other than its
    intrinsic worth (as work), it is generally more productive in many contexts, to employ a horse or
    automobile to do most of the work in transporting people. The horse is capital and is definitely independently
    productive. It does its own work, even though it must be guided by a person. The same is true of an
    automobile.12 Another example is seen in the work of hauling logs: a person can haul one small log one mile
    in one hour and is exhausted; (1) with a horse, five logs can be hauled twice as far in half the time (yielding
    a ten-fold increase in output) and (2) with a truck five hundred logs can be hauled forty times as far (yielding
    a twenty thousand-fold increase in output).
    Page 16 of 34
    In terms of “productiveness” (which retrospectively means “work done” and prospectively means
    “productive capacity”), the horse, automobile, and truck do much more than increase the productivity of the
    human who rides, leads, and drives them; the horse, automobile, and truck are doing most of the extra work.
    Looking at how production and productive capacity has changed since 1776, in countless aspects of work,
    binary economists maintain that increased production (growth) is primarily the result of increasing capital
    productiveness and the distribution of its ownership rather than increasing labor productivity.
    Of course, people who provide the labor needed to invent, design, finance, build, install, operate,
    monitor, repair, and manage capital, earn income by doing so. Nevertheless, the work of inventing, designing,
    financing, building, installing, operating, monitoring, repairing, and managing capital is not the work of the
    capital itself.
    According to the conventional perspective, the most important function of technology is to make
    labor more productive. However, from a binary perspective, it is much more important to recognize that
    technology makes capital much more productive than labor. As would be measured by their value in
    truly efficient markets, a basic strategy in capital investment is to produce more, at lower cost, with more
    productive capital and less labor. The primary role of capital therefore is both to replace and vastly
    supplement labor productiveness with increasing capital productiveness rather than to increase labor
    productivity. Furthermore, capital works on both sides of the economic equation with vastly increased
    (1) productive capacity and production, and
    (2) capacity to distribute income and leisure.
    Thus, although it is good to be able to earn by laboring, it is better still to also be able to earn by
    owning; and the full binary economy will empower everyone to earn increasingly by owning. 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 explains how the distribution of its ownership not only enriches and helps to
    liberate every individual who comes to own it, but also has an immense positive impact on capital
    accumulation and growth.
    C. Six Powers of Capital
    Once it is recognized that capital is independently productive, then its independent powers can
    be understood and employed consistent with their full economic potential. In reality, capital does far
    more than make labor more productive, facilitate labor specialization, and enable the profitable
    employment of more workers. Increasingly, capital is doing proportionately ever more of the work.
    Based on careful observation, capital reveals six independent powers. Specifically, capital can
    (1) replace labor (doing what was formerly done by labor);
    (2) vastly supplement the work of labor by employing capital to do much
    more of the kind of work that humans can do (such as the greatly
    increased hauling that can be done employing horses or trucks);
    (3) do work that labor can never do (e.g., elevators lift tons thousands of
    feet in the air; airplanes fly; scientific instruments unleash forces that
    create computer chips that cannot be made by hand; 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, automated
    machines, robots, and wild fruit-bearing trees);
    (5) pay for itself out of its future earnings (the basic rule of business investment); and
    (6) distribute the income necessary to purchase its output (the logic of
    double-entry book-keeping and an expression of Say’s Law of Markets).
    13 Keynes, General Theory of Employment Interest and Money, pp. 131-141, 217.
    Page 17 of 34
    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. Each of these ways of contributing to growth (including mere labor
    replacement, which produces the same output as before, plus leisure), is significant, but only the first directly
    involves the substitution of capital for labor (marginal or otherwise). Thus, although some economists and
    policy advocates use marginal efficiency theory as the foundation for a general theory of growth; in fact the
    capital/labor substitution process is only one component of growth (operating after the creation of greatly
    increased productive capacity) and its wealth-enhancing contribution to efficient pricing and resource
    allocation is limited for reasons discussed below.
    D. Binary and Conventional Growth Theories Compared: The Importance of Ownership
    The binary assumption that economic growth is primarily a function of increasing capital
    productiveness and its distribution stands in conflict with Adam Smith’s basic paradigm for growth which
    is grounded in the notion that capital makes labor more productive and enables the profitable employment
    of more workers. This productivity principle is central to neo-classical economics, except that neoclassical
    theory technically speaks only to efficiency (the efficient employment of people and resources to produce
    desired goods and services) and not explicitly to economic growth. (Conscientious economists acknowledge
    that the theory of neoclassical efficiency is not a theory of growth. Everyone could be slowly starving to
    death on a doomed planet orbiting a dying sun, and yet every transaction might be neoclassically efficient.
    Nevertheless, frequently the principles of neoclassical efficiency are falsely advanced as a de facto theory
    growth and distribution in the realms of political economy and politics, and in the policies of major economic
    and financial institutions that facilitate capital acquisition primarily for existing owners.) Likewise, in
    advancing his General Theory in which, apart from time and money, the unit of labor is the sole physical unit,
    Keynes explicitly characterized his approach to full employment as founded on a “productivity theory” of
    capital, which he builds on the productivity theory of wages advanced by Alfred Marshall.13 In all these
    conventional approaches to growth, the distribution of ownership is irrelevant unless it affects labor
    productivity.
    E. The Supply of Capital and The Principle of Binary (Ownership-Distribution-Based)
    Growth
    To repeat for emphasis, the principle of binary growth holds that capital has a potent distributive
    relationship to growth such that the more broadly capital is acquired the more profitably it can be
    employed to increase output. This principle follows from the premises that capital is independently and has
    (relative to labor) a vastly greater capacity to do work and distribute income.
    Although resting on a normative conception of private property (to be discussed later), the principle
    of binary growth is a factual proposition rather than an assertion of value. The principle is generally true,
    false, or not subject to being verified or falsified, whether or not it is good, just, or holy for more or all people
    to be able to acquire capital with the earnings of capital.
    This principle departs from the market analysis of Adam Smith and all who followed him. Smith
    understood the value and price of capital to be a function of labor productivity and the supply of capital;
    for Smith, the distribution of capital ownership was of no particular significance regarding it price or
    value unless it affected labor productivity. His analysis reveals no recognition that the market
    14 Keynes, General Theory of Employment Interest and Money, pp. 213.
    Page 18 of 34
    distribution of capital ownership (from very narrow to very broad) could also affect its value and price.
    The principle of binary growth also conflicts with Keynes’s understanding of growth and full
    employment. As noted, Keynes attached no fundamental significance to the distribution of capital as a
    determinant of employment, growth, prices, or value. Like Smith, Keynes did not consider that the
    distribution of capital ownership could directly affect its rate of accumulation or value. Indeed, Keynes
    explicitly excluded the productive and distributive effects of capital from his analysis:
    “For the only reason why an asset offers a prospect of yielding during its life services
    having a value greater than its initial supply price is because it is scarce; and it is kept
    scarce because of the rate of interest on money. If capital becomes less scarce, the
    unutilized yield will diminish, without its having become less productive – at least in the
    physical sense.”14
    Thus, Keynes contended that capital is valuable because it is scarce and scarce because it must compete
    with the interest rate on money, and not because it has real productive and distributive capacity of its
    own. For Keynes, the real productive capacity of capital is not represented as a fundamental,
    independent variable in his model, which is a fancy way of saying it is fundamentally irrelevant.
    But binary economists contend that
    (1) capital is independently productive and
    (2) the real productive and distributive power of capital is the most fundamental determinant
    of its full-potential contribution to its growth (accumulation), earning capacity, and
    value.
    The realization of the full potential of capital productiveness is significantly dependent on the market
    structure that determines the distribution of its ownership. Capital is kept scarce by hoarding and
    suppressing its true productive capacity, thereby making it more expensive to acquire. From a binary
    perspective, Keynes got it backwards: the liquidity premium of money is a result (rather than the primary
    cause) of the scarcity of capital (note that for individuals, the percent of cash to total wealth generally
    decreases as total wealth increases), which is in turn the result of institutional barriers and monopolistic
    preferences that exclude most poor and working people from acquiring capital with the earnings of
    capital to finance the fuller employment of people and resources necessary to satisfy more fully their
    unmet needs and wants.
    Because demand for capital is derivative of demand for consumer goods, broader ownership (in
    an under-capacity producing economy) will produce increasing demand for both consumer and capital
    goods, thereby increasing capital investment and accelerating rather than decreasing its rate of return
    despite its increasing supply (or as Keynes might say, despite its “decreasing scarcity”). Thus, rather
    than assuming an irrelevant status as in Keynesian, neoclassical and classical analysis, the distribution
    of capital acquisition is central to the rate of capital acquisition and growth according to binary analysis.
    F. “Free Market” Theories of Price and Value.
    Also central to understanding whether and how broader ownership increases the rate of growth
    (and capital cost recovery) is the theory of value and competitive pricing used to analyze the dynamics
    of a market economy. As to the question of pricing and value, and its relation to efficiency and full
    employment, the binary perspective is distinct from conventional analysis. Adam Smith believed that
    human labor was not only the fundamental source of production, but also the only fundamental source
    15 A. Smith, Wealth of Nations, (1776, Random House ed. 1937), pp. 30-37, 50.
    16 Keynes, General Theory of Employment Interest and Money, Harcourt, Brace & World, Inc.
    (1936) pp. 213-214
    17 Of the classical economists, only Jean Baptiste Say identified Smith’s erroneous
    assumption that capital was not independently productive. Specifically, Say, took issue with Smith
    analysis as follows:
    "To the labour of man alone he [Smith] ascribes the power of producing values. This is an error.
    A more exact analysis demonstrates ... that all values are derived from the operation of labour,
    or rather from the industry of man, combined with the operation of those agents which nature
    and capital furnish him. Dr. Smith did not, therefore, obtain a thorough knowledge of the most
    important phenomenon in production; this has led him into some erroneous conclusions, such,
    for instance, as attributing a gigantic influence to the division of labor, or rather to the separation
    of employments. This influence, however, is by no means inappreciable or even inconsiderable;
    but the greatest wonders of this description are not so much owing to any peculiar property in
    human labor, as to the use we make of the powers of nature. His ignorance of this principle
    precluded him from establishing the true theory of machinery in relation to the production of
    wealth." Say, J., A Treatise on Political Economy, 1830, 6th American Edition, p. xl-xli. This
    was not Say's only objection to Smith's approach (see Say, 1830, pp.xli-xliii); but if binary
    theory is right in holding that capital has both a potent productive and distributive relationship
    to growth independent of productivity, then Say's objection to Smith's human productivity
    analysis, may come to be recognized as his most important critique of Smith's work.
    Page 19 of 34
    of value and determinant of price. Smith conceived of all value and prices of all production as ultimately
    a function of
    (1) the cost of labor and capital to produce it, and
    (2) the cost of labor commanded in exchange for it.
    All of these costs (including the cost of capital) are functions of the individual decision of whether to
    work or remain idle at an offered wage (which is itself a function of the individual’s productivity).15
    In short, the work to acquire anything is an expression of the value to the worker of the thing to be
    acquired. Conversely, things are worth some function of the work people are willing do to acquire them.
    This is the foundational theory of pricing in the conventional approach to competitive market economics.
    Keynes’s approach is consistent with the approach of Smith. He spends hundreds of pages to advance
    an economic system in which, “apart from money and time...the unit of labor ...[is] the sole physical
    unit...”16 In such a framework, the distribution of capital as a productive agent of ownership is as
    irrelevant to prices and values as it is to the supply of capital and growth.
    However, once one assumes that capital is independently productive, then the idea that labor is
    the only source of value and the unit measure of price can be seriously called into question.17 In a binary
    economy, the value of goods and services is not only a function of what work people are willing to do
    to pay for them, but also a function of what work they (as owners) are willing to let their capital do. The
    person who has no capital and wants logs hauled, will either have to do the work herself or do the work
    necessary to pay someone (or something) else to do the hauling. In rationalizing a market system of free
    exchange, this logic is the essence of the labor theory of value. Unfortunately, it obscures and denies the
    vital importance (to the expression of value and the determination of price) of institutions that protect
    property rights regarding capital and the vital importance of extending those protections to all people.
    Page 20 of 34
    The person who owns capital and wants logs hauled can do work and express value as an owner by
    letting her horse do the hauling. If capital ownership is limited to a few, markets cannot be efficient in
    their pricing of labor, capital and the goods and services produced by them.
    To build on this example, assume an economy without animals or tools, comprised of individuals
    with an appetite for twenty log-haulings per person per day, but an average individual physical capacity
    to complete only ten log-haulings per day. In such an economy, most people will have substantial unmet
    needs and wants no matter how hard they work. If people continue to haul logs beyond a certain point
    they will be too tired and have no time to enjoy the fruits of their labor. Nevertheless in a grim sense,
    given a normal utility function, there will be only as much hauling as “worth while.” The price of
    hauling is the work and is an expression of the worker’s (suppressed) appetite and value; and utility is
    maximized. Supposedly, Pareto could not be more satisfied. This is also true theoretically in the more
    complicated economies envisioned by Smith and Keynes. But with the introduction of horses (requiring
    one person four hours per day to maintain and fully employ) that can haul one hundred logs per day, as
    a first approximation the amount of hauling will be proportional to the ownership distribution of horses.
    Increased production and value will not be expressed by way of increased labor but rather by way of
    increased and more broadly distributed capital ownership. As a first approximation, the amount of log
    hauling is likely to double if ten rather than five percent of people are able to acquire horses, and ten
    times as great if fifty percent can acquire horses. If ownership of the horses is open to all, everyone’s
    appetite for log-hauling may be satisfied. On the other hand, if ownership is monopolized by a few, there
    will be great unutilized capacity along with great need and want, although people are working as
    productively as they can. Even if many people are languishing and prematurely dying, human log
    hauling will continue until hauling is no longer “efficient” (worth while to those without horses). People
    will theoretically maximize their utility functions, but only some of those utility functions will have a
    viable, independent variable that represents the productive capacity of capital.
    Of course, with a monopoly of horses having plenty of unutilized productive capacity and with
    the leisure to think things through, the owners of the horses (recognizing human desires - values - beyond
    log-hauling) might find it useful to employ their capital (and some workers) to haul more logs than
    necessary for their personal needs to sell them in exchange for the labor of non owners because there are
    many forms of work (pleasing to the owners and others) that people might prefer to the heavy work of
    hauling logs. Whole new labor markets can arise in which most people will be “free” to express their
    preferences and values by working (or not working) but not by owning; and in each of these new
    markets, there is capital ownership to be monopolized so that only a few will be able to do work and
    express value by owning. In all of these situations, however, non-owners will be “free” to do work for
    wages and thereby free to express values by laboring, while being excluded as a practical matter from
    the freedom to do work and express values by way of capital ownership.
    Competitive market pricing requires
    (1) no barriers to entry,
    (2) voluntary (rather than coerced) exchange, and
    (3) no monopolization of the means of production.
    Once it is recognized that labor and capital are independent factors of production and that capital is
    increasingly the more productive factor, then it becomes clear that broad, essentially universal, individual
    access to capital acquisition is necessary before the presumed theoretical, allocational benefits of
    efficient pricing can be fully realized.
    From a binary perspective,
    Page 21 of 34
    (1) the technical relationship used in the theory of marginal productivity that governs
    conventional understanding of 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 access to capital ownership.
    In other words, the willingness of a laborer to work at given wage depends on his competitive
    opportunity to acquire capital with its earnings and then receive its full net return. (But without access
    to the same government-supported infrastructure available to the well-capitalized, the opportunity to
    acquire capital with the earnings of capital and thereby through ownership to produce goods and express
    value is not open to most people as a practical matter.) From a conventional economic perspective, in
    terms of its impact on pricing, capital/labor substitution and employment, and factor income shares, the
    distribution of access to c




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