A Critique Of Binary Economics: Paradigm Shift Or Cluster Of Errors?

Timothy D. Terrell, an Associate Professor of Economics at Wofford College in Spartanburg, South Carolina and an adjunct scholar with the Ludwig von Misses Institute writes a critique of binary economics, but does not accurately communicate what binary economists is all about. See Terrell’s article at http://mises.org/daily/2085

Below is a response from my colleague Norman Kurland, Executive Director of the Center for Economic and Social Justice (www.cesj.org):

Below is my response to Pofessor Timothy Terrell’s attack on Binary Economics, which has been published by the Mises Institute.

Please note that in his second sentence, he refers to Kelso’s most well-known technique for the application of “pure credit” to enable property workers in the for-profit private sector the — ESOP — as an “employee stock option plan.” When academics display such ignorance in challenging the revolutionary paradigm of binary economics, how can their criticisms be taken seriously?

In any event, I hope my response will be sent to the Mises Foundation by you and others who read it, requesting that they publish my response as a disciple and former colleague of Louis O. Kelso. While I share the foundation’s fundamental commitment to free markets, private property and limited economic power of government, as a result of Kelso’s fourth pillar of a truly Just Third Way (lifting all legal and institutional barriers to equality of ownership opportunities — I have became acutely aware of the political futility of most free market and limited government advocates who seem blind to the legal and institutional barriers to equality of ownership opportunities in the future as equity shares in productive capital assets are newly created or transferred by sale or inheritance rights. The property rights of existing capital owners are protected under Kelso’s theory. There is no need for class warfare. All that’s needed for uniting all Americans and turning America into a
nation of owners is passage of the Capital Homestead Act. (http://www.cesj.org/homestead/summary-cha.htm)

If the Mises Foundation and other free market, limited government wonder why most voters vote for politicians who support government income redistribution, they should open their eyes to the fact that the top 1% own more than the bottom 90% combined and most of the capital growth and sharing of growth profits goes systematically to that same 1%. It gets even more concentrated among the top 0.1%.

History will eventually conclude that the blindness and close-mindedness of academics and their monopoly capitalist funders like Terrell do more for the growth of bigger and bigger government power than dedicated communists.

Let me take up each of his comments marked in bold:

(1)  TT: “When the central bank lends money to the commercial lenders via the discount window, it would temporarily increase the money supply. The bank loans to the trusts would be used to purchase new stock from corporations, whereupon the corporations would purchase capital assets to expand.” 

While this statement by Terrell is essentially correct, he then proceeds to make his case based on a static rather than dynamic perspective of current market economies.

(2)  TT: “What binary economics overlooks is that in order to acquire these capital assets, the firm must entice people to give up current consumption of goods and services in order that resources may be devoted to production of capital goods.”

Here is where Terrell fails to understand the logic of Binary Economics with his faulty implicit assumption that the economy is operating at its peak productive capacity, with no waste or under-utilization of its human potential and technological potential.  Since BE would unharness such wasted potential into newly realized marketable productive and consumer goods and services, there would not be a need for “people to give up current consumption of goods and services in order that resources may be devoted to production of capital goods.”  Our counter-arguments are made in my paper published in the Journal of Socio-Economics, which you can read at http://www.cesj.org/binaryeconomics/price-money.html.  This is paper applies neo-classical and Keynesian macro-economic principles to support non-inflationary applications of “pure credit” to foster the conversion of “wasted” productive capacity into additional consumption incomes among capital-deficient citizens to purchase additional capital goods and consumer goods made possible by a transformation of basic economic institutions favoring universal participation in capital ownership.  Professor Robert Ashford, who co-authored with Rodney Shakespeare the definitive textbook on the subject entitled Binary Economics: The New Paradigm, wrote a paper I highly commend to you, “Binary Economics and the Case for Broader Ownership.” You can read it at http://www.law.syr.edu/faculty/ashford/ZZPKP02052P.pdf

(3)  TT: “However, money creation by the central bank does not alter time preferences. People have the same internal interest rate, dictated by the intensity with which they prefer present goods to future goods. When capital goods are bid up in price through bidding from the constituency trusts, production shifts to capital goods instead of goods for immediate consumption.”

Here Terrell, based on his unrealistic assumption of an economy operating at full capacity, also assumes a static money supply, where all new investment must be based on “old money” already committed to existing capital investment projects and existing consumption goods and services.  He would be correct if his assumptions were correct, but his assumptions are wrong.  As the former president of Brooking Institution stated in his mid-Depression book The Formation of Capital (1935), the demand for capital goods follows the prospective demand for consumer goods, and where there is not enough savings to meet that capital demand, the remedy is “expanded bank credit,” what Louis Kelso called “pure credit” repayable with “future savings” that would flow from the additional profits generated by the newly formed productive capital.  Hence, in a binary economy, no one would be deprived of their current consumption incomes in order to finance newly added capital assets.  In fact, with faster growth rates, wasted or unutilized workers would be increasing their consumption incomes from labor and capital from producing the supplemental capital goods and consumer goods generated when binary economic reforms lift existing barriers to full production.

(4)  TT: “…Workers employed in the production of capital goods have not become more willing to put off consumption, so as their higher wages are used to purchase consumer goods, the prices of consumer goods begin to increase. As consumer goods prices rise, workers in the capital goods industries require higher nominal wages to compensate for the decline in the purchasing power of their wages. The wage increases reduce the profits to capital asset production relative to production of lower-order goods. Firms engaged in production of higher-order goods must reduce production, or face bankruptcy. The capital production bubble bursts.”

Again, Terrell assumes a zero-sum universe, while Binary Economics is based on a synergistic, win-win set of assumptions.  Under BE barriers to full participation in capital ownership can be lifted when citizens demand reforms from their political leaders.  Terrell displays the standard mindset of the Mises Foundation, a libertarian organization that issues papers based on the fundamentally wrong assumption that free markets alone are sufficient for a free and democratic society, disregarding the instability produced in a class-divided society that tries to combine political democracy with economic plutocracy, where a small elite of owners benefits by exclusionary barriers that prevent the vast majority of citizens from enjoying equal opportunity to own and receive dividends from the increasingly productive technologies and systems of the modern economy.  BE offers an anti-monopoly logic that would allow the free and open marketplace to combine economic justice with a higher degree of economic efficiency, removing political constraints to market disciplines in setting just prices, just wages and just profits.  History proves that this professed “ideal” of the Mises Foundation can never be achieved under the unjust, inefficient and exclusionary system of the Wall Street model of capitalism.  Moreover, the economically classless society under BE would produce a new political environment for restoring the full and original rights of private property, an institution that has been badly eroded by our courts and legislators trying to redistribute income produced increasingly by technology, advanced management systems and other non-human advances in productive capacity by artificially raising labor incomes and welfare incomes.  Such wage system and welfare system redistribution has reached the point where American labor costs and government deficit spending have made the American economy increasingly vulnerable globally to economies where labor costs and welfare costs are far less than in America, like China, Taiwan, India, and South Korea.  Terrell never mentions the causes of America’s growing trade imbalances.  And lastly, a nation of economically empowered owners (with increasingly less need for government economic intervention to maintain mass purchasing power) created by binary economic reforms would restore the government of limited powers originally envisioned by America’s founders.  We would again be nation exemplifying the highest levels of economic and social justice for all that other nations would want to emulate.  Please note that Terrell never mentions either economic justice or social justice, as if morality has no place in his “ideal” economy.

Let me reiterate the faulty assumptions in Terrell’s critique of Binary Economics:

  1. That the economy is operating at optimal efficiency and full production capacity;
  2. That if the “full employment” assumption is correct, if new money went to purchase new capital assets, it would necessarily reduce consumption of existing goods and services;
  3. That the “internal interest rate” based on past accumulations and existing savings is the same “interest rate” for the financing of new capital assets under BE reforms.  See Capital Homestead Act at http://www.cesj.org/homestead/summary-cha.htm for reforms that create new owners of new capital with “pure credit;”  and
  4. That workers employed in producing new capital goods would necessarily be required to reduce their consumption and would therefore automatically gain higher wages through market forces, rather than through political pressures, strikes, collective bargaining, and government wage pressures.

All of Terrell’s assumptions ignore the enormous waste and underutilization of human beings, natural resources and technological potential that has been historically been stifled by barriers to expanded production structured in the wage/welfare systems of monopolistic exclusionary capitalism.  This waste could be transformed into expanded productive output of marketable goods and services, assuming that:

  1. “Pure credit” would be available on a “transaction-cost only” (i.e., without the alternative yields that would be required if BE required previous accumulations of the already rich, which it does not), plus capital credit insurance premiums to pool the risks of default under Capital Homesteading investments in growth capital;
  2. Existing accumulations and savings of the rich would be voluntarily channeled into (a) highly speculative investments for which capital credit insurance would be unavailable, (b) investments in the reserves for private sector capital credit insurance and reinsurance companies established to facilitate Capital Homesteading loans to all citizens, (c) science and technology advances, (d) consumer loans, (e) gifts, (f) charity, (g) more expensive consumption goods and services, (h) gambling and purchases of hedge fund shares and derivatives, and (i) the building of monuments, public facilities and endowments to the arts and cultural affairs; and
  3. rates of capital growth increased at the same rate as growth of new consumption incomes from newly created jobs and new dividend incomes among the vast majority in the population who are today disconnected from ownership of the capital assets and system improvements that account for most of the growth of developed economies like that of the USA. (See http://www.cesj.org/publications/capitalhomesteading/whatif-flyer.pdf and http://www.cesj.org/binaryeconomics/price-money.html.)

If any of these terms are unclear, please refer to the Glossary at http://www.cesj.org/definitions/glossary.html


Below is an abridged response from Dave Hamill, a member of the Collation for Capital Homesteading:

See his complete response at http://capitalhomestead.org/profiles/blogs/pro-capital-homesteading-layman-s-response-to-mises-criticism

Pro-”Capital Homesteading” Layman’s Response To Mises Criticism

I am a member of the Coalition for Capital Homesteading (a proposal consistent with binary economics), and I have found very little substantive argument against the plan. I was pleased to find a critical article in a Mises Institute newsletter archive, and I have prepared responses here to the points it contains. The article can be found at:

It is written by Timothy Terrell.

Unfortunately, the article is a criticism of binary economics, which I am less interested in defending, compared to the specific proposal called the Capital Homestead Act as described at capitalhomestead.org.

My response is not the official position of any group, including binary economists or the Coalition for Capital Homesteading.

I would like to make it clear that I highly respect the Mises Institute, and I believe their proposals are generally good. As of this writing, I have only known about the proposed Capital Homestead Act for about three years. Before that, my preferred monetary reform followed the teachings of the Austrian School. I have always been anti-Keynes, have never voted for a Democrat Party candidate. I also traveled the country in 1992 as a ballot access petitioner for the Libertarian Party.

My favorite monetary reform proposal is Capital Homesteading, which I think is simply a better plan for all of humanity. It is more “just” and would be easiest to implement without changing many laws; and it can enjoy bi-partisan support. But we must end the fractional boom-and-bust debt-based nightmare, and I will vote for candidates who support any reform that does so; with a preference for (and campaigning for and donating to) those with Capital Homesteading in their platform.

My view is that money is now created through a scheme that empowers the banking and financial class as well as their corporate and wealthy favored customers. Mises supporters would prefer to end that scheme, but they have not been able to do so. Capital Homesteading is admittedly a similar scheme, but instead of an elite banking/financial class, it empowers average citizens; employing wealth-broadening techniques that can appeal to those who now support the Keynesian failure. So it is a compromise that society can easily implement, bringing the Austrian objectives of smaller government, asset-backed currency, ending the fractional-debt business cycle, and open competitive markets. I have found no other plan that can gain majority support that accomplishes these objectives.

Below are excerpts of the article published in The Quarterly Journal of Austrian Economics Vol 8, No 1 (Spring 2005) by Timothy D. Terrell. Pro-Capital Homesteading Layman’s response in italics written by R. Dave Hamill, except for attributed quotes.



Paragraph 1 Binary economics is…

I do not know where the line “rather than the quantity of capital” comes from. I think most supporters of Binary Economics are concerned with the quantity of capital, because they think Keynesian mechanisms provide too much frivolous, consumer-debt-based capital. The focus is on having only as much productive capital as is needed by the “producers” in the economy. Terrell seems to have a lack of clarity on this issue, which is even more apparent later.

Paragraph 1 Continued Its roots are…

Actually Kelso should be attributed as the author or co-author of binary economics’ main proposal, now called Capital Homesteading. It has not significantly changed since he (and Mortimer Adler) first wrote about it. But the “roots” of the movement occur far earlier in American and world history, and they are so prevalent in the writings of prominent thinkers who are studied by economists, the lack of acknowledgment of them seems curious. I refer to some specific history gathered by Capital Homesteading advocate Michael D. Greaney, MBA, CPA and posted on his blog:

“Power, as Daniel Webster reminded us in the Massachusetts Constitutional Convention of 1820, naturally and necessarily follows property. Webster did not refer to consumer goods, even a primary dwelling, but landed, industrial, and commercial capital that produces marketable goods and services. The necessity of as many people as possible owning capital in addition to their labor has been recognized from the earliest times, but has increased in urgency as technology advances and displaces labor from the production process at an accelerating rate. In 1848 William T. Thornton published A Plea for Peasant Proprietors, a proposal to end the Great Famine in Ireland. The plan was based on making land available at a reasonable cost to the Irish to enable them to shift to other sources of food. Abraham Lincoln’s 1862 Homestead Act helped America recover from the Civil War and the shift from cotton to wheat. In 1891, Pope Leo XIII declared, “We have seen that this great labor question cannot be solved save by assuming as a principle that private ownership must be held sacred and inviolable. The law, therefore, should favor ownership, and its policy should be to induce as many as possible of the people to become owners.” In the early 20th century Peter S. Grosscup, one of Theodore Roosevelt’s “trust busters,” advocated “people-ization” of America’s corporations by spreading out ownership.”

Lincoln’s Homestead Act is the most glaring proven model of success for our proposal, due to the resulting full employment and economic boom yet to be duplicated since. Both use the primary productive capital of each era (land then, technology now). But perhaps the deepest, strongest, principled “root” of binary economic thought comes from an economist so prevalent in recent history it becomes almost conspiratorial to see how little his work is mentioned by business, government or academic economists. That is, the work of Harold Moulton who was the longest-serving president of the most trusted think tank in the world, The Brookings Institute (from 1927 to 1952). Greaney continues:

“Keynesian, Monetarist/Chicago and Austrian economics are all based solidly on the assumption that the only way to finance new capital formation is to cut consumption, accumulate money savings, then invest. Moulton completely disproved this assumption in 1935 in The Formation of Capital, presented as an alternative to the Keynesian New Deal. Moulton explained how, by discounting and rediscounting “bills of exchange” drawn on the present value of existing and future marketable goods and services, commercial banks and the central bank (the Federal Reserve) can create an elastic, asset-backed currency to replace the government debt-backed currency that has stifled growth and concentrated wealth in the hands of a few. The potential of “pure credit,” that is, credit that is not dependent on existing accumulations of savings, is bounded only by what can be produced in the future, not by what has been withheld from consumption in the past.”

The Austrian School will not acknowledge Moulton because he “was” Brookings, which unfortunately now embraces Keynes. Keynesians wouldn’t dare discuss Moulton’s teachings on pure credit because it would jeopardize the validity of their flawed position now. In fact Brookings has little or no information about Moulton’s work available on their extensive Website, except two short sentences mentioning his work on war debts.

The ignoring of Moulton’s work regarding the nature of capital and other precursors to binary economics should probably not draw personal attacks from our camp. We can praise the “past savings” establishment talking heads for their devotion to their families, because most are maintaining their employment. Instead of personal attacks we should focus on educating new economic scholars and the public.

Paragraph 2 Those who rely…

The point is that poverty is more likely in a society that does not find ways to increase broad-based ownership. Not all who rely exclusively on labor income are consigned to poverty; that was not stated.

Paragraph 7 Because binary economists…

It seems unfair to conclude that binary economists fail to recognize this. It would be more accurate to say they argue that a person whose labor is partially replaced by non-human capital becomes less valuable to the existing owner. Many admit, for example, that high-tech jobs designing and maintaining systems that replace humans require more skill and will pay more. But they wonder how the many workers who were replaced but do not land one of the few design or maintenance jobs will find a way to survive. Consistently high unemployment numbers and increased dependence on unsustainable welfare programs now validate their concerns.

Paragraph 7 Continued If wages are…

While in some theoretical way this may be a true statement, the main point is that if a laborer gains an ownership share of profits that he previously did not have, his total income is likely to increase.

Paragraph 8 Roth has effectively… human capital.

This is a true statement of course, but seems a waste of time to go down such a road. It is assumed (by anyone other than those who are expending great effort to find any possible way to say something critical) that the one-time development of the shovel, although it required human capital, is a small percentage of the equation comprising productivity of the millions of worker/shovel teams in use.

Paragraph 8 Continued Also, Roth notes…

Surely no one can assume that Ashford believes the hole digger has no role in the “productiveness” of the shovel. He is using a basic example to illustrate principles that most readers can project out to scenarios where highly sophisticated machines like computers and robotics replace the work of thousands of humans, as is reality today.

Paragraph 8 Continued Moreover, if the…

Again, technically a true statement. But most non-human capital is created through investment and/or effort to perform a function that generates profit, not to sit idle.

Paragraph 8 Continued The labor and…

Granted true in this example, but helps to support both sides of the argument so this point is not germane to Terrell’s argument.

Paragraph 8 Continued Thus, it is not at all clear that “capital productiveness” replaces “labor productiveness.”

This is not a strong conclusion based on the weak theoretical points that are used to lead up to it, as shown. At best, an accurate statement is “capital productiveness does not always replace labor productiveness”. For example there are some professions that are considered an “art”, where humans may be impossible to replace in any manner. But it would be difficult to not admit that the overall historical trend of civilized society is less labor and more automation. For example, look at one industry such as agriculture and there can be no argument.

Paragraph 8 Continued It seems clear…

Again, a “splitting hairs” true statement. To discuss their obvious interdependence does not help illustrate the point being made. Everyone knows that humans and tools, machines, and other non-human capital work together. But that does not mean that the non-human capital does not often replace human capital.

Paragraph 9 The binary economists…

Again, not part of their point, and it is assumed that the reader realizes that labor and innovation are part of the equation, but the typical development of a tool, machine, etc. is a tiny part due to the multiplying effect of duplication of that tool, machine, system, etc. Ashford acknowledges that jobs will always exist in comparatively small numbers to develop and maintain robots, systems, etc., as shown in the next Ashford/Shakespeare paragraph Terrell quotes.

Paragraph 10 This entirely ignores…

This is a valid point, but just because making capital goods was not mentioned, does not mean it was exempted from consideration. All job sectors are subject to the same pressures of technological unemployment, although the nature of some may cause them to be (at least temporarily) less affected. For example, there is still a demand for transportation workers in the United States, with jobs numbering around 70 million. But there is no economic law that says fully automated rail systems with adjoining robotic sorting stations, tracking systems, etc. will not eventually eliminate all of these specific jobs. Binary economics argues this kind of advancement is good, and increased investment capital would encourage it. Estimating generously, it would seem unlikely more than the following job numbers would replace the displaced transportation workers: A few hundred systems design jobs, a few thousand maintenance jobs, and a few thousand jobs manufacturing the trains, robots, tracking systems, etc. Even if we allow doubters to multiply these estimated numbers times 100, that is still only about a million jobs. Anyone reading this can make their own theoretical estimates. But the importance of this discussion, including whether technological unemployment is real and capital ownership is important, are questions for the reader to decide. With every day that passes in which economists and politicians continue to refuse to unite with their philosophical opponents to find to a strategy that everyone can tolerate, it becomes more likely that the reader will agree with us, due to personal experience. Odds are most families, even those of intellectuals are becoming affected by these issues, even if only as perhaps one distant relative is merely “under-employed” because of these trends. Another related, real-life question on this subject is this: Would a world where all transportation workers are replaced by automation be a nice place to live in? Consider if the displaced workers were able to survive without their transportation-related labor incomes, due to their capital incomes. If they wanted to better themselves, would they not be more likely to pursue work in a remaining, thriving field they enjoy? Would that not be something more beneficial to humanity such as music, art, space travel, or medicine? When you start to contemplate these things, can you begin to see how not finding a workable compromise in the field of economics is holding society back?

Paragraph 11 What of the value…

Yes but the number of few innovative laborers compared to the unemployed masses is not large enough to add significant income for all. People realize this, and are seeking ways to remedy this problem. They are turning to socialist solutions because no one is educating them about distributed ownership, which grows free markets and reduces the size and scope of government. Metal-standarders and monetarists have been giving us the same message now for decades, with no progress. You should consider the possibility that you may eventually have no free country to meet in to discuss your theories. Perhaps you can begin to discuss some that address issues important to liberals such as wealth disparity, before the collectivist movement continues to grow, and nations resist austerity, centralize their governments, etc. If you think about the current trend and where it will likely lead, binary economics becomes more interesting.

Paragraph 12 Binary economists have…

A capital worker is undeniably different from a labor worker. It is true both often require skill and effort, but far varying amounts of it. A scenario of “work” similar to that of a “capital worker” opening a Capital Homestead Account takes place now at the beginning of enrollment in a typical 401k plan. Many employees have selected a one-time general portfolio allocation, requiring only a few minutes of effort and no expertise; with excellent long-term wealth-building results. Some retire millionaires, twenty years after spending only ten minutes selecting funds and deciding their allocation percentages. Many investment advisers say this “hands off” approach is often better for success, due to dollar-cost averaging, especially during price downturns. There will always be those who are skilled at finding better investments and changing vehicles at opportune times. But one purpose of the Capital Homesteading proposal is to reduce casino-style speculation and frequent changes in investments. Binary economics favors non-speculative, long-term investments in dividend-paying, voting shares of corporations that pass specific feasibility tests. Perhaps there would be reasonable trade frequency limitations for CHAs, as some retirement plans have now. Existing leveraged markets would not be outlawed, but the presence of broader ownership of conservative investments would change the nature of some volatile markets.

Paragraph 12 Continued Of course, “astute…Mises 1956, pp. 84–85)

How does this align with the earlier statement (about the shovel example) Terrell made: “.. binary economists fail to recognize that labor productivity has increased with additional capital.”? So labor productivity increases with additional capital, but now “capital .. [does} not have.. the power to raise the productivity of.. human labor? Could it be that Terrell is guilty of what some religious zealots are accused of- finding “scripture” to justify whatever point they want to make at any given moment? True biblical scholars say it is better to focus on the overall theme. I think economic scholars should do the same. I propose they look honestly at the entire body of work that is the proven field of economics, and acknowledge the existence of overall truths that support a beautiful theme. A theme with obvious virtues like hard work, hard assets, and individual liberty. But also including the undeniable success of power decentralizing efforts like anti-trust legislation and publicly accessible stock markets. Those are the good, visible elements of a generally accepted compromise in the economic philosophy of society. Of course we have also adopted some bad, less visible elements of economics that are finally proving to clearly not be part of the good theme. Public debt, all-powerful banks and fractional lending bust cycles are some examples. It is time to stand together with all who are in favor of the proven, generally accepted good elements and against the corrupt, failed bad elements. As we do so, we should not rule out new, unifying ideas that advance real money, competition, and small government; along with innovative ways to address the natural concentration of power. I firmly believe Capital Homesteading should have a chance to be included in this beautiful theme of proven economics.

Paragraph 13 Thus, the distinction between the labor worker and the capital worker, which is critical to binary economics, is not at all clear.

The “is not at all clear” statement is used repeatedly, but always to argue a “splitting hairs” scientific point. Everyone knows the difference between going to a job to work every day and having long-term investments that generate income. It is inarguable that it is at least remotely possible to make near-unlimited income with long-term investments in today’s markets while spending nearly 100% of one’s time at leisure.

Paragraph 13 Continued Binary economists roll…

I hereby admit that it is labor. Any binary economist that says otherwise is dead wrong. But, as outlined earlier, it is possible to spend fifteen minutes of that kind of labor every twenty years. Or you can choose to labor ten hours a day or more on management of capital.

Paragraph 13 Continued Ashford and Shakespeare state…distinction.

More repeating of a “principle” that anyone can agree is technically true but unimportant in the real world. Some will spend much time on these tasks, others will spend almost no time. The point is to have a system that lets people choose their amount of time and effort; and of course always allow some to do better than others.

Paragraph 15 Binary economists frequently… of that capital.

Again, a technically true argument. But common sense says that a trained, fed, led, “modified” donkey can be bought with traditional capital; so the complete product, although part of nature, is nonhuman capital. And yes, a donkey in this illustration must have a human worker involved. But the spirit of the point is undeniably true. If one man carries a sack a mile, then a crew of a hundred workers can carry a hundred sacks a mile. But if one man buys a team of ten donkeys, he can tie them in a line and carry the hundred sacks a mile quicker. That way the nonhuman capital, the donkeys, increased per-capita output by an even higher rate, i.e. ninety times, with ninety-nine workers taking off to go to the dance. But the spirit of this point goes beyond beasts of burden. Applied to the reality of today’s American citizen, the principle that some human must be involved “somewhere” would not matter to, for example, a career sales rep who lost her job because a company with a slick new Internet marketing and order placement system bought her employer out and fired the sales force of five thousand. Perhaps you could meet with the displaced rep and ask her to admit that the new company must always employ a human to handle sales strategy, and this proves that all labor cannot be eliminated. You can probably do so at the unemployment office where she will be with a few hundred friends from her local sales territory. By the way, you might want to wear a certain kind of heavy-duty vest to that meeting.

Paragraph 17 Binary economists confront…

I can agree it is difficult to measure these things, but that does not mean binary economists are wrong.

Paragraph 18 Binary economists must…
If they said that exact thing, they probably meant “in general”.

Paragraph 18 Continued Roth shows that…

There are a few mechanisms now in place that help some workers obtain capital, although slower than we prefer. And of course a certain percentage of workers plan for retirement. Most of these accumulate past savings over their lifetimes, probably why the “aging of the workforce” is mentioned. Younger workers usually do not have significant savings, an issue that supports the argument for Capital Homesteading.

Paragraph 19 Roth concludes that…

We all agree this is hard to measure. (There is obviously a lack of substantive disagreement when a critical paper is filled with many paragraphs repeating over and over that both sides agree something is hard to measure.)

Paragraph 19 Continued Kelso and Kelso…

I recently heard a conspiracy theory that says the Rothschilds and other wealthy bankers funded the Austrian School as well as the communist Bolshevik Revolution. I dismissed it, even though I had heard about similar strategies before, such as the United States Banker’s magazine article in 1892 that said:

“[We] must keep the people busy with political antagonisms… We’ll therefore speed up the question of reform [of tariffs within] the Democratic Party; and we’ll put the spotlight on the question of protection… [for] the Republican Party… By dividing the electorate this way, we’ll be able to have them spend their energies at struggling amongst themselves on questions that, for us, have no importance whatsoever!”

I previously dismissed such theories and statements as manufactured. But when I see an argument by an Austrian economist that is critical of anyone who writes what Kelso says:
“Free-market forces no longer establish the “value” of labor. Instead, the price of labor is artificially elevated by government through minimum wage legislation, overtime laws, and collective bargaining legislation or by government employment and government subsidization of private employment solely to increase consumer income.”

I can’t help but wonder why they are not at least modestly praising instead of criticizing. Even the more common response to first learning about binary economics.. silence, seems strange to me. With the rampant disregard for these free-market, anti-big-government truths throughout the world of failing economies; wrought with debt and government intervention, surely on some level finding anyone who believes this, is cause for celebration! Shouldn’t any possible way to build a movement together be explored? If not, how can any conclusion be drawn other than believing there is a culture of paid loyalty (salaries, grants, etc.) in the circles of conservative economists, with fear of cuts coming from somewhere? Please tell me there is no way it comes from the ridiculously powerful bankers who are raping the governments and hard-working citizens of the world through the corrupt Keynesian idiocy?

Paragraph 20 and 21 In addition… misleading.

Again, all seem to agree it is difficult to find a conclusive answer to this question. But both sides of this argument can agree that almost all economies in the world are structured too liberally; purely or partially Keynesian, Socialist, etc. So smaller government, anti-fractional debt currency advocates should be frantically searching for any way to get at least some liberals to want free markets, smaller government, and asset-backed currency. Why not come together and advocate for a “test economy”, where a single state or even a small country enacts a Capital Homesteading plan, to conclusively answer these important questions? I theorize that it would be successful, not only because of the arguments that Kelso makes, but due to likely support by most liberals and conservatives.

Paragraph 22 Binary economists tend… acquisition.

All binary economists do not say all savings and capital acquisition from savings are detrimental to economic growth. The general concentration of capital ownership is the issue. There may be some who feel this way, but in varying degrees. In my conversations with several, I was able to describe a “what if” scenario where an entrepreneur with a better-than-average idea and/or work ethic could save (in addition to his Capital Homestead savings) to start his own business which becomes a dividend-paying corporation that is more profitable than average. They agreed that should always be possible.

Paragraph 23 The Kelsos… and therefore “sterile.”

If all advocates of binary economics strongly believed that there should never be any savings over and above “the demands of a household’s consumer lifestyle”, there would not be many followers. What attracts economic conservatives to the philosophy is the emphasis on freedom in areas such as this. There is no discussion of “capping” savings. There may be some thinkers in the movement who have considered such a limit. Kelso, although he did not specifically say so may have mentioned the concept, but in the interest of building consensus probably knew that proposing it would be counter-productive. But this brings up another reason why binary economics needs more conservatives. Instead of trying to label sympathetic conservative scholars as “binary economists”, a more pragmatic goal would be to have more conservative economists simply support Capital Homesteading, or at least a test of it. Debating binary economics is not as important as finding a way to implement Capital Homesteading. If several vocal conservative economists from the gold-standard and monetarist camps began to support Capital Homesteading as a compromise with the prevailing liberals, we would all see proof of how boom and bust cycles are eliminated with any form of sound money sans fractional debt, strengthening their arguments. There are many liberal-leaning activists in the Coalition for Capital Homesteading, and some are advocating additional policies beyond the core proposal that could result in fewer conservative supporters. This could allow society to miss this opportunity for reform, meaning Keynesians stay in power until they totally crash world economies beyond repair.

Paragraph 24 Because investing in …economy.

Does not consider the view of many binary economists that capital invested in production does grow the economy.

To some binary economists, apparently, capital is useless (“morbid,” in their terms) if the owner decides to reinvest any income from it. Kelso and Kelso (1986) make this plain: “The earnings of morbid capital—capital in excess of that which can or will be used to support the consumer lifestyles of the owners—are altogether diverted out of the market economy for useful goods and services” (p. 128). Thus, anyone who owns such capital—who fails to spend every dollar earned through capital ownership and management, is being irresponsible and selfish: “A participant in production who, through his or her superproductive power (normally excess capital accumulation), earns more income than he chooses to devote to consumption, necessarily beggars his neighbors” (pp. 35–36). And, “[morbid capital] beggars others by depriving them of the economic opportunity to increase their earnings as capital workers” (pp. 36–37).

I believe highlighting this view is one of the few good points in Terrell’s argument. Not all supporters of binary economics have the exact same attitude about excess capital. I personally feel that the ability for every individual to retain all income from any source, and do with it as they wish is their God-given right. I admit that the portion of earnings that are saved and not either spent on consumption or invested in production is “morbid”. I support a system that empowers all through binary economic principles like employee ownership and Capital Homesteading; so huge fortunes resulting in massive amounts of morbid capital would be less common. But in the interest of freedom, there must be no penalty on those who are still able to accumulate this unused capital. And as mentioned, I do believe that a large percentage of capital held in this way is invested in production, which does grow the economy. Again, this is an area where I believe the future of binary economics needs former Mises purists to join me in supporting conservative principles, to provide balance where others might influence the movement to enact (for example) confiscatory income taxes. (I do believe some corporate income tax may be necessary, because there needs to be a tax incentive for dividend-paying corporations structured to accept Capital Homestead investments.)

Paragraph 27 For binary economists…lower cost
I consider these binary arguments generalizations. Looking at the overall philosophy, consumer demand and increasing capital investment in production are both often stressed as important.

Paragraph 27 Continued Yet capital goods…and growth.

Here Terrell admits that he has found ways to argue both sides of the consumer demand versus capital investment issue that binary economics addresses.

Paragraph 28 Somehow, binary economists have even managed to conquer the capital/consumption tradeoff that has been with us from time immemorial.
Yes, this is the main point of their philosophy. In my opinion, their theories in this area are profound because the problem has indeed plagued us for that long. But there is no conclusive way to prove they have truly solved the problem, until binary economics is tested. But making the claim of having found the magic formula to fix this dilemma seems important enough for mankind to eagerly want to try it, even if only in one small state or country.

Paragraph 29 Again, it seems… consumption.

Unsubstantiated statement. Binary economists are saying the opposite, that no one must reduce consumption under our plan for someone else to borrow for the purpose of acquiring capital.

Paragraph 29 Continued Through money creation by a central bank, that link can be temporarily stretched, but only at the cost of a subsequent recession.

Unsubstantiated statement. We do not propose stretching anything. The amount of annual GDP growth would be calculated, divided by the population, and the central bank would loan that amount to each citizen to be invested in dividend stocks through Capital Homestead Accounts. There is no frivolous arbitrary expansion based on fractional debt as is the case now.

Paragraph 30 Ashford and Shakespeare …not waiting

Unclear point.

Paragraph 31 Of course… Production goods, one must suppose, do not count.
It is best not to suppose. The authors are probably saying “mostly”, not absolutely. They did not specifically exclude production goods.
Paragraph 31 Continued Strangely, the presence… concealed. (p. 40)

It seems factual to add earned income spent on consumption and welfare spent on consumption together to calculate total consumption. I often wonder when people quote Say’s Law where they are coming from. Some think it is assumed they are saying supply doesn’t create demand. The bigger point is, a huge majority of people in our world today are suffering economically. We need to stop debating principles and come together with a spirit of humility about what we think we know for sure, and be willing to objectively test different theories in the real world; to find something that empowers the vast majority of humanity to reach their own livable level of success.

Paragraph 32-35 Supposedly, even consumer borrowing… nor can it be reasonably called “conventional.”

I confess to be too confused by this to comment. It may be that Terrell’s point is excellent, but I cannot see how it relates to the reality that consumers now severely abuse debt. I do think most borrowing should remain legal and will always exist with a possible exception from anti-”extreme usury” laws. Regulations on payday loans and title pawns are okay for instance. But citizens should be generally free to borrow. However, Capital Homesteading would help change the overall trend of debt-slavery to one of more widespread financial stability for average citizens. As wealth builds, and fractional lending ends, frivolous borrowing will decrease.

Paragraph 36 Binary economists have… employee stock ownership plan.

It is likely that Terrell does not want to help promote our proposal by using the buzzwords of the movement. The “constituency trusts” plan was initially called “Industrial Homesteading” by Kelso, and later the more up-to-date label “Capital Homesteading” was adapted. This is important to know if you study the history of the movement and who supported it through the years. For example, Ronald Reagan is on record supporting Industrial Homesteading, the name that was used during his era.

Paragraph 38 …would create a massive credit bubble.

Unsubstantiated statement. It would be impossible to have a credit bubble. There would be no fractional reserve lending, only full-reserve lending. The credit bubbles we constantly experience now would end.
Paragraph 38 Continued When the central bank… money supply.

This statement reflects a lack of understanding of how the plan works. The natural growth of the economy, including private-sector bills of exchange would be the determining amount of increase in the money supply offered via the discount window.
The bank loans to the trusts would be used to purchase new stock from corporations, whereupon the corporations would purchase capital assets to expand. What binary economics overlooks is that in order to acquire these capital assets, the firm must entice people to give up current consumption of goods and services in order that resources may be devoted to production of capital goods.

Unsubstantiated statement. How would “people” (consumers?) need to give up current consumption of goods and services, when only new resources they do not have now are used to invest in capital assets?

Paragraph 38 Continued However, money creation by the central bank does not alter time preferences.

Confusing, unclear statement.

Paragraph 38 Continued People have… immediate consumption.

In the current system, the banking and financial sector and their preferred customers have near-unlimited investment capital through low-to-no-interest, money-creating, fractional-reserve credit that bids prices of capital goods up excessively. This free-and-loose money is now invested in quick-return stocks, contributing to volatility and therefore uncertainty for institutional and retirement investors. It is also channeled into commodities (whose overbought strength is another symptom of failed money policy) which skyrockets real inflation for working families that must buy fuel and food with a higher and higher percentage of their income to survive. Compare that to a full-reserve, distributed-ownership, low-to-no-interest credit system where the investment focus is on long-term dividend-paying shares of entities that pass feasibility tests.

Paragraph 39 From this point on the inflation caused by the central bank begins to work its way through the rest of the economy.

There would be no inflation or far less than now, for previously-mentioned reasons.

Paragraph 39 Continued Workers employed in… begin to increase.

Compared to the way the previously-mentioned “free-and-loose” fractional-debt-backed money is now invested in capital goods under our current system, workers employed in the production of capital goods would not contribute to inflation more than they do now.
Paragraph 39 Continued As consumer goods… their wages.
Consumer goods prices would not rise compared to now. I would also argue that we may have too much commodity-based inflation and too little real goods inflation including home values and private-sector services (too many broke customers now) which can increase average net worth and worker incomes. So doing anything to bring broader-based wealth to all consumers and more confidence in money could bring a small amount (controlled by lack of fractional lending) of the right kind of inflation.
Paragraph 39 Continued The wage increases… lower-order goods.

As a continuation of my argument on this subject, I contend that the investment in capital goods would be similar in quantity to what we have now, but it would be more consistent and would flow through citizens instead of banks, hedge funds etc. I disagree that these wage increases would happen.

Paragraph 39 Continued Firms engaged in production of higher-order goods must reduce production, or face bankruptcy.

No substantiated reason for this result; the series of factors leading to it are based on flawed assumptions, as outlined.
Paragraph 39 Continued The capital production bubble bursts.

Again, there would be less likelihood of a capital production bubble under a Capital Homestead Act system than right now.
Paragraph 40 Now the constituency trusts… bail out the CCRC.

As I have detailed, this worst-case scenario has not been proven to be likely. But the circumstances of a related crisis (even though unlikely) are serious enough to warrant discussion. The disaster of 2007-2008 was in my opinion worse, and has created long-term consequences in the psyche of humans throughout the world. The bailouts were given to entities that should have been allowed to fail, including severely flawed governments. Even if this “bad scenario” Terrell presents happened, the proposed system would at least focus on the financial health of the citizen. Because of the diversification of individual investments, an 07/08-severity situation is less likely. But, because we have seen a flawed bailout of a boom-and-bust system with arbitrary crony give-aways; wouldn’t it be useful to have a small-scale test of an asset-based system that includes a more organized, competition-based insurance safety structure?

Paragraph 40 Continued The capital distribution …was initiated.

This statement would only have a remote chance at validity if the worst-possible scenario happened, which as I outlined is far less likely than under the current system. Tax dollars are only involved after all other mechanisms fail. Not only would we have a plan with millions of individual accounts, invested in many different markets, insured by hundreds of different companies; there would be progressively fewer direct-government-backed loan schemes like Fannie Mae due to increasing per-capita wealth. A Federal Reserve study shows the average net worth of American families declined nearly forty percent from 2007 to 2010 (Wall Street Journal 6-11-2012). Is there anything you can do to get liberals and conservatives to begin working together on a plan that will reverse that decline, and insure that it does not happen again? It is likely that socialist solutions will continue to grow in popularity if a third way is not found. I propose a “Just Third Way”; Capital Homesteading.
Paragraph 40 Continued In sum, the… with “conventional” economics.

I can give reasons why this is not true, mainly referring to my previous arguments. But I admit I cannot prove that the (I believe remotely) possible problems will never exist. Should we never try any form of Capital Homesteading because of that lack of history, and continue to depend on a system that has a clear pattern of ever-larger booms and busts? Again, if I was an Austrian economist, I would be so excited about the existence of a small-government, asset-backed, full-reserve system that liberals can support and is therefore possible to implement on a small scale; I would be praising and promoting it at every opportunity!

Paragraph 40 Continued The scale of their envisioned plan would make this a far larger redistribution than is currently occurring.

I mentioned the diversity of millions of investors. I argue that the large “scale” of nationwide implementation of Capital Homesteading in the U.S. Is the very characteristic that reduces the chance of some sort of collapse requiring utilization of the government reinsurance, and therefore “redistribution”. Our financial transactions are now concentrated in New York, where the Fed feeds an unnatural bond market; and casino style trading, credit-default swaps and similar schemes create systemic risk through lack of market and geographical diversification. Under Capital Homesteading, any voting dividend shares can be purchased through private direct sales, local bank transactions, and alternative stock markets. This would be the greatest diversification in history, compared to the concentrated vulnerability of our existing system.

Paragraph 41 The level of inflation under such a plan would be severe.

Unsubstantiated, countered in detail above.

Paragraph 41 Continued Ironically, the binary… The logic here is inscrutable.

Or so revolutionary, it appears inscrutable. No conclusive evidence of inscrutability.

Paragraph 41 Continued Roth contends that..

Any remote possibility of such an issue is small compared to today’s frivolous fractional reserve, public and private debt-perpetuating, boom-and-bust system; as outlined.

Paragraph 42 The amount of… necessarily be large.

Again, this is a completely false statement, reflecting a lack of knowledge about the proposal. The amount of discount lending is specifically tied to the exact amount of the increase in GDP.

Paragraph 42 Continued Yet, if more discount… current U.S. GDP?

No binary economist has proposed such a ridiculous thing. (See my previous comment).
Paragraph 42 Continued Certainly this would… not made clear.

Any uncontrolled expansion would bring the problems we have today, including boom-and-bust cycles. Focusing on this non-argument reflects the lack of seriousness that Terrell and others have devoted to binary economics. If they continue to reject it as an alternate way to reach their goals for the world economy, a new criticism with legitimate reasons for their fears needs to be constructed. However, I believe it is impossible to do so.

Paragraph 43 As we have seen… massive business cycle.

Unsubstantiated, countered in detail above.

Paragraph 43 Continued It is also… for such loans.
In most economies, there is some sort of “lender of last resort”. I argue that we are seeing this concept abused right now, and would be less likely to be needed due to reasons previously stated.

Paragraph 43 Continued As Roth wrote …extant process” (1996, p. 64).

I believe it would dramatically reduce redistribution. The government reinsurance would be less likely to be needed than the bailouts of today due to the lack of boom-and-bust debt-based currency, and broad-based investment and geographic diversification. As the wealth of average citizens grows through generations, welfare and other redistribution will no longer be needed. There will be unanimous recognition that redistribution plans of the past were failed government dependency schemes.

Paragraph 43 Continued Besides, as Roth… enormous losses (p. 64).

The losses are due to the massive promotion of consumer debt, as home purchases and even education are. With systemic focus instead being on productive credit, the government-underwritten loan system collapses will finally end.

Paragraph 43 Continued more likely than not, the government’s decisions would reflect the concentrated benefit-dispersed cost calculus: credit would generally be allocated to well-defined constituencies, while the (largely hidden) costs would be broadly dispersed across all taxpayers. This would be the inevitable consequence of binary financing; an outcome which would hardly be congruent with the goals of binary economists. (Roth 1996, pp. 64–65)

Unsubstantiated fear-mongering. Roth’s argument also results from a lack of understanding about the specific limits placed on amounts of credit the plan allows. This proves you can scan the work of our movement with a negative attitude and never allow yourself to understand the nuances of how it would work.

Paragraph 44 Where the binary… family can own.

I disagree with Kelso on this point. I hope more like-minded conservatives join the movement to influence the absence of such in the drafting of the actual Capital Homestead Act legislation.

Paragraph 44 Continued “[The state] must prohibit the sterilization and morbidization of capital ownership by those who seek too much capital-productive power” (Kelso and Kelso 1986, p. 33).

Again, I agree with the fact that much of this capital would be “morbid”, but the basic concepts of freedom prevent restriction of such accumulation. The powerful principles of future productive credit and broad-based, distributed ownership behind Capital Homesteading would dramatically counteract this small negative force on consumer spending. The massive concentration of wealth now encouraged by our plutocratic, corrupt system is a far worse creator of morbid capital.

Paragraph 44 Continued Saving, apparently, would be a crime: “Economic health also requires vigilance in preventing families from accumulating more capital-earning power than they can or wish to spend on their own consumption” (p. 20).

Help me make sure saving is never a crime.

Paragraph 44 Kelso and Kelso also want… assets after death.

The Coalition for Capital Homesteading has re-named Kelso’s “principle of limitation” to “principle of harmony”. Here are the guidelines on the Coalition Website, capitalhomestead.org:

There are three essential principles of economic justice necessary for every person to be economically independent and for economic democracy to exist and be sustained:

— The principle of participation: Every person must have equal opportunity to contribute their human labor and their capital in the production of economic goods and services. Equal access to capital ownership requires equal access to the institutional means to acquire capital financed through the future earnings of the capital itself.

— The principle of distribution: Private property in one’s labor and capital entitles the owner to the full income stream of, and full share of control over, what his or her labor and capital has produced. The relative value of those contributions is most objectively determined in a free and open market, where capital ownership is broadly distributed and the institutional means and opportunity to acquire private property is universally accessible.

— The principle of harmony: To limit greed and monopolies, no person may use his or her property in any way as to deprive others of their right to acquire and own property, or damage the property of others, or harm the general welfare. When either the principle of participation or principle of distribution fails to operate, or is prevented from operating, the principle of harmony requires that people organize through acts of social justice to transform their social institutions to restore justice in both participation and distribution.

There are four pillars of a just free market economy:

— Limited economic power of the state, whose duty is to police abuses, enforce contracts, prevent monopolies, and lift barriers to equal participation;

— Restoration of the full rights of private property, especially in corporate equity;

— Free, open and anti-monopolistic markets for determining just prices, just wages and just profits; and

— Universal access to the means of acquiring capital ownership, as a fundamental human right.

There are few in the movement who would “restrict or eliminate bequests”; I would not. I believe in the principles as written here, not exactly what the Kelsos wrote in the early stages of plan development.

Paragraph 45 Continued Property ceases at death… (Kelso and Kelso 1986, p. 27)

This is in my opinion one of the easiest elements of binary economics to criticize, so if I were Terrell I would also dwell on it. My personal preference is to never restrict or limit bequests. I could accept other ways to address the issue of harmony, such as new laws combating corrupt usages of large concentrations of capital. We should increase prosecution of anyone who uses money power to abuse others, monopolize, take away rights, or influence lawmakers unfairly, instead of limiting accumulations. The Kelsos were clearly in favor of a death tax and wanted to try to stop people from finding ways to avoid it. That issue of subverting or avoiding is key to my argument against such. It is impossible and unethical to eliminate estate planning, where people legally structure their wealth. This fact means death taxes mostly affect those who fail to plan or cannot afford legal assistance. I also believe that preservation of estates helps to counter the growth and power of government, and has been a constructive influence on humanity due to charitable foundations. These positive factors; freedom and good works, to me outweigh the issue of morbid capital relating to estates. Perhaps the only government authority over this issue could be detailed reporting of where the capital is, and whether it is productive. Then some other monetary policy could be discussed to compensate for the morbid capital.

Paragraph 46 and 47 At least binary… brook no dissent:

The role of laws and government has been an evolving subject for me. I previously believed the only legitimate purpose of the state was to protect citizens from force and fraud. I include anti-monopoly legislation in the fraud protection. My experiences in business and life in general have since caused me to expand my definition of what is included in appropriate government responsibility. I now also favor laws that create the best possible environment for free activity without redistribution. I am against government agencies other than a justice system and military. But there should be laws to correct systemic flaws. Laws should not create bureaucracies, or tax and spend. But they can help to structure society to empower everyone. And we need a less corrupt, bottom-up way to get good ideas to lawmakers; as well as elimination of political power to any possible degree.

To illustrate this philosophy, in addition to Capital Homesteading, I will give an example of a tough issue along with a bad and good solution. The issue is healthcare, specifically the uninsured, high costs and the necessity of working for a large entity to have pre-existing conditions covered (a deterrent to entrepreneurial activity). The solution is not to have a national healthcare system, or government agencies. There should not even be medicare or medicaid, because government is inefficient at administration and state involvement drives up costs. There should be one simple law that does not involve bureaucracies, and that is to require any company that sells health insurance to cover everyone without exclusions or even asking health questions. More and more people could buy coverage so rates would drop. There would be less reason to work for large corporations or government agencies to have coverage, so economic activity relating to small businesses would increase. To help insurance companies control costs, high deductibles could be required (i.e. $1,000) and benefits could be reduced to perhaps 70% for patients who repeatedly refuse to make healthy lifestyle choices like losing weight or quitting smoking. As you can see I am willing to consider “social engineering” to a certain degree, even if it makes things a bit uncomfortable. But right now we deal with the fact that some people die because they can’t afford certain procedures. After trying government bureaucracies and redistribution in healthcare we have not corrected this problem; only become broke. It is time for some smarter hard answers to hard questions. I give this example to show that my endorsement of what ultra-conservatives may consider to be a monetary system that does not follow principles, in fact does. As previously mentioned, my guiding principle is what I call “non-redistributionist populism”.

Paragraph 48-52 To remove all doubt … term “free market.”

I am less concerned with arguing about what economist feels his or her philosophy is best and why, than finding ways to come together as a planet to discover what works at ending poverty, preserving freedom, and advancing humanity. We will probably never agree who has the best definition for certain phrases.

Paragraph 52 Continued These binary economists…over capital assets.

I disagree with the extremes of both sides of this argument. As stated earlier, I like the Capital Homestead proposal as outlined by the Coalition for Capital Homesteading. I am not in favor of additional plans that may have been proposed by binary economists. But I think even most of them agree with my contention that it is important to always have the freedom to engage in business, investment, and other forms of unrestricted free enterprise and profit and save. It is also important, as stated earlier, to have the freedom to invest the Capital Homestead Account in various ways with differing results.
Paragraph 52 Continued This definition inserts… of a third party.

I agree with this.

Paragraph 52 Continued The binary economists’… and best uses?

Good point.

Paragraph 52 Continued What if that… therefore less free?

No. they are free to acquire the skills and learn the habits required to do so. But they will be building a nest egg at the same time.

Paragraph 52 Continued Yet the binary… degree of skill.

I disagree that they said that but if anyone made that statement I disagree with it.

Paragraph 54 Again, the binary… over capital assets.

They do not say they want “none of the constraints”. They want to “enable people without capital to compete in practice with existing owners for new capital acquisition”. They say “compete” without saying the scale. The proposal gives existing owners of productive capital an increase in quantity of productive capital equal to the increase that an existing non-owner receives. For example, in the first year Capital Homesteading is implemented, an individual who now has $100,000 of investment capital will have $107,000 and the individual starting with none will have $7,000 (based on recent average GDP growth divided by population). The same paragraph above mentions “modifying the present legal and administrative structure” and that brings up the issue that Terrell and other detractors are actually arguing for continuing what we have now. Austrian economists should live in a state of outrage at the existing scheme. They know the Fed creates debt-based currency by loaning uncontrolled amounts of money, much of which does not increase productivity. They know the boom and busts must be stopped. But they cannot agree there may be new ways to solve this problem? It seems their culture is not one of open-minded curiosity, which is essential for scholarly learning. The greatest thinkers are those who do not think they already know everything. These writers dismiss new ideas so eagerly, it makes me almost want to believe the conspiracy theories I mentioned earlier that may be contributing to their culture of close-minded ways. I hope more people think about the possibility that the talking heads and policy makers they follow are either knowingly obeying (or absentmindedly following traditions of) paymasters who require not compromising to end the corrupt status quo.

Paragraph 54 Continued According to the… effective right.

Unsubstantiated assumption. A continuation of today’s creditworthiness requirements would exist for amounts over the Capital Homestead Account voucher.

Paragraph 54 Continued To grant the effective… for any reason.

They have not said that. The argument is for a specific limited amount of credit once per year. So anyone who does not have creditworthiness, etc. for more should be denied credit for the purpose of buying capital.

Paragraph 54 Continued Inadequate collateral… binary property right.

I disagree with the generalization “all swept aside”. I would agree with “set aside on a small scale annually, equally for all citizens; rich, poor, or in between”.

Paragraph 55 The alleged “right… subsistence toil” (pp. 24–25).

As stated, I disagree with any binary economists who believe this.

Paragraph 55-57 Any returns to…a nonsensical concept.

Not a nonsensical concept. Again, one of the main flaws of Terrell’s position is not acknowledging or understanding the specific, easy-to-implement formula that will be used to determine the annual equal amount of credit to be available for each Capital Homestead Account.

Paragraph 57 Continued Ashford and Shakespeare… intervention is necessary.

I disagree with this kind of intervention.
Paragraph 57 Continued The state will also… would be regulated.

Terrell has understandably focused on one of the most controversial ideas any binary economist has written about. These ideas have not gained traction and are not part of the proposed Capital Homestead Act.

Paragraph 59-63 The claims of binary… Milton Friedman, who once debated Kelso, called Kelso’s “two-factor economics” a “crackpot theory,” and with considerable justification, it seems.

Milton Friedman also stated in a more candid conversation that binary economics “turns Marx on his head”.

Paragraph 63 Continued It is not clear… trained in economics.

But some are. I would argue that economics courses are written and taught in a way that discourages new proposals, so the “formally trained” are not as open to new ideas. Most economics career paths originate in mentored positions where following the mentor’s positions are requirements of employment.

Paragraph 64 Binary economics is… principal-agent problem.

I find this the most fascinating aspect of this article. It seems everyone in every school of economic thought likes the employee stock ownership plan (the actual meaning of ESOP, not “option” but he got it right later so this is probably just an error). And it has clearly been one of the few unstoppable economic success stories in recent history. A study of retirees in the state of Washington found that those retiring from firms with ESOPs have three times as much wealth than those retiring from non-ESOP companies. What would our economy be like in a decade or two if all citizens had similar wealth? Are Austrian economists proposing any other way to build on a proven plan that liberals will also support to grow the economy in such a conclusively effective way? The ESOP is successful because of one good law that I consider to be “non-redistributionist populism”. Helping the average worker, and therefore all participants in the economy, without tax-and-spend government bureaucracy.

Paragraph 64 Continued Binary economics takes the ESOP and turns it into a fantastic Wolkenkuckucksheim, heedless of the massive inflation that would necessarily accompany its policy proposals.

The Austrian lingo is a nice tip of the hat to his hero, but Terrell’s hollow inflation argument is based on a version of binary economics that is not now being proposed.

In closing, this article makes what seem to be good points. A detailed examination however shows that although a few are valid, most are based on misconceptions. There is often pure truth and economic science behind many Austrian School arguments, but in the real world it seems they never get a chance to work. The corruption and (ironically) misguided good intentions of society require that we change our focus from idealism to highly creative, even strategic compromise. It is better to accomplish most of our objectives than none at all. That is why I now endorse every part of the Capital Homestead Act, and I proudly stand beside many who came from liberal Keynesian camps who now prefer this reform. I cannot conclusively show how effective it will be, but I can point to the success of other distributed ownership plans, including ESOPs, acknowledged here by Austrian thinkers. This success, the lack of legitimate arguments against Capital Homesteading, and the huge claims that are made about it warrant at least a small-scale test.

Dave Hamill
Twitter: @noredistrbution (one “i” missing due to character limit)
As mentioned, I am not a binary economist. Here is a detailed document on this subject written by those who are:

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