© 2004-2016 Center for Economic and Social Justice
Appropriation. The legislative process by which funds (tax revenues or government borrowings) are allocated to government programs on a discretionary rather than a formula-determined basis. An appropriation differs from an entitlement in that funds allocated via an entitlement program are automatic, whereas an appropriation must be approved each time. Legislators can hide government spending through the use of tax credits, tax subsidies, rebates, exemptions and other tax breaks to individuals and companies, rather than exposing these “tax expenditures” to the light of the appropriations process. Such practices decrease government’s accountability to taxpayers and add to the complexity, costs of administration and unfairness in tax policy.
Bank. A financial institution that takes deposits and makes loans.
Bank of Issue. A financial institution that makes loans by printing currency backed by the assets financed with the proceeds of the loan. In other words, a bank of issue “monetizes” assets. These “assets” may be either productive and self-liquidating (as required under Capital Homesteading) or nonproductive (such as government or consumer debt paper).
Bank, Central. A “bank for banks.” A central bank functions as a bank of issue for a region’s commercial banks, usually being the only financial institution permitted to “monetize” assets for circulation as currency. A central bank differs from a commercial bank or other financial institution in that it purchases loans and other assets (usually financial) that have already been made or issued by other banks and financial institutions. A central bank purchases such assets by printing currency, striking coin or creating demand deposits denominated in units of the currency, which are destroyed or retired when the loans purchased are redeemed by the borrower.
Because a central bank purchases the assets at less than face value or at a discount, this process is called “discounting,” a power provided by Congress to the Federal Reserve Banks in the U.S. under Section 13 of the Federal Reserve Act. Members of the general public are not usually permitted to discount their personal loans at a central bank, a privilege reserved for “member” banks of the financial system over which the central bank exercises a regulatory function. The central bank controls the creation of money and credit, and sets interest rate policy.
Bank, Commercial. A financial institution that takes deposits and makes loans to facilitate commercial transactions. A commercial bank buys and sells money for carrying on a society’s economic transactions. If permitted by law, it may have the power to create money. It is then called a “bank of issue.” A commercial bank may also function as a savings bank offering personal financial services to individuals.
Bank, Investment. A financial institution that buys and sells securities (e.g., shares of company stock and corporate debt instruments). It frequently acts as a middleman between the primary or original issuer of a security and the ultimate secondary purchaser.
Barrier. In terms of binary economics, a barrier is anything in the “invisible architecture” of society’s laws, or in the rules or customs of an institution, that inhibits or prevents full participation in the economic process for any or all otherwise qualified individuals.
Binary Economics. The “post-scarcity” theory developed by lawyer-economist Louis O. Kelso in the 1950s. “Binary” means “consisting of two parts.” Kelso divided the factors of production into two all-inclusive categories — the human (“labor”), and the non-human (“capital”). The central tenet of binary economics is that there are two components to productive output and to income: (1) that generated by human labor, and (2) that generated by capital. Classical economic theory, on the other hand, regards all output and income to be derived from labor whose productivity is enhanced by capital.
In contrast to traditional schools of economics which assume that scarcity is inevitable, binary economics views shared abundance — sustainable economic growth and the equitable distribution of future wealth and income throughout society — as achievable. Binary economics holds that broad-based affluence and economic freedom, as opposed to financial insecurity and economic dependency for the many, is made possible through the widespread ownership of constantly improved capital instruments and social institutions to produce more and more consumable goods with less and less input and resources.
Binary economist Robert Ashford identifies three distinguishing concepts within binary theory — binary productiveness, the binary property right, and binary growth. These components interact and reinforce one another, allowing for maximum rates of sustainable growth within a modern, globalized economy.
Binary economics recognizes a natural synergy, as opposed to an unavoidable trade-off, between economic justice and efficiency within a global free marketplace. Rejecting pure laissez-faire assumptions, binary economics holds that a truly free and just global market requires (1) effective broad-based ownership of capital, (2) the restoration of and universalized access to the full rights of private property, (3) limited economic power of the state (whose main role should be to eliminate special privileges, monopolies and other barriers to equal participation) and (4) free and open markets for determining just wages, just prices, and just profits.
The market theory of binary economics is underpinned by three interrelated principles of economic justice:
Binary Growth. Within binary theory, this concept holds that economies grow steadily larger as private capital acquisition is distributed more broadly among the population on market principles. This concept also focuses on the importance of unleashing the unutilized or underutilized capacity of all economic systems to produce in greater abundance.
Binary Productiveness. This concept states that while humans contribute to economic growth through all forms of labor, capital assets such as machines and technological processes are making an even bigger, ever-increasing contribution to overall output, in relation to that contributed by human labor.
Binary Property Right. This concept refers to the right of every person to acquire, on market principles, private (individual and joint) ownership of wealth-creating capital assets.
Capital. In binary economics, all non-human factors of production, including land, plant and equipment, advanced technological tools, rentable space, physical infrastructure, and intangibles, such as patents, copyrights and advanced management systems.
Capital Credit Corporation (CCC). A private or public institution designed to promote capital ownership among all citizens, by aggregating many Capital Homestead loans for discounting by the Federal Reserve. The CCC is modeled after “Fannie Mae” (Federal National Mortgage Association) and “Freddie Mac” (Federal Home Mortgage Corporation), which were established to allow more Americans to obtain home mortgages. The CCC would purchase qualified Capital Homesteading loans from lenders, bundle these loans and take the securitized CHA loans to the discount window of the regional Federal Reserve Bank. The Federal Reserve would treat the insured, dividend-backed CHA securities as it now treats government debt paper, using them as substitute backing for the currency.
Capital Credit Insurance Corporation (CCIC). A private or public institution that would provide Capital Homestead credit insurance, similar to FHA home mortgage insurance. The CCIC would offer commercial insurance to bank lenders against the risk of default on Capital Homestead credit and would offer, for a premium paid by Capital Homestead participants, some “downside risk” portfolio insurance. Such risks could be spread further through a reinsurance facility (See “CCRC”) established either by the private sector or by the public sector.
Capital Credit Reinsurance Corporation (CCRC). An “insurer of last resort” for loans made under Capital Homesteading. The CCRC would “insure the insurers” of loans discounted by the Federal Reserve, further spreading the risk of loan defaults throughout the system. “Risk premiums” for Capital Homestead credit would be covered by debt servicing charges.
Capital Homestead. An analogue of the nineteenth century American programs enacted to bring about a broad distribution of the ownership of land. Capital Homesteading expands the concept to include ownership of advanced technologies, including management, marketing and distribution systems, through equity shares in enterprises capable of competing without special protections within a free and just global economy.
Capital Homestead Account (CHA). (See “Capital Homestead Act”) Under “Capital Homesteading,” a citizen’s tax-sheltered capital asset accumulation account, similar to an Individual Retirement Account (IRA). Each capital homesteader’s account would be able to receive annual allocations of interest-free, productive credit and new asset-backed money issued by the central bank and administered by local commercial banks. This new money and credit would then be invested in feasible private sector capital formation and expansion projects of businesses that would issue new shares to be purchased and sheltered in the citizen’s Capital Homestead Account. After the “future savings” (future profits) generated by the productive assets paid off each year’s Capital Homestead investment (loan), the citizen would continue to receive in the form of dividends the incomes generated by those capital assets.
Capital Homestead Act. A national economic policy based on the binary growth model, designed to lift barriers in the present financial and economic system and universalize access to the means of acquiring and possessing capital assets. The Capital Homestead Act would allow every man, woman and child to accumulate in a tax-sheltered Capital Homestead Account, a target level of assets sufficient to generate an adequate and secure income for that person without requiring the use of existing pools of savings or reductions in current levels of consumption. Formerly called the “Industrial Homestead Act.”
Capital Homestead Exemption. The amount that a Capital Homestead participant could accumulate without paying taxes on his or her capital accumulations or on the dividend income used to pay for the capital.
Capitalism. An economic/financial system where a relatively small number of individuals own the vast bulk of capital assets, and where the majority of the population is employed at a wage and owns little or no capital.
Louis Kelso used the term “capitalism” (or “universal capitalism”) to describe a free market system where capital (as opposed to labor) is the predominant factor of production, and where there exists the widest possible distribution of private ownership of capital among the households of the economy. For semantic and philosophical reasons, however, a growing number of binary economists have rejected any use of the term “capitalism” to describe the logical alternative to traditional capitalism and socialism. (See Just Third Way.)
The term “capitalism” was invented as a pejorative by socialists, not by Adam Smith or other pioneers of free market economics. Advocates of the “Just Third Way” assert that where socialism as a socio-political system reflects the “institutionalization of envy,” capitalism represents the “institutionalization of greed.” While the word “capitalism” retains some degree of respectability within the United States and other developed countries, it has become increasingly disparaged by opponents of globalization and many citizens in the developing world.
Capitalism is often confused with “free markets” or “democracy,” but in practice has historically resulted in mercantilism, concentrated power and monopoly. So-called “democratic capitalism,” as some have labeled America’s socio-economic system, has fostered an unstable, conflict-prone and class-divided combination of political democracy and economic plutocracy. While many defenders of democratic capitalism share with binary economists support for limited economic power of government, establishment of free markets and free trade, and restoration of private property rights, they generally treat universal access to capital ownership as irrelevant politically and economically.
Expressed as an “ism,” “capital-ism” connotes an ideology or value system that places its highest value on capital (or “things”), ranking it higher in importance than labor (or human beings). From the standpoint of binary theory itself, the term fails to acknowledge the interdependence and respective contributions of both capital and labor, with the distribution of incomes to both factors determined by market principles as well as principles of economic justice.
Charity. The virtue or moral habit by which we love our neighbor as ourselves. Charity is often popularly understood as “almsgiving,” the applied virtue of charity in which one gives out of human compassion, without any expectation of anything in return. It is inspired by love and respect for the inherent dignity and worth of every human person. The principle of distribution for charity is “to each according to his need.” This stands in sharp contrast to the principle of distribution for justice, “to each according to his contribution.” Both principles are valid and complementary, but, as we are reminded by moral philosophers, charity should never be a substitute for justice. According to the Talmudic scholar Moses Maimonides, the highest form of charity is to enable the poor man to lift himself out of poverty (for example, by helping him go into business), so that the poor person can become economically self-reliant and capable of being charitable to others.
Charity, Social. Social charity is the virtue or moral habit, analogous to individual charity, that guides us in how we behave toward our institutions. It is the “soul” of social justice. This social virtue inspires us to “love our institutions as we love our friends,” acknowledging their faults but seeking to help in their perfection and transformation rather than in their destruction. Social charity is the preliminary step of properly orienting and educating oneself in order to organize with others in acts of social justice to restructure unjust or ineffective laws and institutions. Social charity is different from organized charity, which is a form of individual charity (i.e., directed at human persons rather than social institutions).
Chicago Plan. A proposal from the 1930s to implement a 100% reserve requirement (i.e., full asset backing behind all bank loans) as a means of addressing the financial chaos resulting from speculative loans that resulted in the stock market crash of 1929.
Citizens Land Bank (CLB). (See “Citizens Land Cooperative.”) An expanded ownership mechanism designed as a for-profit, professionally managed real estate planning and development corporation that can borrow on behalf of its shareholders (the citizens of a local or regional area) to purchase land, plan its use, and develop the land for productive purposes. The citizen-shareholders thus gain a definable ownership interest in local real estate, sharing in appreciated land values, and profits from leases, etc., as well as have a voice in future land development. CLBs were previously referred to as for-profit “Community Investment Corporations” and “Citizen Land Cooperatives.” These for-profit vehicles differ from Community Development Corporations (CDCs), which are nonprofit entities in which citizens have no direct control and do not have any direct and personal ownership interest.
Citizens Land Cooperative (CLC). (See “Citizens Land Bank”)
Collateral. Existing wealth pledged as security for a loan, i.e., a guarantee that a loan will be repaid. If the loan is in default, the lender may seize the pledged wealth.
Collective. As a noun, the collective is an abstraction of the aggregate of activities of a group of human beings acting in concert. It does not recognize the individuals making up the group, nor is it synonymous with the common good. (See “Common Good”)
Collectivism. As used in socialist theory, collectivism or collective ownership denies the right of any individual to acquire a personal ownership stake in land, natural resources or other means of production. Instead, collectivism recognizes only ownership by the group or legally recognized entity that reflects the interests of group members. It differs radically from joint ownership where many persons, as in a modern corporation or in many cooperatives, may acquire a direct personal stake in and share ownership rights, power and profits over modern productive assets, as under a binary economic system.
Common Good. The common good is that network of institutions and social systems that gives form and structure to society, within which the individual may exercise his rights to the fullest degree possible consistent with the demands of justice and the needs of his fellow human beings. It establishes the conditions for the exercise of the natural freedoms indispensable for the development of human initiatives and the good of every member of society. The common good also describes the social and cultural environment that governs human interactions. The common good aims toward the dignity and development of each human person, as well as the well-being, just ordering and development of society. The common good may further be defined as “the sum total of social conditions, laws and institutions that allow people, either as individuals or as groups, to reach their fulfillment more fully and effectively.”
The late social philosopher Rev. William Ferree, S.M., Ph.D. described the direct relationship that each individual has with the common good: “When it is realized that the Common Good consists of that whole vast complex of institutions, from the simplest ‘natural medium’ of a child’s life, to the United Nations itself, then a very comforting fact emerges: Each of these institutions from the lowest and most fleeting ‘natural medium’ to the highest and most enduring organization of nations is the Common Good at that particular level. Therefore everyone, from the smallest and weakest child to the most powerful ruler in the world, can have direct care of the Common Good at his level.”
Community Investment Corporation (CIC). (See “Citizen Land Bank”)
Consumption Income. Income expended on the purchase of consumer goods and services, rather than on direct investment or savings.
Corporation. Also referred to as a “joint stock corporation.” The modern business corporation is an institution or legal entity that can be used to limit the liability and any claims on non-corporate personal assets of its owners when the corporation enters into contracts, borrows money, carries out its operations, and serves consumers in local as well as global markets. The corporation is a creation of the law (i.e., a “legal person”). Its purpose is to acquire, aggregate and coordinate technological and financial capital with labor inputs. It facilitates access to financial markets, while insulating its shareholders from the risk of default on corporate debts and obligations. All the assets of a corporation are owned collectively by the corporation itself, with the shareholders owning shares of the company’s stock. Except upon dissolution of the corporation, no shareholder or creditor may make a personal claim on any particular capital assets owned by the corporation, unless those assets are pledged as collateral on a corporate loan.
From the advent of the industrial revolution, and increasingly so in today’s Information Age, the corporation has become the arena for growing abuses by those who manage and control them, and has failed to live up to its potential for serving as society’s most important institution for balancing the untapped productive growth of a market economy with the purchasing power needed to absorb the goods and services the private sector is capable of producing. Most, if not all, of these drawbacks of the corporation can be overcome by democratizing corporate accountability and transparency systems and increasing corporate dividend distributions to a broadened base of corporate shareholders, especially its workers.
Cost. The aggregate of all charges, tangible and intangible, associated with production of marketable goods and services. Usually expressed or measured in units of currency.
Credit. A loan of money to be repaid, usually with an added amount of interest, transaction fees, or, under Islamic banking, through a risk-sharing, profit-sharing loan.
Credit, Capital. Funds lent or borrowed to finance feasible, “self-liquidating” projects that are expected to generate an income and repay the loan out of that future income. Capital credit is designed to advance outside funds to be repaid with future savings. It is a modern social tool for enabling people without sufficient past savings to become capital owners voluntarily on market principles. Also referred to as “Productive Credit” and “Procreative Credit.”
Credit, Consumer. Funds lent or borrowed to expend on consumer goods and services; that is, things that do not pay for themselves.
Credit, Interest-Free. Loans made for productive purposes, where the money loaned does not involve existing savings, and therefore no interest is due to the lender.
Under certain religious and philosophical traditions (particularly in Judaism, Christianity and Islam), interest charged for non-productive loans is considered usury, as it takes a profit where no profit is generated. In a productive loan involving existing accumulations of savings, the provider of those savings (the lender) is due a return because the loan is recognized as a form of investment and due to the owner as a right of private property.
When a productive loan is made based on the present value of existing or future marketable goods and services whose proceeds are used to pay off that loan (and not based on past savings), the lender has no pre-existing private property interest and therefore no interest is due. (See also “Credit, Pure”)
Credit, Non-Recourse. Loans in which the borrower is insulated from the risk of default and his personal assets cannot be seized in the event of loan default. Instead the loan will generally be secured by the assets standing behind the loan, by loan default insurance, or by a guarantee of a third party or the corporation itself. Under one example of nonrecourse credit, a loan to a corporation is nonrecourse to the shareholders of that corporation, unless the shareholders personally guarantee the loan. Another example is with a leveraged Employee Stock Ownership Plan, where the workers who benefit from loans made to an ESOP Trust are not personally liable in the event of default. Under Capital Homesteading, the proposed capital credit insurance provides a substitute for collateral to enable the lender to recover funds lent, thus insulating from risk any personal assets of the borrower.
Credit, Pure. An interest-free loan made for a feasible productive project. Pure credit is based on a system of enforceable promises, the acquisition of income-generating assets, and the ability of the new assets to generate a future stream of profits for repaying the loan used to acquire them.
In business loans for new capital formation and expansion, pure credit would be monetized as newly created, asset-backed, interest-free money authorized and regulated by the central bank and a competitive system of local commercial banks. The only costs associated with pure credit are transaction/service fees charged by the qualified financial institutions facilitating the loan creation and loan repayment process, and risk premiums for capital credit insurance and reinsurance to cover the risk of loan default. (See “Bank, Central”)
Pure credit differs from conventional credit, which charges interest on the use of already accumulated savings (or depends on non-related sources of income for repayment) to pay the lender a market-based yield on his savings.
Pure credit is backed by 1) the loan paper, 2) the shares purchased with the loan funds, and 3) the present value of the productive assets purchased with the money coming into a productive enterprise from its sale of new shares. Pure credit enables the borrower to finance feasible capital projects that create “future savings” (future profits) that pay for the assets themselves.
Using “pure credit” financing, profits generated by the new capital are first applied to pay off the loan, and thereafter are distributed as dividends to the owners. Under “capital homesteading,” pure credit (reflected in the issuance of newly created, asset-backed money) is also backed by capital credit insurance and reinsurance, which serve as a substitute for traditional collateral to cover the risk of loan default. (See also “Credit, Interest-Free”)
Credit, Self-Liquidating. Loans expected to cover the costs of capital assets out of future profits realized from the productiveness of those assets.
Credit System, Two-Tiered. A key monetary reform under Capital Homesteading that distinguishes between “good” uses of money and credit (i.e., used to finance broadly owned private sector growth and production) and “bad” uses of credit (i.e., used for fueling nonproductive consumer and government debt, or speculation). The Fed’s discount window would be available exclusively to member banks and members of the Farm Credit system for discounting “eligible” paper for feasible, ownership-expanding industrial, commercial, and agricultural projects.
Under this policy, credit and “new money” for Capital Homesteading, i.e., feasible business projects linked to broadened ownership (Tier 1), would be generated “interest-free” through the discount mechanism of the central bank, at a service charge based on the cost to the central bank of creating new money and regulating the lending institutions (0.5% or less). Credit and money for nonproductive, ownership-concentrating uses (Tier 2) would come from past savings (“old money”), and would be charged an interest rate determined by normal market yields on such savings. Under Capital Homesteading, local lenders would add their normal transaction fees and risk premiums for servicing capital acquisition loans, and the new loans would be collateralized by newly issued shares and newly acquired capital assets. Premiums paid to capital credit insurers and reinsurers would be pooled to spread the risk of default.
Currency. Standardized tokens of value circulated as money within an economy or region. (See “Legal Tender”)
Customer Stock Ownership Plan or Consumer Stock Ownership Plan (CSOP). An expanded capital ownership vehicle for providing self-liquidating, productive credit to the regular customers of public utilities, marketing cooperatives, mass transit systems, family health care systems, etc., linking them as owners to the enterprise’s future investment opportunities and capital growth. For his patronage, the regular customer would get back ownership rights, represented by shares released to his CSOP account as the CSOP’s debt is repaid with pre-tax earnings paid in the form of tax-deductible dividends on CSOP-held shares. Released shares would be allocated among users according to their relative patronage of the system. Future dividends on CSOP stock would be used to offset each user’s monthly bill. The CSOP would also create an internal market for repurchasing shares when there is no public market for the shares.
Default. The failure or inability of a borrower to repay a loan under terms agreed upon by a lender and borrower.
Deflation. Fewer units of currency “chasing” an unchanged amount of goods and services. Also defined as a contraction in the volume of available money or credit resulting in a decline of the general price level. Backing the currency in a rapidly growing economy with a commodity (such as gold or silver) or otherwise restricting the amount of currency available, are the most common causes of deflation. Backing the currency with productive assets directly financed with the creation of new money would allow the money supply to expand as needed to finance feasible capital investments.
Demand. Demand is the want or desire to possess a good or service, with the goods, services, or financial instruments necessary to make a legal transaction for those goods or services.
Demand Deposit. Demand deposits are a category of money made up of bank deposits subject to checking on demand (i.e., a checking account). For example, if you have $1,000 in your checking account, that deposit can be regarded as money, since you can pay for purchases with checks drawn upon it. When “pure credit” (newly created money) is used to buy newly issued shares to fund corporate growth, the lending bank increases the demand deposits of the Capital Homesteader to use for buying the new shares.
Demand, Aggregate. Aggregate demand is the sum of all demand in an economy. This can be computed by adding the expenditures on consumer goods and services, investment, and net exports (total exports minus total imports).
Demand, Derived. A secondary demand dependent on a primary demand. The demand for capital goods, for example, is dependent on effective consumer demand.
Demand, Effective. In Keynesian terms, income to be used for consumption, as opposed to income diverted for reinvestment.
Dilution, Economic. A decrease in an enterprise’s share or asset values that occurs when new shares are added without a corresponding increase in the productiveness of the capital assets or net profits of that enterprise. Economic dilution constitutes an erosion of property rights for existing shareholders. Where share or asset values increase despite an issuance of new shares, there may be political dilution in equity ownership, but no economic dilution.
Dilution, Political. The just diffusion of economic power in an enterprise when new shareholders are added in ways that do not violate the property rights of existing shareholders. Political dilution is not a dilution of property rights as long as the economic values of existing shareholders are not diminished by the issuance of new shares. (See “Dilution, Economic”)
Discount Rate. The percentage by which a central bank reduces the amount of cash printed or demand deposit created to purchase qualified loans from qualified banks and financial institutions. Under binary economic policy, this rate takes the form of a service fee, estimated at 0.5%, to cover all central banking and regulatory costs of monetizing Capital Homesteading loans made by commercial banks and other qualified financial institutions for broadening the ownership of new capital.
Discount Window. Not an actual “window,” but the mechanism whereby a central bank carries out the process of discounting. (See “Bank, Central”)
Discounting. The process by which a central bank purchases qualified loans from commercial banks by printing currency or creating demand deposits. The amount paid for the loans is usually less than face value, or at a “discount,” thus accounting for the description of this process as “discounting.” For example, on a $10,000 loan discounted at 0.5%, the lender would give the borrower $9,950 ($10,000-$50) in cash. In the Federal Reserve System, the discount rate refers to the interest rate that the Fed charges its member banks.
Distributism. An economic system proposed by G. K. Chesterton and Hilaire Belloc that called for widely distributed small holdings of land and other productive assets. This system aimed at securing and protecting individual rights by enabling ordinary citizens to acquire a moderate ownership stake of income-generating property. Distributism was mainly concerned with breaking up current accumulations of wealth. It paid little attention to the ability of the modern corporation and the money- and credit-creating powers of central banks to accelerate growth and spread out ownership of newly added and transferred capital on credit repayable with future savings.
Dividend. Profits paid to the owner or shareholder of a corporation. Under current U.S. law and custom, dividends must be proposed and approved by the Board of Directors of a corporation, thus taking away from the owner his property right or entitlement to receive the full stream of income from his capital. Under Capital Homesteading, shareholders would receive a full distribution of their share of profits (i.e., full dividend payouts on their Capital Homestead shares) and management would have to solicit from shareholders the reinvestment of those dividends, or use new borrowings, in order to finance corporate growth.
Duty. A legally enforceable obligation to do or not to do an act. A duty on the part of one person, persons, or institution is always the result of a right held by another person, persons, or institution.
Employee Stock Accumulation Plan (ESAP). A term used to describe a employee benefit plan that enables workers to accumulate shares in their employer company, but which withholds the rights of first-class shareholders over those shares, particularly the right to vote one’s own shares on standard shareholder issues or to elect a representative to the board of directors. Except on certain major corporate issues, ESOPs today are permitted by law to withhold pass-through of the vote on shares held by the ESOP for employee-owners. In practice today, most ESOPs operate as ESAPs. Capital Homesteading policies would offer credit and tax incentives to encourage companies with ESOPs to pass through full ownership rights to their worker-shareholders.
Employee Stock Ownership Plan (ESOP). An expanded ownership mechanism now “qualified” under U.S. retirement law, which can borrow on behalf of employees as a group to acquire equity shares in the employer company repayable with pre-tax profits or dividends. ESOPs today may be either leveraged (designed to borrow to acquire company shares) or unleveraged (contributed by the employer). Typically an ESOP does not require employees to use their own savings or wages to acquire their shares, or to pledge their personal assets as collateral in a leveraged transaction.
Entitlement. An automatic allocation of funds by a government program in the form of a cash payment subsidy or a reduction or rebate of taxes due the government. This differs from an “appropriation” in that funds allocated via an appropriation must be approved each time, whereas an entitlement is automatic and requires positive action to change.
Ephemeralization. A term invented by R. Buckminster Fuller to describe the process of “doing more with less” as a continuing process of redesigning technology and structures of the physical world through more effective uses of existing natural resources, recycled materials and energy sources. In terms of binary economics, ephemeralization refers to the process of increasing the productiveness of capital relative to that of labor.
Feasibility. When used in reference to the funding of an acquisition or transfer of capital on borrowed money, the quality of a capital project that can generate, or reasonably be expected to generate, an income sufficient to repay the loan, within a reasonable period. (See “Credit, Capital”)
Federal Funds Rate. The interest rate that commercial banks charge one another for very short-term (“overnight”) loans, as determined by the Board of Governors of the Federal Reserve.
Federal Reserve Act of 1913. The legislation establishing the central bank of the United States. Section 13, paragraph 2 gave the Federal Reserve’s twelve regional banks the power to create money (i.e. currency and demand deposits) needed for private sector industrial, agricultural and commercial growth, by “rediscounting” the qualified loan paper of companies with feasible projects through their local banks.
Federal Reserve System. The system of central banks of the United States. The Federal Reserve System includes the Board of Governors of the Federal Reserve Board and twelve regional Federal Reserve Banks. The Federal Reserve Banks were originally designed to serve as regional development banks to meet the productive credit needs of agriculture, industry and commerce where local savings was inadequate to meet local capital needs for feasible private sector projects. Today the Federal Reserve System’s main monetary objective is to control inflation and maintain a stable value for the U.S. dollar. The regional Federal Reserve Banks serve primarily as research centers. Only the Federal Reserve Bank of New York is directly involved in monetary policy through its Open Market Operations, increasing and decreasing the money supply through its purchase and sale of Federal debt paper. In general, the discount operation of the Federal Reserve System has been limited to saving enterprises that are “too big to fail” or foreign economies unable to service their foreign debt.
Fractional Reserve Policy. (See “Reserve Policy, Fractional”)
Future Savings. (See “Savings, Future”)
Global Justice Movement. A free enterprise movement launched in the United States, Canada and the United Kingdom, aimed at restructuring global money and the global marketplace in ways consistent with binary economics and the principles of economic and social justice. (See “Just Third Way”)
Imputed Rent. The rental value of a person’s home that is treated by some economists as the equivalent of the income one would receive if he rented out his personal residence.
Individual Stock Ownership Plan (ISOP). The name originally used to describe a Capital (or “Industrial”) Homestead Account.
Industrial Homestead Act. A national economic policy for building widespread capital ownership that was developed in 1964 by Louis Kelso and David Lawrence and promoted in 1975 by then-governor of California Ronald Reagan. This economic program was later slightly modified by the Center for Economic and Social Justice and more fully developed as a comprehensive economic program of monetary, tax and fiscal forms, at the request of the Chief Economist of the National Security Council in 1982. In 1995 it was renamed the “Capital Homestead Act.” (See “Capital Homestead Act”)
Inflation. A general rise in the price level. There are two principal types of inflation. “Demand/Pull” inflation results from more units of currency “chasing” the same or fewer goods and services. This can result from creating money not backed by productive assets (i.e., by assets that generate the goods and services for the new money to purchase), or by a decline in goods and services produced in the economy without a concurrent decrease in the money supply. “Cost/Push” inflation results from artificial increases in labor costs or market-driven increases in the costs of production, e.g., having to drill more expensive wells to produce the same amount of oil. Demand/Pull inflation is controllable through fiscal and monetary policy. Cost/Push inflation can be overcome through substitution, technological advances, or “ephemeralization” (see above), or by removing artificial pressures to increase unit labor costs.
Insurance, Capital Credit. Insurance to protect commercial lenders against the possibility of default on the part of the borrower. Commercial capital credit insurance is a substitute for collateral, the lack of which is typically a barrier for most borrowers with little or no savings or income. Such insurance would be provided under the Capital Homesteading proposal to safeguard a lender against the risk that the debt to enable citizens to purchase newly issued corporate growth shares may not be serviced out of future enterprise profits.
Interest. Derived from “ownership interest.” A portion of the profits of a productive project due to the provider of the financing as his share of the project. More popularly, “interest” is any charge for the use of money, often construed as the “rent” of money, but this is not technically accurate in terms of binary economics. When “interest” is charged on a loan of money created without using existing pools of savings (i.e., instead, using “pure credit”), the more accurate term is a “service charge” and/or a “transaction fee.”
Interest-Free Credit. (See “Credit, Interest-Free”)
Issuance, Primary (also “Primary Security”). Newly issued equity shares or bonds reflecting new capital, and purchased directly from the issuer. These may be issued by private companies or the state. When issued by a government, they are referred to as “primary government securities.”
Issuance, Secondary (also “Secondary Security”). Outstanding equity shares or bonds reflecting existing securities being resold, which are purchased from someone other than the original issuer. Secondary issuances are securities that are normally traded on stock exchanges, with their values determined by speculation among security traders. These instruments may be issued originally by private companies or the government. Under today’s financial system, most people who purchase secondary shares expect to realize a gain from a change in the value of the underlying asset, rather than through realizing a stream of income from that asset.
“Secondary government securities” are government securities like Treasury bonds that are purchased from someone other than the government. Under Capital Homesteading, there would be a prohibition against using “pure credit” (i.e., new money) created by the Fed for speculative purchases of secondary issuances or any government securities (which represent government debt, not productive assets). In those cases, speculation in secondary issuances and government debt could only be purchased with “old money,” representing already accumulated savings.
Just Third Way. A free market system that economically empowers all individuals and families through the democratization of money and credit for new production, with universal access to direct ownership of income-producing capital. This socio-economic paradigm offers the logical “third alternative” to the two predominant socio-economic paradigms today — capitalism and socialism/communism.
In capitalism, economic power and private ownership of capital are concentrated in a small percentage of the population (i.e., a few own). In socialism/communism, the state owns and/or controls productive capital (i.e., nobody owns). In the “Just Third Way,” widespread dispersion of capital ownership functions as the economic check against the potential for corruption and abuse, including by the government. Restoration of the full rights of property and extension of private property to every individual, serves as the basis for economic democracy, the necessary foundation for effective political democracy.
The “Just Third Way” differs markedly from other versions of the “Third Way,” such as the version espoused by Bill Clinton and Tony Blair, which attempts to give moral legitimacy to the Wall Street capitalist approach to economic globalization and blends political democracy with economic plutocracy.
The new paradigm views as a virtue healthy self-interest (i.e., where individual good is directed toward, or in harmony with, the common good). It views greed and envy, on the other hand, as vices, both destructive of a moral and just society. In contrast to capitalism which institutionalizes greed, or socialism which institutionalizes envy, the “Just Third Way” institutionalizes justice.
Justice. Functionally, justice is a set of universal principles that guide people in judging what is right and what is wrong, no matter what culture and society they live in. It is one of the cardinal individual virtues of classical moral philosophy, along with fortitude (courage), temperance (self-control), and prudence (effectiveness). Justice is based on the maxim of suum cuique, “to each his due,” or, “to each his own.” Justice as a moral virtue disposes one person to respect the rights of others and to establish in human relationships the harmony that promotes equity and fairness with regard to other persons and to the common good. The basis of justice is the dignity of each human person. Justice reflects the qualities of balance and equivalence. It holds that each person deserves to be rewarded for his virtues/good habits and good actions and penalized for his vices/bad habits and bad actions.
Justice, Commutative. Also referred to under classical philosophy as “strict justice,” commutative justice deals with exchanges of equal or equivalent value between individuals or groups of individuals. In reference to exchanges between parties to a transaction, it imposes a duty of an exact measurement that must be discharged with something having that exact, objective value. That is, a debt of five dollars must be repaid with five dollars.
Justice, Distributive. Defined by Aristotle in his Ethics, the classic concept of distributive justice is based on a proportionality of value given and received, rather than on a strict equality of results. It deals with a distribution or division of something among various people interacting cooperatively with one another, in shares proportionate to the value of each one’s relative contribution to the outcome.
Through the distributional features of private property within a free and open marketplace, distributive justice becomes automatically linked to participative justice, and incomes become linked to productive contributions. The principle of distributive justice involves the sanctity of property and contracts. It turns to the free and open marketplace, not government, as the most objective and democratic means for determining the just price, the just wage, and the just profit — presuming that every person owns and controls the means (both labor and capital) to participate equally, freely and fully in the economy.
The distributive principle of justice differs from that of charity. Charity involves the concept “to each according to his needs,” whereas “distributive justice” is based on the idea “to each according to his contribution.”
Justice, Economic. Economic justice is a subset of social justice. It encompasses the moral principles that guide people in creating, maintaining and perfecting economic institutions. These institutions determine how each person earns a living, enters into contracts, exchanges goods and services with others and otherwise produces an independent material foundation for economic subsistence. The ultimate purpose of economic justice is to free each person economically to develop to the full extent of his or her potential, enabling that person to engage in the unlimited work beyond economics, the work of the mind and the spirit done for its own intrinsic value and satisfaction. (See “Work, Leisure”)
The triad of interdependent principles of economic justice that serve as the moral basis of binary economics are: Participative Justice (the input principle), Distributive Justice (the out-take principle), and Social Justice (the feedback and corrective principle). This third principle, as it pertains here to economic systems, encompasses and operates at all levels, from the macro-level of a global economy to the micro-level of every institution and enterprise, and every member within them. Social Justice places a personal responsibility on every individual to organize with others to correct their economic institutions when there is a barrier to, or violation of, participative justice and/or distributive justice. Louis Kelso and Mortimer Adler, in their book The Capitalist Manifesto, referred to the feedback principle as the “principle of limitation” (or “anti-monopoly” or “anti-greed” principle). This refers to the limitation on the exercise of a person’s property, such that one’s property may not be used to harm the person or property of another, violate participative or distributive justice, or harm the general welfare. “Economic harmony” exists when participative and distributive justice are working fully for every person within a free and just marketplace.
Justice, Individual. Those moral principles and virtues that apply to and guide interactions between individuals. In contrast, “social justice” governs how we, as members of groups, relate to our institutions and social systems, particularly whether each of us is able to participate fully in the common good.
Justice, Participative. Participative justice refers to the right that everyone has to participate fully in all institutions of the common good, including a right of access to the means to participate. George Mason, in the 1776 Virginia Declaration of Rights, specified as one of the fundamental human rights, access to “the means of acquiring and possessing property.” As first identified and defined by Louis O. Kelso and Mortimer J. Adler as the “input principle” in economic justice, participative justice refers to the ordering of our economic institutions.
This principle requires that every person have access to the means and opportunity to contribute economic value through both labor and capital inputs. In economic justice, distribution follows participation. What each person is entitled to receive is determined by his or her relative contribution/participation. As advancing technology begins to contribute a proportionately greater share than human labor to the production of marketable goods and services, participative justice demands the elimination of barriers to capital ownership. Participative justice also requires the universalization of access to such social goods as capital credit through a well-organized banking and legal system.
Justice, Social. Social justice is the particular virtue whose object is the common good of all human society, rather than, as with individual justice, the individual good of any member or group. (See “Common Good.”) It is one of the basic social virtues in the field of social morality. Social justice guides humans as social beings in creating and perfecting organized human interactions, or institutions. It is the principle for restoring moral balance and harmony in the social order.
Social Justice encompasses and operates within every level of the social order, from the macro-level (the “common good” of society) to the micro-level of each organization and enterprise. It organizes systems so that they provide every member of that system with equal opportunity and access to such social goods (or social tools) as money, credit, and the ballot, in order to be able to participate fully in the system.
Social justice imposes on each member of society a personal responsibility to work with others to design and continually perfect our institutions as tools for personal and social development. To the extent an institution violates the human dignity and rights of any person or group, organized acts of social justice are required to correct the defects in that institution. Actions such as “social justice tithing,” for example, recognize a personal responsibility to devote a certain amount of time toward working with others to improve the organizations and institutions in which we live and work.
Justice-Based Leadership (“JBL”). A leadership philosophy that aligns individual and group values, mission, actions, structures, and systems around a shared understanding of, and adherence to, clearly defined principles of justice.
To value oneself and, at the same time, subordinate oneself to higher purposes and principles is the paradoxical essence of highest humanity and the foundation of effective justice-based leadership.
JBL encompasses concepts of “servant leadership”, “transformational leadership”, and “principle-centered leadership,” all of which recognize the impact of personal and organizational values on the behavior, performance and development of the leader, other members, and the organization as a whole.
Reflected in the JBL philosophy are three aspects of servant-leadership: trust, appreciation, and empowerment of others. The four components of transformational leadership embodied in JBL are: charisma or idealized influence (the leader as role model), inspirational motivation, intellectual stimulation, and consideration of the individual. As expressed in JBL, the components of principle-centered leadership include: personal character, competence, and commitment to natural law principles. Principle-based leaders build these principles into the center of their lives, their relationships with others, their agreements and contracts, and their mission statements and management processes.
The goal of JBL is to center all aspects of our lives on correct principles and for each person to develop a rich internal power. Empowerment of others, a fundamental objective of Justice-Based Leadership, comes about when both principles and practices of justice are understood and applied at all levels of an organization or society. In particular, the distribution of direct capital ownership reflects the distribution of economic power and the degree to which economic justice exists within a system. The challenge to justice-based leaders is to promote a culture that develops, enriches and empowers each member of the group and thereby strengthens the whole.
Justice-Based Management (“JBM”). A management system embodying the philosophy of “Justice-Based Leadership” that is organized in accordance with universal principles of economic and social justice. (Originally called “Value-Based Management” or “VBM”.)
JBM provides a framework of principles for creating sustainable ownership cultures. It measures success within a productive enterprise according to the delivery of maximum value to the customer and the empowerment of each person within the enterprise as both a worker and an owner. This success is translated into increased, long-term corporate profitability.
Increases in value delivered to the customer can be measured by the formula “V=Q/P,” where V=Value, Q=Quality and P=Price. In other words, value to the customer increases when the quality of a good or service increases and its price stays constant or decreases.
JBM builds into the structuring of all management systems and operations the three principles of economic justice:
Labor. The human factor of production, also generally “understood as work for pay.” In binary economics, labor refers to all forms of physical, mental and entrepreneurial work that humans contribute to the economic process. Binary theory would view the term “human capital” as a misnomer, referring not to “capital” as such, but to improvements in human labor or human productive capability.
Legal Tender. Currency in such amounts and denominations as the law authorizes a debtor to tender and requires a creditor to receive in payment of money obligations.
Limitation, Principle of. The third principle put forth by Louis Kelso and Mortimer Adler in their triad of economic justice, which operates as the feedback principle for ensuring that participative and distributive justice are in balance and working properly. The principle of limitation prevents such concentrations of capital ownership as are injurious to the economic rights of others, i.e., their right of effective participation in production and to earn thereby a viable income in the form of the distributive share to which they are justly entitled by the value of their contribution.
Kelso and Adler point out that the principle of limitation has significance only for an economy based on the institution of private property in the means of production and on the joint participation of a number of independent contributors to the production of wealth. It has no meaning in an economy where every person owns only his or her labor (and there is no chattel slavery), or where the distributive share that an individual receives bears no relation to the value of the contribution he makes (such as an economic system based on distribution according to need).
Some binary economists, for semantic and philosophical reasons, later renamed this third principle of economic justice as “the principle of harmony” or “the principle of social justice.” This was not to deny the negative concept of limitation, but to recognize the positive duty demanded by social justice for every citizen to organize with others to restructure all institutions of the economic system to allow participative and distributive justice to function properly for all members of society.
M1. In the U.S. economy, that form of money consisting of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) travelers checks of nonbank issuers; (3) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (4) other checkable deposits (OCDs), consisting of negotiable order of withdrawal (NOW) and automatic transfer service (ATS) accounts at depository institutions, credit union share draft accounts, and demand deposits at thrift institutions. Seasonally adjusted M1 is constructed by summing currency, travelers checks, demand deposits, and OCDs, each seasonally adjusted separately. (Source: “Federal Reserve Statistical Release,” May 27, 2004.)
M2. Consists of M1 plus (1) savings deposits (including money market deposit accounts); (2) small-denomination time deposits (time deposits in amounts of less than $100,000), less individual retirement account (IRA) and Keogh balances at depository institutions; and (3) balances in retail money market mutual funds, less IRA and Keogh balances at money market mutual funds. Seasonally adjusted M2 is constructed by summing savings deposits, small-denomination time deposits, and retail money funds, each seasonally adjusted separately, and adding this result to seasonally adjusted M1. (Source: “Federal Reserve Statistical Release,” May 27, 2004.)
M3. Consists of M2 plus (1) balances in institutional money market mutual funds; (2) large-denomination time deposits (time deposits in amounts of $100,000 or more); (3) repurchase agreement (RP) liabilities of depository institutions, in denominations of $100,000 or more, on U.S. government and federal agency securities; and (4) Eurodollars held by U.S. addressees at foreign branches of U.S. banks worldwide and at all banking offices in the United Kingdom and Canada. Large-denomination time deposits, RPs, and Eurodollars exclude those amounts held by depository institutions, the U.S. government, foreign banks and official institutions, and money market mutual funds. Seasonally adjusted M3 is constructed by summing institutional money funds, large-denomination time deposits, RPs, and Eurodollars, each adjusted separately, and adding this result to seasonally adjusted M2. (Source: “Federal Reserve Statistical Release,” May 27, 2004.) The measurement of the M3 monetary aggregate was discontinued by the Federal Reserve as of March 2006.
Market Glut. Production that cannot be cleared at market prices.
Market, Primary. A marketing arrangement for purchasing financial instruments from the original issuers.
Market, Secondary. A marketing arrangement for purchasing financial instruments from other than the original issuers. The New York Stock Exchange, for example, is a secondary market, as are all securities exchanges.
Maslow’s Hierarchy of Needs. Based on the writings of Abraham Maslow, a recognition and categorization of various levels of human needs for reaching one’s fullest human potential, ranked from the most urgent (survival and security) to social needs such as recognition by others (a necessary aspect of justice), to the most important (self-esteem and ultimately, self-actualization).
Mercantilism. A system where those holding concentrated economic power employ the powers of government to perpetuate monopolies, special privileges, subsidies and trade protections for their advantage at the expense of their competitors and most citizens. Historically, a national economic goal under mercantilism was the accumulation of specie (gold and silver) by importing raw materials cheaply and selling manufactured goods to the suppliers of the raw materials. To achieve these goals, businessmen turned to government to provide them with trade protections, special privileges and monopolies, arguing that such policies were needed to protect domestic jobs. Mercantilist policies have given rise to an unfree and unjust global market, and have helped to widen the gap between wealthy and poor nations, and wealthy and poor citizens.
Monetization. The process of creating general media of exchange (“money”). This process can be carried out by any individual capable of making a promise, but is most often carried out by banks of issue and central banks. Under fractional reserve banking, the commercial banking system as a whole creates money. For example, under a 20% reserve requirement, an individual bank may be able to lend out 80% of its reserves, and as those funds are deposited and reloaned many times over in the same nation, the ultimate effect of the process is to create five times as much money as is backed by reserves.
Money. Money is, at its essence, anything that can be used to settle a debt. It is typically described as (1) a medium of exchange, (2) a store of value, (3) a standard of value, and (4) a common measure of value. Money is a “social good,” an artifact of civilization invented to facilitate economic transactions for the common good. Like any other human tool or technology, this societal tool can be used justly or unjustly.
As binary economist and lawyer Louis Kelso explained:
“Money is not a part of the visible sector of the economy. People do not consume money. Money is not a physical factor of production, but rather a yardstick for measuring economic input, economic outtake and the relative values of the real goods and services of the economic world. Money provides a method of measuring obligations, rights, powers and privileges. It provides a means whereby certain individuals can accumulate claims against others, or against the economy as a whole, or against many economies. It is a system of symbols that many economists substitute for the visible sector and its productive enterprises, goods and services, thereby losing sight of the fact that a monetary system is a part only of the invisible sector of the economy, and that its adequacy can only be measured by its effect upon the visible sector.”
Money, Old. The pool of past accumulations or savings available for new capital formation, lent out at a market-determined interest rate.
Money, New. Newly created money that is independent of past accumulations. Under Capital Homesteading, new money (backed by newly created wealth financed through “interest-free” pure credit) would be extended through the Federal Reserve System and its member banks for private sector growth linked to capital democratization.
Negative Income Tax. A proposal advocated by monetarist and Nobel economist Milton Friedman to use the tax system to subsidize basic subsistence incomes directly by redistributing incomes from all taxpayers to all persons who earn below a certain income level; also known as reverse income taxation.
Non-Recourse Credit. (See “Credit, Non-Recourse”)
Open Market Committee. The basic unit of the Federal Reserve System, operated by the Federal Reserve Bank of New York, that governs the U.S. money supply. It increases the money supply by buying Treasury securities (representing Federal debt and deficit spending) from major securities dealers and increasing demand deposits. It decreases the money supply by selling Treasury securities through the same dealers and decreasing demand deposits.
Paper, Agricultural. Financial instruments (such as promissory notes) secured by agricultural assets, usually the value of crops to be harvested within a year.
Paper, Commercial. Financial instruments, usually unsecured (that is, with no specific collateral other than the general credit worthiness of a firm) issued by a financial institution or private company. These are usually short-term liabilities of less than a year and, in the United States, usually in multiples of $100,000.
Paper, Industrial. Financial instruments secured by industrial assets, usually the value of the assets purchased on credit, and inventory.
Post Scarcity. (See “Scarcity, Post”)
Power. In the most basic sense, it is the ability or capacity to do something or to effect change. Power can never be eliminated from human society. Without power, people cannot grow, move freely, or shape their own futures.
Legally, power means an ability on the part of a person to produce a change in a given legal relation by doing or not doing a given act. In economics, power is the ability to direct, influence, delegate, obtain, channel and organize labor, capital, money, credit and resources toward the production and consumption of goods and services.
Power connotes direct control or delegated authority, as well as the ability to hold a person or persons accountable. It can be exercised over other people and their actions; over things, processes or systems; or over a political, economic or social body.
There is an inherent connection between power and property. The rights of property include the right of the owner to the fruits or income produced by thing that is owned, and power or control over the thing owned. America’s founders and other political philosophers recognized the linkage between economic power and political power, and the tendency for those with property to seize power, and those with power to take over property.
An unjust society or unjust institution concentrates or monopolizes power; the greater the concentration of power, the greater the tendency toward corruption and abuse of power. A just society or system is structured to diffuse power to every citizen, and to ensure equality of access and opportunity within all of its laws and institutions. The Just Third Way creates systemic checks on the abuses of economic (and consequently, political) power by ensuring that access to the means of acquiring future capital ownership is extended to every person as a fundamental human right.
Price, Just. The transaction value reached voluntarily by an informed buyer and an informed seller after a series of implicit or explicit offers and counteroffers, with neither under any compulsion to buy or sell.
Price. The value of the goods or money that is given to acquire a good or service. In a market economy, “price” is the transaction value reached voluntarily by the buyer and seller, with neither under any compulsion to buy or sell. In a centrally planned economy, prices are set by government without regard to the value of the item to the buyer or the cost of the item to the seller.
Prime Rate. The interest rate commercial banks charge their best customers. It includes a markup over the cost of the money to the commercial bank.
Privilege. Privilege is a legal freedom on the part of one person as against another person, group of persons, association, or institution to do a given act, or a legal freedom not to do a given act. From the standpoint of the person or persons against whom privilege operates, privilege means the absence of right. The one against whom privilege operates has no power to prevent the one who holds the privilege from engaging in a particular course of action or nonaction.
Procreative Credit. (See “Credit, Capital”)
Productive Credit. (See “Credit, Capital”)
Productiveness. An expression of the pro rata contribution of an economic factor to production, as measured by the market-determined value each factor contributes to the overall production process. In contrast, the commonly accepted term, “productivity,” measures economic output strictly in terms of one factor (labor) alone, while treating the contribution of technology and other forms of productive capital as irrelevant for income distribution.
Profits. The financial gain resulting from the use of capital in a transaction after all expenses are paid. Also, the “return to capital” determined by subtracting all costs, including labor costs, from the revenues received from the sale of marketable goods and services by the enterprise.
Propensity to Consume, Average. The proportion of disposable income that the average individual or family unit spends on goods and services.
Propensity to Consume, Marginal. The amount that consumption changes in response to an incremental change in disposable income. It is equal to the change in consumption divided by the change in disposable income that produced the consumption change. The marginal propensity to consume of a rich person is lower than that of a poor person. The rich person, having satisfied his consumption needs, will tend to invest the remainder of his income in income-producing assets (capital) rather than purchasing more consumer goods from producers. As Louis Kelso observed, today’s “closed system” of financing capital formation is unable to channel capital ownership and capital incomes to the poor, whose higher propensity to consume would enable “excess” production to be cleared from the market.
Property. Property is an aggregate of the rights, powers and privileges, recognized by the laws of the nation, which an individual may possess with respect to various objects. Property is not the object owned, but the sum total of the “rights” which an individual may “own” in such an object. These in general include the rights of (1) possessing, (2) excluding others, (3) disposing or transferring, (4) using, (5) enjoying the fruits, profits, product or increase, and (6) destroying or injuring, if the owner so desires. In a civilized society, these rights are only as effective as the laws which provide for their enforcement. English common law, adopted into the fabric of American law, recognizes that the rights of property are subject to the limitations that (1) things owned may not be so used as to injure others or the property of others, and (2) they may not be used in ways contrary to the general welfare of the people as a whole. From this definition of private property, a purely functional and practical understanding of the nature of property becomes clear. Property in everyday life is the right of control.
Pure Credit. (See “Credit, Pure”)
Rediscounting. (See “Discounting”)
Reserve Policy, 100%. A requirement that for every dollar created for lending purposes by a commercial bank, the bank would have to retain a corresponding dollar’s worth of financial or tangible assets to support the loan. Under a 100% reserve requirement, funds to loan out can only be obtained by the bank printing money, if permitted by the banking laws, or by discounting (selling) the loans it makes immediately to the central bank for funds to cover 100% of the demand deposits of a borrowing enterprise or farm. There would thus be a direct link between new money created in a region served by a central bank and the ability to satisfy the region’s needs for capital credit for feasible projects. Under 100% reserves, every dollar of new money would be backed by productive assets, adding to the economy in the form of new plant and equipment, new rentable space, and new physical infrastructure and other forms of procreative capital. As the loan principal is repaid, the newly created money would be taken out of circulation or used to make new asset-backed loans.
Reserve Policy, Fractional. The amount of cash or cash equivalents (usually government bonds) a commercial bank is required to have on hand to cover demand for cash on deposit. This is usually expressed as a ratio or percentage of reserves to deposits. For example, a 20% reserve requirement would mean that for every dollar deposited with the bank, the bank would have to retain 20¢ on hand that could not be loaned out. Since each loan is circulated through the banking system, creating new deposits and more loans, each new dollar of deposits under a 20% fractional reserve policy allows the banking system as a whole to create “out of thin air” five dollars of new loans, whether those loans are for nonproductive or speculative uses, for covering public sector deficits, or for productive uses. Contrast with “Reserve Policy, 100%”.
Reserves. Cash or cash equivalents (usually government securities) that a commercial bank has on hand to cover demand for cash on deposit.
Right. A legally enforceable claim of one person against another (i.e., some other individual, group of individuals, association, or institution), that the other shall do a given act or shall not do a given act. A right describes a relation or relationship between the person who has the right, and the other who has the correlative duty — the person against whom the right exists.
Risk Premium. An amount generally added by a lender to insure against anticipated risks that the outstanding principal on a loan may not be repaid or is not backed by sufficient collateral. Under Capital Homesteading such risk premiums could be “pooled” by capital credit insurers and reinsurers to offer a substitute for collateral.
Savings, Forced. The method by which productive assets are purchased with cash accumulated by reducing potential purchases of consumer goods and services.
Savings, Future. Profits used to repay loans for capital formation and acquisition of existing productive assets by new owners. Also, the process by which capital is financed on pure credit and the acquisition loan repaid out of the future stream of income generated by the asset.
Savings, Past. The term in binary economics for existing pools of savings. Described as “past” because such savings were generated by reductions in consumption in the past instead of the present or future.
Say’s Law of Markets. A recognition that production and consumption should be in balance in a market economy. Another way of expressing this is that the economic values of all goods and services equals the aggregate incomes resulting to all producers. Therefore, as Jean-Baptiste Say said, “It is then in strict reality with their productions that they make their purchases; it is impossible for them to buy any articles whatever to a greater amount than that which they have produced either by themselves, or by means of their capitals and lands.” (Jean-Baptiste Say, Letters to Mr. Malthus On Several Subjects of Political Economy And On The Causes Of The Stagnations of Commerce. London: Sherwood, Neely, and Jones, 1821, p. 2.)
Thus “demand” (income) in an economy governed by competitive market forces is supposed to generate its own “supply” (production), and supply its own demand. Because most workers have only their labor to sell in competition with labor-saving technologies and workers in other labor markets willing or forced to perform the same work at lower wages, and the ownership incomes from technological advances are highly concentrated among already affluent individuals, Say’s Law has been negated by anti-market political policies and laws. Binary economics was developed to restore the systems equilibrium of Say’s Law by creating a more free and just market economy, with all consumers sharing profits from their direct ownership stakes in enterprises that employ such technologies.
Scarcity. (See “Scarcity, Economic”)
Scarcity, Economic. In economic terminology, “scarcity” refers to the fact that the same resource – regardless of its quantity – cannot be put to more than a single use at a time. Scarcity in an economic sense refers simply to the choice as to what use to put a specific resource, not to the quantity available. Most schools of economics, following the paradigm of Thomas Malthus, implicitly equate economic scarcity with insufficiency, and erroneously conclude that insufficiency is inevitable. Technological change, however, according to critics of Malthus, makes shared abundance a plausible goal of development theory, offering hope that world poverty is a solvable problem.
Scarcity, Effective. The popular understanding of “scarcity;” that is, the quality or condition of insufficiency. In non-binary economics, effective scarcity exists as an unyielding constraint on growth and development. Binary economics holds that the constraints of scarcity can be overcome by invention and more efficient exploitation of existing resources through the process of “ephemeralization,” the redesign of our technologies to “do more with less.” (See “Ephemeralization”)
Scarcity, Post. Any arrangement or transformation of an economic system that helps overcome the constraints of insufficiency or effective scarcity. This is not a rejection of economic scarcity, but a refutation of the assumption that effective scarcity is inevitable. In binary economies, any insufficiency resulting from economic scarcity can be overcome through substitution or improvements in technology. Thus, Louis Kelso can be termed a “post scarcity” economist for devising a logical framework and comprehensive strategy for harnessing voluntary private-sector initiatives to overcome the artificial constraints to shared abundance. The post-scarcity challenge of the 21st Century is to restructure the social order through acts of social justice to overcome basic social and economic problems.
Security, Primary. (See “Issuance, Primary”)
Security, Secondary. (See “Issuance, Secondary”)
Share. A unit of equity ownership in a corporation, generally referred to as “common stock,” which stands last in line against others with claims on a corporate enterprise. This ownership is represented by a stock certificate, which names the company and the shareowner. The number of shares a corporation is authorized to issue is detailed in its corporate charter.
Socialism. A system of political economy in which the state (or a collective) assumes either ownership or control (and thus effective ownership) of the means of production, thus centralizing the power to regulate wages, prices, profits and all economic institutions.
Sovereignty. Intrinsic possession of and ability to exercise inalienable rights. “Sovereignty” is that bundle of rights within the common good that accrue to people as fundamental human rights.
Sovereignty, Economic. That aspect of individual sovereignty requiring that each human being, as an entity with inalienable rights, be given full and equal access to the institutions of the economic common good as a matter of right. Economic sovereignty also refers to the exercise of the ability to function in the economy as a financially independent person. This is often misstated as the right to a living wage, but is more properly construed as the right of access to all means to acquire income through contributions to the economic process, whether through ownership of one’s labor, or the ownership of one’s capital, or preferably both. Economic sovereignty may thus be briefly stated as the right to private property, and is thus the moral foundation of both a sound economic order and social order as a whole.
Sovereignty, Political. That aspect of individual sovereignty which regulates the role of the state and the individual’s interaction with the state. Just as private property is essential for one’s economic sovereignty, access to the political ballot by economically sovereign citizens is essential to safeguard one’s political sovereignty against the potential abuses of the coercive powers that reside in government. The ultimate check on government power is to make government economically dependent on the people, not vice versa. The state does not possess political sovereignty intrinsically, but only by delegation from the members of society. This delegation may be revoked for just cause and under certain conditions, but must then be vested in a more just form of government.
Subsidiarity. The principle stating that those most closely involved at a particular level of the common good are charged with the immediate responsibility of monitoring and reforming the level of the common good in which they live, work, function, etc. The “Principle of Subsidiarity,” is defined by the late social philosopher Rev. William Ferree, S.M., Ph.D. in two parts: First, no higher organization may arrogate to itself a function which a lower organization can adequately perform; second, no lower organization may usurp a higher one for its own particular purposes. In management terms, subsidiarity refers to the delegation of decision-making power over a particular area of operation by those working directly in that area.
Subsistence. In social and economic terms, a state of “pre-development” in which a predominantly labor-intensive economic process and extremely primitive tools produce barely enough for survival for most members of a society. As the tools of that economy improve to more capital-intensive levels, the economy will move to greater levels of abundance, and from subsistence to affluence. A binary economy would produce even greater affluence and faster growth rates than a capital-intensive economy where ownership is concentrated, as capital incomes widely dispersed throughout the population would increase mass purchasing power and effective demand for consumer goods, thereby stimulating higher demand for new capital formation.
Supply, Aggregate. The total value of the goods and services produced in a country, plus the value of imported goods, less the value of exports.
Supply. The total quantity of a good or service available for purchase at a given price.
Synergy. The force resulting from mutually cooperating action of separate units which together produce an effect greater than any component acting alone. This is the “win-win” concept in game theory. (Contrast with “Zero-Sum”)
Tax Credit. A tax subsidy that allocates funds without either legislating an entitlement or approving an appropriation. A tax credit allocates funds by permitting tax payers to retain funds normally remitted as taxes if they engage in approved activities at their own expense, thus circumventing the legislative process. A tax credit is similar to an entitlement, but without the collection and dispersal of cash by the state. This permits “hidden” expenditures to advance selected programs without the amount being subject to public scrutiny.
Tax, Payroll. Not a tax, per se, but a collection or advance payment of an individual’s income tax burden taken out of salary or wages.
Third Way. (See “Just Third Way”)
Two-Tiered Credit System. (See “Credit System, Two-Tiered”)
Value. In economic terms, the worth of any tangible or intangible good or service, usually expressed in units of currency, as determined by market forces.
Value-Based Management (VBM). The term originally used by some binary economists to describe a 21st Century servant leadership philosophy and management system for creating and sustaining an expanded ownership culture within business corporations, based on the integration of moral values and market concepts of “value.” The term was later changed to “Justice-Based Management (JBM)” when “Value-Based Management (VBM)” began being used by Wall Street and various business schools to describe the purchase of marketable securities or capital assets based on speculation that those assets are undervalued in the market. (See Justice-Based Management.)
Voting Passthrough. The equivalent of the right to vote “one’s shares in a beneficial” ownership arrangement such as an ESOP, where shares are legally owned by a trust for the benefit of employee participants, rather than owned directly by them. Participants may, if the trust is so designed, have the power to direct the Trustee of an ESOP to vote on their behalf company shares held in their ESOP accounts. Current ESOP law requires pass-through of the vote on major issues such as the sale of the company, but does not require passing through the vote on typical shareholder issues or to elect representatives to the Board of Directors.
Wage System. An economic arrangement of society where a determinant number of people generate the bulk of their income solely through the mechanism of wages, and where the ownership, control over, and property incomes from productive capital is highly concentrated in a tiny percentage of people. Because most people in a wage system have only their labor to sell, in competition with advancing technology and lower-wage workers, the wage system leads inevitably to economic plutocracy, conflict between haves and have-nots, political manipulation of the marketplace, and concentrations of power throughout society.
Wages. Compensation for human labor. Subsistence on wages alone tends to make the wage earner dependent on the employer and leaves him economically vulnerable in the global marketplace.
Work. Generally construed as labor, i.e., human activity geared toward production of economic goods and services. In a broader sense, work also includes the idea of what Aristotle termed “leisure work,” that is, unpaid human activity whose object is personal, social, or spiritual development.
Work, Leisure. Aristotle’s term for “the work of civilization,” or the unpaid work outside of economics that is done for its own sense of satisfaction or for its intrinsic value to society. The idea of leisure work can be construed as human activity geared toward fulfilling human needs above the level of security and subsistence on Maslow’s hierarchy. It is oriented toward all creative activity and initiatives by which every human being can develop toward self-actualization. In a binary economy where most people could earn the bulk of their subsistence incomes from the ownership of capital, those people could afford to shift from economic work (“toil”) to leisure work.
Zero-Sum. In game theory, or in an economic system, where one person can only win or gain if someone else loses. The opposite of “zero-sum” or “win-lose,” is synergy or “win-win.”