Select Page

Say’s Law of Markets: Louis Kelso vs. Henry George

[“Say’s Law of Markets” by Norman Kurland, President of the Center for Economic and Social Justice, is commented on by School of Cooperative Individualism Director, Ed J. Dodson, during 2006. An ongoing exchange of views on the subject occurred over several months on-line, the transcript of which is available though the “Capital Ownership Group.”]


This paper will show that Say’s Law of Markets — that supply can create its own demand and demand its own supply — can be made to work. Higher rates of sustainable growth could be achieved, assuming: (1) capital credit is universally accessible and (2) profits are fully distributed to raise overall consumption, savings and investment levels. Reforms based on this new economic paradigm, first developed by Louis O. Kelso and later refined by Robert Ashford and Rodney Shakespeare, would result in an asset-backed money supply that would provide sufficient liquidity to banks and other financial institutions for financing an expanding portion of the new productive assets which are added each year to grow the economy.


EJD: The neo-classical assertion that price is always a reliable market clearing mechanism would seem to support Say’s Law; yet, we do produce “things” no one wants at any price. Producers may actually have to pay to have these “things” disposed of. This does not occur very often, of course, but it does occur in a limited way when producers guess wrong about consumer demand and the what consumers are willing to pay is less than the cost of production.

NK: The market system has several ways of dealing with excess inventories or goods and services that no one wants. First, the market will force a reduction in prices until whatever is produced will become attractive to potential buyers at the lower prices. Second, some things may end up in the waste and recycling system at some cost to the public paid for by taxes or by the producer disposing of the waste. Third, to the extent that the producer does not recover the costs of production, to that extent profits and dividend incomes will be less and to the extent the miscalculations are too significant the company in a binary world would either go out of business or be reorganized in the US under chapter XI proceedings, possibly under better management whose business judgment is sounder on meeting the market’s demands. In these and other cases, real costs are added to prices, and overall prices in a binary economy would be automatically matched with overall labor incomes and/or property incomes necessary to clear from the market all consumer goods and capital goods financed through interest-free, ownership-expanding capital credit. In other words, Binary economics does not repeal the laws of supply and demand, or the double-entry bookkeeping systems logic of Says Law of Markets. Pure credit reinforced by increased consumption incomes from expanded ownership would result in faster rates of sustainable, environmentally sound growth, which continued need for government income redistribution programs, reducing the overall rate of corruption, waste and abuse in society.

EJD: We are not in disagreement, I think. My initial comment was basic as a confirmation that Say’s Law does not describe the real world. Supply does not create its own demand in all cases. Thus, I think we share the same observation that when there are no public subsidies (i.e., cost shifting to others) some production will not occur because market prices do not warrant the investment.


Unutilized productive capacity, concentrated capital ownership and widespread unmet needs and wants characterize, in different degrees, every economy in the world. In this context, the potential for substantial ownership-linked “binary growth” calls for a fundamental reconsideration of monetary policy and its relevance to Say’s Law.

The term “binary”, when used by Kelso and those embracing his theories, refers to two all-embracing categories — people (or “labor”) and things (or “capital”) — to describe every kind of physical and intangible input to the productive process. Binary economics involves the study of how technological change impacts the relationship between labor and capital. As a socio-economic paradigm, it reveals the impact on income and asset distribution, as well as the moral, political and social implications, of universal access to capital ownership under theoretically free market conditions.


EJD: As you know, my observation is that nature is not a “thing” but the source of “things” with very peculiar characteristics causing analytical problems when confused with the goods produced by labor (with or without the assistance of goods utilized as capital).

NK: I think that you would agree that nature is not a person and, since the abolition of slavery, a person is not a thing. If nature is a non-person, I see no clear reason it cannot be classified as a thing, as Kelso and the laws of property have classified land for centuries. If there is some validity in Occam’s Razor and the KISS principle, dealing with two sweeping categories or factors of production (both of which can generate one form of income or another) may be easier to understand and apply in balancing the two sides of the economic equation (production or supply, and consumption or demand), than dealing with three categories.

EJD: The Georgist reasoning reasons (my reasons) are two-fold. One is moral principle (i.e., people require access to nature for survival; justice, therefore, requires equal access) and to establish a definition of wealth that conforms with the first principle: that wealth must be produced by labor (with or without the assistance of capital goods) from land. Yes, nature has a material character, but agents of entrenched privilege have for the millennia relied on the reasoning that nature is just another “thing” to prevent just laws being implemented with regard to what is and what is not legitimate private versus public property. A Georgist definition of wealth leads to a very specific — and different — calculation of what constitutes total wealth in existence and how that wealth is distributed between the traditional returns to land, labor and capital. Rent, in the Georgist sense, is a claim on wealth — legitimate from the community and unjust when orchestrated by private individuals or interests.

NK: I concede that land and nature’s resources were not created by human beings but by Nature’s Creator. Still, land and natural resources have no economic value until they are discovered and put to use in the economic process through human contributions aided increasingly by technology and other human artifacts and systems created by humans to improve the man-machine-nature combination.

EJD: Some land has no current exchange value, or very little exchange value because there are no known natural resources to extract, the land is not fertile or lacks water, or is remote and/or located in a very hostile climate. Political economists referred to this land as being the “margin of production.” As population increases, however, even marginal locations start to yield rent, capitalized into selling price. Often, this is because of huge public expenditure to change the functional utility of an area. Take Las Vegas, for example. It would still be desert if it were not for the huge expenditure on Hoover Dam, the development of air-conditioning, and the state-sanctioned economic license permitting a near-monopoly privilege of gambling. Las Vegas is a very good example of land value rising because of aggregate public and private investment. The Georgist argues, simply, that such value should be captured by taxation so that public goods and services can be paid for instead of confiscating wealth that legitimately belongs to individuals.

NK: What binary economics does is create a way for interest-free credit to be created in ways that promote higher levels of productiveness in the man-machine-nature combination and spread more equitably distribution of consumption incomes to match overall production and consumption levels at faster rates of development and more direct citizen empowerment. Any system that puts the rights of direct access to governance and profit distributions in unnecessary intermediary entities, disconnected by private property rights in individual citizens, invites elitist concentrations of economic power, higher levels of waste and corruption and reduced incomes among the citizens. Private property is the direct personal link to power in the economic process, just as the political ballot is the direct personal link to power in the economic process. Putting ownership in the state or any other entity “in the name of the people” is not the same as putting direct ownership stakes in the hands of every citizen.

EJD: We have a system of private ownership of land that is in place and accepted by most people. Georgists see no reason to nationalize land and natural resources. Requiring “owners” of land to compensate the community or society for the privilege enjoyed — by paying the market-determined annual rental value of the land controlled — is our proposed remedy. We call for this payment regardless of the form of ownership: individual, corporate, cooperative, land trust, whatever. Many of us argue that the land held by the Federal and State government within a community should also be subject to the payment of rent to the local community. In the other direction, communities benefit by public goods and services provided by state and federal governments. Rent, in some part, exists because of the security of possession provided by the higher levels of government. We do need a much more participatory democracy so that we achieve governance rather than government. I see no conflict between doing everything possible to see that individuals come to have a “direct ownership stake” in capital goods, while requiring that rent go into the community fund (a portion of which can be voted by citizens as an annual dividend to each person).

NK: A Kibbutz, for example, is an ownership tool that eliminates private property rights in its members and owns “collectively” all the land and productive assets of “the community”assets, and decides by majority vote how to control Kibbutz enterprises and distribute Kibbutz profits; if a member leaves the Kibbutz, he takes nothing with him but the shirt on his back. In a corporation (including a natural resources bank or community investment corporation that owns and plans the development of land), the corporation owns “collectively” all the technologies, structures, land and other income-generating assets, but the corporation is in turn owned “jointly” through direct private property rights held by individual owners; thus a corporate shareholder within a binary economy would have a share of direct governance power and the right to receive his full undiluted share of profits, and would be able to assert private property rights in a shareholder derivative suit in the event his rights are abused by management, the board of directors or even a majority of other shareholders. Clearly, the binary economy would raise the level of economic justice and empowerment to the individual citizen much higher than any so-called indirect “ownership” through government or any other form of collective. Daniel Webster was right, “Power naturally and necessarily follows property.”

EJD: As you surely know, the socialism of the Kibbutz largely failed. Few people are able to live by the Marxist idea of “from each according to one’s ability to each according to one’s need.” I certainly could not. The more limited application of the community-ownership principle is the community land trust. In CLTs land is owned by the CLT and held under lease. The house or other building constructed is owned individually, and its market value belongs to the individual. Unfortunately, few CLTs adjust the annual ground rent charges based on the increases in land value that occur as the community develops and grows. The reason is understandable, as most CLTs are established to take land out of the market and keep it affordable to lower income households, so ground rents are heavily subsidized. To keep the net imputed rental income from being capitalized into a selling price for the leasehold interest, most CLTs establish a cap on the selling price of the home (e.g., restricting resale to households with incomes up to some maximum of area median). In effect, this ground rent subsidy is an unrecorded distribution of rent to each property owner within the CLT. A community that collects the full market -determined ground rent comes very close to a CLT but without the limitations on economic synergy. I see no conflict with this model and the ownership society.


While this author recognizes that both Karl Marx and John Maynard Keynes, and their many followers in academia, have rejected Say’s Law of Markets, this paper will point out how the binary economic model originally conceived by Louis Kelso refutes the criticisms of Marx and Keynes and offers a more sound moral and economic framework for promoting sustainable development within a market system. The Kelso model — recognizing both labor and capital as direct and interdependent sources of mass purchasing power — would be structured to create a more just and more productive system than any market system in the history of modern civilization.


EJD: And, I do not dispute that the policies advanced will result in “a more sound moral and economic framework” than systems now in place. What I argue is that the outcomes would be far easier to achieve and in full accord with moral principles if the rental value of nature (i.e., of land, as the original and passive factor of production) were fully captured for public goods and services and/or fully distributed pro rata to all members of society.

NK: You seem to be arguing that top-down distribution of nature’s rental values to pay for “public goods and services” for all citizens is better than a system that gives every citizen an equal private property stake in a private sector entity that distributes 100% of all profits equally to each citizen-owner. Under a binary model of land ownership the rental incomes in the form of a regular dividend would enable the citizen to exercise choice in buying or not buying public goods, probably resulting in higher quality and lower costs of public goods than the top-down, highly politicized, monopoly alternative you seem to propose. Choice is the best way to ensure the highest value in the delivery of most public services and to maximize the power of the citizens.

EJD: Not at all, Norm. I have confidence that an educated citizenry would make good decisions on what expenditures are appropriate by the public sector and how much of a citizens dividend ought to be distributed. Ross Perot’s idea of an electronic town meeting is one I applaud as a basis for increasing citizen participation. The historical problem is that many people have not had the time to participate in civic affairs (one of Adler’s “goods” of a decent human existence).


Wealth distribution assumes wealth creation. According to recent studies, productive capital (i.e., technological and systems advances and improved land uses) accounts for almost 90% of productivity growth in the modern world.6 Thus, balanced growth in a market economy depends on incomes distributed through widespread individual ownership of productive capital, i.e., all nonhuman means of production. The technological sources of production growth would then be automatically linked by free market forces to the ownership-based consumption incomes needed to purchase new products from the market. Thus, Say’s Law of Markets — which both Marx and Keynes attempted to refute — would become a practical reality for the first time since the Industrial Revolution began.


EJD: Your own statement is crucial: “Wealth distribution assumes wealth creation.” If this is what you believe, then you are excluding nature from your definition of wealth. Labor does not create nature; nature is here for use by nature. Productivity is, by definition, more output from some combination of less input of labor and the use of less capital applied to less nature.

NK: There is nothing in my statement that suggests that labor creates nature. The concept of wealth for economic purposes presupposes that wealth is something that provides a material benefit to human beings to which an economic value can be attached. If it does not provide an economic value to human beings, it is not properly called “wealth.” Some things are free, like sunlight and the magnetic forces of the earth. By my definition these are not wealth until a man-technology-nature mix is established that generates useful goods and services that people produce and consume for their material satisfactions, most efficiently within a free and just market system that maximizes human choices.

EJD: We agree, for the most part. Sunlight is free only because “rent-seekers” have not figured out a way to charge for access to the sun. The real battles today are over water and right of access to water and over minerals and rights of access to minerals. Our laws have allowed individuals to claim exclusive control over these natural resources without requiring full compensation to society. This allows individuals holding deeds to charge the rest of us for what nature provides freely. This is what Georgists oppose.


As Ashford and Shakespeare have explained, binary economics reconciles Say’s Law to the persistent coexistence of unutilized productive capacity and unmet needs and wants. This new perspective recognizes that “supply (in the form of increasing capital productiveness) will generate demand in proportion to its distribution.”


EJD: There is inherent or latent demand for many goods and many services. What is too often lacking is purchasing power. This absence of purchasing power is caused by the private confiscation of the actual production from producers by non-producers. Taxation of income acquired by production of goods or offering of services represents, in my world view, the public confiscation of private property.

NK: There would be no confiscation by non-producers or by civilization’s only legitimate monopoly — the state – in a binary economy where every citizen was provided equal ownership opportunities. In that case everyone would be a producer by virtue of the value of his labor contributions and the value of the contributions of all his productive capital. Then everyone, except for those who fall between the economic cracks, would produce enough marketable wealth that he would have enough purchasing power to satisfy his economic demands.

EJD: You make an assertion that needs to be tested under real conditions. Georgists have, at least, come up with a way to put our theories to the test by working with communities to change the form of property taxation so that property improvements are taxed at a much lower rate than land values. These tests are generating data that support our policy proposals – not without controversy, but we can point to cases where the results are as predicted and there are no other variables to explain the outcomes. Binary economics needs similar limited applications to demonstrate incremental results consistent with the theory. Certainly, this is what Louis Kelso had in mind by concentrating so much of his energy on getting legislation adopted to permit ESOPs.


The challenge this paper will present, especially to academic economists, is in its mathematical demonstration of how Say’s Law of Markets can be reconciled both with the classical quantity theory of money and various measures of net national product (NNP) to permit accelerated rates of growth without inflation, as predicted by binary economic theory. A side-effect of this proof is to relegate the Phillips’ curve — asserting that inflation and unemployment are inextricably linked — to the dustbin of economic history.


EJD: Reality has done a pretty job of discrediting the policy-related conclusions of the very tenuous relationship Phillips reached concerning the tradeoff between inflation and unemployment. The stagflation of the 1970s revealed the power of monopoly rent-seeking even in a global economy. In the short-run, OPEC orchestrated one of history’s largest transfers of purchasing power; however, in the process the “shock” added the one more degree of stress that broke the global economy’s economic back.

NK: As you know, binary economists have a comprehensive plan for transforming the economic system, (See So we agree with you that the present system is flawed. If Georgists and Kelsonians joined forces and reached out together to make the system work more justly and efficiently poverty in America could be eliminated and the rest of the world would follow our example.


The ultimate aim of this paper is to present a logical and unified market system that is structured to combine economic efficiency with fundamental principles of economic justice. Implicit in this position is that no known economy in the history of civilization, particularly since the advent of modern technology, has offered both genuine justice for all, and optimum rates of productive efficiency. If this author is correct, those frustrated by today’s unfree and unjust market economies are urged to come together for serious study and discussion of an alternative model of development – the new paradigm of binary economics.

Problems Not Effectively Addressed by Conventional Economics

How will the U.S. economy finance the $2 trillion required each year (at 2000 rates of growth)9 to meet the nondefense capital requirements of the U.S. private and public sectors in the form of new plant and equipment, new hardware and software technologies, new rentable space and new physical infrastructure?

Assuming we can solve this problem, who will own the massive amounts of new capital brought into existence to meet our needs for energy self-sufficiency, new communities, and new housing, mass transit, new communications systems, resource recycling and conservation, expanded food and fiber production, etc.? Will those assets be owned by the same top 10% of U.S. families who own and control 90% of directly owned U.S. corporate stock? Will those assets be owned by government and quasi-government agencies? Will those assets, in the words of Peter Drucker, be “socialized” in the hands of money managers, pension funds or foundation bureaucrats? Or will that new capital become owned by many people whose incomes today depend almost exclusively on their (often subsidized) jobs, paternalistic government welfare and subsidy handouts, and private charity?


EJD: Just a few observations of a historical nature. One is that the wealthy have rarely allowed themselves to be taxed to pay for government. Rather, governments issue bonds at interest that only those with excess disposable income can invest in. Then, the funds to service the debt must be raised by taxing those who actually produce goods and provide services. In the U.S., one problem has been the gradual erosion of distinction between “earned” and “unearned” income flows for tax purposes. Inheritance taxes on large individual fortunes and taxes on capital gains – while they confiscated some level of earned income, were the only reasonably effective checks on rent-seeking gains. We only need to look at the acceleration in wealth and income concentration that has occurred in the last 25 years to confirm that government actions have benefited rent-seeking to the detriment of actually working for a living.

NK: I agree generally with your criticisms of the present system. Here’s a power point presentation of my testimony before the President’s Advisory Panel on Federal Tax Reform (


Can such massive investments be made without foreign oil dollars, or, for that matter, without exclusive dependency on the past savings accumulated by the rich or the reservoirs of accumulated small savings of the middle class and the poor? Can capital be acquired on expanded bank credit (“pure credit”) secured by the future income (or future savings) derived from such new investments?

Can the Federal Reserve System become the “lender of last resort” so that the “full faith and credit” of “We, the People” can pump newly issued money into the banking system on a self-liquidating and asset-backed basis? And can this newly created credit be channeled under the supervision of local banks into unsubsidized, self-liquidating, commercially insured loans at 2-4% borrowing costs to fund feasible projects of enterprises that voluntarily want to acquire their future capital needs in ways that broaden the base of U.S. capital ownership in the process?

Why is the Asset Gap Growing Between A Wealthy Elite and Other Citizens?

What explains the growing maldistribution of capital ownership in America and throughout the global economy? Why is there a massive and growing capital gap between the already wealthy and those who have little or no capital assets and generally live from paycheck to paycheck, or even from hand to mouth? Why is it easier for a Bill Gates to increase his capital from $10 billion to over $90 billion in a few years than for the average American to accumulate in net worth enough to live on for two or three months?


EJD: These are, of course, the right questions.


Let us examine some of the structural root causes that enable the rich to get richer and the poor to become increasingly vulnerable to the forces of global change. Wealthy people can attract capital credit (i.e., other people’s money) to add new and more powerful productive assets to their existing ownership stakes, because wealthy people can pledge their previous accumulations as collateral, thus eliminating the potential risk to lenders in the event that the loan cannot be repaid. Most citizens, especially the poor, have no assets to pledge as collateral. Therefore, most people cannot qualify for capital credit to purchase, on the same terms as the already wealthy, newly added self-liquidating productive assets. Once feasibility standards are met, such assets, in the hands of reasonably competent management, will pay for themselves out of future profits or savings and then become a source of additional capital incomes for those with access to capital credit. Thus, those without assets (and therefore by definition people who cannot overcome the traditional collateralization hurdle) remain with little or no hope to share profits from their own assets and gain an independent source for their future consumption incomes.


EJD: Historian Jackson Turner Main observed that as early as the mid-1700s most of those who held wealth in British North America had acquired this wealth by inheritance, and that most of that wealth was in the form of large landed estates and land held in the handful of growing port cities. That process only accelerated over time as immigrants poured into the United States. Because land that was accessible was already monopolized, the new arrivals had two choices: move to the undeveloped interior (and face the risks associated with the frontier) or accept lower and lower wages as competition for limited employment became the norm. Those who control the land do not often take the risks of investment in capital goods; they lease land to the highest bidder, who must then try to achieve acceptable returns on investment by whatever means are available (i.e., some combination of better than average productivity, lower wages to employees, reducing costs by non-compliance with environmental regulations, seeking protections from foreign and domestic competition, etc.). Rather than make credit accessible to allow the “have nots” to participate in the game, the Georgist proposal is to prevent the capitalization of rent into a selling price for land by ensuring that rent is treated as a societal fund. Land will, then, no longer have a selling (i.e., entry) price for producers. Someone who wants to establish a business requiring the use of capital goods will , then, require far less start-up capital to begin operation and have far less debt to retire before establishing solvency.

NK: What’s wrong with this twist on getting land rentals, the power of eminent domain and governance over planning and land regulation directly in the hands of citizens? (See


The Logic of Corporate Finance: A Key Tool for Creating New Owners Simultaneously with New Capital Creation Within a Market Economy

The guiding logic of all corporate finance is that all projects must be self-liquidating. Newly formed capital, such as improved land, new structures and new tools, are never brought into existence by a well-managed enterprise unless the new investments will pay for themselves. Under ordinary circumstances, “payback” for new equipment is generally expected within three to five years. In the corporate sector, it is interesting to note, the corporate umbrella insulates the eventual owners of this new capital, generally the already wealthy, from personal risk in the event the corporation defaults on its loans or goes bankrupt.


EJD: One way to begin to create a more level playing field is to treat the cooperative form of ownership as a non-profit exempt from income taxation, provided the profits are fully distributed to owners (whose incomes would then be taxable).

NK: For profit-cooperatives are very good vehicles for producing wealth within a binary economy, provided the vote is distributed pro-rata according to what each cooperative member has invested and stands to lose. A person should always have the power to protect that which he owns. In the political arena everyone has one body to lose. In the economic arena one owner may have much more assets to lose than another.

EJD: The difference may be one without a real distinction, so long as the compensation packages to management are voted on by all members of the cooperative rather than by a board beholden to those in management.


Using conventional methods of finance, over $2 trillion of new productive assets (or about $7,500 worth for every man, woman and child) are added annually to both the private sector and public sector of the U.S. economy. Virtually none of this newly created capital is financed in ways that create any new owners when it is formed. Theoretically, all or at least most of these assets could be financed in ways that they could be broadly and privately owned, as suggested by Louis Kelso and other binary economists since the 1950s.

Binary economics would require that inclusionary self-liquidating capital credit be made accessible to corporate employees and other current non-owners of productive capital in order to turn them into economically independent capital owners. And, in the same way that the currently wealthy use credit to increase their wealth, and thus their incomes, this would be done without unreasonable self-deprivation during the working lives of people economically enfranchised under a comprehensive national expanded ownership strategy.


EJD: Do the statistics support the assertion that “the currently wealthy use credit to increase their wealth”? Some certainly do, but my experience in banking was that those with financial assets hired managers to invest in equity funds, bonds, precious metals, and real estate (the later to take advantage of rising land values). These are largely passive methods of wealth accumulation. The profits of major corporations often have more to do with how they manage their real estate holdings than from the expenditures on capital equipment and sales of goods or services. The history of the railroads is just the most visible example of land ownership as the key to long-term wealth accumulation.

NK: True, land ownership is important. But an owner cannot take his private property in land with him when he dies. Hence, if the inheritance law changes and the community investment corporation reforms proposed in the Capital Homestead Act became law, just as when America’s founders abandoned primogeniture laws, there would be a major redistribution of land ownership in one or two generations.

EJD: That sounds reasonable, Norm. I have no reason to challenge your view of what would occur. Combine your proposals with the full payment of rent to the community as Georgists propose, and I have no doubt the outcome would be as expected.


As the logic and techniques of binary corporate finance are extended throughout the economy, all new incremental productive power can automatically be built into individuals who have unsatisfied needs and wants — without diminishing their take-home pay or past accumulation of savings. This will break the monopoly of capital ownership held by the currently wealthy — those with functionally excessive productive power in terms of their consumer needs and wants. The savings of the currently wealthy would then flow into the most risky and speculative ventures, or for insuring capital credit for the non-rich, or for supplying consumer credit and other nonproductive forms of credit.


EJD: Absent a high, effective tax on “rent,” the financial reserves of the wealthy will continue to flow into land speculation and other forms of “rent-seeking” investments (e.g., any government-sanctioned monopoly license that comes to have a market price, examples of which are taxi medallions, liquor licenses, broadcast frequencies, leases for cattle grazing, mining, timber harvesting).

NK: Let the wealthy gamble with their money, give it away, build monuments or provide reserves for capital credit insurance and reinsurance to support the equal allocation of pure credit (interest-free money) to all citizens. If the wealthy paid the same proportion of their rental incomes as the non-rich, with no exemptions, deductions, tax credits or other subsidies, we could eliminate Social Security and Medicare payroll taxes to cover the promises made to workers.

EJD: You may be right. I do not have a clear enough picture in my mind to comment with any certainly. My own proposal (one that few of my Georgist friends and colleagues have embraced) is to work for the restructuring of the Federal and state income taxes to a graduated flat tax under which all individual incomes up to the national (or state) median would be exempt from taxation. No other exemptions or deductions. The increased rates of taxation would be applied to ranges of income above the national median to meet a balanced budget requirement. As a corollary, I also propose that as government bonds mature they be replaced by fully amortizing bonds that repay to bondholders both interest and principal. The amount required to service and pay down the debt would be factored into the calculation of revenue needed to balance the budget, and thereby determine what the tax rates would be. The effective result, I argue, is this restructuring would essentially shift the burden of taxation from “earned” to “unearned” income flows. At the highest levels of income, income from “rent-seeking”represents a much higher proportion of income received and is, therefore, a more appropriate source of income to be taxed.


“Pure credit” can be defined as productive credit extended by a commercial bank, other financial institutions or a central bank in a manner independent of past savings, so that the amount borrowed plus all transaction costs are secured and repayable with future savings from the capital assets acquired with such credit. Limiting the extension of “pure credit” by the central bank to current non-owners and leaving the pool of past savings open for use by the currently wealthy and for nonproductive government and consumer borrowing would result in a noninflationary expansion of the ownership of capital assets. Such high-powered credit would enable private lenders to expand the money supply for feasible private sector projects by discounting their “eligible” asset acquisition loan paper with the central bank. This expansion of the money supply could continue as long as underutilized resources, people and technology are available for supplying more marketable goods and services to the economy. “Pure credit” would thus free the economy to grow to the full physical limits of its workforce, available resources, technology, and the projected additional buying power of new domestic and foreign consumers.


EJD: Again, the land market will not respond to this change in the way hoped. For most of us, working is not an option; it is a necessity because we do not have enough savings to live very long without bringing our labor to the market. The Kelsonian proposal mitigates the problem but does not prevent the greater savings accruing to working people from being taken by landowners in the form of higher land prices. The supply curve for land is essentially vertical (i.e., inelastic). As demand for land increases, the curve actually leans to the left; the market response is exactly opposite as the response when prices increase for labor, capital goods and credit. Owners of land subject to very low effective rates of taxation are rewarded by the market for hoarding land and for speculating, reducing the supply available for productive activities and driving up prices. Only the public collection of location rental values can remove this dynamic from the market, creating a competitive land market in the same way the markets for labor, capital goods and credit are competitive.

NK: Our community investment corporation, inheritance tax and other Capital Homesteading reforms are designed to redistribute more equitably land ownership and land rentals over a generation or two, without violating fundamental rights of property.

EJD: These measures need to be fully analyzed by independent policy analysts, by critics even. You may be right, but I am not qualified to say one way or the other.


After each increment of new capital has paid for itself from the future earnings (future savings) that it produces, effective demand and effective supply would be synchronized by normal market forces – and this would continue to do so as long as the new capital became a source of an expanded income for the poor and those in the middle-class who today do not have adequate and secure incomes to meet their needs. Binary economics would enable them to produce and earn more as owners of “procreative” capital in order to meet these needs.

From the standpoint of corporate productiveness, the binary economics approach would build all increases in capital productiveness (i.e., value added by capital assets) into workers and other non-owners. New owners would then be entitled to all the income increases attributable to their growing shares of corporate ownership. Artificial pressures for increases in labor and welfare incomes that add to costs and therefore go into the price of products sold (e.g., more pay for less work) would tend to diminish. Removing artificial restraints on capital creation would enable output to soar.


EJD: The next sections of Norm’s paper do not appear, as I view the text as descriptive of the predicted outcomes of the Kelsonian proposals and of the credit-funded Capital Homesteading plan. My observation is that the mathematical model fails to predict the actual outcome because the treatment of land as just another “good” available to producers. Land markets, as noted above, do not react as do the markets for labor, capital goods and credit.

NK: I hope that my earlier comments on how to achieve direct equal citizen ownership stakes in land and land rentals will help Ed see that our goals are the same, but I think our means for democratizing land ownership have decided empowerment, accountability and anti-corruption advantages over the standard Georgist approach.

EJD: We have to agree to disagree, until one of our perspectives proves to be the more viable — that they work in tandem or counter-productively. As I indicated above, we Georgists at least have some real world data to suggest we are on the right track (i.e., that based on our theoretical construct we can accurately forecast outcomes).


More enlightened national fiscal and monetary policies, geared to “full ownership” and “full and sustainable production” (instead of artificial and dehumanizing expedients to achieve “full employment”) could easily adjust for this minor problem. In no way, however, does it justify any further delays in restoring health to the U.S. economy and greater efficiencies and fairness in how we distribute capital ownership and mass purchasing power.


Kelso’s binary economic system and the social technologies that would become available under the Capital Homestead Act offer a new route to accelerated, quality growth without inflation in the U.S. economy. The logic and justice of binary economics offer an improved framework to move America ahead in accordance with its original founding principles, guided by customs, legal principles, institutions and traditions that are embedded in the fabric of this nation. The American Dream offered a revolutionary vision to all citizens to encourage each person and family to gain income self-sufficiency through ownership of productive assets. Binary economics offers a new paradigm to restore that vision, voluntarily and at no one’s expense.


EJD: Everyone I know who looks to Henry George’s works for strong guidance on how to achieve the just society incorporating a just distribution of wealth would concur that the objective is for people to derive much more of their income from the ownership of capital goods than from labor. My argument is that the public collection of all rents — keeping them from being privatized — would materially strengthen the effort to achieve what Kelso and Adler called “universal capitalism”.

NK: I would label the Kelso-Adler system “the Just Third Way” (a more morally appropriate term than a term that would universalize a system that much of the world see as excessively materialistic, inherently unjust and exploitative.) But Ed and I are not too far apart. But I don’t see a problem (and see many advantages) in privatizing rents if all rents were distributed equally to each citizen as a co-owner of land and as a fundamental right of citizenship.