perspective of the individual, once he or she develops capital, whether from saving, inheritance, gifts or otherwise, that capital can guarantee access to additional capital.
This capital formation process forecloses the broad base of the population from participating in the income which capital can produce. They have no capital to serve as a guarantee and cannot easily reduce consumption to build capital from savings. At the same time, a few family units are already producing significantly more capital income than they can, or are willing to, consume. This excess income is reinvested in capital assets, producing ever more income that cannot be consumed and foreclosing other family units from participating in the growth of new capital to produce income for their consumption. The result is a significant concentration of capital in most economies in the hands of a very few family units (Kelso & Hetter, 1967a).
Binary economics holds out hope for those without access to capital. At the same time it offers the prospect of significant economic growth. It is unlike classical economics with its Supply Siders, who focus on capital formation, and its Keynesians, who focus on the creation of demand. Binary economics envisions the formation of capital in such a way that the income produced would be used for consumption rather than reinvestment. It is this connection between the formation of capital and the demand for goods and services that provides underperforming economies the prospect of significantly improved growth.
Binary economics invites us to reconsider the ways in which capital is formed and distributed in our economies. It suggests alternatives for capital formation in which the formerly disenfranchised may participate. Binary techniques involve providing access to credit for capital investment to those who have not, heretofore, had such access because they lacked existing capital. A range of options has been proposed by Louis Kelso, Patricia Hetter and others which would provide broad access to capital through credit guarantees (Kelso & Hetter, 1967b). It is important to note that binary economics does
not demand ownership of and proposes use of credit.
the redistribution of existing capital. It does, however, imply that the existing capital should not provide the only route for access to new capital broader participation in the formation of capital in the economy through the
Significant Implications for Privatization
Binary economics has a number of significant implications for the privatization processes now underway all over the world. The first and most important implication is that it matters who owns the privatized capital. If capital is privatized in such a way that the privatized capital is owned by those who already own much of the existing capital, it is not likely that the income from that privatized capital will flow back into the economy in the form of increased demand. Capital in excess of that needed to produce the income its owner wishes to spend is harmful to the economy. It has been referred to as “morbid capital.” That is, capital producing income that will not be spent on consumption to satisfy the needs or wants of its owner.