RE: research issues

[Michael Harrington <mharrington@milken-inst.org>]

Dear Norm,

Thank you for your reply. I have a copy of Ashford's book in front of me and
I am carefully going through it as time permits. I agree wholeheartedly with
your approach but, of course, my purpose is not to convince myself - I'm
already one of the faithful - it's to change the minds of those naysayers in
the science and policy professions whose opinions actually carry
considerable weight in convincing the public. 
If Michael Harrington says distribution of capital matters for purely
economic reasons and Paul Krugman says it doesn't really matter
economically, perhaps only socially and that's not the realm of economists,
then I have no doubt on who the policymakers and the public are going to
follow. To say Paul Krugman doesn't "get it" is not only self-defeating
professionally, I think it's wrong. I have a lot of colleagues who I respect
intellectually and who disagree with me on some of these issues - I would
like to convince them, not alienate them. I would like to enlighten some of
my colleagues with new ways of looking at economic problems that have been
quite intractable and I think they are open to that. And I also don't
believe that one needs to suspend reason or all the economic science we've
learned heretofore to do this. 
I don't think it's fair or accurate to call Kelsonian ideas bizarre or those
of a crank but if we adopt the tactic that scientists are close-minded or
clueless, we're kind of asking for it, no?
In sum, I would like to confront Kelsonian ideas not on my terms or
Kelsonian terms but on the terms I'm confronted with in trying to promote
these ideas to the unenlightened. If I can't succeed in doing this I don't
really think I can move the agenda forward. 

Regarding Michael Greaney's letter below, I agree in principle with all his
points but from my perspective I'm not sure there's a real problem here
concerning the term human capital. For me the term human capital is just a
way to distinguish acquired human-based skills that are actually priced in
the market from human labor that lacks these skills. I'm not cognizant or
supportive of any implication demeaning humanity or commodifying people for
economic convenience. But I am oftened chagrined by orthodox economic views
that merely investing in human capital through education and training will
somehow solve the paradox of wealth and income inequality - but that's
because orthodox economists think all inequality results from unequal
endowments and fate. The reason uneducated and foolish people can also
become rich is because it's risk taking and luck that may be the major
deteminants--the more educated one is, the more conscious one is of all the
things that could go wrong and all the theoretical arguments about efficient
markets may lead one to avoid taking those chances that might actually pay
off. What truly educated, intelligent, risk-sensitive person without
material resources would really try to compete with IBM in the late 1970s?
Only a smart, confident, risk-taking, brash kid like Bill Gates.  

Best,
Michael





-----Original Message-----
From: OWNCO@aol.com [mailto:OWNCO@aol.com]
Sent: Friday, October 08, 1999 7:29 AM
To: mharrington@milken-inst.org
Subject: Re: research issues


8th October 1999

Dear Michael:

In response to your email of today, I want to suggest an approach to sorting

out the multi-dimensional implications of dealing with the issue of the 
democratization of capital.  You need to go back to simple definitions, 
simple principles, and clear descriptions of what is actually taking place
in 
the economic process.  In other words, try to free your mind and start with
a 
blank slate, insulated from traditional paradigms and the credentials of 
authorities in the fields of economics, law, finance, and other "soft 
sciences."  You can do this by reading with great care the book, Binary 
Economics:  The New Paradigm, where the points you raise are addressed and 
which have been amplified in the writings of other binary economists, such
as 
Louis Kelso, Norman Bailey, and myself.

You can then be a harsh critic of every point you cannot understand or with 
which you disagree in that book, and give a good reason why you disagree
with 
any point.  (The fact that others, including credentialed economics,
disagree 
or cannot understand, would not be a good reason;  nor would the fact that
it 
has taken so long for the points in that book to be understood by the media 
or the general public.)  Frankly, based on your many points of agreement
with 
Kelso and me, I doubt if you can come up with a single serious objection.  
After doing so, we can then discuss the pragmatics on how to achieve the
goal 
of the democratization of capital.

To spur you on, I'm enclosing a letter sent yesterday by my colleague
Michael 
D. Greaney, to The Washington Times.  Michael was responding to a comment by

Jack Kemp's economic guru regarding the flagrant misuse of language by 
traditional economists, which leads to confused thinking and 
counter-productive and dehumanizing economic policies.  Binary Economics is
a 
great starting point for everyone in COG to get back to the basics, so that
a 
new consensus can emerge for thinking about the future of economic policy in

the new millennium.  Otherwise everyone in COG, including you and I, will 
keep talking past each other.

If you disagree with my suggested approach, please let me know.

All the best,
Norm

7th October 1999

Letters to the Editor
The Washington Times
3600 New York Avenue, NE
Washington, DC 20002

Dear Sir(s):

Mr. John Mueller's criticism of Gary Bauer's tax plan was warranted, but 
strikingly off-base ("Criticism of Bauer's tax plan doesn't add up,"
Letters, 
The Washington Times, 7th October 1999).  Instead of zeroing in on the 
essential error of Mr. Bauer's approach - the dehumanization of the human 
person via the idea of "human capital" - Mr. Mueller, Jack Kemp's economic 
"guru," accepts the notion.  He simply uses a different definition of the 
term, and argues about the application of a fundamentally bad concept.  This

is a serious misuse of language which results in demoting human beings to
the 
status of things.

The idea of "human capital" is derived from Karl Marx's labor theory of
value 
and his concept of capital as "congealed labor."  These notions are rooted
in 
the failure of Adam Smith to realize that increases in production were due
to 
advances in technology, both physical inventions and systems (ways of doing 
things).  Smith assumed that people as labor were becoming more productive 
over time, when advances in knowledge and developments in the physical 
sciences, manifested by increasingly productive tools, were the factor 
causing overall increases in wealth produced.

David Ricardo removed even Smith's token acknowledgment of the contribution 
of land and capital to production, and asserted that everything was due to 
labor.  This was turned into a dogma by Karl Marx, and accepted without 
question by generations of economists.  We see this entrenched in today's 
economic thought and policy in the constant references in the media that,
due 
to advances in technology and the elimination of redundant workers (!),
labor 
is becoming "more productive."  On the contrary, people are not becoming 
"smarter" or "more productive."  We are using technology in smarter and more

productive ways - not the same thing at all.  The history of civilization 
demonstrates that total production (as well as output per worker) increases 
exponentially as human exertion decreases dramatically.  We are working 
smarter, not working more.

A better basis for analysis of the economic system and the roles of capital 
and labor is found in a recent book by Dr. Robert H. A. Ashford and Rodney 
Shakespeare, Binary Economics, The New Paradigm (Lanham Maryland:
University 
Press of America, 1999).  This book, a scholarly and in-depth treatment of 
the economic thought of Louis Kelso (best known as the inventor of the ESOP,

the "Employee Stock Ownership Plan"), presents its case with compelling
logic 
and concise definitions, and probably deserves to win the Nobel Prize in 
economics for its authors.  It gives hope and makes a truly original and 
important contribution to what can otherwise only be described accurately as

"the dismal science."

Why is it so important to clarify terms and use more precise definitions in 
these matters?  Because in a properly structured social environment, laws
and 
policies would encourage connecting everyone directly to ownership of 
capital, rather than supporting income redistribution.  Confusing the issue 
by indiscriminately labeling human beings "capital" and treating their 
training and maintenance as "investments" obscures the fact that most people

have few investments and own little or nothing in the way of productive 
assets.

True, knowledge ("education and training") can be owned in exactly the same 
way that productive assets (capital) are owned.  That does not, however,
make 
the possessor of knowledge into "human capital" or a "human resource" any 
more than ownership of capital turns the owner into his capital, despite the

pejorative invented by the socialists to emphasize the dehumanizing aspect
of 
concentrated private ownership of the means of production:  "capitalist."  
One need not be very "smart" to be an owner, or possess any significant
stake 
of "human capital."  Some very stupid and incompetent people are extremely 
wealthy, even if some of them require trustees to protect them from 
themselves and the danger that they might dissipate their wealth.

The noxious idea that consumption expenditures represent "investment" in 
"human capital" is valid only if we accept the idea that human beings are 
things, or mere "commodities" in the economic process.  Feeding, clothing, 
educating, and training a slave, for example, can be regarded as an 
investment the same way as fueling and maintaining any other tool.  Feeding,

clothing, educating, and training a child, however, must be regarded 
exclusively as consumption, goods and services essential for his full 
development as a person, not something from which we or society necessarily 
expect an economic return.  Regarding such expenditures as "investments" 
undermines the idea of humanity itself.

This was demonstrated by the Nazis' obsession with "uneconomic" people, such

as the elderly, the sick, the infirm, the deformed, and groups of 
"sub-humans" such as Gypsies, Slavs, and Jews.  Jews who could be put to 
productive use as "human capital" (slaves) were spared - for a time - but 
other "useless eaters" were euthanized on a massive scale.  During the 
Nuremberg Trials, the ease with which the Nazi euthanasia program was
carried 
out was credited to the propaganda disseminated with the intent of 
dehumanizing certain categories of human beings.  This was done by the 
psychological trick of redefining targeted people as entities valued
strictly 
on the basis of their economic contribution to society.  This was epitomized

in the 1920s by Binding and Hoche's obscene, Permission to Destroy Useless 
Life, a pamphlet which, word for word, could have been taken from much of 
today's propaganda promoting "assisted suicide."  The technique of 
dehumanization through language manipulation was brilliantly chronicled in 
William Brennan's Dehumanizing the Vulnerable, When Word Games Take Lives 
(Chicago, Illinois:  Loyola University Press, 1995).

Work is a very important part of human existence, but it is not the
exclusive 
nor even the key to increasing wealth, contrary to the basic assumption 
behind the idea of "human capital."  The purpose of production is 
consumption, not additional investment.  Neither is job creation through 
investment of the excess income of the rich the purpose of production, as 
Keynes, the maven of modern economics, assumed.  Indeed, in the 1930s Dr. 
Harold Moulton of the Brookings Institution proved conclusively that
reliance 
on "past savings" and reductions in current levels of consumption to finance

the formation of capital significantly inhibited wealth creation, even 
militating against it.

The disordered assumptions of modern economic theory and practice were 
overturned in 1958 with the publication of The Capitalist Manifesto, by
Louis 
O. Kelso and Mortimer J. Adler (New York:  Random House, 1958).  Starting 
from an idea of the dignity of the human person, Kelso and Adler grouped the

factors of production into the human ("labor") and the non-human
("capital"). 
 "Labor" was restricted solely to human effort itself, not how that effort 
was applied.  Kelso and 
Adler pointed out that new management systems, information, more 
energy-efficient tools, more powerful computers, and so on, are extrinsic to

the human person.  That is, they could be acquired and owned, the same as 
capital.  They should be considered "capital" to describe better the changes

taking place in the process of production.  "Know-how," education, training,

and so forth, however, are intrinsic to the human person once acquired, and 
should never be construed as "capital," that is, as a thing.

Advances in technology, tangible or intangible, result in increases in 
production which are due, by right, to the owner of that technology.  Since 
the whole point of technology is to replace human labor (effort) in the 
production process, not "enhance" it as many economists still assume in the 
face of reality, the only way for ordinary people who are displaced by 
technology to derive a legitimate income from the technology that replaces 
them is to own that technology.

Wealth distribution assumes wealth creation, and, as such authorities as
John 
W. Kendrick, R. M. Solow, and Edward Denison pointed out, technological and 
systems advances account for almost 90% of productivity growth in the modern

world ("Productivity Trends and Recent Slowdown:  Historical Perspective, 
Causal Factors, and Policy Options" Contemporary Economic Problems, 1979;  
Mathematical Methods in the Social Sciences, 1959, Stanford University
Press, 
1960;  "Accounting for United States Economic Growth:  1929 - 69," 
Washington, DC:  Brookings Institution, 1974;  Accounting for Slower
Economic 
Growth:  The United States in the 1970s.  Washington, DC:  Brookings 
Institution, 1979).  Balanced growth in a market economy depends on incomes 
distributed through widespread individual ownership of the means of 
production.  Technological sources of economic growth would then be linked 
automatically with the ownership-based consumption incomes needed to
purchase 
new wealth from the market.

That was the whole point of Kelso and Adler's work:  A sound framework 
detailing the necessity and providing a means by which ordinary people could

become owners of a meaningful capital stake - not become capital themselves.

Ashford and Shakespeare's Binary Economics clarifies the difference between 
capital and labor, and demonstrates that acquisition of real capital, not 
turning themselves into "human capital," is absolutely essential if the
great 
mass of people are to have any hope of participating in a meaningful way in 
the economic process.

A good first step would be to abandon completely the collectivist idea of 
"human capital," and concentrate on opening up opportunities for ordinary 
people to own capital, rather than devolve into capital themselves.  This 
means, as George Mason stated in the Virginia Declaration of Rights of 1776,

access to "the means of acquiring and possessing property."  In our day,
this 
translates into national policies encouraging the democratization of access 
to capital credit.  This would enable all citizens to escape from dependency

on welfare state redistribution policies.  That means a substantial reform
of 
our entire monetary and tax structure, focusing on America's central bank, 
the Federal Reserve System.  The Federal Reserve has been restricted almost 
exclusively to funding unproductive government spending, contrary to its 
original purpose of enabling local banks to finance private sector growth.

Ultimately, the question boils down to whether we regard our fellow citizens

as human beings or as things.  Without a serious effort to humanize society,

even to the extent of eliminating such seemingly trivial, yet fundamentally 
anti-human concepts as "human capital" from the lexicon of the dismal
science 
of economics, policy makers and politicians will continue to miss the point 
that society, including the economy, was made for man, not man for society.



Yours,




Michael D. Greaney, CPA, MBA
Director of Research
Center for Economic and Social Justice