Abstract
In the time needed to read this chapter, using institutions of corporate finance the wealthiest one percent of people will have acquired more wealth capital earnings than most people will earn in their lifetimes no matter how hard, smart, or long they work. Based on a principle of fuller employment and per-capita growth not found in widely recognized economic analysis, this chapter explains how the same institutions could voluntarily operate more profitably (without redistribution) if all people were included in the competitive process of capital acquisition with capital earnings: A broader distribution of capital acquisition with future capital earnings provides the expectation of more broadly distributed discretionary capital income in future years (to people with a higher propensity to consume) and therefore greater incentive to employ more labor and capital in earlier years.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
The term “inclusive capitalism” has been used in various ways. The word “inclusive” raises the question: “Inclusive of whom with respect to what?” The approach to inclusive capitalism advanced in this chapter is “inclusion of all people in the competitive process of capital acquisition with the earnings of capital.” It is based on original principles of “binary economics” first advanced by Louis Kelso. The authoritative source of Kelso’s writings appears at http://www.kelsoinstitute.org. For the author’s approach to binary economics, see Robert Ashford (1996, 2011, 2012 [co-authored with Ralph P. Hall and Nicholas A. Ashford], 2013–2014).
Valuable information on this approach to inclusive capitalism can be found by searching the terms “binary economics” and “inclusive capitalism.” However, much misinformation is also presented under “binary economics” (e.g., the Wikipedia entry). The approach in this article is consistent with the original principles advanced by Louis Kelso but differs in several respects. Most notably, inclusive capitalism is advanced as a principle of fuller employment and per-capita growth. Perhaps the most publicized use of “inclusive capitalism” is by the “Coalition for Inclusive Capitalism” lead by Lady Lynn Forrester De Rothchild, its founder, and dedicated “to make capitalism more dynamic, sustainable, and inclusive” (https://www.inc-cap.com/). The Coalition has revealed no recognition for the importance of including all people in the competitive process of capital acquisition with the earnings of capital.
- 2.
This letter is signed by professors of economics: Philip Arestis (Cambridge University), George Bitsakakis (Oxford University), Paul Davidson (University of Tennessee, Emeritus), Wolfram Elsner (University of Bremen), Fred Foldvary (Santa Clara, Emeritus), Shubha Ghosh (Syracuse University), Peter Hammerschmidt (Eckerd College), Jeffrey Harrison (University of Florida, Demetri Kantarelis (Assumption College), Peter Koveos (Syracuse University, Mark Lutz (University of Maine, Emeritus), Jan Ondrich (Syracuse University), and George Shepherd (Emory University).
- 3.
“Capital” (with or without the adjective “real” includes land, animals, structures, and machines-anything capable of being owned and employed in production. “Real capital” also includes “capital intangibles” like patents, trademarks, trade secrets, and labor contracts. It does not include “financial capital,” which is an ownership interest in real capital. According to inclusive capitalism, financial capital does not do work, but is a claim on the work done by (earnings of) real capital.
- 4.
Of the classical economists, apparently only Jean Baptiste Say identified in writing Smith’s erroneous foundational assumption:
To the labour of man alone he [Smith] ascribes the power of producing values. This is an error. A more exact analysis demonstrates … that all values are derived from the operation of labour, or rather from the industry of man, combined with the operation of those agents which nature and capital furnish him. Dr. Smith did not, therefore, obtain a thorough knowledge of the most important phenomenon in production; this has led him into some erroneous conclusions, such, for instance, as attributing a gigantic influence to the division of labor, or rather to the separation of employments. This influence, however, is by no means inappreciable or even inconsiderable; but the greatest wonders of this description are not so much owing to any peculiar property in human labor, as to the use we make of the powers of nature. His ignorance of this principle precluded him from establishing the true theory of machinery in relation to the production of wealth. (Say 1830)
- 5.
Many economists claim that modern economics has extricated itself from the labor theory of value in favor of analysis based on the relation of prices to “revealed preferences.” However. in present capitalist economies in which approximately 95% of the people earn little or no current capital income, the prices of the vast array of consumer goods are significantly related to the compensated work people are willing to do to acquire them, somewhat augmented by redistributed income and consumer debt. It is only when one sees the prices of high-end goods (e.g., $50 million for a Rembrandt or a Mansion, or millions for paraphernalia of celebrities) that the earnings of capital have an appreciable effect on market prices.
- 6.
For example, during the fifteen-year period from 1989 through 2003, in the case of major American companies, the sources of funds for capital acquisition, in approximate terms, reveal that annually retained earnings accounted for at least 70% and more usually 80% of the capital acquisition. Borrowing accounted for almost all the rest. Sale of stock as a source of funds never exceeded 5% and was negative in most years. See Brealey et al. (2004).
- 7.
Generally, shareholders have no rights to profits except when dividends approved by the board of directors or when the corporation is “in dissolution” at which time the corporation no longer has credit to acquire capital with its future earnings.
- 8.
Somewhat like many frequent-flier programs, the ownership-broadening trusts could include customers who have a continuing relationship with corporations like energy utilities, telephone, internet, and insurance companies, major retailers, and banks. Like credits for mileage flown, dividends can be paid in the form of credits against future purchases.
- 9.
An in-depth discussion of monetization of ownership-broadening capital acquisition is beyond the scope of this chapter. With a default real growth rate of 2% for the US economy, to avoid deflation and too much inflation the Federal Reserve targets the money supply to produce a mild 2% inflation rate by purchasing (monetizing) US government bonds through its Open Market Committee, thereby adding to the money supply. It could reduce that monetization (of past government spending) and instead monetize capital ownership-broadening bank loans. This practice would liberate such financing from the past financial saving representing the value of antecedent work of labor and capital, and would likely reduce the financial cost of such finance to an effective interest rate in the range of somewhat below and slightly above prime. For a description of the financial and economic aspect of central bank monetization of ownership broadening-financing, see “Beyond Austerity,” supra note 6, at 2002–2003, and “Unutilized Productive Capacity, Binary Economics, and the Case for Broadening Capital Ownership,” supra note 6.
References
Arestis, P. et al (2021), “Economists Endorse Professor Robert Ashford’s Inclusive Capitalism,” April 21, 2021.
Ashford, Robert (2016), “Socio-Economics: The Competent, Ethical Foundation for Law-Related Economic Analysis,” University Akron Law Review 287(49): 291–292.
Ashford, Robert (2013–2014), “Beyond Austerity and Stimulus: Democratizing Capital Acquisition with the Earnings of Capital as a Means to Sustainable Growth,” Journal of Post-Keynesian Economics 36: 179–205.
Ashford, Robert (2011), “Economics, Democracy, and the Distribution of Capital Ownership,” Forum for Social-Economics 40: 361–370.
Ashford, Robert (2009), “Broadening the Right to Acquire Capital with the Earnings of Capital: The Missing Link to Sustainable Economic Recovery and Growth,” Forum for Social-Economics 39: 89–100.
Ashford, Robert (1998), “A New Market Paradigm for Sustainable Growth: Financing Broader Capital Ownership with Louis Kelso's Binary Economics,” Praxis, The Fletcher Journal of Development Studies XIV: 25–59.
Ashford, Robert (1996), “Louis Kelso’s Binary Economy,” Journal of Socio-Economics 25: 1–53.
Ashford, Robert, R.P. Hall, and N.A. Ashford (2012), “Broadening Capital Acquisition with the Earnings of Capital as a Means of Sustainable Growth and Environmental Sustainability,” The European Financial Review: 70–74.
Ashford, R., and D. Kantarelis (2008), “Capital Democratization,” The Journal of Socio-Economics 37(4): 1624–163.
Ashford R., and D. Kantarelis (2016), “Enhancing Poor and Middle Class Earning Capacity with Stock Acquisition Mortgage Loans,” Economics, Management, and Financial Markets 11: 11–26, Co-authored with Professor of Economics, Demetri Kantarelis.
Brealey, R.A. et al (2004), Principles of Corporate Finance, 3rd edition. New York: McGraw-Hill. ch. 14, pp. 561–563, co-authored with Myers, S.C.; and Allen, F.
Hall, Ralph P., R Ashford, N.A. Ashford, and J. Arang-Quiroga (2019), “Universal Basic Income and Inclusive Capitalism: Consequences for Sustainability,” Sustainability 11: 4481.
Kelso, L.O., and M.J. Adler (1958), The Capitalist Manifesto. New York: Random House.
Kelso, L.O., and M.J. Adler (1961), The New Capitalists. Westport, CT: Greenwood.
Kelso, L.O., and P. Hetter (1967), Two Factor Theory: The Economics of Reality. New York: Random House.
Kelso, L.O., and P.H. Kelso (1986/1996), Democracy and Economic Power: Extending the ESOP Revolution Through Binary Economics. Cambridge, MA: Ballinger Publishing.
Keynes, John Maynard (1936), General Theory of Employment Interest and Money. New York: Harcourt, Brace & World, Inc. pp. 213–214.
Ramady, M.A., and D. Kantarelis (2009). “Financial Capital Democratization: Recipes for Growth & Disaster,” International Journal of Society Systems Science 1(4): 325–350.
Say, J. (1830), A Treatise on Political Economy, 6th American edition, pp. xl–xli.
Smith, A. (1937), Wealth of Nations. New York: Random House, 1937.
Tomer, John (2017a), Advanced Introduction to Behavioral Economics. Cheltenham: Edward Elgar Publishing Limited.
Tomer, John (2017b), E-mail of John Tomer to Robert Ashford, September 29, 1917.
Walls, Martin (2017), “Professor Robert Ashford's ‘Inclusive Capitalism’ Gains International Support,” Syracuse University News, Business & Economy, Wednesday, September 27. https://news.syr.edu/2017/09/professor-robert-ashfords-inclusive-capitalism-gains-international-support/
Wolff, Edward N. (2019), “Household Wealth Trends in The United States, 1962 To 2019: Median Wealth Rebounds... But Not Enough,” Working Paper 28383 National Bureau of Economic Research (Table 10). http://www.nber.org/papers/w28383
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2022 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Ashford, R. (2022). Inclusive Capitalism. In: Altman, M. (eds) Constructing a More Scientific Economics. Palgrave Advances in Behavioral Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-83928-4_4
Download citation
DOI: https://doi.org/10.1007/978-3-030-83928-4_4
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-030-83927-7
Online ISBN: 978-3-030-83928-4
eBook Packages: Economics and FinanceEconomics and Finance (R0)