[1] In his theory making, he sought to provide greater access to capital, income, and stock ownership of private enterprise for more individuals in free-market system.
Kelso principally theorized with this model that widespread use of central bank-issued, interest-free loans to fund employee-owned firms could simultaneously finance economic growth and widen stock ownership in a way which binary economists believe would be non-inflationary.
Additionally, he postulated all the benefits of technological progress in a system to reduce manual labour would almost entirely be accruing to capital owners and thus access to wealth for economic growth would be shut off.
Binary economists believe freedom is only truly achieved if all individuals are able to acquire an independent economic base from capital holdings, and that the distribution of ownership rights can "deepen democracy".
The theory asserts that what matters is whether the newly created money is interest-free, whether it can be repaid, whether there is effective collateral and whether it goes towards the development and spreading of various forms of productive (and the associated consuming) capacity.
[citation needed] The theory behind Binary Economics was proposed by American lawyer Louis Kelso and philosopher Mortimer Adler in their book The Capitalist Manifesto (1958).
[9] The aim of binary economics is to ensure that all individuals receive income from their own independent capital estate,[10] using interest-free loans issued by a central bank to promote the spread of employee-owned firms.
[14] Binary economics is partly based on belief that society has an absolute duty to ensure that all humans have good health, housing, education and an independent income, as well as a responsibility to protect the environment for its own sake.
In The Capitalist Manifesto, Kelso boldly asserted: "It is, if anything an underestimation rather than an exaggeration to say that the aggregate physical contribution to the production of the wealth of the workers in the United States today accounts for less than 10 percent of the wealth produced, and that the contribution by the owners of capital instruments, through their physical instruments, accounts in physical terms for more than 90 percent of the wealth produced" [25] Whilst the increased importance of capital as a factor of production following the Industrial Revolution has long been accepted even by those believing economic value derives from labour such as Marx,[26] Kelso's figures suggesting that value was created almost entirely by capital were dismissed by academic economists like Paul Samuelson.
The Capitalist Manifesto did not provide detailed calculations to support Kelso's claim, although a footnote[25] suggested that it was based on a simple comparison with 1850s labour productivity figures.
[29] The supply of interest-free loans would place in circumstances of a move (over time) towards banks maintaining reserves equal to 100% of their deposits; in practice, the large-scale interest-free lending desired by binary economics is compatible with the widespread reduction in money supply that would be caused by increased reserve requirements only if the government takes over the banks' role in credit creation.