Income Maintenance through TWO-FACTOR THEORY and THE SECOND INCOME PLAN* I am proposing a plan which, with a start-up time of five years, would take at least one million families per year off the welfare rolls, and would enable them to produce an income of $4,000 per year or more. Within a second five-year period, the rate of transfer from dependence on welfare to dependence on independent incomes could accelerate to five million families per year. In the short space of time allotted to me by the Commission, it is not possible to do much more than to outline my argument, made more fully in a number of writings, that the long-range income maintenance problem of the United States must be solved through effectively enabling millions of additional families, and eventually all families and individuals, legitimately to acquire and own productive capital through ways that will enable us to build a vastly larger economy. The case for this approach the Second Income Plan - is stated in TWO-FACTOR THEORY: THE ECONOMICS OF REALITY, published by Random House in hardcover and by Vintage Books in paperback in 1968. - * Copyright 1969 by Louis 0. Kelso. - Here is the essence of the case: Conventional economic concepts, from Adam Smith through John Maynard Keynes, and governmental and business institutions based upon them, assume that the performance of labor is the primary method of legitimating individual income: that capital instruments increase "labor productivity" and that the goal of an economic system is to keep labor employed. The function of the welfare state is to raise funds by taxation or by borrowing to subsidize and thus increase the number of jobs, and to the extent the number of jobs is insufficient, to provide direct distributions of cash welfare. Administrative techniques aside, such approaches are based upon onefactor economic thinking: i.e., that however wealth is produced, it should be distributed as pay for labor to the maximum extent possible, and beyond that in the form of a dole, which may be named unemployment compensation, welfare, aid to dependent children, food stamp programs, guaranteed annual income, negative income tax, family allowance, etc. Two-factor theory represents a quantum advance in the social sciences over traditional economic concepts. It recognizes the fact that there is productive equality between the two factors of production: the human factor (labor) and the non-human factor (physical capital in all of its forms, including land, structures, and machines). Twofactor theory and the Second Income Plan are concerned with the proper structuring of an economic system. This structuring would achieve income maintenance by planning the sustained and high-level economic productiveness of each family and single individual through employment, to the extent there is a market demand for employment, and beyond that through the ownership of reasonably sized and viable holdings of productive capital. Of all the proposals to solve the income maintenance problem, two-factor theory and the Second Income Plan alone seek to solve it by raising the productiveness of each consumer unit in the economy. Throughout this paper, the reference to "CAPITAL” is to physical capital, i.e., LAND, STRUCTURES, The purpose of charts and illustrations in this paper is to show basic relationships, rather than precise quantifications or percentages which are not important to the argument. The relationships shown are believed to be accurate. WHAT IS THE LOGIC OF A MARKET ECONOMY? The U.S. economy is, and is said to be, a market economy. What is the logic of a market economy? |