Binary Economics - Productiveness Vs. Productivity

Productiveness Vs. Productivity

Binary productiveness is distinctly different from the conventional economic concept of productivity. Binary productiveness attempts to quantify the proportion of output contributed by total labor input and total capital input respectively, Adding capital inputs to a production process increases labor productivity, but binary economic theory argues that it decreases labor productiveness (i.e. the proportion of the total output with the support of both labor and capital that the labor inputs could have produced alone). For example, if the invention of a shovel allows a laborer to dig a hole in quarter of the time it would take him without the spade, binary economists would consider 75% of the "productiveness" to come from the shovel and only 25% from the laborer.

Roth criticised the shovel example on the basis that the shovel is not a factor of production independent of human capital because somebody invented it, and the shovel cannot act independently: the physical productiveness of the shovel before labour is added to it is zero. Binary economics suggests that even if gains in productiveness result from human innovation they ought to accrue only to those that invest in capital instruments utilising that innovation, in this case the owner of the shovel. Although it may be impossible to dig the hole without some human labor, the binary theory of productiveness maintains the contribution of that physical labour can be calculated simply by calculating the productivity increase resulting from adding capital, and in this case valued at only 25% of the total cost of production.

Kelso used the concept of productiveness to support his theory of distributive justice, arguing that as capital increasingly substitutes for labour..."workers can legitimately claim from their aggregate labor only a decreasing percentage of total output", implying they would need to acquire capital holdings to maintain their level of income. In the 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"

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, Kelso's figures suggesting that value was created almost entirely by capital were dismissed by academic economists like Paul Samuelson. Samuelson asserted that Kelso's had not used any econometric analysis to arrive at his figures, which completely contradicted economists' empirical findings on the contribution of labour. The Capitalist Manifesto did not provide detailed calculations to support Kelso's claim, although a footnote suggested that it was based on a simple comparison with 1850s labour productivity figures.