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Louis Orth Kelso Edit Profile

Banker , economist , Lawyer

Louis Orth Kelso was a lawyer and economist who sought to revolutionize capitalism through employee stock ownership plans, which he invented.


Kelso created the ESOP in 1956 to enable the employees of a closely held newspaper chain to buy out its retiring owners. Two years later Kelso and his co-author, the philosopher Mortimer J. Adler, explained the macro-economic theory on which the ESOP is based in The Capitalist Manifesto (Random House, 1958). In The New Capitalists (Random House, 1961), the two authors present Kelso's financial tools for democratizing capital ownership in a private property, market economy. These ideas were further elaborated and refined in Two-Factor Theory: The Economics of Reality (Random House, 1967) and Democracy and Economic Power: Extending the ESOP Revolution Through Binary Economics (1986, Ballinger Publishing Company, Cambridge, Massachusetts; reprinted 1991, University Press of America, Lanham, Maryland), both co-authored by Patricia Hetter Kelso, his collaborator since 1963.

Kelso's next financing innovation, the Consumer Stock Ownership Plan (CSOP), in 1958 enabled a consortium of farmers in the Central Valley to finance and start up an anhydrous ammonia fertilizer plan. Despite fierce opposition from the major oil companies who dominated the industry, Valley Nitrogen Producers was a resounding success. Substantial dividends first paid for the stock and then drastically reduced fertilizer costs for the farmer-shareholders.

Kelso regarded the ESOP and CSOP as pragmatic proof that his revolutionary revision of classical economic theory, and the financial techniques he derived from this new perspective, were sound and workable in the economic and business world. Kelso gained that worldly knowledge from his work as a corporate and financial lawyer, and later as senior partner in the law firm he founded. He was further motivated by his conviction that lawyers had a special responsibility to maintain and improve society's institutions in the light of its democratic values. He further believed that the business corporation was society's greatest social invention and that its executives had a fiduciary responsibility in exercising its vast power.

Kelso long believed that he had not originated a new economic theory but only discovered a vital fact that the classical economists had somehow overlooked. This fact was the key to understanding why the private property, free market economy was notoriously unstable, pursuing a roller coaster course of exhilarating highs and terrifying descents into economic and financial collapse.

In 1971, Louis Kelso founded Kelso Bangert & Company as a merchant bank that would be both an advisor and investor in mergers and acquisitions involving Employee Stock Ownership Plans. The firm, which would later come to be known as Kelso & Company, would transition toward private equity investments in the late 1970s and would raise its first private equity fund in 1980. Today Kelso & Company is a $10 billion private equity firm and was among the 50 largest private equity firms globally.


  • book

    • "The Capitalist Manifesto"

    • "The New Capitalists: A Proposal to Free Economic Growth from the Slavery of Savings"

    • "The Two-Factor Theory: The Economics of Reality"

    • "How to Turn Eighty Million Workers into Capitalists on Borrowed Money"

    • "Democracy and Economic Power: Extending the ESOP Revolution Through Binary Economics"