Allocation of Mass Duplication Benefits

It doesn’t seem to strike anyone as funny that copyright laws single out one component of a music production system for large wealth and control, while many other alternatives are possible.

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To illustrate just how society happened to get organized in such a way that unearned income is the standard rather than the rare exception, consider an example. There is a piano player, quite good, who performs for some people in a room, and gets paid for it. He did some work, received some earned income for it, and everything worked quite nicely. But in the audience, there was a person with a recording instrument, and he received permission to record the music. It was an excellent copy, allowing the music to be reproduced by anyone with a copy of the copy and the right equipment.

The copyist makes copies and sells them by the millions. Who gets the profits from this? In our society, it is the piano player, who owns the copyright to his music. What did he do to earn the profits created by mass duplication? Absolutely nothing. He played to a room and was paid for it, and that payment was a measure of his ability and a reimbursement for his time. If the room had a copyist in it, he did no extra work, but because of the copyright laws, he gets a huge amount of unearned income. This is the essence of unearned income.

Copyright laws have many purposes, but one is to funnel large amounts of money, unearned, into a very few pockets. Consider a different society, that had no copyright laws, but instead had copyist guild laws. In this society, all the profits of the mass duplication go to the copyist, by law. The piano player has nothing to say about it, just as the copyist in the first example has no claim on the mass duplication profits turned over to the pianist. Why do we have laws for copyright and not for copyist guilds? It could have happened a different way. The essence of the socioeconomic system being developed in this blog is that unearned income should not be generated or distributed, and instead, costs should come down or profits should be allocated to those who contributed to the increase in benefits that mass duplication entails.

It is possible to take this pair of examples and make them more complicated, and thus attempt to fog up the clarity that comes from a simple example. Those who live on unearned income would love to maintain a fog around the actual facts of mass distribution profits. The large amount of mass duplication profits allows the hiring of storytellers who can obscure the essence of the situation. However, sticking with the simplicity of this pair of examples can make it clear to anyone how arbitrary it is that huge unearned benefits go to one person and not another.

A cynical person might say that laws which support this type of unearned income and the other many kinds of unearned income are written by politicians who favor concentration of benefits in the hands of a few who can show their gratitude for these laws to the politicians. This preference is simply one aspect of the most fundamental feedback law in economics: the concentration of money provides the means for further concentration of money, and concentration of income works the same way.

This particular type of unearned income manifests itself in many forms in our society. The propriety of the allocation is never questioned, and various agents spring up to justify it or take advantage of it. Someone receiving large amounts of unearned income is often lionized or turned into a celebrity, as if that somehow changes the fiction that the huge amount of income is somehow earned into a fact, when it is not. The person who receives such largess from society knows, from observation, that it is necessary to spend some fraction of it on maintaining the myth that it is earned. It should not be surprising, with so much money flowing to people with a gift for words, that there is no end of obscuration of elementary facts, and no limit to the attempts to justify, without there ever being any criticism of the unearned income, the receipt of it. Society has grown up with this situation, and has never known anything differently and has never had a tradition of questioning the arrangements we are all presented with upon birth. Perhaps it is time to do that.

Two other examples might help demonstrate how pervasive unearned income allocations are in our society. The first one is the very old one, mentioned by Winston Churchill, in his famous speech on the taxation of real estate profits. When someone buys a property, it could very well be the law that they have the right to use the property, and sell it for what they paid for it, give or take some inflation, and also reflecting the improvements made in it if they were well documented. The buyer would pay an assessed value, and the difference would be made up by the local region. Instead of a person buying a piece of land and making a large profit when it becomes more accessible because of highway construction or nearby development, those who pay for the highway construction or nearby development would gain the profit, or make up the loss if one occurred. These are two ways of administering land ownership, and there are benefits to each. The one we use happens to be the one which tends to concentrate income and wealth in a few hands, as it would if the Fundamental Feedback Principle of our society was operating, and of course it is.

The second example covers executive pay. For some reason, we have a tradition, almost universal, that those higher up the management chain receive higher, often substantially higher, salaries. The work might be less demanding at higher levels, less detailed, less time-consuming, not requiring continual attention, more amenable to ready-made solutions or lacking in consequences of wrong choices, and so on. Nevertheless, the salary must go up with hierarchical levels. Why is that? Because at the top there can be a huge collection of wealth, which fits in perfectly with the Fundamental Feedback Principle, allowing the bestowing of favors on politicians who support the law, but even more in this example, allowing unearned income to be given to boards of directors who approve such salaries. Hierarchical pay structures are so common, there are never questioned. No one seems to ever evaluate if positions near the top require much less effort and talent than ones near the middle. It is a completely untested assumption, and may be totally wrong in many cases.

These three examples show that society arranges its laws to coincide with the Fundamental Feedback Principle, meaning laws are written in such a way as to allow concentration of wealth and income, and specifically to do so in ways where the income and wealth are unearned. Is this a desirable condition or result? Is it time to have a substantive discussion about the utility of it for society as a whole?

Of course there are some benefits to the concentration of income and wealth, one of which being this concentration allows major projects and start-ups and other novel ventures to be funded by the initiator requesting funds from one of the benefactors of society’s Fundamental Principle. However, the proper counter to this is that there may be other ways of providing start-up capital and other types of capital, and they might have advantages that balance any that wealth concentration does. The proper answer to claimed benefits of the existing system, or any particular components of the existing system, is that there may be many alternatives which have not been tried. It is a corollary to the Fundamental Feedback Principle that those who benefit from concentrated wealth can support economists, publicists, and other lackeys to write declarations that no other way can possibly work or not work as well as the existing system. It could be quite true that some alternative would have a flaw in it which would cause average productivity to decline or some other ill effect, but no demonstration of that has been made, merely pontification.

Wealth concentration does more than just allow publicists to dump mountains of material into the information commons supporting wealth concentration, it also allows the control of media so that some form of censorship of ideas disputing the benefits of wealth concentration, if they ever were to become popular, even slightly. It allows control of education, via donations and sponsorships, via research support, via simply flattery by someone of high status, as well as other means. What happens is that the choice of economic system which happened to be victimized by the Fundamental Principle is locked in place, as that very same Fundamental Principle marshals forces against change and even against the questioning of the system. Instead of healthy discourse and questioning of everything related to economic assumptions, the Fundamental Principle has the auxiliary effect of squashing such discourse, not be violent means or threats, but by supporting the opposing side, which favors wealth concentration, by orders of magnitude more funding. Thus, there is a very difficult path to be followed by anyone who wishes to question our economic system and present alternatives.

Transition and Flight Capital

One of the multitude of means by which novel economic systems are throttled to death before they can be wholly tested is the flight of capital from the region where the new system is being tried.

Any novel socio-economic that proposes to redistribute the rewards of production, either or both present and past rewards, is going to cause a reaction by those from whom something will be taken. Supposing that the novel system has a new definition of what is fair and just is allocating benefits, and purports to do this once it is inaugurated, the first reaction is going to be by those who will lose something, and if they have amassed political power, this will be used to block the novel system from ever being tried. Political power often encompasses blackmail, espionage, assassination, media control, information control, legal delays, moles inside opposition organization, distraction of the public, bribery, public relations efforts, and multiple other mechanisms by which those who have accumulated power act to keep it and enlarge it. It makes little or no difference what the previous socio-economic system was, it will have, after some settling in period, resulted in political power being accumulated in a few hands, and these mechanisms will be available, regardless of the name applied to the political system.

This conflict is one of the most elementary and ubiquitous ones. Wealth and power gets concentrated in a few hands and is used to preserve this arrangement. The only possible opposition is a large movement of those not having wealth or power, and since it takes some very unusual circumstances to motivate a large mass of people to make grand changes to an economic system, such changes are very infrequent. Often in the history of the world, they have been violent.

One conceivable alternative is a soft revolution, where changes in taxes or anti-corruption activity are put in place by some other means, such as direct voting or mass replacement of corrupt politicians followed by a choice of new laws by the new team. This might happen gradually or suddenly, but even if happens suddenly, there will be warning signs that some of those with wealth and power can recognize. The traditional means by which the wealthy and powerful stop such things can be tried, and perhaps they succeed and perhaps they don’t. However, some of the wealthy and powerful may estimate that the blocking measures will not succeed, and proceed to take alternative measures to maintain some portion of their wealth and power. One example of this is emigration from the region where they were formerly in control but in the future may not be to a different location where they can still have some or all of their wealth and use it to re-establish political control in the new region, or even remotely in the old one. This is loosely referred to as the flight of capital.

Given the despairingly low probability that any novel system of economics will be put in place, it might seem frivolous to think about this manner of avoidance of it by those with wealth and power. More important is thinking through how a transition might be effected, or how political power might be devolved to the powerless sufficiently that they can break the feedback loop that keeps them powerless and a small minority wholly in control of the economy. While that certainly is more important, there might be some details about the new socio-economic system that can reduce any bad effects of flight capital or similar means of evading the new system.

Once again, there is a bottom-up approach and a top-down approach. The bottom-up approach involves figuring out in advance what financial mechanisms could be used to move vast amounts of capital out of a region that was beginning to warm up to some novel socio-economic system that involved some redistribution of wealth and income. Once the list of mechanisms is decided upon, there can be some plan for an instantaneous application of counter-mechanisms which will stop the flight of capital. This is a fool’s errand. First, there are more methods on the hidden list of mechanisms than on the list of mechanisms compiled by the officials of the new system. The ones not found will be the ones used. Most likely, the number of unknown ones exceeds the number of ones that are known. Wealth and power can spin off a tiny percentage of itself to ensure that many mechanisms exist that are not known, perhaps never having been used before. If it costs 1% of some huge amount of wealth to ensure it travels to a new region, this is simply a cost to be born by the wealthy and powerful. So, the idea of figuring out methods that will be used and blocking them is simply too difficult.

The top-down method focuses on the people who have all this wealth, and involves requesting them to turn over their holdings, hidden and visible, to whatever agency of the new economic regime is supposed to get it. There are difficulties here as well. Mobility is so easy in our era, that finding these people and making them available to some new agency would be virtually impossible. Long before the new system was in place, the people with wealth and power would have disappeared.

This is not to say that there would be zero results from either the top-down or the bottom-up approach, but instead, they would only have some percentage effect. More than enough wealth would have been transferred beyond the jurisdiction of the new regime so that those who possess it would hardly notice the difference in their capabilities. Thus, some means of mitigating the effects of capital flight upon a new socio-economic system need to be developed, rather than putting any hopes in the concept of preventing it.

The point to concentrate on is the prevention of the destruction of the new economy, the one where a novel socio-economic system is going to be tried out. It is through the mechanism of foreign ownership that the new system would be most damaged, so that is the feature which must be examined. If those with wealth and power in the region simply move outside it, and continue to possess the same wealth while abroad, they can continue to dabble in corrupting the new regime, possibly with a mind toward returning after it fails with the new economic system. This means that some methods of insulating a new economic system from external influence must be installed as part of the new system.

If ownership by non-employees was allowed, or some equivalent in debt burden, then this external control might be possible. Thus, it is clearly an important component of the new system that ownership of companies, corporations, and any other form of business be connected with those who work there. There are obvious means of corrupting the importance of this regulation, such as by having only one employee listed on the books, the former owner possibly, while everyone else working there is an independent contractor. This needs to be corrected, by making the ownership of the corporation fall into the hands of anyone who works for it, in the guise of an independent worker or otherwise. Are there other scams possible which concentrate ownership but maintain the label of employee-owned enterprise? Certainly, if the distribution of ownership was disproportionate to the justly-measured contribution of the employee to the corporation or company.

Debt is a lukewarm version of ownership, so it too must be separated and put into the hands of those who contribute to the society, rather than those who do not. Some public agency would need to hold debt. There are a great many problems involved with conceiving such an agency, but assume for this discussion that it has been done successfully. Thus the transition problem boils down to figuring out how to transfer ownership of both enterprises, and debt associated with them, when a new economic system is put in place. Wealth in the previous economic system would have been manifested in ownership being concentrated, by the wealth feedback process, in the hands of a few. How could a transition be done legitimately?

The third member of the triad of means for distributing benefits in a society is taxes. It is what is left. Thus, there would need to be wealth taxes that would accomplish the redeployment of ownership of enterprises and of debt. Another aspect of unjust income and accumulation of wealth is the concentration of ownership of real estate. A third prong of the taxation for transition would be a tax on real estate, but a progressive one, designed to revert ownership of much of the real estate to those who contribute to producing the benefits of the society.

Evasion of income taxes is a game that is played world-wide, and so any transition taxation rules would have to be thought out carefully to have the desired effect. One tool is the unique-to-America plan of making any citizen liable for taxes, despite his location or employment situation. If this was a common, world-wide situation, then anyone possessing citizenship in a country and simultaneously possessing unearned wealth would find themselves liable for a wealth tax. There would need to be a corresponding tax levied on the relinquishment of citizenship in the nation or group of nations that was introducing the new economic system.

Having taxes in the laws of a nation does not mean collecting them. Someone who owns property within the nation can find liens placed upon it, whether it is a corporate asset or a piece of real estate. Thus, for someone to successfully evade taxes of the transition variety, they would have to sell or otherwise transfer ownership of property out of their name. This means that the transition taxation legislation would have to be able to look through the possible maze of ownership arrangements down to individuals who actually own the property. One means of evasion would be to have sham owners with citizenship outside the nation with the new system. They would be beyond the reach of any laws, so therefore the transition taxation would also have to affect foreign ownership. This would only be necessary if other nations around the world did not have similar economic systems and were not cooperating on taxation.

Exactly how this is done might make a substantial difference in whether there are large negative effects of the transition. There are some alternatives, and they deserve a separate treatment.

Nineteenth Century Ownership, Twentieth Century Taxes, Twenty-first Century Products

Ownership rules date back centuries but there is no reason these cannot be changed to match the changes we have seen by the twenty-first century. Similarly, taxation can be adapted and actually utilized to improve some aspects of society

Laws and traditions change slowly, over the course of centuries. But technology determines many aspects of our social life and economic activities, so we may well have very outmoded laws and traditions, as compared to our economic activities. Perhaps this disconnection has grave impacts on any new socio-economic system we might try to invent.

Back in the nineteenth century, ownership was usually simple. One object or piece of real estate, one person. This pattern dates back for more centuries than records exist. There were often exceptions to this, such that a higher status person might simply demand the property, and it became that person’s. Furthermore, the king or a noble could have an objection to the property, for example if it was not being used, and take it away and give it to someone else. A disfavored person might have some or all of his property taken away. But in general, ownership was fully powered, in that you could do with it what you wanted. Real estate might have more conditions on ownership than personal property.

In the days when nobility owned much of the land, they all knew that a hungry population is a rebellious population, and in order to keep the social system intact, they needed to use land, especially farmland, productively. If someone did not do that, others could step in and take it over. Abandoned property could be taken over by someone who would use it, in line with the general principal that efficient use of resources promoted social stability.

The rise of trading companies changed the scope of ownership, but the same general principle remained. Efficient use of property promoted social stability. Trading companies could bring back resources from foreign nations or regions, and that would improve the standard of living in the home country. When manufacturing began to become large-scale, the same principle remained. A large company could produce more efficiently, and therefore promoted the general good. There was little social complaint back then about the accompanying fact that a few individuals could, through this mechanism, accumulate vast wealth. The complaints started when monopolies came into existence and companies, instead of being used to promote the general welfare, were used to depress the general welfare while enriching the few individuals on the top of the economic pyramid.

Even back in the days of nobility owning most of the property, it was clear that economic power equaled political power. The nobles with the greatest landholdings typically had the most influence over the king’s decisions, or even who became king. Sometimes this was done via military means, and other times simply political means. As economic power shifted from nobles to owners of companies and corporations, nothing changed except the use of military means declined.

The basic idea that economic ownership entails the responsibility to promote the general welfare still exists, but often it is only a slogan and an excuse, rather than a guiding principle. Technology has armed society with an array of ways to create new ways to have ownership, more in touch with this principle, but there is little activity in the direction of developing a new system based on them. Neither is there much activity in the direction of coupling human activity with appropriate compensation. Ownership of tools promotes efficiency of work, but ownership of great corporations has no justification based on the idea that each person should receive rewards in society as a measure of their own contributions. Instead, the value of high level people’s contributions is exaggerated out of all bounds, by factors of hundreds and thousands, and no equity in compensation exists.

The exaggeration of compensation, based on ownership rights, has been with us since the time of the nobility. Then as now, it fed the psychological state of the large owners. Ideas for distributed ownership would not have worked well then, as technology had not yet arranged for universal education, detailed record-keeping, excellent communication, and more, all of which make other alternatives possible.
One alternative is ownership of companies and corporations by employees. There is an obvious connection between ownership and motivation for working diligently and creatively. The same motivations that exist in modern corporations, if they live up to high standards, where employees who do well and improve efficiency or solve problems or otherwise contribute more than others are rewarded more, can be augmented by an ownership stake in the company or corporation.

Another means of distributed ownership is via large, possibly independent, agencies, responsible for absorbing part of the production of sectors of the economy, and investing in old or new companies in order to obtain returns on the money. Pension funds are examples of this process.

What is the possible rationale for maintaining the nineteenth century legacy of ownership rules that are not necessary in the twenty-first century, and which do not necessarily promote efficient use of production nor a just return for the effort expended by individuals. Tradition is nice, and has a role, but this is not one of them. Basically there is no justification whatsoever for our current rules for ownership.

Taxation has been around for thousands of years. The nobility, of whatever sort existed, taxed the wealth of others. The amount of tax was often chosen on the basis of how much an individual had, and of course there was always corruption, inequity, nepotism, and other social ills involved with it. The twentieth century saw the innovation of the income tax, which was supposed to be a more scientific way of taxing. Other taxes also were instituted in the twentieth century, notably the employment tax, where each employee and employer pay a tax which is supposedly used for an insurance or retirement fund. The previous type of tax, based on property, has remained around. Its main form has been on real estate, but taxes on other kinds of property are very common as well. Another category of tax is a transaction tax, in that tax is paid to some agency or organization whenever some trading, sale or possibly also exchanges, occurs. These three taxes are built around the idea of collecting money with the least objection by those taxed.

More recently taxes have been imposed, similar to transaction taxes or property taxes, on something the government wishes to discourage but not prohibit. The most famous of these is on tobacco. Very similar are criminal fines, which are imposed on individuals who do not follow the set of laws promulgated by a government agency. They have the same purpose as taxes to discourage certain activities, although there are other purposes as well, such as compensation for injuries.

Thus we have a large panoply of taxes, and fines, doing two things: raising money for the government to spend, and punishing activities that are illegal or discouraged. Taxes can also be used to correct flaws in our socioeconomic system. We do not have to restrict taxes to those legacy uses that the twentieth century bestowed upon us. Unearned income can be taxed and the money used, via a separate channel, for common uses not related to consumption. Wealth accruing from unearned income can be retroactively taxed in the same way.

One key to unearned income is the mass effect. Someone may do some work, create something, and have it reproduced at low cost thousands or millions of times, and the compensation the individual receives is based not on the amount of effort that was devoted to it, nor the level of talent or creativity involved, but instead on the multiplier that is used to produce the mass copies of it. There is no justification for this, other than some twentieth century legacy methods of compensation.

For example, someone can sing a song in a coffeeshop, and exert a certain amount of effort on it, and have a certain amount of talent. There would be some compensation for this. Another person can exert the same effort, have the same talent, but sing their song on mass media, and receive ten or a hundred or a thousand times as much compensation. Why? We do not need to preserve these rules for compensation when the mass effect kicks in. Effort and talent based compensation is enough to continue to motivate individuals to produce excellent work.

The same holds for all other kinds of effort that is swallowed up by the mass effect. This mass effect does not multiply the effort needed nor does it expand the talent involved. There is no connection between the effort and talent involved and the compensation involved when this mass effect takes over. In the twenty-first century this mass effect is becoming more and more common, and rewards are going out of balance more and more. The mass effect occurs in a large number of places, and is a complex phenomenon, but the basic point of it is that there are other ways, more efficient in the use of resources and just as motivating for those who care about their work, to compensate, without such gross disruptions of society that are caused by these huge disparities in rewards. Taxation, if taken out of the twentieth century framework, can be used delicately and precisely to correct the disruptions caused by the mass effect and bring society back to a more just and reasonable foundation. Similarly, ownership is tainted by the mass effect, and needs to be adjusted in a way that will promote long term benefits for our society.

Culture Dominates Economics

Economists like to postulate a particular model of an individual in their economic system. The only problem is that there are many different types of people in any society.

To understand the motivation of the title, just consider designing an economic system for a nation which was very easy to satisfy. Just about everyone in this nation is happy with a spartan existence, and believes that interpersonal interactions are the high road to happiness. Nobody much cares about having a personal robot servant, or a cellphone, or a fancy dinner or a large house or a new car. Pretty much, as long as food is on their tables, their roofs do not leak, and there is some way to keep clean, they are satisfied. They don’t worry about unemployment, as people share what they have. They don’t find pride in the work that they do, nor in the square meters their land occupies. Refined interpersonal interaction is highly prized, and this is what children are raised to appreciate and imitate.

What kind of an economic system would be best for this nation?

By asking this question, we are entering a whole new world of economics. Economics has been fixated on finding the best economic system, but it may very well be that a particular type of culture, if homogeneous and wide-spread, would dictate the economic system and trying to foist a “Best” system on it would lead to grave dissatisfaction on the part of the population where it was inflicted. What is a “Best” economic system anyway? It typically is one which meets the unconscious or conscious desires of an ideal person, as envisioned by the economist who is writing up the new system. By instead starting with the cultural attributes of the population, we force such an economist to consider the origins of his notions of “Best” and perhaps open his eyes to the possibility that there is no “Best”, only ones which are more or less appropriate to the people who will use it.

Three things that a new economic system must cover start with the flow of benefits of the economy. Within this there is the trinity of production, allocation, and consumption. Secondly, there is employment and motivation to work and to work harder and smarter. Thirdly, there is capital accumulation and allocation – how does excess production benefits become diverted to all of the needs for capital?

An economic system should give the population it serves what they want, not what an economist might think they want or thinks they should want. When we start the discussion by defining the characteristics of the population, this is easier. They have been defined as people who do not want high levels of production and therefore do also not want high levels of economic growth. They do want stability in which to enjoy their chosen activities. When technology develops, the direction they might choose is for productivity gains, rather than production gains. Productivity gains allow for shorter working hours and more leisure hours in which to pursue other activities.

Allocation between capital and consumption would not be a contestable decision, as long as the level of consumption was adequate for all the members of the population, or some non-ostracized portion of them, to subsist reasonably comfortably. If deprivation did happen, the character of the problem changes from one in which leisure time is to be maximuzed to one is which production needs to be increased. Thus the population in this example has two phases, assuming no catastrophes happen to diminish production. The first is a growth phase when some acceptable level of average consumption is achieved, and after that, a tapering off of growth, with what growth there is being directed toward productivity gains.

How are workers in this economy motivated to work sufficiently to keep up the level of production to an acceptable average? Personal goals might be to minimize the amount of work done, which conflicts with the need for some average amount of work from each capable of productive employment. Each person’s goal might be to work as little as possible and have other people take up the slack so that average production is maintained. Then they would expect that some allocation of benefits to them would occur, through some channels, such as from some agency of the government of this nation, from other individuals, or from some non-governmental agency. This type of attitude in our example is the overwhelming norm, so it would seem that the first difficulty with an economic system for the example nation is motivation and assurance of employment, undesired as it may be.

Let’s give the example a name. Let’s call it a leisure-oriented economy, populated almost exclusively with leisure-oriented individuals. A leisure-oriented individual would prefer not to work at all, as long as the amount of consumption that he has access to is not too small. Recall that in setting up the example, the population deliberately would choose spartan life styles. Some interested economist is going to have to figure out a system which sufficiently motivates individuals who prefer not to work to actually do it. The only available levers are social pressure, which is great in a society where interpersonal interactions are the dominant value, and economic necessity, which would result from the use of some market value for each job and the restriction of the right to donate benefits to those not working. In a society where donation of benefits has high social value, how could a market economy in employment overcome the reluctance to work? The only realistic method is to implant in the society a connection between social standing and working. If a person who lives in a culture where social interaction is the principal value, and society had some set of beliefs that a person who can work and makes a choice not to is shunned or avoided or somehow separated. The idea that donation of benefits can be wrong if it demotivates work would need to be somehow implanted in the society as well. So, a socio-economic system for this example nation would stress the socio- side in order to make the economic one work.

The third aspect of an economic discussion to be brought up here is capital aggregation and allotment. Usual economic systems in the past have had capital formation done by individual who were the opposite of the leisure-oriented ones who populate the example nation. They would be very acquisitive individuals or those who have a goal in life to be the founder of businesses, companies or corporations. Their use of the various economic systems which have existed in the world would result in the diversion of benefits of the economy into their own hands, which would then be used for the purposes of capitalizing business. Other needs of capital, such as the infrastructure of various levels of government, would have to be done by taxation at some boundary point, such as at the company or corporation profit calculation or the wage and salary payment point or some periodic income tax.

Capital formation in a leisure-oriented society has to be done differently. The extraction of some sort of tax from, for example, the profits of a business, can be done as it is in other types of economic systems, but once capital is extracted, who is there who would want to take on the formation of a business. But alternatively, taking involuntary contributions from workers to form more capital in an employee-owned enterprise fits in nicely with the orientation of the population. Since living standards are not highly regarded as the purpose of one’s employment, this type of taxation should be one of the least objectionable ones. Still, there is always the problem of too little capital formation arising from the culture’s propensity to donate benefits. If there is a capital fund formed by some withholding of benefits from workers, the person or committee who is charged to allocate it to building physical capital or other uses cannot be allowed to siphon off too much for charitable donations. That would defeat the entire purpose of the withholding.

It seems that a general outline of an economic system which will function well with a leisure-oriented population can be created. It might have to have a social component that makes the social standing of those who refuse possible work much lower than of those who do work. Without this cobbling of some societal propaganda, training, education, advertising and anything else that will serve to bind the social system to the economic system, it would apparently not work. Capital formation might also work if capital formation is done either in very small doses, or through the growth and eventual budding of employee-owned enterprises, or by government intervention. Again, some social barrier against diverting capital into donations would have to be in place on the social side of this picture. There probably are many ways in which benefits of production can be allocated, as this is not a main item on the agenda of the population. No one would be seeking to amass large wealth, so there is no need to wealth taxes or other mechanisms which would be necessary in other types of cultures.

Productive and Non-productive Uses of Capital

Capital formation by the accumulation of huge wealth by a few has great benefits and great faults. Is there any alternative that might provide the benefits and avoid the faults?

Of the many uses of capital, this post comments on three. Perhaps they are the most important, and perhaps there are others lying under the surface which are more relevant to the operations of a socio-economic system. But for the time being, here are the three that appear to be most relevant to a Just Deserts economic system and the transition to one from some other form of arrangements.

The first one is the one that is most beneficial. It involves the extraction of produced benefits before they are allocated into consumption uses in order to produce infrastructure and facilities, both of which are essential for building up an economy. Without capital for production, the economy cannot flourish, and might not even be able to survive. There are timing effects. Capital might have to be collected for a period of time before something can be built, providing the building time is short. It might be quite inefficient to try and build something on a pay-as-you-go plan, so in order to cut down inefficiencies, possibly large enough to tilt the project to a negative overall benefit, capital must be collected and stored, and then used over a short time. Some projects might be possible with shorter collection periods and others need longer ones. The variety indicates that there needs to be, in any effective socio-economic system, a means of collecting capital that is protected from the demands of consumers.

The method that has been predominant for the last couple of centuries has been the concept of private ownership. There is no restrictions inherent in this method of protecting capital from consumption that limits the usage of the capital, so there is necessarily a great danger involved in this method. If something is to be done, it appears necessary to come up with alternative means of collecting and more importantly, protecting capital from the demand of consumption, as well as restricting its use to socially beneficial means.

The second use is the one which is most detrimental to a Just Deserts economic system. That is corruption, of its many varieties and types. There is simply no solution to the corruption problem other than outlawing private ownership of huge amounts of wealth. Normally corruption produces advantages with a huge multiplier, meaning the amount of wealth spent on corruption is returned ten or a hundred or even a thousand times as the benefits of the corrupt politician’s actions. Wealth caps stop that by making personal contributions to funding corruption impossible and by making the collection of the benefits of being corrupted also impossible. The first barrier to corruption can be overcome by having a body of capital that is not individually owned used to provide the funding benefits, but this has two objections. One, transparency is easier with large collections of capital with widely diverse ownership, so the diversion of money for corruption is easier to trace. Second, once the corruption is finished, how do benefits flow back to those few individuals who seek to benefit from it? If secrecy is in vogue, there is some possibility here, so transparency is necessary. Since there is a tax on wealth, wealth can no longer legally be hidden. So, multiple barriers to corruption exist.

A third use of capital is one which is closely related to corruption. That is debt for consumption. Capital formation for productive use may involve debt, in that the productive use of capital should produce benefits, and some slice of them can be used to replenish the productive capital fund that was used to generate the facility involved. Debt for consumption can be a variant of charity, in which some individuals who temporarily lose the ability to be productive need to have funds for consumption until they can regain their ability to be productive. This debt can be paid back, probabilistically. But debt for consumption that does not go to preserve productive human capital, or other infrastructure for that matter, but instead goes to uses which are not going to lead to production with the possibility of repayment in the future, is a misguided use of capital, and in fact, a means of enriching those with capital. Debt is really a lien on the possessions or future income of the debtor. This only serves as part of the general feedback loop which allows those in possession of large amounts of wealth to gain possession of an even larger fraction of available wealth.

Consumption should only be funded with current production, averaged out over fluctuations, and taken only after the necessary slice for the generation of useful capital is done. Otherwise it is simply an invisible transfer of benefits from the future to present day use. If private capital is allowed to grow excessive, in other words, large enough to substantially fund consumption, then the feedback effects will occur, based on the inevitability of the demand for current consumption. Debt is a means for transferring consumption from the future to the present, or a means for selling possessions for future ownership in return for current consumption.

Thus, of the three uses of capital that were called out here, two are very detrimental to an economy, and one is very useful. Those who promote private ownership of large amounts of capital emphasize the beneficial one, and those who promote the opposite emphasize the other two. Like most things, there are good and bad uses of it. If the tenor of the times is such that the first use is lionized, and great praise heaped upon those who do it, perhaps the bad two uses would only occupy a small fraction of the total use of the total capital accumulated. If the tenor of the times emphasizes the other, indirectly, then they might become the principal uses. A novel socio-economic system has to be able to function well in either condition, so private accumulation of huge amounts of wealth cannot happen in such a system.

Without private ownership of large wealth accumulations, how is capital to be accumulated for the main beneficial use? Wealth is generated by production, and is allocated into capital formation and consumption. But what social organization, what arrangement, what agency or mechanism will there be to best use accumulated capital, and how much of it should be taken from annual production? What are the pitfalls that some simple ideas on this might fall into?

One is the barrier against the demands for current consumption. Current consumption gives immediate satisfaction, and this is reinforced in the human brain very strongly. Whatever allows more current consumption seems to be desirable by those whose consumption will be affected. The concept of private ownership has become so embedded in modern industrial societies that it provides a very strong barrier, and that barrier is enforced by the existence of overwhelming corruption to preserve it. There are other mechanisms used to preserve this arrangement, such as the ownership of almost all mass media by those whose private ownership of huge wealth might be at risk. The same goes for the control of educational institutions via donations and other forms of legal and illegal corruption. These mechanisms are only natural, as the collections of large wealth can spin off portions for use in protection of the barriers against reduction or confiscation.

Can some agency utilize the same barriers to preserve a public holding of capital? The use of the mass media as propaganda organs for the preservation of exorbitant wealth is not something that is done publicly, but in secret. It would not be possible for some public agency to be given the role of mass media owner so that it could preserve the capital it collected against being diverted, more and more, into current consumption. This would be open and obvious to everyone, and the propaganda effect, if it could ever be orchestrated, would simply not work.

Could politicians be bribed to not divert capital needed for infrastructure and productive facilities into current consumption? If financial details become transparent so that wealth taxes can be implemented, it will be difficult to keep such bribery secret. If it is not secret, but written into laws that the salaries of politicians will be reduced if they divert funds from capital formation, then who writes these laws? They would simply be rewritten, unless there was some public mechanism necessary to prevent it. This typically means a constitution. Who is going to approve a constitution that requires sacrifices in current consumption? Perhaps during very good times it could be approved, and harsh requirements put in so that in lean times it could not be changed. Then what would prevent it from being ignored in some expedient way, such as a novel financial instrument which effectively diverts capital formation money into current consumption, perhaps for military expenses at first, then for war recovery, and so on, making it permanent, and then, after the necessary number of decades of reduced capital formation, the inevitable collapse happens.

Perhaps a different approach is needed. Instead of a public agency holding capital formation funds, there might be private funds, individually small, put into different agencies, much like stock agencies and hedge funds in modern America. These private funds would be constitutionally free from taxation, as the taxation occurs before benefits are diverted, by individuals, into them. Managers would not be exempt from the wealth cap, but might be replaced if they do not properly utilize the funds entrusted to their care. So, a stock market plus a wealth cap might be one idea worth considering.

Distributism and the Just Deserts System

Distributism as a popularly discussed possible economic system which was never tried. It provides a convenient discussion point for comparison with both a potential Just Deserts system and the usual capitalism one.

Distributism is a socio-economic system which is characterized by the wide distribution of ownership of productive property. Like any other socio-economic theory such as socialism, there are variations on the idea, perhaps wide ones, which keep some precepts but not necessarily all of them, and also possibly change the means of implementation of those that are accepted.

In its simplest form, Distributism says that productive property, such as agricultural land and factories should be owned by the employees, according to some rule. The theory behind the system originated over a hundred years ago, and then production was thought of as concerning material goods only; thus the distributists thought that property was easily divisible into productive and non-productive property. Leisure was not a good to be produced, and so a public park was not productive property and did not fall under the mandate to be owned and governed by those responsible for the activities needed to continue to provide leisure to the public. Neither was a transportation system thought to be productive, as the moving of goods and people from place to place was not a product. Nowadays that concept has been clarified and the legacy concepts of material-only productive goods has been generalized to other intangible goods. Distributist concepts are not particularly affected by the generalization of productive property for material goods to all property.

Distributism took as one of its benefits the increase in motivation of individuals that arises when their efforts are rewarded both with a wage or salary as well as an increase in the value of the property which produces the benefits. However, such an increase would not occur in a steady-state economy, and if the distributist system does not provide this benefit in a steady-state system, how might it be expected to work in the other two situations, where the economy is shrinking or when it is growing? There may be great value in distributing the ownership of property to the population, but motivation is not necessarily one of them. Perhaps Distributism sees workers as comprising three categories: those who will work industriously in any situation; those who will never work industriously on their own but will seek to do only the minimum forced upon them for survival by the system; and those who are motivated only by the opportunity to receive more benefits if they work harder and smarter.

If the third category is a substantial fraction of the total, Distributism will show a higher productivity if ownership of the means of production allows this category of worker to produce more. How might this happen? For a few classes of workers, they could spend more time if they owned their means of production, and could work themselves to exhaustion if they chose to. For workers in mass production, it is hard to see how an individual in such an operation, even if a part owner, could increase his hours of work except in some unusual circumstances. In those circumstances, it would make no difference if he was a part owner or not. The assembly line, or whatever the production method was, will not run extra hours simply because certain individuals wish it to.

Just Deserts as a socioeconomic system might result in the same arrangements, but for an entirely different reason. Distributism believes that the distribution of property to a large fraction of the population will improve the efficiency of production, and this is a sufficiently important issue that it should be done. Just Deserts believes there is no way individuals can legitimately earn enough to have huge differences in the amount of property owned, and so there is no way that such ownership disparity could happen, except by legacy ownership, and that would be gradually erased as the new socio-economic system were put into operation.

The question of how to arrange for ownership of things well beyond the ability of an individual to own is not clearly decided. Employee ownership is one example, but stock ownership is another, and community ownership yet another. All three are used extensively in our current economic arrangements, and all three seem to work well. For the first two, there are employee owned corporations that successfully compete with similar corporations where ownership is by the sale of stock; neither category seems to have an inherent advantage that propels them to dominate the other. Community ownership is used for certain classes of things, such as roads and schools, but there are certainly examples of roads and schools which are privately owned, by stockholders, and they seem to both work about the same. There are also, in some countries, extensive public ownership of utilities or even ordinary corporations, and they do not quickly crumble.

Long term effects might differ, but it would seem that a socio-economic system with a diversity of ownership types might have some advantages. The three categories of ownership might be originated in different ways. Just Deserts does not prohibit private ownership, but simply makes it impossible for someone to accrete sufficient unearned income as their wealth so that there would be orders of magnitude differences in the amount an individual would own, compared to the mean or mode. It might be that ownership was not by individuals, but by households, but this should make little difference in the way the society would function.

One of the major advantages of unfettered capitalism is the ease by which large quantities of resources can be amassed for the purpose of starting new businesses. There is a great tendency for those without large amounts of excess capital to use their income, perhaps totally, as the basis for their level of consumption. For Just Deserts to work, a mandatory fraction would have to be withheld for the purposes of amassing capital that could be put to the task of creating new businesses, when such were necessary. There would need to be other withholdings as well, such as for old age and disability insurance, health care insurance and other individual expenses. But in addition to these, there would have to be a capital fund withdrawal.

There is little obvious or immediate benefit to the individual from such a capital fund withholding. It would be subject to claims against it for consumption purposes. Some sort of social barriers are necessary to prevent this.

As any large block of capital, collected capital would be subject to corrupt use. Capitalism has few barriers to the corruption of government and internal agents of companies and corporations, such as supply officers, but in cases where there is no monopoly or cartel operating, there is competition. Competition eliminates some mis-uses of capital. Poor matching of supply and demand serves as another barrier to the poor use of capital. These would have the same effect under a Just Deserts system as under capitalism. One type of corruption in capitalism involves the obtaining capital under false pretenses or without the proper checking of the planned uses of it. This would also exist under Just Deserts, except that the source of the capital would be somewhat different. The source under capitalism might be an individual or a group of individuals with high wealth, whereas under Just Deserts the equivalent source would be an agency designed to make good use of withholdings from workers.

As noted before, the benefit from corruption under capitalism is to increase the income or wealth of the person causing the corruption; under Just Deserts the same could be true, but there would be a massive difference in scale. An individual or small group of individuals under capitalism could, if they were wealthy, engage in corruption whereas the group would have to be so large under Just Deserts, it would be unlikely to occur. Of course, if the scale of corruption goes down, it would be possible to have some, but the effect of it would be much less grand, meaning much less money would be diverted because of the corruption. Thus, Just Deserts makes corruption somewhat less likely, but by no means impossible. A Distributism system would have much less accumulation of wealth, as property, by some means, stays widely distributed. If a more general Distributism system were installed, so that not only productive capital was widely distributed, but all forms of wealth, then the same conclusions about corruption that pertain to Just Deserts also pertain to Distributism.

One proclaimed advantage of Distributism is that the dispersal of capital would make production more efficient, by motivating large numbers of individuals to work harder with the capital they had. Just Deserts has even a better claim to this, as not only is capital more finely dispersed, it is productivity which is rewarded with higher income, just as it is under capitalism. Under Just Deserts, the only way open to obtaining a higher standard of living is to earn more by producing more. Capitalism rewards hard workers, but it rewards the holders of unearned income even more, and allows rewards to accrue which are not connected with productivity. By focusing the attention of everyone on productivity and reducing the propensity for corruption, Just Deserts might be seen as the socio-economic system which actually generates efficiency in the economy, as Distributism and capitalism were reputed to be, but do not necessarily.

Corruption and its Cures

There are three main categories of corruption: political coruption, accepted small corruption, and individual corruption. Each can be mitigated.

It seems like a nice courtesy to define clearly and explicitly what it is you are writing about, as words are so slippery and full of alternate meanings. When a reader comes upon something that appears interesting, he/she may be carrying some baggage in experience, so that the meanings of the words, especially the topic words, may have different nuances or even serious differences in meaning from what the author intended. This means there is wasted time on both the author’s and the reader’s part, and we all despise wasting time.

By corruption I mean an individual with a hierarchical job to do, a job in a hierarchy, where he/she has a specific task to accomplish, altering his behavior so that some personal benefit will accrue to him/her or some one or some group that he/she favors. Consider some examples:

Example 1: A politician has input into tax laws and can insert a special clause favoring some tiny subset of people if he chooses, and it will most likely pass due to the methods by which laws are checked before being passed. The politician, in return for a contribution to his favorite charitable foundation, will insert a tax clause as requested.

Example 2: A judge in criminal cases has to choose amounts for fines for guilty parties involved with financial crimes. The amount could be equal to the amount gained or more, or with the right inducement, somewhat less, leaving a surplus for the benefit of the convicted criminal or his family, partners, friends, or whoever else was the recipient of the largess of the criminal before he was caught.

Example 3: A bureaucrat is responsible for completing forms for the public, relating to some function, like driver’s licenses, or registering a deed, or any of the hundreds of things a citizen might have to do. The bureaucrat ordinarily finishes his task within a month, or within a day if there is a gift included, such as a box of candy or a bottle of vodka.

Example 4: A building inspector has a long list of technical points that can be used to hold up construction projects, some for a long time and some expensive to change. For a bit of work on the inspector’s friends’ property, or some materials for such work, these technical points might be waived as insignificant or not safety-related or discretionary.

Example 5: A mid-level manager in a supply department of a large corporation has a selection of which supplier to use for some large purchases, but they are comparable. With the provision of an arrangement for a free dinner for the manager’s family in a top-level restaurant, the choice becomes straightforward.

Example 6: A professor is on the board set up to review new students’ applications, and for many students, a favorable choice by him/her will make all the difference needed between acceptance and rejection. Instead of sticking to academic or other university-related issues, the professor tilts his/her rating based on personal biases.

Example 7: A professional athlete manages to miss some key shots in a championship game, losing the match, which is much to the delight of a gambling syndicate. The syndicate is very generous in their expressions of gratitude.

Example 8: A fireman, finding a shoebox-sized metal container filled with currency, manages to get it away from the scene of the fire while the building burns down. The contents are not returned to the building owner.

These examples are only a few of the hundreds of possibilities for what might be included under the label of corruption. In the process of trying to find a viable new socio-economic theory which has more elements of fairness while not losing the positive aspects of older theories, what should be done about corruption? Which types of corruption should the system be designed to minimize? How should this be done, and what might be the cost to the system of having anti-corruption measures installed within it?

The first level, in the first example, might be referred to as political corruption. The quid pro quo by which a politician might be influenced can range over a tremendous domain, involving third parties in a variety of ways. All would be legal in the absence of a specific agreement to take some political action in return for some other action. Specific laws might be written to control some particular one type of action, but since there are literally hundreds of options, these laws can easily be outflanked. Only by going to the common core can they be controlled as a body. There must be laws of just deserts which control the common core, which is excess inequity of wealth and income, which makes possible political corruption. If wealth of any household is no greater than, say, five or ten times the average, there is no surplus available for corruption. If the income of any household is no greater than a similar ratio from the average, there is no opportunity for the products of corruption to be realized by a household that is a beneficiary of some potential corrupt political act. If these two measures do not exist, then corruption will find a way around any existing structures to make the inequality greater, and the feedback effect will take over and lead to great inequality.

The solution, in fact the only solution, to political corruption is the same as the regulations or laws or what-have-you that relate to income outside of corruption. With investment following a Churchillian directive, and unearned profits being taxed and used for the good of those whose work earned the benefits, and human labor being recognized as impossible to vary in value by more than a factor of five or ten, then corruption would be intrinsically controlled.

Judicial corruption, as illustrated in the second example, is almost eliminated by the same cure as political corruption. When no party to any lawsuit has excess wealth or income to use for corruption, and no defendant in a criminal case has excess wealth or income for use like this, there is little opportunity for corruption to exist. A related question concerns corruption involving corporations. Would the legal counsels for a corporation have motivation to do judicial corruption? Perhaps if their income might be diminished by a factor of two if they did not, they would. A corruption corporation might arrange to have a judge get a delayed promotion in return for a favorable or slanted verdict, so the possibility does not disappear, but only diminishes in range.

Transparency is often described as a mitigation for corporate corruption, including that which occurs around a court case, but just as individual corruption in a world where extreme inequality exists can find clever ways to occur, so might clever ways to disguise payoffs be found. Having independent watchdog agencies to monitor corporate finances and behavior is often touted as another means of curing corporate corruption, but the response to this is to corrupt first the process of monitoring as well as influence the regulations for transparency, thus enabling further corruption to go forward. Perhaps layers upon layers of watchdog organizations, which monitor transparency as well as behavior, might be necessary.

The remaining six examples are simply illustrations of individuals doing small-scale corruption of differing varieties. No high-level formulation of a socio-economic system is going to eliminate the possibilities that exist here, but there is one essential and very important difference. Examples 3 through 6 can exist in small numbers, as exceptions to the general way that people in these positions behave, or they can be the more-or-less accepted way of behavior, that no one quibbles with but just lives with and works around. To have a society that operates efficiently, and in which people are supposed to receive benefits according to the effort they expend and the talent they accumulate, then the routine acceptance of corrupt behavior on a small scale cannot be accepted. This means that not only will there have to be laws regulating it, there needs to be public awareness that such behavior is not accepted. There has to be methods by which it can be reported, and there must be organizations that are held to high standards that investigate it and work to diminish the amount of it until it only exists by exception, not by routine. Once this is done, the socio-economic system will be largely free from corruption.

It is much more important that political corruption be ended, by instituting just deserts taxation of excess capital gains and income, including all devices used to hide it. This type of corruption, once it becomes well-known, is like a poison in society, and would be used to justify all other types of corruption. The role of high-level examples in society can be great, and if there was transparency in this area, so that all political figures were known to be operating with no corrupt payoffs, neither to themselves or to those they favor, then low-level corruption would be easier to have reported and ended. So, from a top-down fashion, corruption is at least viewable as a curable disease, as long as the just deserts medicine can be made to be tolerable.