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

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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.

The Basics of Capital Formation

Capital formation has to be understood in order to be put into the proper place in a new economic theory. Just as with other concepts in economics, such as debt, there are details which obscure the actual nature of capital formation. These details need to be cut through in order to develop a good new economic theory.

Capital will be defined here as physical capital, including anything needed to increase productivity of labor. It includes a wide range of items, which are not usually lumped into one category. It includes tools for craft work, ranging from a hammer up to a robotic assembly line. It includes transportation items, including vehicles for transporting goods up to cargo aircraft. It includes communication, from post offices to communication satellites.

Many of these items are dual use, meaning they serve consumption uses as well as production uses. This is especially true with transportation and communication. There is not much difference between transporting a 75kg person on vacation and a 75kg person going to work and a 75kg box of commodities. Separating out these uses takes a little diligence, but that is a task for another day.

Besides physical capital, there is knowledge capital, which is the information needed to build the physical capital, to maintain it, and to operate it. It has to be generated and it has to be preserved before being put into use.

Both physical capital and knowledge capital have to be paid for, or “formed”. For a long, long time, the metric used to measure these has been labor. A field plowed in ancient times by humans pulling a plow might look the same as a field plowed by a plow pulled by an ox, but the custom is to say that there was more labor in the first field, and less but more productive labor in the second field. If there was some measure of the value of the plowed field, and the first one took six man-days to do it, old economic theory might say the value of the labor for a day was one-sixth of that of a plowed field, and if the second one took one man-day to do it, that the productivity of that batch of labor was five, induced by the capital of the ox and the associated ox-driven plow, together with the knowledge capital of how to maintain oxed and how to plow fields with them.

The simple example illustrates the ghastly mess that traditional economics finds itself in. There are no good metrics. Because so little can be comparatively measured, the task of measurement becomes a problem for society, and the introduction of money is treated as a solution for this. If there is a large enough community, and plowed fields become a category of exchange, there can be a translation of plowed fields into currency units. Then the value of the plowed field can be defined in economics as whatever someone pays for it. There are multiple obvious flaws with this system of valuation, and they undermine any theory of economics, and any discussion of capital formation. Some sort of market trading everything is a mandatory requirement for setting the value of things, and only certain types of markets will suffice.

The existence of a monopoly or cartel on any type of goods or services destroys the concept of value for necessities, as the holder of the monopoly or the cartel participants can choose a range of prices and have them paid, meaning the value of this good or service is not well defined. For goods and services that are not necessities, there might be said to be a tradeoff between alternate consumption items which fixes the transitional value of an item. If the monopoly controls a whole set of alternate consumption items, such as all foods, we are back to the lack of value situation.

Markets have only existed for certain items in history, typically long-distance trade goods. The distribution of consumption goods was handled in a different way, up to a few hundred years ago in some places, and up to a shorter time in others. Instead, there was a social hierarchy, and the responsibility of the higher levels was to ensure that the lower levels received a share of consumption goods. Let’s call this situation, a pre-market situation.

In a pre-market situation, capital goods had to be provided for out of the share of consumption by those making the divisions. Those making the divisions could simply order the distribution of labor to be such that capital goods were produced by some fraction of the population or by some fraction of the population’s labor time. Alternately, some fraction of produced goods could be saved and given over to a subset of the population for the purpose of supporting their efforts at capital formation.

In the market situation, capital goods were part of a market, and so some consumption goods could be used for the production of more capital goods, by the choice of those who participate in the market. In both the pre-market and market situations, capital formation was subtracted from current consumption. The decision making as to how much of what capital was formed depended on the vision of the decision-makers, who implemented their decisions either through a command hierarchy or through a market choice, or a combination of both. The combination occurs when a leader of a group, call it a company but it could be any group, participates in a market to obtain some precursor materials, brings them into the company, and then commands some of those in the group to produce capital goods out of them instead of producing consumption goods.

Markets are not necessarily better at deciding on value than command decision-makers. Those who participate in markets are limited by the information they possess, by their ability to consider the variability of future events, by their personal preferences, and certainly other factors, just as are command decision-makers. Markets in stable situations might tend to produce some values for items, perhaps optimal in some undefined sense, but in stable situations experienced command decision-makers also do much better. Monopoly effects ruin markets, and a large command hierarchy might avoid this peril, but it has its own perils.

There would seem to be a different source of values, and that would be the preferences of those who make command decisions or who participate in markets. Their vision as to the utility, in the longer-term, of capital formation has an important influence on the growth of capital within some area. A decision-maker who sees some utility in more capital formation can use a market or the command hierarchy to attempt to form this envisaged capital. Having such a vision distorts the market somewhat, and influences the remainder of the command hierarchy.

Thus, capital formation happens, not by some magic in a market, but from a vision of a high-level decision-maker, who does two things mentally. One is to envision the result of diverting current production from current consumption into capital formation and to see that the longer-term result is preferable. The other is to assess alternate uses of diverted current production, for example into inventory to average out production over some future period, and to compare this use with that of capital formation. The decisions are all about long-term benefits versus current consumption. The decision-maker must also assess the needs of the population he takes responsibility for and their desires as well, and make a decision as to how much current consumption can be reduced to pay for either capital formation for enhancing long-term productivity or other expedients for easing potential hardships such as the maintenance of an inventory.

Sometimes the vision of a particular decision-maker might be accurate, sufficiently, to produce some long-term benefit from the diversion of current consumption. Alternately, the result could be desultory and produce little for future consumption. This is often denoted as the risk involved in decision-making.

Decision-makers can make inaccurate decisions, however we might measure inaccuracy. If they have advisors who have more, and more diverse, experience, there could be an improvement in accuracy. One of the advantages of the last century stock market is that investors would seriously investigate a company before buying stock in it, and the stock price then represented information for the decision-makers in the company that they might use. The institution of the board of directions might have been founded for just such a purpose. Of course, stock markets can just become a means of gambling, satisfying whatever emotional needs gamblers have.

For a new economic theory, what has been discussed here is important. It means that the choice of decision-makers and advisors is critical to the success of a society following the new theory. These decision-makers make continual decisions as to the allocation of current production, into a variety of possible capital formation options, as well as many others. How the consumption fraction for this allocation is obtained is less relevant, as it might be from something labelled a tax or a mandatory investment or a mit’a, a mandatory labor allocation used by the Incas, or temporary conscription, or something else. The principal issue is the selection of the decision-maker, their education and experience, and the domain over which they make decisions, and the scope or depth of their decision-making in the hierarchy. Just as debt is only one means of allocating current production, mit’a and other mechanisms are just particular means of forming capital. What matters in an economic theory is not the details of the mechanism, but how the current production is allocated. A good economic theory is one in which the best decision-making for this allocation is ensured.

In the Valley Between Libertarianism and Communism

It seems that only extreme libertarianism and extreme communism are studied and expounded. This is an error, as there are many alternatives other than these two polar extremes.

Both libertarianism and communism have supporters and detractors, and all of these fine people have reasons for their opinions. But there does not seem to be many who think half and half of these makes a good combination. The two poles attract interest because of their implicit simplicity, and the ease with which they can be explained and justified.

Libertarianism, as we use it here, means there is minimal government interaction and individuals make agreements with one another to enable sharing of work, trade, and everything else. Communism, as we use it here, means there is maximal government interaction, and the government makes rules by which work, trade and everything else is conducted. Furthermore, libertarianism allows inequity in the extreme to exist, and communism does not allow inequity to a great degree.

Decision-making is decentralized in libertarianism, as each individual makes all the decisions involving himself. Decision-making is hierarchical in communism, as rules are made by whoever is doing governance, and then are implemented down the levels of a hierarchy. There are thousands of details in a society and this is no place to make long lists of what those details might be and how the two polar opposite social systems differ in each of them, but instead, something of a big picture needs to be obtained.

Two of the features of a socio-economic system that make a difference in its feasibility are motivation and disparity. Libertarianism tries to maximize motivation, so that each individual is responsible for his/her own future, and goes out trying to be maximally productive, thereby securing the most of society’s benefits for him/herself as possible. Communism tries to minimize disparity, so that those without much capability to fend for themselves, temporarily or permanently, are not deprived of society’s benefits. Strict libertarianism has the less capable being taken care of by the choices of the productive. Strict communism motivates the productive by training people to work hard to support the society as a whole and by exhorting individuals to be as productive as they can.

All societies from the earliest human hunter-gatherers to now have this dichotomy between self-interest and altruism, and somehow have to integrate these two impulses. All successful societies have a solution for this, and it might be a complicated one, as opposed to the simple ones included with the two polar extremes of libertarianism and communism. One solution is to have moral strictures taught to the young, with the expectation that the majority will follow them. The two categories of these moral strictures involve working hard, the motivation category, and taking care of the less capable, the compassion category. Different arrangements of these moral strictures are certainly possible and different ways of teaching them and enforcing them are possible.

One way societies enforce these moral strictures is by shaming and ostracising violators, another is by having specialists for enforcement who seek to locate those violators and pressure them or punish them. The point is not that there is only one way to have these two contrary impulses balanced in a society, but that there are many and choices can be made. There is no best way, only multiple options.

If you think of pure libertarianism and pure communism as unobtainable mountaintops, then in between these two peaks is a huge valley of possible ways of organizing a society, and all of existing and past societies are somewhere in the valley. Extremism in favor of either peak is amusing and entertaining, but doesn’t really work to solve any of a society’s problems. What needs to be done is the development of the means by which these two human impulses of self-interest, and pariochial interest, and altruism, widespread or narrowcast, can be integrated.

There is no best solution to amalgamating the two impulses, as the definition of best depends on personal preference, and that varies with the person and even with the experience of the person and even further with how the questions eliciting a preference are couched. Beyond that, the definition of best depends on what you do with the answers you get. If there is a headman, do you simply ask him/her? If there is an elite, do you simply ask them and average over the responses as much as possible. Do you ask all the adults, and define the adults as those over 30 or 40 or 50? There is simply no single answer.

Those whose thinking revolves around anecdotes can certainly find competing anecdotes to justify almost any point of view. Trying to extract some truth from anecdotes is chancy, as the anecdotes one hears is a tiny subset of possible ones, and the selection is subject to the biases of those who spread them. There is simply no simple solution to the design of a society.

Suppose you try to think of some metric to use. Perhaps persistence is a possible metric, and you want to come up with a social arrangement that will last for decades, or even centuries. You would need to consider the environment that the society lives in. Is it marginal, meaning that life-sustaining substances are in short supply, and you need to maximize the incentives for those who have the capability to obtain or produce them? Is it affluent, meaning that there is abundant life-sustaining substances, and the difficulties that arise come from the monopolization of them by those who figure out how to do that within the social arrangements that exist? You would want to find a choice nearer the peak of libertarianism for the first, marginal society, and one nearer the peak of communism for the second, affluent society. If the society drifts from marginal to affluent and back again, depending on the vicissitudes of weather, international relations, wars, external trade or what-have-you, you might need to make a flexible society.

If the society is extremely marginal, meaning there is much early death and disability due to shortages of critical substances such as food or water or shelter, the interactions of the society would have to be designed to preserve those who can obtain the most of these substances in the worst of the times, and to maintain their capability to obtain these substances both via provisioning them and by maintaining their spirits in a situation of great adversity. If the society is extremely affluent, it would be necessary to design in the moral strictures to prevent too much decadence and dissolution, which would lead to a self-limitation and social collapse. If the fluctuations were extreme, and the time scale of the fluctuations was within a human lifetime or even a fraction of it, the ability to adapt itself would have to be built in.

The design of a social arrangement can not be based in the fantasy of someone as to what they think they would like to live in. People’s specific preferences are largely conditioned by their experiences, or even what stories they were told as little children, or the preferences of those who raised them and taught them. While a person who has developed such a fantasy is not harmful, if they have the ability to influence others through persuasive writing, they could be quite misleading and if extremely persuasive, could cause social change that was not in the best interests, however that might be defined, of the society as a whole. The alternative is a careful, widely based discussion of social arrangements.

Besides persistence, living standards is often used as a metric for societies. One can define it in many ways, and many very different ways. Living standards could be the access to life-sustaining substances and activities of the majority, perhaps 90%, of the population. Living standards as a metric could be some number, denominated somehow, of the median individual or household or other living group. In defining living standards, there is a clear distinction between measuring life-sustaining substances, also known as necessities, and anything else. A society which has a huge amount of trinkets can be compared to one which has a robust inventory of food; which is the most desirable, or ‘best’, one?

Someone who is psychologically prone to altruism might seek to define living standards as the amount of life-sustaining substance received by the lowest 10% of the society, however this percentage might be defined. Someone who is psychologically prone to self-interest might seek to define living standards as the amount of trinkets, plus some measure of services if needed, of the highest 10% of the society. Neither is particularly dominating, and some middle ground can be found, but what?

People who grew up, having been deeply inculcated with some strong moral strictures, can use these moral strictures to help them define what would constitute the best possible social arrangements, and those who grew up to think of everything abstractly can continue to think of metrics and environments in which to evaluate them. This is the condition in the valley between the two extreme points of social arrangements. Once the simplicity of these unobtainable ideals is abandoned, the huge valley of options presents itself, without any clue as to where a definition of best might be found. Perhaps the first thing to do is to recognize this situation, and to realize that the deafening discussions of social arrangements can not lead to any results, as there are none. A huge number of possibilities can be utilized and comparisons are very, very difficult to find bases for.