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.

What Should Be Measured in an Economy?

It is hard to define an economic system if no one can agree on what the proper measures of its goodness are. And there is even a deeper issue – culture and its transmission.

If two economies are to be compared, there has to be some measuring. But what is to be measured? As technology progresses, more and more data is collected about the economic affairs of individuals, companies, corporations and government organizations. But how should this be distilled down to a few simple, easy-to-explain numbers that tell us which economic system is better?

The word better, when defined in some very specific and quantitative terms, can have literally hundreds of precise, actionable meanings. There is little need to cite examples, but for the record, one can compute the total economic transactions made, the amount of energy consumed, the amount of food produced, the number of vehicles on the roads, the average square footage of the dwellings of the individuals, the ratio of the top quintile’s average earnings to the lowest quintile’s, the amount of taxes collected by the highest echelon of government, and on and on and on. One could also write justifications for many of these measures, going around and around without settling on anything. Perhaps this could become a parlor game, in which everyone has a chance to define their preferred economic measure and then there is a secret vote on the best.

Why not have ten different measures? Then different systems could be compared, and one might be better at measure one and another at measures two and six, while yet another is great at measure nine. If we want to make a recommendation of a system, or define some details of a chosen system, there has to be a decision as to which measure, or weighted sum of measures, is to be used to make the call. Having ten measures get us no nearer to recommending an economic system than having none.

If we ask for preferences for different measures of an economy, every intelligent person might come up with a different one. A person who grew up hungry might have strong feelings that food production per capita or food consumption per capita might be the best measure, although that is a measure, which if used for an economy, would push the population towards obesity. Mean square footage of dwellings is a measure for someone who grew up in a cramped and crowded dwelling, but not for someone who grew up in a large and lonely mansion. Someone with military experience and an appreciation for its need might think that the level of spending on armies and navies that can be afforded is the best and safest measure, while someone who grew up with a parent who was excessively sympathetic to the poor would thing some income parity measure is the best. One can go on and on about this as well, as there are so many possible experiences that can be the subconscious or conscious background for a preference for a measure. Maybe the idea of having some vote on what is best would be good, except that would not please those who believe in monarchy or oligarchy, unless the vote were restricted to the royal family or those who were in the top 0.1% of the economic food chain.

Is there any measure possible that does not depend on the feelings and even the whims of the particular economist who is being consulted on the issue? Many could certainly proclaim that some simple or complex measure had this measure, but when dredging up the basis for it, it comes down to emotion or self-interest, or perhaps the self-interest of some group. What therefore is the point of trying to figure out an improved economic system, if there cannot be any agreement on what constitutes ‘best’ or ‘better’ or even ‘good enough’?

What alternative exists for defining an economic system and recommending it for adoption? One could simply ask an individual to design it, without bothering about any qualitative measures to validate that it is somehow, in some way, the best one. Who could be asked? Those who already control the economy? The current system, with some modifications to solidify this control and sweep even more wealth, income and power into their hands, and make their acquisitions permanent and irrevocable, and also inheritable, might be the obvious answer. Another possibility is to discover the god of economics, and find a bit later on those who can get messages from this god inside their minds. They could write down the messages and the information could be fitted together to make up an economic system. Or some other group might be asked, like the top generals. What might their response be?

Defining ‘bad’ isn’t nearly so difficult. If people are dying from starvation, something is wrong, and the system failed. If population is being drained by migration to other lands, again, something is wrong, if the motivations for the population decline are based in economics. Then things get fuzzy. If people are chafing about having to spend time in commuter congestion everyday because of the price of housing near work, perhaps the economic system is bad in how it zones land. If there are long lines for obtaining the necessities of life, even though they are available, possibly the part of the economic system relating to distribution is faulty. Universal complaints are an indication of an error in economic system design, unless the constraints are so tight that one complaint cannot be satisfied without creating another, potentially worse, one.

There could be very many economic arrangements that do not give rise to universal complaints, meaning that the set of ‘good enough’ economic system might be quite large. This means that if we use popular outcry as a measure of the goodness of an economic system, the bin of acceptable systems could be quite full. And the willingness of a population to object to some aspect of their economic system might vary quite a lot, with some more stoical populations willing to put up with situations that a more clamorous one would take to the streets with. Here, media has its effects as well. Where media plays a large role in people’s lives, in other words, occupies a great deal of their time, the advice of those who control the media, filtered through the various message-giving instruments a media system has, might make a difference in what is acceptable and what is not. Again, somewhat murky.

This brings us back to the same point made elsewhere. Culture plays a large role in defining what is desirable and what is acceptable in economic systems. Take corruption as an example. There are many different kinds of corruption, and it can be overt and obvious to everyone or concealed behind all manner of legal constructions and privacy rules. One population, of a homogeneous culture, might regard petty corruption as just a part of life, something everyone knows about and everyone participates in, while a second population, also homogeneous, might find it horrendous and seek to expunge every single instance of it. The second population might regard legal corruption, where laws are written to allow many kinds of payoffs to politicians without any law being violated, as ignorable, while a third population might see legal corruption as no different than illegal corruption as it was based on the same thing: politicians selling their vote for some sort of benefit to them or their relatives or some affinity group or former colleagues, or whatever. Thus, culture plays a large role in public outcry and in defining the bin of acceptable economic systems.

Popular culture does not simply appear in a puff of smoke and be learned and wholly accepted by a population. It is something accumulated over time, but more importantly, passed on from generation to generation through the means of training and education of the younger generation by the older. This means there might be populations without any culture at all, where they might be homogeneous or heterogeneous, but they simply do not pass on values, opinions, motivations, heritage, and other bases to the next generation, but allow the young to pick up what they can from wherever they can. If this is the state of a population, almost anything can fit into the bin of acceptable economic systems. It also means that any individuals who want to be able to structure the economic system to fit their definition of good, better, best, can do so most easily if they can convince a population to stop transmitting their culture from generation to generation, and leave it in the hands of some specialists. And as a last step, the specialists have to be willing to climb aboard the support train for the economic system preferred by those who have the means to disrupt intergenerational transmission of culture.

It is certainly possible to devise an economic system that has some laudable attributes, and perhaps one which can be shown to meet a variety of measures of goodness, but as long as the culture is determined by those who prefer another system, good to them and perhaps not so good for the large majority of the population, there is little need to work too hard to define its details. Unless, of course, there is some means by which such a better economic system can gain the attention of the population – an unlikely event.

Different Cultures – Different Economies

A homogeneous nation where everyone wants to be productive fails uniquely, oversaturation of consumption. What economic system should be installed to moderate this?

In a previous post, an example nation was assumed, one where people were not interested in material things, or in careers, but in interpersonal relationships, and they avoided work when possible. In this nation, an economist would be faced with several problems, including the one of how to motivate people to work sufficiently to support the economy. It seemed to be a soluble problem.

Consider a different nation, again with a homogeneous population. In this second example, all of the people with few exceptions, pride themselves on what they produce that is of use to the remainder of the population. They do not particularly care about amassing wealth, or surpassing others in their possessions or ownership, but they do compete in some fashion on how useful they are to society.

As in the previous example, an economist concerned with devising an economic system for this nation and its industrious population, needs to cover three things. The first is the trinity of production, allocation and consumption. The second is employment and motivation. The third is capital accumulation and allocation.

The second is solved by assumption. The entire population, at least the work-capable fraction, having the right age and lack of disability, want to work and are motivated. They want to be productive and will do whatever they need to in order to be productive. Some people are productive in one way, others, in another way. There should be managers and tradesmen, salespeople and maintenance workers. Because their self-worth depends on being productive, not on having some particular job, all work slots will be filled as flexibility will be part of the core value of productivity. Their motivation is simple: work productively at whatever is available. Move up to more productive positions when possible. Work as long as possible. Get whatever education is necessary to do a job.

Productivity is the core value, there will be no difficulty in reducing consumption sufficiently to accumulate capital, and then finding those who can make use of it, by increasing productivity of the nation in general. Technological progress might be brisk, except for one point. For the primary trinity of economics, production is assured. Allocation is not a problem, as the population will not be finicky about how produced goods are allocated among workers. But who is going to do the consumption? Taking time off for consumption is not a core value, and is not appreciated. None of the workers cares much about what they own or use, but principally about their work. So, as the nation progresses, production increases, and who gets what is produced? There is, in this example, no one interested much in consumption.

One might say, let the children consume, but in a society where everybody of working age and able body is interested in what they can do, not what they can get, the children are going to learn from early age what is important to adults is what is important to them. They will dream about becoming productive adults, not idle consumers. Thus, children are not the answer to a lack of interest in consumption, particularly in consumption goods. Neither are disabled people going to pick up the slack.

There is a certain amount of production that can be drawn off for economic growth. More extraction means more economic growth, but this should saturate due to the constraints needed for the various operations necessary for growth, such as the construction of factories. Fairly soon, some economist will note that it is quite hard to find anyone to take existing production for consumption, and more of it certainly will not be needed. Improvements in quality might be possible, but a saturation in production bottleneck appears inevitable.

Government siphoning of some production is always necessary, but it has its limits in a society where there are no government officials looking to become extremely wealthy from bribery of various types. Government officials come from the same nation, and would not expand government past what promotes production. So the bottleneck is not resolved by government expense. You can build one city hall, but you can’t build two. You can build adequate school space for all children, but you can’t double or triple it. Parks that no one visits are not the things that a nation of productive people build.

In this second example, as we have constructed it, there is no way to eliminate the lack of interest in consumption, except by changing the culture, meaning, what children learn and carry with them through life. There are here also inevitable tight connections between the social part of the nation, meaning the culture, and the economics. One route for an economist is to enlist those sectors of the nation able to change the culture. The other route, more true to the culture and preserving it, is to deny to some fraction of the population the opportunity to do what they want to do the most, be productive. Only by decreasing the employment level by some amount, or artificially reducing productivity, could this be accommodated. Low productiivty may be the light at the end of the tunnel.

This example again shows the impotence of economics as compared to the culture that is embedded in the population. If the economic system is to be of maximum service to the population, it would have to determine a way to reduce productivity, so that the real goal of the population, being productive, could be assuaged. There might be a severe tax on productivity development, so severe that it could not be afforded by any entity, and no funds devoted to it by any government organization. Instead of an economy based on consumption, and designed to maximize it, this economy would be the opposite. It would be built around productive work, and the work hours would be the right thing to measure as a test of how well one particular policy of suppressing productivity would work.

Having this example seems to break the lock that consumption has on economics. Everything in previous economic systems has been about consumption, and of course, its use in maximizing the wealth or status or power or importance or whatever of those who make decisions about economic matters. It is not necessarily the case that productivity bottlenecks could not exist before, as standards of living were much lower, and saturation of consumption could easily occur. However, there is no way to advance the position of the czar or monarch or emperor by having productivity lowered. They would always be able to spend more production on larger palaces, bigger navies, or other things available only to a national leader. Favoring production instead of consumption can only seem to happen in a nation which was not run by an elite group which did not share the culture of the population. If the elite leadership group wants to accomplish anything on their own, typically they would want as much production as possible to amass for its use. Limited productivity would almost seem as an offense or even a treasonous act. In a milder view, any nation which is concerned about its defense might want to maximize productivity so as to divert some of that productivity to bomb shelters or tanks or spears or whatever was currently useful in the art of war.

Suppose we return to the example in its full splendor. Even those in the government just want to be productive, and there is no external threat to drive productivity. If these two barriers to a complacent, low-productivty, fully-employed, happy population are removed, that is the population that this situation will lead to. The lack of productivity gains means that the situation is likely to go on and on, without break, with a happy population just continuing to work and to raise their children to work and enjoy it.

One thing, not discussed so far, that an economist might be concerned with, is the stability of the population to various disturbances. The only disturbance embedded in the scenario so far is the contrast between the desire to be productive and the ban on the desire to increase productivity. This has to be solved by some explanation of the choice to the population.

Another disturbance that the nation in question is vulnerable to has already been mentioned, and that is conquest by a nation which does not espouse low productivity and uses their production to prepare for war and conquest. Other disturbances might be situations of crop failure or destructive natural weather phenomena, The latter might be solved by storing up productivity ideas, in other words, allowing the development of productivity gains, but not putting them into practice, until some even happened which made it important to use them. The former might be covered by having large inventories of stored food, renewed to prevent damage via aging, and kept ready to be used in the instance of a bad crop year. It would certainly be a productive task to prepare for possible dangerous uncertainties, so the culture would emphasize doing both of these tasks. Even preparation for defense in the unforeseen instance of invasion might be done under the guise of useful production. Thus, with forethought, the second example could be elaborated into a stable, very long-lasting economic system, which could continue until the culture eroded or some other change crept in.

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.

Choosing Goals for an Economic System

Having very few goals for a new economic system makes it more likely there will be no conflicts. Here we discuss the most fundamental goal: survival.

If an economic system is being designed in a top-down manner, coming up with one or more top-level goals is the place to start. Current economic systems have many goals, and the problem with that is that they sometimes compete, not in the sense of being opposite, but in the sense of giving contradictory guidance in certain situations. It is better to have fewer goals than many. Often goals for an economic system which are set up early in the history of the system are added to or modified in later eras. So, in designing an economic system, it is important to choose few goals, but also to choose them in a way which makes they less liable to change as time goes on. Societies change as technology changes, so this factor is one which should assist in the choice of goals.

In early eras, there was a clear goal. It was to benefit the upper echelon of society. Ever since there was a top leader, it has been the leader and his court or companions which have been the recipients of most of the benefits of the society. This group may represent one percent of the total population, or twice that or half that, but in any economy, the beneficiaries of the economy are a small fraction, and they are those who command the economy. In different places it has been military leaders, and in others the descendants of military leaders. In later eras, the benefits flowed to a top layer of individuals who had ownership rights on much of the land in their vicinity. Even later, it was a group of owners of businesses who prospered far more than anyone else. Later than that, it was the owners of financial establishments who received the lion’s share of the benefits of the society. In other societies, it was the higher castes which benefited the most, in the sense of having a higher living standard, or more freedom from want.

Only in very recent times has there been much discussion of a wider distribution of benefits. There was never any discussion about whether it makes much sense to have such a wide distribution of benefits. In one aspect, it is a question of the division between the use of the products of society for infrastructure and common defense and other society-wide tasks and for direct consumption. The direction of a large share of the benefits of society to a small top-level percentage of the population means that this group’s consumption uses will not use up the whole amount of benefits allocated to them, and therefore there will be an amount available, usable for any benefit to the whole of society. Traditionally, the control of the allocation process has been in the hands of a such a small percentage of population, and this has resulted in the provision of things that the society needs to gradually improve. Over periods of time, this allocation pattern has resulted in the economic growth of societies.

There are some quantitative measures that might be discussed. Society needs a balance between these different allocation factors, and the fractions allocated to lower class consumption, to upper class luxury consumption, to various societal needs, to supporting economic growth, to supporting technology development and deployment, and other ones that might be critical to the improvement of a society. The wrong set of values for these fractions might lead to social collapse, or revolution, or loss of defense capability, or simply stagnation or negative growth.

If there is one goal for society that seems to transcend others, it is self-preservation. If there is something in a socio-economic system which causes the society to split in two, or to descend into turmoil, or to lead to invasion, or to give rise to waves of criminality, or some other ill, then this is perhaps the strongest indication that this particular socio-economic system is flawed and not to be recommended. It is not that there is some unique lack in a bad socio-economic system, but instead a departure from a range of values which worked. If too much allocation goes to upper class luxury or to the process of altering the allocation fractions via financial manipulations or corruption of the political tax-levying process,then the socio-economic system may get into trouble.

There are feedback loops which definitely change the allocation of benefits, and if these are allowed to control it, instead of themselves being monitored and controlled, the system may depart from the range where the society is successful and may move into a danger zone, where one or more of the pitfalls of a system can arise. Some strong controls would be necessary in order to thwart these feedback loops.

Perhaps the strongest feedback loop is the one where wealth is used to concentrate wealth further. Because of the diversity of mechanisms by which this can happen, only direct controls on the accumulation of wealth can control it. Controls on income alone might be bypassed, if there are ways that, covertly or overtly, can add to the wealth of particular individuals. Wealth controls can be done by different formulas, and can be thought of as some type of property taxes. There are few historical instances of progressive property taxes, where it is not the value of property itself which is used but the concentration of property ownership which is the important variable. However, this seems to be the only taxation method which will control corruption and excess allocation to the leadership cohort.

Why not give gigantic amounts of benefits to the leadership cohort? There needs to be capital amassed for many purposes in a society, and the old method of having the leadership cohort take it and use it for socially beneficial purposes did bring society this far. There are three reasons for looking for a better way of allocating benefits. One is that the allocation of great wealth to a small minority works for some range of allocation, but because of the feedback effects of wealth concentration, it always increases until there is a breakdown in society. The second is that the provision of social benefits is voluntary on the part of the extremely wealthy, and may be very distorted in the choices of what is to be supported, with vital needs being shortchanged while frivolous expenses increase. The third is that as society becomes more aware of economics, unearned income, solely for the purposes of capital accumulation for valuable purposes of the society will appear and be appreciated as a wrong solution.

All three of these reasons can be collected under the goal of having a society which continues, instead of breaking down in one of the many ways that societies can suffer or even collapse. It is curious that this goal, the preservation or survival of the society is analogous to the first goal of any living organism. Survival is built in to the genetic programming of all organic creatures, and it makes sense to also attribute it to social arrangements. Once primates, and subsequently humanoids, divided themselves into clans or small groups who cooperated rather than competed, the concept of clan or group preservation made sense. So not only does this primary goal of living organisms match that of the proposed goal of the socio-economic system which we are trying to design, the same goal is present in the organization of humans and earlier, humanoids, into cooperating groups. It is almost a tautology that a group which does not concentrate on self-survival will disappear and be replaced by a group which does concentrate on self-survival. Thus, there should be little reason to dispute this goal as being the most elemental one for a socio-economic system.

What about other goals? There are an uncountable number of possibilities, all of which arise from some emotional connection between a person and a concept. Take justice. Each person can define what justice is, and there will be some discrepancies between one person’s take on this and another’s. The same goes for all of these emotionally derived goals for a socio-economic system. There may be some core to some or all of these concepts, but which of them might be taken as preeminent enough to be used to define the structures, organization and procedures of a society attempting to live under a new socio-economic system. Self-preservation does not have much of the heightened enthusiasm associated with it as a fair society, a just society, or other similar concepts, but as discussed above, it is much more fundamental.

Are any further goals other than self-preservation needed to define how a socio-economic system should be structured? Do the mechanisms of a society help to define how it might be defined? In order to fully utilize the goal of self-preservation can be used to define the whole structure of society, there has to be a model of how human beings behave. Only by understanding, well and in detail, how humans would act within a society can this goal be fully utilized.

Debt: The Good and the Evil

Debt causes many problems in an economic system, but some benefits as well. How can a new system be designed to only incorporate the benefits?

Let’s start with the simplest case to consider, a wholly self-contained, up-and-running Just Deserts socio-economic system. The good side of debt is that it can be used to speed up growth of production in an already-growing system. The basic idea is that funding is obtained to finance capital acquisition and operations, which produce enough benefits to cover all costs and repay the debt.

The bad side of debt is that it can be used for permanent consumption costs, growing continually, as the consumer chooses to consume more than his allocation of benefits can sustain. This means that the debtor must continually and exponentially go deeper into debt, meaning that much of his income and all of his holdings will eventually be confiscated by the debt holder. This works for individuals, for organizations, and for government organizations and entities. The organization situation is much like that for an individual, meaning the debt holder eventually collects the title to all the organization’s property. For a government organization like a nation, it does the same thing, allowing current consumption at the price of confiscation of nationally-owned property and also future income, such as taxes. Greece is the preeminent example. The time displacement of the repayment allows bad effects to be unfelt for as long as the term of the debt, and if it is rolled over, successive terms. Since people typically only have the ability to think in the short term, debt is a successful means of further enriching those already wealthy.

In some situations, personnel rotation in a government organization means those who will face the problems of repayment are not those who enjoyed the benefits of consumption. There are many ways to implement such a situation, such as a politician staying in power because voters are happy with the benefits distributed from the debt funds, being short-sighted at best, followed by the politician’s retirement before the debt comes due. Many other means of benefiting by the time difference between incurring and discharging a debt exist, and because of the flexibility such a situation provides, it is likely that no solution can be found other than outlawing or prohibiting this type of debt.

Thus, there is growth acceleration on the good side, and countless scams on the other side, along with all the pitfalls of a myopic view of life. In a Just Deserts economic system, taxes or income restrictions prevent any individual from personally amassing enough funds to make large-scale loans, meaning that there could be small debts, which do not debase someone’s life, but no large ones.

Growth acceleration can be accomplished by other means that loans from individuals; debt from other organizations which can legitimately amass large amounts of delayed benefits could happen. So can other means of obtaining funding, typically meaning some ownership rights in the organization needing or wanting the money are traded for up-front funds. This is the stock market, plus all types of individualized arrangements made between a producing organization and a funding organization. In a Just Deserts economic system, there would be funds in possession of insurance organizations and pension organizations, as well as possibly specialized organizations, the equivalent of today’s mutual and hedge funds, except with necessarily more diverse ownership. Thus, debts for growth acceleration would not be interfered with.

Debts for temporary consumption needs, such as necessitated by temporary disability, or for replacement of productive capacity, such as necessitated by permanent disability, would be handled by insurance funds. Once started, these insurance funds would exist to replace lost benefits for someone suffering from a disability, either temporary or permanent. They would be paid into as part of a mandatory deduction from working wages and salary. The usual objection to such insurance funds is that they drive workers and employers to use a black market, where possible. Whether this is palatable depends on the regulations against it, and the results on the workers who have to choose whether to use it or not. Having high fines and fees prohibiting it, and a very low level of benefits for those who use it might reduce this objection.

Once again, this can be described as a myopic viewpoint. Someone who avoids taxes and insurance withholdings gains possibly in current consumption levels, but risks later problems. Since people do not see later problems as clearly as they do current ones, the black market can burgeon. But with education and experience, it might be reduced substantially in a Just Deserts socio-economic system.

Debt for the purpose of raising current consumption levels would not be possible in a Just Deserts socio-economic system. No organization would have the right to grant such debt. Thus debt in a Just Deserts system is somewhat simplified, compared to contemporary systems.

Now enlarge the domain being considered. Suppose there are external actors, individuals, organizations or governments, outside the Just Deserts system boundaries. They are not constrained by the rules and regulations of the Just Deserts system and can provide debt to those individuals, organizations and government bodies within the system.

There are always two polar extremes in dealing with any behavior that is considered undesirable by some authority. One is to involve a chain of actions, such as detection, confirmation, punishment. The other is to arrange the situation so that the natural consequences of the behavior are so negative that it is discouraged. The latter arrangement does not work well when the natural consequences are not immediate, or not definite. Then the typically myopic individual can not rationally weigh these consequences, and therefore can make decisions based mostly on immediate effects. With organizations, one can expect they are run under rational considerations, but decisions within organizations can be made by individuals seeking personal benefits in the short term, as opposed to organizational advantages in the long term. The same holds whether the organization is a private one or a governmental one. Thus, in the absence of a magic wand that transforms everyone into a rational person able and willing to weigh long-term consequences, and to put the organization’s benefit in front of personal benefits, only regulation will work.

Regulation can have just as many horrible consequences as depending on individual rationality and organizational altruism. If governmental organizations involved in regulations were all full of rational, well-educated individuals with the best interests of the nation at heart, they would work well. The real trick in designing a socio-economic system is to make one that works with venal and stupid people in it. Clearly one major avenue for improvement is to properly train and educate children, but even that can be subverted in the interests of personal benefits and even to further some misunderstandings of how both education and government work. So, no magic wand.

Regulation is made easier by transparency. So is the detection of misdeeds by regulators, if the transparency is so thorough that private individuals, or organizations constituted to serve as checks on mis-regulation, can obtain the same data as the regulators. Rather than make transparency something that is only in effect in special instances, it could be the default situation unless there were compelling reasons to deny it. In the financial arena, this would mean that any individual, organization, or government body that went outside the nation where Just Deserts was the system employed, and violated the principles of it, would be obvious and visible to any organization that chose to inspect the pertinent records. If transparency is the standard, the next level of deception involves maintaining false records that are visible, and a set of other records that are hidden. This would allow debt money to come into an organization, but it would not allow it to be used, as the transparency of most records would show off the entry point of the illegally sourced funding. In other words, it could be put into a hidden external account, but could not be brought into the nation and mingled with internal funds without leaving a trace.

The other difficult situation, besides relations with external non-Just Deserts nations, is the transition from any other system into a Just Deserts one. Specifically, this means that if there were a nation with a large international debt, what would happen to this debt when the nation worked through the transformation of itself into a different system, a Just Deserts one. For example, consumption levels might have been higher in that nation for previous times than could have been justified by the level of production there. This means that some external actors have loaned money to the nation so that it could have an average consumption level higher than otherwise possible. Does the nation repudiate this particular amount of debt, or does it decide to lower consumption levels and pay back the debt? Usually debt is not repudiated unless the debtor is willing to assume there will be no more debt in the future. This is the situation with a Just Deserts nation, so repudiation would not have the same theoretical effect as it would in a nation that was bound and determined to have inflated consumption levels until the dam burst and economic collapse occurred. There are good arguments to be made for both honoring the debt and dishonoring it, and such decisions would have to be made in the framework of the whole transition, by whichever rational, non-myopic, and altruistic people can be found within the nation to make such weighty decisions.

Unemployability

Socio-economic systems have to have some features that cause individuals to want to be productive and contribute to the society in which they live. What works?

Employability is used here to mean that a person has the ability to work in the current location and time. It is a slippery concept, and deserves to have some details added to it so that it can be sensibly used. Let’s start with very simple examples to clarify the concept. Suppose there is a country, Simpleland, with only ten kinds of jobs. An individual in the population is employable if he can perform one of these ten jobs to the minimum standards. This individual may be employed if he has a slot to work in, and unemployed if he does not. So there are really three levels here, employed, unemployed but employable, and unemployable.

The economy of Simpleland produces benefits which are distributed to the population. The distribution of the population into these three levels makes a great difference in the standard of living. If 90% of the individuals are workers, they produce some total quantity of benefits, T, which are allocated to the population. On the average, everyone gets T/N, where N is the total population. If only 45% of the individuals work, only T/2 is produced, and everyone gets T/2N, half the amount of the previous example. Between these two examples, there are two possibilities. One is that in the second, 55% of the population in unemployable. Then T/2N is all that the average will ever rise to. If in the second, 45% is unemployed but employable, the average could rise to T/N if additional production facilities were saved for and built.

Productivity is not a savior in this case. If productivity, p, rises, we can consider what happens. Then in the first case, the average benefit is pT/N, and in the second pT/2N. No relative change between the two cases happens. There is no way in which Simpleland 2 can ever catch up with Simpleland 1 as long as there remains a large fraction of unemployables.

The socio-economic system is likewise unable to change the average received. All it can do is change the allocation of the total amounts of benefits. If the employed receive R times as much as the unemployed, then the employed in either country would receive RpT/N(R – u(R-1)), and the unemployed, pT/N(R – u(R-1)), where u represents the fraction of unemployed.

Allocation systems can compensate for a lack of human capital in the sense that they can raise the living standards of one group at the expense of another. For example, if Simpleland 1 has a socio-economic system strongly supporting consumerism, and it had R = 1, but Simpleland 2 has a socioeconomic system strongly supporting production, and it had R = 11, the employed in Simpleland 2 would have just as high a level of benefits as the employed in Simpleland 1. Of course, the unemployed in Simpleland 1 live at the same standard as the employed, but in Simpleland 2, they are in relative penury.

For amusement, one might make other comparisons between Simpleland 1 and Simpleland 2 when they have different productivities and allocation fractions, but that solely would serve to obscure the point. Nothing replaces human capital. Any nation with significantly less human capital is going to have an average level of benefits significantly less.

Investment might change productivity, p, or reduce the number of employable but unemployed. A different socio-economic system might change the allocation fraction, R. But if the number of unemployables is large, these changes do not overcome this difficulty at all. There is no way that a country like Simpleland 2 can ever match the average standard of living of Simpleland 1, provided that information and investment flows allow both of them to reach their maximum values. The implications of this are that human capital is the dominant variable, more important than productivity or allocation fraction, in determining how well the population lives. Socio-economic systems, such as Just Deserts, just move around benefits, affecting principally allocation.

This is a static picture. Any change in the percentage that is unemployable will be reflected in the average benefits received, and if it goes up, then things will get worse, on the average. If the percentage goes down, things will get better, assuming everything else stays the same. Birth and death statistics change that number. If there is an age difference between the employable and unemployable fractions, time alone will change it, assuming the categorization of an individual is immutable. If, for example, the employables are older, their retirement and death will increase unemployability. If birthrates are higher among unemployables, and there is a good correlation between employability of parents and children, unemployability will likewise increase. If employables migrate out, this will also increase unemployability, as will the immigration of unemployables.

Another dynamic is the movement of individuals between the two sides of the employability category. If employables become unemployables, obviously the fraction of the population that is unemployable will go up. This particular change can come from disability, or some emotional change which takes away an employable’s will to work. Perhaps periods of unemployment can do that. The reverse motion, from unemployables to employables, might come from training, rehabilitation, or having enough time to overcome emotional changes that negatively impact will to work. This dynamic fuzzes the distinction between the unemployed but employable and the unemployable. Perhaps the unemployable category might be further divided into temporarily unemployable and permanently unemployable. The worst situation a country can find itself in is if the permanently unemployable fraction is large and rising. Living standards must go down from this effect.

Having non-productive work for the unemployed does not change the average living standard at all, and reduces it to the extent that non-productive work has costs involved, which must be subtracted from the total production of the economy. Let us leave the binary world behind, and suppose that work can range from maximally productive to totally non-productive. If the benefits for the productive end of the scale do not motivate individuals to try to move to those jobs, then the same phenomena happens. This finally is a point at which socio-economic systems have an effect. What is necessary in a benefit ratio for an individual worker to strive to become very productive? What else is necessary in order for workers to want to do this?

It would appear that a socio-economic system could encourage or discourage individuals to become highly productive, but there may be other factors, psychological and cultural factors, which predominate. Just Deserts is being designed with the idea that huge differences in rewards are not necessary, and a more balanced reward system will work as well or almost as well. But without understanding the psychology of the worker, we might not understand if rewards can be diminished, or if rewards are not the most important variable in setting worker determination and motivation.

For most of history, the majority of workers were in the agricultural sector. There also was little by way of stored inventory of foodstuffs, so motivation was by fear of starvation. Much of the world was also in the grip of a landed oligarchy, so fear of bosses was present. In more recent times, employment has shifted into industry, and mankind’s instincts for altruism and sympathy have become more expressed, so the fear of starvation and of bosses has declined relative to earlier eras. Desire for consumer goods has replaced fear as a principal motivator. This may not be a permanent feature of a modern economy. Recall that consumer goods have only exploded in volume and complexity over the last century, and the interest in them may well die back to a lower level. Altruism can cause individuals to seek more productive employment, if the rewards are sufficient. The Soviet Union and other communist countries, when there were few consumer good rewards for highly productive workers, used media propaganda to encourage altruism. This worked to some extent, but like consumerism, it seemed to have lost much of its strength as a motivating factor. What is left for a Just Deserts economic system to use to cause motivation among workers?

Another related issue is that if the economy has many non-productive jobs, for whatever reason, and there is a spectrum of benefits available from them, for someone who is motivated to seek personal benefits or benefits which are altruistically distributed to closely related individuals, seeking a highly remunerated but non-productive employment position may be just as attractive or more attractive than a potentially highly remunerated productive employment position. Any economy needs such positions in some numbers, but a Just Deserts system must be designed to reduce the attractiveness of such positions in accordance with improving production. Yet such jobs may actually fulfil extremely important functions within the economy. Perhaps a maximum term for someone in this type of position would serve to reduce the attraction away from productive employment. In some military forces, there is a mandatory employment rotation system which limits how long an individual can stay in one type of position before moving on to something else. This may provide some insight into how to maintain a highly motivated and employable population, concentrating on productive work.