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Two Concepts in Economics

For as long as history reaches back, we can see two main concepts In economics.

One concept is the obtaining of satisfactions by productive effort, together with the exchange of the results of various people's efforts.

The other concept is the obtaining of satisfaction by stealing the results of other people's efforts. The word stealing here Includes robbery by force and threat, robbery by stealth, fraud and deceit, embezzlement, blackmail, insider trading and slavery; it also includes unearned satisfactions obtained by government-granted privilege.

There are a few minor types of transaction such as gifts and charity, but the two main types of transactions in our "economies" are exchanging and stealing.

Exchanging

The basic exchange is the swapping of the result of one person's efforts with the results of another's efforts.

Why do such exchanges occur?

Positive Sum Transactions, Both Gain

Exchanges occur because each party to the exchange expects and usually gets more satisfaction from what each receives, than from what each hands over. Both parties gain in satisfaction.

All sorts of things are exchanged: goods, services, loans, "futures", privileges, registrations, goodwill, even slaves at one time. Of course, money is involved in most exchanges.

Because both parties gain, these transactions are POSITIVE-SUM. The gains in uncoerced exchanging are greatly enhanced, as suggested by Adam Smith, through specialisation and division of labour. They are further enhanced by open markets with free competition, and by the results of mass production, technology, and use of transport and capital tools.

We need not try to analyse how much gain there is. We merely need to realise that exchanges are positive sum transactions which benefit everyone in relation to the yield of satisfaction from their individual efforts. They optimise prosperity.

Stealing

Stealing is the transfer by force or deceit of the results of other people's efforts, to the thief. Some effort is required by the thief. Such effort creates no new satisfaction; it is wasted, non-productive effort. Victims may also be involved in considerable cost in seeking to avoid being robbed, by the use of locks, buildings, safes and guards, etc, which otherwise would be unnecessary.

But much more important is the overall effect of the stealing transaction, Economists do not seem to consider this aspect, but almost invariably the gain to even the successful robber is outweighed by the distress/and loss of satisfaction of the victims. Sometimes it may appear that /there is little loss, because it may be spread over a large number of victims, but that is a false impression. One may imagine some trivial cases where an individual may gain more than the victim loses, such as the penniless widow, with two starving children, who steals a loaf of bread. Of course some thieves are unsuccessful and may suffer severely, even some high-flying entrepreneurs as well as their victims. We all suffer from the large number of small disadvantage, loss and distress we experience when we buy almost anything.

Negative Sum

However it has been observed by wise men throughout the ages that stealing is an uneconomic NEGATIVE sum transaction. There is an overall loss in satisfaction when all concerned are taken into account.

The poorest community one can imagine is where everyone concentrates their efforts on stealing, with perhaps some effort on trying to prevent themselves being robbed.

"Thou Shalt Not Steal"

From before the time of Moses, civilizations had observed that stealing was uneconomic; Moses brought down the Commandment from Mt Sinai, "Thou Shalt Not Steal", and it is the most important economic slogan ever. If_ stealing was a positive sum transaction we could all be rich by robbing each other.

The Slogan Ignored

Even though wise men and prophets continued to teach that stealing was uneconomic, there were sections of the community who ignored it.

The strong, the greedy, the ruthless and ambitious tended (as they still do) to rob and to exploit the gentler more productive folk.

Small Ruling Classes

As tribal groups gradually became under the rule of princes, kings and emperors, there evolved "ruling classes". These usually consisted of a small number of families which obtained authority by military force, and then maintained hereditary power and privilege by keeping not only a monopoly on military force but also achieving a monopoly on literacy and education. These powers were sometimes assisted by religious teachings ("divine rights of kings", "the meek shall inherit", "turn the other cheek", "put up with your lot like Job"). Priests sometimes advised kings against excesses, but priests and the rulers usually tend to be mutually supporting, whether in ancient Egypt, or in modern times. But the really important control was the monopoly of literacy, together with the knowledge and interpretation of "law".

It was these small ruling classes which ignored the fact that stealing is uneconomic. Perhaps there were occasionally a few enlightened rulers who were just and fair, but most of history reports ruling classes as the exploiters of the rest of the community some times by cruel slavery, some times rather less severely with serfs and peasants, and landless labourers and tenants. In Europe, less than two centuries ago, women and children as well as men, were forced to work excessively long hours for a mere subsistence in fields, factories and mines, and as domestic servants.

Rival Gangs and Revolts

Most ruling classes were virtually clever gangsters who fleeced the community. Some times there were fights between gangs trying to take over the others' territory. Occasionally the "serfs" revolted, whether in ancient times, or even more recently in France, Russia, and China, usually without success, because the rebels had no clue as to how to govern themselves so as to optimise prosperity for all.

The Ruler's Concept

The accepted traditional concept was that the rulers who had the power had the "right" to rob the community.

Evolution of Democracy

In the last 200 years, a number of nations have evolved towards democracy (rough though it may be). What caused that?

Curiosity Led to Technology

Most of the affluent ruling class (the Landed Establishment) spent vast amounts of their time and money on big mansions and gardens, horses and carriages, lackeys, gambling, entertainment, jewellery and art.

However a few intellectual aristocrats became interested in "nature" and science. Such people studied and encouraged others to study, and we find some basic science emerging. People such as Leonardo, Gallileo, Newton, Boyle, Lavoisier, Linnaeus, Bacon, spring to mind. King Charles I started the Royal Society. There had been something similar with the Greek mathematicians and some earlier Asian empires, but it did not evolve into the technology which has occurred in the last 200 years.

Effect of Technology

The first effects of scientific effort and technology resulted in a great increase in the efficiency of agriculture and food production.

This released large numbers of potential workers, in greater numbers than could be absorbed as lackeys for the ruling class. Fortunately technology had advanced to allow the "industrial revolution" which provided some employment (at low wages) to this extra labour.

The Need for Literacy

A key point about the application of technology to industry is that trained people are needed. There have to be managers and supervisors, accountants, engineers, surveyors, foremen and technicians. In addition there are salesmen, advertisers, printers, and commercial lawyers. All of these need to be fully literate and numerate, and in some cases to have tertiary education. Even at the labourer level there was increased need for literacy and numeracy.

Up till that time, education had been the monopoly of the "ruling class" who in fact were the Landed Establishment. Kings, Dukes and Lords and the like had founded universities such as Oxford, Cambridge and Heidelberg for the education of their heirs. The income for these universities was mostly from rents from endowed land.

Expansion of the Ruling Class

As various groups obtained literacy and higher education, they became "aware" of politics and government, and -such groups sought with eventual success to join the organisation which appointed government. In other words they wanted to join the ruling class, which they did by getting voting franchise (even if only for the Commons, and not the Lords in England).

This process of increasing literacy and education continued till now if has led, in many countries, to there being a full representation of the people in parliament. We have now a rough democracy (even the ladies and 18 year olds have a vote!).

The Use of the Power to Steal

It will be recalled that the accepted concept of the small ruling class was that it had the right -to steal from the community. When the newly educated groups slowly joined the ruling class, what was their concept?

Yes, they accepted that the ruling class still could rob the community, and hand out privilege, sinecures, tariff protection, etc. Of course they were "too late". The landed gentry had already taken the biggest privilege, onto which they held, -- namely the freehold titles to most of the land, hereditary at that. For hundreds of years the ruling class had been stealing the land from the people by confiscations, and land enclosures, and taking away commons, forests and parks. By 1880, 95% of the land of England was owned by less than 5% of families; and millions of people had been forcefully expelled from Scotland and Ireland. The situation in Europe and Russia was no doubt much the same. The situation was confused to some extent by the emergence of colonial empires.

Other Privileges

Apart from the small number of families which hold a huge amount of the land value in Australia, there are many other privileges at the cost of the community.

There are hundreds of pressure groups, hundreds of lobbies, all sorts of industrial and commercial and professional organisations, and all sorts of cultural, social and sporting bodies, -- all seeking advantages, concessions, grants, subsidies, bounties, licenses, registrations giving monopoly, demarcations and so on.

Every such favour whether a direct grant out of revenue at the cost of taxpayers, or some license which allows a higher price to be charged, -- every such favour is at the expense of the community. Everyone suffers from thousands of disadvantages from thousands of privileges. Government cannot give an advantage without causing disadvantage. Putting it more bluntly government cannot use its power to authorise some to rob, without causing others to be robbed. If government robs, then there are victims.

But robbery is uneconomic. It is a negative sum for us all.

Sensible Democracy

A sensible democracy will elect governments which discourage and prevent robbery; it certainly should not elect governments which practise robbery and authorise it.

Sadly democracy has not learned that.

Education for Democracy

Unfortunately our leading philosophers, our eminent economists, our distinguished academics, moralists and religious leaders and rationalists are completely failing to teach that stealing Is uneconomic and continues to be so even when governments make laws which authorise stealing by taxes and privilege.

Occasionally some groups complain that tariffs or subsidies for some other group are not acts of good government; but virtually no-one gets up and calls for all privileges to be removed, even though we are all suffering because of them.

Nearly every transaction in our "economy" consists of a mixture of proper exchange and stealing.

The natural gains of free exchange are severely reduced by taxes and privileges. When the negative sum effect exceeds the positive for some people, the transaction does not occur. Sales are reduced because the price is too high. Production is then reduced and unemployment and poverty result. The general standard of living is reduced for all.

Why?

Why are we all misinformed, brainwashed, and uneducated about the basics of good government?

It is a human dilemma.

Although humans have more power to foresee problems than all other animals (which rely on instinct) humans in voting governments into power nearly always vote for candidates who promise to issue and maintain privilege, which is a polite way of saying promising to steal.

Communism

It is not merely democracy which is failing to elect good government. Nearly all revolutions of a violent nature, have occurred because of "exploitation" of the many by the few. Yet seldom do the successful revolutionaries install a good government. Mobs are usually betrayed by their leaders. Communism fails because it entirely relies on police force to steal all production (satisfactions) from the producers and arbitrarily "redistribute" (which is what a burglar does). The sheer lack of incentive for producers to act efficiently in such conditions is obvious, and the risks of errors and corruptions in the "redistribution" are also clear. Although reports in our conservative press may be a little biased, it seems clear that both production and income per person is very low; in fact low incomes are guaranteed for all except perhaps the ruling bureaucracy. The regime is clearly based on robbing "from each according to his ability".

Enterprise System -- The Partial Failure

The enterprise system continues to give a better standard of living on the average for most of the community, but continues to cause poverty to the most "disadvantaged" groups. What disadvantages them?

Our system works to a considerable extent on an exchange system, but not completely so. It contains many laws which are robbery, by means of taxes and privilege.

At this stage the reader is no doubt considering how such laws affect him, either for or against. Unless he(she) is a landless, unemployed poverty-stricken person, he will find almost certainly he holds some sort of privilege either directly or through his employment, or through his sport or entertainment.

What most people fail to understand is the cost they are bearing for other peoples' (able bodied people) benefits. Nearly every transaction is a mixture of stealing and exchanging.

We are all suffering from fobbing each other!

Our moralists and economists foolishly still say our taxes should be according to our "ability to pay", just as for communism. It is the burglar's philosophy. Stealing by the community is uneconomic.

What is the Alternative?

Firstly, all acts of parliament which give special privilege to any group (of able-bodied people) at the expense of the community should be rescinded. This may need to be done gradually to allow people to adjust. For instance, tariffs could be lowered gradually, as could grants, subsidies and bounties. Subsidies and special tax -exemptions, for some industries could be gradually removed. All government rents should be raised to their reasonable market level, in stages.

Secondly

The tax system should gradually be altered to collect more and more revenue in relation to the value of sites and resources held by private people. This means all land, including vacant land, primary production land, all residential, commercial and industrial land. The change should be made slowly. But it is essential that the gradually increasing revenue from site value be used to reduce other taxes. It would be well to start off at the State level with State Land Tax, which should be at a uniform rate without any threshold; and to reduce State Payroll Tax, which is a shocking tax, extremely uneconomic. For example in NSW in 1988, employers were fined $1,600 million for employing people! How many more could they have employed if they had not been penalised so severely? The tax obviously reduces the return to the producers, it puts up the cost of labour and puts up the prices to consumers. This makes it harder to compete, and sales are lost, particularly in competition with overseas. No wonder there is less production and more unemployment and adverse trade balance. Other taxes such as Sales Tax, Stamp Duties, Finance Taxes have the same deterrent effect on the transactions which are the basis for economic activity.

On the other hand site value taxation does NOT increase the cost of goods and services. Economic text books, emphasize that. It acts as an incentive to prosperous activity. Site value taxation is not stealing. It is not a tax on production or exchange. It relates to the benefit provided by the community for the hereditary privilege of exclusive occupation.

Gradual

No sudden change is proposed, and no overall increase in revenue; just a steady change in type of taxation.

However there would be immediate beneficial effect. Investors would at once tend to invest less in holding titles to land, unless they intended to use it at close to its reasonably full capacity (whether in city or country). On the other hand the reduction in taxes (and expected further reductions) related to production and transactions, would make it more profitable to invest in capital improvements, buildings, machinery, etc.

Prices of produced goods and services would be reduced without losing profitability. Sales and production would increase. With lower prices, there would be less pressure for wage increases. There would be more employment opportunity and less need for doles and welfare, which would in turn allow a further reduction in the deterrent taxes.

And overseas investors would invest more in improvement capital and be less inclined to buy up our land.

Democratic "Rights"

Our "rights" are only what everyone else allows each of us to do. If we want rights we must recognise everyone else's equal right.

The primary right which needs to be recognised both by law and by custom is that our minds and bodies are our own personal private property. Further, that any satisfactions (goods and services) which we produce by the use of our minds, bodies and skills are our personal private property. They do not belong to the rest of the community. Only each individual has the right to use or to exchange the results of personal effort. On the other hand no one should have a legal right or privilege to steal from others. This also forbids stealing by the community and by the government.

Land Rights

If we are to recognise rights, we must recognise that everyone has equal rights to live on the earth.

In regard to land and resources, we therefore must recognise equal land rights. If that equal opportunity to live on the earth is not accepted, then clearly some have "legal" economic advantages over others, which we have agreed is stealing and is uneconomic.

As suggested earlier, any inequality in land tenure can be equalised almost completely by gradually increasing site value taxation, which also permits the reduction of the injustice and infringement of human rights involved in taxes which are imposed merely because "money can be seen to be available".

We need to recognise that land rights should be equal. They should not be based on hereditary privilege maintained by government, nor indeed be related to where your ancestors lived and how long they lived there.

Crime

There is little doubt that poverty and unemployment are likely to lead to crime, particularly when there is great affluence for some sections. The lack of opportunity to support oneself and dependents is obviously a frustrating condition, particularly so for young healthy people with reasonable schooling. Of the "7%" unemployed, perhaps 2% are no-hopers and dole-bludgers, but the remaining 5% could reasonably be expected to be willing to work If allowed. The loss of effort by that 5% must lower potential production, and the cost of doles and welfare is a serious burden on the community. We should not need increased penalties and gaols to reduce crime.

Unemployment is caused by monopoly privileges and bad taxation. It cannot be cured by fiddling with money systems, whether "tight" or "loose".

Summary

There is an urgent need for our leading eminent academics and politicians and clergy to teach that privilege and stealing and bad taxes are killing the enterprise system, which otherwise ' would be able to provide prosperity for all. Calling for increased "welfare" will only cause increased poverty as seen in Communist countries.