ON BASIC ECONOMICS
The purpose of this article is to show how current economic theory is contrary to the economics of the American Revolution as much as it is also contrary to the original intent of the Framers of the U.S. Constitution. While contemporary theory seems to work well enough it tends to big city feudalism contrary to what the Founders of our Federal Republic intended. Following the law would work better for all of the people with more enduring benefits of freedom and independence in the long run.
By D. Boyd, agent001
The three factors of production, Land, Labor and Capital have always existed in the form of matter, energy and intelligence. The product of their application creates Wealth.
What is Capital? The Encyclopedia Britannica said in concluding its article on "Capital" that no satisfactory theory of Capital in economic terms has ever been given. The reason is that in current economic theory and practice the word "Capital" is confused with and has become synonymous with Wealth and money; but Wealth is the product of Land, Labor and Capital and money is the measure of Wealth being sold from day to day. Therefore Capital which is only one factor in the production of Wealth can neither be Wealth nor money. In ordinary terms Webster’s or any other Dictionary will define “capital” as the “head”, or “top” of something; as in “Captains of Industry” (entrepreneurial ability). I offer this definition: “economic Capital is brain power”; some economist call this “human capital” Capital may be the most important factor because nothing would get started without it; but without individual ownership of Land enough to at least feed and cloth ourselves if need be we may become slaves to those who do own it; and without the force of Labor nothing would get done and no capital ideas will ever come to fruition. The advantage of Capital is that it can control the other two factors of production - either for good or for evil. A false definition of Capital will likely do more harm than good; calling money "capital" generally amounts to only throwing money at the problem or down a rat hole. When Economists say wars are started with overflowing “capital”, they mean overflowing wealth or idlesse. The expression, “if you’re so smart why aren’t you rich” is based on the misleading and fraudulent definition that Capital is Wealth and money. The true definition of Capital is the intelligence or brain power that is used to produce Wealth, or steal it. A Venture Capitalist is one who invests his or her own money in entrepreneurs who encourage economic growth. It might also be noted that there are confusing differences between the use of the term in accounting and economics.
In classical economics there are three Factors needed in the production of Wealth. These are Land, Labor and Capital. The Land factor includes all material resources in their natural state which may be converted into energy or formed into goods. The Labor factor involves the amount of work done in the production of goods - measured in foot-pounds per second whether by manual labor, horsepower or machine (labor saving devices). The Capital factor involves Brain Power whether human intelligence and/or the inspirations of Divine Providence. Capital is the capacity of our brain to think creatively and productively. Wealth is whatever a single individual or family or an entire Nation or World may create using their own Land, Labor and Capital. Conserving Wealth by thrift and savings increases our power to create more Wealth, as it can buy time; and time is money. Wealth is power (but so is knowledge). Power in physics is the rate at which work can be done, i.e., the ability to do work. By using our accumulated wealth to pay for the use of other peoples’ productive capacity we may combine and organize the productivity of all the factors of production. Hence it becomes possible to create wealth at a faster rate; but it also provides the opportunity to defraud others in the process, without due regard for Nature or Labor or Capital, i.e., the genius who conceives the ideas. So, the opportunity for wealth managers to defraud others in the process of economic production must be proscribed by law without abolishing the use of their accumulated assets to aid and improve economic production.
What is Capitalism? How does it work and why? Without the ism it works only in a free enterprise or a laissez-faire economic system, where the people are free to live their lives as they please within the laws of society and where the laws protect individual liberty against a tyrannical majority; it will not work where men are unduly inhibited or enslaved. Confusion rules unless the Capital factor in economics is properly defined. The ism reflects that deficiency. An “ism” is an idea that is exaggerated. When economists define Capital as money or machinery or any other form of Wealth the issue gets complicated and confused; the Capital factor in the production process is confused with the end product which is Wealth. The weak and the meek may lose the true reward of their labors unless there are just laws to protect them; this has been the case in American democracy due to our Republican form of government. Republican government requires that citizens be well informed; it requires an educational system wherein wisdom is not lost in the process as will happen when greater stress is laid on getting “a living” i.e., money than getting wisdom and understanding. A true Capital based economy exalts the power of wisdom and knowledge. Capitalism exalts the power of money and wealth. That is the problem; and that is wherein the confusion of the Capital factor lies. In order to preserve the free flow of Capital ideas and a ready, willing and able Labor force, the law must proscribe the fraudulent use of money without discouraging those who have it from investing it in productive ways. When I see buildings demolished without regard for the waste of salvageable materials I am sure it must be due to fraudulent use of money – where the value of investors time and money is held above the value of Mother Earth and her scare resources. That is not economical.
The reward of Land ownership is Rent (economic rent); for Labor the reward is Wages; and for Capital the reward is Interest in the idea and its exe cution without regard for monetary gain - sale of the end product is like icing on the cake but not to be denied by any means. The entrepreneur takes pleasure in creative thought and action; so does the employee - when they are using their intelligence they take interest and have pleasure in the production process. People with political power may exploit this and use it to defraud these producers. Each of these terms must also be well defined. Note that economic rent is for land only – renting or selling buildings or other products turns wealth into money - since buildings and other products are Wealth. Here is another point of confusion - the difference between the economic effect of land rent and building rent. Where there is confusion there is always opportunity for fraud. That is the problem in any economic system whatsoever whether Capitalism, Socialism, or Communism. Capitalism degenerates to Socialism (or Feudalism - due to such confusion, Municipal government has been and is still almost entirely feudalistic due to fees and taxes on labor and capital enterprises; the “fee” was a sum the surf paid an overlord to become a vassal. Mayor and Council are like feudal overlords and their vassals employees are like surfs. Some call it wage slavery).
In Socialism the State owns at least two of the factors of production. In Communism the State wholly owns all factors.
Free enterprise demands that all factors of production be owned or held by private citizens. A Laissez-faire social or political system assures a free enterprise economy by allowing a fair and equitable and economically and politically feasible portion of the rent for land be used by the State for public works and services rather than a tax on labor and capital. Taxes on labor and capital are a disincentive or “taxing” to productivity. This tax on economic rent is an incentive; it stimulates productivity. This is also called Site Value or Location Value Tax; since the economic value of land may be determined more by its location value than by its agricultural value.
Government has not lived up to the true meaning of our Constitution in matters of Economics due to confusion of these Factors and terms. Instead the government has taxed all three factors which amounts to Socialism or Communism. This is contrary to the intent of our Constitution; the only legitimate sources of revenue for Government is from a land tax for the States (see) and a Federal consumption tax (see). Thereby government keeps "hands off" private property. Such a policy would guarantee the lawful management of labor and capital to private citizens while regulation of commerce is delegated to Congress.
Laissez-faire was the economic philosophy of the American Revolution. Thomas Jefferson and Benjamin Franklin learned of it first hand while Ambassadors to France. Jefferson brought Du Pont to America to promote it. Hamilton resisted it; apparently he came to accept it but also advocated a national sales tax. Adam Smith the British philosopher gave the term a different meaning in his Wealth of Nations published in 1776, that same year - was that by acci dent or by design? The confusion of this term has never been clarified. The French economist meant "hands off" or let it be in that government should keep hands off private property in taxation; let the reward of labor and capital be free from taxation;the only legitimate source of revenue is derived from the productive use of land, i.e., economic rent. Adam Smith used the term to signify an "invisible hand" that guides economic activity which makes government regulation unnecessary and counterproductive; so, Adam Smith, while ingeniously promoting industrial development missed or deliberately obscured the point of the French economist as Jefferson saw it. This may have been why Hamilton and Jefferson were at odds – Jefferson said Hamilton was too British in his thought processes; yet Hamilton recommended LVT to the States in FP# 36 which would indicate that he accepted that principal.
SVT (Site Value Taxation) would bring the true meaning of laissez-faire to our economy. It would have to be implemented slowly, gradually and with as much care and skill as the several States can muster in monetary and fiscal policy. With the current move in Congress and advocated by Mike Huckabee to switch from the Income Tax to a National Sales tax it is an opportune time for State and Local government to consider using the land value tax. Some American cities already use this system to some degree – lowering the property tax overall by incremental changes. The tax on building is reduced while the tax on vacant lots is slightly increased. This stimulates improvement of both land and buildings as well as easing the tax burden on the majority of citizens. Conservation of natural resources and places of rare natural beauty or historical value will continue as determined by law. Thereby State and Local governments’ sales tax also could be gradually lowered and finally eliminated. Such a sales tax has always been taxation without representation on visitors from outside jurisdictions; it is a violation of the original ideals of American Democracy that "taxation without representation is tyranny" - this can be remedied by SVT. Economists estimate that a 4% SVT (including building growth which is 15% of annual GDP alone) would cover all costs of operating State and Local Governments.
ARCHITECTURE AND ECONOMY
In the economic order of a civilized and cultured society the most luxurious crops to grow are buildings and public works. This is certainly one of the highest and best uses of the land; of course it cannot possibly be the only good use of land and building should be on land least valuable for other uses; steep and rocky places would make the best sites for buildings - creative and imaginative architects recommend it. See FLW, Malcolm Wells, and the sublimely efficient structures of Buckminster Fuller. Note: 1/2
RELIGION AND ECONOMICS
Divine Providence gave the Earth to mankind conditionally, within certain guidelines - it and everything in the Universe belongs to its creator, believed by Christians, Moslems and Jews to be YHWH whom Americans believe has endowed Mankind with such Rights as to the enjoyment of Life and Liberty, and Land, and to work, and to think and to be left alone and unmolested with our own private property and personal pursuits. American Government was established to guarantee that we are to choose to do right as it is given us by Divine Providence to know the right or only to do as we please within the laws of Society – in The United States of America and most other Nations in the World it is universally accepted that Nature and the Laws of Divine Providence provide the best guidelines for the laws of Society; but how well does society follow these laws? Note that in Scripture borrowing is prohibited, i.e., "Thou shalt lend to many nations but thou shalt not borrow"; and lending money only to make money is prohibited except to a foreign Nation – “Thou shalt not put out your money to usury”. Selling land is proscribed, “The land shall not be sold forever, for the land is mine”. SVT is based on the tithe of 10% of the produce of land (now including building growth).
Aristocracy means the rule of the best. Jefferson thought the true Aristocrat would be Citizens who were intelligent, well educated and informed. In the beginning of this Democratic Nation the Laws of Nature and Its Creator were thought by the majority of the People to be best. We had a firm reliance on Divine Providence. Now, it has become Wealth and Money as a matter of fact – most people seem to believe the Rich are our best rulers and may refer to them as the Aristocrats. Here is another confusion of terms. The rule of Wealth or Money is defined as a Plutocracy - when these are a select few we have an Oligarchy. Nevertheless, as a matter of Law as expressed in the Preamble to The United States Constitution of 1787, We the People are sovereign, ruling by the principles of a Federal Republic (a Sacred Union of the Several States) by majority vote of the Electors delegated by each and every State. If the law is followed the will of the people will not allow his majesty the citizen to be treated with contempt by anyone especially those we elect to serve or represent us, regardless of their sincere but often too eager desire to keep us gainfully employed and paying taxes. This is a hangover from Old World Feudalism that has often led them to ignore the law as in the case of building cities compatible with our system of government as envisioned by the Founders.
The confusion of an Aristocracy of Intelligence with the Aristocracy of Wealth may be entirely due to confusing of economic Capital with Money as explained above. A wealthy person no doubt has intelligence in his own field of endeavor but that intelligence does not extend to every field of endeavor. Bankers or Politicians (sometimes called good naturedly, the “Big Money Boys”) using other peoples' money or their own are usually not too intelligent in the fields of Architecture and City Planning or any other Profession if they are not personally well informed and well educated in the subject. The body of the U.S. Congress is about 80% Lawyers and Bankers. That is the problem of wealth verses intelligence we have to deal with, now. However, Hamilton justifies the virtue of such selfishness in The Federalist #12, ”The prosperity of commerce is now perceived and acknowledged by all enlightened statesmen to be the most useful as well as the most productive source of national wealth, and has accordingly become a primary object of their political cares. By multiplying the means of gratification, by promoting the introduction and circulation of the precious metals, those darling objects of human avarice and enterprise, it serves to vivify and invigorate the channels of industry, and to make them flow with greater activity and copiousness.” . Also see, Wealth & Power
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