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Economics in One Lesson

by Bob Keall

Page 1 of 2

There is nothing mysterious about The Economy. It is wholly artificial as it is Man's creation. Therefore it can be completely understood. To say otherwise is to mislead. To call the causes of poverty and the regular boom-bust cycle natural, as though they can be neither remedied nor prevented, is mischievous and pure misdirection.

All progress and increased productivity is created only by labour. It is nevertheless captured, often anticipated, in the price of land, natural resources and natural monopolies; i.e. through private ownership of The Economy.

Progress includes technological invention and education, free trade and competition, tax cuts, which increase disposable income, location, climate, pressure of population and any other trade advantage.

The effects of this are:

  • a minimum is left for wages, which generally will never be enough to meet all personal responsibilities. In fact the speculative tendency means labour has to borrow to survive and will never properly share in the growth in the economy.
  • A tax on wages reduces wages still further and can never be enough [for government] to compensate for the low wages nor meet social responsibilities.
  • to create a basic disparity between rich and poor: those who own The Economy and those who create it.

Private ownership of natural resources becomes a misdirected (wrongful) form of investment and is an underlying cause of the cycle of boom and bust. This malpractice:

  • generates a largely tax-free capital gain, so increasing wealth disparity
  • generates inflation, further increasing the disparity between rich and poor, in terms of asset values. Natural monopoly rights have no labour content. They are not commodities like goods and services and should not be part of the exchange process. Including them distorts the currency. The CPI analyses the relative rise in wages and prices, as though they were in conflict. In fact wages are prices and prices are wages. The misleading comparison ignores the currency inflation caused by the non-tradeable (unearned) rogue factor.
  • deprives production of the capital it needs and confuses the role of the stock exchange.
  • encourages trading and speculation in the ownership rights rather than in their optimum use. This is the cause of unemployment. Every person engaged in using natural resources (primary industry) generates 4 more jobs downstream. Another 25,000 employed in farming (say organic), fishing, forestry, mining, building, transport and infrastructure would generate jobs for another 100,000.

This misdirected (wrongful) form of investment is assisted by cheap money, i.e. low interest rates and [excessive] Reserve bank credit.

Capital should be savings made from wages so that interest rates and wages run in tandem. Interest on capital derived from land investment is really rent. This distorts the share market and confuses the problem, [too]. Labour should be the generator and owner of capital.

Natural monopolies are rights to land, water, airwaves, minerals, fisheries, hydro power generation and supply, any public utility such as a port, airport, or the monopolistic rights to reticulate wires, pipes, rails, roads, and the like; even the right to pollute.

In the book The Corruption of Economics by Dr Mason Gaffney (Prof. Of Economics, University of California,) and Fred Harrison, Gaffney examines the intentional confusion of land as capital over the last 100 years or so and its effects. (Also published as a self-contained paper [pdf]).
Consequently some interest is really rent. Under a system of Resource Rentals, and in Accountancy, land would not be a capital asset.

When we allow private property in what is really public property (resource rent) we then have to condone making public property (taxes) out of private property (wages and interest). Law and morality should reinforce each other. Giving the force of law to that which would be wrong between individuals (theft and misappropriation) brings the law into disrepute and contempt. This conflict and the man-made authority of law over morality corrodes the rest of the social fabric.

Taking Resource Rentals for revenue in lieu of taxes on wages and savings, does the opposite of, and reverses all these things. i.e. it taxes resources into use instead of pricing them out of reach. This generates employment, raises wages and generates true capital for productive purposes. Collecting the revenue is certain and simple. It is the only way to ensure the advantages of

  • true equality of opportunity, a truly level playing field
  • the free market, free trade and private enterprise
  • cooperation between labour and management
  • private property and limited government
is the only way to share growth in the economy by way of UBI (Universal Basic Income) or national dividend.

Implementation may be achieved by:
  • Letting or leasing the private operation of any natural monopoly or community owned infrastructural utility built up over time from taxes, such as rail, and on a competitive basis for such as Telecom. The state must own the local loop and the airwaves.
  • Granting an annually reviewable licence, allowing the private investment of capital to run defined operations such as fishing, and to finance state channels for radio and TV.
  • Direct investment of state capital in such things as hydro dams in order to recover the rent from the resource.
  • Establishing elected Regional Power Boards (as part of Regional Infrastructural reform). We don't need four tiers in the supply chain when two would do. We need maintenance and lower prices, not legal expenses and dividends. Regional Authorities should reticulate roads, rails, pipes, wires, ports, airports, airwaves and charge operators a market rental.
  • Extending the Crown and Public Body Leases Act as already applies to land. Using the existing Regional Govt Rating facility to levy a national land value charge in lieu of GST (Refer to: Rates Relief)
  • Using a variety of techniques to ensure private security in the operation, and the community's interest in the ownership of the asset or natural resource. e.g. any lease or licence may include covenants requiring compliance with environmental constraints, and also protecting the lessee from maverick bureaucrats. i.e. the rights and responsibilities of both parties. A Resource Rent for a Resource Consent.
  • Using the proceeds first to abolish GST, then to accommodate those unfairly caught in the transition.
  • Allowing any Resource Rental to be a set-off against other taxes, i.e. an imputation tax credit. This avoids the claim for compensation and resolves a misapprehension of property rights.

    The true basis of private property is labour. In this the worst offender is Income Tax. Setting off net investment costs against other income, subsidises the socially destructive process that farms inflationary, tax-free capital gains, at the expense of the wage and salary taxpayer. Set-off can just as well be used to recover public property in natural monopoly rights to benefit the same taxpayer, a mere reversal of the capital gains dispensation.

    In any event it is not possible to buy a valid title to stolen property or to buy out others natural rights.

Whilst the change for a few would be a disadvantage, for many it would be neutral, and for the majority it would be an advantage.

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