Towards an Economics of Common Sense

The metaphysical and epistemological basis of economics

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By Chris Cook

The first examination I ever failed was an Economics paper I took as part of an accountancy qualification. I could not understand the subject at all, as it seemed to bear no relationship to Reality as I experienced it. But since I needed a Pass, I learnt it all parrot-fashion, regurgitated it, duly passed, and mentally filed the subject in the bin.

However, in recent years, my work in that space where markets and the internet converge has led me to take a good look at the financial system, and to the subject of the Economics which provides a conceptual framework – and justification – for it.

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I have come to realise that the problem lies in the metaphysical and epistemological basis of Economics – in other words, its relationship with the Reality which we experience. The assumptions, and definitions used are not only couched in language which might almost be designed to confuse, but are also crafted to suit the purposes of those who actually fund the academic development of the subject.

Factors of Production
Neo-Classical Economists in particular define Labour and Capital as the only Factors of Production, and take the anthropocentric view that the Sun of Capital orbits the Earth of Labour. From this we get the rhetoric of productivity and the assumption that when a factory is automated the sole remaining individual whose job it is to turn the factory on and off has magically become infinitely productive.

This is complete self serving bollocks, of course, the sole purpose of which is to justify taxation of Labour rather than Capital. Alternative Economics, such as the Binary Economics advocated by Kelso, Kurland and Shakespeare assume that both Capital and Labour are productive, but they have been largely ignored and otherwise ridiculed by mainstream academics and their cheer-leaders in the Fourth Estate.

However, if we go back into Economic History, we will see that there were previously three Factors of Production posited: Land, Labour and Capital. The reason for the conflation of Land and Capital – which Mason Gaffney describes as the Corruption of Economics – was the imperative need of the rich and privileged to discredit the ideas of the great US political economist Henry George.

Gaffney makes a very convincing case for Neo-Classical Economics as a Strategem against Henry George and the strategem was indeed successful in airbrushing both George -and his concept of a Single Tax on the use value of Land/Location – from Economic History.

The result of the development of Economics in the last 100 years or so has been to develop a bastard strain of Economics one of the principal purposes of which has been to justify the taxation of earned income – Labour, rather than the unearned income arising out of economic rents derived purely from the unearned privilege of private property in Commons such as Land.

The other principal purpose of Economics has been to rationalise the current system of Finance Capital, consisting of the Twin Peaks of Debt and Equity. Firstly, a monetary system based upon the creation of credit by credit institutions aka banks which has virtually no basis on the productive economy, and secondly, a system of absolute property rights – in particular the form of financial capital consisting of shares in a Joint Stock Limited Liability Corporation.

As Professor Michael Hudson has brilliantly demonstrated, the combination of compound interest on debt, and private property in land, has for thousands of years concentrated wealth in the hands of the few to the exclusion of the many. We are in the process of learning once again that this combination is simply unsustainable, and the brilliance of Alan Greenspan’s recent tenure at the US Federal Reserve Bank has been to bring forward this collapse by perhaps ten years.

Cleansing the Augean Stables
The cleansing of our Economic Augean Stables might begin with a new set of Factors of Production.

Location – three dimensional spatial location.

Energy – in the form of electricity, the energy value of fuels, and from other sources.

Knowledge – the accumulated knowledge, experience and talent of a human during his lifetime, or the imperishable and timeless patterns of recorded knowledge and cultural artifacts he leaves behind.

Each of these Factors of Production has a value in use, and each of them is independent of the other two, although all three must necessarily be deployed together when humans act individually, or collectively via a protocol as an enterprise.

Many would agree that each of these Factors (with the exception of an individual’s lifetime knowledge) is in fact a Commons – owned by and available to all – and I agree with Henry George that those who have exclusive rights of use of a Commons should compensate those they exclude.

The current economic crisis results from the fact that wealth has once again become concentrated in the hands of the privileged. We are now seeing massive government intervention, and on the face of it, there is now no shortage of credit available in our existing system. The insuperable problem – which may shortly be recognised as the next wave of defaults commences – is that there are no longer enough credit-worthy projects and individuals to whom to lend.

It will shortly become clear that the necessity is for some kind of systemic fiscal reform. I argue that this is impossible within a paradigm of money created as interest-bearing debt, and the current distribution of Wealth.

The Systemic Fiscal Reform I advocate is neither a revolutionary appropriation by the State nor a redistribution of income. Instead I advocate a transition from the taxation of earned income (since there is no longer enough earned income left to tax) to the taxation of the privilege of exclusive use of Factors of Production.

(a) Location – a Land Value Tax, levied on the use value of location

(b) Energy – Taxation of the use of the Resource Commons, particularly a Carbon Tax; and

(c) Knowledge – a Limited Liability Tax levied on the gross revenues of the Corporation used to “enclose” Knowledge, through employment contracts and Intellectual Property.

There is no way that such systemic fiscal reform would ever be implemented by the institutions which currently exist. Turkeys do not vote for Christmas, and the privileged in control of the Institutions will not give up their privileges.

So what happens now? Will it be default, money destruction and Depression; or money creation, quantitative easing of the Rich, and Inflation?

I argue that it will not be either. The emergence of the direct Peer to Peer connections of the Internet are now enabling the veto of the Institutions to be by-passed through a process I refer to as Napsterisation – after the disruptive software which has changed the music industry for ever. To paraphrase John Gilmore once again…“The Internet interprets privilege as damage and routes around it.”

The architecture of a rational and consensual 21st Century Peer to Peer financial architecture -and a new Economics of Common Sense – may perhaps be based upon a new set of assumptions and definitions, and a new generation of partnership-based protocols linking together a networked society.

2016 April 20

Originally published here.

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  • Ben Jamin’

    This has all been known about and discussed since year dot. Man has always sought to enslave his fellow man. Economically or physically.

    It has always been known that to own land means the economic enslavement of your subjects/surfs/tenants. It’s why we fight wars.

    The emancipation of slaves was seen as another step in the direction towards the goal of economic liberty where we are all equal share landlords of this Earth. Unfortunately, the wealthy elite, aided and abetted by economists blinded by ideological hatred of “the State” put a kibosh on that, with the rise of Socialism being the perfect smokescreen.

    Here we are over a hundred years later, and people more morally ignorant of these issues than ever. Indeed, the evolution a democratization of feudalism, by which “homeownership” has been encouraged by those on the right as a shield, has made the slaves the defenders of slavery. Nothing changes.

    Even the most learned of economists fail to ask basic ethical questions. It’s as though the subject was designed to knock all common sense, and decency out of its students.

    Change will not come from any of the main political parties, or the economics profession.

    Geo-libertarians should unite, and concentrate their limited firepower. As it is, they are either failing to persuade mainstream parties to look at LVT, or “lone wolf” figures rising above it all, or going for personal glory, just like Henry George did, which proved a catastrophic mistake.

    Suggest you join the YPPUK, or at the very least download our tax comparison app at Google Play 🙂

  • I think that blaming the rich for everything which has gone wrong with our economy in the USA is basically wrong. The rich keep their money in banks, who pay them interest on the use of the money in their accounts. The banks pay tellers and other financial employees to manage the funds. The rich prefer to grow their money slowly. The rich also invest in economic structures such as municipal funds, stocks and bonds, which shore up the economy and in turn pay others to manage the funds. On the base of it, wealth is acquired by spending some of it on the welfare of others in return for a small percentage of the economic engine. i don’t see anything wrong with that.

    Whether the money was inherited from someone who may have worked hard to earn it in the first place, or was earned passively through interest or through investments, the rich are considered to be “enslaving” those who don’t earn nearly as much. This is not true. The rich also endow millions of dollars every year to charities, proactive organizations, the arts and other socialist (I don’t mean communist) enterprises. Without the rich there would be no innovation or social improvements on the scale we have come to expect. We see the rich, in the form of Elon Musk, Bill Gates, and others, spending their money on ventures which would have normally been funded by the government in days past. In the absence of a competent government, these entrepreneurs have stepped up. We should be grateful for that.

    No there is nothing wrong with being rich. It is what we all strive to become. We seek wealth so that we can retire in comfort. If we earn a little too much in the process it is not anyone’s fault.

    • Chris Cook

      I have no difficulty with the rich becoming wealthy through ingenuity, sweat, intuition and other valuable attributes.

      I see that as earned income.

      Neither do I have difficulty with the rich making a return on investment in productive assets where risks and rewards are equitably shared between the investor and the user of investment.

      I applaud generosity and wish there were more of it, but frankly it would be better that it were not necessary in the first place.

      But I do have a problem with money purely for the use of (intrinsically worthless) bank-created money; with untaxed, unearned income from privileged property rights over enclosed Commons, such as freehold land ownership; and from the free limited liability protection enjoyed by investors who are allowed to privatise gains, and to socialise losses (cf the banking system in particular).

      When £2bn of public investment funded the Jubilee Line extension in London, property values near the new stations rose by £17bn. Do you consider that for such private windfall gains to be shared with the society which funded the public investment which gave rise to the gains is unfair?

      This fiscal policy of taxation of the unearned income from privileged property rights is a classic Liberal approach dating back through Winston Churchill, John Stuart Mill and Adam Smith to Tom Paine.

      Not exactly Pinkos or Socialists.

  • I like where you are heading I think you fall short of the mark of change. I think a redefinition is required. Technologies have made it possible to increase the speed of events. The compounding effects of money and bonds are a real problems not being addressed. Both money and debt are flow ideas made into capital instead, Rich or Poor really doesn’t matter at this point. Time to redefine the systems and processes of the flow channels. JDS

    • Chris Cook

      I don’t really get into Money and Credit in this post, which was seven years ago, and essentially represented my thinking from first principles. But I have done a lot of work since to build on these foundations.

      You might be interested in this Summer School talk I gave in Volos, Greece.

  • Ralph Musgrave

    The fact is that wealthy families just don’t hold onto their wealth all that long: hence the expression “clogs to clogs in three generations”. If you did some research you might be able to prove it’s five rather than three generations, but that doesn’t greatly dent my point.

    • Chris Cook

      Wealthy families tend to put assets beyond the reach of profligate or incompetent descendants. I think that the skewed distribution of land dents your point considerably.

  • jothwu

    How does a “consensual 21st Century Peer to Peer financial architecture -and a new Economics of Common Sense” guard against great personal wealth that buys political influence and circumvents democracy?

  • Rob Lewis

    It appears you’re advocating “highest & best use” taxation of land which, at least as things are currently arranged, incentivizes the building of suburban sprawl on some of our best farmland. And wouldn’t it effectively prevent individuals from keeping their land in a pristine, undeveloped state?