Half the Efficiencies of Technologies are lost

Just as customs of ancient cultures are huge obstacles for their societies to evolve efficiently, residues of exclusive feudal property rights in monopoly cultures severely restrict the potential efficiency of capitalism.

Those inefficiencies are not perceived because modern technologies are so efficient that the huge gains are visible and admired while the doubling of production possible under inclusive property rights remains unknown.

This work is an attempt to bring those potential gains out into the open for all to see and those laws and economies to be restructured to gain the benefits of inclusive property rights full and equal rights as it relates to nature’s resources and technologies.

These inequalities are not visible to Americans and Europeans because of the large percentage with a high standard of living and thus appearing to have full rights. But, unrealized by the citizenry and most in academia, that high standard of living is only through massive thefts of wealth from the periphery of empire.

The powerful today are fighting to retain and expand their monopoly property rights, exclusive title to nature’s resources and technologies, denying others their fair share, just as feudal powers fought for centuries through their exclusive titles to land which is, of course, the same wealth of nature that is being fought over today.

Eliminating offices and staff (superstructures) operating those monopolies and the wars generated protecting them eliminates half the economic activity of a monopoly system even as poverty disappears.

Those exclusive titles to nature’s wealth, primary monopolies, and those secondary monopolies structured under unequal property rights laws, typically by license, are consuming roughly 60% of the financial capital flowing through America’s current banking system.

Those wasteful flows of money can only be shut off by eliminating both feudal and modern monopolization firmly entrenched within property rights law as applied to nature’s resources and technologies which denies others their fair share.

Labor Should Employ Capital

That capital is properly owned and employed by labor is recognized by Adam Smith. His bible of capitalism, Wealth of Nations, states:

Produce is the natural wages of labor. Originally the whole belonged to the labourer. If this had continued all things would have become cheaper, though in appearance many things might have become dearer.[1]

The “appearance of becoming dearer” is because each worker would have been fully paid. Things would have been cheaper because purchasing power of those fully-paid workers would have advanced in step with productive capacity and those who once made their living through claiming a share of others’ labor would have to join the ranks of productive labor.

Those well-paid workers would have purchased more from other fully-paid workers and with that increased buying power others would produce more to take advantage of that market.

In short, purchasing power, which is so hard to generate under monopoly rules, would have developed in step with the producing power of easily-built industrial technology. If monopolization had been avoided, labor would have been fully paid and the world would have developed rapidly without either destructive wars or poverty.[2]

If labor owned the capital it produced, then labor would employ, rather than be employed by, capital. When monopolized by exclusive title, capital’s use can be denied to labor at any time, and it will be denied if no profit is made.

The natural order of labor employing tools (capital) is reversed. If land and capital (both industrial and financial) were not monopolized, land, labor, and capital could freely combine to produce social wealth, workers would receive their full wages from what they produced, and the owners of industry would receive full value for use of their capital.

Elimination of the monopolization of technology under current stock market and patent structures would increase social efficiency equal to the invention of money.

Excessive Rights of Capital

As all people are stakeholders in their nation’s, and the world’s, economy, no economic sector should have excessive rights (monopolization, structured within property rights law).

Just as with land, we are accustomed to wealthy people claiming ownership of the nation’s industrial capital. We are taught this is the proper and most efficient social arrangement. Therefore we do not recognize the obvious, capital is social wealth. It is composed of all tools of production which was produced by labor.

Thus capital is but stored labor. Those technologies, industrial capital, are only a part of nature that has been discovered and all should be entitled to the opportunity of employing that capital, or being employed by it, and receiving a fair share of what is produced.[3]

Capital, however, is often more productive under private ownership and, when this is so, private ownership is justified. In such cases, entrepreneurs, whose special talents lead to increased production, properly buy this capital, at a fair price, from those who produced it.

A substantial share of society’s capital has been justly claimed in this manner. Capital that is obtained by means other than trading useful labor (physical, intellectual, innovative, or special talent) is an unjust interception of wealth produced by others.

Capital which is more efficient under social ownership belongs to all society, with all citizens receiving the profits. For example, no profits are directly distributed from the increased wealth produced by highways, airports, harbors, or post offices. But the wealth society is able to produce and distribute through the common use of these natural monopolies is many times more than a normal return on construction and maintenance costs.

Just as each ones’ share of the use value of land in a modern commons is realized by all through society collecting resource rents, the efficiency gains of technology are, under the inclusive property rights laws we address, distributed to all silently and efficiently through cheaper production-distribution costs and no unearned wealth will have been claimed by monopolization.

Much of what is properly social capital,[4] “honest” private capital, and “fictitious” capital are all currently lumped together and collectively treated as private capital.

Ownership of capital is considered proof it was justly earned and that the owner deserves compensation for its use. Below we distinguish between social, private, and fictitious capital.

Once identified, the proper owners can claim their capital and the profits it produces. Fictitious capital, like that in banking and land monopolization described above and others described below, can be eliminated altogether.

Efficient Socially-Owned Capital

The difference between what is properly social capital and private capital is that everybody uses social capital. It forms a natural monopoly, while proper private capital is used only to produce products or services for specific needs of specific people.

Capital required for society’s basic infrastructure, which is by its nature a monopoly and used by all citizens, cannot justly be bought and sold as private property. It is properly part of a modern commons through a modern legal-social structure.

This includes not only highways, airports, harbors, and post offices, but also railroads, electric power systems, community water systems, banking and a communications superhighway. Most recognize these natural monopoly infrastructures should be socially owned.

Although such facilities and services are publicly held in most Western nations, U.S. citizens are unaccustomed to railroads, electric power systems, banking, and communications being socially owned.

These are natural monopolies and all claims of efficiency under private ownership are rhetorical covers to hide the siphoning of the fruits of others’ labor to those who hold title to those economic crossroads.[5]

Almost 24% of America is served by consumer-owned electric utilities, 13.4% are publicly owned and 10.2% are rural cooperatives. Privately-owned companies charge 42.5% more for electricity than those publicly owned.

Since they serve population centers with the highest density of customers per mile, privately-owned electricity costs should be far lower. The difference in electricity costs between privately-owned and publicly-owned electric companies is even greater than these statistics show. Not only do they sell cheap electricity to private companies, the publicly-owned utilities provide enough profits for some of those communities to build swimming pools, stadiums, and parks.[6]

Building Privately-Owned Industry at Public Expense

Matthew Josephson’s classic Robber Barons, Peter Lyon’s even more profound To Hell in a Day Coach, and Edward Winslow Martin’s History of the Grange Movement cover how the American railroads were built at public expense.

As much as half the funds collected for building them were pocketed and over 9% of the land in the United States was deeded to these railroads.

The pocketing of those funds, claiming title to these natural monopolies, and being deeded that land were little more than thefts of public wealth. Martin describes the building of the Union Pacific Railroad as perhaps the most flagrant example but the pattern was typical:

Who then was Crédit Mobilier? It was but another name for the Pacific Railroad ring. The members were in Congress; they were trustees for the bondholders; they were directors, they were stockholders, they were contractors; in Washington they voted subsidies, in New York they received them, upon the plains they expended them, and in the Crédit Mobilier they divided them. Ever-shifting characters, they were ubiquitous—now engineering a bill, and now a bridge—they received money into one hand as a corporation, and paid into the other as a contractor. As stockholders they owned the road, as mortgagees they had a lien upon it, as directors they contracted for its construction, and as members of Crédit Mobilier they built it…. Reduced to plain English, the story of the Crédit Mobilier is simply this: The men entrusted with the management of the Pacific road made a bargain with themselves to build the road for a sum equal to about twice its actual cost, and pocketed the profits, which have been estimated at about thirty millions of dollars—this immense sum coming out of the taxpayers of the United States.[7]

“By 1870 the states alone had given $228,500,000 in cash, while another $300,000,000 had been paid over by counties and municipalities.” Of course those millions of 19th century dollars would be hundreds of billions in inflated 21st century dollars.

In the process of building those railroads, promoters skimmed off possibly one-half of this public investment and stockholders’ capital, while simultaneously claiming 9.3% of the nation’s land through land grants.[8]

With enforced privatizations through imposition of Reaganism- Thatcherism (the first heavy promoters of this philosophy) on the successfully destabilized former Soviet Union, social wealth was being placed under exclusive private ownership in the 1990s at a rate that makes America’s robber barons of the late 19th and early 20th centuries look like country bumpkins.

Those defeated nations were paid pennies on the dollar to give up title to their natural wealth, their banks, and their industrial capital. The citizenry, of course, had little to say. In many cases, if not most, one member of these less-than-honest groups, to put it mildly, would be signing as government agent and another was the buyer.

Obviously there is no savings to society from the private ownership of a natural monopoly such as railroads, electricity, post offices, power systems, sewers, water systems, communication systems, etc. And, as shown in the communications chapter, the true cost of a communications superhighway when properly structured under a public authority and used in common, would be only pennies per dollar of current costs.

Society is a Machine

The basic infrastructures addressed above are integral to a nation. Society is a machine; even though these basic facilities do not directly produce anything, a modern society cannot function without them. They are an integral part of production and are just as important to social efficiency as modern factories.

To demonstrate this, compare the labor costs of a society with an undeveloped infrastructure to those of a developed society. Vacation to any wilderness park, hike for a day, and calculate how efficient virtually any economic activity, such as sending and receiving mail, would be from there.

In the 18th century, a letter traveling by U.S. mail from New York to Virginia, 400 miles, took four to eight weeks and cost 60 cents a page.[9] Today it is 42 cents, possibly equal to less then a penny 200 years ago, for several pages anywhere in the nation and that letter normally arrives within one to three days.

When China built a road into the almost inaccessible Tibet, the price of a box of matches dropped from one sheep to two pounds of wool.[10]

Efficient Privately-Owned Capital

Commercial activities producing for variable individual needs rather than everybody’s needs are properly privately owned. Thousands of personal preferences—clothes, furniture, jewelry, hobbies, recreational activities, etc—cannot be provided efficiently by a public authority.

Such personal needs can only be assessed by perceptive and talented individuals close enough to recognize and fulfill those needs. The capital to provide such services is more productive under private ownership.

Most of the construction and production for basic social infrastructure operated under public authority is quite properly provided by tens of thousands of privately-owned industries.

This free-enterprise, privately-owned capital can, under contract, accommodate the needs of public institutions. We see this every day in contracts to build that infrastructure.

Fictitious Capital

Few economists agree on exactly what constitutes capital. Most include all wealth that produces a profit, titles, stocks, bonds, etc. But, although the wealth this paper represents has a firm claim on part of society’s income, much of it was skimmed off and resurfaced in another investment.

The earnings of the skimmed off share of those first certificates of investment is properly defined as earnings of fictitious capital. Bonds used to construct harbors, deepen riverbeds, and build railroads represent true capital. But if 50% were pocketed and reinvested elsewhere, that leaves two dollars in claims against each dollar of value of the original infrastructure contract.

In the previous example of building the Union Pacific Railroad, half the money was used to build; the other half was pocketed and reinvested elsewhere. That share of those certificates having a claim on social production and yet had produced nothing was fraudulent.

This fictitious capital may represent wealth to the owners, but it is not, on balance, increased wealth to society. Those debt instruments that build only half the industrial capital as promised, and the half invested elsewhere, are 50% fictitious capital.

There are three physical foundations to production, land, labor, and capital. Land commands rent, labor is paid wages, and honest interest can only be for the productive use of honestly earned capital.

Patent monopolies capitalize stock values far above tangible values and those fictitious values demand profit equality with real values. Through excess profits on unearned wealth, the production of others’ labor is siphoned from those who produce to those who do not.

The share of capital demanding payment and yet produced nothing is properly labeled “fictitious capital.”

We have covered the wealth appropriated through unearned profits of banking and exclusive title to land and patents. The property rights structure under which that wealth was appropriated was, and is, unequal. The same is true of the unearned wealth of monopolies we have yet to address.

Restructure to a modern commons throughout the economy and those huge blocs of capital currently and selling those capitalized appropriated values (those misnamed profits of the ethereal world of high finance) are transformed into equally-shared use values.

The doubling in economic efficiency, proves those huge blocs of wealth need never have been appropriated from their proper owners.

Yes a large share of appropriated capital built industries and infrastructure. But the problem is that a large share was unearned and we have thoroughly documented that, if there is a shortage of finance capital, a socially-owned banking system can create money for any essential services.

Instead of appropriating that wealth, structure the banking system to promote adequate savings, create money to cover any shortfall, and raise or lower mandated reserves to maintain a stable money supply.

That it is necessary to appropriate huge blocs of capital to finance infrastructure, industry, or any other aspect of an economy is a cover story to justify unearned wealth.

If technology had been shared the past 500 years instead of monopolized, it would have spread rapidly across the world and there would have been little poverty and few wars.

Banking is a social technology which would have spread to the rest of the world right along with mechanical, chemical, electrical, and other technologies.

Being far more efficient, thus producing far more wealth, each technological leap can be financed by normal social savings or created money. The increased wealth, both the industry and its production, backs that investment and the circulation of that base money is known as “the money supply.”

We now turn to how Communication Superhighways, a highly efficient social Technology, Shrinks Trading Costs

Those crucial 170 words describing an honest, efficient, capitalist economy. Does anyone have the ear of President Barack Obama’s Economic Recovery Team?

We are a cooperative publishing house dedicated to the elimination of poverty and war paying ourselves double the normal royalty and will pay higher yet as soon as we can.

We need more cutting edge researchers. If you can broaden our understanding and that of our readers, have a high-quality book within you that you wish to use in class, or just wish to reach the world, please Contact Us.

[1] Adam Smith, Wealth of Nations (New York: Random House, 1965), p. 64.

[2] This cannot happen until democracy is established. Theoretically we have democracy today but, as said, that is only theoretical. Once those monopolies are eliminated, a full democracy can emerge. Likewise if a crisis transposes our society into a full democracy and restructuring to the full and equal inclusive property rights eliminates those monopolies.

[3] This thesis is easily tested. Factories are only a series of tools. Without tools you must pay a shop to repair anything. Most homes have those simple tools and carry out simple repairs in a few minutes at no cost. Monopolize those tools in the same manner as industrial technology is monopolized and you have to pay someone else to do those repairs. Likewise, eliminate the monopolization of technology through the patent process and other communities and societies can produce their own consumer products. Two monopolizations have been eliminated, that preventing others’ use of a technology and the superstructure—the unneeded share of stock markets, roughly 85%—managing that monopoly. This first is proven by the rest of the world quickly industrializing under those rules and the second by the roughly 50% (very possibly 75%) drop in price of consumer products that would occur.

[4] Any natural monopoly: water systems, sewers, electricity, communications, railroads, roads, airports, harbors, etc. Social capital is also used by some to refer to the unquantified—but real—value of social interconnections that aid the functioning of society, typically meaning a higher education level.

[5] John D. Donahue, The Privatization Decision: (New York: Basic Books, 1989).

[6] Public Power Directory and Statistics for 1983 (Washington, DC: American Public Power Association, 1983); Jeanie Kilmer, “Public Power Costs Less.” Public Power Magazine, May/June 1985, pp. 28-31; the late Montana Senator Lee Metcalf and Vic Reinemer, Overcharge (New York: David McKay, 1967).

[7] Edward Winslow Martin, History of the Grange Movement (New York: Burt Franklin, 1967), pp. 62, 70.

[8] Matthew Josephson, Robber Barons (New York: Harcourt Brace Jovanovich, 1962), p. 92; Joe E. Feagin, The Urban RealEstate Game (Englewood Cliffs, NJ: Prentice-Hall, 1983), pp. 57-8; Peter Lyon, To Hell in a Day Coach (New York: J.B. Lippincott, 1968), p. 6; see also Martin, Grange Movement.

[9] Wilfred Owen, Strategy for Mobility (Westport, CT: Greenwood Press, 1978), p. 23.

[10] John Prados, The Presidents’ Secret Wars (New York: William Morrow, 1986), p. 152.

Be Sociable, Share!
Be Sociable, Share!