Libertarian Land Philosophy:
Man's Eternal Dilemma
Oscar B. Johannsen, Ph.D.
BOOK I: FUNDAMENTAL PRINCIPLES
Chapter 1 - Fundamental Nature of Man's Activities
"If false, let
them be rejected: But no one ought to entertain a prejudice against
them, merely because they are out of the common road."
[David Hume --- Of Commerce ]
When the first man opened his eyes and looked about him, he found
himself in an extraordinarily exciting world. Above him was an
endless sky in varying shades of blue across which drifted beautiful
white clouds which sometimes obscured the fiery orb which warmed his
naked body. Mountains towered to the sky, some of them so tall that
at times they seemed to hide the sun. Streams and rivers flowed into
mighty oceans in which swam fish of every description, while the dry
surface of the earth was covered with vegetation as far as his eyes
could see. Everywhere he turned, he saw birds, animals and fish
busily at work keeping themselves alive.
The ground under his body alternately felt hard or soft. Eagerly he
probed the mysteries of the earth. He smelled, touched, tasted,
listened and peered at the marvels about him. He did not know what
they were and he does not know today what all of them are. He had no
names for them and now has named only a handful. He did not know
that he was on an oblate spheroid speeding through space in an
eternity of ellipses around the sun. He did not know what was
beneath the ground on which he tarried. Today, he is still learning
what is beneath his feet, in the heavens above him, and the universe
surrounding him.
Knowledge of his environment came to him slowly, but knowledge did
accumulate as he applied reason to the universe and to himself.
Though man today stands on the shoulders of all who came before him
and is the beneficiary of the knowledge garnered by them, it is but
a drop in the ocean of knowable things, so vast is that which
remains for him to discover. Nevertheless, he has learned enough to
perceive, if but dimly, that he lives on a globe which is a
cornucopia of riches far beyond his capacity to estimate. And this
vast array of gifts is his to use as he so desires. All that he
needs to do is to exert his physical and mental energy on the
material universe to acquire the goods he wishes.
Early in his probing he discovered the usefulness of
differentiating one thing from another by giving names to them.
These names, exotic or prosaic, helped him to communicate with his
fellowman. The particular word which was used was a matter of
indifference. What was important was that agreement was reached on
the meaning so that all would know exactly what was meant.
In his meditations he began to wonder about the environment in
which he found himself; this universe in which he lived which seemed
to go everlastingly on beyond the range of his most powerful
telescopes. To it he gave a name. He called it land.
Land is the whole universe except man and his products.
It is not merely the dry surface of the earth, but includes the
waters of the seas, the air, natural forests, wild animals, mineral
deposits, the weather. the natural forces and opportunities, the
eternal space in which the earth revolves, the endless universe. In
short, land is what was here before man was born, and is what will
he here after he disappears, if he ever does.
How much more descriptive would have been the term Nature, but with
his inconsistency, sometimes delightful, sometimes exasperating, man
called it land.
From the moment the first man appeared, he needed and desired
things to sustain his life, not merely as the animals did, but in a
way to meet the vagaries of an imagination which seemed to have no
limits.
To survive, man has to breathe, eat, clothe and shelter himself.
While he breathes with hardly any conscious effort, he cannot eat,
clothe or shelter himself without expending deliberate physical and
mental energy. That energy must be expended on something. That
something is the land and the products he takes from the land. There
is nothing else.
Land is the source, the great warehouse from which man can obtain
the goods he wants. It is like the fairest of women, generous beyond
measure, but it has the perverseness of a woman, for it will not
freely yield its gifts to man. It demands of him the expenditure of
energy. That energy may be only that required to pluck the luscious
fruit dangling so temptingly from a tree which he garners to assuage
his hunger. It may be the energy to pick up the sun-dried skin of
some animal to drape over himself. It may merely be the energy to
bind together some branches as a cover to protect himself from the
pelting of a torrential rain. But energy he must expend. That energy
he calls Labor.
Labor is human energy, mental and physical, expended to produce
wealth.
It is the energy which produces delicately wrought jewelry to
delight the heart of a lovely woman. It is the energy which produces
exquisite furniture to grace the home of the most discriminating. It
is the energy which produces roaring blast furnaces from whose fiery
mouths pours forth the molten metal which man shapes into
unbelievably strong yet graceful bridges to span some mighty river
or to form into a delicately fine violin string fit for a
Stradivarius.
But it is not the energy to play an invigorating game of tennis nor
to lose oneself in reading one of Tolstoy's masterpieces, for such
energy does not produce wealth.
Neither is it the energy expended in rendering personal services.
The skillful surgeon's services cannot be measured by the mundane
things of life, so invaluable are they, but though they may save
life, they are not labor. Such efforts comprise the expenditure of
mental and physical energy not on the earth nor on the products
drawn from the earth, but on man himself. Personal services enrich a
man's life; they give breath and joy to life as when some artist
thrills him with an aria which literally suspends him in a world of
fantasy, so beautiful is it. They may save his life, but they do not
produce wealth.
But labor is the energy which the highly paid executive of a coal
company exerts in directing its far flung activities just as much as
it is the energy that the coal-blackened miner exerts in digging the
jet black diamonds from the good earth, for both men use mental and
physical energy to produce wealth in this instance -- coal.
Labor encompasses all the powers men have, whether natural or
acquired. The giant in intelligence may be qualified to manage a
business, while the giant in strength may be qualified to be a
timberman or iron-worker. Such capacities are attributes of labor
with which men are born or which they acquire or develop through
study and work. But no matter how obtained, they enable men to exert
their energy in one way or another.
How much better it would have been to have used the term Man
instead of Labor. The term labor has often been misconstrued to
apply only to men who work with their hands, whereas labor applies
to all men who use mental and physical energy to produce wealth.
Since the beginning of time, man knew that he must first exert his
energy directly to the land to produce the things for which he
yearns, for each article made by man begins with the land. He must
first wrest ore from the bowels of the earth, cut down a tree in a
virgin forest, or snare fish in Neptune's domain. Then, he must
labor on these raw materials to shape them into the articles he
desires. Labor, thus, is not merely the physical and mental energy
applied directly to the good earth, but it is also the human energy
which is applied to the materials which are taken from the land.
What are these articles? They are Wealth.
Wealth is any material thing which has been produced by labor
applied to land, or to the products which men will accept in
exchange for other products or services.
How does a chair come into existence? A man enters a virgin forest
(land) and happily or unhappily expends energy (labor) to fell a
tree. He expends more labor to shape it into boards, out of which he
makes four legs, a seat and a backrest. What is the chair in
reality? Is it not merely a tree (land) whose form has been altered
by labor to make it into something that human beings want?
Wealth then consists of man-made things, which would not exist if
man did not inhabit the earth. All man-made articles, however, are
not wealth because they are not all desired by other men. The little
child, gurgling with pleasure, as she expends her feeble energy on
land to produce mud pies is not producing any wealth. Though at the
moment they give the girl a world of pleasure, the mud pies are not
wealth for they cannot be exchanged, as people do not desire them.
Wealth does not consist only of inanimate matter. It also is made
up of animate matter as plants, trees, and the lower animals which
have been modified by exertion to enable them to gratify human
desires.[1]
Such prosaic articles, as stock certificates are not wealth.
Rather, they are claims either to land or wealth, or both. Men's
scribbling on the certificates are evidence that their possessor
owns a portion of some company, which, in turn, owns land and
wealth. Though the paper of which the certificate is composed is
wealth, this is of no significance. In man's world of abstractions,
it is the words and signatures on the certificates, which give
meaning to them.
Land also is not wealth, for man has nothing to do with its
creation. It is a gift to all mankind and would exist whether men do
or not. True, it has been classified as wealth by many societies
because it can be exchanged. But then societies have also classified
slaves as wealth because they bought and sold men with impudent
disregard of their rights. But slaves were never wealth. They were
men -- no different from other men -- laborers whose production was
ruthlessly stolen from them legally (as though legality makes for
right).
Of course, people will argue that land is wealth, yet without
realizing it, they separate the two. They proudly assert that the
United States is a wealthier country today than it was a hundred
years ago. But what do they mean? They do not mean that it has more
land, as the amount is about the same. What they mean is that it has
more man-made things, more buildings, cars, factories, railroads,
airplanes; in other words, more wealth.
Wealth has three characteristics.
1. It is a material thing. (Qualities of a human being, such as
skill and knowledge, important though they are to men, are not
material so cannot be classified as wealth.)
2. It must be produced by labor. (The article must be something
which man produced by working on the land or on other wealth.)
3. It must be something for which men will give other things or
render service. (A snowman, no matter how cleverly designed, is not
wealth for it cannot be traded.)
Discussions without end can be had on borderline cases. A woman
sells some of her beautiful hair. That it is material is obvious and
it has been exchanged for wealth. However, it is hardly necessary to
point out that it was not produced by applying energy to the land or
to other forms of wealth. She merely sold a part of her body. The
hair is no more wealth than is a slave.
A rusting tin can is material and was made by man. However, it
cannot be exchanged for other goods, so it is no longer wealth. It
is land, and after decomposition will become an indistinguishable
part of the soil.
As a rule of thumb, it can be said that wealth consists of those
man-made things which man exchanges.
Men are concerned with production all through their lives. What is
it? In its simplest form it is the direct application of labor to
land, as in the case of a man who picks berries from a bush.
Ordinarily, production is complicated. It starts with labor, which
takes raw materials from the land, as when a fisherman catches some
fish. The fish, if it is not to be eaten, may go through many
processes in order to obtain whatever chemicals are desired.
Production involves the myriad changes in the making of an article
of wealth from the moment it is taken from the land, through all the
manufacturing processes, including the transportation of the
product, until it is purchased by the consumer.
From a botanist's viewpoint an orange is produced when it is ripe.
From a consumer's viewpoint it is not produced until it is in his
hands. A ripe orange in Florida is of no use to a consumer in New
York City. Production is not merely the manufacture or growth of an
article but includes its transportation and exchange.
Production is the process of changing the form, location or
condition of something which comes from the land so as to satisfy or
better satisfy human desire.
Why does man produce wealth? Because he wishes to consume it. And
what is consumption?
Consumption is the individual enjoyment of wealth.[2]
Is it necessary to point out that the destruction of wealth is not
consumption? Destruction or deterioration is always present, but
that fact gives little enjoyment. A car is consumed as a man rides
in it. He enjoys the ride. That the car is wearing out does not
afford him enjoyment. Food is consumed immediately and is destroyed
in the process or consumption. But probably most wealth is consumed
over a period of time -- long or short -- as in the case of a house
or a suit of clothes.
The deterioration process is a fact of Nature which men cannot
prevent. They can reduce its effects and prolong the process but
they cannot eliminate it. Everything comes from the land and
ultimately everything returns to it.
Production and consumption are continuous. Men are engaged in a
ceaseless struggle to produce and maintain wealth in order to
consume it. They live on current production. For food this is of
great importance. Were production in New York City suddenly to cease
and the people forced to subsist on whatever was in the city, they
would be in a desperate plight. Production, particularly of the
staples of life, and its concomitant, consumption, go on
ceaselessly, or men perish.
Fundamentally, production involves two factors.
First: Labor (Man)
Second: Land (The universe outside of man and his products.)
Whether a society is primitive or complex matters not. These two
factors and only these two factors are absolutely essential. But the
direct application of labor to land results in little production.
How many roots can a native dig with his bare hands? So few that
almost unconsciously he adopts a roundabout method to obtain more.
He espies a likely looking branch, tears it off the tree, sharpens
it and with this pointed stick digs up many more roots than he
possibly could without it.
In this simple act what did he do? In tearing off the branch he
applied his labor to a virgin tree (land) to make a material thing
for which other men would give him some nuts or berries when they
appreciated its effectiveness. He did not, however, want to consume
the branch nor did he consume it. It was merely an article to aid
him in obtaining the goods he really desired. Yet it was wealth, a
roundabout form of wealth. It was a tool. The only reason he
bothered to make it was that it enabled him to produce wealth with
it.
Tools are made for many reasons; some to make the same amount of
wealth with less effort than by hand or to make it in less time.
Some tools are made because much wealth simply cannot be produced
without first making tools. It may be impossible to pick the
succulent apple delicately balanced on the highest branch without a
stick to knock it down. It is impossible to produce steel without
first constructing tools as blast furnaces, oxygen converters,
rolling mills, and many other complicated devices.
Tools may be as simple as a branch or as elaborate as an automated
factory. Regardless or how complex, they are merely tools. It would
have saved men much error and trouble if they had labeled such
devices as tools. However, a more sophisticated name grew up --
capital -- and that term has caused endless confusion.
Capital is wealth which is being used by labor to produce more
wealth.
Many items are called capital which are not tools, for example;
money, a man's ability to work, land, inventories, bonds, common and
preferred stock. But how can an intelligent analysis be made if a
word means such diverse things as a man's ability to work, articles
he has made, debts or assets? No matter what capital may mean in
accountancy and other fields, from an economic viewpoint capital
consists of tools and nothing else.
A book might be written on the various items which have been
classified as capital because they may have some connection with
tools, but it would be a waste of time to write it. Let the
accountants use the term, capital, to classify the funds invested in
a business if they so desire. Let some labor theoreticians call,
man's energy to produce wealth capital if they wish, but we will
rigidly adhere to the definition of capital as wealth being used to
produce more wealth.
This definition is a bit more subtle than possibly realized at
first. A tool is capital only when it is being used to produce
wealth, not when it lies idle. The factory, which is not being used,
is not capital. The lathe, which is not being used at night, is not
capital any more than is the man who tends a lathe a laborer when he
is at home enjoying television. A man is a laborer only when he is
laboring to produce wealth. A tool is capital only when it is being
used to produce wealth.
A small point? Possibly, but it has its significance. What is the
elaborate tool which was designed to stamp out thousands of
automobile frames until people's tastes change and a new tool is
required. It is no longer used to produce wealth. It is now merely
junk and unless it can be redesigned for productive purposes will be
sold as scrap.
Wealth may be divided into two categories--consumer wealth and
capital. Consumer wealth consists of the things actually desired and
consumed while capital consists of the wealth which is not wanted
but which is made in order to produce the actual wealth desired.
Both forms of wealth are interchangeable. A table in a home is being
consumed. Put it in a factory to aid in the production of wealth and
it becomes capital. Later if it is returned to a home it once again
becomes consumer wealth. This interchange is constantly in process,
particularly of items which can just as easily give private
enjoyment or to be used as tools.
To produce wealth, then, men do not ordinarily apply their bare
labor directly to the land but instead apply their labor to the land
with the aid of tools. Civilized societies produce much more than
primitive ones because they have so many more tools, that is, so
much more capital.
Is capital important? Let us see. Studies indicate that a miner
with hand tools can produce about three tons of coal a day. How much
could he produce with his bare hands? With power tools, he can
produce as much as ten tons, but with fully mechanized equipment, he
can produce as much as 30 tons a day.
By hand, a man can clean about one pound of cotton fiber per day,
With a hand-operated cotton gin, he can clean about 50 pounds. But
add steam or water power and it rises to 1,000 pounds per day. No
wonder modern civilization produces so much when one man today with
the aid of capital can produce what it would take 1000 men without
any.
Though the importance of capital can hardly be measured,
nonetheless, it is not absolutely necessary. Despite this truism,
because capital is so important it is placed on almost a par with
labor and land. For that reason it is usually stated that there are
three factors in the production of wealth -- land, labor and
capital.
Some have objected to listing capital as a factor of production,
claiming there are only two factors, land and labor. They believe if
you include a man-made item as capital, you should also include
other man-made devices or even personal services. They claim that
money could be considered almost as important as tools in helping
men in utilizing land and labor to produce wealth. They also claim
that personal services such as a physician's talents enable laborers
to get back to work, which increases production. Why, then, single
out capital and not all the rest of the aids man has produced to
help him to create wealth?
While there is no question that there are only two fundamental
factors in the production of wealth -- land and labor yet, the
impossibility of man producing much of anything without first
producing tools almost raises capital to a fundamental level.
Primitive societies can and do get along without money and few
personal services. A Robinson Crusoe obviously existed without money
or any personal services, bat he could not get along without tools.
One of his first actions, after being shipwrecked on his island, was
to swim back to the ship to obtain as many tools as he could. One of
the distinguishing characteristics between man and the lower animals
is precisely his development and use of tools.
Also capital is so important that any attempt to describe man's
activities in producing wealth without discussing it is almost
impossible. As long as it is clearly kept in mind that land and
labor are the two fundamental factors of production and that capital
is a subsidiary factor, there should be no problem.
As these are the three factors necessary for wealth to be produced
on a scale above that of the barest animal subsistence, the wealth
produced is divided among them. The laborer's share is wages, the
landholder's share is rent, and the capitalist's share is
interest.[3]
Today, interest almost invariably means the return for the loan of
money. In view of this fact, the writer debated using the word "tool-hire"
as the return for the loan of capital in order to differentiate it
from the present meaning of interest as the return for the loan of
money.[4]
But, in order to keep as closely as possible to past usage's of the
word, he decided instead to differentiate by using the hyphenated
word "money-interest" to mean the return for the loan of
money, and "interest" to mean the return for the loan of
capital.
To review:
Wages constitutes the laborer's share of the wealth produced for
labor expended.
Rent constitutes the landholder's share of the wealth produced for
granting access to the land from which, or on which the wealth is
produced.
Interest constitutes the capitalist's share of the wealth produced
for the loan of capital.
The wealth which is divided among these three factors may be the
actual product. If corn is raised, for example, an agreed upon
proportion could be given to the laborers, the landholders and the
capitalists. Ordinarily, however, the wealth produced is exchanged
for money and the money then divided among the three factors.
In producing wealth, labor is the active factor, with land and
capital the passive ones. Laborers initiate action. If they decide
not to work, then both land and capital lie idle. Most people
believe that capital employs laborers, and many believe that wages
are paid out of capital. Of course, since land and capital consists
of non-human matter, neither can employ human beings. It will be
argued that what is meant is that the owners of capital -- the
capitalists or the owners of land the landholders employ laborers.
Actually, the capitalists merely hire out their tools to laborers
and similarly the landholders hire out land to laborers. However,
these facts are obscured by the complex relationships existing in
modern society, as will be explained subsequently. This is one of
the reasons why it is so important to look beneath the surface to
see the fundamentals at work.
A little thought will make it plain that wages do not come out of
capital. Wages cannot come from tools. They also cannot come from
money, Wages come from the production of wealth. We may express
wages in terms of money, but wages, as well as rent and interest,
are actually the wealth produced.
A laborer who digs roots with his bare hands receives wages. They
are the roots. If he uses a stick (capital) which he borrowed from a
neighbor (a capitalist), his wages are still the roots. They
certainly are not the stick. The capitalist who loaned him the stick
did not pay the wages. On the contrary, the laborer will have to
give to the capitalist some of the roots for the loan of the stick
Thus, the laborer not only pays his own wages, but he pays the
capitalist for the loan of the stick, that is, he pays interest to
the capitalist.
The principle is the same in modern society. Wages are still the
products which are produced. A thousand laborers may be pouring
steel. Regardless of how complex the machinery they use as tools,
their wages are still the steel they pour, and the more they pour
the more wages they receive. Conceivably, they might have hired the
mill for a day and agreed to pay the owner a percentage of the steel
pored for permission to use his land and capital for a day. Their
wages would be whatever they poured less what they had to give him
as rent and interest. While they might divide up the actual steel,
it is more likely that they would sell the steel and divide up the
proceeds. The fact that they exchanged the steel for money would not
alter the fact that their wages came out of production.
The reason people often assume that wages come from capital, by
which they usually mean money, is that they note that a capitalist
in paying wages will give money to laborers at the end of the
working period. But what he is doing is buying from the laborers
their share of the product.
The mill owner buys the workers' steel with money. It is now his
steel. The proof of this is evident in the case of workmen's liens.
If the mill owner does not pay them, they can obtain a lien on the
steel poured, which takes precedence over all obligations with the
exception of taxes.
Subsequently, it will be shown that interest comes out of the
increased productivity which laborers achieve as a result of the
loan of capital i.e., interest comes out of the increased wages
produced due to the employment of tools. The fact that a laborer
produces much more wealth with tools makes him quite willing to pay
the lender of the tools a certain proportion of the increased
production. Rent, on the other hand, while it also comes from
production, is separate and distinct from wages.
In the production and distribution of wealth men are guided by two
fundamental natural laws.
The first and most important is that whatever men do they do in the
easiest way possible. Men are lazy, just as matter is lazy. Sir
Isaac Newton's famous Law of Inertia states that matter at rest
tends to remain at rest unless acted upon by some outside force, and
matter moving in a straight line tends to continue to move in that
direction unless some outside force acts upon it. A book, resting on
a table, stays there until someone moves it. People in a train which
suddenly stops, fall forward because their bodies have been
traveling in a straight line and tend to keep moving straight ahead.
Apparently, the Law of Inertia applies to men also because they are
lazy; they want to do things the easy way. They take the shortest
route home. They economize in the energy they expend in satisfying
their desires. Of course, if they wish to take a walk on their way
home, they might take a longer route but even in this instance they
cannot help doing it with the greatest economy of effort. This
principle is sometimes called the Law of Least Effort.
Man seeks to satisfy his desires with the least effort.
It is because of this principle that tools are invented and that
man applies his labor as economically as possible on those portions
of land which he believes are the easiest on which to work.
But while man seeks to satisfy his desires with the least effort,
it is doubtful if he would do much more than the animals in
satisfying them if it were not that his desires are unlimited. This
might be called the Law of Limitless Desires.
Man's desires are unlimited.
The Law of Limitless Desires is a natural law over which man has no
more control than he has over the Law of Least Effort. No matter how
many desires are satisfied he always has more. If he has a home, he
wants another at the seashore or in the country. One car is not
sufficient. He requires two or three. If he is satiated with
material things, he has other desires in the mental and spiritual
realms.
Man is the unsatisfied animal. The lower animals appear quite
content as long as their instincts of survival and procreation are
satisfied. But though those two desires constitute probably the most
basic drives of man during most of his life, once they are
satisfied, he seeks more and different desires without limit. Thus,
because man is lazy and unsatisfied, he uses his reasoning power not
only to produce capital in the form of a branch to make it easy to
dig roots but he creates tools of the most complex design and
variety to enable him to satisfy as many of his limitless desires as
possible with the greatest economy of effort.
These two laws that man seeks to satisfy his desires with the least
effort and that his desires are unlimited are the basic principles
which actuate man. This is true not only in an economic sense but in
every sense. In the economic sense it results in the creation of
tremendous quantities of wealth. In another sense, it leads man to
explore the heavens above, to plumb the depths of the seas, to delve
into the past, to peer into the future, even to attempt to determine
the composition of the Maker of all things, and in doing all those
things he tries to do them in the easiest way he knows how.
It is almost as though these two laws pull him in opposite
directions. On the one hand, the Law of Least Effort impels him to
extend as little energy as possible. On the other hand, the Law of
Unlimited Desires impels him to satisfy desires, causing him,
thereby, to expend energy. Man is torn between these two principles
and his entire personal life may be summed up as the history of
yielding more to the one than to the other.
The relationships and factors of production which have heretofore
been sketched most inadequately and incompletely will probably not
go unchallenged. For example, businessmen usually feel there is
another vital productive factor the entrepreneur and to him belong
profits. An entrepreneur, however, is a laborer who organizes,
directs and coordinates the factors of land, capital and other
laborers in an attempt to arrive at on efficient combination. His
activity is a form of managerial effort. As such, he is a laborer
and his return is wages. It is true that in arriving at the
combination of the three factors, he may, whether he realizes it or
not, get some of the rent, wages and interest which the landholder,
the other laborers and the capitalist could be getting. This may be
because these individuals do not realize they could obtain a greater
share of the wealth produced. More likely, however, they
deliberately let him have his extra wealth because of the risks
which they prefer not to assume. (An elaboration of this point will
be made later.)
It should be noted that profits are the excess of income over
outgo. Income may be any combination of rent, wages and interest. It
may be all rent, as in the case of a landholder. The income may be
all wages, as in the case of a laborer. It may be all interest, as
in the case of the capitalist. Often, the income may be a
combination of the three. A man who owns the land and a factory on
it is both a landholder and a capitalist, so his return is rent and
interest. If he directs the business, he is also a laborer, and then
his profits consist of wages also.
Unfortunately, businessmen rarely determine this breakdown of their
profits. This is quite foolish as it leads to erroneous combinations
of the three factors. For example, a grocer who owns the land and
the store (capital) and does all the work himself is a landholder, a
capitalist and a laborer. His profits consist of rent, interest and
wages. If he does not charge himself the rent he would have had to
pay if someone else owned the land, or charge himself the interest
he would have had to pay if someone else owned the store (capital)
or charge himself the wages he would have had to pay to someone else
for running his store, he does not know how rent, interest and wages
are varying in his locality as conditions change. The neighborhood
may have developed to such a point that the location of his store is
so desirable that the income he could get by simply renting the land
might be more than the income he is getting from his entire
business. If he charges himself rent and interest at the going rate,
he would readily see that he is working for nothing.[5]
This simple example applies with equal force to some of the
mightiest corporations in the country. Most executives simply do not
recognize that profits consist of rent, interest and wages.
Therefore, very often they operate divisions which might better be
dropped entirely or they may be misapplying their capital as well as
the labor and land. Most of the profits of the great petroleum
companies consist of rent. How many executives in charge of these
companies realize this?
Bureaucrats claim that government is a factor in the production of
wealth, with taxes its share. However, whatever help the government
might render would be in the nature of a service. Services do not
produce wealth. Under present conditions, government, by protecting
life and property, permits labor to produce, but it does not itself
produce wealth any more than a physician does.[6]
The taxes it receives are the wealth it taxes away from the
landholder, the capitalist and the laborer; that is. it takes a
portion of the rent, interest and wages.
Recapitulation
Man working on Nature, or the products of Nature, with the aid at
tools produces wealth. This wealth is divided among the laborers,
the landholders and the capitalists as wages, rent and interest.
To put it in more technical terminology; labor by exerting its
energy on the land, or the products of land, with the aid of capital
produces wealth. This wealth is divided among the laborers, the
landholders and the capitalists as wages, rent and interest.
The economic activities of man, whether in a primitive or a complex
society, might be depicted graphically as follows:
Based on these terms and the two fundamental natural laws actuating
mankind, it is possible to build up a superstructure of knowledge to
determine how man makes his living.
The two fundamental laws are:
The Law of Least Effort: Man seeks to satisfy his
desires with the least effort.
The Law of Limitless Desires: Man's desires are unlimited.
While it may appear naive that such simple fundamentals and
definitions can lead to a scientific analysis of the highly complex
society in which man lives today, it is precisely because man has
lost sight of them that he is making such a ghastly mess of his
existence. If the reader will close his eyes, strip away from our
society all the non-essentials, he will see that it is perfectly
true that all that men are doing today is the same as they were
doing in primitive times. They are applying their energy to Mother
Earth with the aid of tools to get the things they want. While it
may not be so obvious that the wealth which is produced is divided
among these factors land, labor and capital - yet that is the case,
and in the pages to follow it is hoped that this will be made
clearer.
NOTES
- It may be that man is not
truly a carnivorous animal and that someday it will be felt that
reducing the lower animals to private property is an injustice to
them. Under our present state of knowledge and understanding,
however, such is not considered to be the case and therefore men
hardly ever even speculate on that question.
- A broader definition of
consumption would be that it is the individual enjoyment of wealth
and services, by which is meant the individual satisfaction of
desires. Such enjoyment might have no relation to wealth at all,
but rather to services, as when one listens to an opera singer or
when one is operated on by a surgeon. In both cases, one is
consuming services, i.e. enjoying services. In the case of the
singer, it is direct. In the case of the surgeon, indirect. One
does not enjoy being on an operating table, but one does enjoy the
good health which it is hoped will be the result of the surgeon's
services. Of course, with services the problem of deterioration
does not enter.
- In classical literature, the
return for the loan of tools has usually been called profits or
interest. Such terms, however, ordinarily did not apply strictly
to capital in the sense used here of being tools, but instead
often included land and money.
- Interest is often called the
price of credit.
- Economists would say that in
his decision making, he should have used opportunity costs rather
than actual historical costs. Opportunity costs are considered to
be the value of the opportunity foregone, i.e., in this instance,
the rent; interest and wages which could have been earned.
- It is true that a government
may operate enterprises of one sort or another. In so doing,
however, it is not acting in its character as government, but
rather as a business organization, usually a very inefficient one
at that.
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