LAWS OF ECONOMIC SCIENCE, and FUNCTIONS OF GOVERNMENT, Sections 10-11

Explains Laws of Motivation, Rent, Wages, Interest, Supply and Demand, Diminishing Returns, and Human Progress. Main function of government ought to be to collect the real economic rent, thus preventing monopoly.
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Scientific Economics and the Art of Government: ..in 21 sections

A Course for Students by GRAHAM HART; Published by THE GEORGIST EDUCATION ASSOCIATION, INC., 10 Broome Street, South Perth, Western Australia, 6151; Telephone (09) 367 5386 (international +61 9 367 5386); Fax (09) 367 4547 (phone first); E-mail: georgist@multiline.com.au, Internet: http://www.multiline.com.au/~georgist

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CONTENTS of "Page" 2
1. The Rational Method 6. Basic Phenomena
2. Incentive Legislation 7. Scientific Government
3. Constitutional Limitations 8. Basic Justice
4. Illegal Government 9. Introduction to Scientific Government
5. Constitutional Safeguards
CONTENTS of "Page" 3
10. The Laws of Economic Science 11. The Functions of Government

_Scientific Economics and the Art of Government_in 21 sections_ Scientific Economics and the Art of Government

CONTENTS of "Page" 4
12. Functions in which Governments
should not interfere
14. Population
15. Immigration
13. Money 16. Invariable Factors and Responsibility
CONTENTS of "Page" 5
17. Democratic Government 20. Peaceful, Useful and Happy Co-existence
18. Private Monopolies and Privileges 21. Conclusion
19. The Sufficiency of Economic Rent

10. THE LAWS OF ECONOMIC SCIENCE

(i) The first law is the Law of Motivation:-
All people seek to gratify their desires with the least exertion of physical and mental energy, i.e. with the greatest economy of effort. This applies to rational people, but is applicable also to idiots and scoundrels. An idiot's ruling desire may be the exertion of physical effort, regardless of consequences.
A politician's ruling desire may be to divert the earnings of poor working people to the big landowners through the institution of land monopoly. The ruling desire of William Pitt the Younger, one-time Prime Minister of England, was to deceive the people in order to secure the greatest amount of public revenue with "the least amount of squawking."
His speech to the House of Commons is quoted as follows:-
"My Lords and Gentleman, a direct tax of 7% would be a dangerous experiment, and one likely to incite revolt, but there is a method, whereby you can extract the last rag from the back and the last bite from the mouth, without causing a murmur against high taxes, and that is to tax a great number of articles of daily use and necessity, so indirectly that the people will pay without knowing it; their grumblings will then be of hard times, but they will not know that the hard times are caused by taxation."

(ii) The second and most important law is the Law of Rent, which is stated as follows:-
The rent of any area of land depends on the excess of its produce, or satisfactions which can be derived, from the same application of labour and capital, compared with the least productive or desirable land in use (i.e., rent-free marginal land).

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The application of this law for public purposes was first recommended by the French Physiocrats in the reign of Louis XV1. Quesney and Turgot were economic advisers to the King. They believed the collection of land rent in lieu of taxes should be applied to agricultural land. There was little commercialised secondary industry in those days.
The King agreed but was overruled by the powerful nobility. The King lost his head, together with many of his relations, during the French revolution, in consequence. The revolution could have been prevented by the Physiocrats' proposal.
The subject was then taken up by David Ricardo, a London MP and stockbroker, and the law has since become known as Ricardo's Law of Rent.
Henry George used Ricardo's law in the science of political economy which he later formulated.

(iii) The Law of Wages
Wages depend upon what can be earned or satisfactions derived from the least productive or desirable land in use (rent-free or marginal land) after payment for the use of capital.
The level of wages is greatly affected by the conditions of land tenure. When land is monopolised and much valuable land is held out of use for speculative gain, the resulting unemployment causes wages to be depressed by the fierce competition for jobs and for access to land upon which labour must be employed.
The art of political economy depends upon the ethical observance of all the laws involved, the collection of economic rent as the main source of public revenue, and the abolition of the robbery of taxation imposed on the production, exchange, investment and consumption of wealth, together with all private monopolies.
Only then will the full earnings of labour be restored to working people as their just wage.

(iv) The Law of Interest
Capital is defined as that part of wealth, used as an aid to labour, to support the increased production of wealth.

Interest depends upon what can be earned from the use of capital, after the returns to labour, from the least productive or desirable land in use (rent-free, marginal land).
Real interest has nothing to do with the use of money, with which it is confused. What is generally regarded as interest is increased by government policies which force people into debt and increase the need to borrow.

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(v) The Law of Supply and Demand
This law relates to value in exchange. It fixes values and registers prices, is an indication to wealth producers where production for different commodities is most economical, and the extent of demand.

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Value, determined by the operation of the law of supply and demand, depends upon what is agreed upon by prospective buyers and sellers in an open market, in which none of the parties to a transaction is under duress.
Under present conditions a free market is impossible, prices are influenced by land monopoly, taxation, private monopolies, poverty, unemployment, artificial price fixing by governments, cartels and by trade unions, to the extent possible and by every form of social disorder.
The law of supply and demand registers prices under the conditions which apply. The law is defined as follows: The Law of Supply and Demand determines the relative exchange values of natural resources, the products of labour applied to land, of services and for privileges, legally conferred, if any. It can only operate justly in a free society in which all people have equality of opportunity and none is under duress. It will nevertheless operate to record exchange values under the conditions which apply.

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(vi) The Law of Diminishing Returns
This law has not been precisely defined. It means that because production costs are reduced by specialised effort and the concentration of labour and capital, it does not necessarily follow that an increase of such will continue to cheapen production indefinitely.
There is a point of optimum efficiency at which the most desirable results will be obtained. The writer's definition is as follows:--It is recognised that by specialised effort "the division of labour" as it is called by economists, and the greater use of capital, that production per head can be increased, and what is otherwise impossible by individual effort can be achieved.
Nevertheless it does not follow that specialised effort will continue indefinitely to increase productivity per head. There is a point of mean optimum of efficiency at which the best returns will be achieved, which is regulated by the law of supply and demand, and ethical conformity with all the laws of the science of political economy.

(vii)The Law of Human Progress is:-
Fraternity in freedom, with equality of opportunity for all people to apply their exertion to the God-given, freely-provided resources of nature.
The Golden Rule, To do unto others as you would that they should do unto you means exactly the same thing, but the precise conditions are not stated.

_Scientific Economics and the Art of Government_Course, in 21 sections_ Scientific Economics and the Art of Government

11. THE FUNCTIONS OF GOVERNMENT
It appears to be unknown to most politicians and many others that governments have legitimate functions which should neither be omitted nor exceeded. These are defined as follows:-

(i) Land is held in trust by governments "in fee simple" subject to the prior right of the Crown, on behalf of the living generation of people (in Australia by state governments, and the federal government for federal territories.)

(ii) The first obligation of governments is to collect the fee simple which is the socially-generated site rental value of land, as the main source of public revenue, in return for the right of exclusive occupation or possession, which is necessary to establish ownership of the buildings and other improvements to land.

(iii) Competitively-assessed royalties should be collected for the limited right to exploit non-renewable resources, such as minerals, metals, oil, gravel, sand, rock, etc..
These establish rental values also, to the extent known, but for governments to charge rent would encourage maximum exploitation, whereas conservation of what is non-renewable also is necessary.

(iv) Public revenue should also be supplemented by competitively-assessed licences for the right to exploit renewable resurces such as timber and marine life, when this is necessary to ensure conservation and regeneration.

(v) Charges should also be made for reticulated services such as water, gas and electricity etc. sufficient to prevent waste. These services create rental values, as do sewage and storm water disposal, which should cover the installation costs. Repairs and maintenance costs should be financed by usage charges.

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(vi) It would be pointless to define the legitimate sources of public revenue with meticulous accuracy, without also defining the functions of government and what is legitimate public expenditure. This is essential to ensure that revenue is adequate to cover expenses and to prohibit waste.
Governments should be confined to functions which are necessary monopolies, in which competitive private enterprise cannot operate efficiently or in the public interest.
MAINTAIN OWN ROAD STRIP?
Reference is made to the building of roads; it would be ludicrous to make each land-holder responsible for building and maintaining the road strip opposite his holding. We ought not to have half a dozen competitive water, gas or electricity mains passing each residence or factory site. Main roads, railways and tramways also are obviously necessary monopolies.
Although governments should be responsible for the control of necessary monopolies, many of the required installation costs and services can be competitively contracted to private enterprise with advantage.


Starting Point

(vii) Justice and Defence
These, obviously, are necessary monopolies. However, the law is now far too complex, because bad Australian governments have been grinding out new laws and regulations at the rate of almost 50,000 a year, nearly all of which would not be needed in a free economy.
Many disputes could be settled by private arbitration, at a fraction of the costs imposed by the legal system.

The effective defence of Australia, under inefficient, near-bankrupt governments is impossible. In the event of invasion it is planned only to defend a small strip between Adelaide and Brisbane, once called "The Brisbane line."
Our tariff policies are a declaration of economic warfare against other nations which, in turn, retaliate against the admission of Australian products. No nation gains and there is an enormous waste in preventing the exchange of goods and raw materials. (End of Section 11)

To be continued

Find more by contacting economic reform groups through the Links and Contacts list, or us on: http://www.multiline.com.au/~georgist, or e-mail to: georgist@multiline.com.au, or call at Georgist Education Association, 10 Broome St. (off Douglas Ave., near Canning Hwy.), South Perth, some weekdays 11am - 3 pm. Telephone (08) 9367 5386 before coming.
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Scientific Economics and the Art of Government_Course, in 21 sections Course, in 21 sections

LAWS OF ECONOMIC SCIENCE, and FUNCTIONS OF GOVERNMENT; Course, Ss. 10 & 11

Put on Internet 14 November 1996, last revised 15 June 1998
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