I finally stumbled upon a rational, logically consistent, theory of property rights that provided both the moral authority and economic viability. I asked myself a fundamental question: “How do we allocate the natural resources of the universe fairly across all generations?”
This question is a challenge even for libertarians because it gets to the very heart of property rights. How do we determine what is yours and what is mine? Where do these rights come from? Libertarian’s hold that taking property without permission is an act of aggression and from this conclude that taxation is an act of aggression; however, for it to be an act of aggression the libertarian must first establish the basis of their claim to the property.
Who owns the moon, the ocean, the land, and the air? Do Adam and Eve have eternal property right to 50% of the Earth each? What I mean by this is that they get to choose which of their children get their property when they die. Their children get to decide how to divide it among their children and so on until present day.
Does proving clean title to property require documenting all transfers back to genesis? This, after all, is the basis of cryptocurrency property. All transfers are logged in a publicly verifiable ledger and the coins are only yours by virtue of the ability to track ownership back to the genesis block.
It should be obvious that proving clear title to anything is impossible. Furthermore, one must ask the question, why do Adam and Eve have the right to control the definition of legitimate ownership of property for all eternity? Is each new generation bound to recognize the property rights allocated by the prior generation?
Is “first come, first serve” a proper basis for assigning initial ownership to unowned property? Does this generation have the right to consume all the oil and rainforests? Does this generation have the right to allocate all the mineral rights for all of eternity?
These are the questions that lead me to consider a alternative definition of property rights. Most people have an innate sense of justice that starts as a child. We have an idea of what we consider “ours”. This generally includes things we touched first, things we created, or things we saw first. From this it flows to things we bought from others. While this approach to property rights is natural, it doesn’t scale very well. In order to scale, we introduce contracts which represent mutual agreements between people.
While some people naturally respect other people’s property and contracts, other people choose the follow the might-makes-right approach to property. This is the law of the jungle and is what has largely governed how property is allocated via wars and taxation.
In practice, most property rights are driven by respecting the status quo.What was yours yesterday is yours today. If you can maintain control over property for long enough, then people forget how you obtained it and it becomes yours.
I find all of the above systems to be logically inconsistent. Before one can contract for property, one must own it. Force, fraud, theft, and extortion are not valid means to acquire property. Systems setup by one generation should not be binding on subsequent generations. Contracts are only valid if the parties have the ability to consent and are negotiating as equals.
It is clear that in practice property is allocated by the law of the jungle. The strongest parties conquer the weaker. The victors write the history books and redefine property rights. Property rights are enforced by violence or the threat thereof. Any new system of property rights must account for this natural tendency of mankind and should gradually correct for misconduct rather than compound it.
Divide & Choose
What do you do when you have two kids fighting over a single cookie? Assuming you actually want to teach your kids how to resolve disputes without violence, you cannot take the easy way out and make a parental decree. In my house I ask one kid divide the cookie and let the other choose which half they would like. If they cannot decide which role (divider or chooser) they want, I suggest a coin flip. With this simple process it is amazing to what extents the divider will go to be fair and how much scrutiny the chooser places to determine which piece is better.
Now imagine that mankind had to come up with a system for allocating property rights that fully accounts for all generations. Imagine you were tasked with the job of dividing the pie between individuals in all generations but that someone else got to decide which slice you get and which generation you are born into. Would you give the first generation the right to allocate to future generations? Would you give the victor the spoils of war?
It is through pondering this question that I came up with a process for universal inheritance. I assume that each day is a new day and each generation deserves an equal division of the unearned natural resources of the universe.
A billionaire who acquired his riches extracting oil from the ground, denies future generations those resources and the wealth earned is passed on to his kids. All wealth is derived from the natural, unearned, resources extracted in the past and traded amongst prior generations.
From this perspective I propose that each person should be lent a share of the earth’s resources for the duration of a long human life. This is based upon the premise that members in one generation would never agree to give the previous generation more favorable terms assuming all generations were represented by competent and unbiased lawyers.
From this perspective each year some percentage of the Earth’s resources should be redistributed to the “current generation” such that over one life-time the resources (wealth) is passed fairly from one generation to the next. If we assume most people live less than 100 years, then the resulting rate of inheritance should be around 5% per year. This would redistribute 99.5% of initial wealth over 100 years.
Total global real-estate is worth about $217T distributed among 7 billion people about $1500 per person per year. Total global stocks are about $100T or $1200 per person per year. Total world wide money supply is also about $100T. All told this would give everyone, including the billions of poor and starving individuals in Africa, India, and China a total income of about $4000 per year or $333 per month. This is greater than the global median per-capita household income. This is over 4x the median income in Africa. Talk about impacting world-wide poverty!
Obviously, implementing such a distribution process globally is difficult and not very interesting to citizens of wealthier industrialized countries. That said, if we applied the same process to only the assets and citizens of the USA we would arrive at a number of $15,000 per year which would instantly place everyone above the poverty line (until a new price equilibrium is reached).
The point of this process is to demonstrate that using a process derived from first principles we can derive a basic income that is in the same ballpark as what is proposed. Furthermore, we can do so by not asking how much money is “needed”, but by asking how much wealth is available to “pass on to the next generation” at 5% per year.
To summarize this, a “wealth tax” of 5%-per-year would give everyone an income above the poverty line without violating the fairly negotiated property rights of any generation. This wealth tax in the USA means anyone with assets less than $300K of value would in effect pay no tax as their tax is equal to their income. This means almost 75% of Americans would effectively pay no wealth tax because their inheritance is greater than their tax liability.
Furthermore, those with assets above $300K in value are likely earning more than 5% of passive income from those assets. Those who do not use their assets productively (by earning more than 5%) will slowly lose them to the next generation over the course of their life.
Given that everyone would be “above the poverty line”, there would no longer be any need for other welfare services, means-testing, etc. School tuition could easily be paid from the basic income of children. Child support orders could be eliminated.
Economic Efficiency
One of the most common arguments against a 5% wealth tax is that it would result in squandered resources. That people would spend it on drugs or otherwise waste it. They argue that a wealth tax would disincentives savings and encourage consumption.
While it is true that a certain percentage of the population will squander their resources, it is equally true that the wealthy also squander resources. But arguments based on efficiency are biased toward some other property right system. The presumption is that somebody, by virtue of their own biased values, knows how to allocate resources better than everyone else.The presumption is that certain economic goods and experiences are better than others. The presumption is that today’s rich have “earned it” by virtue of their own intelligence and can invest it better. The presumption is that one end of the bellcurve which wastes resources given to them outweighs the other end of the bellcurve which uses them in far more productive means. The presumption is that a few rich central planners (the 1%) can better invest resources than entrepreneurs serving the masses which vote on the products and services they desire by spending their inheritance.
In other words, economic efficiency is a biased argument used to justify a biased status quo. It presupposes certain goals are higher than other goals. It assumes that some people do not have a right to participate in influencing which goods and services are provided.
All of a sudden, the libertarians who are arguing for the status-quo property-rights system start sounding like central planning statists who know better how to run the economy.
Need is not a Basis for Property Rights
Almost half of Americans support a Universal Basic Income (UBI), but existing books on the topic approach the concept from a need-based approach. The need-based approach to UBI naturally repulses those who are against the welfare state, especially Libertarians. Existing libertarian arguments in support of a UBI tend to focus on a lesser-of-evils justification rather than deriving an argument from first-principles. See my article on The basics of Basic IncomeThe basics of Basic Income
An economic analysis of universal basic income (UBI) and reasons why it isn't economically or morally viable. where I make a case against UBI.
Political philosophers and economists have proposed many different implementations of UBI, almost all of which will end in hyperinflation. The need-based argument for UBI creates an unsustainable economic chain of events where UBI triggers prices increases which trigger additional need-based increases to UBI.
Conclusion
It is possible to support a universal inheritance supported by a modest wealth tax while being logically consistent, economically sound, libertarian. In fact, it may be the only logically consistent theory of property rights that could be broadly accepted by the masses while automatically correcting for past and injustices.
On the other hand, this nuanced position might be lost on the masses who would not understand the reason behind their inheritance. Without a proper understanding, the masses may simply call for “more” whenever their inheritance doesn’t support the standard of living they want. Through their own ignorance and selfish desires, the masses can quickly turn a stable economic system (5% per year) into an unstable communist system that forces everyone to the lowest common denominator.
Only through continous education and affirment from one generation to the next can a people hope to create and maintain such a system without falling victim to philosophical corruption.
