Loan Type	Amount	Interest Rate	Monthly Interest
SNSC (assumed)	$210,889.41	3.75%	$659.03
Wells Fargo (assumed)	$135,881.54	4.875%	$552.02
Owner Carryback	$653,229.05	5.5%	$2,994.80
TOTAL	$1,000,000	4.97%	$4,205.85
No Loan Assumption	$1,000,000	5.5%	$4,583.33
Monthly Savings			$377.48
Loan Type	Amount	Interest Rate	Monthly Interest
SNSC (assumed)	$210,889.41	3.75%	$659.03
Wells Fargo (assumed)	$135,881.54	4.875%	$552.02
Owner Carryback	$653,229.05	6.0%	$3,266.15
TOTAL	$1,000,000	5.27%	$4,477.20
No Loan Assumption	$1,000,000	6.0%	$5,000.00
Monthly Savings			$522.80

Annie set up this system for a very specific reason:  Castle and Cooke owns enormous amounts of land.  It is a ‘land holding’ company.  It is in the business of ‘holding’ land.  It is not in the business of operating the any kind of business to make the land create value.

The land Castle and Cooke owns has many different uses.  Some is used for golf courses; some for private homes; some for resorts, condos, strip malls, destination shopping malls, marinas, parking lots, electric transmission facilities, and everything else modern people use land for in our 21st century world. 

Castle and Cooke doesn’t operate any of these facilities.  That is not its business.  It is in the business of ‘holding’ land.

Annie deals with the people who will actually go to the land, figure out what it can produce, and make it produce value.  These people are going to do things.  Castle and Cooke wants the incentives of these operating partners to align with the interests of Castle and Cooke.  Annie’s job is to find a way to design agreements with these partners that will align the interests of the partners with the interests of Castle and Cooke. 

What are their ‘interests?’

They are basically interested in sending money for shareholders.  The money will come from the sale of things the land produces.  The company wants the land to produce things with value to people.  These things will then get sold or rented or otherwise exchanged for money. Some of this money will have to go to the operating partners who do the actual work. But Annie wants anything that doesn’t have to go to these operating partners to go to Castle and Cooke. Her pay depends on how much money she makes for shareholders.  She wants them to do well so she can do well herself.

Annie knows a lot about stock investing.  She knows what makes stockholders money.  She knows that it isn’t always better for shareholders to have as much money as they can get as quickly as they can get it.  She knows that companies called ‘growth companies’ have far higher stock prices (compared to their earnings) than companies that don’t grow.  She knows that companies that have stable income have higher stock prices than unstable companies. She knows that if she can set up systems that will give her operating partners incentives to work hard to get the land they control to create value, manage risk well so their income is stable, and improve whenever this is cost effective to drive up their income (and eventually drive up Castle and Cooke’s income), the share price will go up and up, her bosses will be happy and they will show her how happy they are when they decide on the bonus that makes up the bulk of her pay. 

Realities of Life

Annie wants the operating partners to have the strongest possible incentives to work hard to make sure everything goes smoothly.  If everything goes smoothly for them, they won’t have any problem paying their rents. 

But risk is a part of production.  Risk is a part of life itself.  Things can go wrong.  Wait long enough, and something will go wrong.  That is the way ‘existence’ works. 

Annie wants her operating partners to have so much on the line that they will do everything in their power to prevent anything they can prevent from going wrong. She wants people like Kathy to stay awake at night thinking about things that she might be able to do to make things go more smoothly on the farm and to have backstops in place so that if something does go wrong, she will have the ability to deal with it quickly, before it gets serious. 

That is one of the reasons she chose a system that sold a fairly high percentage of the rights to the land.  Kathy is buying the rights to a lot of free cash.  (The farm produces $2.4 million a year; Kathy won’t own the first $1.8 million of this, she will have to give it to Castle and Cooke as rents.  But she will own the right to everything else, which will be $600,000 a year.  That is a lot.)  Because she was buying a lot, she had to pay a very high price: $12 million is a lot of money. 

Every dime of this money is at risk. 

If something goes very wrong, she could lose it. 

She is willing to take on this risk for a reason:  If she can keep things from going wrong, and actually make them go better, she can get rich.  If she does a very good job at this, she can get very rich.  Since she wants the reward, she is willing to take on the risk. She is going to make her rents a priority.  She absolutely must pay them. If she doesn’t pay, she has violated her leasehold agreement and Castle and Cooke can cancel her contract and take away her rights.  What happens to her $12 million then?  She doesn’t know for sure (in practice it is quite complicated) but one thing she does know is that she won’t have some smiling executive in a suit handing her a check for the full amount.  She may well lose millions. 

Kathy took out a loan for the money to buy this leasehold, so she isn’t the only one at risk.  Her lenders are also at risk. They know it.  They are willing to take on risk for the same reason Kathy is: They get rewarded for it.  They are getting the interest that Kathy pays. If nothing goes wrong and Kathy pays as promised, they will get $15 million in interest over the course of 25 years.  Of course, the lenders know that there are things they can do to manage risk and make it lower.  In practice, the lenders will work quite aggressively to manage risk.

 

Lending companies take several steps to manage risk.  In this case, the lending company (let’s call it a ‘bank’) is collecting 5% interest from Kathy and other borrowers who are buying leaseholds. The bank isn’t going to be able to attract depositors if it tells them ‘if you deposit your money with us, you may or may not get returns and may or may not get your money back.’  No one would put their money into the bank if they did this.  They have to protect the depositors so they set aside large amounts of the money they get as interest to cover risk.  Part of this money goes to provide a budget for a ‘risk management division’ that has the responsibility of making sure borrowers are responsible and collateral can be sold for enough to cover the loan balance.  Another part goes to pay for ‘loss mitigation,’ a division that deals with problem borrowers to try to get them back on track if this is possible or find a way to use complicated tools like ‘short sales’ and ‘deed in lieu’ that will transfer ownership to a responsible and qualified buyer without any need for repossession.  Another part of the money goes to something called a ‘loss reserve’ fund:  if the bank has to repossess, it might lose money on some loans.  It can’t pass this loss on to depositors so it must have reserves to cover it.  Yet another part of the interest goes to buy insurance:  If all its efforts fail and it can’t avoid losses, the money of the depositors must be safe.

The bank gets revenues from the interest it collects from borrowers.  It pays is depositors (as little as it can and still get people to keep money in the bank), pays to manage risk, pays to mitigate losses, pays the losses out of its loss reserve, and buys insurance to protect it from catastrophic events.  (If the bank absolutely can’t pay depositors the insurance company will, but the bank will close and the owners of the bank will lose their entire investment; they do not want to ever have to use their insurance.)   If the people who run the bank can do all these things well, they can make profits.  The most important part of their job, the one that their fates depend on, is risk management.  They have to do this well or they won’t have money to pay their depositors, let alone make profits. 

 

Basically, the lenders and the owners are working together to protect Castle and Cooke. Kathy knows that if she can’t make her rents, she will lose her rights to the farm and can possibly lose $12 million. The lenders have put up this money and know that if Kathy loses the farm (because something went wrong that prevented her from making her rents) they won’t get the money back from her.  They will lose.  They aren’t going to sit back and wait for something bad to happen. They have hired teams of professionals to manage risk and given them budgets that are big enough to do their jobs. (We will look at some specific examples later; here, I just want to lay out the big picture.)  

For these reasons, it is extremely unlikely that the rent payment will ever be missed. In this case, the rent payment is $1.8 million.  Kathy and the lenders stand to lose $12 million if this is missed.  No one would ever miss a $1.8 million payment knowing that, if they do, they are likely to lose $12 million.  To protect this investment, people will make sure that the rent is paid.  They are acting in their own interests to do this, of course.  But they can’t protect their interests without also protecting Castle and Cooke’s interests, because they are aligned perfectly in this case.

Improvements

Kathy is used to farming land that has been farmland for a fairly long time. Farmers know that crops need water to grow and level land holds water better than unleveled land.  Make it level and it will produce more.  This is a very easy thing to do and improves yield a lot.  If farmers have some time, they go out and move dirt from high spots to low spots.  The closer the land is to level, the more it will produce. (Large commercial farms bring in massive equipment and lasers to make the land totally level.) 

The land of the Hawaii farm is  far from level.  There are high areas that stick up above the ground all year long; rice does not grow there at all. There are low spots that are so deep the rice can’t grow.  Kathy will have the right to level the land.  If she does, she estimates that the land will produce 20% more rice than it does now.  The costs will also be 20% higher so the operating profits will be 20% higher and the free cash flow will be 20% higher. 

Her rent payment to Castle and Cooke is fixed for 25 years or until the property changes ownership.  Kathy will not have to share any of the increase with Castle and Cooke for the foreseeable future. 

If she improves, she will actually get two benefits. 

The first is the extra money.  She will get that for as long as she owns the leasehold or, if she doesn’t sell in this time, for 25 years.  

The second benefit will be a ‘paper gain’ on the value of the farm that takes place as soon as the improvement is completed and which she can ‘realize’ (turn from being a paper gain to a actual money gain) any time she wants by selling the leasehold. 

 

As soon as the improvement is complete her leasehold interest in the farm will go up in value by 20%.  In other words, her interest in the farm will be worth 20% more because the farm is not the same farm after she improves it:  It is a much more productive farm that will generate more wealth for the (new) owner than the old farm. 

 

She paid $12 million for her rights to this farm.  After the improvement, these rights will be worth $14.4 million. She will have made $2.4 million. Her wealth position  goes up by this amount as soon as the improvement is complete, but she won’t actually have this money at that time.  This kind of a gain is called a ‘paper gain.’  If she wants to turn this paper gain into cash that she can spend, she will have to find a buyer and sell her rights to the farm for $14.4 million.  She can then use $12 million to pay off her mortgage and she will be left with the $2.4 million. 

Incentives to Improve

If Kathy can increase the operating profits by $480,000 a year, the farm’s market value will go up by $2.4 million.

She will not actually get $2.4 million.

But she will be worth $2.4 million more ‘on paper.’  The  market value of something she owns will be this much higher.  If she wants to turn this ‘paper gain’ into real money that she can spend, she has to sell the leasehold. 

Annie wants people to buy leaseholds, improve them, and sell them.

That is what Castle and Cooke wants to encourage.

It owns immense amounts of land. 

It started with primitive land with grass huts. 

It now owns well-developed facilities including mega-resorts, condo complexes with thousands of units, row on row of luxury mansions, electric power plants, office complexes, stores of all kinds, and all of the facilities needed to maintain the lifestyles of the rich that it wants to buy into the projects on the island. It cost hundreds of millions to build all of these things. 

Castle and Cooke didn’t make these improvements. 

The leasehold owners did. 

They planned them.

They got the permits.

They arranged financing.

They brought in the contractors. 

They hired professionals to monitor everything to make sure it was done right.  They got the improvements to a point where they were working and generating free cash flow.

Then they sold their rights to someone else. 

The rents went up and up, from hundreds of dollars per acre to thousands and eventually millions. 

 

Our group in Pastland is in a position to form any kind of society we want.  We know that in the societies we inherited back in the 21st century, the interests of the people who make day to day decisions about how the world is to be used do not align with the interests of the human race.  The human race wants a clean, safe, peaceful world.  The people who control land can make themselves very rich by raping it of its wealth and using this wealth to make weapons to ‘conquer’ neighbors.

Their interests not only don’t align with ours, they are virtually the opposite of ours. If they make money, we suffer. This is not a sound way to organize a society.

We want certain things.  We have certain ‘interests’.  Our interests are basically the same as those of Castle and Cooke.   We want the land protected. We want it to stay healthy.  We want it to produce wealth for our benefit. We want things to go smoothly, with protection taken against risk and potential problems.

There is a kind of taboo topic that we aren’t supposed to discuss.

We aren’t even supposed to think about it. 

There are pretty obvious similarities between humans and other animals.  We have the same internal organs as other mammals.  We have hearts, they have hearts. We have lungs, they have lungs  We have blood, they have blood.  We have brains, eyes, ears, and noses and they have the same organs that clearly have the same functions.  We have a 3 billion link DNA molecule in the nucleus of all or cells.  They have DNA molecules of similar length, that are almost entirely identical (about 99% compared to chimpanzees and bonobos). 

Might it be that we are basically just another variety of the beings we call ‘animals?’ 

When Charles Darwin proposed that we were, his peers attacked him with incredible vigor.  His first book on this topic, called the ‘Origin of Species,’ didn’t even deal specifically with human evolution, it only talked about the basic processes that seemed to operate in nature to cause the capabilities of the most capable species in nature to increase over time.  He called this process ‘natural selection.’ Although he didn’t specifically claim (at least in this book) that this process might explain how humans came to exist, his analysis implied that it had to do this:  He presented evidence that showed that natural selection was a scientific principle that operated whenever certain conditions existed. 

Attacks came from all quarters. In his introduction to the follow up book, called the ‘Descent of Man,’ he discusses the mental deliberations he went through before he decided to publish his research on this topic.  It would give his many enemies ammunition they could use to attack him.  Finally, he decided it was just too important.  His research provided important insight about the way human existence worked.  He had to make it available.  Perhaps people in his own generation would not see its value.  But there may be a time, in the future, when people are able to see it importance. 

Many countries immediately banned the work.  It was heretical, going against everything people have believed since the very first humans (Adam and Eve, for believers in the religions based on land grants made to Abraham, including Islam, Judiasm, and Christianity) walked this world.  Humans are unique, created through an entirely different process, than the beings that we eat for dinner.  All of the religions I have researched seem to accept this.  We are not like our food.  Whoever or whatever process created the world was not satisfied with the unintelligent beings that make up all other life on earth.  The creators (creator, singular, for monotheists) needed beings more like them/him.  There are two classes of living beings on earth:  humans and everything else.  We are in a different category. 

In some cases, the leaders went farther than simply banning work that claimed otherwise.  They passed laws that punished people who even talked about the ideas of Darwin (which spread among the scientific community like wildfire), or told young people these ideas even existed. 

You can read Darwin’s words: both of the key books discussed above are available on the PossibleSocieties.com website, under ‘resources.’  You can see for yourself that they aren’t designed to be critical or make any value judgments whatever. He only presents evidence, the same kinds of evidence that would be accepted in courts as unassailable, for point after point after point, all of which lead to the same conclusion.  The scientific evidence can only be explained by accepting that the process of ‘natural selection’ causes change that slowly improve the capabilities of living things.  This process takes place in molds and fungi, in bacteria, single celled amoeba, and in multi-celled beings (called ‘eukayarotes’) of varying levels of complexity.  It happens in insects, in rodents, in birds, in fish, and it even happens in the extremely complex living things we call ‘mammals.’   

In the book Descent of Man, he shows that it even happens in the highest family of mammals, the family we now call ‘primates.’ 

 

The Acceptance of Evolution

Resistance persists to Darwin’s ideas even to this day. 

Nothing seems to make a true believer in any of the Abrahamic religions madder than proposing that Darwin may have had a point.  But most countries have gotten rid of the laws banning Darwin’s book and making it illegal to accept his ideas. 

Darwin’s logic is impeccable.  I am amazed, when I read his work, by his ability to keep his focus on the scientific evidence, and follow it where it leads.  It is so perfect and so obviously correct.  More than 150 years have passed since Darwin’s books were published.  Science has advanced by many orders of magnitude and we have tools that can be used to check his work that were far beyond the capabilities of science at the time he did his work.  We learned how to date artifacts with radiocarbon dating, so we can verify the calculations he made, using far simpler methods, about the ages of fossils and other artifacts, including artifacts about early humans. We now have the incredible tool of DNA sequencing that allows us to monitor the progress of evolution step by step, codon by codon, link by link in the more than 3 billion link DNA profile that leads to through various lower animals to mammals, to primates, to higher primates, and eventually to humans. 

The evidence is so clear and obvious that no one who claims to accept science can doubt it:  to reject the premise that humans evolved from other primates requires that they reject infinite evidence, all of which points to the same conclusion. 

There are still quarters where it is considered heresy to accept that humans have animal voluntary ancestors. But there is no longer any real resistance to the ideas in the scientific community.  This basic premise is accepted as scientific fact.

 

The Key Period in Evolution

Our brains are electrical devices. They operate by sending electrical signals  various different places. Scientists can detect the signals with sensors and determine where various different thoughts originate and how they are processed.  Research in this area is still in its infancy, but scientists have determined that humans have several different brain components that our closest non-human ancestors do not have.  This tells us that it probably took a lot of time for the final stage in evolution to take place. 

Each different brain component has a different function.  Our ability to speak, which is unique to our species, depends on brain components that are independent of our higher reasoning abilities.  The thoughts that allow us to build complex tools, also unique to our species, appears to take place in a different part of the brain than the thoughts that allow us to build complex models and draw them out (on paper if we have paper, but on dirt with a stick if we don’t have paper).  The fact that there are many different specific differences tells us that, most likely, certain very intelligent non-human primates developed each of these abilities separately.  Each ability gave the primate that had the advantages over others when time came to find a mate and gather food to support offspring.  The offspring of the more-capable primates were more likely to survive than the children of the primates without these abilities.  In some tribes, a few individuals could make models better than others.  In some, a few could make better tools.  In some, a few could communicate better.  These gave these individuals and their groups advantages.  Over a very long period of time, nature would basically try out various combination of these thinking advantages.  Males with one advantageous capability would mate with females with a different capability.  Babies would be born that had both. 

At birth, the babies would not know that they were smarter than their parents.   Primate babies are born with brains that are almost a blank slate. We don’t even know how to focus our eyes or control or fingers at birth. We learn these things.

 

The behaviorist John Watson did research to determine the capabilities of newborn humans.  He explains his findings in the book:  ‘Psychology as the Behaviorist views it,’ available on the PossibleSocieties.com website.   His conclusion is that we only seem to have three ‘preprogrammed’ behaviors when we are born.  He calls the first ‘nipple seeking.’  We turn our heads to try to find a nipple to suck on.  The second is sucking itself.  The third appears to be our greatest fear, something that elicits a behavioral pattern he associates with the emotion called ‘panic.’  This response is elected when we sense a lack of physical support (if we not being protected from falling, or being held incorrectly). Watson conduced extensive experiments and determined that these are the only things we are preprogrammed to do. All else is learned. 

 

As they grew up, they would find that they could solve problems their parents couldn’t solve.  They be smarter than their parents, at least in certain areas. The increase in intellect would come slowly. 

At some point, the children would get frustrated at the shortcomings of their parents.  They want to say things and know how to say them.  They can discuss these things with their siblings and perhaps with other members of their tribe.  But their parents appear to be unable to understand. 

 

Chimp Societies

Our closest genetic relatives are in the Chimpanzee family.  The match is perfect for 96% of our DNA:  For almost all of our DNA, every single link matches, more than 2.9 billion links match exactly.  Even the other 4% is very similar, with only a few links off here and there. Genetically, we are very similar to chimpanzees. 

The societies of humans on earth operate so much like the societies of one of our animal ancestors that we could almost say that they operate identically.  The primates we call ‘chimpanzees’ are extremely territorial animals.  They form into collectivist groups (tribes, clans, packs, nations, whatever you want to call them) and mark territories.  The territorial borders are marked by certain members of the tribe and then accepted by others in the tribe.  Generations may pass after the first chimps marked the territories; later individuals will be taught where the borders are and will continue to respect them.  (In other words, they don’t let each individual decide where the borders are:  the entire collective accepts the borders, as marked by the early members who first determined the borders.)  

They defend the territory inside the borders with their lives.  They select certain individuals (normally strong and aggressive males) to a patrol the borders.  If the group on patrol finds that other members of their species that were not members of their collectivist group have crossed the lines onto their property, they track these individuals down and kill them. 

They do this very aggressively.  Trespassers can’t save themselves by retreating across the lines to avoid capture and punishment.  The chimps will organize parties to cross the lines, find the guilty individuals, and kill them.  If the trespassers have allies that protect them, the patrolling party attacks the entire group with the clear intention of killing very last one of them.  This behavior has been well documented and the ‘resources’ section of the PossibleSocieties.com website has a number of scholarly articles written confirming this. 

If we want to come up with a name for these societies, we may start by nothing that they divide the population into separate collectives, so we may start by calling them ‘collectivist societies.’  The individuals expend enormous energy to protect their marked territories.  (A study by Sylvia J. Amsler of the Department of Anthropology at the University of Michigan, available in full text on the PossibleSocieties.com website, discusses the energy cost of this behavior.  She has determined that a large portion of the resources of the tribe have to be devoted to protecting the borders; this percentage is comparable to the percentage of wealth that humans devote to the same behaviors, by taking wealth as taxes and using it to fund militaries.)  

Why do chimps do this?

Or, more importantly, what are the explanations for this behavior we can exclude:

We know that they don’t have organized sciences that study the different ways that chimp societies can operate; they don’t write and publish papers about this so they can compare notes; they don’t have forums about the best way to organize society where they analyze the options, and hold global elections where all chimps vote where they choose this option.  We know they don’t do these things because chimpanzees don’t have the ability to do any of these things.  There is no such thing as ‘chimpanzee scientists.’  There are no scholarly papers comparing societies (or on any other topic) published by chimpanzees.  There are no global forums of chimpanzees.  Whatever the reason for these behaviors, we can exclude this option:  they don’t do it because of logical and scientific analysis.

If there is no logical reason for these things, yet they happen in numerous chimpanzee communities that are not in communication with each other, there must be some sort of hard wiring in whatever structures determine their behaviors that pushes them t act this way.  We can use the term ‘instinct’ as a generic one to refer to ‘some pressure that pushes animals to behave some way that is passed down genetically.’

In other words, we can say that, whatever forces pushes them to act as they act, they come from instinct.  This instinct is then passed down, in some way, to offspring.  The offspring don’t do logical analysis, determine that having borders is a good idea, then create the borders and protect them.  They are born with a propensity to act this way.

 

The consortium found that the chimp and human genomes are very similar and encode very similar proteins. The DNA sequence that can be directly compared between the two genomes is almost 99 percent identical. When DNA insertions and deletions are taken into account, humans and chimps still share 96 percent of their sequence. At the protein level, 29 percent of genes code for the same amino sequences in chimps and humans. In fact, the typical human protein has accumulated just one unique change since chimps and humans diverged from a common ancestor about 6 million years ago.

To put this into perspective, the number of genetic differences between humans and chimps is approximately 60 times less than that seen between human and mouse and about 10 times less than between the mouse and rat. On the other hand, the number of genetic differences between a human and a chimp is about 10 times more than between any two humans.  From https://www.genome.gov/15515096/

 

These societies are collectivist:  the animals divide themselves into collective organizations of some type (tribes, clans, nations, whatever you want to call them). Then they respond to instincts that push them to mark territory as their property.  We may call them ‘Collectivist systems built on the Instinctive Marking of Property’ or chimp societies. 

Humans in Chimp Societies

Imagine that you could be transported back in time.  You are living with a group of whatever kind of primate was the immediate ancestors of humans just before they started gaining the higher reasoning and complex communication abilities that we now associate with ‘humans.’  

Imagine that their societies were organized as described above before they gained these thinking abilities. 

At some point, some of the animals realized that they had abilities their peers did not have. 

They could do things the others couldn’t. 

The others looked up to them. When they needed things done that they couldn’t do themselves, but that the more advanced members of their group could do, they went to the more advanced ones for help. 

All of these beings were born with instinctual pressures that we might call ‘feelings’ that pushed them to want to do the things discussed in the quote above.  (The chimps didn’t have discussions, do logical analysis, and decide to patrol their territory and kill any members of their species that weren’t members of their tribe.  They didn’t have the mental capability to do these things.)  The more intelligent members of the group have these same instincts (or ‘feelings’).  

 

Feelings and instincts:  In the book ‘on Feelings and Emotions’ Darwin discusses the relationship between what we call ‘instincts’ in other animals and what we call ‘feelings’ and ‘emotions’ in humans.  Jane Goodall (a scientist who has studied chimpanzees very closely and live in their societies for many years), interprets the forces pushing them to act certain ways as ‘emotions.’  They seem to have feelings that tell them they are a part of a collective group (again, we may give this collective group many different names, including a ‘nation’).  She would say (interpreting the psychological pressures as emotions) that they have feelings that push them to identify with what is actually an arbitrary group (there is no identifiable genetic difference between the different groups that patrol different areas.)   Then there is something that makes them feel it is necessary to mark the borders of their group’s territory in some way that is absolutely clear to other members of their species and make sure that any members of their species that are not identifiable members of their own collective are not able to cross the lines without severe repercussions.  To make this very clear, they have feelings that push them to follow any who violate the sanctity of their borders and kill them, together with any who try to protect them.

 

If you could talk to them and ask them why they thought it so important to patrol the borders (which are basically arbitrary, which they didn’t set themselves, and which don’t separate individuals that could be told apart by outsiders), they would not know.  They just know they have these feelings and they are very strong.  They know that the other members of their collective have the same feelings. Although they are different in some ways (some are much smarter than others), there is one thing that ties them together:  their feelings of what we may call ‘kinship’ with others born inside their borders and their hatred and fear of the members of their own species who were not born part of their collective. 

The more intelligent chimps use their capabilities to help them do the things their feelings told them were absolutely essential and that they had to do.  Their instincts/feelings told them to respect the borders that their ancestors had marked, perhaps many generations ago.  Their instincts/feelings told them to work with other members of their collective to organize the patrols and, when necessary, the parties to track down violators and kill them. 

They saw that the members of both groups used extremely primitive tools to carry out these missions.  They used sticks and rocks.  They (the more intelligent chimps) could figure out how to build more effective weapons.  The could then help their group carry out its objectives.  They could inflict so much damage on the enemies that they would be forced to flee in terror.  Their enemies, in their panic, would leave large swaths of productive territory undefended.  The attackers (the ones with the better weapons) could simply take over this land and add it to their territory. 

In time, the greater intelligence and superior weapons would spread. 

 

Nature hates inbreeding.  Animals have instincts that are designed to prevent it. Mammals are driven to seek mates from outside of their immediate family.  (Inbreeding reinforces dangerous recessive genes that lead to a host of extremely serous diseases, many of which are so deadly they kill the inbred ones, generally at a very early age.  Territorial animals often raid other territories for mates or relax their territorial rules at certain times so that males and females from otherwise ‘enemy’ territories can meet and form pair bonds.  Instinct gives all mammals, including humans, aversions to having sex with individuals of the opposite sex who were in their immediate family or close to them when growing up.  Many human groups with close genetic ties actually contract with ‘matchmakers’ to help arrange mates for their children from other villages than their own. 

 

The more intelligent members of the group would then be driven to design and build even more effective weapons. They would figure out how to make slings to multiply the force of projectiles; they would find ways to light projectiles to set anything they hit on fire; they would figure out how to build javelins that could hit and kill enemies long before the enemies could get close enough to do any harm to the attackers. 

They would still have chimp societies. 

Their societies would still be the same as the societies of pre-sapient animal ancestors.  They would still have instincts that pushed them to patrol the borders their ancestors had defined and organize parties to kill any members of their species who were not recognized parts of their collective who didn’t show the proper respect for their ‘property.’  They would just have better tools to respond to the instinctual pressures pushing on them. 

In time, they will learn to anneal rocks in ways that allow the rocks to hold create razor sharp edges that can slice through human skin with ease.  They will learn to attach these cutting tools to arrows and build bows that will propel the arrows through the air with enough force to cut deeply into the body and tear apart the internal organs of those who are hit, causing such internal damage that a single arrow can be fatal. 

At some point, after building very hot fires, some curious individuals will see that tiny droplets of metals have formed on the rocks around the fires.  They will have ‘smelted’ metals.  Copper and tin precipitate out of oxides in the rocks at lower temperatures than the other metals and would be found first.  The little droplets can be hammered together and would combine to form the metal bronze, which is extremely hard and durable.  Bronze weapons gave great advantages in war to the particular collectives (tribes, nations, whatever you want to call them) that had these weapons.  They would be able to drive the other tribes from parts of their territory and could take over and expand their property.  The metal technology would spread.  On earth, the age of bronze weapons began about 3500 BC (about 5,500 years ago, almost immediately after the first evidence of societies built on territorial sovereignty appear).  Metal smiths would try various techniques to make even harder metals.  Eventually they would figure out how to smelt iron from rocks. Iron is much more difficult to remove from rocks than copper and tin (the raw materials of brass) but iron is much more abundant; it is basically available everywhere. 

 

Qqqq bronze weapons

 

Metal smiths would have quickly found that they could take iron and work it in certain ways that would create an even stronger metal, called ‘steel.’  Steel is a mixture of iron and carbon.  The carbon gets picked up from the carbon monoxide in coal smoke.  To make it, you need to heat iron red hot in a coal fire then beat it with a hammer, essentially forcing the carbon atoms into the iron.  It is a very long process but, if done properly, will create weapons that can hold razor edges that will cut through any kind of flesh.  (Steel swords can decapitate enemies or amputate their limbs with a single stroke.) 

The beings would still have the simplistic societies they inherited from their pre-sapient animal ancestors; they would still mark territory with borders which they will defend with weapons. They don’t do this because it is logical or their intelligence tells them to do it, they do it because they have the feelings and emotions (names people like Darwin and Jane Goodall use to refer to the pressures that push animals to do things that we otherwise wouldn’t be able to explain) make them feel this is necessary.  They do use their logic and reason, however, to make steel:  your emotions don’t tell you how to make a kiln to smelt iron from rocks, feed it, blow air through it, and do all of the other things needed to turn iron-containing rocks into iron. You have to learn these things from others who have studied the field and found out what works.  Once the weapons are made, they can be sent to the beings in charge of the military, so they can be used to defend the borders and possibly drive members of other territories off of their territory so their own group can claim it.  

These beings will be in the same category of the beings we call ‘humans’ on earth at this point.  They will have built quite large and complex facilities to make the weapons.  This requires some rather complicated organizational skills.  Iron refining requires full time workers:  enormous amounts of energy have to be expended to get the fires in the furnace hot enough to smelt the iron; this requires creating vast amounts of charcoal. 

 

Wood and coal do not burn hot enough to smelt iron.   You need a fuel that is basically pure carbon.  Charcoal is wood that has been processed to remove everything except the carbon; ‘coke’ is the name given to the same product if it is made with coal.  Even with pure carbon fuel, you can’t make a hot enough fire without an enormous amount of oxygen being forced through the burning coals; this requires a large and powerful bellows that needs to be operated at high speed for more than 6 hours without stop.  (Normally, a single worker will only be able to put out this effort for about 5 minutes, so workers need to be rotated to keep the bellows operating.) 

 

The people who build and operate the iron refineries, the steel mills that turn it into steel, and the weapons factories that turn the steel in to metal, will not be able to go out and raise their own food, build and take care of their own homes, and take care of their own other needs, and still have time to make steel.  An organized system must exist to support these people in some way. The people with the advanced weapons must set up a system where people specialize in different jobs and work together to make sure the weapons are available.  The soldiers who use the weapons must also be freed of the need to get their own food and provide their own housing, or they won’t be available to fight when this is necessary.

The basic foundational elements of the societies of these beings will still be primitive and animalistic societies. But they will have to have a great deal of technical ability to organize the structures needed to defend the territories their instincts push them to defend.  In time, certain fields will develop into complex technical sciences.  Some of the collectives (which we may call ‘nations’ at this point) will open schools to teach children how to refine and make metals.  Certain people will step forward to lead the military effort.  These people will propose rules that they think will increase the military capabilities of their nation.  In some cases, they will propose that all of the people who are being protected by these militaries be required to make some sort of contribution to support the people who make the weapons and the soldiers themselves. They will set up a tax system. Although it is possible to have complex industrial societies without money, societies that find something to use for money will run more efficiently and be able to produce better and more powerful weapons industries and military machines. 

At some point, some people will realize that certain mixtures of chemicals, if missed together and ignited, will explode with incredible force.  The first such mixture found on earth consists of 75% saltpeter, 15% charcoal, and 10% sulfur.  This mixture is called ‘gunpowder.’  Put it in a properly constructed steel ball with a tiny hole in it, put a fire to the tiny hole so it can get into the ball, and the ball will explode, sending steel shrapnel in all directions at such great speed that it will tear any living things nearby to pieces.  (This kind of weapon is called a ‘grenade;’ the old saying goes ‘close only counts in horseshoes and hand grenades; if it explodes within a few feet of you, you will be dead.)   They will discover bombs (large grenades), rockets (tubes that are open on one end with gunpowder burning inside), guns, cannon, mines, torpedoes, and many other weapons.   The nations that get these weapons will have great advantages in war over the other nations (essentially territories of arbitrary size defend by arbitrary borders).  These beings will still have the animal societies that operate according to instincts (which we would call ‘emotions’).  The people would feel that the land inside the territory was ‘theirs.’ It belonged to them.  The people on the other side were trying to take something that was theirs.  They had to stop these people. 

Even at this late point, when they must have fairly complicated sciences and societal structures, they may not think of applying logic and reason to the basic structures of their societies. 

Why do they divide the land around them with imaginary lines and fight over these lines?

They may never even consider this.

In fact, when people start to raise this question, they may consider it to be dangerous.  The war effort is a priority.  If people start asking questions like ‘what are we fighting for?’ that may corrupt the minds of the children who will have to take the places of the soldiers now on the battlefield when these solders are killed. We don’t want children to be wondering about these things:  they may not go to war when asked or fight with fanatic abandon.  If people raise questions like this, they need to be silenced.  If they don’t agree to stop asking these questions, it may even be necessary to kill them.  (Pythagoras, Socrates, Alexander the Great, Thomas More, are among many people silenced this way. )  

Government in Chimp Societies

As we have seen, some societies can function quite well without any organization with the power and authority to ‘govern’ (or ‘control’ or ‘rule’) the people.  Natural law societies don’t need these organizations.  The land isn’t owned so the wealth the land produces isn’t owned.  Our group in Pastland doesn’t need taxes:  we can use part of the unowned wealth to pay for services, and divide the rest among the people.  Everyone has a basic income (from their share of the unowned wealth) that is enough to provide their needs, so there is no need for a ‘job creation’ system.  We can make basic rules that make sense without any need for a ‘legislature.’   (We can have a legislature if we want one, but we don’t need one.)   Since we don’t accept the basic principle of territoriality, we don’t have to devote our wealth to fighting over borders and we don’t need a powerful body organizing the economy so it can produce enough weapons.

The chimp society can’t function without a government.  In fact, for practical purposes, this chimp society is just another name for a society built on the principle of territorial sovereignty.  Since it is built on divisions that require force to maintain, and nations that don’t have the ability to produce enough weapons and powerful enough armies to defend their territory will be conquered, the system needs a central authority directing all activity so that it can meet its prime need, which is the need to support the military machine. 

Socrates discussed the needs of such societies in great detail in the book Politika, available on the PossibleSocieties.com website.  They need an intensive education system that does not focus on providing correct and objective information for children:  It must focus on bringing out their territorial emotions.  It must have lessons that lead them to believe that the people on their side of the imaginary line are somehow entirely different kinds of people than the people on the other side of the imaginary lines that they call ‘borders.’ Socrates claimed that true, objective, logical, and scientific analysis are not going to make children think this way. They must be told lies.  They must be fed a version of history that portrays the entity they will be fighting for (their nation) as a wonderful thing that is moral, pure, just, and righteous and that the entity they will be fighting against is the epitome of evil, populated by monstrous savages or vermin who need to be wiped from the face of the earth for the benefit of all that is good and holy and pure.  Socrates discusses the techniques that had been created to implant these modes of thought in children of his own day in detail.  He discusses everything from the tempo, key, and harmony requirements for patriotic songs to the specific truths that have be omitted from history books and replaced by lies.  If you read his words, you will recognize all the tools he discusses:  the same tools that were used to indoctrinate children to turn them into ‘patriots’ 2,400 years ago where used on you when you went to school and are being used on the six year olds going to class the very first time this year. 

In these societies, the entities that we are raised to call ‘governments’ (which don’t even exist in many societies, including both the socratic societies we examine in Part Four and the natural law societies we examined in Part three), will control everything. 

There will be times when people will get upset with the government of the entity they were raised to call ‘ their country.’

Why does it have the incredible power it has?  Why does it make all the laws, take as much wealth as it wants from anyone, decide how land is to be used, subsidizing destruction, deciding who gets medical care and who doesn’t, deciding which foods people should eat and which they shouldn’t?  People will get upset and want to do away with as much of the government as they can do without.  The people in the government will want to increase their power.  They can generally do this by playing on the emotions that people have that come from the instincts that make them want to mark territory as ‘property.’  We normally call these instincts ‘fear’ and ‘hatred.’  The people in the government can use techniques that have been known for centuries to increase the amount of fear and hatred in the people.  They can hire ‘information specialists’ who go to war areas and take pictures of children and other innocents who have been mutilated by war.  They can go over the ‘enemies’ new weapons and show how horrible they are and make their people think that they are in imminent fear of attack.  If this isn’t enough to create the required fear, they can organize attacks against their own people which they will blame on the enemy: the enemy is trying to destroy them. This is NOT the time to worry about reducing the side of the government.  We need to increase it to deal with the threats.

 

Many atrocities that led to the beginning of wars over history are staged events where soldiers dress up in the uniforms of the enemies to do horrible things (mass rape and mutilation of children are common themes), making sure they are being watched by people who will report it; they retreat but leave behind bodies and artifacts of the enemy. Since these events are staged, the press has been put on alert and are waiting for news:  the press releases are prepared well in advance. 

If all else fails, a real event is staged that kills large numbers of people in the country of the government who committed the atrocities.  Because this happens frequently, and people mistrust governments so much, when events called ‘terrorist’ occur that incite great emotion, many people suspect their own government was behind them. 

Segue to Part Four

 

Two kinds of societies have existed on earth in our history.  One is the natural law society that doesn’t accept ownability of parts of planets at all. Both of these societies are simplistic and primitive.  They can both be based on beliefs, feelings, emotions, and instincts.  Neither is truly a ‘human’ society in that humans are not need to create either of them.  Some species of primates are non-territorial and live a lot like people in natural law societies.  Some are highly territorial and live a lot like people in territorial sovereignty societies. 

Humans are animals and we can function in animal societies.  But we are the only living beings on earth, at least that we know if, that do not have to accept the societies our instincts/feelings/ emotions push us into.  We can use the same tools we use to help us build better weapons to help us build better societies.  

I am not the first to propose this idea.  Socrates discussed the same issues 2,300 years ago.  He understood there were two different systems, both extreme and both simple, that have existed in the past.  He proposed studying them scientifically. Figure out the different structures required for societies.  Figure out the different ways these societies an be put together to make finished societies.  Figure out how the different societies work. 

The socratic society described in Part Four, the next part of the book, is built on the basic ideas that Socrates proposed more than 2,300 years ago. 

Although the basic ideas are the same, we have a lot of tools now that we can use to understand societies that simply weren’t available 2,300 years ago.  We have a great deal more ‘history’ than Socrates had to draw on, in determining what is possible.  Scientific and mathematical tools are far more advanced.  We have the benefit of seeing how the basic structures that Socrates claimed were extremely dangerous and would eventually destroy us (if they were left in place) evolve over time.  We have the internet, which allows us to interact with others and work with others all around the globe.  We have the ability to store and access large amounts of information, and proceed down a path to logic and reason. 

The basic principle of the socratic society is not new.  It has been around a very long time.  But as the saying goes, ‘the devil is in the details.’  Socrates could propose that we try to take the steps and try to figure out how societies work to see if we could put together the best features of the two societies that we know are possible.  However, he didn’t have the tools to work out the details.  People could protest that Socrates really didn’t know what he was talking about, or he would understand the details. 

 

At his trial, Socrates describes the charges against him in his speech to the jury:

‘This confounded Socrates, they [the accusers] say; this villainous misleader of youth!— and then if somebody asks them, Why, what evil does he practice or teach? they do not know, and cannot tell; but in order that they may not appear to be at a loss, they repeat the ready-made charges which are used against all philosophers about teaching things up in the clouds and under the earth.

 

He must not be allowed to mislead people into thinking there is a road to a better world, when their efforts were needed to help keep the war machine operating.  He is proposing study but, his critics said, study had to be prevented at all costs; they rationalized this by saying that if his ideas were sound he would already have answered all questions and shown exactly how the better society he claimed was possible worked.

Starting with the next chapter, we will examine a society that starts with the simple natural law we started with in Pastland (when we passed the moratorium on ownership of parts of planets by countries and other human entities).  That is a very simple system.  We will all have experience from the future (before the nuclear test destroyed the world, when we lived in the 21^st century) that tells us that allowing ownership brings advantages.

We happen to have someone with us who was, back in the 21^st century, a kind of expert in this field. As we will see, there are people in our world today who study the different ways that ownership works and the different kinds of ownership that are possible.  In certain places, what we may call ‘alternate kinds of ownership’ of parts of planets have been put in place.  We have very large amounts of data showing the way they work, the incentives they create, and the prices of the different rights that are offered. 

In recent history, certain corporations have acquired enormous amounts of land.  They never intend to get rid of that land.  They want to keep it forever.  But they want certain things from the land over time.  They want people to manage it, treat it as if it was there own, to improve it, care for it, and keep it healthy and productive. But they do not want to let the people who will do these things keep the free wealth that flows from the land already. The corporations have set up systems that allow them to sit in the background, do absolutely nothing, and remain the primary beneficiaries of the land. They don’t want he people who make decisions to own the land because they want the primary benefits of ownership for themselves. 

We have a person with us here in Pastland who has an experience with this.  Her name is Terry.  She realizes that the human race, in Pastland, has the same basic goals and requirements as her former bosses in Hawaii.  We want the land to be healthy.  We want it protected.  We want it improved.  We want the people who work it to treat it as if it were their own, even though they don’t own it.  She realizes that we, in Pastland, we can use the same tools that her bosses used to accomplish the same ends.  We don’t have to let people own land itself to get the benefits we want.  We can let them buy, sell, and own rights to land, essentially making them ‘part owners.’  They are partners.  Their other partners are us, the members of the human race. 

She will show us how this kind of partial ownership system works.  She will show us that we can try out her system in a ‘no risk’ basis, in the same way that someone might try on a pair of sunglasses before buying them.  If we like it, we can keep it.  If not, we can go back to the natural law system where nothing was owned or ownable, without any need for any revolution, taxes, or any need to take anything away from anyone.  

We will have a vote and approve her ‘trial socratic ownership’ system. 

This system she is explaining is not something she has invented and is proposing. 

It is something that has existed.

It has been around more than a hundred years, thousands of properties are under the control of this system, and we know how it works.  We decide to try it out.  We will see that it works the same way in Pastland as it did in Hawaii; it creates incentives that push the people who control property to make massive investments that improve the properties.  The improvements will benefit everyone. 

After we see that it benefits us all, some people will propose expanding the socratic ownership system to other areas.  We will do this slowly.  Any properties that are not specifically designated as ownable will not be owned or ownable.  In other words, it will be administered the same way that it was administered when we had the natural law society.  Any property designated for ownability will be sold with socratic ownership.  

We will follow the socratic system for several generations.  We will see that people have the same basic incentives to improve in socratic systems as in societies built on sovereign ownability.  They make the same decisions for the same reasons.   They make the same money from the same sources. (Because socratics don’t need taxes, the people who work will be able to keep all of the benefits, so after everything is said and done they will actually end up with more money improving in socratic societies than in the societies we inherited.  As a result, the constructive incentives will be stronger in that system.)  We will have growth and progress, but no one will ever own sovereign rights to any part of the world. 

We will examine the incentives of the socratic system in the same way we examined the incentives of the two ‘parent’ systems.  We will see that it inherits many incentives from natural law societies, including incentives that encourage environmental, social, and personal responsibility. 

It also inherits certain incentives from societies built on territorial sovereignty, including the powerful constructive incentives that are the foundation for progress, growth, investment, effective risk management, and advances in technology. 

Part Five

Part Four explains the socratic system.  After you understand this, you will understand three entirely different systems. 

 

1. Natural law societies

2.  Socratic societies

3.  CHIMP societies/territorial sovereignty societies

 

It is almost impossible to really understand the societies that are possible if you have never seen or even heard about any other society than the one that currently dominates the world around you. 

You don’t think in terms of the different societies that are possible for thinking beings with physical needs, and the specific place that the system where you were born fits in.  You just think of this as another part of reality, like gravity, something that exists and that you must accept.  You wouldn’t be any more likely to think you can change the basic realities of the system of your birth than to think you could change the laws of gravity.

If you were born into a natural law society, as billions of people were, you will just think it is the way things are.  If others tell you there are other societies (like societies that divide the world into independent and sovereign territories) you may think they are just crazy, like someone who has taken LSD and says there is no such thing as gravity and she will prove it by jumping off of a bridge.  If you understand two societies, you may then see that, perhaps, there are two different ways to do things:  the first is the way you were raised to do them.  The second is the way people who are primitive, savage, superstitious, believe in strange gods, or have strange ideas about the world works, may do things. If you understand three systems, however, you can start to see that there is more to existence than just right or wrong, good or bad, or ‘rightthinking’ and ‘wrongthinking.’ In fact, there are a lot of different ways that humans, or other beings in the same category as humans, can organize their/our existence.  The structures of societies are tools.  We can use these tools to accomplish goals. 

You can stop looking at societies with value judgments.  It is not about deciding whether ‘they’ (the ones who organized their existence differently) were stupid and ‘we’ are smart, or we are stupid and they were smart. There are tools that intelligent beings can use to meet their goals.  We shouldn’t look at only one tool, out of the entire tool box, and argue over whether it is a good or bad tool.  We should look at all of the tools first; then we should figure out what we want to do, and then we should figure out which tools helps us do this best.

The society described in Part Four is not intended to be a ‘perfect’ society or a ‘utopian’ society.  It is an example of a society that uses intellect—rather than beliefs and rationalizations of instinctual behavior—to organize the important realities of existence.  It is an illustration of a society in this category.  There are many societies that could be formed by thinking beings with physical needs that are in this category. 

Which is the best?

To answer this question, we would have to have a lot more understanding than we have now.  This will take time and research.  We will see that all societies that are built on the idea of ownability of rights to parts of planet and other things that we call the ‘means of production’ must rest on mathematical relationships.  There has to be some way to set the ‘prices’ of the rights to these kinds of properties (properties that that last far longer than a human lifetime—possibly forever—and create value over time).  I chose the socratic system to illustrate this kind of society because the mathematical relationships are simple enough that most people will be able to do the math in their heads.  (This is a huge contrast to the realities of sovereignty based ownership systems, where people can study pricing models their entire lives and still only have a vague understanding of actual prices they see in markets.) 

I don’t think that many people will feel a need to understand the points of Part Four.  But I think they will feel a need to know that these matters are understandable.  They will want to know that the information is there and someone understands it.  If people know this, they can approach an understanding of human societies the same way scientists approach an understanding of complex biology (like DNA and its influence over organisms) or physics (like why things fall ‘down’ when we drop them, what makes them go up, and what the difference is between ‘up’ and ‘down’). 

Before Galileo, people didn’t even try to understand the basic forces that operated in the physical world, appearing to believe that these things were beyond human understanding. Galileo showed that they were not beyond human understanding.  We could study them and understand them.  If we did, we could take advantage of laws to build devices that make our lives better.  We now have many wonderful things, including phones that bounce signals off of satellites to allow us to video chat around the world, jets that can take us anywhere in the planet in less than a day, car seats that remember our height, weight, arm length, the exact temperature we want, all of the places we normally go and can make very good guesses about all the places we would want to go.  Virtually none of these things would exist if not for the confidence that we get by accepting the things Galileo was arrested and jailed for trying to tell us:  the physical world is understandable. 

We are still afraid to let this idea into our minds:  we can understand the societies of thinking beings with physical needs, including humans, with the same clarity that we now understand the laws of the physical world. It is true that, to accept this, we need to be able to overcome superstition and prejudice.  (The ideas that wars and other societal problems are due to the ‘will of God’ or due to forces of ‘evil’ are clearly incompatible with a scientific understanding of human societies.)   But since the time of Galileo, we have seen it is possible to overcome these mental roadblocks. 

Part Five is for the very brave.

It is for people who are willing to believe that the human race exists for some reason other than to destroy ourselves and our world in a battle over the location of imaginary lines.  It is for people who are willing to accept that the universe is bigger than their ‘countries’ and battles, or the petty superstitions and religions of people in the past.  It is for people who are willing to have hope that there is a reason for the human race to exist and a way to make it happen.

I hope that includes many people.

basic to prepare children's minds for later propaganda

10 Chapter Unsustainable Societies 2

 

As we proceed on our journey, we move to societies where the human race, acting as landlords of the world, get less and less income from the land. While this happens, we have more and more need for funding, because we have more and more problems. At some point, we will not have enough money to deal with our problems and we will have no choice but to start taking money away from people as taxes.

 

 

It may appear that we could easily deal with this issue by simply moving to a leasehold ownership system with a higher leasehold payment percentage. This is true. But we are moving to societies with ever lower leasehold payment percentages and explaining how they work. In systems with very low leasehold payment percentages (if we have decided that we won’t move to higher percentages, for some reason) the only way to increase the public income is with taxes.

The taxes take away some of the rewards for improvements, so they reduce the strength of constructive incentives. As we go through the range that needs taxes, the strength of constructive incentives will fall.

People will still be able to make money improving the world, but they won’t be able to make as much as before. They will still work to find ways to create value and drive up the free cash flows of properties, but they won’t work as hard as they were working before on these things. Rates of progress and growth will fall.

Factors That Reduce The Strength Of Constructive Incentives

Taxes are only one of several factors that reduce the strength of constructive incentives as we go through the next rage.

Increasing Instability

In the earlier systems, demand for items that were produced was pretty consistent, because the people who needed to buy things got the money they needed to buy them. In this example, which deals with Pastland during the time when it had a rice-based economy and the only property was the Pastland Farm, total production was $3.15 million a year. In the natural law society, $750,000 of this went to people who worked in production, leaving $2.4 million to go to the members of the human race. Everyone got an equal share of this $2.4 million, either in cash or in the form of services that benefited everyone. (We all voted in the elections so we decided how much we wanted in cash and how much in services.)

As we go downward through the range, the income shifts: the people who have saved money get more (as risk-free returns on their wealth) and people who don’t have savings get less. People with greater savings will get higher incomes than people with lesser savings, and people with the greatest amount of starting money will get enormous incomes, while people with no savings at all will get ever smaller incomes, and eventually zero incomes (unless they work).

Only a very few people are in a position to save an enormous amount of money, so only a few people will be rich and get the fabulous incomes that go to the rich. The great majority of the people will wind up with lower and lower incomes as we go through the destructive range.  Here is the problem:

People without money can’t buy the things they need. In order for the economy to work, there must be buyers to match with each seller. Often, very rich people simply can’t spend any more money than they are already spending, no matter what. You can only eat so much food. If you are already eating so much that you are morbidly obese, diabetic, and sick all the time from overeating, increases in your income are not going to cause you to eat more.

At some point, people without savings won’t be able to afford enough to keep them from starving to death unless they take jobs. At this point, they will have to work or die. Unfortunately, more need for jobs (to get income to avoid death) doesn’t translate to a higher need for labor in production. If the world is bountiful, only a small amount of labor is needed to collect its wealth. (This was the definition of bounty the book started with.)

The only way the people who now need jobs (but didn’t in the earlier societies) can get jobs is to take jobs away from people who already have them. They have to do this by offering to work longer and harder for the same money, do the same work for less money, or some combination of working longer and harder with lower wages. The people who already have jobs can’t afford to lose them in these lower societies: they will starve to death. They have no choice but to offer to work even longer and harder than the others, and for still lower wages, or they will die.

As we go through the destructive range, wages will fall very rapidly.

Wages started out in the natural law society at rates that allowed people to be fully paid for the unpleasantness, effort, risk, and other requirements of the job. For example, cleaning sewers of clogs is very unpleasant work, so sewer-cleaners got paid a lot, or they wouldn’t do the work. As wages fall, people with no skills will not be in a position to be picky. The wages for the most unpleasant jobs, which are generally those requiring the least skills, will plummet. They will get so low that, often, people with these jobs won’t be able to make enough money to keep them and their families out of poverty, no matter how many hours each day they work. The poor will start to get poorer, over the course of time.

As the rich get richer and poor get poorer, this system will be increasingly out of balance. The rich simply won’t be able to spend all of their money. The poor won’t have money to spend. Spending will collapse. At this point, people who have hired others to help in production won’t be able to afford to pay them and will have to lay them off. This reduces spending for three reasons:

First, people without jobs (and without enough of the free income from the land to survive on) can’t spend as much as they did before, no matter how much they need food and other things. They have no choice. They can only spend money they have.

Second, many people will not be able to afford enough to keep them and their families alive. They will start dying of poverty related ailments, like opportunistic diseases, hypothermia (because they can’t afford fuel or clothing to keep them warm), and starvation. As they die, their spending will fall to zero. (Dead people don’t spend any money.)

Third, people with enough money to get by will panic. They will see people starving to death around them and think that, if they spend as usual, they will run out of money faster and join the dead. As they panic, they will cut back their spending to create a larger buffer.

The lower spending leads to something that mathematicians call a ‘self reinforcing loop.’ Each reduction in spending leads to more unemployment, more poverty, more fear, and still lower spending. The system can continue to collapse until a very large percentage of the population has starved to death.

Book One went over the history of the world and showed that many of these total collapses have taken place. After the wars of conquest by the Roman Empire ended (because Rome had conquered all land geographically accessible), the Roman economy collapsed, and remained in a collapsed state until the renaissance, which occurred roughly 1,100 years later. (As we saw, the recovery was due to new war technology, in the form of gunpowder; if not for the need to compete in war, we may still be in the ‘dark ages,’ the name given to the collapse.)

Another collapse occurred in 1929 when the financial market collapsed. This collapse lasted until the final major county that held out for peace, the United States, entered the war and the war became the Second World War. Although the war killed more people than any other event in the recorded history of sovereign law societies, it was considered to be a success because the war, combined with the nuclear escalation that started in 1945, was able to pull the world out of this collapse, and get the systems functioning again. There have also been a great many minor collapses. These didn’t totally destroy the economies, but caused collapses in production, high unemployment and massive starvation among the lower classes.

The extreme instability of societies low in the range of possibilities prevents people from making improvements that they would otherwise make. If you can improve a part of the world to turn something with relatively low value (say dirt, which contains an average of 5.8% iron) into steel (which is roughly 98% iron), you have to make sure you can sell the steel before you can justify the expense of improvement. If people can’t afford cars, they can’t afford skyscrapers, can’t afford trains, planes, tools, or appliances that would be made out of steel, people who may consider investing in facilities to turn dirt into steel will probably not build them. In fact, even if people can afford things made out of steel at this time, people considering building facilities will hesitate to build if they think there is a good chance the economy will collapse before the facility has repaid their investment. The mere risk of instability reduces incentives to improve the world

 

War

 

At some point, the differential between the incomes of the wealthy and the incomes of the workers will become so great that the workers will rebel. They will try to overthrow the system. The system must be kept in place by force. The wealthy must get together into groups and set up a system to defend them from the poor. Each group will form its own ‘government,’ to administer that area.

The people in the governments will realize that they will have more power if they control greater areas. They will work together with the rich (who will become the owners of the conquered land) to conquer land that belongs tomother groups, when this land is not very well defended. Once they have armies, they will want to find ways to train these armies in situations that are as close to actual combat conditions as possible. They will find they can do this by engaging in ‘skirmishes’ with their ‘enemies,’ in something that we may think of ‘practice wars.’ These wars, like the United States wars in Korea and Vietnam and the Soviet war Afghanistan, are not intended to conquer territory. They are intended to stimulate demand for weapons, to make sure there will be plenty of weapons-making facilities available when ‘real’ war comes, and to keep the combat troops familiar with the mental states needed to win real wars, when they come.

The best situation, for a large nation, will be perpetual war, war that never ends. This will make sure the infrastructure needed for any supply of weapons that may be needed is always there, it will create the jobs needed to provide income to the non-rich, and it will destroy a large part of production, to help bring the enormous supply of goods close to the amounts the people can afford.

Here is the problem: Wars are risky. They increase the risk level of improvements. The people who improve never know for sure that their country may be ‘taken over’ and the conquering government may simply take their land away. They never know for sure if the war may increase demand for labor and drive wages up to levels that are so high the can’t afford to operate their facilities. Wars may also end and this frequently leads to very high unemployment rates (as both soldiers and arms workers lose their jobs) which may drive the economy into an unemployment-related recession.

If risks are higher, people need higher rewards to justify investing in improvements. An improvement that would have worked out (provided returns that justified the risks) during a time when the land that will hold the intended improvement is not in a war zone will probably not provided the necessary returns to justify the risk if the area is in a war zone. The risks associated with wars provide another reason that constructive incentives are weaker in societies that are lower in the range of possibilities.

 

Taxes

 

People have incentives to improve if the income they get to keep from an improvement is higher than the cost of the improvement. Remember that societies high in the range do not need taxes because the systems are set up so that the free cash flows the system naturally produce flow to the landlords of the Earth, the members of the human race. Nothing has to be taken away from people who have earned it, because nature is so incredibly bountiful and produces gifts. If this free wealth flows to the human race, acting as landlords of the Earth, they have no need to take anything away from anyone who works for it or does anything to deserve it.

In systems lower in the range, more of this free money flows to the wealthy, and less to the human race. At some point, we won’t have enough income to deal with the problems and will have to tax. It is, of course, possible to construct a tax system that will take only unearned wealth. But such a system is not practical in societies lower in the range, because the people who get the unearned wealth, the rich, are in positions of power and control. They control the governments that will take the taxes. They know they are better off if they are allowed to keep the unearned wealth, and make the workers and others who earn money pay the taxes. They can set up tax systems that make this a reality.

In our 21st century world, people whose income comes from unearned risk-free free cash flow can easily eliminate all tax liability, provided they are rich enough to afford a tax attorney. Although there are many ways to do this, one common option involves moving all of their wealth to a ‘tax haven country.’ (About half of nations on Earth are tax havens: they only tax earned incomes and don’t have any taxes on dividends, capital gains, interest, or other returns on wealth at all.) They can take a vacation to the ‘tax haven’ country and apply for and get a green card, meaning an official residency card. (Rich people automatically get green cards; in the United States, anyone with more than $1 million has to apply and it is always approved. Poor people have to go though a long procedure and most of them are not approved.)

Now they are a legal resident of a foreign country. (It doesn’t matter where they actually live. What matters is their legal residency.) They pay tax to their country of residence, not their country of citizenship or the place they live. Since their country of residence doesn’t tax unearned income, they don’t pay taxes on unearned income.

Note: even countries that pretend to have equal taxation offer huge tax breaks for unearned income. In the United States, a couple that earns their income pays taxes on everything above the first $10,000. The same couple doesn’t pay any income tax on unearned income until it exceeds $137,000 a year, and, of course, the largest tax in the United States, the social security tax, doesn’t apply at all to unearned income. These countries don’t want rich people to leave, because rich people spend more than poor people, generating more jobs, so they simply create tax breaks that make it very easy for rich to not pay any tax.

The huge majority of taxes in the 21st century world come from levies on money that people worked, taken on risk, or otherwise done something to earn. People who want to make improvements have to pay taxes on the materials they use to improve, on the labor, and on the supplies. They have to get permission (often at a cost higher than the cost of the improvements, payable to the government as a permit fee), and pay increased taxes on any increases that are specifically due to the improvements and therefore earned. They have to pay increased valuation taxes on the increase in value of the property (remember, earlier societies don’t have taxes and the leasehold payments never change, no matter how much the property is improved, as long as the property is owned by the same owner).

When we are higher in the destructive range, we have higher incomes from the land and smaller problems, so we don’t need very high taxes. But as we go down through the range of possible societies, we get into systems which will need higher and higher taxes. They will also be more and more unstable, more and more prone to war and other problems that reduce the rewards or increase the risks of investments that lead to increases in the amounts of value that flow from the world over time. The further we get through the destructive range, the weaker the constructive incentives become.

 

Destructive Incentives

 

As this happens, the rewards for destruction grow. The forces pushing toward war become ever stronger.

In the systems higher in the range, the human race had enormous power because we had an enormous income. We had nothing at all to gain from war in the societies higher in the range: war in these societies is nothing but sensless destruction of value that would otherwise benefit the entire human race. As we went through the destructive range, we got into systems where people needed and wanted war. The working class wanted war because war created the jobs that they needed and killed large numbers of others in their age and class who competed against them for jobs, forcing the supply of workers lower and driving up wages. The systems needed war to balance supply with demand: in peacetime the production facilities produced far more than people could afford to buy, leading to recessions and depressions (where unsold value caused market collapses). War destroyed fantastic amounts of value, reducing the supply, which had the same effect as increasing demand: more goods were needed, industry expanded, wages rose, profits rose, prices rose, government taxes increased, and everyone (except the relatively few people who were mutilated, lost their children, lost their homes and families, or were driven insane by the realties of war) was happy.

As we get into the range where war is essential to keep the society functioning smoothly (where humans must be killed to reduce unemployment, value must be destroyed to match the supply of goods with the spendable money, and the system msut employ large numbers of people doing things that don’t lead to the creation of anything valuable), we can expect the leaders to start to accept this necessity. They will start to devote a lot of effort to figuring out ways to create the state of mind needed for perpetual war, and will figure this out.

They will start taking children from their parents at an early age and indoctrinating the children to make them believe that people born in different sides of imaginary lines are different, with some imaginary lines creating people who are good and others creating people who are horribly evil monsters who are trying to destroy everything decent people care about. They must instill hatred in the enemies in the minds of the children, while instilling a love for the allies and people in their own country. They must make children believe things that are obviously untrue, like that their country has liberty and justice for all, where everyone is equal and we all have freedom ringing from every mountaintop.

Since logic and reason will quickly show the children that the things the schools teach children are not and can not possibly be true, children must also be educated in a process that we might call ‘doublethink,’ so that they won’t apply logic and reason to certain areas of existence. When it comes to making weapons, they have to be able to use logic and reason. But the reason that nations exist? The actual conditions relating to freedom, justice, liberty, brotherhood, and equally that they are supposedly building the weapons to defend? They can’t look too closely at that.

As we go lower in the range of possibilities, we would expect more and more intensive indoctrination methods, to instill the desired hatred and fear and make children think that they must inevitably submit to the realities of the system. The people who run the systems will do ever more research into ways to create the desired state of mind; to the extent that they are successful, the people will begin to think that there is nothing they can do to alter the realities of human existence.

This is not true. But if the people who run the systems have enough resources at their disposal, and use these resources well, they can convince nearly everyone that it is true. They can breed depression and misery and cause their people to give up all hope and take their role as cogs in the wheels of the giant military industrial complexes that they live in.

 

Minimally Sustainable Societies

 

As we go through this range, the human race, in their role as landlords of the world, wind up getting less and less automatic risk-free income from the land. At some point, we will get so little income from the land that we won’t have enough wealth to affect any important matters in our societies. The forces that push people to do things that lead to the creation of value are growing weaker while the forces that push people to do things that create hatred, conflict, violence, and destruction grow stronger.

You and I were born into societies where the rates of destruction of value (including ‘value’ in the form of breathable air, healthy food, safe water, and the value of knowing that your family will be safe from nuclear annihilation and that there is no pollution to give you cancer) exceed the rates of creation of value.

This is an unsustainable condition.

It is not possible for people to destroy more value than gets created forever. At some point, if they continue to destroy, some vital component of existence will no longer exist and the human race will not be able to survive. The societies we were born into are unsustainable. They do not meet the minimum conditions needed for the perpetual existence of the human race.

We have seen that some societies do not destroy more value than they create. Natural law societies, for example, clearly meet the minimum conditions needed for sustainable. We know this is true because billions of people lived in these societies for millions of years with no destruction that we can detect at this time.

If there are some societies in a range that do meet the conditions needed for sustainability, and there are other societies in the range that do not meet the conditions for sustainability, and the range is ‘continuous,’ (meaning there are no holes or gaps in the range), there must be a transitional system. There must be a system that marks the border between the two different types of societies. There must be a particular society that barely meets the conditions needed for sustainability.

Perhaps we may not be able to place the exact location of this particular society, but we know it is somewhere. If we continue going down through the range of possibilities, we will eventually get to this transitional system.

 

8 Chapter Eight Post Socratic Societies

 

In leasehold ownership systems, people who want to control parts of the planet privately must have some skin in the game. They must invest some money which they may possibly lose. The amount they invest in the property, at least initially (when the first become involved with the property), is called the ‘price.’

The landlords in the leasehold ownership system can decide how much people will have to invest (and possibly lose if they violate landlord rules or do things that reduce the value of the property). If the landlords choose a system that leads to higher prices, the people who want to control parts of the world privately have stronger incentives to manage risk (prevent anything from going wrong), to follow the rules of the landlords (to make sure they don’t violate their leasehold agreements and possibly lose money), and deal with the land in ways that make it hold its value (so they don’t lose money when they sell). All leasehold systems are based on the premise that humans (rather than invisible superbeings) are the dominant species on Earth, and therefore the lords of the land. If we, the lords of the land, want people to have incentives to manage risk, follow the rules we set, and improve the world, we can choose systems that lead to high prices. The higher the prices, the stronger incentives people will have to do these things.

There is, however, a limit to how strong we can make the above incentives.

We can’t make prices higher than ‘all the investable money in the world.’ Once the system runs out of money to invest in properties (once all investable money is invested), prices can go no higher. Although the exact point where systems will run out of money will vary by situation, this point will always come. In this example, we are assuming that we reach this point when the price of the leasehold for the Pastland Farm reaches $10 million.

We are at that point.

The price of the leasehold on the Pastland Farm can go no higher.

 

Decimal Price Leasehold Payment Leasehold Ownership System

 

The next system we visit has a price leasehold payment ratio of 1:10%, meaning that the leasehold payment offered must be exactly 10% times the price offered to bid.

This system won’t be able to work in the simple ways that the systems before us have worked, where markets determine prices and leaseholds, because there isn’t enough money in existence to pay the price that Kathy and other people in the market are willing to pay. It will function until the bidding gets up to $10 million. Then the market will break down and stop functioning. This broken down market will then start to do things that would appear to be very strange to people who had never seen these things.

These things won’t seem strange to us, however, because we are from times in the distant future when there was never enough money for markets to work properly, so markets never worked properly. We are from times when markets would simply collapse, as if they were having nervous breakdowns; where they would ‘get depressed’ and ‘go into depressions,’ where they would fire out of control leading to massive disruptions in events that cause the value of money to decline, in some cases to nothing (in events called ‘inflations’ and ‘hyperinflations,’ where they would ‘boom’ and ‘bust,’ and soar and crash, for reasons that even the most respected government and financial manipulators of economies can do nothing to stop.

The previous systems also require everyone, including the rich, to do something to get incomes: in all previous systems, the rich had to take on risk, protect society, and give up the use of their money to get returns. In all systems we visit after socratic leasehold ownership, the rich will get richer totally automatically, without any need for them to take on any risk, protect society, or do anything whatever in exchange for their increased risk. As a result of this reality of the societies we are about to visit, people will start to want to get money for rather strange reasons, basically to take it out of circulation so they can ‘be rich’ and therefore get richer. In the earlier systems, money was only useful to buy things. In all of the systems that we visit after this, money will become a tool that people can use to move them into a ‘leisure class,’ where they will be the rulers and everyone else will be their servants.

People will want very badly to get into this ‘leisure class,’ because the alternative, being in the ‘working class,’ makes them effectively slaves. In the systems we are about to visit, money will begin to play a new role, and people will begin to do truly horrible things to get more of it. This will lead to new incentives that didn’t exist before, including incentives to destroy parts of the environment to get slightly more money (more money than they can make dealing with the land in sustainable ways). We will start to see a new kind of incentives that we haven’t see in any of the systems before, incentives that actually encourage people to do things that harm the planet and the human race as a whole.

The Auction

 

Like always, Kathy just wants to be a farmer. She isn’t concerned with the numbers she will enter into the boxes, she cares only about how much the farm produces, how much of this she will pay in costs (including her yearly payment to the bank, which will include both her leasehold payment and her interest payment) and how much she will be left with after everything is done. If she can end up with $50,000 for her self running the farm, she is wiling to run it; if not she isn’t. She goes to Sally and explains this. Sally prints up a ‘cheat sheet’ that will help her see the amount she will have to put into the boxes on the bid form to make her payment exactly equal to $2.4 million at the offered interest rate of 4%.

Cheat Sheet for Socratic ownership (10x price/leasehold payment leasehold ownership)
Price (amount borrowed)	Leasehold payment (10% of price)	Interest on mortgage loan	Total mortgage payment including interest and leasehold payment
$ 1,000	$ 100	$ 40	$ 140
$ 10,000	$ 1,000	$ 400	$ 1,400
$ 100,000	$ 10,000	$ 4,000	$ 14,000
$ 1,000,000	$ 100,000	$ 40,000	$ 140,000
$ 5,000,000	$ 500,000	$ 200,000	$ 700,000
$ 7,500,000	$ 750,000	$ 300,000	$ 1,050,000
$ 10,000,000	$ 1,000,000	$ 400,000	$ 1,400,000
$ 12,500,000	$ 1,250,000	$ 500,000	$ 1,750,000
$ 15,000,000	$ 1,500,000	$ 600,000	$ 2,100,000
$ 17,000,000	$ 1,700,000	$ 680,000	$ 2,380,000
$ 17,114,286	$ 1,711,429	$ 684,571	$ 2,396,000
$ 17,134,286	$ 1,713,429	$ 685,371	$ 2,398,800
$ 17,142,286	$ 1,714,229	$ 685,691	$ 2,399,920
$ 17,142,856	$ 1,714,286	$ 685,714	$ 2,400,000
$ 17,142,857	$ 1,714,286	$ 685,714	$ 2,400,000
$ 17,142,858	$ 1,714,286	$ 685,714	$ 2,400,000
$ 20,000,000	$ 2,000,000	$ 800,000	$ 2,800,000
$ 25,000,000	$ 2,500,000	$ 1,000,000	$ 3,500,000
$ 50,000,000	$ 5,000,000	$ 2,000,000	$ 7,000,000

Kathy looks down the column on the extreme right. She is looking for the numbers that will make her mortgage payment exactly $2.4 million. Sally has highlighted this figure in green for her. To have this exact mortgage payment, she will have to offer $17,142,857 as a price and $1,714,286 as a leasehold payment.

She goes to Sally, who represents the investors. She says that it looks like she will have to borrow $17,142,857 to buy the leasehold for the Pastland Farm.

Sally says she would love to help, but she can’t. She has talked to all of the people with money to invest on the Earth. Altogether, the maximum she can raise is $10 million.

Sally says that no one, not Kathy or anyone else, can pay more than $10 million for the leasehold title to the Pastland Farm, because this is literally all of the money that there is. Sally tells Kathy that Kathy can bid up to $10 million, and no more. She won’t have to worry about being outbid if she does this, because everyone faces the same limit. Once the price gets up to $10 million, no one can bid more.

Bribery: the Risk-free Interest Rate

 

Kathy sees an opportunity for a real bonanza:

The price can’t go above $10 million.

Since her leasehold payment is exactly 10% times the price (this is the ratio that the landlords of the Earth have set, and the only ratio that bids the computer will accept can have), her leasehold payment can’t be higher than $1 million. She would be willing to give the human race more money than $1 million, but the mechanical system that the human race has created makes it impossible for her to give us more. (We, the landlords have set the ratio of 1:10%. Since the money supply is limited, we can only get 10% of the money supply, or $1 million a year, from this property, no matter how much money the people bidding would be willing to give us. We have created a mechanical constraint that makes it literally impossible for us to get the full amounts people who control property would be willing to pay us.)

Kathy will also have to pay the investors. Their interest will be 4% times the price (the amount she borrows) so she will also pay them $400,000 a year.

Altogether, her total mortgage payment will be $1.4 million a year, $1 million to the landlords and $400,000 to the investors.

The farm produces a free cash flow of $2.4 million a year. After she pays out $1.4 million of this, she will have $1 million in free money left over. She will be able to keep this $1 million (or at least she thinks this will happen; it won’t, as you will see below; the extra money will be divided among all rich people on the planet as risk-free interest). This will be a kind of bonus: she will get it (or at least she thinks she will get it) in addition to the $50,000 she makes running the farm.

She only wanted to be a farmer. Now, she sees that, if she can buy for ‘all the money on Earth (a price no one on Earth can beat) at current market interest rates, she will end up being a farmer and getting a sort of free bonus of $1 million a year. (At least this is what she thinks.)

All she has to do (again, she thinks) is be there the very first second the auction opens and enter a bid of $10 million as a price and $1 million as a leasehold payment.

 

Like always, the auction will take place over the internet and last 90 days. Kathy enters the bid the very first second the auction opens and no one bids more.

But I am there in Pastland and I know how I can win this prize and get the $1 million a year in free money for myself, if I can do some things that may appear to be dishonest, but which are perfectly acceptable in the societies that you and I now live in (sovereign law societies).

Here is what I will do: I will go to Sally and ask her for a ‘closed door’ meeting. I will offer Sally a kind of bribe if she will agree to cancel Kathy’s loan and not make the loan to Kathy. When Kathy’s loan is canceled, she will have to cancel her bid, because she can’t afford to pay. I will then enter the same bid myself and win.

In order to make this trick work I must convince Sally that she and I will be conspiring to do something dishonest. I need her to think this, for a very important reason: I don’t want her to tell Kathy or anyone else about it. If Kathy realizes that I am offering this ‘bribe,’ she will quickly realize that she can offer a higher bribe; if she does, this will force me into a bidding war that will seriously reduce the amount of free money I get.

In order to get Sally to keep her mouth shut, I use all kinds of catch phrases like ‘under the table’ and ‘just between you and me’ and ‘paid in cash in a briefcase, at a location that you name.’ This is a trick that many con artists use when they are selling phony jewelry or watches and they want the buyers to think that the items are real and stolen, rather than worthless replicas.

But not everyone is foolish enough to fall for this kind of trick. In this case, let’s say that Sally is smarter than this. She is from the future, as am I, where these bribes are not only not considered to be illegal, they are common, ordinary, and offered in formal markets. (A few people think they are dishonest. Jesus Christ, for example, is reported to have gotten extremely angry when he learned about this process. He actually took whips to ‘usurers,’ a common term that refers to people who charge more for interest than they need for the risk of the loan—in the courtyard of Herod's Temple. Jesus clearly thought usury was dishonest. Most of his modern followers don’t appear to think this, however, as a large percentage of the people who offer, pay, and charge risk-free interest rates are Christians.)

After I tell Sally that I want to offer her a ‘bribe,’ paying her ‘under the table’ in the form of ‘cash delivered to a location she specifies,’ Sally opens her door and calls in her secretary, while I am still in her office. She says to send an email to Kathy and others who have applied for loans, informing them of the offer to pay a 1% interest rate, and telling them that they will have to either match or beat my offer if they want to get the loan.

Sally also asks her secretary to email the investors. Sally is not going to steal the extra risk-free money from the investors, she is going to share it with them. It is their lucky day: they are going to get more money than they need for taking on risk. Interest rates are going up.

 

Why Risk-Free Rates Can’t Exist In The Societies In The ‘Constructive /Non-Destructive Range’

 

So far, the investors have only been charging the interest rate they needed to justify the risk of the loan. There is a practical reason that this is all she could charge before. In fact, they would not have been able to get more than the minimum they need for taking on risk for a mechanical reason. Before I explain how the risk-free rate will end up, I want to go over the mechanical reason that risk-free rates can’t exist (can’t be anything other than 0%) in all of the societies above socratic leasehold ownership in the range of possibilities:

In all of the societies, the demand for investment money was lower than the supply of money that people wanted to get invested. This meant some people had money they wanted to invest, but could not invest, period. If any investors asked for more than the minimum they needed to justify the risk of the loan, Kathy wouldn’t have borrowed from them, she would have borrowed from people who offered lower interest rates (only the 4% they needed for risk).

To show this, let’s go back to the virtual rental leasehold ownership system, which could not set a price for the leasehold that was higher than 24¢.

The leasehold payment was 1,000,000,000% times the price. An additional 1¢ for the price would require bidders to offer an additional $100,000 a year as a leasehold payment. This would not be affordable. Because the price is tied to the leasehold payment, and the maximum affordable leasehold payment is $2.4 million, the price can’t be higher than 24¢.

If the price couldn’t be higher than 24¢, the total demand for investable money couldn’t be higher than 24¢. (This is, in this example, the only private property, and therefore the only investable property on Earth. The total demand for investment capital is exactly equal to the price of this particular leasehold.)

But a great many people have savings that they would like to invest, provided they get the 4% they need for risk. In fact, by the assumption above, a total of $10 million in investment money is available. Only 24¢ of this will actually be invested. The other $9,999,999.76 will not be invested.

Say that Kathy asks you for the loan of 24¢ to pay the price. You say that you need an interest rate of 100% a year. I hear about this and tell Kathy that I will be happy to make the loan for 50% a year. Other people hear about it. They know they need 4% to justify risk and would like to get more. But if they ask for more, they know they will be underbid by others who are willing to accept only the minimum they need for taking on risk. As a result, someone will eventually offer the loan to Kathy for 4%. That person will get her money invested; the rest of the people will not get their money invested.

As long as the price is lower than $10 million, there will be people who want to invest their money but can’t get it invested at all. In the ‘double price leasehold ownership system,’ for example, we saw that the leasehold couldn’t sell for more than $4,444,444.44. People would like to invest $10 million if they can get paid for taking on risk, but only $4,444,444.44 will actually get invested. If you ask for more than the 4% you need for risk, Kathy will simply tell you ‘no’ and find someone else to make the loan to her.

This means that, as long as the price is less than $10 million, there can’t be a risk-free rate.

In all leasehold ownership systems above socratic leasehold ownership in the Road Map of Possible Societies, the market set lower prices for the leasehold than $10 million. That means that, in all societies above socratic leasehold ownership in the Road Map of Possible Societies, risk-free rates can’t exist, for practical mechanical reasons.

 

The Market Risk-free Interest Rate

 

After I make my offer, Sally sent emails to Kathy and the other people who may be interested in buying the leasehold to the Pastland Farm letting them know that she will only make the loan to whoever offers the highest interest rate on the loan.

I have offered a 5% rate, reflecting a 1% risk-free rate. If Kathy offers a 2% risk-free rate, her total rate offer will be 6%. She will pay the investors a total of $600,000 (6% times the $10 million in investable money. She will have to pay this plus the $1 million leasehold payment. (10% times the price of $10 million,) so her total mortgage payment will be $1.6 million. Remember, she is willing to pay out all of the free cash flow as a total mortgage payment. She would like to get the rights to the farm for less than a $2.4 million total mortgage payment, and will be very happy if she can win the auction for the interest rate under the terms above, because she will end up with the $50,000 she has needed and gotten in every case so far for the work she does, plus another $800,000 in free money. (She will get the free cash flow of $2.4 million, but only pay out $1.6 million of it, leaving her with $800,000 a year for herself.)

But I am still in the bidding. I offer a total interest rate of 7%, reflecting the 4% investors need for risk, plus a risk-free of 3%.

Kathy can easily beat my offer. If she pays an interest rate of 8%, her total mortgage payment will only be $1.8 million, far less than the $2.4 million she is willing to pay. She offers more. I can offer still more. Eventually, I offer a 13% interest rate. Kathy can offer 14%. At this interest rate, her total mortgage payment will be $2.4 million a year, $1 million as a leasehold payment to the human race, plus $1.4 million, in interest to the investors.

The interest rate must end up at 14%. This gives the investors the 4% they need for taking on risk, plus a 10% risk-free interest rate. (About the risk-free rate in effecting the early 1980s.) The investors will get $400,000 a year for taking on risk plus another $1 million in risk-free interest. The human race will end up with $1 million in income from the land also. Because this $1 million is backed up by the $10 million we will have in reserve after the auction, our income is still risk-free.

Let’s step back and look at the difference between the socratic leasehold ownership system and the ‘tenth of price leasehold payment leasehold ownership system.’ In socratic leasehold ownership, the entire $2 million in risk-free income from the land went to the human race. In the ‘tenth of price leasehold payment leasehold ownership system’ the human race splits this risk-free income with the investors. We get $1 million, they get the other $1 million.

Kathy’s situation, as owner of the rights to the farm, is the same in both societies. In both cases, she pays out $2.4 million a year as a total mortgage payment. The difference between these two societies is what happens to this money after she pays it out. In one case, the investors get enough to justify the risk they take on, but no more, leaving all of the risk-free income from the land to go to the human race. In the other case, the investors get half of the risk-free money and the human race gets the other half.

The human race could have gotten the entire risk-free portion of the free cash flow if we had wanted to do this. We could have done this simply by making the leasehold payment something lower than or equal to 20% of the price. In all societies with leasehold payments that are less than or equal to 20% of the price, there will be enough money to make the system work, without any need to have a risk-free rate. If there is no risk-free rate, the investors don’t get any risk-free money; they only get enough to justify the risk they take on.

But in this example, the human race has decided we don’t want the entire risk-free free cash flow.

We could have it by asking for it.

But we don’t want to ask.

Instead, we have set a price/leasehold payment ratio that makes it mechanically impossible for us to get more than $1 million a year from this land. (We can’t get more than 10% times the price the buyer pays for the leasehold and, since its price can’t be higher than $10 million, we can’t get more than 10% times $10 million or $1 million a year). No matter how much the land produces as a risk-free free cash flow.

 

Comparing Leaseholds

 

The chart below is designed to help you see the big picture, and what will happen if the landlords of the Earth (the members of the human race) choose different price/leasehold payment ratios that that lead to leasehold payments that are 20% or below times the price.

Risk-free free cash flow: I need number to refer to the maximum income from the land that the human race can get that coincides with the maximum in security and strongest possible constructive incentives. I will call this the ‘risk-free free cash flow.’ Under the assumptions we have made here (that the money supply limits the price to $10 million), the risk-free free cash flow is $2 million a year. This is the maximum in free income the human race can get in Pastland that is consistent with the maximum in security the human race can get and the maximum in constructive incentives that the human race can get.

In other situations, say if we were to choose a leasehold ownership system for the 21st century, the money supply may be different and this would mean that a different price/leasehold payment ratio may produce the maximum in risk-free income for the human race that is consistent with the highest prices. But given the assumptions here, the maximum we can get is $2 million, so if we get some amount less than $2 million, we are not getting the full risk-free free cash flow, we are sharing this totally free and totally unearned money with rich people (investors). We get something for nothing but they also get something for nothing.

The first row represents socratic leasehold ownership societies. Note that the price has reached its maximum in this society: it is equal to the total investable free cash flow and can’t go higher, because there is no more money. In fact, the price of the leasehold is as high as it can be in all of the societies on the chart.

The human race basically decides what percentage times this price we want. If we ask for 20% we get the entire risk-free free cash flow of $2 million a year. This leaves $400,000 a year for the investors who manage risk. As we have seen, people will only voluntarily take on risk if they are compensated for taking it on. All production is risky but, over the last few thousand years, people have learned how to manage the risks of farming quite effectively, so they are able to manage all manageable risks, set aside reserves to cover unmanageable risks, and still be able to make money over the long term on farm investments if they can get 4% returns on their money. The investors are happy with this situation: they are being paid the exact amount they need to justify the risk of this particular investment.

Since they get 4% times the price and we get 20% times the price, we don’t have to do any really complicated math to determine what percentage of the total free cash flow we get: The market always works in a way that makes the total mortgage payment equal to the free cash flow. (Kathy can afford to pay out all except the money she needs to compensate herself and other for farming, or the entire free cash flow. Other bidders can do this also and will compete against her, forcing her bid up to this level.) Since we know that the total mortgage payment will equal the free cash flow, and we know that a total of 20/24^th of this money will go to the landlords of the planet (the members of the human race), we know that WE will get 20/24^th of this, or 83⅓% of this money (rounded off to 83% in the chart). We this leaves the balance of 16 2/3^rd to go to the investors as returns for their risk.

Table A1.1
leasehold payment as ratio of price	Price	leasehold payment	percent of bounty to human race	percent of bounty to investors	total to investors and human race	amount investors get above the amount they need for risk
20%	$10,000,000	$2,000,000	83%	17%	100%	$0
19%	$10,000,000	$1,900,000	79%	21%	100%	$100,000
18%	$10,000,000	$1,800,000	75%	25%	100%	$200,000
17%	$10,000,000	$1,700,000	71%	29%	100%	$300,000
16%	$10,000,000	$1,600,000	67%	33%	100%	$400,000
15%	$10,000,000	$1,500,000	63%	38%	100%	$500,000
14%	$10,000,000	$1,400,000	58%	42%	100%	$600,000
13%	$10,000,000	$1,300,000	54%	46%	100%	$700,000
12%	$10,000,000	$1,200,000	50%	50%	100%	$800,000
11%	$10,000,000	$1,100,000	46%	54%	100%	$900,000
10%	$10,000,000	$1,000,000	42%	58%	100%	$1,000,000
9%	$10,000,000	$900,000	38%	63%	100%	$1,100,000
8%	$10,000,000	$800,000	33%	67%	100%	$1,200,000
7%	$10,000,000	$700,000	29%	71%	100%	$1,300,000
6%	$10,000,000	$600,000	25%	75%	100%	$1,400,000
5%	$10,000,000	$500,000	21%	79%	100%	$1,500,000
4%	$10,000,000	$400,000	17%	83%	100%	$1,600,000
3%	$10,000,000	$300,000	13%	88%	100%	$1,700,000
2%	$10,000,000	$200,000	8%	92%	100%	$1,800,000
1%	$10,000,000	$100,000	4%	96%	100%	$1,900,000
0%	$10,000,000	($0)	0%	100%	100%	$2,000,000

If you go down one line, to the system where the computer is set to only accept bids where the leasehold payment is 19% times the price, the price doesn’t change.

The price can’t go up because there is no more money; it can’t be lower than $10 million because at least two people (Kathy and one other) are willing to go up to $10 million. If the price can’t be higher or lower than $10 million, the price must be exactly $10 million.

However, the human race has chosen a price/leasehold payment ratio which makes it mechanically impossible for us to get more than $1.9 million from the land. The risk-free free cash flow is higher than $1.9 million. We could get the entire risk-free free cash flow if we want it, merely by setting the price/leasehold payment ratio at 20%. But, for some reason, our people have voted for a system that causes some of this free money to go to people with money as risk-free returns on their money.

As you go down through the numbers on the table, you will see that the total risk-free free cash flow is always $2 million a year. But we only get part of this money. The lower percentage we ask for, the less we get. If we get less, the money doesn’t disappear. It just goes somewhere else. As you can see, if we give up $100,000 a year (by choosing a ratio that is 1% lower), we are basically transferring $100,000 a year to people with money.

Remember, WE are the landlords. We make the rules. We can make any rules we want. If we want, we can make rules that cause all of the earned money to go to people who earn it (including the money that the investors earn by managing risk) and send all of the rest, the unearned money or risk-free free cash flow, to us, the landlords of the world, to share among our members. But if we want to, we can make rules that benefit a small percentage of our population (people with money to invest), giving them some unearned money also. If we decide we want a price/leasehold payment ratio that makes the leasehold payment less than 20% times the price, we are basically deciding that we want the rich to get richer.

How fast do we want the rich to get richer?

We can decide this also.

If we set a price/leasehold payment ratio that leads to a leasehold payment very close to but less than 20% times the price, we are saying we want the rich to get richer at a slow rate. If we choose a ratio that is significantly lower than 20%, we are saying we want them to get richer at a faster rate. If we want the rich to get richer at the fastest possible rate, we can choose a ratio of 0%, ending up with the final system we will visit, a sovereign law society (the type of society that you and I were born into and have inherited from previous generations).

 

Banking Realities: Why The Risk-Free Free Cash Flow Must Go To Rich People

 

In the above example, Kathy may have been dishonest. She may have not even told the investors about the risk-free payments she was offered, and kept them for herself. In early years of banking, bankers often did this: they arranged to borrow money from investors for the amount the investors needed for risk, then loaned out the money for whatever the market would bear, and then kept the rest of the money. In Book One, Forensic History, we saw that the Medici Family started with a single little bank in Rome and ultimately became the administrator of the Holy See, the financier to the Holy Roman Emperor and the Roman Catholic Church, as well as the key financier of virtually all nations in the Roman Empire: all of the money of the empire went through them. The bank (the Medici family) controlled funding for governments so they basically determined which side they wanted to win each war, and made this happen by providing that side with money to buy weapons and pay troops.

As we saw, the Medici bank funded the entire renaissance, deciding what businesses would exist by deciding what businesses would have funding. We saw that it wasn’t actually Christopher Columbus who ‘discovered America,’ but Lorenzo D’Medici, who put together and funded the expeditions of Americus Vespucci (the first European expedition to land on the mainland of America; remember that Americus Vespucci went to school with Lorenzo and worked for the Medici bank when he made his voyages.) The Medicis took in money for the low rates that investors were willing to accept, and made their loans at the much higher interest rates that borrowers were willing to pay. Other people had to work for their income. The Medicis got the risk-free free cash flow and became the forerunners of the entire world banking system as it exists in the 21st century.

As long as there is only one bank, this is possible.

For practical purposes, between the time the renaissance began and the early 1500s, there was one bank.

However, if there are at least two banks, and they have to compete with each other, the bankers will not be able to keep the entire risk-free free cash flow they get: the market will force them to share it with everyone with money, in equal shares.

Let’s look at the way this works, starting with the simple system in Pastland:

To start, there is only one bank. Let’s call it ‘Sally’s bank.’

In the early systems we visited, Sally had been forming investment pools, paying investors 4% a year for the risk they take on.

In the tenth of price leasehold payment leasehold ownership system, she sees that people are willing and able to pay much higher interest rates, in that case 14%. Rather than forming an investment pool and sharing this money with the investors, she decides to open a bank instead. This bank will take in money from investors at 4% for farm loans, transferring the risk of these loans to the investors (I will explain how this is done below). She will then lend out the money at 14%, and keep the 10% times the total invested money, which works out to be $1 million a year, for herself. She obviously becomes the richest person on Earth immediately.

But say that someone else sees what is going on and decides to compete with Sally’s bank.

This takes place before the leasehold has sold, while bidders are still trying to put together their money for the sale.

Ned announces that he will pay people who put money into his bank 5% a year and, in addition to this, he will take on all risk of the loan, so they will get their money risk-free. (I will explain how bankers do this below.) People with money can either put their money into Sally’s bank, and get 4% with risk, or they can put it into Ned’s bank, and get 5% without risk. Obviously, it doesn’t make sense to accept 4% with risk if you can get 5% without risk. All the money moves to Ned’s bank. Sally can’t make the loan to Kathy or anyone because she doesn’t have any money to lend.

But Sally is not through. She can easily afford to offer 6% without risk.

She knows that the total supply of investable money is $10 million. She knows that Kathy and other property buyers are willing to pay and can afford to pay 14% interest to get this money. (We saw this above.) She can hire people to manage risk on behalf of the bank and pay a total cost for risk management of 4% a year times the $10 million, or $400,000 a year. (We saw that this is the cost of managing risk in the ‘risk management’ section above.) If she pays 6% a year to depositors without risk, her total expenses will be $1 million a year; she will get $1.4 million a year in revenues, so she will end up with $400,000 to keep for herself, without risk (the costs of managing risk are already paid), without effort on her part (she hires people to do all of the work) and without her having to put up any of her own money (all of the money that is at risk comes from depositors).

Obviously, she will offer the depositors 6%. When she does, the people will take their money out of Ned’s bank and put it into Sally’s bank. Ned won’t have money to loan so he will have to cancel his loan agreements. Sally will have money to loan so she can start signing letters of intent to provide the money.

Of course, Ned will realize he can steal the business for himself by offering 7% as a risk-free income for investors. Sally will realize she can offer more and offer more. The two banks will compete against each other by offering higher risk-free interest rates to people who put money into the bank. Eventually, when the bidding is over, the risk-free rate offered will be 10%, or some figure so close to 10% that any difference isn’t important for practical purposes.

Although bankers can be and often wish to be dishonest, and are able to succeed at being dishonest in many ways, they are generally not able to keep the risk-free income that flows from the land for themselves.

They want it, of course. Who doesn’t want a totally unearned and totally risk-free income with out effort or any need to invest any of their own money?

If they can keep markets from developing (as the Medicis were able to do for more than a century) they can succeed at keeping the free money. But once markets exist, the bankers will be forced to compete with each other by offering anyone with money who puts it into the bank some risk-free interest on this money.

In the ‘tenth of price leasehold payment leasehold ownership system,’ the risk-free interest rate must rise to 10%. No one has to take on any risk or do anything to get this money. They are not getting paid for anything they do, they are getting paid for something they have: money. In this system, the rich get richer, totally automatically, without risk and without effort. The banks take on all of the risk (as is explained below) and transfer the risk-free money to depositors without the depositors having to do anything or worry about possibly losing their money.

The rich get richer. This happens totally automatically.

Since they get paid a percentage of the riches they already have each year, the richer people are to start with, the richer they become over time. The flow of money that goes to them comes from the bounty of the world. The more bountiful the world is, the faster the rich get richer.

 

Why Do We Care if the Rich Get Richer?

The Beginning of Destructive Incentives

 

There are certain natural rates of growth of resources. If money grows faster than resources, people are financially better off to have money than resources. It is possible to turn resources into money by extracting and selling the resources. If money grows faster than resources grow, it is profitable to turn resources into money, even if there is no current demand for resources.

For example:

In areas with abundant rain like the Pacific Northwest of America, trees grow at a rate of about 2% a year. This means that trees add about 2% of their bulk each year that passes, in the form of growing lumber. Clearly, it would not be possible to collect a yield from a growing forest that is higher than 2% a year, because that is all the additional lumber that exists.

Say that you are in a system that has no risk-free interest rate at all. You can’t get free money just by having money. Your risk-free return on money is 0%. True, you can get 4% by taking on risk, but you need the entire 4% to cover the risk of the investment. You are not getting anything for free.

If you control a forest, you are far better off to treat it non-destructively, and manage it for the highest sustainable yield you can get. For example, you may hire professional foresters to go through the forest, mark the most mature trees for harvesting (selecting first any trees that may have diseases that slow their growth, and then any trees in crowded areas that can’t grow as fast due to shortages of nutrition in the crowded areas), and remove them. Each year you do this, you will get an income from the forest. Since you only remove crowded or diseased trees, each year you harvest the lumber, the forest gets healthier. You make money, people who want to buy wood can buy it, the human race gets a healthier world, and everyone is happy.

Now let’s say that you move from the above system (which might represent a socratic leasehold ownership system) to a system that has a risk-free interest rate of 10% (which might represent a ‘tenth of price leasehold payment leasehold ownership system’).

You have to compare the pathetic return you get managing the forest sustainability (less than 1%) with a totally automatic, totally risk-free 10% return that you can get from money. Obviously, you are financially far better off to have money and collect the 10% return. You can get money to collect this return on by cutting down trees and selling them. The more trees you cut, the more money you have to collect returns on. The faster you cut them, the sooner you get the higher returns and the more money you get. If you leave trees, you collect the pathetic return (less than 2% a year) that the trees generate, rather than the magnificent return you get on money. If you leave even a single tree alive, you are losing money. You can get the maximum in money by cutting down every single tree. Your incentives are to destroy the forest as thoroughly as you possibly can.

If you wait to destroy, you wait to start collecting your magnificent returns. A single day of delay costs you money. Your incentives are not just to destroy the forest entirely, your incentives push you to destroy the forest as rapidly as you possibly can.

All property ownership systems that send less than 20% times the prices of properties to the human race each year must have risk-free rates, at least during the times that markets allow them to operate well enough to function. (We will eventually get to societies that are so unstable they can collapse entirely. During these collapses—like the ‘Great Depression that started in 1929 and ‘Great Recession’ that started in 2008, risk-free rates can fall to zero, but if the system is not in a state of collapse risk-free rates must be above zero.)

In these systems, money grows. The rich get richer, without risk and effort.

If money grows faster than resources grow, people can get extremely rich by destroying resources.

Not everyone will give in to these incentives. Some people care about the world so much they won’t destroy it, no matter how much money they can make destroying. But the control of the resources will eventually change (people die) and eventually someone will come along who gives in to the incentives. This is a certainty: if systems are structured so that the rich get richer totally automatically and without risk, environmental destruction is a certainty. It will and must happen.

 

The Strength Of Incentives

 

If people can make money acting a certain way, they have incentives to act that way. If they can make more money acting a certain way, they have stronger incentives to act that way. If we can measure the amount of money people make from a certain specific destructive act in different societies, we can calculate the strength of the destructive incentives in these different societies with a great deal of precision.

Consider the forestry example above. Let’s say that, if deal with the forest in a sustainable way, harvesting no more than nature provides each year, and using whatever methods lead to the healthiest possible forest and therefore the highest sustainable yield, you can get a total of 1% yield on the forest. (The trees grow at 2% but you use half of this money to cover the cost of management and harvesting).

The ‘sustainable forest’ yields 1%.

Say that the risk-free interest rate is less than 1%. Clearly, it doesn’t make financial sense to destroy the forest to get a lower yield than you get from a healthy forest.

Now say that the risk-free rate is higher than 1%, let’s say 2%. You can make twice as much money destroying the forest than keeping it healthy. Many people would do this, but most people I know would not: they love forests and don’t want them destroyed. If they can only make double the income from the forest destroying, they will keep the forest healthy anyway.

Now let’s say that the risk-free rate is 5%. To put some numbers on it, say that the total market value of the lumber in the forest is $1 million. Keep the forest healthy and you get $100,000 a year in income from it forever. Destroy it and you get $500,000 a year, also forever, without risk, without effort, and without having do a single thing ever.

Perhaps a lot of people would still choose to keep the forest healthy. But something may come up that will force them to destroy it. Say that they have a family member get sick and in need of expensive treatment. Keep the forest healthy and they won’t have enough income from it to provide the treatment. Their loved-one will die. Destroy the forest, and they can save their loved ones (or at least so the doctors say: Doctors are normal too and this means they are self interested and have been known to give people false hope to get their money). Perhaps you meet someone, have a relationship, and then find your lover has maxed out your credit and can’t pay on the income you get from the healthy forest. If you can quintuple your income merely by signing some documents (authorizing the destruction of the forest), you might be tempted.

The higher the risk-free interest rate, the more money you can make destroying, the stronger your incentives to destroy. Perhaps there is no amount of money that would induce you personally to destroy the forest. But you aren’t going to live forever. You can’t control what happens after you die. If the incentives are there, whoever ends up with the forest after you die may give in to the incentives.

You might think you can save the forest by turning it over to a charity that saves forests. But you can’t be sure this will happen either. Often, these charities trade land in order to make the land they protect contiguous, and therefore easier to protect. They may sacrifice your forest in exchange for another piece of land. Charities also have to worry about financial realities. Sometimes, they need money for projects the people in the charity really think will make a difference. If risk-free rates are high, they can get this money by accumulating cash reserves to invest at the high returns. Perhaps the managers of the charity will see the high risk-free rates and believe they can do more good, over the long run, if they have more money, so they may order all forests they control destroyed, to get their charity size to ‘grow’ as the money ‘grows.’

The reality is that incentives matter.

They affect the way people act.

If people can get rich destroying the world, destruction will take place. The more money they get destroying, the stronger the incentives. We can’t always predict that any individual will react to incentives, but we can predict that if incentives are stronger, people are more likely to respond to them. Stronger destructive incentives translate to more destruction.

Money grows (if a risk-free rate exists) faster than resources grow, people can make money destroying resources. This is true even if there is almost no current demand for the resources. We see this all the time in the societies that we live in: when new technology comes along that makes it possible to rape the world faster, people rape faster. A ‘glut’ of resources comes along that forces prices of resources down. Demand is not high enough to sell everything extracted, so the price has to fall. It can keep falling and falling, without the destruction stopping.

They are not destroying to meet demand.

They are destroying because they are being paid specifically to destroy.

If you pay people enough money to destroy, they will destroy.

The ‘tenth of price leasehold payment leasehold ownership system’ in Pastland pays people a total of $1 million a year—half of the risk-free free cash flow—to destroy. As you will see, the total risk-free free cash flow in the societies we live in now is roughly $30 trillion a year. If people who destroy the world get half of this, they get $15 trillion a year as a reward for destroying the world.

If we had a system that was close to socratic leasehold ownership, they wouldn’t get as much money destroying and would not have as strong of incentives to destroy. Rates of destruction would fall. If we had a system like the socratic leasehold ownership system, where all of the risk-free free cash flow went to the human race, acting as the landlords of the world, nothing would be left over to go to people with money as risk-free returns on their money.

If they couldn’t make money destroying, they wouldn’t have any incentives to destroy.

They would still be able to make money managing resources, but they would only be able to make money managing in sustainable ways, like the non-destructive forestry example listed above.

We, the members of the human race, can decide how we want our world treated. If we want our world treated as a cash register, with whoever steals the most getting the most money, we can choose a system with a very low leasehold payment relative to the price of leaseholds, like the ‘tenth of price leasehold payment leasehold ownership’ system. If we want people to treat the world with respect, and not destroy it, we can choose a system that is closer to the natural law societies that dominated the world for the first 99.99% of the time the human race existed, which didn’t pay people to destroy at all.

If we want to destroy less, the very first step is to reduce the amounts of money we pay them to destroy. We can do this by moving to a system that is closer to the natural law society we started with, by choosing a leasehold payment percentage that is higher in the range of possible societies.

 

1:5% Price/Leasehold Payment Ratio Leasehold Ownership

 

The next society we visit requires people who want to buy leasehold titles to offer a price and then a leasehold payment that is exactly 5% times the price they offer. The price can’t go above $10 million so the leasehold payment can’t be higher than 5% times $1 million or $500,000 a year. This is all the money the human race will get.

We could have gotten more money. All we had to do was ask for it, by choosing a higher leasehold payment percentage. But, for some reason, the human race in this system has decided we don’t want all of the risk-free free cash flow. We want the people with money to get 3/4^th of it, so we have set a leasehold payment percentage that makes it impossible for us to get more than 1/4^th of the risk-free free cash flow. The other 3/4^th won’t disappear. It will just go somewhere else.

The risk-free rate must now rise to 19%. (This was the rate in effect in 1981, when I started this book.) Kathy will borrow the $10 million from the bank. She will pay $2.4 million a year to the bank as a total mortgage payment, just like always. The servicer at the bank will take out the $500,000 that belongs to the landlords of the world and send it to the landlords. Our income is still automatic and free of risk: there is no chance we will not get it.

The servicer will send the other $1.9 million to the bank. The bank will have hired risk managers and will pay them the 4% times $10 million they need, or $400,000, to manage risk. The bank will then send the other $1.5 million to depositors as risk-free income.

In a competitive market, the markets will bid up the risk-free rate until it all goes to depositors, as we have seen. The bank manages risk and banks can make money by managing risk effectively. (If the bank can keep its costs of risk management below 4% of assets, it will make money managing risk.) The banks can also make money charging fees.

The bank is then authorized to lend this money (which is already in the governments bank account) back to the government at interest rates set in a weekly auction conducted by the Federal Reserve. Banks that provide funding to the United States government keep money in their accounts that they do not pay interest on but then collect interest on this same money from the United States government. This provides the great bulk of bank income in our 21st century world. It is a part of the very complex system that governments have set up to manage the supply of money and make sure they always get the funding they need to control society. Here is a link to the best book I have read that explains the way this system came to exist and how it works.

If Kathy wins at this interest rate, her interest payment to the investors will be $1.9 million. The leasehold payment is set at 5% times the price so it will be $500,000. I can’t bid higher. At any higher interest rate, I will pay out more than the $2.4 million yearly free cash flow the farm produces and won’t get enough to pay the people who earned income.

The bank actually collects the entire $2.4 million free cash flow, just as happened in the earlier systems. Once it gets this money, it turns over $500,000 of it to the human race as our leasehold payment. This leaves $1.5 million. Sally has made some deal with the investors to divide this money. She will keep some of it for things her bank does, like screening borrowers, monitoring production, signing all of the documents, keeping records, and taking care of accounting and details. Generally speaking banks will then give all of the rest of the money to the investors. They will be able to buy the free cash flow. Here, they won’t be able to buy 100% of the free cash flow, because the human race is still keeping some of it (not selling it). But they get the great bulk of all of the free cash that represents the bounty of the Pastland Farm

 

Why A Risk-Free Rate Can’t Exist In A System With A Low Enough Price/Rent Ratio.

 

There is a Saturday Night Live sketch called the ‘five minute university.’ It features Father Guido Sarduchi, who says that most people who go to college don’t actually remember most of the things are taught. Why spend four years teaching them things they won’t remember? He will teach only the things students actually remember five years after getting out of the university. He says he can do this in five minutes. (to video of skit. Please watch. It is very good.)

He gives three examples. One is foreign language. If you learn a foreign language in college, you won’t remember much of it after five years. He uses Spanish as an example. Five years after getting out of college, all you will remember is ‘como esta ustead,’ which means ‘how are you?’ The rest of the information you learned will be gone. His five minute university will teach only the part you remember. At the final, the instructor will ask ‘como esta ustead’ and you must answer ‘muy bien.’ If you do, you know as much Spanish as the average college graduate five years after graduation, so you pass.

His second example is economics. What do we remember after five years? Few people can remember anything more than the phrase ‘supply and demand.’ At the final, the tester will say ‘economics?’ You must answer ‘supply and demand.’ If you get it right, you know as much as the average economics major remembers, five years after graduation.

His final example is theology. He will ask ‘where is God.’ The answer is ‘God is everywhere.’ That is all you will remember, so why teach anything else?

This leads to something I call the ‘Father Guido Sarduchi school of economics.’ In fact, I have known a lot of PHD economics, and the truth is that few of them can go beyond the principles Father Sarduchi explains. (At least after they have been out of college for five years.) If demand is higher than supply, people will bid for the limited supply, and prices will rise. If supply is higher than demand, people will compete to sell by cutting their prices and prices will fall.

This is basically all you need to know to understand why the risk-free rate can’t possibly exist in a society that is high in the range of possible societies shown on Road Map of Possible Societies. In societies high in the range, prices for property rights are extremely low. We can make them as low as we wish, by setting the property leasehold ownership ratio. As we have seen, if the landlords of the Earth (the members of the human race) want prices to be this low, we can create a leasehold ownership system that causes the leasehold for the Pastland Farm to sell for a mere 24¢. If we build our societies on this kind of leasehold ownership system, property rights will sell for almost nothing.

The demand for investment money will be almost nothing.

But the supply of investment money depends on the amount of real treasure (wealth) in the society. If the society has large amounts of treasure, it will have a very high supply of investable money. In this example, we have been assuming that investors can supply any amount up to $10 million.

If the supply of investable money exceeds the demand for investable money, even Father Guido Sarduchi realizes the cost of investment money must go down.

The cost of investment money is the interest rate.

If the interest rate is higher than the minimum that investors need for risk, and the supply of money exceeds the demand, the cost of money must fall. Interest rates must fall.

How far can they fall?

The risk-free rate can fall all the way to zero. If people are getting more than the minimum amounts they need for risk, and more money is supplied than demanded, people will compete to get their money invested by offering to lend it for less and less, as long as they get the minimum amounts they need for risk. The interest rate must go down. It must go down until it is at the minimum amount investors need for the risk.

This clearly happens in the virtual rental leasehold ownership system, because almost no money is demanded. But it must also happen in any system that demands less money than is supplied. We saw that, in all societies above socratic leasehold ownership, the demand for investment money was lower than the supply, and in the socratic leasehold ownership system, the demand and supply exactly matched.

This means that no system above socratic leasehold ownership in the range of possible societies can have a risk-free interest rate.

As a practical matter, the higher the risk-free rate, the stronger the incentives to destroy the world. The very first system that will have a risk-free rate, and therefore the very first system we visit that will have destructive environmental incentives, will be the one immediately after socratic leasehold ownership. Socratic leasehold ownership, and all societies above socratic leasehold ownership in the range of possible societies, can not have any incentives from risk-free rates, because they can’t have risk-free rates. The particular destructive incentive explained above can only exist in societies below socratic leasehold ownership in the range of possible societies.

 

Changing Incentives

We are on a journey through possibilities. As we go through this range of possibilities, we will start to see things we never saw before. People will have incentives to destroy forests. We will start to see something we didn’t see in the earlier systems: people will actually harvest lumber from forests in ways that totally destroy the forests, totally ending what would otherwise have been an endless flow of value in the form of lumber and other products. They will begin to ignore solar energy, even when it clearly produces free electricity. The reason is essentially the same: Solar does produce returns, but the return rate is only about 2%-5%. If money grows faster than this, they are better off not to put their money into the lower-yielding solar. Instead, they can use their money to compete for the much higher returns that go to people who invest in the rights to existing properties that generate free cash flows, like the Pastland Farm. People who control land that contains coal, oil, and natural gas will want to get rid of the fuels as rapidly as they can physically so they can sit back and get rich off of the risk-free returns they get when they have money. They will dump these fuels on the market, forcing the prices down to levels that are far below the true value of the materials, encouraging wasteful and inefficient use of resources.

Certain people will realize they can make incredible sums of totally free money by conquering land or having their governments conquer it, and then getting the concession to extract and sell that land’s resources. This provides incentives to build up armies to be able to conquer the land and creates the necessary conditions for violent conflict. People will surround highly productive land with ‘borders’ and claim exclusive rights to it. They will build armies to protect their claimed rights to this land. They will need soldiers, so they will have to indoctrinate children to believe that entities called ‘nations’ are real things and really exist, and that it makes a difference which ‘nation’ controls a certain part of the world. At a certain point, these societies will need jobs in order to function. The majority of the people will need jobs and will start to petition the ruling entities (governments) to find ways to create jobs. Destruction and war are both labor intensive, so if governments react to the pressure from the people, they will actually begin to subsidize destruction and make plans to keep their nation at war for as much of the time as possible.

As we go down through the range of possible societies, we will see stronger and stronger destructive incentives. If people react to incentives, we would expect to see more and more destructive problems.

At certain point in our trip, the societies won’t have enough common income from the bounty of the land to keep the people (who will be living on the edge of poverty and barely able to survive, at least during periods of high unemployment) from fighting both among themselves and against the system. At this point, these societies will start to create a new kind of structure that didn’t exist in any of the earlier societies we visited, a ‘tax.’ They will have to start to take money away from people. As a practical matter, most of the taxes have to be paid by people who work for their money. (see sidebar below for more information.)

Taxes reduce the amounts that go to people who earn it. People who improve properties will have to pay taxes many different ways: they will have to pay taxes on the employees they hire for the improvement, on all supplies they use, and on the time and talents of engineers and other professionals who help with the planning. They will generally have to file plans with the government and pay a fee for the government to review the plans and then pay a ‘permit tax’ to get permission to do the change. Once the change is done, their property will be reassessed and they will have to pay higher property taxes due to the improvement. Their incomes will go up because of the improvement so they will pay higher income taxes on a Federal State and local levels, as well as higher social insurance taxes and other fees assessed against anyone who has earned income. (In most nations, unearned incomes are exempt from these taxes, but ‘earned income,’ also called ‘ordinary income,’ is subject to the full weight of taxation.) When they spend the money from the improvement, they pay two more taxes, one a ‘sales tax’ and the other being a higher price for the product due to all of the taxes the maker of that product had to pay to make it.

None of these taxes apply in Socratic Leasehold Ownership societies or those above Socratic Leasehold Ownership in the range of possible societies. These societies don’t need taxes, because enough money to buy far more than half of all production flows automatically to the human race, through the leasehold ownership system. But at a certain point in the destructive range, the societies we visit will not have enough common income to keep order and they will have to have taxes.

People have incentives to do things that make them money. If they know they will have to share the money they make with governments, by paying taxes, they consider only the money they will be able to keep. There is a term called the ‘effective marginal tax rate’ that represents the percentage of any increases in income that go to governments at all levels through all different taxes. As the ‘effective marginal tax rate’ goes up, the amount of money that people who improve get to keep goes down. As we down in the range of options, we move through societies that need higher and higher effective marginal tax rates to function, so they have weaker and weaker constructive incentives.

In the Socratic Leasehold Ownership system, the constructive incentives were at the maximum possible level, because Socratic Leasehold Ownership systems don’t need any taxes and they grant the greatest possible amount of income to people who buy properties and improve them. Socratic Leasehold Ownership does not have any destructive incentives. As we move down through the next range, the destructive incentives appear and then grow stronger and the constructive incentives start to weaken. There will be a certain point where the destructive incentives are so strong and constructive incentives are so weak that the destructive incentives and constructive incentives will be the same strength.

If people react to incentives, we would expect to see people destroying about the same amount of permanent value as they create. This takes us to the lowest point in our journey that meets the minimum conditions for sustainability. If people react to incentives, all societies below this point will destroy more permanent value than they create. It is not possible to destroy more value than we create forever, so none of the societies below us in the range of possible societies are sustainable.

This takes us to our third and final transition point in our journey. All societies above this line are sustainable and all societies below it are unsustainable.

 

 

7 Chapter Seven The Socratic (The Second Transitional System)

 

If our group in Pastland has decided to start with science, rather than guesses about the intentions of invisible superbeings that may or may not exist. Infinite scientific evidence tells us that the human race is the dominant species of animals on the planet. The dominant animals have first claim on the good things the planet produces. Other animals only get anything at all if the dominant animals leave it for them. This reality of existence makes the dominant species of animals the effective lords of the land. We, the members of the human race, are the effective lords of the planet Earth.

As landlords, we can decide if we want people to have preferential rights to use parts of the world and get extra rewards from these parts of the world. In other words, we can decide if we want to allow people to be able to consider parts of the world to be their private property. If we do decide we benefit from private property, we can set any terms we wish for private property. We can decide that we will only allow people to rent property, with no deposit and no marketable rights whatever. We can decide that we want to allow unlimited ownership of rights. We may also use a leasehold ownership system, if we want, to create an intermediate system, one where people can buy and own certain rights to use a part of the world privately, but have to meet certain requirements of their landlords (the members of the human race) in order to keep these rights.

In this ‘journey through possible societies,’ I am trying to show you that we have literally unlimited options. We can decide on a natural law society with a pure rental. We can decide on a leasehold ownership system that is so close to a pure rental that no one would be able to tell the difference. We can also have leasehold ownership systems that are hybrids. Some of these hybrids are more or less like rentals, but have varying degrees of ownablity mixed in. As we get into the hybrid range, we start to get into societies that are so far from both of the extremes that they are not like either natural law systems or sovereign law societies.

 

Using Leasehold Ownership To Create Intermediate Societies

 

All of the options we have visited so far, and all we will visit in the rest of our trip, sell a leasehold to the Pastland Farm in the same kind of auction. Various people are interested in private control of the farm. We have told them that we will allow this, provided they share the bounty the land produces with the members of the human race (by sharing the free cash flow), and provided they put up an up-front amount of money that is kind of a deposit (but is called the price of the leasehold) that guarantees that they will actually share the bounty with us as they have promised.

Several people are willing to take advantage of the program we have set up. In other words, several people are willing to bid on the purchase of this leasehold.

We don’t pick one at random. We let the people who want to control the property make offers, bidding against each other. Each one offers both a price (a deposit that protects the human race) and a leasehold payment (a yearly distribution of wealth from the land to the human race) to us. They always bid on both the price and leasehold payment in the ratio that we, the landlords of the planet, set in advance. For example, if we believe that the price and leasehold payment are equally important to us, and require them to bid in a ratio of 1:1 (the EPLPLO system), bidders must offer the same prices as they offer leasehold payments.

People can’t just bid random numbers: each succeeding bid must be higher than the previous bids. As the auction progresses, people offer the human race more and more, both as security and as yearly payments. When the auction ends, the market will have selected the one person on the planet Earth that is willing to give the human race (her landlords) more money each year and more security than anyone else on Earth is willing to offer.

This happens in all of the leasehold ownership systems we have looked at so far and will look at in the future.

The only differences, at least technically, involve the preferences of the human race. What do we care about most?

Do we want extremely high amounts of current income from the land, without regard to security?

If this is what we care about, we can choose a leasehold ownership system with a very low price/leasehold payment ratio (meaning that the price is low relative to the leasehold payment, or that the leasehold payment is very high relative to the price).

Do we want some security of our income?

If we do, we can choose a system where people have to have more skin in the game (more money at risk) if they want to control parts of the world.

Do we want a lot of security?

If so, we can choose a system that has a price that is higher than the leasehold payment. If this is the case, people will lose more money if they don’t make their leasehold payments than if they have to sell everything they own to come up with the money to make the leasehold payments.

 

Socratic Leasehold Ownership Societies

 

The next system we will look at sells leasehold rights to parts of the world in a system where the leasehold payment is exactly 1/5^th of (or 20% of) the price. This is an important point in our journey, the second of the transitional societies we will visit in our journey. As you will see, it has the strongest possible constructive incentives of any possible society: It sends more money to people who buy leasehold rights to parts of the world, improve the underlying properties, and then sell the leasehold rights to those properties, than any other category or type of society on our journey.

Because this is such an important type of society, I will want to name it so I can refer to it. I will call societies built on leasehold ownership where the leasehold payment is 20% times the price ‘socratic leasehold ownership societies.’ Calling a society a ‘socratic leasehold ownership society’ does not tell us anything at all about the style of government it has; it only tells us the way the people of that society interact with the world: they consider the members of the human race to be the dominant species on the Earth and therefore the lords of the land: they allow only one kind of private property, a leasehold ownership system where people must offer both prices and leasehold payments, and the leasehold payments are always 20% times the prices they offer.

In this society, the people are offering the leasehold rights to the Pastland Farm for sale with this bid screen:

 

 

Kathy wants to be a farmer. She knows that only the high bidder at this auction will have any rights to farm this land, so she wants to bid and wants to win. However, she doesn’t know what numbers to enter into the two boxes to make this happen.

She goes the person who represents the investors, Sally, and explains what she wants to do: she wants to get the right to farm this land. She is willing to farm this land if she gets at least $50,000 a year for the work she does. This means she is willing to make a total mortgage payment of up to $2.4 million a year. She wants Sally to calculate the amounts that Kathy will wind up paying a total mortgage payments if she enters various numbers on the bid screen, so she will know how much she can afford to bid.

Sally goes to a spreadsheet program and creates a ‘cheat sheet’ for Kathy to use at the auction. The number in the first column is the number to enter into the price, the second is the number she will enter into the leasehold payment, and the final column indicates the total mortgage payment at various different bids.

Cheat Sheet for Socratic leasehold ownership
Price (amount borrowed)	Leasehold payment (20% of price)	Interest on mortgage loan	Total mortgage payment including interest and leasehold payment
$ 500	$ 100	$ 20	$ 120
$ 5,000	$ 1,000	$ 200	$ 1,200
$ 50,000	$ 10,000	$ 2,000	$ 12,000
$ 500,000	$ 100,000	$ 20,000	$ 120,000
$ 5,000,000	$ 1,000,000	$ 200,000	$ 1,200,000
$ 6,000,000	$ 1,200,000	$ 240,000	$ 1,440,000
$ 7,000,000	$ 1,400,000	$ 280,000	$ 1,680,000
$ 8,000,000	$ 1,600,000	$ 320,000	$ 1,920,000
$ 9,000,000	$ 1,800,000	$ 360,000	$ 2,160,000
$ 9,500,000	$ 1,900,000	$ 380,000	$ 2,280,000
$ 9,971,429	$ 1,994,286	$ 398,857	$ 2,393,143
$ 9,991,429	$ 1,998,286	$ 399,657	$ 2,397,943
$ 9,999,429	$ 1,999,886	$ 399,977	$ 2,399,863
$ 9,999,999	$ 2,000,000	$ 400,000	$ 2,400,000
$ 10,000,000	$ 2,000,000	$ 400,000	$ 2,400,000
$ 10,000,001	$ 2,000,000	$ 400,000	$ 2,400,000
$ 10,010,000	$ 2,002,000	$ 400,400	$ 2,402,400
$ 10,100,000	$ 2,020,000	$ 404,000	$ 2,424,000
$ 11,000,000	$ 2,200,000	$ 440,000	$ 2,640,000

Since Kathy told her the maximum she can afford as a total mortgage payment, Sally highlighted the row in the cheat sheet that would lead to that exact total mortgage payment. Any bids above the highlighted line on the cheat sheet will lead to lower total mortgage payments than Kathy’s maximum.

The highlighted line is her maximum.

Sally tells Kathy that she must not bid anything lower than the highlighted line, because that will make her payment higher than the maximum she can afford to pay. Sally only included these numbers for reference.

Note the amount of the highlighted bid: The price will be $10 million, the leasehold payment $2 million a year, and the interest she must pay on the amount she borrows to pay the price is $400,000.

She will pay out the entire free cash flow to people not involved in production: of the free cash flow, $2 million will go to the human race, and the other $400,000 will go to the investors as returns on their investment (the 4% yield they require).

If you compare this to the natural law society we looked at earlier, you can see that the income of the human race is lower: we get $400,000 less in current income in the socratic leasehold ownership system than we get in the natural law society.

But we don’t give up this income for nothing. We get two very substantial advantages in exchange.

First, we get an enormous amount of reserves to protect us from risk. As you will see later, there are limits to the amount of protection the human race can have. (We can’t have more in reserve than ‘all the reserves there are.) As you will see, we are at the limit, meaning that we have the maximum possible protection against problems that may come up and the maximum possible security. Although you won’t be able to see why this is the maximum possible security we can have until you understand the discussions that follow, you can clearly see that we have truly fantastic amounts of security:

When the leasehold sells, we will actually get $10 million in cash. This cash is receipts that represent ownership of 10 million pound of rice that already exists and is in storage in the treasury of the human race (the common granary, which holds the ‘treasure’ that backs our ‘treasure backed money’). We will hold this $10 million in reserve. If the leasehold payment comes in, fine: the $10 million stays in reserve. If not, also fine: we get all rights to the property back, at no cost to us, and we will no reason to hold the $10 million in reserve anymore. We will become the effective owners of 10 million pounds of grain (enough o support the human race for five years) that we didn’t own before.

Second, we will get the strongest possible improvement incentives. Again, you won’t be able to see why they are the strongest possible until you understand certain technical matters discussed below, but you should be able to see that they are incredibly strong: a 20% increase in the free cash flow will lead to a $2 million increase in the price. This is a fantastic amount of money, and people will be able to become fantastically wealthy.

 

Limits To The Money Supply

 

In Pastland, we are using money that is receipts that represent ownership of ‘treasure,’ meaning ‘things of real value.’ There are limits to the amount of money that can exist because there are limits to the amount of treasure that exists. Systems that use treasure backed money have limited money supplies.

It might seem that the human race could get more and more security by simply increasing the price/leasehold payment ratio: If we make the price higher, we get more money to hold in reserve, and more security.

But this is not actually true because there is only a limited amount of treasure available. After the owners of treasure (the investors, who have saved their money causing the treasure to accumulate in the granary) have pledged all of their treasure (transferred it to ‘common reserves,’ by investing it) the system will run out of money to pay higher prices.

At some point, any system with treasure-based money will run out of money. The exact place where this will happen depends on several factors, some of which are hard to predict (like people’s propensity for ‘saving,’ the self life of rice, the number of substitute ‘treasures’ that are usable as backing for money), but there will always be a limit where any system that uses treasure for money will run out of money.

For the sake of example, let’s assume that the limit has been reached when we get to $10 million. This is all the money there is to invest. The price of any title to use the Pastland Farm can’t go higher than $10 million, because nothing can sell for more than ‘all the money in the world.’ If there is only $10 million, the price of any title to use the Pastland Farm (either a leasehold title or freehold title) can’t go higher than $10 million.

See sidebar for more informatiom.

As we have seen, Kathy can afford to pay up to $10 million for the leasehold in the socratic leasehold ownership system. This means that, if this leasehold is offered for sale, the ‘demand’ for investment funds in the system will be $10 million.

Investors have and are willing to supply up to $10 million to buyers of property rights, at an interest rate of 4%. So far, there is only one leasehold being offered for sale, the Pastland Farm. Investors are willing to supply up to $10 million in investment capital for this property. In other words, the supply of money to invest at this rate is $10 million.

Markets can work as long as it is possible for the supply and demand to match.

It is possible for the supply and demand for money to match in the socratic leasehold ownership system.

As we will see once we pass socratic leasehold ownership in our journey, it won’t be possible for the supply and demand for investment money to match in any system past socratic leasehold ownership. As a result, markets will not be able to function smoothly and normally, as they have so far, in any of these later systems. The markets in the later systems will start to break down and start to do many of the things that we are used to seeing in the societies we were born into, occasionally collapsing entirely (as they did in 1929 and 2008) and occasionally forcing governments to create artificial money (‘fiat money,’ the type in use worldwide as I write this, a type that is not backed by anything other than the ‘full faith and credit of the government), and collapsing into an inflationary spiral (as happened most recently in the late 1970s).

But all this is for later. As of the socratic leasehold ownership system, we are still at a point where the supply and demand for investment capital can match, so we are still at a place where markets can work effectively, efficiently, and without any need for a government or other authoritarian body to interfere.

 

Private Reserves And Common Reserves

 

In order to really understand the societies we will visit after socratic leasehold ownership, we need to understand a little bit more about the way the tool called ‘money’ works in societies that back money with something of real value (treasure). We also have to understand what it means to save money in such a system, and what it means to invest that money in such a system:

Let’s say that you live in Pastland and, for one reason or another, have not spent all of your income over the last few years. You have money in a savings account at a bank.

This money is your private reserve. You can use it for anything you want. If the human race as a whole has some kind of problem that leads to hardship, you can decide to use it to help the human race if you want, or you can keep it for yourself if you want. It is your private reserve. You can do what you want with it.

As long as you keep this as private reserves, you do not get paid for keeping it.

This refers to societies with treasure=backed money in socratic leasehold ownership societies. As you will see, after we pass socratic leasehold ownership, it will not be possible anymore to have treasure backed money and we will have to start using phony or ‘fiat’ money. In systems with fiat money, everyone with money gets paid more money each year, even if they don’t have the money invested. But in systems where markets can work, like socratic leasehold ownership systems and those above socratic leasehold ownership in the range, where money is backed by treasure, the rich do not automatically get richer and people don’t get paid for saving money in private reserves.)

(See sidebar for more about this.)

If you want, you can invest your private reserves, by participating in the investment fund that provides money for people to buy leaseholds on properties. If you do this, you will get 4% returns, but you won’t have control over the money any longer. As long as the money is invested, it is being held in the ‘reserve account of the human race,’ not your personal bank account. To spend it, you will have to find someone else who wants to invest, and ‘sell’ your shares in the investment fund to the other investor. As soon as you sell your shares, the buyer will be the investor. She will be getting the 4% return, not you.

You will only get the return on the exact number of dollars you have invested and then only for the exact number of days it is invested. The invested money generates returns: the uninvested money (private reserves) does not.

All invested money is being held by the human race in its reserve account. This is not our money (where ‘our’ refers to ‘the members of the human race’ as long as the leasehold is private. If the leasehold payment is made over time, we have to hold this money in reserve in case the owner of the leasehold activates the ‘buyback clause’ in the leasehold agreement, and asks us to buy back the leasehold. Any money that is in this buyback fund is essentially the common reserves of the human race. If you want to collect returns on your savings, you have to turn it over to the human race to hold to protect the members of the human race against possible problems. If you don’t do this, you won’t get returns.

In other words, you will have to agree to allow your private reserves to be used as common reserves. As long as it generates returns, it protects the human race, not you personally. If you ever want it to protect you personally, you will have to find someone to buy out your share in the investment fund. If you can find someone like this, her money will become a part of the common reserves of the human race, and your money will again be private reserves to protect you personally.

Remember, money is treasure in this system. Why should people who have treasure be paid over time for merely having treasure, in any society at all?

In this case, it is clear why you are being paid to have treasure. You are allowing your personal treasure to be held by the treasurer of the human race. If your risk managers (the people who manage risk for the investors, as discussed both above and below) are able to keep bad things from happening, you will get paid for every dollar you allow to be held as common reserves for every day it is held as common reserves. Each year you leave your money as common reserves and nothing goes wrong, you get $4 for each $100 you allow to be common reserves.

 

What Happens When All Investable Money Is Invested?

 

In the previous systems, the price that the market set for the leasehold title (the price that makes the total mortgage payment exactly equal to $2.4 million) was far lower than the total investable funds. This meant that some people had money to invest and wanted to invest it at 4%, but couldn’t invest it. It wasn’t needed.

To see this, imagine that you have saved $45,000 and want to invest $30,000 of it.

Say that you are in the ‘half price leasehold payment leasehold ownership system’ that set a price of $4,444,444.44. When Sally sets up the investment fund and starts accepting investments, she announces that she will accept investors until the fund gets to a total of $4,444,444.44. Let’s say that you delay and, when you go to sign up, find out that the investment fund is ‘closed,’ meaning it has reached its goal and is no longer accepting investments. So far, we have only one private property, the Pastland Farm, so there is only one investment, the Pastland Farm. You can’t invest in the Pastland Farm because the fund is closed and can’t invest in other investments because there aren’t any.

This means that you are out of luck.

You want to invest, but can’t invest, because there aren’t any more investments.

In systems like the half price leasehold payment leasehold ownership system, there will be more money supplied than the markets demand. As a result, some money that people are willing to invest at 4% won’t be invested at all.

People who don’t have money invested, but want to invest, will have to wait and hope that someone who has money invested is willing to sell their investment to them. If this happens, they can ‘buy out’ some other investor, and begin getting returns. If it does not happen, they won’t get any returns at all.

In socratic leasehold ownership systems, the supply and demand for money are exactly in balance. This means that everyone who wants to invest money can invest it.

The price is still very much like a deposit. It is now a giant deposit, equal to 5 full years of leasehold payments. Since it is all investable money on Earth, what has happened is this: the people of the world who had private reserves that they were not willing to use have turned over all of these private reserves to the human race. The treasurer of the human race will hold these reserves in the reserve account of the human race. As long as nothing goes wrong in production, the treasurer will hold these receipts for treasure in a special fund that can’t be spent on anything as long as the leasehold is private. As long as the leasehold is private, the human race literally is holding all of the private treasure that people have saved over the years, to protect us in case something goes wrong.

We have security.

Of course, we had some security in every leasehold ownership system we visited. In the early leasehold ownership systems, like the virtual rental leasehold ownership system, we had only a tiny bit of security. As we went through the range, we got more and more security.

There is a limit to the amount of security we can have.

We can’t have more security than having 100% of the treasure in the world that is not going to be needed over the course of time to support people’s lifestyles.

We will hold security in reserve.

As long as we get the leasehold payment on time and the Pastland Farm is not used in some way that is on the ‘list of potentially harmful uses,’ this money will remain in reserve.

The investors will get their returns.

Kathy will make the money she needs to run the farm and be extremely well compensated if she improves the farm and makes it more bountiful.

Everyone will be happy.

The people taking on risk will make absolutely sure the leasehold payment is never missed. If they do an effective job managing risk, it is virtually impossible that they will fail (as you will see below); but even if they should be bad at managing risk and should fail, we, the members of the human race, will not suffer. Our income is absolutely assured.

 

The Limit To The Amount Of Security That The Human Race Can Have

 

The ‘price’ is the amount of money the buyer invests in the title.

This is the amount of money that is being placed at risk and the amount that the buyer or investors who back the buyer stand to lose if something goes wrong. Obviously, the more money these people have at risk and the more they have to lose, the stronger the incentives they have to work hard to make sure that production doesn’t fall: they need the farm to produce both well and consistently, so they can pay their bills. If we want them to have the strongest possible incentives to be responsible, to work to keep production high, and to work to make sure no harm ever comes to the land they control, we want the highest possible prices for properties, so they will have the most to lose if things go wrong.

The price is also the amount of money that the human gets as a kind of deposit to protect us from loss. If we get 24¢ as a price, as we do in the ‘virtual natural law leasehold ownership society,’ we obviously don’t have a lot of security. If we get $2 million we have more security and if we have $10 million we have a great deal more security.

It might seem logical that we would be better off to have even more, say $20 million or even $60 million as a price, because then the people who control property would have more to lose if they give us more money and the human race would seem to have more security if something went wrong.

However, this can’t happen as long as we use real money, because real money is receipts for something of real value (treasure, to the human race) that already exists and is in storage. The money that Kathy gives to the human race when she buys the leasehold title is receipts for rice that already exists. People were entitled to this rice over the years (as their share of the bounty, or perhaps their pay), but they didn’t spend their money. In this case, they are being offered to be paid if they will loan this money to Sally, who will then loan it to Kathy, who will then give this money to the human race to put into its ‘reserve’ fund to hold in case something goes wrong. The investors know they can possibly lose this money, but they also know that the risk managers are working very hard to make sure nothing goes wrong, so chances are nothing will go wrong. If nothing goes wrong, they will get richer and richer each year, with their wealth increasing at a rate of 3½% times the amount invested, provided the risk managers do their jobs and nothing goes wrong.

They are actually getting paid to release their personal reserves (savings) so that they can go to the human race to be held as common reserves. Each year they do this, and nothing serious goes wrong in production, they will get their interest. If they ever want their money back for any reason, they can ‘sell their investment’ in markets, as discussed earlier. In later systems, people will get returns on money without taking risk or doing anything, but in this system, they only get richer if they are willing to take on risk and actually place their money at risk by giving it to the human race to hold in case something goes wrong.

We have a certain amount in reserves. In this case, we have 10 million pounds of rice in reserve, enough to feed the entire human race for several years.

What if we wanted more security?

The reality is that we can’t have any more reserves than we already have.

All investable money is invested.

There is no more.

It is true that we could simply start printing money, like current governments do. But having more money doesn’t mean more security if money is just pieces of paper with numbers on them. We can’t eat these little pieces of paper.

In our case in Pastland, money is receipts for treasure that exists and is in the treasury. If we print up more receipts than we have treasure, this doesn’t give us more security. All the security we can have is ‘all the treasure in the world that people aren’t going to need in the immediate future.’

That is the exact amount we have when we get to the socratic leasehold ownership system.

We can’t get more.

 

Possible Societies

 

As we have gone on our journey through possible societies, we started in systems where the price/leasehold payment ratio was so low that the leasehold titles to properties literally couldn’t sell for a single dollar. In these systems, owning a leasehold was essentially the same thing as living in a natural law society and renting the property from the landlords of the world, the members of the human race.

We went through a long range that looked very similar. We then passed the first transitional system and got into societies that looked different. The EPLPLO system marked the place where prices were high enough, relative to leasehold payments, that people who controlled properties began to have incentives to consider the risks and things that could go wrong in production and take precautions to manage them, and where they finally had incentives to undertake improvements projects (to buy leaseholds, improve the underlying properties, and then sell the leaseholds, with no goal other than to gain from the improvements).

As we passed through the next range, prices became higher and higher and eventually people could make serious money investing in improvements. We got into a range where people could make far more money undertaking improvements projects than doing anything else that humans could do. The amounts of wealth available were so large that people would stay awake at night looking for ways to make the world better and ignore their families, their health, and just about anything else to find new ways to make money.

These systems are all built on the premise that the human race is the dominant race on Earth and its members are therefore the lords of the land or landlords. We are intelligent beings (at least, we are capable of intelligence, even though we aren’t always able to use our intelligence to overcome beliefs, superstitions, and a crowd instinct that drives us to accept the things we are told the people around us have accepted). This means we are capable of figuring out all of the different ways humans can organize their existence before we make decisions about what option to use, consider the way they work, and figure out which one best meets our needs.

We have seen that there are two extreme options and many intermediate options. One extreme accepts that no rights to the world may be owned at all, but that people can gain rights to use parts of the world by paying the people around them a yearly fee called ‘rent.’ (This payment may also be called a ‘lease payment,’ because ‘leasing’ is synonymous with ‘renting.’) The other option accepts that it is possible to buy and own 100% of the rights to parts of the world for a one time simple fee called a ‘price.’ Intermediate options can be built by the human race (landlords of the planet) deciding to require people who want to use parts of the world as their own private property yearly to pay both a yearly payment to the landlords (a leasehold payment) and a price.

The landlords can decide how important the two payments are.

If we want systems that are closer to natural law societies, we can create them by making the leasehold payments very, very important, and the prices relatively unimportant. We can do this simply by auctioning off leaseholds with very very low price/leasehold payment ratios.

For example, with ‘virtual rental leasehold ownership,’ the leasehold payment was 100,000,000 times the price, meaning that the price was 1/100,000,000^th of the leasehold payment. To gain rights to a property in this system, people did have to pay ‘prices,’ but the prices were so low that, for practical purposes, they could ignore these prices and consider this method of property control to be a rental. (Recall that the leasehold for the Pastland Farm sold for a mere 24¢, less than the price of a drink of water in most places.) If we want more characteristics of ownership systems, we can make the price higher relative to the leasehold payment, by selling property rights with a higher price relative to the leasehold payment, or a higher price/leasehold payment ratio. At EPLPLO, the price and leasehold payment are equal. At socratic leasehold ownership the price is 5 times the leasehold payment, and the system is starting to look a lot like ‘regular’ (or freehold) ownership.

At each stage, we could think of the intermediate systems as either extreme rental systems (rental with varying deposits), or extreme ownership systems (regular ownership with varying ‘property taxes’ payable to the human race.)

For example, we could think of the EPLPLO system as a rental with a deposit equal to one year’s rent if we want to do this. Kathy pays a ‘deposit’ of $2,307,692 when she signs the document. She then pays ‘rent’ of $2,307,692.

We could also think of EPLPLO as ownership (freehold ownership) with a 100% ‘property tax’ payable to the human race: Kathy buys the property for $2,307,692 from the human race and then makes a yearly ‘ad valorem property tax’ payment equal to $2,307,692, exactly 100% times the ‘price’ she paid (see sidebar for more information).

We could think of virtual rental leasehold ownership as a rental with a ‘deposit’ of 1/100,000,000^th of the rent, or we could think of it as regular (freehold) ownership with a ad valorem property tax of 10,000,000,000% of the price. (Kathy pays a price of 24¢ and then a yearly payment of $2.4 million, which is exactly 10,000,000,000% times the price she paid. You could think of the $2.4 million yearly payment as an ad valorem property tax; see sidebar for more information.)

We could think of socratic leasehold ownership as a rental with a ‘deposit’ of 500% (five times) the rent if we want. We may also think of it as ownership with a ad valorem property tax of 20% times the price. (Kathy pays a price of $10 million and then a yearly payment of $2 million, which is 20% times the price.)

Although these intermediate systems could be thought of as extreme rentals or extreme freehold systems, they are not really rentals or freehold systems, they are leasehold ownership systems. I am only showing how they resemble extreme forms of the two extreme systems to help you picture them in your minds and compare them to things you have seen before and understand.

 

Different Price/Leasehold Payment Ratios

 

I want to show you that we can structure our interaction with the world in literally any way we want. Natural law societies have certain very desirable characteristics. (Powerful incentives that push for personal, social, and environmental responsibility, for example, and powerful incentives pushing against forming ‘nations’ and claiming rights to the world that require the use of violence to enforce.) If we want these characteristics, we can choose an interaction with the world that is as close as we wish to get to natural law societies.

Sovereign law societies also have certain desirable characteristics. (They have incentives to invent, innovate, create, invest, and take advantage of the fullest capabilities of the human mind to manage risk, prevent reductions in production, and improve the world whenever possible.) If we want these characteristics, we can choose an interaction that is as close as we wish to sovereign law societies.

Intermediate societies combine the various incentives of the extreme systems in various different ways. Systems close to the extremes work very much like the extremes. Systems far from either extreme work unlike any system that people today have experienced. So far, we have gone through about half of all of the options in our journey through possible societies. Socratic leasehold ownership societies are in about the middle of the range of possibilities. They happen to combine the powerful constructive incentives of sovereign law societies with the powerful incentives pushing toward personal, social, and environmental responsibility of natural law societies.

We, the members of the human race, must decide what we want. How do we want the future to unfold? Some people believe that an all-powerful invisible Superbeing that lives in the sky has already written history, and it ends with the destruction of the world and everyone on it. (This destruction, called ‘Armegeddon,’ is predicted in the Christian Bible, and many Christians believe it is inevitable.) These people believe that the end of the Earth will mark a transition to a ‘rapture,’ a period of wonderful, ecstatic bliss for eternity, and want it to happen as quickly as possible. These people would want the most destructive system possible so we can reach the rapture as quickly as possible; they would want a system with the strongest possible destructive incentives, which (as we will see shortly) is the one you and I were born into.

Others believe that it is a sin to purposely kill yourself (this is suicide, which many people believe is the same as murder in the eyes of the invisible one who judges us all), and believe it is wrong to move purposely toward the end of the world. But many people who believe this also believe that hardship and misery build character, and is essential to have a good ‘test of our souls,’ which they believe is the purpose of earthly existence. These people would want a system that was not in the suicidal range, but was at the very limit of the non-suicidal range. As we will see, there is a system that has the maximum misery and hardship that is consistent with survival of the race (the ‘minimally sustainable society.’) If we held a global election, and the majority of the world’s people wanted to have the maximum of the characteristics of the societies we were born into that lead to misery and hardship, but which is consistent with survival for our race, we could choose the minimally sustainable society.

Others believe that we should all live simply and in total harmony with nature. They believe that we don’t need or want progress, growth, or any of the creature comforts technology and human ingenuity have created, and we are better off to get rid of them entirely. They realize that only a tiny fraction of the current world population could be supported without technology, but they believe this is the price that we must pay to be in harmony with nature, and follow its edicts (as if nature itself were a kind of god, endowed with intentions). If we held an election and a majority of the people of the world agreed with this, we could move to natural law societies, using the tools and processes that Book Two of this series (Possible Societies) explained.

Some, however, believe that misery and hardship are undesirable characteristics. They believe that human existence is better if humans have enough to eat and freedom from conflict and violence, if they live in a safe and orderly society with as many creature comforts as possible, the maximum in material prosperity, with non-destructive processes in place to convert the super-abundant raw material our world is made of (iron, silicon, aluminum, calcium, for example) into vehicles, dwellings, appliances, and other things that can make our lives better. If we held an election and a majority of the world’s people wanted this, we could move, using the processes that Book Two of this series (Possible Societies) explained, toward a socratic leasehold ownership system.

Perhaps there would be some who would think that a different incentive structure would be better. Perhaps they would think that, over the short run, we may need the extremely rapid progress and growth that would come from the maximum in constructive incentives, but that over the long run, we would not want people to feel driven (by profit opportunities) to devote their existence to creation of value for the future. Perhaps they would feel that we may want to move to the socratic leasehold ownership system to gain its advantages, but only stay there until we have stabilized our situation. After that, we may choose to move to some other point in the range, perhaps a better mixture of harmony with nature and the forces of human ingenuity.

We must decide what we want.

If we understand how all of the different societies we may form work, and know what we want, we can find a system that works to advance the needs of the human race going forward into the future, and put it into place.

Although socratic leasehold ownership may not be the ultimate destination, it has certain characteristics that indicate it is almost certainly a waypoint on any journey we may want to make into a sustainable future for our race. As a result, it seems hard for me to fathom anyone hoping or expecting to create any kind of sustainable future for our race without understanding it. If you haven’t already done so, I would strongly recommend you read the chapters on socratic leasehold ownership in Book Two, Possible Societies. If you have already read these discussions, I would ask you to consider finishing Book Three, the one you are now reading, then going back to Book Two and reading the chapters that deal with socratic leasehold ownership one more time.

 

 

 In the first post-EPLPLO societies we visit, people will only be able to make tiny amounts of money improving. They will be able to justify improvements, but the profit opportunities won’t keep them awake at night thinking of ways to improve.

As we progress through the next range, however, people will be able to make more and more money improving. Eventually, they will be able to make such fantastic amounts of money improving that we can expect them to devote a large part of their mental energy to figuring out ways to improve. We can expect them to spend more and more of their time working to find ways to increase the bounty (free cash flow) of parts of the planet that they control through their ownership of leasehold titles.

In any specific case, we may not be able to explain why they improve. Perhaps they are motivated by altruism, love of the human race, and a desire to make life better for all future generations. But perhaps they are ‘only’ motivated by profit. Perhaps they only want to make money because they are greedy, and they would be working to make money even if they lived in societies where people could make money doing things that did harm to the human race. (Sovereign law societies, for example, provide fantastic rewards for war and destruction.) As a scientist, I don’t like to spend time worrying about what people claim motivates them, because people can claim they are motivated by anything they want, and scientists don’t have any tools to disprove their claims. The only thing that scientists can say with certainty is that, if people can make money (or otherwise make their lives better) by doing things that improve the world, improvements will take place.

When we enter the next range, we can expect the stagnancy we have seen so far to disappear. We will expect change, progress, and growth.

 

Double Price Leasehold Ownership

 

The EPLPLO system was set up so that the price and leasehold payment were equal. In other words, the leasehold payment was 100% times (the same as ‘1 times’) the price. In the next system we visit, the price will be exactly double the leasehold payment. To put this another way, the leasehold payment will be double the price. Here is the bid screen:

 

Auction for the Leasehold ownership Rights to the Pastland Farm:

You must enter a number into both boxes to bid. The number you enter in to the ‘leasehold payment’ box must be 50% times the number you enter into the ‘price’ box to register the bid.

Your PRICE offer                         [$ ]            

Your LEASEHOLD PAYMENT offer                [$ ]

IMPORTANT: You must enter numbers into both boxes above to activate the bid now button. The number you enter in to the ‘leasehold payment’ box must be exactly 50% times the number you enter into the ‘price’ box to register the bid.    

[Bid Now]

 

Kathy only wants to be a farmer.

She is willing to farm the land if she can make at least enough to cover the time and talent she will put into the project. She knows she can afford a total mortgage payment of up to $2.4 million a year, but she doesn’t know what numbers to enter into the boxes to make sure her payment is no higher than her maximum.

She goes to Sally, who represents the investors, to get advise.

Kathy tells Sally that she would like to gain rights to the farm with a lower total mortgage payment than $2.4 million a year. But she is willing to go up to $2.4 million and absolutely won’t bid anything that makes her payment more than this. Her payment has to include all of the amounts she pays out to people not involved in farming operation, so it must include the leasehold payment that goes to the landlords of the planet each year and the returns including interest and all fees that go to investors.

Sally makes the calculations and tells Kathy that she can afford to bid up to the following amounts:

Price bid.                              $4,444,444.44

Leasehold payment bid.             $2,222,222.22

Note that the leasehold payment is exactly double the price of the leasehold title. If she wins, her total mortgage payment will be $2,222,222 + $177,778 interest on the loan (4% of the price) or $2,400,000.

 

The Math

The leasehold payment is 50% times the price;

The interest to investors is 4% times the price;

The TMP (total mortgage payment, which is the leasehold payment plus the interest) is:

(50% * price) + (4% * price) = (54% * price).

Since the market will set the TMP to be equal to the $2.4 million free cash flow, we can substitute $2.4 million for TMP in the above equation to get:

$2.4 million = price * (54%)

Divide both sides by 54% to get:

($2.4 million / 54%) = price.

Divide out the numbers inside the parenthesis to get: $4,444,444.44 as the price) Now that we know the price, we can calculate the leasehold payment by multiplying the price by 50% to get: $2,222,222.22.

Kathy must enter $4,444,444.44 as the price and $2,222,222.22 as the leasehold payment.

If she wins, her total mortgage payment will be $2,222,222 + $177,778=$2,400,000.

Sally instructs Kathy to watch the price closely. If Kathy can buy for any price lower than $4,444,444.44, her total mortgage payment yearly payment will be less than the $2.4 million she can afford to pay. If she has to bid this exact price, her total mortgage payment will be exactly $2.4 million a year. She must not go above $4,444,444.44 because if she does, her total mortgage payment will be more than she can afford.

If Kathy wins, she will go to a ‘closing’ at the bank that will be ‘servicing’ her account. (The section below explains the idea of ‘servicing’ mortgage loans; most investors hire banks to do the servicing, which basically involves paperwork.) At the closing, she will sign the documents that the investors have prepared.

The investors are taking on risk:

Kathy may put some of her own money into the deal. If she does, she is playing two roles, one as the leasehold owner who will be running the farm, the other as one of the investors. She will make her normal $50,000 a year for running the farm. She will also get 4% times the amount of money she invests each year as a return on her investment, to cover the risk of the investment.

For example, if she invests $500,000 of her own money in the project, her interest to the (other) investors will be $20,000 lower because she will borrow $500,000 less money. After she pays all costs, she will have $70,000 left. $50,000 of this is her normal income from running the farm and $20,000 is her returns on her invested capital.

If Kathy invests her own money in the project, she is taking on risk and could potentially lose money (say if her alter-ego the ‘owner/operator Kathy’ doesn’t do a good job). Like all of the other investors, she will want to make sure the farm is operated efficiently and well, and that the landlords’ interests are protected.

If Kathy does not make her yearly payment, the investors will have to take steps to deal with the problem to prevent the loss of the investor’s money. If Kathy doesn’t make the payment, the investors will take possession of the property (repossess) and Kathy will be totally out of the picture. The investors need to make sure Kathy knows this will happen, so they have prepared several documents making it as clear as they can make it. At the closing, the escrow officer (person who deals with the closing documents) goes over everything with Kathy to make sure she understands, and has her sign several documents certifying that she understands.

When the deal closes, the escrow officer will give Kathy a check for $4,444,444.44. Although Kathy will have the check, she won’t be able to cash it, because it will be made out to ‘Kathy and the treasurer of the human race.’ Kathy will have to countersign the check, which will then go to the treasurer of the entity that is selling the leasehold, the human race.

The treasurer of the human race then must put this money into the ‘buyback reserve fund’ for that property. If Kathy has followed the rules of the leasehold and wants to sell the leasehold back to the human race, she can do so at any time and the money will be available in the reserve fund. If Kathy can get a higher price from a private party than her landlords are willing to give her (which will happen, as you will see) she will sell it to the private party. The private party may sell it to another private party, and so on, with the leasehold remaining private perhaps for centuries or longer.

As long as the leasehold is private, the money will remain in the buyback reserve fund. This money protects the human race from whatever problems come up. Because we have twice as much money in reserve than we have been promised as yearly leasehold payments, we clearly have total income protection: No matter what happens, we will always get our leasehold payment from this property. Since the money in reserve represents real treasure that is in the treasury, we have real protection. We don’t just have the faith and credit of some government to protect us, we have real physical wealth that we can use to sustain us.

 

Technical Details

 

The investors will eventually make investments in many properties. They are not professional accountants and don’t want to have to worry about accounting, so they hire professionals to ‘service’ their loans. In Pastland, the investors will probably do the same thing investors do in our 21^st century societies, and hire ‘mortgage servicers’ to take care of the details. (The box below explains ‘mortgage servicers.’) The servicers deal with all of the paperwork. They draw up the contracts, get them signed, record them, and file them.

The mortgage servicers (not the investors) send out bills and make sure that the total mortgage payments are made. (Note: the landlords are not involved in this. We don’t care if the payments to us are made, because we are holding twice as much in our reserve fund as we have been promised as a yearly leasehold payment.) When payments come in, the servicers make sure that the right people get the money.

In this case, Kathy’s yearly payment will be $2.4 million. The servicers will send $2,222,222 of this money to the landlords of the Earth, by paying it to the ‘treasurer of the human race.’ The servicers will then subtract whatever fee they charge for their services and give the rest to their employers, the investors (in our 21st century world, servicing fees are standardized at 1/8 of 1% of the principle balance; link to source).

Kathy will not deal directly with the investors. She will deal only with the servicing company. In this example, let’s say that the investors have decided to use Sally for this. If Kathy has questions, she will call Sally and ask what to do. If you have a mortgage loan in our 21st century societies, you are almost certainly dealing with a mortgage servicing company. I have had questions for investors from time to time (see sidebar for more information).

Questions for investors:

When interest rates go up, the market value of the mortgage loan goes down. What this means is that the investors can’t sell their mortgage loans for ‘par’ (the amount owed) and the investors lose money. If you are thinking about selling the property, you can negotiate with the investors to pay off your loan at a discount, which may be substantial. Professional in the real estate business know this and negotiate such discounts before they offer their properties for sale. I have done this and gotten very substantial discounts, making my gains on the property sale significantly higher than they would otherwise have been.

Since I am not allowed to talk to the investors directly, I must make my request to the servicers. They then contact the investors for a decision, and relay that decision to me.

If you call your servicer (the company that you make out your mortgage check to), and ask them who the investors are, they will not tell you. Their job is to make sure that the people with mortgages don’t bother the investors. In Pastland, we would expect the investors to do the same thing. They will probably hire someone (Sally in this case) and tell her that if the discloses any information about the identities of the investors, she will be fired. They don’t want to be bothered by the questions most borrowers have.

 

Responsiblity

 

The last chapter showed that, in all societies below the EPLPLO society, the human race is not involved in any decisions about production. We don’t have to worry about anything going wrong, because we can’t be hurt if something goes wrong. The investors will be hurt. They will therefore make sure that their interests are protected.

They will do this by inserting clauses in the lending agreement that require Kathy to meet certain performance metrics. Although the wording may be vague in the agreement, the investors know exactly what they want. For example, I bought some apartments on time, with a lending agreement that required me to operate them in a ‘professional manner.’ I got a letter in my mail that said the lenders had evaluated the property and determined that the trees were not trimmed properly. They required that I have a professional trim the trees (or trim them myself in a professional manner) or they would foreclose on the property. They send skilled professionals out to evaluate their investment in our 21st century world. We can expect them to do the same thing in Pastland.

Exception:

This is not done for residential mortgages in most nations because these mortgages are guaranteed by the government. In the United States, for example, the government takes on all risks and lenders therefore can’t lose. If they can’t lose, they don’t have any incentives to manage risk so they can’t justify hiring people to manage risk. Because people don’t manage risk, the entire mortgage market can collapse due to excessive risks. This happens on a regular basis, most recently in the period between 2008-2012, when a default rate that exceeded 50% at one point caused a collapse in the housing market.

The investors also have a ‘lien’ on any disbursements from the community granary, which is the only place Kathy can sell grain: When Kathy ‘sells’ her grain (trades it for money at the granary) the check must be made out both to the bank and Kathy. Kathy can’t cash or deposit the check until the servicing agent (Sally) countersigns the check, and Sally won’t countersign until Kathy has written another check for her mortgage payment.

 

Improvements In Double Price Leasehold Ownership

 

If Kathy improves the farm so the free cash flow goes up by 20%, the market value of the leasehold will also go up by 20%. (The section explained this thoroughly; review if you don’t see why it must happen.)

If we are starting from a very low price, the 20% isn’t much. If we are starting with a price of $2,307,692 (the price of the leasehold title if sold with an EPLPLO system), the increase is $461,538, which we have seen is just enough to replace the amount of money paid for the improvement, with nothing left for Kathy to put into her pocket. But if we are starting with a price of 444,4444, the 20% increase is $888,888. This is enough to cover the cost of the improvement, and put more than $300,000 into Kathy’s pocket at the time of the sale.

chart a2.1 Gain from improvement at different prices
Starting price (price before improvement)	20% higher price (price after improvement	Net capital gain from improvement
$1,000,000	$1,200,000	$200,000
$2,307,692	$2,769,230	$461,538
$4,444,444	$5,333,333	$888,889
$6,428,571	$7,714,286	$1,285,714
$8,275,862	$9,931,034	$1,655,172
$10,000,000	$12,800,000	$2,000,000
$20,000,000	$24,000,000	$4,000,000
$40,000,000	$48,000,000	$8,000,000
$60,000,000	$72,000,000	$12,000.000

When she is bidding, she may not realize that, after the auction is over, she will be able to make an additional investment in the property that will not only give her a huge increase in her yearly income, it will also ‘pay for itself’ and put hundreds of thousands of dollars of ‘capital gain’ money in her pocket when she goes to sell the leasehold at some later date. But she will be able to do this. Most people who buy property rights in 21st century systems eventually figure out that they can make back the money they put into improvements through capital gains. They realize that money spent on improvements is not really a cost, in that they aren’t giving this money up forever, but it is an investment that they will get back when they sell the property rights to someone else.

If they can make money improving, they have incentives to improve.

I want to mention that this point is not always totally clear to people who buy property rights in 21st century societies.

People do have incentives to improve (because they can make money improving) in our 21st century societies. But they don’t always know how the money flows work well enough to realize they can make money improving. The fact that they don’t understand the incentives doesn’t mean the incentives don’t exist. If Kathy sits down with a pencil and paper and works through the numbers, or if she had been taught how to do the math in school, she will realize she can get quite rich by finding a way to make the world more bountiful and productive, planning the improvements, raising the money for the improvements, and then giving the go-ahead and getting the work done.

 

Trade Offs With Double Price Leasehold Ownership

 

The landlords of the planet get a tiny bit less money each year with double price leasehold ownership than with equal price/leasehold payment leasehold ownership. We get only $2,222,222 a year with double price leasehold ownership, rather than rather than the $2,307,692 we got each year with EPLPLO, so we get about 3% less money each year as our leasehold payment income.

However, we get something very important in exchange. Let’s look at the benefits:

We get even more security than before. We have more than $2 million additional dollars in our reserve account than we had with the EPLPLO system.

This $2 million is not simply a pile of pieces of paper printed up by a government which may turn out to be worthless, it is receipts for real value that already exists and is sitting in the granary waiting to be withdrawn to anyone who has money.

Before, we had total income security but not total security for all events:

It would be possible that a massive hurricane or tornado could do extensive damage to the land that cut production for more than a year. If this happened, we could possibly lose after the first year (in equal price/leasehold payment leasehold ownership we had one year’s leasehold payment in reserve; here we have 2 years leasehold payment in reserve.)

But in this double price leasehold ownership system, even a catastrophe like this wouldn’t affect us, because we have enough to totally replace our income (even if it calls to zero) for two full years.

The second benefit comes from improvement incentives:

In equal price/leasehold payment leasehold ownership, Kathy could break even but not make money improving. That was the first system where Kathy would not lose money on simple improvements. But she only has incentives to improve if she actually makes money improving. In the double price leasehold ownership, she clearly makes money improving. She clearly has incentives to improve the part of the planet that the human race has allowed her to control. Now if she improves the land so the free cash flow goes up by 20%, the market value of the leasehold title will go up by $888,889. The improvement only costs her $461,538 so she will end up making $427,350 as a net capital gain, after all of her costs, if she improves. This is an enormous amount of money, far more than anyone in Pastland has made in the past, and will make her the richest person on Earth by a huge margin. The landlords of any property want the tenants of that property to improve it.

We, the members of the human race and landlords (dominant race) of the planet Earth want people who interact with the land on a day-to-day basis to improve properties because, when they do, the amount of value that flows from the Earth will increase, the bounty of the world will increase, and all future members of the human race forever into the future will benefit.

The landlords of the planet determine the conditions that people who want to control property have to meet. If we want them to have incentives to improve, we can decide to create conditions that allow people who control property to make money by improving, giving them incentives to improve. This brings the incentives that affect individuals into closer alignment with the needs of the dominant species on the planet. As they react to incentives—as they work to get rich—they will look for and find things that make existence better for the entire human race.

We can create more incentives for people to improve by choosing some form of leasehold ownership that is even lower than equal price/leasehold payment leasehold ownership in the range of possible societies. ‘Double price leasehold ownership’ has much higher incentives to improve than equal price/leasehold payment leasehold ownership. But other systems still lower in the range of options has even stronger incentives than ‘double price leasehold ownership.’

The human race won’t actually benefit from the improvement until the leasehold ownership changes ownership in a market. When the title sells, buyers will be bidding on rights to lease a property that produces a much higher free cash flow. This leasehold is worth far more money than the leasehold on the unimproved property. When Kathy improves the property, her wealth position is higher and she is worth more ‘on paper,’ but she can’t actually spend any of her ‘paper’ wealth because it is not the right kind of paper: money. When she sells the leasehold in order to ‘cash out’ (technically called ‘realizing’ the gain), she will convert it from being theoretical wealth (a higher ‘equity’ position in the property, which is theoretically worth more money) into real money. In the equal price/leasehold payment leasehold ownership system, Kathy didn’t have any incentives to sell the leasehold because she had no gain to realize. In that system, she would only make back enough money to cover the costs she paid improving. In the ‘

Here, she can put more than $400,000 in cash in her pocket merely by selling the leasehold title to this property. If she is greedy and selfish (normal) she will sell quickly and this will cause the income of the entire human race to go up quickly. If we want people to improve properties and then sell them, we can create more incentives for this to happen by choosing a leasehold ownership system below equal price/leasehold payment leasehold ownership on the Road Map.

 

A Change in the Landscape

 

At the EPLPLO society, we make a transition in the realities of the societies we are traveling through. Before, people couldn’t make money improving properties. Now they can. As we go through the next range, people will be able to make more and more money improving. If people react to incentives, we will begin to see people doing things they never did before:

In the earlier systems, people had a lot of energy. But they didn’t devote much of it to work. There was no point. They couldn’t make any significant amount of money or change the realities of their lives by working. When they got restless, they did other things. They danced and played and made music. They planted and tended trees and flowers and gardens. They threw a lot of parties. People did things. But they didn’t gain anything from productive work. If they reacted to incentives, they didn’t do much of it.

Now many people can make their lives better by working hard. Kathy can make fantastic amounts of money on the improvements. Sally can make money investing in improvements. Contractors can bid the job at levels that give them profits. The contractors need to hire workers. They need tools and are happy to pay people to make them, because the contractors and workers make more profits if they have better tools. The tool makers can make money building better tools and need better materials. All of these people can make money doing things that would never have been done in the earlier systems.

Note: Let’s not worry now about whether this is good or bad. I am not saying devoting more time to work is good, only that there are societies that have stronger incentives to work and people will devote more time to work. These societies are possible. Does more work make a better society? That is something that our group in Pastland can decide after we understand the options. If we decide we want faster growth and progress, perhaps at the expense of more stress, mental illness, and heart attacks, we may choose a society with stronger constructive incentives. If we would prefer a slower pace of growth for any reason, we may choose one that has the exact incentives we want.

In our journey through societies, we will start to see something we haven’t seen yet: drive. Many people will get up uncomfortably early in the morning and take drugs (coffee or tea, for example) to bring to the level of alertness that allows them to be able to do their work. They will work hard all day long (perhaps carrying a thermos of coffee with them, in case they start to slow down) and will often come home late in the day, too exhausted to do anything other than take drugs to counteract the residual caffeine in their system (alcohol) and fall into bed. We can expect Kathy to be there every morning when the contractors show up (probably at daybreak), to make sure they don’t waste any time and do the job right. We can expect Sally to show up on a regular basis (or send an employee to the job site) to make sure the bank’s money is being spent wisely. We can expect the contractors profiting from the work to be there and the workers hoping to get promoted to supervisor out there trying to impress the boss.

In the societies we visited earlier, people did a lot, they just didn’t do a lot that was productive. Lewis and Clark describe the endless games and celebrations in the natural law societies they visited west of the Mississippi between 1803-1805. While we had the natural law society, we would have expected to see the same kinds of activities. Now, most people won’t have time to have fun. They will have too much work to do. They can get rich working, so they have incentives to work.

We will see fewer games. Fewer parties. Fewer people will have time to take a walk just for the fun of it, or tend the really fancy gardens. People don’t have as much time for these things as before. They will have too much work to do.

 

How Society Benefits from Improvements

 

We, the members of the human race, have sold the rights to make improvements to private, profit-motivated individuals. They own the right to make any modifications that don’t harm our world. We are not involved in these decisions. Once we rule that a specific modification does not destroy the land, the owners of the leasehold titles own the right to make these modifications.

In this case, Kathy will decide which modifications to the land she wants to make. If she is self-interested, we would expect her to look first at the modifications that will make money for her, personally. Once she has decided what she wants to do, she will draw up some sort of a plan for a project, with costs and expected benefits. She will then take the project to the investors and ‘pitch’ it to them, showing them how they will also make money from it. If they approve, she will complete these easy projects. After the easy improvements are finished, she will sharpen her pencil to work out ways to improve the land that are not as easy to see.

The landlords aren’t involved in these decisions. We have sold her the right to make them. She knows this. If the modifications she makes work out, she and her investors will make money; if not, they may lose money. We hope that she will do well for herself and her investors and find ways to improve the world and make it more productive, because if she does, the entire human race will benefit with more money and more good things to buy with that money indefinitely into the future.

What if she wants to make a change that will harm the land? For example, say she decides she wants to plant a genetically modified variety of rice that is engineered to need large quantities of chemicals just to grow. (Most genetically modified plants have been developed by chemical companies. They want to increase the demand for chemicals and advertise heavily to farmers. You will see their billboards along the road of faming communities all over the world.)

Kathy does not own the right to destroy the land. Does this change destroy the land? To find out, she will have to ask her landlords. If the majority of the landlords of the planet believe that planting crops that require chemicals and then saturating the land with chemicals does not harm the land, we will put this activity on our ‘non-destructive list’ and anyone who wants to do it will own the right to do it. (Buyers of leasehold rights own the right to do anything that the landlords have ruled is non-destructive.) If, however, the majority of the landlords believe that this farming method is destructive or even potentially destructive, they can put it on the ‘potentially destructive’ list. Kathy does not own the right to do things on this list, but she may ask the landlords of the planet for special permission. If she can convince us that we all benefit by allowing some potentially destructive activities to take place on this land, we will grant permission on a case by case basis.

So far, no modifications to the land have been made. The land is in the same condition as nature made it. She realizes she can increase yields a great deal by leveling the land, so she will may want to make this improvement first. After she has finished the improvement, she will not own the exact same farm she bought the rights to. She will own a ‘new and improved’ farm that can produce far higher free cash flows. If she sells, she knows she will be selling the rights to a better farm, one that can produce a great deal more value. She knows the market value of the rights to this farm will be higher, so she can sell and make a gain.

The bidders can’t just offer a price for the property. The bid form has two boxes to fill in, one for the price and one for the leasehold payment. In the double price leasehold ownership system, Kathy offered a leasehold payment that was exactly ½ of the price she offered. Her offered price was $4,444,444 so her offered leasehold payment was $2,222,222. The computer would not allow her to bid until she had made this calculation and entered the number into the box. The new bidder is going to offer a far higher price. The new bidder also can’t offer just a price, she must offer both a price and a leasehold payment. Since she will offer a price that is more than $4,444,444. She will necessarily have to offer a leasehold payment that is more than $2,222,222. The human race will get the leasehold payment. When the leasehold changes ownership, the income of the human race will go up. In this case, where the improvement drove up the price by 20%, the income of the human race will also necessarily go up by 20%. We had been getting $2,222,222 a year (when Kathy owned the leasehold). The new owner will pay $2,666,666 a year as a leasehold payment.

I want you to understand something very important:

if we had kept the natural law society, the improvement would almost certainly never have been made. Our income would have started out at $2.4 million a year and stayed there, perhaps for thousands of years. If we convert to a ‘Double price leasehold ownership system,’ our income goes down initially, from $2.4 million to $2,222,222, so it goes down by about 7% initially. We give up a little money for a short time. In exchange for this, we get the benefits above, which include the benefits of improvements. Kathy has very powerful incentives to improve and we would expect her to improve as rapidly as she could manage. Then, she will be able to ‘cash out’ of the improvement, by selling her rights to the farm, any time and put her gain into her pocket. People want this and have incentives to sell to get the money. As soon as she reacts to this incentive, the income of the human race goes up. As you can see, our income will go up to far more than it would have been if we had kept the natural law society.

The system still has incentives to improve. Future owners will build on the improvements that nature provided for this land and that past owners made. Each time the improved land is sold, the income of the human race goes up. This happens totally automatically, without any need for anyone to access anything; our income is still totally automatic and totally risk free.

This is yet another example of the alignment of incentives that is often called the ‘invisible hand.’ People can make money improving. This doesn’t benefit the human race in every society that can exist. For example, in the societies we were born into, the human race as a whole doesn’t have any rights at all to share in the increased cash flows that come from improvements. In fact, if the improvements come about by mechanization or the elimination of jobs, the amounts that go to workers globally will fall from these improvements, so the great majority of the people of the world will actually have lower incomes because of the improvement.

What If A Leasehold Owner Improves But Does Not Sell the Leasehold Title?

 

Once the improvements are finished, Kathy has incentives to sell the leasehold title, so she can ‘cash in’ on the improvements. When she finished the improvements, the value of her property rights increased. She is worth more ‘on paper’ because her ‘equity’ in the property (the amount of money she would net if she sold) is higher. But she can’t spend this kind of ‘paper gain.’ To turn the paper gain into a real gain that she can spend, she has to sell her leasehold title. People have incentives to act a certain way if they can make money acting that way, and Kathy can make money selling, so if she responds to the incentives she will sell. However, she doesn’t have to sell.

Even if Kathy never sells for her entire life, the leasehold title must go on the market eventually because leasehold titles can only change ownership in markets. This means that she can’t give the leasehold title away, either while alive or by bequest.

Before Kathy was even allowed to bid on the leasehold title, she was required to take a class and pass a test that verified she understood that leasehold ownership is not fee-simple ownership. She learned that the members of the human race are the landlords of the planet and the landlords make the rules. In the society we are visiting, the landlords of the planet got together and decided they wanted the buyers of leasehold titles compete in markets where they offer leasehold payments to the human race. Various people will offer various amounts to us and the market will select the one person who gets the title, by selecting the highest bidder. Obviously, this can only happen if properties sell in markets. In this particular society we are visiting, the landlords of the planet decided that they want all owners of leasehold titles to be on equal footing, so they didn’t want some of them to get their leasehold titles for free while others had to compete in markets to get them. They decided they would only recognize transfers of ownership if they take place in an electronic market that they set up for this purpose. Kathy learned all this in the class she took before she was allowed to register to bid.

Leasehold ownership societies may have billions of privately owned leasehold titles. How do the landlords of the planet know that all owners will know the rules? In this society we are visiting, they decided to only accept market sales and they required that all bidders take the class that goes over all of the rules and makes absolutely sure that students understand them before the students can pass. Only those who pass can register to bid. Every single owner bought the leasehold title in a market and was qualified to bid before bidding. The computer made sure of this. They all understand the rules.

No one will ever be required to own a leasehold title. No one has to bid. The landlords are allowing people to compete to gain special or exclusive rights to parts of the world. They are not forcing people to compete, they are allowing them to compete. If you don’t like the terms of the competition, don’t compete. Kathy knew that she would not be able to give away the leasehold title, either while alive or by bequest. She knew this before she entered her first bid. Since she bid anyway, even though she knew this, she must have been willing to accept this condition.

 

What If Kathy Wants Her Daughter To Have The Farm After She Dies?

 

Kathy can still make sure her designated heir gets the property, she will just have to go through one more step to make this happen. She can direct in her will that, upon her death, the leasehold title be sold in the market that the landlords have set up for leasehold titles to sell and 100% of the money from the sale go to her daughter. If her daughter enters the high bid for the property, she won’t have to pay any of the price, because if she does, she will be buying from herself and paying herself. (Say she buys for $3 million. She writes a check to her mom’s estate for $3 million, and gives it to the attorney handling the estate; the attorney then deposits the check into the estates account and writes a check to Kathy Jr. for the same $3 million. Kathy Jr. can then deposit the check in her account and it will clear. As a practical reality of banking, the shortest unit of time is a day, so you can write a check in the morning and, as long as you have the money to put into the account by the close of business, it will clear. Kathy Jr. has ‘paid for’ the title, gotten the money from her bequest, and used it to pay the price.)

When the auction takes place, Kathy Jr. can top any bid, no matter how high it is, and will always have enough to pay any price she offers, because she will get all of the proceeds of the sale.

However, in the ‘double price leasehold ownership system,’ people can’t offer a higher price without also offering a higher leasehold payment to the landlords of the planet. What if the price of the leasehold title gets so high in the market that Kathy Jr. decides she would rather have the money than the farm? She can simply drop out of the bidding and let the other person bid. (A lot of parents think their children want their farms or businesses and bequeath them; then, once the parents are gone, the children simply sell the farm or business and keep the money.)

Either way, the human race will see its leasehold payment adjust upward due to the improvement. The bounty of the world is higher. Kathy Jr. benefits from this, because she gets more money at the time of the sale than she would have gotten if the property had not been improved. But the real beneficiaries of the improvement are the landlords of the planet, the members of the her, present and future. The improved world generates more value with more effort. Its bounty is higher. All members of the landlord class (all human beings, from no on) will have more to share. We will all get more money each year than we would have gotten without the improvement, and we will have more good things to buy with this money.

This happens no matter who winds up owning the leasehold rights to the farm.

 

Triple Price Leasehold Payment Leasehold Ownership

 

We get into the bus and head to the next society we visit. This system is called a ‘Third of price leasehold payment leasehold ownership system.’ Here is the bid screen:

 

Auction for the Leasehold ownership Rights to the Pastland Farm:

You must enter a number into both boxes to bid. The number you enter in to the ‘leasehold payment’ box must be 33⅓% times the number you enter into the ‘price’ box to register the bid.

Your PRICE offer                                                             [$ ]            

Your LEASEHOLD PAYMENT offer                [$ ]

IMPORTANT: You must enter numbers into both boxes above to activate the bid now button. The number you enter in to the ‘leasehold payment’ box must be exactly 33⅓% times the number you enter into the ‘price’ box to register the bid.    

[Bid Now]

 

Kathy still just wants to be a farmer. She has no idea what numbers to enter into the boxes. She goes to Sally and asks for a loan. Sally asks how much and Kathy says she has no idea. She wants to pay whatever will make her payment affordable. Sally asks how much she can afford. Once again, Kathy says she needs to keep all of the money she earns, so she will need the earned cash flow for herself, but she is willing to pay out up to the free cash flow, of she has to, to get the right to farm this land. She can afford up to $2.4 million a year as a payment.

Sally makes up a ‘cheat sheet’ for Kathy, so she will know her payment at various different amounts she might bid. The cheat sheet is below. Note there is one and only one set of numbers she can enter to make her payment exactly $2.4 million a year. If she can win for a lower offer, she will do this; she will not go above the offer that will make her payment $2.4 million no matter what, because she can’t afford it.

Cheat Sheet for third of price/leasehold payment leasehold ownership
Price (amount borrowed)	Leasehold payment (one third of price)	Interest on mortgage loan	Total mortgage payment including interest and leasehold payment
$ 300	$ 100	$ 12	$ 112
$ 3,000	$ 1,000	$ 120	$ 1,120
$ 30,000	$ 10,000	$ 1,200	$ 11,200
$ 300,000	$ 100,000	$ 12,000	$ 112,000
$ 3,000,000	$ 1,000,000	$ 120,000	$ 1,120,000
$ 4,200,000	$ 1,400,000	$ 168,000	$ 1,568,000
$ 5,400,000	$ 1,800,000	$ 216,000	$ 2,016,000
$ 6,000,000	$ 2,000,000	$ 240,000	$ 2,240,000
$ 6,600,000	$ 2,200,000	$ 264,000	$ 2,464,000
$ 6,675,000	$ 2,225,000	$ 267,000	$ 2,492,000
$ 6,400,000	$ 2,133,333	$ 256,000	$ 2,389,333
$ 6,420,000	$ 2,140,000	$ 256,800	$ 2,396,800
$ 6,428,000	$ 2,142,667	$ 257,120	$ 2,399,787
$ 6,428,570	$ 2,142,857	$ 257,143	$ 2,400,000
$ 6,428,571	$ 2,142,857	$ 257,143	$ 2,400,000
$ 6,428,572	$ 2,142,857	$ 257,143	$ 2,400,000
$ 6,429,000	$ 2,143,000	$ 257,160	$ 2,400,160
$ 6,430,000	$ 2,143,333	$ 257,200	$ 2,400,533
$ 6,500,000	$ 2,166,667	$ 260,000	$ 2,426,667

Note that the human race gets even less in Third of price leasehold payment leasehold ownership than we got in Double price leasehold ownership system. But we get four things in exchange for this slightly lower income:

 

1. We get much more security than before. We are holding much more money in reserve (we hold the entire price in reserve). If we should ever not get the payment, for any reason, we will get three times the missed payment in reserve. Obviously we can’t lose.

2. The investors now have much more money on the line and much more to lose if something goes wrong. They have even stronger incentives to make sure nothing goes wrong and to fix any problems that should arise.

3. Kathy can make A LOT more money by improving the farm than she could in the Double price leasehold ownership system, so she has much stronger incentives to improve in this system than the previous one. We can therefore expect her to work even harder to improve the farm than before.

4. After Kathy improves the farm, the market value goes up. But she can’t spend this money, it is only a ‘paper gain.’ If she wants to spend it, she has to ‘realize’ the gain by selling her rights to the property. We, the members of the human race, want her to do this because as soon as she does, our income goes up. In the Third of price leasehold payment leasehold ownership system, Kathy will realize a huge gain on the improvement. The market value of the leasehold will increase by more than a million dollars ($1,285,714 to be exact). After she repays the improvement loan, she will be left with $824,176 in her pocket. Tax free of course. All income in this system will be tax free. The human race gets the free wealth that the land produces. We don’t need to or want to take anything people have worked to earn.

Kathy only gets this money once she sells. If people can make money by acting a certain way, they have incentives to act that way. Kathy can make a lot of money selling, so she has incentives to sell. We want people to sell improved leaseholds, because we only start to gain (in the form of higher income) after the sale takes place. Kathy’s interests—to become the richest person on Earth (which will almost certainly happen after she sells)—align even better with the interests of the human race than they did in the earlier systems.

 

 

 

It’s easy to build a society that can meet our needs if we can start with ideal conditions. If there are no limits, no restrictions, no vested interests, no constitutions, no laws that previous generations have declared are immutable and have set up police, militaries, and prisons to enforce, people merely have to decide what they want, vote on it, and if approved, make the necessary changes.

Natural law societies give us these ‘no-limit’ societies that we can easily alter into any other societies. Natural law societies are essentially ‘blank-slate societies.’ They are built on the belief that we, the members of the human race, are servants of nature, not its masters, and we must conform to its rules or we will perish. They are built on the belief that the very idea of believing humans can own planets or parts of planets is totally nonsense, and only people who are deluded are likely to be able to believe it. Ownability is just as impossible for groups of people as individuals, even if the groups of people call themselves ‘nations.’

Since they don’t believe in ownability, they don’t believe that ‘nations’ can even exist. If there are no nations, there are no borders, no border disputes, no national debts, no inflexible and antagonistic ‘constitutions’ or other immutable laws that might lead to conflict; there are no ownable corporations with legal rights (such rights require people to accept that they or their governments have the authority to grant them), no obligations to contracts or nations, no special rights for minorities of the population to get special advantages from the land. If we start with natural law societies, we start with blank slates, with no obstacles based on special rights to the good things the world produces that people would fight or resist. The ‘journey through possible societies’ explained in the last few chapters started with this ‘blank-slate society’ and then moved from there to systems that had greater ownability to permanently productive properties, like parts of planets and long-term cooperative structures.

It is easy to move in this direction.

People are always happy to accept situations that make more rights available to people who want to pay for them. They won’t resist or fight against these kinds of changes.

 

Realistic Change

 

Unfortunately, you and I were not born into ‘blank-slate societies.’ We were born into societies that already had nations, debts, owners, vested corporations, and a great many other realities that grant specific rights to small groups of people at the expense of humankind as a whole. All this existed long before anyone now alive was even born. The societies we were born into are extreme societies, which grant the maximum possible rights to individuals and minorities (like the citizens of ‘nations’) of the of the human race.

This means that if we start with these extreme societies, and move upward through the range of possible societies (toward sustainable societies, and then eventually—if we keep going—to socratic leasehold ownership societies, and finally back to natural law societies), our journey will have different dynamics than one that moves downward. The movement upward will require more planning than a movement downward, because it will have to be organized so that the groups that find their special rights to the world declining must have other rights (general rights that go to the human race as a whole, for example) increasing, so that they gain more than they lose, or they will lose rights and wealth during the transition phase.

People don’t want to lose rights and wealth.

They have incentives to resist changes that cause them to lose rights and wealth.

If we want a smooth transition, without trauma, we will have to use our intellect to work out the flows of value during the transition phase, to make sure that all groups benefit. This not anything like fighting or having a ‘revolution.’ Violence is a primal reaction to adversity: it is a last resort that nature programs into the beings of all animals to allow them to survive after all non-violent options have been exhausted. We have seen revolutions and violence over and over again. This approach has been proven not to work. Einstein defined ‘insanity’ as ‘trying things you know don’t work, over and over, in the hope of getting different results.’

 

A Scientific Approach

 

Possible Societies (Books One and Two combined) was designed to make it clear that the ‘modes of existence’ that humans have had in the past are not the only possible modes of existence. Natural law societies and sovereign law societies are both extreme societies, one built on the belief that 0% of the rights to the world are ownable, the other built on the belief that 100% of the rights to the world are ownable. Possible Societies was designed to show that we don’t have to base our societies on guesses (beliefs; mental convictions which, by definition, can’t be proven with science) about whether some power that is above us all wants us to take care of the planet or fight over it (say nature, which may want us to take care of the planet, or God, which may want us to ‘dominate and subdue’ the world).

We have the ability to use our intellect, to figure out other ways to interact with the world. If we want, we can use our intellects to work out options that are not absolute non-ownability societies, and not absolute (sovereign) ownability societies, but where the human race considers itself to be the landlords of the world, with the ability to grant its members specific rights to the world, without having to accept absolute ownability of all rights to the world. Book One of Possible Societies was designed to provide arguments to the effect that other societies are possible. Although Book One did discuss all of the options, it did so only superficially, because to prove something is possible, it is only necessary to come up with one example. Book One focused on the idea of building societies around an intermediate kind of property control called ‘socratic leasehold ownership,’ explaining this intermediate option in detail, in an attempt to convince as many people as possible that the human race really is capable of having intellect-based societies.

A society is not really possible if it can’t be formed unless certain conditions are met, and these conditions can’t possibly be met. In order to show that intellect-based societies are truly possible, I had to show that the human race has enough tools at its disposal to meet the conditions needed to convert to socratic leasehold ownership societies, if we decide we want to accept the underlying premises of intellect-based societies (specifically, that we are the dominant species on Earth, making us the lords of the land).

 

 

 

Book One was designed for ‘lay audiences,’ which means people without any extensive scientific or mathematical background in fields related to the issue being discussed.

It had a specific purpose: I am trying to create a state of mind. I hope to be able to create this state of mind in enough people to create a kind of movement, where people who think this way work together to make changes that, if made, will gradually move the planet away from the societies you and I were born into and raised in.

This state of mind accepts science and its findings and is willing to use logic and reason to understand and deal with issues that people have traditionally used beliefs, emotions, feelings, and guesses about the intentions of invisible beings who are presumed to have control over earthly events with desires they keep hidden from us. It basically means ‘accepting reality,’ at least for the sake of argument and discussion. If we accept reality exists and is real (again, even for just the sake of argument and discussion), and don’t try to temper or mix our logical analysis with modes of thought that derive from the less intellectually-inclined parts of our minds, we can easily see the evidence that the human race is almost certainly the dominant species of being on this planet, and therefore in charge of its own destiny.

The contrast: the human race may be nothing but minions of invisible superbeings with hidden agendas. If this is true—and it might be—then nothing we do will make any difference and there is no point in doing anything but prepare for death. However, if we accept—again, just for the sake of argument—that reality might be real, and humans might be the dominant species, and work out a plan of action based on ‘what options we would have if reality turns out to be real,’ we can then decide if we prefer to accept reality as real or accept the beliefs handed down to us by past generations.

Scientific evidence tells us that the human race evolved over a period of billions of years, as a result of scientifically explainable processes. In other words, the science contradicts the view that some superhuman being created us and therefore has designs and intentions for us, that we can only guess about.

Scientific evidence tells us that the current conditions of our ‘modes of existence’ or ‘societies’ are the understandable and predictable results of actions taken by people who lived before us, of things they raised their children to accept and believe, and of the beliefs that have been passed down to our current generation. There is no scientific evidence supporting the widespread belief that the events and conditions of our societies are due to the intentions of invisible superbeings. We can understand everything we see around us without having to resort to supernatural explanations.

Scientific evidence tells us that humans are capable of modes of existence that are entirely different than those that dominate the world today. History, in the form of eyewitness accounts from the last few centuries, written records, and as derived from anthropological studies of archeological sites, tells us that humans organized their existence in different ways in the past. This provides proof that other human modes of existence or societies are possible. We are capable of more. To reject this, we must reject science, history, and unlimited evidence of our own eyes.

All of the discussions of Book One were designed to help people attain this kind of mental attitude. I am not trying to get you to reject the beliefs of the past, only to be able to accept that it is possible that they may not be correct. It is possible that reality is real, science gives us correct answers, and the things we see happening with our own eyes are really happening. If you can accept that this is possible, you can easily see that, if indeed reality is real, the human race is not doomed. We have real hope. Logic and reason can provide answers that beliefs and guesses about the desires of unseen beings can’t provide.

If enough people can attain this enlightened state of mind, we can work together (without needing vindication or acceptance by the people who don’t have this state of mind) to start initiating changes that will alter the mechanical structures of our societies. In order to create this state of mind in people without a scientific understanding of the different ways human societies can work, I had to cut a few corners and leave out a few complicated arguments. As a result, I would expect that people with very inquiring minds may have had questions about issues that couldn’t be explained without a great deal of math, and therefore weren’t explained in Book One. Some people may have felt that the changes described in Book One were too good to be true, and nothing therefore but wishful thinking.

The absolute proof that the human race can move from the societies we were born into to societies that can meet our needs is technical, and mathematical. If you don’t have the necessary background, some of the discussions of Book One may have been pretty hard to accept. They can be proven, but the proof requires understanding of very complex topics that I didn’t want to introduce in Book One for fear of losing the great bulk of potential readers.

Let me give you an example to show what I mean:

The relationship between high risk-free rates of return on money and destruction is quite complex, but it is well understand and accepted among people who understand it. Since I have discussed it several times in the book, I will not go over it again in the text, but have put a brief explanation in the text box to refresh your memory.

If the rate of growth in money (the rate at which people get rich) is higher than the natural rate of growth of resources, people can get rich by destroying resources, so they have incentives to destroy resources and sell the resources for money, to convert their wealth into the form that grows faster.

For example: A healthy forest grows at 2%. This is the maximum income you can get through sustainable forestry. If you can get 20% without risk or effort (this was the risk-free rate in the early 1980s), you will get 10 times more income from your wealth by converting the lumber into money than by managing the forest for the maximum sustainable yield. If you leave even a single tree you are missing out on returns you could get if you killed this tree, so you are losing money if you leave a single tree alive. If you wait even a day longer than necessary to destroy the forest, you miss a day of the higher returns, so you are losing money to wait. You not only have incentives to destroy the forest, but to destroy it as thoroughly and rapidly as you can manage.

This relationship is well understood and not introduced in this book by any stretch of the imagination. A lot of people understand it.

Chapter 11 showed that, if we move to socratic leasehold ownership societies, we will divert a great deal of the money that now flows to money as risk-free returns. As this happens, the risk-free rate of return will have to fall. (The rate of return is the return per dollar of invested money. If people who get free money as returns get less in free money, because some of the free money goes to the human race, but they have the same amount of dollars invested, they have to get lower rates of return.) As the risk-free rate of return on money falls, the rewards for destruction fall, and the strength of destructive incentives falls.

If the risk-free rate of return on money falls to the same rate as natural growth of resources (2% or so in the case of forests), then destruction is no longer profitable, it is only a ‘break even’ transaction. If the risk-free rate of return on money falls below the rate of natural growth of resources, destruction is a money-losing proposition. People are better off financially (they make more money) interacting with forests as if they treat the land as sustainable tree farms, rather than as if they are cash registers that they can raid to get money to use to collect the much higher rates of return offered on money assets.

If you don’t understand the scientific reason that rates of return must fall, the claim that destructive incentives would not exist in socratic leasehold ownership societies might have seemed to be nothing but a hoped-for result that couldn’t be justified logically. If you understand the science, however, you can see that it absolutely has to be true. As you saw in the ‘journey through possible societies,’ there it would be possible to build a leasehold ownership system where the prices of private property rights are so low that they would be trivial. In ‘virtual rental leasehold ownership societies,’ for example, the ‘price’ of the property rights to the Pastland Farm would be a mere 24¢.

The price of the leasehold is the amount invested in it. In a virtual rental leasehold ownership system, only a few pennies will be needed to make all of the investments in the world. The demand for investment money will be almost zero. The supply of investment money (the amount of savings in the society that people would like to invest) will be far, far, higher. If the demand for anything is very low and the supply is very high, the price must fall. It will fall until the supply and demand are in balance. Since it would never be possible for the demand for investment money to equal the supply (no matter how low interest or return rates go), the ‘price’ of money, or the interest/return rate, would have to fall as far as it could go, to zero, and stay there.

If you understand the science, you know this has to be true in ‘virtual rental leasehold ownership societies.’

In fact, the price of money (the risk-free rate of interest or returns) has to be zero in all societies where the demand for money is lower than the supply.

As you saw in the last few chapters, if we start with a virtual rental leasehold ownership system, and move downward in the range (to societies with higher price leasehold payment ratios), the prices go up. The price is the amount invested, so the amount of money invested, and the demand for investment money must also go up. There will be a point, in this range, when the demand will rise to the level of the supply of investable money. Although we can’t tell exactly where this point will come without knowing a great many details of the specific society, we know that there is a limit of investable money (provided we use treasure-based money, rather than fiat money), because there is a limit to the amount of real value or ‘treasure’ that can be in storage, backing money. In this example, I picked a number for the investable money supply of $10 million.

When the demand for investment money gets up to $10 million, the demand and supply will be in balance. This is the lowest option on the road map of possible societies that can possibly have a zero risk-free interest/return rate on money. As a result, this is the lowest option in the road map of possible societies that can possibly have zero strength destructive incentives.

All options below socratic leasehold ownership have demand for investment money that is higher than the supply. If the demand for something exceeds the supply, the price of that thing must go up. The price of money is the interest or return rate that people must pay to people who have money to get to use it. After socratic leasehold ownership, the rate of return on money must go up above what it was before.

Since the rate before was always equal to the rate investors needed to justify risk (investors won’t invest unless they get enough to compensate them for risk), if the rate goes up above this, any increase must be a risk-free rate.

If we understand this, we can understand exactly why it would be possible make the claim that socratic leasehold ownership societies have zero percent risk-free return/interest rates, so this particular enormous source of rewards for destroyers won’t exist. The societies we live in now, and all societies below socratic leasehold ownership on the road map of possible societies, pay people to destroy our world. Socratic leasehold ownership societies are the first societies we get to where this does not happen.

I want to repeat that this (long) example involving interest rates is just an example. I am trying to show you that many of the claims that may have appeared to be overzealous about the way society would change when you read Chapter 11 can be shown to be scientific and mathematical certainties, using the scientific background explained in the last few chapters.

 

Trip Planning

 

On a regular road map of a part of the world, we can plan journeys. We can identify our starting position, on the map, the end point we would wish to reach, and then work through the various different roads that can get us there. The same is true for transitions between societies. We know where we are on the road map of possible societies. We can identify an intended destination or, at the very least, a direction that we would like to travel.

As we saw in Books One and Two of this series, there are paths from sovereign law societies to other societies. (Book One showed that Alexander the Great, working with the great scientist Aristotle and advancing on the principles of societal construction that Socrates and Plato worked out, was able to put a society built on the same principles this book explains in place, albeit for only a very short period of time. Book One explained a different option, taking advantage of modern tools like the internet and global humanitarian corporations, to create a gradual transition to one specific type of society, a global socratic leasehold ownership society.)

These are paths from one place (one type of society) on the road map of possible societies to a different place (different type of society). If you look at any road map of any part of the planet, you will be able to see that there are actually infinite ways to get from any point on the map to any other. (For example, to get to St Paul to Minneapolis, you can take I94. You could also take Franklin Ave. You could swim the Mississippi river at any of millions of different locations. You could also head east to New York, take a train to Cape Canaveral, get on a rocket, stop at the moon and plant a flag, come back and splash down in the Pacific Ocean, take a jet ski to San Francisco, and then take a jet to the Minneapolis airport. There are infinite options.)

The same is true for making transitions between societies. There are as many ways to get there as there are thoughts that humans can think.

Some options are quite difficult and no sane person would be likely to actually consider them as practical. (For example, I have never heard of anyone trying to get from St Paul to Minneapolis by the route described above, which goes by way of the moon. It may be possible. But it is so far from practicality that no sane person would suggest trying it.)

Perhaps there is no easy way to get from where you are to where you want to go. In the movie two women had to get from Arkansas to Mexico to avoid being arrested for killing a man, but they couldn’t go through Texas. There is no easy way to get to Mexico from Arkansas without going through Texas. (After looking at the map, Thelma told Louise that there is nothing between Arkansas and Mexico except Texas.) But that doesn’t mean that no one can get to Mexico from Arkansas without going through Texas. If you have enough of a motivation to get there, you can make it.

It is not as easy to get to societies that can meet the long-term needs of the human race from sovereign law societies as from natural law societies. But it can be done.

Chapter 11 of Book One (Possible Societies), explained a possible way to get from sovereign law societies to socratic leasehold ownership societies. The discussions in Chapter 11 were designed for people who only had the most superficial introduction to the science behind the operation of societies built on different ways of interacting with the world we live on. At this point, I want to explain the same example again, filling in a few of the discussions that wouldn’t have been understandable without the scientific background presented in Book Three.

 

Cosmos Revisted

 

Once again, I want to try to depersonalize the discussions involving change. I want to do this for the same reason Socrates did it, when he created the idea of a hypothetical continent of ‘Atlantis’ to discuss the problems of society and the steps required to repair them. He did this because he knew that people got very emotional about discussions involving change, because they took them personally. They had been raised to believe that ‘nations’ are real things and can be either ‘good’ or ‘evil;’ they had been raised to believe that a certain nation was ‘their own nation’ and that they had a natural responsibility to preserve ‘their own nation’ in its same basic form, and resist any attempts to alter ‘their own’ nations, by any means necessary. (They had to kill Socrates to get him to stop ‘corrupting youth’ by telling youth things that might lead to change, so they killed him. They had been raised to believe that nothing is more important than preserving the integrity of ‘their nation.’)

Emotion doesn’t help us understand the idea of a transition between societies. It harms understanding. Emotion is, in many ways, the antithesis of logic: when we revert to emotion, we have mental excuses to abandon things that we know make sense and must be done. (‘It just doesn’t feel right,’ I am often told. Of course not: We were raised by people who worked very hard to make us feel that nations are real things, even though logic and reason tell us they are made up. It never feels right to use logic in areas where we have been trained to think illogically.) I will to depersonalize the ‘reverse journey’ by setting it on another world. This other world does not have a ‘United States,’ it doesn’t have a ‘China,’ and none of the other ‘nations’ on this other world match the names and specific details of any nations on Earth. You don’t have to worry about changes on this other world affecting anything you believe in or care about, because this other world is so remote from Earth that nothing that happens there could ever affect you or anyone you care about.

I will call this other planet ‘Cosmos.’

Cosmos is roughly the size and weight as Earth, with roughly the same percentage ocean coverage as Earth, and roughly the same climate as Earth. Early life appeared on Cosmos some 3.6 billion years ago. Natural selection worked on Cosmos as on Earth to ‘select’ more capable beings and, over billions of years, complex animals evolved. Eventually beings that called themselves ‘humans’ evolved. These beings were self-aware, thinking beings.

The first humans were not fully confident in their intellectual abilities. They tended to rely on superstition, beliefs, feelings, and emotions. They surmised that the things Cosmos provided for them were gifts from nature, which they thought of as a higher power and force than humans. They formed natural law societies. Natural law societies don’t naturally reward innovation, invention, progress, or advancement in technology. They don’t have constructive incentives. All living things must react to incentives (they must figure out and practice behaviors that help them meet their needs). The inherent incentives of the early societies on Cosmos pushed for stagnancy and these societies were stagnant for millions of years.

One day, a group somewhere decided that the world was ownable. That group created the type of society this book calls a ‘sovereign law society.’ The owners owned everything. This society has inherent incentives that lead to progress and growth. The people in this society wanted more land and had the ability to take it. Over the course of 6,000 years, they kept taking more and more land, eventually taking over the entire planet.

When we first visit Cosmos, it is divided into roughly 200 ‘nations’ of various sizes, spread over the 60 million square miles of land surface of the planet. Its population is roughly 8 billion people. Several nations have massive arsenals and many nations devote such massive amounts of wealth to weapons and have economies that many call ‘military industrial complexes.’ To make weapons more efficiently, these nations have created formal organizations called ‘corporations’ and given these corporations roughly the same powers and authorities that Earth corporations have.

Only a few decades before we visit Cosmos, its weapons-makers made the planet’s first nuclear bombs. Nuclear weapons generate massive electromagnetic pulses that destroy simple communication systems. The military planners realized they needed an open-architecture communication system. They needed the architecture to be open (non-standardized) to make it impossible for enemies to shut down or censor their new ‘internet.’ The open architecture also meant, however, that even the nations that created the internet couldn’t censor it in any effective way.

Now the people of Cosmos have access to several important tools that they can use to alter the nature of their society, including giant, multi-national, humanitarian corporations and internet websites.

 

Change On Cosmos

 

Change started when a man named ‘Henri Dunant’ formed a global humanitarian corporation.

Dunant had some business dealings with people with cash-flow generating properties. These people wanted to set up a system so that the income from these properties would benefit the human race going forward. They didn’t want any government involved.

They wanted decisions about this money to be made entirely by an organization that was not affiliated with any nation or government on Cosmos. The philanthropists who wanted Dunant to set up this organization were trying to find a way to advance the interests of the human race as a whole, not some group of people who happened to have been born inside a certain configuration of imaginary lines. They wanted an organization that would bring the human race together into a true ‘community,’ and give this ‘community of humans’ a forum and revenue it could use to advance the interests of the human race as a whole.

Dunant decided to call the new humanitarian organization he would form ‘the Community of Humankind.’

Dunant didn’t want to guess about the best way to organize the Community of Humankind so it could do the most good. He traveled around the world to find the best property management people on the planet. He organized a conference for them to discuss the issue and present options to him and his backers, so they could make an informed decision about the best way to accomplish their goals.

One of the recommendations stood out. It recommended that the humanitarian organization to create leaseholds for the cash-flow generating proprieties, sell the leaseholds, and then use the income from the leasehold payments to provide humanitarian services.

Dunant set up this system.

He originally set it up for the philanthropists who had asked him to set up the organization. But these people were happy to have an organization that had an even wider scope, and fully approved when Dunant suggested making this system available to everyone who wanted to take advantage of it.

Dunant set up a web site that would allow anyone to participate. If any inhabitant of Cosmos owned any kind of property that generated free cash flows (including either corporate stock or real estate), and wanted the entire human race to benefit from the existence of these flows of free value, she could download and fill out a simple form from the internet.

During the lifetime of the benefactor, nothing would change. After she died, the property would transfer to the control of the Community of Humankind. The Community of Humankind would then create a leasehold on the property and sell it. The landlords of the property in question would now be the members of the human race, as represented by the Community of Humankind. Income from the property would flow from the land to the landlords automatically and without risk, and the leasehold owners would be able to use their land for anything that freehold owners could use their land for, except certain uses on a list; they would have to get landlord permission first if they wanted to use their land for any of the uses on this list.

 

Exponential Growth

 

The system Dunant set up on Cosmos is a ‘one way’ system.

Freeholds become leaseholds.

But leaseholds can never become freeholds.

Each additional property that ‘gets into the system’ (converts from a freehold to a leasehold) means higher incomes for the landlords, the members of the human race.

When Dunant was setting up the system, he was told that there are infinite numbers of ways to set up leasehold ownership systems. His experts analyzed them, as discussed in the last few chapters, and explained the incentives inherent in each system. Dunant choose a leasehold ownership system structured so that the leasehold payment would be exactly 20% times the price the current owner paid for the leasehold. His people called this system ‘socratic leasehold ownership.’

As we have seen, leasehold ownership systems that work this way send massive amounts of value to people who improve properties. People can make a lot of money in ‘pure improvement projects,’ which involve buying leaseholds, improving the underlying properties, then selling the leaseholds to get the ‘capital gain,’ reflecting the difference between the sale and purchase price of the leaseholds. The improvers want to do this because they are greedy. But their interests coincide with the interests of the Community of Humankind, because each time a leasehold sells for more money, the leasehold payment that goes to the human race ‘resets’ to a higher amount, and the income of the human race goes up.

The income of the human race will grow.

In order to understand what must happen now, you have to have some idea of what it means for income to grow. There are three general categories of growth in income, with different mathematical properties. They are:

 

1. Simple growth

2. Compound growth

3. Exponential growth.

 

The section in blue shading below explains them, for people not already familiar with them:

 

Simple growth takes place when an income grows by a fixed amount of money each year. For example, say you start with $100 and your income is set to go up by $10 a year every year in the future. The second year, you get $110, the third you get $120, the fourth you get $130, and so on. Simple growth is the slowest growth of the three possible ways money could grow.

Compound growth is when the income goes up by a certain percentage each year. A 10% compound return on a $100 income stream would provide $110 the second year, but then go up to $121 the third year. ($121 is 10% more than $110.) It would then go up to $133, $146, $161, $177, $195, and so on.

Compound growth is significantly faster growth than simple growth.

The above compound growth rates are compounded annually. This means nothing happens all year long. The very day that your money is due, the growth is calculated and added. This is called ‘yearly compounding.’ Although income that grows at a yearly compound rate grows much faster than income that grows at a simple rate, the final kind of growth is significantly faster than yearly compound growth. It is called ‘exponential growth.’

Generally speaking, events in nature happen as described above, with nothing happening all year long, and then on one day, growth takes place. Generally speaking, events in nature are continuous. They take place all the time. This includes growth. To see this, imagine you are starting with a small colony of bacteria, consisting of 1 billion cells. Each cell takes an average of 20 minutes to divide into two cells. If all cells divided at the exact same time, the population would double every 20 minutes. But the cells are always in a process of dividing, and the ‘births’ of new baby cells take place constantly. As a result, the population of the bacteria will increase faster than indicated above: the population will more than double every 20 minutes.

In the system Dunant set up on Cosmos, the income of the Community of Humankind in the system Dunant set up will not increase on a regular basis once each year, with nothing happening on the other 364 days. People will constantly work to improve properties, they will constantly bequeath new properties, and the Community of Humankind will have a set amount of money (allocated in the elections, described above) to purchase freeholds properties and convert them to leaseholds. All of the processes will take place continuously, so the income of the human race will grow at a rate reflecting continuous compounding growth. People who deal with growth rates don’t want to have to use the term ‘continuous compounding growth’ over and over, so they have coined a name to refer to this kind of growth: exponential growth.

Exponential growth is rather difficult to calculate, because it involves literally infinite compounding periods. To calculate by hand or computer would not be possible because it would take you forever to do the infinite calculations. However, it is possible to use the shortcuts that Euler devised to make it very easy to do these calculations. Many people do them in their heads. For example, many people in financial, and population, and radiation related fields that have to understand growth rates have learned the ‘rule of 69.’ This rule tells us that, at any continuous growth rate, populations will double in the number of periods indicated by this formula “growth rate/0.69. For example, at a rate of 10%, the population will double in 6.9 years; at 1% it will double in 100 years. Euler calculated a set of numbers that can be used to calculate exponential growth rates with ease. These numbers are called the ‘natural logarithms,’ because they are logarithms (exponents) that tell us what actually happens in the natural world.

In calculus, the derivative is a formula for the ‘rate of change’ of something. A positive derivative means that the ‘rate of change’ is positive. If you have an income function (a formula that indicates your income) you will want it to have a ‘positive first derivative,’ because that means that your income is growing.

A positive second derivative means that the ‘rate of change of the rate of change’ is also positive. (Note: all these terms have formal definitions in calculus. I am including the descriptions for people without backgrounds in calculus.) In other words, the income not only grows each year, it grows be a higher amount each year that passes.

A positive third derivative means that the rate of growth of the rate of growth of the rate of growth increases each year that passes. In other words, the income not only grows each year, and grows more each year that passes, the rate of growth increases by a higher rate each year that passes.

Table	10.1	Exponential Growth
years	simple	exponential
0	$100	$100
10	$200	$272
20	$300	$739
30	$400	$2,009
40	$500	$5,460
50	$600	$14,841
60	$700	$40,343
70	$800	$109,663
80	$900	$298,096
90	$1,000	$810,308
100	$1,100	$2,202,647
110	$1,200	$5,987,414
120	$1,300	$16,275,479
130	$1,400	$44,241,339
140	$1,500	$120,260,428
150	$1,600	$326,901,737
160	$1,700	$888,611,052
170	$1,800	$2,415,495,275
180	$1,900	$6,565,996,914
190	$2,000	$17,848,230,096
200	$2,100	$48,516,519,541
210	$2,200	$131,881,573,448
220	$2,300	$358,491,284,613
230	$2,400	$974,480,344,625
240	$2,500	$2,648,912,212,984
250	$2,600	$7,200,489,933,739

The formula for a exponential growth rate has a special property: all derivatives are positive. It is the only mathematical formula that has this property. This means that it is the fastest-growing mathematical function possible.

 

Note that the numbers in the Exponential column grow at a fantastic rate, so fast that it is often hard for people who aren’t familiar with math to understand how such a thing could happen. You can find a great many books that explain exponential growth if you are interested in this concept or can’t believe it is true. It is true. It is a mathematical fact that natural growth processes are exponential and anyone with a computer can calculate them.

(To calculate with a computer, merely use the formula for ‘future value,’ and fill in the rate, time, and present value into the formula. The ‘help’ file on your computer spreadsheet program will tell you want the terms mean. The pencil-and-paper formula is ‘FV=PV*e^(rt) where FV means ‘future value,’ PV means ‘present value, e means Euler’s constant—the base of the natural logarithms—r means ‘rate’ and t means ‘time.’)

On Cosmos, Dunant set up the Community of Humankind so that its income would increase at an exponential rate.

It started relatively small.

But it increased at ever faster rates each year that passed.

 

Bequests

 

Many people on Cosmos realized that their world had some serious problems. They wanted to find a way to help solve these problems. Book One, Fact Based History, explained the goals of the Earth Henri Dunant, and his desire to create a corporation like the Community of Humankind. We saw in Book One that, although the humanitarian organization Dunant created didn’t do what he wanted it to do, the basic idea behind it inspired a great many people to donate to it. This organization has become the largest organization of any kind, with 89 million employees (more than any government on Earth), offices in every nation (and every disputed region) on Earth, and services that affect virtually everyone on Earth in some way. (See text box for more information.)

Cosmos is like Earth in many ways, in that the people there really want to do things to make life better for others, and would be happy to do this if they had some sort of vehicle that made this easy to do.

The Community of Humankind was a corporation with an income. Anyone on Cosmos who knew about the organization and wanted to do so could register to vote, and voters determined what happened to the income of the Community of Humankind. They used part of this income to fund research into the different kinds of societies humans could form. They used part of it to teach people about the different mode of thinking of the company’s founder, and the idea of empowering the human race as a whole, rather than of individual nations. The Community of Humankind was designed to be a tool that the people of Cosmos could use to make their collective voices head, over the noise of the ‘nations’ and ‘governments’ of their world.

As more people heard about it, more people became involved. If someone wanted to vote, she merely had to register. Everyone who registered would be involved, and each of them would have equal rights to determine what happened to the portion of the bounty of their world that was under the control of the Community of Humankind. People could see that their opinion mattered and that they could make a real difference in the world. Once they realized this, they realized that they could increase the power and rights of future generations by simply downloading the form, including whatever part of the world they owned in the parts of the world that benefited the human race.

 

Time Passages

 

Cosmos was a very bountiful planet, about as bountiful as our wonderful Earth. The total free cash flow of all properties on Cosmos (including all of the land, farms, forests, factories, mines, corporations, rivers, oceans, and other ‘properties’ that created value) started out at about $40 trillion a year. (In other words, equivalent in purchasing power to $40 trillion in Earth United States dollars.)

After the first donations, the Community of Humankind had control over so little of this money that it sound silly to represent it as a percentage: the total income the first year was a mere $40,000,000 a year. (This is about the yearly income of the today, a humanitarian organization dedicated to ‘advancing the cause of interior design.) This was only 1/10000^th of 1% of the total free cash flow of the planet. But although $40 million may be small compared to the total free money available, it is a large amount of money in nominal terms. It helped a lot of people.

By the time a 15 years had passed, the income of the Community of Humankind had increased to $2 billion a year. This is still small relative to the total free wealth of Cosmos (about 1/20^th of 1%) but is enough to make a big difference in important variables in the world. (It is roughly equal to the 2015 income of the United States government.) By this time, nearly everyone on Cosmos knew about the system, and participated in its elections.

The human race began to use the income and power of the Community of Humankind as a tool to induce national governments to conform to certain standards. For example, the people of Cosmos realized that their governments really didn’t do good jobs in certain areas, because of their focus on politics and military power. They didn’t really deal with disaster very well, they didn’t have any comprehensive policy to deal with war refugees, they didn’t have any organized system to adjudicate disputes between governments, for a few examples. The Community of Humankind could take on these roles, relieving the governments of nations of any need to worry about them. But, in return for being relieved of these costs, the governments of the nations would have to sign documents agreeing to protect certain rights.

On Earth, Dunant set up the Geneva Accords, a system that would give all nations access to free medical care (provided by the Red Cross), in exchange for signing the accords and agreeing to certain rules of war. The Earth Dunant set up the World Court, and made attempts to set up similar provisions which would provide certain services for everyone, in return for agreements to abide by the decisions of the court. (Dunant was just about broke by the time he set up this system, due to his legal fees defending his vision for the Red Cross. As a result, his attempts didn’t work out.) By the time 15 years had passed, the Community of Humankind was a very large and well-respected organization. It wanted nations to be tools to create cooperation so there could be more value for everyone, rather than independent sovereign entities with the authority to take wealth from their people and use it to build weapons to force other people of their world to adhere to the edicts of the governments.

Over time, power shifted. The power of the Community of Humankind increased while the power of nations decreased.

On the road map of possible societies, the society of Cosmos had changed. It was not on the extreme bottom line anymore. Nations still had a great deal of power and wealth. But the members of the human race had a tool they could use to transfer some decisions from ‘nations’ to the human race as a whole. The term ‘sovereignty’ means ‘unlimited rights.’ Nations no longer had sovereignty. They no longer had sovereign law societies on Cosmos.

It took more than a decade to get from ‘the extreme bottom line’ on the road map of possible societies to ‘a line that is a tiny, tiny bit above the extreme bottom line.’ In 15 years, the human race had moved from controlling 0% of the bounty of Cosmos to 1/20^th of 1%. This is such a small difference that you wouldn’t even be able to tell the difference on the road map of possible societies between the two lines, they would be so close to each other. Relative to what is possible, the people haven’t changed very much. But in absolute terms, the human race had enormous powers. At 1/20^th of 1% of the bounty of their world, they controlled $20 billion a year in wealth. Although 1/20^th of 1% is a tiny percentage, the actual amount of money they got, $20 billion a year, was high enough to make a huge difference in the way the world worked. Since this money was controlled by the human race as a whole. The human race had certain goals and common needs that the nations of the world weren’t able to meet. Before the Community of Humankind existed, the people of Cosmos didn’t have any kinds of tools they could use to advance these interests.

Now they did.

Having this tool also gave them a forum. There is an old expression: money talks, bullshit walks. Before they had a tool, people could talk all they wanted about how messed up their system was and what ‘they’ (the mysterious unspecified ‘they’ who supposedly looks out for the interests of the common people) should do about it. This was, as the saying goes, nothing but bullshit: It had no value because there was no value to back it up. Now that they had the tool, they had something which ‘talked:’ money. They could talk with their money and make a real difference in the world.

 

Sustainability

 

By the time 15 years had passed, only about 1/20^th of 1% of the free wealth of Cosmos went to the human race.

This is a tiny percentage.

The laws of exponential growth kept operating. These are mechanical, mathematical laws that don’t have anything to do with feelings or emotions. When the Cosmos Dunant set up the Community of Humankind, he wanted to change the world. He knew that he couldn’t do this all at once, and transform the world in a single day. It would take time. He wasn’t trying to make a name for himself or gain power or control, he was trying to do something that would really work. He wanted to give the human race some power, even if it was such an infinitesimally small amount of power that it wouldn’t be noticed. This kind of change could make a difference if it were set up so that the power of the human race would grow over time.

Each time the power of the human race grows, the society of Cosmos moves upward in the range of possible societies on the road map of possible societies. Seen from the perspective of someone living on Cosmos, the change would be so slow as to be imperceptible. However, an outsider, say someone watching Cosmos from outer space, who had any kind of reasonably long time horizon, would begin to see significant and important transformations in the way the societies of Cosmos worked.

One important change would involve incentives and responses to incentives. Movement upward in the chart causes money that had gone to pay people to destroy and create conflict now no longer goes to these people and is not tied to destruction and conflict anymore. As the rewards of conflict and destruction fall, the incentives to destroy and make war get weaker.

Incentives matter.

Perhaps many of the people who had been involved in war industries or destructive resource management would have preferred to have had a peaceful and healthy world for their children. But in the sovereign law societies, they weren’t in a position to choose: they needed money, they could get money by participating in the military industrial complex, so they had to participate. As the rewards that flow to destroyers and murderers wane, many of these people are not going to make enough money participating in destruction to justify the damage they know their participation will case. (As the rewards of destruction fall, the people who control wealth or want to build weapons can’t afford to pay as high of wages to people who help them do this.) At the same time, the rewards that come from constructive behaviors increase. People can make more money creating value and less money destroying it.

The amounts of money involved, so far, are not huge. But incentives matter, and even small changes in incentives lead to changes in behavior, particularly when we look at large groups of people. Rates of destruction fall. Rates of creation of value increase.

The minimum condition that must be met to have sustainability would be for the rates of destruction of things of real value to be no greater than the rates of creation of real value. A society can create more value than it destroys forever. Since ‘value’ is defined ‘good for humans,’ more value created means more good things for humans to enjoy. There is no point at which life will get ‘too good to continue to survive.’ Life can keep getting better forever, so any society that creates more value than it destroys is sustainable. The minimum conditions needed for sustainability involve destroying no more value (of all kinds) than is created. All societies that destroy more value than they destroy are not sustainable.

If we continue moving upward in the range of possible societies, we will eventually get to the minimum conditions needed for sustainability.

 

The realities of the Minimally Sustainable Societies

 

The people of Cosmos are raised in entities called ‘nations.’ The nations of the minimally sustainable societies are not so far removed from the nations of sovereign law societies as to change their nature. The people in the governments of Cosmos still think of war as a reality of existence and still believe that they will absolutely need children to grow up with the mindset necessary for organized mass murder and the rape of the world’s resources needed to keep the war machines operating. They still try their best to implant the necessary mindset in children. The adults in this altered society were generally raised in school systems that were designed to implant these beliefs.

The first ‘joint stock’ corporation, East India Company (British) was formed in 1600. The first corporation with stock certificates (which allowed owners to be anonymous, because the owners names weren’t recorded anywhere) was the Dutch East India Company, incorporated in 1602. In the next few years, several corporations were formed and given ownership of roughly half of North America. (The Virginia Company and subsidiaries, the Massachussetes Bay Company, the Company of New France, and the French West India Company, to name a few.) These corporations ran North America independent of the rule of national governments until 1763, when a treaty signed by all major powers granted the eastern half of North America to England.

On Earth today, corporations do the exact same things. They have gained autonomy, meaning the ability to act independently of governments (if a corporation doesn’t like the rules of the nation where it is incorporated, it can move its ‘nation of incorporation’ in a very short time—a matter of seconds for small corporations, and days for large ones—allowing it to create its own rules). Although corporations can do these things, they generally don’t, for a simple reason: the corporations basically control the governments through their lobbies.

Virtually all legislation today is written by lobbies, not elected officials. (To verify, look up the text of any modern law and read it. Do you really think that any of the people elevated to office could possibly have enough background in the area the law deals with to write such a law? Then consider the effects of the law. Do you think it is an accident that the ‘clean air act’ increases the subsidies that go to industries that pollute the air? The people who wrote the laws wanted this to happen; the realities of party politics forced politicians to support the bills without any need for the politicians to even read the bills, let alone understand them.)

Remember that the Community of Humankind is not a national organization, formed in a single nation to advance the interests of that nation. In fact, the Community of Humankind is a global corporation that acts totally independently of the governments of the world.

The Community of Humankind is independent of nations. It is an autonomous corporation, an entity that the leaders of war-driven societies of Cosmos had been forced to build enough war supplies to compete in their wars. Once this organization began operating, people began to realize that they had power and authority that was independent of the organizations they had been raised to call ‘their nations.’ Theys had flows of wealth that depended on the productivity of the parts of the world and other productive assets that had been purchased by or donated to the Community of Humankind; the more assets n this category, the more power and control the human race had and, by extinction, the less power and control the nations of the world had.

The people of Cosmos could increase the power and control the human race had, relative to the power and control that the entities called ‘nations’ had, by several mechanisms. (They could vote to use some of the revenue of the human race to expand the system, they could donate their time, effort, resources, skills, money, land rights and other capital to the cause, or they could generate bequests that would cause their estates to sell socratic leasehold ownership rights to the land and give the money to their heirs, rather than giving freehold rights away after they died, for a few examples.) People would realize that they had control over their destiny. They would realize that the story that nations were in charge of everything was simply not true.

As time passed, more and more people came to realize that the human race has real control and power to affect its destiny. They would be able to project the trends that give the human race power into the future; they would realize that eventually the human race would have more power and control over important realities of earth existence than the nations of the world. If the human race is in charge, the interest of the human race matter, not the interest of nations. The rulers of nations are behind war and conflict; they are behind the propaganda that induces children to think that we must fight, kill, and die for these entities, they are behind the laws that subsidize the destruction of the human race and prevent the majority from sharing in the wealth of the world, forcing them to care more about the amount of jobs that exist in the world than they care about the very existence of the planet.

The human race as a whole does not benefit from any of these things. As we move toward a situation where the human race has power and authority, the interests of the human race will matter more and more and the interests of other entities, including nations and organized religions, will matter less and less.

 

First, vote.

 

In sovereign law societies, elections are generally meaningless, as the people have no power to alter any important realities of their existence. (They can’t vote on whether nations will exist, for example, or alter any fundamental fixed realities held in ‘constitutions.’ They can’t prevent schools from teaching patriotism in the elections, divert money from government programs that pay for nuclear bombs to programs that bring real benefits to the people of the world, or change the way ownership or ownablity of productive assets works (either in society as a whole or in the land called ‘their nation’).

When the Community of Humankind voted, the votes meant something important. Each vote represented some share of the wealth the world created. Each vote transferred some of this wealth to programs the people of the world had created which were designed to meet some need or advance some goal of the human race as a whole. If you lived on Cosmos, you could watch the numbers in the accounts: when you transfer $100 to ‘the child welfare fund,’ you would see the bank balance of the human race for ‘unallocated funds’ fall by $100 and see the bank balance for the ‘child welfare fund’ increase by $100. If you have 1,000 votes, each worth $100, you could make a substantial difference in the way the world works with your votes.

In his book 1984, Orwell commented many times on whether democracy really could exist in a society. We have seen that no sovereign law society can be a true democracy, because of the practical requirements of war: Victory in war is essential for nations to exist and the decisions needed for war can’t be made effectively in elections. (Most people would rather have better roads than more aircraft carriers and ICBMs. If some nations made these decisions in elections and others didn’t, the ones with elections would not have enough weapons to defend themselves against the nations without elections and would be conquered.)

It is true that democracy can’t exist in societies built on the belief that invisible superbeing have given away parts of planets to people who own them totally (or that people who go through the rituals needed to claim the land are the absolute owners). But these are not the only kinds of societies that are possible. Others can exist that are capable of supporting true democracy. Socratic leasehold ownership societies are fully compatible with true democracy. In fact, they work best if the people make the decsions about allocation of all unearned wealth (the basic productivity of the land).

 

Growth in Power of the People

 

All of the people of Cosmos had a right to vote in the global elections. If they wanted, they could use the wealth they distributed to benefit them, personally, providing services for themselves and distributing all of the rest of the money to the people as cash basic incomes. But if even a single person on Cosmos cared about the future of the human race, she could cast one, more, or all of her votes for projects that would increase the power and authority of the human race going forward. These projects could work to provide cash subsidies to property owners who agree to bequeath their properties to the Community of Humankind, after they die, to be sold with socratic leasehold ownership (instead of with freehold ownership). True, the properties would not sell for as high of prices with socratic leasehold ownership as with freehold ownership.

A great many people on Cosmos wanted their properties to benefit both their heirs and all future generations of humans. Before the Community of Humankind was created, they didn’t have any real way to do this. After it came to exist, they could download a form from the internet, fill it out, have it notarized and sent back to the Community of Humankind administrative offices. When these people passed, the properties would go to the Community of Humankind, which would then sell socratic leasehold ownerships on the property and transfer all funds obtained to the designated beneficiaries of the benefactors.

With the right kind of program, this system can be very beneficial to estate planners. In some nations on Cosmos, estates pay out more than 90% of the money value of the inheritance on lawyers, probate, taxes, and fees. Owners would realize that their heirs really wouldn’t get much money from the properties if they went through probate, they would be able to give more to their heirs if they went through the Community of Humankind program, with much more rapid progress and much less chance for disputes among heirs. The system the Community of Humankind set up on Cosmos was very easy: a single form, signed, notarized, and sent in by mail, and everything was done. The leasehold to the property would be sold within 30 days, and their heirs would get the money the next day. Many times, people could actually leave more money to their heirs by going through the system at the Community of Humankind, than by bequeathing the property to their heirs (who often would have to sell anyway to pay legal fees, probate costs, and estate taxes).

As on Earth, people of Cosmos cared about the world and wanted to make it better. They gave to many charities. As time passed, the Community of Humankind became a kind of ‘charity of charities.’ If the people of Cosmos wanted more to go to a project like ‘Habitat for the People of Cosmos,’ but had no money ‘of their own’ to give to the charity, they could log on to the website of the Community of Humankind and give money that belonged to the human race to the ‘Habitat for the People of Cosmos’ or ‘Doctors without Borders.’

People giving to charities often have hard decisions. Not all charities are honest. Some are shams. Dunant set up the Community of Humankind to be totally transparent. Every single penny of income and expenses for the humanitarian organization was recorded on accounting forms that anyone could verify and audit (using the procedures explained in Chapter 11 of Book One.) People who wanted to give to other charities would not know exactly what would happen to the revenues from their bequests after they had passed away. (Dunant wanted to create a system where the people had authority over the Red Cross to make decisions. He was overruled. The executive committee of the Red Cross makes these decisions, in meetings that the donors of the corporate can’t attend.) For most charities, people have no way to tell if the charity is giving money to organizations designed for terrorism (like national governments, which use the money to build weapons). The Community of Humankind was a safe way to donate money. The rules were clear, the human race was in charge (not some bureaucrat), and would always be in charge. The money only went where the people of the world wanted it to go.

 

 

 

 

As we proceed on our journey, we move to societies where the human race, acting as landlords of the world, get less and less income from the land. While this happens, we have more and more need for funding, because we have more and more problems. At some point, we will not have enough money to deal with our problems and we will have no choice but to start taking money away from people as taxes.

 

 

It may appear that we could easily deal with this issue by simply moving to a leasehold ownership system with a higher leasehold payment percentage. This is true. But we are moving to societies with ever lower leasehold payment percentages and explaining how they work. In systems with very low leasehold payment percentages (if we have decided that we won’t move to higher percentages, for some reason) the only way to increase the public income is with taxes.

The taxes take away some of the rewards for improvements, so they reduce the strength of constructive incentives. As we go through the range that needs taxes, the strength of constructive incentives will fall.

People will still be able to make money improving the world, but they won’t be able to make as much as before. They will still work to find ways to create value and drive up the free cash flows of properties, but they won’t work as hard as they were working before on these things. Rates of progress and growth will fall.

Factors That Reduce The Strength Of Constructive Incentives

Taxes are only one of several factors that reduce the strength of constructive incentives as we go through the next rage.

Increasing Instability

In the earlier systems, demand for items that were produced was pretty consistent, because the people who needed to buy things got the money they needed to buy them. In this example, which deals with Pastland during the time when it had a rice-based economy and the only property was the Pastland Farm, total production was $3.15 million a year. In the natural law society, $750,000 of this went to people who worked in production, leaving $2.4 million to go to the members of the human race. Everyone got an equal share of this $2.4 million, either in cash or in the form of services that benefited everyone. (We all voted in the elections so we decided how much we wanted in cash and how much in services.)

As we go downward through the range, the income shifts: the people who have saved money get more (as risk-free returns on their wealth) and people who don’t have savings get less. People with greater savings will get higher incomes than people with lesser savings, and people with the greatest amount of starting money will get enormous incomes, while people with no savings at all will get ever smaller incomes, and eventually zero incomes (unless they work).

Only a very few people are in a position to save an enormous amount of money, so only a few people will be rich and get the fabulous incomes that go to the rich. The great majority of the people will wind up with lower and lower incomes as we go through the destructive range.

Here is the problem:

People without money can’t buy the things they need. In order for the economy to work, there must be buyers to match with each seller. Often, very rich people simply can’t spend any more money than they are already spending, no matter what. You can only eat so much food. If you are already eating so much that you are morbidly obese, diabetic, and sick all the time from overeating, increases in your income are not going to cause you to eat more.

At some point, people without savings won’t be able to afford enough to keep them from starving to death unless they take jobs. At this point, they will have to work or die. Unfortunately, more need for jobs (to get income to avoid death) doesn’t translate to a higher need for labor in production. If the world is bountiful, only a small amount of labor is needed to collect its wealth. (This was the definition of bounty the book started with.)

The only way the people who now need jobs (but didn’t in the earlier societies) can get jobs is to take jobs away from people who already have them. They have to do this by offering to work longer and harder for the same money, do the same work for less money, or some combination of working longer and harder with lower wages. The people who already have jobs can’t afford to lose them in these lower societies: they will starve to death. They have no choice but to offer to work even longer and harder than the others, and for still lower wages, or they will die.

As we go through the destructive range, wages will fall very rapidly.

Wages started out in the natural law society at rates that allowed people to be fully paid for the unpleasantness, effort, risk, and other requirements of the job. For example, cleaning sewers of clogs is very unpleasant work, so sewer-cleaners got paid a lot, or they wouldn’t do the work. As wages fall, people with no skills will not be in a position to be picky. The wages for the most unpleasant jobs, which are generally those requiring the least skills, will plummet. They will get so low that, often, people with these jobs won’t be able to make enough money to keep them and their families out of poverty, no matter how many hours each day they work.

The poor will start to get poorer, over the course of time.

As the rich get richer and poor get poorer, this system will be increasingly out of balance. The rich simply won’t be able to spend all of their money. The poor won’t have money to spend. Spending will collapse. At this point, people who have hired others to help in production won’t be able to afford to pay them and will have to lay them off. This reduces spending for three reasons:

First, people without jobs (and without enough of the free income from the land to survive on) can’t spend as much as they did before, no matter how much they need food and other things. They have no choice. They can only spend money they have.

Second, many people will not be able to afford enough to keep them and their families alive. They will start dying of poverty related ailments, like opportunistic diseases, hypothermia (because they can’t afford fuel or clothing to keep them warm), and starvation. As they die, their spending will fall to zero. (Dead people don’t spend any money.)

Third, people with enough money to get by will panic. They will see people starving to death around them and think that, if they spend as usual, they will run out of money faster and join the dead. As they panic, they will cut back their spending to create a larger buffer.

The lower spending leads to something that mathematicians call a ‘self reinforcing loop.’ Each reduction in spending leads to more unemployment, more poverty, more fear, and still lower spending. The system can continue to collapse until a very large percentage of the population has starved to death.

Book One went over the history of the world and showed that many of these total collapses have taken place. After the wars of conquest by the Roman Empire ended (because Rome had conquered all land geographically accessible), the Roman economy collapsed, and remained in a collapsed state until the renaissance, which occurred roughly 1,100 years later. (As we saw, the recovery was due to new war technology, in the form of gunpowder; if not for the need to compete in war, we may still be in the ‘dark ages,’ the name given to the collapse.)

Another collapse occurred in 1929 when the financial market collapsed. This collapse lasted until the final major county that held out for peace, the United States, entered the war and the war became the Second World War. Although the war killed more people than any other event in the recorded history of sovereign law societies, it was considered to be a success because the war, combined with the nuclear escalation that started in 1945, was able to pull the world out of this collapse, and get the systems functioning again.

There have also been a great many minor collapses. These didn’t totally destroy the economies, but caused collapses in production, high unemployment and massive starvation among the lower classes.

The extreme instability of societies low in the range of possibilities prevents people from making improvements that they would otherwise make. If you can improve a part of the world to turn something with relatively low value (say dirt, which contains an average of 5.8% iron) into steel (which is roughly 98% iron), you have to make sure you can sell the steel before you can justify the expense of improvement. If people can’t afford cars, they can’t afford skyscrapers, can’t afford trains, planes, tools, or appliances that would be made out of steel, people who may consider investing in facilities to turn dirt into steel will probably not build them. In fact, even if people can afford things made out of steel at this time, people considering building facilities will hesitate to build if they think there is a good chance the economy will collapse before the facility has repaid their investment. The mere risk of instability reduces incentives to improve the world

 

War

 

At some point, the differential between the incomes of the wealthy and the incomes of the workers will become so great that the workers will rebel. They will try to overthrow the system. The system must be kept in place by force. The wealthy must get together into groups and set up a system to defend them from the poor. Each group will form its own ‘government,’ to administer that area.

The people in the governments will realize that they will have more power if they control greater areas. They will work together with the rich (who will become the owners of the conquered land) to conquer land that belongs to other groups, when this land is not very well defended. Once they have armies, they will want to find ways to train these armies in situations that are as close to actual combat conditions as possible. They will find they can do this by engaging in ‘skirmishes’ with their ‘enemies,’ in something that we may think of ‘practice wars.’ These wars, like the United States wars in Korea and Vietnam and the Soviet war in Afghanistan, are not intended to conquer territory. They are intended to stimulate demand for weapons, to make sure there will be plenty of weapons-making facilities available when ‘real’ war comes, and to keep the combat troops familiar with the mental states needed to win real wars, when they come.

The best situation, for a large nation, will be perpetual war, war that never ends. This will make sure the infrastructure needed for any supply of weapons that may be needed is always there, it will create the jobs needed to provide income to the non-rich, and it will destroy a large part of production, to help bring the enormous supply of goods close to the amounts the people can afford.

Here is the problem: Wars are risky. They increase the risk level of improvements. The people who improve never know for sure that their country may be ‘taken over’ and the conquering government may simply take their land away. They never know for sure if the war may increase demand for labor and drive wages up to levels that are so high the can’t afford to operate their facilities. Wars may also end and this frequently leads to very high unemployment rates (as both soldiers and arms workers lose their jobs) which may drive the economy into an unemployment-related recession.

If risks are higher, people need higher rewards to justify investing in improvements. An improvement that would have worked out (provided returns that justified the risks) during a time when the land that will hold the intended improvement is not in a war zone will probably not provided the necessary returns to justify the risk if the area is in a war zone. The risks associated with wars provide another reason that constructive incentives are weaker in societies that are lower in the range of possibilities.

 

Taxes

 

People have incentives to improve if the income they get to keep from an improvement is higher than the cost of the improvement. Remember that societies high in the range do not need taxes because the systems are set up so that the free cash flows the system naturally produce flow to the landlords of the Earth, the members of the human race. Nothing has to be taken away from people who have earned it, because nature is so incredibly bountiful and produces gifts. If this free wealth flows to the human race, acting as landlords of the Earth, they have no need to take anything away from anyone who works for it or does anything to deserve it.

In systems lower in the range, more of this free money flows to the wealthy, and less to the human race. At some point, we won’t have enough income to deal with the problems and will have to tax. It is, of course, possible to construct a tax system that will take only unearned wealth. But such a system is not practical in societies lower in the range, because the people who get the unearned wealth, the rich, are in positions of power and control. They control the governments that will take the taxes. They know they are better off if they are allowed to keep the unearned wealth, and make the workers and others who earn money pay the taxes. They can set up tax systems that make this a reality.

In our 21st century world, people whose income comes from unearned risk-free free cash flow can easily eliminate all tax liability, provided they are rich enough to afford a tax attorney. Although there are many ways to do this, one common option involves moving all of their wealth to a ‘tax haven country.’ (About half of nations on Earth are tax havens: they only tax earned incomes and don’t have any taxes on dividends, capital gains, interest, or other returns on wealth at all.) They can take a vacation to the ‘tax haven’ country and apply for and get a green card, meaning an official residency card. (Rich people automatically get green cards; in the United States, anyone with more than $1 million has to apply and it is always approved. Poor people have to go though a long procedure and most of them are not approved.)

Now they are a legal resident of a foreign country. (It doesn’t matter where they actually live. What matters is their legal residency.) They pay tax to their country of residence, not their country of citizenship or the place they live. Since their country of residence doesn’t tax unearned income, they don’t pay taxes on unearned income.

Note: even countries that pretend to have equal taxation offer huge tax breaks for unearned income. In the United States, a couple that earns their income pays taxes on everything above the first $10,000. The same couple doesn’t pay any income tax on unearned income until it exceeds $137,000 a year, and, of course, the largest tax in the United States, the social security tax, doesn’t apply at all to unearned income. These countries don’t want rich people to leave, because rich people spend more than poor people, generating more jobs, so they simply create tax breaks that make it very easy for rich to not pay any tax.

The huge majority of taxes in the 21st century world come from levies on money that people worked, taken on risk, or otherwise done something to earn. People who want to make improvements have to pay taxes on the materials they use to improve, on the labor, and on the supplies. They have to get permission (often at a cost higher than the cost of the improvements, payable to the government as a permit fee), and pay increased taxes on any increases that are specifically due to the improvements and therefore earned. They have to pay increased valuation taxes on the increase in value of the property (remember, earlier societies don’t have taxes and the leasehold payments never change, no matter how much the property is improved, as long as the property is owned by the same owner).

When we are higher in the destructive range, we have higher incomes from the land and smaller problems, so we don’t need very high taxes. But as we go down through the range of possible societies, we get into systems which will need higher and higher taxes. They will also be more and more unstable, more and more prone to war and other problems that reduce the rewards or increase the risks of investments that lead to increases in the amounts of value that flow from the world over time. The further we get through the destructive range, the weaker the constructive incentives become.

 

Destructive Incentives

 

As this happens, the rewards for destruction grow. The forces pushing toward war become ever stronger.

In the systems higher in the range, the human race had enormous power because we had an enormous income. We had nothing at all to gain from war in the societies higher in the range: war in these societies is nothing but sensless destruction of value that would otherwise benefit the entire human race. As we went through the destructive range, we got into systems where people needed and wanted war. The working class wanted war because war created the jobs that they needed and killed large numbers of others in their age and class who competed against them for jobs, forcing the supply of workers lower and driving up wages. The systems needed war to balance supply with demand: in peacetime the production facilities produced far more than people could afford to buy, leading to recessions and depressions (where unsold value caused market collapses). War destroyed fantastic amounts of value, reducing the supply, which had the same effect as increasing demand: more goods were needed, industry expanded, wages rose, profits rose, prices rose, government taxes increased, and everyone (except the relatively few people who were mutilated, lost their children, lost their homes and families, or were driven insane by the realties of war) was happy.

As we get into the range where war is essential to keep the society functioning smoothly (where humans must be killed to reduce unemployment, value must be destroyed to match the supply of goods with the spendable money, and the system msut employ large numbers of people doing things that don’t lead to the creation of anything valuable), we can expect the leaders to start to accept this necessity. They will start to devote a lot of effort to figuring out ways to create the state of mind needed for perpetual war, and will figure this out.

They will start taking children from their parents at an early age and indoctrinating the children to make them believe that people born in different sides of imaginary lines are different, with some imaginary lines creating people who are good and others creating people who are horribly evil monsters who are trying to destroy everything decent people care about. They must instill hatred in the enemies in the minds of the children, while instilling a love for the allies and people in their own country. They must make children believe things that are obviously untrue, like that their country has liberty and justice for all, where everyone is equal and we all have freedom ringing from every mountaintop.

Since logic and reason will quickly show the children that the things the schools teach children are not and can not possibly be true, children must also be educated in a process that we might call ‘doublethink,’ so that they won’t apply logic and reason to certain areas of existence. When it comes to making weapons, they have to be able to use logic and reason. But the reason that nations exist? The actual conditions relating to freedom, justice, liberty, brotherhood, and equally that they are supposedly building the weapons to defend? They can’t look too closely at that.

As we go lower in the range of possibilities, we would expect more and more intensive indoctrination methods, to instill the desired hatred and fear and make children think that they must inevitably submit to the realities of the system. The people who run the systems will do ever more research into ways to create the desired state of mind; to the extent that they are successful, the people will begin to think that there is nothing they can do to alter the realities of human existence.

This is not true.

But if the people who run the systems have enough resources at their disposal, and use these resources well, they can convince nearly everyone that it is true. They can breed depression and misery and cause their people to give up all hope and take their role as cogs in the wheels of the giant military industrial complexes that they live in.

 

Minimally Sustainable Societies

 

As we go through this range, the human race, in their role as landlords of the world, wind up getting less and less automatic risk-free income from the land. At some point, we will get so little income from the land that we won’t have enough wealth to affect any important matters in our societies. The forces that push people to do things that lead to the creation of value are growing weaker while the forces that push people to do things that create hatred, conflict, violence, and destruction grow stronger.

You and I were born into societies where the rates of destruction of value (including ‘value’ in the form of breathable air, healthy food, safe water, and the value of knowing that your family will be safe from nuclear annihilation and that there is no pollution to give you cancer) exceed the rates of creation of value.

This is an unsustainable condition.

It is not possible for people to destroy more value than gets created forever. At some point, if they continue to destroy, some vital component of existence will no longer exist and the human race will not be able to survive. The societies we were born into are unsustainable. They do not meet the minimum conditions needed for the perpetual existence of the human race.

We have seen that some societies do not destroy more value than they create. Natural law societies, for example, clearly meet the minimum conditions needed for sustainable. We know this is true because billions of people lived in these societies for millions of years with no destruction that we can detect at this time.

If there are some societies in a range that do meet the conditions needed for sustainability, and there are other societies in the range that do not meet the conditions for sustainability, and the range is ‘continuous,’ (meaning there are no holes or gaps in the range), there must be a transitional system. There must be a system that marks the border between the two different types of societies. There must be a particular society that barely meets the conditions needed for sustainability.

Perhaps we may not be able to place the exact location of this particular society, but we know it is somewhere. If we continue going down through the range of possibilities, we will eventually get to this transitional system.