All beings that exist must have ‘modes of existence.’

This is true for the lowest living things and for the highest.

We must all find some way of meeting our needs. We must all reproduce and have some means of caring for our offspring until they are capable of caring for themselves. If we can’t do this, we perish.

Most living beings must accept whatever realities of existence that nature gives them. The lowest living things on earth, for example, are called ‘cyanobacteria.’ (They used to be called ‘blue green algae;’ after it was realized that they are actually bacteria, their name was changed.) Cyanobacteria must find sunlight and bathe in it; the sunlight works with their chloroplasts (containing chlorophyll) to break down carbon dioxide into carbon and oxygen, and break down water into hydrogen and oxygen, then recombine the carbon and hydrogen into carbohydrates, then release the oxygen into the air. They need to do this because the mitochondria in their bodies will then take the carbohydrates and turn them into usable energy that will allow their life processes to work and facilitate their reproduction. They need certain temperatures and conditions of moisture: they must find these conditions and get there. They organize their existence around very simple principles which were determined by nature. They have no self will or ability to alter the realities of their existence.

Other animals have slightly more discretion in the way they organize their existence. Mammals have complex brains that allow them to identify plentiful food supplies and move to them, identify good conditions for raising their young and move to them, and form relationships with others to help them fend off predators and meet their basic needs. But they have very little power to alter the realities of their existence compared to humans.

Humans alone can plan. We have a brain component no other earth animals have, called a ‘prefrontal cortex.’ Scientists can put electrodes into this part of the brain and monitor the electrical impulses that go through it when the subject is doing certain things. They have found that this part of the brain is responsible for the mental activities called ‘planning.’ Humans can plan. We can run through various complex scenarios in our minds. We can determine which behaviors will bring the optimal results before we act. We don’t have to use trial and error and learn everything ‘the hard way’ (when trials fail). We can do thought experiments in our minds to determine which behaviors will bring the optimal results. Then we can act. No other animals have been shown to have this same capability. None of them even have the brain component that is responsible for these complex behaviors. In this area, humans are unique.

Other living things must accept whatever role that nature has assigned to them. If this role no longer fits into the changing realities of nature, they go extinct. Humans alone can decide what kind of role we want to play in existence.

Possible Societies

There are two things we can change about the realities of our existence.

 

 

If we understand all of the options for each of these two variables, and understand the way we can mix these options to come up with finished ‘societies,’ we can understand all of the options that we have for organizing our existence.

Part One introduced a visual aid that helps us understand the way different societies relate to each other. It is a chart I called the ‘Road Map of Possible Societies.’

Since there are two things we can change, we can lay out the options on a two dimensional chart, with each axis representing a different ‘thing we can change’ (or ‘variable’). A two dimensional chart is also often called a ‘map,’ so we can essentially create a map of options.

There is a certain place on this map where we are: we have a type of society based on a certain way of interacting with the land and a certain way of interacting with each other. (We interact with the land by dividing it into nations and accepting that each nation has sovereignty over the part of the world inside of its lines. We interact with each other in a hierarchical way: the governments of nations make the rules, granting certain rights to corporations and others who own parts of the world and dictating both the economic and social rules—down to their rights to have sex, the foods they can eat, and the medicines they can use—for the remainder of the people.)

This is just one point on the map.

There are infinite others.

The option we chose has certain disadvantages. Although many would be happy to present a list that is so long it is essentially endless, I think one example of a ‘disadvantage’ is enough to make the point that it makes sense for us to consider some other options: This society is unsustainable. It has inherent incentives that lead to violence and destruction that will destroy the world if it continues long enough. This type of society is going away. Either we will replace it with something that is sustainable or it will destroy us.

There are a great many points on the map that represent sustainable societies. Natural law societies are sustainable, provided there are no competing sovereign law societies: natural law societies lasted millions of years; the people in them lived in harmony with the land and had no ability to fight with each other on a scale that could do any permanent damage to world or the human race as a whole. But natural law societies have certain disadvantages that make them unacceptable as a practical replacement for the sovereign law societies that we have now. There are other societies that are both sustainable and do not have the problems of natural law societies. We have to pick some other society as an alternative to the one into which we were born. We can’t stay here. We must go somewhere else.

If we can find an option that we prefer, we will have identified two points on the map: the point that indicates where we are now and the point that indicates where we went to go. Having a map in front of us helps us to plan a route from ‘where we are’ to ‘where we want to go.’ As you will see, once we have identified another type of society, we can take various different roads to get from where we are to that other society.

 

Note. In the Road Map of Possible Societies, all options below the line marked ‘minimally sustainable societies here’ are very dangerous. We are at the extreme limit of the dangerous section, in the middle of the bottom line. The socratic societies are actually a long way from us, on the middle line of the chart, but the line that marks the danger zone is not very far away. If we understand this, we will understand that we only have to make fairly minor changes—as long as they are the proper changes—to get us out of the danger zone. Once we are there, we can decide on our final destination and decide which of the many roads will take us there.

 

Having a road map helps us see that there are many ways to get from one place to another. It also helps us understand how the ‘in between’ societies will look, which we might compare to the scenery we will see while on the road from one place to another. If we have a map, we can decide if we want to head strength to our final destination by the fastest possible route, or whether we may want to find a fairly rapid road that will take us out of the very dangerous areas to a place of safety where we can rest for a while and plan for the second leg, which will take us by a ‘scenic route’ to our final destination.

These are the advantages of having a map.

If we have a map, we can understand where we are and where we may want to go. We can work out the time it will take and make plans for the journey. We can figure out what we will need to have a comfortable and safe trip. We can work out waypoints and places to rest.

If we don’t have a map, we are likely to be overwhelmed by the idea of making societal change. What must be done, how much time will it take, what obstacles will we face along the way? We won’t know any of these things. Without this information, we are likely to be overwhelmed and confused. We can expect to be afraid: what will we encounter around the next bend? If we don’t have a map, we don’t know. If we do have a map, and some idea about the idea of making a transit from one kind of society to another, we will be able to plan our trip. We can anticipate problems and prepare for them. We will then be in a position to make informed choices about societal change.

 

A Look Ahead

 

The next book in this series, Reforming Societies (at ‘’) is about the specific steps that, if taken, will cause our societies to change in ways that cause an evolution to a society that can meet our needs. It explains how to get from the societies into which we were born to two different destinations. The first destination is a waypoint: it is the closest point to us in the ‘safety zone,’ or the closest society to the societies we have now that meets the minimum conditions needed for sustainability.

Minimum sustainability does NOT mean nondestructive. It just means that the rate of destruction will be such that the combined efforts of humans and nature will be able to counter it and prevent conditions here on earth from getting worse. The first step in the transition explained in Reforming Societies still has most of the structures we were used to. Since most of the structures are still there, most of the undesirable characteristics of the societies we have now will still exist. The most serious problems we face won’t be as bad, but they will still be there. The point of discussing societal change through the two step process is to make the trip seem less intimidating. All we have to do get to the next waypoint. If we can make good progress for the first few years, we will be essentially out of danger. Once we get out of danger, we can take our time. If people want to keep certain structures that are part of our current societies until we can find better structures to replace them, we will have this option. The second part of the journey will take us to whatever kind of society we think best meets the needs of the human race.

Part One Pointed out that the socratic leasehold ownership society is an example society. It is designed to illustrate a point: it is possible for humans to organize the realities of their existence in ways that align the interests of individuals with those of the human race as a whole. If we do this, we are all on the same team, all working for a common goal. Individuals can make their lives better doing things that move the human race toward a better future. If they are self interested and try to make their own lives better, their actions will improve the conditions of existence for the rest of us.

The example society is just that, however: an example. There are many different societies that align the interests of the various parties. Each of the options has different characteristics. Once we get to a place of safety, we can decide where we want to go from there. We may choose something very similar to the socratic society described in Part One, or we may choose some other society that has a different mixture of characteristics.

Before we can really plan a trip, we need to have some idea were we might go. We need to know what options are available. This book is designed to help you understand all of the options, so you can make an informed choice about where to go.

 

The Road Map of Possible Societies

 

Figure 2.1.1, below, is the Road Map of Possible Societies. It has many components that are explained in the rest of the chapter

Qqq Road Map of Possible Societies

 

Different Interactions Between The Human Race And The Planet We Live On

 

Humans are physical being with physical needs. We eat food for energy; we have to eat on a regular basis to replenish our energy or we will die. Evolution has made tradeoffs and sacrificed certain capabilities to give us larger brains. One trade off involves our physical vulnerability: in most places, we are unable to survive without shelter of some kind and some kind of clothing. Most of the places we live are so cold, at least part of the year, that shelter alone is not enough: we also need some sort of fuel to burn to keep our body temperatures high enough to allow us to remain alive. We need certain physical items to remain alive.

The planet we live on provides the food, shelter, fuel, and other physical items we need. We have to ‘interact with’ the planet in some way to get these items so we can live.

There are two extreme ways we can interact with the world, and an infinite number of options between the extremes.

100% Ownablity Societies

One extreme way to interact with the world is to consider the planet to be a possession.

We can decide that the planet is totally ownable and that certain groups of people have come to own it. We can accept that ownership of planets is no more complicated than ownership of simple consumable items like apples: If you own, you own all rights without limit. This means that the owners of each part of the world have unlimited or sovereign rights to their parts of the planet: Everything it produces and contains belongs entirely to them, all rights to do anything on it—even walk on it—belong to them, and no one else now and forever in the future has any rights to have this part of the planet even remain in existence if this conflicts with the wishes of the currently-living owners.

It is possible to accept this premise and build societies around it. Since such societies would be built on the premise of sovereign or 100% ownability, we might call such societies ‘100% ownability societies.’ The idea of 100% ownability is an extreme way to interact with the planet. It has an extreme position on the chart. All societies on the extreme bottom line of the Road Map of Possible Societies (the ‘x’ axis) represent societies built on 100% ownability of the world. They correspond with the label ‘100% Ownablity Societies’ on the scale of ownability on the left side of the chart.

 

0% Ownability Societies

 

There is another extreme way to interact with the plane that is essentially the opposite of the above option: we can interact with the world as if we are vassals and servants to a planet that is our all-powerful master. We could consider the world to be above us all, the ultimate provider, a kind of a god that makes all the rules; our only role is to serve this god and try to guess the rules so we can obey them. We could decide that the world owns us, not the other way around, and we commit the ultimate offense against our master and god if we even claim that this magnificent world is ownable by mere humans.

It is possible to accept this premise and build societies around it. Since such societies would be built on the premise of total or 0% ownability, we might call such societies ‘0% ownability societies.’ All societies built on this method of interacting with the land are on the extreme top line of the chart. They correspond with the label 0% ownablity societies on the scale of ownability on the left side of the chart.

 

Partial Ownability Societies

 

We know that both extreme societies are possible, because both have existed in our history. If it is possible for societies to exist that are built on 0% ownability, and possible for societies to exist built on 100% ownability, logic tells us that it must also be possible to start with methods of land tenure that allow people to own certain rights, but not total rights, and build societies around these structures.

Book One went over one of these partial ownability societies, socratic leasehold ownership, built on the sale of a leasehold on certain properties structured so that the leasehold payment is exactly 20% of the price the buyer paid for the leasehold. You can find societies built on this kind of land tenure on the chart. The left scale indicates the different ‘price leasehold payment ratios’ that are possible. Go to 1:20% on this chart and you will see ‘socratic leasehold ownership societies here.’ All societies on this line are partial ownability societies. They allow people to buy and own certain rights to the land, but not total rights.

As we will see, it is possible to use various different leasehold ownership systems to create literally any kind of relationship with the land we want. We can use a kind of leasehold ownership called ‘sovereign law leasehold ownership’ which will create a system that makes 100% of rights to the land ownable and buyable, creating a system that is exactly like a sovereign law society, with the same incentives and same problems. It is also possible to create a kind of leasehold ownership called ‘natural law leasehold ownership’ that makes exactly 0% of rights to the land ownable and buyable. It is possible to create land tenure systems that allow people to buy and own virtually all rights to the land, but not total rights. Societies built on these land tenure systems are called ‘virtual sovereign law leasehold ownership societies.’

It is possible to create land tenure systems that allow people to buy and own such miniscule rights that, for practical purposes, they own no rights at all. I will call the leasehold ownership system that works like this a ‘virtual natural law leasehold ownership system’ and call societies built on it ‘virtual natural law societies.’ They will work so much like natural law societies that an observer wouldn’t be able to tell the difference, but they are not true natural law societies as the degree of ownability will only be ‘extremely close to 0%,’ not ‘exactly 0%.’

As this book progresses, we will look at the entire range of possible land tenure systems. We will see that there are infinite options. Each option creates a different relationship between the human race and the planet earth. Each different relationship has different characteristics, creates different incentives, and affects the realities of life for the people in it various different ways.

The way we interact with the planet is ONE of the things we can change about the way our societies work. The other is the way we interact with each other.

 

Possible Social Realities

 

Humans are very fragile relative to other animals.

Most animal infants can stand, walk, follow their mothers, and escape danger within hours after birth. Infant humans can’t even focus our eyes for many days after birth; we can’t even control our fingers until several weeks after birth, and can’t function well enough to live on own for many years after birth. We don’t develop our full physical or mental potentials for decades.

We are helpless for a large percentage of our lives. We must depend on others for survival.

Although our mothers can provide a great deal of this support (as happens for other animals), the needs of infants and children are so great that most mothers would not be able to provide 100% of this support for the entire time it is required, at least not in ways that would allow enough offspring to be born and grow to maturity to keep the human population stable. People have to work together, with one person or group providing shelter, another person or group providing food, another providing fuel, another person or group organizing education so that children will have the skills needed to replace the adults.

We need some social framework to live in.

Again, there must be two extreme options for arranging this social framework, and an infinite number of options between these extremes.

One extreme option have some person or group with authority over everyone else. We might call these authority figures ‘rulers.’ In the extreme system, the rulers would make all decisions for the other people. In the extreme system, the rulers could make all rules, including the rules about how the people must spend their time, and the rulers would be able to punish violators any way they wanted for any infraction, no matter how minor. These societies would organize themselves around a two-class hierarchy, with rulers and followers, where rulers have 100% authority over followers.

We might call these societies ‘100% authoritarian control societies.’

The other extreme would not have any classes or hierarchy at all. People would make their own decisions. No one would have more authority than anyone else. The people would make all common decisions in meetings and elections. In the meetings in this extreme society, no one would have any more authority or right to speak and provide inputs than anyone else. In elections, no one would have any more of a vote than anyone else. This extreme system would not be any authoritarian bodies at all. We might call these societies ‘0% authoritarian control societies.’

Intermediate options would have some degree of authoritarian control between 0% and 100%.

To help us visualize the options, we may go back to the chart we started before and draw a line perpendicular to first line, and label it ‘degrees of authoritarian control.’ (On the Road Map of Possible Societies, this second line is horizontal.) We could put 0% at one end and 100% at the other. (On the Road Map of Possible Societies, 100% authoritarian control is on the left and 0% on the right.) We might then split the line into regular intervals and label the increments with numbers between these two extremes.

 

The Road Map of Possible Societies

 

Each point on the body of the chart represents a specific combination of two variables.

We would be able to find every possible combination of the two variables one exact place on the chart. For example, if we want to find a society with 50% of all possible rights to the world ownable and 50% authoritarian control, we could go to the line on the left side (inside scale) that indicates ‘Percent Ownability,’ and find 50%. We could then draw a line from the 50% mark to the end of the page. All options on this line have 50% ownability.

We could then go to the bottom line that indicates ‘Percent Authoritarian Control’ and find 50%. We could then draw a line upward through all of the options. All societies on this line have 50% authoritarian control.

There is only one society on the chart that combines the two different characteristics, with 50% ownability and 50% authoritarian control. This society is the one at the point where the two lines intersect each other.

The discussions that follow refer to the map many times. You may find it helpful to print a copy of the Road Map so you can refer to it without having to change the computer screen. I have put two printable PDF files of the Road Map in the references section of the possible societies website, one a large map that you can print on 11x17 (A3) paper, the other a smaller one that will print on 8.5x11 (letter size, or A4) paper.

 

The first society we visit on our journey, and the starting place, is the natural law society in Pastland:

No one owns the land around us. The reason that we don’t have ownership really isn’t important. It may be that many people in our group believe that the mountains, rivers, lakes, and forests of the world were here before we arrived and, since we didn’t create them, they aren’t ours. It may be that this was a key factor in their decision to vote in favor of the moratorium on ownability: they thought ownability was improper (or possibly impossible) any way and, even though the moratorium didn’t ban it entirely, it at least put it off of the table for a time. Others voted for the moratorium for the reason stated earlier: they saw that, if we accepted anyone could own a part of the world, people would start fighting over who owned (or which group or ‘nation’ owned) almost immediately. We would have wars that didn’t have to exist. They didn’t have any philosophical objection to the principle of ownability of land, but they didn’t want to create motivations that would lead to conflicts if they could avoid this.

Whatever the reason, no one owns the world around us. It is as unowned as before our group went back in time.

Although we don’t own the land around us, we have the same basic needs as all other animals: we must have food or we die. The world produces food. We are superior beings: humans have advantages that other animals don’t have and we can simply take the food that would have otherwise gone to other animals. We find ourselves in a very bountiful natural world. The rice grows here wild and has for thousands of years. We can simply take it. Other animals have been coming here to eat this rice for thousands of years. They will come again this year. But we will be there, ready and able to turn them into food as well.

The marsh land was not really a ‘farm’ when we arrived. But we can call it anything we want. We decided to call the land that produced rice the ‘Pastland Farm.’ Several people, most of whom had no idea how to do anything on a rice farm, stepped forward and agreed to help bring in the rice, provided someone was there to help them figure out how to do it. Kathy stepped forward and agreed to take care of organizing the harvest and replanting, so we would have food. She was the ‘manager.’ She knew that a lot of the people who had volunteered would probably get bored in a few days and stop showing up. She wanted them to be motivated to show up so she proposed the payment system.

We had a community meeting and decided Kathy’s idea was a good one. We would put the grain in the cargo hold, issue money backed by the rice, and use part of this money to pay the workers, suppliers, and people who fabricated and operated equipment, setting up the payment system so they would get pretty close to the same amounts they would have gotten back in the 21^st century.

Kathy made sure everything went smoothly.

She knew that we would appreciate her efforts. We were paying the others the same amount they would make back in the 21^st century. She would not ask for anything, but she would hope that we would see the value of her time and agree to pay her the same amount she would have made back in the 21^st century. We all were very happy that Kathy was with us in Pastland: if she hadn’t been there, the people may not have had any idea of how to harvest rice. We may have all starved. We see her value and agree to pay her.

Year after year passes while the moratorium is in effect. The system we have works a lot like the societies of the American native people before the conquest of their lands by people who had different societies.

These societies are very simple.

She brought in the rice and had it sold (traded for money) at the granary; she then gave this money to the treasurer we had elected to manage the funds that belonged to the human race. We kept our word and paid the suppliers and workers; they got a total of $700,000. We also decided to give Kathy a reward equivalent to the amount she would have gotten for doing the same work back in the future. We gave her $50,000. After we paid all of the rewards for the volunteers who helped bring in the rice and put it into storage, we had $2.4 million left over.

Since we had fully compensated everyone involved with seeding, harvesting, managing, and all other activities related to taking in the rice at rates they considered acceptable, we knew that we could expect them to continue to do all of these things, year after year, into the future. After they got too old to do these things, or if they decided not to do these things for other reasons, we knew that the rewards (pay) offered for the jobs would be enough to attract replacements, so the work would get done year after year. The farm would essentially be a money machine, producing a continuous river of free money, with each dollar of free cash being a receipt for a pound of rice that is in storage. Almost as if a magic genie were working for us, our granary would fill with rice. Each year, we would get a river of money that we could use to buy 2.4 million pounds of that rice.

If someone had owned the Pastland Farm, the free cash flow the land produced would belong to her. But while we have a natural law society, no one owns or can own any part of the world. No one owns this free cash. Since no one has any natural rights to this money, we must have meetings and decide what to do with it. Each year, we have a meeting and elections. We decide to use part of this free money to reward people who volunteer to provide services for us. Some goes to the people who help maintain the electrical generators so we can have electricity. Some goes to the people who maintain our water supplies and internet. Some goes to the doctors at our little medical clinic. We reward any people who do things that bring benefits to the human race. But we have a truly enormous income. We only spend $400,000 a year on services. This leads $2 million a year as ‘surplus free cash;’ free cash that is over and above the amount we need to pay for services. We divide this money in some way we can agree on. So far, we have divided it equally, with the exception of a few minor reductions in payments for a few people who break rules and have penalties subtracted from their share.

We are very lucky to have been sent back in time onto this particular world. (The space-time warp may have sent us somewhere else.) It is a very bountiful world, pouring forth massive amounts of wealth over time. Every single human being on earth benefits from this bounty. All you and I have to do to get our share is to act responsibly, treat the world and people around us with respect, and follow whatever rules the human race as a whole has made to allow its members to live in harmony with each other. Life is very, very good for people in natural law societies, particularly if the population level is low and there is sufficient food.

 

Natural Law With Rental

 

We could have gotten to this point a slightly different way: We could have rented the property out.

After everything was said and done each year, we ended up with $2.4 million. We could have gotten the same income by simply renting the land to Kathy for $2.4 million. We could have allowed her to operate the farm, sell anything it produced, pay her costs and take care of her workers, give us $2.4 million a year, and keep everything else.

Many natural law societies rented property out. The Nez Pierce Indians, among the last to be wiped out and therefore one of the most thoroughly studied, raised a crop called ‘camas’ on their lands in the states currently called Idaho, Washington and Oregon. I have raised camas and it takes a great deal of intensive and skilled labor to raise. In order to make sure people paid the proper attention to the crop, the Nez Pierce decided to divide the camas-producing land into plots. They then rented the plots out to families. Each renter would turn over a certain number of bulbs to the tribe as rent, and could keep the rest.

Natural law societies don’t accept land can be owned. But renting is not owning. Renting is just one of many ways that people who live on land can interact with the land they live on. We can decide to rent out the land without ever even deciding whether or not it is ownable. We may decide that the issue of who owns the land is too complicated for us to figure out now. We may decide that, until we can figure this out, we will act as the caretakers or conservators of the land. Our job will be to make sure that the land remains healthy and productive, so that if we should ever find that it is ownable, and make a determination of which people, gods, or other entities own it, we can turn it over to the rightful owners in good condition. Conservators of land can treat it many different ways. Renting it out is one of these ways. We don’t have to decide we own the land to change Kathy’s title from ‘employee’ to ‘renter.’

If we rent out the land, we get the same income from it as we get if we put it under management (paying Kathy to manage it). As long as she doesn’t do anything differently, she will have the same income also. The flows of value will be the same so the incentives will be the same. The basic realities of a natural law society with rentals are going to be the same as those of a natural law society without rentals. Renting the farm doesn’t change anything critical about our society.

 

Leasing

 

What if we ‘leased’ the land, rather than ‘renting’ it?

In common usage, people think of ‘leasing’ as a long-term arrangement (a year or more) while ‘renting’ is a short term arrangement, but in courts of law, the two terms are generally used interchangeably. In other words, there are no formal differences between leasing and renting; all of the differences are in the way people use the terms in normal conversation. This means that, at least formally (and legally, if we decide to apply the common legal terms from the 21st century in Pastland) we could call our arrangement ‘leasing’ or ‘renting’ if we want, but the name we give it wouldn’t affect the way it works: Kathy would have the right to operate the farm and keep all excesses it produced, in exchange for a $2.4 million yearly payment. We might call this payment a ‘lease payment’ or ‘rent’ if we want.

A lease: formal document that authorizes the use of property in exchange for a yearly payment. If the document is not marketable (can’t be transferred) it is just a ‘lease.’ If it is marketable, it is called a ‘leasehold.’

We could lease the property by drawing up an document authorizing the lease of this property for $2.4 million a year. We could then advertise to find candidates willing to lease the property and accept applications from them. We could go over the applications and select the best candidate. For this example, let’s imagine we do this, and select Kathy to lease the farm for $2.4 million a year.

 

A Market System

 

Rather than simply offering the lease with a fixed lease payment, we might conduct an auction.

We might advertise that we are willing to consider leasing the Pastland Farm. We can tell people that we will conduct an electronic auction to see how much money people are willing to pay each year as a lease payment. Once we get the final bid in, we (the landlords) will have a meeting and make a decision about whether to lease the property to the high bidder.

How would we expect such an auction to turn out?

Remember this premise: Kathy likes farm work. She is willing to farm the land if she can get $50,000 a year for her time and skills. The farm generates net operating profits of $2.45 million a year. Kathy can afford to pay up to $2.4 million a year as a lease payment; if she pays this exact amount, she will get $50,000 a year for herself after the lease payment.

Some other people understand farming. They have seen the farm run and know it can generate net operating profits of $2.45 million a year. Some of these people are also willing to run the farm for $50,000 a year. These other people can also afford to offer up to $2.4 million a year as lease payment.

At any auction like this, some, and often most, of the bidders will be people who have no interest in actually running the farm; they are bidding because, if not many people are bidding and bids are very low, they may be able to get the rental for a very low rate; they can then hire someone to run it and make a nice profit. These people are called ‘speculators’ and they play a very important role in all land auctions: they make sure that the rental rate will not be extremely low. (The technical term is this: ‘.’ Consider this example:

Say we set the opening bid at $1 million and, since we have never had an auction like this before, people are initially afraid to bid and, for several days, no one enters a bid. You are in Pastland. Consider what would happen if you bid $1 million and win. You can hire someone to run the farm for $50,000. (Kathy has already made it clear that she is willing to run the farm for this; others are also interested either at this price or at a slightly higher price.) The farm generates $2.45 million in net operating profits. You can pay your manager $50,000 of this, us $1 million to make your lease payment, and be left with $1.4 million for yourself. Obviously, this is a great deal for you: you do nothing and end up with $1.4 million.

A great many people come to auctions hoping to get what they consider ‘a great deal.’ Because these people are always there, great deals are very rare. The speculators bid against each other hoping to get a great deal until the lease payment gets up to a reasonable level. At a certain point, the deal won’t be good enough for speculators and they will drop out. After all of the speculators have dropped out, only people who are interested in running the farm themselves are left in the bidding.

The saying ‘speculators provide liquidity to markets’ means that speculators will do most of the bidding in markets. If there were no speculators in markets, only a few people or perhaps only one person may be bidding. In this case, Kathy may be the only person interested in renting the farm. That doesn’t mean she will be able to win the bidding for a very low rate: Speculators will bid against her, to make sure this does not happen.

 

The Auction

 

The auction is electronic and will last 30 days. Terry sets the minimum bid at $1 million. No one bids for the first week. You do the calculations above and realize that, if you can win for $1 million, you will get a really great deal. You enter this bid.

Kathy can afford to offer $2.4 million. But she isn’t going to enter her highest offer right away. She is going to try to win for a much lower number. (This is not going to happen for the reasons discussed above, but people can still hope. A lot of people go to bed the high bidder for an item on Ebay and hoping they will win; when they wake up, they generally find the item sold for about the same price they would have had to pay if they had simply shopped for the item from a shopping site.) She is dreaming of a windfall and offers $1,000,001.

I am in Pastland. I know I can easily afford to offer $2 million, I can then hire a farm manager for $50,000. After paying all costs, including the cost of the farm manager and the lease payment to the landlords, leaving me with $400,000 a year for myself, without doing anything.

I have been to and bid at a lot of auctions and I know there really isn’t much chance of me winning. But I don’t lose anything by bidding. I can only win or lose. If I win, I get the windfall; if someone bids higher and I lose, I am no worse off than I would have been not bidding. It doesn’t hurt me to bid either way so I will bid.

Other people will see the same opportunity. They would like to end up with a $400,000 windfall but will settle for less. You can offer $2.3 million. After paying your manager and lease payment, you will end up with $400,000. This is still a great deal. You lose nothing by offering this rent and can hope to gain if you win. As the bid gets closer and closer to the free cash flow ($2.4 million), the speculators will drop out of the bidding, one at a time. At a bid of exactly $2.4 million, they make no money at all: they have to pay out all of the net operating profits either to the manager or the human race as a lease payment. At a bid slightly below $2.4 million, they won’t be interested in the deal: if they can only make a few hundred dollars, most people won’t want to get involved.

After the speculators drop out, the only people bidding will be those willing to operate the farm. Kathy is willing to operate the farm for $50,000 a year. Say that another person, let’s call him ‘Harry,’ is willing to work the farm if he can make $50,001 a year. The most Harry can offer as lease payment is $2,399,999 a year. Kathy can afford to offer more and, since she can still make enough money to justify the work she does at a bid of $2.4 million, she will enter this bid.

A society with a ‘market leasing system,’ is still a natural law society. Market leasing is not owning. The person with the lease does not own any rights. She is only leasing the property for a rate determined in the market.

People who deal with real estate and leases know that there is a very simple formula that tells them how much a property will lease for in a market transaction. This formula is:

 

Market Lease Rate = Free cash flow

 

This makes sense. The free cash flow is the amount of surplus money left over after subtracting all operating expenses, including the pay of the person managing the property, from the revenues. People don’t work for the free cash flow: it is the bounty or unearned wealth the land produces. If they have to pay this entire amount out as a lease payment to get the right to operate the farm, they will still be left with enough for themselves to justify the work they do.

They can’t pay more than the free cash flow because, if they do, they won’t be left with enough to pay everyone involved with collecting production, including themselves. They would like to pay less but the market forces discussed above will make this impossible: if a property is leased in a market and the current bid is substantially less than the free cash flow, speculators can enter higher bids, hire people to run the property, and make a windfall for themselves. They will keep bidding against each other until that windfall is basically gone, meaning that the winning bid will wind up being equal to the free cash flow of the property, or some amount so close to the free cash flow that any difference isn’t important for practical purposes.

Later, we will look at other land tenure systems, including freehold ownership. We will see that the most commonly used method of appraising these properties (determining the amount they would sell for in a market transaction) involves dividing the free cash flow by the market interest rate on assets with similar risk at the time of the transaction, called In order to appraise properties, the appraisers need some figure to use as the ‘free cash flow.’ If the property is leased out at a market rate, the appraisers take the market lease rate as the free cash flow.

This is the only really objective way to calculate the free cash flow: let the market do it for them. If they make guesses about the revenues, operating costs, and costs of running and operating the property, they can be way off. But the market tells them how much people are willing to give up each year to control the property. Since people are not willing to give up money they need to cover the value of their time or their costs, they will offer up to the free cash flow, but no more; other bidders will force them up to the free cash flow or to a number so close to the free cash flow that any difference isn’t important for practical purposes.

If we start with the simple natural law society in Pastland without leasing and then visit an identical one with market leasing, we would expect the lease payment to be $2.4 million a year. The flows of value are identical to those in a natural law society without leasing, so the incentives will also be identical.

 

 

A Leasehold (A Marketable Lease)

 

In some cases, people setting up leases do not allow the people who lease the property to sell or otherwise transfer their rights. In other cases, they don’t care. Often people who are leasing property only really care about getting their money and making sure the property remains in good condition. They don’t care who, specifically, is living on the property, operating it, making day-to-day decisions on the property or even whose name the lease is in. They don’t mind if the people who first sign the lease decide to sign it over to someone else. They allow leases to be transferred.

A lease that is not assigned to a specific person, but may be purchased or transferred as many times as desired during the lease term, is called a ‘leasehold.’

At times, leaseholds can be very valuable. We saw this with the examples in Book One, which used the socratic leasehold ownership system. The first time Terry sold the leasehold, she created a document that granted the right to lease the Pastland Farm for a yearly payment of $2 million. She then sold the leasehold for $10 million.

When Kathy bought the leasehold for $10 million, she borrowed the money at 4% interest, making her yearly interest costs $400,000. She made this payment and the leasehold payment of $2 million, so her payments totaled $2.4 million a year, the exact amount of the free cash flow. She was willing to make payments of $2.4 million a year to control the farm because, after the payments, she was left with the $50,000 she needed for her time and effort.

(Why was it worth $10 million? See sidebar.)

Since leaseholds can be worth a lot of money, people care a great deal about making sure all of the paperwork and details are right and they list the name of the person with rights to the leasehold in the proper places. The person with rights under the lease is called the ‘leasehold owner.’

Some leaseholds are worth a lot of money. Some are not worth anything at all. After Kathy wins the market leasing auction, she may find that she gets a kind of bonus when she signs the papers. The leasehold agreement may say something like:

 

This leasehold is ownable property and the first people to have rights under it are to be called ‘leasehold owners.’ The leasehold owners may sell or give away the rights under this leasehold. If they do and both the sellers and buyers agree to this, all rights under this leasehold may be transferred to the new owners.

 

The reason the leasehold in Book One was extremely valuable was that it leased the property for far less than the $2.4 million. In that example, it leased the property for only $2 million a year, $400,000 less than the free cash flow. The buyer of the leasehold would get to keep this $400,000 a year. If you happen to have money to pay the price of the leasehold and pay it in cash, you will end up with a $400,000 yearly income from the farm. (It produces $2.45 million in net operating profits. You can hire someone to run it for $50,000, make the leasehold payment of $2 million, and end up with $400,000 for yourself.) If you have $10 million of your own money to pay cash, you will get exactly a 4% yearly return on your investment.

Kathy didn’t have the money to pay cash for the leasehold in the example in Book One, so she had to borrow it. She borrowed at 4% and, after paying her interest, she didn’t get anything more from the leasehold in Book One than she will get from the leasehold here.

If a leasehold is set up so the leasehold payment is exactly equal to the free cash flow, the leasehold is not worth anything. If Kathy wins this auction and then tries to sell the leasehold, no one will want to buy it for any positive amount of money.

The first leasehold ownership system we look at is one where the leasehold is marketable, but the leasehold payment is exactly equal to the free cash flow. Technically, Kathy will own rights to the land. That means that this is no longer technically a natural law society. But the flows of value are identical to those of a natural law society with market leasing system, and the incentives will be identical. If we were to look at two societies, side by side, one that had ‘market leasing’ and the other with ‘leasehold ownership with the leasehold payment set to be equal to the free cash flow’ we would not expect to see any difference.

 

An Almost Non-Change Change

            In this book, I want to show that it is possible to get from a sovereign law society to any other society, including a socratic leasehold ownership society and including a natural law society, by infinitely tiny steps.

Why does this matter?

We were born into sovereign law societies. People are often told that there is nothing we can do about the basic realities of our existence, because they can’t be changed without a revolution. Since revolutions hurt everyone (and don’t really change anything over the long run), we are helpless. If we can’t do anything, we are wasting our time try and any mental effort we put into thinking about change is wasted effort. Why think about it if you can’t change it?

The truth is that it is possible to get from the societies that we were born into to societies that can meet all of our needs by infinitely tiny steps. Each step may be too tiny to even notice. But by taking one tiny step at a time, we will eventually get to societies that can meet all of our needs. If you understand this, you will see that the common notion that we are helpless is totally wrong. We can change the realities of our societies and make them work any way we want, without revolution, without violence, and without ever taking anything away from anyone.

Why does this matter?

If we can accept this in our minds, we can accept that mental effort spent working out other societies is not wasted effort. We will see that the only reason we don’t have sane societies now is that we are unwilling to even think about creating them. Obviously, if we never even think about how to build descent societies, we will never find a path to these societies.

It may seem that the discussions above go into unnecessary detail to describe changes that are so tiny that they would have no impact on society that anyone could notice. But that is exactly the point I am trying to make here: this is possible. We will see that we can go all the way from the simple natural law societies that the American native people had to the societies that now use nuclear weapons to protect the sovereignty of nations by infinitely tiny steps. Then, we will see that all of the steps can take us the other way if we want to take them.

To really understand that we can make changes to make our world better, without violence, you must first understand that there is a continuum of options. The old saying goes ‘a journey of a thousand li begins with a single step.’ If there is a path from where you are to where you want to go, and this path has no blockages, holes, or gaps, you can get there. Perhaps it will take a long time, but you can get there.

I need you to know that this path does exist.

 

Virtual Natural Law Leasehold Ownership

 

The next change is so tiny it doesn’t even appear to be a change at all. It doesn’t alter the flows of value in any way that anyone would notice and therefore doesn’t alter the incentives in any way that anyone would notice. But it is a real change that takes us our next baby step toward the other end of the spectrum, a sovereign law society.

This system uses a kind of leasehold ownership called ‘virtual natural law leasehold ownership.’ In this system, the leasehold is not given away, it is sold for a price. The bidders must offer a price for the leasehold and it will go to the highest bidder. The bidding will be in millionths of a cent (for reasons that will become apparent shortly) and the leasehold payment the winner pays will depend on the price she bids: it will be exactly 100,000 times the price. For example, if the leasehold sells for exactly 24¢, the leasehold payment will be exactly $2.4 million.

Before I describe the auction, I want to tell you how it will turn out: Kathy will win the bidding for a price of 24¢. This will set her leasehold payment to $2.4 million a year.

Now let’s see why:

Terry has prepared a document she calls a ‘leasehold title.’ This title will grant rights to the buyer/owner of the document. She will then sell the rights to the property by selling the leasehold title. Here is the leasehold title people will be bidding on:

 

 

Although this may seem quite complicated, it really isn’t: People aren’t going to really care about the price: it is just a number. They will bid up in millionth of a cent increments. But a millionth of a cent is obviously not going to affect anyone’s decisions. It can’t even be paid because we don’t have any coins smaller than a cent; it will round off and become meaningless.

The bidders won’t care about the price for its own sake, they will only care about it because it determines the leasehold payment. They will bid as if they are bidding on the leasehold payment. Speculators will be in the market if the bidding is very low (say 23¢, leading to a leasehold payment of $2.3 million.) As the price gets within a few thousandths of a cent of 24¢, the speculators will drop out of the bidding and only people like Kathy—those who intend to operate the farm—will be in the bidding. At a price of 23.99998¢, the leasehold payment will be $23,999,998, and both Harry and Kathy will still be in the bidding. Harry can bid 23.99999¢ and be left with $50,001 after his leasehold payment. Kathy can bid up to 24¢.

 

Improvement Incentives In Virtual Natural Law Leasehold Ownership Societies

 

Book One we looked at socratic leasehold ownership systems in detail. In socratic leasehold ownership systems, people could make a lot of money buying leaseholds, improving them, and selling them. If she improves the property so its free cash flow is 20% higher, the price goes up by 20%. In that example, the starting price was $10 million; it went up by 20% to $12 million so Kathy made $2 million improving the property. She spent $400,000 on the improvements, so she made $1.6 million on the improvement.

In the virtual natural law leasehold ownership society, if she improves the property so its free cash flow is 20% higher, the price will also go up by 20%. (See sidebar for reason.) But 20% of 24¢ is only 4.8¢. Kathy could level the land for $400,000, then sell the leasehold for a total of 28.4¢. She would make a 2.4¢ as a gain, but she would have had to invest $400,000 to make this gain, so she will end up with a net loss of $399,999.976 on the entire project.

This not as much money as she would have lost in the natural law leasehold ownership society: in that case, the price would have started at 0¢ and gone up by 20% to 0¢, for a gross gain on the sale of 0¢ and a loss on the project of $400,000. But the difference between these two numbers is so small that they wouldn’t affect anyone’s decisions. If Kathy wouldn’t have made the improvement in the natural law society, and wouldn’t have made it in the natural law leasehold ownership society, she wouldn’t make it in the virtual natural law leasehold ownership society either.

Natural law societies existed and were stagnant for millions of years. People who want to make improvements must invest far more in the improvements than they can ever hope to recover. If they use money for transactions, they lose money; if they don’t use money, they lose their time, skills, resources, and other forms of wealth. People are motivated to avoid losses, not create them. We would not expect to see any more progress or growth in a virtual natural law leasehold ownership system than in a true natural law society.

 

1,000K Leasehold Ownership

The next system we look at will sell this document:

 

 

To offer us a leasehold payment of $2.4 million a year Kathy must offer a price of $24.

It is true that this is a hundred times more than in the previous example. But it is still not a significant amount of money relative to the amounts of money that Kathy will be handling. She may worry a little more and be a little more upset about having to pay this $24, but it isn’t going to affect her decisions or those of other bidders. The leasehold title will sell for $24 with a leasehold payment of $2.4 million. The flows of value will be the same, the incentives will be the same, and if we look at the two societies side by side, we would not expect to see any differences worth noticing.

 

10k Leasehold Ownership

The next system we look at will sell this document:

 

 

To offer us a leasehold payment of $2.4 million a year Kathy must offer a price of $240.

She could ignore 24¢. She didn’t think $24 was much compared to the amounts the farm generated. But $240 is quite a bit of money. She might start to think about this decision a little differently.

Kathy is putting her $240 at risk. Back in the future she occasionally made investments where she put her money at risk. She didn’t do this because she liked risk, but because she expected to make returns on her investment, and she wanted the returns. Kathy knew that, if she put money at risk in enough different ways, she might lose money on some of the investments. In order break even she needed to make a certain return on every dollar she put at risk.

Back in the future, she realized she could make money on farm investments if she got a 4% return on her ‘at-risk’ money. Here, she is willing to make the investment if she can get 4%, but not if she doesn’t get 4%.

She works through the math and figures that she can get her 4% return if she reduces her leasehold payment bid by $9.60. In other words, she could offer $2,399,990.40 as a leasehold payment. (She will have to bid 1/1000000% times this figure or $239.99 and 904/1000 of a cent as a price. Since we have no coins less than a penny, when she pays, this will round up to $240.) If she does this, she will get $9.60 a year as a return on her invested capital, the same 4% return she would have made back in the future.

 

The same math works for any leasehold ownership system we look at, so I will repeat this description of the math several times, inserting the appropriate numbers into the same formulas:

 

We are on a trip through various possible societies. We started at a natural law society with a ‘pure’ rental (a rental with no deposit, price, or other investment or security required). We then went to the virtual rental leasehold ownership system. This system is a tiny, tiny bit lower on the road map of possible societies than the natural law society. We then went to the almost rental leasehold ownership system. This is a tiny bit below the virtual rental system on the road map of possible societies.

Although these systems are different from each other, the differences are so small that they aren’t going to have any real incentives of these societies. For practical purposes, these systems will have the same incentives as natural law societies.

 

1K Leasehold Ownership

 

The next system we visit will sell this leasehold title:

 

 

Kathy goes through the math in the yellow box below. She calculates that she can offer $23,990.4038 as a price and $2,399,040.38 as a leasehold payment. If she wins, she will borrow the $23,990.40 at 4% from investors, with an interest payment of $959.62. Add this to her leasehold payment to get a total mortgage payment of exactly $2.4 million a year.

 

 

Note that Kathy’s decision is exactly the same in every case: she will agree to make a total mortgage payment of $2.4 million a year. She has to do a little math to figure out how to make this happen, but this is what she cares about: she wants to run the farm and end up with $50,000 after all her costs. She can afford to pay out $2.4 million as a total mortgage payment and, if other bidders force her up to this bid, she is willing to go this high, and no higher.

Although Kathy’s situation is the same, the situation of the human race is different.

 

A Trade Off

 

Note the human race gets $959.62 a year less money in the ‘nearly natural law leasehold ownership’ system than in the natural law society. We don’t give up the $959.62 for nothing. We get a kind of ‘deposit.’ When Kathy comes to sign the documents and pay for the leasehold, she will bring a check for $23,990.40 for the price of the leasehold.

We will have this money.

Because of the buyback agreement, this is not really our money. Kathy can ask for it back at any time, so we have to hold it in a ‘buyback reserve account.’ As long as the leasehold is private, the money will stay in the buyback reserve account.

As long as Kathy makes her leasehold payment as promised, the leasehold will remain private. If she ever misses it, however, the leasehold terminates and is no longer private property. All rights to the Pastland Farm revert back to the landlords. If this should ever happen, we won’t have any reason to continue to hold the $23,990.40 in reserve. It will become ‘our money.’

The nearly rental leasehold ownership system is very similar to a rental with a deposit. Kathy puts up $23,990.40 when she signs the document, and we hold this money aside for her in case she wants it back. If she has met all of the terms of the leasehold agreement and asks for it back, she gets it back, just as if it were a deposit.

If landlords have deposits on rentals, they have more security than if they don’t have deposits. In this case, we have a deposit on the Pastland Farm. Although the amount is quite high compared to nothing at all (or the mere 24¢ we got with virtual rental leasehold ownership), it is still small relative to the yearly leasehold payment. In fact, we only get 1/100^th of the yearly leasehold payment as a ‘deposit.’

We do have security. But we don’t have much security.

If we wanted more security, we could get more, by choosing a price leasehold payment ratio that leads to higher prices.

 

10X Leasehold Ownership

 

The next society we visit on our journey is called ‘10X leasehold ownership.’ In this system, the human race sells this leasehold title:

 

 

Kathy calculates that if she offers $239,043.8247 as a price her total mortgage payment will be $2.4 million a year.

 

 

Kathy only wants to be a farmer.

She would like to be a farmer, get paid for everything she does, AND get free money (a part of the free cash flow) if she could find a way to make this happen. If she can buy this leasehold on terms that make her yearly total mortgage payment anything less than $2.4 million a year, she will get this kind of bonus free money. However, if the other bidders force her to pay out her maximum, by bidding against her, she will not get this free money. In this example, at least one other bidder has enough background in farming to have come up with the same figures as Kathy (for revenues, costs, amounts of work required, and value of her time), and is therefore willing to offer the same total mortgage payment as Kathy. As a result, we know that the bidding will go up at least until the total mortgage payment is $2.4 million. If anyone were willing to make a total mortgage payment higher than $2.4 million, the bidding will go higher. But no one is willing to pay out more than her opinion of the free cash flow, and no one here thinks the free cash flow is more than $2.4 million. This means that no one is willing to make an offer that will lead to a total mortgage payment of more than $2.4 million. Since we know the bidding must go at least this high, but can’t go higher, we know how the auction will turn out: the leasehold will sell on terms that make the leasehold payment exactly $2.4 million a year.

Kathy (and other bidders) is making the same decision she has made in each case so far.

In all of the auctions that will follow, she will make the exact same decision. She will need to get all of the money she earns. The farm produces more than she needs for the work and, of course, she would like to get the amount she earns plus some free money. But if the other bidders force her to give away all of the money she does not need for work she does or labor/materials she pays for (the entire free cash flow) she is willing to do this. We know this is true because of the assumption about her personality made when she was first introduced: she likes to farm and is willing to farm the land as long as she gets paid for the work she does. Because we know how much she thinks the free cash flow is ($2.4 million a year) and we know that other bidders will force her to offer whatever numbers make her total mortgage payment equal to the free cash flow in the auction, we know how all of these auctions will end up: the total mortgage payment will wind up being exactly $2.4 million in all of them.

Kathy has to do some math to figure out the correct amounts to bid. But Kathy doesn’t care about these details. She just wants to be a farmer. She needs $50,000 a year for the work she does and will farm if she gets it. The math may be difficult for her, and in fact, it may be too difficult for her to do herself. (She may go to a professional and ask the professional to work through the math for her, as she has done in every case so far.) But the decision she will make, in every case, will be very simple.

In some of the systems we get to later in the book, she will realize some things after she has purchased the leasehold that will make her realize that she can get very rich by improving the property and then selling the leasehold rights to the property. But before she buys, she will probably not go to the trouble of going through calculations to determine what may happen if she treats the property differently after she buys. Before she buys, all she really cares about is making enough money to justify the work she will do operating the farm. As long as her total mortgage payment is no higher than $2.4 million a year, she is willing to operate the farm.

We are taking a mental a journey through possible societies. We will end up at societies that are a great deal different than the ones we saw in this chapter, but the changes we will see are yet to come on our journey. So far, this system looks very much line a rental with a deposit. The final system, the ‘tenth of rent deposit leasehold ownership’ system, looks very much line a market-based rental system, where people have to post deposits that are 1/10^th of the rent.

Note that the ‘price’ Kathy pays is exactly 1/10^th the leasehold payment she offered. Although we call it a ‘price,’ it is ‘acting’ like a rental deposit. The landlords will collect this at the time the documents are signed. We will then hold this money as long as Kathy operates the farm. (If she transfers it, she can transfer her right to get this money back to the person who takes over, provided she follows the rules). If Kathy wants it back, and has followed the terms of her leasehold agreement, she can turn the property back over to the landlords and get it back.

Technically, it is not a deposit for a rental, but in practice it works very much like a deposit on a rental. The next system we look at will be the first that has different incentives.

 

The next society we visit on our journey is called ‘Equal Price/ leasehold payment leasehold ownership.’ In this society, the landlords of the world are willing to allow private property, by allowing people to lease parts of the planet from them under these terms: people who want to control property privately must take a class and pass a test to confirm they understand how private property works before they can even register to bid on rights to control parts of the planet privately. They are taught that the human race does allow people to own property rights, but not freehold property rights. In other words, they can’t own parts of the planet itself, they can only own the permission of the landlords of the world (the human race) to use parts of planets in certain ways and in accordance with certain rules the landlords have made to protect the rights of the landlords of the world.

In order to buy rights to the world, they must bid in auctions to show that they place more value on these rights (and are willing to pay the landlords of the world more to get them) than anyone else on Earth is willing to pay. They must be willing to pay two ways:

 

1. By paying a price for the leasehold document itself and,

2. By agreeing to make a leasehold payment over time to their landlords.

 

In the class, people are taught that the landlords of the world have decided that they want a great deal of security to guarantee that leasehold owners are responsible. In order to make sure that leasehold owners will be responsible, the landlords of the world will require an initial investment (called the ‘price’ of the leasehold title) that is equal to the amount that will be promised to the human race each year as a leasehold payment.

This is a kind of hybrid system between a natural law society with pure rental and a sovereign law society with freehold ownership. In the class, people are taught that they can think of this kind of leasehold ownership either as an extreme kind of rental or as an extreme form of ‘regular’ ownership, with a very high ‘property tax.’

If they want to think of it as a rental, they could say that it is a rental with a huge deposit, a deposit that is equal to the yearly rent. They could think of the auction as a bid for this rental: whoever bids the highest amount to rent each property, knowing in advance that they will have to post a ‘deposit’ equal to the amount they bid, will win the auction. For example, if Kathy is willing to offer $2 million a year as a yearly payment to the landlords (which she could think of as ‘rent’ if she wants) she must also be willing to offer $2 million as a ‘deposit’ on the property. She will ‘post this deposit’ when she signs the rental agreement; she can get it back at any time (by ‘selling the leasehold back to the landlords’) provided she is current on her ‘rent’ and providing she has followed the other rules of her rental agreement (mainly not using the property in ways that are on the ‘list of potentially harmful uses’).

If they want to think of it as an extreme form of ‘regular ownership,’ they could say that they are bidding to buy the property, under terms that will create a yearly ‘property tax’ obligation (the leasehold payment) that is exactly equal to the price they pay. For example, if Kathy is willing to offer a price of $2 million a year, she will be aware that by offering this price she will create an obligation to make a yearly payment to her landlords for the same $2 million.

Although we can think of this system either way (as a rental with a very high deposit or regular ownership with a very high property tax), it is technically not either of these things. Technically, it is a leasehold ownership system, with a price/leasehold payment ratio equal to 1:1. In other words, it is a leasehold system where people who bid to buy the leasehold must also bid to make a leasehold payment equal to the price they pay.

 

The Bidding

 

The EPLPLO system is based on the premise that the human race is the dominant species of being on the planet Earth. We are in charge and make the rules. We can make any rules we want and no other being on the planet can override them. In this particular case, we have decided that we want an enormous amount of security to guarantee our yearly leasehold payment, so we have set the price of the leasehold equal to the yearly leasehold payment bid.

In the auction, we will allow people to bid on the leasehold. They will have to bid in an electronic auction that has a bid screen like this:

 

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 exactly the same as 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 100% times the number you enter into the ‘price’ box to register the bid.    

[Bid Now]

 

When we arrive in this society, we are looking in at a private meeting:

Kathy and Sally are getting together a few days before the auction is set to open. Sally is working for the investors, who will provide the money that will be transferred to the sellers of the leasehold (the landlords of the Earth, the human race in this case) as a ‘price.’ Sally is a financial expert and understands all of the numbers.

As always, Kathy just wants to be a farmer. She is meeting with Sally to help her understand how to make this happen (how to become a farmer in this system). Kathy points out that she is willing to farm the land if she can make the $50,000 she needs for the work she does, after all of the costs and expenses (including any payments she must make to either investors or landlords). Kathy knows that the farm is bountiful and produces a free cash flow of $2.4 million a year. She can afford to pay out $2.4 million a year (the entire free cash flow) as a total mortgage payment; she can’t afford to pay more than this.

Kathy has seen the bid screen.

She tells Sally that she is very confused, because it doesn’t have a place for her to offer a ‘total mortgage payment.’ She can only put down a ‘price’ and a ‘leasehold payment,’ these numbers will determine her total mortgage payment. Kathy tells Sally that she needs to know what numbers to put into the boxes to make sure her total payment is affordable. Sally sits down at her computer and a few minutes later a sheet of paper Kathy’s phone buzzes to confirm she has received an email from Sally that contains an attachment called a ‘cheat sheet.’ Sally explains that Kathy can use this to show her how much her total mortgage payment will be if she bids different numbers. The columns are color coded, with the first column (in blue) representing amounts she might put into the ‘price’ box, the yellow column the amounts she must enter into the ‘leasehold payment’ box at each different ‘price’ entered, the red column showing her interest payment to investors at each different price offer, and the green column at the end her total mortgage payment at each combination of numbers.

Cheat Sheet for equal price/leasehold payment leasehold ownership
Price (amount borrowed)	Leasehold payment (equal to price)	Interest on mortgage loan	Total mortgage payment including interest and leasehold payment
$ 100	$ 100	$ 4	$ 104
$ 1,000	$ 1,000	$ 40	$ 1,040
$ 10,000	$ 10,000	$ 400	$ 10,400
$ 100,000	$ 100,000	$ 4,000	$ 104,000
$ 1,000,000	$ 1,000,000	$ 40,000	$ 1,040,000
$ 1,400,000	$ 1,400,000	$ 56,000	$ 1,456,000
$ 1,800,000	$ 1,800,000	$ 72,000	$ 1,872,000
$ 2,000,000	$ 2,000,000	$ 80,000	$ 2,080,000
$ 2,200,000	$ 2,200,000	$ 88,000	$ 2,288,000
$ 2,225,000	$ 2,225,000	$ 89,000	$ 2,314,000
$ 2,250,000	$ 2,250,000	$ 90,000	$ 2,340,000
$ 2,301,978	$ 2,301,978	$ 92,079	$ 2,394,057
$ 2,307,678	$ 2,307,678	$ 92,307	$ 2,399,985
$ 2,307,691	$ 2,307,691	$ 92,308	$ 2,399,999
$ 2,307,692	$ 2,307,692	$ 92,308	$ 2,400,000
$ 2,307,693	$ 2,307,693	$ 92,308	$ 2,400,001
$ 2,307,703	$ 2,307,703	$ 92,308	$ 2,400,011
$ 2,307,778	$ 2,307,778	$ 92,311	$ 2,400,089
$ 2,300,000	$ 2,300,000	$ 92,000	$ 2,392,000

Sally prepared the cheat sheet so that Kathy, would know what happens if she makes various bids. Sally knows that the leasehold will sell for whatever price/leasehold payment combination makes the total mortgage payment exactly equal to the free cash flow. She has highlighted the appropriate numbers on the spreadsheet so Kathy will know what numbers she can bid to make this happen.

When she gives Kathy the spreadsheet, she points her to the last column, which indicates her total yearly payment on the property. Sally calls this the ‘mortgage payment’ and shows that it includes both the amount she has promised to pay the human race and the amount she has promised to pay Sally (which she calls the ‘interest on the mortgage loan’). Kathy has already pointed out that she can afford a total cost of owning the leasehold rights (a total mortgage payment) of $2.4 million a year. To help her find the right numbers, Sally has highlighted the appropriate numbers on the spreadsheet.

Sally has highlighted one row, starting with a price of $2,307,692. If she wants to bid this price, she must also enter a leasehold payment bid of $2,307,692 (exactly equal to the price bid). At this price, her interest to the investors will be $92,308 a year. Add this to the leasehold payment to get a total mortgage payment of exactly $2.4 million a year.

Sally says that this is the exact maximum that Kathy can bid. If she can win the bidding for less than this, her total mortgage payment will be less than $2.4 million a year. (Note that all of the total mortgage payments in the columns above the highlighted bid are lower than $2.4 million.) If she bids this exact amount and wins, her total mortgage payment will be the maximum she can afford. If she bids more than $2,307,692 and wins, her total mortgage payment will be higher than the $2.4 million maximum she can afford. Since she won’t be able to afford this payment, she will probably wind up losing the property and going bankrupt (perhaps leading to lawsuits and claims against her personal property). She could therefore not bid anything higher than $2,307,692.

 

Technical Details

 

Sally also points out that the investors want to make absolutely sure that the leasehold payment gets made, so they will require that Kathy make only one payment, to Sally, who represents the investors. Sally must collect the full amount due everyone from Kathy. For example, if Kathy’s total interest payment plus her leasehold payment is $2.4 million a year, Kathy must pay this entire amount to Sally. Sally will then take the money that belongs to the human race ($2,307,692 of this) and put it into an ‘escrow account.’ This money will then be used to make the leasehold payment to the landlords when it is due. Sally will then turn over the interest to the investors.

Kathy won’t have to worry about this. The investors will make it very simple for her: she will have to make one payment, of exactly $2.4 million a year, to the bank that ‘services’ the loan on behalf of the investors. The investors will be paying the bank a yearly fee to then make sure that this money gets to the people who are supposed to get it. For example, if Kathy wins at her exact maximum bid (which will happen, as you will see), the bank will separate the $2.4 million it gets into two payments, one of $2,307,692 which will go to the landlords as their leasehold payments, the other will be $93,208 and will go to the investors.

 

The Auction

 

Let’s simplify this auction so we don’t have to go over things we already understand from previous auctions. We know that at least two people are willing to enter the exact same bids, that will lead to a total mortgage payment of $2.4 million a year. Kathy wants to have the greatest chance of winning, so she isn’t going to start with a low bid and risk someone bidding her maximum and outbidding her, offering a figure that Kathy can tie but not beat. To prevent this, Kathy is going to enter her maximum bid the instant the auction opens. Then, she will either win or not win. She won’t have to stress out about the bidding process, she can turn off her computer and go fishing. When she gets back, she will either have won or not won. As soon as the bidding opens, she enters her maximum bid and the computer lists her as the highest bidder.

Here is the way she has filled out the bid form:

 

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 exactly 100% times the number you enter into the ‘price’ box to register the bid.

Your PRICE offer                                                             [$2,307,692]

Your LEASEHOLD PAYMENT offer                [$2,307,692]

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 100% times the number you enter into the ‘price’ box to register the bid.    

[Bid Now]             

 

The auction lasts 90 days. Kathy goes on an extended vacation, away from anywhere her computer can bother her. When she comes back she logs on and finds she has won.

 

I need a simple term to refer to a leasehold ownership system where the price and leasehold payment are equal, so I don’t have to refer to this over and over. I will call this ‘equal price/leasehold payment leasehold ownership.’ I need a name to refer to societies built on this form of property control. I will call such societies EPLPLO societies.

 

Documents

 

The investors require that people who borrow money to buy leaseholds sign certain documents that indicate they understand their responsibilities to the investors. The investors require the buyers/borrowers to sign these documents before the investors will ‘disburse funds,’ which basically means they need the documents before they give up any of their money.

Kathy will go to a ‘closing’ (similar to the ‘closings’ that people have to go through to buy property rights in our 21st century societies) where she will go over the documents and sign them. Kathy is aware of this: she has already taken the class on leasehold ownership, which went over all of the documents she may be asked to sign at the closing.

The first document she must sign is the leasehold agreement with her landlords, the members of the human race. The landlords are willing to allow Kathy to have special rights to this property: she can control it as private property and use it in any way that is not on the ‘list of potentially harmful uses.’ In exchange for granting Kathy these rights, the landlords are requiring Kathy to make a leasehold payment to the treasurer of the human race equal to exactly $2,307,692 a year. The leasehold agreement goes over this and several details of her agreement with the members of the human race. Kathy studied this agreement in her class, learned why her landlords put in each provision and what it meant. She already understands and has agreed to these terms. (This must be true: she knew from her class she would have to sign this document and, if she weren’t willing to sign it, she wouldn’t have bothered to bid.) Kathy signs the document and Sally, who is ‘closing’ the deal on behalf of the investors, puts it in a pile she is starting for ‘signed documents’ so she can keep track of it.

Kathy must then sign her mortgage document, which stipulates all the details of her agreement with the investors.

Her landlords don’t require her to actually farm the land. (She owns the right to use the land for anything she wants, provided it is not on the ‘list of potentially harmful uses.’)

But the investors do require that she farms the land: They need to know that Kathy will be able to afford to make her yearly total mortgage payment, because they want to make absolutely sure the money will be there, when the time comes, to pay them (and pay the landlords). The investors have long and detailed agreement which goes over everything Kathy must do in order to satisfy the investors.

For example, they require her to use the land to raise rice. She can’t use it for any other purpose without first getting the written consent of the investors. The agreement not only says that Kathy must use the farm this way, it says how she must do it: she must operate the property as a rice farm, in a ‘businesslike manner,’ in accordance with the ‘highest standards of professionalism.’ The investors have hired people to check up on their investments and make sure the purchasers and owners of leaseholds are complying with the terms of the agreement. If the investigators find that Kathy is not complying, they will send her a letter ordering her to bring herself into compliance; if she doesn’t, they can take the farm away from her (repossess it) using procedures explained in the mortgage agreement.

Kathy signs a number of other documents dealing with various details. The escrow officer at the closing puts the signed documents into a pile. After Kathy signs all of the documents, the escrow officer gives her a certified check for $2,307,692 which is made out to ‘Kathy and the treasurer of the human race.’ The check is made out to both parties, so that both parties must sign it before it can be cashed. The escrow officer at the closing gives it to Kathy to countersign and puts it with the papers that will go to the ‘treasurer of the human race.’ As soon as the treasurer signs acknowledging the receipt of the check, the deal has ‘closed’ and is done. Kathy is the new owner of the leasehold title to the Pastland Farm.

 

New Incentives

 

Kathy runs the farm just as she always has. She makes all the same decisions, hires all the same people, negotiates worker pay and supply costs the same way so she presumably pays the same amount to run the farm. She runs the farm the same way as always so it produces the same as always. She ‘sells’ total production of 3.5 million pounds of rice like always (trades it for money) and gets $3.15 million. She uses $700,000 of this to pay her cash costs like always.

In the earlier systems, she paid another $2.4 million to the human race. This time, she pays this exact same amount of money each year, but this money doesn’t go the landlords anymore: It goes to the ‘servicer’ of the loan. The servicer gives $2,307,692 of this money to the landlords as their leasehold payment, and gives the rest of the money to the investors as their returns on wealth.

Kathy cares a great deal about the amount she pays, but she doesn’t really care about what happens to this money after she pays it. In this case, she pays the same amount she paid before.

Although her situation may seem the same as it was before, it isn’t exactly the same. You see, she has actually paid a very high ‘price’ for the leasehold. (She paid with borrowed money, but she still paid it.)

The price depends on the free cash flow; if she improves the farm so the free cash flow is higher, the price can go higher. In fact, it is now high enough, and can go up by enough from improvements, to cover the cost of simple improvements. In the earlier systems, we saw that the price would not go up by enough from improvements to cover the cost of the improvements. As a result, Kathy would have lost money if she had purchased the leasehold, improved the property, and then sold the leasehold on the property. Now, for the very first time, she will not lose money if she buys, improves, and then sells. (I will go over the numbers below so you can see them.)

In the systems we will visit later, she will actually be able to make money buying, improving, and then selling. In some of these systems, she will be able to make millions of dollars buying, improving, and selling. But here, we are in a transaction system, one where the realities of societies change. The earlier systems did not have incentives to buy, improve, and then sell; this is the first system we get to where people who improve are not penalized for this by having to put up with a financial loss to make the world a better place.

On our journey through possible societies, we have seen only societies without incentives to buy leaseholds on properties, improve the underlying properties, and sell the leaseholds. If people respond to incentives, we would expect all of the societies so far to be stagnant. They would not change for incredibly long periods of time. Now, there are some people who may be motivated to improve. We may see some changes, improvements, progress, and growth.

The incentives to buy, improve, and then sell is one of the two things about society that will change with the EPLPLO system. The other involves a transfer of risk from the human race to investors. In the systems before EPLPLO system, the price was lower than the leasehold payment. The price is the amount of money the investors will lose if the leasehold payment is not paid on time. In the earlier systems, they would actually lose less money by not making the leasehold payment than they would lose if they did make the leasehold payment. They had incentives to not make the leasehold payment (to keep the money Kathy pays as a leasehold payment rather than turning it over to the landlords of the planet, the members of the human race; see sidebar for more information.)

 

For example:

In ‘virtual rental leasehold ownership’ the leasehold to the Pastland Farm sold for 24¢ with a leasehold payment of $2.4 million a year. If the leasehold payment is missed, whoever put up the 24¢ will lose it. But say you have $2.4 million in your hands that you are supposed to pay to another party, but know that all you will lose if you don’t pay it is 24¢. You have incentives to keep the $2.4 million, and give up the 24¢.

In this case the leasehold payment is $2,307,692 and the price is $2,307,692. If you are holding $2,307,692 that you are supposed to pay to a third party, and know you will lose $2,307,692 if you don’t pay the $2,307,692, you do not have incentives to keep this money. In all the societies we visit later, people lose more money if they don’t pay than if they do, so they have incentives to pay rather than keep the money. This is the first society that they do not have incentives to keep the money.

 

Risk

 

When the deal closed, the landlords of the world actually got a certified check for $2,307,692. The landlords are holding this money, but it isn’t really our money, because Kathy has the right to sell the leasehold back to us and we are required to buy it back, provided she is in compliance with the leasehold agreement for this amount. As long as there is a chance that we will have to buy back this leasehold, we have to hold the $2,307,692 that is committed to buying it back (this is the exact price we must pay if we buy it back) in a reserve account.

This is not our money, and it isn’t really Kathy’s money. It is a kind of protection money: it represents reserves that private individuals (the investors) have accumulated over time. The investors can only get returns on these reserves if they agree to make these reserves common reserves, by investing in this loan, so they have agreed to do this. This money represents the common reserves of the human race, available to protect us in case something bad happens.

The investors know this. They will know that, if something bad happens, they can lose their money. To make sure that they don’t lose their money, they will want to find ways to make sure bad things don’t happen. They aren’t going to guess about ways to do this, they will hire professionals, as described below, and use the best risk management techniques available. If they do a good job at this, they will be able to prevent anything major from going wrong, and have reserves (described below) to make sure the leasehold payment can be made even if something does go wrong, so the human race will never be affected by any problems at the farm. If the investors do a good job, the reserves in the ‘reserve account of the human race’ will never actually have to be used to protect the human race, and will stay in the reserve account for as long as the human race wants the property to be private.

In all of the earlier societies we visited, it was possible that the human race may not get the full leasehold payment that has been promised to us. While we did have some reserves, we did not have enough reserves to replace the full leasehold payment. (The price was lower than the leasehold payment; the price is the money the human race holds in reserve.) Now, for the very first time in our journey, it is no longer possible for the human race to not get its full leasehold payment as promised and when promised. We will either get the leasehold payment we have been promised of $2,307,692 or we will get the property back and be able to transfer the $2,307,692 in the reserve account into our working account. From this point forward, the landlords (members of the human race) will not be taking on any risk.

When there is no possible way an income stream can not come in, it is called a ‘risk-free’ income stream. The income of the human race in the EPLPLO society is now a ‘risk-free income.’

 

Risk Management

 

All farming is risky. Things can go wrong. If our entire group isn’t taking on the risk, that doesn’t change the risky nature of farming. Someone else must take on risk. In this case, the investors are taking on risk. They have put up $2,307,692 at risk. As long as the landlords of the planet get our promised leasehold payment, the investors know their money is safe. In fact, they will all make very nice returns on their investment. Kathy will be happy because she will be able to keep doing what she loves to do and get paid for it; the investors will be happy because they will get their promised returns, and the human race as a whole will be happy because we will share in the bounty of the land without having to do anything.

 

Note: We only get protection for one year’s worth of leasehold payment in the EPLPLO system. If a event like a hurricane causes serious damage to the land, we may not get as much when we sell the leasehold ownership rights the second time so we may lose. In the leasehold ownership systems discussed below, we will get more than one year’s protection. We will, of course, have to give up a little bit in current income to get the greater security. We, the landlords of the planet, can decide how we want private property to work and make it work that way. If we want more security and less income, we can have it, as you will see.

 

The professional investors are taking on this risk. If something goes wrong, they will lose money.

Sally, the person who organized the investment pool and deals with the investors, knows about the risk.

Sally was a professional risk manager at a bank back in the United States before she took this trip and she knows that farming investments are risky. Things can go wrong. Back in the future, she took steps to manage risk so that, if she could help it, nothing would go wrong. Here in Pastland, she will put the exact same skills to work for the same reason: She wants to make sure nothing goes wrong so she will keep getting her money. Her interests (to reduce her risk of not getting her money to the lowest level possible) match our interests (to get our share of the bounty of the world no matter what happens).

As long as nothing goes wrong, everyone will be happy.

Sally started managing risk before the auction even took place. Several people approached her for a loan so that they could buy the leasehold title on the Pastland Farm. She required them to submit very detailed applications. She wouldn’t loan money to people with no farming experience, because they are too risky. She wouldn’t loan money to people who had a bad credit profile (they had bought on credit and not paid their bills) for the same reason. She wouldn’t loan money to people in bad health or people who had gambling or drug problems. She only approved people she knew would be good risks. Kathy qualified for the loan and got a loan commitment because she was known to be a good farmer, a responsible borrower, and able and willing to meet the commitments she was making.

Sally managed risk when she wrote up the lending agreement that Kathy had to sign to get the loan. The agreement required Kathy to run the farm in a ‘businesslike manner’ (all farm lending agreements have a clause like this) and failure to do so would be a violation of the agreement. Sally had the right to watch Kathy to make sure she did a good job on the farm. If Kathy wasn’t doing a good job, the lending agreement allowed Sally to step in and take over. Sally didn’t expect this to happen, but it was possible and she wanted to make sure she had the right to take over if necessary. The lending agreement required that Sally get a ‘lien’ on the harvest money. When she sold the crop, the check would be made out in both women’s names, and both would have to sign to cash it. The lending agreement required that the entire mortgage payment be made the same day that the check was cashed, so Kathy had to make sure Sally got the full amount she was promised before she got a dime herself.

Back in the United States, Sally had been a risk manager at an agricultural bank in Texas that specialized in mortgage loans to farm buyers. She will take the same steps to manage risk here in Pastland that she took back in the United States. She will watch the farm and the weather. She will keep a rolodex of people who do certain things so she will have people to call in case of an emergency. If it looks like there will be a flood, Sally will call Kathy and ask if she has a crew ready to make sandbags to keep the crop safe. If not, Sally will offer to round up people for this. If Kathy can’t afford the sandbaggers, Sally will offer to loan Kathy the money to pay them, to make sure the harvest is safe. If Kathy won’t agree to the loan, Sally will evoke the clause that allows her to take over (not protecting the crop is not ‘businesslike) and make sure the crop is safe.

Sally knows that, with good risk management practices, rice farms produce very consistent yields. However, sometimes there are problems no matter how carefully people manage risk. Back in the United States, she kept a ‘loan loss reserve fund’ to deal with these issues. She put about half of her yearly interest into this account, to use in the event the mortgage payment was missed. Here in Pastland, she will do the same thing. She will build up an account and fund it with half of her yearly interest. If something major goes wrong, in spite of her best efforts, she will step in as rapidly as she can and manage the loss to keep it as small as possible. If there is enough to make the leasehold payment, she will make it. If not, she will use as much of production as she can to make as much of the leasehold payment as she can, and take the rest out of her ‘loss reserve fund.’ She will make absolutely sure the human race gets paid because, if we are not paid, Sally loses everything.

Perhaps something truly major, a catastrophe, will come along that leaves her without enough money from production and the reserve fund to pay the leasehold payment. If this happens, she will use other savings to make up the difference. If she doesn’t have enough savings, she will borrow it from anyone in Pastland that has anything to borrow. She will do this to avoid missing the leasehold payment, knowing she will lose $2,285,714 if she misses it. If she can’t borrow enough, she will sell anything she owns to get this money. If there is any way to get the money to make the leasehold payment, she will find it and we will get our money.

I want to point out that we aren’t involved in any of these activities in any way. It is entirely up to Kathy and Sally to make sure everything goes smoothly. We don’t involve ourselves because we can’t lose no matter what. Kathy and Sally will do anything they have to do to make sure we get ours and we can expect them to succeed because they are both professionals who know what they are doing. But even if they fail, we can’t lose. We already have $2,285,714 and are holding it in reserve. If worst comes to worst, both Sally and Kathy may be totally broke, but we won’t lose a single dime of our income from this land. Even a catastrophe won’t affect us—the human race as a whole—in any way.

 

Improvements

 

This land is in the same condition as it was in when nature made it. Only the owner of land has any right to alter it. When we first arrived her, people started arguing over who owned the land. As time passed, these arguments got more and more heated and eventually they threatened to turn violent. We wanted to stop the fighting (or at least put it off until some time in the future when we would be better able to deal with it) so we put the moratorium into effect. During the moratorium period, no one could own, claim to own, or even suggest the land may possibly be ownable. To suggest that we had the right to alter it was to suggest that the land is ownable (only the owners can alter land) so to even suggest an alteration violated the moratorium.

Nature made this marsh fairly level, but not perfectly level. There are high spots that stick up out of the water in the summer; the rice on these spots withers and dies. There are low spots where the water is so deep that the plants can’t reach the sun and don’t produce any rice at all. From the very first, Kathy knew that the farm could produce more with level land. While the moratorium was in effect, she had some private conversations with her friends about suggesting improvements. While they generally supported her, they said that some of the members of our group appeared to be true believers in natural law and would interpret any suggestion about modifying the land to be a violation of the moratorium. She thought about it and eventually decided not to say anything.

We ended the moratorium a few years ago and could talk about ownability. She brought up the topic at a meeting. She said that this land was really our land, meaning the land of the human race, and we have the right to improve it if we want to do this. Many people agreed with her. As soon as she brought up the topic, they started explaining their ideas about the best way to improve the land.

Natural law societies are not hierarchical societies and no one’s opinion has greater weight than anyone else’s opinion. Kathy thought people would listen to her because she was a professional rice farmer with a great deal of experience. But a few other people are professionals in other fields and believe that their ideas are just as valid as Kathy’s. For example, one of our people is a karmic audiologist. Before we went on this trip, he was the foremost man in this field, and did research on sounds that would help solve problems. Wealthy people from all over the world hired him—for enormous sums of money—to find the sounds that would help sooth them, cure their phobias, improve their artistic qualities, or help them with their other problems. He says that plants respond very well to the proper sounds, and particularly to the sound of human voices. He says he talked to his garden back in the United States and always had a far better garden than neighbors who didn’t talk to their plants. He has several studies on his laptop that prove that plants have feelings and react to love.

He has been telling them they are loved all along, but his voice is not enough. He suggests we organize ourselves into teams so we can keep telling the rice plants how loved they are 24 hours a day. If we do this, the land will produce more and we will all have more for ourselves, and better lives.

Another of our members believes in a group of gods who he claims determine plant growth rates. If we don’t get good yields from the low-lying areas, this is because we haven’t prayed enough to the gods that determine growth rates in these areas. He suggests we organize prayer vigils to get the favor of the gods. Another person has been an aroma therapist his entire life. He says plants grow better if exposed to certain smells. He advocates opening a research facility to determine which smells have the best effect and then finding way to produce those smells. Another specializes in past-life regression. He says we need to regress the rice to its previous lives and deal with the trauma they felt in those lives. Once we release them they will be happy and grow better, giving the yields we want without having to go to the trouble of leveling the land.

We have a chemist who says we need to grind up rocks to add minerals to the land. When we replenish the minerals, the plant growth rate will increase. A geneticist that says we need to modify the DNA. A lot of people have a lot of different ideas.

The natural law society highly values social harmony. Kathy has to get along with these people. If she starts fighting with others to try to get them to back down and accept her land-leveling project, she will make people angry. She secretly believes that most of these people are just nuts who have no idea what they are talking about, and most of their ideas will not have any material effect on the yields. But she knows she will get along with people a lot better if she doesn’t express her opinion openly. She can’t really push too hard on her land-leveling project without having to tell these people why they need to back off, so she doesn’t really want to push too hard.

She also has practical reasons to not push too hard for change. If she should get us to agree to the leveling project, she can expect us to ask her to draw up the plan on her own time. Then, she will have to present the plan to the group and justify it to the group. She will have to come up with estimates of the required work and find some way to get people to agree to do the work, or do it herself. She can expect that if she doesn’t show up for work, no one else will do anything. She will have to organize everything. She will have to set the pace, meaning she will have to work at least as hard as she wants everyone else to work. If people don’t show up or goof off, she will have to be the autocrat that gets them back on track. If something goes wrong, she will be expected to find a solution to it and get it back on track. If the entire project is a failure—for any reason, even if it is beyond her control—she can expect to be blamed. Even if everything works out perfectly, something unrelated may go wrong, lie a drought or an insect infestation, and many people will claim that it wouldn’t have happened if we hadn’t upset the natural order, and blame her for the weather or insects. Even if absolutely nothing goes wrong and production goes up as she expects, she will get only 1/1000th of the increase (in the natural law society) and this won’t increase her personal income enough to compensate for all of the hardship she will have to go through to make the change work. After she thinks about these things, she decides it might be a good idea to back someone else’s plan so she doesn’t even have to worry about being asked to carry through on her leveling project.

I have some experience in this kind of situation. I live on a commune in the woods of Oregon. Because of the stigma of the word ‘commune,’ it is officially called a ‘club.’ Right after I moved there I tried to get a change through. Our swimming pool was heated with propane, and we spent $1,000 a month on fuel to heat it. I have a background in solar and knew we could put up a solar system for a small amount of money that would cut the heating cost to nothing most of the year, and keep it lower the rest of the year. At a general meeting, I brought this idea up. I was actually surprised no one had brought it up before, it seemed so obvious.

I found that others had brought it up. It had been mentioned many times and it had provoked many arguments. One group of people had come out as the voice of reason, claiming that people who were in favor of solar were unrealistic idealists who only wanted to spend (other people’s) money on unproven ideas in order to assuage their guilt. The ‘realists’ had done a complete cost analysis and shown that a solar system that would provide 100% of the year-around heat for the pool would cost $40,000. We wouldn’t be able to meet the club’s maintenance needs if we stripped the budget for this totally unnecessary project. I was told about all of the absolutely ‘vital’ projects that had to be completed immediately with the funds we had, or the club wouldn’t be able to function anymore. If my project were approved, all of the buildings would fall down, the swimming pool would slide into the field below it, and the world as we know it would end. I would be to blame for all of this.

Then I got all of the arguments against solar. Solar panels are ugly. Why am I advocating uglying up the club? The solar system would require maintenance and no one here is qualified to do it. We would have to get experts at sky-high rates for this. (Unless I was willing to agree to maintain it on my own time and at my own expense forever.) It would have pipes that would have to run over the ground, and deer could trip over the pipes and break their legs. The birds would get fried when they landed on the solar panels. All of these arguments came at me and I stood alone and confused answering them.

I later found that these same people had presented the same arguments many times before, because the issue had been brought up many times before. (The club had been in existence since 1949). They felt that they had ‘won’ these arguments because the solar-proponents had always dropped their case in the past. To them, ‘winning’ meant ‘getting the other side to back down,’ not ‘saving $10,000 a year on heating bills.’

They wanted to win.

The issues weren’t the issue. They were in positions of authority and people listened to them. Their credibility was at stake. They had been against solar 30 years ago and felt they had to continue to be against it, no matter how much technology had changed, or people wouldn’t respect them anymore. It wasn’t about efficiency, improvements, or cutting costs, it was about personalities and respect. This experience taught me something about proposing change in a communal living situation: The easy course is always to oppose change of any kind. This leaves you clear of blame and, as long as you can prevent change, you can never be proven wrong. Once you have come out against change, you obviously have to stick with this position in the future. The proponents of change will have to fight every inch of the way or nothing will ever get done.

This may help you see why millions of natural law societies could go for millions of years without making any material changes in their living situation: Even if people who wanted change could overcome the religious and philosophical objections to the change (like that the creator of the universe owns it and will punish us if we change it), and can get over the social hurdles, chances are you won’t be able to overcome the practical resistance to the idea of change in general.

The basic problem boils down to incentives: If Kathy pushes hard enough and eventually gets the change made, she knows she will have to do the lion-share of the work, take on the lion-share of the responsibility, and pay more than an equal share of the costs, but she will only get 1/1000th of the benefits. To each individual, the cost of just about any permanent change that they hope will lead to improvements will exceed the benefits. People have incentives to avoid behaviors that bring less in benefits to them than their costs, so people have incentives to resist change in progress in any natural law society.

For millions of years, humans lived in natural law societies. These people appear to have been no different than people in current societies. But we didn’t see any progress or investment in improvements for virtually this entire time. If you consider the incentives, you should have some idea why this happened: the incentive structure pushed very strongly to against activities that would have led to progress and growth.

 

Improvement In Equal Price/Leasehold Payment Leasehold Ownership

 

Now, in the EPLPLO society, things are entirely different.

All ownership-accepting societies are hierarchical societies. Kathy owns rights to the world and this gives her a different set of rights over it than the rest of the people of society. She no longer has to ask us for permission to level the land. She owns the right to do anything that doesn’t harm the land. Leveling the land is not on the ‘list of harmful acts’ so she has purchased and owns the right to level the land.

She doesn’t have to get anyone’s permission before she makes modifications to this land, because she owns the right to modify the land. If she wants to level the land, she hire people tomorrow to start moving dirt.

There are two basic ways to make money improving:

The first option is to invest in improvements that drive up the free cash flow and collect the higher free cash flows. However, most of the money people make from improving in current systems has a different source: they buy unimproved properties for a low price, improve to drive up the free cash flows, and then sell the improved properties for a much higher price than they paid. This generates a gain called a ‘capital gain’ on the improvement. Since most of the money people make from improving and selling for the gain, most if the incentives come from this source.

People will be able to make money both ways in the EPLPLO system. To fully understand the incentives, we need to understand both options. The easiest way I can think of to explain this involves coming up with some numbers for the sake of example.

 

Improvements to the Pastland Farm

 

Kathy starts by hiring someone to make a survey of her land and draw it up on a map with contour lines. (These lines are lines that show the height of various parts of the land.) She then hires an engineer and sits down with her to work out the best way to build the walls. The engineer has been trained in this field. She knows how to calculate the number of lineal feet of wall that will be needed with each plan and therefore the cost of each project. The engineer finds the lowest-cost method of leveling the land, draws up the plan, and submits it to Kathy for approval. Kathy suggests some minor changes that she needs in order to get equipment from terrace to terrace during the harvest and the engineer finalizes the plan. After she has a finalized plan, she goes to some people who know how to build rock walls and move dirt and gets bids on the project.

I need some numbers to explain the example so let’s say that she gets total bids for the entire project of $461,538.

Then she works out the projected yield of the leveled farm and figures out how much both the total revenues, total costs, and free cash flow will go up if she makes this change. Let’s say that she finds that yield on the farm will go up by 20%. This will make the revenues 20% higher. She will have to pay more money each year to harvest the extra rice, so she figures her costs will also go up by 20% a year.

 

	before	after
Revenues	$3,150,000	$3,780,000
Costs	$750,000	$900,000
free cash flow	$2,400,000	$2,880,000

 

So far, this is what she has: (see table to right).

Both revenues and costs go up by 20%, so the free cash flow must also go up by 20%. Her leasehold payment will remain the same at $2,307,692 a year. She will have to borrow $1 million to pay for the improvement, leading to another $40,000 a year in interest, in addition to her current $92,308 in interest, making her new total interest payment $132,308 a year.

 

	before	after
Revenues	$3,150,000	$3,780,000
Production costs	$700,000	$840,000
Interest	$92,308	$132,308
leasehold payment	$2,307,692	$2,307,692
Money to Kathy	$50,000	$500,000

 

The table to the right shows how everything works out:

Notice the bottom line: If she makes this improvement with totally borrowed money, her personal income from the farm goes up by a factor of 10 times, from $50,000 to $500,000. Remember, this is not taking a single penny out of her own pocket, and without having to do a bit of the work. I hope you can see that she will make a great deal of money making this improvement.

But there is one problem we haven’t talked about yet. If she puts $1 million into this property, she will owe $1 million more money on it than she owes now. She will be responsible for paying back this money. She needs to know that she will be able to get her money back, when she sells, or she probably won’t be willing to make this improvement. To find out, she calls a property appraiser and has an appraisal done to determine what will happen to the price of the leasehold if she improves. (She will probably need to do this to get the loan. The banker will have to know that the collateral will be worth at least as much as she owes on it.)

The appraiser points out that the prices of leaseholds depend entirely on the free cash flow. If the free cash flow of the property goes up by 20%, the market value of the leasehold will also go up by 20%.

 

	Before	after	increase
free cash flow	$2,400,000	$2,880,000
leasehold payment	$2,307,692	$2,769,231
Price	$2,307,692	$2,769,231	$461,538
interest on debt	$92,308	$110,769
cost of owning the leasehold	$2,400,000	$2,880,000

 

The appraiser explains how and why this happens with a table showing the costs and benefits of owning the leasehold at both free cash flows. People will keep bidding as long as they can keep free money, after paying their total costs of owning the leasehold. (In other words, they pay out all of the free money either to the human race or to investors, leaving them with only the amounts they need to justify the work.) The first column shows what Kathy paid and why the market set that particular price: Other bidders were greedy. They wanted free money. As long as the costs of owning the leasehold were less than the free cash flow, they got free money. They kept bidding until the bids got so high that, after paying the leasehold payment and interest, they had none of the free cash flow left.

If the free cash flow goes up by 20%, all of the numbers go up by 20%, including the price. As you can see, the price is $461,538 higher.

In the systems we look at later, the prices of leaseholds will be a great deal higher and the increases in prices due to improvements will be a great deal higher. But here we can see that the price increase is just high enough to justify this particular improvement. Kathy can show the banker that the property price will go up by the amount of extra money she will borrow to pay for the improvement, so the collateral will be worth at least as much as she owes on the loan. This satisfies Sally that she will have security on the loan. Kathy will be able to get enough money back from the sale (when she sells) to repay the original loan plus the improvement loan, so she will not have to worry about possibly losing money if she is forced to sell for some reason. She will not take any money out of her own pocket to make this improvement, but her income will go up from $50,000 to $500,000 a year, clearly a huge increase.

People have incentives to improve if they can make money improving. Here Kathy will make a huge increase in her yearly income, so she clearly has incentives to improve. In many of the systems we will look at later, she will also make a multi-million dollar ‘capital gain’ on the sale. Here, she doesn’t make any gain at all, but she does at least break even on the ‘capital’ side of the investment. Everything is either ‘break even’ or positive, so she has no reason not to make the improvement and powerful incentives to make it.

 

Improvements in Different Societies

 

We, the members of the human race, can decide what is more important to us, the price or the leasehold payment.

We are the landlords of the Earth. We make the rules. We decide whether people will be able to hold private property and, if so, what conditions they must meet to hold private property. If we want to, we can allow people to obtain rights to private property for a one-time simple fee called the ‘price,’ with nothing again ever to the human race. If we want, we may decide to let people hold private property with payments made over time to the landlords of the world (rents), and no ‘price’ at all. We may also decide to choose intermediate options, that require a payment of both a price and yearly leasehold payment to the landlords of the world.

If we choose an intermediate system, we must decide how important we want the ‘price’ to be and how important we want the yearly payment to the human race to be. We may want higher prices for leaseholds (accepting, in return, lower leasehold payments) if we want people to have stronger incentives to manage risk, protect the human race from harm or shortages in production, and to improve the world so it creates a higher bounty for the benefit of future generations.

The higher price creates stronger incentives to manage risk because it gives the people who control property (and their investor/backers) more of something investors call ‘skin in the game.’ They have to invest more and therefore can get ‘hurt’ more if something goes wrong. If you have ever invested money and then lost it, you will know that this hurts: I have felt real pain after losing large sums in projects that didn’t work out. (Many people feel so much pain at investment losses that they kill themselves rather than continue to bear it. My grandfather was one of thousands of people who killed themselves immediately after the market crash of October 1929 wiped them out financially.) If they invest more money (pay higher prices for properties) they have more ‘skin in the game’ and more to lose if something goes wrong. If we, the landlords of the world, want people to have more ‘skin in the game,’ more to lose if something goes wrong, and stronger incentives to manage risk, we can set up a leasehold ownership system that has prices that are higher relative to leasehold payments. (In other words, the price/leasehold payment ratio is higher, as in systems lower in the Road Map of Possible Societies.)

To see how this will make a difference in the way people think, compare the virtual rental leasehold ownership system with the EPLPLO system. In virtual rental, Kathy would pay a price of 24¢ for the leasehold, and would have 24¢ at risk. If she misses the leasehold payment, she will lose 100% of the price. You might imagine, however, that Kathy wouldn’t lose much sleep at the possibility of losing 24¢. If she makes the payment; fine. If not, well she will lose so little money it won’t make any difference in her disposition. However, in the EPLPLO system, she will lose more than $2 million. Not many people can lose more than $2 million in a day without feeling some real pain. She will have a lot more skin in the game in the EPLPLO system than in the virtual rental system, so we would expect her to work harder and try harder to make sure nothing goes wrong. (In the systems that follow, buyers and owners of leaseholds will have even more skin in the game, and far stronger incentives to manage risk.)

We, the members of the human race, decide what we care about.

If we want the highest possible leasehold payments, we will have to choose leasehold ownership systems that lead to very low prices. (In other words, choose leasehold ownership systems with very low price/leasehold payment ratios, or those higher in the Road Map of Possible Societies.) In these systems, the buyers won’t have much skin in the game and may not give us anything at all. If we want the people who interact with the land on a day-to-day basis to have more skin in the game, and more to lose if something goes wrong, we will have to accept lower leasehold payments in exchange. In this case, we get only about 96% of the total free cash flow (the amount we would get in a pure rental system).

Higher prices are also important for incentives to improve. If the free cash flow goes up by 20%, the price of the leasehold goes up by 20%. If the price starts out at 24¢, the 20% increase is only about 5¢. This is not enough money to cause Kathy to lose any sleep looking for ways to improve the property. If the price starts out at $2.3 million, the 20% increase is $460,000. A lot of people would lose sleep at night, thinking about ways to improve property, if they knew they would make $460,000 on the project.

We don’t get these wonderful incentives for free. We must give up something: we must give up part of the current income we could get from the property if we want incentives to protect the human race from risk and improve the world to make it better. But we—meaning our group in Pastland who have accepted that we are the dominant species on the world (rather than some invisible Superbeing in the sky that has created ‘nations’ and given nations ownership of land)—are in a position to decide what we want to happen in our world. We can come to understand the different options. Once we understand them all, we can decide what is important to us (strong incentives to protect the human race from risk or a higher current income), find the system that matches our priorities, and create it.

 

Incentives in Different Societies

 

The chart to the right shows the amount of gain people can make from an improvement that increases the free cash flow by 20% in various different leasehold ownership systems.

If Kathy wants to get the land leveled, she will have to pay people to do the work. This will cost her something. Let’s say, for the sake of example, that it will cost her $461,538.

In the virtual rental leasehold ownership system (the first one), she bought the leasehold rights for a price of 24¢. If this goes up by 20%, it only goes up by 5¢. This won’t be enough to cover the cost of making the improvements. She will lose money on the entire project (buying the leasehold rights, improving the property, and then selling the leasehold rights). In fact, she will lose virtually everything she pays for improvements.

The first society where she doesn’t lose money on this project is the EPLPLO system. Even there, she doesn’t make money, she only breaks even. Perhaps she may want to improve the land for some reason other than her capital gain. (For example, perhaps others have doubted her capabilities and she wants to show them they are wrong, or perhaps she sees that the population is growing and wants to show people that food production can also increase.) In the earlier systems (those before EPLPLO) she would have a hard time justifying this improvement: only very rich people can afford to lose massive amounts of money to make the world a better place.

In all systems after EPLPLO, she won’t have to justify anything: her interests coincide with the interests of the human race: we want growing production to feed our growing population, and Kathy wants to get rich, something she can do by improving the world.

EPLPLO systems are transitional systems: In these systems, for the first time, people can at least break even on improvement projects. This is the first society where the interests of the people who control property don’t conflict with the needs of the human race. It is the first society where people who are not punished for making the world a better place.

 

A Transitional Society

 

In our journey through possible societies, we started out in a range that looks pretty much the same. All societies above the EPLPLO system are very similar in many respects. The EPLPLO society is one of three transitional societies. It is the first place where constructive incentives appear. After this, the constructive incentives will get stronger and stronger until they reach their maximum, at the socratic leasehold ownership societies. Socratic leasehold ownership societies are the second transitional system we will reach. When we get there, the constructive incentives will be as strong as they can possibly be, but the system won’t yet have any destructive incentives.

All societies below socratic leasehold ownership will have destructive incentives that grow ever stronger, and constructive incentives that grow ever weaker as we go through the range. This will continue until the constructive incentives and destructive incentives are the same strength: at that point, we will reach our final transitional society, systems that have the minimum conditions needed for sustainability, and therefore the minimum conditions needed for survival for the human race.

I call this third transitional society ‘minimally sustainable societies.’ All societies below the minimally sustainable societies are suicidal: any people who decide they want to keep any society inside this range (rather than working to push it into the sustainable range) are doomed, and will perish with absolute certainty, given enough time.

The EPLPLO system is the first transitional society. At this point, the realities of societies change in three major ways:

 

1. All societies above the EPLPLO society expose the human race to some risk.

If people don’t invest as least as much money as they are agreeing to pay the human race, they don’t have enough skin in the game to ensure they will protect the interests of the human race. All societies above EPLPLO societies don’t require people to put enough skin in the game, so they expose the human race to risk. All societies below EPLPLO societies force people to put so much skin in the game that they will be hurt more (imagine the skin being scraped off) if they don’t protect the interests of the human race than if the do protect the interests of the human race.

In EPLPLO systems, people must put up exactly enough money to replace the leasehold payment if it is missed. This causes the incentives to make a sudden transition: It is no longer possible to profit by harming the human race by shorting us or cheating us out of our share of the bounty of the world. It also provides an amount in the ‘reserve account of the human race’ that will exactly replace the leasehold payment if it is missed, meaning that we have total income security (at least for the next year) starting at this exact spot.

In the earlier systems, the members of the human race had cause to worry: the people who interacted with the land may possibly be bad managers, be dishonest, incompetent, or otherwise have come characteristic that prevents them from providing the food and other necessities we care about. From this point forward, we can all sleep soundly at night, knowing that we will either get our leasehold payment this year, or we will get the property back and get the amount in the reserve account, which is exactly the same as the promised leasehold payment. At this point, the risks of production are transferred to profit-motivated, skilled, professional risk managers, not the members of the human race.

 

2. The second transition involves responsibility.

In every society, someone or some group must take on the responsibility of making sure everything goes smoothly in production. In societies above the EPLPLO society, the human race as a whole takes on risk (we will suffer if production is low) so it is our responsibility to make sure nothing goes wrong. In real-world situations, large groups of people are extremely poor at making organizational decisions. (A common joke is an illustration of a tire swing made a committee, see cartoon to right.) qqqq

Once the human race is absolved of risk, we have no reason to worry about production decisions anymore. We don’t have to screen people who want to control properties to make sure they will do a good job anymore: If we can’t be hurt by them doing bad jobs, we have no reason to care. (The people who take on risk and will be hurt by bad managers will make sure the people who control property know their jobs; see sections on risk management above.)

In all societies below the EPLPLO system on the Road Map, the human race is totally passive, with no need to involve itself in production decisions in any way. All of the people who make these decisions are professionals, with their own money on the line and their own skin in the game if something goes wrong. Their interests, to avoid losing money, will coincide exactly with the interests of the human race (making sure production never falls enough to affect us).

 

3. The third difference involves constructive incentives. Societies before EPLPLO societies do not have constructive incentives: they do not work in ways that make it possible for people to make money specifically on improvement projects (buying leaseholds specifically to improve them, improving the underlying properties, and then selling the leaseholds.)

All societies below the EPLPLO system do have constructive incentives: people who want to do nothing other than improve the world can make money by doing this. In other words, people who have no interest whatever in farming, but only want to improve farms so they will produce more value (buy leaseholds, improve the underlying properties, then sell the leaseholds) can make money doing this.

The EPLPLO system is the first system we get to that has these constructive incentives. People in the past have shown that some societies have incentives to make the world better, and compared these incentives to an invisible hand, that pushes people to make the world better. The EPLPLO system is the first place in our journey where this ‘invisible hand’ appears.

When this ‘invisible hand’ first makes its appearance, it is week and feeble, like the invisible hand of an infant. As you will see, the invisible hand will grow stronger and more powerful, until it is an overwhelming force that leads to progress and growth that can alter the basic realities of human existence.

 

 

 

Book One of Possible Societies told a kind of science fiction story. It started with a group of people who got into a position to form any kind of society they wanted. They had all of the advantages that the human race has in the 21^st century, but none of the limits, obstacles, or barriers that prevent us in the 21^st century from altering the realities of our societies.

You and I were both in the group. We were transported back 4 million years in time, to before humans evolved. We were the first humans.

Shortly after we arrived in the past, some of us started to make claims that the part of the world we lived on belonged to the nation of their birth. They used some of the same arguments people use in the 21^st century to claim land belongs to one or another nation. They had very deeply held opinions of the rights of nations and believed that the people of nations have both the right and moral obligation to fight, kill, risk and be willing to give their lives, or even destroy everything on earth to protect the rights of their nations. These people showed they were willing to use violence to accomplish their goals.

The great majority of our people realized we would not benefit if we allowed these people to get their way. We were in the majority and, since the minority that wanted nations did not have any weapons, armies, other tools that could be used to force the majority to allow them to have their way, we were in a position to make rules. We created one important rule: no one could own or claim to own any part of the world, or claim it was ownable, not even by a ‘nation.’ This was not a forever rule, it was only a moratorium, a rule that would expire after 10 years. In this 10 year period, people who wanted the benefits of living with our group had to follow the rule. Since our group had great advantages that people who refused to follow the rules would lose, the people who had wanted nations agreed to wait. They would not claim that their nation or any other entity owned or even could own any part of the world while the moratorium was in effect.

This rule was not intended to create a specific type of society, but it created a rule system that made land unownable. It gave us a 0% ownability society, also known as a natural law society.

 

Terry

 

During the time we had a natural law society, we saw both the advantages and disadvantages of this land tenure system. The advantages included powerful incentives that pushed toward social, personal, and environmental responsibility. The disadvantages included a complete lack of investments of time, skills, talents, resources, money, or other things that are collectively called ‘capital’ into facilities that would replace the living quarters, air conditioners, refrigerators, phones, internet transponders, and other facilities that we brought back with us. If we kept natural law societies, we would keep our social, personal, and environmental responsibility, but we would eventually be forced to live in very primitive conditions, without the wonderful things we brought back with us from the future.

In Book One, Terry showed us how we could have the best of both worlds. We could create a land tenure system that did not allow people to buy land itself, but it did allow people to buy rights to use land by buying leaseholds on the land. Terry understood that there are many land tenure systems, each of which creates different incentive systems. She had many years of training in this field and many more years of practical experience. She knew that the great bulk of our people would not have either the interest or the inclination to learn the things she had spent her time learning. She created a proposal that was as simple and easy to understand as possible.

She did a lot of preparatory work behind the scenes. She analyzed all possible land tenure systems (we will look at them all in the course of this book). She analyzed the needs of the human race and found the system that would provide the greatest benefits for us. She then made arrangements with various people to make sure someone would be willing to buy the leasehold, if the human race agreed to her proposal, and that the investment capital would be available. She wrote up the proposal and submitted it in a way that made our choice very simple: we could either vote ‘yes’ or ‘no.’ She set up the system so that we would not be taking any risk: we could try it and, if we liked it, keep it; if we did not like it, we could reverse and get back to our natural law society with no losses, no violence, no trauma, and no hardship for anyone. She created a package that was very attractive because she wanted to sell it. She wanted us to accept.

 

Other Optoins

 

 

She could have done things differently. In her education and experience, she learned of a great many different ways to set leasehold ownership, to create a great many different land tenure systems. She could have explained a large number of options and asked which one we want. But having more options often gives a lower chance that any one of them will pass. If she had given us many options, we may have split the vote, some opting for one option, some for another, and none of them passing. (See sidebar for example.)

She didn’t do this because she thought a single option would have a better chance of passing. She chose the socratic leasehold ownership system in part because of its flexibility. Book One showed that socratic leasehold ownership societies can be ‘reversed’ at any time and converted back to natural law societies if the people in them want to go back to this system. We will see that socratic leasehold ownership societies are actually far more flexible than this. Not only can they be reversed at any time, they can be converted to any other society desired without violence, trauma, hardship, or loss to anyone.

This means that, if we started with a socratic leasehold ownership system, and we decided later that we wanted something different, we could make the change later. She didn’t have to give us all of the options at this early stage in our existence and force us to make a choice. We would still have all options on the table after a decade, a century, or a millennia. At a later time, we would be in a position to understand the other variables and determine how making certain changes would alter our societies.

Terry did not tell us about all of the societies possible, at least not in public meetings and conversations. But she did provide an analysis of the different societies on her web site, which included great details about the different ways that leasehold ownership can be structured to create various different land tenure systems.

 

 

What Is Socratic Leasehold Ownership?

 

Earlier discussions did not fully define socratic leasehold ownership, it only explained how it worked by example. I wanted you to learn about socratic leasehold ownership the same way you learned about the sovereign law societies you grew up in. You learned about them through experience. You learned how money worked, probably as a child when you found you could exchange these little pieces of paper or metal disks for things of real value like candy. You learned the different ways you could get money, also at an early age. (You can get gifts—if you are coy and clever you can solicit them—you can work for it, you can inherit it, you can steal it, or you can make investments, say in a savings account, and get returns like interest.)

You were probably not told explicitly how these societies worked or what defined them. You just absorbed this information.

At a certain point, you learned that parents don’t provide for their children forever. At a certain point, you have to fend for yourself. You learned that children of rich parents got big allowances and would eventually inherit their parents land and money, giving them wealth that may last the rest of their lives. You learned that the children of poor parents (most children) would have to find a way to get money or they would live very miserable lives and possibly die from their poverty. You learned that there are generally more people who want jobs than workers, so you have to conform your behavior to the standards of your potential employers or you won’t get a job. You learned that you can’t live the way you want and keep a good job: you have to live the way your boss wants you to live.

You learned that there are wars and we are at risk of total destruction of our world at any time. Why? Well, this is just the way things are. If you want to know why, you have to figure this out yourself. You learned that corporations have been given rights to rape the world. Way? Again, this is just a reality of the world that you absorbed as you were growing up. If you want to know why, you have to find someone who knows and ask them or figure it out yourself. I couldn’t find anyone who knew the things I wanted to know, so I had to figure them out myself.

How about defining the type of society we inherited from past generations? If anyone has such a definition (or had one before now), I was not able to figure out what it is. I learned about these societies from experience, not logical analysis. Only after I had enough experience to figure out how they worked could I come up with any kind of definition for these societies. As we have seen, I define sovereign law societies built on the absolute ownability of land by groups of people who go through certain rituals and ceremonies to ‘claim’ the land or take the land away from people who have gone through these rituals and ceremonies.

The discussions of Book One were designed to get you to look at socratic leasehold ownership societies from the same general perspective. It was designed to put you into one so you could look around you and see what happened in it. You don’t need a formal definition to understand societies this way.

You do need a formal definition, however, to compare socratic leasehold ownership societies to other forms of land tenure, including other kinds of leasehold ownership societies. The formal definition of socratic leasehold ownership is actually very simple: it is a leasehold ownership system structured so that the leasehold payments made on land are always exactly 20% times the prices of those properties.

In the discussions of Book One, Terry created this system when she sold the first leasehold, on the Pastland Farm, for a price of $10 million and leasehold payment of $2 million. The terms stipulated that, if the leasehold was sold, the leasehold payment would ‘reset’ to be exactly 20% of the price paid. As a result, for every buyer/owner of this leasehold for the rest of time, the leasehold payment would always be exactly 20% of the price.

Later sales started the same way: Terry calculated the exact numbers that made the yearly payments affordable (less than or equal to the free cash flow) and made the leasehold payment exactly equal to 20% of the price. The first sale took place under these terms. In later sales, the leasehold payment ‘reset’ to 20% of the price, making the leasehold payment always 20% times the price for all future buyers/owners of other properties.

We saw that the 20% figure gave the leasehold ownership system certain very desirable characteristics. It made the price exactly 5 times the leasehold payment. Because people will lose the full price invested if they ever missed a leasehold payment, we knew they would never miss a leasehold payment: we had total security and our income was risk-free. The 5:1 ratio also meant that, if people improved the property so that the free cash flow was a certain percentage higher, the price that the improver could get selling the leasehold would be that same percentage higher. Since the 5:1 ratio meant that prices were very high, the increases in prices were very high at this ratio, giving people very powerful incentives to buy leaseholds, improve the underlying properties, then sell the leaseholds to get the increase in price (called a ).

 

Other Price Leasehold Payment Ratios

 

This particular ratio (with the leasehold payment being exactly 1/5^th or 20% times the price) is not the only possible ratio. It is possible to set up leasehold ownership in many different ways. Each different option leads to a different kind of land tenure system or different relationship between the human race and the planet earth.

In fact, if we go through the range of possible price leasehold payment ratios, we can replicate any kind of land tenure system we want. We can create a land tenure system that grants 100% ownability to buyers of leaseholds if we want. We can create a land tenure system that grants almost all rights to the buyers, but leaves a tiny bit of value unowned and available to benefit the human race. If we want, we could create a leasehold ownership system with 99.9999% ownability, for example. We could create a leasehold ownership system that grants 0% ownability, replicating the conditions in a natural law society. (In fact, some American native groups used this kind of leasehold ownership, as we will see.) We can also create a leasehold ownership system that grants almost zero ownability but not quite zero. For example, we could use a certain specific price leasehold payment ratio to create a leasehold ownership system with 0.00001% ownability if we want.

 

A Journey Through Possible Societies

 

I will go over the options for societies in much the same way that Charles Dickens went over some of the options for Christmases in his book ‘A Christmas Carol.’ In that book, Scrooge was in two places at one time. He was himself, with the various ghosts, but he was also watching himself in various other circumstances. After he watched the various different alternatives, he was able to make a decision about how he wanted to proceed with his life.

Imagine that you and I are in the temporary natural law society in Pastland that we created with the moratorium. We have a great many choices about what kind of land tenure we could have. Each different land tenure choice creates a different foundation for our societies. We have a lot of options. Each option will have different flows of value and tie the right to get wealth to different behaviors, so each will have different incentives. If we understand all of the options, we are in a position to compare them. We can look at the different incentives they all create and pick the one that has the package of incentives that best meets our needs.

We will start with the simple natural law society, where people who make day-to-day decisions over land are not able to have any ownership interest in the property at all. We have already looked at sovereign law societies in great detail so we understand their flows of value and incentives. This gives us a starting place. We know what kind of incentives the starting society has.

On the road map of possible societies, the north-south axis (up-down) represents societies based on different ways that the human race interacts with the planet earth. We will be starting in an extreme land tenure system, one that grants no ownership of rights at all to the person controlling the property. This line is all the way at the top of the road map of possible societies.

When we start, the landlords of the world, the members of the human race, get 100% of the bounty of all properties, including the Pastland Farm. We have set the rent equal to the free cash flow (the cash value of the bounty) so we get 100% of the bounty of the land (shown by the inside scale on the left side of the road map of possible societies).

On our journey, we will downward on the map through various systems where the human race has decided to make more and more rights to the planet buyable and ownable.

For the first part of our trip, the rights that we offer will be worth so little that buyers will consider the ‘price’ of the ‘rights to use the land’ nothing but a trivial nuisance. They will have to put some money into the property (by paying a price) so they will have some skin in the game and something to lose if the property is harmed or they can’t make their yearly payment to the human race. But they will have so little skin in the game that, in the early systems, this won’t have a significant impact on their decisions.

 

 

In the first part of our trip, people will be able to make some tiny amounts of money by making investments of in improvements to the property. But they will make such tiny amounts from this that they won’t be able to come close to covering the costs of the improvements and they will still lose vast amounts of money improving. They will not have any significant incentives to manage risk, protect the property from harm, make sure they are able to make all of their payments on time, or invest any of their capital (time, skills, talents, resources, or money) in the property. Although societies in the early part of our trip will not be true natural law societies, because they will allow some tiny amounts of ownability, they will look and work very similarly to natural law societies, because they just offer enough of an ownership interest in the property to alter the incentives.

At a certain point, however, the ownership interset will be enough to make a real difference in the decisions people make. People will have very large amounts of money at risk and a great deal of skin in the game. They can lose a lot if things go wrong and they will have incentives to figure out and practice ways to manage risk, prevent loss, and find other ways to keep things from going wrong, to prevent them from losing money. At a certain point, they will be able to make enough money from increases in prices due to improvements to cover the costs of the improvements and leave them with profits. They will start to realize they can make money and put it into their pockets if they invest their own time, skills, talents, resources, money, and other capital into the property.

At this point (marked by the line marked EPLPLO societies on the map), we will start to see constructive incentives for the first time.

After this point in our journey, we will go through a range of societies which have increasingly strong incentives to innovate, invent, manage risk, invest capital, and do other things that lead to progress and growth. We will expect to see different behaviors in this range. People can get rich doing things that lead to progress and growth, so we can expect people to devote more time to these activities. As we go through the range, the incentives will get stronger and stronger. In other words, people who improve the world will be able to get more and more money for the same behaviors (I will explain this with a ‘sample improvement’ so you can see the amounts of money to be made in each system with that improvement). If people can get money if they acting a certain way, they have incentives to act that way. If they can get more money acting that way, they have stronger incentives to act that way. If they respond to incentives the way people have always reacted to incentives, we would expect ever faster progress and growth as we go through this range.

These systems will have very rapid progress and growth. But the majority of the unearned wealth (the bounty or free cash flow) will continue to flow to the human race. These societies will therefore still have the advantages of societies where the human race shares the bounty of the world, like natural law societies. They will also have the advantages of progress and growth.

There is a certain maximum amount of money that can go to people who improve in exchange for their improvements. (All of it; if the money value of all of the increases in production go to the improvers, they get the maximum practical incentives to improve.) We reach this point when we get to the line marked ‘socratic leasehold ownership societies on this line.’

After we pass socratic leasehold ownership societies in our trip, we will head into societies where the human race gives up increasing amounts of the bounty of the land but gets nothing in return. This is a dead loss to the human race: we need the income from the bounty of the land to pay for common services and to provide the basic incomes that prevent our societies from having a dependency on jobs. As we go down through the range of societies, eventually we get to the point where the income of the human race is not enough to pay for all common services we need and provide enough income for the people to prevent them from relying on jobs to keep them alive.

At this point, the societies will start to show signs of one of the most serous problems of societies with very high degrees of ownability: they won’t be able to function properly unless they produce very large numbers of jobs. In practice, most of the time, these societies won’t be able to produce enough jobs to keep them functioning properly. They won’t function properly. They will start to have very serious problems, related to the lack of employment. Leaders and leaders and officials will start to look for look for ways to create jobs. They will realize that war and other violent conflicts create large numbers of jobs. They can create additional jobs by eliminating any rules designed to protect the environment. We will start to see destructive incentives.

At a certain point, the income of the human race will be so low that it won’t even be able to provide enough common services to keep the people from being in need. The leaders and rulers will either have to stop providing the services their people need or they will have to start taking money away from people as taxes. Both options are bad. But the leaders will have to choose one or the other.

In the earlier societies, people formed administrative bodies to meet the common needs of the entire human race. Now they will start begging their governments to put up borders and other barriers to protect the jobs inside the lines; they will start begging their governments to subsidize destruction so that there will be more work, and they will start begging their governments to increase the size of the military industrial complex and even start otherwise unnecessary wars just to create work. As we go through this range, we will get into societies that look more and more like the societies we remember from before we went back 4 million years into the past.

As we proceed on our trip, the income of the human race will fall and fall. The money that had been going to the human race will not simply disappear, it will start to go to wealthy people as risk-free returns on their wealth. More and more of the free cash flows of the world will be for sale. These free cash flows will go to whoever has the money to buy them. The nature of the tool of ‘money’ will start to change its character. Before, it was merely a tool to buy things. Now, it will be an instrument that allows the owners of money to control people’s lives (by buying as much of people’s times and lives as they want) and will provide a ticket to perpetual leisure, income, and power.

As the benefits of having money increase, people will go to ever greater lengths to get it. Both war and destruction can send money to people without scruples who are willing to take advantage of the defects of the types of systems we are now in.

People will react to these incentives and we will see more and more pollution; the road will start to be crowded with military vehicles and heavy equipment hauling the raw materials needed to make weapons away from the mines and the finished weapons to the places where they will be used. Governments will need massive amounts of money to pay for their wars, their subsides on destruction (and funds to clean up the destruction they have subsidized), and bureaucracy that increases inefficiency (in an attempt to create more jobs for a given amount of production).

The governments will have to start to tax the people. The rich, who get the free wealth, won’t want to pay the taxes and since they control the government, they will set up a tax system that leaves them with the free wealth and causes virtually all of the revenue to come from people who work for it. Taxes that penalize work, invention, skills, talents, and other forms of capital investments will reduce the rewards for improvement, so we will move to societies with slower and slower growth and progress, and ever increasing problems.

Creative and constructive incentives will weaken while destructive incentives increase. At a certain point, we will get to a level where the rate of destruction exceeds the rate of progress. This point comes at the line about ¾ of the way down the map marked ‘minimal sustainable societies.’ In these societies, the destruction of value (caused by the destructive incentives) just barely match the creation of value (which come from the constructive incentives) and we have reached the society with the minimal conditions needed for sustainability: all societies above this line are sustainable, all societies below it are not sustainable.

After we pass this line, we will move into the non-sustainable range at the bottom forth of the map. As we proceed, we will see governments forced to use propaganda to generate hatred and fear so that wars that wouldn’t take place can happen, we will see people clear cutting forests so fast that the damage can be seen with the naked eye from space. We will see societies where governments build enough nuclear bombs to destroy the world thousands of times over (and still not have enough, so they will continue to deprive the people of essential services so they can build more). We will see creativity, invention, investment, and other behaviors that could make the world a better place increasingly stifled by ever-increasing bureaucracy and taxes.

The people on our trip through societies are all originally from the 21st century earth societies and know what they look like.

Finally, they will crank up the windows of the tour bus and turn on the air conditioning, to keep the foul polluted air out of the bus, they will stay on the bus at rest stops so they don’t have to mingle with the thieves outside and possibly get robbed or stabbed, they will stop looking out the windows so they don’t to meet the eyes of the beggars that line the road, and they will ask the driver to turn off the television sets so they don’t to see and get depressed by the ‘news.’

Finally, we pull into our final stop, a crowded, desperately poor, crime-infested, paranoid, war-driven, filthy bus station swarmed by beggars desperate for enough money to buy a heroin fix that will get them through one more miserable day: we are home, back to the future where we all remember from before we took this trip.

This entire trip is a thought experiment. We are in a position to make certain choices now in Pastland. After we finish the imaginary trip, we can come back to our temporary natural law society and decide which of the societies we have visited we may want to have for ourselves.

 

We didn’t choose the conditions of our birth.  There are billions upon billions of worlds in this galaxy and billions upon billions of galaxies this size in the part of the universe we can see.

We were born here.

We were lucky.

This is an incredible planet.

The book ‘The Meaning of Life,’ a part of this series, talks about the conditions needed for the thing we call ‘life,’ as it works on earth, to come to exist, reproduce, and evolve.  The most basic condition for life is water existing in a liquid form. We don’t just have water in liquid form.

We have oceans of it.

We have a mixture of gasses in our atmosphere that is basically perfect for circulation of this water, making it available in just the right quantities almost everywhere.  Billions of tons of water are lifted from the oceans each day through evaporation. The evaporation purifies the water, removing all salts and contaminants that might accumulate to harm the living things below; the water floats upward forming massive clouds that circulate across the land, dropping the water in ways that create incredibly diverse ecosystems. 

There is great synergy in this diversity.  Plants need carbon dioxide to grow; animals provide it; animals need oxygen which plants produce.  Plants are food for the animals and animals take this food, digest it, and return most of it to the earth to feed the plants. 

The earth is extremely productive and incredibly bountiful. 

It was productive and bountiful long before humans arrived, producing trillions of tons of plant material which fed trillions of animals.  When the first humans arrived in each area, we could simply take this bounty for ourselves; we had abilities to organize, plan, make tools, and otherwise dominate the other animals and they couldn’t do anything about it.  The bounty of the earth is available for the dominant animals to take at their pleasure.  We are the dominant animals.  If we want the bounty of the world, it is ours for the taking.

Who Benefits From the Bounty?

The human race is lucky we wound up evolving on such a bountiful planet.  It has food in vast abundance and great variety.  It produces fantastic amounts of lumber that we can use to make things and burn to keep us warm and cook our foods.  Its has abundant iron, aluminum, silicon, and calcium, which we can process into steel, concrete, glass, electrical wiring, LED lights, photoelectric panels, water pipes, bridges, skyscrapers, and other things that can make life better for the members of the dominant species. If you were to compare the composition and productivity of the earth with other known planets (including the more than 5,000 verified ‘exo planets’ circling other stars), you would not find anything even remotely close to this wonderful world.  It is clearly at the very top of the list of the desirable places for earth life.  It is so much better than all other known worlds that, if we were trying to come up with names to refer to the different worlds, the only names that would seem to fit would be terms like ‘heaven’ or ‘paradise.’

But not everyone benefits from this incredible bounty. 

For some people on earth today, live really is a paradise.  They have everything they ever want and need.  They have so much money that, if the want something to eat, they don’t even consider the price.  If you make a million dollars a second (which many people do), what difference does it make if a steak costs $20 more than a hamburger?  If they want a steak, they get a steak.

Others live very hard lives.  More than ¾ of the people who live on Haiti live on less than $2 per day.  When Columbus first wrote about Haiti in  his logs, he described it as ‘terrestrial paradise.’  (Columbus actually came up with theory that the land of Haiti was geographically closer to heaven than Europe; this was how he accounted for the incredible abundance there.)  Haiti had many things that Europe lacked and, as soon as European companies found out it existed, they moved there to rape the island of everything valuable it contained.  The result was utter destruction.  Now the island is consistently rated as one of the worst places on earth to live.  The government sends out trucks to pick up the corpses of those who have died there. Sometimes they get behind and the smell is horrific. 

Not everyone benefits equally from the enormous bounty the world produces.  In different societies, the bounty goes different places.  If we want to understand the way different societies work, we need some way to follow the different flows of value and wealth that come to exist on the world over time to their destinations. 

In societies that use money to divide and distribute wealth, we can do this by following money.  In Pastland, for example, we muse money to divide wealth.  People who get money actually get wealth.  (Remember:  each dollar bill is actually a certificate that represents ownership in a pound of rice that already exists and is in storage in the central granary.  If you get a dollar bill, you get a piece of paper that is ‘worth’ whatever value people mentally assign to a pound of rice.) Each year the land produces wealth. The more money people get, the more of this wealth they get.  Some of the money they get might be thought of as representing the bounty of the world around them.  If we can define this bounty in a practical way, so we can tell which dollar bills represent the bounty of the land, we can follow this bounty, and determine who gets it, by following these dollar bills to the people who get them.

Our group in Pastland has a natural law society.  (This is due to the moratorium on countries and ownership of land.  We haven’t banned countries and ownership forever, we just don’t want to deal with the conflict and violence that go along with them until we have had time to solve other problems.)  Natural law societies are simple.  No country or person owns any part of the world. Ownership (by countries or any human entities) leads to great complexities.  Since natural law societies don’t have ownership, they don’t have these complexities.  The are simpler societies than societies that have any kind of ownership.  (Sovereign ownership, the kind of ownership practiced by countries, is only one of many possible kinds of ownership; it is complete, absolute, and unconditional ownership; there are many other systems where people own, but only own partial rights.)

We can look at what happens to the bounty of the world in natural law societies first. Then, once we understand how this works in simple societies, we can move all of the same people and same land and same kind of money to a more complicated society (for example, the territorial sovereignty society that people who were patriotic and loved their nations first tried to build in Pastland) to see where these same dollar bills would go on this other system.  This allows us to see where the bounty of the land goes in each system and to understand the different incentives these flows create. 

If people can get money if they do certain things, they have incentives to do those things.  Incentives are not behaviors themselves, they are behavioral motivations.  If the structures of a society tie the right to get money to certain behaviors, these structures create incentives that encourage those behaviors.

For example, in some societies people can get money if they organize for and engage in violent conflict.  These societies have incentives that we might call ‘pro-violence incentives.’ The incentives push people to act violently.  They may not react to the incentives:  not everyone reacts to incentives the same way and some people won’t promote or engage in violence no matter how much money they can get by doing this.  But if we have three societies to compare, and we see that one society does not have any structures to give people any money at all in exchange for violence, another gives them small amounts of money for violence, and the third gives them enormous amounts of money if they assist in organizing for violence, we can compare the incentives:  One society does not have ‘pro-violence’ incentives; one has weak ‘pro-violence incentives’ and one has very strong pro-violence incentives.

 

If we know how people react to incentives, we can then predict the behaviors we will observe in the different societies.  We now have tools we can use to compare societies scientifically, without any need to make value judgments.  The key to this is understanding where flows of value come from and how the structures of society work to cause people to get this value if they act certain ways. The example in Pastland was designed to make this easy to see.

The Bounty of the Pastland Farm

In Pastland, we live on land that some people might call a ‘swamp.’  Others may call it a ‘productive freshwater marsh.’ Others still might call it a ‘rice farm.’  No matter what we call it, the land produces 3.15 million pounds of rice a year. 

None of this production is due to anything humans have done. 

The land produced the exact same amount before our group (the first humans) arrived in the area.  We aren’t responsible for the production, nature is.

In any area, the dominant animals have first claim on the things the land produce. Before we arrived, other animals got their pick.  The ducks and geese ate whatever they wanted.  They could have stayed all year and, if they had some way to store the grain, it would have fed them all year.  But there is a bounty available for ducks and geese in many places.  They can fly pretty much anywhere they want and find food. Since they have a choice, they choose to live in the north during the summer, to avoid the heat of the tropics, and choose to live in the tropics during the winter, when it is cold in the north.  Other animals also migrated in various ways, taking food where it was easiest to get and living where life was most pleasant.

When we arrived, we became the dominant animals in this area.  We had first claim on the wealth it produced.  We could take what we wanted.  Other animals only got what we left behind.

What did we do with the wealth we took from the land?

First, we ‘sold’ it.  This basically means ‘traded it for money.’  We made this trade by using dollar bills as rice certificates.  Each dollar bill represented one pound of rice that was in the granary.  We then divided this rice by dividing the dollar bills.

We put $3.15 million in cash on the table in the front of the meeting room.  We then opened the meeting and had people come to the front and explain to us why they thought we should give them some of this money. 

Kathy came up first, speaking on behalf of her workers.   She said we should give her $700,000 to give to her workers and suppliers.  She told us that she had promised them she would do her best to make sure they got paid and she wants to keep her promise.  She told us that if we paid the workers and suppliers this year, they would know that we appreciate their efforts and feel confident we will reward them in the future. These people gave up things of value to them, including their time, to make sure the wealth nature produced was available to the group as a whole.  If we pay them the right amount of money (market rates, as discussed earlier), they will feel whole:  they have broken even and gotten enough money to compensate them for the things they gave up.  They are willing to do these things if they at least break even.  All she wants is for us to allow her to keep her promise to them and pay them enough to break even. 

None of them are going to get rich.  They are only going to get enough money to break even.

We voted and approved the expense.  Kathy came to the front with a luggage cart and loaded huge stacks of dollar bills onto the cart.  Later, she held another meeting with her workers and suppliers and paid them all. 

Kathy didn’t get any of this money.  She didn’t ask for anything for herself, she only wanted money for her workers and suppliers.

After she left, someone came to the front and said that we need to let Kathy know we appreciate the things she did.  Kathy didn’t do any actual work.  She was crippled in the events after the time warp and can’t even get out of bed without help.  But we should pay her because, even though she didn’t do any actual physical work, her efforts and skills brought us great benefits.  She knew what to do and organized a system that causes wealth to flow from the land into the grain silo.  We want her to keep doing these things.  It is true that she volunteered to do them and didn’t ask for anything.  She might continue to volunteer for the rest of her life.  But she might not.  Even if she does volunteer for the rest of her life, if people don’t think organizing is important enough to get rewarded, they may not take the time to learn the skills needed to organize.  When Kathy dies, no one may know how to do the things she did and we may all starve.

It makes sense to pay her.   We all benefit by this.  Even if she doesn’t care for the money and gives it all away, the fact that the money goes to her tells everyone in the community something important:  You help the human race and the human race rewards you. People will step forward to do things that they wouldn’t do if this relationship wasn’t established in their minds. 

After we pay Kathy, there is $2.4 million left on the table. 

This money is there because nature was kind and generous to the residents of this part of the world.  It is not due to anything any human has done.  If nature had not been as generous, the rice that this money represents would never have come to exist, and the table would be empty after paying everyone who does anything in production.  But nature is generous, so the money is there.

No one in Pastland can take credit for the generosity of nature.  No one in our group created the dirt of the swamp.  No one is responsible for the evaporation on distant oceans that eventually led to the rain that the rice needed to grow. No one here painstakingly put together the 16 million ‘base pairs’ that are in rice DNA and provide the coded instructions that tell rice plants how to grow.  All this existed before humans. 

You could think of the 2.4 million pounds of rice that this money represents as the ‘bounty’ of the land around us.  It is a gift from nature.  Whoever gets this rice gets gifts from nature.  We will divide these gifts by dividing the $2.4 million in cash. Whoever gets some of this money will get certificates of ownership of the ‘gift rice.’ 

The Basic Productivity of the land

In each of the societies we examine in this book, we will divide the bounty of the land by dividing money.  We need name to represent ‘the money that represents the bounty of the land’ so we can discuss this flow of wealth without having to use this long term each time we want to refer to this money.

This book uses the term ‘basic productivity’ to represent the ‘money value of the bounty’ of the land.

In the case of the Pastland Farm, the bounty is rice.  Not everyone likes rice.  Some people never want to see a bowl of rice in their lives.  Just because people don’t see rice doesn’t mean they don’t benefit from the bounty of the land.  They benefit by getting money which they can trade for anything they want.

They don’t get the bounty of the land by having a truckload of rice dumped on their lawn; they get the value of the bounty of the land in the form of money.

The Free Cash Flow And The Basic Productivity

In our 21^st century world, many farms are bought and sold in countries all around the world every day.  If you look on websites where people advertise these farms, you will see that sellers put a certain number in their ads that they clearly think must be important to buyers, because they put it in very bold type and use many tools to call attention to it. 

This is the ‘free cash flow’ of the farm.

This is the number buyers care about.

If they buy this farm, they will be buying a package of rights. 

These rights include the right to get a certain amount of money, for free (without doing anything) each year that passes.  They naturally care a great deal about how much free cash ‘flows’ from the farm, and therefore how much free money they will get as owners.

The amount of free cash flow is an extremely important matter to potential farm buyers. If there are two farms for sale at the same price, but one has a higher free cash flow than the other, buyers will naturally want the one that gives them more free money each year.  If a farm produces a higher free cash flow, people are willing to pay higher prices than they would for a farm with a lower free cash flow.

For example, a farm like the Pastland Farm, which produces $2.4 million a year in free cash flow, is going to sell for a lot more than a farm that barely produces enough to cover its costs and has only $24,000 a year in free cash flow.

Some potential buyers don’t care about anything else (other than the free cash flow).

Corporate buyers, for example, only look at numbers.  They have shareholders who tell them exactly what they want. Almost always, they want the same thing:  the most money they can get for each dollar they invest.  The corporations hire buyers to find properties that can  meet these guidelines and buy them. 

A buyer who wanted to live on the farm might care about a lot of things that a corporate buyer wouldn’t bother with.  Is the farm close to schools and stores?  Is the farmhouse big and comfortable?  Is there a pleasant view?  Are there trees for shade?  If you are going to live there, these things will matter. 

If you are a corporate buyer, none of these things matter.  You aren’t going to live on the property and may never actually lay eyes on it.  Corporate buyers often buy and sell farms to other corporations for tax and other reasons unrelated to farming.  They don’t send people out to look at the land.  Why bother?  It doesn’t matter to the shareholders.   Shareholders only care about one thing: the free cash flow.  When they buy, they basically ignore all benefits of ownership other than the right to get the free money.  That is what they are buying.

It is true that some farms are purchased by people who intend to live on them and operate them.  But most farms that generate free cash flows like the Pastland Farm sell for prices that are far above the means of people who are interested in actually farming land personally.  A farm like this might sell for $50 million or more.  If you want to own this farm and operate it, you will have to accept living in a remote place with few services.  Your kids will have to take a long bus ride school.  If you need to go to a hospital, you will may have to travel for hours.  You will be living in a swamp and have bugs around. They won’t be any fancy restaurants or nightclubs.  Generally, people with $50 million burning a hole in their pocket aren’t going to want to live like this. 

In practice, corporations buy almost farms that generate these free cash flows.  I was raised on a ranch in Montana.  I remember the corporate buyers coming to the ranch to make offers when I was a kid.  He refused to sell and swore a blue streak about them as soon as they left. He never did sell.  But his kids didn’t want to live on a ranch in remote Montana.  The land now belongs to a corporation.  I knew all the farm owners around the area when I was a kid.  They were all old people, having inherited the farm during the depression, when people couldn’t move to cities because there were no jobs.  Now, corporations own all this land.  Kids don’t want to live in remote areas and put up with bugs and isolation, when they can make the same amount in cities.  Corporations buy the land.

The corporations care about one thing:  the numbers.  They don’t care about the great stoker furnace that my uncle was so proud of.  (Put the coal in a bin and an auger feeds it constantly.  No more getting up at 4am to stoke the furnace!) This wasn’t a selling point. The corporations only cared about the free cash flow the land generated.  The corporations are patient:  corporate charters in the United States never expire; the corporations last forever. 

In the end, the farm is going to be a kind of ‘black box.’  A certain amount of money flows from this ‘black box’ each year, for free.

What happens inside the box?  The corporations don’t care.  All they care about is the amount of money that flows out of the box.

There is a standard term for the amount of money that flows from a farm, without anyone involved in production having to do anything: the free cash flow.  In this specific example, (the Pastland Farm) the free cash flow will be exactly equal to the number I call the ‘basic productivity,’ which represents the money value of the bounty of the land. 

I don’t want to use the term ‘free cash flow’ however, in discussions, because there are times when farms produce enormous free cash flows, but not only aren’t bountiful, they don’t produce anything at all.  The problem is that the money that represents the free cash flow doesn’t have to come from the farm itself, it can come from government subsidies, options to drill oil or to allow the land to be converted to housing under certain conditions, payments to farmers who agree to not grow crops on their land, and many other sources.  The corporations that are buying and selling property rights care about the amounts of cash flow from the land, not whether the land actually produces anything useful.

I need a term that represents real value that comes to exist due to the bountiful nature of our world, so we can see how bountiful the world is (measure the bounty in dollars) and determine who gets this bounty.   In many cases, the ‘free cash flow’ advertised by sellers of cash-flow generating properties will be identical to the basic productivity, and for practical purposes we can normally use the free cash flow that is advertised by sellers as a proxy for the basic productivity, but I don’t want to simply use the common term, because the basic productivity will always represent something real of value that gets created over time and makes the world better for the human race.

If there is more basic productivity, the human race is always better off.  More wealth has come to exist on the world and will continue to come to exist each year in the future. (The basic productivity is a flow of money, just as the ‘free cash flow’ is a flow.)  You may not be better off personally, because you may not get any of this money.  But someone or some group has higher incomes. If we want to understand who benefits because the world is bountiful, we need to be able to follow the money.  We need to pick a spot where we can identify the money that represents the basic productivity.  (Preferably as something we can clearly identify like a huge pile of dollar bills on a table.)

Then we have to follow the money. 

When we first evolved on this world, hundreds of thousands of years ago, we didn’t find a pre-existing set of instructions about how to organize our existence.

How should we interact with the world around us? 

How should we organize our interactions with other members of or species? 

The first humans didn’t find a set of guidelines. 

Our ancestors had to figure this out for themselves. 

Since they didn’t arrive to find any pre-existing sciences with instructors standing by to help them uncover evidence and put it together through algorithms that would lead, if followed, to the correct answer, they basically had to guess. 

Different people made different guesses. 

Some guessed that the wonders they saw around them were so amazing that they couldn’t be the result of mere chance events.  There had to be some sort of intelligent design.  There had to be a creator of some kind, a wonderful being of vast intelligence, who made things as they were when humans first arrived. 

The may have guessed that there was a reason for their existence; they were created for a certain purpose and they were supposed to organize themselves to fulfill this purpose.  We have great powers and abilities that no other animals have.  If there is a creator, and the creator gave us these powers and abilities, we are clearly supposed to use them. 

The creator gave us the power to dominate all other beings on this world.  If they harm us, we can drive them into remote areas where they aren’t threats; if they continue to bother us, from isolation, we can hunt them down and exterminate every last member of their species. 

We have the ability to do this.

The creators (creator for monotheists) gave us these abilities. 

We are supposed to use them. 

To not use them is an insult to the one(s) who gave us these powers. 

We are supposed to wipe out any other beings that threaten us or even bother us. 

We have the ability to organize into groups and use or ability to plan and communicate to carry out vast projects that no other animals can carry out.  If we want to change the course of rivers, we can dig canals to divert them wherever we want them to go.  We wouldn’t have been given these powers if we weren’t supposed to use them.  We can build, design, modify the land, subdue it to make it suit our purposes. We are supposed to do all of these things.

People have accepted this as a reality of existence for a very long time, perhaps for the entire time we have been here.  The formal name for this mode of thinking is ‘manifest destiny.’

The idea is that there is a creator (or creators for polytheists), the creator has a destiny in mind for us, and the creator makes this destiny clear (‘manifest’) by giving us the power to do the things we are supposed to be doing. 

The principle of manifest destiny is often used by groups of people to claim a mandate to wipe out people living in areas that the people in that group want to take over for themselves. For example, during the conquest of the Americas, organized military groups (well funded by tax revenues from the masses) were sent into densely inhabited towns and villages to evict all of the people form their homes and send them to remote areas.  Often,  these people resisted the  removals and had to be killed to remove them.  A large portion of the people who were killed were children, not because children were targeted, but because a large percentage of the people anywhere are children.  This is a horrible thing to have to do and many soldiers who did these things often were so depressed afterward that they committed suicide.  (Suicide is a leading cause of death in soldiers and many scholars say that more soldiers have died of suicide than have died in action.)  

But this activity was organized and carried out on a massive scale.  Hundreds of thousands of people were involved in planning and arming the troops and millions of people contributed to the cost of these ‘removals’ by paying taxes that funded the activities.  Without the wealth that the tax revenues generated, these activities could not have taken place. 

How were people convinced to contribute to this cause?  They were told that we really don’t have any choice. The creator (a god who, in the religions involved in the conquest was named ‘God’) has made his intentions manifest and we must comply.  We must follow God’s mandates or we will be punished by an afterlife of eternal physical torture in hell, without any hope of respite from the pain through unconsciousness or ultimate death.  It is our destiny.  Any resistance is an insult to the creator who guides us and a mortal sin.

If a group of people are guessing about how they think humans are supposed to be interacting with the world, they may start with the principle of manifest destiny.  They may guess that humans are supposed to use our powers and take full advantage of the gifts that the creator which they guessed existed gave us. 

We are supposed to treat the world as ours, to use any way we want.

How about our interactions with other members of our species? 

Here, practical realities become important:  We (our group/tribe/clan/nation) are trying to take certain land.  Other groups are trying to take the same land.  The people who interpret the will of the creator tell us the answer is obvious:  God controls everything.  We fight the other groups.  God decides who he wants to have the land and makes sure that side wins.  They (the people who interpret the will of the creator ) tell us that God divided the world into ‘nations.’   He ordered the nations to fight each other and granted land to the victors.  (This is a foundational principle of the religions in the family called ‘The Abrahamic religions, which include Christianity, Islam, and Judiasm; all these religions share the same primary instruction book, called ‘Genesis’ in the Christian version.  The discussions of nations start with Chapter 10.) 

We must take the land or at least try to take it.  We must oppose other ‘nations’ who want the same land with all our power.  We are mandated to win these wars:  if we fail, we have no right to even continue to live. 

All this follows naturally and simply from this particular guess that a group of recently-evolved people might make shortly after they gained self-awareness’ and cognition.  They start with a guess and build on it. They need to fight over land and this requires a great many complex structures.  They need to build these structures.

Other Guesses

Other people may make other guesses. Starting with these other guesses, they may think other structures are necessary and may build other kinds of societies. 

Some people saw the awesome power of nature.  They realized they were helpless before nature.  If nature wanted to destroy them, it would destroy them: there wouldn’t be anything they could do to stop it. 

If you have ever seen a volcano erupt, you see that it incinerates everything.  It doesn’t treat humans any different than anything else.  If you have ever seen a flood, you will know that it can wash away homes and loved ones, sweeping them from you so fast that you don’t even have time to say goodbye.  Droughts take away crops and there is nothing  you can do to force rain to come:  if nature doesn’t want it, there won’t be any rain.  I have personally seen the power of nature on many occasions. 

I was in Orange Texas in 2005, 200 miles away from New Orleans, when Katrina hit.  Even at this great distance it had awesome power and no sane person could claim to have the ability to survive if something this powerful wanted them dead.  I was in Yellowstone in 1988 when fires burned most of the park, creating their own weather conditions with 100MPH winds flowing in as the heat of the fire lifted the air and everything in it upward.  Most of us have seen footage of disasters of what we were told were ‘biblical proportions:’  the 2004 Indian Ocean tsunami killed 230,000 people; the 2010 Haiti earthquake killed 316,000.  Although the newscasters call these ‘events of Biblical proportions’  the truth is that they are not rare.  Thousands of events that take lives occur each year and I have seen a great many of them with my own eyes. 

Nature is unpredictable. 

It has always been so. 

It was unpredictable for newly-evolved people.  They saw tragedies.  They would have wondered why these things happened.  Whatever forces direct the fury of nature somehow decided to destroy the people they loved.   They may think that any sane person would realize that nature is powerful and they needed to respect this power. 

Nature isn’t always  our enemy, however.

Normally, nature is a great benefactor, giving us everything we need and want. We see the beauty and generousness of nature far more often than we see its fury.  The smell of the rain during a summer thunderstorm, the songs of the birds in the morning, the serenity of a clear blue mountain lake at sunrise, the sweetness of a mango picked fresh from a tree, every day there are new wonders. It is almost as if nature treats us as a loving parent.  Normally, it gives us everything we want and does whatever possible to make us happy. Sometimes, however, we have committed some offense—probably without us even realizing this—and corrections are needed. 

They saw that most people in their community had the proper respect for nature.  But not all of them.  Perhaps the disasters were signs from whatever forces control nature.  Perhaps nature treats us well if we can understand its basic laws and follow them, but harms us if we take it for granted or treat it with a lack of respect. 

People don’t have to be religious to think this way.  Logical people can come to the same conclusion.  There is a balance in nature.  If we understand this and work within it we can make changes and keep nature operating as before. 

Religious people might go farther than this, imagining that there are spirits in the mountains and rivers that they must appease.  If they don’t respect nature, the sprits will punish them.  Some people combine these ideas in their minds.  They don’t really believe in spirits, at least most of the time.  It makes sense that the natural world has to be healthy in order to meet their needs.  But at times, when things get crazy, villages get destroyed and loved ones killed, they may slip back into superstition and believe it is better to try to appease the spirits even if they may not really exist.  Maybe sacrificing one who didn’t show the proper respect might allow the spirits to leave them alone. 

Newly-evolved humans had to guess what was important.  After they guessed, decided that a certain way to interact with the land and other people on it was right and other behaviors went against the things the believed were true and were wrong.  Groups that guessed that nature was in charge and that humans were just as helpless before nature as other animals, might conclude that we have the obligation to use our intellectual skills to create rules that prevent people from doing things that might bring harm to nature or offend any spirits that might direct nature. 

Nothing could be more dangerous to nature or offensive to any sprits that might be in charge than treating nature as something that we own and have the right to buy, sell, rape of its resources, pollute, devastate, or alter for the personal benefit of the owner.  When people who started with these guesses are making their rules, they will work very hard to make sure that no rules ever exist that allow people to treat nature as property.  They may discuss this with people who are not committed on the topic and make it clear that they will be very angry if anyone breaks the rules designed to prevent people from owning or claiming to own land. 

If people break these rules and disaster comes, some of the religious ones may be looking for someone to sacrifice to the spirits that caused the disaster.  If there are people who didn’t follow the rules, or people who followed the rules but said things that indicated they didn’t share the underlying beliefs, these people would be obvious candidates.  If you lived in such a system, you would realize it was not very smart to go around telling people you thought the beliefs were wrong.

People raised in such societies would probably never meet anyone who had any other ideas about how the world works. Nature is in charge.  The laws of nature are paramount and above all human laws. We don’t own the world and can’t own it.  Children raised in societies built on these beliefs would probably never consider that the had a specific type of society or that other types are possible.  They would think that there is only one sound and logical way to interact with the world:  they way they interact with it. 

But they do have a ‘type of society.’ When the first upright apes on earth gained self awareness and sapience, they didn’t find a guidebook explaining how existence works, whether they were created and, if so, giving the intentions of the creator.  They had to guess about these things.  They started with a very simple guess and decided it made sense.  They decided that they had certain beliefs about what was important in existence.  They built rules for the practical structures of their societies that depended on these beliefs.   They ended up with a very specific type of society that was built on specific guesses their ancestors about these things and the beliefs that were built on these guesses. 

Imagine you are an objective observer of earth societies, say a scientist on another world which had sent probe with high power cameras to earth as of the year 1400, in the calendar of the part of the world called ‘Europe.’ 

You see two entirely different types of societies.  One, in Afro-Eurasia, is built on the belief that we are supposed to fight over land, dominate it, and subdue it. This society has been around for several thousand years and, since it is built on conquest, it spread rapidly after it first formed.  (Any group that claims it is a ‘nation’ is the absolute or sovereign owner of any territory it can conquer.  Ownership-based societies have much stronger incentives to innovate, invent, invest, and take other steps that lead to progress and technology; the group with these advantages could take advantage of them to conquer additional land.  By 1400, there were no significant areas that hadn’t yet been conquered.) 

All of the rest of the world (all except for the Afro-Eurasia landmass and islands close enough to conquer) had societies built on the opposite belief system. 

You would probably think that both of these societies were pretty primitive. Neither was built on logical or scientific analysis of the different ways that thinking beings can interact with the world that meets their physical needs, or an analysis of the way the structures of society impact the human race as a whole or planet we live on. You may say that both of these societies are ‘first stage’ societies.  They are societies that beings might form that hadn’t fully come to grips with their intellectual capabilities. 

Societies built around Intellect

Our group in Pastland is in a position to form any kind of society we want.  We could start by holding séances, prayer vigils, vision quests, and drug-induced hallucinations to help us get in contact with spirits and our feelings about what might be right; we might work out belief systems based on the results to figure out the way our feelings or possible spirits tell us about the way we are supposed to organize our feelings. 

But we don’t have to do this. 

We can study the different structures that can be a building block of the societies of humans (or other beings with the same general characteristics as humans).  We can figure out the way these blocks can fit together and determine how each of the societies that can be built will operate.  We can organize and categorize the results so we can compare them to each other, to determine how each would work if we adopted it in our situation.

Of course, if we understand all possible societies, we will also understand societies that are built on beliefs:  the set of belief-based societies is a subset of the set of all possible societies.  We can examine the way they fit into the mix.  We know that, in the last iteration of the human race, at least two ‘example’ societies existed.  We can examine the way these societies worked. 

Once we understand all of the options, we can hold meetings where our group—which includes the entire human race—can decide what we want.  We basically have a blank slate to build on:  our moratorium prevented us from giving any people or groups (by any name, including ‘countries’) from having any rights to the world around us. There is nothing to undo, no vested parties to ‘overthrow,’ no owners to disenfranchise, and no corporations with rights to the world they will fight to keep. 

All we have to do is vote on the choice we want.  We can then make it a reality. 

Partial Ownability Systems

We would expect societies built on beliefs to be simplistic.  We wouldn’t expect people guessing about things they can’t verify to make extremely complicated and convoluted guesses.  For example, lets go back to a primitive time (say when humans first evolved) and imagine their guesses about whether spirits or gods (if they exist) want us to own or not own parts of the planet. 

The simplistic guesses are:

1.  We are supposed to own. 

2.  We are not supposed to own.

We would expect them to choose one of these two options.  Perhaps different groups in different areas may make different choices, some choosing option 1 and some choosing option 2.  But we would not expect these people to guess that we are supposed to accept that our people are supposed to own partial rights, including the rights to improve parts of the world but not the rights to use destroy and including the right to keep some of the rights to wealth (or money if money is used) the land generates, but not all of it. 

Those who are religious would not presume that the creators (creator for monotheists) want us to let people have deeds or titles that grant them some collection of rights that are in a ‘list of possibly ownable rights’ and that these creators expect to guess which rights we will let people own, make it a reality, and then be judged after death for our ability to make these complicated guesses and create contracts that transfer these rights accurately. 

It would be possible to create a system that has this kind of ownership.  But we would not expect people who are guessing about the intentions of superbeings with whom we can’t communicate (at least not in any verifiable scientific way) to guess that these invisible beings created this world and then are now watching all of the religions here to see if any of them get this right.  If a group of people were to create a system that was designed to let people own certain rights to the world (say the right to benefit by doing things that improve its productivity) but not own other rights, they would almost certainly not base this on guesses about the intentions of invisible superbeings that they guess might exist. 

They would build on science, logical analysis, and a comparison of the different systems that could be created.

Back to Pastland

When our group in Pastland arrived, we passed a moratorium.

We did this to give us time. 

We know that if we recreated the systems we had in the 21^st century, before we went back in time, we would immediately recreate the violent systems we left behind.  We didn’t rule this out entirely:  we can still choose to have these systems after 20 years, if a majority of our members want this.  But we have some breathing space.  We have time to consider the different kinds of societies that we could build, how they would work, and how each choice would affect the human race and planet earth over the long run. 

We all know the moratorium is going to end someday. 

We all know that something is going to replace it.  (It is possible that another moratorium will replace it, but it is also possible that something else will replace it.) 

What are our options? 

What other systems can we build?

We can take advantage of this 20 years to come up with options.  We can work them out. 

What Might Other Societies Look Like?

The two societies that have existed in our history were extreme systems. 

Territorial sovereignty societies start with one extreme:  all rights to the world, or 100% of the rights, are ownable.  Group of people who calls themselves the right name (‘nations’) can claim a part of the world (if it has not yet been claimed) or conquer it from people who have claimed it in the past.  As long as they take the right steps and can show that they have gone through the right ceremonies (they have a national song, for example, a flag, some fancy documents stating that they are a country, and a few others) they are considered to be nations and whatever part of the world they have conquered belongs to them, absolutely and completely, with no limits or restrictions of any kind.   This is an extreme way to interact with the world.  It is not possible to exceed the degree of ownability (100% ownability) that forms the foundation for these societies. 

Natural law societies at the other extreme.  They are built on the principle that humans have no rights to ever own, even for a limited period of time, even if the rights are limited, and even if accepting ownability (perhaps of a limited number of rights for a limited period of time) would bring great benefits for the people accepting these rights.  Nothing is so important that it can justify granting any rights for any length of time.  This is the opposite extreme, reflecting exactly 0.00000% ownability, period. 

If we were trying to figure out other societies, we might start by looking for systems that are in between these two extremes.  We could draw a line that includes ‘all possible options,’ including those we don’t understand and haven’t discovered.  We could place the two options we already understand on this line. We might come up with a line like this:

 

Chart of societies based on degrees of ownability:

0%                                                                                                                100%

 

Zero percent and 100% are extremes. There are a lot of numbers between these two extremes.  If it is possible to start with 0% ownability and build a society on this premise, and possible to start with 100% ownability and build a society, we might imagine it must be possible to have something in between, say a 25% ownability system, and build on that.  If it is, our chart of possible societies would look like this:

 

Chart of societies based on degrees of ownability:

0%                                  25%                                                                       100%

 

The idea of partial ownability is pretty hard for us to imagine, because it doesn’t correspond with the way we were raised to think about ownership.  To understand it, you must be willing to accept that ownership is not a philosophical concept at all (one created by a divine being or existing as a universal given that we must accept) but a mechanical system.  It is not a ‘yes’ or ‘no’ concept.  It is a device like a car engine, that we can adjust to operate any way we want it to operate. 

I want to give a quick example so you can see the general idea:

What Should You Do With Your Land?

Imagine that have just inherited a ‘land holding company.’  This company came to own a great deal of land over the decades before you were born. You didn’t even know the company existed until one of your distant relatives died and left it to you. 

The former owner did nothing with the land. 

You want to do something with it.

You open the files and to the first page, a property description.  It is a bog where wild rice grows.  You contact a land use consultant and have her go out and evaluate the land. 

She determines that if it were operated as farm, it would produce a free cash flow of $2.4 million a year. You can deal with this land several different ways. 

One option would be to simply get rid of it. 

Sell it. 

Don’t even consider whether you may possibly sell some rights to it and keep others:  simply conduct an auction and ask people to bid for the size of a pile of $100 bills they will trade you for the land.  Whoever offers you the largest pile will get the land in exchange for the pile of money. 

If you ask your consultant how large of a pile of $100 bills you might be able to guess, she will use some standard formulas to work this out. 

 

The standard formula to determine the market value of a cash-flow generating property is called the ‘capitalization of free cash flows’ formula.  You can find detailed descriptions of this formula on the internet.  The formula determines the amount of cash that, if invested in an interest-bearing account, will generate the same yearly cash income as the free cash flow of the property.  For example, what amount of cash would you need to invest at 5% interest (assuming this is the current market interest rate) to get $2.4 million a year in interest?  To calculate this, you look for a number which, when multiplied by 5%, equals $2.4 million.  In high-school algebra notation: X * 0.05 = $2.4 million.  To solve for X, divide both sides of the equation by 0.05 to get X = $2.4 million/.0.05.  Divide to get X = $48 million. 

 

If the going market interest rate is 5%, she will give you a number of $48 million (or some figure so close to this that any difference isn’t important for practical purposes.)  You could just get rid of the land, trading it for a pile of $100 bills roughly 17.2 feet high. 

But you decide you don’t want to do this. 

For this example, let’s say that you have an extremely large family.  You love them all and they think of you as their protector and provider. You have promised you are going to provide for your people forever.  The land produces wealth.  If the farm is operated in a sustainable way, it will produce wealth forever. 

If you sell the land, you will get a pile of cash.  You can divide this cash among your currently-living family members.  They will then spend it and there will be nothing left for the people you promised to support in the future. 

You decide you will not get rid of the land. 

You tell your consultant that you aren’t going to do this.  What other choices do you have?

She tells you that you could just hire someone to run the farm. 

There are people who manage farms and are looking for jobs.  You have to be very careful, however, because if people who know what they are doing and are honest, they probably already have jobs.  If you get someone who doesn’t know what she is doing, the farm isn’t going to produce anything close to what it can produce.  If you get someone who is dishonest, she may simply take everything the farm produces, sell it for cash, and leave.  You also have to worry about something bad happening to the farm.  Say a hurricane comes and the river nearby is predicted to breach its embankments. Once a breach started, it could grow rapidly into a flood that washes away all of the soil in your farm.  You, as the owner, don’t want this to happen. If you are there, you could order your employee to go out in the pouring rain and fill sandbags to reinforce the bank. But you can’t expect her to care enough to do this without being ordered to do it.  She has no financial interest in the farm.  Why should she put her life and health at risk trying to save it? Even if you order her to do it, she might just tell you she is going to do it and not do anything.  Then, if the farm gets destroyed and you call her, she can say ‘I did what I could, sorry.’  It isn’t her problem, it is yours. 

This option doesn’t meet your needs. You don’t want to create a business relationship where you have to watch your partner 24 hours a day to make sure she knows what she is doing, isn’t going to try to rip you off, and has no interest in whether the farm continues to exist or is washed into the sea.  You tell your consultant that this isn’t going to work either.  You want another option. 

Her next suggestion is to just find a renter and turn it over to the renter.  You can set you rent at the free cash flow of $2.4 million.  She can run the farm and keep everything above this.

But this has basically the same problems you would have if you hired someone to run the farm, but gives you no ability to interfere to protect your interests.  Your renter is going to sell production and get a bunch of money. She is then supposed to give the great bulk of that money to you. 

But when the time comes to pay the rent, she may say she just doesn’t have the money.  There are a lot of excuses she could use for this.  A few standard ones are: 

1.  I lost the check from the sale of the grain.

2.  I had it in cash but someone held me up at gunpoint and stole it. 

3.  Someone hacked my account and transferred the money to Nigeria. 

4.  I deposited the check but the bank must have made an error in the accounts and deposited it to someone else’s account. 

I have been a landlord for many years. I have heard so many excuses for not paying rents that I could write an entire book about them.  I had a tenant whose mother died so she had to spend the rent money getting to the funeral. The next month, her father died so she had to miss her rent.  The next month, it was the mother again.  I said ‘I thought your mother died two months ago.’  The reply was:  ‘That was my step mother; this is my real mother.’  I let her slide and eventually had to take her to court and remove her from the property, at great expense when her relatives died for a third time. 

Renting is a hassle and has the same problems that hiring people has:  the people who make the day to day decisions on the land can make money doing things that harm you.  You don’t want this.

You want to know if there are any other options. 

Partial Ownership

In this case, the example involves a ‘land holding company’ and not just the land itself.  You inherited a corporation.  Corporations have certain options that aren’t really available for mortal people.  One of them involves basically turning the person who makes day to day decisions on the farm into a kind of partner.  Make her a part owner.  She can make decisions on the farm and keep part of the wealth the land generates. If you do this by selling her an interest, she will have money invested and will have money at risk.  This will give her incentives to protect the land, to make sure nothing goes wrong that she can prevent, and to deal with any problems that arise quickly to prevent problems she can prevent and deal with any problems she can’t prevent quickly, while they are small and before they grow into major problems. 

Your consultant tells you that this is actually a very common way that land-holding companies deal with their land. In fact, there are companies in Hawaii that own millions of properties and deal with them by selling part interests. (The next chapter provides an example to show how this works in our real 21^st century world.)  You can do the same. 

If you do this, you will be an owner and the person who operates the farm will be an owner. 

Owners have certain interests. Owners want the land to be in as good of condition as possible so that, if they sold, they could get the highest price possible.  

Owners want production to be as high as possible. They want the free cash flow to be as high as possible. 

They want to prevent anything that can damage the property from happening if the can.  If something happens they can’t prevent, they want to minimize the damage and repair it as quickly as possible for the lowest possible price, so it will continue to produce as before.  If you take on a partner with an ownership interest in the property, this person will have the same interests you have.

 You are not going to simply give this other person a part interest. 

That won’t meet your needs. 

You need her to have some of her own money on the line.  In the investment world, people use the term ‘skin in the game.’  People who have a lot of their own money on the line feel incredible mental agony when they lose this money.  It feels so bad that, if you asked them, many of them would have preferred to have had skin rubbed raw (the worst kind of pain most people have experienced) than to have lost the money, if they had had the option.  People with a lot of ‘skin in the game’ are not going to let things go wrong if they can help it. 

What is the Right Percentage to Sell?

If the part owner has only a tiny amount of skin in the game, she may not really care enough to prevent problems.

For example, say you have a hired worker on the land and you want to sell her an interest but she only has $48 to spend. You can sell her a one millionth share for this.  (If a 100% interest would bring $48 million, a millionth should be worth $48.).  If she runs the farm well and it produces a free cash flow of $2.4 million, she will own the right to one millionth of this, or $2.40.  She will also get her $50,000 a year, of course, for running the farm, so her income will be $50,002.40 if she is a part owner and $50,000 if she is not. 

Each year, she must run the farm, pay all operating costs, pay her $50,000 salary for running the farm, and give you $2,399,997.60 as your rents.  (This is 999999/1000000^th of the free cash flow.)  If she does not do this, she will lose all the money she invested in the farm. 

But this isn’t going to be enough money for her to really care about, because she invested only $48. 

Let’s say she has paid everyone except you and has your money ready to go.  She is holding $2,399,997.60 of your money.  Now she has a decision to make: Is she going to be honest and give you the money that belongs to you, or is she going to keep it and make you sue her for it? 

She may be totally honest, but you would have to admit it would be tempting for her to take your money and let you have the farm back, giving up her $48 investment. 

She does have skin in the game.

But not enough to protect you. 

If you want to be protected, you need to sell her a larger share.  (If she can’t afford it or won’t buy, you can get someone else.  As long as you are offering at market rates, you will find someone who will buy the share you are trying to sell.)  

If you want her to have the largest possible incentive to prevent problems with the farm, it seems logical that you should sell her the largest possible percentage of the rights to the farm. The largest possible percentage is 100%.  This does give her very strong incentives to take care of the farm.  She will own all rights to it.

But you will now own no rights to it. 

The farm will produce for many generations.  You want this production to benefit your heirs.  But if you sell 100% of the rights, there will be nothing left to pass down to them.

It doesn’t do YOU any good to have HER working hard to take care of the farm, if you don’t keep at least some interest in the farm. 

Remember why you are doing this: You want to care for your people forever.  The land produces wealth forever. 

If you don’t keep any interest in the land at all, you have nothing to give your people.

Selling TOO MANY rights

You need to keep some interest in the property. 

Obviously, if your interest is miniscule, this won’t really be any different than having  no interest at all.  For example, say you decide you are going to sell all but one millionth of the rights to the farm yourself.  If the entire farm would sell for $48 million, a 99 999999/1000000^th interest will sell for $47,999,952. 

The part owner will keep everything the land produces except for $2.40 per year, which will be your company’s share. Of course the part owner will have very strong incentives to keep the farm in good condition.  This will benefit you:  there will be almost no chance you will ever not get your $2.40 each year.  (It is never in her best interests to not pay the $2.40, and let you repossess a property you can then sell for $47,999,952.)

She will also have strong incentives to improve the land. If she doubles the wealth this land produces, your share of the income from the farm will also double.  Rather than $2.40, you will get $4.80 a year.  This is a trivial amount of money.  Doubling the wealth production of the farm only makes you enough to buy a cup of coffee each year (at a cheap, cheap coffee shop).  It isn’t going to take care of your people. They will look back as you as an idiot.

 

 

 

 

You have hired a consultant to help you figure out what to do with the land owned by the land-holding company you inherited.  She has been telling you want NOT to do:  do NOT simply rent the farm out without selling any rights at all, do NOT sell simply miniscule rights, do NOT sell all rights, do NOT sell almost all rights. Let’s say that you are tired of hearing the things she thinks you should NOT do. 

You just want to cut to the chase. There are companies in the world that use partial ownability systems.  They have done the research.  They know what to do.  You don’t want to know about the systems they have tried and rejected.  You want to know about the systems they have tried and that have worked.  You want to know about the systems they use. 

Quartile ownership

The consultant tells you that these companies use a system that sets rents according to a formula.  Normally, an appraiser is involved and the appraiser determines the rents according to a written formula which is used in every case that rents are set.  This formula will require the appraiser to determine the amount of operating profits of the farm first.  The appraiser will then determine the fair market value of the time and effort required to operate the farm.  (If the quartile owner hires a professional to do these things, the cost of the professional; if she does them herself, the amount she would have to pay if she hired someone.)  Subtract the costs of this work to get the free cash flow.  Once the appraiser has the free cash flow, she multiplies this by 75% to get the rents.

The buyer of this ‘package of rights’ will own certain rights. 

The farm has a certain basic productive capability. 

In its condition at the time of the sale, it can produce a certain amount of ‘excess value’ or ‘surplus’ or ‘free cash flow.’  I need a term to refer to ‘the amount of wealth the land is able to produce due to its pre-existing productive capability at the time it is offered for sale.’  This book will use the term ‘basic productivity’ to refer to the excess wealth that is added to the world due to this basic (pre-existing) capacity to produce wealth.

The basic productivity of a property is not money; however, its value can be measured in money.  In the case of this farm (which is the same as the Pastland Farm), the basic productivity is 2.4 million pounds of rice a year.  The farm produces a lot more wealth than this of course:  it produces 3.15 million pounds.  But part of this wealth must be put back into production or used to pay people who gave up their time, materials, or supplies for the operation.  The net wealth added to the world is the total wealth that comes to exist minus any wealth that must be put back into production or used to compensate people who gave up something of value in production.  The net wealth added to the world is 2.4 million pounds of rice a year.

This is the basic productivity of the land. 

The quartile owner will not own the right to ¾ of the basic productivity.  She will have to operate the farm, collect its wealth and sell it for money, then turn over enough money to buy ¾ of the basic productivity of the land to your company. 

Your descendents will get this.

The people who control the property can get incredibly rich by doing things that improve the land and increase its wealth production, then selling the rights they own for more than they paid for them.  Each time the property rights are sold, the rents are reset by the same formula used to generate them in the first place (to ¾ of the basic productivity of the property).  The improvements will benefit the improvers of course:  they will get very rich making them (we will look at examples shortly).  But the greatest benefits of the improvements will go to your descendants. As the land produces more, more goes to them. 

I need a term to refer to this kind of property control so I can discuss it.  I will call it ‘quartile ownership.’  The person who buys the quartile ownership rights will be called the ‘quartile owner.’  The quartile owner will pay rents that work out to be enough money to buy ¾ of the basic productivity of the land around them.  The entity that gets these rents will essentially be getting ¾ of the bounty of the parts of the world that are controlled with quartile ownership.

In this example, you are the one who gets ¾ of the bounty of the world.  You get it because you live in a system where all rights to the world are ownable and someone who came before you formed a land holding company which was passed down to you through inheritance.  You have a large family in this example and want to take care of your people forever. This land will take care of them if it is kept healthy; the quartile ownership system gives them powerful incentives to work hard to keep this land healthy and productive.  If they (the quartile owners) act in their own interests and do their best to make money, the land will remain healthy and productive forever. 

You want your descendants to get a very large income from the land.  You could take 100% of the basic productivity of the land (all of the free cash flow) but you know that, if you do, you will have the same basic incentives as exist in natural law societies:  production will be stagnant, inefficient, and there will be great risks; production may not grow for thousands of years.  Your people’s population will grow, however.  If the same production split among a very large number of people, eventually the land won’t take care of them all because it won’t produce enough to do this. 

You want to create incentives for the people who make day to day decisions on the land to work hard, be efficient, do the best jobs they can do, prevent anything that they can prevent from going wrong and fix any problems they can’t prevent as rapidly as possible, and improve whenever it is cost effective to improve.  Over the short run, you might get a little extra money by not selling any rights.  But over the long run, your people will get infinitely greater amounts of wealth of all kinds (as we will see later) by letting them buy and own some rights. 

Later in this book, we will go back to Pastland and look at our situation as the moratorium ends.  For twenty years we have had a natural law society.  It has advantages but it also has some serious problems.  Its advantages come from our ability to share in the bounty of the land around us. Its disadvantages include risk, stagnation, lack of progress, incredible poverty (the population grows but production doesn’t), stifling of creativity and innovation, and a primitive lifestyle that will be as likely to go backward technologically than go forward. 

We are in a position to decide what to do.  It is a unique position with a window of opportunity that is rapidly closing.  (In 20 years a lot of our complex tools and technological devices are not working anymore and we don’t have any way to make parts needed to build new ones or replace the ones we have.)  But if we act fairly quickly, we can take full advantage of our position. We have all the tools and technology we need to create partial ownability system now that will have all of the advantages of a full ownability (sovereign ownability) system, but will cause the great bulk of the river of wealth that flows to us from the land to continue to flow to us, and will immediately create vast opportunities for private individuals to profit by doing things that drive the ability of the land to create wealth higher and higher each day that passes. 

We don’t have to choose between 0% ownability and 100% ownability, natural law societies or territorial sovereignty societies, destruction or primitiveness.  If we understand that ownership is not a concept, handed down by God, but is a process that works like a machine and a tool that we can use, we can make our world work to our advantage. 

Incentives are behavioral motivations; they are pressures that push us to act certain ways.  Each incentive can be thought of as a kind of invisible hand, pushing people to act certain ways.  If you can make money doing something, you will feel some sort of emotional pressure to do that thing, because you can use the money to buy things that make your life better.  The more money you can make, the stronger the incentives.

Part Five of this book goes into great detail about the different incentives that can be parts of human societies.  This issue is easier to explain if you understand a large number of societies and can compare them.  You can see that some societies have powerful incentives that push people to build, innovate, invent, create, invest, manage risk, and do things that lead to the creation of value.  Other societies weaker incentives to do these same things.  Some societies do not have these incentives at all:  there are no natural rewards for activates that lead to progress and growth.  Some societies actually punish people who do these things: they work in ways that make the costs of improving greater than any potential benefits to the decision makers.  People who try to improve the way the world works, or advance the state of human knowledge, will find that they have to give up wealth and agree to accept a lower quality of life and standard of living than they would have if they didn’t do this. 

This book uses the term ‘constructive incentives’ to refer to incentives that push people to things that make the world a better place in terms of the wealth or ‘things of value’ it contains.  Some societies have constructive incentives.  Some societies do not have constructive incentives.

The Importance of Understanding the Difference between incentives that push people to do things that harm the world and incentives that push them to make the world better

If you take something with little or no value to humans and turn it into something with enormous value, you have added value to he world and made the world a better place.

If you take something with a lot of value and turn it into something with little or no value, you have made the world a worse place. 

Say that you start with clean, fresh air and run it through the engine of a car.  The air gets mixed with fossil fuels that have been buried under the ground for billions of years and are contaminated with dangerous heavy metals that were removed from the air by the ‘fossil’ plants that degraded to make the fossil fuels.  The oxygen and gasoline mixture is ignited creating an explosion that alters the composition of the air many ways.  The explosion pushes down a piston generating energy; the piston then goes back up pushing the gaseous mixture that is left out of the engine into the air.

The air coming out of the engine has many harmful products that were not in the air when it went into the engine. It has large amounts of carbon dioxide, a gas that insulates the atmosphere holding in heat that warms the entire earth.  It has carbon monoxide that is highly toxic to humans and unburned bits of carbon that are corrosive and foul the air.  The gasoline contains large amounts of sulfur which burns with oxygen to create sulfur dioxide; this is a gas that gets into the air where it gets sucked up into he clouds; the ultraviolet light that hits the clouds turns this into sulfuric acid.  When it rains, this acid gets everywhere.  The acid concentration is low so it won’t burn you immediately, but its effects are cumulative; you age and everything that is susceptible to acid degrade faster. The nitrogen that makes up 69% of the air has also been changed.  Normally, nitrogen is safe, stable, and inert.  But the incredible pressures that take place in the engine cause the nitrogen molecules to bond with oxygen creating ‘oxides of nitrogen.’  These pollutants are extremely powerful greenhouse gasses (more than 200 times as dangerous as carbon dioxide) and stay in the atmosphere for years.  Even when they degrade, they cause problems because the degrade into nitric acid which is even more dangerous than sulfuric acid. 

Many scientists claim that the most dangerous toxins of all are the heavy metals.  All mammals are incredibly sensitive to the many metals that are released when fossil fuels burn.  Mercury in the air make us all stupider, literally:  It interferes with the way the brain processes information. If you breathe air that contains mercury while pregnant, your child will be stupider than if the mercury had not been there.  There is a long list of heavy metals in all fossil fuels, including lead, chromium cadmium, copper, and zinc.  All are toxic to humans if ingested. 

If people do things that start with clean, pure, healthy air, and turn it into contemplated air, they take something with value and turn it into something with less value. They reduce the amount of value in the world.  

Humans can do a lot of things that harm the world and people in it.  In some cases, people can make money (or get other things of value) doing things that ‘turn things with a lot of value into things with less value.’ All societies where this happens have incentives this book calls ‘destructive incentives.’  We have tools we can use to measure value.  In the societies we inherited, people use money for this.  A great many people do research to determine the money value of damage people do from various activities, including war, resource extraction, and pollution; since we also know how much money people make when they do these things, we can use mathematical tools to determine whether or not destructive incentives exist in different societies (some do not have them) and, if they exist, their relative strength on different societies we can study. 

 

Note:  This part of the book doesn’t go over any of this math, I just want to understand that it is possible to use objective tools to determine the strength of destructive incentives.  Part Five goes over these tools and shows how to do the math, for those who are interested.  Here, we will simply go over pretty obvious relationships that exist between ‘making money’ and ‘harming the world’ in one particular type of society, one built on the principle of territorial sovereignty.  I want to show you that these societies clearly have destructive incentives and we don’t have to know any math to understand that they are extremely strong:  people can make fantastic amounts of money doing things that destroy immense amounts of value.

 

It is possible to take things with great value and turn them into things of little or no value. This book uses the term ‘destructive incentives’ to refer to incentives that reward destruction of value.  

It is possible to do the opposite.

We can turn things with little or no value to humans into things that are extremely valuable and very useful.

A good example involves smart phones. Smart phones are built on technology that takes advantage of the chemical properties of the element ‘silicon.’ The manufactures get the silicon to make these phones from ordinary dirt and sand:  the most abundant material on the part of the earth we can get to (the crust) is silicon dioxide.  This is what mountains are made of and what the first 50 miles of the earth’s surface is made of.  It is also called ‘sand’ and ‘rocks.’  It is possible to process ordinary sand in ways that remove the silicon and process it into crystals which can be cut into very thin sheets.  By stacking these sheets a special way, and printing the sheets with aluminum ink that will act as wires, the silicon can be turned into electronic circuits that can do many things.  They can process data, emit light (with light emitting diodes), control whether light passes through a surface (with liquid crystal displays), detect light (the CCD that is used as a camera on your phone is a very versatile light detector) sense motion, determine which way is up, and do thousands of other things, all of which your smart phone can do. 

All of the parts of the smart phone are made out of extremely common materials that existed from the time the earth existed.  Over the course of the last few generations, extremely intelligent people have worked hard to figure out how to remove these materials and turn them into the things that we now take for granted, smart phones.  The most important components of the phone are made, literally, from sand. If you have a 4 ounce smart phone, you are literally holding 4 ounces of sand that has been modified into a different form. 

The phone is a lot more useful than the sand it was made out of.  By turning the sand into the phone, the manufacturers have added value to the world. They didn’t add any mass or elements:  all of the elements in the phone existed millions of years before the first humans arrived on the world. They changed these elements to put them into a from that had more value.  The phone can be used to talk to people around the world, to take movies and record data, to play games, to watch the news, to determine your location if you are lost, to map a route to wherever you want to go, and to light your way through a dark room.  It is a very useful product. 

Since we have tools to measure the relative values, we can determine how much value is added.  (If the raw materials that went into the phone can be purchased for 3 cents, and the finished phone can be sold for $1,000, the manufacturer added value of $999.97 to the world.)   If people can make money with this process, they have incentives to do these things.

Different societies have different ‘incentives profiles.’  They have different mixtures and patterns of incentives.  We have seen that natural law societies do not have the incentives that push toward progress and growth; in fact, their natural forces tend to push against it, preventing progress and causing loss of advances that have been made in the future.  If we understand the details, we can determine which societies have constructive incentives.  We can determine the strength of incentives, when they exist, and compare societies based on the strength of the incentives.

 

Again, this part of the book will not go over any more than the most basic of mathematical analysis.  I only want you to know that it is possible to do this analysis.  If we do, we will have tools that we can use to compare human societies objectively and scientifically. We can determine which societies will have progress and which wont.  We can determine which of two societies that do have progress and growth will grow faster. We can determine which changes could be made in societies that would alter the rate of progress and growth. 

If a group of people are in a position to form any kind of society they want (as is our group in Pastland), they can decide exactly how they want their finished societies to work.  They can then look through the possibilities of societies that are organized in some logical way (that is what Part Five does) to see which has the incentive profile that is most consistent with their requirements. Then they can build that society.

This part of the book is only designed to lay out the relationships so you can understand them within the context of one specific type of society, a society built on the principle of territorial sovereignty.   I want you to be able to understand why these societies (which are the societies we inherited) work the way they do.  These societies have both constructive incentives and destructive incentives.  They have ‘invisible hands’ pushing us to do things that add value and destroy value.  You could say there s a tug of war going on all the time in these societies, with some forces pushing us toward destruction and others pushing us toward progress.  We need to understand what is happening here in order to understand the societies described in Part For, which only have the constructive incentives and do not have the destructive incentives. 

 

If we understand the strength of constructive incentives in different societies, and understand the way people react to incentives, we understand some important realities of existence for the human race, and for other beings that are in the same category that are in a position to determine what kinds of societies to build.

Societies without constructive incentives will tend to be stagnant and not grow at all.  Societies with weak constructive incentives will advance slowly.  Societies with stronger constructive incentives will advance more rapidly.  Some societies have constructive incentives that are so strong that they actually negatively affect the quality of life:  people will feel such pressure to find new and better ways to create value, and work so hard to do this, that they will ignore their family, ignore their health, and literally work themselves to death in an attempt to create value. 

The same is true for destructive incentives.  Some societies have very powerful incentives that push toward destruction of value of all kinds.  They provide enormous rewards for war, the most destructive act within the capability of thinking beings with physical needs wherever they are.   They work in ways that allow people to get very rich if the do things that harm the world, even if this harm is totally unnecessary. 

 

We can make electricity by paying people to dig up fossil fuels and then burning these fuels in massively expensive power plants. We can also make electricity by setting silicon based solar panels into the sun and letting them turn the energy of the light into electricity. The destruction is not necessary: the electricity can be made without it. (I make all of my own electricity with solar, including the electricity used to power my car.) 

It may seem strange that it would be more profitable to produce electricity using the obviously expensive system (pay people to dig up fossil fuels and burn them in a massively-expensive power plant) than it would be to use the cheapest a and most abundant material on the planet (silicon dioxide, the main component of solar panels) which will then produce electricity at no cost whenever the sun is shining.   We will see that in most societies, the solar system will always be preferred and always be far more profitable.  But there are some societies that have strange features that reverse the natural relationships to make destructive systems more profitable than non-destructive alternatives.  We happen to have been born into societies with these strange features.  If we want to understand why these societies work as they do, we really need to understand the flows of value that create these incentives. 

The actual details are so complex that I have decided to devote an entire book to them. Anatomy of Destruction explains the realities of destruction in a specific type of society (one built on the principle of territorial sovereignty) in great detail, using examples from the world around us.  This book, Possible Societies, deals with a different topic, the comparison of different societies and Part Three is only designed to help you understand the basic realities of societies built on territorial sovereignty.

 

We live in societies that have both destructive incentives and constructive incentives.  You could think of an incentive as an invisible hand that is trying to pull the system in a certain direction.  You could think of the interplay between destructive incentives and constructive incentives in territorial sovereignty societies as like the game of tug of war.  The destructive incentives are trying to pull us over a cliff into our own extinction.  The constructive incentives are trying to pull us toward a better future. 

If we can understand that this tug of war is happening, we can understand a lot of things about the societies around us that can’t really be understood otherwise.  For example, these societies are highly unstable, with things called booms and busts, expansions and contractions, depressions and recessions, inflations and hyperinflations, ages of wisdom and ‘dark ages’ that can last many centuries.  Why do these things happen?  If we understand the interplay between incentives, we can get some idea. 

Destructive Incentives

If the foundational structures of a society work in ways that allow pep to get wealth (to get rich) doing things that destroy value, those societies have destructive incentives. 

Territorial sovereignty societies reward destructive acts several ways.  Perhaps the most destructive activity within the capability of thinking beings is the one that we casually call ‘war.’  In Territorial sovereignty societies, the world is divided into independent entities that own everything inside their borders.  They own the wealth the land creates now, the wealth it will add in the future,

 

This section under construction.

 

Constructive Incentives

Some societies work in ways that naturally reward activities that can lead to progress in technology and understanding of the universe.  Some tie the right to get money or other forms of wealth to behaviors that cause the world to create more value over time (where ‘value’ is anything that humans may want or need or that can make life better for humans.)  Some tie the right to get money or other forms of wealth to invention, discovery, and investment in facilities that turn items of little or no real value to humans (sand, for example) into items of great value to humankind (smart phones, for example). 

This book uses the term ‘constructive incentives’ to refer to incentives that encourage the ‘creation of value’ and that encourage people to do things to make the world a better place for the human race. 

We have seen that natural law societies don’t have any inherent structures that naturally reward constructive behaviors with money or other things of real material value.  This doesn’t mean that no one will ever do anything constructive in a natural law society:  people often do things for reasons that are unrelated to the right to get money or things of material value for themselves.  However, it means there are no organized, directed forces that push toward progress and growth in a consistent and predictable way. people in natural law societies may make progress, from time to time, in some areas.  But the basic structures of natural law societies don’t cause the progress to become institutionalized and form a new base which can support further progress.  (In fact, as we saw in the last chapter, natural law societies work in ways that often cause a ‘reversion to primitiveness,’ where even great achievements can simply fade into history and become lost forever, due to a lack of investment.) 

Without consistent incentives pushing for progress and growth, we would expect natural law societies to be stagnant. They may remain extremely primitive for incredibly long periods of time.

Societies built on sovereign ownability, however, clearly do have incentives that encourage advancement of technology, growth in production, invention, discovery, investment, risk management, and other behaviors that can lead to more value existing on the planet that has these societies. 

Territorial sovereignty societies have both destructive incentives and constructive incentives.  People can get rich by destroying the world.  We know this:   many of the world’s rich got their wealth through conquest, rape of the environment, construction of tools of murder an death.  But we also see a class of rich that got their wealth inventing, discovering, investing, and building facilities that lead to devices that make the world better for the people who have access to these devices. 

We live in an amazing world.

You may be reading this on a smart phone, a tiny device that can download entire books in a fraction of a second and display them on a screen that you can tailor to your vision; it provides its own light so you don’t need to go into the sun or to find a candle and flame to read it; in fact, you can still read if you are blind because you can push a button and it will speak the words aloud.  You may be reading this in a car that goes faster than any animal on earth can travel, or a jet that travels into the upper atmosphere so it can go even faster; you may even be on an orbiting platform that travels more than 28 times the speed of sound.  If you don’t like reading books, you can watch movies, either on the tiny screen of a phone or on a massive screen that is wider than your field of view, with a resolution that is higher than your eyes can detect, with the ability to push a button to stop time so you can study a scene, and sound that shakes you and creates a feeling that is more real than reality. 

If you get sick, you can go to a doctor, get treated, and walk away from problems that would have killed you just a few generations ago.  If you are foolish and do something that tears your body to pieces, surgeons can put you back together, with medications that prevent suffering while your body heals. If you are hungry, you don’t have to worry about what the part of the world around you can produce:  you can go on Amazon and have items from anywhere on earth delivered to your door within a few hours; you can eat ice cream on the hottest days and have baked Alaska in a comfy kitchen in the middle of a blizzard. 

Dark no longer bothers us:  a switch turns on light that is better than natural light for seeing the things around us.  Cold is banished by furnaces and heat pumps.  If the air gets stuffy, push a button and the air conditioner comes on.  If you want ice, push a different button and it comes out of the machine into your cup.  You don’t have to wash dishes by rubbing sand onto them or wash clothes by beating them against rocks: machines do it all for us. 

Smart Phones

I like to use smart phones as an example of ‘creation of value’ because it illustrates the process of value creation very well:  smart phones obviously have a great deal more value than the raw materials they are made out of. 

The main components of the phone are made of silicon dioxide and aluminum.  These are, coincidently, the most common and abundant materials on the part of the earth we can get to, call the ‘crust.’  The crust is 87% silicon dioxide and 8.3% aluminum.  If you want to find small particles of the ‘crust’ of the earth, go to a beach:  the action of the waves beats rocks against other rocks, chipping off pieces and rubbing them against other pieces, essentially ‘sandblasting’ them, making them smaller and smaller.  This has been happening for billions of years.  They end up a sand.  This is the starting material for a smart phone.

The glass is made directly out of sand.  You can make glass yourself out of sand, by heating it to a very high temperature.  It turns into liquid and this liquid hardens into glass.  Of course, modern glass makers have refined this process a great deal and the glass they make is of much higher quality than the glass you can make yourself, but the basic idea is the same. 

The electronic parts are made of silicon, which comes from silicon dioxide.  Sand is 87% silicon dioxide.  The processor, touch censors, the CCD camera and other light sensors, and the LED lighting system that illuminates the phone are made of silicon. The glass is made of silicon dioxide. The other parts, including the case and wiring, are mostly aluminum.  Sand is 8.3% aluminum.  This means that if  you are holding a smart phone in your hand, you are basically holding a handful of sand that has been processed. 

Various people figured out how to take sand and turn it into extra-hard glass, processors, CCD sensors, touch sensors and casing materials, aluminum ‘ink’ to print onto a board that acts as a wiring harness to hook it all together.  These parts went to assembly lines and were put together.  At the end of this process, the hardware of the phones is complete but it is not yet ‘smart.’  To make it smart, it has to be hooked up to a computer that will install the software and run diagnostic tests.  It is now a ‘smart’ phone.  You can then put in a ‘sim card’ and start using it anywhere in the world.  You can take or watch a video, check the weather, check your email, buy things and have them delivered to you, book a flight to China, use its GPS and compass to determine exactly where you are, play games, find instruction manuals for just about anything you own, and even make a phone calls.

My phone was made by Apple, a company formed by Steve Jobs, Steve Wozniak, and Ronald Wayne.  The company didn’t create the matter that the phone is made of.  The matter (the silicon, aluminum, and other elements) existed long before Apple corporation was formed.  Apple basically organized and built systems that took things that already existed but were in a form without any significant value to humans (mostly sand), then processed these raw materials, turned them into parts, assembled the parts into usable devices, and employed thousands of programmers around the world creating software to make the phones more useful.

Although a ‘company’ made the phone, real flesh and blood humans were behind everything the company did. 

The three men listed above went to government agencies in countries all around the world and filed documents to create the corporation.  The corporation was then a kind of artificial person, an entity that could make deals, sign contracts, buy and own land, and enter into business arrangements as if it were a real human being.  The creators then arranged to get financing to cover the cost of doing research about how to actually build the devices they wanted to build.  They hired thousands of people to design and engineer factories that would take ordinary raw materials that are all around us and turn them into parts that could then be put together to make computing devices, including smart phones.  They bought land in hundreds of locations all around the world for the facilities they would need to build the parts, assemble them, design and install the software, test the products, package them, and get them to consumers.  They hired attorneys to help them get the permissions from local authorities to build these facilities. They began construction on many different kinds of facilities, each of which had a different function, with plans for it all to come together to create the finished products and make them available to consumers all around the world. 

This was a mammoth undertaking. Some of the factories required hundreds of millions of dollars in materials and required millions of man-hours to build.  They had experts coordinating everything.  Many of these people worked so hard on the project that they didn’t have time for their families, for enjoyment of nature, or for anything other than their work. 

The first facilities they built worked well, but not as well as they wanted them to work.  They hired experts to go over every single detail so they could find improvements; they then made these improvements, often being forced to abandon facilities that didn’t work well enough to suit them.  In the end, they wound up with a network of buildings that basically worked like this:  at one end, loaders poured sand, rocks, and other basic items of the earth that contained the required raw materials into hoppers. 

The materials through networks of machines, factories, and other facilities until, at the other end of the process, finished, programmed, ready-to-use smart phones in attractive packages came off the line, complete with everything needed to make them work. Most of the work was done by machines and the people involved in the process are trying hard to eliminate any need for human hardship or toil on the way.  If they had their way, they would have a single switch that they could flip that would cause automated machines to start gathering sand and other materials in places where these materials were fantastically abundant; the machines would then process them into packaged and programmed smart phones which would come out of the network of machines with no human effort needed for anything that happened. 

A great many people worked very, very hard for many years to make all this work.  They took great risks:  no one even knew if the first devices Apple made (computers) were going to work at all: It had never been tried.  Still, the founders used their own money and worked tirelessly, month after month, to go through every detail.  Early investors poured hundreds of millions of dollars into the company, all without knowing for certain that the devices would work or that, if they did, people would be interested in using them enough to pay for them.  They poured wealth, time, skill, talent, effort into the project.

Why did people do these things?

You don’t have to think very long to answer this question:

They did it for money.  

The people who did these things went from being ordinary people to being the world’s super rich.  Their wealth brought them great power that included the power to control the destiny of millions of people.  As of the summer 2022, the company they built is worth roughly $2,626,640,000,000,000 ($2.62 trillion).  

How much is this?

The largest country in the world, Russia, has a GDP of $1.774 trillion.  This means that if you bought everything produced in Russia, including all food, fuel; if you rented all buildings, offices, and homes; if you purchased all electricity at market prices, if you hired everyone who works to wash cars, repair washing machines, and made jewelry, cut hair, and did anything whatever, paying them the same amount they made in 2021, you would have to spend $1.774 trillion.  The people who own the Apple company could easily afford this.  In fact, after paying for everything produced in the largest country on earth in an entire year, they would have enough money left over to buy all farmland in the country often referred to as the ‘breadbasket of the world,’ the Ukraine. 

 

The average price for farmland in Ukraine in the summer of 2022 $1,300 per hectare; the country contains 42,000,000 hectare of farmland, so you would need $546 billion to buy it all.   If you owned the Apple company, you could sell it, use some of the money to buy these things, and have more than a trillion dollars left over.

 

And, even after all that, you would have enough left over to fully fund the following governments for a year:  New Zealand, Colombia, Malaysia, Bangladesh, Hungary, Vietnam, and Iran, 

The people who did all of the things to make these devices were very well compensated. They got fantastic amounts of money for the things they did. 

Before they even started planning, they knew it was possible for people to incredible fortunes doing the things they wanted to do.  They could read about the vast fortunes made in the history books. Henry Ford came up with a new way of manufacturing cars and built the massive Ford Motor Company; when he died, his estate was worth $188 billion in 2022 dollars.   Ford built the first affordable cars and showed that cars weren’t just luxuries for the very rich:  even working class people could afford them.  Andrew Carnegie built massive steel plants.  People had been making steel for thousands of years, but it had been made in tiny backyard facilities that could only produce small amounts; because everything was done by hand, costs were very high.  Because of Carnegie, steel became so cheap that Ford could afford to make cars out of it and sell them profitably at a price of only $260 each (this was the price of his early model T cars).  When Carnegie sold his steel company in 1901, he got the $310 billion in 2022 dollars.  John D. Rockefeller cornered the market on oil.  He bought entire fields and then built transport facilities and refineries to turn it into useful fuels; he sold the fuels through networks of service stations all over the world.   When he died, his estate was worth more than $400 billion in 2022 dollars. George Westinghouse and Thomas Edison created our electric infrastructure.  Bell created the telephone system.  Marconi created broadcast systems all around the world. Watt created the steam engine. The Wright Brothers made the first practical aircraft.

These people put together incredible networks of facilities that make the wonderful things that make life easy and comfortable for us today.  Because of them, the world can produce enough food and get it to the right places to feed 8 billion people.  They all had incentives to do the things they did: they got rich doing them. 

The people who created the smart phone knew it was possible.  It had been done. 

The people who formed Apple created the network of facilities that invented new products and organized everything.  They got paid for this two different ways:

First, they got something called ‘dividends.’  The company pays out about $1 per share on each of its 16.86 billion shares, so it pays out about $16.86 billion a year to shareholders. 

Second, they got something called ‘capital gains.’  They paid a certain amount for the ownership interest they have in the company.  If the company can make more things of value to the human race, and sell them, the value of their ownership interest goes up.  The amount they make from this depends on the exact time they bought in.  People who ‘bought in’ at the very beginning (including those who formed the company) and held their ownership interests for long periods of time made billions.  Collectively, the owners made trillions of dollars. 

They created a network of facilities that made things that made life better for humans. They had powerful incentives to do this.  They made so much money from their venture that money became meaningless to them.  They earned their way into a kind of freedom that most people can only dream of. 

Where Does the Money Come From?

The people who created this network of facilities got paid two different ways. 

First, they got something called ‘dividends’ of their stock.  If a company is making money (selling items for more than it pays in costs) the shareholders may vote (through their elected ‘directors’) to pay out money to them to pass some of this money on to the owners.  These payments are called ‘dividends.’ 

Second, the market value of the shares they own can go up.  If a company is growing and expanding its capability to make money, people will pay more money for the stock in the company. If you had bought a billion shares of Apple when it was still a fairly small company with small revenues (say in 2015, when the split adjusted shares were selling for $20 each), and held it until January of 2022 (when shares were selling for $180 each) you would have made $160 billion. 

Of the two benefits, the greatest, by far, is the benefit people can get from buying low (or creating a company, meaning buying for nothing at all) and selling high.  In the same period, the company paid out a total of $5.60 in dividends.  If you owned 1 billion shares, you would have gotten $5.6 billion in dividends and made $160 billion, or more than 30 times more money, on the increase in the value of ownership of the company. 

Later, we will examine the amounts of money people can make by buying and owning rights to things that we may call the ‘means of production’ in different societies.  Obviously, people can’t make anything buying and owning these things in natural law societies, because at least one thing that is necessary for all production, land, is not ownable. 

However, societies that don’t accept any ownability of the means of production are extreme societies (just as are societies that accept all rights are ownable). It doesn’t have to be all or nothing. It is possible for a group of people in a position to form any kind of society they want to decide they want certain specific rights to use the world to be buyable and ownable.  For example, a group in such a position may decided they want to find a kind of ownership that will allow the wealth that flows from the land that has nothing to do with improvements or changes made by the current owner to NOT be ownable, but will allow people to buy and sell rights to streams of value that don’t exist yet, but which could exist if improvements were made. 

 

The people buying Apple between 2014 and 2022 were paying mostly for things they expected to happen in the future.  If Apple had been an old and mature company with no real growth progress, its earnings would have justified a price of perhaps $2 per share.  You could say that about 1/10^th of the share price reflected the ownership of the ‘rights to the money that the company was already making.’  The majority of the price reflected the value of owning the rights to create and implement new strategies and build and sell new devices and services that rested on Apples existing platform.

 

What if there was some way to use markets to ‘subtract out’ the rights to benefit from future innovation, invention, and discovery?  A group of people in a position to form any kind of system they wanted may decide to make the rights to future growth ownable, but not make the rights to free cash flows that already existed when the people involved (say the buyers of stock) became involved. These people would buy and own the right to all benefits of their own innovation and invention.  But the rights to get the ‘basic’ flows of cash the world generates would not be owned or ownable. 

We will see that there are many forms of ownership.  It is possible to use a form of ownership called ‘leasehold ownership’ (which already exists and is being used in many places) to create a mix of ‘rights that are ownable’ and ‘rights that are not ownable.  We will see that we can adjust a single variable to change the ratio by infinitely tiny increments, creating a system that has the exact mix of ‘rights that are ownable’ and ‘rights that are not ownable’ to bring the incentives we want. The system discussed in Part Three is built on a very specific form of leasehold which, as we will see, is already used in many places and already extremely well understood.  This system transfers ownership of all rights due to the improvements, innovation, invention, or other creative behaviors of the people who own these rights (own something called a ‘leasehold title’ to the property or corporation) to the owners, while leaving all of the rest of the value the world creates to be unowned and unownable (in the same way all value created by nature is unowned and unownable in natural law societies.)  This will lead to an intermediate system; it is not a natural law society (because it allows ownability of rights to nature and the means of production) and it is not a sovereignty based society either (because it does not allow ownability of sovereign rights by any entity).  It is somewhere between a natural law and a sovereignty based society.

 

After we look at this one system, we will understand three societies; two extreme systems and one intermediate system.  We can then ‘fill in the gaps’ and come to understand the other intermediate systems.  This will allow us to compare them all by comparing the different incentives created by the different systems. 

We will see that there are only two things that can change about societies of thinking beings with physical needs:

1.  The way they interact with the physical world that provides their needs, and

2.  They way they interact with other members of their own species.

Total ownership (sovereign ownership) is a ‘way of interacting with the world:  we can divide it into territories and fight over who owns everything.  Total non-ownership is also a way to interact with the world:  People in natural law societies interacted with the world this way.  Each different partial ownership system is built on a specific way of interacting with the world. 

 

Since the world provides all our food and everything else we need to keep us alive, the system we choose for a ‘way to interact with the world’ determines what people have to do to meet their physical needs.  This means it determines the incentives that are part of societies. 

After we have decided how we, the members of the human race, will interact with the planet we live on, we have built the foundation for a society. We may then decide what we want to build on that foundation and work out the other variables.  Obviously, if we are building on a specific foundation (say a system that divides the world into territories that fight over sovereignty for each square inch of the world) we have different options for social variables than if we have a system that has an entirely different relationship with the world (say a system where no one owns any part of the world).

Social variables are the details of society.  The relationship with the world is the foundation that these variables will rest on.  We can’t really start building the social variables until we know what kind of foundation we want to start with.  (For example, if we decide we want the world divided into territories that fight over total rights to land, we are limited to societies that have governments capable of fighting wars; these become the foundational social variables.  Other societies, that don’t have these powerful forces pushing for well-organized, well-funded, all out battles to doom, have options for social variables that sovereignty based societies do not have.)  

If we want to understand the incentives that are inherent in different societies, we need to understand flows of value.  To make this easier, this book represents all flows of value with flows of money.  They all use money and, in each system, one unit of money will be called a ‘dollar’ and will represent the ability to buy one pound of rice. 

The people who bought Apple shares in 2014 and sold them in 2022 wound up with billions of dollars.  Imagine you had done what was suggested above, and made $160 billion from the transaction.  This money spends exactly the same as money that people made working for $1 per hour on rice farms in Indonesia, China, and India.  These farm workers made a total of $16,000 from eight years of work, eight hours a day, 50 weeks a year.  You made $160 billion, or 10 million times the amount the workers made, without lifting a hand. 

It is easy to see where their money comes from:  rice was sold for a high price and they were paid out of the proceeds. 

But where did your money come from?  If we want to understand how societies work, we have to understand these things. 

Unfortunately, the societies we inherited (territorial sovereignty societies) are the incredibly complex.  They have mind-boggling complexity and it clearly doesn’t make sense to start an explanation of a complex topic (like ‘what determines the market values of the means of production like the Pastland Farm and the Apple company?) in the context of the most complex society possible.

Starting with the next chapter, we will examine a society that is a little more complicated than a natural law society, but far, far, simpler than the societies we inherited.  This will allow you to see how this process works in a system that is simple enough to understand how it works.