In this three-part series, I'm going to show how a state can be a pure market actor and not require taxation. The state will still have an income - cynics would call it taxes under any other name - but the key difference is that the income is obtained through market means, based on a state's USP, and not through coercion by force. This leads to a society where the state does not need to know anybody's income, wealth, or transactions, leading to the obsolescence of most registers and reporting requirements (including the elimination of a corporate register), and where a "black market" is a contradiction in terms, as the state does not interfere with the market it is a natural part of. It also means an end to victimless crimes by its very nature.
Recap
In part one, we observed that there are different tiers of land ownership, where a higher-tier owner (say, a landlord) has the say over which lower-tier land owners get to believe they own the land - and that the highest-tier land owner are today's states (countries), which are the only actors capable of repelling other tier-one land owners. Thus, a state is the only actor capable of owning land, and can therefore lease it to lower-tier actors to generate income.
In part two, we see that this proposal leads to a low-friction economy where there are no taxation, reporting, or recording burdens on any transaction, and which therefore is in prime state to maximize the sheer quantity of value-optimizing voluntary transactions, thereby creating wealth better than the economies in competing states. Further, we observe that all taxes - income tax, corporate tax, sales tax, etc - go out the window. In turn, we also see that there is no tax wedge at all which would prevent profitability of division of labor, and therefore, this proposal also enables an efficiency optimization not present anywhere else.
Part Three: How a land lease would work
This leads us to the question of how such land leases would work in practice, since it's absolutely crucial to get the incentives right. We want to encourage development and land improvement that facilitates additional trade, after all. We also want to facilitate urbanization, as physical proximity of people naturally increase the number of trades taking place. This is therefore a proposal with all its possible flaws for further development.
Absent a tabula rasa state where there is no existing ownership or lease of land plots, a proposal like this must relate to the previous order of things. It is therefore desirable to mimick the current tier-two ownership of land as closely as possible, maybe even to the point of calling the lease a "land ownership tax" under any other name. Economies do not respond well to changes to fundamental frameworks and we want to minimize systemic disruption while optimizing wealth and efficiency potentials.
In particular, we want to ensure that market actors feel secure in investing in their land plots - to make sure that there's no yearly bidding process or similar where they can be overbid after having spent enormous amounts improving their plot. Therefore, it's important that a lease lasts until surrendered one way or the other - closely mimicking the way we think of ownership. However, the lease contract can and would typically stipulate that pricing will vary with market conditions - possibly within a limited scope, to reduce risk to land improvement on the plot.
When a lease expires, though - either due to being surrendered or due to serious lapse of payment - the plot can be auctioned off to a new lease for proper price discovery, and this can be weighted in to the general price landscape of the area. More on this later.
Thus, only a very small part of the population would have to deal with the state at all. The rest would have a functioning economy that just needed to feed landlords for their lease costs, and that could work however they please to set up a low-friction economy.
Grandfathering and Initial pricing
This leads to the question of how you phase in a system like this. Realistically, you'd need a lot of political capital and a desire to move the entire state construct in this direction, so we can safely assume that a lot of the current state expenditure will be cut rather unceremoniously. Regardless, at the end of the day, you'll have a budget which states an income you desire for this state construct. Let's call this number X for now - an income which will need to come from land leases, and only from land leases.
I propose this X be divided across all current plots of land by area, weighted by the square root of nearby population density, so that the total leasing price arrives at X plus some safety margin of about 5%. This solves a number of problems and doesn't solve a few others:
First, leasing the plot price proportional to land area makes sense - that 1 km² costs half of 2 km².
Second, making land significantly more expensive in cities than out on the countryside also makes obvious sense (hence the weighting by "nearby population density" - a number which will be single-digit on the countryside and four- or five-digit in the cities).
Third, why weight by the square root of population density, rather than linearly? This is actually rather important, because if the weighting was linear, you would not gain from trying to stack people more densely together in land improvement. But when weighting logarithmically, by using the square root, we're creating an enormous incentive to use land in the cities more effectively, to house more people per square meter - essentially a developer getting more rent income at a lower land cost. If the weighting was linear, an increase in people would correspond to a linear increase in land cost, removing this incentive.
What this doesn't factor in - can't factor in - are the sparsely populated and hugely expensive areas, akin to the mansion area in Beverly Hills. It also doesn't factor in resource deposits (a gold mine in the wilderness would be dirt cheap, and this may need adjustment to enter ballpark of reason). But the next section fixes that over time.
In any case, with this weighting, we can set our initial state income from contractual land lease by applying X over the respective plot weights. This assumes, of course, that the existing plot owners choose to agree to those leases - but most plots of land should find a customer, and the 5% safety margin above is to factor in a certain initial healthy vacancy.
Adding market incentives to pricing
After the initial pricing, when leases are terminated by the customer (or the customer defaults on payment), land plots can be auctioned for lease moving forward. This creates a price discovery mechanism for the general area that can be factored in to the nearby plot lease pricing according to some to-be-determined mechanism that's left as a minor implementation detail.
We're also creating a secondary market where customers can trade leases directly between themselves, in what was previously buying and selling plots of land in tier-two ownership. This also assists in price discovery and highlights value differentials in the market.
Problems and considerations
With a shift in how you regard a state as large as this proposal, there are a number of problems and questions to consider.
One of the first is whether someone can opt out of the lease entirely and still occupy the land, excluding others from its utility. The answer to that question, under this proposal, would be no. Such a mechanism would create an incentive to let all the border plots of land pay for the military defense of the entire country. It's noteworthy, that under Land Value Tax philosophy which is similar in implementation but not philosophy, a payment for lease of the land is also a compensation to the community for a right to exclude other people of the same community from said land - after all, land property is of a completely different type than property you can hold in your hand and move physically, like an apple. But this proposal focuses primarily on the state as a fair market actor, rather than justifying a taxation with some obligation to compensate others for exclusion.
Still, in the realm of politics, this proposal takes the state construct 75% of the way toward such an opt-out being possible in the future.
A second good question is whether this isn't just a reset button on state power, and which would enable the state to slowly grow back over time. This may be true, even if the proposal severely hinders such a growback by getting rid not only of taxation mechanisms, but also of the taxation discovery mechanisms (transaction reporting and recording infrastructure). That said, a hostile takeover could build such structures back over a 20-30 year period. But expressed differently, if you did have a reset button on the state's ability to commit violence, would you not push it?
A third question that has popped up is the existence of a social safety net. There's nothing in this proposal that precludes the state from providing civil services. For myself, I'm a warm proponent of Friedrich Hayek's and Milton Friedman's proposal of a Universal Basic Income to all citizens, as it does not require any bureaucracy at all for qualification, and allows the recipients to provide price discovery in how such a small basic income is best spent.
Conclusion
A state can be a pure market actor and not require taxation. This enables enormous gains in efficiency, as the tax wedge can be completely eliminated, and enables wealth creation through maximization of the quantity of voluntary trades. Doing so does not preclude civil services or a social safety net. The proposal also allows for the elimination of all state databases except the citizen registry and the land registry, drastically reducing bureaucracy, and eliminates victimless crimes just by its nature of being a market actor.
If we're being consistent, the answer to that question would be "Only if they can defend it from the previous tier-one owner." The definition of a tier-one owner appears to be "One capable of defending land more effectively than anyone else can attack it," and it hardly makes sense to snapshot the tier-one owners now and declare it to be the final configuration and regard all new tier-one owners as illegitimate.
Well yes, indeed. But it would be quite a show of fireworks to see somebody try to put their private arsenal against that of a modern country. I'd want the big bag of popcorn and would quite likely not cheer for the country.
I have not yet read the other parts, but am inspired and glad to come across this article. thank you for your writing and proposal. All for one and one for all! Namaste :)
nice post
I am opting out. ; )
Create a blockchain that works so well it takes care of this on its own. I can only see this working if all the leasing and expenditures are done on block-chains (or better) under smart contracts. The state as we know it has got to change too, paying the state is sickening thought to me. The idea of paying smart contracts might be something we can tolerate.
A Universal Basic Income would be ideal here too so people without an income would always have the right to occupy and farm land too. Smart contracts could ensure this money is not mis-managed.
That's a feature of this proposal: it very much encourages a reconstruction to more efficient market technologies like smart contracts as you describe.
I am a smart-contract developer, and this is my biggest 'dream scenario' for the way 'government' funds are 'handled'.
Ties nicely into what I call "cooperative agorism", which is both sort of a "gradualist" (that's a socialist term though) approach to implementing and maintaining anarcho-capitalism in spite of potential natural tragedies that could strike any society; Such as for example a sudden draught, a spike in unemployment or some instances of child poverty, which If left unchecked even just for a short time, could lead to an increased demand for the state.
The implementation of capitalism and the prevention of such a crisis is accomplished by entirely volountary cooperatives, that ideally would make money from their support for the markets; their agorism. These organizations must "outbuild" the state in the white, grey and black markets, so that the state becomes visibly obsolete.
A cooperative and its members could be backed by a decentralized currency with an inbuilt UBI / similar solution, or such a cooperative could "outsource" such concerns if they/someone else came up with a more nimble market mechanism for "commoditizing" unemployment. (I'm thinking bond markets etc)
Here, here!
You have my vote.
I appreciate the bidding mechanism to determine the price for land. It would keep the state from acting as a monopoly in terms of setting prices on land leases.
I don't see how this system addresses tragedy of the commons issues. For example, carbon emissions are hurting everyone. Everyon's property rights are violated by production of carbon emissions. I assume this is one of the areas you would describe as a "victimless crime," but I would argue this is a victim filled crime that is so distributed it is hard to address.
What do you think about something like carbon emissions? Do you think we should just let people produce as much carbon as they want? If not, how do you address it in this system?
More technology, not less, has always solved environmental problems. These problems have a tendency to go away as long as you allow people to develop the land with the latest and most efficient technology. (For an example, look at the cost of solar power and how it's dropping dramatically.)
Otherwise, I detail in part two how to deal with pollution in general (just like any damage to a lease, essentially).
I'll take a look at part two already. This is the explanation you provide about how to deal with environmental pollution, "Oh, and what about pollution, which is the most common objection to this? How would this scheme handle pollution? That's actually one of the easiest things in this entire picture. Remember how, when you lease a residence, you're liable for any damages caused to the residence by you during your lease? The exact same standard boilerplate could just as well apply to a land lease, and it's as simple as that."
So, does this mean that with the situation the climate crisis that each person driving a vehicle that is emitting carbon dioxide would be address with class action lawsuits filed by citizens of the world who decide to sign on to the class action suit?
carbon emissions are hurting everyone - allegedly
Yes, I'm sure that political associations make global warming seem like nothing but another "think of the children" type of bullshit, but politics aside, the atmosphere and what it is composed of does affect humans. More carbon dioxide will raise temperatures, and that will cause problems for human civilization.
That is just how it is. How politicians use that fact is up to them.
will raise temperatures - depends on how much. Might not cause top many problems and might even be positive. We don't know.
It will raise sea levels, and that will destroy coastal cities.
Water expands when it gets hotter. What else global warming will do is not quite known to me.
I see now we moved to global warming. I though we were talking about carbon.
What do you mean, "allegedly?" Do you think the climate crisis isn't real?
It sounds like it's just a State Reset button to me...
Things were done similar to this in the past and it got to where we are today... not sure why this time would be different?!
Even if it is: if you had a State Reset button, would you not push it?
Possibly, as long as it doesn't interfere with the technological explosion that has coincided with it the first time.
@falkvinge I graciously appreciate the awareness you have brought to the relationship between the "Blockchain" and the "State".
The Blockchain is tier 1 owner.
Private Keys are tier 2 ownership.
I was in the falconwing with a different alias :)
I have a question...
we're creating an enormous incentive to use land in the cities more effectively, to house more people per square meter - essentially a developer getting more rent income at a lower land cost. If the weighting was linear, an increase in people would correspond to a linear increase in land cost, removing this incentive.This appears to be the basis of the idea - Harvesting people is the most beneficial economic activity for the "State" to protect.
And so to my question:
What happens if no people inhabit that land but it is agriculture... or server farms?
I'm glad you briefly addressed the possibility of a basic income. I believe that it can definitely be done within a framework of a taxless state and completely replace the welfare system. The proposal overall is very interesting and has amazing possibilities. I would advise you to send a full proposal to a libertarian-minded Congressman after the elections this year.
love that myth of "victimless crimes".
There is always a victim, may-be no one dies, but someone definitely lose money. (since what you call victimless crime is fraud... )
Question:
Drug abuse is commonly considered to be a victimless crime (if not even the prime example of a victimless crime). But is it really that simple? When the drug abuse is very serious, and the drug addict wants to get rid och his addiction, there certainly is suffering, and hence a victim.
Are you asserting that an unfulfilled desire, even without interaction with other people, is a victimizing condition that merits criminalization? That's the logic of your statement.
It's not the drug addicts that we criminalize (normally), it's the ones selling the stuff. And it isn't obvious that it's a bad thing to prevent some dangerous drugs from being sold.
when the state criminalizes the selling of a drug that nevertheless has a significant demand from citizens who want to use it, that effectively legislates a monopoly for criminal organizations to sell that drug at outrageously steep prices. It creates an extremely lucrative business for criminals to run.
Additionally, the state's attempts at enforcing the ban will prevent the free market competition process from improving the product. Thus amplifying the risks to users.
The steep prices due to government enforcement will also be very difficult to afford, leading to addicted users having no way aside from theft to fund their addiction. This creates a lot of unnecessary property loss for people who have nothing to do with the drug market. Property loss that just wouldn't happen if selling the drug wasn't criminalized.
Also, it's at best ineffective in curtailing the use of the drug. At worst, it increases the use of the drug in practise due to young people's tendency to consider doing forbidden things cool.
Huh, so no more levels? ok, I'll write here.
Well, those are reasonable arguments, elriel. But this question highlights one of the big problems with anarchy: most people would probably behave sensibly in an anarchic environment; but not everyone can take care of themselves. Some would make some decisions which would be really bad for them. At times, very widespread drug abuse (of alcohol, in particular) have been a major social problem for certain countries (Russia, Sweden, etc). Having some government funded program to at least work with information, and helping addicts get off their drugs etc, seems reasonable. But then the list of things we want a state to do needs to be expanded. Indeed, I think most laws and most of the tasks our states have taken on to handle (besides keeping a military and policing) are justifiable, at least in principle. What about schools, for instance? Some basic education is mandatory in most countries. That's another thing I think is justifiable (mainly because I am not fond of parents brain-washing their kids, and that sort of stuff).
What exactly is it that limits this state to a market actor? They retain a monopoly on violence, indeed it's the source of their power.
Feudal society is believed to have formed on a similar, initially voluntary system. Vassals would pay fealty to the Lord who would offer his protection, but it quickly became non-voluntary as the Lord can enforce payment of fealty while the Vassal can only hope for protection.
I also don't see why we would be motivated to take care of our land when it becomes a financial burden to us and can be seized by the state upon non-payment of rent (or any other reason, as you said at the start the ability to seize/protect land by force is the source of their power).
I think the key to understanding this proposal is to realize that the state does not have to be a small subgroup of people (or in other words, elite) that it, in effect, is today. State's power is born from the people and as long as it's not centralized in the hands of a small elite who can use it to walk over most everyone else, most of your comments lose their significance.
As for the motivation to take care of the land, why on earth would you be voluntarily paying for it if all it was for you was financial burden?
The value of land to an individual can change due to unforeseen events. When land is property, it is more usually a cushion against changing circumstances. When there is a large tax on your land, changing financial circumstances may force you to have to abandon the land when you otherwise wouldn't, as it has become a liability in this system.
I find your series fascinating. You are expanding my mind to the fact that this may be possible. (I'm not convinced yet)
In future posts will you be discussing infrastructure? i.e. Water, sewers, roads from dense populations to sparse populations and the continual maintenance? This is where I am interested.
Watching three neighbours who share a three-unit townhouse and could not come to an agreement on replacing the shingles on their roof (all three units were likely leaking due to disrepair. I wonder what it would be like when the price tag is in the millions to repair a stretch of road.
Keep up the good work.
There is a very interesting town in India where municipal infrastructure did not keep up with the growth of the city. The result was a network of private and public options for water and other plumbing, where people just sign up to the cheapest (most cost-efficient) option. Fascinating.
Is there a link to this city?
Keep working, stop paying.
Any plan that leaves wage slavery in place only insures that you will have a boss.
It's a club, and we ain't in it.
This guy thinks something along your lines.
The time you spend learning his info will not be wasted.
http://cafr1.com/
Interesting post!
I have to admit I am more of a fan of the Land Value Tax idea, but I am not sure i fully understand how thins works.
For example I am not clear how long these leases would be, because I assume they need to be reevaluated periodically if there is going to be a market and prices for them. If you find gold on your land why on earth would you let a cheap lease expire?
Also what about inheritance? Can my child take over my lease in order for example not to lose the house I built?
Also, without sales taxes, how will the state nanny us around and discourage icky stuff like tobacco, alcohol and sugar?
Studies and statistics imply that people don't poison themselves if they are well connected and happy. I put my eggs in that basket, this is very intuitive to me. After childhood, the training wheels are off. Encourage and treat the issues as health and emotional problems as they arise. A healthy society will be quick to recognize and reconnect those that are having trouble.
No taxation is an interesting idea. However there is an idea that their should only be land tax. There still needs a to be certain means to supply basic needs for bare minimum needs of individuals and groups. Tax should be to help supply needs to the self and neighboring individuals to a better basic life.
very good interesting post!
Still not ready to jump in and agree. But again (as I commented on Part 1) your tone, and thoughtfulness, are much more compelling to a "not anarchist" like myself than much of what I (accidentally) read here. Keeping my eyes and mind open.
Um, why don't we just start a fiat currency and issue money to citizens and allot some to government. No taxes necessary.
www.palcoin.org as a possible example.
Thank you @falkvinge, another article which made me think; one thing I was pondering as I was reading, was; doesn't space play a massive part in how effective a policy like this could work?
In countries such as your own, whereby you have a high, Sq KM/per person ratio, it may work better than in a country say like Japan, which has most of it's population living on 3% of its landmass.
I'd love to know your thoughts.
Thanks
Cg
Taxless state is just a dream.
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As I wrote in a comment on your first post, it is clear that we want our state to provide some sort of social safety net for those who have no income (we don't want the sick and the old starving and dying on the streets). I do agree that UBI is the right way to go, but it is not cheap.
How expensive then, would a UBI program be?
Well, define Iavg as the average citizen income per month. In that, I include all forms of income, whether it is through work, profit from company shares owned, interest, gifts or UBI.
The average income in the US today is about $7,500 per household and month, so let us use this number. A UBI of $1,875 would be a very modest UBI, it would be very hard for a houshold to manage on that. But it is still 25% of this Iavg. So, to afford this very modest UBI program, we'd need to collect tax (land tax by your system) amounting to 25% of the average income. In other words: the average citizen would need to pay, in one way or another, directly or indirectly, 25% of their income to the UBI program. And that is not including expenses for the military and other services. As your state's only income is land tax, these land leases are going to need to be very, very expensive.
An anarchist system?
A system? Oh my. Oh myyyyy.
What an interesting, and even terrifying, use of words.
You don't need to shout.
Cg