The horizon is not so far as we can see, but as far as we can imagine

What Should Wages, Prices, and Taxes Be?

The principle is simple.

Wages and taxes must cover the cost of maintainence and replacement of capital plus any negative externalities.

Maintainence of capital, as horrible as the phrase sounds, includes workers. They must have a wage sufficient to eat well, live in a healthy place, buy entertainment, and have children. That is maintainence of “human capital.”

Taxes must be at a level sufficient to replace society’s capital base. That includes running schools, roads, courts, and all of that.

Businesses which put particular wear on specific portions of capital should be charged extra taxes. Are you degrading “natural capital” by polluting or drawing down water or timber reserves? You need to pay the replacement cost. Are you putting more stress on roads than normal businesses? You pay for that as well.

Prices should run on the same principle. Charging less than the cost of operating plus the replacement cost of capital and the price of any externalities mean the company is underpricing its goods.

“But it’s a free market.”

Free markets work when, and only when, full costs are priced in. If you charge less than the full price, you undercut those business that are charging full cost, driving them out of business. Because they were actually paying the freight for their business and you aren’t, you are free-loading, a parasite.

Competitive markets require more than the above to exist, but these are some of the requirements. One can deliberately choose, as a society, to subsidize an important sector (perhaps renewables, perhaps education), but the actual costs still need to be known and covered by society.

If you see a business or government which isn’t covering the cost of replacing its capital, whether human, natural, or otherwise, you see a business or government which is parasitical on the past, on people, or on the environment.

You will virtually always wind up paying the price anyway. But paying on the back end is far more expensive.

Corporations and people usually get rich by offloading their capital costs…by not paying them. For an example of this, look into the history and practices of Walmart, which did not, and does not, even pay its employees enough to feed themselves, and whose business practices wiped out the downtowns of most of small-town America.

The Waltons are rich precisely because they downloaded their costs onto other people and pocketed the difference.

A good society does not allow this to be done without democratic determination, and makes it as transparent as possible. If something is being subsidized, it should be known, and those who are receiving the subsidy should not be allowed to get rich off it. Want to get rich?  Great, do it in an unsubsidized business. You’re welcome to “do well” in a subsidized one, but not to become a billionaire.

This stuff is fundamental. It was well understood by the New Deal Liberals who ran World War II (no war rich!), and the post-war economy. They didn’t always live up to it, but they did know it. We seem to have forgotten.

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  1. Tom

    Like I said before, tax wealth. You can’t hide wealth like income. If a person with no job but billions in stock shares is taxed the value of his wealth, rather than income, the Government will rake in more money than taxing sales or income.

    This will take the tax burden off the poor and put it right on the wealthy.

  2. V. Arnold

    I wonder; does it matter what it should be?
    With the corrupt, unaccountable, ruling class, we’re stuck in a time warp; nothing will change.
    Shoulda, coulda, woulda…
    We’re in another election cycle, even more corrupt than the last 4.
    Fuck the hopium; give me opium; it delivers…

  3. Dan Lynch

    Ian said “Taxes must be at a level sufficient to replace society’s capital base. That includes running schools, roads, courts, and all of that.”
    For a monetarily sovereign national government that issues its own currency, taxes serve to 1) throttle aggregate demand 2) redistribute wealth and income. Taxes do not “pay for” government spending.
    When considering the level of taxes, we should ask “do we have too much aggregate demand, or too little?” Invariably we have too little. That means we are overtaxed relative to government spending. Either government spending should increase, or else taxes should decrease.
    We should always consider the redistributive effect of taxes. In America, most state and local taxes are regressive. The FICA tax is regressive. No progressive should support regressive taxation.
    Otherwise I agree with Ian about wages and prices.

  4. Jack

    Shoulda, coulda, woulda… V. Arnold has a point. The principle may be simple, but enforcing the rules should also be efficient. Is some government agency going to be charged with determining if there are no externalities being created in each business case? I hope not.

  5. different clue

    I have seen someone named Tony Wikrent sometimes comment in these threads. These seems like a near-perfect thread for Tony Wikrent to add to. Tony Wikrent is the second place where I ever read about Henry Carey and the American System. The first place where I ever read about Henry Carey and the American System was in various issues of the Farm/Agriculture (and so much more) newspaper called Acres USA. Has Tony Wikrent heard of that?

  6. Hugh

    Taxes along with legislation, regulation, and government spending are ways we move our society’s resources around to achieve and maintain the society we want, or failing that the society we have.

    So yes, Dan Lynch taxes and spending are related, and in the common parlance the throttle you reference is called “taxes pay for spending”.

    I do not like aggregate demand or free markets as economic terms. The aggregate demand you are talking about is not uniform. It is lumpy. Taxes are one of the ways we augment some lumps and remove or reduce others. The measure is the kind of society we want, or as in the present case the feudal system which our rich and elites are imposing on us.

    As for markets, they are bound by the mechanisms of taxes, spending, legislation, and regulation, and defined by the society we want or which is forced upon us. They are never free.

  7. markfromireland

    @ Hugh April 16, 2016

    the feudal system which our rich and elites are imposing on us

    Not a feudal system. In the feudal system the ruling class did have some obligations to the serfs. The system which the oligarchical class now ruling in America are trying with considerable success to impose on you is one in which they have no obligations whatsoever to their serfs. What you call feudal is far closer to the situation that obtained in for example England during the early Tudor era or Scotland during the clearances.

    How does having the same status and lack of rights that a Russian serf had grab you? All you need is for debts to be heritable and you’ll be well on the way.

  8. nihil obstet

    As comments are implying (or I’m inferring from them), wages and prices are not necessarily the best ways of producing and distributing essential goods and services. I’d say we need to move as quickly as possible towards guarantees that we can live as fully participating members of our communities without being subject to coercion from other individuals. What’s the right level of wages and prices as a means to that end is a discussion that can be highjacked very easily and gamed even more easily. A very high level of universal services is probably a more achievable and effective goal.

  9. Ian Welsh

    Yes, MFI, I’ve long said that feudalism is not the best model. It’s been vilified more than it deserves. Serfs in most places had rights and gauranteed access to the capital they needed to feed and house themselves.

    Capitalism is about taking all those rights and capital away and turning serfs into wage-slaves.

    That many of those slaves were treated well is neither here nor there, house slaves in Rome were often treated very well despite a lack of legal rights.

    Meanwhile, in China, batteries are made by hand because it’s cheaper than using machines.

    One might want to think about the mechanics of making batteries by hand. Carefully.

    Some wage slaves are treated very well…

  10. Hugh

    The word “serf” comes from the Latin word “servus” a slave. Serfs did not own land. They were tied to the land. The land owned them. The idea that feudalism was a system of reciprocal obligations between serfs and their overlords is, I think, a political and social fiction of the lordship class. Such obligations would represent an extension of the arrangements between an overlord and his underlords to whom he assigned the fiefs he controlled. This was idealized in the Elizabethan “Great Chain of Being” where society functioned because people were born into the class they deserved and remained there. Thing is it didn’t exist. When I speak of feudalism I am talking about a hereditary class-based system of human exploitation. In serfdom, this took the form of agrarian slavery. As serfdom waned, that is morphed from a de jure system to a de facto one, the lot of agrarian workers marginally improved but education and class mobility were still largely denied to them. And critically they did not own the land they worked which was the source of whatever livelihood or wealth they had or aspired to. So when landowners in Great Britain, for instance, decided it would be more profitable to enclose their land and dump their tenants, those livelihoods and lifestyles disappeared. Some of the newly displaced went to work for factory owners of the nascent Industrial Revolution. Some were transported to populate Great Britain’s growing imperial possessions. The names of the overlordship class changed. Agrarian slaves became industrial slaves. Feudalism changed its face but not its nature. Here we are in the twenty-first century, and it is all happening again in our brave new globalized, financialized, post-industrial, techno and still very feudal world.

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