Spencer Heath Archive

Item 2766..

Extensive penciling on 26 pages of notepad, beginning as a letter to “John” (presumably John Chamberlain). Note: the originals envelope contains on the last page a summarizing diagram that has not been transcribed. This was to become a new chapter in CM&A following Chapter 26 and concluding the middle section of the book. Consider whether any of this should be used in a new printing of the book.

No date

 

 

Dear John –

 

It has been on my mind for some time to write a supplementary chapter to follow Chapter /26/ on The Distribution of National Income and conclude the middle section of my book.

 

Chapter /26/ deals ______________ with the almost certain changes in the pattern of distribution upon the liberation of private capital into full and free productivity. This happy result is predicated on the public capital being administered through a community-wide organization of the owning interest in its sites and resources which, together with all the artificial improvements bordering and between them constitute the public capital of the community. The distinction is this:

 

Property is whatever is by common action or consent appropriated to a proprietor. Private property consists of all land, all fixed improvements on land and all movable things produced from or made out of land, — all of these three kinds of properties the ownership and title to which is vested in specific entities or persons. This private ownership consists in the protected or unopposed authority to exercise both a physical and a social jurisdiction over the property owned. The physical jurisdiction is exclusively a physical relationship. The physical jurisdiction involves none but physical relationships or control between the owner and his property and between him and other owners or persons.

 

The social jurisdiction transcends all the physical. Its exercise involves a free and voluntary, a non-violent and therefore social relationship and process between the owner and other owners or persons with respect to the thing owned. This relationship and process is call contract. A contract is an exchange one part of which is deferred and in the interim only symbolically by a token or promise performed, and all exchanges are fundamentally exchanges of services, both social and physical, inasmuch as most services are incorporated and accumulated in things that are property. The process of incorporating them is physical; the process of exchanging them is social. When no services have been accumulated, a thing of nature only being exchanged, then only social services are performed — the service of making the exchange. Such exclusively social services are performed only in the sale or lease of land that is wholly unimproved — in which no physical services have been incorporated and to which therefore only the social services of exchange are applied.

 

The incorporation of merely physical services does not of itself establish or make any contractual or social relationships, for these exist only between persons and cannot exist between a person and a thing.

 

Taking private property as all those natural and artificial things to which specific entities or persons are entitled, only a small portion of this is held under mere physical jurisdiction, that is, merely for the use, consumption or gratification of the owner. Not only is such private property small in amount, it is entirely negligible as playing any part in those social relationships of contract and exchange that distinguish a society from a large family or tribe. Every atom of such private property has either never entered the exchange system or having entered it has passed out as users or consumers property and is no longer the subject-matter of any contract—of any distinctive relationship between the members of a society. On the other hand, the great preponderance of private property is not in course of being used or consumer by its owners but is owned for the use of others, either itself as property in the course of exchange or as instruments contributing to the use and service of others. All such properties are private capital, being, directly or indirectly, the subject matter of the social or contractual relationships among men that alone distinguish them as a society. The great preponderance of the private property — all that is used as capital — is therefore, properly speaking, social-ized property.

 

There is a marked and fortunate tendency of private capital to concentrate under the ownership of individuals and especially of corporate entities. It flows automatically into the jurisdiction of such owners as give it highly specialized and the most efficient and productive administration. This forming of efficient organizations for mass-production of amenities and the mass-serving of populations is the social technology, only empirically developed so far, that puts into social effect the rational technologies that have sprung from the great advances in the physical sciences. As these social and contractual relationships and processes come to be analyzed objectively, as the physical processes have been, the present empirical technology will become superseded by a rational. Mankind will thus attain to a rational dominance in the field of social phenomena to correspond with that he now has in the physical field. Meantime we must discover and observe such uniformities of successful operation as we may and thus anticipate their extension, whether rationally and rapidly

 

We have noted that private property is preponderantly private capital — socialized property. It has long been estimated that there exists in every community, in addition to all the private capital that is administered by its owners directly for the benefit of the general public by way of particular persons through the processes of contract and exchange (benefiting its owners only consequentially and thus secondarily), there exists also a corresponding amount of public capital that by custom and tradition is administered politically by conquerors or similarly by their accepted and elected successors.

 

This public capital consists of what are commonly regarded as public improvements provided and maintained by the political public appropriation of private property by taxation in its many forms and by public borrowings similarly maintained. It includes also those public improvements provided from private property under political franchises granting to dependent corporate bodies the exclusive privilege of levying permissory charges upon the population in proportion to their use of the public facilities so provided.

 

Now, a peculiar character of the public capital is that it does not come into being through new contributions being made to the general market as private capital does, but by transfer and diversion out of the general market mainly by the levying of taxation but also by political guarantees of interest on public loans and of adequate returns on the tolls and charges permitted to be levied upon the users of the so-called quasi public service facilities. The public capital is in all cases diverted from the free and fluid /?/ administration of the market through voluntary contractual relationships into the closed economy of the political state or of corporate bodies created by and either __________ or dependent on it.

 

This governmentalizing of private capital has three effects: First, that which is appropriated by taxation ceases at once to yield any revenue. It is not an investment but an expropriation. It not only fails to produce a revenue, it is an outgoing stream of capital consumed. If any public advantage, above disadvantages, should result from it, this does not flow back proportionately to those from whom it was seized; at best it could only add to the desirability (or diminish the undesirability) for occupancy of particular locations where such advantages might appear.

 

Second, the portion of public capital that is provided by _________ borrowing is likewise unproductive, for the interest on public debt is not paid out of the returns of any public enterprise financed by the debt. The principal of the debt is expended in public works and activities that yield no return. Interest on it is paid out of current tax seizures or by false money printed for that purpose and  principal finally is liquidated in the same manner, if ever paid.

 

Third, the public capital administered by quasi public corporations under dominance of the political authority does, indeed, yield a return, but it is a public monopoly revenue. The rate and amount of the revenue is not determined in accordance with the excellence and efficiency of administration and by democracy of the market. It is prescribed unilaterally by the political authority that tends always either to permit the privilege of maximum monopoly prices or to use the inferior and subordinate corporation as an instrument for the collection of taxes from those who are obliged to use the particular public services. Thus does the political power seriously either impair the proper recompense to owners and administrators of the “quasi public” facilities or cancel out in large measure the benefits of these services by the taxation superimposed.

 

 Further, there have more recently developed a tendency to establish non-profit governmental commissions and corporations for the building and operating of public projects for the use of which fees or tolls can be charged. Construction bonds are sold with covenants pledging future tolls to the payment of interest on the bonds — the interest received being exempted from taxation. Such exemptions are peculiarly advantageous where there are two or more conflicting authorities as in the case of the New York Port Authority constructing and operating bridges, tunnels etc.

 

Notwithstanding the many __________ and conceptions that have attended the establishment of quasi-public corporations, it can hardly be denied that the modicum of private enterprise for profit permitted in their administration has placed them far in advance of the wholly political or “publicly owned” corporations as agencies providing public services without the imposition of an equal or greater amount of public disservices. Yet in none of the forms under which the public capital is administered, and least of all under the wholly political form, is the recompense and return for the administration of public capital determined by and limited to the actual earnings themselves. The return to investors (if any) and administrations is determined by legislative and executive decrees or exempted from levy or cancellation only by political promises certainly not beyond the possibility of denial or repudiation. Under wholly political administration there is no capitalization of revenue for there is no revenue, only a reverse or de-capitalization of funds into expenditures, and under quasi public administration the revenues are, in general, prescribed and are not the true expression of actual earnings. It follows from this that the funds administered by or under control of political authority are only potential capital and not, strictly speaking, any capital at all for they produce either no revenue at all or the earnings ascribed to them are politically limited or prescribed. The designation of public capital by that term is therefore more by anticipation than by present actual fact.

 

The anticipation is that with the continual growth and refinement of the highly cooperative form for the unitary administration of large private capital, — the savings, earnings and properties of many separate persons administered by a single corporate person — there is an unheralded and unobserved approach towards a wholly proprietary, non-political administration of public services by the amalgamation in corporate form of the kind of property and ownership that is so specially and uniquely appropriate to that purpose or end.

 

The first characteristic of a corporation is continuity. That perhaps is why the first corporations (other than political; a king or kingship — any rulership — is a corporation) were ecclesiastical and eleemosynary. A second characteristic, looking to effectiveness and efficiency, is unity. Later came the admiralty, trading and transportation corporations in which many owners could achieve unity of administration over large properties essential to shipping and trading on seas and land. Then great manufacturing corporations became possible. These incorporate their services into materials of the earth which are thereby transformed into commodities. These, in turn, become the subject-matter of contractual services whereby the ownership and use of these commodities pass to the public at large and the owners of the corporations are automatically recompensed with profits in exchange for the services, both physical and contractual or distributive, performed by the owners of the corporation through officers and employes acting in their name. Of these commodities some are immediately consumed and thereby returned to the earth. Others, called consumers’ durable goods, have been so created that they afford more or less continuous services for periods of time before their use is exhausted and they are replaced or removed. Food for example, when it passes its final exchange, is almost immediately consumed. The services of clothing can continue for moderately long periods. The services of housing and shelter are much further prolonged. And much other production, such as factory equipment, serves no one directly as consumers etc., but only in the production of further producers’ or of consumers’ goods.

 

Consumers’ commodities and properties are supplied and their services afforded not alone by their sale outright at the end if their being produced and exchanged but also by the sale of their use only, without any ownership of or title to them passing to those who receive and enjoy the use of them. Under these arrangements only the uses of them and not the properties or goods themselves are sold. Under the former arrangement the properties or goods pass at the point of sale out of the system of exchange. Their ownership becomes exclusively individual and no longer social; they cease being capital, for they are out of the social system of exchange and no longer the subject-matter of any contractual relations. All further responsibility for their maintenance and care now falls upon the purchaser. He has their full and unlimited use but on him falls all the responsibility for their maintenance and care as well. This is a duty and necessity upon him that he cannot always conveniently or efficiently or even economically perform. If he is a highly specialized or professional person, it is a distraction from his services to others or at least it is an impairment of the leisure he has for devotion to creative and cultural or recreational affairs. Many of those who obtain the use of properties and goods by purchase delegate their maintenance and care to servants and employes, but in this they must still retain the care and responsibility of supervision over them.

 

As a more efficient arrangement, there has developed with the growth of society the device of administering property continuously as capital. By selling to the user and consumer of property not the property itself but the use of it for specific and usually successive periods of time, the property itself is retained under administrative ownership as capital within the general system of contract and exchange.