Sunday, 13 July 2014

Benji's Law of Value

Following on from MW's piece below, I'd like to postulate two new laws. For which I expect to receive the Nobel Prize for Economics.

1) What is morally correct is economically efficient.

following on from this

2) The sum of all good State regulation raises aggregate land rents. The sum of all bad State regulation reduces them

By the "State" I mean all of us acting under agreed laws and social norms.

If 1 & 2 are true, there are many instances of policies espoused by economists and the main political parties that run contrary to this.


Lola said...

Point (1) Yes. Absolutely. Everything else is at best cronyism and at worst crime. That's why Socialism/communism/fascism is morally unsupportable as it relies on coercion and the destruction of private property rights and the sanctity of private contract.
Point (2) I think needs work. I think that state 'regulation' is very rarely beneficial for anyone and can have the effect of raising land rents both when it is good and bad. Failed state regulation - the FSMA 2000 - managed to boost land prices AND destroy the banking system.

Lola said...

- but I agree that if your definition of 'regulation' - the rule of law and social norms - holds then your point (2) holds.

I think that the rule of law is all that is required. Social norms would be covered by the Common Law, and the minimum of statute law anything else. I am also assuming that the rule of law includes private property rights and that habeas corpus applies.

Kj said...

Not sure I recognise #1. AFAIU, the welfare term in economics, as the measure of efficiency, allows for something to be welfare maximising without it being strictly "moral".
Take or example price gouging, which is frequently regarded as immoral, and indeed illegal in many places, is also the most economically efficient (that is, the ability to fully set prices at will/in line with demand).

Kj said...

- but this is an interesting intersection with the question of economic rent. Rents are always price gouging, but since it doesn´t affect/induce supply, as opposed to generators/water/blankets after an extreme weather event, it actually reduces welfare.

Ben Jamin' said...


Most economically efficient for the individual, could be a greater loss for the whole. Price gouging could therefore economically neutral at best.

BTW, when I say economically efficient, I don't mean increases in GDP. GDP does not measure, as you point out welfare value.

Just in case someone says "what about keeping coma patients alive for years on end"? ;)

Mark Wadsworth said...


As to 2), re Lola's point. The "state" is all of us deciding on and acting by common rules.

So if we agree that the age of consent is 16, that means that we assume it leads to overall better outcomes for everybody in general (not necessarily each individual). It's the same with the speed limits on motorways or residential streets.

Perhaps we'd be better off with no rules, or different rules, who knows. But if we choose the right rules, then clearly we are collectively better off than if we chose no rules, or even stricter rules etc.

And those go into rental values. Would you happily live in a place where it is OK for adults to have sex with minors? Or where people can tear down a residential street at 100 mph?

No you wouldn't, so the rental value of homes in those areas is lower.

Ian B said...

#1 would lead us to conclude that it is most moral to euthanise people when they reach a certain degree of infirmity and use the corpse for pet food, fertiliser etc. So I think it's a bit dubious.

Physiocrat said...

Maximising aggregate land value would be a better target for public policy that GDP. Is there a snag anywhere?

Lola said...

IanB - well, my mum was quite keen on her corpse being used for science. I told her that they probably already had enough, and anyway the worms are always hungry...

Physiocrat said...

Private property rights exclude people from access to productive resources unless accompanied by LVT.

Lola said...

Physiocrat. Private property rights do not just apply to land. Property rights apply to property in its widest sense.

And I am not sure I understand your post.

Physiocrat said...

By "property", I am referring to property in land, which is the usual sense of the term. Because property can include chattels, personal effects, etc, it is a bit of a weasel word and has done a lot of mischief, for example in the Encyclical Rerum Novarum.

Ben Jamin' said...

@ Ian B

As I already commented :)

"BTW, when I say economically efficient, I don't mean increases in GDP. GDP does not measure, as you point out welfare value.

Just in case someone says "what about keeping coma patients alive for years on end"? ;)"

Added value is not only measured by GDP.

In fact, GDP is not a good target at all.

If you are going to target something that can be empirically measured, land rents are the best indicator by far. IMO.

Hence the post.

Mark Wadsworth said...

IB, you misquote the post. BJ did not say "what is economically efficient is morally correct" he said "what is morally correct is economically efficient".

Phys, 'yes it would' and 'no'. But to head off DBC Reed at the pass, we mean 'the rental value of land' and not 'the selling price'.

L, harsh!

Phys, I shouted at my wife and her friend recently for referring to a house as 'a property'. They saw my point, and then went back to saying 'the property' instead of 'the house'. Idiots.

Ian B said...

Mark, it doesn't matter in my example which way around you do it. We know that keeping old people alive is economially inefficient. We do it because it is morally corrrect despite that. So my example disproves the first assertion.

Ben Jamin' said...

@ Ian

Not if you measure things in purely in GDP.

But, in your example it does add value.

In this sense, "what is morally correct is economically efficient" is a pretty banal tautology.

But that's good. Because it provides a sound basis for deciding economic policy and how we make spending decisions. NICE get to do that difficult task when rationing healthcare. It is on a value added basis.

Take LVT. It is morally correct that we share the value the Earth provides for free, and it also morally correct that private wealth should not be appropriated for public spending.

Both of which happen to be economically efficient. So adds value.

The effect from which would measured as a rise in land rents.

Of course, land rents don't necessarily capture the added value of caring for the sick and elderly. But then again, they don't capture the value people get from taking a holiday.

But they do capture the surplus value we create together.

Ian B said...

No, keeping people alive past their use-by date destroys value, which is why only wealthy nations can do it. They are non-productive consumers.

A economically optimal society would be a harsh place indeed. In the case of medicine, it would treat only those with a (mean) potential to produce more economic value than their treatment cost.

Mark Wadsworth said...
This comment has been removed by the author.
Mark Wadsworth said...

IB, you're being a politician now, are you saying looking after the elderly "destroys value" but not doing so is "harsh"? Is looking after them A Good Thing or A Bad Thing?

Returning to Benji's law, LVT would encourage the elderly to downsize, freeing up land and buildings for the productive in areas where the productive want to live and also generating tax revenues which we could use - if we so wished - to pay for old age care.