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A Simple Idea

Every individual is born with legitimate claims
on natural property, or its equivalent.

—Thomas Paine

We live in complicated times. We have far more problems than solutions, and most of our problems are wickedly complex. That said, it's sometimes the case that a simple idea can spark profound changes, much as a small wind can become a hurricane. This happened with such ideas as the abolition of slavery, equal justice under law, universal suffrage, and racial and sexual equality.

This book is about another simple idea that could have comparable effects in the twenty-first century. The idea is that all persons have a right to income from wealth we inherit or create together. That right derives from our equality of birth. And the time to implement it has arrived.

Why is this? America today is on the brink of losing its historic vision. From our beginnings we aspired to build a meritocratic middle class, and by the mid-twentieth century we had largely done so. Though millions of Americans remained marginalized, our median income — the income that half of Americans earn more than—was enough for a family to live comfortably on, often with only one wage earner. Further, most Americans assumed that their children would live better than they did—in other words, that our broad middle class would not only survive but expand.

But that's not what happened. As we approached and then entered the twenty-first century, our economy continued to grow, but almost all of its gains flowed to a wealthy few. This disturbing fact has been amply noted by presidents and many others, but what hasn't yet been identified is a remedy that can work.

This book contends that paying dividends from wealth we own together is a practical, market-based way to assure the survival of a large middle class. It can be implemented by electronically wiring dividends to every legal resident, one person, one share. Such a reliable flow of nonlabor income can sustain a large middle class for as long as we have a prosperous economy. What's more, it can keep our economy prospering by continuously refreshing consumer demand.

The core of this idea isn't new. Thomas Paine, the patriot who inspired our war of independence from Britain, proposed something quite like it in 1797. And Alaska has been running a version of it since 1980. The main things that would be new are the scale and sources of income.

This old/new idea is ready for prime time for two major reasons. One is the lack of alternatives. Our current fiscal and monetary tools can't sustain a large middle class, nor can increased investment in education, infrastructure, and innovation. None of these old palliatives address the reality that for the foreseeable future, there won't be enough good-paying jobs to maintain a large middle class.

A second reason is the current stalemate in American politics. Solutions to all major problems are trapped in a tug-of-war between advocates of smaller and larger government. Dividends from co-owned wealth bypass that bitter war. They require no new taxes or government programs; once set up, they're purely market-based. And because they send legitimate property income to everyone, they can't help but be popular among voters of all stripes.

Would dividends from co-owned wealth mean the end of capitalism? Not at all. They would mean the end of winner-take-all capitalism, our currently dominant version, and the beginning of a more balanced version that respects all members of society, including those not yet born. This better-balanced capitalism—we could call it everyone-gets-a-share capitalism—wouldn't solve all our problems, but it would do more than any other potential remedy to preserve our middle class, our democracy, and our planet.

ODDLY ENOUGH, THIS BOOK BEGAN as an idea for a board game. The idea came to me while I was teaching a course at Schumacher College in England. I wanted to make the point that capitalism—that is, a market economy with private property and profit-maximizing corporations — isn't necessarily inconsistent with a healthy planet or an equitable society. I projected a PowerPoint slide of the iconic Monopoly board game and said, “Imagine a game like this, except with slightly different rules. There'd be private property, profit-seeking corporations, winners and losers, but at the same time, nature and the middle class would fend for themselves and flourish.”

At the time, I had only an inkling of what those slightly different rules might be, but I had no doubt they could be written. My inspiration was that Monopoly itself had been invented by Quakers to demonstrate the ideas of nineteenth-century American economist Henry George. If I could invent a similar game in which markets respected nature and narrowed the gap between rich and poor, perhaps it could inspire a real-world economy that did the same things. (Alas, Monopoly was later copied, patented, and promoted by Parker Brothers, now Hasbro, as a celebration rather than a critique of capitalism.)

After I returned to the United States, game ideas began circulating in my head. I started making prototypes and testing them with my teenage son and his friends. As the game evolved into more elaborate versions, I realized that a game by itself wasn't enough. I needed to describe the actual economic system the game was seeking to evoke. Ergo, I needed to write a book.

The game itself is still in development. It turns out that it's not as easy to create a game as it is to write a book—the numbers have to be right, the play has to be fast, and many things have to sync. Perhaps one day I'll finish the game, or perhaps someone else will. (I invite game developers to contact me.) But the book I started is finished and in your hands.

IT'S IMPORTANT TO DISTINGUISH between economics and our economy. The terms are often conflated but refer to different things. Economics is a body of thought; our economy is a system that functions in the real world. As has been said in other contexts, the map is not the territory. Our economic system is real terrain, and economics is a picture of it, necessarily inaccurate and incomplete.

Much has been written about the deficiencies of contemporary economics. I'm more concerned about the defects of our actual economy. But to understand those defects—and to fix them—we must start with a sufficiently wide lens, which is why conventional economics is a problem. It obscures what needs to be seen and thereby inhibits us from changing what needs to be changed.

Our economy today is a huge and complex system. As such, it's subject to patterns of behavior that characterize other complex systems. It's also, like every other system in the universe, part of several larger systems. How you see it depends on where you stand and how wide your lens is. You see it differently if you zoom in on a single part of the system, zoom out to the system as a whole, or zoom out even farther to the larger systems in which our economy is nested.

Many economists view our economy as a self-contained whole. They know it's affected by our society and planet — and conversely, that it affects our society and planet—but the impacts in both directions are hard to quantify. It's a lot easier not to count or consider them.

In this book I approach our economy as both a self-contained system and part of two larger systems, American society and the biosphere. Viewing it as a part of these larger systems enables us to see how it's out of harmony with both of them, as well as how it might be brought into harmony. Viewing our economy as a self-contained system lets us see how the interactions between its internal parts drive its overall behavior—and how small changes in the structure of those interactions can trigger big changes in aggregate outcomes.

I also adopt a wider-than-conventional view of the purpose of an economy. Most economists believe that ever-increasing production is the principal, if not the only, goal of an economy, because ifwe produce enough stuff, everything else will sort itself out. This mode of thinking made sense in the days when we lacked material goods. Those days, however, are over. Our current surplus production capacity demands two higher purposes for our economy: ensuring the security of a large middle class and synchronizing human activity with nature. Neither of these objectives arises automatically from producing more stuff. Unless they're consciously built into our economy's structure, we're highly unlikely to achieve them.

WHILE I PROPOSE TO EXPAND THE GOALS of our economy, I don't propose to alter the means by which it achieves them. I wish to be very clear about that. As an entrepreneur, I strongly believe in markets, though markets with more players than today's. And I believe just as strongly in private property, tempered by a certain amount of community property. My ideal economy is a multistakeholder equilibrium in which profit-driven businesses, a large middle class, and the earth's vital ecosystems—acting through legally empowered agents—balance each other for the good of all.

I'm not sure where these beliefs place me on the political spectrum; I draw from economists and politicians of several persuasions. Still, if I had to pick a single thinker who most inspired this book, it would be the American essayist Thomas Paine.

Paine led an extraordinary life. Unlike other Founding Fathers, he wasn't a man of privilege. He was born in England to a Quaker corset maker and sailed, penniless, to Philadelphia five months before the Concord Minutemen fired “the shot heard 'round the world.” He then wrote Common Sense, the best-selling pamphlet that inspired America to declare independence from his native country. Still impoverished after independence, he returned to England and was charged with libel against the king. Fleeing to France, he was elected to the revolutionary convention despite speaking no French. He narrowly escaped execution twice: once by William Pitt's writ, then by Robespierre's. Returning to America, he died in New Rochelle, New York, in 1809, largely forgotten.

After Common Sense, Paine's most famous essays were The American Crisis (“These are the times that try men's souls”), The Rights of Man, and The Age of Reason. His last great work was Agrarian Justice, which, despite its title, isn't about agriculture but about property rights.

“There are two kinds of property,” Paine contended. “Firstly, natural property, or that which comes to us from the Creator of the universe—such as the earth, air, water. Secondly, artificial or acquired property—the invention of men.” The latter kind of property must necessarily be distributed unequally, but the first kind rightfully belonged to everyone equally, Paine thought. It was the “legitimate birthright” of every man and woman, “not charity but a right.”

Paine's genius was to invent a way to distribute income from shared ownership of natural property. He proposed a “National Fund” to pay every man and woman fifteen pounds at age twenty-one and ten pounds a year after age fifty-five. (These sums are roughly equal to $17,500 and $11,667, respectively, today.) Revenue for the fund would come from “ground rent” paid by landowners, the privatizers of natural wealth. Paine even showed mathematically how this could work.

Presciently, Paine recognized that land, air, and water could be monetized, not just for the benefit of a few but for the good of all. Further, he saw that this could be done at a national level. This was a remarkable feat of analysis and imagining. If that's Paineism, then call me a Paineist.

BEFORE WE GET TO THE HEART OF THE BOOK, let me introduce a few key terms.

Dividends are periodic payments made by corporations, mutual funds, or trusts to their shareholders or beneficiaries. Such payments vary from time to time, depending on the earnings of the payers, but at any given time they're the same for each share.

In capitalist economies, dividends are a major form of nonlabor income. To receive them, you must have a legal right to receive them. At present, most of those rights are held by a small minority. But there is no reason why ownership of such rights can't be expanded, and good reason why they should be.

Systems—which is to say, conglomerations of parts that continuously interact—are what maintain order throughout our universe, and we should be grateful for that. For purposes of this book, the two most important things to remember are: (1) a system as a whole is distinct from, and greater than, the sum of its parts; and (2) a system's structure determines its outcomes.

Our economy, obviously, is a highly complex system, and making sense of it is never easy, even for economists. But patterns common to all systems tell us, or at least strongly suggest, that wealth distribution within an economy depends more on the design of the system than on the efforts of its individual participants. If a roulette wheel has eighteen black pockets, eighteen red ones, and two green ones, balls will land in the green pockets roughly two thirty-eighths of the time no matter how we throw them. That's why the house always wins. Similarly, if an economic system is structured to distribute income in a certain way, that's what it will do. No matter what we want it to do, that's what it will do.

The middle class is the group of households sandwiched between the lap of luxury and the yaw of poverty. Though the actual term wasn't used until the mid-nineteenth century, Americans have long believed that it's hugely important for such a class to be as large, prosperous, and secure as possible. The current reality, however, is that our middle class is in steady decline and there's no end in sight. The old props for sustaining it—public education, labor unions, and economic growth—aren't working anymore. New props are needed, but no one knows what they are.

Co-owned wealth is the underappreciated complement to privately owned wealth. It consists of assets created not by individuals or corporations but by nature or society as a whole. This little-noticed cornucopia includes our atmosphere and ecosystems, our sciences and technologies, our legal and financial systems, and the value that arises from our economic system itself. Such co-owned wealth is hugely valuable but at the moment is barely recognized.

To heighten our awareness of co-owned wealth, I use the adjective our in places you might not expect. For example, instead of the atmosphere I say our atmosphere, and instead of the money supply I say our money supply. Using an impersonal article implies that co-owned wealth belongs to no one. I prefer to speak as if it belongs to everyone.

Rent is one of the most important and underused concepts in economics. As I (and most economists) use the term, rent is the money paid to businesses over and above their costs of labor and capital in competitive markets. It includes premiums paid for scarce things and excessive profits extracted by monopolies, oligopolies, and industries coddled by government. As I (but few economists) also use the term, rent is, in addition to the above, a potentially virtuous flow of money paid to all of us for use of our co-owned wealth. (See chapters 4 and 5 for a detailed discussion of rent.)

Rent isn't talked about much in polite society; it's the eight-hundred-pound gorilla that everyone pretends isn't there. Economists in particular rarely mention it, not out of ignorance but because they find it awkward to offend those who extract it disproportionately. The time has come, though, to bring rent out of the closet, for it holds the key to saving our middle class and planet.