The purpose of this study is to proves that economic system based on Henry George's thought can be an 'alternative' to other systems, not only disclosing problems that happen to market economic system of Laissez faire, mixed economic system of social ...
The purpose of this study is to proves that economic system based on Henry George's thought can be an 'alternative' to other systems, not only disclosing problems that happen to market economic system of Laissez faire, mixed economic system of social democracy, and planned economic system of socialism, but solving such problems.
As realistic socialism collapsed and mixed economic system has been declining, market economic system of Laissez faire is now regarded as the most dominant system in the world. Unfortunately, it is true that the market economic system has caused many problems such as the gap between rich and poor, unemployment, environmental pollution, and periodical depression. Therefore, it is very important to study an alternative system to overcome these problems. This kind of study is of great importance to South Korea that is searching for a new economic system, preparing for the unification in the future.
The study that Henry George's economic system can be an 'alternative' should be performed at the same time with the study why the other systems can not be alternatives. Thus, this study will be focused on the comparison of the legitimacy of property, the economic efficiency and the impact on environment between the alternative economic system and existing systems.
To compare the legitimacy of property of the alternative economic system with existing economic systems, I strictly defined the concept of rent of land, wages of labor, and interest of the capital and studied that to whom the ownership of these three should be imputed. I concluded as following; the ownership of rents should be imputed to the public, and that of wages of labor and interests of the capital can partly be imputed to the public on the premise that private ownership is returned to individuals. After weighing one system against another, I came to the conclusion that the legitimacy of property of the alternative economic system is the most reasonable of all.
To assess the efficiency of each economic system, I examined how the incentive structure of productivity works, how the mechanism of monopolistic market works, and how marginal efficiency of investment moves. According to the result, the alternative economic system proved to be the most efficient of all.
First, the market economic system of laissez faire has factors that attract high productivity and obstruct it as well. In the market economic system, the possibility of monopoly is high, and possibility of decline in the marginal efficiency of investment always exists, which are due to the private ownership of the value of land.
Secondly, in the mixed economic system of social democracy, the policy of the redistribution of income such as the transfer of purchasing power and the financial policy works to a degree, but also cause inflation, the rise of land prices and excess burden. Moreover, the gradual expansion of extensive redistribution imposes heavy burdens on start-up companies, accelerates monopolization of market, and decreases the marginal efficiency of investments.
Thirdly, in the planned economic system of socialism, the fixed price system, and production and distribution system planned by government obstruct the efficient distribution of resources, expose the economic system itself to the danger of soft budget constraints, and result in the decrease in productivity.
Lastly, the alternative economic system well copes with the problems that happen to the market economic system or mixed economic system. The imputing of rent to the public not only induce the efficient use of land, but also have more fund invested on labor or capital. The imputing of wages and interest to individuals have effects on the increase in the productivity of both labor and capital. Besides the imputing of rent to the public makes start-up companies enter easily into market and thus contributes to relieving the monopolization of market. After all, the high capital turnover that occurs in the alternative system make it possible to raise the marginal efficiency of investment.
On the other hand, I chose such problems as misuses and abuses of land and natural resources, indiscriminate developments of urban area-doughnut phenomenon(decay of urban center) and sprawl, and the feasibility of the policy of environmental preservation, so that I could compare the solution of the alternative with the other systems. In the long run, I was convinced that the alternative economic system has the most affinity for environment.
First, I pointed out that in the market economic system of laissez faire, the polluters are not so eager to pay any antipollution costs that air and water pollution may happen frequently. Although the property rights for natural resources and environment are set up to overcome such pollution problems, they also include other problems such as the legitimacy of property and difficulty of execution.
In such system, the private ownership of rent may bring about inefficient uses of land, and then such uses lead to the decay of urban center and sprawl in turns. Furthermore, the feasibility of the policy of environmental preservation is low, because the gap of rich and poor is too wide and the raising of expenses for preservation is not so easy.
Secondly, in mixed economic system, misuses and abuses of land and natural resources are somewhat mitigated, because in such system more land rent can be imputed to the public than in the market economic system. Nevertheless there are still much possibilities of the decay of urban center and sprawl, because the speculation for land can not be eradicated in mixed economic system. Only when wealth is distributed more equally than in market economic system, the feasibility of the policy of environmental preservation is high. Such policy, however, has the limit to a certain degree because the raising of expenses for environmental preservation may decrease the economic efficiency.
Thirdly, environmental problems in the planned economic system occur due to the combination of the planning and the theory of labor value. The theory of labor value do not regard land and natural resources as valuable because they are not products of labor, so the theory of labor value can not avoid but help misuses and abuses of such resources. Such problems as doughnut phenomenon(decay of urban center) and sprawl can of course be controlled by the authorities. Taking the equality of wealth and the difficulty of raising money into consideration, the policy of environmental preservation is hard to execute.
Lastly, the alternative economic system can considerably overcome such environmental problems as occur in the other economic system. In the alternative economic system, the users have to pay equivalent rent or expenses for the use of land or natural resources and defray the reserve expenses for exhaustion to next generations. If some damages arise from misuses and abuses due to users, they also ought to compensate for such damages by means of deducing the rent, which is actually the result of common efforts of all the community members. Accordingly, the alternative economic system induces users to protect environment and to spare natural resources, and also resolve the problems of misuses and abuses. Besides, the public ownership of land leads to the efficient use of land, so such problems as doughnut phenomenon(decay of urban center) and sprawl can be almost removed. Compared to the other system, this system has higher feasibility of the policy of environmental problems, because the equality of wealth, the recovery of fund used for environmental preservation is easier and environmental problems take place less.
After considering some issues about economic systems, I could draw conclusions as follows.
1) The alternative economic system could demonstrate the main causes of the failures of both market and government. Thus I discovered the devices that make it possible to overcome such failures and to settle the opposition of both sides.
2) Environmental problems are seemingly caused by economic development and human greeds, but are basically raised from the ignorance of norm which ought to be observed as a matter of course.
3) By examining the legitimacy of property, the economic efficiency and the impact on environment between economic systems, I could ascertain that moral laws are compatible with economic laws. In other words, the most legitimate system, considered in the aspect of the legitimacy of property, shows the highest economic efficiency and the environmental affinity of all.
However, the alternative economic system, based on Henry George's thought, includes unacceptable aspect of absolute private ownership of wages and interest, and also excessive optimism about market. Consequently, the alternative economic system may well be combined with other systems and thought which may be complements to it, on the premise of public ownership of land value, and then it would be better and more effective one.