Two ways to promote wealth creation

In an article yesterday I defined the only lawful way I know to create wealth as follows:

Wealth is only created when entrepreneurs make better goods and services, satisfying more of the needs of consumers, in better and more convenient and cheaper ways, via more capitalistic and hence more efficient methods of production.  Both the capital investment and the subsequent purchase of the new goods and services should be supported by real savings (forgone consumption).

No amount of creating more money units itself produces more of the above. I would usually then say that we should seriously consider ending corporation tax so that companies can invest their own money in more capitalistic methods of production to produce more goods and services at cheaper prices that people want. This is a particularly salient point at this credit starved part of the business cycle, when banks are not lending.  Through excessive taxation, the government makes companies reliant on debt financing.  They then use this reliance to argue that the banks must be bailed out and supported with taxpayers’ money.  Despite the massive public subsidy, banks are still reluctant to lend.  Why not let the companies keep their own money, and finance themselves? We would see a growth-led entrepreneurial revolution.

Another positive step the government could take would be to abolish all copyright laws. Here is a very interesting article supporting the theory that the German Industrial Revolution was significantly propelled by the absence of copyright laws.

The legal theorist Stephan Kinsella highlights the German experience in his list of “Innovations that thrive without IP“:

According to Robert Groezinger, “This article in Der Spiegel is all about how the absence of copyright in Germany led to an “explosion of knowledge” in the 19th century. The reason there was no copyright law was that there was no central government until 1871. This contrasts with the UK, where there had been copyright since 1710, and the number of publications was lower by a factor of 10 compared to Germany. Also, the number of copies printed was much, much lower in the UK (hundreds as compared to ten thousand or so). The article claims that this is the main reason that Germany’s production and industry had caught up with everyone else by 1900.”

Radical times call for radical solutions, and abolition of corporation tax and copyright laws should be given serious consideration.

2 Comments

  • mrg says:

    I agree that entrepreneurs play an extremely important role, but we owe much of our modern wealth to scientific breakthroughs.

    Crucial scientific achievements often occur decades ahead of commercial applications.

  • Tim Lucas says:

    @mrg

    While you are right that capital and knowledge are both important in order to improve productivity, rather than separate them, why not integrate the ideas. Science could do with a dose of free market economics!

    My experience of pure science is that under its current structure in the UK, it is an extremely political and costly method of advancing human knowledge.

    Direct university funding and grants are the usual methods of paying for the research.

    Universities – as state-sponsored bodies – are inefficient. Those in charge of budgets tend to adopt the public sector mantra of “spend as much as you can as you won’t get it again next year”. There are few incentives to reduce costs and researchers concentrate on what interests them rather than what consumers want.

    The grant application process wastes a lot money through applicants filling in long irrelevant forms (complete with hyperbole and flights of fancy of how important the work is), and through ranks of officialdom on the other side, handing out the money fairly arbitrarily (since these officials are not the consumers tasting the end-product).

    Currently, only universities do pure science. This is likely because the public sector channels so much money into it that it crowds out private sector involvement. In addition to this being inefficient, it drains resources from other areas of the economy.

    There is no reason that sound econonomics cannot be applied to the universities also. The free marketeer’s solution is simple: privatise the universities, allow them to take students from all over the world in unlimited numbers, withdraw government-sponsorship and allow them to make their own decisions with respect to fees etc.

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