Under the feudal social formation which preceded ours, what we understand as two separate social functions collapsed into one. Taxes for the general welfare and rents for private personal gains of feudal royalty comprised the same intermingled source of revenues. Essentially ‘taxes’ and ‘rents’ were synonyms for the same taking power of feudal government: a government personified through a hierarchical arrangement of noble sovereigns and their noble families. This created a chimeric split personality in government where a monarch – or some other noble sovereign – collected and pooled revenues both to enjoy a lavish personal lifestyle and also to provide for the general welfare of his fiefdom. In times of crisis this placed unexpected pressures on a personal noble sovereign to sacrifice his own personal consumption to provide for the general welfare. On the other hand, in good times these personified sovereigns enjoyed immense surplus product lavished on them from a system of serfdom and hierarchical tribute. Nevertheless, providing for the general welfare was understood as an integral obligation of these nobles termed ‘noblesse oblige’.
The American Revolution and other revolutions of the period supplanted monarchical and oligarchical government in favor of constitutional, democratic, and republican forms of governance. In these revolutionary transformations, these two revenue-raising functions were inadvertently divided in two. On the one hand, constitutional republic governments became the collector of taxes to be directed toward the general welfare. On the other hand, natural resources – formerly the very source of governmental taxing powers – were largely turned over to private hands for homesteads and other settlement. But this privatization of land eventually set the stage for a new landed aristocracy without any of the former noble obligations so that those now ignobles might enjoy lavish personal consumption without any obligation to provide for the general welfare. Instead governments were forced to find new sources of revenue because the new constitutional republic had been stripped of the very natural resources which provided prior feudal governments with their power to tax: to receive rents.
Pursuing this increasingly rigid distinction between taxes and rents, taxes now are collected by government for the general welfare and not for the most part for the lavish consumption of noble families. While public servants are often compens ated generously, it is hardly lavish compared to the royalty of feudal times. Even considering the lavish compensation of the President of the United States, that compensation is minuscule compared to the total general welfare expenditures of government. In contrast the nobility of the late feudal period eventually disregarded the mutual and common welfare in favor of their own lavish consumption. So while government was largely stripped of its traditional role as a funding source for personal conspicuous consumption of our rulers, that function has been prese rved by simultaneously stripping government of its traditional source of rents – our land and other natural resource assets – and turning over title to those natural resource assets to persons outside government.
In this way rents continue alongside taxes, but the functions are split into two separate social actors:
- government collecting taxes for the general welfare; and
- titled holders of natural resource assets collecting the rents from those natural resources which previously provided the basis for feudal taxes (in service for tenancy in land).
Imagine the personage of Louis the XVI who collected revenues both for the general welfare and for his own lavish consumption. In times of crisis the acute demands of the commons overwhelms the lavish private consumption of his majesty. However, now we have separated his personage in two: the new rentiers who descend from Louis the XVI no longer need concern themselves with the crisis of the commons. The rentiers continue to collect their rents and all responsibility for the commons falls to government collecting its taxes. Though separated from personal responsibility, our rentiers still look to the taxation for the general welfare as their rightful possessions and admonish government for depriving them of even more lavish consumption: demanding smaller government to make room for larger private rents.
So alongside the establishment of republican forms of government to supplant prior feudal forms of government, the public treasury was simultaneously raided and the land and other natural resources that served as the institutional basis for feudal taxes were nearly all privatized. So taxes and rents – previously combined as one indistinguishable mass of revenues – were instead divided into taxes wielded by government for the general welfare and rents wielded by rentiers for their own lavish personal consumption. Early academicians in political economy were acutely aware of the problems of rentiers and persistent rents and the monopolization of natural resources (Adam Smith, Mark Twain, David Ricardo, Henry George, Karl Marx).
Ironically, due to the dominance of propaganda and spin, we hear much more today about the evils of taxes directed toward the general welfare and virtually nothing about the utterly uselessness of rents directed toward private rentiers. Those who rampantly seek and win these rents tend control the media and increasingly control our governments as well: even directing taxation aimed at the general welfare to instead their own profiteering (such as military contractors). So these rent-seekers have a vested interest in creating distractions and placing the focus on the evils of government taxes to take the focus off of their own economically wasteful rents. While economic waste in government is often more visible and transparent it also is a drop in the bucket compared to the economic waste of these rentiers.
This separation of feudal government’s two personalities – into two separate entities – was inadvertent in the sense that it arose from a failure to maintain all governmental powers within the newly arising constitutional republic government. So the privatization of the public treasury in terms of converting all natural resources from governmental stewardship (as a component held in common) into a private entitlement thus created the conditions for rampant rent-seeking and rentier rewards. The accrual of rents to some implies the recipients of rent enjoy the products of labor performed by others who are thus, in one way or another, deprived the fruits of their labor. The aristocracy thus remained, but their useful functions were all assumed by the new constitutional government. This outcome saddles those who work for a living with a dual burden on the fruits of their labor: to pay taxes to government and pay rents to these rentiers now entirely independent of government. The former taxing power of feudal government was handed over to private rentiers while the new Constitutional government was forced to find new revenue measures (head taxes, poll taxes, tariffs, property taxes on top of rents, and even the very sale of territorial lands).
Since the 19th century we have steadily created other institutions that also permit some to live off the labor of others. Most notably we have crafted government chartered corporations into a mechanism that allows some to own equity in a corporation and thus entitles them to a claim on the fruits of others’ work. Not only do the equity shareholders of corporations live off the fruits of others’ labors, but their claim to these fruits goes so far as to enjoy a residual claim on the work performed in the corporation: essentially rendering the corporation’s workers into involuntary indentured servants to the equity shareholders in conflict with the spirit of the thirteenth amendment’s prohibition on involuntary servitude. When coaxing the corporations workers to work more intensely, longer days, fewer vacations and all of those costs to the workers become residual profits to the executives, directors, shareholders of the corporation.
Therefore the residual claim on the products of of others’ labor is profoundly different than the rigidly specific claim of a bondholder or other lender who are merely entitled to a fixed rate of return, but not entitled to all that is left after compensating the worker at a fixed rate. For a residual claimant, the purchase of the power to labor creates an adverse incentive (sometimes called ‘moral hazard‘) against their ‘employee’ where, once the employe’s ability to labor is sold for the day, the power to direct how that laboring ability is used rests largely with the buyer: the owner of this worker for the day.
Similarly we have steadily, handed over powers of government to be wielded by some select corporations. With these governmental powers – where government was previously expected to provide for the general welfare – these corporations enjoy a monopoly rent position they could not otherwise enjoy without either a tacit or deliberate support from government. For example, the Federal Reserve enjoys the power “to coin Money, regulate the Value thereof” in place of Congress. The name of this power is ‘seignorage’ which is derived from the seigneur: a title of nobility. Such delegation of governmental powers is precisely the type of activity prohibited by the US Constitution’s bar against the Congress and the states from granting titles of nobility. These titles of nobility take necessarily monopoly governmental powers and hand those powers over to select oligarchical and oligopoly corporations (monopoly governmental powers either for natural monopoly industries, monopolies of nature, or democratically designated monopolies such as the post office or our monetary system). As Hamilton wrote: The prohibition on issuing titles of nobility “may truly be denominated the corner-stone of republican government; for so long as they are excluded, there can never be serious danger that the government will be any other than that of the people.” These provisions in the Constitution which thus bar Congress and the states from issuing titles of nobility work hand-in-hand with the provision guaranteeing a republican form of governance in the states and requiring all legislative power at the federal level reside in the Congress of the United States. By instead allowing private (ignoble interests in this case) to control necessarily monopoly industries and monopolies of nature, we have eroded our Constitutional democracy.
When handing over governmental powers to private interests – in other words when granting titles of nobility – two types of injury occur to the American people: 1) the American people are denied their right to representation in legislatures to deliberate and wield the governmental powers now handed over to a private interests; and 2) the revenues which accrue due to such monopoly powers no longer accrue to the public treasury, but instead accrue to the pockets of the private ignobles. Though the Federal Reserve returns a substantial portion of those gains to the public treasury, it refuses to be audited to determine what portion is returned, and what it keeps, it keeps entirely at its own discretion rather than the discretion of our legislative representatives.
So while the American revolutionaries thought they had once and for all ridded us of the problem of ignoble privilege, they inadvertently failed to close some loopholes which allowed these rent-seeking ignoble interests to crawl back out of their lairs and back into our civic life: to re-establish a landed and otherwise privileged aristocracy in the midst of our republic. From the perspective of the rentiers the resentment they once felt for their own personal noble obligation was lifted by the American revolution. However, the resentment persisted and now became an outwardly directed resentment for government taxation when directed towards providing for the general welfare. The rentiers now see taxation as their rightful possession. Whereas from the perspective of the broader electorate the rentiers themselves and the privileges they enjoy to take the fruits of others’ labors render these rentiers entirely superfluous in an economic sense. It is thus not government that is the problem as the rentiers tell us. The problem is instead the economic rents of our natural resources that gets directed towards personal privilege rather than towards the general welfare.
- Hamilton, Alexander (1788). Federalist Papers No. 84.