Our current national economic policy is based on Marshall's fallacy, which assumes that all work and all goods are equally useful. That is obviously not so, but Marshall can be excused for his mistake.
He lived in a day when most workers produced benefit goods, when there were relatively few traders and when most of the predators were aristocrats whose rights were not open to question. For his day, his assumption was reasonable.
Now the world has changed. Many workers produce cost goods, we have more traders and we have many more predators.
The group I describe as predators, in this context, consists of everybody who does not produce or trade real wealth. It includes most lawyers, civil servants, stock-brokers, bankers and speculators, among others. We need some of them, but they are all a cost.
But we can't blame them for what they are, because predators have no reason to question their role in an economy that lives by Marshall's fallacy. As long as our national accounting system counts only dollars it shows the work of predators as a positive benefit to the nation, and they can take pride in their "contribution". Worse, school-teachers and others suggest that young people should train for the predatory professions, to be assured of a job and to ensure that they will be able to make a "contribution" to society.
How to make people change? We can't mandate much change in people's behavior because laws and regulations will always have loopholes, and where there are loopholes some people will make it their business to find them.
As long as worth is measured in dollars and cents most people will work for money, but if we set a new standard we can give most people new goals.
A new attitude might start with a more rational approach to national accounting.
Suppose we were to adopt a system in which {cost} and {benefit} goods were listed separately and the balance between them calculated, and the flow of {root}, {derived} and {imagined} money were tracked. If such an accounting were offered, and accepted, most of us would develop a more rational view of the economic world.
The new accounting would not mandate a change in behavior but it would encourage it. In a world based on Marshall's fallacy we assume that most people will be motivated primarily by money, but in a world based on Maslow's Hierarchy that would not be true.
We are social animals and, like other social animals, we strive for the approval of our social group. If the group ethic honors money and disdains poverty, most of us will strive for money. If the group ethic honors productivity and disdains predatory profit, more people will strive for productivity.
Control by public opinion would allow predatory lawyers, speculators and others to operate but if they were not admired there would not be so many of them.
A government based on Maslow's Hierarchy could use taxes to adjust some imbalances. We know that predators who contribute the least to our economic well-being often earn the most money, and that producers who contribute the most may earn the least. If the government is to serve the public interest it would seem logical that predators should pay higher taxes than traders, and that traders should pay higher taxes than producers.
Is that unfair? Maybe, but we expect the law to curb a predator who mugs people in a back alley. Why should it not curb a predator who works in an office? Theft is theft and, if we can get past the smokescreen raised by those who live off loopholes in the law, we can all recognize it.
We also have some people who do jobs that are vital to our well-being, but who are generally not well paid or respected. Small-scale farmers, garbage collectors and others could be compensated with especially low taxes.
Past attempts to achieve more equality in society have offered free education and special opportunity to get people out of unpleasant jobs. This approach overlooks the fact that we need someone to do those jobs.
Because we have a lot of unemployed we can always find someone to do any kind of work, but that negates the value of mass education. Rather than educate people so they don't have to do jobs that must be done, it would make more sense to offer more money and more respect to the people who do those jobs.
A government that worked for the welfare of the country would also adjust taxes to encourage rational consumption. We know that excess packaging, for example, is good for vendors but bad for society.
Vendors use packaging because they can print advertising on it, and because it produces a good impression on customers. It's bad for the environment because it uses materials that will some-day be in short supply and, when we throw it away, it increases the costs of garbage collection and disposal. A responsible government would tax packaging, for the protection of the environment and because excess packaging increases the cost of public service.
A rational government would also place a heavy tax on gasoline and diesel fuel, for several reasons.
One is to reduce consumption. Some oil companies and other pressure groups argue that we have not complete proof that our use of fossil fuels causes irreparable harm to the world's atmosphere, but that's beside the point.
Suppose you stand on the edge of a cliff, above a pool of very clear water. Because it's clear you can see the bottom, but you can't tell whether the water is two feet deep or twenty.
Do you dive in, in the hope that it's 20 feet deep, or do you walk down to the edge in case it's only two feet deep? When the future of the human race is at stake, it's worth the effort to take basic precautions.
We know that our use of fossil fuels is causing a change in the atmosphere, and we know that most of the possible changes will cause harm. Some of the possible changes could wipe out the human race.
We don't know that we're in danger, of course, but we know that we don't know, and we also know that by the time we do know for sure it will be too late. If there is a serious danger, the only way we can possibly avoid it is to take action before we pass the point of no return.
Given the information we have, the reasonable course of action is to use fuel when we have to but not to use any more than we have to.
I would not argue that a fishing boat in the North Atlantic should use sails to avoid burning fuel. I would argue that an oil company president who promotes the waste of fuel by consumers because that will increase his company profits and earn him an extra few million a year is irresponsible, and perhaps even criminal.
A heavy tax on fuel would encourage people to conserve it, and the technological changes it would encourage would help our industry. North America lags behind most of the developed world in fuel efficiency technology for housing and transportation, and we know the United States will be slow to change. We know that change has to come and if Canada changes first it could give our industry an immediate home market, and an edge in the North American market of the future. If we don't change before the Americans, we risk being left out in the future.
A responsible government could also adjust business taxes to reflect the social value of an enterprise, as well as the cash returns. A government that serves the economy might take over the costs of employee benefits that are now charged to employers.
About 23% of a Canadian manufacturer's total labor cost is benefits and another 15% is the cost of time paid but not worked -- paid holidays, maternity leave and so-forth. Together they add up to 38% of the total labor cost.
We all agree that labor should get benefits but should manufacturers have to pay for them? Whether they should or not, the fact is that they do not have to. As we know to our sorrow almost any manufacturer who wants to avoid the cost of benefits has a couple of options.
In the short term he can make his people work overtime rather than hire the staff he needs. In the long term he can replace his human workers with machines, or he can move his production to a country where workers do not demand benefits. The manufacturer can always avoid the cost of benefits, and if he does the rest of us lose.
But there is another alternative. Why not make consumers pay for the benefits? The fact is that consumers pay anyway, but if we take the load off the manufacturers we produce some interesting effects. Canadians are not going to stand for another point-of-sale tax but, just for discussion purposes, suppose that we could impose a point-of-sale "benefits tax" to pay for all the benefits that manufacturers now have to pay their employees.
One effect is that we would "level the playing field" between Canadian and third-world manufacturers who do not pay benefits. Because the benefits tax would not be collected on goods exported from Canada it would make Canadian goods more competitive in world markets. Because a benefits tax levied at the point of sale would also be collected on goods imported into Canada it would eliminate the advantage now enjoyed by producers who pay their own employees no benefits.
Because we would probably still import some goods anyway, it would also produce lots of revenue. It would be poetic justice if a tax on imports helped pay benefits for Canadian workers who lost their jobs because of imports.
And a point-of-sale benefits tax would also make it easier for Canadian companies to hire employees. Under the present system a company that needs a few extra employees finds it cheaper to over-work their existing staff and pay overtime than to hire extra employees -- because of the cost of benefits and the problems associated with layoffs. If companies did not have to pay for the benefits, they would find it cheaper to hire the people they need than to overwork the people they have.
Such a tax would also present a few problems, but none that could not be handled. The most serious one is that Canadians already resent sales taxes and the GST, and it would be political suicide for any government to impose another point-of-sale tax.
But stores could bury the benefits tax -- and the sales tax and the GST -- in the cost of goods. A competent government would find a way to administer all three taxes without creating a nightmare of paperwork for the public, and a dream world of sinecures for civil servants.
But there are other problems to be solved. The huge bank loans that are required to buy existing businesses create inflation, but business needs a process by which companies can be bought and sold. We need to find a way in which banks (or the government) can issue large loans without creating inflation.
Considering that many Canadians are looking for investments that pay a reasonable return that should not be impossible. Suppose it were illegal for banks to lend imaginary money to buy existing capital goods, and that we had a different type of bank that could make loans to buy existing capital goods but could only lend as much money as it had on deposit. Ordinary banks don't have to pay interest to their depositors because they can literally make their own money, but a bank that could not create money would have to pay reasonable interest on deposits.
We might also question the system which allows banks to lend themselves money to buy other businesses. In effect our laws allow banks to print their own money, but should they be allowed to use it for their own purposes?
Should a Canadian bank be allowed to create Canadian dollars for a Canadian company to invest in some other country? Should a Canadian bank be allowed to create Canadian dollars to be used by foreigners to buy Canadian resources?
In a rational society the whole banking system needs to be re-thought, and perhaps brought under direct government control.
Russia has given the world convincing evidence that large-scale mass socialism does not work, but on the other hand Sweden has given us evidence that some socialism can work very well. If banks have the right to create money, should they be private or public institutions?
Or should we have both? Paul Hellyer, a former federal cabinet minister now trying to form his own political party, has some interesting ideas. Once one of Trudeau's lackeys Hellyer will go down in history as the man who merged our three armed forces into one, but in 1969 he resigned from Trudeau's cabinet over a matter of principle.
Hellyer points out that while private banks can create money the Bank of Canada can also create money -- and that the Canadian people don't have to pay interest on money created by the Bank of Canada.
About 90% of the national debt is compound interest on money borrowed by the federal government, Hellyer says, but if the money had been borrowed from the Bank of Canada the interest -- now about $85,000 a minute -- would be payable to the government of Canada.
The Bank of Canada did not have enough money to finance the federal government, of course, but neither did the private banks. They created {imagined} money to loan to the government, and the Bank of Canada could have done the same.
In the spring of 1993 Hellyer hired Infometrica Ltd, an Ottawa-based economics firm, to calculate the effect on the Canadian economy if the federal government had adopted and maintained the incomes policy that Hellyer had recommended in 1969. A computer simulation of the economy showed that if the policy had been adopted in 1978 we would have had an extra 870,000 jobs and $50 to $80 billion less debt in 1985. Extrapolation of the same scenario to 1992 showed a saving of about $220 billion in the federal debt.
Public opinion can solve some problems. As we have seen the stock market offers a venue for predatory economics but on the other hand it also serves a useful function in society. If people understand that big gains on the stock market represent big losses to the economy as a whole, stock traders may be encouraged to work for the long-term welfare of the economy rather than short-term gains.
The ultimate questions we have to answer are "what function do we want our economy to serve", and "what kind of country do we want to live in."
Is the economy to serve our whole population over the long term, or a few people over a short term? Is it acceptable that we have beggars and $150,000 cars on the same streets, and that some people in our society have multi-million dollar yachts and private jet planes while tens of thousands of families have to beg food from food banks?
Marshall himself did not think so. "There is", he wrote, "no moral justification for extreme poverty side by side with great wealth".
Maybe not, but that's something we have to live with if we accept Marshall's fallacy, because Marshall's idea makes money the measure of all things. Maslow's Hierarchy counts only human needs, and if we were to base our economy on the hierarchy we would still use money, but we would remember that it is only a counter and not an end in itself.
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