The Wealth of the People: The Wealth of the State pot

Table of Contents:Introduction The Non-Aggression Agreement The Social Contract The Rule of the State The Citizen's Charter Rule by Written Law Democracy No Taxation without Representati

The Wealth of the People: The Wealth of the State

An Inquiry into the Relationship between

Wealth, Freedom, and Life

By Fernando Urias

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Table of Contents:

Introduction

The Non-Aggression Agreement

The Social Contract

The Rule of the State

The Citizen's Charter

Rule by Written Law

Democracy

No Taxation without Representation

Useful, Supervised, and Limited Government Spending Separation of Powers

Limited Powers to Make War

Limitation to Enter the Market

A Referendum Process

An Initiative Process

The Mission of the State

Other Functions of the State

The Vision of the State

Final Notes on Book Five

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This is the fifth book of the "Wealth of the People" series The series is an inquiry about the requirements for the production of wealth in a society The fifth book is about the function that the state performs to support the wealth production process A state that allows its citizens to produce wealth is a valuable asset to its citizens This asset can thought as a factor of production that can be called social capital The assumption that the people will respect life and property is removed in this book and the formation of the state is discussed as a result of demonstrated human behavior This book assumes that you have read the first four books If you have not read them, please go to

Smashwords.com and read them in order The complete list of the "Wealth of the People" titles can be found at the end of this book

The Non-Aggression Agreement

If you would meet a neighbor in a desert island, you should know that it is better

to make and act according to a non-aggression agreement than to fight with each other You would expect that this agreement would imply the respect for each other's property

of because if the property is not respected, a fight could result that would risk your lives You would want a non-aggression agreement for the following reasons:

First, you would want to keep the fruits of your labor It would be frustrating and upsetting that the product from your work was taken away by your neighbor If this would happen, you would want to stop your production activities until you could assure that this would not happen again

Second, you would want to keep the tools of your wealth production process To produce in a more efficient way, you would have developed tools to increase your

productivity If the tools were stolen by your neighbor, you would lose your investment, you would drop to a less efficient wealth production process, and you would be reluctant

to invest again

Third, you would want to trade with your neighbor and get the advantages of trade in a market You would like to enjoy through trade, the efficiencies that would result from your neighbor's investments and at the same time pass to him the efficiencies

of your investments.

Fourth, you would like to exchange or copy ideas about the best methods for several wealth production processes Without the non-aggression agreement, you would have to discover everything on your own and you would not gain the advantage of the transfer of human capital that can occur between two or more people

If you and your neighbor would share the principle of respect for life and

property, you could become wealthy together by working hard, investing in better wealth production processes, trading with each other, and sharing or copying each other's wealth production methods If you and your neighbor act according to the principle of respecting life and property you would not need an expensive state to protect your life and property Keeping a non-aggression agreement would be the lowest cost solution for your

relationship with your neighbor and it would allow you to work to become wealthy and freer in the fastest way possible The agreement would be a capital asset that would allow you to work and for this reason, it can be thought as being part of your social capital

The Non-Aggression Agreement Principle of Wealth Production

If two or more individuals act according to a non-aggression agreement, respecting each other's life and property, they can become wealthy together with their work, investments, trade, and human capital transfer.

The Social Contract

Social contract was the term used by John Locke to name the contract that a group of people could make to live in peace The non-aggression agreement would be the start of such contract but to have a contract, the agreement has to be conscious and

voluntary This is hard to do in a large geographical area with the large population that constitutes a city or a nation The formation of the state has been born many times with this idea but unfortunately, the members of society that end up with the power, find it to their advantage to use the power for their own advantage Most of states in early history and many today were and are very far from looking like a social contract

The Consequences of Not Having a Social Contract

What would you to do if your neighbor, instead of working and trading with you, prefers the instant gratification of stealing your property? How could you convince your neighbor that it is more advantageous for both of you to respect each other’s life and property? How could you teach your neighbor that the absence of a non-aggression agreement will result in the loss of the capability to produce at a higher standard of living?

Look at the problem as if you were in the other side What would you do if your neighbor was wealthy and you were not? Would you respect your neighbor's life and property and work to improve your situation or would you find reasons to justify the taxing or confiscation of your neighbor's property? Would you be willing to work and trade with your neighbor or would you be resentful and harvest the desire to redistribute the existing wealth?

The problem can be posed in a more difficult way when you consider the

availability of weapons Imagine that after a few years of living in the island, you and your neighbor have built some tools and are trading peacefully and one day, walking alone in the beach, you find a wooden chest from a shipwreck You open the chest and inside you find two muskets, ammunition and powder in good condition What would you do with this treasure? The muskets can be used as tools of hunting or they can be used as weapons They would be very valuable for you or your neighbor Would you keep the muskets to yourself and use them for hunting? Would you use them as weapons

to take advantage of your neighbor? Would you sell one to your neighbor and hunt

together? Would you be able to sleep at night thinking that your neighbor might want to take them away from you? Would you announce to your neighbor that you no longer have a non-aggression agreement and that whatever you say is the law because you have the muskets?

What would you do if you were the one without a weapon? Imagine that you had just arrived to the island and you meet Robinson Crusoe At the time that you meet him,

he has been living in the island for several years and he has a shelter, domesticated goats, and plenty of food He welcomes you, gives you food and shelter and tells you that you have to work for him to pay for the food and shelter You agree After a few weeks of this arrangement, in which you are able to start building your own shelter, you realize that he

has several muskets, ammunition, and the powder that he recovered from the shipwreck You offer to buy one but he refuses to sell you one Would you feel that you are being treated unfairly? Would you think about taking one by force even if it would mean to break your relationship?

The wealth production process advances with investments in physical capital assets that are necessary for the production of wealth These physical assets and their technology can be used for protection and self-defense The spear, the bow and arrows, and the muskets are tools of hunting that can also be used for self-defense Due to many people not understanding the principle of respect of life and property, these physical assets have to be used as weapons to protect the life and property of the people that are working The person or group of people that has the most powerful weapons can

dominate the rest of the people This happened when there were no metals and bronze was discovered It happened again when iron was discovered and it proved superior to bronze It happened again with the discovery of powder, and it is true today with the existence of nuclear weapons

The Weapon Principle of Wealth Production

The wealth production process requires the protection of the life and property of the people that are working with weapons This protection is needed because some people have not learned the principle of respect for life and property The weapons are a factor of production because they are necessary for the wealth production process.

The Rule of the State

The availability of weapons developed with the same technology from the wealth production process is necessary but not sufficient to protect it Any individual, small group or business enterprise is vulnerable to an attack or extortion from another

individual or group of individuals using the same weapons An individual or small group needs the protection from a large group that will guarantee protection against attack from any other individual or group This large group historically has been formed by force and can provide protection over a large geographical area The large group obtains the

monopoly in weapons and adopts the responsibility for protection but it also has the

power to attack, exploit, and abuse

About fifteen thousand years ago, the first agricultural villages were formed In these villages and later in Sumerian and Egypt, governments were formed that were based on force and weapons The formation of Egypt seven thousand years ago is an illustration of the growth of the large group Egypt prospered into one of the first human civilizations because the valley of the Nile was protected by the desert Nader, becoming the ruler of one of the richest areas, unified Egypt by forming a large group in what would become the Egyptian empire

From a state of war or lawlessness, the establishment of protection by a large group is an improvement in social capital The state is a centralized government that maintains a monopoly of the use of force over a defined geographical area or territory The establishment of a central government, even if autocratic, is an increase in social capital over a state of lawlessness where business cannot be conducted because any person can be a victim of crime

The State Principle of Wealth Production

A large group of people will dominate a geographical area by force and become the state or government of the area Individuals, business enterprises, and the market need the protection of this large group to be able to operate the wealth production

process.

The Citizen's Charter

A charter is a grant of authority or rights where the granter recognizes the

prerogative of the recipient to exercise certain rights specified in the charter but the granter retains superiority The Magna Carta written in 1215 to recognize the rights of the nobles in England and presented to the King to sign became a Royal Charter When you are born, you get an implicit citizen's charter that the state grants you with a specific set

of rights and obligations The citizen's charter is not voluntary It is enforced by the state

It consists of the current level of social capital in your nation Your citizen charter at the moment of your birth gives you an inheritance of social capital gains that your ancestors have been able to achieve through many generations You have to live and work meeting

the laws and ways of operating of your nation You can dedicate part of your life to improve your citizen's charter but you cannot refuse it If you do not act according to the charter, you could end up in prison.

The questions that you have to ask yourself when you come of age are: How fair

is the citizen's charter of the nation where I was born? How can I improve myself and my family within the bounds of my citizen's charter? What can I do to improve the citizen's charter in my country? Does my citizen's charter have enough social capital to allow me

to be free and wealthy? Who should I vote for in the next election to improve my citizen's charter and increase the social capital of my nation?

The citizen's charter is granted by the group of people that has the power to

protect a geographic area, the people that live in it, and their assets It is very difficult for the people in power to relinquish this power and improve the citizen's charter unilaterally Most of the improvements of the citizen's charter have come from citizens that in have risked their lives in the effort to seek improvements

The state has the responsibility to protect the people and their assets but it also has the power to confiscate and abuse Social capital is increased by limiting the power and attributes of the state through law and democracy This is a process that has been going

on through history very slowly, at a great cost, and at the expense of many lives After the establishment of a central government that has usually been abusive, people fight for their freedom and their right to be free and produce wealth The development of the

governments of the world across history can be viewed as a gradual improvement of the citizen's charter to convert it into a social contract There are several agreements, like the non-aggression agreement, that limit the power of the state, define its mission, and

convert the citizen's charter into a social contract

Rule by Written Law

The first agreement to limit the power of the state is the request from the citizenry that the laws be put in writing It is one of the rights of the citizens to be ruled by law that

is written, understood by everybody, and not subject to the arbitrariness of the people applying the law

The first codification of the law was done by the Sumerians under Hammurabi

around 2000 B.C This law extensively regulated family life One of Hammurabi’s

greatest achievements was this effort to “make justice appear in the land” He collected the laws of the various Mesopotamian City-States and created a law code that would cover the whole region This is called the Hammurabi’s Law Code The Code consists of

282 sections dealing with most aspects of daily life This development of written law was

a major advance toward justice and order and also a major advance in social capital

Sometime around 450 B.C., a group of judges posted 12 tablets in Rome's

marketplace This was done because it was demanded by the common people of Rome The Romans believed that the people should be ruled by law and not by the whim of their rulers They wanted the laws written for all to see and for all the people to know their rights This code of law remained in effect for almost 1,000 years

In A.D 1215, a group of nobles in England, worried about their feudal rights, met

in Rummy Mede in England They presented to King John the Magna Carta to be signed The Magna Carta placed clear limits on the royal power With the Magna Carta, the King was bound by law The nobles intended the Magna Carta to protect their feudal rights but over time, it guaranteed the rights of all English people

In A.D 1799, Napoleon Bonaparte took part in a commission to draw up a

uniform code of laws This code reaffirmed the principle that the same laws should be used to govern all people This code was applied in France and in lands as far as Quebec and some Latin American countries

Having written law is a great improvement in social capital The law is a code of conduct and rights formally recognized by a society and enforced by the state Law provides social control, order, and justice Many of the rules required to support the wealth production process need to be written into law The law is part of the social capital

of a nation and its content and practice determines how easy or hard it is to engage in business enterprises that produce wealth

Democracy

Democracy, the election of representatives for government by a vote of the

people, is one of the most effective methods to improve social capital by limiting and defining the power of the state Democracy was present in the Sumerian City-States and

the Egyptian Villages It might have been present in previous human communities In the Sumerian City-States, it disappeared quickly when the citizens had to appoint military leaders to defend the city These leaders found themselves with absolute power The Sumerian kingships became hereditary and the principle of democracy was not

Around 500 B.C the Roman patricians, wealthy aristocrats that had success in Rome, declared the city a republic A republic is a community where the people elect their leaders The patricians established a government based in an executive and a

legislative branch The plebeians, that included rich merchants that voted and paid taxes but could not hold public office, went on strike in 494 B.C demanding more participation

in the government They got it through the recognition of the publicly elected tribunes The Roman expansion required military leaders that disputed among themselves and the democracy was over in 45 B.C., when Caesar declared himself dictator for life

Democracy disappeared all through the middle Ages and did not appear again until England In 1649, after a long struggle with the English Kings, the English

Parliament abolished the office of the monarch and declared England a commonwealth, a

state governed by elected representatives.

The American colonies started with democratic governments Under the far rule

of King George, each colony had a Royal Governor appointed by the King but it also had

an elected assembly Voting was restricted to men that owned property, as it was in England but in the colonies it was much easier to acquire land A much greater

percentage of the population, as compared to England, could vote for the government The assemblies kept the right to approve taxes requested by the governors

Democracy was spread through Europe during Napoleon’s campaigns Napoleon helped spread the ideas and reforms of the French Revolution throughout Europe In the countries that Napoleon conquered, the French established constitutions and enforced the principles of the Napoleonic Code When Napoleon’s empire collapsed, many European states wanted to keep the changes that were brought in by the French domination,

especially the abolition of the absolute monarchies

Democracy is a way that the public can get their ideas and wishes implemented to improve the citizen's charter It is a great improvement over a one man rule Nonetheless, democracy does not guarantee that the citizen's charter will improve The people of many nations are prone to believe in politicians that offer a free lunch and they vote for

expansions of the state not realizing that the cost for the apparently free lunch is their freedom and wealth producing capability

No Taxation without Representation

From the formation of the first agricultural villages 15,000 years ago, the first governments found it very hard not to abuse their power to tax and live at the expense of society by imposing excessive taxation that has been many times the cause of revolts

With the growth of the villages into cities and the cities into nations, the need for defense was in the hands of military rulers that sustained their organizations with

taxation Unfortunately, since their power was unbounded, the power of taxation has been abused many times For example, Ancient Egypt was home to about 5 million persons The majority of them belonged to the poor lower class Many were farmers and for the land that they farmed, they paid rent to the King, usually a large percentage of their crop

In the manorial system during Feudalism, the wealth of a feudal lord came from

the labor of the peasants who lived in and worked the lord’s land Manors, or states, varied in size In return for the Lord’s protection, the peasants provided various services

to the Lord Chief among the obligations were to farm the lord’s land and to make

various payments of goods In addition, peasants were obligated to set aside a number of days each year to provide various types of labor, such as road and bridge repair

The Magna Carta prohibited the King from raising taxes without the consent of the Great Council and in 1625, the Parliament in England forced King Charles to sign the Petition of Rights that forbid the King from raising taxes without the Parliament's

consent

No taxation without representation was one of the tenets for the American

Revolution that started in 1775 The King of England imposed taxes on the American colonies that had no representation in the British Parliament

If the people are going to pay taxes to sustain a state, they have the right to be represented in the decisions regarding the amount of the taxes and their use

Useful, Supervised, and Limited Government Spending

Taxes shift the use of the resources from the people that earned them in the wealth production process to the use of the government It is of great impact to society what the government does with these resources Government spending can range from useful physical capital projects, such as roads and bridges to wasteful and lavish spending of government officials

Taxation is mandatory by the state but it is to be used for the proper maintenance

of the government The state will try to grow as much as possible and the people need to limit government spending and supervise the spending to make sure that it is used in the proper activities The state budget and expenditures should be available for the people to review

Early Egyptian civilizations spent a great deal of the taxes collected in irrigation systems that created a surplus of food Around 2050 B.C the Kings in Egypt supported irrigation projects that added thousands of acres to the land already under cultivation

The taxes are well used when they are spent to run a government that increases and protects everybody’s freedom and prosperity The misuse of funds by the

government is when the government officials abuse their power to use the resources at their disposal to be wasted in luxurious consumption, war, or corruption The nation suffers because hard earned money that could have gone to investments goes to

government consumption The resources are dissipated instead of going to physical capital investments, public or private, and the nation does not advance in its wealth producing capabilities

The government does not have the market competition of cost and profit

governing the right or wrong of its spending The citizens of a nation need to have a way

to control government spending to make sure it is used for purposes that benefit society and supervise that the government services are acceptable

Through democracy, the people need to be able to limit and supervise government spending and debt A government can get heavily into debt if it does not have limitations

to spending and debt imposed by the people

Separation of Powers

In 594 B.C Solon in Greece set up two legislative houses where the Aristocrats belonged to the Council of 400 and landowning commoners made up the Assembly The Council drafted measures that went to the Assembly for approval Any citizen could belong to the Assembly, in which they were considered equal before the law and

guaranteed freedom of speech

In 1066, William the Conqueror took over England He set up a Great Council of royal officials, bishops, and nobles to advise him This would be the base for a legislative chamber that would later become representative of the people During Henry III, a new social class, the middle class, emerged Its income came from business and trade, not from the land Recognizing their increasing power, Henry III added them to the Great Council The name of the Great Council was later changed to Parliament By 1400, Parliament had divided into two chambers Nobles and clergy met as the House of Lords while Knights and Bourgeoisie met as the House of Commons In 1642, Parliament sent

to King Charles “Nineteen Propositions” that made Parliament the supreme power in England King Charles refused the propositions and the English War resulted from these differences The war would conclude 4 years later in 1646, where the Parliament gained

complete control of the English government.

The American Constitution followed the idea that the central political authority was to be divided among the executive, the legislative and the judicial branches of the government It also established a republic with an elected head of stated, a federal system with power divided between a central government and regional governments

By observing the English system, Montesquieu admired and wrote about the separation of power that was occurring in England and contributed to the establishment

of this separation of powers in France and the rest of the world

Low Taxation

Fleeing the oppression of their government, a group of Englishmen settled in North America in 1776 They worked the land and formed markets with a minimum of government taxation They were not encumbered by a heavy government that required heavy maintenance with oppressive taxes In the thirteen colonies that they founded, they formed city governments that were democratic and representative although they did not have women's vote and they permitted the slavery of the black people The representative governments of the thirteen colonies kept taxes low bringing unprecedented growth in their economies The colonies also benefited from the industrial revolution that would increase productivity dramatically The rapid growth of wealth that occurred in North America was due to low taxes, a fast increase of physical capital, and an unprecedented high percentage of the people engaged in useful work This was an environment of high social capital given by low taxation, low government spending, and low regulation

High taxes have been the cause of many civil wars Governments will try to tax as much as they can The high taxation that the state imposes on its citizens drains resources that could be used for the wealth production process The people need a way to limit the taxes that the government will impose Historically this has been done through

representation in a lower house in congress

High taxes transfer the lowest need of the taxed people, which is their

investments, to government spending Some of the government spending will be spent in physical capital projects such as highways and dams, but most of it will go to

consumption of the government employees for services rendered

High taxation is one the greatest impediments to the growth of a nation A high taxation correlates to a high percentage of people that are not working in the wealth production process High taxation means that a high amount of the resources are not going to wealth production process and its investments The expense of the government has to be watched over and maintained at the lowest level possible.

Wealthier nations will have a higher percentage of its people engaged in

productive enterprise instead of living out of the budget of the government Whether the government is a monarchy, a fascist dictatorship, a communist dictatorship, a populist dictatorship, a republic or a democracy, excessive taxes placed on the people are the greatest violation of property rights and the greatest impediment to the growth of the wealth production capability of the nation and should be, for this reason, controlled by the people

regulations can hinder the wealth production process

Limited Terms in Public Office

A democracy requires frequent elections so that the ruling people do not

consolidate their power and deny the right of the people to change the leadership This has also been the cause of rebellion The Mexican revolution in 1910 started under the banner of "Effective Vote, No Reelection" after President Porfirio Diaz retained the presidency for thirty years