Economic Rent = Net Present Value of Asset * Risk Free Interest Rate

[jim_b...@hotmail.com]

I've derived the calculable definition of economic rent:

Economic rent = Net Present Value of Asset * Risk Free Interest Rate

This definition has the virtue of being calculable and easily
translated into a generalization of the land value tax by simply
admitting that the classical economists missed a very important point:

Subsistence property, like animal territory, precedes government-upheld
property rights and is therefore not legitimately taxable.

This means household economic rent tax liability is the greater of 0
and:

Economic Rent Tax = (Net Assets - Subsistence Exemption) * Risk Free
Interest Rate

If property assessment is conducted via self-assessment, enforced by
eminent domain (under-assessed property can be transferred by the
government at any time to a higher bidder so as to maximize tax revenue
-- see Kelo v. New London: http://tinyurl.com/8pmk9 ), then windfalls
from infrastructure improvements can be captured in a a single
transaction simply buying, prior to announcing intent to build the
infrastructure, properties that would enjoy the windfall. The
increased value is then earned.

I had a similar proposal to this in a white paper in 1992 but did not
have the proper definition of economic rent with which to clearly show
the unification of my approach with classical economics:

http://www.geocities.com/jim_bowery/nat.html

This proposal also had an exemption for inventor-owned patents of
invention, for the limited life of the patent. The founders of the
United States saw patents of nobility being replaced by the nobility of
the creative act in the New World culture. This is an add-on that I
included since I agreed with this New World definition of nobility --
but, unlike the subsistence exemption, the merits of this inventor's
exemption can be argued separately from the essential definition of the
economic rent tax.

[ro...@telus.net]

On 26 Oct 2005 10:21:56 -0700, jim_b...@hotmail.com wrote:

>I've derived the calculable definition of economic rent:
>
>Economic rent = Net Present Value of Asset * Risk Free Interest Rate

?? This makes no distinction between contributed capital assets and
uncontributed land.

-- Roy L

[jim_b...@hotmail.com]

Think about it from the perspective of monopoly rent rather than the
specific kind of monopoly represented by land rent.

Consider the previously-presented problem of calculating the economic
rent represented by the copyright to the Windows operating system --
where the software industry is forced to write their software to that
standard simply because it is the most pervasive. If Digital
Research's CP/M had, instead of MS-DOS, been selected by IBM to be the
default operating system for the original 4.77MHz 8088 IBM Personal
Computer, Gary Kildall would have become the world's richest man rather
than Bill Gates, simply from the monopoly rents of controlling the
operating system to which all PC-compatible software must be written.

It's all because the "platform" upon which applications are written is
like "land" where in order to participate in the software economy
everyone must rent a piece of that "land". Its worse, actually, than
someone owning at patent on 60Hz AC and charging rent to all generator
(CPU) companies as well as all users of electricity (computer users)
with their electrical appliances (application software). Its worse
because software is far less geographically limited -- so it is very
difficult to establish major alternative standards elsewhere in the
world. It's almost like someone eliminated all the land in the world
except Manhattan. Microsoft didn't invent the transistor, integrated
circuit or microprocessor -- but, due to the nature of software, became
the primary "land lord" of the territory created by those who did.

The copyright to the Windows operating system will have a net present
value assigned to it by various parties that may wish to own it. The
primary way they assign their net present value to it is to look at its
monopoly profit stream, which is enormous and very low risk. And it is
precisely this last phrase "low risk" that characterizes economic rent.
This is why the net present value calculation, being the risk
discounted profit future profit stream, further discounted for the cost
of capital, is so crucial.

As the risk approaches zero, the estimated NPV approaches:

NPV = profit/i

So, for a company like Microsoft where monopoly profits predominate,
the NPV will rise to the point that its profits will be largely used to
simply
pay the economic rent tax.

[sinister]

<jim_b...@hotmail.com> wrote in message
news:1130440813.3...@o13g2000cwo.googlegroups.com...

[snip]

> Its worse
> because software is far less geographically limited -- so it is very
> difficult to establish major alternative standards elsewhere in the
> world. It's almost like someone eliminated all the land in the world
> except Manhattan.

I don't like it either, but to say it's worse than land monopoly is
economically ignorant.

Ask yourself: what's the ratio of the annual return to land in (e.g.) the
US versus the annual return to software IP?

[snip]

[jim_b...@hotmail.com]

Of course, you're right that monopoly rents on land are vastly worse
than monopoly rents on anything else, and this is one reason I haven't
opposed those who suggest an LVT (except to demand that they include a
subsistence exemption, which I think is utterly vital).

What I meant, and inadequately articulated, was that within its
economic domain, software is worse than land.