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Entry for August 10, 2007
Henry Plottre and the Magically Expanding Land

by Fred E. Foldvary

Henry Plottre was an English boy who went to magic school to become a wizard. He was a brilliant student and mastered how to make rabbits appear, how to make buildings disappear, and how to say "abracadabra!" whenever he whisked off the handkerchief.

During his studies, Henry heard that there was wizard who could make land grow. The wizard knew how to magically expand land, something that both physicists and economists thought was impossible, even with magic.

Nobody knew where this land wizard lived, but it was rumored that there was a leprechaun named Oldvar who lived in the forest and knew where the land wizard lived. Henry trekked into the forest and used his magic wand to sense where Oldvar was, and found him hiding under a mushroom. At first, Oldvar claimed he knew nothing about the land wizard, but Henry offered him a rare amber stone enclosing a fossilized eye of a salamander. Oldvar told Henry he had to go through the Valley of the Economists and then up the Xylitol Mountain to the very peak.

As Henry trekked through the Valley of the Economists, he came upon David Ricardo. "Land is fixed in supply," said Ricardo. "Even magic cannot expand land. Go back, you fool!"

Henry then came to a fellow with a big red beard. "I am Karl Marx," said the economist, "and there is a specter haunting this valley. It is the specter of expanding capital!"

Henry replied, "But I am seeking the secret to expanding land, not capital!"

"Land is for peasants," said Karl.

Henry did not understand, and kept going forward. He came upon Adam Smith. "An invisible hand will take you through this valley," said Smith, "but the secret to expanding land will also be invisible."

The invisible hand carried Henry to Xylitol Mountain. It was tiresome climbing up, and Henry tried to skip his way to the peak with his magic wand, but it was not working here. After many days, eating only mushrooms and miner's lettuce, Henry came to the peak. There sat a man with a thick white beard - the land wizard!

"Oh, land wizard," Henry explained. "I have come all this way because I was told that you know how to make land grow!"

"Yes," said the wizard. "There is a way you could make land grow."

"How?" asked Henry. "I will give you a precious amber if you tell me."

"I need no amber," said the land wizard. "I will tell you. There is high above a very large comet coming near the earth. With your magic, you could alter its course so that it will strike the earth. The earth will then grow bigger. You will then have expanded land."

"But," said Henry Plottre, "that collision would kill most life on earth!"

"Yes," said the wizard. "But you asked me how to make land grow. That is how."

"But you are a great land wizard," replied Henry. "Surely you would know how to expand land without destroying life."

"Surely," said the wizard. "But I would have thought the economists in the Valley would have told you."

"No," said Henry. "They said land was fixed, it is for peasants, and the answer is invisible."

"Well," said the wizard. "Actually I too am an economist. I will tell you the secret to expanding land. Come closer."

Henry came up close to the wizard.


Henry's put his ear by the wizard's mouth.

"Even closer!"

"I can't come any closer!" said Henry.

"Just joking!" said the wizard. "Now I will tell you. But you must promise!"

"Not to tell anyone?"

"No! To tell everybody, you silly boy!"

"OK, I promise," said Henry.

"Tax the land," said the wizard.

"What?" said Henry. "How will land expand by taxing it?"

The wizard sighed. "Sit down." Henry sat.

"When you collect the land rent like a bear collects honey, then those holding land idle will put it to good use so that it is worth paying the rent. If they need to keep providing honey to keep the land, they will work like bees. When idle land becomes well used, it is like growing more land."

"But that does not expand land," said Henry. "That just puts land to better use."

"It has the same economic effect as creating more land, no?"

"I guess so," said Henry.

"You guess?" huffed the wizard.

"I know so, now" Henry corrected himself.

"So land does expand when it is taxed?"

"Yes," said Henry. "By George, yes!"

"And what did you promise?"

"That I would tell everybody."

"So go!" said the wizard.

Henry ran down the mountain. "We can so expand land!" he cried as he went through the Valley of the Economists.

"We can grow land! We can expand land!" he told his fellow students back in magic school.

"With magic?" they asked? "No, with economics!" exclaimed Henry.

"We don't have time for economics," the other students replied. "We have enough to do learning magic."

So Henry Plottre realized that he could not save the world with magic, but rather with economics, but only if people were willing to listen. Unfortunately, most are too busy trying to learn magic.


The above originally appeared in www.progress.org

2007-08-10 17:12:18 GMTComments: 0 |Permanent Link
Entry for May 28, 2007

Yoga for the Mind

by Fred E. Foldvary

In the original practice in India, Hindu Yoga consists of physical postures and mental methods such as meditation which create both better health and a more enlightened understanding of the nature of our existence. As usually practiced throughout the world, yoga involves postures and exercises that build physical strength and vitality.

Since yoga stretches the mind as well as the body, we can apply the concept of yoga to strengthen our way of thinking. The two main mental poses of yoga thinking are the questions, "What do you mean?" and "How do you know"? These two mental stretches are associated with the philosopher Socrates in ancient Greece.

By asking "What do you mean?", mental yoga clarifies our understanding of words, or else exposes words as lacking in meaning. You can do this mental yoga exercise when you read an article. Identify the key terms, and determine whether they have clear meanings either from the context or from a definition.

For example, many texts use the word "capitalism" without defining it, and without making the meaning clear by context. In so doing, they shift the meaning without being aware of it. Capitalism can refer to today’s economies, or to the pure market, or to the seeking and getting of privileges by owners of capital, or to the exploitation of labor by the owners of capital. Sloppy writers often implicitly mix in land into their concept of capital, and confuse today’s mixed economies with non-existent free markets. It requires the discipline of mental yoga to sort this out.

The question "How do you know?" seeks to determine the truth about propositions. The two ways of knowing in thought yoga are logic and evidence. In scholarly writing, evidence is always provided for facts, and sources are cited for sayings. But even in non-scholarly writing, one can provide the sources and evidence for statements whose truth is not obvious. Otherwise, the proposition is an opinion or a conjecture.

The logic of reasoning can be deductive, inductive, or abductive. Deductive reasoning is the foundation of thought yoga and involves avoiding logical fallacies and being able to think conditionally, i.e. if X then Y. Inductive reasoning creates a general proposition from observed facts. The expert in thought yoga recognizes that such generalizations are probabilistic and could be falsified by better evidence. False generalizations can create prejudice and leaps to false conclusions.

The most difficult posture of yoga for the mind is lateral reasoning, using abduction. Abductive logic involves examining the premises of an argument to determine if there are missing items. The argument can be valid, the conclusion correctly deduced from the premises, yet the conclusion can be false because a necessary premise has been omitted. The value of submitting one’s thoughts to others for criticism is that they can provide those missing premises better than the author.

The main benefit of learning economics is not facts or theorems but the ability to understand the implicit reality beneath the explicit appearances of economic activity. Economics should be an exercise in abductive reasoning. Economics yoga teaches one to stretch one’s mind to think in a different way than that of the ordinary unenlightened mind.

For example, economics recognizes that the true cost of something is not the money one pays, but the most important things that one gives up. For example, if you buy a car for $20,000, your true cost is the other things you could have gotten with that money. Thus all costs are opportunity costs, the foregone alternatives.

Therefore economic yoga tells us that the true profit of an enterprise is not the money you have left after expenses, but the gain after also subtracting all opportunity costs, even if they are not paid in money. For example, your gain from self-employment has to exclude the wage you could have gotten working for somebody else.

Economists like to say that there is no free lunch. This is true in the sense that there is no economic magic. We cannot increase production and income by waving a wand, such as increasing the minimum wage or creating more money. In economics, we have to keep it real.

But to say that there is never a free lunch is unenlightened. The yoga economist recognizes that the social benefit from an economy is entirely a free lunch. The free lunch in economics is the surplus from economic activity. The consumer gets a surplus when he buys something at a lower price than the most he would pay. Production creates a free lunch when the product fetches a higher revenue than the economic cost. Most of the surplus from production goes to land rent - all rent is surplus and a free lunch, because land has no opportunity cost. Workers get a surplus when they get paid more than the least they would have accepted. There is even a surplus from government when its services are worth more than they cost, although often the reverse is true.

These surpluses are destroyed by taxation and excessive restrictions imposed by government. Economists call this a deadweight loss. Yoga economics tells us that the true cost of government is not the taxes paid but rather the elimination of social surpluses. The deadweight loss can be avoided by obtaining public finances from use fees, pollution and congestion levies, and land rent.

But this free lunch and its destruction are not visible and not obvious. It requires the abductive reasoning of economics. People who think they are progressive or liberal or compassionate and advocate governmental medical care and welfare for the poor and deprived have not practiced yoga for the mind. People who think that their conservative traditions and authorities are universally valid have not asked themselves "how do you know?’ Those who criticize or praise "capitalism" have not asked "what do you mean?"

Yoga for the mind involves both discipline and a way of thinking. Just as one needs an instructor for physical yoga, one benefits from a teacher in learning mental yoga. They may not realize, but good economists who coach students into the economic way of thinking are actually practicing a type of mental yoga. Yo!

(This entry is also at http://www.progress.org/2007/fold509.htm)


2007-05-28 13:52:34 GMTComments: 0 |Permanent Link
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