Constructal Public Finance
|November 24, 2013||Posted by Fred Foldvary under Editorials|
Nature is not random. The laws of nature create structural designs like the roots of a tree. This phenomenon is explained by a theory called “constructal law”. This explanation applies to all flows in physics, biology, and human society. The term “constructal” was created by Adrian Bejan, professor of mechanical engineering, in 1996. Constructal law proposes that a system evolves towards maximizing the work done by flows of currents, relative to the inputs of matter and energy. The tendency towards better flows creates a hierarchical design.
In physics, work equals force times displacement. A force such as gravity or sunlight or a human action pushes and pulls things into a different speed or direction. A river does work by moving or displacing water. In the physical world (apart from biology), the natural tendency of flows such as rivers is to evolve structures that increase the flow of the inputs such as rain. This physical law then applies to living beings such as trees, which ingest water and other materials and move these through the organism.
The structure that maximizes the work of flows is similar to the roots and branches of a tree. Why is a tree not simply one long trunk, without branches, with leaves growing directly on the trunk? Because branching maximizes the work done by the flowing of the ingested water.
Much of what happens in nature is flows of materials and energy. Rivers are flows of rain water that start as creeks, creating a structure like tree roots, with small rivers flowing into larger rivers and ultimately a giant river such as the Mississippi. The water ultimately flows into an ocean, and evaporation sends it back into the atmosphere. This structure maximizes the flow of the water. The bodies of plants and animals too are flows of air, water, and foods taken in, which energize the body, become transformed, and then flow out. Your body is a dynamic input-output flow machine.
The constructal law is a law of evolution as well as structure. Systems like rivers and living beings evolve over time towards the maximization of the work done by flows. Human-built structures such as traffic follow the constructal tree-design concept; cities have local streets, larger avenues, and freeways.
Human society is constructal, but people in power can change the governing structures to conform to a greater or lesser degree with the concept of facilitating flows. If in a large country, power is centralized, so that the state attempts to plan the whole economy, this is in contradiction to constructal design. It is like a tree that has only a trunk. The economy will generate waste and function far below its potential.
Human economic action follows the constructal law by maximizing benefits and minimizing costs. In their book Design in Nature: How the Constructal Law Governs Evolution in Biology, Physics, Technology, and Social Organization, Adrian Bejan and J. Peder Zane cite the American economist Henry George, who in his book Progress and Poverty stated as an axiom of economics that people seek to satisfy their desires with minimum exertion.
Constructal law can be applied to governance with the concept of federalism, having several layers of governance. The lower or more local levels need to have some independence of decision making in order to enhance economic flows, as inputs get processed into products. A free market maximizes the work done by flows for a set of inputs, as the knowledge needed to process the flows of goods is decentralized. Knowledge itself has a tree structure, with some knowledge centralized into recorded forms, but much of the knowledge being decentralized ultimately in the minds of producers and consumers. Only you know what products are best for you, and the best use of your time and skills cannot be totally directed by others.
Optimal public finance can operate constructally with two principles. First, maximize the flow of revenues for collective goods by avoiding taxes on the inputs and on the outputs. That implies that there be no tax on the flow of labor, no tax on the value added by production, and no tax on the products. Instead, public revenue should be based on the potential flow of the surplus from production, and that surplus is land rent, which flows from the resources of nature.
Constructal law implies that the flow of rent not be collected by the central government of a large economy, nor by small neighborhoods. Like a tree that has both branches and roots attached to the trunk, optimal public finance proposes that the land rent flow from the roots, the residential and commercial title holders, up to the trunk, the county-level governance. From the county the funds would flow up to the state or provincial level, and from there to the federal or national government.
In an interview with The Freeman magazine, Bejan said that freedom promotes better designs, because constraints limit evolution towards better flows. Acts which are coercively harmful hamper the voluntary flow of human action. Therefore, governance can promote the flows of social and economic action by not restricting or taxing peaceful and honest human action.
Government should also avoid subsidies that alter the market prices of goods and profits of firms, since these also interfere with freely-chosen flows. The public goods provided by government become a subsidy to land rent, when that rent is not paid back to the providers. Constructal public finance implies that the flow of rent generated by governmental goods be returned to its source, creating a circular flow like the rain that falls on water and is then evaporated back into the air.
The prescription for a prosperous economy discovered by the French Economists of the 1700s and explained by Henry George in the 1800s is that which best implements constructal public finance: free trade and public revenue from land rent.