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Sunday, May 27, 2012

Every martian a millionaire

There is a balance between risk and reward. Reward too low? Don't take the risk.

Mars colonists will be risking their lives to open up a whole new world. Even so, there is no shortage of volunteers. Many thousands would go if they could figure out how to pay for it. A settlement charter which has the force of law simply by the agreement of its members can provide the how (regarding funding; technology is a separate issue.)

Nobody owns unclaimed property. Nobody can grant it (unless they first claim it which is prohibited to sovereigns if they signed the OST.) All ownership of property starts with a claim. Claims are not the divine right of sovereigns; anybody can make a claim. Making a reasonable claim in an orderly manner by many individuals gives it legal force. The 49er miners could explain that. So let's assume all martians start with ownership of a single square kilometer (they can buy more from others if they so choose.) What does that mean with regard to a martians wealth?

Undeveloped land is close to worthless but could be sold for some amount. Developed land has value. Land can be developed simply by putting work into it; but generally land is developed at a cost of materials and labor. When sold, that cost is recovered along with some profit (if sufficient demand exists.) That recovered cost can be rolled over to develop more land. So would a single square kilometer offer millions in profit potential? Let's see...

With 86.4% utilization (nothing landlocked) 432 plots of 2000 square meters (40m x 50m, about a half acre each) would be available for sale from a single claim. Divide 432 into a million means every $2315 in profit provides a million dollars. Renting could provide a similar profit. So even if not fully developed, if you could by labor add $10/hr to the value of your land (landscape it in preparation for further development) it would take only a few weeks to improve it to that value. If you paid material and labor to build a habitat worth $100k you could certainly get more than a few thousand in profits. This makes every martian a millionaire provided they overcome two issues (demand and transportation costs.) Supply is restricted and enforced by agreement to the settlement charter which provides the legal basis for land claims.

The key issue is demand. Where would that come from? New colonist would be the main factor. While they could spend months in a temporary shelter building their own permanent habitats it makes sense for them to have one waiting on their arrival. The reason is they will have to spend the same amount of money on labor and materials whether they build it themselves or someone builds it for them. Giving someone a few percent profit to do the work is just how economies function.

None of this works if the colonists can't afford to get to mars which could cost as much as $100m for each. (Update: $41m each.) Is that too hard a nut to crack? Not at all. We've just established that a single claim is potentially worth millions. That would imply that 1000 square kilometers is potentially worth billions. That gives a company a reason to take that risk. They just have to look past a quarterly report.

So a legally binding settlement charter allows a claim of 1000 sq. km. to a transportation company for each colonist they provide free transportation to. Problem solved. The transportation company isn't going to get that money immediately. It will take time, but it is potentially worth trillions** (definitely tens of billions, but real estate isn't their only source of profit) to any company that sees the light. It will take colonists. Those colonists will improve the value of land including company holdings which they can sell to people on both planets. Elon says 10,000 colonists over the next few decades is reasonable. That would do it. Especially if the volunteers already to go now were to find out they get to become millionaires for their trouble as well. Sign me up.

We should also do the company math as well. Let's say it costs them $100m per person to transport them to mars (it won't. It will be much less if done right.) So how much would they have to sell undeveloped land for to break even? 1000 sq. km. or 400,000 quarter hectare plots would be $250 per quarter hectare for break even. They might not get that but they could certainly get something that would defer their costs. Developed and undeveloped land are two different products. Developed land value should not suffer even with a large supply of undeveloped land. Companies would have an incentive to bring in labor to increase the value of their holdings but even that shouldn't adversely affect the value of colonists developed land.

Economics doesn't stop at real estate. Colonists will all have their specialties providing products and services to other colonists. Let's leave Marxism (and all it's derivatives) on earth. Free enterprise will open up the solar system (and galaxy and universe and multi-verse if that actually exists.)

Back to outline

**If they transportation companies could choose not to sell their land (this really can't happen as it would be too expensive) they would end up owning 99.9% of the land between them, but this would still not result in a company town. What it would mean is any from those companies choosing to retire on mars would have a dynasty that would endure for generations.

Update: I comment at "Whatever Happened to Space Colonies?"

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