"Freedom is the freedom to say that two plus two equals four. If that is granted, all else follows." — George Orwell
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Nothing is more amusing than to watch the efforts of land monopolists to claim that other forms of property and increment are similar in all respects to land and the unearned increment on land.
The People’s Land/The People’s Rights by Winston Churchill, 1909
(An unfortunate plea for statist action. Noted for economic analysis of land.)
Whenever, in any country, the proprietor ceases to be the improver, political economy has nothing to say in defense of landed property. When the “sacredness” of property is talked of, it should be remembered that any such sacredness does not belong in the same degree to landed property.
Many people in developed countries think that land is no longer important. The control and allocation of land is rarely mentioned in media discussions of economics. Yet people everywhere are as dependent on the natural environment for survival as ever they were. The importance of land to technologically advanced communities is demonstrated by the fact that when inner city land is sold, it fetches a vastly higher price than farmland.
Failure to make the relationship of people to land the starting point for the study of modern economics has led to a proliferation of complicated, contradictory theories and to an imprecise use of terms. The confusion between ‘land’ and ‘capital’ is particularly damaging to clear thought, because the two entities behave in utterly different ways in the process of wealth production:
1. Land is not produced by human beings at all, while capital is produced entirely by human activity (labour) operating on land.
…
Land: The Forgotten Factor by Henry George Foundation
Image: Archigram: Sea Bubbles
We Geolibertarians distinguish ourselves from right-wing, “royal” libertarians by our profound respect for the principle that one has private property in the fruits of one’s labor. This includes the fruits of mental labor and the results of reinvestment of legitimate private property (capital) in future production. We remain consistent in that respect by recognizing, as did the classic liberals, that land and raw natural resources are not the fruits of labor, but a common heritage to be accessed on terms that are equal under the law for everyone. The statist system of land tenure empowers non-producing landlords to extract the fruits of tenants’ labor. We also consider ourselves “green” in our respect for the earth as our common heritage. However, we clearly distinguish between land as common property and land as state property. Unlike left-wing or “watermelon” greens, we advocate governance of land in harmony with free market principles, and deny the right of statist bureaucracies to meddle in the affairs of individual land holders. We see ourselves as embracing the best attributes of the Green and Libertarian parties. Geolibertarians also believe in free trade, with no state support for monopoly privileges of any kind. We therefore oppose money monopolies, information monopolies, a host of lesser monopolies, and most of all, monopoly of the power to govern, as embodied by statist political systems.
A century ago a free market meant an economy free of rentiers, free of unearned income, free of landlords, and free of bankers.
Fred Harrison: Ghost Towns: Ireland, Spain, USA
(An unfortunate plea for statist action. Noted for economic analysis of land.)
Integrating the two theories, the geo-Austrian theory of the business cycle is as follows. At the beginning of the expansion, the banking system expands credit by an amount greater than in is warranted by available savings. This artificially reduces interest rates; the skewed market rate is lower than the normal natural rate. Low interest rates induce investment in higher-order capital goods, much of it consisting in real estate construction, related infrastructure and durable goods.
As the expansion turns into a boom, land speculation sets in, fueled by still cheap credit. Land rent and prices then rise higher than is warranted by current use. Meanwhile, since consumer time preference has not changed, the demand for consumer goods continues as before, and prices rise. When the money expansion providing cheap credit ceases and when inflationary expectations affect the market for loanable funds, interest rates rise, especially affecting the interest-sensitive real-estate market. Higher costs (which can include higher taxes and labor costs along with higher interest rates and more expensive land) now reduce the rate of increase of new investment. The higher-order investments, chief among them real estate, turn out to be malinvested, as there is insufficient demand for the extra capacity, with vacancies in shopping centers, hotels, office buildings, and apartments.
The negative second derivative (decrease in the rate of growth) eventually slows the expansion and brings on the decline, which accelerates as the reduction in demand follows the cessation of investment due to costs. This scenario is consistent with the empirical data showing real-estate construction as well as prices peaking before the onset of the depression. Once the recession begins, then as real-estate prices fall, loans start to exceed the value of the properties. The real-estate collapse brings many banks down with it, and it may take some time for banks to recover.
The depression of real-estate as well as the decline in other prices now makes investment more attractive. The cycle then moves again to the expansion phase. Note that even if credit is not unduly expanded, real estate speculation could still cause the cycle, but it is considerably dampened if interest rates are not artificially depressed.
The geo-economic remedy for the cycle is the public collection of rent (PCR), also known as land-value taxation (LVT). When future rents are collected, the profit is taken away from real-estate speculation. The Austrian remedy for credit manipulation is free banking (Selgin, 1988), a banking system without a central bank, with unrestricted branches and with competitive private bank notes (“money substitutes” redeemable into base money such as gold or a frozen quantity of federal reserve notes). Hence, the geo-Austrian policy to eliminate the major business cycle would be the combination of PCR/LVT and free banking.
The collection of the land rent by governments or by voluntary civic associations (Foldvary, 1994) would also provide revenue without interfering with price and profit signals, and without hampering the entrepreneurs who, in Austrian theory, play a key role in economic advancement.
The 18-year cycle in the US and similar cycles in other countries gives the geo-Austrian cycle theory predictive power: the next major bust, 18 years after the 1990 downturn, will be around 2008, if there is no major interruption such as a global war.
The Business Cycle: A Geo-Austrian Synthesis by Fred E. Foldvary
via: gemmaseymour:
Book VII, Chapter 1: The Injustice of Private Property in Land
A house and the lot on which it stands are alike property, as being the subject of ownership, and are alike classed by the lawyers as real estate. Yet in nature and relations they differ widely. The one is produced by human labor, and belongs to the class in political economy styled wealth. The other is a part of nature, and belongs to the class in political economy styled land.The essential character of the one class of things is that they embody labor, are brought into being by human exertion, their existence or non-existence, their increase or diminution, depending on man. The essential character of the other class of things is that they do not embody labor, and exist irrespective of human exertion and irrespective of man; they are the field or environment in which man finds himself; the storehouse from which his needs must be supplied, the raw material upon which and the forces with which alone his labor can act.
The moment this distinction is realized, that moment is it seen that the sanction which natural justice gives to one species of property is denied to the other; that the rightfulness which attaches to individual property in the produce of labor implies the wrongfulness of individual property in land; that, whereas the recognition of the one places all men upon equal terms, securing to each the due reward of his labor, the recognition of the other is the denial of the equal rights of men, permitting those who do not labor to take the natural reward of those who do.
Whatever may be said for the institution of private property in land, it is therefore plain that it cannot be defended on the score of justice.
The equal right of all men to the use of land is as clear as their equal right to breathe the air—it is a right proclaimed by the fact of their existence. For we cannot suppose that some men have a right to be in this world and others no right.
(Source: gcvsa)
Land rent is the rental value of bare land (not the buildings etc.) A rational government would charge land rent instead of tax. With land rent, there are no hidden taxes: you know exactly what each government costs each person. So voting will have a clear price, just like buying any other product or service. Price competition will become intense. This allows blocks of voters to make deals. Voting blocks become more powerful than governments. As the system matures, voting blocks will become expert at creating towns and villages tailored to their needs. In effect, everyone will be able to choose the government they want. Or set up a new one, just you would set up any business. When everyone can choose their own ideal community we will all live among like minded people and be happier. Crime becomes impossible: everyone trusts the authorities and welcomes surveillance. If trust is abused, you simply choose a different government. Or make your own.
Why Land Rent Will Save The World
(An unfortunate plea for statist action. Noted for economic analysis of land.)
Karl Marx thought labor creates all value and get exploited when they don’t get the whole value, but the Austrian economist Carl Manger said no, values are subjective. American economist Henry George said the surplus is rent, so tax that, and have free trade. Austrian economist Ludwig von Mises said pure socialism would be hopelessly inefficient, and government intervention makes the economy worse. Friedrich Hayek said so too, because knowledge is decentralized, so just let the spontaneous market order work. John Maynard Keynes in Great Britain thought government should make and spend money during depressions, but New Classical economists point out that when people expect inflation, government stimulus just raises prices. Milton Friedman in the USA says don’t try to manipulate the money, and let folks choose for themselves. The bottom line to all this is that economic freedom leads to the most prosperity. Don’t restrict labor and capital other than to prevent coercive harm to others. Don’t tax labor or enterprise. Get public revenues from rent and pollution fees. Let the market handle the money and banking. True free trade and enterprise are good; decentralized and market-based governance works best. As Henry George said, economics and ethics are one. The environment and the economy are one. Good governance and economics are one. Share rent, charge for damage, don’t steal wages. That’s economics in six minutes, and the path to prosperity.
Economics in Six Minutes by Fred E. Foldvary
(Illustration via)
The term “capitalism” has been the most successful propaganda term in human history. …the term “capital” masks the underlying and more fundamental interest that receives governmental privileges: real estate, and more specifically, the big landowners. If you want to understand the economic policies of governments world-wide, and the main cause of social problems, it becomes clearer if you grasp this proposition: The main purpose of government is to serve the big landed interests. …the biggest subsidy to landowners is implicit: it is the enormous increase in land rent and land value due to the public goods provided by government. Streets, parks, security, schooling, transit, etc., all make land more attractive and productive. The rich pay high taxes, but they get it back, and often much more, in higher land value. Taxes fall most heavily on the middle class, as the state tax-confiscates about half the wages of a typical worker, including the taxes the pay when from their remaining wages they buy taxed goods.
Land is a creation of nature, not human action, and its value comes from natural features and the population, commerce, and public works of the community. Land rent is a pure surplus that mother nature offers to us as a gift by which to finance the public goods provided by government. But you have rejected mama’s natural offer. Instead, you, by voting for the status quo governmental chiefs, you attack the earnings of labor, and with that loot, you provide public goods that pump up land rent and land value. Yes, you, the voter! What happens then is that rent absorbs much of the gain from economic expansion and progress. Speculators jump in to leverage profit from the land-value rise. Landowners buy land with borrowed funds, so they engage their partners, the banks and other financiers. Speculation raises land values to peaks unaffordable for actual use, and then land values plunge, and the leveraged mortgages and derivatives crash. That is the source of panics and depressions.
There is only one remedy for the boom-bust cycle, and that is to stop subsidizing real estate.
Capitalism: A Brilliantly Confused Story by Fred E. Foldvary
… Marx and his followers then came along and mucked up the language and thinking. Marx wanted to distinguish the workers from all those who owned assets, and so he lumped land into capital. From then on, most economists followed Marx in focusing only on labor and capital, and the physiocratic and classical emphasis on land was set aside. The neoclassical economic thought that followed the classical was encouraged to forget land, since this benefited the landed interests who financed them, and it also made the mathematical models easier if there are two rather than three factors. From now on, the system would be called “capitalism.” But is capital a problem? Capital provides investment, and investment and better technology is what has raised living standards world-wide. “Capitalism” makes entrepreneurs and owners of capital the villains, whereas Ricardo’s law of rent shows that much of the gain from trade and technology go to the owners of land as rent…
Geoism is the philosophy of sharing the benefits of the land (geo), while respecting the equal self-ownership of persons. Self-ownership implies that one owns one’s body and life, and therefore one’s labor and wages and the products of labor. These should be unrestricted and untaxed, and traded without taxation or restriction. The benefits of land have their economic manifestation as rent, which can be shared either as public revenues, community financing, or as dividends to the members of a community. We can see that the two movements and philosophies have much in common and have no inherent conflicts between them. There are adherents to both movements, geolibertarians who identify with both geoism and libertarianism. But for the most part, these have remained distinct movements… Libertarians stress individualism, while many geoists emphasize community. Many libertarians have little knowledge about the economics of land and rent. Many geoists don’t fully understand free trade…
Vibrations of rent are generated by demands for space and natural materials, but unlike labor, the supply does not come from human sources. The supply comes from geological and geographical strings. Unlike labor strings, the strings of land services do not come from any individuals, but from society generally. It is the vibration of the community, not any individual, which generates land rent vibrations. Human strings are created equal; there are no master and slave strings in nature, so the financial flows of rent should go equally to all the human strings of the community. But governments typically intervene to shift the rent only to those having privileged legal title. Community members are not getting back their share of value generated. Their income strings become broken. The economic strings are broken, and we get economic diseases: inflation, unemployment, congestion, poverty, instability, war! Most people see the broken strings, but do not understand the causes.
