In classical economics, production (P), was distributed between land, labour and capital, as rent (R), wages (W) and interest (I); that is: P = R + W + I.
Classical economists defined land as all natural resources exclusive of man, that is, land, sea and air, so that, unlike current rubbery economic definitions that regard certain so-called ‘surplus’ returns to expert personal exertion (labour) as ‘rents’, rents in the classical sense are those yields from land, mineral, fishing, forestry, spectrum and aircraft licences – to natural resources only. These may be seen as government-granted privileges for which their rent should be paid. [Searchable sources are to be found on this website for the latter statement, including biblical references, classical economists such as Adam Smith, David Ricardo – and great philosophers – but land, in its wider sense has gone missing in neoclassical economic analysis.]
Henry George refined classical distribution theory further in Progress and Poverty by putting a syllogism very similar to the following:-
A. Rent-seeking behaviours create the dual pathologies of increasing land prices and taxation, the servicing of which is a deduction from the incomes of labour and capital.
B. Taxation and privately-capitalised land rents devour the benefits of technological innovation, creating thereby unsustainable debt levels, involuntary poverty and recurrent periods of economic recession and depression.
C. Therefore, taking natural resource rents for public purposes, instead of taxing labour and capital, will obviate:-
– the rich-poor gap created by such a pathological distributional system
– unsustainable debt levels, poverty and dispossession, and
– future economic recession and depression
By transposing unearned land rent to the left side of the equation, viz, P – R = W + I, Henry George showed that if community-generated natural resource rent were captured to the community for public purposes, then earned incomes would not need to be diminished by arbitrary forms of taxes. This “fiscal adjustment”, he argued, would reconcile labour and capital, permitting a complementary relationship to exist between the two ‘doing’ factors of production.
He held that the social capture of community-generated resource rents, clearly an unearned public surplus in the production process, would rectify the distributional problem, removing inducements to cyclical bouts of resource speculation, the invariable outcome of which is socially damaging economic recessions, or such devastating financial depressions as we are now experiencing.
The “remedy” George and others espoused has still not been tried on a grand scale. Could this be because politicians believe they tender greater allegiance to those who privatise our public rents than they to the public good? This is a question that merits a little thought and an honest answer.