All posts by Bryan Kavanagh

I'm a real estate valuer who worked in the Australian Taxation Office (ATO) and Commonwealth Bank of Australia (CBA) before co-founding a private valuation practice, Westlink Consulting. I discovered that we leave too much publicly-generated land rent to be privately capitalised by banks and individuals into land price bubbles. This generates repetitive recessions and depressions. These need to be avoided by capturing more revenue from land values to free up wages and household debt.

THE SECRET In a nutshell

Once you get that land prices are a scourge inflicted upon people, a lot becomes clear.

Few bother to try to understand the point. That’s where neoliberal economics has come to overtake our thinking and to fail us.

Think about it. What did it cost to produce the earth – the land, sea and air. Nothing. Why does land cost so much then? Because everybody wants it? Nup. Everybody wants a little air, too, but it’s available for free. So land, having no cost of production ought also be free.

With the proviso, however, that we need to pay its annual rent. This could be done in installments, instead of income tax and charges on sales.

Were we to capture the rent of land publicly, a block of land would have no selling price. That’s because the price of land reflects the private capitalization of its uncollected rent – not its inadequate supply as we’re constantly told.

It doesn’t have to be like this. With the price of land now being the greater part of the purchase cost of a home, the implications are enormous for housing affordability if the rent of land were to be taken into the public coffers, instead of taxing productivity.

We’d have genuine ‘free enterprise’, together with very little private debt. (This may not suit the banking industry which now seems to have become the economy.) A genuinely free economy of abundance would emerge.

The switch from taxes to a land rent system would certainly need to be introduced incrementally, in order to avoid economic shocks, but its great advantages would become apparent as the land rent came gradually to replace taxes.

Unlike taxes on productivity which inject deadweight losses of something like twice the amount of tax levied, public capture of the land rent carries no deadweight loss at all. That deals with issues which currently condemn the practicality of both modern monetary theory (MMT) and a universal basic income (UBI), namely, that they would tend to be capitalised into higher and higher land prices.

Capture of land rent kills inflation stone dead. That’s the job of a land rent – and the failed job of taxes on productivity – to remove surplus money from the economic system. Where people have understood taxes to be a pot of money from which public expenditures are made, the view is fortunately now being challenged.

The benefits and abundance flowing from the public capture of land rent instead of taxation remains a great secret undiscovered by people in general, but more pointedly by the experts: the modern economist, scientist, lawyer, politician and educationalist.

By any definition, this is an incredible scandal which locks world economies into real estate cycles of boom and bust. Neoliberal economists are nakedly exposed as high priests for the status quo when they explain these socio-economic catastrophes as “the natural business cycle”.

In current world economic circumstances, it’s an understatement to suggest the secret needs a little daylight and exposure.

HOW BINARY IDEAS TRASH WORLD ECONOMIES

Friedrich Hayek’s “There is no such thing as society” was a thought promoted by Ayn Rand which also happened to appeal to Margaret Thatcher. To consider there might be some community coherence amongst individuals is seen as collectivist and Marxist – a threat to liberal democracy. Proposing community–just look at that word!–or ‘society’ has clear overtones of socialism, which we know is a slippery slope, tantamount to communism itself!

On the other hand, Marxists have been given Thomas Piketty’s confirmation to work with: that capital has been stealing from workers and therefore it needs to be controlled by the state if suppressed wages are to have any chance of being clawed back from the capitalist’s grasping hand. Unions must fix this!

Such is fundamentally the thesis and antithesis of the current economic debate. Could there be a synthesis to mend the maddening bifurcation?

There is indeed a workaround, a binding synthesis that would repair capitalism’s excesses, but it has long been rejected and buried by neolib and neo-Keynesian alike.

The workaround was the case made in Henry George’s seminal Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth …. The Remedy, in 1879.

Supporting ideas promoted, amongst many others, by Adam Smith, David Ricardo and JS Mill, George held that land was humanity’s common property, ergo capturing its rent, instead of taxing productivity, offers an elegant solution to many of our economic and social woes. Although the idea has a history throughout millennia, George expressed it so clearly and achieved such an influentail following that he was seen as an existential threat by the uber-wealthy, an attack on their modus operandi, and he had to be countered.

Mason Gaffney provides chapter and verse suggesting the development of neoclassical economics, which was to fudge natural resources with capital, proved to be that counter. [Neo-classical Economics as a Stratagem against Henry George, 1994] The new economics was successful in burying George’s ideas. Economists today will attack the name of Henry George without being able to gainsay his case, their main ‘argument’ seeming to be that “It is a very old idea!” Apparently, an old idea can’t be a good idea.

In putting his pro-capitalist/anti-rent-seeker economic synthesis, George held that “Karl Marx is the prince of muddleheads” – to which Marx replied, “Henry George is the capitalist’s last ditch.

Left and right are now fighting in endless tribal economic discord. The idea that the rent of land might be the glue to resolve and bind socio-economic differences is missing entirely.

This is more than a pity, because without a synthesis–George’s “remedy”–to resolve economic turmoil and increasing poverty, the world has a history of throwing up populist demagogues, then turning to war as a ‘solution’.

Official portrait of President Donald J. Trump, Friday, October 6, 2017. (Official White House photo by Shealah Craighead)