Mason Gaffney gives amazing chapter and verse in ‘The Corruption of Economics‘ about the people who successfully sought to conflate land and capital within the study of economics, in order to circumvent Henry George‘s popular late 19th century campaign to capture land rents to the public purse as an alternative to taxing labor or capital.
There are still a few modern monetary theorists and supporters of a universal basic income who fail to acknowledge that both programs need to be complemented by a land rent system if the positive effects of either initiative are not to be swallowed by immediate increases in land prices. Henry George had explained that land rent had first claim on the economic benefits of invention and material progress and, if labor and capital were to retain their fair share, it needed to be publicly captured. He held land rent to be a function of community advantage and behaviour, not of any individual effort: wages and the return to capital were the real ‘private property’ and should not be taxed if the economy was to function without breaking into economic depression.
George put the case like this: if the publicly-generated economic rent of land were taken from the national product, land prices would reduce and labor and capital would receive their rightful reward, without any deduction. That land rent is sufficient is the subject of Joseph Stiglitz’s Henry George Theorem. Moreover, people from John Locke “It is in vain in a country whose great fund is land to hope to lay the publik charge on anything else; there at last it will terminate” to Mason Gaffney have said that as all taxation ultimately comes out of land rent anyway, it ought to come from there in the first instance, in order to avoid the damaging excess burden of arbitrary taxes.
How successful in making the extent of rent invisible in the damaged neoclassical economic model we’ve inherited—it’s some 30% of the economy, despite scurrilous claims to the contrary—may be gauged by the quizzical looks one receives when arguing the case for public capture of the economic rent of land. Land rent may have been the basic revenue source for centuries, but people appear to believe we’ve had income taxes forever.
With “The Land Boomers” bubble peaking in Australia, Henry George made an intensive tour advocating land tax in 1890. Such were its popular reverberations in the depression following the bursting of the bubble, Australia came to adopt a federal land tax in 1910: there was no federal income tax. The proposed Australian Capital Territory was also to be founded on a leasehold basis.
After Prime Minister Robert Gordon Menzies removed the federal land tax in 1952, the leader of the Australian Labor Party, Arthur Calwell, attacked the decision in a 33 minute parliamentary speech on 24 February 1953 including: “We of the Australian Labour Party have always believed that the land is the patrimony of the people, and that nobody has a complete and absolute title to it …. The land belongs to the people, and its use must be safeguarded and protected at all times …. We have always believed in the land tax, and when happy days come again we shall restore the measure, imposing the tax to the statute book of this country.”
New 1963 Labor Party national secretary Cyril Wyndham believed land tax was no longer politically palatable. He thought an Australian public gravitating to home ownership in the buoyant 1960s under Menzies would no longer brook the party’s land tax plank. Therefore he wrote it out of the ALP’s 1964 platform altogether. It was gone without the required party vote.
So, where both sides of Australian politics once supported it, land tax now remains an inadequate embarrassment at State government level, with problematical exemptions, thresholds, multiple rates and aggregation provisions, all acting to make it the bad application of an excellent principle. Our policy makers and the political class meanwhile look askance at the all-in land tax recommended by The Henry Tax Review. It has become “no longer politically palatable” because it offends the 0.1% and its followers.
And so, the Australian economy continues to drift ever downward, into one of the economic depressions mentioned in Henry George’s magnum opus, “Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth … The Remedy“.
There is ample historical evidence Australians used to be capable of intelligent thought.