WHO SHOULD GET THE ECONOMIC RENT?

This video is worth the watch.

However, while Paul Keating rightly argues that Australia is capable of defending itself, and intrinsically linked to Asia through trade, his economic outlook still has a blind spot. He fails to grasp how privatised economic rent (‘super profit’) generates economic instability.

Even now, there’s no evidence to suggest Keating understood that the 1973 crash in real estate prices triggered the demise of the Whitlam government and set the stage for its landslide defeat in 1975 following “the dismissal“.

Captured by the neoliberal agenda, Keating finally privatised the Commonwealth Bank in 1996 and introduced compulsory superannuation, seemingly operating under the premise that the Australian government could run out of its own currency and be unable to fund pensions.

Keating is far from alone in maintaining this curiously misguided stance.

Institute of Public Affairs economist Adam Creighton delivered the 135th Annual Henry George Commemoration Address last night, tackling the past, present, and future of an Australian land tax.

Speaking at Carlton’s Graduate House, Creighton was introduced by Prosper Australia President Matt Godwin.

Most Australians likely don’t realise that banks actually create their own money, a point briefly made by Creighton in an aside.

Oh, that all Australians had this right to counterfeit dollars!

Skepticism about retail banks such as the Commonwealth Bank of Australia (CBA)—the nation’s largest mortgage lender—having a strong incentive to avoid formally forecasting recessions is generally valid. Their economic commentary is typically framed using softer, less alarming terminology, such as “cyclical slowdowns” or “soft landings”.

Analysis of why major banks are structurally disincentivised from calling a recession, and how their corporate model masks structural weaknesses, reveals several insights: –

1. Self-Fulfilling Prophecy? Economic forecasting by a major commercial bank isn’t a neutral, risk-free exercise. Were the CBA—which handles more than a quarter of Australia’s home loans—to explicitly announce an upcoming recession, it risks creating a self-fulfilling prophecy:

• Consumer Panic: A headline stating “CBA Forecasts Recession” would immediately trigger a freeze in household consumption.
• Credit Crunch: Businesses would halt capital expenditure and hiring.
• Asset Depreciation: Property buyers would pull back, accelerating the housing corrections already underway.

Because a bank’s primary revenue depends on loan volumes and low default rates, predicting a bust actively harms its own balance sheet by depressing the very market confidence it relies upon to turn a profit.

2. Banking Rents and Privatisation The conversion of “economic rents” into private bank profits touches the core of political economy. Since its privatisation in 1996, the CBA, for example, has operated to maximise shareholder value by extracting economic rent, primarily through Australia’s highly financialised real estate market.

• The Privatisation Yield: Privatisation shifted the bank from a public utility focused on national development to a profit-maximising corporation. It leverages fractional reserve banking to create debt, channelling it directly into residential property.
• Capitalising on Rents:This massive influx of credit drives up land values. The resulting interest paid by households is essentially an extraction of economic rent—captured as bank profit rather than being reinvested into highly productive, non-financial sectors of the economy.
• The Omertà on Structural Risk: Publicly acknowledging that this system is inherently unstable or heading toward a structural bust would mean admitting that the “rents” driving their massive profitability are cyclical, leveraged, and ultimately unsustainable for average consumers.

3. How Banks Mask the “Bust” Using Alternative Data Rather than forecast a recession, economic research divisions update their forecasts by quietly moving the goalposts via secondary metrics. Even as they maintain that “a recession is not on the horizon,” their internal operational data points directly to severe economic duress:

• Per Capita vs. Headline GDP: Headline GDP can remain positive simply due to high immigration and population growth. However, independent economists note that GDP per capita has gone backwards, meaning individuals are experiencing a “per capita recession” while corporate reports maintain an appearance of growth.
• Housing Downgrades: The CBA recently downgraded its property outlook, acknowledging that national dwelling prices are dropping faster than anticipated.
• The “Consumption Drag”: Bank analysts frequently focus on the “consumption drag” and “falling real income purchasing power”. This functions as corporate code for a highly stressed consumer base that can no longer support economic growth.

Summary

Ultimately, institutional banks are designed to sustain confidence in the financial system. They do not sound the alarm on a structural bust until the realities of bad debts and asset devaluations leave them with no choice. For objective assessments of a recession, heterodox economists and independent macroeconomists will generally provide a more unvarnished view.

Hamilton Lamb

…. but Australia has its own national currency and doesn’t need to borrow our own money via bonds and treasuries, Alan. This has long been known to be a scam, so why do we continue to do it?

And inflation is not a matter of the federal government spending too much money, Alan. It’s a function of all the money we’ve pumped into land prices–more than $10 trillion!–but we can’t admit that, because it’s our national obsession! We can forget silly little CPI and, of course, taxes on our incomes and purchases don’t help inflation either.

For a healthy economy sans inflation, we sorely need bonds, land prices and taxes to disappear altogether and to capture the national dividend publicly.

Taxing natural resource rents instead of incomes and purchases would achieve this if we were to find the intestinal fortitude.

Henry George’s economic truths fail to find a home in either socialism or capitalism because his philosophy shatters the traditional left-right binary by treating land rent as a shared public resource while leaving labour and capital completely privatised.

While conventional capitalism and socialism treat land and capital as the same thing, George argued they’re fundamentally different. Land is finite and created by nature, whereas capital is man-made and created by human effort.

📊 Comparing the Three Paradigms

🔎 Why Capitalists Reject George

Right-leaning capitalist thinkers reject George because he challenges the absolute right to private land ownership.

• Elimination of Land Speculation: Capitalism permits individuals to buy land, leave it empty, and profit entirely from community growth. George’s proposed Land Rent, capturing 100% of all natural resource rents, makes real estate speculation impossible.
• Redefining Property Rights: Capitalists view property rights as indivisible. George argued that you only truly own what you produce with your hands and mind. Because no human created the earth, no human has the moral right to monopolize its annual value without compensating society.

💡 Why Socialists Reject George

Left-leaning socialist thinkers reject George because he is an ardent defender of free markets and private capital.

• Protection of Private Capital: Karl Marx famously dismissed Georgism as “capitalism’s last ditch,” because George strongly defended business owners’ rights to keep 100% of their profits. George believed that the returns to capital and private wages are completely justified, and landowners should not be permitted to siphon them away, as they do now.
• Opposition to Taxes: Socialists seek to collectivize the means of production and regulate markets. George wanted to abolish all income taxes, sales taxes, and tariffs, advocating for a radically free market once the land monopoly was dismantled.

📌 The Georgist Paradox

Henry George’s ideas are ultimately orphaned because they require both sides to compromise on core dogmas. He asks capitalists to give up the monopolistic rent of land, and asks socialists to give up the hatred of private profit.

The vast majority of people therefore suffer financially as a consequence of this solution being ignored.

(Anticipating the 1893-1897 depression)

“In the colonies I have been through, the curse of land monopoly and land speculation is over everything. I don’t know of any new country where more striking instances of the absurdity and injustice of our present treatment of land is to be seen.”

• Henry George, Adelaide Observer, 26 April 1890.

h/t John Pullen, The Legacy of Henry George: Henry George in Australia, American Journal of Economics and Sociology Vol 64 No. 2, April 2005.