Keen briefs Congress on the Fiscal Cliff

Will Congress take heed, or will the US repeat its 1937 ‘double dip’?

Trends and Cycles in Sydney and Melbourne House Prices from 1880 to 2011 by Nigel Stapledon.

Congratulations on an excellent contribution to this critically important discussion, Nigel Stapledon!

As for “Some of the probable reasons for that have been explored, but there is scope for further exploration” in the conclusion, I hope that at least a part of any such further exploration finds its way into analysing the public v. private capture of land rent, especially the worldwide fad to down-tax land from the outset of the 1970s.  Is it merely coincidental that average weekly wages have also declined—and the rich-poor gap widened massively—since then?

Read Fullbrook’s paper here

The wonder is that we put up with it.

This is much less than a full review of Skousen, but more than a rebuttal to his personal attack on me as a conspiracy theorist.

Skousen’s book is most readable and probably sells well.  It is gossipy, with details on the personal lives of “the great thinkers”.  It brims with illustrations and vignettes, both relevant and not.  I was fascinated to learn about the life and times of Menger, for example, who had been just a shadowy name to me, and is now a real person, with strengths and human flaws – including a sex scandal involving Austrian royalty.  This is juicy tabloid stuff, but it is not economics.  More relevant is his inability to update and republish and translate his pioneering work.

What I do not find is any clear statement of why Menger deserves all the credit for “discovering” marginalism, which is implicit in so much of earlier classical economics.  This is often stated and repeated, as though repetition in tertiary sources makes something true, but has anyone DEMONSTRATED it in a scholarly way?   Skousen has done scholarly digging in the past – his Structure of Production is very useful and documented  –  but the present work is not of the same quality.

In praising Menger, Wieser, and Böhm-Bawerk  (who may deserve it as individuals) Skousen detours into identifying them with Vienna and Austria, which he exalts.  He glosses over the fact that Austria was in a long decline, leading to near-extinction, during their lifetimes, their influence with royalty, and with the repressive statist bureaucracy inherited from Metternich.  He credits them for attacking Prussian-German economists, even as Prussia was displacing Austria as the dominant central economic and political power, defeating Austria and France in battle, and moving into the Balkans, Austria’s turf.  He credits the Austrians for dominating American higher education in Economics, when in fact most American economists found higher education in Germany.  J.B. Clark, German-trained, followed by Knight and Stigler, devoted major efforts to exorcise Austrian capital theory from American thinking.  Skousen exalts Vienna, citing Mozart, Beethoven and Freud to exemplify its cultural leadership, although Mozart had flourished 100 years earlier under the would-be Physiocratic reformer Joseph II, and Freud is now discredited. As for Beethoven, after 1815 and the Congress of Vienna, “Austria came under the stifling rule of Metternich. For the rest of Beethoven’s lifetime and beyond, Vienna crawled with secret police, informers, spies, and repressive bureaucrats hostile to art and freedom.”

Skousen’s bête noir is David Ricardo, first for promoting a labor theory of value, feeding raw meat to later Marxists claiming exploitation of labor. This is a common opinion from tertiary sources, but if one actually reads with any care Ricardo’s chapter one, on value, Ricardo distinctly credits the capital input for adding to value. Ricardo was unlikely to paint his own profession as parasitic, and didn’t.

Ricardo’s other great sin was methodological, to rely on abstract or a priori reasoning without reference to the real world.  If Skousen is to fault Ricardo for that, he can hardly turn around and beatify von Mises, for example, who makes a virtue of relying on reasoning a priori and rejects statistical testing.  Skousen does not acknowledge, or try to reconcile, this apparent contradiction.  Nor does he mention that Ricardo’s theories were relevant to a major political issue, England’s “corn laws”.  He does not note that Ricardo showed that land rents depend on the price of corn, not the other way around, refuting the claim that Ricardo based prices on cost of production, without recognizing the demand-side view that Austrians developed later.  Neither does Skousen mention Hayek’s debt and tribute to what he labeled “The Ricardo Effect”.

No, Ricardo’s primary offense to property interests, in my view, was demonstrating that land rents are unearned.  This, following upon Smith’s soft hints, and Turgot’s hard activism, paved the way for Mill’s and A.R. Wallace’s proposals to tax land values and encourage subdivision, to George’s more sweeping proposal to focus most taxes on land rents and values.  It opened the gates for the Edwardian governments under Campbell-Bannerman, Asquith, and Lloyd-George who pulled the teeth from the House of Lords in the Parliamentary Revolution of 1909-11, in order to pass their proposed national tax on land values.

By focusing on Vienna and central Europe, Skousen makes the left-right struggle into a rivalry between Marxist communism and free enterprise.  South of The Alps, Pope Leo XIII used the same stratagem in his 1891 Encyclical Rerum Novarum. In fact, Marx was little known in Anglophone nations before the Russian Revolution of 1917. American Progressives and English Radical-Liberals and Fabians leaned more toward downtaxing commerce, industry, housing, and labor.  They would replace the revenues by uptaxing land values, melding free enterprise with radical land reform.  Henry George was not alone, but prominent among the progressives.

To his credit, Skousen does devote a few pages to George (pp. 230-34), but they are shallow as a morning dew and spun like a spiderweb.  He explains that Georgism died because it was “too extreme”, whatever that means.   Only this and nothing more.  He then dismisses George’s exegetes using ridicule and a personal attack on me:  “By George, it’s a conspiracy!”  He supports this with a statement I never wrote, that he says he found on an old dust-jacket.  He alleges that I am part of a “tight-knit political or religious group filled with true believers”.  His short (p.233) box demeaning me and my work contains “conspiracy” five times.  Actually, my long chapter (“The Neo-classical Stratagem”) in the book that Skousen cites  contains “conspiracy” only once, quite incidentally, preceded by “as though”.  The word and the concept are his, not mine.

Skousen also leans on the authority of J.B. Clark.  George was wrong because Clark said so.  If Skousen had read my chapter (the evidence says he didn’t) he would find 12 pages analyzing and refuting Clark, and 26 works by Clark in the bibliography. Clark’s major causes were two: undercutting George, and undercutting Böhm-Bawerk and other Austrians.  He succeeded in both efforts, in American academe.  It is incongruous for Skousen, a self-proclaimed Austrian, to rely on the authority of Clark, the dogged nemesis of Austrians.  My chapter purports to show how the two causes fit together.  It is accessible at www.masongaffney.org.

Skousen, Mark, 2009, The Making of Modern Economics. Armonk, NY:  M.E. Sharpe.  2nd Edition, n.d. but apparently 2012.  Comment by Mason Gaffney, 10-2012.

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My comment: The personal attack on Gaffney reminds me of John Molony’s The Worker Question: A New Historical Perspective on Rerum Novarum, Melbourne, Collins Dove, 1991 which suddenly turned into purple prose at the very mention of the name “Henry George”. It seems powerful ideas affecting landed interests must be trivialised–then proponents derided–if they are unable to be refuted.

Sitting back, studying the stupidity.

Young people willingly putting their necks into the noose of an impossible mortgage.  Banking CEOs knowing it can never be repaid, being paid millions to say they didn’t know this. Less knowing bank staff also signing up to purchase a home with an inflated land component that’s about to tank into a big correction.

Mortgagors have concluded that renting is a matter of flushing money down the toilet. Although the real estate industry confirms the fact, those who’ve done the proper sums roundly disagree.

As the economy worsens, some anxiety sets in. Have we over-committed? What if one of us were to lose our job? Can we afford a family? Thirty more years to go! The government is applying this financial pressure. We won’t vote for them. The other crowd will fix the economy …. Won’t they?

Some young people are starting to call the BS for what it is, but they aren’t yet a majority.*

Economists in the thrall of scientism confirm their uselessness by selling people out to the 0.1% for errant theory.

It’s so terribly sad that most believe in this gruesome fairytale, this stupidity. If it didn’t create such immense social distress, sitting back observing might be entertaining.

It’s certainly not.

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*ps.  Maybe it’s more than I thought!

… and maybe don’t give up on the Henry Tax Review, in general, Pavan?

The Land Values Research Group published a study of the City of Fitzroy in 1949 showing the extent to which the municipality would benefit by switching its rating system to one based on unimproved land values, instead of on the net annual value of the property as improved.

Where half the population of Victoria–excluding the City of Fitzroy–once used land values as it rating base, none now employ site value rating. Property speculators–hiding behind arguments about the ubiquitous “poor widow”–have won out.

On the other hand, every council in New South Wales and Queensland does rate on site value (unimproved land values).  However, property speculators in those states discovered a method whereby vacant or underdeveloped properties, or those of the super-wealthy may be subsidised just as effectively as rating improvements subsidises them in Victoria.  They saw to it that  ‘minimum rates’ were introduced.  Effectively, this means if you’re paying the minimum rate–and some cities have 80% of ratepayers on minimum rates–then you’re subsidising those who aren’t on the minimum rate.

The increasing use of minimum rates is a move by stealth towards the poll tax which caused a bloody revolt in the streets of London in 1990 when it was proposed by Margaret Thatcher.

Local governments around the world are under severe financial stress because they tax construction or charge minimum rates.  They fail to act on the simple fact that the value of land held is the fairest and cheapest revenue base, and the only base that encourages efficient redevelopment to land’s “highest and best use”.

…. and Australia’s residential land supply.

When you privatise society’s lifeblood for yourself, honesty demands you also acknowledge your parasitic nature.

But we seek to deny this fact in order to be able to live with ourselves.

This is not unlike the modern economist who claims his or her work is ‘value-free’.

If an economist is able to deny –

• land rent is approximately one-third of economies, and
• its privatisation by individuals necessitates the raising of arbitrary taxation on labour and capital (with all taxation’s damning deadweight)

then he or she is certainly working without values!

That economic analysts refuse to deal with the private capture of publicly-generated land rents currently creates the world’s greatest hurdle. Credit and money are quite secondary considerations to the main issue, that is, rent-seeking.

So far Australia, which has had one of the biggest residential land price bubbles in the world and record household debt, has avoided much of the financial and social disorder seen elsewhere, but you simply cannot break the laws of rent, wages and interest—the laws of distribution–without ultimately experiencing the gravest of consequences.

To think otherwise is much the same as believing you can jump off a tall building without going ‘splat’ at the bottom.

Somewhere along the line we’ve got to start capturing more of the annual value of land to the public purse if the social and financial decay we’re currently witnessing isn’t to worsen.

Tax bads, not goods.

Dr Gavin Putland shows the money lenders haven’t changed their spots. Plus ca change ….

But that’s OK.  Except for a feudal interruption, selling land for “ownership” has obviously long been accepted as a part of the boom-bubble-crash game.  We’ve been indoctrinated to believe boom-bust is “just part of the normal business cycle”.

The hegemony of ‘private property in land’ still has the 99.9% by the throat.  Just try to overthrow its faulty logic.

Apparently a lifetime of debt and taxes–and the ensuing economic recessions and depressions–are preferable to paying our land rent into the public coffers as an alternative to taxation and debt.