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ARCHIMEDES

“Give me whereon to stand”, said Archimedes, “and I will move the earth.” The boast was a pretty safe one, for he knew quite well that the standing place was wanting, and always would be wanting.

But suppose he had moved the earth, what then? What benefit would it have been to anybody? The job would never have paid working expenses, let alone dividends, and so what was the use of talking about it?

From what astronomers tell us, I should reckon that the earth moved quite fast enough already, and if there happened to be a few cranks who were dissatisfied with its rate of progress, as far as I am concerned, they might push it along for themselves; I would not move a finger or subscribe a penny piece to assist in anything of the kind.

Why such a fellow as Archimedes should be looked upon as a genius I never could understand; I never heard that he made a pile, or did anything else worth talking about. As for that last contract he took in hand, it was the worst bungle I ever knew; he undertook to keep the Romans out of Syracuse; he tried first one dodge and then another, but they got in after all, and when it came to fair fighting he was out of it altogether, a common soldier in a very business-like sort of way settling all his pretensions.

It is evident that he was an over-rated man. He was in the habit of making a lot of fuss about his screws and levers, but his knowledge of mechanics was in reality of a very limited character. I have never set up for a genius myself, but I know of a mechanical force more powerful than anything the vaunting engineer of Syracuse ever dreamed of. It is the force of land monopoly; it is a screw and lever all in one; it will screw the last penny out of a man’s pocket, and bend everything on earth to its own despotic will. Give me the private ownership of all the land, and will I move the earth?

No; but I will do more. I will undertake to make slaves of all the human beings on the face of it. Not chattel slaves exactly, but slaves nevertheless. What an idiot I would be to make chattel slaves of them. I would have to find them salts and senna when they were sick, and whip them to work when they were lazy.

No, it is not good enough. Under the system I propose the fools would imagine they were all free. I would get a maximum of results, and have no responsibility whatever. They would cultivate the soil; they would dive into the bowels of the earth for its hidden treasures; they would build cities and construct railways and telegraphs; their ships would navigate the ocean; they would work and work, and invent and contrive; their warehouses would be full, their markets glutted, and:

The beauty of the whole concern would be
That everything they made would belong to me.

It would be this way, you see: As I owned all the land, they would of course, have to pay me rent. They could not reasonably expect me to allow them the use of the land for nothing. I am not a hard man, and in fixing the rent I would be very liberal with them. I would allow them, in fact, to fix it themselves. What could be fairer?

Here is a piece of land, let us say, it might be a farm, it might be a building site, or it might be something else – if there was only one man who wanted it, of course he would not offer me much, but if the land be really worth anything such a circumstance is not likely to happen. On the contrary, there would be a number who would want it, and they would go on bidding and bidding one against the other, in order to get it. I should accept the highest offer – what could be fairer?

Every increase of population, extension of trade, every advance in the arts and sciences would, as we all know, increase the value of land, and the competition that would naturally arise would continue to force rents upward, so much so, that in many cases the tenants would have little or nothing left for themselves.

In this case a number of those who were hard pushed would seek to borrow, and as for those who were not so hard pushed, they would, as a matter of course, get the idea into their heads that if they only had more capital they could extend their operations, and thereby make their business more profitable. Here I am again. The very man they stand in need of; a regular benefactor of my species, and always ready to oblige them. With such an enormous rent-roll I could furnish them with funds up to the full extent of the available security; they would not expect me to do more, and in the matter of interest I would be equally generous.

I would allow them to fix the rate of it themselves in precisely the same manner as they had fixed the rent. I should then have them by the wool, and if they failed in their payments it would be the easiest thing in the world to sell them out. They might bewail their lot, but business is business. They should have worked harder and been more provident. Whatever inconvenience they might suffer, it would be their concern, and not mine.

What a glorious time I would have of it! Rent and interest, interest and rent, and no limit to either, excepting the ability of the workers to pay. Rents would go up and up, and they would continue to pledge and mortgage, and as they went bung, bung, one after another, it would be the finest sport ever seen. thus, from the simple leverage of land monopoly, not only the great globe itself, but everything on the face of it would eventually belong to me. I would be king and lord of all, and the rest of mankind would be my most willing slaves.

It hardly needs to be said that it would not be consistent with my dignity to associate with the common rank and file of humanity; it would not be politic to say so, but, as a matter of fact, I not only hate work but I hate those who do work, and I would not have their stinking carcasses near me at any price. High above the contemptible herd I would sit enthroned amid a circle of devoted worshippers. I would choose for myself companions after my own heart. I would deck them with ribbons and gewgaws to tickle their vanity; they would esteem it an honour to kiss my glove, and would pay homage to the very chair that I sat upon; brave men would die for me, parsons would pray for me, and bright-eyed beauty would pander to my pleasures. For the proper management of public affairs I would have a parliament, and for the preservation of law and order there would be soldiers and policemen, all sworn to serve me faithfully; their pay would not be much, but their high sense of duty would be a sufficient guarantee that they would fulfil the terms of the contract.

Outside the charmed circle of my society would be others eagerly pressing forward in the hope of sharing my favours; outside of these would be others again who would be forever seeking to wriggle themselves into the ranks of those in front of them, and so on, outward and downward, until we reach the deep ranks of the workers forever toiling and forever struggling merely to live, and with the hell of poverty forever threatening to engulf them.

The hell of poverty, that outer realm of darkness where there is weeping and wailing and gnashing of teeth – the social Gehenna, where the worm dieth not, and the fire is not quenched – here is a whip more effective by far than the keenest lash of the chattel slave owner, urging them on by day, haunting their dreams by night, draining without stint the life blood from their veins, and pursuing them with relentless constancy to their graves. In the buoyancy of youth many would start full of hope and with high expectations; but, as they journeyed along, disappointment would follow disappointment, hope would gradually give place to despair, the promised cup of joy would be turned to bitterness, and the holiest affection would become a poisoned arrow quivering in the heart!

What a beautiful arrangement – ambition urging in front, want and the fear of want bringing up the rear! In the conflicting interests that would be involved, in the throat-cutting competition that would prevail, in the bitterness that would be engendered between man and man, husband and wife, father and son, I should, of course, have no part. There would be lying and cheating, harsh treatment by masters, dishonesty of servants, strikes and lockouts, assaults and intimidation, family feuds and interminable broils; but they would not concern Me.

In the serene atmosphere of my earthly paradise I would be safe from all evil. I would feast on the daintiest of dishes, and sip wines of the choicest vintage; my gardens would have the most magnificent terraces and the finest walks. I would roam mid the umbrageous foliage of the trees, the blooming flowers, the warbling of birds, the jetting of fountains, and the splashing of pellucid waters. My palace would have its walls of alabaster and domes of crystal, there would be furniture of the most exquisite workmanship, carpets and hangings of the richest fabrics and finest textures, carvings and paintings that were miracles of art, vessels of gold and silver, gems of the purest ray glittering in their settings, the voluptuous strains of the sweetest music, the perfume of roses, the softest of couches, a horde of titled lackeys to come and go at my bidding, and a perfect galaxy of beauty to stimulate desire, and administer to my enjoyment.

Thus would I pass the happy hours away, while throughout the world it would be a hallmark of respectability to extol my virtues, and anthems would be everywhere sung in praise.

Archimedes never dreamt of anything like that. Yet, with the earth for my fulcrum and its private ownership for my lever, it is all possible. If it should be said that the people would eventually detect the fraud, and with swift vengeance hurl me and all my courtly parasites to perdition, I answer, “Nothing of the kind, the people are as good as gold, and would stand it like bricks – and I appeal to the facts of today to bear me witness.“

Note:

“Archimedes” was first published in the Australian Standard in 1887 under the name “Twark Main.”

Questions have therefore been raised about its authenticity, but experts agree it’s authentic, not only because it is stylistically Twainian, but because it precurses other Twain writings. An imitator would have had to not only duplicate Twain’s style, but have anticipated some of his future statements.      – Dan Sullivan

Gluing economies with economic rent 

–        by Bryan Kavanagh

[See also Online Opinion]

Some big questions are being asked of humanity at the end of the first decade of the twenty-first century. Many of us spent its first ten years privatising the land rent world renowned natural resource economist Mason Gaffney says the USA used to collect for government and public works in the first half of the twentieth century. Since that time, however, it has been substantially, if gradually, wound back. Australia has displayed many similarities to the Golden State which best characterised US public capture of land rent:-

“California’s natural advantages (a mixed bag) did not promote much growth after the 1849 Gold Rush and the Civil War, when California growth lagged badly for 20 years or more.  Neither did the transcontinental rail connection, completed in 1867, promote much growth.  Eventually, though, INTERNAL growth-oriented forces prevailed.  California provided superior public services of many kinds: water supply, schools and free public universities, health and mental health services, transportation, parks and recreation, and others.  It held down utility rates by regulation, coupled with resisting the temptation to overtax utilities.

That all required tax revenues.  California had oil, but did not tax severing it, and still doesn’t.  Its wine industry went virtually untaxed.  There was and is hardly any tax on its magnificent redwood timber, either for cutting it or letting it stand.  There was no charge for using falling water for power, or withdrawing water to irrigate its deserts.  Most of those are good ideas, but they are not what California did.

Its main tax source was another kind of immobile resource: ordinary real estate.  Its tax valuers focused their attention on the most immobile part of that, the land, such that by 1918, land value comprised 72% of the property tax base – and on top of that there were special assessments on land.

People and capital flooded in, for they are mobile in response to opportunities.  California became the largest state, and a major or the largest producer of many things, from farm products up to the “tertiary” services of banking, finance and insurance….

…. In 1978, California took a giant step backwards by enacting its “Proposition 13,” capping property tax rates at about 1/3 of their previous level.  The national ranking of its services began a precipitous fall; so did its per capita income.  Struggling to maintain itself, the State has raised sales and income and business taxes to unprecedented levels.  These are taxes that “shoot anything that moves,” and spare immobile resources that don’t.  The result has been the rapid “Alabamization” of California, as we have fallen to join Alabama with the worst school system in the nation.  Inmigration has changed to outmigration, and of those who stay, California has by far the largest prison population of any state, so large that the union of prison guards is now our most powerful lobby, and building prisons is our fastest-growing construction industry.  None of these people, prisoners or prison-builders or guards, are producing goods and services for others, but are not counted as unemployed, and our unemployment rate is above the national average even without them.”

(Professor Mason Gaffney, in keynote address to international conference on Fundamentals of International Legal Business Practice, Nassau, 16 July 1999)

Maybe California took its lead in dismantling its property-based revenues from Australia? In 1974, Prime Minister Gough Whitlam acceded to local government’s plaints to keep the lid on its naturally increasing property-based revenues by undertaking to fund half its costs out of federal taxes. In terms of making each level of government responsible for its own funding, this was a big mistake, but ceding the role of tax collector to the central government has also become state governments’ modus operandi.

Not only was the natural growth of municipal rates curbed by the Whitlam government, but the other states and the Commonwealth also quit the field of death duties after people flooded into Queensland when Premier Joh Bjelke-Petersen removed succession duties from its statute books in January 1977.  Like California, direct taxes on real estate had been minimised across Australia. 

Just as Professor Gaffney stepped down from his podium in the Bahamas in July 1999, having explained California’s economic decline, Australians recommenced acceding to the dictates of their own errant tax regime, as they had in the early and late 1980s. They sallied forth again in a big way into real estate, figuring if their earnings were to be slaughtered by the tax system, why shouldn’t they rent-seek where the tax breaks are?

It may have been logical, but it wasn’t in the best interests of the nation. Since 1999, during the respective treasurerships of Peter Costello and Wayne Swan, $2.76 trillion was spent on buying Australian properties. This inflated by far the biggest uninterrupted real estate bubble in our history.  In individualistic, partly taxpayer-funded pursuits into capital gains, 29 per cent of this figure (some $800 billion) has been left exposed to the bursting of our bubble.

There remain, of course, economists who, seeing no essential difference between productive and speculative investment, still deny Australia has experienced a real estate bubble at all. Repeating what was said in California immediately before the sub-prime residential crisis burst across the nation, they insist that extraordinary prices being achieved for Australian residential real estate simply reflect a condition of undersupply. Time will similarly prove them incorrect.

Being a surplus in the production process, land rent is properly owed back equally to all Australians, but as we allowed it to be expropriated by a privileged rentier class, the gap between the ultra-wealthy and everybody else has continued to widen obscenely. Daily, we now witness social fractures developing across the PIIGS (Portugal, Ireland, Italy, Greece and Spain) as a result of allowing the rich/poor divide to grow in this fashion worldwide. Such has been the nature of thirty years of neo-liberal economics, or ‘economic rationalism’.

Land and natural resource rents are the glue that has historically bound communities and nations together, it’s literally the ‘common wealth’, and if anything was lost across the globe over the last thirty years, it was certainly a sense of social cohesion, as we jostled each other doing deals to become multi-millionaires in real estate.

But all is not lost for Australia. We have two advantages going for us: time, and the recommendations made by Ken Henry’s panel of review for ‘Australia’s Future Tax System’.

We find ourselves later in the cycle than most other countries, so, in respect of the first advantage, we would be foolish if we didn’t learn from their mistakes as they’ve bailed out banks, printed too many dollars, and imposed impossible austerity measures upon their citizenry. There’s a far better response than these.

That relates to the second item in Australia’s favour: if we have the gumption and drive to put the Henry Review’s far-sighted recommendations for the capture of land and natural resource rents into practical application, and to abolish arbitrary imposts on labour and capital, we may even now be able to work our way out of arriving at Ireland’s perilous state, a plight for which we are otherwise destined when our real estate bubble bursts soon. 

The world got where it is by allowing the public’s rent to be privatised by a few. It can reverse the process by freeing up labour and capital and capturing land rent to the public purse.

VOLUNTARY LAND VALUE TAXATION IN TORONTO

Frank de Jong, votefrankdejong, Robert Schalkenbach Foundation

In the absence of land value taxation, hundreds of frustrated Toronto landowners and merchants have taken matters into their own hands, voluntarily taxing themselves to finance a redesign of their local street.

Six hundred and fifty eight businesses in the Bloor and Yonge shopping district agreed to levy themselves $20 million to finance sidewalk widening, adding benches and granite planters, and planting trees along the street. Toronto Star columnist Christopher Hume calls the street remake “an enormous success, a model for the rest of Toronto”.

But don’t assume that these particular Toronto business owners were simply overflowing with civic pride. These merchants knew what all merchants know; improved street design boosts business. More people will visit the area, stay longer, enjoy their experience more, invite friends, and return repeatedly.

Clearly, these businesses were able afford the $20 million voluntary levy without fear of bankruptcy. No one forced their hands. The anticipated increased economic activity was no doubt more than adequate to finance the levy, the ROI no doubt healthy. The already attractive locations would become even more desirable. Commercial leases and residential rents would rise, but the increased commercial activity would more than compensate. Landowners would benefit from the rise in land values.

This win-win situation is a model for Toronto and, indeed, every other city, town and village. But why should citizens and businesses be driven to self-finance local improvements when municipalities could employ land value taxation to do the job? Businesses want cities to use LVT, they know it works.

Unlike the present municipal tax—which is applied to both land value and building value—LVT is a levy on land value alone, leaving buildings (improvements) untaxed, so as not to punish landowners from improving or expanding the building stock. By levying land value alone municipalities would collect a portion of the unearned, “community-generated” income that accrues annually to land (about 5% of land value depending on the stage in the 18-year real estate cycle), sufficient to finance city programs and infrastructure construction and maintenance.

Collecting a percentage of land value, regardless of how land is being used, encourages land owners to put land to its best use or sell it to someone who will, reducing suburban sprawl and derelict downtown properties. Collecting this “unearned” economic rent for public purposes deflates land speculation, the cause of destructive and disruptive real estate bubbles. Indeed, not collecting the economic rent of land damages the economy by rewarding land speculators rather than productive enterprises.

Furthermore, infrastructure construction, when based on LVT, becomes a self-regulating system, immune to political interference and pork-barrel politics. Warranted infrastructure will pay for itself while non-warranted infrastructure will not, so political whimsy or self-serving schemes to build white elephants are exposed.

Adopting LVT can be smoothly accomplished by shifting municipal fees, over 5 to 10 years, off buildings and onto the land beneath the buildings. The ensuing multiple benefits will include a re-invigorated economy, more jobs, new infrastructure, improved urban design, low-energy walkable neighbourhoods, improved building stock, sufficient affordable housing, less sprawl and strip development, more land left to nature.

Another reason we should implement Ken Henry’s federal land tax.

ECONOMICS, ECONOMICS, ECONOMICS, EDUCATION, EDUCATION, EDUCATION

While a good education is A most important priority, it’s good Prime Minister Julia Gillard accepts it’s not THE most important matter right now.

Having learnt from Barack Obama’s mistake of not initially doing so, Julia now places the economy at the top of her agenda.

And so it ought to be. The economy is not something taught in universities by economists (God forbid!), it’s about everyday life, and many aspects of daily life in Australia aren’t looking too good at the moment.

If economic pressures on families continue as they are, they may not be able to give their kids the improved quality of education to which Julia Gillard strongly believes they are entitled.

We’ve had the emergency stimuli, based on what was happening in America. We used the $900 we were given to good advantage. We’ve watched the government play employment favourites with roofing insulation and school building programs. Both had significant problems, and we’ve come away wondering whether the government has acted too precipitately anyway.

Tanya Plibersek, Housing Minister in the Rudd government, introduced the First Home Owners Boost in 2008 to extend the First Home Buyers Grant and to keep the real estate bubble inflated. Most people were not fooled; the action favoured sellers, not buyers.

These measures were necessary only if our economy was about to tank. It wasn’t. We may have been facing a shallow recession in 2009, but as Australia’s property bubble hadn’t burst, as in the US and UK, we were not facing a financial collapse of their order – yet.

Let’s get one thing straight: the Rudd government did NOT avoid the GFC by these stimulus measures, as claimed by the Labor Party. The bursting of Australia’s real estate bubble must occur first – because that’s the correct order for recession and depression to happen.

So, the stimulus packages were expensive overkill, and the job is still ahead of you, Julia Gillard. Correct economic action is called for. But you don’t have to wait for our property bubble to burst to do anything, Julia.

You put education high on your list, so get to it. There’s much education to be done if you wish to counter the mining industry’s retention of the people’s rent in their profits. By all means, cut their taxes, but you should explain why we must capture our rents.

Same goes for the Henry Review’s well thought out recommendations for a federal land tax to replace the hopeless array of State land taxes, stamp duties and payroll taxes. It won’t happen unless you help educate Australians to understand our land and mineral resource rents rightly belong to us all.

Get to it, Julia. You should simply explain to everyone why our revenue base must be shifted from labour and capital onto land and natural resources. Sure, you may offend the plutocracy, but it’s the only way to a decent future for all Australians.

TED BAILLIEU PROMISES CHEAPER HOMES (FOR THE DEPRESSION?)

Cuts in stamp duty would be welcome, but they’d need to be complemented by a federal land tax, as advocated by Ken Henry’s “Australia’s Future Tax System” for property prices not to rise. Henry’s panel recommended a federal land tax ought also replace State payroll taxes and the stupid array of State land taxes, with their thresholds, exemptions, multiple rates and aggregation provisions.

Master Builders Association boss, Brian Welsh, doesn’t seem to comprehend a single rate, all-in land tax would help keep a lid on escalating property prices.  [Would you pay more, or less, for a block with a land tax of $1000 on it, as against one without such a charge, Brian?  Why do you accept the propaganda-like misinformation spread by real estate institutes in this regard?]

 Since the 1970s, as rates and land taxes have been allowed to be wound back in response to ‘economic rationalists’ who can’t understand the difference between economic development and real estate speculation, we’ve experienced higher and higher land price escalation – significantly above and beyond our population growth .

To attribute these increases to a shortage of supply of land is exactly how US real estate agents were trying to explain high property prices just before their residential bubble burst. And it is a bubble, for God’s sake! Only neoclassical economists crassly seek to explain Australia’s real estate bubble in terms of ‘supply and demand’.

Seems to me the Master Builders Association  (MBA), the Housing Industry of Australia (HIA), and the Urban Development Institute of Australia (UDIA) are far too close to their State real estate institutions. The Real Estate Institute of Victoria (REIV) wants to be rid of land tax because the fees of the agents it represents increase when selling prices increase. Higher prices equal higher commissions, so the tears they shed for the plight of home purchasers are just crocodile tears.

Surely, many real estate agents should be able to see that they  would be better off in the longer term, too, if the real estate inactivity that characterises extended periods of property price deflation is removed? No more bubbles, no more busts?  

If the MBA, HIA and UDIA are really serious about keeping development happening in an environment of steady house prices, Australia ought to be making the switch from damaging taxation, growth area levies and up-front development charges, to levies on land, as recommended by Ken Henry’s panel, if we are to keep the lid on land price increases and chase rampant speculation out of real estate markets.

 But this won’t happen if you builders and developers keep hanging out with the REIV.

By the way, I’d like to know if the Property Council of Australia (the representative body for building owners and managers) was serious when it came out in favour of a land tax just before the release of the Henry Review recommendations. That was an excellent initiative, but you’ve gone quiet on it, guys. Ructions? Shouldn’t be any. It makes sense.

Always happy to speak to any of you about this.  We have data on which you’re obviously missing out!  Why not let us explain how to respond to the GFC to you?

 Land Values Research Group

So what will be the outcome of the G-20 meeting in Seoul over the last two days? What will the communique say? I’m prepared to bet it will be a damp squib.  *

No doubt, diplomatic niceties will preclude Germany and China from telling the US where to go.  They’ll fail to point out printing money to avoid the US banks finding their own level against a deflated real estate market is precisely the ‘remedy’ employed by Japan ever since their property bubble burst in 1989.  And  look where it’s got them: 20 years stagnating!

But Germany and those European countries who’ve donned their austere hair shirts have no right to feel ‘holier than thou’. That approach can’t work either.  You’ve got to find a way to keep people spending with what economists call ‘effective demand’.

But US ‘Quantative Easing 2’ won’t help people spend when they’re busy working on getting their incredible debt levels down. The money will find its way into re-inflating the stock market for a while and going into smart financial arbitraging Michael Hudson has described so well.   

How can the two day G-20 meeting manage to skirt around these two equally absurd approaches nations are employing to extricate themselves from global financial collapse?

China won’t want to revalue the yuan to complement the US’s printing of dollars, so, no doubt the communique will be a mish-mash of fair-sounding financial nonsense. Both sides of the question will leave South Korea more certain than ever their actions are appropriate.

So it promises to be some communique!

Watch out for the ensuing currency and trade wars, folks!   

Neither side has yet discovered there’s an alternative remedy which works. 

ps.

* I wasn’t far wrong.

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OBAMA AT THE UNIVERSITY OF INDONESIA …

I watched live Barack Obama’s speech at the University of Indonesia today. It was brilliant. He recounted stories of his four years in Indonesia in the 1960s,  making a deep connection with his audience when he touched on the extent of development and relative stability that’s occurred since the politically charged days he remembers as a child (in villages he’s still able to name).

His talk was liberally salted with Indonesian phrases. These were greeted with enthusiasm and applause, and he was able to draw comparisons between the USA’s unity as a nation, e pluribus unum, and Indonesia’s success in striving to unite a former colony of so many islands and disparate languages.

The things that draw humanity together we shouldn’t allow religious differences to divide, and Indonesia’s increasing  tolerance and democracy sets an example to the world, he said. More controversially, he proposed that US involvement in Iraq and Afghanistan is all about helping to deliver democracy to those benighted countries.

The speech was one of his best.

As I watched him talk, I could already see how Obama’s enemies in the US will react. They’ll say he’s more interested in sucking up to Muslims than dealing with the sick economy back home. That wouldn’t be fair.

Nevertheless, having enjoyed his near perfect Indonesian address, I remain thunderstruck at how such articulate and bright people, leaders such as Barack Obama, David Cameron and Julia Gillard, are always economically ignorant. Always! None of them has the slightest clue about what makes economies tick.

… AND CITIGROUP EXPOSES THE ‘PLUTONOMY’

In connection with economic illiteracy, this incredible piece seeming to emanate from Citigroup is worthy of the read. Save it somewhere safely for the odd re-read when you want to get your head around how economies of the world really operate.  

The subversive little paper demonstrates that far lesser individuals than presidents and prime ministers are quite capable of understanding how to keep economies working for the favoured few.  It’s barbaric, Machiavellian, but true. It could almost have been written by Ralph Norris.

Whereas Obama and Cameron are surrounded by crooks and economic idiots, Gillard’s Ken Henry stacks up head and shoulders above the throng because he understands the enormous potential of publicly generated rents to replace damaging taxes.

Unfortunately, Henry’s flagged that he may have had enough and wants to retire next year.    [sigh!]  🙁

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MICHAEL HUDSON EXPLAINS (FROM THE 8:00 MINUTE MARK) WHY THE $600 BILLION WON’T HELP THE AMERICAN PEOPLE