INTRODUCING THE UNSEEN THIRD PARTY

Industrial relations discussion is based upon the false premise that there’s an essential fight between workers and their bosses–between labour and capital–in order to ensure that each ‘side’ gets what’s owing to them.

Henry George’s “Progress and Poverty” rebuts this mistaken idea comprehensively, but it remains nevertheless fixed in the minds of both unions and employers – each of whom claim “Don’t try to tell us that we’re mistaken: they’re obviously our opponents in any industrial relations negotiations!”

So where’s the error?

The mistake is that there’s a third party who’s always overlooked and who’s stealing earned income from both workers and their bosses: namely, the rentiers. They have first claim upon national income – but of course they shouldn’t have.

Labour and capital, working hand-in-glove, end up getting what’s left over after the rentier has finished extracting the rent of land and resources, but as they appear to be at arms’ length and seem to have nothing to do with industrial relations negotiations, their theft is entirely overlooked.

If the starting point for both labour and capital is that the rentier’s income is earned justly, of course they must fight over what’s left! But let’s go behind the scenes to take a peep at what the rentier/landlord considers is his or hers by entitlement.

All the great religions have held that land may be exclusively occupied, but as it’s the common property of humanity, it may never be privately ‘owned’. The very word ‘owner’ derives from the Middle English ‘owerner’: he who owes the rent. Although religion seems to have repudiated this injunction that land may never be sold, the great philosophers and classical economists have held ground on the point, recognising the truism that land rent is humanity’s common dividend: i.e. it’s owed equally to all.

So, if the rent of land is common property, and ‘land’ in the economics sense connotes all natural resources, it’s valid that its rent be captured to the public purse, instead of taxing labour and capital. That would include site, mining, fishing, forestry and electromagnetic spectrum rents.

The landlord is certainly entitled to the rental on his improvements, but not on the land component. Nor, even more importantly, should banks be providing private debt against land prices which they help escalate into bubbles (with cheap finance) which then burst into recession.

Is this claim of rent being public rent just fantasyland? When were these rents ever collected? Well, if we ignore the feudal system, Australia did a pretty good job of it up to WWII, when most of our taxation at all three levels of government came from rates and land taxes. Income taxes raised less than 10% of all taxation.

OK, so how much of these publicly-generated rents are expropriated privately?

If unions and business were to look at the chart below, they’d see how their incomes (in pale blue) have been significantly diminished by private rent-seeking. The apostle of freedom John Locke made the statement, confirmed more recently by professor Mason Gaffney, that as all taxes come out of land rent (ATCOR), land is the logical source of revenue in the first instance. Australia’s total economic rent is the sum of taxes (red), privatised rent (dark blue) and capital gains (green), and has risen to 50% of GDP!

The chart below shows that workers and bosses are both being squeezed by taxation and privatised rents, and it is from that part of the economy where increases in wages and business profits must come in future. In fact, as taxes inject deadweight losses of some twice the amount levied into the economy, a transition from (a) the existing taxes on productivity to (b) public capture of these rents (which inserts no deadweight losses at all) has enormous implication for the future prosperity of both labour and capital, because there would likely be a significant surplus – for all, that is, except current rent-seeking leeches.

A feeling has developed that something’s fundamentally wrong with the way economies are being run.

Consequent upon amazing government expenditures since the arrival of the coronavirus, we’re beginning to see that taxation isn’t simply a pot of ‘revenue’ from which the government spends: and that nations having their own currency may spend directly with impunity; without borrowing. Therefore, it seems taxes are simply monies to be withdrawn from the economy in order to curb inflation of the currency. “Really?” Yup! Think about it.

But inflation’s also surely a result of “budgetary deficits” and “excessive government spending”? Nope. CPI data doesn’t include the fundamental generator of monetary inflation, namely, escalating land prices and the taxing of productivity – and their attendant enormous deadweight losses.

What if economists also have the national debt wrong? Could it be the ‘national debt’ is simply a matter of double-entry accounting, as the (misnamed?) modern monetary theorists claim—the other side of the ledger being extensive public assets? Wow! Not a millstone around the neck of future generations to repay? That’s looking pretty credible, too, as once it was in the days of American ‘greenbackers’. What if it’s mainly the extent of private debt that’s causing economies to stall? Wouldn’t a universal basic income/citizens’ dividend help fix that?

You neoclassical economists would be holding your heads, maybe tearing your hair out, and reeling about in your seats now? There’s more to come, guys! Sorry, we can’t keep paying you respect for your ‘authority’. The heterodox crew seem to have more going for them.

OK, so we’ve been witnessing first-hand that it’s really the productivity of workers that generates our wealth, not parasitic banking CEOs being paid millions, nor the big corporate monopoly drones.

So why are workers’ wages tending to a minimum, barely providing a living for themselves? What’s wrong?  

Could it be that both wages and business profits have fallen, together? Except for the aforementioned rent-seeking leeches, that is. It’s obvious that the parasites are doing exceptionally well – and at great cost to their hosts!

So now that “industrial relations reform” is in the air again with one side of politics, let’s get another thing right: labour and capital are not opponents; their interests are complementary. It’s the financialising rent-seeking leeches who’ve reversed prosperity and increased poverty. It’s pointless to blame “business” or capitalism as a whole without making this distinction. It’s banks and other rent-seeking monopolies who’ve delivered us into economic history’s sorry pass. Central banks bailing out banks’ excesses, and the criminality of share buybacks has acted to exacerbate the issue of impossible private debt.

About now, we should be seeing clearly that the privatisation of our natural resource rents has diminished wages, employment and business profits – just as it has escalated land prices, debt, and the ‘super-profits’ of banking and other rent-seeking monopolies.

John Maynard Keynes may have got some things wrong, but his call for the “euthanasia of the rentier” was spot on! Keynes actually assumed it would happen naturally, but our rent-seeking ‘betters’ have the wherewithal and the media’s ear to ensure that it’s not going to happen without a very BIG fight!

Rates and land ‘tax’ are notionally already in the gross rent paid by a tenant, and cannot be ‘passed on’.

If, as claimed by vested interests, the land value tax can be passed on, why do not these representatives of special privilege pass the measure and allow their friends to pass it on?  The reason is they know that the land values tax cannot be transferred.  – EJ Craigie, South Australian politician.

A.  THE CLASSICISTS:

1  …. though the landlord is in all cases the real contributor, the tax is commonly advanced by the tenants, to whom the landlord is obliged to allow it in payment of the rent. – Adam Smith “Wealth of Nations” Book 5, Part 2, Article 1

2  A tax on rent falls wholly on the landlord.  There are no means by which he can shift the burden upon anyone else… A tax on rent, therefore, has no effect other than the obvious one. It merely takes so much from the landlord and transfers it to the State. – John Stuart Mill (1806-1873) “Principles of Political Economy”  Book 5, Ch 3, Sect 2

3  The power of transferring a tax from the person who actually pays it to some other person varies with the object taxed.  A tax on rents cannot be transferred.  A tax on commodities is always transferred to the consumer.  – Professor James E Thorold Rogers “Political Economy” 2nd ed Ch 21, p 285

4  A tax levied in proportion to the rent of land, and varying with every variation of rents… will fall wholly on the landlords.  – Walker’s “Political Economy”, p 413

5  The incidence of the ground tax, in other words, is on the landlord.  He has no means of shifting it; for, if the tax were to be suddenly abolished, he would nevertheless be able to extort the same rent, since the ground rent is fixed solely by the demand of the occupiers.  The tax simply diminishes his profits. – ERA Seligman “Incidence of Taxation” pp 244-245

6  A tax on rent would affect rent only: it would fall only on landlords and could not be shifted to any class of consumers. The landlord could not raise the rent, because he would have unaltered the difference between the produce obtained from the least productive land in cultivation and that obtained from land of every other quality. – David Ricardo “Principles of Political Economy and Taxation” Ch 10, Sect 62 

7  The way taxes raise prices is by increasing the cost of production and checking supply.  But land is not a thing of human production, and taxes upon rent cannot check supply.  Therefore, though a tax upon rent compels owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land.  On the contrary, by compelling those who hold land for speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land. – Henry George Progress and Poverty, Book 8, Ch 3   

B.  SOME MODERN ECONOMISTS

1  Pure land rent is in the nature of a “surplus” which can be taxed without affecting production incentives.  – Paul A Samuelson, Hancock & Wallace, “Economics – An Introductory Analysis” (Australian Edition) Ch 28 p 595

2  …. the complete inelasticity of the supply of land means that a tax on land rent has no effect on price or output and therefore does not alter resource allocation…This outcome is in contrast to property taxes on buildings.. – Jackson & McConnell, “Economics” (2nd Aust Ed pp 540/541)

3  The (land) tax cannot be passed on to consumers… The failure of the single tax idea does not change the fact that a large increment of value does accrue to the owners of land, particularly in or near urban areas, due to the growth of the economy, without the landlord having to contribute any productive factor services in order to earn it. – Richard G Lipsey, “An Introduction to Positive Economics” (3rd ed.)

4  Aside from its compelling appeal to the public’s sense of justice, a single tax on land has another advantage over most other forms of taxation – it is neutral in its effects on production incentives and resource allocation. – Waud, Hocking, Maxwell & Bonnici, “Economics” (Australian Edition)

C.   SO, FOR THE SAKE OF EFFICIENCY AND GREATER HOUSING AFFORDABILITY, WHY NOT PUT MORE REVENUE WHERE IT ULTIMATELY FALLS ANYWAY?

 It is in vain in a country whose great fund is land to hope to lay the publick charge of the Government on anything else; there at last it will terminate. The merchant (do what you can) will not bear it, the labourer cannot, and therefore the landholder must: and whether he were best to do it by laying it directly where it will at last settle, or by letting it come to him by the sinking of his rents, … let him consider.”  — John Locke, “Some Considerations of the Lowering of Interest” (1691).

I have not lost any of the principles of public economy you once knew me possessed of; but to get the bad customs of a country changed, and new ones, though better, introduced, it is necessary first to remove the prejudices of the people, enlighten their ignorance, and convince them that their interest will be promoted by the proposed changes; and this is not the work of a day.  Our legislators are all landholders; and they are not yet persuaded that all taxes are finally paid by the Land.  — Benjamin Franklin, Letter to Alexander Small, (September 28, 1787).

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