In Progress and Poverty (1879) Henry George said that national income is distributed to land, labour and capital as rent wages and interest, respectively, as in the equation:
P = R + W + I
Australia’s Future Tax System (AFTS) document “Architecture of Australia’s Tax and Transfer System” (2008) produced its own version of the equation:
Yt = rRt + wLt + iKt
where for a given time period t the national income is Y, land R and capital K, and their respective incomes are rent (r), wages (w) and interest (i) .
Henry George was smart, however. He did something novel and different from the AFTS people. Realising that rent had first claim upon production and national income, he made the transposition:
P – R = W + I
showing that wages and interest are what remains, what’s left over, after rent has been deducted.
So, we may conclude that there’s a reciprocal relationship between privatised rent, and wages and non-rent profits.
If only we and our politicians and modern day economists were as smart as Henry George; they might see the answer to Australia’s lingering socio-economic problem: namely, the decline in people’s real wages and the diminishing returns to small and medium enterprises, while big businesses and their super-profits, or rents, are flourishing as never before.
That is, private rent extraction is turned into sharply increasing land prices instead of being taxed away (in lieu of taxes on wages, profits and goods and services). This means we have to levy taxes on everything and push up hidden cost-push inflation not accounted for in the CPI.
So, as rent continues to be privately capitalised into higher and higher land prices, the greater also become issues of housing affordability, debt, poverty, health and educational outcomes.
There are simple answers, but we’re constantly told there aren’t.