“Collect the rent of land and leave labour and capital untaxed?”
“That sounds very feudal.”
“What if not doing it does create repetitive recessions?”
“What if it not capturing rent does lead to a widening gap between the 0.1% and all others?”
“What if it the current system does lead to debt and grinding poverty?”
“People would prefer to have an economic depression rather than capture the rent of land, because we all aspire to become like the 0.1%.”
“It will never happen.”
_______________________________
“The Commonwealth has lost its compass” The Gleaner, West Indies
Now there’s an irony, because Confucius spoke of the great days of the Commonwealth as when China collected the rent of land! Rent was the commonwealth:-
“When the Great Way prevailed, every person was a part of public society, and public society belonged to everyone. …… Natural resources were fully used to benefit all, and were not appropriated for selfish ends. …… This was the age of the great commonwealth of peace and prosperity.'”
…. the economy must go south when the property market is going absolutely bonkers. It’s all there in the formula, P – R = W + I
From THE AGE Saturday 20 December 2014:-
Review and Commentary of the book: Owning The Earth (2013) by Andro Linklater
Edward J. Dodson / December 2014
The story of how our planet has come to be claimed by groups of individuals and how some of those individuals gained control over the land within claimed territory is detailed in this well-written but fundamentally flawed narrative. The author, Andro Linklater, challenges readers to think objectively about the way land is owned and do so without the passion associated with one’s position in society. By his retelling of history, existing socio-political arrangements and institutions in every society are exposed to the light of common sense and moral principle. And yet, upon completion of this book one is left with no clear strategy for changing the course of history.
As one who has studied and taught history for nearly forty years, this book reminds me that the story of every society follows a similar path, at least until the people of any society endure a devastating invasion by a more advanced people. Even natural disasters merely interrupt for a time the learning processes that accompany population increases and the challenges of extracting resources from nature. Migration always eventually ends. With settlement comes the need for rules governing access to the natural environment and its resources. At the same time, there is need for the protection of one’s person and one’s property in goods we produce. A communitarian approach may exist for some length of time; however, inevitably every society succumbs to the appearance of hierarchy and the introduction of entrenched privileges, privileges almost always justified by communication with the gods (or one all-knowing god). The final result is a dramatic change in the relations between individuals. As Andro Linklater puts it:
“The revolutionary idea that transformed the way they thought about themselves now seems simple: that one person could own part of the earth exclusively.” (p.11)
Thus begins the story of how our ancestors came to embrace and justify the granting of rights of property in nature to individuals. This change, the author argues, has contained the seeds of destruction and progress:
“The idea of individual, exclusive ownership, not just of what can be carried or occupied, but of the immovable, near-eternal earth, has proved to be the most destructive and creative cultural force in written history. It has eliminated ancient civilizations wherever it has encountered them, and displaced entire peoples from their homelands, but it has also spread an undreamed-of-degree of personal freedom and protected it with democratic institutions where it has taken hold.” (pp.5-6)
With the establishment of private property rights in nature, progress is accelerated, but at the very real risk of eventual societal destruction. First, societies had to go through several earlier stages of societal organization and technological innovation. The author takes us through the periods during which “mutual obligation” governed the relations in post-communitarian societies between the lords of the land and those who actually worked the land and how these relations broke down. Feudalism, characterized by principles of mutual obligation, required a large labor force to produce even a small surplus above subsistence for everyone. The dismantling of these feudal arrangements was triggered by the introduction of many seemingly small innovations over many centuries. As we know, the process began on the European continent and slowly spread to Eurasia and, finally, to Asia.
What Feudalism offered more than anything else was what might be thought of as the steady-state economy:
“Dismissed today as old-fashioned and exploitative, the feudal relationship not only persisted throughout most of European history, but could be found across most of the world in the form of a contractual understanding between the owner and the work of the soil.” (p.16)
Absent from this book is a recognition that an important catalyst for dismantling of Feudalism on the European continent was the sending of armies to liberate the Holy Land from non-Christian domination. Returning princes needed hard money with which to acquire the goods they encountered during their years in the eastern Mediterranean. Rather than conveying a portion of their crop to the feudal lord, peasants were increasingly required to sell their crops in the new market towns and pay rent (and taxes) in cash. The financial risks of crop failure or a decline in commodity prices from this point on fell on the peasant farmer. When failure inevitably occurred, land was transferred to others who had sufficient financial reserves to farm the land themselves, or, offer the land under lease to tenant farmers.
In an effort to demonstrate the efficacy of the communal ownership of land, Karl Marx and Frederich Engels examined the history of land ownership in ancient Ireland. Andro Linklater summarizes what they learned:
“Through customary law, village councils, or group pressure, these societies felt able to impose rules for use of the land on the families or individuals who worked the soil. Some rules, such as limiting the number of animals that could graze common pastures, were designed to prevent its despoliation, but the most important had another purpose. The strips of land … were to be redistributed every few years so that each family got a fair chance to enjoy the best and worst land.”(p.100)
Over the course of time, all such rules “were undermined to benefit the more powerful members of society.”(p.100) History reveals how the warriors of ancient societies separated themselves from the larger group by the adoption of distinctive rituals that required demonstrations of courage and strength. Warriors assumed leadership roles by success in combat, and then over time with the support of the society’s shaman priests, by right of inheritance sanctioned by the gods. Hierarchy had arrived; aristocracy was established forever more as a societal norm, not to be challenged without risking the wrath of the gods (and the violent response to any expression of dissent).
Readers are reminded of the attempt by ancient Jews to prevent the concentrated control over land and distinctions based on wealth by turning back the clock every half century. “All debts and sales of land were to be canceled and the right to work the ground returned to the original owners.”(p.101) This they described as the jubilee. However, with permanent settlement, land owners resisted the jubilee as a violation of their property rights and the practice disappeared from the societal norms known to future generations of the Jewish people. The longer-term implications for the Jews and for other societies that embraced private over communal land ownership was “an uneasy equilibrium that occurred in a variety of forms in different countries, sometimes lasting for centuries.”(p.103) Aristocratic privilege was reinforced, almost always by a compliant and corrupted religious orthodoxy.
Dissent based on everyday experience eventually gained momentum after one technological advance arrived: moveable type. This led to a dramatic expansion of literacy beyond the confines of scribes, intellectuals and keepers of religious doctrine. Andro Linklater comes to this observation on indirectly. He describes the impact of written documents that stated in specific terms the extent of and limits to ownership claims. With the written document came the enclosure of territory into plots or tracts of land. Land was from this point on treated as just another commodity to be purchased, sold, financed and mortgaged. Equally important were the tools that allowed for the accurate surveying of land areas, thereafter described specifically in leases or deeds of conveyance. Although the author spends most of the early chapters describing the processes by which these changes were introduced in England, he gives the ancients appropriate credit for understanding how human nature acted as a trigger for such innovations:
“Plato demonstrated that unless kept in check by law the greedy part of the soul … will ‘enslave and rule over the classes it is not fitted to rule’. On the other side of the world, the central theme of … Confucius was the belief that social harmony could be achieved if all people, governors and governed, subscribed to firm rules of conduct that inhibited selfish behavior.” (p.31
Over the centuries, philosophers added their insights and reflections on the human condition, and on the question of whether access to land ought to be accepted as a natural right or as a civil right determined by those who held power. Gradually, there evolved what became accepted as scientific methods of investigation, the means by which natural philosophers sought to discover fundamental truths and natural laws. The scientific method was employed as well in the emerging science of political economy.
By the last half of the seventeen century in Europe, one figure above all others – William Petty – “came close to genius” in his study of political economy. Andro Linklater, inadvertently I surmise, incorrectly describes Petty as “an economist” because of Petty’s detailed analysis of markets and how markets are positively or negatively affected by externalities such as law, taxation and monetary creation. As physician-general to Oliver Cromwell’s army sent to subdue the Irish in 1652, Petty “would survey all of Ireland, acquire huge estates, and make his fortune.” (p.57) As a political economist, he understood better than most the fundamental relationship between people and nature, writing:
“Labour is the father and active principle of wealth, as lands are the mother.” (p.58)
When I read these words, what immediately comes to mind is the perspective Henry George brought to the science of political economy near the end of its scientific reign. George argued that the discovery of truth requires acceptance that nature is the source of individual wealth, but is the equal property of all, our common heritage that enables us to live and produce what we need for our survival. Petty’s statement above anticipates Henry George’s labor and capital goods theory of private property. Petty wisely added that “there can be no incouragement to Industry, where there is no assurance of what shall be gotten by it.” (p.58) Societies must ensure by enforceable law that what we produce is protected as our legitimate private property.
Unfortunately, Petty failed to see the full societal implications of his own observations. To address the problem of high prices for goods and services, he urged the introduction of paper currency well above whatever gold or silver was held by the issuing entity (which became the Bank of England), and he embraced the idea that credit should be extended with the value of land accepted as collateral. He failed to see how credit could fuel a speculation-driven market for land independent of the acquisition of land for development (i.e., for the production of goods or as locations from which services are provided).
What Petty did leave for others to ponder was a recognition that the exchange value of land was a direct result of population increase and the need for land upon which to live and work. Andro Linklater actually describes this as Petty’s “most important ingredient in [his] restless reckoning of the value of privately owned land.”(p.61) As Petty wrote in Political Arithmetick:
“…the Rent of Land is advanced by reason of Multitude of People.”(p.61)
Inexplicably, our author inserts the term “profit’ in brackets after the term Rent in the above quoted observation. He reveals he has not studied closely the fundamental axioms presented by the political economists where rent is recognized not as profit but as that portion of production resulting from the advantages – natural and societally-created – locations enjoy one against another. Profit, on the other hand, is an accounting term that reveals nothing about the source of revenue.
The connection Petty made between population density and the societal rent fund brought him to conclude that the interests of the British state would be best served by bringing all those who had migrated elsewhere back to the British Isles.(p.61) That Petty’s perspective was shared by few in a position of authority to initiate such a policy (or restrict further out-migration of people) is appropriately captured by our author in this reference to one of North America’s most successful early speculators in land:
“… the seventeen-year-old George Washington solemnly noted in 1748 that the wealthiest Virginians made their money ‘by taking up & purchasing at very low rates the rich back Lands which were thought nothing of in those days, but are now the most valuable Lands we possess.”(p.62)
How these once free lands became so valuable was because of the growth in population combined with the size of the estates controlled by the heirs to those first received huge land grants from the sovereign claiming such authority (and enforced by whatever means was required).
Speculation aside, the major outcome of the move to private ownership of land, from Andro Linklater’s perspective, is the security of ownership of production and the accompanying innovations in methods of production that were introduced. Those who lived on the land in England enjoyed better diets, grew taller and lived longer than their counterparts on the European continent. England’s governing class also seemed to grasp an important economic principle associated with commerce:
“And almost uniquely among European nations, England charged no internal taxes on the movement of agricultural produce from the country to the town.” (p.63)
And yet, during this same period, the most successful economic system in the world was run not by the English but by the Dutch, whose innovations included the consolidation of global commerce, creation of joint stock companies and a stock exchange. The “land revolution” that occurred in England did not take hold in the Netherlands on in Dutch overseas possessions, where companies with monopolistic privileges collected ground rents. Had the Dutch come to terms with the land question, the story of European territorial and colonial expansion might have been quite different.
New insights and observations were now beginning to come from a younger generation of practical philosophers in France, who were to be known as physiocrates. Their leader was the physician Francois Quesnay, who took his basic understanding of political economy from the “Irish-born, Paris-based economist Richard Cantillon.” (p.70) Cantillon echoed the earlier insights of William Perry regarding nature’s unique role:
“Land is the source or material from whence all wealth is produced. Human labor is the form which produces it.” (p.70)
Andro Linklater summarizes what Quesnay learned from Cantillon and the campaign of the physiocrates as an effort to “replace the myriad of charges and fees on the transport of produce with a single tax on the profits of landowners.” (p.72) This interpretation is not really what Quesnay called for. As I say above, profit is an accounting term, the result of revenue exceeding expenses incurred. One who tills the soil, plants and harvests crops and takes them to market may, if all goes well, enjoy profits. This tells us nothing about the extent to which profits are derived from rent, wages or returns to the use of capital goods. The ownership of land is a static activity. Nothing is produced. No labor is expended. Thus, to the individual, income derived from rent is unearned. Quesnay would require that the full rental value of land privately held be passed through to society.
That is the extent of the story our author devotes to the influence of Quesnay and the school of physiocrates, other than to tell us of the debt owed to them by Adam Smith. What, then, did Adam Smith mean when he wrote in The Wealth of Nations that government must serve society by ensuring:
“that equal and impartial administration of justice which renders the rights of the meanest subject respectable to the greatest, and which, by securing to every man the fruits of his own industry, gives the greatest and most effectual encouragement to every sort of industry.”(p.73)
Common sense tells us that what we produce is and ought to be ours to consume or dispose of as we see fit. What about the question of whether the laws of society must also secure for us the equal opportunity to employ our labor in the production of wealth? Our author does not attempt to answer on behalf of Adam Smith or at this point in the story offer his own perspective. What he does do is go on to explain how slaves became a major source of labor in the semi-tropical and tropic regions of the Americas.
In some respects, the circumstances faced by immigrants who more or less voluntarily accepted the risk of travel across the Atlantic Ocean to any one of Britain’s North American colonies different some legal slavery only by degree of deprivation. Access to land was frequently granted under conditions that kept them in poverty and disgruntled “by the dues they were forced to pay on their land, such as the annual quit-rent to the proprietors.”(p.80) Considering the land they occupied and worked as their land was instinctive and natural to the settlers, who received nothing in the way of support from absentee landlords living on their estates in the colonies or in England. Andro Linklater points to John Locke as the authority to whom they might have looked in their struggles against the rentier class of landowners. Locke added his voice to those who presented the case for a labor and capital goods theory of property:
“Whatsoever then [every-man] removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property.”(p.81)
The individual is entitled to secure ownership of what is produced from the land. But, where the land itself is concerned, such ownership comes with obligations. This is today generally referred to as Locke’s proviso, the intent of which our author erroneously includes land as a thing we make:
“Quite explicitly Locke sets out to show that democracy grows out of a sense of fairness common to all individuals. This is ‘the law of nature’ that exists when people live in a state of total freedom. Reason reveals to each of them that ‘no one ought to harm another in his Life, Health, Liberty of Possessions’. As self-conscious individuals, people cannot help making things that belong to them, but these things, land included, can only become exclusive property ‘where there is enough, and as good left in common for others’.”(p.84)
Justice, Locke tells us, requires that some accommodation is made when the best land is fully claimed and newcomers must take up land that is less advantageous – in fertility, in other natural qualities, or in proximity to the center of population and commercial activity. The basis for such an accommodation is moral, and for Locke essential to the establishment of justice through fairness.
Only a few centuries passed before, even in North America, Locke’s proviso required direct societal intervention to mitigate the societal conflicts caused by entrenched landed privilege. “In the early twentieth century,” writes Andro Linklater, “the economic historian Charles Beard produced an influential thesis based on exhaustive, though flawed, research on the financial wealth and real estate holdings of delegates that helped flesh out [the] charge” that the United States Constitution was “the product of a narrow class intent on protecting their own interests.”(pp. 192-193) Despite the uproar against Beard’s charge that the leading figures of the founding generation were not above protection of their own financial and property interests, the truth is that they did not purge the American System of the laws and methods by which landed privilege expanded to threaten the republic they fought so hard to create.
Andro Linklater seems not to see the connection between the direct theft of wealth when people are enslaved and the direct theft of wealth when producers must pay rent to the owners of land. Although he is familiar with Henry George’s basic proposal for the public collection of rent, I cannot believe he has taken the time to study the basis for this proposal. What is clear to those of us who embrace Henry George’s analysis is that whether by design or by a failure of vision, the system of law established by the framers of the American System fell far short of justice based on equality of opportunity.
By the end of the nineteenth century the number of landless exceeded those who held deeded land, almost everywhere. Industrial technologies had advanced to such an extent that fewer and fewer workers were required, even in the production of food and the extraction of minerals. And, in the United States racial prejudice and legalized exclusion prevented a large majority of the African-American population from rising above a subsistence level existence. Andro Linklater does not indicate he understands that these new innovations did nothing to reduce the power of landed privilege. Rent-seeking, always present, was extended to industrial agribusiness, urban real estate, resource extraction, manufacturing and finance. Locally and regionally, the rent of land rose and fell in response to changing land uses and abuses, but the aggregate rent of land kept climbing. At one point, the author writes:
“The era of land as the prime source of wealth and income was ending, but the way the earth was owned had not only brought the industrial age into being, it had left an indeliable mark on the way it would develop.”(p.182)
And, of course, this mark includes the ongoing destruction of plant diversity and animal habitat, on dry land as well as in our streams, rivers, lakes and the oceans.
Wherever population increased, the rent of land climbed and the price of land skyrocketed. Cities are centers of population and commerce where ground rents are measured by the square foot. Suburban residential lots are priced most often by the quarter acre. Rural land is sold in multiples of acres or by the section. Then, there is the ground rent associated with land rich in natural resources (e.g., forests, fish, coal, oil, iron ore, gold, silver, diamonds, and all useful minerals). Yet, when rents charged by land owners climb too high, when the price of land can no longer be absorbed by businesses or by households seeking a place to live, a local or regional or even national economy can implode from the stress. This happens even when resources are extracted by owners of land who have no obligation to pay rents to an absentee landlord. The reason is that the revenue required to pay for societal infrastructure and other public goods and services, when not paid for by the public collection of rent, must come from the taxation of earned income, capital goods and commerce. Absent the will to raise this revenue, services must be cut, government bonds issued, or additional money issued.
Andro Linklater tells us that the “first coordinated crash came in 1873”(p.276), although he repeats the conventional wisdom that the downturn was triggered by financial markets and currency manipulations. And yet, this is when he finally introduces the reader to Henry George:
“Those with land grew wealthier from its rising price, the poorest no longer found it possible to buy what had once been available to everyone. Wealth became concentrated in fewer hands, and the inequality inherent in private property rights made itself apparent. No one perceived this more clearly than the most influential critic of rural capitalism, the journalist and self-taught economist Henry George.”(p.277)
What Henry George actually called attention to was not rural capitalism but the system of landlordism pervasive everywhere. “To eliminate poverty and revive the egalitarian nature of American society, writes Andro Linklater, “George argued, it was necessary to redistribute land more fairly. The method was taxation.”(p.278) More accurately, Henry George called for the public collection of the full potential rental value of land in all its forms. To George this was not really taxation; rent belonged to the whole community and was, therefore, the legitimate fund to be utilized to pay for public goods and services. As Andro Linklater adds:
“George estimated that the money raised would be enough to abolish all other taxes.”(p.278)
Further research would have resulted in a somewhat different assessment of Henry George’s contribution to the problems caused by land rent monopoly, land speculation and the confiscation by taxation of earned income flows and the value of capital goods. The reason that “[n]owhere has society been transformed in the way he [George] predicted” has nothing to do with a difficulty “to arrive at a valuation system that can clearly separate earned from unearned capital appreciation.” In every instance, landed interests have done all they could to undermine efforts to capture a significant portion of the rent fund for public purposes. The technical challenges were and are nonexistent. The value of any capital good, including a building, is its replacement cost, less the amount of depreciation that has occurred. The difference between this value and the total market value of the improved property is the location value. Private owners of land having a highest use for commercial or industrial development have always been able to find others willing to bid against one another for control of land under a long-term lease.
Andro Linklater asks the reader to accept his conclusion that something fundamental had occurred, something that lessened the dominating position of those who controlled nature:
“Landed values were gradually being displaced as the most powerful force shaping private property economies. The new engine was neither egalitarian nor subject to the sort of competitive pressure that determined price and profit in the marketplace described by Adam Smith.”(pp. 278-279)
What changed the rules of the game, he suggests, was the emergence of business entities “invested with such economic powers that none of them can be easily pushed to the wall.”(p.279) And, this required, “a different sort of finance” system. A new form of cartel had arrived, its market power no longer based on the closed system of mercantilism. The new cartels were directed by “such industrial titans as Cornelius Vanderbilt, Andrew Carnegie, and John D. Rockefeller.”(p.281) The lesson seemed to be that even during a recession, the few survivors could experience “spectacular results” as they attracted the bulk of available financial capital. Andro Linklater does not stop to list all of the huge financial and industrial cartels that were supplanted by new entries offering superior products and innovative technology solutions.
Gaining control over large tracts of agricultural land was, if anything, becoming more important for the survival of the family farmer. With every increase in the world’s population, farmers brought more land into cultivation and intensified their efforts to increase yields. One result has been the introduction of production methods akin to “the factory system.”(p.282) Growth in output for many decades overrode any concerns for collateral damage to the environment or even to the nutritional value of the food produced.
Even before the end of the nineteenth century the production of food became big business. Mechanization, refrigerated shipping, expanded rail transport and international financing all contributed to a shift in market share from the small, family farmer to large-scale agribusiness. In the United States and other food exporting countries, farmland prices skyrocketed, as did the mortgage debt incurred by farmers faced with the choice of expansion or selling out. Publicly-funded irrigation projects brought heavily-subsidized water to arid land, delivering huge unearned increases in rent to the owners of land.
As the global output of agricultural commodities increased in the 1890s, prices fell and (not for the last time) one country after another increased tariffs on imports from foreign producers. Britain resisted the temptation to move away from its long-standing defense of free trade, and its agricultural sector suffered. At the same time, London had grown into “the center of international finance.”(p.285) By this time, the Germans felt sufficiently confident in their ability to compete with the British that they began to dismantle the protective tariffs established earlier by Bismarck. Germany was moving along the path advocated by Friederich List, of “using the government’s financial power to develop a managed industrial economy.”(p.298) Ironically, this shift in economic policy later opened the door to fascism in Germany, which was supported by the Junkers who had become politically marginalized.
The details of what occurred country-by-country during the early twentieth century are there to read and contemplate, but I cannot devote space here to summarize the details. Our lives today are most directly affected by the decisions and events that followed the defeat of Germany, Japan and their allies in 1945.
At this point, we are introduced to an obscure economist named Wolf Ladejinsky, who studied at Columbia University after escaping from the Ukraine in 1922. In 1945 he was brought to Japan to assist in the creation of a plan for the “redistribution of feudal land in Japan.”(p.312) Elimination of absentee ownership of land in Japan was thought to be a key means of generating support for liberal democracy. “By 1950, 90 percent of Japan’s farmland was owned by the people who cultivated it.”(p.312) There were, however, unanticipated consequences because of the failure of this plan to include the socialization of land rent. Andro Linklater explains what occurred but does not see this cause and effect relationship:
“[T]he change from tenancy to ownership brought an accompanying need to maximize profits rather than rents, leading to an exodus of rural inhabitants … who left the countryside to find work in the cities.”(p.313)
What this does not explain is that farmers now enjoyed imputed rent. They no longer handed over either a portion of their crop or the cash income from selling the crop to an absentee landlord. Nor were they subjected to an annual tax on the rental value of the land they worked. Behind this policy was the government’s commitment to become self-sufficient in the capacity to feed the Japanese people. The same misdirected tax policies and public subsidies would eventually bring down a Japanese economy no longer able to absorb skyrocketing urban land prices. But, in the late 1940s and early 1950s none of this was anticipated. Land prices were not yet imposing heavy dead weight losses on Japanese producers:
“Finally, although this was not Ladejinsky’s intention, an urban land market was created. Prominent in the balance sheets of postwar conglomerates and those of construction companies, banks, and other financial institutions, was a portfolio of office blocks and building land whose rising value helped boost their borrowing power.”(p.313)
Andro Linklater also credits Wolf Ladejinky with changes in land policy introduced in Taiwan and South Korea. No mention is made of the plan developed by Sun Yat-sen to bring an end to absentee landlordism by adopting Henry George’s approach of imposing an annual charge equal to the potential annual rental value of land held. Yet, one of the significant differences between the Japanese program and that adopted in Taiwan was the payment of ground rents to the government, a source of revenue that helped to fund Taiwan’s infrastructure.
Although these programs of land redistribution addressed the problems associated with feudal absentee landlordism, they did nothing to create land markets that responded to price signals in the way price influences the other two factors of production – labor and capital goods. With population increases came the pressure for conversion of agricultural land to a new highest, best use, such as commercial and residential development. Absent a sufficiently high annual tax on land rent, owners could continue to grow rice or fruit trees on plots of land that should have grown high rise buildings. And, without public collection of the increasing rent of land, other sources of revenue had to be found that eventually made the Japanese economy less and less competitive in global markets.
The reason why land reform programs almost always fail, and fail most miserably under systems of central planning and state-socialism is captured in this quote provided from Ernesto Che Guevara:
“The peasants fought because they wanted land for themselves and their children, to manage and sell it and to enrich themselves through their labor.”(pp.320-321)
And, once peasants gained ownership of the land they worked, they, too, embraced the idea that land could be sold at a profit, even though the increased value of land resulted from aggregate, societal forces beyond their influence as a land owner. Somehow, those who purchased land at higher prices had to find ways to reduce other costs if they were to earn a profit. More often than not, the decision involved a shift to automation and a reduction in the number of people employed. State-socialism may have eliminated the rentier elite in Cuba, but the elimination of private property in capital goods doomed the Cuban people to decades of subsistence lifestyles that even then depended on heavy financial support from the Soviet Union.
The Cuban hero not mentioned by Andro Linklater is Jose Marti, whose plan for solving the land question for Cubans was the same as that embraced by Leo Tolstoy for Russia, Sun Yat-sen for China, and Winston Churchill for Britain: the societal collection of the potential rental value of land as proposed by Henry George.
Andro Linklater fittingly closes his story by focusing on the destructive influence of those mainstream economists who advanced policy recommendations based on the theory of development economics. The leading proponent of these ideas was Walt W. Rostrow, and at a time when U.S. foreign policy was dictated by opposition to communism, the cause of landless peasants living under oppressive regimes was pragmatically ignored. The fact that a successful communist take-over would result in financial losses to U.S. corporate interests in those countries also put U.S. military forces in the field on the side of very oppressive but anti-communist regimes. The longer-term consequences of U.S. (and Western foreign policy, generally) are succinctly captured by Linklater:
“[T]he West’s Cold War legacy had left no democratic institutions and no entitlements, only a Hobbesian capitalism whose inevitable corruption rendered it morally bankrupt. Nor could the Islamic movements that took up the call for justice and freedom offer any secular guarantees of human or property rights.”(p.345)
This is true not only of the societies in the Middle East but elsewhere around the globe where monopolistic corporate interests have prevailed.
In the West, and in particular, in the United States, the story of the post-Second World War decades has been one of reliance on home ownership to drive ever-expanding consumption. Andro Linklater quotes Bill Clinton on the fundamental link between home ownership and the stability of the American System:
“When we boost the number of homeowners in our country, we strengthen our economy, create jobs, build up the middle class, and build better citizens.”(p.350)
However, there is a darker side to this expanded consumption. Within this darker side are consequences not referred to by Linklater, the most important of which is the harm caused to the natural environment and to the health of people exposed to high levels of pollutants on a daily basis. There is, of course, also the mountain of debt so many individuals take on:
“Purchased with a mortgage, and equipped with labor-saving machinery paid for through bank loans and credit agencies, the new version came with a scale of debt that required most of a forty-year working life to pay off. Until it was, ownership was shared with the mortgage lender and credit issuer.”(p.350)
As Andro Linklater describes the increasing economic power this gave to the finance industry and to Wall Street, he is silent on the increased power this gave to landed interests.
The 1920s was a period of intense land speculation with devastating consequences. The New Deal provided strategies to soften the hardship experienced by those most vulnerable to the loss of employment and income, but nothing was done to tame the nation’s credit-fueled, speculation-driven land markets. Eventually, the land market cycle returned, experiencing stresses followed by downturns, again and again. The response to the 2008 crash was, “according to Ben Bernanke, … for government to generate its own credit – quantitative easing … that could be channeled through the banks and finance houses restoring their readiness to lend once more, especially to the industrial home owner.”(pp.351-352) This was a strategy with short-run merit at a cost of long-run stability.
For those households with stable employment, income and a high credit score, many were afforded the opportunity to refinance and thereby significantly lower their monthly mortgage payments. Very low rates of interest also made it possible to restart property markets and keep property (i.e., land) prices from falling any further. Yet, market analysts had to realize that these measures would have a limited stimulus effect without a significant recovery of job-creation at wages high enough for people to enter a residential property market artificially stimulated by low mortgage interest rates. Moreover, recession put pressure on local governments and school districts to increase the tax rates on real estate. The effect on millions of retirees was to threaten their ability to continue to stay in their homes. This problem is only getting worse because of the dramatic decline in interest income on government securities and rising costs of food, utilities, medical care, automobile ownership and insurance.
Now, near the end of the book, Andro Linklater offers his ideas on “undoing the damage.” He raises the very legitimate challenge to the “belief that industrial development [leads] to democracy,”(p.368) noting that in the cases of Taiwan, South Korea and Costa Rica, the “redistribution of land as private property” was the catalyst. How the case of Hong Kong escaped his attention is hard to understand. Hong Kong under British rule relied and continues to rely on ground rent charges to fund public goods and services. He correctly focuses attention on the damage done to Democracy by the combined effects of financial deregulation, the lowering of marginal tax rates on high incomes and on gains from the sale of financial assets (gains which are not, in fact, capital gains, but for the most part gains from speculation). The same process of dismantling the basic programs associated with social democracy has occurred in Britain and other countries. And, with the dramatic increase in the personal incomes and wealth held by the world’s privileged elite has come a dramatic increase in foreign absentee ownership of land. For most people in positions of political authority, Locke’s proviso no longer carries any moral weight in creating the laws of the land. Our author is certainly correct about one thing:
“As domestic demand for land and its scarcity increase in the years ahead, foreign ownership will come under increasing pressure and ever closer scrutiny. From primarily selfish motives, most corporate investors will sooner or later realize that property based on state-enforced law looks less secure then the kind based on natural right. The basic Lockeian premise is that such a right arises out of an innate sense of justice. On that basis a corporate owner’s claim to property in land must ultimately depend on finding a way to make good the loss to those deprived of its use.”(p.397)
This is Andro Linklater’s hope for the future, an expectation that eventually the evils of the current system will bring about its downfall. The establishment and promotion of private property in land creates as many problems as it solves. In the next edition of this book, the author is advised to revisit the analysis and insights of Henry George.
Prosper Australia has published an updated comprehensive analysis of the Australian real estate market conducted by researchers Philip Soos and Paul Egan.
The only fair-minded conclusion is that the land price bubble continues to hover over Australians and their economy like the sword of Damocles.
The previous post points to the failure of public policy – and proposes a solution.
As we know, the people of Japan and their economy have been languishing ever since their massive real estate bubble burst in 1989. That’s now twenty-five years.
The Japanese Reserve Bank has been calling the wrong tune for far too long, and a succession of prime ministers since that time have obviously been under its spell, the latest Shinzo Abe having done a complete turnabout presumably at the Bank’s behest.
Even before Australia’s subsequent (but equally massive) land price bubble has burst, our economy appears to be in deep do-dos, the Abbott-Hockey government proving itself to be every bit as clueless at effective policymaking as the Rudd-Swan-Gillard-Swan-Rudd-Bowen governments.
It’s looking remarkably likely that we’re going to prove as inept as Japan. We’re already witnessing a weirdly mainstream belief emerge that Australia needs to extend its GST, as did Prime Minister Abe in Japan (and John Key in New Zealand). Have we learnt nothing at all from the Japanese experience?
Europe remains at the very least in a fiscal torpor, whilst the Americans have the luxury of printing the world’s reserve currency like there’s no tomorrow to effect their self-styled “recovery” that appears to be nothing of the sort.
What hasn’t been tried that ought to be tried?
“Australia’s Future Tax System” (The Henry Tax Review) recommended points 1 and 3 above, but as this did not square with the nonsense that Japan, Europe and the US have undertaken, Australian policymakers have been crass enough to totally ignore it.
How absolutely perverse of us that we prefer to follow proven failed measures taken by Japan, Europe and the US instead of Australia’s own thoroughgoing inquiry into reforming an anti-productive tax regime!
(Had to get ‘bust’ in there.)
…. as we’ve said here numerous times (if you’d like to do a search of “0.1%”).
THE Napthine Government sensationally considered increasing tolls on CityLink and East Link, and introducing tolls on the Eastern Freeway and Tullamarine Freeway, in order to make the $6.8 billion East West Link financially viable.
But don’t forget you’ve now got engineers suggesting the new Victorian Andrews government should toll the 50 rail overpasses Labor will be constructing in lieu of the East West Link.
So, both sides are locked into this tolling mentality.
What forward thinking our predecessors had in capturing some of the uplift in land values that capital works provided to land owners! Although our forebears understood and accepted the principle, politicians of all persuasions now run scared of capturing part of the windfall gains property owners receive from infrastructure. It’s apparently too difficult to re-educate people in order to resurrect this excellent idea.
It seems escalating property values are sacrosanct. User-pays tolls–not beneficiary pays–must apply, everywhere.
And, with these and other anti-productive taxes, we wonder why world economies are imploding. Really?