CLASSICAL DAYS – WHEN THE ROLE OF LAND RENT IN THE ECONOMY WAS UNDERSTOOD

Whilst they may also value properties by direct comparison with sales evidence, real estate valuers (appraisers in the US, or chartered surveyors in the UK) often rely on the theory of valuation to find a property’s market value: they will capitalise the property’s sustainable net rental at a yield demonstrated by the local market.

Classical economists, including Sir William Petty (1623-1687), Francois Quesnay (1694-1774), Anne-Robert-Jacques Turgot (1727-1781), Adam Smith (1723-1790), David Ricardo (1772-1790), and Henry George (1839-1897), knew the macro application of the theory of valuation was also important in estimating the position of the national accounts.

Sir William Petty did Britain’s accounts, assessing:-

National income at £40 million

Land and capital stock at £250 million, and yielding an income @ 6 %  = £15 m

Labour stock ……….. £417 million, and yielding an income @6%  = £25 m

Therefore, the notional average income for Britain’s six  million people was £6.13.4 per head.

Petty’s separate valuation of Ireland in which he applied an exceptionally high capitalisation rate of 14.3% (i.e. only seven years’ purchase!) to her total rent is explicable in terms of the country remaining in tatters after Oliver Cromwell had decimated the Irish population several years earlier.

That Petty completed the Down Survey, an accurate valuation of Ireland in only thirteen months in 1655-56 (by using the cheap labour of Cromwell’s now unemployed soldiers following the conquest) was quite remarkable.

Petty, it seems, had employed Ricardo’s Law of Rent, the basis for the theory of valuation, one hundred and fifty years before Ricardo had ‘discovered’ it!

With no disrespect for Adam Smith, some still see Petty as the father of modern economics.  Understanding the role of land in the economy was critical to classical economic analysis.  Although it is even more critical today, it is ignored.

How land rent and the theory of valuation has gone backwards under the modern economist!  Instead of surface land rent remaining near Petty’s estimation, as about 30% today, the neoclassical economist continues to promote the lie that it is now only about 1%.

So much for good quality national accounting, and the consideration of land rent as an unearned income.

The Great Untruth is the main reason for the global financial collapse – and the 0.1% manage to keep it in circulation by way of the pathological study into which modern economics has degenerated.

Bring back the intellectual rigour of Sir William Petty and the classicists!

Rio?

Of course not – because land value taxation makes exploiters and abusers pay for the use and abuse of the planet.

The 0.1% wouldn’t stand for it – and these people meeting at Rio are their handmaidens.

So …. not bloody likely!

[QED]

Says Bloomberg’s Michael Kinsley – with a hat-tip to Henry George.

By Karl Williams

In the U.S. there was Henry George; in Russia there was Leo Tolstoy; and in the Land of Oz there was Max Hirsch, the intellectual giant who made Australia his home while he battled for the restoration of humanity’s equal rights to the fruits of the Earth.

Max was born in Cologne, Prussia, to a father who was a member of the Reichstag. Max’s idealism owes much to the influence of his father, who was a brave, outspoken writer on economic subjects and who came into conflict with the autocratic Prussian-dominated German authorities on account of his democratic principles.

Max was educated at a high school and then started work at the university of Berlin, but at 19 years of age began a career of a further 19 years as an adventurous, global, commercial traveller – another example of a maverick economist who was better educated in the University of Life than in some tradition-bound educational institution. He was first sent to Persia to buy carpets and obtained many fine old specimens which he brought to London by way of Russia. With an insatiable appetite to question and explore, he then studied art in Italy before hitting the road again as a representative of British linen manufacturers.

He first tasted Australia in 1879 (the year of publication of Henry George’s Progress and Poverty) before venturing on to Ceylon and engaging in coffee planting as well as being a member of the civil service. There he found that the rice tax was driving native cultivators off the land; this so aroused his sympathies that he wrote several pamphlets on the question, which led to the removal of the tax. In 1890 Hirsch settled in Melbourne (when George made his barnstorming visit here), and two years later basically gave up business to devote himself to fighting the good fight.

Many of his numerous publications are available in our Hardware Lane library, with Democracy Versus Socialism being Hirsch’s master work. Published in 1901, it was the first book to deal comprehensively with Marx’s Das Kapital, and is arguably the most thorough refutation of the basic ideas of Marx ever written. While Ludwig von Mises is often praised as being the first economist to offer such a refutation, it is important to note that, with respect to the pitfalls of socialism, von Mises reached no conclusion in any of his works that Hirsch had not already reached decades earlier.

In 1902 Hirsch was elected to the legislative assembly for Mandurang. He resigned this seat in November 1903 to contest the Wimmera (rural Victoria) constituency in the federal house of representatives but lost by a lousy 160 votes. He had become the recognised leader of the geoist movement here, and his exceptional debating skills and compelling writing style brought him many followers. He was aided by an acute sense of logic as well as great care with his facts. He was no revolutionist, and stated on one occasion that if he were appointed dictator he would bring in land value taxation gradually. In his fight for free and fair trade, then a live question in Australia, he met with much hostility from vested interests, and his opponents did not forget to remind the public that he was German and a Jew. In 1906 he again failed to win the election for Wimmera. In October 1908 he left Melbourne on a business mission to Siberia but tragically died in Vladivostock after a short illness on 4 March 1909.

Hirsch was, it seems, one of those men of virtue who seem to belong to a bygone age, renouncing the riches which his business expertise would so easily have brought in favour of battling for our great and noble cause.

Quoting Hirsch:

“The moral right of a government to impose on subsequent generations the duty of repaying debts incurred by it as the representative of one generation is, to say the least, doubtful. Its admission in full would justify one generation of men in enslaving all future generations by mortgaging their productive power to the fullest extent.”

“Advances in the arts and sciences ….. tend to enormously increase the value of land and other monopoly-rights. The land of England does not materially differ in extent, does not differ at all in character, from what it was at the time of the Conquest. Yet the whole of its capital value at the former time would be covered over and over again by the tribute which Englishmen now pay for its use within a single year.”

“The power which the capitalist possesses over labour is not due to his possession of real capital, but to the weakening of the economic position of labour through the baneful action of monopoly-rights.”

“For the imposition of even a small tax on land values, ….. would lower rents, induce a more efficient use of land, increase the demand for labour, and therefore tend to increase wages.”

“Freedom to use the earth is the indispensable condition for the exercise of man’s faculties and the maintenance of his life. Hence the right to the use of the earth is a natural right, the denial of which involves the denial of the right to the exercise of any faculty, that is, the denial of the right to live.”

“No arrangements made by past generations, even if all their members had consented to them, can deprive any one now living of his equal right [to the use of the earth].”

…. GREECE REMAINS ATTACHED TO THE EURO

Land rent arises when a community comes together.

It used to be used to build communities: “Put to the vote: as many are of the opinion that a public tax upon the land ought to be raised to defray the public charge, say ‘yea’.” …. “Carried in the affirmative, none dissenting.” (Philadelphia’s first tax law, 30 January 1693)

But now we argue we should each keep our site rent, because we’ve paid for the land. Neo-liberal economic teaching goes along with the gag.

So, as you insist on retaining your land rent – except for that little part you pay in municipal rates and state land taxes – governments have to tax you on your earnings, your food, clothing and shelter, your entertainment, your savings, etc.

Meanwhile, land prices continue to escalate because not enough land rent is being captured for basic community necessities.

Land rent capitalises into bubbles all around the world.

Absent payment of the land rent for necessary government, real estate purchasers have been committing to higher and higher mortgage costs, and paying more and more taxation on their comings and goings.

The banks keep madly extending the credit necessary for people to keep body, soul and mortgages together. Debt loads becomes impossible to repay.

The tax system having given all the wrong signals, and many people being in too much debt to maintain their expenditures, world economies slowly grind to a halt.

Welcome to the second decade of the 21^st century!

from Gavin Putland

ALP and Treasury take note – it’s workable.

Or, the carbon tax abolition version – for Tory-Liberals.

FACES IN THE STREET

They lie, the men who tell us, for reasons of their own,
That want is here a stranger, and that misery’s unknown;
For where the nearest suburb and the city proper meet
My windowsill is level with the faces in the street
Drifting past, drifting past,
To the beat of weary feet
While I sorrow for the owners of the faces in the street.

And cause I have to sorrow, in a land so young and fair,
To see upon those faces stamped with marks of Want and Care;
I look in vain for traces of the fresh and fair and sweet
In sallow, sunken faces that are drifting through the street
Drifting on, drifting on,
To escape the restless feet;
I can sorrow for the owners of the faces in the street.

In hours before the dawning dims the starlight in the sky
The wan and weary faces first begin to trickle by,
Increasing as the moments hurry on with morning feet,
Till like a pallid river flow the faces in the street
Flowing in, flowing in,
To the beat of hurried feet
Ah! I sorrow for the owners of those faces in the street.

MONEY, MONEY, MONEY!

Most credit is used to finance escalating land prices, that is, the private capitalisation of the public’s rent revenue – so that’s our greatest worry.

Then comes debt money – literally created by a banker pressing the ‘enter’ key.

Even if government-issued money were to replace the banking dystopia, the deadweight pathologies of taxation and land price would still generate recessions.

But debt-free money, welded onto a Georgist economics, would present a formidable bastion against debt and wage slavery, finally freeing the 99% from the rent-seekers.

History tells us the revolutions happening, and needing to happen, around the world are all doomed to fail without such an economic system underpinning them.

So, just for a break from my straight Georgism, watch Jem Bendell expose how the banking system has run amok.