Changing the world

What’s the problem?

Class struggle? Population? Money? Debt? Banks? Something else?

‘Something else’ is more important than each of the others, but we always say it’s “too hard and will never happen!”

And so we continue to plod along in an economic slough of despond, blaming this government or that government, for not taking this action or that action, and accepting the commonplace of debt and wage slavery.

How to break free from these virtual chains?

Only by working for the ‘something else’ that is “too hard and will never happen”.

First and foremost, we humans are homo economicus – we have to look after ourselves and our families. We’re certainly not economic creatures in terms of the sterile definitions of economists nor of the twisted self-obsession of Ayn Rand, however.

‘Economics’ is derived from the Greek word ‘Oikonomia’, meaning household management, so let’s do a bit of basic housekeeping on the national economy.

Production (GDP) may only be distributed to the three basic factors: land, labour or capital, via their respective income streams – rent, wages and profits.

We’ve been witnessing for some time that labour hasn’t been receiving its share of GDP, and that household debt is increasing. Why is this? What do economists conclude?

“Capital is increasing its share of GDP at the expense of wages.” Thank you, Thomas Piketty!

Oh, is that so? Could it not be that land is increasing its share of GDP at the expense of both labour and capital?  Of course it could, but no economists bother to disaggregate land—all natural resources including land, sea and spectra—from man-made ‘capital’.

What would the evidence be of land receiving too much of its share?

Well, first you have to understand that land price itself is generated by the community at large: if there’s no community, there’s no land price. Second, land price represents the private capitalisation of that part of public ‘rent’ that is not captured to the public purse. And at the moment, land prices are clearly running amok in the world. Land prices are actually the best guide to our economic ailment, even though at first flush you may disagree.

So, you mean if all land rent were captured annually, there’d be no land price? Is that possible?

Yes, there’d be nothing left to capitalise privately.

So if land prices are high, it doesn’t necessarily mean there’s not enough land, but it does mean we’re not capturing enough economic rent to the public purse?

Now you’re getting it!

You might well ask why the greatest brains in economics don’t ‘get’ this simple point. It’s either because they’ve been taught to confound natural resources and man-made capital and know no better, or because they believe “it’s too hard and will never happen because the 0.1% will never permit it.”

Let’s put all the above into a simple formula:-

Production (P) is distributed between rent (R), wages (W), and profits (I), or P = R + W + I. But we know that the income to natural resources is not earned income because, by definition, land was just ‘there’. Therefore, land’s surplus value, or rent, should surely be publicly captured, as advocated by Adam Smith, JS Mill, Henry George and Joseph Stiglitz? viz:-

P – R = W + I

But wait! There’s no taxation of wages and profits in that scenario!

That right! What’s wrong with that? The current reality is that there’s an awful lot wrong with taxing wages and profits, and taxing rent so insufficiently as to generate these incredible land prices!

So, that gets to the root of how world economies have to change. It’s an economic tool that has positive implications for banking, money, household debt and population – the latter because many studies show families in prosperous economies have  fewer children.

“But it’s too hard and will never happen because the 0.1% will never allow it!”

You mean because unearned rent-seeking in land prices, spectrum, &c, especially by banks, is the basis of the 0.1%’s obscene incomes?

Welcome to today’s depressing reality!

 

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https://prosper.org.au/2017/08/23/changing-the-world/