Harry,
I think your analysis as described below, and on which you have obviously
spent a great deal of time and careful composition, is superb. You can
certainly put me down as Georgist insofar that a land/property tax,
directly proportional to value, would be extremely desirable.
Nevertheless, Henry George was someone who lived in an economy that was
still dominated by agriculture and before the great surge in energy derived
from oil. Nor does Georgism take innovation sufficiently into account (if
at all). Both of these are powerful factors of production which, in the
classical canon (Land, Labour, Capital), are only shadowy items in the
background. Adam Smith rightly drew attention to the importance of division
of labour in the factories that were springing up in his day, but he never
mentioned the innovative minds of the entrepreneurs that were constantly
improving the effficiency of the factories, nor the importance of the
millstream that was supplying the bulk of the energy for the factory.
If you want us to be open-minded enough to admit the importance of Henry
George's contribution to economic thought, you and your fellow Georgists
must also be open-minded enough to admit that the world has moved on. The
great manufacturing cities (in contrast to the earlier entrepot cities)
would never have arisen without access to, firstly, millstreams, and
subsequently coal and then oil nor would non-basic consumer goods (what I
term status goods) have ever become predominant in the modern economy
without the growth in entrepreneurial innovation.
Land is the most visible of the necessary factors of production and, as
such, it is the favourite asset to be chosen as collateral when credit is
created. But it isn't the value of land as such which causes economic
crashes but the creation of excessive credit. Excessive value of land then
follows as a secondary effect but, unless its ascribed value is immediately
taxed, the swollen value then feeds back into granting of even more credit.
But it is the granting of credit beyond what is able to be paid back by way
of subsequent profit (extra productivity yielded by innovation). Blaming
land value for economic disasters is like shooting the messenger of bad news.
Keith
At 13:47 15/12/2010 -0800, you wrote:
It isn't bad, Arthur.
Admiral Spruance -- one of the people affected by George wrote that on his
honeymoon he spent time sitting on the bed while reading bits of George's
Progress and Poverty to his wife! I would say that's going too far.
Einstein should've been added to the list. He said of George:
"Men like Henry George are rare, unfortunately. One cannot imagine a more
beautiful combination of intellectual
keenness, artistic form, and fervent love of justice."
My major criticism of the Wikipedia piece is that it did not mention the
most important consequences of collecting land rent. Urban rent is a
result of the presence and access of the surrounding community. Rent
attaches to locations within the urban area depending on the community
presence. If a location gets the advantage of (say) $100 a week from the
surrounding community, that is its rent. If the user of that location pays
back to the community $100 a week we have a zero sum situation. He pays
$100 a week he gets $100 a week from the location. If he sells shoes, for
example, with the same exertion and capital, he will receive $100 a week
more than a shoe seller out on marginal land.
That's the way rent used to be before the neo-classicals removed it from
its connection with land, made it a general term (which doesn't help at
all) and completed the political revision by removing land altogether from
economics as a separate Factor of Production.
The present crisis is a land-value crash as it always is. But modern
economists are unable effectively to deal with it because land is outside
their separate scrutiny. This is perhaps why they spend so much time on
the financial crisis which followed the land-value collapse. They don't
know how to deal with the cause, so they concentrate on the consequences.
And, why not, when one considers the excitement of all that financial
incompetence and criminality.
As I think about it, I don't recall reading any economist (other than
Georgist economists) discussing the stupidity of advancing mortgage money
on a collateral of land-values.
I do note that the bubble rise was always called "the housing problem".
This, even if a check of manufactured housing prices would show no more
than a price mechanism hunt around their equilibrium. It was the
land-value that was soaring not the improvements. But, the neo-classicals
don't seem to know about land-values.
The most important consequence of collecting rent is that it ends
rack-rent. Rack-rent as I use it is the highest amount that can be
extracted from a tenant by a landholder while maintaining production. Each
location is a monopoly and its rent or price is not a price-mechanism
controlled figure. For optimum results, the market mechanism requires no
restriction on production, and no restriction on movement to market. No
more land can be produced and what there is cannot be moved to compete
with high rents and prices to bring them down.
What happens under normal conditions (whatever they are) is that location
rents and prices move upward until they hit rack-rents. Rack-rents reach
their maximum at the expense of wages. According to classical thinking,
wages full to a level that will provide a bare subsistence. As Henry
George said, any higher would lead to a "cessation of life".
In practice, everyone doesn't die as subsistence levels are not the same
for everyone. The unfortunate ones get sick and die, the survivors scrape
along. I repeat that this is normal and can be seen around the world every
day. We have set up elaborate welfare schemes, not to cure the condition,
but to ameliorate it. Instead of supporting justice for those at the
bottom of the heap, we give them charity.
As I've said elsewhere, the failure of the national welfare system in the
UK illustrates the problem. It becomes a parliamentary activity to provide
a few extra pounds to seniors to stop them freezing to death in the
winter. Then there are the large number of children in the West country
who are suffering from "severe hunger". And the Economist statistic from a
couple of the issues ago that pointed to 700,000 people who have been
unemployed through nine of the last 10 years.
Still, I suppose they are doing their best considering they haven't a clue
about why this is happening, even though all than half of the British
budget is directed to welfare.
As I've said in an earlier post, I've seen a couple of economists who have
discovered "space". They think that modern analysis has missed something.
A hopeful sign? Maybe, but I'm not banking on it.
The principal economic effect of collecting rent for the community is that
it makes land speculation more difficult. A landholder who might keep his
valuable downtown land out of use (except perhaps for a 'taxpayer' such as
a parking lot) will find he cannot afford to do that any longer. You have
to put it to use, or turn it over to someone who will put it to use.
Although vacant lots will become built on pretty quickly, the most obvious
area for change will be the slums. Spending the minimum possible on a slum
property while waiting for a good offer for its valuable land will end.
So, simply, the economic effect of recapturing the full rent for community
use will be a fully built-up city along with a major replacement of slum
property with worthwhile buildings. Although I regard the revenue from a
full rent collection as no more than a bonus, we should note that the
first casualty would be improvement taxes. In other words, you will no
longer be penalized for building a nice house. That should also help the
construction industry which, I understand, supports about a quarter of the
economy.
Anyway that's enough for now. The Single Tax was not the result of some
religious mania, but of a careful analysis of the existing economic system
(at that time), a discussion of the findings, and a proposal for righting
the discovered problems.
Also, using the land-value tax as revenue makes economic sense. It's about
the only tax that doesn't burden production. That alone makes it special!
Harry
******************************
Henry George School of Los Angeles
Box 655 Tujunga CA 91042
(818) 352-4141
******************************
From: [email protected]
[mailto:[email protected]] On Behalf Of Arthur Cordell
Sent: Saturday, December 11, 2010 8:10 PM
To: 'RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION'
Subject: Re: [Futurework] Ultra-rich get richer while the middle class
stagnates
<http://en.wikipedia.org/wiki/Georgism>http://en.wikipedia.org/wiki/Georgism
this seems a pretty good discussion of the idea.
What do you think Harry? Does it do justice to H. George?
arthur
From: [email protected]
[mailto:[email protected]] On Behalf Of Ed Weick
Sent: Saturday, December 11, 2010 8:07 AM
To: [email protected]
Subject: [Futurework] Ultra-rich get richer while the middle class stagnates
The following exchange between Harry Polard and myself was meant to go to
the list, but for some reason it didn't. So I'm sending again.
Ed
Not really sure of how to respond, Harry, but then I've never thought of
myself as a Georgist. I happen to live in a part of the city where land
and housing values have risen rapidly. Once an outlying part of the city,
it's now conveniently located between the centre of town, where most of
the jobs are, and the outer burbs. When we moved here some twenty five
years ago the area wasn't considered a very classy place to live. But
much has changed since then. Many other people have also moved in, many,
like us, buying old, worn out housing (built in 1915 in our case) and
fixing it up. The city has greatly improved bus service, so getting
downtown is very fast and easy. And the main drag through here has become
several blocks of trendy shops. Try to find a parking spot along
it!! Perhaps there was land speculation when we first moved in, but at
that time people like us were just trying to find a good place to
live. There certainly is land speculation now -- old houses being knocked
down and monsters being put up in their place.
So what do we owe to whom? We pay for the services the city has provided
via taxes, bus fares and other payments, so I can't really see us owing
the broader community much more. We owe a lot to ourselves and to other
members of our local community because of the efforts we've made to fix-up
our houses and yards. For example, that lovely bungalow just down the
road from us was a decrepit little cottage just a few years ago! We also
owe a lot to the blocks of trendy shops down on the main drag. Their
trendyness has added a special coloration to the area.
I don't know how I'd apply economic theory to all of this and I don't
think I'll try. There's been growth, yes, the land has become worth much
more, yes, but there's also been resident driven change for the
better. When it comes to increasing value, we've done much of it
ourselves. What we now look upon with increasing apprehension is the
coming of monsters. A few streets from ours, three or four houses have
been knocked down to permit a monster to arise, and it's not the first or
last one.
So, while I'm not really sure of the argument I'm making, the basic idea
is that what's happened to my part of the city involves much more than the
value of land. It involves a large number of things working together,
generally supporting each other even if not always doing so.
Ed
Ed,
Why the rich get richer!
As you know, the classical use of privilege is to regard it as private law
(privi-lege). This is a law designed to benefit some at the expense of
others. Politicians appear to spend as much time on privilege legislation
as they do on proper legislation -- of course for a price. I would say
that great riches on the whole come from privileges properly paid for in
our political system.
The most important privilege is the legal right to appropriate land rent.
Urban land-values are not created by the person who occupies or uses land.
Rather, they are extrinsic. They are a result of the presence and access
of the surrounding community. It seems fair that we should recapture these
values for the community.
Importantly, the economic effect of this collection would be to stop land
speculation -- an endeavor which raises everyone's costs enormously. The
result of speculation in land is nonuse and underuse, a reason for vacant
lots and slums.
Before the bubble, the land-value under most housing in the US seemed to
be between 40% and 70%. (A down-under study placed the average land
component of an Australian home at 65%.)
When it became fashionable in the first part of the 20th century for
economists to remove land as a separate Factor of Production -- and to
downgrade Rent from a particular return to a Factor of Production to a
generalized description applicable to Land, Labor, and Capital -- it
became all but impossible for the neo-classicals to handle the problems we
now face,
As all the excitement and energy is concentrated on the financial sector,
it seems to be forgotten that the crash started with "housing". (It was
actually land-values that caused the problem, but the neos are completely
ill-equipped to separate out the problem. Other than a small price
mechanism movement reflecting the bubble expansion, building improvement
prices did not increase -- see manufactured housing.)
As banks had foolishly been lending on collateral consisting of volatile
land-values, when land values collapsed so did their collateral. The
danger of using land-value as collateral has been known for a couple of
hundred years, but it hadn't penetrated the thick skulls of neo-classical
trained bankers.
Financial skullduggery was exposed by the crash. It didn't cause it, but
the antics of these idiots has gobbled up all the headlines. (It seems
these idiots were 'crazy like a fox'.)
Maybe a breakthrough is coming. I've seen reports of a couple of
economists who have discovered "space". They are saying that 'if we don't
take space into account then our conclusions may be invalid'. I don't know
whether they will get anywhere. They face an entire economics profession
which believes "space" is part of capital. But, we can be optimistic.
Harry
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
Keith Hudson, Saltford, England
<http://allisstatus.wordpress.com/2010/12/>http://allisstatus.wordpress.com/2010/12/
_______________________________________________
Futurework mailing list
[email protected]
https://lists.uwaterloo.ca/mailman/listinfo/futurework
