Harry,
Ever since FW has been in existence you and I have battled over the
validity of Henry George's economics (even though I agree that a
Land/Property Tax would be the best possible of all taxes).
You say that of the three classical factors of production, Land,
Labour and Capital, the first is unique because its supply is limited
-- "They don't make it any more" -- and, therefore, landlords can
charge rack-rents. But it has only become limited in relatively
recent decades due to world overpopulation. (Huge desert regions
can't be farmed due to lack of rainwater; huge rain forest regions
can't be farmed due to thin, easily-exhausted soil.) But this is true
of the other two also. When labour is thin on the ground, workers can
charge rack-wages. When capital is thin on the ground (as now) those
who have it can charge rack-interest rates.
Keith
At 18:00 08/09/2012, you wrote:
Arthur,
Before heading off to the Pacific NW for three weeks, I sent this to you.
Doesn't appear to have arrived.
Here it is again
Harry
---------- Forwarded message ----------
From: Harry Pollard
<<mailto:[email protected]>[email protected]>
Date: Fri, Aug 17, 2012 at 6:24 PM
Subject: Re: [Futurework] Arthur's 2nd belief
To: "RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION"
<<mailto:[email protected]>[email protected]>
Cc: Keith Hudson <<mailto:[email protected]>[email protected]>
Arthur,
There was a time when economics was easy, or as they once called the
study - Political Economy - was easy.
Labor (human exertion) produced material products (with exchange
value) using Natural Resources (called 'Land') and Capital (material
products not for consumption but to take part in production - such
as tools, factories and suchlike).
From the final product, "Interest" had to be paid for the use of
Capital, "Rent" had to be paid for the use of Land, which left the
rest as Wages for Labor.
The market worked very well for Labor and Capital. Supply and demand
operated well for both of them. Meantime, Labor was happy to pay
interest for Capital for the use of Capital multiplied his
production. Borrowing Capital was a good deal.
Land was different. The highest Rents are in urban locations and
they are directly related to locations, so let's use locations to
stand in for the Classical term land.
Labor needs a location on which to work. The Rent of a location
measures the worth it adds to the production of Labor. If Labor pays
the free market Rent for his location, he loses nothing from his
wages. He gets back the same value as he pays.
But, unfortunately, location Rents are not controlled by the free
market price mechanism. Demand is continuous but the supply of
locations is limited. The holders of locations are not required to
supply their locations. There are many good reasons for not selling
or releasing them for use (both economic and psychological)!
A location is likely to increase in value with an advancing economy.
Better to cover it with blacktop and call it a parking lot than lose
this potentially very valuable piece of property.
There are only so many useful locations. We now have all we will
ever have. As Will Rogers succinctly put it "They ain't making no more dirt."
The locations may be split, or combined, or some wet ones may be
dried out (that's called 'making more land'), but the total ampount
remains the same. Also locations can't be moved. We can't bring into
central Los Angeles some cheap desert locations to compete with the
enormous downtown land costs.
Demand needs supply if a market is to do its job effectively, but
modern society is encumbered by enormous amounts of productive but
unused or underused land - locations that remain pretty stagnant.
In response to demand, the price mechanism raises price in order to
attract supply to market, but adequate supply of locations doesn't
come and location costs go up and up encouraging even greater
reluctance to sell among landholders.
Theoretically, prices will rise until on working locations any
further rise would stop production.
At this point, Rents are no longer a measure of the worth of a
location to its user. They have become rack-rents - the most that
can be squeezed from a tenant.
Where does this extra "rent" come from? It can only come from Wages
and those at the bottom of the wage pyramid will be forced down to
subsistence levels. As rack-rents press down, at the bottom are the
people who easily fall sick, who live in overcrowded and substandard
accommodation, whose outlook is close tohopeless.
Except for some premium wages, all wages above the lowest are
determined by those at the bottom
So let's give the poor some welfare.
All that happens is that rack-rent will rise to sop up the increase,
so more will soon be needed - which disappears into rack-rent.
This is why last year's welfare is never enough this year. Needless
to say, government inspired brilliancies like monetary inflation
don't help, but the constant pressure of rising Rents keeps a large
part of workers constantly in trouble.
Churchill told the story of Southwark Bridge in London. Each day,
workers who lived south of the Thames had to cross it to get to
their work in the City. It cost them a penny a day toll charge to
make the trips across the bridge 6 times a week.
A group of good people bought the bridge and ended the toll charges.
As Churchill said, in a very short time Rents on the south side of
the Thames had increased by sixpence a week.
So we know why distribution of wealth is anything but equitable.
How did the economics profession deal with this?
They removed land from its separate function and made it part of
Capital. How something that was here before we were can be mixed in
with tools, machines. and factories, that wouldn't be here without
humanity beggars description.
Then, they broadened the meaning of rent and removed it from its
sole meaning as a value that attaches to land.
Now it becomes evident why the land-value bubble and crash (for
that's what it was) was beyond the comprehension of most economists,
who called it a "housing problem". Also. why banks accepted volatile
land-values as a large part of their collateral when making loans
(something that never should be done).
Sorry this is long, Arthur, but going back to those basics must be
the first step in getting out of the mess we're in.
Don't bet the farm it will happen!
Harry
\\\\\\\\\\\\\\
On Thu, Aug 16, 2012 at 9:53 AM, Arthur Cordell
<<mailto:[email protected]>[email protected]> wrote:
Hard to know how or when a more equitable distribution will
occur. Will it be peaceable? We hope. But can't be sure. The
longer the gap exists and the greater the gap and the greater the
gap is "perceived", the less likely we are to see a peaceable
outcome. Who knows.
Arthur
From:
<mailto:[email protected]>[email protected]
[mailto:[email protected]] On Behalf Of Keith Hudson
Sent: Thursday, August 16, 2012 9:19 AM
To: RE-DESIGNING WORK, INCOME DISTRIBUTION, EDUCATION
Subject: [Futurework] Arthur's 2nd belief
At 21:17 15/08/2012, Arthur wrote:
2. That we have not solved the distribution problem.
Agreeed . . . but . . . Because we have differentials in wealth and
incomes thrown at us repeatedly in the media, we are much more
sensitive about this matter than ever before in history. The wealth
disparity between the very rich and ordinary folk today is far less
than, say 100 years ago when Carnegie owned most of the steel
industry of the US, Rockefeller most of the oil industry of the US,
and Ellerman half of the shipping industry of the whole world. Go
back 200 or 300 years then the great landowners of Europe were
relatively richer still. One family in Poland owned half the
countryside of Poland!
Wealth only becomes more widely distributed when new power groups
muscle their way into the top layers of society and government and
force existing wealth to be shared. The latest group to do so in
Western countries has been the investment bankers. There are signs
that their power is now being challenged. At the present time it's
impossible to say what might be the next power group. Suffice it to
say that a much fairer distribution of wealth will not be
accomplished until the bulk of a country's children have as good a
nursery experience and education as the best quality private
establishment which, at present, produce the wealth making groups.
Keith
Keith Hudson, Saltford, England
<http://allisstatus.wordpress.com/>http://allisstatus.wordpress.com
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Keith Hudson, Saltford, England http://allisstatus.wordpress.com
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