A few weeks ago the chief economics commentator at the Financial Times in London, Martin Wolf, penned an excellent article called ‘The Case for a Land Tax is Overwhelming’.
Here’s an excerpt:
‘I have long been a supporter of taxing land value. Such a tax would be economically efficient and morally just. But it has been politically impossible: the landowning interest, which now includes a large part of the population as owner-occupiers, has been too strong. This is a tragedy.
‘Now that western politicians are struggling with low growth, stressed public finances, high inequality, intergenerational tensions and an unstable financial system, they need to consider such a fundamental change in what is taxed.
‘The idea of taxing the rental value of land is most closely associated with the 19th-century American Henry George.
‘But Adam Smith, David Ricardo, James Mill and his son, John Stuart Mill, all shared the same view.
‘Thereafter, foolishly, economists began to incorporate land (which includes all non-produced natural assets) into produced capital. This then led to the neoclassical “two factor” models of the economy, which are grossly misleading.
‘As a result, taxes on land were increasingly considered in the context of taxes on wealth, even though natural resources are quite different from the capital stock created out of effort and foregone consumption.’
The core thesis of the economists mentioned in Martin’s article — Henry George, Adam Smith, James Mill, and John Stuart Mill — was to tax the economic rent of land and eliminate all other destructive taxes that fell on income and productivity.
You need to grasp the economic sense behind this, to truly understand why we have a land cycle, and why it repeats in the same sequence, and the same pattern, over and over.
In his magnus opus, Progress and Poverty, Henry George painted a vision of a world where poverty (and the land cycle) would be eradicated, and progress could be made without creating economic inequality through such changes to the tax system.
George’s central idea was that land, which he defined as any natural resource, is the common heritage of all humanity.
Its value is created by the entire community rather than by any individual owner.
Therefore, the economic rent generated by land should be collected by the community rather than by private individuals or corporations.
So dangerous were George’s ideas to the elite that vested interests set about eliminating his thesis from economic history through an amply funded plan to suppress the knowledge that landowners were ‘reaping what they did not sow’.
Economists Mason Gaffney and Fred Harrison detail the process clearly in their book, The Corruption of Economics.
It’s a must-read.
The device used was brilliant.
The classical economics tradition was recast!
The three factors of production (land, labour, and capital) were taken down to just two — labour and capital.
‘Land’ disappeared from the economists’ view.
It became a subset of capital.
When we talk about increases in the value of land today, it is termed ‘capital gains’.
The definition of capital was widened to include almost anything!
Real capital — as understood by the classical economists — was all ‘man-made’ produced items, such as machinery, factories, and computers. In other words, the goods and services that make up the ‘real’ economy.
These are items that depreciate in value with wear and tear.
Today, however, the definition of capital also includes land.
Land does not depreciate.
In populous regions, land appreciates as cities expand and grow with technological development.
And because land is fixed in accessible supply — it absorbs the gains from economic progress (or rather, the landowners do).
If you cannot see the land and thus separate its value from labour and capital, you will never see the economy for what it really is — a land-owning monopoly.
Therefore, after reading Martin’s excellent analysis, I reached out to him for an interview.
The timing was good.
Martin has just released a new book, The Crisis of Democratic Capitalism.
In it, he argues that capitalism has become distorted by monopolistic interests, leading to a corruption of democratic processes.
He warns that unless we address this problem, our economies and societies will break down — and worse still, we could be ‘sleepwalking into war’.
It is a theme that I discussed with both Fred Harrison and David Murrin, and from what I can assess, Martin’s analysis is sympathetic to their views.
Furthermore, Martin Wolf is a man who truly understands the complexities of the modern economic landscape.
As the son of Jewish migrants who survived the Second World War, his experiences have influenced his outlook and advocacy for change.
Martin is passionate about creating a more equitable society, and his insights into the current economic landscape are invaluable.
This is a must-watch interview.
We covered topics that you won’t see Martin elucidate on elsewhere.
In the interview, we discuss:
- The history of how we evolved from a feudalistic society, where land ownership was monopolised by the aristocracy, to today’s society, where individual ownership of land props up parasitic financial plutocracies
- We talk about the corruption of economics — how the consequence of destructive tax and financial systems have eroded democratic societies
- I question Martin on his analysis of the rise of China and the potential for war
- We briefly discuss the work of Fred Harrison and the land cycle, and Martin’s view of the timing
- We touch on Martin’s background to give some context of why he feels that we’re seeing similar patterns today to those that formed before the Second World War
- All this and much more!
I truly hope you enjoy the interview as much as I did.
Martin is a man with a wealth of knowledge and experience — it was an absolute pleasure to interview him.
Editor, Land Cycle Investor