Econ-Atrocity Bulletins

(4/21/04)
By Alanna Hartzok, Co-Director, Earth Rights Institute

One day, while riding horseback in the Oakland hills, merchant seaman and journalist Henry George had a startling epiphany. He realized that speculation and private profiteering in the gifts of nature were the root causes of the unjust distribution of wealth. The insights presented in Progress and Poverty, George’s masterwork, launched him to fame. His policy approach was known at that time as the “single tax” - meaning that taxation should be shifted off of labor and onto the socially created surplus value of land and other natural resources. His message reached as far as the great Russian Leo Tolstoy, who was so taken with the idea that he frequently referred to George and “Georgism” in his novel Resurrection.

During the last 20 years of the 19th century George built an impressive populist movement bent on solving the problem of the wealth gap, and he died in 1897 while campaigning to be New York’s mayor. The “Georgists” were determined to free labor and all productive effort from the burden of taxation. Land and natural resources were gifts of nature to be fairly shared by all. The role of government would be to secure democratic rights to the earth for all people via the collection of resource rents, the surplus value accruing to natural wealth, which would be distributed in social goods, services or by direct citizen dividends.

But just as this solution to the rich/poor gap was gaining momentum, the Georgist movement was stopped in its tracks. Wealthy individuals poured their money into leading schools of economics to encourage the writing of treatises against George and the movements he had spawned. The ethical perspective that land is a common heritage and the policy approach of land value taxation were subsequently eliminated from the field of economics. The newly dominant theory focused on only two primary factors - labor and capital - with capital having the upper hand as “employing labor.” “Labor,” of course, is quite capable of self-employment given access to land. This is what the elites and the plutocrats feared most - that labor would gain full power to directly produce capital given conditions of equal rights to the resources of the earth.

Despite the elites’ success in mangling the science of political economy, the Georgist paradigm has had some influence over the years. The 1887 Wright Act in California enabled bonds raised by local irrigation districts to be paid from the increase in land values, resulting in a powerful and beneficial land reform, though this equitable and successful public finance approach was eventually undermined by private banking institutions. Now taxpayers nationwide subsidize the irrigation needs of agribusiness. Alaska’s state constitution vests the ownership of oil and other natural resources in the people as a whole and the state’s Permanent Fund distributes substantial oil revenue as citizen dividends to state residents. With no state income or sales taxes, Alaska has been the only state where the wealth gap has decreased during the past decade. This is essentially a Georgist paradigm approach, and surface land values and electromagnetic spectrum rent could be similar sources for citizen dividends.

Meanwhile, Georgist economics is again making steady progress. In Pennsylvania, eighteen municipalities, including Harrisburg and Allentown, have been revitalizing their local economies via property tax reform which shifts taxes off of homes and the built environment and onto the value of land sites. Movements for land value taxation are growing now in Scotland, UK, Ireland, South Korea and elsewhere, while Venezuela, Russia and other countries are pushing for greater resource rents from oil and mineral resources. Georgist economics is increasingly recognized as a key to economic democracy based on equal rights to the earth for all.

Recommended:

Mason Gaffney, Fred Harrison and Kris Feder, The Corruption of Economics. Shepheard-Walwyn Ltd., 1994.

Henry George’s books can now be read online. Hardcopies of his books, and those of other Georgist authors, can be ordered from The Robert
Schalkenbach Foundation (212-683-6424).

J.W. Smith, Economic Democracy: The Political Struggle of the Twenty-First Century. This excellent Georgist paradigm book can be ordered from The Institute for Economic Democracy (866-588-7445).

Kenneth C. Wenzer, ed. Land Value Taxation. M.E. Sharpe, 1999.

Georgist paradigm articles and links to other sites: Earth Rights Institute.

The Council of Georgist Organizations 2004 conference will be held in Albuquerque, New Mexico, July 21 - 25. For details: www.progress.org/cgo.

The International Union for Land Value Taxation conference is scheduled for May 27 - 30 in Madrid, Spain. For details: www.interunion.org.uk/.

Leo Tolstoy’s novel Resurrection can be read online.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.

By Geert Dhondt, Staff Economist

Madness surrounds all of us. Luckily the world is full of contradictions. While capitalism, barbarism and madness might seem all around us, so is its opposite, its negation. Thus, if we look hard enough we can recognize the new society in the present and we will be able to see the emergence of revolutionary possibilities. In the U.S., C.L.R. James was one of the first to clearly articulate the importance of independent Black struggles in creating these openings.

C.L.R. James was born in 1901 in Trinidad. In 1932 he left Trinidad for England where he immersed himself in the Pan-African and Trotskyist movements and worked as a cricket reporter. In 1938, on Trotsky’s request, he came to the U.S. to reinvigorate the American Trotskyist movement. By the time James was deported in 1952, he had broken with Trotsky’s conception of the Soviet Union as a degenerated workers’ state and developed instead a critique of state capitalism; he had broken with Lenin’s conception of the vanguard party and emphasized a different role for Marxist organizations and intellectuals; he also developed an important analysis of the role of independent Black struggle. Read more »

By Jim Crotty, CPE Staff Economist

The Keynesian economics that Paul Samuelson popularized in the United States after World War II was a sanitized version of the radical critique of capitalism offered by Keynes himself. John Maynard Keynes’s deep-seated attack on free-market economics led him to call for direct government control of the lion’s share of investment spending, industrial policy, a confiscatory wealth tax, strict control over cross-border financial flows and managed trade. But US “Keynesians” defanged his attack, arguing that if the government regulated interest rates and budget deficits, all other decisions could be left to market forces.

In the aftermath of World War I, the British economy experienced sluggish growth and high unemployment until war preparations began in the late 1930s. The conventional analysis of the time was that high unemployment was caused by high wages that priced British products out of the global markets they traditionally dominated. The conventional solution was to smash the
strong unions in these industries.

Keynes argued that the correct policy was for the government to initiate a large long-term program of government infrastructural investment. This would reduce unemployment not only through government employment, but also by the spending of the newly employed - the famous Keynesian “multiplier” effect that has puzzled generations of students. Focus on large-scale government investment was not just a post-war expedient for Keynes. He supported this policy until his death in 1946.

Keynes believed that free-market capitalism was subject to extreme instability primarily because business investment spending was inherently volatile. To build a factory, a firm must gamble that the future profits from the factory will more than compensate for its cost. But firms cannot know what future profits will be. As Keynes put it, “About such matters, we simply do not know.” Therefore, investment can only be based on hunches or guesses about the future, and these are profoundly influenced by waves of optimism and pessimism in market psychology. Boom euphoria leads to over-investment and excess capacity, while fear of loss in the downswing causes investment to plummet. Keynes considered stock markets to be “gambling casinos” whose instability only made investment more volatile.

Keynes thought that there were almost unlimited opportunities for productive state investment - in education, housing, transportation, utilities, health, culture and so forth. He believed that if the government could keep public investment on a steady growth path, this would provide a center of gravity for private profit expectations that would drastically lower private investment instability. In 1928, he proposed a “National Investment Board” to plan and control a massive investment program, arguing that “an era of rapid progress in equipping the country with all the
material adjuncts of modern civilization might be inaugurated which would rival the great Railway Age of the nineteenth century.”

In 1935 in The General Theory he said: “I expect to see the state … taking an ever greater responsibility for directly organizing investment.” In 1943 he argued that “if the bulk of investment is under public or semi-public control and we go in for a stable long-term programme, serious fluctuations are less likely to occur.” Keynes specifically rejected the idea that government should rely on changing interest rates and budget deficits to control instability, the macro policy attributed to him by Samuelson.

Keynes understood that capitalists and renters would be likely to ‘run away’ from Britain in reaction against his program, causing skyrocketing interest rates and plummeting investment. To prevent this, he called for an ironclad regime of government control of financial flows into and out of Britain, and saw to it that every country was given the right to control capital movements by the Bretton Woods Agreement that created the International Monetary Fund in 1944.

The economic prospects of the majority of people would be greatly improved if government policy followed Keynes’ more radical vision, rather than the timid version promoted in nearly all college textbooks.

Reference:

Jim Crotty. “Was Keynes a Corporatist: Keynes’s Radical Views on Industrial Policy and Macro Policy in the 1920s,” Journal of Economic Issues, September 1999. [pdf]

Keynes’ most famous book, The General Theory of Employment, Interest, and Money, is available online.

(c) 2004 Center for Popular Economics

Econ-Atrocities are a periodic publication of the Center for Popular Economics. They are the work of their authors and reflect their author’s opinions and analyses. CPE does not necessarily endorse any particular idea expressed in these articles.