#''capitalism''

Land shouldn't be seen as this "safe" investment, which grows over time with the progress of civilization. No other asset works like that. It ought not even be seen as an investment; if anything, it should be seen as a liability. That we have obligations when we take on the duty of landholding might come as a shock to some, but it is the only position consistent with liberty, and key to our success.

Given the fundamental nature of land, and access rights over it, unless the land question is taken into account, one of the primary consequences of any otherwise-positive economic reform, including the repeal of other special privileges, will be an increase in rent to landlords.

Inequality is dangerous to liberty, and can enable vicious feedback loops of rent-seeking, which sets the stage for corporatism on one hand and state socialist counter-reactions on the other. Vast fortunes should not be worshipped by those who love liberty. They should be looked at skeptically, and seen as a red flag that something is amiss. Most great fortunes are not the result of voluntary interactions in the market, but by direct or indirect state intervention on behalf of the powerful. The mother of all those privileges is land speculation.

Dan Sullivan:

Here is Locke’s essential statement, from Chapter 5, “On Property”:

Sec. 27: Though the earth, and all inferior creatures, be common to all men, yet every man has a property in his own person: this no body has any right to but himself. The labour of his body, and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided, and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. It being by him removed from the common state nature hath placed it in, it hath by this labour something annexed to it, that excludes the common right of other men: for this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good, left in common to others.

This emphasized text is called “The Lockean Proviso,” and Locke makes reference to it no less than 15 times in 28 paragraphs. (It is actually one of two provisos, the other being that taking up land and wasting it makes one a “spoiler of the commons” and vitiates his claim. Some neolibertarians do recognize this lesser proviso, which got far less attention from Locke.)

Most neolibertarians who cite Locke are oblivious to his main proviso, and those who begrudgingly acknowledge it try to reduce it to a meaningless absurdity by saying there most only be enough left to others at the time of the claiming.

Well, of course there is enough left to others at that time, or else someone else would have already claimed it. If that is all that Locke had meant, then he was dwelling on a meaningless triviality. However, an honest reading of Locke shows that he meant that his proviso continues to apply long after the claim, and Locke gives an example that clarifies this.

Sec. 34. God gave the world to men in common; but since he gave it them for their benefit, and the greatest conveniencies of life they were capable to draw from it, it cannot be supposed he meant it should always remain common and uncultivated. He gave it to the use of the industrious and rational, (and labour was to be his title to it;) not to the fancy or covetousness of the quarrelsome and contentious. He that had as good left for his improvement, as was already taken up, needed not complain, ought not to meddle with what was already improved by another’s labour: if he did, it is plain he desired the benefit of another’s pains, which he had no right to, and not the ground which God had given him in common with others to labour on, and whereof there was as good left, as that already possessed, and more than he knew what to do with, or his industry could reach to.

Here Locke clearly applies his proviso to land that has already been taken up, and says that the rival claimant should be denied because “there was [still] as good left, as that already possessed.”

In Sections 45-51, Locke acknowledges that this system (which was, in fact, the prevailing system under ancient Common Law) worked well enough until population growth made land scarce, and the use of money taught people that they could hold land in order that others would pay them to use that land, or would work on that land for the landholder’s benefit, which amounts to the same thing.

[Prior to the use of money] what reason could any one have there to enlarge his possessions beyond the use of his family, and a plentiful supply to its consumption, either in what their own industry produced, or they could barter for like perishable, useful commodities, with others? Where there is not some thing, both lasting and scarce, and so valuable to be hoarded up, there men will not be apt to enlarge their possessions of land, were it never so rich, never so free for them to take:...

That is, the homestead principle works fine prior to money, because nobody would rush to take up land in order charge others to work that land. However, with money, or what we would call a monetary economy, people will naturally take up more land and better land than they need, in order that someone else will pay them to let go of it. This is precisely where the Lockean Proviso becomes violated, and is also precisely where rent arises.

Speak Liberty NOW: OPINION: The single tax, a breakdown from an authority on Georgism

Pearlstein writes that we in the US are engaged in a “historic debate over free-market capitalism.” Maybe so, but “free-market capitalism” is a contradiction in terms. There are two reasons why the economic system is called “capital”ism rather than “laborism” or “landism.” First is that capital dominates labor. The second reason to call the system “capitalism” is to hide the role of land, so that people focus only on the conflict between workers and capitalists. The chiefs of finance and real estate are able to dominate because of their political clout. They obtain privileges from government in subsidies, limits on competition, and periodic bail outs. In contrast, in a free market, there is no domination, with neither subsidies nor imposed costs.

Pearlstein then says that if “markets” were providing prosperity for most folks, there would be no need for governmental intervention. But we don’t have pure markets. We have a mixed economy, with intervention into markets, so one has to first analyze whether it is markets or else interventions that cause high inequality, instability, poverty, and unemployment. Since pure markets are not given an opportunity to work, how can they be responsible for economic woes?

Critics of markets have asserted that stagnant household incomes and financial crises are the fault of a greater role for markets, when in fact, in the US and Europe, massive subsidies to real estate caused the recession, excessive government borrowing has caused the fiscal crises, and a governmental redistribution of wealth from workers to landowners has stagnated net wages.

I agree with Pearlstein that we should welcome the debate on economic morality. But we should use words that have real economic meaning, rather than propaganda terms. Any person who refers to “capitalism” other than with critical quotation marks contributes to the confusion. The critics of markets opportunistically use the term “free market” to refer to the mixed economy, and then use the term “capitalism” also for the concept of a pure free market. Hence they argue that “capitalism,” as the mixed economy, suffers from economic woes, and then jump to the false conclusion that “capitalism,” meaning the pure market, causes the problems.

A real debate should also unmask the role of land that hides under the label “capital”ism. Critics who speak of the “market’s” unequal distributions overlook the massive redistribution of income from workers to landowners, as taxes on wages pay for public goods that pump up rent and land values. Their call for higher taxes on the rich disregards the distinction between earned income from entrepreneurship and unearned income from governmental subsidies.

Fred Foldvary: Moral Markets and Immoral "Capitalism"

(Illustration via)

Also: Capitalism: A Brilliantly Confused Story:

"I believe that what we're seeing is the end of the European model of civilization; we're seeing the decline of a civilization, and it's reaching the tipping point, it's come to its end, it's exhausted. We all want to be rent-takers – we all want to live by having land values go up and up and up, which we can then put in our pockets without having to work for it – and enjoy good lives. But most of us want to live like that, and there are not enough people who are creating the rents. So, this is an impossible situation. It's just not possible for ordinary people like me who owns a home – I see my house go up in value, I think I'm very clever because I'm getting richer and richer every year without doing anything – but everybody wants to be like me. Not enough people want to work to create the wealth that creates the rents so that people like me can live without having to work. And that's an impossible situation. It has happened at least once before: The Roman Empire."

Some politicians like to use the slogan, “forward.” Sometimes it is more emphatic: forward!

But one may well ask, forward to what? Time and the current of events are always moving us forward already, so evidently the forward-seekers want to change the existing flow sideways. The slogan “forward” has often been used by those who seek greater state-imposed collectivism. As propaganda, “forward!” sounds better than “leftward!” or “towards ever greater statism!”

Several publications of socialist parties during the 1800's were titled “Forward.” Lenin continued this tradition when he founded the Bolshevik newspaper “Vpered” (or “Vperyod”), which is “forward” in Russian. German socialists had already published the periodical “Vorwärts,” and the German national socialists continued the use of the slogan. Several communist and socialist parties still use “Forward” as the title of their publications.

On April 30, 2012, “Forward” became a slogan of the presidential campaign of the Democratic Party, later enhanced with an exclamation mark. An editing war erupted in Wikipedia about the socialist roots of the slogan about deleting the socialist references.

The issue here is not about any political campaign, but the social concept of “forward.” Socialism is, first of all, a family of concepts. Some socialists seek greater statism, the control of society by the state. Other seek “social democracy,” whereby people vote on the major policy options. There are also socialists who seek to put the means of production, land as well as capital goods, in the hands of worker cooperatives.

Usually the “forward” thinkers seek, if not as an ultimate goal, then as the instrumental goal, a governmental control at least of the “commanding heights” of the economy: the financial system, the highways, education, medical care, and retirement pensions. Socialists seek strong controls on the remaining private production, and they also seek an equalization of wealth through a massive redistribution, with highly progressive taxation.

But the world has already experienced the results of “forward” policies in the failed economies of the old USSR, the China of the 1950s and 1960s, Cuba, North Korea, and Eastern Europe. The “forward” socialists seek a progression to the failed past. Of course they claim that their brand of socialism is different from that of the collapsed USSR, but the evidence of history reveals what was attempted in practice world-wide, even when it differs from hypothetical doctrines.

Even though American politicians who trumpet “forward” do not generally seek complete socialism, the greater interventions and state controls they do favor have been analyzed by many economists as ineffective and wasteful.

Instead of “forward,” a better metaphor may be “upwards.” Upward takes us to a higher place, and also to the origin of a flow such as a river. But how do we know which way is “up”?

We need to use a “Unified Field Theory of Social Policy.” A theory of “upward” policy needs to begin with ethics. The absence of a sound ethical foundation is the key flaw in most socialist thought, most of which does not even distinguish voluntary from forced human action. The optimal direction of reform has to be away from what is morally evil. The foundation for upward progress has to be a universal ethic that expresses the rules of natural moral law.

Next, a theory of upward progress requires a fundamental understanding of economic principles. The most important economic idea is precisely what is left out of almost all economics textbooks: the generation of land rent by the population, commerce, and public works of society. To that we add that land rent is based on the differing productivities of locations, and therefore that rent is an economic surplus that can be tapped for public revenue without harm to the economy; indeed the very collection of rent even enhances the economy.

But it is not enough to have this economic insight. Modern political economy studies how government operates, and concludes that our systems of mass democracy will not adopt the upward reforms prescribed by ethics and economics. Mass democracy requires mass campaign funds to pay for mass media. This inherent demand induces the supply of funds by special interests in exchange for the political clout that gives them subsidies. Modern economists ironically call these privileges “rents” without being aware that the greatest of all subsidies is the implicit generation of land rent by government’s public goods.

Therefore it is not enough to preach ethics and economics as though to a benevolent despot. A political movement to progress upwards needs to also include the reform from mass democracy to small-group democracy, where voting is decentralized to a human scale. Anarchists such as Bakunin have long recognized the principle of bottom-up voluntary association.

Our cultures have frequently looked up to the sky as heaven, and thought of downwards as the various versions of hell. People naturally seek to move up, and so “upwards” as a slogan would have great appeal, but it would only be worthwhile if we move up from a sound foundation.

Besides malnutrition, starvation, and epidemic diseases, farming helped bring another curse upon humanity: deep class divisions. Hunter-gatherers have little or no stored food, and no concentrated food sources, like an orchard or a herd of cows: they live off the wild plants and animals they obtain each day. Therefore, there can be no kings, no class of social parasites who grow fat on food seized from others. Only in a farming population could a healthy, non-producing elite set itself above the disease-ridden masses.

The Worst Mistake in the History of the Human Race by Jared Diamond

The fundamental cause of the boom-bust “business” cycle is the real estate cycle. The period of the real estate cycle has averaged 18 years. Since the previous peak in real estate in the USA was in 2006, the next peak, if the 18-year average holds, will be in 2024. The next depression would then follow soon after, most likely in 2026, 18 years after the Depression of 2008.

[S]ubsidies to real estate are the fundamental cause of artificial real estate booms. Since subsidies (rather than business as such) drive the cycle, it is better called the “interventionist cycle.” There are three basic subsidies to real estate: low interest rates, special tax reductions, and the generation of rent by government’s territorial goods.

The Federal Reserve has pushed nominal short-term interest rates down to almost zero, and has been keeping long-term rates low as it buys bonds with newly created money. The tax reductions for real estate continue as before: deductions for mortgage interest, property taxes, and depreciation; and exemptions and postponements of capital gains taxes. The biggest subsidy is implicit: the generation of land rent and land value by government’s public goods, paid for by taxing workers and entrepreneurs instead of land.

This gigantic redistribution of income from workers to landowners is the fundamental source of our economic woes, but it is hushed up in economic textbooks, and nobody talks about it or thinks about it. (“Nobody” here means “only the followers of the economist Henry George,” because to the public, they are nobodies.)

Politicians aware of this redistributive cause of economic problems dare not mention it, lest they lose their campaign contributions from real estate, financial, and lawyer interest groups. Even labor union leaders dare not speak of this redistribution, because if workers could keep their full wage, they would no longer anxiously seek to maintain labor union monopolies. And even the candidates of the “free market” Libertarian Party support the land-value subsidy and redistribution, because rent seekers are a major source of their campaign funds.

Thus political corruption, endemic in mass democracy, prevents the remedy from even being discussed. Georgists or geoists do talk about it, but they scare off potential allies with their misleading rhetoric of opposing the “private ownership of land,” instead of focusing on the force of governmental subsidies. Geoists do favor the private possession of land, conditional on paying a community rent.

At any rate, since “nobody” is even discussing the remedy for the boom and bust sequence, the good news is that real estate shall rise again, and pull up the economy into the next boom, but the bad news is that once again, the economy will crash. All the financial regulations and reforms will not prevent the next crisis, because they do not touch the fundamental cause, subsidy.

And most probably, the Crash of 2026 will be much worse than the Crash of 2008, because after the trillion dollar annual deficits, in the next crisis, the US federal government will be all tapped out, as it will no longer be able to pay the debt service, and it will no longer be able to borrow funds to bail out the real estate and financial industries, or homeowners. But you, dear reader, have time to prepare and brace yourself for the waterfall up ahead.

The Progress Report: Real Estate Forecasts 2012–2026 by Fred E. Foldvary