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The LVTC blog, by Henry Law

The comments in the LVTC Blog are a personal view of our Hon. Secretary Henry Law and do not necessarily reflect the official policy of the Campaign.

This is a place for personal observations and comments on politics, economics, current affairs, on-going discussions on the potential for LVT to remedy some of the current ills, and the impact on Society of any of the above. 

Please read and enjoy, and feel free to respond to Henry if you have any thing you would like to add.


Economics is a science

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One point of view that has surfaced widely since the boom-bust of 2008-2010 is the assertion that economics is is not a science. In the light of the failure of mainstream economists to predict the course of events, it is understandable that a lot of people should come to this conclusion. The view was summed up by a commentator thus: It is not a science because of the steps of the "Scientific Method... To say there "seem" certain laws at work doesn't prove that there "are" certain laws at work. That is it in a nutshell. You can chose to end reading there.

The arrogant tone of the comment is unfortunately a feature of contemporary discourse. Even a cursory observation sugggests that there are regularities. This can be seen in any street market. The prices of things do not fluctuate wildly and inexplicably. Wages seem to find their level. Real interest rates seem to find their level too. Land prices and the associated economic cycle seem to be subject to a remarkably consistent and regular 18 year periodicity which can be traced back for a couple of hundred years. Land vaues follow a coherent pattern which can be correlated with factors such as the presence or otherwise of transport infrastructure. It is reasonable to infer that causality operates. It is further possible to test hypotheses, for example by collecting further data and also by studying the effects of different fiscal policies and the construction of new transport infrastructure. Similar relationships can be discovered in relation to other interventions or the absence of interventions.

Relationships and regularities do not of course imply causality, nor do they make it possible to establish which is cause, which is effect, or whether there are common causes or other causes which lie behind what is observed. One might, for example, note that there is a correlation between the styles of hats that people are wearing, and how prosperous they are. At that point it is necessary to put forward hypothesis and test them.

Over the centuries and in different societies there have been economies so different that careful examination of how they functioned will yield the kind of information that in the physical sciences would come from laboratory experiments in controlled conditions - the most notorious of these being the Marxist economies on the one hand and the strange faux-libertarian economies that are currently emerging around the world.

All tihis indicates that, taking the economy overall, there are guiding laws in operation which are, in principle, discoverable, even though precision is lacking. Most phenomena in the sciences are not repeated with a reliability of 1%, which is in any case often more than the method of observation makes possible. Admittedly, too, people have different motivations and preferences,  but on the large scale,  their actions add up to a coherent picture. In practice, too, individuals and organisations have a more or less realistic understanding of the way the system operates. Thus, any street beggar knows that they will get more if they sit outside a busy shop than if they put themselves in the middle of a quiet park where they will have only the birds for company. In that respect, economics is not so very different from the biological sciences.

The alternative view implies an absence of regularity and causality. From this, it would follow that

  • That nothing is knowable about the subject
  • That any interventions eg through legislative and fiscal policy, are pointless, because their effects are completely unpredictable.
  • The same pointlessness applies to any commercial decisions.

If there were no regularities in economics, people would have no idea whether they were paying, or being paid, the right price for anything. Manufacturers could not plan their production. Businesses would not know what how much, and what stock to order, and what to charge for it. We all work on the assumption that there world of economics is rational. It isn't always, but in the world of economics people do not knowingly give away things for less than they know, from previous experience, that they are worth. The assertion that economics is too complex to be a science is analogous to saying that it is not worth trying to learn to swim in the sea because the sea is too chaotic for the mind to apprehend.

 

Piketty has got it wrong

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"Capital in the Twenty-First Century" by the French economist Thomas Piketty, is now coming to wider public attention following its publication last year. According to Wikipedia, "The central thesis of the book is that inequality is not an accident, but rather a feature of capitalism and that these excesses of capitalism can only be reversed through state intervention.

The book thus warns that unless capitalism is reformed, the very democratic order will be threatened. The trend towards higher inequality was reversed between 1930 and 1975 due to the two world wars, the Great Depression and a debt-fueled recession, which destroyed much wealth, particularly that owned by the elite. These events prompted the governments to undertake steps towards redistributing income and the fast economic growth meant that inherited wealth had its importance reduced.

Picketty suggests that the world is returning towards 'patrimonial capitalism', in which much of the economy is dominated by inherited wealth and that their power is increasing, creating an oligarchy." To reverse the trend, Piketty proposes a global wealth tax and a top rate of income tax of 80%. From our own perspective, rooted in the ideas of Henry George, we recognise the trend but do not accept either the analysis nor the proposed remedy.

The deficiencies with Piketty's analysis begin with definitions. What exactly are Capital and Capitalism? Which features of Capitalism are causing the problems that he is concerned about? And if wealth is to be the subject of a tax, how is it even to be defined?

Read more...
 

A long sorry tale - UK economy since 1945

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Article in FT by Samuel Brittan. A potted history that reflects no credit on the politicians involved, nor on the officials who advise them, nor on the academic world that propagates the theories on which their policies are founded and justified.
 

Britain's dysfunctional housing market but don't mention LVT

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There is something profoundly wrong with our housing system: demand and prices continue to rise yet supply does not, largely due to the development process. In this article, published today for the London School of Economics, Toby Lloyd argues that any serious attempt to address the housing crisis must include measures to change the land market, allowing those who want to build to buy land at a low cost.

It is a concise but penetrating analysis and the author comes up with a few proposals. LVT is not one of them. Since Toby Lloyd, director of Shelter, knows all about LVT, would it be paranoid to suggest that he might have been told not to mention it? There is something fishy about Shelter, which has never spoken for LVT even though the people there must by now be aware that LVT is an essential component of any solution.
 

Crap on stilts

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I was recently asked if crap on stilts is wealth? It may be, but only if someone wants it. Putting the crap on stilts is a work of  human labour, which is part of the qualification for falling into the category "wealth", but the product must still satisfy someone's desire. As crap is good fertiliser, this is the case, so yes, it probably is.

Crap was at one time the subject of a major industry. Sea-bird crap from Chile, known as guano is rich in nitrogen, phosphorus and potassium. It was widely used as a fertiliser in the late nineteenth century. As supplies seemed likely to run out, scientists searched for ways of producing artificial alternatives, and the result, in 1907, the German chemist Haber developed a process which used ammonia, a readily available inorganic chemical. This proved very handy as it made it easier to manufacture nitric acid, an essential raw material for explosives, just in time for the First World War. Potassium and phosphorus are, however, elements less easily replaced; phosphorus in the form of phosphate rock is not particularly common and with increasing consumption, there is concern about future shortages.

To return to the original question: crap in its natural state is not wealth until someone shifts their arse and starts to shovel it off the ground. It is wealth once it has been loaded onto trucks and is on its way to its final destination as fertiliser. If you own the land where the guano is sitting, you are wealthy because you can charge other people for shovelling the shit which is there and thus have a claim on the wealth they have produced through their work.

 

Pope Francis sloppy on economics

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Evangelii Gaudium, the Pope's first major publication, is an "exhortation" rather than an encyclical, so it does not carry the same weight. Which is just as well. The economic analysis is sloppy. It contains nothing of interest and offers no direction. Even Leo XIII's Rerum Novarum is better, for all its shortcomings. Why didn't the Pope go back to the previous body Catholic Social Teaching and build on what has been said there? Benedict created a fresh starting point with Caritas in Veritate. That needs to be developed. It seems unlikely that this will happen under the current regime. The present pontificate has not been characterised by intellectual rigour, which is surprising considering that the Pope is a Jesuit, an order with a tradition of academic solidity.
 

Royal Mail privatisation or property giveaway?

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Royal Mail had a large sorting office slap in the centre of Brighton. The building was put up in the 1930s and the work inside went on day and night. In the days when the mail went by rail, it was a good location, a couple of hundred yards from the station. But for those who lived nearby, it was a bad neighbour, since it generated a huge volume of traffic, often carelessly driven. In the late 1980s, it was modernised with new sorting equipment, but soon after, the sorting process was moved to a new centre at Gatwick. The building was then reduced to the status of a distribution centre and most of the property was virtually unused. A prime development site, it could have been sold and the operation moved to a shed in an industrial estate on the edge of town. But it languished, rising steadily in value until the latest crash. The same story can be told all over the country, but the potential for cashing in was always there. Now that Royal Mail has been privatised, the profit will no doubt be taken.

The public sector utilities have shown themselves to be as addicted to land hoarding as the house builders with their land banks. As with British Rail, what was being flogged off as part of Royal Mail was a massive property portfolio. This has been the subject of a study by law firm Clifford Chance. We now know that this particular item of family silver has been disposed of to the in-crowd in the City for a fraction of its real value. The taxpayer has been the loser yet again.
 


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