What the Plutocrats Don't Want You to Know: Washington Post Response

I’ve been very excited the past few days to see so many great articles published in big name journals in reference to what I see as the most fundamental issue facing our planet. How do we divide our natural “wealth”, i.e. natural resources, and our (wo)man made wealth? The way we collectively answer that question has broad implications, not only for banking, the next economic crash, wealth inequality, and the environment, but also for armed conflict. The key concept authors of these articles finally seem to be processing is that of “rent” and those who participate in rent-seeking, rentiers. In How an anti-rentier agenda might bring liberals, conservatives together” published in the Washington Post, Mike Konczal states:

“Throughout the late 19th century, the political economist Henry George argued that a main reason there was so much poverty amidst prosperity was the large presence of people collecting unearned income, or what he called “rents”. His particular focus was on land, and his solution was taxes. It’s difficult to overstate his influence on turn-of-century reform movements, providing both the theoretical basis for those looking at other problems in the new industrial era and a concrete set of solutions for organizers building new mass political movements”.

Prior to Henry George, David Ricardo and John Stuart Mill were particularly adamant that the rent paid for access to land was an unearned value and that it came at the expense of productive activities. Think of a small shop owner who must pay part of their earnings out as rent instead of purchasing more inventory or employing people. It was John Stuart Mill who originally called the increase in land value, and thus the rent or sales price that is charged for more valuable land, the “unearned increment”. This is because the value of land is created by factors such as the natural fertility of the soil, government services and infrastructure, and the productive activities of the community that surrounds a particular plot, not the individual landlord.

The word “rent” has a very nuanced meaning in economics, and varies widely in usage. Originally, it meant what you and I call rent, the cost of renting space, a plot of land with perhaps a house on it. Early political economists like Adam Smith, Thomas Malthus and David Ricardo felt the need to divide rent into what tenants pay for land (land rent) and what they pay for improvements, such as buildings (building rent).

Ricardo and Malthus fiercely debated over whether land rent was earned. Ricardo believed it was not, and it was Ricardo’s arguments that generally won out in the public sphere, at least with respect to the Corn Laws. Political economists generalized the meaning of rent to all natural resources, simply referring to them as land, one of two critical elements for all production; land was and still is the means of production.

A great amount of effort was exerted by neoclassical economists, especially John Bates Clark, to organize a stratagem against  Henry George’s ideas, to obfuscate the importance of land and the political economic definition of rent. As a result, even well meaning contemporary economists often do not use rent synonymously with land rent (i.e. natural resource rent) or even imply that all rents are unearned. There is a lingering perception of rent as unearned, but it has been loaded with linguistic baggage. Therefore, we must begin the task of dispossessing  the public of such deceptive language. A rent is simply the economic value of a natural resource.

The following quote from Konczal’s article makes me somewhat apprehensive because he uses such a loose definition of rent, coupled with the implication that we should tax it as per Konczal’s definition,  will be seen as a “slippery slope to socialism”. Regardless of one’s view of socialism, Konczal’s proposal is unnecessarily divisive. If the left wants to gain broad support for taxing rent, JS Mill’s “unearned increment”, instead of taxing hard work, it should not muddle rent’s meaning so as to advocate for proposals that the right has not and will not support. Taxing rent should not be associated with redistribution. Taxing rent achieves pre-distribution so that wealth goes to those who truly produce it from the start.

“Here again the left and the right will likely break. Historically, the right views inheritance as the right of the bestower to give something, or for people to do whatever they want with their property. However liberal reformers have viewed inheritance as an issue related to the right of the recipient to receive something. What could be more of an “unearned increment,” or unearned and undeserved rent income, than someone just happening to be the child of a rich person?”

WC

Instead of trying to sort out who should receive,  what may or may not be, the ill-gotten gains of the deceased,  let us ask how unearned wealth was obtained in the first place. Useless rich people like the real estate mogul Donald Trump, rich bankers, and others in the FIRE sector are exorbitantly rich because they bet on the rising value of real estate, the rising value of land. The other breed of fat cats are the war profiteers, who trade blood for oil rents.  We need to stem these rents at their source, not after the rich are already dead. That’s just letting them off the hook.

 

Let’s eschew muddling our definition of rent, the value of our natural resources. Land rent is sacred and deserves much the higher consideration than the other so called rents. We have a lot to gain by not simply using alternative words to describe proposals which only rehash the same tired debates. This is what the plutocrats want, to confuse the real issues, to draw attention away from the true source of privilege, who owns the earth.

The inheritance tax would be a non-issue if we were to simply employ all of the taxes that are clearly beneficial and get rid of the ones that are clearly harmful. We could easily raise excess revenue by “taxing bads not goods”. Beneficial taxes are those on natural resource use and abuse: land, oil, and diamond rents for example, as well as pollution taxes, soil depletion taxes, congestion pricing, frivolous plastic use charges, etc. There’s no need to squabble over what people do with their earnings after they die, so long as they actually die with honest earnings.

 

 

 

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One Response to What the Plutocrats Don't Want You to Know: Washington Post Response

  1. Pingback: On Rent | Work and Wealth

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