The Counter-Enlightenment, its Economic Program - and the Classical Alternative By Michael Hudson (February 5, 2010)

The last few years have seen demoralized Social Democratic and Labour parties fall into disarray throughout the world. Retreating from the economic program that powered their takeoff a century ago, they have lost their traditional constituencies. Their golden age was an outgrowth of classical political economy from Adam Smith via John Stuart Mill to Progressive Era reformers advocating progressive taxation of land and other wealth, public infrastructure investment at subsidized prices, price regulation of monopolies, and public banking reforms to socialize the financial system.

Today, the parties of the left and even the centre have reversed the reform agenda advocated a century ago in the Progressive Era. They have endorsed a tax shift off property and finance onto labor and consumers; privatization of public infrastructure and enterprises; and deregulation of monopolies, above all that of banking and high finance. The result is an almost universal anti-government (and indeed, pro-rentier) model that leaves resource allocation and planning centralized in the hands of a financial sector that is being deregulated rather than steered along the social lines anticipated a century ago.

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... We are having a meeting of European Social Democratic parties next May to draft a common program. We plan to reintroduce the classical economic reform of the tax system.

I have seen no discussion of this in the press, except for my own write-ups in the Financial Times. There is a case of cognitive dissidence when it comes to structural financial and fiscal reform. Most people are not aware that there really is a workable alternative, and indeed one that was viewed for a century as being the free market alternative - a market free of unearned income and "empty" pricing. The problem is that students no longer are taught that economic thinkers have spent the last seven centuries discussing better modes of taxation, banking and pricing. They came to a similar conclusion, based on the ability to distinguish between economically necessary costs and income, and unnecessary costs. The aim was to complete what was viewed as the economic program of industrial capitalism: to throw off the remaining legacy of feudalism, above all the landlord class that used to be called the idle rich, but also predatory bankers. These two classes now have joined forces to become a new aggressive power - financial speculators unnecessary for the industrial economy to operate but actually are slowing it down.

The most important plank of our entire program concerns the tax system. ...

This is going to be the plank of our reform program - reforming the reformers - against which banks and the EU will fight most viciously. But fiscal reform must be a key element in financial reform, because the two forms of reform are symbiotic. By taxing the land, we are preventing its rental value from being capitalized into bank loans. Our aim is to lead bank credit to focus on actually creating new means of production, not simply bolstering the privatized market price of unproductive, extractive privileges and property claims.