Tue Jul 13th, 2010 at 06:47:28 AM EST
Last week there was an excellent - if somewhat restrained by his standards - article by Professor Michael Hudson in the FT calling for the re-basing of the system of tax away from earned income and on to unearned income, particularly from land.
This was followed the next day by an article by Martin Wolf - the FT's most senior economic journalist, and a regular at the Bilderberg gathering. Wolf wrote of the role of land prices in 18 year economic cycles, and referred approvingly to the journalist Fred Harrison who predicted the property crash in 2005.
Property cycle: bust will follow boom - but when? - MoneyWeek: August 5th 2005
Many think that the global real-estate bubble has nearly run its course. Fred Harrison disagrees. He thinks it has another three years to run. Here he tells us why.
Wolf went on to convincingly make the case for a tax on land rental values and followed up today with an FT Diary post which demonstrates that he understands the case made by Mason Gaffney of the Corruption of Economics Neo-classical Economics as a Strategem against Henry George
NB: For those ET'ers unaware, Henry George was a proponent of what he called a 'Single Tax' on land values, and was for a time the second best known political figure in the US. His book 'Progress and Poverty' sold in the millions.
Wolf followed up today with this Diary post
Why were resources expunged from neo-classical economics? | Martin Wolf's Exchange | FT.com
Something strange happened to economics about a century ago. In moving from classical to neo-classical economics -- the dominant academic school today -- economists expunged land -- or natural resources. Neo-classical value theory -- based on marginalism and subjective valuation -- still makes a great deal of sense. Expunging natural resources from the way economists think about the world does not.
In classical economics, land, labour and capital were the three factors of production. With neo-classical economics, the standard production function had just two factors of production: capital and labour. Land -- by which we mean the totality of natural resources -- was then incorporated into capital.
All thinking about the world involves a degree of abstraction. Economics has taken this principle further than any other social science. This is a fruitful intellectual procedure. But it is also risky. The necessary process of abstraction may end up leaving essential aspects of the world out of the analysis. That can be intellectually crippling. I believe that that is exactly what has happened, in this case.
The idea that land and capital are the same thing is evidently ludicrous. It requires us to believe that the economic machine is self-sustaining -- a sort of perpetual motion machine.
I can see the objection that natural resources are necessary for the operation of capital and labour. Thus, the distinction between land, labour and capital is hard to draw. I agree with this. But there are two responses: first, from the point of view of economics, resource scarcity may mean diminishing returns, which are economically important; second, some natural resources are not appropriable and can be treated as free (sunlight, for example), but others are indeed appropriable.
Thus, for both economic and political reasons, we should put natural resources into the heart of economics, thereby remedying a neoclassical mistake.
Wolf is too charitable: this mis-classification was not a 'mistake' - it was a purely ideological distortion. As Gaffney said, this was the 'Corruption of Economics'.