Shepheard-Walwyn will be participating in the Book Fair at the annual Rethinking Economics Conference at Greenwich University in London on the 27th-28th of June. This is the third annual conference that aims to inspire people to rethink the future of economics in academia, media and policy-making. For more details click here.
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A recent article (4th April) in The Economist stated that ‘The history of economics has been, among other things, a story of learning to care less about land’. Though not intended as such, this exposes a blind spot among current economists which accounts for the instability and inequitable distribution of income and wealth in the capitalist system.
In his Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith recognised three factors of production that combined to create wealth: land, labour and capital. At the time of writing, the economy was still largely rural so that the relevance of land was obvious, but with the advent of the Industrial Revolution, the provision of capital assumed much greater importance. The area of land required for a factory, office or bank was much smaller in relation to the wealth created than in agriculture. This created the impression that land was no longer such an important aspect of the economy and both Marxist economists and neo-classical economists largely thought in terms of a two factor economy of labour and capital, whose interests seem diametrically opposed, the situation we have today.
However, this is to misunderstand the role of land in the creation of wealth which has not changed and cannot change. How we use land changes over time, it is true, but no wealth can be created without land. To understand why, we need to appreciate that, in the context of wealth creation, land means everything nature provides free for the use of humanity: the earth’s surface, the minerals below the surface, the fish in the sea and today the electromagnetic spectrum. Without this resource, no wealth can be created. A measure of the importance of land is the high price paid for prime locations: a square metre of land in the City of London costs more than a hectare of prime agricultural land because it is scarcer and more productive.
The failure of modern economists to acknowledge the vital role of land in the wealth creation process lies at the root of the instability of the capitalist system and the great disparity in income and wealth distribution. It was the genius of Henry George to recognise that a tax, graded according to the market value of bare land, his land value tax, could not only resolve these weaknesses, but also provide the government with a secure source of income without needing to resort to a plethora of taxes which hamper wealth creation.
Conditions have changed since Henry George wrote Progress and Poverty in 1879, but the laws of economics have not. Several of the titles in the Shepheard-Walwyn Ethical Economics list explore how Henry George’s ‘remedy’ could be applied in the modern context. A New Model of the Economy explores the relevance to both macro- and micro-economic analysis of spatial location which gives rise to economic, or Ricardian, rent.
Instead of making supply and demand the starting point, The Science of Economics begins with the simple observation that all material wealth is ultimately derived from land, and, where goods are exchanged, the first requirement is trust, or a system of credit. From this starting point the major characteristics of the modern economy, such as banking, companies or corporations, international trade, taxation and trade cycles, are examined in terms of the conditions that govern how and why they evolved and how they operate today.
Public Revenue without Taxation shows how ‘the development of Keynes’ general theory of employment leads to the conclusion that an open trading economy is likely to be most competitive, and therefore most prosperous, only when taxation is abolished’. To explain how government can be funded without taxation the author refines Alfred Marshall‘s distinction between the public and private value of property to reveal an alternative, peculiarly public source of revenue.
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It was a pleasant surprise to find the first title in our Ethical Economics list being praised in a newspaper article in Malaysia over thirty years after its publication. The article in the Malaysian Daily Express was reporting on a presentation in Kota Kinabalu by an estate agent on investing in Australian property. The speaker told his audience “I wish I had known about the book entitled, The Power in the Land by Fred Harrison 10 years ago”. He went on to relate that in the book Harrison had explained the workings of a remarkably regular 18-year property cycle. Knowing the timing of the cycle could make all the difference between successful or disastrous property investment.
Based on his understanding of the property cycle, Fred Harrison accurately predicted In The Power in the Land, published in 1983, the timing of the 1990s crash from which Japan has still not fully recovered.
Armed with this knowledge, Harrison warned the incoming Labour government under Tony Blair in 1997 of the danger of a property crash in 2007/08. No notice was taken of this and Gordon Brown boasted at every budget, even in April 2007, that “we will never return to the old boom and bust”.
In Boom Bust: House Prices, Banking and the Depression of 2010, published in April 2005, Harrison again warned of a looming crash unless a tax reform were introduced. No action was taken and the inevitable followed and we are still suffering the consequences.
A third book in our list, The Secret Life of Real Estate and Banking, looks at the link between banking crises and property cycles in America over the last 200 years.
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The Church Times in London have made a selection of the 100 Best Christian Books. The editor writes: ‘Human progress involves assimilating the wisdom of past generations, and building on it.’
One of Shepheard-Walwyn’s titles, Christianity and Social Order, has been ranked 35th. This classic, published as a Penguin Special in 1942 and republished by Shepheard-Walwyn in 1978 with a Foreword by Edward Heath, Prime Minister of the United Kingdom 1970-1974, gives lucid and forceful expression to the views of the Archbishop of Canterbury, known as the ‘People’s Archbishop’ for the radical but constructive way he challenged the established orders. Discussing how to achieve a proper balance between the profit motive and service to the community, and between the power of the state and of the individual, he wrote: ‘The art of government in fact is the art of so ordering life that self-interest prompts what justice demands’.
‘It brings home to everyone of us the continuing importance of being able to rely on a body of principle by which our plans and our actions can be both motivated and judged. ‘
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On 25th September 2014 the Financial Times carried a leader, entitled ‘A British property tax that is fit for purpose’, commenting on the proposal for a ‘mansion tax’ proposed at the party conferences of both the Liberal and Labour Parties. It suggests ‘a more comprehensive solution would be to replace all these taxes with a levy on the value of land, remitted to local authorities. This longstanding idea is the preferred reform of the Mirrlees Review, a root-and-branch analysis of the UK tax system.’ To see more, click here.
The same issue carried a full page article by Robin Harding ‘Land of opportunity’, describing recent ambivalent evidence from America, and quoting from Winston Churchill’s speech during the 1909 election campaign after the House of Lords had thrown out Lloyd George’s People’s Budget which was an early attempt to introduce such a tax in Britain:
“Roads are made, streets are made, services are improved, electric light turns night into day … and all the while the landlord sits still … He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived.”
This tax reform is more than a tax reform. As Henry George explained in Progress and Poverty it is a means of tackling the mal-distribution of wealth and ending the property fueled booms and busts.
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On 4th August The Daily Telegraph carried an article by Andrew Sentance, a senior economic adviser to PwC and a former member of the Bank of England Monetary Policy Committee, arguing for a reform because ‘businesses and individuals are struggling to deal with an increasingly anachronistic and disjointed tax system’. The article concludes with a statement that ‘PwC is interested in the views of the public and business on the future of the tax system’.
In 1993 Shepheard-Walwyn published Public Revenue without Taxation which was written specifically to explore how a country could transition from the present outdated, unfair and inefficient tax system to one where energy and enterprise were rewarded.
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Over the weekend 28th-29th June a conference on ‘Rethinking Economics’ is being held at University College London. For programme and speakers see rethinkingeconomicslondon.org
Rethinking Economics is an international network of students campaigning for pluralism within economics, particularly the economics curriculum, which is, at present, heavily biased towards the methods of the neoclassical school. Rethinking Economics was launched with the 2013 conference, and brought together a number of smaller groups advocating changes to economics. Together, those groups, along with many others, produced the ISIPE open letter, calling for an overhaul of the way economics is taught.
Writing in the Real World Economics Association’s blog, Edward Fulbrook comments: ‘It is not only the world economy that is in crisis. The teaching of economics is in crisis too, and this crisis has consequences far beyond the university walls. What is taught shapes the minds of the next generation of policymakers, and therefore shapes the societies we live in.’
In 1994 Shepheard-Walwyn published The Corruption of Economics in which Professor Mason Gaffney charged his colleagues with using a theoretical apparatus that is fatally flawed. He accused the founders of neoclassical economics of acting in bad faith, bending the science of economics to protect vested interests. In this they succeeded, but in debasing their discipline, economists deprived themselves of the ability to diagnose problems, forecast trends and prescribe solutions.
The fact that ‘nobody saw it [2008 crash] coming’ suggests the accuracy of that charge. As long ago as 1983 Shepheard-Walwyn published The Power in the Land in which Fred Harrison, on the basis of a different economic model, warned of the 1990 crash and recession. Again in 2005 in Boom Bust: House Prices, Banking and the Depression of 2010, he warned of the 2008 crash which led to the ‘Great Recession’. The Depression was avoided by bank bailouts and quantitative easing, shifting the burden onto the taxpayer.
To avoid a repetition of these economic disasters, the students are to be congratulated for their initiative. We hope they will find food for thought in our Ethical Economics list.
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In 2010 international environment lawyer and activist Polly Higgins proposed to the United Nations Law Commission that Ecocide be made the fifth Crime Against Peace as a way of halting the degradation of the environment. In Eradicating Ecocide, she argues that our planet is fast being destroyed by the activities of corporations and governments, facilitated by ‘compromise’ laws that offer insufficient deterrence.
Under her proposal, a law of Ecocide would create a duty of care, a duty owed collectively by humanity to the Earth. She distinguishes between Trusteeship Law which is about putting the welfare of the beneficiary first, as distinct from Property Law which views the Earth as a tradable commodity. This requires a change in our values.
In her second book, Earth is our Business, she takes up the issue of a change in our values. The purpose of the Law of Ecocide is not to imprison those who offend against it, but to redirect economic activity from current practices towards a sustainable economy. To read more, click here.
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This was the headline of a report in the Guardian of a conference hosted by the Treasury in London ‘in answer to critics who argue that economists failed to spot the 2008 crash because they ignored the impact of financial markets and relied on outdated theories’.
Welcome as this is, the suggestion is that it is financial markets that undermine stability, but this overlooks an underlying cause of instability in financial market. This is the property market, more precisely the market in land. This was first noted in 1983 by Fred Harrison in The Power in the Land which revealed the cyclical nature of land markets in Australia, Japan, the United Kingdom and the United States, the pattern being so similar that it suggested the timing of the next crash was predictable. Having witnessed the repetition of the boom-bust pattern in 1989-92, Harrison felt emboldened in 1997 to predict the next peak in 2007 with the crash following in 2008. This prediction was reiterated in 2005 in Boom Bust: House Prices, Banking and the Depression of 2010. While a depression may have been avoided, this was at the cost of a massive taxpayer bailout and quantitative easing.
The Financial Times also commented on the need for a new economics in an editorial on 13th November. In a subsequent letter published in the FT, Brian Hodgkinson, the author of A New Model of the Economy pointed out that the failure to recognise land as a separate factor of production is a ‘key omission from current models of the economy’. As he spells out in his book, the ‘flat earth’ models economists employ are totally unrealistic because they ignore the huge influence of spatial location, which gives rise to economic or Ricardian, rent.
In Ricardo’s Law, Fred Harrison reveals how ignorance of the law of rent creates the perverse situation where low-income taxpayers fund infrastructure improvements that enrich the affluent. Whether the overhaul of the economic curriculum will take cognizance of this or not remains to be seen.
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In recognition of her work to create a new body of Earth Law, international environmental lawyer and activist, Polly Higgins, has been appointed to the Arne Naess Chair for Global Justice and the Environment at the Centre for Development and the Environment (SUM), an international research institution at the University of Oslo, which promotes scholarly work on the challenges and dilemmas posed by sustainable development. Previous holders of the Chair include James Lovelock and Stephan Harding.
In March 2010 Polly Higgins proposed to the United Nations that Ecocide be made the 5th Crime Against Peace.
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