- Why does poverty still beset a large number of people, whilst others are grossly well-off?’
- Why are house prices continuously rising much faster than inflation?
- Why do the majority of workers find themselves as employees in jobs that give them little real sense of fulfilment?
- Why is a multi-national coffee shop franchise not actually making its money from coffee?
These questions have confronted developed economies in varying degrees for decades without resolution by governments of the right or left. It is the failure of economics, the author argues.
Economists have long asserted that three factors of production, land, labour and capital, lie at the root of their subject. Yet in the development of the subject into theories and practical applications there has been a thorough analysis of labour and capital but a grievous omission of the factor of land. This is reflected in the minimal place it holds in modern textbooks, in popular discussion and political debate. Much of the argument about major issues, like industrial policy, the distribution of wealth and income and government policy reverts to a polarised struggle between two antagonists, labour and capital. The third factor, land, hides in the background unacknowledged yet exerting a major influence on the outcome of the whole economic process.
For example, house prices have risen continuously at a rate well in excess of the rate of inflation, causing difficulties for new buyers, creating serious problems in the mortgage market, and profoundly changing the distribution of wealth between generations and between regions. Yet what is called the ‘house price’ is really a combination of land price and building price. These two prices operate quite differently and require quite different approaches by policy-makers. The impact of this error upon the economy is serious.
The author suggests there are three reasons why this lacuna in economic thinking has come about. Firstly, the land enclosure movement in Britain took place over a long period, reaching its peak in the early nineteenth century, by which time little land was left for public use and access. Private claims on land, particularly those of the major enclosing landlords, but also of all others who came to regard a piece of land as absolutely ‘mine’, developed vested interests. They preferred to ignore the older tradition of land as communal property to be used by individuals under conditions that took account of the interests of others. This absolute claim on land now extends to large commercial companies, including foreign ones, and crucially to the ownership of urban land, in which over fifty percent of the population now have a vested interest.
Secondly, economic thought developed on lines that seemed to justify the growth of such vested interests, whilst theoretical reasons appeared to support the omission of land from most of the analysis. It was no coincidence that as the private enclosure of land grew, alongside it grew a theory of supply and demand that only employs the concepts of labour and capital, and later a theory of macro-economics that treats the whole economy as producing and consuming in a landless environment. When land gets mentioned at all, it is usually treated as capital. The consequence of this egregious sleight of hand will be examined.
The third reason for the omission of land from economic thought is that as urbanisation developed, following land enclosure, the general awareness of the presence of land became gradually attenuated. How often do people in cities realise that they are living on land? Houses, factories, offices, shops, pavements, and indeed all the built environment, seem to establish a kind of screen between people and land. When a building is pulled down, or a road dug up, the screen is broken. Bare mud or rock provides a glimpse of the earth that lies ubiquitously but unseen beneath our feet. One result is that the term ‘land’ becomes associated almost exclusively with the countryside, where a minority of the population live or work. The ‘land question’ that so disturbed our ancestors, when it occasionally arises, is usually in the form of debates about farming tenancies or pollution of agricultural land. The city dweller is not concerned. Yet that same city dweller spends hundreds of thousands of pounds on a house, with at least half the price consisting of the land price. Similarly the worth of a retail business may be largely determined by whether it has a freehold on the land it occupies. Urbanisation makes land invisible. Only a few shrewd businessmen realise its worth, and make fortunes from trading in it.
What needs to change, the author argues, are deeply embedded features, which have generally been established for a very long time. They are principally the taxation system, the land tenure system, and the banking system.