Hidden History: When Progressives Were More Conservative than Liberals

A Skeptics View of American History

Episode 14: Early Progressives Were Not Liberals

Mark Stoler Phd

Film Review

In this presentation, Stoler tries to clarify the historical distinction between progressivism and liberalism, as well as explaining the difference between US and European conservatism. Unfortunately he omits mentioning Henry George, the most famous progressive of the 19th century and mistakenly attributes the “invisible hand” concept to Scottish natural philosopher Adam Smith.

Stoler stresses that progressivism never represented a unified movement in the US, as both Republican president Teddy Roosevelt and Democratic president Woodrow Wilson considered themselves progressive.

According to Stoler, reforms associated with the progressive movement included

• the progressive income tax
• regulation of the railroads
• antitrust legislation
• the Pure Food and Drug Act
• the Federal Reserve
• major attacks on civil liberties during World War I
• limitations on immigration
• enforced professional standards for doctors, teachers, lawyers, etc
• the birth of social work as a profession, along with settlement houses to help immigrants and the poor
• the national birth control movement
• worsening of living and job conditions for African Americans
• social gospel movements in US churches promoting progressive reform
• a racist eugenics movement that promoted forced sterilization.

Although Stoler lists a number of prominent individuals* linked with the progressive movement, for some reason he leaves out the most famous progressive of all of the late 19th century. During the 1890s, social reformer Henry George (who published Progress and Poverty) in 1879, was the third most famous American (after Mark Twin and Thomas Edison).** Progress and Poverty sold millions of copies worldwide (more than any prior American book). A printer turned journalist, George also ran for mayor of New York City (twice). Following his death during the second campaign, his ideas on economic reform were carried forward by many organizations in the US and throughout the English-speaking world.

Unlike other progressives, Henry George opposed a progressive income tax. He believed government at all levels should be funded by a land value tax.

According to Stoler, progressives differed from traditional liberals (like Thomas Jefferson) who feared excessive government power. Progressives, discouraged by the soul-destroying poverty and inequality created by rapid industrialization believed a strong central government was necessary to break up monopolies and regulate industries that were brutally exploiting workers.

Here, once again, Stoler mistakenly attributes the concept a self-regulating market (via the “invisible hand” of competing self-interests) to Adam Smith. The concept of the invisible hand didn’t originate with Smith but with one of his contemporaries. In fact, he makes no mention of it in Wealth of Nations. In Volumes 4 and 5, he calls for government intervention in a number of instances.

In the US, people who opposed any government intervention (as 18th and 19th century liberals did) came to be known as conservatives, whereas European conservatives historically favored absolute government power (ie monarchy).

Both US conservatives and liberals tended to base their political views on John Locke’s notions of the social contract formed between rulers and their subjects.** In contrast, European conservatives tended to base their views on Thomas Hobbes’s views of a natural order (ie human nature) that causes life to be nasty, brutish and short, with the only solution being obedience to a monarch with absolute power.

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*Philosopher William James, educational reformer Charles Dewey, social reformer and peace activist Jame Addams, General Leonard Wood, Supreme Court Justices Oliver Wendall Holmes and Louis Brandeis (who ran the international Zionist movement from his Supreme Court chambers – see https://ifamericansknew.org/us_ints/history.html), investigative journalists Lincoln Steffens and Ida Tarbell, political authors Jack London, Steven Crane, Frank Norris, Theodore Dreiser and Upton Sinclair, politicians Franklin D Roosevelt (an imperialist globalist) and Robert La Follette (an anti-imperialist isolationist).

**See https://stuartbramhall.wordpress.com/2013/12/24/progress-and-poverty-a-suppressed-economics-classic/

*** By definition a social contract is an actual or hypothetical agreement between a community and its ruler that defines and limits the rights and duties of each

The film can be viewed free on Kanopy.

https://pukeariki.kanopy.com/video/early-progressives-were-not-liberals

Telling the Truth About Debt, Austerity and Taxation

The Joy of Tax: How a Fair Tax System Can Create a Better Society

by Richard Murphy

Corgi Books (2015)

Book Review

Although the topic is economics, I personally guarantee this product to be totally painless. Murphy describes economics in ordinary comprehensible language – unlike mainstream economists who treat economics like a religion that can only be understood by high priests – and who speak and write in obscure language so you can never be sure if they’re telling the truth or not.

In The Joy of Tax, UK Tax Justice Network co-founder Richard Murphy offers a radically pioneering approach to tax and fiscal policy.  Murphy is one of the first economists to link tax policy to the 400- year-old reality that nearly all money is created by private banks out of thin air.

For political reasons, most economists try to conceal that private bank loans, i.e. debt, are the source of nearly all money in circulation. According to Murphy, the recent admission by the Bank of England (Quarterly Bulletin April 2014) about the true source of our money makes it possible to debunk a number of myths perpetuated by mainstream politicians and economists. Some examples: that investment is only possible when there are sufficient savings in the economy, that government debt is bad and that austerity, balanced budgets and government surpluses are good.

A point Murphy emphasizes repeatedly is that government also has the ability to create money out of thin air. Moreover it has regularly exercised that right to stimulate a stagnant economy. In fact, because all money is created as debt, it’s essential for government to “create” money (by spending it into the economy) whenever private banks fail to create sufficient credit. If this didn’t happen, severe economic recession results.

In Murphy’s view, the primary purpose of taxation is to reclaim the money government creates to keep it from over-inflating the economy. He claims the conservative elites who rabbit on about repaying government debt are really making the case that only private banks should have the right to create money. Aside from making them enormously rich, this makes no sense. Private banks are incapable of acting in the public interest – by law they can only act in the interest of their shareholders.

Citing Adam Smith in The Wealth of Nations, Murphy maintains a rational tax system can deliver other important goals, such as reducing inequality, recovering externalized costs (e.g.  pollution, toxic waste) imposed by corporations and promoting economically and ecologically sustainable growth.

For the current tax system to accomplish these goals, it would need to be far less regressive. At present most of the tax burden falls on middle and low income taxpayers. According to Murphy, the global economy will continue to stagnate until the wealthy shoulder their fair share of tax.

To make our current tax system fairer, Murphy proposes to introduce a number of “progressive” taxes, including a financial transaction tax, a wealth tax, a carbon/pollution tax, a land value tax to fund local government and a special tax on corporations that fail to re-invest their profits. He also proposes to do away with the current welfare bureaucracy by introducing an Unconditional Basic Income (UBI).

Although most of these tax reform proposals are specific for the UK, they would clearly produce similar benefits for the US and other post-industrial economies.

Originally published in Dissident Voice

Land Value Taxation 101

The Taxing Question of Land

Directed by Yoni Higsmith

2014

Film Review

The Taxing Question of Land is a British documentary about Land Value Taxation (LVT), a concept first proposed by American Henry George in 1879 (see Progress and Poverty: a Suppressed Economic Classic).

The filmmakers use simple animated infographics to argue that LVT is an ideal solution to a global debt-based economic crisis, especially as nothing else has worked. I tend to agree, provided LVT is combined with a return to sovereign money.* So long as bankers retain the power to create money out of thin air, they will always tilt any taxation scheme in their own favor.

The basic definition of Land Value Taxation is a tax that captures a percentage of land value on an annual basis to cover public expenditures. In his 1879 book Progress and Poverty, Henry George’s main argument for Land Value Taxation is that it restores the Commons. This film focuses mainly on secondary arguments that revolve around fairness and economic equality.

The filmmakers point out that a property’s increasing value nearly always depends on its proximity to public services (ie schools, water mains, sewers, roads, public transport) paid for by taxpayers – making it utterly reasonable that taxpayers should claim a share of this increased land value. They describe LVT as a “tax shift,” rather than a new tax, as it would reduce and/or eliminate most other taxes.

They also argue

• That unlike income, corporate and sales taxes, LVT wouldn’t suppress production and jobs.
• That intelligently implemented LVT would eliminate the need for government borrowing (and debt) because it would raise sufficient revenue to cover all government services.
• That LVT would eliminate tax avoidance because unlike other wealth, land is impossible way to hide.
• It offers and fair and painless way to reduce wealth inequality as the rich start to share the cost of paying for public services.

They go on to list a number of jurisdictions (New South Wales, Hong Kong, Estonia, Singapore, Taiwan, Pennsylvania and Mexicali) that have significantly reduced other taxes by establishing an LVT.

LVT is also unique in its bipartisan appeal. In Britain, it has adherents belonging to the Greens, Liberal Democrat, Labour and Conservative Party. Conservatives like it because it simplifies the tax system.

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*In a sovereign money system, the public (as opposed to private banks) maintains the sole right of issuing and regulating money. See An IMF Proposal to Ban Banks from Creating Money

Economics for the Young (At Heart)

Four Horsemen (Ross Ashcroft 2012)

Film Review

 Four Horsemen is full length documentary specifically produced for YouTube and aimed at a younger audience. Its primary goal is to demystify economics, which is a total turn-off for most people because it appears so complicated and uninteresting.

In the view of the filmmakers, a corrupt system of money creation and taxation has enabled a greedy corporate oligarchy to usurp control of western democracy and institute an obscene wealth transfer from the poor to the rich. The corporate elite has cleverly concealed this enormous Ponzi scheme by inventing a kind of voodoo economics to discourage people from taking a closer look at how the economy actually operates.

How Banks Create Money Out of Thin Air

The film provides an elegant description of fractional reserve lending, in which banks create money out of thin air and lend it to us at interest. Although this has been the main form of money creation for centuries (except briefly under Lincoln), most people still mistakenly believe that government issues and controls the money supply.

So do the majority of lawmakers. Ironically the majority of economists also believe that government creates the money we use to run the economy. This is because our banks fund the universities and think tanks where economic theory is taught. In other words, it’s a deliberate deception.

The banks also don’t want us to know where government debt comes from, i.e. that all governments borrow money from banks to fund military, intelligence and public services. Or that repaying all public and private debt would cause the global economy to collapse because this is the only mechanism we have for issue money.

What’s the Solution?

The filmmakers believe that the only solution to the economic, ecological and resource crises faced by humankind is for ordinary people to rebuild a new society from the bottom up.

They have started a YouTube channel called Renegade Economist, as well as publishing a book Four Horsemen: the Survival Manual. According to the authors (Ross Ashcroft and Mark Braund), it describes a model of bottom-up reform that combines government-issued money with a land value tax that replaces income and sales tax.

The second video is a public debate they held a few months after the release of Four Horsemen. The purpose of the debate was to begin public discussion about how to go about how to go about building the new society they envision. In my view the Q&As starting at 47:00 are the most interesting part of the discussion.

A Second Model for Regaining Control of Our Money

(This is the fifth in a series of posts about stripping private banks of their power to issue money)

Modernising Money: Why Our Monetary System is Broken and How It Can Be Fixed

by Andrew Jackson and Ben Dyson (Positive Money 2012)

Book Review

Modernizing Money lays out a model for restoring government control of the money supply that’s very similar to the Chicago Plan. However it differs from the Chicago Plan in several important ways. Unlike the Chicago Plan, this second model isn’t obsessed with sovereign debt repayment. This, in my view is the most significant difference. Given the IMF’s singular focus on servicing debt, their heavy emphasis on debt repayment isn’t terribly surprising.

In allowing publicly accountable government bodies to assume responsibility for issuing money, both models ensure decisions around money creation are based on the needs of a productive economy, rather than the profit profile of private banks.

Thus both go a long way towards ending bubbles and boom and bust cycles, as well as reducing debt and minimizing inflation and deflation. The 2008 economic downturn was triggered by sudden deflation, i.e. the permanent loss of 60-200 trillion dollars from the global economy.*

Because income inequality increases in direct proportion to debt levels, nationalizing the money supply will also reduce income inequality.

A Radical Change in the Function of Banks

The function of banks changes radically under both proposals. In both cases, private would function purely as money brokers, like credit unions and savings and loan associations. They would only be permitted to loan money from existing assets, from customers’ investment accounts or from reserves borrowed from the central bank. Under both plans, there would be no bank bailouts or bank depositor insurance. When private banks cease to serve the essential function of creating and maintaining the money supply, they will cease to be “too big to fail.” Those that continue to make risky speculative investments will be allowed to go bankrupt.

How the Two Proposals Differ

The proposal Positive Money puts forward in Modernising Money is based on the British economic system, whereas the Chicago Plan is based on the US system. Thus the transition would be somewhat easier in the UK, where the central bank (the Bank of England) has been government-owned since 1946. In contrast the US the central bank (the Federal Reserve) is a consortium of privately owned banks.

Unlike the Chicago Plan, the Positive Money model would use newly created sovereign money for other purposes that paying down existing debt. Under the Chicago Plan, using the new debt-free money to repay sovereign debt (aka national debt or public debt) would be one of the first steps in the transition. The Chicago Plan would also use the new money to issue a citizens dividend that businesses and households would use to pay off private debt.

The Positive Money proposal would simply transfer all existing public and private debt (i.e. mortgage and consumer debt) to the Bank of England balance sheet. Businesses and households would continue to make loan repayments to the Bank of England according to the terms agreed with their bank. This new revenue accruing to the BOE would be spent into the economy in one of five ways. At the discretion of the British government, it could be used to increase public spending, cut taxes or repay government debt. It could also be used to issue a citizens’ dividend (which households and businesses would be required to use for repayment of existing debts) or new loans to businesses.

Ensuring Adequate Credit for the Business Sector

Positive Money is also more explicit about how they would ensure there is adequate credit in the economy to make sure new businesses have adequate access to loans for productive business investment. They would use a variety of qualitative and quantitative methods, including the existing Credit Conditions Survey. They would then auction off a specified amount of new credit to private banks. This new credit could only be used for business loans and not mortgages or consumer credit.

*Both proposals also make the claim that nationalizing the creation of money would also end real estate speculation and bubbles by restricting the funds available for mortgage loans. However given that both proposals spend new money into the economy, there’s still a good chance this could be used for real estate speculation. In my view, the only way to prevent this would be to implement a Land Value Tax simultaneously with the transition to government-issued money.

How an LVT Might Have Altered the Course of History

The Traumatised Society: How to Outlaw Cheating and Save Our Civilisation

by Fred Harrison (Shepheard-Wallwyn Limited, 2012)

Book Review – Part II

(In this section Harrison discusses the history of countries and communities that have tried to enact a Land Value Tax. See Part I here)

Britain’s Experience with Land Value Tax (LVT)

In Britain there have been several attempts to end predatory rent-seeking through the enactment of LVT. As a result of Henry George’s 1879 international bestseller Progress and Poverty, Winston Churchill (still a liberal in 1909) became one of the most vocal proponents of the People’s Budget. The law, passed by the British parliament in 1909, sought to shift the burden of taxation from wages to land. It was never implemented because the British aristocracy went to court to block the land valuation required to assess the tax. In 1931 Parliament passed a revised version of the People’s Budget, which Chancellor of the Exchequer Neville Chamberlain simply deleted it from the law book in 1934. If the LVT had been fully implemented, Britain would have been spared the worst effects of the Great Depression.

How an LVT Might Have Altered the Course of History

Harrison moves on to explore how an LVT might have alleviated severe economic and political turmoil in other countries:

• Ireland – rent seekers “sucked: out all the wealth of Ireland for 200 years, a process that didn’t end with independence. Ireland’s “Celtic Tiger” could have been sustainable if it had been funded by a LVT rather than debt. The result was a debt/real estate bubble that left the country even worse off when the bubble burst in 2008. In 2010, Harrison advocated for Ireland to pay off its debt by implementing a LVT. This would have provided the revenue the Irish government needed to stimulate growth. Instead the IMF bailout and austerity cuts has deeply suppressed growth.
• China – made a fatal error by failing to implement an LVT when they began to privatize collectively owned land in the 1980s. China is currently facing slowing growth, thanks to a $1.7 trillion debt incurred by their city and provincial governments. While the central government was building up massive cash reserves by selling cheap exports, they forced regional governments to self-fund their public services. The only way they could do this was by selling land to property developers and by borrowing money.
• Cuba – made a fatal error on November 11, 2011 when they began selling collectively owned land to rent-seekers, and allowed rents to be capitalized into land prices – instead of taxing them.
• Russia – Gorbachev envisioned land remaining in public hands as part of Glasnost. After a threatened military coup forced him to step down, Harrison went to Russia trying to persuade Yeltsin to adapt an LVT. Instead Russia’s first president opened the country to the IMF and western rent-seekers. Both sucked out sufficient wealth to set the country’s standard of living back several decades.
• Africa – South Africa’s current economic difficulties relate to a fatal error they made in 2004. They amended their LVT to add a tax on property improvements but should have done the opposite – increase the LVT and reduce other taxes. Much of the land in the rest of sub-Saharan Africa is still communally owned. Thus there is still great potential for emerging African economies to adopt an LVT. This would allow them to develop debt-free, sustainable economies that don’t leave the majority of the population in abject poverty.
• The US – suffers from a “constitutional neurosis,” according to Harrison. Supposedly the Declaration of Independence and US Constitution were based on the Scottish Enlightenment. Whereas John Locke talked about a universal right to “Life, Liberty and Estate (Land),” our founding fathers changed this to “Life, Liberty and the Pursuit of Happiness” even before the Constitution was written.

The Future of LVT

As Harrison points out, at present rent-seekers are extremely powerful and have absolute control over government, media, and public education. Nevertheless as countries in the Middle East, North Africa and Latin America escape US military control, it’s imperative they have an avenue to escape the economic control of local and international rent-seekers. By adopting an LVT, they guarantee themselves sufficient income to provide government and public services – without falling into the predatory clutches of international bankers and the IMF.

In his 2011 book Re-Solving the Economic Puzzle, Walter Rybeck relates how the US contemplated LVT enabling legislation during the Carter administration. As an assistant to Representative Henry Reuss (D-Milwaukee), Rybeck helped Reuss (as chair of the House, Banking, Finance and Urban Affairs Committee) promote land and resource taxes as a way to address crumbling infrastructure in financially strapped cities and states.

Enter Sarah Palin

According to Rybeck, a number of communities (and one state) have already adopted variations of an LVT. Alaska’s oil/gas tax is the best example of a resource-based LVT. This tax provides 80-90% of Alaska’s general fund, as well as providing annual dividends to residents. As governor of Alaska, Sarah Palin introduced Alaska’s Clear and Equitable Share (ACES), which charges a 25 percent tax rate on oil profits, with the rate increasing progressively as oil prices go up.

Five other states have passed LVT enabling legislation – Connecticut, Maryland, New York, Pennsylvania, Virginia, Washington – to make it easier for local communities to adopt an LVT.

Other American communities that have already benefited from an LVT include California’s Central Valley, Fairhope in Alabama, Arden in Delaware, and Pittsburgh and other cities in Pennsylvania.

Originally published in Dissident Voice

The Trauma of Cultural Genocide

The Traumatised Society: How to Outlaw Cheating and Save Our Civilisation

by Fred Harrison (Shepheard-Wallwyn Limited, 2012)

Book Review – Part I

(The first half of Harrison’s book explores the history of land value tax and the cultural genocide that resulted from the Enclosure Acts and the dispossession of Europeans from communally owned lands.)

The Land Value Tax (LVT) is a “radical” form of taxation first proposed by Henry George in his 1879 Progress and Poverty (see Progress and Poverty: the Suppressed Economics Classic). What George proposes is to replace taxes on wages, purchases, and investments with a tax on unimproved land and natural resources. In The Traumatised Society, Fred Harrison  provides an exhaustive update of George’s original work.

As Winston Churchill famously observed, “History is written by the victors.” Nearly all history books written in the last 400 years were written by or on behalf of the ruling elite. The Traumatised Society is unique in that it recounts the history of the industrial revolution from the perspective of the 99%. Harrison also presents a simple, but elegant prescription for taking back power from the corporate oligarchy, ending economic inequality and the debt crisis, staving off ecological disaster, and preventing World War III. On the surface these claims appear extravagant and somewhat grandiose. Yet, in my view, Harrison makes his case very convincingly.

Adam Smith was the first prominent economist to propose the LVT as the most “moral” and least economically harmful tax in his classic Wealth of Nations. Neoconservative icon Milton Friedman also considered it the “least bad” kind of tax. The most famous contemporary Georgist is former World Bank Economist and Nobel Prize winner Joseph Stiglitz.

Basically the argument for an LVT goes as follows: because publicly funded infrastructure increases land values, this added value should return to the public. It shouldn’t return to the landowner, who has done nothing more than sit on his land. An LVT provides a valuable source of public revenue. It eliminates the need for governments to borrow from private banks without depleting the total wealth of the landowner.

Economies and personal freedom flourish wherever an LVT has been implemented. As Harrison reminds us, the economic surge known as the Asian Tiger didn’t start in China, but in Taiwan and Hong Kong – as a direct result of LVT-based economies. Moreover unlike China, economic growth in both Taiwan and Hong Kong has proved genuine and sustainable. In 2011, the per capita GDP of China was $8,400, while that of Taiwan was $37,900.

The Trauma of Cultural Genocide

The title The Traumatised Society is based on a severe dislocation Europeans experienced during the eighteenth century, a process remarkably similar to that of African slaves and indigenous people oppressed by colonization. The cause of this dislocation was The Enclosure Acts, a series of laws that drove our peasant ancestors off the communal farm lands that had supported them for a thousand years and fenced it to off as private property. In England alone, 160,000 freehold farmers were thrown off their land between 1700 and 1812. In addition to being stripped of their livelihood, our ancestors also experienced “cultural genocide,” as they lost a thousand years of cultural tradition linked to communal land ownership. This process is vividly described in the poems of 18^th century poet John Clare, whose parents ended up in the poor house (i.e. jail) after being thrown off their land. Clare’s work was suppressed until the late 19th century, when the work of American journalist Henry George revived the British land reform movement.

The end result of this massive dislocation has been slavery, debt, alienation, depression, poverty (which was virtually non-existent prior to the Industrial Revolution), murder, rape, child abuse and alcohol and drug addiction. Counselors and therapists who work with African American and indigenous communities are very much aware of the trauma, which is passed from generation to generation, that results from severe economic dislocation and cultural genocide. Ironically, however, Europeans have no historical memory that we have been subjected to the same kind of trauma.

According to Harrison, the “moral evolution” of the human race ceased in the 1700s. This is when an authentic human culture of cooperation and interdependence was replaced with an artificial “cheating culture,” in which the highest ideal is to get something for nothing. The modern, free market version of Christianity is part and parcel of this phony culture – as is Marxism. Harrison feels Marx did us a great disservice by demonizing capitalism. The capitalistic funding model in itself isn’t the primary source of our major economic and social problems.

The Concept of Economic Rents

The Traumatised Society is written in classical economic language, in which “rent” refers to unearned income from the monopolization of land, natural resources, or the cultural commons (e.g. the public airwaves and money). Economic rent includes unearned profit gained from selling land that has increased in value (often due to land speculation). A “rent-seeker” is someone who derives unearned income from monopolization of these resources.

For most of human history land and resources were owned communally and any “rent” or unearned income went to finance public services. Beginning in the 18th century, this all changed. When “rent-seekers” privatized land and natural resources, they also captured control of government and shifted the burden of funding public services to workers. In this way modern capitalist society came to be divided into two classes, the Predators or rent-seekers, and the Producers, who engage in work to create economic wealth.

As more and more wealth is extracted from Producers, both as “rents” and as taxes, there is less and less money available to maintain public infrastructure. Eventually the number of Producers becomes inadequate to support the Predator rent-seeking class. At this point, the latter seeks to remedy the problem by conquering new lands and colonizing new populations, by using fossil fuel technology to increase productivity, by borrowing and extracting wealth from future generations, and/or by capital depletion (liquidating assets created by past production – like Greece).

Originally published in Dissident Voice

To be continued.

The Robber Barons Behind Neoclassical Economics

John D Rockefeller

Classical Economics as a Stratagem Against Henry George (free link)

By Mason Gaffney (2007)

Book Review-Part II

(In Part I, I discuss how Henry George’s work inspired the Populist and Progressive movements of the early 1900s and how the corporate elite struck back by inventing a new type of economics for the rich, called neoclassical economics.)

Who Paid for Neoclassical Economics to Take Over American Universities?

Gaffney’s book traces the phenomenal public support Georgism enjoyed before the tenets of neoclassical economics took hold in American universities. In addition to inspiring the Populist and Progressive movements, an LVT to fund irrigation projects in California’s Central Valley made California the top producing farm state. In 1916 the first federal income tax law was introduced by Georgist members of Congress (Henry George Jr and Warren Bailey) and included virtually no tax on wages. In 1934 Georgist Upton Sinclair was almost elected governor of California.

Gaffney also identifies the robber barons whose fortunes financed the economics departments of the major universities who went on to substitute neooclassical economics for classical economic theory. At the top of this list were

• Ezra Cornell (owner of both Western Union and Associated Press) – founder of Cornell University
• John D Rockefeller – helped found the University of Chicago and installed his cronies in its economics department.
• J. P Morgan – investment banker and early funder of Columbia University
• B&O Railroad – John Hopkins University
• Southern Pacific Railroad – Stanford University

The final section of Gaffney’s book lays out the tragic economic, political, and social consequences of allowing the Red Scare and neoclassical economics to stifle America’s movement for a single Land Value Tax:

Economic Consequences

1. The corporate elite has privatized, or is privatizing, most of the public domain (including fisheries, the public airwaves, water, offshore oil and gas, and the right to clean air) without compensation to the public.
2. The rate of saving and capital formation continues to fall rapidly. This is the main reason there is no recovery. Although profits soar, corporations have no incentive to invest in expansion and jobs. Instead they invest their profits in real estate, derivatives, and commodities speculation.
3. American capital is decayed and obsolete. The US has lost much of its steel and auto industries. Power plants and oil refineries are ancient and polluting. Most public capital (infrastructure) is old and crumbling.
4. The number of American farms has fallen from 6 million in 1920 to 1 million in 2007.
5. The USA, once so self-sufficient, has grown dangerously dependent on importing raw materials and foreign manufacturers.
6. The US financial system is a shambles, supported only by loading trillions of dollars of bad debts onto the taxpayers.
7. Real wage rates have continued to fall since 1975,
8. Unemployment has risen to chronically high levels.
9. Inequality in wealth and income continues to increase rapidly.

Political Consequences

1. The corporate elite has nullified all the Progressive Era electoral reforms by pouring money into politics and “deep lobbying,” at all levels of government, including our institutions of higher learning and our public schools.
2. The corporate elite continue to pour ever more of our tax money into prisons.

Social Consequences

1. Homelessness has risen to new heights, in spite of decades of subsidies to home-building and, favorable tax treatment of owner-occupied homes
2. Hunger is rampant.
3. Street begging, once rare, is everywhere
4. Americans have experienced a sharp loss of community, honor, duty, loyalty and patriotism.
5. In the shadow world between crime and business there is now the vast, gray underground economy that includes tax evasion, tax avoidance, and drug-dealing.
6. The US which once led the world in nearly every endeavor, has fallen far behind in infant survival, in longevity, in literacy, in numeracy, in mental health.
7. American education no longer leads the world. Privatized education in the form of commercial TV has largely superseded public education.

photo credit: cliff1066™ via photopin cc

The Mythology of Neoclassical Economics

Classical Economics as a Stratagem Against Henry George (free link)

By Mason Gaffney (2007)

Book Review-Part I

Why do American school children study the beliefs of a German radical named Karl Marx, the villain Americans love to hate? Yet Henry George, whose views on land and tax reform gave rise to the Progressive and Populist movements of the 1900s, is totally absent from US history books. During the 1890s George, author of the 1879 bestseller Progress and Poverty, was the third most famous American, after Mark Twain and Thomas Edison. In 1896 he outpolled Teddy Roosevelt and was nearly elected mayor of New York.

In Neo-classical Economics as a Stratagem Against Henry George (2007), University of California economist Mason Gaffney argues that George and his Land Value Tax pose a far greater threat than Marx to America’s corporate elite. America’s enormous concentration of wealth has always depended on the inherent right of the wealthy elite to seize and monopolize vast quantities of land and natural resources (oil, gas, forests, water, minerals, etc) for personal profit. Adopting an LVT would essentially negate that right. What’s more, every jurisdiction that has ever implemented an LVT finds it works exactly the way George predicted it would. Productivity, prosperity, and social well being flourish, while inflation, wealth inequality, and boom and bust recessions and depressions virtually vanish. (See prior post Facebook’s Billionaire Tax Refugee).

When Progress and Poverty first came out in 1879, it started a worldwide reform movement that in the US manifested in the fiercely anti-corporate Populist Movement in the 1880s and later the Progressive Movement (1900-1920). Many important anti-corporate reforms came out of this period, including the Sherman Antitrust Act (1890), a constitutional amendment allowing Americans to elect the Senate by popular vote (prior to 1913 the Senate was appointed by state legislators), and the country’s first state-owned bank, The Bank of North Dakota (1919).

The Corporate Elite Strikes Back

As with any major reform movement, the corporate backlash was predictable. In Neo-classical Economics, Gaffney reveals that this backlash took two main forms. The first was the Red Scare (1919-1989), overseen by J Edgar Hoover as Assistant Attorney General and later as FBI director. The second was more insidious and involved the deliberate reframing of the classical economic theory developed by Adam Smith, Locke, Hume, and Ricardo as so-called neoclassical economics. The latter totally negates Adam Smith’s basic differentiation between “land”, a limited, non-producible resource. and “capital”, a reproducible result of past human production. Smith, Locke, Hume, and Ricardo all held that individuals have no right to seize and monopolize scarce natural resources, such as land, minerals, water, and forests. They believed that because these resources are both limited and essential for human survival, they should belong to the public.

Neoclassical economics, which first developed in the 1890s, was based on the premise that growth and development can only occur if a handful of rent-seekers are allowed to monopolize scarce land and natural resources for their personal profit. Henry George, who publicly debated the early pioneers of neoclassical economics, claimed the science of economics was being deliberately distorted to discredit him. Gaffney agrees. Because George’s proposal to replace income and sales tax with single land value taxed is based on logical concepts of land, capital, labor, and rent advanced by Adam Smith, Locke, Hume, and Ricardo, they all had to be discredited.

Gaffney believes neoclassical economic theory undermines George’s arguments for a single Land Value Tax in two basic ways: 1) by claiming that land is no different from other capital (ironically Marx made the identical argument) and 2) by portraying the science of economics as a series of hard choices and sacrifices that low and middle income people must make. Some examples:

• If we want efficiency, we must sacrifice equity.
• To attract business, we must lower taxes and shut libraries and defund schools.
• To prevent inflation, we must keep a large number of Americans unemployed.
• To create jobs, we must destroy the environment and pollute the air, water, and food chain.
• To raise productivity, we must fire people.

Below, brief video of Gaffney discussing LVT:

To be continued.

Facebook’s Billionaire Tax Refugee

French actor Gerard Depardieu

In January, Forbes reported that Facebook’s billionaire co-founder Eduardo Severin had renounced his U.S. citizenship to move to Singapore, where the top tax rate is 20%. The article about millionaires and billionaires fleeing high western tax rates was triggered by French actor Gerard Depardieu’s renunciation of his French citizenship to move to Russia. He chose Russia based on its top tax rate of 13% on individuals and 20% on corporations (except for the oil and gas industry – see below). France had just enacted a 75% tax on millionaires to pay off the 1.7 trillion euros it owes to international banksters. Socialist president Francois Hollande sees taxing the rich as a better alternative than laying off public servants and cutting health care, education, and pensions like Greece, Spain, Portugal, and Italy.

Forbes clearly disagrees. Predictably the article represents the traditional neo-classical economic viewpoint – slashing public services is always a better alternative than increasing taxes on the rich. They also leave out the most important part of the story – namely why income taxes in Singapore and Russia are so low.

The real reason income is taxed at a low rate in Singapore and Russia is because both countries have adopted a modified Land Value Tax (LVT). An LVT is a tax on unimproved land, resources and the cultural commons (e.g. public airwaves). It was journalist Henry George who first proposed replacing taxes on income and capital with a single LVT in his 1879 international bestseller Progress and Poverty. See Progress and Poverty: the Suppressed Economics Classic.

Singapore’s Economic Miracle

Singapore, a flourishing city-state of 5.3 million people, faced massive unemployment and a major housing crisis when it first gained its independence from Malaysia in 1965. Its leaders immediately launched a modernization program funded by an LVT. Although Singapore no longer relies on a single tax, income taxes still remains extremely low with corporate rates between 8.5 and 17%.

Thanks to the LVT, Singapore recovered much more rapidly than western countries from the 2008 economic collapse. In 2011 a 12% increase in GDP enabled them to pay a dividend to all adult citizens of approximately $269 each (total $1.22 billion).

How Putin Saved Russia’s Moribund Economy

Russia’s LVT, introduced by President Vladimir Putin as part of a 2001 tax reform package, falls more heavily on mineral (e.g. oil and gas) extraction than unimproved land. Taxes on oil and gas revenues amount to approximately 45% of net sales (compared to 12 percent in the construction industry and 16.5 percent in the telecommunications industry). Property owners pay a tax ranging from 0.1 – 0.3% on land value (and a comparable rate on state-owned land that they lease).

Experience with LVT in other countries

Hong Kong (1985) – thanks to LVT, enjoys low taxes, low inflation, high investment and high salaries. Often voted the world’s best city for business and the freest for residents. According to Bloomberg’s they, too, paid a $700 dividend to all adult residents in 2011. Unfortunately since rejoining China, Hong Kong has been gradually replacing land and resource taxes with income tax. This has resulted in a return of land speculation and increasing income inequality. The Hong Kong real estate holdings of China’s multimillionaire president Xi Jinping are valued at more than $24.1 million.

Taiwan (1949) – following the Communist takeover of mainline China, Chinese nationalists under General Chiang Kai-shek fled to Formosa (Taiwan), a brutally poor feudal island controlled by a handful of rich farmers. Chiang Kai-Sheck, a follower of Sun Yat-Sen, the first Chinese president and  a great admirer of Henry George, introduced a LVT. When plantation owners found themselves paying as much in taxes as they were collection in rent, they sold off their excess land to peasant farmers. Taiwan went on to set world records with growth rates of 10% per annum.

Denmark (1957) – the small Georgist Justice Party won seats in parliament and a role in the ruling coalition. A year later, inflation had gone from 5% to under 1%; bank interest dropped from 6.25% to 5%. By 1960, 100,000 unemployed (out of a population of 5 million) had found jobs and received the highest average pay increase in Danish history. In the 1960s, a media backlash funded by wealthy bankers and corporations caused the Justice Party to lose its seats. Land taxes were decreased and income tax and sales tax (currently at 25%) drastically increased. Inflation quickly rose to 5% and by 1964 reached 8%. Land prices began to sky-rocket, increasing 19-fold from 1960 to 1981 increasing 19-fold.

Estonia (1990s).- enacted a 2% LVT following the break-up of the Soviet Union. It was much easier to collect than the income taxes enacted by other former Soviet republics, more successful than trying to collect from others, succeeding over 95% of the time. It’s largely the LVT that has enabled Estonia to become the electric car capitol of the world. In addition to installing 165 electric vehicle fast-charging stations country-wide, it provides a 50% subsidy for residents who purchase electric vehicles.

Other jurisdictions that opted for LVT:

• Ethiopia 1990s
• Saudi Arabia, Kuwait, UAR – resource-based LVT on oil and gas exports
• Baja California (Mexico) 1990s
• British Columbia (1912) – resource-based LVT on forestry
• Vermont 1978
• Kansas City 1930s
• Pennsylvania – Pittsburgh and Scranton in 1975 and 18 other cities following suit in the 1990s. Housing costs and crime in both Pittsburgh and Scranton have trended the lowest in the US, despite the collapse of the steel industry. Both avoided the 2000-2007 real estate bubble and 2008 collapse. Foreclosure rates in Pittsburgh remain the lowest in the country.

Single tax colonies founded by Henry George’s American followers:

• Free Acres (New Jersey) 1910
• Arden (Delaware) 1900
• Fairhope (Alabama) 1894

 

photo credit: igorjan via photopin cc