D J Webb
I have been meaning to address the centrality of the land issue—and particular the crucial role of a land value tax—in libertarian thought, but have not got round to it. Any writing on that will have to await my final wrap-up on the gold standard after I’ve completed my reading of Nathan Lewis’ excellent Gold: the Monetary Polaris, the only book I know of of its type, explaining in explicit detail the actual way in which a gold standard is operated.
However, today’s atrocious Budget Speech deserves some kind of quick intervention. There is much to deplore, including horrible plans to “manage your tax affairs like a bank account”, by automatically bringing in all sorts of bank account and other data. This seems to be rubbing it in just how much the state has manoeuvred itself into the (unlawful) position of oversight of everyone’s personal finances. Slower deficit reduction, to allow for the maintenance of a larger public sector, is another depressing “highlight”. Claims the deficit will be £73.5bn in 2015/16, before a lurch down to £39.4bn in 2016/17, are among the implausible assumptions: such a rapid single-year cut in the deficit is unlikely, going by the evidence of David Cameron’s first term as prime minister.
Of course, there are a number of welcome measures, including a tax allowance for savings, allowing some savings at least to be sheltered from tax, and the proposal to add flexibility to ISAs, such that if you withdraw cash from your ISA you can easily put the same amount back in, despite the fact that you have already used up your full-year allowance. In truth, there should be no allowance: all savings should be tax-free, and I’m guessing these “concessions” are both partly related to the low interest rates that obtain on savings accounts in this extended era of manipulated low interest rates. Another welcome measure is the pledge to abolish Class 2 national insurance contributions for the self-employed. This is the old NI stamp, and amounts to £143 a year. However, no clarity on what will happen to Class 4 NICs was given.
However, what cannot be accepted by anyone with an interest in the financial stability of this country and the financial interests of the people of this country are the “Help to Buy ISAs”. This phrase is worthy of inverted commas, because this is a scheme designed to prop up house prices, and thus exacerbate the risk of a property price correction foisted on first-time buyers. If the government were really interested in “helping” people buy, the greatest help that could be given would be to bring forward measures to lower house prices, specifically by withdrawing a large range of policy measures that artificially prop up the property market.
It seems the government will directly fund one-fifth of the deposits of first-time house-buyers. The government is now directly in the business of subsidizing property purchases. All things being equal, this will have the effect of holding up house prices, not in the interests of the people of this country as such, but, rather, in the interests of the financial system, which was not allowed to properly collapse in 2008. This sends a green light to banks and building societies to lend at sufficient volumes to maintain house prices at their current elevated level—or even drive them yet higher.
Apparently, the Liberal Democrats did not allow the Chancellor, George Osborne, to include a measure raising the limit for the purposes of inheritance tax on main residences from £325,000 to £1m. However, this has been well-flagged up as a policy measure likely to be introduced by a re-elected Conservative government. Main residences are already exempt from capital gains tax, and the intention seems to be that they should be exempt from inheritance tax too. Strangely, earnings from income and capital remain subject to both capital gains tax and inheritance tax, so determined is the government that the economic rent from natural resources (an economic rent that rightly belongs to society as whole) should be tax-free, while those who have nothing pay high impositions on the fruits of their labour.
Property prices in the UK are not, in fact, the natural result of demand for property. There are a raft of policy measures holding them up, including tax breaks for buy-to-let purchases that are not available to first-time buyers; housing benefit; the various incarnations of Help to Buy; rental laws designed to push people into purchasing property; the council tax that taxes residence and not freeholder ownership of land; overly detailed planning laws; and artificially low interest rates. The aim is to boost the wealth of the already asset-rich at the expense of those who have nothing.
There are a large number of people in this country who have paid off their mortgages—this segment of the population may offset the “priced out” generation in electoral calculations—but it seems clear that a rise in interest rates to normal levels would be savage to many who are buying houses now. There is a key problem with inflation figures that deliberately exclude property prices: if property were included we might have seen calls for large increases in interest rates in recent years (calls that would have been unheeded owing to the larger imperative of defending the weak banking sector). But as Sean Gabb has implied on a number of occasions, we may be in a situation where a hearing for a different set of policies can only come about if there is a major crash. Onto the deflationary crunch and then the hyperinflation! The worse, the better!
Discover more from The Libertarian Alliance
Subscribe to get the latest posts sent to your email.
Related posts:
Powered by YARPP.
“the centrality of the land issue”, “the crucial role of the land value tax” in libertarian thought.
Many thanks Henry George, but the David Ricardo view of land was refuted more that a century ago – by Frank Fetter amongst others.
There is really no excuse for this stuff – none.
After all Murray Rothbard put it to bed many decades ago (Man, Economy and stat and Power and Market).
However, to be fair, Mr Webb does NOT say he is favour of thinking there is a “land question” (which there is not) or that that “land value tax” is some special tax that is not harmful (it is not special – and it is harmful, just as other taxes are).
So I may be over reacting.
But it does get on my nerves.
It is like getting a perfectly good case, the self defence of Officer Wilson against Michael Brown, and writing a load or racial stuff FOR NO REASON.
It is just irritating, very irritating.
By the way try to avoid using the term “gold standard” – either the gold is the money or it is not, if it is a “standard” for something else that is the money then the door is opened to massive credit-money expansion, as with the late 1920s United States.
The rest of the article is a bit better.
However, it avoids the basic matter of importance.
There is high taxation of income (and investment), because there is massively high GOVERNMENT SPENDING, mostly on the Welfare State (which the Labour Party keep saying the present government is not spending enough on – they would spend even more on) – messing about with taxes on land and/or property is just missing-the-point.
And, YES, property prices are artificially high because (mainly) of loose monetary policy.
Sadly all the major parties (including UKIP) seem to united on the “low interest rate” policy.
Not a good situation.
Ah, all those ‘wealthy’ land owners! How much would rents be if we had the same building regulations as Hong Kong or if the government sold off its vast land holdings? I would have thought that libertarians would be more concerned with the negative effects of existing regulations and the outright denial of property rights rather than fictitious ‘problems’ like land values.
This whole topic reminds me of one of George Reisman’s driest observations:
The final point I wish to make in connection with private ownership
of land is that it is precisely this institution that has been responsible
for the progressive and rapid increase in the production of agricultural
commodities and minerals of all kinds and thus for the minimization
of the economic significance of land rent (Reisman 1996, pp.
310–16). In the Great Britain of 1750, wealth centered on land ownership
and the income derived from it. A hundred years later, it centered
on manufacturing and commerce, and the land owning aristocrats
were on the way to having to marry American heiresses in
order to find the funds to maintain their estates.
How does Singapore tie into Reisman’s observation?
Give that a) it has the highest GDP per capita of any non-oil producing nation b) >85% of people live in State supplied accommodation c) the State only allows 99 year leasehold d) all mortgage lending on said leaseholds must be done though the State bank. e) Singapore has some of the most affordable housing in the World for such a comparatively rich nation. f) Singapore has an excellent education and health system.
The role of the State is a fair distribution of all three factors of production. Singapore, although far from perfect, by retaining much of the rental value of land for it’s citizens as an equal share (50% approx) shows us just how huge the potential benefits are.
Imagine what Singapore could do if it retained the other 50%.
Singapore constantly ranks near the top of the list for economic freedom like Honk Kong which I far prefer – no minimum wage, zero tariffs, overall tax take of 15% or so – people forget how oppressed we are.
Yes, that’s rather the point.
By retaining rent as public revenue, they are then able to have lower taxes on income/capital.
The British stipulated that all land in Hong Kong was (and still is) State owned.
Neither Hong Kong or Singapore are perfect though, as most of the rent still gets privatised.
But it shows clearly the potential benefits where all rent is shared equally (LVT) and taxes on income/capital are rightly regarded as theft, and do not exist.
see here page 15
http://s420649894.websitehome.co.uk/SLRG/attachments/article/5/THE%20HIDDEN%20POTENTIAL%20OF%20RENTS.pdf
Benji, government ownership of land is not a sufficient means of sharing the economic rent, as you pointed out. The leaseholders should pay a land value tax. This should apply to all long leases, as the leaseholders benefit from capital appreciation.
For a peaceful and prosperous World we need only respect each others property rights. Then all incentives would thus be aligned. Monopolising Land without compensating those who are excluded is a clear infringement of property rights. It turns those excluded into the economic slaves of those who own land. It also means Land can be mis-allocated and over consumed.
Of course there are those who believe in the right to own anything and anyone and think this is freedom. It’s was certainly used as an argument against the abolition of slavery.
When property rights are respected we get economic prosperity. Which is why taxation of income/capital produces deadweight losses and the capitalised Land rent does the same too. Funny how so many so called libertarians pay scant regard to the economic ill effects of uncompensated land ownership.
Benji, a very good point. No one is saying land should be worthless – it commands whatever price it can in the free market – but the economic rent from land (incl the sales price) belongs to the whole of the human race. Stop the scrounging and share the rents!
America and Australia were formed on libertarian lines at first – people went and occupied free land and built their lives there. But then the British rulers arrived to parcel it up into “freeholds”, and I believe the issue was highly political throughout the 19th century in Australia, precisely because people could see with their own eyes precisely how “ownership” of the freehold land was being created, right in front of them.
I think you could argue in the 19th century that land had declined in importance. Much economic discussion revolved around the rent from agricultural land and the way it had fallen in value compared with the profits of industry. However, the rise of freehold to residential property as the majority aspiration in the 20th century has shown that land site location prices are still relevant: most of the wealth of England is in the land, and constant policies to pump up land prices to help those who owned properties (most MPs are heavily into buy-to-let) continues to threatened a new recession in the UK today.
Residential property is the second wind of the rentiers – J S Mill would have opposed all of this.
Land site location prices are only relevant because of building regulations. The solution to that should be obvious to any libertarian.
…but the economic rent from land (incl the sales price) belongs to the whole of the human race. Stop the scrounging and share the rents!
You cannot be serious.