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Modernising Henry George

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Matthew McNeill

Joined: 15 Feb 2009
Posts: 26
Location: Surrey, UK

PostPosted: Mon Jul 19, 2010 7:26 pm    Post subject: Modernising Henry George Reply with quote

A couple of interesting articles on the application of Henry George's ideas to resource scarcity.

Modernising Henry George

Economists have traditionally considered nature to be infinite relative to the economy, and therefore not scarce, and therefore properly priced at zero. But the biosphere is now scarce, and becoming more so every day as a result of growth of its large and dependent subsystem, the macro-economy. As the macro-economy expands into the ecosystem it displaces what was there before, namely habitat of other species (and of indigenous and poor members of our own species). Consequently, biodiversity decline is a salient index of the increasing scarcity of nature, as is involuntary resettlement of people to make way for dams, mines, soybeans, and cattle; and of course increasing depletion and pollution. Sacrifice of nature’s scarce services constitutes an increasing opportunity cost of growth, and that in turn means that nature must be priced, either explicitly or implicitly. But to whom should this price be paid?

Why were resources expunged from neo-classical economics?

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.

Henry and Hubbert's Peak Resource Theory

I think this really fits in with a much broader and very interesting analysis around peak oil / peak resource curves. If these analyses have any merit, then Henry G's ideas could well have their time.

Good introduction and loads of links for further info here:

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Peter Bowman

Joined: 02 Nov 2008
Posts: 27
Location: London, UK

PostPosted: Sun Aug 01, 2010 1:38 pm    Post subject: Reply with quote

Well done Matt for posting this important article. Herman Daly meets Henry George is an interesting development. The article deals with the more obvious application of Henry G.'s ideas in regulating use of natural resources but there is another way they apply. Herman Daly states that he sees nothing wrong with taxing labour and capital. That is a pity. Taxation does much more than supply Government revenue. It strongly affects the direction an economy moves in. For example when the Irish put a tax on plastic bags of only 15 cents it reduced their use by 90%.
In a move towards a steady state economy the emphasis has to change from "output" measured in monetary terms to throughput measured in tonnes of material (some prefer entropy units, but lets keep it simple). In a steady state economy the throughput of material has to be regulated so that it does not exceed what the surrounding ecosystem can supply without diminishing its capacity to supply future generations. Waste output must be similarly regulated. This does not mean we have to be more primitive. We have to use material resources more fully. We have to use energy supplies more carefully. More value needs to be added to each kg of raw material we use. This can be achieved by producing fewer higher quality goods and having a higher level of service - hand crafted goods that last for many years, waiter service rather than takeaways, much more repairing and maintaining rather than replacing. The obvious way to incentivize greater use of labour and reduced use of material is through the tax system by reducing/removing taxation on labour and capital. But if there is still a need for considerable government expenditure and we are not taxing labour income what do we tax? This is where Henry George comes in. His ideas help us understand the crucial role of tax incidence in moving towards a steady state economy.
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Peter Fennell

Joined: 27 Sep 2007
Posts: 53
Location: London

PostPosted: Sun Jan 02, 2011 3:29 pm    Post subject: Herman Daly + throughput Reply with quote

Dr B an extremely lucid and concise analysis.

May I take issue only on the incidental point about taxing labour and capital. Daly says:

"Taxation of value added by labor and capital is certainly legitimate. But it is both more legitimate and less necessary after we have, as much as possible, captured natural resource rents for public revenue."

To say otherwise requires an unconventional meaning for the word 'legitimate'. His preferred source of revenue is clear.
(Further thoughts on this point in a separate thread)

Quality not quantity
If labour were untaxed more things would be re-used, recycled and repaired. If the labour cost of denailing a used rafter was less than the cost of a new rafter then less would go in the skip. And as PB says, what growth we lose in quantity we should look for in increased quality.

Built-in obsolescence
The 'Kingfisher' boiler was so reliable, according to a boiler repair man on Saturday, that the British manufacturer Potterton went bust because they never sold any spare parts. I don't know if the story is true - Potterton was acquired in 1944, 73, and in 88 by Blue Circle cement - but is there an economic model that favours unbreakable quality?
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Richard Glover

Joined: 29 Sep 2008
Posts: 185
Location: Ealing, London, UK

PostPosted: Tue Jan 18, 2011 10:36 am    Post subject: Potterton Reply with quote

For an economic model that favours "unbreakable quality", I wonder if the ancient Egyptians can give us a clue?
Our own civilisation has managed pretty well with certain buildings, mainly churches I suspect.
There has been a significant shift in the unbreakable quality of cars over the last few decades.
It may well be that the necessary economic model is closer to home than economic text books and academic journals; what do we value?
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Peter Bowman

Joined: 02 Nov 2008
Posts: 27
Location: London, UK

PostPosted: Sun Feb 20, 2011 7:03 pm    Post subject: Reply with quote

Rather than start a new thread I thought I would add this to the "Modernising Henry George" as it belongs here although it does not follow from the previous post.

Recently someone passed on this quote from Prof Michael Hudson:
" to promote LVT in a way that relates it to the overall economy. That means, to the financial and debt dynamic that everyone else sees as the key. People simply wonıt take you seriously if you canıt relate real estate rent, value and prices to the financial system. A propertyıs value in todayıs is NOT the capitalization rate, but how much banks will lend against it. Thatıs the missing dimension of Georgism."

About the same time this came to me I found the attached graph which shows a remarkable correlation between the Nationwide's average house price index and the amount loaned for house purchase.

So what determines the price of houses and hence of land? Economic theory tells that if the market clears then the price is determined by the balance between supply and demand. According to the VOA on 29th March 2009 there were 22,697,382 houses in England. The average house is £230030. It hasn't changed much. That makes a total value of about £5.22 trillion. However it is only the very small fraction of around 30,000 per month that are bought and sold that determines the value of the stock.

What makes property transactions different from almost any other is that only a very small fraction are bought and sold for cash. Thus there is a pre-condition for purchasing property which is access to credit - usually a mortgage.

The credit market is not one that clears. Supply never matches demands so the market is dominated by the suppliers who have it in their power to ration the credit available.

The graph supports this and suggest there is something in what Michael Hudson says. It appears that the market is not controlled by the supply of housing but by the supply of credit. When credit is eased prices go up when it tightened prices come down. To a certain extent this can be independent of the supply of housing. Interestingly at the moment it appears that both trends are occurring simultaneously. Anecdotedly it appears that at the bottom end of the market credit is constrained and prices are falling whereas the top end of the market the availability of credit is more liberal and prices are rising.

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Chris O'Brien

Joined: 17 Jul 2010
Posts: 9
Location: Harpenden, Herts

PostPosted: Mon Feb 21, 2011 8:03 pm    Post subject: Reply with quote

There has been much talk recently about the notional value of Social Networking Sites (Twitter etc.). They are valued in billions and I am sure their LVT values would only be a fraction of their overall value. This and other examples are bringing me around to thinking that LVT is not the cure all 'singlle tax' but SVT and a more equitable form of rates. Can anyone convince me otherwise?

On another point, I was watching a TV programme explaining the change from the Middle Stone Age to the New Stone Age. The fundimental change was the advent of farming. The commentator also said that this introduced the idea of 'ownership', in particular land ownership, which led to conflict and the many Neolithic hill forts that we now see around. What job we have taken on trying to change ideas that have been around since the Stone Age!
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Peter Fennell

Joined: 27 Sep 2007
Posts: 53
Location: London

PostPosted: Mon Feb 21, 2011 11:53 pm    Post subject: Reply with quote

Virtual real estate
Some refer to 'commons' rather than land specifically. 'Free gift of Nature' would include radio spectrum and Brown's auction of 3G. But there must also be human developments that have a similar character - like the collected sum of knowledge.
Or for instance there is only room in the national collective folly for one top football league - Premier or First or Super - and an auction of the license to run it would be a good idea.
Some say the desktop is digital real estate. I don't see how. But I do see the triumph of Microsoft as like Betamax vs. VHF. A single standard had to emerge and it mattered less which was the best than whether everyone was on it. Governments seem to have a duty to own and maintain standards perhaps for that reason.
I wonder if I enclosed the 'metre' could I charge a few hundredths of a pence whenever someone used one and make a couple billions before everyone got disgruntled and shifted to feet?
Facebook and Twitter are like market places but perhaps more like standards insofar as there is no physical limit but we prefer a single social nexus than having half our friends on one and the others on another.
But less permanent than land. Friends Reunited where are you now?
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