onsdag 3 december 2008

What free markets?

There never was a free market. A free market cannot exist if land is enclosed and monopolised, which has been the case since the early nineteenth century. In that situation the landowner is always bargaining from a position of strength vis a vis both the capitalist and the labourer.

Governments must collect the rent of land and use it as public revenue instead of taxes on wealth production. Otherwise there will be another boombust around 2025.

There is no free bargaining when potential tenants have the option of starving or coughing up whatever was asked. So the right sort of land reform is key. In Zimbawe, we have a classic example of the wrong sort of land reform. Mugabe identified that there was a genuine problem and then did exactly the opposite of what was required and the country ended up with land monopolised by his cronies instead of former colonialists.

What Mugabe ought to have done was to leave the white farmers free to continue on their land but to introduce a tax on the rental value of land, and get rid of any other taxes such as income tax. The efficient farmers would have carried on as usual, the inefficient ones would have retired and others would have taken over the land, so long as they were competent farmers able to pay the land value tax - just as an inefficient farmer would not take on a farm tenancy. That would have been a colourblind policy which would have worked to everyone's benefit and Zimbabweans would all have become wealthy.

Some people argue that such a policy would discourage people from working - they say that people need to own their land. But in practice very few people actually own the land on which they both work and live. Most pay rent and work for wages. It does not stop them working hard as long as they are properly rewarded for their efforts. Since land value taxation is a replacement for existing taxes, it means that people receive 100% of their wages instead of being robbed by the government which is what happens now. Even under a minimal system, governments need a lot of resources and they have got to be paid for somehow. Either it comes from the rent of land or it comes from robbery of people's wages or savings, through debasement of the currency.

It is strange how people who claim to be in favour of markets and economic freedom are happy to tolerate the theft of the fruits of people's labour. Yet at the same time they are happy to allow people to keep what they have not produced ie the rental value of land. There is an odd contradiction here.

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