fredag 12 december 2008

What free markets?

The concept of the fee market is coming under continued attack. But neither its attackers or its defenders seem to grasp the fundamental point that "The market" does not exist in the abstract - it is conducted within a particular framework of property rights, in particular land rights. Within the present framework, periodic boombusts have turned out to be inevitable. Within other frameworks, there would be other outcomes.

The principal and fatal defect with our present system of property rights is that land is held almost free of obligations. This situation arose gradually, gaining its full force in the UK during the Enclosure period from 1760 to 1840. One result is that land titles are traded increasingly feverishly, using borrowed money, as economic cycles proceed. Another is that moneylenders have undue power. Another is that everyone who is not a land owner is obliged to pay rent or work for wages. Most damagingly of all, this system of land tenure ensures that some people will become ever richer whilst the majority become ever poorer, with only a welfare state between them and destitution. That is not a sustainable position as it has led to welfare dependency and ever-increasing taxes on earnings.

The problem needs to be tackled at source, ideally at a Europe-wide level but individual countries should not be forced to go at the pace of the slowest - which most probably would be the UK where landowning interests are most entrenched and refractory. What has to be done is technically simple - to reform tax systems so that governments derive most of their revenue from the rental value of land, which is what they did a millenium ago. Once they do that, then the need for welfare states and further market intervention will dwindle.

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