What Happened To Japan

Karl FitzgeraldInternationalLeave a Comment

Investor’s Business Daily Feb 27, 1998 reports:

“Asia’s largest economy is in trouble

A long-awaited stimulus package announced last Friday (Feb 20) showed once again why Japan’s model of government-business collusion cannot thrive in a free market.

The package did not cut taxes or try to ease the burden of regulations on the Japanese. Instead, the govt proposes letting Japanese financial institutions package bad loans and sell them as securities. The govt might then buy them up in a bid to stimulate the economy…

A January estimate pegged the amount of bad loans at Japanese banks as worth about 15% of GDP…”

Japan’s banks are under water by an amount approximately equal to their annual government spending, thus dwarfing the American Savings and Loan Crisis. The IBD article goes on to rail against subsidies and protectionism, and calls for further deregulation of the financial sector.

Now, certainly, ongoing protectionism causes problems, as does any restraint of free trade. But, on the other hand, financial deregulation of Japan’s banks, coupled with unwise lending practices, played a major role in creating the overvaluations that preceded meltdown. So, IBD really misses the boat on finding a solution to the Asian Crisis. But then, so does most of the financial profession, including those who run the International Monetary Fund.


During the 1980’s, Japan was seen as a veritable, and venerable economic miracle. Many Americans were convinced that we had been permanently overtaken by Japan, competitively–and they sought to emulate Japanese success by instituting MITI-style govt-business collusion. Fortunately, most of these efforts were rebuffed, and America has done fairly well with comparatively free trade, despite unexciting “Clinton- growth rates.” But there is no denying that the US Dollar has become the pre-eminent currency of the global economy, and the US stock market the safe-house of global capital. Meanwhile, Japan has fallen on hard times.

As it turns out, Japan was the “front domino” of the Asian economies; the first to fall. While other Asian nations continued to grow at double-digit rates well into the 1990’s, Japan suffered a stock market collapse, zero growth, and a prolonged recession which has even resisted the stimulus of lending rates pegged at ~0%! Imagine free money! And still no capital-spending boom!

Rather than being pulled out of this recession by its local trading partners, the Japanese Plague has spread outward. It has spread to free-wheeling Thailand, which was the most “laissez faire” of the group. It has spread to Indonesia, which was the most corrupt and centrally-planned. It has spread to South Korea, which was somewhere “in between.” What do these nations have in common?

The Japanese Plague is not a function of central-planning vs. laissez faire govt. It is a function of a real-estate bubble, of land-value driven up, mostly by govt-supported banks eager to lend billions of bhat, yen and dollars to real estate speculators.

It is common knowledge that when the Japanese economy was at its peak, the value of Tokyo land exceeded that of the entire United States. This is an impressive statistic, but consider the consequences. Since land is needed by the productive economy, stratospheric land prices make local economic expansion impossible to afford… not to mention what it does to the average working person, whose family is crammed into living quarters not much larger than the space allotted for convicts.

Japan’s banking system created the greatest real estate boom of the 20th Century, probably acting on the advise of influential western economists who equate high land prices to “capital accumulation.” Japan’s banks are now holding trillions of yen of bad loans on land-value which has simply disappeared. Yet Japanese land is still overvalued, relative to its productive use-value, threatening to undermine even more loans.

Hence, the Japanese Govt has done everything in its power to stabilize land prices, even at high levels–and in spite of the cost of ongoing economic malaise. I’m sure they figure that malaise is better than collapse. And that is the Hobson’s Choice which they have become stuck with. But it was not always so.


During the 1970’s, the Japanese invested heavily in plant and equipment, and perfected production processes using the Statistical Quality Control taught by Deming. This success-formula was used in many industries, from automobiles to semiconductors, and it forced the rest of the world to follow suit–while making Japan an economic powerhouse. But this hard-earned prosperity and economic power was not enough for some, who were jealous of the entrepreneurial fortunes of Sony, Honda and Fujitsu.

Within the ranks of the financiers and govt officials there was a push for financial deregulation which would allow high-priced real estate to serve as collateral for loans. World-class manufacturing–which requires a lot of hard work amidst brutal competition, and which is a true engine of wealth–was taken for granted, or even mocked. Many sought a get-rich-quicker scheme which, it was said, would spin-off even more money for “investment,” taking Japan to the “next level” of financial success. (Ref: Barron’s Magazine)

Once these loans started flowing, very little went into the productive economy. Instead, it went into creating a real estate bubble, borrowing and re-borrowing on inflated values. But the only way you can drive real estate to the sky, is to pour your wealth into the ground. And that is literally what Japanese “investors” did. This created the illusion of phenomenal wealth, as Japanese real estate magnates rapidly became the wealthiest individuals in the world–on paper. But this kind of “wealth” does not trickle down. It dries up.

“Location” is a passive element; it does not produce anything without some expenditure of labor and capital. Driving up the price of Japanese-locations meant that there was less and less money left over for investment in jobs and equipment. And when the real estate bubble burst, and the banks began to implode, there was no money for ANY kind of new investment. Accordingly, the latest predictions are that the Japanese economy will actually shrink during 1998.


Parts of Asia have followed in Japan’s footsteps, except that their real estate bubbles have been primarily financed by foreign money as opposed to internally (by Japan’s high savings-rate).

Throughout Asia, foreign money has been pouring in over the last decade to take advantage of high growth rates. The press dubbed these nations the “Asian Tigers,” and billions of investment dollars poured in. Some of this money was invested in plant and equipment, which created many real jobs, a rising middle class, and prosperity in Eastern Asia. But eventually, it became more difficult to invest the money wisely, and money managers began “pouring it in the ground,” financing speculative real estate ventures. Thus, their fate was sealed.

Thailand was the first to collapse, triggered by currency speculators. Needless to say, the fundamentals have to be pretty weak if currency speculators can cause a 50% decline in a currency and touch off a depression. At the time (Summer of 1997) some western pundits blamed it on Thailand’s “laissez faire” investment policies, and pointed with some pride to the “continued stability” of Indonesia and South Korea, which were more “centrally-planned” by their governments. (These laughable articles can still be found on the internet by searching for Asian Crisis.)

Of course, within months, South Korea and Indonesia went down the same rat-hole as Thailand, in spite of all their vaunted govt intervention in the economy. The press called it the spread of “bhat-ulism,” but it is simply the consequence of an implosion of excessive land-values, destabilizing the banks and hence the currency–repeating the catastrophic avalanche of Japan.

As this goes to press, the debate revolves around the conditions that the IMF should impose on a nation such as Indonesia–a nation which will undoubtedly squander any western money by bailing out the Suharto family members who were worst-burned by their speculations. It is a long-shot that IMF funds will actually turn these economies around. Most will probably emulate Japan, and fail to take the radical actions necessary, preferring instead to subsidize failure by Big Players.

But Hong Kong and Taiwan have survived this crisis relatively unscathed.


Hong Kong and Taiwan have endured assaults on their currencies, and panics in their stock markets, but their economies are intact, even showing good growth in Q1 1998. How can this be?

The answer is quite simple. Taiwan and Hong Kong both tax land values fairly strongly, thus discouraging investment in real estate that is not warranted by actual economic conditions, conservatively measured. As a result, they have a very stable source of public revenue, plenty of reserves to defend their currencies or to provide infrastructure–and the ongoing production-incentives of low taxation on labor and capital. Their banks are stable, because their loans are not based on over-valuation of land.

And, of course, they have free trade working for them–but so do all the Asian Kittens, in greater or lesser degrees.


Rising land prices (commonly thought of as “home-appreciation” in the USA) are seen as a sign of prosperity, but they gradually sow the seeds of economic reversal. Every recession in the USA has been preceded by a “land-boom,” and accompanied by a “land-bust,” as documented by Mason Gaffney, PhD in Economics.

This bone-crunching volatility is not a necessary part of the free market! The way to achieve stable growth is to keep land available to the productive market economy, by keeping it from being used for private speculative purposes.

Land value taxation, or the community collection of land rent, has the effect of removing the speculative premiums from land-locations. Land simply “rents” for its current use-value, as determined by market forces. This allows the un-taxing of the rest of the economy, such as wages, sales and income, which has the effect of incentivising everyone to make money by working and investing in plant and equipment.

The solution to the Asian Crisis is not the funneling of billions of IMF dollars in to support the sagging fortunes of corrupt officials which are tied up in speculative real estate deals.

What is needed is a permanent tax-shift off of the Asian workers and entrepreneurs, and onto the politically-connected Asian land-holders. Once this tax shift strips away the speculative premiums from land, the land-holders will be forced to swim in the new economically competitive environment–or sell out to someone who can.

–Al Date
442 Brasswood Ct
Santa Clara CA 95054

Al Date is employed as a computer-database manager in Silicon Valley. He has an AA in Electronics Technology; but eclectic interests. He is self-taught in computer programming, financial management, philosophy and economics. Daily reader of three newspapers, including IBD.

The Danish Experience

Karl FitzgeraldInternationalLeave a Comment

by Knud Tholstrup, University of Bergen 1974

Sensational practical experience in taxation of land values was gained in Denmark in the years 1957-60 when the Danish Justice Party, promulgating land value taxation, free trade and equal rights, formed a so-called ‘land tax’ government, together with the Social Democrats (Labour) and the Radicals (Liberals). The three parties made an agreement based on the following:

1. Collection of land rent
2. Liberalisation of trade: including closing the Department of Supply and Import Control
3. A tax freeze

Although the Justice Party was the only member of the triumvirate of parties forming government to have agitated and worked for the introduction of land value taxation, the election programs of all three parties did include a land tax on the growth in land values.

Thus it was generally expected after formation of the government that some kind of land value taxation would be introduced – with the result that land speculation ceased immediately.

Legislation on taxation of increased land values was prepared, presented to parliament and passed with effect as from the new land value assessment of 1960.

Economic effects of the cessation of land speculation were astounding and aroused widespread attention. On the 2nd October, 1960, the New York Times editorialised:

Big Lesson From A Small Nation

Prior to the 1957 election, Denmark had a sizeable deficit on her balance of payments, was in considerable debt abroad, and burdened with a relatively high interest rate, high unemployment and an annual rate of inflation of approximately 5 per cent. Devaluation threatened.

Economic reaction

The following improvements took place in the next three and a half years (1957-60), contrary to what was occurring abroad:-

1. The big balance of payments deficit was turned into a surplus
2. Denmark’s total debts abroad amounting to 1,600 million kr. were reduced to one quarter of this, to about 400 million kroner
3. Interest rates, and rents in new housing, declined
4. Unemployment was soon replaced by virtual full employment, together with considerable increases in production and wages
5. Inflation was brought to a standstill
6. All wage increases were real wage increases- the highest ever in Denmark
7. There were no new taxes during the three and a half years
8. The Department of Supply was closed down. In 1960 all import restrictions were lifted and duties cut
9. There was a period of industrial peace, with no ‘strike’ activity

Public opinion polls run at the time showed the relationship between satisfied and dissatisfied voters, before, during and after the three-party government. “Undecided” answers have been omitted:-

Survey Results

  Satisfied voters Dissatisfied voters
Before 1957 25% 75%
1957/60 82% 18%
After 1960 20% 80%


At the general elections in 1960, however, the opposition started a program directed solely against the smallest party in the triumvirate – the Justice Party’s nine-man group -and used the hitherto largest sum ever in any Danish election campaign, financed by land-owner associations and conservatives. With its limited financial resources, and lacking support from the daily press, the Justice Party could not withstand the attack. The party lost half its vote, and was unable to collect the numbers required for representation in parliament.

Agitation against land tax legislation continued after the election and the new, enfeebled government acceded – and in the face of strong pressure from land-owner associations promised that the new law would be repealed. This was carried out in 1964 before long term benefits of the reform could be secured.

As a result, the following took place:-

1. The current account surplus became a deficit
2. The deficit on the balance of payments 12 years later was 3-4 billion kroner
3. By 1976 debts abroad amounted to 20,000 million kroner, 50 times more than under the triumvirate
4. The effective rate of interest doubled
5. Land prices jumped sky-high. Denmark’s overall land price rose from 17 billion kroner at the assessment of 1960 to 67 billion in 1969
6. Rents in new housing by 1975 were six-fold those of The Justice Party’s period
7. The rate of inflation rose from barely 1 per cent to 5-7 per cent. It was 8.6 per cent in 1965, the year following repeal of the land tax law in 1964
8. Taxes began to escalate again


A comparison between the three periods, before, during and after the so-called “land tax government,” gives a clear picture of the importance of eliminating land speculation and unearned increment in land.

As there was no longer any unearned income – incomes only resulting from production – the balance between the purchasing power and amount of goods was restored. Inflation therefore came to a halt because it received no nourishment.

These exceptional developments in Denmark’s economy in the three periods mentioned demand the greatest attention – and should be the subject of intensive study by economists and laymen interested in the national economy. The practical experience should form the basis of revised political evaluation of the importance and strength of truly free enterprise and a freed up national economy.

Answers for Indonesia

Karl FitzgeraldInternational1 Comment

by Bryan Kavanagh, Director, Land Values Research Group and blogger extraordinaire.

President Suharto has been poorly counseled by the International Monetary Fund. Its economic prescriptions are pointless and wrong. He needs to take independent economic action if he is to avoid the social chaos erupting out of Indonesia’s financial turmoil. He could do worse than immerse himself in the history of his own ‘Spice Islands’, the wealth of which centuries ago attracted the Portuguese and the Dutch to the great chain stretching between Malaya and New Guinea.

The Indonesian financial crisis is the result of a phenomenal land boom that was a re-run of the West’s late-1980s boom period. It is little remembered that a very similar financial collapse was experienced by the ‘Dutch East Indies’ in the wake of the Napoleonic Wars, and that an amazing Englishman employed a successful technique to overcome it.

After being overrun by France in 1793, Holland was considered an enemy state by Britain, and the British fleet began to take over her scattered and valuable overseas settlements: Cape Colony, Ceylon, the East Indies and various West Indian islands. In 1795, a force from India captured Malacca, and later planned to completely destroy the port and transfer its inhabitants to Penang. This plan was abandoned on the advice of the soon-to-become towering figure of Stamford Raffles.

Raffles had entered the service of the East India Company in London as a clerk at the age of fourteen. His keen mind soon attracted the attention of the governors, and he was sent to a post in Penang. On the way out he learnt the Malay language, his mastery of which brought him both advancement in the Indian Service and a profound knowledge of and admiration for the Malay people.

The British had long been interested in Java, the most prized tropical island in the world, but they believed it to be too strongly held: Raffles had better information. He knew that neither the Dutch nor the French had really conquered Java and that the Javanese were unfriendly to both. The remaining Dutch residents and Chinese traders, too, had good cause to aid a power at war with France. Raffles advised the Governor-General of British India, Lord Minto, who accordingly decided to seize Java. This occurred without serious resistance on 4 August 1811. On his departure in October of the same year, Lord Minto appointed Raffles Lieutenant-Governor of Java and its dependencies, telling him: ‘While we are in Java let us do all the good we can.’ Raffles set about doing all the good he could until he left Java in March 1816. During his Lieutenant-Governorship the Javanese achieved amazingly high degrees of liberty and prosperity.

Raffles laid the foundations that made this possible by restoring the way of life which the Javanese themselves had enjoyed before the coming of the French and the Dutch. He found their finances in a state not dissimilar to Indonesia’s current sorry pass. Taxation and restrictions on trade were rampant. The list of devices adopted by the Dutch and the French in order to sustain their monopoly over Javanese trade included tolls, taxes and restrictions across every activity of Javanese life. There was a 15 per cent tax upon the production of rice, a poll-tax upon families, and market duties, or tolls, levied literally on every article produced by agriculture, manufacture or the petty arts (distinctly resembling Australia’s proposed Goods and Services Tax) and there were additional levies made by Egg Boards, Dried Fruit Boards and similar bodies. There was a tax upon the slaughter of buffaloes, which affected the price of food and restricted the breeding of animals. There was a charge upon the cost of transport of baggage and stores of every description and upon the feeding of travelers. There were obligations to render free labour service for public works and forced contribution to Government monopolies. Duties and charges on seaborn commerce amounted to forty-six per cent. Under the onslaught of these ferocious taxes whole districts had become depopulated. There was a drift from the land to the towns and villages, and production of real wealth was declining rapidly. Amongst the first acts of Raffles – with Lord Minto’s concurrence – was the immediate abolition of most of these imposts.

Raffles had looked to Javanese history for answers, and discovered how a prosperous and glorious past on the great island had been effectively destroyed by the folly of invaders, ignorant or uncaring of Javanese land laws. Under these laws, there was no room for land speculation and monopoly which Java was experiencing. Land might be held for use, provided ground rent in full was paid over to the governing authority. The Malays and Javanese both had put into practice for many centuries the principles espoused by the physiocrat economists of the eighteenth century as having enormous potential for forestalling revolutionary foment in France.

Average land rent was estimated at two-fifths of the yield. The cultivator had free disposal of the rest of his produce, which was rice in most cases. He could pay his dues in rice or money. If in money, payment was to the desa headman, and thence to the divisional office. If in rice, he had to convey it at his own expense to Residency headquarters.

Raffles proceeded by diplomacy to overcome opposition and to secure the cooperation and friendship of the established chiefs and rulers. When they learned that through his Land Settlement Memorandum he proposed to completely restore the ancient system of Java, one by one, they accepted his authority without further question. Accompanied by his wife, he travelled over the island for the purpose of establishing his government and appointing suitable Javanese to carry out the details of administration. He was available to all.

Raffles had believed that the re-introduction of the land-rent system would provide a surplus to cover expenditure. The revenue did increase, and more than covered the normal operations of Government, but it was inadequate to cover, in addition, two crippling burdens with which the administration was unfairly encumbered. First was the payment of the cost of the wars of occupation. Second was the “appalling handicap” of carrying out Lord Minto’s promise to redeem, at the rate of 20 per cent discount, the paper money still circulating from the Dutch period. Raffles hoped that the island would continue to be held after the war was over, but recognised that neither the East India Company nor the British Government would want this unless it was self-financing – inclusive of these extra impositions. Hence, he had an enormous amount of external pressure continually exerted upon his administration (of which President Suharto and his IMF advisors could currently take a salutary warning). Raffles’ evaluation was confirmed later, when it inevitably transpired that these extra demands could not be fully covered from the revenue. The directors of the East India Company then accused him of rendering the occupation of Java “a source of financial embarrassment to the British Government”! It had clearly been the extra demands on his Treasury that prevented him from carrying out his proposals to abolish the toll gates and to free internal trade fully.

Raffles had dreamed of making a new British empire of the islands centred on Java. However, soon after the re-introduction of the Javanese land-rent system, Napoleon fell and the Netherlands regained independence. At the convention of London in August 1814, Britain agreed to restore Java to the Netherlands. This eventually happened in August 1816, in the wake of Napoleon’s escape to Elba. Whilst the Dutch did continue with the principle of Raffles’ land policy, they began to re-institute many of the old interferences with trade and industry.

When Indonesia finally passed from Dutch control in the twentieth century, the rate of land tax had become only 7.5 per cent of the full annual rental value, and impositions upon trade again flourished.

Public Recognition

In England, Raffles’ outstanding achievements and abilities were recognised, and a knighthood conferred upon him by the King. Whilst in Europe he took the opportunity of calling on the King of the Netherlands to make intercessions in favour of his former Dutch colleagues in Batavia, as well as the Princes of Java. He was successful, because the Dutch authorities had already reported favourably on the merits of the Raffles administration. Raffles afterwards observed, however: “The King and his leading Minister seem to mean well, but they have too great a hankering after profit – and immediate profit – for any liberal system to thrive under them.” (This insight into Indonesia’s ongoing plunder has been confirmed many years later: by President Sukarno’s inability to be able to grant economic freedom to his peasants in the years following independence from the Dutch in 1949; and by President Suharto’s recent failure to curb the corruption and land speculation in the 1990s.

Land Rent System in Sumatra

Raffles returned to Indonesia in 1818, this time to the island of Sumatra, as Governor of Bencoolen. When he returned the East India Company was deriving its main income from slavery, gaming, and cockfighting farms, together with the enforced growing of a few tons of pepper. He wiped out these sources of income on principle almost immediately. He was later reprimanded for disposing of the slaves, referred to officially as “the property of the Company”. Raffles was a friend of Wilberforce, and, not content with dealing with the Company’s slaves in this fashion, he also acquired the Island of Nias, off the coast, for the express purpose of completely eradicating the slave trade in all its forms.

Following his successful policy in Java, Raffles repealed all restrictions and taxation upon trade and secured the revenue of Sumatra on ground rents. Owing to the under-development of the island of Sumatra, which for richness and production could not be compared with Java, he did not follow in detail the direct collection of the ground rents, but obtained them through the princes and chieftains similarly to feudal dues. The immediate result was an increased flow of trade which brought unexpected revenues to the Company, and the production of pepper, now produced for payment at market rates, increased many times. By the time this island was handed over to the Dutch, it too had virtually become a self-paying proposition, and the native inhabitants began to experience prosperity. The withdrawal of the blight of government interference and repeal of taxation upon trade, wages and industry, accompanied by the collection of ground rent for public revenue, were once again at the forefront of Raffles’ thinking. Of the ancient land revenue system, Raffles came to say: “I have the happiness to release several millions of my fellow creatures from a state of bondage and arbitrary oppression. The revenues of Government, instead of being wrung by the grasping hand of an unfeeling tax-farmer from the savings of industry, will now come into the treasuries of Government direct and in proportion to the actual capacity of the country.”

After his work in Sumatra, Raffles went on to establish Singapore on the same principles, as a free trade open port, and it is perhaps for this that he is best known in the English-speaking world. His Indonesian history does not seem to have loomed large in the minds of the neo-classical IMF economists currently advising President Suharto. It would be encouraging to believe that the Australian Minister for Foreign Affairs, Alexander Downer, might have reminded the President on his visit to Indonesia in January 1998 of the manner in which Sir Stamford Raffles had effectively handled the Dutch East Indies financial crisis almost two hundred years ago.

Answers for Indonesia is based upon the below mentioned work by the late Allan Hutchinson (Director of the Land Values Research Group) published in the Melbourne journal Progress in 1967.


Sir Stamford Raffles in Indonesia by AR Hutchinson
History of Java by Sir Stamford Raffles
Netherlands India by JS Furnival
A History of South East Asia by DGE Hall
Social Patterns in Jogjakarta by Selosoemardian

The Silence of The Historians

FeaturesLeave a Comment

FWG Foat, MA, DLit

There is a Secret of History. The mot de l’enigme is Land. The great historians of the rank, for instance, of Mommsen, say the word, but then pass on, as though in haste to leave a dangerous ground. Lesser historians shun the mention of it altogether, or mention it in faltering accents. Time, with its effacement of old meanings, helps this obscurantism and oblivion falls upon the theme.

What is the cause of this conspiracy of silence? The answer is again in one word, landlordism. Historians are proteges of those whose interest lies in keeping dark concerning land. Now a protege must not discuss what patrons do not wish to mention. But that would come to writing nothing of man’s greatest struggles, longest wars, and bitterest distress. “Well, then, let the historians write of wars, political struggles, and distress in social life. Let them write freely of the things that happened, and the suffering endured. But let them never mention land and the ownership of land as being the ultimate causes of these happenings. They can write out the story, showing their knowledge of the facts; and if they are pressed for explanations they can point to intermediate collateral causes: man’s natural pugnacity, notions of honour, foolish mistakes, wild aspirations towards political freedom, and the like. That will satisfy the few inquiring minds, and the rest will never question. Only no mention of the land and the landlords!”

These were the orders tacitly given by those who had the powers of censorship and suppression of books, removal of professors, and withdrawal of patronage. How could a man explain that land and landlordism were ultimate causes of nearly all wars and sufferings of the peoples, when his payments and his patrons were of the landlord class, or members of that nameless party whose sincere and secret faith was landlordism?

Besides, the peoples loved the soldiers. Tales of great battles always interested. Pity could be awakened and wild patriotism. There was no need to talk of land and ownership in order to fill up the lecture time or make a book of history. “Agrarian laws?” Well, they made such dull reading!

Dull, yes, but the dullness was deliberate, or else was due to plain stupidity. Let us consider a few national histories, and see what could have been made of the story of land and landlordism The national history best known throughout the English – speaking world is that of the “Children of Israel”. The story of the Hebrews is the only history which has been read aloud for centuries in the hearing of the people, and diligently taught in all the schools. It is a story of a struggle to “possess the land”, then to maintain a fair division of it among descendants of the conquerors. The institution of the Jubilee return of lands to their original owners is now known to have been a dream of prophets and idealist lawmakers, but its importance as a principle cannot be over-estimated. Although the cleverer landholders retained (by what the Bible calls oppression) lands of their less ambitious “brethren”, they kept them against the express injunction of the Tribal God – that is, of the prophets and liberators who declared they spoke for Him. “The land shall not be sold for ever”, said Yahweh, “for the land is mine; and ye are strangers and sojourners with me”. (Leviticus XXV. 23).

To paraphrase: “No just man of our people must make claim to permanent ownership of any land: the land has been distributed to all our free men on a principle of equal justice, and the good patriot must be loyal to the general system. No individual can own land absolutely; he has it only in usufruct; it belongs to the whole tribe, and is in the unchanging guardianship of the Nation’s God” .

The usual struggle, of course, went on, in the course of which much land was claimed and kept, and the expropriators got such wealth and influence that they controlled even the opinions of the people; and the peasants of Galilee thought Jesus mad when he declared that the rich men of His time were not the best of men. “How hard it is for a man of property to come to see the higher truth”, the Master pointed out to His disciples. “Well! Who, then can be saved?” the poor men said, in pure bewilderment.

When He went on to pour His condemnation on those same high-placed proprietors because they “devoured” widows’ houses and “for a pretence” made long prayers, “the common people heard Him gladly” – and the landowners knew they must take action.

In the history also of Sparta redistribution of the land was tried. The reforms in this direction, piously credited to the great Lycurgus, were really undertaken by Agis and Cleomenes at a later date. The struggle was keen between the true patriots, who were prepared to give allotments in Laconia to the landless citizens, and those who meant to keep exclusive privilege.

At Rome, again, if there is any meaning in the hundred years’ revolution which divided the Senate (mostly the landowning classes) from the people, from the reforms of Gracchus to the settlement made by Caesar, it is that the people wanted land in Italy and the Senate would not yield it; that the people wanted to assert the principle that the ager publicus was the domain land of the State. i.e., the property of the community alone, and the Senatorial party, with others who came in for profiteering, wanted to keep rent-free the lands assigned to them, and make them instruments of economic slavery; and that the lawless individuals of the nation, tempted by the notion of the absolute ownership, themselves in time and on occasion became petty landlords, too, and asserted the same claim to dominium where they should have been content with usufruct.

Of course there were wars in Italy and in the provinces, and very few of them were about anything but this dominium and its consequences, until at last the Roman world grew weary of the strife, and the great statesman Julius Caesar made some adjustment of the claims of common freedom against privilege. If Caesar had not seen that provinces must live their own lives, in the enjoyment of their lands within one common state, and made the taxation represent acknowledgment at once of freedom and responsibility, there would have been no Roman Empire to endure five hundred years.

The story of our own land for the thousand years between the fifth century and the fifteenth is a story of land and land ownership far more than anything else. Our Saxon forefathers came to win land, and all through the so-called Heptarchy engaged in ceaseless fighting over what they had won.

The Feudal System brought another new order in. The English law (according at least to Coke and Blackstone), asserts that as a changeless principle all land is holden, mediately or immediately of the King, ie., no one can have true freehold land; all land is subject to old charges, services which sale or transfer cannot remit. Civil wars occurred through efforts of land-holders to shake off the claim for these services due to the State or larger community, represented by the feudal overlord.

One meaning of Magna Charta, as Professor Pollard has pointed out, is that it was such an effort; the liberty which certain barons wanted was liberty to decline to render these dues, the “liberty” was a freehold each one wished to have created out of his feudal tenure. The lawless Barons of Stephen’s and other weak reigns were playing the same game, and as in the Roman Republic, so here landless individuals have gradually joined in it, until most Englishmen suppose that land can be private property, and that “freehold” land, so far from owing rent or service to the State, can be actually let or sold to the State, as well as to other tenants or purchasers, for the private profit of the alleged “owners”

The purchaser of any “freehold” piece of land owes to the community the services which have anciently been charged upon it, for example, that he should present himself in the full armour of a knight on horseback at the call of the proper superior representing the State, unless he pays for another person to go in his place. “But”, it may be said, “such services ceased to be required”; to which the reply is, only when money payment was accepted instead. Again, it may be said: “Well, but it is three hundred years since the claim was made”; to which we reply – then there are arrears long overdue! How else could the public charges have been met? How in the interval have the public moneys been raised? The answer is that they have been raised pro tem. by taxes laid upon the workers’ work, the employers’ capital, and the people’s food and homes gradually and almost secretly: no wonder that historians were not to mention the transference.

No wonder that much was made of John Hampden’s protest against ship-money. No wonder that histories represent the English people as madly desirous of “the vote”, “the Charter”, religious equality, and other desirable things. No wonder that we are supposed to have been oppressed by tyrannous kings. No wonder that the thirst for the destruction of neighbouring peoples and the glory of warfare have been emphasised – anything rather than that the people should know that the one indefeasible title which the English law permits is the title of the whole community to inalienable possession of the land, the soil of Britain. Anything rather than that the peoples of Europe should know that they are fighting each other throughout the centuries, in order that the unlawful ownership of State lands may be left without taxation, and that attention may still be diverted from the history of Land.

The Corruption of Economics

FeaturesLeave a Comment

by Mason Gaffney, Professor of Economics, University of California, Riverside

The following is the introduction to Professor Gaffney’s paper Neo-classical Economics as a Strategem against Henry George, 5 July 1994.

The paper formed the basis of a book: The Corruption of Economics, Mason Gaffney and Fred Harrison, Shepheard-Walwyn (Publishers) Ltd, London, 1994.

Introduction: The Power of Neo-classical Economics

Neoclassical economics is the idiom of most economic discourse today. It is the paradigm that bends the twigs of young minds. Then it confines the fluorescence of older ones, like chicken-wire shaping a topiary. It took form about a hundred years ago, when Henry George and his reform proposals were a clear and present political danger and challenge to the landed and intellectual establishments of the world. Few people realize to what a degree the founders of Neoclassical economics changed the discipline for the express purpose of deflecting George, discomfiting his followers, and frustrating future students seeking to follow his arguments. The stratagem was semantic: to destroy the very words in which he expressed himself. Simon Patten expounded it succinctly. “Nothing pleases a … single taxer better than … to use the well-known economic theories … [therefore] economic doctrine must be recast” (Patten 1908, p.219; Collier, 1979, p.270).

George believed economists were recasting the discipline to refute him. He states so, as though in the third person, in his last book, The Science of Political Economy (George, 1898, pp.200-209). George’s self-importance was immodest, it is true. However, immodesty may be objectivity, as many great talents from Frank Lloyd Wright to Muhammed Ali and Frank Sinatra have displayed. George had good reasons, which we are to demonstrate. George’s view may even strike some as paranoid. That was this writer’s first impression, many years ago. I have changed my view, however, after learning more about the period, the literature, and later events.

Having taken shape in the 1880-1890s, Neo-Classical Economics (henceforth NCE) remained remarkably static. Major texts by Marshall, Seligman, and Richard T. Ely, written in the 1890s, went through many reprintings each over a period of 40 years with few if any changes. “It was for the Chautauqua Literary and Scientific Circle (1884) that I wrote the first edition of my Outlines, under the title Introduction to Political Economy. In this first edition of the Outlines there is to be found the general philosophy and principles that have shaped all future editions, including that of 1937” (Ely, 1938, p.81).

Not until 1936 was there another major “revolution,” and that was hived off into a separate compartment, macro-economics, and contained there so as not to disturb basic tenets of NCE. Compartmentalization, we will see in several instances, is the common NCE defense against discordant data and reasoning. After that came another 40 years of Samuelson’s “neoclassical synthesis.” J.B. Clark’s treatment of rent, dating originally from his obvious efforts to refute Henry George (see below), “has been followed by an admiring Paul Samuelson in all of the many editions of his Economics” (Dewey, p.430).

Clark’s capital theory “… gives the appearance of being specially tailored to lead to arguments for use against George” (Collier, 1979, p.270). “The probable source from which immediate stimulation came to Clark was the contemporary single tax discussion” (Fetter, 1927, p.142). “To date, capital theory in the Clark tradition has provided the basis for virtually all empirical work on wealth and income” (Dewey, 1987, p.429; cf. Tobin, 1985). Later writers have added fretworks, curlicues and arabesques beyond counting, and achieved more isolation from history, and from the ground under their feet, than in Patten’s dreams, but all without disturbing the basic strategy arrived at by 1899, tailored to lead to arguments against Henry George.

To most modern readers, probably George seems too minor a figure to have warranted such an extreme reaction. This impression is a measure of the neo-classicals’ success: it is what they sought to make of him. It took a generation, but by 1930 they had succeeded in reducing him in the public mind. In the process of succeeding, however, they emasculated the discipline, impoverished economic thought, muddled the minds of countless students, rationalized free-riding by landowners, took dignity from labor, rationalized chronic unemployment, hobbled us with today’s counterproductive tax tangle, marginalized the obvious alternative system of public finance, shattered our sense of community, subverted a rising economic democracy for the benefit of rent-takers, and led us into becoming an increasingly nasty and dangerously divided plutocracy.

The present paper purports to identify the elements of Neo-Classical Economics (NCE) that were planted there to sap and confound George, and show how they continue to warp, debase and vitiate much of the discipline called economics. Once a paradigm is well-ensconced it becomes a power in itself, a set of reflexes to sort the true and false. Any exception spoils the web of interpretation through which art seeks to make human experience intelligible. Only the young, the brave, the energetic, the sincere and the skeptical can break off such fetters. This work is addressed and dedicated to them.