The Best Kept Secret in Economics

What happens to the increased value that accumulates when you and I improve our performance at work? It gets soaked up in the price we pay for using land. The elites who control society don’t want us to understand this process. Why? Because that would lead to the politically awkward question: How come we are not all sharing in the benefits that accrue when we increase productivity?

The land market performs its job when it soaks up that net income, converting it into the rent of land and natural resources. That’s good, when that extra revenue is used to fund public services. It’s bad, when the lure of that stream of income becomes the reason to speculate in land (in pursuit of windfall gains). It results in society being held hostage by the free riders.

A moral and political choice is necessary to decide the character of our society. It’s that choice which politicians don’t want us to exercise, now, because we have allowed that stream of social income to be privatised. Thus, the lengths that the elites go to camouflage the current racket by which our collaborative efforts are hijacked for the benefit of land monopolists.

Textbooks do not describe the way in which our productivity increases are soaked away into the land market. Here are two examples.

  1. Palo Alto, California. With Facebook and others planning to “go public”, it’s boom time once again in the business. Companies like Google and LinkedIn are hiring people and raising wages, which is why house prices are going through the roof. The synergy from merging Labour and Capital in the valley is boosting the price people are willing to pay to live close to the internet companies.
  2. Mumbai, India. With double digit growth in the economy, fortunes are being made from re-developing slums occupied the poor. Slum dwellers are being bribed to move on, their locations converted into skyscrapers and shopping malls, the fortunes ending up in the pockets of the new land barons.

There you have it. Through the daily operations of buying and selling residential and commercial properties, we channel a large chunk of income we produce into the land market. The owners of land, of course, do not manufacture the sites we need – so why are they pocketing that stream of income? Why aren’t rents paying for the roads and schools needed by these communities? If we reserved land rents for that social purpose, governments would not have to tax wages. Hiring people would be economical. There would be no involuntary unemployment.

You would think that this was a Good News story that politicians would embed in every speech they made when touting for votes. In fact, it’s the last thing they want their electorates to understand. Ask yourself: Why?

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