Tuesday, 27 August 2013

Reader's Letter Of The Day

A lengthy one in today's FT:

Sir, Billy Fitzgerald (Letters, August 20) is right to question your editorial “Dismal scientists” (August 16) on the need to build economics on a foundation of ethics. Thus you were wrong to disparage the “jargon” exam question as to whether fish in the ocean should be classified as “land”. For the answer has profound ethical as well as efficiency implications.

Classical economists rightly placed great store on the distinctions between Land, Labour and Capital. Thus fish in the ocean were part of David Ricardo’s “free, god-given gifts of Nature” and were to be sharply distinguished from fish on the dinner table that got there via direct and indirect labour costs of production.

At the margin, fish (or corn or widgets) fetch a price that just covers these costs, but “intra-marginal” production yields Ricardian rent surpluses over the real social costs.

The question then is: to whom should these rents belong? Neoclassical economists conflate land with capital and thereby treat unearned rents as normal profits on the total of private “capital”. Then rents are no different from the just deserts of labour and productive enterprise.

Central London yields massive ground rents. But the neoclassicals deny these are surpluses except insofar as an office, for example, may yield more than a shop on a particular site – its small “opportunity cost” differential.

Rents are an efficient rationing device. They are not an ethical basis for distribution. As a community-created surplus – the result of ever-growing demand relative to fixed supply – land rent should be the primary source of community or state revenue.

Instead, we destructively tax wages and productive enterprise (which incidentally depresses and conceals the underlying extent of Ricardian rents) and allow speculation in the scarcity price of land to create the next boom-bust cycle.

Roger Sandilands, Professor of Economics, University of Strathclyde.

11 comments:

Kj said...

That's an effing good summary that.

James Higham said...

Neoclassical economists conflate land with capital and thereby treat unearned rents as normal profits on the total of private “capital”. Then rents are no different from the just deserts of labour and productive enterprise.

Yes and the battle lines are therefore clearly drawn.

Mark Wadsworth said...

Kj, I especially liked the bit about rents being a good method for rationing scrace resources but a terrible way of redistribution.

JH, the "battle" is actually between "labout/capital" on the one hand and "rent-seekers" on the other. I hope that's how you understood it.

Bayard said...

I'm finding the idea of landowners, at least unconsciously, propagating ideas and theories that obfuscate the true position of land in an advanced economy, more and more attractive.

Mark Wadsworth said...

B, do you mean "attractive" or "highly plausible"?

It is a historical fact that until about a hundred years ago, "land" and "capital" (more accurately, "rent" and "earned profits") were considered to be separate things, but since then, they are treated as if they were the same.

Kj said...

Kj, I especially liked the bit about rents being a good method for rationing scrace resources but a terrible way of redistribution.

Agreed, one of the highlights of an overall excellent piece of writing.

Mark Wadsworth said...

Kj, the only bit I didn't like was the phrase "intra-marginal production".

What on earth is that? I suppose I'll have to look it up.

Kj said...

MW: Uhm, at first I pretended to know what he was talking about, like I usually do, but thinking about it I think he means the difference in return on the best land to that on the worst land.

Kj said...

-> ricardian rents.

Bayard said...

"B, do you mean "attractive" or "highly plausible"?"

The latter, therefore the former. I have just started reading Daniel Kahneman's "Thinking, Fast and Slow", which goes into that association. Good read, BTW, as far as I have got.

Lola said...

That's really very good. I've linked to it on my facepage thingy. (My children will just grone, but hey...).

(B. I've been reading Mein Kampf - it's surprising [not] as to how much of it is quoted, consciously or unconsciously, by capricious bureaucrats).