Friday, 27 January 2017

Killer Arguments Against LVT, Not (408)

At the nuttier end of the Faux Lib spectrum, from politicsforum.org. He or she refers to land or land and buildings as "property", but it's a very common mistake so ignore that.

The basic point is that property is indispensable for supplying credits. Property generates rents, and it can be sold. Therefore it is an excellent security in order to back up credits. Thus property involves a premium, namely the right to receive a credit.

Liquidity originates from property. Since a bank receives the security in exchange for the credit, the interest originates from the premium of the property. Its height is still determined by the premium of liquidity.

In general capitalism emerges as soon as land becomes a private property, for land is a reliable security. Securities must maintain their value during the currency (term) of the credit. Land is durable, so that its premium remains intact. Credits create money.

In other words, money is simply a claim on property, and solvency corresponds to property. So the amount of money is determined by the available property. The debtor must pay (transfer) the premium of property to the creditor.

Note that the debtor retains the right to use his property. Entrepreneurs compete for credits. They exchange their premium on property with the premium on liquidity (the opportunity to make profits). In fact the interest on credit forces the entrepreneurs to become profitable.

This in turn furthers innovation. So the driving force for productivity is institutional, namely the creation of debts, which must be served. During a crisis the state can stimulate the economy by supplying additional property, for instance by selling state-owned land.


That is all so incoherent and feeble it is barely worth demolishing - it collapses under its own weight. All the credit created by land merely goes into buying land, by definition. There is no knock-on benefit for the real economy. You can unpick each and every single assumption/argument just as easily. TruthToPower did a lengthy demolition, but let's go with...

Paradigm wrote:

I think it should be pointed out that the argument presented in the OP actually does a good job of explaining the argument for land value taxation. See, the use of land for credit is precisely the sort of thing Georgists are critiquing. The fact that rising rents are used for credit expansion is why land is such a central component in economic bubbles.


Since land is a fixed commodity, its value is bid up by speculators until it becomes too expensive for continued economic activity, at which point the bubble bursts, and the whole house of cards comes crashing down. The idea with land value taxation is to take this asset out of the equation so that economic activity can be based on the actual goods and services available, rather than on speculative assets.

The other really obvious fish in the barrel is this bit:

Entrepreneurs compete for credits... the interest on credit forces the entrepreneurs to become profitable. This in turn furthers innovation. So the driving force for productivity is institutional, namely the creation of debts, which must be served.

Let's assume that's correct. With LVT, businesses would be under the same pressure to meet their LVT bills. In that sense it comes to the same thing and his argument falls flat, but...

a) With LVT, businesses (or households) are not faced with huge debts, hence more financial stability etc.

b) With LVT, all landowners would be under pressure to innovate. Without LVT, those landowners who are not engaged in wealth creation on their land (landlords and those who leave land idle) merely consume/reduce the wealth created by others.

7 comments:

Bayard said...

"He or she refers to land or land and buildings as "property", but it's a very common mistake so ignore that."

The other very common mistake that the poster makes is that the ability to get yourself into debt is necessarily a "good thing" - owning land means you can borrow money, i.e. get yourself into debt.

The idea that all business expansion needs to be financed by loans has now got such a universal hold on the public consciousness that it is now fairly useless to point out that it need not be so.

Lola said...

In general capitalism emerges as soon as land becomes a private property, for land is a reliable security. Securities must maintain their value during the currency (term) of the credit. Land is durable, so that its premium remains intact. Credits create money.

Wot?

Mark Wadsworth said...

B, he merrily confuses being in credit and being in debit. Credit is a good thing, he says, therefore being in debt must be a good thing.

L, I do not know. He or she appears to be deadly serious though.

Derek said...

In general capitalism emerges as soon as land becomes a private property, for land is a reliable security.

Nope. Feudalism can emerge as soon as Land becomes a private property. But Feudalism isn't Capitalism. Capitalism can emerge when money is invented. Capitalism is all about using money to buy something, then selling it at a profit. So you need money and you need things that are private property which can be bought and sold for money. But those things don't need to be Land.

Mark Wadsworth said...

D, those are more obvious points. I also happen to believe that you could have capitalism based on barter, but obviously using money as a medium of exchange makes it work infinitely better as transactions are so much easier.

If you read the full article, the author relies on Heidsohn & Steiger, whose ground breaking theory was that 'money' had to be rooted in private ownership of stuff*, which is so blindingly obvious as to barely worth mentioning, if nobody owns anything, not even their own labour or output, then there is nothing to exchange or buy in the first place.

* They give a long list of things which can be owned privately, one of which is land.

Bayard said...

"I also happen to believe that you could have capitalism based on barter,"

History bears you out on this. Capitalism based on barter and credit predates the invention of money by thousands of years. It appears money was invented so that the state could pay the army in something other than food or land, the soldiers could swap the money for food or land or whatever and the civilians could give it back to the state in the form of taxes instead of tithes, whereupon it could be recycled to the army and so on.

Mike W said...

Lola,
wot? My first thought as well.Glad you lot can do gibberish to readable translations for us.

Bayard, exchange based on 'gift' and 'debts' of various kinds is being pushed back now 7,000 + years. Barter, just as long; but was done when the parties did not trust each other much (may never meet again) so that the exchange fell out of the normal 'credit' arrangments above. Coinage and metals appears at times of crisis, and, as you point out, was designed to pay the Kings's tax and thus provision his/her soldiers, who nobody trusted with credit at all!