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.