Capitalists, Landlords and Owner Occupiers

There’s plenty of stuff in the news about getting rid of Business Rates, which chimes in with the standard fake-Capitalist arguments regarding LVT . That just like any other tax, they harm work and enterprise.

We can easily demonstrate this is all bollocks.

Firstly imagine a landlord(A) who rents out his site (plot A) for £4,000 per month to a Capitalist (A).

Capitalist(A) earns £5,000 per month, of which he keeps £1,000 (including his 10% profit). We can say, that the market has allocated this site to the Capitalist who can put it to its highest productive use, yielding a £4,000 pm productive surplus.

The landlord has no economic function. But, landlordism also produces no deadweight costs (loss of GDP), although those engaged in rent collection add no value (so you can impute a loss i.e. all the wealth they would otherwise be creating if they had proper jobs). What landlords do is increase income and wealth inequality.

So, if you imagine I owned all the land in the UK, and everyone paid me rent, GDP would actually be better than now (see below), but I would quickly become the wealthiest man in history, and everyone else would become poorer.

Now imagine that same site, plot A being owner occupied. We know the maximum income from it is £5,000 pm. The trouble is, this Capitalist (B) isn’t a very good one. He is only earning £1,000 pm from plot A. As an owner occupier, he is both Capitalist and Landlord. As a Capitalist his profit is still the same as Capitalist (A). But, as a landlord he is £4,000 pm down on Landlord (A).

This £4,000 pm is a loss of productivity, i.e. a deadweight cost. By being able to impute his rent (knock if off his costs), Capitalist B is shielded from the demands of the market. This lowers GDP. Capitalist B is a therefore burden on the rest of society.

What we need is the efficiency of market allocation via rents, with none of the inequality. So, let all capitalists be co-proprietors of all land, and let all capitalists only be tenants not owner occupiers. In other words Land Value Tax.

As we can now deduce, LVT cannot produce any deadweight costs. It eliminates them. It also ensures a fair distribution from the value derived from locational advantage. And, far from being a Socialist conspiracy, LVT is about as hard core as Capitalism gets. If you cannot pay the rent, you are a burden on society and can sling your hook.

And, as a bonus, the shared rent can be used to cut/eliminate damaging taxes on work and enterprise.