Why Wall Street Ought To Favor A Gradual Decline In The Cost Of Land

When a friend expressed concern for the high price of land, this is what I told him.

Working together, here is how we will gradually reduce the cost of land to manageable proportions: As Henry George, many classical economists recommended, and, mirabile dictu, not one but 8 Nobel laureates in economics all agreed, the price of land will gradually decrease if taxes are imposed on the value of land. The reason is simple and is ingrained in the mechanics of the market. When taxes are imposed on land, many landowners will want to sell their land; latifundia will gradually disappear; hence, with an increase in the market supply of land, its price can be expected to decrease.

Hidden in this proposition is the expectation that land value taxation will not just be “another” tax. It will gradually replace congeries of taxes, from income taxes to corporate taxes.

With the reduction of corporate taxes, corporate Wall Street will benefit as all other industrial and commercial corporations will benefit.

Hidden even deeper in this chain of thought is the expectation that the cost of Government will have accordingly to decrease. And it will decrease, not by denying access to all sorts of currently available social services, from Welfare to Medicare, but by finding new/old methods of payment for them. 

To discover new methods of payment for social services, there is no other way than to restructure the private economy by making it more productive through an equitable distribution of income and wealth—equitable, not equal. This appears to be such an impossible dream because we have not really given much serious thought to it. 

We have been inveigled in the ideology of equality. To insist on it, we need equity, not equality. This means that all participants in the economic process will receive what is due them, neither more nor less. As is widely demonstrated, by this simple “trick” people become more productive.

In so doing, the rules for the distribution of income and wealth will no longer be dictated by an abstract efficiency of the market, but by 
a set of concrete rules established by the private market itself ahead of engaging in the process of creation of wealth.

In the fishing industry, for example, ancient established rules determine the percentage of the value of the catch going to the owner of the vessel, the percentage going to the captain, the percentage going to the crew. Everyone knows the rules in advance; an agreement is reached not only because the justice of the rules has been determined by deep cultural and moral decisions, by themselves well tested by trials and errors over the centuries; but also because these are abstract and inflexible rules. They govern the industry as a whole and forever. People who do not like them are free to apply their abilities elsewhere.

This, then, is work to be done in each industry; the sooner it is done, the happier will everyone be.  

In addition to eliminating rules and regulations that have hamstrung the economy, a comparable fundamental restructure will have to be undertaken within the fiscal policies of the government. Why not start with an agreement on the gradual elimination of all subsidies to private industry? A subsidized market is not a free market; it is a slave market. 

And if the community should develop a hankering for a new industry, just like the green industry, for example, the government should own it—and sell it at an auction as soon as the idea becomes financially feasible. Full speed ahead. Damn the torpedoes. Let foreign competition wallow in the shallow waters of possible temporary comparative advantage.

With a gradual comprehensive restructuring of our public and private economy, “we the people” will become increasingly rich. And therefore, we will be able to afford to pay for current entitlements; and, by paying for them with our own cash, we will acquire access to those services at reduced cost, since much paperwork will be eliminated. We will then acquire access to those services as God-given rights. No questions asked. No begging for assistance.  

But gradually increasing taxes on land and reducing all other taxes is not the only way to reduce the price of land—and to benefit financial as well as all other individual and corporate activities.

The price of land will gradually decline when the Federal Reserve System (the Fed) stops allowing the use of public money for the purchase of financial assets and restricts the issuance of loans to the creation of real wealth. The creation of real wealth necessarily calls for the use of land and natural resources.

True, an increased demand for land and natural resources will gradually increase their price; but this increase will be restrained if entrepreneurs purchase land outright, rather than purchasing land through mortgages, which imply borrowing money at relatively high interest rates in private financial markets.

Ditto for the purchase of land and natural resources through accumulated labor earnings. With the widespread use of ESOPs and CSOPs, future potential entrepreneurs will have a better chance to receive higher compensation for their present labors, hence they will have a better chance to accumulate savings with which to pay for land and natural resources.

Then there is a fourth way in which the price of land and natural resources will gradually decline, or at least increase less rapidly than it is currently increasing. If the Fed rejects the use of public money for mergers and acquisitions, frenzied accumulations of wealth will decrease, hence the price of land and natural resources will gradually decrease.

As it can be seen, these four avenues for the gradual decline of the price of land and natural resources correspond to the exercise of the four economic rights and responsibilities addressed in a variety of publications in Concordian economics to meet the requirements of our four modern factors of production: land, labor, financial capital, and physical capital. The exercise of these four rights and responsibilities will grant us gradual sane and sound fiscal, monetary, labor, and industrial policies.

In addition, Concordian economics is advancing another major measure to stabilize the monetary system. This is the application of the ancient practice of the Jubilee to reduce all unpayable debts systematically over a seven-year cycle. This operation will have the effect of reducing all prices gradually and systematically so that relative positions will be preserved, and people will be as rich at the end of the cycle as they were before the recommendations of Concordian economics were implemented.

The question arises. Why should Wall Street foster the adoption of the recommendations of Concordian economics? There are many reasons:
    Wall Streeters will regain the “approbation” of mankind, for doing the “right” thing rather than the selfish thing;
    Wall Streeters’ life will be incredibly less stressful, which does not mean at all that all risks and all large profits will disappear from sight;
    Wall Streeters will regain the respect of the young generations;
    Wall Streeters can look forward to spending an old life amidst financial and spiritual comfort.

These are the soft reasons. The hard reason is that Wall Streeters alone today have the political power to enforce these rules. Amazingly, Wall Street is the only institution whose members are still united in the pursuit of their common good. They only have to expand their vision to include the common good of the community at large. 

This political action will not occur in a vacuum. Much good will can be expected from the center of the political spectrum. More concretely still, as a letter from the Fed indicates, Wall Street will be met with open arms by the Fed.

Taking care of the common good of the community at large is a temporary political action that Wall Streeters will have to perform. It is once in a lifetime action. Once the right policies are set in motion, they can be expected to soon go back to their usual activities. Then, they will discover that an unexpected benefit is yielded by the pursuit of the common good. 

Eliminating absurd practices followed during recent years, absurd practices arising mostly from the falling apart of society, Wall Street will voluntarily restrict its activities to perform many complex functions, which it is organically called to perform. Wall Street will “magically” transform small, useless savings into richly performing assets; Wall Street will produce a reliable current valuation of assets; Wall Street will make “the market” perform efficiently.

Go Wall Street, go. You have nothing to lose, but the pall of many misguided ideas. They are ideas that did not arise from within your ranks, anyway. These were ideas generated by too large a number of defunct, and some still alive economists.

Carmine Gorga is president of The Somist Institute.

Disclosure: Visit http://www.somist.org/

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