Beyond Left and Right: Moral Principles for Economic Policies

Tuesday, March 16th, 2021
 
 
The polarization between left and right is largely because neither left nor right are based on clear moral principles. So, the fruitless debate between capitalism and socialism goes on because neither has a well-grounded  view of what is valid ownership.
 
The only consistent principles of ownership ever presented are those of John Locke. Yet neither left nor right addresses Locke’s principles of ownership. It’s as if there is an elephant in the room and no one talks about it.
 
Locke starts with the principle that each individual should have the right to own their own body, so that no one else has the right to control that person. From that principle then, if a person has the right to own their own body, then that person must have the right to use their body and own the fruits of the labor their body produces. So, if a person applies their own labor to some natural resources in order to produce some food, a tool, etc., then that person has the right to own what was produced by their own labor. No one else has a right to confiscate what that person produced.
 
Locke then addresses the question of who has a right to own the natural resources. He concludes that, since no person produced natural resources, then anyone who claims some land and natural resources is morally obligated to leave “enough and as good” land for others. That implies, if a person wants to claim more than an equal share of land and natural resources, then he owes some compensation to others, for excluding them from access to that land and its natural resources. (*Second Treatise of Government*, ch.5, sec.26-35)
 

All products (machines, cars, buildings, etc.) come from land and labor. So, if there is fair access to land, then people all have the opportunity to use affordable land and natural resources to produce products, or start a business, and have affordable housing.
 
Labor includes any human effort involved in producing products and services. So, in addition to direct production of products, labor can also include such services as planning, teaching, managing, economic analysis, investment research, communicating, etc. A person doing any form of labor should have the right to offer to trade that labor with other people, on mutually agreed upon terms.
 
 
 
Endorsed by prominent economists and political philosophers
 
Many prominent economists and political philosophers have endorsed Locke’s conclusion about owing compensation to others for claiming extra land and natural resources. Those economists and philosophers have tended to advocate the policy that a person who owns extra land can provide compensation by owing some land rent to others, based on the value of the extra land that person is claiming.
 
One way to provide that compensation can be by owing a land value tax, based on the location value of the land (not the buildings or improvements), while lowering other taxes as much as possible, as advocated by noted economists and political philosophers of left and right, such as: Thomas Jefferson, Thomas Paine, Adam Smith, John Stuart Mill, and several prominent modern economists (see quotes below.)
 
But even if we didn’t have any taxes, there are ways that the principle of land compensation could still be applied, in order to uphold those moral principles. Or, if a land value tax is the method used for providing compensation, then any other taxes could be removed or at least minimized.
 
Close to twenty cities in the U.S. have been moving in the direction of applying that principle, some for decades; and dozens of cities around the world have also been taking that approach, such as in Australia , New Zealand, and parts of Europe, including most recently one of the largest states in Germany has voted to adopt that policy.
 
A variation of that approach is to have a homestead deduction for a person’s primary residence. That way, most small homeowners would owe very little compensation, if any. For example, that is the policy adopted in the state of South Australia.
 
 
 
To make the economy work well
 
Those principles are also necessary in order to have an economy work well, because otherwise a distorted land system distorts the entire economy, resulting in extreme inequality; unaffordable products, services, and housing; hindering of job creation; and unnecessary poverty. Because every product and service requires inputs of natural resources and use of a location, that means every product and service involves payments to owners of land and natural resources, even though no person produced the land and its natural resources.
 
Those owners of land and natural resources can then use the revenue from land in order to buy more land, as well as buying industry, resulting in further distortion of the economy. (See the links below for articles on the DFC website about the distortionary effects, if Locke’s principles are not upheld.) Requiring compensation from owners of extra land serves as a kind of antitrust policy, preventing highly concentrated ownership of land and natural resources, and therefore preventing distortion of the rest of the economy.
 
 
 
Most authors of left and right do not address Locke’s principles. And among the few that at least mention those principles of Locke, some of those authors misrepresent what those principles are. For example, economist Murray Rothbard went as far as to even misquote Locke, leaving out part of a key sentence about those principles.
 
Another factor involved is that most economists have no background in land economics – only the economics of labor and capital goods. Ironically, most economics textbooks start out by saying there are three factors of production: land, labor, and capital goods (where capital goods refer to things such as tools, machines, etc, which are used to produce products, including other capital goods as well as consumer products). But then after mentioning the three factors of production, the rest of most textbooks is only about the economics of labor and capital goods, leaving out the economics of land and its natural resources. Similarly, the pages of economic research journals mostly consist of research about the economics of labor and capital goods.
 
 
 
Quotes from noted economists, political philosophers, and authors, related to Locke’s principles of property:

[John Locke]:
“…Every man has a ‘property’ in his own ‘person’. This nobody has a right to but himself. The ‘labour’ of his body and the ‘work’ of his hand, we may say, are properly his. Whatsoever, then, he removes out of the state that nature hath provided and left it in, he hath mixed his labour with it, and joined to it something that is his own, and thereby makes it his property. … For this ‘labor’ being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough, and as good left in common for others. …”

[editor’s note: that implies, if someone claims extra land then he owes compensation to others. A modern approach for applying compensation is described by Thomas Paine, Adam Smith, and others – see quotes below.]
(John Locke, *Second Treatise of Government*, ch.5, sec.26-35).
 
 
[Thomas Jefferson]:
“Whenever there is in any country uncultivated lands  and unemployed poor it is clear that the laws of property have been so far extended as to violate natural rights. The earth is given as a common stock for man to labor and live on.”
(letter to Reverend Madison.)


[Thomas Paine]:
“[I]t is the value of the improvement, only, and not the earth itself, that is individual property. Every proprietor, therefore, of cultivated lands, owes the community a ground-rent (for I know of no better term to express the idea) for the land which he holds; and it  is from this ground-rent that the fund proposed in this plan is to issue. …The plan I have to propose…is, to create a national fund, out of which there shall be paid to every person, when arrived at the age of
twenty-one years…a compensation in part, for the loss of his or her natural inheritance, by the introduction of landed property….

“Man did not make the earth, and though he had a natural right to occupy it, he had no right to locate as his property in perpetuity any part of it; neither did the Creator of the earth open a land-office, from whence the first title-deeds should issue.”

[editor’s note: that principle applies just as much to urban land.]
(Thomas Paine, Agrarian Justice, 1797).
 
 
[John Stuart Mill]:
“Landlords “grow richer as it were, in their sleep,  without working, risking, or economising.” It is “a  kind of income which constantly tends to increase,  without any exertion or sacrifice on the part of the owners.”

[editor’s note: Mill is referring to ownership of land itself (locations and natural resources), which landlords did not produce, which is different  from ownership of buildings, which are products of human effort]
(John Stuart Mill, Principles of Political Economy, bk.5, ch.2, sec.5|


[Adam Smith]:
“[G]round-rents…are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Though a part of this revenue should be taken from him in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry.”
(Adam Smith, The Wealth of Nations, Random House 1937 ed., pp. 795-6).
 

 
Quotes from prominent modern economists:
 
“Our ideal society finds it essential to put a rent on land as a way of maximizing the total consumption available to the society. …Pure land rent is in the nature of a ‘surplus’ which can be taxed heavily without distorting production incentives or efficiency. A land value tax can be called ‘the useful tax on measured land surplus’.” (Paul Samuelson)
 
“It is important that the rent of land be retained as a source of government revenue. Some persons who could make excellent use of land would be unable to raise money for the purchase price. Collecting rent annually provides access to land for persons with limited access to credit.” (Franco Modigliani)
 
“The user of land should not be allowed to acquire rights of indefinite duration for single payments. For efficiency, for adequate revenue and for justice, every user of land should be required to make an annual payment to the local government equal to the current rental value of the land that he or she prevents others from using.” ((Robert Solow)
 
“Assuming that a tax increase is necessary, it is clearly preferable to impose the additional cost on land by increasing the land tax, rather than to increase the wage tax — the two alternatives open to the City (of Pittsburgh). It is the use and occupancy of property that creates the need for the municipal services that appear as the largest item in the budget — fire and police protection, waste removal, and public works. The average increase in tax bills of city residents will be about twice as great with wage tax increase than with a land tax increase.” (Herbert Simon)
 
“In my opinion the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.” (Milton Friedman, in Human Events 38 [46], November 18, 1978, p. 14.)
 
“The landowner who withdraws land from productive use to a purely private use should be required to pay higher, not lower, taxes.”(James Buchanan, from  a lecture at St. Johns University, New York City)

“While the governments of developed nations with market economies collect some of the rent of land, they do not collect nearly as much as they could, and they therefore make unnecessarily great use of taxes that impede their economies — taxes on such things as incomes, sales, and the value of capital goods.”

“It (land value taxation) guarantees that no one dispossess fellow citizens by obtaining a disproportionate share of what nature provides for humanity.

“Economists are almost unanimous in conceding that the land tax has no adverse side effects. …Landowners ought to look at both sides of the coin. Applying a tax to land values also means removing other taxes. This would so improve the efficiency of a city that land values would go up more than the increase in taxes on land.” (William Vickrey, past president of the American Economic Association)

“I think in principle it’s a good idea to tax unimproved land, and particularly capital gains (windfalls) on it. Theory says we should try to tax items with zero or low elasticity, and those include sites.” (James Tobin)

“The main, underlying idea of Henry George is the taxation of land and other natural resources. At the time, people thought, “not really that too,” but what was underlying his ideas is rent associated with things that are inelastically supplied, which are land and natural resources. And using natural resource extraction and using land rents as the basis of taxation is an argument that I think makes an awful lot of sense because it is a non-distortionary source of income and wealth. …

… The question is: “Would it be better if we had more taxation of land and natural resources, and more revenue from natural resource management, and I would include atmosphere and spectrum.” And less tax on income and savings. And I would say, “Yeah.” And I think many economists would agree with that. So, if you want to sell it as a “Single Tax,” then, no, you won’t get anyone to agree that there’s enough revenue there. If you look at it as a more “central” tax, then, yes, you will get most economists to agree with you. (Joseph Stiglitz, in a 2002 interview)


Land and Market Power
 
DFC Platform (see #2: Economic Liberty)
 
Poverty and Inequality: Caused by Government Favoritism
 
Prominent modern economists endorsing this policy
 
John Locke, *Second Treatise of Government*, ch.5, sec.26-35