Ricardo’s Law

Ricardo’s Law: House Prices and the Great Tax Clawback Scam, by Fred Harrison, 2006, Shepheard-Walwyn, 320.pp. Review by Ed Dodson.

Although there is consistent truth in the statement, “history is written by the victors,” the voices of critics now and again emerge from the wilderness. In two instances, that of Thomas Paine and Henry George, the path they chose was journalism. Their writings ignited the moral conscience of people from all walks of life. What made their contributions extraordinary was the pursuit of truth without regard to what might happen to them in their own lives.

With his most recent book, Ricardo’s Law, journalist Fred Harrison adds his voice to that moral crusade. He does so with the advantage of a deeper historical perspective. Paine’s efforts helped to secure the future of republican governance and democratic processes. George and his supporters formed the Progressive vanguard fighting for an end to monopoly privilege. Tragically, they failed. Fred Harrison provides a “take no prisoners” analysis of the subsequent failed efforts by both central planners and so-called free market proponents to solve the problems of wealth concentration and generational poverty. Ricardo’s Law resurrects the land question as the most important societal issue yet to be addressed.

“The theory of land rent,” Harrison writes, “provides the single most illuminating way to track the dynamics of the enterprise economy.” Acting on this knowledge, however, requires a degree of moral integrity few political leaders display. His challenge to them is direct: “They bear personal responsibility for the expectations they create when they seek power.”

For the British people, landed privilege was firmly established by the Magna Carta, and has never lost its grip. Despite periods when political power was wrestled from Tory conservatives, only the appearance of reform occurred. In the process, writes Harrison, “the intellectual landscape has been so distorted that rational people are co-opted into abusing their welfare.” Citizenship has been replaced by faith in experts, in the professionals, to come up with measures to solve social problems:

No one false statement, issued by individuals or agencies in authority, closes our minds. But the cumulative impact of persistent falsehoods and half-truths exercises a corrosive effect because the public tends to defer to the authority of the experts. The outcome is a tyranny of the state’s servants who claim to know best.

Harrison describes what he calls “the tax clawback scam” that perpetrates ongoing injustice to Britain’s wealth producers to the benefit of the landed. This continues to occur, in part, because those with great personal wealth disproportionately influence government policies and programs. Their experts are guided by “a one-dimensional model of income distribution” that fails to “explain how income on the bottom rungs is transmitted to the top.” Reform will come only when the public fully comprehends the forces at work. To do so, people must understand the economic logic of Ricardo’s Law.

Harrison’s message is that rent is a societal fund, not individual property. “Rent is the price we pay to participate as paid-up members of civilization.” Yet, this principle was systematically removed from our code of moral principles by generations of powerful, landed interests:

The lesson is this. Ricardo’s Law delivers the best results when people locate their behavior in a code of practice that secures their freedoms. This means that rent should be made available to the community through a market-based pricing mechanism that is efficient, one that does not deprive people of their earnings, and which requires everyone to pay their way in life.

A considerable portion of Ricardo’s Law is devoted to debunking the conventional wisdom that the state must counter market tendencies with poverty-mitigation programs. Harrison provides extensive data from government and other sources to make his case. His tale is one of betrayal and of lost opportunity — the lost promise of democracy:

People thought that, when the property qualification attached to the right to vote was abolished, democracy would unite the nation. In fact, it has been appropriated as a device to legitimate the continued disuniting of the population between taxpayers and the owners whose land captures the windfall gains.

Land hunger drove millions of people to make the dangerous passage across the oceans to the Americas. Over the course of three centuries, those who came from the Old World gradually displaced or decimated the tribal societies of “First Americans” who occupied the continent for thousands of years. Such a huge, and resource-rich continent provided the oppressive Old World regimes with a safety valve — at least for a time. But long before the land actually “ran out” in a literal sense, the commons (i.e., the public domain) was given away to the railroads, to politicians and their close friends, to land speculators and to settlers. And, of course, the wealthy utilized all their influence over the political process to ensure the burden of taxation would be felt most deeply by others.

Harrison briefly reviews key indicators of individual well-being to show that the United States has failed an even greater portion of its people than have the other industrialized nations — and the depth of failure is increasing. He asks Americans to examine the fundamental values on which our society exists:

In the 1960s, something started to go seriously wrong. The nation’s state of happiness did not improve alongside the aggregate increase in material prosperity. Why? Was this not offensive to the constitution of America?

Even during times of near “full employment”, millions of families remained impoverished. What went wrong in the 1960s, in part, was the acceptance of ongoing borrowing from the wealthy in lieu of asking them to contribute proportionately to the costs of public spending. The changes in tax law advanced by the Bush administration and the Republican majority Congress have orchestrated the largest transfer of tax burden in US history, while pulling Federal debt to a level that would cause panic in any other nation in the world. Fred Harrison reminds American readers that “…if the US government wishes to balance its books by 2040, on present policies it must either cut total federal spending by 60% or raise federal taxes by 200%.”

It remains to be seen what, if any, measures the incoming Congress, and the new administration in 2008, will take to prevent collapse of the US financial system and economy. Fred Harrison sees no hope without truly radical reform. Society must establish what it has resisted for so long: measures that achieve justice in the realm of property. The public collection of rent ought to replace taxation of the goods we produce and the services we provide to one another. Not only is this just, argues Harrison, but achieves the highest level of economic efficiency. Given the state of the world, urgency would seem to demand immediate change. Harrison is a bit less demanding:

I am not arguing for the abolition of all taxes tomorrow. A few may be retained, but they need to be renegotiated. The rules regulating their use need to be carefully framed to rebalance the distribution of power between the individual, civil society and the state… Tax reform is necessary because the state converts much of its revenue into an asset that is handed over to those who have financial claims to land (these include banks and mortgage institutions). If we are to abolish this inequity, people themselves must initiate the action that leads to the democratization of their public finances. They need to specify what, precisely, they regard as “the common good”, and how this can be delivered.

Once again, Fred Harrison has issued a powerful salvo. His voice must be joined by many others. Privilege is a powerful enemy, strengthened by ignorance and despair. We shall see if Ricardo’s Law provides the spark to re-light the torch of liberty carried by Paine, then lifted high by Henry George, only to fall to the ground — where it has rested for far too long.

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