Crumbling Foundations

CRUMBLING FOUNDATIONS TABLE OF CONTENTS AUTHOR INFORMATION PREFACE CRUMBLING FOUNDATIONS CHAPTER 1. ORIGINS AND SCOPE OF POVERTY CHAPTER 2: INEFFECTIVE RESPONSES TO POVERTY CHAPTER 3. POVERTY’S LINK TO VIOLENCE CHAPTER 4. SOUTHERN RESPONSES - THE RIGHT TO DEVELOPMENT CHAPTER 5. POVERTY AND THE SOCIAL SCIENCES CHAPTER 6: POVERTY REDUCTION THROUGH ECONOMIC GROWTH: WHY IT HAS FAILED AND WHAT IS NEEDED CHAPTER 7: EFFECTIVE POVERTY REDUCTION: LAND VALUE TAXATION CHAPTER 8: CONCLUSIONS AND RECOMMENDATIONS APPENDICES LISTING Author Information Primary Author: DAVID SMILEY grew up in Guyana and has since lived in England and Australia. He graduated in engineering at Cambridge University and obtained his Masters Degree in Information Systems at the University of Technology at Sydney. For ten years he was a Research Associate with the Department of Economics at Macquarie University. He sees the major global problems of development, human rights, conflict resolution and the environment as interconnected and dependent for solution on a shift of taxation away from productive activities and onto unproductive activities.. Mr. Smiley lives in Sydney, Australia. His email address is [email protected]. With the Assistance of: H. WILLIAM BATT Bill Batt is a political scientist who has been a university professor, staff policy analyst (on tax policy) for the New York State Legislature. He now serves on the board of directors of the Center for the Study of Economics and the Robert Schalkenbach Foundation. He was one of the first Peace Corps Volunteers (Thailand, '62-64), which led to his later interest in moral reasoning and social structures. He became committed to research and advocacy for Georgist political and economic philosophy in 1993 after leaving service on the New York State legislative staff. His many articles can be found online, especially on websites connected with Georgist philosophy. Dr. Batt lives in Albany, New York. His email address is [email protected]. CLIFFORD COBB Clifford Cobb has worked in recent years for Redefining Progress and the Robert Schalkenbach Foundation on both environmental and economic justice issues. His 2008 essay on those issues appears in Herman Daly’s festschrift (http://www.eoearth.org/article/Herman_Daly_Festschrift_(e- book). In 2009, he completed two projects. He edited a collection of essays by Mason Gaffney entitled After the Crash: Designing a Depression-Free Economy (published by Wiley-Blackwell). He also co- authored with Philippe Diaz Why Global Poverty? A Companion Guide to the Film "The End of Poverty?" (published by the Robert Schalkenbach Foundation). Cobb's email: [email protected] PREFACE H. William Batt, Director, Robert Schalkenbach Foundation This book examines the ways in which the principles of Henry George could be applied to the field of economic development to assist Third World countries in their efforts to modernize. After many decades of failed efforts to promote development with models derived from conventional economic theory, it is time to consider an approach based on a different set of principles than have previously been applied. Henry George’s Progress and Poverty is often listed among the 100 books that changed America. His ideas were the culmination and integration of over a century of penetrating insight from the greatest political economists of the age, beginning with the French Physiocrats, then to Adam Smith, to Thomas Mathus, to David Ricardo, to John Stuart Mill, and finally to George. They held an elegance and simplicity such that their understanding was widespread. They also encapsulated truths long held yet aptly reinterpreted for a changing world. Usufruct ownership, payment of rent, the nature of wealth, and the interdependence, obligation, and reciprocity of all elements of society to one another were once common themes in the discourse of the age. The disciples of Henry George applied them in a form that was suitable to an emerging industrial civilization. They acquired a timeless applicability. Today they are kept alive by a school of thought largely outside conventional academic programs of economics. Yet in the introduction to his Significant Paragraphs from Progress and Poverty, John Dewey (1928) wrote, "It would require less than the fingers of two hands to enumerate those who, from Plato down, rank with Henry George among the world's social philosophers. No man, no graduate of a higher educational institution has a right to regard himself as educated in social thought unless he has some firsthand acquaintance with the theoretical contribution of this great American thinker." Albert Einstein concluded that, "Men like Henry George are rare, unfortunately. One cannot imagine a more beautiful combination of intellectual keenness, artistic form, and fervent love of justice. Every line is written as if for our generation. The spreading of these works is a really deserving cause, for our generation especially has many and important things to learn from Henry George." George's "remedy" to the injustice of poverty came to be known as the "Single Tax on land," or simply “single tax.” This impeded understanding inasmuch as it was not on "land" as understood in vernacular discourse but rather on natural resources of all kinds. But one can only simplify so much, and those who didn't appreciate what this entailed were easily persuaded that land had less central importance in an industrializing economy than it had in an agricultural economy. Without understanding how the locational value of land compares in urban centers with that in rural hinterlands, there can be little appreciation of how enormous the revenue can be from the single tax alone. Without understanding also that an industrial and post industrial society avails itself of resources from nature that are unknown by earlier generations, the full dimensions of economic rent are not identifiable. There is now compelling evidence that George’s ideas posed such a dire threat to the dominant political interests of the day, mainly railroads and banks, that every effort was made not only to defeat him politically but to disparage and even ridicule his argument (Gaffney, 1994). What passed for conventional wisdom among those who could most stand to benefit from such thinking was that these ideas had been examined, tried, found wanting, and rejected. The truth is that they have been tried, have been successful in their settings, and so taken for granted in many cases that their impact has been unappreciated. Only in cases when they were rescinded did it become evident how centrally important they were. Or, when they receded into peripheral positions, their significance and impact was forgotten. Three factors today explain the renewed interest in classical economic thought and the rekindled focus on Henry George's legacy. They are the disintegration of the prevailing paradigm of neoclassical economics that therefore calls for new thinking. A second factor is the capacity of modern societies to share ideas by modern communication, especially the internet, and to bring into contact the residual and widely-scattered element of disciples. A third factor is the power of computers and the availability of data to demonstrate the validity and the cogency of the Georgist idea. For over a half century, the discipline of economics has grown in stature among the social sciences by relying largely on abstract models and by applying a contrived mathematical rigor to the exclusion of evidence that didn't fit its suppositions. It has grown in interest and visibility because of the need for answers more than by the success of its findings. It has become influential at both national and local levels of public policy by creating ever more complex models and explanations, integrating variables that were correlative rather than causative. It has looked at economic behavior in terms of its symptoms rather than as systems. Things have now come crashing down during the latter half of the first decade of the 21st century, and it is not clear yet that they have reached bottom, even as this is written. With a renewed willingness of many to explore approaches that have persisted outside mainstream neoclassical orthodoxy, ideas and frameworks that evolved during the 18th and 19th centuries are now resurfacing. A second factor explaining the renewed interest in the legacy of Henry George stems from the chance that the widely scattered but dedicated proponents of these ideas now have had the means to communicate and corroborate their intuitions. It is important to understand that they have done so largely outside the community of the academy. The persistence of this outlook owes to the fact that it finds easy and ready validation among those that have come to understand it. Unlike mainstream neoclassical economic thought, Georgist economics is avowedly and expressly moral in its orientation. The convictions and concerns that have energized the enduring Georgist fraternity stem in most cases from an appreciation of the injustices that are readily apparent to them. The key to an understanding of Georgist philosophy is the idea of ground rent, often also called economic rent. Rent is the surplus flow of value that flows through or lodges in natural resource sites. Since their market price is a function of their social demand, this cannot be anything except socially-created value to which the community has a rightful claim to recover. Their value comes not from the amount of labor expended or even from other production factors in combination. Rather whatever market price obtains is strictly a windfall gain to whatever party holds title. It is for this reason that it has often come to be called the "unearned increment." (For an extensive discussion of economic rent, and rent seeking, see Gaffney, 2008, Giacalone and Cobb, 2001, Hodgkinson, 2008 and Wenzer, 1999.) Rent in this context is the annualized market value of land parcels. For example, if the value of a block of land is 1000 and the interest rate is 5%, then the expected land rent would be 1000 times 5%, which is 50 per year.

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