Friday, January 16, 2009:

Socialism and anarchism are more of the same

Gavin R. Putland explains why socialism is the best enemy capitalism ever had.

Capital can be produced by private effort. Land cannot be produced, but can only be acquired. Therefore the return on capital can be justified as an incentive for private effort, while the return on land (properly called economic rent) cannot.

These facts were obviously unsettling for those who lived on economic rent. So they invented neoclassical economics, which treats land as capital in order to rationalize rent-seeking: if land is capital, then economic rent is profit, acquisition is production, speculation is investment, and unearned windfalls are incentives. This confusion of opposites is the foundation of what passes for mainstream economics and of what passes for capitalism. In the real world, however, a scam based on the pretense that acquisition is production can last only so long before it runs out of suckers. So the capitalist system periodically falls over, and mainstream economists consistently fail to predict the fall.

What then shall be say about the latest debacle? Were the socialists right all along? Shall we rejoice at today's report in the Age that former members of Socialist Party of Australia have formed the “Communist Alliance”, and have applied for Federal registration as the first communist party in Australia since 1990?

No. The difference between capitalist economics and socialist economics is that whereas capitalists treat land as capital, socialists treat capital as land; whereas capitalism wants to privatize both, socialism wants to socialize both. But socialism agrees with capitalism in pretending that land and capital are one; it's the best enemy capitalism ever had.

What then? Were the anarchists right?

No. The lump-sum value of capital is its depreciated cost of production, and its “rental” value is the interest thereon. Land does not have a cost of production, but has a rental value by reason of its limited supply and diverse qualities (especially location). So the rental value of land is its fundamental value, while its lump-sum value (in a rational market) is the discounted present value of the future rent, and is therefore inversely related to the expected interest rate. But anarchism, in claiming that the elimination of interest would also eliminate the rent of land, presupposes that the lump-sum value of land is “given” and that the rental value is the interest thereon. In other words, it treats land as capital — just as mainstream economics does. It doesn't change the word-order as socialism does; and unlike socialism, it wasn't strong enough for long enough to be a useful enemy.

A genuine alternative to the presently discredited orthodoxy must at least distinguish between land and capital. The classical paradigm, which was built up by Adam Smith, David Ricardo, John Stuart Mill and Henry George, made such a distinction, and for that very reason was usurped by the neo-“classicists”, who abducted Adam Smith as their patron saint as if he had never written this:

As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed... [The Wealth of Nations, Book 1, Chapter 6].

Or this:

Both ground-rents and the ordinary rent of land 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. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents and the ordinary rent of land are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them [The Wealth of Nations, Book 5, Chapter 2, Part 2, Article 1].

So the classical paradigm is now called the Georgist paradigm, as if the time-honoured distinction between land and capital were a heresy that began with Henry George. And the lunacy or knavery that confounded land with capital is called neo-classical, as if it had restored the status quo. For the adherents of the neoclassical dogma, the return of the communist spectre could not have been better timed: with enemies like these, who needs friends?