I get several E-mails (regularly) from so-called Georgists who want to know how the Single Tax proposal of Henry George, outlined in his 1879 book Progress and Poverty, fits in with Modern Monetary Theory (MMT). I have resisted writing about this topic, in part, because the adherents of this view are vehement, like the gold bugs, and by not considering their proposals in any detail, I can avoid receiving a raft of insulting E-mails. But, more seriously, I see limited application. In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending. Clearly, this is an assertion that MMT rejects at the most elemental level. But there is some scope for considering their proposal once one abandons the link between the tax revenue (which they call rent) and government spending capacity. The question that arises, once we free ourselves from that neo-liberal link, is whether a land tax has a place in a government policy portfolio with seeks to advance full employment, price stability and equity. The answer to that question is perhaps. I am writing about this today and tomorrow (with an earlier related post – Tracing the origins of the fetish against deficits in Australia) as part of my research into the life of Clyde Cameron, given I am presenting the fourth Clyde Cameron Memorial lecture tomorrow night in Newcastle. I hope this three-part blog suite is of interest. In some parts, the text is incomplete.



The evolution of the Single Tax idea

Henry George was operating in the Classical economics tradition started by Adam Smith and then extended by David Ricardo and John Stuart Mill.

In discussing the returns to labour from work, Adam Smith wrote in – An Inquiry into the Nature and Causes of the Wealth of Nations (Book I, Chapter 6, Of the Component Parts of the Price of Commodities):

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, and demand a rent even for its natural produce. The wood of the forest, the grass of the field, and all the natural fruits of the earth, which, when land was in common, cost the labourer only the trouble of gathering them, come, even to him, to have an additional price fixed upon them. He must then pay for the licence to gather them, and must give up to the landlord a portion of what his labour either collects or produces. This portion, or, what comes to the same thing, the price of this portion, constitutes the rent of land, and in the price of the greater part of commodities, makes a third component part.

[Reference: Smith, A. (1776) An Inquiry into the Nature and Causes of the Wealth of Nations, reprinted as the Edwin Cannan edition in 1904 by Methuen & Co., London].

Hudson noted that George, like his predecessors argued that:

… land and its rent should form the national tax base, on the grounds … It followed that taxes could fall on this income without increasing costs to the rest of the economy. The government would collect rent in lieu of taxes that otherwise would fall on productive labor and industry.

The concept of – economic rent – is peculiar to economic theory and is defined as:

… any payment to a factor of production in excess of the cost needed to bring that factor into production.

This brings into play the concept of opportunity cost, which is the return that some productive input can get in the next best alternative use. So the cost is what you forego from deploying the resource in its current use.

The case of the movie star or musical star is often used as an example. A musician might be happy to supply his/her talents for x dollars per performance given the intrinsic rewards from the job. Should that performer become very popular, the demand for their services would drive their fee up well beyond the return that they are happy to play at. The difference between the two fees would be the economic rent.

It is an excess over the fee that is required to elicit the supply of the service.

The Classical economists (and Henry George) considered land to be an ‘inelastic factor of production’, which means that its supply is invariant to the price – it is ‘fixed’.

John Stuart Mill wrote in his 1848 – Principles of Political Economy – that:

The ordinary progress of a society which increases in wealth, is at all times tending to augment the incomes of landlords; to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer, as it were in their sleep, without working, risking, or economizing. What claim have they, on the general principle of social justice, to this accession of riches? In what would they have been wronged if society had, from the beginning, reserved the right of taxing the spontaneous increase of rent, to the highest amount required by financial exigencies?

[Reference: Mill, J.S. (1848) Principles of Political Economy with some of their Applications to Social Philosophy, D. Appleton and Company, New York edition 1885. The quote is from Book V, Chapter II: On the General Principles of Taxation, page 630].

The idea was that the owners of land did nothing to create the land but could still collect rental income with no further effort.

Mill considered that by estimating the amount of extra income that was accruing to land owners as a result of rising land values due to population growth (excluding any “which might be the result of capital expended or industry exerted by the proprietor” (page 631), a tax could be levied on land values such that “no injustice would be done to the proprietors” (page 631).

The same logic motivated Henry George’s ‘single tax on land’ proposal, which he outlined in detail in his 1879 book – Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy.

Henry George, thought poverty persisted amidst growing wealth because (Book V, Chapter 2, Paragraph 1):

… in spite of the increase of productive power, wages constantly tend to a minimum which will give but a bare living … rent tends to even greater increase, thus producing a constant tendency to the forcing down of wages.

Like Mill, George waxed lyrical about the advantages that land ownership bestowed (Book V, Chapter 2, Paragraphs 28 and 29):

… Go, get yourself a piece of ground, and hold possession … you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon, or down a hole in the ground; and without doing one stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich! In the new city you may have a luxurious mansion; but among its public buildings will be an almshouse.

George considered there to be a “fundamental relationship between land and labor” (Book VIII, Chapter 4, Paragraph 7) given that labour had to step on land to perform productive work and earn wages. He juxtaposed the wealth that was made from land ownership as population growth increased its relative value with the poverty that the working class experienced through stagnant wages growth and unemployment.

Interestingly, George was not enamoured by the Socialists of his day, who as Hudson (2008: 5) notes, were in fact the “most vocal reformers” (on land and other issues) and “his warmest supporters” (p.6) in his struggle to introduce a Single Tax.

[Reference: Hudson, M. (2008) ‘Henry George’s Political Critics’, American Journal of Economics and Sociology, 67(1), 1-45].

Hudson says that (2008: 5):

George refused to join forces with reformers whose agendas included policies besides land taxation. He opposed socialist owner- ship of capital and even refrained from advocating industrial and financial reforms. George’s intolerance in rejecting these reforms helped push his single tax advocacy to the outer periphery of the political spectrum.

His obsession with the Single Tax issue was clearly designed to disassociate himself from those who would issue “denunciations of capital” (p.6).

The reason for his deliberate refusal to join broader reform initiatives lay in (Hudson, 2008: 7):

… 2. his singular focus on ground rent to the exclusion of other forms of exploitation; 3. his almost unconditional support of capital, even against labor; 4. his economic individualism rejecting a regulatory or planning role for government; 5. his opposition to public ownership of resources and enterprises; … 10. the narrowness of his theorizing beyond the land question; 11. the alliance of his followers with the right wing of the political spectrum …

Hudson says that these “personal views” (p.8) were not “intrinsic tot he Single Tax” but “effectively ended the dia- logue between his followers and other reformers of his day” (p.8).

So it is strange that a politician and trade unionist such as Clyde Cameron, would become a loyal Georgist. The only viable link would be the assertion by George that (Book III, Chapter 8, Paragraph 12):

… the value of land depending wholly upon the power which its ownership gives of appropriating wealth created by labor, the increase of land values is always at the expense of the value of labor. And, hence, that the increase of productive power does not increase wages, is because it does increase the value of land. Rent swallows up the whole gain and pauperism accompanies progress.

And later, George wrote (Book V, Chapter 2, Paragraph 3):

But labor cannot reap the benefits which advancing civilization thus brings, because they are intercepted. Land being necessary to labor, and being reduced to private ownership, every increase in the productive power of labor but increases rent—the price that labor must pay for the opportunity to utilize its powers; and thus all the advantages gained by the march of progress go to the owners of land, and wages do not increase.

Cameron himself placed the Single Tax within a policy framework that emphasised increased equity for workers in relation to the capitalist class.

Cameron (1989: 10) wrote:

Real wages could thus be made to rise by something like 30 per cent with one sensible stroke of the taxatoin pen.

He also asserted that ‘farmers and small businessmen would share the bonanza” whereas the capitalists and other owners of central business district property “would pay a lot more than they now pay into the Treasury” (p.10) because of their land holdings.

So there is some selectivity in the leftist Cameron becoming a disciple of the right-leaning and pro-Capitalist Henry George.

As an historical fact, George was incorrect. Real wages have grown over the last century as productivity has grown. The changing relationship between real wages growth and productivity growth, indeed, is an important characteristic in differentiating the ‘Full Employment’ years (1945-1975) with the ‘Full Employability’ period that defines the neo-liberal era, which began with the advent of Monetarism.

Prior to the 1980s (about), real wages more or less grew in proportion with productivity growth, which meant that the capitalist product market could avoid any realisation crises. Workers’ consumption capacity was growing in line with the growth in what each worker, on average, was outputting per hour and so balance was maintained.

The neo-liberal period has been characterised by deregulation of labour markets, legislative attacks on trade unions and persistently high unemployment and underemployment, which eroded the capacity of the workers to gain real wages growth in line with their increased productivity.

The upshot was the large redistributions of national income (factor shares) in many advanced economies away from wages towards profits.

The only way that household consumption expenditure could maintain pace with the growth in output per hour worked (productivity) was for workers to increase their indebtedness.

The deregulation of the financial markets and relaxed (non-existent) oversight of the operations of the banks and other financial institutions lead to the growth in financial engineering in the 1980s and 1990s, which allowed the credit binge to take off. Workers could continue to enjoy spending growth but only because they were simultaneously taking on more debt.

The conduct of governments exacerbated this squeeze. Government surpluses equal non-government deficits. The neo-liberal era was also marked by the shift in fiscal policy bias towards austerity with the eulogisation of fiscal surpluses and the accompanying demonisation of fiscal deficits.

The pressures on household disposable income arising from the government net spending retreat exacerbated the restraints that were being placed on their ability to gain appropriate real wage increases.

These dynamics had little to do with movements in land values although the credit binge fuelled land price bubbles, which, ultimately, became unsustainable and the GFC followed directly.

Henry George and Class

Several people sent Karl Marx copies of Progress and Poverty (Friedrich Sorge, John Swinton and Willard Brown) (Marx, 1975) upon its publication in 1879. Marx was unimpressed.

He wrote to Sorge that:

Theoretically the man [Henry George] is utterly backward! He understands nothing about the nature of surplus value … His fundamental dogma is that everything would be all right if ground rent were paid to the state … This is a frank expression of the hatred which the industrial capitalist dedicates to the landed proprietor, who seems to him a useless and superfluous element in the general total of bourgeois production.

He pointed out to Sorge that George’s causality was absent in the US where “land was accessible to the great mass … [but still the] … capitalist economy and the corresponding enslavement of the working class have developed more rapidly and shamelessly than in any other country!”

[Reference: Marx, K. and Engels, F. (1975) Selected Correspondence, Progress Publishers, Moscow – see Letter to Friedrich Adolph Sorge, June 20, 1881[.

Hudson (2008: 14) argues that George promoted the interests of the capitalist class against labor, in that there was nothing to stop “the capitalist class … from intensifying their monopoly of Capital and Raw Material … [once the rent class] … is abolished only to swell the classes of Interest and Profits”.

Henry George’s Fiscal Policy Paradigm

Henry George was clearly operating in a paradigm where he considered governments had to cover public spending with taxation. George himself says very little about fiscal policy other than to compare the claimed benefits of his Single Tax proposal with the plethora of other taxes that are imposed.

He is also tacit about the level of government he is talking about.

The only clear understanding is that he believed that the Single Tax would provide essential revenue to government to allow it to function without the inefficiencies and inequities that he said we built into the other forms of taxation that he said government relied upon.

Cameron (1989: 9) was also clearly thinking in this fiscal mould. By way of supporting the Single Tax concept he wrote:

But why does a Government elected by the little people of our society persist in compelling their loyal and trusting supporters to pay such a disproportionate share of their earnings towards the cost of Government when there is a better and fairer way of meeting that cost?

[Reference: Cameron, C. (1989) ‘Revenue that is not a tax’, Presented at the official opening of the Western Australian Headquarters of the Georgist Education Association, Perth, March 31, 1989].

He was a Minister at the time the Whitlam government shifted to the right. In this blog – Tracing the origins of the fetish against deficits in Australia – I trace the crucial period in 1974 and 1975, when the introduction of neo-liberal thinking about fiscal policy started to dominate in Australian policy making.

While Cameron resisted the fetish against deficits, it was clear that his own solutions were similarly based on macroeconomic myths about the capacities of a currency-issuing government.

His promotion of the Single Tax was motivated by his perception that taxes (or rents) fund government spending and reduce the need for debt to be issued to fund deficits.

Further, as time passed, George became tied up with the “libertarian anti-government ideology” (Hudson, 2008: 31). He was opposed to public regulation saying that (Book VI, Chapter 1, Paragraph 39):

These are the substitution of governmental direction for the play of individual action, and the attempt to secure by restriction what can better be secured by freedom.

It is thus likely that he would now support the fiscal deficit antagonism that is rife today.

Gaffney (2010: 42) writes:

Georgist tax policy creates jobs without inflation, and without deficits. “Fiscal stimulus”, in the shallow modern usage, is a euphemism for running deficits, often with funny money. George’s proposed land tax might be called, rather, “true fiscal stimulus”. It stimulates demand for labor by prooting employment; it precludes inflation as the labor produces goods to match the new demand. it precludes deficits because it raises revenue. That is its peculiar reconciliatory genius: it stimulates private work and investment in the very process of raising revenue … George’s fiscal policy takes two problems and composes them into one solution.

It is clear that there is little understanding here of the concept of functional finance as developed by Abba Lerner and the sectoral balances insights that are central to the exposition of Modern Monetary Theory (MMT).

Two points arise in this context:

First, MMT, following the ideas developed by Lerner, reject the idea that tax revenue is necessary to fund government spending.

Please read my blogs – Taxpayers do not fund anything and Functional finance and modern monetary theory – for more discussion on this point.

Lerner emphasised that the conduct and evaluation of economic policy should be intrinsically linked to the aim of advancing social purpose. Economic policy cannot be assessed without regard to the functions it serves.

If a sovereign government is never revenue constrained because it is the monopoly issuer of the currency then what is the role of taxation?

Taxation is a way that government imposes limits on the non-government sector. A fundamental principle of MMT is that the imposition of taxes allows the government to manage the state of aggregate demand.

So if nominal demand is outpacing the capacity of the economy to respond in real output terms then tax rises withdraw non-government purchasing power from the expenditure system and reduce the multiplier.

To further understand the role of taxation in a modern monetary economy, please read the following introductory suite of blogs – Deficit spending 101 – Part 1 – Deficit spending 101 – Part 2 – Deficit spending 101 – Part 3.

This is tied in with what Lerner talked in his 1941 article – The Economic Steering Wheel: the Story of the People’s New Clothes (Lerner, 1941), which was later reproduced with minor editorial changes as Chapter 1 in his 1951 book – The Economics of Employment (Lerner, 1951).

Lerner introduced the famous ‘steering wheel’ metaphor. The notion is that we should see the economy as a vehicle we can control to achieve our collective well-being. This is in contrast to the neo-liberal concept of the economy as a self-regulating mechanism, which demands us to act as sacrificial lambs to maintain its ‘health’.

In the same way, the ‘steering wheel’ metaphor is used by Lerner to juxtapose the laissez-faire approach where the car zig-zags across the road, often out of control and producing multiple wrecks, with the alternative, where judicious use of the steering wheel can ensure the car travels safely and smoothly along the road. Lerner considered fiscal and monetary policy to be ways in which government can ‘steer’ the economy to avoid the crises that the free market approach creates (for example, the Great Depression then, and the GFC now).

In relating the metaphor to the economy, Lerner (1951: 4-5) noted that in the main, people accept the need to use the steering wheel for orderly driving:

But are they as reasonable about other things as they are about the desirability of steering their automobiles? … Do they not allow their economic automobiles to bounce from depression to inflation in wide and uncontrolled arcs? Through their failure to steer away from unemployment and idle factories are they not just as guilty of public injury and insecurity as the mad motorists …

Abba Lerner distinguished between what he called Functional Finance and Sound finance, the latter being the orthodoxy he confronted. ‘Sound finance’, which also dominates the public debate in the current period is usually expressed in terms of some defined fiscal and monetary policy rules – for example, governments should aim for a fiscal balance or the central bank should only allow the money supply to increase in line with the rate of real output growth.

These rules, which are rarely challenged, usually disguise an underlying conservative morality about the role of government (for example, deficits are characterised as ‘living beyond the means’ etc).

By way of departure, Lerner considered a government should always use its policy capacity to achieve full employment and price stability and thought that fiscal or monetary policy rules based on conservative morality were not likely to help in that regard. In contrast to ‘Sound finance’, Lerner said that (1943: 39-40):

The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound … The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance. The first responsibility of the government (since nobody else can undertake the responsibility) is to keep the total rate of spending in the country on goods and services neither greater nor less than that rate which at the current prices would buy all the goods that it is possible to produce. If total spending is allowed to go above this there will be inflation, and if it is allowed to go below this there will be unemployment. The government can increase total spending by spending more itself or by reducing taxes so that taxpayers have more money left to spend. The government can increase total spending by spending more itself or by reducing taxes so that the taxpayers have more money left to spend. It can reduce total spending by spending less itself or by raising taxes so that taxpayers have less money left to spend. By these means total spending can be kept at the required level, where it will be enough to buy the goods that can be produced by all who want to work, and yet not enough to bring inflation by demanding (at current prices) more than can be produced.

This statement of purpose – Lerner’s ‘first law of Functional Finance’ – recognises the basic rule of macroeconomics – that spending equals income and output, which drives the demand for labour.

Unemployment results from insufficient spending – it is a macroeconomic problem. The neo-liberal claims that unemployment arises because, for various reasons, individuals do not seek work hard enough, totally misses the point. An individual cannot search for jobs that are not there!

In other words, the government responsibility should be to adjust its spending and taxation to ensure that all production is purchased and that this level of production generates jobs for all, such that the society cannot produce any more goods and services with its current available inputs. What are the financial implications of this?

Lerner noted that if in fulfilling its responsibilities, the government records a fiscal deficit, then it “would have to provide the difference by borrowing or printing money. In neither case should the government feel that there is anything especially good or bad about this result” (p. 40).

The goal is to “concentrate on keeping the total rate of spending neither too small nor too great, in this way preventing both unemployment and inflation” (p. 40). Importantly, assessments of ‘good’ or ‘bad’ are defined purely in terms of whether the government is achieving its goals.

Obviously, moral considerations enter at the stage of setting goals. It is clearly a values-based position to aim for a state where everyone can find work who desires to do so. Once agreed that this will be the societal goal, then we should be indifferent, if in different circumstances (for example, the strength of private sector spending), a deficit of 1 per cent of GDP or a deficit of 5 per cent of GDP is required to meet that goal.

Thinking in this way flushes out where the ideology lies. The neo-liberals obscure their disregard for mass unemployment by claiming that the 5 per cent deficit is dangerous and unsustainable. If the public truly understood that the 5 per cent deficit is as sustainable as the 1 per cent deficit, then the neo-liberals would be forced to debate their preference for mass unemployment.

Clearly, the public would not generally accept that ideological preference and that is why the neo-liberals have to obfuscate their true motivations and hide behind the financial myths concerning the sustainability of government deficits.

These insights run counter to the writings of Henry George and by implication the support Clyde Cameron gave to Georgist ideas.

The message from Functional Finance is that governments should act to advance welfare and, at a minimum, that requires it achieve and sustain full employment; that it has an array of policy tools available to pursue that goal (spending, taxation, debt-issuance, money creation); and that the mix of tools used should be appraised in terms of how effective they are in advancing the mission of the government.

No tool is taboo. The use of each depends on what the government is trying to achieve on our behalf and the circumstances in which it finds itself at any point in time.

Economic policy making is about means to ends – a functional endeavour. The goals need to be specified and the tools necessary to achieve those goals utilised. Economic policy making or practice is not a sacred, religious activity where abstract concepts of virtue and sacrifice rule behaviour and choice.

Lerner said that “taxing is never never to be undertaken merely because the government needs to make money payments” (p. 40).

In Lerner’s view, the effects of taxation are twofold: “the taxpayer has less money left to spend and the government has more money” (p. 40).

While true, he then observes that the “second effect can be brought about so much more easily by printing the money” (p. 40), which means we only should think of taxation inasmuch as it reduces the capacity of the private sector to spend and should “be imposed only when it is desirable that the taxpayers shall have less money to spend” (p. 40).

In this context, one has to ask whether the Single Tax is the best way to achieve the advance of public purpose?

The second observation relates to the implication that George’s Single Tax would eliminate the need for fiscal deficits. It is clear from the writings of Clyde Cameron that he didn’t understand in any coherent way the relationship between the government and the non-government sector mediated through spending and national income changes.

Why would a Single Tax eliminate the desire to save overall by the private domestic sector? Why would it eliminate the incidence of external sector deficits?

Indeed, if real wages and profits were higher under a Single Tax, as alleged, then why wouldn’t imports rise and the desire to save increase?

The national accounts show that if the non-government sector desires to spend less than its income overall then the government sector has to run a deficit or else national income will decline and unemployment will rise.

There is nothing in the writings of George to demonstrate he understood this. The Single Tax proposal is a one-stop solution to his belief that governments need to fund their spending.

Further, both George and Cameron were writing before the modern rise of financial capital. Indeed, George considered physical and financial capital to be indistinguishable (Hudson, 2008) both earning interest (profits). Hudson (2008: 20) points out that at the time “finance was taking on an independent life of its own …. Wall Street was busy capitalizing ground rent and monopoly rent into interest charges and “watered costs” as it used real estate, the railroads, agriculture and financial trusts as vehicles to issue bonds and stocks.”

The question then is why didn’t George consider the ‘debt’ problem arising from the rise of finance capital to be worthy of focus alongside the unearned income from land ownership? At the time he was certainly criticised for avoiding this issue.

The same could be said of Cameron who promoted the Single Tax. The greatest source of income inequality now comes from activities of the unproductive financial capital.

It is also a major source of macroeconomic instability, which so far has not been addressed fully by policy makers, such is the power of the lobby promoting the interests of the bankers and finance capital.

How would have Cameron dealt with the bankers?

Causes of mass unemployment

Following on the previous section, it is clear that George (and later Cameron) didn’t really understand how mass unemployment arose.

Henry George became very influential in a relatively short period of time in the late 1880s and early 1890s. At the time, unemployment in both the US and Britain was skyrocketing (Boyer and Hatton, 2002). George had entered the political race for Mayor of New York 1886 and after losing he went to Britain in 1889 to advice the Liberal Party (Barker, 1955).

[Reference: Boyer, G.R. and Hatton, T.J. (2002) ‘New Estimates of British Unemployment, 1870-1913’, Cornell University ILR School Collection, 9-2002]. [Reference: Barker, C.A. (1955) Henry George, NewYork, Oxford University Press].

His explanation for unemployment and poverty was a single cause divorced from the workers’ own characteristics, which put him at odds with the perceived wisdom among economists of the day. George considered the problem was the inappropriate use of land driven by unfair ownership status.

He claimed that unlike other taxes, which “check production”, the levying of a Single Tax on land, would increase production, “by destroying speculative rent” (Book VIII, Chapter 3, Paragraph 10).

Gaffney (2010: 34) wrote:

The economic gurus of the day, even as today, were in a scolding mode, blaming unemployment on faulty character traits and genes and demanding austerity. They were not intellectually armed to refute him or befuddle his listeners.

[Reference: Gaffney, M. (2010) ‘Neo-classical Economics as a Stratagem against Henry George’, in Gaffney, M. and Harrison, F. (eds.) The Corruption of Economics, London, Shepheard-Walwyn Publishing Co., 29-164].

How would the Single Tax solve mass unemployment? The Single Tax would shift the tax burden from workers and capitalists onto those with secure land tenure and the revenue gained would support government spending on public infrastructure.

It followed that “no one could afford to hold land that he was not using, and, consequently, land not in use would be thrown open to those who would use it” (George, Book VIII, Chapter 3, Paragraph 10).

He said that to pay the taxes, the land owners would have to make their holdings productive by hiring workers (or leasing to entrepreneurs), which would drive up wages and increase consumption.

Capitalists, now freed from the burden of taxation, would be more inclined to supply the necessary new productive infrastructure, which would spur productivity growth.

For his part, towards the end of his Ministerial career in the Whitlam government, Clyde Cameron saw a different cause of unemployment. He railed against trade union leaders who he believed were demanding excessive real wages and undermining employment growth.

In that sense, his understanding was squarely orthodox (and non-Georgian) where is real wages were above the market-clearing productivity level, firms would lay off workers.

This understanding is inconsistent with MMT, which, following Marx, Kalecki, Keynes and others, constructs wages as both a cost (supply-side factor) and an important component of income (demand-side factor). How the two scissor blades (supply and demand) interact determines the impact of wage rises on total spending and hence employment.

Firms do not employ workers because they become cheaper if at the same time the firms believe they will be unable to sell the out put that would be derived from the extra employment.

Henry George and Modern Monetary Theory (MMT)

One of the challenges of the modern time, especially in many advanced nations is the problem of housing affordability. In Australia, the housing problem is acute.

I am going on here to write about how a land tax might be compatible with MMT in controlling sectoral imbalances in spending without compromising overall aggregate spending and employment. This is in the context of speculative booms in real estate made possible through low interest rates and investment-property biased tax systems (as in Australia).

Conclusion

I will complete this three-part series tomorrow.

That is enough for today!

(c) Copyright 2015 William Mitchell. All Rights Reserved.