Tuesday 16 August 2016

"Virtuous Rent: a Rudder That Can Transform Our Economy"

A great article from Evonomics forwarded by SJS. Worth reading in full (quite lengthy) but here is the salient bit:

In Adam Smith’s view, landlords benefited from land’s unique ability to enrich its owners “independent of any plan or project of their own.” This ability arises from the fact that the supply of good land is limited, while the demand for it steadily rises. The effect of landowners’ collection of rent, he concluded, isn’t to increase society’s wealth but to take money away from labor and capital. In other words, land rent is an extractor of wealth rather than a contributor to it…

More recently, the concept of rent was expanded to include mono­poly pro­fits, the extra income a company reaps by quashing com­pe­tition and raising prices. Smith had written about this form of wealth extraction too, though he didn’t call it rent. “The interest of any particular branch of trade or manufac­tures is always to widen the market and to narrow the competition… To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can only serve to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, an absurd tax upon the rest of their fellow-citizens"

… In short, traditional rent is income received not because of anything a person or business produces, but because of rights or power a person or business possesses. It con­sists of takings from the larger whole rather than additions to it. It redis­tributes wealth within an econ­omy but doesn’t add any. As British economist John Kay put it in the Financial Times, “When the appropriation of the wealth of others is illegal, it’s called theft or fraud. When it’s legal, it’s called rent.”

4 comments:

Antisthenes said...

Your arguments in favour of LVT never persuaded me to wholeheartedly embrace it. I was an undecided. Today I found out that Tim Wostall is in favour of it so now you have one more convert as that was the nudge I needed. If a follower of the Austrian school of economics and Adam Smith endorses it then that is good enough for me.

ThomasBHall said...

Welcome to the unpopular (but correct) club!

Lola said...

I had not read that remark of John Kay's. Succinct and accurate.

A. Welcome to the Dark Side (as rentiers would have us)

Lola said...

Evonomics bit on rent is nearly but not quite there. He advocates a class of 'trustees' to oversee the whole thing. That won't work. He's creating another quango, who won't be able to stop itself interfering and whose existence will lead to more 'rent seekers' seeking employment by it. Anyway, Parliament is supposed to have that function.