Fred Harrison - The Power In The Land

The task of finding such a solution is urgent, for capitalism is challenged by the socialists whose concepts have been fashioned by Karl Marx. They argue that economic crises are evidence of those ‘internal contradictions’ which represent the opportunity to revolutionise society. Rational planning would be substituted for the disorder of the market. The Marxist critique has an undeniable plausibility (given present perceptions) which makes it attractive.

It will always be one of the most appropriate criticisms of free enterprise society that it is quite unable — or rather, unwilling — to use collectivist forms of economic organisation for an attack on slums, poverty, disease and lack of education, while it is able to use all those techniques, repugnant as they are to the business man’s mind, when it comes to war... 4

Thus, subtly, we are presented with the assumption that only collectivist action can solve these problems. Superficially it appears reasonable, for many people lack not the will but the means to act for themselves in their own interests. Because of the persuasiveness of this assumption, we trundle inexorably into corporate and collectivist action while paying lip-service to liberal philosophy based on individualism.

The language in which these issues are debated determines the way in which we construct the answers. Research and policy-making is heavily conditioned by one simple image: the ‘class conflict’ between capital and labour, a notion lovingly nurtured by Marxists which has been left unchallenged by the ineptness of liberal economists. The Machine exploits Man. Trade Unions exist to Bash the Bosses. And so on. This fraudulent prospectus has dictated the terms of all the reformist debates of the past hundred years. As a consequence, we have been tackling our economic problems in the wrong way because we have perceived them through a prism of language which distorts reality.

A book that rejects the Marxist critique has to accomplish two things if it is to advance the cause of a prosperous liberal society. First it has to exonerate the free enterprise model of the criticisms levelled against it. This does not mean that the individual actions of all capitalists have to be defended, but we do have to show that material deprivation is not a systemic feature of free enterprise (in the way, for example, that the individual’s freedom to make decisions is necessarily eliminated from a system that is built on centralised planning). Then, we have to demonstrate that the major economic problems can be remedied while preserving individual freedom; that people who wish to work can earn good incomes with which to finance their needs without placing themselves in a state of dependence on a bureaucracy and public welfare subsidies. How can these ideal goals, which have eluded us for two hundred years despite the strides in science and technology, now be achieved ?

Intuitively, people believe that the answer lies buried somewhere in the tax system, which redistributes income, shapes incentives and apportions power. In this they are right, but what changes, in particular, ought to be promulgated? A straightforward programme of tax-cutting is the general answer. President Ronald Reagan and Prime Minister Margaret Thatcher were both elected to office with a remedial programme based on this proposal.

The philosophy under-pinning this approach goes as follows: manifestations such as unemployment are proof of insufficient free enterprise; instability is attributed to a lop-sided economy based on the growth of the public sector; this public sector participation in the economy should therefore be reduced drastically by cutting taxes and reducing direct state involvement in the operation of firms and the lives of families.

This interpretation does not account for the fact that industrial economies have from their inception regularly over-stretched themselves into depressions. Each of these boom-slump cycles lasted for two decades, and their main elements have been consistently replicated. The first British cycle (1795 to 1815), which is analysed in Chapter 4, bears striking resemblance to the most recent cycles. Yet during the earliest cycles on both sides of the Atlantic, state interference in the economy was minimal or non-existent. So the uninformed analysis — that we need more of the same capitalism, and less welfare statism — is sterile as an explanation of the underlying problem. There was no golden industrial age to which we can return; we have to look for one in the future. But to find it, we must first identify those injurious causal influences which are common to all the depressions from 1815 to 1975, if they exist. Only then can we define reforms of lasting value.

But even if we are armed with the correct diagnosis of the problem, the definition of a solution would be no easy matter. This is because, for at least two millenia, fiscal policy has been bedevilled by a tendency to avoid coming to terms with the harsh realities of tax policy if—as is inevitably the case — it affects some vital interest.

There are two indivisible sides to the distribution of wealth through social mechanisms: equity and efficiency. Primitive societies fused these two aspects into coherent codes of practice which were consistent with their resources and level of development. This happy state of affairs dissolved with the rise of classical civilization. We have, ever since, been groping for a formula that served the ends of both justice and the optimum needs of the prevailing mode of production, but with little or no success. There is no Sermon on the Mount, or set of rules inscribed on ancient tablets handed down from on high, on which we can draw for guidance.

There have been some ideal opportunities in modern times for redefining the legitimate claims of the public domain on private wealth, but these have been tragically wasted. The American Founding Fathers, for example, had such a unique opportunity. Their perspicacity is exemplified by James Madison, father of the Constitution and fourth President of the US, who put his finger on the problem when he declared in No. 10 of the influential Federalist Papers:

The most common source of faction, the most durable, has been the unequal distribution of property. 5

He identified the problem, and noted the risks of dominant groups using tax legislation to ‘trample on the rules of justice. Every shilling with which they over-burden the inferior number is a shilling saved to their own pockets’. 6 But he then proceeded to intimidate future generations of lawmakers in Congress by attacking as a ‘wicked project’ any attempt at an ‘equal division of property’. 7 By failing to specify how to deal with the most serious problem in civil society — ‘the unequal distribution of property’—he immediately preached against a philosophy that might have produced a fiscal policy to neutralise the consequences. And so the New World, populated by refugees on the run from the old tyrannies that were built on the enclosure of common lands, began to recreate those very conditions that had led to the exodus from Europe (see Chapter 10).

What of the canons of taxation provided by Adam Smith? These are generally regarded as profound, and are still cited by free market economists as the guidelines for fiscal policy. But as we shall see in Chapter 2, Adam Smith suffered from the shortcoming that led him to a set of prescriptions which prove, to the present author’s satisfaction at least, that he lacked that ‘most exact impartiality’ which Madison considered to be crucial to the making of tax laws. What, then, do we propose as a third alternative to the limited choice at present on offer from right-wing Conservatives and their opponents, the Marxists ?

The major reform that we prescribe is a 100% tax on the annual rental value of all land and a simultaneous reduction in other forms of taxation. In other words, we advocate the ‘socialisation’ of all ground rents to remove private gain therefrom, but would give free reign to private enterprise within what would now be a free market system. This proposal is not original: in its full-blooded form, it was propounded by Henry George in Progress and Poverty (1879). 8 Is it eccentric to suggest that a single tax advocated over a hundred years ago contains the solution to contemporary problems? Readers will judge once they have acquainted themselves with the evidence. Suffice, for the present, to note the seminal importance of this book, which has become economics’ leading best-seller. 9 Paradoxically, today few readers will be familiar with the book, yet it continues to wield influence in the councils of power. We can see this, for example, from the strictures on taxation expressed by President Reagan’s economic guru, Dr. Arthur Laffer. The Californian professor promoted the ‘supply side’ economics that were at the heart of the Republican presidential campaign in 1980.