Corporations = Rentiers

There are three factors of production: land, labor, and capital. Production that is more land-intensive will necessarily be less labor-intensive, and vice-versa. Capital-intensity can either support or inhibit labor-intensity depending on its rate of turnover. Long-term fixed capital tends to increase with rising land values, and therefore has a negative correlation with labor-intensity, while short-term circulating capital such as inventories can provide a continual source of employment for labor.

Now, the rise and concentration of huge, multi-national corporations tends to be seen by both their defenders and detractors as the natural operation of the free market. So-called "economies of scale" are usually brought up as an explanation for their growth and success. Yet, when you think about it, a larger firm will almost by definition be more land-intensive, and therefore less labor-intensive. Thus, with increasing scale, larger firms receive more and more of their income from rent, and less from production. This is why Thorstein Veblen observed that large firms are stores of value first and centers of production second.

The concentration of land by value increases with personal income, but corporate landowners are the biggest of them all. Some might actually think this isn't so bad, since ownership of corporate ownership is spread out among shareholders. However, someone who owns stock in one company will tend to own stock in several others, so it turns out stock ownership is extremely concentrated toward the top. The companies whose stock is worth the most will tend to receive a greater share of their profit from rent. As such, the richest stock-holders also tend to be the biggest rentiers, even if they personally own very little land of their own.

Small businesses, by contrast, are necessarily more labor-intensive. They have smaller spaces, which use less fixed capital, and rely more on inventories of circulating capital that turn over quickly. This is true of farmland as well. Factory farms are far more land-intensive, and use capital-intensive methods of fertilization and heavy amounts of pesticides. Organic farming, by contrast, is more labor-intensive, and more efficient for small farms. The factor of rent is what distorts the market towards the former method and away from the latter.

Economies of scale probably do exist to some extent. But whatever that proper scale is, it is most certainly distorted by the free lunch that is rent. Taxing the rent would help break up these large firms into more efficient, smaller units that use more labor and circulating capital, thus helping achieve full employment, while also eliminating the "too big to fail" problem. E.F. Schumacher was right: small is beautiful. It is also more efficient, and more just. And a market freed of this distorting influence will help achieve that beauty.

What Doth it Profit a Man?

The profit motive is a cornerstone of capitalism.  Adam Smith claimed that each individual’s pursuit of his own self-interest led to optimal social outcomes through what he called the “invisible hand” of the market.  Capitalists have repeatedly had recourse to this argument against collectivists who denounce profit as a social evil.

We must, however, be careful about what we mean by “profit.”  If we mean that the entrepreneur seeks financial compensation for their work, then of course profit is a positive thing.  The problem with the profit motive is the tendency for capital to pursue unlimited growth.  This was noticed by Marx in his equations of exchange.  Exchange starts with barter, which may be represented as C –> C, where C represents a commodity.  Commodities are exchanged for other commodities perceived to be of equivalent value.  Money helps facilitate this exchange by standing in for other commodities and representing value.  Thus, exchange becomes C –> M –> C, where M represents money.  Marx noted that for the capitalist, this is reversed, such that we have M –> C –> M’, where money is invested in commodities in order to reap more money(represented by M’), thus earning a profit.  The process goes on indefinitely to continually accumulate more and more profit.

Money and Taxes

One of the principle arguments leveled against Georgism is the allegation that land values would not be a sufficient tax base to raise the revenue needed for the functions of government. While this argument in itself is questionable, it misses a much bigger point. The government has spent more than it takes in for a long time. Of course, under our current system, this is cause for concern. We worry about all the debt we are incurring, which is in fact an inevitable consequence of our current monetary system. The federal income tax was actually initially passed alongside the Federal Reserve Act as a means to pay off the interest on our national debt. The portion of tax revenue devoted to paying off this interest has grown continually since then. If we keep going down this path, it will eventually eat up our entire federal budget.

However, there is another way. If we simply nationalize the Federal Reserve, the government can then issue its own debt-free money for use on wealth-creating public projects. So long as the wealth created is equal to the money created, there is no inflation. Government could theoretically finance all of its functions in this way without having to take a single dime in taxes. It would not be mortgaging our children's future with more debt, but would simply be providing money for the production of goods and services.

The Abundant Society

There are few words in economics more feared than unemployment. The irony is that many who fear unemployment also hate their jobs. What they really fear is not unemployment, but poverty. The fact that the two are so closely linked often leads to what I call "work fetishism," the valuing of jobs and work as an ends in themselves, rather than means to an end, namely prosperity. Consider, for example, those who decry labor-saving machinery. Such machinery can increase productivity and thus create more wealth. Yet it is feared by the workers, because it might cost them their job. It will, of course, increase the demand for mechanics and engineers to operate and maintain the machinery, but the unskilled laborers are out of luck.

But what if it was in everyone's interest to look after society's well-being instead of just their own? What if the two were one in the same? Suppose society itself were a publicly traded stock, in which each of us had an equal share, that paid dividends?

We Were Warned

All I hear about these days is the housing crisis and the resulting recession. I can only listen to this for so long before I have to speak up. The fact is that we were warned about this long ago. Not by Alan Greenspan or any number of top economists today. No, I’m talking 130 years ago, when an economist named Henry George wrote his magnum opus, Progress and Poverty. In it, he explained the crucial and underappreciated role that land plays in the economy. In a time when we have such a serious housing crisis, it would serve us to take heed.

So what is this land connection? To understand that, we must first understand what in economics is known as rent. This may prove somewhat difficult, as the economic definition is different from the way we commonly use the term. The difficulty is further compounded by the fact that neoclassical economists have expanded the meaning of the term from what it originally meant(largely in an attempt to obscure Henry George's ideas). As it was originally understood, rent meant the economic return of land to the landowner, just as wages were the return of labor, and interest the return of capital. What is unique about rent is that it requires no effort on the part of the landowner to increase in value, but rather is determined by activity of society as a whole. We all understand this, which is why homeownership is considered such a good investment. If a new park is built nearby, the land value goes up. If a new grocery store opens nearby, the land value goes up. Of course, if there is an increase in crime or pollution, the land value goes down. In fact, land value is a great economic indicator of just how prosperous and well-functioning a particular area is. Any money the government spends on public works mysteriously ends up in land values.

The Law of Rent and You

Economics has always been rather esoteric for most people. Most people's knowledge of the subject is limited to the law of supply and demand, of which they have the most vague understanding. Any understanding beyond that is usually aligned with their political ideology. If they're conservative, they follow the supply side theory that lowering taxes create more jobs and helps the economy. If they're liberal, they follow the Keynesian idea that government spending projects can stimulate the economy. But there's one important economic principle that even economists today have long forgotten or ignored, at the expense of their discipline. That principle is the law of rent.

Before I lay out the law of rent, it bears mention that "rent" in the economic sense is not the same as what is meant in its common usage. We commonly apply the term to apartments, cars, videos, and various other commodities. In economics, its focus is more narrow. It is applied mostly to land, though it can also be applied to things like natural resources or the radio spectrum. Rent is the difference between what a factor of production is paid and what it would need to be paid to remain in current use. Applied to land, it essentially refers to the profit to be gained by virtue of its ownership. Essentially, land rent is equivalent to land value.

Poverty

We've all seen the scenes of bony-looking children in some desert surrounded by makeshift huts that we wouldn't dream of living in, accompanied by some announcer's appeal to our sense of guilt. "For just $1 a day you can sponsor a child like this," they say. While such philanthropy may give us peace of mind with the sense that we're doing something about the problem, such gestures of kindness do little to address the wider causes of poverty and hunger. This individual child you sponsor may gain a competitive advantage over his peers, but he will still live in a poverty-stricken area, and his peers will be no better off.

So what is the cause of poverty? In the conservative mindset, poverty is the fault of those living in it. Many a cynic has implored that these poor hungry people might have a chance for success if only they would stop having so many children. In our own country, they claim that they are "lazy" and simply don't want to work. Sometimes they will claim that our welfare system has made them dependent and given them a disincentive to work. Without completely discounting all of these explanations, suffice to say they do not explain sufficiently the extent of poverty that exists in the world, nor its distribution.