Sunday, December 7, 2008

Seeds of Destruction

Back when world communism was alive and well, the communists taunted us and warned us that capitalism sows the seeds of its own destruction. Their observation is true, of course, but they failed to notice that communism also sows the seeds of its own destruction, the very same seeds, in fact, and by pure chance their seeds germinated first.

So what are these seeds of destruction?

Every elementary economics textbook begins by explaining that all wealth is made from land, labor, and capital. When an entrepreneur first establishes a business, he spends his initial investment on land and capital, then hires employees to perform the labor.

This initial investment lumps land and capital together and refers to the composite as the Means of Production. Capitalism places the Means of Production under corporate control and communism places the Means of Production under government control. Is one inherently better than the other? Should we care?

The need for the entrepreneur to lump land and capital together for investment purposes leads to the error of failing to see the fundamental difference between land and capital. Land is part of the universe. No human being, alive or dead, made it. It's a Gift of God (if you're a believer) or a Fact of Nature (if you're a non-believer). Capital is made by living people, and the quantity of it is a product of human decisions, thus capital bears a much closer kinship to labor than to land.

And therein lies the Seeds of Destruction. Whenever land and capital are treated identically for taxation and administrative purposes, land becomes subject to uncontrollable price inflation that eventually renders land such a large percentage of the corporate assets that it becomes more profitable to cut back production instead of increasing production. Downsizing happens. People lose their jobs. Newly unemployed homeowners default on their mortgages and banks are left holding the bag with properties that can't be sold for the amount of the outstanding balance.

In short, we have a depression.

Is the current economic downturn a mere recession that will soon turn back up again? Are we headed for a depression that will take years to pull back out of? Is this the depression that will cause total collapse of the entire world order as we know it? I'm not going to make a prediction, and I'm not going to believe any prediction anybody else makes, either.

Whatever the next presidential administration tries to do to fix our economy, it's doomed to fail unless something is done to rein in land speculation. The land value tax suggested in the nineteenth-century book Progress and Poverty by Henry George would be a very good place to start.

Now, if we do finally get wise and find a way to stop uncontrollable land-price bubbles, should the government own and administer major capital investments, as recommended by communists and socialists? In some cases, perhaps yes, but in other cases it won't make any difference.


LVTfan said...

Hear! Hear! (Or is that Here! Here!)

For those who have not yet read Henry George's book, Progress and Poverty, may I send you to a page with links to a number of versions? The shortest is about 30 words. The lonest and best is the original, which you can read online or order hardcopy, and the newest is a 2006 abridgment, in contemporary language, available via Amazon or Schalkenbach, readable online at and, and downloadable as MP3s at

Or you could start with a few of Henry George's excellent speeches which will give you a sense of the man and his ideas. They're on the front page of, near the top. The link to the collection of P&P links is at the bottom of that front page.

Someone, rightly I think, called Henry George "The Prophet of San Francisco."

Mark Wadsworth said...

Good summary.

It's "hear, hear", BTW.

As to LVT, I did a two hundred word crash course (from a UK perspective) here. I dunno if this would apply in the USA.

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