Corporations and the Distribution of Wealth

After the little dustup over at the League of Ordinary Gentlemen about my post on the middle class lifestyle, I wrote this and asked E.D. Kain if he would be willing to run it as a guest post. I wouldn’t have been surprised if he said no, but I was a bit surprised that he didn’t respond at all. Perhaps my ungentlemanlike nature actually fit there better than I had believed.

Anyway, much of the criticism of my argument centered around the question of whether the current distribution of wealth is fair, which I think some of the folks over there may mistakenly conflate with the question of whether a free-market distribution is fair. For whatever it may be worth, here’s my reply.

In the thread where Jason Kuznicki discussed my argument that the middle class isn’t doing too badly, it was claimed that I was assuming that the current distribution of wealth is fair. In fact that was incorrect, as I will explain shortly, but what struck me was the irony that the critic seemed to assume the current distribution of wealth is unfair, but without clearly explaining why. The fairness argument seems to rest simply on one of two ideas: either that when the disparity reaches a certain degree it is simply unfair as a matter of definition; or that a disparity that gets to be too great is sufficient evidence that the system underlying it is unfair. I suspect some people hold to the one point, some to the other, and some hold a mixture of the two.

The purpose of this lengthy post is not to make an argument that I think everyone “has to” accept. I just want to lay out the (or a) libertarian argument clearly enough (I hope) so that people can more accurately understand it. It’s certainly fair to hold an opposing viewpoint, but reasonable debate depends on each side actually understanding each other, and it’s my considered opinion that liberals and libertarians mostly don’t understand each other’s points of view at all, although each side seems to think so. Having shifted to libertarianism from a left-leaning stance (I used to be registered with the Green Party!), I think I am in a better position than many to understand both sides.

Definitional Unfairness
Let’s deal first with the “unfair by definition” argument. Personally I agree with legal scholar Alexander Bickel that “the highest morality almost always is the morality of process,” so of course I reject the definitional claim of unfairness. I think the definitional approach is too vague to be meaningful. Unless we can distinguish, on some logical basis and with something reasonably approaching precision, just what degree in disparity constitutes the breakpoint between fair and unfair, between a wealth distribution that should be left alone and one that justifies ameliorative action through public policy, this approach is, on a practical level, useless. And I think it is vague because it is based not in a coherent principle but in intuition borne out of sympathy. And while neither sympathy nor intuition by themselves are bad things, neither is complete in and of itself, nor do the two become complete when joined. They are only a starting point for logical analysis—they indicate to us that something is worth investigating, but they aren’t in themselves proof that something is wrong. And if we stop with the intuition and don’t complete the logical analysis, we have no sound basis for judgment.

But what if we had perfect disparity of wealth, a Gini coefficient of one? As it turns out, even I’d be pretty sure something was wrong. But would it be inherently unfair, or would it be an indicator of unfairness in the system? Let’s conduct a thought experiment. Assume I build a monastery on some land I own and invite religious people to give up all they own to come live there and meditate. I’ll provide them with food, shelter, and clothing as long as I am pleased with their conduct, but it is understood that they do not own their clothing or their shelter, and they have no contractual right to food—all is given at my pleasure. Some religiously minded folk accept the deal. I own everything in this community, and they own nothing. Is that unfair? I argue that it’s not.

It’s far-fetched, to be sure, but philosophical thought-experiments often are. The point is that if we can come up with a scenario that is fair, then mere disparity of wealth cannot, by itself, be proof of unfairness. I imagine some will say, “but that’s not what’s going on in the U.S.” To which my response is, thank you for supporting my argument that it’s “what goes on” that determines what’s fair, rather than the mere distribution itself.

Systemic Fairness
The second argument is that there must be something wrong with the system. “The System”–such a deliciously vague and ominous-sounding concept! But I agree that if there is such a thing as unfairness, that is where it resides, in the system, or as Bickel put it, in the process. And I argue that if there is no theft, fraud, or coercion, the distribution system is fair.

So the question is, is there systemic/procedural unfairness in our system of wealth distribution? I believe that there is, but I want to clarify first what is not an indicator or symptom of systemic unfairness—the corporation. Corporations are, at their basic level, a generally, if not perfectly, fair system. (To be clear, I don’t believe in perfection in human systems, so to say something is not perfectly fair is only to say that it is the product of humans, not gods.)

Consider the origins of corporations—individuals joining together for the purpose of investing in merchant ship ventures. It took a lot of money to buy or charter a ship, then supply it with trade goods, and the return was very uncertain due to the danger of pirates and ships foundering. So various investors put in various amounts, and if the venture is successful, got back a return proportionate to what they put in. It’s nothing more than a contractual arrangement.

Say they do this several times, and then realize it would be easier if they owned their own ship(s). But with a large number of investors the contractual arrangements get complex and time consuming, creating high transaction costs. So they simplify by forming a joint stock company. The company owns the ships, and they own shares in the company. As economist Ronald Coase explained, in discussing the nature of the firm, people form joint-stock ventures because the costs of operating through that kind of organization are less than the costs of trying to operate by formal contracts for all matters. There’s nothing nefarious, no theft, fraud, or coercion, so it’s fair.

And that’s where corporate personhood really comes from. Instead of every owner having to negotiate and sign a contract to purchase a new ship, the manager can do it in the name of the firm. While corporate personhood has a bad name—because it is not well understood, I think, rather than from some deep insight about it—let’s not forget that all kinds of non-profits have corporate personhood, too, from the private college I work for to United Way to Doctors Without Borders. Are these organizations all nefarious, or do they simply find incorporation a more efficient mode of operation?

Now let’s say our joint-stock trading firm wants to buy some new ships, but needs more money to do so. They can get more money by asking other people to invest, and in exchange for their money giving those people a piece of paper that declares them to be part owners in the company—i.e., the investor has bought stock in the company. The investor has no say in how the company’s run, but he’s ok with that. He doesn’t want a say, he wants a return on his investment. Again, no theft, fraud or coercion.

Now let’s say that investor dies and his grieving widow inherits the stock. One day when she is 90 years old, a drunk captain of one of the company’s ships runs into a ship from another company, sinking it, destroying its cargo, and drowning all aboard. Lawsuits follow. How culpable is grieving widow for all this? Should the company that lost its ship and cargo, and the survivors of all the victims, be able to sue her directly as one of the company’s owners, possibly putting her out of house and home? If you oppose limited liability, that’s what you’re proposing. Limited liability exists only to protect investors from losing more than the value of their investment in the firm. It does not protect the firm itself—the shipping firm can be sued, and could potentially be forced out of business by the sum it has to pay in judgment. So, again, there’s no theft, fraud or coercion, so the system is fair.

Now if that’s all there was to the story, whatever distribution of wealth resulted would consequently be fair because the system/process is itself fair. At no point was anyone the victim of theft, at no point was anyone defrauded, and at no point was anyone coerced.

Systemic Unfairness
So there’s nothing inherently unfair about corporations and the resulting distribution of wealth. But there is unfairness in our system because there is theft, fraud, and coercion. Let’s begin with theft and fraud.

Sometimes greed leads people to steal from or defraud others. The resulting change in the distribution of wealth is unfair because the process of creating that change was unfair. One of the few roles of government that libertarians see as legitimate is having a legal system to rectify these unfair actions.* Corporations do sometimes defraud people and steal from them. But corporations are no more likely to do this than individuals, because ultimately corporations are just managed by individuals. They may have a legal identity distinct from any particular individuals, but they do not have mental or cognitive identity distinct from particular individuals, so they do only what individuals decide to do. In a real sense, corporations don’t defraud, individuals managing corporations do. That’s why limited liability does not extend to protecting managers who commit fraud or otherwise break the law.

There is, in fact, somewhat less incentive for a corporation to defraud people than there is for an individual businessperson to do so. The corporation has made huge investments on which they want a return and is (normally) looking to survive for the long term, so actions that harm their reputation are very risky. A private individual with minimal investment may not face that same incentive, particularly one who does not need to worry about reputation effects (beware traveling salesmen!). That’s not an argument that corporations don’t ever commit fraud; we all know they do sometimes. It’s just an argument that it’s not “corporateness” that leads to fraud, but short-sighted greed, an unfortunately common characteristic of humans. (And government, being composed of humans, is of course not immune to fraud, either, and looked at globally may be even more likely to commit it—the great achievement of the American bureaucratic state is the creation of a bureaucratic culture that minimizes corruption.)

Now let’s consider coercion. Of course theft sometimes comes in the form of coercion—“your money or your life.” But we’ve already considered theft, so let’s look at legitimated coercion; coercion through government’s monopoly on the legitimate use of force (Max Weber’s definition). Do corporations use government to coerce people? They sure do. Every time you buy a bag of sugar at the store, or any item containing sugar, or any item containing a sugar substitute, you have been coerced by the government on behalf of sugar cane companies in Louisiana and Florida and the corn syrup-producing Archer Daniels Midland Corporation of Illinois. That’s because there is a tariff on imported sugar that increases its price, so that U.S. grown sugar and substitutes like corn syrup will be more cost-competitive.

Here’s the irony—liberals who dislike free trade between nations like tariffs. But tariffs are just a consequence of corporations using the power of government to create a coercive distribution of wealth. There’s an actual net loss of consumer welfare, which is captured by the sweetener corporations. Of course some of it is also captured by those companies’ laborers, which to many people is the whole purpose of tariffs. But that’s still a coercive distribution of wealth—you and I are being coerced into shifting some of our wealth to workers in politically powerful industries.

There are many other tariffs, subsidies, and protective regulations that coercively shift wealth from consumers to corporations and their owners. Public financing of sports stadiums, for example, almost always leads to welfare losses for the public and coercively created gains for the sports team owners. The National Forest Service spends more money to build roads for logging companies than it receives in timer sales. The Department of Agriculture subsidizes the cost of foreign advertising of American products like Chicken McNuggets, Dole Pineapples and Pillsbury muffins. Libertarians regularly criticize these under the catch-all term “corporate welfare.”

But, importantly, those unfair distributions of wealth do not result from a free market.** Those processes by which corporations and their owners get an unfair proportion of the wealth result from them using government to take money from you and me and direct it to themselves. Consequently, moving towards freer markets will improve the fairness of the distribution of wealth.

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*Some people, particularly libertarians, like to emphasize the doctrine of caveat emptor. But as a legal doctrine, that covered only defects unknown to the seller. If the seller actively concealed defects or otherwise purposely misled the buyer, it can be treated in law as a case of fraud. Many libertarians, unfortunately, don’t understand that limitation. Feel free to mock and scoff at them.

**OK, what is a “free” market? It is not a market that is entirely free from regulation and constraint. As noted above, fraud prevention and resolution is a legitimate role for government. So free markets do not mean an unlimited ability for Dell to assure you it’s selling you a computer, then sell you a time bomb instead, or for McDonalds to sell you french fries high in saturated fats while falsely claiming they are diet food (or to lie to Muslims and Jews about whether they’re using animal fats for frying). Restrictions on pollution are entirely legitimate in a free market because pollution is an externality, an imposition of costs on other people. What free market means is the government is not telling people what they can and cannot freely exchange for (OK, before someone says it, that does not include murder for hire). When government has no rules against the apple orchard outside my town setting up a roadside stand, that’s a free market. When they say the apple orchard can’t lie to me about what types of pesticide they’re using on their apples and whether they’ve washed them before selling, that’s still a free market. When they say they can’t set up a roadside stand but must sell their apples to an apple co-op, which then resells them to grocery stores, that’s not a free market.

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About J@m3z Aitch

J@m3z Aitch is a two-bit college professor who'd rather be canoeing.
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22 Responses to Corporations and the Distribution of Wealth

  1. A Bear says:

    That monastery idea of yours sounds great! Do you plan on providing beer for everyone or just Koolaid?

  2. Pingback: On Corporations as Persons - Big Tent Revue

  3. D. C. Sessions says:

    Meh. The world is unfair, and any perception of whether a wealth distribution is “fair” or not says more about the observer than about the society observed.

    I’m a lot more concerned with the consequences of a given wealth distribution than I am with where it came from. Social systems are nonlinear, despite our fondness for linear models describing them. For example, “Free Market” models, down in the fine print, make assumptions necessary to using small-angle linear approximations. Well and good, as long as the reality bears some resemblance to the assumptions.

    What I worry about is that when societies get far enough from those conditions the nonlinearities take the society into unstable territory. From a personal liberty standpoint (as well as a general welfare standpoint) one of the key destabilizers is concentration of power. Concentration in the State is an obvious one, but IMHO any sufficient concentration can snowball — including wealth, which is just another form of power. Obviously, power can also produce wealth — thus positive feedback.

    As I’ve mentioned before, I don’t see it necessary (even if it were possible) to prevent concentrations of power. In which case, the more stable and liberal [1] solution is to have a “free market” condition for power, with multiple centers balancing each other rather than hope to shackle any particular center of power. If for no other reason, by the time the shackles really matter the center is likely to have the means to overcome them (/me says, looking around at our supposed “checks and balances” in the USA.)

    [1] In the sense of “freedom”

  4. James Hanley says:

    A Bear: You’ll all be working at my grain and hops farms and my brewery and distillery. How much you all get to eat or drink will be directly proportional to how productive the whole enterprise is. I.e., the more productive you all are, the more beer you get. No Kool-Aid, though–I’d be left digging the graves for all the bodies, and that’s not my idea of paradise.

    D.C. Sessions:

    the more stable and liberal [1] solution is to have a “free market” condition for power, with multiple centers balancing each other rather than hope to shackle any particular center of power.

    Agreed. That’s why I’m a staunch federalist (or polycentrist, as Elinor Ostrom would put it).

  5. Lance says:

    DC Sessions,

    Meh. The world is unfair, and any perception of whether a wealth distribution is “fair” or not says more about the observer than about the society observed.

    Amen Brother.

    This is a powerful Rorschach test for one’s political and personal philosophy. There is no objective empirical measure of “fairness” when it comes to the wealth of any large dynamic system of humans, let alone an entire society. This doesn’t mean that “fairness” as a goal shouldn’t motivate the design and implementation of governmental, political, personal and corporate systems.

    James Hanley,

    I, as usual, agree (on the whole) with your analysis. Unfortunately the term “free market” is also a Rorschach test of sorts and the fact that your analysis uses the term “free markets” many will conclude, despite your many statements to the contrary, that you are endorsing a brutal” dog eat dog” “laissez-faire” form of capitalism.

    The many maroons that do “drive by” posts conflating libertarianism with conservatism, despite that being antithetical to the stated purpose of your blog, are proof of just how hypnotic these terms can be.

  6. stuhlmann says:

    “The corporation has made huge investments on which they want a return and is (normally) looking to survive for the long term, so actions that harm their reputation are very risky. A private individual with minimal investment may not face that same incentive, particularly one who does not need to worry about reputation effects (beware traveling salesmen!). That’s not an argument that corporations don’t ever commit fraud; we all know they do sometimes. It’s just an argument that it’s not “corporateness” that leads to fraud, but short-sighted greed, an unfortunately common characteristic of humans.”

    Corporations don’t make huge investments, their stockholders do (or did). And the company officers directed those investments. Given that the typical share of stock is held for less than a year and given that corporate officers often have financial incentives for placing short term profits ahead of long-term growth or even survival, I would suggest that corporations are capable of the deliberate use fraud as a business strategy (e.g. current robo-signing mess). The stockholders don’t care because they are a) planning on dumping the stock as soon as it hits a certain mark and b) the big institutional investors are investing other peoples money and are mainly concerned with the next quarter. The officers don’t care because a) they’ll be rich before the shit comes down, and b) they have golden parachutes anyway, and c) fraud on a grand scale is rarely punished by more than a fine.

  7. James K says:

    What incentives do you think there are to make the managers of companies particularly short term in their views?

  8. James Hanley says:

    Of course corporations make investments. If I buy a share of GM stock from you not one penny of that purchase price goes to GM. They initially sell stock so they can get cash for growth and investment purposes, then future investments come out of corporate revenues.

    And a very large number of stockholders are not looking to dump them quickly, but to hold onto them, and those are some of the most influential stockholders. If Warren Buffet buys a truckload of a firm’s stock, he’s not looking to dump it after a quick return, and if he does start dumping it that’s going to reflect very badly on the managers.

    As usual, the real market is not as simplistically evil as its detractors think.

  9. LVTfan says:

    Much depends on the structures that funnel wealth into a few pockets. If they rely on privileges of some kind they’re wrong. If they are not the result of privilege, then perhaps they are the result of superior intellect, hard work and innovation. When we jump to the conclusion that the latter is the case without examining the facts, we pretend there is no such thing as privilege.

    You might appreciate Dan Sullivan’s essay, “Are You a Real Libertarian, or a Royal Libertarian?” online, among other places, at wealthandwant.com

  10. Lance says:

    “You might appreciate Dan Sullivan’s essay, “Are You a Real Libertarian, or a Royal Libertarian?” online, among other places, at wealthandwant.com”- LVTfan

    Read it years ago. I am not a “royal libertarian”.

    That said, buying land is not that big a barrier to overcome. Do inherited “royal” land grants advantage some people? Sure, but so does having an IQ one standard deviation above the mean or being six foot eight and having cat like reflexes. So what?

    Most folks that own land, like me, didn’t inherit it nor do we use it to collect rents so the whole point of the “royal” unfairness is pretty inconsequential.

    Don’t get me wrong, I’d be all for the system advocated by Dan Sullivan but it aint gonna happen. Well, not without a bloody revolution.

    And that’s of course the main reason most people, usually not libertariansroyal or otherwise, feel safe bringing it up. They aren’t advocating it. They’re just using the concept in an attempt to flummox libertarians whom they perceive as too greedy to let go of the deeds to their property.

    So what’s your reason for bringing it up and would you be game for trying it?

    I would.

  11. LVTfan says:

    Buying land on the fringe is not much of an obstacle, because it isn’t good for much. Buying land in the thick of things costs a great deal, and one is paying the seller for value he didn’t create. And then one must pay taxes of various kinds. I’d definitely be game for a system of taxation based on taxing land value — the value of the land before the improvements to the individual lot — and untaxing buildings, wages, sales and other evidences of industry and activity. And I’m not suggesting asking anyone to let go of the deed to their property — just asking them (us all) to pay into the commons in proportion to the value of the land we occupy, instead of in proportion to our wages, or our purchases, or the value of our buildings, or some combination of those things. Direct taxes are superior to indirect taxes. They’re efficient, they’re not shifted off onto others, gathering moss as they go.

    I’ve spent a lot of time studying tax alternatives, and taxing land value seems to me to be both the most just and the most logical alternative.

  12. James K says:

    I think land taxes have a lot going for them. Since the quantity of land can’t change they’re a very non-distortionary tax, so moving from income taxes to land taxes would be an efficiency gain. And the distributional effects would be pretty benign since they transfer wealth from current land owners to renters (though since I don’t own any land I probably would say that ;) ).

    There are a few political wrinkles of course. Land-rich, income-poor people will object (i.e. old people and farmers), so this is pretty much a non-starter from day 1. Still, I really think it has merit. In fact Gareth Morgan (a free market economist of some note in New Zealand) advocated using a land tax to pay for income tax cuts and a Negative Income Tax, so there are already free marketers who agree with the principle.

  13. LVTfan says:

    Farmers may at first glance appear to be land rich, but most of them own land whose value is well under $6,000 per acre. (Their homes, barns, other buildings and equipment — and their improvements to the land such as clearing, draining, fencing, irrigating, etc. — are generally worth more than the value of their raw land.) A family farm is what, 100 or 200 acres? A single 50×100 lot in Manhattan can be worth more than many *thousands* of acres of farmland.

    It seems to me to be the best way to a free market, and to widely shared prosperity.

    On a local basis, it is a simple matter to shift taxation off buildings and other manmade property, and onto the value of land, a few mills at a time, or faster. Unfortunately, in the US, one may need to seek enabling legislation to permit such a shift. Pennsylvania has had it for nearly 100 years, and a number of cities and towns use it to good effect.

    But I’d like to see it become one of the bases of federal taxation. Fred Foldvary wrote a good piece on this, titled “The Ultimate Tax Reform.” The holders of our most valuable land are not the people who make the normal list of “big landholders,” which are typically and naively based on sheer acreage. When an acre in Manhattan can be worth $250 million or more, it is tough to call someone who has even a million rural acres a “big landholder” on the national scene, even if their holdings constitute a local monopoly.

    The entities which hold our most valuable land pay out in property taxes each year a tiny fraction of the annual value of the land. (Quick and dirty, annual value is about 5% of the land’s selling value.) The land rises in value for reasons which have nothing to do with their activity or inactivity, and everything to do with the presence and vitality of the community and with public investment in infrastructure and services.

  14. Lance says:

    Well as far as the Manhattan property values go, how much of that is land and how much is improvements? The Chrysler “Building” is certainly a huge part of the valuation of the property and there are hundreds of empty lots in Manhattan, even at least one in midtown.

    So, are you going to tax them the same as the land under Trump Tower or the Empire State building? If not why not, since we are only taxing land?

  15. LVTfan says:

    There are enough teardowns in Manhattan to give us a pretty good indications of land values. A few years ago, there were discussions about selling a hotel in midtown, on a full block, and that it would sell for $400 million to $1.2 billion as a teardown. Operating profit is currently in the range of $30 million, if I recall correctly.

    As it happens, both the Chrysler building and the Empire State building are on leased land. I’d guess that Trump Tower is not.

    Buildings depreciate over time, even with the best of maintenance and considerable investment in updating. They are never worth more than it would cost to construct them today, and then depreciation and obsolescence of various kinds must be taken into account. Land tends to appreciate over time. Well located land tends to appreciate faster, and every bit of infrastructure added — a new subway, faster telecommunications, a new tunnel — adds to the value of the land it serves. Better yet, it generally increases land value by more than the cost of the project.

    I’d prefer not to tax any of the buildings. As an interim measure, I would seek to reduce the millage rate on the buildings and increase the percentage of the annual rental value of the land itself which is collected by municipal, state or even federal government. (If the locality doesn’t collect the lion’s share of the rent, then the state should be able to; if the state fails to collect it, then the federal government should do so.)

    Shifting taxation onto land value would lower the selling price of the land. This would free up credit for purposes other than buying land. It would nudge unused and underused land — those empty lots you refer to — into use, creating housing, or hotels, or office space, or commercial, or whatever combination the market wants. Users of space would be able to afford to rent or own it, and be relieved of the current annual penalty for having improved their land well. Underusers of land — what was once called the “vacant lot industry,” which employs no one — would feel put upon and resentful, and perhaps their grandchildren wouldn’t receive the fine nest egg that had been intended for them.

    Does it seem like a reasonable tradeoff?

  16. James K says:

    LVTfan:

    Farmers may at first glance appear to be land rich, but most of them own land whose value is well under $6,000 per acre. (Their homes, barns, other buildings and equipment — and their improvements to the land such as clearing, draining, fencing, irrigating, etc. — are generally worth more than the value of their raw land.) A family farm is what, 100 or 200 acres? A single 50×100 lot in Manhattan can be worth more than many *thousands* of acres of farmland.

    Ah, good point. Land value differentials aren’t as high in New Zealand (our city land is worth less and our farmland worth more) so I didn’t think of that. Still, you’ll have to get the retirees to play along and I honestly can’t see politicians doing anything that would make retired people worse off.

    None of this of course takes away from the policy merits of the idea.

  17. D. C. Sessions says:

    Agreed. That’s why I’m a staunch federalist (or polycentrist, as Elinor Ostrom would put it).

    Only part of what I meant. Concentrated wealth is also power, and to the extent that it is balanced by other forms (e.g. religion) I’m much happier than when it’s aligned with those other forms.

    Part of what we’re seeing now is concentrated wealth financing organizations that push “model legislation” to all of the States at once, with behind-the-scenes lobbying to State legislators such that the bills arrive with a majority already lined up to support them with little or no public discussion. That’s an example of power alignment that deeply disturbs me. It doesn’t matter if you have a Federal system if all of the States dance to the same puppet masters that the national government does.

    Obviously having an Imperial executive doesn’t help either.

  18. Tim Kowal says:

    James,

    Good post. I think the distinction between systemic or procedural justice, on the one hand, and outcome-oriented or substantive justice, on the other, is key to understanding the rhetoric on almost any political issue. Public sector unions is a fun one, because it’s such a tricky mess: There is generally a strong argument in favor of unions that they promote systemic justice by evening out otherwise unconscionable bargaining positions. But this analysis either does not apply or is at least substantially impacted in the public sector union debate, and what results is, for all intents and purposes, another redistributionist campaign waged by the left.

  19. James Hanley says:

    LVTFan,

    (If the locality doesn’t collect the lion’s share of the rent, then the state should be able to; if the state fails to collect it, then the federal government should do so.)

    That doesn’t even begin to follow from your analysis, so far as I can see, and requires an entirely independent line of justification.

    As to Sullivan’s essay, his “royalist” argument is a load of horseshit. He takes a philosophers’ approach to the question of private property, instead of an economists’ perspective. Receiving title from the government doesn’t mean the government granted the land to the citizen–it means only that the government has undertaken its duty to enforce socially recognized resource use rights. All resource use arrangements, including property, originate in socially agreed upon understandings of what types of control are legitimate. Having missed that basic understanding, well-developed in the economic literature he’s wildly off-target in his analysis. However his analysis is so generally lousy that he appears not to understand that his buildup is wholly unrelated to the arguments for and against a land-tax. One can wholly reject his ludicrous pseudo-philosophical arguments without even beginning to come into contact with arguments about land-taxes. (The biggest drawback I see is the difficulty of accurately assessing the non-developed value of property in order to tax it properly in the absence of market signals about that value.)

    As to his suggestion that we can’t create more land, he’s empirically wrong. We may not be able to create an infinite amount of new land, but humans have been creating usable land for centuries. We’ve drained wetlands, created ocean-front cities built on landfill, built on docks extending out over water, channelized rivers, created farmland out of steep hillsides via terracing, built up (which is functionally equivalent to creating land, and so may be an argument for taxing buildings based on how tall they are), and may in fact someday colonize the moon or asteroids. The issue isn’t nearly as simple as Sullivan suggests.

  20. D. C. Sessions says:

    The land tax is one of the oldest single-tax proposals around. Like all of the other single-tax proposals, it attracts a deeply committed core of adherents and causes most others to shake their heads muttering something that sounds like a quote from Mencken.

  21. James K says:

    DC Sessions:
    True, every tax has its upsides and its downsides. Since the negative effects of taxes tend to get larger at an increasing rate the optimal tax package is almost always a mix of different taxes.

  22. Matty says:

    Hmm, a lot to take in lets see.

    1. On the subject of fairness I suspect that at the core claims that the distribution of wealth is unfair are not based on analysis but on an emotional reaction like a child crying “it’s not fair, he got more than me”. This would leave you in the tricky position of trying to reason people out of a position they did not reason themselves into. Least I seem too harsh I should say that the basic childish idea is not wrong, if you give one of your children more treats than another just because you want to play favourites that is unfair and does a tiny bit of damage to your relationship with your children. It is also in my opinion where we start in building the idea of fairness so I’m not sure we can entirely throw it out without weakening the idea that there is any such thing.

    My problem then is how to square this with the fact I find your arguments convincing. To do this I need to look at ways a full scale economy is not like a parent handing out sweets. The key diferences seem to me to be.
    – There is no one person or even group deciding who gets how much, no one ever sat round with all the money and said “let’s give Mr Buffet more than Dr Hanley”. The market is not picking favourites out of meanness because it has no brain with which to do so.
    – Adults are not usually depndent in the way children are and have much more ability to try and get their sweeties somewhere else, this means you had a choice whether to take your job in a way your children do not have a choice whether to rely on you.

    2. Thank you for your explanation of limited liability, in the past (not quite up until this post but after I should have known better) I have misunderstood this as the company only being liable for the amount investors put in (i.e profits don’t count) and as managers being able to get away with fraud on the grounds that it was the business that acted and not them as individuals.

    3. I will leave most of the land tax argument but LVT fan does seem to have an underlying assumption that land, which is not built on or used for agriculture is unused and wasted. This strikes me as false, open space has a social and environmental value and this is if anything higher in cities where there will be fewer alternative open spaces in any given area. Converting those values to economic terms in order to decide if we value the small woodland used by dog walkers and bird watchers over the hotel that could be there may be hard but it doesn’t follow that we must default to prefering the hotel.

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