The Land Ethic:
How to Address Inequality
and Financial Instability
[Reprinted from GroundSwell,
( The Land Ethic - How to Address Inequality and
Financial Instability, published on Global Policy Innovations,
which has this mission: To highlight the best new thinking on a fairer
globalization. Launched in April 2004 with the support of the
Rockefeller Brothers Fund, Global Policy Innovations is based at the
Carnegie Council in New York City. This article was reprinted with
permission by Alanna Hartzok.
The global financial crisis has demonstrated a deep systemic failure
of the prevailing economic paradigm. So far, efforts to remedy the
situation have failed to address the root causes of the meltdown and
are digging the American people deeper into the hole of public debt.
In an op-ed titled "Obama's Ersatz Capitalism" earlier this
year, Joseph Stiglitz wrote that the bailout of banks by taxpayers is
a "partnership in which one partner robs the other."
Considering that in 2004 the top 1 percent of the population of the
United States owned more than $2.5 trillion more wealth than the
bottom 90 percent, and that even in 1996 about 350 billionaires held
more wealth than nearly half of humanity, we have surely arrived at
the end of the capitalist monopoly game.
Rent-Seeking and Economic Restructuring
Alternative economic analysts have traced the severe wealth gap
problem to the ability of the so-called FIRE sector--finance,
insurance, and real estate--to concentrate large amounts of money,
resources, and power into ever fewer hands via a variety of
rent-seeking behaviors. "Rent" connotes unearned income.
Alternative analysis considers economic rent to be a socially
generated surplus that is being privately captured.
As an economy generates wealth, the price of land and other natural
resources increases. Because the gifts of nature cannot be produced by
human effort and supply cannot be increased to meet demand, holders of
land and natural resources are in a position to capture the
surplus--economic rent--generated by labor and capital.
While economic rent is essentially a measure of the social surplus it
is not regarded as such under neoliberal economics, which treats this
value as a market commodity for private profiteering. This fundamental
flaw in market economics has created a highly inequitable global
economic system. Lack of knowledge as to how to correct this flaw, and
retain the benefits, efficiencies, and individual freedoms of the
market, was the impetus for the emergence of centrally managed and
controlled state socialism. An economic restructuring based on a full
understanding of the role of economic rent is needed for a new
economic framework beyond both the old right and the old left.
Real Estate and the Land Problem
While many subprime mortgage lenders are guilty of immoral
activities, their business was perfectly legal in the game of real
estate "investment." To generate more profits under the
guise of fulfilling the American dream of home ownership for more of
America's workers at a time when capacity to purchase a house from
wages had been decreasing, new financial instruments made it easier
for poorer people to acquire mortgages.
During the expansion stage of the economic cycle, when land values
were rising, banks and others invested in real estate. Banks loaned
money to people to play the real estate speculation game. This
behavior further drove up land values. We know that 20 to 25 percent
of all homes bought in this last up-cycle were on the expectation that
land prices would increase.
This Ponzi scheme brought the cycle to a frenzied peak and then a
total crash, derivatives and all. Land-rent economists understood and
predicted the entire scenario, based on detailed analyses of 18-year
real estate cycles traced back as far as the 1840s.
The point is this: Underneath the money and banking problem is the
land problem--treatment of the gifts of nature and of socially
generated land rent as commodities for speculation and profiteering.
The land problem is the ultimate genesis of the global financial
Property Tax and Wage Tax
A solution is to publicly capture the full value of socially
generated rents to curb land speculation and stabilize land and
housing prices. This can be done by a land-value-only type of property
tax. Socially generated land rent is an enormous sum, estimated to be
as much as one-third of GDP in developed countries. This is more than
sufficient to pay for true social needs including education and health
care for all.
With full land-rent capture by the public and for the common good,
there would be no surplus rent from land to pledge to banks as
interest. There would be no more land-backed borrowing. Financial
capital would find no profit in land and natural resource
rent-seeking. Substantially more funding would thus be available to
invest in productive goods and services.
A necessary policy corollary entails the elimination of taxes on
wages in order to secure the full return to labor. Un-taxing wages
will of course immediately increase the purchasing capacity of all who
work for a living. The highest incomes are generated not from wages
but primarily from economic rent (unearned income). Maintaining a tax
on people at this level would be another important way that the social
surplus can be captured back to society as a whole.
Public Finance: Money as a Social Technology
Another part of the solution concerns the treatment of money as a
mechanism of wealth exchange. Money needs to be viewed as a social
technology, issued into circulation directly by government as direct
spending on public goods rather than as government and private debt.
Seignorage reform would enable large-scale government projects, which
would benefit large numbers of people. For example, public
transportation infrastructure could be funded as a way of also issuing
money into the economy. Since infrastructure improvements increase
land values, capturing land rent would pay for the ongoing maintenance
of public works. With seignorage reform, the money system can begin to
function like a public trust.
The elimination of land hoarding and land speculation combined with
the capacity of workers to keep all their earnings will enable more
people to have affordable land access for housing and productive
purposes. The trend would be to incentivize worker ownership of
capital via the formation of small business enterprises and
cooperatives. As this form of economy advances, more people will gain
autonomy from monopoly capital. We can then more readily build
movements to eliminate other forms of monopoly and rent-seeking.
This approach to public-finance policy enhances private sector
economic activity and public sector goods and services. Taxes would
function as user fees for common heritage resources.
Economic-rent-based public funds can finance public education and
health care for all; capitalization and maintenance of public
infrastructure; and low-interest loan funds for housing construction
and the development of small and cooperative business activities.
Global and Environmental Justice
Combining the land-rent-for-public-revenue policy with environmental
taxation--"polluter pays"--yields an integrated approach to
public finance. The resulting benefits would include a fairer
distribution of wealth, environmental protection, and basic needs
The land ethic and public finance policies described in this article
have roots in classical economic theory and the history of economic
justice, such as the clean slate periods of antiquity. This is the
kind of structural adjustment that the people of the world really
Taxes administered along the proposed lines would do much to level
the economic playing field worldwide, both within and among nations. A
coherent and integrated rent-based public finance system would
fundamentally alter the status quo and give every person a stake in
the planet as a birthright. With basic needs securely met for all,
humankind would be freer to advance, physically, spiritually, and
Alanna Hartzok is Co-Director of Earth Rights Institute and author of
The Earth Belongs to Everyone, recipient of the 2008 Radical Middle
Book Award. A United Nations NGO representative and former board
member of United for a Fair Economy, she serves on the Advisory
Counsel of the Prout Research Institute of Venezuela. Under contract
with UN HABITAT's Global Land Tool Network, she developed an online
course and program on Land Rights and Land Value Capture.