In this May 20, 2017, episode, we speak with James K. Galbraith, whose most recent book “Inequality: What Everyone Needs to Know” touches on the Land Value Tax. Galbraith is a professor at the Lyndon B. Johnson School of Public Affairs and the University of Texas at Austin, where he runs the University of Texas Inequality Project. His distinguished roles include a place on the executive committee of the World Economics Association and the role of chairman of Economists for Peace and Security.
Galbraith is a professor at the Lyndon B. Johnson School of Public Affairs and the University of Texas at Austin, where he runs the University of Texas Inequality Project. He also serves on the executive committee of the World Economics Association and as chairman of Economists for Peace and Security.
We spoke with Galbraith about the problems with the way in which land is treated in theory and policy, beginning fundamentally with the exclusion of land from traditional factors of production.
“This is a major problem with the way in which economics has been constructed, in a way which the two factors of production that you’re going to encounter in a typical textbook are capital and labor, and resources in general and in particular are not separated.
“I tell my students that as an exercise would they please go back to their workshop and bring something in at the next class that they have constructed purely out of capital and labor; that is to say, out of the machinery that they have at hand and their own labor. They say ‘And nothing else?’ and I say ‘Yes, nothing else’, and they point out to me that it’s really difficult to do that unless you have some resources.
“If you pick up the textbook it appears that everything is made by some miraculous process without the intervention of material products of the land. And that is something which would have astonished the economists of the 18th and even to the end of the 19th century, for whom of course these questions were fundamental.”
Bringing land into the inequality conversation and into tax policy would be challenging, considering the political reach of what Galbraith has called the “predatory class” of the wealthy elite and the ingrained incentives of developers in construction and ownership. Nevertheless, the idea of a Land Value Tax is one he endorses in theory.
“If you take the tax off of labor, it’s going to be much easier for people to have employment. Now, if you take it off of non-rent economic profits, then you’re going to expand the scope for profitable investment. What you want to do is then to place the tax burden, to the extent that you can, on speculative gains, and that has the effect of encouraging people to use land in appropriate ways to take advantage of the high value of land. In order to meet the tax burden on that value you have to put it to a productive use, so you get a double advantage by having a tax system of this kind.”
Listen to the full conversation below:
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