{bit.ly/WEAhpp} See also: SSRN Paper and WEA Commentaries
If any group of concerned citizens would gather to discuss economic problems, it would seem natural to begin with the problem of feeding the hungry. Strangely enough, one would not encounter this problem within a standard course of study of economic theory at any of the leading universities throughout the world. This is due to two major mistakes made in the formulation of conventional economic theories currently being taught and practised throughout the globe. The first mistake is the idea that the goal of an economic system is the production of wealth, broadly defined. For example, Adam Smith takes the fundamental economic problem to be the production of wealth. The maximisation of GNP per capita currently forms the core of economic growth theory. The value of human life can be evaluated in terms of how much wealth the human can produce. This also accounts for the use of the degrading term ‘human resource’, which basically puts humans on a par with other resources, like factories and machines, as inputs to the production process.
A revolution in economic theory would result if we replace this completely mistaken idea with its opposite: the goal of an economic system is to increase human welfare. Wealth is important only to the extent that it can bring about increases in human welfare. In conjunction with wealth, many other types of invisible inputs, such as social capital, cultural norms and institutional structures also play an important role in determining human welfare, broadly understood in terms of all dimensions of life which contribute to our collective well-being. Wealth, industry and production of goods and services are resources to be used to help improve human lives. A central goal of economics should be the relation between resources, and their relative efficiency at contributing to human welfare. In particular, providing food to the hungry is clearly the single most important and universal invariant in production of human welfare. The fundamental economic problem is to study how to use a given amount of wealth to produce the maximum amount of welfare.
The second mistake, engendered by the first, is the idea that investment in physical capital is the main source of growth and development. Mahbubul Haq pioneered the replacement of GNP by the Human Development Index. Similarly, Amartya Sen in his book, Development As Freedom, argues that progress is about the development of human capabilities. The UN now defines development as the ability “to lead long and healthy lives, to be knowledgeable, to have access to the resources needed for a decent standard of living and to be able to participate in the life of the community”. Of course, food is the sine qua non of human development. Many factors not usually considered by economists also play an important role in improving quality of life. The elements of trust, cooperation, culture and communities are gradually gaining recognition as important contributors to welfare.
A revolution in planning for growth would result from taking seriously the idea that human beings have far more capabilities and potential than any kind of machine. History gives us many examples of human beings who have changed the world. Given the right environment and training, all children have the potential to achieve extraordinary genius. It is our collective task as a society to ensure that all children get the opportunity to develop this potential. The economic system is valuable only as a means to achieving this goal. This means that providing basic necessities like food, healthcare and education is actually the most valuable investment we can make. Unfortunately, conventional theories of growth, currently routinely being applied throughout the world, do not recognise this fact. As a result, these false economic theories lead us to invest in industry, instead of our children, who represent our greatest potential and our future.
The spectacular failure of conventional economic theories during the global financial crisis has strengthened and created several movements for reform of these theories, ranging from mild to radical and revolutionary. Many of these reforms are taking on board the idea that economic growth is a means to providing for the people. Our greatest treasure is our people and investing in them is the surest path to prosperity.
Published in The Express Tribune, March 23rd, 2015.
WEA Pedagogy Blog 
People will remain hungry as long as the opportunities to grow food are not properly and more uniformly shared. This is a matter of access to land and the associated natural resources needed for good farming that is not wasteful (as today) in what it produces.A more natural way of living and was proposed long ago and forgotten by the majority of economists whose attention was and still is directed to money not land and its rights of access. In the US Constitution it is equality not equality of opportunity which is first mentioned. This immediately sets off the thinking population in the wrong direction. Monopoly of the resources must end and everyone should have a more equal chance.
To fairly share the opportunities offered by land and other natural resources a tax should be placed on anybody who confines access to it and fails to share it with others. This consists of a relatively small proportion of our community and it is no wonder that the world has gotten into such a mess due to the associated greed and social injustice.
In 1879, Henry George rightly claimed that the cause of poverty was due to the uneven use of land and its many constrained and wasted opportunities. This goes on today like nothing ever before and with growing population the amount of resulting poverty and hunger is steadily growing worse. He proposed a single tax on land values which would have the effect of stopping speculation in growing land values and hoarding out of use of potentially productive sights. There are 17 aspects of Land Value Taxation, and anybody who is seriously concerned about world hunger and poverty, drugs, corruption etc., should examine them:
17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics
Four Aspects for Government:
1. LVT, adds to the national income as do other taxation systems, but it should replace them.
2. The cost of collecting the LVT is less than for all of the production-related taxes–tax avoidance becomes impossible because the sites are visible to all and who owns each is public knowledge.
3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.
4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below). The speculation in and withholding of unused land is eliminated, see item 7.
Six Aspects Affecting Land Owners:
5. LVT is progressive–owners of the most potentially productive sites pay the most tax. Urban sites provide the most usefulness and resulting tax. Big rural sites have less value and can be farmed appropriately to their ability to provide useful produce.
6. The land owner pays his LVT regardless of how his site is used. A large proportion of the present ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not used).
7. LVT stops speculation in land prices because the withholding of land from proper use is not worthwhile.
8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.
9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below, items 12 and 13).
Three Aspects Regarding Communities:
11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent–demand grows, unemployment decreases.
13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.
Four Aspects About Ethics:
14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this national extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks– LVT is a natural system of national income-gathering.
15. previous bribery and corruption for gaining privileged information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).
16. The improved use of the more central land of cities reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.
17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs because their production costs are reduced. Then untaxed earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly and fully introduced as a single tax, it will eliminate poverty and improve business ethics.
TAX LAND NOT PEOPLE; TAX TAKINGS NOT MAKINGS!
Thanks for the article!
This fits in with the extensive work of Bruno Frey and his colleagues.
Experiments indicate that the poor are more inclined to charity than the rich, even if being charitable adds to their preexisting stress. And this includes not just giving money but giving time and effort to those in need. Dr. Paul Piff suggests that the increased compassion which seems to exist among the poor increases generosity and helpfulness, and promotes a level of trust and co-operation that can prove essential for survival during hard times. And the increased compassion results from actual experiences of “hard times.” Other research indicates for children with lesser affluence and education fewer resources means that there are fewer choices in life (fewer choices at meals, fewer toys to choose from, fewer future job opportunities, fewer choices of neighborhoods to live in, etc…). This early environment increases the likelihood that choices are less valued and important to relatively lower-class individuals. Instead, these individuals would rather blend in than make unique choices to set them apart from others. Long story, short to change how society operates we need to do more than just change the economics.