(Abridged Ed.)

Gavin R. Putland
October 31, 2005

(Original Ed. released Oct.19, 2005)


1. Bird brains
2. Counterfeit "capital"
3. Bait and switch
4. The preferred enemy
5. "Natural" unemployment
6. All-devouring rent
7. "Free" trade
8. The cause of recessions
9. The U.S. dollar bubble
10. Rogue states
11. The Great Depression of 2006-?
12. Summary




The history of life on earth is the history of gene wars:
the genes that survive longest are those that are best able
to propagate themselves. To call this SURVIVAL OF THE
FITTEST is pointless because FITNESS has no meaning apart
from *ability to survive*.

The European cuckoo, for example, lays its eggs in the
nests of other birds and thereby enlists the labor of other
species in the propagation of its own genes. This behavior
*impedes the continuation of those species whose nests are
used, and does not assist the continuation of the class of
birds as a whole*; but it assists the propagation of the
cuckoo's genes, and no other consideration affects the
measure of "fitness" of those genes or of the behavior that
they produce.

If birds were endowed with conscience and reason, they
might think it inequitable to use other birds' labor
without compensation. They might perceive that if such
exploitation is permitted, it *reduces the incentive* to
build nests and feed chicks. They might conclude that birds
should serve their own interests in ways that *add to the
total welfare* of birds instead of merely *subtracting from
the welfare of others*. So, if all birds were subject to
one government, would not that government make a law
against laying eggs in the nests of other birds? Not if the
history of *human* government gives any guidance!


The assets known as the "means of production" fall into two

* *Assets that taxpayers can neither create nor destroy nor
move out of the taxing jurisdiction* may be called LAND-
LIKE assets or SITE-LIKE assets (where a SITE means a
piece of ground or airspace, including any *attached
rights* to erect buildings on that ground or into that
airspace, but *excluding* any actual buildings).

* The rest -- that is, assets that taxpayers can move and/
or destroy and/or refrain from creating -- may be called
HOUSE-LIKE assets.

By this terminology, *house-like* assets used as means of
production include not only buildings and other fixed
structures, but also industrial and commercial equipment of
all kinds (fixed or movable) and stock in trade. The great
classical economists from Adam Smith (1723-1790) to Max
Hirsch (1853-1909) called such assets CAPITAL. Because the
production of house-like assets *adds to the total wealth*
of humanity, and because the profits from such assets are
an *incentive* to produce the assets, capitalists advocate
the private ownership of house-like assets and the private
appropriation of profits derived therefrom.

*Land-like* assets include not only sites, but other
natural resources (which cannot be created by human
effort), statutory monopolies and limited licenses (which
can be created only by governments), and the so-called
NATURAL MONOPOLIES enjoyed by providers of networked
services such as electricity, gas, water, railways, and (at
the time of writing) telecommunications [1]. Returns on
land-like assets, net of the demands of labor and capital,
are known as ECONOMIC RENT [2]; owners of such assets
constitute the RENTIER class. The term "rentier" should be
understood as *functional* rather than personal, because
the same person may perform more than one economic role.
(For example, one man may be a worker *and* a capital owner
*and* a rentier -- and, under present arrangements, may
lose more in the first two roles than he gains in the

From the viewpoint of taxpayers, land-like assets cannot be
*produced*, but can only be *acquired*. Such acquisitions
do *not* add to the total assets of humanity. Furthermore,
while the returns on labor and capital applied to a land-
like asset are incentives to apply that labor and capital,
the return on the asset itself (net of the demands of labor
and capital) is *not* an incentive to do anything except
acquire the asset; indeed, the party acquiring the asset
need not be the one applying the labor or capital.
Therefore the argument by which capitalists rightly defend
the private ownership of house-like assets and the private
appropriation of the returns on house-like assets is *not
applicable* to land-like assets. But they apply it anyway!


Because land-like assets by definition are protected from
competition, the returns thereon are high and increase in
line with economic growth, giving the owners both the
motive and the means to fight for the retention of "their"
economic rents. In the late 19th century, when economics
was becoming established as a separate academic discipline,
rentiers were well represented on the trustee boards of
certain prestigious American universities, whose
endowments, moreover, consisted chiefly of land grants. And
there was no academic tenure: professors who did not do the
bidding of their paymasters could be fired without process
or redress.

So *the language of economics was corrupted so as to
conflate land with capital, economic rent with profit, and
acquisition with production*, in order to obscure the
advantages of a selective tax on land-like assets [3]. As
the unit of heredity is the selfish gene, which is no less
"fit" if it propagates purely at the expense of other
genes, so the unit of economic analysis became the selfish
ENTITY (individual or firm), which was no less praiseworthy
if it prospered purely at the expense of other entities. It
was as if the cuckoos, being relieved of the burden of
building nests, had used their discretionary time to
convince other birds that any restriction on the laying of
eggs in other birds' nests would *discourage* the building
of nests!

By calling itself NEO-CLASSICAL economics, the new pseudo-
science masqueraded as the successor, though in fact it was
the usurper, of the classical tradition. Within a
generation it became the new orthodoxy.


The obvious winners under the neo-classical paradigm were
the rentiers; for if land-like assets were capital, then
capitalism, which demanded private ownership of capital and
private enjoyment of profit, implicitly also demanded
private ownership of land-like assets and private
appropriation of economic rent.

*The other winners, whether by accident or by design, were
communists!* For if land was nothing but capital, then
communism, which began by demanding expropriation of land,
was obliged in the name of "consistency" to demand
expropriation of *all* forms of capital, enabling the
revolutionaries to eschew intellectual distinctions between
categories of assets and stir up the masses by appealing to
crude envy.

The conflation of land with capital did not *precede* these
developments in capitalism and communism, but it offered a
false conceptual framework that was willingly adopted by
both rentiers and communists to entrench their respective
positions and deny the existence of any intermediate
position. It was as if the cuckoos, in order to protect
their legal right to lay eggs in other birds' nests, had
colluded with a gang of avian revolutionaries who wanted to
expropriate all nests and raise all chicks in common!


As the rentiers and their economists have forbidden heavy
taxation of economic rent, governments are compelled by
default to impose punitive taxes on work, investment,
employment, and the consumption that sustains demand -- in
short, on everything that capitalism professes to
encourage. All these taxes socialize the fruits of
individual effort -- as communists recommend. They also
increase the cost of hiring a worker at a given standard of
living, and consequently tend to increase inflation or
unemployment or both. Central banks fight the inflationary
tendency by raising interest rates (or otherwise
restricting credit) to discourage hiring and consumption,
causing yet more unemployment, in order to maintain
unemployment at the so-called NATURAL RATE, which the neo-
classicists define as the minimum unemployment rate that
causes sufficient downward pressure on wages to yield
stable inflation.

Thus, for the neo-classicists, unemployment is *not* an
evil to be avoided, but the price of ensuring that rentiers
can enjoy their economic rents with minimal interference
from the tax authorities.

Obviously politicians cannot admit the "need" for a certain
rate of unemployment. They must always pretend to want full
employment, and will be judged on their success in reducing
unemployment during their terms of office. Given that the
central bank will maintain unemployment at the natural
rate, the *actual* rate cannot be reduced except by
reducing the *natural* rate. And if, due to opposition from
the rentier class, the natural rate cannot be reduced by
shifting the tax burden onto economic rent, the only
remaining method is to make life more difficult for the
unemployed, increasing the desperation of the unemployed to
get jobs and of the employed to keep them, so that *the
same downward pressure on wages can be obtained with a
smaller number of unemployed*. Having a smaller number of
more desperate unemployed does not reduce the overall
severity of the problem, but makes the statistics look
better. Hence we see "mutual obligation" policies including
one or more of the following:

* Idlers are compelled to seek jobs and consequently *take
jobs from people who want to work*.

* Job-seekers are compelled to submit certain quotas of job
applications per week. This keeps them busy, forces them
to incur expenses, and *artificially intensifies the
competition for jobs* -- the implication being that the
scarcity of jobs, by itself, does not cause sufficiently
cut-throat competition.

* Unemployed people are compelled to "work for the dole"
*and* submit quotas of job applications. They are *not*
hired as ordinary employees to do the same work for the
same hours at the same cost to the government -- because
if they were, they would no longer have to apply for
other jobs.

* The dole is cut off after a certain time.

To defend such policies, governments must cultivate the
myth that unemployment consists in unwillingness to work,
whereas in fact unemployment, by definition, is an
*oversupply* of willing workers relative to the available
jobs. Here it may be instructive to note that the closest
human analog of the cuckoo is the man whose illegitimate
children are supported by the husband of his mistress.
Etymologically, "cuckoo" and "cuckold" ought to be
synonymous. Yet it is the husband of the adulteress, not
her partner in adultery, who is called the cuckold!


No worker can live, and no enterprise can trade, without
occupying space on the surface of the earth. Yet all the
usable space is owned. So the rents and prices of land are
competed upward, and the returns to labor and capital are
consequently competed downward, until the returns to labor
(net of the cost of access to residential land) are reduced
to the minimum for which workers will "consent" to acquire
skills, work, and raise the next generation of workers [4],
while the returns to capital (net of the cost of access to
commercial land) are reduced to the minimum for which the
financiers will consent to save and invest. *Every direct
improvement in the condition of the working class or the
employing class is competed away in the land market*, so
that the ultimate benefit accrues not to the nominal
recipient, but to the cuckoo in the nest: the land-owning

*That is why the ever-increasing sums handed out in wages,
welfare, charity, and industry assistance never seem to be
enough.* But because the real reason is not widely
understood, the rentiers and their economists can easily
blame the nominal recipients for allegedly squandering the
assistance given to them. It is as if the cuckoos, having
laid their eggs in other birds' nests and taxed all the
birds to help feed the cuckoo chicks, explained the host
birds' lack of reproductive success by accusing them of
wasting the food!

The effective demand for land-like assets tends to increase
due to population growth (which increases competition for
use or acquisition of assets), economic growth (which
increases capacity to pay for the assets), and improvements
in technological infrastructure (which increases the
amenity of certain types of assets, especially sites). But,
as the assets are land-like, this additional demand cannot
be offset by additional supply. So *land-like assets tend
to appreciate in real terms*. This causes SPECULATIVE
DEMAND for land-like assets as individuals and corporations
buy assets in the hope of reselling them for higher prices,
or try to save money by early acquisition of assets that
they intend to use later. The speculative motive raises
prices because all buyers must compete with the
speculators. Worse, assets held by speculators are likely
to be unused or underused because the owners are not yet
ready to use them, or because the owners wish to avoid
commitments that would fetter their ability to sell at the
most opportune times. This effect raises not only prices,
but also rents, as not only buyers but also renters must
compete with the speculators.

A sufficiently heavy tax on the holding of land-like assets
requires the owners to use the assets efficiently in order
to generate sufficient income to cover the tax. That is
enough to eliminate the price and rent premiums caused by
the non-use and under-use of speculatively held assets. In
this case -- and only in this case -- the benefit to
workers and owners of capital is *not* competed away in the
land market, because it arises from reduced competition for

Rentiers and their economists agree that such a tax is a
bad idea, but disagree as to the reasons. Some, who seem
never to have looked out the window of a bus or train,
flatly deny that the culture of speculation leads to non-
use or under-use of land. Others pretend that such non-use
or under-use is socially desirable in that it prevents any
initial use that would interfere with conversion to a
higher use at the optimal time, as if the initial use were
not desirable in itself, and as if the higher use would not
interfere with conversion to a still higher use at a still
later time -- yea, as if the cuckoos were helping other
birds by giving them time to become better parents!


The neo-classicists claim that income tax is compatible
with "free" trade because it is "non-discriminatory"
between domestic and international transactions. Never mind
that the tax on export income raises export prices as if it
were a tariff in every country of destination of those
exports. Similarly, they claim that a value-added tax (VAT)
or goods-and-services tax (GST) is compatible with "free"
trade because it is finally paid in the country of
consumption and is "non-discriminatory" as regards the
country of origin. Never mind that the VAT/GST on imports
raises their prices as if it were a tariff. Never mind that
the same tax inflates export prices through its compliance
costs and its influence on the cost of living, hence wages.
Never mind that as long as taxation is "non-discriminatory"
by the neo-classicists' definition, trade can be taxed to
the point of prohibition and still be considered free!

In fact, *all* taxes on house-like assets impede trade and
raise prices by discouraging the production of such assets,
while *all* transaction taxes impede trade and raise prices
by discouraging transactions.

*The only taxes that do not impede trade or raise prices
are holding taxes on land-like assets*. The economic rents
of such assets are *not incentives* to produce anything.
So as long as the holding taxes take no more than the
annualized economic rents, they cannot restrict the supply
or raise the price (or hire or rent) of any product or

Hence, *by collecting more of its public revenue from
holding taxes on land-like assets, and less from other
taxes, a country can make itself more competitive.* This of
course would compel other countries to do likewise. So the
rentier class and its economists are constantly on guard to
ensure that no country is the first to take this step; they
know that the price of freedom (from the need to work for a
living) is eternal vigilance [3, pp.237-260].


In a *rational market*, the CAPITALIZED (or "lump-sum")
value of a land-like asset is the DISCOUNTED PRESENT VALUE
of the future rent stream. (That is, the capitalized value
is the lump sum that would yield an interest stream equal
to the rent for the same risk, or the sum of the future
rental payments individually discounted for time and risk.)
But the market is not always rational. When assets of a
certain type are conspicuously appreciating, people want to
buy them. In so doing, they accelerate the rise in prices,
inducing more people to buy the assets, and so on, causing
a speculative BUBBLE -- that is, a state in which prices
are decoupled from rents and are supported solely by the
circular argument that prices will continue to rise.
Eventually the illusion becomes unsustainable and the price
rise slows down, which takes away the alleged justification
for current prices, and so on, until prices dive back to
earth: the bubble "bursts". But eventually the natural
appreciation of land-like assets leads to a new bubble in
the same asset class. So the market for any land-like asset
class is CYCLIC.

A bursting bubble in a particular asset market has two
counteracting effects. On the one hand, it drives investors
away from that asset class and, by default, towards some
other asset class that may also be susceptible to bubbles.
On the other hand, those who have invested heavily in the
collapsed market have to reduce their expenditure, and some
become insolvent. As one agent's expenditure is another's
income, and as one agent's debt is another's asset, a chain
reaction ensues, reducing the funds available for
investment in other asset markets, possibly causing them to
collapse, and so on; these are the ingredients of a
recession. After an isolated bubble-burst, the former
effect tends to dominate; thus the stock-market crash of
1987 led to a land bubble. But after a second burst in
quick succession, the cumulative belt-tightening and bad
debt tend to cause a recession; thus the land burst of 1989
led to the recession of 1990-91.

In short, a burst in one asset market interferes with the
cycles of other markets, sometimes pushing them out of
synchronism by encouraging bubbles, and sometimes drawing
them into synchronism by triggering further bursts (and a
recession). This mutual interference, complicated by
external shocks, makes it difficult to discern the
autonomous cycles of some asset classes, and causes
irregularities in cycles that can be more easily discerned.
The clearest cycles are the *residential land cycle*
(typically 9 years in duration) and the *commercial land
cycle* (typically 18 years). A bursting land bubble is the
most reliable *single* predictor of a recession; in
particular, the global recessions of 1974-5, 1981-2, and
1990-91 were heralded by bursting "property" bubbles, i.e.
land bubbles [5].

A sufficiently heavy holding tax on land-like assets would
*prevent recessions by preventing speculative bubbles*. If
the tax were based on capitalized values or changes in
capitalized values, it would force speculators to consider
the tax implications before bidding up prices. If based on
changes in *annualized* values, it would directly reduce
the changes in after-tax rents that translate into
speculative gains; in particular, if it were to take *all*
real increases in rental values, it would prevent real
increases in capitalized values and thereby *entirely*
eliminate the speculative motive.

The first years of the 21st century were marked by a
*global* property bubble. The inevitable burst began in
Australia in early 2004. It has spread to the British Isles
and Europe, and in due course must reach the United States.
Although this global bubble was confined to "housing" (i.e.
residential land), it was the *biggest asset bubble in
history* in terms of the combined GDPs of the affected
countries [6] -- and that measure fails to account for the
number and economic weight of the countries involved. The
bigger the bubble, the bigger the burst. The bigger the
burst, the bigger the recession.

But even that is understating the problem.


As the money supply is controlled directly or indirectly by
government, money is a land-like asset and a component of
the so-called interest of money is economic rent. This
economic rent accrues to those who merely *possess* money.
What of those who also *create* it?

For half a century the U.S. dollar has been the *de facto*
international currency. Importers need reserves of dollars
to pay their suppliers. Central banks need reserves of
dollars to protect their currencies. Poor countries must
borrow dollars to get capital, and must earn dollars to
service their debts. Hence the growth in international
trade causes growth in the global demand for U.S. dollars,
allowing the U.S. to export dollars -- which cost nothing
to produce -- and receive real goods and services in
return. That is how the U.S. manages to import 50 percent
more goods and services than it exports. When the exported
dollars are invested, they can be invested only in U.S.
assets, creating a demand for U.S. Treasury Bills without
high interest rates, and inflating the price/earnings
ratios of U.S. property, stocks, and bonds. This inflow of
investment creates a surplus on the CAPITAL ACCOUNT, which
balances the deficit on the CURRENT ACCOUNT (including
imports, exports, interest, rent, and dividends).

The U.S. dollar is also the dominant currency -- and until
November 2000 was the exclusive currency -- for
international trading in *oil*. Therefore any increase in
the global demand for oil *or the price of oil* causes a
corresponding increase in global demand for the U.S. dollar
and boosts its value, protecting the U.S. economy against
the inflationary effect of higher global oil prices and
allowing the U.S. to increase its trade deficit. Hence the
reinvestment of exported dollars in U.S. assets is

One consequence of this recycling of petrodollars is that
the value of the dollar is out of proportion to its earning
capacity (interest on dollars, or yields on other dollar-
denominated assets). That is one characteristic of a

After 1971, when the U.S. dollar ceased to be backed by
gold, the dollar's position as the world currency became
increasingly dependent on its use in the oil trade, so that
the argument supporting the dollar became circular: dollars
would buy oil *because* oil exporters would accept dollars
*because* dollars would buy other products *because*
exporters of other products would accept dollars *because*
dollars would buy oil! Valuation by circular argument is
another characteristic of a *bubble*.

One thing that could burst the bubble is a credible
alternative to the dollar -- such as the euro.


Iraq began selling oil for euros instead of dollars in
November 2000. When Iraqi oil exports resumed after the
U.S.-led invasion, payments were again in dollars [7].

Iran expressed interest in the euro from 1999, and had
converted most of its currency reserves to euros by late
2002. In 2003, Iran began accepting payment in euros for
oil exports to Europe and Asia. In mid 2004, Iran announced
that it would establish a euro-denominated international
oil bourse (exchange), which is now due to start trading by
March 2006 [8,9]. George W. Bush named Iran in his "axis of
evil" in January 2002. If Bush's speech was designed to
revive the flagging fortunes of extremist candidates in
Iranian elections, it could hardly have been more
successful: on October 26, 2005, Iran's newly elected
President Mahmoud Ahmadinejad, quoting the late Ayatollah
Ruhollah Khomeini, declared that "Israel must be wiped off
the map."

Since September 2000, Venezuela and 13 other Latin-American
countries have entered into barter agreements whereby
Venezuela sells oil for goods and services instead of
dollars. In April 2002, editorials in the U.S. media
welcomed news of a coup against Venezuela's elected
President Hugo Chavez; but the coup collapsed after two
days [10,11]. In mid 2005, Venezuela decided to move its
currency reserves out of U.S. banks and liquidate its
investments in U.S. Treasury securities. By early October,
about 60 percent of its reserves had been converted to
euros [12].

The U.S. may threaten Iran and Venezuela; but if Russia and
Norway start selling their oil for euros, the U.S. will
have to take it on the chin.


Given that the value of the U.S. dollar must fall, nobody
wants to be the last sucker holding dollars. Therefore any
perception that the crash is imminent will trigger selling
of dollars in an effort to pre-empt the crash. That selling
will amplify the perception, causing more selling, and so
on; so the perception will become reality. Moreover, *the
rush to sell dollars will extend to dollar-denominated
assets*, including U.S. property, stocks, bonds, and bills.
So the burst of the dollar bubble may be the trigger for
the expected burst of the U.S. property bubble -- among
other things.

If, on the contrary, the U.S. property bubble bursts of its
own accord, the falling value of this class of dollar-
denominated assets will reduce the attractiveness of
holding dollars. Worse, the recession precipitated by the
property burst will bring down other dollar-denominated
asset markets. If the initial collapse of the U.S. property
market is not enough to prick the dollar bubble, the
ensuing collapse of other dollar-denominated asset markets
will certainly be enough, and the dollar crash in turn will
drive further selling of dollar-denominated assets.

In either case, there will be a *multiple burst involving
not only the global property bubble*, which is already
deflating outside the U.S., *but also the U.S. dollar
bubble and every other asset bubble that has been pumped up
by recycled petrodollars*. The bigger the burst, the bigger
the recession.


In short, the neo-classical economy works like this. The
supplies of certain assets, including land, are not within
the control of taxpayers. The returns on such assets
(economic rent) are not due to any activity of the owners
(rentiers) and therefore *could* be taken for public
revenue, by means of holding taxes, with no ill effects.
But this option is rejected. Instead, governments impose
taxes penalizing everything that the neo-classicists
profess to encourage. These taxes deter employment and feed
inflation. Central banks fight the inflation by raising
interest rates, causing more unemployment, for which the
politicians' remedy is not to create more jobs (which would
defeat the efforts of the central banks) but to intensify
the competition for the few jobs that are available.
Meanwhile, the opportunity to speculate on land-like assets
creates a permanent artificial demand for those assets,
causing permanent price premiums and rent premiums
exacerbated by periodic speculative bubbles, which burst
causing periodic recessions. One of these overpriced
land-like asset classes is residential land, for which
working people must pay out of wages that have been
depressed by the deliberately engineered scarcity of jobs,
eroded by income tax, and devalued by indirect taxes.
Unemployment, poverty, and housing stress are the price
that must be paid so that rentiers can continue to enjoy
the economic rent that they do not produce. This is the
prize for which the Cold War was fought, the End of
History, the capitalist Nirvana.



[1] A networked service is a monopoly in the sense that any
new competitor wishing to serve its first customer must
either replicate the whole network, which is prohibitively
expensive, or connect to the existing network on terms
dictated by the owner or governed by regulation; none of
these options admits free and fair competition.

[2] The so-called "rent" of real property comprises the
rent of the land plus the hire of any building(s) attached
to the land; only the former is economic rent. The so-
called "rent" of a vehicle is not economic rent, but a
return on capital.

[3] M. Gaffney, F. Harrison, and K. Feder, THE CORRUPTION
OF ECONOMICS (London: Shepheard-Walwyn, 1994; 271pp.).

[4] Of course workers can hardly refuse to acquire skills
and to work. But nowadays they can easily refuse to raise
the next generation of workers if the future for workers
looks bleak. That is their biggest bargaining chip.

[5] Concerning the theory that recessions are due to high
oil prices, suffice it to say that (i) there were
recessions before there were oil shocks; (ii) the recession
of 1990-91 started before the oil shock that allegedly
caused it; and (iii) in the words of Alan Greenspan, "we
create these elaborate models for policy responses and we
put in oil prices [but] they don't create a recession in
the models" [answer to a question from the International
Monetary Conference (London, June 8, 2004), transcribed by
Ashley Seager and quoted in Fred Harrison, BOOM BUST
(London: Shepheard-Walwyn, 2005), p.65].

[6] THE ECONOMIST, June 16, 2005; , .

[7] William Clark et al., "U.S. Dollar vs. the Euro: Another
Reason for the Invasion of Iraq", PROJECT CENSORED, #19 for
2002-3, ;
5 refs.

[8] William Clark et al., "Iran's New Oil Trade System
Challenges U.S. Currency ", PROJECT CENSORED, #9 for 2004-5, ; 5 refs.

[9] Cóilín Nunan, "Petrodollar or Petroeuro? A new source
of global conflict", FEASTA REVIEW No.2, ; 32 refs.

[10] Hazel Henderson, "Globocop v. Venezuela's Chavez: Oil,
Globalization and Competing Visions of Development", April
2002, .

[11] Duncan Campbell et al., "Bush Administration Behind Failed
Military Coup in Venezuela", PROJECT CENSORED, #12 for 2002-3, .

[12] Gregory Wilpert, "Venezuela's Central Bank Confirms it
Deposited $20 Billion in Swiss Bank", ,
Oct.5, 2005, .


Copyright (c) 2005 Prosper Australia
( ,
Author: Gavin R. Putland (
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