The first has to do with the great Portuguese and British
economist, David Ricardo, who wrote in the late 18th and early 19th
Century in England.
I confess that it’s been a long time since I have read Ricardo.
(In fact, probably since graduate school, but I won’t go look that up because
the embarrassment would be too high.) But I’m reading Thomas Piketty’s new book,
Capital in the Twenty-First Century, and
he makes an interesting observation about Ricardo, which I had totally missed
or forgotten.
One of Ricardo’s important observations was that in England
in the 19th Century, the population was going up and therefore
demand for food (etc.) was going up, but the amount of available farmland was
not. Therefore over time the value of farmland would feel more and more scarce,
relative to the hungry mouths that needed to be fed from it and its value (and
the wealth of its owners) would go up—way up. That’s usually called “Rent,” not
like the rent on a house , but the difference between the value of the rise of supply
relative to demand. That is, when your wealth goes up because there is more and
more demand for your product--even if you didn’t put in any new labor or effort
or costs--then that increase is your “rent.” And that was what was going on
with land owners when their land was becoming increasingly in demand.
He believed that this growing share of national income that
was going to the land owners and declining share that was going to poor people
who needed food, upset the national equilibrium. Piketty, commenting on this, says
that “For Ricardo, the only logically and politically acceptable answer
was to impose a steadily increasing tax on land rents.”[1]
That is, Ricardo was proposing a progressive tax. The higher the wealth and
income of the land-owners, the higher should be their taxes because otherwise
they would skew the economy. In my childhood reading of Ricardo, I had missed
that. Unless I missed another great economist back there, he may be the first
political economist to raise the idea of a progressive tax, the kind of tax we
used to have in America, back when we believed that “all men (sic) were created
equal.”
Now, as it happens, in the long run Ricardo was slightly wrong.
The value of rent on food-producing farmland did not actually continue to go up. Over time, the value of other
production in England (industrial products, for example) began to rise more
rapidly, making the value of farmland rise more slowly relative to these other items. But his main point, I believe, was
still accurate. When the “rent” (the non-labor-related income and wealth) rises
faster than the labor or production-related income and wealth, it throws off
the basic equilibrium of a society and causes dangerous inequality. And the
best (though clearly not only) way to stop it is by a graduated tax that keeps
that income and wealth closer to the center.
Check back tomorrow for part two.
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