Arbitrage
The ability to buy cheap and sell for a higher price. Little productive effort goes into the act.
Capital Improved Rating
A system of municipal rating that taxes a portion of the improvements (the building) as well as the land. This is a tax on progress and is a subtle subsidy for land speculation.
Classical economists
The economic era defined by the work of the 18th century Physiocrats, through to Adam Smith, Ricardo, JS Mill, Karl Marx and Henry George. They defined output as reliant upon three factors of production – land, labor and capital.
Neo-Classical economics
The economic analysis defined by the factors of production as labor and capital, with land (representing the earth) a subset of capital. All output is produced by capital and labor.
Commons
Gifts of nature to all living beings that are held in common, rather than privately owned. This concept has expanded from the land, the air, the water to include the digital commons, public libraries and our DNA code.
Common Wealth
Monetary and non-monetary value of the commons in supporting life and
well-being. Like stockholders’ equity in a corporation, it may increase or decrease from year to year depending on how well the commons is managed.
Compliance costs
The burden of filling out tax paperwork and complying with regulation.
Deadweight costs
The loss to society caused by market distortions that see less product supplied to market at a higher cost. Usually due to taxes that can be passed on.
Economic Rent
Originally explained by economist David Ricardo (Ricardian rent) as the excess
return to some agricultural land over and above the same effort on the least productive land. i.e. productivity returns on land near a river compared to the marginal desert-like land.
JS Mill called the excess return from the same effort the “unearned increment”.
The term economic rent has been expanded to include all unearned income from ownership of a resource, from a monopoly, from natural scarcity, or any other reason resulting in unearned excess profits not due to work, risk or enterprise. It is also defined as the excess revenue over and above what it takes for a business to reap normal profits. This is the origin of the derogative term “rent-seeking”, referring to people who reap where they did not sow.
A simple example of economic rent are oil prices. It has been estimated that oil from the most expensive wells in deep ocean water cost about $60 per barrel to extract including all other costs and normal profit. Easier-to-extract oil costs much less. At the 2008 price of $147 dollar per barrel, oil companies received economic rent of at least $87 per barrel on deepwater wells. The source of their “windfall profits” is economic rent.
FIRE sector
An acronym for Finance, Insurance and Real Estate, combined in the US national income accounts to reflect the symbiosis between these sectors. Michael Hudson has identified as the three sectors of the economy to benefit most from unearned income.
The essence of classical political economy was that no outlay of living or embodied labor is needed to obtain rent and interest. This analysis offended the vested interests. The ensuing marginal utility theory ignored the wealth addiction that historically has gone hand in hand with rentiers and the tendency for their compound interest demands to approach infinity.
Georgism
The belief that the fruits of the earth can finance government in a simple, sustainable and efficient manner. Based on the teachings of Henry George, it recognises those who hold ‘ownership’ of the earth and natural monopolies have an advantage over the rest of society. The tax system is used to rebalance the opportunities between land, labour and capital.
Geoists
A name for progressive Georgists (alongside Geonomics) who support taxes on the wider commons including carbon, privatisation and money creation.
Land Banking
The practice of hoarding land as a form of saving ‘in the bank’, in the understanding land prices will increase with the development of society and the increase in population.
Land Tax
An annual charge based on a set percentage of the valuation of land. With land naturally rising in value according to population and technology developments, many economists see it as a natural source of government revenue. Land must be valued annually.
Land Value Tax
Similar to land tax, it merely recognises that land prices will fall back to what can actually be earnt from a location, reflecting its value. Land price includes bubble-like pressures on price. Land values are calculated by property valuers for municipal rates.
Generally speaking, property valuers are more conservative in valuations than surrounding property sales evidence may indicate, due to their preference for land values over prices.
Monopoly
The market dominance of an industry by a single entity. In this website, the term is used widely, sometimes in place of the more cumbersome ‘oligopoly’. Oligopoly infers the market control of an industry by a small number of firms.
Negative Gearing
is a form of financial leverage where an investor borrows money to invest but the gross income generated by the investment is less than the cost of owning and managing the investment, including interest charged on the borrowings. i.e. purchasing a house at above market price in the knowledge the difference between the possible rental income earnt and the mortgage payments required can be written off using negative gearing. A top income earner would therefore receive a 45% tax subsidy on the loss making portion of that equation. Future expected capital gains are planned to make up any other cash flow loss.
Property Rights
Private property is sacrosanct. However a clear distinction must be made between that which is man made and that which was a gift to all living beings. Georgists believe land should be leased to the state in recognition that no human produced the land, the earth. The improvements (the house) are to be privately owned. Both the lease and improvements can be sold at auction.
This distinction between man made and gifts of the creator is enhanced by John Locke’s classical theory of property, which proposes an individual has the full right to one’s labour of goods they produced. Further clarification is given by the Lockean proviso – a feature of John Locke’s labour theory of property which says that, whilst individuals have a right to homestead private property from nature by working on it, they can do so only “…at least where there is enough, and as good, left in common for others”.
Rent Seeking
The process of wealth accrual without any productive output. This results from lobbying for monopoly powers via insider contacts. Rent seeking results in poor resource allocation, lower economic output, lower government revenues, increased inequality, higher cost-of-business and national decline. Adam Smith called rent seekers ‘the public enemy’.
Resource Rents
Economic rent in relationship to subsoil minerals, oils and gases. Identifying and measuring (or collecting) resource rent depends on the availability of information, market conditions, technology and the system of property rights used to govern access to and management of resources.
Sales Tax
A percentage charge on the cost of goods purchased. Known as the GST (Australia), VAT (EU), Sales Tax (US).
Site Value Rating
A form of council rating where the valuation is based solely on the land component. This focuses on the locational value of a site and ensures the economic rents are all that are collected. Further reading.
Stamp Duty
A form of sales tax paid at the point of a transaction, paid by the buyer. Commonly referenced in respect to housing.
Torrens Title
Arguably world’s best practice, this is the system of land holding registrations maintained by the state. It guarantees an indefeasible title to those included in the register. Land ownership is transferred through registration of title instead of using deeds. Its main purpose is to simplify land transactions and to certify to the ownership of an absolute title to realty.
The system was designed by Robert Richard Torrens for the South Australian land title registry when he was appointed Registrar of that state in the 1850’s. He based his simple system on the method of insuring shipping used by Lloyds of London. It used a single register for each land holding and recorded all details and interests affecting that land such as: easements, covenants, mortgages, resumptions, caveats, subsequent changes in ownership.
The greatest advantage of Torrens title is that it is a single document guaranteed by the relevant Government.
Unearned Income
The ability to earn income above the margin of production. Investments in real estate are most pertinent, with the supply of land provided as a gift of nature. The cost of production is zero. As houses depreciate and purchasers compete for ‘location, location’, land price increases have been deemed unearned incomes since the Classical Economics era.
