There is a part of the economy that remains hidden from view mostly.
But once you see it, that’s all you see, and nothing else.
Open almost any textbook on economics, you will simply not find it mentioned.
No wonder it’s something that all the economists seem to miss!
But it’s absolutely key to understanding how the economy really works.
It’s funny when you think about it.
It reminds me of that saying, ‘if you want to hide something from somebody, put it in front of their nose’.
It really is true in this instance.
Anyway, here’s a little picture puzzle for you. Take a glance of the landscape below…
What do you see?
It’s a rural scene, with a farmhouse in the background. A large tree dominates the foreground, with ‘healthy’ looking rats, lazing about at the base of the tree.
But do you see the cat?
Because once you see the cat, that’s all you see. The cat and nothing else.
All the picture does, is create an outline for the cat.
This landscape picture is a great analogy to use to illustrate what I want to say.
Most economists fail to see the obvious
The fact is, most economists do not see what is so glaringly obvious.
Very few economists see ‘the cat’, in other words.
Which is why the financial reforms put in place after the GFC only ensures another repeat of the boom-bust cycle.
Anyway, a few weeks ago in Money Morning, I set the record straight on Adam Smith. I can tell you, he saw the cat. Although that part of Adam Smith has largely been airbrushed out by the right-wing laissez-faire economists.
A couple of weeks ago I also wrote about our founding fathers of federation. They had a huge problem to deal with in establishing a new Federal capital city. They found a neat little solution to that problem, because they could see the cat.
Last week I wrote about John Maynard Keynes, the most influential economist of the 20th Century. He wrote that we’d all be working a 15-hour week by now. Well I can say, he didn’t see the cat.
Anyway, if like John Maynard, you can’t see the cat, not to worry.
See if you can identify our mystery speaker instead…
Who do you think said this?
‘Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed geographical position – land, I say, differs from all other forms of property in these primary and fundamental conditions.
‘Roads are made, streets are made, railway services are improved, electric light turns night into day, electric trams glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still.
‘… To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is sensibly enhanced.
‘He renders no service to the community, he contributes nothing to the general welfare; he contributes nothing even to the process from which his own enrichment is derived.’
Some ramblings from the leftist lunatic fringe? This very same person goes on…
‘A portion, in some cases the whole, of every benefit which is laboriously acquired by the community is represented in the land value, and finds its way automatically into the landlord’s pocket.
‘If there is a rise in wages, rents are able to move forward, because the workers can afford to pay a little more. If the opening of a new railway or a new tramway, or the institution of an improved service of workmen’s trains, or a lowering of fares, or a new invention, or any other public convenience affords a benefit to the workers in any particular district, it becomes easier for them to live, and therefore the landlord and the ground landlord, one on top of the other, are able to charge them more for the privilege of living there.’
Last week in Money Morning, I posed the question, ‘what if everyone was instantly $100 a week richer?’
Well maybe your answer is below. Our mystery speaker gives you a real-life example of how such a windfall in the economy might play out.
‘Some years ago in London there was a toll-bar on a bridge across the Thames, and all the working people who lived on the south side of the river had to pay a daily toll of one penny for going and returning from their work. The spectacle of these poor people thus mulcted of so large a proportion of their earnings appealed to the public conscience; an agitation was set on foot, municipal authorities were roused, and at the cost of the ratepayers the bridge was freed and the toll removed. All those people who used the bridge were saved 6d. a week. Within a very short period from that time the rents on the south side of the river were found to have advanced by about 6d. a week, or the amount of the toll which had been remitted.’
This has to happen. It’s why life won’t get any easier for most of us.
By the way, recognise our mystery speaker? There are some clues, London and pre-decimal currency.
Whoever he was, he certainly knew the role land played in the economy, and had it front and centre.
But the role that land plays in the economy never gets a mention in the economic textbooks.
It’s simply written out.
No wonder the modern economists of today never see it. Nor bother to measure and follow its price.
But once you see it, you’ll know how Adam Smith has been twisted and certain parts of his writings airbrushed and omitted by the right-wing laissez-faire economists.
You’ll also know why the rail barons of frontier America got so rich.
You’ll understand the neat little trick our founding fathers of federation used, to stop the insiders from rushing in beforehand and buying up all the land, once the location of the new capital city became known.
Once you see ‘the cat’, you’ll know why John Maynard Keynes, got the 15-hour work week so dreadfully wrong. Why despite all the inventions and productivity gains over the last 100 years, all of us are still working as long as our grandparents did.
Once you see ‘the cat’, you’ll know why if everyone was instantly richer, life wouldn’t get any easier for most. And why house prices are as expensive as they have ever been.
Once you see ‘the cat’, you’ll know why the financial reforms put in place after the GFC only ensures another repeat of the boom-bust cycle. A boom-bust cycle has been repeating in a predictable fashion for centuries now.
Oh! And how did you go with our mystery speaker? From the leftist lunatic fringe?
You might be surprised to learn, these were the words of UK leader, statesman and conservative Prime Minister Winston Churchill.
A side of Sir Winston that rarely sees the light of day.
Chartist, Phil Anderson’s Time Trader
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