theory of perfect competition, but its use for analysing the land market as it is at present constituted reveals a tragic gap in our knowledge.
The causal mechanism is crucial to our analysis, but it is one which even diligent students of the land market have failed to identify. Take, for example, the following account of the West German economy. Investment in real estate via property funds became popular in the late 1960s. This interest intensified into a boom in 1971 and 1972. A slump in the land market followed in 1973, and the ‘miracle’ economy went into a deep recession in 1974. Are these events no more than a chronological sequence, purely descriptive and with no explanatory content ?
The popular explanation for the problems of the 1980s has been the OPEC-inspired rises in the price of oil. As a group, only Marxist economists have consistently denied that the oil price boom in late 1973 initiated the global recession in 1974. Their view is verified by the historical facts; but while their alternative explanation is rejected, can we justifiably attribute the burden of responsibility to land speculation? ‘Apparently no one has any defensible idea of the relative import played by speculation in contributing to recent land price booms in Canada, New Zealand, Australia, and elsewhere.’3 We have documented the evidence in four cases — the USA, Britain, Japan and Australia — to defend the view that speculation was responsible for the land booms that then provoked the general recession as a result of the unbalanced flow of land onto the market, the distortion in the production costs of firms and the reduction in the spending power of households.
The power to engineer these effects is identified as corrupt. In theory and practice, land monopoly is inconsistent with laissez faire: the free market cannot hope to function effectively if it is undermined by a class of people who are not subjected to the rules of competition. Psychologically, land monopoly stimulates the something-for-nothing attitude which serves no justifiable economic or social purpose. Morally, land monopoly is indefensible because it assigns the power to reap the rewards of other people’s labours.
Past attempts at resolving the instabilities in the industrial system were doomed to failure because attitudes and knowledge had been distorted by the historians, economists and politicians who neglected the crucial role of land in the productive process.
The classical economists defined the production function in terms of three factors: land, labour and capital. This was subsequently simplified to capital and labour. The analytical concepts, conforming to the perceptions of ‘real- world’ economists, were adjusted to take account of what was held to be the diminishing importance of land in the dynamic process of urban-based industrial production. ‘Land’ was conflated into the concept of ‘capital’, its unique characteristics thereby distilled out of sight. This freed the minority of people who monopolised land to exercise a devastating influence over the course of production, for which capitalists bore the blame. Their activities were secreted behind a veil of ignorance; the connection was lost to the economic doctors who declined to examine all the symptoms. As a result, their prescriptions were muddled and incapable of curing the psycho-social deprivation and material suffering of generations of workers who had the ground cut from beneath their feet.
Thus, the capitalist system appeared to be anarchistic; there was no reliable long-term stability. Is it beyond the wit of man to find a permanent solution to the booms and catastrophic depressions that periodically return to rupture efforts to build a free and prosperous society on the basis of growth sustained over a long period of time ?
The task of finding such a solution is urgent, for capitalism is challenged by the socialists whose concepts have been fashioned by Karl Marx. They argue that economic crises are evidence of those ‘internal contradictions’ which represent the opportunity to revolutionise society. Rational planning would be substituted for the disorder of the market. The Marxist critique has an undeniable plausibility (given present perceptions) which makes it attractive.
It will always be one of the most appropriate criticisms of free enterprise society that it is quite unable — or rather, unwilling — to use collectivist forms of economic organisation for an attack on slums, poverty, disease and lack of education, while it is able to use all those techniques, repugnant as they are to the business man’s mind, when it comes to war...4
Thus, subtly, we are presented with the assumption that only collectivist action can solve these problems. Superficially it appears reasonable, for many people lack not the will but the means to act for themselves in their own interests. Because of the persuasiveness of this assumption, we trundle inexorably into corporate and collectivist action while paying lip-service to liberal philosophy based on individualism.
The language in which these issues are debated determines the way in which we construct the answers. Research and policy-making is heavily conditioned by one simple image: the ‘class conflict’ between capital and labour, a notion lovingly nurtured by Marxists which has been left unchallenged by the ineptness of liberal economists. The Machine exploits Man. Trade Unions exist to Bash the Bosses. And so on. This fraudulent prospectus has dictated the terms of all the reformist debates of the past hundred years. As a consequence, we have been tackling our economic problems in the wrong way because we have perceived them through a prism of language which distorts reality.
A book that rejects the Marxist critique has to accomplish two things if it is to advance the cause of a prosperous liberal society. First it has to exonerate the free enterprise model of the criticisms levelled against it. This does not mean that the individual actions of all capitalists have to be defended, but we do have to show that material deprivation is not a systemic feature of free enterprise (in the way, for example, that the individual’s freedom to make decisions is necessarily eliminated from a system that is built on centralised planning). Then, we have to demonstrate that the major economic problems can be remedied while preserving individual freedom; that people who wish to work can earn good incomes with which to finance their needs without placing themselves in a state of dependence on a bureaucracy and public welfare subsidies. How can these ideal goals, which have eluded us for two hundred years despite the strides in science and technology, now be achieved ?
Intuitively, people believe that the answer lies buried somewhere in the tax system, which redistributes income, shapes incentives and apportions power. In this they are right, but what changes, in particular, ought to be promulgated? A straightforward programme of tax-cutting is the general answer. President Ronald Reagan and Prime Minister Margaret Thatcher were both elected to office with a remedial programme based on this proposal.
The philosophy under-pinning this approach goes as follows: manifestations such as unemployment are proof of insufficient free enterprise; instability is attributed to a lop-sided economy based on the growth of the public sector; this public sector participation in the economy should therefore be reduced drastically by cutting taxes and reducing direct state involvement in the operation of firms and the lives of families.
This interpretation does not account for the fact that industrial economies have from their inception regularly over-stretched themselves into depressions. Each of these boom-slump cycles lasted for two decades, and their main elements have been consistently replicated. The first British cycle (1795 to 1815), which is analysed in Chapter 4, bears striking resemblance to the most recent cycles. Yet during the earliest cycles on both sides of the Atlantic, state interference in the economy was minimal or non-existent. So the uninformed analysis — that we need more of the same capitalism, and less welfare statism — is sterile as an explanation of the underlying problem. There was no golden industrial age to which we can return; we have to look for one in the future. But to find it, we must first identify those injurious causal influences which are common to all the depressions from 1815 to 1975, if they exist. Only then can we define reforms of lasting value.
But even if we are armed with the correct diagnosis of the problem,
