In an interview in a Danish newspaper Politiken on the October 13 Professor Matthew Paterson states that capitalism as we know it is heading for total collapse. He sees three possible outcomes:
- An utopian market economy where growth and sustainability should be able to coexist. This sustainability will only be skin-deep.
- A stagnating economy on the verge of collapse.
- A Keynesian climate capitalism.
The first is an illusion, and the second a very serious and menacing threat if we don’t choose the last possibility, which is his hope: the only rescue is to revisit the principles put forward by the famous economist John Maynard Keynes in the 1930-ies when he helped the USA out of the deep Depression.
In two decades capitalist (also called neo-liberal) economy has been moving forward slowly and laboriously with the handbrakes drawn: interests rates close to or below zero is NOT a sign of health. One of the most important problems is public austerity (source), an almost general attitude in the entire western world. The idea behind it is the ancient capitalist claim, that a free, non-political market solves all problems, as long as salaries and prices can develop without political or socio-economic obstacles, and the accessibility of labour is unlimited. Society and its members must serve the economy, not the other way around.
The present version of capitalism is the cause of all the monstrous problems facing us, from the extreme inequality, the the even more monstrous consumption of resources in the rich part of the world, to the never-ending chain of economic crises, caused by speculative economy – we saw in the 1920-ies and 30-ies and the latest started in 2007/8, and is still not back to normal, two decades later.
The principles behind Keynesian capitalism was formulated by John Maynard Keynes, starting in the 1930-ies, and culminated with his book “The General Theory of Employment, Interest, and Money”, first published in 1953. The ideas were triggered by the Great Depression which proved unequivocally that the free market is not able to bring back an economy from the brink of a recession. The most important principle of Keynesian economy is that the state needs to intervene to solve a recession, with public investments combined with political control to counteract new macroeconomic imbalances.
It was proven in the 1930-ies that Keynes was right – he still is, but economist and politicians have “forgotten” this. They serve another master – the master of inequality. The rich need to prosper on the backs of the poor.
The public sector is not the enemy of the private sector. On the contrary: it is its indispensable twin.
It is my assertion that Keynesian capitalism should be combined with an head-on attack on speculative economy. Workfree profits – a consequence of speculative economy – are to a great extent possible, because revenue can be gained by exploiting the capitalization of land values. The market value of land is constantly increasing, because the development of society improves the conditions for economic activity. This added value of land is created by the joint effort of all parts of society, and should therefore be shared, not monopolized.
The value of land as an object for trade and economic speculation and as the foundation of any kind of economic activity is a decisive economic factor in any society. In capitalism, whether neo-liberal of Keynesian, the revenue of land value capitalization is floating around freely on the markets and is therefore controlled by those who hunger for easy economic meals; the top level of the social ladder: those who “suffer” from economic obesity. This revenue is the cause of extreme inequality, and not least the “need” for constant economic growth: greed is good and absolutely essential, even if it is satisfied at the expense of fellow human beings and our joint livelihood.
It is this economic speculation based on land values that are the main reason for macro-economic imbalances leading to economic recession. In 2007/8 it started on the housing market; this was also the cause 100 years ago.
The solution is to tax the capital gains from capitalization of land values, ultimately with as close to 100% as possible, but this can only bee achieved after decades of restructuring society. A land value tax, replacing all other kind of income and property taxation is needed. In other words we should tax the foundation of value creation, not the created value itself.
Land value taxation combined with a redistribution of its revenue will undermine the greed-is-good principle and will form the foundation of societies in much better balance with its own livelihood and far lesser degree of socio-economic inequality. When profit cannot be workfree you will only be able to climb the social ladder if you work for it, and thereby contribute to the wealth of all of us.
Land value taxation will not in itself solve the climate-problem, but it will improve the conditions for achieving a true transition to a carbon-extensive economy by counteracting the need for constant economic growth, at present dominating all corners of the economy.
This societal model is not my invention. It dates all the way back to Adam Smith (source), was described in much detail by Henry George (source) in the late 1800ds and is supported by several modern economist, Nobel price laureate Joseph Stiglitz being one of them (source).