Unequal right leads to extreme inequality. This inequality is a result of the fact that only a few are allowed to rake in the economic return created by the development of society. The table of society is more accessible to the elite than to those at the bottom of the social ladder; that is why they are at the bottom. The elite part of society are getting rich not merely by their individual work effort, but by raking in profits from speculative trading in values. This speculative trading distorts the economy, and creates riches far beyond what could be obtained by individual work effort.
What is “the economic return created by the development of society”?
This return is called “Land Value Rent”.
In the daily business of economy the wages paid to the individual worker is equal to the economic return from the work effort of this individual. This work effort and the consumption of products brought about with this salary is the contribution to the macro-economy of this individual. He or she can also choose to keep part of this wealth in the bank for future use.
The same holds true for a businessman investing capital in starting or continuing a company, and in marketing and sale of the products. This businessman contributes these investments to the macro-economy. In social economic theory this contribution is called the capital rent. The businessman can choose to use the return from the investments for further investments or consumption. When doing this the return remains economically active and is called capital. If the return is kept in the bank it is inactive, and is called accumulated wealth.
No economic activity of any kind can be done without the use of land. The owner of this piece of land also contributes to the macro-economy and gets a return from this contribution. A part of this return is workfree is called Land Value Rent. This land value rent can also be either re-invested or accumulated.
But to explain these three types of economic return in this way is rather one-dimensional. We must remember that a society consists of many individuals contributing their share from working, consuming or investing capital or land in creating and running companies. Furthermore part of this return is paid as taxes to a government system, which in an ideal society, is tasked with securing the conditions for economic activity in a very broad sense of the word: a transport infrastructure, a health care system, an educational system, a social welfare system etc. and a tax system for collecting the revenue needed to solve all of these essential services. It is also tasked (or should be) with counteracting imbalances in the economy, as when qualified labour is in short supply or when the balance between the costs of mortgages and the market price of properties is tipping over.
The cogwheels of this machinery are people. The machinery is its own prerequisite. The effort of all these individuals are constantly improving conditions for economic activity – the society is developing. Each individual creates a return from his or her own effort, but beyond that an added return is created because of the improved conditions for economic activity. This added return manifests itself as an increase in the market value of land, because every part of an economy rests on land and natural resources, in every conceivable meaning of that word. Land is an indispensable factor in any economic activity, from production, to habitation, to public administration.
Improved conditions for economic activity results in the fact, that having control over land becomes increasingly attractive as society develops, and therefore more expensive; land values become capitalized. It is important that the availability of land does not become limited by speculative forces – on this topic later.
It is this capitalized increase in the market value of land, that is the land value rent; the fruits of a developing society.
It is logical to demand equal right for all to their equal share of the land value rent. Everyone has contributed equally to its creation; no one can truthfully claim to having contributed more than anyone else. The land value rent should NOT be raked in by those who control land; land owners and the financial system.
But that is exactly what happens!
A landowner or a financial institution owning mortgages in properties should not have the opportunity to earn workfree profits from having this control over land values. Such workfree profits will be taken from the revenue of the land value rent. They will in essence be earning values created by others.
The land owner must of course be allowed to earn profits from using the land as a factor in economic activity; production, sale or habitation (habitation is also an economic activity, given that it entails both the building of houses and the consumption of several products).
The capitalization of Land Values:
The capitalization of land values is what creates the foundation for workfree profits, especially those are obtained by the bare ownership of land – land speculation. The value of land is constantly increasing as society and its many infrastructures develop, improving conditions for economic activity. These workfree profits can be obtained because land can be sold to prices determined by a free market. A property consists in part by the parcel of land and in part by what has been produced by economic activities; the manmade improvements, the house etc.. In the present society these two parts are melted together – a property are traded as a unit, as if the land is but an extension of the house. The property owner rake in a workfree profit from this sale, if the property can be sold at a price higher than the remaining mortgage. At any rate the mortgage owner will collect his unfair share of this workfree profit.
The buyer of the property is forced to become debt-ridden, in order to finance the price of the buildings etc. AND the capitalized price for the land, by a new mortgage for typically 20 to 30 years; the process simply continues: workfree profits that are shoveled directly into the deep pockets of the mortgage lenders. The solution is a tax on land values to the extent of prohibiting any workfree profits from trading or owning land. A land value tax to replace all other forms of taxation, on income or investments. For many more details read my book: Rights-and-Democracy: A Clash with Capitalism, Socialism and Neo-liberalism, especially the chapters 4 and 5.