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Have you ever heard of the term “economic rent”?  No?  That’s probably because of the greatest political coup in the history of our republic.  In politics, true power comes – not from your argument – but from the ability to steer the conversation to what you want to talk about and away from what you don’t want to talk about.  The true elites in our society have continued “winning” the political debate by removing a very important concept from the political conversation.

I admit, reading the term,  “economic rent” can cause eyes to glaze over quickly.  A more accurate description is “unearned income”.  It is people and companies who make money by doing zero work and risk little or none of their own assets.

Taking Back Adam Smith and “Classic Liberalism”

Many conservative economists claim to be staunch followers of Adam Smith.  They shout slogans such as “Supply and Demand!”  “Capitalism”! “  “Let the markets work!”  However, for anyone who actually read Adam Smith, you would note that the “invisible hand” was not his only observation of the inner workings of capitalism.  Adam Smith recognized that many in the economy were making gobs of money, but weren’t contributing anything.  He was referring to what was eventually called “economic rent”.

Smith observed that all production required 3 things.  Land, Capital, and Labor.  A very simple example would be a brick factory.  The building and oven needed to create the bricks are the “capital” – the owners are the capitalists.  The people making the bricks is the “labor” – the people doing the actual work.  The Land the factory occupies and the clay used to make the bricks is the “land” – the owners of the land are the “Rentiers”.  Any money made by selling the bricks is then divided up between these three groups: the rentiers, the capitalists, and the workers.

Adam Smith observed that only 2 of the 3 groups made any real contribution to the production process.  The workers contributed their time.  The capitalists contributed their capital that they either bought, but is now used and worth less than before it was used.  The Rentiers contributed their land, but have lost nothing.  Once the manufacturing of the bricks is done, they get their land back and it is still worth the same as it was before.  Any income they made by renting out their land was made without work, and without risk to their assets.  There is a word for someone that only takes, but doesn’t give back: a parasite.  Smith and those who carried on his work used the nicer term, Rentier.  This is where the phrase “economic rent” originates.  It originally described a no value-ad landlord.

Adam Smith and future classical economists existed in a time where the noble families of medieval Europe were still the large landowners.  The nobles had just turned into Rentiers.  Because they owned the land, they were able to rent it out to capitalist and workers and claim a portion of their profits and wages by charging “rent”.  They were able to do this without ever working.  It was unearned income.

Much of the work done by economists from Adam Smith until the late 19th century was all about finding and identifying “rent-seeking”.  These classical economists didn’t want to overthrow capitalism, they wanted to free it from the “rent-seeking” parasites.

The Neoclassical School “loses” rent

Right before the turn of the 20th century a new school of economists appeared.  They were later named the Neoclassical school and it continues today.  When the transition from classical to neoclassical occurred, one of the things that was lost was the concept of “economic rent”.  The Neoclassicals started treating land and capital as the same thing and therefore interchangeable.  In a world without land, economic rent no longer makes sense.  Some would argue(e.g. Gaffney’s Neo-classical Economics as a Stratagem against Henry George – pdf) that this was intentional.  If it was intentional, it was the greatest coup of ideas the elite class came up with to justify their existence since The Divine Right of Kings.  On the other hand, It may have just been a simple intellectual decision based on their new approach to economics.  In any case, the decision to treat land and capital as the same, haunts us to this day.  If land is treated as capital then the concept of “rent” goes away and rentiers can masquerade as capitalists and cloak their unearned “rent” income as justifiable profit.

John Maynard Keynes blew away everybody and what they thought they knew about economics in the 20s and 30s.  In response to Keynesian economics, the neoclassical economists didn’t die, they decided to fight back.    Milton Friedman is the most famous of this group.  To fight against keynesian economics, he and his contemporaries tried to lay claim as resurrecting the classic school of economics that said “less government is good”.  They even called themselves New Classicals.  However, this “revival” of the classical economics was actual a revival of the neoclassical school.  They, like the neoclassicals before, again conflated capital and land.  Therefore, many modern economists no longer make a distinction between land and capital.  They group together income from rent and income from capital and call it profit. This school remains in the mainstream and therefore the concept of economic rent is no longer discussed in our politics.


In the late 60s and early 70s “economic rent” saw a small revival among select economists.  For those select few, “Rent-seeking” was no longer defined as just “ownership of the land”.  It can take several shapes.  Rent-seeking is any income that is unearned. An alternative definition is “profit without a corresponding cost of production”.  “Economic Rent” can come from ownership of land and just “renting” it out for money. It can also come from collecting so much capital that a firm now has a monopoly and can set the price independent of supplydemand considerations, It can be from government monopoly granting, control of other “land” like our rivers, broadband spectrum, or “mineral rights” of land.  It can come from control of financial assets like capital gains, dividends, and interest on loans(especially usury). It can also come from political favors from the government.

Political Implications

Economic rent was something I’d learned about in school several years ago and quickly forgot about it once the class was over.  Now in a post bank-bailout world, I ran across it again one day while researching another article, It was like a light-bulb clicking on in my head.  (A high-efficiency light bulb).  This is what progressives are currently fighting against.  This is the concept, the vocabulary, the name for the rage I feel in my gut at what’s happened.  The rentiers have taken over our country by masquerading as capitalists.

How did this happen?  It was simple, once the neoclassicals removed the entire concept of “rentier” from the economic, and eventually political, conversation. It was all capitalism and capitalists in their world.  Therefore, now when progressives rail against the unearned income of the rentiers, we lack the vocabulary to properly express what is happening.  Instead, conservatives try to make it look like liberals are railing against capitalism itself or against businesses in general.  In some cases we may even come to believe it ourselves.  Many times when we’re fighting against the “excesses of capitalism”, what we are actually fighting is parasitic rentiers that are hurting the true capitalists as much as the workers.

  • When a company has a monopoly and can charge whatever they want, that’s not being a capitalist or an entrepreneur, that’s being a “Rentier”.
  • When oil company’s make “windfall profits” as the price of oil goes up, that’s not profit, that’s “economic rent”.
  • When a drug company can keep the government from negotiating lower prices, that isn’t capitalism, that’s classic “rent-seeking” behavior.
  • 99% of the money made on wall street is nothing but pure rent-seeking.
  • Companies lobbying for tax loop holes is just more unproductive rent-seeking.

Fortunately, some well known economists do talk about The Rentiers.  Unfortunately, not nearly enough are.  I’m guessing it’s because the vast majority of influential economists are still neoclassicals and don’t believe land and rentiers exist.  They can try to deny their existence, but when I see the top 1% of the country make more money in one night while they are sleeping then most will make working at their job for 6 months, it’s hard to deny their existence.  It’s unfortunately that our intellectual class “lost” these words and concepts from the mainstream discussion.

So where does that leave us now?  One could argue history is repeating itself.  200 years ago, the conservative vs. liberal mantra was that conservatives were fighting to keep the power of the nobles and large landlords intact.  The liberals were the ones trying to free themselves politically and economically from their control.  Today it’s the same.  Conservatives are fighting to maintain the privilege of the Rentiers by pretending to defend capitalism itself.  And once again, us liberals are fighting to free the market from the parasitical Rentiers.

Cross Posted Our Dime.

Originally posted to maddogg on Mon Oct 24, 2011 at 08:34 AM PDT.

Also republished by Money and Public Purpose and Community Spotlight.

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  •  Tip Jar (228+ / 0-)
    Recommended by:
    theunreasonableHUman, annieli, Azazello, Youffraita, DeanObama, bobdevo, ManhattanMan, potatohead, enhydra lutris, MKinTN, tobendaro, Zaphkiel, DBunn, Nellebracht, penguins4peace, Gooserock, kyoders, psyched, Shadowmage36, DaleA, vcmvo2, Catte Nappe, phaedras, Odysseus, bartcopfan, FarWestGirl, Leo in NJ, BobBlueMass, stillman, ontheleftcoast, NWTerriD, RemingtonD, DRo, GoGoGoEverton, Brix, lobbygow, johanus, Lily O Lady, sleipner, scarvegas, NM Ray, lineatus, The Hindsight Times, Anne was here, AnnieR, citizendane, muddy boots, SadieB, Edge PA, brentbent, Shockwave, Einsteinia, tofumagoo, YucatanMan, StrayCat, Simplify, Punditus Maximus, La Gitane, greycat, Wes Lee, congenitalefty, mithra, decisivemoment, UncleCharlie, AnnCetera, Flint, MillieNeon, TBug, blackjackal, oldmanriver, sasher, FG, VictorLaszlo, ericlewis0, DamselleFly, Robobagpiper, joliberal, Time Waits for no Woman, side pocket, TDreamer, Kurt Sperry, banjolele, ashowboat, zerone, Lindy, peregrine kate, Mimikatz, One Pissed Off Liberal, GeorgeXVIII, Sychotic1, salmo, Rosaura, fumie, zedaker, democracy inaction, Crider, damfino, Lightbulb, Raven Song, science nerd, gulfgal98, bibble, Egalitare, ms badger, Lefty Ladig, ferg, FrY10cK, Matt Z, Zydekos, shortgirl, happymisanthropy, No one gets out alive, mmmcoreyos, bluebuckaroo, NBBooks, South Park Democrat, madgranny, ilex, geebeebee, ScienceMom, SouthernLiberalinMD, caliberal2001, Southpaw Atl, sandblaster, DavidMS, BigVegan, BYw, bronte17, tjfxh, westyny, Jane Lew, LiberalVol, behan, zerelda, CTLiberal, ebohlman, jamess, Athenian, Tommymac, dle2GA, TexasTom, Snud, arendt, Getreal1246, ChemBob, Bluesee, Panacea Paola, Garfnobl, elengul, jeijei, JFeathersmith, PrahaPartizan, juca, the1sage, basquebob, Leftcandid, zett, Lib Rule Guy, high uintas, bnasley, d to the f, Ignacio Magaloni, Pilgrim X, jam, Justus, pixxer, Ray Pensador, aliasalias, hrned, fixxit, codairem, LaughingPlanet, Dbug, Bob Guyer, Mother Mags, David PA, Nulwee, dfletcher, tacet, ogre, futureliveshere, Going the Distance, SoCalHobbit, owlbear1, Major Tom, splashy, The Wizard, mm201, elwior, coppercelt, MartyM, hopeful, dkmich, cskendrick, Herse182, Actbriniel, sunny skies, sngmama, fallina7, kharma, sodalis, Loudoun County Dem, TheFatLadySings, deviant24x, MKSinSA, RJDixon74135, marykk, TheLizardKing, Randtntx, TealTerror, IDrankWhat, 1864 House, mofembot, left over flower child, Josiah Bartlett, opinionated, wader, spacecadet1, jabney, fresburger, AZ Independent, Calgacus, edie haskell, Pozzo, sagesource, Oh Mary Oh, Letsgetitdone, Mindmover

    Our Dime Understanding the U.S. Budget

    by maddogg on Mon Oct 24, 2011 at 08:34:20 AM PDT

  •  Great diary, T&R. (48+ / 0-)

    I agree that this should be getting more attention. I think the entire privatisation movement driven by neoliberals on the democratic side is nothing more than a rent collecting scheme for campaign contributions.

    Michael Hudson has written extensively on it, a recent article here by Simon Patten deals with rent extraction via public infrastructure. We are also seeing this nonsense with the charter school movement, where wealthy investors are now using schools as a way to increase their cash flows, really disgusting stuff.

    •  excellent points (22+ / 0-)

      I love Michael Hudson and only know of this topic and Adam Smith's outstanding analysis because of Hudson. Thank you for also sharing the name of Simon Patten. I'll look into him too.

      As for the neoliberals on the Dem side, pretty scary stuff.  They can get away with things that the neocons cannot because of the veneer of compassion "borrowed" from the Democratic party.  

      Our party is a fractal version of the country at large. There are some very good people in there, but it is generally the sociopaths who are in charge.

      Therefore, at some point soon, before 2012 candidate choices are too much gelled, we need to be sure to occupy our own party as much as we do OWS.

      We need to be absolutely certain that we elect the most progressive politicians possible.  Ones that would make Michael Hudson their most trusted and relied-on economic adviser.

      Both parties (all parties) should be doing this. As we rotate through our local, state and national level OWS sites let us also spend some time at the headquarters of our political parties.

      Occupy America
      Hell we should have semi-permanent gatherings targeting the corporations and their think tanks to protest their abusive, rent-extracting, democracy destroying business practices.

      In a friendly, humorous, persistent manner, we could educate employees, industry partners, customers, vendors and regulators (they'll require some occupation too) of these corporations as to the real actions and consequences of these mind-created "bodies".  

      In spite of the pop-culture vampire revival, we're still missing the underlying social metaphor of the original Dracula: Those exotically beguiling aristocrats are sucking our blood. - Pericles

      by citizendane on Mon Oct 24, 2011 at 02:41:28 PM PDT

      [ Parent ]

      •  Excellent points and I agree. (7+ / 0-)

        We have a problem with many of the elite in America and an economics that disenfranchises most citizens. I definitely support the OWS movement and hope that they continue to remain outside both parties corrosive influence.

        •  look at the discussion on another thread! (8+ / 0-)

          this from ontheleftcoast in response to a diary about a guy who photographs a bridge he cares about that is in serious disrepair, a bridge that carries 50,000 vehicles a day!

          Maybe someone should start up a "Fix These Fracking Bridges" website (like the people of Walmart or the bad tattoo site) and make this go viral? Sort of a "my bridge is rustier than yours" type thing. Then when people see it's the bridge next door that's about to fall down instead one on the other side of the country maybe they'll do something about it.

          These kind of ideas and actions could be shared at OWS sites that become a clearinghouse for all the ways to weigh in, locally, regionally, nationally.

          Think of all of the ways the idea above can be applied. Incredible. We the People just might be unstoppable...

          In spite of the pop-culture vampire revival, we're still missing the underlying social metaphor of the original Dracula: Those exotically beguiling aristocrats are sucking our blood. - Pericles

          by citizendane on Mon Oct 24, 2011 at 03:00:38 PM PDT

          [ Parent ]

    •  Great diary, Thanks. Read the Patten article (2+ / 0-)
      Recommended by:
      Lightbulb, Randtntx

      this AM.  Time for some real economic history to balance the bullshit.

      Patriotism may be the last refuge of scoundrels, but religion is assuredly the first.

      by StrayCat on Mon Oct 24, 2011 at 02:53:01 PM PDT

      [ Parent ]

  •  Excellent diary. (adding value) (18+ / 0-)

    I've been having similar thoughts.  I just want to riff on this a bit before work.  :)

    One way I've had some success with is to characterize markets as healthy and unhealthy.

    Rent seeking is spot on, but very difficult to convey to most ordinary people.  Probably the noise level you write of here.

    However, everybody understands choice, and a lot of them see competition as a good thing, if nothing else they understand playing multiple people off one another to get a good deal.

    A healthy market is one where there are enough competitors to make choice a reality.  Where that's true, rent seeking and "tax pass through" behaviors are discouraged, because doing those things opens the door for somebody else to innovate, add value to profit from the difference and earn their share, both in terms of profit and overall market share, being a favored supplier.

    Healthy markets see the maximum amount of innovation for profit while costs are the lowest the market can bear.

    Unhealthy markets are ones where choice isn't a reality, and where that's true, rent seeking and tax pass through can and do occur.  Profit comes from just doing business, not adding a lot of value.  

    In unhealthy markets, innovation is the minimum necessary to serve the market, and price is the highest the market can bear.

    Value for dollar profits are a good thing.  I think just about everybody understands that.

    To me, all of this boils down to value added.  If we pay a margin to obtain goods and services, where is the value added to justify the margin?

    A simple, no frills service would be inexpensive, perhaps with no warranty of quality, or no clean up, etc...  Very little value added means very few dollars, or a margin very thin, close to the raw cost of said service.

    Robust services add more value, cost more, margins thicker, but then again, those margins are earned.

    Luxury services add a lot of value, even going above and beyond what is necessary.  Margins are thick, and of course earned.


    ***Be Excellent To One Another***

    by potatohead on Mon Oct 24, 2011 at 08:52:30 AM PDT

    •  (adding value) (13+ / 0-)

      That's typical of a healthy market!

      A person buying those services can choose from a variety of offerings, matching up their needs to value propositions, paying for and receiving good value for their dollar.  Service providers can innovate and compete on multiple axis:

      1.  Efficiency of service delivery
      2.  Quality of service delivery
      3.  Value added frills and related services in addition to a solid delivery on axis 1 and 2.


      Goods work in a similar way, with margins dependent on value added.

      A great example here would be Apple Computer vs the many PC manufacturers.

      Apple stuff costs more, but Apple chooses to add a lot more value too.  Whether or not that value is meaningful to a consumer depends on their needs and how they value things.  The choice then is Apple vs some PC where margins vary, cost of acquisition vary, features and form vary, and so on.

      A great negative example is the cell phone carriers, or private health insurance, both of which demonstrate considerable unhealthy behavior.  Maybe toss subscription TV in there too.

      All of those markets have one thing in common:  Cost of choice is high.  

      Where cost / availability of choice is low and there are many choices, people can and will choose, and will choose often, always seeking to optimize value for dollar to match up their needs / wants.  This is always healthy, and always does a lot of damage to rent-seeking behavior, because it's easily seen as unfavorable, not a value add, difficult to compete with those actually adding value.

      Where cost / availability of choice is high whether or not there are many choices, people won't choose much, if at all, and generally cannot easily match up value for dollar to their needs / wants.  This is almost always unhealthy, and rent-seeking behavior is the norm rather than the exception.  Additionally, innovation is low too.

      Switching from cable to satellite TV has a fairly high cost.  Equipment must be returned, deposits paid, devices rewired, house interface changed, programming on devices updated / created / modified, programming offerings updated / different, and it goes on and on.  Usually, there are contract terms too.

      Even though we have a few suppliers, the rights of way needed for cable only insure we have one choice open to us, and there are only two sat companies.  Not exactly easy to put sats up there.

      Look at the bundled program options, pass through on taxes and fees and near parity costs for the different options.  Most importantly, look at the lack of innovation, right along with the high prices and thick margins for them.

      Broadband is a similar thing with cable everywhere expensive, innovation moderate at best, yet they use the rights of way.

      Where government comes into play is doing the work to regulate and keep markets healthy, so those making profit are earning it by adding value, not just existing, promoting choice, etc...

      Where that's not possible, like with utilities, the best case for everyone is to have thin margins, the utility serving as a commons for other value added business.

      Anyway, those are some of the ways I've been discussing rent-seeking profit without earning it behavior.

      Loved your diary, and plan on adding some of it to my own advocacy efforts.

      In these times, where dollars are scarce, highlighting where government can protect people, while at the same time emphasizing value for dollar seems to be something a lot of people can wrap their heads around.  If they start looking hard at the various markets they participate in, asking the question "where is the value added?" it won't take them long at all to get closer to common ground with us.

      ***Be Excellent To One Another***

      by potatohead on Mon Oct 24, 2011 at 09:08:35 AM PDT

      [ Parent ]

    •  healthy market. (3+ / 0-)
      Recommended by:
      arendt, Randtntx, potatohead

      I like you formulation of the concept of a "healthy" market.  I think I'll start using that with only one minor change.  Instead of healthy/unhealthy, I'll use the terms functioning and broken.  I like to frame the market as a machine and not a natural biology.  Framing it as a machine means that it is a human construct that can be broken and must be fixed by humans, but a natural biology feeds the conservative market fundamentalists notion that markets spontaneously evolve into fair outcomes.

      Our Dime Understanding the U.S. Budget

      by maddogg on Mon Oct 24, 2011 at 07:16:26 PM PDT

      [ Parent ]

      •  Oh I completely agree. Great call. (0+ / 0-)

        I'll do so as well, and we shall see where it goes.

        And it is a construct, though it could also be characterized as an artifact too.  Best ignore that for ordinary people though.  I've never had good luck with that.

        ***Be Excellent To One Another***

        by potatohead on Tue Oct 25, 2011 at 10:10:03 AM PDT

        [ Parent ]

      •  I don't think (1+ / 0-)
        Recommended by:

        it's necessary to frame the market as a machine in order to claim that it is dysfunctional and not adaptive. Also if we do frame it as a machine, the conservatives will only come back with the organic formulation, saying we don't know what the market is. However, I think a couple of things can be said about this issue.

        First, Adam Smith did formulate the idea of the market as a mechanism. He used what was essentially a Newtonian model

        Second, there are modern formulations of economic systems and the market that view them as complex adaptive systems. Some of the most advanced work in economics views the market that way, and also uses that kind of formulation to deny the validity of Newtonian equilibrium theory in economics. CAS theory as applied to economics emphasizes the possibility of feed forward economic processes that are inconsistent with the key idea that free markets will produce stable equilibria, and that instead recognize the possibility of emergent phenomena, including bubbles, that neo-classical economics doesn't easily deal with.

        Third, there is research in CAS theory that emphasizes the possibility of dysfunctional transformations of complex adaptive systems to less functional or dysfunctional states. Such systems are supposed to be maintained at "the edge of chaos" as the systems interact with their environments. But they are always threatened by the possibility that they will not be able to maintain themselves at the edge of chaos and will either freeze into a near-mechanical non-adaptive State on one side of the edge; or that they will de-evolve into chaotic dynamics on the other side of the edge.

        The basic idea here is that self-organization among the interacting components of a complex adaptive system has to invent new emergent phenomena that maintains the system at the edge of chaos; e.g. a healthy market, actively maintained by the continuous actions of its participants, without any implications that these actions and interactions are limited to those we normally recognize as economic. If, however, these interactions result in feed-forward chaotic dynamics, the system can be beset by uncontrollable and unsustainable chaotic dynamics that disrupts and/or destroys the CAS.

        On the other hand, the interactions can also result in the decline of repression of self-organization, and the creation of a dynamic that approximates a machine with limited ability to adapt to changes in its environment. When that happens the  market that results will look and act like a machine whose functionality will decay over time as conditions change and whose continued existence will depend on top-down cybernetic controls; but not bottom-up invention and adaptation.

        All this is by way of saying, that whether machine or organic framings are used to talk about this problem, economies with large rentier and/or monopolistic components can be attacked as dysfunctional and maladaptive, and that it's not true that an organic/CAS analogy necessarily leads to a justification for conservative prescriptions. There are broken CAses too; and these are markets that have moved away from the edge of chaos and that are either going crazy with uncontrollable bubbles, or are frozen through controls imposed by rentiers and monopolists.

        Finally, congratulations on a great post maddog! It's very well-written and provides very good background for bringing rent-seeking front and center again.

        Also, btw, a number of commenters have called attention to Michael Hudson's work. It seems worthwhile to point out that Michael is one of the members of the premier center of new economic thinking in the world today -- the University of Missouri at Kansas City's economics department. Its blog is at  

        Bill Black, Randy Wray, Stephanie Kelton, and other leading economists that are part of the Modern Monetary Theory (MMT) school of thought, or closely associated with the department, including Michael Hudson, blog there.

  •  May I quote heavily from this entry ... (9+ / 0-)

    ... in a letter to the editor?

    Progressive OWS critics: we're in your blog-o-sphere, messing up your orthodoxy.

    by DeanObama on Mon Oct 24, 2011 at 08:53:16 AM PDT

    •  permission granted... (10+ / 0-)

      To save on space for the letter to the editor, you don't need to attribute.  (I would still appreciate a linkattribute if quoting on your blog or in an email)  :)

      Our Dime Understanding the U.S. Budget

      by maddogg on Mon Oct 24, 2011 at 09:02:31 AM PDT

      [ Parent ]

      •  Having the words to talk about "rent" is important (5+ / 0-)

        Thanks, maddogg, for giving us the words to think about it and talk about it.  

        Without words to describe a phenomenon, it is difficult to think about it.   Moreover it is difficult to explain the idea to others or to discuss it.

        Bush hijacked the US with lies about 9/11 and crashed it into Iraq, killing over 500,000 human beings. So far, he's avoided arrest and prosecution.

        by Zydekos on Mon Oct 24, 2011 at 05:20:38 PM PDT

        [ Parent ]

        •  It's very Orwellian... (6+ / 0-)

          The concept of not being able to think along certain lines of thought because the vocabulary simply doesn't exist to express it. If this obfuscation was intentional, it is among the most heinous acts of oppression I can think of.

          •  Psychotherapy operates along these lines too (1+ / 0-)
            Recommended by:

            The therapist describes in words what he or she understands about what happened to the patient, and suggests how that experience led to their current troubles.  Putting those feelings into words makes it possible for the patient to think about their experience and possibly change their judgement about it.

            If one can only feel the memory of an experience, it can only be recalled in the feeling realm, but not changed.  The addition of words to describe those feelings is like putting handles on the feelings so that they can be moved about and considered from different viewpoints.  That gives the opportunity to change the feelings or to change how we deal with them.

            We think with words.  We need more words to think about our current economic situation.  Thanks again.  

            Bush hijacked the US with lies about 9/11 and crashed it into Iraq, killing over 500,000 human beings. So far, he's avoided arrest and prosecution.

            by Zydekos on Mon Oct 24, 2011 at 11:24:25 PM PDT

            [ Parent ]

          •  See also (1+ / 0-)
            Recommended by:

            linguistic relativity

            The principle of linguistic relativity holds that the structure of a language affects the ways in which its speakers are able to conceptualize their world, i.e. their world view. Popularly known as the Sapir–Whorf hypothesis, or Whorfianism, the principle is generally understood as having two different versions: (i) the strong version that language determines thought and that linguistic categories limit and determine cognitive categories and (ii) the weak version that linguistic categories and usage influence thought and certain kinds of non-linguistic behavior.

            Men never do evil so completely and cheerfully as when they do it from a religious conviction. -- Blaise Pascal

            by RJDixon74135 on Tue Oct 25, 2011 at 05:53:04 AM PDT

            [ Parent ]

  •  I'm with you on the Lobbying... (4+ / 0-)

    ...that is purely non-productive.

    But investment returns aren't just pure rents. Most of them must be worked for.

    If you want to make easy, thought-free, risk-free money, you can buy government securities. But if you want more than a 2% return, you must work.

    You must do spreadsheets, perform analysis, and take small risks if you buy stock. You must do on-site inspections, analyze entire industries and do due diligence and take bigger risks if you want to make direct investments. If you start a business, you must work your butt off and risk everything.

    All of this is work --- people get paid to do it.

    (Why people who do this sort of work should pay 15% tax while all other workers must pay 35% is another question).

    We need to separate the lobbying and buying of favors from actual investing. Investing is a job, it is work, it should be taxed as such. It is not passive and gains are not automatic nor free, though.

    •  I agree (15+ / 0-)

      Actual investing is work.  If you start your own business and work at it, you are adding value.  If you risk your money in a business that somebody else works at, even that has some value.

      The type of capital gains and so-called "investment" I'm talking about as "rent" happens on large wall street.  When the length of time a stock is held is measured in minutes and seconds, any income from that is pure "rent".

      Overall, I think most so-called "capital gains" income is "economic rent".  Income from dividends is usually closer to what I would call REAL investing and what we should be encouraging.

      Our Dime Understanding the U.S. Budget

      by maddogg on Mon Oct 24, 2011 at 09:08:57 AM PDT

      [ Parent ]

      •  I disagree (8+ / 0-)

        I find it very hard to justify the idea that money can and should make money, and that someone has a right to make money off of sitting back and owning something.  Even the most informed and diligent trader just bought something (most likely with borrowed money) and then sold it for more than he paid; it may not be easy, but I wouldn't call it "adding value".

        Then again, I'm someone who doesn't class stockholders as making a productive contribution to the businesses they own.  If they all disappeared, the people who serve them would face obsolescence, but the rest of the economy dedicated to producing physical goods for mass consumption wouldn't miss a beat.  Same with executives; they outsource much of the decision-making to consultants anyway, and middle management does most of the actual oversight and organization.  All they really do is preside over things like an idle monarch, making a big show of ultimately trifling actions.

        Do you know why they call it the American Dream? Because it only happens when you're asleep.

        by Visceral on Mon Oct 24, 2011 at 09:54:24 AM PDT

        [ Parent ]

        •  Exactly. It's not adding value at all, it's (3+ / 0-)
          Recommended by:
          StrayCat, congenitalefty, Bob Guyer

          merely capitalizing differentials in power.

          I explain it to people as "I have two houses and you have none, therefore you have to pay me money."

          Truly the destruction of the earth only results from the destitution of its inhabitants, and its inhabitants become destitute only when rulers concern themselves with amassing wealth. Caliph Ali, 7th century

          by SadieB on Mon Oct 24, 2011 at 02:31:39 PM PDT

          [ Parent ]

        •  Stockholders are just owners (1+ / 0-)
          Recommended by:
          pee dee fire ant

          If you buy a stake in a business, you get to own a piece of it. That is a productive contribution to the existence of that business. If the company needs money and would rather sell more pieces of itself than take out a loan, you buying that piece is a productive contribution to the existence of that business.

          Unsurprisingly, you also get to sell your stake to somebody else. Why not? Don't you own that piece of that business?

          The refusal to "class stockholders as making a productive contribution to the businesses they own," is not a coherent notion. If they all disappeared, a good deal of productive commerce would disappear along with them.

    •  About that word "investing" (21+ / 0-)

      Just as this diary argues that the terms 'capital' and 'land' have now been conflated into the single term 'capital', it seems to me that the terms 'investing' and 'speculating' have been conflated into the single term 'investing'.

      For example, playing the stock market is typically called 'investing', but it is actually an exercise in buying low and selling high without adding any value in between those two events, and so should really be called 'speculating'.

      •  I can see where... (4+ / 0-)
        Recommended by:
        DBunn, Odysseus, BrowniesAreGood, Matt Z

        ...the terms (investing and speculating) have become interchangeable.

        But I'm not willing to draw the line that separates them. The waters are too muddy.

        A grocer buys a can of peas for $0.93 and sells it to me for $0.99 -- nobody would call that speculating.

        A flipper buys a foreclosure for $93,000 and sells it for $99,000...because he calls himself a "flipper" we treat him like a speculator. But if he rents the house out for a stream of cash with a Net Present Value of $93,000 he gains the moral promotion to "Investor".

        (If he has 15 such houses he gets another Moral Promotion to "Small Businessman" and receives the worship of the GOP).

        I am not comfortable drawing the line between the Retailer, the Speculator, the Investor, and the Businessman. I say take all their earnings, and treat them all the and morality-wise.

        •  It's true that the borderline is not always clear (12+ / 0-)

          ... between 'investing' and 'speculating'. But of course that is not a reason to abandon the distinction (not that you were suggesting we should). The precise edges of abstract concepts do tend to be difficult to draw.

          Consider national boundaries, like for instance the border between France and Germany. One step to the west and you're in France, a step to the east you're in Germany, but in any natural sense you haven't gone anywhere different. At the same time, everybody can tell the difference between Paris and Berlin. It would be absurd to argue that France and Germany are not different countries, but perhaps equally absurd to label one precise spot on the landscape as the point where the change occurs.

          Re the cases you cite: the retailer buys low and sells high, but adds the important value of convenience to his customers and suppliers, who would have a hard time finding each other without him. The landlord makes built capital (in the form of a house) available to his tenants, who use it for their own benefit, and is directly involved in the 'operation' of the house in the sense that he is responsible for maintenance, paying the taxes, etc. The stock picker, however, is not actually investing in the companies whose stock he owns, he is simply making bets on how other people will bet on the price of those stocks. The house-flipper is just hoping to ride the mood of the market, and even if he rents out his properties for a while, it's just to partially defray the costs of ownership until he can sell them at a big mark-up.

          •  Also the flipper is gouging -- taking advantage (1+ / 0-)
            Recommended by:

            of the fact that he has money to buy a house when others (who need houses) do not. It's antisocial.

            Truly the destruction of the earth only results from the destitution of its inhabitants, and its inhabitants become destitute only when rulers concern themselves with amassing wealth. Caliph Ali, 7th century

            by SadieB on Mon Oct 24, 2011 at 02:34:44 PM PDT

            [ Parent ]

          •  What if the flipper renovates the house? (0+ / 0-)

            At least there's value added, isn't there?

            The '60s were simply an attempt to get the 21st Century started early....Well, what are we waiting for? There's no deadline on a dream!

            by Panurge on Mon Oct 24, 2011 at 05:58:34 PM PDT

            [ Parent ]

            •  Yes (1+ / 0-)
              Recommended by:

              In that case, they are an investor and are value added if they invest in the house.  However, buying a house and holding it until the value of the land it sits on goes up and then selling it, is "economic rent".

              Our Dime Understanding the U.S. Budget

              by maddogg on Mon Oct 24, 2011 at 06:00:42 PM PDT

              [ Parent ]

          •  Whew! (0+ / 0-)

            As a landlord, you just made me feel a little better. :o)

            I own a rental house and have a lovely tenant, who with her daughter and granddaughter live in my rental house because the matriarch does not want the responsibility of home ownership at this stage of her life, and her daughter is just starting out.

            So there IS a service being provided.

            "When the going gets weird, the weird turn pro." Hunter S. Thompson

            by SNFinVA on Mon Oct 24, 2011 at 08:07:03 PM PDT

            [ Parent ]

      •  Actually for a lot of individual (2+ / 0-)
        Recommended by:
        Sychotic1, DBunn

        investors it's an exercise in buying high and selling low... "speculation" is the word for it.

        "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

        by Alice in Florida on Mon Oct 24, 2011 at 03:24:21 PM PDT

        [ Parent ]

      •  That's why I'm hesitant to condemn 99% of Wall St (1+ / 0-)
        Recommended by:

        Stock markets, when functioning properly, add significant value - they encourage liquidity and give businesses access to funding so that they can expand.  But that applies with the traditional market model, where you have individual or institutional investors buying a stock because they believe that a company has good long-term prospects.  A person who went out and bought Apple stock in 2000 (assuming Apple was public in 2000) would rightly be enriched by their good judgment and their investment in Apple's business plan.

        Having said that, as a one-time New Yorker that knows how critical financial services jobs are, I'm deeply alarmed by the computerized models popping up.  all of these micro-transactions and automated trades are extraordinarily dangerous.  The fact that companies can use complex financial transactions to insulate themselves from their stock's drops also tends to create perverse incentives.  Shorting a stock and high-volume penny-differential trades simply do not add value, whereas a serious investment in a company absolutely creates value.

        So basically, I agree with you.  "Investment" need not be a dirty word, and I hope that OWS leads to some serious reforms a la a Tobin Tax and stronger (and meaningful) FINRA and SEC reforms.

        "What Washington needs is adult supervision" - Barack Obama

        by auron renouille on Mon Oct 24, 2011 at 09:35:09 PM PDT

        [ Parent ]

  •  Thanks SO much for this.... (7+ / 0-)

    will be sharing with my Repub family :)

  •  If the parasites came from Outer Space (8+ / 0-)

    instead of Wall Street, there'd be  door-to-door searches to rid humanity of bloodsucking leeches in Brioni suits . . .

    I tremble for my country when I reflect that God is just; that his justice cannot sleep forever. ~Thomas Jefferson

    by bobdevo on Mon Oct 24, 2011 at 08:55:59 AM PDT

  •  This diary makes basic economic ideas (9+ / 0-)


    Love it, and forgive my riff above.  Just wanting to exercise the ideas some.  Not intended any other way.

    I love trying to find new ways to communicate basic economic ideas.  We can do a lot of damage on the flawed ones that currently dominate that way.

    ***Be Excellent To One Another***

    by potatohead on Mon Oct 24, 2011 at 09:12:32 AM PDT

  •  It's a good contribution (1+ / 0-)
    Recommended by:

    I'm not sure that the term is precise enough to be that helpful though. Somehow, we all seem to want to find a way to differentiate between Steve Jobs and the Koch Brothers. I'm not sure that there's a way to do it. Businesses compete with each other, and sometimes drive everyone else out of business. They attempt to influence public policy in their favor. They minimize the cost of labor whenever possible. They seek to externalize the environmental costs of their activities.

    And they have created the wealth that has provided us with nearly every material comfort and pleasure that we enjoy today.

    •  Actually Koch brothers do produce and manufacture (2+ / 0-)
      Recommended by:
      FarWestGirl, StrayCat

      things you can see and touch- like tissue papers.

      The thing about rentiers is that they produce nothing. Rentier is a direct consequence of the fact that the ultimate commodity- land is a finite resource, which has all been claimed by somebody.

      In a world where there is limitless land, free market capitalism would actually work pretty well as intended. Whereas on a small island where 1 landowner owns all the land, free market capitalism would collapse. We are somewhere in between those extremes.

      •  But land is an increasingly more insignificant (0+ / 0-)

        cost of doing business. Companies like Microsoft, Apple and Google are the biggest, richest corporations in the world, and land is a very small part of their capital.

        •  Land and "rent-seeking" (7+ / 0-)

          Land is still a very significant part of those companies.  They all have very large data centers.  Google has several large areas around the world.  And you can't just count their own land.  Think of all the land that is required to support their businesses.  Apple iPhones require the "land" of our broadband spectrum.  Google wouldn't exist without all the land used up by broadband cables and communications spread throughout the world.  All the electricity to supply these data centers also requires land whether it's the power plants or coal mines to support those power plants.

          All three of the companies also depend very heavily on "intellectual property".  Of course we're getting very abstract because this "property" only exists as long as the government can enforce it.

          Land has not become insignificant.

          Our Dime Understanding the U.S. Budget

          by maddogg on Mon Oct 24, 2011 at 10:40:47 AM PDT

          [ Parent ]

          •  one thing i noticed (0+ / 0-)

            in your post that Pilkington apparently missed is that that you broaden the definition of "land" in the same way that this idea broadens the definition of "rent" to something that approaches theft.

            "land" is no longer simply a piece of ground.

            blink-- pale cold

            by zedaker on Mon Oct 24, 2011 at 04:58:05 PM PDT

            [ Parent ]

        •  Land Is Increasingly MORE Significant (2+ / 0-)
          Recommended by:
          stillman, pee dee fire ant

          Land isn't capital at all.  While other forms of privilege have certainly become more important in the last century, especially intellectual property and bank debt money issuance, private ownership of natural resources is an even bigger part of the economy now than it was back in Henry George's day (it's wages and the returns to true productive capital -- mainly buildings and equipment -- that have shrunk).  The ongoing global financial crisis was caused by borrowing for residential land speculation, and the reason people borrowed so recklessly to buy land was because not owning land -- renting your dwelling -- has effectively become a vow of perpetual poverty.

          If you own land, you are on the escalator.  If you do not, you are on the treadmill that powers it (if you haven't fallen off the back into unemployed poverty).

    •  Politically It Doesn't Matter. If Anyone by Any (9+ / 0-)

      means is able to take home most of a reward no matter how large or fast, beyond a certain point their mere existence is a threat to society because it's helping pump the share of national ownership and political power up into an aristocratically tiny few.

      Our economy's always been unstable under the concentration we had before and now since the New Deal era.

      Of course there's a way to fix this, we did for half a century. Government goes back to compressing compensation not by edict but with a steep progressive individual tax program so that there's no reason for enterprises to offer giant compensation in the first place, and government also goes back to regulating finance, anti trust and such so there's no easy way to pursue them either.

      Then virtually everybody's skin is forced to stay in the game for the long haul. The economy will naturally recover much of its former diversity. Thousands of merely-profitable sectors from news to arts to small time manufacturing and locally owned broadcasting become once again competitive for investment and talent, since there's no big finance casino tempting everybody away.

      We had skyrocketing advances in innovations and comforts under 91% top marginal rates and tariff'd borders. That's when the middle class reached its all time economic peak as a whole.

      We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

      by Gooserock on Mon Oct 24, 2011 at 10:01:55 AM PDT

      [ Parent ]

  •  Try as I might (4+ / 0-)

    I'm still not seeing the difference between rentiers and capitalists.  Both capitalists and rentiers justify their profits by loaning out the use of something they own, for a price.  And it's not true that the landowner's land would retain its value after the brick factory is done.  There'll be great holes in the ground after digging up all that clay, together with the pollution of local groundwater and soil that goes with any kind of mining/processing operation, even one as simple and ancient as making bricks.  I would go so far as to suggest that the capitalist in your story, the one who owns the ovens and brickmolds, is risking far less than the landowner in that situation.  Those will still work when the factory is finally shut down.  There's no guarantee that land will be good for anything else, after that, though.

    With the story you tell, rentiers just seem to be capitalists that are taking maximum advantage of their market position, minimizing or selling off their risks and maximizing their share of the revenue stream.  In this sense, rentiers are just capitalists whose contribution to the value added in the production process is disproportionately small in relation to the share of the revenue stream they have captured by contract.  

    Of course, when contemplating these things, my mind turns more naturally towards potential solutions, rather than nomenclature, but this one is actually something of a conundrum.  Because the mix of land, labor and capital that goes into the production of each product is different according to kind and circumstance, the appropriate profit for rentiers/capitalists is very difficult to determine a priori.  Maybe something like an inverse value-added tax, where the tax you pay on your profits is inversely related to the value your contribution adds to production?  But since the distinction between rent-taking and returns on productive investment is similar to the distinction between erotic art and pornography, you know it when you see it but there's no formal line, regulatory approaches to rent-taking behavior will probably have to be a patchwork of case-by-case actions in the same way.

    From such crooked wood as that which man is made of, nothing straight can be fashioned. -Immanuel Kant

    by Nellebracht on Mon Oct 24, 2011 at 09:41:31 AM PDT

    •  land vs capital (7+ / 0-)
      I'm still not seeing the difference between rentiers and capitalists.  Both capitalists and rentiers justify their profits by loaning out the use of something they own, for a price.

      Adam Smith made the key distinction as Land is inherently limited.  If there is a sudden large demand for soap, the car manufacturers will initially receive a windfall as the price of soap goes up.  As the price goes up, existing companies will compete with each other and will eventually produce more soap and try to undersell their competitors.  Additionally, other companies may see soap at such a high price that they'll enter the soap market.  Eventually, the price of soap falls as the supply of soap rises to meet demand.  That's what a functioning market looks like.

      Now let's take a look at land.  If there is a sudden rise in the cost of land, there is no new land that can be "produced" to meet that demand.  Instead, the existing land owners get to charge more as the demand rises.

      Adam Smith, and later classical economists took a very thorough and sophisticated look at "rental income".  They found that the owners of the best land could charge rent as high as the difference between the best land and worse land.  They weren't governed by supply & demand like capital is.  I'll explain(as Smith did):
      Let's say there are 3 parcels of land with different land owners.  Additionally, a few companies want to use land to grow apples.  The best parcel of land produces 3 bushels of apples.  The Okay parcel of land produces 2 bushels of apples.  The worse parcel of land produces 1 bushel of apples.  Let's say that each bushel of apples sells for 100$.  The most rent that the owner of the worse parcel of land can charge is 100$ minus the cost of production.  Lets say the cost of growing, picking, and selling the apples is 50$.  If the landowner of the worse property charges more than 50$, then using his land won't be profitable.  So let's say he charges 49$ and the company can then make a 1$ profit.  Now look at the owner of the Okay parcel of land.  The same amount of work produces twice as many apples on this land.  That landowner can charge the apple producing company up to 150$ before it becomes unprofitable for the company.  That landowner makes an extra 100$.  By the same process, the owner of the best land can make and extra 200$.  What Smith, Ricardo, and others discovered was that the owner of the best land could always charge extra rent.  Even if more land opened up for growing apples, if they all were like the worse parcel of land and only produced 1 bushel of apples, the owners could still charge higher rent.  This site explains this particular concept more thoroughly.  

      Of course, now in terms of "economic rent", yes in many cases it is capitalists trying to take advantage of an unhealthy market(to use potatohead's terminology).  That is, a market where there isn't true choice and competition.

      Our Dime Understanding the U.S. Budget

      by maddogg on Mon Oct 24, 2011 at 10:13:11 AM PDT

      [ Parent ]

      •  But all that is just market circumstance (0+ / 0-)

        There's still not an underlying difference between the capitalist and the rentier.  To put it another way, different capitalists might buy different equipment that makes a difference in productivity and costs.

        Indeed, the very same circumstance, with the same advantages for the owner of the land, can occur if there is no objective difference between the parcels of land at all, all soil and climate/weather conditions being identical, as long as there is a qualitative difference in the labor available at the different locations.  

        But even by your own example, the owners of the best land couldn't always charge higher rent.  The maximum rent they could charge is still limited by the productivity of whatever capital(land) they contribute and market prices.  If there are enough 1 bushel producers to keep the prices down, then they keep the rent down for the 3 bushel producers too.

        In my mind, the issue becomes when capitalists use their capital to manipulate market prices so as to maximize their investment return, what we're calling here rent-taking.  Some rent-taking is legitimate, but but rents that are too high because of artificial shortages or false market anticipations or monopolistic behavior are not.  These involve, more often than not, not the renting of capital to businesspeople and workers who would be productive with it, but the strategic witholding of that capital.

        From such crooked wood as that which man is made of, nothing straight can be fashioned. -Immanuel Kant

        by Nellebracht on Mon Oct 24, 2011 at 01:35:32 PM PDT

        [ Parent ]

      •  Reminds me of the classic Will Rogers quote: (4+ / 0-)
        Now let's take a look at land.  If there is a sudden rise in the cost of land, there is no new land that can be "produced" to meet that demand.  Instead, the existing land owners get to charge more as the demand rises.
        "Buy land. They ain't making any more of the stuff."

        "Push the button, Max!" Jack Lemmon as Professor Fate, The Great Race

        by bartcopfan on Mon Oct 24, 2011 at 01:37:19 PM PDT

        [ Parent ]

      •  no.... (1+ / 0-)
        Recommended by:
        Adam Smith made the key distinction as Land is inherently limited.  

        Everything is inherently limited.  Copper is inherently limited, for example.  All the copper that exists in the ground is in the ground right now.  Some of it is undeveloped.  Like land.

        Now let's take a look at land.  If there is a sudden rise in the cost of land, there is no new land that can be "produced" to meet that demand.  Instead, the existing land owners get to charge more as the demand rises.

        Yes, land can be "produced" and this happens all the time.  It's called land developing.  Your example is no different if we replace "land" with "brick ovens".  If there is a sudden rise in the demand for brick ovens we can't just go and "find" new brick ovens.  We must develop raw materials into brick ovens.  Turning those raw materials into more valuable uses (land development).  We can even "recycle" things that aren't brick ovens (raze old building).

      •  The distinction fails (1+ / 0-)
        Recommended by:

        The argument depends on land having constant value, and not becoming depleted. This is a false rationalization, just as false as the notion that markets themselves are perfectly rational, if not more so.

        Look up farmland and topsoil loss. We basically mine our farmland. Our large wheat-growing areas, for instance, have lost half their topsoil over the last century.

        Look up industrial sites and brownfields. If you build a factory on my land, and pay me rent, there's a great likelihood when the factory closes my land won't merely be worth less, but will be a significant liability — have a negative value.

        So the contributor of land to either farming or industry is contributing capital, which is quite at risk in the enterprise. Adam Smith, we can be sure, knew little-to-nothing about topsoil loss or factory-site contamination. Comprehending the depletion of land-as-capital is vital to constructing an ecologically-sane and sustainable society.

        This isn't to say the distinction of "rentier" isn't useful in the abstract. But the theft by Wall Street isn't best understood as high rent (although there's plenty of high rent in NYC), it's best understood as having been done by thieves. Thieves who should be facing prosecution. Sure, capital gains should be taxed level with other income. That's a problem too. But the main problem is theft by various forms of fraud. Renting property is not in itself a fraud. Selling bogus financial instruments with flagrant lies is.

        •  Wrong. (0+ / 0-)

          "The argument depends on land having constant value, and not becoming depleted."

          No such assumption is made, or needed.

          "If you build a factory on my land, and pay me rent, there's a great likelihood when the factory closes my land won't merely be worth less, but will be a significant liability — have a negative value."

          That is extremely unlikely unless there is a problem of chemical contamination, etc., which should be handled by land use and nuisance laws.

          "So the contributor of land to either farming or industry is contributing capital, which is quite at risk in the enterprise."

          The landowner is not contributing the land, which was already there, ready to use, with no help from him or anyone else.  He is not contributing capital, as capital is a product of labor devoted to production rather than consumption.  His risk taking -- risking "capital" in the accounting rather than the economic sense -- is simply a normal part of his rent-seeking behavior.  Even criminals take risks.

          "This isn't to say the distinction of "rentier" isn't useful in the abstract."

          It's crucial in practice as well as theory, which is why it has deliberately been erased from the discipline of economics (one cannot call it a "science").

          "But the theft by Wall Street isn't best understood as high rent (although there's plenty of high rent in NYC), it's best understood as having been done by thieves."

          Rent seeking is effectively legalized theft.

          "Renting property is not in itself a fraud."

          Why else would the producer pay the landowner for what nature provided for free?

  •  As an aside- you can't own land in Hong Kong (5+ / 0-)

    All land is leased on a 99 year lease. In practice, a lot of times the government will just renew the lease when the time is up. The government can also take back the land and auction it off for redeveopment. The HK government makes a huge amount of income from land auctions (not all from lease returns though- a lot of it is formerly undeveloped land as well). This is one reason why the HK government in recent years has been running budget surpuses year after year.

    So in some sense, the role of the rentier is taken over by the government.  If you're going to have a rentier, might as well be the government.

  •  Two More Huge Things Rentiers Don't Contribute: (17+ / 0-)

    They don't contribute any wear and tear on their bodies or minds, and most important of all, they don't contribute their time.

    When the workers clock out, they've got their earnings but they've lost their time and they've lost the wear and tear of their work. They can't get them back, and they weren't able to use them for anything else while they worked.

    The capitalists on the other hand had full use of all their time while their investment was bringing them a return, in making no effort they suffered no wear or tear from it.

    That's why opportunity rises exponentially at the top, because the capitalists are able to do more and more earning simultaneously while everyone else in the economy is fully occupied serving the capitalists.

    We are called to speak for the weak, for the voiceless, for victims of our nation and for those it calls enemy.... --ML King "Beyond Vietnam"

    by Gooserock on Mon Oct 24, 2011 at 09:46:59 AM PDT

  •  Your definition is way over broad. (4+ / 0-)
    Recommended by:
    gatorcog, sydiot, bernardpliers, wytcld

    I'm not sure that I'd deny rent-seeking exists, but many of the examples you give aren't that:

    When oil company’s make “windfall profits” as the price of oil goes up, that’s not profit, that’s “economic rent”.

    No, that is most certainly not economic rent.  That's simply higher return on capital (which is extremely intensive in the oil industry.)  Oil price manipulation might count as rent-seeking, but windfall profits do not.  The oil companies still risked substantial amounts of capital.

    When a drug company can keep the government from negotiating lower prices, that isn’t capitalism, that’s classic “rent-seeking” behavior.

    That also isn't rent-seeking.  This still falls within normal supply-demand return on Capital.  In a global system, a national government doesn't have absolute control over the market.

    99% of the money made on wall street is nothing but pure rent-seeking.

    This seems extremely unlikely.  Rent seeking is by it's definition risk-free.  If our banking system was all about Rent seeking, we wouldn't have had a crash, as there would have been no real risk on capital.

    •  rent-seeking (7+ / 0-)
         When a drug company can keep the government from negotiating lower prices, that isn’t capitalism, that’s classic “rent-seeking” behavior.

      That also isn't rent-seeking.  This still falls within normal supply-demand return on Capital.  In a global system, a national government doesn't have absolute control over the market.

      If the company is hiring lobbyists to keep the government paying higher-than-market prices, that is rent-seeking and is exactly what has been going on for at least a decade now.

         When oil company’s make “windfall profits” as the price of oil goes up, that’s not profit, that’s “economic rent”.

      No, that is most certainly not economic rent.  That's simply higher return on capital (which is extremely intensive in the oil industry.)  Oil price manipulation might count as rent-seeking, but windfall profits do not.  The oil companies still risked substantial amounts of capital.

      It all depends on how you look at it.  Who "owns" that oil they are extracting from our land?  Do the oil companies own it?  And if so, are they paying market prices to own that land?

      If it is all profit, why are the number of oil companies in the world going down, instead of up?  In a functioning market, when the price of oil goes up, more companies enter the market to bring the price down.  But like land, oil is limited and doesn't always behave like a healthy, functioning, market.

      Our Dime Understanding the U.S. Budget

      by maddogg on Mon Oct 24, 2011 at 10:47:20 AM PDT

      [ Parent ]

      •  On Oil (1+ / 0-)
        Recommended by:
        It all depends on how you look at it.  Who "owns" that oil they are extracting from our land?  Do the oil companies own it?  And if so, are they paying market prices to own that land?

        Outside of the United States, oil companies rarely if ever "own" the minerals they are extracting.  The have an agreement with the government where they get a certain share of the oil.  They essentially rent the land from the government (which really is getting money for nothing.)

        Oil leases a generally quite competitive, and most are competitively bid.

        If it is all profit, why are the number of oil companies in the world going down, instead of up?  In a functioning market, when the price of oil goes up, more companies enter the market to bring the price down.  But like land, oil is limited and doesn't always behave like a healthy, functioning, market.

        Economies of Scale.  Oil requires massive upfront investment and expensive infrastructure, leading to ever-increasing advantages from size.  Often, the easiest way to gain oil reserves is to buy a small company with them.

        Also, I'm not sure that the number of oil companies in the world is actually going down.  Most oil companies that aren't massive don't even appear on the average person's radar, and a multitude exist outside the United States.

    •  Who Told You Rent-Seeking Is Risk-Free? (2+ / 0-)
      Recommended by:
      stillman, maddogg

      Rent-seeking behavior is not risk-free.  The point of rent-seeking behavior is that it will tend to soak up resources, including entrepreneurial risk tolerance, in an entirely unproductive competition for the spoils.  Rent-seeking, in the limit, will waste resources of value equal to the rent obtained.  Its economic effects can produce societal losses greatly exceeding the rent obtained.

  •  I hate to say it (8+ / 0-)

    but very few things I read fundamentally change my perspective on any one thing.

    But this diary has.

    Great job.  

  •  ut oh Wall St - Henry George coming back in style (8+ / 0-)

    I sure hope so.

    The debate about productive vs. predatory aspects of capitalism.

    The FIRE (finance, insurance, real estate) sector of the economy creates no value and is extracting rent from the productive forces.

    Occupy Wall Street is right on the money (pun intended).

    •  Wouldn't Georgism Be A Wildly Regressive Flat Tax? (0+ / 0-)

      Georgism was advocated by the paleolibertarians of the 1930s. Like today, they were sponsored by wealthy people who wanted a substitute for the income tax. Some things never change, eh?

      It sounded like what made it popular was the idea that the new industrial class would pay less taxes on the their factory than the neighboring farmer, simply because the famer had more acreage.

      There’s always free cheddar in a mousetrap, baby

      by bernardpliers on Mon Oct 24, 2011 at 03:32:06 PM PDT

      [ Parent ]

      •  progressive, not regressive (0+ / 0-)

        The land value tax is based on the value of the land.  Land in the middle of a city is worth a lot more than farmland.  Farmland is pretty cheap by comparison.  The idea of taxing just the land value is to reward people who build up their property, and to discourage speculators who don't build up their land.  An LVT encourages density in cities and can actually discourage suburban sprawl leaving more land available for farming.

        Our Dime Understanding the U.S. Budget

        by maddogg on Mon Oct 24, 2011 at 05:57:48 PM PDT

        [ Parent ]

        •  There Is Not Much Industry In Cities Any More (0+ / 0-)

          It's out in the country and industrial parks on land they bought for $1000 an acrea.   So the guy with an orchard is paying more txes than the office park, which helps drive the guy with an orchard out of business in favor of a mall.

          Also, the cities would tend to empty since suddenly they would getting hit with taxes that could not be deducted. That parking lot in the city might be charging $100 a day for parking.

          Georgism is such a wild piece of social engineering that the blowback and unforseen consequences would be huge.

          There’s always free cheddar in a mousetrap, baby

          by bernardpliers on Mon Oct 24, 2011 at 06:11:13 PM PDT

          [ Parent ]

          •  LVT applied works differently (0+ / 0-)

            Where LVT has been used and implemented well (good assessments and phased in) it does the exact opposite of your description. City land gets used more efficiently and sprawl pressures lessen.

      •  Land Rent Recovery Would Be Progressive (1+ / 0-)
        Recommended by:

        The income tax is not a good tax, because it does not distinguish accurately between earned and unearned income (and in the USA, it actually privileges the latter!).

        Recovering the publicly created rent of land for public purposes and benefit would not impose significant additional costs on farmers, because the land they use is not worth very much per acre -- and many of them are already paying the full rent to idle landowners anyway, so why wouldn't they be just as happy paying the same amount to the community?

        Contrary to popular misconception, property taxes are among the most progressive taxes we have, and a land value tax with a flat, universal individual exemption to restore the individual right to liberty would be far more progressive still.

  •  This diary is about one of my favorite topics: (12+ / 0-)

    The way the right has usurped Adam Smith to justify an economic system that Smith would have hated every bit as much as Jesse LaGreca hates it.

    "These are not candidates. These are the empty stand-ins for lobbyists' policies to be legislated later." - Chimpy, 9/24/10

    by NWTerriD on Mon Oct 24, 2011 at 01:45:45 PM PDT

  •  The rentier today (5+ / 0-)
    Recommended by:
    StrayCat, Wes Lee, Matt Z, jjellin, Randtntx

    is the one who prints money. They get interest (i.e. rent) without contributing to society.

      They are the banks.

    "The people have only as much liberty as they have the intelligence to want & the courage to take." - Emma Goldman

    by gjohnsit on Mon Oct 24, 2011 at 01:47:58 PM PDT

  •  The theories of Henry George (8+ / 0-)

    and his modern exponent Mason Gaffney are exactly what we need now. They thread right/left issues.

    Taxes on Land Values are something that Bernie Sanders and Pat Toomey agree on. Milton Friedman has said of Henry George and a land value tax that it was the only fair and reasonable tax.

    Georgists have been looking at rent-seeking behaviors and predicting boom/bust business cycles for almost a century.

    Matt Yglesias just wrote about this a few days ago.

    I just finished a study for Scott Stringer (BP of Manhattan) on implementing a shift in property taxes in New York City to deal with rent seeking.

    There are nearly 25 sq miles of vacant lots in the city that are held out of use with almost no cost to the owners but a huge cost to the city.

    would love to stay in touch on this issue.

    •  Yglesias blog post (0+ / 0-)

      Ezra Klein is inspired by the 9-9-9 plan to advance some radical tax reform ideas, but I say they’re not radical enough!
      If it were up to me, the major revenue streams would be a land value tax (like a property tax, but without the buildings), a greenhouse gas tax, an uncapped payroll tax with a sharply progressive rate structure, and a modest tax on non-land wealth with a generous exemption. As minor revenue sources, you can add excise taxes on alcohol, tobacco, and marijuana plus of course congestion pricing! Land value taxes are great, because creating disincentives to build more land is not a major issue. Greenhouse gas taxes are well understood. A payroll tax with a progressive rate structure is similar in its overall impact to the fabled progressive consumption tax*, but easier to administer and fairer to old people. You need the wealth tax because it’s not possible to build enough progressivity into the payroll tax but you keep it low since high wealth taxes are economically destructive. States governments would not collect any tax revenue but would instead receive grants from the federal government that are designed to keep spending smooth across the business cycle. The formula would be proportional to (though not necessarily equivalent to) each state’s land value tax contribution, so that states are properly incentivized to enact policies that increase demand for living there.
      Maybe that’s all crazy. But I think it’s right. The general idea is that as long as we’re talking about radical reforms, why not make them really radical?
      * PROOF: All income is either derived from payroll wages or from investment. And all income is either consumed or invested. So in the long-run, the income derived from investment is equivalent to the income that is not consumed. Which is to say that consumption is equivalent to wage income. In the short-term, they’re totally different since a consumption tax would end up taxing the consumption of people (seniors, especially) who saved up money before the imposition of the tax.
      •  How would one treat farmland? Green space? (0+ / 0-)

        This seems antithetical to the family farm or agriculture in general.  What if you are a state that doesn't want more people?  What if California got "proportional" but not equal?  They would be losing 10 percent of what they currently collect in state taxes, since we only get back about 90 percent of federal contributions.

        #Occupy Wallstreet - Politicians will not support the movement until it is too big to fail.

        by Sychotic1 on Mon Oct 24, 2011 at 04:40:19 PM PDT

        [ Parent ]

        •  LVT based on land value (0+ / 0-)

          The land value tax is based on the value of the land.  Land in the middle of a city is worth a lot more than farmland.  Farmland is pretty cheap by comparison.  The idea of taxing just the land value is to reward people who build up their property, and to discourage speculators who don't build up their land.

          Farmers might pay more in land tax, but chances are they would pay less taxes overall in reduced income and sales taxes.

          An LVT doesn't preclude a city or state from leaving certain property as public parks.

          Our Dime Understanding the U.S. Budget

          by maddogg on Mon Oct 24, 2011 at 05:53:22 PM PDT

          [ Parent ]

          •  So it further rewards development over (0+ / 0-)

            farmland?  Sounds like the last thing California needs.

            #Occupy Wallstreet - Politicians will not support the movement until it is too big to fail.

            by Sychotic1 on Mon Oct 24, 2011 at 11:09:04 PM PDT

            [ Parent ]

            •  California was built by the Wright Act as LVT (1+ / 0-)
              Recommended by:

              In the second half of the 19th century, as the American state of California filled up with settlers after the Gold Rush, a few cattlemen owned massive amounts of land. Consequently, many farmers and miners lacked access to sufficient amounts of water flowing in rivers and streams. For instance, Henry Miller, a German immigrant who anglicized his name from Heinrich Mueller, owned about 1,000,000 acres of land. He could drive his herds of beef on the hoof from Mexico to the state of Oregon and spend every night on his own land.

              In 1886 Miller won full rights to the water of the Kern River. Some people concerned with justice figured Miller had overstepped reasonable bounds and organized to take a stand for water and land rights. In particular, a rural schoolteacher, C. C. Wright, ran for a seat in the state Assembly just so he could advance a tax on land value. Back then in his time and place, the logic of charging owners for their holdings so that they would sell off their excess was well understood by a populace that had first hand experience with “latifundia” and with the arguments of Henry George circulating through political discussion.

              Wright won his election, took his seat in the capitol in Sacramento, and in 1887 persuaded his fellow legislators to pass the Wright Act. After the governor signed the act into law, Wright retired from politics. His political achievement allowed communities to create, by popular vote, irrigation districts to build dams and canals and issue bonds which would be repaid by capturing the resultant rise in land value. The levy not only raised funds for the new infrastructure, it also prodded owners to release their excess land.

              Once irrigated, land was too valuable to use for grazing. Others were willing to pay more to farm it since the market price for grain per acre was higher than the profit from beef per acre. As the value of the land rose, so did the tax upon it, making it too costly for owners to hoard the land for ranching. So cattlemen sold off fields to farmers and at prices the farmers could afford.

              In ten years, the Central Valley was transformed into over 7,000 independent farms. The Wright Act became even more "Georgist" after several years of use when it was amended to mandate the total exemption of improvements from the tax base. Irrigation Districts included and taxed land that was not used for farming but for residence and commerce within townships. Steadily the Irrigation Districts evolved to do more than just deliver water. They also expanded to provide reclamation, recreation, and electric power at cheaper rates than private utilities. Over the next few decades the tree-less, semi-arid plains of the San Joaqin Valley became the "bread basket of America", one of the most productive areas on the planet.


              In 1958, California's U.S. Senator William Knowland, a Republican, described the Wright Act as “more important to the growth of California than the discovery of gold. It taxes people into instead of out of business.”

              One of the main strengths of the Wright Act – as an example of public collection of land rent – is not economic, despite its obvious economic success, but political. It demonstrated the power of one person to bring about a major advance in justice that benefited his entire society. One citizen became a leader who won office, won over his fellow legislators, and won the signature of the state’s governor.

              Another political strength is that this approach to funding infrastructure appealed to all the major players. It was convincing to both a majority of voters, who had elected Wright as their representative, and it appealed to enough politicians, including the governor, to get the reform passed into law. The proposal to build infrastructure and to pay for it by recovering the resultant rise in land value was easy to explain and considered to be fair by nearly everyone.

              The formation of local authorities to raise bonds to pay for irrigation made the Wright Act a highly decentralized method of public funding based on the “user pay” principle. Rather than burdening the general taxpayer with debt, the bonds were repaid by those willing to pay for access to land based on the higher productivity provided by the irrigation systems. This infrastructure was built entirely without need for state or federal aid.

              The Wright Act demonstrated that land value capture can be a powerful instrument for effective, efficient, and fair land reform. Rather than mandating acreage limitations like other land reform approaches, this land value capture approach allocated land according to those who were willing and able to make appropriate use of land at its highest and best use once irrigated. The Wright Act was further strengthened when it was amended in 1917 to exempt improvements such as crops, orchards, vineyards, buildings and personal property, further strengthening incentives for agricultural production.

              The Wright Act naturally and non-coercively but steadily nudged underutilized land owned by a handful of large landowners onto the market and into the hands of smaller producers who had the willingness, skills and capacities to farm the land intensively, thus greatly increasing the supply of food. Other approaches to agrarian land reform often lead to bloodshed or reduced output per acre and leave society divided into hostile camps.

              Sociologists who researched the communities and towns in the Wright Act area of some five million acres found them to be significantly more diversified in their economic base and having more amenities and social benefits compared to those in nearby non-Wright Act territory of California.


              The Wright Act was established to fund specific infrastructure and was not sufficiently understood as an approach to public finance that could be expanded to fund other public needs for education, transportation, and even public health. There was no enabling legislation in place that would have facilitated the establishment of land value capture in lieu of taxation of production as a basis for overall local public finance.

              In the post-World War II era, rapid urban and rural growth again made water scarcity a top California priority. Local and state leaders, instead of turning to the Wright Act, persuaded the federal and state governments to give billions of tax payer funds for the Central Valley and Feather River irrigation projects. This approach has given American public works projects the bad name of “pork barrel” with politicians voting to please each other’s constituents. It taxes the many for the profit of a relative few, without the local attention and care induced when beneficiaries pick up the tab.

              The hundred or so California irrigation districts still functioning (as of year 2000) suffer somewhat from their own success. Free water led to waste of this precious resource, so water tolls were added. As fees for electricity paid off debts and met revenue needs, land value rates were greatly reduced. Because land values continued to rise as living conditions in this region improved but were not captured back for public benefit, there was thus a return to some of the very conditions the districts originally remedied – absentee ownership, land speculation, and over-sized holdings.


              Opportunities to expand upon this approach to financing infrastructure in California appear limited at this time. As the state progressed in complexity and centralization of tax powers, public finance moved rapidly from land based taxes to a mix of taxes on income, homes and other buildings. This eventually led to a “taxpayers revolt” in the form of legislation that many consider in hindsight was destructive. Proposition 13 was the state law which set limits on assessment increases, regardless of market values, and which set rate ceilings that forced greater reliance on non-property revenue sources.

              California has struggled to meet budgetary needs for government services ever since. And high land prices drove up the price of housing to such a degree that many residents became vulnerable to subprime and adjustable rate mortgages which are now in foreclosure putting the dream of home ownership forever beyond the reach of millions of residents of this “rich” state.

              Walter Rybeck, director of the Center for Public Dialogue and former assistant director of the National Commission on Urban Problems has analyzed the shift in tax policy in the United States away from the almost exclusive use of property taxes which, at first were predominantly taxes on land values to fund local and state government needs, to a federal government structure which grew to over-shadow the state-local sector, funding itself with taxes on production and income. He had this to say at the cusp of the millennium:

              “Land value taxation in the United States is a story of the struggle to recall and apply overlooked lessons from the nation’s formative years to ease the mammoth socio-economic pathologies generated in large part by the detrimental tax policies of later eras.”


              Those puzzled by the slow progress of land tax reforms should not overlook how big landlords, bankers, and private utilities fought mercilessly to undermine the Wright Act. When their votes failed to overturn it, they took their opposition all the way to the US Supreme Court where they called the act “communism and confiscation under guise of law.” The high court disagreed, holding that the act “does not deprive the landowners of any property without due process of law.”

              Those opposed to the Wright Act did not give up. During the 1930s Depression, Californians who had made excessive loans on land in the districts were unable to meet their payments. Under the Wright Act the first lien on the land for non-payment of the district land taxes was held by the local governing authority. Mortgage bankers holding these loans urged Congress to pass arcane bankruptcy laws to rescue them in a way that erased their obligation to pay the district land taxes, which would have put the first lien on the land in the hands of the banks.

              J. Rupert Mason, who documented these episodes, said “perhaps no other law in any State has been more often attacked in the courts.”

            •  No, It Rewards APPROPRIATE Development (0+ / 0-)

              Where LVT has been implemented with reasonable fidelity, it has encouraged COMPACT and IN-FILL development that minimizes loss of good farmland.  The effect of rent recovery is to place each land parcel in its most appropriate use.  LVT even makes more urban park space affordable for many city governments, as the right amount of parks maximizes total land rent revenue.

  •  Time for Questions? (5+ / 0-)

    Great diary. I think this is why taxes on unearned income are so important. This is also a good framing for Occupy Everywhere. People need to understand that some income is just not earned; some people just don't have to work for it.

    But a some questions.

    What if I own the land and the building? Does that eliminate the rent?

    What about resources extracted from the land, say the clay for the bricks. Or the oil/coal/natural gas/whatever that the capitalist and laborers process? Those are things I cannot get back, and their loss diminishes the value of my land.

    Location, location, location. For whatever reason (natural disaster, economic disaster, etc.) the location of my land becomes less valuable.

    Your idea is a good one, was when Henry George had it. I have no problem with someone who actually risked something getting rewarded for it. Even hugely rewarded.

    But most of the stuff on wall street has become risk free. Too big to fail is an oxymoron, and morally bankrupt because it removed risk from the decision making.

    The Woody Allens on wall street, demanding bonuses just for showing up, should be taxed at a higher rate than labor.

    I'm ranting. Great diary. I'll be quiet now.

    Two most obscene words in the English language: financial services

    by BobBlueMass on Mon Oct 24, 2011 at 01:57:45 PM PDT

    •  Timely Answers (4+ / 0-)
      Recommended by:
      StrayCat, Sychotic1, Matt Z, Randtntx
      What if I own the land and the building? Does that eliminate the rent?

      In economic terms, you become both the landlord and the capitalist.  The money you save by not paying rent is your rent.  The income from the building is considered "earned".  Adam Smith said that land lords who build improvements are laudable and should be encouraged, but some of their income is still "rent".
      What about resources extracted from the land, say the clay for the bricks. Or the oil/coal/natural gas/whatever that the capitalist and laborers process? Those are things I cannot get back, and their loss diminishes the value of my land.

      I take a very environmental approach to mining and "mineral rights".  The person or firm that extracts them are capitalists and do deserve some profit for the trouble of extracting and selling the minerals.  However, like land, minerals are limited and obscene profits can become rent.

      This video from a member of Canada's Green Party goes into more details about extraction of inherintly limited resources.

      Our Dime Understanding the U.S. Budget

      by maddogg on Mon Oct 24, 2011 at 02:17:08 PM PDT

      [ Parent ]

      •  I like the Wiki definition (7+ / 0-)

        The wiki article on rent seeking helped me considerably:

        The simplest definition of rent-seeking is the expenditure of resources attempting to enrich oneself by increasing one's share of a fixed amount of wealth rather than trying to create wealth. Since resources are expended but no new wealth is created, the net effect of rent-seeking is to reduce the sum of social wealth.

        That last bit is why we should tax the shit out of this. And Woody Allen's bonus.

        Two most obscene words in the English language: financial services

        by BobBlueMass on Mon Oct 24, 2011 at 02:36:12 PM PDT

        [ Parent ]

        •  Yep. Wealth concentration (0+ / 0-)

          which is not at all the same thing as wealth creation.

          Banksters are harmful for the same reason neutrinos are harmless: neither are inclined to share what they've got (wealth and energy, respectively)

          by ebohlman on Mon Oct 24, 2011 at 07:23:27 PM PDT

          [ Parent ]

  •  Michael Hudson's blog is a must (3+ / 0-)
    Recommended by:
    maddogg, StrayCat, Matt Z

    for anyone interested in rent.

    nothin' to see here folks, just a massive labor uprising.

    by WesEverest on Mon Oct 24, 2011 at 02:00:58 PM PDT

  •  FDR's Second Bill of Rights (5+ / 0-)

    would be an excellent place to begin our discussion (that forbids monopolies yet insists on the right to healthcare, etc.)

    And how to pay for it?  Capitalism according to Adam Smith, which means NO MORE FREE RENT.

    Separation of Church and State AND Corporation

    by Einsteinia on Mon Oct 24, 2011 at 02:47:47 PM PDT

  •  Prosecute Tax Evaders (3+ / 0-)

    Obama needs to put the DOJ 100% onto prosecuting tax evaders.

  •  Great Diary (4+ / 0-)
    Recommended by:
    StrayCat, TDreamer, Matt Z, maddogg

    I'm a big Henry George/Michael Hudson fan.  

    I think's important, however, to not shade into a "real Capitalism" argument.  From Asian sweatshops to Kentucky coal mines -- non-rentier capitalism can still be brutal.  And then there's interest.

  •  Fixed versus mobile assets (0+ / 0-)

    There's a great deal of difference through profiting from a creative idea and great business model from profiting by strip-mining your land.  Yet they're both given the same value by neoclassical economics.  Even more important, to profit from land usually requires some kind of favorable treatment from the government, much more so than to profit from mobile assets like ideas and great businesses.  Today's moneyed class being free of ideas and great business models, they petition the government for the right to strip-mine the world.

    So, in short, I think this is a symptom of a capitalist model that's fundamentally failing.  I hope we can get back to one that succeeds; the alternatives end up being more difficult to manage fairly and freely and honestly.

  •   Instead of "rent-seeking" call it "skimming" (6+ / 0-)

    which is what we are really talking about in terms if the financial industry, and its a word that's self-explanatary. "rent-seeking" is more confusing. A lot of people who are not at all rich collect rent (ie, buying a 2-family house and renting out half, working part of a farm and renting out some acreage, etc.)

    A lot of finance is just collecting a percentage of money passing through, or taking advantage of small differences in price over short periods of time--it's skimming, pure and simple.

    "All governments lie, but disaster lies in wait for countries whose officials smoke the same hashish they give out." --I.F. Stone

    by Alice in Florida on Mon Oct 24, 2011 at 03:13:30 PM PDT

    •  I like that. (6+ / 0-)

      I like that, "skimming".  The FIRE industry does nothing but "skim off the top".

      Our Dime Understanding the U.S. Budget

      by maddogg on Mon Oct 24, 2011 at 03:28:37 PM PDT

      [ Parent ]

    •  Yes .. (2+ / 0-)
      Recommended by:
      maddogg, Randtntx

      The classical definition of "Rent-taking" harks back to an earlier era, when societies were mostly agricultural, the foundation of wealth was land, and the nobility were wealthy and did not work due to their huge landholdings. Extending this term to encompass all kinds of unjust enrichment is a bit of stretch, although I do recognize economists do that. I do like "skimming" though.

      Marx has not even been mentioned. For Marx, capitalists take a cut out of the value created by workers. This cut is made possible only because they have private ownership of the means of production. That's not a very popular economic theory nowadays, but it captures the idea of unjust enrichment and extends it to capitalists in general, not just to owners of land.

      Today though we have a complex society and gaming that society to get extra gains is very common, in very many different ways. That doesn't always mean a completely free ride, but it can mean extra profits that would not otherwise accrue. What about Wall Street firms that profit by doing high-speed trading in special server rooms located right next to an exchange, so that they can beat other traders by partial seconds? What about monopolies such as Microsoft (convicted of monopoly practices in court, let off by a legal complication)? What about companies that legally avoid taxes, or pollute and don't get called to pay the bill for their pollution, due to lax regulation? Somebody is profiting in these cases, and somebody else is losing. Disproportionately, those at the top of the economic ladder are on the winning side, thus unjustly increasing their wealth relative to the non-favored rest of the population.

  •  Diary On Georgist/Libertarian Albert Nock (2+ / 0-)
    Recommended by:
    Sychotic1, Matt Z

    Alfred Jay Nock, a noted early libertarian who eventually fell down the rabbit hole of antisemitism. Alfred Nock is regarded as having influenced conservatives and libertarians, especially Ayn Rand, down through today's anarchocapitalists. Nock's downfall may also give us some insights into how far back we can trace the racism that would later crop up in places like Ron Paul's newsletters.

    His book "Our Enemy The State" (1935) is considered a key libertarian treatise, and certainly noteworthy for its title if nothing else.  His work is featured by the The Ludwig von Mises Institute, a libertarian nonprofit pushing the Austrian School of economics and the Georgist "single tax" theory.

    According to Wikipedia  Nock advocated the Georgist theory of eliminating all taxes except a land tax, a "single tax"  based on the "economic rent" of land. The idea of economic rent determining the value of property ("location, location, location") is familiar, but using this as the basis of all taxes is a wild-eyed bit of social engineering that has never been attempted. Nock was also an editor of "The Freeman," a Georgist publication, in the 1920's, and reprints can be found on line.

    There’s always free cheddar in a mousetrap, baby

    by bernardpliers on Mon Oct 24, 2011 at 03:41:16 PM PDT

  •  excellent work. (1+ / 0-)
    Recommended by:

    thanks for telling me what a Rentier is.  :-)

    often seen the term in bobswern's diaries.

    Being ignored is the difference between being a one percenter and an American.--sweeper

    by SouthernLiberalinMD on Mon Oct 24, 2011 at 05:47:18 PM PDT

  •  Occupy Rent Now! (3+ / 0-)
    Recommended by:
    stillman, Justus, Randtntx

    Rent arises from privilege wherein government allows on person to do what others are forbidden from doing.  It is in some sense the economic value of the government taking from the many to allow a few a specialized power.  It is a measure of the freedom lost by everyone else.  Note that taxes on rent will not make the economy one bit less productive but will probably even make the economy more productive.  This can't be said of taxes that fall mainly on labor and capital such as we have today.

    The "land" of today includes broadcast spectrum, mineral wealth, phone company rights-of-way, fishing rights, and water rights.  The value of the broadcast spectrum alone has been estimated at between $500-700BB per year.  Or one third of the federal budget could be raised by charging for the airwaves that we technically own but have been given to a handful of corporations for free, minus the bribes to obtain them.  

    Another way of thinking about rent is that un-taxed rent is simply privatizing the right to collect taxes.  A small number of people get to rent out the earth to the rest of us, extracting most of our labor for.......what exactly?  Every economically productive human endeavor will require that you pay one of the resource owners for their privilege.  

    The day that progressives reclaim the idea of rent and rally around the purpose of shifting taxes from labor onto rent will be the day we begin to turn off of the awful course we are on now and onto a hopeful future.

    The Long War is not on Iraq, Afghanistan, or Iran. It is on the American people.

    by Geonomist on Mon Oct 24, 2011 at 06:02:40 PM PDT

  •  Another reason the term "job creators" (1+ / 0-)
    Recommended by:

    Frosts me. Every time I hear a Republican bitching about those "poor", overtaxed "job creators" I want to throw a brick through the television.

    Sadly, they've done a masterful job at pushing their propaganda... so much so that many Americans vote over and over against their own economic interests.

    Nicely done! T&R'd.

    This ain't no party. This ain't no disco. This ain't no foolin' around!

    by Snud on Mon Oct 24, 2011 at 07:49:24 PM PDT

  •  yay knowledge! (1+ / 0-)
    Recommended by:

    Most economics writing makes my brain turn to mush, but this was interesting and educational and I think I'll actually remember some of it :)

  •  Thank you for this excellent diary (1+ / 0-)
    Recommended by:

    I love it when I can learn something and your diary did that for me.

    "But much to my surprise when I opened my eyes I was the victim of the great compromise." John Prine

    by high uintas on Mon Oct 24, 2011 at 08:53:24 PM PDT

  •  You're Freaking Me Out (1+ / 0-)
    Recommended by:

    Now I feel guilty. I'm a "rentier" trying to live on investments that are managed by other people. In contrast, a friend of mine - a successful entrepreneur - invests all his capital in a business that employes people, creates value for customers, etc....

    If I took the money I have in investments and put it into trying to create wealth, it would certainly benefit more people - and I could stop squawking about excessive CEO pay.

    Nice diary.

  •  Yes, but how does someone retire socially (0+ / 0-)

    responsibly? I have savings and I would like the traditional 5% return, so I can live off of income and not have to worry about outliving my savings. Without reasonable interest/returns, SS is nothing more than a redistribution scheme: what goes in - admin costs = what goes out, with no growth. I don't want to buy stocks as I can't take a loss at this age. This is a need for simply earning money from savings, there is no way around it.

    I voted with my feet. Good Bye and Good Luck America!!

    by shann on Mon Oct 24, 2011 at 09:54:23 PM PDT

  •  Yes, they are parasites (1+ / 0-)
    Recommended by:

    Ticks on the necks of the working people.

  •  This is why the economy is not recovering (1+ / 0-)
    Recommended by:

    The Rentiers have caused new economic activity to be too expensive. The Rentiers have stuck their tentacles into everything and they get their share for any economic activity. They could do that in an overheated economy of the 1990s, but now their greed cause new economic activity to be too expensive. Products developed under this model cannot compete in a global market.

    I am looking for new manufacturing space for my small business. I just looked at a totally clapped out 1986 building, concrete block and bar joist construction, worn out with almost no insulation. The price on this building was not much less than the price at the real estate market peak. I'd have to factor the cost of purchasing the building into the cost pf my product. This is basically robbery, the owner of the building would walk away with a huge sum, having contributed nothing, simply taking advantage of a past speculative bubble, passing on trash that I would have to update. I would pay for this, my customers would pay, and my employees would pay.

    But this isn't limited to buildings and land. Almost every input to my business has a rentier with his tentacles out. Energy, materials, distribution are just some of the factors. And then my employees need large enough pay to afford a middle class lifestyle, and that is loaded with rentier overhead.

    Were stuck in a Catch 22. Speculation on real estate drove up prices to twice historic levels. That also drove up the rentiers' tax on us. Their tentacles swelled to twice normal size. If we devalue real estate, we can decrease the rentiers' cost to the economy, but we do so at enormous loss to the typical family and depression of the real estate market. I'd say get it done quickly, let real estate values plummet to 1/3 peak prices, lower rents, suck up the loss, and then let's get the economy going again under an new economic model.

  •  This is the most brilliant diary of the year. (1+ / 0-)
    Recommended by:

    Thank you for reminding us. I, too, read Adam Smith in college and had forgotten all about economic rent. I remembered that he abhorred the gentry and would periodically point this out, but without "economic rent" it was just an interesting idea.

    I saw another diary either yesterday or the day before mentioning economic rent in passing, but it did not really explain the concept. Maybe we should be passing out tracts on the issue at Occupy protests.

    And even though it all went wrong I'll stand before the Lord of Song with nothing on my tongue but Hallelujah! -Leonard Cohen .................@laurenreichelt

    by TheFatLadySings on Tue Oct 25, 2011 at 05:25:20 AM PDT

  •  How about a progressive capital gains tax? (1+ / 0-)
    Recommended by:

    Right now it's a flat rate, and lower than income tax.  Yet capital gains seems to be all about the unproductive financial "renting" described in this diary, whereas income tax generally targets more productive forms of economic activity.  I wouldn't want to over-tax small investors saving for retirement, but above a certain $ threshold, it seems like a higher capital gains tax would have great social value - encouraging the shift of capital away from gaming the system and into the "real" economy.  

    Pollution isn't free.

    by Frameshift on Tue Oct 25, 2011 at 06:30:35 AM PDT

    •  Two things; If the idea of taxing capital gains (0+ / 0-)

      is an attempt to dissuade capitalists from gambling and encourage actual investing, it has to be changed in both the rate of taxation and the term that an invest must be held in order to avoid it.

      If capital gains were taxed at a higher rate than earned income and the term increased to 5 or more years, this might be accomplished.

      But in the end, this is still simply patching over the basic flaw in the system. I think that there is a reason that both the Old Testament and The Holy Qur'an ban usury (maybe the New Testament does as well?). For this is the root of the evil that has overcome us all.

      "Those who can make you believe absurdities can make you commit atrocities." - Voltaire

      by Greyhound on Tue Oct 25, 2011 at 08:02:06 AM PDT

      [ Parent ]

  •  Thanks for this. (1+ / 0-)
    Recommended by:

    The breaks to those who contribute nothing has boggled my mind for years.

    Just because it's made up doesn't mean it isn't true.—Plan 10 from Outer Space

    by mofembot on Tue Oct 25, 2011 at 07:09:43 AM PDT

  •  In a way, rent is what you pay to be allowed (0+ / 0-)

    to use the land (or whatever resource) the owner/holder has that you need to nurture your capitalist idea, or just maintain your life and family. Because in theory, or historically, those land holders can drum up an army and boot you off.  In a democracy, where rule of law is respected, any conflict over land use should not come to a point of occupation/forced removal by private parties.  We think democracy and rule of law works for "the people," but it especially works to protect the landowners, by giving them government backed property rights with government paid for law enforcement, so they don't have to hire their own private armies.  I think this is a good idea, and better than the alternative--see history of goon squads.

    This is serious stuff.  You can call them parasites, but they hold the ground and cannot be removed easily or without a fight--all you can do is (try to) tax them, so that they are paying a share of the burden of protecting them and their titles (to property).

    Well, either that or fight them.  I believe that would be civil war.

  •  It's New Property Taxes Causing Rioting In Greece (0+ / 0-)

    People don't like that they lose their jobs or retire and their taxes don't go down with their income, so they riot.

    There’s always free cheddar in a mousetrap, baby

    by bernardpliers on Tue Oct 25, 2011 at 10:46:01 PM PDT

  •  A Tea Party perspective (0+ / 0-)

    At the risk of second guessing SCOTUS historical revisionism...

    The discussion about land is a canard.   In Maddog's historical context, the reference to land is analogous.  Europe has historically maintained the privileged classes through the assignment of land.  It would make sense for Adam Smith to use the metaphor.

    "Land" is merely a reference to the abstract notion of an assigned privilege that allows a participant to profit disproportionately to their contribution.  In other words. "Land" refers to offshore oil leases, access to Treasury Department windows, etc.  Not the homes and gardens of the Greek working class.

    Notwithstanding, by the time of the English industrial revolution, the crown had already extended its privileges through commercial monopolies and patronage.

    This situation particularly affected the original American colonies, who, isolated from European trade, were forced to do business with these English monopolies.  Our forebears well understood this concept of rentiers.  The original Tea Party, organized by merchant retailers, most likely had this specific complaint in mind.  In this light, the libertarian philosophy underlying America's foundation is a little more sympathetic than Grover Norquist would have you believe.

  •  Wealth Concentration (1+ / 0-)
    Recommended by:

    In a recent posting on Kos Swellsman presented a mathematical model that demonstrates wealth concentration.  Is there any connection?

    If I understand correctly, the Rentier is essentially an economic parasite that gets benefit for no contribution.  Even if that benefit is small, mathematically, the effect is an infinite rate of return.  Naturally having this advantage over other economic participants would eventually result in wealth concentration.  If I were capable of crunching the numbers, wouldn't I get the same outcome as Bouchard and Mezard?

    It would be nice to see this model backed up by empirical data and computer modelling (or something equivalent) to boot!

    •  I think there is a correlation (0+ / 0-)

      Rentiers make their money without much work.  So I am thinking there is a correlation.  Think of it as a yearly function.
      Person A makes 50,000
      Person B makes 100,000.

      Person B takes his extra 50,000$  and invests it in stock and-or real estate rental properties, Person A can only manage to save 10,000$ because they must eat and support his family.  Let's say both those investments  yeild a 5% return.
      That means next year
      Person A makes 50,000(salary) + investment(500$)
      Person B makes 100,000(salary) + investment(2,500$)

      That year they each reinvest their returns and the same from their sallary.  But already Person B made an extra 2,000 simply by 'Having' money.  The amount Person B makes continues to grow and grow until his rentier income dwarfs his salary.

      Eventually, Person B's income dwarfs person A's not because he's a better investor, but because he had more money to start with.  It shouldn't be a huge surprise to politicians and economists that those who get a head start, tend to stay ahead.  However, what's worse because of Rentier income and rent-seeking, those ahead get extra advantages.  It's a flaw in our current system, in my opinion.

      Our Dime Understanding the U.S. Budget

      by maddogg on Wed Oct 26, 2011 at 02:10:58 PM PDT

      [ Parent ]

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