“The greatest financial reform of modern times”

What a wonderful thing a secondhand bookshop is. This is from the preface to the English edition of Socialistic Fallacies by Yves Guyot translated from the French and published in 1910 which I picked up off the shelf on the day before Christmas. I have linked to an online edition.

Until 1906 the Liberal and Democratic party in Great Britain placed in the forefront of its programme the relief of the taxpayer by the reduction of the National Debt and the decrease of taxation. It prided itself on its sound finance. . . .

That was until 1906. But then there was this.

From the time when the Socialists try to make the State provide for the livelihood and the happiness of all, the Liberal Government bases its existence upon the increase of expenditure. The Budget shews a deficit. So much the better! Taxation is no longer imposed solely for the purpose of meeting expenditure incurred in the general interest. It is looked upon as an instrument for the confiscation of the rents paid to landlords and of the interest paid to holders of stocks and shares, as a means of absorption by the State of unearned income and unearned increment. . . . [My emphasis]

Lloyd George is the Liberal leader but he can see the fiscal handwriting on the wall. So this is what we get.

The Budget for 1909-1910 introduced by Mr. Lloyd George is an application of this portion of the Socialist programme. No doubt he states that the scale of taxation proposed by him is a modest one, but he is placing the instrument in the hands of the Socialists. When they have once grasped it, they will know how to use it. . . .

And do they not know it. This is not just anyone but the opening speaker to the TUC Congress who has recognised how fiscal disciplines have now been loosened so that even more than a century later, we still see the same policies as one of the core elements of socialist policy.

Mr. Shackleton, M.P., in opening the Trade Union Congress on September 6th, 1909, referred to it as ‘a Budget which will rank as the greatest financial reform of modern times.’ [My emphasis again]

The interest to me was to find that deficit finance has been in the socialist playbook going well back before Keynes. And it is interesting to see that it was identified as a socialist idea as far back as 1910. I had somehow always assumed that it was an innovation of the depression that had followed the use of deficit financing during World War I. Not so. It is instead the very essence of socialist policy making and goes back to Lloyd George’s Liberal budget of 1909-10. Keynes was himself a Liberal. What Keynes did was provide an economic rationale, as flimsy as it might be, for the policies that were anyways one of the cornerstones of socialist policy. He thus introduced into economic theory one of the essential elements of the left.

It has always been something of a puzzle how impossible it is to debate deficit financing and the value of public spending amongst economists. Public sector spending and the related deficits are sacrosanct. Economic theory is permeated with a left agenda (see Free Market Economics, Chapter 15) which is why such debates take on a religious character rather than being a straightforward discussion of what works and what does not. The Keynesian faith-based community will virtually forbid any of this to be discussed and so such thoughts persist and continue even though the evidence is now overwhelming that public spending and deficit finance cannot and do not achieve what they are supposedly intended to achieve.

But if such policies are “looked upon as an instrument for the confiscation of the rents paid to landlords and of the interest paid to holders of stocks and shares, as a means of absorption by the State of unearned income and unearned increment”, then it is clear that such policies work very well indeed.

An interesting sidelight on Mr Shackleton, M.P. whose name must have been familiar to all when the book was written. This is from Wikipedia:

Shackleton became chairman of the Trades Union Congress in 1906, maintaining his powerful position in the trade union movement. In 1910, Winston Churchill invited him to join the civil service and Shackleton left Parliament. He quickly rose to the rank of Permanent Secretary in the new Ministry of Labour and is considered the first man from a working class background to rise to such a senior position.

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30 Responses to “The greatest financial reform of modern times”

  1. C.L.

    The interest to me was to find that deficit finance has been in the socialist playbook going well back before Keynes. And it is interesting to see that it was identified as a socialist idea as far back as 1910.

    Goes back a lot further than that. Heard of ‘bread and circuses’?

  2. Rafe

    Churchill was impressed by our wage-fixing system, which presumbaly morphed into the British “wages boards” under the hand of Shackleton.

  3. Jon at Wa

    Shortly followed by the ‘war to end all wars’.
    Let this be a warning for the direction the oligarchy of professional party selected politicians is steering.

  4. Julie Novak

    Wonderful pickup from the secondhand bookstore, Steve!

    Guyot was a pivotal figure in the lineage of French classical liberalism, the golden period of which arguably spanned from the mid-nineteenth century until Guyot’s demise in 1928. Very underappreciated among English-language readers, unfortunately.

    If you ever get the chance to read an online, or rare hard, copy of Guyot’s “Where and Why Public Ownership has Failed,” written 100 years ago, it will remind you of the many bumbling Australian government-owned enterprises you analysed whilst in the PC!

  5. Token

    Goes back a lot further than that. Heard of ‘bread and circuses’?

    Too true, one gets the idea that Benjamin Franklin’s quote was created based upon his experience resisting such thinking…

    When the people find that they can vote themselves money, that will herald the end of the republic.

  6. C.L.

    When the people find that they can vote themselves money, that will herald the end of the republic.

    And the end has occurred. America the idea is finished.

  7. brc

    I would guess that the corollary of this is the desire to tax energy consumption, which happened to find a scientific rationale in the global warming fanatics.

    I’m certain a search back through the agitations of the socialist musings would find the idea of taxing energy at the input level would date back far further than the global warming scare. In fact I’m sure the proposed solution for global cooling would have been taxation of energy.

  8. Gavin R Putland

    Roads are made, streets are made, railway services are improved, electric light turns night into day, electric trams glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains — and all the while the landlord sits still. Every one of those improvements is effected by the labour and at the cost of other people. Many of the most important are effected at the cost of the municipality and of the ratepayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is sensibly enhanced.

    … The tax on the increment of land begins by recognising and franking all past increment. We look only to the future; and for the future we say only this: that the community shall be the partner in any further increment above the present value after all the owner’s improvements have been deducted. We say that the State and the municipality should jointly levy a toll upon the future unearned increment of the land. A toll of what? Of the whole? No. Of a half? No. Of a quarter? No. Of a fifth — that is the proposal of the Budget. And that is robbery, that is plunder, that is communism and spoliation, that is the social revolution at last, that is the overturn of civilised society, that is the end of the world foretold in the Apocalypse! Such is the increment tax about which so much chatter and outcry are raised at the present time, and upon which I will say that no more fair, considerate, or salutary proposal for taxation has ever been made in the House of Commons.

    Winston Churchill, speech delivered at the King’s Theatre, Edinburgh, July 17, 1909, reported by the Times and reprinted in Liberalism and the Social Problem (London: Hodder and Stoughton, 1909).

  9. Gavin R Putland

    When the people find that they can vote themselves money, that will herald the end of the republic.

    So what happens when the land owners discover that they can vote themselves infrastructure projects that increase the value of their land, subsidized by those who don’t own it?

  10. JimD

    Great find Steve. Thanks for a good read. Guyot identifies a disease and a century later it’s gradually developed to plague proportions and needs urgent treatment. Snag is Sinc Ds IPA mates remedy (75&25 tips to Abbott) for a gangrenous toe seems to be amputation at the neck.

  11. JC

    Putland

    Troughing up to the government is wrong, but do you actually think anyone here would buy the shit you pouring out from your keyboard that rent seeking is even 5% spent for those that live in Moochervile. You dishonest rattlesnake, Gavin.

    I’ll repeat so you don’t go off in a tangent… rent seeking needs the kibosh too.

  12. JimD

    P for Putland, P for Plague ?.

  13. Gavin R Putland

    JC asked:

    do you actually think… that rent seeking is even 5% spent for those that live in Moochervile.

    Well, I don’t know where the slumlords of Bludgerville actually live, but I know what would happen to their rents if the bludgers didn’t get the dole and consequently had to work for less.

  14. papachango

    the lineage of French classical liberalism

    …something that started with Voltaire or possibly earlier. So what happened to it – as there’s noty a single one left in the country and hasn’t been for several decades.

  15. Tel

    So what happens when the land owners discover that they can vote themselves infrastructure projects that increase the value of their land, subsidized by those who don’t own it?

    Easiest choice is just get universal suffrage and thus outnumber the landlords. Beyond that, there’s what is known as the “Roosevelt Method” which is easy enough to get your head around: promise a balanced budget, sound currency, and cutbacks to government spending — then deliver the exact opposite of everything you promise.

    Remember, sincerity is everything, one you can fake that your success is guaranteed.

  16. Tator

    Gavin R Putland,
    consider this concept, the vast majority of totally welfare dependant family would actually live in public housing, therefore your comment “I don’t know where the slumlords of Bludgerville actually live, but I know what would happen to their rents if the bludgers didn’t get the dole and consequently had to work for less.” is basically a moot point. It is the people who work and rent housing that is the private rental market. Not too many private landlords would actually rent out to welfare recipients.

  17. JC

    Interesting thinking Putland. We need welfare to fund who? ALP supporting developers?

  18. Louis Hissink

    as there’s noty a single one left in the country and hasn’t been for several decades.

    Migrated to Belgium?

  19. James of the Glens

    Gavin R Putland no doubt has the execrable wind “farms” in mind.

    One of the biggest scams ever to blight this and other countries.

  20. Gavin R Putland

    Tel wrote:

    Easiest choice is just get universal suffrage and thus outnumber the landlords.

    My reasoning applies to land owners, including owner-occupants. Which helps to explain why we have policies designed to ensure that the majority of voters “own” their homes: as soon as they’re paying interest instead of rent, they think they’ve thrown in their lot with the Astors. And as far as infrastructure is concerned, they have.

  21. manalive

    Putland
    Where I live we already have taxes based on assessed rental value in the form local government rates, as well as state government land tax and stamp duty on transfers.
    Developers of residential land already pay for the provision of infrastructure, which is a marketing advantage anyway.
    I know where you’re coming from viz. anachronistic physiocrats like Henry George.

  22. JimD

    Too many loose screws and nuts minus bolts and washers on this thread

  23. johno

    what is known as the “Roosevelt Method” which is easy enough to get your head around: promise a balanced budget, sound currency, and cutbacks to government spending — then deliver the exact opposite of everything you promise.

    Sounds very much like the Krudd/Gillard Method!

  24. Alfonso

    There is no way back. Not even after the next Keynesian induced collapse will the fix remain long, the desire to live on other people’s money is too strong in mortal man.

  25. MattR

    manalive,

    You will also find that most of those homeowners are recipients of some sort of government benefit as well. Pretty much all that have families would.

    The ‘homeowners voting themselves infrastructure’ idea is complete nonsense. EVERYONE benefits from infrastructure, even the homeless!

  26. Jannie

    Deficit financing was SOP in Britain long before Marx or socialism became a European meme. Debt was the method used by Britain to pay for survival – their resistance to Napoleon (and substantially fund Portugal, Spain, Belgium even Austria and Prussia to fight). It enabled the Anglo/Brits, half the size of the French, to mobilise twice as much capital as the French. But the Brit debt levels went up to around 200% of GDP.

    Luckily this occurred just as the Industrial Revolution was taking off in England, the long economic boom allowed for real economic growth in the 19thC which could easily service the Napolenic borrowings and reduce their relative value. Similarly, the massive post WW2 debts were made manageable by the long boom through to the 1970s.

    Deficts were used to pay for survival, or productive infrastructure. But deficits to pay for optional current consumption, with no prospect of vigorous economic growth, will end in default.

  27. wreckage

    The appreciation in property value from specific infrastructure projects is nothing compared the the appreciation from organic urban growth, ie., the increase in demand.

    Also most infrastructure, with the exception of roads, is paid for by the landowner or the developer. This applies to power, water, and telephone services in most areas, and AFAIK to sewers in new developments, often even to council roads into and out of new suburbs. So, what exactly are the landowners getting for free, and how often does appreciation for services outstrip appreciation for location/demand, from which stamp duty and capital gains tax are taken?

    Dot repeatedly asserts that the tax/regulatory cost for a new home is in the vicinity of 40% of the total value. Unless you can demonstrate that he is out by a factor of 2, “landlords” are paying ridiculous amounts of tax for close to zero benefit.

  28. wreckage

    You will also find that most of those homeowners are recipients of some sort of government benefit as well. Pretty much all that have families would.

    Mainly because that’s fairer and nicer than tax cuts.

  29. Gavin R Putland

    Wreckage wrote:

    The appreciation in property value from specific infrastructure projects is nothing compared the the appreciation from organic urban growth, ie., the increase in demand.

    Be that as it may, the current land owners, as current land owners, contribute nothing to the increase in demand.

    Also most infrastructure, with the exception of roads, is paid for by the landowner or the developer.

    Not if it’s being built in established suburbs. Concerning new suburbs, I oppose up-front infrastructure charges on developers because they break the nexus between the charge and the uplift in the land value, so that there’s nothing to prevent the charge from delaying development and pushing up prices. A charge levied explicitly on the capital gain (net of development expenses, of course) would solve that problem.

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