Classical economists argued that labor and fixed assets require the costs necessary to include them in production. Labor must receive wages sufficient to cover the basic living wage, with a standard of living that tends to rise over time for personal investment in skills improvement, education and health. And capital investments will not be made without the prospect of making a profit.
The accounting of land and natural resources is more problematic. Production cannot be carried out without land, sunlight, air and water, but they do not require labor or capital costs. Such resources can be privatized by force, by legal right, or by power decision (sale by the state). For example, the richest Australian woman, Gina Reinhart, inherited from her exploration father the power to charge fees for access to an iron ore deposit he discovered. Much of her wealth has been spent on lobbying to prevent the government from taxing her windfall profits.
Classical economists have concentrated on this type of property claim in determining the equitable distribution of income from land and other natural resources among those who originally appropriated them, heirs, and tax collectors. It was about how much income should belong to the economy as a whole as its natural property, and how much should remain in the hands of the discoverers, those who appropriated, and their descendants. The resulting theory of economic rent was extended to monopoly rights and patents, such as those obtained by pharmaceutical companies to gouge prices.
The story of property ownership is a story of power and political intrigue, not the labor of its owners. The richest property owners tended to be the most rapacious - military conquerors, aristocratic landowners, bankers, bondholders, and monopolists. Their property rights to rent for land, mines, patents, or monopoly trade are legal privileges created by the legal system they control, but not by labor. In the Middle Ages, kings used to give land to their associates in exchange for their political loyalty.
This land acquisition process continued from colonial times to America's granting of property rights to railroad barons and various political gifts to supporters in most countries, often for bribes and other forms of corruption. More recently, in the 1990s, the post-Soviet economy gave political insiders the right to privatize oil and gas, minerals, real estate and infrastructure at low prices. Russia and other countries followed the recommendations of the United States and the World Bank, simply transferring property to individuals, as if this would automatically create an efficient (idealized) Western European-style free market.
In fact, it gave power to a class of oligarchs who received these assets through insider trading. The word "privatization" appeared to describe the actions of "red directors" who became rich by registering natural resources, utilities or factories in their own name, due to the high prices of shares they owned when selling large chunks to Western investors and withdrawing most of the proceeds from these shares for the border through capital flight (for Russia, about $ 25 billion annually since 1991). This neoliberal privatization closed the Cold War by destroying the Soviet Union's public sector and transforming it into a neo-feudal society.
The big problem facing post-Soviet countries is how to deal with the consequences of these kleptocratic takeovers. One of the ways could be their nationalization. This is politically difficult given the influence that huge wealth can buy. A more “market-oriented” solution is to keep these assets in current hands, but levy land or resource rents on them to recover some of the windfall for the good of society.
Without such a restructuring, all Vladimir Putin can do is informally “hard pressure” on Russian oligarchs to invest their income back home. Rather than resembling the productive ideal of Western Europe and the United States during their reformist and even revolutionary heyday of a century ago, post-Soviet economies are heading towards neoliberal rentier decadence.
Promotional video:
The question of how the economy can best recover from the consequences of such privatization did not arise today. Classical British and French economists have spent two hundred years pondering how to reclaim rents tied to such appropriations. Their solution was to introduce a tax on rent. Today's interested parties are fighting a fierce struggle to suppress the concept of economic rent and the associated distinction between earned and unearned income. This would save today's reformers the trouble of reinventing fair value methodology. The censorship or rewriting of the history of economic thought is intended to destroy the logic of taxing rent-bearing assets.
Fragment of the book by Michael Hudson "Kill the Master: How Financial Parasites and Debt Bondage Destroy the World Economy"
