The phenomena cited by Harvey represent opportunities for rent extraction. Neoliberals claim that such special privileges and expropriation of hitherto public assets promote economic efficiency. Classical free marketers defined the rents they yielded as neither earned nor necessary for production to occur. They were a post-feudal overhead.
The year 1690 usually is treated as the takeoff point for the classical distinction between earned and unearned wealth and its income stream. At issue then was the contrast between real wealth created by labor, and special privileges — mainly post-feudal overhead — from which society could free itself and thus lower its cost structure.
John Locke’s guiding axiom was that all men have a natural right to the fruits of their labor. A corollary to this logic was that landlords have a right only to what they themselves produce, not to exploit and appropriate the labor of their tenants:
Though the earth and all inferior creatures be common to all men, yet every man has a property in his own person… The labour of his body and the work of his hands, we may say, are properly his. Whatsoever then he removes out of the state that nature hath provided and left it in, he hath mixed his labour with, and joined to it something that is his own, and thereby makes it his property. … For this labour being the unquestionable property of the labourer, no man but he can have a right to what that is once joined to, at least where there is enough and as good left in common for others.
Locke wrote here as if most rent derived from the landlords’ own labor, not that of their tenants or the economy at large. He also did not distinguish between the original conquerors or appropriators and their heirs. It was as if the benefit of earlier labor (or conquest) should be inherited down through the generations. Yet Locke’s labor theory of property and wealth ownership set the stage for distinguishing between the portion of land rent that resulted from its owner’s expenditure of labor and capital investment, and what was received simply from ownership rights without labor effort. This contrast guided tax reform down through the Progressive Era in the early 20th century.
Despite his conflation of former and present landholder’s labor, Locke’s exposition initiated a centuries-long discussion. By the 19th century the rising price of land sites was seen as occurring independently of effort by landlords. The rent they charged reflected prosperity by the rest of the economy, not their own effort. Economists call this kind of gain a windfall. It is like winning a lottery, including in many cases the inheritance lottery of how much wealth one’s parents have.
Classical economists argued that labor and capital goods require a cost necessary to bring them into production. Labor must receive wages sufficient to cover its basic subsistence, at living standards that tend to rise over time to sustain personal investment in better skills, education and health. And capital investment will not take place without the prospect of earning a profit.
More problematic are accounting for land and natural resources. Production cannot take place without land, sunlight, air and water, but no labor or capital cost is necessary to provide them. They can be privatized by force, legal right or political fiat (sale by the state). For example, Australia’s richest person, Gina Rinehart, inherited from her prospector father the rights to charge for access to the iron ore deposit he discovered. Much of her wealth has been spent in lobbying to block the government from taxing her windfall.
Classical economists focused on this kind of property claim in defining a fair distribution of income from land and other natural resources as between their initial appropriators, heirs and the tax collector. At issue was how much revenue should belong to the economy at large as its natural patrimony, and how much should be left in the hands of discoverers or appropriators and their descendants. The resulting theory of economic rent has been extended to monopoly rights and patents such as those which pharmaceutical companies obtain to charge for their price gouging.
The history of property acquisition is one of force and political intrigue, not labor by its existing owners. The wealthiest property owners have tended to be the most predatory — military conquerors, landed aristocracies, bankers, bondholders and monopolists. Their property rights to collect rent for land, mines, patents or monopolized trade are legal privileges produced by the legal system they control, not by labor. Medieval land grants typically were given to royal companions in return for their political loyalty.
This land acquisition process continued from colonial times down through America’s land grants to the railroad barons and many other political giveaways to supporters in most countries, often for bribery and similar kinds of corruption. Most recently, the post-Soviet economies gave political insiders privatization rights to oil and gas, minerals, real estate and infrastructure at giveaway prices in the 1990s. Russia and other countries followed American and World Bank advice to simply give property to individuals, as if this would automatically produce an efficient (idealized) Western European-style free market.
What it actually did was to empower a class of oligarchs who obtained these assets by insider dealings. Popular usage coined the word “grabitization” to describe “red company” managers getting rich by registering natural resources, public utilities or factories in their own name, obtaining high prices for their shares by selling large chunks to Western investors, and keeping most of their receipts for these shares abroad as flight capital (about $25 billion annually since 1991 for Russia). This neoliberal privatization capped the Cold War by dismantling the Soviet Union’s public sector and reducing it to a neofeudal society.
The great challenge confronting post-Soviet economies is how to undo the effects of these kleptocratic grabs. One way would be to re-nationalize them. This is difficult politically, given the influence that great wealth is able to buy. A more “market oriented” solution is to leave these assets in their current hands but tax their land or resource rent to recapture portions of the windfall for the benefit of society.
Without such restructuring, all that Vladimir Putin can do is informal “jawboning”: pressuring Russia’s oligarchs to invest their revenue at home. Instead of making the post-Soviet economies more like the productive ideal of Western Europe and the United States in their reformist and even revolutionary heyday a century ago, these economies are going directly into neoliberal rentier decadence.
The problem of how an economy can best recover from such grabitization is not new. Classical economists in Britain and France spent two centuries analyzing how to recapture the rents attached to such appropriations. Their solution was a rent tax. Today’s vested interests fight viciously to suppress their concept of economic rent and the associated distinction between earned and unearned income. It would save today’s reformers from having to reinvent the methodology of what constitutes fair value. Censoring or rewriting the history of economic thought aims at thwarting the logic for taxing rent-yielding assets.