Cuba gets it half-wrong

What kind of financial crisis could America have had without private collection of land rent?  If homebuyers were able to purchase a house, but the land came practically free with an obligation to pay a land value tax, how bad could the mortgage mess have been?  Not very bad, evidently, since mortgages would have been much smaller and quite unlikely to go under water (because the price of houses can’t decline nearly as much as that of the land under them).

Veranda in CubaWhich is why I’m not pleased to learn that Cuba will allow the private purchase and sale of homes (including, apparently, both structure and land).  There will be limits (only Cuban citizens and permanent residents, and only two homes per person) “to prevent speculative buying and the accumulation of large real estate holdings,” tho one wonders how long-lived and how effective they’ll be.

There’s no question that Cuba’s struggling economy needs freer trade, and moves to allow buying and selling of cars, and an increase in the permitted size of private businesses, tend in that direction.   It’s unfortunate that the Cuban powers that be don’t seem to recognize that land is different, since by definition it will never be produced no matter how free or prosperous the economy.

“The new law requires that all real estate transactions be made through Cuban bank accounts so that they can be better regulated, and it sets a tax rate of 8 per cent of the assessed value.”  The need for more government revenue is one possible explanation for this change.  Another is that Cuban elites anticipate, after further easing of land ownership restrictions, the ability to accumulate at low prices sites which will become valuable in the future.  The least likely is that Cuban authorities just haven’t thought about what land is and its role in political economy.

 

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7 Responses to “Cuba gets it half-wrong”

  1. liberal says:

    I noticed an article on the same topic in the deadtree edition of the _Washington Post_.

    It’s actually quite possible they don’t understand that land is different. Their ideology harkens back to Marx, after all. And while I’m not sure Marx didn’t understand that land is different, he certainly objected to Henry George’s take on the whole thing.

    • Will says:

      Liberal-

      Marx understood perfectly well that land is different.

      This is from Notes on James Mill, which I think was written in 1848:

      “Needless to say, Mill, like Ricardo, denies that he wishes to impress on
      any government the idea that land rent should be made the sole source of
      taxes, since this would be a partisan measure placing an unfair burden on a
      particular class of individuals. *But* – and this is a momentous, insidious
      but – but the tax on land rent is the only tax that is not*harmful* from the
      standpoint of political economy, hence the only *just tax from the point of
      view of political economy*. Indeed, the one doubt raised by political
      economy is rather an attraction than a cause for apprehension, namely, that
      even in a country with an ordinary number of population and or ordinary size
      the amount yielded by land rent would exceed the needs of the government.”

      One of the “immediate” demands in the Communist Manifesto is the nationalization of land.

      Volume 3 of Capital has a lengthy and very interesting discussion of land rent. I wish that I had some of the red meat quotes from it on hand.

      It may be due to Marx’s emphasis on capital that the Cubans are going this route. But it is not due to his lack of understanding of rent theory.

      • Administrator says:

        Thanks for that, Will. I once heard that Marx had in Vol 3 of Capital endorsed a land value tax. But when I browsed thru it (and the prior volumes too), altho I did find discussion of land rent, I found nothing that I could construe as an endorsement. What you have provided is significant.

        I suppose the issue is not whether Marx understood rent, but whether Cubans understand Marx.

        • Will says:

          You’re quite welcome! I found that passage in the original work, and I don’t believe it has been widely noted. I have found another passage, also from Marx’s early economic writings, in which he describes the land-value tax as “the mature conclusion of Ricardian political economy,” or something to that effect. Unfortunately, I didn’t record it. In Engels’s work Anti-Duhring he treats rent theory at length, including what he purports is an obvious and commonsense interpretation of Quesnay’s Tableau Economique, and I suspect that it may shed more light on Marx’s thinking on the matter. However, the framing of this work as a bitter and unrelenting attack on an obscure 1860s socialist makes it really hard going.

          I’ve also collected a number of quotations from Paul Samuelson endorsing the LVT as obviously the best tax. I’m told there is endorsement in Schumpeter as well, but I have only found him casually dismissing it as unlikely to raise much revenue.

          You chose a great name for this blog, by the way.

        • Will says:

          I don’t mean to be an annoyance, but here is the passage I alluded to earlier (in the section of Theories of Surplus Value on the Physiocrats):

          “Hence also, in the conclusions which the Physiocrats themselves draw, the ostensible veneration of landed property becomes transformed into the economic negation of it and the affirmation of capitalist production. On the one hand, all taxes are put on rent, or in other words, landed property is in part confiscated, which is what the legislation of the French Revolution sought to carry through and which is the final conclusion of the fully developed Ricardian modern political economy.By placing the burden of tax entirely on rent, because it alone is surplus-value — and consequently any taxation of other forms of income ultimately falls on landed property, but in a roundabout way, and therefore in an economically harmful way, that hinders production — taxation and along with it all forms of State intervention, are removed from industry itself, and the latter is thus freed from all intervention by the State. This is ostensibly done for the benefit of landed property, not in the interests of industry but in the interests of landed property.”

          These passages are not exactly “endorsements” of land-value taxation, but what I find interesting is the implication that such a tax is *obviously* the most attractive tax, in a capitalist framework.

          And, yeah, it’s unlikely that most members of the Cuban government know anything about this.

      • liberal says:

        But my main point is that Marx objected to Henry George’s normative political economy.

        George wanted to tax rents to the greatest extent practicable, but understood that it’s wrong to euthanize _productive_ private capital.

        In Marx’s prefered system, there would be no private capture of rents, but nor would there be private ownership of capital.

        There are direct quotes of Marx’s disapproval of George’s program.

        • Will says:

          That’s true, of course. If Henry George had lived earlier, Marx would probably have written a tract specifically denouncing him and we’d have more clarity on the subject (though the truth is probably just that Marx just denounced all rivals — it was his m.o.). It is true that the brunt of Marx’s argument does obscure the difference between rent and profit, which I think was your point.

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