Review of the Book:

Wheels of Fortune: Self-funding Infrastructure
and the Free Market Case for a Land Tax

by Fred Harrison

Edward J. Dodson

[Reprinted from GroundSwell, March-April 2006]

In his new book, Wheels of Fortune, Fred Harrison has taken the gloves off in his campaign to stimulate a national dialogue in Britain on how government raises revenue. The reader learns why Britain's countryside has succumbed to sprawling development, why land prices have escalated at the expense of profitability for manufacturing concerns, and that the nation's planners have failed miserably to recognize and collect the economic value created by expenditures on public infrastructure.

There is no subtlety to be found in Fred Harrison's oft-expressed views, and once again he makes use of his journalistic talents to present a cogent case for his ultimate objective -- the elimination of taxation of incomes derived from the production of goods and the providing of services, to be replaced by the collection of "rents" associated with locations. While his perspective is universal in application, this book takes aim at the constitutional heart of Britain's socio-political arrangements and institutions by examining the growth, expansion and troubles of the nation's transit system. He boldly declares: "A new paradigm is needed for the post-industrial society. ...At its cutting edge would be the freedom of people to invest in their country's infrastructure." He means to educate and enrage a citizenry too long victimized by selective reporting and failed policies.

As I read Wheels of Fortune, another writer similarly motivated comes to mind -- the economist and political philosopher Max Hirsch. At the pre-dawn of interventionist government, Hirsch warned in his book Democracy Versus Socialism against the planned economy as a response to entrenched monopoly privilege:

"The growth of a social organism, like that of all other organisms, is conditioned by the flexibility of its structures. Where permanency of structure has been attained, the growth of the organism ceases; where growth ceases, decline begins. The permanency and want of flexibility of structures which have been shown to be inevitable in the socialist State would, therefore, not only lead to the cessation of all further social progress, but to the loss of much of the progress achieved in the past. Stagnation, rapidly to be followed by retrogression, therefore, would be the lot of the nations, who, lacking the courage to undergo the strenuous exertion which the wellbeing of the race demands of them, would seek an inglorious repose in the enervating embrace of Socialism."

From Fred Harrison, the reader is reminded of Britain's chaotic experimentation with the planned economy, followed by an unleashing of pent-up market forces following the return of the Conservatives and Margaret Thatcher. "Planning was supposed to bring order to the economy, efficiency in the use of resources and equity for those who had been excluded from the riches of the nation," he writes. The actual results were rather different, although, according to Fred Harrison, altogether predictable. Wheels of Fortune reads like a mystery novel, with twists and turns in a story that begs to be told. Had I the opportunity to review the manuscript in draft form, I would have recommended to Fred that he include an overview of Britain's post-Second World War economic troubles. This background information would be a valuable addition to the story. Readers need to be reminded that the war left Britain's government essentially bankrupt, the nation's infrastructure severely damaged and its hegemony among exporting nations challenged by the industrial might of the United States. As historian Roy Douglas wrote, "Almost immediately {when} the war ended the British Government came to the conclusion that it was vital to negotiate a large loan from the United States." And, in 1945, a fundamental objective of U.S. foreign policy was to champion the independence of peoples subjected to Old World -- including British -- imperial domination. Britain's situation seemed desperate. With Franklin Roosevelt dead and Churchill out of power -- and the Soviet threat not yet fully revealed -- U.S. negotiators pressed on their British counterparts a distinctly American vision of the post-war world:

"In the debates which ensued in Parliament the arrangements were challenged by Socialists who contended that they were incompatible with economic planning, and by Conservatives who saw them as incompatible with Britain's imperial position."

Wheels of Fortune explains how Britain's leaders could have reduced the nation's dependency on aid from the United States while taking a more constructive path toward effective social democracy. The war established the framework for an activist national government. The free market economist Friedrich Hayek wrote in 1944, "it was already fairly obvious that England herself was likely to experiment after the war with the same kind of policies which ... had contributed so much to destroy liberty elsewhere." An analysis of a government White Paper prepared in 1945 provides the details:

"Representing a practical expression of expansionist policy, the White Paper argues that the State must assume responsibility in the future for maintaining outlay, with the budget determined by the employment situation rather than by fiscal considerations. In pursuit of this program, the Government, it is contended, will avoid an unfavorable foreign balance by increasing the volume of exports beyond the level achieved before this war, limit dangerous swings in expenditure on private investment, plan the timing and volume of public investment so as to offset unavoidable fluctuations in private investment, and check and reverse the decline in expenditure on consumers' goods which normally follows a reduction in private investment."

The irony is that the analysis offered by Fred Harrison in Wheels of Fortune was one held in 1945 by a vocal minority who had been fighting against entrenched privilege and conventional wisdom for more than half a century. At critical moments in the political debates over essential reforms, the nation had plunged into long and costly wars, strengthening the role of the planning establishment when peace finally returned. The great example of this is expressed in the person of Winston Churchill, who early in his political career attacked land monopoly as the fundamental cause of poverty in Britain, but abandoned this principled campaign to defend the status quo against the nationalization measures advanced by Labour. Although calls continued to come from the political wilderness for renewed attention to "the land question," what emerged after 1945 was nothing close to enlightened fiscal policy; rather, the British people were subjected to the Town and Country Planning Act of 1947. "The man apparently best placed to give practical effort to his views on land matters was Lewis Silkin, the new Minister of Town and Country Planning," wrote Roy Douglas. Mitigation rather than solution was to be the governmental approach to "the land question."

Somewhat remarkably, an impatient British electorate returned the Conservatives and Winston Churchill to office in the autumn of 1951. Yet, the architecture of the planned economy was already very much in place and accepted as inevitable by the Conservatives. The political contest was now less about principle than about whose interests would be advanced by government. As early at 1946, Churchill voiced his concerns over the Government's actions:

"What rouses our regret and growing resentment is first, that the Socialist Ministers are so much wrapped up in their party doctrines that they cannot give a fair chance to our national interests and prosperity. Secondly, that they pour upon us an endless drizzle of insult and abuse."

"Look where you will, we are suffering a needless decline and contraction at a time when we had the right to brighter days. ...Nowhere is there the drab disheartenment and frustration which the Socialist Party have fastened on Britain."

By 1949, the nation's railways, canals, electricity, natural gas and steel industries were nationalized and brought under the control of governing boards. Despite -- or, perhaps, because of -- these measures, Britain's economy continued to decline. Nonetheless, in November of 1948, the minister of supply, George R. Strauss, declared in the House of Commons: "It is unthinkable that we should revert to any comparable private ownership system. Indeed, responsible leaders of industry today themselves reject the idea and agree that private ownership must be tempered by State control." Churchill, who at least at one time had understood and championed the cause of true fiscal reform, called for rather conventional counter-cyclical measures: "a reduction in expenditure, a substantial relief in ... direct taxation, widespread relaxation of needless and vexatious controls and interferences..., the ... lifting ... of further nationalization..."

By leaving "the land question" unresolved, Britain continued to squander its internal resources in a desperate attempt to delay the dissolution of its imperial presence and to join the United States and Soviet Union as a possessor of nuclear military power. Currency devaluations stimulated exports but raised consumer prices at home. Failed attempts at price controls were matched by ineffective incomes policies. Heavy taxation on producers of goods and services, an aging infrastructure, inflexible trade unions and a frustrating state bureaucracy combined to destroy Britain's competitiveness in a new global economy.

Long before the publication of Fred Harrison's first book -- The Power in the Land -- in 1983, he had been challenging successive Governments and their self-described policy experts to come to terms with the dysfunctional nature of Britain's land markets, caused by the concentrated ownership of land, caused, in turn, by the private appropriation of almost all of the rent (i.e., the location value) of the nation. Fred asked why, after two decades of extensive social planning, Britain's citizens remained poorly housed. Recessions returned every twenty years like clockwork, while the price of land continued to rise and periodically skyrocketed beyond the affordability of most businesses -- and residents in need of decent, affordable housing. What was the best that Government experts had to offer? Land planners championed the taxation of gains in land value associated with approval of development proposals. In opposition, M.P. Boyd-Carpenter argued that the solution to Britain's housing shortage "lies in a radical reform of the planning system so as to expedite it in its work so that land is not sterilized in the interstices of the planning machine, but is brought forward in adequate supply to meet the demand, and in that way and in that way only, will we succeed in getting the price of land held, and perhaps reduced." As Fred Harrison concludes in Wheels of Fortune, "[t]he calculations of planners rely on leaps of faith disguised by a spurious statistical precision." The underlying problem is their unwillingness to invest energy where most needed, namely in the study of land markets and the economic consequences of different policies of taxation. What Fred Harrison delivers is the evidence indicting government as the protective agent of entrenched, landed wealth:

"Taxes on wages and savings are regressive tools for transferring money from people at the bottom end of the income scales (who tend not to own land) to people in the middle and higher income brackets (who tend to own land). This is the process of transforming earned income into windfall wealth via investment in infrastructure."

A primary vehicle for achieving this transfer of wealth in Britain has been the taxation of the general public to pay for the extension and maintenance of the nation's transit system. Fred Harrison provides a detailed plan to remedy this destructive and unfair approach to the funding of public goods. "The way in which a community uses and distributes the rent of land is the key to achieving optimum efficiency and the solution to problems that have hitherto defeated governments," he declares. This reviewer, who has spent over thirty years working in the real estate finance and development field, agrees fully. The mistakes of the past must not be continually repeated. Wheels of Fortune is a primer for citizens on how to reverse the ill effects of more than half a century of wrong-headed policies. The solutions put forward by Fred Harrison are long overdue.

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