Time to resurrect an old idea: Economic Rent [View all]

[dhpgetsit]

Many conservative economists claim to be staunch followers of Adam Smith. They shout slogans such as “Supply and Demand!” “Capitalism”! “ “Let the markets work!” However, for anyone who actually read Adam Smith, you would note that the “invisible hand” was not his only observation of the inner workings of capitalism. Adam Smith recognized that many in the economy were making gobs of money, but weren’t contributing anything. He was referring to what was eventually called “economic rent”.

Rent-seeking is any income that is unearned. An alternative definition is “profit without a corresponding cost of production”. “Economic Rent” can come from ownership of land and just “renting” it out for money. It can also come from collecting so much capital that a firm now has a monopoly and can set the price independent of supply\demand considerations, It can be from government monopoly granting, control of other “land” like our rivers, broadband spectrum, or “mineral rights” of land. It can come from control of financial assets like capital gains, dividends, and interest on loans(especially usury). It can also come from political favors from the government.

Today lower capital gains tax rates are given as a reward to "rent-seekers." To me this is one of the great injustices of our time.

http://www.ourdime.us/1147/concepts/time-to-resurrect-an-old-idea-economic-rent/