By Michael Hudson
This piece was first published at University of Missouri, Kansas City economist Michael Hudson’s website. See the rest of the Insider’s Economic Dictionary here.
Gains from Trade: A euphemism for trade dependency resulting from the specialization of production between food-surplus nations and food-deficit countries, and the parallel polarization between high-technology and low-wage producers. Originally coined by free-trade advocates, the term is now used primarily by the agriculturally protectionist economies of North America and Western Europe. Under Ricardian trade theory, the gains from trade are measured by the amount of labor and related costs to importers of producing similar products at home. Left out of account are foregone improvements in agricultural and industrial productivity. Gains-from-trade theorizing thus encourages passivity and reinforces existing production patterns, economic polarization and debt dependency. (See Colonialism, Washington Consensus and World Bank.)
General Theory: The title Keynes chose for his General Theory of Employment, Interest, and Money (1936) has caused much confusion. The word “general” reflects the prestige given by Albert Einstein’s general theory of relativity. Economists over the centuries have used the term in a less formal sense, to refer to typical categories that are not necessarily all-inclusive, or categories that are purely hypothetical and abstract rather than realistic. This is especially true of free-trade economists and monetarists projecting their categories onto the world as if they were universally valid. Ignoring the economy’s free lunches, their theorizing was not sufficiently general to include the financial dimension of debts or property and the incompatibility of these rentier claims with the economy’s ability to pay.
George, Henry (1839-97): An American journalist and author of Progress and Poverty (1879) urging the nationalization of land or, subsequently, the Single Tax on its rental income. His writings did much to inspire a generation of reformers and muckrakers exposing the oil and railroad monopolies and their economic rent, as well as the insider real-estate dealings that had created many of the largest American fortunes.
Whereas the Physiocratic impôt unique was rationalized on the ground that only nature and agriculture were productive, George followed David Ricardo in pointing out that groundrent was unearned. Taxing the land would not remove it from production, but would collect for the public the value created by the community in the form of prosperity and public infrastructure. George’s writings proved counter-effective, however, by frightening neoclassical economists from analyzing economic rent, prompting them to conflate land with capital and rent with profit so as to avoid addressing the issues raised by George, Karl Marx and John Stuart Mill. Politically, George was self-defeating in turning to capital for support, hoping that his anti-labor stance would endear his ideas to industry and finance. His followers ended up fighting socialists even more than the landed interest.
Gibson Paradox: A condition in which rising interest rates are accompanied by rising prices rather than imposing price deflation on the economy. Mainstream monetarist theory claims that higher interest rates will reduce the attractiveness of new direct investment and employment, and hence will slow aggregate demand by diverting spending away from markets for goods and services to pay creditors. But higher interest rates also raise costs, headed by real estate and industry financed on credit. (See Stagflation.)
Government: From the Greek root cyber, meaning “to steer” (as in cybernetics), this social control function historically has been provided by public institutions. The modern and indeed, ancient role of government is to promote security, equality under the law, economic stability and fairness, and to provide legal redress against injurious acts so as to prevent economic polarization from downgrading the status of citizens. Public regulation aims at maintaining a level playing field via the rule of law, maintaining checks and balances between the private and public sectors, between producers, merchants and consumers, and between creditors and debtors.
The financial sector and its neoliberal supporters (see Chicago School, Free Market) seek to limit government authority in order to monopolize it for themselves, to prevent public regulation of monopoly rent, and to shift the public tax burden off their own shoulders. (See Oligarchy, Postmodern Economy, Regressive Taxation and Tax Shift.)
Groundrent: The formal term for that portion of rent paid simply for the use of property rights in land, especially in Britain where landownership often is separate from the ownership and use-rights of buildings and other capital improvements. Since the Norman Invasion of 1066, British landlords have charged the groundrent in the form of long-term leases separately from what the property user may pay for the buildings or other improvements. Such groundrent is a purely institutional property payment. As such, it is only a portion of the overall property rent. (See Economic Rent, which also is taken by monopolists in many sectors outside of agriculture.)
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