Time for a Copernican Revolution in Economics

Pre Copernican astronomy is a good metaphor for mainstream economic analysis and debate in our times. The discussion of the state of the UK Welfare System on BBC Radio 4 today is a case in point. Pundit after pundit gave their views on what had gone wrong and how the system needed to be tweaked or shaken up. But because all were ignorant of the underlying economic forces driving the problem their theories were about as convincing as 15th century star gazers attempting to explain the movements of celestial objects.

State welfare programmes ameliorate the worst effects of poverty in advanced societies. These redistributive policies serve to mask the continuing underlying
problem of poverty without addressing its root economic cause. The welfare system is needed to plug the gap between economic output and the returns to labour. The gap itself is caused by the diversion of resource rents, created by the community, into private hands. A true grasp of economics starts with the recognition of land as one of the three discrete factors of production. Once this is understood observed economic phenomena suddenly begin to make a lot more sense.

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