Ricardo's Law
by Fred Harrison

Ricardo's Law points lawmakers, policy analysts and social reformers towards a model of public finances that is fair and would deliver prosperity to everyone.

The hidden flaw in the market economy - and the reason why politicians cannot keep their grand promises - is revealed in Ricardo's Law.

"without a knowledge of [the law of rent], it is impossible to understand the effect of the progress of wealth on profits and wages, or to trace satisfactorily the influence of taxation on different classes of the community" David Ricardo

Governments transfer money from people on the lowest incomes to asset-rich investors. This is not the official purpose of the Welfare State: 'progressive taxes' are supposed to equalise people's life-chances. The clues to the truth emerge as the author traces the effect of taxes used to pay for public services.

The process has remained unrecognised because the transfer operates unseen through the 'invisible hand' of market forces. Harrison exposes how this works by analysing the property market. Owners of high-value homes are able to recoup what they pay in taxes through rising property prices. Thus they enjoy the tax-free use of schools and hospitals without breaking the law. Lower-income earners, and families that rent their homes, are condemned to carry the cost of infrastructure investments and public services that enhance the value of the homes of the rich.

The evidence is marshalled to answer four indictments. The author accuses the Tax State - the model on which the OECD countries base their policies - of being derelict in its duty to citizens. To test the evidence, the Anglo-American model of economics and politics is investigated.

Using Tony Blair's decade in power as the illustration, the author explains that this is a failure of governance rather than market failure - politicians have ignored the Law of Rent, also known as Ricardo's Law after the economist who provided the first scientific explanation of how it works.

Ricardo's Law points lawmakers, policy analysts and social reformers towards a model of public finances that is fair and would deliver prosperity to everyone.