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Surely land doesn’t matter any more?

The argument goes like this…

Land does not determine production of non-organic goods. Since we discovered fossil fuels we have had a mineral energy source that can produce huge amounts of energy and does not have to be grown, like wood has to. With an unlimited supply of energy and materials (for the last two hundred years and maybe another 50) the West was able to industrialise, and land as a factor of production no longer mattered. How else was Japan able to become an industrial giant, when it is a small mountainous island with little of its own raw materials.

The argument about land and housing may be applicable to South-East England, but America? And America is where the trigger for the financial collapse came.

There is not a single human activity which does not require a suitable site from which to operate. Every street busker know that, but not, seemingly, the expert economists who think location does not matter. Consider land values in Manhattan or the City of London or Central Tokyo, which are prime locations for financial services. They are astronomical – thousands of times more valuable than agricultural land. A substantial element of share values consists of land value. Tescos, Sainsburys, etc – their value is in their freeholds which produce a stream of rental income which allows them to weather bad patches. Woolworths went down ultimately because they no longer had the cushion of land rent in their income stream – otherwise they would have been purchased and asset-stripped.

The financial collapse was the collapse of a debt-fuelled land price bubble. The significance of land needs to be taken into account. It probably won’t be so this recession will run its course over about five years, if we are lucky, and set us on track for the next one, around 2025. What a way to run economies – and all ultimately because the experts and politicians are working to nonsensical theories.