The Economic Cycle of Growth and Recession

The phenomenon of industrial recession strikes the western world with a regular monotony. Observe too how the timing is roughly the same all over the world. Could this not indicate a common cause?

Land is the foremost necessity of production. It is also of limited supply. Some land sites have greater productive potential than others. Hence in an expanding economy, where land is privately held with minimal obligations, there is an increasing demand for land. This will be reflected in rising land title prices. Anticipating further increases, transactors buy ahead of time. This accelerates the price rises; an even greater quantity of money is needed to accommodate it.

In such a situation, land title prices rise at a faster rate than any other item of economic importance. This happened during the 1980's. People borrowing to buy land titles create an upward pressure on commercial interest rates. On a rising land market, purchasers can afford to pay higher, and increasing rates. Lenders of course seek the greatest increase the market can bear.

But competitive, productive industries are often marginal industries. They carry most of the tax burden levied on income, and show a return just above costs. Eventually, the increasing interest rates will be so high, that they cannot be absorbed without showing a loss. The most marginal industries begin to falter, then fail, and the downturn flows throughout industry.

Factories close, farmers become bankrupt, people are thrown out of work, incomes both public and private shrink, and the economy enters a downward spiral.

As was clearly evident in the 1980's, land titles rose so high that the return from them does not warrant their cost. Demand for the titles declines and their prices fall. Interest rates follow, as the former buoyant influence of rising land title prices no longer holds them up, decreasing to within the capacity of efficient industry to pay. But by this time, a lack of confidence has pervaded the economy, people stop spending. It takes time for confidence to return. In addition, where governments have borrowed heavily, the debts incurred, including interest, still have to be met and act to retard recovery.

Under present conditions, it is inevitable that the cycle of growth, then recession will repeat. But the speed of modern production means that the cycles accelerate, and will continue to repeat with ever increasing rapidity and damage inflicted upon those who can least afford it.

There is a cure. If the ground rent (site revenue) of land was collected for government expenses, there could be no land speculation. Interest rates would remain within the capacity of efficient industry to pay. The site revenue received by government could be used to abolish taxes on more productive activity.

Land price is the prime initiator of the economic cycle.1


  1. "The Power In The Land" by Fred Harrison gives further insight into this topic.

Copyright (c) 1995 Geonomic Services <>