Debate Magazine
From the FT: Land is a significant omission from economic models Sir, The debate about "the new economics" (editorial, November 13) fails to note the key omission from current models of the economy: the place of land as a separate factor of production. Land, defined as all natural resources, should not be regarded as capital, since it is not a result of production and, unlike capital, creates rent, largely from location values. Its omission from economic models has meant that land values have been ignored, even though these were the principal element in the house price rises that led to the creation of the subprime mortgages and other financial assets that caused the crisis of 2008. A new analysis to include land, both in micro and macro models, would bring the whole subject into line with observable facts, including also the huge disparities of wealth in modern economies. Brian J Hodgkinson, Oxford.
