Many of the troubles in modern society derive from a widespread failure to understand the workings of economic processes. Often this failure is just as conspicuous among experts as among people who claim no knowledge of the subject. Everything is so complicated today that anybody looking at a country like Britain will probably feel confused. Yet it is a great help to understand how a really simple economy works. It then becomes possible to appreciate how the processes which take place in that simple economy bear on the complex society we see around us. We even begin to see answers to problems which many experts have missed.

A simple economy

A great many years ago, Daniel Defoe told the story of Robinson Crusoe, shipwrecked on his island: a story which is not entirely fictional, as it is based on the experiences of an actual castaway. The story brings out sharply the way in which a simple economy works. Crusoe was fortunate in that the island on which he landed was fertile, and he could obtain a plentiful supply of provisions from his ship, conveniently grounded in nearby shallow water. That helped to get him started, but supplies from the ship soon ran out, and couldn't keep him going for all the period he stayed on the island.

The island and the other natural resources on it are examples of what economists call "land". Much confusion has arisen because people use that word "land" in different ways, but it's a good idea to define it clearly and stick to that definition. Here the word is used to mean all kinds of natural resources, but it excludes everything produced by human activity. By definition, therefore, no human being has made "land"; but without it nobody can live. If Robinson Crusoe wanted to avail himself of the "land" he had to do something about it. He might collect fruit to eat, or wood to make fires. The effort which he expended to collect and make use of the fruit or wood is what economists call "labour". That effort was partly physical, but it also had a considerable mental element. No matter; mental as well as physical effort is "labour" to the economist. What he produced by his labour: the fruit and wood he piled up for future consumption: is called "wealth". As time went on, Crusoe began to apply his "labour" to "land" not only to satisfy his immediate needs but to create more durable things to help his solitary existence. He built himself a hut; he made clothes for himself. These also were examples of "wealth". To make "wealth", two things are always necessary: "land" and "labour".

Some of the "wealth" which Crusoe created for himself was of a special kind. He made snares to catch fish, and ladders for climbing trees to reach fruit. This "wealth" was used to create more "wealth": it was an example of what economists call "capital". A lot of people use the word "capital" to mean money, but that wasn't what it meant to Robinson Crusoe. He had no money, and money would have been of no use to him any rate, but he created "capital" for himself. All "capital" comes from "labour" acting on "land". That applies not just to Crusoe on his island but to the most complex "capital" of modern society: things like, say, complicated machines, or factories. If the "land" is available, and the "labour" is available, "capital" can be created in almost limitless quantities.

Man Friday arrives.

Eventually Man Friday arrived on the island. Robinson Crusoe soon taught Friday to address him as "Master", and proceeded to treat Friday as his inferior. At this point our sympathy with Crusoe begins to evaporate. Why was Crusoe able to make Man Friday acknowledge him as "Master"? For one overriding reason, surely. Because Crusoe claimed ownership not just of the clothes and hut and ladders and fish-nets and so on which he had made by his own efforts, but of the island itself. In other words, not because Crusoe was a "capitalist" - the owner of "capital" goods which he had made by his own efforts - but because Crusoe was a "landlord" - because he claimed the right to the island, which he could enforce, if necessary, by using guns which he had collected from the ship. He could say to Man Friday, "Either you stay on the island on my terms, treating me as master, or you get off the island." As Man Friday had nowhere else to go, this was no choice at all.

When more people arrived later, Crusoe's arrogance went even further. The author makes Crusoe say, "The whole country was my own mere property, so that I had an undoubted right of dominion ... my people were perfectly subjected. I was absolute lord and lawgiver." But let's be fair to Robinson Crusoe. He could very properly claim ownership of the various things he had made, and the stores of food, fuel and so on which he had collected by his own effort. Yet he had no moral title to the island, which neither he nor anybody else had made.

Complex societies.

Is there a lesson here for much more developed societies than Crusoe's island? The source of Crusoe's authority over Man Friday, and the ultimate source of injustice and exploitation in complex societies too, is not the possession of "capital" but the possession of "land". People have every moral right to the "capital" which they have made by their own efforts. They have no special right to "land", which nobody has made. Yet without "land", life is impossible.
But how, in a society as complicated as modern Britain, can we vindicate that principle and give everybody an equal right to "land"? Most of the "land" has things like buildings or crops on it: things which somebody has produced, and over which the producer has a moral right of ownership. It would be absurd to allow everybody to wander at will over all that "land", into people's houses and factories, over their fields with growing crops. What is possible, however, is to say that everybody who wants a monopoly of a little piece of the country should pay the rest of us for that piece of "land", in the form of an annual tax, based on the value of the site alone, which would discount all the "improvements" like buildings and crops which the owner or his predecessors have put on the land.

"What!" says somebody, "Another tax!" Don't we all pay enough in taxes already?" Yes, we certainly do pay enough in taxes! But a tax on land values would replace other taxes. It would mean that we would pay much less in taxes like income tax and VAT. Isn't it more sensible to tax people on the basis of something which they enjoy, but have not created, rather than taxing them on the basis of what they have earned, or the things they want to buy with the money they have earned?

Conclusion.

We can all learn a lot from Robinson Crusoe. The essential economics of production are the same in complicated societies as they are in simple ones. A lot of the trouble today is that people are missing the wood for the trees. It is a good idea to go back to first principles.

Further reading

Ulla Grapard and Gillian Hewitson (eds) Robinson Crusoe: the Construction and Deconstruction of Economic Man (London: Routldge, 2007)

Stuart Sim, Interrogating an Ideology: Defoe's Robinson Crusoe, British Journal for 18th Century Studies, 10.2 (1987) 163-73.

Geoffrey Sill, Crusoe in the Cave: Defoe and the Semiotics of Desire. 18th Century Fiction (1994)

Pat Rogers, Robinson Crusoe (London: Allen and Unwin, 1979)