For Polanyi, Whenever I May Find Him

Let’s just say Santayana was right. As history repeats itself in a whirlwind of populist movements around the world, many of us are scrambling for answers. Populist uprisings often follow (or coincide with) extended periods of extreme inequality in wealth and income. The usual populist response—expressed at the polls in more democratic countries or more violently in less democratic ones—includes the frustration of the “common” people with their economic circumstances and with the “elites” they hold responsible. In the US, this frustration is often summed up by the price of eggs or housing.

In this era of uncertainty, some people spend their time doomscrolling, looking for comfort or rational explanation. My version of doomscrolling is reading economic theory. I’ve found guidance in three books by my favorite sages: Progress and Poverty by Henry George, The Theory of the Leisure Class by Thorstein Veblen, and The Great Transformation by Karl Polanyi. These relatively obscure authors offer profound insights into our current sociopolitical situation. The first two, writing at the birth of modern populism, help us to understand economic and social structures that promote and preserve inequality. The third, writing during the Second World War, explains newer structures that undergird our more recent vintages of inequality and populism.

Henry George’s Progress and Poverty (1879) explores the paradox of explosive wealth generated by the Industrial Revolution and concurrent stubborn and increasing poverty. George argues that economic progress can lead to greater inequality if the benefits of economic growth are disproportionately captured by the wrong people—in his view, landowners who idly accumulate wealth.

Because land, unlike labor and capital, is a finite resource, its value increases due to population and economic growth, not from the efforts of owners. This leads to higher rents and land prices, benefiting landowners at the expense of others. Meanwhile, a disproportionate burden is placed on productive members of society—labor and capital—through income taxation. George proposed taxing away land value and redistributing the unearned income to the rest of society. This tax would also discourage land speculation and make land more accessible for productive use.

The Theory of the Leisure Class (1899) explains the tendency of inequality to worsen over time through social structures. For Veblen, the wealthy display their status through extravagant spending he dubbed conspicuous consumption. Members of the lower classes, attempting to deny their status, try to adopt these consumption standards through emulative consumption that they can only afford through the accumulation of debt. This false consciousness leads them to identify with the wealthy, despite having little chance of joining their ranks.

In modern society, these consumption patterns are most readily visible in housing markets. Over the last six decades (at least), we’ve seen housing prices outstrip incomes. Meanwhile, around-the-clock reporting on the housing choices of the elite has sent American households repeated messages about new “minimum standards” for housing—like granite countertops, stainless steel appliances, or engineered flooring. In the same period, the average size of a new home grew from less than 1,300 to more than 2,200 square feet.

Today, one-third of American households are cost burdened (paying more than 30 percent of pretax income on housing). In 2001, total housing debt was 62 percent of household disposable income. In 2024, it was 74 percent. The Great Transformation (1944) describes new forces in the modern market economy that create and perpetuate inequality. Polanyi argues that the rise of market liberalism, which prioritizes self-regulating markets, led to significant social dislocation and inequality. He contends that markets are not naturally self-regulating and require social and political institutions to function effectively.

Polanyi’s analysis centered on fictitious commodities—land, labor, and money—which are not produced for sale but nonetheless are treated as commodities in a market economy. Polanyi argues that land, labor, and money are integral to human existence and social stability, yet they are commodified in a market system. Because these elements are not inherently designed for market exchange, treating them as commodities results in social dislocation and environmental degradation as the market fails to account for their intrinsic value and the broader implications of their use.

When land is treated as a commodity, it is subject to market forces that prioritize profit over social and environmental considerations, with profound impacts on society and the environment. Socially, it leads to the displacement of communities and the loss of traditional livelihoods. As land prices rise, marginalized groups are forced to relocate, disrupting social networks and cultural practices. This displacement exacerbates social inequalities and contributes to urban sprawl and the fragmentation of communities.

In the built environment, commodification treats housing more as an investment than a basic human need, driving speculation and price inflation and producing housing crises characterized by rising homelessness and housing insecurity. The unentitled are disproportionately affected, leading to increased social inequality and the erosion of community bonds. The commodification of housing undermines the social fabric of communities, shifting focus from creating livable, cohesive neighborhoods to maximizing returns on investment.

Today, amid what is arguably the worst housing crisis since the Great Depression, investors are snapping up the existing housing stock at a blistering pace. These three works provide a framework for understanding not only the persistence of inequality in modern society, but also the spontaneous rise of a new populism. As economic and political power gets concentrated in the hands of a few, the inevitable cycle of worsening inequality inspires populist revolts. George shows how economic progress itself can lead to unequal distribution of wealth. By taxing productive members of society (labor and capital) and allowing landowners to capture unearned income, we support a system that perpetuates inequality and political unrest. Veblen demonstrates how social norms and cultural practices reinforce class distinctions. The lower classes are encouraged to emulate the consumption habits of the wealthy by accumulating debt. Ultimately, their inability to manage that debt inspires revolt.

Polanyi highlights the dangers of relying on self-regulating markets to address social needs. Markets, left to their own devices, exacerbate inequality and social dislocation. He introduces the concept of the double movement, wherein society pushes back against the negative effects of market liberalism. Populism is an example of this double movement.

So where does this leave us? It is not inequality per se that leads to the spontaneous combustion of populism. Every society in human history has tolerated some inequality. It is the level of inequality that matters—and the current level of income and wealth inequality, which also concentrates political power in the hands of a few, is unprecedented. As wealth and power become concentrated, political institutions become less responsive to the needs of the broader population, whose lives are increasingly difficult. This leads to disillusionment and unrest.

Inequality has significant social consequences, including increased crime rates, poorer health outcomes, and a recognition that intergenerational upward mobility is ending. The social fabric of communities is weakened as economic disparities grow, leading to greater social fragmentation and unrest. It is no mystery why the price of eggs or housing sparks new populist movements. It is a predictable response to the failure of political and market systems to address inequality.

Buried deep inside of all this analysis is land (you knew it was coming). Whether it is idle landowners siphoning the benefits of economic growth, speculators trading houses like commodities and further inflating housing prices, or a real estate industry building demand for homes that are bigger than families need and saddling them with unsustainable debt to live in them, land is at the bottom of everything.

There is only one way out of an inequality crisis: redistribution. And what better place to start than with a land tax that slowly taxes away all the unearned value of land and attenuates the benefits of speculation in real estate.

We can start with a steep land value increment tax that claims a significant share of the windfalls of speculation—the shorter the duration of ownership, the higher the rate of taxation. We can follow that with new property tax structures that include huge homestead exemptions combined with significantly higher tax rates. This will diminish the returns for those hoping to convert owner-occupied homes to single-family rentals (sadly, a new term of art). If we really want to redistribute the unearned wealth at the root of wealth inequality, we’ll have to find a way to claim the unrealized gains made by those who buy and hold land. If you ask Thomas Piketty (another favorite sage), a progressive tax on real estate (e.g., the more valuable the property, the higher the tax rate) is a good first redistributive step to address growing inequality across the globe.

The thing about recovering unearned land value is that it doesn’t matter when you start. But if you don’t start, inequality will only get worse, because property values almost always increase faster than wages, and that difference has been accelerating. History shows us that if we don’t act to address inequality before it hits a tipping point, the results are almost unimaginable.

Perhaps the biggest benefit of redistributing unearned land value is the concomitant redistribution of political power. And who knows, maybe it will reduce the price of eggs.

Lead image credit: altmodern via Getty Images/E+.