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Homer Hoyt

Weld Carter: A Clarion Call to Sanity, to Honesty, to Justice  (1982)

In our economy, land is a ready object of speculation, and its value is constantly reflecting this evil. What happens in a rising market, the up side of a business cycle, is that investors see rising prices in land as indicative of a boom. Thereupon, they try to increase their holdings in such land, only to discover that their present returns will not pay for the present costs of land; the current price of land is not based on what the yield of that land is today, but on what it is projected to be two or three years from now. The difference tends to increase until a point is reached where the imarginal buyer of land suddenly finds himself unable to meet the rising costs to which he has subjected himself. With bankruptcy threatening him or having already been forced upon him, the land passes from his hands, and the market temporarily becomes overpriced. The bankruptcies increase, and ultimately land values are brought back to levels which represent current productivity, at which point the new boom will have started.

In 1933, the University of Chicago published a book by Homer Hoyt entitled One Hundred Years of Land Values in Chicago. This monumental study consists in 7 chapters, of which each of the first five describes one of the five major business cycles of the period in great detail.

What was so outstanding about Hoyt's book was its compelling confirmation of George's analysis, some thirty-five years after George's death in 1897! What is even more significant is Hoyt's handling of his data in chapters six and seven, the balance of the study. In these two chapters, he selects some sixteen events which not only are present in each cycle, but which occur in the same order in each cycle.

Mr. Hoyt concluded with the usual caveat: that the mere fact that this sequence is observed this many times does not guarantee that it will ever happen again; which is to say that we can never prove truth, we can only fail to disprove it.

The graphic rendition of one such cycle appearing on the following page was devised by John Monroe, the Director of the Commerce and Industry Division of the Chicago Henry George School of Social Science. For classroom use, Mr. Monroe had set up a large magnetized blackboard with a large inverted "U"; the sixteen items of the figure were described on sixteen magnetized chips, which were shuffled and distributed along the participants. The author once had a class of five company presidents; after defining the task, he never spoke during the exercise. The individual members had sole control as to the place on the curve where each chip belonged. It was thrilling to see and hear the discussion and the ultimate positioning of the individual chips. At completion, they matched precisely the historically-based results of Hoyt. Five converts, one of whom had been the President both of Chicago's Real Estate Board and of its Building Managers Association, as well as a trustee of the University of Chicago, walked out of that session.

A Case History of Five Major Booms and Busts 1830-1933

1. Machine techniques, production methods improved
2. Population begins to spurt up
3. Shortage of housing, office & commercial space first felt
4. Rents begin to rise.
5. Selling prices of old buildings begin to advance
6. Vacant lot purchases begin to rise
7. Rate of new construction begins to rise sharply
8. Credit eases to stimulate volume of new building
9. Rapid growth of population projected far into the future
10. Prices of tracts near settled areas advance rapidly to peak.
11. Large tracts subdivided beyond needs of immediate development
12. Lavish public expenditures
13. Rate of population growth falls off
14. Vacancies reappear
15. Rise in rents slackens
16. Volume of building construction at peak.
17. Asking prices of land advance in face of fewer land sales
18. Financial institutions continue loans on peak values in face of lessened construction
19. Holders of 2nd mortgages begin to foreclose with faith in 1st mortgages
20. Stock market crash
21. Unemployment mounts to peak; wages down
22. Increased movement of population to small city or farm; doubling up in city
23. Vacancies mount to peak in houses, apartments, offices, stores; industrial rents down
24. Interest charges high in proportion to net rents
25. Taxes high in proportion to net rents
26. Second mortgage holders wiped out in flood of first mortgage foreclosures
27. Bank failures mount; loaded with real-estate "frozen assets."
28. Volume of new building at bottom
29. Subdividing stopped; most vacant land not salable at any price
30. Construction costs at lowest point 

source: Homer Hoyt: One Hundred Years of Land Values in Chicago, Copyright University of Chicago Press, 1933

There are banks which have gone under supporting rising land prices, loaning money on land at speculative price levels. The answer is not to rescue those banks; it is to rid ourselves of the fundamental process of speculation in land values.

The wringing out of land speculation from the dynamics of economics will remove that unacknowledged offence which has so labored the economic profession and the public at large. As Henry George discovered and as Homer Hoyt so brilliantly depicted speculative land prices as the cause of this bitter cycle, so will its removal rid society of this hitherto hidden defect. It will put the land market on a current value basis and eliminate the terrible risks to which that market has always been subject in the past.

The reason for such speculation under the present practices is obvious. All products of labor are subject to increases or decreases depending on supply and demand. When an oversupply of any commodity begins to rear its ugly head, prices tend downward and production is thereby lessened until there is a contrary swing upward. Land, on the other hand, is of fixed supply. Nothing man does can increase or decrease the amount of land, and therefore that brake that operates in the field of production does not apply to land values and prices.

Just think of the social benefits that would accrue to a society that could, at a stroke, rid itself of the potential hazards to which all prior societies have been so subject. Production will then occur on a steadily rising level, demand increases as the well-being of society improves, new techniques develop, new inventions are made, and all these will be benefits to the community as a whole, and not just to the land-owners as in the past. ... read the whole essay



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