is Different from Capital
Most honors graduates in economics from our best colleges
and universities would be hard-pressed to tell you that land is not a subset
of capital. (Even
the fellow who espouses ESOPs — employee stock ownership programs — expressly
fails to make the distinction.) But Henry George pointed out how different
the entire natural creation) is from things which are manmade. And therein
lies the root of some of our most serious social problems.
That sounds so simple that you may doubt its accuracy or the seriousness
of its effects. I did, and looked for answers everywhere else. Finding none,
I eventually found my way to these ideas. (Clarence
Darrow suggested that we're
all that way.)
Henry George: The Common Sense of Taxation (1881
To consider the nature of property of this kind is again to see a clear
distinction. That distinction is not, as the lawyers have it, between movables
and immovables, between personal property and real estate. The true
distinction is between property which is, and property which is not, the
result of human
labor; or, to use the terms of political economy, between land and wealth. For, in any precise use of the term, land is not wealth, any more than labor
is wealth. Land and labor are the factors of production. Wealth is such result
of their union as retains the capacity of ministering to human desire. A
lot and the house which stands upon it are alike property, alike have a tangible
value, and are alike classed as real estate. But there are between them the
most essential differences. The one is the free gift of Nature, the other
the result of human exertion; the one exists from generation to generation,
while men come and go; the other is constantly tending to decay, and can
only be preserved by continual exertion. To the one, the right of exclusive
possession, which makes it individual property, can, like the right of property
in slaves, be traced to nothing but municipal law; to the other, the right
of exclusive property springs clearly from those natural relations which
are among the primary perceptions of the human mind. Nor are these mere abstract
distinctions. They are distinctions of the first importance in determining
what should and what should not be taxed. ... read
the whole article
Henry George: The Condition of
Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)
As to the right of ownership, we hold: That —
Being created individuals, with individual wants and powers, men are individually
entitled (subject of course to the moral obligations that arise from such
relations as that of the family) to the use of their own powers and the enjoyment
of the results. There thus arises, anterior to human law, and deriving its
validity from the law of God, a right of private ownership in things produced
by labor — a right that the possessor may transfer, but of which to
deprive him without his will is theft.
This right of property, originating in the right of the individual to himself,
is the only full and complete right of property. It attaches to things produced
by labor, but cannot attach to things created by God.
Thus, if a man take a fish from the ocean he acquires a right of property
in that fish, which exclusive right he may transfer by sale or gift. But
he cannot obtain a similar right of property in the ocean, so that he may
sell it or give it or forbid others to use it.
Or, if he set up a windmill he acquires a right of property in the things
such use of wind enables him to produce. But he cannot claim a right of property
in the wind itself, so that he may sell it or forbid others to use it.
Or, if he cultivate grain he acquires a right of property in the grain his
labor brings forth. But he cannot obtain a similar right of property in the
sun which ripened it or the soil on which it grew. For these things are of
the continuing gifts of God to all generations of men, which all may use,
but none may claim as his alone.
To attach to things created by God the same right of private ownership that
justly attaches to things produced by labor is to impair and deny the true
rights of property. For a man who out of the proceeds of his labor is obliged
to pay another man for the use of ocean or air or sunshine or soil, all of
which are to men involved in the single term land, is in this deprived of
his rightful property and thus robbed. ....
God’s laws do not change. Though their applications may alter with
altering conditions, the same principles of right and wrong that hold when
men are few and industry is rude also hold amid teeming populations and complex
industries. In our cities of millions and our states of scores of millions,
in a civilization where the division of labor has gone so far that large
numbers are hardly conscious that they are land-users, it still remains true
that we are all land animals and can live only on land, and that land is
God’s bounty to all, of which no one can be deprived without being
murdered, and for which no one can be compelled to pay another without being
robbed. But even in a state of society where the elaboration of industry
and the increase of permanent improvements have made the need for private
possession of land wide-spread, there is no difficulty in conforming individual
possession with the equal right to land. For as soon as any piece of land
will yield to the possessor a larger return than is had by similar labor
on other land a value attaches to it which is shown when it is sold or rented.
Thus, the value of the land itself, irrespective of the value of any improvements
in or on it, always indicates the precise value of the benefit to which all
are entitled in its use, as distinguished from the value which, as producer
or successor of a producer, belongs to the possessor in individual right.
To combine the advantages of private possession with the justice of common
ownership it is only necessary therefore to take for common uses what value
attaches to land irrespective of any exertion of labor on it. The principle
is the same as in the case referred to, where a human father leaves equally
to his children things not susceptible of specific division or common use.
In that case such things would be sold or rented and the value equally applied.
It is on this common-sense principle that we, who term ourselves single-tax
men, would have the community act.
We do not propose to assert equal rights to land by keeping land common,
letting any one use any part of it at any time. We do not propose the task,
impossible in the present state of society, of dividing land in equal shares;
still less the yet more impossible task of keeping it so divided.
We propose — leaving land in the private possession of individuals,
with full liberty on their part to give, sell or bequeath it — simply
to levy on it for public uses a tax that shall equal the annual value of
the land itself, irrespective of the use made of it or the improvements on
it. And since this would provide amply for the need of public revenues, we
would accompany this tax on land values with the repeal of all taxes now
levied on the products and processes of industry — which taxes, since
they take from the earnings of labor, we hold to be infringements of the
right of property.
This we propose, not as a cunning device of human ingenuity, but as a conforming
of human regulations to the will of God.
God cannot contradict himself nor impose on his creatures laws that clash.
If it be God’s command to men that they should not steal — that
is to say, that they should respect the right of property which each one
has in the fruits of his labor;
And if he be also the Father of all men, who in his common bounty has intended
all to have equal opportunities for sharing;
Then, in any possible stage of civilization, however elaborate, there must
be some way in which the exclusive right to the products of industry may
be reconciled with the equal right to land.
If the Almighty be consistent with himself, it cannot be, as say those socialists
referred to by you, that in order to secure the equal participation of men
in the opportunities of life and labor we must ignore the right of private
property. Nor yet can it be, as you yourself in the Encyclical seem to argue,
that to secure the right of private property we must ignore the equality
of right in the opportunities of life and labor. To say the one thing or
the other is equally to deny the harmony of God’s laws.
But, the private possession of land, subject to the payment to the community
of the value of any special advantage thus given to the individual, satisfies
both laws, securing to all equal participation in the bounty of the Creator
and to each the full ownership of the products of his labor. ...
Your use, in so many passages of your Encyclical, of the inclusive term “property” or “private” property,
of which in morals nothing can be either affirmed or denied, makes your meaning,
if we take isolated sentences, in many places ambiguous. But reading it as
a whole, there can be no doubt of your intention that private property in
land shall be understood when you speak merely of private property. With
this interpretation, I find that the reasons you urge for private property
in land are eight. Let us consider them in order of presentation. You urge:
1. That what is bought with rightful property is rightful property. (RN,
paragraph 5) ...
2. That private property in land proceeds from man’s gift of reason.
(RN, paragraphs 6-7.) ...
3. That private property in land deprives no one of the use of land. (RN,
paragraph 8.) ...
4. That Industry expended on land gives ownership in the land itself. (RN,
paragraphs 9-10.) ...
5. That private property in land has the support of the common opinion of
mankind, and has conduced to peace and tranquillity, and that it is sanctioned
by Divine Law. (RN, paragraph 11.) ...
6. That fathers should provide for their children and that private property
in land is necessary to enable them to do so. (RN, paragraphs 14-17.) ...
7. That the private ownership of land stimulates industry, increases wealth,
and attaches men to the soil and to their country. (RN, paragraph 51.) ...
8. That the right to possess private property in land is from nature, not
from man; that the state has no right to abolish it, and that to take the
value of landownership in taxation would be unjust and cruel to the private
owner. (RN, paragraph 51.)
2. That private property in land proceeds from man’s gift of reason. (6-7.)
In the second place your Holiness argues that man possessing reason and
forethought may not only acquire ownership of the fruits of the earth, but
also of the earth itself, so that out of its products he may make provision
for the future.
Reason, with its attendant forethought, is indeed the distinguishing attribute
of man; that which raises him above the brute, and shows, as the Scriptures
declare, that he is created in the likeness of God. And this gift of reason
does, as your Holiness points out, involve the need and right of private
property in whatever is produced by the exertion of reason and its attendant
forethought, as well as in what is produced by physical labor. In truth,
these elements of man’s production are inseparable, and labor involves
the use of reason. It is by his reason that man differs from the animals
in being a producer, and in this sense a maker. Of themselves his physical
powers are slight, forming as it were but the connection by which the mind
takes hold of material things, so as to utilize to its will the matter and
forces of nature. It is mind, the intelligent reason, that is the prime mover
in labor, the essential agent in production.
The right of private ownership does therefore indisputably attach to things
provided by man’s reason and forethought. But it cannot attach to things
provided by the reason and forethought of God!
To illustrate: Let us suppose a company traveling through the desert as
the Israelites traveled from Egypt. Such of them as had the forethought to
provide themselves with vessels of water would acquire a just right of property
in the water so carried, and in the thirst of the waterless desert those
who had neglected to provide themselves, though they might ask water from
the provident in charity, could not demand it in right. For while water itself
is of the providence of God, the presence of this water in such vessels,
at such place, results from the providence of the men who carried it. Thus
they have to it an exclusive right.
But suppose others use their forethought in pushing ahead and appropriating
the springs, refusing when their fellows come up to let them drink of the
water save as they buy it of them. Would such forethought give any right?
Your Holiness, it is not the forethought of carrying water where it is needed,
but the forethought of seizing springs, that you seek to defend in defending
the private ownership of land!
Let me show this more fully, since it may be worth while to meet those who
say that if private property in land be not just, then private property in
the products of labor is not just, as the material of these products is taken
from land. It will be seen on consideration that all of man’s production
is analogous to such transportation of water as we have supposed. In growing
grain, or smelting metals, or building houses, or weaving cloth, or doing
any of the things that constitute producing, all that man does is to change
in place or form preexisting matter. As a producer man is merely a changer,
not a creator; God alone creates. And since the changes in which man’s
production consists inhere in matter so long as they persist, the right of
private ownership attaches the accident to the essence, and gives the right
of ownership in that natural material in which the labor of production is
embodied. Thus water, which in its original form and place is the common
gift of God to all men, when drawn from its natural reservoir and brought
into the desert, passes rightfully into the ownership of the individual who
by changing its place has produced it there.
But such right of ownership is in reality a mere right of temporary possession.
For though man may take material from the storehouse of nature and change
it in place or form to suit his desires, yet from the moment he takes it,
it tends back to that storehouse again. Wood decays, iron rusts, stone disintegrates
and is displaced, while of more perishable products, some will last for only
a few months, others for only a few days, and some disappear immediately
on use. Though, so far as we can see, matter is eternal and force forever
persists; though we can neither annihilate nor create the tiniest mote that
floats in a sunbeam or the faintest impulse that stirs a leaf, yet in the
ceaseless flux of nature, man’s work of moving and combining constantly
passes away. Thus the recognition of the ownership of what natural material
is embodied in the products of man never constitutes more than temporary
possession — never interferes with the reservoir provided for all.
As taking water from one place and carrying it to another place by no means
lessens the store of water, since whether it is drunk or spilled or left
to evaporate, it must return again to the natural reservoirs — so is
it with all things on which man in production can lay the impress of his
Hence, when you say that man’s reason puts it within his right to
have in stable and permanent possession not only things that perish in the
using, but also those that remain for use in the future, you are right in
so far as you may include such things as buildings, which with repair will
last for generations, with such things as food or fire-wood, which are destroyed
in the use. But when you infer that man can have private ownership in those
permanent things of nature that are the reservoirs from which all must draw,
you are clearly wrong. Man may indeed hold in private ownership the fruits
of the earth produced by his labor, since they lose in time the impress of
that labor, and pass again into the natural reservoirs from which they were
taken, and thus the ownership of them by one works no injury to others. But
he cannot so own the earth itself, for that is the reservoir from which must
constantly be drawn not only the material with which alone men can produce,
but even their very bodies.
The conclusive reason why man cannot claim ownership in the earth itself
as he can in the fruits that he by labor brings forth from it, is in the
facts stated by you in the very next paragraph (7), when you truly say:
Man’s needs do not die out, but recur; satisfied today, they demand
new supplies tomorrow. Nature, therefore, owes to man a storehouse that shall
never fail, the daily supply of his daily wants. And this he finds only in
the inexhaustible fertility of the earth.
By man you mean all men. Can what nature owes to all men be made the private
property of some men, from which they may debar all other men?
Let me dwell on the words of your Holiness, “Nature, therefore, owes
to man a storehouse that shall never fail.” By Nature you mean God.
Thus your thought, that in creating us, God himself has incurred an obligation
to provide us with a storehouse that shall never fail, is the same as is
thus expressed and carried to its irresistible conclusion by the Bishop of
God was perfectly free in the act by which He created us; but having created
us he bound himself by that act to provide us with the means necessary for
our subsistence. The land is the only source of this kind now known to us.
The land, therefore, of every country is the common property of the people
of that country, because its real owner, the Creator who made it, has transferred
it as a voluntary gift to them. “Terram autem dedit filiis hominum.” Now,
as every individual in that country is a creature and child of God, and as
all his creatures are equal in his sight, any settlement of the land of a
country that would exclude the humblest man in that country from his share
of the common inheritance would be not only an injustice and a wrong to that
man, but, moreover, be AN IMPIOUS RESISTANCE TO THE BENEVOLENT INTENTIONS
OF HIS CREATOR. ...
Believing that the social question is at bottom a religious question, we
deem it of happy augury to the world that in your Encyclical the most influential
of all religious teachers has directed attention to the condition of labor.
But while we appreciate the many wholesome truths you utter, while we feel,
as all must feel, that you are animated by a desire to help the suffering
and oppressed, and to put an end to any idea that the church is divorced
from the aspiration for liberty and progress, yet it is painfully obvious
to us that one fatal assumption hides from you the cause of the evils
you see, and makes it impossible for you to propose any adequate remedy.
assumption is, that private property in land is of the same nature and has
the same sanctions as private property in things produced by labor. In spite
of its undeniable truths and its benevolent spirit, your Encyclical shows
you to be involved in such difficulties as a physician called to examine
one suffering from disease of the stomach would meet should he begin with
a refusal to consider the stomach.
Prevented by this assumption from seeing the true cause, the only causes
you find it possible to assign for the growth of misery and wretchedness
are the destruction of working-men’s guilds in the last century, the
repudiation in public institutions and laws of the ancient religion, rapacious
usury, the custom of working by contract, and the concentration of trade.
the whole letter
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty, Chapter 4: Land
Speculation Causes Reduced Wages
Whether we formulate it as an extension of the margin of production, or as
a carrying of the rent line beyond the margin of production, the influence
of speculation in land in increasing rent is a great fact which cannot be ignored
in any complete theory of the distribution of wealth in progressive countries.
It is the force, evolved by material progress, which tends constantly to increase
rent in a greater ratio than progress increases production, and thus constantly
tends, as material progress goes on and productive power increases, to reduce
wages, not merely relatively, but absolutely.
The cause which limits speculation in commodities, the tendency of increasing
price to draw forth additional supplies, cannot limit the speculative advance
in land values, as land is a fixed quantity, which human agency can neither
increase nor diminish; but there is nevertheless a limit to the price of land,
in the minimum required by labor and capital as the condition of engaging in
production. If it were possible continuously to reduce wages until zero were
reached, it would be possible continuously to increase rent until it swallowed
up the whole produce. But as wages cannot be permanently reduced below the
point at which laborers will consent to work and reproduce, nor interest below
the point at which capital will be devoted to production, there is a limit
which restrains the speculative advance of rent. Hence speculation cannot have
the same scope to advance rent in countries where wages and interest are already
near the minimum, as in countries where they are considerably above it. ... read the whole chapter
Poverty deepens as wealth increases, and wages are forced down while
productive power grows, because land, which is the source of all wealth
and the field of all labor, is monopolized. To extirpate poverty, to
make wages what justice commands they should be, the full earnings of
the laborer, we must therefore substitute for the individual ownership
of land a common ownership. [footnote omitted]
This right of ownership that springs from labor excludes the possibility
of any other right of ownership. If a man be rightfully entitled to the
produce of his labor, then no one can be rightfully entitled to the ownership
of anything which is not the produce of his labor, or the labor of some
one else from whom the right has passed to him. For the right to the
produce of labor cannot be enjoyed without the right to the free use
of the opportunities offered by nature, and to admit the right of property
in these is to deny the right of property in the produce of labor. When
nonproducers can claim as rent a portion of the wealth created by producers,
the right of the producers to the fruits of their labor is to that extent
A house and the lot on which it stands are alike property, as being
the subject of ownership, and are alike classed by the lawyers as real
estate. Yet in nature and relations they differ widely.
- The one is produced by human labor, and belongs to the class in
political economy styled wealth.
- The other is a part of nature, and belongs to the class in political
economy styled land.
The essential character of the one class of things is that they embody
labor, are brought into being by human exertion, their existence or nonexistence,
their increase or diminution, depending on man. The essential character
of the other class of things is that they do not embody labor, and exist
irrespective of human exertion and irrespective of man; they are the
field or environment in which man finds himself; the storehouse from
which his needs must be supplied, the raw material upon which and the
forces with which alone his labor can act.
The moment this distinction is realized, that moment is it seen that
the sanction which natural justice gives to one species of property is
denied to the other. ... read
the whole chapter
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
Chapter 9. Alleged Difficulty of Distinguishing Land From Improvements (in
the unabridged P&P: Part
VIII — Application of the Remedy: Chapter 4 — Indorsements
The only objection to the tax on rent or land values which is to be met
with in standard politico-economic works is one which concedes its advantages — for
it is, that from the difficulty of separation, we might, in taxing the rent
of land, tax something else. McCulloch, for instance, declares taxes on the
rent of land to be impolitic and unjust because the return received for the
natural and inherent powers of the soil cannot be clearly distinguished from
the return received from improvements and meliorations, which might thus be
discouraged. Macaulay somewhere says that if the admission of the attraction
of gravitation were inimical to any considerable pecuniary interest, there
would not be wanting arguments against gravitation — a truth of which
this objection is an illustration. For admitting that it is impossible
invariably to separate the value of land from the value of improvements,
is this necessity
of continuing to tax some improvements any reason why we should continue
to tax all improvements? If it discourage production to tax values which
and capital have intimately combined with that of land, how much greater
discouragement is involved in taxing not only these, but all the clearly
which labor and capital create?
But, as a matter of fact, the value of land can always be readily distinguished
from the value of improvements.
- In countries like the United States there is much valuable land that
has never been improved; and in many of the States the value of the land
the value of improvements are habitually estimated separately by the
assessors, though afterward reunited under the term real estate.
- Nor where ground has been occupied from immemorial times, is there any
difficulty in getting at the value of the bare land, for frequently
the land is owned by one person and the buildings by another, and when
a fire occurs
and improvements are destroyed, a clear and definite value remains
in the land.
- In the oldest country in the world no difficulty whatever can attend
the separation, if all that be attempted is to separate the value of the
distinguishable improvements, made within a moderate period, from the
value of the land, should they be destroyed.
This, manifestly, is all that justice or policy requires. Absolute accuracy
is impossible in any system, and to attempt to separate all that the human
race has done from what nature originally provided would be as absurd as impracticable.
A swamp drained or a hill terraced by the Romans constitutes now as much a
part of the natural advantages of the British Isles as though the work had
been done by earthquake or glacier. The fact that after a certain lapse of
time the value of such permanent improvements would be considered as having
lapsed into that of the land, and would be taxed accordingly, could have no
deterrent effect on such improvements, for such works are frequently undertaken
upon leases for years. The fact is, that each generation builds and improves
for itself, and not for the remote future. And the further fact is, that each
generation is heir, not only to the natural powers of the earth, but to all
that remains of the work of past generations. ... read the whole chapter
Henry George: The Land Question (1881)
The galleys that carried Caesar to
Britain, the accoutrements of
his legionaries, the baggage that they carried, the arms that they
bore, the buildings that they erected; the scythed chariots of the
ancient Britons, the horses that drew them, their wicker boats and
wattled houses–where are they now? But the land for which Roman
and Briton fought, there it is still. That British soil is yet as
fresh and as new as it was in the days of the Romans. Generation
after generation has lived on it since, and generation after
generation will live on it yet. Now, here is a very great difference.
The right to possess and to pass on the ownership of things that in
their nature decay and soon cease to be is a very different thing
from the right to possess and to pass on the ownership of that which
does not decay, but from which each successive generation must
To show how this difference
between land and such other species of
property as are properly styled wealth bears upon the argument for
the vested rights of landholders, let me illustrate again. ...
This is the point I want to make
clearly and distinctly, for it
shows a distinction that in current thought is overlooked. Property
in land, like property in slaves, is essentially different from
property in things that are the result of labor.
- Rob a
man or a
people of money, or goods, or cattle, and the robbery is finished
there and then. The lapse of time does not, indeed, change
right, but it obliterates the effects of the deed. That is done; it
is over; and, unless it be very soon righted, it glides away into the
past, with the men who were parties to it, so swiftly that nothing
save omniscience can trace its effects; and in attempting to right it
we would be in danger of doing fresh wrong. The past is forever
beyond us. We can neither punish nor recompense the dead.
- But rob
people of the land on which they must live, and the robbery is
continuous. It is a fresh robbery of every succeeding
generation – a new robbery every year and every day; it is like
the robbery which condemns to slavery the children of the slave. To
apply to it the statute of limitations, to acknowledge for it the
title of prescription, is not to condone the past; it is to legalize
robbery in the present, to justify it in the future. The indictment
which really lies against the Irish landlords is not that their
ancestors, or the ancestors of their grantors, robbed the ancestors
of the Irish people. That makes no difference. "Let the dead bury
their dead." The indictment that truly lies is that here, now, in the
year 1881, they rob the Irish people. And shall we be told that there
can be a vested right to continue such robbery? ...
But, if it be denied that land
justly is, or can be, private
property, if the equal rights of the whole people to the use of the
elements gratuitously furnished by Nature be asserted without
drawback or compromise, then the essential difference between
property in land and property in things of human production is at
once brought out. Then will it clearly appear not only that the
denial of the right of individual property in land does not involve
any menace to legitimate property rights, but that the maintenance of
private property in land necessarily involves a denial of the right
to all other property, and that the recognition of the claims of the
landlords means a continuous robbery of capital as well as of
... read the whole article
Henry George: Thou Shalt Not
Steal (1887 speech)
We propose to abolish poverty,
to tear it up by the roots, to open free and abundant employment for
every person. We propose to disturb
no just right of property. We are defenders and upholders of the sacred
right of property — that right of property which justly attaches to
everything that is produced by labor; that right which gives to all
people a just right of property in what they have produced —
that makes it theirs to give, to sell, to bequeath, to do whatever they
please with, as long as in using it they do not injure any one else.
That right of property we insist upon; that, we would uphold against
all the world.
To a house, a coat, a book — anything produced by labor — there
is a clear individual title, which goes back to the person who made it.
That is the foundation of the just, the sacred right of property. It
rests on the right of people to the use of their own powers, on their
right to profit by the exertion of their own labor; but who can carry
the right of property in land that far?
Who can claim a title of
absolute ownership in land? Until one who claims the exclusive
ownership of a piece of this planet can show a title originating with
the Maker of this planet; until that one can produce a decree from the
Creator declaring that this city lot, or that great tract of
agricultural or coal land, or that gas well, was made for that one
person alone — until then we have a right to hold that the land was
intended for all of us.
Natural religion and revealed religion alike tell us that God is
no respecter of persons; that He did not make this planet for a few
individuals; that He did not give it to one generation in preference to
other generations, but that He made it for the use during their lives
of all the people that His providence brings into the world. If this be
true, the child that is born tonight in the humblest tenement in the
most squalid quarter of New York, comes into life seized with as good a
title to the land of this city as any Astor or Rhinelander. ... read
the whole article
Henry George: The
Single Tax: What It Is and Why We Urge It (1890)
Think about what the value of
land is. It has no reference to the
cost of production, as has the value of houses, horses, ships,
clothes, or other things produced by labor, for land is not produced
by man, it was created by God. The value of land does not come from
the exertion of labor on land, for the value thus produced is a value
of improvement. That value attaches to any piece of land means that
that piece of land is more desirable than the land which other
citizens may obtain, and that they are willing to pay a premium for
permission to use it. Justice therefore requires that this premium of
value shall be taken for the benefit of all in order to secure to all
their equal rights.
Consider the difference between
the value of a building and the
value of land. The value of a building, like the value of goods,
or of anything properly styled wealth, is produced by individual
exertion, and therefore properly belongs to the individual; but the
value of land only arises with the growth and improvement of the
community, and therefore properly belongs to the community. It is not
because of what its owners have done, but because of the presence of
the whole great population, that land in New York is worth millions
an acre. This value therefore is the proper fund for defraying the
common expenses of the whole population; and it must be taken for
public use, under penalty of generating land speculation and monopoly
which will bring about artificial scarcity where the Creator has
provided in abundance for all whom His providence has called into
It is thus a violation of justice
to tax labor, or the things
produced by labor, and it is also a violation of justice not to tax
land values. ... read the whole article
Rev. A. C. Auchmuty: Gems from George, a
themed collection of
excerpts from the writings of Henry George (with links to sources)
CAPITAL, which is not in itself a distinguishable element, but which it
must always be kept in mind consists of wealth applied to the aid of labor
in further production, is not a primary factor. There can be production without
it, and there must have been production without it, or it could not in the
first place have appeared. It is a secondary and compound factor, coming
after and resulting from the union of labor and land in the production of
wealth. It is in essence labor raised by a second union with land to a third
or higher power. But it is to civilized life so necessary and important as
to be rightfully accorded in political economy the place of a third factor
in production. — The
Science of Political Economy unabridged:
Book III, Chapter 17, The Production of Wealth: The Third Factor of Production — Capital • abridged:
Part III, Chapter 10: Order of the Three Factors of Production
IT is to be observed that capital of itself can do nothing. It is always a subsidiary,
never an initiatory, factor. The initiatory factor is always labor. That is to
say, in the production of wealth labor always uses capital, is never used by
capital. This is not merely literally true, when by the term capital we mean
the thing capital. It is also true when we personify the term and mean by it
not the thing capital, but the men who are possessed of capital. The capitalist
pure and simple, the man who merely controls capital, has in his hands the power
of assisting labor to produce. But purely as capitalist he cannot exercise that
power. It can be exercised only by labor. To utilize it he must himself exercise
at least some of the functions of labor, or he must put his capital, on some
terms, at the use of those who do. — The Science of Political Economy unabridged:
Book III, Chapter 17, The Production of Wealth: The Third Factor of Production — Capital • abridged:
Part III, Chapter 10: Order of the Three Factors of Production
THUS we must exclude from the category of capital everything that may be included
either as land or labor. Doing so, there remain only things which are neither
land nor labor, but which have resulted from the union of these two original
factors of production. Nothing can be properly capital that does not consist
of these — that is to say, nothing can be capital that is not wealth. — Progress & Poverty — Book
I, Chapter 2: Wages and Capital: The Meaning of the Terms
THUS, a government bond is not capital, nor yet is it the representative of capital.
The capital that was once received for it by the government has been consumed
unproductively — blown away from the mouths of cannon, used up in war ships,
expended in keeping men marching and drilling, killing and destroying. The bond
cannot represent capital that has been destroyed. It does not represent capital
at all. It is simply a solemn declaration that the government will, some time
or other, take by taxation from the then existing stock of the people, so much
wealth, which it will turn over to the holder of the bond; and that, in the meanwhile,
it will, from time to time, take, in the same way, enough to make up to the holder
the increase which so much capital as it some day promises to give him would
yield him were it actually in his possession. The immense sums which are thus
taken from the produce of every modern country to pay interest on public debts
are not the earnings or increase of capital — are not really interest in
the strict sense of the term, but are taxes levied on the produce of labor and
capital, leaving so much less for wages and so much less for real interest. — Progress & Poverty — Book
III, Chapter 4: The Laws of Distribution: Of Spurious Capital and of Profits
Often Mistaken For Interest
CAPITAL, as we have seen, consists of wealth used for the procurement of
more wealth, as distinguished from wealth used for the direct satisfaction
of desire; or, as I think it may be defined, of wealth in the course of exchange.
Capital, therefore, increases the power of labor to produce wealth: (1) By
enabling labor to apply itself in more effective ways, as by digging up clams
with a spade instead of the hand, or moving a vessel by shoveling coal into
a furnace, instead of tugging at an oar. (2) By enabling labor to avail itself
of the reproductive forces of nature, as to obtain corn by sowing it, or animals
by breeding them. (3) By permitting the division of labor, and thus, on the
one hand, increasing the efficiency of the human factor of wealth, by the utilization
of special capabilities, the acquisition of skill, and the reduction of waste;
and, on the other, calling in the powers of the natural factor at their highest,
by taking advantage of the diversities of soil, climate and situation, so as
to obtain each particular species of wealth where nature is most favorable
to its production.
Capital does not supply the materials which labor works up into wealth, as
is erroneously taught; the materials of wealth are supplied by nature. But
such materials partially worked up and in the course of exchange are capital. — Progress & Poverty — Book
I, Chapter 5: Wages and Capital: The Real Functions of Capital
... go to "Gems from George"
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894) — Appendix:
Q48. Would you let money escape taxation, and so favor money lenders?
A. It is a curious fact that this question is most popular among people who clamor
for cheap money. How they expect to cheapen money by taxing its lenders on
their loans is past finding out. To tax money lenders is to discourage money
lending, and thereby to increase interest on loans. Yes, we should let money
escape taxation. It escapes taxation now, which in itself is a politic reason
for exempting it; but we should exempt it (by taxing nothing but land values)
for the additional and better reason that a man's money is his own and the
community has no right to it, while a man's land value is the community's and
the man has no right to it. This would not favor money lenders in any invidious
sense. It would favor both lenders and borrowers; borrowers by enabling them
to borrow on easier terms, and lenders by making their loans more secure. ... read
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q25. Where in does privilege differ from capital?
A. Capital is a material thing, a product of labor, stored-up wages; an instrument
of production paid for in human labor, and destined to wear out. Capital
is the natural ally of labor, and is harmless except as allied to privilege.
Privilege is none of these, but is an intangible statutory power, an unpaid-for
and perpetual lien upon the future labor of this and succeeding generations.
Capital is paid for and ephemeral. Privilege is unpaid for and eternal.
A man accumulated in his profession $5,000 capital, which he invested in
land in Canada. Ten years later he sold the same land for $200,000. Here
is an instance of $5,000 capital allied with $195,000 privilege. This illustrates
that privilege and not capital is the real enemy of labor.
... read the whole article
Lindy Davies: Land
If we just look at the "ecological footprint," it's easy to be scared
of the seemingly unavoidable damage we are doing to the earth. But seeing "the
footprint" in terms of its components — subsistence, wealth, and
illth — makes it clear that the fact of persistent and growing global
poverty is not the inevitable result of population growth. I believe it’s
true that the world cannot long support current levels of pollution, waste
and habitat destruction — but these problems spring not from production
itself — and certainly not from trade, itself — but from privileges,
granted to individuals and corporations — things that we can correct,
if we choose to.
To solve the problem of land and justice is to remove unjust privilege, by
instituting an economic system that rewards production and prohibits extortion.
It’s all about the land: not only is land necessary for all life — land
is also necessary for all production. So, as human population increases, and
as the production of wealth gets more and more efficient, the demand for land
goes up, and, of course, the land factories start cranking out more land!
Wait! They can't DO that, can they?
Wealth — products, widgets — these things are made by
human beings. If customers are willing to buy more of them, then manufacturers
more of them. But human beings can't make land. The supply of land cannot be
increased. If the demand for land increases, only one thing can happen: its
price will go up.
The owners of land see population and production go up, up, up — and
no more land. So, they will only put their land to use if they have an immediate
need for the cash. If they can afford to wait, they will wait, because they
expect the land's value to increase with time.
That, in a nutshell, is the key to the land problem — the problem
of poverty.... read
the whole speech
Clarence Darrow: The Land Belongs
To The People (1916)
This earth is a little raft moving in the endless sea of space, and the
mass of its human inhabitants are hanging on as best they can. It is as if
raft filled with shipwrecked sailors should be floating on the ocean,
and a few of the strongest and most powerful would take all the raft they
get and leave the most of the people, especially the ones who did the
work, hanging to the edges by their eyebrows. These men who have taken possession
of this raft, this little planet in this endless space, are not even
with taking all there is and leaving the rest barely enough to hold
onto, but they think so much of themselves and their brief day that while
live they must make rules and laws and regulations that parcel out
the earth for thousands of years after they are dead and, gone, so that their
and others of their kind may do in the tenth generation exactly what
they are doing today — keeping the earth and all the good things of
the earth and compelling the great mass of mankind to toil for them.
Now, the question is, how are you going to get it back? Everybody who thinks
knows that private ownership of the land is wrong. If ten thousand men
can own America, then one man can own it, and if one man may own it he may
all that the rest produce or he may kill them if he sees fit. It is inconsistent
with the spirit of manhood. No person who thinks can doubt but that he
was born upon this planet with the same birthright that came to every man
like him. And it is for him to defend that birthright. And the man who
will not defend it, whatever the cost, is fitted only to be a slave. The
to the people — if they can get it — because if you cannot
get it, it makes no difference whether you have a right to it or not, and
can get it, it makes no difference whether you have a right to it or not,
you just take it. The earth has been taken from the many by the few. It
difference that they had no right to it; they took it.
Now, there are some methods of getting access to the earth which are easier
than others. The easiest, perhaps, that has been contrived is by means of taxation
of the land values and land values alone; and I need only say a little upon
that question. One trouble with it which makes it almost impossible to achieve,
is that it is so simple and so easy. You cannot get people to do anything that
is simple; they want it complex so they can be fooled.
Now the theory of Henry George and of those who really believe in the common
ownership of land is that the public should take not alone taxation from
the land, but the public should take to itself the whole value of the land
has been created by the public — should take it all. It should be a part
of the public wealth, should be used for public improvements, for pensions,
and belong to the people who create the wealth — which is a strange doctrine
in these strange times. It can be done simply and easily; it can be done by
taxation. All the wealth created by the public could be taken back by the public
and then poverty would disappear, most of it at least. The method is so simple,
and so legal even — sometimes a thing is legal if it is simple — that
it is the easiest substantial reform for men to accomplish, and when it
is done this great problem of poverty, the problem of the ages, will be
solved. We may need go farther. ... read
the whole article
William F. Buckley, Jr.: Home
Henry George, the eminent social philosopher of a century ago, turned the
attention of planners and economists, however briefly, to the indefeasible
factor of land scarcity. Capital and labor can increase; land cannot.
Accordingly, George was the apostle of the single tax. It aimed most directly
at land speculators. His insights would focus now on the limitations on the
use of land imposed by zoning. If John Jones wants an acre protecting his
house, he is laying claim to something that cannot expand in size. Since
land, in George's analysis, is forever limited, it must be thought of and
treated as common property. And therefore the rental value of one acre should
constitute a tax (the single tax) on the person who sequesters it for himself.
A strong case can be made for the amenities of zoning laws. But they have
an effect on the availability of housing, and on its cost. One result is
that housing costs are increasing faster than inflation.
But is the Henry George factor likely to be espoused in political platforms?
It cannot happen soon because too many interests are vested in zoning laws.
But sharp political eyes should be trained on the question, in search of
a viable formulation designed to fight against homelessness for grandchildren
who cannot be expected to pay the projected cost of housing. ... read
the whole column
Jeff Smith: What the
Left Must Do: Share the Surplus
In The Nation, Robert Fitch
('90 Oct 29), author of The
Assassination of New York (1993), stated,
tax levied on land used for commercial purposes is the ideal tax. It
would fall on the richest families and institutions, it can't be
shifted to consumers and owners can't move their property to another
state. Almost invariably, if you tax something the capitalists will
produce less of it and charge you more for it. But land is
different. Most of it was produced once and for all by
God." Read the whole article
Fred E. Foldvary — The
Ultimate Tax Reform:
Public Revenue from Land Rent
It is widely understood that when something is taxed, we get less of it.
As discussed above, this reduction in labor, production, and investment is
the “excess burden” or “deadweight loss” of taxation.
Income taxation discourages work, sales and value-added taxes discourage
consumption, capital gains taxes discourage investment, and real property
building and improving property. Those taxes make the asset or activity
more costly, which then reduces the quantity bought of the thing being
What makes land different is that its supply is fixed, and it is independent
of human action. When land value or rent is tapped for public revenue, the
land does not shrink, flee, or hide.
Recall the definition above, that land means natural resources. Real estate
sites consist of the three dimensional space within some boundary of title
or jurisdiction. We cannot import land to expand the amount of space. There
can be no land factories to produce more space. Chopping down trees, leveling
inclined slopes, and draining and filling in water only change the material
contents of the space, not the extent or location of the space. Building taller
just makes more space usable; the three-dimensional space does not expand.
the whole document
Karl Williams: Social Justice In
Australia: INTERMEDIATE KIT
This is the place to further
examine the three economic factors of
production. An understanding of these economic concepts will not only
give a grounding in economic theory but will enable you to realise how
completely the so-called science of economics has been hijacked and
corrupted by neoclassical economics.
We are putting aside, for the moment, the philosophical thoughts about
owning land to instead look at how land behaves in purely economic
terms. For economic purposes, land has a wider meaning than that which
is usually assigned to it by lay persons. It can be defined as the
available natural resources and forces of nature. Hence land here
includes flora & fauna, rivers & oceans, air, the
electromagnetic spectra and mineral wealth. But "ordinary" land -
loosely regarded as the surface of the earth - has distinctive
features, particularly urban land with its locational value (as opposed
to rural land with a largely agricultural value).
3. CAPITAL This can be a
confusing term. Capital is defined as the product of the application of
labour to land, or else can be simply understood to be stored-up wealth
or, in a sense, stored-up labour. Capital equipment refers to the
physical articles of material wealth which have been produced, not to
be immediately consumed, but to be used to physically aid in the
production of more material wealth. This excludes pseudo-wealth: those
things described as agreements or contractual securities and
THE NEOCLASSICAL DISAPPEARING
These 3 factors of production are commonly cited in chapter 1 of
mainstream economic texts, although their definition of land is often
vague. And then - hey, presto! - in chapter 2, land has somehow
disappeared off the radar screen, and we have slipped into labour and
capital as being the only factors of production. The merging of land
into capital is the characteristic sleight of hand of neoclassical
economics. We'll return to this folly later in our critique of
capitalism and socialism.
There are three major differences between land and capital.
we're not talking about ethics, but about concrete, measurable economic
features. If you ever want a litmus test to determine whether an
economist really knows what he's talking about, just ask him, "What are
the differences in the economic behaviour of land and capital?" If he
seems to be bamboozling you with esoteric jargon, then you can take it
that the guy's a fake, for the differences are clear and quite
distinct, as you will here see.
AS SIMPLE AS 1 - 2 - 3!
1. Land is limited in supply.
Capital is not.
Reread Will Rogers' quote above - they ain't making land any more. Very
important in economic terms, and there are few examples of other things
that are limited in supply. Great works of art by dead painters is one
illustration and, just as art collectors may bid up the price for a
Monet or a van Gogh to ridiculous extremes, so too may land prices
skyrocket. Why did central Tokyo land in the late 1980's hit US$4
billion per acre? Because those requiring it couldn't make their own.
Such behaviour can never occur with capital, because capital can be
This unbreakable bargaining power of land-holders within our
economic system is one reason why Geonomists frequently attach the word
"monopolist" to land-holders. To be pedantic but also strictly correct,
we have said that land is "limited" rather than "fixed" in supply
because of the effect of the possibility of land reclamation and
multi-story buildings (not that those possibilities gave much relief in
central Tokyo or elsewhere).
2. There will always be an
irreplaceable human demand for land ….. while the Law of Gravity
You're going to need at least enough land on which to stand, and a bit
more if you can't sleep on your feet. Capital is different because if
the seller of capital asks too high a price from me, then I'll settle
for a different supplier, or a substitute or - failing these options -
simply do without. But I can't do without land (until the dawn of The
Age of the Jetsons). I think I can handle living without an original
Monet or van Gogh in my lounge room.
Combine the limited supply of land with a never-ending human
and the monopolistic screws are turned tighter. Furthermore, take into
account that the limited supply of land is being demanded by an
ever-increasing number of planetary inhabitants, and you'll grasp why
ordinary folk are being squeezed into devoting more and more working
years to saving for their increasingly-expensive block of land. In
fact, you now know more about the factors of production - the very
basics of economics - than many of our esteemed professors of
3. The value of land is built
up by the community whereas the value of capital is created by its
The type of land we are examining here is the all-important
expensive and necessary) urban land, and the value that is appreciating
is its locational (not agricultural) value. We say that the value of
land is not generally due to any effort of the owner for two main
reasons - population and infrastructure. The growing population will
make the limited supply of land relatively more scarce and will bid up
its price. Also, a growing population accessible to your site is
generally desirable - more skills and services available,
companionship, economies of scale etc. Infrastructure, by its very
nature, provides all sorts of land-value-enhancing amenities, such as
roads, schools, power, water, hospitals, libraries etc. To return to
our point, in no way is the value of capital enhanced by others. That
of land is.
Land generally appreciates over time whereas capital nearly
always depreciates over its useful economic life.
... Read the
Karl Williams: Land Value Taxation:
The Overlooked But Vital Eco-Tax
I. Historical overview
II. The problem of sprawl
III. Affordable and efficient public transport
IV. Agricultural benefits
V. Financial concerns
VI. Conclusion: A greater perspective
Appendix: "Natural Capitalism" -- A Case Study in Blindness to
Land Value Taxation
Land value taxation
has often been omitted from the lists of natural resources for which
eco-taxes are being advocated. LVT provides strong financial
encouragement for land to be put to its optimal use and will eliminate
speculation on land, as occupants must pay the full LVT whether the
land is being fully utilised or not. This leads to better land
management, a reduction in urban sprawl, less urban smothering of
agricultural land, and less farmland being pushed into hinterland.
LVT makes the investment in
resource-efficient infrastructure affordable because the resulting
enhanced land values are "recycled" back into public coffers. One
particular application of LVT to agricultural land provides much-needed
financial incentives for organic farming. Unlike other ecotaxes which
"sow the seeds of their own revenue demise," LVT actuallyincreases over
time as our environment is enhanced and is thus a stable revenue base.
This paper argues
that the LVT assessment process shifts and refines our focus from
monitoring human activity onto our use and abuse of natural resources,
as any responsible form of stewardship should. It suggests that only if
land users are prepared to pay the full cost of utilising resources
should private resource holding be permitted.
"The depletion of natural
the despoliation of nature is due to a single reason: the failure
properly to measure the rental value of all of nature's resources, and
to make the users pay the community for the benefits they receive." F.
Harrison, "The Corruption of Economics"
The confusion between
land and capital
is well exemplified by the description of property prices which
comprise, of course, buildings and land. Whereas the former depreciate,
the latter usually appreciate, yet their escalating values are
invariably referred to as "house prices increases". Such
confusion demands an examination of the distinctive qualities of land
(whose value is largely locational) on which the theory and
practice of LVT is based:
Unlike capital which is produced and reproduced, land is fixed in supply
Winston Churchill: Land
Price as a Cause of Poverty (1909 speech in Parliament)
2. There are all sorts of substitutes
for capital items and for many natural resources, but there's no
substitute for land - at least, not while the Law of Gravity holds!
It is this twin combination of fixed supply and never-ending demand
which determines how land behaves like a monopoly good, and which led
Churchill to declare, "It is quite true that land monopoly is not the
only monopoly which exists, but it is by far the greatest of monopolies
- it is a perpetual monopoly, and it is the mother of all other
forms of monopoly."
3. Unlike capital, the value of land
is not built up by the occupier but by the community (principally
through the increase in presence of population and through the further
provision of tax-funded infrastructure). Herein lies the
rationale for LVT, being the charge by the community for
community-created amenities. As will be further detailed, it also
explains the reason why our present form of land tenure and taxation is
supported by predatory rent-seekers. read the entire article
(except for minor exceptions like multistorey developments and land
reclamation). As the old saying goes, "Invest in land - they're not
making any more of it". Furthermore, one can't go out into the desert
and truck in prime real estate. And unlike natural resources like air
and water, land can be neatly parceled up and readily "owned" (with
title deeds which confer ownership in perpetuity).
When the Leader of the
Opposition seeks by comparisons to show
that the same reasoning which has been applied to land ought also in
logic and by every argument of symmetry to be applied to the unearned
increment derived from other processes which are at work in our
modern civilisation, he only shows by each example he takes how
different are the conditions which attach to the possession of land
and speculation in the value of land from those which attach to other
forms of business speculation.
"If," he inquires, "you tax the
unearned increment on land, why
don't you tax the unearned increment from a large block of stock? I
buy a piece of land; the value rises. I buy stocks; their value
rises." But the operations are entirely dissimilar. In the first
speculation the unearned increment derived from land arises from a
wholly sterile process, from the mere withholding of a commodity
which is needed by the community. In the second case, the investor in
a block of shares does not withhold from the community what the
community needs. The one operation is in restraint of trade and in
conflict with the general interest, and the other is part of a
natural and healthy process, by which the economic plant of the world
is nourished and from year to year successfully and notably
increased. ... Read the whole piece
Winston Churchill: The People's Land
... It is
quite true that unearned increments in land are not the only form of
unearned or undeserved profit which individuals are able to secure; but
it is the principal form of unearned increment which is derived from
processes which are not merely not beneficial, but which are positively
detrimental to the general public. Land, which is a necessity of human
existence, which is the original source of all wealth, which is
strictly limited in extent, which is fixed in geographical position --
land, I say, differs from all other forms of property in these primary
and fundamental conditions. ... Read the whole piece
Mason Gaffney: Land as a
Distinctive Factor of Production
The classical economists treated land
distinct from capital:
"land, labor and capital" were the three basic "factors
of production." They were mutually exclusive. They were
comprehensive, including all economic agents. Each was also
"limitational," meaning at least some of each was needed for
all economic activity (v. A9, below)1 They
made a coherent
system, like Humboldt’s Cosmos, in the spirit of The Enlightenment that
spawned them both.
limitational. Capital is nearly so in practice: we need not dwell
on rare cases to the contrary.
denied the distinction and undertook to purge
land from economese.
- Many of them, following John B.
Frank Knight, still deny the distinction as I explain in The
Corruption of Economics, a companion volume in this
- Many treat the matter by seizing on
and stressing all similarities of
land and capital, while ignoring all differences.
- Some invent gray
areas that seem to fuse land and capital, present them as typical, and
quickly move on.
- Many more simply ignore land, which
has the effect
of accepting the Clark-Knight verdict in practice.
- Others uneasily
finesse and blur the issue by writing "land" in quotes, or
trivializing its value, or referring vaguely to "quasi-rents"
to comprehend a broad spectrum of incomes both from land and other
What ever possessed the
leave such a mess? One
needs to know something of their times and politics. J.B. Clark
E.R.A. Seligman of Columbia University were obsessed with deflecting
proposals, strongly supported at the time and place they wrote, to
taxation on land. Henry George,
after all, was nearly elected
of New York City in 1886 and 1897. Frank Knight, founder of The
Chicago School, followed them closely. That explains why some of
the points made herein may seem obvious
to readers who have been spared the formal conditioning
imposed on graduate students in economics. In graduate training,
however, the obvious is obscured, silenced, or denied. Hundreds of
books on economic theory are published with "land" absent from
Denial is reinforced by dominant figures using
sophistical, pedantic cant, which students learn to ape to distinguish
themselves from the laity and advance their careers.2
and outside academia are much influenced by "deep lobbying," as
described by William Greider, 1992, Who Shall Tell the People?,
pp. 42-59. "Deep lobbying" is targeting public
opinion several years in the future, by building allies in think tanks,
academia, the media, and select activist groups. Greider gives as
an example the effort of polluting interests to undo the Superfund
law. They chose The Conservation Foundation, engineering the
selection of William. K. Reilly as environmental czar. Greider
emphasizes the role of economists, et al., as hired
guns. The eagerness of many college professors and administrators
to get grants at any price must be experienced to be believed, but I
attest from personal observation that it drives much of the profession
and its attitudes.
The dominance of
"fusers" is shown by the prevalence of 2-factor
the world is divided into just labor and capital.3 Land
is melded with
capital, and simply disappears as a separate category, along with its
distinctive attributes. A number of economists don't buy it, but
don't do anything about it - acquiescing in error by silence,
indifference, passivity, or anxiety of the professional
consequences. They handle the question by "going into
denial," as it were, resolving a vexing issue by pretending it isn't
there. Anything else
web of interpretation through which their art seeks to make human
experience intelligible.4 donning blinders hedging,
against such motivated forces as have an interest in hiding unearned
wealth behind the skirts of capital.
Truth will not be made manifest
help me, in
1 saw and heard a one-factor model presented, in all solemnity.
Labor was the one factor. Other economists attending saw nothing
wrong: they gravely admired the model's "elegance."
4. Thanks to Wm. H.
McNeill for the phrasing.
The market exchange of capital for land causes an elementary failure in
the minds of many. Land and capital each have their prices and
be bought and sold for money. Each alike is part of an
assets, colloquially called his "capital". Each is a
store of value to the individual. What is true of each individual
must be true for all together, is the thinking: it is the "fallacy
of composition." We will see herein that society cannot turn
into capital, and land is not a store of value for society.
The discipline has not totally eliminated land, but marginalized
it. The discipline has not
totally terminated land: it is too subtle for outright skullduggery,
preferring equivocation and confusion. Rather, it has
marginalized it. There is a subdiscipline called "Land
a journal of that name. There are journals of Agricultural
Economics, Urban Economics, Regional Science, Environmental Economics,
Natural Resources, and more. There are also whole disciplines of
Geography, Economic Geography, Military Science, Biogeography, Geology,
Geometry, Surveying, Astronomy, Theology, Ecology, Oceanography,
Meteorology, Soils, Physiography, Topography, and Hydrology, all
with The Earth and Nature and Creation as definable topics distinct
man's works. ...
... All that is confusing for students and others. Land does have
distinctive qualities for economic analysis and policy. This
gives 10 primary reasons why land is distinct from capital (and of
from mankind itself) as an economic input. Then it gives 18
important economic consequences thereof, and their policy
implications. Making land markets, land policy, and land taxation
work well for the general welfare is a major challenge for economists
statesmen. They have neglected it too long by crediting and
following the peculiar neo-classical sophisms that obscure or deny all
distinctions between land and capital. ...
Land is not produced nor
A-2. Land as site is
permanent and recyclable
A-3. Land supply is fixed
a. The overall planet
is fixed. | b. Land is fixed within
jurisdictions. | c. Land as site is
space, permanently. | d. Land is fixed in
form. | e. Acquiring land must
A-4. Land is immobile in
space and uncontrollable in time
a. Land does not
migrate. | b. Land values are marked by continuity in space | c.
The services of land
perish with time. | d. Land is not
uniform to a user or firm. | e. Land is not
uniform to a city or economy | f. Land
a highly social process. | g. Nuclei are
interdependent. | h. Land is immobile
A-5. Land does not turn
over, but rather is recycled and is
a. Land is not
other land. | b. Land is necessarily
versatile. | c. Land per se is
economically divisible, unlike
capital. | d. Capital evinces
simultaneity" in construction.
A-6. Land is not
interchangeable with capital
A-7 Land rents are subject to common forces that
differed from and are generally reverse to those that determine
interest rates (the price of capital.
A-8. Land price guides investors and determines the
capital, as capital substitutes for land
A-9. Land is limitational
A-10. Land value is not an economic fund
Land is not produced nor
Land is not produced, it was created. It is the
planet from which man evolved, with the sun that energizes it and the
orbit that tempers it. Land is a free gift, variously expressed
different philosophies as Spaceship Earth, the Big Blue Marble, God's
Gift, Creation, Gaia, The Promised Land, or nature. Mankind did
create The Earth with its space and resources, nor can we add to
them. We can only acquire them, often by fighting, or
or in other counterproductive ways. Man at best improves
develops capacities inherent in the free gift. It is
and should alert us and make us suspicious, that economic analysis
ever purge out this paramount, self-evident truth.
"Land" in economics means all natural resources and agents,
with their sites (locations and extensions in space). Land is not
just the matter occupying space: it is
space. It includes many things not
colloquially called land, such as
- water and the beds under it,
- the radio
- rights of way,
- take-off/landing time slots for
- ambient air (the right to breathe
it and the license to
- "air rights" to strata in the third
- falling water,
- wild fish, game, and vegetation,
- natural scenery,
- the environment,
- the ecology,
- the natural gene pool, etc.
- Any franchise, license or
privilege giving territorial rights is a
species of easement over land.
- Your driver's license is a
- red lights remind us of the
critical value of space at central
locations, since two objects cannot occupy the same space at the same
- It is worth a lot to have the
right-of-way, as railroads
Economic land excludes many
things, too, that are
colloquially called land. It excludes land-fill, for example, by
which many cities
are extended into shallow waters. The site and seabed are
land; the land-fill is an improvement. There is no "made
land" in the economic sense: it is reallocated from other
uses. Expanding cities take farmland from producing food and
much of it for the expanding city itself. Filled land in shallow
water near cities is taken away from anglers and sailors and viewers
ecologists, who now routinely organize to prevent it being "made"
away with. Drained and filled
wetlands are taken away from endangered species, as well as from their
primal role as
filters protecting coastal waters from river trash and
Thanks to the myopia and dereliction of economists, it has taken
environmentalists to carry home this truth, developing in their
to be heard and understood a deep skepticism of economists and their
"way of thinking." Some economists and environmentalists are now coming
to terms with each other, after decades of mutual shunning. Too
many modern economists, however, still use their "way of thinking" to
seal out important new evidence that doesn't fit the model.
Capital (K) is that which has been produced but not yet used
Capital is formed by human thrift, forbearance, investment and
production. Only after mankind forms and makes capital does it
much likeness to land, in that they coexist. Ordinary
micro-economics obscures the differences because it deals mainly with
relations of coexistence, ignoring the continual formation and
destruction of capital, ignoring time and relations of sequence.
Thus it excludes from its purview one of the prime differences between
land and capital. The life of capital, like that of people, is
marked by major sacraments of birth, growth, aging and death - all
missing from micro theory. Economic
life is a cavalcade in which the birth and death of capital are dated
events. Micro deals mainly with how existing
resources are allocated at a moment in time, not how they originate,
grow, flourish, reproduce, age, die, and decompose.
Capital occupies space; land is space. In common
theory, resources and markets come together at a point not just in time
but in space. Again, it excludes from its purview one of the
qualities of land.6
is ironic that
economists purport or affect to ape the methods of physics, when
they delete both space and time from their subject. If
they have borrowed from physics, they have taken the form without the
For the reasons given, alone, land and capital are mutually
exclusive. There are, however,
nine more, which follow. ...
The opportunity cost
of capital is fleeting. Capital loses most
it the moment it is committed to a specific form, whose physical
alternative use is often only as scrap. Land's "opportunity
cost" is real and viable at all times. The scrap value of
capital is often zero or negative (radioactive waste supplying an
Land price guides investors and determines the character
capital, as capital substitutes for land
High land price guides investors to prefer kinds of
substitute for land. Although capital cannot be converted into
land, it can substitute for land, and does so when rents and land
are high. John Stuart Mill long ago pointed out that the
and character of capital is determined by the level of rents and
Such substitution is an integral part of the
equilibrating function of markets; the human race could never have
attained its present numbers and density without it. High wages
evoke labor-saving capital; high rents evoke land-saving capital.
It is useful to carry this farther, and recognize five kinds of
substitutive capital evoked by high rents and land prices:
capital, like high buildings.
capital, meaning capital used to improve land for new, higher
capital, like canals and rails and city streets.
(rent-seeking) capital, like squatters' improvements, and canal
and rail lines built to secure land grants,
and dams and canals built to secure water rights.
e. Rent-leading capital. ...
To understand the forces shaping
capital investment, one must recognize
the difference of land and capital. High land prices evoke
substitution of capital for land, shaping the capital stock in
ways. Viewed positively, this is a central part of economic
equilibration, tempering land scarcity. Viewed negatively, it has
led historically to boom and bust cycles. ...
The value of durable capital is based on expected future cash
so is that of land, but there are three big differences at least.
- The future of most capital is short; that of land is
- The future of most capital is limited to the specialized
use for which
it was built; that of land is varied and unpredictable.
future cash flow of capital is limited by potential competition from
new capital with a known cost of production; that from land is limited
only by future demand and is likely to rise. It is, as Richard
Hurd wrote in his classic Principles of City Land
Values, "a state of
the public mind."
As to allocation of land it
gravitates not just to the financially
strong but to the psychologically susceptible, that is those most prone
to overestimate future incomes, for whatever reason. Read the whole article
Mason Gaffney: Oil and
Gas Leasing: a Study in Pseudo-Socialism
Michael Hudson and Kris Feder: Real Estate and the Capital
Capital gains taxation has been a divisive issue in Congress at least
since the debates surrounding the Tax Reform Act of 1986, which, aiming
to eliminate tax loopholes and shelters and preferences, repealed
preferentially low tax rates for long-term gains.1 To
bring effective capital gains tax rates back down again was President
Bush’s “top priority in tax policy.“2 In
1989, Senate Democrats blocked a determined drive to reduce effective
tax rates on the part of Bush, Republican Senators Packwood, Dole and
others, and a few Democratic allies.3 The
administration argued that the tax cuts would stimulate economic growth
and induce asset sales, thereby actually increasing federal tax
revenues; Congressional Democrats countered that the plan benefited
mainly the wealthy, and that tax revenues would in fact decline.4 The
Joint Committee on Taxation projected that budget shortfalls beginning
in 1991 would sum to about $24 billion by 1994 -- and that most
direct benefits would go to individuals with over $200,000 in taxable
income. House Speaker Thomas S. Foley said that a third of the savings
would be enjoyed by those with gross incomes over one million dollars.
most frequently heard arguments for reducing capital gains
(1) to reduce the “lock-in” effect, by which high tax
realization deter asset sales;14
(2) to relieve a disproportionate burden on homeowners;
(3) to compensate for the erosion of capital gains by inflation, as an
alternative to indexing;15
(4) to end alleged double taxation of both capital stocks and income
(5) to spur productive enterprise and investment; and
(6) to generate more tax revenue from the consequent growth in asset
sales and productivity.
14 Some argue that
step-up of basis at death would do more to reduce lock-in than a rate
cut. See Joint Committee on Taxation (1990), p. 2 1; Gaffney (1991).
15 For an analysis of the case for inflation indexing,
This report calls attention to a neglected aspect of the capital
issue -- one which bears importantly on the fifth- and
Much of the capital gains debate today focuses on the stock
Business recipients of capital gains are characterized as small
innovative firms making initial
public offerings (IPOs). In recent
years such firms have been responsible for a disproportionate share of
new hiring. It is hoped that corporations will be able to raise money
to employ more labor and invest in more plant and equipment if buyers
of their stocks can sell these securities with less of a tax bite.
Stock market gains thus are held to stimulate new direct investment,
employment, and output.
Typical of the campaign to reduce capital gains taxes is a Wall
Journal editorial, “Capital Gains: Lift the Burden.” Author W. Kurt
Hauser argues that when the capital gains tax rate was increased from
20 percent to 28 percent in 1989, the effect was to deter asset sales,
causing a decline in the capital gains to be reaped and taxed. He
refers, however, only to stock market gains, and specifically, to
equity in small businesses. Citing the example of yacht producers, he
suggests that taxing capital gains on stocks issued by these businesses
“locks in” capital asset sales, thereby deterring new investment and
hiring, and reducing the supply of yachts.16
16 Hauser (1995).
Others contend that new productive investment is relatively
to capital gains tax rates, arguing, for example, that most of the
money placed in venture-capital funds come from tax-exempt pension
funds, endowments, and foundations.17
17 Venture Economics
Services, cited in Schlesinger (1997), p. A6.
is missing from the discussion is a sense of
proportion as to how capital gains are made. Data that is available
from the Department of Commerce, the IRS, and the Federal Reserve Board
indicate that roughly
two thirds of the economy's capital gains are taken, not in
the stock market -- much less in new offerings -- but in real estate.
Reserve Board estimates land values at some $4.4
trillion for 1994. Residential structures add $5.9 trillion, and other
buildings another $3.1 trillion. This $13.4 trillion of real estate
value represents two thirds of the total $20 trillion in overall assets
for the United States economy.19 Real
estate accounts for three-fourths of the economy's capital consumption
allowances. It also is the major collateral for debt, and generates
some two-thirds of the interest paid by American businesses. Real
estate taxes are the economy's major wealth tax, although their yield
has declined as a proportion of all state and local revenues, from 70
percent in 1930 to about one-fourth today.
19 Balance Sheets for the
Economy: 1945-94, Table B.11.
Capital gains statistics are
much harder to come by. One cannot simply
measure the increased value of the capital stock, for part of the rise
represents investment--production of new capital -- rather than
appreciation of existing capital and land. The IRS conducts periodic
sampling of capital gains based on tax returns, and its Statistics on
Income presents various analyses of the shares of total capital gains
reported by the economy's income cohorts, from the richest five percent
down. The samples are admittedly asymmetrical, however, and some of the
categories overlap. Significantly, for instance, stock market gains
include a large component of land and other real estate gains.
This policy brief seeks to elucidate the role of real estate in
capital gains issue, indicating the quantitative orders of magnitude
involved.. We offer two main observations.
- First, generous capital
consumption allowances (CCAs) greatly
magnify the proportion of real estate income taken as taxable capital
gains. Capital gains accrue not only on newly constructed
buildings, of course, but also on land and old buildings being sold and
resold. Our tax code allows for properties to be re-depreciated by
their new owners after a sale or swap, permitting real estate investors
to recapture principal again and again on the same structure. When CCAs
have been excessive relative to true economic depreciation, as they
were during the 1980s, capital gains have been commensurately larger
than the actual increase in property prices. As Charts la and lb
illustrate, capital consumption allowances in real estate dwarf those
in other industries.
- Second, very little of
estate cash flow is taxable as ordinary income, so the capital gains
tax is currently the only major federal levy paid by the real estate
industry. CCAs and tax-deductible mortgage interest payments
combine to exempt most of real estate cash flow from the income tax.
This encourages debt pyramiding as it throws the burden of public
finance onto other taxpayers.
central conclusion of our study is
that better statistics on asset
values and capital gains are needed -- or, more to the point, a better
accounting format. The economic effects of a capital gains tax depend
upon how the gains are made. The present GNP/NIPA format fails
differentiate between wealth and overhead; between value from
production and value from obligation. In particular, theory and
measurement should distinguish real estate from other sources of
capital gains -- aid, within the category of real estate, distinguish
land from built improvements. Markets for immovable structures and for
land have distinctive inherent features20 and
are shaped by distinctive institutional constraints.
Our second major
that, at least until
re-depreciation of second-hand buildings is disallowed, a capital gains
tax cut would be unlikely to stimulate much new investment and
employment from its largest beneficiary, the real estate industry.
Depreciation allowances and mortgage interest absorb so much of
ongoing cash flow as to leave little taxable income. Mortgage interest
payments, which now consume the lion’s share of cash flow, are
tax-deductible, while CCAs offset much of what remains of rental
income. On an industry-wide basis, in fact, NIPA statistics reveal that
depreciation offsets more than
the total reported income. As Charts 2a, 2b, and 2c illustrate, real
estate corporations and partnerships have recently reported net losses
year after year.
The result is that real estate corporations pay minimal income
taxes -- some $1.3 billion in 1988, just one percent of the $137
paid by corporate America as a whole.21
Comparable figures are not available on non-corporate income tax
liability, but the FIRE sector (finance, insurance, and real estate)
reported negative income of $3.4 billion in 1988, out of a total $267
billion of non-farm proprietors’ income.22 These
three symbiotically linked sectors thus were left with only capital
taxes to pay on their cash flow.
The central point for capital gains tax policy is that taxable
gains in real estate consist of more than just the increase in land and
building prices. They represent the widening margin of sales price over
the property’s depreciated value. The tax accountant’s book-value gains
result from charging off capital
consumption allowances as a tax credit against cash flow. The more
generous are the capital consumption write-offs for real estate, the
more rapidly a property’s book value is written down. The fiction of
fast write-off is eventually “caught” as a capital gain when the real
estate is either sold or refinanced.
depreciation allowances thus convert ordinary income into capital gains. Moreover,
capital gains are the only point at which most real estate income is taxed To
abolish the capital gains tax would annul the entire accumulated income
tax liability which real estate owners have converted into a capital
gains obligation. The income written off over the years as
over-depreciation would not be caught at all. The economy's largest
industry would have its income rendered tax-free.
Capital gains already are being taxed much more lightly than
income, especially when deferrals and exemptions are taken into
account. Even if exemptions were eliminated and the capital gains tax
rate were set as high as the ordinary income tax rate, the effective
burden (what economists call the present
value of the tax) would be substantially lower to the extent
that the capital gains tax is paid only retroactively, upon realization
(sale) rather than as the gains actually accrue. ...Read the whole article
Dan Sullivan: Are you a Real
Libertarian, or a ROYAL Libertarian?
Von Mises misses
Ludwig von Mises acknowledged in several places wholly unique
distinctions between land and capital, but in his zeal to denounce
land value tax, stated that,
erred when it assigned land a distinct
place in its theoretical scheme. Land is, in its economic sense, a
factor of production, and the laws determining the formation of the
prices of land are the same that determine the formation of other forms
paraphrasing of Jay Leno, go ahead and buy up the land. We'll
make more. The difference between land and capital is huge, and
explains why the cost of silicon chips goes down as demand goes up,
while the cost of Silicon Valley goes up as demand goes up. There
no natural monopolization of capital, but, with state sanction, there
is monopolization of land. But von Mises would sooner obscure these
distinctions in socialist fashion than to embrace a proposal he
mistakenly thought to be socialist.
In his first edition of Human
Action, von Mises attacked land
value tax as based on the socialist principle that legitimate
property flows only from labor. But that is also a libertarian
principle, a classical liberal principle, an Austrian principle, and
even the von Misean principle behind private property! So, by the
third edition, von Mises changed his text to read that land taxers
claim legitimate property flows only from manual labor.
This is much more logically
consistent, but factually incorrect.
It is a correct assessment of what many socialists believe, but it is
not a correct assessment of what land taxers believe. Henry George,
the most prominent land taxer of all, wrote in his magnum opus,
Progress and Poverty,
Thus the term labor
includes all human exertion in the
production of wealth, and wages, being that part of the produce which
goes to labor, includes all reward for such exertion. There is,
therefore, in the political-economic sense of the term, no distinction
as to the kind of labor, or as to whether its reward is received
through an employer or not....
George also defended the ownership
of property that flows from the
employment of capital.
Perhaps von Mises was biased by
his location in Europe, where
classical liberalism had not fared as well as in America. He might
also have first seen land value tax in the Communist Manifesto, and
not realized that it was there as a socialist ploy to co-opt support
from classical liberalism. (Marx expressed contempt for land value
tax as a reform in its own right, and openly stated that his support
of it was only to draw people to what he really wanted, which was to
control capital.) If this is where von Mises got his first exposure
to the idea, it would not be surprising to see him close his mind to
it. ... Read
the whole piece
Nic Tideman: Private Possession
as an Alternative to Rental and Private Ownership for Agricultural Land
Bill Batt: The
Compatibility of Georgist Economics and Ecological Economics
One of the reasons that the debate is so fierce between the advocates of rental
and the advocates of private ownership of agricultural land is that each position
has important strengths as well as important weaknesses. This paper argues
that there is a third possibility between rental and private ownership that
retains the strengths of both while avoiding the weaknesses of both. The third
possibility is private possession of land.
I. The Concept of Private Possession of Land
Like private ownership, a system of private possession of land involves titles
to land that have no termination date and are freely transferable. Therefore
the possessor of land can be confident of receiving the full benefit of any
improvements that are made to land. Like rental, a system of private possession
of land involves an obligation to make regular payments to the government for
the use of land. However, the payment is not for the full rental value of land,
but only for the rental value that land would have in an unimproved condition.
This collection by the government of the value that is provided by nature and
location gives recognition to the idea that land is the common heritage of
all generations, and should be available to all generations on the same terms.
It insures that prices for titles of possession will correspond only to the
cost of improvements, and will therefore not be excessive. It eliminates the
profit from land speculation. And it provides a continuing source of government
revenue. ... read the whole
The starting point of the
Georgist framework is rigorous definition of
the three factors of production — land, labor, and capital, as in
classical economics. It should be further pointed out that these
factors are mutually exclusive and jointly exhaustive of all things of
economic value. Something must necessarily be in one category or
another; there is nothing outside this
total classification. Understanding of what constitutes labor differs
little from definitions given elsewhere, regardless of which theory is
used. But definitions of land and capital differ somewhat from common
practice as well as sometimes in theory. Therefore, it is helpful to
spend time explicating the definitions of each as they are used in
Georgism, and to point out where these definitions diverge from those
most often employed in neoclassical economics applications. Many
contemporary economics texts begin by taking note of the
land-labor-capital distinction, but then make little use of it later.
These distinctions will make apparent why Georgist economics leads to
very different explanations of economic phenomena as well as to
different policy solutions.
Critical to an understanding of Georgist economics is its
of land as a special and unique factor of production. “Land,” to
Georgists, as true for classical economists throughout the 19th
century, is taken to mean not just the surface of the earth and
locational space; it means also any and all those natural resources and
non-human works that today can exact a market price. It includes the
wealth of the earth in all its natural forms, the air and water as well
as material elements. It includes phenomena of value like the
electromagnetic spectrum used to transmit communications signals, and
landing time slots such as have value at airports. As the world
economies enter a new age of high technology, these radio spectrums and
time allotments have gained ever increasing value. So also with
orbits and most recently the genetic codes of all the biota on earth.10
Sites have value relative to their location, and this is largely
function of where people choose to congregate. The highest value lands,
in urban areas and in developed nations, have market worth many times
that of sites even short distances away. Remote land sites sometimes
have no market value whatsoever, and they are typically not “owned” by
private individuals or corporations because they are not attractive for
economic use. In New York City, for example, the ownership of one small
parcel of less than an acre in Times Square was transferred from
Prudential Life Insurance Company to the Disney Corporation in 1998 for
an estimated $240 million.11 This
is more market value than all the land and buildings together in the
region north of the Mohawk River/Erie Canal in New York State. More
recently, a nine-acre parcel just south of the United Nations complex,
also available for development in New York City, was
estimated to have a site value of $750 million.12
In both these cases, the cost of razing the existing obsolete buildings
was included in these prices, a factor which suggests that the market
value of the land would have been still higher were it not for this
In contrast there are land areas in Northern Canada and in the polar
regions for which there are no private bidders at all.
It is equally important to
distinguish those factors that are not land
in the classical sense of its economic use. Natural resources such as
coal, oil, and minerals, once removed from their natural state are no
longer regarded as land. A diamond lodged in the deep earth is
land; that same diamond discovered by a prospector and then cut and
polished by a jeweler, is no longer land but capital. Likewise, fish in
the ocean are land, but fish once caught and in a boat are capital.
This is why, in any courses taught on Georgist economics, considerable
time is devoted to basic definitions. To carry the distinction just one
step further, land in the Georgist lexicon, is not wealth, whereas in
neoclassical economics it is. In the course of later discussion of the
Georgist view relative to the ecological economics approach, this will
emerge as a critical distinction, as it helps to demarcate the
boundaries of what activities fall within the realm of economic
behavior and what activities remain marginal.
This separate and identifiable recognition of land has
importance for the definition of capital
too, because capital, then,
cannot be land. Capital, rather, is the product of labor and land (and
perhaps other past capital) to add to the increased store of capital of
individuals or of the community. Capital can be of many types, ranging
from monetary wealth to technical knowledge. The store of capital
applied to land and labor results in the further production of capital
wealth. Capital allows labor to be employed with greater efficiency and
productivity, through the use of technology and instruments and with
increased human skill and knowledge. ... read the whole article
Bill Batt: How the Railroads
Got Us On the Wrong Economic Track
Professor Gaffney has for the
first time shown how powerful
economic interests in American society essentially bought the leading
figures of the newly-established American Economics Association with
all the blandishments that can be used to influence academicians.
Leading scholars were induced to change definitions of terms so that
special interests would be advantaged. What were those interests?
Primarily the railroad industry, which at the time was probably the
most powerful political force in America. By changing definitions and
conflating the land factor into capital, it was no longer essential
for land rent to be paid in taxes, and the railroads, holders of some
of the most valuable land in the nation, were thereby able to escape
their full duty. This is an astonishing story, one never fully
spelled out until now, and it explains both how the academic
community was beholden to powerful interests and how many of the
social problems we see today could have been avoided. ... read
the whole article
Weld Carter: An Introduction to
In addition, George differentiated sharply between land itself and the
products -- or wealth, as he termed them -- which labor made from the
land. "In producing wealth, labor, with the aid of natural forces, but
works up, into the forms desired, pre-existing matter, and, to produce
wealth, must, therefore, have access to this matter and to these forces
-- that is to say, to land. The land is the source of all wealth. It is
the mine from which must be drawn the ore that labor fashions. It is
the substance to which labor gives the form."
George saw, as between land and products, certain elementary
differences. "In every essential, land differs from those things
which... [are] the product of human labor. ...It is the creation of
God; they are produced by man. It is fixed in quantity; they may be
increased illimitably. It exists, though generations come and go; they
in a little while decay and pass again into the elements."
Having noted these differences, George proceeded to use them as the
basis for his examination of related areas of economics, such as
speculation. When asked how speculation worked, George responded that a
distinction must be made between speculation in land and speculation in
Writing of industrial depressions, he said, "When, with the desire to
consume more, there coexist the ability and willingness to produce
more, industrial and commercial paralysis cannot be charged either to
overproduction or to overconsumption. Manifestly, the trouble is that
production and consumption cannot meet and satisfy each other .
"How does this inability arise? It is evidently and by common consent
the result of speculation. But of speculation in what?
"Certainly not of speculation in things which are the products of labor
...for the effect of speculation in such things, as is well shown in
current treatises that spare me the necessity of illustration, is
simply to equalize supply and demand, and to steady the interplay of
production and consumption by an action analogous to that of a
fly-wheel in a machine." In other words, the tendency of
speculation in products is to increase the demand for products and
therefore to increase the price of products. This increased price will
induce more production, which, increasing the supply, will tend to
lower the price. Throughout this cycle, there has been a stimulating
effect on production in general.
He continued, "Therefore, if speculation be the cause of these
industrial depressions, it must be speculation in things not the
production of labor, but yet necessary to the exertion of labor in the
production of wealth -- of things of fixed quantity; that is to say, it
must be speculation in land."
How can this be? How can speculation in land cause industrial
depression? George explains, "...that there is a connection between the
rapid construction of railroads and industrial depression, anyone who
understands what increased land values mean, and who has noticed the
effect which the construction of railroads has upon land speculation,
can easily see. Wherever a railroad was built or projected, lands
sprang up in value under the influence of speculation, and thousands of
millions of dollars were added to the nominal values which capital and
labor were asked to pay outright, or to pay in installments, as the
price of being allowed to go to work and produce wealth. The inevitable
result was to check production. .."
The tendency of speculation in land is similar to that of speculation
in products; it increases the demand for land and thereby increases the
price of land. However, here the similarity ends. The supply of land is
fixed; as successive units of land become priced beyond the level at
which labor and capital can profitably engage in production, an
increasing (though artificial) scarcity of land develops. "The
inevitable result was to check production."
So, according to George, another difference between land and products
is that speculation in products tends to stimulate production, whereas
speculation in land tends to check production. ...
The Ethics of Property
Any discussion of Henry George should include a consideration of
his ethical ideas, for throughout his works the question of right and
wrong is dominant. In Progress and
Poverty, for instance, he struck
'. ..whatever dispute arouses the
passions of men, the conflict is
sure to rage, not so much as to the question 'Is it wise?' as to the
question 'Is it right?'. ..I bow to this arbitrament, and accept this
George wrote as a social
philosopher. Therefore his preoccupation
in the field of ethics was with the relations of man to man, rather
than with man himself -- with stealing rather than with
thriftlessness. This necessarily involves the matter of property and
Once again, the student will find
George's analysis to be based on
the differences inherent in the two categories of land and products.
"The real and natural distinction is between things which are the
produce of labor and things which are the gratuitous offerings of
nature. ...These two classes of things are in essence and relations
widely different, and to class them together as property is to
confuse all thought when we come to consider the justice or the
injustice, the right or the wrong of property."
What is the moral basis of
Is it not, primarily, the right of
a man to himself, to the use of
his own powers, to the enjoyment of the fruits of his own exertions?
... As a man belongs to himself, so his labor when put in concrete
form belongs to him.
And for this reason, that which a
man makes or produces is his
own, as against all the world -- to enjoy or to destroy, to use, to
exchange, or to give. No one else can rightfully claim it, and his
exclusive right to it involves no wrong to anyone else. Thus there is
to everything produced by human exertion a clear and indisputable
title to exclusive possession and enjoyment, which is perfectly
consistent with justice, as it descends from the original producer.
Here is a justification for
private property in products. But what
of land, which is not produced by man? Is there any other basis from
which a justification for private property in land might be derived?
In addition, is there anything in the right of private property in
products which precludes the right of private property in land?
George explains, "Now this [the
right of the individual to the
use of his own faculties] is not only the original source from
which all ideas of exclusive ownership arise ... but it is
necessarily the only source. There can be to the ownership of
anything no rightful title which is not derived from the title of the
producer and does not rest upon the natural right of the man to
himself. There can be no other rightful title, because (lst) there is
no other natural right from which any other title can be derived, and
(2nd) because the recognition of any other title is inconsistent with
and destructive of this."
To substantiate the first reason
he further said,
no ownership or control
in man save as the result of exertion. In no other way can her
treasures be drawn forth, her powers directed, or her forces utilized
or controlled. ...All men to her stand upon an equal footing and have
equal rights. She recognizes no claim but that of labor, and recognizes
that without respect to the claimant. If a pirate spread his sails, the
wind will fill them as well as it will fill those of a peaceful
merchantman. ...The laws of nature are the decrees of the Creator.
There is written in them no recognition of any right save that of
labor; and in them is written broadly and clearly the equal right of
all men to the use and enjoyment of nature; to apply to her by their
exertions, and to receive and possess her reward. Hence, as nature
gives only to abor, the exertion of labor in production is the only
title to exclusive possession (1879, rpt. 1958, pp. 335-36).
As to the second reason he said:
This right of
ownership that springs from
labor excludes the possibility of any other right of ownership. ...If
production give to the producer the right to exclusive possession and
enjoyment, there can rightfully be no exclusive possession and
enjoyment of anything not the production of labor, and the recognition
of private property in land is a wrong. For the right to the produce of
labor cannot be enjoyed without the right to the free use of the
opportunities offered by nature, and to admit the right of property in
these is to deny the right of property in the produce of labor. When
nonproducers can claim as rent a portion of the wealth created by
producers, the right of he producers to the fruits of their labor is
to that extent denied (1879, rpt. 1958, p. 336).
Private property in land,
according to George, is unjust because
it lets owners of land refuse access to land, and thereby threatens
livelihood and life itself. Private property in land is also unjust
because it enables owners of land to levy toll on production for the
use of land; therefore it is robbery. So another difference between
products and land, in George's view, is that private property in
products is right, and private property in land is wrong.... read
the whole article
Jeff Smith: Sharing Natural Rents to Sustain
Noticing rent, realizing its social nature, accepting that it's to be shared,
and understanding that wages and interest should not be expropriated, for
most people that's a new way of thinking. Thinking such thoughts leads to
way of conceiving economics, too. Ecological economics becomes not just
a branch of economics but a whole new discipline, needing a new name. In
maintain the distinction between items bearing exchange value that come
into being by human effort — wealth — and those that don't — land.
Keeping this distinction in the forefront makes it obvious and non-controversial
that speculating in land drives sprawl, that hoarding land retards Third World
development, that borrowing to buy land plus buildings engorges banks, that
so-called "interest" is quasi-rent, that the cost of land inflates faster
than the price of produced goods and services, that over half of corporate
the Urban Land Institute, is from real estate. ... read
the whole article
Bill Batt: Who Says Cities are Poor? They Just
Don't Know How to Tax Their Wealth!
One could argue that the failure to tax every bit of economic rent that
accretes to land sites also has destructive consequences, although this is
open to debate. Classical economists agree that rent collection ought to
be at least the sum of inflation plus interest, otherwise the public is facilitating
speculation in ways that distorts urban configurations even more than they
constitute an inequity. But land sites frequently rise in market price
more than the rate of inflation, especially in times (as is perhaps true
today) that a "bubble" in an economic cycle is in full flower.
Some municipalities, especially on the east and west coasts of US, are today
claiming to have increases
in housing prices of as high as 20 percent per annum, a fever that surely
will not last and will be especially destructive when it collapses. Land
values are what create that bubble; buildings are subject to continuing depreciation
just like cars, computers, refrigerators or any other manufactured (capital)
item. Recovering the economic rent reduces and perhaps even eliminates the
speculative bubbles and swings that (some argue) account for economic cycles,
fostering stability and regularity in economic planning and development that
make for improved financial health to all.
This reality brings into stark relief the choices which local political
leaders have. They may suggest increasing taxes on economic rent (i.e.,
on land value)
or recognize that most property owners are counting on treating their
homes and other property not as places to live and work so much as investments
and then lament the poverty of their cities. Owners expect to reap a gain
their property when they sell, and they are often positioned to make
to that entitlement politically unpalatable. Farmers sometimes regard
selling their farms as their retirement security. Homeowners sell with the
that this gain will provide them the means to enter long term end-of-life
facilities if necessary. Heirs also oppose that recapture just as with
a reverse mortgage.
But for every long-term property owner that walks away with a lifetime's
benefit of increased rent attached to a land title, there are just as many — if
not more — young households or emerging businesses that are prohibited
from acquiring a property because of the prohibitively expensive costs.
In this sense, a title to a socially created stream of rental benefits
a monopoly privilege to an unearned windfall gain for a lucky few. It
is both unjust and is socially and economically destructive to the greater
... read the whole article
Bill Batt: Comment on Parts of
the NYS Legislative Tax Study Commission's 1985 study “Who Pays New
Except in the implicit recognition involved in their analysis of shifting,
the distinction between land and improvements was opaque. This is a remarkable
oversight, because improvements typically depreciate at the rate of 0.5 to
1.5 percent annually; only land values appreciate. And in view of the fact
that assessments in New York localities have historically been very infrequent,
one can understand how the land values are in reality a far higher proportion
of parcel value than assessments would suggest. This means that in a period
of seven years, for example, a property parcel could easily increase in price
by 50 percent, far more if recent real estate market history is to be illustrative.
Moreover real estate prices varied greatly in their rates of change during
this time span; upstate New York was largely stable, but downstate localities
experienced huge booms and busts.
Recognition of this would tend to favor what is known as the “new
view” of property tax incidence, an acceptance of the idea that ”the
burden of the tax on improvements remains with the owners of capital in the
form of a lower net return instead of being shifted to users of property
in the form of higher rents or prices.” Proponents point out that “the
tax on improvements is essentially a nationwide tax on capital . . . [and
therefore] its incidence will depend on the characteristics of supply and
demand for capital nationally rather than on a single market.” The
effect of this is to make the tax ”highly progressive.” Nonetheless,
in a small footnote, Messrs. Pomp and Phares elected to go with the “old
view” in stating that, “it seems most appropriate to assume that
the new view does not apply to the analysis of tax burdens within one specific
state (underlining in original). Thus, the old or traditional view was adhered
to in the analysis. . ; that is, the excise effect of the tax was considered
dominant.” The ubiquity of New York's property tax, and that it has
over 1,300 local assessment and tax districts, may well have escaped their
notice. ... read the whole commentary
Nic Tideman: Using
Tax Policy to Promote Urban Growth
The land that a city has is fixed (or if it changes, it does so at the expense
of other administrative units). Therefore, with respect to land, socially productive
urban growth means adopting policies that raise the productivity of land. Labor,
on the other hand, is reasonably mobile, and capital is highly mobile. Entrepreneurship
springs up and fades away with the rise and fall of opportunities. Therefore,
in a market economy, the payments that must be made to attract these factors
are substantially outside the control of a city. Thus the growth of a city
with respect to labor, capital and entrepreneurship is achieved primarily by
making the city a place that attracts more of these factors, taking the rates
of wages, interest and profits that must be paid to attract them as given by
Tax policy is critical for urban growth because taxes on the earnings of labor,
capital and entrepreneurship drive these factors away. A city that desires
to grow should refrain from taxing wages, interest or profits and concentrate
its taxes on land, which does not have the option of moving away. ... read the whole article
Peter Barnes: Capitalism
3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)
Gifts of creation were produced only once and are irreplaceable. By contrast,
products traded in markets tend to be mass-produced and highly disposable.
It’s hard to imagine a deity who’d view such temporal goods as
equivalent to his or her enduring handiwork. The question is whether creation’s
irreplaceable gifts are different enough to merit different treatment by
our economic operating system. A strong case can be made that they are.
The case is moral as well as economic. The moral argument is that we have
a duty to preserve irreplaceable gifts of creation, whereas we have no comparable
duty toward transient commercial goods. The economic argument is that any
society that depletes its natural capital is bound to become impoverished
over time. I find both lines of argument convincing.
But what’s the reality today? Here we encounter two disconcerting
facts. The first is that there are very few property rights protecting nature’s
gifts. With the exception of a few set-asides such as parks and wilderness
areas, we subject creation’s gifts to the same rules as Wal-Mart’s
merchandise. The second is that the right of corporations to profit dominates
all other rights.
It’s time to treat creation’s gifts differently, to put different “tags” on
them so markets will recognize them and apply different rules to them. This
chapter shows how we can do that. ...
It seems to me that, if anything is divine, it should be gifts of creation.
Morally, they’re gifts we inherit together and must pass on, undiminished,
to future generations. Economically, they’re irreplaceable and invaluable
capital. Protection of these shared assets should trump transient private
gain. Broad benefit should trump narrow benefit. The commons should trump
capital. This should be written into our economic operating system and enforced
by the courts. ... read
the whole chapter