Land
Prices
If your child wants to live in the same town she or he grew
up in, what is the single highest barrier? Most likely, it is the price of
land.
If you want to open a business that in any way relies on access
to customer traffic, what is the single largest barrier to that business
plan? Most likely, it is the price of land.
Land is different from things which are manmade. It is fixed
in supply, and its price tends to rise as population increases, as technological
progress goes forward, as taxpayers invest in public goods and services.
Is there an alternative to that price increase? Yes! And it makes an ideal
revenue source for funding those public goods and services: a positive feedback
loop, if you will.
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
When a man makes a fortune by the
rise of real estate, as in New York and elsewhere many men have done
within the past few months, what does it mean? It means that he may
have fine clothes, costly food, a grand house luxuriously furnished,
etc. Now, these things are not the spontaneous fruits of the soil;
neither do they fall from heaven, nor are they cast up by the sea.
They are products of labor – can be produced only by labor. And
hence, if men who do no labor get them, it must necessarily be at the
expense of those who do labor.
The truth is, that the completion of
the railroad and the consequent great increase of business and population,
will not be a
benefit to all of us, but only to a portion. As a general rule (liable
of course to exceptions) those who have it will make
wealthier; for those who have not, it
will make it more difficult to get. Those who have lands, mines, established
businesses, special abilities of certain kinds, will become richer for it and
find increased opportunities; those who have only their own labor will be come
poorer, and find it harder to get ahead -- first, because it will take more capital
to buy land or to get into business; and second, because as competition reduces
the wages of labor, this capital will
be harder for them to obtain.
What, for instance, does the rise in land mean? Several things, but
certainly and prominently this: that it will be harder in future for
a poor man to get a farm or a homestead lot. In some sections of the
State, land which twelve months ago could have been had for a dollar
an acre, cannot now be had for less than fifteen dollars. In other words,
the settler who last year might have had at once a farm of his own, must
now either go to work on wages for some one else, pay rent or buy on
time; in either case being compelled to give to the capitalist a large
proportion of the earnings which, had he arrived a year ago, he might
have had all for of himself. And as proprietorship is thus rendered more
difficult and less profitable to the poor, more are forced into the labor
market to compete with each other, and cut down the rate of wages --
that is, to make the division of their joint production between labor
and capital more in favor of capital and less in favor of labor.
And so in San Francisco the rise in building lots means, that it will
be harder for a poor man to get a house and lot for himself, and if he
has none that he will have to use more of his earnings for rent; means
a crowding of the poorer classes together; signifies courts, slums, tenement-houses,
squalor and vice.
San Francisco has one great advantage
— there is probably a larger proportion of her population
owning homesteads and homestead lots than in any other city of
the United States. The
product of the rise of real estate will thus be more evenly distributed,
and the great social and political advantages of this diffused proprietorship
cannot be over-estimated. Nor can it be too much regretted that the
princely domain which San Francisco inherited as the successor of the pueblo was
not appropriated to furnishing free, or almost free, homesteads to
actual settlers, instead of being allowed to pass into the hands of
a few, to make more millionaires. Had the matter been taken up in time
and in a proper spirit, this disposition might easily have been secured,
and the great city of the future would have had a population bound
to her by the strongest ties -- a population better, freer, more virtuous,
independent and public spirited than any great city the world has ever
had.
To say that "Power is constantly stealing
from the many to the few," is only to state in another form the law that
wealth tends to concentration. In the new era into which the world has
entered since the application of steam,
this law is more potent than ever; in the new era into which California
is entering, its operations will be more marked here than ever before.
The locomotive is a
great centralizer. It kills towns and builds up great cities, and in
the same way kills little businesses and builds up great ones. We have
had comparatively
but few rich men; no very rich ones, in the meaning "very rich" has in
these times. But the process is going on. The great city that is to be will have its Astors,
Vanderbilts, Stewarts and Spragues, and he who looks a few years ahead
may even now read
their names as he passes along Montgomery, California or Front
streets. With the protection which property gets in modern
times -- with stocks, bonds, burglar-proof safes and policemen; with
the railroad and
the telegraph, after a man gets a certain amount of money it is plain
sailing, and he need take no risks. Astor said that to get his first
thousand dollars
was his toughest struggle; but when one gets a million, if he has ordinary
prudence, how much he will
have is only a question of life. Nor
can we rely on the absence of laws of primogeniture and entail to dissipate
these large
fortunes so menacing to the general weal. Any large fortune will, of
course, become dissipated in time, even in spite of laws of primogeniture
and entail;
but every aggregation of wealth implies and necessitates others, and
so that the aggregations remain, it matters little in
what particular hands. Stewart, in the natural course of things,
will die before long, and being childless, his wealth will be dissipated,
or at least
go out of the dry goods business. But will this avail the smaller dealers
whom he has crushed or is crushing out? Not at all. Some one else will
step in, take
his place in the trade, and run the great money-making machine which
he has organized, or some other similar one. Stewart and other great
houses have concentrated the
business, and
it will remain concentrated. ... read the whole article
The importance that we
attribute to this taking of rent is that it is not merely taking that
much from a source that will not restrict industry, will not oppress
labour, will not hamper production; but it will make mere
landownership utterly valueless. (Applause.) By taking the rent
- we
make it unprofitable to hold land in expectation of future increase
in its value. (Cheers.)
- We make it impossible to extort from the
worker a monopoly rent (Hear, hear.)
- We make it impossible for great
landowners to hold vast tracts of land – which their fellow
citizens would be glad to make fruitful – in idleness or for
purposes of pleasure. (Loud cheers.)
Tax land values up to the full
and what would you have? The land that has no value, that is to say,
the land that two men do not want to use could be had by labour not
merely without price, but without tax. The selling value of land
would be destroyed, and all that the user of land need pay would be a
price amounting to the special advantage that he had above his
fellows by the possession and use of a particular piece of land.
...
What has the
deterioration in the condition of our farms been caused by? Not, as
Mr Hyndman says, by any exploiting power of capital, but by the
monopolisation of land, and by the taxes levied on industry (Hear,
hear.) What do these great farms come from? They come from the great
railroad grants. (Hear, hear.) They come from the system permitted
under the land-laws of the United States, under which single
individuals have taken hundreds of thousands of acres. And from the
same cause comes the mortgage on the farms. Wherever the farmer goes
he finds the speculator ahead of him, he finds the land already taken
up, and he must either start with capital and pay a large sum for the
purpose of getting virgin soil to cultivate, or he must mortgage his
labour for years. That is what he does. (Hear; hear.) The real cause
is in the high purchase price, of his land, and that is why times
have been getting harder in the United States. Then I am asked, how
can a man using a spade compete with this great machinery of the
5,000 acre farm? This, at least, he can do; he can make a living and
a good living, too; and when men can make a good living themselves
they will not work for anything less than that for any capitalist.
(Loud cheers.) ... Read the entire article
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
d. Effect of Confiscating Rent to Private Use.
By giving Rent to individuals society ignores this most just law, 99 thereby
creating social disorder and inviting social disease. Upon society alone,
therefore, and not upon divine Providence which has provided bountifully,
nor upon the disinherited poor, rests the responsibility for poverty and
fear of poverty.
99. "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?'
"This tendency of popular discussions to take an
ethical form has a cause. It springs from a law of the human mind; it
rests upon a vague and instinctive recognition of what is probably the
deepest truth we can grasp. That alone is wise which is just; that alone
is enduring which is right. In the narrow scale of individual actions
and individual life this truth may be often obscured, but in the wider
field of national life it everywhere stands out.
"I bow to this arbitrament, and accept this test." — Progress
and Poverty, book vii, ch. i.
The reader who has been deceived into believing that Mr.
George's proposition is in any respect unjust, will find profit in a
perusal of the entire chapter from which the foregoing extract is taken.
Let us try to trace the connection by means of a chart, beginning with the
white spaces on page 68. As before, the first-comers take possession of the
best land. But instead of leaving for others what they do not themselves
need for use, as in the previous illustrations, they appropriate the whole
space, using only part, but claiming ownership of the rest. We may distinguish
the used part with red color, and that which is appropriated without use
with blue. Thus: [chart]
But what motive is there for appropriating more of the space than is used?
Simply that the appropriators may secure the pecuniary benefit of future
social growth. What will enable them to secure that? Our system of confiscating
Rent from the community that earns it, and giving it to land-owners who,
as such, earn nothing.100
100. It is reported from Iowa that a few years ago a workman
in that State saw a meteorite fall, and. securing possession of it after
much digging, he was offered $105 by a college for his "find." But
the owner of the land on which the meteorite fell claimed the money,
and the two went to law about it. After an appeal to the highest court
of the State, it was finally decided that neither by right of discovery,
nor by right of labor, could the workman have the money, because the
title to the meteorite was in the man who owned the land upon which it
fell.
Observe the effect now upon Rent and Wages. When other men come, instead
of finding half of the best land still common and free, as in the corresponding
chart on page 68, they find all of it owned, and are obliged either to go
upon poorer land or to buy or rent from owners of the best. How much will
they pay for the best? Not more than 1, if they want it for use and not to
hold for a higher price in the future, for that represents the full difference
between its productiveness and the productiveness of the next best. But if
the first-comers, reasoning that the next best land will soon be scarce and
theirs will then rise in value, refuse to sell or to rent at that valuation,
the newcomers must resort to land of the second grade, though the best be
as yet only partly used. Consequently land of the first grade commands Rent
before it otherwise would.
As the sellers' price, under these circumstances, is arbitrary it cannot
be stated in the chart; but the buyers' price is limited by the superiority
of the best land over that which can be had for nothing, and the chart may
be made to show it: [chart]
And now, owing to the success of the appropriators of the best land in securing
more than their fellows for the same expenditure of labor force, a rush is
made for unappropriated land. It is not to use it that it is wanted, but
to enable its appropriators to put Rent into their own pockets as soon as
growing demand for land makes it valuable.101 We may, for illustration, suppose
that all the remainder of the second space and the whole of the third are
thus appropriated, and note the effect: [chart]
At this point Rent does not increase nor Wages fall, because there is no
increased demand for land for use. The holding of inferior land for higher
prices, when demand for use is at a standstill, is like owning lots in the
moon — entertaining, perhaps, but not profitable. But let more land
be needed for use, and matters promptly assume a different appearance. The
new labor must either go to the space that yields but 1, or buy or rent from
owners of better grades, or hire out. The effect would be the same in any
case. Nobody for the given expenditure of labor force would get more than
1; the surplus of products would go to landowners as Rent, either directly
in rent payments, or indirectly through lower Wages. Thus: [chart]
101. The text speaks of Rent only as a periodical or continuous
payment — what would be called "ground rent." But actual
or potential Rent may always be, and frequently is, capitalized for the
purpose of selling the right to enjoy it, and it is to selling value
that we usually refer when dealing in land.
Land which has the power of yielding Rent to its owner
will have a selling value, whether it be used or not, and whether Rent
is actually derived from it or not. This selling value will be the capitalization
of its present or prospective power of producing Rent. In fact, much
the larger proportion of laud that has a selling value is wholly or partly
unused, producing no Rent at all, or less than it would if fully used.
This condition is expressed in the chart by the blue color.
"The capitalized value of land is the actuarial 'discounted'
value of all the net incomes which it is likely to afford, allowance
being made on the one hand for all incidental expenses, including those
of collecting the rents, and on the other for its mineral wealth, its
capabilities of development for any kind of business, and its advantages,
material, social, and aesthetic, for the purposes of residence." — Marshall's
Prin., book vi, ch. ix, sec. 9.
"The value of land is commonly expressed as a certain
number of times the current money rental, or in other words, a certain
'number of years' purchase' of that rental; and other things being equal,
it will be the higher the more important these direct gratifications
are, as well as the greater the chance that they and the money income
afforded by the land will rise." — Id., note.
"Value . . . means not utility, not any quality inhering
in the thing itself, but a quality which gives to the possession of a
thing the power of obtaining other things, in return for it or for its
use. . . Value in this sense — the usual sense — is purely
relative. It exists from and is measured by the power of obtaining things
for things by exchanging them. . . Utility is necessary to value, for
nothing can be valuable unless it has the quality of gratifying some
physical or mental desire of man, though it be but a fancy or whim. But
utility of itself does not give value. . . If we ask ourselves the reason
of . . . variations in . . . value . . . we see that things having some
form of utility or desirability, are valuable or not valuable, as they
are hard or easy to get. And if we ask further, we may see that with
most of the things that have value this difficulty or ease of getting
them, which determines value, depends on the amount of labor which must
be expended in producing them ; i.e., bringing them into the place, form
and condition in which they are desired. . . Value is simply an expression
of the labor required for the production of such a thing. But there are
some things as to which this is not so clear. Land is not produced by
labor, yet land, irrespective of any improvements that labor has made
on it, often has value. . . Yet a little examination will show that such
facts are but exemplifications of the general principle, just as the
rise of a balloon and the fall of a stone both exemplify the universal
law of gravitation. . . The value of everything produced by labor, from
a pound of chalk or a paper of pins to the elaborate structure and appurtenances
of a first-class ocean steamer, is resolvable on analysis into an equivalent
of the labor required to produce such a thing in form and place; while
the value of things not produced by labor, but nevertheless susceptible
of ownership, is in the same way resolvable into an equivalent of the
labor which the ownership of such a thing enables the owner to obtain
or save." — Perplexed Philosopher, ch. v.
The figure 1 in parenthesis, as an item of Rent, indicates potential Rent.
Labor would give that much for the privilege of using the space, but the
owners hold out for better terms; therefore neither Rent nor Wages is actually
produced, though but for this both might be.
In this chart, notwithstanding that but little space is used, indicated
with red, Wages are reduced to the same low point by the mere appropriation
of space, indicated with blue, that they would reach if all the space above
the poorest were fully used. It thereby appears that under a system which
confiscates Rent to private uses, the demand for land for speculative purposes
becomes so great that Wages fall to a minimum long before they would if land
were appropriated only for use.
In illustrating the effect of confiscating Rent to private use we have as
yet ignored the element of social growth. Let us now assume as before (page
73), that social growth increases the productive power of the given expenditure
of labor force to 100 when applied to the best land, 50 when applied to the
next best, 10 to the next, 3 to the next, and 1 to the poorest. Labor would
not be benefited now, as it appeared to be when on page 73 we illustrated
the appropriation of land for use only, although much less land is actually
used. The prizes which expectation of future social growth dangles before
men as the rewards of owning land, would raise demand so as to make it more
than ever difficult to get land. All of the fourth grade would be taken up
in expectation of future demand; and "surplus labor" would be crowded
out to the open space that originally yielded nothing, but which in consequence
of increased labor power now yields as much as the poorest closed space originally
yielded, namely, 1 to the given expenditure of labor force.102 Wages would
then be reduced to the present productiveness of the open space. Thus: [chart]
102. The paradise to which the youth of our country have
so long been directed in the advice, "Go West, young man, go West," is
truthfully described in "Progress and Poverty," book iv, ch.
iv, as follows :
"The man who sets out from the eastern seaboard
in search of the margin of cultivation, where he may obtain land without
paying rent, must, like the man who swam the river to get a drink,
pass for long distances through half-titled farms, and traverse vast
areas of virgin soil, before he reaches the point where land can be
had free of rent — i.e., by homestead entry or preemption."
If we assume that 1 for the given expenditure of labor force is the least
that labor can take while exerting the same force, the downward movement
of Wages will be here held in equilibrium. They cannot fall below 1; but
neither can they rise above it, no matter how much productive power may increase,
so long as it pays to hold land for higher values. Some laborers would continually
be pushed back to land which increased productive power would have brought
up in productiveness from 0 to 1, and by perpetual competition for work would
so regulate the labor market that the given expenditure of labor force, however
much it produced, could nowhere secure more than 1 in Wages.103 And this
tendency would persist until some labor was forced upon land which, despite
increase in productive power, would not yield the accustomed living without
increase of labor force. Competition for work would then compel all laborers
to increase their expenditure of labor force, and to do it over and over
again as progress went on and lower and lower grades of land were monopolized,
until human endurance could go no further.104 Either that, or they would
be obliged to adapt themselves to a lower scale of living.105
103. Henry Fawcett, in his work on "Political Economy," book
ii, ch. iii, observes with reference to improvements in agricultural
implements which diminish the expense of cultivation, that they do not
increase the profits of the farmer or the wages of his laborers, but
that "the landlord will receive in addition to the rent already
paid to him, all that is saved in the expense of cultivation." This
is true not alone of improvements in agriculture, but also of improvements
in all other branches of industry.
104. "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 to continuously
reduce wages until zero were reached, it would be possible to continuously
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. Yet that there
is in all progressive countries a constant tendency in the speculative
advance of rent to overpass the limit where production would cease, is,
I think, shown by recurring seasons of industrial paralysis." — Progress
and Poverty, book iv, ch. iv.
105. As Puck once put it, "the man who makes two
blades of grass to grow where but one grew before, must not be surprised
when ordered to 'keep off the grass.' "
They in fact do both, and the incidental disturbances of general readjustment
are what we call "hard times." 106 These culminate in forcing unused
land into the market, thereby reducing Rent and reviving industry. Thus increase
of labor force, a lowering of the scale of living, and depression of Rent,
co-operate to bring on what we call "good times." But no sooner
do "good times" return than renewed demands for land set in, Rent
rises again, Wages fall again, and "hard times" duly reappear.
The end of every period of "hard times" finds Rent higher and Wages
lower than at the end of the previous period.107
106. "That a speculative advance in rent or land
values invariably precedes each of these seasons of industrial depression
is everywhere clear. That they bear to each other the relation of cause
and effect, is obvious to whoever considers the necessary relation between
land and labor." — Progress and Poverty, book v, ch. i.
107. What are called "good times" reach a point
at which an upward land market sets in. From that point there is a downward
tendency of wages (or a rise in the cost of living, which is the same
thing) in all departments of labor and with all grades of laborers. This
tendency continues until the fictitious values of land give way. So long
as the tendency is felt only by that class which is hired for wages,
it is poverty merely; when the same tendency is felt by the class of
labor that is distinguished as "the business interests of the country," it
is "hard times." And "hard times" are periodical
because land values, by falling, allow "good times" to set
it, and by rising with "good times" bring "hard times" on
again. The effect of "hard times" may be overcome, without
much, if any, fall in land values, by sufficient increase in productive
power to overtake the fictitious value of land.
The dishonest and disorderly system under which society confiscates Rent
from common to individual uses, produces this result. That maladjustment
is the fundamental cause of poverty. And progress, so long as the maladjustment
continues, instead of tending to remove poverty as naturally it should, actually
generates and intensifies it. Poverty persists with increase of productive
power because land values, when Rent is privately appropriated, tend to even
greater increase. There can be but one outcome if this continues: for individuals
suffering and degradation, and for society destruction. ... read the book
Nic Tideman: Basic Tenets of the
Incentive Taxation Philosophy
Reducing the Price of
Land
We recognize that the implementation of our ideas will lead to
the
disappearance of the sale value of titles to unimproved land and
other forms of privilege. While some will see this as an unjust
confiscation of property, we deny this.
We believe that it is possible to
implement our ideas while
remaining true to principles of
justice. We note first that, while we
propose to introduce or increase fees for exclusive access to
opportunities assigned by governments, we also propose to eliminate
existing taxes.
For many people the value of
eliminating existing taxes will
offset the fall in the market value of the privileges they now claim.
But it cannot be expected that all persons experience full offsets.
There will be some persons whose income prospects fall as a
consequence of the implementation of our ideas. But this in itself
does not constitute injustice. Every change disappoints someone.
It is our view that what makes a
disappointing change an injustice
is not the fact of disappointment, but rather a self-seeking
disregard for adverse consequences to those whose prospects fall.
Such selfish disregard for others must be distinguished from the
implementation of new moral insights. Of course, one can always try
to hide self-seeking proposals behind a facade of alleged
principle.
Thus the necessary distinctions
are difficult to make, but this
does not justify abandoning the effort to make them. ... Read
the whole article
Nic Tideman: The Case
for Taxing Land
I. Taxing Land as Ethics
and Efficiency
II. What is Land?
III. The simple efficiency argument for taxing land
IV. Taxing Land is Better Than Neutral
V. Measuring the Economic Gains from Shifting Taxes to Land
VI. The Ethical Case for Taxing Land
VII. Answer to Arguments against Taxing Land
There is a case for taxing land based on ethical principles and
a case
for taxing land based on efficiency principles. As a matter of
logic, these two cases are separate. Ethical conclusions
follow from ethical premises and efficiency conclusions from efficiency
principles. However, it is natural for human minds to conflate
the two cases. It is easier to believe that something is good if
one knows that it is efficient, and it is easier to see that something
is efficient if one believes that it is good. Therefore it is
important for a discussion of land taxation to address both question of
efficiency and questions of ethics.
This monograph will first address the efficiency case for taxing land,
because that is the less controversial case. The efficiency case
for taxing land has two main parts. ...
To estimate the magnitudes of the impacts that additional taxes
on land
would have on an economy, one must have a model of the economy. I
report on estimates of the magnitudes of impacts on the U.S. economy of
shifting taxes to land, based on a mathematical model that is outlined
in the Appendix.
The ethical case for
taxing land is based on two ethical premises: ...
The ethical case for taxing land ends with a discussion of the
reasons
why recognition of the equal rights of all to land may be essential for
world peace.
After developing the efficiency argument and the ethical
argument for
taxing land, I consider a variety of counter-arguments that have been
offered against taxing land. For
a given level of other taxes, a
rise in the rate at which land is taxed causes a fall in the selling
price of land. It is sometimes argued that only modest
taxes on
land are therefore feasible, because as the rate of taxation on land
increases and the selling price of land falls, market transactions
become increasingly less reliable as indicators of the value of
land. ...
Another basis on which it is argued that greatly increased taxes
on
land are infeasible is that if land values were to fall precipitously,
the financial system would collapse. ...
Apart from questions of feasibility, it is sometimes argued that
erosion of land values from taxing land would harm economic efficiency,
because it would reduce opportunities for entrepreneurs to use land as
collateral for loans to finance their ideas. ...
.
Another ethical argument that is made against taxing land is
that the
return to unusual ability is “rent” just as the return to land is
rent. ...
But before developing any of these arguments, I must discuss
what land
is.
What is Land?
David Ricardo defined land, memorably, as ‘the original and
indestructible powers of the soil.’ This definition is overly
narrow. It would exclude from land such valuable and
destructible things as minerals and topsoil. Ricardo’s definition
even suggests that the value of land arising from urban locations might
not be included in ‘land,’ since it would not necessarily qualify as a
‘power of the soil.’
The definition of land that is most useful in economic theory is
that
land is all scarce factors of production other than people and the
products of human effort. Land is the gifts of nature. Thus land
includes both rural and urban territory, mineral resources, water, fish
in oceans and rivers, virgin forests, geosynchronous orbits and the
frequency spectrum.
While there is some tendency to think of measuring land in
‘stock’
terms (‘What is the value of that piece of land?’), the flow of
services from land is more fundamental. While capital goods have
selling prices related to their costs of production, such a calculation
does not apply to land since, by definition, land is not
produced. The selling price of land is conceived in economic
theory as the present value of the net return after taxes to the future
flow of land services, when the land is used in the way that maximizes
that present value. Following David Ricardo, the value of
the
flow of services from land is sometimes described as the residual after
paying other factors their opportunity costs, when land is used
efficiently. But in equilibrium, a similar statement can be made
about any other factor. ...
A rise in the rate of taxation of land reduces the potential
profit
from speculating in land because it reduces the selling price of
land. Thus a rise in land taxes reduces the speculative demand
for land (the number of pounds per month that a speculator is willing
to pay in interest in taxes to hold a parcel of land with given
prospects in his mind), but a rise in land taxes does not reduce the
number of pounds per month that a current user of land is willing to
pay in interest in taxes for current use of land. Thus a tax on
land shifts land from speculators to current users, thereby reducing
the tendency toward an artificial scarcity of land from
speculation. ... Read the whole article
Jeff Smith and Kris Nelson: Giving
Life to the Property Tax Shift (PTS)
John Muir is right. "Tug on any
one
thing and find it connected to everything else in the universe." Tug on
the property tax and find it connected to urban slums, farmland loss,
political favoritism, and unearned equity with disrupted neighborhood
tenure. Echoing Thoreau, the more familiar reforms have failed to
address this many-headed hydra at its root. To think that the root
could be chopped by a mere shift in the property tax base -- from
buildings to land -- must seem like the epitome of unfounded faith. Yet
the evidence shows that state and local tax activists do have a
powerful, if subtle, tool at their disposal. The "stick" spurring
efficient use of land is a higher tax rate upon land, up to even the
site's full annual value. The "carrot" rewarding efficient use of land
is a lower or zero tax rate upon improvements. ...
And by
taxing land, society impels owners who had been speculatively
withholding or underutilizing theirs to develop or offer their parcels
for development. Hence the newly-available land comes from recycled
sites, not from open space.
The PTS not only lowers the price of land, it also lowers the cost of
buildings. Untaxing structures, besides reducing their cost, also
augments their supply. More buildings means lower prices and rents. As
the prices of both buildings and land drop, more people are able to
purchase a home, apartment, or condominium.
Ethically, the PTS simplifies the revenue system, leaving fewer
decisions to be made by politicians in favor of their backers. All the
essential facts are open to public scrutiny: the land's owner, value,
use, and levy. And since mere speculation would no longer be
profitable, owners would have less monetary motive to try to unduly
influence the political process. ...
The failed policy that the PTS
would replace
is the present property tax. This is actually two taxes in one, one on
land and another on improvements. The tax on improvements penalizes
owners for improving. This negative incentive does its greatest damage
at the margin, where profit is slim. There, rather than pay a higher
tax, owners let buildings dilapidate into slums. The lack of much tax
on land keeps overhead on speculators affordable. This negative
incentive lets owners under-utilize prime sites, even withhold them
from use entirely. Kept from prime sites, development sprawls outward.
Sprawl inflates the values of suburban and rural land. Leap-frog
development raises a few spikes in a land value map that soon pull up
values everywhere, increasing the property tax burden of owners of
previously developed sites, unless the tax is capped. The resultant
sprawl also raises enormously the cost of extending infrastructure and
makes auto-dependency a given.
The PTS reverses all these negative consequences.
- Rather than burden
construction, taxing only land spares it.
- Rather than spread
development (hooking us on cars), taxing land concentrates it
(providing a market for mass transit).
- Rather
than inflate land price,
a land tax squashes it.
- Rather than enrich the owners of
prime sites or
itself, a land-taxing government could rebate some collected site rent
as a dividend, perhaps in the form of a Housing Voucher, making home
ownership inflation-proof.
A big problem needs a big solution which
in turn needs a
matching shift of our prevailing paradigm. Geonomics -- advocating that
we share the social value of sites and natural resources and untax
earnings -- does just that. Read the whole article
Jeff Smith: Leaking Economic
Value of Communities
Wearing pajamas outdoors in the
winter, one wouldn’t expect
to retain body heat. Yet, people do try to sustain community while
hemorrhaging its commonwealth. Losing it, residents must work more
than necessary.
When residents import food and
energy, they deprive others in the
community of income. Yet, the loss pales when compared to paying
mortgages and [income] taxes. A recent
study of Oakland, CA found torrents of dollars pumped out of town
headed for the treasuries of distant capitols and the bank vaults of
distant lenders.
While mortgages and interest
elevate an elite elsewhere, they keep
debtors on a treadmill at home. To those anxious over every next
payment, how appealing is an economy no longer expanding its girth?
In addition, what’s their debt for? Credit? The total savings of
all members of a community should suffice. Local bank "used to" be
the norm. ...
How
can communities capture that flow of natural values and keep
it circulating locally? Get local government to charge some kind of
land use fee. Depending on state law, the locality could
replace the
property tax with a site value tax, raise the fee for defending
deeds, levy a fee for resource use, and/or resurrect ancient land
dues.
No
matter what the mechanism, as the community collects more of
its value, that leaves less for owners to capitalize into price; as
land dues rise, land prices must fall.
Cheap land means buyers need
borrow less, shrinking mortgages.
Less demand for credit also drops
the lending rate.
Deflated profits makes real estate less attractive
to mega-banks, more suitable to local lenders.
Not only would it plug the leaks of loans and outside taxes,
collecting land value would also spur efficient use of land, making
cities compact, less auto-infested ...
Inflated land values require heavier mortgages and are afforded
by
high-income people paying high taxes. Expanding infrastructure to
accommodate growth forces local government to raise taxes or borrow.
Many people who made their community attractive can no longer afford
to live there.
Community, where we live, and
economy, how we live, cannot be
separated. As long as communities leak economic value, they cannot
sustain themselves in a steady-state, like the skinny guy with a
tapeworm wondering why he’s always hungry. By reclaiming land
values, a community plugs its leaks so residents can sustain the
lives of nature and neighborhood. ... Read the whole article
Henry George: How
to Help the
Unemployed (1894)
... Yet why is it that men able to work and willing to work
cannot
find work? ..
For the question of the unemployed is
but a more than usually acute phase of the great labor question -- a
question of the distribution of wealth. Now, given any wrong, no
matter what, that affects the distribution of wealth, and it follows
that the leading class must be averse to any examination or question
of it. For, since wealth is power, the leading class is necessarily
dominated by those who profit or imagine they profit by injustice in
the distribution of wealth. Hence, the very indisposition to ask the
cause of evils so great as to arouse and startle the whole community
is but proof that they spring from some wide and deep injustice. ...
... So that, whether we begin at the right or the
wrong end, any analysis brings us at last to the conclusion that the
opportunities of finding employment and the rate of all wages depend
ultimately upon the freedom of access to land; the price that labor
must pay for its use....
... Today, as the last census reports show, the majority of
American farmers are rack-rented tenants, or hold under mortgage, the
first form of tenancy; and the great majority of our people are
landless men, without right to employ their own labor and without stake
in the land they still foolishly speak of as their country. This is the
reason why the army of the unemployed has appeared among us, why by
pauperism has already become chronic, and why in the tramp we have in
more dangerous type the proletarian of ancient Rome.
These recurring spasms of business stagnation; these long-drawn
periods of industrial depression, common to the civilized world, do not
come from our treatment of money; are not caused and are not to be
cured by changes of tariffs. Protection is a robbery of labor, and what
is called free trade would give some temporary relief, but speculation
in land would only set in the stronger, and at last labor and capital
would again resist, by partial cessation, the blackmail demanded for
their employment in production, and the same round would be run again. There is but one remedy, and that is what
is now known as the single-tax -- the abolition of all taxes upon labor
and capital, and of all taxes upon their processes and products, and
the taking of economic rent, the unearned increment which now goes to
the mere appropriator, for the payment of public expenses. Charity
can merely demoralize and pauperize, while that indirect form of
charity, the attempt to artificially "make work" by increasing public
expenses and by charity woodyards and sewing-rooms, is still more
dangerous. If, in this sense, work is to be made, it can be made more
quickly by dynamite and kerosene.
But there is no need for charity; no need for "making work." All
that is needed is to remove the restrictions that prevent the natural
demand for the products of work from availing itself of the natural
supply. Remove them today, and every unemployed man in the country
could find for himself employment tomorrow, and his "effective demand"
for the things he desires would infuse new life into every subdivision
of business and industry, even that of the dentist, the preacher, the
magazine writer, or the actor.
The country is suffering from "scarcity of employment." But let
anyone to-day attempt to employ his own labor or that of others,
whether in making two blades of grass grow where one grew before, or in
erecting a factory, and he will at once meet the speculator to demand
of him an unnatural price for the land he must use, and the
tax-gatherer to fine him for his act in employing labor as if he had
committed a crime. The
common-sense way to cure "scarcity of employment" is to take taxes off
the products and processes of employment and to impose in their stead
the tax that would end speculation in land.
But, it will be said, this is
not quick enough. On the contrary, it is quicker than anything else.
Even the public recognition of its need, by but a part of the
intelligence and influence that is now devoted to charity appeals and
schemes, would have such an effect upon the speculative price of land
as to at once set labor and capital to work. Read the entire
article
Bill Batt: Who Says Cities are Poor? They Just
Don't Know How to Tax Their Wealth!
What is most called for today is a return to basic analysis. Elementary economics
starts with the recognition that there are three factors of production in the
creation of social wealth. Each of those factors are mutually exclusive and,
taken together, are jointly exhaustive of all sources of market value. The
first of these is what classical economics from Adam Smith on called land.
Land meant every aspect of nature to which industry can be applied; it meant
not just locations of space but air, water, and mineral wealth. Today sunlight,
radio waves, and even time, on occasion, would be added. The second factor
of production is labor, referring quite simply to the effort applied by people's
minds or bodies to land. The third factor is the product of past application
of land and labor to current production: capital. Each factor in classical
economics has its price, the product of which is the creation of wealth as
we commonly understand it. The price of labor is wages; the price of capital
is interest, and the price of land is rent. Rent, as understood in economics,
is not payment for the use of property owned by others; it has, rather, a more
technical meaning, one which will require greater explication below.
We have largely lost sight of these basic premises of economic thought,
and it has led to our general inability to address the urban challenge of
taxation
with a perspective that offers an easy solution. Returning to these fundamental
building blocks makes things much simpler and more comprehensible. Labor
continues to be easily understood; its meaning has not changed in the course
of a shift
from classical to neoclassical economic thought. But capital, which had
earlier encompassed only those creations that were the result of human enterprise— the
product of labor and land, has now been redefined to include land. Land
by itself in contemporary neoclassical economics has dropped out of the equation
altogether, and so for the most part has the concept of economic rent.[4] Mathematical
formulas in neoclassical economics are entirely changed.
There is good reason, however, to recover the use of the terms land and rent
as they were employed in 19th century classical economics: rent is the surplus
produced by the collective enterprise that can provide the necessary revenue
to easily support public services, if it were only collected in the form of
taxes.[5] In fact, by shifting
taxes off labor and capital and onto land rent, the performance of markets
would be made fully efficient and would be essentially painless to taxpayers.
This is the thesis I am arguing here, and which is now possible to demonstrate
with the advent of computer power and available data. It amplifies and validates
what has been for a century only a plausible theoretical claim. We can now
show that collecting economic rent can provide for all the services demanded
of cities and avail themselves of the proper tax base that exceeds all others.[6] And
unlike other taxes there is no downside impact; in fact it's positive. Economic
rent is the surplus created by the community, and it circulates through the
markets until it ultimately comes to settle on land sites.[7] The
result of its accretion to land sites is to raise their market price. Economic
rent is sometimes called land rent or ground rent for this reason, and comes
about not through any titleholder's individual enterprise but by the consequence
rather of society's collective effort. British political economist David Ricardo
first conceived of land rent in terms of its relationship to agricultural production
in the early 1800s, but its applicability today is understood far more easily
with regard to the site values in cities. Whereas ground rent to Ricardo reflected
the differential gifts of nature inherent in various land sites, it is today
better understood as reflective of locational differentials in the capacities
of communities.
This is relatively easy to understand by considering a vacant expanse of
land that has imposed upon it a grid of roads like a tic-tac-toe board.
Suppose each of the squares were privately owned, and development of those
sites were
to ensue, the economic surplus generated by that market activity would
raise the value of each of those locations. Let's further suppose that every
site
were developed except the center square, that titleholder choosing instead
to just hold his title vacant. Which land site, discounting the building
values, would command the greatest market price after a short time? The
center square,
of course — even though that owner made no effort to earn that
increase in price. The center square would see the greatest accretion
of economic
rent because of its strategic access. It would be the passive beneficiary
of the
surplus generated by the common enterprise of all the market exchanges
resulting from the other locations. In just this way rent becomes the
social creation
of the community and not the result of any private individual's enterprise.
The more the economic activity, the more the surplus generated comes
to settle on land in the form of rent. Rent accretes to land sites and
raises their
market value, directly reflecting the varying levels of productive economic
surplus
generated over time throughout a community. High economic productivity
yields high surplus rent.
If one plots the land value per unit area, whether by square foot, acre, hectare,
or square mile, as is now possible to easily do using modern computer programs,
the differential land values are easy to approximate. Typically the center
of a city experiences the peak land value, with a precipitous decline as one
leaves the center and departs to its outer edge. The highest value locations
are the commercial cores, falling quickly as one travels out to residential
locations, and with agricultural and forest lands having only a small fraction
of the value commanded at the center. In areas of New York City, the market
price of locations has been shown to be in the vicinity of $500 million per
acre. Even in smaller cities, there is little realization of the enormous cost
of sites in core areas: in downtown Des Moines, the price per acre was $31.5
million. Other illustrations are easily available, particularly in urban areas
on the east and west coasts of the US. Taking another perspective, the urbanized
center of Tompkins County, New York (Ithaca) is five percent of the land area
but contains ninety-five percent of the land value.[8] To
see where the land values are highest, it is easiest to look at a city's skyline.[9] The
tallest buildings sit on the most expensive land parcels. Typically the aggregate
land value of a city is about 40 percent of the combined market value of land
and improvements. The proportion of overall land value to building value is
revealed by that profile, known as a landvaluescape.[10] Some
buildings will exceed that proportion — a large investment on a small
footprint; other sites may be vacant or depreciated buildings with a far
smaller land to building ratio. The dynamic at work here is easily understood:
the
greater a land site's value the greater the incentive to take advantage
of its location; following the same logic, the more intensive the investments
in particular neighborhoods the greater market value of remaining or underused
land sites, making any locations that are underutilized good candidates
for
improvement. So it is that downtowns generate land values many times those
of farther reaches; each investment development fosters others.
The land values are highest in urban cores, one is reminded, because the economic
rent passes as a surplus through all market transactions and comes to settle
on land sites. Rent happens, so to speak, and it raises the market price of
sites accordingly. Were cities to recover the socially produced ground rent
in the form of tax revenue, it would not be left to collect on sites but could
be used to provide the financial wherewithal for the services that cities are
bound to perform. As will be evident below, the amount of economic rent available
for recovery is thought sufficient to pay for all services and then some. Today
it simply collects on sites of greatest activity with typical and visible negative
consequences.
One might suppose that collecting the economic rent would leave locational
sites with less market price appreciation, stabilizing land prices at levels
that are more within reach for various developments. To be sure collecting
economic rent exerts a downward pressure on market prices. But there is a countervailing
pressure that works to neutralize whatever tendencies are otherwise at work:
the collection of rent, especially from high-value sites, increases the carrying
costs in ways that provides a greater inducement for their titleholders to
improve them. That incentive fosters development in areas that, together in
combination with other activity generated in neighborhoods, tends to maintain
the stability of land markets in a roughly constant pattern.[11] ... read the whole article
Charles T. Root — Not a Single Tax! (1925)
Every community, whatever its political name and extent -- village, city,
state or province or nation -- has its own normal, unfailing income, growing
with the growth of the community and always adequate to meet necessary governmental
expenditure.
To explain: Every community has an indefeasible original right to the land
on which it exists, and to all the natural, unmodified properties and advantages
of that particular area of the earth's surface. To this land in its natural
state, undrained, unfenced, unfertilized, unplanted and unoccupied, including
its waters, its contents and its location, every individual in the community
(which may consist of any political unit selected) has an equal right, while
all the individuals together have a joint right to the value for use which
society has conferred upon these natural advantages.
This value for use is known as "Land Value," or by the not particularly
descriptive but generally adopted name of "Economic Rent."
Briefly defined the land value or economic rent of any piece of ground is
the largest annual amount voluntarily offered for the exclusive use of that
ground, or of an equivalent parcel, independent of improvements thereon. Every
holder or user of land pays economic rent, but he now pays most of it to the
wrong party. The aggregate economic rent of the territory occupied by any political
unit is, as has been stated above, always sufficient, usually more than sufficient,
for the legitimate expenses of the government of that unit. As also stated
above, the economic rent belongs to the community, and not to individual landowners.
On the other hand, the result of every utilization or enhancement of the natural
advantages of land (such as farm profits, the rent and selling value of buildings
and other improvements), when accomplished by an individual, belongs wholly
to that individual, and should never, and need never, be taken from him by
taxation.
One must be careful not to confuse land-value with the price of land. The
price of land is the sum demanded for the transference from one individual
to another of the privilege to collect and retain land-value and thus to divert
public earnings to private pockets. ... read
the whole article
Bill Batt: The
Compatibility of Georgist Economics and Ecological Economics
Any failure to pay back that
increment to society, or of government to
recapture it in the form of taxes, constituted not only an injustice to
the poor but a distortion of economic equilibrium. He witnessed first
hand the perverted configurations of land use that today we know as sprawl development— even in his
time it was apparent that urban, high value land parcels were being
held off the market for speculative gain by meretricious interests. He
witnessed also the boom and bust cycles of the land markets on account
of such speculation, effects which spread far wider than just land
prices. These inevitable cycles would dislocate labor and capital
supply, giving impetus to the impoverishment and suffering which he
himself had experienced. He understood that holding the most
strategically valuable landsites out of circulation constituted a
burden on the economy. He understood
that financial resources spent to
pay exorbitant land prices had a depressing effect on capital and
labor. And because government was taxing labor and capital
instead of
recovering land rent, it was further restricting the job market and the
growth of capital. He realized that people who captured monopoly
control of strategically valuable landsites could do so because they
were privy to information prior to its public release. It was not by
any means his insight alone; it was captured also by George Washington
Plunkett writing at the same time:
There’s
an honest graft, and I’m an example of how it works. I might sum up the
whole thing by sayin’: “I seen my opportunities and I took ‘em.”
Just let me explain by
examples. My party’s in power in the city, and it’s goin’ to undertake
a lot of public improvements. Well, I’m tipped off, say, that they’re
going to lay out a new park in a certain place.
I see my opportunity and I take it. I go to that place and I buy up all
the land I can in the neighborhood. Then the board of this or that
makes its plan public, and there is a rush to get my land, which nobody
cared particularly for before.
Ain’t it perfectly honest to charge a good price and make a profit on
my investment and foresight? Of course, it is. Well, that’s honest
graft. 32
32William L. Riordan,
Plunkett
of Tammany Hall. New York: Dutton, 1963, p. 3.
All society needed to do was to collect the
economic rent from
landholders as its rightful due, a solution that became part of the
subtitle of his book, “the remedy.” Taxing the land (or, alternatively,
collecting the economic rent) was something common citizens could
understand. ... read the whole article
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