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Margin of Production

also known as the margin of cultivation

Thomas Flavin, writing in The Iconoclast, 1897

Now, it is quite true that all taxes of whatever nature are paid out of the products of labor. But must they be for that reason a tax on labor products. Let us see.

I suppose you won't deny that a unit of labor applies to different kinds of land will give very different results. Suppose that a unit of labor produces on A's land 4, on B's 3, on C's 2 and on D's 1. A's land is the most, and D's is the least, productive land in use in the community to which they belong. B's and C's represent intermediate grades. Suppose each occupies the best land that was open to him when he entered into possession. Now, B, and C, and D have just as good a right to the use of the best land as A had.

Manifestly then, if this be the whole story, there cannot be equality of opportunity where a unit of labor produces such different results, all other things being equal except the land.

How is this equality to be secured? There is but one possible way. Each must surrender for the common use of all, himself included, whatever advantages accrues to him from the possession of land superior to that which falls to the lot of him who occupies the poorest.

In the case stated, what the unit of labor produces for D, is what it should produce for A, B and C, if these are not to have an advantage of natural opportunity over D.

Hence equity is secured when A pays 3, B, 2 and C, 1 into a common fund for the common use of all — to be expended, say in digging a well, making a road or bridge, building a school, or other public utility.

Is it not manifest that here the tax which A, B and C pay into a common fund, and from which D is exempt, is not a tax on their labor products (though paid out of them) but a tax on the superior advantage which they enjoy over D, and to which D has just as good a right as any of them.

The result of this arrangement is that each takes up as much of the best land open to him as he can put to gainful use, and what he cannot so use he leaves open for the next. Moreover, he is at no disadvantage with the rest who have come in ahead of him, for they provide for him, in proportion to their respective advantages, those public utilities which invariably arise wherever men live in communities. Of course he will in turn hold to those who come later the same relation that those who came earlier held to him.

Suppose now that taxes had been levied on labor products instead of land; all that any land-holder would have to do to avoid the tax is to produce little or nothing. He could just squat on his land, neither using it himself nor letting others use it, but he would not stop at this, for he would grab to the last acre all that he could possibly get hold of. Each of the others would do the same in turn, with the sure result that by and by, E, F and G would find no land left for them on which they might make a living.

So they would have to hire their labor to those who had already monopolized the land, or else buy or rent a piece of land from them. Behold now the devil of landlordism getting his hoof on God's handiwork! Exit justice, freedom, social peace and plenty. Enter robbery, slavery, social discontent, consuming grief, riotous but unearned wealth, degrading pauperism, crime breeding, want, the beggar's whine, and the tyrant's iron heel.

And how did it all come about? By the simple expedient of taxing labor products in order that precious landlordism might laugh and grow fat on the bovine stupidity of the community that contributes its own land values toward its own enslavement!

And yet men vacuously ask, "What difference does it make?"

O tempora! O mores! To be as plain as is necessary, it makes this four-fold difference.

  • First, it robs the community of its land values;
  • second, it robs labor of its wages in the name of taxation;
  • third, it sustains and fosters landlordism, a most conspicuously damnable difference;
  • fourth, it exhibits willing workers in enforced idleness; beholding their families in want on the one hand, and unused land that would yield them abundance on the other.

This last is a difference that cries to heaven for vengeance, and if it does not always cry in vain, will W. C. Brann be able to draw his robe close around him and with a good conscience exclaim, "It's none of my fault; I am not my brother's keeper."

 

Mason Gaffney:  Full Employment, Growth And Progress On A Small Planet: Relieving Poverty While Healing The Earth

Effect of artificial scarcity on marginal returns to labor and capital. Underuse of better lands forces labor and capital (which is mobile, like labor) to resort to worse or “marginal” lands, thus scattering and spreading out settlement, raising aggregate demands on land, and wasting capital (George, 1879). This lowering of the “margin of production” lowers the marginal productivity of labor and capital, and hence their economic rewards, tilting the distribution of income in favor of landowners, creating an illusion of overpopulation (Malthus), and lack of investment outlets (Marx, Keynes, Hobson et al.). Read the whole article
Karl Williams:  Social Justice In Australia: INTERMEDIATE KIT
We've just seen how returns from land are, by nature, monopolistic and, by rights, should be returned to the community. But how do we calculate this amount?

WHO GETS THE COCONUTS?
It's perhaps best illustrated by the Robinson Crusoe scenario, where he finds himself alone on a desert island. Rob naturally settles on the best available land which, for argument's sake, can produce 20 coconuts per acre per month. Along comes Man Friday, who gets the second-best land producing 18 coconuts per acre. This best, freely-available land of Friday is called the marginal land and, as we'll see, determines both the level of wages and that of rent.

For how much could Rob rent out his land - 2 coconuts or 20 coconuts per acre? Friday would only be prepared to pay 2, because he can already get 18 from his. So here's our first definition, that of the Law of Rent: The application of labour and capital equipment being equal, the rent of land is determined by the difference between the value of its produce and that of the least productive land in use. So if Man Saturday comes along (the next day?!) and finds that the best available land can only produce 15 coconuts per acre, Rob could rent his land out to Saturday for 5 coconuts per acre, and Friday for 2.

What then determines the level of wages? When Friday came along and could work land yielding 18 coconuts per acre in a month, then he wouldn't accept wages offered by Rob for less than 18 coconuts. But when Saturday arrived, suddenly Friday could only command 15 per month, because Rob knows that the going rate (that applicable to Saturday at the margin) is only 15. So here we have the Law of Wages, which is the corollary of the law of rent: Wages are the reward that labour can obtain on marginal land, i.e. the most productive land available to it without paying rent.

Of course it all gets more complicated by technology, trade unions, immigration, the existence of a pool of unemployed, personal preferences, levels of education etc., but these strong underlying laws always hold. But let's now tie up the factors of production. Rent is the return to land, wages are the return to labour, and interest is the return to capital. The law of interest can be stated thus: Interest is the return that the use of capital equipment can obtain on marginal land, i.e. the most productive land available to it without paying rent.

PROGRESS AND POVERTY, SIDE BY SIDE
So here's the alarming paradox of progress marching side by side with poverty. Those who have grabbed the best land get richer and richer (from increasing rent) while the tenants and wage-earners get poorer and poorer for having to accept lower and lower wages as the margin is pushed out to less productive land). Henry George, in his classic Progress and Poverty drove home this point, but took about 600 pages to deal with all the complications and fine details not examined here. It's no wonder that the unmasking of this great paradox - the title of his book - hit the 19th century world like a great revelation. And it's no wonder that vested interests, through the neoclassical economics that they fostered, knew they had to shut him up. And, by successfully silencing him, it's no wonder that, despite all efforts, increasing and ever more alarming disparities of wealth are the norm world-wide.

But, anyway, how many coconut-basketsful of LVT should we collect? Chuck away all those calculators, guys, for the answer is simple: Collect the rent, the whole rent, and nothing but the rent. Assuming that everyone has to do the same amount of work to produce their differing yields of coconuts, when Friday came along then we'd collect 2 coconuts per acre from Rob. This would leave 18 coconuts in each of their hands, and 2 coconuts of rent or LVT collected. When Saturday arrived we'd collect 5 from Rob and 3 from Friday, which would leave 15 coconuts in everyone's hands and 8 coconuts of rent collected. Result: everybody effectively shares equally in the bounty of Our One Earth, and we have a natural, non-punitive form of revenue raising with which to fund infrastructure.

We've already seen how speculators can presently hold on to idle parcels of land, waiting for unearned increases in their value to accrue to them. But here's another curse of land speculation: by locking up productive land, it forces newcomers out to less productive land. By "pushing back the margin", the evil of speculation simultaneously raises rents and lowers wages. LVT makes it impossible for speculators to enjoy unearned income. ... Read the entire article

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)

b. Normal Effect of Social Progress upon Wages and Rent

In the foregoing charts the effect of social growth is ignored, it being assumed that the given expenditure of labor force does not become more productive.93 Let us now try to illustrate that effect, upon the supposition that social growth increases the productive power of the given expenditure of labor force as applied to the first closed space, to 100; as applied to the second, to 50; as applied to the third, to 10; as applied to the fourth, to 3, and as applied to the open space, to 1. 94 If there were no increased demand for land the chart would then be like this:

93. "The effect of increasing population upon the distribution of wealth is to increase rent .. . in two ways: First, By lowering the margin of cultivation. Second, By bringing out in land special capabilities otherwise latent, and by attaching special capabilities to particular lands.

"I am disposed to think that the latter mode, to which little attention has been given by political economists, is really the more important." — Progress and Poverty, book iv, ch. iii.

"When we have inquired what it is that marks off land from those material things which we regard as products of the land, we shall find that the fundamental attribute of land is its extension. The right to use a piece of land gives command over a certain space — a certain part of the earth's surface. The area of the earth is fixed; the geometric relations in which any particular part of it stands to other parts are fixed. Man has no control over them; they are wholly unaffected by demand; they have no cost of production; there is no supply price at which they can be produced.

"The use of a certain area of the earth's surface is a primary condition of anything that man can do; it gives him room for his own actions, with the enjoyment of the heat and the light, the air and the rain which nature assigns to that area; and it determines his distance from, and in great measure his relations to, other things and other persons. We shall find that it is this property of land, which, though as yet insufficient prominence has been given to it, is the ultimate cause of the distinction which all writers are compelled to make between land and other things." — Marshall's Prin., book iv, ch. ii, sec. i.

94. Of course social growth does not go on in this regular way; the charts are merely illustrative. They are intended to illustrate the universal fact that as any land becomes a center of trade or other social relationship its value rises. ...

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

Fred Foldvary: A Geoist Robinson Crusoe Story

Once upon a time, Robinson G. Crusoe was the only survivor of a ship that sunk. He floated on a piece of wood to an unpopulated island. Robinson was an absolute geoist. He believed with his mind, heart, and soul that everyone should have an equal share of land rent.

Since he was the only person on this island, it was all his. He surveyed the island and found that the only crop available for cultivation was alfalfa sprouts. The land was divided into 5 grades that could grow 8, 6, 4, 2, and zero bushels of alfalfa sprouts per month. There was one acre each for 8, 6, and 4, and 100 acres of 2-bushel land. For 8 hours per day of labor, he could work 4 acres. So he could grow, per month, 8+6+4+2 = 20 bushels of alfalfa sprouts, much more than enough to feed on.

One day another survivor of a sunken ship floated to the island. His name was Friday George. Friday was a boring talker and kept chattering about trivialities, which greatly irritated Robinson. "I possess the whole island. You may only have this rocky area," said Robinson. ... Read the whole piece

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty, Chapter 4: Land Speculation Causes Reduced Wages

There is a cause, not yet adverted to, which must be taken into consideration fully to explain the influence of material progress upon the distribution of wealth.

That cause is the confident expectation of the future enhancement of land values, which arises in all progressive countries from the steady increase of rent, and which leads to speculation, or the holding of land for a higher price than it would then otherwise bring.

We have hitherto assumed, as is generally assumed in elucidations of the theory of rent, that the actual margin of cultivation always coincides with what may be termed the necessary margin of cultivation — that is to say, we have assumed that cultivation extends to less productive points only as it becomes necessary from the fact that natural opportunities are at the more productive points fully utilized.

This, probably, is the case in stationary or very slowly progressing communities, but in rapidly progressing communities, where the swift and steady increase of rent gives confidence to calculations of further increase, it is not the case. In such communities, the confident expectation of increased prices produces, to a greater or less extent, the effects of a combination among landholders, and tends to the withholding of land from use, in expectation of higher prices, thus forcing the margin of cultivation farther than required by the necessities of production. ... read the whole chapter

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