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Everett Gross: Explaining Rent
Sometimes it's difficult for people to understand the meaning of "rent" as an economic concept. One way I have of explaining it doesn't use the word rent. I just use a little analogy.
I'm from Crete, Nebraska. It's a small town of 5,000 people.
Suppose a man comes to Crete, and he wants to start a business. He needs a building, but first he needs a piece of ground to build this new building on. So he looks up a real estate agent, describes what he wants, and the real estate agent shows him a parcel that's just right for his needs. The man asks the agent, "All right, now how much money do you want for this land?" The agent says, "It's worth $50,000." The man says, "Why is it worth $50,000?" And the real estate agent points out that "The school is good, the roads are good, the police department is good, the rescue crew is good and very fast, and business is good here."
Now I don't need to use the word "rent" in that explanation.
[see several other versions at the same link!]
H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty, Chapter 5: The Basic Cause of Poverty (in the unabridged: Book V: The Problem Solved)
H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty: 11 Effect of Remedy Upon the Sharing of Wealth (in the unabridged P&P: Part IX Effects of the Remedy — Chapter 2: Of the Effect Upon Distribution and Thence Upon Production
Rev. A. C. Auchmuty: Gems from George, a themed collection of excerpts from the writings of Henry George (with links to sources)
Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)
Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent
Charles T. Root — Not a Single Tax! (1925)
Ted Gwartney: Estimating Land Values
THE SOURCE OF PUBLIC REVENUE
What are the factors that cause land to have market value and to whom does this market revenue advantage properly belong? Land has market value for three reasons:
Land rent is the price that people and businesses are willing to pay for the exclusive right to possess and use a good land site for a period of time. For example, people prefer to use sites of good location because it gives them an advantage of spending less time in travel by being near what they choose to do and where they work. A businessman can sell more goods at a site where many people pass each day, compared to a site where only a few people would pass.
The collection of land rent should be used as revenue, by the community for supplying public needs. This returns the advantage an individual land possessor receives from the exclusive use of a land site, to the balance of the people who live within the community and have allowed the land possessor the exclusive use of the land site for the period of time. ...
Adam Smith, in The Wealth of Nations, suggested that any "tax" should be a charge for services which benefit all people and are more efficiently preformed by a single cooperative effort. He postulated four principles of taxation which any source of revenue should meet:
1. Light on the production of wealth, and does not impede or reduce production;
Collecting public revenue from land rent is the only revenue source, or "tax", that meets these criteria.
While the major argument for raising public revenue from land rent and natural resources is because it is equitable and fair, it is also the most efficient method of raising the revenue which is needed for public facilities and services. Land is visible, can't be hidden and its valuation is less intrusive than valuations of income and sales. Taxes on labor and capital cause people to consider alternative options, including working with less effort, which produces less real goods. For example, a tax on wages will reduce after-tax net wages and weaken the incentive to work. A person might be willing to work hard for a wage of $20 per hour, but decide to drop out if the taxes take $8 and the net wage is only $12 per hour. Economists claim that present taxes account for a 25% loss in production in the United States. Production and consumption would be greatly improved if public revenue came primarily from land rather than a wage tax. The same would occur when buildings and machinery are taxed. The tax on building reduces the quantity and quality of buildings produced. A tax on sales, commerce or value added reduces consumption, production and net wealth. Sales tax evasion in the United States has exceeded 30% in recent years.
As new inventions and more efficient ways of producing goods are discovered, people's economic well-being is not improved, because they have lost access to land and must pay both rent and taxes. (5) Instead of rent being used to provide community services, capital and wages must be depleted, which obstructs private enterprise.
When the rent of land is
taken for public purposes production and
distribution are not held back. This is because the same amount of
rent would otherwise have been taken by some private individual. The
rent would be the same, the difference is how it is utilized. There
is evidence that communities who raise their revenue from land,
rather than from labor and capital, are more prosperous, many
increasing productivity by more than 25% ...
the whole article
Winston Churchill: The People's Land
Every form of enterprise only undertaken after the land monopolist has skimmed the cream off for himself It does not matter where you look or what examples you select, you will see that every form of enterprise, every step in material progress, is only undertaken after the land monopolist has skimmed the cream off for himself, and everywhere today the man or the public body who wishes to put land to its highest use is forced to pay a preliminary fine in land values to the man who is putting it to an inferior use, and in some cases to no use at all. All comes back to the land value, and its owner for the time being is able to levy his toll upon all other forms of wealth and upon every form of industry. A portion, in some cases the whole, of every benefit which is laboriously acquired by the community is represented in the land value, and finds its way automatically into the landlord's pocket. If there is a rise in wages, rents are able to move forward, because the workers can afford to pay a little more. If the opening of a new railway or a new tramway or the institution of an improved service of workmen's trains or a lowering of fares or a new invention or any other public convenience affords a benefit to the workers in any particular district, it becomes easier for them to live, and therefore the landlord and the ground landlord, one on top of the other, are able to charge them more for the privilege of living there. ... Read the whole piece
Edmund Vance Cooke: Uncivilized
An ancient ape, once on a time,
Disliked exceedingly to climb,
And so he picked him out a tree
And said, "Now this belongs to me.
I have a hunch that monks are mutts
And I can make them gather nuts
And bring the bulk of them to me,
By claiming title to this tree." ...
To gather nuts, he made his claim:
"All monkeys climbing on this tree
Must bring their gathered nuts to me,
Cracking the same on equal shares;
The meats are mine, the shells are theirs." .... Read the whole poem
Henry George: Why The Landowner Cannot Shift The Tax on Land Values (1887)
The rent of land represents a return to ownership over and above the return which is sufficient to induce use — it is a premium paid for permission to use. ... read the whole article
Henry George: The Crime of Poverty (1885 speech)
I am talking too long; but let
me in a few words point out the way of
getting rid of land monopoly, securing the right of all to the elements
which are necessary for life. We could not divide the land. In a rude
state of society, as among the ancient Hebrews, giving each family its
lot and making it inalienable we might secure something like equality.
But in a complex civilisation that will not suffice. It is not,
however, necessary to divide up the land. All that is necessary is to
divide up the income that comes from the land. In that way we can
secure absolute equality; nor could the adoption of this principle
involve any rude shock or violent change. It can be brought about
gradually and easily by abolishing taxes that now rest upon capital,
labour and improvements, and raising all our public revenues by the
taxation of land values; and the longer you think of it the clearer you
will see that in every possible way will it be a benefit.
Henry George: The Wages of Labor
The most important of all the material relations of man is his relation to the planet he inhabits, and hence, the “impious resistance to the benevolent intentions of his Creator,” which, as Bishop Nulty says, is involved in private property in land, must produce evil, wherever it exists. And, further, as by virtue of the law, unto whom much is given, from him much is required, “the very progress of civilisation makes the evils produced by private property in land more widespread and intense.”
What is producing throughout the civilised world the present condition of things is not this and that local error or minor mistake. It is nothing less than the progress of civilisation itself; nothing less than the intellectual advance and the material growth in which our century has been so pre-eminent, acting in a state of society based on private property in land.
It is nothing less than the newer gifts that in our time have been showered on man, being turned into scourges by man’s impious resistance to the benevolent intentions of his Creator.... read the whole articleNic Tideman: Basic Tenets of the Incentive Taxation Philosophy
The Proper Disposition of Returns to Different Factors of Production
The idea that the rent of land is properly collected by governments is an example of the more general idea that it is important to distinguish the different "factors of production" identified by classical political economy. The return to each factor has a proper destination.
Replacing Existing Taxes
When we say that the appropriate recipient of rent is the public treasury, it should be understood that this is not in addition to existing sources of public revenue, but rather instead of existing sources of public revenue.
While one might call such fees "taxes," we consider that designation inappropriate, because the word "tax" connotes an exaction from someone of something to which he or she has a just claim, and we deny that there are such just claims with respect to land. We expect that the collection of fees for the full value of opportunities assigned by governments would provide adequate revenue for all necessary government expenditures. ... 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. The answer to this argument is that collecting a large percentage of the rental value of land through taxes will require new assessment methods based on observing the rental price of land rather than the selling price. I describe how such methods can be devised.
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. This argument represents a refusal to make a distinction that begs to be made. The first principle of economic justice is that people have rights to themselves. While some scholars have asserted that people have rights to themselves but not to their talents, this is nonsensical. Without talents, there is no self. Talents are fundamentally different from land. The equal rights of all to land can consistently be asserted while still asserting that every person has right to the use of his or her talents.
But before developing any of these arguments, I must discuss what land is. ...
The fact that structures are durable and immobile also means that care must be taken in defining the value of the flow of land services. There is a tendency to think of “the rent of land” as the amount of money that land yields to those who have exclusive use of it. However, this formulation is not always useful for defining the rent of land over a particular interval of time. If an investor spends a year and £20 million erecting a building that is expected to last for 30 years, what was the rent of the land under the building during the year of construction? It is not sensible to say that, if the best possible use of the land produces a negative cash flow over a given interval of time, then land has no rental value over that interval. If markets were perfect and the decision to construct the structure was optimal, the finished building would have a value that was greater than its cost of construction by the rent of the land it occupied and the accumulated interest on construction costs and land rent. But if a non-optimal construction decision is made, that does not reduce the rent of land.
To give a meaning to ‘the rent of land’ that does not depend on when construction happens to occur, it is useful to define ‘the rent of land’ as the opportunity cost of leaving vacant land vacant. Thus in the case of the year of construction discussed above, one would ask, ‘Suppose that the construction had been postponed for a year. Perhaps by that time it would be appropriate to invest in a £21 million building rather than a £20 million building. If one developed the most profitable possible plan for the land, subject to the constraint that the land be left vacant for the first year, how much lower would the present value of net returns be?’ The answer to this question, the loss of the present value of net returns from postponing use of land for a year, would be the rent of the land for the year. This is the amount of money that one would need to get in net returns from some pre-existing use to justify postponing redevelopment for a year. Thus the rent of land for any developed site, for any year, is defined to be the answer to the question, ‘If this site were undeveloped, what would be the cost of leaving undeveloped and unused for a year?’
Land also differs from labor and capital in the origin of claims to own it.
Ownership of land is thus a form of privilege. The word ‘privilege’ comes from the Latin prive + legis, meaning ‘private law’. A private law is a law that has someone’s name it, that is, a law that authorizes one person to do what others are not permitted to do. In a just world, there would be no privilege. (Thus no one is underprivileged.) In a just world, land would not be ‘owned’, but rather ‘held’ or ‘possessed’, subject to a payment that reflected the value given up by others in allowing one person to have exclusive use of a site. ... Read the whole article
The rent of land is the amount of money that would be bid for the use of land in an auction. It can be thought of as 100 rubles more than the second-highest bid, that is, the amount of money that the person for whom the use of land is most valuable must bid to outbid the person who places the second-highest value on it.
What land is worth to a person who wants to use it depends on the length of time for which he will be allowed to use it. For the purpose of defining rent, this length of time should be indefinitely long, but with provision for revising the rent as market conditions change. In other words, if similar land rents for 20% more three years from now, then the person who secures the use of a site this year would be required to pay that additional 20% at that time.
The rent of land also depends on the condition of the land. The rent of land is what people would bid for unimproved land. In a town, unimproved land is land without any structures on it. In an agricultural area, many things other than structures can count as improvements--drainage, stone removal, fertilization, leveling, etc. It might be hard to find agricultural land that had no such improvements. Thus in agricultural areas, one must subtract something from observed payments for the use of land, to account for the value that is being paid for such improvements.
The comments above describe how one might observe the rental value of land. Economics can also say something about how a bidder would decide how much to bid. A bidder would decide how he could use the land most profitably, compute the net revenue from the most profitable use after all costs including the cost of his own entrepreneurial effort and a premium for the risk to his finances, and what was left would be the total rent of the land for the period of the investment. The bidder would then estimate future rent, subtract that from the total rent, and what was left would be rent for the current period. Read the whole article
Mason Gaffney: Land Rent in a Tax-free Society (Outline of remarks by Mason Gaffney, for use at Moscow Congress, 5/21/96)
1. Rents are a taxable surplus. I estimate that this taxable surplus constitutes 35% or more of the national income in most nations with market economies, and more in resource-rich nations. ...
2. The value of rent is huge. Every economy produces a large excess over wages. To be sure, not all of it is surplus. Some of it goes to replace capital that wears out each year. This is not part of the net surplus, nor income to the capitalist; it is a return of capital. ...
3. Rent will become huger yet when you abate taxes presently levied on production and exchange, because these now depress the rent of land. That is, in a tax-free market economy, the benefit of abating present taxes will lodge mainly in land rents. The taxable surplus simply shifts from one form to another.
This is more than a simple shift of a fixed amount. When you substitute land revenues for existing taxes, the surplus actually grows, as if by synergy. You gain more revenue base than you lose, because existing taxes now suppress much latent production. Payroll taxes directly drive workers from taxable jobs to untaxed gains from crime. Abating those taxes will unleash suppressed economic giants, along with all the new surplus values their latent production will generate. "Monetarists" warn you that "there are no free lunches." In fact, however, good policy creates lots of "free lunches." It makes the whole greater than the sum of its parts. Imagine the benefits, alone, of turning people from destructive careers in crime to useful jobs producing goods.
4. Some of the benefit of abating existing taxes will lodge in higher after-tax wage rates, rather than higher rents. ...
5. Many varieties of natural resources generate rents. City land is the greatest single source. For example, one city, Vancouver, contains half the value of taxable property in B.C. - a province of 934,000 sq. kilometers, or 70% larger than France. ... 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
Fred Foldvary: The Rent, the Whole Rent, and Nothing but the Rent
Rent is the highest bid that a normal tenant would pay for the use of land. Economists have divided the resources that go into production into land, labor, and capital goods. The wealth that is produced is distributed to the owners of these three "factors of production." That portion that goes to landowners is rent. ...
Professor Nicolaus Tideman defines rent more precisely as the "second highest bid for the use of land when it is unimproved, when the user has an option on continued use into the indefinite future." In an ideal auction, we want the good to go to the highest bidder but at the price set by the second-highest bid, to avoid penalizing too-high bidding. In practice, if the folks who want to rent land have no special emotional attachment to a site, then the highest bids will be similar.
Land includes all natural resources, including
A tenant's payment for a site has two components.
Real-estate land rent and rentals arise from the differing productivity of various sites: rent is the differential between the productivity of a site relative to the least productive marginal sites. ...
If we regard human beings as having equal moral worth, then it is morally wrong for some to be masters and others slaves. Each person therefore has proper moral ownership of his labor and wage. Such self-ownership does not extend to land, but people may properly have individual rights to possess land, since this is necessary for the application of labor, and it is efficient for land to be under private title and control.
But it is not necessary for efficiency for the pure land rent to belong to the individual title holder. Economists use the term "economic rent" for payments beyond what is needed to put a factor of production to efficient use. Land rent is economic rent, since the land is already there, and for real estate, the amount of land within some boundary line is fixed. So when rent is used for the public finances, it does not reduce the quantity of land. The rent will not be passed on to the tenant, since the payment of the rent to a community does not change the supply or demand for land.
The use of rent for public revenues therefore has no excess burden, no burden on society or the economy. Taxes on income, goods, and transactions do have an excess burden, since by raising the price and reducing the quantity of goods, resources do not get allocated to where the people most want them. Taxes on labor and goods raise prices, while rent-based payments do not affect the rent, and they lower the price of land rather than raise it.
Rent is therefore the ideal source of general public and community revenue. Tax reform should therefore shift to rent as the primary source of general funds. Pollution charges can supplement the rent, and indeed can be considered a rental charge for using and abusing the atmosphere, land, soil, and other forms of land. There could also be user fees for services specific to users, fines for violating traffic rules, and profits from enterprises.
The economic rent from minerals, water, and oil would be natural resource royalties that could be paid by bidding for the rights to extract, from payments based on the amount of mining, and the profits from the operations, depending on the circumstances. ...
The public and community collection of rent puts land at its most productive use, maximizing the wages of workers while minimizing sprawl as well as boom/bust cycles. We need to understand rent to fully understand the market process and the cause and remedy of many of today's social problems. Read the whole article
Fred Foldvary: Geo-Rent: A Plea to Public Economists
The term “rent” is most generally defined as a payment for the use of any resource (Alchian, 1991). “Land rent” could refer either to the actual amount paid by tenants or to the potential or economic rent. My analysis here is based on an assessment or estimate of what the plot-devoid-of-improvements would rent for in a market or auction. This has been called "ground rent" or “economic land rent,” but those names and others are easily misunderstood. To ensure against the hazard of reasonable but erroneous inference, I propose an exotic label, geo-rent. “Geo” in Latin means earth or ground, and it also suggests George, as in Henry George.
A site’s geo-rent is not based on the particular activity at that site. The geo-rent of a site containing lavish buildings and gardens equals what the geo-rent would be if, for some strange reason, those improvements suddenly disintegrated. A fully developed site has about the same geo-rent (per acre) as an adjacent vacant lot.
Suppose I own a 50-acre site that is pristine, unimproved. That site would rent for $100,000. Hence, the geo-rent is $100,000. The next year I build a large beautiful and successful shopping center on the site. My geo-rent is still only $100,000 (assuming the amount for which my site unimproved would rent has not changed). However, if my shopping center makes neighboring land more valuable, it does increase my neighbor’s geo-rent.
The interrelation between one landowner’s improvements and his neighbor’s geo-rent is an interesting matter. Another interesting matter is a landowner’s contribution to improvements on neighboring lands, such as sponsoring a new road. If the new road would increase his geo-rent tax bill, geo-rent taxation, it would seem, would reduce his incentive to sponsor such an improvement.1 But here I leave these tangents aside, with the summary judgment that I do not think that such issues do much, if anything, to weaken the case for tapping geo-rent.
1 The effect on geo-rent would be smaller if the road is a toll-road, because then more of the value added is internalized, i.e., capture by the road owners. ... Read the entire article
Mason Gaffney: Land as a Distinctive Factor of Production
Land rents are subject to common forces that differed from and are generally reverse to those that determine interest rates (the price of capital).
Interest rates around the world rise and fall in sympathy. They are subject to common, interconnecting forces of supply and demand, transmitted swiftly even in past centuries, and today instantaneously.
Land rents, too, rise and fall together in response to common forces. However, the forces are different for land rents than for interest rates, so they do not vary in sympathy. Even though the lands are not mutually convertible, they are subject to common forces, the greatest of which is the interest rate itself. Capital and land are rivals for the same pie, so usually their returns vary inversely. Ground rent equals operating cash flow less interest on the cost of building, and less building depreciation. A rise of interest rates lowers ground rents.
It is hard to see how any forecast of the results of economic policy, or any forecast for investment purposes, could have any value without keeping focused on this distinction. Sometimes it is handled by distinguishing old" from "new" assets or issues. Yet, in general, neoclassical doctrine tells us to meld land and capital in economic thinking of all kinds. ...
High land price guides investors to prefer kinds of capital that substitute for land. Although capital cannot be converted into land, it can substitute for land, and does so when rents and land prices are high. John Stuart Mill long ago pointed out that the structure and character of capital is determined by the level of rents and wages.19 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:
e. Rent-leading capital. ...
Land rent is nearly identical with taxable surplus. This follows from simply observing that the supplies of labor and capital are highly elastic, while the supply of land (within any given taxing jurisdiction ) is totally inelastic, because a "jurisdiction" is defined as a specific area of land.
François Quesnay and the “Physiocrats,” and their fellow-traveler A.R. Jacques Turgot, deduced from the above that almost all taxes, whatever the nominal base, are shifted to land rents, and lodge there. Market forces tend to equalize all AFTER-tax returns to labor and capital, because of their mobility or, in the case of some labor, the inability of humans to survive on less than subsistence wages.
As a corollary, if there is no rent there is nothing to tax. E.R. A. Seligman in one of his exhortations against the single tax, warned that a marginal community --one on land of no value -- can have no tax base if it taxes only land. However, this hypothetical community can have no tax base anyway. Whatever labor or capital it tries to tax will leave, or never arrive, because their supplies are elastic.
Capital will only appear to bear a tax if it can shift it to land in the form of lower rent, or a lower purchase price. If rent and land values are already zero, there is nowhere to shift a tax. Mobile factors will not bear it, but turn away. Customers will not bear it, but buy elsewhere.
Seligman does not consider the interesting possibility that public services paid by taxation might create the very rents that are taxed to support the public services. That complex question would make an interesting book, but one too long to insert here.
b. The surplus is much more than usually stated.
... The failure of modern economists, whether neo-classical or heterodox, to acknowledge the Himalayan Range of land values in their faces, and to reckon its role in theory and policy, is denial and delusion on a scale at which one can only marvel. ....
Amassing land is always done, can only be done, by shrinking the holdings of others. To expand is to preempt. If A is to have more then B, C, D et al. must have less, there is no other way. A can amass more capital by saving, creating new capital, leaving B, C, D et al. with as much as before. A can increase his labor income by working longer, or harder, or smarter, producing more, leaving others with as much as before. He and she together can also spawn more children: labor, like capital, is reproducible, and indefinitely augmentable. Possessing land, however, means just one thing: bumping others.
In the region of the mind, the thing possessed may be shared by all with no diminution to anyone. No one's pleasure In Shakespeare, or Beethoven, or understanding physics is any less because at the same time millions of others have the same pleasure. Art, letters and science are the common property of mankind, open to all who care to acquire them. The creative producer's pleasure is in proportion to the number with whom he shares. The gratification is from sharing, not excluding. The contrast with landholding is nearly total.35
Amassing claims on wealth by creating and producing is not, therefore, a threat to others. Amassing capital through saving does not weaken or impoverish others. Producing goods does not interfere with others' doing the same. One producer may drive another from a particular limited market, but glutting one market increases real demand for the products of other markets, and raises the real value of others' incomes by lowering prices. Amassing land, however, has to deprive others, both relatively and absolutely. Concentrated holding and control of land, therefore, have always been threats to the well-being of those left out.
Conversely, the only way the landless, e.g. in South Africa, can get land is from those who now have it. "Growth" is often advanced as the solution to maldistribution, injustice and poverty, but that is mere temporizing because land does not grow. When production and demand grow, land rents rise. Of land it is starkly true, "the problem is not production, but distribution". There is no production; only distribution. ...
Consuming land means preempting its time
To consume most goods and services is to use them up. Land is not used up. "Consuming" land must have some other meaning, therefore, than the intuitive and common idea that consuming means turning-to-waste. To consume land is rather to preempt its service flow without impairing its substance. To consume land is to occupy it for a time-slot, which may be as brief as beating a red light or (rarely) as long as the pyramids last.40 After us life goes on, on the land once left to us which we then leave to others. "Time-sharing" was not invented by the holiday industry but is inherent in the nature of land and life.
40. The other six "Wonders of the Ancient World" have all disappeared without a trace. Relative to land, human works are evanescent. "Like snow upon the desert's dusty face, lighting a little hour or two" they are gone.
Mason Gaffney: Rent, Taxation, Dissipation and Federalism
How shall we measure land-consumption by owners, where no rent is paid? Is it purely subjective? Does it vary with the owner's mood and health? It is simpler than that, and fully practicable. The essence of consuming land is preempting the time-slot from others. Thus, holding land without using it, or using it below capacity, is a form of consumption. The measure is the market opportunity cost of land, i.e. the price times the interest rate.
Holding an urban site has been likened to holding a reserved seat at a play, sporting event, or concert. The ticket holder properly helps pay for the event, whether or not he is there to enjoy it. As a result, very few paid customers fail to show up. Likewise, people who pay cash rent for land seldom leave it vacant. Doubtless if people paid regular cash taxes to hold land, they, too, would consume (preempt) less.
... Land's rent is its opportunity cost, regardless of use
Land is a prior claimant on the product. This has been obscured by calling rent "a residual." Land income is not a residual, but a prior claimant. This means land rent is a much larger share of national income than national. accounts presently show.
The unreaped harvests of idle land flow like water wasting through a desert into a salt sea. Lost water may sometimes be useful downstream; lost time never returns. To keep others from using a time-slot is to consume it.
A great deal of land in fact is not allocated to its highest and best use. The value of preempting this land is the highest and best use that might have been made of the land preempted. That is the economic cost. The land is not responsible if the manager fails to realize its value at optimal capacity. Neither are the persons who are excluded. Only the preemptor is responsible, as a manager. This person is the residual imputee who deserves credit for performing above par and blame for failing below.
Most economic theorizing has failed to bring out this point. The tendency is to treat ground rent as a residual, a waste basket for all the errors and dereliction of responsible economic actors. (Note dereliction of those who say cost is opportunity cost, but fail to apply that properly to land, when estimating its value.) This has resulted in greatly understating the value of land relative to other factors of production. Institutional and social factors, too, often obscure the opportunity cost of land.
This is a case where theorizing lags behind practice. In dividing value between land and a building affixed to it the standard practice of appraisers, and speculative buyers too, is the "building-residual method." The land is appraised as though vacant; the building gets the remaining value, if any. The building, once attached to a specific site, loses the mobility of place and form that fluid capital possesses and has no opportunity cost but scrap value, which is often negative. Land, always lacking mobility of place, retains mobility of reuse because of its versatility, permanence, and irreproducible location. Read the whole article
I. The issue
II. Sources of rent
III. Dissipation of rent before the fisc takes it: what and how?
A. Dissipation means waste and destruction or suppression.IV. Dissipating rent via public spending
B. How rent is dissipated.
C. Open access followed by tenure: rent-seeking institutions.
A. Taxes and lease provisions need not twist incentives.V. Solutions
B. Public spending of tax proceeds may dissipate rent.
C. History of recognition of this spending effect
D. Successful compromises with the principle.
1. Barriers to immigration or sharing.E. Less successful compromises with the principle
2. Selling voters on the benefits of immigration
1. Public works.
2. Subsidized public works in tandem with exclusionary zoning
3. Hocking the revenues
A. Socialize rent at the national level.
B. Limit benefits to citizens per se (not to landowners per se).
C. A social dividend to citizens is the obvious route.
D. Return rents to local school districts in inverse proportion to local tax base per capita (the Colin Clark principle).
E. Promote James Madison and Neville Chamberlain to elder statesmen emeritus.
I premise resource rents are the joint product of three distinguishable factors:
Triffin's epigram says "Surpluses are either competed away or imputed away." Rent is what we call it when they are imputed away. He might have added, they may also be frittered away: that is what we seek to avoid.
Imputed rent is the foregone gain of withholding land from the market, i.e. from others. It is equal to the marginal product of land. I premise (some others differ) that rent is the prior distributive claim, not a "residual." Thus, unused valuable land costs the owner as much rent as though he were paying cash to a landlord. Failure to realize this rent is imputable to management, not land as such.
Rent is a levelized concept to give a unitary, commensurable expression to costs and yields that have variable time patterns. Selecting time patterns optimally is part of maximizing rent. That is a fortiori true of exhaustible resources. ...
A. Dissipation means waste and destruction or suppression. It means incurring needless costs, or aborting surplus-yielding activities. Redistribution is not, per se, dissipation. No incentive is required to produce land, or able to make more be created, so who collects rent is a distributive choice. However the manner of collection may twist incentives and interfere with efficient use; so may the method of tenure, or tenure-creation.
B. How rent is dissipated. Open access, tragedy of commons. Arthur Young, Scott Gordon, Garrett Hardin, et al. Simple cases like open range, fisheries, public parks and beaches, freeways: a principle easily perceived (although not usually by undergraduates).
C. Open access followed by tenure: rent-seeking institutions.
Rent is dissipated through prematurity of investments. Squatters' Rights (Preemption Act of 1841), and residence requirement of Homestead Act (1862), traditional examples. Prior appropriation doctrine of water rights, simple example. Air routes; broadcast licenses; extending utility franchises; zoning; offset rights to pollute; other modern examples.
Nic Tideman: The Structure of an Inquiry into the Attractiveness of A Social Order Inspired by the Ideas of Henry George
I. Ethical Principles
A. People own themselves and therefore own what they produce.II. Ethical Questions
B. People have obligations to share equally the opportunities that are provided by nature.
C. People are free to interact with other competent adults on whatever terms are mutually agreed.
D. People have obligations to pay the costs that their intrusive behaviors impose on others.
A. What is the relationship between justice (as embodied in the ethical principles) and community (or peace or harmony)?III. Efficiency Questions
B. How are the weak to be provided for?
C. How should natural opportunities be shared?
D. Who should be included in the group among whom rent should be shared equally?
E. Is there an obligation to compensate those whose presently recognized titles to land and other exclusive natural opportunities will lose value when rent is shared equally?
F. Can a person who is occupying a per capita share of land reasonably ask to be left undisturbed indefinitely on that land?
G. What is the moral status of "intellectual property?"
H. What standards of environmental respect can people reasonably require of others?
I. What forms of land use control are consistent with the philosophy of Henry George?
A. Would public collection of the rent of land provide enough revenue for an appropriate public sector?
B. How much revenue could public collection of rent raise?
C. Is it possible to assess land with sufficient accuracy?
D. How much growth can a community expect if it shifts taxes from improvements to land?
E. To what extent does the benefit that one community receives from shifting taxes from buildings to land come at the expense of other communities?
F. What is the impact of land taxes on land speculation?
G. How, if at all, does the impact of shifting the source of public revenue to land change if it is a whole nation rather than just a community that makes the shift?
H. Is there a danger that the application of Henry George's ideas would lead to a world of over-development?
I. How would natural resources be managed appropriately if they were regarded as the common heritage of humanity? 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. ...
In real estate there are two basic tautologies.
Jeff Smith Share Rent, Transform Society
If society decided to share among its members all the annual value of society's sites and resources and air space, what would happen?
... It doesn't matter who owns what. What matters is who gets the rent. We have millions of acres of forest we Americans own together, and we are losing rent on it. ...
... Assuming that is true, if not allowed to collect in the wrong pockets, but redirected to everybody's pockets, we can expect a solution. ...
In the past, land owners owed services to king, but in this age of equality then we owe our neighbors. We have an equal right to the earth.
The community creates rent. Land value rises when infrastructure goes on land. Technology progresses when the community becomes more tranquil and density goes up. Density is a really good measure of land value. No one owner by himself is responsible for density. Rent from land value is justified because all should share in the rent.
If the community collected the rent, it would motivate owners not to speculate in anticipation of a higher future return. There would be a tendency to infill in the city and make cities more efficient. It would make mass transit more efficient. ...
It is not just collecting ground rent but also untaxing other systems. Untax labor and make it more affordable. ...
If you take taxes off labor and capital, more investment flows into jobs, and we would have close to full employment, so labor could demand full market value for services. We could double the income of the average worker with no loss in standard of living. ... Read the whole article
Jeff Smith: What the Left Must Do: Share the Surplus
Meanwhile, ignoring our common assets guarantees that we continue to pay rent rather than begin to receive rent. Conversely, insisting upon a fair share could win us the world we want. While it breaks an old habit to leave jobs behind in favour of fair distribution, just recognizing surplus empowers people. It reaffirms the very existence of our commonwealth and challenges the narrow view of property as exclusively private. While the Left gets excoriated for wanting to be big spenders, demanding a dividend in lieu of waste and a shift of taxes from individual effort to social surplus helps refurbish the Left’s image.Jeff Smith: Sharing Natural Rents to Sustain Human Society
The call to share the commonwealth enjoys an unshakable moral base and gets high marks for real world success, unlike taxes upon true earnings. Once implemented, sharing rent will grant us leisure – time enough to evolve and reconnect with friends, family, and neighbours – and drain away fortunes rather than let the fortunate continue to soak society. Hence support for shifting taxes and paying dividends to the citizenry grows already, without the Left’s leadership. It’s time to run with the banner of an extra income for everyone, in the halls and capitols of governments everywhere. To liberate humans from exploitive labor, let us advance the sharing of society’s surplus. Read the whole article
To get rich, or more likely to stay rich, some of us can develop land, especially sprawling shopping centers, and extract resources, especially oil. While sprawl and oil depletion are not necessary, they are more profitable than a car-free functionally integrated city. Under the current rules of doing business, waste returns more than efficiency. We let a few privatize rent -- ground rent and resource rent -- although rent is a social surplus. As if rent were not profit enough, winners of rent have also won further state favors -- tax breaks, liability limits, subsidies, and a host of others designed to impel growth (20 major ones follow herein).
If we are to sustain our selves, our civilization, and our eco-system, we must make some hard choices about property. What we decide to do with rent, whether we let it reward our exploiting or our attaining eco-librium, matters. Imagine society waking up to the public nature of rent. Then it would collect and share its surplus that manifests as the market value of sites, resources, the spectrum, and government-granted privileges. Then we could forego taxing labor and capital. On such a level playing field, this freed market would favor efficiency - the compact city - not waste - the mall and automobile. ...
Drawing their cue from the public, governments tolerate "rentention", the private retention of publicly-generated land values. Lacking this Rent, states turn to taxes. But to grow the economy, all governments -- left, right, or undecided -- hustle to stimulate development; they cut taxes and slop subsidies. Going beyond the call of duty, the state excuses producers' their routine pollution and limit liability, thereby cutting the cost of insurance. Companies that don't impose on nature, worker, or customer are not benefited at all but lose a competitive advantage. On this tilted playing field, one with the lumps of subsidies and the tilts of taxes, technologies lean and clean have a hard time competing as suppliers of materials, homes, food, rides, and energy. ...
Now wipe out the taxes, subsidies, liability limits, and rent retention. Instead, replace all that with running government like a business. Charge full-market value for state acknowledgements (the seven secret subsidies):
Collecting rent for government-granted privileges would not only raise trillions but also whittle corporations down to a competitive size, less hazardous to democracy.
Besides charging what privileges are worth, government should also replace license with responsibility ("internalize the externalities"). To temper the temptation to use lands both fragile and valuable, society could impose surcharges - an Ecology Security Deposit, Restoration Insurance, Emission Permits, and fines when users exceed standards. To minimize all these charges, producers would seek sustainable alternatives. Getting and sharing rent from land titles is the centerpiece of this geonomic revenue reform. Each phase of such a revenue shift motivates sustainable choices in its own way. ...
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 a new way of conceiving economics, too. Ecological economics becomes not just a branch of economics but a whole new discipline, needing a new name. In geonomics we 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 profit, says the Urban Land Institute, is from real estate.
Summing up these analyses, geonomists offer a Grand Unifying Theory, that the flow of rent pulls all other indicators in its wake. Geonomics differs from economics as chemistry from alchemy, as astronomy from astrology. The acid test of any science is prediction, a test that economics fails and geonomics passes. Plugging in the land price cycle of 17+ years lets geonomists crank out predictions more accurate than those generated by "the experts" who missed, for example, the collapse of mighty Japan. When the land of the Rising Sun was on the market for four times the assessed value of all America, that's when a few geonomists, like voices in the wilderness, countered conventional wisdom by proclaiming that the Japanese boom would bust. According to these geonomic prognosticators, don't expect America's next downturn for at least another five years, despite the tech wreck or any other stock market fluctuations. ... 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.
The other major drain, taxes, at about 40% of the average worker’s income, usually total more than the value of government services received. And who receives them? Corporate loggers, miners, factory farms, and tractor trailers. Lose such subsidies, leveling the playing field, and local recyclers, family farmers, and freight haulers could compete. Their success would plug the visible leaks - imported food, energy, and materials.
While a community might not be able to command a distant capitol to turn off the subsidies, a locality may be able to avoid federal and state taxes. ...
Cutting out outsiders’ taxes means the locality would have to take over providing the outsiders’ services: nuclear power plants, toxic dumps, scarifying freeways, submarines, whatever. To pay for whatever desired services, from where will the city or county get the money? From themselves, their commonwealth. It’s the money they spend on the nature they use, the prices and rents paid for sites and resources.
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. ...
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
Jeff Smith: What To Do About the Real Estate Bubble
What’s bubbling, and until when?Michael Hudson and Kris Feder: Real Estate and the Capital Gains Debate
Sellers are happy. So are developers and speculators. Real estate has gone all bubbly, and that bubble has gone ballistic. What goes up, however, must soon do something else. ...
Actually, it’s not housing whose price has entered the stratosphere. Buildings age – get older, more worn out. What’s getting more valuable is the land, the location – whether it has a building on it or not. Buildings you can make more of, but land you can not, especially locations along the coasts or on the good side of town. None of that would matter if you could ever get buildings to hover around in the air. Meanwhile however, speculators are happy.
... What’s seemingly good for landowners is not necessarily good for the economy. As people spend more on land, something nobody produced, they spend less on output, things people do produce. As producers get less money spent on their products, eventually they take the hint and produce less. "Produce less" is another way of spelling recession.
Plus, more expensive land means heavier borrowing to buy it. More debt means more inflation and less stability. When producers cut back, borrowers have a much harder time paying back their debts. As people go bankrupt, they drag others down with them. A collapsing house of cards is another way of spelling depression.
If land values didn’t get inflated, of course they would not have to get deflated.Call it mutual compensation for deprivation from part of our common natural heritage. While in rhythmic systems, prices must rise and fall, but they need not boom then bust; they could climb then glide. What would temper economies, preventing bubbles? Rather than let a few lucky owners collect land values, neighbors would have to recover land values for themselves. Nobody made land, and no lone owner made its value; the presence of society in general did that. Plus, for excluding everyone else from their sites, owners owe everyone else, as each one of us owes everyone for excluding them.
To recover land value, government could either transform the property tax into a land tax or replace it and other taxes with land dues or land use fees or an annual deed fee. ...
To pay the land dues, owners use their land efficiently; owners who had been speculating get busy and develop. No longer allowed to tax anything that moves, local governments, too, which presently let acres of abandoned urban land and buildings lie fallow, get busy, too, and make sure to get those acres into the hands of ambitious owners who’ll pay land dues. More locations put to use and more buildings put up increases supply, which dampens price.
Better still, as government recovers land rent, that leaves owners with less land rent to capitalize into land price. Hence buyers need not borrow so much. ...
Land would still rise in value. With every discovery of a nearby natural resource. With the opening of every new bridge. With every techno-advance, as silicon wafers did for Silicon Valley. With every jump in income and drop in crime, land value rises. But no longer into a bubble. Because every rise would find its way – via land dues and rent dividends – into everyone’s pockets. ...
If the 18-year average holds for this cycle, then real estate still has a few more years of sucking all the investments and purchasing power out of the rest of the economy. Land is still able to soak it all up, and lenders are still willing to pump more in. So despite the premature panic (markets almost never do what everybody says they’re going to do), Mankiw’s 2007 would be the earliest that the current bubble would burst, and 2008 is just as likely.
Then land prices will fall for a few years. Since the run-up was steep, the drop will be, too – after correcting for inflation, maybe as much as 50%. Which will be an enormous relief for the economy – just what the doctor ordered. With land affordable again, a new cycle can get under way. Whether the new one will be boom and bust or climb and glide is up to us, whether we’re willing to practice geonomics, to forego taxes and subsidies in favor of land dues and a Citizens Dividend.
While I don’t mind the current gambling, I do mind the widening of the cavernous gulf between haves and have-nots, and I boil over while workweek grows more onerous, and just seethe watching vacant lots and abandoned buildings push development out from urban cores to sprawl on suburban farmland. To reverse that, let’s let go of the individual owner’s hold on land rent and share Earth’s worth equitably among us all. We’ll all be glad we did. ... Read the whole article
On the other hand, the Fed statistics37 understate land values for methodological reasons. Starting with estimates for overall real estate market prices, Fed statisticians subtract estimated replacement prices for existing buildings and capital improvements to derive land values as a residual. These replacement prices are based on the Commerce Department’s index of construction costs. Thus, building values are estimated to increase steadily over time, on the implicit assumption that all such property is worth reproducing at today’s rising costs.
37 Balance Sheets for the U.S. Economy, 1945-94, Tables B. 11, B. 12 and R 11.
However, the value of any building tends eventually to decline, until finally it is scrapped and replaced. It is the value of land which tends to rise as population and income grow (over the long run, with cyclical swings), precisely because no more land can be produced. Thus, capital gains in real estate result mainly from land appreciation.
Building values fall because of physical deterioration, but also because buildings undergo locational obsolescence as neighborhood land uses change over time, so market prices tend to fall below replacement costs. It would not be economical to rebuild many types of structures on the same site if they were suddenly destroyed.38 In particular, where land use is intensifying over the long run, rising land values effectively drain the capital value out of old buildings. This is because the salvage value of land (its worth upon renewal) tends to rise, while the scrap or salvage value of most immovable improvements is negligible. Where land has alternative uses, rent is not its current net income but its opportunity cost -- the minimum yield required by the market to warrant keeping the land in its present use instead of converting it to the best alternative use. As the land value rises, a rising share of the property income must be imputed to the land and a falling share remains to be imputed to the improvements.Read the whole article
Henry George: The Land for the People (1889 speech)
... THE way to secure equality is plain. It is not by dividing the land; it is by calling upon those who are allowed possession of pieces of land giving special advantage to pay to the whole community, the rest of the people, aye, and including themselves--to the whole people, a fair rent or premium for that privilege, and using the fund so obtained for the benefit of the whole people. What we would do would be to make the whole people the general landlord, to have whatever rent is paid for the use of land to go, not into the pockets of individual landlords, but into the treasury of the general community, where it could be used for the common benefit.
Now, rent is a natural and just thing. For instance, if we in this room were to go together to a new country and we were to agree that we should settle in that new country on equal terms, how could we divide the land up in such a way as to insure and to continue equality? If it were proposed that we should divide it up into equal pieces, there would be in the first place this objection, that in our division we would not fully know the character of the land; one man would get a more valuable piece than the other. Then as time passed the value of different pieces of land would change, and further than that if we were once to make a division and then allow full and absolute ownership of the land, inequality would come up in the succeeding generation. One man would be thriftless, another man, on the contrary, would be extremely keen in saving and pushing; one man would be unfortunate and another man more fortunate; and so on. In a little while many of these people would have parted with their land to others, so that their children coming after them into the world would have no land. The only fair way would be this-- that any man among us should be at liberty to take up any piece of land, and use it, that no one else wanted to use; that where more than one man wanted to use the same piece of land, the man who did use it should pay a premium which, going into a common fund and being used for the benefit of all, would put everybody upon a plane of equality. That would be the ideal way of dividing up the land of a new country.
THE problem is how to apply that to an old country. True we are confronted with this fact all over the civilized world that a certain class have got possession of the land, and want to hold it. Now one of your distinguished leaders, Mr. Parnell in his Drogheda speech some years ago, said there were only two ways of getting the land for the people. One way was to buy it; the other was to fight for it. I do not think that is true. I think that Mr. Parnell overlooked at that time a most important third way, and that is the way we advocate.
That is what we propose by what we call the single tax. We propose to abolish all taxes for revenue. In place of all the taxes that are now levied, to impose one single tax, and that a tax upon the value of land. Mark me, upon the value of land alone -- not upon the value of improvements, not upon the value of what the exercise of labor has done to make land valuable, that belongs to the individual; but upon the value of the land itself, irrespective of the improvements, so that an acre of land that has not been improved will pay as much tax as an acre of like land that has been improved. So that in a town a house site on which there is no building shall be called upon to pay just as much tax as a house site on which there is a house.
I said that rent is a natural
thing. So it is. Where one man, all
rights being equal, has a piece of land of better quality than
another man, it is only fair to all that he should pay the
difference. Where one man has a piece of land and others have none,
it gives him a special advantage; it is only fair that he should pay
into the common fund the value of that special privilege granted him
by the community. That is what is called economic rent. BUT over and above the economic rent there is the power that
by monopoly, there is the power to extract a rent, which may be
called monopoly rent. On this island that I have supposed we
go and settle on, under the plan we have proposed each man should pay
annually to the special fund in accordance with the special privilege
the peculiar value of the piece of land he held, and those who had
land of no peculiar value should pay nothing. That rent that would be
payable by the individual to the community would only amount to the
value of the special privilege that he enjoyed from the community.
But if one man owned the island, and
if we went there and you people
were fools enough to allow me to lay claim to the ownership of the
island and say it belonged to me, then I could charge a monopoly
rent; I could make you pay me every penny that you earned, save just
enough for you to live; and the reason I could not make you pay more
is simply this, that if you would pay more you would die.
I cannot pass on without mentioning the name of one of the distinguished Irishmen who have declared for the principle long before they heard of me. I refer to only one name. Many of you know, and doubtless all of you have heard, of Dr. Nulty, the Bishop of Meath.
IN 1881, before I had ever been in Ireland or Dr. Nulty had ever heard of me, he wrote a letter on the Land Question to the clergy and laity of the diocese of Meath. Dr. Nulty lays down precisely the principle that I have endeavored to lay down here before you briefly, that there is a right of ownership that comes from work, from production; that it is the law of nature, the law of God,
Dr. Nulty goes on to say what every man who has studied this subject will cordially endorse, that the natural law of rent -- that law by which population increases the value of land in certain places and makes it grow higher and higher -- that principle by which, as the city grows, land becomes more valuable -- that that is to his mind the clearest and best proof, not merely of the intelligence but of the beneficence of the Creator. For he shows clearly that that is the natural provision by virtue of which, if men would only obey God's law of justice, if men would only obey the fundamental maxim of Christianity to do to others as they would be done to them: that by virtue of that provision, as the advance of civilization went on, it would be towards a greater and greater equality among men-not a now to a more and more monstrous inequality. Read the whole speech
The Most Rev. Dr Thomas Nulty, Roman Catholic Bishop of Meath (Ireland): Back to the Land (1881)
How Political Economists Define Rent
Adam Smith says: "Rent may be considered as the produce of those powers of nature the use of which the landlord lends to the farmer. It is the work of nature which remains after deducting or compensating all that can be regarded as the work of man. It is seldom less than a fourth, and frequently more than a third of the whole produce." The part then of the agricultural products of the land which is the result of the operations of the powers of nature is sometimes more than a third of the whole -- and that is the Rent of the landlord.
Ricardo, the inventor of the celebrated theory of Rent, called after his name (Ricardo's "Theory of Rent"), defines Rent to be: "That portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil. It is often confounded with the interest and profit of capital… In the future pages of this work, then, whenever I speak of the Rent of land, I wish to be understood as speaking of the compensation which is paid to the owner of the land for the use of its original and indestructible properties."
Scrope writes of it: "The value of land and its power of yielding a Rent are due to two circumstances. 1. The appropriation of its natural power. 2. The labour applied to its amelioration. Under the first of these relations Rent is a monopoly. It restricts our usufruct and enjoyment of the gifts which God has given to men for the satisfaction of their wants."
Senior thus speaks of Rent: "The instruments of production are labour and natural agents. Natural agents having been appropriated, proprietors charge for their use under the form of Rent, which is the recompense of no sacrifice whatever, and is received by those who have neither laboured nor put by, but who merely hold out their hands to accept the offerings of the rest of the community."
McCulloch defines it: "What is properly termed Rent is the sum paid for the use of the natural and inherent powers of the soil. It is entirely distinct from the sum paid for the use of buildings, enclosures, roads or other ameliorations." Rent is, then, always a monopoly.
Lastly, Mill says: "The land is the principal of the natural agents which are capable of being appropriated, and the consideration paid for its use is called Rent. . . .It is at once evident that Rent is the effect of a monopoly." Read the whole letterA.J.O. [probably Mark Twain]: Slavery
Suppose I am the owner of an
estate and 100 slaves, all the land
about being held in the same way by people of the same class as
Most of them think they would like to have a piece of land and
work it for themselves, and be their own masters. ...
Instead of being forced to keep my men in brutish ignorance, I find public schools established at other people's expense to stimulate their intelligence and improve their minds, to my great advantage, and their children compelled to attend these schools. The service I get, too, being now voluntarily rendered (or apparently so) is much improved in quality. In short, the arrangement pays me better in many ways.
But I gain in other ways besides pecuniary benefit. I have lost the stigma of being a slave driver, and have, acquired instead the character of a man of energy and enterprise, of justice and benevolence. I am a "large employer of labour," to whom the whole country, and the labourer especially, is greatly indebted, and people say, "See the power of capital! These poor labourers, having no capital, could not use the land if they had it, so this great and far-seeing man wisely refuses to let them have it, and keeps it all for himself, but by providing them with employment his capital saves them from pauperism, and enables him to build up the wealth of the country, and his own fortune together."
Whereas it is not my capital that does any of these things. ...
But now another thought strikes me. Instead of paying an overseer to work these men for me, I will make him pay me for the privilege of doing it. I will let the land as it stands to him or to another — to whomsoever will give the most for the billet. He shall be called my tenant instead of my overseer, but the things he shall do for me are essentially the same, only done by contract instead of for yearly pay. ....
For a moderate reduction in my profits, then — a reduction equal to the tenant's narrow margin of profit — I have all the toil and worry of management taken off my hands, and the risk too, for be the season good or bad, the rent is bound to be forthcoming, and I can sell him up to the last rag if he fails of the full amount, no matter for what reason; and my rent takes precedence of all other debts. ...
If wages are forced down it is not I that do it; it is that greedy and merciless man the employer (my tenant) who does it. I am a lofty and superior being, dwelling apart and above such sordid considerations. I would never dream of grinding these poor labourers, not I! I have nothing to do with them at all; I only want my rent -- and get it. Like the lillies of the field, I toil not, neither do I spin, and yet (so kind is Providence!) my daily bread (well buttered) comes to me of itself. Nay, people bid against each other for the privilege of finding it for me; and no one seems to realise that the comfortable income that falls to me like the refreshing dew is dew indeed; but it is the dew of sweat wrung from the labourers' toil. It is the fruit of their labour which they ought to have; which they would have if I did not take it from them.
This sketch illustrates the fact that chattel slavery is not the only nor even the worst form of bondage. When the use of the earth — the sole source of our daily bread — is denied unless one pays a fellow creature for permission to use it, people are bereft of economic freedom. The only way to regain that freedom is to collect the rent of land instead of taxes for the public domain.
Once upon a time, labour leaders in the USA, the UK and Australia understood these facts. The labour movements of those countries were filled with people who fought for the principles of 'the single tax' on land at the turn of the twentieth century. But since then, it has been ridiculed, and they have gradually yielded to the forces of privilege and power — captives of the current hegemony — daring no longer to come to grips with this fundamental question, lest they, too, become ridiculed.
And so the world continues to wallow in this particular ignorance — and in its ensuing poverty and debt. Read the whole essaya synopsis of Robert V. Andelson and James M. Dawsey: From Wasteland to Promised land: Liberation Theology for a Post-Marxist World
"The profit of the earth is for all" (Eccles. 5:9). The Old Testament ethic, to assure everyone the same natural opportunity, asserts that all people have an equal right to economic rent, and the Levite tithe demonstrates that the socialization of rent offsets the ethical and practical harm resulting from private land ownership. But there is another basis for its advocacy: Rent should be taken by society because it is a social product. Rent arises in large measure from two societal phenomena: the mere presence of population, and community activity in a particular area. More people means more demand for space on which to live and work. Community activities such as roads, schools, protection, parks, sewage, utilities and other public services, as well as the totality of private commercial and cultural operations, all make land more productive or desirable. It follows that a community which funds such improvements out of its rent fund will be provided with a stable and growing fund with which to maintain and improve them. And unlike conventional taxes, the collection of this fund will enhance, not penalize, the production of wealth.
Individuals, in their bare capacity as landowners, do nothing to produce land value. By withholding sites from use, whether for speculation or for other reasons, they may generate scarcity, artificially inflating rent, but this does not reflect any positive contribution to production on the part of landowners.
While land value is not the only type of unearned increment, unearned income resulting from such advantages as talent, genes or luck is not at the expense of others. Even Karl Marx admitted: "The monopoly of property in land is even the basis of the monopoly of capital." Marx could have -- but did not -- champion the abolition of land monopoly; instead he advocated its transfer from private into state hands. It was left to Henry George to expound how the universal principles of justice found in the Mosaic model could be applied to the modern age in all its economic aspects -- rural and urban, agricultural and industrial, technologically undeveloped or advanced.
What George advocated was to leave land titles in private hands but to appropriate land rent via the existing machinery of property taxation. "I do not propose either to purchase or to confiscate private property in land. The first would be unjust; the second, needless....It is not necessary to confiscate land; it is only necessary to confiscate rent." No owner or tenant would be expropriated or evicted. No limit would be placed on the quantity of land one could hold, as long as the annual rent were paid.
Coordinately with the capture of rent as public revenue, taxes on products of human labor -- improvements, personal property, services, commodities, wages, etc. -- would be reduced and ultimately eliminated.
George considered his remedy no mere human contrivance. He saw the growth of land value and the easy means of equitably distributing it as an expression of benevolent supernatural design: "As civilization goes on... so do the common wants increase and so does the necessity for public revenue arise. And so in that value which attaches to land, not by reason of anything the individual does, but by reason of the growth of the community, is a provision intended -- we may safely say intended -- to meet that social want."
George's remedy goes a long way to stop current inequity and prevent future inequity. While past inequity, in the form of accumulations of capital based on previous land speculation and monopoly cannot be accurately redressed, these fortunes can be impelled to serve the needs of the public via investment in production, not by further investment in land speculation and monopoly. ...
To recognize that "the earth is the Lord's" is to see that the same God who established communities has also in his providence ordained for them, through the land itself, a just source of revenue. Yet, in the Wasteland in which we live, this revenue goes mainly into the pockets of monopolists, while communities meet their needs by extorting individuals the fruits of their honest toil. If ever there were any doubt that structural sin exists, our present system of taxation is the proof. Everywhere we see governments penalizing individuals for their industry and creativity, while the socially produced value of land is reaped by speculators in exact proportion to the land which they withhold. The greater the Wasteland, the greater the reward. Does this comport with any divine plan, or notion of justice and human rights? Or does it not, rather, perpetuate the Wasteland and prevent the realization of the Promised Land?
This not meant to suggest that land monopolists and speculators have a corner on acquisitiveness or the "profit motive," which is a well-nigh universal fact of human nature. As a group, they are no more sinful than are people at large, except to the degree that they knowingly obstruct reforms aimed at removing the basis of exploitation. Many abide by the dictum: "If one has to live under a corrupt system, it is better to be a beneficiary than a victim of it."
But they do not have to live under a corrupt system; no one does. The profit motive can be channeled in ways that are socially desirable as well as in ways that are socially destructive. Let us give testimony to our faith that the earth is the Lord's by building a social order in which there are no victims. Read the whole synopsis
Does all land have rent? Not necessarily! Farmland on the fringe may be rent-free, or very close to it, particularly if it requires irrigation. But as soon as more than one person wants to use it, it has rent.
Henry George: The Great Debate: Single Tax vs Social Democracy (1889)
The ideal plan would allow every man who wished to use land to obtain it, and to possess what he wished to use so long as no one else wished to use it, and if the land be so superior that more than one wanted to use it, a proper payment according to its superiority should be made to the community, and by that community used for the common benefit. (Hear, hear.) ...
Whether the rent is large or small is not of importance to the principle. I would take rent – always meaning by rent economic rent – for the community because it belongs to the community. (Cheers.) I would not abolish it; I would exact it from anyone who used land wherever it was used; because that is the only way in which all can be put upon an equality. (Hear, hear.)
If you are to leave to the man who gets possession of a piece of land in the centre of London the whole rent you give him an enormous advantage over the man who for his purposes, to get his land, has to go to some out of the way district or up to the Highlands of Scotland. (Hear, hear.)
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
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. ... Read the entire article
Mark Twain Archimedes
I know of a mechanical force more powerful than anything the vaunting engineer of Syracuse ever dreamed of. It is the force of land monopoly; it is a screw and lever all in one; it will screw the last penny out of a man's pocket, and bend everything on earth to its own despotic will. Give me the private ownership of all the land, and will I move the earth? No; but I will do more. I will undertake to make slaves of all the human beings on the face of it. Not chattel slaves exactly, but slaves nevertheless. What an idiot I would be to make chattel slaves of them. I would have to find them salts and senna when they were sick, and whip them to work when they were lazy.
No, it is not good enough. Under the system I propose the fools would imagine they were all free. I would get a maximum of results, and have no responsibility whatever. They would cultivate the soil; they would dive into the bowels of the earth for its hidden treasures; they would build cities and construct railways and telegraphs; their ships would navigate the ocean; they would work and work, and invent and contrive; their warehouses would be full, their markets glutted, and:
That everything they made would belong to me.
It would be this way, you see: As I owned all the land, they would
of course, have to pay me rent. They could not reasonably expect me
to allow them the use of the land for nothing. I am not a hard man,
and in fixing the rent I would be very liberal with them. I would
allow them, in fact, to fix it themselves. What could be fairer?
is a piece of land, let us say, it might be a farm, it might be a
building site, or it might be something else - if there was only one
man who wanted it, of course he would not offer me much, but if the
land be really worth anything such a circumstance is not likely to
happen. On the contrary, there would be a number who would want it,
and they would go on bidding and bidding one against the other, in
order to get it. I should accept the highest offer - what could be
fairer? Every increase of population, extension of trade, every
advance in the arts and sciences would, as we all know, increase the
value of land, and the competition
that would naturally arise would
continue to force rents upward, so much so, that in many cases the
tenants would have little or nothing left for themselves.... Read
the whole piece
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
Bill Batt: The Compatibility of Georgist Economics and Ecological Economics
In the United States, the definition of real property as explicated in the legal Commentaries of Sir William Blackstone may have been pivotal in the adoption of freehold interpretations of ownership over leasehold.21 For several years after this nation was founded which system of title would prevail hung in the balance.22 Thomas Paine was certainly an advocate of the latter,23 as was Jefferson.24 Hamilton, on the other hand, was a defender of propertied interests and titles in fee simple, and especially to his in-laws, the landowning families of upstate New York known as the Patroons.25 Leaseholds were used in several of the colonies, with the fees paid to governors.26
Rent becomes critically important in Georgist economics, because rent is the increment of market gain that accrues to choice land parcels. This insight arose originally in the context of agricultural societies, where differential qualities of land were recognized by varied payment in rent. An individual’s return on investment was represented by his labor — that was his and his alone to keep. So also were whatever capital goods he acquired through the efforts of his past labor. On the other hand, whenever land offered a higher yield separate from whatever the individual’s labor investment might represent, this constituted a windfall gain above and beyond what might be minimally expected. This is land rent, and it exists even if it isn’t collected. Today, as earlier noted, the greatest land rents derive from their location, grown out of nearby social investment.
The concept of rent needs further explication precisely because it is so foreign to 20th century students, even those who have been schooled in economics at it is currently taught. Land rent has no relationship to the word rent as it is used in contemporary vernacular, that is, when one rents a car or an apartment. Rather, rent is a surplus, defined as the return on investment above and beyond what is minimally required to bring a service into production. To take just an elementary example, consider that there are three parcels of land available for farming and three farmers of equal ability and enterprise. But suppose the parcels differ in their productive capacity, due perhaps to their fertility, access to water, and so on. If planted with similar quality seed, the three parcels will yield different quantities of harvest, the one with the highest quality land having the best return. The one with the lowest quality land would in like fashion have the lowest return. Economic rent is defined as the amount of surplus harvest qualitatively measured by the difference between the parcel with the highest return and that with the lowest return. ...
As with all nineteenth century moral philosophers, Henry George subscribed to a belief in natural law. The natural order of things as he saw it required that land be held in usufruct and that rent from such should be returned to society. The theory was inspired by his deeply religious roots and grounded in his reading of the prominent thinkers that predated him. The natural order was also a moral order, and the failure to comply with the order of nature and society as he saw it was a perversion of justice. The fruits of the land belonged to everyone, just as the fruits of one’s own labor were uniquely one’s own. Since one owned one’s body, one was entitled to keep the product of one’s physical efforts. Society had no more right to confiscate the earnings of one’s sweat and brow than it ought to leave in the hands of rich landowners the rent that was everyone’s inherent birthright to be shared. There were just and unjust taxes, and the only just tax was that which grew out of rent, of the unearned increment that visited certain land sites as windfall gains because of the efforts and investments by the community. Income and excise taxes were unjust and confiscatory— even theft, as especially were tariffs. Taxing or collecting land rent alone was the means of ending poverty and restoring progress. Indeed many Georgists reject use of the word tax entirely, preferring instead to talk instead about rent collection. There is even a lapel button Georgists use that says “Abolish all taxes; collect ground rent instead.” ... read the whole article
Bill Batt: Stemming Sprawl: The Fiscal Approach
Bill Batt: Water and Privatization
... But only recently, with the advent of data availability and increased computer power, is it possible to demonstrate that Henry George was right: i.e. that taxing what he called "land" - really meaning all natural capital and resources rather than labor or human capital - constitutes the best possible tax design we could have.
If these natural resources are a "commons" worthy of being preserved as the birthright of all humanity, their use can be rented at rates sufficient to cover the costs of not only the provision of those services but for all public needs. All taxes are ultimately shifted through the economy to rest on what classical economists call land rent in any case, and levying the taxes directly on rent improves efficiency by eliminating "deadweight loss." Moreover, taxing or collecting what classical economists call economic rent bears all the hallmarks of a perfect tax -- fairness, simplicity, stability, administrability, neutrality, and efficiency.... read the whole article
Bill Batt: How the Railroads Got Us On the Wrong Economic Track
As recently as a century ago classical economic thought still regarded land for the most part as the common heritage of mankind. From Adam Smith, through Thomas Malthus, David Ricardo, and finally with John Stuart Mill economic productivity was regarded as a function of three interacting factors: land, labor, and capital. John Locke also accepted these premises. To achieve optimal economic productivity, one had to exact the appropriate price from each of those factors. The price of labor was in wages; the price of capital was interest; and the price of land, particularly following the thinking of David Ricardo, was rent. Rent in its classical sense means payment for the use of something in fixed supply, or, more generally, payments above the costs incurred for its creation. Disequilibriums and inefficiencies in economic development resulted if the appropriate prices were not paid for each factor. But, as we shall see, there were powerful interests in this country, bent on not seeing any rent extracted from land use, that persuaded the nascent economics profession at the end of the 19th century no longer to regard land as a separate factor and to redefine the terms of production instead in two-factor theory. This was concurrent with the inclusion of land as property, since called "real property."... read the whole articleMason Gaffney: Canada's System of Revenue Sharing
But the most delightful distinction about Canadians is the strong and explicit recognition among almost everyone, even if he's an economist, who discusses this subject, that different resource endowments are the basis of inter-provincial differences. Equalisation in Canadian politics means sharing the economic rent. Everybody talks that way. Canadian economists even when they come to the States talk that way. Just as though rent were a permissible word in polite discourse. It's very refreshing. However there's a very selective attitude towards rent -- towards what rents are shareable, I should say.
But now how about the rents that are generated by the valuable lands of Montreal, or Toronto, or some of those other big and powerful cities in the east? They are not fair game. As a matter of fact, if you pore through the fine print of the equalization law, which I did on the airplane, you find the most interesting exception to what's included in the formula. I'll explain the formula to you in a moment if you are still awake.
The formula says that the greater the capacity to raise taxes that a province enjoys, the less will be its equalization payment. And various potential tax bases are included in this formula. And one of those is the property tax. But then you look at the fine print and only the improvements are included. The land is specifically excluded. Very pecular. In the formula as it's commonly printed you don't see that exclusion; it's only in the footnote. But in the footnote it says 'Instead of the value of land we will substitute the gross provincial product.' Of course, all right thinking people know that land value is in direct proportion to the growth of the provincial product. Or do they? I always thought that was the product of other inputs. What it means is that if a province has a great deal of valuable land which is not being used to a highest and best use, that valuable land will not be included in its potential tax base, and it can continue to get subventions from the federal government. Whereas on the other hand if its potential tax base includes oil and gas, then the revenues that it receives from that, or the ability it has to receive revenues from that, is counted against it in the sharing formula. So this is a very peculiar sort of rent sharing. Some rents are shared and others are not. You might even call it a conspiracy against Alberta. I'm sure that's the way they look at it.... read the whole article
Nic Tideman: Land Taxation and Efficient Land Speculation
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper