Speculation

If you know the movie Mr. Smith Goes to Washington, the underlying story is one of special interests, specifically land speculation — in this case, the land surrounding a prospective dam site in Smith's home state.

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

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

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

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

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

Henry George: Justice the Object -- Taxation the Means (1890)

Today one half of the area of New York City is unbuilt upon — is absolutely unused. When there is such a pressure, why don't people go to these vacant lots and build there? Because though unused, the land is owned; because, speculating upon the future growth of the city, the owners of those vacant lots demand thousands of dollars before they will permit anyone to put a house upon them. What you see in New York, you may see everywhere. Come into the coalfields of Pennsylvania; there you will frequently find thousands and thousands of miners unable to work, either locked out by their employers, or striking as a last resource against their pitiful wages being cut down a little more.  Read the entire article

Henry George: The Condition of Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)

That the value attaching to land with social growth is intended for social needs is shown by the final proof. God is indeed a jealous God in the sense that nothing but injury and disaster can attend the effort of men to do things other than in the way he has intended; in the sense that where the blessings he proffers to men are refused or misused they turn to evils that scourge us. And just as for the mother to withhold the provision that fills her breast with the birth of the child is to endanger physical health, so for society to refuse to take for social uses the provision intended for them is to breed social disease.

For refusal to take for public purposes the increasing values that attach to land with social growth is to necessitate the getting of public revenues by taxes that lessen production, distort distribution and corrupt society. It is to leave some to take what justly belongs to all; it is to forego the only means by which it is possible in an advanced civilization to combine the security of possession that is necessary to improvement with the equality of natural opportunity that is the most important of all natural rights. It is thus at the basis of all social life to set up an unjust inequality between man and man, compelling some to pay others for the privilege of living, for the chance of working, for the advantages of civilization, for the gifts of their God. But it is even more than this. The very robbery that the masses of men thus suffer gives rise in advancing communities to a new robbery. For the value that with the increase of population and social advance attaches to land being suffered to go to individuals who have secured ownership of the land, it prompts to a forestalling of and speculation in land wherever there is any prospect of advancing population or of coming improvement, thus producing an artificial scarcity of the natural elements of life and labor, and a strangulation of production that shows itself in recurring spasms of industrial depression as disastrous to the world as destructive wars. It is this that is driving men from the old countries to the new countries, only to bring there the same curses. It is this that causes our material advance not merely to fail to improve the condition of the mere worker, but to make the condition of large classes positively worse. It is this that in our richest Christian countries is giving us a large population whose lives are harder, more hopeless, more degraded than those of the veriest savages. It is this that leads so many men to think that God is a bungler and is constantly bringing more people into his world than he has made provision for; or that there is no God, and that belief in him is a superstition which the facts of life and the advance of science are dispelling. ...

But worse perhaps than all else is the way in which this substituting of vague injunctions to charity for the clear-cut demands of justice opens an easy means for the professed teachers of the Christian religion of all branches and communions to placate Mammon while persuading themselves that they are serving God. Had the English clergy not subordinated the teaching of justice to the teaching of charity — to go no further in illustrating a principle of which the whole history of Christendom from Constantine’s time to our own is witness — the Tudor tyranny would never have arisen, and the separation of the church been averted; had the clergy of France never substituted charity for justice, the monstrous iniquities of the ancient régime would never have brought the horrors of the Great Revolution; and in my own country had those who should have preached justice not satisfied themselves with preaching kindness, chattel slavery could never have demanded the holocaust of our civil war.

No, your Holiness; as faith without works is dead, as men cannot give to God his due while denying to their fellows the rights be gave them, so charity unsupported by justice can do nothing to solve the problem of the existing condition of labor. Though the rich were to “bestow all their goods to feed the poor and give their bodies to be burned,” poverty would continue while property in land continues.

Take the case of the rich man today who is honestly desirous of devoting his wealth to the improvement of the condition of labor. What can he do?

• Bestow his wealth on those who need it? He may help some who deserve it, but will not improve general conditions. And against the good he may do will be the danger of doing harm.
• Build churches? Under the shadow of churches poverty festers and the vice that is born of it breeds.
• Build schools and colleges? Save as it may lead men to see the iniquity of private property in land, increased education can effect nothing for mere laborers, for as education is diffused the wages of education sink.
• Establish hospitals? Why, already it seems to laborers that there are too many seeking work, and to save and prolong life is to add to the pressure.
• Build model tenements? Unless he cheapens house accommodations he but drives further the class he would benefit, and as he cheapens house accommodations he brings more to seek employment and cheapens wages.
• Institute laboratories, scientific schools, workshops for physical experiments? He but stimulates invention and discovery, the very forces that, acting on a society based on private property in land, are crushing labor as between the upper and the nether millstone.
• Promote emigration from places where wages are low to places where they are somewhat higher? If he does, even those whom he at first helps to emigrate will soon turn on him to demand that such emigration shall be stopped as reducing their wages.
• Give away what land he may have, or refuse to take rent for it, or let it at lower rents than the market price? He will simply make new landowners or partial landowners; he may make some individuals the richer, but he will do nothing to improve the general condition of labor.
• Or, bethinking himself of those public-spirited citizens of classic times who spent great sums in improving their native cities, shall he try to beautify the city of his birth or adoption? Let him widen and straighten narrow and crooked streets, let him build parks and erect fountains, let him open tramways and bring in railroads, or in any way make beautiful and attractive his chosen city, and what will be the result? Must it not be that those who appropriate God’s bounty will take his also? Will it not be that the value of land will go up, and that the net result of his benefactions will be an increase of rents and a bounty to landowners? Why, even the mere announcement that he is going to do such things will start speculation and send up the value of land by leaps and bounds.

What, then, can the rich man do to improve the condition of labor?

He can do nothing at all except to use his strength for the abolition of the great primary wrong that robs men of their birthright. The justice of God laughs at the attempts of men to substitute anything else for it. ... read the whole letter

Rev. A. C. Auchmuty: Gems from George, a themed collection of excerpts from the writings of Henry George (with links to sources)

The Laws of Social Life

TAKE now some hard-headed businessman, who has no theories, but knows how to make money. Say to him: "Here is a little village; in ten years it will be a great city — in ten years the railroad will have taken the place of the stagecoach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will, in ten years, interest be any higher?"

He will tell you, "No!"

"Will the wages of common labor be any higher; will it be easier for a man who has nothing but his labor to make an independent living?"

He will tell you, "No; the wages of common labor will not be any higher; on the contrary, all the chances are that they will be lower; it will not be easier for the mere laborer to make an independent living; the chances are that it will be harder."

"What, then, will be higher?" " Rent; the value of land. Go; get yourself a piece of ground, and hold possession."

And if, under such circumstances, you take his advice, you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico: you may go up in a balloon, or down a hole in the ground; and without doing one stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich! In the new city you may have a luxurious mansion; but among its public buildings will be an almshouse. — Progress & Poverty — Book V, Chapter 2: The Problem Solved: The Persistence of Poverty amid Advancing Wealth

THERE may be disputes as to whether there is yet a science of political economy, that is to say, whether our knowledge of the natural economic laws is as yet so large and well digested as to merit the title of science. But among those who recognize that the world we live in is in all its spheres governed by law, there can be no dispute as to the possibility of such a science. — The Science of Political Economy — unabridged: Book I, Chapter 14, The Meaning of Political Economy: Political Economy as Science and as Art • abridged: Part 1, Chapter 12: Political Economy as Science and Art

THE domain of law is not confined to physical nature. It just as certainly embraces the mental and moral universe, and social growth and social life have their laws as fixed as those of matter and of motion. Would we make social life healthy and happy, we must discover those laws, and seek our ends in accordance with them. — Social Problems — Chapter 22: Conclusion

THE mode of taxation is quite as important as the amount. As a small burden badly placed may distress a horse that could carry with ease a much larger one properly adjusted, so a people may be impoverished and their power of producing wealth destroyed by taxation, which, if levied in another way, could be borne with ease. — Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

IF we impose a tax upon buildings, the users of buildings must finally pay it, for the erection of buildings will cease until building rents become high enough to pay the regular profit and the tax besides. If we impose a tax upon manufactures or imported goods, the manufacturer or importer will charge it in a higher price to the jobber, the jobber to the retailer, and the retailer to the consumer. Now, the consumer, on whom the tax thus ultimately falls, must not only pay the amount of the tax, but also a profit on this amount to everyone who has thus advanced it — for profit on the capital he has advanced in paying taxes is as much required by each dealer as profit on the capital he has advanced in paying for goods. — Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

THE way taxes raise prices is by increasing the cost of production, and checking supply. But land is not a thing of human production, and taxes upon rent cannot check supply. Therefore though a tax on rent compels the landowners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land. — Progress & Poverty — Book VIII, Chapter 3, Application of the Remedy: The Proposition Tried by the Canons of Taxation

... go to "Gems from George"

Winston Churchill: Land Price as a Cause of Poverty (1909 speech in Parliament)

"If," he inquires, "you tax the unearned increment on land, why don't you tax the unearned increment from a large block of stock? I buy a piece of land; the value rises. I buy stocks; their value rises." But the operations are entirely dissimilar.

• In the first speculation the unearned increment derived from land arises from a wholly sterile process, from the mere withholding of a commodity which is needed by the community.
• In the second case, the investor in a block of shares does not withhold from the community what the community needs.

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q41. Why would the single tax be an improvement upon present systems of taxation?
A. Because: (1) The taking for public uses of that value which justly belongs to the public is not a tax; (2) it would relieve all workers and capitalists of those taxes by which they are now unjustly burdened, and (3) it would make unprofitable the holding of land idle.

Q52. In old cities, it is not nearly all the land in use?
A. About one half the area of New York and Chicago is classed by the assessors as vacant. In Boston the proportion is: occupied, 45 percent; vacant, 43 percent; marsh, 12 percent.

Q58. What expected result of the single tax needs studious emphasis?
A. That it would unlock the land to labor at its present value for use, instead of locking out labor from the land by a prohibitive price based upon the future value for use. ... read the whole article

John Dewey: Steps to Economic Recovery

You cannot study Henry George without learning how intimately each of these wrongs and evils is bound up with our land system. One of our great national weaknesses is speculation. Everybody recognizes that fact in the stock market orgy of our late boom days. Only a few realize the extent to which speculation in land is the source of many troubles of the farmer, the part it has played in loading banks and insurance companies with frozen assets and compelling the closing of thousands of banks, nor how the high rents, the unpayable mortgages and the slums of the cities are connected with speculation in land values. All authorities on public works hold that the most fruitful field for them is slum clearance and better housing. Yet only a few seem to realize that with our present situation this improvement will put a bonus in the pockets of landlords, and the land speculator will be the one to profit financially--for after all, buildings are built on land.

So with taxation. There are all sorts of tinkering going on, but the tinkers and patchers shut their eyes to the fact that the socially produced annual value of land -- not of improvements, but of ground-rent value -- is about five billion dollars, and that its appropriation by those who create it, the community, would at once relieve the tax burden and ultimately would solve the tax problem. Of late the federal government has concerned itself with the problems of home ownership, but again by methods of tinkering that may easily in the long run do more harm than good. The community's acquisition of its own creation, ground-rent value, would both reduce the price of land and entirely eliminate taxes on improvement, thus making ownership easier. And how anyone expects to solve the unemployment question by putting the sanction of both legality and high pecuniary reward upon the ability of the few to keep the many from equal access to land and to the raw material, without which labor is impossible, I do not see -- and no one else does. For the tinkerers assume that unemployment must continues, only with government assistance to those who are necessarily out of work. By all means let us help those that now need it, but for the future let us prevent the cause instead of merely mitigating the effects. ... read the whole speech

Upton Sinclair: The Consequences of Land Speculation are Tenantry and Debt on the Farms, and Slums and Luxury in the Cities

I know of a woman — I have never had the pleasure of making her acquaintance, because she lives in a lunatic asylum, which does not happen to be on my visiting list. This woman has been mentally incompetent from birth. She is well taken care of, because her father left her when he died the income of a large farm on the outskirts of a city. The city has since grown and the land is now worth, at conservative estimate, about twenty million dollars. It is covered with office buildings, and the greater part of the income, which cannot be spent by the woman, is piling up at compound interest. The woman enjoys good health, so she may be worth a hundred million dollars before she dies.

I choose this case because it is one about which there can be no disputing; this woman has never been able to do anything to earn that twenty million dollars. And if a visitor from Mars should come down to study the situation, which would he think was most insane, the unfortunate woman, or the society which compels thousands of people to wear themselves to death in order to pay her the income of twenty million dollars?

The fact that this woman is insane makes it easy to see that she is not entitled to the "unearned increment" of the land she owns. But how about all the other people who have bought up and are holding for speculation the most desirable land? The value of this land increases, not because of anything these owners do — not because of any useful service they render to the community — but purely because the community as a whole is crowding into that neighborhood and must have use of the land.

The speculator who bought this land thinks that he deserves the increase, because he guessed the fact that the city was going to grow that way. But it seems clear enough that his skill in guessing which way the community was going to grow, however useful that skill may be to himself, is not in any way useful to the community. The man may have planted trees, or built roads, and put in sidewalks and sewers; all that is useful work, and for that he should be paid. But should he be paid for guessing what the rest of us were going to need?

Before you answer, consider the consequences of this guessing game. The consequences of land speculation are tenantry and debt on the farms, and slums and luxury in the cities. A great part of the necessary land is held out of use, and so the value of all land continually increases, until the poor man can no longer own a home. The value of farm land also increases; so year by year more independent farmers are dispossessed, because they cannot pay interest on their mortgages. So the land becomes a place of serfdom, that land described by the poet, "where wealth accumulates and men decay." The great cities fill up with festering slums, and a small class of idle parasites are provided with enormous fortunes, which they do not have to earn, and which they cannot intelligently spend. ... read the whole article

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

d. Effect of Confiscating Rent to Private Use.

By giving Rent to individuals society ignores this most just law, 99 thereby creating social disorder and inviting social disease. Upon society alone, therefore, and not upon divine Providence which has provided bountifully, nor upon the disinherited poor, rests the responsibility for poverty and fear of poverty.

99. "Whatever dispute arouses the passions of men, the conflict is sure to rage, not so much as to the question 'Is it wise?' as to the question 'Is it right?'

"This tendency of popular discussions to take an ethical form has a cause. It springs from a law of the human mind; it rests upon a vague and instinctive recognition of what is probably the deepest truth we can grasp. That alone is wise which is just; that alone is enduring which is right. In the narrow scale of individual actions and individual life this truth may be often obscured, but in the wider field of national life it everywhere stands out.

"I bow to this arbitrament, and accept this test." — Progress and Poverty, book vii, ch. i.

The reader who has been deceived into believing that Mr. George's proposition is in any respect unjust, will find profit in a perusal of the entire chapter from which the foregoing extract is taken.

Let us try to trace the connection by means of a chart, beginning with the white spaces on page 68. As before, the first-comers take possession of the best land. But instead of leaving for others what they do not themselves need for use, as in the previous illustrations, they appropriate the whole space, using only part, but claiming ownership of the rest. We may distinguish the used part with red color, and that which is appropriated without use with blue. Thus: [chart]

But what motive is there for appropriating more of the space than is used? Simply that the appropriators may secure the pecuniary benefit of future social growth. What will enable them to secure that? Our system of confiscating Rent from the community that earns it, and giving it to land-owners who, as such, earn nothing.100

100. It is reported from Iowa that a few years ago a workman in that State saw a meteorite fall, and. securing possession of it after much digging, he was offered $105 by a college for his "find." But the owner of the land on which the meteorite fell claimed the money, and the two went to law about it. After an appeal to the highest court of the State, it was finally decided that neither by right of discovery, nor by right of labor, could the workman have the money, because the title to the meteorite was in the man who owned the land upon which it fell.

Observe the effect now upon Rent and Wages. When other men come, instead of finding half of the best land still common and free, as in the corresponding chart on page 68, they find all of it owned, and are obliged either to go upon poorer land or to buy or rent from owners of the best. How much will they pay for the best? Not more than 1, if they want it for use and not to hold for a higher price in the future, for that represents the full difference between its productiveness and the productiveness of the next best. But if the first-comers, reasoning that the next best land will soon be scarce and theirs will then rise in value, refuse to sell or to rent at that valuation, the newcomers must resort to land of the second grade, though the best be as yet only partly used. Consequently land of the first grade commands Rent before it otherwise would.

As the sellers' price, under these circumstances, is arbitrary it cannot be stated in the chart; but the buyers' price is limited by the superiority of the best land over that which can be had for nothing, and the chart may be made to show it: [chart]

And now, owing to the success of the appropriators of the best land in securing more than their fellows for the same expenditure of labor force, a rush is made for unappropriated land. It is not to use it that it is wanted, but to enable its appropriators to put Rent into their own pockets as soon as growing demand for land makes it valuable.101 We may, for illustration, suppose that all the remainder of the second space and the whole of the third are thus appropriated, and note the effect: [chart]

At this point Rent does not increase nor Wages fall, because there is no increased demand for land for use. The holding of inferior land for higher prices, when demand for use is at a standstill, is like owning lots in the moon — entertaining, perhaps, but not profitable. But let more land be needed for use, and matters promptly assume a different appearance. The new labor must either go to the space that yields but 1, or buy or rent from owners of better grades, or hire out. The effect would be the same in any case. Nobody for the given expenditure of labor force would get more than 1; the surplus of products would go to landowners as Rent, either directly in rent payments, or indirectly through lower Wages. Thus: [chart]

101. The text speaks of Rent only as a periodical or continuous payment — what would be called "ground rent." But actual or potential Rent may always be, and frequently is, capitalized for the purpose of selling the right to enjoy it, and it is to selling value that we usually refer when dealing in land.

Land which has the power of yielding Rent to its owner will have a selling value, whether it be used or not, and whether Rent is actually derived from it or not. This selling value will be the capitalization of its present or prospective power of producing Rent. In fact, much the larger proportion of laud that has a selling value is wholly or partly unused, producing no Rent at all, or less than it would if fully used. This condition is expressed in the chart by the blue color.

"The capitalized value of land is the actuarial 'discounted' value of all the net incomes which it is likely to afford, allowance being made on the one hand for all incidental expenses, including those of collecting the rents, and on the other for its mineral wealth, its capabilities of development for any kind of business, and its advantages, material, social, and aesthetic, for the purposes of residence." — Marshall's Prin., book vi, ch. ix, sec. 9.

"The value of land is commonly expressed as a certain number of times the current money rental, or in other words, a certain 'number of years' purchase' of that rental; and other things being equal, it will be the higher the more important these direct gratifications are, as well as the greater the chance that they and the money income afforded by the land will rise." — Id., note.

"Value . . . means not utility, not any quality inhering in the thing itself, but a quality which gives to the possession of a thing the power of obtaining other things, in return for it or for its use. . . Value in this sense — the usual sense — is purely relative. It exists from and is measured by the power of obtaining things for things by exchanging them. . . Utility is necessary to value, for nothing can be valuable unless it has the quality of gratifying some physical or mental desire of man, though it be but a fancy or whim. But utility of itself does not give value. . . If we ask ourselves the reason of . . . variations in . . . value . . . we see that things having some form of utility or desirability, are valuable or not valuable, as they are hard or easy to get. And if we ask further, we may see that with most of the things that have value this difficulty or ease of getting them, which determines value, depends on the amount of labor which must be expended in producing them ; i.e., bringing them into the place, form and condition in which they are desired. . . Value is simply an expression of the labor required for the production of such a thing. But there are some things as to which this is not so clear. Land is not produced by labor, yet land, irrespective of any improvements that labor has made on it, often has value. . . Yet a little examination will show that such facts are but exemplifications of the general principle, just as the rise of a balloon and the fall of a stone both exemplify the universal law of gravitation. . . The value of everything produced by labor, from a pound of chalk or a paper of pins to the elaborate structure and appurtenances of a first-class ocean steamer, is resolvable on analysis into an equivalent of the labor required to produce such a thing in form and place; while the value of things not produced by labor, but nevertheless susceptible of ownership, is in the same way resolvable into an equivalent of the labor which the ownership of such a thing enables the owner to obtain or save." — Perplexed Philosopher, ch. v.

The figure 1 in parenthesis, as an item of Rent, indicates potential Rent. Labor would give that much for the privilege of using the space, but the owners hold out for better terms; therefore neither Rent nor Wages is actually produced, though but for this both might be.

In this chart, notwithstanding that but little space is used, indicated with red, Wages are reduced to the same low point by the mere appropriation of space, indicated with blue, that they would reach if all the space above the poorest were fully used. It thereby appears that under a system which confiscates Rent to private uses, the demand for land for speculative purposes becomes so great that Wages fall to a minimum long before they would if land were appropriated only for use.

In illustrating the effect of confiscating Rent to private use we have as yet ignored the element of social growth. Let us now assume as before (page 73), that social growth increases the productive power of the given expenditure of labor force to 100 when applied to the best land, 50 when applied to the next best, 10 to the next, 3 to the next, and 1 to the poorest. Labor would not be benefited now, as it appeared to be when on page 73 we illustrated the appropriation of land for use only, although much less land is actually used. The prizes which expectation of future social growth dangles before men as the rewards of owning land, would raise demand so as to make it more than ever difficult to get land. All of the fourth grade would be taken up in expectation of future demand; and "surplus labor" would be crowded out to the open space that originally yielded nothing, but which in consequence of increased labor power now yields as much as the poorest closed space originally yielded, namely, 1 to the given expenditure of labor force.102 Wages would then be reduced to the present productiveness of the open space. Thus: [chart]

102. The paradise to which the youth of our country have so long been directed in the advice, "Go West, young man, go West," is truthfully described in "Progress and Poverty," book iv, ch. iv, as follows :

"The man who sets out from the eastern seaboard in search of the margin of cultivation, where he may obtain land without paying rent, must, like the man who swam the river to get a drink, pass for long distances through half-titled farms, and traverse vast areas of virgin soil, before he reaches the point where land can be had free of rent — i.e., by homestead entry or preemption."

If we assume that 1 for the given expenditure of labor force is the least that labor can take while exerting the same force, the downward movement of Wages will be here held in equilibrium. They cannot fall below 1; but neither can they rise above it, no matter how much productive power may increase, so long as it pays to hold land for higher values. Some laborers would continually be pushed back to land which increased productive power would have brought up in productiveness from 0 to 1, and by perpetual competition for work would so regulate the labor market that the given expenditure of labor force, however much it produced, could nowhere secure more than 1 in Wages.103 And this tendency would persist until some labor was forced upon land which, despite increase in productive power, would not yield the accustomed living without increase of labor force. Competition for work would then compel all laborers to increase their expenditure of labor force, and to do it over and over again as progress went on and lower and lower grades of land were monopolized, until human endurance could go no further.104 Either that, or they would be obliged to adapt themselves to a lower scale of living.105

103. Henry Fawcett, in his work on "Political Economy," book ii, ch. iii, observes with reference to improvements in agricultural implements which diminish the expense of cultivation, that they do not increase the profits of the farmer or the wages of his laborers, but that "the landlord will receive in addition to the rent already paid to him, all that is saved in the expense of cultivation." This is true not alone of improvements in agriculture, but also of improvements in all other branches of industry.

104. "The cause which limits speculation in commodities, the tendency of increasing price to draw forth additional supplies, cannot limit the speculative advance in land values, as land is a fixed quantity, which human agency can neither increase nor diminish; but there is nevertheless a limit to the price of land, in the minimum required by labor and capital as the condition of engaging in production. If it were possible to continuously reduce wages until zero were reached, it would be possible to continuously increase rent until it swallowed up the whole produce. But as wages cannot be permanently reduced below the point at which laborers will consent to work and reproduce, nor interest below the point at which capital will be devoted to production, there is a limit which restrains the speculative advance of rent. Hence, speculation cannot have the same scope to advance rent in countries where wages and interest are already near the minimum, as in countries where they are considerably above it. Yet that there is in all progressive countries a constant tendency in the speculative advance of rent to overpass the limit where production would cease, is, I think, shown by recurring seasons of industrial paralysis." — Progress and Poverty, book iv, ch. iv.

105. As Puck once put it, "the man who makes two blades of grass to grow where but one grew before, must not be surprised when ordered to 'keep off the grass.' "

They in fact do both, and the incidental disturbances of general readjustment are what we call "hard times." 106 These culminate in forcing unused land into the market, thereby reducing Rent and reviving industry. Thus increase of labor force, a lowering of the scale of living, and depression of Rent, co-operate to bring on what we call "good times." But no sooner do "good times" return than renewed demands for land set in, Rent rises again, Wages fall again, and "hard times" duly reappear. The end of every period of "hard times" finds Rent higher and Wages lower than at the end of the previous period.107

106. "That a speculative advance in rent or land values invariably precedes each of these seasons of industrial depression is everywhere clear. That they bear to each other the relation of cause and effect, is obvious to whoever considers the necessary relation between land and labor." — Progress and Poverty, book v, ch. i.

107. What are called "good times" reach a point at which an upward land market sets in. From that point there is a downward tendency of wages (or a rise in the cost of living, which is the same thing) in all departments of labor and with all grades of laborers. This tendency continues until the fictitious values of land give way. So long as the tendency is felt only by that class which is hired for wages, it is poverty merely; when the same tendency is felt by the class of labor that is distinguished as "the business interests of the country," it is "hard times." And "hard times" are periodical because land values, by falling, allow "good times" to set it, and by rising with "good times" bring "hard times" on again. The effect of "hard times" may be overcome, without much, if any, fall in land values, by sufficient increase in productive power to overtake the fictitious value of land.

The dishonest and disorderly system under which society confiscates Rent from common to individual uses, produces this result. That maladjustment is the fundamental cause of poverty. And progress, so long as the maladjustment continues, instead of tending to remove poverty as naturally it should, actually generates and intensifies it. Poverty persists with increase of productive power because land values, when Rent is privately appropriated, tend to even greater increase. There can be but one outcome if this continues: for individuals suffering and degradation, and for society destruction.

f. The Single Tax Retains Rent for Common Use.

To retain Rent for common use it is not necessary to abolish land-titles, nor to let land out to the highest bidder, nor to invent some new mechanism of taxation, nor in any other way to directly change existing modes of holding land for use, or existing machinery for collecting public revenues. "Great changes can be best brought about under old forms."109 Let land be held nominally as it is now. Let taxes be collected by the same kind of machinery as now. But abolish all taxes except those that fall upon actual and potential Rent, that is to say, upon land values.

109. "Such dupes are men to custom, and so prone
To rev'rence what is ancient and can plead
A course of long observance for its use,
That even servitude, the worst of ills,
Because delivered down from sire to son
Is kept and guarded as a sacred thing." —Cowper.

It is only custom that makes the ownership of land seem reasonable. I have frequently had occasion to tell of the necessity under which the city of Cleveland, Ohio, found itself, of paying a land-owner several thousand dollars for the right to swing a bridge-draw over his land. When I described the matter in that way, the story attracted no attention; it seemed perfectly reasonable to the ordinary lecture audience. But when I described the transaction as a payment by the city to a land-owner of thousands of dollars for the privilege of swinging the draw "through that man's air," the audience invariably manifested its appreciation of the absurdity of such an ownership. The idea of owning air was ridiculous; the idea of owning land was not. Yet who can explain the difference, except as a matter of custom?

To the same effect was the question of the Rev. F. L. Higgins to a friend. While stationed at Galveston, Tex., Mr. Higgins fell into a discussion with his friend as to the right of government to make land private property. The friend argued that no matter what the abstract right might be, the government had made private property of land, and people had bought and sold upon the strength of the government title, and therefore land titles were morally absolute.

"Suppose," said Mr. Higgins, "that the government should vest in a corporation title to the Gulf of Mexico, so that no one could fish there, or sail there, or do anything in or upon the waters of the Gulf without permission from the corporation. Would that be right?"

"No," answered the friend.

"Well, suppose the corporation should then parcel out the Gulf to different parties until some of the people came to own the whole Gulf to the exclusion of everybody else, born and unborn. Could any such title be acquired by these purchasers, or their descendants or assignees, as that the rest of the people if they got the power would not have a moral right to abrogate it?"

"Certainly not," said the friend.

"Could private titles to the Gulf possibly become absolute in morals?"

"No."

"Then tell me," asked Mr. Higgins, "what difference it would make if all the water were taken off the Gulf and only the bare land left."

If that were done it is doubtful if land-owners could any longer confiscate enough Rent to be worth the trouble. Even though some surplus were still kept by them, it would be so much more easy to secure Wealth by working for it than by confiscating Rent to private use, to say nothing of its being so much more respectable, that speculation in land values would practically be abandoned. At any rate, the question of a surplus — Rent in excess of the requirements of the community — may be readily determined when the principle that Rent justly belongs to the community and Wages to the individual shall have been recognized by society in the adoption of the Single Tax. 110

110. Thomas G. Shearman, Esq., of New York, author of the famous magazine article on "Who Owns the United States," estimates that sixty-five per cent of the present annual value of the land in the United States would pay all the present expenses of American government — federal, state, county, and municipal. ... read the book

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

Q5. If the full rental value were taken would it not produce too much revenue and encourage official extravagance? If only what was needed for an economical administration of government, would not land still have a speculative value?
A. In the first part of your question you are thinking of a vast centralized government as administering public revenues. With the revenues raised locally, each locality being assessed for its contribution to the state and the nation, there would be no such danger. The possibility of this danger would be still further reduced by the fact that private business would then offer greater pecuniary prizes than would public office, wherefore public office would be sought for purer purposes than as money-making opportunities. As to the second part of your question, the speculative value of land would be wiped out as soon as the tax on land values was high enough and that on improvement values low enough to make production more profitable than speculation. And this point would be reached long before the whole rental value was absorbed in taxation.

Q22. What difference would it make to tenants whether they paid land rent to the community or to private owners?
A. When they pay it to the community they are paying it in part to themselves, and what others pay they share in; for they are part of the community. They are also exempt from taxes. And since there would be no inducement to speculate in land if rent went to the community, land would be more plentiful and rents would consequently be lower.

Q43. Is there any land question in places where land is cheap? In Texas, for example, you can get land as cheap as two dollars an acre. Is there a land question there?
A. There is no place where land is cheap in the sense implied by the question. Land commands a low price in many places, but it is poor land; it is not cheap land. It is true that in Texas there is land that can be had for two dollars an acre, but it would yield less profit to each unit of labor and capital expended upon it than land in New York City which costs hundreds of thousands of dollars an acre. The valuable New York land is the cheaper of the two. The land question is the question in every place where land costs more than it is worth for immediate use.

Q44. Though some people have made money by owning land, isn't it true that others have lost? And don't the losses more than off-set the gains?
A. Possibly. But that has no bearing upon the question. What men lose through investments in land, the community does not gain; but what they gain the community does lose. Therefore, as between land speculators and the community, the losses cannot be charged against the gains.

Q45. What is the difference between speculation in land and in other kinds of property?
A. If all the products of the world were cornered by speculators, but land were free, new products would soon appear and the ill effects of the speculation would quickly pass away. But if all the land were cornered by speculators, though everything else were free, the people would immediately be dependent upon the speculators for a chance to live. That illustrates the difference.

Q46. How can it be possible that speculative land values cause business depressions when, as any business man will tell you, the whole item of land value — whether ground rent or interest on purchase money — is one of the smallest items in every business?
A. You overlook the fact that the item of speculative rent is the only item which the business man does not get back again. The cost of his goods, the expense of clerk hire, the rent of his building, the wear and tear of implements, are all received back, in the course of normal business, in the prices of his goods. Even his ground rent, to the extent that it is normal (i.e., what it would be if the supply of land were determined alone by land in use, and not affected by the land that is held out of use for higher values), comes back to him in the sense that his aggregate profits are that much greater than they would be where ground rent was less. But the extra ground rent which he is obliged to pay, in consequence of the abnormal scarcity of land, is a dead weight; it does not come back to him. Therefore, even if infinitesimal in amount, as compared with the other expenses of his business — and that is by no means admitted — it is the one expense which may break a thriving business down. Besides, it is not alone the ground rent paid by the business man for his location that bears down upon his business prosperity; the weight of abnormally high land values in general presses upon business in general, and by obstructing the flow of trade forces the weaker business units to the wall. It is not altogether safe to deduce general economic principles from the ledgers of particular business houses.

... read the book

Charles T. Root — Not a Single Tax! (1925)

But before this time the reader, unless he has given previous attention to the subject, is full of objections to the above doctrine: "How about the law?" he is asking. "Hasn't a man the right to buy a piece of land as cheaply as he can, to do what he pleases with it, and hold on to it till he gets ready to sell?" The answer is that at present he certainly has this statutory right, which has been so long and so universally recognized that most people suppose it to be not only a legal, but a real or equitable right. A shrewd man, foreseeing the direction of growth of population in a city, for example, can buy a well-located block at a moderate figure from some less far-seeing owner, can let it grow up to weeds, fence it off against all comers and give it no further attention except to pay the very small tax usually imposed upon vacant land.

Meantime the increasing community builds up all around it with homes, banks, stores, churches, schools, paving and lighting the streets, giving police and fire protection, etc., and at last comes to need this block so urgently that the owner is fairly begged to sell it, at three or ten or fifty times what it cost him. Quite often the purchaser at this enormous advance is the very community which has through its presence and the expenditure of its taxes created practically the whole value of the land in question!

It was said above that an individual has a statutory right to pursue this very common course. That was an error. The statement should have been that he has a statutory wrong; for no disinterested person can follow the course of land speculation as almost universally practiced, without feeling its rank injustice.

How did so evident a wrong become so firmly established? ...

But — and right here is one of the prime advantages of the abolition of taxation — Mr. Rhinelastor, in order to get satisfactory return from his land, must improve it. Unless he is satisfied with a small income from it, to wit, the proportion of the economic rent which the community chooses to leave in his hands, he must put upon his land the best building the location will warrant. The rents of this building will be his in their entirety, not one dollar of them being taken from him by taxation. If he is not prepared or not willing to do this he would probably find it more profitable, before he leaves the country, to sell the land to some one of the many persons who are eager to build upon it. It will always be salable, although not by any means at present figures.

Now imagine for a moment the effect upon the appearance of a city and upon the comfort of its population which would result from the change of fiscal policy which this article proposes. At present, a tempting premium is placed upon keeping land unimproved or inadequately improved, while a heavy penalty is imposed upon improvement. Most land appreciates constantly. All buildings depreciate from the moment of completion. Yet the building is taxed equally with the land.

What incentive does such a system offer the speculative landowner to put up a commodious, well-lighted modern structure in place of the old ruin which now pays him so well? The old one cannot depreciate much more, and while paying a trifling tax because of its physical worthlessness, he is thereby enabled to collect and pocket the economic rent of the ground, which the community is continually rendering more valuable. The new building would absorb a large amount of capital, would begin to run down even before it could be occupied, and would be taxed to the limit. Why then is not the landlord justified in letting well enough alone, enjoying the growing economic rent, and waiting till he can get a fancy price for the right to collect it?

But reverse the conditions. Reclaim for the community its natural income, making it expensive either to keep needed land vacant or to withhold it from the ready and willing to improve it to the full extent of its possibilities.

Does it require severe intellectual effort to foresee the results? Better and better houses, apartments, tenements, offices and stores, more employment for labor in all enterprises now held back by the shadow of the tax-gatherer, an end of all tax-lying, tax-evasion and tax-injustice, and withal, a public revenue adequate to all real public needs. ... read the whole article

Michael Hudson: The Lies of the Land: How and why land gets undervalued

Chicago School economists insist that no free lunch exists. But when one begins to look beneath the surface of national income statistics and the national balance sheet of assets and liabilities, one can see that modern economies are all about obtaining a free lunch. However, to make this free ride go all the faster, it helps if the rest of the world does not see that anyone is getting the proverbial something for nothing - what classical economists called unearned income, most characteristically in the form of land rent. You start by using a method of appraising that undervalues the real income producer, land. Here's how it's done. ...

For hundreds of years property's value has been calculated by discounting its flow of rental income at the going rate of interest. The lower the interest rate, the higher the price a given rental stream will justify -- or as property owners express it, the more years' rent a property will bring. What is so striking about land values today is that they are rising for reasons independent of their earnings stream. The major new consideration is their prospect for future "capital" (that is, land-price) gains. In sum, the ultimate aim of real estate investors no longer is so much to seek income -- most of which is pledged to their bankers as interest payments on the property they acquire -- as much as to seek property gains. Politically opportunites abound. Merely changing zoning in New York City in the 1980s to allow using commercial loft spaces for residential purposes had the effect of multiplying asset values five or tenfold.

Whether the gains come from selling the property or from borrowing more money against it, the essential phenomenon is the rapid growth in asset values and real estate's uniquely favored tax treatment. That's why investors choose real estate instead of bonds or stocks, and much of the strategy underlying corporate takeovers has followed the strategies they developed over the past half century.

Nationwide the capital-gains dimension needs to be incorporated into the rental revenue statistics to measure real estate's total returns. This sector's nearly complete success in escaping the tax collector has placed an enormous tax burden on everyone else.  read the entire article

• chronic poverty arising from insufficient demand for labor, and
• cycles of boom and bust.

These twin plagues arose from concentrated ownership of land, compounded by land speculation. Large landowners and speculators (often one and the same) held the best land idle or underused, forcing labor onto marginal land and driving down wages. Collapse of speculative land price bubbles caused periodic slumps.

George followed his analysis with a plausible, practicable remedy: eliminate all taxes except for a tax on land values. The "single tax," as it later became known, would invigorate the economy by breaking up large idle holdings, making land available to those who would use it. And it would suck the air out of speculative bubbles, damping the boom and bust cycle.  ... read the whole article

George's land tax promotes equity toward the landless in at least four ways.

• One, it relieves them of taxes, to the extent that landowners pay more;
• Two, it makes jobs by removing all tax penalties from hiring workers, and also because the land tax, a fixed charge, spurs landowners to use land to earn cash to pay the taxes;
• Three, while jobs are generating new money incomes, new production supplies more goods and services. Those give substance to the money incomes, precluding inflation such as poisoned the springs of Keynesian "fiscal stimulus";
• Four, it offers the landless new chances to acquire land themselves, as old owners release surplus lands to the market.  ... read the whole article

Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

Some may wonder why anyone would own land if most of the rent is taxed away. One would own land for the same reason people rent land: in order to use it. Ownership also gives the title holder rights of possession, the ability to control the use of the site indefinitely.

Today there is also a speculative motive for owning land, to profit from the increase in its price. With most of the geo-rent tapped for public revenue, the speculative motive would be dampened. That would benefit the economy, since with a lower price of land, funds that now go to buy land would instead go to build more capital goods, hire more labor, or provide better training.

The tax on the geo-rent would be borne by the owner, not the tenant. If a landlord, who was already charging what the market could bear, tried to pass on the tax, he would face vacancies. Some say that since the tax would be invisible to renters, the link between using public services and paying for them would be broken. But productive public services increase the geo-rent, so that link is there. If government revenue is wasted, then indeed this does not generate rent, and a land value tax without corresponding benefits would reduce land value. Pressure for a productive use of public revenue would come from the landowners more than from the tenants. But that is no different than the situation today; poor folks pay little or no income tax and no property tax, and typically they get government assistance. This is an argument not against the use of rent, but in favor of privatizing government programs. In the private sector, the link between ownership and control is stronger. ... read the whole document

Ted Gwartney:  Estimating Land Values

• the limited supply and "natural" productivity of the soil and natural resources,
• the publicly provided services, including planning, improvements that increase the market value of land and
• the growth of communities and peoples' competitive demand for the exclusive use of prime locations.

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.

By prohibiting people from using good land, the possessors force the premature use of other less desirable land, which is more distant from the city. This raises the cost of community improvements and the rental value of the unused, but better located, land. This precipitates the degradation of the rural environment by using city land inefficiently -- and creates huge unnecessary pressures on the natural environment.

A problem that we face is that cities throughout the world are spreading out and using land prematurely which is not needed and should not be used. That is because failure to collect land rent subsidizes the waste of natural resources and clutters the environment. Cities that collect the full rental value of land are more compact and provide greater and less costly amenities for their citizens.

Any moves to enact good government principles without collecting the full market rent of the land may result in a failure. People are guided by the profit motive. When people can make a larger profit by doing nothing, but keeping the land they possess out of use for a long period of time, they will do so. When the community collects the full market rent of land, they eliminate the motive for keeping land out of efficient use, because the unearned profit has been collected as public revenue. ... Read the whole article

Nic Tideman:   The Case for Taxing Land

I.  Taxing Land as Ethics and Efficiency
II.  What is Land?
III.  The simple efficiency argument for taxing land
IV.  Taxing Land is Better Than Neutral
V.  Measuring the Economic Gains from Shifting Taxes to Land
VI. The Ethical Case for Taxing Land
VII. Answer to Arguments against Taxing Land

There is a case for taxing land based on ethical principles and a case for taxing land based on efficiency principles.  As a matter of logic, these two cases are separate.  Ethical conclu­sions follow from ethical premises and efficiency conclusions from efficiency principles.  However, it is natural for human minds to conflate the two cases.  It is easier to believe that something is good if one knows that it is efficient, and it is easier to see that something is efficient if one believes that it is good.  Therefore it is important for a discussion of land taxation to address both question of efficiency and questions of ethics.

This monograph will first address the efficiency case for taxing land, because that is the less controversial case.  The efficiency case for taxing land has two main parts. ...

To estimate the magnitudes of the impacts that additional taxes on land would have on an economy, one must have a model of the economy.  I report on estimates of the magnitudes of impacts on the U.S. economy of shifting taxes to land, based on a mathematical model that is outlined in the Appendix.

The ethical case for taxing land is based on two ethical premises:  ...

The ethical case for taxing land ends with a discussion of the reasons why recognition of the equal rights of all to land may be essential for world peace.

After developing the efficiency argument and the ethical argument for taxing land, I consider a variety of counter-arguments that have been offered against taxing land.  For a given level of other taxes, a rise in the rate at which land is taxed causes a fall in the selling price of land.  It is sometimes argued that only modest taxes on land are therefore feasible, because as the rate of taxation on land increases and the selling price of land falls, market transactions become increasingly less reliable as indicators of the value of land.   ...

Another basis on which it is argued that greatly increased taxes on land are infeasible is that if land values were to fall precipitously, the financial system would collapse.   ...

Apart from questions of feasibility, it is sometimes argued that erosion of land values from taxing land would harm economic efficiency, because it would reduce opportunities for entrepreneurs to use land as collateral for loans to finance their ideas.  ...
.
Another ethical argument that is made against taxing land is that the return to unusual ability is “rent” just as the return to land is rent.  ...

But before developing any of these arguments, I must discuss what land is.

The quantity of land that is employed in any year reflects the response of land speculation to taxes on land.  ...  Read the whole article

Nic Tideman:  Land Taxation and Efficient Land Speculation
...Abstract from the continuous divisibility of land and suppose that land comes in "sites." At each moment in time, each site is in one of three states:

1. Suitable for agriculture.
2. Suitable for housing.
3. Suitable for commercial activity.

In addition to the land management motive for seeking to foresee transitions, there is a speculative motive, which differs in form and magnitude. While the land management motive is concerned with the possibility that capital will be wasted on a site that is soon to undergo a transition in state, the speculative motive arises from the gains to be made from owning title to land at the time that its better future prospects become generally known.

People differ in the costs they incur in ascertaining whether the signs present at a particular site herald a pending transition, and how soon it will occur. Therefore those who have a comparative advantage in foreseeing the transitions tend to do the speculating. A speculator will incur the cost of ascertaining the significance of the signs at a particular site if, based on that speculator's experience, the probability of a transition given the signs, multiplied by the increase in the current value of the property if there is a transition, is greater than the sum of the cost of making the determination, the transactions costs of acquiring the site and the net cost of holding the site until its future prospects become generally known. The activity of speculation yields a normal expected private return to the funds spent on speculation, with particularly skillful speculators also obtaining unusual returns to their unique talents.

The speculative return from foreseeing future transitions arises from holding title to land when pending transitions become generally known. This return is a purely private return, with no corresponding social return, since the land will increase in value whether or not any given speculator holds it. The land-management return from foreseeing future transitions, on the other hand, arises from knowing not to employ capital on sites where future transitions will cause the capital to depreciate prematurely. This is a social return, since it involves improving the allocation of scarce resources. There is no necessary connection between the private return and the social return. ...

The possibility that there could be no social gain from an activity that produced private speculative gains was recognized by Paul Samuelson (1957, p. 209), in a discussion of the effects of uncertainty on intertemporal price equilibrium ...

In the U.S., a further consideration that causes development to be postponed is the possibility of avoiding Federal income taxes on increases in land value by including the land in one's estate. Estate taxes are paid according to the actual value of the land (as they would be paid on the proceeds if the land were sold), but one's heirs pay taxes only on the increase in value after it leaves the estate, so that taxes on the increase in value during one's lifetime can be avoided.

An additional social cost of land speculation was elucidated by Harry Gunnison Brown (1927). He pointed out that when it is possible to profit from land speculation, land will tend to be acquired by those who have the most extreme beliefs about how much it will rise in value, and that such beliefs will generally be more optimistic than is warranted. Economists have given the name "winner's curse" (Milgrom & Weber, 1982) to the phenomenon that those who bid the most tend to bid too much. The winner's curse can cause the whole land market to become dominated by persons with extreme beliefs about future rises in value, creating an artificial scarcity of land for current use, as those who have land wait for illusory future opportunities. The winner's curse is thereby shifted to society.

Bill Batt: Painless Taxation

Abstract
Real tax reform could do away with those taxes that are resented by the large proportion of our population. We could replace all taxes on wages and on interest by instead taxing economic rent. Rent is windfall income; it is income that arises not from the efforts of any person or corporation; it comes about as a surplus gain from common social enterprise. There is ample moral warrant for society to lay claim to that which it has created, as well as to that which no individual or party has earned. Analysis increasingly makes clear that economic rent in all its forms is far larger than official government figures indicate; in fact it is likely sufficient to supplant all current taxes on labor and capital (wages and interest) which are acknowledged to have so many negative effects. Recovering economic rent in all its manifestations by taxing its various bases actually can foster economic performance and yield other benefits that make it the natural source of revenue for governments. Such a tax is essentially painless. ...

Any tax on capital has its downside effects, so that taxing savings causes people to save less, taxing consumption causes people to buy less, and taxing buildings causes people to build less. The result is that economists as well as businessmen usually frown upon taxing capital. Another alternative is to tax labor, but it is even more widely understood that taxing labor normally discourages people from working as much as they would in the absence of a tax. From this comes sentiment against taxing labor, even though for want of any alternative, people have today commonly come to accept it as a necessity. But electing to tax labor, just as for taxing capital, forecloses a discussion of the virtues of taxing land — not necessarily land as earth, but rather land as location. Yet land rent is the most attractive tax base of all, as rent is not earned; it is windfall income, entirely the result of being well situated in any market of scarce natural resources and where community demand (rather than one's own efforts) leads to an appreciation of that land's price. To be sure many people have learned to position themselves in situations where a land's market value is likely to rise — indeed these people come to think of themselves as astute investors. But the fact is that that market gain is not of their own doing at all; it is the result of common enterprise creating a surplus that comes to settle on land sites. An investment in land, in any form it might take, is speculation in greater or lesser degree. ...

The Possibility of Land (Rent) Taxation

The key to understanding how taxing various forms of land conform to sound tax theory comes with an appreciation of the importance of economic rent. Largely discarded in 20th century economic analysis, rent is the price for the use of land. Just as the price of labor is paid in wages and the price of capital is paid in interest, land rent is the unearned increment that attaches to land in the form of a surplus when its price is not paid by its users. All taxes, ultimately, come out of rent; however, by collecting revenue from other sources, the rent is left to settle in ever increasing encrustations on land sites, i.e., capitalized, ultimately raising their market price. In so doing, these land prices are distorted so that their optimal use is not secured.

Examples of such distortion are not difficult to identify. Consider, first of all, the use of locations in our urban environments, many of which are underused while prospective entrepreneurs are driven to second-best locations because titleholders opt to let the rent accrete and passively raise their market price. Land speculation is rife most of all in instances where there is a great disparity between the tax rate on these sites and the rate of rent appreciation. When the holding costs of ownership are nominal, there is no incentive for improving them or selling to others who will, and urban environments suffer as a result. Another example is rent that collects to the electromagnetic spectrum, making it attractive for owners of electronic media, communications networks and so on, to rely on returns to their investments even when the resource itself is sparsely used. So also with the time slots for take-offs and landings at airports. These opportunities are respected as private property, even while they gain in market value in response to the general traffic volume of the facility. This occurs regardless whether the particular airlines use their slots or not. London Mayor Ken Livingstone has proposed to tax the rent from Heathrow and Gatwick both for their revenue advantage and to assure their more optimal use.[7] One could go on, pointing to any number of instances where economic rent is available to be had for the support of public services in lieu of conventional taxes which we recognize as destructive in their effects.[8] It is not surprising that when pressed even conventional (neoclassical) economists are often willing to concede that the best possible tax of all is one placed on land rent.[9] ... read the whole article

Bill Batt: Who Says Cities are Poor? They Just Don't Know How to Tax Their Wealth!

One could argue that the failure to tax every bit of economic rent that accretes to land sites also has destructive consequences, although this is somewhat open to debate. Classical economists agree that rent collection ought to be at least the sum of inflation plus interest, otherwise the public is facilitating speculation in ways that distorts urban configurations even more than they constitute an inequity. But land sites frequently rise in market price far more than the rate of inflation, especially in times (as is perhaps true today) that a "bubble" in an economic cycle is in full flower. Some municipalities, especially on the east and west coasts of US, are today claiming to have increases in housing prices of as high as 20 percent per annum, a fever that surely will not last and will be especially destructive when it collapses.[19] Land values are what create that bubble; buildings are subject to continuing depreciation just like cars, computers, refrigerators or any other manufactured (capital) item. Recovering the economic rent reduces and perhaps even eliminates the speculative bubbles and swings that (some argue) account for economic cycles, fostering stability and regularity in economic planning and development that make for improved financial health to all.

This reality brings into stark relief the choices which local political leaders have. They may suggest increasing taxes on economic rent (i.e., on land value) or recognize that most property owners are counting on treating their homes and other property not as places to live and work so much as investments and then lament the poverty of their cities. Owners expect to reap a gain from their property when they sell, and they are often positioned to make any threat to that entitlement politically unpalatable. Farmers sometimes regard selling their farms as their retirement security. Homeowners sell with the expectation that this gain will provide them the means to enter long term end-of-life facilities if necessary. Heirs also oppose that recapture just as with a reverse mortgage. But for every long-term property owner that walks away with a lifetime's benefit of increased rent attached to a land title, there are just as many — if not more — young households or emerging businesses that are prohibited from acquiring a property because of the prohibitively expensive costs. In this sense, a title to a socially created stream of rental benefits constitutes a monopoly privilege to an unearned windfall gain for a lucky few. It is both unjust and is socially and economically destructive to the greater good. ... read the whole article

Our fall of income per capita is greater than appears from a purely monetary measure. Real pay (in contrast $) has fallen more because of the drastic rise in shelter prices. In San Francisco, shelter takes 50 percent of the median income, with many other cities, especially coastal ones, not far behind. It is unusual to find livable quarters for less than $600 per month. The median home price rose 163 percent during the 1980s to $258,000 (that is just the median - the mean is higher). These prices are part of the C.O.L. of all renters and new buyers, a part not fully incorporated in standard CPI measures. ...

It should give one pause. It is the expectable consequence of what the voters did. They rejected the concept of taxing inert wealth in favor of the alternative: taxing liquidity, cash flow, work, production and commerce. The predictable result has been to inhibit economic activity, and encourage holding wealth inert and stagnant. They turned property from a functional concept into a sacred one; from a commission to be enterprising, hire people, produce goods, and pay taxes into a welfare entitlement. ...

Between 1945-50, one-eighth of all new businesses started in the U.S. were established in L.A. They were small, creative, flexible, miscellaneous, and too varied and dynamic to classify. No Linnaeus could sort them in static conventional boxes; they were the despair traditional economic geographers and base theorists who were at a loss to explain the region's thriving economy. The new Angelenos stayed and started producing everything for themselves, some things previously imported, and others never seen before.

Eastern firms established branch plants. Top eastern students came to California's great university system and stayed behind to take jobs and make careers here, then sent their children through California's excellent public schools. California became famous for supporting outstanding higher education, highways, water supplies, public health, public safety, and other public services, all without repelling business by taxation. There was a regional "El Dorado Effect" as demand and supply grew together. Growing local demand allowed for economies of scale serving local markets. Food and shelter were cheap and abundant. Land for business was accessible, providing a basis for the California self-contained phenomenon. A "continental tilt" developed in both interest rates and wage rates, drawing in eastern capital and labor. Why is that not continuing today?

The invisible, pervasive change is due to Proposition 13, which makes it possible to hold land at negligible tax cost. In 1945 land was taxed at 3 percent every year, building a fire under holdouts to turn their land to use. Today that same tax cost is well below 1 percent. Using Gwartney's Rule of Thumb (see below under #2, A, "Reassessing Land Frequently") it is about 1/8 of 1 percent: a rate of 1 percent applied to 1/8 of the true value.

Landowners are only taxed now if they use their land to hire people and produce something useful. Then they are confronted by the drag of our high business and employment and sales taxes, necessitated by the fall of property taxes. A handful of oligopolistic landowners control most of the market; small businesses are squeezed out. This helps us segue from being at the cutting edge of industrial progress to a third-world economy - from the NH model to the AL model - with little relief in sight. ....

Does this help you understand why California landowners are now so slow to adapt to new demands? In 1945 the assessors were building fires under landowners, so they sought new strategies to meet new circumstances. Today there remains a weak incentive to improve to improve property: tax collectors generally cost them money when they make improvements. Sit still, lie low, hire no one, hang on, produce nothing, and your holding costs are negligible.... Read the whole article

• Unused land is far more abundant than we realize.
• End the Public Subsidy of Land Speculation and Sprawl
• Counterproductive growth limitations and regulations should be abolished.
• A Strategy for Urban Renewal
• A Strategy for Economic Development
• Public Finance by Self-Financing

One example that I know is that of a friend who bought land within the city but did nothing with it. I asked him why he put good money into an investment that had no visible return? He replied that, by holding the land for future sale or development, his long term return, in capital gains would exceed 18% annually. If he built a building on the site now, his long term return would only be 12% annually, including both net income plus capital gains. Why should he use his land now when it would be more profitable for him to not use it, but to hold it for a larger future gain?

Most major cities have a substantial amount of fully serviced but unused or underused land sites. It is estimated that 38% of the land area in Los Angeles is unused, 30% in New York City and 25% in Washington, D.C. Intercity sites are bypassed because land speculators receive a greater benefit by ignoring the highest and best use of land sites. A greater profit is made when development is delayed and the land price increases to higher levels. But building within existing developed areas uses the existing and underused infrastructure, roads, transit, public facilities, and services. Sprawl requires new expenditures on public goods and services, more government, more taxes, more dislocation. ...

Property taxes should not be levied on new construction or existing improvements, when the revenue needed could be obtained from the land values created and maintained by the community.

The property tax could be shifted to reduce the incentives for sprawl. If the property tax were taken off urban buildings and focused on the land itself, this would penalize land speculation and would reward people who build on their land. Thus land speculation, which promotes a "leap frog" development out of the city and into the surrounding countryside, would decrease. The proposed shift from traditional property tax to a "land value tax" would penalize land speculation and encourage urban redevelopment. Removing the tax on buildings makes them cheaper to construct, renovate and operate, and more affordable to buy or rent. Urban construction creates urban jobs. Capital and labor both benefit. ...

These recurring spasms of business stagnation; these long-drawn periods of industrial depression, common to the civilized world, do not come from our treatment of money; are not caused and are not to be cured by changes of tariffs. Protection is a robbery of labor, and what is called free trade would give some temporary relief, but speculation in land would only set in the stronger, and at last labor and capital would again resist, by partial cessation, the blackmail demanded for their employment in production, and the same round would be run again. There is but one remedy, and that is what is now known as the single-tax -- the abolition of all taxes upon labor and capital, and of all taxes upon their processes and products, and the taking of economic rent, the unearned increment which now goes to the mere appropriator, for the payment of public expenses. Charity can merely demoralize and pauperize, while that indirect form of charity, the attempt to artificially "make work" by increasing public expenses and by charity woodyards and sewing-rooms, is still more dangerous. If, in this sense, work is to be made, it can be made more quickly by dynamite and kerosene.

But there is no need for charity; no need for "making work." All that is needed is to remove the restrictions that prevent the natural demand for the products of work from availing itself of the natural supply. Remove them today, and every unemployed man in the country could find for himself employment tomorrow, and his "effective demand" for the things he desires would infuse new life into every subdivision of business and industry, even that of the dentist, the preacher, the magazine writer, or the actor.

The country is suffering from "scarcity of employment." But let anyone to-day attempt to employ his own labor or that of others, whether in making two blades of grass grow where one grew before, or in erecting a factory, and he will at once meet the speculator to demand of him an unnatural price for the land he must use, and the tax-gatherer to fine him for his act in employing labor as if he had committed a crime. The common-sense way to cure "scarcity of employment" is to take taxes off the products and processes of employment and to impose in their stead the tax that would end speculation in land.

But, it will be said, this is not quick enough. On the contrary, it is quicker than anything else. Even the public recognition of its need, by but a part of the intelligence and influence that is now devoted to charity appeals and schemes, would have such an effect upon the speculative price of land as to at once set labor and capital to work.  Read the entire article

Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use

• One nine-mile stretch of interstate highway in Albany, New York, costing $125 million to construct has yielded $3.8 billion in increased land values within just two miles of its corridor in the 40 years of its existence.(27) This is a thirty-fold return in a timespan typically used for bond repayment!
• The Washington Metro created increments in land value along much of the 101-mile system under of construction in 1980 that easily exceeded $3.5 billion, compared with the $2.7 billion of federal funds invested in Metro up until that time.(28) No doubt the return is far greater today.

Bill Batt: Stemming Sprawl: The Fiscal Approach

The differentials in land values are profound, even more than most people realize. In 1995, in the small city of Ithaca, New York, the highest quintile of land had a value of over $56,000 per acre in the downtown center, whereas the lowest quintile only a mile away falls to less than $3,000.[14] Large city centers have far higher site prices. Even in Polk County, Iowa (which includes Des Moines), in the middle of cornfields where I did a study two years ago, the highest urban value land site was $31.3 million per acre, which quickly declined to about $20,000 per acre only about a mile away. In the spring of 1998, one land parcel (the building was to be razed) of less than an acre in New York City's Times Square and split in two pieces by Broadway was sold by Prudential Life to Disney for roughly $240 million.[15] To take another instance, a nine-acre tract on the East River in New York City occupied by an obsolete power plant was purchased by Mort Zuckerman to build high-rise condominiums two years ago. The sale price was in the neighborhood of $680 million and would have been higher were it not for some enormous costs associated with the demolition of the old structures.[16] It should be noted that the overwhelming proportion of land value is in cities; relatively speaking, the site values of peripheral lands, typically used for agriculture and timber growth, are negligible. Land values are high in urban areas because, over time, rent accrues to a site. Each improvement in proximity to a property parcel enhances the value of all other parcels. This makes even unimproved sites attractive objects for speculation, particularly when land sites surrounding it are to be improved by adding either transportation service or new structures. One nine-mile stretch of interstate highway in Albany, New York, costing $125 million to construct, has yielded $3.8 billion in increased land values (constant dollars) within just two miles of its corridor in the forty years of its existence.[17] This is a thirty-fold return in a time span typically used for bond repayment! The Washington Metro created increments in land value along much of the 101-mile system completed by 1980 that easily exceeded $3.5 billion, compared with the $2.7 billion of federal funds invested in Metro up until that time.[18] Any major building construction project, private or public, will have a similar effect on adjacent land sites. Differentials in land value can have a profound effect on decisions made by titleholders, either positively by inducing appropriate development in urban cores or negatively by giving monopoly titleholders power to hold sites out of use for long-term speculative gain. Such decisions of course determine the character of urban configurations and society as well. ... read the whole article

Bill Batt: How Our Towns Got That Way   (1996 speech)

• possession,
• use,
• alienation (the power to give away),
• consumption,
• modification,
• destruction,
• management,
• exchange, and
• profit taking.

From the first application of the land law of the New England settlers there has been a gradual extension of private control over land titles first to simple use, then the right to benefit, and ultimately "to the idea of gain made by selling. Land speculation, which was to spread across the continent, radically transformed New England's democratic town pattern." Concurrent with this spreading application of titles in fee simple has come changes in the meaning of the word property, a term which, although employed in the Fourth and Fifth Amendments of the U.S. Constitution, was amplified only during the second half of the 19th century. The notion of land as a commodity has had pernicious effects on the course of our whole civilization.  ... read the whole article

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

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

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

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

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

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

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

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

George saw, as between land and products, certain elementary differences. "In every essential, land differs from those things which... [are] the product of human labor. ...It is the creation of God; they are produced by man. It is fixed in quantity; they may be increased illimitably. It exists, though generations come and go; they in a little while decay and pass again into the elements."

Writing of industrial depressions, he said, "When, with the desire to consume more, there coexist the ability and willingness to produce more, industrial and commercial paralysis cannot be charged either to overproduction or to overconsumption. Manifestly, the trouble is that production and consumption cannot meet and satisfy each other .

"How does this inability arise? It is evidently and by common consent the result of speculation. But of speculation in what?

"Certainly not of speculation in things which are the products of labor ...for the effect of speculation in such things, as is well shown in current treatises that spare me the necessity of illustration, is simply to equalize supply and demand, and to steady the interplay of production and consumption by an action analogous to that of a fly-wheel in a machine."  In other words, the tendency of speculation in products is to increase the demand for products and therefore to increase the price of products. This increased price will induce more production, which, increasing the supply, will tend to lower the price. Throughout this cycle, there has been a stimulating effect on production in general.

He continued, "Therefore, if speculation be the cause of these industrial depressions, it must be speculation in things not the production of labor, but yet necessary to the exertion of labor in the production of wealth -- of things of fixed quantity; that is to say, it must be speculation in land." 

How can this be? How can speculation in land cause industrial depression? George explains, "...that there is a connection between the rapid construction of railroads and industrial depression, anyone who understands what increased land values mean, and who has noticed the effect which the construction of railroads has upon land speculation, can easily see. Wherever a railroad was built or projected, lands sprang up in value under the influence of speculation, and thousands of millions of dollars were added to the nominal values which capital and labor were asked to pay outright, or to pay in installments, as the price of being allowed to go to work and produce wealth. The inevitable result was to check production. .." 

The tendency of speculation in land is similar to that of speculation in products; it increases the demand for land and thereby increases the price of land. However, here the similarity ends. The supply of land is fixed; as successive units of land become priced beyond the level at which labor and capital can profitably engage in production, an increasing (though artificial) scarcity of land develops. "The inevitable result was to check production." 

So, according to George, another difference between land and products is that speculation in products tends to stimulate production, whereas speculation in land tends to check production. ... read the whole article

One way of denying the basic problem is to call it “unbalanced growth,” as in Orange County, where people recognize it as too many jobs relative to the housing supply. It is not the “unbalance” that is the problem, though: how can there be too many jobs? It is too little housing that is the problem, driving demand eastwards up through Sta. Ana Canyon, with its awful traffic bottleneck, to central Riverside County, where it meets demand fleeing north from San Diego.

Now weave this pattern of scattered settlement into the whole system. It forces auto-dependency and truck-dependency, multiplying the need for fuels, pushing up their prices, and lowering the real wages of those who have to consume them in larger quantities at higher prices. Much of what looks like self-indulgent consumption of U.S. motorists is not joy-riding, but the forced consumption of commutation, forced by scattered urban sprawl, the product of land speculation. Auto-apologists get this backwards, of course, making joy-riding the cause and sprawl the effect. ...

a. “Land Speculation,” conceived as holding land primarily for its anticipated rise in value. Hasty readers and simplifiers of George see only this point, overlooking items b-f, following.

b. High demands of the rich for land as a totem, for pleasure and prestige. This demand rises with income, in greater proportion than income.

c. Advance of labor-stinting, land-lavishing technology, roughly associated with economies of scale.

d. Tax bias. Taxes based on work, production, exchange, coupled with preferential tax treatment of landholding, land income, land gains, etc., create a powerful bias in favor of wasting land and downsizing labor forces (Gaffney, 1999).

e. Lack of basic infrastructure and public services, due to constraints on the tax base

f. Overpricing and poor service from natural monopolies.  ... read the whole article

Mason Gaffney: Land as a Distinctive Factor of Production

Now consider the market for land titles.  This is the more relevant market as to building, transferring land between uses, and changing parcel sizes.  If the market for land services is slow, the market for land titles is viscous.  There is no flow of supply, none at all.  There is no real turnover in the sense of producing and using up.  There is only ownership turnover: the market only transfers existing titles.  (There is a supplemental market in long leases, not addressed here.)

There are few highly motivated sellers, as there are motivated sellers of spoiling produce and obsolescing computers and vehicles.  Median home-owners are motivated, when transferred to another region.  Few other land sellers come close to that degree of motivation (and the median home represents more capital than land).  Capital depreciates; goods spoil and obsolesce; idle labor starves; but land silently rises in value.

The aggregate of all land changes hands slowly, with one or two percent turnover of ownership annually (measuring the stock by value, not number of parcels - smaller, cheaper parcels turn faster).  But buyers often need adjacent land, or land in particular districts or with particular qualities, and find little or no land on the market, or land controlled by one seller.

The slow ownership turnover cited above applies to total real estate, i.e. land including any buildings on it.  Ownership turnover is even slower for bare land.  If the average building lasts 50 years, only 2% of the land is available for re-use in any given year.  Only a fraction of that 2% is for sale; the rest is renewed by the same owner.  Whoever wants to buy available land in any particular area is unlikely to be faced with the "many sellers" premised by the competitive model.

Hoarding for vertical integration.
A common precaution against sticky markets is buying excess land for possible future expansion.  This behavior makes markets that much more sticky.  It is one of those things that necessitates and justifies itself, considered in the aggregate: it is self-aggravating and self-authenticating.  When anyone buys and holds for his own future expansion, everyone has to:  it is a positive feedback loop of possessiveness run wild.

The composite result of individuals' buying for future contingent need is that the market in raw land is turned to glue.  It ceases to serve the median person in time of need.  The effect is a species of vertical integration and, like all vertical integration, it destroys the free market in raw materials and vastly inflates the aggregate need for holding raw materials.  This is because the pooling effect such as the market provides inherently.  That is, the grocer obtains, stores and keeps a wide variety of food and sundries on tap for thousands of customers.  Lacking a grocer, each customer would have to maintain her own stores, and the aggregate required would far exceed that in the common grocery store.  A good land market would likewise keep land on tap for the contingent needs of all, greatly lowering aggregate needs.

Al Hartheimer: Affordable Housing and the Land Value Tax Perspective: a letter to Asheville, North Carolina

Alanna Hartzok: In the History of Thought: Henry George's "Single Tax"

Frank Stilwell and Kirrily Jordan: The Political Economy of Land: Putting Henry George in His Place

George saw land as a community resource provided by nature, to which every human being had an equal right. He argued that, since land was fixed in supply, the system of private land ownership allowed the wealthy few to enjoy exclusive rights to land and its benefits, while alienating the poorer majority from land ownership and forcing them to pay rent to landowners in order to access this necessary resource. Moreover, the collection of rents by landowners allowed them to increase their wealth without contributing to the productive efforts of society. As the population grew, so too did the demand for land, forcing rents and land values ever higher. In addition, increases in land value resulting from publicly-funded developments, such as roads and public transport systems, unduly benefited landowners at the expense of the community. Such unearned gains from landownership encouraged speculation in land, pushing prices even higher, while exposing the economy to the risks of speculative ‘booms’ and ‘busts’. ...

The demand for land involves both use values and exchange values. People seek land because the housing built on it provides shelter and security, but they also purchase it as a store of wealth and a means of capital appreciation. A particularly important driver of real estate prices has been the speculative demand, as investors seek capital gains in the property market. In Australia, this has been such common and longstanding practice that it has been referred to as ‘the national hobby’ (Sandercock, 1979). By ‘creaming off’ a part of this potential capital gain, a higher uniform rate of land tax would act as a disincentive to this property speculation, and could therefore be expected to exert a downward influence on property prices. Georgists have always been emphatic that land taxes are different from other taxes in this respect – they depress prices because they reduce demand. So the usual fears that a tax will be ‘passed on’ to customers (such as housing tenants, in this case) do not apply.4 By making land less attractive as an item to be purchased in the hope of making capital gains, land tax can therefore be an important check on the inflationary process. ...
Concerns about urban policies also raise questions about the current relevance of Georgist ideas. For example, it is pertinent to ask whether a more uniform land tax would encourage the more efficient utilisation of urban space. George argued that, in order to cover the costs of a higher rate of land tax, landowners would be forced to put their land to its most productive use, and could not afford to hold it idle. Here is a clear link with the modern concerns to discourage ‘urban sprawl’ and to promote ‘urban consolidation.’ To the extent that a higher land tax would encourage the development of more housing in existing urban areas, the pressures for housing development in outlying areas would be significantly reduced. This, in turn, could reduce the burgeoning demand for transport that is currently characteristic of large cities.

Land tax also impacts on the politics of peripheral urban expansion. Currently, the prospect of huge capital gains resulting from decisions by local governments to rezone land from rural to urban acts as an incentive for landowners on the fringes of built-up areas to lobby for changes that will allow increased development. Hence, landowners push for rights to subdivision, irrespective of whether or not there is actual demand (Day, 1995: 3). By creaming off the gains from windfall increases in land values, land tax obviates this bias towards relentless urban expansion.

However, the question remains: would a uniform land tax be sufficient to produce more efficient patterns of urban development? Or would there still be a need for direct land use controls? Land tax can certainly be a tool for discouraging the wasteful use of land. It tends to discourage people from purchasing excessive amounts of land or leaving it idle. However, it may also encourage the overdevelopment of land in order to produce the income stream necessary to pay the higher rate of tax.

Critics of urban consolidation such as Patrick Troy (1996) have examined the potential problems of such overdevelopment, including a range of environmental impacts such as altered hydrological processes. It seems to be an overly bold claim that a Georgist land tax alone would be sufficient to achieve optimal urban development patterns. Land use controls a necessary adjunct to land tax - in setting minimum requirements for green space, for example.

Local government planning controls are also important to prevent incompatibility of land uses, such the development of hazardous or unhealthy industrial activities adjacent to residential areas. Targeted decentralisation policies are a means of encouraging the further development of regional centres. Such policies can work in conjunction with land taxes to ease growth pressures in the larger cities, while addressing long-standing spatial, social and economic inequalities (Stilwell, 2000: 254-260). The desirability of promoting more decentralised regional development is consistent with a Georgist perspective, but not altogether compatible with the claim that land tax would facilitate urban consolidation. It seems clear that it ‘overburdens’ land tax to expect it alone to produce the best spatial outcomes, taking account of all the economic, social and environmental issues involved in urban and regional policy. The various other policy instruments – including regulations relating to green space, zoning, and the provision of public infrastructure to pave the way for decentralisation – are important complements to land taxation. In other words, land tax is best regarded as a necessary but not sufficient condition for more effective spatial policy. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 2: A Short History of Capitalism (pages 15-32)

Why did this happen? There are many explanations. One is that welfare kept the poor poor; this was argued by Charles Murray in his 1984 book Losing Ground. Welfare, he contended, encouraged single mothers to remain unmarried, increased the incidence of out-of-wedlock births, and created a parasitic underclass. In other words, Murray (and others) blamed victims or particular policies for perpetuating poverty, but paid scant attention to why poverty exists in the first place.

There are, of course, many roots, but my own hypothesis is this: much of what we label private wealth is taken from, or coproduced with, the commons. However, these takings from the commons are far from equal. To put it bluntly, the rich are rich because (through corporations) they get the lion’s share of common wealth; the poor are poor because they get very little.

Another way to say this is that, just as water flows downhill to the sea, so money flows uphill to property. Capitalism by its very design maximizes returns to existing wealth owners. It benefits, in particular, those who own stock when a successful company is young; they can receive hundreds, even thousands of times their initial investments when the company matures. Moreover, once such stockholders accumulate wealth, they can increase it through reinvestment, pass it on to their heirs, and use their inevitable influence over politicians to gain extra advantages — witness the steady lowering of taxes on capital gains, dividends, and inheritances. On top of this, in the last few decades, has been the phenomenon called globalization. The whole point of globalization is to increase the return to capital by enabling its owners to find the lowest costs on the planet. Hence the stagnation at the bottom alongside the surging wealth at the top.

A critical piece of this analysis is that very few new shares of corporate stock are issued. As author Marjorie Kelly has pointed out, most established corporations finance growth through retained earnings and debt. They’re just as likely to buy back outstanding shares as to issue new ones. Consequently, old wealth is rarely diluted. When new money flows into the stock market, its main effect is to increase the wealth of existing stockholders and their fortunate heirs. Thus, of the total gain in marketable wealth that occurred in the United States between 1983 and 1998, more than half went to the top 1 percent.

The companies that do issue new stock are the young ones — the Microsofts, Apples, and Googles. Entertainers and athletes aside, most new multimillionaires are early stockholders in corporations like these. In these cases, however, the distribution of gains is so tilted in favor of these early stockholders that the skewed pattern of wealth distribution is replicated. New wealth joins old wealth, but the concentration remains the same. There’s no mechanism for dispensing wealth — even new wealth — more evenhandedly. ... read the whole chapter