Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
Wealth is produced solely by the application of Labor to Land.51
50. It may at first seem like a great waste of time and space to have gone
through this long analysis for no other purpose at last than to demonstrate
the self-evident fact that land and labor are the sole original factors in
the production of Wealth. But it will have been no waste if it enables the
reader to firmly grasp the fact. Nothing is more obvious, to be sure. Nothing
is more readily assented to. Yet by layman and college professor and economic
author alike, this simple truth is cast adrift at the very threshold of argument
or investigation, with results akin to what might be expected in physics
if after recognizing the law of gravitation its effects should be completely
51. There is ample authority among economic writers for this conclusion.
Professor Ely enumerates Nature, Labor, and Capital as
the factors of production, but he describes Capital as a combination
of Nature and Labor — Ely's
Introduction, part ii, ch. iii.
Say describes industry as " nothing more or less than human employment
of natural agents." — Say's Trea., book i, ch. ii.
And though John Stuart Mill and numerous others speak of Land, Labor, and
Capital as the three factors of production, as does Professor Jevons, most
of them, like Jevons, recognize the fact, though in their reasoning they
often fail to profit by it, that Capital is not a primary but a secondary
requisite. See Jevons's Pol. Ec., secs. 16, 19.
Henry George says: "Land, labor, and capital are the factors of production.
The term land includes all natural opportunities or forces; the term labor,
all human exertion; and the term capital, all wealth used to produce more
wealth. . . Capital is not a necessary factor in production. Labor exerted
upon land can produce wealth without the aid of capital, and in the necessary
genesis of things must so produce wealth before capital can exist." — Progress
and Poverty, book iii, ch. i.
Also : "The complexities of production in the civilized state, in which
so great a part is borne by exchange, and so much labor is bestowed upon
materials after they have been separated from the land, though they may to
the unthinking disguise, do not alter the fact that all production is still
the union of the two factors, land and labor."— Id., ch. viii.
This is the final analysis. In the union of Labor, which includes all human
effort,52 with Land, which includes the whole material universe outside of
man,53 we discover the ultimate source of Wealth, which includes all the
material things that satisfy want.54 And that is the first great truth upon
which the single tax philosophy is built.
52. The term labor includes all human exertion in the
production of wealth." — Progress
and Poverty, book i, ch. ii.
53. "The term land necessarily includes, not merely the surface of
the earth as distinguished from the water and the air, but the whole material
universe outside of man himself, for it is only by having access to land,
from which his very body is drawn, that man can come in contact with or use
nature." — Progress and Poverty, book i, ch. ii.
54. "As commonly used the word 'wealth ' is applied to anything having
exchange value. But ... wealth, as alone the term can be used in political
economy, consists of natural products that have been secured, moved, combined,
separated, or in other ways modified by human exertion, so as to fit them
for the gratification of human desires." — Progress and Poverty,
book i, ch ii.
... read the book
Bill Batt: Painless Taxation
Bill Batt: The
Compatibility of Georgist Economics and Ecological Economics
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. ...
The Tax Base
The next concern should be upon what base to impose a tax — not about
taxing whom but taxing what. There are only three possibilities, as all revenue
streams necessarily come from one of three factors of economic production —
1) upon resources found raw in nature (what was classically called land),
2) upon our labor, or
3) upon things created by human hands or minds (capital).
No other source exists; every possible tax must be on one or some combination
of these parts. Each of these factors has its price: the price of land is
counted in economic rent; the price of labor is in wages, and the price of
capital (its liquid form) is in interest.
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.
Land in all its forms is a tax base that also conforms well to all the classic
principles of sound tax theory as enumerated above. Land is classically taken
to mean not just surfaces of the earth but places in time, in space, in any
medium whether it be solid, liquid or gas, and even as a form of light, in
the electromagnetic spectrum, and in life forms. One needs to return to 19th
century classical economic definitions of the factors of production to appreciate
the separate significance of land as it was understood in its manifold forms.
One should ask how it is that land, so important to 19th century classical
economic theory, has been given so little attention today in neoclassical
economics. This is a story only now recovered from the dusty archives of
academic economic history. Once understood and appreciated, it may be one
of the greatest, if very silent, political revolutions of world history.
... read the whole article
The starting point of the
Georgist framework is rigorous definition of
the three factors of production — land, labor, and capital, as in
classical economics. It should be further pointed out that these
factors are mutually exclusive and jointly exhaustive of all things of
economic value. Something must necessarily be in one category or
another; there is nothing outside this
total classification. Understanding of what constitutes labor differs
little from definitions given elsewhere, regardless of which theory is
used. But definitions of land and capital differ somewhat from common
practice as well as sometimes in theory. Therefore, it is helpful to
spend time explicating the definitions of each as they are used in
Georgism, and to point out where these definitions diverge from those
most often employed in neoclassical economics applications. Many
contemporary economics texts begin by taking note of the
land-labor-capital distinction, but then make little use of it later.
These distinctions will make apparent why Georgist economics leads to
very different explanations of economic phenomena as well as to
different policy solutions.
Critical to an understanding of Georgist economics is its
of land as a special and unique factor of production. “Land,” to
Georgists, as true for classical economists throughout the 19th
century, is taken to mean not just the surface of the earth and
locational space; it means also any and all those natural resources and
non-human works that today can exact a market price. It includes the
wealth of the earth in all its natural forms, the air and water as well
as material elements. It includes phenomena of value like the
electromagnetic spectrum used to transmit communications signals, and
landing time slots such as have value at airports. As the world
economies enter a new age of high technology, these radio spectrums and
time allotments have gained ever increasing value. So also with
orbits and most recently the genetic codes of all the biota on earth.10 ... read the whole article
Bill Batt: How Our Towns Got That
Way (1996 speech)
As recently as a century ago classical
economic thought still regarded land for the most part as the common heritage
of mankind. From Adam Smith, through Thomas Malthus, David Ricardo, and
finally with John Stuart Mill economic productivity was regarded as a function
of three interacting factors: land, labor, and capital. John Locke also
accepted these premises. To achieve optimal economic productivity, one
had to exact the appropriate price from each of those factors. The price
of labor was in wages; the price of capital was interest; and the price
of land, particularly following the thinking of David Ricardo, was rent.
Rent in its classical sense means payment for the use of something in fixed
supply, or, more generally, payments above the costs incurred for its creation.
Disequilibriums and inefficiencies in economic development resulted if
the appropriate prices were not paid for each factor. But, as we shall
see, there were powerful interests in this country, bent on not seeing
any rent extracted from land use, that persuaded the nascent economics
profession at the end of the 19th century no longer to regard land as a
separate factor and to redefine the terms of production instead in two-factor
theory. This was concurrent with the inclusion of land as property, since
called "real property."
As land came to be transferred to other nobility and usurped under title
in fee simple rather than in usufruct, it came to be regarded as a private
financial asset. Earlier it was regarded as part of nature, much like air,
water, wind and weather. Accounting practices now listed land as an asset "owned" in
fee simple, and as a liability on the other side of balance sheets in money "owed" to
banks. This tendency has been extended today so that we have privatized much
of our air, water, wind, and even sunlight. Land came to be simply one kind
of capital, nothing special, nothing requiring further treatment. Ricardo's
Law of Rent became an artifact of intellectual history. The conflation of land
into capital to create two-factor economics is one of the greatest paradigm
shifts in the evolution of social philosophy. How the premises and terms of
economic discourse have been changed has been documented for the first time
in a new book by a California professor of economics, Mason Gaffney. The account
is put forth in fascinating detail entitled, The
Corruption of Economics. It was indeed a corruption of a discipline,
a deliberate putsch by powerful economic forces with an interest in seeing
such definitions changed, and we have all been paying the price since that
time. This revealing thesis is what I really want to relate to you, and to
explain the dire consequences it has had for us in our contemporary world.
I have come to believe it; it makes sense to me, both historically and in contemporary
analysis, from several perspectives.
The Corruption of Economics
As I explained, classical economics emerged from a school of thinkers
known as the Scottish moralists in the latter part of the 18th century. There
ultimately evolved three major schools of economic thought a century later,
one the continuing tradition of Adam Smith through J.S. Mill, a second being
the aggressive and emerging school of Marxism, and the third a proposal for
two-factor economics being pressed largely by interests in America. Marxism
was never a major force in United States; the primary challenge to the classical
tradition came from what has since come to be known as neo-classical economics.
Professor Gaffney has for the first time
shown how powerful economic interests in American society essentially bought
the leading figures of the newly- established American Economics Association
with all the blandishments that can be used to influence academicians.
Leading scholars were induced to change definitions of terms so that special
interests would be advantaged. What were those interests? Primarily the
railroad industry, which at the time was probably the most powerful political
force in America. By changing definitions and conflating the land factor
into capital, it was no longer essential for land rent to be paid in taxes,
and the railroads, holders of some of the most valuable land in the nation,
were thereby able to escape their full duty. This is an astonishing story,
one never fully spelled out until now, and it explains both how the academic
community was beholden to powerful interests and how many of the social
problems we see today could have been avoided.
The classical tradition of economic thought
was ably synthesized and represented by one dominant figure of the age:
Henry George. All but forgotten today, perhaps in good part due to the
assiduous disparagement of his economic foes, one should note that he was
more widely known in his time in America than anyone except Thomas Edison.
His 1879 book, Progress and Poverty,
sold more copies throughout the world than any book till that time except
the Bible. Born in Philadelphia the son of a publisher of religious books,
he traveled to California as a young man to make his fortune as a journalist.
But what he saw in land speculation and the exploitation of labor soon
led him to study the classical economists and to write his ideas down.
Upon publication of his book he shortly became known throughout the world,
and traveled and lectured widely as a social reformer for the rest of his
life. By the time he died he had become so famous that he almost won the
mayoralty of the city of New York. He ran twice, losing to Tammany Hall
the first time in what was probably a corrupt election (but beating the
third-place finisher, Theodore Roosevelt) in 1886, and died four days before
a second election he might have won in 1897. As a spellbinding orator and
lucid writer, he captivated the world with his vision of societies made
more just by a proper understanding of economics. Gaffney shows that it
was George, not Marx, that was the primary threat to dominant interests
in end-of-century United States. He had to be stopped, and he was.
In classical economics, the definition
of capital grew out of labor mixed with earlier capital. Land, by conventional
definition, was not capital, nor was it a component of wealth. Rather land
was its own category. Conflating land into capital allowed land rent to
be hidden and diluted in ways so that the unearned increment arising from
social improvements fell to speculators rather than being returned to society
in rent. The failure of society to recapture the appropriate level of land
rent from titleholders led also to depression of labor wages at the margin,
creating poverty and artificial scarcity of labor where otherwise it could
be relieved. Hence the title of George's book, Progress and Poverty.
George recognized that the value of any land parcel arose out of its social
activity, not from anything which a titleholder might have done to it.
He recognized that many, perhaps most, titleholders in land were speculators,
reaping the benefit of others' investments, and selling out at last when
their price was met. Hence it made sense that society had a right to a
return on what it had brought about, as well as from the fact that those
titles could never be other than leaseholds. That land rent, shortly confused
by use of the words "single tax," was, to George, the rightful return to
The railroad barons of the 19th century
were not just coincidentally the land barons. They also had strong holds
on the founding and growth of the major American universities of the period,
some of which carry their names. Johns Hopkins, Andrew Dickson White, Daniel
Gilman, John D. Rockefeller, George Leland Stanford, Nicholas Murray Butler
were all as attached to various universities in the country as they were
to powerful railroad interests. They were able, through their control of
universities either as actual presidents or as benefactors, to influence
the dominant figures responsible for establishing the American Economic
Association in 1885. The actual intrigue is too complex to be recounted
here: who got appointed and promoted, who was funded in research, which
were given endowed chairs, who got stock options, and so on. The preoccupation
with defeating Henry George, Gaffney shows, was a paramount preoccupation
of all of these figures. The central figures were:
- Francis Walker, first president of the AEA, then President of
MIT and Director of the Census Bureau.
- Richard Ely, also founder of the AEA, and professor of economics
at University of Wisconsin and later Northwestern, there granted his
own Institute with railroad money.
- John Bates Clark, Professor of Economics at Columbia University,
and whose patron was Julius Seelye, President of Amherst College and
then Smith College.
- E.R.A. Seligman, Chairman of the Economics Department at Columbia
University and scion of a wealthy banking family.
These figures are even today the honored
founders of an esteemed profession. So great was their victory over rival
schools of thought that they are a century later seen as paragons of clear
thinking and virtue. The intrigue and the inside deals are long forgotten.
The lineage to contemporary scholarship continues in a "chain unbroken
from Seelye to Clark to Johnson to Knight to Stigler, Friedman, Harberger
and now thousands of Chicago-oriented economists." Indeed, when Henry George
ran for mayor of New York in 1897, it was against the wealthy patrician
Seth Low, President of Columbia University, who had recently recruited
Clark to come to Columbia. To really understand the academic tension of
the period, one must look at the published papers, the speeches and debates,
the newspaper articles, and the citations at the end of those articles.
These, even more than the interlocking directorates of faculty appointments,
explain how much George was opposed, perhaps more feared. Was it for
the falsity of his views? Clearly not, as few critics then or since then
have managed to strike a knock-out blow against his theories. Rather, it
was the threat George represented to powerful interests that required him
to be defeated, and in doing so they succeeded but only in the short
run, as they were within decades victims of their very successes. Today
we see that the railroads have failed in this country for lack of traffic.
It will soon be evident why.
There were many arguments to be made for
the classical tradition, the result of which would be to rely upon payment
of rent of land according to its value to society. George recognized that
land value is largely a function of how society has elected to invest in
any general neighborhood; there is no argument for any one titleholder
to reap the reward of what others have invested. Gaffney points out that,
from the standpoint of economic theory, the framework had the following
- It reconciled common land rights with private tenure, free markets
and modern capitalism, a growing and persistent problem as the industrial
society took hold.
- It enabled the lowering of taxes on labor without raising taxes
- It reconciled equity and efficiency. It constituted a progressive
tax because land is concentrated so much among the wealthy and because
the tax cannot be shifted. It was efficient because it is neutral among
different land-use options.
- It constituted no disincentive to business location or population
settlement. In this way it encouraged the most efficient land use and
- It created jobs without inflation, and raised government revenue
without any penalty upon its base.
- It strengthened public revenues and at the same time promotes
economy in government.
Those economists who today still persistently
hold to the view that there is something special about land that make it
unwise to treat as a form of capital are known as Georgists. They represent
a small minority of the economics profession, but, little known as they
are, they are among its most esteemed members.
economics, however, had advantages to influential individuals and special
interests. Land speculators who were positioned to profit from
knowing where locational values would increase, or were in a position
to cause those increases, could quickly and easily reap a private gain.
Simply by holding title to parcels of real property, without doing anything
at all to increase their value, one could quickly turn a profit. This
is because the increment of unearned increases resulting from social
investments were left for owners to reap rather than recovered by society.
In three-factor economics, land rent reverted to society
in an automatic and efficient manner. When a railroad magnate like George
Leland Stanford extended the Southern Pacific track to the east of Los
Angeles on land that he was granted by the government, all he then needed
to do was to sit back and wait for the land sales to give him a return
on that which was made more valuable by his investment in the line. All
across America, land speculators learned that capturing monopoly titles
to tracts of land allowed them to quickly and easily turn a "profit" on
their investment yet hardly raising a finger.... read the whole
Bill Batt: Who Says Cities are Poor? They Just
Don't Know How to Tax Their Wealth!
The premises of discourse
What is most called for today is a return to basic analysis. Elementary
economics starts with the recognition that there are three factors of production
in the creation of social wealth. Each of those factors are mutually exclusive
and, taken together, are jointly exhaustive of all sources of market value.
The first of these is what classical economics from Adam Smith on called
land. Land meant every aspect of nature to which industry can be applied;
it meant not just locations of space but air, water, and mineral wealth.
Today sunlight, radio waves, and even time, on occasion, would be added.
The second factor of production is labor, referring quite simply to the effort
applied by people's minds or bodies to land. The third factor is the product
of past application of land and labor to current production: capital. Each
factor in classical economics has its price, the product of which is the
creation of wealth as we commonly understand it. The price of labor is wages;
the price of capital is interest, and the price of land is rent. Rent, as
understood in economics, is not payment for the use of property owned by
others; it has, rather, a more technical meaning, one which will require
greater explication below.
We have largely lost sight of these basic premises of economic thought,
and it has led to our general inability to address the urban challenge
of taxation with a perspective that offers an easy solution. Returning
fundamental building blocks makes things much simpler and more comprehensible.
Labor continues to be easily understood; its meaning has not changed
in the course of a shift from classical to neoclassical economic thought.
which had earlier encompassed only those creations that were the result
of human enterprise— the product of labor and land, has now been
redefined to include land. Land by itself in contemporary neoclassical
dropped out of the equation altogether, and so for the most part has
the concept of economic rent. Mathematical
formulas in neoclassical economics are entirely changed.
There is good reason, however, to recover the use of the terms land and
rent as they were employed in 19th century classical economics: rent
is the surplus produced by the collective enterprise that can provide the
revenue to easily support public services, if it were only collected
in the form of taxes. In
fact, by shifting taxes off labor and capital and onto land rent, the performance
of markets would be made fully efficient and would be essentially painless
to taxpayers. This is the thesis I am arguing here, and which is now
to demonstrate with the advent of computer power and available data.
It amplifies and validates what has been for a century only a plausible
We can now show that collecting economic rent can provide for all the
services demanded of cities and avail themselves of the proper tax base
all others. And unlike
other taxes there is no downside impact; in fact it's positive. Economic
rent is the surplus created by the community, and it circulates through
the markets until it ultimately comes to settle on land sites. The
result of its accretion to land sites is to raise their market price.
Economic rent is sometimes called land rent or ground rent for this reason,
about not through any titleholder's individual enterprise but by the
consequence rather of society's collective effort. British political
Ricardo first conceived of land rent in terms of its relationship to
agricultural production in the early 1800s, but its applicability today
far more easily with regard to the site values in cities. Whereas ground
rent to Ricardo reflected the differential gifts of nature inherent in
various land sites, it is today better understood as reflective of locational
in the capacities of communities. ... read the whole article