Two-factor economics

Two-factor 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 article

The classical economists treated land as distinct from capital: "land, labor and capital" were the three basic "factors of production". They were mutually exclusive. They were comprehensive, including all economic agents. Each was also "limitational," meaning at least some of each was needed for all economic activity (v. A9, below)' They made a coherent system, like Humboldt’s Cosmos, in the spirit of The Enlightenment that spawned them both.

Neo-classical economists denied the distinction and undertook to purge land from economese.

What ever possessed the neo-classicals to leave such a mess? One needs to know something of their times and politics. J.B. Clark and E.R.A. Seligman of Columbia University were obsessed with deflecting proposals, strongly supported at the time and place they wrote, to focus taxation on land. Henry George, after all, was nearly elected Mayor of New York City in 1886 and 1897. Frank Knight, founder of The Chicago School, followed them closely. That explains why some of the points made herein may seem obvious to readers who have been spared the formal conditioning imposed on graduate students in economics. In graduate training, however, the obvious is obscured, silenced, or denied. Hundreds of books on economic theory are published with "land" absent from the index. Denial is reinforced by dominant figures using sophistical, pedantic cant, which students learn to ape to distinguish themselves from the laity and advance their careers.'

The dominance of "fusers" is shown by the prevalence of 2-factor models, wherein the world is divided into just labor and capital.3 Land is melded with capital, and simply disappears as a separate category, along with its distinctive attributes. A number of economists don't buy it, but don't do anything about it - acquiescing in error by silence, indifference, passivity, or anxiety of the professional consequences. They handle the question by "going into denial," as it were, resolving a vexing issue by pretending it isn't there. Anything else spoils the web of interpretation through which their art seeks to make human experience intelligible. Truth will not be made manifest by donning blinders or hedging, especially against such motivated forces as have an interest in hiding unearned wealth behind the skirts of capital.

The market exchange of capital for land causes an elementary failure in the minds of many. Land and capital each have their prices and may be bought and sold for money. Each alike is part of an individual's assets, colloquially called his "capital". Each is a store of value to the individual. What is true of each individual must be true for all together, is the thinking: it is the "fallacy of composition." We will see herein that society cannot turn land into capital (A-6), and land is not a store of value for society (A- I 0). ... read the whole article

Wealth and Want
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