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Wealth and Want
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Wealth from Land Appreciation

We are in the habit of thinking of land and buildings together as "real estate" and forgetting to notice that land and buildings are fundamentally different. Buildings depreciate, every year. The land was there before we were born, and will be there long after we're gone, while buildings come and go. Land appreciates, as a result of our common investment in services and infrastructure; as a result of population increase, as a result of technological innovations (e.g., think of the impact of air conditioning and fiberglass boats on land prices in the American south) and as a result of the natural amenities in the area. None of these are something any of us can rightly take credit for, or claim rightly as our private treasure. Materials for buildings are readily available and one can be substituted for another; nothing can be substituted for land! When demand for buildings increases, so can the supply of building materials. But land is different, and when demand rises, as it must if population increases, its value increases because its supply is fixed.

Should some of us be permitted to grow wealthy on this, or treat it as our private piggy bank, while others (our landless, our young, our commuters, to name just three groups) have to pay the fortunate ones who privatize the economic value of land? This is privilege at its worst, and the ripple effects throughout American society (as in every other society — think of the places and ways we provide foreign aid, and how little effect it has on the lives of the poor, but how much the powerful appreciate it) are far-reaching and devastating.

The alternative, of course, is to tax land value, to treat it as our common treasure, to be collected to support spending on the common good. The positive effects of this are as positive as the ripple effects of privilege are devastating. This is the remedy of which Henry George wrote and spoke. Our American ancestors ended chattel slavery. Can we make our generation the one that brings awareness and an end to something equally cruel and devastating — and far more widespread?

Henry George: Concentrations of Wealth Harm America (excerpt from Social Problems)  (1883)

An acquaintance of mine died in San Francisco recently, leaving $4,000,000, which will go to heirs to be looked up in England. I have known many men more industrious, more skilful, more temperate than he -- men who did not or who will not leave a cent. This man did not get his wealth by his industry, skill or temperance. He no more produced it than did those lucky relations in England who may now do nothing for the rest of their lives. He became rich by getting hold of a piece of land in the early days, which, as San Francisco grew, became very valuable. His wealth represented not what he had earned, but what the monopoly of this bit of the earth's surface enabled him to appropriate of the earnings of others.

A man died in Pittsburgh, the other day, leaving $3,000,000. He may or may not have been particularly industrious, skilful and economical, but it was not by virtue of these qualities that he got so rich. It was because he went to Washington and helped lobby through a bill which, by way of "protecting American workmen against the pauper labor of Europe," gave him the advantage of a sixty-per-cent, tariff. To the day of his death he was a stanch protectionist, and said free trade would ruin our "infant industries." Evidently the $3,000,000 which he was enabled to lay by from his own little cherub of an "infant industry" did not represent what he had added to production. It was the advantage given him by the tariff that enabled him to scoop it up from other people's earnings.

"Beneath all political problems lies the social problem of the distribution of wealth."

This element of monopoly, of appropriation and spoliation will, when we come to analyze them, be found largely to account for all great fortunes....

Take the great Vanderbilt fortune. The first Vanderbilt was a boatman who earned money by hard work and saved it. But it was not working and saving that enabled him to leave such an enormous fortune. It was spoliation and monopoly. As soon as he got money enough he used it as a club to extort from others their earnings. He ran off opposition lines and monopolized routes of steamboat travel. Then he went into railroads, pursuing the same tactics. The Vanderbilt fortune no more comes from working and saving than did the fortune that Captain Kidd buried.

Or take the great Gould fortune. Mr. Gould might have got his first little start by superior industry and superior self-denial. But it is not that which has made him the master of a hundred millions. It was by wrecking railroads, buying judges, corrupting legislatures, getting up rings and pools and combinations to raise or depress stock values and transportation rates.

So, like wise, of the great fortunes which the Pacific railroads have created. They have been made by lobbying through profligate donations of lands, bonds and subsidies, by the operations of Credit Mobilier and Contract and Finance Companies, by monopolizing and gouging. And so of fortunes made by such combinations as the Standard Oil Company, the Bessemer Steel Ring, the Whisky Tax Ring, the Lucifer Match Ring, and the various rings for the "protection of the American workman from the pauper labor of Europe."

Or take the fortunes made out of successful patents. Like that element in so many fortunes that comes from the increased value of land, these result from monopoly, pure and simple. And though I am not now discussing the expediency of patent laws, it may be observed, in passing, that in the vast majority of cases the men who make fortunes out of patents are not the men who make the inventions.

Through all great fortunes, and, in fact, through nearly all acquisitions that in these days can fairly be termed fortunes, these elements of monopoly, of spoliation, of gambling run. The head of one of the largest manufacturing firms in the United States said to me recently, "It is not on our ordinary business that we make our money; it is where we can get a monopoly." And this, I think, is generally true.

The Evils of Monopolists 
Consider the important part in building up fortunes which the increase of land values has had, and is having, in the United States. This is, of course, monopoly, pure and simple. When land increases in value it does not mean that its owner has added to the general wealth. The owner may never have seen the land or done aught to improve it. He may, and often does, live in a distant city or in another country. Increase of land values simply means that the owners, by virtue of their appropriation of something that existed before man was, have the power of taking a larger share of the wealth produced by other people's labor. Consider how much the monopolies created and the advantages given to the unscrupulous by the tariff and by our system of internal taxation -- how much the railroad (a business in its nature a monopoly), telegraph, gas, water and other similar monopolies, have done to concentrate wealth; how special rates, pools, combinations, corners, stock-watering and stock-gambling, the destructive use of wealth in driving off or buying off opposition which the public must finally pay for, and many other things which these will suggest, have operated to build up large fortunes, and it will at least appear that the unequal distribution of wealth is due in great measure to sheer spoliation; that the reason why those who work hard get so little, while so many who work little get so much, is, in very large measure, that the earnings of the one class are, in one way or another, filched away from them to swell the incomes of the other.

That individuals are constantly making their way from the ranks of those who get less than their earnings to the ranks of those who get more than their earnings, no more proves this state of things right than the fact that merchant sailors were constantly becoming pirates and participating in the profits of piracy, would prove that piracy was right and that no effort should be made to suppress it.

I am not denouncing the rich, nor seeking, by speaking of these things, to excite envy and hatred; but if we would get a clear understanding of social problems, we must recognize the fact that it is due to monopolies which we permit and create, to advantages which we give one man over another, to methods of extortion sanctioned by law and by public opinion, that some men are enabled to get so enormously rich while others remain so miserably poor. If we look around us and note the elements of monopoly, extortion and spoliation which go to the building up of all, or nearly all, fortunes, we see on the one hand now disingenuous are those who preach to us that there is nothing wrong in social relations and that the inequalities in the distribution of wealth spring from the inequalities of human nature; and on the other hand, we see how wild are those who talk as though capital were a public enemy, and propose plans for arbitrarily restricting the acquisition of wealth. Capital is a good; the capitalist is a helper, if he is not also a monopolist. We can safely let any one get as rich as he can if he will not despoil others in doing so.

There are deep wrongs in the present constitution of society, but they are not wrongs inherent in the constitution of man nor in those social laws which are as truly the laws of the Creator as are the laws of the physical universe.  They are wrongs resulting from bad adjustments which it is within our power to amend. The ideal social state is not that in which each gets an equal amount of wealth, but in which each gets in proportion to his contribution to the general stock. And in such a social state there would not be less incentive to exertion than now; there would be far more incentive. Men will be more industrious and more moral, better workmen and better citizens, if each takes his earnings and carries them home to his family, than where they put their earnings in a "pot" and gamble for them until some have far more than they could have earned, and others have little or nothing.   ...   Read the entire article

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty, Chapter 5: The Basic Cause of Poverty (in the unabridged: Book V: The Problem Solved)

The truth is self-evident. Put to any one capable of consecutive thought this question:

"Suppose there should arise from the English Channel or the German Ocean a no man's land on which common labor to an unlimited amount should be able to make thirty shillings a day and which should remain unappropriated and of free access, like the commons which once comprised so large a part of English soil. What would be the effect upon wages in England?"

He would at once tell you that common wages throughout England must soon increase to thirty shillings a day.

And in response to another question, "What would be the effect on rents?" he would at a moment's reflection say that rents must necessarily fall; and if he thought out the next step he would tell you that all this would happen without any very large part of English labor being diverted to the new natural opportunities, or the forms and direction of industry being much changed; only that kind of production being abandoned which now yields to labor and to landlord together less than labor could secure on the new opportunities. The great rise in wages would be at the expense of rent.

Take now the same man or another — some hardheaded business man, 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 stage coach, 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. ... read the whole chapter

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

THE poverty to which in advancing civilization great masses of men are condemned, is not the freedom from distraction and temptation which sages have sought and philosophers have praised: it is a degrading and embruting slavery, that cramps the higher nature, dulls the finer feelings, and drives men by its pain to acts which the brutes would refuse. It is into this helpless, hopeless poverty, that crushes manhood and destroys womanhood, that robs even childhood of its innocence and joy, that the working classes are being driven by a force which acts upon them like a resistless and unpitying machine. The Boston collar manufacturer who pays his girls two cents an hour may commiserate their condition, but he, as they, is governed by the law of competition, and cannot pay more and carry on his business, for exchange is not governed by sentiment. And so, through all intermediate gradations, up to those who receive the earnings of labor without return, in the rent of land, it is the inexorable laws of supply and demand, a power with which the individual can no more quarrel or dispute than with the winds and the tides, that seem to press down the lower classes into the slavery of want.

But, in reality, the cause is that which always has, and always must result in slavery — the monopolization by some of what nature has designed for all. . . . Private ownership of land is the nether millstone. Material progress is the upper millstone. Between them; with an increasing pressure, the working classes are being ground. — Progress & Poverty — Book VII, Chapter 2, Justice of the Remedy: Enslavement of laborers the ultimate result of private property in land

IT is not in the relations of capital and labor; it is not in the pressure of population against subsistence that an explanation of the unequal development of our civilization is to be found. The great cause of inequality in the distribution of wealth is inequality in the ownership of land. The ownership of land is the great fundamental fact which ultimately determines the social, the political and, consequently, the intellectual and moral condition of a people. And it must be so. For land is the habitation of man, the storehouse upon which he must draw for all his needs, the material to which his labor must be applied for the supply of all his desires; for even the products of the sea cannot be taken, the light of the sun enjoyed, or any of the forces of nature utilized, without the use of land or its products. On the land we are born, from it we live, to it we return again — children of the soil as truly as is the blade of grass or the flower of the field. — Progress & Poverty — Book V, Chapter 2: The Problem Solved: The persistence of poverty amid advancing wealth

THERE is nothing strange or inexplicable in the phenomena that are now perplexing the world. It is not that material progress is not in itself a good, it is not that nature has called into being children for whom she has failed to provide; it is not that the Creator has left on natural laws a taint of injustice at which even the human mind revolts, that material progress brings such bitter fruits. That amid our highest civilization men faint and die with want is not due to the niggardliness of nature, but to the injustice of man. Vice and misery, poverty and pauperism, are not the legitimate results of increase of population and industrial development; they only follow increase of population and industrial development because land is treated as private property — they are the direct and necessary results of the violation of the supreme law of justice, involved in giving to some men the exclusive possession of that which nature provides for all men. — Progress & Poverty — Book VII, Chapter 1, Justice of the Remedy: Injustice of private property in land

... go to "Gems from George"

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

c. Significance of the Upward Tendency of Rent

Now, what is the meaning of this tendency of Rent to rise with social progress, while Wages tend to fall? Is it not a plain promise that if Rent be treated as common property, advances in productive power shall be steps in the direction of realizing through orderly and natural growth those grand conceptions of both the socialist and the individualist, which in the present condition of society are justly ranked as Utopian? Is it not likewise a plain warning that if Rent be treated as private property, advances in productive power will be steps in the direction of making slaves of the many laborers, and masters of a few land-owners? Does it not mean that common ownership of Rent is in harmony with natural law, and that its private appropriation is disorderly and degrading? When the cause of Rent and the tendency illustrated in the preceding chart are considered in connection with the self-evident truth that God made the earth for common use and not for private monopoly, how can a contrary inference hold? Caused and increased by social growth, 97 the benefits of which should be common, and attaching to land, the just right to which is equal, Rent must be the natural fund for public expenses. 98

97. Here, far away from civilization, is a solitary settler. Getting no benefits from government, he needs no public revenues, and none of the land about him has any value. Another settler comes, and another, until a village appears. Some public revenue is then required. Not much, but some. And the land has a little value, only a little; perhaps just enough to equal the need for public revenue. The village becomes a town. More revenues are needed, and land values are higher. It becomes a city. The public revenues required are enormous, and so are the land values.

98. Society, and society alone, causes Rent. Rising with the rise, advancing with the growth, and receding with the decline of society, it measures the earning power of society as a whole as distinguished from that of the individuals. Wages, on the other hand, measure the earning power of the individuals as distinguished from that of society as a whole. We have distinguished the parts into which Wealth is distributed as Wages and Rent; but it would be correct, indeed it is the same thing, to regard all wealth as earnings, and to distinguish the two kinds as Communal Earnings and Individual Earnings. How, then, can there be any question as to the fund from which society should be supported? How can it be justly supported in any other way than out of its own earnings?

If there be at all such a thing as design in the universe — and who can doubt it? — then has it been designed that Rent, the earnings of the community, shall be retained for the support of the community, and that Wages, the earnings of the individual, shall be left to the individual in proportion to the value of his service. This is the divine law, whether we trace it through complex moral and economic relations, or find it in the eighth commandment.

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. ...

Q32. Is not ownership of land necessary to induce its improvement? Does not history show that private ownership is a step in advance of common ownership?
A. No. Private use was doubtless a step in advance of common use. And because private use seems to us to have been brought about under the institution of private ownership, private ownership appears to the superficial to have been the real advance. But a little observation and reflection will remove that impression. Private ownership of land is not necessary to its private use. And so far from inducing improvement, private ownership retards it. When a man owns land he may accumulate wealth by doing nothing with the land, simply allowing the community to increase its value while he pays a merely nominal tax, upon the plea that he gets no income from the property. But when the possessor has to pay the value of his land every year, as he would have to under the single tax, and as ground renters do now, he must improve his holding in order to profit by it. Private possession of land, without profit except from use, promotes improvement; private ownership, with profit regardless of use, retards improvement. Every city in the world, in its vacant lots, offers proof of the statement. It is the lots that are owned, and not those that are held upon ground-lease, that remain vacant.

... read the book

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

Turning land-value gains into capital gains
Hiding the free lunch
Two appraisal methods
How land gets a negative value!
Where did all the land value go?
A curious asymmetry
Site values as the economy's "credit sink"
Immortally aging buildings
Real estate industry's priorities
THE FREE LUNCH
    * Its cost to citizens
    * Its cost to the economy
SUMMARY 

YOU MAY THINK the largest category of assets in this countrly is industrial plant and machinery. In fact the US Federal Reserve Board's annual balance sheet shows real estate to be the economy's largest asset, two-thirds of America's wealth and more than 60 percent of that in land, depending on the assessment method.

Most capital gains are land-value gains. The big players do not want their profits in rent, which is taxed as ordinary income, but in capital gains, taxed at a lower rate. To benefit as much as possible from today's real estate bubble of fast rising land values they pledge a property's rent income to pay interest on the debt for as much property as they can buy with as little of their own money as possible. After paying off the mortgage lender they sell the property and get to keep the "capital gain".

This price appreciation is actually a "land gain," that is, it's not from providing start-up capital for new enterprises, but from sitting on a rising asset already in place, the land. Its value rises because neighbourhoods are upgraded, mortgage money is ample, and rezoning is favorable from farmland on the outskirts of cities to gentrification of the core to create high-income residential developments. The potential capital gain can be huge. That's why developers are willing to pay their mortgage lenders so much of their rent income, often all of it. ...

SUMMARY
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

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

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. ...

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.[4] ... read the whole article

Bill Batt: The Compatibility of Georgist Economics and Ecological Economics
In the Georgist view, this economic rent is the public’s birthright, and the failure to collect it and to use it to pay for the general costs of government services is a moral as well as a public policy lapse. Georgists regard the private confiscation of public wealth as mistaken policy if not actually an immoral transgression — in a word, theft! He himself was an advocate of the public owning and protecting “the commons” and what is today often called “natural capital.” Studies have shown that if economic rent were collected in full as well as other appropriate revenues such as user fees and green taxes, the total income would likely be enough to pay not only the costs of all government services but provide a citizens’ dividend of significant amounts as well.48 Statistical data is difficult to compile, but what studies have been attempted to date indicate that economic rent in all its forms and from all its sources comprises approximately a third of the economy as it is currently calculated.49 Arrangements such as these are to the followers of Henry George a far more efficient and moral system of public finance.  ... read the whole article

Mason Gaffney: Unearned increments and reality in California's recall election

California homeowners are wallowing in unearned increments beyond the dreams of avarice, while its governments are courting bankruptcy. Warren Buffett dared point this out, and overnight changed from the Oracle of Omaha into the Numbskull of Nebraska because he does not understand the "reality of California politics," the oxymoron du jour. ...

Most candidates for Governor fled like startled deer. Buffett's sponsor, well-tailored Mr. Muscles, recalled meeting a tearful widow who said she would have been taxed out of her home were it not for Prop 13. Poor thing, her home had risen in value. No one asked her name, or whether she knew what she was talking about, or had her claims audited - being a tearful widow "on a fixed income" insulates one from reality checks. The press chimed in with pix of poster oldsters, gazing from their multi-million dollar perches over the blue Pacific, fretting about Buffett's solecism and its possible effect on them, never mind anyone else.

Fact is, unearned increments ARE income, at the time they accrue. Illiquid? They are better than cash income because you can turn them into cash by borrowing on them, and pay no income tax on the cash. If you have trouble with that, the tax man himself will arrange it for you by placing a tax lien on your appreciated home, rather than foreclose and evict you. This helps explain why we never actually see one of these evicted widows suffering from unearned increments -- they are maudlin figments for mythmakers. The evictees we do see are renters who couldn't pay, and had no equity to mortgage. Who cries for them?

Several rich candidates would pay more under a revived property tax than they pay in income taxes.

  • Mr. Muscles, like previous Hollywood idols, gets most of his income as land appreciation. This income is not taxable unless he sells, and not then if he hires good lawyers, which of course he does, to play his cards right.
  • Arianna Huffington lives in a $7 million home, but reports little net taxable income.
  • Warren Buffett himself, like the owners of so much California land, resides and reports his income out of state.

These facts should tell us something about who pays most of the property tax, but no candidate is inferring principles from mere facts. ... read the whole article

Ted Gwartney: A Free Market Strategy to Reduce Sprawl

If land holders can produce a higher return on investment by not using land for productive purposes but rather hold it for a higher price from those willing and able to pay the higher price in the future, there is a flaw in public policy. Public policy thereby gives speculative, nonproductive investment a higher return than productive investment. Sprawl is subsidized by taxes on production and distribution and the failure to recapture the benefits resulting from public improvements. If we choose to end this subsidy, we would reduce sprawl.

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. ... read the whole article

Nic Tideman: Land Taxation and Efficient Land Speculation

The optimal timing of development is an important allocative function that can be either enhanced or degraded by the impact of land taxes on land speculation. This paper discusses four types of taxes on land:

  • taxes on the rental value of land,
  • taxes on the sale value of land,
  • taxes on realized income from land, and
  • taxes on realized gains from the sale of land.

All four taxes reduce incentives for speculation in land, which is generally beneficial. The third and fourth produce distortions with respect to incentives to develop land, while the first and second do not. All four taxes have some beneficial effect of mitigating imperfections in capital markets. All permit reduction or elimination of taxes with significant dead-weight losses, such as those on improvements. ... read the whole article

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

Land is the most basic of all economic resources, fundamental to the form that economic development takes. Its use for agricultural purposes is integral to the production of the means of our subsistence. Its use in an urban context is crucial in shaping how effectively cities function and who gets the principal benefits from urban economic growth. Its ownership is a major determinant of the degree of economic inequality: surges of land prices, such as have occurred in Australian cities during the last decade, cause major redistributions of wealth. In both an urban and rural context the use of land – and nature more generally – is central to the possibility of ecological sustainability. Contemporary social concerns about problems of housing affordability and environmental quality necessarily focus our attention on ‘the land question.’ ...

Are George’s arguments about land ownership and wealth inequality relevant today? Australia provides an interesting example, because land is the single largest item in national wealth. Laurie Aarons outlines the concentration of farming land in particular in the hands of a few very wealthy corporations and individuals – what he refers to as ‘corporate squattocracy’ (Aarons, 1999: 23). The relentless increase in urban land values in recent years has also produced dramatic redistributions of wealth. In the State of New South Wales, for example, land values increased by about $361 billion over the period 1993 – 2003. The existing land-based taxes clawed back only $44 billion in government revenues, comprising only about 12% of the land-related economic surplus. So 88% was retained as ‘unearned income’ by landowners (Stilwell and Jordan, forthcoming). A higher rate of land tax with fewer exemptions could have substantially reduced this private wealth appropriation. This is not necessarily to posit the desirability of recouping 100% through land tax, because that would certainly raise major problems of people’s ability to pay, given that much of the increased wealth resulting from land price inflation has not been realised as current income. But it is indicative of the current imbalance between private and public appropriations of the surplus arising from increases in land-based wealth. ...

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. 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. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 5: Reinventing the Commons (pages 65-78)

Suppose you buy a house for $300,000, and without improving it, sell it a few years later for $400,000. You pay off the mortgage and walk away with a pile of cash. Your private wealth increases. But think about what caused the house to rise in value. It wasn’t anything you did. Rather, it was the fact that your neighborhood became more popular. That, in turn, resulted from population shifts, a new highway perhaps, an improved school, or the beautification efforts of neighbors. In other words, your increased wealth is a capture of socially created value. It shows up as private wealth but is really a gift of society. ... read the whole chapter

 

 

 

 

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