Another Kind of Trickle Down
H. William Batt
[Reprinted from GroundSwell,
When an economy generates product, some of it becomes cast as a
surplus that is exchanged among individual and corporate parties, but
much of it ultimately comes to settle on land sites, somewhere and
somehow, in the form of economic rent. We ought really to be calling
this a kind of "trickle down."
I don't fully understand how this passthrough the economy occurs.
Tracing the flow of rent in the economy is a challenge I believe would
strengthen understanding of Georgist economics. The effect of it all
is to increase market value of these sites as it ultimately settles
there. The classical economists, from Adam Smith on to Malthus,
Ricardo, Mill and finally with George, seem to have understood this
very well, and the concept of economic rent was central to their
thinking for this reason. With the arrival of neoclassical thought,
site prices are understood as the meeting of supply and demand curves,
rent as such dropping out of the picture.
I think we need to better appreciate how economic rent circulates
through the economy to settle upon what is classically called "land".
We accept the idea that economic rent is a function of the
productivity of locations; the greater the strategic access and
utility of a site, the greater the site rent to settle on those spots.
We further understand that the greatest amount of rent flows to
locations where people are, leading to higher market prices on urban
sites than peripheral sites. (Today this may need to read "where
people use," due to the modern use of site resources such as
airport timeslots, geosynchronous satellite orbits and spectrum
bands.) Because these land sites have a fixed supply - i.e., are "inelastic"
in economic terminology - the rent settles at those points and stays
My favorite analogy for illustrating the creation and growth of
economic rent is the placement of a grid of new roads on an open
expanse of space. Given the design of a tic-tac-toe board with nine
squares, suppose then someone builds on each spot. If every square is
then improved - say with a hotel, a grocery store, a pharmacy, a gas
station, and so on - and the owner of the center square declines to
build, the land value of every plot rises, because each site adds
value to every other. But the land site with the greatest market value
is the center square on account of its strategic access - even though
its owner did nothing to "earn" that gain. The increase in
value of the land alone on all the sites is economic rent, a product
of the common social effort of every party but the "stand-patter"
on the center square. The titleholder of the center square is a "free-rider."
John Stuart Mill knew this well: he wrote that "Landlords grow
richer in their sleep without working, risking, or economizing. The
increase in the value of land, arising as it does from the efforts of
an entire community, should belong to the community and not to the
individual who might hold title."
There is an intrinsic morality to the argument that rent rightfully
belongs to the community and not to individual holders of property
titles. George thought any arrangements to the contrary amounted to
nothing short of theft. If the increase in the land's value is not
recovered by the community in the form of taxes, it remains the
windfall fortune of the titleholder. Thomas Gaskell Shearman, a
promoter of Georgist ideas shortly after the master's death, labeled
its recapture "natural taxation." Today we hear argued that
people should "pay for what they take, not for what they make."
All this implies a respect for resources owned and held in common,
where "ownership" of such means just the rights of use.
Our challenge as Georgists today is in spreading the idea that
ownership has a different meaning with respect (o natural resources
than it does for items that people create. Our society has conflated
the meaning of ownership to include both kinds. But it is from nature,
and only the nature, that economic rent stems. Only in modem western
(and westernized) societies has the distinction between leasehold and
freehold -- or else the words usufruct and fee-simple -- ownership
been lost. If one has opportunity to survey past histories and
cultures, one discovers that license to use is widely distinguished
from license to monopoly control, or to buy and sell. Native
Americans, much as cultures the world over, were overwhelmed by
emerging European notions of property titles in land, all to their
Can and should redress be made to aboriginal peoples? Likely not.
Recompense is both technically and politically impossible. I would
argue that it is not even warranted, because it posits links in
generational justice that are problematic. But restoration and
protection of that which is everyone's rightful due can be facilitated
by the collection and recovery of the economic rent that trickles down
to land from the cooperative enterprise of communities. Among those
alive today distributive justice would be much improved. Yet we are at
the same time witnessing the ravenous capture of natural resources -
of air, water, land, mineral wealth, and many other elements of the
commons - by corporate interests and advantaged peoples, all of which
is increasing the wealth disparity. The notion of the earth itself as
a commons is in jeopardy of being made obsolete, much as is the idea
of economic rent. Current enthusiasm for privatization of what is and
ought to be the birthright of all humanity is most troublesome. We
Georgists argue that only through recognition and appreciation of our
ideas about ownership and economic rent is it possible for the economy
to function efficiently and sustainably. We can see this most clearly
when looking at the design of our local communities and cities. There,
even in small localities, we can observe differential land values in
various locations resulting from the accretion of rent, value
differences that are many multiples going from periphery to center.
The skylines of cities reflect the differential market value of land
sites, and taken in the aggregate the general proportion is roughly
one-third land value and two-thirds improvement (building) value.
Recent computer technologies permit the creation of what have come to
be called "landvaluescapes" that quickly give a visual
profile of the value of land sites throughout a city. Values per acre
can increase as much as a hundredfold from edge to center. All this is
reflective of the varying amount of economic rent that settles to land
Recovering the economic rent that otherwise accretes to land fosters
greater efficiency in the use of locational sites, enhances the
feasibility of transit services by ensuring greater proximity of
access points, and reduces the demand for infrastructure investment by
more compact site use. On the other hand, present tendencies not to
use high-value locations to their optimal advantage creates
centrifugal economic forces that result in sprawl, with the resulting
pressure on developers to choose sub-optimal and second-best sites.
Yet the collection of economic rent ensures that landsites are fully
responsive to market forces, leading to the greater vitality of cities
and improved social and environmental ambience for both residential
and commercial spaces.
Fortunately, the first-past-the-post greed that has characterized the
monopoly capture of natural resources in both historical and
contemporary America is not beyond remedy. By first recognizing the
full dimensions of the earth's commons, and then collecting the
economic rent that accretes to such places, we can foster both greater
economic efficiency and greater social justice. Titles for use need
not be challenged and markets for site choice need not be disturbed.
All that needs to be done is to gradually shift tax revenues off those
elements of the economy that are burdened by their levy, and onto
those parts of the economy that yield rent for the public to recover.
Races that have demonstrated the ease of such shifts are increasingly
known, their successes documented by the facile use of computer
technology. Forecasting the impact of tax shifts elsewhere is equally
feasible when financial data exists.
Recovery and distribution of the economic rent that otherwise falls
upon locational sites offers a means by which to redress economic
injustices, ones that stem largely from a distorted system of monopoly
control of common natural resources. Roosevelt's Secretary of Interior
Harold Ickes once disparaged "trickle down" economics,
observing that it was "feeding the horses to feed the flies."
But trickle down also describes the way by which the economic surplus
settles to land, in present circumstances to benefit the privileged
few. In a just economic system, it might describe finally how economic
rent is collected for the benefit of all.