The Unearned Increment

Edgar F. Blanchard

[Reprinted from Twentieth Century Magazine, April 1911]

THE unearned increment is the increase in the value of property created by changing conditions. To illustrate: A buys an estate for $5,000. Unlooked for changes take place in the community; in ten years' time the population increases from five thousands to fifty thousands, business increases twenty-fold, the public highways are macadamized and trolley lines are built through the town. Owing to these improved conditions, A's property is worth $100,000. The man has not earned this fortune by any service he has been to society, nor has he created this increase in the value of his property. He therefore possesses wealth that he has neither earned nor created.

This shows how many rich people have acquired their wealth, and larger and larger are the fortunes thus gained. While this method of acquiring wealth is considered by many a fine art and is legalized by law, yet in the last analysis such acquisition of wealth is ethically and economically wrong and with far-reaching consequences.

1. The sense of common justice is violated. Justice demands that wealth shall belong to those who create it, and upon this ethical principle Abraham Lincoln defended the Anti-Slavery Movement of his time. He declared that as the colored people were the actual producers of the wealth in the South, they should have the greater part of it, and not merely an existence out of it.

In the illustration used, the increased value of A's property is created by the improved conditions in the community, and not by his own efforts, except in so far as he contributes to the improved conditions. In other words, the increased value of A's property is a social product; hence according to the law of common justice this new created wealth belongs to society or the social order, and not to any individual.

On the other hand the sense of justice is violated when a person suffers financial loss through changing conditions over which he has no control. A man once bought a place in a prosperous community, which place he greatly improved. After fifteen years of hard work he died. Although the estate had been greatly improved in many ways, the widow, who found it necessary to sell, realized only $400 - about one-sixth of what her husband paid. For various causes there had been a great depreciation in the value of property in the place during these fifteen years. Here was an economic tragedy - an industrious man spent fifteen years at hard labor for naught. This is only one case of many where honest labor and industry have been cheated out of their rightful reward, and it is little wonder that many persons are in despair. Changing conditions have robbed them of the fruit of their industry.

There is indeed little guarantee of justice under the present-day industrial and economic order. One man acquires a fortune of unearned wealth,* and another who creates wealth by his industry and toil becomes the poor man.

2. Speculation is encouraged; and as speculation is encouraged honest industry is discouraged. This is one of the far-reaching results of a false economic system, according to the law that a good tree brings forth good fruit, and an evil tree brings forth evil fruit.

Three facts encourage speculation: that one can acquire unearned wealth with the sanction of the law; that those who do so are honored by society; and that there is little assurance that honest labor and industry will receive their rightful reward. As long as these conditions prevail, so long will people speculate for unearned wealth. And there are to-day tens of thousands seeking wealth with no thought of contributing to the social welfare through their money-making schemes. Economically and ethically these speculators are parasites upon the body politic. Society suffers; for much energy which should be given to productive activities is turned to non-productive efforts - robbing the actual producers of wealth. President Hyde of Bowdoin College says that "the craze for getting something for nothing is one of the most pernicious evils of modern civilization." A social order in" which speculation is encouraged is unhealthy ethically and morally. It cannot be otherwise.

3. Development is retarded. This is another evil result of a false economic system that gives to the individual the unearned increment.

In a New England village a waiting room is needed at the junction of two trolley lines. A waiting-room here would be a benefit to the community; but the owner of the land will not sell, because he believes that in a few years he will be able to get a great deal more for the property than he can at the present time. This is only one case of hundreds where people block the wheels of progress through their efforts to make themselves rich by acquiring the socially-created wealth on properties.

Furthermore, business enterprises are sometimes forced to seek new locations where the necessary privileges can be procured. This of course is a loss to the places from which the industries move. Thus have hundreds of cities and towns suffered.

These evils arising from the unearned increment going to the individual have already assumed gigantic proportions and are rapidly growing. The national welfare is threatened; for let these evils continue to grow as they have been doing during the last half century, and they will lead to an oppressive and tyrannical feudalism of wealth, and a government "of the people, by the people and for the people" will be a thing of the past.

A dyspeptic cannot be cured of his trouble so long as he eats food that distresses him; and the evils described cannot be checked so long as the unearned increment goes to the individual. The remedy is in a new economic system governing the ownership of property, in stringent laws against the acquisition of unearned wealth, and in assuring to honest industry its rightful reward.

Instead of the individual having absolute claim upon property, there should be a joint-ownership of property between the government and the individual. The individual should have the increase in value on property that he has created by making improvements on the same, and a portion (perhaps twenty-five per cent) of the socially-created increase in value. The large share of the socially-created wealth (the unearned increment) should be taken by the government. The twenty-five per cent of the socially-created wealth would be a sufficient incentive for a man to interest himself in the general prosperity of his city or town.

Furthermore, the government should reimburse people suffering financial loss on account of changing conditions over which they have no control. The depreciation in the value of property is the exception. It is seen only in local districts and is owing to local conditions. This depreciation in property-values is insignificant compared with the general increase in property-values, which increase in many places is going on by leaps and bounds. Consequently it would be an easy matter to make this reimbursement.

It would be necessary under the proposed plan to have all property appraised by the government at frequent intervals (perhaps once in every two or three years), and to have estimated the socially-created increase or decrease in the value of property.

All the taxes should be raised from the socially-created wealth, and in this way this wealth would be returned to society. This would put the taxes where they belong - on those growing rich through the acquisition of the unearned increment; and people struggling for an existence would be relieved of the tax-burden.

It would not take seventy-five per cent of the socially-created increase in the value of property to pay the taxes of the country. The difference between what it did take and the seventy-five per cent of the socially-created wealth could remain in the hands of the holders of the property as a loan to be called for when needed.

According to this joint-ownership plan, private parties would not have the sole claim upon the hidden treasures of earth, which treasures man never created. Promoters who dig oil wells and develop mines should be richly rewarded for the service they render society. These promoters might be allowed to operate the oil wells and mines until they realized a thousand dollars profit for every dollar expended in the work. This would surely be a sufficient reward for encouraging adventurers. After the thousand dollar profit is realized, the government should either operate the works or take a liberal share of the proceeds.

Furthermore, stringent laws should be enacted against the acquisition of wealth through methods and operations that do not contribute to the social welfare. This would put all speculative and get-rich quick schemes for "making money" under the ban, and speculating for unearned wealth would become both unpopular and unsafe.

Such an ethical industrial and economic system as described would be superior to the present-day order of things. There would be fewer multimillionaires and more general prosperity, fewer disheartened honest and industrious persons and more contentment among the masses. Thrift and honest industry would be encouraged and manhood developed. A higher moral tone would pervade society and a higher state of civilization would be realized. The world is waiting for this forward step in human history.

"The same human nature is at work now as always. The same everlasting passion for tyranny and the same everlasting passion for liberty still in the same everlasting conflict. To-day the struggle is a step higher than one hundred years before. Then it was as to the right of men as men to a voice in the management of that industry we call government - dealer in forts, coinage, courts, harbors, postage stamps. Now it is the right of men as men to a voice in any other industry which has become of supreme social importance, for the right of the people to be free from taxation without representation in any business which has so great a power over us that it governs us, to have a voice in any industry so great that those who own it own us, to a vote in any property so great that it is a government, whether it be the control of the railroads or the light of the cities, or the supply of the necessaries of life, like coal, oil, salt, steel, or anything else."-Henry Demarest Lloyd.


* Gifts and inheritances are nut considered as unearned wealth, as the term is used in article.