Unearned Increment Explained
Neil S. Booth
[Reprinted from the Henry George News,
YEARS ago, the south side of the Chicago River at the north edge of
the Chicago Loop was a depressed, mud filled street known as the
Produce Market. As time passed, the city grew and the Produce Market
was moved to a more suitable location west of the Loop. This muddy,
unkempt area which had depressed adjacent land values was converted
into upper and lower level Wacker Drive. All the people of Chicago
paid for this improvement, while the owners of adjacent land received
the benefit in sharply increased land values. This was certainly an
unearned increment for the nearby landlords.
Some writers claim there is no such land problem in the United States
as there is in Europe because of more widespread ownership here. But
ownership is irresponsible so long as the rental values of the land is
not collected for public purposes, whether ownership is widespread or
not. The argument is specious, it does not square with the facts. It
lulls the conscience of those who should know better, obscuring the
obvious fact that opportunities are greater in the United States than
in Europe because of a more dynamic economy. As far as the land
question is concerned there is no real difference.
There would be no unearned increment if the rental value of land was
paid for the maintenance of government. There would be less inflation
which periodically pauperizes a large segment of the population, and
there would be less concern over unemployment and the needs of the
indigent. The "35 million laws to enforce the Ten Commandments"
could be largely done away with as the simple understanding of truth
and cooperation replaced the present bickerings over economic matters
which are basically unsound.
The term "unearned increment" is often puzzling, and I
recently explained it to a friend with the following historical
In the beginning, man subsisted on the free gifts of nature, its
fruits, grains, animals and fish. The food grew wild. Man could climb
trees to obtain fruits. He would wade in shallow streams to catch fish
with his hands. Animals less fleet than he could be run down. He ate
his food raw and lived in a cave. After he discovered fire, flesh
could be speared on a sharp stick and cooked over an open flame.
By a stretch of the imagination we can see that the sharp sticks and
stones which could be thrown at things, out of reach of man's hand,
were the beginnings of capital - and capital came directly from labor.
As man's inventiveness increased he discovered that it took less
labor to get what he wanted from nature if he had tools with which to
work. At first each new and crude tool was the possession of a man who
designed and used it -soon others made similar tools for themselves.
The Profit Motive
Food and other desirable things were offered to the inventors as
payment for tools, and when the offers were greater than the amount of
labor involved, the inventors would comply. This was the beginning of
profit. Inventors profited by getting more in return for tools than
they could have obtained for themselves, and the purchasers of tools
would thereafter also be able to get what they desired with less
labor. True profit always was and always will be a mutual-saving of
The invention of crude tools extended man's hands. If we bear this in
mind we will never err in seeing that true capital, even in the
complex > society of today, results from man's labor applied to the
material gifts of nature. To be sure, modern capital is most
frequently described in terms of money, but its accumulation was the
savings of labor.
Now we come to the "division of labor." Our early inventor
of the simple tool, which he made for his neighbor, saw that if he
could go into the tool business alone he could satisfy more desires
with less exertion. But he would find no market for the tools unless
they satisfied the customers desires with less exertion (to them). So
when he saw that enough tools were desired by others to warrant full
time production he went into tool-making in a big way. This was the
beginning of capital goods.
As centuries have passed the division of labor has increased until it
has become impossible to obtain even daily necessities exclusively by
our own labor, not to mention the many luxuries we enjoy. We have
learned that we can satisfy more desires by doing one thing well and,
from the rewards of this labor, satisfying our desires by choosing
from the specialized products and services of others. Capital goods
today include everything which man buys and consumes. Originally land
was owned by the soldiers of a locality, later by a state. The land
could not be owned unless trespassers could be ejected by force, if
necessary. Most land has now settled into the hands of the last
conquerors and has from there been passed on by sale or gift.
As long as the owners furnished their own armies and paid the costs
of maintaining the state, as in feudal England, this early form of
ownership had some foundation in justice. The serfs and peasantry paid
to their individual lord in labor and fighting, the values they
received in security and sustenance upon his lands. The rental value
of the land was used by its owner to defend it and make the lives of
the lesser souls reasonably safe and secure. The "increment of
land value" was earned.
With the division of labor established, however, the manufacturing
and merchant class grew to the point where they could not be
politically ignored. They began to share in the power of the state
and, to cite England again, the former subjects of the feudal lords
were expelled from the land as wool growing became the most profitable
enterprise for the land.
The political and military viewpoint then changed. It became apparent
that the public revenue would be drawn from taxes levied on the whole
populace. Thus taxes grew-all kinds of taxes-who knows better than we
do today? But these taxes were levied against capital and labor while
the landlords retained the rental value of their land which formerly
paid for the costs of law and order. Every person still paid in rent
or in the capitalized purchase price of land, the full value of the
land they used, and all too often more than it was worth.
Because the price paid for the ownership of land gave the owner the
right to hold it out of use until the price he could obtain satisfied
his desires, the collusion between state and landowners made it easy
for them to dictate the terms upon which others could use their land.
Being relieved almost wholly from the obligation to maintain
government and the military establishment, the moneys the landlords
received for the use or sale of land served no social or economic
purpose. The old conception of obligation in land ownership was
cancelled out while the funds which supported the old concept still
accrued to the landowners. They received and did not give. What they
receive is known as the "unearned increment of land rental value."
A- landlord may also labor and use capital in which case the returns
from his labor and capital are rightfully his.. We are speaking only
of the degradation of our concepts of justice in the ownership of