Anticipation of an Increment and the 'Unearned Decrement' in Land
A Study of Some Irrelevant Theorizing
Harry Gunnison Brown
[Reprinted from the American Journal of Economics
Vol. 2, No. 3 (April, 1943), pp. 343-357]
IT CAN HARDLY BE POINTED OUT too often that the socialization of the
rent of land-brought about through the method of taxation -- is
utterly different from the taxation of future increments in land
values. Indeed, the philosophy on which the former is supported is,
ordinarily, a different economic philosophy altogether from that of
those economists who, after rejecting the proposal to appropriate the
rent of land, or most of it, in taxation, yet profess themselves not
opposed to a tax on future increases in land values. For most of this
latter group are believers in "the ability theory of taxation"
and either accept the taxation of future increments in land values as
supplementary to taxes based on "ability" or consider that
such increment taxes are themselves justified because of the increased
"ability" to pay of the owner of the land which has become
The point of view of those who favor public appropriation of the
annual rental value of sites and natural resources, is that taxes
should be so levied as to further the common welfare and that taxes
based mainly on "'ability" will not do this. They stress the
annual rental value of land, regardless whether the rent, or the sale
price, for that matter, is rising or is higher this year than in some
previous year, and regardless whether the owner has received more than
the usual per cent gain on the price he paid for the land or, indeed,
any gain at all over his outlay. They stress the fact that the annual
rent of land is a geologically- and socially-produced value; that the
individual is not responsible for it and that it is socially
undesirable for the private individual to enjoy it. They insist that,
when individuals enjoy the rent of land as private income, the rest of
the community has to pay for permission to work on and to live on the
earth, in those locations which geological forces and community
development have made comparatively productive and livable. They point
out that the private enjoyment of rent makes for a high sale price of
land, makes relatively difficult the acquisition of ownership by the
hardworking and ambitious tenant and makes for the continuance and the
increase of tenancy. They note the wide extent to which land is held
vacant and unused, or in only partial use, and maintain that this
involves economic waste and decreased productivity of labor and
greater crowding in slums. They call attention to the fact that not to
take the rent of land as a first source of public revenue compels
drawing more heavily on the earnings of labor and of thrift. And they,
conclude that a society in which the annual rent of land, geologically
produced and community produced, is taken in taxation for public
needs, in which monopoly gains and the gains from unfair business
practices, etc., are eliminated, and where, therefore, the incomes of
individuals are in some reasonable relation to the services rendered
by them, would be a far better society for the ordinary person to live
in than the economic society we now have. Surely, any advocacy of a
tax system based almost exclusively on "ability," and so
with no reference to these tremendously important considerations, must
be the result either of a woefully inadequate understanding of the
present economic set-up or of indifference to its evils.
Taxation of future increases only, in the value of land, is at best,
and even apart from its administrative complications and difficulties,
a poor and inconsequential substitute for the socialization of rent.
But a large number of professional economists are opposed even to this
inadequate measure. Some of them argue that no increase in land value
can be regarded as unearned unless its recipient has gained, in
relation to the price he paid for the land, more than the current rate
of interest. Furthermore, when and if it is proved that a particular
owner has thus profited by more than the ordinary interest on capital,
another objection is raised. This objection is to the effect that the
owner took a risk of his land decreasing in value-or, even, of its
increasing by less than enough to yield him the current interest rate
on the price he paid for his land-and that the lucky increases must be
regarded as offsets against the unlucky losses. As some economists
express it, we must remember that there is not uniformly an "'unearned
increment"; there is, in many cases, an 'unearned decrement."
And some of these writers raise the question whether, if a tax is
levied on any increment, there should not be compensation awarded in
the case of a decrement!
Surely, the view that the private enjoyment of land rent involves
exploitation of the landless is quite different from the view that the
only unearned income to be considered is this increase in value during
the ownership of the particular individual, that even this increase is
not unearned if the rate of increase plus the annual income is not
more than the usual per cent return on capital, and that it is still
not unearned, however excessive the rate, if, on the average, such
increments are balanced by decrements.
Back in 1924 I discussed at some length the attitude of some
economists to the subject of future increments of land value and their
taxation, in an article entitled "The Single-Tax Complex of Some
Contemporary Economists." A few months later there appeared a
reply to this article, by Dr. Wilford I. King. In Dr. King's
article, the point of view of the writers I had criticized on the
matter of increments and the ordinary rate of return on investment is
restated. Seeking to express this point of view in somewhat striking
and popular form, Dr. King refers to himself throughout as a "patient"
suffering, with the economists I had criticized, from the "single-tax
complex." Since he brings increment, decrement, rate of return on
investment and the view of conservative economists that even future
increments should not be taxed, all together into a single paragraph,
it may be well to quote this paragraph here in full:
There is one ray of light in the blackness surrounding
the mental condition of the patient which may mean that there is
still hope of his rehabilitation. He says that he sees clearly the
rank injustice of allowing to exist in a free country a medium which
promises to the speculator a sure return -- an "unearned
increment." The patient is in general opposed to monopoly and
in addition it is probable that he has a personal grievance for he
continually asserts that someone has monopolized the formula for
making easy money on land. He says that a man once gave him a tip as
to how it was done but that the information proved false, for when,
following directions, he bought the land, it failed to rise in value
rapidly enough even to pay interest on his investment. He further
says that several of his friends have had similar bad luck. I am
sure that nothing will be more effective in hastening the patient's
recovery than for Dr. Brown to point out just how the speculators go
at it to get the "unearned increment" and not incur
equally "unearned" losses. The patient asserts that when
this point is cleared up in his mind he will be in favor of having
the state seize the nefarious gains of the speculators.
Certain implications of this view had already been stated, in my
article to which Dr. King was replying, in the following sentences:
Except as we suppose that landowners, owners of
monopolies, etc., under-estimate the future possibilities of income
from their property -- and they are, perhaps, as likely to
overestimate -- there is certainly no possibility of ever giving the
non-landowning and non-monopoly-owning public anything whatever,
even through purchase, without trenching on the "vested rights"
of the owners. The landless must continue to pay owners for the
privilege of living on or working on their land or they must pay the
owners, in advance, not only the capitalized value of the present
rent but the capitalized value of any future increases in the rent
which the owners may have a reasonable prospect of being able to
charge. Similarly, consumers must continue to pay monopoly prices to
the owners of monopolies or else they must pay such owners, in
advance, the capitalized value not of the present monopoly profits
only but, if increased prices may be looked for in the future, of
the estimated additional future profits also.
That anticipated future rents of land are capitalized into a present
sale price, and that the sale price of land is as much subject to the
influence of persons who over-anticipate the future as of those who
under-anticipate it, are opinions held quite widely by advocates of
the socialization of rent as well as by opponents of it. But the
former do not consider the fact of capitalization a conclusive
argument against this basic reform, any more than they consider such
an argument conclusive against tariff reduction, abolition of monopoly
extortion, or other changes in public economic policy.
THE ATTITUDE EXPRESSED IN Dr. King's article, and which I have
indicated is a common one among the authors of textbooks in economics,
is expressed in, perhaps, a more generalized form by Dr. Frank H.
Knight in a review of Dr. George Raymond Geiger's book,
The Philosophy of Henry George. The paragraphs of particular
As everyone knows, the social philosophy of Henry George
pivoted around and found its expression in the doctrine of the "single
tax"-- more accurately the social appropriation of the income
from land. The theory underlying this doctrine is one of the most
rudimentary and obvious of all the fallacies ever promulgated in the
name of economics. It is of the very conception of economic behavior
that, in so far as the individual knows what he is doing, the "return"
from any activity, as estimated by himself, will be equal to the
outgo, in terms of the individual's own estimate of the next best
alternative of the resources employed. Any return amounting to more
or less than "cost," in this sense (which is the only
sense having any intelligible meaning), is due to accident or
miscalculation, -- i.e., to the speculative element in the activity.
There is no evidence, a priori or empirical, either (a) that
speculative activity yields a larger return, in any representative
sample of cases, than does activity where the results are actually
in accord with expectations, or (b) that land acquisition or holding
presents anything peculiar in comparison with other economic
activities. Every type of speculative element is familiar in
connection with land and also in other connections....
.... All this reasoning is on a mental
level not above that involved in the simpler operations of
arithmetic. The economic and social ideas of Henry George as a whole
are at the same pre-arithmetical level, the level of those held
before and since by all who have held any at all, apart from an
insignificant handful of competent economists and other negligible
exceptions. Henry George's claim to be an economist (or social
philosopher either) rests on the possession of linguistic powers not
uncommon among frontier preachers, politicians, and journalists, and
on the fact that his particular nostrum for the salvation of society
appeals to a number of people, no doubt for much the same reasons
that made it appeal to him, and which give many other nostrums their
Professor Knight is here more frankly contemptuous of Henry George
than are most of the latter's critics. But the very forthrightness of
his contempt may help to focus attention more clearly on the
divergence in economic philosophy which I am here trying to emphasize.
And I believe it is important to do this. For Professor King and
Professor Knight, despite any peculiarities in their individual
formulations of the matter, are representative of a whole group of
present-day economists, and views essentially the same as theirs are
continually appearing in college text-books.
The fact is that Henry George did not base his advocacy of the
socialization of rent on the opinion that landowners, in general or on
the average, enjoy any exceptional rate of return on their investment.
It is true that he sought to illustrate the effect on land values, of
the rise and development of cities, by dramatic reference to the fact
that men may -- and do -- become millionaires as a consequence of such
rise and development. But he refers, also, to the case of persons
who are "land poor" and to the fact that anticipated
increases in the rent of land are reflected in its present price.
Indeed, he even points out that the mere expectation of the adoption
of his proposed reform, as public opinion became increasingly
favorable to it, would bring a reduction in the sale price of land
before the reform actually went into effect. Conceivably, Professor
Knight can ferret out some sentence in Henry George's many writings
that is not absolutely consistent with his own generalized statement
quoted at length above. But, surely, here is no unfamiliarity with the
theory of capitalization and no naive assumption that, in general, the
purchaser of land can hope for extraordinary gains.
And even though extraordinary gains have been realized at times, this
was not at all the main burden of Henry George's complaint. What he
was endeavoring chiefly to make clear was that the annual rent of
land, whether it be increasing or decreasing, is an income analogous,
in large degree, to income from the ownership of slaves, and that
permitting the private enjoyment of this rent inevitably tends to make
poverty a concomitant of progress. Indeed, again and again in his
books and controversial articles, he compared private enjoyment of the
rent of land with the profits of slavery. He would not have argued
that the slave-owner's rate of return on his "investment" in
slaves was a greater per cent than his return on his investment in
buildings or other capital, but he would have insistently
maintained that the income from slave-owning was exploitative none the
PERHAPS IT WILL HELP to bring home the real basis of Henry George's
thinking, to those inclined to go along with Professor Knight, if I
venture what may appear, superficially, to be a rather far-fetched
illustration. But though superficially it may appear far-fetched, it
is, I am sure, very closely analogous to the case regarding land.
Let us suppose, then, that lakes and rivers have long been recognized
as subject to private ownership, as well as land, and that large
income has been securable from charging ships for permission to sail
on them. This would be exploitative and would certainly not be to the
general advantage. Yet here, too, the rate of return over "cost,"
to the owners, might well be not more than-might even be less than-the
ordinary rate of return on the capital that men make. And if we cannot
assume a return greater than the ordinary per cent on "cost"
for those who may have bought out the first owners or the descendants
of these owners, neither can we assume a greater return to these
owners (or their descendants) themselves. For however the first owners
acquired their ownership, whether by force, by bribery, or through
some legally sanctioned method, there was some sort of "cost"
involved. (Conceivably, in certain circumstances where public
sentiment was not wholly approving, a troubled conscience might be a
considerable part of this "cost.") And the prospective
owners would have been ready to meet this cost whenever or as soon as
it was justified by the anticipated returns.
More specifically, let us now suppose that, some hundreds of years
ago, legal sanction regularly attached to perpetual control of a lake,
e.g., Lake Michigan, if certain formalities were attended to, and that
these formalities were the rowing three times around the lake and the
performing of certain incantations at the end of every third mile.
This would certainly mean, so far as any would-be owner was concerned,
a cost of acquisition.
Now let us assume the future income from such ownership, of millions
of dollars a year, to be confidently anticipated by two or more
aspirants for ownership. Then each of these would be ready to do
the rowing, bearing all the incident toil and danger, and to perform
the incantations, at the earliest date when it could be said to pay.
In other words, they would be willing to do this as soon as the
capitalized value of the future income such ownership was expected to
yield became equal to the cost of so acquiring ownership. Then Dr.
Knight could piously pronounce with regard to such ownership of Lake
Michigan, as with regard to ownership in land -- or in slaves! -- that
"there is no evidence, a priori or empirical, . . . that the
acquisition or holding of a lake -- or of slaves -- presents anything
peculiar in comparison with other economic activities. Every type of
speculative activity is familiar in connection with lakes -- or slaves
-- and also in other connections."
But such pronouncement would have no bearing on the question whether
deriving private income from charging men to use Lake Michigan -- or
other bodies of water -- was socially desirable or was in any
significant way analogous to deriving private income from productive
capital the construction of which private saving has made possible.
Whatever the cost of acquiring title to Lake Michigan, there has been
no service to the community from this acquisition, nor any service to
future users of the lake who must pay large annual sums for permission
to use it. Whatever the advantages to commerce of Lake Michigan and of
its harbors, these advantages are not services rendered by the owner
(or owners) of the lake. They are not due to his effort. They are not
the consequence of his construction of capital. They do not result
from and are not enhanced by his rowing three times around the lake
and performing the specified incantations nor by such action on the
part of any ancestor or other previous holder of title. The difference
between receiving private income from such "property" and
from capital which one's own productive effort and saving have made
possible is fundamental and profound. It is this difference which
Henry George stressed and on which the land-value-taxation theory is
The man who acquired title to the lake several hundred years back may
have realized -- through his heirs -- no more than or even less than
the ordinary rate of return on cost, the return which he could
normally have realized by bringing into existence new and useful
capital. The important point is that, though the per cent return thus
received may be, on the average, no greater, and may sometimes be
less, nevertheless this return cannot be justified on the basis of
equivalent productive contribution to those who must pay it; whereas
the return on capital can normally be so justified.
If now, at some date say fifty or a hundred years or more, after
title to the lake has been gained by means of the prescribed rowing
and incantations, the property is sold to a new purchaser, the price
paid will presumably be fixed on the basis of the then anticipated
future yield. The new owner, therefore, having purchased at a price
fixed by capitalization of this anticipated income, will also make,
unless calculations have been inaccurate, only the ordinary rate of
return. But anything he so receives, be it only one tenth of one per
cent on his investment, or even much less than the investment, is at
the expense of the common run of folks from whom it is really drawn
and who gain nothing from the fact that the new exploiter may have
paid a substantial amount to the previous exploiter whom he has thus
JUST BECAUSE THE DOMINANT influences in government some hundreds of
years back had established such a system and just because the
exploited masses -- whether from intellectual confusion furthered by
interested propaganda, or other cause -- had allowed the system to
continue until the present, it would be argued by apologists of the
system that those exploited by it must let it continue forever. Or it
would be contended that those who were being exploited by it must do
nothing to change the system unless they first fully compensated the
exploiter (or exploiters) for henceforth giving up the privilege of
thus exploiting. The victims of the system must remain victims forever
or must themselves pay for their own relief. And so the only method or
methods of terminating the system, which could be regarded as in any
sense politically feasible or practicable, would probably be ruled out
at the start.
The parallelism with the present land system and the private
enjoyment of the geologically-produced and community-produced rent of
land is, in all essential respects, complete.
In the case of land, "society" is considered by economists
opposed to the socialization of rent, to be, as it were, under a
binding "pledge" not to change the tax system in that
direction by one iota. It does not matter that this "pledge"
has never been formally made or that, if ever made in any way or sense
whatever, it has not been agreed to, consciously and understandingly,
by its victims. It does not matter that there is a strong tendency --
and has been throughout the history of landlordism -- to soft-pedal
the subject of landlord exploitation, to soft-pedal it or ignore it in
the public press and in institutions of higher learning; that the
victims of it, therefore, have had small chance to know the basic
cause of their unhappy predicament; that these victims have, because
of this lack of understanding, ignored the basic evil and supported,
often, inconsequential or, even, foolishly revolutionary reforms. It
does not matter that the "pledge" by "society" not
to change the tax system in the direction of public appropriation of
land rent is usually nothing but a long-continued custom or habit in
taxation and that taxation has been changed in such various ways as to
suggest to prospective land purchasers the lack of any fixed taxation
policy or custom or habit. Nevertheless, it is assumed that "society"
is morally bound. And the victims of the present land system have been
part of that "society" which has for many years followed the
practice-or custom, or habit? -- of not appropriating to public use
more than a minor proportion of the community-produced rent of land.
And since it is "unjust" or "unfair" or "wrong"
for "society" to change its policy, one supposes it must be
wrong for the previously uncomprehending victims of the policy to urge
a change in it, if and when they come to understand how it affects
them. And even if this generation of victims should-by some miracle!
have grown up with the requisite understanding, it would still be
wrong for them to urge a change. For if their urging were successful,
owners of land who had made their purchases of it on the expectation
of no appreciable change in tax policy, would find their land of less
value because this generation of victims had departed from the
attitude of the previous generation of victims! If it is "wrong"
for "society" to change its tax system in this direction,
even by slow steps, must it not be equally wrong for anybody -- even
the victims of the present set-up-to urge this "wrong" act?
When the Pennsylvania legislature established the Pittsburgh (and
Scranton) graded tax system, it provided that the city tax rate on
improvements should become, in 1914, only 90 per cent of the rate on
land; that in 1916 it should be 80 per cent; in 1919, 70 per cent; in
1922, 60 per cent, and in 1925, 50 per cent. This meant that to get
the same revenue for the city, the tax on land values had to be
gradually raised. To the ordinary person, such a change may seem quite
within the rights of the legislature to make and not much more
startling than it would be to raise the tax rate on motion picture
entertainments while reducing the rate on cigarettes. But according to
the published views of some American economists, the members of the
Pennsylvania legislature, in passing such legislation, must be
considered guilty of a wrongful act.
What if such tax changes as that in Pittsburgh and Scranton, the
establishment of a land-value-tax system in Sydney, Australia, and
other cities and towns within the British empire, the provision for
land-value taxation passed by the British parliament in 1931 (since
repealed by a Tory-controlled Commons), and the years of protest
against the present land system by those who would reform it, -- what
if all these things have brought it about, as might conceivably be the
case, that the sale price of land is somewhat lower than it otherwise
would be! This, of course, because buyers and sellers of land allow
for the chance that higher land-value taxation will be realized in a
not too distant future. Or what if, after decades of effective
education of the public mind by advocates of the socialization of
rent, so many would-be buyers and would-be sellers of land believe
this reform inevitable and imminent that land sells at a definitely
lower price because of this anticipation than it otherwise would!
What if, then, a more gradual introduction of the reform than was
generally expected, actually causes the sale price of land to rise
when the law is passed, instead of to fall! In that case, what person
or persons have been guilty of unfairness or injustice to landowners?
Is it the legislators whose unexpectedly moderate beginning of the
change fills owners of land with a sense of relief and joy? Or is it
the propagandists of the previous decades and years whose agitation
brought it about that land had already a lower sale value before any
actual steps toward enacting the reform were taken by the legislators,
than the value it would have had if there had been no agitation? If
the latter is the correct view, according to professorial economist
text-book writers, is the sin in the speaking and writing of these
disturbing thoughts of the land-value-tax propagandists or is it in
the very thinking of these thoughts?
IN AT LEAST TWO previous publications I have expressed the
opinion that the "sense of proportion of many persons, including
not a few professional economists, seems to have been hopelessly
dulled by their making of the doctrine of vested rights a veritable
fetish. Otherwise, the view that society, which makes frequent changes
of policy in other matters, is under a binding implied pledge and
obligation never to move, no matter how gradually, toward the eventual
taking in taxation of the major part of the rent of natural resources
and sites, would be clearly seen to be, as in fact it is, utterly
silly." And many years ago, in
A Perplexed Philosopher, which most modern economists,
even if they have chanced to read his Progress and Poverty,
have never read, Henry George discussed carefully and rather
completely this whole question of the right of society to socialize
land rent. His discussion in this book seems to me a more thorough and
searching one than the discussion of the same topic in Progress
and Poverty. It is perhaps unfortunate that so few have read it.
Yet most of the text-books in the "principles" of
economics, whose authors deign to give any attention at all to
land-value taxation, conclude on the note of its "wrongfulness,"
on the note that "society" would be guilty, in making such a
change, of "injustice," of an act of "bad faith,"
of "changing the rules of the game while the game is in progress."
Such considerations in reply as have been presented above are not even
mentioned. They are not mentioned even where the author makes a
pretense of giving both sides of every "controversial subject"
or says he means to be "meticulously objective" on such
subjects. They are not mentioned even to express disapproval of them.
The student, if he follows his text-book, is left with the definite
impression that no reply can be made and that, therefore, the land-
value-tax reform need not be taken seriously.
Perhaps this is one reason why those college graduates who are
oppressed by the realization of the poverty and inequality that they
see all about them, and who are inclined to social idealism, have
tended to be influenced by socialist and communist ideology. For there
has been too little in the college teaching of economics to give them
the vision of what an economic system based on free markets and free
enterprise might be, if so reformed as to make it consistent with the
principles on which it is commonly defended. For then incomes would be
received for contributing to production and not at all for permitting
others to use the earth.
Is there any likelihood that university and college teaching and
text-book writing will change in this matter in any near future? I
shall continue to hope so but I dare not predict.
FOOTNOTES AND REFERENCES
- See, for example, Hoagland,
Real Estate Principles, New York, McGraw-Hill, 1940, p.
460; Kiekhofer, Economic Principles, Problems and Policies,
revised edition, New York, Appleton-Century, 1941, p. 555; and
Modern Economics by Moore, Steiner, Arkin and Colton, New
York, Nelson, 1940, p. 341
- Journal of Political
Economy, April, 1924. This article has since been reprinted,
with very considerable additions, as Chapter IV of The
Economic Basis of Tax Reform, Columbia, Mo., Lucas Bros.,
- "The Single-Tax Complex
Analyzed," Journal of Political Economy, Oct. 1924.
- Journal of Political
Economy, Oct. 1933.
- Progress and Poverty,
Fiftieth Anniversary Edition, New York, Robert Schalkenbach
Foundation, 1929, pp. 241, 294.
- Ib., p. 258.
- Ib., pp. 361-2.
- A Perplexed Philosopher,
Works of Henry George, Vol. V, New York, Doubleday, Page &
Co., 1904, p. 233.
- See "The Condition of
Labor," in The Land Question, New York, Robert
Schalkenbach Foundation, 1935, p. 103.
- Because an adequate return
might not be obtainable otherwise during the lifetime of any of
these and because they might not, any of them, be willing to make
the investment solely for the sake of a remote decedent, we should
perhaps assume, also, that it is possible to sell, decades later,
to equally confident anticipators belonging to a later generation,
and these to still other and later would-be purchasers of the
property, and so on.
- The Economic Basis of Tax
Reform, op cit., p. 306, and Basic Principles of Economics
Columbia, Mo., Lucas Bros., 1942, p. 464.
- Chapter XII.