Land and Rent
Taxes on Land and Houses
The Single-Tax Doctrine: Its Basis
The Single-Tax Doctrine: Objections
Fabian Franklin
[Chapters from the book, Plain Talks On Economics,
published in 1924 by G.P. Putnam's Sons, New York]
Fabian Franklin was born in Hungary in 1853. His family
immigrated to the United States in 1855 and settled in Philadelphia,
moving in 1861 to Washington, D.C. He first trained to become a
civil engineer but later entered Johns Hopkins University and earned
a Ph.D. in mathematics (1880). He remained at Johns Hopkis teaching
mathematics until 1895, when he left to become associate editor of
the New York Evening Post. Franklin developed a firm
opposition to radical politics and to socialism, in particular.
During the First World War he founded a new periodical, called The
Review, which merged in 1922 with another paper called The
Independent. He wrote a number of books in addtiion to Plain
Talks On Economics. He died suddenly in January of 1939.
CHAPTER XI
Land and Rent
In Chapter III we saw that the supplying of the wants of mankind
depends on four great factors-natural resources, labor, capital, and
enterprise. The person who furnishes any one of these things in
compensated by a share of the product. We have now to try to get some
idea of how the share 9f these four classes of participants in
production is determined.[1]
The Landowner's Share: Rent
In the present chapter we shall consider the compensation that goes
to the landowner for the use of his land. This subject was touched
upon in Chapter II, as an illustration of the importance of the idea
of the margin; and indeed the essence of the matter was there given.
But we shall now go into it a little more fully.
What is paid to the landowner for the use of his land is called rent,
both in common talk and in the language of economists. In common talk,
however, the word rent is applied likewise to what is paid for the use
of a building, or a typewriter, or a piano, or what not; but in
dealing with essentials economists usually mean by rent not the price
paid for the use of things like these, which have to be produced by
human effort, but the price paid for access to natural resources,
or, as they usually put it, the use of land. And the reason is, that
the rent of land is governed by a specific principle of the first
importance, while the price paid for the use of houses, or anything
else that is produced by human effort, involves no peculiar principle
at all.
Rent of Land and Value of Land
If you ask "the man in the street" why the owner of a piece
of land gets a thousand dollars a year as rent from the user of it,
the chances are that he will say that it is because the land is worth
ten thousand dollars. But the fact is precisely the reverse. The land
does not rent for a thousand dollars a year because it takes ten
thousand dollars to buy it; on the contrary, it takes ten thousand
dollars to buy it because it is worth a thousand dollars a year to
somebody to have the use of it. What you pay for the use of a piano
(apart from compensation for wear and tear) depends on how much the
piano is worth to sell, and that in turn depends on the cost of
production of the piano; but in the case of land there is no cost of
production. A plot of land 25 x 100 feet in the financial district of
New York City may be worth a million dollars while a plot of the same
size in an adjoining county is worth only a hundred, solely because
the advantages to be derived from the use of the one are worth ten
thousand times as much as those to be derived from the use of the
other. It is not the selling price of the land that determines the
rental value, but the rental value that determines the selling price.
What Makes Rental Value
But what is it that determines the rental value of land? The essence
of the answer to this question was briefly given in Chapter II, where
Ricardo's doctrine of rent was cited as a signal example of the
importance of the idea of the margin in economic theory; but there
will be no harm in repeating here, with a little expansion, what was
there said. Land exists of all degrees of fertility and all degrees of
advantage in point of nearness to markets, etc. At any given time the
demand for agricultural products is such that it will pay extremely
well to cultivate certain grades of land, less well to cultivate
certain other grades, and so on down until we come to a grade which
(on account either of its low fertility or its disadvantage of
situation) it will just pay to cultivate if nothing has to be given
for the use of the land. At this margin the land will command no rent,
or practically no rent; arid the amount of rent that any other land
commands is determined by its superiority to the land at the margin.
If one piece of land will yield just barely enough to pay, at the
customary rates, for the labor and capital devoted to its cultivation,
and another yields a thousand dollars a year more than this, the
rental value of the first piece will be nothing, and the rental value
of the second will be a thousand dollars a year.
Nor is the case of urban land-building lots in cities-essentially
different, though it presents itself in a somewhat different way.
There is a limited amount of land of such character as to present the
greatest advantage for the uses of urban life, whether residential or
business uses; and the same is true of land of every lesser degree of
desirability, until we get down to land which is practically of no
advantage at all for city uses-land such that nobody would pay
anything whatever for the privilege of building on it. Such land as
this has no rental value at all as city land (though it may possibly
have some value as country or farming land); and the rental value of
the city land varies all the way from nothing or next to nothing at
this margin to the enormous rates commanded by the most advantageously
situated city property. Just as in the case of agricultural land,
these rates are a differential matter; they measure the
superiority of the particular land in question over land at the
margin. Speculative Value of Land
At this point it will be well to go back for a moment to the question
of the selling value of land. It was stated above that "it
is not the selling price of the land that determines the rental value,
but the rental value that determines the selling price." This is
quite true; yet it is necessary to take into account a factor which,
for the sake of simplicity, was left out of account; and this factor,
while present in all cases, plays a far greater part in the case of
city land than in that of agricultural land. When a man buys a piece
of land he is influenced not only by an estimate of the uses to which
it can immediately be put, but also by the price for which he
thinks it likely it may be sold in the future-or, as it is usually
expressed, by its speculative value. If a piece of land,
either agricultural or urban, can be used now with a profit of $1,000
a year over and above the normal return upon the capital and labor
expended by the user, the land will command a rent of $1,000 a year;
and if (after allowance for taxes, etc.), the possession of a piece of
land commanding this rent is supposed to be worth $10,ooo the selling
price of the land will naturally be $1o,ooo. But if there is reason to
believe that the rental value of the land will be much higher twenty
years from now, buyers may be glad to pay $15,000 or $20,000 for it,
even though at first the income from the land will not justify that
price. In the case of a growing city, this is one of the chief factors
in the selling price of land; and on the outskirts of the solidly
built-up sections that is especially the case. There are large areas
of vacant land which it would be folly to build upon today, because
tenants could not possibly be found who would pay enough rent (for
house and lot together) to compensate the builder, even if the builder
paid nothing whatever for the land; yet this land commands a
selling price, and sometimes even a high selling price. But this fact
does not contradict the principle stated above; the selling price is
still based on the rental value-only it takes into account the
probable future rental value as well as the present rental
value, which in some instances is nothing at all. It is a case of
speculation; a word frequently used as though it were necessarily an
odious and anti-social thing, whereas it is often not only a
legitimate but a highly useful phase of business. The "speculator
"in land takes chances of loss as well as gain; if he holds on to
the vacant land until he thinks the right time has come to build on it
or to sell it, he has in the meanwhile (often for ten, twenty, or
fifty years) to pay taxes on it, besides forgoing all interest on his
purchase money. That the process is by no means sure to result in a
net gain is sufficiently proved by the fact that great quantities of
vacant land are always in the market at almost insignificant prices.
Anybody with money to invest can buy them, and yet they are not
gobbled up by shrewd investors, as of course they would be if the game
were as profitable as some writers seem to think.
Land and Improvements
One more point, and a very important one, must be briefly touched
upon before we leave the subject of the rent of land. We have been
considering land purely as a natural resource and as though nothing
had been done to it by the application of human effort. Let us now
briefly consider how the question is affected by the existence of
improvements which have become permanently attached to the land. In
the case of agricultural land, these may be largely in the shape of
drainage, clearing, fencing, etc., which have made the land more
available for agricultural uses, as well as in the shape of buildings.
In the case of city land, the permanent improvements are chiefly
houses, though there may also have been grading, etc. Now the
Ricardian law of rent-that differential law which we have been
discussing -- does not, on its face, apply to things that are
the result of human effort; the price normally paid for the use of
these things, though it is also called rent, is governed by their cost
of production. Nevertheless when the improvements have once been
made and have become permanently attached to the land, the rent of
the whole thing, land and improvements together, is governed
solely by that law of rent which we have been talking about. If, for
example, you have built a fine private residence upon a lot in a good
section of the city which has since gone down in the world and become
a slum, the rent you can get for house and lot together, and likewise
the price you can sell it for, depends solely on the value of the uses
to which in the new circumstances it can be put, which may be very
little indeed; and it won't make a particle of difference whether the
house cost a thousand dollars to build or a hundred thousand And of
course the same thing is true of agricultural improvements permanently
sunk in the land.
In the case of city houses, however -- at least in growing cities-the
cost of production does usually enter decisively into the
determination of rent in spite of this. The building of houses for the
accommodation of great multitudes of people is a regular business; and
if the rents of those already built are not high enough to encourage
the building of new houses, such building will decline in quantity pr
stop altogether, and the shortage of houses thus resulting will drive
rents up until they again somewhat correspond to cost of production.
The rent of any particular house is unaffected by what may
have happened to be its cost of production; but the general level
of house rents is decisively affected by the prevailing cost of
production of houses.
FOOTNOTES / Chapter XI
- As was pointed out in the
chapter referred to, all four of the factors may be furnished by
one and the same person, as in the case of the small farmer who
owns his land, cultivates it solely with his own labor, owns the
implements with which it is worked, and conducts the business at
his own risk. But in our discussion it will be supposed throughout
that the landowner, the workman, the man who furnishes the
capital, and the man who undertakes and controls the enterprise
are separate and distinct persons. If a person combines in himself
any two or three, or all four, of these characters, his share of
the product may be expected to comprise the share that would have
fallen to each of them if he had been a separate person.
CHAPTER XXII
Taxation: Its Various Forms
Taxes on Land and Houses
But there is one part of the general property tax which is on quite a
different footing -- the tax on real estate, on land and houses. This
was always the most important part of the general property tax, and it
continues to be the chief source of revenue for our local
governments-cities, towns and counties. Let us now consider a tax
levied at a uniform rate on the value of all the land and houses in a
given city[1], and examine how it operates -- who really pays the tax?
Most people answer this question very simply by saying that the tenant
pays the tax; that the landlord is sure to pass it on to him. But the
case is not quite so simple as that.
The rent that is paid for a house must be regarded as consisting of
two parts -- one part being a return to the owner of the house upon
the capital invested in the building of the house and the other a
payment made on account of the desirability of the site on which the
house is built.[2] Now these two parts are governed by wholly
different principles. A tax levied on the site-value cannot be shifted
to the tenant, because the amount he pays for that turns not on cost
of production at all, but simply on desirability, and the desirability
is neither increased nor diminished by the tax. But, an objector may
say, the desirability is what determines the rent of the house too;
nobody is any more willing to pay a high rent for the house than he is
for the site just because a tax has been clapped on it. This is true
enough, as far as it goes; but it overlooks an essential point. The
site is there, of itself; the house won't be there unless somebody
builds it. And if a tax is put on the house, it won't pay anybody to
build it unless, in addition to the normal return on the capital he
puts into it he gets enough to enable him to pay the tax. The house
tax is like a commodity tax, a tax on production; it operates as an
increase of cost, and raises~ rent just as a tax on cigars or whiskey
or stockings raises the price of these things. But the lot is there;
it doesn't have to be produced; the supply of lots is not diminished
by taxation nor increased by the absence of taxation. Thus we may say
that, broadly speaking, the land tax falls upon the land owner, the
house tax upon the tenant.[3]
I say "broadly speaking," because it must always be
remembered that economic generalizations of this kind do apply only "broadly
speaking," and not to every particular case. All that we mean is
that the general level of rents, the general course of rents, is
determined in this way. The rent of a particular house, or a
particular class of houses, may be affected very differently, or may
not be affected at all, by taxation. Take, for example, a section of a
city, once fine and prosperous, which has been thrown out of its
original character by changes in business or fashion, and which is
quite out of the current of building enterprise; in such a situation
the owner has to take what he can get people to pay, and neither taxes
nor any other element of cost has anything to do with the case. And
there are many other peculiar situations or circumstances which may
alter the result above indicated. But it is folly to let this stand in
the way of our appreciation of the general principle; to ignore it
because it does not take account of every case is as though one should
refuse to think of the earth as a sphere because of the irregularities
of its surface.[4]
FOOTNOTES / Chapter XXII
- For the sake of brevity, our
discussion will be confined to city real estate, but evidently the
same considerations apply to non-urban property.
- There is of course a third
part, namely the amount necessary to cover repairs,
superintendence, etc., and in the case of modern apartments the
expense of running elevators, etc.; but it is best to regard this
third part as an addition to what may be called the net rent --
the return the landlord gets after these expenses are covered.
- Of course the owner of house
and land may himself be the occupant of it; in that case the whole
tax falls upon him; but while the land pant falls upon him as
owner, the house part falls upon him not as owner but as occupant
-- he could shift it to a tenant if he did not occupy the house
himself.
- In connection with the
single-tax doctrine, however, we shall take up some extremely
important general considerations which bring out other
aspects of the taxation of land and houses.
CHAPTER XXIII
The Single-Tax Doctrine: Its Basis
Nearly fifty years ago, there appeared in our country a very
remarkable book, which proposed what its author regarded as a remedy
for all of the gravest economic ills under which the world suffers.
Its title was
Progress and Poverty. The subtitle indicated two purposes:
first, to inquire into the cause of "the increase of want with
the increase of wealth," and secondly to point out "the
remedy." Its author, Henry George; had qualifications not usually
possessed by persons who undertake ambitious projects of this kind; he
was a writer of extraordinary lucidity as well as eloquence, and he
had got a firm gnp on a fundamental economic principle which furnished
the backbone of his book. Add to this a genuine moral fervor which
animates the most impressive passages of his book, and we have a
combination not often met with. The book made a profound impression
not only in this country, but throughout the world; and for a time
many thought that its doctrine would steadily advance everywhere and
would, before very long, find general acceptance.
This has not happened; but the doctrine still commands a devoted
following, and from time to time comes into prominence as a public
issue. Since this is so, and especially since there are few economic
doctrines that it is more interesting or more instructive to examine,
it seems desirable to devote a considerable amount of space to its
discussion.
Progress and Poverty
Before entering upon that discussion, it will be well to say just a
word about "the increase of want with the increase of wealth,"
to which Henry George devoted a large part of the space and of the
eloquence of his book. He was firmly convinced that with the increase
of wealth there went an actual "increase of want"; that as
the rich grew richer the poor grew poorer, not only relatively but
absolutely; that in spite of all the wonderful advances of modern
science, invention, and industry, there was constantly more and more
poverty and wretchedness. That he was wrong in this, hardly anybody
today would dispute; and so, too, he was clearly wrong in some other
things even more fundamental. But we are not examining the merits and
defects of the book as a whole. We must limit ourselves to an attempt
to understand the essentials of his doctrine, and of the arguments for
and against it.
Henry George was not a Socialist; on the contrary, he was an ardent
individualist and a thorough believer in the right of private property
in general. But he held that private ownership of land is
robbery; that the land justly belongs to all the people; and that by
resuming possession of the land, the community would rid itself of the
whole burden of taxation and would throw open to everybody such
opportunities, now denied them, as would put an end, or almost put an
end, to poverty.
Property in Land Unlike Property in the Products of Labor
Of course Henry George was not the first to point out the difference
between property in land and property in other things. A house, a
ship, a machine, a bale of cotton, a bushel of wheat, a barrel of
flour, a coat, a table, a piano, is the result of human effort. Land,
on the other hand, is provided by nature; the man who owns it cannot
say that he made it.[1] All he can say is that he has got possession
of it; nor can he, by taking thought, add a square yard to its area.
Its value depends not upon its cost of production, for it cost
nothing to produce,2 but upon its desirability -- the advantage that
its use offers to the user. And this desirability, this advantage to
the user, depends in turn upon the gradual development of the
community. An acre of rocky land on what is now Fifth Avenue, New
York, was worth exactly nothing two hundred years ago, while today it
is worth perhaps ten million dollars; and this increase of value has
been quite independent of anything the owner has done to the land.[2]
So far we can all go, so much as this the standard economists have
always recognized. But Henry George goes a step farther. Human effort,
he says, is the only just basis of the right of private property; no
man is entitled to claim as his own what was a free gift of nature to
all mankind. Accordingly, since land is not produced by human effort,
and since its value is created by the development of the community as
a whole, the private ownership of land is a robbery of the community
as a whole; and, no matter how long that robbery has passed
unchallenged, the rightful owner, the community, should assert its
claim and resume that ownership which it never ought to have
relinquished. If this were done the revenue derived from the land
would be, he unhesitatingly assumed, sufficient to pay the expenses of
government, not only as they existed in his time but as they would
become if the functions. of government were vastly enlarged.[3]
Holding Land out of Use
In addition to thus relieving the community of the entire burden of
taxation, Henry George and his followers have claimed another enormous
benefit as sure to result from abolishing the private ownership. of
land. Under private ownership, they assert, vast quantities of land
are held out of use, the owners speculating on the prospective rise of
value; under public ownership, they say, this land would be thrown
open to use and any person out of employment, or unable otherwise to
earn his living, would have an opportunity to extract his living out
of the soil. What with the extinction of taxes, and what with the
benefits of this enlarged access to the land, poverty, they hold,
would be almost completely abolished; for, according to their view,
the main cause of the continuance of poverty -- or, as Henry George
put it, of the increase of poverty -- with the increase of wealth is
to be found in the enormous tribute which the community as a whole
pays to the landowners.
The Single Tax Equivalent to Confiscation
So much for the idea underlying Henry George's book, and the general
argument by which it is supported; but it remains to mention one more
cardinal point in his actual proposal. While he himself declared that
confiscation of the land would be not only expedient but entirely
just, he recognized that the idea of confiscation would be so shocking
to most people that there would be little prospect of its obtaining
general approval. Accordingly, he proposed to avoid confiscation in
form while accomplishing it in substance. Abolish all taxes except a
tax on land, he said; raise all public revenues by a single tax,
namely a tax on land values. If that tax was so large as to absorb the
entire rental value of the land -- if, upon a piece of land
that was worth to the occupant $1,000 a year was levied a tax of
$1,ooo a year -- the land would be virtually confiscated, for it would
be worth nothing to the 6wner; and if a tax of very nearly
$1,ooo was levied, the land would be worth almost nothing to
the owner, and yet enough to cause him to hold on to it. Moreover,
said Henry George in substance, it is not necessary to declare that
the tax will take up the entire, or nearly the entire, rental value;
all that we need do is to abolish all other taxes, and the
rest will soon take care of itself. It is interesting to quote his own
words on this subject:
Let the individuals who now hold it still retain, if they
want to, possession of what they are pleased to call their
land. Let them continue to call it their land. Let them buy
and sell, and bequeath and devise it. We may safely leave them the
shell, if we take the kernel. It is not necessary to confiscate
land; it is only necessary to confiscate rent. . . [The italics
are Henry George's.]
By leaving to land owners a percentage of rent which would probably
be much less than the cost and loss involved in attempting to rent
lands through State agency, and by making use of this existing
machinery, we may, without jar or shock, assert the common right to
land by taking rent for public uses. We already take some rent in
taxation. We have only to make some changes in our modes of taxation
to take it all.
It will be necessary, where rent exceeds the present governmental
revenues, to commensurately increase the amount demanded in
taxation, and to continue this increase as society progresses and
rent advances. But this is so natural and easy a matter, that it may
be considered as involved, or at least understood, in the
proposition to put all taxes on the value of land. That is the first
step, upon which the practical struggle must be made. When the hare
is once caught and killed, cooking him will follow as a matter of
course. When the common right to land is so far appreciated that all
taxes are abolished save those which fall upon rent, there is no
danger of much more than is necessary to induce them to collect the
public revenues being left to individual landholders.
Having now got a general view of the nature of Henry George's
doctrine, and of the grounds upon which it rests, we shall, in the
next chapter, consider some of the chief objections to it, both
ethical and economic.
CHAPTER XXIV
The Single-Tax Doctrine: Objections
In the foregoing chapter, it was stated that the profound impression
made by Henry George's famous book was due to a combination of two
elements-the fervent eloquence with which he presented the moral or
ethical aspect of his proposal and the firm grip that he had on the
economic principle which furnished the backbone of his work.
It is frequently the case with any great proposal of change, whether
meritorious or not, that its advocates are likely to know a great deal
more about the subject than its opponents, since it is with them a
central subject of thought while with others it is merely a matter
occasionally thrust upon their attention. In the case of the single
tax this is peculiarly true, because of the lucidity and the
definiteness of Henry George's teaching. His disciples hold fast two
central ideas. First, that the right to property in land rests upon no
such basis as the right to other property, because land is not the
product of human labor, but is a free gift of nature: whence they
conclude that private ownership of land is robbery, and that it would
be
just to recover that property for the community, without
compensation to those who now wrongfully possess it. Second, that if
all taxes except those on land values are abolished, this single
tax would be sure to attain, before very long, the height of the
full rental value of the land, and would be equivalent to outright
confiscation. And, having these things so clearly in mind, the
single-taxers feel a sense of great superiority over "the man in
the street" who brushes the whole thing aside by simply saying,
as to its ethics, that all confiscation is robbery, and as to its
economics, that all taxation is shifted.
But, plausible as is the single-tax doctrine, and resting, as it
does, upon considerations that are entitled to weight, a fuller
consideration shows it to be utterly wrong from the standpoint of
ethics, and open to objections of the gravest kind from the standpoint
of economics. We will take it up from these two standpoints
successively.
The Ethics of Land Confiscation
First, then, as to the rightfulness of the confiscation of land. Let
us consider who are the owners of land in a country like ours,[4] and
how they have come into possession of it. The persons who own land do
not form a distinct class in the community; they are persons who (or
perhaps their fathers or grandfathers; it seldom goes further back
than that) have thought fit to invest their savings in the purchase of
land, rather than in the purchase of ships, or houses) or railroad
shares, or what not. It is true that the owner of land did not create
the land; but there is every bit as much reason for supposing that the
ownership of the land represents the fruit of his labor as
there is in the case of the ownership of any other form of property.
He made use of no special privilege to get possession of it; the
purchase was equally open, and open on the same terms, to millions of
other people who deliberately chose to invest their means in other
ways. Before Progress and Poverty appeared, it never entered
anybody's head in the United States to suppose, when he took the
earnings of his labor, or of his professional skill, or of his
business ability, and exchanged them for the title to a piece of land,
that anybody would question that title; in his own mind, in that of
the man who transferred it to him, and in that of the community at
large, it stood upon precisely the same footing as any other form of
property.
Granting for the sake of argument that it is both necessary and just
that the community as a whole shall acquire possession of all the
land, it is perfectly clear that in whatever loss may be entailed upon
individuals in this process the owners of all forms of Property
should share alike. Granting for the sake of argument that the early
settlers who took up the land which now forms our farms and villages,
our towns and cities, were robbers, it is still evident that no moral
distinction can be drawn between the individuals who today own city
lots or farms and those who happen to have put their possessions into
the shape of stocks or bonds or railroads or warehouses or
manufacturing plants. It seems hardly possible that anything but
wilful blindness could shut the eyes of anyone to the fact that if the
private ownership of land is a great evil, the cost of remedying this
evil cannot, without the grossest violation of equity, be assessed
exclusively upon particular individuals unless they can be shown to
have been guilty of some wrong in which the community at large did not
share. Whatever may be the actual merits of the institution of private
property in land, it is quite certain that the community as a whole
is responsible for the existence of that institution. If the ethics of
land confiscation be admitted to be sound, there is no security for
any property right; and, what is even more important, the very idea of
good faith dissolves into thin air. Suppose some brilliant successor
of the author of Progress and Poverty should call the
attention of the people of any country burdened with a great national
debt to the startling fact that this vast indebtedness never would
have been incurred but for the recognition of war, the greatest of all
crimes, as a legitimate object of national expenditure. Would he not
have every bit as good a reason for advocating repudiation of the debt
as did Mr. George for justifying land confiscation? I do not assert
positively that he would. What I say is that the answer to the
question would depend, like the spelling of Sam Weller's name, on the
taste and fancy of the answerer. If the preservation of good faith is
to rest not on considerations either of equity or of honor, but on the
view that people happen to take of the abstract justice of
transactions in the remote past, good faith will cease to be a
corner-stone of human society, and in its place will be substituted a
mere juggling of academic subtleties. Mr. George has a great deal to
say about justice, but I do not remember to have found the word "equity"
anywhere in his discussion. And that sort of justice which ignores
equity is either too high or too low-and really the two things come to
the same thing-for the uses of man.
Having given to this question of the ethics of confiscation so much
space because of the very great desirability of a thorough
understanding of it, the remaining points, although highly important
and interesting, must be discussed more briefly.
The "Unearned Increment"
A case much stronger ethically than that for outright confiscation
can be made out for taking up by taxation not the entire value
of the land, but only what has been called the unearned increment
of that value. Indeed, long before Henry George's time, this was
advocated by John Stuart Mill, not only a great economist but one of
the greatest and noblest minds of the Nineteenth Century. Mill
emphatically condemned confiscation as utterly indefensible; but he
held it to be both just and expedient for the community to take
possession of any future increase in the value of the land.
This increase is caused, generally speaking, not by anything the owner
of the land does, but by the general development of the community; let
the owner, then, said Mill, be left in full possession of what he has
now, but let any future addition to its value go to the people at
large. Much can be said for this proposal, but the matter is by no
means so clear as may at first sight appear. Everybody is familiar
with striking cases of enormous increase of values in land specially
favored by developments; but the cases in which no such increase takes
place -- cases in which the owner would be far better off if he had
invested in something else instead of land -- are incomparably more
numerous than these brilliant examples of enormous gain. As nobody
proposes to make good the losses of those whose investment in land
turns out ill, it becomes at least questionable whether it is either
right or wise to cut off the gains of those whose investment turns out
well. But I cannot enter further into this question, though a great
deal might profitably be said about it.
Land "Held out of Use"
Next to their fundamental doctrine that private ownership of land is
robbery, what the single-taxers make most ado about is the injury that
is done to the community by private owners "holding land out of
use." This injury, though it looms into gigantic proportions in
the minds of single-taxers, is almost entirely imaginary. Great
quantities of rural land are, indeed, uncultivated; but the price that
it would take to buy such land plays an extremely small part in the
matter. It is left uncultivated not because it is in private
ownership, but because even if it could be had for nothing, or next to
nothing, it would not pay anybody, all things considered-remoteness,
unfertility, expense of putting it into shape for use and of building
the necessary houses, etc. -- to cultivate it. But it is chiefly of
city land that most people think who talk of "holding land out of
use" as a terrible deprivation to the community.
And yet this is almost absolutely a pure delusion. These people talk
as though, if the land in and around a great city like New York were
not "held out of use" for speculative purposes, it would all
be covered with houses; and yet a very little thought should suffice
to show the absurdity of such a view. The land that is now occupied by
houses in New York City, for example, was all there a hundred years
ago, and hardly any of it was occupied. All of this unoccupied land
was, if you please to say so, "held out of use" by its
owners-that is, they would not give it away for nothing. But
throughout nearly all of this area, a building lot could have been
bought a hundred years ago for so little money that the purchase price
would have been practically nothing in comparison with the cost of
building a house on it; the real reason the houses weren't built was
that even if the land had cost nothing, nobody could have been found
to buy or rent the houses. During this hundred years the population of
what is now Greater New York has been growing from about 150,000 to
more than 6,000,000; and, whether the land had been owned by private
individuals or by the community, its occupation would have had to be a
gradual process, corresponding to the growth of the population.
Throughout all this time, too, the owners of all the land have
been paying taxes-the amount of which, at compound interest, is a tidy
sum. The land was sure to be out of use, whether "held
out of use" or not; and it is by no means clear that the
community as a whole has suffered from its gradual occupation having
been determined by the conditions of private ownership instead of by
those of public ownership. Into this question, however, we cannot
enter more particularly.
Single Tax and Building Enterprise
But there is one point about the practical operation of the
single-tax plan in cities, which, though it has received little
attention, is so vital that I shall endeavor to make it as clear as I
can, though it will require some space to do so.
It is perfectly true, as the single-taxers charge, that the owner of
vacant land in an urban area-that is, vacant land within a city or in
its immediate neighborhood -- does hold it as a "speculation."
That is, he calculates that it will be to his advantage to wait until
this land is in better demand, until it can be put to more profitable
use; and in the meanwhile he pays taxes and loses interest on his
investment, without getting any income from it. The ordinary
real-estate tax does operate as an incentive to him to put his land to
some use, but it does not subject him to the absolute necessity of.
doing so. He is not compelled to build at once; he balances the
prospects of the future against the conditions of the present.
But under the single-tax system he could gain nothing by holding on
to the land, since however much its value might increase the increase
would be taken away from him by taxation. In the meanwhile he would be
paying out in taxes every year the full rental value of the land,
whether the land was occupied or not; and all of this would be a dead
loss. Accordingly, he would find himself compelled to do one of two
things-either throw up his ownership altogether, or build immediately
the kind of house which fits the immediate situation, whatever the
future uses of the land might be expected to be. And here comes in the
point to which I have referred.
When a house has once been built on a lot, the whole thing-house and
lot -- becomes a unit; and the whole thing, lot and improvements, may
increase or decrease in value. When the land becomes less valuable the
whole thing is almost sure to fall in value, and the owner suffers the
loss.
When the land becomes more valuable, the whole thing generally rises
in value, and sometimes rises enormously in value; and, under the
existing system, the owner gets the benefit of the gain. But under the
single-tax system all the increase in the value of the land
would be taken from him; and, so far from being compensated by any
gain from the ownership of the house, he would actually, as a general
rule, be a heavy loser whenever a great advance took place in
the value of the land. If, for example, a man has built a modest
residence, at a cost of $1o,ooo, on a lot worth $5,000, and the site
becomes worth $50,000 (either because the street becomes an important
business street or because it becomes a splendid residential street),
the house and lot together are worth no more than the lot
alone, since the house is quite unsuited to the location; and
therefore, as the whole of the value of the lot is, under the
single-tax system, taken up by the tax-gatherer, the owner's
investment of $1o,ooo in the house is a dead loss. It would be
interesting to enter more fully into this matter; but if you will
think it out, you will see clearly that under the single-tax system
the only case in which (speaking generally) ownership of a house and
lot would not mean a loss to the owner would be the case in which the
character of the land, the uses to which it is best fitted, underwent
no marked change, either up or down -- or, for that matter,
sideways, since a great change in the kind of building wanted
on it would be as disastrous as a change in the value of the land. As
soon as the building became a misfit, the owner would lose, so
far as regards the building; and he would get no compensating
advantage from any increase in the value of the land, since that would
all be cancelled by the tax, which would be just as heavy as if the
house were a perfect fit. In the case of a great rise in the value of
the land, he would have to tear down the house and build another out
of which he could get enough revenue to pay the tax, unless he threw
up the investment altogether; and whichever he did, he would suffer a
dead loss of the entire value of the house.
In view of this situation, the building of houses would evidently be
an extra-hazardous business; there would be no chance of the
investment increasing in value,[5] and a very great probability of its
diminishing in value. As things are now, everybody knows that the
house on a given lot is likely to be a misfit in the course of time,
and may have even to be torn down; but the investor sets off against
the prospect of this loss the probability of a compensating, and more
than compensating, increase in the value of the land. Were this
prospect taken away, one of two things would happen: either building
enterprise would be paralyzed, or rents would have to be set high
enough to cover not only a proper annual return on the capital
invested in the house, but a very substantial additional sum to cover
the great risk of the whole or a large part of the capital being lost
in the course of time. And it is not at all unlikely-indeed I think it
is highly probable -- that the net result would be that rents would be
higher under the single tax than under the existing system.
The Farmer and His Land
The case of agricultural land is in many respects different from that
of city land; but I must dismiss it with a few brief remarks. First,
as to the question of "robbery." Whatever may be said about
city lots, hardly anybody can say with a straight face that the
settlers who opened up the land were "robbers"; everybody
must see that it was to the advantage of the whole community that it
should be opened up, and certainly nobody had thought of any way of
inducing men to do so except by making them feel that they owned the
land and that any advance which might take place in its value would be
to their individual benefit. Secondly, as to the use made of the land
afterwards. Unlike city l6ts, the personal care and interest of the
farmer is of constant importance to the proper utilization of the
land; and this care and interest are inseparably connected with
ownership. Thirdly, the distinction between what the land is by nature
and what it has been made by the labor and expense bestowed upon it by
those who have owned or occupied it-a difficulty which because of its
comparative unimportance I have ignored in the case of city land -- is
a matter of first-rate importance in the case of farming land.
Finally, destruction of the sense of ownership would, in the case of
the farmer, be profoundly injurious in its human, as distinguished
from its merely economic, effects.[6]
Thus our conclusion is, that in spite qf the strong prima facie
case that can be made for it, the single-tax scheme is wrong from the
standpoint of ethics and open to what it is hardly too much to call
fatal objections from the standpoint of economics. Of the economic
objections, I have confined myself to only a few-those which seemed to
me most important. One more objection, however, should not be passed
over without mention. Under the single tax, at least up to the time
that it had actually absorbed the full rental value of the land, the
great body of the population would feel no interest whatever in
keeping taxes down; and therefore no interest in keeping government
economical. When Henry George was candidate for Mayor of New York, one
of the cries in his campaign was "No taxes at all, and a pension
for everybody." With taxes levied on land-values only, that would
be the feeling of the masses; they wouldn't be a bit afraid, as they
are now, of any part of the heavy taxation falling upon their own
shoulders. That this would be anything but a healthy condition for
government and politics seems plain enough to require no argument.
FOOTNOTES / Chapters XXII and XXIII
- It is true, as was pointed out
in an early chapter of this book, that nothing is absolutely "made"
by man; all he does is to take what nature provides, and, applying
various processes to it, cause it to supply his uses. And it is
also true that in a large proportion of cases the land, as used by
man, is not simply the land as nature furnished it; there has been
perhaps stumping and draining, perhaps road-building to make it
accessible, perhaps cutting or filling to fit it for building; and
it may be that the owner has paid for these things. But, after
duly considering these points, the difference between property in
land and other property remains essentially unimpaired.
... Again the reader is reminded
that there may have been a great deal of cost in bringing the land
to its present condition; some allowance must always be made
mentally for this consideration, but it should not be allowed to
interfere with our recognition of the fundamental fact in the
case. Moreover, it should be noted that the value of the
land, even when there has been such cost of improvement, is
determined not by that cost but simply by the desirability of the
land in its actual condition, as stated in the text.
- He has paid taxes, of course,
and in the aggregate these (with interest) have amounted to more
than most people realize; but after deducting what he has thus
contributed to the public treasury, all the rest of the value has
been created by the development of the community at large.
- This estimate of the magnitude
of the proceeds of land ownership has been sharply and, I think,
successfully challenged; and very great difficulties are obviously
connected with the question of a proper apportionment of those
proceeds between the nation and its various subdivisions. But it
is impossible here to go into these questions; for the sake of the
argument we may admit Henry George's view of the amount, and
overlook the difficulties of apportionment.
- In such a country as the
Russia of the time of the Tsars, or France before the great
Revolution, the question of confiscating the land held by a
privileged aristocracy merges with the general question of the
abolition of hereditary privileges. Such a situation may justify
revolution, and the confiscation of the land as a necessary part
of the revolution. But the case is wholly different in a country
like ours, or any country where land has for many generations been
the subject of ordinary purchase and sale in which the whole
people have freely participated.
- I am ignoring here the changes
in the general level of prices, which of course may affect
houses as well as anything else; but this is a consideration which
is irrelevant to the present question, since changes in the
price-level may go down as well as up, and do not affect houses in
any distinctive way as compared with other property.
- Into the case of mining land,
though it is very important, I cannot enter. The single-tax idea
is, in the nature of things, far more properly applicable to
mining land than to either city land or farming land; but the
subject is too special to permit of its satisfactory discussion
here.
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