The Debate Over Collection of Rents
in Lieu of Taxes
Oscar H. Geiger
[This is Oscar Geiger's response to postions taken by
three other writers on the question of how a full public collection of
annual rental values makes its way through an economy and society.
Reprinted from Land and Freedom, May-June, 1932. The editors
added that "Mr. Geiger has here confined his argument to the
economics of the case. A somewhat more historical and statistical
handling of the matter will be found in Mr. Geiger's review of
Jorgensen's book in the September-October, 1931, number of Land
and Freedom. Readers may want to first read the article written by
L.D.
Beckwith, which appeared in the same issue.]
In the above most kindly disposed defense of Jorgensen's position on
the matter of "Rent entering into price,"
I fear that
both have lost sight of the fact that rent, so far as price is
concerned, is merely a differential.
Production on low-rent land, or no-rent land, is no dearer or cheaper
(so far as rent is concerned) than production on high-rent (or the
highest-rent) land. Whatever advantages there are in location or
natural fertility that press themselves in easier or in greater
production, are absorbed by the higher rent, and conversely, the
difficulties in production or the meagre rewards obtained on poorly
situated or less fertile land are expressed in the lower rent that can
be obtained for such sites or locations. Where production is difficult
or the product scarce, rent is low. Where production is easy or the
product plentiful, rent is high. The producer on a site where rent is
high cannot sell at a higher price than the producer on a low-rent or
no-rent site because they are in competition in an open selling
market; nor can he, the user of a high-rent site where production is
easier (and therefore presumably lower in cost per unit of
production), undersell his low-rent competitor whose unit of
production cost is presumably higher, because the greater rent he pays
consumes such advantages. Thus in the matter of higher rent being
expressed in a higher price of the product, all producers (other
things being equal) are on a par. Economic rent absorbs the
differential advantages rendered by nature or location, leaving all
producers equal at the point where individual service and exchange
begin.
All commodities are labor products and their sale is but an exchange
of service for service. Economic rent having been paid for the
privilege of producing, the producer is free to sell his product, his
services; and as it is only his services and not rent that he can
sell, it is only services and not rent that the purchaser need or can
buy. If there were any rent left to sell, or to put into the price, it
would only mean that all the rent had not been collected, and this
condition could not long obtain. If the producer could put any rent
into the price of the commodity, the rent would soon go up.
Furthermore, if the rent-payer, the producer, could transfer the rent
to the selling price of his product he would be getting back what he
paid for the advantages that nature, location and the presence of the
community gave him, and which, it should be remembered, he did not
produce. He would then be receiving both payment for his services to
individuals and the money advantage of superior location to which he
is not entitled. In such case also the purchasers of the commodity
would be paying for advantages they did not receive, the advantages of
location and fertility. This they are spared, however, for they can
buy in an open purchasing market. To express in the price of the
product the higher rent of his land a producer would have to be free
from the competition of other producers, both those on similar and
those on lower land rent sites.
Economic rent is thus seen to be a price that producers are willing
to pay for the privilege of using land, and especially so as it is
nothing that they themselves produce; for even though the rent is
expressed in the terms of their product, nature, location and
community are the factors that really are responsible for the added
production, the added value. The value of the privilege being
determined by the use that can be made of the land, rent is obviously
an effect and not a cause, high rent being an indication that the
advantages are great; low rent, that the advantages are poor.
Viewed in this light let us again read Ricardo's statement in his
Principles of Political Economy and Taxation, that "corn
is not high because rent is paid, but a rent is paid because corn is
high." With due apologies, may we not paraphrase Ricardo's
statement to read: "Price is not high because rent is paid, but
rent is paid because price is high. "
What seems to be really troubling our friends Jorgensen, Beckwith and
Capen is that the rent fund, seemingly produced by the user of the
site, should be exclusively borne by him and not shared in by the
entire community which benefits by the expenditure of this fund in the
communal services that the fund secures for all.
The fallacy in this is two-fold. First, it is not labor or the
producer who occupies the site that produces the rent. In a very real
sense Nature or Society produces it. The user of the site, or the
producer of wealth on that site, merely translates the value of the
rent into tangible service, and that without any additional effort on
his part. The same amount of labor or effort expended in a poorer
community or on a poorer site in the same community would produce
less. Thus the site itself produces; and thus the rent is not the
product of the user of the site, and he is not deprived of anything
that he has made by being forced to pay it.
If the rent could be transferred to the price it would give the
producer the advantage of recouping for the payment of a privilege
that is peculiarly his and that only he should pay for. Also, if the
rent could be transferred to the price, the user of the site would be
paid for what he did not produce, he would be paid for what the
community produced, and thus there would be established and maintained
another form of unearned increment. But Nature is wiser than its
creatures, and rent cannot be transferred to price.
The second fallacy is that as all receive the benefits of society,
all should as consumers pay their share of the total economic rent of
the community by paying their share of the rent which, according to
this fallacy, is expressed in the selling prices of the various
commodities.
True, we are all consumers and our potential needs are the incentives
that start the wheels of progress moving; but we are equally
producers, unless we are minors or paupers, or come by our wealth
unethically or unjustly (as under our present system many do), and it
is as producers that our potential demands are made effective, and as
producers that the private ownership of land robs us of our product by
restricting the area open to our use and making us compete against
each other for the limited opportunities that are thus left us, and in
the scramble for which our needs and necessities compel us to take
whatever we can get either in wages or in the price of our products.
Thus Nature in an economic sense deals with us as producers and not
as consumers, and it is in our relationship to her as producers that
our welfare is secured or imperiled.
Henry George saw and taught us this if only we would read him and
understand him:
"The reason why, in spite of the increase of
productive power, wages constantly tend to a minimum which will give
but a bare living, is that, with increase in productive power, rent
tends to even greater increase, thus producing a constant tendency
to the forcing down of wages." [Progress and Poverty,
Book V, Chap. II, p. 282]
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