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]