What Determines the Value of Land

Max Hirsch

[Original date of publication not known. Reprinted from Progress, May-June 2005]

In the heart of the city of Melbourne is a block of land, which, except that the trees which grew upon it have been cut down, is in exactly the same state as when the blacks roamed over the site of the future city. No labour has ever been expanded on it; no wealth has ever been created there. Fifty years ago the present owner of the land paid £29 for it to the government; lately he was offered and refused £30,000 for the same land. What is the cause of this increase in the value of land? It is this. When the land was originally sold, Melbourne was a village on the outskirts of the wilderness and no one would have given the owner more than £1-1/2 a year for the privilege of using it. Since that time the country has been populated, the soil has been subjected to the plough, roads and railways, centering upon Melbourne, have opened the interior of the country, and as a consequence Melbourne has become a great trading centre. The volume of trade has enormously increased, and with it has increased the demand for such land as gives access to trading facilities. Any one wanting a trading location, such as this land presents, therefore, is compelled, and can afford, to pay at least £1,000 a year for the privilege of using it. The owner of this land has taken no part in the activities which have resulted in the value which his land now possesses. Even if he had he would have done so as a worker and not as own owner, and would have earned no more title to this land-value than any like worker who is not a landowner. For reasons which do not concern us here the owner of this land has never made use of his power to levy a tribute of £1,000 a year upon the industry of the Victorian people without rendering them any service in return. He has preferred to withhold from his fellow-citizens the privilege of using this specially favourable opportunity to produce wealth. But he can exact this tribute any time he chooses, and therefore he can sell the power to do so, the annual value of land, for £30,000. This sum of £30,000 is now considered to be part of the wealth of the country. As a matter of fact, it is neither wealth nor capital, but the capitalised value of the power to lew tribute from labour and capital without rendering or having rendered any service in return.

Moreover, this power of landowners to exact tribute is not conferred upon them by any past services of the community, but by its present and anticipated future services and necessities. The frequently ephemeral gold-fields of Australia illustrate one phase of this feature. As long as the field promises well and the population increases, the value of land in the vicinity rises, and frequently rises enormously. As soon as its disappointing nature is ture is ascertained, and the exodus of the population has begun, the value of the land begins to decline again, and if the field is altogether unremunerative, the land declines to its former grazing value.

The concentration of roads and railways upon any centre enormously enhances the land-values there. Not, however, because they have been built, but because they continue to be used. If, acting similarly as Eastern despots have acted, a government were to discontinue the use of these roads by building sapping lines to another centre to which the traffic was directed, land-values in the old centre would decline, and would rise in the new one. Hence it is clear that land-values are not the result of past action, but the capitalised value of the tribute which the present and anticipated future action of the community enables landowners to impose upon the productive activities of the people.

The value of all land, and not merely of that which is withheld from use, is of exactly the same nature. To revert to the former illustration, the great majority of the owners of Melbourne land have made full use of their power to levy tribute. They have either themselves built on the land, or have sold to others permission to build upon it against payment of ground-rent. Where this has been done, wealth and capital, represented by the value of the buildings, has been produced, and ... the income derived from the letting of the buildings is a legitimate return for services rendered. But apart from the value of, and income from, such buildings, there is in every case a value of. and an income from, the land. This land-value represents nothing but monopoly, the right to lew tribute from labour for the privilege of using advantages not created by the owner of the land, but which are being created bv the community of which his tenants form part as well as himself, if he is not an absentee, as frequently is the case."