An Exchange of Views on Land Reform
with Prof. Joe D. Reid and Fred Harrison

Edward J. Dodson

[What follows is correspondence that arose as a result of my reesponse to Prof. Joe D. Reid's letter to the editor printed in 1982 in The Wall Street Journal. As is most often the case, the early exchanges are the more significant. And, unfortunately, several letters sent and received have been lost over the years. What readers will certainly find most interesting are the very differing positions argued by Prof. Reid and Fred Harrison to explain the cause and effect relationship between land ownership and poverty]

8 June 1982 / The Wall Street Journal

El Salvador's Land 'Reforms'

Why U.S. foreign policy insists that wage and tenant farms be replaced by big cooperative or small owner-cultivated plots in El Salvador is a mystery. If our goal is to improve the efficiency of Salvadoran agriculture, then this drive to stamp out wage and tenant farms certainly is misguided. American agriculture always has been efficient, yet always has had sizable proportions of tenants (18% in 1900, 8% in 1970) and hired workers (20% in 1900, 26% in 1970).

Tenant and wage farming have dispersed risk and have coordinated effort and learning in farming here and abroad. In contrast, cooperative farms everywhere have floundered (e.g., Russia, Ghana, China). And land-to-tillers inadequately endowed with the human and financial capital necessary for successful owner cultivation everywhere has spawned poverty and low productivity.

Prof. Joe D. Reid Virginia Polytechnic Institute Blacksburg, Va.

9 June 1982

Dear Professor Reid:

Your letter published yesterday in the Wall Street Journal, concerning the "mysteries" of U.S. foreign policy on land reform programs raises valid questions. There seems to be nearly unanimous agreement that land reform is essential to promote social and political stability in the essentially agrarian economies (and, perhaps, our own as well).

The most provocative and enlightening treatment on the subject I have encountered is a recent essay by British economist Fred Harrison. A photocopy is enclosed for your reading.

I trust you will find the essay similarly so.

Very truly yours,
Edward J. Dodson

15 June 1982

Dear Mr. Dodson:

My thanks to you for sending "Land Reform or Red Revolution" by Fred Harrison to me. It well articulates the thinking of many on this issue. But I must confess that I generally disagree with that thinking, and I think that the facts (as opposed to the rather inchoate theories of violence relied upon by Harrison) back me up; e.g., see my enclosed "Sharecropping and Tenancy in American History." In general, I attribute poverty to insufficient human and physical capital, and find that transfers or restrictions on employment of physical capital, such as land, promote its inefficient use and block the accumulation of a portfolio appropriately balanced between physical and human capital.

If you would like to continue this dialogue, I will welcome it. Meanwhile, again my thanks.

Yours, Joe D. Reid, Jr.
Center Research Fellow & Associate Professor

18 June 1982

Fred Harrison, London

[A copy of my letter to Fred Harrison, inviting his comments to Prof. Reid's paper has been lost or discarded. Fred Harrison's response is reproduced immediately below]

1 July 1982

Dear Ed,

Thank you for your June 18 letter, enclosing your correspondence with Prof. Reid. I have now read Prof. Reid's letter in The Wall St. J., and his 'Sharecropping and tenancy in American history'. I'm happy to offer my brief observations, because this little debate may lead to a useful clarification of a number of important issues. Hopefully, Prof. Reid will be willing to engage further in the discussion.

The over-riding point that emerges is that Prof. Reid defends the proprietorial ownership of land on the grounds that landlords can make a useful contribution to overall agricultural success; and, indeed, that the role of the landlord is vital to make up for the deficiencies that would otherwise curtail agricultural output.

Thus, Prof. Reid opposes a mindless redistribution of land because this could lead to a sub-optimum use of resources. In this he is correct. One would not want to reallocate land for its own sake (and I don't believe that I advocate this in my essay 'Land Reform or Red Revolution1).

There is no doubt that a simple redistribution of land can lead to a drop in food output. Unfortunately, Prof. Reid cannot justify his policy prescriptions on the basis of the evidence adduced in his article. To quote his WSJ letter:

"And land-to-tillers inadequately endowed with the human and financial capital necessary for successful owner cultivation everywhere has spawned poverty and low productivity."

Two questions or points arise from this statement. One: why interpose the word "owner"? Land redistribution can take place under alternative tenurial arrangements. Second: it's tautologous to say that unskilled, under-capitalised landless farmers spawns poverty -- poverty IS the absence of skills and capital. This does not explain why people are poor, however; Prof. Reid's statement is circular. The observation certainly does not guide us on policy. A land-to-tillers programme is not, ipso facto, a disastrous course of action: Taiwan's programme is a classic example of how to achieve success by transferring land rights.

So, Prof. Reid's statement (in his letter to you dated June 15): "I attribute poverty to insufficient human and physical capital," does not tell us why people are poorly educated and under-capitalised, let alone what might be done about it. Prof. Reid's definition begs an explanation!

Prof. Reid, it seems, is prone to sweeping assertions. For example, in his aforementioned letter, he declares that "transfers ... of physical capital, such as land, promote its inefficient use and block the accumulation of a portfolio appropriately balanced between physical and human capital." Does he maintain this finding of his even in the face of the incredible under-utilisation of land in Latin America, for example, where many latifundia holdings are unused to the extent of over 50%? In such a latter case, redistribution of land to unskilled, under-capitalised peasants is likely to increase gross output, surely?

One's ultimate conclusion is that Prof. Reid is content with the existing pattern of land use rights, because he thinks that is produces the best use of resources in terms of output maximisation. Not until the penultimate page of his study (p.308) do we have a hint of the possibility that the existing pattern may not be the best one -- he mentions, in parenthesis at that -- the possibility that labour might be exploited by landlords "because of some institutional quirks".

In my view, the problem is a structural one, rather than some vague institutional quirk! However, there's no point in repeating my views, which appear at length in my essay. The important point to highlight, I think, is this. Prof. Reid fails to address himself to the reasons why labour is unskilled and under-capitalised. It would be insufficient to say that young people only are unskilled and under-capitalised, and hence find themselves at the bottom end of the agricultural ladder (the implication being that they can gradually climb the ladder). What Prof. Reid needs to do is elaborate a theory of wages which accounts for this poverty (poverty, in his terms, exists even today, of course). In my view, the theory advanced by a long-since dead compatriot of yours -- Henry George, in Progress & Poverty -- offers the most illuminating theory, and one that Prof. Reid could test. George argued that wages are determined at the margin of cultivation. Summarised in a crude fashion, one can say that wages are high when there is a surplus availability of land; and low when there is a land shortage.

Now, under Prof. Reid's system -- as I say, he justifies private landownership -- land is artificially restricted from being used. On p.300, he offers two explanations, which I frankly find nebulous: desire for diversification and lessened strength with age. Whatever the reason, here we have an admission that land that could be used (by owner-occupier, or tenant), isn't! What is the economic effect? It forces up competition for that land which is available for cultivation, which bids up rent (and therefore compels capital and/or labour to accept lower returns). In other words, under the present pattern of ownership and use rights, labour bumps up against the margin of cultivation before the fertility actually runs out! This is the sort of insight that begins to offer us an account of why there is poverty in the agricultural sector.

Now, it is my view -- along with Prof. Reid's -- that tenant farmers are, on the whole, as efficient as owner-occupiers (where the latter are full-time working farmers, of course). This necessarily follows from a situation where the available land is completely monopolised. Under these circumstances, and on the assumption that there are more would-be farmers than there are farms, rents are bid up to the maximum sustainable under existing productive arrangements.

But note the implication of this. Prof. Reid points out that "in American history, life-cycle effects are part of the reason why tenant farms were smaller, more improved, and more labor intensive" (p.300). This sounds like a good justification for turning the whole of the agricultural sector into a tenanted one! Prof. Reid would argue, against this, that landlords were necessary because they contributed capital and expertise. But tenant farmers can (and do) obtain capital and managerial advice from professionals who do not own land. In other words, the services which Prof. Reid identifies with the landlord class can be (and are) on offer from other sources. So private land monopoly -- the European model -- is not a pre-requisite of efficient farming.

In addition to the need to consider the wage-determination process, Prof. Reid also needs to plug a hole in his findings by asking himself whether a system can be devised for forcing vacant land into use (I assume that, if he is approaching the problem from a theoretical and neutral viewpoint, he would not excuse the inefficient use of land just because it happens to be privately owned: old age is not an overriding justification for inefficiency in an economy where land is in short supply). There is only one efficient solution to this problem: the imposition of a cost on those who deliberately hold land out of productive use. This means placing a tax on economic rent -- and only a hefty tax would remove the incentive to speculate in the future increase in capital values (the prospect of which can encourage farmland owners to leave land fallow). A 100% capture of economic rent effectively turns owner-occupiers into tenants with secure possession of their holdings; and in economic efficiency terms, as Prof. Reid notes in relation to today's tenants, this would not reduce the output of food.

Until Prof. Reid incorporates a 100% land value tax into any system that he may prescribe for policy-makers, his contribution to the debate on agricultural efficiency must be impaired. This necessarily reduces the validity of any conclusions that he may wish to reach concerning Third World reform programmes.

I would be interested to read any observations that Prof. Reid may wish to make on the above critique of his arguments.

Yours sincerely, Fred Harrison

28 July 1982

Dear Mr. Dodson:

Thank you for serving as intermediary between Mr. Harrison and myself on the subject of land tenure. From my reading of his letter to you, I think Mr. Harrison and I are not so far apart. And I think he raises a very good question for me, namely; how can I assume that wages are independent of land ownership? Of course, my foundation assumption is that landlords no less than laborers are interested in maximizing income. That assumption implies that labor and land both will be optimally used; in other words, the labor-land ratio will be the same on all land (labor measured in efficiency units, not in people, of course). In fact, when we look around the world, we often see this implication of equality of labor-land ratios violated. Two locales suggest explanations for this violation. In Latin American, as Mr. Harrison points out, often there is vacant land on the plantations. There is the possibility, however, that this vacant land reflects not inoptimuum labor utilization, but the super-abundance of land; Johnson, in Sharecroppers of the Sertad Cow, a study of plantations in northeastern Brazil, found vacant land on plantations, as well as land freely available to laborers adjoining the plantations. In my interpretation of Johnson's findings., I conclude that the preference of laborers to settle on the plantations and pay rent to the landowner stems from the landowners supply of marketing and farming knowledge to his tenants. Land, on or off the plantation was valueless; it was the landlords' abilities to organize and sell the embodiement of labor, farm produce, that earned an income for the landlord. Thus, in my interpretation, the nonunionalization of some land does not imply sub-optimum use of labor with land. Another place where labor-land ratios vary markedly is India. Again, one reason for the extent of variation is the failure to control appropriately for the qualities of labor and of land; in particular, irrigated land is much more productive and hence can use efficiently much more labor per unit than non-irrigated land in India. Even controlling for that, however, there is great variation in labor land usage in India. I suspect that this variation reflects the threat of "land reform" to Indian landlords. For approximately the past 10 or so years, Indian landlords have farmed under the threat of expropriation of land to their tenants. In degree varying with the efficacy of this law in particular regions, this has prompted landlords to supply their own labor, rather than to let out land to tenants. Indeed, the variation of labor-land ratios in India is, if I am correct here, an example of the inefficiency promoted by mindless land reform.

Since, I take it, you read my article, "Sharecropping and Tenancy in American History," I should clarify an interpretation of Mr. Harrison's of my "life cycle" effect" on farms in American (page 3 of Mr. Harrison's letter). Increasingly, American farm statistics are distorted by the inclusion of "retirement" farms. Retirement farms are small farms to which farmers retire or semi-retire as they get older or decide to supplement farm income with wage income from jobs in towns. Over half of American farmers' income comes from town jobs, and a sizeable proportion of farms are these retirement farms that I have described. By and large, these farms are on land of lesser quality and are used for gardening. Accordingly, fences are allowed to tumble or run down, ditches and stream banks are not maintained, and new structures are not added. This is an inefficiency, but not of land ownership, rather it is an inefficiency of our farm program which encourages poor farmers to stay in farming and poor farms to continue to be used.

I certainly hope that we will get to meet sometime in Philadelphia. Off and on I am there to visit, and will look you up when I can.

Yours truly, Joe D. Reid, Jr.

3 August 1982

Dear Prof. Reid:

I am certainly pleased with the dialogue developed between you and Fred Harrison, and have been happy to serve the part of intermediary. The world economic structure in which the questions of land reform and land redistribution are encompassed is, in my view, in a state of disarray.

I have the feeling even the most well-implemented program of land reform will fail to produce long-term wealth redistribution unless there occurs a major restructuring of the international monetary structure and elimination of barriers to trade between nations. And yet, given the agrarian orientation of those involved in LDC movements of social and political reform, the type of land reform proposed by Fred Harrison convincingly addresses the major concerns of both the peasants (i.e., redistributive effects) and that of the landowners and government (i.e., maximum return for productive utilization of capital investments and guarantees against land confiscation) .

Additionally, such a program is more apt to produce a vibrant middle class through an evolutionary development of manufacturing and servicing industries. I believe that one reason most peasant-supported nationalistic movements are attracted to socialism rather than, what I call, "democratic republicanism" is the exploitation by whatever, mostly multi-national, industry has existed. Absence of a strong home market fueled by a general rising standard of living simply aggravates the maldistribution of wealth by causing price rises in basic commodities.

Programs undertaken by LDC nations to "industrialize" have, in most instances, been funded by large borrowings, and we now clearly see the disastrous results. Industrialization requires tremendously sophisticated support systems - transportation, education, insurance, banking, etc. -- as well as a growing home market . Lacking the reserve of funds for research and development, nor the technical expertise, many such efforts have resulted in producing goods which cannot compete in the world markets and for which there is no market at home. Additionally, in anticipation of rising revenues many LDC governments embarked upon imprudent plans for capital formation and social programs. When OPEC price increases and market losses brought revenue shortfalls, the world saw massive IMF and World Bank debt restructuring and moratorium. Worse yet, Keynesian-trained loan officers demanded increased taxes on business and personal income, greatly reduced government spending and other belt-tightening measures. The results have been predictable all over the world: political instability, social unrest, disinvestment in home economies and worsening balance of payments problems .

What I would like to see here in the United States is an approach to the economic structure which combines the best of Keynesian intervention with true "supply-side" results . There is growing statistical evidence that revitalization of the nation's urban centers could be accomplished with minimum Federal funds if the modern version of Henry George's proposal for "collecting the economic rent" was unilaterally adopted in the form of "land value taxation" (i.e., maximizing the tax rate applied to site values and eliminating property taxes on improvements). I recently presented an analysis to H.U.D. which recommended restructuring its block grant programs to cities on a competitive basis, such grants being, directed preferentially to those communities taking major steps to (i) modernize assessments practices and develop a computerized system of assigning market values to parcels, and (ii) implementation of a five-year program for conversion from the existing one millage rate systems to one based only on land values. Research on this matter was largely based on the work of University of California economist Mason. Gaffney. My contribution was to recommend the Federal government provide a decreasing level of "gap" financing in revenue needs as the program is undertaken. You may already suspect what other policy prescriptions toward which I would like to see us move:

(1) A gradual reduction in all tariffs, excise taxes and quota restrictions on international trade;

(2) Reduction and eventual elimination of corporate income taxes and taxes on all personal savings;

(3) Adoption of a much simpler federal income tax system with a maximum tax rate of around 25 percent, eliminating all tax shelter deductions (including mortgage interest and real estate taxes);

(4) Modification of the Federal Reserve System, tightening restrictions on member bank borrowing at the discount window and requiring both Congressional and Executive branch approval for either purchase or sale of government securities (instituted in conjunction with a Constitutional amendment for a balanced budget); and

(5) A limitation placed on the number of consecutive terms which can be served in Congress to two.

Your comments on the "inefficiency of our farm program" also speak to a major advantage a system of land value taxation would have at the rural level on farmland. The promises of capital-intensiveness in the farming sector have led many farmers to highly leverage themselves in anticipation of maximized yields on marginally productive land. These farms are paying for their poor judgment now that world demand is down and interest rates are soaring. A case in point is what has been happening in the Midwestern plains, where speculators have purchased large tracts of marginal land - capable of only one or two years' crop without intensive fertilization - and have turned around while the initial crop was growing (and looking strong), selling the land at highly inflated prices calculated on the basis of first year yields . The net result has been a growing concern over the creation of another "dust bowl" as the thin layer of topsoil and grass covering are removed and erosion ensues . Taking the economic rent through taxation would discourage such speculative activity and encourage farmers to make investment decisions on the basis of farm production rather than incremental increases in land values .

Additionally, if the disappearance of small, independently-owned farms located near major metropolitan areas is a major concern, once again, a restructuring of the property tax to a land value tax will provide the investment incentives to reduce the process of urban sprawl. I suggest that what discourages better use of retirement farms is the property and income tax drains on lower levels of income, heavily strained by improvement taxes and without sufficient collateral for borrowing (whatever the rate). However, there may be cases where the highest and best economic use of a particular farm site is for something other than farming. The market would, therefore, force the owner to either alter the site's use or sell it to someone with the capital resources who could. By the way, I hope you find Land and Liberty, to be a source of information not readily otherwise available. I have discussed with Fred Harrison the possibility of putting out an issue concentrated on the American housing industry, to which he has responded in the positive.

I will deliver your July 28th letter to Fred Harrison, and I obviously welcome your comments to the above issues .

Sincerely yours, Edward J. Dodson

27 June 1983

Dear Mr. Dodson:

In light of our past correspondence, I thought you'd he interested to read my enclosed review of a new book on land reform in Asia.

Effective immediately, my address is: Public Choice Center George Mason University St. George's Hall Fairfax, VA 22030

Perhaps we sometime will be able to meet there or in Philadelphia.

Sincerely, Joe D. Reid, Jr.

[Prof. Reid enclosed with the above letter the following paper, which he contributed to Public Choice , reviewing the book by Ronald J. Herring, Land to the Tiller; The Political Economy of Agrarian Reform in South Asia, published in 1983 by Yale University Press]

This book is an intelligent mainstream evaluation of land reform dogma and practice in South Asia. Because it is intelligent, it perceives many inadequacies in the theoretical supports of land reform. Because it is mainstream, its evaluation that land reform in all its varieties throughout South Asia has failed truly is scathing. That the ultimate conclusion it urges is to push forward with land-to-the-tiller reform, in spite of its widespread failure, betrays the ideological rather than analytical impetus for land reform among mainstream western advisers.

The original analytical supports for land reform were economic. The problem was that the bulk of South Asians were poor. Since most farmed, the obvious solution was to increase productivity in agriculture. This would directly raise the incomes of farmers. In addition, this would release inputs to industry and so further raise Asians' incomes. So, attention turned to conditions in agriculture.

Agriculture in South Asian and other LDC's (Lesser Developed Countries) was characterized by unequal holdings of land farmed under various tenures. Most earned incomes from labor hired out. The bulk of the remainder farmed for share or less frequently fixed rents, A few farmed their own lands; if on larger holdings, with hired-in labor and lower outputs per acre. Marshallian economics deduces that hired workers will stint labor, that fixed renters will stint land improvements, and that share tenants will stint both.. It concludes that agriculture will be inefficient to the extent that cultivators are not owners. Marxian economics argues that agriculture is organized to preserve landlords and inequality, and should not be expected to produce efficiently or fairly. By either calculus, reform toward owner-cultivation is called for.

Of course, the Marshallian theory is incomplete, for it fails to consider the interest of the landlord in workers' and tenants' efforts. Both the Marshallian and Marxian models seem wrong in fact: the data, of chapter nine and of most other studies of LDC agriculture find no decline in farm efficiency with increases in tenancy or in holding size. But, in the end most experts ignore the inadequacies of economic arguments for land reform and reaffirm the need for more reform faster. Indeed, the author of this book does so. After discrediting all economic arguments for reform, he offers an explicitly Rawlsian argument that non-landlords are poorer than landlords (p. 261) and that land is not produced and therefore payment for its product serves no function (p. 274). So, after deriving a land reform balance sheet that finds only negative payoff for reform throughout South Asia, the author calls for fast equalization of land holdings to all, and massive expansion of the state to provide the third inputs (working capital marketing services, farming advice) necessary for profitable farming and now commonly provided by landlords, overseers, and various middlemen.

If the author had incorporated public choice logic into his argument, I doubt that he so blithely would call for an expanded state in LDC's. In an aside, he recognizes that the state is not always benign, but he attributes this to the subserviency of the state to landlords (p. 218). I wish that he had considered the state as subservient to none, in the South Asia case largely freed from both local special and general interests by massive infusions of foreign aid, and growing rapidly in its supported sector, economic regulation. If he had, I think that he might have gotten closer to the true political economy of agrarian reform in South. Asia (to quote his subtitle). In that case, he would have concluded that a government reform (reduction) rather than land reform promises the largest payoff in LDC's.

Joseph D. Reid, Jr. / George Mason University

6 July 1983

Dear Professor Reid:

Thank you for giving me the opportunity to read your review of Ronald Herring's new book. Based on your comments, his may be one study I will bypass. On this same subject, you might find interesting some of the work sponsored during the late 1960s in South Vietnam by the Lincoln Institute of Land Policy (26 Trowbridge Street, Cambridge, MA 02138) on the success of land redistribution programs in reducing Viet Cong activity. Professor Arlo Woolery (University of Hartford, I believe) played a key role in the development of South Vietnam's program. I think he also served as an adviser to the Taiwanese government.

I recently received the enclosed pre-publication announcement on a book written by Fred Harrison. He quotes Winston Churchill on "The Power in the Land" but Churchill was even more emphatic when, as an M.P. he authored a little known work entitled "The People's Rights". From it, I quote a statement that rings of Quesnay, Ricardo, Mill and George:

"It is quite true that the land monopoly is not the only monopoly which exists, but it is by far the greatest of monopolies -- it is a perpetual monopoly, and it is the mother of all other forms of monopoly. It is quite true that unearned increments in land are not the only form of unearned or undeserved profit which individuals are able to secure; but it is the principal form of unearned increment which is derived from processes which are not merely not beneficial, but which are positively detrimental to the general public. Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed in geographical position -- land, I say, differs from all other forms of property in these -primary and fundamental conditions."

I submit to you that Churchill displayed an acute awareness of the "true political economy", and there has been no stronger support among the political states for maintenance of a controlling landed aristocracy than in Great Britain. Unfortunately, failing to understand the real cause of their misery, British laborers accepted the Marxist conclusion that capital formation produced subsistence wages and mass unemployment. Once unionized, labor began a century-long battle with industry which has brought the British economy to its knees. Thus, I agree in concept with your conclusion that government reform is much more crucial than "land reform"; however, what becomes important is the special nature of those government reforms adopted.

The beauty of implementing a system of taxation primarily grounded in the land is that the penalties for production and high earnings are removed. Demand determines market value (and hence the level of taxation) of individual sites. Should land values produce tax revenue instead of earned income, there is a unique side effect which will aid the peasant farmer of LDCs; the emphasis on land demands efficient land use and will bring more land onto the market. Additionally, the tax paid on land must be capitalized into lower selling prices for land making marginal land affordable to the labor intensive farmer. By a relatively simple tax (i.e., government) reform, real land reform is achieved without destroying the incentives inherent in private ownership.

I leave you with one further observation. Throughout the noncommunist LDCs, the state and the landlords are one and the same group. Where the population is exposed to capitalism, that exposure comes from working for extractive multinational corporations which pay royalties (a small portion of true economic rent) destined to enrich the few at the expense of the many. On the other hand, the Marxists confiscate not only rent but wages and interest as well, thereby destroying the individuals incentive to produce. These days, both systems are licking their respective wounds.

Very truly yours, Edward J. Dodson

25 July 1983

Dear Professor Reid:

I hope you will find the enclosed article of interest.

My recent letter was a bit long; however, treating the subject of political economy in under 500 pages should be worth something. I. strive for objectivity, difficult when one strongly believes in a given position.

Sincerely, Edward J. Dodson

26 September 1984

Dear Professor Reid:

For a long time I have attempted to address "the land question" from a very practical approach, particularly in discussions with others in the real estate industry. What I have come to realize is that an honest and open debate must also address the more abstract human issues - ethics, morality, justice, equality.

Earlier this year Professor Steven Cord asked me to prepare a paper on urban employment problems. By the time I finished the initial draft it had reached forty typewritten pages and became largely philosophical. After several rewrites Steve agreed to publish the paper as enclosed.

Because of our previous exchanges I would be very much interested in your reaction(s) to both the approach and the arguments presented.

Best personal regards.

Sincerely, Edward J, Dodson