.


SCI LIBRARY

The History That Might Have Been

Fred Harrison



[A paper presented at the 13th International Conference on Land-Value Taxation
and Free Trade; Douglas, Isle of Man. September 1973]


PART ONE


1. Introduction



The first concerns the state of industrial society today. For it was with the industrial revolution that class divisions were extended; it was the new working environment of factories which destroyed the individual skills and work satisfaction of craftsmen, and the modern conveyor belts which completed the process of alienation in the workplace; it was the new machinery which redistributed incomes and in the long run raised the level of wealth for most people.

One legacy from the industrial revolution is the strife on the factory floor. Along with the steam-powered engine came the psychology of the silent civil war -- the us-and-them conflict, which, except for periods of national crisis, has run strong and deep through society and regularly erupted on the surface with strikes and violence.

What sort of contemporary society would we be enjoying now had Henry George written, say, a century earlier than he did, towards the end of the 18th century?


2. Setting the Scene


The end of the 18th century saw the beginning of the great enclosures and the end of any chance of a programme which safeguarded the dual interests of private possession of land, justified on grounds of economic efficiency and the public appropriation of economic rent, justified on the historical ground that land had been a communal possession from primeval times. The calls for land reform in this period coincided with the French Revolution, from which the British aristocracy was running scared. Anybody writing on the subject was accused of sedition. Tom Paine went into exile in North America. The radical reformer, Thomas Spence, a Newcastle schoolteacher, who advocated that land rent be used to support the poor, maintain the roads and encourage agriculture and other socially valuable purposes, was arrested [1]. But the social climate was not ready for this kind of enlightened debate. Mingay comments on this period:

"Prudence was the counsel that prevailed ... in fiscal matters. The protection of property was the overriding consideration, and no-one knew where economical reform might end -- after all, a reassessment of the land tax, by now a very modest burden, might prove to be its unforeseen and disastrous consequence." [2]

The determination with which the isolated demands for land reform were stamped out is not surprising, for society was dominated by an aristocracy of about 300 families who controlled Parliament and relied on their estates of 10,000 acres or more for incomes which varied between £10,000 and £50,000 per annum[3]. Under the pressure of two wars between 1780 and 1815, which forced up the price of food, Parliament passed 2,900 Enclosure Acts. This affected 600,000 acres, or about 25 per cent of arable land[4]. This completed the process, extending back over many centuries, under which the common lands -fertile and waste -- of the British Isles, came under the private ownership of a small proportion of the population.

One of the main economic consequences of enclosure was to raise productivity on the land; to this extent, then, it was to be commended. But a further result was the creation of a new class of citizens -- the landless peasants. This class was made up of the smallholders and farm workers with their own plots of land who simply could not afford the legal cost of pushing a private enclosure Bill through Parliament, and then undertaking the cost of fencing the land. Some were compensated, many were not, when their ancient right of access to land was terminated.

One of the chief advocates of enclosure, Arthur Young, conceded: "By nineteen out of twenty Enclosure Bills, the poor are injured and most grossly"[5]. Subsequently, historians have differed on their assessment of the social effects of the enclosures. The most famous condemnation was by the Hammonds in The Village Labourer, who saw it as an unmitigated disaster. Contemporary economic historians do not take such a harsh view.

But of one thing we can be sure: the rental incomes of a relatively small number of people were boosted enormously. We shall have to consider what they did with this income and what impact the landlords1 attitudes had on the industrial revolution.


3. The Effects of Land-Value Taxation


At this stage, it would be useful to have before us a resume of the effects of LVT on a chrysalis economy which was crawling out of its soft clothing and into a new suit of metal, swopping the sun for steam, fertiliser for fuel, social position for profit.

(a) Land would have been redistributed, from the few who controlled the landed wealth -- three quarters of which was owned by the great landlords and the gentry below them -- to the many more farmers and peasants who could make economic use of it.

(b) Power vested in the aristocracy by virtue of their landed wealth would have been undermined and redistributed to a larger number of citizens, advancing democracy by decades.

(c) Income would have been redistributed and the poverty arising from landlessness -- which resulted in the Speenhamland system under which wages were supplemented according to the size of the family and the price of bread -- would have been mitigated if not eliminated.

(d) The owners of factories and mines would have been forced to offer higher wages and better working conditions to attract workers off the land, instead of having a captive labour market of men whose wages were often so pitiable that they had to send their children to work in the most gruesome conditions.

(e) A rational attitude towards land use would have been imposed on those great landowners who hitherto had been happy to leave land uncultivated in order to encourage the conditions most conducive to their sporting tastes, hawking and fox hunting[6]. (f) The exchequer coffers would have been swollen beyond the dreams of the most voracious chancellors, and would have enabled Parliament to assess its public role from the position of both material strength and heavy social obligation.

(g) Since the citizens of Britain paid taxes out of earned income but grudgingly, the Treasury became an institution to be resented and the payment of taxes was seen as legalised robbery and a source of social schism. LVT, if it had been accepted as normatively desirable, would have re-emphasised that communal spirit without which our primitive ancestors would not have banded together to advance their mutual well-being.


PART TWO


1 . Saving and Investment


No matter how ingenious the inventions which preceded it, the industrial revolution would not have happened if entrepreneurial skills had not been combined with the deployment of large resources to create the machines and what is now called the social infrastructure (which includes communications like roads). In this part we shall consider how the private appropriation of rent proved to be a brake on the process of industrialisation; in the next part, how LVT could have acted like a catalytic agent, to both speed up the process and influence the pattern of development.

Instead of diverting their rents into productive investments, many landlords continued to indulge themselves in what is now called "conspicuous consumption," but which Malthus perceptively labelled "unproductive consumption": lavish living, the purchase of more homes, and so on. Ward and Wilson write:

"For many landowners it would be dangerous to assume that any large proportion of increased agricultural incomes found their way directly into industry; in the late eighteenth century an increased rental was often swallowed up by the constant extension of the mansion, grounds and establishment which changes in contemporary taste demanded."[7]

Furthermore, the new industrial middle class was also guilty of diverting some of its profits into land. They were not motivated by profit, for interest in invested capital in safe industrial stock brought between 3-1/2 and 4-1/2 per cent, whereas a landowner would be fortunate to get half of that from his investment[8]. Nor was it economic ignorance which stimulated this fashion, for it was the bankers, who made the largest profits out of the early years of the industrial revolution, who tied the most notoriously huge fortunes into estates. The purchase of land, which effectively froze large sums of savings, was the result of a quest for the social status which could be bought with land.

There were other ways in which the structure of property rights in land led to the diversion of savings which would otherwise have been invested creatively in capital. Landowners, for instance, often had to be bribed (or, to use David Spring's more sympathetic description, paid "generous monetary compensation"[9] by the companies which wanted to build the great railway networks. Sutherland tells us how the Great Western had to pay the Marquess of Ailesbury £5,000 for disturbing his peace at Tottenham, and he adds:

"There were many other landowners who managed to sell their land for three or four times its agricultural value by threatening opposition."

The aristocrats could line their pockets only because of their monopoly control over that scarcest of economic factors, land.


2. Entrepreneurship


A few enterprising landlords did make significant contributions to industrialisation. Mineral deposits were exploited, canals dug, ports built, banks started, markets opened. But they were in the minority, and as the century wore on, even they retreated into the passive role of the rentier.

But landlords could exercise more than just a negative influence which retarded economic development -- they exercised positive power to hinder change. This can best be illustrated by examining their reaction to the railways, which was one of the "leading sectors" in the process of industrialisation through its impact on other spheres of activity, such as the growth of urban areas and commerce.

A railway could be built only if it received the sanction of Parliament. And the great landlords, through their political influence in Westminster, made sure that no private Bill could pass through without endorsement from the owners of the land over which it was proposed to build a railway. Many Bills were thwarted as a result.

Enormous pressure was at times brought to bear against a projected railway: for such puffing monstrosities, beneficial though they might be to the manufacturers who needed quick and cheap transportation to sell their wares in new markets, were seen as a threat to the tranquillity necessary for fox hunting. However, even the most tradition-bound landowner began to realise how a railway sent the rents on adjoining land soaring, and began to see the wisdom of having those tracks over his land. As Jenks put it: "There was an increment in land values along these railway lines which overbore the prejudice originally entertained by country gentry."[10]

Under LVT, the rise in land values arising from private capital formation, would have gone to swell the exchequer rather than financing the indulgences of a few.


3. Optimum Land Policies


Ideally, the agricultural sector of an economy which was diversifying itself should contribute to the process by increasing productivity, thus simultaneously releasing labour for the new manufacturing sectors and producing more food for the workers who were no longer engaged in agriculture.

The agricultural revolution of the 18th century saw significant advances in technology. Rising prices at the turn of the century acted as an incentive. But landowners shaped their policies towards their tenant farmers according to criteria other than just profit. For example, many of them would agree to short leases only. They could re-acquire the land if they wished: and in return, they agreed to receive lower rents. Statistics of rental income, as a consequence, understate true market values. Farmers, for their part, were thereby deterred from undertaking capital improvements on land over which they had insecure legal title for the period necessary to recoup their investments. The overall effect, then, was of a key sector of the economy operating at a less than optimum level.

The market in land also began to reveal one of the most offensive features of modern times: land standing idle while men failed to find employment to feed their wives and children. When the Napoleonic war came to an end in 1815, prices fell more rapidly than costs; deflation coupled with bank failures ruined many farmers, who were consequently forced off the land. Sutherland states: "Great tracts of newly enclosed land went out of cultivation. In Norfolk, land to the value of £1-1/2 million was up for sale and found no buyers." The bottom had fallen out of the market in land. But the owners, rather than reduce the price of land to a level which the hungry families could afford - or give it away if there were no takers -- had resources to protect them against the depression. They were therefore under no pressure to part with the land over which they had acquired legal title.

LVT would have had a dual effect. First, it would have forced the possessors to hand over the idle land to people who could make productive use of it. Secondly, it would have tailored the price to prevailing economic conditions, which means that in a depression the price of land would come down.


PART THREE


1. The Statistical Magnitudes


We now come to a delicate part of our exploration, that of comparing a few figures in order to grasp the implications of LVT. The figures are rough approximations, and it is to be hoped that statisticians will continue the laborious process of extending our knowledge in this field. I have taken the years 1860 to 1870 simply because they are the earliest dates for which comparative figures can be found; the figures for earlier periods become even more speculative.


Table I : Government Expenditure and Rent [11]

1860* 1870*
Investment 50 65
Rent 125 156
Government Expenditure 88 93
*millions of pounds


Capital investment was around the £60m. mark in the 1840s, and most of it was sunk into the railway system[12]. Investment declined in the next decade however, due to the high taxes resulting from the needs of the Crimean war. Total government expenditure had remained stable between £60m. and £70m. between the 1820s and 1850, and then began a steep climb. Rent received (but excluding rent enjoyed by owner occupiers) while rising in absolute amounts, declined as a proportion of national income, from 15 per cent in 1860 to 13-1/2 per cent in 1870, a trend which has continued until after the Second World War, when it was about 4 per cent of GNP, since when it has slowly climbed a few percentage points.

The figures in Table I clearly show that until the mid-nineteenth century at any rate, the return to land could finance state spending - even where that expenditure included the cost of the terrible Crimean war. The figures for rent include the returns to buildings on land, and therefore have to be corrected. If one deducted one third from these figures, we are still left with a rental income larger than total government expenditure for those years, and we still have not taken account of rents on owner occupied land.

But a straight comparison of these figures would not give us a true picture, for we are trying to envisage an economy under a regime of LVT. Adjustments are needed to take into account the following points.

(i) Investment would have been higher, and for two good reasons. First, there would have been no need for customs and excise duties; profits would therefore have been larger and the volume of trade greater. Secondly, income tax would not have been a drain on wages (the Crimean war cost nearly £70m., less than half of which was met by borrowing, and brought income tax from 7d to the maximum of 1s 4d in the £ [13]; consequently, private savings would have been larger.

(ii) The economic system which had been created by the middle of the 19th century gave rise to a permanent class of unemployed people who were officially classed as paupers. In 1849, there were over two million paupers. For the next three decades the figure was constant at just over 1.8m. The figures in Table II include women and children, the aged and the sick. The relief they received was paid for out of rates raised by local authorities. But the poverty problem is understated here; for private charities were spending tens of millions of pounds annually in trying to alleviate suffering[14].


Table II : Paupers of all ages

Public Poor Relief No. of Paupers
1861 5.8m 1.8m
1871 7.9m 1.9m


Under LVT, able-bodied men would not have suffered enforced idleness. There would have been relatively full employment, national income would have been higher, the number of paupers fewer, and there would have been no rates to operate as a disincentive to capital investment in buildings. Where the aged and infirm could not be supported by their families, they could have been cared for out of government revenue from land values. The support they received would have been their equitable due, and not tainted by the stigma of charity.

(iii) The rental income in Table I almost certainly understates the probable government revenue via a tax on land values. These were times of exploding land values, particularly in urban areas. H.W. Singer, writing in Econometrica (1941), estimates that urban land values rose from £3m. in 1845 to £16.6m. in 1867 and to £30.1m. in 1882. Sir James Caird, writing in 1877, estimated that the increase in land values in the 1860s and 1870s as a result of urban development and industry, was "£331 m. sterling in these twenty years, at a cost (to the landed interest) which probably has not exceeded sixty millions."[15]

(iv) With LVT providing a revenue larger than existing total government expenditure, the surplus could have been devoted to a number of areas of need. For instance, even with LVT, there seems little doubt that the differential wages for agricultural workers - higher in the north than in the south -- would have prevailed, simply because most of the early benefits of industrialisation were concentrated in the north; this gave agricultural workers alternative forms of employment and helped to raise the wages of farm workers (or, perhaps, helped to prevent them falling to the level of those in the south, where most of the sporadic rioting of the first half of the 19th century was concentrated). Better roads could have been provided and an elementary form of education introduced at an earlier date (those schools which existed were provided for charitable or paternalistic motives) which would have helped to make southern farm workers mobile and so help to equalise wages. Water and sewage facilities were also areas of potential improvement.


PART FOUR


1. Henry George's Philosophy


Because he wrote in the latter half of the 19th century, Henry George did not have the benefit of national income statistics to guide him. Imprecise though these statistics may be, they do give us a good idea of the magnitudes involved. And it is clear that, under LVT, a government would be embarrassed by the riches pouring into its coffers. Unless we want to assume that this wealth should be squandered on, say, wars, we have to find a place in our philosophy for a positive economic role for government.

Two possibilities arise. One is for the government to distribute the surplus revenue to all citizens. But the actual sums involved per person would have been small, given the size of the population -- equal to a matter of a few weeks' income. Would this have been wise? Given that low-income earners have a high propensity to consume, this social dividend would have been spent on extra items like clothing and fuel and a few basic luxuries like tobacco. The second choice would have been for a government to invest the capital sum on a socially desirable project, aimed at either speeding up the industrial revolution or alleviating some of the bad side effects of it.

I favour the second course of action. This view must be seen in the context of a society imbued with a strong communal spirit, still bonded together by the ancient tribal ties wherein the good of all was crucial and which balanced the more ascetic aspects of the protestant ethic. A wholly different social psychology would have pervaded the community, and it would have influenced not only the public decision-makers, but also the private entrepreneurs: they would have seen that some of their actions were a travesty of justice - for example, that indiscriminate pollution of the environment was to be avoided by imposing an extra cost on the production process.


2. The Complacent Reviewers


The benefits of industrialisation have been staggering, the revolution itself an inexorable development in the social organisation of man. The enormity of what has transpired these past 150 years has led some reviewers of modern history into a mood of complacency. The case they use to illustrate their satisfaction with the industrial revolution, that of Ireland[16], is fortunately one which poignantly reveals the crucial defect in the history of the British Isles these past two centuries - the failure to safeguard a dual interest in property, of private ownership of wealth created by man, and public ownership in the land. Dr. Rhodes Boyson seeks to draw a lesson from a contrast between those who industrialise and those who do not:

"The population of Great Britain practically doubled between 1800 and 1850. If England had remained rural and an industrial she would not have been able to feed this increasing population. Ireland remained rural; in the 1840s during a period of bad harvests she lost one-fifth of her population by emigration and starvation. England not only fed her own population in those years but helped to solve Ireland's problems - 750,000 native-born Irish lived in England in 1851 ."[17]

A more insensitive assessment it would be difficult to imagine. Let us examine the year 1848. About 300,000 people died because their annual potato crop, which would have been worth £20m., failed them. Yet in that year the agricultural produce in Ireland was worth £45m. to the landlords[18]. While all those human beings died, and many more were forced by hunger to emigrate from their country, 1.8m. quarters of wheat and barley were exported. Connolly records:

"Typhus fever, which always follows on the heels of hunger, struck down as many as perished directly of famine, until at last it became impossible in many districts to get sufficient labourers with strength enough to dig separate graves for the dying."

Far from the Irish community not being able to feed their citizens, the agricultural sector -- as Connolly observes -- could have supported double the population. Those who were responsible for the industrial revolution in England could take no credit for supporting so many Irish men, because it was their values which directly contributed to the deaths of millions and the scattering abroad of many others. Gladstone's 1881 Land Act, which sought to shift some of the benefits of land from owners to tenants, came too late.


3. Lessons for Less Developed Countries


Invaluable guidelines have now emerged for those countries which are today struggling towards industrialisation, as a result of this exercise in fitting historical facts on to economic theory.

LDCs are primarily agricultural. Because of political expediency, many of them are introducing programmes of "land reform." Very often these are illusory, merely skilful attempts at thwarting real change in the land ownership system based on the western model and they are therefore repeating precisely those ill-effects experienced by Britain in the past two centuries. In other cases, genuine attempts at redistributing land to the peasants lack the safeguard of public ownership of rent.

The United Nations has failed to break away from the now orthodox approach to land rights; and in formulating proposals for land reform, has reinforced the trend which is simply creating a larger class of private owners, peasants though they may originally have been.

Allied to this approach in the traditional sector is the strong desire by governments of most LDCs to industrialise their economies. The impetus for the new industrial sector often comes primarily from foreign investment by multinational companies, and from foreign aid. As a result, huge slices of scarce indigenous resources -- mainly skilled labour -- are diverted into the modern sector, when they could have been more rewardingly used in the agricultural sector. And often loans have to be obtained from world agencies and benevolent countries to repay interest on original loans!

No LDC has yet seen the wisdom of structuring fiscal policies which result in minimum disincentives on trade coupled with a bonanza income from taxes on unearned income. The conclusion to which I am led is that, if any government did implement LVT, it would have the effects described in this paper, of speeding up industrialisation, where it was warranted, and exploiting to an optimum level the existing natural resources.

In their present approach, however, LDCs are cultivating the psychology of strife. They are systematically replacing ancient communal rights with the socially divisive western property rights which have created the dual society of "us" and "them." For many people, perhaps the majority of the world's population, there is still hope; we now have the knowledge, but it will take acts of political courage to challenge conventional wisdom and strike out on a new path.


REFERENCES AND NOTES


  1. See G.E.Mingay, English Landed Society in the Eighteenth Century, Routledge & Kegan Paul, 1963, Ch. XI.
  2. Op cit., p 262.
  3. J.F.C.Harrison, The Early Victorians 1832-51, Panther 1973, p 116.
  4. John Addy, The Agrarian Revolution, Longman 1972, p 26.
  5. Quoted by Douglas Sutherland in The Landowners, Anthony Blond, 1968, p 21.
  6. Sutherland, op cit, p 15.
  7. J.T.Ward & R.G.Wilson, editors, Land and Industry, David & Charles, 1971, p 12.
  8. Sutherland, op cit, p 31.
  9. Ward and Wilson, op cit, p 26.
  10. Leland H. Jenks, The Migration of British Capital to 1875, Nelson 1971, p128.
  11. Government expenditure figures are from A.T.Peacock and J. Wiseman, The Growth of Public Expenditure in the United Kingdom, Princeton, 1961. Rent and investment figures are taken from C,H. Feinstein in The Distribution of National Income (editors: Jean Marchal and Bernard Ducros), Macmillan, 1968, p 116.
  12. Jenks, op cit, p 126.
  13. Henry Roseveare, The Treasury, Alien Lane, 1969, p 190.
  14. C.G.Hanson, in The Long Debate on Poverty, Institute of Economic Affairs, 1972, p 117.
  15. Quoted in Ward and Wilson, p 51.
  16. See, e.g., T.S.Ashton, The Industrial Revolution 1760-1830, Oxford University Press, 1957 p. 161.
  17. I. E. A. 's The Long Debate, p 86.
  18. James Connolly, Labour in Ireland, Ch.13, Irish TGWU, 1944.