Taxation of Land Values
John Orr, M.A.
[1912 / Part 2 of 2]
II
SOME EXPERIMENTS AND THEIR LESSONS
PRACTICAL men rely with more assurance on the results of experience
than on any untried theory. The taxation of land values has been
adopted to a sufficient extent in different parts of the world to make
clear its effects on various interests. So long ago as 1877 a
beginning was made in Australia. The Victorian Legislature imposed a
tax of 1-1/2 per cent, on the capital value of land in that year. The
object was to break up large estates, and the Bill was only passed
after a keen struggle. In the following year a similar tax was
introduced in New Zealand, but in 1879 Sir George Grey's Government
was defeated, largely on this issue, and the tax was repealed.
Since 1891 more consistent progress has been made in the reform. The
Governments of New Zealand, Victoria, South Australia, and Western
Australia, and, last of all, the Commonwealth Government, now levy
national or State taxes on land values. In British Columbia the
provincial Government has also adopted this system. The effect of the
tax has varied, not only with its amount, but with the valuation or
assessment on which it is based. In the earlier stages this was very
imperfect.
For rates or local taxation the principle has been applied to a large
extent in New Zealand, to the whole of New South Wales except Sydney,
to the whole of Queensland, to the leading cities of Alberta and
British Columbia, including Edmonton and Vancouver, and to Kiao-chau,
the German colony in China. .By raising the whole of their rates from
land values these Colonies have gone far ahead of the Mother
Countries. To some of those who watched the experiments the results
came as a surprise. In Wellington, New Zealand, the rates on
improvements were repealed in 1901, and a rate on land values alone
was substituted. The general expectation was that such a sweeping
measure would certainly reduce the value of land, particularly in the
centre of the city. Three or four years afterwards reports to the
contrary effect came home.
The most thorough experiment of which we have an official account is
that of Queensland. About 1890 the finances of the State were causing
grave concern. The subsidies granted by the Government to local
authorities had grown to £276,000 under the old system of rating.
In that year, Sir Samuel Griffith's Government introduced a Valuation
and Rating Bill. It was amended in its progress through the
Legislative Assembly, or Lower House, to exclude improvements entirely
from the burden of rates. This move called forth the various kinds of
opposition which have been offered to similar measures in different
countries. The Legislative Council, or Upper House, at first refused
to entertain the principle, and a serious dispute arose between the
two Houses. The Premier, however, stood firm, and the Bill was
ultimately passed.
An account of its passage and effects is given in a White Paper.[1] "The
usual forebodings of disaster were not wanting," but none of them
have been fulfilled. The new system only got into full operation about
1894-5, but by that time the Government subsidies to local bodies had
been reduced to £63,000, and since 1903 they have been entirely
discontinued. This should be of interest to our legislators at the
moment, when they are seeking a method of dealing with the relation of
local and national taxation. The rating of land values enabled the
Queensland Government to solve this problem to the satisfaction of all
interests.
According to the official report, this "promotion-of-improvements
principle . . . has worked in operation with fewer difficulties than
its most sanguine supporters could have anticipated." It will be
remembered that the Australian financial crisis occurred in 1893. With
reference to this fact, it is stated that " the absence of any
tax upon improvements considerably relieved the tension imposed upon
the holders of improved properties during the depression, and also
encouraged building operations being undertaken at an earlier period
and to an extent that would not otherwise have happened."
Architects, builders, estate agents, and men in similar professions
have found the system of advantage to their business. When the
question of new buildings was under consideration, they were able "to
point out the peculiarity of the Queensland system in exempting the
improvements from taxation, this fact counting as an encouragement to
the expenditure of money to render unimproved land revenue producing."
Reports from New Zealand, where the system of rating land values has
been adopted in a large number of towns and rural districts, are to
the same effect. No complete or official account has come from New
South Wales, in which Colony the principle was applied in all local
districts except Sydney in the year 1906. But numerous reports from
private sources show that every class is satisfied with this change in
the basis of rating from the value of land and improvements together
to the value of land alone.
The Commonwealth tax, which came into force in 1911, ranges from 20
per cent, on the value of smaller estates to 70 per cent, on the value
of estates owned by absentees. So far from having ruined landowners,
it has increased their incomes, and made the next step not only
possible but necessary in the near future. Progress would have been
much slower if the anticipations of its advocates and opponents had
been fulfilled, if landowners, crippled financially, could appeal from
their misfortunes for delay in the infliction of the next blow. As it
is, some politicians are already "anxious to make the higher rate
effective over a larger proportion of the value," [2] and this
cannot be long delayed.
The recurring order of events in Australia and New Zealand in this
connection is curious. A proposal to tax land values is made, and
immediately there is a protest from some landlords and land agents.
This protest is continued while the measure is passing through the
Legislature, and for as long time after as is necessary to bury
falsified hopes or fears. Then these same people settle down to enjoy
the benefits of the general prosperity largely due to the innovation
which they condemned. The most remarkable feature of the situation is
that the perpetual grumble which goes on against this beneficent
policy is quite inconsistent with the experience of the discontented
persons. Their objections or fears spring from a melancholy prospect
which is never realized.
Similar demonstrations have attended the introduction of this
principle in Great Britain, and to a less extent in Germany. In
Western Canada, however, its adoption seems to have easily followed
the perception that, in the matter of local taxation, this was far the
best business arrangement. Mr. William Short, ex-Mayor of Edmonton,[3]
says that in his city the change to the new system was
"a prosaic matter of business," that it "has
been an unqualified success, and it is with pleasure that we speak
of it. ... All taxes on business are imposts that should be done
away with, and the keener students of municipal affairs here are
advocating that now. ... I can with good grace say in conclusion
that no community that will levy its taxes upon land values alone,
irrespective of buildings or improvements, will ever regret the
change, if it be made with care."
The Premier of Alberta has now introduced a Bill to make the Single
Tax compulsory for local purposes over the whole province within the
next seven years.
Further West, in Vancouver and other cities of British Columbia, all
rates on improvements have been repealed. In Vancouver the whole local
revenue is raised by a rate of 2 per cent, on the capital value of
land, equivalent to 45. in the pound on the annual value. Experience
has taught even the large landowners that this policy is favourable to
their interests, and on this ground none of them would revert to the
old system. The value of land has increased in spite of the direct
rate levied on it.
These Colonial experiments have been thorough enough to furnish tests
of theories which have been widely held. It was generally assumed that
a direct tax on what is called land value would diminish this value.
This has never happened. Those who held this view overlooked the
effect of remitting the existing indirect taxes on land value. The
remission of the latter has always been the cause of an increase
greater than the reduction due to the imposition of the former.
Another economic theory which has long determined economic practice
is being rapidly undermined. It was thought that landowners reaped
financial benefit by holding up land for a higher price in the future,
and that they would lose by the tax which induced them to permit
development at the real or current value. Owners now find that this is
a mistake, and that it is much more profitable to let development
proceed, and to move on with it. "Speculative holders of real
estate, who have been content to wait for a rise in value, find now
that it does not pay to leave such property unproductive."[4]
A common view has been that the mitigation of poverty, or an increase
of wages, necessarily involved a reduction of economic rent or land
value. The taxation of land values appealed to those who held this
view, because they thought it would bring about this reduction from
its first imposition. Some of them resent the testimony of facts or
experience, and attribute the increase in land values in the Colonies
solely to immigration, railway development and other movements, and
not at all to the change in the system of taxation. The effect of such
a change, they argue, is all in the direction of reducing land values.
This view is contrary to official and unofficial reports. In these it
is claimed or admitted that the new system by its influence on
immigration, by its encouragement of the expenditure of capital and
labour, is the most fundamental cause of the increase in land values.
With any other system of taxation these activities would be less
vigorous, and consequently land values would be lower.
The change from the taxation of improvements to the taxation of land
values increases the value of land, if population remains stationary,
or even if it declines; for, apart from the variation of their
numbers, it increases the producing power of the people, and this is
the fundamental cause of land value.
So far as experience has gone, landowners have not suffered
financially under measures of this reform. Opponents of the taxation
of land values object that Colonial experience does not assist us in
discussing conditions in Great Britain. It is one thing, we are told,
to apply such a principle in a new country, and another thing to apply
it in a country where interests have taken deep root and spread
themselves wide. But there is no difference. The interests must be
separated and defined in either case. It may involve more work, but
this can be done with as much accuracy in an old and densely populated
country as in a new and almost empty continent. Through a careful
valuation, this principle may enter into the complex economic systems
of Great Britain, France and Germany as easily and gently, and with as
general approval, as it has entered into the simpler systems of
Australia and Western Canada.
III
THE VALUATION OF LAND
PREJUDICE has arisen against the taxation of land values owing to an
impression that it is not to be the taxation of land values, but, in
many cases, the taxation of speculative or future prices. Valuation in
the past has been an unaccountable operation, producing very strange
results. "Fancy" prices and rents have been asked for land.
They have often had to be paid. This has suggested an easy argument to
reformers. "Pay the landlords," they say, "in their own
coin. If they fix the value too high for purchasers, tax them on it.
If they fix the value too low for taxation, buy them out at their own
figure." The principle of valuation is conspicuously absent in
both cases.
Estates in the neighbourhood of growing towns are often sold or
leased in small lots. For these small portions high prices or rents
are obtained. There is one such estate which has frequently been cited
as an example. It extends to 800 acres, 300 of which have been leased
and built upon, while 500 still await development. If a builder
requires any one acre of this land, the landlord asks a ground rent of
£60. Some reformers tell us that we have 500 acres here, every
one of which has a capital value of £1,200, and that the landlord
would be taxed on £600,000. They argue that this policy would
compel him to develop. It would. But the proposal gives occasion for
reasonable objection; for it is certain that the value attributed to
this area does not really exist.
Because valuation in the hands of landlords has been irregular and
unfair, it is assumed that it must always be so. Nothing is more
erroneous. Valuation has hitherto depended on the caprice or passions
of men; it is possible to base it on their reason. By having the right
to value conferred on them landlords have been given motives to value
from their own immediate point of view. Partial and one-sided
valuations are inevitable. And is there much cause for wonder if this
erratic policy has produced similar schemes as remedies? The
temptation to engage in a sort of punitive expedition, armed with
taxation as a weapon, is attractive, but it is not business, and no
Government will seriously consider it.
But an adequate valuation is necessary in the interests of business.
The alienation of capital and labour from land is largely due to the
manner in which land has been controlled. Excess of rent, insistence
on slightly unreasonable conditions, indifference to the cultivation
or development of their land on the part of owners, prevent land,
capital and labour from being properly co-ordinated. The late Lord
Goschen was a shrewd and practical observer of these matters, and
cautious in his judgment. Many years ago, he discussed the relation of
capital and land from this point of view. He was speaking on the
housing question. "No element," he said, "in the whole
matter is more important than how, and at what price, sites can be
obtained. The readiness to embark capital will depend on the cost of
sites."[5] The same principle applies in every industrial
undertaking. But in all settled countries this principle is far too
little regarded. Disrespect is shown to capital; its character and
requirements are not appreciated. These are modest enough, and even if
some people do not consider them modest, they are necessary and
unalterable. This fact remarked by Lord Goschen has been apparent to
business men of every kind for generations. Capital is timid, and
often hesitates before engaging in an enterprise on account of "
the cost of sites." A certain amount of capital available for
investment, and with it a certain amount of labour, is thrown out of
opportunities for its application and left idle. Business men are
offered the fatal alternatives of idle labour and capital on the one
hand, or unsound enterprises on the other. By this process a constant
burden is imposed on the producing community.
With the influence of this system at work, separating labour and
capital from land, there can be no settled prosperity for any class.
While the merchants and manufacturers of London and Manchester are
preparing to satisfy an anticipated demand as great as, or greater
than, last year's, their customers are being hemmed in and crippled on
the farm and mineral lands and on the building areas. Farmers,
builders, coal and iron masters, and with each of them several
labourers, are held off or knocked out by unreasonable terms.
Within recent years capitalists and labourers have betaken themselves
readily to new countries. They fear the rude and thorny obstacles of
the bush and prairie less than the uncertain conditions so frequently
offered by our land system at home. Attracted by the freedom, security
and reward essential for a comfortable material existence, and a
little more, they turn their backs on great social advantages that are
less indispensable and more elusive. Perhaps no finer fruits of
civilization are obtainable anywhere than in Great Britain. But men
find they fail to obtain these things here, in spite of their
abundance, because they miss the chance of earning a necessary
livelihood more often, perhaps, than anywhere else. To walk within
sight of splendid things and never be able to reach them, or, having
reached them, to be deprived of them by some downward movement in
business, is less satisfactory than the more assured enjoyment of what
is needful. This accounts for the strong drift of population to the
British Colonies. Good men with abundant capital are there gaining
access to land. They are adding to the wealth of these new countries,
and increasing the value of their territory. Had they remained, they
would have done the same for the land of this country. Not only with
their wide areas of land, but through their wise land systems, the
Colonial Governments have succeeded in adjusting the relations of
capital and labour to the land.
Economic science has made the existence of certain facts and the
operation of certain laws clear enough to make an improvement in
economic practice possible and even easy. There is a thing called
economic rent. Economists who differ on almost every other point agree
on this. They define this rent generally as that part of the produce
from any undertaking which remains after their accustomed returns have
been reserved to the capital and labour engaged in it, the part which
is normally due to land. But no serious use is made of this knowledge.
Rents and prices above its economic value are frequently paid for
land. When this excess is carried far enough, widespread unemployment
and business depression occur. Wages, interest and rent fall.
This chronic evil in economic practice is not a feature of the
landlord-tenant system alone; it is not confined to Great Britain and
Ireland. One of the most vivid descriptions of its operation is given
by Henry George.[6] With an American experience, for the most part, he
shows how speculation in freehold land fatally undermines industry and
interrupts the steady advance of wages, interest and rent. To this
speculative advance in rent he attributes the recurring industrial
depressions, and there is no better treatment of the subject from the
business man's point of view. The mischief which appears in the form
of excessive rent in Great Britain shows itself as excessive interest
with mortgaged owners in Denmark, Germany, France, and America. Slight
as the evil may be in particular cases, it has a cumulative effect,
the weight of which causes a general breakdown of business. With some
little known exceptions, no system of land tenure is free from this
disturbing element.
There is as much reason for basing the art of political economy on
its science as there is for making the art of engineering obey the
science of engineering. What would be the use of knowing that certain
kinds of steel and bronze were the only reliable metals for the
construction of ships' engines and screws, if engineers constantly
allowed a fatal amount of base metal to get into the castings? What
advantage is there in knowing that the payment of economic rent and no
more is an essential part of every man's business, if no use is made
of this knowledge, if capitalists are frequently compelled to pay a
ruinous excess? Some landlords have been careful to see that their
tenants' positions rested on the payment of economic rent; others have
made or allowed different arrangements. Tenant farmers have always
known that this was the fundamental and decisive part of their
business, but as a class they have never been able to master it, to
set rent in its proper place and proportions. It periodically gets out
of hand and upsets their career. Economists have known that the
payment of not more than economic rent was an indispensable condition
of every sound business, but, like the farmers, they have failed to
express their knowledge in practice. They have not been able to induce
the country or its political leaders to construct a system with this
condition as one of its working parts. A skeleton framework, that is
to stand too much aloof from actual life, has been set up in the
Finance Act of 1909.
The valuation of land prepares the only safe path for industry.
Capitalists are projecting new enterprises. They are pushing forward
with a demand for land. In a community where industry secures anything
like due appreciation, provision would be made to receive all those
enterprises with a respect and attention similar to that accorded to
royal personages, to accommodate this demand with what it requires, to
treat it at least with absolute fairness. There is no such provision
to-day. The users of land in Great Britain may hold their land under
five million agreements or leases. If an impartial and accurate
valuation were brought alongside of all these agreements, it might be
found that under more than one half of them the users of land are
being treated with substantial injustice, that they are paying too
much, or that they are subjected to unreasonable restrictions which
prevent them from realizing the full value of the land. Old charters
and monopolies hinder development and foster nuisances unprofitable to
every one, thoroughfares are turned aside through the ill-considered
decisions of landlords to the daily inconvenience and loss of
hundreds. A national or State valuation of land, when fully worked,
would search out and reveal all such cases, showing where and how- far
enterprise is being baffled and turned back, and how much loss is
inflicted on the community.
The valuation would wait obediently on the demand for land and
declare the value in strict accordance with the form and extent of
this demand, just as the shoemaker shapes, or ought to shape, the shoe
to the foot. It has sometimes been assumed that land would be valued
and taxed according to the average value of estates, or of some
existing divisions. This would be a mistake.. An estate of 500 acres
may have a rental value of £1,500. This total may be composed of
several kinds of value, due to different kinds of demand. There may be
a building demand for 10 acres, and these may have a value of £40
per acre, or £400 ; 30 acres may be required for market garden
purposes at £6 per acre, or £180; and the remaining 460
acres may have an agricultural value of £i IDS. per acre, or £690.
The values, following the demand, might be even more minutely and
variously divided. The valuation would discriminate in each case, and
the tax, not distributed on each acre at the average rate of £3,
would be heavy where the values are high, and light where they are
low, thus securing efficiency and justice.
With the economic value of every holding picked out occupiers would
know exactly how they stood, whether their economic position was
sound. This knowledge would be valuable. Men unfortunately situated
could endeavour to alter their position.
It may be asked why a Government valuation is necessary, and why it
should be used to fix the terms on which men are to occupy land. It is
obvious that the Government alone possess the means and the
impartiality necessary to value every piece of land according to a
uniform principle. No other agency could secure justice as between one
landlord and another, or obtain the full value and no more, as the
basis on which to levy rates and taxes.
But why, it may be asked, should rents be fixed by the Government
valuation? Because that valuation is the only available record of
economic value, and no sound economic conditions are possible, unless
the users of land are paying neither more nor less than the economic
value of land. There can be no such thing as the taxation of land
values under any other system. This condition may be ideal, but it is
that to which economic practice must be shaped in order that
reasonable success may be attained.
Rough-and-ready methods may serve in the Colonies, and, to begin
with, in old countries, where a slight approach to justice in the
matter of taxation is appreciated. They are intolerable as a permanent
arrangement in the midst of numerous and growing interests. The
valuation of land is one of the most fundamental activities in
economic practice, and is subject to strict and unvarying laws. It is
peculiarly-and exclusively a governmental or communal function.
The interpretation of the taxation of land values by some exponents
gives the impression that it is to be the taxation of the highest bids
or offers. They believe that these offers represent the actual values
of land, and they propose not only to use" them as the basis of
taxation, but suggest that they should continue to be the amounts
payable as rent. They contend that any other method of fixing values
and rents is Socialism in a reprehensible sense of the word, and an
interference with the liberty of individuals. Henry George was afraid
of corruption, if the State should do anything more than take the
value by means of a tax. He said it was not -
"necessary that the State should bother with the
letting of lands, and assume the chances of favouritism, collusion
and corruption that might involve. It is not necessary that any new
machinery should be created. The machinery already exists. Instead
of extending it, all we have to do is to simplify and reduce it. By
leaving to landowners a percentage of rent, which would probably be
much less than the cost and loss involved in attempting to rent
lands through State agency, and by making use of this existing
machinery, we may, without jar or shock, assert the common right to
land by taking rent for public purposes."[7]
Whether corruption was unusually prevalent among officials in the
United States, or whether Henry George had not fully considered the
practical application of his principle, this emphatic statement is out
of harmony with the requirements of that principle itself, and with
the results of experience. ,He modifies this statement in a later
work, and leaves the question open.
"Whether or no," he says, "this would
prove finally the best way of obtaining for the community the full
return which belongs to it is hardly at this stage worth discussing."[9]
Every scheme for the taxation of land values has made necessary the
creation of some new machinery, and in Great Britain it is a vast
piece of machinery, which is destined to become greater and more
important every year. Nothing is more interesting than to watch this
valuation of land unfolding itself in its true nature in the hands of
British politicians. Nothing has been the subject of keener criticism
on the part of men inside and outside of Parliament. Mr. Lloyd George,
the present Chancellor of the Exchequer, and Mr. Austen Chamberlain,
the late Chancellor, are practical and matter-of-fact men. They are
not theorists, but this problem was brought somewhat nearer solution
in their discussion of it in the House of Commons.[9] Not only has the
valuation of land been recognized as a function of the Government, but
it was agreed that this Government valuation should be subjected to a
critical review by a commission representing the community, so that,
in the words of Mr. Lloyd George, we may have "a valuation which
will command the general confidence of the community . . . which will
satisfy the general sense of fair play and justice."
There can be no mistake about the character of this valuation. The
highest bids, the landlords' or tenants' estimates, are revised by the
Government, and the Government's valuation is to be revised by a
commission, and the result will be a sort of doubly distilled,
communal product. One commission of inquiry is proposed, but the
quickened interest of landlords and tenants is likely to render
thousands of a more local and particular kind necessary. All the
elements to bring this about are present in the situation. This
valuation is to provide the measure or standard of payment by
landowners to the State. The provision has awakened their
determination to shape that valuation as far as possible.
Their behaviour in this case illustrates the working of economic
laws. When the edge of valuation is turned towards them, and looks as
if it might cut into their wealth, they appeal for a just valuation to
an impartial tribunal. With their immediate and salutary interest in
politics, they have also enough influence to make this request
successful. For centuries valuation has been in the hands of
landowners with its edge turned towards the tenants. It has cut and
bitten deeply into their subsistence. They have made frequent appeals,
and the hard lot of a vast number of them has been an eloquent and
moving plea for a fair valuation. They have hardly ever succeeded,
because their economic position was too weak, and their influence in
politics too slight. The history of agriculture in Great Britain and
Ireland, and the history of house-building in London and throughout
the country, are largely records of ineffectual appeals against unjust
valuation and unfair leasehold conditions. To permit landlords on any
ground whatever to use what is universally known to be an unjust
valuation in requiring payment from tenants, while they repudiate such
a valuation as between the Government and themselves, is
unsportsmanlike, unbusinesslike and unjust.
Mr. Lloyd George has declared that the payment of land value by the
landowners to the State is to be determined by the "general
confidence of the community - the general sense of fair play and
justice." This means nothing more or less than that the
Chancellor of the Exchequer has discovered the scientific basis of
valuation, and that he is going to use it. Such a statement, from such
a quarter, is significant and full of promise for the future welfare
of the country. It is of immediate importance as a precedent for
adopting the same principle to determine the payment of land value by
the tenants, either to the landlords or to the State. If all Mr. Lloyd
George's repeated emphasis of the urgent necessity for a just
valuation to fix the payment of land value by the landowners is
justified - and we believe it is - how much more justifiable is it in
the case of the users of land? For too many of them over-valuation and
over-payment are not problematical, but actual and of long standing.
They have urged their case long enough and respectfully enough, and
the Government may with good grace concede their oft-repeated and
unheeded demands before another depression forces a concession through
the weight of misery and suffering.
Such a policy may be advocated from prepossession rather than derived
from consideration of principles and facts. In the present case,
however, our prejudice has been on the other side. But it has always
been difficult to defend Henry George's proposal to put new wine into
old bottles. If the value of land belongs to the community, the
management of this value also belongs to it. The community has the
right to reject and remove everything hostile to the growth of land
value, and to make every arrangement consistent with its increase. In
no closely settled country is the individual allowed to do with the
land what he thinks will bring him most profit, or even what he thinks
will be best for the public interest. This is the function of the
latter. The community itself has an acknowledged right to protect in
many particulars the amenity of the district under its charge, and the
amenity of a district is only one form of its land value. Thus, the
introduction of a new principle in the separate valuation of land by
the Government, and its direct taxation, are causing old institutions
to crumble and new ones to grow. Nothing can stop this process. It is
a gravitation towards justice. The taxation of land values carries
with it a Government valuation of land. The Government valuation
evokes the active interest and criticism of the landowners. Their
activity opens the doors and invites or necessitates the interest of
all other parties to produce an all-round, representative valuation.
No one can say when the machinery for this purpose will be full-grown.
When local men have their voice in valuing local land, the valuation
will really express "the general sense of fair play and justice."
And before this valuation all others will disappear.
The institution in which the highest bidder and landlord have the
final words in fixing the rent is threatened. In Scotland it has now
largely gone under the Small Landholders Act (1911). Objection is
taken to this as an interference with individual liberty. But this
liberty only gives the individual the right to break an economic law,
to bind himself by an agreement to pay more than economic value, to
displace some one who is probably the suitable tenant, to deplete his
own capital, deteriorate the land and reduce its rent-bearing
capacity. On the best-managed estates the system of accepting the
highest bidder has long been discarded; and the landlord or his agent
selects the tenant who, in his opinion, is the most likely to develop
the land in the soundest manner. But these estates are too rare. Since
the beginning of the nineteenth century, Royal Commissions and Select
Committees to inquire into agricultural distress have been very
frequent. One story has been told before them all. Prices fell and bad
seasons came, and farmers were crushed between the nether millstone of
high and stationary rents and the upper millstone of falling prices.
There were wise landlords who reduced their rents and saved the
tenants; there were others who defied and violated every principle of
valuation, and waged disastrous war on them. One quotation may be
given from evidence submitted to the Select Committee of 1836. Mr.
John Houghton, a land agent in eight of the southern and eastern
counties of England, was asked if the landlords had not given
reductions, even when farmers were bound by their leases to pay
certain amounts. "That very much depends on circumstances,"
he replied. "I have known instances where landlords have acted
very liberally towards their tenants, and I have also known instances
where there have been acts of great oppression."
These are the instances which must be got rid of, because they are
sufficient to cause every kind of injury, not only to those
immediately affected, but to industry as a whole. .One remedy for this
evil is a tax on land values, to open up all land, and reduce the
number of competitors for every opportunity. But this would not
eliminate the excess of the highest bids over economic value. Men are
not only pressed by necessity to offer too high rents; they are drawn
by ambition and young hopefulness, misguided by inexperience and
pushed by individual motives. It is true that there must be free
competition; but, when this argument is used, it is generally assumed
that the only and final tests of candidates are their immediate money
offers. The principle is obviously defective. Competitors have other
points whose value must be estimated before the award is given. The
community's view must be long and wide enough to measure the
capacities of the bidders to utilize the opportunity in question, and
to play their proper part in maintaining its value and that of the
neighbourhood in which it is situated, and neither bidder nor landlord
should be the final interpreter of the community's view in this
matter. Valuation by either of these parties is almost a contradiction
in terms; for the impartial play of the reason which alone can measure
value is inevitably disturbed by personal motives in either case.
Lord Londonderry, speaking on the agricultural depression, at the
Darlington Chamber of Agriculture, on December 28,1894, impugned the
present system.
"It was not," he said, "to the advantage of the
landlord to possess a tenant who attempted to pay a higher rent than
he could afford. The landlord did not fix the rent. It was fixed by
competition. When some men who had not been brought up to agriculture,
who had not studied the question from a practical point of view,
offered rents that they were absolutely unable to pay, and which the
land was incapable of producing, it was dangerous to all concerned. He
could not help thinking that, to a great extent, the root of the
present evil was to be found in the offering of competition rents
which the land was unable to bear."
It is incorrect to say that the landlord does not fix the rent. The
final verdict has always been with him. Just as the Government fixes
the valuation on which the landlords are to pay under the Finance Act,
so have the landlords fixed the rent for their tenants. Competition is
the basis of both results, but for the Government valuation there is a
power of revision which expels the dangerous and unsound element, and
too great care cannot be taken to see that this is done in each
case.[10]
Some reformers argue that the economic value of land cannot be
ascertained to-day, that a fair rent cannot be fixed, because land is
withheld from use, and economic conditions are generally unsound. But
the elements of economic science are never destroyed by a breach of
economic laws, any more than the elements of physics are destroyed in
a railway collision, or in the fall of a building. Experienced valuers
can measure the demand for land, and its worth in money, to-day as
accurately as ever they will measure it. That demand is less than it
would be under free conditions, but, however it may alter, the art of
measuring or valuing it is always the same. There are restrictions on
the use of land which obstruct the free course of demand, and are
unreasonable from the community's point of view. When the valuer after
consulting local opinion had decided that restrictions were
unreasonable, they would be removed, and capitalists and labourers
would then be allowed to express their demand freely. On the same
principle, and with the same object of maintaining the value of land,
reasonable restrictions would be imposed, and with demand operating on
this basis its measurement would be simple and absolutely certain.
To be useful, the valuations should be frequent. In the Province of
the Punjab, India, the system of assessing the value of agricultural
land every year, or even twice a year, is adopted. There are
advantages and disadvantages attached to the system.[11] Remarkable
progress has been made in improving Indian conditions by means of
valuation.[12] When Mr. Lloyd George proposes to base the valuation on
" the general confidence of the community - the general sense of
fair play and justice,''1 he is referring his policy to the soundest
business principle, although his statement may seem to have more of a
moral significance. Wherever this principle has been followed even a
little way, the results have been universally approved.
In 1886 a measure of valuation was passed in the Crofters Act of
Scotland. For many years previous to that time landlordism had assumed
its most aggressive and hostile attitude towards the small farmers.
They were arbitrarily evicted from their holdings, and oppressed by
excessive rents. They resisted these injustices; riots took place, and
were only partially quelled by force. Under the Crofters Act, security
of tenure was granted, and rents were revised by an impartial
tribunal. In seven counties of the north and west of Scotland to which
this system applies, 21,368 holdings have been revalued. The total
reduction of rent has been £21,914, or just over £1 per
holding; arrears amounting to £124,806, or less than £6 per
holding, have been cancelled. The result has been gratifying beyond
expectation. On an extremely inadequate basis of land in most cases,
but with this simple infusion of justice into the conditions of their
tenure, the crofters or small farmers have steadily prospered. The
majority of them have built new houses, improved their land, and saved
substantial sums of money. Now, when the shooting tenants go north,
they are amazed at the change in the crofters' conditions.[13] There
is no case where such a slight and inexpensive reform has produced
such sound and abundant fruit. In 1886, the plight of these crofters
resembled that of a fleet that had been defeated and scattered at sea,
and afterwards driven ashore by a storm. Their homes are still dotted
here and there on the tiny, and often barren, plots they were able to
retain in the teeth of aggression. But they have largely repaired the
damage to their interests, and are now ready to venture into larger
holdings. This opportunity has been given them under the Small
Landholders Act (1911), which extends the principle of security and
valuation to farms of 50 acres and under, or £50 rent and under,
throughout the whole of Scotland. The reform has commended itself to
the landlords and agents as well as to the crofters. "I was
opposed to the Act in 1886," said the owner of a large Highland
estate to one of its supporters ten years later. "I was opposed
to the Act. I have changed my mind now. I had the name of getting
rents before, but did not get them. Now I know what I am going to get,
and get it." Every one is better off under the new system. There
is no class of land users in a more sound economic position than these
small holders in the Highlands of Scotland. Security of tenure and a
just valuation for the payment of rent and rates have enabled them to
become independent, and to free themselves from poverty and its fear,
and this without imposing any strain on the financial resources of the
State, and without permitting or encouraging the farmers to involve
themselves in mortgages, the fatal principle of Danish, German and
French small ownership. On these too narrow and inadequate plots of
land, a fine and intelligent race of men has been produced under this
system. How much more would it do with holdings of sufficient size, in
the fertile lands of the south, and in the towns and cities!
The long leasehold tenure in London has proved as injurious to
tenants and to the community as anything in the agricultural
districts. So long ago as 1885, the present Lord Chancellor (Lord
Loreburn) wrote a book, in collaboration with Mr. Henry Broadhurst,
M.P., strongly condemning the system. "The public requirements,"
he concluded, after advancing arguments from many points of view, "the
public requirements demand that there should be an end of this
leasehold system."[14] Still it persists, and is the object of
attack by the President of the Auctioneers' Institute in his annual
address: -
"The 'dead hand' of covenants," says Mr. John
Marks, " which were out of accord with current requirements,
lay heavily upon London. Properties which were originally developed
residentially, but had long since been either within the commercial
area, or had ceased to be suitable for housing, were still subject
to onerous restrictions, which prevented the proper user of building
or sites."[15]
The leasehold system places rigid arrangements in the midst of
constantly changing conditions. A lease which stands in the way of
development, which keeps antiquated and inferior buildings on a site
for years, deprives the lessor, the lessee and the community of their
respective shares in the larger production which is possible. It is
thus that the valuable land of London is blighted, that the builders
and houseowners are hampered and over-rented as seriously as the
peasants of Ireland and Scotland were. The evil is the same
everywhere, and every one is injured.
As the evil is one, so is the remedy. What the Scottish crofters have
obtained is all that the tenants of building land, of farms, of mines
and quarries, require. Secure tenure under reasonable conditions,
freedom to develop sites as changes arise, a valuation as flexible as
water, responsive to every influence which affects the value of land,
would do much to ward off business depression.
NOTES AND REFERENCES TO PART 2
- Working of Taxation on the
Unimproved Value of Land in Queensland, Cd, 3890, 1908.
- Times, February 28,
1912.
- Single Tax Review (New
York), September-October, 1911.
- Canada, May 27, 1911.
- Essays and Addresses on
Economic Questions, p.311.
- Progress and Poverty,
Book V., chap. i.
- Progress and Poverty,
Bk. VIII, chap. ii.
- Social Problems, chap.
xix.
- Mr. Lloyd George, speaking on
December 13, 1911, said: "The right hon. gentleman (Mr.
Austen Chamberlain) suggested that the time has come for an
inquiry (into the valuation). I am not closing my mind to the
question of an inquiry. You must have an inquiry sooner or later.
...I am not going to predict what would happen. . . ."
... Mr. Austen Chamberlain: "
We will risk the result. What we want to know is whether the
valuation is just."
... Mr. Lloyd George: "That is
very important. It is of first-class importance that you should
have a valuation which will command the general confidence of the
community. I do not mean merely the partisans on either side. You
ought to have a valuation which will satisfy the general sense of
fair play and justice. That is very important, and it is desirable
at a fairly early stage to have an inquiry into the way in which
the valuation has proceeded." Hansard, vol. 32, No. 167.
- In the Quarterly Journal
of Economics for November 1910, the following interesting
account and criticism of what is known in the United States as the
Somers system of valuation are given: "The valuation of the
units is arrived at in the following manner. The City Appraisal
Board of Cleveland estimates tentatively the unit values of the
various streets, beginning at the public square and working out in
every direction to the corporation limits. By means of maps and a
campaign of publicity in the city newspapers, these tentative
valuations are scattered broadcast, and the community is invited
to discuss them. At a series of public meetings of the Board,
section after section is covered, many parts being gone over
several times until all interested persons are given ample
opportunity to appear before the Board and submit evidence in
favour of changing the tentative unit values. After being
thoroughly debated by the public in this manner, the unit values
finally agreed to by the majority are regarded as representing the
consensus of opinion. These unit values are confirmed by the
Board, and are not open to further discussion. . .
... "Though this scheme
probably has some imperfections, it is undoubtedly the most
scientific, elaborate and systematic system of valuing real estate
that has ever been used in the United States. There could be
little objection to its theoretical basis, community opinion. Some
doubt may exist as to the accuracy with which community opinion
has been translated into actual values by the various tables and
other devices of the present system. These must faithfully
represent the best informed community opinion."
- "Whether the advantages
outweigh the disadvantages or not is a matter that may safely be
left to the judgment of the peasants who have tried both plans;
and the success of the system may be judged from the fact that, of
the thousands of villages whose land revenue is now assessed
harvest by harvest in this manner, hardly one would willingly give
it up, and revert to that of a fixed average assessment. The
system has also the indirect advantage of bringing the superior
revenue officials into close contact with the villagers; and,
above all, it makes the Government share directly and immediately
with each individual cultivator in his losses as well as in his
profits, and so avoids the odium of a seemingly callous
realization of a fixed demand from poor peasants in years when
their crops have failed. More than a sixth of the total land
revenue demand of the Province is now collected under this system
of fluctuating assessment, and it is becoming common for villagers
to ask to have its benefits extended to them." - Sir James
Wilson in the Journal of the East India Association, July,
1910.
- Imperial Gazetteer of
India, vol. iv., chip, viii.
- "The Ross-shire Crofters'
Club Show was held at Tain yesterday, when there was an increase
in the entries on last year's show. The quality of stock in all
departments was reasonably high, particularly in horses and
cattle, which were a revelation to large numbers of southerners
who are tenants of shootings in the district, and who were present
in the show-yard during the day." - Glasgow Herald,
August 9, 1911.
- Leasehold Enfranchisement,
p.103.
- Presidential Address of
the Auctioneers' Institute, October 20, 1911.
- If more elaborate definitions
are desired, there are Mill's and Marshall's. "The science
which traces the laws of such of the phenomena of society as arise
from the combined operations of mankind for the production of
wealth, in so far as those phenomena are not modified by the
pursuit of any other object." - Mill, Unsettled Questions
of Political Economy, p. 140, "Political Economy, or
Economics, is a study of man's actions in the ordinary business of
life; it inquires how he gets his income and how he uses it,"
- Marshall, Principles of Economics, vol. i, p, i.
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