Teaching Political Economy

Harry Pollard

[Reprinted from a posting at the Henry George Institute
Faculty Lounge, 5 November, 2001]

QUESTION:

Why do you define things this way? Do other economists define things this way or some other way? Is this just your weird conception of things? Will anyone else understand me if I use these definitions in conversation?

As you know, I've already changed the basics to Location (with an Address), Exertion, and Time. However, I get to them via the original Land, Labor, and Capital pointing out that we can take the major characteristic of each Factor and use that.

This change has the added advantage that Rent, Wages, and Interest are returns to Location, Exertion, and Time.

This should be completely clear to the student.

All modern economists have similar definitions. The problem is they don't stick to their own concepts. In fact, an economist writing a book about (say) Capital is likely to preface his thesis with something like "What I mean by Capital is . . . . . ".

The primary importance of the carefully defined concepts is to enable logical reasoning. If we always use these words to mean exactly the same thing, we enhance our ability to think about economics.

Although others may use these words in a wooly fashion even as we use them accurately, the meanings they attach to these labels are likely to be somewhat close to ours, so we can talk to them (albeit with care).

We can always say, "I use Land in the economic sense - meaning all natural resources." Or, "Real estate people always say the three most important things about land are location, location, and location, so when you think of Land, think of location. You don't drill for oil in 'Natural Resources'. You drill at a specific latitude and longitude. Before you can do anything, you need first a location - with an address."

The Monopoly Thing

QUESTION:

Why do you say that land is a monopoly? I thought monopoly was about "cornering the market" on something. Anyone is free to buy and sell land at whatever price they can get for it, so what's monopolistic about that?

Oh, to be able to use the "free market" and "collectible market" routine!

Every location has characteristics that no other location has. Trump bought a skyscraper site in Manhattan for more than $100 million an acre.

Why?

Why not get a much cheaper location somewhere else? The reason, of course, is that only that particular site had the characteristics he had to have to build that skyscraper.

You might think that all lots in a new subdivision are of equal value - until you decide to buy one. Then, all kinds of arguments intrude. Can my child get to school without crossing a road? Will this be sheltered from the prevailing wind? Can I get out to the free way with few stop signs? Am I close to the store? Is a park across the road? Is it (English) a short walk to the pub? Am I on a corner with a much larger lawn? Will my view be the ocean, or a forest -- or will it be my neighbors fence?

Suddenly each one of these identical sites turns out to be different. Every site has characteristics that make it different from other sites. A store might prosper on a corner, yet fail in mid-block.

"Anyone is free to buy and sell (any monopoly product) at whatever price they can get for it." The trouble is that land is vital to everything we do. If we have to pay a monopoly price for it, the extra comes out of our wallets and we are less well-off.

Big Deal

QUESTION:

I don't think land is anywhere near as important as you say. I read in an economics textbook that rent is less than 2% of national income. The real problem is with the fat cat rich people who control all the money. Don't we need an income tax to keep them from getting even richer?

Most of the value of land in any county is under our housing accommodation. Assessors who actually measure land-value (rather than talk theoretically about it as do economists) tell us that land is 50-70% of the total cost of a house. (A recent Australian study estimated Rent as 65% of all Australian housing costs.

Margin of Production? Just an idea ...

QUESTION:

When you say wages and interest depend on the margin of production, you are talking about times which are gone and will never come again. This is a modern economy. Nobody will be able to pack up and go to the frontier; that's a fantasy.

Wages depend on the alternatives open to Labor. If there was freely available land on which could be produced $500 a week - say, growing fresh lettuce for the nearby city, why would you work for less.

Everybody doesn't have to grow lettuce -- or otherwise find lucrative Alternatives -- just some. Say, because of the attractions open elsewhere, 5% of available good labor left the city and another 5% threatened to leave, what would happen to wages within the city?

Wages would soar (or your trash won't be collected, or your schools would remain dirty, or McDonald's would close, or . . . ).

(The Comstock lode example is now appropriate.)

QUESTION: Skyscrapers Everywhere!

You say you want to discourage landowners from holding their land out of use, and that by removing taxes from improvements, you will encourage building. What's to stop unrestrained new construction from eating up every bit of open space in the city? I think maybe we need a few vacant lots just for breathing room.

The central city would be built up with the suburbs close by. Or, would you prefer lots of vacant and under-improved lots forcing people perhaps 50 miles out into the country where they fight for space once occupied by bald eagles and robins.

(This is where the 15 minute compact city comes into its own. Get them thinking about a city without roads and streets -- but instead a city for walking - with the country no further than an 8 minute walk away -- wherever you are. This is called selling the sizzle rather than the steak.)

That's MY land.

QUESTION:

I've earned the money to pay off the mortgage on my little scrap of real estate. I paid for my land fair and square and I ought to be able to do whatever I want with it - including sell it at a profit. That's just how the system works.

Instead, you'll sell your house at a profit not diminished by taxes on your sale, or on your income. Also, the Rent you pay is likely to be less than the property tax you pay now.

Do you want money now -- or in the future when perhaps the bottom has dropped out of the market. Remember the S & L debacle?

What about the risk?

QUESTION:

Listen, the whole point of the free market is that individuals, making self-interested decisions, buy and sell things in an efficient way. Don't people buy and sell real estate in an efficient way? Land speculators take risks like everyone else, and there is a need to compensate risk in a free market. So, doesn't the landowner have a right to collect rent as compensation for the large risk undertaken in making that investment?

You are suggesting that speculators must be assured a profit? You take risks when you speculate. Don't complain if you blow it. The free market guarantees nothing. If speculating in land becomes a poor venture, then speculate in something else more profitable.

And if a site - through no effort of yours -- runs up from $10,000 to $1 million -- look at the other side. Someone who will build, or produce, has to pay that $1 million before he can start work. Does that make his venture more risky and less likely to succeed?

Who do you support? The speculator who adds nothing to the well-being of the community and actually makes it more difficult for others to earn their way, or the builder who will erect a magnificent structure, or a productive factory?

Exploitation!

QUESTION:

Maybe you can raise the Margin of Production a bit. But that won't stop greedy capitalists from paying the workers as little as they possibly can. Large corporations will still use every opportunity to fix prices. This idea of yours simply is not revolutionary.

It's the best reform of all. It's a basic reform that will allow all other reforms to be possible. And it's so radical in it's results, more wealth and privilege attacked Henry George than attacked the contemporary Karl Marx.

It's the most dangerous attack on the fat cats that can be launched.

Confiscation!

QUESTION:

Henry George himself says that if all the land rent is all collected, then the selling price of land will go down to zero. You people are asking me to approve a reform that will take away the value of my land! You're taking away my property without compensation! Why should I accept that?

But, as your land value goes down, the value of your wages, your property, your life, will rise.

Don't you think that taxes NOW take away the values of everything you possess and everything you do?