Wealth and Want
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Boom Bust Cycles

The elder Mirabeau, we are told, ranked the proposition of Quesnay, to substitute one single tax on rent (the impôt unique) for all other taxes, as a discovery equal in utility to the invention of writing or the substitution of the use of money for barter.

To whosoever will think over the matter, this saying will appear an evidence of penetration rather than of extravagance. The advantages which would be gained by substituting for the numerous taxes by which the public revenues are now raised, a single tax levied upon the value of land, will appear more and more important the more they are considered. ...

... With natural opportunities thus free to labor;
  • with capital and improvements exempt from tax, and exchange released from restrictions, the spectacle of willing men unable to turn their labor into the things they are suffering for would become impossible;
  • the recurring paroxysms which paralyze industry would cease;
  • every wheel of production would be set in motion;
  • demand would keep pace with supply, and supply with demand;
  • trade would increase in every direction, and wealth augment on every hand. ... read the whole chapter

Weld Carter: A Clarion Call to Sanity, to Honesty, to Justice

Our problem today, as yesterday, and the days before, back to the earliest recorded times, is POVERTY.

There are times when this problem is lesser. We call these "booms." There are also times when the problem is greatly exacerbated. These are called "busts." But, as the Bible says, "the poor have ye always with ye."

The purpose of this paper is to explore the core of the problem. It is not the position that there is only one single error afoot in our social organizations. There may be several, there may be only a few things to remedy. The position is, as stated earlier, that there is one basic cause of the problem. Therefore, the removal of this one basic error is the first, the primary step, for the simple reason that, until this basic social evil is eradicated, no other reform will avail. We will simply continue the boom and bust cycles until the economies of the whole world are wrecked by inflation or by a nuclear war triggered by the ongoing economic disaster.

Let us begin this study of the likely causes of our troubles by asking two questions:

  • Are we over-populated?
  • Are the earth's resources inadequate for this population?  ...
In our economy, land is a ready object of speculation, and its value is constantly reflecting this evil. What happens in a rising market, the up side of a business cycle, is that investors see rising prices in land as indicative of a boom. Thereupon, they try to increase their holdings in such land, only to discover that their present returns will not pay for the present costs of land; the current price of land is not based on what the yield of that land is today, but on what it is projected to be two or three years from now. The difference tends to increase until a point is reached where the imarginal buyer of land suddenly finds himself unable to meet the rising costs to which he has subjected himself. With bankruptcy threatening him or having already been forced upon him, the land passes from his hands, and the market temporarily becomes overpriced. The bankruptcies increase, and ultimately land values are brought back to levels which represent current productivity, at which point the new boom will have started.

In 1933, the University of Chicago published a book by Homer Hoyt entitled One Hundred Years of Land Values in Chicago. This monumental study consists in 7 chapters, of which each of the first five describes one of the five major business cycles of the period in great detail.

What was so outstanding about Hoyt's book was its compelling confirmation of George's analysis, some thirty-five years after George's death in 1897! What is even more significant is Hoyt's handling of his data in chapters six and seven, the balance of the study. In these two chapters, he selects some sixteen events which not only are present in each cycle, but which occur in the same order in each cycle.

Mr. Hoyt concluded with the usual caveat: that the mere fact that this sequence is observed this many times does not guarantee that it will ever happen again; which is to say that we can never prove truth, we can only fail to disprove it.

The graphic rendition of one such cycle appearing on the following page was devised by John Monroe, the Director of the Commerce and Industry Division of the Chicago Henry George School of Social Science. For classroom use, Mr. Monroe had set up a large magnetized blackboard with a large inverted "U"; the sixteen items of the figure were described on sixteen magnetized chips, which were shuffled and distributed along the participants. The author once had a class of five company presidents; after defining the task, he never spoke during the exercise. The individual members had sole control as to the place on the curve where each chip belonged. It was thrilling to see and hear the discussion and the ultimate positioning of the individual chips. At completion, they matched precisely the historically-based results of Hoyt. Five converts, one of whom had been the President both of Chicago's Real Estate Board and of its Building Managers Association, as well as a trustee of the University of Chicago, walked out of that session.
A Case History of Five Major Booms and Busts 1830-1933

1. Machine techniques, production methods improved
2. Population begins to spurt up
3. Shortage of housing, office & commercial space first felt
4. Rents begin to rise.
5. Selling prices of old buildings begin to advance
6. Vacant lot purchases begin to rise
7. Rate of new construction begins to rise sharply
8. Credit eases to stimulate volume of new building
9. Rapid growth of population projected far into the future
10. Prices of tracts near settled areas advance rapidly to peak.
11. Large tracts subdivided beyond needs of immediate development
12. Lavish public expenditures
13. Rate of population growth falls off
14. Vacancies reappear
15. Rise in rents slackens
16. Volume of building construction at peak.
17. Asking prices of land advance in face of fewer land sales
18. Financial institutions continue loans on peak values in face of lessened construction
19. Holders of 2nd mortgages begin to foreclose with faith in 1st mortgages
20. Stock market crash
21. Unemployment mounts to peak; wages down
22. Increased movement of population to small city or farm; doubling up in city
23. Vacancies mount to peak in houses, apartments, offices, stores; industrial rents down
24. Interest charges high in proportion to net rents
25. Taxes high in proportion to net rents
26. Second mortgage holders wiped out in flood of first mortgage foreclosures
27. Bank failures mount; loaded with real-estate "frozen assets."
28. Volume of new building at bottom
29. Subdividing stopped; most vacant land not salable at any price
30. Construction costs at lowest point 

source: Homer Hoyt: One Hundred Years of Land Values in Chicago, Copyright University of Chicago Press, 1933

There are banks which have gone under supporting rising land prices, loaning money on land at speculative price levels. The answer is not to rescue those banks; it is to rid ourselves of the fundamental process of speculation in land values.

The wringing out of land speculation from the dynamics of economics will remove that unacknowledged offence which has so labored the economic profession and the public at large. As Henry George discovered and as Homer Hoyt so brilliantly depicted speculative land prices as the cause of this bitter cycle, so will its removal rid society of this hitherto hidden defect. It will put the land market on a current value basis and eliminate the terrible risks to which that market has always been subject in the past.

The reason for such speculation under the present practices is obvious. All products of labor are subject to increases or decreases depending on supply and demand. When an oversupply of any commodity begins to rear its ugly head, prices tend downward and production is thereby lessened until there is a contrary swing upward. Land, on the other hand, is of fixed supply. Nothing man does can increase or decrease the amount of land, and therefore that brake that operates in the field of production does not apply to land values and prices.

Just think of the social benefits that would accrue to a society that could, at a stroke, rid itself of the potential hazards to which all prior societies have been so subject. Production will then occur on a steadily rising level, demand increases as the well-being of society improves, new techniques develop, new inventions are made, and all these will be benefits to the community as a whole, and not just to the land-owners as in the past.  ... read the whole essay

Henry George:  The Land Question (1881)

I wish clearly to bring to view this point. The Irish famine was not a true famine arising from scarcity of food. It was what an English writer styled the Indian famine – a "financial famine," arising not from scarcity of food but from the poverty of the people. The effect of the short crops in producing distress was not so much in raising the price of food as in cutting off the accustomed incomes of the people. The masses of the Irish people get so little in ordinary times that they are barely able to live, and when anything occurs to interrupt their accustomed incomes they have nothing to fall back on.

Yet is this not true of large classes in all countries? And are not all countries subject to just such famines as this Irish famine? Good seasons and bad seasons are in the order of nature, just as the day of sunshine and the day of rain, the summer's warmth and the winter's snow. But agriculture is, on the whole, as certain as any other pursuit, for even those industries which may be carried en regardless of weather are subject to alternations as marked as those to which agriculture is liable. There are good seasons and bad seasons even in fishing and hunting, while the alternations are very marked in mining and in manufacturing. In fact, the more highly differentiated branches of industry which advancing civilization tends to develop, though less directly dependent upon rain and sunshine, heat and cold, seem increasingly subject to alternations more frequent and intense. Though in a country of more diversified industry the failure of a crop or two could not have such wide-spread effects as in Ireland, yet the countries of more complex industries are liable to a greater variety of disasters. A war on another continent produces famine in Lancashire; Parisian milliners decree a change of fashion, and Coventry operatives are saved from starvation only by public alms; a railroad combination decides to raise the price of coal, and Pennsylvania miners find their earnings diminished by half or totally cut off; a bank breaks in New York, and in all the large American cities soup-houses must be opened!

In this Irish famine which provoked the land agitation, there is nothing that is peculiar. Such famines on a smaller or a larger scale are constantly occurring. Nay, more! the fact is, that famine, just such famine as this Irish famine, constantly exists in the richest and most highly civilized lands. It persists even in "good times" 'when trade is "booming;" it spreads and rages whenever from any cause industrial depression comes. It is kept under, or at least kept from showing its worst phases, by poor-rates and almshouses, by private benevolence and by vast organized charities, but it still exists, gnawing in secret when it does not openly rage. In the very centers of civilization, where the machinery of production and exchange is at the highest point of efficiency, where bankvaults hold millions, and show-windows flash with more than a prince's ransom, where elevators and warehouses are gorged with grain, and markets are piled with all things succulent and toothsome, where the dinners of Lucullus are eaten every day, and, if it be but cool, the very greyhounds wear dainty blankets–in these centers in wealth and power and refinement, there are always hungry men and women and little children. Never the sun goes down but on human beings prowling like wolves far food, or huddling together like vermin for shelter and warmth. "Always with You" is the significant heading under which a New York paper, in these most prosperous times, publishes daily the tales of chronic famine; and in the greatest and richest city in the world–in that very London where the plenty of meat in the butchers' shops seemed to some savages the most wondrous of all its wonderful sights–in that very London, the mortuary reports have a standing column for deaths by starvation.

But no more in its chronic than in its spasmodic forms is famine to be measured by the deaths from starvation. Perfect, indeed, in all its parts must be the human machine if it can run till the last bit of available tissue be drawn to feed its fires. It is under the guise of disease to which physicians can give less shocking names, that famine–especially the chronic famine of civilization–kills. And the statistics of mortality, especially of infant mortality, show that in the richest communities famine is constantly at its work. Insufficient nourishment, inadequate warmth and clothing, and unwholesome surroundings, constantly, in the very centers of plenty, swell the death-rates. What is this but famine – just such famine as the Irish famine? It is not that the needed things are really scarce; but that those whose need is direst have not the means to get them, and, when not relieved by charity, want kills them in its various ways. When, in the hot midsummer, little children die like flies in the New York tenement wards, what is that but famine? And those barges crowded with such children that a noble and tender charity sends down New York Harbor to catch the fresh salt breath of the Antlantic – are they not fighting famine as truly as were our food-laden war-ship and the Royal Prince's gunboats? Alas! to find famine one has not to cross the sea.

There was bitter satire in the cartoon that one of our illustrated papers published when subscriptions to the Irish famine fund were being made – a cartoon that represented James Gordon Bennett sailing away for Ireland in a boat loaded down with provisions, while a sad-eyed, hungry-looking, tattered group gazed wistfully on them from the pier. The bite and the bitterness of it, the humiliating sting and satire of it, were in its truth.

This is "the home of freedom," and "the asylum of the oppressed;" our population is yet sparse, our public domain yet wide; we are the greatest of food producers, yet even here there are beggars, tramps, paupers, men torn by anxiety for the support of their families, women who know not which way to turn, little children growing up in such poverty and squalor that only a miracle can keep them pure. "Always with you," even here. What is the week or the day of the week that our papers do not tell of man or woman who, to escape the tortures of want, has stepped out of life unbidden? What is this but famine?... read the whole article

Henry George: The Condition of Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)

That the value attaching to land with social growth is intended for social needs is shown by the final proof. God is indeed a jealous God in the sense that nothing but injury and disaster can attend the effort of men to do things other than in the way he has intended; in the sense that where the blessings he proffers to men are refused or misused they turn to evils that scourge us. And just as for the mother to withhold the provision that fills her breast with the birth of the child is to endanger physical health, so for society to refuse to take for social uses the provision intended for them is to breed social disease.

For refusal to take for public purposes the increasing values that attach to land with social growth is to necessitate the getting of public revenues by taxes that lessen production, distort distribution and corrupt society. It is to leave some to take what justly belongs to all; it is to forego the only means by which it is possible in an advanced civilization to combine the security of possession that is necessary to improvement with the equality of natural opportunity that is the most important of all natural rights. It is thus at the basis of all social life to set up an unjust inequality between man and man, compelling some to pay others for the privilege of living, for the chance of working, for the advantages of civilization, for the gifts of their God. But it is even more than this. The very robbery that the masses of men thus suffer gives rise in advancing communities to a new robbery. For the value that with the increase of population and social advance attaches to land being suffered to go to individuals who have secured ownership of the land, it prompts to a forestalling of and speculation in land wherever there is any prospect of advancing population or of coming improvement, thus producing an artificial scarcity of the natural elements of life and labor, and a strangulation of production that shows itself in recurring spasms of industrial depression as disastrous to the world as destructive wars. It is this that is driving men from the old countries to the new countries, only to bring there the same curses. It is this that causes our material advance not merely to fail to improve the condition of the mere worker, but to make the condition of large classes positively worse. It is this that in our richest Christian countries is giving us a large population whose lives are harder, more hopeless, more degraded than those of the veriest savages. It is this that leads so many men to think that God is a bungler and is constantly bringing more people into his world than he has made provision for; or that there is no God, and that belief in him is a superstition which the facts of life and the advance of science are dispelling.... read the whole letter

John Dewey: Steps to Economic Recovery

You have heard much about various steps that should be taken to promote economic recovery. I propose this evening to concentrate attention upon one step, a step absolutely fundamental to permanent recovery of the sick patient, as distinct from remedies that dope the patient into a temporary hectic burst of activity; a step so simple and so basic as to be generally neglected.

The one thing uppermost in the minds of everybody today is the appalling existence of want in the midst of plenty, of millions of unemployed in the midst of idle billions of hoarded money and unused credit, as well as factories and mills deteriorating for lack of use, of hunger while farmers are burning grain for fuel.

No wonder people are asking what sort of a crazy economic system we have when at a time when millions are short of adequate food, when babies are going without the milk necessary for their growth, the best remedy that experts can think of and that the Federal Government can recommend is to pay a premium to farmers to grow less grain with which to make flour to feed the hungry, and pay a premium to dairymen to send less milk to market.

Henry George called attention to this situation over fifty years ago. The contradiction between increasing plenty, increase of potential security--and actual want and insecurity is stated in the title of his chief work, Progress and Poverty. That is what his book is about. It is a record of the fact that as the means and appliances of civilization increase, poverty and insecurity also increase. It is an exploration of why millionaires and tramps multiply together. It is a prediction of why this state of affairs will continue; it is a prediction of the plight in which the nation finds itself today. At the same time it is the explanation of why this condition is artificial, man-made, unnecessary, and how it can be remedied. ...

Go to the work of Henry George himself and learn how many of the troubles from which society still suffers, and suffers increasingly, are due to the fact that a few have monopolized the land, and that in consequence they have the power to dictate to others access to the land and to its products -- which include waterpower, electricity, coal, iron and all minerals, as well as the foods that sustain life -- and that they have the power to appropriate to their private use the values that the industry, the civilized order, the very benefactions, of others produce. This wrong is at the very basis of our present social and economic chaos, and until it is righted, all steps toward economic recovery may be temporarily helpful while in the long run useless.

I suppose my hearers have heard the following line of consolation put forth by professional optimists like Mr. Charles Schwab and his imitators. "To be sure," they say, "we have a bad depression, but we have had in our history at least nine such depressions before, and yet have come out of them all to enjoy even better times than went before." What a wonderful consolation, and what a wonderful system! We can get out of our present hole and climb up in order to fall into a tenth, and eleventh and twelfth hole, and so on, each deeper than the one before! Is it not about time that instead of patching up here and there we try to go to the roots of our troubles? ... read the whole speech

Bill Batt: The Fallacy of the "Three-Legged Stool" Metaphor

A second claim among advocates of spreading tax burdens over the "big three" bases (and sometimes more if possible) is that it insures greater reliability and stability of the revenue streams supportive of government services.  To be sure not all government services require stable budgets -- motor vehicle licensure varies with the state of the economy as do the needs of social welfare programs and some offices related to capital investment.  But most programs do need to rely on predictable and stable financial support, particularly education, health, and public safety.  With revenue streams based on formulas that vacillate from year to year, it becomes difficult to provide for public needs, and the continual political struggle over fiscal designs is frequently costly.
Economic cycles are accepted as a given in both government and business circles.  But there is compelling evidence that such cycles have their roots in the tendency for elements of the financial community to speculate in real estate, fostering bubbles in their market prices that ultimately must be reconciled with the real demand.5  Because the market price of Land is in good part a function of the settling of rent, the recapture of that rent in the form of taxation can both stabilize those markets and remove the cause of those periodic cycles.  By collecting only a miniscule element of Land rent, and instead collecting revenue from Labor and Capital, economic cycles are amplified and exacerbated, to say nothing of their effect on productivity.  Evidence of the stabilizing effect of taxes on Land in the form of economic rent collection is shown best by the fact that those nations and states that rely most heavily on Land taxation are least subject to cyclical tendencies and intermittent recessions.  Japan, which imposes no tax on urban land, has yet to recover from the crash in its real estate market almost fifteen years ago. ...  Read the whole article

Bill Batt: Who Says Cities are Poor? They Just Don't Know How to Tax Their Wealth!

The Perfect Tax

In the final analysis, a tax should be evaluated according to the tenets of sound tax theory that have evolved over the course of recent centuries, and much of what has been said above is recaptured by a review of those principles. These measures of what is a "good" tax or a "bad" tax are often listed differently in textbooks, but they are largely agreed upon. Failure to conform to these venerable benchmarks is by itself sufficient cause to explain an economy's faltering — a particularly noteworthy example today is the city of Philadelphia which appears to have done everything backward! It taxes income, sales, building capital and even business privilege, the result being that its fisc is destitute.[20] The principles by which to measure tax design are enumerated here so as to make quite clear how recapturing economic rent in the form of taxes — in all the several forms where 'land' can be identified — constitutes the best method of financing government services and the most advantageous to cities.[21]

The first measure of a good tax is its neutrality. A neutral tax in no way alters the behavior of its partners from what would transpire were there no tax at all. A simple example illustrates the case: today many consumers will travel to alternate jurisdictions to avoid paying a sales tax on particular items, be they food, medication, clothing, or whatever. Taxes fully absorbed ("capitalized") in a market price such as land taxes in no way distort behavior, the volume of transactions, or gross prices. They are neutral.

A tax should also be efficient. To be sure, efficiency has many meanings even in economics. But here, rather than speaking of the administrative efficiency of its collection as will be addressed below, the measure is whether and how much it constitutes an excess burden on the economy, thereby slowing down performance and market vitality. Many taxes, as was mentioned earlier, exert so much drag on market transactions that they are destructive, however much revenue is brought to government coffers. Because land has a fixed supply there is no excess burden at all.

People are frequently most concerned about the fairness of a tax, which is typically measured according to both horizontal and vertical equity. Horizontal equity means that those in similar circumstances will bear similar burdens. Vertical equity prescribes that those with greater resources will pay more. Although studies have yet to show this, land taxes are likely the most "progressive" of any levy, as tenants bear no passed-through burden at all.[22] Not only does no household or office tenant bear any tax burden, locational sites distant from the urban core, mostly homeowners and farmers, typically find their burden reduced. Vacant or underused lots in high value areas pick up the difference, employing a design that employs an alternate criterion of equity: taxing according to use. "Paying for what you take and not for what you make" encourages efficient consumption of space and resources in an automatic and non-coercive manner. The one-third of households that own no land are relieved of all taxes, and residential and non-residential property owners split the rest. Farmers, whose land is typically of inconsequential value relative to sites in urban areas, are likely to pay little if anything even if they are not already protected by other save-harmless provisions. By eliminating taxes on building improvements they typically enjoy savings just as do other businesses.

All this makes for a far simpler and more comprehensible system of taxation. Land taxes are totally transparent, impossible to evade, and therefore much more administrable. This further engenders the legitimacy of taxation and of government itself. What it also does is assure stability to the tax system, for the reason that land values are not subject to the variations and vacillations that other tax bases frequently have. Indeed, the removal of economic rent from locational sites discourages speculative bubbles and the related economic cycles that are associated with them. This greater stability and reliability is to the advantage of every sector of the economy — private, public, and non-profit.

A tax that collects economic rent offers a win-win proposition to every sector of the community — except to those who speculate in land. But who wants to favor land speculators? They are not held in high regard anywhere; their destructive behavior is the bane of cities, recognized everywhere for what it is: parasitic and passive. Speculators provide no added value to a community's well-being, and taxing rent is a foolproof means by which to eliminate it. Land speculation is highest where the most rent can be privately captured, but it forces those who choose to develop to look to sub-optimal locations when the primary locations they hoped for are held off the market for opportunistic gain. By collecting rent, primary choice locations become available for use and to facilitate the development of land use configurations ideal for the economic health and efficient allocation. Urban ambience is improved, public sector service costs are reduced, and sprawl development is stemmed. ... read the whole article
Kris Feder: Progress and Poverty Today
As this book was written, the Industrial Revolution was transforming America and Europe at a breathless pace. In just a century, an economy that worked on wind, water, and muscular effort had become supercharged by steam, coal, and electricity. Canals, railroads, steamships and the telegraph were linking regional economies into a national and global network of exchange. The United States had stretched from coast to coast; the western frontier was evaporating.

American journalist and editor Henry George marveled at the stunning advance of technology, yet was alarmed by ominous trends. Why had not this unprecedented increase in productivity banished want and starvation from civilized countries, and lifted the working classes from poverty to prosperity? Instead, George saw that the division of labor, the widening of markets, and rapid urbanization had increased the dependence of the working poor upon forces beyond their control. The working poor were always, of course, the most vulnerable in depressions, and last to recover from them. Unemployment and pauperism had appeared in America, and indeed, were more prevalent in the developed East than in the aspiring West. It was "as though a great wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down." This, the "great enigma of our times," was the problem George set out to solve in Progress and Poverty....

... Yet a half century before Keynes, George outlined a theory of boom and bust which explained the underlying instability of the market economy under present fiscal institutions. ... Read the whole article
Fred Foldvary: Geo-Rent: A Plea to Public Economists
OTHER ADVANTAGES OF TAPPING GEO-RENT While this article will not necessarily serve as a manifesto for the idea of tapping geo-rent to fund community goods, there are a number of further advantages that merit passing mention.
  • Geo-rent taxation would reduce sprawl. Current tax policies tend to discourage the development of urban land, because the fruits of those developments are directly taxed. To the extent that those policies are replaced by policies that tap geo-rent, the landowner is incented to develop his land. Recall, an underused site pays the same geo-rent tax as a developed site. The untaxing of production combined with the tapping of geo-rent will induce infilling of the city center, making for a more compact city, agreeable to mixed use and pedestrian activity. Hence, the demand-side push for sprawl is diminished. Moreover, the supply-side pull toward sprawl would also be diminished: Today, sprawl landowners are subsidized by extraneous taxpayers who pay for the roads, sewers, schools, fire-fighting, and security in the sprawl neighborhoods. If those services depended on the community’s geo-rent, the pull toward sprawl would be reduced.
  • Dampening cycles: Today, a factor in cycles is real-estate speculation. An economic boom increases the price of land, and speculation can drive prices even higher. Geo-rent taxation would mean that there are no “killings” to be made in land, since 75 percent of the geo-rent would flow to the government, not the landowner. Tapping geo-rent would dampen the real-estate cycle, which in turn dampens the business cycle (Foldvary, 1997).
  • Tax-base of last resort: Technology promises to make capital and people ever more mobile, and encryption promises to make money and enterprise less visible. Put differently, technology threatens to make conventional taxation more difficult. Tapping geo-rent may well be the revenue source most suitable for the 21st century. Technology will never enable the landowner to hide his land or move it off-shore. Read the entire article
Lindy Davies:   The Top Ten Reasons Why Land is More Important than Ever
The Georgist economic proposal insists on the primary importance of land as a factor in the economy. Many people dismiss that as a quaint, agrarian notion. "Perhaps," they scoff, "land was that significant back when most people had to work the soil for a living, but modern agriculture has moved far past that! Nowadays we deal with modern issues of technology, global markets, information -- land is no longer a big deal."
10. There's no place to dump your trash for free. ...
9. Scratch a financial crisis, find a real estate bubble. ...
8. Information (like railroads) needs routes. ...
7. Cities can no longer afford to be inefficient. ...
6. Global climate change is too likely to ignore. ...
5. The loss of biological diversity cannot be reversed. ...
4. Two out of every five people lack a safe and dependable source of drinking water. ...
3. The myth of overpopulation causes cultural sickness. ...
2. We have forgotten what nations are. ...
1. "The land shall not be sold forever, for ye are strangers and sojourners with Me." ...

Albert Jay Nock — Henry George: Unorthodox American

Somehow he did manage to live. By one means or another he got over the peak of his greatest distress, and four years later, in the winter of 1868, he came from California to New York on an errand for a newspaper. He was then not quite thirty years old, and did not even yet have a dollar in his pocket that he could call his own. New York showed him something brand-new in his experience. Up to this time he had not been in a position to see any great show of inequality in the distribution of wealth. Life was simple in the Philadelphia of his boyhood days, and in the rough and new California of his youth one person lived much like another. But now, in the New York of 1868, he saw our western Palmyra in all the shoddy glory of its post-war period, and by all accounts it must have been a most dreadful sight, as repulsive as the pens of Dickens and George William Curtis pictured it. Shoddy riches, shoddy show, shoddy ideals and taste, shoddy people — and on the other hand, whole populations of troglodyte slum-dwellers living at an almost inconceivable depth of wretchedness and degradation.

Years afterward George said that here “I saw and recognized for the first time the shocking contrast between monstrous wealth and debasing want.” What was the cause of it? Again, nobody seemed to know. Like depressions and plagues, it was taken as part of the regular order of nature. It had always existed in large commercial and industrial centers, apparently it was bound always to exist, and it seemed to be just another one of the things that had to be put up with. There was no cure for it, so far as anybody knew. All that could be done was to take some of the curse off it by charity of one sort or another, and this was being done; in fact, it was beginning to be organized on a large scale, more lavishly perhaps than in any other country.

Nevertheless, George reasoned with himself, the thing had to have a cause, for nothing in nature ever happens without a cause. If that cause could be found, a cure might be found; but trying to deal with an effect without knowing anything about its cause would be mere fumbling in the dark. Here, then, was a second question, to which George pledged his lifetime for an answer. The first question was, what is the cause — not any superficial and apparent cause, but the true fundamental cause — of recurrent industrial depressions? The second question was, what is the true fundamental cause of the enormous inequality in the distribution of wealth?

George succeeded in answering these two questions to his own satisfaction while he was still a comparatively young man. This was the only success he ever had in his life; whatever else he touched failed. His one success, however, such as it was, led him through one of the strangest and most remarkable careers ever achieved in America, or for that matter, in the world. ...read the whole article

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)

Poverty is widespread and pitiable. This we know. Its general manifestations are so common that even good men look upon it as a providential provision for enabling the rich to drive camels through needles' eyes by exercising the modern virtue of organized giving.32 Its occasional manifestations in recurring periods of "hard times"33 are like epidemics of a virulent disease, which excite even the most contented to ask if they may not be the next victims. Its spasms of violence threaten society with anarchy on the one hand, and, through panic-stricken efforts at restraint, with loss of liberty on the other. And it persists and deepens despite the continuous increase of wealth producing power.34

33. Differences between "hard times" and "good times" are but differences in degrees of poverty and in the people who suffer from it. Times are always hard with the multitude. But the voice of the multitude is too weak to be heard at ordinary times through the ordinary trumpets of public opinion. They are not regarded nor do they regard themselves as people of any importance in the industrial world, so long as the general wheels of business revolve. It is only when poverty has eaten its way up through the various strata of struggling and pinching and squeezing and squirming humanity, and with its cancerous tentacles touched the superincumbent layers of manufacturing nabobs, merchant princes, railroad kinds, great bankers and great landowners that we hear any general complain of "hard times." ...

d. Effect of Confiscating Rent to Private Use.

By giving Rent to individuals society ignores this most just law, 99 thereby creating social disorder and inviting social disease. Upon society alone, therefore, and not upon divine Providence which has provided bountifully, nor upon the disinherited poor, rests the responsibility for poverty and fear of poverty.

99. "Whatever dispute arouses the passions of men, the conflict is sure to rage, not so much as to the question 'Is it wise?' as to the question 'Is it right?'

"This tendency of popular discussions to take an ethical form has a cause. It springs from a law of the human mind; it rests upon a vague and instinctive recognition of what is probably the deepest truth we can grasp. That alone is wise which is just; that alone is enduring which is right. In the narrow scale of individual actions and individual life this truth may be often obscured, but in the wider field of national life it everywhere stands out.

"I bow to this arbitrament, and accept this test." — Progress and Poverty, book vii, ch. i.

The reader who has been deceived into believing that Mr. George's proposition is in any respect unjust, will find profit in a perusal of the entire chapter from which the foregoing extract is taken.

Let us try to trace the connection by means of a chart, beginning with the white spaces on page 68. As before, the first-comers take possession of the best land. But instead of leaving for others what they do not themselves need for use, as in the previous illustrations, they appropriate the whole space, using only part, but claiming ownership of the rest. We may distinguish the used part with red color, and that which is appropriated without use with blue. Thus: [chart]

But what motive is there for appropriating more of the space than is used? Simply that the appropriators may secure the pecuniary benefit of future social growth. What will enable them to secure that? Our system of confiscating Rent from the community that earns it, and giving it to land-owners who, as such, earn nothing.100

100. It is reported from Iowa that a few years ago a workman in that State saw a meteorite fall, and. securing possession of it after much digging, he was offered $105 by a college for his "find." But the owner of the land on which the meteorite fell claimed the money, and the two went to law about it. After an appeal to the highest court of the State, it was finally decided that neither by right of discovery, nor by right of labor, could the workman have the money, because the title to the meteorite was in the man who owned the land upon which it fell.

Observe the effect now upon Rent and Wages. When other men come, instead of finding half of the best land still common and free, as in the corresponding chart on page 68, they find all of it owned, and are obliged either to go upon poorer land or to buy or rent from owners of the best. How much will they pay for the best? Not more than 1, if they want it for use and not to hold for a higher price in the future, for that represents the full difference between its productiveness and the productiveness of the next best. But if the first-comers, reasoning that the next best land will soon be scarce and theirs will then rise in value, refuse to sell or to rent at that valuation, the newcomers must resort to land of the second grade, though the best be as yet only partly used. Consequently land of the first grade commands Rent before it otherwise would.

As the sellers' price, under these circumstances, is arbitrary it cannot be stated in the chart; but the buyers' price is limited by the superiority of the best land over that which can be had for nothing, and the chart may be made to show it: [chart]

And now, owing to the success of the appropriators of the best land in securing more than their fellows for the same expenditure of labor force, a rush is made for unappropriated land. It is not to use it that it is wanted, but to enable its appropriators to put Rent into their own pockets as soon as growing demand for land makes it valuable.101 We may, for illustration, suppose that all the remainder of the second space and the whole of the third are thus appropriated, and note the effect: [chart]

At this point Rent does not increase nor Wages fall, because there is no increased demand for land for use. The holding of inferior land for higher prices, when demand for use is at a standstill, is like owning lots in the moon — entertaining, perhaps, but not profitable. But let more land be needed for use, and matters promptly assume a different appearance. The new labor must either go to the space that yields but 1, or buy or rent from owners of better grades, or hire out. The effect would be the same in any case. Nobody for the given expenditure of labor force would get more than 1; the surplus of products would go to landowners as Rent, either directly in rent payments, or indirectly through lower Wages. Thus: [chart]

101. The text speaks of Rent only as a periodical or continuous payment — what would be called "ground rent." But actual or potential Rent may always be, and frequently is, capitalized for the purpose of selling the right to enjoy it, and it is to selling value that we usually refer when dealing in land.

Land which has the power of yielding Rent to its owner will have a selling value, whether it be used or not, and whether Rent is actually derived from it or not. This selling value will be the capitalization of its present or prospective power of producing Rent. In fact, much the larger proportion of laud that has a selling value is wholly or partly unused, producing no Rent at all, or less than it would if fully used. This condition is expressed in the chart by the blue color.

"The capitalized value of land is the actuarial 'discounted' value of all the net incomes which it is likely to afford, allowance being made on the one hand for all incidental expenses, including those of collecting the rents, and on the other for its mineral wealth, its capabilities of development for any kind of business, and its advantages, material, social, and aesthetic, for the purposes of residence." — Marshall's Prin., book vi, ch. ix, sec. 9.

"The value of land is commonly expressed as a certain number of times the current money rental, or in other words, a certain 'number of years' purchase' of that rental; and other things being equal, it will be the higher the more important these direct gratifications are, as well as the greater the chance that they and the money income afforded by the land will rise." — Id., note.

"Value . . . means not utility, not any quality inhering in the thing itself, but a quality which gives to the possession of a thing the power of obtaining other things, in return for it or for its use. . . Value in this sense — the usual sense — is purely relative. It exists from and is measured by the power of obtaining things for things by exchanging them. . . Utility is necessary to value, for nothing can be valuable unless it has the quality of gratifying some physical or mental desire of man, though it be but a fancy or whim. But utility of itself does not give value. . . If we ask ourselves the reason of . . . variations in . . . value . . . we see that things having some form of utility or desirability, are valuable or not valuable, as they are hard or easy to get. And if we ask further, we may see that with most of the things that have value this difficulty or ease of getting them, which determines value, depends on the amount of labor which must be expended in producing them ; i.e., bringing them into the place, form and condition in which they are desired. . . Value is simply an expression of the labor required for the production of such a thing. But there are some things as to which this is not so clear. Land is not produced by labor, yet land, irrespective of any improvements that labor has made on it, often has value. . . Yet a little examination will show that such facts are but exemplifications of the general principle, just as the rise of a balloon and the fall of a stone both exemplify the universal law of gravitation. . . The value of everything produced by labor, from a pound of chalk or a paper of pins to the elaborate structure and appurtenances of a first-class ocean steamer, is resolvable on analysis into an equivalent of the labor required to produce such a thing in form and place; while the value of things not produced by labor, but nevertheless susceptible of ownership, is in the same way resolvable into an equivalent of the labor which the ownership of such a thing enables the owner to obtain or save." — Perplexed Philosopher, ch. v.

The figure 1 in parenthesis, as an item of Rent, indicates potential Rent. Labor would give that much for the privilege of using the space, but the owners hold out for better terms; therefore neither Rent nor Wages is actually produced, though but for this both might be.

In this chart, notwithstanding that but little space is used, indicated with red, Wages are reduced to the same low point by the mere appropriation of space, indicated with blue, that they would reach if all the space above the poorest were fully used. It thereby appears that under a system which confiscates Rent to private uses, the demand for land for speculative purposes becomes so great that Wages fall to a minimum long before they would if land were appropriated only for use.

In illustrating the effect of confiscating Rent to private use we have as yet ignored the element of social growth. Let us now assume as before (page 73), that social growth increases the productive power of the given expenditure of labor force to 100 when applied to the best land, 50 when applied to the next best, 10 to the next, 3 to the next, and 1 to the poorest. Labor would not be benefited now, as it appeared to be when on page 73 we illustrated the appropriation of land for use only, although much less land is actually used. The prizes which expectation of future social growth dangles before men as the rewards of owning land, would raise demand so as to make it more than ever difficult to get land. All of the fourth grade would be taken up in expectation of future demand; and "surplus labor" would be crowded out to the open space that originally yielded nothing, but which in consequence of increased labor power now yields as much as the poorest closed space originally yielded, namely, 1 to the given expenditure of labor force.102 Wages would then be reduced to the present productiveness of the open space. Thus: [chart]

102. The paradise to which the youth of our country have so long been directed in the advice, "Go West, young man, go West," is truthfully described in "Progress and Poverty," book iv, ch. iv, as follows :

"The man who sets out from the eastern seaboard in search of the margin of cultivation, where he may obtain land without paying rent, must, like the man who swam the river to get a drink, pass for long distances through half-titled farms, and traverse vast areas of virgin soil, before he reaches the point where land can be had free of rent — i.e., by homestead entry or preemption."

If we assume that 1 for the given expenditure of labor force is the least that labor can take while exerting the same force, the downward movement of Wages will be here held in equilibrium. They cannot fall below 1; but neither can they rise above it, no matter how much productive power may increase, so long as it pays to hold land for higher values. Some laborers would continually be pushed back to land which increased productive power would have brought up in productiveness from 0 to 1, and by perpetual competition for work would so regulate the labor market that the given expenditure of labor force, however much it produced, could nowhere secure more than 1 in Wages.103 And this tendency would persist until some labor was forced upon land which, despite increase in productive power, would not yield the accustomed living without increase of labor force. Competition for work would then compel all laborers to increase their expenditure of labor force, and to do it over and over again as progress went on and lower and lower grades of land were monopolized, until human endurance could go no further.104 Either that, or they would be obliged to adapt themselves to a lower scale of living.105

103. Henry Fawcett, in his work on "Political Economy," book ii, ch. iii, observes with reference to improvements in agricultural implements which diminish the expense of cultivation, that they do not increase the profits of the farmer or the wages of his laborers, but that "the landlord will receive in addition to the rent already paid to him, all that is saved in the expense of cultivation." This is true not alone of improvements in agriculture, but also of improvements in all other branches of industry.

104. "The cause which limits speculation in commodities, the tendency of increasing price to draw forth additional supplies, cannot limit the speculative advance in land values, as land is a fixed quantity, which human agency can neither increase nor diminish; but there is nevertheless a limit to the price of land, in the minimum required by labor and capital as the condition of engaging in production. If it were possible to continuously reduce wages until zero were reached, it would be possible to continuously increase rent until it swallowed up the whole produce. But as wages cannot be permanently reduced below the point at which laborers will consent to work and reproduce, nor interest below the point at which capital will be devoted to production, there is a limit which restrains the speculative advance of rent. Hence, speculation cannot have the same scope to advance rent in countries where wages and interest are already near the minimum, as in countries where they are considerably above it. Yet that there is in all progressive countries a constant tendency in the speculative advance of rent to overpass the limit where production would cease, is, I think, shown by recurring seasons of industrial paralysis." — Progress and Poverty, book iv, ch. iv.

105. As Puck once put it, "the man who makes two blades of grass to grow where but one grew before, must not be surprised when ordered to 'keep off the grass.' "

They in fact do both, and the incidental disturbances of general readjustment are what we call "hard times." 106 These culminate in forcing unused land into the market, thereby reducing Rent and reviving industry. Thus increase of labor force, a lowering of the scale of living, and depression of Rent, co-operate to bring on what we call "good times." But no sooner do "good times" return than renewed demands for land set in, Rent rises again, Wages fall again, and "hard times" duly reappear. The end of every period of "hard times" finds Rent higher and Wages lower than at the end of the previous period.107

106. "That a speculative advance in rent or land values invariably precedes each of these seasons of industrial depression is everywhere clear. That they bear to each other the relation of cause and effect, is obvious to whoever considers the necessary relation between land and labor." — Progress and Poverty, book v, ch. i.

107. What are called "good times" reach a point at which an upward land market sets in. From that point there is a downward tendency of wages (or a rise in the cost of living, which is the same thing) in all departments of labor and with all grades of laborers. This tendency continues until the fictitious values of land give way. So long as the tendency is felt only by that class which is hired for wages, it is poverty merely; when the same tendency is felt by the class of labor that is distinguished as "the business interests of the country," it is "hard times." And "hard times" are periodical because land values, by falling, allow "good times" to set it, and by rising with "good times" bring "hard times" on again. The effect of "hard times" may be overcome, without much, if any, fall in land values, by sufficient increase in productive power to overtake the fictitious value of land.

The dishonest and disorderly system under which society confiscates Rent from common to individual uses, produces this result. That maladjustment is the fundamental cause of poverty. And progress, so long as the maladjustment continues, instead of tending to remove poverty as naturally it should, actually generates and intensifies it. Poverty persists with increase of productive power because land values, when Rent is privately appropriated, tend to even greater increase. There can be but one outcome if this continues: for individuals suffering and degradation, and for society destruction. ...

Q46. How can it be possible that speculative land values cause business depressions when, as any business man will tell you, the whole item of land value — whether ground rent or interest on purchase money — is one of the smallest items in every business?
A. You overlook the fact that the item of speculative rent is the only item which the business man does not get back again. The cost of his goods, the expense of clerk hire, the rent of his building, the wear and tear of implements, are all received back, in the course of normal business, in the prices of his goods. Even his ground rent, to the extent that it is normal (i.e., what it would be if the supply of land were determined alone by land in use, and not affected by the land that is held out of use for higher values), comes back to him in the sense that his aggregate profits are that much greater than they would be where ground rent was less. But the extra ground rent which he is obliged to pay, in consequence of the abnormal scarcity of land, is a dead weight; it does not come back to him. Therefore, even if infinitesimal in amount, as compared with the other expenses of his business — and that is by no means admitted — it is the one expense which may break a thriving business down. Besides, it is not alone the ground rent paid by the business man for his location that bears down upon his business prosperity; the weight of abnormally high land values in general presses upon business in general, and by obstructing the flow of trade forces the weaker business units to the wall. It is not altogether safe to deduce general economic principles from the ledgers of particular business houses.... read the book

Alanna Hartzok: Earth Rights Democracy: Public Finance based on Early Christian Teachings

The wealth gap is increasing in the US. According to the latest Federal Reserve data, the top 1% of the population has $2 trillion more wealth than the bottom 90 percent.

Perceptions of the causal factors of these statistics and the suffering of so many who lack basic necessities in this wealthy country are most often simplistic explanations - these people lack money and they lack money because they lack jobs or their wages are too low, or housing costs are too high. For those concerned about the growing wealth gap in America and worldwide, and the resultant poverty, homelessness, hunger and food insecurity, the dilemma usually bogs down into supply or demand side efforts to find solutions. But the root cause is a deeper injustice.

The primary cause of the enormous and growing wealth gap is that the land and natural resources of the earth are treated as if they are mere market commodities from which a few are allowed to reap massive private profits or hold land and resources out of use in anticipation of future profits. Henry George, the great 19th century American political economist and social philosopher, proposed a solution to a problem that too few understood at the time and too few understand today. Early Christian teachings drew upon deep wisdom teachings of the Jubilee justice tradition when they addressed this problem. The problem is the Land Problem.

The Land Problem takes two primary forms: land price escalation and concentrated land ownership.
  • As our system of economic development proceeds, land values rise faster than wages increase, until inevitably the price paid for access to land consumes increasing amounts of a worker's wages. In classical economics, this dilemma is called the "law of rent" and has been mostly ignored by mainstream economists. The predictability of the "law of rent" - that land values will continually rise - fuels frenzies of land speculation and the inevitable bust that follows the boom. A recent Fortune cover story informs us that there are big gains and huge risks in housing speculation in about 30 predominantly coastal markets that encompass 100 million people. Since 2000, home prices in New York, Washington, and Boston have surged 56% to 61%. Prices jumped 58% in Miami and Los Angeles and 76% in San Diego where the median home price county-wide is $582,000. The gap between home prices and fundamentals like job growth and incomes is greater than ever.[7]
  • The second form of the Land Problem is the fact that in most countries, including the United States, a small minority of people own and control a disproportionately large amount of land and natural resources. Data suggests that about 3% of the population owns 95% of the privately held land in the US. Less than 600 companies control 22% of our private land, a land mass the size of Spain. Those same companies land interests worldwide comprise a total area larger than that of Europe - almost 2 billion acres.[8]
In order to show that there was NO NEED for land reform in Central America because our land in the US is even more concentrated in ownership than Central America, Senator Jesse Helms read these facts into the Congressional Record in 1981:
  • In Florida, 1% owns 77% of the land.
  • Other states where the top 1% own over two-thirds of the land are Maine, Arizona, California, Nevada, New Mexico, and Oregon.
A United Nations study of 83 countries showed that less than 5% of rural landowners control three-quarters of the land. Other studies on land ownership report these facts:
  • In Brazil, 2% of landowners hold 60% of the arable land while close to 70% of rural households have little or none. Just 342 farm properties in Brazil cover 183,397 square miles - an area larger than California.
  • In Venezuela, 77% of the farmland is owned by 3% of the people. In Spain, 70 per cent of the land is owned by 0.2 per cent of the people.
  • In Britain, 69 per cent of the land is owned by 0.6 per cent of the population. Just 158,000 families own 41 million acres of land while 24 million families live on four million acres.[9]
The basic human need for food and shelter requires access of labor to land. With access to land people can produce the basic requirements of life. Access to land provides an enabling environment for life itself and thus meets the minimum requirement of love, meaning fairness in human relations based on the fundamental equal right to exist. The Land Problem in its two forms - the inequitable ownership and control of land and natural resources and the treatment of land as a market commodity - is the root cause of the great amount of human deprivation and suffering from lack of the basic necessities of life. And yet the human right to the earth is missing from the Bill of Rights, the Universal Declaration of Human Rights, and the Covenant on Economic, Social and Cultural Human Rights.

Democratic governance has not yet concerned itself with a "first principle" question. This question concerns property rights in land - property rights in the earth itself. The question is, "Who Should Own the Earth?" The question of "Who Should Own the Earth?" is a fundamental question. In venues when this question is asked, the answer is always the same. The answer is, "everyone should own the earth and on an equal basis as a birthright." Read the whole article

Mason Gaffney: Privatizing Land Without Giveaway

Mason Gaffney: Land as a Distinctive Factor of Production
High land price guides investors to prefer kinds of capital that substitute for land.  Although capital cannot be converted into land, it can substitute for land, and does so when rents and land prices are high.  John Stuart Mill long ago pointed out that the structure and character of capital is determined by the level of rents and wages.19  Such substitution is an integral part of the equilibrating function of markets; the human race could never have attained its present numbers and density without it.  High wages evoke labor-saving capital; high rents evoke land-saving capital.  It is useful to carry this farther, and recognize five kinds of substitutive capital evoked by high rents and land prices:
a.      Land-saving capital, like high buildings.
b.      Land-enhancing capital, meaning capital used to improve land for new, higher use.
c.      Land-linking capital, like canals and rails and city streets.
d.      Land-capturing (rent-seeking) capital, like squatters' improvements, and canal and rail lines built to secure land grants, and dams and canals built to secure water rights.
e. Rent-leading capital.
To understand the forces shaping capital investment, one must recognize the difference of land and capital.  High land prices evoke substitution of capital for land, shaping the capital stock in particular ways.  Viewed positively, this is a central part of economic equilibration, tempering land scarcity.  Viewed negatively, it has led historically to boom and bust cycles.

C. Land-driven Booms and Busts
In a speculative land boom, land prices go prematurely high.  Premature high land values profoundly distort the character of capital investment.  High land prices stimulate land-saving, land-enhancing and land-linking investments.  This is a rational economic response when and if the market is sending the right signals.  Ideally, an optimally high level of land rents and values serves as a community synchronizer, causing everyone to build as though others were going to build complementarily in synchronized fashion.

However, in the frenzy of a speculative boom the market sends the wrong signals.  Land is peculiarly subject to irrational speculative pricing  in booms because of its subjective pricing - see B-16.

Overpricing of land reserves land for two contrasting kinds of buyers and holders.

Type A buyers would "force the future" with "rent-leading" buildings.  They plan to and do develop land for a future demand higher than present demand.  In Chicago, 1835, this was exemplified by building four-story buildings outside The Loop (the city center).  Overpricing and consequent over-improvement gets greater, the further out you go.

When that demand fails to materialize, Type A buyers cannot recover their money.  They cannot rent out all their floor space, if that is what they built.  Or they cannot use the full capacity of their tannery, harbor, shipyard, sawmill, packing plant, soap factory, brickyard, or whatever they overbuilt.

When Type A buyers develop land beyond the reach of existing infrastructure, they force extensions of same which are often losers, cross-subsidized by the whole system.

Type B landowners just hold land unused or underused.  Rather than force the future, they would free-ride on the future.  They are usually looking or expecting to sell for a rise.  Type B-1 is the aggressive outside buyer, the stereotypical "land speculator" who does this calculatingly, cold-heartedly, as a purely pecuniary investment.  Type B-2 is the ancient owner whose land just happens to lie in the way of growth.  Type B-2 owners are sympathetic figures in popular drama and sentiment.  They are passive victims of change, clinging to old values against mechanistic, impersonal, exogenous, amoral, modernizing forces.  However, their market behavior has much the same economic consequences as that of Type B-1. Many turn out to be ambivalent, resisting change for a few years while quietly expecting to sell out for the top dollar for their retirement.

The land of Type B landowners absorbs no capital directly, but much capital indirectly, by forcing the stretching-out of all land-linking investments in space, and generating no traffic or use to justify those that are built to and past them.  Empty land also generates no synergistic spillover gains to raise the cash flow of surrounding, complementary lands.  Thus it helps freeze capital sunk in improving them.  Read the whole article
Mason Gaffney:  The Taxable Capacity of Land

  The question I am assigned is whether the taxable capacity of land without buildings is up to the job of financing cities, counties, and schools. Will the revenue be enough? The answer is "yes."

 The universal state and local revenue problem today is whether we must cap tax rates to avoid driving business away. It is exemplified by Governor Pete Wilson of the suffering State of California. He keeps repeating we must make a hard choice: cut taxes and public services, or drive out business and jobs. (When a public figure gives you two choices you know they're both bad, and he wants one of them.)

 The unique, remarkable quality of a property tax based on land ex buildings is that you may raise the rate with no fear of driving away business, construction, people, jobs, or capital! You certainly will not drive away the land. However high the tax rate, not one square foot of it will put on a track shoe and hop out of town. The only bad thing to say about this tax's incentive effects is that it stimulates revitalization, and makes jobs. If some people think that is bad, maybe this attitude is the problem.

 There is the answer to Governor Wilson' dilemma. I hope here in The Empire State you will supply a practical demonstration of the answer, one we may then use to inspire The Golden State. California now, following Proposition 13, has become a morality play, a gruesome object lesson in what happens when the property tax is pushed down toward zero. It forces higher taxes on production and exchange. Non-property taxes, you know, mostly have the character that they "shoot anything that moves," penalizing and discouraging economic activity. New buildings gain by having a lower property tax burden, it is true; but they bear the brunt of these new taxes and impost fees up front, at the time they are built. These offset the benefits of their lower property tax rate. ...

An American counterpart of Vancouver's "University Endowment Lands" is Beverly Hills, California, where land value composes some 80% of residential values, and the mean parcel is worth something like a million dollars. Beverly Hills, with its great wealth and mansions, is known as "Tear-down City." Every year many a grand old palace that once sheltered some renowned matinee idol, and rang to scandalous parties, is torn down to salvage its site for the next, grander one. In a land boom, such as crested in 1989, half the city goes to the brink of demolition and replacement. ...

The adequacy of a tax base must be judged over the cycle of boom and bust, a cycle we are now learning is still much alive. How stable is the base? Capital comes and goes; land is fixed. When they finally close that plant and move the work to Mexico, at present we reward them by lowering their taxable valuation -- reward them and punish ourselves, as city revenues fall. On the other hand, if we taxed just their land, the valuation would remain about the same. They will squeal, cajole, and threaten, but no way can they move their land to Mexico. They will just have to find a new use for it. Meantime, you will have made it more likely there are profitable new uses by removing the tax threat against whatever new capital they might invest in your town to employ your people.

 Land prices boom and bust too, jeopardizing revenue stability. That can be a problem, but land taxation contains a built-in contra-cyclical factor. When a land boom reaches its manic phase, as it did in California before 1989, growth expectations rise so high that they offset interest costs: people think they are holding land with no net carrying cost. Your home is expected not just to shelter you, but pay off its own mortgage, upkeep, and maintenance by appreciating. Call it irrational, but it happens. In this phase, the fast-moving tax assessor is an equilibrating force. The quicker he follows such a market, the quicker he showers it with cold water, by imposing a sobering cash drain on the participants. This is an excellent time for local governments, if they have the wit, to pay their debts, fix their potholes, and fill the fiscal reservoir against the next drought.  

Those getting the cold shower, meantime, may resist it. In California, the land of extremes, we got Howard Jarvis and Prop. 13. This Constitutional Amendment capped the property tax rate at 1%, and virtually froze assessed values until land sold. Then the boom really went wild. I myself, after campaigning hard against Jarvis, unexpectedly made $200,000 in a few months after it passed. Buyers were chasing me around the block, just to buy a scrap of land I happened to have in the right place at the right time. It was blind luck, but the money was as good as though I had earned it honestly: better, in fact, because 60% of the gain was not even reportable as taxable income. It was a once-in-a-lifetime experience, but buyers and sellers came to regard it as normal, and only fair. They saw regular annual increments as a divine right of property. For a few mad years, they were.

 It was the lack of a tax stabilizer that took the cap off land prices. When my lot rose to $240,000, it was still assessed at $10,000, and capped there by constitutional law! Taxes were 1% of $10,000 - that's right, $100/year, 1/24 of 1% of the market value. Was I in a strong bargaining position? You bet, and I loved it, just as you might. Now we are paying the price, or beginning to, as our public services collapse and our criminals outgun our police. This year they are cutting faculty salaries (that's me) 5%, and raising college tuition (that's my three children) 100%. I'll pay all right. All tax rates other than property are headed north; land prices south. Our once-vibrant economy is dying; our unemployment rate leads the nation. Our largest city was torched last year by the frustrated unemployed. Our once-leading schools trail the nation; our murder rate leads it. Those are the economic consequences of Howard Jarvis. Like Tokyo and London and Faust, we signed with Mephistopheles. He showed us a grand time, but now his bill is due. To paraphrase Kipling, "Be warned of our lot, which I dread you may not, and learn about Jarvis from me."   Read the whole article

Mason Gaffney: Geoism, Recession and Control of Monopolies
Recessions (and depressions) may occur when there are massive shocks to the system (e.g., the OPEC producers withholding supplies and doubling and tripling prices of a commodity that could not be readily substituted for). Recessions may also be prolonged and accelerated by unwise public policy choices made by people who have no idea of the consequences of their actions or inactions. Now, in the activist area where I am working, there is still a strong cry for a Constitutional amendment to balance the U.S. Federal budget. Some of the economists in and out of government are saying this would be a disaster, using the same sort of "if GDP is growing, don't worry be happy" pronouncement you refer to above. When GDP is adjusted for the dollars spent on the criminal justice system and clean-up costs for preventable environmental disasters, then I might have some faith in this as a bellwether of wellbeing.

As for the coming "boom," I simply repeat my observation that there is no U.S. economy; there are only regional economies competing with one another as well as with other nations. We have the beginnings of speculative booms in some places, stability in others, and continuing recessions in others. People who cannot sell their houses because they owe more on them than they are worth cannot take their services elsewhere to seek employment. So much for the mobility of the labour force. This is one of the unfortunate sides of the American dream of home ownership; when a lease expires, one simply does not renew.

Only around 25-30% of households own their own homes. By good fortune, I just read something that helps resolve the difficulty. It seems that a great deal of anti-trust legislation from the Progressive Era had been aimed at monopoly in the flicks, which had started with Thomas A. Edison, who was as much a patent-litigation bully as he was a pure inventor. Much of this legislation became unravelled under President - guess who? - Ronald Reagan, spawn of the "entertainment" industry, and political voice for same. Vertical integration and media mergers and monopolization then ran wild. Disney under Eisner, of course, has played a role in this. Disney as real estate developer throws its heavy weight around brutally. ...  Read the whole article

Karl Williams:  Social Justice In Australia: ADVANCED KIT - Part 2
"Give me a one-handed economist! All my economists say, "on the one hand...on the other". - Harry S. Truman, (1884-1972), U.S. president.

For all their dismal policy failures, economists always seem to present themselves as having learnt from the past mistakes of others and to have caught on to the right policy mix. And yet they, too, are invariably criticised by the succeeding generation of economists who themselves trumpet the reasons why they have now got it right. And nothing exemplifies this ongoing farce more than the debates surrounding the economic boom and bust cycles - or, more particularly, the reasons for economic recessions. We can confidently predict that conventional neoclassical economists will never find the solution in their own gloomy cupboards.

We know already how the failure to distinguish land from capital fatally flaws neoclassical economics at its very core. This confusion has been taken a step further by the real estate business in a way that, when you see it for what it is, verges on the absurd.

Real estate terminology obscures the whole land issue by hardly ever separating land from buildings, but lumping the two together as "property."  So when land prices start rising, the real estate sector terms this a property boom or housing boom, concealing the fact that houses (or capital) cannot but depreciate over time while land always appreciates. They speak of the "housing market" as if houses levitated all over the place. In point of fact, housing construction costs - both labour and material combined - have declined in real terms in Australia over the thirty five years to 1985 by 1%, while over the same period, land price has skyrocketed by a very healthy average of around 6% per annum!

So, the media have convinced the public that a "healthy property market" is a good thing and - hey! - if you're a speculator, then you begin rubbing your hands with glee as you estimate your latest windfall. If you are a home-owner however, your "new" net worth is of little benefit if you intend selling up and moving, since the price of the home which you intend to buy will in most cases have risen by a similar margin, so where is the gain?. Well, we've got news for you. It is rising land prices that precede and are the primary cause nearly all economic recessions. First, these recurrent booms starve the economy as funds are poured into land instead of productive capital, and second, they choke any immediate chance of recovery as businesses have to pay more and more for land.

Now we get back to the peculiar nature of land. In a growing economy, land prices must rise because competition for land sites cannot be satisfied by producing more sites. While the real estate industry is merrily singing about the vigor of the property market, the cost of space begins to outpace profit margins, and the economy is headed for a recession.

But we never spot the looming recession before it's too late, because once people observe a rise in land values, they too want to get in on the act, thus pushing up land prices even further. And away we go on this boom that isn't a boom at all, only a speculative bubble!

We do get a few warnings, but our learned friends in the real estate sector dress them up as indicators of rosy investment opportunities. As the real estate market continues to "strengthen", the cost of occupancy forces companies either to pay up even more or move elsewhere. And the suffering soon spreads, because unrealistic land prices must take a cut from the returns to labour and capital. As a result there is less purchasing power to buy the goods and services of others, general production is checked, and the whole downward spiral towards recession has begun.

At a certain point in the land boom, buyers realise that the yields on their investments are not keeping pace with exorbitant land values, and demand for land drops, in turn causing prices to level off. This is the moment of collective déjà vu. Suddenly the speculators realise, "Uh, oh! I think I've been here before!", and begin panic selling as they realise that their investments could earn more elsewhere. The turning tide becomes a flash flood, as speculators recognise that the only way out is to sell quickly before prospective buyers realise that the bottom has dropped out of the market. At the same time some start to default on loans which they had taken out to make their now-overvalued speculative purchases, and at this point the banking sector is involved in the domino effect. The banks have over-extended themselves on the speculative land bubble, and when they must start to recall their loans, the knock-on consequences can be even more severe.

The rest is history, literally. Speculation in land (or in the shares of companies owning natural resources) can be isolated as the prime factor for practically every periodic panic that has caused economic crises. Of course, there are all sorts of contributing factors or even effects that governments, real estate professionals and neoclassical economists will claim to be the major cause of recessions. In the 19th century, governments often used the printing presses to increase the money supply in desperate attempts to stave off the inevitable crises. The restrictive trade policies of the Great Depression were not really a cause but rather an outcome, which in turn exacerbated things. But the great initiatory cause is invariably the speculative advance in land price, but it's difficult to spot because it does its dirty work while everyone is crying, "Boom, boom! Robust land market!"

Broadly speaking, the recession will continue until one or more of three things occur:
  • Land values fall to affordable levels again
  • The efficiency of labour and technology increases
  • Labour and capital are forced to accept cuts in wages and interest.
A boom can never be genuine under land monopoly capitalism, for speculators inevitably bid up the price of scarce land. And when money is diverted to speculative purposes, it is effectively sterilised, for buying land does not create wealth (machines or jobs).  ...   Read the entire article
Jeff Smith: Sharing Natural Rents to Sustain Human Society
To get rich, or more likely to stay rich, some of us can develop land, especially sprawling shopping centers, and extract resources, especially oil. While sprawl and oil depletion are not necessary, they are more profitable than a car-free functionally integrated city. Under the current rules of doing business, waste returns more than efficiency. We let a few privatize rent -- ground rent and resource rent -- although rent is a social surplus. As if rent were not profit enough, winners of rent have also won further state favors -- tax breaks, liability limits, subsidies, and a host of others designed to impel growth (20 major ones follow herein).

If we are to sustain our selves, our civilization, and our eco-system, we must make some hard choices about property. What we decide to do with rent, whether we let it reward our exploiting or our attaining eco-librium, matters. Imagine society waking up to the public nature of rent. Then it would collect and share its surplus that manifests as the market value of sites, resources, the spectrum, and government-granted privileges. Then we could forego taxing labor and capital. On such a level playing field, this freed market would favor efficiency -- the compact city -- not waste -- the mall and automobile. ...

Drawing their cue from the public, governments tolerate "rentention", the private retention of publicly-generated land values. Lacking this Rent, states turn to taxes. But to grow the economy, all governments -- left, right, or undecided -- hustle to stimulate development; they cut taxes and slop subsidies. Going beyond the call of duty, the state excuses producers' their routine pollution and limit liability, thereby cutting the cost of insurance. Companies that don't impose on nature, worker, or customer are not benefited at all but lose a competitive advantage. On this tilted playing field, one with the lumps of subsidies and the tilts of taxes, technologies lean and clean have a hard time competing as suppliers of materials, homes, food, rides, and energy. ...

Noticing rent, realizing its social nature, accepting that it's to be shared, and understanding that wages and interest should not be expropriated, for most people that's a new way of thinking. Thinking such thoughts leads to a new way of conceiving economics, too. Ecological economics becomes not just a branch of economics but a whole new discipline, needing a new name. In geonomics we maintain the distinction between items bearing exchange value that come into being by human effort - wealth - and those that don't - land. Keeping this distinction in the forefront makes it obvious and non-controversial that speculating in land drives sprawl, that hoarding land retards Third World development, that borrowing to buy land plus buildings engorges banks, that so-called "interest" is quasi-rent, that the cost of land inflates faster than the price of produced goods and services, that over half of corporate profit, says the Urban Land Institute, is from real estate.

Summing up these analyses, geonomists offer a Grand Unifying Theory, that the flow of rent pulls all other indicators in its wake. Geonomics differs from economics as chemistry from alchemy, as astronomy from astrology. The acid test of any science is prediction, a test that economics fails and geonomics passes. Plugging in the land price cycle of 17+ years lets geonomists crank out predictions more accurate than those generated by "the experts" who missed, for example, the collapse of mighty Japan. When the land of the Rising Sun was on the market for four times the assessed value of all America, that's when a few geonomists, like voices in the wilderness, countered conventional wisdom by proclaiming that the Japanese boom would bust. According to these geonomic prognosticators, don't expect America's next downturn for at least another five years, despite the tech wreck or any other stock market fluctuations. ...

Geonomics draws its power to predict and fix what ails economies by being grounded in reality. It holds to the notion that economies are not apart from but part of the embracing eco-system. As part of whole, economies self-regulate by the same natural feedback loops. The prey/predator cycle is mimicked by the pricing cycle, also known as the Law of Supply and Demand. This familiar pattern is found, too, in the Share Rent Cycle.
(1)  Getting more rent, people work less, so output drops.
(2)  Less output lowers land values and deflates the rent-share.
(3)  Getting less rent, people work more.
(4) More output raises site values and swells the rent-share.
(1) Again, ad infinitum.

Thus, production is put into balance with consumption and work with play. Geonomics yields a policy that's not at war with but aligned with nature as model. Perhaps the most central feature of economics is price. Price is to production what DNA is to reproduction, the guides to growth. Rather than distort price with taxes and subsidies, with license (so-called "externalities") and rent-retention, geonomics respects the integrity of price, allowing it to accurately reflect our costs and values, by sharing rent. Then economies ("geonomies") can operate without the deadweight losses of taxation and rent seeking.

To sustain that which we love, we must transform our relationships to nature, to government, and to each other. We need to become geonomists in worldview, theory, discipline, and policy. Geonomics creates an economy that's not at war with but aligned with the natural world....  Read the whole article

Frank Stilwell and Kirrily Jordan: The Political Economy of Land: Putting Henry George in His Place

George saw land as a community resource provided by nature, to which every human being had an equal right. He argued that, since land was fixed in supply, the system of private land ownership allowed the wealthy few to enjoy exclusive rights to land and its benefits, while alienating the poorer majority from land ownership and forcing them to pay rent to landowners in order to access this necessary resource. Moreover, the collection of rents by landowners allowed them to increase their wealth without contributing to the productive efforts of society. As the population grew, so too did the demand for land, forcing rents and land values ever higher. In addition, increases in land value resulting from publicly-funded developments, such as roads and public transport systems, unduly benefited landowners at the expense of the community. Such unearned gains from landownership encouraged speculation in land, pushing prices even higher, while exposing the economy to the risks of speculative ‘booms’ and ‘busts’. ...

Georgists have also frequently claimed to be able to explain and ameliorate, even resolve, the cyclical character of the capitalist economy. George argued that a higher uniform land tax could reduce the severity of booms and busts in the housing market by reducing the speculative investment in land. This would produce more stable economic conditions throughout the economy, removing the boom-bust cycle to which capitalism is otherwise prone. It is an argument that has contemporary Australian relevance because the boom-bust character of the urban property market is clearly a significant factor in overall cyclical economic instability. An earlier article on Australian land price trends by Kavanagh (2001) has illustrated this connection, demonstrating that, while the property market is more volatile than the economy as a whole, there has been a clear temporal connection between the two patterns of cyclical behaviour over the last half century. Property booms and busts have typically coincided with swings in overall national economic performance. The policy implication is that, by smoothing out cycles in the housing market, a uniform land tax could help to avoid periodic crises in capitalist economies more generally.

However, the argument needs to be kept in perspective. Periodic economic recessions cannot be solely attributed to speculation in land.

Inadequate levels of aggregate demand, problems of overproduction, and problems of instability in financial markets are among other causes of interruptions to the process of capital accumulation. Land tax cannot feasibly claim to redress all the systemic contradictions and malfunctions of a capitalist economy. Additional counter-cyclical policies are necessary. These include macroeconomic stabilisers, such as monetary and fiscal policies, that can contribute to reducing the cyclical tendency to which the economy is otherwise prone, along with incomes policy and the more radically interventionist ‘socialisation of investment’ that Keynes (1936: 378) advocated. So here, too, land tax seems to have the status of a necessary but not sufficient condition for progressive economic reform. ... read the whole article

Bill Batt: How Our Towns Got That Way   (1996 speech)

Stability refers to the ability of a tax to produce revenue in the face of changing economic circumstances. Income and sales taxes, for example, vary greatly according to phases in the economic cycle; the property tax, in contrast, is highly stable regardless of the state of the economy. Followers of economist John Maynard Keynes believe that revenues should be inverse to the cycles of the economy; i.e., that the government should be used to stabilize or boost the economy as occasions require. I should add as an aside that there are some theorists who believe that, were revenue sources completely based on land value, economic cycles would disappear.

In assessing the value of a tax it is also important, of course, to understand its potential to bring in revenue for the purposes of government. This is usually deemed revenue sufficiency. Income, sales and property taxes, along with corporation taxes to a lesser extent, have come to be regarded as the workhorses of the American revenue structure. But, as anti-tax politicians are quick to note, the higher these taxes are, the more they impose a drag on the economy. This is why one should ponder whether to consider raising taxes which have demonstrable distorting effects. In contrast, if you take the time to look at a tax on land value alone, it measures up so well that it looks like the perfect tax!... read the whole article

Bill Batt: The Compatibility of Georgist Economics and Ecological Economics
Any failure to pay back that increment to society, or of government to recapture it in the form of taxes, constituted not only an injustice to the poor but a distortion of economic equilibrium. He witnessed first hand the perverted configurations of land use that today we know as sprawl development— even in his time it was apparent that urban, high value land parcels were being held off the market for speculative gain by meretricious interests. He witnessed also the boom and bust cycles of the land markets on account of such speculation, effects which spread far wider than just land prices. These inevitable cycles would dislocate labor and capital supply, giving impetus to the impoverishment and suffering which he himself had experienced. He understood that holding the most strategically valuable landsites out of circulation constituted a burden on the economy. He understood that financial resources spent to pay exorbitant land prices had a depressing effect on capital and labor. And because government was taxing labor and capital instead of recovering land rent, it was further restricting the job market and the growth of capital. He realized that people who captured monopoly control of strategically valuable landsites could do so because they were privy to information prior to its public release. It was not by any means his insight alone; it was captured also by George Washington Plunkett writing at the same time:
There’s an honest graft, and I’m an example of how it works. I might sum up the whole thing by sayin’: “I seen my opportunities and I took ‘em.”

Just let me explain by examples. My party’s in power in the city, and it’s goin’ to undertake a lot of public improvements. Well, I’m tipped off, say, that they’re going to lay out a new park in a certain place.

I see my opportunity and I take it. I go to that place and I buy up all the land I can in the neighborhood. Then the board of this or that makes its plan public, and there is a rush to get my land, which nobody cared particularly for before.

Ain’t it perfectly honest to charge a good price and make a profit on my investment and foresight? Of course, it is. Well, that’s honest graft. 32
32William L. Riordan, Plunkett of Tammany Hall. New York: Dutton, 1963, p. 3.

All society needed to do was to collect the economic rent from landholders as its rightful due, a solution that became part of the subtitle of his book, “the remedy.” Taxing the land (or, alternatively, collecting the economic rent) was something common citizens could understand.... read the whole article

Weld Carter: An Introduction to Henry George

In addition, George differentiated sharply between land itself and the products -- or wealth, as he termed them -- which labor made from the land. "In producing wealth, labor, with the aid of natural forces, but works up, into the forms desired, pre-existing matter, and, to produce wealth, must, therefore, have access to this matter and to these forces -- that is to say, to land. The land is the source of all wealth. It is the mine from which must be drawn the ore that labor fashions. It is the substance to which labor gives the form."

George saw, as between land and products, certain elementary differences. "In every essential, land differs from those things which... [are] the product of human labor. ...It is the creation of God; they are produced by man. It is fixed in quantity; they may be increased illimitably. It exists, though generations come and go; they in a little while decay and pass again into the elements."

Having noted these differences, George proceeded to use them as the basis for his examination of related areas of economics, such as speculation. When asked how speculation worked, George responded that a distinction must be made between speculation in land and speculation in products.

Writing of industrial depressions, he said, "When, with the desire to consume more, there coexist the ability and willingness to produce more, industrial and commercial paralysis cannot be charged either to overproduction or to overconsumption. Manifestly, the trouble is that production and consumption cannot meet and satisfy each other .

"How does this inability arise? It is evidently and by common consent the result of speculation. But of speculation in what?

"Certainly not of speculation in things which are the products of labor ...for the effect of speculation in such things, as is well shown in current treatises that spare me the necessity of illustration, is simply to equalize supply and demand, and to steady the interplay of production and consumption by an action analogous to that of a fly-wheel in a machine."  In other words, the tendency of speculation in products is to increase the demand for products and therefore to increase the price of products. This increased price will induce more production, which, increasing the supply, will tend to lower the price. Throughout this cycle, there has been a stimulating effect on production in general.

He continued, "Therefore, if speculation be the cause of these industrial depressions, it must be speculation in things not the production of labor, but yet necessary to the exertion of labor in the production of wealth -- of things of fixed quantity; that is to say, it must be speculation in land." 

How can this be? How can speculation in land cause industrial depression? George explains, "...that there is a connection between the rapid construction of railroads and industrial depression, anyone who understands what increased land values mean, and who has noticed the effect which the construction of railroads has upon land speculation, can easily see. Wherever a railroad was built or projected, lands sprang up in value under the influence of speculation, and thousands of millions of dollars were added to the nominal values which capital and labor were asked to pay outright, or to pay in installments, as the price of being allowed to go to work and produce wealth. The inevitable result was to check production. .." 

The tendency of speculation in land is similar to that of speculation in products; it increases the demand for land and thereby increases the price of land. However, here the similarity ends. The supply of land is fixed; as successive units of land become priced beyond the level at which labor and capital can profitably engage in production, an increasing (though artificial) scarcity of land develops. "The inevitable result was to check production." 

So, according to George, another difference between land and products is that speculation in products tends to stimulate production, whereas speculation in land tends to check production.  ... read the whole article

Judge Samuel Seabury: An Address delivered upon the 100th anniversary of the birth of Henry George

WE are met to celebrate the 100th anniversary of the birth of Henry George. We meet, therefore, in a spirit of joy and thanksgiving for the great life which he devoted to the service of humanity. To very few of the children of men is it given to act the part of a great teacher who makes an outstanding contribution toward revealing the basic principles to which human society must adhere if it is to walk in the way which leads to freedom. This Henry George did, and in so doing he expressed himself with a clarity of thought and diction which has rarely been surpassed. ...

The most serious threat to democracy which exists is that the democracies themselves have not as yet achieved social justice for their own people. If they would achieve it, they would have nothing to fear from the dictatorship states. In this country we have approximately eleven million unemployed and are now in the tenth year of an acute economic depression. We certainly cannot claim to have achieved social justice. True, we offer many advantages over what the despotisms offer, but in any country people will submit to regimentation and political and social despotism rather than go without food and shelter. In such circumstances, ignorant of the value of the liberty they surrender, they will sell their birthright for a mess of pottage.

Instead of addressing ourselves seriously to the task of establishing social justice — the most momentous task which has ever confronted this country in all its history — we have wasted our energies and resources in adopting shallow and superficial measures not in harmony with the realities of social life and which ignore its natural laws; erecting great bureaucracies which have attempted to regiment our people, while the mass of regulations which they have prescribed have served only to demoralize industry, prevent its recovery and obstruct the cooperation between labor, capital and consumer which the interests of all require. ... read the whole speech


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