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Land is Different from Capital

Most honors graduates in economics from our best colleges and universities would be hard-pressed to tell you that land is not a subset of capital. (Even the fellow who espouses ESOPs — employee stock ownership programs — expressly fails to make the distinction.) But Henry George pointed out how different land (which in its larger sense includes the entire natural creation) is from things which are manmade. And therein lies the root of some of our most serious social problems.

That sounds so simple that you may doubt its accuracy or the seriousness of its effects. I did, and looked for answers everywhere else. Finding none, I eventually found my way to these ideas. (Clarence Darrow suggested that we're all that way.)

Henry George: The Common Sense of Taxation (1881 article)

To consider the nature of property of this kind is again to see a clear distinction. That distinction is not, as the lawyers have it, between movables and immovables, between personal property and real estate. The true distinction is between property which is, and property which is not, the result of human labor; or, to use the terms of political economy, between land and wealth. For, in any precise use of the term, land is not wealth, any more than labor is wealth. Land and labor are the factors of production. Wealth is such result of their union as retains the capacity of ministering to human desire. A lot and the house which stands upon it are alike property, alike have a tangible value, and are alike classed as real estate. But there are between them the most essential differences. The one is the free gift of Nature, the other the result of human exertion; the one exists from generation to generation, while men come and go; the other is constantly tending to decay, and can only be preserved by continual exertion. To the one, the right of exclusive possession, which makes it individual property, can, like the right of property in slaves, be traced to nothing but municipal law; to the other, the right of exclusive property springs clearly from those natural relations which are among the primary perceptions of the human mind. Nor are these mere abstract distinctions. They are distinctions of the first importance in determining what should and what should not be taxed. ... read the whole article

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

As to the right of ownership, we hold: That —

Being created individuals, with individual wants and powers, men are individually entitled (subject of course to the moral obligations that arise from such relations as that of the family) to the use of their own powers and the enjoyment of the results. There thus arises, anterior to human law, and deriving its validity from the law of God, a right of private ownership in things produced by labor — a right that the possessor may transfer, but of which to deprive him without his will is theft.

This right of property, originating in the right of the individual to himself, is the only full and complete right of property. It attaches to things produced by labor, but cannot attach to things created by God.

Thus, if a man take a fish from the ocean he acquires a right of property in that fish, which exclusive right he may transfer by sale or gift. But he cannot obtain a similar right of property in the ocean, so that he may sell it or give it or forbid others to use it.

Or, if he set up a windmill he acquires a right of property in the things such use of wind enables him to produce. But he cannot claim a right of property in the wind itself, so that he may sell it or forbid others to use it.

Or, if he cultivate grain he acquires a right of property in the grain his labor brings forth. But he cannot obtain a similar right of property in the sun which ripened it or the soil on which it grew. For these things are of the continuing gifts of God to all generations of men, which all may use, but none may claim as his alone.

To attach to things created by God the same right of private ownership that justly attaches to things produced by labor is to impair and deny the true rights of property. For a man who out of the proceeds of his labor is obliged to pay another man for the use of ocean or air or sunshine or soil, all of which are to men involved in the single term land, is in this deprived of his rightful property and thus robbed. ....

God’s laws do not change. Though their applications may alter with altering conditions, the same principles of right and wrong that hold when men are few and industry is rude also hold amid teeming populations and complex industries. In our cities of millions and our states of scores of millions, in a civilization where the division of labor has gone so far that large numbers are hardly conscious that they are land-users, it still remains true that we are all land animals and can live only on land, and that land is God’s bounty to all, of which no one can be deprived without being murdered, and for which no one can be compelled to pay another without being robbed. But even in a state of society where the elaboration of industry and the increase of permanent improvements have made the need for private possession of land wide-spread, there is no difficulty in conforming individual possession with the equal right to land. For as soon as any piece of land will yield to the possessor a larger return than is had by similar labor on other land a value attaches to it which is shown when it is sold or rented. Thus, the value of the land itself, irrespective of the value of any improvements in or on it, always indicates the precise value of the benefit to which all are entitled in its use, as distinguished from the value which, as producer or successor of a producer, belongs to the possessor in individual right.

To combine the advantages of private possession with the justice of common ownership it is only necessary therefore to take for common uses what value attaches to land irrespective of any exertion of labor on it. The principle is the same as in the case referred to, where a human father leaves equally to his children things not susceptible of specific division or common use. In that case such things would be sold or rented and the value equally applied.

It is on this common-sense principle that we, who term ourselves single-tax men, would have the community act.

We do not propose to assert equal rights to land by keeping land common, letting any one use any part of it at any time. We do not propose the task, impossible in the present state of society, of dividing land in equal shares; still less the yet more impossible task of keeping it so divided.

We propose — leaving land in the private possession of individuals, with full liberty on their part to give, sell or bequeath it — simply to levy on it for public uses a tax that shall equal the annual value of the land itself, irrespective of the use made of it or the improvements on it. And since this would provide amply for the need of public revenues, we would accompany this tax on land values with the repeal of all taxes now levied on the products and processes of industry — which taxes, since they take from the earnings of labor, we hold to be infringements of the right of property.

This we propose, not as a cunning device of human ingenuity, but as a conforming of human regulations to the will of God.

God cannot contradict himself nor impose on his creatures laws that clash.

If it be God’s command to men that they should not steal — that is to say, that they should respect the right of property which each one has in the fruits of his labor;

And if he be also the Father of all men, who in his common bounty has intended all to have equal opportunities for sharing;

Then, in any possible stage of civilization, however elaborate, there must be some way in which the exclusive right to the products of industry may be reconciled with the equal right to land.

If the Almighty be consistent with himself, it cannot be, as say those socialists referred to by you, that in order to secure the equal participation of men in the opportunities of life and labor we must ignore the right of private property. Nor yet can it be, as you yourself in the Encyclical seem to argue, that to secure the right of private property we must ignore the equality of right in the opportunities of life and labor. To say the one thing or the other is equally to deny the harmony of God’s laws.

But, the private possession of land, subject to the payment to the community of the value of any special advantage thus given to the individual, satisfies both laws, securing to all equal participation in the bounty of the Creator and to each the full ownership of the products of his labor. ...

Your use, in so many passages of your Encyclical, of the inclusive term “property” or “private” property, of which in morals nothing can be either affirmed or denied, makes your meaning, if we take isolated sentences, in many places ambiguous. But reading it as a whole, there can be no doubt of your intention that private property in land shall be understood when you speak merely of private property. With this interpretation, I find that the reasons you urge for private property in land are eight. Let us consider them in order of presentation. You urge:

1. That what is bought with rightful property is rightful property. (RN, paragraph 5) ...
2. That private property in land proceeds from man’s gift of reason. (RN, paragraphs 6-7.) ...
3. That private property in land deprives no one of the use of land. (RN, paragraph 8.) ...
4. That Industry expended on land gives ownership in the land itself. (RN, paragraphs 9-10.) ...
5. That private property in land has the support of the common opinion of mankind, and has conduced to peace and tranquillity, and that it is sanctioned by Divine Law. (RN, paragraph 11.) ...
6. That fathers should provide for their children and that private property in land is necessary to enable them to do so. (RN, paragraphs 14-17.) ...
7. That the private ownership of land stimulates industry, increases wealth, and attaches men to the soil and to their country. (RN, paragraph 51.) ...
8. That the right to possess private property in land is from nature, not from man; that the state has no right to abolish it, and that to take the value of landownership in taxation would be unjust and cruel to the private owner. (RN, paragraph 51.)

2. That private property in land proceeds from man’s gift of reason. (6-7.)

In the second place your Holiness argues that man possessing reason and forethought may not only acquire ownership of the fruits of the earth, but also of the earth itself, so that out of its products he may make provision for the future.

Reason, with its attendant forethought, is indeed the distinguishing attribute of man; that which raises him above the brute, and shows, as the Scriptures declare, that he is created in the likeness of God. And this gift of reason does, as your Holiness points out, involve the need and right of private property in whatever is produced by the exertion of reason and its attendant forethought, as well as in what is produced by physical labor. In truth, these elements of man’s production are inseparable, and labor involves the use of reason. It is by his reason that man differs from the animals in being a producer, and in this sense a maker. Of themselves his physical powers are slight, forming as it were but the connection by which the mind takes hold of material things, so as to utilize to its will the matter and forces of nature. It is mind, the intelligent reason, that is the prime mover in labor, the essential agent in production.

The right of private ownership does therefore indisputably attach to things provided by man’s reason and forethought. But it cannot attach to things provided by the reason and forethought of God!

To illustrate: Let us suppose a company traveling through the desert as the Israelites traveled from Egypt. Such of them as had the forethought to provide themselves with vessels of water would acquire a just right of property in the water so carried, and in the thirst of the waterless desert those who had neglected to provide themselves, though they might ask water from the provident in charity, could not demand it in right. For while water itself is of the providence of God, the presence of this water in such vessels, at such place, results from the providence of the men who carried it. Thus they have to it an exclusive right.

But suppose others use their forethought in pushing ahead and appropriating the springs, refusing when their fellows come up to let them drink of the water save as they buy it of them. Would such forethought give any right?

Your Holiness, it is not the forethought of carrying water where it is needed, but the forethought of seizing springs, that you seek to defend in defending the private ownership of land!

Let me show this more fully, since it may be worth while to meet those who say that if private property in land be not just, then private property in the products of labor is not just, as the material of these products is taken from land. It will be seen on consideration that all of man’s production is analogous to such transportation of water as we have supposed. In growing grain, or smelting metals, or building houses, or weaving cloth, or doing any of the things that constitute producing, all that man does is to change in place or form preexisting matter. As a producer man is merely a changer, not a creator; God alone creates. And since the changes in which man’s production consists inhere in matter so long as they persist, the right of private ownership attaches the accident to the essence, and gives the right of ownership in that natural material in which the labor of production is embodied. Thus water, which in its original form and place is the common gift of God to all men, when drawn from its natural reservoir and brought into the desert, passes rightfully into the ownership of the individual who by changing its place has produced it there.

But such right of ownership is in reality a mere right of temporary possession. For though man may take material from the storehouse of nature and change it in place or form to suit his desires, yet from the moment he takes it, it tends back to that storehouse again. Wood decays, iron rusts, stone disintegrates and is displaced, while of more perishable products, some will last for only a few months, others for only a few days, and some disappear immediately on use. Though, so far as we can see, matter is eternal and force forever persists; though we can neither annihilate nor create the tiniest mote that floats in a sunbeam or the faintest impulse that stirs a leaf, yet in the ceaseless flux of nature, man’s work of moving and combining constantly passes away. Thus the recognition of the ownership of what natural material is embodied in the products of man never constitutes more than temporary possession — never interferes with the reservoir provided for all. As taking water from one place and carrying it to another place by no means lessens the store of water, since whether it is drunk or spilled or left to evaporate, it must return again to the natural reservoirs — so is it with all things on which man in production can lay the impress of his labor.

Hence, when you say that man’s reason puts it within his right to have in stable and permanent possession not only things that perish in the using, but also those that remain for use in the future, you are right in so far as you may include such things as buildings, which with repair will last for generations, with such things as food or fire-wood, which are destroyed in the use. But when you infer that man can have private ownership in those permanent things of nature that are the reservoirs from which all must draw, you are clearly wrong. Man may indeed hold in private ownership the fruits of the earth produced by his labor, since they lose in time the impress of that labor, and pass again into the natural reservoirs from which they were taken, and thus the ownership of them by one works no injury to others. But he cannot so own the earth itself, for that is the reservoir from which must constantly be drawn not only the material with which alone men can produce, but even their very bodies.

The conclusive reason why man cannot claim ownership in the earth itself as he can in the fruits that he by labor brings forth from it, is in the facts stated by you in the very next paragraph (7), when you truly say:

Man’s needs do not die out, but recur; satisfied today, they demand new supplies tomorrow. Nature, therefore, owes to man a storehouse that shall never fail, the daily supply of his daily wants. And this he finds only in the inexhaustible fertility of the earth.

By man you mean all men. Can what nature owes to all men be made the private property of some men, from which they may debar all other men?

Let me dwell on the words of your Holiness, “Nature, therefore, owes to man a storehouse that shall never fail.” By Nature you mean God. Thus your thought, that in creating us, God himself has incurred an obligation to provide us with a storehouse that shall never fail, is the same as is thus expressed and carried to its irresistible conclusion by the Bishop of Meath:

God was perfectly free in the act by which He created us; but having created us he bound himself by that act to provide us with the means necessary for our subsistence. The land is the only source of this kind now known to us. The land, therefore, of every country is the common property of the people of that country, because its real owner, the Creator who made it, has transferred it as a voluntary gift to them. “Terram autem dedit filiis hominum.” Now, as every individual in that country is a creature and child of God, and as all his creatures are equal in his sight, any settlement of the land of a country that would exclude the humblest man in that country from his share of the common inheritance would be not only an injustice and a wrong to that man, but, moreover, be AN IMPIOUS RESISTANCE TO THE BENEVOLENT INTENTIONS OF HIS CREATOR. ...

Believing that the social question is at bottom a religious question, we deem it of happy augury to the world that in your Encyclical the most influential of all religious teachers has directed attention to the condition of labor.

But while we appreciate the many wholesome truths you utter, while we feel, as all must feel, that you are animated by a desire to help the suffering and oppressed, and to put an end to any idea that the church is divorced from the aspiration for liberty and progress, yet it is painfully obvious to us that one fatal assumption hides from you the cause of the evils you see, and makes it impossible for you to propose any adequate remedy. This assumption is, that private property in land is of the same nature and has the same sanctions as private property in things produced by labor. In spite of its undeniable truths and its benevolent spirit, your Encyclical shows you to be involved in such difficulties as a physician called to examine one suffering from disease of the stomach would meet should he begin with a refusal to consider the stomach.

Prevented by this assumption from seeing the true cause, the only causes you find it possible to assign for the growth of misery and wretchedness are the destruction of working-men’s guilds in the last century, the repudiation in public institutions and laws of the ancient religion, rapacious usury, the custom of working by contract, and the concentration of trade. ... read the whole letter

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty, Chapter 4: Land Speculation Causes Reduced Wages

Whether we formulate it as an extension of the margin of production, or as a carrying of the rent line beyond the margin of production, the influence of speculation in land in increasing rent is a great fact which cannot be ignored in any complete theory of the distribution of wealth in progressive countries. It is the force, evolved by material progress, which tends constantly to increase rent in a greater ratio than progress increases production, and thus constantly tends, as material progress goes on and productive power increases, to reduce wages, not merely relatively, but absolutely.

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 continuously to reduce wages until zero were reached, it would be possible continuously to 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. ... read the whole chapter

Poverty deepens as wealth increases, and wages are forced down while productive power grows, because land, which is the source of all wealth and the field of all labor, is monopolized. To extirpate poverty, to make wages what justice commands they should be, the full earnings of the laborer, we must therefore substitute for the individual ownership of land a common ownership. [footnote omitted]

This right of ownership that springs from labor excludes the possibility of any other right of ownership. If a man be rightfully entitled to the produce of his labor, then no one can be rightfully entitled to the ownership of anything which is not the produce of his labor, or the labor of some one else from whom the right has passed to him. For the right to the produce of labor cannot be enjoyed without the right to the free use of the opportunities offered by nature, and to admit the right of property in these is to deny the right of property in the produce of labor. When nonproducers can claim as rent a portion of the wealth created by producers, the right of the producers to the fruits of their labor is to that extent denied.

A house and the lot on which it stands are alike property, as being the subject of ownership, and are alike classed by the lawyers as real estate. Yet in nature and relations they differ widely.

  • The one is produced by human labor, and belongs to the class in political economy styled wealth.
  • The other is a part of nature, and belongs to the class in political economy styled land.

The essential character of the one class of things is that they embody labor, are brought into being by human exertion, their existence or nonexistence, their increase or diminution, depending on man. The essential character of the other class of things is that they do not embody labor, and exist irrespective of human exertion and irrespective of man; they are the field or environment in which man finds himself; the storehouse from which his needs must be supplied, the raw material upon which and the forces with which alone his labor can act.

The moment this distinction is realized, that moment is it seen that the sanction which natural justice gives to one species of property is denied to the other. ... read the whole chapter

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty: Chapter 9. Alleged Difficulty of Distinguishing Land From Improvements (in the unabridged P&P: Part VIII — Application of the Remedy: Chapter 4 — Indorsements and objections

The only objection to the tax on rent or land values which is to be met with in standard politico-economic works is one which concedes its advantages — for it is, that from the difficulty of separation, we might, in taxing the rent of land, tax something else. McCulloch, for instance, declares taxes on the rent of land to be impolitic and unjust because the return received for the natural and inherent powers of the soil cannot be clearly distinguished from the return received from improvements and meliorations, which might thus be discouraged. Macaulay somewhere says that if the admission of the attraction of gravitation were inimical to any considerable pecuniary interest, there would not be wanting arguments against gravitation — a truth of which this objection is an illustration. For admitting that it is impossible invariably to separate the value of land from the value of improvements, is this necessity of continuing to tax some improvements any reason why we should continue to tax all improvements? If it discourage production to tax values which labor and capital have intimately combined with that of land, how much greater discouragement is involved in taxing not only these, but all the clearly distinguishable values which labor and capital create?

But, as a matter of fact, the value of land can always be readily distinguished from the value of improvements.

  • In countries like the United States there is much valuable land that has never been improved; and in many of the States the value of the land and the value of improvements are habitually estimated separately by the assessors, though afterward reunited under the term real estate.
  • Nor where ground has been occupied from immemorial times, is there any difficulty in getting at the value of the bare land, for frequently the land is owned by one person and the buildings by another, and when a fire occurs and improvements are destroyed, a clear and definite value remains in the land.
  • In the oldest country in the world no difficulty whatever can attend the separation, if all that be attempted is to separate the value of the clearly distinguishable improvements, made within a moderate period, from the value of the land, should they be destroyed.

This, manifestly, is all that justice or policy requires. Absolute accuracy is impossible in any system, and to attempt to separate all that the human race has done from what nature originally provided would be as absurd as impracticable. A swamp drained or a hill terraced by the Romans constitutes now as much a part of the natural advantages of the British Isles as though the work had been done by earthquake or glacier. The fact that after a certain lapse of time the value of such permanent improvements would be considered as having lapsed into that of the land, and would be taxed accordingly, could have no deterrent effect on such improvements, for such works are frequently undertaken upon leases for years. The fact is, that each generation builds and improves for itself, and not for the remote future. And the further fact is, that each generation is heir, not only to the natural powers of the earth, but to all that remains of the work of past generations. ... read the whole chapter

Henry George:  The Land Question (1881)

The galleys that carried Caesar to Britain, the accoutrements of his legionaries, the baggage that they carried, the arms that they bore, the buildings that they erected; the scythed chariots of the ancient Britons, the horses that drew them, their wicker boats and wattled houses–where are they now? But the land for which Roman and Briton fought, there it is still. That British soil is yet as fresh and as new as it was in the days of the Romans. Generation after generation has lived on it since, and generation after generation will live on it yet. Now, here is a very great difference. The right to possess and to pass on the ownership of things that in their nature decay and soon cease to be is a very different thing from the right to possess and to pass on the ownership of that which does not decay, but from which each successive generation must live.

To show how this difference between land and such other species of property as are properly styled wealth bears upon the argument for the vested rights of landholders, let me illustrate again. ...

This is the point I want to make clearly and distinctly, for it shows a distinction that in current thought is overlooked. Property in land, like property in slaves, is essentially different from property in things that are the result of labor.

  • Rob a man or a people of money, or goods, or cattle, and the robbery is finished there and then. The lapse of time does not, indeed, change wrong into right, but it obliterates the effects of the deed. That is done; it is over; and, unless it be very soon righted, it glides away into the past, with the men who were parties to it, so swiftly that nothing save omniscience can trace its effects; and in attempting to right it we would be in danger of doing fresh wrong. The past is forever beyond us. We can neither punish nor recompense the dead.
  • But rob a people of the land on which they must live, and the robbery is continuous. It is a fresh robbery of every succeeding generation – a new robbery every year and every day; it is like the robbery which condemns to slavery the children of the slave. To apply to it the statute of limitations, to acknowledge for it the title of prescription, is not to condone the past; it is to legalize robbery in the present, to justify it in the future. The indictment which really lies against the Irish landlords is not that their ancestors, or the ancestors of their grantors, robbed the ancestors of the Irish people. That makes no difference. "Let the dead bury their dead." The indictment that truly lies is that here, now, in the year 1881, they rob the Irish people. And shall we be told that there can be a vested right to continue such robbery? ...
But, if it be denied that land justly is, or can be, private property, if the equal rights of the whole people to the use of the elements gratuitously furnished by Nature be asserted without drawback or compromise, then the essential difference between property in land and property in things of human production is at once brought out. Then will it clearly appear not only that the denial of the right of individual property in land does not involve any menace to legitimate property rights, but that the maintenance of private property in land necessarily involves a denial of the right to all other property, and that the recognition of the claims of the landlords means a continuous robbery of capital as well as of labor. ... read the whole article
Henry George: Thou Shalt Not Steal  (1887 speech)
We propose to abolish poverty, to tear it up by the roots, to open free and abundant employment for every person. We propose to disturb no just right of property. We are defenders and upholders of the sacred right of property — that right of property which justly attaches to everything that is produced by labor; that right which gives to all people a just right of property in what they have produced — that makes it theirs to give, to sell, to bequeath, to do whatever they please with, as long as in using it they do not injure any one else. That right of property we insist upon; that, we would uphold against all the world.

To a house, a coat, a book — anything produced by labor — there is a clear individual title, which goes back to the person who made it. That is the foundation of the just, the sacred right of property. It rests on the right of people to the use of their own powers, on their right to profit by the exertion of their own labor; but who can carry the right of property in land that far?

Who can claim a title of absolute ownership in land? Until one who claims the exclusive ownership of a piece of this planet can show a title originating with the Maker of this planet; until that one can produce a decree from the Creator declaring that this city lot, or that great tract of agricultural or coal land, or that gas well, was made for that one person alone — until then we have a right to hold that the land was intended for all of us.

Natural religion and revealed religion alike tell us that God is no respecter of persons; that He did not make this planet for a few individuals; that He did not give it to one generation in preference to other generations, but that He made it for the use during their lives of all the people that His providence brings into the world. If this be true, the child that is born tonight in the humblest tenement in the most squalid quarter of New York, comes into life seized with as good a title to the land of this city as any Astor or Rhinelander. ...  read the whole article
Henry George: The Single Tax: What It Is and Why We Urge It (1890)
Think about what the value of land is. It has no reference to the cost of production, as has the value of houses, horses, ships, clothes, or other things produced by labor, for land is not produced by man, it was created by God. The value of land does not come from the exertion of labor on land, for the value thus produced is a value of improvement. That value attaches to any piece of land means that that piece of land is more desirable than the land which other citizens may obtain, and that they are willing to pay a premium for permission to use it. Justice therefore requires that this premium of value shall be taken for the benefit of all in order to secure to all their equal rights.

Consider the difference between the value of a building and the value of land. The value of a building, like the value of goods, or of anything properly styled wealth, is produced by individual exertion, and therefore properly belongs to the individual; but the value of land only arises with the growth and improvement of the community, and therefore properly belongs to the community. It is not because of what its owners have done, but because of the presence of the whole great population, that land in New York is worth millions an acre. This value therefore is the proper fund for defraying the common expenses of the whole population; and it must be taken for public use, under penalty of generating land speculation and monopoly which will bring about artificial scarcity where the Creator has provided in abundance for all whom His providence has called into existence.

It is thus a violation of justice to tax labor, or the things produced by labor, and it is also a violation of justice not to tax land values.  ...  read the whole article

Rev. A. C. Auchmuty: Gems from George, a themed collection of excerpts from the writings of Henry George (with links to sources)

CAPITAL, which is not in itself a distinguishable element, but which it must always be kept in mind consists of wealth applied to the aid of labor in further production, is not a primary factor. There can be production without it, and there must have been production without it, or it could not in the first place have appeared. It is a secondary and compound factor, coming after and resulting from the union of labor and land in the production of wealth. It is in essence labor raised by a second union with land to a third or higher power. But it is to civilized life so necessary and important as to be rightfully accorded in political economy the place of a third factor in production. — The Science of Political Economy unabridged: Book III, Chapter 17, The Production of Wealth: The Third Factor of Production — Capital abridged: Part III, Chapter 10: Order of the Three Factors of Production

IT is to be observed that capital of itself can do nothing. It is always a subsidiary, never an initiatory, factor. The initiatory factor is always labor. That is to say, in the production of wealth labor always uses capital, is never used by capital. This is not merely literally true, when by the term capital we mean the thing capital. It is also true when we personify the term and mean by it not the thing capital, but the men who are possessed of capital. The capitalist pure and simple, the man who merely controls capital, has in his hands the power of assisting labor to produce. But purely as capitalist he cannot exercise that power. It can be exercised only by labor. To utilize it he must himself exercise at least some of the functions of labor, or he must put his capital, on some terms, at the use of those who do. — The Science of Political Economy unabridged: Book III, Chapter 17, The Production of Wealth: The Third Factor of Production — Capital abridged: Part III, Chapter 10: Order of the Three Factors of Production

THUS we must exclude from the category of capital everything that may be included either as land or labor. Doing so, there remain only things which are neither land nor labor, but which have resulted from the union of these two original factors of production. Nothing can be properly capital that does not consist of these — that is to say, nothing can be capital that is not wealth. — Progress & Poverty — Book I, Chapter 2: Wages and Capital: The Meaning of the Terms

THUS, a government bond is not capital, nor yet is it the representative of capital. The capital that was once received for it by the government has been consumed unproductively — blown away from the mouths of cannon, used up in war ships, expended in keeping men marching and drilling, killing and destroying. The bond cannot represent capital that has been destroyed. It does not represent capital at all. It is simply a solemn declaration that the government will, some time or other, take by taxation from the then existing stock of the people, so much wealth, which it will turn over to the holder of the bond; and that, in the meanwhile, it will, from time to time, take, in the same way, enough to make up to the holder the increase which so much capital as it some day promises to give him would yield him were it actually in his possession. The immense sums which are thus taken from the produce of every modern country to pay interest on public debts are not the earnings or increase of capital — are not really interest in the strict sense of the term, but are taxes levied on the produce of labor and capital, leaving so much less for wages and so much less for real interest. — Progress & Poverty — Book III, Chapter 4: The Laws of Distribution: Of Spurious Capital and of Profits Often Mistaken For Interest

CAPITAL, as we have seen, consists of wealth used for the procurement of more wealth, as distinguished from wealth used for the direct satisfaction of desire; or, as I think it may be defined, of wealth in the course of exchange.

Capital, therefore, increases the power of labor to produce wealth: (1) By enabling labor to apply itself in more effective ways, as by digging up clams with a spade instead of the hand, or moving a vessel by shoveling coal into a furnace, instead of tugging at an oar. (2) By enabling labor to avail itself of the reproductive forces of nature, as to obtain corn by sowing it, or animals by breeding them. (3) By permitting the division of labor, and thus, on the one hand, increasing the efficiency of the human factor of wealth, by the utilization of special capabilities, the acquisition of skill, and the reduction of waste; and, on the other, calling in the powers of the natural factor at their highest, by taking advantage of the diversities of soil, climate and situation, so as to obtain each particular species of wealth where nature is most favorable to its production.

Capital does not supply the materials which labor works up into wealth, as is erroneously taught; the materials of wealth are supplied by nature. But such materials partially worked up and in the course of exchange are capital. — Progress & Poverty — Book I, Chapter 5: Wages and Capital: The Real Functions of Capital

... go to "Gems from George"

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

Q48. Would you let money escape taxation, and so favor money lenders?
A. It is a curious fact that this question is most popular among people who clamor for cheap money. How they expect to cheapen money by taxing its lenders on their loans is past finding out. To tax money lenders is to discourage money lending, and thereby to increase interest on loans. Yes, we should let money escape taxation. It escapes taxation now, which in itself is a politic reason for exempting it; but we should exempt it (by taxing nothing but land values) for the additional and better reason that a man's money is his own and the community has no right to it, while a man's land value is the community's and the man has no right to it. This would not favor money lenders in any invidious sense. It would favor both lenders and borrowers; borrowers by enabling them to borrow on easier terms, and lenders by making their loans more secure. ... read the book

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q25. Where in does privilege differ from capital?
A. Capital is a material thing, a product of labor, stored-up wages; an instrument of production paid for in human labor, and destined to wear out. Capital is the natural ally of labor, and is harmless except as allied to privilege. Privilege is none of these, but is an intangible statutory power, an unpaid-for and perpetual lien upon the future labor of this and succeeding generations. Capital is paid for and ephemeral. Privilege is unpaid for and eternal. A man accumulated in his profession $5,000 capital, which he invested in land in Canada. Ten years later he sold the same land for $200,000. Here is an instance of $5,000 capital allied with $195,000 privilege. This illustrates that privilege and not capital is the real enemy of labor.

... read the whole article

Lindy Davies: Land and Justice

If we just look at the "ecological footprint," it's easy to be scared of the seemingly unavoidable damage we are doing to the earth. But seeing "the footprint" in terms of its components — subsistence, wealth, and illth — makes it clear that the fact of persistent and growing global poverty is not the inevitable result of population growth. I believe it’s true that the world cannot long support current levels of pollution, waste and habitat destruction — but these problems spring not from production itself — and certainly not from trade, itself — but from privileges, granted to individuals and corporations — things that we can correct, if we choose to.

To solve the problem of land and justice is to remove unjust privilege, by instituting an economic system that rewards production and prohibits extortion.

It’s all about the land: not only is land necessary for all life — land is also necessary for all production. So, as human population increases, and as the production of wealth gets more and more efficient, the demand for land goes up, and, of course, the land factories start cranking out more land!

Wait! They can't DO that, can they?

Wealth — products, widgets — these things are made by human beings. If customers are willing to buy more of them, then manufacturers will make more of them. But human beings can't make land. The supply of land cannot be increased. If the demand for land increases, only one thing can happen: its price will go up.

The owners of land see population and production go up, up, up — and no more land. So, they will only put their land to use if they have an immediate need for the cash. If they can afford to wait, they will wait, because they expect the land's value to increase with time.

That, in a nutshell, is the key to the land problem — the problem of poverty.... read the whole speech

Clarence Darrow: The Land Belongs To The People (1916)

This earth is a little raft moving in the endless sea of space, and the mass of its human inhabitants are hanging on as best they can. It is as if some raft filled with shipwrecked sailors should be floating on the ocean, and a few of the strongest and most powerful would take all the raft they could get and leave the most of the people, especially the ones who did the work, hanging to the edges by their eyebrows. These men who have taken possession of this raft, this little planet in this endless space, are not even content with taking all there is and leaving the rest barely enough to hold onto, but they think so much of themselves and their brief day that while they live they must make rules and laws and regulations that parcel out the earth for thousands of years after they are dead and, gone, so that their descendants and others of their kind may do in the tenth generation exactly what they are doing today — keeping the earth and all the good things of the earth and compelling the great mass of mankind to toil for them.

Now, the question is, how are you going to get it back? Everybody who thinks knows that private ownership of the land is wrong. If ten thousand men can own America, then one man can own it, and if one man may own it he may take all that the rest produce or he may kill them if he sees fit. It is inconsistent with the spirit of manhood. No person who thinks can doubt but that he was born upon this planet with the same birthright that came to every man born like him. And it is for him to defend that birthright. And the man who will not defend it, whatever the cost, is fitted only to be a slave. The earth belongs to the people — if they can get it — because if you cannot get it, it makes no difference whether you have a right to it or not, and if you can get it, it makes no difference whether you have a right to it or not, you just take it. The earth has been taken from the many by the few. It made no difference that they had no right to it; they took it.

Now, there are some methods of getting access to the earth which are easier than others. The easiest, perhaps, that has been contrived is by means of taxation of the land values and land values alone; and I need only say a little upon that question. One trouble with it which makes it almost impossible to achieve, is that it is so simple and so easy. You cannot get people to do anything that is simple; they want it complex so they can be fooled.

Now the theory of Henry George and of those who really believe in the common ownership of land is that the public should take not alone taxation from the land, but the public should take to itself the whole value of the land that has been created by the public — should take it all. It should be a part of the public wealth, should be used for public improvements, for pensions, and belong to the people who create the wealth — which is a strange doctrine in these strange times. It can be done simply and easily; it can be done by taxation. All the wealth created by the public could be taken back by the public and then poverty would disappear, most of it at least. The method is so simple, and so legal even — sometimes a thing is legal if it is simple — that it is the easiest substantial reform for men to accomplish, and when it is done this great problem of poverty, the problem of the ages, will be almost solved. We may need go farther. ... read the whole article

William F. Buckley, Jr.: Home Dear Home

Henry George, the eminent social philosopher of a century ago, turned the attention of planners and economists, however briefly, to the indefeasible factor of land scarcity. Capital and labor can increase; land cannot.

Accordingly, George was the apostle of the single tax. It aimed most directly at land speculators. His insights would focus now on the limitations on the use of land imposed by zoning. If John Jones wants an acre protecting his house, he is laying claim to something that cannot expand in size. Since land, in George's analysis, is forever limited, it must be thought of and treated as common property. And therefore the rental value of one acre should constitute a tax (the single tax) on the person who sequesters it for himself.

A strong case can be made for the amenities of zoning laws. But they have an effect on the availability of housing, and on its cost. One result is that housing costs are increasing faster than inflation.

But is the Henry George factor likely to be espoused in political platforms? It cannot happen soon because too many interests are vested in zoning laws. But sharp political eyes should be trained on the question, in search of a viable formulation designed to fight against homelessness for grandchildren who cannot be expected to pay the projected cost of housing. ... read the whole column

Jeff Smith: What the Left Must Do: Share the Surplus

In The Nation, Robert Fitch ('90 Oct 29), author of The Assassination of New York (1993), stated,
"A tax levied on land used for commercial purposes is the ideal tax. It would fall on the richest families and institutions, it can't be shifted to consumers and owners can't move their property to another state. Almost invariably, if you tax something the capitalists will produce less of it and charge you more for it. But land is different.  Most of it was produced once and for all by God."  Read the whole article

Fred E. Foldvary — The Ultimate Tax Reform: Public Revenue from Land Rent

It is widely understood that when something is taxed, we get less of it. As discussed above, this reduction in labor, production, and investment is called the “excess burden” or “deadweight loss” of taxation. Income taxation discourages work, sales and value-added taxes discourage consumption, capital gains taxes discourage investment, and real property taxes discourage building and improving property. Those taxes make the asset or activity more costly, which then reduces the quantity bought of the thing being taxed.

What makes land different is that its supply is fixed, and it is independent of human action. When land value or rent is tapped for public revenue, the land does not shrink, flee, or hide.

Recall the definition above, that land means natural resources. Real estate sites consist of the three dimensional space within some boundary of title or jurisdiction. We cannot import land to expand the amount of space. There can be no land factories to produce more space. Chopping down trees, leveling inclined slopes, and draining and filling in water only change the material contents of the space, not the extent or location of the space. Building taller just makes more space usable; the three-dimensional space does not expand. ... read the whole document

Karl Williams:  Social Justice In Australia: INTERMEDIATE KIT

This is the place to further examine the three economic factors of production. An understanding of these economic concepts will not only give a grounding in economic theory but will enable you to realise how completely the so-called science of economics has been hijacked and corrupted by neoclassical economics.
1. LAND We are putting aside, for the moment, the philosophical thoughts about owning land to instead look at how land behaves in purely economic terms. For economic purposes, land has a wider meaning than that which is usually assigned to it by lay persons. It can be defined as the available natural resources and forces of nature. Hence land here includes flora & fauna, rivers & oceans, air, the electromagnetic spectra and mineral wealth. But "ordinary" land - loosely regarded as the surface of the earth - has distinctive features, particularly urban land with its locational value (as opposed to rural land with a largely agricultural value).


3. CAPITAL This can be a confusing term. Capital is defined as the product of the application of labour to land, or else can be simply understood to be stored-up wealth or, in a sense, stored-up labour. Capital equipment refers to the physical articles of material wealth which have been produced, not to be immediately consumed, but to be used to physically aid in the production of more material wealth. This excludes pseudo-wealth: those things described as agreements or contractual securities and obligations.

These 3 factors of production are commonly cited in chapter 1 of mainstream economic texts, although their definition of land is often vague. And then - hey, presto! - in chapter 2, land has somehow disappeared off the radar screen, and we have slipped into labour and capital as being the only factors of production. The merging of land into capital is the characteristic sleight of hand of neoclassical economics. We'll return to this folly later in our critique of capitalism and socialism.

There are three major differences between land and capital. Again, we're not talking about ethics, but about concrete, measurable economic features. If you ever want a litmus test to determine whether an economist really knows what he's talking about, just ask him, "What are the differences in the economic behaviour of land and capital?" If he seems to be bamboozling you with esoteric jargon, then you can take it that the guy's a fake, for the differences are clear and quite distinct, as you will here see.

AS SIMPLE AS 1 - 2 - 3!
1. Land is limited in supply. Capital is not. Reread Will Rogers' quote above - they ain't making land any more. Very important in economic terms, and there are few examples of other things that are limited in supply. Great works of art by dead painters is one illustration and, just as art collectors may bid up the price for a Monet or a van Gogh to ridiculous extremes, so too may land prices skyrocket. Why did central Tokyo land in the late 1980's hit US$4 billion per acre? Because those requiring it couldn't make their own. Such behaviour can never occur with capital, because capital can be created.

This unbreakable bargaining power of land-holders within our current economic system is one reason why Geonomists frequently attach the word "monopolist" to land-holders. To be pedantic but also strictly correct, we have said that land is "limited" rather than "fixed" in supply because of the effect of the possibility of land reclamation and multi-story buildings (not that those possibilities gave much relief in central Tokyo or elsewhere).

2. There will always be an irreplaceable human demand for land ….. while the Law of Gravity exists, anyway. You're going to need at least enough land on which to stand, and a bit more if you can't sleep on your feet. Capital is different because if the seller of capital asks too high a price from me, then I'll settle for a different supplier, or a substitute or - failing these options - simply do without. But I can't do without land (until the dawn of The Age of the Jetsons). I think I can handle living without an original Monet or van Gogh in my lounge room.

Combine the limited supply of land with a never-ending human demand, and the monopolistic screws are turned tighter. Furthermore, take into account that the limited supply of land is being demanded by an ever-increasing number of planetary inhabitants, and you'll grasp why ordinary folk are being squeezed into devoting more and more working years to saving for their increasingly-expensive block of land. In fact, you now know more about the factors of production - the very basics of economics - than many of our esteemed professors of neoclassical economics!

3. The value of land is built up by the community whereas the value of capital is created by its makers.
The type of land we are examining here is the all-important (because so expensive and necessary) urban land, and the value that is appreciating is its locational (not agricultural) value. We say that the value of land is not generally due to any effort of the owner for two main reasons - population and infrastructure. The growing population will make the limited supply of land relatively more scarce and will bid up its price. Also, a growing population accessible to your site is generally desirable - more skills and services available, companionship, economies of scale etc. Infrastructure, by its very nature, provides all sorts of land-value-enhancing amenities, such as roads, schools, power, water, hospitals, libraries etc. To return to our point, in no way is the value of capital enhanced by others. That of land is.  

Land generally appreciates over time whereas capital nearly always depreciates over its useful economic life. ...  Read the entire article

Karl Williams:  Land Value Taxation: The Overlooked But Vital Eco-Tax
I. Historical overview
II. The problem of sprawl
III. Affordable and efficient public transport
IV. Agricultural benefits
V. Financial concerns
VI. Conclusion: A greater perspective
Appendix: "Natural Capitalism" -- A Case Study in Blindness to Land Value Taxation
Land value taxation (LVT) has often been omitted from the lists of natural resources for which eco-taxes are being advocated. LVT provides strong financial encouragement for land to be put to its optimal use and will eliminate speculation on land, as occupants must pay the full LVT whether the land is being fully utilised or not. This leads to better land management, a reduction in urban sprawl, less urban smothering of agricultural land, and less farmland being pushed into hinterland.

LVT makes the investment in resource-efficient infrastructure affordable because the resulting enhanced land values are "recycled" back into public coffers. One particular application of LVT to agricultural land provides much-needed financial incentives for organic farming. Unlike other ecotaxes which "sow the seeds of their own revenue demise," LVT actuallyincreases over time as our environment is enhanced and is thus a stable revenue base.

This paper argues that the LVT assessment process shifts and refines our focus from monitoring human activity onto our use and abuse of natural resources, as any responsible form of stewardship should. It suggests that only if land users are prepared to pay the full cost of utilising resources should private resource holding be permitted.

"The depletion of natural resources and the despoliation of nature is due to a single reason: the failure properly to measure the rental value of all of nature's resources, and to make the users pay the community for the benefits they receive." F. Harrison, "The Corruption of Economics"

The confusion between land and capital is well exemplified by the description of property prices which comprise, of course, buildings and land. Whereas the former depreciate, the latter usually appreciate, yet their escalating values are invariably referred to as "house prices increases". Such confusion demands an examination of the distinctive qualities of land (whose value is largely locational) on which the theory and practice of LVT is based:
1. Unlike capital which is produced and reproduced, land is fixed in supply
2. There are all sorts of substitutes for capital items and for many natural resources, but there's no substitute for land - at least, not while the Law of Gravity holds! It is this twin combination of fixed supply and never-ending demand which determines how land behaves like a monopoly good, and which led Churchill to declare, "It is quite true that land monopoly is not the only monopoly which exists, but it is by far the greatest of monopolies - it is a perpetual monopoly, and it is the mother of all other forms of monopoly."[2]
3. Unlike capital, the value of land is not built up by the occupier but by the community (principally through the increase in presence of population and through the further provision of tax-funded infrastructure). Herein lies the rationale for LVT, being the charge by the community for community-created amenities. As will be further detailed, it also explains the reason why our present form of land tenure and taxation is supported by predatory rent-seekers.  read the entire article
(except for minor exceptions like multistorey developments and land reclamation). As the old saying goes, "Invest in land - they're not making any more of it". Furthermore, one can't go out into the desert and truck in prime real estate. And unlike natural resources like air and water, land can be neatly parceled up and readily "owned" (with title deeds which confer ownership in perpetuity).
Winston Churchill: Land Price as a Cause of Poverty (1909 speech in Parliament)
When the Leader of the Opposition seeks by comparisons to show that the same reasoning which has been applied to land ought also in logic and by every argument of symmetry to be applied to the unearned increment derived from other processes which are at work in our modern civilisation, he only shows by each example he takes how different are the conditions which attach to the possession of land and speculation in the value of land from those which attach to other forms of business speculation.

"If," he inquires, "you tax the unearned increment on land, why don't you tax the unearned increment from a large block of stock? I buy a piece of land; the value rises. I buy stocks; their value rises." But the operations are entirely dissimilar. In the first speculation the unearned increment derived from land arises from a wholly sterile process, from the mere withholding of a commodity which is needed by the community. In the second case, the investor in a block of shares does not withhold from the community what the community needs. The one operation is in restraint of trade and in conflict with the general interest, and the other is part of a natural and healthy process, by which the economic plant of the world is nourished and from year to year successfully and notably increased.  ... Read the whole piece

Winston Churchill: The People's Land  
... It is quite true that unearned increments in land are not the only form of unearned or undeserved profit which individuals are able to secure; but it is the principal form of unearned increment which is derived from processes which are not merely not beneficial, but which are positively detrimental to the general public. Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed in geographical position -- land, I say, differs from all other forms of property in these primary and fundamental conditions. ... Read the whole piece
Mason Gaffney: Land as a Distinctive Factor of Production

The classical economists treated land as distinct from capital: "land, labor and capital" were the three basic "factors of production."  They were mutually exclusive.  They were comprehensive, including all economic agents. Each was also "limitational," meaning at least some of each was needed for all economic activity (v.  A9, below)1 They made a coherent system, like Humboldt’s Cosmos, in the spirit of The Enlightenment that spawned them both.
1.      Land is absolutely limitational.  Capital is nearly so in practice: we need not dwell on rare cases to the contrary.

Neo-classical economists denied the distinction and undertook to purge land from economese. 
  • Many of them, following John B. Clark and Frank Knight, still deny the distinction as I explain in The Corruption of Economics, a companion volume in this series. 
  • Many treat the matter by seizing on and stressing all similarities of land and capital, while ignoring all differences. 
  • Some invent gray areas that seem to fuse land and capital, present them as typical, and quickly move on. 
  • Many more simply ignore land, which has the effect of accepting the Clark-Knight verdict in practice. 
  • Others uneasily finesse and blur the issue by writing "land" in quotes, or trivializing its value, or referring vaguely to "quasi-rents" to comprehend a broad spectrum of incomes both from land and other factors.
What ever possessed the neo-classicals to leave such a mess?  One needs to know something of their times and politics.  J.B. Clark and E.R.A. Seligman of Columbia University were obsessed with deflecting proposals, strongly supported at the time and place they wrote, to focus taxation on land.  Henry George, after all, was nearly elected Mayor of New York City in 1886 and 1897.  Frank Knight, founder of The Chicago School, followed them closely.  That explains why some of the points made herein may seem obvious to readers who have been spared the formal conditioning imposed on graduate students in economics.  In graduate training, however, the obvious is obscured, silenced, or denied.  Hundreds of books on economic theory are published with "land" absent from the index.  Denial is reinforced by dominant figures using sophistical, pedantic cant, which students learn to ape to distinguish themselves from the laity and advance their careers.2
2.      Careers both inside and outside academia are much influenced by "deep lobbying," as described by William Greider, 1992, Who Shall Tell the People?, pp. 42-59.  "Deep lobbying" is targeting public opinion several years in the future, by building allies in think tanks, academia, the media, and select activist groups.  Greider gives as an example the effort of polluting interests to undo the Superfund law.  They chose The Conservation Foundation, engineering the selection of William.  K. Reilly as environmental czar.  Greider emphasizes the role of economists, et al., as hired guns.  The eagerness of many college professors and administrators to get grants at any price must be experienced to be believed, but I can attest from personal observation that it drives much of the profession and its attitudes.
The dominance of "fusers" is shown by the prevalence of 2-factor models, wherein the world is divided into just labor and capital.3 Land is melded with capital, and simply disappears as a separate category, along with its distinctive attributes.  A number of economists don't buy it, but don't do anything about it - acquiescing in error by silence, indifference, passivity, or anxiety of the professional consequences.  They handle the question by "going into denial," as it were, resolving a vexing issue by pretending it isn't there. Anything else spoils the web of interpretation through which their art seeks to make human experience intelligible.donning blinders hedging, especially against such motivated forces as have an interest in hiding unearned wealth behind the skirts of capital.
Truth will not be made manifest by
3.      So help me, in 1993 1 saw and heard a one-factor model presented, in all solemnity.  Labor was the one factor.  Other economists attending saw nothing wrong: they gravely admired the model's "elegance."
4.  Thanks to Wm. H. McNeill for the phrasing.

The market exchange of capital for land causes an elementary failure in the minds of many.  Land and capital each have their prices and may be bought and sold for money.  Each alike is part of an individual's assets, colloquially called his "capital".  Each is a store of value to the individual.  What is true of each individual must be true for all together, is the thinking: it is the "fallacy of composition." We will see herein that society cannot turn land into capital, and land is not a store of value for society.

The discipline has not totally eliminated land, but marginalized it. The discipline has not totally terminated land: it is too subtle for outright skullduggery, preferring equivocation and confusion.  Rather, it has marginalized it.  There is a subdiscipline called "Land Economics," and a journal of that name.  There are journals of Agricultural Economics, Urban Economics, Regional Science, Environmental Economics, Natural Resources, and more.  There are also whole disciplines of Geography, Economic Geography, Military Science, Biogeography, Geology, Geometry, Surveying, Astronomy, Theology, Ecology, Oceanography, Meteorology, Soils, Physiography, Topography, and Hydrology, all dealing with The Earth and Nature and Creation as definable topics distinct from man's works. ...
... All that is confusing for students and others.  Land does have distinctive qualities for economic analysis and policy.  This essay gives 10 primary reasons why land is distinct from capital (and of course from mankind itself) as an economic input.  Then it gives 18 important economic consequences thereof, and their policy implications.  Making land markets, land policy, and land taxation work well for the general welfare is a major challenge for economists and statesmen.  They have neglected it too long by crediting and following the peculiar neo-classical sophisms that obscure or deny all distinctions between land and capital. ...

A-1.  Land is not produced nor reproducible
A-2.  Land as site is permanent and recyclable
A-3.  Land supply is fixed
a. The overall planet is fixed.  |  b. Land is fixed within political jurisdictions.  | c. Land as site is immobile in space, permanently. | d. Land is fixed in form. | e. Acquiring land must mean taking others'.
A-4.  Land is immobile in space and uncontrollable in time
a.  Land does not migrate. | b.  Land values are marked by continuity in space | c. The services of land flow and perish with time.  | d.  Land is not uniform to a user or firm. | e.  Land is not uniform to a city or economy | f.      Land division is a highly social process. | g. Nuclei are interdependent. | h. Land is immobile among taxing jurisdictions.
A-5.  Land does not turn over, but rather is recycled and is versatile
a. Land is not convertible into other land. | b. Land is necessarily versatile. | c. Land per se is economically divisible, unlike capital.  | d. Capital evinces "economies of simultaneity" in construction.
A-6.  Land is not interchangeable with capital
A-7  Land rents are subject to common forces that differed from and are generally reverse to those that determine interest rates (the price of capital.
A-8.  Land price guides investors and determines the character of capital, as capital substitutes for land
A-9.  Land is limitational
A-10.  Land value is not an economic fund
Land is not produced nor reproducible
Land is not produced, it was created.  It is the world, the planet from which man evolved, with the sun that energizes it and the orbit that tempers it.  Land is a free gift, variously expressed in different philosophies as Spaceship Earth, the Big Blue Marble, God's Gift, Creation, Gaia, The Promised Land, or nature.  Mankind did not create The Earth with its space and resources, nor can we add to them.  We can only acquire them, often by fighting, or rent-seeking, or in other counterproductive ways.  Man at best improves and develops capacities inherent in the free gift.  It is disappointing, and should alert us and make us suspicious, that economic analysis would ever purge out this paramount, self-evident truth.

"Land" in economics means all natural resources and agents, with their sites (locations and extensions in space).  Land is not just the matter occupying space: it is space. It includes many things not colloquially called land, such as
  • water and the beds under it,
  • the radio spectrum,
  • docks,
  • rights of way,
  • take-off/landing time slots for aircraft,
  • aquifers,
  • ambient air (the right to breathe it and the license to pollute),
  • "air rights" to strata in the third dimension of cities,
  • falling water,
  • wild fish, game, and vegetation,
  • natural scenery,
  • weather,
  • the environment,
  • the ecology,
  • the natural gene pool, etc. 
  • Any franchise, license or privilege giving territorial rights is a species of easement over land. 
    • Your driver's license is a right to use land;
    • red lights remind us of the critical value of space at central locations, since two objects cannot occupy the same space at the same time. 
    • It is worth a lot to have the right-of-way, as railroads do.
Economic land excludes many things, too, that are colloquially called land.  It excludes land-fill, for example, by which many cities are extended into shallow waters.  The site and seabed are properly land; the land-fill is an improvement.  There is no "made land" in the economic sense: it is reallocated from other uses.  Expanding cities take farmland from producing food and fiber, much of it for the expanding city itself.  Filled land in shallow water near cities is taken away from anglers and sailors and viewers and ecologists, who now routinely  organize to prevent it being "made" away with.  Drained and filled wetlands are taken away from endangered species, as well as from their primal role as filters protecting coastal waters from river trash and pollutants.  Thanks to the myopia and dereliction of economists, it has taken militant environmentalists to carry home this truth, developing in their struggle to be heard and understood a deep skepticism of economists and their "way of thinking." Some economists and environmentalists are now coming to terms with each other, after decades of mutual shunning.  Too many modern economists, however, still use their "way of thinking" to seal out important new evidence that doesn't fit the model.

Capital (K) is that which has been produced but not yet used up.  Capital is formed by human thrift, forbearance, investment and production.  Only after mankind forms and makes capital does it bear much likeness to land, in that they coexist.  Ordinary micro-economics obscures the differences because it deals mainly with relations of coexistence, ignoring the continual formation and destruction of capital, ignoring time and relations of sequence.  Thus it excludes from its purview one of the prime differences between land and capital.  The life of capital, like that of people, is marked by major sacraments of birth, growth, aging and death - all missing from micro theory. Economic life is a cavalcade in which the birth and death of capital are dated events.   Micro deals mainly with how existing resources are allocated at a moment in time, not how they originate, grow, flourish, reproduce, age, die, and decompose.

Capital occupies space; land is space.  In common micro theory, resources and markets come together at a point not just in time but in space.  Again, it excludes from its purview one of the prime qualities of land.6
6.      It is ironic that economists purport or affect to ape the methods of physics, when they delete both space and time from their subject.  If they have borrowed from physics, they have taken the form without the substance.

For the reasons given, alone, land and capital are mutually exclusive. There are, however, nine more, which follow. ...

The opportunity cost of capital is fleeting.  Capital loses most of it the moment it is committed to a specific form, whose physical alternative use is often only as scrap.  Land's "opportunity cost" is real and viable at all times.  The scrap value of capital is often zero or negative (radioactive waste supplying an extreme example). ...

Land price guides investors and determines the character of capital, as capital substitutes for land

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. ...

The value of durable capital is based on expected future cash flow, and so is that of land, but there are three big differences at least. 
  • The future of most capital is short; that of land is infinite. 
  • The future of most capital is limited to the specialized use for which it was built; that of land is varied and unpredictable. 
  • The future cash flow of capital is limited by potential competition from new capital with a known cost of production; that from land is limited only by future demand and is likely to rise.  It is, as Richard Hurd wrote in his classic Principles of City Land Values, "a state of the public mind."
As to allocation of land it gravitates not just to the financially strong but to the psychologically susceptible, that is those most prone to overestimate future incomes, for whatever reason. Read the whole article

Mason Gaffney:  Oil and Gas Leasing: a Study in Pseudo-Socialism

Michael Hudson and Kris Feder: Real Estate and the Capital Gains Debate
Capital gains taxation has been a divisive issue in Congress at least since the debates surrounding the Tax Reform Act of 1986, which, aiming to eliminate tax loopholes and shelters and preferences, repealed preferentially low tax rates for long-term gains.1 To bring effective capital gains tax rates back down again was President Bush’s “top priority in tax policy.“2 In 1989, Senate Democrats blocked a determined drive to reduce effective tax rates on the part of Bush, Republican Senators Packwood, Dole and others, and a few Democratic allies.3 The administration argued that the tax cuts would stimulate economic growth and induce asset sales, thereby actually increasing federal tax revenues; Congressional Democrats countered that the plan benefited mainly the wealthy, and that tax revenues would in fact decline.4 The Joint Committee on Taxation projected that budget shortfalls beginning in 1991 would sum to about $24 billion by 1994 --  and that most of the direct benefits would go to individuals with over $200,000 in taxable income. House Speaker Thomas S. Foley said that a third of the savings would be enjoyed by those with gross incomes over one million dollars. ...

The most frequently heard arguments for reducing capital gains taxes are:
(1) to reduce the “lock-in” effect, by which high tax rates at realization deter asset sales;14
(2) to relieve a disproportionate burden on homeowners;
(3) to compensate for the erosion of capital gains by inflation, as an alternative to indexing;15
(4) to end alleged double taxation of both capital stocks and income flows;
(5) to spur productive enterprise and investment; and
(6) to generate more tax revenue from the consequent growth in asset sales and productivity.
14 Some argue that eliminating step-up of basis at death would do more to reduce lock-in than a rate cut. See Joint Committee on Taxation (1990), p. 2 1; Gaffney (1991).
15 For an analysis of the case for inflation indexing, see Gaffney (1991).

This report calls attention to a neglected aspect of the capital gains issue --  one which bears importantly on the fifth- and sixth-named consequences.

Much of the capital gains debate today focuses on the stock market. Business recipients of capital gains are characterized as small innovative firms making initial public offerings (IPOs). In recent years such firms have been responsible for a disproportionate share of new hiring. It is hoped that corporations will be able to raise money to employ more labor and invest in more plant and equipment if buyers of their stocks can sell these securities with less of a tax bite. Stock market gains thus are held to stimulate new direct investment, employment, and output.

Typical of the campaign to reduce capital gains taxes is a Wall Street Journal editorial, “Capital Gains: Lift the Burden.” Author W. Kurt Hauser argues that when the capital gains tax rate was increased from 20 percent to 28 percent in 1989, the effect was to deter asset sales, causing a decline in the capital gains to be reaped and taxed. He refers, however, only to stock market gains, and specifically, to equity in small businesses. Citing the example of yacht producers, he suggests that taxing capital gains on stocks issued by these businesses “locks in” capital asset sales, thereby deterring new investment and hiring, and reducing the supply of yachts.16
16 Hauser (1995).

Others contend that new productive investment is relatively insensitive to capital gains tax rates, arguing, for example, that most of the money placed in venture-capital funds come from tax-exempt pension funds, endowments, and foundations.17
17 Venture Economics Information Services, cited in Schlesinger (1997), p. A6.

What is missing from the discussion is a sense of proportion as to how capital gains are made. Data that is available from the Department of Commerce, the IRS, and the Federal Reserve Board indicate that roughly two thirds of the economy's capital gains are taken, not in the stock market -- much less in new offerings -- but in real estate.

The Federal Reserve Board estimates land values at some $4.4 trillion for 1994. Residential structures add $5.9 trillion, and other buildings another $3.1 trillion. This $13.4 trillion of real estate value represents two thirds of the total $20 trillion in overall assets for the United States economy.19 Real estate accounts for three-fourths of the economy's capital consumption allowances. It also is the major collateral for debt, and generates some two-thirds of the interest paid by American businesses. Real estate taxes are the economy's major wealth tax, although their yield has declined as a proportion of all state and local revenues, from 70 percent in 1930 to about one-fourth today.
19 Balance Sheets for the U.S. Economy: 1945-94, Table B.11.
Capital gains statistics are much harder to come by. One cannot simply measure the increased value of the capital stock, for part of the rise represents investment--production of new capital -- rather than appreciation of existing capital and land. The IRS conducts periodic sampling of capital gains based on tax returns, and its Statistics on Income presents various analyses of the shares of total capital gains reported by the economy's income cohorts, from the richest five percent down. The samples are admittedly asymmetrical, however, and some of the categories overlap. Significantly, for instance, stock market gains include a large component of land and other real estate gains.

This policy brief seeks to elucidate the role of real estate in the capital gains issue, indicating the quantitative orders of magnitude involved.. We offer two main observations.
  • First, generous capital consumption allowances (CCAs) greatly magnify the proportion of real estate income taken as taxable capital gains. Capital gains accrue not only on newly constructed buildings, of course, but also on land and old buildings being sold and resold. Our tax code allows for properties to be re-depreciated by their new owners after a sale or swap, permitting real estate investors to recapture principal again and again on the same structure. When CCAs have been excessive relative to true economic depreciation, as they were during the 1980s, capital gains have been commensurately larger than the actual increase in property prices. As Charts la and lb illustrate, capital consumption allowances in real estate dwarf those in other industries.
  • Second, very little of real estate cash flow is taxable as ordinary income, so the capital gains tax is currently the only major federal levy paid by the real estate industry. CCAs and tax-deductible mortgage interest payments combine to exempt most of real estate cash flow from the income tax. This encourages debt pyramiding as it throws the burden of public finance onto other taxpayers.
A central conclusion of our study is that better statistics on asset values and capital gains are needed -- or, more to the point, a better accounting format. The economic effects of a capital gains tax depend upon how the gains are made. The present GNP/NIPA format fails to differentiate between wealth and overhead; between value from production and value from obligation. In particular, theory and measurement should distinguish real estate from other sources of capital gains -- aid, within the category of real estate, distinguish land from built improvements. Markets for immovable structures and for land have distinctive inherent features20 and are shaped by distinctive institutional constraints.

Our second major conclusion is that, at least until re-depreciation of second-hand buildings is disallowed, a capital gains tax cut would be unlikely to stimulate much new investment and employment from its largest beneficiary, the real estate industry. Depreciation allowances and mortgage interest absorb so much of the ongoing cash flow as to leave little taxable income. Mortgage interest payments, which now consume the lion’s share of cash flow, are tax-deductible, while CCAs offset much of what remains of rental income. On an industry-wide basis, in fact, NIPA statistics reveal that depreciation offsets more than the total reported income. As Charts 2a, 2b, and 2c illustrate, real estate corporations and partnerships have recently reported net losses year after year.

The result is that real estate corporations pay minimal income taxes -- some $1.3 billion in 1988, just one percent of the $137 billion paid by corporate America as a whole.21 Comparable figures are not available on non-corporate income tax liability, but the FIRE sector (finance, insurance, and real estate) reported negative income of $3.4 billion in 1988, out of a total $267 billion of non-farm proprietors’ income.22 These three symbiotically linked sectors thus were left with only capital gains taxes to pay on their cash flow.

The central point for capital gains tax policy is that taxable capital gains in real estate consist of more than just the increase in land and building prices. They represent the widening margin of sales price over the property’s depreciated value. The tax accountant’s book-value gains result from charging off capital consumption allowances as a tax credit against cash flow. The more generous are the capital consumption write-offs for real estate, the more rapidly a property’s book value is written down. The fiction of fast write-off is eventually “caught” as a capital gain when the real estate is either sold or refinanced.

Excessive depreciation allowances thus convert ordinary income into capital gains. Moreover, capital gains are the only point at which most real estate income is taxed To abolish the capital gains tax would annul the entire accumulated income tax liability which real estate owners have converted into a capital gains obligation. The income written off over the years as over-depreciation would not be caught at all. The economy's largest industry would have its income rendered tax-free.

Capital gains already are being taxed much more lightly than ordinary income, especially when deferrals and exemptions are taken into account. Even if exemptions were eliminated and the capital gains tax rate were set as high as the ordinary income tax rate, the effective burden (what economists call the present value of the tax) would be substantially lower to the extent that the capital gains tax is paid only retroactively, upon realization (sale) rather than as the gains actually accrue. ...Read the whole article
Dan Sullivan: Are you a Real Libertarian, or a ROYAL Libertarian?
Von Mises misses
Ludwig von Mises acknowledged in several places wholly unique distinctions between land and capital, but in his zeal to denounce land value tax, stated that,
Classical economy erred when it assigned land a distinct place in its theoretical scheme. Land is, in its economic sense, a factor of production, and the laws determining the formation of the prices of land are the same that determine the formation of other forms of production.

Or, paraphrasing of Jay Leno, go ahead and buy up the land. We'll make more. The difference between land and capital is huge, and explains why the cost of silicon chips goes down as demand goes up, while the cost of Silicon Valley goes up as demand goes up. There is no natural monopolization of capital, but, with state sanction, there is monopolization of land. But von Mises would sooner obscure these distinctions in socialist fashion than to embrace a proposal he mistakenly thought to be socialist.

In his first edition of Human Action, von Mises attacked land value tax as based on the socialist principle that legitimate property flows only from labor. But that is also a libertarian principle, a classical liberal principle, an Austrian principle, and even the von Misean principle behind private property! So, by the third edition, von Mises changed his text to read that land taxers claim legitimate property flows only from manual labor.

This is much more logically consistent, but factually incorrect. It is a correct assessment of what many socialists believe, but it is not a correct assessment of what land taxers believe. Henry George, the most prominent land taxer of all, wrote in his magnum opus, Progress and Poverty,

Thus the term labor includes all human exertion in the production of wealth, and wages, being that part of the produce which goes to labor, includes all reward for such exertion. There is, therefore, in the political-economic sense of the term, no distinction as to the kind of labor, or as to whether its reward is received through an employer or not....

George also defended the ownership of property that flows from the employment of capital.

Perhaps von Mises was biased by his location in Europe, where classical liberalism had not fared as well as in America. He might also have first seen land value tax in the Communist Manifesto, and not realized that it was there as a socialist ploy to co-opt support from classical liberalism. (Marx expressed contempt for land value tax as a reform in its own right, and openly stated that his support of it was only to draw people to what he really wanted, which was to control capital.) If this is where von Mises got his first exposure to the idea, it would not be surprising to see him close his mind to it.  ... Read the whole piece

Nic Tideman: Private Possession as an Alternative to Rental and Private Ownership for Agricultural Land

One of the reasons that the debate is so fierce between the advocates of rental and the advocates of private ownership of agricultural land is that each position has important strengths as well as important weaknesses. This paper argues that there is a third possibility between rental and private ownership that retains the strengths of both while avoiding the weaknesses of both. The third possibility is private possession of land.

I. The Concept of Private Possession of Land

Like private ownership, a system of private possession of land involves titles to land that have no termination date and are freely transferable. Therefore the possessor of land can be confident of receiving the full benefit of any improvements that are made to land. Like rental, a system of private possession of land involves an obligation to make regular payments to the government for the use of land. However, the payment is not for the full rental value of land, but only for the rental value that land would have in an unimproved condition. This collection by the government of the value that is provided by nature and location gives recognition to the idea that land is the common heritage of all generations, and should be available to all generations on the same terms. It insures that prices for titles of possession will correspond only to the cost of improvements, and will therefore not be excessive. It eliminates the profit from land speculation. And it provides a continuing source of government revenue. ... read the whole article

Bill Batt: The Compatibility of Georgist Economics and Ecological Economics
The starting point of the Georgist framework is rigorous definition of the three factors of production — land, labor, and capital, as in classical economics. It should be further pointed out that these factors are mutually exclusive and jointly exhaustive of all things of economic value. Something must necessarily be in one category or another; there is nothing outside this total classification. Understanding of what constitutes labor differs little from definitions given elsewhere, regardless of which theory is used. But definitions of land and capital differ somewhat from common practice as well as sometimes in theory. Therefore, it is helpful to spend time explicating the definitions of each as they are used in Georgism, and to point out where these definitions diverge from those most often employed in neoclassical economics applications. Many contemporary economics texts begin by taking note of the land-labor-capital distinction, but then make little use of it later. These distinctions will make apparent why Georgist economics leads to very different explanations of economic phenomena as well as to different policy solutions.

Critical to an understanding of Georgist economics is its recognition of land as a special and unique factor of production. “Land,” to Georgists, as true for classical economists throughout the 19th century, is taken to mean not just the surface of the earth and locational space; it means also any and all those natural resources and non-human works that today can exact a market price. It includes the wealth of the earth in all its natural forms, the air and water as well as material elements. It includes phenomena of value like the electromagnetic spectrum used to transmit communications signals, and landing time slots such as have value at airports. As the world economies enter a new age of high technology, these radio spectrums and time allotments have gained ever increasing value. So also with geosychronous satellite orbits and most recently the genetic codes of all the biota on earth.10

Sites have value relative to their location, and this is largely a function of where people choose to congregate. The highest value lands, in urban areas and in developed nations, have market worth many times that of sites even short distances away. Remote land sites sometimes have no market value whatsoever, and they are typically not “owned” by private individuals or corporations because they are not attractive for economic use. In New York City, for example, the ownership of one small parcel of less than an acre in Times Square was transferred from Prudential Life Insurance Company to the Disney Corporation in 1998 for an estimated $240 million.11 This is more market value than all the land and buildings together in the region north of the Mohawk River/Erie Canal in New York State. More recently, a nine-acre parcel just south of the United Nations complex, also available for development in New York City, was estimated to have a site value of $750 million.12 In both these cases, the cost of razing the existing obsolete buildings was included in these prices, a factor which suggests that the market value of the land would have been still higher were it not for this condition.13 In contrast there are land areas in Northern Canada and in the polar regions for which there are no private bidders at all.

It is equally important to distinguish those factors that are not land in the classical sense of its economic use. Natural resources such as coal, oil, and minerals, once removed from their natural state are no longer regarded as land. A diamond lodged in the deep earth is land; that same diamond discovered by a prospector and then cut and polished by a jeweler, is no longer land but capital. Likewise, fish in the ocean are land, but fish once caught and in a boat are capital. This is why, in any courses taught on Georgist economics, considerable time is devoted to basic definitions. To carry the distinction just one step further, land in the Georgist lexicon, is not wealth, whereas in neoclassical economics it is. In the course of later discussion of the Georgist view relative to the ecological economics approach, this will emerge as a critical distinction, as it helps to demarcate the boundaries of what activities fall within the realm of economic behavior and what activities remain marginal.

This separate and identifiable recognition of land has significant importance for the definition of capital too, because capital, then, cannot be land. Capital, rather, is the product of labor and land (and perhaps other past capital) to add to the increased store of capital of individuals or of the community. Capital can be of many types, ranging from monetary wealth to technical knowledge. The store of capital applied to land and labor results in the further production of capital wealth. Capital allows labor to be employed with greater efficiency and productivity, through the use of technology and instruments and with increased human skill and knowledge.  ... read the whole article

Bill Batt: How the Railroads Got Us On the Wrong Economic Track
Professor Gaffney has for the first time shown how powerful economic interests in American society essentially bought the leading figures of the newly-established American Economics Association with all the blandishments that can be used to influence academicians. Leading scholars were induced to change definitions of terms so that special interests would be advantaged. What were those interests? Primarily the railroad industry, which at the time was probably the most powerful political force in America. By changing definitions and conflating the land factor into capital, it was no longer essential for land rent to be paid in taxes, and the railroads, holders of some of the most valuable land in the nation, were thereby able to escape their full duty. This is an astonishing story, one never fully spelled out until now, and it explains both how the academic community was beholden to powerful interests and how many of the social problems we see today could have been avoided.  ... 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. ...

The Ethics of Property
Any discussion of Henry George should include a consideration of his ethical ideas, for throughout his works the question of right and wrong is dominant. In Progress and Poverty, for instance, he struck this keynote:

'. ..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?'. ..I bow to this arbitrament, and accept this test." 

George wrote as a social philosopher. Therefore his preoccupation in the field of ethics was with the relations of man to man, rather than with man himself -- with stealing rather than with thriftlessness. This necessarily involves the matter of property and ownership.

Once again, the student will find George's analysis to be based on the differences inherent in the two categories of land and products. "The real and natural distinction is between things which are the produce of labor and things which are the gratuitous offerings of nature. ...These two classes of things are in essence and relations widely different, and to class them together as property is to confuse all thought when we come to consider the justice or the injustice, the right or the wrong of property." 

What is the moral basis of property?

Is it not, primarily, the right of a man to himself, to the use of his own powers, to the enjoyment of the fruits of his own exertions? ... As a man belongs to himself, so his labor when put in concrete form belongs to him.

And for this reason, that which a man makes or produces is his own, as against all the world -- to enjoy or to destroy, to use, to exchange, or to give. No one else can rightfully claim it, and his exclusive right to it involves no wrong to anyone else. Thus there is to everything produced by human exertion a clear and indisputable title to exclusive possession and enjoyment, which is perfectly consistent with justice, as it descends from the original producer. ...

Here is a justification for private property in products. But what of land, which is not produced by man? Is there any other basis from which a justification for private property in land might be derived? In addition, is there anything in the right of private property in products which precludes the right of private property in land?

George explains, "Now this [the right of the individual to the use of his own faculties] is not only the original source from which all ideas of exclusive ownership arise ... but it is necessarily the only source. There can be to the ownership of anything no rightful title which is not derived from the title of the producer and does not rest upon the natural right of the man to himself. There can be no other rightful title, because (lst) there is no other natural right from which any other title can be derived, and (2nd) because the recognition of any other title is inconsistent with and destructive of this." 

To substantiate the first reason he further said,

Nature acknowledges no ownership or control in man save as the result of exertion. In no other way can her treasures be drawn forth, her powers directed, or her forces utilized or controlled. ...All men to her stand upon an equal footing and have equal rights. She recognizes no claim but that of labor, and recognizes that without respect to the claimant. If a pirate spread his sails, the wind will fill them as well as it will fill those of a peaceful merchantman. ...The laws of nature are the decrees of the Creator. There is written in them no recognition of any right save that of labor; and in them is written broadly and clearly the equal right of all men to the use and enjoyment of nature; to apply to her by their exertions, and to receive and possess her reward. Hence, as nature gives only to abor, the exertion of labor in production is the only title to exclusive possession (1879, rpt. 1958, pp. 335-36).
As to the second reason he said:
This right of ownership that springs from labor excludes the possibility of any other right of ownership. ...If production give to the producer the right to exclusive possession and enjoyment, there can rightfully be no exclusive possession and enjoyment of anything not the production of labor, and the recognition of private property in land is a wrong. For the right to the produce of labor cannot be enjoyed without the right to the free use of the opportunities offered by nature, and to admit the right of property in these is to deny the right of property in the produce of labor. When nonproducers can claim as rent a portion of the wealth created by producers, the right of he producers to the fruits of their labor is to that extent denied (1879, rpt. 1958, p. 336).

Private property in land, according to George, is unjust because it lets owners of land refuse access to land, and thereby threatens livelihood and life itself. Private property in land is also unjust because it enables owners of land to levy toll on production for the use of land; therefore it is robbery. So another difference between products and land, in George's view, is that private property in products is right, and private property in land is wrong.... read the whole article

Jeff Smith: Sharing Natural Rents to Sustain Human Society

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. ... read the whole article

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

One could argue that the failure to tax every bit of economic rent that accretes to land sites also has destructive consequences, although this is somewhat open to debate. Classical economists agree that rent collection ought to be at least the sum of inflation plus interest, otherwise the public is facilitating speculation in ways that distorts urban configurations even more than they constitute an inequity. But land sites frequently rise in market price far more than the rate of inflation, especially in times (as is perhaps true today) that a "bubble" in an economic cycle is in full flower. Some municipalities, especially on the east and west coasts of US, are today claiming to have increases in housing prices of as high as 20 percent per annum, a fever that surely will not last and will be especially destructive when it collapses.[19] Land values are what create that bubble; buildings are subject to continuing depreciation just like cars, computers, refrigerators or any other manufactured (capital) item. Recovering the economic rent reduces and perhaps even eliminates the speculative bubbles and swings that (some argue) account for economic cycles, fostering stability and regularity in economic planning and development that make for improved financial health to all.

This reality brings into stark relief the choices which local political leaders have. They may suggest increasing taxes on economic rent (i.e., on land value) or recognize that most property owners are counting on treating their homes and other property not as places to live and work so much as investments and then lament the poverty of their cities. Owners expect to reap a gain from their property when they sell, and they are often positioned to make any threat to that entitlement politically unpalatable. Farmers sometimes regard selling their farms as their retirement security. Homeowners sell with the expectation that this gain will provide them the means to enter long term end-of-life facilities if necessary. Heirs also oppose that recapture just as with a reverse mortgage. But for every long-term property owner that walks away with a lifetime's benefit of increased rent attached to a land title, there are just as many — if not more — young households or emerging businesses that are prohibited from acquiring a property because of the prohibitively expensive costs. In this sense, a title to a socially created stream of rental benefits constitutes a monopoly privilege to an unearned windfall gain for a lucky few. It is both unjust and is socially and economically destructive to the greater good. ... read the whole article

Bill Batt: Comment on Parts of the NYS Legislative Tax Study Commission's 1985 study “Who Pays New York Taxes?”

Except in the implicit recognition involved in their analysis of shifting, the distinction between land and improvements was opaque. This is a remarkable oversight, because improvements typically depreciate at the rate of 0.5 to 1.5 percent annually; only land values appreciate. And in view of the fact that assessments in New York localities have historically been very infrequent, one can understand how the land values are in reality a far higher proportion of parcel value than assessments would suggest. This means that in a period of seven years, for example, a property parcel could easily increase in price by 50 percent, far more if recent real estate market history is to be illustrative. Moreover real estate prices varied greatly in their rates of change during this time span; upstate New York was largely stable, but downstate localities experienced huge booms and busts.

Recognition of this would tend to favor what is known as the “new view” of property tax incidence, an acceptance of the idea that ”the burden of the tax on improvements remains with the owners of capital in the form of a lower net return instead of being shifted to users of property in the form of higher rents or prices.” Proponents point out that “the tax on improvements is essentially a nationwide tax on capital . . . [and therefore] its incidence will depend on the characteristics of supply and demand for capital nationally rather than on a single market.” The effect of this is to make the tax ”highly progressive.” Nonetheless, in a small footnote, Messrs. Pomp and Phares elected to go with the “old view” in stating that, “it seems most appropriate to assume that the new view does not apply to the analysis of tax burdens within one specific state (underlining in original). Thus, the old or traditional view was adhered to in the analysis. . ; that is, the excise effect of the tax was considered dominant.” The ubiquity of New York's property tax, and that it has over 1,300 local assessment and tax districts, may well have escaped their notice. ... read the whole commentary

Nic Tideman: Using Tax Policy to Promote Urban Growth

The land that a city has is fixed (or if it changes, it does so at the expense of other administrative units). Therefore, with respect to land, socially productive urban growth means adopting policies that raise the productivity of land. Labor, on the other hand, is reasonably mobile, and capital is highly mobile. Entrepreneurship springs up and fades away with the rise and fall of opportunities. Therefore, in a market economy, the payments that must be made to attract these factors are substantially outside the control of a city. Thus the growth of a city with respect to labor, capital and entrepreneurship is achieved primarily by making the city a place that attracts more of these factors, taking the rates of wages, interest and profits that must be paid to attract them as given by market forces.

Tax policy is critical for urban growth because taxes on the earnings of labor, capital and entrepreneurship drive these factors away. A city that desires to grow should refrain from taxing wages, interest or profits and concentrate its taxes on land, which does not have the option of moving away. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)

Gifts of creation were produced only once and are irreplaceable. By contrast, products traded in markets tend to be mass-produced and highly disposable. It’s hard to imagine a deity who’d view such temporal goods as equivalent to his or her enduring handiwork. The question is whether creation’s irreplaceable gifts are different enough to merit different treatment by our economic operating system. A strong case can be made that they are.

The case is moral as well as economic. The moral argument is that we have a duty to preserve irreplaceable gifts of creation, whereas we have no comparable duty toward transient commercial goods. The economic argument is that any society that depletes its natural capital is bound to become impoverished over time. I find both lines of argument convincing.

But what’s the reality today? Here we encounter two disconcerting facts. The first is that there are very few property rights protecting nature’s gifts. With the exception of a few set-asides such as parks and wilderness areas, we subject creation’s gifts to the same rules as Wal-Mart’s merchandise. The second is that the right of corporations to profit dominates all other rights.

It’s time to treat creation’s gifts differently, to put different “tags” on them so markets will recognize them and apply different rules to them. This chapter shows how we can do that. ...

It seems to me that, if anything is divine, it should be gifts of creation. Morally, they’re gifts we inherit together and must pass on, undiminished, to future generations. Economically, they’re irreplaceable and invaluable capital. Protection of these shared assets should trump transient private gain. Broad benefit should trump narrow benefit. The commons should trump capital. This should be written into our economic operating system and enforced by the courts. ... read the whole chapter





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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper