WealthandWant theme: Marginal Land

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

WHEREVER land has an exchange value there is rent in the economic meaning of the term. Wherever land having a value is used, either by owner or hirer, there is rent actual; wherever it is not used, but still has a value, there is rent potential. It is this capacity of yielding rent which gives value to land. . . . No matter what are its capabilities, land can yield no rent and have no value until some one is willing to give labor or the results of labor for the privilege of using it; and what anyone will thus give, depends not upon the capacity of the land, but upon its capacity as compared with that of land that can be had for nothing. — Progress & Poverty Book III, Chapter 2 — The Laws of Distribution: Rent and the Law of Rent

STATED reversely, the law of rent is necessarily the law of wages and interest taken together, for it is the assertion, that no matter what be the production which results from the application of labor and capital, these two factors will only receive in wages and interest such part of the produce as they could have produced on land free to them without the payment of rent — that is the least productive land or point in use. — Progress & Poverty Book III, Chapter 2 — The Laws of Distribution: Rent and the Law of Rent

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Thomas Flavin, writing in The Iconoclast, 1897

Now, it is quite true that all taxes of whatever nature are paid out of the products of labor. But must they be for that reason a tax on labor products. Let us see.

I suppose you won't deny that a unit of labor applies to different kinds of land will give very different results. Suppose that a unit of labor produces on A's land 4, on B's 3, on C's 2 and on D's 1. A's land is the most, and D's is the least, productive land in use in the community to which they belong. B's and C's represent intermediate grades. Suppose each occupies the best land that was open to him when he entered into possession. Now, B, and C, and D have just as good a right to the use of the best land as A had.

Manifestly then, if this be the whole story, there cannot be equality of opportunity where a unit of labor produces such different results, all other things being equal except the land.

How is this equality to be secured? There is but one possible way. Each must surrender for the common use of all, himself included, whatever advantages accrues to him from the possession of land superior to that which falls to the lot of him who occupies the poorest.

In the case stated, what the unit of labor produces for D, is what it should produce for A, B and C, if these are not to have an advantage of natural opportunity over D.

Hence equity is secured when A pays 3, B, 2 and C, 1 into a common fund for the common use of all — to be expended, say in digging a well, making a road or bridge, building a school, or other public utility.

Is it not manifest that here the tax which A, B and C pay into a common fund, and from which D is exempt, is not a tax on their labor products (though paid out of them) but a tax on the superior advantage which they enjoy over D, and to which D has just as good a right as any of them.

The result of this arrangement is that each takes up as much of the best land open to him as he can put to gainful use, and what he cannot so use he leaves open for the next. Moreover, he is at no disadvantage with the rest who have come in ahead of him, for they provide for him, in proportion to their respective advantages, those public utilities which invariably arise wherever men live in communities. Of course he will in turn hold to those who come later the same relation that those who came earlier held to him.

Suppose now that taxes had been levied on labor products instead of land; all that any land-holder would have to do to avoid the tax is to produce little or nothing. He could just squat on his land, neither using it himself nor letting others use it, but he would not stop at this, for he would grab to the last acre all that he could possibly get hold of. Each of the others would do the same in turn, with the sure result that by and by, E, F and G would find no land left for them on which they might make a living.

So they would have to hire their labor to those who had already monopolized the land, or else buy or rent a piece of land from them. Behold now the devil of landlordism getting his hoof on God's handiwork! Exit justice, freedom, social peace and plenty. Enter robbery, slavery, social discontent, consuming grief, riotous but unearned wealth, degrading pauperism, crime breeding, want, the beggar's whine, and the tyrant's iron heel.

And how did it all come about? By the simple expedient of taxing labor products in order that precious landlordism might laugh and grow fat on the bovine stupidity of the community that contributes its own land values toward its own enslavement!

And yet men vacuously ask, "What difference does it make?"

O tempora! O mores! To be as plain as is necessary, it makes this four-fold difference.

First, it robs the community of its land values;

second, it robs labor of its wages in the name of taxation;

third, it sustains and fosters landlordism, a most conspicuously damnable difference;

fourth, it exhibits willing workers in enforced idleness; beholding their families in want on the one hand, and unused land that would yield them abundance on the other.

This last is a difference that cries to heaven for vengeance, and if it does not always cry in vain, will W. C. Brann be able to draw his robe close around him and with a good conscience exclaim, "It's none of my fault; I am not my brother's keeper."

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

The statement above expresses "The Physiocratic Doctrine" of tax incidence, harking back to Francois Quesnay, and even earlier writers like John Locke and Jacob Vanderlint. The Doctrine has staying power: it is used, for example, by Bogart, Bradford, and Williams writing in the National Tax Journal, December, 1992, on tax incidence in New Jersey.... Read the whole article

Picture an unpopulated island where we're going to produce one good, corn, and there are eleven grades of land. On the best land, we can grow ten bushels of corn per week; the second land grows nine bushels, and so on to the worst land that grows zero bushels. We'll ignore capital goods at first. The first settlers go the best land. While there is free ten-bushel land, rent is zero, so wages are 10. When the 10-bushel land is all settled, immigrants go to the 9-bushel land.

Wages in the 9-bushel land equal 9 while free land is available. What then are wages in the 10-bushel land? They must also be 9, since labor is mobile. If you offer less, nobody will come, and if you offer a bit more than 9, everybody in the 9-bushel land will want to work for you. Competition among workers makes wages the same all over (we assume all workers are alike). So that extra bushel in the 10-bushel land, after paying 9 for labor, is rent.

That border line where the best free land is being settled is called the "margin of production." When the margin moves to the 8-bushel land, wages drop to 8. Rent is now 1 on the 9-bushel land and 2 on the 10-bushel land. Do you see what the trend is? As the margin moves to less productive lands, wages are going down and rent is going up. We can also now see that wages are determined at the margin of production. That is the "law of wages." The wage at the margin sets the wage for all lands. The production in the better lands left after paying wages goes to rent. That is the "law of rent." If you understand the law of wages and the law of rent, you see the cat! To complete our cat story, suppose folks can get land to rent and sell for higher prices later rather than using it now. This land speculation will hog up lands and make the margin move further out than without speculation, lowering wages and raising rent even more.

Now we have good news and bad news. The good news is that when we put in the capital goods... we first left out from the example above, the tools and technology increase the productivity of all the lands. If production doubles, rent doubles, and wages go up. Wages won't double, because workers have to pay for the tools, but even if wages go up 50 percent, that's good news, and why industrialized economies have a high standard of living. Also, high skills enable educated workers to have a wage premium above the basic wage level. The bad news is that the technology enables us to extend the margin to less productive land, which lowers wages again. So there is this constant race between technology raising wages and lower margins reducing wages. Read the whole article

I want to tell you the story of Charles Avilla. A while back I came across a book called Ownership, Early Christian Teachings. Avilla was a divinity student in the Phillipines. One of his professors had a great concern about poverty conditions in the Phillipines, and was taking students out to prisons where the cooks were the land rights revolutionaries in the Phillipines. Because they kept pushing for land reform for the people, they had ended up in jail. So they were political prisoners who were reading the Bible and were asking the question, who did God give this earth to? Who does it belong to? It isn't in the Bible that so few should have so much and so many have so little. In the theological world in this upscale seminary he was trying to put this together about poverty and what the biblical teachings were. He had a thesis to write and he was thinking he would do something about economic justice. One of his professors thought there would be a wealth of information from the church's early history, the first 300 years after Jesus. So he actually went back to read the Latin and Greek about land ownership and found a wealth of information about the prophetic railings of the people in that early time on the rights of the land. ...

In the Judaic tradition, and the Talmudic tradition, how much of the Jubilee justice was actually implemented is a subject of discussion. Some say it was a good idea but not put in place. Others say it was substantially put into place.

The Talmudic rabinical discussion is of interest to Georgists because they tried to allocate the land according to the richness of the soil for agriculture. For better soil, richer for agriculture, maybe an acre of that would be allocated. On the poorer soil, these tribes could get five acres.

The other thing was some lands were closer to the market. Some land was closer to Jerusalem. That is an advantage over those who would have to travel a longer distance to get to the market. How do you have an equal rights distribution of land allocation with reference to the market problem? For those more advantageously situated, the adjustment was to be made by money. Those holding land nearer the city should pay in to the common treasury the estimated excess of value attaining to it by reason of superior situation. While those holding land of less value by reason of distance from the city would receive from the treasury a money compensation. On the more valuable holdings would be imposed a tax or a lease fee, the measure of which was the excess of their respective values over a given standard, and the fund thus created was to be paid out in due proportion to those whose holdings were in less favorable locations.

In this, then, we see affirmed the doctrine that natural advantages are common property and may not be diverted to private gain. Throughout the ages when wisdom is applied to land problems, we see this emerge.... Read the whole article

Land's value goes up when population increases and technological and economic development make labor more productive. Those who "own" land often withhold it from use, expecting to capture its increased value in the future -- thus, the possession of land enables people to take an income that they did nothing to produce.

Speculative withholding of land has disastrous consequences. Peasants who seek land on which to survive are pushed out to poorer and poorer lands. These "sub-marginal" lands become their alternative place for self-employment. With such a poor alternative, they have no choice but to accept very low wages. Rent -- the payment to landowners -- absorbs more of the wealth produced on all sites.

Land speculation also prevents development near the center of cities, pushing it to the outskirts while the center decays from neglect and slums increase. The "sprawl" engulfs farms and forests, even as it raises the price of land, making use and development more costly.

Rapid destruction of the Amazon rain forest in Brazil dramatizes how the unnatural phenomenon of sprawl has an ominous worldwide impact on the environment. In Brazil, ten per cent of the landowners own 80 percent of the land, while one million peasants are forced off the land each year. And a mere one per cent controls 48 percent of the cultivable land. The only place in Brazil where there is land for the taking is in the Amazon rain forest. The destruction of the rain forest is caused by a system that perpetuates artificial land shortages. Nearly four-fifths of Brazil's arable land is covered by sprawling latifundios, most of which are held by speculators who produce nothing.

Here is the root cause of poverty. When laborers are faced with the choice of either bare subsistence wages or land that can barely maintain life, labor itself is marginalized and cannot effectively bargain on its own behalf. Wages, generally, on all land, are driven down toward the point of bare subsistence. Returns to capital are also depressed for the same reason, deterring investment. When this is carried to an extreme -- when people can no longer afford the goods being produced and when there is little profit in applying capital -- the economy collapses. The inflated land market, on which the speculative frenzy has fed, collapses too. Read the whole synopsis

Both Soilsmen and habitatspersons have a point, we will see, but they have a fatal weakness. Neither has a system that composes conflict with other worthy goals, including each others'. As to cities, both soilsmen and habitat-savers would direct cities away from low-cost, high-productivity land to the high-cost leftover lands. They would not make this an end in itself, of course, but it is the necessary by-product of downgrading urban usage in the competition for land.

Thus, to restore citriculture and habitat in what is now L.A. we would move the city folks to hazard-prone floodplains, steep slopes subject to fire and erosion, quake-prone fault lines and liquefiable soils, etc. We would also move them away from the center, imposing longer commutes, greater auto-dependency, longer utility lines, longer hauls to dispose of solid wastes, more air to protect, more aquifer surface to protect, more land to protect from flooding, etc. ... read the whole article

The power of tax bias to keep land from its best use is starkly obvious by analyzing the economics of using marginal land. Any tax at all will sterilize such land completely, unless the taxes are so universal that the mobile factors, labor and capital, cannot escape them by moving.

“Who cares about marginal land?”, some may say. The distorting power of taxes has been demonstrated inadvertently by Chicago-School economists Gale Johnson and Stephen Cheung. They have shown that sharecropping, as a private arrangement, creates a bias on the part of tenants to substitute land for labor and equipment, almost without limit. This is because extra land costs the cropper nothing, unless it adds to output, so the cropper’s interest is to substitute land, which is free to him, for his labor and capital, which he pays for.

Taxes based on gross output affect all landowners the same way the cropshare lease affects croppers. They make every landowner a cropper of the state, giving every landowner a motive to substitute land for labor and capital indefinitely. Private landlords overcome this by limiting how much land to allow each cropper; but the state has no such offsetting control. Thus, each landowner’s motive to acquire excess land runs wild.

In conjunction, consider that taxes (other than property taxes) are based solely on cash flows, thus entirely exempting all the imputed income from and imputed consumption of the service flows of land – the “amenities.” Government tells the landed gentry, “Hold land as a totem, an heirloom, a private hunting and riding park, a dream of future retirement, a speculation, a hedge against inflation, an entry into high society, a beach access, a protection against future neighbors, a shooting range, a golf course, a ski hideaway, a drinking club, a private landing strip … anything private and narcissistic or exclusionary or snobbish … and your pleasures are tax exempt. Produce goods and services for others, though, and we will treat you like a sharecropper – and tax your employees, too.”

Now hark back to George’s second force holding labor off the better lands (Item A,3,b): holding land as a totem. He noted that tendency in an age before we even had an income tax, or state sales taxes. Our present tax system magnifies the tendency beyond all reason, resulting in the relegation of much of our best land to the indulgences of the landed gentry, old and new.... read the whole article

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