Die Neue Zeit
1st February 2009, 21:27
Progress, Poverty, and Economic Rent in Land
“Abolition of property in land and application of all [economic] rents of land to public purposes.” (Karl Marx and Frederick Engels)
Long before the classical economist Henry George popularized the Ricardian idea of “single” land value taxation, the ten-point program of the Communist Manifesto first called for the application (not elimination) of all economic rent of land (not just some) to exclusively public purposes. Before the critique of the emphasis on the word “single” with regards to land value taxation, it should be noted that the continued private ownership over and partial taxation of economic rent of land is connected to this period of decreasing rates of industrial and financial profit:
Take some hardheaded business owners who have no theories, but know how to make money. Say to them: "Here is a little village. In ten years, it will be a great city. The railroad and the electric light are coming; it will soon abound with all the machinery and improvements that enormously multiply the effective power of labor."
Now ask: "Will interest be any higher?"
"No!"
"Will the wages of common labor be any higher?"
"No," they will tell you. "On the contrary, chances are they will be lower. It will not be easier for a mere laborer to make an independent living; chances are it will be harder."
"What, then, will be higher?" you ask.
"Rent, and the value of land!"
"Then what should I do?" you beg.
"Get yourself a piece of ground, and hold on to it."
If you take their advice under these circumstances, you need do nothing more. You may sit down and smoke your pipe; you may lie around like an idler; you may go up in a balloon, or down a hole in the ground. Yet without doing one stroke of work, without adding one iota to the wealth of the community – in ten years you will be rich!
In the new city you may have a luxurious mansion. But among its public buildings, will be an almshouse.
These words, written by Henry George in his 1879 treatise Progress and Poverty, is at the core of the booms and busts in real estate markets worldwide, whose principal function is to transfer wealth from future land buyers to present landowners in residential, industrial, and commercial real estate (and even empty lots of suburban and rural land for the true but otherwise immaterial speculators). Especially thanks to that financial instrument otherwise known as the mortgage, rising real estate prices result in increased debt and interest payments, but also in decreased consumer savings and general investments in the so-called “real economy,” thereby crowding out potential homebuyers and even businesses. Whenever this bubble bursts, overproduction problems in the “real economy” do not merely arise, but are compounded to the point where circulation of credit itself is affected, such as during this current period. To end these booms and busts, along with their respective crowding out effects and compounding, George suggested a singular tax on land value to replace all other taxes. Of course, an aging Marx had some acerbic words to say about this Ricardian popularization, which should have been implemented in every bourgeois-capitalist state long before the implementation of progressive income taxation:
Theoretically the man is utterly backward! He understands nothing about the nature of surplus value and so wanders about in speculations which follow the English model but have now been superseded even among the English, about the different portions of surplus value to which independent existence is attributed--about the relations of profit, rent, interest, etc. His fundamental dogma is that everything would be all right if ground rent were paid to the state […] This idea originally belonged to the bourgeois economists; it was first put forward (apart from a similar demand at the end of the eighteenth century) by the earliest radical followers of Ricardo, soon after his death. I said of it in 1847, in my work against Proudhon: "We can understand that economists like Mill" (the elder, not his son John Stuart, who also repeats this in a somewhat modified form) "Cherbuliez, Hilditch and others have demanded that rent should be paid to the state in order that it may serve as a substitute for taxes. This is a frank expression of the hatred which the industrial capitalist dedicates to the landed proprietor, who seems to him a useless and superfluous element in the general total of bourgeois production."
[...]
All these "socialists" [...] have this much in common that they leave wage labour and therefore capitalist production in existence and try to bamboozle themselves or the world into believing that if ground rent were transformed into a state tax all the evils of capitalist production would disappear of themselves. The whole thing is therefore simply an attempt, decked out with socialism, to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one.
This cloven hoof (at the same time ass's hoof) is also unmistakably revealed in the declamations of Henry George. And it is the more unpardonable in him because he ought to have put the question to himself in just the opposite way: How did it happen that in the United States, where, relatively, that is in comparison with civilised Europe, the land was accessible to the great mass of the people and to a certain degree (again relatively) still is, capitalist economy and the corresponding enslavement of the working class have developed more rapidly and shamelessly than in any other country?
Nevertheless, does this reform facilitate the issuance of either intermediate or threshold demands? At the most basic level, public ownership of land would be a key demand at some point, so the Hahnel criterion is certainly not an issue here. After all, the “free market” of Hong Kong has no private ownership of land at all!
Meanwhile, there are more immediate benefits to be realized in the application of all economic rent of land to exclusively public purposes (as opposed to the capture of some of the private economic rent of land), at least some of which also facilitate the fulfillment of other immediate demands. Besides the fact that landowners would be under economic pressure to develop vacant and underutilized land, tax avoidance and evasion by means of sales tax concealment, income tax deductions, and tax havens would be impossible. The funds associated with the public capture of all economic rent of land would more than make up for the shortfalls resulting in the populist abolition of indirect and other regressive taxation (to be examined in the next section) and in the equally populist elimination by referendum of income taxation for at least low-income workers (as implied in the previous section).
Does this reform enable the basic principles to be “kept consciously in view”? Like with socio-income democracy, there are complications in meeting that all-important Kautsky criterion. Without the existence of class-based income taxation (approximated somewhat by progressive income taxation) – the purposefully second demand in the Communist Manifesto’s ten-point program – the stand-alone implementation of this reform would be, in Marx’s words above, “simply an attempt […] to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one.” On social labour and the transition to such, collective worker responsibility is key, hence the public application but not outright elimination of capturing economic rent of land. According to Jerry Jones of the Labour Land Campaign:
State ownership by itself is no guarantee. Without measures taken to value land in relation to its location and quality, and collecting the rent accordingly, those occupying the land will benefit at the expense of the public at large. Moreover, land will tend to be used indiscriminately, irrespective of its value. This happened, for example, in the former Soviet Union, where all land was state owned, and, moreover, treated as a free good (as was capital). Consequently, there were many instances of land being used inappropriately or inefficiently. In particular, it was common practice for enterprises (almost entirely state-owned in the Soviet Union) to hold land vacant indefinitely in case they might need it later. This meant that the rest of society lost out from making the best use of what was often valuable land in a prime location for more beneficial purposes. This also distorted investment decisions, which meant that capital was not necessarily invested in productive activities that made the best use of the land that was available. Nevertheless, since land use was under state control – as indeed it is in most countries, including Britain – it cannot be said that land use was entirely indiscriminate. The problem was that decisions were based not so much upon the economic value of particular sites, but more according to administrative convenience, and the relative effectiveness of lobbying by enterprise managers, local politicians and other vested interests, and the connections they had with planning authorities.
On a general programmatic note, this one demand best illustrates the danger of having an oppositionist program based on a series of disconnected reforms.
REFERENCES:
Progress and Poverty by Henry George [http://www.henrygeorge.org/pchp23.htm]
Letter to Friedrich Adolph Sorge in Hoboken, June 1881 by Karl Marx [http://www.marxists.org/archive/marx/works/1881/letters/81_06_20.htm]
What is Land Value Taxation? by the Land Value Taxation Campaign [http://www.landvaluetax.org/what-is-lvt/]
A land tax is 200 years overdue by Ashley Seager, The Guardian [http://www.guardian.co.uk/money/2007/jan/08/tax.business]
Land Value – For Public Benefit by Jerry Jones [http://www.labourland.org/downloads/papers/land_value_for_public_benefit.pdf]
“Abolition of property in land and application of all [economic] rents of land to public purposes.” (Karl Marx and Frederick Engels)
Long before the classical economist Henry George popularized the Ricardian idea of “single” land value taxation, the ten-point program of the Communist Manifesto first called for the application (not elimination) of all economic rent of land (not just some) to exclusively public purposes. Before the critique of the emphasis on the word “single” with regards to land value taxation, it should be noted that the continued private ownership over and partial taxation of economic rent of land is connected to this period of decreasing rates of industrial and financial profit:
Take some hardheaded business owners who have no theories, but know how to make money. Say to them: "Here is a little village. In ten years, it will be a great city. The railroad and the electric light are coming; it will soon abound with all the machinery and improvements that enormously multiply the effective power of labor."
Now ask: "Will interest be any higher?"
"No!"
"Will the wages of common labor be any higher?"
"No," they will tell you. "On the contrary, chances are they will be lower. It will not be easier for a mere laborer to make an independent living; chances are it will be harder."
"What, then, will be higher?" you ask.
"Rent, and the value of land!"
"Then what should I do?" you beg.
"Get yourself a piece of ground, and hold on to it."
If you take their advice under these circumstances, you need do nothing more. You may sit down and smoke your pipe; you may lie around like an idler; you may go up in a balloon, or down a hole in the ground. Yet without doing one stroke of work, without adding one iota to the wealth of the community – in ten years you will be rich!
In the new city you may have a luxurious mansion. But among its public buildings, will be an almshouse.
These words, written by Henry George in his 1879 treatise Progress and Poverty, is at the core of the booms and busts in real estate markets worldwide, whose principal function is to transfer wealth from future land buyers to present landowners in residential, industrial, and commercial real estate (and even empty lots of suburban and rural land for the true but otherwise immaterial speculators). Especially thanks to that financial instrument otherwise known as the mortgage, rising real estate prices result in increased debt and interest payments, but also in decreased consumer savings and general investments in the so-called “real economy,” thereby crowding out potential homebuyers and even businesses. Whenever this bubble bursts, overproduction problems in the “real economy” do not merely arise, but are compounded to the point where circulation of credit itself is affected, such as during this current period. To end these booms and busts, along with their respective crowding out effects and compounding, George suggested a singular tax on land value to replace all other taxes. Of course, an aging Marx had some acerbic words to say about this Ricardian popularization, which should have been implemented in every bourgeois-capitalist state long before the implementation of progressive income taxation:
Theoretically the man is utterly backward! He understands nothing about the nature of surplus value and so wanders about in speculations which follow the English model but have now been superseded even among the English, about the different portions of surplus value to which independent existence is attributed--about the relations of profit, rent, interest, etc. His fundamental dogma is that everything would be all right if ground rent were paid to the state […] This idea originally belonged to the bourgeois economists; it was first put forward (apart from a similar demand at the end of the eighteenth century) by the earliest radical followers of Ricardo, soon after his death. I said of it in 1847, in my work against Proudhon: "We can understand that economists like Mill" (the elder, not his son John Stuart, who also repeats this in a somewhat modified form) "Cherbuliez, Hilditch and others have demanded that rent should be paid to the state in order that it may serve as a substitute for taxes. This is a frank expression of the hatred which the industrial capitalist dedicates to the landed proprietor, who seems to him a useless and superfluous element in the general total of bourgeois production."
[...]
All these "socialists" [...] have this much in common that they leave wage labour and therefore capitalist production in existence and try to bamboozle themselves or the world into believing that if ground rent were transformed into a state tax all the evils of capitalist production would disappear of themselves. The whole thing is therefore simply an attempt, decked out with socialism, to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one.
This cloven hoof (at the same time ass's hoof) is also unmistakably revealed in the declamations of Henry George. And it is the more unpardonable in him because he ought to have put the question to himself in just the opposite way: How did it happen that in the United States, where, relatively, that is in comparison with civilised Europe, the land was accessible to the great mass of the people and to a certain degree (again relatively) still is, capitalist economy and the corresponding enslavement of the working class have developed more rapidly and shamelessly than in any other country?
Nevertheless, does this reform facilitate the issuance of either intermediate or threshold demands? At the most basic level, public ownership of land would be a key demand at some point, so the Hahnel criterion is certainly not an issue here. After all, the “free market” of Hong Kong has no private ownership of land at all!
Meanwhile, there are more immediate benefits to be realized in the application of all economic rent of land to exclusively public purposes (as opposed to the capture of some of the private economic rent of land), at least some of which also facilitate the fulfillment of other immediate demands. Besides the fact that landowners would be under economic pressure to develop vacant and underutilized land, tax avoidance and evasion by means of sales tax concealment, income tax deductions, and tax havens would be impossible. The funds associated with the public capture of all economic rent of land would more than make up for the shortfalls resulting in the populist abolition of indirect and other regressive taxation (to be examined in the next section) and in the equally populist elimination by referendum of income taxation for at least low-income workers (as implied in the previous section).
Does this reform enable the basic principles to be “kept consciously in view”? Like with socio-income democracy, there are complications in meeting that all-important Kautsky criterion. Without the existence of class-based income taxation (approximated somewhat by progressive income taxation) – the purposefully second demand in the Communist Manifesto’s ten-point program – the stand-alone implementation of this reform would be, in Marx’s words above, “simply an attempt […] to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one.” On social labour and the transition to such, collective worker responsibility is key, hence the public application but not outright elimination of capturing economic rent of land. According to Jerry Jones of the Labour Land Campaign:
State ownership by itself is no guarantee. Without measures taken to value land in relation to its location and quality, and collecting the rent accordingly, those occupying the land will benefit at the expense of the public at large. Moreover, land will tend to be used indiscriminately, irrespective of its value. This happened, for example, in the former Soviet Union, where all land was state owned, and, moreover, treated as a free good (as was capital). Consequently, there were many instances of land being used inappropriately or inefficiently. In particular, it was common practice for enterprises (almost entirely state-owned in the Soviet Union) to hold land vacant indefinitely in case they might need it later. This meant that the rest of society lost out from making the best use of what was often valuable land in a prime location for more beneficial purposes. This also distorted investment decisions, which meant that capital was not necessarily invested in productive activities that made the best use of the land that was available. Nevertheless, since land use was under state control – as indeed it is in most countries, including Britain – it cannot be said that land use was entirely indiscriminate. The problem was that decisions were based not so much upon the economic value of particular sites, but more according to administrative convenience, and the relative effectiveness of lobbying by enterprise managers, local politicians and other vested interests, and the connections they had with planning authorities.
On a general programmatic note, this one demand best illustrates the danger of having an oppositionist program based on a series of disconnected reforms.
REFERENCES:
Progress and Poverty by Henry George [http://www.henrygeorge.org/pchp23.htm]
Letter to Friedrich Adolph Sorge in Hoboken, June 1881 by Karl Marx [http://www.marxists.org/archive/marx/works/1881/letters/81_06_20.htm]
What is Land Value Taxation? by the Land Value Taxation Campaign [http://www.landvaluetax.org/what-is-lvt/]
A land tax is 200 years overdue by Ashley Seager, The Guardian [http://www.guardian.co.uk/money/2007/jan/08/tax.business]
Land Value – For Public Benefit by Jerry Jones [http://www.labourland.org/downloads/papers/land_value_for_public_benefit.pdf]