Rent

8. Power in the Wasteland: Understanding Essential Relationships

Many liberation theologists ignore the role of land ownership and do not even include land in the indexes of their books. Yet none would deny that land hoarding and land access are fundamental issues of justice and economic development.

The following two passages by Henry George, the economist who made the most definitive statements on land's role in political economy, illustrate the fundamental characteristics of land that are missed or ignored by modern economic analysts of the left and the right:

Does the passenger who enters a railroad car obtain the right to scatter his baggage over all the seats and compel the passengers who come in after him to stand up? ... We arrive and we depart... passengers from station to station, on an orb that whirls through space — our rights to take and possess cannot be exclusive; they must be bounded everywhere by the equal rights of others. Just as the passenger in a railroad car may spread himself and his baggage over as many seats as he pleases, until other passengers come in, so may a settler take as much land as he chooses, until it is needed by others — a fact which is shown by the land acquiring a value....

On the land we are born, from it we live, to it we return again — children of the soil as truly as is the blade of grass or the flower of the field. Take away from man all that belongs to the land, and he is but a disembodied spirit. Material progress cannot rid us of our dependence upon land.

Beneath all ideologies, there are basic factors and relationships that underlie economic behavior. To understand the (otherwise inexplicable) omission of attention to land's economic importance, it is useful to go back to these basics.

• The term "Land" refers to the whole material universe, exclusive of people and their products. Not the creation of human labor, yet essential to labor, it is the raw material from which all wealth is fashioned. It includes not only soil and minerals, but water, air, natural vegetation and wildlife, and all natural opportunities — even those yet to be discovered. It is a passive factor of production, yielding wealth only when labor is applied to it.
• Labor includes all human powers, mental and physical, used directly or indirectly to produce goods or to render service in exchange. Labor is often thought of as work that is done for hire, at fixed wages, mainly excluded from the risk-taking and decision-making that is normally classed under the heading of "entrepreneurship". Yet labor, properly understood, includes all human exertion in production — including mental exertion. The payment to labor is called Wages. And it is important to remember that the payment, or return, to labor does not include any returns that are the result of monopoly.
• Capital is the economic term that is most profoundly misunderstood and confused. For the term to make sense in any systematic analysis of wealth distribution, we must define capital in its classical sense as "wealth which is used to aid in further production, instead of being directly consumed." Since production is not completed until the product is in the hands of the consumer, products on their way to market, or "wealth in the course of exchange," are also considered capital.

Now, the objective of all economic behavior is the satisfaction of human desires. Human beings always seek to satisfy their desires with the least exertion: this self-evident proposition lies at the heart of our concepts of economic value and exchange. The primary thing needed for satisfaction is, of course, the tangible things, made from natural resources, that satisfy human desires and have exchange value. Things that meet these four fundamental criteria are termed "wealth". But money, bonds, and mortgages are but claims upon and measures of this value; they are not the wealth they symbolize.

A clear understanding of these basic definitions points immediately to the primacy of land as an economic factor. Human beings have inescapable material needs of food, clothing and shelter. Regardless of how long a chain of exchanges they may pass through in a modern economy, these things ultimately have their source in the land; they can come from nowhere else. Human beings need land in order to live. But if we must pay rent to a private land "owner" for access to the gifts of nature, it amounts to being charged a fee for our very right to live.

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.

Since the Great Depression, such total ruin has been minimized in more developed nations through Keynesian measures: monetary expansion, massive public works and welfare programs. In Third World countries, such Keynesian expedients, which support high speculative rent levels, work only if demand for exports is strong. When that demand weakens, the weight of external debt becomes so crushing as to defy redemption.

The Third World debt crisis is taken by many as the clearest sign of the correctness of dependency theory. It is asserted that Western moneylenders have extended loans to corrupt regimes, knowing that the nations' peoples would have to sacrifice to bear ever-increasing burdens. But when we recognize the land problem as the basic cause of the kind of economic collapse that has led to the "foreign debt crisis", it becomes clear that Western financial interests did not create those maladies but rather exploited the hapless economic policies of developing nations for their own gain.

Some defenders of the status quo admit that all land titles may be traced either to acts of force or fraud (or to the more respectable-sounding "priority of occupation"). But, they add, we cannot start over; society has for centuries given legal sanction to private landed property. Innumerable contracts have been executed on the basis of this sanction, and these include the good faith purchase of land. For society to withdraw this sanction, they claim, would be a breach of trust.

The passage of time, however, cannot turn a wrong into a right. Kings and popes and governments never had the moral right to vest in perpetual ownership what God intended for the benefit of all. If the acquisition of a benefit under the law were to establish such a vested right, no law could ever be amended, since it would invariably work to someone's disadvantage.

Obviously, change that further rends the fabric of society is usually self-defeating. And the vast majority of beneficiaries of unjust structures — the beleaguered middle classes — are not intentional wrongdoers but passive recipients of unearned wealth from a flawed system they did not create. The dismantling of these structures, therefore, should, whenever possible, be done in ways that avoid excessive hardship for them. But it must be done.

9. Claiming the Promised Land: A New Jubilee for a New World

In the book of Joshua, we find that although the Promised Land is a gift from God, it is a gift that has to be claimed. Even before the actual conquest of the Promised Land, the Mosaic Law prescribed a method whereby possession of land was to be rendered pleasing in God's sight. The Canaanites' claim was forfeited by their idolatry, with human sacrifice and temple prostitution, and by their exploitive, monopolistic social order. By contrast, Israel, to make good its claim, had to institute a social order that would guard against the desecration, pollution, and injustices of which its predecessors were guilty, and would secure to each family and to every generation within the Hebrew commonwealth the equal right to the use of the land, of which the Lord was recognized as the sole absolute owner.

They began with a census of the tribes and families before the conquest (Num. 26:1-51). Every tribe, excepting Levi, and within each tribe every family, was to receive its proportionate share, according to size (Num. 26:55-56), and ultimately, to ensure fairness, by lot (Num. 34:16-29). The actual distribution, according to these provisions, was concluded at Shiloh (Josh. 19:51). According to ancient historian Josephus, the territory was not divided into shares of equal size but of equal agricultural value. The landmarks that protected these allotments were protected by the public and solemn denunciation of a curse against anyone who should dishonestly tamper with them (Deut. 27:11-16; 19:14).

As discovered again in our own century, it is easier to devise a one-time fair apportionment of land that it is to keep the system from falling apart. This is why the ancient law established the Jubilee year. At the end of every fifty years, any alienated lands — given away, sold, or lost from unpaid debts — would be restored to the original families. Temporary possessors were to be compensated for any unexhausted improvements they may have made on the land. Concentrated landownership, and the division of society into landed and landless classes, was thereby prevented from creeping into the system. The Jubilee effectively took the profit out of landholding as such, leaving no incentive for speculation. When it was observed — and historical records indicate that it was observed for long periods — the Jubilee system successfully removed the root cause of poverty from the Jewish society.

The influence of the Jubilee idea upon early Pennsylvania colonists is evidenced by the inscription on the Liberty Bell of the biblical words enjoining the Jubilee year: "Proclaim Liberty throughout all the land unto all the inhabitants thereof." (Lev. 25:10) The founder of Pennsylvania, William Penn, advocated that all men be "tenants to the public", and to defray public expenses instituted a tax on land.

Environmental concern also goes back to biblical land laws. To prevent the exhaustion of the soil, a periodic fallow was ordered. "During one year in every seven, the soil, left to the influences of sun and frost, wind and rain, was to be allowed to 're-create' itself after six years' cropping, exactly as the tiller of the soil renewed his strength, after six days' work, by his Sabbath day's rest."

As noted, the tribe of Levi did not share in the equal division of the land, since it was charged with carrying out religious and public duties. Its members were entitled to an indemnity from the eleven tribes who received the land that otherwise would have gone to them. This indemnity was the tithe — one-tenth of the product from the land occupied by the eleven other tribes.

Here, in principle, is the formula for a just land system in almost any time or place. The compensation to the Levites maintained the substance of equal rights to land, alongside of and compatible with unequal physical division of the land itself. As Frederick Verinder pointed out in his book My Neighbour's Landmark, joint heirs of a house may share it equally by occupying it equally or unequally but "paying the rental into a common fund, from which each draws an equal share; or they may let the whole house to someone else and divide the rent equally." So it is with land. Sharing equally in the economic rent or value of land through the application of that value to common uses from which all benefit, renders private ownership and unequal partition of land morally and pragmatically benign.

The modern equivalent of removing one's neighbor's landmark is thus not the private ownership of land per se, but rather the private appropriation of land value. "The profit of the earth is for all" (Eccles. 5:9). The Old Testament ethic, to assure everyone the same natural opportunity, asserts that all people have an equal right to economic rent, and the Levite tithe demonstrates that the socialization of rent offsets the ethical and practical harm resulting from private land ownership. But there is another basis for its advocacy: Rent should be taken by society because it is a social product. Rent arises in large measure from two societal phenomena: the mere presence of population, and community activity in a particular area. More people means more demand for space on which to live and work. Community activities such as roads, schools, protection, parks, sewage, utilities and other public services, as well as the totality of private commercial and cultural operations, all make land more productive or desirable. It follows that a community which funds such improvements out of its rent fund will be provided with a stable and growing fund with which to maintain and improve them. And unlike conventional taxes, the collection of this fund will enhance, not penalize, the production of wealth.

Individuals, in their bare capacity as landowners, do nothing to produce land value. By withholding sites from use, whether for speculation or for other reasons, they may generate scarcity, artificially inflating rent, but this does not reflect any positive contribution to production on the part of landowners.

While land value is not the only type of unearned increment, unearned income resulting from such advantages as talent, genes or luck is not at the expense of others. Even Karl Marx admitted: "The monopoly of property in land is even the basis of the monopoly of capital." Marx could have — but did not — champion the abolition of land monopoly; instead he advocated its transfer from private into state hands. It was left to Henry George to expound how the universal principles of justice found in the Mosaic model could be applied to the modern age in all its economic aspects — rural and urban, agricultural and industrial, technologically undeveloped or advanced.

What George advocated was to leave land titles in private hands but to appropriate land rent via the existing machinery of property taxation. "I do not propose either to purchase or to confiscate private property in land. The first would be unjust; the second, needless....It is not necessary to confiscate land; it is only necessary to confiscate rent." No owner or tenant would be expropriated or evicted. No limit would be placed on the quantity of land one could hold, as long as the annual rent were paid.

Coordinately with the capture of rent as public revenue, taxes on products of human labor — improvements, personal property, services, commodities, wages, etc. — would be reduced and ultimately eliminated.

George considered his remedy no mere human contrivance. He saw the growth of land value and the easy means of equitably distributing it as an expression of benevolent supernatural design: "As civilization goes on... so do the common wants increase and so does the necessity for public revenue arise. And so in that value which attaches to land, not by reason of anything the individual does, but by reason of the growth of the community, is a provision intended — we may safely say intended — to meet that social want."

George's remedy goes a long way to stop current inequity and prevent future inequity. While past inequity, in the form of accumulations of capital based on previous land speculation and monopoly cannot be accurately redressed, these fortunes can be impelled to serve the needs of the public via investment in production, not by further investment in land speculation and monopoly.

Dependency theory, to the degree that it hits upon one of the causes of Third World poverty in exploitation by foreign investors, can find in George's land value tax the constructive practical approach it lacks. Neither erection of trade barriers nor legal restriction of foreign ownership is called for. As one Australian writer puts it:

(W)hen investors from one country buy property in other countries they are seeking site rent, which they hope to obtain directly from tenants, or indirectly by selling land in the future when the price or capital value has increased.... The site rent that is so attractive to overseas investors can be kept in the country quite easily — by shifting taxation from labor onto land."

Because George asserted, "We must make land common property," he is sometimes erroneously regarded as an advocate of land nationalization. But, as we have seen, he was nothing of the sort. The expropriation of land makes it practically impossible to fairly compensate people for the improvements to land, which are their legitimate property. George's system renders to the community what is due to the community, without doing any violence to the wealth that has been fairly earned by productive workers.

Common property in land is sometimes discredited by equation with what Garrett Hardin calls "The Tragedy of the Commons." Referring to the common lands that were a major English institution until the mid-nineteenth century, Hardin describes the tendency of individuals, each rationally pursuing self-interest, to overgraze, denude, and use the commons as a cesspool. That which belongs to everybody in this sense is, indeed, in danger of being valued and maintained by nobody.

The enclosure movement ultimately brought an end to this ecologically destructive process, but not without literally pushing people off the land, exacting a baneful price in human misery that might well be termed "The Tragedy of the Enclosures." George hit upon a way of securing the benefits of both commons and enclosures, while at the same time avoiding their evils. Land value taxation rectifies distribution so that all receive wealth in proportion to their contribution to its production. This liberates the economic system from exploiters who contribute little or nothing. Apportioning the wealth pie fairly increases the incentive to increase the size of the pie. The market becomes in practice what capitalist theory alleges it to be — a profoundly cooperative process of voluntary exchange of goods and services. Paradoxical though it may seem, the only way the individual may be assured what properly belongs to him or her is for society to take what properly belongs to it: The ideal of Jeffersonian individualism requires for its actualization the socialization of rent.

Just as Marxists err in insisting that everything be socialized, extreme capitalists err in insisting that everything (even public parks and forests!) be privatized. The middle way is to recognize society's claim to what nature and society create — the value of land and its rent — so that working people, including entrepreneurs, may claim their full share of what they create. In this balanced approach can be found the authentic verities respectively inherent in socialism and individualism.

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