To the Heart of the Matter
Wendell Fitzgerald and Cathe Smeland
[Reprinted from CONSENSUS, April 1989]
Can you imagine an economic analysis based on the Green promise of
neither right nor left but in front? Can you imagine an economic
system consistent with the Green pillars of ecological wisdom,
personal and social responsibility, grassroots democracy, and
nonviolence? Such an economic analysis exists.
Not only that - It has been attracting Green attention in recent
years and deserves even broader consideration by the movement. It's an
idea with a long history of support in the writings of the likes of
William Perm (1693), Tom Paine (1797). John Stuart Mill (1848), and
Leo Tolstoi. It's basic principles were explored in detail over 100
years ago by the American political economist and social philosopher.
Henry George in a book entitled Progress and Poverty written
and published in San Francisco in 1679. A world wide movement based on
these ideas continues to find George's ideas increasingly relevant to
a broad range of today's social, economic and environmental issues.
The solution proposed! by George involves the rather mundane sounding
concept of taxing land values, otherwise known as "land value
taxation." Application of this idea is being vigorously pursued
by grass roots property tax reform movements in many states and in
particular in Pennsylvania, where nine cities, including Pittsburgh,
have adopted it in a significant degree. The idea has already found
application by local governments all over Jamaica, New Zealand.
Australia, parts of western Canada, and Taiwan. The principle involved
has found approval with Greens who have studied it in the San
Francisco Bay Area, San Diego, and Scotland.
The analysis might well be of interest to Greens because it focuses
on the economics of land - the economics of Mother Earth herself. The
land question is at the heart of long standing issues of social and
economic Justice as well as issues of environmental degradation.
Familiarity with some of the basic principles of the economics of land
will Illustrate the scope of the land question.
Landowners don't create land value
The first principle of the economics of land is that land is one of
the essential ingredients in all economic activity. There are three "factors
of production," as economists call them. They are land, labor and
capital. All fundamental economic analysis is based on determining the
dynamic relationship between these factors. In spite of this,
economists and the public in first world nations generally feel that
land is no longer important to economic analysis because it is judged
that capital, the human-made tools of production, is so much more
important. Many economists go so far as to consider land Just another
form of capital and dispense with the distinction altogether, thereby
conveniently dispensing with the land question. It Is obvious,
however, that humans are and will continue to be totally dependent on
land for all raw materials used in production and for sites upon which
to conduct not only all economic activities but every other human
activity as well.
Land is distinct from capital because it is not produced by humans as
is all capital. As a result land gets its value and reacts to taxation
in a totally different way than capital. Although these distinguishing
features may seem technical at first glance, the distinction between
land and capital is not merely a technicality. Blurring the
distinction between land and capital has the same magnitude of
significance as calling slaves (human beings) the property (capital)
of their "owners"! ... and leads to equally unacceptable
The second principle of the economics of tend is that land gets its
monetary market value from the community as a whole and not from any
Individual owner. Stated in another way. this important principle is
that the value of land is created by the community, not by the
Individual. Restated again it says that the individual does not.
Indeed cannot, create the value of land. It is society, the community
of all individuals existing and acting together, that creates land
All human made capital and wealth is created by human effort, usually
using other capital (tools) in the process. Land, however, is not
made. It Just is and has been provided free by the Creator.
Originally, land is free for the taking and has no market value but as
land is settled and population grows a market for land is established
and the price of land is bid up. In addition to the effect of growing
population, land value is increased as the productivity of the
community is increased by general educational and technological
advances. Land value is further increased by anything that makes the
community a nicer and more desirable place to live such as public
improvements and public services. It can be said that all general
progress in society is reflected in rising land values, and indeed, is
reflected no place else.
Land held for ransom
The significance of these principles is that the owner of land per se
does not provide anything to the economy which was not already in
existence. The land owner as land owner does nothing creative or
productive. All the land owner does is put a fence around a piece of
land and charge the rest of humanity a fee (land rent) for access to
it or, if he uses the land himself, he avoids paying land rent to
someone else. In either event the landowner no more deserves or earns
the rent to land than the slaveowner deserved or earned the production
of the slave. A theft and a terrible Injustice is involved in both
instances. The fact that a current landowner paid good money for the
land does not suddenly make land rent an earned income any more than
paving money for a slave entitled the owner to the slave's production.
If a landowner assumes the role of labor and/or capital and builds a
building and sells it or leases It out. something that was not in
existence before Is being provided, and compensation for It Is
deserved and earned. Landowners as landowners claim to provide a
service by making the land available for use. They claim that If it
were not for them land would not be made available when and as needed.
For this they claim to deserve compensation.
Such claims are patently absurd. The land Is already and will always
be available. Landowners do not make land available, they hold it for
This is not to say that landowners are bad or that private ownership
of land should be abolished. Private ownership of land has a positive
aspect in that it provides for secure possession or tenure of land and
this guarantees to labor and capital their just reward. This benefits
the community by encouraging labor and capital to provide housing and
other needed improvements. It is the private ownership of land value
and the private collection of land rent which harms society.
Since land value and land rent are. in essence, a gift of society to
the landowner, the incentive Is and has been to grab as much land as
possible to cash in on this gift. The result is land monopoly, land
speculation and a powerful incentive to abuse and misuse the land.
In the U.S.. the best estimate is that 5% of the people own 95% of
the ownable land and natural resources. Federal, state and local
governments own about 40% of the total, which is to the benefit of
society as a whole. That aside, the other 60% of the land is even more
monopolized in ownership than other valuable assets such as stocks and
bonds. Land is useful and necessary in itself, but add to that the
free gift of ever increasing community-created land value and the land
is bound to be sought after and held on to by all means fair or foul.
The historical plight of American Indians and the current victims of
right wing death squads In Latin America attest to this fact.
Land speculation results in rapidly rising costs for land beyond
anything supportable by actual economic usefulness or productivity.
The high cost of housing and the tragedy of homelessness are really
problems of land speculation. The accompanying chart identifies the
problem by showing that the cost of land has gone up more than six
times the cost of labor and materials for housing between 1960 and
1980. Land as a percentage of total housing costs has continued to
rise since then. In a related issue, the current Savings and Loan
debacle is. for the most part, nothing more than a failed attempt to
cash in on the promise of rising real estate, i.e., land values.
Obviously land speculation is not always successful and when it is not
the losses involved are usually not paid by the players.
Land speculation has the additional effect of creating urban sprawl.
The Incentive for land owners is to hold land for its Increase In
value rather than to build improvements to take advantage of real
economic opportunities offered by locations closer in to the center of
cities. People and businesses who want to build and/or locate in the
community are forced to find more affordable and available land sites
further and further out from city centers. This gives rise to the
familiar pattern of leapfrog development. The impact on the community
is devastating. The environment is torn up unnecessarily, the supply
of affordable housing is curtailed at its inception, people are caught
up in the congestion and pollution caused by forced reliance on the
automobile, all economic activity is made more costly.