Taxation upon a sound and ethical basis; that it would secure to
utilizers of particular Natural Resources the full value of their use;
that it would properly take from them for the benefit of all, the value
of their monopoly of possession of common property; that it would
stabilize the value of monopolized but unused Natural Resources (Land)
at the level of their value for use, thereby abolishing speculation
in the future values of Natural Resources; that it would open
opportunities for Labor in its broadest and fullest sense to utilize
Natural Resources in the production of Wealth (Artificial Objects)
from Land (Natural Resources); that it would remove the artificial and
lessen the natural barriers to Trade; and that it would bring about
conditions of industrial freedom and equality on the basis of which
every other needed social or Economic reform could rest securely and
function effectively.
As the practical approach to that fundamental Economic reform--that
reform of which its principal and distinguished advocate, Henry
George, said that it would not accomplish everything in the way of
Economic adjustment, but that without it nothing could be accomplished,
for without it every Economic improvement instead of raising Wages
raises Rent, instead of increasing the compensation of producers of
Artificial Objects increases the values of the Natural Resources from
which alone Artificial Objects can be produced and on which alone
they can be traded, used or enjoyed--as the practical approach to
that fundamental Economic reform the Single Tax policy proposes its
application gradually. It aims to substitute by stages the Taxation of
Land according to its value as a commodity, for the present unrighteous
and obstructive taxation of the actual uses of Land.[6]
[6] See “Progress and Poverty,” “Protection or Free Trade,” and
“Social Problems,” by Henry George, and “What Is the Single
Tax?” by Louis F. Post.
Irrespective, however, of Taxation problems or of private _versus_
common rights, and retaining the long-time technical terms for
primary Distribution of Wealth--Wages as to Wealth not allocated to
Landownership, and Rent as to Wealth so allocated--we may proceed to
our study of Rent for Landownership as the secondary allocation of
Wealth in Economic Distribution.
II. RENT FOR LANDOWNERSHIP
For the use of any Land which is more desirable in its natural state
than the best to be had for the taking, part of the Wealth produced
from and upon it by Labor is allocated, through operation of Natural
Economic Law, to the Distributive category for which the technical
Economic term is Rent.
That allocation of a share of Labor-produced Wealth to Rent necessarily
diminishes the proportion allocated to Wages, but it does not
necessarily lessen the quantity.
Without Rent, Wages takes the whole Product; with Rent, Wages can
of course take only a fraction of the whole. Yet as a result of
enhancement of Labor-power--specialization, steam, electricity and
other productive developments--that fraction of the whole may be
greater in amount than the whole in less productive circumstances.
Rent is that proportion of total Wealth production which results from
the use by Labor of Land lying above the Economic frontier, which in
Economic terminology is best known as the Margin of Production.
For illustration, here are two tracts of agricultural Land of
equal area and equal accessibility. One will yield to a standard
of Labor-power more Wealth than the other, for the soil is richer.
It will therefore be in greater demand by Labor than the other.
Consequently, if its potential yield of Wealth be large enough and Land
of its quality and location scarce enough to attract Landownership,
Labor can utilize it only on condition of paying to that ownership
a Wealth premium for the privilege. This premium is Rent. If paid
periodically, it would be regarded as “groundrent”; if the “groundrent”
were capitalized for selling or other commercial purposes it would
take on some such term as “land value” or “selling value” or “capital
value.” But whatever the form or the colloquial term for it might be,
this premium for superior Land is technically classed in Economics
as Rent. As Ricardo[7] expressed it at a time when “Land” seemed to
mean only agricultural soil, “Rent is that portion of the produce of
the earth which is paid to the landlord for the use of the original
and indestructible powers of the soil.” Its tendency is to absorb all
the Wealth produced from and upon superior tracts above what could be
produced by like Labor from and upon inferior ones.
[7] “Principles of Political Economy.” Chapter II.
Still better agricultural Land would extract still higher Rent out of
the Wealth product for the like special privilege of Production. Thus,
with alterations in the so-called Margin of Production, the natural
allocations from Wealth to Wages would rise or fall as the Margin
receded or advanced, whereas the natural allocations from Wealth to
Rent would rise with the advances of the Margin and fall with its
recession.
The same marginal principle applies to other kinds of Land precisely
as it does to the agricultural, some advanced Economic students to the
contrary notwithstanding. For a non-agricultural illustration, here
are two mineral deposits. One is more easily worked than the other, or
more conveniently situated with reference to demand for the mineral
product for Consumption. It is therefore more attractive to Labor than
the other. Consequently, Labor will naturally yield to the ownership
of the superior deposit (Land) a larger proportion of the mineral it
extracts (Wealth) than to the ownership of the inferior deposit. The
proportionate excess is Rent.
For still another illustration of the same Rent principle, here are two
building-sites in a town or city. They are of equal size, and in every
other physical respect equally desirable. But one of them is at the
center of the business or other social activities of the town or city,
the other at the outskirts. The former being in the Economic sense
more desirable for Labor purposes than the latter, Labor yields to its
ownership a larger proportion of Wealth as Rent than to the ownership
of the other.
In a vast variety of special instances, such as those used above for
illustrative purposes, Rent exacts from the flow of Wealth a continuous
allocation which depends for its proportions to the aggregate flow
upon the desirability of different qualities and locations of Land (as
the Natural Resource factor in the production of Wealth) relatively to
the desirability of such qualities and locations as may be had for the
taking.
“The rent for any piece of land,” writes Max Hirsch, the Australian
economist,[8] “is determined by the excess of its productivity over
that of an equal area of the least desirable land in use, after the sum
of exertions which in both cases yield the most profitable result has
been deducted.”
[8] Page 127 of “Democracy vs. Socialism.”
All such exactions are phenomena of natural Economic law. Land exists
in quantities to which Nature assigns impassable limits, and this
limited supply of Land varies in fertility and in desirability of
location. He who produces from and upon better grades will naturally
achieve greater or better results with the same expenditure of Labor
than he who produces from poorer grades. This difference is measureable
by variations in the productive grades of Land, from nothing in excess
of production cost on the lower side of the Margin of Production--the
poorest in demand, the Economic frontier--to something in excess of
production cost on the higher side of the Margin, the hither side of
the Economic frontier, and to more and more for higher and higher
grades up to the best.
It should be observed in this connection that the Margin of Production,
the Economic frontier, is not a surveyor’s line, like the boundaries of
a farm or a county or a State. It is a term for an Economic difference,
from lower to higher degree in the desirability of particular Natural
Resources though they be separated by long distances or short ones.
Nor need the intervening space recede from highest to lowest by
geographical degrees, or relative desirability depend upon richness of
soil or mineral deposits.
Trading opportunities may do much to determine the Margin. A rich
gold deposit beyond the reach of trading possibilities lies below the
Margin, for it cannot be utilized. A farm twenty miles away from a
trading center would be nearer the Margin than one two miles away, even
though the two farms were equally productive, because the marketing
costs would affect the Value of the product prejudicially. Space for
a building-site a hundred and fifty feet from the nearest street line
would be nearer the Margin than one fronting on the street.
Although the old conception of the Margin of Production--“margin of
cultivation,” as it was called--as bounding an open space of free
agricultural land be obsolete, the principle of the Margin remains,
namely, that the better the opportunity to profit by use of any
location on our earth over use of the most profitable location thereon
to be had for nothing, the higher will the Rent of the former be.
That marginal principle will persist so long as some locations are
preferable to others. And in those circumstances Rent will continue
and be allocated with reference to “marginal” or zero-value Land. The
better the opportunity to profit by the use of any location above the
most desirable to be had for nothing, the higher will be the Rent of
the former.
Whether the surplus of Production or possible Production be called
Rent for Land, or deductions from Wages for superior opportunities to
Labor, or be otherwise distinguished from Wages for Labor, it none the
less exists as a distinct and natural allocation of Wealth produced
from and upon Land by Labor. Although Rent depends wholly upon Labor
for its Production it is a differential gain in Wealth which is due
not to superior productiveness of Labor but to relative superiority of
different kinds and locations of Land.
This continuous allocation to Rent of shares of Labor-produced Wealth
may--it constantly does--take on Capitalized forms. As Wealth is
produced it flows toward the productive factors in two distinct and
continuous streams--Wages for Labor and Rent for Land. But as Land
has in business custom the rank of a commodity, the legal right of
its owners to appropriate Rent assumes the form of Capitalized Land
Value. An annual income from Rent, for example, be that income actual
or only potential, may be bought and sold in business intercourse for a
Capital sum or “purchase money.” Commonly it is so sold along with the
legal Land title by which it is secured to the owner, but often with
Artificial improvements, the whole being called “real estate,” as if
the improvements and the Land were fundamentally identical.
As a result, the word “rent” takes on in the customary business sense
a different meaning from the meaning of Rent in the normal Economic
sense. In private business it may mean annual “groundrent,” or annual
house-and-ground “rent”; and when capitalized, all legal rental
rights may be combined in Price or Value. A concurrent custom is the
transformation noted above of Rent for Land into Capital value or
selling Price.
Such capitalizations operate as mortgages upon future Production; and
as the capitalizations increase, that kind of mortgage burden grows
in Economic weight. If Production continues advancing, the consequent
increase of Wealth as a whole easily bears the burden, which rests
then upon the naturally increasing Rent allocation rather than upon
Wages. But in consequence of such capitalizations, Rent tends to
become a football for Land speculation. This results in excessive
capitalizations of Rent, which tend in turn to lower the Margin of
Production, the Economic frontier, abnormally. As a consequence,
Rent exactions in the form of speculative Land Prices rise above
capitalizations of Rent at normal levels.
Exemplifications of such Economic phenomena may be observed in any
community where at any time speculative Prices for Land have figured.
In such circumstances, so long as Wealth is sufficiently increased by
Labor--whether from improvement in Labor-power or from progressive
advantages in Land opportunities,--increasing Rent is offset by
increasing Wealth, and Economic prosperity abounds. But when increase
in Wealth-production lags behind Rent, prosperity is checked and a
“slump” in Land-values, Economically perilous, follows.
Other causes of Economic depression than “slumps” in speculative
Land-values there doubtless are. They spring from such superficial
maladjustments in the processes of Trade as are connected with
defective banking, fluctuations in the values of corporate stocks and
variations in Money standards from lack of effective stabilization.
Even as to business depressions apparently so produced it is, however,
exceedingly difficult if not impossible to declare with certainty that
the leading part is not played by speculative Land values. For in our
neo-feudalistic era, Land values are intricately confused with Wealth
values in corporation stocks and bonds. To the extent that Land values
and Wealth values are thus mingled, it is quite impossible to account
for many Economic upheavals without more distinctive inventories of
property in Trade and more accurate Economic classifications than in
business circles or among advanced students of Economics have as yet
been reached.
Before passing to the next subdivision of Distribution, it may not be
a diversion to direct attention to the most remarkable distortion of
technical Economic terms that has yet harassed Economic thought with
confusion. This is the attempt of some Economists to identify Rent with
Wages, by ascribing extraordinary compensation for extraordinary human
service to “rent of ability.” As a subclassification of Wages there
could hardly be any objection to this assignment except its tendency
to mix Rent for Land with Wages for Labor in the minds of students. As
a fundamental classification, however, its absurdity is manifest. Can
anybody “rent” his ability, however great it may be, without putting
it at work? Could the ablest physician, for instance, get a fee unless
he offered to work with his ability? Could the most brilliant author
command royalties unless he wrote books? Of course not. It is only as
one works or promises to work that he is compensated for any degree
of ability. Although Landownership may command compensation in Rent
for such special opportunities as the Land offers to Labor, regardless
of whether it is utilized or not, Man cannot rent his ability without
obligating himself to use his ability; and the man who obligates
himself, though he may call his compensation “rent” if that pleases
either his vanity or his love for confused thinking, gets for his
ability no rent whatever. What he gets is Wages for making his ability
serviceable as a Labor unit. Nor is such compensation any the less
Wages or any the more Rent, if it be (as with lawyers) a retainer for
pledging future service which in the end has not been required of him.
Compensation for work, or for a contract to work, is Wages whether the
contract be in consequence of the worker’s ability or regardless of it.
All compensation for service units, from lowest grades of ability to
highest, is in Economic terminology and analysis, not Rent for Land but
Wages for Labor. The bricklayer, contrasting his Wages with the Wages
of an apprentice, might call his larger income “rent of ability,”
if that flattered him; but his doing so, though it might enhance
Economic confusion, would not alter the Economic relationship of Wages
for Labor and Rent for Land. If Economic thinking is to be done with
definite terminology instead of word-juggling, all compensation for
human service must be expressed by a technical term different from the
technical term for premiums for varying grades of Natural Resources.
The accepted technical terms are Wages for Human service and Rent for
Natural Resource advantages. Though “rent of ability” be picturesque in
dramatics, it is farcical in Economics.
The importance to Economic study of assigning every item of Economic
phenomena, Distributive as well as Productive, to its appropriate
Economic category--Labor or Land in Production and Wages or Rent in
Distribution--cannot be lightly ignored nor carelessly trifled with.
Nor can it be too strongly emphasized. Without such assignments
Economic phenomena are like printers’ “pi”; so assigned, they may be
studied with precision.
III. TRADE
The Distribution of Wealth, as well as its Production, is effected
through Trade. As in the Productive Process from the very beginning of
Labor specialization up to the point of delivery to ultimate consumers,
so in the process of Distribution, Trade is the continuous and the
culminating agency. It determines the kind of Wealth and the quantity
that each factor in Production shall receive.
We have seen that Labor as a whole, a social unit, produces Wealth from
Land and that this activity and this result are governed by natural
Economic law--by natural relations of Economic effect to Economic
cause. We have seen also that a correlative natural law, a correlative
connection of effect to cause, constantly allocates one portion of
the total Product to the Labor factor and another portion to the
Land factor. We may readily see, moreover, that those two primary
allocations subdivide into almost infinitesimal and extremely confusing
secondary categories, comprising every variety of Labor, every variety
of Land, every variety of Wealth, every variety of Economic desire.
It is to satisfy those desires out of that continuous flow of Wealth
that the infinitude of processes indicated in the next preceding
Lesson enter into the comprehensive Productive Process which includes
delivery to ultimate consumers, and that an infinitude of corresponding
processes enter into Distribution.
Many of those processes overlap, playing now a part in Production and
now in Distribution. Some of them are natural, some are customary,
some are legalistic. But all are subject to the cooperation or to
the obstruction of natural law as manifestly as is the navigation
of a sailing vessel on the ocean. In so far as the customary or
the legalistic do not conform to natural Economic law, natural
penalizations inevitably result; in so far as they do conform to
natural Economic law, the results are socially as well as individually
beneficial. As with gravitation in the physical universe, so with its
correspondent force in the Economic domain.
Not only, then, are the minute details of Labor specialization merged
in Productive wholes and delivered in their completeness to ultimate
consumers by means of Trade, as we learned in the next preceding
Lesson, but, also by means of Trade, the two great divisions of Wealth
(Wages and Rent) are assigned respectively to Labor interests and to
Land interests in proportions determined by comparisons of Value.
Individual deliveries, in contrast with Distribution into the two
basic categories, Wages and Rent, consist in the delivery of Wealth
to individuals in proportion to the effective demands of each. Their
demands are limitless, for when satisfied with quantity they naturally
demand quality. But there is a limit to all effective demands. The
limitation on the one hand is the producer’s ability to produce, and
on the other the consumer’s ability to obtain in Trade. Ability to
produce depends in high degree at any time upon the general productive
knowledge of the time. Ability to obtain depends upon the Economic
power in Trade of the individual seeking to gratify his wants. If he
is isolated from all the rest of mankind, he is outside the Economic
circle and can obtain only what he himself directly produces. If he
is one of an absolutely free community, he can obtain what others are
willing to give him in Trade for the service he renders directly or
indirectly to them. If Production be arbitrarily obstructed, whether
by impediments to Natural Resources or to Trade, his ability to obtain
Wealth is not so much according to what he produces or to the service
of any other kind that he renders, but according to his command over
the sources of Production and the channels of Trade whereby he may levy
tribute or escape it.
As human services naturally tend to exchange at par for equally
desirable human services, so do different forms of Wealth, each product
of human service, tend to exchange at par for equally desirable forms
of Wealth; and as Wealth in the Rent category and Wealth in the Wages
category are alike service-products of Labor applied to Land, exchanges
of every kind of Wealth tend to be effected on the basis of equality in
the expenditure of Labor for their Production.
Let it now be carefully observed and faithfully remembered in this
connection, that however various the kind and the amount of Wealth
that individuals receive, each variety is but a subdivision of Wealth
as a whole, and is therefore either Wages or Rent, those being the two
primary divisions of Wealth in Distribution. A “captain of industry”
may get a large share of Wealth for his service while a skilled
laborer gets a small share for his; but each will take his share from
Wages, not from Rent. On the other hand, the owner of a rich mining
opportunity may get a large share of Wealth and the owner of a small
area of farming land or a village building-lot may get a small share;
but each will in that respect get Rent, not Wages. To the extent,
however, that the “captain of industry” derives any part of his income
from Natural-Resource privileges, that part is Rent; and to the extent
that the mine owner or the farm owner or the village lot owner derives
any part of his from his service, that part is Wages.
Thus the factor in Production technically termed Land is represented
in Distribution by the Wealth element technically termed Rent; whereas
the factor in Production technically termed Labor is represented in
Distribution by the Wealth element technically termed Wages.
IV. MONEY
All allocations of Wealth, from the two primary ones--Wages and
Rent--to the least of all that are secondary to either of those two,
are made through Trade, and in the course of Trade are measured by
comparisons of Value, which is the universal regulator of Trade. And as
in Production so in Distribution, for Value measurements Money is the
more or less stable yardstick and Money terms the spokesmen.
Would we know the Value of Wealth in any of its distributive
allotments, we must look for it in terms of Money. Would we know
the Value of any of the various kinds and degrees of Labor that
have produced it, Money terms offer us the only language we can use
or understand. Would we know the Value of any of the various kinds
and degrees of Land from which and upon which such Wealth has been
produced by Labor--whether identified by the term Rent as in Economics
or by such colloquial or business terms as “groundrent,” or “selling
price,”--Money is our sole interpreter, defective though it be. Would
we place any or all of this information on record, we must do so in
terms of Money.
What, then, is Money--this prestidigitateur of both Production and
Distribution? Is it coin? Is it a promise to pay? Is it a fiat of
Value? Is it a magic signal?
Before considering whether or not it is coin, let us think of how
slightly coin is used in Trade. Before suggesting promises to pay,
let us reflect upon the variability and questionability of promises.
Before falling back upon “fiat,” let us know somewhat of the wisdom and
responsibility behind the “fiat.”
If we probe deep, as in these Lessons we have tried to do, shall we not
find that the only level of Value is the Labor level?
Not Labor time. That varies in Value with individuals. But Labor
service or product. And do not the market prices of stable Labor
products come as near to the Value level as may be necessary for all
the purposes of Trade relations?
An absolute level of Value is doubtless as far beyond the possibilities
as an absolute sea level. But as we adopt a “mean level” of the sea,
why not a “mean level” of Value? And why not express the relations of
this level in terms of Money properly stabilized?