Spencer Heath Archive

Item 1220

Carbon copy of letter to Mr. Adam Schantz, III, Chairman, National Committee on Local and State Taxation, National Association of Real Estate Boards, Ludlow Building, Dayton, Ohio

September 22, 1934

Dear Mr. Schantz:

I thank you for yours of the 17th with extended quotation from a letter you received from an associate in your Chicago Office.

I note his former belief that continued capital appreciation of land values was inevitable. That was Henry George’s belief — that all the advantages of advancing civilization would be capitalized in the value of land and swallowed up in the advancement of rent. We should all know now that this was not true.

I think I also agree with him that under present circumstances we have more than adequate improvement of land for commercial and industrial use. But, likewise under present circumstances, I think he will agree that we have also more than adequate facilities of production of almost every kind. However, I do not think we have these facilities adequately employed, certainly not the factories and the unprofitable buildings he so feelingly describes. These are facilities of production — capital, in other words, yet most of them do not produce. If they did all produce we would have, say, one hundred units of goods fully produced where we now have forty, and they would all be sold if fully produced because production is not ended — goods are not finished being worked upon — until they have passed the last exchange, and at that point they are sold. This makes exchange a part or extension of production, which it is, and that the foregoing might be true and all goods sold we have to assume that the capital facilities of exchange are as fully in operation as the factories and buildings. In fact, each is essential to the other: So it is apparent that what is needed is not more capital but a freer use of the capital we have.

Adequacy in the use of capital is often expressed as frequency of turnover. When turnover is fast capital is highly productive and much labor of all grades is employed, and both production and buying power increase. Profits also increase, for turnover and profits are the causes of each other. When profits are gained they are consumed, in part, in the standard of living and the balance is reinvested in facilities of production. Under fast turnover this happens rapidly, not only to extend profitable production but for replacement of facilities made obsolete by the fast turnover.

The apparent surplus of buildings arises from the lack of profitable use for them. The earnings of all capital are too low to create (by increased production) any great demand for either buildings or land. What demand there is is mainly speculative — based on hopes for the future. Meantime, the capital that is tied up in “surplus buildings” is in the same case with capital in machinery and other industrial equipment which is now employed unprofitably or not at all.

No kind of property can be penalized into use but many kinds of property can be and often are penalized out of use — to wit: buildings. Vacant land, of course, cannot be penalized out of use; neither can it be penalized into use. Nothing but demand can call it into use and demand arises only in the prospect of profit from use. No amount of mere penalties on the owner can increase the profits of a user. But a payment out of ground rent for needful public services can increase the profits of the user and therefore his demand. Such a payment is in reality an investment and it may be a highly profitable investment if prudently made and honestly administered. It was a “weakness of Henry George” to suppose that every tax on land must act as a penalty and so depress instead of enhance its demand and value. He did not recognize that every proper tax on site value is in the nature of investment and must enhance the value of the land unless the funds so raised are corruptly administered or imprudently employed. With population expanding as he saw it expand the income value was all but obscured in the speculative values. With population now more nearly stationary and no great increase in view, we must depend upon present use value and this, taken as a whole, is the portion of total wealth production that can profitably be paid for access to and use of public services in connection with land. Without public services (and a demand for them) nothing is paid for the use of land. Any value it has is wholly anticipatory and speculative, and the great incentive to speculation is the disemployment of capital in its productive forms by taxation and other restrictions.

I should like to know more about the theories of appraisal and the development of tax principles your correspondent refers to. I am impressed by his suggestion that sound taxes must be laid on annual or income instead of capital or ad valorem values. I believe that such taxes can be so laid and expended as to increase the incomes from which they are drawn.

There is much for us to learn and its importance, in my judgment, is too grave for any mere debating of “single land tax” or any other “fallacy.” What we need is to understand the full nature of the situation we are in and not try to spell one another down on any narrow issue, especially a mooted one. In this spirit I would indeed like very much to learn from your correspondent more of the practical matters he refers to and to weigh with him all that is involved.

Very sincerely yours,

     

      Spencer Heath

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