Spencer Heath Archive

Item 1240

Carbon of letter to Benjamin W. Burger, 150 Nassau Street, New York City, with copy of letter to Burger from Raymond V. McNally

July 15, 1939

 

 

Dear Mr. Burger:

 

I thank you very much for sending me Mr. McNally’s letter of June 18th addressed to you, Mr. Goeller’s letter of June 27th commenting thereon, and Mr. McNally’s rejoinder to Mr. Goeller dated July 7th. I have read these with a great deal of interest and feel that I must commend your enterprise in promoting the circulation of the very important ideas they contain.

 

     I believe Mr. McNally has touched the crux from which spring those divergences and disagreements which have for more than fifty years kept the adherents of Henry George’s philosophy of freedom not only divided among themselves but looked upon askance by nearly all the learned and sober-minded of the world.¹²⁴⁰ I can no better emphasize my satisfaction than by including herewith a copy of Mr. McNally’s letter in order to have a copy of it in my own files and for your further reference and convenience, as given below.

 

 

 

200 E. 16^th St

New York, N.Y.

 

     Dear Mr. Burger:                  June 18th, 1939

 

You have requested me to give you the principal points in connection with his analysis of economic realities on which Mr. Heath disagrees with Henry George. I shall give them to you as briefly and as comprehensively as possible.

 

     Although George throughout all of his writings stressed private property in land or the private appropriation of rent (which amounts to the same thing) as the chief cause of poverty and unemployment, he came to an impasse when he stated his remedy. He wanted to abolish all taxes and to collect the rent by taxing land values in order to apply it to the payment of government expenses. In this way, he argued, private property in land would be destroyed and common property in land established. But at the same time he saw that there was a danger in extending governmental machinery and bureaucracy involving the possibility of favoritism, collusion and corruption. Therefore, he decided to compromise. He stated his compromise in such a disarming way that his followers believed that he was merely being magnanimous to land owners. He said, “Let the individuals who now hold it still retain, if they want to, possession of what they are pleased to call their land. We may safely leave them the shell, if we take the kernel.” These words seem to indicate that, as far as he was concerned, he really did not want them to have even the shell. But these words belie the fear that he had of governmental inefficiency and corruption. He probably really believed that he was magnanimous, but deep down in his mind he felt that it was absolutely necessary to the welfare of the community, in spite of himself.

 

     Now I believe that his manner of expressing this thought prevented most of his followers from perceiving that land owners performed a very necessary service without which those who had to use land would be at the mercy of politicians. In other words, most Georgists did not fully grasp George’s philosophy of freedom but continued to believe in the purity of government, not to the extent of the socialist, to be sure, but to a sufficient degree to preclude them from seeing the realities of the situation. They did not see (and they do not even now) that the philosophy of freedom could not be applied in its entirety unless land owners were permitted to perform their functions. Furthermore, they were not aware of the conflict that was going on inside of George. One part of him viewed the land owner as a parasite and an evil, while the other part of him saw how necessary he was to the scheme of things. Although he held private property in land as responsible for the undermining of civilization, his application of his own remedy represented an unconscious reversal of that position and a defense of private property in land. He failed to perceive all of the complications of his compromise, because he did not think the proposition through. If he had, he would have realized the predicament in which he had been placed.

 

     I, myself, have always accepted the suggestion made by George that the land should be left in the hands of private owners so that the state would not handle the letting of lands, but, like George, I did not think the proposition through. Mr. Heath, on the other hand, recognizing the soundness of George’s suggestion, went further to determine exactly what this might involve. He saw that if land owners were to perform the functions left in their hands by George, they must do so independently of the public assessors and politicians. They could not be interfered with by public officials and subjected to restrictions, for then they would be merely agents or satellites of the bureaucrats and the very condition that George wished to avoid would be the result. Either they could not contract freely with the users of land or if they were compelled to throw their books open to public officials or to record publicly the rents they received, they would be tempted to enter into collusion with their tenants for the purpose of defrauding the government. Mr. Heath saw that they would have to be absolutely independent of public officials and be permitted to run their business in their own way free of public supervision. This means that they would have to be land owners in the real sense of the word; that is, they would have to fix the rent that users must pay (as they do today), make contracts, collect the rent and concern themselves with the manner in which it was spent so that the public services (which are the source of their income) would be properly maintained.

 

     Thinking the matter through in this way, Mr. Heath saw that private property in land was an essential part of the social structure and, that being so, should not be disturbed. He realized, at the same time, that the taxes that George wanted to abolish were the basic cause of bad economic conditions, and not merely contributing or incidental, or, as many Georgists prefer to say, the inevitable result of the private appropriation of rent. It is a curious thing that most Georgists do not share George’s fear of bureaucracy. They want to eliminate the land owner altogether. They have a blind faith in the purity of government when it comes to the question of rent, believing that the mere collection of rent by public officials will purify them by making private citizens more “patriotic” and so more alert in the matter of the community interest. Like the socialist they believe that a change in system will change human nature. They do not fully understand George’s philosophy of freedom. To understand George, and for that matter any great thinker, we must study not only his conscious thoughts but also his unconscious thoughts. Experience shows us that subconscious thinking is infinitely more accurate than the “thinking” of the mere intellect.

 

     Here then is the chief point of disagreement between George and Mr. Heath: Whereas George believed that private property in land was inimical to the welfare of society, Mr. Heath believes that private property in land is absolutely essential for the continuance of civilization. By accepting this premise, he avoided George’s predicament. He did not have to compromise.

 

     From these divergent views on private property in land sprang another point of disagreement. George believed that the private appropriation of rent caused idle land. Heath believes that taxes cause idle land. No one had to tell George how taxes caused production to slow down. In several of his writings he explained in great detail the injurious effects of taxation, particularly the indirect kind. But what he apparently did not see was that if taxes check production, they tend to throw land out of use. How are we to distinguish then between land thrown out of use by taxes and that held out of use by land owners? When most Georgists observe idle land they immediately jump to the conclusion that land owners are holding it out of use either for a speculative rise in rent or are demanding too high a price for it. Yet the very land that they observe may be idle because taxes have checked production and so reduced the demand for it. In order to support their contention, some Georgists might claim then that if it were not for the private appropriation of rent, there would be no taxes. But that is merely an assertion that is not supported by the facts, because if rent were publicly collected (land owners being eliminated from the picture) there is no guarantee that public officials would not assess land at a figure higher than the market value, a figure that would be virtually a tax on production, as they are doing in many cases today. But if it is necessary that land owners do the collecting of rent (as George insisted), and if in order to do that, they must be free from the coercion of the bureaucrats so they can contract freely with those who wish to use the land, how then can it honestly be said that the private appropriation of rent leads to taxes? On the other hand, if taxes were abolished, land owners for the protection of their own interests would be forced automatically to apply part of the rent that they collect to finance the public services, for otherwise there would be no rent to collect. With taxes abolished an increased demand for land would arise, and production would expand. No land owner (who was not a pathological case) would hold land out of use for a rise in rent in the near future, for then he would receive no rent and would be forced to depend upon charity for his subsistence.

 

     There is a point in connection with the speculation in land that Georgists do not perceive and that is this: when land values rise, all land owners do not persist in holding their land out of use for even higher prices. Some, more conservative perhaps or with greater business acumen, throw their land into the market in order to realize a profit. Thus the supply of land available for use tends to increase when values rise and tends to bring the price down. Georgists understand that when the price of a commodity rises, the tendency is for the supply of that commodity to be increased, thus bringing the price down. They do not argue that producers will abstain from increasing the supply (that is, hold commodities out of use, so to speak) in order to reap even higher profits. But when it comes to the question of land values, they seem to forget that land owners are just like everybody else and that they are quite as apt to offer their land for use as to withhold it when they observe values rising. Furthermore, if land owners as a class hold land out of use, how is it there is so much land in use? Most of the land used today is rented. Then again, is more land held out of use arbitrarily than is thrown out of use by taxes? Some Georgists believe that the fact that land values in this country are higher today than they were a hundred years ago is definite proof that land values act like a vulture on production and that they are absorbing more and more of the wealth that is produced. But land values are higher today because the production of wealth is greater and so the demand for land is greater. Nothing could be more natural.

 

     A third point of disagreement is this: George believed that taxing idle land would drive it into use. Mr. Heath believes that taxing idle land by assessing it at the so-called market price would not force it into use but, on the contrary, would drive other land out of use. This would result from the fact that the owner of the idle land would be compelled to take wealth from production on used land in order to pay the tax on his idle land. The tendency would be to check production and to lessen the demand for land, thus defeating the very purpose of the tax on idle land.

 

     A fourth point of disagreement is in connection with the precise conception of rent. Although George attributes rent to public services, according to him, /public services? check original/ are not the only cause of rent. Rent, he said, was caused by the differences in the natural productiveness of land and the general activities of the community. Mr. Heath believes that rent is caused only by public services. According to him, the differences in the natural productiveness of land are equalized by the exchange of the products of land. As for the general activities of the community (including churches, theaters, etc.), these could not exist if it were not for public services. Some Georgists, like Beckwith, for instance, eliminate nature as the cause of value, realizing that natural advantages, like harbors, rivers, etc., give utility to land but cannot give value, but they fail to see that the same thing is true of the general activities of the community. Churches, schools, theaters, museums, etc., give utility to land, that is, make some land desirable as compared with other land, but they cannot give value to land. Such activities create their own services and thus their own values, and they cannot create at the same time another value that attaches to land. Georgists generally fail to distinguish between utility and value and thus arrive at false conclusions.

 

     In conclusion, the disagreement between these two schools of thought in question centers around this point: do we want politicians or land owners to administer the land? If we rely on land owners, we shall receive (as we do today) our public services through the exchange mechanism of the market. If we rely on politicians, we shall receive our public services through the doubtful medium of privilege and favoritism. This was the question that disturbed George and led him to offer his compromise. Georgists generally are not disturbed by this problem. They ignore it as not being important. Is there then any such person as a “true Georgist?” They shrink from the idea of politicians operating industry (they will have none of the Russian experiment), but they naively accept the disservices of the politician when it comes to the matter of administering the land, as though in some strange, mystical manner the politician is purified when he comes into con­tact with the land.

 

     It seems to me that Georgists could not commemorate the memory of Henry George in any better way than by dedicating themselves to the solution of this problem that George considered important enough to devote some attention to, no matter how fragmentary was his solution of it.

 

Sincerely yours,

(Signed) Raymond V. McNally

 

 

     I have written Mr. McNally directly and at considerable length, reporting on my experiences at the recent sessions of the Institute of Public Affairs, University of Virginia, and so much commending the insight and sympathy towards Henry George with which his letter was written that I was constrained to forgive him for its mildly controversial form.

 

     For my own part, I do not feel any urge to write anything to Mr. Goeller. It is kind of him to welcome the opportunity of straightening us both out, but I am afraid his ministrations in my case will have to be more directly applied. If he writes anything to me, I do not think he will be able to engage me in controversy. But I will be glad to give him my best possible expression of my positive views and understanding of things. If he gives these enough attention and consideration to comprehend them, any conflict that arises between them and his own long-cherished views, will be a conflict entirely within himself, one that he alone must resolve, but not by any personal defeat.

    

     I would, indeed, like very much to have the opportunity of trying to explain to some of the more flexible minded of the Henry George confraternity some of the difficult questions and sources of intellectual conflict that have been vexing them these past fifty years. I would take a very considerable trouble and undergo some expense for an opportunity to do this.

 

     The pamphlet on the “Tax Question” by Enoch Ensley (Abridged) is very interesting, both by reason of its having been written so long ago as 1871 and for its sound and sensible argument, so far as it goes. I believe Ensley is only one of a great number who have caught some of the essentials of the philosophy of Henry George without falling into his condemnation of property in land. Such men as the Physiocrats, Patrick Edward Dove, Dr. Chalmers and others will come to your mind.

 

     I would like to see copy of Mr. Ensley’s letter in its original unabridged form. You will note that Ensley says,

 

“Hence I say that of all men of our state who should object to oppressive and, to follow the principle, I will say any taxation at all on money, merchandise or trade, manufactories, etc., it is the man who owns the real estate or immovable property. . . . Heretofore it has been the merchant who has done the complaining about the tax levied on him; he is not the one to do it; it is the real estate man.”

 

He, of course, does not observe that the owner of improvements sells to his tenants the services of private capital primarily, and only such services of the public capital as he has already purchased from the owner of the land, whereas the land owner, as such, owns and sells the services of no other capital but the public capital and therefore has no business but the public business.

 

Sincerely yours,

 

   Spencer Heath