Spencer Heath Archive

Item 2815

Article by Raymond V. McNally from Land and Freedom Vol. XLI, No. 3, Whole No. 226 (in three parts, May-June, July-August, and September-October 1941). The third part is an article by way of comment on the views of McNally, “In Defense of Ricardo. McNally was a friend of Heath’s in close touch and sympathetic with his ideas at the Henry George School of Social Science in New York City. See Item 2214 for an article by McNally dated June 4, 1942, “Some Observations on the Nature of Public Enterprise,” published in Libertarian Papers, Volume 6 (2014).

 

Three Theories of Rent

Raymond V. McNally

[Reprinted from Land and Freedom, May-June
1941 and July-August 1941]

[The following article challenges the
orthodox conception of rent and sets forth a new theory that, in the
author’s words, “represents a sharp break from the Ricardian
concept.”

In these days of economic depression, wars and political confusion,
the rent question assumes a position of paramount importance. Current
literature dealing with governmental regulation of industry and
so-called rugged individualism, democracy and dictatorship, statism
and individual rights, is, for the most part, merely a repetition of
what has been written in the past and indicates no awareness
whatsoever of the real significance of the phenomenon of rent [i.e.,
ground rent, as distinguished from the payment that is made for the
use of a building, a machine or any other article] in modern society.
It is my firm belief that a clear understanding of this phenomenon
would throw a brilliant light on all the economic and political
problems that are plaguing mankind today and would eventually lead to
their solution.

I do not believe that it is claiming too much to say that those who
have been engaged in serious, scientific investigations on this
subject, may be classed among the advanced thinkers of this age. A
great deal of progress has been achieved, but, as is inevitable in all
such investigations, different opinions and different conclusions are
bound to arise when a certain stage of development has been reached
and lines of thought diverge in the shape of definite and mutually
opposing theories. Therefore, it seems to me appropriate at this time
to reappraise these various theories with a view to eradicating those
beliefs that are based on mere opinion or assumption and to retaining
those that have been tested by the facts of life. Naturally, I am
addressing this to those readers who are scientifically-minded, and
who, therefore, knowing that they do not possess the whole truth, are
eager and fearless enough to tread unfamiliar paths in order to gain,
if possible, more enlightenment on this very important matter. Now, as
lack of space is the controlling factor, the following examination
cannot possibly be an exhaustive one. I shall only offer the
highlights of each theory and hope that the reader will be inspired by
my few deductions and conclusions to develop them further himself.

Broadly speaking, there are three schools of thought relating to the
nature of rent. The first frankly supports the Ricardian concept and
numerically is the strongest of the three. I shall call this school
the Ricardian. The second formally rejects the Ricardian theory; but
while it represents an advance in some respects over the old theory,
it nevertheless contains certain Ricardian characteristics. This
school, therefore, I shall refer to as the neo-Ricardian. The third
advances a theory that represents a sharp break from the Ricardian
concept and differs also from the neo-Ricardian in that it insists
upon an accurate description of economic life as it is today. It
contains the seed of a revolution in economic and political thought. I
shall call this the Realistic School.

The Ricardians

The Ricardian theory is accepted by most academic economists with
varying qualifications. Briefly, it is this: Rent is the excess of
wealth that is produced on land over that which an equivalent amount
of labor can produce on the poorest land in use i.e., on free land at
the margin. According to this theory, the best land is cultivated,
first, but interpreted broadly, the superiority of land is determined,
not only by its fertility as compared with that of land at the margin,
but also by its proximity to the markets and to governmental and
cultural advantages. It is assumed that the landowner is a
non-productive individual and is in no way responsible for either the
existence of these advantages or their availability.

The favorite example that is offered to prove that rent is determined
by the difference between the products of different grades of land is
this: A goes to an island and makes a good living by using a portion
of the land. B follows and finds with the same degree of exertion that
he can only make a poor living as compared with A by using the other
land available to him. The difference between these two standards of
living is regarded as rent. In this illustration, nothing is said
about government services, and so we must assume that no such services
exist. In other words, as there are no policemen to protect A from the
encroachments of B, A could not prevent B from sharing the better land
if the latter were envious of his favorable location, unless he
devoted part of his time and labor to standing guard. While he stood
guard, he could not produce any wealth, so that in all probability, he
would not be able to profit from his use of the better land. Thus the
products of the two grades of land would tend to an equality and no
rent would arise. A could only enjoy a higher standard of living if he
were stronger and more skilled than B, but in that case the difference
would be wages, not rent.

But let us assume now that A enjoys the benefit of police protection.
In one week, he can produce 10 bushels of corn. In the same time with
an equal amount of labor and skill, B can only produce five bushels of
corn. As A’s excess of five bushels was made possible only by the
police protection, he is compelled to turn it over to the policemen as
their compensation. Thus his superior location avails him nothing, and
he finds that he is living in a fool’s paradise.

Looking at the matter from another angle, let us suppose that no
policemen are necessary, that B recognizes A’s absolute right to his
land and makes no attempt to disturb him. In this case, A would
certainly enjoy a decided advantage and the excess of his product over
that of B the Ricardians would term rent. But is the question as
simple as all that? Where in civilized society does such a situation
as this exist or ever did exist? Not by the wildest stretch of the
imagination can we tie it up with economic life as we know it. Such a
situation represents a purely primitive economy in other words, an
individual economy whereas we are living in an exchange economy. If
the Ricardians are to prove their case, their theory must be
applicable to an exchange society. They might try to make such an
application by claiming that B would be willing to pay A five bushels
for the use of the better land. It is doubtful if B would do this, for
after such a payment his standard of living would be no higher than he
enjoyed when he used the poorer land. If he paid only four bushels,
then rent would not be the excess product but only part of the excess
product. And if B were willing to pay four bushels for a one-bushel
advantage, it is just as reasonable to expect that A would be willing
to accept only one bushel as rent in exchange for a four-bushel
advantage. In other words, rent might be anything from one bushel to
five bushels, but this would be inconsistent with the original
Ricardian assumption that rent is the excess product.

In order to give this theory as fair a test as possible, let us
assume that instead of A and B exchanging products for land, they
perceive the advantage of exchanging products for products. In order
to be on a par with A, B would produce something else besides corn say
potatoes. They sell them or part of them in the open market. The same
amount of labor and skill has produced twice as much corn as potatoes.
Thus B would receive in exchange twice as much wealth for a bushel of
potatoes as A would for a bushel of corn. Ten bushels of corn then
would be equal in value to five bushels of potatoes, and as A would
enjoy no excess, no rent would arise.

The conclusion that we must draw, therefore, is that no one can
profit from the natural advantages attaching to land, whether he be a
farmer, a manufacturer, a banker or a landowner. No rent is paid for
such advantages. They are equalized through the process of exchange.
The law of the market is that nothing can demand a return that has not
been brought into existence, either directly or through exchange, by
the labor of the seller himself. If A did not own the land but rented
it from someone, he could not afford to pay any rent without risking
bankruptcy. He could only pay rent if he enjoyed some advantage or
service at his location which could not be dissipated by exchange, and
if at the same time he were a better laborer than B and produced more
wealth. Such service could not withstand dissipation unless it were
the result of human exertion. The Ricardians, however, claim that men
of equal ability use different grades of land, and it is this false
assumption that prevents them from adequately explaining the
phenomenon of rent. In actual life, only the ablest men use the best
land. As we cannot compare the products of men of different abilities,
we cannot logically say that rent is determined by the excess of
wealth produced on land over that which is produced on the poorest
land in use. Rent is not a differential except in the sense that the
price of anything is a differential, for if the foregoing reasoning is
correct, the margin cannot be considered as a factor in determining
rent.

The Neo-Ricardians

This school seems to recognize the law of the market so far as it
concerns the cooperation of nature, i.e., they insist that rent cannot
be charged for the free gifts of nature. According to them, rent is
payment for governmental and social services. The social services
consist of transportation systems, theatres, churches, commercial and
professional establishments and private museums, art galleries,
schools and hospitals. It is admitted by the neo-Ricardians that the
direct services of these agencies are compensated for in the prices
that individuals pay for them. Thus, a person who benefits from the
service rendered by a theatre pays the price at the box office, the
person who attends a school pays the tuition fee and so on. But it is
contended that in addition to the direct services rendered by these
agencies, they render an indirect or “stand-by” service for
which they are not compensated. By establishing themselves near
certain locations and holding themselves ready to satisfy the demands
of the occupants of sites, they make these sites more valuable. This “stand-by”
service is paid for in the rent that goes into the pockets of
landowners, according to the neo-Ricardians. They admit, however, that
these enterprisers must carry the overhead cost of this “stand-by”
service.

Now it is a matter of business practice that all the costs of a
business concern are included in the price of the article or service
it sells, for otherwise it would be forced to discontinue operations.
In fact, a large part of the service rendered by business or
professional men consists of “standby” services, and there
is no valid reason for drawing a distinction between “actual”
services and “stand-by” services. The owner of a retail
store, for instance, carries goods on his shelves for a long period
before selling them and he employs salesmen to wait for customers to
come in at their convenience. The cost of carrying these goods
consists of depreciation, obsolescence and interest on his own or
borrowed capital, and the cost of waiting for customers consists of
the rent he pays for his store and the salaries of his salesmen. All
these costs are included in the prices he charges. It is claimed that
because the occupant of the site must pay more rent due to these “stand-by”
services, he has less in hand with which to buy the “actual”
services of these private enterprises and so these enterprises suffer.
If he paid less rent, he could buy additional “actual”
services, and this, “it is said, would compensate for the cost of
the “stand-by” services. How some men stay in business a
long time and show profits without being compensated for these “stand-by”
services, the neo-Ricardians fail to explain. The assertions they have
made in this connection are mere assumptions not verified by observed
facts. They have no place in a scientific investigation.

We have eliminated the natural advantages of land (including
proximity to the markets) and social services as elements in the
determination of rent and have left now only the governmental or
public services. But while the first two do not give any value to
sites, they do give the sites utility. Value and utility, however, are
not the same thing, and I believe that it is the failure to
distinguish between them that leads to erroneous conclusions. The
neo-Ricardians correctly state that a man is free to purchase public
services such as highways, police and fire protection, sewerage
systems, libraries, sanitation, parks, etc., in the open market. He
decides for himself the quality and quantity he desires. All is a
matter of exchange in which efforts of one kind are exchanged for
efforts of another kind. They state definitely that this natural
payment always exists wherever these services are provided and they
designate it as rent. But then, surprisingly, they contend that this
process of exchange is not permitted to operate today, because rent is
paid to a private landowner instead of into the public treasury. This
payment, therefore, they claim, is a one-sided transaction and not an
exchange. But if this process of exchange by which a man pays rent for
public services does not operate today, how then could they have been
able to describe it? Has it ever existed? Apparently they do not
believe so, for they do not tell us where we might find it.

Now a payment that is not the result of an exchange but is a
one-sided transaction is the same as a tax, i.e., it represents a
seizure of one’s private wealth. Thus the neo-Ricardians apparently
believe that there are two kinds of rent one a compulsory payment
which they say is actually made today, and the other a -voluntary
payment which exists only in some Utopian realm created out of their
own imaginations. How a single term can be applied to two entirely
antithetical phenomena and still give one a clear picture of a certain
phase of economic life they fail utterly to explain. Their assertion
that rent is a voluntary payment but that it is non-existent today
reads more like a moral precept of what rent ought to be rather than
like a scientific description of what rent actually is.

The question naturally arises: Why does rent constitute a compulsory
payment when it is made to a landowner and a voluntary payment when it
is made to government officials? The neo-Ricardians answer it by
saying that in the first case men are not free to refuse to pay rent
because it is not possible for them to get off the earth. Now we know
that men are land animals and that they cannot leave the earth unless
they become disembodied spirits, but this fact has nothing to do with
the economic question. Men do not pay rent for land as such, and no
one knows this better than the neo-Ricardians themselves. To claim
that the private collection of rent leaves men no alternative but to
get off the earth (something which by their very nature they cannot
do) is to assume that there is a scarcity of land in the aggregate,
either natural or artificial. The neo-Ricardians vigorously and
repeatedly denounce the Ricardians for making this matter a land
question, but apparently not perceiving the cause of this error, they
have fallen into the same trap themselves. While we know that there is
a scarcity of certain kinds of land, i.e., of particular locations, no
evidence has ever been produced to show that a scarcity of land in the
general sense exists. The neo-Ricardians assume that men have no
alternative but to get off the earth because they make the mistake of
viewing rent in the general sense rather than in the specific or
relative, sense.

Of course, civilized men cannot refuse to pay rent any more than they
can refuse to pay for the food they eat or the clothes they wear, but
they can and frequently do refuse to pay the rent that a particular
landowner demands for a particular location by going to some other
location. If we view economic life objectively without bias, we
observe that landowners are constantly competing with one another for
tenants. Even the owners of the poorest sites, if they possess good
business judgment, are deterred from demanding too high a rent by the
fear of losing their tenants or prospective tenants to the owners of
better sites. Men are absolutely free to refuse to occupy a particular
location, for no landowner threatens them with violence or coerces
them in any way. The rent is not fixed by the will or caprice of the
landowner but by the market. Therefore, we are left with no other
conclusion but that rent is not a compulsory payment today but a
voluntary one. The tenant pays his rent after he has entered into a
free contract with the landowner. To claim, as the neo-Ricardians do,
that the market is not free is equivalent to saying that there is no
market at all. Unless we believe that landowners are not constituted
like every one else, it is reasonable to assume that, as a class, they
are just as anxious to receive an income as other people are, and they
cannot receive an income unless their land is occupied.

The curious lack of realism in the reasoning of the neo-Ricardians is
even more in evidence in their attempt to show why rent would
constitute a voluntary payment if it were made to government
officials. Rent would be fixed by the market, they say, but apparently
it would be a different kind of market than the one that now fixes the
value of private services. The market that we know is one in which
buyers and sellers bargain with one another in order to determine the
prices of things and in which landowners and tenants bargain with one
another in order to determine the rental value of sites ; but the
market that they envision for the fixing of rent would consist only of
buyers. The public services would be provided by the public through
its so-called agent, the government, but the public officials would
not bargain with the users of land. They would not make assessments,
or “nominate” or “fix” the rent in any way. They
would merely collect it. Just how the officials would know the exact
amount of rent they should collect is not explained. We are told that
there would be no auctions. This means then that there would be no
bidders and no sellers and thus no bargaining. Rent would be
determined, it is said, by “public opinion.” How this “public
opinion” is to be expressed, the neo-Ricardians fail to divulge.
As a matter of fact, the public today has opinions about rental value,
but these opinions are influenced by real estate interests who are in
actual contact with the market. But opinions frequently are wrong. The
fact that one site brings a certain rent does not guarantee that a
similar site will rent for the same amount. In fact, it would not be
rented at all if there was no demand for it. Witness the difficulties
of conscientious public assessors who assess land today by comparing
one site with another. A subsequent sale or rental shows how wide of
the true value their assessment was.

The “public opinion” that the neo-Ricardians have in mind
would be even more nebulous. The real estate interests, in the
situation that this school imagines, would be interested only in
buildings and other improvements, not in land, and so would have no
opinion to express that was based on actual contracts between
landowners and tenants. Such opinion, to be effective, would have to
be founded on facts of some kind. It would have to fix “rent”
according to the site-users’ ability to pay or according to the needs
of the government. If the former, it is natural to assume that the
site-users would tend to conceal such ability. But here the
neo-Ricardians abandon economics (if indeed they have not already done
so) and assume the role of psychologists.

They say that in order to understand this question of “public
opinion” it must be realized that “the psychology of the
situation would have been completely reversed by the consciousness
that rent is a debt due the public.” The user of the site would
gladly pay whatever “public opinion” decided because it
would be the “patriotic thing” to do, like “saluting
the flag.” Whether or not they believe that the site-user would
be expected to pay in rent all that he produces above a bare
subsistence we do not know, for they do not commit themselves. If this
was expected of the site-user, then we would have a situation akin to
early Christian communism. It is fair to assume, however, that the
neo-Ricardians do not favor anything like communism, Christian or
otherwise; but that leaves “public opinion” in a dilemma.
Exactly how much wealth would it permit the producer to keep for
himself? In order to find something definite on which to base its
opinion, the public would be forced to ascertain the actual needs of
government. That would mean appealing to the government officials who
could safely be relied upon to fix the “rent” at “all
the traffic will bear.” But the man who has to pay the “rent”
would not protest, for we are assured that once people understood what
rent was, it would be looked upon as a “preferred debt.” The
reader can decide for himself whether or not this psychology is sound.
The majority of the people today believe that taxes are paid for
public services and that they are a “preferred debt,” but
yet they do all in their power to avoid paying them. Unless we are to
ascribe some miraculous power to the word “rent,” it is
reasonable to assume that they would react in exactly the same way
toward the payment of “rent” if it had to be made to public
officials. Now as rent is a voluntary payment (and this is admitted by
the neo-Ricardians), a payment made to public officials under
compulsion would not be rent at all. It would be a tax. Land
nationalization would be the result with all of the corruption and
inefficiency which that would entail. Private industry would be even
more at the mercy of the state than it is today, and the trend toward
state socialism would be greatly accelerated.

In spite of the efforts of the neo-Ricardians to avoid the fixing of
the “rent” by public officials, they have, through their
repudiation of the democratic process of the market, played right into
the hands of the bureaucrats. I do not mean to say that this
repudiation is deliberate, but I mean that like the Marxist they fail
to understand the market or exchange system as it operates today. This
is the real cause of their confusion. They might have avoided this
confusion if they had applied to the rent question their favorite
dictum that opinion has no place in economic science. I shall discuss
the true nature of the market, when I consider the third theory of
rent, in more detail than I have thus far done.

The Realists

The realists are neither moralists nor psychologists. Their method is
purely scientific. They insist upon a strictly literal explanation of
economic life as it is today. In discussing the market, they have in
mind only one kind namely, that which operates today. They regard it
as the area in which men bid for the goods and services that other men
have to sell. The mere presence of goods and services does not give
them value. Human labor alone does not create value. There must be a
demand for them. But the mere bidding on the part of buyers is not
enough. To have value, the goods and services must be actually sold.
Before sale, they can have only a potential or speculative value.
Every business consists of a buying and production department and an
administrative and selling department. Some business concerns of
course do not make things themselves but buy them ready-made from
other establishments, and their only production activities, if any,
consist in getting them ready for sale. Although the owners of
businesses supervise the production and buying, their chief personal
functions are those of administration and selling. Goods and services
may be produced, but they cannot reach the hands of consumers and have
value until they are sold. They are sold for money or credit by means
of which other goods and services are obtained, either immediately or
later, in exchange for those that have been sold. In the market,
buyers are free to refuse to pay the price demanded by sellers, and,
on the other hand, sellers are free to refuse the price offered by
buyers. Neither the buyers nor the sellers coerce or compel each
other. Unless this freedom prevails, there is no market and thus no
value.

Now just as private services must be bought if people want to obtain
them, so public services must be bought if people want to receive
them. To receive the latter, one must occupy a certain portion of
land, for these services are only delivered to sites or locations and
are sold to the occupants by landowners. The payment is called rent.
Rent or the value of land, therefore, is based on public services and
on nothing else. The landowners do not sell or rent land as such but
only the public facilities that attach to land. If these facilities
were obtained direct from the government, they would not be services
but privileges or benefits. To constitute services they must be
obtained by purchase through the democratic process of the market. The
government officials cannot sell the public facilities, for they are
not in the market. Why they cannot possibly be in the market I shall
explain later.

The value of the public services is determined by the bargaining that
takes place in the market between the landowners and the occupants of
the sites. We observe that the landowner and the user of the site
enter into a free contract, neither coercing or threatening the other.
The tenant is free to refuse to pay the rent demanded, for not only
does the landowner not coerce him, but the landowner has no monopoly
of public services. The tenant can obtain them at other sites. And by
the same token, the landowner is free to refuse the rent offered by
the tenant. There is more than one tenant. This is democracy at its
best. And so we see that rent is not an arbitrary payment like a tax
but is fixed by the competition of the market. The tenant pays only
what he believes the services are worth to him.

The public servants comprise the production department of the public
service business, while the landowners comprise the administrative and
selling department. The former receive stipulated salaries and wages,
but unlike the employees of a private business, they fix their own
compensations and pay themselves out of the wealth they seize from the
people through taxation. They do not receive them from the owners of
the public capital by any exchange of services. The landowners, on the
other hand, receive their compensation in the market by virtue of
their service in selling the public services to site-users. This
compensation constitutes the profits of the public service business
which remain after all the costs, consisting of the wages of the
public employees an^ the interest on the borrowed capital plus all
other costs of depreciation and obsolescence, have been met. The net
income or net rent left in the hands of the landowners when
capitalized at the current rate of interest gives the capital value of
land. This capital value of land is nothing else but the value of the
public capital.

To the extent of merchandising the public services to site-users, the
landowners are the owners or administrators of the public capital.
Unlike the owners of private capital, they fail to supervise the
employees of the production department. The result is irresponsible
government and bureaucracy, for these employees are responsible today,
not to the owners of the public capital, but to the electorate, or to
be more precise, to the pressure-groups to whom they grant privileges
and subsidies in order to maintain themselves in office. These
privileges and subsidies call for taxes in addition to those deemed
necessary to provide compensation for the public employees. All these
taxes, including those used to compensate the public employees, reduce
by that amount the value of the public services to site-users and less
rent is paid. But the burden on the site-user is not only the amount
of the taxes he pays but the loss caused by the indirect cost of
taxation that is, by the methods used to collect taxes and the
restrictions and regulations imposed on his business directly or
indirectly by the manner in which the tax funds are spent. Thus the
site- user is still further impoverished, and the amount of rent he
pays is even more reduced. He does not pay twice for public services,
once in rent and again in taxes, as the neo-Ricardians claim. Taxes
are a charge against rent. The landowners today do not pay the wages
of the public employees and the costs incidental to the maintenance
and the borrowing of the public capital directly. These are paid out
of the taxes collected from site-users. Not all the taxes, however,
are used to finance the public services. Some of the funds are wasted,
and a large part of them goes to finance disservices such as subsidies
and various ventures for the regulation of and, consequently,
interference with private enterprise. But the landowners do pay the
public expenses indirectly when their rent is reduced by the taxes
levied on their tenants. If all taxes were abolished, landowners could
pay the public expenses directly, because rent would be increased by
at least the amount of those taxes. In fact, they would have to pay
them and also to see that the funds were spent as effectively as
possible, for otherwise there would be no public services and
consequently no rent. And it is reasonable to assume that it would be
to their advantage not only to do this but also to supervise the
public employees and to extend their administrative functions in
connection with the public capital, for the abolition of taxes
together with their concomitant indirect costs arising out of the
restrictive and punitive methods of collecting them and the waste and
inefficiency and the devastation of private enterprise involved in the
spending of them, would enable site-users to pay more rent and thus to
increase the landowners’ profits. The realists, however, are careful
enough to point out that landowners are no more aware of their real
functions and the true nature of rent than are other people.

In order to see more clearly why the site-user does not pay twice for
public services, let us turn our attention to private enterprise for
an illustration. If a furniture establishment, for instance, were to
conduct its affairs as the public service business is conducted, it
would soon go into bankruptcy. If the owner failed to supervise and
pay the employees and allowed them to compensate themselves by seizing
the wealth of his customers, his income would fall off. His customers,
being in reduced circumstances as a result of the depredations of the
employees, would not and could not possibly pay twice for the
furniture. If a bedroom suite cost $1,000 to make and to sell and the
employees seized $500 from each customer for their compensation, the
customer would pay only $500 to the owner for the suite. He would pay
the difference between the total cost of the suite and the amount
seized from him by the employees. In other words, what he would pay
would be equivalent to the value of only the administrative and
selling services of the owner himself. The same thing is true of
public services. The rent the site-user pays today represents not the
total cost of the public services (for part of them is financed by
taxes the part that I term the production department) but only the
value of the landowner’s services fixed by the market plus the amount
of taxes that are now levied on the value of land and the wages of any
private employees he may have. It is doubtful whether the owner of the
furniture factory would receive as much as $500 for the bedroom suite,
for the manner in which the employees would seize the customer’s
wealth would impoverish the customer by more than the actual amount
seized. If these seizures continued, the owner’s income would steadily
decline until he was forced out of business.

I wish to refer now to the statement that I previously made that
government officials cannot sell the public facilities because they
are not in the market. Only the owners of capital, whether public or
private, from the use of which services flow, can sell those services.
Government officials do not own the public capital, not even as
representatives of the electorate. The masses of the people are
consumers of the public services and they cannot also be owners of the
things they buy. That would be like a lawyer acting as his own client
or a storekeeper acting as his own customer. It might be said that
they are owners in the collective sense and consumers in the
individual sense; but then there is something else to consider. The
owners of capital receive the income from it, but the masses of the
people do not receive any income from the public capital. Furthermore,
the citizens of a country cannot exercise proper supervision over the
public servants, because there is no unity among them. They have many
different interests, and each one seeks his own welfare, not the
welfare of all. Government, therefore, is responsible only to the
strongest pressure groups, and the particular interests of each
conflict with those of the others. The owners of a private business
may at times disagree on policies, but they are all united for their
common good by a common interest their income. The citizens receive no
income from the public capital and, therefore, have no unity of
purpose. And being divided against one another, their only direct
interest in government lies in the favors that are doled out to them.
Their indirect interest concerns itself with the public services, but
these they buy in the market direct from landowners as occupants of
sites. The public servants have no contact with the market. They could
only be brought into the market and made responsible through the
medium of landowners if all taxes were abolished and they received
their compensation direct from landowners out of the increased rent
that would result.

Recapitulation

The rent we have been discussing is ground rent as distinguished from
the rent that is paid for the use of a building or a machine. We have
seen that rent is not paid for land as such nor for the natural
advantages attaching to land. Rent is paid for those advantages of
location that cannot be dissipated or equalized by exchange namely,
the public services, such as public highways, sewerage systems, police
and fire protection, etc. It is determined by the competition of the
market and is a voluntary payment to the landowner. It cannot be paid
direct to public officials, for then it would be a tax. Taxes are
always paid under compulsion. Those who advocate paying rent direct to
public officials or who advocate taxing the value of land (which would
require public assessments) are in effect demanding that we scrap part
of the exchange system that part which concerns itself with public
services and that we place ourselves to that extent under the
domination of the state. They are dangerously close to the Marxist who
demands that the entire exchange system be scrapped and that we place
ourselves entirely under the domination of the state.

The realists, on the other hand, favor extending the exchange system
or, in other words, the democratic way of life, so as to bring the
public servants within its scope and make them responsible
individuals. They contend that private property in land as
distinguished from mere private possession must be maintained, as
private property in land is the bulwark that protects private
enterprise from the encroachments of bureaucracy. Destroy private
property in land, they say, and the trend toward state socialism would
be accelerated.

Some people honestly fear private property in land because they
believe that it leads to the holding of land out of use. They view the
problem of poverty and unemployment as a land question. This view is
invalid because there is no scarcity of land in the aggregate. There
is a scarcity of certain types of land or locations but so is there a
scarcity of certain kinds of skilled labor. Furthermore, to say that
land is held out of use is to set themselves up as arbiters of what
rent the landowner must accept. This attitude leads them to demand
that land be taxed into use. This -is the attitude of the fascist who
has little or no understanding of the basic principles of the exchange
system.

We cannot force the production of wealth. Production is a voluntary
process. Forcing land into use is only one step removed from forcing
employers to pay minimum wages or forcing industry to charge prices
fixed by the state. It lessens rather than increases the production of
wealth. Landowners as a class are anxious to receive an income from
their land, and they can only receive it if they rent their land to
those who are able and willing to use it. Some landowners of course
have very poor business sense, and their land lies idle because they
demand too high a rent. This does not force men to go without land,
for they merely take some other location. Nor does it compel them
necessarily to go to poorer locations, for the owners of the poorest
locations sometimes demand so high a rent that producers move on to
better locations. If we are to maintain the democratic process of the
market, landowners must be accorded the same freedom to refuse the
rent offered as site-users enjoy to refuse to pay the rent that is
asked. Otherwise there can be no rent. Rent is established by the
bargaining process, and there must be freedom on both sides.

We cannot force land into use, but we can increase the demand for
land by abolishing all the taxes and restraints that are depressing
industry. When industry is depressed, it uses less land, rent falls,
and landowners are inclined in some cases to wait until the demand
revives rather than rent their land at too low a figure. Whether land
is ever actually held out of use is a matter for the psychologist to
determine. Not concerning himself with psychology, all the economist
knows is that land is driven out of use by taxes and bureaucratic
interference with private enterprise. Private property in land today
is gradually being destroyed, and land is rapidly passing from private
hands into the clutches of the state as a result of the heavy taxes
that bear on industry and on land itself. We can scarcely imagine the
heights to which civilization could rise, the stimulus to invention
and productive effort, the flowering of the arts and the increased
mental and physical vitality that would result, were industry freed of
bureaucratic restrictions and society purged of political corruption
and inefficiency. And it must be definitely stated here that the
resultant advantages would not be absorbed by rent, as the Ricardians
claim, for as I previously pointed out, rent is not fixed by the “margin.”
No one would bid for any location if all of the advantages were
absorbed by rent.

A great deal more can be written on this subject, and I realize that
many questions may arise in the reader’s mind that I have not
specifically answered. However, I believe that the thoughtful reader
will find that I have anticipated some of them at least, if only by
rather broad strokes. My chief purpose has been to stimulate thought
on this very important subject.