[letter dated July 20, 1934 from Mr. Spencer Heath, President, Eastern States Taxpayers’ Committee, 17 West 28th Street, (Room 53), New York City to Mr. Adam Schantz III, Chairman, National Committee on Local and State Taxation, National Association of Real Estate Boards, Ludlow Building, Dayton, Ohio]

 

 

Our secretary, Mr. Gladwin Bouton, has called my attention to your letter of July 9. Your thoughtful attitude of mind upon the matter of distinguishing improvements from land values — when seeking to limit the onslaught of the tax eaters — prompts me to lay before you some considerations that I am convinced are of practical value to real estate owners in this necessary resistance.

 

All the incomes to consumers, all that upon which men and families subsist comes from the administration of property — of capital properties — so that consumers’ goods are brought forth and the capital properties remain unconsumed. Capital cannot be administered except by those who own it, for none but its owner has a high interest in preserving it. Without owner-administration capital is consumed and destroyed. To all owners of property (other than what they consume), the problem is: Who shall deliver us out of the hand of the politician — that is, from mounting taxation on all forms of present property and from monstrous public debts that penalize improvements on land — that tax away the value and the use of the one kind of property without which the sites and locations cannot have any actual service or income value.

 

It is apparent to all that there must be some limitations and resistance to these onslaughts against property if the very needful production and flow of consumers’ goods is not to be destroyed. It is the public as well as the private duty of the owners of real property, the primary and basic values of any civilization, to unite on some rational and effective policy in this necessary resistance.

 

When it comes to tax limitations on real estate, two courses should be clearly distinguished. On the one hand, we may seek the greater reduction or limitation of taxes on sites and locations and the income from them, or, on the other hand, we may seek to limit or abolish the taxes on improvement values. As an owner of both industrial and suburban properties, almost entirely unimproved, I should, on first thought, greatly prefer to limit taxation on sites and locations and leave the principal or entire burden on those who own chiefly the improvements on land.

 

However, it is but a short step to realize that the more bur­dens there are on improvements the less desirable they become, and the less they will be extended and maintained; and until there is a tendency to maintain and extend building and improvements, it is useless for me to look for any increase in the value or the marketabil­ity of my unimproved land. To escape this, my mind turns to some or all of the many subjects of taxation apart from real estate,— perhaps sales taxes, or license or occupation taxes, or process taxes,— and I feel that here might be found a revenue that would not cut down the use and improvement of land.

 

But I find that every one of these taxes is an impediment to the turnover and to the keeping up of investments in business; that it impairs profits and thereby restricts exchanges; disemploys capital and labor from the use of buildings and improvements in the processing and handling of commodities; cuts off the demand for basic materials, and these accumulate as surpluses in agriculture and the other extractive industries.

 

In none of these effects can I see any tendency to encourage building and improvement, or any increased demand for my own land for such purposes. On the contrary, I feel that as an owner of un­improved land I must distinctly suffer from my own exemption, if it places such obstacles in the path of the productive industry, from which alone I can hope for any betterment in the demand for my now stagnant holdings.

 

Moreover, every tax or restriction on active business or on income that might otherwise be invested restricts or reduces the working capital that can be employed and the number of producer units that can be engaged or continued in any industry. This introduces a tendency in the direction of monop­oly, which tendency has even now become almost completely realized in a number of lines. The evil of this is that monopoly, by attempt­ing to raise prices, cuts down both the demand for its goods and their supply. But before this occurs those units which have survived in the monopoly seldom fail to over-capitalize themselves upon the expec­tancy of a continuation of the monopoly prices which they temporari­ly enjoy. It is enough merely to suggest the evils that follow in this train: how, with falling demand, production at last falls short of maintaining this capital structure, its market support must decline, and its scarcity values collapse.

 

It is enough to note that nowhere in all the results that fol­low upon the burdening of active production is there any factor to make possible a revival of the demand for land, or a renewal of de­mand for buildings and their accessories or other improvements upon land. From all the foregoing you can see that in my position as own­er of unimproved real estate, I cannot be enamored of the results to me from the exemption of land without exempting the use of land, however alluring its immediate ap­peal.

 

Turn now to a contrary exemption, partial or complete, of those elements in real estate values which arise from business activity, and are created by and also FOR the production of wealth — in other words, improvements.

 

There are two things to note about improvements: (1) Their materials and supplies originate in the using of land and the products of its use, all constituting a primary demand for land. (2) It is only by the making and using of improvements on land that any considerable production or income can be brought forward out of which business can buy or rent land or finance its purchase and make further improvements.

 

From this it is clear that nothing can be more vital to real es­tate generally than that improvements should be maintained and extended, and that business should use these improvements with such freedom from restraint on production and exchange that there will be not only a demand for existing improvements, but also profits to warrant and invite investment in real estate for productive purpo­ses. This is to say that what we most need is a market for real es­tate; but it also, I believe, points out the only way this market can come. Such a market, it is clear, simply cannot develop upon the policy of increasing taxes or otherwise discouraging the use and making of improvements.

 

What has happened to the real estate market?  Capital is abundant, much of it idle and “eating its head off” in deprecia­tion and repairs. Even “liquid” capital is working, much of it, for less than two per cent, and much is hidden away and depleting itself to pay for its own security against the hazards of perform­ing its normal productive functions through the use of land. And what are these hazards? Capital must be assured of permission to produce and to yield; but of only one thing is it now assured :TAXES! Then why should we not consider some exemptions from taxa­tion of the capital that is invested in real estate improvement? It is plain that such exemption must tend to draw capital into use and in USE of capital lies the demand for land. As an owner of land I must welcome whatever exemptions tend to attract capital to use what I own.

 

Now, doubtless some will ask how I can profit, as an owner of unimproved land, if the burden lifted from improvements must fall on me? I admit I would be in somewhat better shape if I had become an owner of improvements shortly before the exemption took place, and thus had the benefit of the quick demand for their use which the ex­emption would introduce — without having suffered the long decline while improvements were out of demand.

 

But I have my recompense in this: while the burden remains on the improvements, they (as well as the land) decline in demand and in price, and they also physically decay. The damage is not at an end with the payment of the tax; it has only begun. The amount “out of pocket” may be but a bagatelle to the amount “out of value” from loss of market and from physical decline. But if the burden be transferred to the land, it cannot exceed the amount of the out-of-pocket tax, for then the demand for the land becomes not less, but more. The putting of im­provements to use (or to more profitable use by their exemption) re­quires also the use of land — the land on which they stand, and oth­er land, in fact all land, rises in demand as do the improvements, and because of the same exemption.

 

Moreover, although the loss and damage to the value of the improvements was greater than the amount of the tax laid on them, the very reverse (as we have seen) may be true as to the land when the burden is transferred to it.

 

And there is still further recompense: If the increased tax be usefully employed for the better maintenance of the community through its public services for which there is a real need, such as streets, with their improvements and equipment, instead of being worse than wasted on costly “enforcement” agencies and departments, set up to harass and limit the productive activities of the community, and to make jobs for corrupt or, at best, parasitic politicians, if the taxes be at all properly employed, there comes back to the landown­er at least a part of what he has been taxed, and if they are PROFIT­ABLY employed, there comes back to him in increased rental, or high­er capital values, all that he has paid and substantial profits be­sides.

 

From reflecting on these matters, I am strongly persuaded — (1) that real estate owners have everything to gain and nothing to lose through a better adjustment of whatever tax burden they bear; (2) that this adjustment should take the direction of obtaining the largest possible measure of tax limitation, or ex­emption, for improvements; and (3) that such part of any improvement-exemption as must still be carried by real estate should be trans­ferred to the income to land and in proportion to its income value.

 

This does not mean that the total real estate load may not be reduced, or its increase prevented. In any case, there is a threefold advantage in the transfer: (a) The taking of the improvements from between the jaws of tax-eaters; (b) the emancipation of the land value from the suppression of demand for it; (c) the building up of the land value by the restriction of its tax contributions to con­structive public purposes.

 

In this connection, I think it would be well worth the attention of the organized real estate authorities generally to consider the development of a constructive business policy regarding taxation as making payment for public services in such manner as to place no final burden upon themselves as taxpayers, but, on the contrary, to afford them opportunity to make profits on voluntary payments in lieu of taxes (as public costs) through the enhancements that exemption of improvements would bring to their properties. It is clear that in populous and productive communities the public servic­es, badly and wastefully as they are now performed, are a chief requisite of all the value that is in the land.

 

From this thought it is only a step to realize what profound effect it would have upon the income and selling value of land, if these services should be even so well conducted as a first class mer­cantile or industrial establishment. With this in view, it would be a fruitful function of organized real estate interests to concern themselves not alone with the right placing of the tax burden, but to use their proper influence and intelligence upon the authorities, so that the resulting public services would bring back in value to real estate owners at least a large part of all taxes paid on account of land value or income. I believe it is entirely within bounds to predict that application of this technique would guide us to the achievement of a high order of public administration, in which it would prove an opportunity and a privilege belonging to those who privately manage real estate to become investors in public enterprises and co-admin­istrators with salaried public servants and experts for profitably carrying on community functions and services.

 

The practice of making profitable public investment, in lieu of tax payments under compulsion, should make the ownership of land es­pecially attractive to persons who, having eminent gifts for public administration, would find it desirable to devote their activities and resources to the development and support of land values by pru­dent and fruitful creation and maintenance of public services. Acti­vities of this kind would logically be co-ordinated and carried on by the organizations representative of the real estate interests in a local and national way.

 

Meanwhile, and until the relation between taxes and land value (and the technique of creating land value) is more clearly discern­ed, I believe it is of the utmost importance to every real estate in­terest to obtain the highest exemption for improvements, and leave the remaining burden, so far as possible, upon the land alone. I think the inauguration of this policy by real estate interests de­pends only upon their realizing the baleful effects that improvement taxes have upon both land and improvements, and the highly profitab­le results to land value itself that can be obtained through judici­ous use and application of tax funds voluntarily to public needs and services.

 

In support of these conclusions, I would point out that in the history of this country, and of others similar to our own, a long-continued increase in the tax burden has always been followed by a collapse of real estate values, and where there have been exemptions of improvements — as in Canada, Australia, New Zealand, and Pittsburg — this has led invariably to marked increase in land value, and this increase has been maintained at least relatively to other values throughout the depressions that destructive taxation and restrictions have so repeatedly brought on. Even temporary exemptions of improve­ments have proved effective to stimulate building and general real estate activity.

 

___________

 

 

[Summary of the above letter to Mr. Schantz]

 

 

Taxes on buildings and real estate improvements make them more costly and less profitable to use or to own. They therefore reduce and may even destroy the demand for improvements, and with it, the demand for the land to which they are affixed; and also for the land on which new improvements would be made, if the de­mand for them had remained unimpaired.

 

Taxes on land value, however, do not make improvements more costly nor less profitable to use or to own. They do not reduce the demand for improvements nor for the land on which improve­ments are made. They do not increase production costs, and there­fore do not impair the revenue out of which all income to real estate must arise. On the contrary, land value taxes when properly applied to needed community services and not wasted or misused, are a chief factor to attract population, en­large its productivity, and therefore increase and main­tain the value of both improved and unimproved land.

 

 

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[Letter of Adam Schantz III to Spencer Heath]

 

 

I read with an unusual amount of interest your letter of July 20 addressed to me. In fact, I have read and re-read that letter. I have had some copies made which I am sending to headquarters for their study. In the meantime I want to give your letter some more thought. I am going to bring it up at the next meeting of the Dayton Proper­ty Owners’ Association for complete reading, discussion and comment thereon. This belated reply is due to the fact that I am so inter­ested in your letter that I do not feel I can make adequate comment upon it at this time. I am very anxious to get a wide-spread reac­tion toward it. Soon I am hoping to be able to forward to you some of the comments received.

 

 

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[From a letter by Dr. Frederick W. Roman,

Los Angeles, California, dated September 5, 1935]

 

 

This afternoon I took time to read your essay carefully. I read over certain paragraphs several times before passing. In my own mind I wish to go over some of those ideas. It occurs to me that you have opened up a new realm. If it can be made to prevail, it would do much to lessen the opposition to this greatly needed reform. I wish I were in position to present it to my own following. I hope you have it printed, so as to make it available. Will this be done? I would like to get the reaction of quite a number of people on the creative ideas that you have evolved. It would stimulate fruitful discussion. I shall be anxious to hear what you propose doing next. If I can co-operate, please let me know.

 

 

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[From a letter by Spencer Heath, New York City, to Dr. Frederick

W. Roman, Los Angeles, California, dated Novem­ber 19, 1935]

 

 

I have to thank you for your letter from Chicago with its very kind comment on my little contribution to economic theory in the form of a further application and extension of the theories of Henry George. Henry George laid foundations for the discovery of Society as an evolving higher form of organic life. It remains for persons who can employ that objective attitude of mind that we call “scientific” to examine and classify the various parts and struc­tures of Society as parts of an organic whole and from this examination to discover what functions are appropriate to the parts so or­ganized and to the whole.

 

From this view Society is seen as an association of individuals inseparably attached to its definite territory, as the sponge or cor­al animals are attached to their rock. The nature of the individuals (their entelechy, derived from successful organic adjustments to their environment and to each other throughout an indefinite past)is to take on singly and in groups special activities beneficial to each other and to the whole. These activities consist in exchange of services, directly as services and also as wrought into and accumulated in commodities which in this way become wealth and yield satis­factions. This facility of exchange makes possible minute divisions of labor and highly complex and efficient co-operation. It thus be­comes possible through exchange for each individual or group to per­form and contribute a very large quantity of one kind of service or commodity and receive back therefore not only large quantities but al­so a vast variety of services and commodities. Thus out of quantity arises variety and from variety all quality and beauty derives.

 

In order that this complex exchange of services be not interrupted and deranged through some individuals obtaining services without giving services in return, there arise in the society certain persons who are given the whole power of the society for the restraining of such individuals. Thus arises the police power and the military pow­er to restrain aggressions from within and from without. Thus gov­ernment and the services of government arise; but they are not without their cost, and this cost, in taxation and in endless forms of depredation, is terrific. Where this cost is more than it is worth in services, more than the services of government are worth, then that society is in decline; its functions have become impeded and restrained.

 

If, however, the government services become worth more than they cost, the territory so served will possess peculiar advantages arising out of the services performed by the public officers and servants. The value of these public services is the ground rent that actually aris­es and is actually paid throughout the different parts of the terri­tory, according to the varying need and demand for and the quantity of public services supplied. The total of this ground rent represents the NET value of all the public services supplied.

 

This rent is therefore the public revenue created by the public services, and constitutes the proper wages of the public servants. For the collection of this revenue, nature, as manifested in human nature, establishes a set of public officers known as proprietors or landowners, whose function it is to collect the value of the public services as manifested in ground rent. This function is ordinarily well performed at the present time; but that structure within the society which is constituted by the collective body of landowners has not yet found its further function of paying over to the public servants their wages and other costs of government out of the rents so collected. Nor have present day landowning interests yet discovered their further function beyond that of being paymasters of the public servants, namely, that of public administrators directing and supervising all the activities of the public servants and in this capacity becoming public servants themselves. These supervisors and administrators, however, will not need to be on the public pay-roll because the value and just recompense for their administrative ser­vices will be reflected in the difference between the rents which they collect and that part which they must pay in wages to the pub­lic servants under their direction.

 

This bringing of land ownership into its proper functions will remove the problem of unemployment by making it unnecessary to lay any taxes or other restrictions on employment or any of its products. It will solve the problem of public revenue and finance by utilizing rent, the product of the public services, for the financing of them. It further will solve the problem of faithful and efficient public administration by placing administrative responsibility in the hands of persons whose private and particular interest in the enhancement of rents is precisely the same as the public and general interest in the efficient administration of the public services.

 

I must thank you for sending me the letter and pamphlet of your Cincinnati friend. That I cannot sympathize with his points of view you will see from the opening paragraphs from which I quote: “I re­fer to that insidious, larcenous and insatiable monster known as GROUND RENT. Ground rent is one hundred per cent robbery, pure tribute and economic waste.” I think any such interpretation of economic rent must speak its own condemnation to intelligent minds.

 

I am sure I wish you a great deal of success in your publica­tion and in all your public work. There is certainly much need for enlightenment, and certainly no field in which it is more needed than in that of government and economics, and particularly as re­gards the problem of general tax relief and re-employment, the prob­lem of obtaining just and adequate public revenues, and the prob­lem of good and efficient administration of public affairs.

 

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310 Riverside Drive

New York

April 7, 1936

Mr. Francis I. duPont

One Wall Street

New York City

 

My dear Mr. duPont:

 

After this long time I am at last setting out to write in the hope of making some constructive comment on the proposals indicated in your letter Number One and also in the broadcast you prepared for Mr. Ingersoll and Miss Colbron.

 

Rather than take up one by one the questions that you have raised in my mind and thus deal with them somewhat apart from their general setting, I have sketched in the attached pages a very rough and meager outline of the whole economic structure and its proces­ses as I perceive them, and, I hope, in a way that is sufficiently in­clusive to cover those aspects of the matter with which your own thinking seems primarily engaged. I refer, of course, to the relations between agriculture and other industry and the special condi­tion of the devaluated agricultural lands.

 

Whether my particular views are of great or little value, they owe their inspiration entirely to Henry George, who, however indirectly he may have approached his most important conclusions, has still given us the foundation principles of an authentic social science. It remains for us to extend their application to social and economic conditions not only as he knew them but even more particularly to those changed conditions as to increase of population, growth of land values, and the impact of politics and government upon agriculture and industry that have come about in more recent times.

 

I hope I have not burdened you with too much that is already obvious and that you will still feel inclined to arrange for some personal discussions as your letters have so kindly proposed.

 

Very sincerely yours,

 

Spencer Heath

 

 

OUTLINE OF THE

ECONOMIC, POLITICAL AND PROPRIETARY

DEPARTMENTS OF SOCIETY

 

The most obvious symptom of profound social maladjustments is unemployment. It comprehends the millions wholly idle, other millions only partly or artificially employed and it should include all those who are destructively engaged in creating unemployment for the others by preventing or at least restricting their employment of each other in the only way that socialized men can have employment, that is, by exchanging services with each other. This vast disemployment is not only of men but also of the materials and instruments upon which men impress their services and wherewith they exchange them. Thus capital is disemployed or only partly employed and is put to destructive and wasteful uses, even as all the labor that is not allowed to create tends to destroy.

 

So great is the evil of unemployment that it tends to obscure two other evils that are very present with us. I refer to the evil of public revenue and finance — its inadequacy, the injurious manner in which it is raised, the wasteful manner in which it is disbursed, and the destructive purposes for which it is so largely employed. I also refer to the problem of the administration of public services which is for the most part entrusted to the hands of persons whose private and particular interests are contrary to the public interests and can therefore be most fully served by mismanagement of the funds and demoralization of the labor that is engaged in public work. I believe these three great evils owe their existence not to the lack of doing anything about them that ought to be done, but to the doing of things that ought not to be done. The political and social evils that men suffer are no more provided for them than are the social benefits they enjoy — they must bring them upon themselves.

 

What, then, are men doing that they must bring upon themselves
such grievous ills? Day by day they are destroying the basic pro­cess whereby they create their civilized subsistence. They are steadily diminishing their freedom to exchange services with one an­other, thus losing all social and economic liberty — all the liberty there is — and with it their civilized subsistence itself.

 

Direct exchange of services for services and their indirect exchange by the use of commodities which are themselves but the vehicles and containers of services, a medium of exchange, as it were, for

services,— this process, this social metabolism, is what gives any

collection of individuals its character as a society. It is this type of association that distinguishes men from animals and gives rise to that minute division of labor and the higher level of subsistence in proportion to numbers by which all the arts and sciences, all pro­gress, all achievement, and all beauty are unfolded out of the spir­it of man.

 

So persistent is this trait of association by exchange that men can be restrained from it only by force or by stealth so directed as to obtain services or wealth without giving any or equal in exchange. The unpolished terms for it are robbery and larceny and it is only by these two methods, separately or combined, that the exchange process, the creative function in society, can be prevented or broken down. So vital is this that every society must carry within itself a special class of persons called public servants, or, collectively, government, whose basic function is to prevent invasions of the exchange process and whose higher and final function it is to provide exchange facili­ties through public rights of way and all the manifold public servic­es that may be supplied in this manner.

 

It happens, however, that notwithstanding that their basic function is to prevent robbery and larceny, the public servants themselves are commonly permitted to collect their own wages and other costs by force and by stealth. This is called taxation. Those taxes that are collected by force are called direct taxes and those collected by stealth are indirect taxes. This violence to the exchange process at the hands of public servants tends to offset and counteract all the aids and advantages to that process that the public services give and when carried far enough does finally extinguish the exchange relation­ship and with it the whole society whose existence as a society de­pends upon that relation being protected and maintained.

 

This process of destroying society by taxation goes on progress­ively in time and at different rates in different parts of a communi­ty. It is in those outlying portions where the public services are few and small that the burden of taxation first breaks down the exchange to such an extent that the value of public services is entirely cancelled and destroyed and the value of the land — all the publicly created value — disappears. It is here, on the farms and ranches, that the destruction of exchanges by the force and stealth of direct and indirect taxes has its most acute effects in the unexchangeable so-called surpluses of otherwise exchangeable goods, the disappearance of location rent, and the vanishing of all present capital value in the land. It is true that taxation affects the value of public services in all parts of a community, but where the public services are of high value and rents correspondingly high, the same burden of taxation that entirely destroys rent in the outlying parts will still leave a modicum of rent and present land value in more central and better served locations. This is what accounts for the great areas of agricultural lands near to centers of population the value of which has almost entirely disappeared. But in areas of high exchange activity there is so much more division of labor and use of public services and therefore so much higher productiveness, that there is enormously greater ability to resist and evade. This is why taxation is, relatively, so much more completely destructive in outlying areas that the need and demand for public services and there­fore the value of land is completely destroyed and farm values in out­lying sections consist almost wholly in the private values of improve­ments and but little, if any, in the public values that attach to land.

 

The basic social process of exchange that taxation by force and stealth destroys is so persistent among men that it cannot be destroyed in any other way. It is therefore not possible to have an unbalance between the raw materials produced on the farms and the finished products

of the factories unless some violence is done to the process of ex­change. Without this, it is not possible to have an apparently ex­cess number of persons engaged in farming, as evidenced by their ap­parent surpluses of unexchangeable raw materials and a corresponding appearance of excess numbers of persons employed in manufacturing, as evidenced by their apparent capacity to produce a surplus of goods above what they are able to put in the course of exchange. Briefly, the farmers cannot sell their raw materials because they cannot exchange them with manufacturers, and manufacturers cannot sell their finished products because they cannot exchange them with the farmers for further supplies of raw materials. We have therefore on the one hand disemployment of farmers, and on the other hand disemployment of manufacturers, because these two classes are not able to exchange their respective products, under a tax burden that rises frequently above fifty per cent of all they produce. And the vast amount of wealth so taken is used chiefly to maintain destructive ac­tivities, being consumed by the personnel of government, including all its beneficiaries in the public pay, few of whom are even per­mitted to create any wealth or any needed public services. And of such public services as do result from taxation, we have already no­ted how small a portion of them create any location values — rental values — in the farming territory.

 

Normally, the farmer in effect hires the manufacturer to fabricate his raw materials for him and pays the manufacturer by leaving with him enough of the finished product to pay him for his ser­vices. Likewise the manufacturer employs the farmer to convert land into raw materials for him and pays the farmer for this service in finished products that he can consume. Each is the employer of the other, and each must pay the other. The actual case is more complex but not otherwise dissimilar from that of a farmer who takes his grain to the miller, paying the miller a portion of the grain for his services in converting the other portion into flour for the far­mer. The grain kept by the miller is his wages for the work he does for the farmer. Similarly, the miller in effect hires the farmer to raise grain for him, and he pays the farmer for the grain the farm­er lets him have by the service of grinding the other part of the grain into flour for the farmer. Of course what is really exchanged is the services they give each other, the commodities involved being only the vehicles or media of exchange for the services. However complex their operations may become, the only requisite is that they remain free to exchange with each other upon terms of mutual desire and consent. The complexity, when it arises, comes from the greater number of persons who co-operate with the farmer and with the mil­ler, both as employees and as suppliers of facilities (lenders of capital) in which case the services that each receives are, in fact, the services of many persons, and he must share them (as wages and interest) — costs of doing business, — with all those who have co-operated with him.

 

But if in process of making payments, whether they be simple or complex, each party must suffer a deduction in favor of tax benefi­ciaries who perform but little if any services for either party, then they are paying to the wrong persons and each is himself under­paid and it is his underpayment that disemploys him. It disemploys him because out of the diminished return he is not able to meet the cost of his operations. If he is a farmer he cannot pay the service charges on the capital, the tools and materials he employs; their use has become unprofitable and he cannot pay the interest on his loans. He dismisses his laborers and himself in many cases joins the unem­ployed. If he is a manufacturer he cannot sell to the impoverished farmer and other unemployed because of their diminished production, their diminished purchasing power, wherewith to pay him. He, too, can­not meet his costs of production. His capital has become unproduct­ive and cannot support the service on it. He too must dismiss his employees and liquidate or default on his loans, in either case mak­ing his capital unemployed along with his unemployed labor. Produc­tion consequently declines. There is scarcity of finished goods with coincident rise in consumers’ prices, and for the time being there is a congestion of raw materials, an apparent surplus for which no full equivalent can be obtained in exchange. This accounts for the low prices of surplus materials and the high prices of consumers’ goods. The reason for capital goods and raw materials being in ap­parent surplus when consumers’ goods are scarce is that in extrac­tive and primary industries the turnover is slow, the quantities and transactions relatively large, and the time commitments and credits relatively long, whereas the supply of consumers’ goods is adjusted to effective demand almost daily and even hourly in some lines.

 

When taxation has forcibly diverted to its beneficiaries a large portion of the wealth that the farmer (and his associates in production) seek to confer upon the manufacturer (and his associates) and also a large portion of what the manufacturer would confer upon the farmer, and thus both capital and labor have been disemployed, those manufacturers who remain in business have a virtual monopoly because these conditions are driving capital out of productive acti­vities and removing their competition. Thus monopoly unites with scarcity to raise prices. At the same time, a fierce competition be­tween disemployed laborers against each other and against those still remaining employed drives down the rate of wages as the prices of goods are being driven up. This accounts for the “spread” between wages and prices that the communist says is due to willful robbery of the laborer by the “capitalist.” However, the low wages and high prices do for a time swell monopoly profits. This makes a mar­ket for monopoly securities and tempts into speculative and inflationary operations the capital that has been driven out of production.

 

Thus we have the perfect setting for an orgy of pure specula­tion. (Not speculative enterprises, which are the most creative of all enterprises and not at all destructive.) There is tax-diminish­ed production causing prices to rise. There is disemployed capital (inactive and unused credits) seeking to enhance itself. Production has been found unprofitable; losses are taken by borrowers and loans liquidated and therefore credit (command of capital) is abundant. Rising prices of goods and securities tempt the idle credits into speculation and the wilder the speculation the higher the speculative (paper) profits, while actual capital (materials and facilities of production) languish and production continues to decline. And further working capital is now also tempted out of active use by the appearance of higher profits in speculative operations.

 

Thus speculation multiplies credits (bank deposits and other debts) indefinitely without multiplying wealth at all. The condition is one of unrestrained credit inflation without currency or moneta­ry inflation. As soon as public optimism weakens and confidence in indefinite expansion declines, it is found that there is not enough currency and liquid credits to meet the demands of creditors, and a crisis impends. If the crisis is allowed to break, then all debts are scaled down at once with quick and sharp losses to creditors. This is a kind of automatic and almost general bankruptcy but it sets active business free from its burden of speculative debts and so hastens recovery. If however the inflation is prolonged by gov­ernment action, by putting the public credit in whole or in part, behind the private speculative debts, this policy not only maintains the debt burden upon active industry but adds eventually a still further burden of destructive taxation to defray all the costs of such government “relief.”

 

During the depression that follows the collapse of the specu­lative orgy that was induced by the rising prices that followed rising taxation and declining production the monopoly industries that taxation has established through disemploying the capital and the labor of their former competitors suffer from lack of demand for their products. This is because so many persons are wholly or partly disemployed and therefore without purchasing power and for the further reason that so many are trying to pay their debts, thus transferring their purchasing power to a creditor class who are poor buyers of staple manufactured goods. And a further and very important reason is that the glutted markets in which they pro­cure their labor and their capital enable them to depress wages and interest to such a level that neither laborers nor investors have adequate income wherewith to buy back the goods their labor and their capital have produced.

 

By this time the query must have arisen just why it is that taxation can be so destructive in all its effects. If the proceeds from taxation pay the cost of public activities and services, they must create public values and these values must in some way find their way back and be diffused among those who pay the taxes. But there are two very important conditions affecting this. In the first place, a very large part of the activity carried on by public offi­cers, employees and beneficiaries, is not only wasteful and unproduc­tive but positively destructive in the extreme. We need not go so far as to cite the actual destruction of food and the subsidizing of persons to destroy it. It should be enough to remember that all forms of regulation, restriction and limitation on exchange or on any part of production are not only costly anti-social activities in themselves but they must of necessity disemploy some of the labor and capital theretofore engaged. In the second place we must reflect that, whatever may be the final residue of values left to public services and activities, these values do not at all flow back to the particular taxpayers in the same proportion as the taxes they pay. Indeed, no slightest effort or attempt is made to associate the quantum of payment with the quantum of value received. The necessary consequence of this is that, even should it be possible to create large public values out of taxes collected in such a manner, some of the persons carrying on any business or industry are certain to receive public values and services in very large amount in propor­tion to what they can be compelled to pay in taxes, while other persons in the same industry receive small public services and val­ues in proportion to the taxation to which they must submit. The former receives much at low cost; the latter little at high cost. This means that the profits of the one are increased while those of the other are diminished to the vanishing point in a great many un­dertakings.

 

When we remember that of all the wealth produced taxation ab­sorbs nearly fifty per cent, it cannot be dismissed as a negligible factor. This wholesale decimation of industry (about ninety per cent are said to fail) by impairment of profits involves liquidation of capital, dismissal of employees, and therefore curtailment of pro­duction. As soon as the returns to the enterprise become insufficient after wages and other costs, to pay the current returns on capital, the liquidation sets in. This passing out of one producing unit af­ter another steadily diminishes the competition to be met by the more tax-favored units in the industry. These are therefore not on­ly able to survive but are established as virtual monopolies, for there can be no competition among the members of an industry when capital is moving out, production declines, and prices rise under the double influence of monopoly control and falling supply. If it be said that these rising prices are bound to tempt capital back in­to the industry, it must be remembered that such returning competi­tion cannot be permanent and effective unless it enjoys equal or greater exemptions, in which case the monopoly is either enlarged or suffers merely a change of personnel. From this monopoly condi­tion becoming general, there must arise all those evils of unemployment with low wages and low interest, an era of speculation with great inflation of credits and debts, and final collapse of confi­dence and of purchasing power to which attention has already been given. And also we have seen how the destructive activities carried on under the taxing power completely cancel out the positive servi­ces of government in the less favored locations, depriving tax bur­dened farmers of all public benefits and extinguishing all the val­ue of their lands.

 

So we are now able to see that it is not merely that tax bur­dened industries as a whole receive such meager positive returns from the ever increasing exactions to which they are subjected, but also that such public values and advantages as do come to them are not distributed among them in proportion to what they are required to pay any more than they are required to pay in proportion to the publicly created benefits that they receive. This discrimination constantly tears down competition, builds up monopoly, induces spec­ulation and expansion of credits and debts, and maintains the sorry cycles of expansion and depression that we know so well.

 

To all those who consider the taxation of capital and labor, of business, as an evil from which there is no alternative or escape, the outlook must be hopeless indeed, and it is not to be wondered that out of the counsels of their despair such persons give ear to such destructive and impossible schemes as “social service,” “so­cial security,” “planned economy,” “share the wealth,” “soak the rich,” and other such socialistic and communistic aberrations, none of which take the least account nor betrays any consciousness of the basic process of exchange of services by which all values are created, and every one of which would even more drastically restrict that process than taxation is doing at the present time. In fact, there is not one of such schemes but involves a vast increase of taxation or other arbitrary restrictions and appropriations of wealth and services without thought of any equivalent in return. And all of them seem to be inspired by fear and pity, if not by hate and greed, and to proceed from a vindictive or, at best, a punitive motivation.

 

Henry George has shown the way out of all this in language so simple as almost to conceal its vast implications of relief and constructive beauty. He casts it into the eight simple words:”Abolish all taxation save that on land values,” and he explains that by “land values” he means the public values and advantages that arise and attach themselves to locations and express themselves in the rent that is paid for access to these public val­ues. So that what he proposes is that rent be employed in lieu of all taxation for the support of all public services — to use pub­lic and not private revenues for public purposes — “taking rent for public uses.” And he writes, in his Standard for January 21, 1888, — “It is not by the mere levying of a tax that we propose to abolish poverty; it is by securing the blessings of Liberty.” — the liberty to associate with one another upon a basis of equal exchange of services — the only freedom that we can properly de­sire and the only possible basis for that division and specializa­tion of labor to which we owe all the abundance of our subsistence, all the achievements of science and the arts, and all the grace and beauty that is possible in civilized life.

 

So the first requisite is to abolish those crude and brutal forms of taxation that consume almost half of our production yet take not the least account of any service rendered to or value re­ceived by those who are compelled to pay. To do this and at the same time maintain desired and constructive, value producing, public services, we have recourse to that fund of economic rent which is built up out of the increased production of wealth that comes to the hand of labor and capital whenever and wherever it enjoys the co­operation of public servants at those places where there is need and demand for public services and such services are supplied. This rent fund is the voluntary contribution of producers of wealth which it is profitable to them to pay, which they give in exchange for the public advantages they enjoy, and which they give according to the market value of the services they receive. Thus location rent is seen as nature’s measuring device for ascertaining the value of pub­lic services and advantages and causing that value to be paid by those and only by those upon whom it is conferred.

 

Nor has nature, in her evolution of human societies, ever failed to provide them, along with their political officers and servants also with proprietary officers, officers having jurisdiction over the non-public portions of their territory and having the important function of collecting and administering the rents that arise out of the public services and advantages supplied by the political offi­cers and servants to their respective locations. Unlike the politi­cal, these proprietary officers are without coercive powers, yet they collect from the recipients of public services, and in due pro­portion, all the public values to which these services give rise. These values in a tax burdened community are of course very small, falling often to zero as we have seen. This is because in a tax re­stricted and tax “regulated” economy there is so much unemployment of both capital and labor, and therefore underproduction accompanied by monopoly prices and practices, that there is a diminishing effective demand even for such balance of positive services as may be supplied by political authority.

 

From this it must appear that Henry George’s proposal to eman­cipate labor and capital from destructive methods of taxation would in the first instance remit to them from forty to fifty per cent that is wrested out of their present poor production (thus almost doubling their present revenue) and in the second instance it would eliminate the desperate depressions of wages by disemployed labor, the formation of monopolies, and the wild speculative inflations of credits and debits on the part of disemployed capital. All of this portends a volume of production and of profits almost too vast for comprehension, and out of this the effective demand for public ser­vices would probably be so great as to multiply their value many times with corresponding enhancement of rents where these services would be so much in demand. Thus the increased income from rents would greatly exceed the mere remission of taxes, great as that would be, and the proprietary officers of the society, in the persons of the owners of the rent-yielding locations, would be endow­ed with a publicly created fund fully adequate to pay, not only the wages of all the public servants and the costs of the materials consumed in the public services, but also the interest on the cap­ital facilities used for public purposes, and still leave in the hands of the proprietors themselves the value of their services in managing the leases and collecting the funds (as insisted upon by Henry George) and also the value of such further creative activity on their part by way of good supervision and administration as they might be disposed to give to the public enterprises to make them more efficient and more productive of rent.

 

It was not the belief of Henry George that landowners would be so enlightened as voluntarily to make public use of the great public funds that would come into their hands through adoption of his pro­posal,— “To abolish all taxation save that on land value.”  He therefore proposed use of the existing machinery of taxation to bring the public revenue into public use. He did not call attention to the idea that remission of taxes and the canalizing of all tax revenues through rent profitably and voluntarily paid would in its direct effect alone more than double the annual rent fund without impairing any of the present profits of industry and that in its secondary effects the untaxed freedom of exchange would call labor back from its idleness and destructive dependence and draw capital out of its vain and destructive speculations back to the hand of fully employed labor and thus multiply the productiveness of every kind of industry, and that all this would vastly increase the pro­fitable use of those public services for which rent is paid and enormously enhance the revenue value of land.

 

But, inasmuch as the abolishment of other taxes could not re­store the rents they have destroyed, nor could even present rents and values be preserved, except the public services be maintained out of rent — there being no other taxation — the land owning interest would soon learn that the public costs are a necessary first charge upon the gross public income from rents which they received and that by seeing that the rents were not only well collected but also that they were well spent — their spending well supervised and directed — they could increase their gross rents almost indefinitely above the necessary public expenses and thus build up for themselves generous and honorable rewards for their administra­tive labors.

 

It may seem a long look ahead but it is no less clearly to be perceived that as all other taxes are abolished the single tax on land values becomes self-enacting and self-executing in their own interest as well as the public interest by the same persons against whom the tax would be assessed. Proprietorship in land thus becomes restored to its peculiar historic and honorable function of collec­ting the rent of land as a public revenue to be administered in the financing, directing, and supervising of the public services by means of which the whole revenue is created. Doubtless it was with some apprehension of this that Henry George so stoutly maintained the necessity of preserving private ownership with the right to buy and sell, inherit and devise, instead of letting the administration of leases and rents pass, under state ownership, into the hands of politicians who would not have any proprietary interest nor feel any proprietary responsibility in the maintenance of rents through honorable and efficient public services.

 

Land proprietorship, as a social function, is undeveloped; but as a social structure it is as old as government. Wherever there have been political officers, there have been proprietary officers also. It is only through them that the collective society extends and exercises its jurisdiction, its sovereignty, over all the non­public portions of its territory. The political has jurisdiction over all the public parts of the territory to give protection through its police and military power and to give the positive services that are provided and distributed through its public rights of way. In a highly developed society its political offic­ers will consciously perform the services supplied to its territo­ry; they will be its service department. Its proprietary officers will supervise the use of its territory. They will be its adminis­trative department. They will supervise leaseholds and tenancies, they will receive in rents all the values created by the political department, and they will finance and administer the political de­partment and its services, all of which functions being well per­formed will yield to them as return for their administrative servi­ces an ample margin in rents above their public costs. But if these proprietary functions of administration, not only of the use of land but also of the public services delivered to land, are not well performed, then the cost of public services and political govern­ment will ultimately become more than they are worth and all rent will be destroyed.

 

Among the ancient despotisms and democracies during certain stages of their development the political and the proprietary func­tions have been largely merged and undifferentiated. But the proprietary are always maintained by the revenues of rent collected on the basis of exchange or value received, while the political are always supported by tribute or taxation in violation of all the equities of exchange. The final predominance of the political over the proprietary, of the public servants over the public owners, through their practice of brute force exercised and maintained by taxation has been the prime and basic cause of every national de­cline and decay by the prevention of exchange of services and the consequent destruction of rent and of every other civilized value.

 

However, it is not the use but the misuse of physical force by the political department of society that destroys all civiliz­ed values. Its primary function is to restrain those members who would employ force upon other members as a means of getting with­out giving and thus impair the basic social process of exchange. And it is the further function of the political department to fa­cilitate the processes of exchange by performing public services in and through public rights of way. For all these purposes it is proper that all necessary force be employed, but when the politi­cal power itself uses its coercive power to restrain and destroy the exchange relationship, as it does whenever it levies tribute or lays taxes without regard to any value received, then this mis­use of political power finally destroys all social organization and all its values.

 

By the early Middle Ages the predatory political authority that had so long dominated the proprietary in the Mediterranean area had so far destroyed the exchange processes that it had no rev­enue upon which to survive. The distinction between rent and taxes was lost, all revenue had become tribute, and the production of wealth, the basis of tribute, was destroyed. During the feudal and manorial period, proprietorship was revived in primitive organic communities within which rent was collected in lieu of tribute, and protection and other services were furnished to the rent payers on the basis of exchange and there was no idle population or dependent classes. With the rise of trade the proprietary barons went politi­cal and became robber barons. They left off their proprietary func­tions of protecting and serving their communities and vied with each other in laying tribute upon reviving trade (just as modern powers carry on their wars for the control and destruction of world trade by laying it under tribute to political authority instead of its free and natural relationship of exchange with the proprietary). These wars between the barons so weakened them that they became themselves tributary to kings with whom the modern political states were born during the post-medieval period. As long as the proprie­tors maintained the kings with gold and men and arms, the kings were beholden to them, and it was by them, and by them alone, while they maintained the king, that every curb was placed upon the kingly power. This, in a rude way, was the proprietary department of soci­ety financing (out of their rents) and administering the political and public service department. This was again marked during the aristocratic period in England until lords proprietors spelled their own doom by transferring maintenance of the political department of society to the shoulders of the despised tradesmen and so finally lost all administrative and political control to them. The trading class now came into a tribute or tax relationship to polit­ical authority instead of a voluntary rent-paying exchange rela­tionship through proprietors. Hence it was only natural that the in­dustrial and trading class should seize political authority as they did do through successive extensions of suffrage to more and more of their numbers until the offices of state fell more and more in­to the hands of vote-getting demagogues having no proprietary inter­est in good public services and the rents that such services create and deriving all support from their tax-exploitation of industry and trade, not only to meet the costs of essential public services but for their own aggrandizement and for those “social services” whereby, with much pious benevolence, they hand back sops to their already impoverished and tax-disemployed electorate. And when this predatory process dries up the sources of revenue they liquidate all that is left of the proprietors by their levies on income and in­heritance and other share-the-wealth schemes.

 

The proposal of Henry George to deprive the service depart­ment of society, that is, the political authority, of all its power of predatory taxation and thus restore the proprietary department to its function of disbursing the public revenue of rent to those public servants who collectively constitute the political depart­ment, carries with it the necessary implication that the proprie­tary department eventually will take on and exercise its full administrative functions over all the public services.

 

When this is achieved, the proprietary interest will be like the owning and managing interest in a non-public service or industry. They will furnish or procure all the capital that is required for materials and permanent equipment. They will organize the personnel of the enterprise, determine policies, and give general supervision over all activities. The product of this enterprise will be a service — the general public service of the community — and this service will be sold to members of the community who will buy it at a price that is called rent and the amount of which is fixed for any location by the demand for the service that exists at the particular location and the quantity and quality of the service supplied. As they col­lect the gross returns on sales of public service that we call rent, they must, in order to maintain their their operation and income, first pay the wages of their public servants and the cost of all material supplies. Then they must pay the interest on the capital invested in public works (so far as it has been borrowed and not simply seized). When these charges have been fairly met (as they would be in a society freed from predatory taxation and the disemployment and monopolies that ensue), the balance of rent not re­quired for these purposes will be the clear earnings of the propri­etors who have administered and supervised the enterprise.

 

This does not mean that each landowning proprietor will be a chief ad­ministrator, but that each will profit from the kind of administra­tion that they collectively supply. The individual proprietor will be a kind of stockholder, for then as now he will be the recipi­ent in his rents of all the interest the non-bonded public capital earns. Normally, he will furnish (or procure) all the public capi­tal, but there is no way to prevent the interest of it coming to him in his rents even though much or even all of the public capital may have been seized from private persons in the levies of the pol­iticians who preceded him. This can no more be avoided than a far­mer could avoid raising larger crops if other persons’ fertilizer should be seized and spread upon his lands.

 

The purchase and sale of lands will be then what it is now (except in our speculative forms), the purchase or sale of the right to receive the earnings of the public capital. When an owner sells land he will not be able to capitalize and sell that part of the rent that goes for the labor and material costs of public services, for this part of the rent must continue to be paid out. Nor can he capitalize and sell the part that comes to him as payment for his administrative ser­vices, for these services will be withdrawn and will devolve up­on the new owner. But he can and will capitalize and sell that part of the rent which comes to him as return on public capital, for the new owner can have and enjoy this, and he can also enjoy in either greater or less degree than his predecessor all that portion of rent that comes to him by reason of the higher (or low­er) standard of public administration ensuing upon his entry into the ranks of the proprietors.

 

This shows how transactions in prop­erty titles will draw into public administration the best communi­ty talent for services of that kind while returning to private enterprises all such talent as is more effective in that capacity. In general, the private enterprises will be conducted largely by per­sons in early life with more taste for novelty and adventure, and the obligations of proprietorship will tend to be assumed particu­larly by persons of maturer years, having broader and more general interests and desiring the greater permanence, stability and securi­ty that will appertain naturally to services that are provided to the community as a whole.

 

What I have tried to picture is nothing more than the extension throughout a whole society of that basic process or relationship by which alone it can exist as any society at all — I refer to the exchange of services. Without this and the division of labor that it permits, there is no  society. So far as this relationship is ex­tended, the society grows and evolves; so far as it is restricted, whether by private violence or by public violence, the society de­clines and decays, and its members are just so far thrust back in­to that condition of chronic inadequacy of subsistence for them all that characterizes the animal condition from which man, through be­coming a social being and exchanging services, has partially emerged. To the extent that men practice the social technique of free exchange does their subsistence and their security increase. To the extent that they fail to practice it, their subsistence declines and they revert to the animal technique of destroying one another, and their numbers tend to multiply inversely with their subsistence, for nature resorts to quantity always when from insecurity her values and her achievements of beauty depart. And from the variety to which quantity gives rise she may make new selections that will again car­ry forward, perhaps with greater success, the technique of their high­er development.

 

But when men do carry their technique of exchange, of service for service and value for value, into those more extended relation­ships that exist between the great body of them whose labor creates all the private goods and values and those other two great bodies, the political and the proprietary, who in their relations respect­ively as public servants or employees and public supervisors or ad­ministrators, create all the public values and services, then there will be achieved a social organism with its essential parts fully and freely functioning with the activity of each part or group con­tributing to the well-being of every other part and of the whole. The whole economic or private business department will be free to carry on its services and exchanges without interruption. It will have all the services of the political or public service department delivered to it by means of rights of way and other public reserva­tions, and the economic department will pay rent to the value of these public services. This rent payment will be determined for ev­ery rent payer by the open market value of the location he holds — a value that tends downward by competition between proprietors and tends upward by competition between potential occupants. The pro­prietors will finance and supervise the public services and through arranging leases and tenancies will sell these services to their tenants for gross rentals out of which they will pay first, the just wages and material costs of the public services; second, the inter­est on all borrowed capital employed for public purposes; and lastly they will pay themselves whatever remains, as the value of their ad­ministrative and supervisory work. And their division of the rent must be just, for with no labor or capital out of employment, they must pay the market value of all the services and materials they buy and the market rate of interest for all the capital they hire, and since they can receive in rent no more than the total value created the balance above the other costs of doing public business must be the value created by their own services in their administrative ca­pacity. Thus, not only rent as a whole, but its division as well, is fixed by the fair operations of the open market, and even the pro­prietors of a whole community are subject to the competition of proprietors in other communities for procuring the highest type and most statesman-like quality of public services for their respective populations. In such a society there could be no impairment of the basic social process of exchange of services. With this general function secure, all the particular functions of the social organ­ism could be carried out. All of those higher activities of indi­viduals, that can be performed only in a socialized state, could now flourish as never before. All the fine arts could be practiced for their own sake, for their esthetic values alone, and for their cre­ative inspiration. The graphic, the plastic, and all the rhythmic arts could minister freely to the hungering spirit of mankind, and that highest of all the arts — noble and beautiful relationships between human beings — could lift them into that empyrean of the spirit, that is foregleamed in the visions of exalted men of mystic dreams.

 

–:–

 

 

an evolving higher form of organic life

 

the liberty to associate with one another upon a basis of equal exchange of services (is) the only freedom that we can properly de­sire and the only possible basis for that division and specializa­tion of labor to which we owe all the abundance of our subsistence, all the achievements of science and the arts, and all the grace and beauty that is possible in civilized life.

Thus location rent is seen as nature’s measuring device for ascertaining the value of pub­lic services and advantages and causing that value to be paid by those and only by those upon whom it is conferred.