Spencer Heath Archive

Item 1193

Carbon of letter from 434 West 120th Street, New York City, to Mr. Charles G. Baldwin, Munsey Bldg, Baltimore, Maryland

April 26, 1937

 

 

 

Dear Charles:

 

I had a most delightful Saturday session at Mrs. Taylor’s AND LOOK FORWARD TO SEVERAL REPETITIONS (Say, that apostrophe was my undoing; it threw me into upper case and there I stuck for half a line). We decided to review Progress and Poverty, book by book, and also to make commentary and bring out the implications as well as what is expressly stated under the various title headings and then take the whole thing together as foundation material for an understanding of the phenomenon of social organization. We went over the first four books with a survey of what is in them and of the various things that they open up and suggest. I hope to finish reviewing the book in three sessions and have two sessions left for general discussion. Mrs. Taylor had in the group two other very intelligent and educated women and another cultivated woman, a teacher, came at my invitation. Your nephew, Baldwin Garretson, was not able to be there except for the last three-quarters hour but said he hoped to be with us throughout the remaining sessions. He and I are going to have supper together Thursday night and talk things over, especially with reference to the place of the aesthetic arts in the development of higher social organization. This is an aspect of the matter in which he seems to be specially interested.

 

My topic at the Master Institute last night was “Creative Spiritual Life — An Emergence upon Social Organization. It was very well received. I am getting so I can put things across more and more rapidly and acceptably and cover more ground in less time and with fewer words. (I wish I could say the same when it comes to writing it). Next Friday night I am to talk to a bunch of some fifteen graduates of the Harvard School of Business who are now working in banks, trust companies and similar institutions. I have talked to two or three of them and feel sure I can interest them and pave the way for further sessions — at least I hope so. I have to show them, first, exactly what social organization fundamentally is, second, how public services promote it and are essential to it, third, how the institution of private property in land and rent provides the means for socializing the public services by putting them on an exchange (instead of predacious) basis under the ownership and supervision of proprietors who will be bound to give good administration under penalty of impairing their income from rent and destroying their capital values.

I have taken the trouble to write a lot of this out as a solid business proposition and policy for the real estate interests, but I am not much encouraged by the commentary Mr. Buttenheim gives me per the enclosed letter. I wonder what is the reason I can^’t seem to get this across better in writing. I send you the article he refers to with his comments. Please let me have your general reaction and criticisms. What do I need to do to get these ideas across to the real estate people? So far as I get at them in discussion I seem to make headway, but not so much in writing. An article in yesterday’s Herald Tribune by President Paul Stark of the National Association of Real Estate Boards shows how the real estate people fail to distinguish between the value of the public capital as reflected in the income of land and the value of the private capital invested in improvements. They seem to attribute rent entirely to improvements, and since taxation makes improvements scarce and dear they think taxation raises rent. Of course, it does raise an owner’s gross return on his improvements while reducing his net. It also reduces the amount of improvements and with it the aggregate return on improvements as well as the net. Mr. Stark’s argument is O.K. so far as improvements alone are concerned; taxing them does raise gross and reduce net rents, but to transfer the taxes and to make them more indirect is to make them more costly and injurious and more damaging to the capital that is invested in improvements and most damaging of all to the earnings of the public capital which is the net ground rent. The reason taxation does not raise the gross ground rent is because ground rent (less any taxes directly on it) is itself a net return from the public capital, whereas the so-called “rent” from improvements is always a gross with all taxes on them deductible to arrive at the net. The only rent that is income (real income, not gross) is the net rent. The net rent or the income from any capital, public or private, can be increased in only two ways: (1) by abolishing (or reducing) the taxation or other unproductive charges against it (payments that are not by way of exchange and therefore do not create any values) and (2) by giving administrative services to the capital, be it public or private, and supervisory services to those wage and salary receiving persons into whose hands the capital is directly placed as materials and instruments to facilitate their supervised work. In fact, the very lifting or abolition of any dead-head charges on any enterprise is of itself a supervisory function proper to the owners of the capital who receive income from it (normally and properly) only in consequence of their administrative and supervisory services to the property and over the servants engaged in the enterprise.

So the abolition or reduction of taxation really is a supervisory service over the public servants and the increase of earnings (ground rent) from the public capital is the natural and proper earnings of and compensation for this supervisory service. The more these supervisory services are extended the higher will rise the ground rent and with it the capital value of land, which is really the capital value of the public capital, which becomes higher just as fast as administration and supervision increases the income from it.

It may be asked how the reduction of taxes on private capital will increase the value and earnings of public capital (rent). It will do this by releasing the production of the private wealth which alone constitutes the demand or purchasing power for public services as an aid and service to its own production, for it is only out of this production and purchasing power that rent is offered or paid. Taxation of private wealth and its production is taxation on the demand for and purchasing power for public services. This destruction of demand and purchasing power destroys the value of the public capital out of which the public services arise. Because private enterprise is the only customer for public services they can be sold only to private enterprise and when private enterprise is so diminished by taxation that it cannot buy, then public services cannot be sold, and when public services cannot be sold they cannot have any value, nor can there remain any value in the public capital out of which they arise, which means that there cannot be any rent or any value in the land.

Taxation of ground rent (land value) is taxation not on the demand for public services (as above) but directly on the income from them (rent). This taxation destroys the value of the public capital by cutting down the income from it. This is how taxation of rent destroys the so-called capital value of land. But it only destroys rent by the actual amount of the tax, whereas taxation of the demand side, of the private production and enterprise that is the source of rent, destroys rent in three ways: first, the direct amount of the tax, second, the indirect injury due to the manner in which the tax is seized, and, third, a further injury resulting from the destructive purposes for which the taxes are so largely spent. It is therefore more in the interest of land owners that they should procure reduction of the taxes on production and enterprise, which are a large indirect charge and burden upon their rents, than it is that they should fight for reduction of taxation on rent which is only a direct and not a compounded charge against their income. However, all taxation must finally be abolished, thus restoring all the rent which it has destroyed by a much greater amount than the taxation itself. This restored rent will then be the fund and foundation in great abundance to meet all public costs and financing of public enterprises.

Taxation destroys rent, but it destroys it faster when shifted to enterprise than when applied to the rent itself. However, if it be shifted to rent it will be no longer rent (which is fixed by the value of the services received) but will become taxation, and it will then be fixed and determined not by value received but by ability to pay (without corresponding ability to evade or resist) and there will be no security of possession because possession will depend upon compliance with the arbitrary demands of elected or other political persons. Henry George seemed to sense this in his insistence upon preserving (against the land nationalists) at least the form, the “shell,” of land ownership while proposing to employ the arbitrary instrument of taxation for destroying it in substance.

 

And so I might go on; but my time, my paper and your patience (doubtless) have all given out, and so,

Cherio,