Spencer Heath Archive

Item 1225

Exchange between Heath and Francis I. duPont, beginning with duPont’s original letter of August 8, 1937, followed by carbon of Heath’s reply of August 18, 1937, duPont writing from P.0. Box 847, Wilmington, Delaware, and Heath from 434 West 120th Street, New York City. The two are pasted together.

 

 

Dear Mr. Heath:                       August 8, 1937

I have read over your paper very carefully and have made some notes on slips of paper which I have put it.

     Taken as a whole, I do not think the paper would make much impression on real estate people. I think I can summarize the idea contained in it which I consider has a great deal of merit, in fact it is quite brilliant, as follows:

     That land values are due entirely to public services rendered to the land.

     That the present taxes imposed by our Federal, State and Municipal governments represent the cost of these public services.

     That the cost of these public services is far in excess of their value as represented by the actual demand.

     It seems to me that if you would first bring out this proposition then the mind of your reader would be prepared to take in the rest of your paper. If you do not do this, but merely allow it to develop as you seem to have done, the mind of the reader is confused and somewhat wearied by wondering what it is you are writing about.

Very sincerely,

 /s/ Francis I. duPont

FIduP/at

________________________________

Dear Mr. duPont:                      August 18, 1937

I certainly appreciate the care and diligence with which you have examined my paper on the administration of real estate.

     Of the three points into which you summarize my paper I am afraid I can fully agree only with the first, namely, “That land values are due entirely to the public services rendered to the land.”

     With the second, namely, “That the present taxes imposed by our Federal, State and Municipal governments represent the cost of these public services,” I can agree that these taxes represent the cost, but only the direct cost, of public services. There are, as I see it, enormous indirect costs, due to the demoralizing and deterrent effects of the taxation machinery upon present and future business. And I also see a further cost in the anti-social (contra-exchange) manner in which so much of the proceeds of taxation are used, without resulting in any services or producing any kind of value at all. Notwithstanding the almost incalculable cost of taxation upon production and industry, I am not able to follow your third point, namely, “That the cost of these public services is far in excess of their value as represented by the actual demand,” because, for all their terrific present costs, the public services are so indispensable to production and exchange (there could be none without them) that they do yet contribute something to the amount of production that is carried on. The measure of this contribution made by the public services is the net ground rent that production still pays. That is why we have any present land value or ground rents at all — because the sinister left hand of taxation does not quite cancel out and destroy all the essential services that the more or less dexterous right hand of public service supplies.

     Of course, if taxation and its indirect effects continue to increase, and this is not outstripped by correspondingly increasing improvements in the organization and technique of private production, the time will come (as it always has in previous societies) when the cost of public services will exceed their value as represented by actual demand. When that time comes, there will be no land values and no rent paid, for there will be no public services above their cost in taxes. Then there can be no public values nor any production of wealth, and the settled communities will again disband and join the barbarians, as Edward Gibbon describes hundreds of cities doing when the protection and services of Rome were overborne by the taxation she authorized and imposed.

     As I see it, we have not yet reached that condition where the cost of public services is “in excess of their value as represented by the actual demand,” but we are certainly making long strides in that direction.

     By your assistance and criticism I will now be able to

re-write my real estate paper with clarifications and necessary additions. In particular, I must make clearer the point that in the whole world of business (apart from physical compulsion or coercion or emotional impulses) men never give nor can give each other anything but services, nor can they receive anything else in return. So, what men get by occupying publicly served land is services, and what they pay is services in return (either direct services as rent or, more generally, credits convertible into services).

    Where natural conditions are most favorable to exchange of services (presence of special physical conditions, materials, resources, climate, conveniences of transport and communication) these will cause even a modicum of public services to be in highest demand and therefore of highest value in terms of the higher productivity and exchange that is possible at such places.

     All this higher productivity is automatically distributed by the operation of the markets, those things and services that are produced with the greatest facility by reason of favorable natural conditions or materials commanding the smallest prices in terms of things less easily produced, and therefore having the widest distribution at lowest cost. Thus the operation of the markets spreads equitably throughout the whole exchanging community all the aids and advantages to production that nature supplies. This keeps all men at the same level of opportunity as regards nature, but at varying levels of advantage as regards, and depending upon, the amount of services (production) they perform for each other, and at a corresponding and proper inequality as to the wealth, services and satisfactions that they receive in exchange.

     We have society only to such extent as exchange has taken the place of brute force and coercion between men. Apart from the employment of force, of coercion or repression, it is not possible for men to give each other anything but services (private and public) or for them to receive anything but other services of equal market value in exchange.

     The only place, outside of savagery, where force in lieu of exchange is the accepted rule, is government, and upon the forcible seizure of property and services all of its powers depend. When taxes are abolished and rent is consequently employed as the sole revenue to defray public costs, then all governmental services will be distributed at prices (rents) democratically agreed upon by the rule of the market and voluntarily paid for value received. And the proprietors, who sell these services to their tenants or lessees and collect all their market value, will organize, finance and administer them, as other business men do, in such ways as to give the highest values to their customers (tenants) and at the same time yield the highest profits, by way of returns for administrative services, to them. This is the great and wonderful and profitable business the conduct and management of which my paper invites the present owners and distributors of all the present public values to begin.

     And I recommend that they begin as any sensible landlord or business man would begin, by procuring the exemption of their occupants and customers from some of the meanest and most vexatious exactions that the tenants are now compelled to endure. Surely, that is what the landlord of a hotel would do if the servants vexed and burdened the tenants, — and he would not have to wait long for his reward in higher rents and fuller occupancies. The returns to the community landlords will be no less immediate in higher rents, in proportion to the emancipation and consequently higher productivity of their tenants, and in the greater demand for their at present unoccupied and under-occupied locations.

     In accordance with your suggestion, I am trying to write out a preliminary diagram of the ideas that my paper tries to bring out. When I get it in shape I hope I may have the benefit of some further criticisms and helpful suggestions from you.

 

 

Sincerely,

 

  Spencer Heath