Spencer Heath Archive

Item 1308

Carbon of a letter to H. B. Cowan, 476 Driscoll Terrace, Peterborough, Ontario

July 28, 1940

 

 

 

Dear Mr. Cowan:

     I must thank you for your very interesting letter of the 17th with enclosure of your letter to Mr. Donan Jackson. I am writing from New York just before returning to Maryland where your copy of Maclean’s Magazine doubtless awaits me.

     It was a grand experience to make contact with your live intelligence and hospitable mind in Toronto and I appreciate your hope that there will be further opportunities of the same kind.

    As to how far the real owner should go in directing and administering an enterprise, this can be answered from two points of view: from the standpoint of the patrons or customers of the enterprise (be it public or private) the owner-administrator should so conduct it as to give the utmost of service and satisfaction to his patrons; from the standpoint of the owner he should so conduct the enterprise — property — capital — that it will yield him the largest net return, which of course can only occur through his giving his patrons the largest service and satisfactions. Where there are many owners of the same property or enterprise it is a prime administrative function for them to act jointly in obtaining the most capable managers and other subordinates. Of course all this involves real and normal economic planning on the part of owners in the interest of their public and therefore in their own interest, for the value of all property depends at last on the quantity and regularity of the income derived from its use in the service of others. Nothing but income can be capitalized.

     It is certainly not my idea that the tenants or customers of any enterprise should be excluded from any “say” in its direction and administration. I am sure there are no enlightened owners who do not welcome and earnestly seek every expression of the sentiments of their patrons as to how the enterprise can be conducted most valuably to them. This of course should not impose on the patrons any responsibility, nor would it be reasonable to expect them to take time out from their own respective businesses and affairs in order to give administrative services to any public or private enterprise by which they are being served. It is only because we imagine we can obtain public or community services politically — by the magic of masters or rulers invested with governmental power — instead of in the freedom of contract and exchange, that we persist in the notion that the general public who receive community services passively should at the same time be engaged actively on the side of administering them.

     I have carefully studied your long letter to Mr. Donald Jackson. It is an admirable presentation of the proposition that when a particular class obtains special benefits at the general expense this increases the demand and thus the present and prospective value (annual value and speculative value) of the kind of land that is used by the benefited class. This is a recognition that in a voluntary exchange system a special benefit or advantage enjoyed by a special class will be immediately shared by those with whom this class has direct exchange relations. In the five examples you give there is in each case a special benefit conferred on a limited class at the public and general cost and expense. In each case this special benefit (which is a general detriment) increases the immediate market demand for the sites and resources that are used by the specially benefited class. Thus temporary land values are built upon the inflation of special benefits, and those who make future commitments (mortgages and other term contracts) upon the basis of these temporary values, thinking them permanent, must suffer a peculiar hardship during the period of deflation that inevitably ensues. The inevitability of the ensuing deflation follows from the fact that the original benefit to the special class was brought about by a compulsory burdening of the whole general economy, and when this detriment has finally distributed itself throughout the system then all classes are at a lower economic level than that at which they began — so far as the effects of this particular episode in compulsory governmental benevolence is concerned.

     In your Australian example the special benefit to a limited class is not so directly apparent as in the others. It came about through inflation of the prices of “all primary produce on the world’s markets” by governmental purchases with credits that did not arise from any governmental contribution to the supply of goods and services in the markets of the world. This gave a special though temporary advantage in high monetary prices to primary producers, especially when the demand for munitions and other luxuries of war declined. The great inflation of agricultural land values during and immediately subsequent to the war period was due to the increasing concentration of demand upon and therefore the rising prices of agricultural produce. If this elevation of farm commodity prices and farm land prices had been the result of a demand and purchasing power arising from the production of goods and services instead of from inflationary credits, then the resulting land values would not have been temporary and neither need nor necessity of the subsequent deflation would have occurred. I incline very much to the view that the agrarian problem and, in fact, all economic distress arises primarily from compulsive governmental distortions of the free flow and exchange of commodities and services by contract and consent and that the acute crises occur with the necessary collapse of the temporary, inflationary and only apparent values that are thus seemingly made to appear.

     I am therefore skeptical of remedial measures that depend upon affirmative or positive governmental action, for such action is well capable of destroying actual and permanent values while creating temporary and imaginative ones subject to collapse. The remedy, therefore, should be found rather in the extension of the freedom to contract and exchange than in any alteration of the restrictions and restraints that so grievously impair it. This view is most admirably expressed in the naked words of Henry George’s practical proposition, “To abolish all taxation save that on land value.” This does not call for the imposition of any tax nor the destruction of any values. Nor does it call for the confiscation of any present existing rents or values, for the new income to land owners created by the lifting of taxes from production will be far greater than the amount of the taxes abolished and this will form a new and abundant basis for the financing of further protection and community services — all public services — to the productive community.

     Moreover, if taxing measures or other coercive governmental technique is designed to improve the financial returns to producers we may doubt any such result. If “we must find some means of removing some of the many forms of taxation that are crushing agriculture,” it is not quite clear how “This might be done by increased taxation on land values.” Nor is it clear how this would enable producers to obtain land at a lower valuation, for it appears that in New Zealand and Australia as well as elsewhere, “The fact that buildings were not taxed encouraged their erection and thereby increased the demand for the land which in turn resulted in an increase in the value of land in spite of the increased municipal taxes upon it.” (Bottom of your page 5) I take that the exemption of farm buildings and farm operations and farm markets from the blight of taxation would have a positive effect on farm land values at least equal to the effect that the exemption of buildings has upon their site values.

     As you say to Mr. Jackson, these matters represent an enormous problem. I wish we might have opportunity of thoroughly discussing them. I recall that Mr. Ross had in mind a project of getting you and Mr. Owens and several others including myself together in his son’s summer camp for a few days for just that. If he should arrange this for about the third week in August I think I could conveniently attend and I am sure I would both enjoy and profit from it.

     I wrote the first page of this letter in New York whence yours was forwarded to me. I have just returned here and found your copy of Macleans. I am sure I will have much interest and pleasure in reading your valuable and extensive illustrated article. I hope by the time you receive this letter you will have read and further weighed in your mind some of the ideas I have tried to elaborate in the printed matter I left with you and of which I enclose additional copies. I shall be glad to receive any further comments or inquiries that occur to you.

With best personal regards,    Sincerely,