Social Justice, Land Rights for All, Collection of Site Revenue and Resource Rentals, Environmental Protection, Sustainable Development, Decentralisation, Opposition to Anti-Enterprise Taxes and Monopolies, Proportional Representation, Responsible Government Expenditure, Exclusive Land Occupation, Collection of Misappropriated "Economic Rent," Natural Public Revenue, Abolition of Involuntary Unemployment, Wealth Producers to keep Full Value of their Production and Enterprise, Reducing Speculation, Freedom, Civil Liberties, Human Rights.


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Published by THE GEORGIST EDUCATION ASSOCIATION, INC., at: http://www.multiline.com.au/~georgist
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Many economists assert that 6 per cent unemployment is necessary for a healthy economy.   On the contrary, any amount of unemployment is unhealthy.   Certainly, is is not good for the mental and physical health of those unemployed, including economists!   Further, it is bad for the community, since production is not maximised, working people can easily be exploited because they are competing for jobs, and extra taxes have to be imposed to pay unemployment benefits.

Land Values Research Group
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Closing 31 March 1998, submission fee $10, limit 4000 words on A4
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or see our Website's brief Challenge document on http://www.multiline.com.au/~georgist/essay.htm
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Most economists appear to believe that full employment would overheat the economy because higher employment levels would lead to higher wages and, consequently, excessive spending in relation to limited supply and higher production costs.   Hence, inflation would follow.

I believe that these contentions are fallacious.   Certainly, there would be more spending.   However, higher employment is followed by higher production.   Thus, the extra money in the economy is balanced by extra goods and, therefore, there is no reason why prices should rise.   In fact, increased employment and production should lead to lower prices because of the economies of large-scale production and sale in relation to fixed overheads, the increased division of labour, mass production, lower unit costs, etc.

The following inserted picture and wording by courtesy of Geonomics
Henry George's ideas and solutions are as relevant today as when first expounded in his major work, written after witnessing at first hand the California Gold Rush of the 1860's. His ideas remain as radical and as relevant as ever, consequently still as dangerous to those who enjoy the privilege of unjust power and the benefits of immense unearned wealth in a system designed to maintain the powerful in their ruling position regardless of their destruction of both the environment and the general good.

It is no coincidence that his name has been all but erased from history. Barely one in a hundred works of 'economics' lists his name in the index, and of those few, most dismiss him as an obsolete agrarian reformer. Yet those who take the time to follow his reasoning, to study his proposals realise that if fully put into practise, the world would be transformed, Picture of a god's face being overgrown by roots of old tree; 147X148mm giving birth to a personal and collective freedom the human race hasn't experienced since the invention of agriculture, several thousand years ago.

A freedom so long forgotten we no longer even have a word for it. For what passes as freedom today is a mere shadow of the real thing, a small, limited, conditional freedom granted us by those who have power over us.

It is a double-edged freedom, that allows us to choose what we are offered, but not to make our own choosing, and not to complain when we have no choice. The freedom that turns and bites when we are unemployed, redundant, homeless or otherwise unnecessary to `society'.

Links to other related sites for more info

Also, for the above reasons, higher wages paid should not be a factor in costs and prices.   Further, the employers cannot pay workers more than the replacement labour time value of the work done.   If they did, they would go out of business.   Paying labourers their just labour time wages would be balanced by equivalent reductions in the exorbitant salaries paid to managing directors, board members, middle management and other executives.   In fact, under these conditions, workers would be able to accumulate the wealth to become substantial shareholders, if they so wished.

When actual data is examined, it is found that, in the past few decades, wage increase have been slightly ahead of the increase in the cost of goods and services, but the increase in the price and rent of land has shot well ahead of both.

Overheating of the Economy_The Real Cause; by Cecil Stowasser


This brings us to the core of the problem.   In times of expanding production, that is, boom times, an ever-increasing amount of money goes into land prices and locational rents, rather than into buildings and machinery.   In other words, there is more money in the economy without a proportionate increase in goods.   Thus, the production expectations are not fulfilled, and the huge loans given by the banks fuel land speculation, leading to the so-called "Overheated economy."

The ever-increasing land prices and location rents of boom times are directly due to a pernicious tax system that punishes producers in every possible way and, at the same time, exempts land values from contribution to revenue, despite the fact that the community creates land values through the presence of people and their productive activities.   Therefore, the tax system directly encourages people to hold land out of use, and the artificial land scarcity thus created forces would-be producers to pay an ever-increasing rent or price for the right of access to land.

There is only one remedy, namely, to eliminate all taxes that stifle production and raise prices and, instead, to collect for the community the full yearly rental value of all marketable land, whether used or not, so that land prices and private locational rents cease to exist.   Land prices are the reflections of the total yearly surplus profit, discounted over the years, that can be made from a marketable site as compared to a marginal site of the same size.   If, yearly, this rental surplus is taken for the community, no-one would be prepared to pay a price for land.   Landowners, however, would either be obliged to put their land to use so as to pay the communal rent, or relinquish title, selling any assets on the land, such as buildings and machinery.   In the former case they could either rent to others, passing on locational rent to the government and keeping the rents from their buildings, or they could run their own enterprises on the land.

Some empirical data to justify the above follows:

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(Please note: Numbers in brackets refer to the reference list at the end.)
Land price increases as compared to wages increases

From 1978 to 1988 the price of commercial land in Victoria increased by 550%.   Melbourne home sites increased by 270%.   In the same time, wages increased by 150%, the C.P.I. by 140%, and productivity by 180%.   (7) In 1968 the average price of a vacant Melbourne homesite was $3659 and the average after-tax earnings $2825.   In 1988 the figures were $46,050 and %19,959 respectively!   Thus, land prices had shot well ahead of ability to pay for them.   As land prices rise, greater loans have to be taken out and the total of interest payments increases geometrically.   A loan of $90,000 involved a total interest repayment of $216,227.   A loan of $70,000 reduced the interest repayment to $59,497. (4)

In 1987 the total value of all Australian real estate was $639 billion [$639,000,000,000].   The total national income was $210 billion.   In 1989 the respective figures were $1,021 billion and $273 billion! And in 1992 $715 billion and $310 billion.   Thus it can be seen that monstrous land speculation led to a subsequent collapse. (1)

In the U.S.A. from 1950 to 1990 construction workers’ wages increased by 350% in monetary terms, building costs by 330%, the C.P.I. by 340% and land prices by 2,000%! (12)

In 1907 an English agricultural labourer’s wage was 15 shillings per week.   It is now 140 pounds per week, that, is, a monetary increase of 148 times.   A typical farm site of 120 foot frontage and 180 foot depth was bought in 1907 for 90 pounds.   This plot was sold in 1995 for 95,000 points! That is, a monetary increase of 1000 times. (8)

In Japan, from 1960 to 1990 the land price inex increased from 200 to 13,400.   In the same period, the wage index increased from 100 to 1600, that is, land prices increased four times more than wages. (3)

Land price increases as compared to building cost increases

In real terms, building costs have reduced dramatically over the past fifty years because of labour-saving technology such as nail guns, concrete mixers, prefabricated materials, bulldozers, etc., etc.   Yet, the average cost of housing, in real terms, has become more and more prohibitive because building cost reductions have been more than counterbalanced by rising land prices.


Residential land values increased by 333% from 1980 to 1992 in the Perth region of Western Australia.   They increased by 700% during the same period in the Margaret River area.   In 1992, in the latter region, homesite prices ranged from $85,000 to $180,000.   The average cost of actual house-building was $50,000. (2)   The land price component of Australian real estate sales went up from 8% of the national income in 1972 to 22% of the national income in 1989.   Land price formed 70 of the total value of real estate in 1989. (1)

In that property boom year, real estate sales totalled $87 billion of which the land component was $61 billion. (11)   In 1979 on the Australian Gold Coast, $300 million was spent on land purchase, and only $80 million on actual building.   In real value terms, building costs have roughly halved over the past twenty years, because of technology.   At the same time. Land prices have, on the average, roughly quadrupled. (7)

Land speculation as cause of booms and slumps

The sequence of -- booms leading to land price rises, leading to slumps -- is well illustrated in the following Australian data:
1971-73:   Land boom.   Real estate sales (R.E.S.) reach $12 billion.   Inflation.
1974-75:   Slump (Recession). R.E.S. drop to $6 billion.
1981:   R.E.S. reach $8 billion.   Recession follows in 1982-83 and R.E.S. drop to $6.5 billion.
1984:   Another land boom commences and reaches its peak in 1989 with R.E.S. OF $18 billion!   High rises in prices follow, and R.E.S. drop to $10 billion by 1992. (1)

1989:   Real estate values totalled $87 billion.   Equity transactions only totalled $68 billion.   The total of national income was $280 billion.   The total of land values was $750 billion. (10)

In Tokyo, the Land Price Index rose from 100 in 1984 to 230 in 1992. (13)   The consequent slump is well known, and led the government to consider a substantial increase in revenue from land values.

Australian real estate values totalled $40 billion in 1986, $87 billion in 1989, and $64 b in 1993.   There was abnormally high inflation between 1986 to 1989.   Land prices reached their peaks in 1973, 1981, 1989, and 1994.   Each peak was followed by substantial recession. (10)

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Connection between Taxation and land speculation

Speculation in land is closely tied to high taxation of production.   In 1972 taxation took 28% of national income, and the land component of mortgage repayments was 30% of the national income.   By 1990 taxation took 40% of the national income, and the land component of mortgage repayments stood at 50%; that is, taxation of production was forcing people into land speculation rather than investment in to productive enterprises. (10)


It can be concluded from the above data that real wages have seriously declined over the past twenty years, mainly because of the vast increase in the locational cost element of the price or rent of a house or flat.   Fifty years ago it took the average wage-earner about half a year’s work to afford a home site.   Now it takes about two years’ work.   Fifty years ago the average price of a home site was about one quarter the cost of a house.   Now it is half the cost of a house. (7)



(1) Anatomy of Depression.   Land Values Research Group, Tax Reform Australia, GPO Box 2688 X, Melbourne, Victoria, 3000.
(2) Real estate sales handout.   Denmark, W.A.; 1995.
(3) Hasegawa Tokunosuke.   Recent Data on Land Prices in Japan, Institute of Economic Research and Construction, Tokyo, 1990.
(4) Australian Year Book.   Property sales statistics; various years.
(5) Australian Financial Review.   5 Nov 1996.
(6) News Chronicle.   Perth WA and suburbs, 8 Nov 1996.
(7) L.Hemingway.   Rent as Revenue.   1990, ISBN 0 959836047.
(8) Land and Liberty.   July 1995.   United Committee for Taxation of Land Values, 177 Vauxhall Bridge Road, London EC4, England.
(9) Progress.   August 1983.   Tax Reform Australia, Melbourne.
(10) Bryan Kavanagh.   The Recovery Myth.   1994.   ISBN 0 909 9460 27.
(11) Progress.   August 1993.
(12) Center for Public Dialogue.   10615 Brunswick Ave, MD, 20859, U.S.A.
(13) Land and Liberty.   May/June 1992.


Cecil H. Stowasser, B.A. (Comm.), of Perth, Western Australia

Overheating of the Economy_The Real Cause; by Cecil Stowasser

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