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PART 5: APPLYING PRINCIPLES
A COURSE IN GEORGIST SOCIAL PHILOSOPHY, Part 5
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Prepared by the Australian School of Social Science
P.O. Box 443, Enfield, NSW, 2136
Tel. (02) 9744 8815, (02) 9746 5154; Fax (02) 9744 3804
One important key to this vast subject is economic rent. We have studied it both as it might operate, and as it now does operate in an 'enclosed' or 'capitalist' society. Study of Books III and IV of Progress and Poverty will help you become more familiar with this principle.
We are discovering that the principles of economic science are somewhat different from the view of things given in the media, or even by some economists. We have seen, for example, that labour encompasses all human activity from the discoveries of the nuclear physicist to the streetsweeper, and that in the modern world the place of labour as a cost of secondary irnportance denies to it its true economic position.
Like fire the law of rent may be destructive, as it is now, but used in the right way, it may be of immense benefit. For, used in the right way the law of rent secures two essential economic rights.
Here they are as related by Henry George. First, "That all men have equal rights to the use and enjoyment of the elements provided by Nature". Second, "That each man has an exclusive right to the use and enjoyment of what is produced by his own labour".
Having heard them what strikes us about these two principles? For example, are they related? And are equal rights to land the same as the equal division of land?...
If these principles justly define the nature of property then, clearly, land (the elements of nature or the productive forces of nature) is not private property.
Some may say that without private property in land, we have no secure possession of any developments we make to land. For example, who of us would build a house or plant an orchard knowing that someone else could move onto the land at any time, live in the house, or cut town the trees for firewood?
Is it the case that private property in land protects what is our's? Or does private property in land mean the ability to make money by providing something which is already there? Does it also sometimes mean the ability to confiscate the improvements that others have made?...
Let us look at other ways in which our earnings are lost because of private property in land. We pay more than we need to in rents, in interest charges, in the prices for goods; and then there are taxes. Can we see why this is so?...
Land embodies all the elements of existence. We may have common or equal rights to land; but we cannot have exclusive rights to it. Then again, rent is the product of society. And, while it attaches to land, it is no more the product of land than moonlight is the light of the moon.
Land is our cornmon inheritance. Rent is our common wealth. To ignore these basic economic facts courts social chaos for it means that we organise society so as to deny the many for the benefit of the few. A powerful sense of this injustice lies at the heart of the famous saying at the time of the Peasants' Revolt of 1381 "When Adam delved and Eve span who was then the gentleman?"...
So far we have defined two principles of economic justice, the equal or common right to land and the exclusive right to what we ourselves produce. In the second half you will have the opportunity to apply the law of rent and these principles of economic justice to some common items of news and to some common objections made to the use of site revenue.
The first test of our understanding is a revealing letter from the Chief Executive Officer of the Australian Catholic Social Justice Council (at the end of this session). What do you make of it?... (The extract from 'The Crime of Poverty' at the end may help.)
Following this letter you will find an article called 'Melbourne Joint Ventures Become Major Burdens'. Depending on where we are in the 'trade cycle' this article could be called out of date or a prediction of things to come. The circumstance of this article was the reported loss by Westpac Bank of $2.6b., much of which was unrecoverable debt upon property. The question we can ask is Why did these ventures fail?... (Perhaps you have already observed land speculation.)
"Site Rent is Imprecise?"
What this objection means is that there is no way by which the value of land can be separated from the value of improvements. This is a strange objection in a couple of ways. First, land has been valued in New South Wales for the purpose of rating and land tax for the most part of this century. How long would valuation have lasted if this objection were true? In fact, there have been relatively few appeals against land valuation.
Those who conduct this course are not valuers. So it is a little presumptuous to speak about the methods of land valuation, though they may be studied in numerous tertiary courses. Land valuation depends upon actual sales of what is everywhere called 'property'. lt depends upon a market. If the market is a lively one, if there are a large number of transactions, then measurement can be quite precise. Also, if the 'static' or false signals are removed from the market, then those values will be even clearer. Site rent encourages the use of land and thus transactions, and it removes speculators (or the static) from the market. (Speculators base their valuations upon imagined future values rather than upon present ones and so distort valuation.) So, is it not reasonable to think that valuations of site rent under site revenue will be even truer than thev are now?...
While it is true that now the market consists of land values (or land prices), when transactions are in site rents there is no reason to think that the same procedures in valuation cannot be used. This point will be developed later.
However, let us assume for the purpose of argument that there is no established system of land valuation. Some say that site rent is a tax; but more correctly, site rent is a charge: a charge by government for the benefits that surround land. Now, it is quite uncommon for people to complain that a tax or charge is imprecise in the sense that it fails properly to measure the value of a benefit. This is understandable since they know that both taxes and charges are arbitrary. Is not the only measure of a tax the 'ability to pay'?...
In other words taxes bear no exact relationship to benefits received . People know too that government utilities are monopolies (that is, there are few if any alternative suppliers), and so there is no way of establishing any market price for the benefit. If this is all true then is it not something of a "double standard" to insist that this particular tax or charge should be exact?...
"Rents will be passed on"
When land tax increases dramatically landowners cornmonly involve tenants in protests by the claim that they will have to pass on the increased land tax to their tenants. This, they say, will cause some small businesses to go to the wall or to charge higher prices for their goods and services which, in turn, will see them lose business.
One must put this claim into perspective. It is obviously untrue if the claim is made about the significant increase in land tax heading toward the full collection of site rent. Such large increases, which would occur were this revenue to be the main source of State revenue, would bring so much underused and unused land into the market at the one tirne as to entirely defeat the effort of a few landowners misguided enough to try to pass on their obligations to their tenants. Even if the impossible happened and those rents were increased, the next year the site rent would correspondingly rise and present the landowner with the same problem all over again.
The claim is apparently stronger in a system where land tax itself is used ineffectually so that land monopoly is undisturbed. Land tax, it has been said, is the bad application of a good principle. Thus, the question can be asked: Will the small increase in the small land tax we have be passed on? Here one must come to what we already know about wages and rent. Wages, and this includes the returns to small shopkeepers and professionals, are already today at the minimum they will accept.
Thus, an increase in a 'rack rent' (i.e. a full rent) will be at the expense of wages. It will be resisted and in any case be considered unadvisable by real estate agents. Landowners are already getting the most they can. This is the general case, so that such an unwise disturbance in rents could in the end leave the landowner without a tenant.
Occasionally the landowner may catch a tenant who, in fact, is willing to pay a little more. Occasionally, where a landowner owns a rundown site, the increase may cause him to redevelop the site - but that really has nothing to do with passing on land tax. At any rate, the true test of this claim is to look over land market values some months after the claim has been made. When one examines what has happened one sees that the general level of commercial rents has not risen.
We have met this objection earlier in this session. Is site rent private property? What do we think?... (It is peculiar that no one ever objects to taxation on the ground that it confiscates private property.)
Some argue that, since site rent will force some landowners to give up land they are not using, the confiscation of site rent really means the confiscation of land. We will look at this objection in the next session.
While most of us now may not accept that land can be treated as an item of private property, or that rent may be privately traded, we know that very few indeed agree. So let us put, and consider how to meet, some other arguments which reject land rent as public revenue.
To some site revenue is a holding charge on land intended to force its owners to use it. As such, they say it is inconsistent with the view that one should be free to do with one's own as one wants. What would we like to sav about this view?...
To others land tax is discriminatory since it only taxes one class in the comrnunity - landowners. Would anyone like to answer this allegation?...
Coming back to the view that site rent is the confiscation of private property, some admit that site rent is public property "in theory" but say that, in practice, it would be unfair to collect it because it is clearly wrong to penalise all those people who have worked hard all their lives and invested their savings in property. What would you like to say about this argument?...
Arguments like these are never easy to handle, especially at first. So let us consider these arguments further over the coming week and see what arises.
Q.2 Is land wealth? What do landowners produce? (p.2)
Q.3 What misunderstanding is shown by the writer of the letter? (p.32)
Q.4 Find an article or item of news and write a short analysis of it from the perspective of the principles we have considered.
Georgists worldwide invite you to work towards a Pattern for a Better World, and study Georgist Policy, by selecting from Graham Hart's other writings, or the prophetic statements of CLYDE CAMERON, former Federal Minister, in Revenue that is not a Tax, whose 1989 words are just as true today as then. If interested in ELECTIONS look at "You Don't Have to Vote" by Eileen Bennett and David Banner.
(This document scanned at Tax Reform Australia, Melbourne, November 1996, and put on WWW 20 Dec;
last revised 08Jan1998)
DOC. 26: URL = http://www.multiline.com.au/~georgist/rent5.htm
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