To What Extent Does Land Speculation
Cause Depressions?

Robert Clancy

[Reprinted from Equal Rights, Autumn 1969]

Henry George's thesis that land speculation is the basic cause of depressions was supported by a closely reasoned argument and an appeal to the facts. Other explanations were examined and found wanting. It is surprising that, since the business cycle is one of the crucial concerns of economic thought, George's theory has not been accorded more attention. Economists have still not come up with a satisfactory theory.

George's explanation checks out with the facts remarkably well. Homer Hoyt's detailed study (One Hundred Years of Land Values in Chicago, 1933) showed that land values and the business cycle behaved consistently with George's theory; that when depressions started, wages and interest declined, but rent continued rising: that when rent finally came down, wages and interest started to go up, and a period of recovery began; and so on. This is readily traceable in the classical boom-and-bust cycles we have had until the biggest one of all, the Great Depression of the 1930's. After that, only land speculation can explain the peculiar gyrations of our economy which have mystified economic theorists.

There has been since World War II "explosion," accelerated by tremendous technological advances. There has been_an_enormous increase in land_yalues, and all the indications (as reported in The Wall Street Journal, U. S. News and World Report, etc. are that land values have risen faster than the other_economic returns - faster than wages, average dividends, commodity prices. But a combination of factors has forestalled a crash so far, although we have had a series of recessions. Government cushions have softened the impact, controls have prevented the craziest kinds of speculation, inflation has disguised many of the symptoms. Without inflation, production might have stopped before now; with inflation, producers stay on the treadmill trying to beat the game.

Of course, this cannot go on indefinitely. Unless something stops it, the continuing encroachment of speculative rent against wages and interest is going to give us increasing trouble -- although the exact form it takes will depend on a number of circumstances.