Rent and Land Value
Harry Pollard
[Reprinted from a Land-Theory online
discussion, January 1999]
Victor Levis wrote:
HARRY: Now, if the slave owner's taking of everything
from the slave but his subsistence needs sounds like all-devouring
Rent doing the same thing.
Response from Harry Pollard:
it's because it is.
Victor Levis wrote:
'All-devouring Rent'? Please explain this phenomenon.
Last I saw, and I think you have agreed, Rent is a small portion of
GNP. Not true of plantations' revenue in relation to slave
subsistence costs.
Response from Harry Pollard:
'All devouring Rent' is the name it was given back in the 19th
century. I've forgotten it's origin -- whether it was a Georgist
phrase, or a contemptuous commentary by an opponent. I bet Dan or
Fred knows.
It would be better called 'all devouring land-value'.
One of the discoveries that made me a Georgist was this concept,
which says essentially that Rent will rise to press down wages to
the margin (which is most circumstances will be subsistence).
So, if production doubles tomorrow, the doubling will not affect
Wages (except in a temporary sense when prior contracts come into
play). Instead, the increased production will go to higher Rents.
There has previously been some discussion about increased
production keeping wages rising. In fact, they rise only in a
temporary manner until All Devouring Rent removes their advantage.
(A parallel is the advantage to production of inflation. Inflation
reduces the burden of interest and for that matter most contractual
arrangements, but the comeuppance arrives with the economy's
adjustment to the new value of money and we are back to square one
-- but with some damage and some benefits.)
Victor Levis wrote:
"All devouring Rent" will constantly
increase - driving Wages down.
Response from Harry Pollard:
How far down? (And I must apologize for length, but it's difficult
not to bring in the peripherals to the core question.) We must look
at the bottom of the Wage pyramid. Those wage-earners at what we
call the "General Level of Wages". We can think of them as
people with interchangeable jobs - those who could be a waitress one
day, a janitor the next, a cab driver the third.
You can figure that if you can produce twice as much as the
General Level, you'll get twice the wage, produce three times as
much - three times the wage, and so on. As you go higher, eventually
you'll come across those with premium wages -- the Michael Jordans,
Madonnas, and so on. (Perhaps, these operate in the collectible
market, but that's another discussion.)
Two things determine General Level Wages. The price mechanism runs
Wages up and down around an equilibrium. The question which seems
never to be mentioned is 'what determines the equilibrium?' Well,
Georgist theory suggests the equilibrium is determined by the
alternative -- and the alternative is the best available Rent-free
land.
(In passing, it should be noted that modern economists regard
Wages as the sole result of the price mechanism. That's why they
really don't understand Wages. The price mechanism hunts around the
equilibrium. Why is that equilibrium $5, $20, or $50?)
Georgists would expect the alternative to determine the
equilibrium around which the Wage hunts. If there is free land
available that would provide a General Level worker with $20 an
hour, enough would head in that direction to pull General Level
Wages up to $20.
This happened as a consequence of the Comstock Lode, a discovery
that pulled enough General Level workers out of San Francisco to
make it difficult for ship owners to hire crew at the rates they
wanted to pay (the rates they could pay). The ships stayed in the
Harbor.
When the Comstock claims dried up removing this alternative, Wages
dropped and the ships sailed again.
In similar fashion, when the alternative Rent-free land is no
longer available - held from use by those who wish to speculate --
the Wage earner is in a pickle. When that landholding extends to
land which is actually below the margin, the alternative for Labor
is to work for subsistence -- or die.
One is reminded of Rothbard's contention that it is good to invest
in land that is sub-marginal. The Austrians claim, a trifle
ingenuously, that the landholders' task is to "allocate land to
its best use". This includes land that cannot produce a living
to its occupier, which the speculator holds for its hoped for rise
past the margin.
In any event, when available rent-free land is taken off the
market - and the rest is heavily tied up for speculative purposes --
Wages drop to their lowest -- which is subsistence. (We could divert
to a discussion of 'subsistence' but we'll save that for the
moment.)
The list earlier had a discussion of rack-renting -- beginning
with what it is. Of course it means wringing every last penny of
Rent from the worker and capitalist. It means leaving in the hands
of the General Level worker just enough to keep him alive (and
reproducing).
So, in the red clay of the South, the farmer may contribute only a
third of his crop in Rent -- because the other two thirds are needed
to keep him and his family alive.
Whereas, in the Mekong Delta, peasant Rent reached 90% of the crop
-- because the fertility was so high they could live on 10% of the
crop. Both these are examples of "all devouring Rent".
In a completely different situation, Donald Trump was unable to
built on a Manhattan lot. The speculative demand was too high. But,
clever Trump managed to do an end run around the 'rack-rent'.
Another builder had not used his official city allowance of He
contracted with another building owner to buy his "storey
allowance". The other builder was allowed extra storeys but he
didn't use them. So, he sold the permission to Trump who could then
build higher - and could pay the demanded land-value.
It was the highest price ever paid for such land -- I think
$2,400 a sq. ft. -- but my memory may be at fault. Perhaps someone
knows? Certainly Japanese land prices (rack-rents) were hugely
greater.
Earlier, I said that it would be better perhaps to talk of "all
devouring land-value" - land-value being Rent plus a
speculative premium. In a post I am writing, I paint more of a
picture of how this develops. I think that you may have some
difficulty in seeing how the collectible land market differs from
the price mechanism controlled market we know and love!