The Essential Reform:
Land Value Taxation
In Theory & Practice
C. H. Chomley & R. L. Outhwaite
[Part 2 of 15]
In organised communities, such as England, every citizen and every
sojourner enjoys certain benefits from the presence of his
fellow-creatures and the existence of a Government. He has society;
his life and property are protected; he can carry on his trade or
occupation in security; he has access to means of education;
facilities for travel and transport are at his disposal. These and
many other advantages are conferred by the community and its organ the
Government, upon all the inhabitants. Upon this obvious fact is
founded the supposed justification for taxing all the inhabitants
according to their means. But in reasoning thus a most important
matter is forgotten -- namely, that a section of the people, while
enjoying all the benefits of civilisation conferred upon others, enjoy
in addition a special gift which is the direct result of population
and Government and the result of population and Government alone. This
section of the people are the owners of land and kindred monopolies;
this privilege is the value of the land or other monopoly owned by
them.
Let us consider the matter. The Duke of Westminster and John Smith,
one of his tenants are both citizens of England; both enjoy the
advantages, lately indicated, of protection to life and property, &c.
But John Smith owns no land, whereas the value of the Duke's estates
is immense. Whence does this value come? The answer is indisputable.
It arises from the demand for land occasioned by the presence of a
population, who must have land to live upon; and this demand, which is
the ultimate cause of land value, depends upon the existence of a huge
population under a well-ordered Government, which permits its citizens
to give full scope to their activities and ensures a return for them.
On this return the Duke levies tribute. He has done nothing whatever
to make the land valuable. He enjoys the proceeds of other people's
labour, because in the time of the Stuarts one of his ancestors was so
fortunate as to marry a cowkeeper's daughter, and through the marriage
came into possession of fields in Mayfair which are now in the heart
of fashionable London. Similar good fortune is enjoyed by a family
named Howie, who are people of wealth and consideration in the United
Kingdom, owing to the drunken freak of a grandfather or
great-grandfather, once a humble market-gardener in the neighbourhood
of Sydney, New South Wales. About seventy-five years ago this Howie
came one day into Sydney, sold his vegetables, visited a public-house,
and, going thence, looked in at a land sale where there were being
offered at auction blocks of land in the infant village of Melbourne.
Howie bid for one; it was knocked down to him for ten or twelve
pounds. When sober he repented of his rashness, but was held to his
bargain. He never saw the land, spent not a penny on it, but Melbourne
grew into a great city, and now his family are drawing tens of
thousands of pounds a year made by the labour of people in Australia
as a reward for the insobriety of their ancestor the market-gardener.
To return to the case of the Duke of Westminster. We know that, if
the people of London were to migrate elsewhere and the great city
dwindled to a village, the estates of the Duke of Westminster would
lose nine hundred and ninety-nine thousandths of their value. Land in
regions where there are no people to use it has no value at all.
Alternatively let us consider the population of London remaining and
Government leaving, its place being taken by anarchy. Where would the
value of the Duke of Westminster's estates be then? Who would collect
his vast rents? Who would be willing to pay them? What could the Duke
obtain for an acre, worth perhaps a million pounds now, if he desired
to sell? If anarchy were complete he could get nothing at all. The
people, in short, make the Duke's landed wealth for him, and the State
is his rent collector. The same applies to all land-owners, great or
small, in their degree. Their land would be valueless but for the
demand of a population subject to law. Therefore it follows that the
value of his land is something enjoyed by a land-owner over and above
all the benefits accruing to himself and other men as members of the
community, and to tax the owner of land in proportion to the value
which the community thus creates and maintains would be in accord with
the canon we are propounding, that every man should be made to
contribute to the expenses of the State in proportion to the
privileges conferred on him by the community of which the State is the
representative.
Before going further it will here to convenient to give a definition
to land value, and to show that it is the essential element in many
forms of property not generally included under the term land, but
dependent upon special rights to the use of land for a large part of
the value they possess.
By land value we mean the price or rent which could be obtained in an
open market for land divested of any improvements which may be in it
or upon it. The price obtainable for such land by a sale of the
freehold is its capital value the yearly rent it would fetch is its
annual value. Improvements which would not be taxable under the land
values tax consist of buildings and other erections; rails, road-bed,
&c., of railway lines; shafts and workings in mines; drains,
wells, fences, plantations, &c., on agricultural land; consist, in
short, of all works of man effected in or upon any particular area of
land of which the value is assessed for taxing purposes. This
limitation of the meaning of improvements to existent and valuable
works upon each piece of land considered individually is important.
Its neglect leads careless thinkers sometimes to maintain that land
has no value apart from improvements. Believing the value of a vacant
block in London, for instance, to depend on the existence of highly
improved property surrounding it, they assert that unimproved land
value is a meaningless term defining the non-existent. They are
mistaken in the cause they assign to land value. As a matter of fact,
the value of a vacant block, or of a site covered with buildings, in
great cities such as London, arises not from the existence of other
buildings in its vicinity, but from the desire of those who can pay
for the use of it to use it -- in other words, from demand. This
demand is not necessarily increased by improvements in the
neighbourhood. The value of the site of Chicago was greater the day
after the fire had reduced the city to ashes than the day before the
fire broke out. Men wanted the land because of its potentialities for
manufactures and business. Sites in San Francisco maintained their
value after the earthquake had covered them with ruins. Men saw that
they could build anew and to better advantage. Nevertheless, in order
to avoid all possibility of being misunderstood, we repeat that when
we speak of the unimproved value of a piece of land we use the term to
signify the price which could be obtained for it as it stands, if it
be vacant, and without the improvements actually upon it when any
improvements exist.
Further, it must be understood that the value of improvements bears
no necessary relation to the cost of effecting them. The value of a
building which may have been erected at huge expense is not greater at
the most than the sum required to replace it by a building of the same
kind or one which will adequately fulfil its purpose in every
particular. Unsuitable expenditure on land, as by sinking shafts in
search of minerals where they are found not to exist in payable
quantities, may be a detriment rather than an improvement. And finally
the value of some improvements of which the history cannot be traced,
as, for instance, the conversion, hundreds of years ago, of bog or
marsh into pasture, must for practical taxing purposes be considered
to be merged in the value of the land. There is nothing really
arbitrary in such an assumption, for all the work of man decays, and,
where it appears otherwise, the fact is that natural forces have
replaced and reconstructed man's handiwork The inevitability of decay
in all improvements is well exemplified in the clearing of land in new
countries. A man goes into the forest, and by dint of infinite labour
removes gigantic trees and destroys heavy undergrowth. This is an
improvement worth perhaps £20 an acre. In course of time his
lonely clearing is surrounded by other farms also denuded of their
timber; a township springs up; wood for building and wood for fuel is
required. It must be brought from other districts where timber is
still existent, and the original settlers find that the value of their
clearing, which cost so much and was once so great is worn out, has
decayed, is gone. The proof of this is irrefutable. If the trees upon
the pioneer's farm were existent still, it would cost him nothing to
remove them. He would, on the contrary, find many people willing to
pay him handsomely for the privilege of clearing his land and selling
the timber.
All that is commonly described as land consists then of land alone,
or of a site -- which is everlasting -- having attached to it
improvements which are perishable. Capital land value is the price
which men will pay for the site; the value of the improvements is the
price which they will fetch when sold with the land.
Land value, however, is inherent in other forms of property than
those commonly spoken of as land. Lakes and rivers, for instance,
which are land covered by water, have a value -- that is to say, will
command a price when they are controlled by an owner who can permit or
refuse access to them. Mines are land containing metals or minerals.
The price which they would bring is their value, and the enormous
royalties paid for the use of such land show how great its value often
is. In the value of railway stock, of shares in gas companies, tramway
companies, telephone companies, companies for the supply of water and
electricity, the chief element is usually the value of land. For all
such undertakings the use of certain land is essential, and in that
use their promoters are granted a complete or partial monopoly. The
more exclusive this monopoly the greater is the value of the business
to its owners, as may be seen when railway companies, which compete in
a mild way with one another, seek to combine.
As an example of the vast part that land value plays in constituting
the property of a railway company, we need only compare the present
value of its shares with the value of its buildings, lines, rolling
stock, and all material of human workmanship. If the value of these
things - improvements -- is one million pounds, and the value of the
shares is two million pounds, it follows that the other million pounds
is land value -- the value of the company's exclusive right to the
sites of its buildings and more or less exclusive right to run trains
on the narrow ribbon of land whereon the rails are laid.
As another example of the enormous land value possessed by a
corporation, which would not have generally been placed in the
category of great land owners, consider the case of the New River
Company, which obtained nearly £6,000,000 when it sold its rights
to supply Londoners with water and to overcharge them. The pipes and
works with which it parted were not worth more than a mere fraction of
the enormous ransom it exacted. The valuable thing which it sold was
land value, i.e. the monopoly right to divert water from certain
streams at certain places and to convey it under the land through the
streets of certain districts. This land value the Company refused to
surrender to the community which created it, gave it to them, and
maintained it for them, until the community bought it back for
millions of pounds. While this is an extreme instance, land value
enters largely into the property of all companies or individuals who
are given special rights of carrying pipes or wires or rails over or
under the roads and streets. If it were not for these special rights,
which could not be given to every one, and therefore confer a monopoly
on those to whom they are granted, shares in such undertakings would
not be worth anything like their present price. The difference between
the value of a monopolistic business and the value of the tangible
property belonging to it is the measure of the land value possessed by
the owners of undertakings of this class. A more or less clear
perception that rights over the highways belong to the people
generally and should not be freely handed over to private individuals
has occasioned a strong movement towards national railways and
telephones and municipal tramways, water supply, gas and electric
supply, &c. Municipal or national ownership of monopolistic
enterprise is one means of preserving public rights in public
property; another means is taxation proportionate to the value of the
public property; another means is taxation proportionate to the value
of the public property which has found its way into private hands.
Another example of wealth arising out of land value is the income
derived from tithes, the tithe-owner being in fact a person privileged
to appropriate a portion of the annual value of land. Rights to levy
tolls and the ownership of way-leaves and of docks and wharfs also
imply the ownership of more or less land value. The owners of all
these forms of property as well as the owners of land values in any
other shape are endowed with sources of wealth which does not arise
from anything that they themselves have done or from any expenditure
of labour or capital by those from whom the present owners derive
their title, but from the demand for land which is created by the
needs of the people.
As a final example of the land value in disguise, discoverable in so
many monopolies, we may mention licenees to sell liquor, which give a
particular value to the premises upon which the liquor may be sold.
This value does not attach to the house. It may be worth only a few
hundred pounds while the licence and premises are worth thousands. The
value attaches to the site. Burn the house down and the site will
retain its value still, provided the licence to sell liquor on that
site remains, for the house can be replaced. But were the licence
cancelled the special land value would be destroyed, and were it made
applicable to another site special land value would be immediately
created in it.
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