The Essential Reform:
Land Value Taxation
In Theory and Practice
C. H. Chomley and R. L. Outhwaite
[Part 12 of 15]
One of the most urgent problems awaiting solution in Great Britain is
that of the nationalisation of those means of transport which from
their nature are monopolies -- the railways and canals. The privilege
to acquire and use for transportation purposes strips of land from
point to point, conferred upon private corporations, has placed the
community in the power of monopoly, a power which is exercised in the
direction of levying charges for services rendered greater than those
which could be demanded were they subject to free and open
competition. The railway companies, having bought out their only
possible competitors, the canal companies, are by arrangements amongst
themselves in a position to lay the nation under tribute within the
limitations, more nominal than real, that the Board of Trade can
enforce through its statutory powers. The effect of his monopoly of
transportation upon British industry is extremely serious, and it
undoubtedly imposes a crushing burden upon agriculture and acts as a
bar to progress.
It is a noticeable fact that the farmers, who came before the Tariff
Commission constituted by Mr. Chamberlain in his private capacity to
provide a case for Tariff Reform, inveighed consistently against the
high railway rates as giving their foreign competitors an undue
advantage. One witness, Mr. J. W. Dennis, of Covent Garden and King's
Cross Markets, London, gave the following in his evidence: --
[This table not reproduced from the original
text.]
British manufacturers are also handicapped in the same way by the
railway monopoly, and, as has been pointed out on their behalf,
British railways actually favour the foreign manufacturer by quoting
him a specially low rate. For instance, a German manufacturer can send
goods from Hamburg to Birmingham, via London, at a much less
rate than a London manufacturer can send goods direct to Birmingham.
Similarly, goods can be delivered in Birmingham from New York at a
less price than from Liverpool.
A hardware merchant at Shrewsbury buys nails from the Continent
rather than from adjacent Wolverhampton to save freightage. And so on.
It stands to reason that an undertaking which can show net receipts
amounting to £45,000,000 upon a capital which is largely monopoly
value must be exacting a monopoly price for the service it renders.
For it must be remembered that the so-called capital of the railways
on which dividends are paid is not wholly real capital -- that is to
say, it is not represented in full by labour products in the shape of
rolling stock, stations, rails, &c.;
This spurious capital of the railways is land value, and increments
of value that have accrued over and above the original price have been
turned into capital by the familiar process of "watering"
the stock, so as to increase the nominal capital without a
corresponding increase of assets. Therefore in so far as railway users
are providing interest on capital not represented by labour products,
they are paying tribute to land monopoly. Now it is obvious that were
the State to step in and nationalise the railways by purchase at the
nominal capital value, and were it to then itself proceed to provide
interest on purchase amount by way of freights and fares, the
community would still be paying a monopoly price for services.
Co-ordination of working might effect some economies, but it would be
impossible to adequately raise wages and lower freights and fares and
at the same time make the railways pay on this fictitious basis. How,
then, is the State to nationalise the railways and at the same time
relieve users of monopoly charges? The taxation of land provides the
remedy.
If the people so will, by the taxation of land values they can resume
the value which they, and they only, have given to all land, including
railway land. The value of railway land is easily ascertainable. The
value of the shares of the railway companies is the value of the
railway land and improvements thereon in the shape of rolling stock,
rails, stations, &c. By deducting the present value the
improvements from the total value we arrive approximately at the land
values owned by the railway companies. In any system of land values
taxation these land values would be subject to the tax, and by
increments of taxation they could be resumed. Were this done railway
nationalization would mean the purchase of the real capital assets of
the companies, and as the State would then only have to provide
interest on this amount it would be able greatly to reduce freights
and fares. As, however, it is not proposed or expected that land
values will be taxed entirely into the Treasury except, step by step,
over a term of years to obviate hardship, it necessary to find a way
in which the State can arrive at the necessary result of relieving the
community from monopoly transport charges without calling upon the
owners of railway land to make a eater contribution to justice than
other land-owners. This can be achieved by levying, in the first
place, a land values tax on all land, railway land included. This
would tend to make the railway land monopolists less anxious than at
present to cling to a monopoly the value of which was in process of
being absorbed by taxation. It would then be possible for the State to
purchase the railways at a more reasonable figure than at present.
That done and the State in possession, the problem would yet have to
be solved of how to render transport services without demanding
monopoly charges. The only way in which to solve this problem is to
follow the precedent of the roads. When a local body constructs a road
it does not levy a charge on carriers for its use in order to meet the
cost of construction. The road is made free to all, and the cost is
thrown on those who get a special benefit from its construction,
namely, the land-owners, who have their land raised or maintained in
value, for it is only the land and not any improvement on it that is
so affected. The rate certainly is struck on land and improvements
which is unjust, but the fact remains that the road is free to all,
the cost being met by those to whom it is considered a special service
is rendered. Consequently the fare or freight charged by a carrier on
a public road has not in it any element of the cost of construction of
the road; it solely represents the cost of carrying the goods or
passengers, and is a return for capital expenditure and labour, as
fixed by open competition amongst carriers. Now the nationalising of
the railways can be carried out in such a manner as to confer enormous
benefits upon the community if the principle of the public road be
maintained. The cost of the railroad should be met by levying upon the
land value created and maintained by its construction. Then the State
as carrier would only have to charge for its services at actual cost
-- that is to say, freights and fares would only have to cover real
capital expenditure on improvements, salaries, wages, and running
costs. This could be accomplished by the taxation of land values, and
only thus can railway nationalization be made a great and beneficent
measure of relief. The capital value of the railways is set down as
being about £1,200,000,000, probably half of which is monopoly
value. Were the railways purchased at this figure, and the interest at
4 per cent. on the price paid for the monopoly value met by levying
upon all land values, it would mean that the State could raise wages
and lower freights beyond what could otherwise be done to the extent
of £24,000,000 per annum. And this could be done from the
proceeds of a tax of 1d. in the £ bringing in £25,000,000.
The taxation of land values to meet reductions of freights and fares
on the State railways would be specially beneficial to producers on
the land, as it would thus give them a beneficiary interest in the
vast land values in the towns and cities which would not exist but for
the people on the soil. The bulk of the revenue from any specific tax
would come from the cities; the freight reductions would give most
relief to the country. For the men upon the soil are especially hard
hit by railway charges. When they are sellers their receipts have the
railway freights deducted from them; when they are buyers the railway
freights are an extra charge. So as sellers and buyers they receive
less and pay more because of railway freights. Obviously, then, the
association of land values taxation with State enterprise in the shape
of railway nationalisation carries with it tremendous possibilities
for the stimulation of industry and the enhancement of the production
of wealth.
The taxation of land values offers another means of mitigating the
evils arising from the monopoly of the means of transport, apart from
railway nationalisation, and one that might well precede that step.
Once land values are taxed, there is no reason why the State by the
construction of great national roads should not enable the people to a
considerable extent to free themselves from the railway monopoly. When
quick transit could only be achieved by engines running upon rails,
and requiring elaborate precautions to prevent accidents, no effective
competition with the railway companies was feasible. But those
conditions no longer maintain in view of the development of the motor.
Therefore if great national roads were constructed over which motor
traffic, a high rate of speed, could be permitted, an effective
competition would be set up against the railways. This would result in
reduced freights and fares to public benefit, and consequently in an
enormous reduction in the value of the railway monopoly, as can be
realised from the effect of the motor competition on London railways.
Precisely the same argument holds good as regards canalisation. Great
waterways could be constructed by the State and made free to all users
were interest on capital cost met by levying upon land values. How
much might be accomplished can be judged from the following excerpt
from an article by Mr. Sidney Brooks in Harper's Magazine: --
"With a single exception, that of the Manchester
Ship Canal, practically nothing has been done to add to or improve
them in the last eighty years. While France in the last quarter of a
century has spent 200,000,000 dollars in developing her canals, and
now possesses 7000 miles of them, State owned and toll free; while
Germany has spent even more and can now boast of 9000 miles of
inland waterways, and is still planning for their further extension
- England has done nothing. That is putting it almost too mildly.
She has done worse than nothing. One-third of her canals she has
placed at the strangulating mercies of the railways; 200 miles of
them she has allowed to become derelict; and among the remainder you
find dilapidated banks and foul bottoms, a grotesque shallowness, a
needless profusion of locks, the archaic system of horse haulage,
and, as I have already said, an almost inspired lack of
inter-communications -- canals, for instance, that bear barges 90
tons connecting with canals that carry no more than 40 tons. On the
Continent, on the Rhine, Neckar and Danube Canal, for example,
barges of 600 tons, driven by steam or electricity, ply up and down,
and craft with a tonnage of from 250 to 500 are a common sight. In
England I doubt whether there are 200 miles of canal that can
accommodate boats carrying more than 100 tons. Half of the English
waterways have no room for barges of a greater capacity than from 40
to 60 tons, and the remainder find their maximum at 30 tons."
Here again, by setting up competition the State would be making more
easy the acquisition of the railways. And with a land values tax in
operation the State would find it profitable to develop in this way
the people's estate, for every State expenditure of this kind would
enhance the value of land and increase the revenue received from the
land tax. When once by the taxation of land values all the people are
associated in the ownership of all the land, the State can then embark
on enterprises, having for their object to stimulate individual
enterprise by freeing it from present burdens, a course which would
infallibly result in an enormous increase in the production of wealth
and of material well-being. At present every step the State might take
in such a direction would be reflected, not in increased revenue for
the Treasury, but in increased rents for the land-owners; not in a
commensurate expansion of individual enterprise, but in a more rigid
locking up of natural resources by the land monopolists, determined to
take to the last farthing what was intended for public benefit.
Against this proposal for the relief of industry from monopoly
transport charges may be set that emanating from the Agricultural
Committee of the Tariff Commission. Here is a passage from the Report:
--
"We are of opinion that for removing the
disabilities under which British agriculturists suffer a change in
the fiscal policy of the country is absolutely necessary; but if
this change is to be permanently effective, it must be combined with
measures dealing with transport, the enlargement of the powers of
the Board of Agriculture, and local taxation. We are also of opinion
that the position of the industry generally would be improved if
means could be found to create further facilities for land purchase
in the United Kingdom."
From what source these measures of relief are to be financed the
Tariff Reform League Speaker's Handbook explains as follows: --
"The Committee recommend a registration duty on
colonial as well as on foreign wheat, because by this method a
larger permanent revenue is guaranteed, and because in their opinion
the increase of revenue from the duties proposed would remove most
of the difficulties in the way of adopting the non-fiscal measures
of Reform recommended in the Report."
So against the Tariff Reform proposal that the bread of the people
shall be taxed to remit rates and lower freights, which would result
in higher rents and higher prices for land, we set the proposal that
the values which the railways create and maintain shall be levied
upon, a measure which would have the effect of forcing land into use.
Which proposal is the more just, and consequently the more expedient,
readers can easily decide for themselves.
In order to exhibit the practicability of these proposals and their
effect, we may take the question of the nationalisation of the Irish
railways as a first step towards the nationalisation of the whole
system of the United Kingdom. In Ireland two problems press for
solution. The first is that of making land available to the people,
and the second is that of making the labour of peasants profitable
when they have acquired land. That the Land Purchase system is hung
up, owing to its having led to an artificial enhancement of the price
of land to the extent of 60 per cent., is a matter of common
knowledge. What Land Purchase under present conditions cannot effect
except at the cost of the unfortunate taxpayers, who will have to find
the difference between what the peasant can afford to pay and the
land-owner will take, the taxation of land values would immediately
accomplish by forcing the land-owners to off-load. Cattle-driving
would soon become a thing of the past, when the tax fell upon the land
held against the cultivators for grazing. So land would come into the
hands of the peasants. And how to enable them to turn it to full
profit? This is largely a question of cheap railway rates. Mr.
O'Donnell, M.P., in a pamphlet lately issued, "A Trip to Denmark,"
has laid emphasis upon this necessity for the regeneration of the
Irish countryside, and urges the nationalisation of the railways to
effect it. He gives the following comparison of railway rates charged
in Ireland and Denmark on butter, per ton of wagon-load: --
| Distance |
Denmark |
Ireland |
| 50 miles |
0 - 4 - 2 |
0 - 12 - 10 |
| 80 miles |
0 - 5 - 9 |
0 - 17 - 10 |
| 100 miles |
0 - 6 - 6 |
1 - 1 - 2 |
These figures give an indication of how Irish railway rates militate
against the Irish producer of butter when competing with the Danish
producer in the English market. It may be added that in a handbook on
the dairying industry, lately issued by the Government of Victoria
(Australia) for the purpose of attracting immigrants, it is pointed
out that it costs as much to send butter to London from Ireland as it
does from Victoria.
One of those proposals, so excellent in themselves but so hopeless in
the face of land monopoly, has lately been formulated by the Drogheda
Development Association, Ltd., which takes the form of "Proposals
for a Co-operative Auxiliary Transit System for Ireland." The
last paragraph of the prospectus reads: --
"The success or failure of the policy of breaking up
the large grass ranches, which chiefly occur in districts remote
from and unserved by railways, must in a very large measure depend
upon and be influenced by the provision of cheap transit services
without any delay. Otherwise it will be unremunerative for the new
owners to cultivate their farms, and of necessity they must leave
the land to produce live stock, which can walk to existing points of
transit; and at the same time the prices of the necessaries of life,
owing to cost of long carting, must be very high. The same cause
will involve a considerable economic drain upon the profits of
poultry, butter and eggs, which might be expected to form the
earliest output of importance in such areas."
Now were Irish railways nationalised to~morrow on the lines usually
proposed, freights could only be reduced to the extent that savings
could be effected by amalgamation, which probably would not amount to
much. But whatever it amounted to would be reflected in a rise in the
value of land served by the railways. Land purchase still being in
abeyance, the peasant would have the advantages hypothecated by paying
more for his holding. That this is no fanciful assumption the history
of all transit reforms where land monopoly is unchecked sufficiently
proves. For instance, the problem of London traffic is under
consideration at the Board of Trade, and in his official Report (Cd.
4379) Sir Herbert Jekyll has indicated the crux of the question to be
that one of the effects of a reduction of fares "is to raise the
value of land, and in such cases the traveller may pay as much in
increased rent as he gains by the lowering of his fare, the whole
benefit going to the land-owner."
And now let us see how the case would stand if the taxation of land
values were made an integral part of a policy for the nationalisation
of Irish railways. Mr. O'Donnell places the capital value of the
railways at £40,000,000. The interest payment that would have to
be met would be, at 4 per cent., £1,600,000, an amount that would
be more than met by a land values tax of id. in the pound on the land
of Ireland. So the users of Irish railways, as such, would be free of
a charge of £1,600,000, which otherwise they would have had to
provide. But this remission so brought about would be followed by
others, for the forcing of land into use would stimulate production,
and by increasing freightage reduce the cost of carriage. So the
immediate gain might well be £2,000,000. The gain to the small
cultivator as a railway user would be enormous, for there would come
to him more from all he sold, and he would pay less for all he bought.
And how would he stand as a land-owner subject to the tax?
The following figures supply the answer: --
In 1886, of the 500,000 agricultural holdings of Ireland, 348,000
were under 30 acres in area, as follows: --
| 79,000 under |
5 acres |
| 82,000 under |
10 acres |
| 65,000 under |
15 acres |
| 57,000 under |
20 acres |
| 65,000 under |
30 acres |
As regards values, the average price per acre of the land already
sold or agreed upon under the Land Purchase Act of 1903 is about £12.
This price includes improvements, and so we shall be well within the
mark in taking £10 per acre as the unimproved value of the land
in the hands of the Irish peasants.
So, classifying the holdings as above, there would be payable under a
1d. in the pound land values tax -
| On 5 acres the tax would be |
0 - 4 - 2 |
| On 10 acres the tax would be |
0 - 8 - 4 |
| On 15 acres the tax would be |
0 - 12 - 6 |
| On 20 acres the tax would be |
0 - 16 - 8 |
| On 30 acres the tax would be |
1 - 5 - 0 |
When we have before us what the peasant would be liable to pay, it is
clear that he would stand to gain many times the amount of the tax, by
freight remissions of £2,000,000 per annum that it would render
possible.
The great ground landlords of the cities whose land values are
created in part by the people on the countryside, and who contribute
nothing to railway freights, would be those who would be called upon
to provide the subsidy to make profitable production from the soil.
Land has been sold in Cheapside without buildings upon it at the rate
of upwards of £3,000,000 an acre. So under an Imperial tax on
land values one acre in London would contribute as much as 300,000
acres of Irish land of the value of that in the occupation of
peasants. And this is the tax that we are told by the monopolists will
fall with crushing weight on the small cultivator! Moreover, by the
operation of the tax in breaking up the grazing estates and bringing
down the price of land, the peasants stand to gain enormously, for
with subdivision would come co-operation with all its economies. So
Ireland might be regenerated through the potency of the economic
forces that the taxation of land values would set up, and through the
application of the revenue it would provide for the urgent needs of
the peasantry.
Mr. O'Donnell, when holding up Denmark as an example to his
countrymen, might well have quoted to them the resolution carried
annually at the meeting of the Danish Peasant Farmers' Association by
delegates from Unions representing some 160,000 peasants, and which,
after having declared against indirect taxation, runs: --
"We will insist that one single tax to cover all
public expenditure shall be levied on the unimproved land value
which the community creates and which the community therefore ought
to take. We believe that such a tax will make land cheap and
therefore make it easier for any man to get a home of his own."
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