The Cornerstone of Free Enterprise

Steven B. Cord

[Reprinted from Fragments, 1976-79]

TO PUT IT bluntly, free enterprise will crumble and collapse unless land-rent is collected through taxation. Let me present the evidence for this to all libertarians.

If land values are not taxed, there will be no out-of-pocket penalty for keeping productive land out of full use, as determined by current market demand. Much land is now vacant and unused, even in urban areas. In fact, about ten per cent of the land area of eleven of our largest cities is vacant. Also, there are many urban land sites that are only partially developed, containing dilapidated or insufficient improvements.

The effect of this under-use is artificially to reduce the supply of land currently available. This causes land costs to rise beyond the normal, the increase being passed on to consumers in the form of higher prices. If the money supply remains constant, effective demand will lessen, and recession will result. The government forestalls this by increasing the money supply, thus funding the higher price level, and inflation has ensued.

How long can free enterprise survive alternating recession and inflation? Indeed, how long can inflation succeed in preventing recession, since larger and larger doses are required? Only land value taxation can get us off this roller-coaster to socialism; only it can eliminate speculative land prices and penalize the under-use of land.

There are many among us who, for one reason or another, are destitute. About 45 million Americans are in this category of being destitute (prior to receiving governmental grants). To combat this destitution, too many libertarians offer only the weak reed of private charity, weak because such charity now approximates well under $20 billion a year, a sum already being spent in an attempt to alleviate the effects of poverty.

Land value taxation (the sine qua non of free enterprise) could provide a vast public fund which could easily defray all legitimate welfare costs, leaving a considerable amount for other purposes now covered by taxes. Shouldn't the common fund be used first to care for those most in need? Libertarians are right in opposing the robbing of the productive better-off of their wages and interest via taxation in order to provide for the welfare needs of the poor. But they should also urge that land-rent, the product of society-entire, be in part devoted to welfare purposes.

It is obviously consistent with true libertarianism to tax land values (or collect economic rent), which is created naturally by the community, than to tax wages (which are produced by labor) or interest (which is the reward capital receives for its part in production).

If man owns himself, he owns his own labor and what it produces; labor, thus, is the sole justification for private ownership. Since land is not the product of labor, it should not be subject to exclusive claim or use unless all who are denied such claim or use are compensated by sharing the land's use-value (rent). Libertarians should recognize that without the full taxation of land values, free enterprise will crumble and collapse.