The Ownership Solution

Jeff Gates

[Excerpts from a moderated discussion of the proposals by Jeff Gates in the book The Ownership Solution, May 1999, participated in by SCI Director, Edward J. Dodson]

STEVE KURTZ / 7 May 1999

I am pleased to open these discussions on behalf of Communications for a Sustainable Future and The Canadian Association for the Club of Rome. We thank author Jeffrey Gates for agreeing to participate, and also thank the volunteer moderators and the staff of CSF for facilitating these proceedings.

AL ANDERSEN / 7 May 1999

Clearly, our common-heritage wealth (like land, its natural resources, air, water, the ecosystem, cyberspace, and intellectual property) is the foundation of all other wealth; nothing can be done without it. Thus, those elite few who have "ownership" of it have always controlled the entire economy.

HANNO BECK / 7 May 1999

Jay Hanson suggests that The Ownership Solution does not challenge our problems at a sufficiently fundamental level. I think that's a fair criticism, although it's also true that one must start somewhere. Plenty of us are kept quite busy just beginning to remove some of the artificial distortions of modern-day capitalism.

Al Andersen wisely points out a vital distinction in "ownership" -- ownership of what you produce is a natural right, but "ownership" of natural resources (including air, airwaves, etc.) is a special privilege that excludes others. No one produced natural resources, and no one has a better claim to them than anyone else.

Recognizing this vital distinction can add much power to Gates' analysis. Anything that is a special privilege should either be removed or spread out so that all people participate in it.

JEFF GATES / 9 May 1999

As you'll find from reading The Ownership Solution, this is a multiple goals/multiple problems issue. It seemed to me that ownership patterns are themselves a "property" of the system (much like wet is a property of water) -- a meta-property of sorts. And that with a component of ownership that is peoplized, human-sized and local-ized, free enterprise will become more community-wise. It's very much a systems idiom for accessing a subject that has long been mired in ideology -- suggesting that by designing ownership into such patterns multiple systems will be better able to learn -- and will become more sustainable. The five (overlapping) domains I identify are fiscal, social, cultural, political and environmental. I found that sustainability provided a handy access point to the subject-matter. Stu Kauffman (at Santa Fe Institute) "got" this immediately, seeing that it was about a system for "distributed control" -- which is the moral foundation of both markets and democracies.

So, yes, it multiple goals, multiple problems -- all of which are perpetually emergent, coevolving, interdependent, interpenetrating and "nested" inside one another like so many chinese boxes or russian dolls. Like so many pebbles polishing each other as they are pushed along downstream, each of these domains is in constant flux - as both markets and democracies are supposed to be. The challenge lies in evoking more collective foresight. As least that's my take on it.

EDWARD DODSON / 11 May 1999

Ed Dodson responding to Barry Randall...

Page 29. LBOs are feasible only because of the self-financing logic of the closed system of finance ("productive assets can pay for themselves").

There is another reason why LBOs were/are feasible. Many corporations own land (undeveloped but buildable or natural resource-laden) carried on the books at cost. These assets are not marked-to-market, even though market values have climbed over time. Thus, the break-up value of a company might be considerably greater than the book value of the company.

To date, most Americans have been left with access to the wrong sort of credit --- that is to say, consumer credit. Whereas "investment credit" ----- of the LBO sort --- can make you self sufficient, even rich, consumer credit erodes your income to the extent of future interest charges.

Agreed, with the notable exception of long-term, fixed rate mortgage debt, which is repaid with dollars that have less purchasing power than those borrowed. In the U.S. the last two periods of extensive refinancing activity increased the disposal incomes of millions of households by hundreds of dollars per month.

Page 207 In his search for the common factors that led to the failure of twenty-one past civilizations, historian Arnold Toynbee identified two: concentrated ownership and inflexibility in light of changing conditions.

Gibbon and Ferdinand Lott added the observation that in both Greece and Rome small freeholders who shifted production to cash crops (olive oil and grapes) and mortgaged their lands to do so, eventually all lost their lands to creditor landlords and ended up as either serfs or slaves. Does this not sound somewhat familiar to the family farmer around the world today?

JEFF GATES / 11 May 1999

Responding to Keith Wilde.

I am very interested in the tack you are taking here, but I am not sure What Jeff means when he says that "economic science has not as yet devised a paradigm for thinking about ownership patterning", and I have entered quite a different perspective on his call for some modeling of ownership patterns.

One might hope that economic science would have some way of evaluating the impact of ownership patterning on, for example, the need for entitlements. It doesn't. Ownership somehow got relegated to notions of corporate control and the notion of residual rights. Beyond those two quite limited issues, I find that the science has largely left this issue to the side. Perhaps I'm being too severe in my criticism. If so, kindly point me to some literature where ownership patterning is used in economic analysis. It seems the issue is largely relegated to domains of political and social science.

I work in a micro-simulation shop.) I hope you will be willing to put in a little more work on your contribution, for I would like to see you draw out the distinction between the George way of distributing the rights to the product of valuable property and the Kelso-Adler way of individual shares rather than tax payments to the collective. Could you also pay a bit of attention at the outset to the possible ambiguity in "a paradigm for thinking about ownership patterning"?

Gates response in a general and overly broad fashion -- Georgists say land is a common heritage and only its use can be divisibly owned. Because the Kelso/Adler approach comes at this from a corporate perspective, I suppose they might say that land is often mixed in with other corporate assets and thus, while the corporation is indivisible, its ownership is infinitely divisible. I think they would tend to view it as another productive assets lacking the special attributes attributed to it by the Georgists.

Re a paradigm for thinking about ownership patterning. My hope in The Ownership Solution was to provide a lense through which to see the world in a different way. Oftentimes, the world of economics is viewed through a lense of employment patterning or income patterning. I thought it might prove useful to think about how the world might be different if ownership was inclusive rather than exclusive - and the potential impact on fiscal sustainability, civil cohesion, environmental sustainability, etc.

ED DODSON / 11 May 1999

Very quickly, I would ask you to think in terms of market equilibrium theory. Neo-classical economics (what is taught today in the universities) states that price clears markets. Well, that is true for labor (which must produce in order to survive) and for capital goods (which begin to lose utility value as well as exchange value almost from the moment such goods are produced). Thus, the supply curves rise with increases in price. For nature the theoretical supply curve is vertical (i.e., the supply is (nearly) inelastic. Under existing law that allows collected and imputed rent to be capitalized into a selling price for locations and natural resource lands, the supply curve actually leans to the left, indicating a tendency for owners of land to hoard or speculate as prices rise. There is -- generally speaking -- no economic penalty for doing so because -- generally -- the annual carrying cost of holding land out of use is low and land does not -- generally -- depreciate in utility value.

The concentrated control over locations by wealthy individuals, by governments and by corporations also means that when the market price for locations fall the owners are able to simply withdraw from the market until the inflationary spiral returns (after a prolonged period of disruption, bank failures, bankruptcies, and massive government borrowing and spending).

Conservatives and libertarians have a very difficult time abandoning the idea that private ownership of nature by some is at the expense of the rest of humanity. And yet, the most important basis for arguing the case for sustainability is that of the moral principle that the earth is the birthright of all persons equally. If this is a human right, then the logical question is how to make sure this right is upheld and enforced. The earth cannot be divided into equal parcels (or parcels of equal potential productivity) and distributed. Leasing portions of the earth to the highest bidders (subject to common sense restrictions on how the lessee might exploit the leased portion) is the only way to achieve an equitable distribution. Every location has advantages and disadvantages that will be reflected in how much a user will bid; and, having to pay a market rent, no one will bid for access without a plan and the capacity to produce. Thus, distribution of access if awarded in the most efficient manner we have available to us -- the market. Who will collect the ground rents (local communities or larger governmental jurisdictions) is an issue that various writers have strong opinions on (I favor upward revenue sharing; the ground rents collected locally, with appropriate distributions to state and national governments based on services provided). Participatory government (i.e., the maximizing of democratic decision-making) will tend to result in the right division between public and private services, with the opportunity for citizens to change their minds based on experience and results. If the rent fund has not been fully spent, then I take the libertarian view that it should be distributed pro rata to each citizen.

Let me know if the above comments are on the order of what you were hoping for.

JEFF GATES / 11 May 1999

Thanks for the response. I'm not certain higher-bidder/most efficient analysis works for the common heritage. I'm thinking of Pacific Lumber as a case on point (mentioned in the book) where a LBO resulted in stepping up the cutting rate of old-growth forests in order to pay down LBO debt. Very market-oriented bidding combined with financially efficient means to repay debt. Effectiveness is in considerable doubt (though the LBO artisan did finally negotiate a cutting contract along with some land swaps).

Sustainability-wise, I'd opt for some element of ownership by people who live near/in/over the assets being developed. For example, how would logging look if part of your pension were based on the sustainability of that logging (i.e., revenues from the operation that would not be realized for 30 years). I keep thinking there must be some way to owner-engineer our way to some mix of ownership patterns that and risk-reward sharing that better advances our collective foresight. Certainly today's detached, abstract and disconnected capitalism is proving itself deficient on that score.

When we're talking about trans-generational obligations, we've got to find some way to inject those obligations into current economic decision-making. It may be time to recognize that finance-based economics is just too far off base to be very helpful. I wonder if it's time to ask for input from the courts (though I hesitate to think the results would be great given the way they were staffed over the past two decades). Nevertheless, I take considerable encouragement from a recent court decision that I discuss in my next book -- let me post a (rough draft) excerpt from that in the hope that it might broaden our discussion and encourage us to think about how we inject a trans-generational ownership obligation into the mix.

The right to a balanced and healthful environment is clearly within the protective scope of the Constitution. Indeed, it seems reasonable to expect that the Executive Branch of the government might well be forced by a concerned citizen to bring such a suit. Just such a suit was filed in the Philippines where their Supreme Court granted standing to 42 children who brought an action to ensure "the judicious disposition, utilization, management, renewal and conservation of the country's forests, mineral, land, waters, fisheries, wildlife, off-shore areas and other natural resources to the end that their exploration, development and utilization be equitably accessible to the present as well as future generations."

In approving the suit for further disposition, the Philippine court took a courageous yet commonsense stance in holding that "the right to balanced and healthful ecology" need not be found in the law because "it concerns nothing less than self-preservation and self-perpetuation." Further, the court noted that the advancement of environmental sustainability "may even be said to predate all governments and constitutions. As a matter of fact, these basic rights need not even be written in the Constitution for they are assumed to exist from the inception of humankind."

The legal issue is one of the right to have an earth capable of sustaining life. That's about as fundamental a posterity issue as can be imagined. The United States has three branches of government for a reason. One very practical reason is that sometimes it proves difficult for elected officials to break the chains of present-day politics in order to address the needs of those too young to vote. It seems to me essential that such a suit be filed in order that we might as a nation establish a precedent in law that recognizes the interconnectedness of the present and the future in legal terms.

It is crucial that we find some way to protect the rights of children, particularly as the number of children in America is expected to exceed 90 million in 2050, versus just 70 million today. More than 90 percent of this increase will come as the result of immigration (mostly Hispanic and Asian). At the same time, however, the number of families with minor children will continue to shrink, suggesting the need to ensure in political decision-making the principle of shared responsibility for all children in society. As with markets more generally, the appeal to self interest will no longer suffice to support policies that honor the interests of children.

Protecting Environmental Properties

Markets have a place in democratic capitalism. Yet they also need to be kept in their place. Living as we do in a country that now has a cancer rate 20 (?) times that of other developed countries, it's clear that market signals alone have proven inadequate to guide our course. The quandary we face is multi-faceted and not easily addressed. One way to think about it was capsulized for me in an article titled simply: "Who Will Pay the Pollinators?" What happens if nature's pollinators don't show up for work? Do we pay them more? Do we appeal to the National Labor Relations Board? Or what?

There's certain assumptions that markets make about the future that are proving to be wholly false, particularly those about the environment. We now know, for example, that we are cutting two percent of the world's standing rain forests each year. That works out to eighty-thousand square miles a year. That's an acre each second. And even where forest is not clear-cut, it is often fragmented into small "islands" that are ecologically fragmented because they are separated from the whole. For example, the ruby-throated hummingbird previously migrated to the United States each year, stopping along the way in different rain forest habitats to rest and feed. With many of those habitats now destroyed or left in separate, more distant fragments, they are now too far apart for the birds to successfully navigate the migration. As a consequence, many now perish enroute. Such is the fate of that particular labor force of pollinators.

EDWARD DODSON / 11 May 1999

Ed Dodson responding to Jeff Gates...

It was much more Kelso than Adler who insisted on linking the ESOP notion to what Kelso called "two-factor theory" -- the notion that human capital is an input deserving renumeration as is physical or other non-human capital. Kelso felt that non-human capital, in a fully functioning market system, would provide a complimentary source of income (a "second income"). Note that federal tax law provides ESOP-sponsoring employers a tax deduction for dividends paid on ESOP shares provided those dividends are either paid out to employees (as taxable income) or used to repay an ESOP loan (the "self-financing" notion that underlies the ESOP concept). Perhaps someone on this list might post their appraisal of two-factor theory?

By accepting the idea that land is acceptably defined as one type of capital good, Kelso played into the hands of the very economists who spent a good deal of their careers using the two-factor model of economies to defend the status quo and the idea that resources are scarce. I have long been surprised that Mortimer Adler did not recognize this inconsistency when the two combined energy to write on the subject.

Rather than end the private appropriation of land rent, what the Kelso/Adler proposal does is broaden the private distribution of rent -- as well as the legitimate returns to the investment in capital goods.

Nature is not produced by labor nor by the application of the capital goods produced by labor. Nature has, then, a zero cost of production in terms of labor and capital.

In another posting I elaborated on the why the price mechanism so cherished by neo-classical economists does not work with regard to nature (i.e., locations suitable for building on, agricultural lands, natural resource-laden lands and the broadcast frequencies).

Take the housing market for example. It is composed of numerous markets functioning simultaneously. New construction (if built on speculation) is like inventory; the longer it sits unsold there is a measurable loss in utility and newly-constructed houses will sell for more -- all things being equal. Interest rates are normally equal. Labor costs are normally equal. Materials costs and transport costs are normally equal. Regulatory fees and taxes are equal at the state or national government level, but very unequal at the local level. And, then, there is land cost, the greatest variable of them all as a component to housing prices. And, how does land (the first factor -- the source of production but not itself production -- under the classical model of economies) warrant this separate treatment? The tendency is that any reduction in the labor, materials, tax and other costs associated with housing will be capitalized into high land prices. I have working in the housing sector for 25 years; this is how the land market works. A two-factor model does not capture these dynamics.

JEFF GATES / 11 May 1999

However, like the societies discussed by Nancy Glock-Grueneich, Aboriginal relationships were much more complex and intimate than indicated above.

Responding to Ed Dodson:

The political/economic/social structure to put these ideas into practice is what I call a Community Land Bank (CLB) described in Democratising The Wealth of Nations and expanded in a number of other articles listed at http://www.peg.apc.org/~shann "" Refer to the contributions by Bob Swann and self in the TOES book Building Sustainable Communities which also explains the differences between CLBs and Community Land Trusts.

Responding to R.J. Morrison:

No matter how small or large the income distribution may be, distributing ownership would distribute power and control over cash flows to avoid resource rich communities becoming cash poor and destroying their natural environment. This in itself would create a more equitable sustainable society.

It is this concept which provides the basis for my proposal for a World Community Investment Code in Appendix B of my submission to the Australian government soon to be posted at: http://www.aph.gov.au/house/committee/eewr/ESO/subslist.htm There are many other articles listed on my web page.

Responding to Barry Randall:

His boss, Jimmy Wolfensohn used ownership transfer provisions in financing the Eraring power station for the New South Wales provincial government in Australia, following my 1978 report for his client, the State Premier.


Though I've never yet seen a U-Haul behind a hearse, it is true that people will try to take it with them -- no matter where or when they go. Shann Turnbull and I share the opinion that local capital is simply smarter -- it is better able to hear, to adapt, to go where needed. Following adoption of the North American Free Trade Agreement, the Manitoba government authorized the establishment of several investment funds whereby tax incentives would be provided to save money, provided the funds were invested in Manitoba. The Crocus Fund now has US $100 million that it invests largely in venture capital in smaller firms in Manitoba. While this is hardly "self financing," it is a new way to think about what role capital should play. Crocus intends to use ESOPs as a primary investment exit mechanism.

EDWARD DODSON / 11 May 1999

Ed Dodson responding to Jeff Gates ...

In response to Don Roper, Jeff wrote:
Having served as counsel to the Senate Hydrocarbon Committee for seven years (AKA Senate Finance Committee), it seemed to me then that the likelihood of full-price accounting for hydrocarbons was not in the cards ...

Absolutely correct. Corporations and all businesses engaging in resource extraction activities on publicly-owned lands use whatever means they can to pay less than market rents for access to those lands. Not too long ago I recall reading that there is a large secondary market in public land leases; the lessee paying the U.S. government, say $1 an acre per year is able to turn around and sublease its rights of exploitation to another company at the market price of, say, $10 an acre. Thus, in such case production is not even being subsidized in order to moderate prices to consumers; the ground rent that ought to be used to offset government expenses is being siphoned off as private profit. Despite countless Congressional hearings on this and similar subjects, I am not aware of any meaningful changes in the laws or how they are administered to suggest the public interest is being served at the expense of entrenched vested interests.

EDWARD DODSON / 11 May 1999

Ed Dodson responding to Jeff Gates ...
In response to Al Anderson, Jeff wrote: ... money is a social tool. I suggest that it be used in a way that supports those values to which we at least pretent to aspire. My hypothesis is that widespread ownership will do better job of dispersing money (and power).

In all but barter situations today, what is exchanged for goods and services is not actual money, of course, but either promissory notes or their electronic representation. And, these promissory notes are not backed by any specific quantity of goods or services (with the exception of local currency systems that have arisen in regions where there is a shortage of government-mandated legal tender).

The world has only briefly had a system of sound money. When in the 16th century the Bank of Amsterdam acted as a bank of deposit for gold and silver bullion, issuing certificates of deposit that became the accepted medium of exchange in the global (i.e., European) economy, trade flourished and production expanded. Unfortunately, the directors of the Bank eventually discovered the magic of fractional reserve banking.

Governments have cleverly made it possible to do what no individual or entity is able to do -- to self-create credit by mandating that promissory notes issued by central banks in exchange for promissory notes issued by government be accepted for all debts public and private. A corporation is able to issue bonds, of course, collateralized by the general (or specific) assets it owns; but, there is no law that requires anyone to accept the bonds in payment for debts.

A sustainable economy requires an extensive, privately-run system of banks of deposit that will gradually convert legal tender currencies into certificates of deposit backed by baskets of goods. With enough people and businesses and groups belonging to this private network, government legal tender will eventually be discounted out of use. And, governments would be forced to secure credit the same way the rest of us must and to actually raise revenue via taxation or user fees in order to spend it. Banks of deposit would invoke Gresham's Law in reverse: good money would chase out bad.

EDWARD DODSON / 12 May 1999

Jeff Gates has repeatedly asked the question (I paraphrase): "What is the legitimate basis for ownership?"

This is an OUGHT question, answerable only by acceptance of a moral principle. Mortimer Adler provided us with considerable guidance in his book "The Common Sense of Politics." Adler develops further the Lockean concept of property arising out of mixing one's labor with land. Unfortunately, both Locke and Adler conclude that this justifies property in land, so long as the land in question is land that is actively worked by its claimant. The more appropriate conclusion is, I suggest, that we acquire ownership in what we produce (whether directly with our labor or with the assistance of capital goods we produce or acquire by exchange). This position is a "labor theory of property" that leaves land ownership in that realm Locke described by the term 'licence'.

Now, in return for societal granting and protection of such 'licences' to monopolize a portion of the earth and exploit the natural resources available, virtually all of the political economists and philosophers from Locke on wrestled with the moral considerations associated with payment to society of ground rent. Locke, as some may recall, thought such payments were -- while morally appropriate -- were practically speaking not necessary because of the vast untamed wilderness then called the New World; there was more than enough as good or better land to be had by all, so long as absentee landlordism was not permitted to take hold. Smith, Malthus, Ricardo, Quesnay, Turgot, Mill and Mill, all found way to compromise the moral principle at stake. Thomas Paine's pamphlet, 'Agrarian Justice', put moral principles back in the forefront but was largely ignored because Paine and his heretical ideas had become persona non grata. And so, it was left up to Henry George in the 1880s to attempt to resurrect the labor theory of property. He made a good run at it, stirred up some dust and made a lot of entrenched people very nervous.

Henry George contributed a great deal to this debate that is poorly appreciated today by most of us, as evidenced by the fact that a century later we still grapple with the same issues. George realized that uprisings would rarely, if ever, result in the implementation of just socio-political arrangements and institutions. He was right. His action plan was to educate the public -- primarily in places where they had the vote and could organize politically -- and get them to vote for changes, chief among the changes being the elimination of taxes on property and earned income and on commerce (he was a staunch advocate of free trade, even unilateral free trade). Ground rent (i.e., the rental value of locations, natural resource lands and what he called "natural monopolies") is and ought to be treated as that portion of production owed to society, to all citizens collectively, because titles or leases to 'land' are licenses granted by society. To the extent people are willing to give up some of what the produce to gain control of location or the privileges under any license that restricts access (e.g., taxi medallions, liquor licenses) the payment is due to society and not to any individual. This was George's practical application of public policy consistent with the moral principle.

Well, there are a fair number of communities around the globe that are applying this idea to some extent by exempting property improvements from some or all taxation and collecting some portion of the annual rental value of locations as a land value tax or as 'rates'. Activists around the globe (perhaps a few thousand in total) pound away at politicians to enact laws to keep moving in this direction.

Many other activists have decided this approach is not moving along well and have dedicated themselves to getting hold of as much land as possible to put into land trusts and out of private hands. This is another practical approach to solving the problem.

More later... To Jeff and others, I hope this generates some discussion.

EDWARD DODSON / 13 May 1999

Ed Dodson responding to Bill Ryan ... Bill wrote: There is nothing accomplishable through the "securitization" of pollution rights that cannot be accomplished through a reasonable program of regulation and taxation. In effect, such "securitization" is the privatization of taxation and the further erosion of the sovereignty of government.

Those who advocate the use of market forces to price and sell the privilege of polluting tend to view this as a transitional measure until the cost of instituting new technologies falls to the point where profit margins associated with "clean production" are equal to or greater than the status quo.

A far easier and more comprehensive solution is available to us, if we are able to convince policy makers to take advantage of how the market for land functions. The rental value of any location in the market is dependent on the cost of doing business at that location. Thus, a location subjected to little or no regulation would tend to yield much higher rent than a location where use is highly restricted (and where the user is prohibited from discharging pollutants into the atmosphere or water or ground, etc.). If a society is collecting the full rental value of locations as a revenue source, then the decision about regulation becomes one of whether to forego rent -- and prevent pollution -- or collect higher rents and use the revenue to remedy the pollution. Common sense dictates that in most instances prevention is the best course of action, although there are some cases where remedy works best (e.g., the treatment of raw sewage at a central treatment plant or series of ecologically-beneficial cleansing areas).

The theory of rent is extremely potent and directs us to changes in public policy that fundamentally attack the status quo and conventional wisdoms. Perhaps that is why entrenched interests have dedicated so much energy to channel research funding away from this area of analysis.

EDWARD DODSON / 13 May 1999

Ed Dodson responding to Jeff Gates...
In response to my post, Jeff wrote: ... difficult to know what to say about this. I do speak about CLTs (Community Land Trusts) and about cooperatives (as in Italy) and other means for addressing some of the ills George identified. Perhaps there's a misconception afoot here. I'm not advocating a solution. This is not some silver bullet, panacea approach to political science. The goal was to stimulate the institutional imagination and to assist readers in seeing their world anew by viewing it through the prism of participatory ownership patterns. I don't think there is one ownership solution. There's doubtless many. Mondragon works in the Basque region of Spain. Would it work in Berlin or Islamabad? That makes me altogether insufficiently doctrinaire for some who tout a certain line on this issue. I long ago found them boring beyond belief. And profoundly, resoundingly ineffective.

I certainly agree there is no silver bullet to solving the complexity of problems and issues that threaten our survival (and that of life on this planet). I do think there are strategies that positively work in concert toward fundamental change. I recognize that a very difficult challenge is to advance a particular set of socio-political principles without seeming to be an utopian dreamer; and, yet, one of the most powerful obstacles to change is the defense of cultural relativism in the guise of moral principles. Thus, we must have debate over principles if we are to reach consensus over value systems that are sound at the core and yet sufficiently flexible to accommodate individual differences.

What is important about discussing the principles of the basis for ownership is that we then understand and acknowledge what compromises we are making for practical considerations.

EDWARD DODSON / 13 May 1999

Ed Dodson responding to Paul Dillon ...
Paul, you wrote: When you write "the theory of rent" are you referring to an integrated theoretical framework, e.g., the micro-economic theory of the firm. I was under the impression that rent was one of the more slippery fish in the sea of modern economic theory and that it hadn't been as successfully developed as other topics in that discourse.

I am referring to rent theory as developed by the political economists and which today relates to markets rather than how firm's maximize allocation of resources to achieve specific output objectives. For quite a long time, economics textbooks have (because of the adoption of a two-factor -- labor and capital -- model of economies) paid little attention to rent as the return to land. Rent is defined today as a surplus return, period. Thus, people who make more than the average for their profession are receiving a surplus above what would be necessary to bring their labor to market. In this same sense, economists write that investment in capital goods can yield rent.

The presentation of rent theory reached its high point within the community of political economists in the writings of Henry George (that is my view, at any rate). A number of economic theorists have in recent years gone back to take another look at the three-factor model. Several have been mentioned in these discussions already (e.g., Tideman, Gaffney, etc.). Another economist whose writings deserve critical re-evaluation is Harry Gunnison Brown (who, in his prime years, taught at Washington University in Missouri).

EDWARD DODSON / 13 May 1999

Ed Dodson responding to Steve Kurtz...
Steve wrote: Al Andersons gripe is based upon an assumption/belief that is stated (talked, not walked) by most religions and their followers. It has to do with notions of ethical value and human rights. Al uses the terms "Justice" and "fairness" to represent it; others might use "equality", "righteousness", etc. From these types of terms, Al and many others evolve a set of extensive definitions - all taken as 'self-evident truths'. My point is that these truths are anthropogenic (man-made). I may agree with Al on sharing what he calls "common-heritage capital", but that is my value judgment.

Rights have to do with behavior not beliefs. Locke is our primary source for dividing behavior into the realms of just behavior (i.e., liberty) and unjust behavior (i.e., licence). Mortimer Adler adds an important qualifier to the definition of liberty by stating that "liberty is freedom constrained by justice." I, for one, would be elated if any religions even talked in these terms. I continue to hold much the same opinion of the organized religions as was held by Thomas Paine.

Values are not necessarily rooted in cultural relativism, although many values are held in doctrinaire fashion by people willing to accept with question the authority of others (the "true believers" Eric Hoffer wrote of). As I review our history and observe our behavior, I see a preponderance of evidence that we possess (to different degrees, admittedly) a moral sense of right and wrong. How we acquires this moral sense I do not know. What is striking is that at least some people who experience little or no socialization about right and wrong -- about values -- still adopt values consistent with liberty. We have this remarkable capacity to contemplate our behavior, to look into the future at the probable consequences and then make judgments -- even moral judgments -- about whether to act. We are a long way form consensus over what is and is not just behavior, but at least there is a global dialogue taking place -- over the internet, at international conferences, at UN forums, among NGOs, suggesting we are in pursuit of transnational (i.e., universal) values. We still have wars, but most people agree war is not the way to solve problems between societies or between groups within societies. We still have murders and rapes, but most people agree murders and rapes are acts of criminal license. We still have pollution, the destruction of habitat and other forms of environmental degradation, but most people agree this has to stop. These values are being adopted by us as people as we learn more about the consequences of our behavior and how this learning nurtures our moral sense of right and wrong.

EDWARD DODSON / 13 May 1999

Ed Dodson responding to Jeff Gates...
Jeff wrote: Gates response: or maybe those entrenched interests can't figure out how to get from here to there. For example, the imposition of additional charges -- whether called emission fees or polluter rents -- raises costs. For firms that cannot move (utility power plants), that clearly raises their costs that, unable to move, they will attempt to pass onto their customers. If they can't, what then? In the case of emission rights, they can trade them, so the incentive to move is reduced -- and, ideally, the "efficiency" of the regulation (vis pricing) is enhanced. Plus the emissions track the polluter and are not wedded to the site (taxes on which are sensitive to political pressures -- suggesting a competitive "race to the bottom" amongst neighboring political districts). There also appears to be an assumption of "rent" paid to a government entity. In what status? As owner? If not, isn't that a tax? If that could be done, why hasn't it been done? If as owner, how do you get from here to there?

Ed Dodson here: (1) In instances where private persons or entitles have title to locations, the public policy is to collect an annual tax nearly equal to the annual rental value of the location. Thus, this translates into, say, a 90% tax on rent.

(2) In instances where public lands are leased to private persons and entities, the public policy is to lease the locations under an auction-bidding system to the highest bidder.

In both cases, the cost of regulation will directly influence the rental value of the location. If we democratically agree that we shall have a zero tolerance for pollution, the cost of achieving this will be factored into the amount bid for control of a location. The rental value will tend to be lower than if the location was not subject to tight regulatory controls of its use.

As to what this has not been done, the answer is that it is being done on a limited basis without a full appreciation for the synergy that develops when owners and holders of locations -- each acting individually -- begin to bring the land in an entire region to its highest and best use; that is, the highest and best use the community permits based on zoning, land use and other regulations.