A BRIEF:

Regarding the Proposed New Formulation of a National Policy Concerning Our Natural Material Resources

Erick S. Hansch

[An unpublished brief prepared by the author in 1960 and distributed to elected officials]

In seeking to formulate a new consistent and effective policy on natural resources it would seem necessary to this writer that the following points should serve as guides:

• An unequivocal and determined declaration that all natural material resources of this nation belong to all its citizens alike.
  
• Private enterprise should be the logical agent for the development of such resources under conditions which a national resources policy should stipulate.
  
• Exploitation of natural material resources should be consistent with the best practices of conservation and rehabilitation.
  

The first point hardly needs any further elaboration. It is a self-evident axiom voiced by many, yet never fully implemented by national policy makers.

The realization of this point will be incidental to the conditions under which private enterprise should be allowed to develop and exploit our resources, as discussed under the second point, as follows:

This writer emphatically takes the position that only private enterprise can develop and exploit natural material resources effectively if certain safeguards for their preservation, conservation and rehabilitation can be established and enforced by our national policy makers.

As one of such safeguards this writer considers the proper allocation of the resources through the pricing system of a free market mechanism.

Another one should be the fair allocation to those who have made their livelihood and economic activity dependent on these resources. The relevant measure should seek simultaneously to avoid the speculative advance of resources costs, since such speculative advance must be considered as a main reason for stagnation in the industry depending on the resource affected.

As examples I cite first of all our land problem. A statement by the U.S. Department of Agriculture released in May 1959 and published on the editorial page of the Oregonian of May 22 of the same year is here quoted:

"Population is increasing, but farm land is limited. Thus, the prospect of a growing population is believed to assure a slow but steady increase in the price of land."

What has here been said about agricultural land can with even greater force be applied to urban sites. "House & Home", leading magazine in the home building industry in its August 1960 issue makes the strongest possible case regarding the exorbitant site values as a cause for severe lags in the housing industry. It can be quoted:

"Soaring prices of land is a main reason why the housing industry lags, workers in that and related industries lose their Jobs, and economic recessions come repeatedly."

To go on from land and urban sites to our timber resources, which occupy such a prominent role in the economy of our State of Oregon: the situation here is reflected, though somewhat one-sidedly, by a statement attributed to Mr. Wm. Hagenstein, Executive Vice-President of the Industrial Forestry Association, who said, as quoted by Gerry Pratt in the Oregonian of December 3, 1960, that the Government timber pricing policy has caused the lumber industry to be priced out of the market.

This statement seems plausible enough on its surface. Considerable timber resources are held by the Federal Government and auctioned off as the demand situation may make it appear desirable. The Industrial Forestry Association seems to take the position that the Government is trying to get too much out of its timber holdings to the detriment of the lumber industry.

This writer suggests, however, that the picture, on a cursory inspection of the published timber auction sales data, presents itself rather somewhat as follows:

Basing its estimates on recent previously realized stumpage prices, the Government will set its valuation, and as long as business conditions appear brisk and favorable the auction bidders, large and small, will drive prices up, often considerably beyond Government appraisals, in the hope of being able to recover the higher prices in a seller's market.

This process finally brings prices to a point where the market will not absorb them as readily any longer, and the first signs of a slump appear in the industry.

Specifically, the housing Industry is most vulnerable because of the simultaneous speculative advance of land prices and stumpage prices. The cost of land has been estimated by housing experts as being now 16% to 18% of the total cost of a home, while ten years ago the land cost was 10% to 12%.

Large timber operators with privately owned timber resources can often adjust themselves to changing price situations because the cost of their resources will generally be lower since they were acquired at a favorable turn of the market. This leaves the small operators high and dry, and small sawmills are forced to shut down.

These remarks about land and timber resource costs can be extended to other fields such as iron ore, oil, etc.

With a constantly increasing population and a continuously augmenting per capita consumption of most everything, the demand pressure on our limited resources (i.e. limited by nature), rises, which means, according to the law of supply and demand, that prices for them must increase, especially since the cost of the other two factors of productions interest and wages, have institutional safeguards protecting them from short-run numerical decline.

With these steady Increases in the cost of iron and steel, oil, etc., the market in these areas again will experience the absorption limit, and the industry affected will lag. Such crises are, as has well been noted, cumulative. Not always clearly observed have been the reasons.

It is therefore suggested herewith that a step be taken which will at once help to allocate our resources properly according to sound economic principles; will prevent the speculative advance of resource costs and thus avoid the periodically recurring recessions and depressions with their concomitant misery and widespread unemployment; will fully acknowledge and implement the principle that all natural material resources of this nation belong to all its citizens alike; will provide equal opportunity for all in using this nation's resources; will provide Government revenue according to the soundest business principle of benefits received Instead of the socialistic one of ability to pay, and thus solve one of the most vexing taxation problems.

It would further automatically provide for a sliding scale of taxation in rhythm with the business cycles of this nation, which feature was recommended by Prof. Walter W. Heller of the University of Minnesota in his paper on tax revision submitted to the House Ways and Means Committee in Washington, D.C. This recommendation takes on added significance since Prof. Heller has been appointed by" the president-elect to the post of chairman of the board of economic advisers.

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The step that is herewith proposed is to collect the rental value of land and all its natural material resources, in. lieu of (many) taxes as Government revenue, and leave improvements largely untaxed.

Since a full discussion of the proposed step would be far beyond the scope of this brief, reference is made to the relevant sources. But the writer feels that the people to whom he addresses himself mainly, will be familiar with the economic principles Involved, and that he needs only to mention them to bring them back to our national consciousness.