When Will Business Revive?
Hyman Levine
[Reprinted from the Single Tax Review, 1921]
In the Spring and Summer of 1920 our foremost businessmen and leading
economists were heralding an era of unprecedented prosperity. Money
was circulating freely, manufacturers were months behind in their
orders, wages were high, and the prospects for export trade were
extremely good. Particularly happy were the dealers in real estate,
for trading was very brisk, and speculation intense. Land was changing
hands rapidly, and always at an increased price. Even the poor
workingman who owned his house made a good profit on its sale.
It was only the discerning whose eyes perceived the coming of a
storm. Henry Ford was one of these. Being engaged in the manufacture
of an article that is to a large extent a luxury, he was among the
first to feel the effects of the social and economic forces that were
driving business to disaster. The drastic reductions in the prices of
nearly all automobiles came as a crash out of a clear sky, except to
the few who foresaw it, and suffered ridicule for predicting it. When
it was followed by the marked decrease in the prices of farm products
and many raw materials, people began to realize that the time for a "readjustment"
had arrived.
It was the common expectation that the revival of business would be
very rapid. I remember distinctly the argument of one of the big
national banks, that the reduction in the purchasing power of the
farmers must inevitably lead to reduced wages in industrial centres
and lowered prices of manufactured commodities; and that as soon as
these had arrived prosperity would return, more glorious than ever
before. It was a comforting and consoling thought, coming, as it did,
from so high and authoritative a source; and, when coupled with the
election of a Republican administration - that eternal harbinger of
good business and prosperity - it made assurances doubly sure.
Yet somehow the prophesy failed of fulfillment. Wages were cut,
prices of manufactured articles reduced, and Harding inaugurated
President; but, instead of taking a turn for the better, business
became worse. Our export trade dropped to a minimum, nearly all
factories closed down in part, some of them entirely, millions were
thrown out of employment, and business failures are increasing at an
alarming rate. The orders that were unfilled have nearly all been
cancelled, and there are no new ones in sight. And people turn one
unto another with the unanswered question, "When will it all end?"
In vain do our modern soothsayers look for omens of a coming business
revival; they find none but the deceptive. Time and again have they
pointed to various factors as indicating the end of the storm; and
invariably have they found themselves in error. The railroads have
been returned to private ownership, Germany has agreed to pay the war
indemnity, peace has been officially declared, the open shop has in
many instances been adopted, and the prices of manufactured articles
have again been reduced; but, as if organized and bent upon malicious
contradiction, these events have brought with them not the promised
renewal of activity, but a more deadening depression.
It is enough to make one think that perhaps our eyes are turned in
the wrong direction, and that our foremost business men and leading
economists have been examining symptoms rather than causes. It is
indeed worthy of note that the soothsayers and prophets to whom we
turn for enlightenment on future events are the same men who were
predicting prosperity less than a year ago.
What is necessary to an understanding of the situation is the
realization that industry consists not merely of bankers, merchants,
manufacturers, laborers, and engineers, but of two prime and
fundamental factors: the productive and the predatory. Once the
presence of the predatory or parasitic factor is firmly grasped the
situation becomes greatly clarified.
It is particularly noticeable in agriculture. Take, for instance, a
tenant farmer who owns everything he uses - machinery, barns, houses,
cattle - all except the land. A farmer with his land very heavily
mortgaged is almost in that position, for the interest that he must
pay on his mortgage is practically equivalent to the rent he would
have to pay for the land were he not the owner.
To farm his land successfully he must meet all operating expenses and
overhead costs. Feed for the cattle, fuel for the machinery,
fertilizer for the soil, or wages for labor are clearly productive
costs. Interest on machinery, livestock, and houses may also be
classified as productive, for these assist directly in increasing the
crop yield. So, likewise, may be considered that portion of taxes
which does not go to graft and waste, for it is chargeable to police
protection, road construction, insect extermination, and the like. But
not so the rent of land; it is largely a predatory charge, for it is
based not on its intrinsic value but upon the amount that can be
forcefully extracted from the producers. The interest upon a farm
tractor or harvesting machine is the same whether it operates on dry
land or on irrigated, on poor soil or on rich, close to the road or
far from it. But the rent of land is not based on its cost of
production, but upon such factors as the value of crops, proximity to
markets, natural fertility, density of population, etc.; it amounts to
what the tenant can be made to pay. I know of a poorly irrigated
Colorado farm of 80 acres which sold last Summer for $20,000. At 7%
interest, which is slightly below the average in the State, the rental
charge would amount to $1,400. The farm was planted in wheat and
produced 1,700 bushels. Thus, 82 cents out of every bushel of wheat
was a predatory charge.
Careful study and analysis will show that similar conditions exist in
nearly every industry, to a greater or lesser extent. Mining,
building, shipping, food preserving, clothes making, and machinery
manufacturing - all must pay a toll to the owners of land; not even
moving pictures are exempt. At one time it takes the form of interest
on a loan, at another a royalty on production, at a third a share in
the profits of the business; but its nature is always the same, it is
rent paid for the use of land. There are, of course; other predatory
elements; any careful thinker can name some without difficulty. But
ground rent is so universal and fundamental, it forms an integral and
important part of all industry, and is so much greater than all the
rest, amounting as it does, to over five billion dollars annually,
that the others may safely be neglected in a consideration of
industrial crises.
The difficulty, however, is not that there is a predatory charge upon
productive enterprise, but that it is a continually increasing one.
Industry can stand a certain amount of robbery, just as a nation at
war can support an army proportionate to its population. When wheat is
selling at SI.30 to $1.60 per bushel, 33 cents would not be too great
a charge - it was that ten years ago - but 82 cents is simply
impossible. Agriculture cannot exist under such conditions. Any other
industry could tell the same tale of constantly increasing rentals
making the burden unbearable.
What occurred in the two years immediately following the armistice
was a race between the producing and predatory elements in industry.
The demand for products was great. People needed more clothes, food,
homes, machinery, and the other things that they had been denied
during the war. Manufacturers put forward every effort to meet the
demand. But the predatory element kept absorbing an ever increasing
share of production, and the more it absorbed, the higher rose the
price of land. The speculation in land that was so rampant in the Fall
of 1919 and Spring of 1920 was not a sign of coming prosperity, but an
indication that the demands of the landowner would soon become
unbearable and that industry would have to come to a halt. It is
precisely what occurred. House rents rose and reduced the purchasing
power of laborers and salaried men. Store rents in the principal
streets increased to such a point that commodity prices necessarily
became exorbitant. Inflated site values lessened the number of new
enterprises. These all combined to produce the inevitable, and the "depression"
arrived.
Forty-two years ago Henry George made a study* of the causes of
recurring industrial paroxysms, and suggested a remedy that would
effectually remove them. People, however, do not seem to be interested
in preventing a future panic; they are merely anxious for the end of
the present one. It is easy to predict that. The parties to be watched
are not the railroads, stockyards, machine tool builders, or auto
manufacturers, but the owners of land and the receivers of rent. The
favorable omens lie not in the entrails of productive enterprise, but
in the activities of predatory landlordism.
When land comes down in price, substantially and materially, and when
rents return to a reasonable level, then will industry resume its
normal course - and not till then.
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