A PROGRESSIVE TAX ON BARE LAND VALUES1 TH HE "single tax" proposal of Henry George went on the ethical doctrine that land was a gift of Nature to all men equally and on the economic doctrine that land consists of the forces of nature that produce wealth in excess of that produced by labor. The title of the owner to this rent was therefore invalid and it would not be confiscation to take it for common use. Land really consists of four factors: bare land, improvements, original fertility, and improved or maintained fertility. Each has a distinguishable value. Bare-land value, at privileged spots in cities, may be very high, depending on access to markets and on the foundation afforded by the land for buildings. If the foundation is not suitable it must be improved by cutting down hills, filling swamps, driving piles, and so on, thus adding an improvement value to the bare-land value. It is similar with agricultural land. This furnishes a foundation, partly for structures but mainly for fertility. The value of bare land for agricultural purposes depends on access to markets and the foundation afforded for fertility. If it is sandy soil, its capacity to take on fertility is low. If it is a high grade of silt loam, which, however, has been worn out by destructive cultivation, it still has a capacity to be brought back to its original fertility, and this capacity is greater than that of the neighboring sandy soil. In both cases, it is the texture, the shape, the topography, the "lay" of the land, that determine how much plant food it will be worth while to put in and keep in the soil. The fertility and plant food may be exhausted, but the "original and indestructible" qualities of the soil are the foundation furnished for original, maintained, or improved fertility. It cannot usually and economically be made to take on more than its original fertility, and it can, by good cultivation, be made to take on nearly that much. In accordance with the custom of THE POLITICAL SCIENCE QUARTERLY, the Editors disclaim responsibility for theories or policies advocated by contributors. some cases, like truck gardens, it is profitable to add more than the original fertility, and this excess is properly named "improved fertility"; while, if maintained at the level of its original fertility, it is kept " at par". But whether it is worth while, economically, to keep it at par or above, depends on access to good roads and good markets. If it is good for truck gardening and accessible to good markets, the farmer may even build it up beyond its original fertility by abundant manures, artificial fertilizers, turning under green crops; in short, by intensive cultivation and good management. In any case, farm land is quite like urban land. A good foundation for buildings, accessible to good markets for the kind of product produced and sold, furnishes, in the best locations, an opportunity to put up a sky-scraper, in others to put up two or three-story buildings, in others to put up homes accessible to factories and business blocks. If these improvements are inaccessible to markets, or if the owners have built too many of them for the existing markets, then the improvements have been wasted, and they shrink in value below what they cost. There is thus a rough correlation between the value of the bare land and the value of the structural improvements which it is profitable to put on the land. It is quite the same with fertility. There is a rough correlation between the value of the bare agricultural land and the value of the fertility which it is profitable to maintain at par or above. If the land is remote from markets it is more profitable to let it run to pasture. If it is near markets it can profitably be put to crops that rapidly exhaust it and this exhaustion can profitably be counteracted by intensive cultivation and careful management. Whether or not any given piece of land will follow this correlation depends on its ownership and management. Tenancy and bad management may deplete the soil, good management may keep it even above par. It is similar with urban land. One owner will build a sky-scraper, the next will keep his land vacant. The rough correlation between bare-land value and the value of improvements or improved or maintained fertility is a correlation, not of what is always actually done, but of what is economical, that is profitable, to do. The individual differences of landowners are great, and it is exactly these differences that are affected by the system of taxation. But differences between individuals are not the only differences affected by the system of taxation. Each of the four factors of which land consists is also affected. In fact, there are three variables to be considered in imposing taxes. One is the individual faculties or abilities, the human resources of the nation; another is the opportunites to exert the faculties, the natural resources; and the third is the inducements to exercise the faculties and conserve or expand the resources. inseparable but distinguishable. These are Profit The differences in abilities are, of course, very great, but the main difference, from the standpoint of inducements, is that which Schumpeter has made the center of his theory of economic evolution,' the difference between the "static-hedonistic" laborer or peasant and the dynamic business man or capitalist. These differences underlie the essential distinction between wages, interest and rent, on the one hand, and profit on the other. Profit is the inducement of the dynamic factor; wages, interest and rent the inducements of the static factors. looks to the future, is speculative, takes risks, and, in doing so, animates the business faculty that attracts and commands laborers, investors, and landowners to do its bidding. The others must be induced by the business man through offers of wages, interest, rent; but business ability is self-induced by the prospect of profit. Profit is the constructive factor; the others are passive, awaiting the initiative of profit. And it may correctly be said that, not "land" or "labor", but profit, produces wealth. This is the justification of private property and inequality of compensation. If people would work voluntarily according to the socialist principle, " From each according to ability, to each according to needs", then private property and profit might be discontinued. But people, as a rule, actually work on the 1 Schumpeter, J., Theorie der Wirthschaftlichen Entwicklung (1912). Cf. Lenin's The State and Revolution, where the dictatorship of the proletariat is to continue until mankind acts voluntarily on this principle. principle from each according to ability, to each according to ability. And this is the essential attribute of profit, the compensation to business ability. Others may be paid in proportion to their needs, or in proportion to their strategic position as owners of what the business man needs, but business ability is induced preeminently by prospects of profit according to ability. Yet business ability is inseparable from the opportunities to exercise it. These opportunities also have differential advantages as great as the differences in abilities, and these differential advantages are the very reasons for private property. Karl Marx even maintained, in contrast to Ricardo, that it was private property and not differences in productivity, that caused the phenomenon of rent. Certainly if all property were held in common, then these differences in productivity would be merged into a single fund, and Ricardo's differential productivity would become Marx's "average" productivity. Ricardo emphasized the differences in nature, Marx the differences in ownership, but the two are subordinate to differences in profits. Private property of all kinds, whether in bare land, improvements, original, maintained or improved fertility, is justifiable exactly on the grounds that it is differential advantages that furnish the telling inducements to the dynamic factor to make all the profit possible, since only by differences in compensation will business ability come forth and give employment to the static participants. Luck, chance, gifts of nature, whether they exist in one's own faculties or in nature's resources, are all alike in that the differential gains to be obtained from them are the big inducements to the business man to seek out the best instruments and use them to the best advantage. This has its bearing on taxation. Taxation is the reverse of private property since taxes are deductions from profits, wages, interest, or rent. Under the régime of private property and liberty the business man can withhold the exercise of his faculties and can withhold the utilization of his natural resources, if the compensation is not deemed great enough. And, since taxation deducts from profits, he withholds the use of both his faculties and his natural resources directly according to the 45 burden of taxes and inversely to the expected profit, which is but saying that he makes the largest use of his faculties and natural resources directly in proportion to expected profit and inversely in proportion to taxes. "Ability to pay" is usually invoked to justify taxation of incomes and inheritances, that is, taxes on the actual acquisition of income. It is also invoked to justify the general property tax, that is, taxes on the prospective acquisition of income.1 In the former case, ability to pay leads to progressive taxation by increasing the rate as the income or inheritance increases. In the latter case it leads to a uniform rate on the value of the property on the idea that the amount of property owned measures the ability to pay.3 This is the popular notion of equality. A dollar invested in bare-land value is exactly like a dollar invested in improvements, in original fertility, or in improved or maintained fertility. Each dollar measures just as much ability to pay as any other dollar. Why should there be made a distinction between one man who invests $100,000 in a farm without improvements and another who invests $100,000 in a farm with improvements? Each has similar ability to pay taxes. And why should a man who invests $100,000 in bare-land values pay a higher rate of taxation than one who invests only $10,000 in bare-land values? Ability to pay is proportional to the number of dollars, and there is no difference between the dollars. The difference is in the method by which a person becomes wealthy. A similar question arose over the method of getting rich at the opening of the period that led to the Commonwealth of England. In the Case of Monopolies, decided in 1602, and in similar cases of that period, the issue was between the holders of patents, franchises and corporate charters, granted to them by the monarch, and the merchants and manufacturers not holding and enjoying such privileges. The spokesmen for 'Seligman, E. R. A., Essays in Taxation, (1895), pp. 54-59. 8 Seligman, Essays, p. 54. Davenant v. Hurdis, (1599), Moor. 576; Case of Monopolies (1602), 11 Co. Rep. 84; Bates' Case (1604), 11 Hargrave State Trials, 29. |