32: LeFevre's challenge

American Journal of Economics and Sociology, The, April, 2004 by Damon J. Gross

So according to LeFevre, under a full implementation of the Georgist system we would face the distressing prospect that all future development would be wigwams and port-a-potties.

But taking one's improvements with one is not the only alternative to staying put and paying higher taxes as the value of one's location rises. One could sell one's property without losing the cost of one's investment in improvements if the improvements were appropriate to the location and of the sort for which there is demand. A tax on land values would not interfere with the incentive, which already exists, to build what there will be a demand for in the future, nor would it interfere with the risk that the improvements one builds might not be in demand in the future. And an advocate of the market, as LeFevre claimed to be, could hardly object to this prospect of risk/reward.

Second, LeFevre pointed out that the use of planning and zoning and eminent domain undermine "the supposed 'security' of the individual occupant of land." (28) In doing so, they introduce an element of uncertainty that discourages full development of land. He claimed further that the prospect of an increase in land value taxation, which would of course occur if rent increased, would similarly deter development. (29) While LeFevre is certainly correct that the prospect of eminent domain deters development, the prospect of an increase in land-value taxation should not have such an effect, because the increase would occur equally on undeveloped, under developed, and fully developed sites.

Finally, LeFevre sought to prove that the elimination of existing taxes on land would tend "to put land into its most fruitful and profitable use." (30) His premises are, first, that "the person seeking profits and willing to expend capital in order to ultimately obtain profits is in the best position to know and to develop land to its highest utility," and, second, that "he cannot afford to do otherwise." (31) LeFevre has given a good reason why the possession and development of land should be left to private entrepreneurs, not that the rent should also be left to them. Without land-value taxation it is sometimes more profitable to hold land for a future rise in its price than it is to develop it optimally.

Speculation

LeFevre attacked George's concern about land speculation in three stages. First, he claimed that "every commercial enterprise is speculative in character." (32) Second, he tried to show that speculation in land is just like speculation in anything else. Third, he contended that the land speculator "prevents prices [of land] from falling to zero." (33) We will consider his arguments for these positions in that order.

His favorite example of a commercial enterprise seemed to be the retailing of refrigerators. He gave three reasons why the retailing of refrigerators is speculative in character. Retailers depend on selling at a higher price than they pay. Retailers maintain inventories. Retailers assume some risk that their stock may not in fact sell at a higher price than they have paid. Let us examine the retailing of refrigerators to see if these three features actually make it speculative in character.