Land rent, ethics, and capitalism's gestation crisis - Jerome Levy Economics Institute Paper - Transcript

American Journal of Economics and Sociology, The,  Jan, 1997  

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In almost all of the leading industrial economies unemployment is too high; the rich have been getting richer and the poor, poorer; governments have huge debts that keep ballooning.

The hypothesis I am discussing this morning relates serious economic problems in the United States, and even more so in other industrialized countries, to the high and generally rising value of land. Increasing demand for land against its static supply are going to raise its price further. The 11% unemployment rate in the European Community, the decline in the purchasing power of American workers during the past two decades, and the epidemic of homelessness in the industrial world may have roots in the rising cost of land.

The purpose of an economy, be it hunter-gatherer, socialist, capitalist, or anything else is to produce goods and services. Since any system wants people to produce, it should reward them for their contributions to production. Indeed, any economy has this inherent ethic: to each according to his contribution to production. In the hunter-gatherer economy, the effort that is made to produce, to bring dinner home, is quite directly rewarded. In a modern, advanced economy, this relationship is not always so visible. Nonetheless, the operation of any system that ignores the ethic is inconsistent with that system's goals.

If an economy rewards those who are not productive, it is wasting the incentive to produce. It is giving away something for nothing, it is violating its own ethic. Most people, assuredly all of you in this room, believe that burglary is not ethical and that burglars should not be rewarded. Successful second-story women receive gains although they produce nothing. In our society, many people who are not felons, receive income that has nothing to do with a contribution to production. Some of that income comes from the ownership of land.

I hasten to make a distinction between income from the use of land and income from mere ownership. Farmers, builders, producers of electricity from water power, office building managements, and many others use land and are entitled to the opportunity of a profit. Absentee owners, rentiers with tenant farmers are not.

The land that supports the RCA building in New York does so because of John D. Rockefeller's and his associates' vision and initiative back in the early 1930s. He leased the land and proceeded to erect this monument. The lessor, the recipient of the rent for the land under Radio City, did not conceive of, design, or in any sense build this complex. Whether Columbia University's, Herbert Hoover's, Al Capone's, or the City of New York's name was on the deed was immaterial to the actual building of Radio City. Was rewarding the owner of that land consistent with compensating people in accordance with their contribution to production?

Often landowners are fortunate beneficiaries of the constructive efforts of others. One landlord may have dreamt up a new shopping mall and acted on his inspiration. His venture in great likelihood increases the value of the property across the road. Or the state may have built a new super-highway. Those who own land near the interchanges are likely to find that the value of their properties has soared. The venturesome landowners who build shopping malls, theme parks, and other improvements that increase the value of their land are certainly entitled to the increased incomes that the projects bring. And they are arguably entitled to the increase in the value of the land that their enterprise has created. But those fellows on the other side of the road who are benefiting from the creativity and willingness to take risks of the venturesome builders - what is their claim to increased wealth?

Most people agree that persons should be rewarded in accordance with their contributions to production. Yet societies, ours and most others, have another ethic that often contradicts the first. Private property and especially private ownership of land is sacred. The idea of government impinging on the right to own and profit from land is widely viewed as wrong, even sinful. Indeed, human beings may have been designed with the inherent concept that owning land is a God-given right.

Owning land may be divinely sanctioned, and if it is, it also is a right that manifests itself widely in nature. I do not believe that many serious students of animal behavior doubt that some species tend to stake out territories and attack trespassers. Certainly our species has done so for millenniums. Indeed one of the first sciences was geometry, a prerequisite for surveying.

The power of the concept of private ownership of land is apparent. Time and again, land reform, that is modification of land tenure, is prescribed to improve the lot of poor people in countries that provide little more, and sometimes less, than subsistence for most of the population. Although the constituency for reform is often overwhelming, land tenure is altered rarely. Thus although land reform has been widely favored in the Philippines and sometimes clearly advocated for that nation by United States government officials, nonetheless, a few wealthy families still own much of the acreage in that archipelago and masses of indigent farmers pay rent to them. The Philippine standard of living is to Americans a tragedy.