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Libertarianism and Private Property in Land: Compensatory Payments by Landholders Are Required by Both Utility and Justice Author(s): Walter Horn Source: American Journal of Economics and Sociology, Vol. 44, No. 1 (Jan., 1985), pp. 67-80 Published by: American Journal of Economics and Sociology, Inc. Stable URL: http://www.jstor.org/stable/3486503 . Accessed: 05/05/2011 19:44
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Libertarianismand Private Property in Land:

Compensatory Paymentsby LandholdersAre Requiredby Both UtilityandJustice
By WALTER HORN* ABSTRACT.Whether or not we have any natural right to landownership, like

life and liberty, the institution of private property is a good. The utility produced by private property in land is overshadowed by the evils produced by the speculative withholding of supramarginal land unless compensatory payments are required of landowners. Such payments should be made to those living in the same "rental area" and should be of an amount that will eliminate all incentive to land speculation. It is not always either desirable or possible to require that all of one's land value be paid in compensation, and even if such payments could be accomplished, they would not always be enough to redistribute the product stemming from the "monopolization" of real property. The proper compensatory payment should reflect real increases in the value of real estate since its purchase, minus the value of improvements to the site made by the owner.

Introduction I IN A PREVIOUS ARTICLE,' began my report on two libertarian positions on

landownership. The positions are those of Murray Rothbard and Robert Nozick, which, though they differ in basic ways, I consider fairly representative of the main currents of American libertarianthought. In that article, I argued that natural-right defenses of landownership, whether based on an "admixture" theory of labor or on a "whole value" theory of ownership, were untenable. It was my contention that private ownership of land could better be defended on the basis of utility considerations. I held, however, that the institution ceases to enhance utility if it is not accompanied by a requirement that compensatory payments be made by landowners to others living in the community.

* [WalterHorn, Ph.D., former assistant professor of philosophy at Ithaca College, is a his research analyst,Joint Committee on Commerce and Labor,Massachusetts Legislature; address:26 Glenville Avenue #3, Allston, Mass.02134.]The opinions expressed are personal only, and do not necessarilyreflectthose of any legislatoror legislativebody. American Journal of Economics and Sociology, Vol. 44, No. 1 (January, 1985). ? 1985 American Journal of Economics and Sociology, Inc.

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I turn now to a discussion of the notions of individual and collective property rights. I then take a closer look at the sort of compensatory payments that considerations of utility and those of justice require, given the concept of landownership I have outlined.
II Individual vs. Collective Property Rights

challenge to holders of theories of the sort I have been defending in this essay. Such theorists are equally bound to explain the emergence of property rights. The passage is worth quoting again:
NOZICK HAS ISSUED a

We should note that it is not only persons favoring private propertywho need a theoryof how property rights legitimately originate. Those believing in collective property, for example those believing thata group of persons living in an areajointlyown the territory, or its mineralresources,also must providea theoryof how such propertyrightsarise;they must show why the persons living there have rights to determine what is done with the land and resources there that persons living elsewhere don't have (with regard to the same land and resources)2 Rothbard has posed a related problem:
". . .

it is difficult indeed to see why

the mere fact of being born should automatically confer upon one some aliquot part of the world's land. For the first user has mixed his labor with the land, while neither the newborn child nor his ancestors have done anything with the land at all."3 Obviously, this is not the place to undertake (even if I were able) a complete analysis of the concept of property. For that, a work at least as long as Nozick's-and maybe as long as Rothbard's-would probably be necessary. Perhaps, however, a few words may be said here on the subject so it will not appear that an attempt has been made to duck the challenges of the libertarians. In his book on Herbert Spencer, Henry George spent a considerable amount of space denying that people of any community have any naturaljoint right to the earth. He tried to develop a notion of equal rights as distinguished from any joint right that would entail anything like a divvying up of the world into equal portions. As George put it,
When men have equal rights to a thing, as for instance, to the rooms and appurtenances of a club of which they are members,each has a right to use all or any partof the thing no other one of them is using. It is only where there is use or some indicationof use by any of the others that even politeness dictates such a phrase as "Allow me!" or "If you please!". But where men have joint rights to a thing, as for instance,to a sum of money held to their joint credit,then the consent of all the others is requiredfor the use of the thing or of any partof it, by any one of them4

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In George'sview, the existence of a rightto the use of the earth follows simplyfroma desireto do so: Eachman has a rightto use the worldbecause however, difference, he is here andwantsto use the world.Thereis a striking between the use of a room at a club and the use of land. The latteroften within a The "use"of the only fresh waterreservoir involves consumption. by radius threehundredmiles could not be well regulated even the strictest of would go thirsty.It seems that adherenceto "men'sclub" rules. Latecomers insofaras thatto which one has (with others) a rightis capableof depletion, justice requiressomethinglike a quitclaimfrom each of those with such a rightbefore anyonemayuse it. Wherethere is "enoughand as good" to go aroundand there is no, or very little, likelihood of depletion of the object (or any nuisanceassociatedwith its use), no receipt of any such release is necessary.That is really all there is to the distinctionbetween "joint"and "equal"rights:when an object owned in common is more like a finite sum of moneywe will wantjoint rights,when it is more like a lounge in a club, equal rightswill suffice. Do either of such rights to land naturallyinhere in individualsas a consequence of the desire or need for access to naturalresources?It is difficult answerquestionsof thatkind, and it would be better to notoriously right to leave to one side the questionof whetheror not anyonehas a natural and simplysuppose thatcertainitems are to engage in any particular activity goods. Goods are items that are to be smiled upon unless they produce right (if there prove evils or happento conflictwith some natural overriding to be such things) we might discover down the road. There are three to advantages consideringgoods ratherthan rights. First,there is a higher of unanimity aboutthe fact of there being such entities-so long as degree we do not delve too deeply into their ontological status.Second, there is wide agreementabout many of the items that we would put in any list of intrinsicgoods, though there may be considerabledisagreementregarding such items in a society. Withrights,it is the ultimateutilityof encouraging to difficult get two people to agree on any list-even when both admitthe do existenceof the species.Third, goods,by themselves, not involvecorrelative duties. Let us, then, agree that the following are goods, without considering rightto them:life, pleasure,the libertyto move whetherthere is any natural aboutas one pleases, the libertyto obtainwhat is necessaryto maintainlife. by To these maybe addedthe goods, enumerated Nozick,thatareengendered by the institutionof privateproperty:encouragementof experimentation, to of use provision employment unpopular efficient of the meansof production, persons,etc.

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We have seen that there is at least one unfortunate consequence of private landownership, though: where there is no compensation paid by the owner, the advantages of private property may become outweighed by the increasing disutility created among those who are not landowners. There may be growing incentives to suspend (or at least slow) production. The increased rents that result from withholding useful land from production would have to be paid out of what would otherwise have been return to capital or return to labor. That is, unearned income will rise at the expense of earnings. If good land is withheld from production, total productivity may decline in the area. These factors are of the sort that reduce the net amount of good connected with the institution of private property. They are, thus, bads. However, we are not forced into the position of trying to weigh the pluses and minuses of private property in land. That institution is perfectly consistent with a requirement that a payment be made by owners in an amount and manner that will remove any incentive to the speculative withholding or underuse of land, the bad factors. Far from being inconsistent with the benefits bestowed by private ownership, compensatory payments-if their manner and amount are correctly gauged-will enhance them. Before turning to a closer consideration of such payments, we must investigate another, entirely different sort of justificationfor compensatory payments, one claiming that justice requires such payments if private landownership is to be allowed. It has been held by some theorists that whenever valuable land is fenced off from others, the situation of these others is worsened, for, since the land has value, there is not "as good and enough" to go around. If there were, land of equivalent value would have no price. Nozick mentions the "free use" of land as an alternative to appropriation. It is not clear what he means by this, but it is obvious that where rent has arisen, no use of land is likely to be free of charge. Thomas Paine, in his pamphlet "Agrarian Justice," held thatthe landed should compensate the landless for the lattergroup's misfortune, since the institution of private property in land is not the natural state of things but a societal rearrangement which benefits (mainly) those who are lucky enough to get a piece of land. This argument was also put nicely by Henry Sidgwick:
... it must be admittedthatprivatepropertyin land involves a substantialencroachment on the opportunities of applying labour productively which-were it not for such be now landless.On the otherhand,appropriation, appropriation,-would open to individuals at least for a term of years, is required,on the principle of utilitarianIndividualism,to stimulateand rewardthe most energetic and enlightened applicationof labour to land. Underthese circumstances, best practicable the applicationof the individualistic principle is to allow appropriation but to secure adequate compensation for the encroachment involved in it (5).

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III Ricardian Rent as Compensation for Appropriation

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this appeal to "encroachment"justify?Obviously, there can be no question of a negotiated settlement, and if those to whom the payment is due were to bring suit against the appropriator, the arbiter would need some rule by which the amount might be determined. George and his followers have settled upon the entire rent of the unimproved parcel (minus, perhaps, a superintendence fee) as the proper amount. The derivation of this particular amount of compensation for violations of the Lockean proviso will not be possible if we consider rent-more correctly, "rental" in the contemporary sense of payment for the use of a certain piece of real property. If we understand the term "rent" in that way, it will be quite conceivable that it would take much more than the ground rent of lot A to compensate fully (including all incidental and consequential damages) all those adversely affected by the appropriation. Alternatively, we can imagine cases in which a piece of land is, perhaps foolishly, under-rented-that is, let for an amount less not only than that which reflects its "highest and best" use, but less also than an amount reflecting what could be obtained for it allowing its current, actual use. In such a case, it is not clear that anyone else's net situation will have declined at all. In order to make any sense at all of the view that the correct amount of compensation for private land holding is the ground rent, we must use the term "rent" in the Ricardian sense of "excess product." In that sense, the rent of a piece of land is the amount by which its "product" (where this is used in its broadest sense) exceeds that which can be produced by equal effort on the best free land or on the marginal land that is either concurrently in use or both available for use and capable of sustaining a producer (say, a farmer) who applies that same effort. ("Effort"here refers both to labor and capital investment.) A landlord cannot charge more than this differential for the use of land, and it is a form of charity to charge less. The reason for supposing that just this amount is the "unearned increment" available to the owner of a piece of land, and is the amount that ought to be paid to others in the area for permission to hold the parcel, can be gleaned from the following example. Suppose there is an island with two pieces of farm land, each of the same dimensions. Call them "FarmA" and "Farm B." Farm A will grow no more than one unit of food per year-enough for one person to subsist upon, though not comfortably. Farm B, a more fertile tract, will grow about ten units annually. Let there be three people on the island: Abe (the owner of
BUT HOW HIGH A PAYMENT does

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A), Ben (the owner of B) and Cal (a tenant farmer). Ben charges Cal nine units of food per year for the use of his farm; he cannot get any more since all that can be produced is ten units, and Cal needs one of these to live upon. The result of this arrangement is that Abe and Cal, two individuals who toil for their bread, each survives on one unit of food each year, while Ben does no work at all and thrives on nine units. This is the "tribute" that has been said to result from the institution of private landownership. Now, if all the Ricardian rent on the island were paid into a fund and distributed on a per capita basis to the residents, the working farmers would each get four units annually-three from the fund and one for their labors, while Ben would receive only three units each year. This might induce Ben to evict Cal and farm the land himself. The only result from such an action would be, of course, that Cal would be forced to live on three units instead of the laborer's four. Clearly, neither a smaller nor a greater compensatory payment would produce such an elegant result, and it should be equally clear that an amount based on the market value of B would be far too low, given the lack of effective demand on the island. Would such a system be fair? One way to answer questions of this type is to adopt what have been called "Rawlsean blindfolds,"6 to suppose, that is, that we are one of the residents of the island, but that we do not know which one. Now, instead of considering the fairness of the island's compensatory system, let us consider whether we are likely to fare well under it. In this way we may substitute selfishness and prudence for our fuzzier notions of altruism and justice. Since we have a two-out-of-three chance of suffering on the island before the imposition of the compensatory system, and no chance of suffering (in relevant ways) after the imposition, all but the biggest risktakerswill approve of the creation of the fund. At first glance, therefore, the compensatory system seems more just than one requiring no payments. We should be careful not to infer too much from this example, however. For one thing, similar results could have been engineered by the imposition of a 100 percent tax on all "unearned" income. Secondly, it is not always so easy to determine the ground rent (or decide what portion of income has had its genesis in land value). Thirdly, the sentiments of our "justice panel" might have been different if it were supposed that Ben had recently bought Farm B from Cal at a price of 90 units of food. There are, that is, the familiar issues regarding those who have paid for their land out of saved, "earned" income. There are still other difficulties with this position, as we shall see. Consider the following scenario on another island. Here there are three tracts of land, D, E and F. D is a lovely, comfortable piece of property with

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fruittrees,a comfortable cave,shade,sufficient freshwater,etc. It is the home

of Deb. E is less desirable. It has a trace of fresh water, one small apple tree, no comfortable cave. Eve barely manages to stay alive on E. F is totally barren:

Faywill die there in a couple of dayswithoutwaterand shade fromthe sun. On this islandthere is, strictly speaking,no income-bearing property. may We say that there is rent, however,if we understand "produce" include any to in sort of utility "inhering" the land. Such utilitieswill include the comfort producedby shade,the healthfulness flavorof the fruitand so on. Letus and suppose that D has a product (in this extended sense) of ten units, E a productof one unit and F no productat all. The only way that the excess productof D, nine units, could be paid into a fund on this island (if we supposethe residentsto haveno other "income")is for a rotationmethodof landuse to be adopted.Forexample,each day,a different residentwould be entitled to use D. This would be the only sort of way that Eve would have the abilityto "pay"into the compensatory fund. It seems, however,that a rotationmethod of landholding,while perhaps for the the only possibility improving lot of the residentsof oursecond island, is not a feasibleapproach ownershipof residentialreal estate in the actual to real world.But,justas on the island,the fee simple ownershipof residential estate, no matterhow valuablethe propertyin question,does not preclude fund. an inabilityto pay into a compensatory This fact, that there are utilities inheringin land that cannotbe so easily contributed "excessagricultural as is product," one of the majorobstaclesto of the transformation a compensatory paymentfor the privilegeof landownershipinto a "landvalue tax"of the sort advocated HenryGeorgeand his by on followers.It is worthelaborating this point for a moment. In calling for we compensatory payments, havenot consideredhow it mightcomparewith certain othersortsof payments, namely,taxes.Oncewe considerourpayments as taxes, we must considera numberof other criteriawhich form the basis for declaring taxjustandanotherunjust, prudent anotherfoolish. and one one are These so-called"canonsof taxation" quite well known.Forexample,the to taxesone paysshouldbe in proportion the servicesprovidedthatindividual by those who administerthe tax fund. Taxes should fall on individualsin to proportion theirabilityto pay.Taxesshouldbe such as will not discourage Taxes should be constructed expenditureof labor or capitalaccumulation. these maynot all be thatcan be cheaplyand easily collected. Etc.Obviously, consistentwith each other. It is interesting note thatwhile some contemporary to Georgistshave held that land value taxes are neutralwith respect to investmentchoices, others

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have claimed that such taxes encourage capital investment and discourage urban sprawl7. (This can be explained if we suppose that two different meanings have been assigned to "neutrality"in this context.
T is a neutral, tax on propertyP = Df. T requiresa paymentof the same dollar amount for the value of P regardlessof the investmentdecisions regardingP.

According to this definition, land value taxes are neutral. However, in this sense a neutral tax is going to encourage certain kinds of investment decisions and discourage others.
T is a neutral2 on propertyP = Df. T requiresa paymentof the same proportionof the tax value of P regardlessof the investmentdecisions made regardingP.

In this sense, an ad valorem property tax is neutral and a land value tax is not.) Difficulties in determining the proper sense of "excess product" have also resulted in a number of dilemmas for Georgists. Does a valuable farm in a year of drought have an excess product? If so, how will the farmer pay the tax? If not-and the tax must be paid only on land-generated income-how will the tax discourage withholding or underuse? There is also the familiar problem of correctly distinguishing improvement value from land value, especially where the "improvements" may be more permanent, resilient and easily renewable than a particularnatural resource or a propensity to grow a particularcrop. Again, it has been argued by such theorists as MartinFeldstein and A. H. Schaaf that, Ricardo notwithstanding, a tax on pure land rents is at least partlyshifted and that site value taxation could create massive dislocation by raising rents and other housing costs in certain types of residential areas.8 Before leaving this issue, let us consider a third isolated island, this one existing in a future in which food products can be synthesized. Again, there are three residents: Gus, Hal and Ida. On this barren, desert island, all the land is held in common by the three residents who live together in a little cabin that is also owned jointly. The only other structure on our sciencefiction island is a small factory where food can be synthesized from oxygen and salt water. Let us suppose that the factory was bought by Gus' father and left to Gus after the old man died. Gus hires Hal and Ida to run the factory and pays them each a subsistence wage of, say, one unit of food annually. Gus lives in idleness and partakes of ten units of food each year. The point of this ratherstrange scenario is to illustrate that with respect to the desirability of redistributing "unearned" income, it is not clear that properties naturally inhering in land will exhaust the field of "increments." Hal and Ida might, of course, demand a payment for the use of the air and water necessary to make food in the factory, claiming such substances to be "part of their natural heritage," but this would not be a land value tax. The reason for this is that there is "enough and as good" air and salt water to go around. Gus has in no

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intelligible sense "monopolized" any natural resource; it is the factory that is here generating monopoly rents. Henry George showed quite clearly that the "economic slavery" resulting from high rents could be quite as pernicious as chattel slavery, that "freedom of contract" does not do the landless any good if it is only the freedom to accept tenancy at rack-rent rates. But what George and his followers have been less willing to admit is that an "economic slavery" of an equally unpleasant kind could exist even if all land values, or indeed all land, were held in common. Just as a rather abstract "right" to inhabit a piece of land at mutually acceptable rates may not do a prospective tenant any good, the "freedom" to work at offered rates or build one's own factory may not do a prospective employee any good. On our third hypothetical island an income tax would seem to be preferable to any tax involving land values.

IV Appropriation of the Unearned Increment of Property Values

WHERE DOES ALLof

this leave us? The first moral is that our task of determining to whom compensatory payments should be made and the amount of such payments should not be confused with any questions about how any particular scheme of taxation is, or ought to be, constructed. Naturally, the individuals living in a particularcommunity may decide upon the necessity of authorizing the performance of certain services for their mutual benefit and of exacting taxes to pay for these services. But there are, as we have seen, so many intricate questions surrounding the appropriateness of different sorts of taxation it would be wise simply to consider what sort of payments should be made to members of the community by landholders. This inquiry should be pursued independently of any investigation into just taxation and fair governmental expenditure. We can take these payments as compensation for allowing the landholders to continue to claim a certain bundle of rights over particular parcels of land. We will then not need to consider in our analysis such items as neutrality or proportionality of payment to service rendered. A second advantage in looking at the issue from this vantage point is that we shall not need to question how any particularlandholder came to possess his land. That is, we need not take up any questions about the "compensation" of landholders for the imposition of a tax which has been claimed to amount to confiscation of any expenditure made to purchase their land. If we correctly fashion our payment system, all that landowners will have lost is the ability to increase their wealth as a result of the performance of certain activities with their properties (e.g., speculative activities). But speculative withholding

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of land is no more intrinsic to the institution of landownership than is the right to fire a loaded gun in random directions at the theater instrinsic to the institution of gun ownership. John StuartMill argued that the community has no right to any more than what is both unearned and unbought, but it should be obvious that a payment made to an individual for the title to a piece of land in no way discharges any obligation to compensate a community for allowing private landownership-an institution that may be detrimental to most of the community members if no compensatory payments are required. It seems to me that the best way to prevent the withholding of land from use for purposes of speculative sale and to compensate landless community members for the encroachment on their access to employment engendered by private ownership of land is a confiscation of any increase in the value of the propertyfrom the date of its most recent transfer.Inflationand depreciation should be taken into account and an allowance should be made for any work done on the property by the owner, including both capital improvements and simple maintenance. Such a payment would not require the separateassessment of land and improvements. Any increase in value not accounted for by inflation or expenditures upon the premises (in money or labor) could be construed as an unearned increase. The landowner has no prima facie right to this increment and allowing him to keep it encourages a pernicious type of investment activity. The community members are those living in what might be called the "rental area" of the land in question. By "those living in the rental area" I mean all those of such proximity that the rent where they live could rise as a result of the withholding from use of the parcel in question. Admittedly, it is not always easy to determine the exact boundaries of a rental area, but the concept is, I think, fairly clear. This conception requires that each member of the rental area receives an equal portion of the fund created by these compensatory payments-regardless of the wealth of any resident, the services provided to him by any governmental authority or any other factor that might be relevant if we were considering taxes. There is nothing in this position that requires that "aliquot portions" of the world's land be bestowed on newborns or that any particularcollective be construed as the rightful owner of land in any given area. It could be argued that there is still a kind of injustice in allowing a particularrental area to "monopolize" any increases in land values that occur within its borders.9 After all, if someone in area X accidentally discovers oil, that is a strictly fortuitous occurrence, and there is no clear reason why area Y should be denied its fruits. However, the compensatory scheme defended here is not a system for the redistribution of wealth-earned or unearned; its

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purpose is to discourage speculative withholding and compensate others for allowing the private use of particular parcels. It is true that one may still speculate in a sense, move into area X on the hunch that oil may be discovered there so that one may at least share in the increase. But this sort of speculation does not seem to me harmful to anyone. Good fortune need not be a zero-sum game. One problem with compensatory payments upon transfer is that they would not discourage the withholding of land for later use, rather than for later sale. Much natural resource land is so withheld. It would thus seem reasonable to require owners of certain types of property to pay the "annual value" of any unearned increase each year in addition to payment upon transfer. These properties would be those that are, or could be (without zoning changes or the like), income generating and were not occupied residences or land used for public purposes. Naturally, a credit would be given against the payment upon transferfor any payments already made by the owners of such "income properties" so that no one would pay twice for the same increase. Here, one would give "annual value" credits for improvements made on the premises each year, rather than crediting the full (capital) value of the improvements. This would be done both for building a new wing and for mowing the lawn. The system I have outlined would end all speculative withholding of land immediately upon its imposition (something that converting a municipality's ad valorum property tax to a land value tax would not do), and it would cause no massive dislocations (something that converting all taxes to a "Single Tax" on land values would do). I do not think it would be particularlydifficult to administer. (There would be no problem of market values falling toward zero or of determining whether a tree is an improvement or not.) This compensatory scheme would not, however, accomplish all that a high tax on land values could accomplish. It would not, for example, redistribute any wealth on our first island. It is my view that the income tax, for all its faults, is a better mechanism for distributing wealth than a land value tax. A look at our second island shows that we do not want a system that requires that all types of land wealth be redistributed into a fund, and a look at our third island shows that not all wealth that ought to be redistributed is reflected in land values. Actually, a smattering of different taxes is probably the safest way to ensure that unearned income is distributed to those who are engaged in creating wealth. It is true that we have a prima facie right to our earned income that we do not have to the land we are said to own. But the perfect beneficence of a "Single Tax" on land values does not follow from that fact. There are a variety of so-called "naturalrights" that we wisely give up when we enter into society in return for "civil rights" and privileges.

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The position I have sketched differs in two main ways from the tax on unearned increment made popular by Mill in the last century. First, there is no requirement that those living in the rental area offer to buy the land at marketvalue from those landholders who are unwilling to make the payments. Mill felt such an offer had to be made so that those who bought their land under the impression that they would be able to make a fortune in real estate would not have the rules changed in the middle of their game. But if it is the case that land speculation is harmful to the community and that there is no naturalright to engage in such activities, there is no good reason for protecting the interests of even those who contribute only unwittingly to this evil. The second main way in which the compensatory payment scheme proposed here differs from Mill's is that, since it is not construed as a tax, it does not preclude a payment of more than what is both unearned and unbought once taxes are imposed on top of the compensatory payments. That is, since these payments are required independently of any taxes, if the taxing authority decides upon a site value tax or an ad valorem tax or a tax on land-generated income for the purpose of, say, paying for police, the final amount paid to the community for the privilege of keeping one's land would exceed the amount allowed by Mill. I find nothing unjust or otherwise untoward in this result. Mill held that to insist upon taking large amounts from landholders and little or nothing from others for the purpose of defraying government expenses would violate principles of justice. It could be argued, however, that Mill was less acutely aware of the harmful effects of taxes on labor and capital than were George and his followers. If just taxes on wages and capital cannot be devised and if there is a great disutility produced by even the most nearly just collection of such taxes, then we should be willing to accept levies on land that are larger than what is both unearned and unbought to keep these other taxes down.
V Conclusion

been correct, the libertarian defense of private landownership, as expressed in the work of Rothbardand Nozick, is not the only possible defense. I have attempted to show that one might defend this institution without making reference to admixture or whole value theories. It is important to recognize, however, that there is nothing in the notion of privateownership of some item that makes it inconsistent with the compulsory payment of compensation for allowing its continuance. For both the purposes
IF THE ABOVE ARGUMENTShave

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of stopping speculative withholding or underuse and of compensation for encroachment upon others' employment possibilities, unearned increases in real property values should be turned over to those in the rental area either annually or upon transfer. It may be argued against the position I have been advocating that it is not, in fact, accurate that all (nominal) increases in the value of an improved site can be attributed to work done on the premises, currency deflation and increased land value. It is also possible that there be unearned increases in the (real) value of the improvements. And, since I claimed above that there is no good reason to take an increase in wealth away from an individual simply because it was unearned, I ought to hold that we should assess land and buildings separately and allow individuals to retain all increases in improvement value. Such an argument seems to me confused for a number of reasons. It is, no doubt, true that there may be (real) unearned increases in "improvement value." Consider, for example, the value of a house built by a famous architect who has recently died or a building made of a raw material that is now rare. As was illustrated by island three, however, "monopoly rents" may be imposed even where land is not a relevant factor. Thus, to the extent that the existence of such rents is harmful, it would seem to be wise to prevent any further extension of them. Furthermore, a withholding from use of a building for speculative purposes (or the threatening to do so) may not only have the effect of raising rents at similar buildings, it is also likely to raise land rents in the area, for it is the lot of buildings always to be somewhere. So, if a building is withheld because of the lure of monopoly rents, the land it is on is likely to be underused as well, causing nearby sites to become more dear. It is worth noting that neither a perfectly pure site value tax nor a perfectly pure land gains tax would have the desirable effect of preventing this sort of increase in land rents. Greater compensatory payments than those suggested here have been endorsed by theorists as diverse as Thomas Spence and Harry Gunnison Brown. Henry George, perhaps the most eloquent of this group, once asked,
When the agent of the Irish landlordtakes from the Irish cottier for rent his pigs, his poultry,or his potatoes,or the money that he gains by the sale of these things, it is clear enough that this rent comes from the earningsof labor,and diminishes what the laborer gets. But is not this in realityjustas clear when a dozen middlemenstandbetween laborer or and landlord?Is it not just as clear when, instead of being paid monthly or quarterly yearly,rent is paid in a lump sum called purchasemoney?"0

But, we should ask George, is it not just as clear when, instead of being paid to a landlord, it is paid to the excise man? Is "trickle down" from government

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really so far superior to "trickle down" from landlords? There is no escaping rent, no matter what our system of taxation, but there is the possibility of avoiding spurious rent-those artificialincreases due to speculative withholding or underuse-and that should be our goal, since that alone robs individuals of the opportunity to use the earth. A "land reform" scheme of the sort being attempted in El Salvador or a high tax on unearned income in conjunction with our proposed capture of unearned increases in property values would probably have served the rack-rented Irish cottier better than a "Single Tax" (and the great difficulty of separately assessing land and improvements on agriculturalproperties would not have been an issue). I have argued both for the continuance of the institution of private property in land and for compensatory payments to be paid by landowners. Both seem to me to be justified by the fact that they would tend to increase the total of societal goods. Other limitations to land appropriation may be justified. Zoning restrictions and even redistribution systems of the sort now used in Hawaii for certain kinds of residential properties (something whose constitutionality has been upheld by the U.S. Supreme Court) may also be consistent with private property in land and even enhance its beneficial effects, as the Court has perceived. Like ownership of firearms or automobiles, private ownership of land ought not to be allowed at all if it does not carry with it stringent and far-reachingrestrictions.
Notes 1. WalterHorn, "Libertarianism PrivatePropertyin Land:The Positions of Rothbard and and Nozick, CriticallyExamined,are Disputed,"Am. J. Econ. Sociol., Vol. 43, No. 3 (July, 1984), pp. 341ff 2. RobertNozick,Anarchy, State and Utopia (New York:Basic Books, 1974), p. 178. 3. MurrayRothbard,Man, Economy, and State (Princeton, NJ.: D. Van Nostrand Co., 1962), p. 149. 4. Henry George, A Perplexed Philosopher (New York:RobertSchalkenbachFoundation, 1965), p. 27. 5. HenrySidgwick,Elements of Politics (London:Macmillan,1891), p. 68. 6. See John Rawls, A Theory of Justice (Cambridge,MA.: HarvardUniv. Press, 1971), especially Chapter3. 7. Compare,for example, the writingsof Daniel Hollandwith those of Dick Netzer. 8. MartinFeldstein, "The Surprising Incidence of Tax on Pure Rent:A New Answerto an Old Question,"Journal of Political Economy, 85 (1977), pp. 349-58; A. H. Schaaf,"Some Uncertainties About the Desirabilityof Site Value Taxation,"Tax Policy, 37 (1970), pp. 3341. 9. This point was made to me by DeborahScaduto-Horn. 10. HenryGeorge, The Land Question (New York:Doubleday,1912), p. 24.