Another Kind of Trickle Down
H. William Batt
[Reprinted from
GroundSwell, September-October 2005]
When an economy generates product, some of it becomes cast as a
surplus that is exchanged among individual and corporate parties,
but much of it ultimately comes to settle on land sites, somewhere
and somehow, in the form of economic rent. We ought really to be
calling this a kind of trickle down.
I dont fully understand how this passthrough the economy
occurs. Tracing the flow of rent in the economy is a challenge I
believe would strengthen understanding of Georgist economics. The
effect of it all is to increase market value of these sites as it
ultimately settles there. The classical economists, from Adam Smith
on to Malthus, Ricardo, Mill and finally with George, seem to have
understood this very well, and the concept of economic rent was
central to their thinking for this reason. With the arrival of
neoclassical thought, site prices are understood as the meeting of
supply and demand curves, rent as such dropping out of the picture.
I think we need to better appreciate how economic rent circulates
through the economy to settle upon what is classically called land.
We accept the idea that economic rent is a function of the
productivity of locations; the greater the strategic access and
utility of a site, the greater the site rent to settle on those
spots. We further understand that the greatest amount of rent flows
to locations where people are, leading to higher market prices on
urban sites than peripheral sites. (Today this may need to read where
people use, due to the modern use of site resources such as
airport timeslots, geosynchronous satellite orbits and spectrum
bands.) Because these land sites have a fixed supply i.e.,
are inelastic in economic terminology -- the rent
settles at those points and stays there.
My favorite analogy for illustrating the creation and growth of
economic rent is the placement of a grid of new roads on an open
expanse of space. Given the design of a tic-tac-toe board with nine
squares, suppose then someone builds on each spot. If every square
is then improved -- say with a hotel, a grocery store, a pharmacy, a
gas station, and so on -- and the owner of the center square
declines to build, the land value of every plot rises, because each
site adds value to every other. But the land site with the greatest
market value is the center square on account of its strategic access
-- even though its owner did nothing to earn that gain.
The increase in value of the land alone on all the sites is economic
rent, a product of the common social effort of every party but the stand-patter
on the center square. The titleholder of the center square is a free-rider.
John Stuart Mill knew this well: he wrote that Landlords grow
richer in their sleep without working, risking, or economizing. The
increase in the value of land, arising as it does from the efforts
of an entire community, should belong to the community and not to
the individual who might hold title.
There is an intrinsic morality to the argument that rent
rightfully belongs to the community and not to individual holders of
property titles. George thought any arrangements to the contrary
amounted to nothing short of theft. If the increase in the lands
value is not recovered by the community in the form of taxes, it
remains the windfall fortune of the titleholder. Thomas Gaskell
Shearman, a promoter of Georgist ideas shortly after the masters
death, labeled its recapture natural taxation. Today we
hear argued that people should pay for what they take, not for
what they make. All this implies a respect for resources owned
and held in common, where ownership of such means just
the rights of use.
Our challenge as Georgists today is in spreading the idea that
ownership has a different meaning with respect to natural resources
than it does for items that people create. Our society has conflated
the meaning of ownership to include both kinds. But it is from
nature, and only the nature, that economic rent stems. Only in
modern western (and westernized) societies has the distinction
between leasehold and freehold -- or else the words usufruct and
fee-simple -- ownership been lost. If one has opportunity to survey
past histories and cultures, one discovers that license to use is
widely distinguished from license to monopoly control, or to buy and
sell. Native Americans, much as cultures the world over, were
overwhelmed by emerging European notions of property titles in land,
all to their disadvantage.
Can and should redress be made to aboriginal peoples? Likely not.
Recompense is both technically and politically impossible. I would
argue that it is not even warranted, because it posits links in
generational justice that are problematic. But restoration and
protection of that which is everyones rightful due can be
facilitated by the collection and recovery of the economic rent that
trickles down to land from the cooperative enterprise of
communities. Among those alive today distributive justice would be
much improved. Yet we are at the same time witnessing the ravenous
capture of natural resources -- of air, water, land, mineral wealth,
and many other elements of the commons -- by corporate interests and
advantaged peoples, all of which is increasing the wealth disparity.
The notion of the earth itself as a commons is in jeopardy of being
made obsolete, much as is the idea of economic rent. Current
enthusiasm for privatization of what is and ought to be the
birthright of all humanity is most troublesome.
We Georgists argue that only through recognition and appreciation
of our ideas about ownership and economic rent is it possible for
the economy to function efficiently and sustainably. We can see this
most clearly when looking at the design of our local communities and
cities. There, even in small localities, we can observe differential
land values in various locations resulting from the accretion of
rent, value differences that are many multiples going from periphery
to center. The skylines of cities reflect the differential market
value of land sites, and taken in the aggregate the general
proportion is roughly one-third land value and two-thirds
improvement (building) value. Recent computer technologies permit
the creation of what have come to be called landvaluescapes
that quickly give a visual profile of the value of land sites
throughout a city. Values per acre can increase as much as a
hundredfold from edge to center. All this is reflective of the
varying amount of economic rent that settles to land sites.
Recovering the economic rent that otherwise accretes to land
fosters greater efficiency in the use of locational sites, enhances
the feasibility of transit services by ensuring greater proximity of
access points, and reduces the demand for infrastructure investment
by more compact site use. On the other hand, present tendencies not
to use high-value locations to their optimal advantage creates
centrifugal economic forces that result in sprawl, with the
resulting pressure on developers to choose sub-optimal and
second-best sites. Yet the collection of economic rent ensures that
landsites are fully responsive to market forces, leading to the
greater vitality of cities and improved social and environmental
ambience for both residential and commercial spaces.
Fortunately, the first-past-the-post greed that has characterized
the monopoly capture of natural resources in both historical and
contemporary America is not beyond remedy. By first recognizing the
full dimensions of the earths commons, and then collecting the
economic rent that accretes to such places, we can foster both
greater economic efficiency and greater social justice. Titles for
use need not be challenged and markets for site choice need not be
disturbed. All that needs to be done is to gradually shift tax
revenues off those elements of the economy that are burdened by
their levy, and onto those parts of the economy that yield rent for
the public to recover. Places that have demonstrated the ease of
such shifts are increasingly known, their successes documented by
the facile use of computer technology. Forecasting the impact of tax
shifts elsewhere is equally feasible when financial data exists.
Recovery and distribution of the economic rent that otherwise
falls upon locational sites offers a means by which to redress
economic injustices, ones that stem largely from a distorted system
of monopoly control of common natural resources. Roosevelts
Secretary of Interior Harold Ickes once disparaged trickle
down economics, observing that it was feeding the horses
to feed the flies. But trickle down also describes the way by
which the economic surplus settles to land, in present circumstances
to benefit the privileged few. In a just economic system, it might
describe finally how economic rent is collected for the benefit of
all.