is not being maximised.
Assume that the firm is in a shrinking industry. Competing firms (which rent their land) have to close down or switch to producing goods or services which the consumers want, and for which they are willing to pay a price yielding sufficient returns to justify the employment of all the factors of production. The stark reality of this position can be hidden from the firm which owns its land. Their day of judgment is deferred. But as a result, firms which want to expand in new directions cannot use the land, labour and capital which are tied up in the redundant firm or industry: artificial shortages constrain the aggregate growth of the economy. The inefficient allocation of resources would be quickly terminated by the imposition of a land tax on market-imputed rental income. If a firm was unable to pay that tax and meet its wages bill and returns to capital, it would have to change to some other, more desirable and remunerative activity.
Without that tax, there is less inducement on the firm to make the quick adjustments which would raise general welfare. Very often the end for the ailing firms comes when a land speculator moves in and undertakes an ‘asset stripping’ operation. By shrewdly judging that the land is not being put to its best use, they buy the firm cheaply, terminate the loss-making side of the enterprise and cash-in on the capital value of the land.22
Such an operation can contribute usefully to the reallocation of resources. Is this not a justification for profits from land dealing ? No. Under the present fiscal regime, asset strippers often keep their new acquisitions idle in the certain expectation of future capital gains. And there is no reason why the desired transformations could not be engineered to everyone’s advantage except the speculator’s. A land tax which completely removed the private gains from land monopoly would induce the changed use of resources. This would result in higher wages and yields on capital (from the pursuit of more profitable lines of production), while simultaneously increasing public revenue from that portion of wealth that was socially created — economic rent.23
An examination of the history of Western industrial society will reveal that land monopoly — and not the acquisitive motives of the capitalists — is the constant internal (but not intrinsic) disruptive influence on the system. If the evidence does sustain this conclusion, we will begin to see the significance in the astonishing admission by Marx — which his disciples ignore — that capitalists play a worthwhile role in the creation of wealth:
The capitalist still performs an active function in the development of this surplus-value and surplus-product. But the landowner need only appropriate the growing share in the surplus-product and the surplus-value, without having contributed anything to this growth.24
Had Marx remained consistent, and pursued to its logical conclusion the evidence which he had accumulated, he would have been led to affirm the virtues of the free market unconstrained by land monopoly.25 His work in Britain would have complemented Henry George’s in America, and modern history would have been dramatically transformed.
But this did not happen, and so we now have to reappraise the historical evidence from the beginning in order to acquire a new appreciation of why events unfolded as they did, and how different they might have been if the land monopolist had been removed from the outset. With the new insights, we can then re-evaluate the strategy of the modern economy in the hope of establishing that system of natural harmony and justice to which Adam Smith claimed that he aspired.
Notes
1 W. Sombert, ‘Capitalism’, in Encyclopaedia of the Social Sciences, Vol. III, New York: Macmillan, 1930, p. 198.
2 C. Clark, ‘Prospects for Future Collaboration — the Universities’ Contribution’, in New Horizons on Land and Property Values, RICS Technical Information Service, March 1966. For a statement on the paucity of data on real estate in Britain, see comments by Sir Jasper Hollom, Deputy Governor of the Bank of Kngland, Chartered Surveyor, March 1977, p. 257. More recently, one of Britain’s leading fiscal experts, A. R. Prest, a professor of economics at the London School of Economics, roundly condemned ‘the disgraceful inadequacy of information about landownership’. A. R. Prest, The Taxation of Urban Land, Manchester: Manchester University Press, 1981, p. 187.
3 From 1804 stockbrokers met in a special building, the Stock Exchange, which they erected close to the Bank of England out of funds raised by subscription from the profession.
4 F. M. L. Thompson, ‘The Land Market in the Nineteenth Century’, in W. E. Minchinton, Essays in Agrarian History, Vol. II, Newton Abbot: David & Charles, 1968, pp. 31-32, 40-41.
5 J. H. Clapham, An Economic History of Modern Britain, 1850-1886, Vol. II, p. 254. The absence of a nation-wide compendium of property information led the London-based Estates Times to launch its quarterly Deals Digest in 1981 to provide ‘the vital, local information you need for fast, confident decision making in valuations, lettings and other deals’.
6 R. Vicker, ‘Real Estate’, The Wall Street Journal, 17.6.81.
7 W. Petty, Political Arithmetick, London, 1690, pp. 27-28.
8 C. Hill, Reformation to Industrial Revolution, Harmondsworth: Pelican, 1969, p.221.
9 Hansard, 25.10.76, col. 235.
10 John Burrows surveyed idle city land for his M.Sc degree at the University of London. He reported in The Times (26.2.77): ‘On average, between three per cent and five per cent of city land is vacant, with one half to two-thirds of the total outside the inner areas. Within the inner areas, the remaining vacant land forms Five per cent to 12 per cent of the area. The inner areas of Glasgow and Liverpool and some East End London boroughs have over 10 per cent of their land vacant representing some 300 to 400 hectares in each case’.
11 Urban Wasteland, London: Civic Trust, 1977.
12 An examination was undertaken into Britain’s agricultural land in the 1970s. See Report of the Committee of Inquiry into the Acquisition and Occupancy of Agricultural Land (chairman: Lord Northfield), London: HMSO, Cmnd. 7599, 1979. Its value can be judged from the fact that (a) most properties in Britain are urban, and (b) as the committee noted — p. 109, para 259 — ‘Throughout our work we were hampered by the lack of detailed information on many of the topics we studied. It is disturbing that so little is known about the pattern of acquisition, ownership and occupancy of agricultural land...’ In sharp contrast, however, selective data was available — where it was needed to facilitate agricultural support policy (p. 113, para. 272).
13 ‘The future of the valuation surveyor’, Chartered Surveyor, Dec. 1977, p. 135.
