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Foreword - land ownership
American Journal of Economics and Sociology, The, Dec, 2000 by Warren J. Samuels
THE TREATMENT OF the institution of land ownership is one of the underground chapters in the history of economic thought. The theory of rent--rent in the Ricardian sense--is much more conspicuous but is by no means fully comprehended. The theory and practice of land taxation, especially of unimproved land, is extremely controversial, yet derives from one of the oldest established theories in economics, that of Ricardian rent.
The ownership of land has historically conveyed not only social and economic power but also political power; the term "landlords" is instructive. Government has often, albeit to varying degrees and in varying ways, been controlled by the owners of real property. Such has been an institutional remnant of feudal and post-feudal societies in Europe and comparably in other continents. The distribution of property, largely in the form of land, with which the modern economy commenced, the lasting vestige of earlier social forms, has channeled the organization, operation and performance of capitalist and other modern economic systems. And, not surprisingly, the control of government by landed interests and classes has influenced not only the form which modern law--e.g., business law--has taken but also taxation, especially of land. Moreover, inasmuch as land has been so economically, socially and politically important, land ownership has a transcendental if not sacral status in the minds of both landowning and non- landowning people, one frequent consequence of which is common attitudes adverse to land taxation.
David Ricardo and others developed the theory of rent in the early nineteenth century. For some time before, it had been understood by sophisticated writers that the high price/rent of land does not cause the high price of food, but the high price of food, driven by growing population and the correlative demand for food, generated the high price/rent of land. Ricardo's theory helped ground and systematize that understanding.
For Ricardo, first, rent was the return to the owner of a factor of production, land, in permanent inelastic supply; changes in the price of land generally could not increase the aggregate supply of land, and each piece of land was nonreproducible.
Second, Ricardo argued that, as between lands of differential fertility and differential location, the latter in relation to markets, rent is differential in amount. The owners of more fertile land and better situated land receive higher rent per unit of land. Ricardo explicated the phenomenon of differential fertility in terms of increasing costs, along both intensive and extensive margins. As increasing demand for food, driven by population growth, led to increasing food prices and resort to more costly levels of production on both individual pieces of land (intensive margin) and less fertile pieces of land (extensive margin), the resulting rent to levels of production and pieces of land undertaken at lower unit cost, would both increase and be differential in amounts.
Technically speaking, therefore, rent in the Ricardian sense was the sum of the supramarginal returns. The questions then were, what drove the level of rent and who would get it, and why/how.
The level of rent (and thereby its capitalization in the value of land) was driven by the demand for food, which was in turn driven by the growth of population, i.e., of society. In other words, given the return to the landowners' investment in clearing and farming the land, which took the form of implicit interest and profit, rent was due to a source having nothing directly to do with the efforts of the landowners. Rent was, in this context, an unearned increment. Furthermore, rent was, generally speaking, a residual derivative of levels of production under increasing costs of production on both intensive and extensive margins. This being the case, how the rent was distributed would have no effect on the level of rent.
The foregoing has to do with Ricardian rent, the sum of the supramarginal returns. Rent as paid to landowners includes, it should be clear, Ricardian rent plus interest and profit on investment and enterprise.
Ricardian rent as the sum of supramarginal returns can be distributed in different ways as a matter of custom and institutions, including law. Different systems of land tenure, renters' rights, tithes, feudal dues, and taxation serve to distribute Ricardian rent to different established claimants. Actual payments designated "rent" are rarely, if ever, equal to and exhaustive of Ricardian rent, even aside from implicit interest and profit.
The understandings (1) that Ricardian rent was residual, and therefore taxation would have minimal if any disincentive effects, and (2) that Ricardian rent was generated by the growth of society, and therefore not directly related to the efforts and enterprise of landowners, led to the conclusion that such rent was both unearned and a proper subject of taxation. The conclusion applied in principle to both unimproved land and to the land component of improved land. This is the conclusion derived from Ricardo's theory of rent and advanced by Henry George as the so-called "single tax."
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