Back to Rothbard v Georgism: Overview

As a preface to Rothbard’s moral objections to LVT, he attempts to dismiss an idea at the heart of Georgism, that landlords benefit unduly from receiving land rents.

The single taxers complain that site owners benefit unjustly by the rise and development of civilization.  As population grows and the economy advances, site owners reap the benefit through a rise in land  values.  Is it justice for site owners  who contribute little or nothing to this advance, to reap such handsome rewards?

I’m not sure he fully grasps the nature of this objection (which I’ll get to later), but in the process he makes an interesting, if ultimately foolish, assertion.

All of us reap the benefits of the social division of labor, and the capital invested by our ancestors.  We all gain from an expanding market—and the landlord is no exception. The landowner is not the only one who gains an “unearned increment” from these changes.

Here is a lie concealed in a truth.  The truth is that “We all gain from an expanding market”.  The lie is that labourers’ and capitalists’ gains in an expanding market are somehow unearned.  That this is nonsense should be trivial to observe, yet many many folks remain blind to it, so I’ll spell it out.

Rothbard rhetorically wonders:

Who in “fairness” could receive the loot?  Certainly it could not be given to our dead ancestors, who became our benefactors by investing in capital.

ignoring that past producers were paid for their products, whether capital or otherwise.  The current owners of capital paid the previous owners, those dead ancestors, for the privilege of ownership.  The dead ancestors were paid and did whatever they wanted to do with the proceeds.  We don’t need to worry about dead benefactors – they got paid already.

It gets better though:

As the supply of capital goods increases, land and labor become more scarce in relation to them, and therefore more productive. The incomes both of laborers and landowners increase as civilization expands.

Except that part of an expanding civilisation is an expanding population.  The increase of productive capability enables that higher population (which disperses wages) and also the use of less productive land (which increases rents).  I don’t know whether labour in aggregate benefits more from civilisation than land, but Rothbard’s next sentence:

As a matter of fact, the landowner does not reap as much reward as the laborer from a progressing economy.

is utterly false.  As civilisation expands, it calls for the use of more labour and labourers (increased population) and more land (use of previously sub-marginal land).  The increase in labourers serves to undo much of the benefit that an individual labourer would gain from expanding civilisation, but increase in land use serves to increase the individual siteowner’s rents.  There are now even more people competing to use the super-marginal land.

There’s one other aspect of this argument that is particularly pernicious.  In order to actually receive this increased benefit, the labourer still has to labour.  The landowner, in contrast, simply has to continue to own the land.  To suggest that labourers are better off from expanding civilisation than landowners is not just hogwash of the highest order, it’s a downright insult!

We’re not done yet though, Rothbard has one more stupidity up his sleeve:

For landowning is a business like any other, the return from which is regulated and minimized, in the long run, by  competition.  If land temporarily offers a higher rate of return, more people invest in it, thereby driving up its market price, or capital value, until the annual rate of return falls to the level of all other lines of business.

What’s funny about this is that other businesses do not behave like this at all.  If shoes temporarily offers a higher rate of return, more people invest in it, thereby driving up supply, until the annual rate of return falls to the level of all other lines of business.  The obvious difference is that land (or more correctly, locations) cannot be produced.  You can’t invest in land to make more of it available.  You can only control what already exists.

The costs associated with buying are not operational costs or reflecting an investment in capital, it is merely a cost of ownership, which transfers the expected accumulation of future rents of an unspecified timeframe from the new owner to the old one in advance.  Thus land ownership is not ownership of a productive enterprise, but of the original and ultimate financial derivative.  The selling price of land is based on it’s rental returns.  In order to get a piece of the action you essentially need to pay the current owner a whole lot of rent in advance, but it’s usually justifiable financially as one day the increase in rents will pay it off.  This, coupled with lender’s willingness to make loans on these values in order to get a cut of the proceeds, is the source of speculative bubbles, which actually productive enterprises have to struggle in.

This order of things is utter madness, but Rothbard would defend it yet

Back to Rothbard v Georgism: Overview