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Aug 02, 2005

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will spotts

This system makes more sense to farm families. There is something about the concept of land staying in your family that resonates from this passage.

Later, one of the sins Israel was charged with was people buying and hoarding land. (The precursor of the corporate farm perhaps?)

Michael Kruse

I think the image of in Israel was "joining land to land" and thus driving people of the land into poverty. They had no other way to earn a living.

I think our Industrial Age/Information Age environment is a much different picture. The decline in farm labor has been matched in the emergence of new kinds of labor.

Still, both my mother and my wife grew up on farms and it is hard to say good-bye to a way of life.

will spotts

My father was a farmer -- we moved when I was fairly young.

It had advantages and disadvantages. There's a whole different outlook on life that is kind of lost today. Some of the values strike me as superior, but the work and the economic impossibility are major drawbacks.

David Giesen

The practical application of the Jubilee land policy today is beautifully proposed by the American social philosopher and economist, Henry George, in his 1879 masterwork, Progress & Poverty.

In that text George identifies economic rent as the property right of community and advocated that rent of land be collected by society for social purposes. Doing so would abolish private income from merely owning land and would thereby end non-merit based income differentials between members of society.

Whether one is a farmer or a high-tech software designer, physical location is necessary and it is interesting to note that land is very desirable (and thus commands high rent) where tech industries set up shop. The point is that land has both a natural fertility desirability as well as a social fertility desirability. To be the owner of highly desireable land puts one in an unearned state of advantage over others in community, an advantaged place analogous to being king.

The ancient jubilee was a mechanism for ensuring there would be no economic kings, but that, instead, every family would be be able to earn its own bread because not beholden to another for mere access to natural opportunity/land.

The idea of land redistribution strikes us as archaic and anchronistic, whereas the idea of economic rent redistribution (along socially just lines) is both simple and efficacious in delineating between what is community property and what is private property.

Michael Kruse

Last month I did a post on China and land reform called Down On the Farm. It talks about the fact that farmers are unwilling to make significant improvements or investments in their land because they do not actually own it. The can only get a thirty year lease from the government. They want the right to own property. Can you articulate for me how your ideas would apply here?

Thanks for your comment!

(David has a website Commonwealth1234 you may want to check out. Also, here is the Wikipedia article for Henry George. I am unpersuaded by George's perspective but these sites should give those interested some background.)

David Giesen

Thirty years does not appeal? How about a fifty year lease, the length of the Jubilee? Should anyone have a privilege in avoiding paying market land rent to society and thus enjoy a subsidy in the form of shifted tax burden for paying for social infrastructure which contributes to the value of land? I can imagine circumstances where it makes sense to subsidize the elderly or owners of historic or culturally valuable sites, but it should be kept robustly in mind that these economic subsidies necessarily burden someone else.

Good golly, commercial building owners get to depreciate their structures over twenty years. One of the central tenets of land value rent collection is that collecting the rent of land for community obviates the need to tax improvements! No tax on barns, tractors, silos, factories, homes (the improvement part of residential real estate).

In a meaningful sense, a georgist land value tax recognizes ownership of improvements to the fullest degree because, in its purest form, a land value tax would utterly preempt public claims upon human-made improvements.

Which more truly recognizes private title to the work of one's own or another's hands, no tax on that production or a tax on that production?

What the Chinese farmers want, and what farmers everywher want, is the right to call their own that which they have made. It is the value added that is private property right. A thirty year market lease of land in the absence of any tax upon the improvements to or upon the land conveys all that the owner of land could justly hope for. If the owner of land hopes for the rising value of land, independent of the value added to or upon the land, then that owner is mere speculator in humanity's rising interest in access to land.

David Giesen

Another thought about those farmers who want a free hold title to land: what? so they can keep it in the family when they pass? That's a human enough sentiment, but a nobler one is to consider the whole of humanity as having a right in th earth that cannot be alienated. Incidentally, under a georgist style community collection of land rent the farmer's family could retain it into the future in perpetuity--so long as they remit to community the economic rent.

Michael, what aspect of socializing land rent do you take issue with? You make a good case for the Jubilee land restoration principle.

Michael Kruse

Hi David. Sorry for the slow response. Things have been crazy lately.

First, the distinction between the gifts of nature and human production is not one I find in scripture (I would be curious about your biblical understanding on this). So I don’t see a biblical mandate to operate as a commonwealth. Second, from a economic sense, I think the commonwealth leads to less effective stewardship of land and natural resources.

My perspective is that not only is the land God's, but everything belongs to God, regardless of whether they are natural or made by human hands. (They don’t make hearses with luggage racks.) I don't think it follows that because the earth was intended for all people that that there is mandated communal ownership.

My understanding is that we are to be stewards in a way that honors both individuality and community. (Just as there is individuality and community in the trinity.) We are stewards to God not only for the land but for everything that is under our influence.

We participate individually as co-creators with God by having responsibility for resources (including land) that we hold in trust for God, meaning we seek to use them according to God’s values. However, we do not exist purely as individuals. We also exist as communities and one of God’s values is that each of us bear his image in the world by being stewards. Consequently, if we have the mind of God, there will be no poor among us and those who fall upon hard times will be restored to God’s intended position of steward. Therefore, part of community stewardship is that everyone be stewards, and to be a true steward you must be responsible for the care and output of the means of production entrusted to you. You can’t be a steward if you don’t have final authority over the disposition of the resources entrusted to you. Communal property prevents individual stewardship.

In the American West, buffalo were hunted to near extinction. As a buffalo hunter, if I have communal buffalo in front of me, my incentive is to kill now versus later because if I don’t kill, someone else might kill the buffalo by the time I come back at a later date. In fact, if I am selling the buffalo, I might have an incentive to kill any buffalo I see regardless of what I can harvest, just to keep the supply down and my profits up.

On the other hand if I own the buffalo I am going to protect them from over hunting. I am going to feed and water them appropriately. I don’t want to lose my investment and I will manage my herd in away that ensures the existence of a herd and maintains my profit stream.

So again, I don’t see a biblical mandate and it appears to me to be less economically efficient.

will spotts

I'm not sure I see how land is different from ability. A person does not choose his or her abilities either - and while effort improves them, there are obviously great gaps between the desirability (economic value) attached to different ones. It's not as if merit could in any way be separated from native ability (both work which a person can in theory control, and talent which a person cannot control are involved in all production). How would it be any more "fair" or "just" to differentiate in standard of living between people on the basis of one than the other where accidents of birth are involved. (Similarly, land can change value, rising or falling, through no action of the owner -- but production off the land is also variable, containing many risks unrelated to the holder's work.) In both cases some people operate from positions of "unearned advantage".

David Giesen

Michael, first let me say how much I enjoy your writing. It's full of humor and very intelligent. I never conclude a visit to the site without marvelling at what you have learned. . . in fact long before I get through the second paragraph of your essays I'm saying that. Bravo!

Perhaps I haven't been plain. I do not argue for common title to land, but for community title to the rent potential of land (and other gifts of nature such as water, air (the value of which is usually measured in the cost of cleaning dirty air up a la carbon taxes), and the radio frequency spectrum).

The distinction between "the thing itself" and the rent of the thing itself is important for the very reason that Michael notes. To use his example:

A fellow owns a herd of buffalo so he cares for them to ensure his own economic health.

If it's a wild herd he encounters and no one's looking or cares, he shoots to make what he can in the way of income before somebody else gets the value of the hides (and maybe a steak or two).

But what I (and other georgists) propose is that as soon as there arises an economic interest in the buffalo, that economic rent belongs to society. Under such circumstances our ignoble hunter who has previously shot buffalo dead for the windfall return of their hides free for the taking now has to pay society for the opportunity cost society foregoes in itself not hunting or preserving the buffalo. What is this society I speak of? Society arises wherever two or more persons wish to access the same geography and or other gifts of nature.

This economic rent paid to society makes a caretaker of nature of our otherwise freeloader. His wages are what remains of the value of something after the economic rent has been deducted. If he makes the productive value of land decline, then the opportunity to earn income declines, therefore he stewards land so that he can derive value from the value added.

In deed, you touched on the very heart of the matter when you imagined your hunter keeping the supply down to keep the profits up. The profits are not a reflection so much of the value of killing and skinning buffalo as they are of the scarcity of the buffalo. If this hunter had to surrender all the scarcity value of the buffalo and merely keep the value added, gone would be his inducement to kill in excess of what did him happy.

A renter of land doesn't rent more than he can use because what he doesn't or can't use is sheer dead economic loss. He paid top dollar for that unused land and yet produced no economic or pleasure value on it to justify having paid its rent. If his behavior wears land out and its rent declines, the cost of restoring it to par value is also measurable. So, for instance, Exxon despoils Prince William Sound. The fine should be equal to restoring the waterway to its pre-polluted status. Similarly if someone dumps freon all over a parcel of land and makes land formerly worth X now worth only X minus N, then he owes society whatever it takes to restore the site to the original value of X.

The tragedy of the commons riff is based on the assumption that use of the commons is free. What georgists urge is that use of the commons be coningent upon payment to society of the market rent of gifts of nature. No free rides.

Will raises an interesting point, namely, should the differences in natural human talent be treated as economic rent? I think a good case can be made for an income tax based upon the economic rent of natural talent; however, keep Achilles in mind when thinking of the enormous difference between socializing the economic rent of human talent and socializing non-human economic rent.

Socialize Achilles' ( or Michael Jordan's or Zidane Zidane's (these are all retired guys I realize) economic rent, and he just might decide not to play ball (or work as an exec.). "Give me my wahini back," pouts Achilles, "or you can fight the Trojans without my prophylactic assistance. Whaa whaa."

In contrast, society can take the full market rent of land away from its mere mortal title holder and all that land will remain. In fact, the sooner the mere mortal holder of title to land has to himself pay the full market rent that he would charge another, the sooner all that land will be put to use for market-driven utility, whereas if the title holder only has to pay a fraction of market land rent, his prompt to use land may also be fractional. As a matter of fact, he may choose to hold that land out of use as a speculative consideration. Now there's good stewardship of the earth -- ho, ho. People wanting to build a house on God's earth and another man saying , Nope, can't use it until you pay me the future price. So what do our no-goodnik would=be users of urban America do? They go break ground at the margin where the speculative value of land is lower and VOILA! suburbia. There's some fine stewardship, eh?

Michael Kruse

David, thanks for your affirmation of my ramblings. I really do enjoy your comments. They often take me awhile longer to process than some of the others I get and it has been a long while since I visited Henry George. Forgive me if my responses don't pop back as quick as others. More later.

Michael Kruse

Daivd, I need your help on remembering something. If land is to be taxed on its value but land is not bought and sold, how is its value determined? I can't remember how this plays out under a commonwelath scenario.

David Giesen

The proposal is for the rent of land to be collected.

At present, property tax is based upon the potential sale price of real estate. The sale price of real estate is determined by its potential net rent stream multiplied times the prevailing interest rate: in other words, the sale price can be calculated by solving the equation WHAT AMOUNT OF MONEY, IN THE BANK EARNING THE CURRENT INTEREST RATE, WOULD PRODUCE THE CURRENT NET RENT.

In the georgist model the rent of land, determined by the market demand for land, is collected by the private landowner, but then paid over to community. People still own (and could sell) real estate, but they would not keep the land rent portion of the rent of their real estate (both improvements and land). Since the land rent would no longer remain with the private owner of land, and therefore land would no longer yield him potential net income, thesale price of land would fall towards zero.

Thus, though it sounds strange when one first hears it, land that has rental value would nevertheless have little if any sale price.

Why would people own land under such circumstances? For the same reason people currently want long leases to land, namely so that they can make substantial improvements and be assured that they will enjoy the blessings of those improvements. Land, under th georgist system couldstay in a family over an indefinite number of generations, provided the land rent were paid to society.

For some people this scenario leaves them trembling, "But if I don't pay land rent I would lose the land and where would I go?"

True, but if one doesn't pay one's landlord the rent, one is evicted; and if one doesn't pay the mortgage lender, one gets foreclosed upon.

Moreover, in the current schema of public revenue getting, taxes are chiefly levied upon private production, viz. taxes upon labor and business. This can become (at a high enough rate) a disincentive to produce goods and services. In contrast, a georgist community collection of land rent is not a tax on production. Taxing land value will never diminish the supply of land. In fact, the more land rent is socialized (retrieved from acting as private income) the more fully will the owner of land be prompted to use land according to market interests. In this way commuity's (the market's) interest in land use will be more completely served than, as under the current schema, private interests are catered to (including accomodating private speculation in land).

Lastly, in this post anyhow, community collection of land rent is a metaphysical acknowledgement that there is community. Land rent only arises where community exists. The stronger the bonds and culture of a community, the higher will the rent of land be. The highest rents are precisely where people are most in harmony as a community. Now, one might say that the homogenous demographics and dull vitality of many wealthy residential neighborhoods would be hard pressed to be described as harmonious with its larger circles of community, but that just indicates that the land rent is not being socialized! On the contrary, with the current schema, the land rent is mostly remaining privatized. The seeming harmony of high rent wealthy neighborhoods is predicated upon the deprivation of the larger community of the rent of geography.

The theological implications of this are staggering. The earth, Creation has been largely privatized; humanity has largely been alienated from the economic bounty (land rent) of Creation. Is it any wonder that society lurches and wails with social inequities that in turn spawn anti-social and self-destructive behavior?

Ooops. I've rather gone on beyond your particular question. My enthusiasm is born of the reason I visit your site and return to it and the discussion board, which is precisely because you and I and the other correspondents are interested in the intersection of theology and right living.

I deeply appreciate the forum you have created.

Michael Kruse

David I am sorry I am so slow. I have been taking some time to poke around the internet a little and I am coming to the conclusion that I am just dense. I still can’t figure out how we come up with a land value, and a corresponding rent value, in the georgist model.

In our present model, as you noted, the price is established by buyers making bids for land until a price is reached that the seller is willing to sell for. That is the value of the land. When a appraising a property, tax appraisers look at comparable properties that have recently and estimate what the property under consideration would sell for. Then they charge a percentage of that amount in property taxes.

How does the value of parcel of land get set in a georgist model? This is critical because this will determine the land rent as I understand it. I am presuming the state somehow appraises the land and assigns it a value. What I can’t grasp here is how an appraiser can achieve an estimated value absent market exchange. That is the crux of my confusion.

David Giesen

Although it sounds odd because we're used to thinking "sale price," the key to conceptualizing the basis of socializing the land rent is to think rent. Of course, rent includes both annual (divided up into monthly payments)land value and building value. The isolation of these two is the problem you properly identify as being difficult. . . for those who are not builders or familiar with building costs.

Realtors, appraisers and, obviously, builders themselves are intimately familiar with square foot building costs. When a builder is hired to construct a commercial or residential structure on land owned by another, it is imperative to be able to closely estimate the total cost of construction including the builder's margin or "profit." (Profit is a sloppy term that leads to much misunderstanding and often to discord. Margin is a more meaningful term. It indicates the return on the risk coefficient in building--anticipating unexpected costs, anticipating unexpected events (perhaps the buyer goes bankrupt).

In any event, the builder is adept at estimating time and materials costs of construction. By capitalizing these costs over time (pay back over time), builders and realtors and appraisers can accurately figure the rent value of the building. By subtracting this building rent from the total rent obtainable one can accurately determine land rent.

Consider the price of a box of cereal. You and I might be puzzled by what portion of the $2.89 is owing to the value of the gasoline that went into cost of operating the tractor which furrowed the wheat fields, but farmers determine this cost closely or they lose all their margin and then some--in short they lose their shirts. Those intimately familiar with the production of a box of cereal (including the cost of placing it on the grocery shelf and leaving it there for me to come buy and take it to the checkout stand) are not particularly intimidated by the question of the cost of gasoline for the tractor.

For a knock-out presentation to the georgist schema, visit answersanswers.com Chris Tolworthy is some unknown to me kind of georgist Scot who has put together a brilliant website.

Now, before I sign off until next time, let me again remind both of us that the occasion for me visiting your site in particular is because of the explicit interest in ethos which we share. As earnestly as I strive for legislative reform in this matter, I am spiritually sustained by the sheer thrill of believing and feeling that speaking and sharing the inter-relatedness of all Creation is, in and of itself, the whole duty of humanity. Declaring that the cosmos is whole and daringly challenging every effort to atomize it through privatization of Creation and of Creation's rent is, I suggest, the rapture, here and now, not that will be at some indeterminable time.

Michael Kruse

David thanks for this exchange. I will go back and read the site you mentioned, plus I hope to dig back into Henry George at some point. I lived in Philadelphia in the late 1980s and I remember seeing the Henry George birthplace but I can't for the life of my remember where it is at. I also read that Denmark is one country that has really bought into the LVT stuff in a big way. I'll have to check with my Danish friends and see what they think.

My hope with this series has been to reflect on first order principles about faith and economics. I don't see the LVT or the present land ownership models as biblical essentials. Nor do I see either of them as intrinsically anti-biblcial. To me, that says we have at least two theoretically viable options that have to be weighed against prudence and effectiveness. I'll grant that I am still suspicious of the practicality of the LVT but I'll look forward to digging a little deeper on this later.

Thanks for your patience and helpful comments.

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