Back to Rothbard v Georgism: Overview

So….what are we left with?  Apparently, not long after publishing the paper we’ve spent the last few pages looking at, Rothbard decided there was more to be said.  In a way, it’s good that he did, because his follow-up article does bring all-new errors to examine.  In a way, though, some of the comments here are slightly disturbing, namely the ones where he contradicts his own arguments from the previous paper.

First though, Rothbard has a complaint:

Overall, it seems that one of the main Georgist fallacies is a confusion of economic and moral arguments for their program. Both types of arguments have their place, we can all agree, but the Georgists persist in using moral arguments in places where technical economic arguments are called for.

There’s a reason for this.  There’s no point making technical arguments when the morality of the thing you are discussing is dubious.  As we shall see, seeing something purely in a technical sense can cause a loss of perspective.

Playin’ Horseshoes

In the strictly economic sense, land is not a unique asset in two main ways: (1) in the nature of “rent” and (2) in its being capitalized on the market.

Rent, as Frank A. Fetter brilliantly pointed out, is the hire-price of a unit of a durable asset. (We might even go further and say that rent is any unit-price of a good.)

I’ve not found any original Fetter to read so I don’t know if Rothbard is accurately representing Fetter’s thoughts, but Rothbard appears to be playing a simple game of trying to control language.  The word ‘rent’ has a specific meaning in classical economics, being a payment to a production factor that has fixed supply.  Now, it is true that this rather specific meaning is not the one that most people associate with the word ‘rent’.  There is a common parlance usage that could be described in terms such as Rothbard uses, but there is already an economic term for this usage, namely ‘factor income’, which encompasses the incomes attributable to each factor of production, namely wages, interest and rent.  It should be immediately apparent then, why redefining the word ‘rent’ to mean the same thing as ‘income’ is inappropriate, it being the taking of a word denoting something specific and using it to refer to the general.

What’s interesting about this exercise is that if Rothbard is correct, then everything he says next can be applied to labour as well as rent.  I’m fairly certain that wasn’t what he intended…

The selling-price of an asset on the market will be the capitalized value of its expected future rents: the capitalization to take place at the going rate of interest. The rate of interest is the price of “time,” and hence future earnings are discounted back to the present at this rate. A piece of land sells now at the discounted sum of its future rents. Similarly, any asset will sell at the capitalized value of its future earnings; and where these earnings accrue from hiring out, the rent selling-price relation will be the same. If Rembrandts are habitually rented out to museums, they will earn, say, per monthly rents; tuxedos will earn nightly rents, and so on.

‘and so on’ must include the hiring out of labour (which is renting someones productive power), thus there is a selling-price for labour which is ‘the capitalized value of it’s expected future rents’.  And thus, slaves gain their market.

Now obviously, this little analysis doesn’t show that slavery is moral, but it does show an economic case for slavery, at least from the perspective of the slaveowner, and it all stems from trying to treat one factor of production as if it were another.  If you treat labour as if it were capital, then you would (and historically did) indeed get a market in slaves.  If you treat land as if it were capital, then you would (and do) indeed get a market in land title.  It says precisely nothing about the rightness of owning either. This is the kind of error you fall into when you do not attempt to synthesis the moral with the economic.  Rothbard should be using moral argument to check that his technical argument is meaningful.  Fetter’s conception of rent doesn’t say what Rothbard thinks it does.

Admittedly, land differs from improvable capital because land is not replaceable, and therefore land earns ultimate rents.

Oh, the humanity! After all that, Rothbard admits that not only is land different, but that his little semantic fudge is insufficient to describe reality and he must start adding words to ‘rent’ to denote the return to land.  I don’t know what he means by ‘ultimate’, especially as he’s about to deny that there’s anything ultimate about it…

Or, to phrase it differently, a machine may earn rents (usually in self-imputed earnings, but sometimes as being “hired out”) but they are gross rents, since it in turn must be produced by land and labor. Over the whole economy, then, the prices of capital goods are imputed backward to land and labor, until finally, the net incomes are earned by: land, time, labor (including entrepreneurship).

Seeing as Rothbard has already mentioned that time = interest, we have here the components of the factor rent.  This isn’t enough though, as land is still a factor, so Rothbard needs a fudge to exorcise it:

However, land is also capitalized on the market and any increase in its prospective earnings raises its capital value. Hence, land’s net rents are also capitalized, and we have as ultimate net incomes only: labor (earning wages), time (earning interest) and profits (for entrepreneurial foresight) minus losses (for poor entrepreneurial judgment).

It’s astounding to me that the proceeds of land are reduced by Rothbard to profits/losses on the capital value, not even a whisper of its contribution to actual production.

Rare Art Fallacy

Rembrandts are similar to land because both are fixed in quantity (Rembrandts even more so) and because the  same question arises as to markets and productivity. In short, does the Georgist believe that the rental value of Rembrandts (assume that all Rembrandts are rented out to museums) will continue to be the same, because the “market” will take care of things, even if the rental earnings from Rembrandts are taxed 100 percent?

Well, no, art is different from land.  The analogy with rare art is a faulty one.  Rothbard tries to head this one off at the pass:

The Georgist rejects the analogy of the Rembrandts because, he says, land value is created by the community. But what of Rembrandt values? Does not the increase in population, the development of the community, account for the increase in Rembrandt values? Will anyone pay much for Rembrandts in a primitive society?

Depends on if they want Rembrandts or not.  Rothbard is confusing the actions of the community, that change the nature of what is being valued, and the desires of individuals within the communtiy, upon which all pricing is based.  You may have a developed society that detests classic art, and you may have a primitive society that literally worships it, but either society manifests physically, thus it must occupy space.  That space will have certain characteristics that distinguish it from other spaces, and once society develops to any significant degree, the most important characteristic is who is nearby and what they are doing.  People, in general, desire to have access to rail networks, thus if someone builds a train station, space that comes with good access to that station becomes more valuable.  Now if space were createable, that is if you could cause to come into being additional locations with the same characterstics (ie if you could create space on top of existing space without creating a paradox), then you could say that that value is created by the owner, and that that space is rightfully ownable.  You’d also find that land wouldn’t be nearly so valuable in general, but hey ho.

In addition, contrary to popular belief, Rembrandts are not fixed in supply.  Let me repeat that for anyone asleep at the back: Rembrandts are not fixed in supply.  How can I make such an apparently foolish statement?  We have to go back to what a ‘Rembrandt’ actually is.  It is a painting, an ordering of matter to take a particular form.  As such, it is, in principle, capable of being reproduced, of someone taking matter and ordering it to have precisely the same form, indistinguishable from the other.  That it matters to the buyer that the creator is not Rembrandt himself, and thus will not pay as much, is not a robbery against the creator.  Likewise, if it turned out that people are willing to pay even higher sums of money to have their own Rembrandt-patterned painting now, rather than wait for the current owner to sell, that is not a robbery of the owner of the original.

More to the point, however, is that both originals and copies are produced and thus belongs to the producer to use and sell to his private benefit. Without our artists, there would be no paintings to be valued.  What that value is may depend on others, but that the value exists does not.

Space however cannot be reproduced, and more importantly what space does exist was not produced by man.  Thus for someone to use and sell space to his private benefit is to appropriate to himself a value he did not create, thus that value appears because of others is vitally important with regards to land, in a way that simply isn’t true when applied to things that are produced.  Were it not for our landowner, the land wouldn’t exist…….oh wait, it would!  Space is there, regardless of how anyone acts.

Earned/Unearned

The entrepreneur earns some wages for his labor, but he also earns profits for his foresight, and particularly interest for his advancement of capital, or time. In fact, many investors earn interest and profit without doing any “work” at all. Would Georgists then join the Marxists and confiscate such “unearned” interest? Why not?

For the simple fact that it’s not unearned.  Capital is the result of production, and is thus owned by the producer.  If that capital is then used in further production then the capitalist is aiding production.  Returns to capital are earned, hence the Georgist would not join the Marxist.

If you want a simple guide to work out what income is unearned and what’s not, check if the person receiving the income has rightful ownership.  If the capital employed turned out to have been stolen from its producer rather than purchased, then anything the thief receives for its use is obviously unearned.  This is uncontroversial.  The difference between Rothbard and George is that Rothbard thinks land is ownable the same as capital, which George denies.  Everything else is commentary.

I don’t think this is a point that can be stressed enough.  If land is ownable in this way, then Rothbard’s ultimate defense of claiming that LVT would distort because rightful owners would behave differently would be true.  It would also make LVT morally unjust as an appropriation of property, and that would be the end of it.  If it’s not though, then not having LVT is itself robbery and distortion.  Rothbard may despair at the reduction of the argument to morality, but it happens because it is the entirety of it.

Landowners Wages (Again)

It seems to me that Georgists give away their entire case when they graciously allow the landowners to keep 5–10 percent of their rent. This concedes that the landowner does perform some service, and if one concedes that he should keep some rent, where are we to draw the line? Why not let him keep 25 percent, or 50 percent, or 99 percent?

Seeing as he spent his entire previous paper trying to show how 100% LVT would be disastrous, I’m intrigued that he suddenly thinks Georgists are after something different.  Maybe there’s some context missing here, but it seems awfully odd.  In any case, whether the taxing authority charges 100% or 95% out of some attempt to preserve the landlord’s rightful wages is kind of irrelevant.  Let’s assume for a second that there really is a meaningful social function performed by a landlord (of just land, rather than of buildings, the social utility of which is uncontroversial).  If that were the case, then land-users would find it beneficial to find a landlord to administer their land, and would pay them to do it, even in the presence of LVT, and if the LVT was too high, they would move their operation (and their minister) to where it was lower, just as they would do if there were no such valid landlord function.  You don’t actually have to worry about whether landlord’s are useful or not.  If they are, they will find themselves employed, with ground rents being slightly lower than you would otherwise expect.  Land is inelastic, it takes whatever it left.

Actually, there is no reason for speculators to abstain from earning rents on their land unless it were too poor to earn rents; earning rents does not prevent land values from rising.

Actually, it does, simply because it reduces apparent scarcity.  Every businessman worth his salt is aware of the idea of artificial scarcity.  If something is seen as limited or exclusive, people want it more.  The same principle applies to land.  By keeping land out of use, the landlord is creating artificial scarcity. The question for the landlord is one of time preference. In any case, whether the landlord decides to hold idle or to let out, he is being paid for something he does not rightfully own.  Either way it is robbery.

Finally, if wages are OK because earned in the market place, then so are rents, and interest, and profits.

Yet another argument that fails as soon as slavery is considered.  Money from slavery was obtained by trade in the marketplace, but that didn’t make it okay.  It is a fallacy to assume that something is moral simply because a market exists.  Wages are ok not because of the marketplace, but because it is a trade for a thing that the labourer has a right to in and of himself (his time and efforts).  The marketplace can only tell you how much people want a thing, not whether it is right that they do so.

So much for the economical rebuttal.

Amen to that!

…physical land may be fixed, but the service of supplying the land is not.

As I’ve pointed out before, landlords do not supply land when paid, they simply stop actively preventing others from using what was already there.

No Libertopia Without Land

The last paragraph just about sums up the whole controversy.  It’s interesting how far divergent two philosophies can get when they differ on a foundational principle.

I have great respect for many aspects of Henry George; and none more than for his passages on the benefits that would ensue once taxes were removed from production. Our difference is that I believe that land value taxation would also blight production, and, further,  be  unjust  rather  than  the  contrary.

The common ground between Rothbard and George is vast, except Rothbard simply disbelieves the very idea of ground being common, not realising that this myopia on land, is the biggest thing preventing takeup of the libertarian paradigm.  When the land is privatised, landowners have more rights than non-landowners, and owners of more desirable locations have more rights than those who have lesser ones.  The end results of such a situation is a pyramid of slavery.  Those who own land, by being able to hold production hostage, are the ultimate beneficiaries of it.

Once you follow that process to its conclusion, you can no longer support the aims of the modern Libertarian or Tea-Party movement.  The problem with our social organisation is not just that private property is being socialised.  It is that common property is being privatised.  You cannot solve one while keeping the other and expect things to work.  Libertarians would do well to consider why there are no libertopias.  Even in places where the state collapses, very quickly warlords take over.  The benefits from controlling the land are too rich to ignore.  Until we actually find that our ground is indeed common, the promised land will continue to elude us.

Back to Rothbard v Georgism: Overview

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