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Author: 
 
 Brown, Harry Gunnison 
 
 Title: 
 
 Comments on some 
 current criticisms of land 
 
 Place: 
 
 Columbia, Mo. 
 
 Date: 
 
 [1 923] 
 
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 B^oMn, Harry Gminison 
 
 Goioiaonts on some ourrant oritioisms of land- 
 valu'i Vexation ... by Harry Guimison Brovm ... 
 Columbia, Missouri, Lucas brothers, rl^2-, 
 
 p. 117-169 • 19 on. 
 
 "Reprinted from £hiSj xho taxation of unearned 
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 LIBRARY 
 
 School of Business 
 
i 
 
 f 
 
 ^rtjr. LIBRARY 
 ■^^HOOL OF BUSINESS 
 
 G)mments on Some Current 
 
 Criticisms of Land- Value 
 
 Taxation 
 
 Reprinted from 
 TffE TAXATION OF UNEARNED INCOMES 
 
 by 
 Harry Gunnison Brown 
 
 Professor of Economics in the 
 
 Uni-yiersity of Missouri f^ ^> 1 
 
 l-^D 
 
 "It is in this careful analysis of property and the nature of 
 incomes that Professor Brown has made a distinct contribution to 
 the much befogged subject of taxation. ... 
 
 "Professor Brown is not a 'radical,' if one may judge by his 
 book. On the contrary, he holds up to scorn the halting philosophy 
 of the Socialist, and the absurd antics of the Bolshevist he laughs 
 out of court. Rather does he cling to the strictly American con- 
 ception of private property, based upon the idea of creation. The 
 conservation of this right of private property, indeed, is the motif 
 of the book. It is because he would protect and encourage the right 
 of private ownership of privately created wealth that he would lay 
 the greater burden of taxation upon the publicly created wealth. 
 
 "The elaboration of the theme is thorough. ... It is 
 this methodic and scientific treatiFcnt of the subject that will arrest 
 the attention of the careful thinker " -^Los Angeles Times. 
 
 LUCAS BROTHERS 
 Colu-^bia, Mo. 
 
^c 
 
 \ 
 
 i,./^ 
 
 After a while they came to the place where five roads branched 
 m diflFerent directions; Dorothy pointed to one, and said: 
 "That's it, Shaggy Man." 
 
 "I'm much obliged, miss," he said, and started along another road. 
 "Not that one!" she cried; "You're going wrong." 
 He stopped. 
 
 "I thought you said that other was the road to Butterfield," said 
 he, running his fingers through his shaggy whiskers in a puzzled 
 way. 
 
 "So it is." 
 
 "But I don't want to go to Butterfield, miss." 
 "You don't?" 
 
 "Of course not. I wanted you to show me the road, so I shouldn't 
 go there by mistake." 
 
 "Oh; Where do you want to go to, then?" 
 "I'm not particular, miss." 
 
 — ^L. Frank Baum 
 ,-. {The Road to Ox) 
 
 
 t— '' 
 
 f 
 
 l\ 
 
 ra 
 
 COMMENTS ON SOME CURRENT CRITICISMS^ 
 
 11 
 The Single Tax as a Deterrent to Thrift! 
 
 It will be worth while, before concluding our study, to 
 consider some of the recent criticisms levelled against 
 the increased taxation of land values, by a few of the 
 most widely known of the economists who oppose that 
 policy. These criticisms are, in large part, directed, 
 ostensibly, against the "single tax". But it is perfectly 
 obvious that most of them are intended to apply against 
 any considerable increase of land value taxation, even if 
 such taxation might have to be supplemented by other 
 taxes in order to provide sufficient revenue or even if 
 certain other taxes, such as inheritance taxes, were 
 wanted anyhow for the effects believed likely to result 
 from them. 
 
 In his elementary text for high schools, entitled Essen- 
 tials of Economics,^ Professor Fred Rogers Fairchild 
 says: 
 
 "One of the clearest lessons of the world's economic his- 
 tory is that the most efficient use of the land comes when 
 
 ^^ ^Reprinted, with some changes and considerable additions, from 
 "The Single-Tax Complex of Some Contemporary Economists," 
 published in the Journal of Political Economy for April, 1924. The 
 author is under obligation to the Chicago University Press for per- 
 mission to reprint. 
 
 'New York (American Book Co.), 1923, pp. 525 and 526. 
 
 (117) 
 
 //! 
 
 » 
 
 r 
 
118 
 
 The Taxation of Unearned Incomes 
 
 ^ 
 
 Single Tax as Deterrent to Thrift 1 
 
 119 
 
 it is in the hands of private owners. Governments have 
 proved to be very poor landowners. ... To obtain 
 the fullest product from the land there must be careful, 
 painstaking, intensive cultivation. The individual owner 
 will give his land this kind of cultivation. It belongs to 
 him. All that he does to improve it by hard labor and 
 'loving' care, all that he spends for draining and fer- 
 tilizing, are for his own gain and for his family. He will 
 work and spend to improve his land, and the crops will 
 increase accordingly. The marvelous results of the care 
 and labor of small landowners in increasing the fruitful- 
 ness of the land are to be seen all ovei the world. Exactly 
 the opposite has come from government-owned lands. 
 
 "Now the land is the final source of all the wealth that 
 satisfies our wants and makes life possible and enjoyable. 
 Anything that increases the product of the land is a bene- 
 fit to mankind. Anything that would reduce the produc- 
 tivity of the land would be a world calamity. Therefore, 
 in spite of some evils resulting from the private ownership 
 of the land, we conclude that a change to government 
 ownership would be a mistake* 
 
 "A change which is vigorously advocated by some 
 people is known as the single tax. The final goal of the 
 *single-taxers' is a tax of 100 per cent, on the economic 
 rent of the land. They would like to see the government 
 take away from the landowners the entire economic rent. 
 Since, as we have learned, the value of land depends on 
 its economic rent, this would be equivalent to taking 
 away the entire value of the land. The single tax is ul- 
 timately land nationalisation.^" 
 
 In his second following paragraph, Professor Fairchild 
 goes on to say that in "its extreme form, the single tax 
 
 Italics here arc the present writer's. 
 
 I 
 
 i 
 
 is open to the objections already raised agamst land na- 
 tionalization.'' This he says without any qualification 
 whatever. It would seem clear, therefore, that Professor 
 Fairchild really believes that a tax of 100 per cent, on the 
 rental value of land, with no tax at all upon the products 
 of labor including what is spent for draining and fer- 
 tilizing land, would "reduce the productivity of the land."* 
 Or else Professor Fairchild understands the single tax to 
 be — what it certainly is not in the minds of its most in- 
 telligent advocates — a scheme to tax the value of drain- 
 age, fertility, etc., put in by, or dependent for main- 
 tenance on, the individual owner. Professor Fairchild's 
 statement that this« would "reduce the productivity of 
 the land" must mean, if it means anything, that people 
 will work harder and produce and save more when their 
 taxes are proportional to their productiveness and thrift 
 than when their taxes are so proportioned to the advan- 
 tages of the sites they occupy that improvements in drain- 
 age or in the fertility of their lands, more and better 
 buildings, improved machinery, greater productiveness, 
 etc., will not at all increase their taxes.« This is certainly 
 the interpretation which the high-school student, if he 
 thought about the matter, would be obliged to put on the 
 passage. And this is the impression which the high- 
 school teacher — often untrained in economics and sup- 
 
 *See remarks quoted from Professor Fairchild v>a land nationaliza- 
 tion. 
 
 'Land nationalization, but, as pointed out above, he tells us that 
 loo per cent single tax is open to the same objections. 
 
 •Professor J. E. LeRossignol in his recent Economics for Everyman, 
 New York (Holt), 1923, p. 273, discussing the single tax, says that 
 "public ownership of land" which he apparently regards as the same 
 thing, "would interfere seriously with the improvement of land," 
 
 
 I 
 
-VA. 
 
 120 
 
 The Taxation of Unearned Incomes 
 
 
 posing that the conclusions stated must be correct since 
 they are those of a widely-known professor of economics 
 in a great university — will get. Is the conclusion a true 
 one? 
 
 But perhaps Professor Fairchild is troubled by the fear 
 that no one would want to hold title to land if its eco- 
 nomic rent were taxed 100 per cent., whereas people do 
 want to own it when the land is taxed much less as now, 
 but every building or improvement out upon or into the 
 land is also taxed. If a farmer should have to pay a site- 
 value or bare-land-value tax of, say, $100 a year, rep- 
 resenting the full rental value of his farm not counting 
 buildings, machinery, growing crops, fruit trees, installed 
 drainage, maintained fertility, etc., he would, on chis 
 theory, not care to hold title to the land upon which and 
 into which all these improvements were put. But if, 
 paying a much smaller tax on the bare land, he had to 
 pay additional taxes for each of these improvements, then 
 he would be very anxious to hold title, even if, as might 
 easily be the case with highly improved property, his 
 total taxes were larger. 
 
 Let us digress a moment to the case of urban land 
 which, for the purposes of the present argument, is anal- 
 ogous. The present writer's house is built on a lot tha 
 net rental value of which probably does not exceed $40 or 
 $50 a year. Professor Fairchild, if he holds to the theory 
 under discussion, would have to say that a tax of that 
 amount would destroy the incentive to ownership. (He 
 does say that "the single tax is ultimately land nationali- 
 zation.") The owner's actual tax on house and lot comes 
 to $70 or $80. The house is half stone and so is not 
 removable. Can it be that the f oner's interest in his home 
 and his desire to hold title to the lot on which it is built 
 
 * Single Tax as Deterrent to Thrift ! 121 
 
 would be less if the lot were taxed at full rental value 
 than it is when all the property is taxed? Is it not a 
 reasonable conclusion that men would want title— even 
 with the 100 per cent, extreme of single tax— to the land 
 in which and on which they possessed valuable improve- 
 ments, and that they would be as thrifty and as eager 
 to make such improvements if their taxes were not in- 
 creased because of them?^ 
 
 But let us turn back to Professor Fairchild's discussion 
 of private ownership of land versus nationalization, in 
 
 > which agricultural land seems to be especially referred 
 
 to. "The individual owner," he says, will give the land 
 "this kind of cultivation (careful, painstaking, intensive). 
 It belongs to him. All that he does to improve it by hard 
 labor and Moving' care, all that he spend:: for draining 
 and fertilizing, are for his own gain and for his family." 
 As a matter of fact, under existing tax laws, "all that 
 he does to improve it by hard labor and 'loving' care, all 
 that he spends for draining and fertilizing," are not "for 
 his own gain and for his family." The more the owner 
 improves his land the more he has to contribute of his 
 
 ^ income to the state. What Professor Fairchild says- of 
 
 the present system in his desire to defend it against land 
 nationalization (in his view the same thing as 100 per 
 cent, single tax) is distinctly not true of the present sys- 
 tem but would be true under the single tax. 
 
 One wonders whether Professor C. C. Plehn, also a 
 specialist in taxation, had the similar view which a pas- 
 
 'Of course it may be argued that the more people are taxed the 
 harder they will feel obliged to work. Relieving non-landowners of 
 some of their taxes might then enable them to do less. But, on the 
 same principle, taxing some landowners more might make them do 
 more work. 
 
 fc 
 
 
 1 
 
122 
 
 The Taxation of Unearned Incomes 
 
 tic'Irnr^'' ''"'^' *° ''P'*'' **"" deveIop„,ent of the par- 
 ticular phenomenon on which it rests. A single tax of 
 any k,nd^ w.ll tend to defeat its own ends by SprSsing 
 he existence of the phenomenon which gives the 13 
 
 urL^^^ ' "°^' "'■ '""^ ^ "°P' h« i'' taxed. Nat- 
 
 that involve this disagreeable consequence. The ex- 
 perience of nations which has led them to divers^v the 
 forms of their taxation is, therefore, supported by ft o^ 
 retical considerations." ^ 
 
 The reference to Mexico, considered in the light of its 
 on e,, ,pp,3,, ^^ ^ ^„ ^^ ^^ indue fve proi' 
 
 that every tax. including the single tax on land values^ 
 epressive. But, as Professor Viner has pointed oj '» 
 
 ttat? tax on TanH f " " "°* ^ ^"'^'='^"* -iemonstration 
 wLr "^ "^ "'' ^""''^ '■^P^^*^ the use 0/ land " 
 
 Whether a single tax on land rent could provide all the 
 
 necessary revenue for our common needs' or whitlSer 
 
 Vh cd. New York (Macmillan), 1921 n fig r( 
 *. passage ci.d, B. P.„,„», Jb vU.l lc,?„r.T.W 
 
 ^talics arc the present writer's. i 
 
 Loc. cit. 
 
 "In his recent book on Public Finance fNew Ynrt a . I 
 
 '924, p. 379), Professor H. L. Lutz IZs ^TT ^^^^^PP^^^n^-. ! 
 land values can h*. , /t ^ suggest that a tax on 
 
 Single Tax as Deterrent to Thrift ! 
 
 123 
 
 m 
 
 there may not be special reasons for levying certain other 
 taxes is not relevant to the present problem. The point is 
 that if a 100 per cent, tax on rent should he sufficient and if 
 it should be the only or "single" tax levied (this being, ac- 
 cording to Professor Fairchild, the same thing as land 
 nationalization), then indeed, and only then, would all 
 that the owner of land might do "to improve it by hard 
 labor and 'loving' care" and all that he might spend "for 
 draining and fertilizing" be "for his own gain and for 
 his family." 
 
 It should be noted that Professor Fairchild (and like- 
 wise Professor Plehn) does not base his statement upon 
 any alleged impossibility of separately assessing land and 
 improvements. Professor E. R. A. Seligman, in at- 
 tempting to make good the contention that the single tax 
 would rest more heavily on agricultural than on urban 
 districts, found himself compelled to note the arguments 
 of those who insist that the owners of agricultural land 
 should not and would not be taxed on the value of trees, 
 fertility, drainage, and other such elements put in or 
 maintained by their own efforts and investment and 
 that the single tax would, therefore, be relatively less 
 burdensome to the average farmer ♦ihan the present tax 
 system. His answer was that it is impossible tc separate 
 the value produced by the awner from the value socially 
 produced. The only evidence the present writer could 
 
 rent shall be reasonably large. As long as such a tax leaves to 
 private owners any considerable fraction of economic rent it is non- 
 sense to complain that the tax "base" is too "narrow" to yield 
 adequate revenue, nor is it a well-taken objecticm to heavy land- 
 value taxation that under its operation many parcels of land are 
 surrendered for taxes and can not then be marketed at a high price. 
 For one of the very purposes of such taxation is to lower the salable 
 value of land. See 5 7 of this essay (III). 
 
■■fei 
 
 r 
 
 124 The Taxation of Unearned Incomes 
 
 find adduced for this statement was the allegation" that 
 this is not easy to do, that "it is quite impossible in prac- 
 tice, to distinguish improvements on the land from im- 
 provements in the land,"^^ and the statement that "no 
 attempt is ever made, in assessing land values, to dif- 
 ferentiate between the two." 
 
 Doubtless such differentiation would involve difficulties. 
 In practice there might be considerable variations from 
 the ideal of accuracy. But even with noticeable imper- 
 fections of assessment it is possible that, by seriously 
 attempting to tax land values rather than improvements, 
 we might penalize thrift and the improvement of land 
 very much less than we now do. 
 
 An unbiased inquirer would not, perhaps, be primarily 
 concerned with listing difficulties as arguments against 
 the single tax. One suspects that he would endeavor first 
 to ascertain what economic wnsequences would be likely 
 to ensue from the application of a bare-land-value tax, 
 and that then, if these consequences seemed desirable, 
 he would be anxious to know whether a system of assess- 
 ments approximately meeting the need could not pos- 
 sibly be devised. It seems not beyond the bounds of rea- 
 son that the exercise of intelligence in cataloging elements 
 of value not appreciably dependent upon owners' efforts, 
 e. g., situation, slope, freedom from rocks, etc., together 
 with experience, would go far toward the eventual secur- 
 ing of workable differentiated assessments even of agri- 
 cultural land. To settle the matter in the negative with 
 an obiter dictum or with a statement that differentiation 
 
 12] 
 
 ^Essays in Taxation^ 9th ed. New York (Macmillan), igu, p. 77 
 and footnote on p. 91. 
 
 "Professor ScHgman's phraseology is a bit confusing. For what 
 is wanted is to differentiate between bare-land values on the one 
 hand and improvement values of any sort on the other hand. 
 
 "> 
 
 Single Tax as Deterrent to Thrift ! 
 
 125 
 
 is "quite impossible" and that "no attempt is ever made 
 . . . to differentiate" may be no more reasonable than 
 it would have been in 1890 or in 1900 so to settle the 
 question whether travel by airplanes would ever be fea- 
 sible. If, indeed, no better scheme should prove possible 
 of application, we might follow a suggestion of Professor 
 Commons^* and reckon the value^** of bona fide agricultural 
 land which is kept up to par in fertility, as, say, one-half 
 bare-land value, after the value of all buildings, planted 
 trees, etc., had been subtracted. And the cost of installed 
 drainage and othsr permanent improvements might sim- 
 ilarly be subtracted. If such permanent improvements 
 are likely to become, in time, indistinguishable from the 
 land, they could be regarded as being amortized into bare- 
 land value^^ so gradually — say over a period of thirty to 
 fifty years — as not seriously to discourage the owner 
 from making them. Then, in a succeeding generation, 
 when evidence of their cost was no longer available, the 
 problem of assessment would not be complicated by them. 
 Those who object to taxing land values rather than 
 capital on the supposition that the distinction frequently 
 could not be made by assessors with absolute accuracy, 
 perhaps do not fully realize what this argument implies. 
 If we must, sometimes, because of the inadequacy of our 
 data and the imperfections of our judgment, uninten- 
 
 ""A Progressive Tax on Bare-Land Values," Political Science 
 Quarterly, March, 1922, especially pp. 53-56. Professor Commons 
 makes other interesting suggestions along the same line. Cf. the 
 present book {The Taxation of Unearned Incomes), pp. 102-3, foot- 
 note. 
 
 "It would be well to reckon by rental rather than by salable 
 value since the latter, in the case of land, is so greatly affected by 
 any considerable tax. 
 
 "Cf. Commons, loc. cit., pp. 61-64. 
 
126 
 
 The Taxation of Unearned Incomes 
 
 ^ 
 
 / 
 
 Is Land Speculation Beneficial? 
 
 127 
 
 tionally penalize thrift and improvement, is it therefore 
 to be argued that ./e ought dehberately to maintain a 
 system of taxation by the application of which we ahvays 
 and everywhere penalize thrift and improvement ? 
 
 §2 
 
 Does the Community Gain from Land Speculation f 
 
 While some economists seem to argue that to levy on 
 land values rather than on other things would discourage 
 the improvement of land, other economists (or, at least, 
 one other) seem to fear that such taxation would unduly 
 interfere with the holding of land out of use by specula- 
 tors ! In the words of a well-known opponent of increased 
 land-value taxation, Professor Richard T. Ely,^' the owner 
 of vacant or unused land "renders distinct service because 
 he carries the burden while a lower use is ripening into 
 a higher one." There is no intention to argue here that 
 all land ought to be used when it is not all needed.^® Nei- 
 ther is it intended to deny that the holding of well-situated 
 land out of use for a few years may sometimes leave the 
 way open to a better use,^® that, for example, speculation 
 in city lots may yield a service by preventing land from 
 being built on too soon and so saving it for prospective 
 high buildings without necessitating the tearing down of 
 
 ^'Outlines of Land Economics, Ann Arbor, Mich. (Edwards Broth- 
 ers), 1922, Vol. Ill, p. 105. Cf. also, context, p. 104. 
 
 "Much of the remainder of this and the next paragraph is repeated 
 almost word for word from the footnote on page 106. 
 
 "See Fisher, The Nature of Capital and Income, New York ( Mac- 
 millan), 1906, pp. 253-254. The present writer has no reason to be- 
 lieve that Professor Fisher opposes increased taxation of land values. 
 
 old and lower ones.^® But if any economic waste is ever 
 so avoided it is probably more than equalled by the waste 
 involved in constructing, repairing and cleaning longer 
 streets, in the walking and riding longer distances, past 
 vacant land, of thousands of city dwellers, and in the 
 transporting of goods farther from store to store and 
 from stores to homes than would otherwise be necessary.*^ 
 Individual estimates of the balance of gains and losses do 
 not tend to result in the most economical arrangements 
 when the individual who exercises the power of choice 
 experiences the gains but divides with the community 
 the losses. May it not be that wastes of a like sort, in- 
 cluding the building of railroads past many miles of 
 largely unused land, help to account for those "high costs 
 of distribution'' of farm products, of which farmers and 
 others frequently complain ? 
 
 Again, the notion that money can be made by specula- 
 tion in land probably operates as would a partial combina- 
 tion among holders of vacant land, thus forcing up rents 
 and land prices. Also, such unused land is raised in 
 value not only by road and street construction, but also 
 by other improvements and services paid for from com- 
 munity funds. Hence, to tell the owners of land that 
 many of the improvements will be paid for chiefly by 
 
 "Everybody knows that, as a rule, skyscrapers are built upon land 
 on which lower buildings previously rested and that, usually, these 
 lower buildings are torn down in order that the higher ones may 
 be constructed. And there are persons who would be inclined to 
 say that, even if the speculative holding of land out of use really 
 were an advantage to the community, the leaving of the major part 
 of economic rent to private landowners would be too heavy a price 
 to pay for it. 
 
 "In so far as space may be wanted for parks and playgrounds, 
 the taxation of land values makes it possible for suc^ space to be 
 bought at a lower price. 
 
 fl 
 
128 
 
 The Taxation of Unearned Incomes 
 
 those owners who build upon and use their land may be 
 not merely to avoid discouraging speculative holding but 
 to offer a distinct encouragement to such holding. 
 
 It is interesting to note that different conservative pro- 
 fessional economists answer in seemingly opposite ways 
 the contention of land- value taxation advocates that spec- 
 ulation in land injures the community by holding good 
 land out of use, so forcing resort to poorer land, decreas- 
 ing the productivity of industry, lowering wages and 
 raising land rent. For, while some economists make light 
 of this contention, claiming that very little good land 
 really is held out of use, others (at least one other) argue 
 that land is held out of use during the "ripening" process, 
 that this is to the advantage of society and that heavy 
 land- value taxation is objectionable because it would pre- 
 vent such holding. Both of these arguments against in- 
 creased land-value taxation are apparently appealed to by 
 Professor Ely.^* 
 
 §3 
 
 The Unearned Increment as a Cause of Cheap Goods! 
 
 A view which should perhaps be distinguished from 
 any of the foregoing ones is that of Professor T. S. 
 Adams. Professor Adams seems to believe that the pri- 
 vate receipt of the so-called unearned increment stimulates 
 production and thereby lowers prices. The implication 
 would appear to be that, were land values so taxed as 
 
 ''Oudincs of Land Economics, Vol. Ill, pp. 98, io4, 105, The 
 chapter here cited is repeated, in large part, from Professor Ely's 
 paper in the Proceedings of the National Tax Association for 1921. 
 See, especially, pp. 245 and 251. 
 
 Unearned Increment /nd Cheap Goods! 129 
 
 to prevent private realization of any unearned increments, 
 prices would be higher. Professor Adams says^* that 
 "farmers and farms are more numerous, farm products 
 more plentiful, and farm prices lower, because of the un- 
 earned increment. ... It (the unearned increment) 
 is diffused to every one who eats." To this one would 
 be inclined to reply that if we have more farmers," farms 
 and farm products and lower prices of these products, 
 then we must have fewer people in some or all other 
 lines, fewer builders, fewer manufacturers, fewer houses, 
 fewer manufactured goods and higher rents and prices 
 for these houses and goods. ^^ But such does not appear 
 to be the view of Professor Adams ! For he goes on to 
 say :^® 
 
 "Similarly our railroads have counted upon the un- 
 earned increment to justify extensions that would not 
 otherwise have been made ; and if the land used in op- 
 eration is yielding a high economic rent, that rent enters 
 into the earnings upon which traffic rates are based. Thus 
 in two ways the unearned increment operates to reduce 
 railway rates. . . . The manufacturer in the same 
 way is forced to give back to the community the unearned 
 increment which he is supposed to receive. . . Here 
 
 the consumer of the product gets the benefit through a re- 
 duction in the cost of production. . . . Finally, ten- 
 
 ""Tax Exemption through Tax Capitalization," American Eco- 
 nomic Review, June, 191 6, page 279. 
 
 ^We might, conceivably, merely have the same number of farm- 
 ers, but settling new land instead of remaining on the old. 
 
 **Sce footnote oh pp. 163-165 of this book. Cf. II, § 6, where 
 consideration is given to the claim that the unearned increment is 
 diffused in higher %vages. 
 
 ^Pagcs 279-280 of his article. 
 
 II 
 
 I 
 
 r'l 
 
130 
 
 The Taxation of Unearned Incomes 
 
 ants receive the transmuted unearned increment" (in the 
 form of reduced rents) !" 
 
 Unlike those who contend that, because of the hope of 
 an unearned increment, good land is held out of use and 
 production retarded by the forcing of industry to poorer 
 and more remote land, Professor Adams seems to believe 
 that there are more people in every line, more land used, 
 more buildings constructed and prices and house rents 
 lower than if the unearned increment were not allowed, 
 to go into private hands ! The number of persons in each 
 line is increased thereby without the number in any other 
 line being decreased !^® Does Professor Adams think that 
 the private enjoyment of the unearned increment increases 
 the birth rate or decreases the death rate, so causing more 
 persons to crowd into all lines ? And, if so, does he sup- 
 pose that the presence of this larger population (per naps 
 forced to the use of poorer land by speculative holding as 
 well as by increase of numbers) will result in greater 
 prosperity for the masses, so "diffusing" the unearned 
 increment? If he does not suppose this, then what does 
 he suppose? 
 
 "Sec, for a discussion of the relation— or non-relation— of the un- 
 earned increment and building, Davenport's article on "Theoretical 
 Issues in the Single Tax," American Economic Revieio, March, 1917, 
 pp. 17-24, and the present writer's recent book, The Economics of 
 Taxation, New York (Holt), 1924, pp. 225-227. 
 
 "On page aSi of his article Professor Adams seems to admit that 
 if the increment were accurately known in advance It would be 
 capitalized and that then lower rents and prices would not follow. 
 The implication is that the stimulating effect which he alleges, de- 
 pends upon the increment not being expected! A future gain, not 
 now contemplated,, is asserted to have a present effect on action! 
 
 \ 
 
 \» 
 
 i 
 
 I 
 
 /r 
 
 7 
 
 The Single Tax IN France 1 131 
 
 §4 
 
 The Single Tax in France! 
 
 An alleged "actual fact" makes a considerable impres- 
 sion on persons as untrained in the methods of science as 
 are many students of economics in some of our best- 
 known colleges and universities where the chief material 
 offered in economics, after the beginning course, is de- 
 scriptive and narrative, as is most of the material usually 
 presented in textbooks on taxation and public finance. 
 One who desires to convince such students that a given 
 policy is undesirable can find no more effective method of 
 doing so than to get an historical case where it was "ac- 
 tually tried" and where it was abandoned because it 
 "didn't work." 
 
 The competent student of human history knows that 
 many times when a policy has been abandoned because it 
 "didn't work," it has really been given up because, how- 
 ever desirable its effects may have been on the people- 
 in-general, it has been objected to by some class or classes 
 having power or influence. Indeed, policies which would 
 benefit them are often rejected by the very persons who 
 would be the beneficiaries. But these facts the super- 
 ficial observer does not see. Hence, the statement that 
 an abandoned policy was given up because it "failed" 
 may seem to such a one conclusive. 
 
 Innocently enough, doubtless, so far as intention is 
 concerned, but with a carelessness that he might not have 
 permitted himself had the supposed facts in his posses- 
 sion run counter to his own views. Professor Merlin 
 Harold Hunter has used this kind of argument in his 
 
 ii 
 
 r 
 
 ^» 
 
132 The Taxation cf Unearned Income 
 
 ^'i V 
 
 Outlines of Public Finance.^^ Near the beginning of his 
 chapter on the single tax, Professor Hunter refers to 
 France, the physiocrats, and the impot unique of these 
 economists.^« Then he makes the following amazing state- 
 ments : 
 
 "Much was accomplished in putting the system into ef- 
 fect until glaring inequalities in the tax burdens became 
 apparent. Citizens with large incomes from stocks, with 
 unquestioned ability to meet fiscal burdens, were escaping 
 entirely, while the poor landowners were able to meet the 
 tax burden only with the greatest difP.culty." The in- 
 justice became so marked, and the dissatisfaction so evi- 
 dent, that the impot unique was abandoned."^* 
 
 In the Century Magazine for July, 1390, Mr. Edward 
 Atkinson, debating the single tax with Henry George, 
 made a similar statement.^* He said: "It (the single tax) 
 was presented more than a century since by the econo- 
 mists of France known as the physiocrats ; it was applied 
 in France under Turgot, before the French Revolution, 
 with very disastrous results." But in the Noveml)er ( 1890) 
 number of the Century, replying to a communication from 
 a Mr. James Middleton, Mr. Atkinson admitted that he 
 
 '"New York (Harpers), 192X. See review by the oresent writer in 
 the National Municipal Review (November, 1922), p. 391; cf. 
 Viner "Textbooks in Government Finance," Journal of Political 
 Economy, April, 1922, pp. 253-55. 
 
 '^. 363. 
 
 "In regard to probable effects of single tax on the welfare of the 
 common man, the reader is asked to compare this decidedly mis- 
 leading clause with what is said in sections i and 7 of this essay. 
 The clause here cited is perhaps as misleading on the principles 
 and probable effects of land-value taxation as it is historically. 
 
 "Pp. 363, 364. 
 
 "XL (New Series, Vol. XVIII), 393. 
 
 I 
 
 Are all Goods Equally Products of Nature? 133 
 
 had written incorrectly and that the single tax had not 
 been tried in France.^* 
 
 §5 
 
 Are All Goods Equally Products of Nature f 
 
 Professor Hunter's book contains many of the current 
 arguments against the single tax. And he apparently has 
 no sympathy even with the views of those who hold, 
 without being orthodox single-taxers, that land should 
 bear a larger proportion of the total tax burden. The 
 often asserted difference between land and various other 
 goods, viz., that it is a gift of nature and they the products 
 of labor, he disallows in the following passage: 
 
 "Here is a farm, a gift of nature, and on it i^ dwelling 
 house, a product of man's labor. But when a little closer 
 consideration is given to the house, nature appears to have 
 played a considerable part in making provision for it. 
 The clay in the brick was taken from the hillside; the 
 oak in the floors was taken from the forest ; the glass in 
 the windows was accumulated from various places. The 
 entire building was a gift of nature — man has no more 
 power to create houses than to create land. He simply 
 changed the materials of nature to make them more serv- 
 iceable, the difference being that he exerted more effort 
 on some than on others."^^ 
 
 A very similar view is presented bv Professor Seligman 
 in his Essays in Taxation,^^ by Professor Winthrop More 
 
 "^XLI (New Series, Vol. 
 "Pp. 367, 368. 
 
 :IX), 158. 
 
 "^Pp. 70, 71. 
 
 
134 
 
 The Taxation of Unearned Incomes 
 
 H^ 
 
 "Vested Rights" Again 
 
 135 
 
 Daniels in his Public Finance,'^'' and by others. But have 
 these authors never heard of the theory of marginal pro- 
 ductivity, in which produced wealth is imputed in part to 
 each of the so-called "factors of production?*' If they 
 have, they should be able to realize that there is a sense 
 in which land, apart from all improvements in or on it, is 
 very much more a gift of nature than a building. Can 
 the land be in any way "imputed" to labor? 
 
 What the single-taxers are really endeavoring to do is 
 to make a distinction between certain values that can be 
 imputed to the labor and thrift of individuals as such and 
 certain other values that cannot be so imputed but are 
 either gifts of nature or the results of community growth. 
 If this distinction is not always clearly presented and if 
 there is sometimes confusion about seemingly border- 
 Une cases,'^ the business of the trained student of eco- 
 nomics whose point of view is the objective one of the 
 scientist, is to dissipate the confusions and make the dis- 
 tinction plain. Yet here we find three economists— and 
 there are many more of like mind — attempting to make 
 less clear rather than more so a really importan; distinc- 
 tion that every student ought to be made to unde/stand; 
 and this for apparently no other reason than to discredit 
 the single-tax philosophy. 
 
 There are various other arguments presented in Pro- 
 fessor Hunter's book (as, also, in Professor Seligman's 
 Essays in Taxation) to which no attention will here be 
 paid,' partly because of a disinclination so to extend the 
 discussion and partly because they have been discussed 
 
 '"New York (Hok), 1899, P- 82. 
 
 ""The present writer has recently discussed certain of such seem- 
 ingly border-line cases in The Economics of Taxation, New York 
 (Holt), 1924, pp. 220-233. 
 
 I 
 
 at length in the preceding essay in this book. Indeed, 
 the present writer considered them, or a number of them, 
 prior to the appearance of Professor Hunter's book, in 
 an article^® and in two different books, '^ one of the books 
 being the first edition of this one. Considerable attention 
 was given to some of these arguments in Professor H. J. 
 Davenport's article on "Theoretical Issues in the Single 
 Tax," 1917/^ with which Professor Hunter seems un- 
 familiar.*^ 
 
 § 6 
 "Vested Rights" Again 
 
 But the real objection of conservative economists to the 
 single tax — or any considerable steps toward the single 
 tax — flows from their respect for "vested rights." Says 
 Professor Fairchild in his Essentials of Economics: 
 
 "The present owners of land have come into possession 
 in good faith under the present rule. Many of them have 
 paid for their land its full present value. To proceed now 
 to take from them the whole or a part of the value of their 
 land or to impose upon them discriminatory taxes would 
 be an injustice. If there is to be land nationalization it 
 can be accomplished justly only by purchasing the land 
 at its fair value from its present owners. Any other pro- 
 cedure is like changing the rules of a game, while the 
 
 "•"The Ethics of Land-Value Taxation," Journal of Political Econ- 
 omy, May, 1917, pp. 464-92. 
 
 ^The Theory of Earned and Unearned Incomes, iqiR, zt.1 The 
 Taxation of Unearned Incomes, first edition, 1921. Both, Columbia, 
 Missouri (Missouri Book Co.). 
 
 *^American Economic Review, March, 1917, pp. 1-30. 
 
 *^There is in Professor Ely's Outlines of Land Economics, also, no 
 evidence of acquaintance with Professor Davenport's article. 
 
 4. 
 
^ 
 
 136 The Taxation of Unearned Incomes 
 
 game is in progress, to the disadvantage of one contest- 
 ant."*^ A similar view seems clearly to be held by Profes- 
 sor T. S. Adams,** whose apparent contention that the un- 
 earned increment increases production in general and is 
 "diffused" in lower prices, not of one sort of goods only, 
 but of goods in general, we have already noted.**^ It is 
 apparently subscribed to by Professor R. T. Ely,*® whose 
 opposition to special land-value taxation is well known. 
 It is definitely declared by IVofessor Winthrop More 
 Daniels.*^ And it seems to have the support of Professor 
 F. W. Taussig,*^ of Professor C. J. Bullock,^» and of 
 various other writers. 
 
 Professor Daniels is thoroughly consistent in his ad- 
 herence to the view that an investment once made is sacred 
 as against discriminatory taxation whether it is in land 
 or in a stock corporation having a monopoly. For he 
 asserts that^** "when the source of monopoly or unearned 
 profits has been once transferred from the original owner, 
 
 *"P. 527. Italics are the present writer's. 
 
 **See his article on "Tax Exemption through Tax Capitalization" 
 in the American Economic Review for June, 1916. 
 
 "§ 3 of this essay (III). 
 
 *^Outlines of Economics, 3d rev. ed. New York (Macmillan), 
 1916, pp. 681, 682. The fourth and latest edition (September, 1923), 
 does not appear to contain the specific passages here referred to, 
 but the passage on page 672 (which is logically correct as against 
 the theory there criticised) would probably be interpreted by most 
 readers as implying the former view. Certainly there is no clear indi- 
 cation of any change in this view. 
 
 "Public Finance, p. 85. 
 
 *^Principles of Economics, 2d rev. ed. New York (Macmillan), 
 1915, Vol. II, 102. 
 
 ^'The Elements of Economics, zdi ed. Boston (Silver, Burdett & 
 Co.), 1913, pp. 326-28. 
 
 "P. 85. 
 
 (( 
 
 Vested Rights" Again 
 
 137 
 
 special or exclusive taxation involves the expropriation 
 of property owners, who acquired their title by indefeas- 
 ible right." 
 
 By the same logic it would appear tc be unjust to reg- 
 ulate downward the higa prices or ratej of public service 
 or other monopoly companies after purcn^ises have been 
 made of their stock, in the expectation of the continued 
 receipt of unregulated returns, by other parties than those 
 who established the monopolies. If the originally re- 
 sponsible persons have died, or have sold out and cannot 
 be found, or have sold out and dissipated their gains, it 
 must then be the duty of the public to go on paying, in- 
 definitely, rates that yield 20, 30, or 40 per cent, on the 
 value of the necessary plants for conducting the businesses 
 — or else to buy out the monopoly concerns at values ar- 
 rived at by capitalizing their large anticipated returns. 
 
 Extreme cases are sometimes enlightening. Let us 
 suppose, then, a community in which not only is all the 
 land owned by a few, but in which every article is under 
 the control of, and the price fixed by, a monopoly. At 
 every turn the common man finds himself the victim of 
 exorbitant prices. But the monopolists, like the land- 
 owners, have bought the right to these large incomes and 
 cannot justly be dispossessed! The masses, even though 
 they get control of government, cannot fairly reduce rates 
 and charges because this will involve "the expropriation 
 of property owners who acquired their title by indefeas- 
 ible right."^^ No, the masses must either continue to pay 
 indefinitely the high prices and rates that have become 
 customary or else they must buy out the monopolists at 
 the fair present value of the incomes that have become 
 customary! This view of the ethics of the case might 
 
 » 
 
 u 
 
 Daniels, loc. ctU 
 
 I 
 
138 The Taxation of Unearned Incomes 
 
 seem a hard one to persons whose real incomes were thus 
 forced to a low level by ubiquitous monopoly. And they 
 might decide that to continue paying the monopoly charges 
 would be fully as easy as to buy out the monopolists at the 
 capitalized value of their "indefeasible" property. In any 
 case the victims of the system continue to be victims. 
 There seems reason to believe that, in the eyes of econ- 
 omists like Professor Daniels, no other alternative is 
 permissible. 
 
 But, in general, teachers and writers of economics do 
 not seem inclined to insist as strongly on respect for other 
 vested rights as on respect for vested rights in land. Thus, 
 there appears to be a willingness to have monopolies reg- 
 ulated even after innocent investors have bought stock in 
 the expectation of large dividends. There appears to be, 
 also, a willingneiss to see tariff changes even although in- 
 dustries have been established at considerable cost on the 
 basis of existing tariffs. There is an apparent wiUingness 
 on the part of many that price levels should be stabilized 
 for the future, if government can be brought to adopt 
 the policy, even although some persons have made their 
 investments in the expectation that society would permit 
 them to profit from fluctuations they believe they can 
 foresee — and even although other persons have invested 
 largely in their own education on the peculiarities of the 
 cycle in order that they may gain from the changes that 
 occur rather than lose. The Eighteenth Amendment must 
 have seriously damaged the property interests of many 
 persons whom society had permitted to buy and to build 
 specialized property for the brewing of spirituous liquors, 
 who had "come into possession in good faith" under the 
 then existing rule. But the writer can recall no protest 
 against this change in the economics textbooks of any 
 
 "Vested Rights" Again 
 
 139 
 
 of the current writers. Nevertheless, this also, to use 
 the phrase adopted by Professor Fairchild, is "changing 
 the rules of the game, while the game is in progress, to 
 the disadvantage of one contestant." 
 
 There are various other ways in which society has been 
 guilty of "changing the rules of a game, while the game 
 is in progress." Thus, the establishment of trade schools 
 has tended to do this. Prior to the establishment of trade 
 schools, the craftsman had to learn his trade by a long 
 period of apprenticeship. The time required tended to 
 limit competition. But the establishment of trade schools 
 operates to increase competition in the trades for which 
 they are provided, by bringing in new workers who are 
 more quickly trained. Thus the establishment of trade 
 schools may prevent the receiving of the wages which 
 their sacrifices and their long apprenticeship would have 
 otherwise brought them, by workers already in the field. 
 Ought not economists to protest against the establishment 
 of trade schools by the public as an infringement on 
 vested rights? But perhaps the vested rights of wage- 
 earners are not as important as the vested rights of prop- 
 erty-owners ! A change which lowers the wages of an 
 artisan does not lower the capitalized salable value of 
 anything, since his prospective income is not salable as a 
 
 whole! 
 
 What shall we say, then, regarding the rent of land .'' 
 Is that particular kind of income more sacred, more in- 
 violable, than the other types of income we have been 
 discussing ? In this connection it will perhaps be argued 
 that the private receipt of land rent has a longer and 
 less-questioned prescriptive sanction than the private re- 
 ceipt of monopoly gains, of income from the manufacture 
 of spirituous liquors, etc. It should be borne in mmd that 
 
140 The Taxation of Unilarned Incomes 
 
 the claim which must be held inviolable as against the 
 single taxers or other advocates of increased land-value 
 taxation, is a claim to a future rent which shall never 
 be reduced by taxation in such a way as to lower the 
 salable value of land. Society is held to be under a moral 
 obligation not to reduce the salable value of land by one 
 lote To do so is like "changing the rules of a game, 
 while the game is in progress, to the disadvantage of one 
 contestant." The owners of land are said to have bought 
 It m the faith that "the rules of the game" will not be 
 changed. And this appears to mean in the view of many, 
 i^ not, indeed, most writers of economics texts, that the 
 present taxation system should not be changed at all in the 
 direction of heavier relative taxation of land." Has so- 
 ciety, directly or by implication, pledged itself that it will 
 not raise these taxes? Nobody seems to think that a 
 tax on automobiles cannot legitimately be increased after 
 people have bought automobiles not expecting such in- 
 
 "Pcrhaps. in this view, there should not even be a generally in- 
 creased rate of taxation on all property. For this might lower the 
 salable yalue of land on the constancy of which purchasers had re! 
 Int .^^f '"f"^^^^^*^-^*-° of ail property might discourage sav- 
 ing. If ,t did so, the decrease of capital would tend, in the Ion. 
 
 ral ^7 ''" ?^"' "^ '° ''' ^* "^ production. And interest 
 
 th? r K ""% '' r°"'^ ^''" '• "'^^^^ -^^^« '« "- -™« capital, 
 hough perhaps less than before. But at interest rates which, includ^ 
 mg the tax. are higher than they would have been and. with the tax 
 subtracted almost as high as they would have been without the tax 
 the capitalized salable value of the heavily taxed land rent woulJ 
 be reduced. And the anticipation of this result might conceivably 
 cause the salable value of land to fall as compared wUh other vllues 
 as soon as a generally increased tax on all property was levied-T; 
 seriously proposed! Cf. Note by H. Gordon Ha^. entitled "^e 
 
 February, 1920, pp. 373-80, especially p. 376. 
 
 c 
 
 C^ 
 
 { 
 
 "Vested Rights" Again 141 
 
 crease. And nobody seems to think that other tax -ates 
 e^g., on tobacco, may not properly be changed if to chang^ 
 them seems expedient. Is it only landowners against 
 whom any increase of taxation is a violation of faith' 
 is It only landowners to whom society guarantees no dis- 
 crmimatmg tax increase? Or would it be reasonable to 
 argue that landowners, like other persons, make their con- 
 tracts and buy their property with no guaranty that public 
 pohcy wtll not change, but merely with the practical cer- 
 tamty that such important changes in public policy as oc- 
 cur will not be precipitate or without the warning of years 
 of agitation preceding the changes ?" 
 
 The natural reaction of some economists will perhaps 
 be o say that society does have a right to increase taxes 
 on land, but that it has no right deliberately to set out 
 upon a policy which leads eventually to the single tax. 
 Yet such a position cannot be logically defended. For 
 once It has been admitted that any definite increase what- 
 ever of land-value taxation is permissible, the mathema- 
 tician can point to a smaller present increase plus future 
 additional increases, the application of which would lower 
 the present salable value of the land no more. 
 
 "Suppose that a group of persons, by long agitation, succeed in 
 makmg .t appear likely that the single tax will be adopted l" 
 consequence of this expectation, land values decline and many own" 
 ers sell land at lower prices than they would otherwise charge Do 
 the persons who start this agitation commit an immoral act lince it 
 
 f"ans/ r^K^r" "' """ '^""''"' *" •"' "'""'• -'«' of land 
 falls? Ought the government to suppress such an agitation in order 
 
 to protect "vested righ;."P But what if the government alCthe 
 agitation to go on until many owners have sold land at low Dric« 
 counting on the adoption of single tax and until many other indi 
 viduals, perhaps, have made valuable improvements out of current 
 savings, counting on a future exemption of these improvement, from 
 taxation; but finally does no/ adopt the single tax! Are any "vested 
 rights" then infringed? 
 
142 The ' axation of Unearned Incomes 
 
 It may now be said, however, that the objection to the 
 single tax or to heavy taxation of land is not meant to 
 be an objection to gradual change. But if their objection 
 is only to sudden change, most economists have deftly 
 concealed the fact. Nearly always there is no intimation 
 that even gradual change is permissible." Indeed, one 
 
 "It may be of interest to some readers to note that not even by out- 
 right purchase of land— if it were really paid for by taxes rather 
 than by creating a perpetual debt— could we entirely avoid inter- 
 ference with "vested rights." Even by such purchase we should be 
 "changing the rules of a game, while the game is in progress, to the 
 disadvantage of one contestant." For the persons who would have 
 to pay the taxes necessary for buying the land, would be the persons 
 who have taxable income or property noiv or in the ngar future, i. e., 
 while the tax is being collected. Such persons would, to be sure, 
 be free, thereafter, of taxes, so far as the future collecting of eco- 
 nomic rent in lieu of other taxes could free then. But so ivould 
 other persons whose ability to pay taxes, prior to the period •/ land 
 purchases, might he so small that only their usual tax contributions 
 toward current expenses could be secured and nothing additional 
 toward buying out the landlords. The freedom of these other per- 
 sons from future taxes is not enjoyed at the expense of landowners, 
 as such, but is at the expense of ail those who are in a position to 
 pay extra taxes during the land-buying period and who have to 
 contribute, not only to buy themselves free of future taxation but 
 to buy these others free of future taxation. Property owners and 
 receivers of large incomes might, then, so buy free of future taxes 
 persons who could not buy themselves free. The vested rights of 
 these property-owners are disregarded. And landowners themselves, 
 being taxed with others to provide means to pay foi the land— in 
 which thereafter they would be but part owners with the rest of 
 the community-would be helping to buy free of future taxation per- 
 sons who could not, at the time, buy themselves free. So the rested 
 rights of landowners themselves might not I? fully respected by 
 such a scheme. These considerations may not be impor-tant but they 
 are believed not to be mathematically fallacious. 
 
 Lest this point seem not quite clear, we may illustrate it by an 
 extreme but somewhat analogous case. Let us suppose t community 
 
 O 
 
 "Vested Rights" Again 
 
 143 
 
 1 
 
 recent writer, Professor J. E. LeRosiignol, definitely 
 expresses his view of the "injustice and impracticability" 
 
 of which one-third of the members are slaves whose total value is a 
 million dollars, one-third are the owners of these salves and own a 
 million dollars worth of other property besides, and the last one- 
 third are non-slave-owners who are of equal wealth with the slave- 
 owners, i. e., worth, in the aggregate, two million dollars. It is 
 decided to free the slaves and, with the idea of avoiding an infringe- 
 ment of the "vested rights" of slave-owners, this is done by purchase. 
 A capital tax of 25 per cent is levied on all owiers of property, to 
 provide the million dollars necessary to buy the slaves free. The 
 slave-owners receive this million dollars, but have to pay out half a 
 million as their share of the taxes. They are left then, without the 
 million dollars' worth of slaves and wit^ an extra half-million dol- 
 lars' worth of other property, ^r a total of a million and a half in 
 value in place of their foraer two million. The other propertied 
 classes have to pay out half a million dollars in taxes as their 
 contribution toward freeing the skves and 1 ive a million and a half 
 dollars worth of property remaining. The calves are thereafter 
 free, but the wealth of their former owners and also of the other 
 propertied class is reduced to three-fourths of its former amount. 
 Together they own, not a million dollars' worth of slaves plus three 
 million dollars' worth of other property but only three million dol- 
 lars' worth of other property. The slave-owners have lost as much, 
 notwithstanding they have been paid for the slaves out of property 
 and so "compensated," as if they were deprived of their property 
 more gradually without "compensation." The advantage of the 
 "compensation" method is that it frees the slave- instantly without 
 imposing any burden for payment upon them (p-esumably they 
 have, at the time, nothing to pay with), but this gain of the slaves 
 is at the expense of an infringement of the "vested rights" of the 
 non-slave-owning propertied classes. To pay for the slaves by tax- 
 mg all other persons and not taxing the slaves would be, surely 
 "like changing the rules of a game, while the game is in progress! 
 to the disadvantage of one contestant." The only w. y to free the 
 slaves without interference with the "vested right.' of any property- 
 owners would be for the slave-owners to be paid by a bond issue, the 
 interest and principal of which (or the interest forever) should be 
 paid by the slaves themselves and their descendants! Similarly, 
 
■•■ 
 
 144 The Taxation of Unearned Incomes 
 
 of the adoption of the single tax "whether done at once 
 or gradually/"^* 
 
 A comment on the foregoing argument, received by 
 the writer from a specialist in the field of taxation, of 
 high reputation, seems to indicate the necessity for fur- 
 ther explanation. The comment was, in part, that "mo- 
 nopolistic rates and charges are regulated only for the 
 purpose of holding the monopolist to a reasonable return*' 
 
 the only way that the present system of private enjoyment of land 
 rent and support of government largely by taxation of other in- 
 comes and property could be changed without any violation of 
 "vested rights," would be for the rights of the landowners to be 
 bought out with funds to the raising of which all victims of the 
 system, however poor they might be, should contribute. 
 
 It may advantageously be pointed out, before we leave this topic, 
 that nationalization of land and government management are not 
 the things to be sought for. Rather should we aim at individual 
 ownership and management and ease of acquiring such ownership. 
 And the way to attain our end is not to adopt the utterly imprac- 
 ticable and burdensome scheme of land purchase, with possible fu- 
 ture interest payments on the national debt assumed, as great as 
 present economic rents, but rather to remove gradually or, at least, 
 greatly reduce, other taxes and to put more and more of the tax 
 burden upon bare-land values. 
 
 Among various suggestions for land purchase by the community 
 may be mentioned one for the purchase from landowners of the 
 right to take, in taxation, all or most of the economic rent of land 
 beginning some fifty years hence. But if the public become ever 
 seriously aroused regarding the land problem, they will hardly want 
 to wait fifty years before securing any results at all; and unless 
 and until they are aroused they are unlikely to take interest in levy- 
 ing higher taxes on themselves to pay for the privilege of having a 
 reform begin (even if their descendants were sure to do it) after 
 the passing of two generations. All such proposals serve merely to 
 divert attention from the only method by which there is any rea- 
 sonable possibility of reform, viz., a step-by-step substitution of 
 land-value taxation for most other taxes. 
 '^Economics for Everyman, p. 27a. 
 
 
 • / - 
 
 « 
 
 Vested Rights" Again 
 
 145 
 
 and that "the average landowner is getting only a rea- 
 sonable return", that "investors in land realize no greater 
 return than investors in other forms of property" and 
 even "realize less"^® if his "observation and experience 
 are correct." So far as the monopolist is concerned, it is 
 doubtless true that we regulate "only for the purpose of 
 holding the monopolist to a reasonable return." But 
 upon what value do we desire that the return shall be 
 "reasonable"? If the present holders of the stock of a 
 monopoly have purchased it at a high price because it was 
 expected that the monopoly would be able to continue to 
 charge high rates for the service rendered by it, then the 
 high rates must be allowed to continue or else these hold- 
 ers of stock will not get a "reasonable" return on what 
 the stock cost them, on tPieir investment. Yet much low- 
 er rates might suffice to yield a "reasonable" return on 
 what it would cost to construct in duplicate, the entire 
 plant. If investors must be allowed to get, on the aver- 
 age, a "reasonable" return on what they have paid, then 
 little or nothing can be done to terminate any exploitation 
 of the general public when such exploitation has previous- 
 ly been thought of as something which would extend into 
 the indefinite future. If persons owning property the 
 value of which depends upon exploiting power, have made 
 theirs plans and purchases on the supposition of the in- 
 definite continuance of such power, then nothing can be 
 done to relieve any victims of an exploiting system, ex- 
 cept as the victims pay for their own relief. 
 
 ■^his seems very clearly to be the view, also, of Professor Ely. 
 See his Outlines of Land Economics, Ann Arbor, Mich. (Edwards 
 Brothers), 1922, pp. 94, 95. And Professor Ely, too, considers this 
 conclusion as an important argument against special land-value taxa- 
 tion. 
 
 mm 
 
146 The Taxation of Untearned Incomes 
 
 Consider now the case of the average yield to owners 
 of land. However largely economic rent may be due to 
 the natural advantages of particular pieces of land and 
 to advantages due to community growth, the rate of re- 
 turn to owners who have bought the land in the general 
 expectation that the economic rent would be considerable, 
 is only a ''reasonable" rate. Kven if the land purchased 
 rises in value, the purchaser who bought it in the light 
 of a widespread expectation of a rise, has had to pay 
 so much for it because of that expectation that the re- 
 turn received by him, including the rise in value, nets him 
 only a "reasonable" rate on the sum invested. So, if, 
 on the average, "reasonable" rates of return on invest- 
 ments of any sort whatever are sacred because they are 
 only "reasonable", then monopolists must be allowed 
 prices which yield a very high return on what it would 
 cost to duplicate their plants; landowners must be al- 
 lowed to receive economic rent and, frequently, progres- 
 sively higher and higher future rent on land that had no 
 cost of construction and the value of which is a function 
 of social growth; and even slavery, if once established, 
 cannot be abolished unless the slaves buy themselves free, 
 for otherwise the average returns of slave-<)wners on 
 their investments will be reduced below what is "reason- 
 able." Indeed to abolish slavery while "compensating" 
 the slave-owners with funds raised by taxing the owners 
 of other property, tends to tleprive the owners of this 
 other property of a "reasonable" return and infringes 
 on their vested rights. In general, the only way that any 
 kind of exploitation, be it slavery, monopoly or the pri- 
 vate collection of the economic rent of land can be ter- 
 minated without infringing on the expectations and "vest- 
 ed rights" of some group of persons, is for the cost of the 
 
 a 
 
 "Vested Rights" Again 
 
 147 
 
 • •*! 
 
 I /' 
 
 change to be contributed to by all the victims of the sys- 
 tem of exploitation the termination of which is sought." 
 To say that abolition of slavery, or regulation of mo- 
 nopoly charges, or increased taxation of land values op- 
 erates to lower the return on mo.iey invested in slaves, 
 monopoly or land by purchasers, below the average or 
 ordmary rate in other investments, below a "reasonable" 
 rate, amounts to the same thing as to say that such a 
 change in policy lowers the salable value of the property 
 of such Durchasers. It is merely a different way of ex- 
 pressing the fact that "vested rights" are infringed. But 
 smce some economists of reputation, when the conclusion 
 has been pointed out to them in one way. have seemed 
 to thmk that an important argument against land-value 
 taxation was overlooked because the case was not stated 
 !n the mathematically equivalent other way, both forms 
 of statement are now included in our discussion. 
 
 Economists sometimes refer, in this connection, to the 
 fact that land may fall in value as well as rise, i e that 
 there may be a "decrement" instead of an increment, as 
 if such a fact were somehow relevant to the problem ' In 
 truth, a fall in the value of land merely means that land 
 owners are able to get less rent than before, albeit, usual- 
 ly, still something, for advantages due not to them but to 
 nature, to population growth, or to civic improvement. 
 
 It IS customary to attempt the annihilation of the "sin- 
 gle-tax" case partly by alleging that it is based on a doc- 
 trine of "natural rights."«« Yet this chief objection- 
 vested rights— commonly raised against it seems also to 
 
 ^Sce discussion in long footnote beginning on page 142 
 Sec. for example. Ely, Outlines of Economics^ 3d rev. ed.. p. 681. 
 The writer does not find this reference in the fourth and latest (Sen- 
 tember, 1923) edition. ^ ^ 
 
 I 
 
148 The Taxation of Unearned Inco 
 
 MES 
 
 be based upon "natural rights" or something fundamen- 
 tally similar. For just as in the view of the orthodox 
 single-taxer, everyone has a natural right to tHe use of 
 land, so in the view of many writers of textbooks on 
 economics every landowner has a kind of "natural'' right 
 not to have the salable value of his land lowered by taxa- 
 tion. We are dealing here, apparently, with an intuitive 
 ethics. Economists do not say that thr proposed tax re- 
 form is wrong because of injurious consequences antici- 
 pated to the general welfare, but merely that it is wrong 
 or immoral or unjust. In this matter they seem to ex- 
 perience a sense of shock at the mere proposal, which 
 prevents any really free objective investigation of cause- 
 and-effect relations. Hence the discussion of the subject 
 by many economists presents the appearance, not so much 
 of a search to discover whether the general effects of 
 single tax would probably be beneficial or the reverse, but 
 of an attempt to prove the policy wicked. One rather 
 gets the impression, then— is ?t a false one?— that in the 
 minds of most writers of economics texts ideas of sacred- 
 ness cluster about property in prospective land rent to a 
 more marked degree than about various other kinds of 
 property. And Professor Robinson has said^»— could he, 
 by any chance, have been right !— that "if a thing is held 
 to be sacred it is the center of what may be called a 
 defense complex" so that "a reasonable consideration of 
 the merits of the case will not he tolerated." The sense 
 of proportion of many economists has beer, hopelessly 
 dulled by their making of the doctrine of vested rights a 
 veritable fetish. Otherwise, the insistence that society, 
 which makes frequent changes of policy in other matters, 
 
 ''James Harvey Robinson, The Mind in the Making, New York 
 'Harpers), 1921, p. 92. 
 
 T 
 
 I 
 
 l 
 
 SCHo 
 
 I 
 
 "Vested Rights" Again^ 
 
 -i- X \ 
 
 xU^ 
 
 IS under a binding implied pledge and obligation never to 
 move, no matter hozv gradually, towards the eventual tak- 
 ing m taxation of the major part of economic rent would 
 be clearl: seen to be, as in fact it is, utterly silly. 
 ^ Occasionally, however, the objection is made to heavy 
 mcrease of land-value taxation that this would destroy 
 the sense of security and weaken the incentive to accumu- 
 late ! Do any economists seriously believe that a gradual 
 substitution of land-value taxation for taxation which 
 penalizes activity and thrift would have any such result ? 
 Is there any evidence that such a consequence has been 
 experienced in Pittsburg and Scranton, Pa., in North- 
 western Canada and in other places where steps have been 
 taken in this direction? Has the development of the 
 policy of regulating the rates of public service monopolies 
 Drought about any such undesirable effect? Or is the 
 presenting of the contention merely one more bit of evi- 
 dence that conservative economists are determined to find 
 some argument— flwy argument— against the increased 
 taxation of land values ? 
 
 Many professional economists, it is suspected, have 
 never permitted themselves to think long and without 
 bias on the subject, examining carefully, and not merely 
 to discredit them in debate, the arguments of the single 
 taxers. V/ith some exceptions, they seem to have ac- 
 cepted the views of their conservative teachers as ex- 
 pressed in current texts. That the single tax is unsound 
 because it is based on a doctrine of "natural rights," that 
 it cannot be levied so as to distinguish at all fairly between 
 bare-land values and labor-produced values, that there is 
 no such difference anyway because everything is in large 
 part a gift of nature, that there arc other unearned in- 
 
 I 
 
 f! 
 
 / 
 
150 The Taxation of Unearned Incomes 
 
 comes and increments besides land rent and land values,«« 
 and that, anyhow, any change is unjust, are contentions 
 generally familiar and quite commonly accepted. And 
 where economists whose voluminous writing, or whose 
 apparent familiarity with all that has been previously 
 written on taxation, or whose high academic position in 
 long-established institutions gives them reputation, are 
 called upon to render "expert" advice regarding taxation, 
 they are not unlikely to advise something other than, or 
 to advise definitely against, higher taxes on land values. 
 And the graduate student or young teacher who has 
 memorized the arguments summarized above feels no 
 special inducement further to investigate the views of a 
 school of writers— the single-taxers— who are largely 
 outside the academic fold, who are supposed to adhere 
 to an eighteenth-century ethical standard from which 
 academic economists believe themselves emancipated, and 
 the acceptance of whose conclusions even with qualifica- 
 tions would brand him as a heretic. 
 
 Increased Land-Value Taxation an-^ the Chances of the 
 
 Common Man 
 
 Certain important effects which increased land-value 
 taxation when accompanied by decreased taxation of com- 
 modities, capital, and incomes, would tend to produce are 
 consistently ignored by most writers of our economics 
 
 "This contention is discussed at length at an earlier point in the 
 book. See II, § 7. It is believed that what Professor Seligman 
 says on pages 81 and 82 of his Essays in Taxation, 9th edition, it 
 there adequately answered. 
 
 J 
 
 *t 
 
 £ 
 
 A 
 
 The Chances of the Common Man 
 
 151 
 
 texts. Being above all things scientists, they are more 
 interested in showing the non-conformity of the policy 
 to their intuitive ethics than they are in exhibiting its 
 probable consequences! 
 
 Perhaps the most significant probable consequence is a 
 decrease of tenancy or, at least, an increased ease of 
 becoming an owner of land. For, as the opponents of 
 ' single tax are fond of pointing out in their references to 
 "vested rights," increased land-value taxation would re- 
 duce the salable value of land. Lower selling values of 
 land make the purchase of land for farms, homes, or 
 business easier. And not only would a higher tax on land 
 values make a lower selling price but also, by virtue of it, 
 other taxes could be correspondingly reduced. If labor 
 and interest incomes were less taxed, it would be easier to 
 accumulate, out of earnings, the money necessary to buy 
 a piece of land. Despite the conventional acceptance by 
 economists, almost as a fetish, of the "ability theory of 
 taxation," it does not at all necessarily follow that taxa- 
 tion according to "ability," in the sense commonly under- 
 stood, most conduces to the general well-being. Indeed, 
 it may be that the advocates of it, who have plumed them- 
 selves upon their sympathy with the common man, have 
 so been in some degree auxiliaries of the forces of re- 
 action. 
 
 But there is another way of looking at this matter, 
 which, to many, may seem even more significant. We all 
 know that success is frequently a precarious thing. Some- 
 times the business changes of a few months sweep away 
 the accumulations of a lifetime. So, too, sickness or 
 some miscalculation for which we may or may not be 
 entirely to blame, will occasionally leave us, after years 
 of effort and thrift, financially where we started. Our 
 children, then, or, if not our children, perhaps our grand- 
 
 I 
 
T 
 
 152 
 
 The Taxation of Unearned Incomes 
 
 children, have to begin a struggle which we fondly hoped 
 they would be spared. If land is comparatively untaxed, 
 then it is made harder for them to get started. The in- 
 comes they may earn have to be taxed directly or in- 
 directly, and they can save but slowly. The value of land 
 is high and they cannot soon buy land. They may be 
 obliged to remain tenants or laborers for years — ^perhaps 
 so long as they live.^^ 
 
 To tax land values more and other things less would 
 be, therefore, a reform somewhat similar in principle to 
 the abolition of imprisonment for debt, to the doing away 
 with debt slavery, and to the establishment of bankruptcy 
 laws. We would protect the individual — ourselves, our 
 children, our grandchildren — from the danger of falling 
 so hopelessly low in tht. economic scale as is now possible. 
 High land prices may mean prosperity for some. But 
 there can be no question that they tend to make the situa- 
 tion of the property less person, even though he be hard- 
 woikmg and thrifty, comparatively hopeless. And, para- 
 doxical as it may appear to those who ^«:.ve never thought 
 about it, the levying even of progressive taxes on incomes, 
 along with the ordinary taxes on commodities and prop- 
 erty, as an alternative to special taxes on land values, may 
 keep such hardworking and thrifty persons down eco- 
 nomically because it keeps land prices up. A tax on land 
 values is fully made up, for such prospective buyers, by 
 reduced land prices and, if land speculation is so dis- 
 couraged, more than made up. But taxes on commodi- 
 
 "^Taxing land values at a high rate does lot, of course, provide a 
 guaranty that all tenants will be:ome property owneri. Nor is it 
 necessarily desirable that they should. Some persons work better 
 under the direction of others. 
 
 The Chances of the Common Man 
 
 153 
 
 ties, capital, and incomes®^ are always some burden to the 
 hardworking and thrifty property less person, unless they 
 are so levied — assuming this : 3 be possible — that no part 
 of any of them falls directly upon, or is shifted to, him.®* 
 It is to be noted that the end sought can be fully 
 achieved only by a general tax on all economic rent or 
 land values. A progressive tax on land values (progres- 
 sively higher as the land owned by the taxpayer is of 
 greater value), since the highest tax could hardly take 
 more than the entire rent, would leave small holdings 
 comparatively untaxed. This would leave the price of 
 land fairly high and keep it hard for persons of small 
 means to acquire land. Large holders would, indeed, pre- 
 fer to sell. But their financial position need not be 
 seriously injured or that of their former tenants greatly 
 improved. For they could dispose of their land to these 
 tenants and others on mortgage security, so ceasing to 
 hold title and avoiding the progressive tax. Or they could 
 organize numerous corporations each of which would own 
 a small amount of land and in all of which the original 
 large holders of land could keep control, or they could 
 avoid the tax in other ways. It is also to be noted that 
 really to penalize large holdings as such might operate 
 to force small-scale business even where large-scale busi- 
 
 "^The incidence and other economic consequence of taxes on com- 
 modities, labor incomes, capital and its interest, property in general, 
 etc., are discussed at length in the author's recent book, The Eco- 
 nomics of Taxation, New York (Holt), 1924. 
 
 "In view of the above facts and of others discussed in this book 
 the conclusion seems inesca^ able that the passage from Voltaire 
 which Profesor Seligmai refers to ou pages 79 and 80 of his Es- 
 says in Taxation, 9th edition, apparently ith approval ?nd as a 
 means of helping to discredit the "single tax" v'ew is a most afair 
 statement of the case. 
 
 k^iU..>*!|SK 
 
ifeatf 
 
 154 The Taxation of Unearned Incomes 
 
 ness would be more economical. Thus, it might, if eva- 
 sion were impossible, prevent the establishment of depart- 
 ment stores and cause the establishment, instead, of small 
 specialty stores.'* 
 
 But even when this advantage (viz., the protection of 
 the individual against the danger of falling so hopelessly 
 low in the economic scale) of levying taxes largely on 
 land values is carefully pointed out, objections are made 
 which indicate either an unwillingness (perhaps, some- 
 times, mere carelessness) or an inability thoroughly to 
 analyze the problem. For example, it is sometimes said 
 that the greater cheapness of land is no advantage to 
 would-be owners since, although the land is made cheaper 
 by land-value taxation, the greater tax offsets the lower 
 selling price. The new owner, it is said, merely pays the 
 tax instead of the higher purchase prici. or instead of 
 interest on a larger mortgage. Those who present the 
 above argument apparently overlook entirely the fact 
 that, if the greater annual tax on the land no more than 
 offsets the lower purchase price, then the reduction of 
 other taxes, including taxes on improvements, is all clear 
 gain. And they also overlook the fact that the greater tax 
 on land values, by discouraging speculation in land, i. e., 
 by increasing the competition of landowners to get their 
 land used, lowers land rent. The salable value of land 
 therefore falls, partly because the rental yield which is 
 capitalized into a salable value is reduced by this compe- 
 tition, as well as partly because the remaining rent is 
 further reduced by the increase of iand-value taxation. 
 
 •*No criticism is here intended, however, of those who favor pro- 
 gressive taxation of bare-land values because the: think it, for po- 
 litical reasons, a good entering wedge to bring about, cventu.Uy, 
 non-discriminating taxation of bare-land values. 
 
 The Chances of the Common Man 
 
 155 
 
 ' t 
 
 I 
 
 Hence, the new buyer finds that the greater cheapness of 
 land more than offsets the increased tax which he has 
 to pay on it, even if his other taxes are not reduced — as 
 they thereafter can he.^^ 
 
 But some may still insist that there is as much reason 
 for interfering by taxation, or otherwise, with the right 
 to receive income from capital as with the privilege of 
 drawing rent from land, seeming, despite such arguments 
 as have been presented in the foregoing pages, to see no 
 distinction between land values and capital values of any 
 significance for public policy.®* In order to give every 
 reasonable consideration to those who hold such a view 
 let us inquire carefully what would happen if, instead of 
 ^ removing taxes from capital and putting: them on land 
 values, we should do just the opposite, i. e., remove taxes 
 from land values and put them on capital. The net income 
 from capital would thus be reduced. Unless and until 
 this fact caused a decrease of saving and so lessened the 
 supply of capital and raised interest rates, the net rate 
 of interest realized on capital would be lower. But, cer- 
 tainly over any considerable period, the value of capital 
 goods could not be less than the cost of production of 
 such goods, else capital would not be constructed even 
 to take the place of old capital wearing out, and there 
 
 "Although the competition to put good idle land into use lowers the 
 ecomonic rent that an owner can get on his land, i. e. his income as 
 an ov^nefj his labor income, as such, is increased. In the technical 
 terminology of economic theory, labor is more productive, having 
 more and better land available to work with and the product of 
 industry attributable to labor is greater, while the part attributable 
 ("imputable") to land and collectible as rent is less. 
 
 •^his seems to be the attitude taken hv Professo^ Ely in his Out- 
 lines of Land Economics, Ann Arbor, Mich. (Edwards Brothers), 
 1922, Vol. Ill, p. 103. 
 
 I 
 
 I 
 
1 
 
 156 
 
 The Taxation of Unearned Incomes 
 
 would finally be no capital at all. It seems obvious, there- 
 fore, that no considerable cheapening of the salable value 
 of capital could, in the long run, be expected from the 
 heavier taxing of capital. But the correlative lighter tax- 
 ation of land values would encourage speculation in land, 
 keep land out of use and make land rent higher. The 
 fact that from this higher rent less was taken in taxation 
 would mean a greater increase of net rent tlian of gross 
 rent. The capitalized value of land, even ii the interest 
 rate at which the land was capitalized did not fall as a 
 consequence of the increased tax on capital, would tend 
 to rise in as great a proportion as its net rent. It would 
 be harder for an ambitious and thrifty but poor man to 
 save enough to buy a piece of land. And, after he had 
 bought it, though the tax on his land value would be less, 
 the tax on any improvements he might make would be 
 more. The increase of tenancy would be accentuated. 
 
 But to remove taxes from other things and impose them 
 on land values would cheapen land and make it easier to 
 acquire, while capital goods could not become worth more 
 than the cost of duplicating them. Owners of land and 
 capital would pay heavier taxes on their land but lower 
 or no taxes on their capital. If they intended to continue 
 using their land rather than to sell it, its lower salable 
 value would be no injury to them. Owners of land who 
 intended to sell it in order to buy other land would lose 
 no more as sellers by the fall in the .salable value of land 
 than they would gain as buyers. Owners of land who 
 intended to sell, not for the purpose of reinvesting but 
 in order to use up the proceeds in current s!onsumption, 
 would, indeed, lose, since the reduced salable value of 
 their land would mean diminished possibilities in the way 
 of such consumption. Owners of unimproved and slight- 
 
 ^. 
 
 The Chances of the Common Man 
 
 157 
 
 ly improved land would lose, at least temporarily, since the 
 increased taxation of their land would more than offset 
 any decreased taxation of their capital. But even they, if 
 they were hardworking and thrifty, would gain from the 
 reduction or abolition of taxes on capital, since whatever 
 capital they might thenceforth accumulate would be less 
 taxed or not taxed at all. In cases where their future 
 accumulations in general or their future improvements 
 on their land were considerable, a net benefit might be 
 realized even by some persons who, at the time the change 
 went into effect, had little or no property except in unused 
 land. To tax land values rather th m improvements cer- 
 tainly does not guarantee fortunes to the thriftless. It 
 means heavier taxes on the non-improving owners of 
 
 land. It does nothing to encourage — discourages rather 
 
 the holding of land by persons too thriftless tc use it well. 
 It does remove a penalty now generally placed on thrift 
 and land improvement. Unlike part of our present taxa- 
 tion system, it is not communistic. It does not try to re- 
 duce the efficient to the level of the inefficient. It does not 
 try to reduce the thrifty to the level of the unthrifty. 
 Finally, despite its non-communistic character, the taxa- 
 tion of land values rather than improvements, incomes, 
 commodities, etc., gives a better chance to the ambitious 
 poor to get started economically and to acquiro a com- 
 petence. 
 
 The net effects likely to be produced by a system of 
 raising revenues as largely as possible from taxes on 
 bare-land values can perhaps best be visualized if the 
 reader will inquire as to the probable consequences of the 
 adoption of such a system in every state of the United 
 States but his own. Where would people pre/er to invest 
 capital— in his state or outside? Where would people 
 
■PH 
 
 15& 
 
 The Taxation of Unearned Incomes 
 
 anxious to accumulate capital and improve their land 
 prefer to live? Where would persons anxious to start 
 large enterprises prefer to start ^hem? Where would 
 persons anxious to become home owners feel inclined to 
 buy land and build? Where would laborers be more 
 likely to find desirable opportunities for employment? 
 Is that policy the more desirable which would attract 
 capital and labor ? Or is that policy to be preferred which 
 makes the community adopting it a less promising one 
 for both capital and labor ? 
 
 For the benefit of those economists who may still be 
 determined to admit nothing, it is perhaps worth while 
 to put the matter in the form of a dilemma. Either the 
 substitution of land-value taxation for other taxes lowers 
 the salable value of land or it does not. // it does not, 
 then the talk about "vested rights" is nonsense even from 
 the conservative point of view. If it does, then there can 
 be no denying that such a tax removes obstacles which now 
 stand in the way of the economic progress of the thrifty 
 poor and the economic rehabilitation of those whom for- 
 tune has dealt heavy blows. Why try to blink the issue ? 
 If conservative economists really believe the "vested 
 rights" argument to be, of itself, a sufficient objection to 
 change, why not frankly say so instead of contending that 
 such change would not bring results which reason clearly 
 indicates it would bring or instead of ignoring the likeli- 
 hood of such results? Does the explanation He in a fear 
 that an argument which to them is conclusive might 
 seem inadequate to some of their readers? Or do they 
 feel the proposal to tax land values more heavily to be so 
 vicious that it must be attacked from numy angles? 
 
 There are a considerable number of the more "liberal" 
 present-day economists who, like the socialists, with 
 
 Vested Rights and Future Increments 159 
 
 whom, however, they would be otherwise at odds, class 
 only labor incomes as "earned" and class all incomes 
 from property, whether interest on capital or rent of 
 land, as "unearned," and who are favorably disposed 
 towards discriminatory taxes on what they call "un- 
 earned" incomes. The impropriety of such a classification 
 has been sufficiently shown in the first p::rt of this book.®^ 
 But it is desired, at this point, to cail the attention of 
 these economists, and of readers in general, specifically 
 and most emphatically to the difference in the conse- 
 quences which are likely to ensue according as we levy 
 taxes on the income from capital or on the rental value 
 of land. It sometimes looks as if a good many econ- 
 omists were willing to make every kind of distinction 
 which might seem to indicate sympathy with the common 
 man except the one distinction the application of which 
 would do the common man most good. 
 
 §8 
 
 Do We Avoid Trenching on Vested Rights by Taxing 
 Only Future Increases in Land Values? 
 
 Despite the apparent condemnation by a large propor- 
 tion of text-writing economists, of the single tax, there 
 yet seems to lurk a feeling that something should be done 
 about land rent. But how can somethin ^ be done without 
 interfering with the sacred rights of ownership intuitively 
 determined? The answer of many economists is, to tax 
 future increases in the value of land. To do this, it is 
 supposed, would not interfere with vested rights because 
 
 "Seel, S§ 4 and 5 ; also II, § z. 
 
160 The Taxation of Unearned Incomes 
 
 I ^ •* 
 
 Vested Rights and Future Increments 161 
 
 it supposedly would not lower the salable value of land. 
 In the simple phraseology of Professor Fairchild's book, 
 written for high-school pupils, "there is nothing unjust 
 about this."®« 
 
 And yet, this also resembles "changing the rules of a 
 game, while the game is in progress, to the disadvantage 
 of one contestant." For the adoption of such a policy 
 on any extended scale would be likely, as the present 
 writer has several times pointed out,^^ to lower the current 
 salable value of land in comparison with other goods. 
 Indeed, considered as a mathematical proposition, the 
 argument is just as convincing for reduced present value 
 of land consequent upon a definitely promised tax on 
 future increment of value as for reduced present value 
 consequent upon a definitely promised increased taxation 
 rate upon the entire value of the land. The purchaser 
 of a piece of land, in buying it and in determining the 
 maximum price he can aflford to pay — as, also, the seller 
 in determining the minimum price he can afford to take — 
 considers as well the possibilities of future increases in 
 value as the present rental yield. A piece of land may 
 sell for about $1,000, not because of any present yield, 
 but because of the estimate that, after fourteen years, it 
 will yield a net annual income of $100 and be worth (cap- 
 italized on a 5 per cent, basis) approximately $2,000. 
 Suppose that, on the day after a purchaser has possessed 
 himself of such a piece of land at a price of $1,000, it 
 suddenly and unexpectedly becomes evident that half of 
 the increment in value, at the end of fourteen years, is to 
 be taken in taxation! Would not the present salable 
 value at once fall to $750? And if the increment tax were 
 
 "P. 527. 
 
 •See article and books referred to earlier in this paper. 
 
 to be 100 per cent., would not the present value at once 
 become $500? Yet economists like Professor Fairchild — 
 who is here referred to not as an isolated errant writer 
 but as following the beaten track — can say on the same 
 page^® that discriminatory taxes on land "would be an 
 injustice" and, of a tax on future increases in value, that 
 "there is nothing unjust about this" ! 
 
 In truth, in a rapidly growing country, the present 
 value of a very large part of the land is probably aifected 
 by the estimate of or the reasonable hope of future in- 
 creases. Even land which actually does not rise in value 
 may have high present value because of the expectation 
 of such a rise, and the partial destruction of this expec- 
 tation by a prospective increment tax might lower its 
 present value. Suggest, for such a country, any rate 
 whatever of taxation of future increments and it becomes 
 at once possible for the mathematician, if he has the 
 requisite data, to work out a lower (at first), but gradual- 
 ly increasing rate on the entire value of land, becoming 
 eventually high enough to absorb the entire rental yield, 
 which would lower the present salable value of land, on 
 the average, no more than the increment tax. This con- 
 clusion will be obvious to any mathematician. Indeed, it 
 requires only a very little knowledge of mathematics to 
 grasp it. There is no occasion for anyone to be vain- 
 glorious over his comprehension of it. But many, if not 
 most, of the American economists who have become prom- 
 inent as the authors of textbooks, not only do not mention 
 it but write as if it were untrue. 
 
 Professor Taussig seems clearly to understand that the 
 
 value of a piece of land is affected by its expected future 
 
 rent. Thus, he slates^^ that in a growing: city "an ad- 
 ™P. 527. 
 ^Principles of Economics, 2d rev. ed., Vol. II, p. 98. 
 
 N 
 

 162 
 
 The Taxation of Unearned Incomes 
 
 vantageous site will command a price more than in pro- 
 portion to its present rent ; because it is expected that the 
 rent will increase still further as the years go on." A 
 little further on," referring specifically to "the problem of 
 vested rights," he says: 
 
 "To the present owners, the capitalized value represents 
 an investment or an inheritance, precisely as does the 
 present value of anything which is capital in the strict 
 sense. Here, again, unless the whole institution of private 
 property be remade or abolished, the existing rights to 
 land, as they have been allowed to develop through the 
 centuries, must be respected." 
 
 And yet. after having thus pointed out that present val- 
 ues are affected by prospective future increases of rent, 
 and after having indicated his respect for the doctrine of 
 vested rights. Professor Taussig proceeds to defend the 
 taxation of future increments !^* "The question is differ- 
 ent." he says, "as regards the rise in rent that is still to 
 come. There is no vested right in the indefinite future. 
 In strict theory, the whole of this increase might be taken 
 through taxation." 
 
 Professor Bullock argues in a somewhat similar vein. 
 He points out that Henry George advocated seizing "grad- 
 ually the present economic rent of land" or enough of it 
 to defray all public expenditures."^* He then proceeds 
 to insist upon the confiscatory and unjust nature of the 
 reform." Following after this he contends that "to ad- 
 just municipal taxation in such a manner as to intercept 
 a considerable part of the future unearned increment from 
 
 ^^Ibid., p. I02. 
 '*Ibid. 
 
 ^*The Elements of Economics, 2d ed., pp. 324, 325. 
 "Ibid. pp. 326-28. 
 
 
 
 Vested Rights and Future Increments 163 
 
 land would be a safe and probably a desirable policy."^* 
 But Professor Bullock has not left unconsidered the pos- 
 sibility that purchasers of land have paid, in the purchase 
 price, for anticipated future increases in value. For he 
 goes on to say: 
 
 "The purchase price paid for land in a progressive city 
 is somewhat greater than its capitalized present rental 
 value, since the purchaser can and must pay more in view 
 of the prospective increase of the rent. Some part of the 
 
 future increase, therefore, is reflected in present capital 
 values, and should be left to the present owners."" 
 
 But what part of the future increase is not reflected in 
 present capital values ? Are present capital values of land 
 arrived at in any other way than by discounting all an- 
 ticipated future rents? Does Professor Bullock think 
 that these rents are in part discounted and in part not, 
 or does he think that the anticipated increases are, on the 
 average, less than the realized increases? And if he 
 thinks the latter, for what reason? Or does Professor 
 Bullock suppose that a part of future land-value incre- 
 ments is unanticipated in such a sense that to establish 
 definitely the policy of taxing heavily this part, would 
 leave every purchaser of land perfectly confident that 
 not any of the tax would fall upon him and perfectly 
 willing, therefore, to pay as much for the land as if such 
 a tax were not promised?^* 
 
 ^Ibid. p. 329. 
 
 ^Ibid. p. 329, footnote. 
 
 'T'erhaps, however, Professor Bullock supposes that there are cases 
 where the rise of land value is so utterly unexpected that no antici- 
 pation of it, no remotest hope of the possibility of it, has had any 
 previous eflPect on the value of the land. To plan for the taxation of 
 such an entirely unanticipated increase in land value would pre- 
 tumably have no effect upon the salable value of any land when the 
 
164 The Taxation of Unearned Incomes 
 
 Except as we suppose that landowners, owners of mo- 
 nopolies, etc., underestimate the future possibilities of 
 
 policy was announced. But in view of unanticipated declines in 
 land value, also such a policy would presumably reduce the average 
 rate of return on investments in land below a "reasonable" rate. 
 And if, when they buy land, people are ordinarily influenced by 
 the thought that there are possibilities of gain as well as chances of 
 loss, then a tax on such gain, if the tax is to have no least influence 
 on present salable values, must be on only such parts of the gain 
 as have been in no sense contemplated or considered by sellers or 
 purchasers of land. Whether or not a means could be devised to 
 distinguished any such part of any gain from the rest, it will be ob- 
 vious that a tax on so limited a value is, considered as a source of 
 public revenue, unimportant and, considered as an engine of eco- 
 nomic reform, utterly futile. And, indeed, if the investor thinks of 
 the possibility of unexpected gains as offsetting the possibility of 
 unexpected declines, a foreseen tax i n the gains, with no "compensa- 
 tion" for the declines, would certainly lower the salable value of land. 
 
 But no matter if all future land-value increases are considered as 
 subject to taxation, no matter how high the rates of tax on such 
 increments and not matter how quicky the salable value of land 
 might be affected and "vested rights" infringed, in the long run 
 the salable value of land could not be made to fall as much and 
 the opportunities for widespread land ownership rendered as favor- 
 able as by gradually increasing the tax rates on land values in gen- 
 eral. 
 
 In passing, it may be worth while to allude to the contention 
 sometimes made that an "unearned increment'' is necessary to keep 
 farmers in their business. Then what keeps the increasing propor- 
 tion of tenant farmers in the business? And is it likewise necessary 
 in other lines to keep everyone in a specific business? If no one 
 received any "unearned increment'' would each person leave his 
 business for some other business in which he likewise would not 
 receive it? But, as we have seen, if land values were taxed the 
 yield to owners of land woulu be as high a per cent, of what their 
 land would then sell for as now — a higher rate, perhaps, because 
 of the reduction of other taxes. 
 
 After meeting this jbjection, viz., that farmers must have an 
 unearned increment, it seems curious to find some economists, who 
 
 ;>^ Alf 
 
 t 
 
 Vested Rights and Future Increments 165 
 
 income from their property— and they are, perhaps, as 
 likely to overestimate— there is certainly no possibility 
 of ever giving the non-landowning and non-monopoly- 
 owning public anything whatever, even through purchase, 
 without trenching on the "vested rights" of the owners.'^* 
 
 apparently do not venture to support generally increased land-value 
 taxation, demanding that railroads shall be prevented from securing 
 "unearned increment" but that the means of prevention shall be 
 rate regulation instead of taxation. It is p ooosed that railroad 
 rates shall be regulated on the basis of original cost of plant with- 
 out regard to what the land necessary would now cost. But there 
 arc a number of serious objections to such a proposal. In the first 
 place, if we say, in effect, to landowners, that they have a chance 
 at an unearned increment provided they use their land in any other 
 way but no chance for it if they use it for railroads— or that rail- 
 roads which purchase land cannot have the same chance as other 
 purchasers— then the tendency is to discourage railroad construc- 
 tion as compared with other uses of land. In the second place, if 
 two railroad lines are built through a given territory, one at a later 
 date than the other and paying a higher price for its land, such a 
 system of rate regulation would tend to justify higher rates on the 
 second-built railroad than on the first, with consequent discrimina- 
 tion in favor of the shippers on the first-constructed road. And no 
 system of taking from successful railroads a part of their increased 
 returns from superior efficiency can possibly be as satisfactory as a 
 system of taxing them and all other persons and corporations on 
 their economic rent (potential rent in the ease of unused land) or 
 land value. (For a fuller discussion of this problem see the au- 
 thor's review, "Sharfman's American Railro Problem" in the 
 Quarterly Journal of Economics, February, 1922, pp. 323-^^4, and 
 relevant passages in the author's book on "Transportation Rates 
 and Their Regulation," New York — Macmillan — igK ^ 
 
 "We are here supposing that the property owners in question have 
 bought their property in the confidence that public policy would not 
 change. If they have paid less because of the expectation of change, 
 does such change trench on their "vested rights"? 
 
 Possibly the statement above in the text should be qualified. Be- 
 sides the direct loss to consumers of monopoly goods from extortionate 
 
 w 
 
166 
 
 The Taxation of Unearned Incomes 
 
 The landless must continue to pay owners for the privilege 
 of living on or working on their land or they must pay 
 the owners, in advance, not only the capitalize<i value 
 of the present rent but the capitalized value of any future 
 increases in the rent which the owners may have a reason- 
 able prospect of being able to charge.*" Similarly, consum- 
 ers must continue to pay monopoly prices to the owners 
 of monopolies or else they must pay such owners, in ad- 
 vance, the capitalized value not of the present monopoly 
 profits only but, if increased prices may be looked for in 
 the future, of the estimated additional future profits also. 
 Why must professional economists continually try to 
 evade the issue, insisting at one moment that vested 
 rights — which are merely rights to expected future in- 
 come — must be respected, and in the next moment discuss- 
 ing sympathetically the proposition to take a part of such 
 expected future income for the public ?®^ Is economic sci- 
 
 prlces, there is also the disadvantage to persons who are prevented 
 by these prices from buying the monopolized goods and who so 
 contribute nothing to the monopoly gains, i. e., who are injured but 
 not exactly exploited. If there is any advantage at all to the public 
 in so buying out a monopoly it can only lie in the termination of this 
 incidental disadvantage or injury. Does speculative holding of land 
 thus similarly injure even where there is no direct exploitation? But 
 economists who say that speculative holding is no especial evil and 
 those who say that it docs good are not the ones to argue that the 
 public would derive even any incidental advantage from buying out 
 the owners of land. 
 
 **It may be of passing interest to a very few readers to note that 
 this point, although apparently o erlooked by most current writert 
 of economics texts, was clearly understood by Henry George. Se« 
 his book. The Science of Political Economy, New York (Doubleday 
 and McClure Co.), 1898, p. 195. 
 
 Professor T. S. Adams is both more consistent and more con- 
 servative. He seems very clearly to go the whole way and to bt 
 
 M 
 
 T 
 
 Vested Rights and Future Increments 167 
 
 ence now where the physical sciences v/cre before the days 
 of Newton, Kepler, Galileo, et al.f 
 
 A heavy tax on future increase of value may infringe 
 upon "vested rights" as much as or more than a gradual 
 increase of taxation on land values in general. But if we 
 are primarily interested in building the best possible fu- 
 ture society, we shall prefer the latter. For however 
 greatly "vested rights" may be infringed upon by an in- 
 crement tax, in the long run the salable value of land 
 cannot be made to fall as much and the opportunities of 
 the ambitious poor to get started in life cannot be made 
 as favorable by such a tax as by a gradually increasing 
 tax on the entire salable or rental value of land. 
 
 But scarcely any least glimmering of light on the real 
 and important advantages of increased land-value taxation 
 shines through the dark smoke-screen of confused reason- 
 ing with which, however unconsciously and unintentional- 
 ly, the majority of writers on public finance have sur- 
 rounded this subject. And so what the historian, 
 Buckle," remarked as being frequently true of the so- 
 called educated, can perhaps be fairly asserted of many 
 present-day students of economics who, ambitious to un- 
 derstand the economic laws of taxation and the effects of 
 taxation on human welfare, have sought aid from the 
 standard text books on public finance, viz., that the pro- 
 gress of their knowledge "has been actually retarded by 
 
 definitely opposed to the taxing even of future increases of land 
 value as unfair to "the man who has purchased land at a price or 
 value determined by capitalizing unearned increment." Sec his 
 article, "Tax Exemption Through Tax Capitalization," American 
 Economic Revieta, June, 1916, p. 281. 
 
 "Henry Thomas Buckle, The History of Civilization in England, 
 reprinted from the second London edition, New York (Appleton), 
 1894, Vol. I, p. 195. 
 
r 
 
 168 
 
 The Taxation of Unearned Incomes 
 
 yj 
 
 the activity of their education", that they are "bu-dened 
 by prejudices, which their reading, instead of dissipating, 
 has rendered more inveterate", that their "erudition min- 
 isters to their ignorance" and that ''the more they read, 
 the less they know.' 
 
 §9 
 
 Summary 
 
 In concUiding our brief and somewhat limited review 
 of the opinions of certain professional economists on the 
 taxation of land values,, we may, perhaps with advantage, 
 glance back at some of our discoveries. We have found 
 the claim set up, by very clear implication, that to tax 
 pure land rent rather than improvements would discour- 
 age thrift and improvements more than 1o tax land and 
 improvements together at a lower rate on their combined 
 value. We have noted the assertion, by a widely known 
 economist and taxation adviser, that the unearned in- 
 crement is "diffused," in large part, through generally 
 reduced rents, prices and railway rates. We have met 
 with the claim, from the writings of a specialist on taxa- 
 tion, that bare-land values and improvement values cannot 
 be distinguished because "it is quite impossible" to do 
 it and because "no attempt is ever made" to do it, and 
 from the writings of both this specialist and two others, 
 that there is not much distinction, anyway, between gifts 
 of nature and products of lal)or. We have met with the 
 claim that the single tax (the impot unique) was "aban- 
 doned" in France, because of its "injustice," although it 
 was never tried in France. We have examined the con- 
 tention that additional taxation of land values would be 
 
 ^ 
 
 \ 
 
 Summary 
 
 169 
 
 unjust, but have found other "vested rights" receiving, 
 usually, less sympathetic consideration from professional 
 economists. Finally, we have found that economists who 
 are well known among their fellows in the craft are ca- 
 pable of both opposing increased general taxation of land 
 values as infringing on vested rights and, simultaneously, 
 favoring special taxation of future land-valu^ increments 
 as not infringing on such rights. What arguments will 
 be next concocted by those conservative professional econ- 
 omists who are determined, at all costs, to oppose in- 
 creased general land-value taxation? 
 
 From a Recent Review by Henry Raymond Mussey 
 
 in The Nation. 
 
 It was full time for some competently equipped economist to take 
 up the cudgels in behalf of the economically tenable parts of Henry 
 George's doctrine. Mr. Brown has done it with zeal, and on the 
 whole with skill. Of course this puts him outside the fold of the 
 safe and sane economists, and the vigor of his onslaught has already 
 occasioned some little fluttering in the academic dove-cotes. But 
 say what we may, land does diflFer significantly, for purposes of 
 economic analysis, from factories and railroad trains and other 
 things that men make. The true economic scientist, then, if he ia 
 going to devise tax systems, must take account of those differences, 
 and not simply foam at the mouth every time the single tax ia 
 mentioned. 
 
 \ 
 
 
 > < 
 
'\ 
 
 Economic Science and the Common Welfare 
 by the same author. 
 
 "Part I is t highly realistic description of the price system and 
 gives the beginner the difficult but important concept of the general 
 price level and the relations of banking, business cycles, prosperity, 
 depressions, monopoly, competition and tariffs. . . . 
 
 "He shows that this 'opportunity -cost' of production influences 
 demand no less than supply and applies it throughout to interest, 
 wages and the rent of land. . . . 
 
 "Professor Brown's most significant use of the concept of oppor- 
 tunity cost is in the treatment of rent. . . .His method of 
 analysis at this point is quite superior to that of Ricardo and Henry 
 George, since it makes scarcity the central feature, and not the re- 
 duction of efficiency at the agricultural margin of cultivation. I 
 believe it places the argument for special taxation of bare-land 
 values on stronger and better grounds than those that have hitherto 
 been offered by the followers of the Ricardian analysis." 
 
 — Professor John R. Commons 
 
 in The American Economic Review. 
 
 "The author's discussion of 'vested rights' . . . deserves at- 
 tention." — Political Science Quarterly. 
 
 "Like a breath of fresh air in the musty realm of economics and 
 sociology." —Duluth Herald. 
 
 The Taxation of Unearned Incomes $ 2 oo 
 
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 Copies of this essay, 25 cents; Per hundred 1700 
 
 Per thousand $15000 
 
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