The least productive land in use is called "the margin of production," which can also be described as the best land freely available without the payment of rent. All land whose productivity is superior to that of land at the margin will command a rent equivalent to its degree of superiority. This is true of land used for any purpose, such as manufacturing and commercial or office sites, or housing sites, and not just of agricultural and mineral lands. As Henry George restates "Ricardo's Law of Rent": "The rent of land is determined by the excess of its produce over that which the same application [of labor and capital] can secure from the least productive land in use."
As with rent, the general level of wages and interest is also determined at, and by, the margin of production. Because of competition and the mobility of labor and capital, whatever labor and capital can earn or secure for themselves on the best land freely available without the payment of rent -- that is, at the margin of production -- must necessarily determine, and be approximately equal to, the level of wages and interest on all superior lands and locations currently in productive use.
There exists today a superabundance of potentially productive but idle land ready to be used, and much valuable land is minimally or suboptimally used. Access to these potentially highly productive resources and locations is denied to would-be producers, however, as a result of our unjust, Roman-based land tenure system that enables landholders to demand prohibitively high sales prices or rents for access to "their" property, thus depressing wages by artificially extending and lowering the margin of production to less productive sites.
In today's world, virtually all locations and natural opportunities are owned and monopolized, either by private individuals and corporations or by the government. So to us wages appear to be determined by union contracts, personal negotiations or legislative enactments such as minimum wage laws, none of which can significantly alter the fundamental underlying relationships determined by the immutable laws of political economy.
Under the prevailing system of private property in land, material progress inevitably engenders land monopoly and the predatory practice known as land speculation -- the systemic non-use or suboptimal use of valuable land in expectation of higher future rents and land prices. This artificially extends and drives down the margin of production, thus raising rents while depressing wages and interest. This process eventually takes hold with great vigor in all progressive, so-called "capitalist" societies, for everyone soon realizes that steadily increasing rents and land prices will tend to yield growing unearned returns to holders of that passive but essential factor of production called land, while most people find it impossible to "get ahead" by simply working for a living in an unprivileged position.
This does not mean that every landlord and land speculator will necessarily become rich or even "make money." But on the whole and over time, rents and land prices will naturally rise as civilization advances and material progress continues, until land speculation drives the "rent line" to such speculative excess that neither labor nor capital can earn a satisfactory return. When this happens, production begins to stop, for the ultimate effect of private property in land and the land monopoly and land speculation it breeds is to create a virtual "lockout" of labor and capital from natural opportunities due to unbearably excessive rents and land price demands. The "invisible fence" which cuts off and chokes productive activity is the speculative price of land.
As production is checked throughout the economy and productive activity begins to come to a halt, unemployment surges and wages and interest fall; only later, after most of the economic damage has been done, do land prices and rents collapse as well. This overall phenomenon we call a "depression." Milder forms are called "recessions."
This alchemy inherent in The Law of Rent, which through the mechanism of land speculation transforms much of that which is rightfully wages into rent, is the underlying cause of what the bulk of the population conceives of as "over production" or "under consumption" and "lack of consumer confidence" or "lack of consumer demand." The only free-market-based remedy for this state of affairs is to treat land as what it rightfully is -- not the private property of individuals or corporations, but the God-given property of the whole community. To accomplish this it is not necessary, however, to abolish or in any way alter the existing system of land titles. Each landholder can continue to call his holdings "my property."
All that is required is to fully collect the privilege value of each site -- the "economic rent" -- for the benefit of the community. This can easily be accomplished by means of the ad valorem taxation of land values -- i.e., an annual property tax on the market value of land alone, irrespective of any improvements thereon (such as homes or buildings). Under this proposal, improvements, like all other forms of man-made wealth, would be exempt from taxation. At the same time, to encourage industry and unshackle productive activity, all other taxes, except taxes on privilege values such as patents and other government-granted franchises, would be abolished.
This proposal came to be known as the "Single Tax." It is the true politico-economic remedy for a befuddled humanity, because it eradicates economic injustice at its root. Just as the Single Tax would abolish involuntary poverty, it would render the accumulation of vast unearned fortunes -- and the corrupt influence that inevitably accompanies them -- an impossibility. All people would be placed on an equal and secure footing, for all would be, in effect and from an economic perspective, holders-in-common of the land of the community. It is important to bear in mind that the Single Tax is not a tax on land, but a tax on land values; and once land speculation and land monopoly are extinguished, much land will cease to have exchange value (even though its use value will remain undiminished), becoming freely available to whoever wishes to use it.
The Single Tax would deal a death blow to land speculation and land monopoly because landholders would no longer be able to afford to keep potentially productive valuable lands out of use; the annual carrying charges would simply be too great for them to profitably bear. They would be compelled by the newly revised economic dynamic to optimally use these valuable sites or to sell or lease them at nominal prices to others who will use them productively. Quite apart from the salutary effects of eliminating taxes that operate as fines upon production, this in itself will greatly stimulate and increase society's overall production of wealth.
Most importantly, heavily taxing land values will dramatically raise the margin of production by causing better quality lands to be used before inferior lands are resorted to (which is precisely what would naturally occur in the absence of landlordism or bureaucratic governmental interference), thus raising wages and, in the short run at least, reducing rents and land prices by eliminating their substantial speculative and monopoly components.
At last labor and non-monopoly capital will receive the full rewards for their contributions to production, while the mere holding of land will no longer be a pathway to unearned riches. The distribution of wealth will thus be reestablished upon its natural, true foundation of social justice. Society will be liberated from the whims and machinations of landlords, politicians and dictators of all persuasions. No one will any longer need live in fear of being stripped of his income, for productive opportunities will naturally abound. No one in good health will need a benefactor to whom he must feel beholden for the opportunity to earn a living.
These new realities, embodying the high level of wages that will naturally and readily become attainable by even the most unskilled menial laborer, will transform all social relationships. Questions of racial or gender discrimination, the overly politicized focal points of contemporary Western culture, will become passe. Liberty, which ultimately must reign for all or for none, will become the status quo of a new social contract. And where one nation leads, others must necessarily follow, or crumble in the dustbin of history. Where liberty prevails, peace will surely follow.
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