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THE MARXJST-LENINIST-STAL1NIST ECONOMJC PHILOSOPHY is to the effect that labor produces all that is produced. Income from property is 'surplus value." It is robbery of the workers. It is "exploitation of the proletariat by the bourgeoisie." Adherents of this philosophy manifest, in general, little or no interest in differentiating between the capital that, by working and saving, men produce to aid them in further production and, on the other hand, natural resources, urban sites, and tracts of land usable for agriculture, forestry and grazing. All income from material property is equally "surplus value" and is equally robbery of the workers.

Whatever this philosophy may lack in sophistication, it has the appeal of simplicity. It can be -- in large degree it has been- "sold" to discontented workers and to considerable numbers of the "intelligentsia" in many parts of the world. Its contemporary supporters "explain" the "class struggle," the recurrence of business depression, and the "inevitability" of socialism, all on the basis of this two-fold division of the product of industry between owners and workers. A few simple formulas or dogmas, and the injustices and inadequacies of "capitalism" have been accounted for!

But those opponents of the Marxist-Leninist-Stalinist philosophy who receive the most publicity and seem to have the most support among conservatives -- including some who call themselves "libertarians" -- are also prone to a similar simplicity. They, too, make no distinction between capital and land, as such. They, also, see no essential distinction between private enjoyment of income from the one and private enjoyment of income from the other. They do not, like the Marxists, denounce these incomes as exploitative but, on the contrary, defend them both, and are usually found favoring lighter tax burdens on both. Insofar as they are willing to concede that property or the income from property should be taxed, they favor taxing capital and land at the same rate.

There is, however, a third economic philosophy, a philosophy that does distinguish between capital and land and between the incomes yielded by the one and by the other. Adherents of this philosophy stress the thought that, since man-made capital can come into existence only as there is work and saving, and since capital adds to the productiveness of industry, the private enjoyment of income from capital is a desirable-and a deserved-incentive to bringing capital into existence. But adherents of this philosophy look with less kindly eyes on the private enjoyment of income from land, purely as such, and favor having an increasing amount of such income taxed into the public treasury. For the private enjoyment of such income appears, to those of this philosophy, as a requirement from landowners that others pay them for permission to use the earth. More specifically, they think of land rent as a required payment to landowners for the latter's permitting the payers to work on, to live on and to draw subsoil deposits from the earth -- or, at any rate, on and from those parts of the earth which geological forces and community development have made relatively productive and livable.

Is there in fact, or is there not, significant reason for distinguishing between the capital that, by working and saving, men produce to aid them in further production and, on the other hand, natural resources, sites and tracts? Is there, in short, good reason for distinguishing between capital and land?

Among the professional economists who seem to feel that there is no such distinction of any real consequence, is Professor Frank H. Knight of the University of Chicago. Here is the way he has expressed this view:[1]

"It is of the very conception of economic behavior that, in so far as the individual knows what he is doing, the 'return' from any activity, as estimated by himself, will be equal to the outgo, in terms of the individual's own estimate of the next best alternative of the resources employed. Any return amounting to more or less than 'cost,' in this sense (which is the only sense having any intelligible meaning), is due to accident or miscalculation -- i.e., to the speculative element in the activity. There is no evidence, a priori or empirical, either (a) that speculative activity yields a larger return, in any representative sample of cases, than does activity where the results are actually in accord with expectations, or (b) that land acquisition or holding presents anything peculiar in comparison with other economic activities. Every type of speculative element is familiar in connection with land and also in other connections."

Probably most people, other than economists, are so habituated to classing land with capital and to regarding income from the one as similar to income from the other, that it practically never occurs to them to attempt making any significant distinction.

Nevertheless, it may help to bring home the distinction between manmade capital and land, to some who are thus habituated and to some of those who are inclined to go along with Professor Knight, if I venture to use what may appear, superficially, to be a far-fetched illustration. For though superficially the illustration may appear far-fetched, it is in fact closely analogous to, if not almost identical with, the case regarding land. Indeed, though this illustration is not history, it is what history might easily have been.[2]

Let us suppose, then, that navigable rivers and lakes have long been recognized as subject to private ownership, as well as land, and that large personal incomes have been securable from charging ships for permission to sail on them. This would indeed be exploitative and would certainly not be to the general advantage. Yet here, too, the rate of return over "cost1" to the owners, might well be not more than-might even be less than-the ordinary return on the capital that men make. And if we cannot assume a return greater than the ordinary per cent on 'cost" for those who may have bought out the first owners or the descendants of these owners, neither can we assume a greater return to these owners (or their descendants) themselves. For however the first owners acquired their ownership, whether by force, by bribery, or through some legally sanctioned method, there was presumably some sort of "cost" involved. (Conceivably, in certain circumstances where public sentiment was not wholly approving, a troubled conscience might have been. a considerable part of this "cost.") And the prospective owner would have been ready to meet this cost whenever or as soon as it was justified by the anticipated returns.

More specifically, let us now suppose that, some hundreds of years ago, legal sanction regularly attached to perpetual control of a lake -- e.g., Lake Ontario, Lake Erie, Lake Huron, Lake Michigan or Lake Superior -- provided only that certain formalities were first attended to, and that these formalities included rowing three times around the lake and performing certain incantations at the end of every third mile. This would certainly mean, so far as any would-be owner was concerned, a "cost" of acquisition.

Now let us assume the future income from such ownership, of millions of dollars a year, to be confidently anticipated by two or more aspirants for ownership. Then each of these would be ready to do the rowing, bearing all the incident toil and danger, and to perform the required incantations, on the earliest date when it could be said to pay. In other words, they would be willing to do this as soon as the present capitalized value of the future income such ownership was expected to yield, became equal to the cost of so acquiring ownership.

Then Dr. Knight could piously pronounce with regard to such ownership of Lake Erie or Lake Huron, as with regard to ownership in land -- or in slaves! -- that "there is no evidence, a priori or empirical, . . . that the acquisition or holding of a lake -- or of slaves -- presents anything peculiar in comparison with other economic activities. Every type of speculative activity is familiar in connection with lakes -- or slaves -- and also in other connections."

But such pronouncement would have no bearing on the question whether deriving private income from charging men to use (say) Lake Michigan -- or any other navigable lake or river -- was socially desirable or was in any significant way analogous to deriving private income from productive capital the construction of which private saving has made possible. Whatever the cost of acquiring title to Lake Michigan, there has been no service to the community from this acquisition, nor any service to future users of the lake who must now pay large annual sums for permission to use it. Whatever the advantages to commerce of Lake Michigan and its harbors, these advantages are not services rendered by the owner (or owners) of the lake. They are not due to his effort. They are not the consequence of his construction of capital. They do not result from and are not enhanced by the fact of his having rowed three times around the lake nor of his having performed the specified incantations nor by any such action on the part of any ancestor or other previous holder of title. The difference between receiving private income from such "property" and from capital which his own productive labor and saving have made possible, is fundamental and profound. It is this sort of difference on which the land-value-taxation theory is based.

The man who acquired title several hundred years back may have realized-through his heirs-no more than or even less than the ordinary rate of return on cost, the return which he could normally have realized, in the average case, by bringing into existence new and useful capital. The important point is that, though the per cent return thus received may be, on the average, no greater, and may sometimes be less, nevertheless this return cannot be justified on the basis of equivalent contribution to those who must pay it; whereas the return on capital can normally be so justified.

If now, at some date say fifty or a hundred years or more after title has been gained by means of the prescribed rowing and incantations, the property is sold to a new purchaser, the price paid will presumably be fixed on the basis of the then anticipated future yield. The new owner, therefore, having purchased the lake at a price fixed by capitalization of this anticipated income, will also make, unless calculations have been inaccurate, only the ordinary rate of return. But anything he so receives, be it only one tenth of one per cent on his investment, or even much less than the investment, is at the expense of the common' run of folks irom whom it is really drawn and who gain absolutely nothing from the fact that the new exploiter may have paid a substantial amount to the previous exploiter whom he has thus bought out.

Just because the dominant influences in government some hundreds of years back had established such a system and just because the exploited common folks -- whether from intellectual confusion furthered by interested propaganda, or other cause -- had allowed the system to continue until the present, it would be argued by apologists of the system that those exploited by it must let it continue forever. Or it would be contended -- in effect -- that those who were being exploited by it must do nothing to change the system unless they first fully compensated their exploiters for henceforth giving up the privilege of thus exploiting them. The victims of the system must remain victims forever or must themselves pay for their own relief -- as slaves might be expected, if they were to go free, to pay their owners what the slaves had been worth as slaves! And so the only method or methods of terminating the system which could be regarded as in any sense politically feasible or practicable, would be ruled out at the start.

The parallelism with the present land system and the private enjoyment of the geologically-produced and community-produced rent of land is, in all essential respects, complete.

Time was when the American Declaration of Independence and the struggle of the American states for freedom from political domination by Great Britain, stirred the imaginations of liberty loving people in many other countries. Today we seek allies and sympathizers in our ideological struggle against the socialistically regimented countries of the communist bloc. Will it help us in this ideological struggle, will it stir enthusiasm for capitalism, if in the "capitalism" that we practice and that we urge upon others, there must be included vast private income derived from charging (1) for permission to use -- and history might have been such as to make it so -- navigable lakes and streams, or (2) for permission -- and this is the way history really has made it -- to work on and to live on the earth?

FOOTNOTES

1. In a review of George Raymond Geiger's book, "The Philosophy of Henry George," Journal of Political Economy, October, 1933.
2. The next nine paragraphs are taken, but with some change in wording, from my Basic Principles of Economics, 3rd edition, Columbia, Mo. (Lucas Bros.), 1955, Vol. II, Ch. VII, pp. 86-89.