The thoughtful article, which appeared in the Journal of Land and Public Utility Economics, February, 1935, is highly interesting, because it presents the viewpoint of one who has approached the subject of land value taxation from the direction of city planning, zoning and housing, rather than by the route of a study of the writings of Henry George.

Mr. Buttenheim is editor of The American City. His experience is perhaps as broad as that of anyone in this country as to the subjects in which he is particularly interested. It is gratifying to find in his article complete endorsement of the major premise of Henry George, which is that all value of land is the product of community development and governmental services and should be taken by the community for the support of government.

A student of the writings of Henry George, however, may be pardoned, upon reading Mr. Buttenheim's article for feeling that, had Mr. Buttenheim read Henry George more carefully, he would have omitted many of his paragraphs.

It is true, as Mr. Buttenheim points out, that the land speculation resulting from the opening up of new territory which was a feature of the period prior to fifty years ago is not now as rampant as it was then. It is true that the world changes, but we doubt the statement, "Had Henry George been born a half-century later, he would have lived amidst a new set of economic conditions." Details may change, but the principle remains in its simplicity and has not changed. No one can read the introductory to Progress and Poverty, written by Henry George in 1879, without being struck with the fact that the problem of today has been outlined as though it were written yesterday. Henry George refers to "streets lighted with gas," but this is the only old-fashioned or out-of date reference to be found. But whether streets are lighted by electricity, gas, or oil lamps, the problem remains the same.

Mr. Buttenheim speaks of the slowing up of speculation in city real estate. Mr. Buttenheim does not minimize the disasters which have resulted from land speculation. We cannot, however, agree with Mr. Buttenheim in saying that such speculation "has permanently passed its peak." At no time in history has speculation in land values reached the heights that it did in New York and elsewhere within the past decade. The technocrats of recent fame are not the only ones to prophesy from the advance of the arts a future economic crisis more acute than any we have thus far known.

Mr. Buttenheim ascribes his assumption that land speculation has passed its peak to the "slowing up in population increase in the United States." Mr. Buttenheim draws a conclusion from this that land value or economic ground-rent will cease to increase. Mr. Buttenheim fails to observe as Henry George did that the increase in land value is only partly due to the increase of population and that there may be an increase in land value even though population remains fixed or even recedes. We cannot but feel that Mr. Buttenheim would profit by a study of Book II of Progress and Poverty, where the subject of increasing and decreasing population is worked out by Henry George.

In Book IV of Progress and Poverty and elsewhere, Henry George discusses the effect of material progress on the distribution of wealth. He says:

"The changes which constitute or contribute to material progress are three: (1) increase in population; (2) improvements in the arts of production and exchange; and (3) improvements in knowledge, education, government, police, manners, and morals, so far as they increase the power of producing wealth."

Henry George then proceeds to show the effect of increase in population apart from improvement in the arts and then the effect of improvement in the arts apart from increase of population. He makes it clear that "without any increase in population, the progress of invention constantly tends to give a larger proportion of the produce to the owners of land and a smaller proportion to labor and capital."[Progress and Poverty, p.252]

The facts and fears that gave such furore to the technocrats a short time ago were anticipated by Henry George by half a century but with a scientific base of explanation which the technocrats seem to lack.[Progress and Poverty, p.252-253]

Among minor misapprehensions is Mr. Buttenheim's reference to farm land values and the effect of the "back to the land" movement. We think statistics disprove Mr. Buttenheim's assumption that "urban areas show more of their total valuation in improvements than do the rural areas" and that the Single Tax will cause an increase of taxation to the farm in comparison with city sites. We think the contrary is true. We estimate three-quarters of Manhattan Island to be only about twenty per cent improved from the viewpoint of area as well as of land value, i. e., $3,000,000,000 of the $4,000,000,000 of land value in Manhattan is under-improved with business and residence slums. The balance is overdeveloped and overtaxed in spots. As we go outward to Queens, Bronx, Brooklyn and Richmond, improvement values rise in their ratio to land value. Going out still further into rural lands, the ratio rises still further in favor of improvements. Figures on rural site value in relation to improvements are largely lacking. Interesting studies have been made by Cornell, Wisconsin, and other research bodies, which tend to show that the labor side of a prosperous, going farm exceeds site value by a ratio of at least five to one. Even "fertility," usually classed as a natural resource, Prof. Commons points out is subject to depletion and after a generation of use fertility is largely a labor product.

Nor do we agree with Mr. Buttenheim's assumption that the "differential" in rent is less acute than formerly. The facts are quite to the contrary. Improved transportation, while making outlying districts more available, has made access to centers of population more easy, causing urban site values to reach higher peaks than ever before known.

Elimination of speculation in site values will undoubtedly other things remaining equal have the effect of lowering selling price of land and will tend to throw much valuable land now held idle, into use. "Back to the land" is not limited to farm land but applies to all valuable land, most of which in value is in the centers of population. This would not mean that the farmers, "already impoverished by surplus production, would be constantly menaced by an army of potential competitors." Not only would farmers go back to agriculture, but builders would return to construction of homes and factories, miners would return to mining coal and iron, and so on through the entire range of industries.

Nothing is clearer in Henry George's writings than the proposition that the restoration of equal access to natural resources, coupled with free ecxhange, will result in an equilibrium between the basic or extractive industries agriculture, mining, oil production, which comes first and the dependent arts manufacture, invention, cultural arts, which follow and are built upon the primary industries. The same law of wages applies to all. With free exchange the raiser of wheat in Dakota is in a literal sense printing books in New York and painting portraits in Paris. The dreaded "menace" of "surplus product," when limited to labor products, is transitory and never permanent.

The elimination of the speculative holding of valuable land idle will throw such land into use, but we doubt that the true or economic value will be less than is estimated today. Perhaps in a few places, like part of New York City, an abnormal development has induced the assessor to place land value at a speculative level, but this is not true of the country generally, where assessments are placed at about one-third of true value.

Furthermore, freer access to land and removal of barriers to exchange will bring about new uses of land which will tend to increase economic rent.

"Assessed valuation" for land may decline but other things remaining equal so also may legitimate costs of government decline. There may be less wars and wastes of war, less graft public and private, less tax collecting costs, less public borrowing (if any at all). Who can say that one will not balance the other? Economy in government and savings in waste increase land value or the share that goes to economic rent.

So also public "betterments" increase land value.

This brings us to the major point as to which Mr. Buttenheim seems to think Henry George would have changed his views; that is, that Henry George would now favor an income tax and an inheritance tax for social and economic reasons, even though all economic rent were taken by government. We do not think so.

Mr. Buttenheim has accepted whole-heartedly the fundamental principle that all public moneys spent for public works and public services is reflected in land value. Mr. Buttenheim will say, of course, that such expenditures must be wisely made in order to increase land value. In this we agree.

The basis of Mr. Buttenheim's argument for income and inheritance taxes seems to be that economic ground-rent will not furnish sufficient revenue to pay for all of the things which government "ought to incur" and that, therefore, recourse must be had to income and inheritance taxes.

Henry George was familar with both of these forms of taxation. He recognized that both of these taxes, being levied after exchanges are complete, are direct taxes and cannot be shifted to buyers of goods. To that extent they do not share the condemnation applicable to indirect consumption taxes. There are, however, various ways in which these two forms of taxation violate the canons of taxation. They permit the holding of resources out of best use the tax being levied on income only. The taxpayer, in the first instance, is the tax assessor inducing evasion and avoidance. The income tax is secret inducing fraud. It is a tax on industry discouraging individual initiative. There can be little doubt today but that the income tax, which is now about a generation old in this country, is fast travelling the road of disrepute which was followed by the personal property tax to its ignoble ending.

But aside from these inherent defects of the income tax, there is one fundamental objection which Henry George clearly points out and which Mr. Buttenheim has overlooked in this article. This basic objection is this:

Money received by government from the income tax which is wisely spent for a public betterment or maintenance service is reflected in an increase in land value. If government collects the annual value of that bettermant or maintenance service from land value, then government has obtained it twice once from the income tax payer and again from the land owner. If government takes it from the income tax payer and fails to collect the resulting value from the land owner, then the economic effect is that government has taken money from the poctet of the income tax payer and transferred it to the pocket of the land owner.

This is true also of the inheritance tax.

If we let the symbol "I" signify the income or inheritance tax payer, the symbol "O" represent the owner of land, and the symbol "U" represent US (that is, government), cause and effect would work out something like this:

• I pays an income tax on his personal earnings;
  
• U receives it and spends it for public betterment;
  
• O gets the equivalent in the increase value of land.
  
• If O keeps it, that which is left for I and U is merely a sort of IOU.
• The inexorable result of this maldistribution is the piling up of an unearned excess or surplus product in O, with private debt as the status of I and public debt as the status of U, with O possessing ever-increasing power to dictate the terms of the obligation.

To say that the value of all governmental spending for public betterments and maintenance is reflected in land value is not the same thing as saying that all land value is a product of public spending. But the lesser is contained in the whole. Economic rent may be more than the total of all public budgets properly spent, but it cannot be less.

Henry George did not ascribe any "magic" to the Single Tax. On the contrary, he expressly teaches that it is not a panacea for all the economic ills of humanity. Among social problems to be solved in addition to the major one arising from the private appropriation of land values, Henry George mentioned patent laws; the difficulties of a national currency based on public debt and "farmed out" to private bankers rather than a currency based on exchanges; the creation and maintenance of a public debt; tariff walls erected for so-called "protection," even when not used for revenue purposes; embargoes, boycotts, and the like.

Recognizing all of these difficulties, Henry George nevertheless makes it clear that all human effort to correct our difficulties with respect to these other matters will be futile so long as the underlying evil, which Henry George calls the "great robber" of all, that is, private ownership of land values, remains.

All "superfluous and socially injurious savings," which Mr. Buttenheim mentions but does not define, can have their being only through monopoly of some kind. There are only two possible fields of monopoly: on the one side we have natural resources land; on the other side we have labor products. Henry George first makes it clear to his reader that a monopoly of a labor product is an economic impossibility. The immediate effect of a "corner" or an attempted "pegging of price" of any commodity is an immediate increase in the production of that very same article. England tried it for rubber, Brazil tried it for coffee, Japan tried it for raw silk, pit traders have tried it for wheat. All failed, disastrously to themselves. The U. S. Government is now trying it for cotton and agricultural products. Its failure is already upon us.

Therefore, as Henry George points out, "if speculation be the cause of these industrial depressions, it must be in speculation in things not the production of labor, but yet necessary to the exertion of labor in the production of wealth of things of fixed quantity; that is to say, it must be speculation in land." Henry George does not argue for the equal distribution of the production of all wealth. What Henry George stands for is the establishment of economic freedom; that is, equal access to natural resources and an equal sharing in the product of social growth and government. Differences will remain, but they will be differences in individual character, desires, and achievements, which are personal and which he would sacredly preserve to the individual.

Response by Harold S. Buttenhem,
in Land and Freedom, May-June, 1935

How can an advocate of land-value taxation as the major source of local governmental revenues, if endowed with a rational mind, believe literally in the Single Tax as the sole desirable source of all governmental revenues, National, State and local? This question is suggested by Walter Fairchild's courteous and critical discussion, in the March-April issue of LAND AND FREEDOM, of my article, "If Henry George Were Writing Today," which had appeared in the February number of The Journal of Land and Public Utility Economics.

Mr. Fairchild assumes, apparently, the inerrancy of Henry George; and he argues, in effect, that a more careful reading of Progress and Poverty,/i> would result in my acceptance of the verbal inspiration of every statement therein and of his deductions therefrom.

From this assumption I must respectfully dissent. In repeated utterances, in print and over the radio, I am on record as recognizing the essential justice and desirability of the collection for public purposes of the community-created economic rent of land. But I do not believe it essential to the purity or perhaps I should say productivity of that method of taxation that it renounce all of its former fiscal associates and become a single tax. Here was what I said in the concluding paragraph of my radio talk of April 20, 1935, on "The Socialization of Ground Rent:"

"It is not the single tax that I am advocating, for my creed is that of a triple-taxer -- not a Single-Taxer. I favor properly graded income and inheritance taxes for National and State revenues, and am emphatically opposed to general sales taxes and other repressive levies. I do not believe that all community expenditures are reflected in increased land values; nor do I believe that all privilege and exploitation would be abolished by the socialization of ground rent. But I do believe that privilege for the few and prosperity for the many are mutually exclusive terms; and I want to see a demonstration in the United States of our ability to build a depression-proof civilization free from the evils both of fascism and of communism. To such a civilization I know of no economic readjustment which would give greater impetus than the abolition of that major form of privilege which would disappear with the socialization of ground rent."

With this expression of faith, it may now be in order to discuss two or three of the points raised in Mr. Fairchild's article, as indicating why I cannot go the whole distance with the 100 per cent followers of Henry George.

Simon-pure Single Taxers embrace fervently the benefits-received theory of taxation, and reject with disdain the ability-to-pay theory. But are they wholly consistent? Do they not ignore the fact that ability to pay has often resulted in large part from benefits financial, physical or mental previously received from society or by inheritance? and that for such benefits the recipient may deserve no more credit than for benefits derived from land ownership? There is, I believe, both ethical and economic justification for a system of taxation based in part on the principle that the strong or the clever or the 1ucky should bear the burden of the weak or the stupid or the luckless. In other words, ability to pay may properly be coordinated with benefits received in a scientific system of promoting the public welfare in the raising of public revenues.

To what extent is governmental spending reflected in ground rents? This is one of the most important questions raised by Mr. Fairchild. He expresses agreement with my contention that public expenditures must be wisely made in order to increase land values; but he goes so far as to state categorically that economic rent cannot be less than the total of all public budgets properly spent. Even if this last statement were susceptible of proof, it would still leave up in the air the tremendous sums that are unwisely or improperly spent whether on wars or graft, or in planless building or well-intentioned blundering. Who can say that all such expenditures are reflected in ground rents or that they ought to be paid for wholly by land-value taxation? Or why should any one assume that if the Single Tax were the law of the land, waste and dishonesty and foolishness in public spending would disappear? Certainly not Mr. Fairchild or Henry George, for the former quotes the latter as ascribing no "magic" to the Single Tax and as expressly teaching that "it is not a panacea for all the economic ills of humanity."

Another important statement in my article in The Journal of Land and Public Utility Economics which Mr. Fairchild challenges, is that "urban areas show more of their total valuation in improvements than do the rural areas." "We think the contrary is true," says Mr. Fairchild. "Figures on rural site values in relation to improvements," Mr. Fairchild points out, "are largely lacking." But such figures as exist do not appear to support his criticism of my contention. In November, 1934, the Tax Policy League published a bulletin on "Assessing Land and Improvements." The sources of data were the latest available reports of State tax officials in most cases covering the year 1933 or 1932. From this study it appears that twenty-seven States published figures on land and improvement values. In sixteen of these States (Arizona, California, Colorado, Idaho, Illinois, Kansas, Louisiana, Minnesota, Montana, Ohio, Oklahoma, Oregon, South Dakota, Virginia, Washington and Wisconsin) separate figures are given for rural and urban areas. It was found that, without exception, improvements constituted a larger proportion of total real estate values in urban than in rural areas. The value of improvements in urban areas ranged from 44.2 to 70.5 per cent of total urban real estate.

Conversely, land values in urban areas ranged from 29.5 to 55.8 per cent of the total values. In rural areas improvements ranged from 9.5 to 38 per cent of the total, while in rural areas they ranged from 62 to 90.5 per cent of the total.

[Note: Some state data not reproduced here that is in the original]

Mr. Fairchild urges me to re-read "Book II of Progress and Poverty, where the subject of increasing and decreasing population is worked out by Henry George." He says that I have failed to observe, as George did, that ... "there may be an increase in land values even though population remains fixed or even recedes." May I reciprocate by urging Mr. Fairchild to re-read a sentence on page 421 of Progress and Poverty:

"With every increase of population the value of land rises; with every decrease it falls."

This statement by Henry George does not prove that his other statement is unsound; but it does at least show as might be shown by many other quotations that the Prophet of San Francisco, like other great leaders, was not always and wholly consistent.

One need not insist on the verbal inspiration of Progress and Poverty to believe, as I do, that it is one of the noblest of books ever written. Nor need the Single Taxers fear that the fundamental thesis of their great leader will be weakened by constructive attempts to re-study and re-state it for the world of 1935.