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Introduction

Properly to understand the transit situation, it is necessary to retreat through the academic undergrowth to the relatively clear glades of classical political economy with its close attention to precise terminology. So, I shall use the term Labor to describe only 'human exertion'; the term Capital to describe only man-made products not in the hands of the final consumer; and the term Land to describe only the 'original and indestructible' characteristic of natural resources -- location.

To round off this catalogue of basics that used to be considered important -- but is now generally skirted rapidly by students in headlong flight to the good stuff (such as the latest economic decisions of the State Department) we must include the classic returns to the Factors of Production: Wages, Interest and Rent. These were 'free market' returns to the Factors and were paid from the product which was named Wealth. Once the returns were paid, there was nothing more to distribute. Not a 'profit', nor an 'inflationary premium'; not a 'monetary adjustment', nor even a bribe; nothing remained after the Factor returns were paid. This classical terminology was simple, all inclusive and, as Roy Harrod remarked, "revolutionised" our thinking and "made immense progress possible".[1]

But, there's a rub! The classic returns were contingent upon the existence of a free market and two conditions are necessary for a market to be free. First, there must be no restriction of production -- so that quantity changes might occur; and second, no restriction of mobility -- so that goods might get to the market. Given these two conditions, production and mobility, efficient and precise control of the economy and the proper return to the Factors of Production would be handled by the 'price mechanism'.

The Price Mechanism

The hunting action of a price around an equilibrium point used to be called the 'price mechanism', but the term has gone out of style. It described the process whereby any movement away from equilibrium stimulated a price reaction which reversed the movement and thus restored equilibrium. Price mechanism theory is under constant attack by economists who should know better. The assaults range from an assertion that some demand or other is 'inflexible' -- a strange contention which is stated with ever increasing confidence until, remarkably, the demand achieves a sudden flexibility -- to the massive offensives of the 'imperfect competition1 theorists. These people could have made the point that the price mechanism at times may be somewhat arthritic, but instead use governmentally supported market restrictions to prove ponderously (and redundantly) that a restricted market is not free. Perhaps, 'imperfect competition' should be re-thought as the theory of 'imperfect market control'.

Be that as it may, any discussion of the market is usually a discussion of the price mechanism. Demand for widgets raises their price. This stimulates production of widgets and a rush to market to catch the higher return. This satisfies demand causing the price to fall cutting off supply.

However, the analysis of this 'hunting' action rarely touches what we might call the 'dickering point1 or equilibrium position. Ceteris paribus, there will be a price for something at any given time and place. Around this price will hunt the price mechanism. External situations and events, whether natural or coercive, will determine this 'dickering point'. The price mechanism does not fix the price; it merely maintains it.

Scientists are frequently confronted by this phenomenon. Several non-random effects combine to produce a resultant that appears random. Any attempt to understand the result is doomed to failure, because of the multiple variable inputs. The 'price mechanism' and the 'dickering point' are not random, but in concert may produce apparently whimsical and non-random effects.

Ricardo

The hunting action of the price mechanism is not difficult to understand. Less easily grasped is the path by which the dickering point is reached. Ricardian analysis indicates that wages and interest suffer a constant downward pressure; that while these 'prices' of Labor and Capital are reduced the price of Land increases. Where land of good productivity is freely available, it fixes the equilibrium for Wages in the economy. When productive land is not available to labor -- even though unused and underused land may be abundant -- wages will drop to a subsistence level: Lassalle's "iron law" of Wages!

Evidence abounds that Ricardian analysis is perceptive. Union battles to maintain and raise wages are paralleled by governmental legislation to accomplish the same thing. As said Plotnick and Skidmore, the effect of the $185 billion budget for social welfare during 1972 (46% of public spending) was to reduce .the number of poor persons from 39.4 millions to 24.5 millions.[2] As this tremendous effort takes place in the country with the highest living standards and which draws to itself a large proportion of the world's resources for processing, one must view with puzzlement the large poverty population -- unless one is a devout Ricardian!

This far too brief reminder of Ricardo is less to emphasize the downward pressure on wages and interest, than to point to its corollary -- the upward movement of rent. For capitalized rent is the basic component of land price, just as land is basic to any transit system.

Paralysis!

Rent can be expected to rise in a developing economy and this is reflected by a rise in land prices. But this is no more than a fixing of the equilibrium. To it must be added the action of the price mechanism. As we know, in a demand situation the price mechanism raises price above the equilibrium. With widgets, any such price increase stimulates production and impels widgets to market. With land, no such reaction can take place. Not only is there a restriction on additional production of land, but existing land is fixed in place. One cannot 'rush in some wilderness' to the downtown area to profit from higher prices! The market continues to boom unaffected by the price mechanism governor.

Yet, the story is scarcely begun. The relentless price rise is quickly seen by the astute and land is bought for purely speculative purposes, which activity increases upward pressure on land prices -- which encourages speculation. When the upward movement exceeds the market rate of interest, there is little point to selling land for reinvestment at a lower return, so the landowner hangs on. (We will forego the tempting side excursion into favorable tax rates for landholding!)

So, few landholders are inclined to sell. Moreover, those who do sell stumble over a new fact of life. When widgets arrive at the market a demand is satisfied and prices fall. When land arrives at the market place a demand is satisfied and prices rise! The highest return is received by the landholder who sells last. Thus, the market adopts a final ironic stance, the very antithesis of the free market.

It becomes paralyzed by potential vendors each of whom is struggling to be the last one to sell! As a result, a typical American land-use topography resembles nothing so much as a patchwork quilt in which land sales for use are derived from a mixture of connivance, fortuity and not a little inside knowledge of political intention.

Empty Cities

The emptiness of our cities is beyond belief. Mason Gaffney provides considerable information in the 1958 Yearbook of Agriculture about city land-use.[3] The figures relate to the mid-50's, but little has changed since then (except that some central cities have lost population). For example, the Regional Planning Association of New Jersey, New York and Connecticut, reported that in the 22 county area of metropolitan New York City, no less than 79% of the usable area (84% of the gross area) was undeveloped for urban use.[4] The California Water Resources Bulletin #2 in 1955 found that 65% of suitable Los Angeles area urban land and 90% of the 10 county Bay area metropolitan area was not developed at that time.

The same Bulletin, based on aerial photography, showed 23% of crowded San Francisco was undeveloped; that 75% of the Bay side of San Mateo County (the "peninsular") was undeveloped; as was 86% of the Santa Clara Valley. The New York engineering firm of Parsons, Brinckerhoff, Hall & MacDonald concluded, after its survey of the Bay area for BART (Bay Area Rapid Transit Council), that sufficient suitable acreage was available in the Bay area for the entire projected 1990 population of the whole state of California -- some 22 to 31 million.

This emptiness is obscured by the wide dispersement of people. For example, in the 200 square mile Santa Clara Valley were about seven square miles of subdivisions, but there was at least one subdivision in every square mile. This meant that the subdivisions that "crowded" the valley sat on less than 4% of the total area.

The picture is also clouded by the tendency of planning boards to believe their own publicity. An area zoned 'residential' becomes residential land, even when unoccupied. Some subdividing companies have residential lots by the tens of thousands, but without a person in sight.

Conclusion

So, the transit problem is clear. A bus that must drive through five acres to pick up an acre of passengers (as in New York City) cannot be economic. A train that takes people from a crowded (sic) downtown (Los Angeles' downtown is rather more than 40% parking lot) to a dispersed suburbia is facing bankruptcy, or is hoping for heavy subsidy. Space-age technology, with its epic fantasies involving monorails, people-movers and electromagnetic vehicles, is powerless before the economic consequences of a land market uncontrolled by the price mechanism.

Yet, the largest mechanical transportation system in every American city is not only free to passengers, but is paid for by the people it benefits.* Perhaps, here can be found the solution to the problem, but it is less a technological than an economic problem and therefore requires and economic answer.

* The elevator system!

REFERENCES

1. The Life of John Maynard Keynes: Chapter XI -R.F. Harrod … Avon Books.
2. Progress against Poverty: Review of the 1964-74 Decade. Robert D. Plotnick and Felicity Skidmore. Inst. for Research on Poverty.
3. LAND - the 1958 Yearbook of Agriculture: M. Mason Gaffney, Depart, of Agriculture.
4. Bulletin #87 - 1955: Regional Planning Assoc. of New Jersey, New York and Conn.