Homeys always dismiss the claim that land ownership is a monopoly by pointing to the fact that land is subdivided into millions of bits with a wide spread of ownership; and claim that it cannot be a monopoly as anybody can buy or sell land at the same price.
Clearly, land IS a monopoly (or at best a cartel), we can tell this from the simple observation that the income you can receive from (most) land vastly exceeds the cost of producing or holding land, which are precisely zero. These unearned profits can only be monopoly profits. There is no other possible explanation for them, or else they would have been competed away years ago (wouldn't everybody like to get money for doing nothing?).
For sure, the value of land is increased by buildings and improvements, which might be integral to the land itself (drainage, protection against cliff falls etc) but the income which relates to the buildings is very much 'earned" for these purposes. The only factor affecting the location rental value (or "site premium") is what 'everybody else' is doing in the surrounding area, i.e the location.
And for sure, there is some limited competition between the owners of neighbouring plots on any street, but there is no real competition between the owner of a plot in a good location in a town centre and plots in a poor location in a marginal area. Perhaps the marginal area wins the battle for more government funding and goes upmarket, then that is largely at the expense of existing good areas. The playing field can be tilted this way or that, but it is the same water sloshing around in the puddles.
Let's see if I can reduce this to a couple of simple analogies which even the most stubborn Homey has to grasp (although there ability to not grasp analogies never ceases to astound):
1. Diamond mining/selling is (or used to be) controlled by a monopoly/cartel called DeBeers. There is no point DeBeers saying "Oh no, we don't have a monopoly, because anybody can buy or sell diamonds (i.e. second hand ones)", DeBeers still has (or had) a monopoly.
So the fact that land can be bought and sold and that nobody is prevented from buying it, and that purchasers by and large compete on a level playing field (i.e. whoever bids the highest can buy it) does not stop land itself being a monopoly any more than the fact anybody can buy and sell diamonds.
2. The same goes for oil. Let's assume that the Saudis control such a large share of output (directly or via the remnants of OPEC) that they effectively have a monopoly. It's not much consolation to the motorist that refining and retailing petrol is a free-ish market and that the motorist can choose between competing petrol stations. Ultimately, you are buying your petrol from the Saudis (or some other producer whose interests are closely aligned with the Saudis), and they have a monopoly.
3. Imagine a government-run electricity company which has the monopoly over mains electricity supply in an area with a million people. That is clearly a monopoly.
4. "But I don't own all the land in my area, I am just one of hundreds of thousands of people who all own small plots. None of us has a monopoly and we do not collude" wail the Homeys.
5. So what? Now imagine that the electricity company is privatised and each resident is given one share, for free, which has a value of £1, and which can be bought and sold on the Stock Exchange, and the price fluctuates in line with other shares. Superficially, there is a "free market" in those shares. But does the company still have a monopoly? Of course it does.
6. What if you want to buy shares in the company. You can only buy them from somebody who already owns shares in that monopoly. So the owners of the shares are a cartel; the number of shares cannot be increased or decreased (unless they are consolidated or sub-divided, which is irrelevant). So the company earns monopoly profits (let's assume there's no price regulation) and there is also a limited market in shares. Nobody can come along and create competing shares. So the owners of the shares form a cartel, and when you buy shares, you have to pay a premium to join the cartel which owns the monopoly.
7. So it does not matter how finely sub-divided or how widely held the shares in a monopoly are, it is still a monopoly. It makes little difference whether all the land and sea in the whole of the world is owned by a single landowner and everybody else rents or whether the physical land is divided into seven billion equal value plots and every human being is given one. Land is still inherently a monopoly. The rent or purchase price you'd have to pay to occupy any particular plot is unaffected by whether the current owner merely owns that one plot or lots of other plots or all the land in the whole world. The rent or price you'd have to pay is quite simply "at least as much as the next highest bidder".
8. Nobody acting in isolation or any cohesive group not large enough to be able to form their own "state" and control land by force, can arrange for all the infrastructure to be built and for a stable and law-abiding society to build itself up to create rental values. Rental value is something which all human beings create, i.e. all who happen to be present somewhere at some time (or near enough to able to influence it).
9. If burglars and car thieves are known to be active in an area, then yes, those few humans beings pull land rental values down in that area, but Wadsworth's Law of Conservation of Rents applies here as anywhere else: those burglars and car thieves push up the rental values in other areas which now count as "low crime areas".
10. "If you don't like it you can go abroad!" shout the Homeys. What difference does that make? Land is the same monopoly everywhere. If mains electricity is supplied by a different monopoly in each town, then moving from one town to the next doesn't help you, you are always buying it from a monopoly at monopoly prices.
Here endeth today's rant lesson.
The Mirror Men
5 hours ago
23 comments:
It is becoming increasingly obvious from reading your recent posts that it is the concept of private land ownership that you do not like, not the economic inefficiency of how the economy is taxed. That appears to be (as I suspected all along) the root of your promotion of LVT.
S, don't be daft.
1. Are you seriously disputing that land is not inherently a monopoly?
2. Of course people have to have exclusion possession of land for living and working. That must be obvious to a blind man. You can call that "private land ownership" or "secure tenancy" or anything else.
And seeing as you bring up the topic of LVT...
3. It must also be obvious to a blind man that taxation of monopoly profits/privileges is the best kind of tax as it does not affect or disincentivise economic activity in the slightest.
4. The fact that there are moral as well as economic efficiency arguments for LVT strengthens the case, it doesn't weaken it.
What you just said is redundant, Sobers. The structure of "ownership" of land determines how LVT is collected. "Efficiency" in economic terms occurs when people get what they produce. The land value is produced by the surrounding society, so efficiency occurs when the LVT is collected by the surrounding society, rather than captured by a random person.
Well, OK, Mark has beaten me I see.
RA, while we're on the topic, how did you get rid of the hyphen? I'm now using OpenID but I can't find the bit to change my display name.
The fact that you equate 'private land ownership' and 'secure tenancy' says it all really. To me at least (and most people I suspect) they are not equivalent. The latter implies a higher power above you who has a considerable degree of control over your destiny, the former does not.
It matters not if land is a 'monopoly'. Ownership of anything is a monopoly. One has exclusive rights to use or consume X, to the exclusion of all others. Thats the whole point of private possessions - you have a monopoly over their usage and disposal. Land is no different from any other natural resource, really, other than unlike many things, it cannot be destroyed or consumed. Ergo it would make more sense to impose a tax on the consumption of finite resources such as energy and ores than land - my owning land does not preclude future generations from using it, whereas my consuming resources most certainly does.
S, your first paragraph is pure Homey propaganda.
"The latter implies a higher power above you who has a considerable degree of control over your destiny, the former does not."
All land "ownership" implies a higher power above all of us, namely THE NATION-STATE which employs policemen and so on to protect the interests of land owners.
You quite like the idea of the higher power nation-state exerting its control of other people's destiny by taxing the income of non-landowners to pay for those policemen to benefit YOU.
And as a landowner, you want to have a large degree of control over others, i.e. they have to come cap in hand to you if they want land to build a house on and you can make them pay handsomely for the privilege.
So that's the usual mass of Homey contradications right in one short paragraph.
"Ownership of anything is a monopoly"
Nonsense. Ownership of a car or a TV does not enable you to earn monopoly profits from them. If you cannot earn monopoly profits from something it is not a monopoly.
"Land is no different from any other natural resource, really"
Correct. Use of natural resources precludes others from using them, is inherently monopolistic and is a suitable subject for taxation.
"my owning land does not preclude future generations from using it"
So what? The government protecting your "ownership" of land precludes THE CURRENT GENERATION from using it, which is why people who own land can earn monopoly profits NOW, TODAY.
To be fair to De Beers, I don't think they actually deny having a monopoly, although for understandable legal reasons they don't like to boast about it.
Mark, on your MyOpenID page there's a "Your Account" tab. Under that are two subheadings, "Registration Personas" and "Identity Page". I put "Richard Allan" as Full Name, Nickname, and everything else on both of those, after creating a new persona under the former subheading. I don't know which one of those did the trick but it must have been one of them.
H, and diamonds are hardly a necessity for day to day life. I'm not aware that I own any diamonds (although I think I might once have bought a ring for my wife with some). So, so what if they have a monopoly over a tiny corner of the luxury goods market, doesn't do any real harm to anybody. But I was just using it as an example.
Test.
Yes of course the law is above us thats the whole point. It protects my ownership of my car, my house, my body even. Without the existence of a State and a system of law, no-one 'owns' anything as of right, merely what they can physically protect. In Somalia for example you can own as much land, money and possessions that you can defend with an AK47 (or get someone else to protect for you). The only thing preventing you being murdered or enslaved is greater force than the person trying to murder or enslave you.
And there are no more 'monopoly profits' to be made from land than there are from ownership of any resource, if (as in the case with houses) the State intervenes to rig the market in them. I have no doubt that in Soviet Russia, where ownership of a car was a great privilege, given by the State, that there were considerable 'monopoly profits' to be made if you could get yourself to the top of the list for a Lada Riva.
There would be no monopoly profits from the ownership of land if the State did not restrict the supply of land for development, and did not debase the currency to such an extent that the only way for an average man to protect the value of his savings from inflation is to invest in property.
RA, haha it worked. Thanks.
S: "It protects my ownership of my car, my house, my body even."
But you do not earn monopoly profits from your car or a building or from your own body. Stick to the topic.
"in Soviet Russia, where ownership of a car was a great privilege, given by the State, that there were considerable 'monopoly profits' to be made if you could get yourself to the top of the list for a Lada Riva."
Agreed. The illustrates my point. Any right which has value only because of government protection is a monopoly.
"There would be no monopoly profits from the ownership of land if the State did not restrict the supply of land for development"
Nonsense.
You are still pretending that you didn't understand the post. However much planning you get on your acres near Swindon, the rental value will never be as much as the same size plot in central Swindon or in London. So your land cannot compete away the monopoly profits elsewhere.
And in turn, if you get planning and build houses, every penny you get above and beyond bare agruicultural is monopoly profit, regardless of whether that planning permission is easy to get or hard to get.
And your monopoly profits cannot be competed away either, by whom, exactly? By other landowners, possibly, but that is just a fight between members of a cartel over the monopoly profits.
If land at any location were not a monopoly, then people who would otherwise have to pay for land would get it from elsewhere at its cost of prodution, which is precisely £ nil, i.e. for free.
I see the Economist is now advocating LVT as a means of encouraging developers to start projects and pull the country out of the doldrums (http://www.economist.com/news/leaders/21573113-british-economy-stuck-it-needs-structural-reform-looser-money-and-more-infrastructure). You never know, this idea might catch on.
H, sure, by and large The Economist is on the side of proper economics.
"But you do not earn monopoly profits from your car or a building or from your own body."
Yes you do as I explained with the Russian example. By preventing people from freely building cars, or importing them, the Soviet State controlled the amount of cars in the system, and thus created monopoly profits for the few who had the connections (or luck) to get one. There is no monopoly profit from ownership of cars in the UK because they are freely traded, manufactured, and imported/exported. One could also use the example of Cuba, where importation of cars has been forbidden (for the masses anyway) since the 1950s. Thus anyone who has one of the much repaired 50s US cars still in existence in Cuba has monopoly profits that would not exist in a free market.
And similarly in the UK property market the vast majority of monopoly profits would disappear if the supply of housing and development land was open to all landowners, not just those who can get planning permission from the State. Yes there would still be some monopoly profits, mainly in the centres of large conurbations, because there is a location location location value for houses in Mayfair (for example), or shops on Oxford street. But for bog standard suburban houses in towns and suburbs across the land the location element is very little, and the value is a combination of planning scarcity value and building costs. There is certainly not enough excess monopoly profits from land ownership in a truly free market to provide a revenue stream of the size you seem to think.
S, if there is no restriction on the number of cars, you do not get monopoly profits from them. If there is a restriction on the number of cars you do.
Can we agree that at least? In the west, by and large, there is no restriction on the number of cars.
"in the UK property market the vast majority of monopoly profits would disappear if the supply of housing and development land was open to all landowners"
You say it yourself - if it was open to all landowners. So the landowning cartel would get all the profits. So it is a monopoly.
"for bog standard suburban houses in towns and suburbs across the land the location element is very little"
So you agree that there is a location element/monopoly element to even bog standard suburban houses? Good, because there is. It is only a few thousand pounds per house per year, but it is there.
"Yes there would still be some monopoly profits, mainly in the centres of large conurbations, because there is a location location location value for houses in Mayfair (for example), or shops on Oxford street."
That depends on your definition of "some". You now appear to agree that there is a huge monopoly element to the best locations, of hundreds of thousands of pounds per house per year?
And you can build outwards as far as you like or as far as is economically rational, all the way out to the margin where land rental values are zero (and there such areas in the Uk with homes on them). Every home in a more favourable location that the least favourable location thus has a positive value.
And if a town expands outwards, the shops in the centre have a higher rental value because more potential customers etc.
Whatever happens, with restrictive or liberal planning laws, the total site rental value of UK urban land is more or less a constant. You can spread it more thinly or more concentratedly, it is a fixed figure.
And as it happens, at present, even though rental values are greatly depresses by the burden of taxes on earnings, the total site only rental value of UK land is well over £200 billion a year and you know that perfectly well.
S: "There is certainly not enough excess monopoly profits from land ownership in a truly free market to provide a revenue stream of the size you seem to think."
No doubt you have reviewed my workings here and I assume you have no major quibbles:
http://kaalvtn.blogspot.co.uk/p/valuations-and-potential-lvt-receipts.html
And on a moral rather than practical level, the precise amount of land rent is completely irrelevant, if it turns out to be £60 billion a year in the UK, that gets collected and everybody in the UK gets £1,000 a year personal allowance/Citizen's Dividend.
If we use very significant LVT revenues to replace other taxes £ for £, then the rental value of UK land will quickly rise to (say) £300 billion a year, that gets collected and everybody gets £5,000 a year personal allowance/Citizen's Dividend.
"The fact that you equate 'private land ownership' and 'secure tenancy' says it all really. To me at least (and most people I suspect) they are not equivalent."
You appear to be unaware of the law on land tenure, which states that all land is owned by the state (the alloidal title) and that a freehold (what you think of as "ownership") is merely a holding (i.e. a secure tenancy), free of any obligations or rent. The fact that no rent is paid does not make it any less a tenancy.
B, on closer inspection, all laws on land ownership are similarly artificial. In England we have the fiction that it all belongs to The Crown, but they have similar fictions and creation myths in other countries.
Point is, land ownership is only possible if there is a stable nation-state to protect it, and rental values can only arise in a law abiding, stable nation-state. That is a general observation that applies to all land and all countries.
I don't think it is a fiction to say that all and belongs to the state. Land ownership is only really enforceable at the point of a gun, or, before that, a spear, as in Sobers's Somalia example above. What started as many small landowners enforcing their ownership at the point of a spear against other would-be owners gradually coalesced into fewer, larger landowners, now with small armies, which became one nation state with one large army. That state is still the only owner of the land, as it is the only organisation with an army and the capability of tell other would-be owners where to go, as the British state last did in the Falklands.
B, yes, I completely agree with your summary.
The only guarantor of land ownership is a huge, reasonably cohesive collective of people called "the nation-state". Or a smaller group who is on friendly terms with its near neighbours (Luxembourg, Liechtenstein, Vatican, Andorra etc).
But the particular notion that "all land belongs to the Crown and you only hold a freehold tenancy" is unique to English law.
All countries have similar vaguely defined laws or creation myth or quasi-justification for land ownership. They are just dressing up in legalese the actual real life position which is exactly as you outline, which is of course not fiction, that is hard reality.
@Mark,
"7. So it does not matter how finely sub-divided or how widely held the shares in a monopoly are, it is still a monopoly. It makes little difference whether all the land and sea in the whole of the world is owned by a single landowner and everybody else rents or whether the physical land is divided into seven billion equal value plots and every human being is given one."
Would there still be economically harmful effects if everyone had an equal share of land, sea and air(theoretically, if the supply could be strictly regulated)?
Well, you'd get rid of monopoly profits going into the pockets of banks, landlords, airlords and waterlords.
However, we'd still have government raising their revenues from private wealth, which suppresses growth.
LVT is in effect an equal share, taken off our tax on productive activities.
Btw, I'd really like to see how prices are set for oil, land and (theoretically) air for the following three models. Single owner monopoly, cartel, and equal shares.
What would the supply/demand curves look like for each scenario?
BJ "Would there still be economically harmful effects if everyone had an equal share of land, sea and air?"
I can't answer that question until you tell me how this is going to work on a practical level. But I suspect my answer will be "Yes. That is a terrible idea."
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