The Power In The Land. Fred Harrison
which confronts labour and capital. Agricultural land will renew itself, and therefore retain its value; owners need not, therefore, capitalise their assets for long periods. Land which derives its value from locational advantages presents no problems whatever. But capital in the form of machines and buildings perishes and must therefore pay for itself within a limited period, during which the capitalist cannot avoid the costs of maintenance. There is no escape from this by transforming capital into cash, for unless it is employed — by being lent to others — it either depreciates in value as a result of inflation, or does not earn an income (in which case it might as well be used for consumption).
Furthermore, there is a distinct difference in the ability to finance loans originally taken out to buy land or accumulate stocks. Except during deep recessions, banks will continue to lend money when the asset is land, even (or rather, especially) during uncertain times. This makes it possible to refinance loans used to buy land: thus, the speculator can hold out for better prices which must eventually come his way. Credit to help to finance inventories, however, is much more difficult to obtain. Credit shortages occur far more regularly as a deterrent to stock accumulation. Indeed, the acute credit shortage associated with the downturn of the shorter, five-year cycles is a direct limitation on accumulation.22
The next major class of differences between land and capital relates to the impact on the workings of the economy. Land hoarding results in a contraction in the supply of what is a fixed factor: there is no way of making more land, and reclamation is of no significance. So the price of land is forced up. Firms which are restricted in their choice of locations—because of the need for access to special services, or raw materials, or markets, for example—have two options. They must either increase their product prices, which is not usually possible in a competitive market, or they must absorb the higher cost of rent out of profits. As a result, consumer satisfaction and the output of goods are reduced. Hoarding manufactured goods, however, does not destabilise aggregate demand,23 and if abnormal profits are made out of a rise in prices, other manufacturers will be attracted into the market. This forces down prices and removes the incentive to hoard goods in warehouses. Manufacturers, then, have every incentive to meet demand at the lowest Competitive prices, which raises consumer satisfaction and ensures the full employment of resources.
Finally, consider the money and stock markets. At certain times, principally near the top end of the land value cycle, when people are gripped by speculation mania, the bidding for money to buy land pushes up the rate of interest. This makes it difficult to borrow to finance the formation of new machines on which people rely for new jobs and wealth. Institutions seeking to attract depositors’ funds to invest in land force others to raise their interest rates in order to remain competitive. Building societies are an example of this, and as a result low-income earners experience greater difficulty in obtaining mortgages. Speculation in share prices on the stock exchange in the hope of capital gains, on the other hand, reduces the cost of finance to firms, so directly encouraging investment.24
Thus, we begin to see that land speculation is a unique economic phenomenon, deriving its power from the ability to play a passive, wait-and-see game, capable of yielding enormous fortunes for shrewd dealers who, as land monopolists, do not contribute anything to the wealth of nations; a power which gives it the ability to inflict severe wounds on the active agents of the wealth-creating process, the workers and their accumulated savings (capital).
Notes
1 The Owen plan was opposed by, among others, Henry Brougham, on the grounds that the real problem was over-population — the poor, it seemed, bred too fast for production to keep up with fertility! See B. Gordon, Political Economy in Parliament 1819-1823, London: Macmillan, 1976, p.65.
2 Socialist planning does not admit of industrial crises. While Menshikov is happy to describe postwar economic recessions in the capitalist West as ‘crises’, his colleague Khachaturov will only admit of ‘minimum efficiency years’ in the USSR — and even then the national income is held to be ‘less than normal owing to poor harvests’. Who can plan the weather? See S. Menshikov, The Economic Cycle: Postwar Developments, Moscow: Progress Publishers, 1975, and T. Khachaturov, The Economy of the Soviet Union Today, Moscow: Progress Publishers, 1977, p.337.
3 Capital, Vol. I, op. cit., p. 580.
4 Progress and Poverty, op. cit., p. 264.
5 Ibid.
6 S. Kuznets, Capital in the American Economy, Princeton University Press, 1961.
7 G. F. Warren and F. A. Pearson, World Prices and the Building Industry, New York: John Wiley & Sons, 1937, p.97; R.C.O. Matthews, The Trade Cycle, Cambridge University Press, 1959, p.214, n.1; and A. Shonfield, Modern Capitalism, London: Oxford University Press, 1969, pp.21, n.1 and 28.
8 Op. cit., p.424.
9 H. Hoyt, One Hundred Years of Land Values in Chicago, University of Chicago Press, 1933.
10 H. Hoyt, ‘The Urban Real Estate Cycle — Performances and Prospects’, in Urban Land Institute Technical Bulletin No. 38, June 1950, pp. 7-8, and Warren and Pearson, op. cit., p. 151, Table 4.
11 For a discussion on the distorting influence of the World Wars, see Shonfield, op. cit., p. 27.
12 Thompson, ‘The Land Market’, op. cit., p.47.
13 D.J.J. Botha, Urban Taxation and Land Use, Report of a one-man Commission appointed by the City Council of Port Elizabeth, South Africa, 1970, p.23.
14 B.Jordan, ‘“Abandoned” Madrid plot worth £5m’, Financial Weekly, 13.6.80.
15 Whatever the motives of the owners, of course, the disruptive effects on the economy are still the same. Madrid, for example, was obliged to urbanise around the vacant site, which meant that rural land was developed needlessly and people were forced to commute to the city that bit further than was necessary.
16 H.J. Brown, R.S. Phillips and N. A. Roberts, ‘Land Into Cities’, Cambridge, Mass.: Lincoln Institute of Land Policy, 1980, mimeo.
17 Brown et al., ‘Land Ownership and Market Dynamics at the Urban Periphery: Implications for Land Policy Design and Implementation’, World Congress on Land Policy 1980, editors: M. Cullen and S. Woolery, Lexington, Mass.: Lexington Books, 1982, p. 131.