Libertarian Ism and Private Property

8/2/2019 Libertarian Ism and Private Property

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American Journal of Economics and Sociology, Inc.

Libertarianism and Private Property in Land: Compensatory Payments by Landholders AreRequired by Both Utility and JusticeAuthor(s): Walter HornSource: American Journal of Economics and Sociology, Vol. 44, No. 1 (Jan., 1985), pp. 67-80Published by: American Journal of Economics and Sociology, Inc.Stable URL: http://www.jstor.org/stable/3486503 .

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Libertarianism and Private Property in Land:CompensatoryPaymentsby LandholdersAreRequiredby Both Utilityand Justice

By WALTERHORN*

ABSTRACT.Whether or not we have any natural rightto landownership, likelife and liberty, the institution of private property is a good. The utilityproduced by private property in land is overshadowed by the evils producedby the speculative withholding of supramarginal land unless compensatorypayments are required of landowners. Such payments should be made tothose living in the same "rental area" and should be of an amount that willeliminate all incentive to land speculation. It is not always either desirableor possible to require that all of one's land value be paid in compensation,and even if such payments could be accomplished, they would not always beenough to redistribute the product stemming from the "monopolization" ofreal property. The proper compensatory payment should reflect real increasesin the value of real estate since its purchase, minus the value of improvementsto the site made by the owner.

IntroductionIN A PREVIOUS RTICLE,' began my report on two libertarian positions onlandownership. The positions are those of Murray Rothbard and RobertNozick, which, though they differin basic ways, I consider fairly representativeof the main currents of American libertarianthought.

In that article, I argued that natural-right defenses of landownership,whether based on an "admixture" theory of labor or on a "whole value"theory of ownership, were untenable. It was my contention that privateownership of land could better be defended on the basis of utility consider-ations. I held, however, that the institution ceases to enhance utility if it isnot accompanied by a requirement that compensatory payments be made bylandowners to others living in the community.

* [WalterHorn, Ph.D., former assistantprofessor of philosophy at Ithaca College, is aresearch analyst,Joint Committeeon Commerceand Labor,MassachusettsLegislature;hisaddress:26 GlenvilleAvenue#3, Allston,Mass.02134.]The opinions expressedarepersonalonly, and do not necessarilyreflectthose of any legislatoror legislativebody.American Journal of Economics and Sociology, Vol. 44, No. 1 (January, 1985).? 1985 American Journal of Economics and Sociology, Inc.


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68 American Journal of Economics and SociologyI turn now to a discussion of the notions of individual and collective

property rights. I then take a closer look at the sort of compensatory paymentsthat considerations of utility and those of justice require, given the conceptof landownership I have outlined.

IIIndividual vs. Collective Property Rights

NOZICK HAS ISSUED a challenge to holders of theories of the sort I have beendefending in this essay. Such theorists are equally bound to explain theemergence of property rights. The passage is worth quoting again:We should note that it is not only persons favoringprivate propertywho need a theoryof

how property rights legitimately originate.Those believing in collective property,forexamplethose believing thata groupof persons livingin an areajointlyown the territory,or its mineralresources,also mustprovidea theoryof how such property ightsarise; heymust show why the persons living there have rights to determine what is done with theland and resources there that persons living elsewhere don't have (with regard to thesame land and resources)2

Rothbard has posed a related problem: ". . . it is difficult indeed to see whythe mere fact of being born should automatically confer upon one somealiquot part of the world's land. For the first user has mixed his labor withthe land, while neither the newborn child nor his ancestors have doneanythingwith the land at all."3

Obviously, this is not the place to undertake (even if I were able) acomplete analysis of the concept of property. For that, a work at least as longas Nozick's-and maybe as long as Rothbard's-would probably be necessary.Perhaps, however, a few words may be said here on the subject so it will notappear that an attempt has been made to duck the challenges of thelibertarians.

In his book on Herbert Spencer, Henry George spent a considerableamount of space denying thatpeople of any community have any natural ointright to the earth. He tried to develop a notion of equal rights as distinguishedfrom any joint right that would entail anything like a divvying up of the worldinto equal portions. As George put it,

When men have equal rightsto a thing,as for instance,to the rooms and appurtenancesof a club of which they are members,each has a rightto use all or any part of the thingno other one of them is using. It is only where there is use or some indicationof use byany of the others thateven politeness dictates such a phrase as "Allow me!"or "Ifyouplease!".

Butwhere men havejoint rightsto a thing, as for instance,to a sum of money held totheirjointcredit,then the consent of all the othersis required or the use of the thing orof anypartof it, by anyone of them4


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Libertarianism 69In George'sview, the existence of a rightto the use of the earth followssimply roma desireto do so: Eachman has a right o use the worldbecausehe is hereand wants o use the world.There s a strikingdifference,however,between the use of a room at a club and the use of land. The latterofteninvolvesconsumption.The "use"of the only fresh water reservoirwithin aradius f threehundredmiles couldnot be well regulatedbyeven the strictestadherence o "men'sclub" rules.Latecomerswouldgo thirsty. t seems thatinsofaras thatto whichone has (withothers) a right s capableof depletion,justicerequiressomethinglike a quitclaim rom each of those with such arightbeforeanyone mayuse it. Where here is "enoughandas good" to goaroundand there is no, or very little, likelihoodof depletionof the object(or anynuisanceassociatedwith its use), no receiptof anysuch release isnecessary.Thatis reallyall there is to the distinctionbetween "joint"and"equal" ights:when an object owned in commonis more like a finite sumof moneywe will wantjoint rights,when it is more like a lounge in a club,equal rightswill suffice.Do either of such rights to land naturally nhere in individualsas aconsequence of the desire or need for access to naturalresources? t isnotoriouslydifficult o answerquestionsof thatkind, and it would be betterto leave to one side the questionof whetheror notanyonehasa natural ightto engagein any particularctivityand simplysuppose that certain tems aregoods. Goods are items that are to be smiled upon unless they produceoverriding vils or happen o conflictwith some natural ight(if there proveto be such things) we might discover down the road. There are threeadvantageso consideringgoods rather han rights. First,there is a higherdegreeof unanimity boutthe fact of therebeing such entities-so long aswe do not delve too deeply into their ontologicalstatus. Second,there iswide agreementaboutmanyof the items thatwe would put in any list ofintrinsicgoods, thoughthere maybe considerabledisagreement egardingthe ultimateutilityof encouraging uch items in a society.Withrights, t isdifficulto get two people to agreeon any list-even when both admittheexistenceof thespecies.Third, oods,bythemselves, o not involvecorrelativeduties.

Let us, then, agree that the following are goods, without consideringwhether here is anynatural ightto them: life, pleasure, he liberty o moveaboutas one pleases,the liberty o obtainwhatis necessary o maintainife.Tothesemaybe added he goods,enumerated yNozick, hatare engenderedby the institutionof private property: ncouragementof experimentation,efficient se of the meansof production, rovision f employmento unpopularpersons,etc.


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70 American Journal of Economics and SociologyWe have seen that there is at least one unfortunate consequence of private

landownership, though: where there is no compensation paid by the owner,the advantagesof private property may become outweighed by the increasingdisutility created among those who are not landowners. There maybe growingincentives to suspend (or at least slow) production. The increased rents thatresult from withholding useful land from production would have to be paidout of what would otherwise have been return to capital or return to labor.That is, unearned income will rise at the expense of earnings. If good land iswithheld from production, total productivity may decline in the area. Thesefactors are of the sort that reduce the net amount of good connected with theinstitution of private property. They are, thus, bads.However, we are not forced into the position of trying to weigh the plusesand minuses of private propertyin land. Thatinstitution is perfectly consistentwith a requirement that a payment be made by owners in an amount andmanner that will remove any incentive to the speculative withholding orunderuse of land, the bad factors. Far from being inconsistent with thebenefits bestowed by private ownership, compensatory payments-if theirmanner and amount are correctly gauged-will enhance them. Before turningto a closer consideration of such payments, we must investigate another,entirely differentsort of justificationfor compensatory payments, one claimingthatjustice requires such payments if private landownership is to be allowed.

It has been held by some theorists that whenever valuable land is fencedoff from others, the situation of these others is worsened, for, since the landhas value, there is not "as good and enough" to go around. If there were,land of equivalent value would have no price. Nozick mentions the "freeuse" of land as an alternative to appropriation.It is not clear what he meansby this, but it is obvious that where rent has arisen, no use of land is likelyto be free of charge. Thomas Paine, in his pamphlet "Agrarian ustice," heldthatthe landed should compensate the landless forthe lattergroup'smisfortune,since the institution of private property in land is not the natural state ofthings but a societal rearrangement which benefits (mainly) those who arelucky enough to get a piece of land. This argument was also put nicely byHenry Sidgwick:

... it must be admitted hatprivateproperty n land involves a substantial ncroachmenton the opportunities of applying labour productively which-were it not for suchappropriation,-would e opento individuals ow landless.On the otherhand,appropriation,at least for a term of years, is required, on the principle of utilitarian ndividualism, ostimulateand rewardthe most energetic and enlightened applicationof labour to land.Underthese circumstances,he best practicable pplicationof the individualistic rincipleis to allow appropriationbut to secure adequate compensation for the encroachmentinvolved in it (5).


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Libertarianism 71III

Ricardian Rent as Compensation for AppropriationBUT HOW HIGHA PAYMENTdoes this appeal to "encroachment" ustify?Obviously,there can be no question of a negotiated settlement, and if those to whomthe payment is due were to bring suit against the appropriator,the arbiterwould need some rule by which the amount might be determined. Georgeand his followers have settled upon the entire rent of the unimproved parcel(minus, perhaps, a superintendence fee) as the proper amount. The derivationof this particular amount of compensation for violations of the Lockeanproviso will not be possible if we consider rent-more correctly, "rental"in the contemporary sense of payment for the use of a certain piece of realproperty. If we understand the term "rent" in that way, it will be quiteconceivable that it would take much more than the ground rent of lot A tocompensate fully (including all incidental and consequential damages) allthose adversely affected by the appropriation.Alternatively,we can imaginecases in which a piece of land is, perhaps foolishly, under-rented-that is, letfor an amount less not only than that which reflects its "highest and best"use, but less also than an amount reflecting what could be obtained for itallowing its current, actual use. In such a case, it is not clear that anyoneelse's net situation will have declined at all.

In order to make any sense at all of the view that the correct amount ofcompensation for private land holding is the ground rent, we must use theterm "rent" in the Ricardiansense of "excess product." In that sense, therent of a piece of land is the amount by which its "product" (where this isused in its broadest sense) exceeds that which can be produced by equalefforton the best free land or on the marginal land that is either concurrentlyin use or both available for use and capable of sustaining a producer (say, afarmer) who applies that same effort. ("Effort"here refers both to labor andcapital investment.) A landlord cannot charge more than this differential forthe use of land, and it is a form of charity to charge less. The reason forsupposing that just this amount is the "unearned increment" available to theowner of a piece of land, and is the amount that ought to be paid to othersin the area for permission to hold the parcel, can be gleaned from thefollowing example.

Suppose there is an island with two pieces of farm land, each of the samedimensions. Call them "FarmA" and "FarmB." FarmA will grow no morethan one unit of food per year-enough for one person to subsist upon,though not comfortably. Farm B, a more fertile tract, will grow about tenunits annually. Let there be three people on the island: Abe (the owner of


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72 American Journal of Economics and SociologycA), Ben (the owner of B) and Cal (a tenant farmer). Ben charges Cal nineunits of food per year for the use of his farm; he cannot get any more sinceall that can be produced is ten units, and Cal needs one of these to live upon.The result of this arrangement is that Abe and Cal, two individuals who toilfor their bread, each survives on one unit of food each year, while Ben doesno work at all and thrives on nine units. This is the "tribute" that has beensaid to result from the institution of private landownership.

Now, if all the Ricardian rent on the island were paid into a fund anddistributedon a per capita basis to the residents, the working farmerswouldeach get four units annually-three from the fund and one for their labors,while Ben would receive only three units each year. This might induce Bento evict Cal and farm the land himself. The only result from such an actionwould be, of course, that Cal would be forced to live on three units insteadof the laborer's four. Clearly, neither a smaller nor a greater compensatorypayment would produce such an elegant result, and it should be equally clearthat an amount based on the market value of B would be far too low, giventhe lack of effective demand on the island.

Would such a system be fair? One way to answer questions of this type isto adopt what have been called "Rawlseanblindfolds,"6 to suppose, that is,that we are one of the residents of the island, but that we do not know whichone. Now, instead of considering the fairness of the island's compensatorysystem, let us consider whether we are likely to fare well under it. In thisway we may substitute selfishness and prudence for our fuzzier notions ofaltruismand justice. Since we have a two-out-of-three chance of suffering onthe island before the imposition of the compensatory system, and no chanceof suffering (in relevant ways) after the imposition, all but the biggestrisktakerswill approve of the creation of the fund. At first glance, therefore,the compensatory system seems more just than one requiring no payments.

We should be careful not to infer too much from this example, however.For one thing, similar results could have been engineered by the impositionof a 100 percent tax on all "unearned" income. Secondly, it is not always soeasy to determine the ground rent (or decide what portion of income hashad its genesis in land value). Thirdly, the sentiments of our "justice panel"might have been different if it were supposed that Ben had recently boughtFarm B from Cal at a price of 90 units of food. There are, that is, the familiarissues regarding those who have paid for their land out of saved, "earned"income. There are still other difficulties with this position, as we shall see.

Consider the following scenario on another island. Here there are threetracts of land, D, E and F. D is a lovely, comfortable piece of property with


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Libertarianism 73fruit rees,a comfortable ave, shade,sufficient reshwater,etc. It is the homeof Deb. E is less desirable. It has a trace of fresh water, one small apple tree,no comfortable cave. Eve barely manages to stay alive on E. F is totally barren:Faywill die there in a couple of dayswithoutwaterand shade from the sun.Onthis island here is, strictly peaking,no income-bearing roperty.We maysay that there is rent, however, f we understand"produce" o include anysort of utility "inhering"n the land. Such utilitieswill include the comfortproducedby shade, the healthfulness nd flavorof the fruitand so on. Letussuppose that D has a product (in this extended sense) of ten units, E aproductof one unit and F no productat all. The only way that the excessproductof D, nine units, could be paid into a fund on this island (if wesupposethe residents o have no other "income") s for a rotationmethodofland use to be adopted.Forexample,each day,a different esidentwould beentitled to use D. Thiswouldbe the only sort of waythatEvewould havethe ability o "pay" nto the compensatoryund.It seems, however, hat a rotationmethod of landholding,while perhapsthe only possibilityorimprovinghe lot of the residentsof our secondisland,is not a feasible approach o ownershipof residential eal estatein the actualworld.But, justas on the island, he fee simple ownershipof residential ealestate,no matterhow valuable he property n question,does not precludean inabilityo payinto a compensatoryund.Thisfact,thatthereare utilitiesinhering n landthat cannot be so easilycontributed s "excessagricultural roduct,"s one of the majorobstacles othe transformationf a compensatory ayment or the privilege of landown-ership nto a "landvalue tax"of the sortadvocatedby HenryGeorgeandhisfollowers.It is worthelaborating n this pointfor a moment.In callingforcompensatory ayments,we have not consideredhow it might comparewithcertain thersortsof payments, amely, axes.Oncewe considerourpaymentsas taxes,we mustconsidera numberof other criteriawhich formthe basisfordeclaring ne taxjustand anotherunjust,one prudent ndanother oolish.These so-called"canonsof taxation" requitewell known.Forexample,thetaxesone paysshouldbe inproportiono the servicesprovided hat ndividualby those who administer he tax fund. Taxesshould fall on individualsnproportiono theirability o pay.Taxesshouldbe suchaswill notdiscourageexpenditureof laboror capitalaccumulation.Taxes should be constructedthatcanbe cheaplyandeasilycollected.Etc.Obviously, hese maynotall beconsistentwitheach other.It is interestingo note thatwhile some contemporaryGeorgistshave heldthatland value taxes are neutralwith respectto investmentchoices, others


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74 American Journal of Economics and Sociologichave claimed that such taxes encourage capital investment and discourageurban sprawl7. (This can be explained if we suppose that two differentmeanings have been assigned to "neutrality" n this context.T is a neutral,tax on propertyP = Df. T requires a payment of the same dollaramountforthe valueof P regardlessof the investmentdecisions regardingP.According to this definition, land value taxes are neutral. However, in thissense a neutral tax is going to encourage certainkinds of investment decisionsand discourage others.

T is a neutral2ax on propertyP = Df. T requiresa paymentof the sameproportionof thevalueof P regardlessof the investmentdecisions maderegardingP.In this sense, an ad valorem property tax is neutral and a land value taxis not.)

Difficulties in determining the proper sense of "excess product" have alsoresulted in a number of dilemmas for Georgists. Does a valuable farm in ayear of drought have an excess product? If so, how will the farmer pay thetax?If not-and the tax must be paid only on land-generated income-howwill the tax discourage withholding or underuse? There is also the familiarproblem of correctly distinguishing improvement value from land value,especially where the "improvements" may be more permanent, resilient andeasily renewable than a particularnaturalresource or a propensity to grow aparticularcrop. Again, it has been argued by such theorists as MartinFeldsteinand A. H. Schaafthat, Ricardonotwithstanding, a tax on pure land rents is atleast partly shifted and that site value taxationcould create massive dislocationby raising rents and other housing costs in certain types of residential areas.8

Before leaving this issue, let us consider a third isolated island, this oneexisting in a future in which food products can be synthesized. Again, thereare three residents: Gus, Hal and Ida. On this barren, desert island, all theland is held in common by the three residents who live together in a littlecabin that is also owned jointly. The only other structure on our science-fiction island is a small factory where food can be synthesized from oxygenand salt water. Let us suppose that the factorywas bought by Gus' father andleft to Gus after the old man died. Gus hires Hal and Ida to run the factoryand pays them each a subsistence wage of, say, one unit of food annually.Gus lives in idleness and partakes of ten units of food each year. The pointof this ratherstrangescenario is to illustratethat with respect to the desirabilityof redistributing "unearned" income, it is not clear that properties naturallyinhering in land will exhaust the field of "increments." Hal and Ida might, ofcourse, demand a payment for the use of the air and water necessary to makefood in the factory, claiming such substances to be "part of their naturalheritage," but this would not be a land value tax. The reason for this is thatthere is "enough and as good" air and salt water to go around. Gus has in no


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Libertarianism 75intelligible sense "monopolized" any naturalresource; it is the factorythat ishere generating monopoly rents.

Henry George showed quite clearly that the "economic slavery"resultingfrom high rents could be quite as pernicious as chattel slavery, that "freedomof contract" does not do the landless any good if it is only the freedom toaccept tenancy at rack-rentrates. But what George and his followers havebeen less willing to admit is that an "economic slavery" of an equallyunpleasant kind could exist even if all land values, or indeed all land, wereheld in common. Just as a ratherabstract"right"to inhabit a piece of land atmutually acceptable rates may not do a prospective tenant any good, the"freedom" to work at offered rates or build one's own factory may not do aprospective employee any good. On our third hypothetical island an incometax would seem to be preferable to any tax involving land values.

IVAppropriation of the Unearned Increment of Property Values

WHERE DOES ALLof this leave us?The first moral is that our task of determiningto whom compensatory payments should be made and the amount of suchpaymentsshould not be confused with any questions about how any particularscheme of taxation is, or ought to be, constructed. Naturally,the individualsliving in a particularcommunity may decide upon the necessity of authorizingthe performance of certain services for their mutual benefit and of exactingtaxes to pay for these services. But there are, as we have seen, so manyintricate questions surrounding the appropriateness of different sorts oftaxation it would be wise simply to consider what sort of payments should bemade to members of the community by landholders. This inquiry should bepursued independently of any investigation into just taxation and fair govern-mental expenditure. We can take these payments as compensation for allowingthe landholders to continue to claim a certain bundle of rights over particularparcels of land. We will then not need to consider in our analysis such itemsas neutralityor proportionalityof payment to service rendered.

A second advantage in looking at the issue from this vantage point is thatwe shall not need to question how any particular andholder came to possesshis land. Thatis, we need not take up any questions about the "compensation"of landholders for the imposition of a tax which has been claimed to amountto confiscationof any expenditure made to purchase their land. If we correctlyfashion our payment system, all that landowners will have lost is the abilityto increase their wealth as a result of the performance of certain activitieswith their properties (e.g., speculative activities). But speculative withholding


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76 American Journal of Economics and Sociologyof land is no more intrinsic to the institution of landownership than is theright to fire a loaded gun in random directions at the theater instrinsic to theinstitution of gun ownership. John StuartMill argued that the community hasno right to any more than what is both unearned and unbought, but it shouldbe obvious that a payment made to an individual for the title to a piece ofland in no way discharges any obligation to compensate a community forallowing private landownership-an institution that may be detrimental tomost of the community members if no compensatory payments are required.

It seems to me that the best way to prevent the withholding of land fromuse for purposes of speculative sale and to compensate landless communitymembers for the encroachment on their access to employment engenderedby private ownership of land is a confiscation of any increase in the value ofthe propertyfromthe date of its most recent transfer.Inflationand depreciationshould be taken into account and an allowance should be made for any workdone on the propertyby the owner, including both capital improvements andsimple maintenance. Such a payment would not requirethe separateassessmentof land and improvements. Any increase in value not accounted for byinflation or expenditures upon the premises (in money or labor) could beconstrued as an unearned increase. The landowner has no prima facie rightto this increment and allowing him to keep it encourages a pernicious typeof investment activity.

The community members are those living in what might be called the"rentalarea" of the land in question. By "those living in the rental area" Imean all those of such proximity that the rent where they live could rise as aresult of the withholding from use of the parcel in question. Admittedly, it isnot always easy to determine the exact boundaries of a rental area, but theconcept is, I think, fairly clear. This conception requires that each memberof the rental area receives an equal portion of the fund created by thesecompensatory payments-regardless of the wealth of any resident, the servicesprovided to him by any governmental authorityor any other factor that mightbe relevant if we were considering taxes. There is nothing in this positionthat requires that "aliquot portions" of the world's land be bestowed onnewborns or that any particularcollective be construed as the rightful ownerof land in any given area.

It could be argued that there is still a kind of injustice in allowing aparticularrental area to "monopolize" any increases in land values that occurwithin its borders.9Afterall, if someone in area X accidentally discovers oil,that is a strictly fortuitous occurrence, and there is no clear reason why areaY should be denied its fruits. However, the compensatory scheme defendedhere is not a system for the redistributionof wealth-earned or unearned; its


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Libertarianism 77purpose is to discourage speculative withholding and compensate others forallowing the private use of particular parcels. It is true that one may stillspeculate in a sense, move into area X on the hunch that oil may bediscovered there so that one may at least share in the increase. But this sortof speculation does not seem to me harmful to anyone. Good fortune neednot be a zero-sum game.

One problem with compensatory payments upon transfer is thatthey wouldnot discourage the withholding of land for later use, rather than for later sale.Much natural resource land is so withheld. It would thus seem reasonable torequire owners of certain types of property to pay the "annualvalue" of anyunearned increase each year in addition to payment upon transfer. Theseproperties would be those that are, or could be (without zoning changes orthe like), income generating and were not occupied residences or land usedfor public purposes. Naturally, a credit would be given against the paymentupon transferfor any payments alreadymade by the owners of such "incomeproperties"so that no one would pay twice for the same increase. Here, onewould give "annualvalue" credits for improvements made on the premiseseach year, ratherthan crediting the full (capital) value of the improvements.This would be done both for building a new wing and for mowing the lawn.

The system I have outlined would end all speculative withholding of landimmediately upon its imposition (something that converting a municipality'sad valorumpropertytax to a land value tax would not do), and it would causeno massive dislocations (something thatconverting all taxes to a "Single Tax"on land values would do). I do not think it would be particularlydifficult toadminister. (There would be no problem of market values falling toward zeroor of determining whether a tree is an improvement or not.)

This compensatory scheme would not, however, accomplish all that a hightax on land values could accomplish. It would not, for example, redistributeany wealth on our first island. It is my view that the income tax, for all itsfaults, is a better mechanism for distributingwealth than a land value tax. Alook at our second island shows that we do not want a system that requiresthat all types of land wealth be redistributed into a fund, and a look at ourthird island shows that not all wealth thatought to be redistributed is reflectedin land values. Actually, a smattering of different taxes is probably the safestway to ensure that unearned income is distributed to those who are engagedin creating wealth. It is true that we have a prima facie right to our earnedincome that we do not have to the land we are said to own. But the perfectbeneficence of a "Single Tax" on land values does not follow from that fact.There are a varietyof so-called "naturalrights" that we wisely give up whenwe enter into society in returnfor "civil rights"and privileges.


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78 American Journal of Economics and SociologyThe position I have sketched differs in two main ways from the tax on

unearned increment made popular by Mill in the last century. First, there isno requirement that those living in the rental area offer to buy the land atmarketvalue from those landholders who are unwilling to make the payments.Mill felt such an offer had to be made so that those who bought their landunder the impression that they would be able to make a fortune in real estatewould not have the rules changed in the middle of their game. But if it is thecase that land speculation is harmful to the community and that there is nonaturalrightto engage in such activities, there is no good reason for protectingthe interests of even those who contribute only unwittingly to this evil.

The second main way in which the compensatorypaymentscheme proposedhere differs from Mill's is that, since it is not construed as a tax, it does notpreclude a payment of more than what is both unearned and unbought oncetaxes are imposed on top of the compensatory payments. That is, since thesepayments are required independently of any taxes, if the taxing authoritydecides upon a site value tax or an ad valorem tax or a tax on land-generatedincome for the purpose of, say, paying for police, the final amount paid tothe community for the privilege of keeping one's land would exceed theamount allowed by Mill. I find nothing unjust or otherwise untoward in thisresult.

Mill held that to insist upon taking large amounts from landholders andlittle or nothing from others for the purpose of defraying governmentexpenses would violate principles of justice. It could be argued, however,that Mill was less acutely aware of the harmful effects of taxes on labor andcapital than were George and his followers. If just taxes on wages and capitalcannot be devised and if there is a great disutility produced by even the mostnearly just collection of such taxes, then we should be willing to acceptlevies on land that are larger than what is both unearned and unbought tokeep these other taxes down.

VConclusion

IF THE ABOVEARGUMENTShave been correct, the libertarian defense of privatelandownership, as expressed in the work of Rothbardand Nozick, is not theonly possible defense. I have attempted to show that one might defend thisinstitutionwithout making reference to admixture or whole value theories. Itis important to recognize, however, that there is nothing in the notion ofprivateownership of some item thatmakes it inconsistent with the compulsorypayment of compensation for allowing its continuance. For both the purposes


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Libertarianism 79of stopping speculative withholding or underuse and of compensation forencroachment upon others' employment possibilities, unearned increases inreal property values should be turned over to those in the rental area eitherannually or upon transfer.

It may be argued against the position I have been advocating that it is not,in fact, accurate that all (nominal) increases in the value of an improved sitecan be attributed to work done on the premises, currency deflation andincreased land value. It is also possible that there be unearned increases inthe (real) value of the improvements. And, since I claimed above that thereis no good reason to take an increase in wealth away from an individualsimply because it was unearned, I ought to hold that we should assess landand buildings separately and allow individuals to retain all increases inimprovement value. Such an argument seems to me confused for a numberof reasons.

It is, no doubt, true that there may be (real) unearned increases in"improvement value." Consider, for example, the value of a house built by afamous architect who has recently died or a building made of a raw materialthat is now rare. As was illustrated by island three, however, "monopolyrents" may be imposed even where land is not a relevant factor. Thus, to theextent that the existence of such rents is harmful, it would seem to be wiseto prevent any further extension of them. Furthermore, a withholding fromuse of a building for speculative purposes (or the threatening to do so) maynot only have the effect of raising rents at similar buildings, it is also likelyto raise land rents in the area, for it is the lot of buildings always to besomewhere. So, if a building is withheld because of the lure of monopolyrents, the land it is on is likely to be underused as well, causing nearby sitesto become more dear. It is worth noting that neither a perfectly pure sitevalue tax nor a perfectly pure land gains tax would have the desirable effectof preventing this sort of increase in land rents.

Greater compensatory payments than those suggested here have beenendorsed by theorists as diverse as Thomas Spence and Harry GunnisonBrown. Henry George, perhaps the most eloquent of this group, once asked,

When the agent of the Irish landlordtakes from the Irish cottier for rent his pigs, hispoultry,or his potatoes,or the moneythat he gains by the sale of these things, it is clearenough that this rent comes from the earningsof labor,and diminishes what the laborergets. But is not this in reality ustas clear when a dozen middlemenstand between laborerand landlord? s it not justas clearwhen, insteadof being paid monthlyor quarterly ryearly,rent is paid in a lumpsum called purchasemoney?"0

But, we should ask George, is it not just as clear when, instead of being paidto a landlord, it is paid to the excise man? Is "trickle down" from government


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80 American journal of Economics and Sociologyreally so far superior to "trickle down" from landlords? There is no escapingrent, no matter what our system of taxation, but there is the possibility ofavoidingspurious rent-those artificial ncreases due to speculativewithholdingor underuse-and that should be our goal, since that alone robs individualsof the opportunityto use the earth. A "land reform" scheme of the sort beingattempted in El Salvador or a high tax on unearned income in conjunctionwith our proposed capture of unearned increases in property values wouldprobably have served the rack-rented Irish cottier better than a "Single Tax"(and the great difficulty of separately assessing land and improvements onagriculturalproperties would not have been an issue).

I have argued both for the continuance of the institution of privatepropertyin land and for compensatory payments to be paid by landowners. Both seemto me to be justified by the fact that they would tend to increase the total ofsocietal goods. Other limitations to land appropriation may be justified.Zoning restrictions and even redistribution systems of the sort now used inHawaii for certain kinds of residential properties (something whose consti-tutionalityhas been upheld by the U.S. Supreme Court) mayalso be consistentwith private property in land and even enhance its beneficial effects, as theCourt has perceived. Like ownership of firearms or automobiles, privateownership of land ought not to be allowed at all if it does not carry with itstringentand far-reachingrestrictions.

Notes1. WalterHorn, "Libertarianismnd PrivateProperty n Land:The Positions of Rothbard

and Nozick,CriticallyExamined,are Disputed,"Am. J. Econ. Sociol., Vol. 43, No. 3 (July,1984), pp. 341ff2. RobertNozick,Anarchy, State and Utopia (New York:Basic Books, 1974), p. 178.3. MurrayRothbard,Man, Economy, and State (Princeton, NJ.: D. Van NostrandCo.,1962), p. 149.4. HenryGeorge, A Perplexed Philosopher (New York:RobertSchalkenbachFoundation,

1965), p. 27.5. HenrySidgwick,Elements of Politics (London:Macmillan,1891), p. 68.6. See John Rawls,A Theory of Justice (Cambridge,MA.: HarvardUniv. Press, 1971),especiallyChapter3.7. Compare, orexample, the writingsof Daniel Hollandwith those of Dick Netzer.8. MartinFeldstein, "The Surprising ncidence of Tax on Pure Rent:A New Answer o anOld Question,"Journal of Political Economy, 85 (1977), pp. 349-58; A. H. Schaaf,"Some

UncertaintiesAbout the Desirabilityof Site ValueTaxation,"Tax Policy, 37 (1970), pp. 33-41.9. Thispoint was madeto me by DeborahScaduto-Horn.10. HenryGeorge, The Land Question (New York:Doubleday,1912), p. 24.

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Libertarian Ism and Private Property