RECONCILING PROPERTY IN LAND
WITH CLASSICAL LIBERAL THOUGHT
Spencer Heath MacCallum
Property in land has long been a conundrum for classical liberals and libertarians and for many a downright embarrassment: it appears to them to be the one case in the free market where there is a free lunch--land owners getting a free ride collecting rents for doing nothing. The early classical-liberal economists said little about property in land, and what they did say was negative. How did this embarrassment come about--and is it justified?
Historically the stage was set by the close association of land ownership with political government and the excesses of the ancien regime. Before the 18th century in Europe, land and state were as one; whatever political power there was, land owners exercised it. This was not the case worldwide, but it certainly was the case in Europe. With the revolutions of the 18th and 19th centuries against the ancien regime, however, there came about in Europe a separation of land and state. For whatever fortunate reason, the noble classes were stripped of political authority without dispossessing them of their lands. Their ownership of land was left largely intact. Subsequently the law courts struck down feudal restraints on the buying and selling of land--restraints such as primogeniture and entail--leaving land as freely exchangeable in the market as anything else. The separation of land and state was complete.
This separation of land and state was possible because industry and commerce was becoming a greater producer of wealth than agriculture. Agriculture had been the mainstay of the economy, but with the incipient industrial revolution, commerce and industry now were coming to be. Taxing commerce and industry was on the way to becoming a better means of financing government.
But the stigma of land ownership from its association with politics survived long after the revolutions that overthrew the old order based on land. Doubtless it was this stigma that made John Stuart Mill and others of the English classical liberals, in particular, distrustful of the institution of property in land.
Locke's Labor Theory
There was also a theoretical dimension to the problem, the gravity of which only became apparent much later. Property in land could not be reconciled with
John Locke's labor theory of ownership. This theoretical issue might have been addressed and solved but for the general classical-liberal suspicion of land. As it was, it was ignored. Once again, we look to history for perspective.
With the first significant growth of commerce and industry in the 17th and 18th centuries, especially in England, a fledgling middle class had begun to emerge, and this fact had not for long escaped the notice of the king and his tax gatherers. In the growing confrontation with a king who justified his rule by an impressive theory of divine right, the new middle class needed a countering doctrine. They found it in an alternate doctrine of right which had been lying around, not very much used, since at least the time of Cicero. This was a theory not of divine, but of "natural" rights--or rights according to reason. Natural rights theory said a person has a property in his life, from which it follows that he must also have a right to have property in things needful to sustain his life. So far so good.
John Locke was the great theoretician of the middle class in this confrontation with the king. Out of a proper regard for his own life, he kept his role secret, hiding for a time his authorship of his famed Second Treatise on Government (1691) from even his family. Locke developed and perfected the natural rights theory that one's own life and labor are one's natural property. But then he went a step further and propounded a special argument to justify other kinds of property. This was his labor theory of ownership, which holds that property is justified by virtue of someone having "mixed his labor" with it or having peacefully acquired it from someone who had. Thus property, he said, being compounded of one's labor and thereby an extension of one's personality, or self, comes under the same natural right as life itself.
Bear in mind that the middle class was chiefly made up of people to whom the notion of "mixing one's labor" had direct appeal because they were laboring people--manufacturers and traders--rather than land owners whose wealth came from rents. Moreover, it served them well in their struggle against the king. No one was inclined, therefore, to look too deeply into this appealing theory.
The theoretical problem is this: since land and natural resources aren't man-made, they don't come under Locke's labor justification. Does that mean that land is not property? Thinkers of the day chiefly represented the bourgoisie rather than the landed interests and were not really concerned with this discrepancy. They devoted little time to thinking about land. As a matter of fact, as pointed out by Bethell, there was little examination at all of the foundations of property.1 The classical-liberal writers seemed to take it for granted.
The logical inference from the labor theory of ownership was that if land is not property, yet is bought and sold, then it must be something else masquerading as property. That something else could only be monopoly privilege enforced by the state. Remove that government enforcement and presumably--unlike authentic property which is social and customary--property in land would not stand but would atrophy and disappear. Karl Marx and Henry George were two who took Locke's labor theory to its logical conclusion by demanding in the name of justice that such privilege be abolished. The first plank of the Communist Manifesto of 1849 called for the abolition of property in land, and this would continue to be a prime tenet of Marxism. The greatest of all exponents of this view, however, was Henry George, whose plan essentially was to tax ownership of land out of existence. "Justice the Object--Taxation the Means" was the title of one of his pamphlets.2
Henry George was a man of contradictions, in many respects socialist, in other respects not. Undoubtedly he was the most compelling writer and orator on behalf of free trade who ever lived. At the same time, his position on land went far toward making Marxism credible; but for George, Marxism might never have got off the ground.3 Henry George's crusade against property in land caught the attention of the world like a meteor, drawing to the cause a vast train of luminaries including such prominent names as Leo Tolstoy, Winston Churchill, Sun Yat-sen, Theodore Roosevelt, Louis Brandeis, John Dewey, Albert Eistein, Helen Keller, Woodrow Wilson. At the height of his crusade, in 1897, Henry George died in the heat of a political campaign to become mayor of New York City. His followers tried to carry on without him, but by the end of World War I, his political program had failed. But his message had been heard: ownership of land is unjust.
The message, already implicit in America's distrust of European landed gentry and fueled by stories of tenement landlords, Western land grabs and the Irish Question, now became explicit as never before in American culture. It manifested in such diverse ways as the game of "Monopoly," originally designed by Georgists to teach the evils of landlordism, and the adoption of the phrase "rent-seeking" as a technical term in economics to mean attempting to get without giving.4
To the extent that it undermined the legitimacy of land ownership in the popular and academic mind, Henry George's influential campaign against property in land paved the way for a new pattern in 20th century politics, namely, the undoing of the separation of land and state which had been achieved two centuries earlier.
Reasons for undoing the separation of land and state have had little to do with revenue and much with power. This new turn in American politics has been an integral part of the process of extending and increasing the power of the state throughout the 20th century. The gradual--and seldom opposed--resumption of political control of land during this century has come about through a wide range of policies including zoning, urban planning and urban renewal, the worldwide promotion of so-called "land reform," the broadening of eminent domain and, more recently, the environmental movement and United Nations World Heritage Sites and Biosphere Reserves. Now at the end of the century a confrontation is building with respect to ranch lands in the Western states. But more general resistence is hobbled because proponents of freedom--classical liberals--hesitate closing ranks, sensing a need but not knowing how to defend property in land. Such inaction is fast becoming their bete noire.
The classical-liberal failure to adequately address the nature of property in land has thus had the effect progressively of turning back control of land to the state by default. Clearly what is needed is a new perspective--a new way of looking at things.
Science and Observation
When Dr. F.A. ("Baldy") Harper founded the Institute for Humane Studies in 1961, he hoped to prepare the way for new breakthroughs in ways of looking at men and their relations in society. Anticipating the development of an authentic science of human social phenomena, he hoped to create in the Institute for Humane Studies an environment of inquiry that would be conducive to such breakthroughs. What would such breakthroughs entail? Well, for one, science is first and last based upon observation. Secondly, it is not an individual but a collective effort in that it depends upon peer review and replication of results by others. This requires at the least communicating accurately one's observations. Consensus in science is only possible when all parties know that they are observing the same thing. How do we describe what it is that we are observing in such terms that others can be confident that they are observing the same thing that we are?
The physicist Percy Bridgman addressed exactly this question in physics. In his book, The Nature of Physical Science, he gives a lucid discussion of the need for operational definitions of the basic concepts of a science.5 Operational definitions are definitions so constructed that anyone, by performing a certain number of procedures or operations, can communicate unambiguously the observation at hand despite differences of individual experience and expectations and subtleties of translation between languages and cultures. If this is difficult in the physical sciences, how much more so it must be in the social field! One of the challenges confronting social studies is how to operationalize its basic concepts.
Among those persons who have made some useful suggestions in this area is the late Spencer Heath (1876-1963), a social philosopher and close associate of Baldy Harper as well as a friend of Percy Bridgman. Two of the concepts he dealt with are particularly relevant to our talk this evening concerning property in land. These he designated by the terms "property" and "capital."
In the lexicon of the social sciences, certainly one of the most basic terms is "property." Yet what a range of meaning that small word covers! Spencer Heath transcended the controversy surrounding the subject and arrived at a definition that clearly communicates his observation, making it possible for a consensus to form among any number of people with respect to what it is they are looking at. He defined "property" simply as anything that can become the subject matter of contract. Implicit in that definition are all of the essential attributes of property required for a person to enter with confidence into a contract with another. Mere possession, for example, does not qualify. Heath has given us an operational definition by referring to specific behavior which can be observed.
The difference in outlook is significant. Where the early classical liberals, following Locke, looked at property as an extension of one's life to which one has a right vouchsafed by nature and therefore is entitled to defend--a good enough line of talk for anyone fighting with a king--Heath looked at it as a naturalist might, describing the behavior and asking what are its functions in maintaining the organization, or process, in which it occurs. Not justification, but understanding.
Ownership is worlds apart from merely animal possession, or territory, which an individual alone must defend. It consists of more than a claim, regardless of what the claimant might invoke for his justification. Ownership has a social component to it. The convention of property is a social covenant and, curiously enough, the sense of the covenant can be understood in terms of the several permutations of the English word, "to own"--which in the eighteenth century was the same word as "to owe." The parties to the covenant are owners not merely because they claim uncontested jurisdiction over certain specified resources, but because they own, or confess or acknowledge--in the sense of "own up"--that they owe the same courtesy to other owners with respect to their claims similarly made and socially acknowledged. They stand as witness to and defend such claims of others as if they were their own. The result is what Alvin Lowi felicitously calls a "covenantal community," which is prerequisite to human social living.6
Heath observed that this uniquely human means of reconciling the use of scarce resources is universally practiced in human society, without distinction as to the kind of scarce resource, whether tangible or intangible, natural or artifact. He found no human propensity to treat land and natural resources as a special case; in terms of how humans behave, these are as much property as any other scarce resource. With respect to observed human behavior, he found no grounds for distinguishing between property in land and property in other things.
The concept of capital builds on that of property. While the convention or covenant of property, as we have just seen, provides the static, structural precondition of human society, the mutually covenanted fences, the limits, the socially acknowledged jurisdictions or domains wherein each can make decisions and take action with confidence that he will not be challenged, such a covenant alone does not constitute human society. The dynamic functioning of society consists in people exchanging with one another--serving one another, both materially and spiritually. Society is not a condition or merely a collection of people, but a process; it is a process of wealth creation by initiating and reciprocating services.
Hence we commonly speak not of property alone but of property and contract. The covenant of property makes contract possible, the drawing together (Latin contrahere) or "meeting of minds," to use the old Common Law phrase, whereby people transcend the merely static covenant and agree how they shall serve one another in specific ways that each wants to be served. This is a creative relationship; each by specializing can produce a surplus over what he could produce for himself alone, and hence wealth is created. We can't each one of us pull himself up by his own bootstraps very far, but there is no end to how far we will rise when, by turns, each pulls on his neighbor's bootstraps and his neighbor pulls on his.
Capital is commonly thought of as tools--anything used to create wealth, including other tools. But this idea alone lacks social context; Crusoe on his island employed capital by this definition. Spencer Heath, on the other hand, asks how wealth is created in a social context. He concludes that it is by individuals specializing and serving others in ways that induce a voluntary return. As a concept appropriate to the social sciences, therefore, capital, as contrasted with consumer goods, consists of property that is being administered in a certain way. It is property that is being employed not directly for one's own benefit, but in serving others. He gives a humorous example:7 A tobacconist has a selection of cigars in glass humidors displayed for sale. They are capital because they are being offered to others. He decides to have one himself, selects one from one of the humidors and puts it in his vest pocket to smoke on his lunch break. That cigar which he selected is no longer capital; now it is a consumer good. Before the tobacconist goes to lunch, however, he decides he won't have a cigar after all. He takes it from his vest pocket, puts it back into the humidor. Now it's capital again. Like Heath's treatment of 'property," this is an operational definition. It is easy to apply a simple observational test. Capital may be administered in the service of others directly, as in the case of a retail inventory, or indirectly as in the case of a machine tool and the factory that houses it.
Thus we have from Spencer Heath a somewhat new way of looking at property and capital--new, in the one case, in the sense of being derived more closely from observed behavior than from subjective speculation about inherent rights and, in both cases, taking more explictly into account the social context of the observed behavior. What does this new vantage point prepare us to learn about property in land?
The Progression of Civilization
The progress of civilization may be gauged by the degree to which property is administered as capital--the extent to which it is administered in the service of others and only indirectly for the benefit of the owner. Where exchange is little developed, people have little option but to fend for themselves--to provide for themselves and their kin and hope they can be self-sufficient. Under such conditions property itself is scarce--and very little of what property exists is capital. As exchange becomes general, however, and people are more and more occupied in serving and being served, property not only becomes more abundant but increasingly takes the form of capital. Out of the growing abundance of wealth that ensues, technology and the aesthetic arts flourish and people exercise more choice over their life, enhancing alike the quality of their individual life and that of the social environment. The enriched social environment in turn affords a still broader scope for the exercise of choice, and there is no apparent end to this process.
Now let's trace this progression in the case of a particular kind of property, that of land. Out of a predominantly agrarian society in the eighteenth century, where most land was agricultural and was worked by self-sufficient farmers, there has gradually evolved an exchange society in which--like other forms of property except that we are not as predisposed to see it--land has come more and more to be administered for the use of others as productive capital.* Whenever land is leased to others or is the site of any
*This statement flies in the face of the argument of Henry George, for whom
land was not and could not be capital as he used the term. His argument was
that the land owner performs no service because he has expended no labor in
making land. Therefore when he rents or sells it, the benefit is all one
way; no value is created, but rather value is drained from the land user,
who thereby becomes the victim of legal monopoly, or privilege. The hidden
error lies in thinking that that which induces a voluntary recompense in
any exchange of property is the accumulated labor, or "services," expended
in making something. This labor theory of value has been largely discarded
in favor of Austrian subjective value theory.
The service performed by any owner in the act of selling is his transfer of ownership over the thing in question. His ownership is evidenced in his title--literally his entitlement to the property--which is precisely what it is that he conveys. Conveyance of the thing itself would only give possession, and precarious possession at that; it would not give "quiet," or unchallenged, possession, to use the term at Common Law. The security of quiet possession is obtainable only in a transfer of ownership. The service performed by an owner at the point of sale is thus entirely psychological and social, and this applies whether the property in question is tangible or intangible, natural or artifact. At all other times the owner performs what may be called a standby service, but for this he receives no recompense, value arising only at the point of exdchange. The service that induces the buyer to give value is the service the owner performs in the act of transferring his ownership to the buyer, and the value of that service is of course the buyer's subjective determination. The owner of land performs this service in the market exactly as does the owner of any other kind of property.
Land as Productive Capital
Land, in the sense of space, or location, is fundamental to our very existence. We all occupy space, and by extension everything that we undertake to do has a spatial dimension. Social or community living has spatial considerations of its own. Whenever the space we occupy is contiguous with that of other people, questions arise such as how to provide and apportion the cost of common services, how to coordinate activities so as to optimize the external effects that inevitably come into play, and so forth.
One means of meeting these needs of community living is the pattern or formula, undoubtedly as old as settled human society, whereby an individual is accorded the land distributive authority over an area and parcels it out to users in such a way as to optimize their productive use of the land--receiving value in exchange for his distributive and management services. Normally the value received for these services is a portion of the resulting productivity on the site--productivity that would have been impossible without the security of tenure, or "quiet possession," realized through his allocation according to the covenant of property.
This pattern obtains in kinship societies, in which exchange takes place through the idiom of the gift. It obtains in manorial societies where kinship has given way to incipient contractual arrangements. It obtains in modern urban society wherever we have what is called in real estate parlance a "multiple-tenant income property" (MTIP) such as an inn or a hotel, an apartment building, an office building, a medical clinic, a science research center, a marina, a theme park, a shopping mall, a restaurant, a theater, a plane, a train, a ship at sea. When we consider also the combinations and permutations of these and still others, the number of types and kinds and possibilities of MTIP approaches infinity. In each, land is being owned and administered not for one's own consumption, to the exclusion of others, but as productive capital, which is to say, in the service of others as customers.
MTIPs have had their greatest development since the end of World War II. I sketched their history in a little book, The Art of Community, published some years ago by the Institute for Humane Studies.8 In that book I show that MTIPs are an extraordinarily recent phenomenon, the oldest member of the group, the hotel, dating only back to the Tremont House which opened in Boston in 1829. The Tremont House was a dramatic departure from its country cousin, the old medieval inn, and is universally regarded as marking the beginning of the modern hotel industry. Apartment houses also date from the nineteenth century, but less far back; the first apartment building to be built as such rather than being converted from a preexisting structure is said to have been completed in 1888 near Union Square, Manhattan. Office buildings date from around the turn of the century.
But the real growth and development of MTIPs has come in recent decades. Since mid-century many new forms have appeared including marinas, manufactured home (landlease) communities, motels, medical clinics, shopping centers and malls, office and research parks, and complex mixed-use developments. At the close of World War II there were less than a dozen shopping centers in the United States, none more than a small neighborhood convenience facility and all experimental. The name itself had yet to be coined. Today, shopping centers in the United States alone number well over 40,000 and range in size up to many millions of square feet of leaseable space--excluding the common areas such as access ways, parking lots and malls. Meanwhile hotels have grown in size and complexity to the point that some are virtually self-contained cities. In terms of population--guests, staff and daily visitors--many are larger than the City of Boston at the time the United States won it independence from England.
The dramatic growth in number, kind, size and complexity of MTIPs that has taken place in the 20th century is without precedent in human history. At the same time it has gone virtually unnoticed--neither described nor studied--by academia. The social sciences are virtually barren of literature in this area. Property in land is still largely ignored for all of the reasons we mentioned earlier.
Appraising the Significance of MTIPs
The great significance of multiple-tenant income properties lies in their resemblance to communities as we know them. A hotel, for example, has many similarities to a community: it has private and common areas; its corridors are its streets and alleys; its sometimes elaborately landscaped lobby serves very much as a town square; it distributes utilities; it operates a security system; generally it has shopping, dining, theater and other entertainment facilities; often it has many kinds of office and professional space, chapels, medical services. It even has a transit system--which operates more vertically than it does horizontally.
Consider the shopping mall, for another example. It has the same general characteristics as the hotel with some features uniquely its own. Rather than catering to a transient population, its clientele are established merchants comprising a retailing team which, like any team, requires leadership. That leadership is provided naturally by management representing the land owners of the mall. Such management finds itself in a position to provide authentic leadership, since it is both non-partisan and vitally interested in the success of the whole enterprise--absent which there can be no revenue to the land. This new entrepreneurial leadership, entirely foreign to the experience of merchants on traditional "Main Street USA," has become the underlying premise of mall retailing.
All or most of the infrastructure and management needs of MTIPs thus closely parallel those of communities. What opens the mind to a world of possibilities is the fact that all of these needs of MTIPs are being met, with increasing sophistication, through wholly free-market processes. None of the Byzantine panoply of politics--voting, taxation, burdensome regulation and licensing requirements, unresponsive bureaucracies, politically correct ideologies, inherent conflicts of interest on the part of the administrators, has any place in the operation of MTIPs, which are purely entrepreneurial, market phenomena.
Let me say parenthetically, to avoid a possible confusion, that the class of MTIPs does NOT include condominiums, planned unit developments or any other form of land subdivision. These represent consumer uses of land--owners serving themselves--and as such are not part of the movement toward the administration of land as productive capital. MTIPs have nothing in common with subdivision. Indeed, for MTIPs to subdivide their land would be to put themselves out of business.
MTIPs are the expression of a new kind of business, namely the business of creating and maintaining customized environment. They are in the business of developing, fostering, managing and marketing human habitat. The business is young as yet but has been proliferating new and specialized forms to serve new economic niches. At the same time, these specialized forms have been combining, as atoms of different types combine to form complex molecules, to meet the demand for less specialized, more generalized habitats.
The tantalizing question I will leave with you is this: At what point--if ever--might it occur to the developers of MTIPs that it would be but a small jump for their industry to develop and operate communities? Should such communities ever come about, they might be called "entrepreneurial communities"--perhaps abbreviated in common parlance to "entrecoms"--to distinguish them from conventional political communities. Entrepreneurial communities would provide vigorous competition for political communities such as the latter have never known in all their history.
Reconciliation of Property in Land
Although it may have served the rising middle class in its struggle with the king and his tax collectors, John Locke did posterity an enormous disservice in propounding the labor theory of ownership. That doctrine, as adopted uncritically by Karl Marx, Henry George and others and used to attack and discredit the institution of property in land, has led to no end of tragedy and mischief in the world and today poses a threat of no small proportions.
It is time for a full reassessment of property in land as a creative social institution. It is time to reassert vigorously the separation of land and state. It is time for economists to reconsider their use of the pejorative expression, "rent seeking," to describe attempts to get without giving. It is time to acknowledge the service that the owners of land, like owners of any other kind of property, perform in distributing title, or "quiet possession." For if it were not for owners, access to sites and resources would be precarious or non-existent--by force or favor of politicians rather than through the equitable processes we call the market. It is time, finally, to wholeheartedly acknowledge the productivity--the creativity--of property in land no less than any other kind of property when administered as capital in the service of others.
*This talk was presented at the Discussion Club, St. Louis, on January 14, 1999. Thanks to H.F. Langenberg and to George C. Leef, who suggested that I speak.
1. Tom Bethell, The Noblest Triumph (New York: St. Martin's Press 1998), page 9.
2. An address given in Metropolitan Hall, San Francisco, February 4, 1890 (available from the Robert Schalkenbach Foundation, New York).
3. This was F.A. Harper's opinion, although he felt he had not researched the question enough to write on it. He believed Marx had essentially given up his cause at the time of George's European speaking tour. The overwhelming success of that tour brought a flood of new interest in and support for Marxism. Personal communication to the writer.
4. The game of monopoly originally was named "The Landlord's Game" and was invented about the turn of the century by Elizabeth Magee Phillips and her sister (the Robert Schalkenbach Foundation, New York, is presently supporting research on this history). The term "rent seeking," was originated by Anne Krueger in 1974, was rapidly adopted, especially by the Public Choice school of economics, to mean attempting to get without giving, applied especially to the behavior of persons in government. The clear implication is that land owners' behavior is to be classed with governmental as opposed to market behavior. Economist Fred Foldvary has proposed as an alternative term, "transfer seeking" (personal communication April 23, 1997).
5. Percy W. Bridgman, The Nature of Physical Theory (Princeton University Press 1936), Chapter 2, "Operations," pages 5-15.
6. Personal communication.
7. Personal communication.
8. Spencer H. MacCallum, The Art of Community (Menlo Park, CA: The Institute for Humane Studies 1970).