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Land, Location and Property.

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Richard Glover

Joined: 29 Sep 2008
Posts: 185
Location: Ealing, London, UK

PostPosted: Mon Oct 04, 2010 8:51 am    Post subject: Land, Location and Property. Reply with quote

What follows is an introduction to the question: Can we trace a relationship between property income (broad definition) and the economic rent of land?

Land is utterly essential to our existence. Our bodies have been made from and are sustained by the products of land. For a particular purpose, some land is more advantagous than others, giving rise to economic rent of land. Ricardo expounded this with great clarity and formulated the law of rent, albeit in an agricultural context.

Land can helpfuly be considered as being the whole physical world, extending as far as we wish to the whole universe. It then includes gravity, sunshine, and minerals under the arctic or in the moon.

Location has a great significance in the success or failure of any enterprise in today's rather complex society. The benefit of a particular urban location depends signifcantly on the surrounding community and communal facilities. This can easily swamp any inherent benefit from the land; however there would be no benefit at all without space to be, air to breath, and light, warmth, food and water to sustain; we should not forget firm substance to stand on! Although these can be found anywhere, there is considerable added value when within a community.

The split of 2009 UK national product was between the self-employed (6%), compensation of employees (53%), corporation operating surplus (30%) and (essentially) VAT (11%). "Corporation operating surplus" is defined as operating profit + profit from property income. I would argue that "operating profit" is also a form of property income. Corporation operating surplus covers shareholder income, landlords rent, patent royalties and similar; anyone with some form of property right.

Thus a significant part of the national product is "property income". This is very carefully defined and highly visible. Although the quoted statistics include taxation, this should not alter the general picture.

Today's crisis is not seen as a land value taxation crisis by most people or by most economists. Yet I suspect that much of the above property income is founded in the economic rent of land, and probably much of the taxation is as well.

So we get back to the question: Can anyone trace the relationship between "property income" (as indicated in GDP), and the economic rent of land?

Of course, an equally acceptable response is the argument that demonstrates this question is irelevant!
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Peter Bowman

Joined: 02 Nov 2008
Posts: 27
Location: London, UK

PostPosted: Thu Oct 07, 2010 8:36 pm    Post subject: Reply with quote

In the late 1940's an economist named Leon MacLaren wrote a book entitled Nature of Society. The first part follows Henry George's arguments on the laws of rent, interest and wages quite closely. It examines the fundamental division of "wealth" into "rent" and "wages". In the second part of the book the author deals with "secondary claims on wealth" and shows how, in an economy with all land enclosed, the economic rent of land is taken by various claimants. These secondary claims include tax, business rates, interest on loans used for investment in capital a landlord's claim and profit. You may find this analysis helpful in establishing the relationship you seek between property income and economic rent of land.

For example this analysis reveals that for owner occupiers (e.g. large supermarket chains) what is recorded as profit includes the landlord's claim to the economic rent since it is retained and not paid to a third party. By comparison a competitor that was equally efficient but did not own the site it occupied would appear less profitable in its company accounts because of the obligation to pay a landlord his claim.

In the former case the profit includes an element of property income whereas the latter case it would not.
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