XX.—WHOSE SHOULD BE THE UNEARNED INCREMENT?
There is a school of politicians which reply to all such proposals as have been sketched for practical land reform: “They do not go far enough, for they would merely transfer the unearned increment from the present freeholders to the present leaseholders, and we want it transferred to the community.” This “unearned increment” is a matter of which we are likely to hear a deal in the immediate future, for since John Mill stated the theory it has been much talked of, and to-day more than ever. It is sometimes contended, in fact, that, supposing all the projected reforms carried and in full and untrammeled action, “the absorption of the unearned increment by private individuals would perpetuate an evil which would swallow up whatever good those reforms might have a tendency to bring about.”
What then is the theory upon which so much may depend? It cannot be better stated than in the words of Mill:—“Suppose that there is a kind of income which constantly tends to increase, without any exertion or sacrifice on the part of the owners: those owners constituting a class in the community, whom the natural course of things progressively enriches, consistently with complete passiveness on their own part. In such a case it would be no violation of the principles on which private property is grounded, if the State should appropriate this increase of wealth, or part of it, as it arises. This would not properly be taking anything from anybody; it would merely be applying an accession of wealth, created by circumstances, to the benefit of society, instead of allowing it to become an unearned appendage to the riches of a particular class. Now this is actually the case with rent.”
When Mill’s “Principles of Political Economy” was published, this theory of the State absorbing, in whole or in part, the “unearned increment” of the land, was regarded by many as so utopian that it was put aside with a scoff, and was thought to have been settled with a sneer. But it has struck deep root into many a Radical mind, and those who believe in it ask it to be shown how it is either dishonest as a theory or would be impossible in practice.
There need be no attempt to do either, for Mill himself made an important restriction in his definition of what should be done which relieves it from the stigma of dishonesty or impracticability. He believed that “it would be no violation of the principles on which private property is grounded, if the State should appropriate this increase of wealth, or part of it, as it arises.” It may be agreed that the State could fairly appropriate a part of this increment, and this might be done by means of taxation. But that is a very different matter from taking the whole.
One who argues in favour of the latter plan, submits this contention:—“The area of a county, for purposes of illustration, may be taken as a fixed quantity. Now, the demand for land will increase, and as a corollary the price of land will rise, exactly in proportion to the increase of population. This additional value is not brought about by either independent industry, ingenuity, or the outlay of capital on the part of any private individual: it is a growth entirely due to the increase of the community: it is of enormous value, is extracted from the dire necessities of the whole population, and goes into the pockets of private individuals who have never done anything to create it.”
But does the illustration hold good whether applied to such a limited area as a county or to the country at large? It is not the case that the demand for land increases and its price rises exactly in proportion to population; and it is as little the case that its increased value, if any, is “extracted from the dire necessities of the whole population.” For while the number of our inhabitants is increasing, the value of such land as ministers directly to their wants in the provision of food and clothing is decreasing. If all the bread that is eaten, beef that is killed, and wool that is worn, were raised within these shores, there would be a semblance of truth in the illustration; but we have left the days when we lived on our own produce far behind, and the British farmer would only be too happy if the picture thus presented were even approximately like reality.
It may be replied that bread and beef and wool do not exhaust the catalogue of men’s requirements from the land; and they do not, for we require plots upon which to build, and good houses are just as necessary as cheap food. But even where land is made more valuable by its becoming used for building purposes, is there any justice in either the State or a municipality taking the whole increased value? Let the case be that of a man who thinks that he sees a chance of a town expanding, and who purchases a piece of land which will be of little use to anybody unless his idea proves correct, but which will bring him a good profit if he has skilfully foreseen. Why should he not be as fairly paid for his skill and foresight as if he had bought a house on a similar belief? The reply is, “The quantity of land is limited; that of houses is not;” but that is only true up to a certain and very definite point; and with the reforms which have already been suggested, and with a fairer system of taxing the land, the community would gain all it could fairly ask.
My contention, shortly put, is this—That the State has a right to share in the increased value of all property, landed or otherwise; and that, in the case of land, it has an additional, though limited, claim, because of the conditions upon which that commodity passed into private ownership. Those who work for wages have to pay income tax immediately those wages touch a certain point; as they rise, so does the payment increase; and, after a given amount, the tax is proportionately much heavier. Why should not the same principle be applied to income of every sort from land as to income of every sort from wages, profits, or invested capital?
It is not so at present, as a study of the land tax will show. Nominally that tax is four shillings in the pound on the full annual value, but actually what does it stand at? It was fixed by Parliament in the seventeenth century, the semi-owners of the land, who had held their property under certain weighty conditions of contributing military strength to the King, and who had managed by degrees to slip through their obligations, agreeing thus to tax themselves as a compensation for the burden that had been lifted from them. But in 1798 it was enacted—by a Parliament in which practically only landowners were represented—that the valuation upon which the tax was to be paid should be that of 1692, when on its then conditions it was first levied. And the consequence is that, although this later Act directed that it should be assessed and collected with impartiality, in parts of the country which have stood still the tax now is not far from the original sum, while it amounts in the immediate neighbourhood of such a city as Liverpool to about a fifth of a farthing in the pound. It may not be feasible, because of the manner in which much of the impost has been “redeemed,” and it might in some cases be unjust, to raise the land tax at once to four shillings in the pound on the valuation of 1888 instead of 1692; but the same Parliament which put the clock back has the power to bring it up to the proper time; and, at least, something could be done to lessen the loss the State is now made to suffer.
There is another way in which landowners could justly be called upon to pay a portion of the unearned increment to the State, and that is through the taxation of ground-rents. This is a point which keenly touches the towns, and deserves the early attention of Parliament. At present the great ground landlords escape their fair share of the burdens which fall heavily upon those who take their leases. And, so certain are some of them that the taxing time will soon come, that they are already selling a portion of their town estates, so as to “get out from under” before that period arrives.
It may therefore be submitted that, with a fairer land tax and the taxation of ground rents, we should secure to the State the proportion of the “unearned increment” to which she is justly entitled. Those who would go further must be prepared to prove that property in land is so different in every essential from all other kinds that it would be honest for the State to absorb the whole unearned increment of the one, and to levy only an income and property tax on the other.