(1) The handicap of ignorance must be removed by providing free education for all, to the point of enabling every one to develop efficiency in some vocation. Scholarships for the needy, the prohibition of child labor, and a high enough wage scale for adults to permit the youth of all classes to complete their education, are indispensable.
(2) The handicap of ill-health must be, so far as possible, removed by state support of mothers-so that children need not inherit a weakened constitution from overtired mothers, or suffer from want of care in infancy; by free medical aid to all; by strict legislation for sanitary housing, pure food, etc; by the provision of public parks and playgrounds.
(3) The possibility of exorbitant profits from industry (profits out of proportion to the actual contribution of the individual in skillful work, mental or manual) must be abolished, by one of the plans discussed in chapter XXVII.
(4) There must be abolition or sharp limitation of unearned incomes i.e., incomes for which a return to society in service has not been made by the getter. This is the step that is clearest of all theoretically, but the worst sticking point in practice. If we could persuade men that they should not reap where they have not sown, the gravest inequities of our present order would disappear. The sources of unearned incomes are, first, the "unearned increment" in land values; secondly, the "unearned increment" in the value of natural resources; thirdly, all interest on investment; fourthly, all wealth inherited or obtained by legacy or gift.
(a) Land in the heart of New York or London sells at fifteen million dollars or so an acre. The land value of Manhattan Island alone, the central part of New York City, is in the neighborhood of $3,500,000,000, and rapidly increasing. A few generations ago it was all bought from the Indians for $24. It is estimated that the "unearned increment" of land values in Berlin during fifty years has been between $500,000,000 and $750,000,000. What is true so strikingly in the case of these great cities is true, in lesser degree, of all cities and towns and villages that have grown in population. The total increase in land values in America since the days of the pioneers equals, of course, the present value of its land, since it was acquired by our forefathers without payment, or with only a nominal fee to the Indians. Almost all of this enormous increase in wealth has gone into the pockets of the fortunate individuals who got possession; very little into the public treasury. Our cities have remained terribly poor, always in debt, obliged to pass by many needed improvements and to impose heavy taxes on their citizens. Yet all this wealth (not counting improvements made by the possessor upon his land) has been socially created. Others have moved into the neighborhood, factories have been built near by, roads and railways and sewers and water systems and lighting-systems and police protection, and a hundred other things, have made the individual's land more and more salable. If our fathers had been wise enough to divert a large percentage of this increase in value into the public coffers, no one would have been wronged, but many private fortunes would today be smaller, and the entire population could have been free from taxation from the beginning, with plenty of money for all needed public works, including many that we can now only dream about.
It is easy to see what could have been done; to determine what should now be done is far more difficult. To try to regain for the public the unearned increments of past years would be an injustice to those who have purchased lands recently, at the increased prices, and even, perhaps, to those who have benefited by the increasing values, since they have regarded the increase as theirs and adjusted their expenditures to this added income. The best that could be done would be to take an inventory of all land values now, and provide for a recurrent reappraisal; then to take all, or a large percentage, of the increased value from now on. It would, indeed, be dangerous to attempt to take it all, on account of the extreme difficulty of drawing the line between earned and unearned increments; even the most painstaking and impartial decisions would be sometimes unjust. But to take half or two thirds of what should be deemed "unearned" would be practicable. Several modern States now take from ten to fifty per cent; and the percentage taken will doubtless increase. The objections to such a course are twofold. In the first place, it is pointed out that if the unearned increment of value is appropriated by the State, the State should recoup landowners for all undeserved decrements of value; it is not fair to take away the possibility of gain and leave the possibility of loss. So long, however, as our population grows, the State could afford to make good the comparatively few cases of decreased value and yet get a big income. The other objection is that the hope of winning the increased land values has been a great and needed incentive to the development of the country, and a legitimate compensation for the hardships of pioneering. But while this is true of the earlier days, it applies less and less to present conditions, and is hardly at all applicable to the profits made in city lands. On the whole, there seems little objection to the appropriation by the State henceforth of the unearned increments of land value. But the days of enormous increments are passing, and land will presently reach a comparatively stable value. So that this method of preventing inflated fortunes must be counted, on the whole except for new and rapidly growing communities a lost opportunity. [Footnote: H. J. Davenport, State and Local Taxation, pp. 294-303. F. C. Howe, European Cities at Work, pp. 189-207. Quarterly Journal of Economics, vol. 22, p. 83; vol. 25, p. 682; vol. 27, p. 539. Political Science Quarterly, vol. 27, p. 586. National Municipal Review, vol. 3, p. 354. F. W. Taussig, Principles of Economics, chap. 44, sec. 5.]
(b) What is true of land is true of the natural resources of the country-coal, minerals, oil, gas, waterpower, forests. These were seized, with a small payment or none, by the early comers, and sold later at a great advance, or worked for an increasing profit by the owner. Here, again, if the nation had maintained an inventory of these values and appropriated to itself all or a percentage of the increase in value (which results from the increasing public need of the resources and the limited supply, together with the increase in facilities for transportation, etc, rather than from the owner's labor or skill), many of our present gross inequalities in wealth would have been forestalled, and the community would be far richer in its common wealth. Add to the realization of this fact the sight of the reckless waste by private owners of such resources as can be wasted, and the present conservation movement is fully explained. The best that can now be done is to retain under government ownership such natural resources as have not yet passed into private hands, and to appropriate further increases in value of those that are privately owned. [Footnote: C. R. Van Hise, Concentration and Control, pp. 154-66. Outlook, vol. 85, p. 426; vol. 86, p. 716; vol. 93, p. 770; vol. 95, p. 21.]
(c) Practically all of the upper classes add to the incomes they earn by labor of hands or brain an "unearned" income derived from investment; i.e., from the willingness of others to pay for the use of their accumulated wealth or lands. A considerable class is thus enabled, if it chooses, to live without working. A great proportion of this wealth that draws interest was never itself earned by the possessors, in the stricter sense of the word "earned"; it has come to them by inheritance, by the increase of value of land or natural resources, or squeezed out of labor and the public by the unregulated profits of some autocratically managed industry or franchise. Is it expedient to allow this accumulated wealth to bring an income to its possessors? There are two possibilities: one goes with government control of private industry, the other with industrial socialism.
According to the first plan, income might still be derived from money in savings banks, from stocks and bonds, and from the rent of land and buildings. But it would cease to be a serious source of inequality. For if the unearned increment of land values and natural resources were deflected to the State, if none but moderate profits were allowed from industry; and if, in addition, the right of inheritance and gift were sharply curtailed, there would be, after a generation, no large fortunes left or thereafter possible. A man might receive by legacy a moderate amount of money, a little land or property; by working efficiently and living simply he might add continually to his investments and so come to have an income measurably beyond his earnings. But he could not get wealth enough for investment to be freed in perpetuity from the necessity of earning his living; and inequalities of wealth could not become very great; no greater, perhaps, than would be consistent with the greatest happiness.
According to the socialistic plan, since all industry would be run by the State, on state provided capital, there would be no demand for a man's savings except for purely personal uses, no stocks and no bonds, no savings banks, except for the safe deposit of money and valuables. All interest might then be forbidden; and a man would save merely for future use, or to pass on to others, not for the sake of drawing a further income from his savings. All rent must then in fairness be forbidden also, except such payments as would be a fair return for improvements made, buildings constructed, with the cost of repairs, insurance, etc. This would result in all land being owned by the users, and do away with landlordism. The unearned increment would be so widely distributed that it would be needless, for purposes of equalizing distribution, to bother with it, though it might still be appropriated by the State as a means of increasing its revenue. This scheme would make it impossible for any one to live without earning his livelihood, except during such periods as his accumulated earnings would tide him over. It would, indeed, lessen the incentive to saving; but if it were buttressed by the provision of fair salaries for all and by universal insurance against illness, accident, old age, and death, there would no longer be much need of saving. This social order would be eminently just, leaving only such inequalities in wealth as would result from the differences in productive efficiency of different men, coupled with a moderate right of inheritance. Its practicability, however, hinges upon the general practicability of socialism, which must remain for the present an open question. [Footnote: F. W. Taussig, Principles of Economics, chap. 46; chap. 66, sec. 5; chap. 64, radical change as this lies beyond the range of immediate possibilities]