Over the summer I read Henry George’s Progress and Poverty, and this chapter was one of my favourite sections. In it, George tells a story of a settlement and how land value increases without anyone working it – and by implication, why a land value tax is a good idea. Since the book is out of copyright and available online in multiple places, I’m going to give Henry George a guest post and reproduce it in full:
Imagine a vast, unbounded savannah, stretching off in endless sameness till the traveller tires of the monotony. The first family of settlers approaches and cannot tell where to settle – every acre seems as good as any other. There is no difference in location, fertility, or water. Perplexed by this embarrassment of riches, they stop somewhere, anywhere, and make themselves a home.
The soil is virgin and rich, the game abundant, the streams flash with trout. What they have would make them rich—if only they were among others. Instead, they are very poor. To say nothing of their mental cravings, which would lead them to welcome the sorriest of strangers, they labour under all the disadvantages of solitude. For any work requiring a union of strength, they are limited to their own family. Though they have cattle, they cannot often have fresh meat—to get a steak, they must kill a whole steer. They are their own blacksmith, carpenter, and cobbler; jacks of all trades and masters of none.
Their children can have no schooling, unless they pay the full salary of a teacher. Anything they cannot produce, they must buy in quantity to keep on hand—or go without. For they cannot constantly leave work and make a long journey to civilization. When forced to do so, getting medicine or replacing a broken tool may cost their labour and the use of their horses for several days.
Under such circumstances, though nature is prolific, the family is poor. It is an easy matter to get enough to eat. But beyond that, their labour can satisfy only the simplest wants in the rudest way.
Soon, though, other immigrants arrive. Though every acre is still as good as every other, there is no doubt where to settle. The land may be the same, but one place is clearly better than any other. And that is where there is already a settler, and they may have a neighbour.
Conditions improve immediately for the earlier pioneers. Many things that were once impossible are now practical – for two families can help each other do things one could never do. As others arrive, they are guided by the same attraction, until there are a score of neighbours around our first.
Labour now has an effectiveness that it could never approach in the solitary state. If heavy work is to be done, the community – working together – accomplish in a day what would have required years alone. There is fresh meat all the time. When one butchers a steer, the others share in it, returning the favour in their turn. Together they hire a schoolmaster. All their children are taught for a fraction of what it would have cost the first settler. And it becomes easy to send to the nearest town, for someone is always going. But there is less need for such journeys.
A blacksmith and a wheelwright soon set up shop. Now our settlers can have their tools repaired for a small part of the labour it formerly cost. A store opens, and they can get what they want, when they want it. A post office soon gives regular communication with the rest of the world. Occasionally, a passing lecturer opens up a glimpse of the world of science, art, or literature. And finally comes the circus, talked of for months before. Children, whose horizon had been only the prairie, now visit the realms of imagination: princes and princesses, lions and tigers, camels and elephants.
Go to our original settlers now and make this offer: “You have planted so many acres, built a well, a barn, a house. Your labour has added this much value to this farm. But after farming for a few years, your land itself is not quite as good. Still, I will give you the full value of all your improvements—if you will go with your family into the wilderness again.”
They would laugh at you. The land yields no more wheat or potatoes than before – but it does yield far more of the necessities and comforts of life. Labour brings no more crops than before – yet it brings far more of all the other things for which people work. The presence of others – the growth of population – has raised the productiveness of labour in these other things. This added productivity confers superiority over land of equal natural quality where there are no settlers.
If, however, there is a continuous stretch of equal land over which population is now spreading, it will not be necessary to go into the wilderness. A newcomer could settle just beyond the others, and get the advantage of proximity to them. The value or rent of land will then depend on the advantage it has: the advantage of being at the center of population over being at the edge.
As population continues to grow, so do the economies its increase permits. In effect, these add to the productiveness of the land. Our first settler’s land is now the center of population. The store, the blacksmith, the wheelwright have set up nearby. A village arises, becoming the center of exchange for the whole district. This land has no greater agricultural productiveness than it had at first. Yet it now begins to develop productiveness of a higher kind. Labour expended in raising crops will yield no more of those than at first. But labour will yield much greater returns in specialized branches of production – where proximity to others is required.
The farmer may go further on, and find land yielding as great a harvest. But what of the manufacturer, the storekeeper, the professional? Their labour here, at the center of exchange, gives a much greater return than labour expended even a short distance away from it.
All this difference in productiveness, the landowner can claim. Our pioneers can sell a few building lots at prices they would not bring for farming, even if the fertility were multiplied many times over. With the proceeds, they build fine houses and furnish them handsomely.
Or to state the transaction in its lowest terms: those who wish to use this land will build and furnish the houses for them. They do this on the condition that the landowners will allow the workers to avail themselves of the superior productiveness of this land – productiveness given solely by the increase in population.
The town grows into a city: a St. Louis, a Chicago, a San Francisco. Its population gives greater and greater utility to the land – and more and more wealth to its owners. Production is performed on a grand scale, using the latest machinery. The division of labour becomes extremely minute, wonderfully multiplying efficiency. Exchanges are of such volume and rapidity that they entail a minimum of friction and loss. This land now offers enormous advantages for the application of labour. Instead of one person farming a few acres, thousands work in buildings with floors stacked upon each other.
All these advantages attach to the land. On this land – and no other – they can be utilized. For here is the center of population: the focus of exchange, the marketplace, the workshop of industry. Density of population has given this land productive power equivalent to multiplying its original fertility a thousandfold.
Rent—which measures the difference between this added productivity and that of the least productive land in use – has increased accordingly. Our settlers – or whoever has the rights to the land – are now millionaires. Like Rip Van Winkle, they may have lain down and slept. But they are still rich – not from anything they have done, but from the increase of population.
Nothing has changed in the land itself. It is the same land that once, when our first settler came upon it, had no value at all. The vast difference in productiveness, which causes rents to rise, is not due to using inferior land. Rather, it is more the result of the increased productiveness that population gives to land already in use. This is how population acts to increase rent – as those living in an advancing country can see if they will just look around. The process is going on before their eyes. The most valuable lands on earth, those with the highest rent, are not those with the highest natural fertility. Rather, they are lands given a greater usefulness by population density.
We sail through space as if on a well-provisioned ship. If food above deck seems to grow scarce, we simply open a hatch—and there is a new supply. And a very great command over others comes to those who, as the hatches are opened, are permitted to say: “This is mine!”