Re: von Mises Institute on Henry George

From: Grinch (oldnasty_at_mindspring.com)
Date: 08/20/04 

Date: Fri, 20 Aug 2004 20:25:00 GMT

On Fri, 20 Aug 2004 10:48:09 -0400, "RueTheDay" <ruetheday@outgun.com>
wrote:

>"Socialism is a Mental Disease" <root@localhost.> wrote in message
>news:t03ci0p21hu3fdpsouno935t8i78pfqvmi@4ax.com...
>> On 20 Aug 2004 06:27:13 -0700, ruetheday@outgun.com (Rue The Day)
>> wrote:
>> >
>> >http://www.mises.org/fullstory.aspx?control=1592&id=71
>> >
>> >They praise him endlessly for his writings on free trade and
>> >protectionism, but then end the paper with a couple of sentences about
>> >how he was wrong on the land issue "because Rothbard said so".
>> >Classic.
>> >
>>
>> It's called references. Sometimes people used them:
>>
>> http://www.mises.org/rothbard/georgism.pdf
>
>Right. However, references are not a substitute for an argument.
>Furthermore, the Rothbard piece was laughable. He actually makes the claim
>that a land value tax will drive rents to zero and thus the land value tax
>will collect zero revenue.

Yeah, let's recap how ridiculous that claim is!

Any beginning econ textbook -- say, high school beginning level --
explains that *market prices* are determined by two groups of actors
in the market:

1) Potential buyers (or lessees) who bid a price to obtain an item
to be sold (or leased)

2) Sellers (or lessors) who offer said item...
    .. *and* who develop markets for said item by incurring effort and
cost to identify as many potential buyers as possible -- causing them
to bid up against each other, up to the true value of the item to
each, until one high bidder to whom the item is worth most is revealed
by a high bid.
    .. *and* who identify that high bidder, and allocate it to him in
exchange for the high price -- thus allocating the item through the
market to the party to whom it is worth the most.

Of course, sellers incur significant cost in doing all this, marketing
isn't free, neither is declining revenue for a period of time by not
making a sale to the first person who comes in and offers five cents.

Information is not free. Finding the buyer to whom something has the
most value, and is worth top dollar, isn't free. That's why real
estate agents are able to collect 6% from sellers, and car dealers
advertise, and sellers haggle.

But sellers are *profit motivated* and as long as such cost and effort
increases their net *profit* they are willing to do it -- and in the
process they identify and *select* the high bidder to whom the item
has the most value, to whom it is then allocated through the market
transaction, for an efficient, societally beneficial result..

Thus a "market price" is set. Algebraically it is seen in the stand
"X" supply-demand chart, with *profit motivated* sellers determining
the supply line, and "price" is the intersection point of the two.

Say, like this:
http://tfc-charts.w2d.com/learning/supply_and_demand.html

OK, we all know how that works.

Anybody disagree so far?

BUT NOW let us imagine a 100% profit tax is imposed on the seller on
all transactions, so no profit is possible.

Imagine, say, an auto dealer with a big inventory of new cars on the
lot at the time a 100% tax on all profit from the sale or lease of
cars is imposed.

Now his profit motive to bring cars to market is gone. *poof*

Is he going to pay to advertise the cars to find those potential
buyers and lessors to whom they are worth the most, and who would be
willing to pay the highest price? Is he going to pay marketing costs
for those cars? Is he going to make an effort haggling to get the
price up?

Why would he? His return from any effort is $0 -- that means any
effort is unreimbursed and creates a loss.

With $0 return from selling cars, why wouldn't he just walk away from
them? Well, probably not, because he can still get a personal return
by disposing of them to friends, the brother-in-law, and whatnot. The
cars will move off the lot one way or another.

But the seller has *zero incentive* to bring them *to market*,
literally.

Isn't it a little bit naive to think the *market price* of these cars
will be unchanged? ;-)

OK, so what do the lines in the supply-demand curve look like now?

The demand curve is still sloping down just as before.

But with increasing price there is no incentive from increasing price
to bring any of the cars sitting on the lot *to market* (because 100%
of rising price is taxed away, so the price to the seller effectively
remains $0). Thus the supply curve from the point of origin goes
straight up vertically.

Hmmm ... what does that indicate the new market price of cars is?

Let's say we're talking about the price of leasing a car.

With the supply curve going straight up vertically from the $0 price,
0 amount supplied at the point of origin, what can we say the
capitalized value of lease payments are, compared to before?

Do we still have a functioning market?

Now, for "cars" substitute "land". Is there a difference?

Some have in the past very naively contended that a 100% tax on profit
from land won't affect the market price of land in the supply-demand
equation because the supply of land is fixed. It is totally inelastic!
And there is no production cost!

Ah, but the supply of cars on the lot is fixed too, in the little
example above. It is totally inelastic! And there is no production
cost! Because the cars (just like land) have already been produced.

But their free market price sure as heck *changes* when a 100% tax on
profit from the sale of them is imposed. You can bet on that!

This ain't rocket science. ;-)

When determining market price, it's not the total existent supply of
anything that is reflected in its price as determined by the
supply-demand diagram -- it is the amount of supply that is brought
**to the market and marketed** by sellers.

And that amount is *most definitely* affected by the profit motive
that exists for doing so.

If there is no profit motive, so the supply line goes straight up from
the origin, well then .... ;-(

If you want to see "hoarding" of land, just set the incentive for
bringing it to market to $0 (or negative). Duh.

>Rothbard should have stuck with playwriting.
>His, "Mozart Was a Red" piece was very entertaining.

Yeah, it is something when people get just full of themselves and go
on and on as if they know so much more than they do, eh?

And it's laugh out loud funny when the very simple, self-evident,
duh-quality (!) observation that:

"free market prices depend on having *profit maximizing* sellers who
(1) work to maximize bids up to a market price, and (2) select high
bids to maximize profit "
 
... is met with something like...

>False.

> When I sell stock, I just accept the high bid.

ROTFL ... it's been months and I still can't get over it. ;-)

But it is exactly on point here.

And very instructive as to the post-neo-Georgist point of view.

Relevant Pages

  • Re: Greedy Bastards.....
    ... market price, ... but it's not like the dealer down the street or the next town over can ... in and supply more cars at a lower price to undercut the dealers charging ...
    (rec.autos.makers.ford.mustang)
  • Re: OT Dims want to raise gas prices!
    ... It's not that there's "nothing wrong" with making a profit, ... Assuming the markets are free to operate, the price of grapefruit is ... The oil speculators we're talking about are different. ... There's a futures market in pork bellies, which is also absurd, ...
    (alt.autos.toyota)
  • Re: OT Dims want to raise gas prices!
    ... They aren't "meddling", they are trying to make a profit, and they ... meddle in the price of important commodities, ... investors are in no way connected with the oil industry. ... There's a futures market in pork bellies, which is also absurd, considering ...
    (alt.autos.toyota)
  • Re: Music: Rent Vs Own
    ... In a free market economy, the owner of a product, sets a price. ... The prospective customers have the right to accept the price, reject the price, or try to negotiate a lower price. ... the new cars produced would cost nearly as much to make as the cars currently produced; is there a market for twice the number of cars at the same unit price? ... Prices are set at arbitrary levels, because for any given recording there's only a single source. ...
    (comp.sys.mac.advocacy)
  • Re: Music: Rent Vs Own
    ... In a free market economy, the owner of a product, sets a price. ... The prospective customers have the right to accept the price, reject the price, or try to negotiate a lower price. ... the new cars produced would cost nearly as much to make as the cars currently produced; is there a market for twice the number of cars at the same unit price? ... Prices are set at arbitrary levels, because for any given recording there's only a single source. ...
    (comp.sys.mac.advocacy)
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