Re: von Mises Institute on Henry George

From: RueTheDay (ruetheday_at_outgun.com)
Date: 08/20/04 

Date: Fri, 20 Aug 2004 17:21:39 -0400

"Grinch" <oldnasty@mindspring.com> wrote in message
news:c6mci0p1beu2qlnd2dln4dltec2f37c42i@4ax.com...
> On Fri, 20 Aug 2004 10:48:09 -0400, "RueTheDay" <ruetheday@outgun.com>
> wrote:
> 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.

If your formal training in economics extended beyond the high school level,
maybe you'd know how those supply and demand curves were derived. Clearly,
you do not.

> 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*

Right. Cars have a production cost, land does not.

> 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? ;-)

Of course it would be naive. The supply of cars is elastic. You just
wasted several paragraphs ranting about production and marketing costs and
the incentive for car suppliers to supply cars varying with the market price
of cars over a point on which I do not disagree with you.

> OK, so what do the lines in the supply-demand curve look like now?
>
> The demand curve is still sloping down just as before.

Right.

> 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.

Complete nonsense. A tax on the seller does not alter the slope of the
supply curve, it shifts the supply curve upward by an amount equal to the
tax; the slope remains the same. In the extreme case of 100% taxation that
you cite, the supply curve will intersect the demand curve where the demand
curve intersects the Y axis and the equilibrium quantity produced will be
zero. I suggest you either take a first course in microeconomics or stick
to practicing law.

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

Indeterminate. No cars will be produced.

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

Of course there is. The supply curve for land is a vertical line. You
can't shift it upwards.

> 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!

What does "profit from land" mean? That is a nonsense term that you have
thrown into the mix to confuse things. Let's stick to talking about the
market price for land and the rent of land, which are standard economic
terms.

A 100% tax on the rent of land will drive the market price of land to zero.
No serious Georgist disputes that. The rent of the land will remain the
same as it was before the tax, however, 100% of it will go to the taxing
body rather than the land owner.

There is no production cost for land because land is not a produced good.
Only a complete idiot would dispute that point.

> 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.

More nonsense. The supply of cars is not fixed. Cars are depreciable, land
is not. If the owner of the cars chooses not to sell them, at some point
they will be worth nothing (because the bodies will rust out, the tires will
go flat, the glass will collapse in and break, etc.) The same cannot be
said for land.

> 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. ;-)

Thank god for that. You are having enough trouble grasping basic economics.
If this were rocket science, you'd probably be arguing that gravity was a
function of volume rather than mass or some other nonsense.

> 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.

Land is not "brought to the market" by sellers; it simply exists. Shoot the
seller, and the land will still be there. Shoot all of the employees of a
car company and no cars will be produced.

> 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 .... ;-(

I've already proven you wrong on this.

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

That would be true if not for the fact that for each parcel of land that you
hoard you will have to pay a tax on its rental value. How convenient of you
to leave out half of the equation.

> >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?

Are you talking about yourself?

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