Re: von Mises Institute on Henry George

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

Date: Fri, 20 Aug 2004 23:52:45 GMT

On Fri, 20 Aug 2004 17:21:39 -0400, "RueTheDay" <ruetheday@outgun.com>
wrote:

>"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:
>
>
>> 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.

Cars *in inventory* have no production cost.

Do you know what sunk cost is?

The question is what happens to the market price of the cars in
inventory?

>> 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?

Answer please?

>> 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.

The supply of cars in the dealer's inventory is NOT elastic.

The question refers to *those cars*.

Let's imagine a special law was enacted just for those cars.
A hypothetical (but not so extremely, laws of the sort have been
enacted in the past).

> 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.

Very good!

So you *agree* that in our hypothetical the dealer must incur *costs*
to determine a market price for his *inelastic* supply of cars in
inventory -- good!

>
>> 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.

Partly correct!

> 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.

Uh, oh, but we are not talking about "a tax on the seller", such as a
percentage or dollar tax that merely shifts the curve. The tax reduces
the price received by the seller to $0.

We are talking about confiscation of proceeds to the seller -- $0 net
revenue from sale specified at *all* prices.

What is the slope of the supply curve when price is always $0? The
supply line never extends above $0 price?

How much is supplied at $0?

>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

But I'm just as happy using your derivation!

What is your number for "quantity" at the point where the demand curve
intersects the Y axis?

Does the Y axis mark 0 (zero) on the quantity line?

>and the equilibrium quantity produced will be
>zero.

> I suggest you either take a first course in microeconomics or stick
>to practicing law.

Actually sometimes I have a problem with vertical and horizontal. ;-)

But, you see, we get the same intersection either way! Where the
demand line crosses the Y axis. As long as the answer is right! And
it is...

 "quantity produced will be zero."

Very good of you to agree!!!

Now all you have to do is realize that by "quantity produced" we don't
mean "at the factory" or "at the edge of the tectonic plate" but *in
the market*.

For maximum return of *zero*, why is the auto dealer going to *incur
costs* to produce his inventory of *existing* cars *in the market*?

>> 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.

Hey, the total existent supply curve for the cars sitting in dealer
lots now is a vertical line too, eh? If that makes you happy.

As we agree with our mutual derivations reaching the same intersect,
"No cars will be produced" due to the full tax on all net revenue from
sales ... but the cars in the lot are *already produced*.

They are in fixed, inelastic supply, just like land, if that makes you
happy.

But they are not produced to and marketed *in the market*, yet. They
are still stuck in the lot.

There still have to be the supply demand interactions to set their
price.

But with a net price to the seller set at $0, how many cars does your
supply-demand line derivation lead you to believe the dealer will
incur costs to bring *to the market*?

.
>> 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.

ROTFL, *I'm* the first person to talk here about "landlords'
profits". ;-) I made that up?

Ha, ha, I just did a quick google of this group, do you know how
many... oh, never mind. ;-)

The point is landlords must *incur costs* to market their properties
in order to discover the market price for them -- just as all sellers
must incur costs to do the same. As you agreed above!

Obviously, they incur these costs *only * because they expect a return
realized in price or rent -- return, price, rent, those are OK words
with you aren't they? -- that *exceeds* the cost incurred. They aren't
always right of course, but either way that's how they discover the
*market prices* of their properties. And how the tax assessor does
to.

But if all positive return to owning all land is taken away from them,
then that is impossible.

So why would they incur costs to discover the market price?

And if they don't, what's the market price become?

They are in the position of someone incurring costs to bring something
*to market* that can only give them a $0 return.

> 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.

Great!!

So with all 100% of the land rent going to *somebody else*, not him,
the land owner has 0 (zero) incentive to find either the tenant who
would pay the highest rent -- or, if he is faced with multiple
potential tenants making different bids, to select the one offering
the most rent.

Because it's all worth the same to him after-tax, exactly 0% of the
rent. $0.

And after this rents will stay exactly the same, you say! No change!

Well, that may take some squaring. ;-)

In fact, as the land owner can gain exactly $0 increment in rent from
incurring positive costs to bring the land to market to find a maximum
market price, he has no reason to participate in the market all!

So you've destroyed the pricing and allocation system.

Way to go!

But no problem, we know there are plenty of *other ways* to allocate
properties rather than through market prices.

Here's a clue: the party in your scenario that has *all* the incentive
to *maximize* rents is the "taxing body" that collects them all -- the
government.

You are going to have the government auctioning off all the land
leases. And with the price of land $0, as you say, you are going to
have no private "land owners" at all, since they will have neither
equity in the land, nor the ability (nor any incentive) to lease it.

So why do you keep talking about the fiction of having "land owners"?

You aren't going to have any. You are nationalizing the land which
will be leased off by the government. Something the world has plenty
of experience with, alas.

And nationalization was of course what George himself was proposing
his system as an *alternative* to.

Relevant Pages

  • Re: von Mises Institute on Henry George
    ... >>that a land value tax will drive rents to zero and thus the land value tax ... No. Market price does not depend on the sellers' efforts, ... >cars is imposed. ...
    (sci.econ)
  • Re: von Mises Institute on Henry George
    ... > put the cars on the market, and work to get their highest market ... > price, in spite of the 100% tax on their sale???? ... > of that cost back from sales due to the 100% tax, ... Land, on the other hand, is. ...
    (sci.econ)
  • Re: von Mises Institute on Henry George
    ... > price, decides to hold out for more, picks the winning one, if any? ... The buyers competing for the land to put it to productive use. ... > which will affect the market price and allocation of land compared to ... Negative prices can allocate in much the same was as positive prices. ...
    (sci.econ)
  • Re: Inflation & SF
    ... Charlie Stross writes: ... > peak price. ... and Arizona, Land of Free, is much larger because of taxes. ... Cars last long and are safer. ...
    (rec.arts.sf.written)
  • Re: do you know anyone who isnt brainwashed in some major way?
    ... world must suffer, like this: ... market price is; the price is always a market price, ... single price and quantity--not because all land is the same, ...
    (misc.writing)
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