Re: von Mises Institute on Henry George

From: RueTheDay (ruetheday_at_outgun.com)
Date: 08/21/04 

Date: Sat, 21 Aug 2004 08:03:04 -0400

"Grinch" <oldnasty@mindspring.com> wrote in message
news:dmqdi0p36qqgouja434c8a50jhpfrc0m3e@4ax.com...
> On Fri, 20 Aug 2004 21:54:35 -0400, "RueTheDay" <ruetheday@outgun.com>
> wrote:
>
> >"Grinch" <oldnasty@mindspring.com> wrote in message
> >news:katci0hpjcdbahm0nsf340chdq6rkl66rr@4ax.com...
> >> 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.
> >
> >But they certainly have a carrying cost.
>
> Are you trying to imply that carrying cost forces the car dealer to
> put the cars on the market, and work to get their highest market
> price, in spite of the 100% tax on their sale????
>
> More like if he's incurring carrying cost every day and can't get any
> of that cost back from sales due to the 100% tax, he's got a growing
> incentive to abandon them, or if he must, sell them for the giveaway
> price of $1, or "take what you can drive".
>
> That way he ends the carrying cost and also avoids incurring sale
> costs he can't recoup due to the 100% tax, right?
> So he does the best he can.
>
> And you imagine that is going to produce the same market price as if
> there was no 100% tax?
>
> Because the supply of cars hasn't been changed by the tax?
>
>
> >> Do you know what sunk cost is?
> >
> >Yes. Do you know what depreciation is?
>
> Not on those cars I don't.
>
> Depreciation is decline in market value -- but those cars have a
> market value of $0 to the owner due to the 100% sales tax.
>
> They can depreciate all they want -- doesn't cost him nothin' from
> what he can get for selling them.
>
> Forget depreciation -- stick with carrying cost!
>
> >> The question is what happens to the market price of the cars in
> >> inventory?
> >
> >That depends on market demand and the rate at which they are
deteriorating
> >in the parking lot.
>
> And whether or not they are actually *brought to market* in spite of
> the 100% tax specified on them eh?
>
> Do you think the car dealer is going incur any costs to do that -- and
> to whip up the best market price for them -- for $0 in return?
>
> So if he doesn't, what's their market price going to be again?
>
> BTW, when the owner can get only $0 from selling the cars after tax,
> how much do you figure their "deteriorating" in the parking lot really
> costs him?
>
>
> >> >> 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?
> >
> >Of course he is. He's racing against the clock as the cars are
depreciating
> >on his lot.
>
> Great!!! OK.
>
> Let's make *very clear* what you have just said:
>
> 1) The owner is going to seek out the buyers and lessors to whom the
> cars are worth the most, and who would be willing to pay the *highest
> price*, the *best market price*.
>
> 2) He's going to incur a *loss* doing this because he must incur costs
> to get that highest price -- advertising, effort, time to find the
> best buyers (while the carrying cost runs), etc., -- but he can't
> recover those costs due to the 100% sales tax.
>
> 3) He makes all the effort and incurs the loss in #2 to avoid the loss
> that would result if he holds the cars while they depreciate on his
> lot.
> Except *no*, there is no depreciation, as noted above, so lets
> stick with carrying cost. He does #2 to avoid the carrying cost of the
> cars...
>
> 4) Because he is so *stupid* that he doesn't realize he could avoid
> the losses in both #2 sales costs *and* the carrying costs by
> abandoning the cars or giving them for $1 to anyone who would drive
> them off (or give him "trade" under the table).
>
> THUS, the 100% tax on sales does not affect the actual market price at
> which the cars are sold, being that the quantity of these cars is
> inelastic and demand has not been changed by the tax.
>
> And *this* is the logic of modern-day Georgism.
>
> Poor Henry.

I can answer all of those silly objections with a simple statement - Neither
1850 gold coins nor some specific model of car (say 2004 Honda Civics) are
necessary for human existence nor are they necessary for the production of
all other goods. Land, on the other hand, is. It is impossible for humans
to exist without land. It is also impossible for humans to produce other
goods without land (land includes natural resources). That is why a 100%
tax that falls solely on 1850 gold coins or 2004 Honda Civics will eliminate
the markets for those items whereas a 100% tax on the unimproved value of
land will not harm the market for land at all. Since people will be able to
profit from improving land and producing goods from the resources of land,
they will be willing to pay a 100% tax on land rent up to the point where
the land rent (and tax on the land rent) equals the marginal product that
they derive from the land.

> >Land, however, does not depreciate. On the contrary, it tends
> >to appreciate.
>
> >> >>...
> >> >> 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.
> >
> >You're creating an artificial restriction. If you really want to
stretch,
> >you can say that any good, once it is produced, will be supply inelastic
for
> >a discrete period of time (from the time it is produced until the time it
is
> >fully depreciated) because its quantity will be fixed.
>
> An 1870s insight! Huzzah!!
>
> Yes, supply of everything is inelastic in some time frame. And every
> such thing collects rent just like land does, more or less, it's only
> a difference of degree. "quasi rent".

That is essentially correct. Under standard neoclassical models, flawed as
they may be in many respects, there is a sort of rent (most texts call it
"economic profit") that exists in the short run (generally defined as the
period of time when one or more inputs is fixed). However, this is
generally assumed to be "competed away" over longer periods of time. Land
rent is never competed away.

> >> > 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.
> >
> >So what. That's a 100% tax on the seller. If it fell on the buyer, it
> >would shift the demand curve with the same end result.
>
> How does a specified revenue of $0 per sale for the seller "fall on
> the buyer"?
>
> That's some kind of tax.
>
> >It would never
> >change the slope of either the supply or the demand curve. Just admit
you
> >were wrong and move on.
>
> Wrong about what?

Wrong about the tax changing the SLOPE of the supply curve. One of the
first things one learns in a standard undergrad Intro To Econ type class is
the difference between a shift in a curve and a change in the slope of the
curve. Ordinarily, I wouldn't be a prick about such things, but since you
seem to delight in insulting people by claiming that they don't understand
standard economics........

> Saying quantity produced for sale would be zero, as seen by how the
> demand curve crosses the vertical axis directly above the $0, 0q point
> of origin? Since the only supply provided at $0 is 0, so you look
> vertically straight up following 0 quantity.
>
> Which you *corrected* by saying no!, no!, properly derived curves will
> show quantity supplied where the demand curve crosses the y axis --
> which is vertically directly straight up above the $0, 0q point of
> origin -- with the supply thus being zero.
>
> Well, **I sit corrected**!!! :-)

The shifting of a supply curve as a result of the imposition of a tax on a
seller is a KEY ISSUE in analyzing the effects of the tax. If you don't
understand that basic point, then your entire argument is baseless.

> >
> >> We are talking about confiscation of proceeds to the seller -- $0 net
> >> revenue from sale specified at *all* prices.
> >
> >Right. A 100% tax.
> >
> >> What is the slope of the supply curve when price is always $0? The
> >> supply line never extends above $0 price?
> >
> >You are conflating two different definitions of price here. The supply
and
> >demand curve each show a quantity that will be supplied or demanded as a
> >function of price. The actual market price is where the supply and
demand
> >curves intersect.
>
> In general...
>
> But we are talking about a special case where price is specified as
> $0.

Which has no bearing on my above statement. You're not specifying a price
of $0, you're specifying a tax equal to 100% of the marginal product of the
item in question. That then results in a market price of $0.

> Which you use to construct a horizontal sloping curve running from
> price $0 to price $0?

That would be a line colinear with the X axis. Once again, you're confusing
"price" in the context of supply and demand curves being functions of given
price with "price" in the sense of a market price being determined by the
intersection of the supply and demand curves. That's a common beginner's
mistake.

> Methinks you are thinking of the a-b-c rules of normal line
> construction and not of this very special case -- which, being you
> also think depreciation is a "cost" to an owner of property who can
> receive only $0 revenue from selling it, is not entirely surprising.
> When you think depreciation is a "cost" in such an instance, you are
> not appreciating the details.

Depreciation is a concept independent of what you are claiming. For
example, machines wear out. That is independent of supply and demand, it is
a matter of physical reality. In the context of our dicussion, I'm merely
stating that, over time, cars left on a lot will deteriorate away until
there is nothing left to sell.

Perhaps it should be obvious, but I'll point out again that land does not
depreciate in this way.

> >> How much is supplied at $0?
> >
> >That is the first definition. The answer is 0. That has absolutely
nothing
> >to do with the slope of the supply curve.
>
> The fact that supply is *zero* at the *only* price allowed has
> absolutely nothing to do with the shape of the supply curve.
>
> Fine! I'm happy with that. I know what you are driving at and
> whatever, it doesn't matter, because we *agree* on the intercept --
> vertically over $0,0, -- and we *agree* on the result: supply is zero.

The quantity supply is zero because the supply curve is not vertical in the
case of cars. When you shift it upwards until it intersects the demand
curve, it just so happens that it intersects the demand curve at the Y axis.

In the case of land, the supply curve is vertical. Shifting it upwards has
no effect. It will continue to intersect the demand curve where it does now

> Your "correction" confirmed exactly what I said on both points,
> thank you very much!
>
> So... auto inventory, 1850s gold coins, land leases, whatever -- with
> $0 returns specified to the sellers, they are going to provide "zero
> supply" of costly effort to maximize prices they receive from market
> sales, to discover true market prices.

2004 Honda Civics and 1850 gold coins, yes. Land, no.

> So they won't find the true market prices.
>
> And prices and rents and allocations won't change??
>
> Ha, Ha. ;-)

In the case of land, rents and allocations won't change (with the exception
that the idle ownership of land for speculative purposes would disappear).

> >
> >> >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?
> >
> >Zero.
> >
> >> Does the Y axis mark 0 (zero) on the quantity line?
> >
> >Yes.
>
> Gee, what brutal corrections. Have mercy!
>
> >Of course, in the case of land, the supply curve is a vertical line. It
> >intersects the X axis at whatever the quantity of land is. That number
is
> >fixed and does not vary based upon the price or anything else.
>
> Right, the quantity of land doesn't change. Duh. Who cares?
>
> But the allocation of land sure will change.

Only in the sense that it will be allocated away from idle speculators and
to people who actually use it productively.

> Because the 100% tax eliminates all return on efforts by sellers to
> find market prices for sales and leases. So they will supply zero
> quantity of such effort, as we agree from that y intercept!

Except that land is not "supplied by sellers", it simply exists.

> They won't try to find market prices, so there *won't be* any -- well,
> not any corresponding at all to the prices that would exist if they
> *did* make such effort, as they do in our world. QED.

The tax is a negative price that will serve the exact same allocative
function as a positive price (only it will work even better in the case of
land).

> So Rothbard was right.

No, he was wrong. Entirely wrong.

> As noted elsewhere, with your "100% of rent goes to the tax agent"
> proposal the one party who has *all* the incentive to maximize rents
> is the tax agent.

There is no "maximization of rents". The rents simply reflect differential
productivity. They are not something determined by the seller. You are
conflating economic rent with vernacular rent.

> So the government will be auctioning off land for revenue, trying to
> maximize same, and there will be no private ownership of land at all.
> Land will have $0 sale value so nobody will have any equity in it, and
> nobody but the tax man will have any interest in finding good paying
> tenants for it.

That nonsense has already been thoroughly debunked in this thread. Several
times.

> It is a nationalization proposal. Just drop the fiction that "private
> land owners" have anything to do with it, admit that the idea is
> "nationalize and auction", and we can be friends. ;-)

How about a "re-appropriatiaton by the community of that which was in the
past forcefully appropriated by the government and distributed to the
favored subjects of the government."

> >Wrong again. You are in effect arguing that a tax on land would result
in
> >the quantity of land decreasing to zero.
>
> Oh, don't be dim.
>
> How would a huge, confiscatory tax on rents ever affect the quantity
> of physical land?

Wow. I think you're beginning to experience an epiphany, don't close your
mind before the idea comes to fruition.

> It would just hammer the pricing system of land and its resulting
> allocation of land. Obviously.
>
> Two entirely different things. Anyone can see that. ;-)

Too late.

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