Re: von Mises Institute on Henry George

royls_at_telus.net
Date: 08/24/04


Date: Tue, 24 Aug 2004 00:48:48 GMT

On Fri, 20 Aug 2004 20:25:00 GMT, Grinch <oldnasty@mindspring.com>
wrote:

>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!

Yes, let's.

>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

No, lying filth. That is not part of the definition of sellers.

>-- 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.

No. Market price does not depend on the sellers' efforts, only on
their willingness to sell.
 
> .. *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.

Computers can do that much.

>Of course, sellers incur significant cost in doing all this, marketing
>isn't free,

Sellers spend money on marketing in order to increase demand for what
they sell. But market prices certainly exist without such
expenditures. They are just (usually) lower.

>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.

Declining revenue per se implies no cost.

>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,

No, that's because real estate agents have to be licensed. Like most
lawyers, they would be making very little money if they had to compete
in an open market based on the actual free market value of the tiny
services they render.

>and car dealers advertise,

Whom do you trust least: lawyers, politicians, or car dealers?

>and sellers haggle.

Sellers in poor countries typically haggle, while sellers in rich
countries do not. You might want to ponder the implications of that.

>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..

And property tax lien sales do likewise, even though the owner is
completely out of the picture.

You are destroyed.

>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?

You mean, aside from the fact that the supply curve for land does not
resemble that in the chart?

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

What would that have to do with LVT, which is the same whether there
is any sale or not?

>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*

Wrong. The cost of holding them isn't gone.

>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?

No, but government would. That's how it's going to get revenue, after
all.

>Is he going to pay marketing costs
>for those cars? Is he going to make an effort haggling to get the
>price up?

You don't seem to understand how LVT works. The landholder is not the
one who gets the rent. Government is. That means the landholder does
not make any effort to determine the rent, but government does. Just
as a tenant does not advertise his own apartment, but his landlord
advertises the vacant apartments, and will increase the tenant's rent
if demand for those other apartments seems to be strong.

So in your example, government advertises the cars, and charges a tax
equal to the high bid for each car to whoever has possession of that
car. Watch 'em fly off the lot then!

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

Wrong. Once bids start coming in, if he doesn't sell the cars, he has
to pay exactly the same amount of tax anyway.

>With $0 return from selling cars, why wouldn't he just walk away from
>them?

He would. Just as LVT would make idle landowners relinquish their
land.

>Well, probably not, because he can still get a personal return
>by disposing of them to friends, the brother-in-law, and whatnot.

Maybe. But remember, they'd have to pay the tax, too. The government
would maintain a cardaster ( ;^) as soon as I read Grinch's post, I
knew I just had to do that) showing the current high bids for every
car in the country, so it would know how much tax to collect from
those who had them.

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

Right. Just as the tenant of a private landlord currently has zero
incentive to bring his leasehold to market.

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

True, cars would now have a holding cost, creating a more liquid
market and a sort of "Old Maid" situation, especially for the beaters.

>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).

Wrong. See above. Any unsold cars incur a cost equal to the high bid
on that car. He can't make any money by selling them, but he can lose
money by keeping them.

>Thus the supply curve from the point of origin goes
>straight up vertically.

?? No, the supply curve is vertical at the quantity of cars in
existence. The supply curve for land always goes straight up
vertically, but it can't go through the origin. Granted, unlike land,
cars can be destroyed, so the vertical supply "curve" could shift to
the left.

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

Free, but for the tax.

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

Essentially the same as the price of owning.

>With the supply curve going straight up vertically from the $0 price,

??? That makes no sense. Price is on the vertical axis, so all
prices are on a vertical line.

>0 amount supplied at the point of origin,

Nope. All cars are supplied at zero price.

>what can we say the
>capitalized value of lease payments are, compared to before?

Zero.

>Do we still have a functioning market?

Yep. Just as we currently do for land, even though tenants don't have
any incentive to market their leaseholdings.

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

Yes. For one thing, the cars were not supplied at zero cost. Land
was.

>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!

Correct.

>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.

The cars can be destroyed.

>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. ;-)

It might as well be, for all you understand of it.

>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

Yes, actually, it is.

>-- it is the amount of supply that is brought
>**to the market and marketed** by sellers.

Nope. Any not sold is just worth more to the current owner than the
current price: i.e., it is in the upper right of the diagram.

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

Nope. If something exists without being produced, the profit motive
has no effect on its supply.

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

It doesn't.

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

And if you set the incentive for keeping it off the market to
negative, as LVT does....?

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?

Indeed. Some people are so extraordinarily full of themselves, they
even imagine they know more about the economics of taxation than Nobel
laureates in economics do, despite being completely ignorant of the
field.

>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,

That is not self-evident. In fact, it is false.

> and (2) select high
>bids to maximize profit "

High bids maximize price, not 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.

<yawn> See above for your economics lesson for today.

-- Roy L