Re: Don't Forget Mises -- and Dump the Third Way!

From: jmh (j_m_h_at_cox.net)
Date: 10/11/04 

Date: Sun, 10 Oct 2004 20:12:37 -0400

royls@telus.net wrote:
> On Wed, 06 Oct 2004 16:50:01 -0400, jmh <j_m_h@cox.net> wrote:
>
>
>>royls@telus.net wrote:
>>
>>>On Sun, 03 Oct 2004 18:45:28 -0400, jmh <j_m_h@cox.net> wrote:
>>>
>>>
>>>
>>>>royls@telus.net wrote:
>>>>
>>>>
>>>>>That depends on whether you regard the immoral as practical. If the
>>>>>landowner simply does nothing, the user gets access for free. But he
>>>>>is then just pocketing the rent in place of the landowner, and while
>>>>>he is at least contributing something to the community by why of
>>>>>production, he is not compensating the community for the benefits he
>>>>>is receiving, and thus has no more _right_ than the landowner to deny
>>>>>others use of the land.
>>>>
>>>>Clearly this is driven by your view that all the
>>>>additional value generated by network effects
>>>>are captured by land ownership. Certainly on
>>>>a ceterus paribus case, where it's only the
>>>>landowner simply on longs charges a fee, competitive
>>>>pressures will still function to reduce prices
>>>>and that "rent" the producers were captuing evaporate.
>>>
>>>I can't begin to figure outwhatyouthinkyouaresayinghere.
>>
>>Holding everything else equal, if a costs of production
>>drop one expect to see output prices decrease so the
>>producers would not simply increase they profits as
>>you claim.
>
>
> ??? Where did I say anything about production costs dropping?
> Production costs are not affected by the displacement of the rent from
> the landowner to the producer, because the rent is itself nothing but
> relative productivity: the competitive situation is _unaffected_ by
> the land rent changing hands. The maximum profit point for the
> producer is therefore likewise _unaffected_ by the opportunity to
> collect the rent himself rather than turn it over to a landowner, so
> total production and market prices are likewise unaffected.

Producers initially had to pay rent for the land. That
is a cost of production. If they are now not paying rent
then clearly they face lower costs in producing the output.
Sure sounds to me like total cost of production have
decreased. Since the cost structure has now changed
so has the optimal price-output point.

>
>>If they could then it's not the land
>>that is the source of the rents captured.
>
>
> The land is typically just the nexus where myriad economic advantages
> (sources of rent) are realized, not "the source of the rents." Land
> has no value and yields no rent except through the context of the
> economic advantages gained by its use, which in turn depend on the
> local community and infrastructure, the commercial culture, the state
> of technology, etc. and how these all interact with the physical
> qualities of the land, especially its location.

All of which also effect the local real incomes and
real rates of return relative to other locations.

>
>>>>More importantly though is the validity assumption
>>>>that all extra value derived from the presence of
>>>>the network is capitured by landowners.
>>>
>>>That is ensured by land's zero elasticity of supply. Unless the
>>>demand curve is quite odd, any increase in rent leaves consumer
>>>surplus effectively unchanged.
>>
>>Which you might perhasp actually provide more than your
>>assertion, which is what is asked below, which you didn't
>>seem to understand. Whether or not it's accurate to describe
>>the supply of land as totally inelastic is questionable.
>
>
> No, it isn't. The supply of land is fixed.

No it's not. One *could* ship bits of the moon, asteroids,
mars or other solids from space for the right price. More
importantly we're not realy talking about the physical
surface of earth but the *usable* surface of earth. For a
price--and this was done for the Tokyo airport I hear--we
can take scrap and waist that normally goes into a landfill
and use it to build up coastal areas or swamp areas to make
them suitible for a host of uses that submerged or swamp
lands cannot be used for. That is increasing the effective
supply of land. Steep slopes can be leveled.

I do agree that I cannot increase the size of my yard--
thought theoretically it could be done I suspect given
sufficient energy ;-)--by pushing the perimeter out
and expanding the mean surface area of the world.

>
>>Yes, there is currently only so much land area on earth.
>
>
> You mean, it used to get bigger and smaller?? Fascinating...

Actaully since you're working so hard at being
a *** about all this, yes. I'm sure you've heard
of the moon. Best theory, these days, is the moon,
or at least a fair portion of it, used to be part of
the earth but a rather large colision with something
split it off.

Simialrly, if we've been hit by asteroids then that
has also increase the mass, and so the size of
the earth.

I suppose I could also suggest that plant and animal life,
which does seem to create matter from energy, has also
contributed to increasing the surface area of the earth.

You appear to be totally wrong in your claims about a
fixed size and the claim of a elacticity of supply eqaul
to 0.

>
>>Is that a suitible definition of land?
>
>
> You can take your pick of two definitions of land: the classical one,
> which is all of the physical universe except human beings and the
> products of their labor, or a narrower one, which is the various
> locations on the surface of the earth considered as production
> factors. Whichever definition you pick, the elasticity of supply for
> it is still zero.

Or we can take the definition that looks at what is
actually being used and the existance of non-used area.
And consider the ability of people to offer money to
get land used in a production or social context rather
than a purely private one.

And yes, that why rents on land can be collect: it's
a scarce resource.

>
>>Are improvements
>>and innovations in both building technology and
>>transportation technology sufficient to make other locations
>>that previously would never have been suitable for some
>>activity now reasonable substitutes for land closer
>>to the community center (or however you're modeling
>>your theory) sufficient to say that the effective
>>supply of land in some economic nexus defined by
>>"comminuty" increased?
>
>
> No. It's only the _value_ of the land that will change thereby. Not
> the amount. I'm not sure how you are managing to convince yourself
> that you do not know this fact.

But the issue there was not the quantity but the
quality--imparted by technological innovation--that
was the critical aspect here. There is now more space
in which all activities can actually be conducted than
previously. The price of that now available and usable
land was the cost of the technology.

>
>>I would think so as it now
>>introduces new competitive presures on the existing land
>>owners.
>
>
> That is of course irrelevant. If I have five pounds of potatoes,
> various conditions may affect how those potatoes can be used, the
> price they will command relative to other potatoes, etc., but none of
> those factors will make five pounds of potatoes into six pounds, or
> four pounds.

Well if half of that 5 pounds is rotted then you don't
have 5 pounds any longer. You might still call the
rotten half "potatoes" but it's no longer suitable
for use as a potatoe. Now consider a process that
could operate in reverse. You've got those 5 pounds of
potatoes, half of which cannot be used for anything that
potatoes are used as, so you can only use 2.5 pounds
as potatoes. If you could change that quality of rotten
into not rotten then you'll still have 5 pounds of
material that is called potato but perhaps 3 pounds
that can be used as potatoes.

Do you have more potatoes in a meaningful sense of
more?

>
>>Well to make you argument work, that the market clears
>>with a change in rents you need to make some more
>>assumptions.
>
>
> <yawn> Yeah, yeah, 1+1 = 2 and all that.
>
>
>>If the increase is a supply change
>>in price--land owner's just raise the rent, then
>>you will need to have a rather strange demand curve.
>
>
> False. As supply is the same at all prices, any realistic demand
> curve will do just fine. And lots of unrealistic ones, too.

For the market to clear at that arbitrary price
you must be arguing that the demand curve is going
to shift outward due to some wealth effect. If that
doesn't happen you just get a case where some of the
land goes unused--assuming that it was all being used
previously.

>
>>If it's a shift in the curve that's driving the
>>rents higher then, true, all the change in the price
>>of land rents will go to the landowner--but we also
>>ned to assume that the costs associated with owning
>>land remain invariant to increased rents.
>
>
> Nope. Rent is the net, of course. Costs like higher taxes are
> already factored in.
>
>>Also, if
>>demand is driving the increase we cannot know
>>that the increase in rents equals the increased
>>percuniary value within the system which is driving
>>the increse in land demand.
>
>
> What can an increase in land demand _be_ but an increase in rent?

In your view that is all it could be. In my view it could
also be investment in anything that will either allow more
to be done in the same space, or the same in a smaller
space, or investment in something that will allow
land not previously capible of supporting some activity
be used for that activity.

I would expect there to be a combination in the real world.

What I don't expect is that all the benefit of that
investment to be converted into rents resulting in a
ROI of < 0.

>
>
>>But that is in fact your
>>claim and you cannot make that claim from a partial
>>equalibrium analysis as your doing with the claim
>>of a supply elasticity of land being 0.
>
>
> It has nothing to do with partial equilibrium analysis. The supply of
> land is just fixed. Case closed.

Should I say it? Like your mind at times? ;-)

>
>>>>I posted some
>>>>rudamentary statistics that, while clearly insufficent
>>>>to prove or disprove anything, suggested that perhaps
>>>>you're making too strong a claim.
>>>
>>>They suggest nothing of the sort. If anything, the modest increases
>>>in home ownership relative to real wages would argue in support of my
>>>claim.
>>
>>They most certainly do allow for the condition where
>>gains from network effects are shared amoung the
>>factors of production and not all captured by
>>land.
>
>
> Statistics reflect more than just the bare truths of economics: they
> result from the mix of actual policies that tend to work in various
> conflicting and sometimes not very predictable ways. Home ownership
> statistics, for example, do not reflect the real situation in _land_
> ownership (much less land rent capture, much less capture and
> retention of productivity increases through increased land rents),
> because owned homes now include millions of condominium apartments
> that in former times would have been rented. Tax code changes that
> have made one's principal residence an extraordinarily profitable
> after-tax investment have induced more people to buy their homes,
> independently of the fact that increases in production all
> theoretically go to land rent. Changes in labor laws, minimum wages,
> greatly expanded monopoly privileges covering intellectual property,
> etc. have mitigated the effects of land rent increases by permitting
> working people and capitalists to capture some economic rents of their
> own. Etc.

Yes and economic theory and analysis is a simplification
of reality that is more illustrative than actually
reflective of that mess. That's why it only goes so
far in explaining reality when all that is used are the
core theoretical, but clear cut, models. You need more
than merely the eS=0 claim.

>
>>>>I never saw any
>>>>response from you and was wondering if perhaps
>>>>you have some stats to offer indicating the portion
>>>>of "community" generated value versus privately
>>>>generated value as it relates for land, capital and
>>>>labor market value (realizing of course that labor
>>>>value in this context will ned to be inferred from
>>>>it's rental rate)?
>>>
>>>I don't know what that is supposed to mean, either.
>>
>>Put more bluntly, back your claims up with some clear
>>facts and not assertions and pure theory claimsthat might
>>have much less to do with real world interactions than you
>>are claiming.
>
> OK. 50 years ago, you could buy a typical single-family building lot
> for 1-2 years' typical after-tax wages. Now it's 3-5 years' wages,
> and the lot is smaller, and farther from the city center.

Thank you. Now, is that all the external value that is
generated by the various "community" factors or just some
of it?

As for the farther from the city center that seems to
be a choice people make to get away from most of
the nonpecuniary costs of crowded urban living.

That brings up another issue. The general tendency
is to assume that these nonpecuniary costs are fully
reflected in prices but that's not a completely safe
assumption. The new comers are clearly making choice
based on expectation and the price they will pay to
enter should reflect the exectations of the nonpecuniary
costs--it all gets neted first. The ones who were already
there are not participating in the market--they just
keep using their homes, e.g. These existing people
tend to sell once the non[ecuniary costs they are
facing outweigh the market price and whatever non-pecuniary
benefits the land was providing. Given that other's are
imposing these costs on them, why shouldn't they be able
to recoup those costs in the form of increase land value?
Is that necessarily an unjust thing as you present it?

jmh

I'd also be interested in a comment on the oberservation
that we only have some much of any natural resource and
things like population growth are driving the prices of
those items up--including the myria of processed forms
(like various alloys of steel and iron or aluminium).
Aren't these increases in price nothing more than rents
deriving from increase population just as that has
the s

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