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The Pamphlet Collection of Sir Robert Stout: Volume 71

Chapter XIX. — The Single Taxer's Definition of Ground Rent

Chapter XIX.

The Single Taxer's Definition of Ground Rent.

The dictionary meaning of ground rent is "rent paid to a landlord for liberty to build on his ground." Observe (1) that it is not the payment for the use of any improvements belonging to the landlord; (2) that the tenant is the one who is to add the improvements to the land; (3) that these will become the landlord's property at the end of the lease; and (4) that the rent paid is not a recompense for the use of anything which the landlord has produced, but is the consideration which induces him to stand out of the way—to withdraw for a time his "forestalling" power over the land.

The dictionary definition, however, while strictly correct, is too limited in its scope to describe the whole fund which Single Taxers wish to nationalise. The former refers to building land only, and requires extending so that it shall include all land which is rented for any purpose whatever. It must also include land privately owned and used by its owner. To understand the necessity for the latter extension it will be desirable to realise that an owner who uses his land absorbs, or enjoys, the financial benefit of its annual ground rent, just as surely as if he let his land to a tenant and received the ground rent from him in cash. There can be no doubt of this being the fact. The value of the gross produce of the land will be rather more if the owner uses it instead of a tenant, because the latter always works less securely.

Each would have to deduct his general business charges from the gross proceeds to arrive at his net profit. The main difference between the profit and loss account of the tenant and the working proprietor is that the former has to deduct the ground rent as one of his charges, and is to that extent worse off at the year's end than the latter. The owner's living, therefore, would be letter, at least to the extent of the ground rent, than the tenant's would be. This is the demonstration of the previous assertion "that an owner who uses his own land absorbs, or enjoys, the benefit of its annual ground rent." This will not be disputed, but it will be contended that the owner has inherited or paid for his free right to use the land. This fact is not lost sight of, but will be dealt with later on. It is desired, at this stage, to point out only the financial result of the fact in the case of the "tenant" and the "owner" respectively.

A further remark upon this question of extension will be necessary. It is well known that some land which is owned for speculative page 43 purposes is not held entirely idle, but that much of it is temporarily let for purposes very inferior to its capabilities. Thus, for instance, building land is often let for grazing, for agriculture, or for market gardening. In such cases it would not be fair to the community to assume that the value of such inferior uses should determine the ground rent assessment. It would have to be estimated at the full worth of the best use of which the land was capable. The same would be done with land held idle.

It will next be necessary to inquire what considerations determine the amount of ground rent. These are of two classes. One may be described as "economic" and the other as "speculative."

Take an instance to indicate the nature of the "economic" consideration. A certain piece of land comes to be preferred by the public on account of its quality or locality. They indicate this preference by exhibiting a willingness to pay a certain ground rent for it. The actual amount of ground rent which will be paid for the piece is defined by political economists its the annual sum which tenants are willing to pay for it rather than resort to the most favoured land suitable for their purpose, which they can get rent free. As long as this preference is based upon the fact that the piece is at present worth the amount to the user, then the consideration is "economic."

Take an instance to indicate the nature of the "speculative" consideration. A certain piece of land is believed by speculators to be likely in the near future to be in greater demand than it is at present. They foresee a probability of population spreading in its direction, or they believe that some projected road or railway will bring it within the range of more beneficial use. Thereupon they secure a long lease of it at a higher rent than it is worth for present use. Now, in so far as this consideration goes in advance of the present using value, its action is "speculative."

The observed result of the action of these two considerations is that ground rent ranges from nothing up to an amount fixed by the competition which exists for the lands already proved to be most eligible, or which are expected in the future to be so.

Again, it will be necessary to call attention to a peculiarity of ground rent which does not attach to the charge for the use of any moveable article. This peculiarity is, that it increases for any piece of ground around which a greater population comes or near which a greater production of wealth takes place. Notice particularly that this occurs in spite of the fact that there is no increase of the area of the piece of ground. Consider, also, that it is not any special action of the owner of the piece which causes the increase of its annual value.

The two causes which lead to this increase are: 1st. The growing desire of members of the community, owing to either of the before-mentioned considerations, to obtain it. The 2nd, is the fact that the site cannot be multiplied, and that other land cannot be imported to meet the increased demand. If such multiplication or importation page 44 was possible, the price would only rise temporarily, if at all. As they are not possible, the resulting value may be called a scarcity value.

It will at once be recognised, as the contrary of this peculiarity, that the hire of ships, of carriages, of carts, and of machinery, etc., becomes cheaper as the demand increases. The reason is that the supply can be increased in response to the greater demand. Land cannot be made to respond to it; the locality of a section which is specially desired is fixed; it is not an article which can be either produced, extended, or imported.

Lastly, before leaving these remarks upon ground rent, it will be well to call attention to the following fact connected with it: Ground rent, under existing conditions, is the basis of the selling value of land. Not that the present annual value and the capital value bear a uniform relation to each other. Purchasers in some cases, as has been pointed out, expect to get a higher rent in the future, and this speculative consideration induces them to give a larger price than the present rent would warrant. The result is that the present rent will not generally pay the current rate of interest upon the selling value, but the future expected increase is considered to compensate for the present sacrifice of income. But the following is strictly true, that where there is no ground rent, and no expectation of it, there will be practically no selling value. This connection between the two prices is pointed out here because it will be seen to be important when the effect of the Single Tax comes to be considered.