Keith, Sorry I gave you the impression that Land is uniquely collectible. Practically any item can be collected and held for a future. My favorite is a Rosalie beer can that helped point my thinking many years ago - and I've been teaching it ever since.
An empty Rosalie can was sold for $4,000 at auction. The buyer was offered $10,000 for it as he left the room. He refused. Think about that. Not just the offer, but the refusal. It points to the difference between people in the price mechanism controlled market, and those who are part of the collectible market. The current price of a Rosalie beer can on the collectible market is $10,250. Our original buyer should have taken the $10,000 offer!) But, he was a collector and this is the way they behave. On the other hand, if he had sold it, why did the collector buy? Presumably, because he expected it to appreciate. The collectible market would have recorded the $10,000 price and expectations of a higher price would have pushed the collectible price far above the present $10,250. I'll go into the psychology of the collector in another post. Collectibles cause no harm to an economy. The problem is that Land is part of the collectible market and that unhappy situation does harm the economy. But, let me go back to the original classical concepts. These are not mine (in fact I've made some adjustments in recent years, but without changing the character, or intent of the originals) - but this is how it began. Their Science of Political Economy began with two basic assumptions of human behavior. "Man's desires are unlimited." "Man seeks to satisfy his desires with the least exertion." For almost 50 years, I've asked students at high school, college, university, post-doc, and adult levels, to come back next class with two examples of a person who does not conform to both assumptions. No-one has managed it yet. People don't like rigor. They much prefer to be fuzzy when thinking. But a science shouldn't allow fuzziness - though incompleteness is always the enemy. When making assumptions, the fewer the better. As Bertrand Russell said: "Two assumptions are better than sixteen." So, we have two. So, the absoluteness of the two assumptions frightens people, yet there is nothing to be frightened about. In fact, the first assumption is what FutureWork is all about. If it is true, then if we all worked 24 hours a day, 7 days a week, we could never satisfy our unsatisfiable desires. Which leads to the question - not how do we find work for people - but why is there involuntary unemployment? I fear modern reformers are so busy finding ways to put people to work, they never wonder why they are unemployed. Surely, unemployment should only occur when everyone has everything they desire, whereupon we can all go fishing, or something. I should add that the classicals put no restriction on desires. Each person has his own. One may desire a dozen Cadillacs, another may desire to lie on a grassy hill counting the clouds, yet another may desire to listen to Ray's choral music all day. Your two "incontrovertibles" are Supply & Demand and Comparative Advantage. Comparative advantage is no more than an extension of the second assumption. Supply and demand are really the same thing. If I trade my chair for your table, then supply is a chair and a table, demand is a chair and a table. Trade always balances no matter what government statisticians say. It is perhaps better to use "Price Mechanism". and "Market Clearing Price". The price mechanism describes the normal action of the free market - which everyone knows (any kid can observe that when Burger King drops their hamburger prices by 50% the line (queue) will extend around the block. You delightfully brought up the 99p air fares to Europe. The Market Clearing Price can be said to be "the highest price a seller can get while clearing his shelves". A lower price will clear the shelves but he'll lose some money. A higher price will cause goods to "stick to the shelves". You can, at this point, dump all your supply/demand curves in the trash, for you have what you need to understand the free market. Yet, I only know one major economist, Kirshner, who has had the nerve to criticize the curves that are the mantra of modern economics. We know how the price mechanism works in the market. When demand increases, prices rise. This has two effects. It turns off demand and turns on supply. Goods rush to market and prices return to Market Clearing. This constant stabilization of the market, this continual adjustment of peoples desires, happens so quickly and effectively that it is difficult to understand why government controls are ever advocated. Except for something that Free Trade and free market advocates don't seem to want to know. It is perhaps the reason for much antipathy to Free Trade. The market provides the highest quality at he cheapest price. That's why we like it. Unfortunately, that also applies to labor. Market pressures forces down wages. This downward pressure on wages was recognized 200 years ago and became "Ricardo's Iron Law of Wages". His contemporary Tom Malthus, said almost the same thing, except that he concentrated on population, whereas Ricardo focused on land. Essentially, Ricardo said that the best land would be used first at high wages, then poorer land at lower wages, then even poorer land for subsistence wages. We have to ceteris paribus a bit here to get the thought straight. (We are essentially Aristotelian linear thinkers not "network" thinkers - though practice and experience can, at times, make us appear to think in "multi-valued" ways. So, we'll stay with the basic Iron Law. We can bring in all the possible variations later.) Anyway, Ricardo forecast wages dropping to subsistence. Malthus thought we would breed ourselves into absolute poverty. Thus, economics became known as the "dismal science". It should be understood that the wages in question belong of those at the bottom of the heap. A doctor might get a lot higher wage than the peasant - but there is argument that the wages of those higher up in the wage pyramid depend on those at the bottom. If the subsistence worker gets more, so will everyone else. We have to take a closer look at wages. As the engineers might say, the price mechanism is simply a negative feedback mechanism. When prices stray from the equilibrium, forces arise which drive them back. (I don't really like equilibrium - preferring the physicists' "steady state" which implies a moving equilibrium.) All the price mechanism does therefore is hunt around a point. So, the question of the hour is - what fixes the point, the wage around which the price mechanism hunts. Why is the wage $2, or $5, or $10? Came the idea of the "alternative". Labor will not work for subsistence wages if there is a higher wage alternative - a sensible notion. The alternative brings us back to Ricardo. If there is land available on which a subsistence laborer could earn $20 an hour, he wouldn't work for less for an employer in the city. When land on which a worthwhile wage can be earned is available for settlement, laborers will not work for less. Does this mean that everybody becomes a farmer? Of course not, but when enough workers leave the city to turn a labor surplus into a labor shortage - watch wages rise. And to bring them back, wages will have to rise to, or above, the "alternative". A case to point. Most good land in the US was taken up pretty quickly. In fact the 1890 census declared there was no more free land of any kind in the US. When silver was found not too far from San Francisco - the Comstock Lode - it raised the Alternative for subsistence labor in the city. One could not claim as much of the Lode as one wished. Each miner was given a small claim - enough for him to work. This meant that over a period claims were readily available for those willing to work. (You were obliged to work your claim, or you lost it. Obviously, everyone didn't leave San Francisco, but enough did to cause a labor shortage and a consequent wage increase. Whereupon, ships couldn't sail out of the city. Captains couldn't find sailors who would take the low wage. Ships without crews were forced to stay in the harbor. Finally, the Lode was played out, the higher alternative disappeared, wages dropped back - and again ships sailed out of San Francisco. So that's a brief rundown of the beginning ideas of Classical Political Economy - particularly of its connection to wages - which should be of some interest to our friends of FutureWork. If I may trespass on your time a little further, I'll show in another post the "mutually exclusive" concepts that are named Land, Labor, Capital and Wealth. In other words, something that falls into one concept cannot be part of another. Everything on earth (or for that matter in the universe) will, however, be in one concept, or another. So, the first thing the Classical Political Economists did was to reduce the mighty complexity of the universe into four bite-sized chunks. Economist Roy Harrod - protege and biographer of Keynes - said that being able separate all things into four classifications made all progress in economics possible. Unfortunately, economists nowadays seem to make up defined concepts at the drop of the hat. The latest seems to be "transaction costs" - which I can't find in my latest college text. It's as if they are determined to make this simple and essential science into an arcane property of the priesthood. Harry ______________________________________________________________________ To: Harry Pollard <[EMAIL PROTECTED]> Subject: Re: Re: Appendix: Distance-working/Low-rise buildings Cc: <[EMAIL PROTECTED]> Hi Harry, I enjoyed your message but I have reservations about land being uniquely "collectible": At 00:42 02/10/01 -0700, you wrote: >Keith and Ray, > >Keith, you certainly started a fascinating exchange of ideas. It has been >fun reading them. About cities - and, if I may, a quick primer on Political >Economy - which was classical economics and dealt with people. Bear with >the length of this bit because it will connect with the WTC disaster. > >First, the neo-classical economists discarded people in favor of >mathematics. As the 20th century began, they desperately wanted to be >considered a "science" - and discussing people seemed to lead to much >complication. They preferred to make economics scientific by making it >mathematical. This is why this "science of people" has become confusing and >esoteric. Yes, I agree that economists have been barking up several different trees in the course of the last century in an effort to develop the subject as a science. The result has been merely a succession of fashions rather than any sort of systematic development. As you say, they had ignored the fact that human instincts and decisions are also involved. This makes economics into a sort of spaghetti but it survives because gives jobs to thousands of academics, journalists and financial advisors. To some extent this attempted aping of science is understandable because the whole subject rests upon two laws which are certainly incontrovertible, even though they are often lost sight of (particularly the second one by anti-globalizers!) -- Supply & Demand and Comparative Advantage. But the effort of scientising the subject has been as silly as if we were to make the game of football into a science just because it depends upon Newton's Laws of Motion. That being so, I think that economics, rather like sociology, or politics, or history (with laws buried somewhere, but at a deep level), must always remain as a 'literary' subject, which is best written about rather than being relied upon. (HP) >To make things easier (?) the neos dumped land into the same bin as capital >and labelled the bin Capital. (They also called people "human capital" - >but we won't dwell on that nonsense now.) It's easy to see that land - >which would be here whether people were here or not - can hardly be placed >in the same bin as capital which wouldn't be here without people. They are >two dissimilar concepts melded together for everybody's confusion. > >Classical Political Economy rests its strength on clearly seen and mutually >exclusive concepts, which are then given names. Two of these concepts are >called Land (natural resources) and Capital (man-made products being used >to produce other products). > >Capital is subject to free market forces - Land isn't. Land is actually >part of the collectible market. In the collectible market, sales-price is >everything - income doesn't matter (note the similarity of the collectible >market to the top end of the stock market, where the speculators don't care >about earnings, but concentrate on price - thereby extracting bleats from >worried analysts). However, even though I think that economics is a 'literary' discipline and not primarily scientific it's reasonable to expect that an author is consistent the use of the terms he uses. However, you said two paragraphs ago that Land and Capital are mutually exclusive. You're now saying that, sometimes, Capital takes on the 'collectibility' attribute of Land. So I'd like to suggest that 'Land' and 'Capital' are useful terms when talking colloquially about economics but not having exclusive definitions in a strictly scientific or philosophical sense. Neither has the same sort of primary meaning that 'value' has (when using the two Laws of Economcs) or 'mass' has (when using the three Laws of Motion). You say that Land would exist whether humans were here or not. But it wouldn't, because it's only a concept that has meaning when talking of economic activity. As Ray Harrell might agree, 'land' itself didn't have any meaning as an entity (that is, as ownable, and separate from the flora and fauna) to the hunter-gatherer Indians when they 'sold' Manhatten to the white man for a few beads. Without humans, soil would exist, rock strata would exist, the atmosphere would exist, minerals would exist, wild-life would exist, large continents would exist, small islands would exist, but land wouldn't because it's an economic concept which has only come into existence because of man's activities. Even now we can't even define what land is exactly (what about a tidal foreshore? a cliffside? a glacier? a slab of Arctic ice? a swamp? a volcano?) unless you also have a potential economic use in mind. Immediately behind my house there are a few acres of hillside wilderness too steep for anyone to build on and which nobody owns and nobody wants to own because of the costs of keeping the trees in safe condition. Which is fine by me -- and the red deer and the badgers and the squirrels and the foxes. But it certainly isn't 'land' in any economic sense. Land is as much subject to the law of supply and demand as the other important factors of production (which are, I suggest: Capital, Labour, Energy and Information). For all practical purposes, the supply of each of these factors of production can vary between being potentially limitless and zero, and the value of them varies just as widely. The particular value of each of them depends on its availability at a precise location at a precise moment of time. Yes, land values (say in Manhatten) can be grotesque but only because the land there is also at a confluence of the other important factors of production, and thus in high demand. And, if it seems likely that land prices in Manhatten will go even higher, then of course owners will hang onto vacant lots until they're sure of the best possible price. However, the costs of some sorts of Capital, Labour, Energy and Information can also be enormous and, likewise, supply can be withheld by their owners if the price is likely to rise. They are all collectible to a greater or lesser extent. In strictly economic terms, Land doesn't have anything unique about it, compared with the other factors of production. It just has certain characteristics which make it useful, usually essential, for most economic purposes. But it's not always necessary. For example, I could run my music business from a laptop while sailing round the world. (But I suppose, in economic terms, that a sailing boat would count as a piece of [moving] land with a value. However, I'm not going to try this because I'm too comfortable where I am!) Keith >The collectible nature of land means that it's subject to intense >speculation. This is why so many valuable sites are vacant or >underimproved. The eventual sale at an ever-increasing price encourages >landholders to hang on, and on, and on. > >A New York Regional Planning Report some years ago, found 79% of the usable >land of Metropolitan New York - which covers a large area, but is a magnet >for people - was unimproved for urban use. Parks, roads, and suchlike were >improved. Lots with a billboard, or perhaps a shack, were considered >unimproved. > >Every landholder who can, hangs on - for tomorrow, or next month, or next >year, his "pension" will be bigger. > >Land speculation drives up prices (remember the collectible market adores >sales prices, but cares little about income). And - just as with other >collectibles - a rising price encourages a holder to hang on with the >expectation of yet further increases. So, prices continue to rise as land >is held from the market. > >You'll notice this is the exact opposite of the free market. There, >producers rush to market to take advantage of higher prices by being first >there. In the collectible market, everyone tries to the last to sell. > >This is the situation when someone wants to build a skyscraper. You try to >build higher to make the high land price economic. Trump wanted to build a >big one, was permitted only so many floors - but was asked over $100 >million an acre. There was no-way he could build at that price. > >Actually, there was one way. Another builder had a permit to build so many >floors, but didn't use all his allowed stories. So, Trump bought his >"unused permissions" used it to add more floors to his building - and was >able to pay the $100 million plus. > >If this sounds like something Alice brought back from Wonderland, you are >wrong. It was something that Marshall, Keynes, and the rest of them, handed >to us and called it Economics. > >High priced land drives central city buildings ever higher and makes them >ever more costly. If you can't buy "story permissions", you can cut corners >on construction - which probably leads into your thoughts on the WTC, >Keith. If you can save money by not riveting - perhaps that's the way to go. > >It's not just skyscrapers. Assessor friends of mine tell me that land >prices are often 50-70% of the costs of building homes. When a major cost >of building a home is not the materials and labor that go into the effort - >but the price that must be paid for the right to build - affordable housing >becomes a joke. > >A top appraiser friend of mine bought an old house in Orange County for >$240,000. His appraisal? The house was worth $25,000. The land was $215,000. ___________________________________________________________________ Keith Hudson, General Editor, Calus <http://www.calus.org> 6 Upper Camden Place, Bath BA1 5HX, England Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED] You wrote: >Hi Harry, > >I enjoyed your message but I have reservations about land being uniquely >"collectible": > >At 00:42 02/10/01 -0700, you wrote: > >Keith and Ray, > > > >Keith, you certainly started a fascinating exchange of ideas. It has been > >fun reading them. About cities - and, if I may, a quick primer on Political > >Economy - which was classical economics and dealt with people. Bear with > >the length of this bit because it will connect with the WTC disaster. > > > >First, the neo-classical economists discarded people in favor of > >mathematics. As the 20th century began, they desperately wanted to be > >considered a "science" - and discussing people seemed to lead to much > >complication. They preferred to make economics scientific by making it > >mathematical. This is why this "science of people" has become confusing and > >esoteric. > >Yes, I agree that economists have been barking up several different trees >in the course of the last century in an effort to develop the subject as a >science. The result has been merely a succession of fashions rather than >any sort of systematic development. As you say, they had ignored the fact >that human instincts and decisions are also involved. This makes economics >into a sort of spaghetti but it survives because gives jobs to thousands of >academics, journalists and financial advisors. > >To some extent this attempted aping of science is understandable because >the whole subject rests upon two laws which are certainly incontrovertible, >even though they are often lost sight of (particularly the second one by >anti-globalizers!) -- Supply & Demand and Comparative Advantage. But the >effort of scientising the subject has been as silly as if we were to make >the game of football into a science just because it depends upon Newton's >Laws of Motion. > >That being so, I think that economics, rather like sociology, or politics, >or history (with laws buried somewhere, but at a deep level), must always >remain as a 'literary' subject, which is best written about rather than >being relied upon. > >(HP) > >To make things easier (?) the neos dumped land into the same bin as capital > >and labelled the bin Capital. (They also called people "human capital" - > >but we won't dwell on that nonsense now.) It's easy to see that land - > >which would be here whether people were here or not - can hardly be placed > >in the same bin as capital which wouldn't be here without people. They are > >two dissimilar concepts melded together for everybody's confusion. > > > >Classical Political Economy rests its strength on clearly seen and mutually > >exclusive concepts, which are then given names. Two of these concepts are > >called Land (natural resources) and Capital (man-made products being used > >to produce other products). > > > >Capital is subject to free market forces - Land isn't. Land is actually > >part of the collectible market. In the collectible market, sales-price is > >everything - income doesn't matter (note the similarity of the collectible > >market to the top end of the stock market, where the speculators don't care > >about earnings, but concentrate on price - thereby extracting bleats from > >worried analysts). > >However, even though I think that economics is a 'literary' discipline and >not primarily scientific it's reasonable to expect that an author is >consistent the use of the terms he uses. However, you said two paragraphs >ago that Land and Capital are mutually exclusive. You're now saying that, >sometimes, Capital takes on the 'collectibility' attribute of Land. > >So I'd like to suggest that 'Land' and 'Capital' are useful terms when >talking colloquially about economics but not having exclusive definitions >in a strictly scientific or philosophical sense. Neither has the same sort >of primary meaning that 'value' has (when using the two Laws of Economcs) >or 'mass' has (when using the three Laws of Motion). > >You say that Land would exist whether humans were here or not. But it >wouldn't, because it's only a concept that has meaning when talking of >economic activity. As Ray Harrell might agree, 'land' itself didn't have >any meaning as an entity (that is, as ownable, and separate from the flora >and fauna) to the hunter-gatherer Indians when they 'sold' Manhatten to the >white man for a few beads. Without humans, soil would exist, rock strata >would exist, the atmosphere would exist, minerals would exist, wild-life >would exist, large continents would exist, small islands would exist, but >land wouldn't because it's an economic concept which has only come into >existence because of man's activities. > >Even now we can't even define what land is exactly (what about a tidal >foreshore? a cliffside? a glacier? a slab of Arctic ice? a swamp? a >volcano?) unless you also have a potential economic use in mind. >Immediately behind my house there are a few acres of hillside wilderness >too steep for anyone to build on and which nobody owns and nobody wants to >own because of the costs of keeping the trees in safe condition. Which is >fine by me -- and the red deer and the badgers and the squirrels and the >foxes. But it certainly isn't 'land' in any economic sense. > >Land is as much subject to the law of supply and demand as the other >important factors of production (which are, I suggest: Capital, Labour, >Energy and Information). For all practical purposes, the supply of each of >these factors of production can vary between being potentially limitless >and zero, and the value of them varies just as widely. The particular >value of each of them depends on its availability at a precise location at >a precise moment of time. > >Yes, land values (say in Manhatten) can be grotesque but only because the >land there is also at a confluence of the other important factors of >production, and thus in high demand. And, if it seems likely that land >prices in Manhatten will go even higher, then of course owners will hang >onto vacant lots until they're sure of the best possible price. However, >the costs of some sorts of Capital, Labour, Energy and Information can also >be enormous and, likewise, supply can be withheld by their owners if the >price is likely to rise. They are all collectible to a greater or lesser >extent. > >In strictly economic terms, Land doesn't have anything unique about it, >compared with the other factors of production. It just has certain >characteristics which make it useful, usually essential, for most economic >purposes. But it's not always necessary. For example, I could run my music >business from a laptop while sailing round the world. > >(But I suppose, in economic terms, that a sailing boat would count as a >piece of [moving] land with a value. However, I'm not going to try this >because I'm too comfortable where I am!) > >Keith > > > >The collectible nature of land means that it's subject to intense > >speculation. This is why so many valuable sites are vacant or > >underimproved. The eventual sale at an ever-increasing price encourages > >landholders to hang on, and on, and on. > > > >A New York Regional Planning Report some years ago, found 79% of the usable > >land of Metropolitan New York - which covers a large area, but is a magnet > >for people - was unimproved for urban use. Parks, roads, and suchlike were > >improved. Lots with a billboard, or perhaps a shack, were considered > >unimproved. > > > >Every landholder who can, hangs on - for tomorrow, or next month, or next > >year, his "pension" will be bigger. > > > >Land speculation drives up prices (remember the collectible market adores > >sales prices, but cares little about income). And - just as with other > >collectibles - a rising price encourages a holder to hang on with the > >expectation of yet further increases. So, prices continue to rise as land > >is held from the market. > > > >You'll notice this is the exact opposite of the free market. There, > >producers rush to market to take advantage of higher prices by being first > >there. In the collectible market, everyone tries to the last to sell. > > > >This is the situation when someone wants to build a skyscraper. You try to > >build higher to make the high land price economic. Trump wanted to build a > >big one, was permitted only so many floors - but was asked over $100 > >million an acre. There was no-way he could build at that price. > > > >Actually, there was one way. Another builder had a permit to build so many > >floors, but didn't use all his allowed stories. So, Trump bought his > >"unused permissions" used it to add more floors to his building - and was > >able to pay the $100 million plus. > > > >If this sounds like something Alice brought back from Wonderland, you are > >wrong. It was something that Marshall, Keynes, and the rest of them, handed > >to us and called it Economics. > > > >High priced land drives central city buildings ever higher and makes them > >ever more costly. If you can't buy "story permissions", you can cut corners > >on construction - which probably leads into your thoughts on the WTC, > >Keith. If you can save money by not riveting - perhaps that's the way to go. > > > >It's not just skyscrapers. Assessor friends of mine tell me that land > >prices are often 50-70% of the costs of building homes. When a major cost > >of building a home is not the materials and labor that go into the effort - > >but the price that must be paid for the right to build - affordable housing > >becomes a joke. > > > >A top appraiser friend of mine bought an old house in Orange County for > >$240,000. His appraisal? The house was worth $25,000. The land was $215,000. > >___________________________________________________________________ > >Keith Hudson, General Editor, Calus <http://www.calus.org> >6 Upper Camden Place, Bath BA1 5HX, England >Tel: +44 1225 312622; Fax: +44 1225 447727; >mailto:[EMAIL PROTECTED] >________________________________________________________________________ ****************************** Harry Pollard Henry George School of LA Box 655 Tujunga CA 91042 Tel: (818) 352-4141 Fax: (818) 352-2242 *******************************
