Charting the Costs of Land Speculation

Adding a few specific factors can help us to understand how land speculation works in real life. Here is a model with five different grades of land. Workers are more productive on better land (each worker can produce more units of wealth) because the best workers tend to win the competition for the best locations, where more capital is used. And, on the better grades of land, more workers can be employed on each "plot" (unit of area). But the cost of public services (infrastructure) is greater in proportion to the amount of production and the number of workers. In this model there are four plots of each grade of land, and one of each four has been held out of use.

Let's further suppose that unemployment is a part of our economic model and that society uses some of its tax revenues to ease the burden of poverty. Let's assume that out of 500 willing, able workers, 50 of them can't find jobs. We'll say that the return to labor and capital at the lowest-quality land in the chart (1 per day) equals the payment to "welfare recipients." Thus, 50 units per day will have to be taken in taxation and redistributed to the unemployed. By eliminating wasteful hoarding of land by speculators, we can increase production, reduce infrastructure costs, and raise wages!

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4 plots
of each
grade
of land
5 units per worker/day;
50 workers
per plot
4 units per worker/day;
40 workers
per plot
3 units per worker/day;
30 workers
per plot
2 units per worker/day;
20 workers
per plot
1 unit per worker/day;
10 workers
per plot
Unemployed
workers:

50

1. 50 x 5 40 x 4 30 x 3 20 x 2 10 x 1
2. 50 x 5 40 x 4 30 x 3 20 x 2 10 x 1
3. 50 x 5 40 x 4 30 x 3 20 x 2 10 x 1
4. Totals
workers
employed


150 120 90 60 30450
wealth
output


750 480 270 120 30 Welfare
cost:
1650
infrastructure
cost
200 160 120 80 4050650


Now let's see what happens if we employ the same number of workers, but without land speculation. We can expect some very good results! By using the land efficiently and eliminating unemployment, the community can afford to provide infrastructure where the land is free, while spending less on public services than before!


5 units per worker/day;
50 workers
per plot
4 units per worker/day;
40 workers
per plot
3 units per worker/day;
30 workers
per plot
2 units per worker/day;
20 workers
per plot
1 unit per worker/day;
10 workers
per plot
1. 50 x 5 40 x 4 30 x 3 free free
2. 50 x 5 40 x 4 30 x 3 free free
3. 50 x 5 40 x 4 30 x 3 free free
4.
Totals
workers
employed


200 160 120 20 -500 + 50
wealth
output


1000 640 360 40 -2040 + 390
infrastructure
cost
200 160 120 80 -560 - 90

Let's take a minute and examine these totals. The fifty formerly unemployed workers are now producing a living for themselves. How? Natural opportunities are now available for their use, and increased production has increased the demand for their labor.

Wealth output has increased, because workers are more productive, now that more of them have access to the better land, from which they were previously locked out.

Infrastructure cost is less, because development no longer leapfrogs past unused land.

It is likely that synergistic enhancements to productivity would be hastened by this process, and in time, production would increase still more. When it did, the entire community would benefit. How do we know that? Because we have eliminated land speculation.

And how could we do that? By banning it? No: we'd eliminate land speculation by making it unprofitable by collecting the rent of land for public revenue (and lowering/eliminating other taxes). Private landowners would no longer be able to rake in the rewards of the whole community's efforts. That's the "Georgist Remedy." Stay tuned! Our course will explore this proposal in detail.