James asks (a propos Alfred Marshall vs Henry George on land rents):   
"Were the people in Hong Kong (before unification) more wealthy than  
those in mainland China because there were more private landowners in  
the latter than in Hong Kong?"   
  
  
Of course not. Henry George roundly condemned totalitarian state  
ownership and allocation of land as a recipe for tyranny and poverty.  
("Liberty is to wealth as sunshine is to grain".) He approved of secure  
private title to land (qua land). But unlike ownership of man-made  
capital goods, rights were to be conditional, not absolute. Holders of  
exclusive titles were to pay for the privilege according to rental  
values as revealed by market supply and demand. In our mixed economy  
this would be within the usual framework of local building permits. In  
the totalitarian state land is allocated and used according to  
bureaucratic decree with no reference to market signals.   
  
If others are willing to pay $5,000 a year for land to which I hold  
title, and this is the going rental value, then I must match or move to  
somewhere cheaper. This is no different from current practice in the  
private rental market for properties (all of which have a land element  
and an improvement element, for both of which there is a separate and  
sufficiently, though roughly, identifiable market value; such  
calculations are made all the time).  
  
In Hong Kong for many years the great bulk of all state revenues came  
from sale of leases on state land. Income and corporation taxes were  
thus made very low indeed. This released considerable energy.  
Entrepreneurs were not deterred by having to pay the state for the  
privilege of exclusive use of the land they developed -- as they  
themselves saw best fit.  
  
Alfred Marshall saw the validity of George's view of "situation" and  
"site" value (though he famously debated with George in Oxford in 1884  
on whether the land market was characterised by 'monopoly'; and was very  
circumspect in his Appendix G on local rates): "It is obvious that the  
greater part of situation value is 'public value'" (Principles, v, xi,  
2, p.442).  
  
In special cases (very large, privately planned whole communities such  
as Pullman City), he recognised that part of income from land can be  
more like entrepreneurial profit than community-created rent. "But", he  
writes, "as a rule a site value owes little to the owner of the site"  
(p.445)   
  
How would James and Pat regard the many billions of dollars of enhanced  
land values in those parts of London that have benefited from the new  
taxpayer-funded Victoria underground line? Merited entrepreneurial  
income? Or unearned increment? The cause or the consequence of high  
price?  
  
Pat's favourite economist is Herbert Davenport, and Paul Samuelson one  
of his least favourite. What then does he make of Samuelson's chapter on  
land rents which begins with this beauty from Davenport:  
  
The price of pig,  
Is something big;  
Because its corn, you'll understand,   
Is high-priced too;   
Because it grew  
Upon the high-priced farming land.  
  
If you'd know why  
That land is high,  
Consider this: its price is big  
Because it pays  
Thereon to raise  
The costly corn, the high-priced pig.  
  
  
Roger Sandilands