an uncalled for proceeding. Bilgram does not adequately support his economic heresies with statistical and other data; because the crises in England, France, Germany and Canada are not analyzed with reference to their currency systems; and because he does not recognize the contributions made by contemporary economists. For example, he discusses money theory without reference to Irving Fisher or Laughlin, the wage fund theory without reference to Taussig, and marginal productivity without reference to Clark. The authors most frequently quoted by Mr. Bilgram are Adam Smith, Ricardo, Mill, Marx, Henry George, Simon Newcomb and Böhm-Bawerk. In the main, he disagrees with their systems, except that he endorses the Ricardian theory of rent and labor theory of value, and the marginal utility concept. He holds that "rent . . . equals the advantages which the land employed affords over marginal land, and therefore depends on relative fertility and advantages of location" (p. 239); that "pure interest" is clearly traceable to a monopoly upheld by law" (p. 350), that is, to "arbitrary restrictions on the natural expansion of the means of exchange" (p. 512); that labor must take "what is left after rent and interest is paid " (p. 360), and that "the apparent power of capital to grow is really a power to acquire an unearned share of the results of labor performed by those who work" (p. 458).

It is uncalled for, because Mr.

In conclusion, the reviewer commends especially Mitchell's Business Cycles because of its excellent statistical discussions, numerous diagrams and clear presentation. This work offers good suggestions for bettering barometers for the forecasting of business conditions. As Mitchell says, "experience supports the current belief that occasional crises are inevitable" (p. 550)... but, nevertheless, "what has been already accomplished in these directions toward controlling our business machinery may well be the earnest of greater achievments in the future" (p. 586). The Federal Reserve Act is designed to prevent the recurrence of financial panics in this country. The proposals to use governmental activities

as

1

a balance wheel to steady the business mechanism" now being tried on French railways 1 and advocated by the Webbs in England, aim to diminish the severity of depressions. These proposals demand thoro consideration by economists and governmental officials everywhere.

WARREN M. PERSONS.

COLORADO COLLEGE.

1 See Rapports sur les indices des crises économiques et sur les mesures financières propres à atténuer les chômages résultant de ces crises, a government publication issued in 1911 by the French Minister of Labor.

The Prevention of Destitution.

Cycles, p. 587.

(London, 1912.) Cf. Mitchell's Business

NOTES AND MEMORANDA

"UNEARNED INCREMENTS," LAND TAXES, AND THE BUILDING TRADE

THE point has been made by opponents of the single tax that the "unearned increment" in land values is an incentive to building: that buildings which are expected to depreciate through obsolescence are often put on land that is rising in value in the expectation that the appreciation of the land will offset the depreciation in the building; and that consequently a tax which destroys the increment in land values would check building operations, instead of encouraging them as the single taxers contend. The argument has been buttressed by reference to the principle that earnings tend to be equalized in different lines of investment, so that if the building trade offered the normal return, and, in addition, an increment in land value, there would be a tendency, under competitive conditions, for capital to crowd into the building trade to such an extent as to reduce this joint gain to a point not exceeding the normal return in other lines. The reduction is expected to come about, in this case, by a depreciation in the capital invested in building.

The writer does not favor the single tax. He is, however, convinced that this particular argument against the single tax is unsound. One rather obvious difficulty presents itself: the case is possible only where the same man owns both land and building. If, as is the case to a large extent in Baltimore, and to a considerable extent in other cities, buildings are put up on leased land, the builder has no such inducement, because he will not himself benefit by the rising land value. The fact that buildings on leased land, and buildings owned

by the landlord compete in the same market raises a strong a priori presumption against the doctrine under discussion. The man building on leased land would be at a hopeless disadvantage in such a competition. A closer analysis will show that the increment in land values performs no such function as that assigned.

That buildings may be erected where rapid depreciation is to be expected is not denied. That this may, and frequently does, occur on land where the increment in land value is rapid is not denied. Land whose value is increasing rapidly may very well be land of which the best possible uses are changing rapidly, and consequently land on which buildings may be expected to depreciate rapidly through obsolescence. But it is denied that the amount of the increment in land value has any connection whatever with the amount of depreciation in building which is voluntarily suffered.

The matter is best put in an illustration. Assume a man who has a piece of land worth $50,000, and free capital of $30,000. Assume an annual increment to the land value of $2000. The owner has two options: he may leave the land idle and invest his $30,000 at, say, six per cent in industry, in which case his return is $3800 per year (counting the increment); or, he may apply his $30,000 to the land by building upon it, and so unlock the potentialities of the land, causing it to yield, say, four per cent, or $2000, making his total yearly return $5800 (again counting the increment). It is clear that in this latter case the owner gains if the depreciation of the building is anything short of $2000 per year. But the $2000 which offsets the depreciation is not the increment to the land value, but the extra $2000 that comes from putting the land to use. Varying the size of the increment leaves the situation unchanged. Assume an increment of $12,000 per year: he can still tolerate only $2000 per year depreciation. By using his first option, he would in that case have an annual gain of $13,800; by using his second option, an annual gain of only $15,800, still only $2000 to spare. Assume no increment at all: he has still the same $2000 margin for depreciation. The increment is wholly irrelevant. The significant

factor is the possible addition to his income from releasing the earning power of the land.

A different mode of reckoning would be compelled if the builder were building on leased land. In that case, he would offer as the annual rent of the land only that part of the $2000 rent attributed to the land in our figures above, which is left after amortizing the depreciation on the building. Properly speaking, land in the situation assumed would really contribute only that residuum to the joint product.

It is, of course, possible that an owner of a building who also owned the appreciating land on which it is built would not feel called upon to set aside out of gross income a sum to amortize the depreciation of his building; that he might spend it all, relying on the increment in land value to serve as security for the capital later to be needed for a new building. But in that case the increment would be off-setting, not the depreciation, but the owner's expenditure of his capital for consumption purposes. The increment would then make possible, not more building, but extravagance. But that the increment, which is a constant factor whether the land is built upon or not, should have any influence on a decision to build or not to build, is, on the face of it, impossible.

It should be noted, also, that an extra tax on land for the purpose of encouraging building might be similarly barren of results. If the tax is a constant factor, whether the land is built upon or not, in what way could it affect the decision to build? A special tax on unoccupied land alone would cause more building, but factors which are constant regardless of the decision do not count among the pros and cons. It should be added, however, that since buildings are, under our general property tax, in fact more heavily taxed than most other forms of capital, an application of the single tax would relieve buildings of a disproportionate burden, and so somewhat stimulate building at the expense of other forms of enterprise.

The principle mentioned in the first paragraph, that earnings in all lines of investment tend to be equalized, so that a 1 My attention was called to this other side of the matter by one of my students, Mr. R. S. Merriam, A.B., Harvard, 1914.