The utility maximisation of pigeons



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THE UTILITY MAXIMISATION OF PIGEONS

The study of economics does not seem to require any specialised gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy or pure science? An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must be mathematician, historian, statesman, philosopher - in some degree. No part of man's nature or his institutions must lie entirely outside his regard

John Maynard Keynes

I

t was one of those glorious winter mornings in June when the comrades had ordered everyone to stay away from work, and Chaka was basking in the sun outside his little Soweto shoebox when a battered old Chev drew up at the gate in a cloud of dust. Out jumped Petrus with two other men, whom Chaka recognised as Dr Phalane, a township intellectual the Press loved to quote whenever the Government announced one of its 'reforms', and Reckson, a friend of Dabulamanzi and Petrus.

"So this is Chaka, the man with all these wonderful ideas for doing away with tax and giving land and instant Utopia to the people!" said Dr Phalane.

"Oh no, Doctor," Chaka said, "it's just common sense. Anyway, we've little else to do these days but think about how good life might be when apartheid goes."

"Well, our friend Petrus here has explained it to me and it all sounds very interesting — but I just want to ask you why no one has ever thought of this wonderful idea before. Why isn't it being done anywhere else in the world? Has Man never lived in harmony with Natural Law before? Has collection of the Natural Rent or this site user charge system of yours ever been tried elsewhere and why do you think we in South Africa should be the first to experiment with these new ideas?"

"Hau,Doctor! It is good you came early in the morning because you have asked some big questions. But come in and sit down. Petrus, please fetch some beer from the kitchen for the doctor and Reckson.

"But I must tell you, Doctor, if you really want the answers you will have to help me find thern because right now I honestly don't know."

"Ag, come on, Chaka man, don't waste our time, just get on with it," shouted Petrus from the kitchen.

"Well, for a start, Doctor, can you tell me why Man took so long to discover the wheel, or to realise that the Earth is a spinning ball that revolves around the Sun? Can you tell me why the whites have only just woken up to the fact that apartheid is a disaster? You see, many of the greatest discoveries of Man seem blindingly obvious to us now."

"Certainly, I could never understand how the whites could not see the folly of apartheid — but they didn't!"

"The other thing to realise, Doctor, is that these ideas are not mine. They have been stated many times before by people like Henry George in Progress and Poverty, Leon MacLaren in the Nature of Society, and Fred Harrison in The Power In the Land, and even Sir Winston Churchill in The People's Rights. So, Doctor, you are a clever man: you can read these books and tell the people whether what old Chaka says is true."

"Chaka, why has nobody ever heard of these people's ideas before?"

"Once again, Doctor, I can only guess, but there are a few things which can be said. First hear Count Leo Tolstoy on this."

Chaka went over to his bookcase and pulled out some papers. He searched through them until he found the passage he was looking for, and then read

aloud:

'"George's idea... changes the way of living of the people, to the advantage of the big majority - at present downtrodden and silent... this idea is expressed so convincingly and effectively and above all, so simply that it is impossible not to understand it. For this reason there is only one way to fight against it, to falsify it and to keep silent about it. Both are practised with such pains that it is difficult to induce people to read George's books attentively and to deepen his doctrine. In the whole world, among the majority of intellectuals the ideas of George continue to be misinterpreted, and the indifference towards them appears

to grow."1

Chaka put down the papers and continued: "It is also interesting to note how recent a development income tax is^ It was introduced in America less than 80 years ago, but the way people talk today you'd think it came out of the Ark with Noah! In time to come, people will see it as a barbarous relic long before they stop using our gold. It will be as much a source of wonderment to youngsters reading their history books as the Spanish Inquisition is now.

"Then you asked me whether Man has ever lived in harmony with Natural Law before. That too, Doctor, is a big question, but briefly, the answer is yes."


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r

"Where, Chaka?"

"Right here in South Africa, Doctor. Around this very gold-rich Ridge of the White Waters our forefathers lived in harmony with Natural Law, as far as economics is concerned. So did our brothers elsewhere in South Africa, the Khoi-Khoi and the San. For they were never so barbarous as to allow one of their own people to enclose the veld and make them pay to hunt there. Every man had an equal..."

"Yes, yes, Chaka, of course I know about our people, but who else?"

"Well, there were many examples in pre-industrial times. Of course there were many other nomadic semi-pastoral communities similar to our people, such as the Red Indians and the people of the Asian Steppes. But if you want to know about one such nation which had a system for settled agriculture which prevented big land-barons, then read the Bible!"

"An indaba on economics is one thing, Chaka, but don't waste our time with religion, man!" chipped in Petrus.

"Just read Leviticus 25, Doctor! There you will read about the Great Jubilee, every 50 years, when every man had to return to his own land and to his own family. In between Jubilees land could be bought and sold, but only for the time left till the next Jubilee. So no one class could end up owning all the land!

"Even in the feudal system of Europe land was held from the King in return for service. The peasants held land from the local baron, who held it from the duke and so on, in return for service. The barons and dukes provided protection and in return the people supported them. In theory, at any rate, there was no such thing as unrestricted freehold title without a corresponding duty to the community.

"Gradually, of course, this degenerated into the absolute right of ownership which the Europeans have today. One of the ways in which this happened was, for example, through the land enclosure acts which were pushed through the English Parliament over hundreds of years. The crunch for the small English landholders, the yeomen of Old England, came with the Agricultural Revolution. Many of them lived in villages in which each man had a right to keep so many cattle and sheep on the common grazing land and to cultivate various strips of land around the village. Each strip would be left fallow one year and planted in the second and third years. It was all very balanced and just and the people were happy.

"But of course, it was no good for the new methods and tools discovered in the Agricultural Revolution of the eighteenth century. So the land was fenced in by the few, and the many were turned out. Later, they provided cheap labour for the new factories of the Industrial Revolution, in which women and children worked in far worse conditions than even our people are used to here. The British and others found outlets for these people in their colonies, while the Germans later sought more space or 'lebensraum' through war.

"So the point is, Doctor, some people did indeed live to some extent in justice and harmony with Natural Law before the new inventions which needed fewer people on'the land and more in the factories, mines and trade. Enclosing the land for that^purpose may well have been good. What certainly was not good was the failure of governments to collect the rising natural rent from those people who took the land."

"And what happened in the cities, Chaka?" asked Dr Phalane, who seemed to be a little less sceptical now.

"Exactly the same as in Johannesburg, Doctor! When the poor whites in the thirties and the blacks after the war came to our cities, land values rose dramatically. The same thing happened in Europe! Landowners in and around the cities benefited from the growth in population and production but the new arrivals from the countryside didn't, because governments failed to collect the rising natural rents there as well!"

"So what did the people do about it?"

"Well, Doctor, they protested and struggled until, in Western Europe, they achieved; democracy. But that still didn't solve the problem."

"Why not?"

"In a nutshell, Doctor, because they listened to the socialists instead of to people like Henry George, Churchill and Tolstoy. They thought that if governments owned the land and ran the industries, mines, banks and so on, everything would be all right. In fact, only now, after a century of socialism, are they beginning to see what a hash governments make when they interfere in this way. Socialism did give some of the benefits of industrialisation to the people, but if governments had simply collected the natural rents in the first place, the need for redistributing wealth via socialism would never have arisen."

"Chaka, you are a funny old man! Why do you talk about Churchill as if he were a great intellectual benefactor? Surely he was nothing but a war­mongering capitalist — and an imperialist to boot!"

"Well, Doctor, quite apart from the fact that he helped save the world from the jackboot of Hitler and fascism, do you know that as a young Minister in Britain before the First World War, he was an admirer of Henry George and tried to implement his ideas?"

"Nonsense, Chaka! As a young man he came here with the British when they fought the Boers. And they did that for the gold, not to help us!"

"Yes Doctor, that is true, but let me read to you what Churchill said about land."

Chaka went back to his bookcase, pulled out The People's Rights, turned to a well-thumbed page, and read aloud:

"It is quite true that the land monopoly is not the only monopoly which exists, but it is by far the greatest of monopolies - it is a perpetual monopoly, and it is the mother of all other forms of monopoly. It is quite true that unearned increments in land are not the only form of


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unearned or undeserved profit which individuals are able to secure; but it is the principal form of unearned increment which is derived from processes which are not merely not beneficial, but which are positively detrimental to the general public. Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed in geographical position - land, I say, differs from all other forms of property in these primary and fundamental conditions. Nothing is more amusing than to watch the efforts of our monopolist opponents to prove that other forms of property and increment are exactly the same and are similar in all respects to the unearned increment in land. They talk to us of the increased profits of a doctor or a lawyer from the growth of population in the towns in which they live. They talk to us of the profits of a railway through a greater degree of wealth and activity in the districts through which it runs. They tell us of the profits which are derived from a rise in stocks and shares, and even of those which are sometimes derived from the sale of pictures and works of art, and they ask us, as if it were the only complaint, 'Ought not all these other forms to be taxed too?'

"But see how misleading and false all these analogies are. The windfalls which people with artistic gifts are able from time to time to derive from the sale of a picture - from a Vandyke or a Holbein - may here and there be very considerable. But pictures do not get in anybody's way. They do not lay a toll on anybody's labour; they do not affect any of the creative processes upon which the material well-being of millions depends; and if a rise in stocks and shares confers, profits on the fortunate holders far beyond what they expected, or indeed, deserved, nevertheless, that profit has not been reaped by withholding from the community the land which it needs, but, on the contrary, apart from mere gambling, it has been reaped by applying industry with the capital without which it could not be carried on. If the railway makes greater profits, it is usually because it carries more goods and more passengers. If a doctor or a lawyer enjoys a better practice, it is because the doctor attends more patients and more exacting patients, and because the lawyer pleads more suits in the courts and more important suits. At every stage the doctor or the lawyer is giving service in return for his fees, and if the service is too poor or the fees are too high, other doctors and other lawyers can come freely into competition. There is constant service, there is constant competition; there is no monopoly, there is no injury to the public interest, there is no impediment to the general progress.

"Fancy comparing these healthy processes with the enrichment which comes to the landlord who happens to own a plot of land on the outskirts or at the centre of one of our great cities, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing. Roads are made, streets are made, railway services are improved, electric light turns night into day, electric trams glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains - and all the while the landlord sits still. Every one of those improvements is effected by the labour and at the cost of other people. Many of the most important are effected at the cost of the municipality and of the ratepayers. To not one of those improvements does the land monopolist as a land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced. He renders no service to the community, he contributes nothing

to the general welfare; he contributes nothing even to the process from which his own enrichment is derived."

"Well, I must admit, Chaka, that seems to make sense. Now tell me why, if Churchill's parly was in power, the British don't have it now?"

As few South Africans understand the British and their politics now, let alone three-quarters of a century ago, Chaka couldn't really help Doctor Phalane. However, Chaka remembered someone telling him that the Liberal Party, to which Churchill belonged at the time, did introduce the principle in the 1909-10 Budget. Apparently it was very badly drafted and unworkable and even failed to introduce the simple principle of a straightforward rate on the actual value of land. So he said, "It seems, Doctor, that Churchill was sabotaged by the verkrampte bureaucrats just the same way the verligte Nats said P W Botha was with his reforms — such as they were." And then Chaka quoted from the foreword to Churchill's book from which he had just read. "As it was, the great power and intellectual prowess of the Liberal Movement, which had commanded worldwide admiration for the breadth and nobility of its vision, was soon to be dissipated by war, internal feuding and the fear of bolshevism.

"Under the cruel heel of war and unemployment men came to value security more and independence less. The emphasis in social advance shifted to the massive provision of public benefits and the increasing intervention of the State in almost every area of human activity. The two World Wars and the great depression between them had to a great extent severed the line of liberal thought that had developed over the previous century."

Chaka then told Dr Phalane that the British Finance Act of 1931 introduced by Ramsay MacDonald's Government provided for a small land value tax based on a land valuation which was also to be available for local government rates. However, it was suspended before implementation and then repealed by the National Government which came to power soon afterwards. Dr Phalane, however, was not easily satisfied.

"Never mind the British, Chaka, didn't anyone else try it?" "Yes of course! The Danes had a very successful experiment with the land tax which their government imposed from 1957 to I960.2 The Taiwanese, thanks to Sun Yat-Sen, who also read Henry George, benefited from these ideas, which were applied to land reform after the Nationalists crossed from Mainland China in the 1940s. The few feudal barons who owned the island at the time were bought out with government bonds and the people given land for an appropriate annual fee. Soon they exported food, the dollars from which were used by their businessmen to import machines for their factories, and since then they've never looked back!

"Even the Japanese, Doctor, have benefited to some extent from these ideas. After the Meiji Restoration in 1868 they had a land reform which helped them in the same way. In 1873 land surveys were begun to determine the amount and value of land on the basis of average yield in recent years, and a tax


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in money of three per cent of the value was then set as the land tax. The same surveys introduced certificates of land ownership for farmers, who were also released from feudal controls. The establishment of private ownership, along with measures to promote new technology, fertilisers and seeds, soon produced a rise in recorded agricultural output. The land tax, supplemented by printed money, was the principal source of the government's income for several decades. However, by the end of the Second World War, the new landlords were living in the towns and taking two-thirds of the crops from their tenants. After paying for seed and fertiliser, these tenants were lucky if they got one-sixth of the crop to live on! But, as luck would have it, General Douglas Mac Arthur was an admirer of Henry George; he not only gave them a democratic constitution, but he also reversed the proportion so the tenants had two-thirds. Soon Japan was exporting rice instead of importing it!

"And then, Doctor, don't drop your beer, but right here in Johannesburg these ideas have been applied."

"Go on, Chaka, just now you'll be telling me the Boers are angels!"

"Not so, Doctor, but soon you'll be able to buy land in Johannesburg, and when you do, you'll have to pay the City Council site value rates whether you have a building on your land or not."

"Ag man, Chaka, I know that, but so what?"

"What we don't realise is that in Britain and America most cities levy rates or property taxes on the value of the buildings or, even worse, on the rental income of the property. So they penalise those who develop and use their land to the full and reward those who don't. Then they add rent control — and wonder why they get slums like Harlem in New York! In many cities of the West you can see vacant land near the city centres, or land with only a panelbeater's shop when it should have a skyscraper on it.

"So these cities lose out on revenue and encourage even the most blatant and wasteful forms of land speculation. Not so in Johannesburg. The panelbeater next to the Carlton Centre pays the same rates. Bare land pays the same rates as fully developed, according to its value. So, people develop their land! The builders just can't wait for the bulldozers to finish clearing the site because they are in such a hurry to get the new building up. I heard a story the other day that a builder had some of his materials carried off by mistake in the breaker's dump trucks because he put them on the site too early!

"It's not just the gold and the invigorating climate of the Reef that have made Johannesburg one of Africa's most dynamic cities. It rewards people who develop their land by not charging them a penny more in rates than those who don't. It's not just the sleepy climate at the coast that makes for slower development in places like Cape Town — they tax buildings and improvements! Imagine, Doctor, you build another room on your house for your mother and the City Council comes and says, that'll cost you R15 a month

in extra rates!"

"You know what would happen if they tried that nonsense in Soweto!"

"Yes, Doctor! And you know, the interesting thing is that most people in America and Europe are so ignorant of site value rating that their City Treasurers don't believe it can be done. The Johannesburg Valuation Department happens to be way ahead of them in the accuracy and efficiency of its computerised valuation roll. In fact, their officials have been told when visiting America that it would be impossible to introduce this in some cities because the Mafia wouldn't like it!

"But even the people of Johannesburg don't know what a gem they have in their system. A few years ago their Council asked the Government to let them abolish site value rating and have sales tax instead. Fortunately someone realised that city revenues could be supplemented simply by making government departments pay normal city rates. This step would kill two birds with one stone because it would make the bureaucrats more cost-effective by showing everybody their true costs. In a rare moment of enlightenment the Government did this some years ago, and you know what?"

"No.'*

"The railway people suddenly discovered a few years later that this R50 million a year in rates was hurting, so they are now either selling or going to re­develop most of their vast land holdings in city centres throughout South Africa. So, hey presto, we've suddenly got 'new land' in all our cities!

"And then, of course, there are cases where governments, by luck or accident, give partial recognition to these principles without really understanding what they are doing. For example, public lands or off-shore gas and oil deposits are sometimes leased by governments on a tender or market-value-related basis. Before our gold bonanza began in 1972 the government used to give a 'subsidy' to the lowest grade or marginal mines. In fact, they were only repaying taxes — sales tax, customs and excise, the income tax paid by their employees — which these mines, being marginal and therefore yielding no rent, should never have paid in the first place. The wisdom of this course was shown when the bonanza began and the mines, which had been just as marginal as, say, the worst farming land, ceased being marginal and repaid the Government's 'generosity' many times over.

"Likewise, governments the world over attempt to counteract the disastrous effects of taxation on outlying marginal areas through subsidies and development grants and so on. However, whether it be Northern Ireland, Scotland, the North of England, the South of Italy or the Limpopo and other 'border' farms here, the subsidies succeed only to the extent that they eliminate the effects of taxation on marginal land. To make matters worse, subsidies sometimes increase land prices because wealthy people buy farms so as to offset their losses on them against income from elsewhere in order to reduce their


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