The COVID-19 pandemic and the containment measures taken to control it likely will be together the seminal economic events of a generation, surpassing the financial crisis of 2008 and rivaling stagflation in importance. Indeed, unlike 2008 and like stagflation, this crisis is manifesting as a failure of both supply and demand; not only are consumers less willing to spend, but many producers have seen output fall as workers stay home or supply lines are severed. The governmental and collective response to this crisis will shape the economy for decades.
Government containment efforts will harm labor and capital much more acutely than they will harm land, and thus the impacts on the former will overall be more detrimental. It is therefore important that economic measures be instituted to restrict the ability of land to draw revenue away from labor and capital, in order to limit the long-term damage caused by the temporary shutdown of the economy. This crisis reveals the critical gap between capital and land, and conversely the close similarity between capital and labor, and any response needs to take this gap and this similarity respectively into account.
To those used to thinking in Marxist or neo-neoliberal terms, this last statement will seem a bit paradoxical. After all, land has long been viewed as simply a species of capital, and not a particularly exciting one. Labor, on the other hand, has been seen as either complementary to capital, in the liberal view, or competing with it, in the Marxist way of thinking. In either case, the two are seen as fundamentally different.
George, on the other hand, definitively overturns this conception. “Capital” he defines as wealth resulting from human effort and which is used to create more wealth; that is, generally, the tools, buildings, etc. used by labor to assist labor in its production. A key part of his definition of capital is that it is produced by human effort, and that it reflects changing human priorities: “Capital is not a fixed quantity, but can always be increased or decreased, (1) by the greater or less application of labor to the production of capital, and (2) by the conversion of wealth into capital, or capital into wealth.” Every portion of capital is itself the creation of a labor.
In terms of this definition, it is clear that capital and labor are both elastic, meaning their quantities respond to an increase in price (wages or rates of return on investment). In the current situation, as labor is increasingly confined by quarantine or social distancing, both wages and returns on investment will fall, and thus both labor and capital will diminish in quantity. Millions of workers have experienced financial hardship within days or weeks of losing their jobs. Similarly, the owners of capital––from a local coffeeshop to a fleet of 747s––will become illiquid and potentially insolvent within weeks or months.
This is where the fallacy of grouping land and capital becomes especially apparent, on both a large and small scale. Imagine a waitress working at a café who owns the trailer she lives in but who pays lot fees every month to the owner of the trailer park. The café she works at owns tens or hundreds of thousands of dollars in physical as well as intangible capital––equipment, tables, name recognition, etc., but pays a monthly lease on the land the building is on. When both are subject to “shelter in place,” both wages and business revenue are not earned; however, the revenues to the owner of the trailer park and the commercial landlord of the café continue in the form of rent paid. In this instance, the waitress and café, capital and labor, are most definitely share in the same circumstance, which is a very different one than that of land.
Similarly, even once the current restrictions are lifted, both capital and labor will be diminished compared to their levels before the crisis. As with 2008, we’ll likely see a diminution in the overall labor force, as older workers retire early and those who are too discouraged or too removed from their work networks do not return to the labor force when the crisis has passed. Moreover, training & education will have in many cases been postponed, and many new workers entering the workforce will be lacking important training and experience, meaning that the same number of workers will be less productive. Similarly, in the ensuing weeks and months there will be far less capital investment in industries like housing or construction, both because struggling companies are unsure about their finances and because the necessary workers and supplies are, in many cases, unavailable.
Returning to our example, the café, if it remains open at all, certainly will be in no position to invest in new equipment or renovation. At the end of several months of shelter in place, the café will be considerably worse off, to say the least. The waitress too will likely have put her college classes on hold, forced thereby to delay her plans increase her experience and qualifications. Her older co-workers may not return to work; their younger replacements will have less experience than they would have in a better economy. Overall, both labor and capital will have diminished. The connection between labor and capital is thus perfectly clear here. Most economists expect, therefore, that even as quarantines and shelter in place orders are lifted, the economy will take months or years to return to trend, if indeed it ever does.
Land, on the contrary, is quite a different factor of production. Land is not produced by the effort of landowners, and the quantity of it remains fixed regardless of the price. While it may be purchased and rented like other capital, this fixed quantity is important, in that the price mechanism doesn’t lead to a greater supply of land, nor does a temporary loss of revenue lead to a smaller quantity. Even if the landlords themselves received no revenue during the entire period of the Covid-19 crisis, the land will still be there as it is, having suffered no loss of productive capacity.
Hence, during this current crisis, landowners will not see as rapid a decline in revenue, nor will it have as great of a long-term economic impact. Capitalists who also own, outright, the land on which their capital is located are going to struggling much less than those who own capital but not the land underneath itl the latter’s fixed expenses are far less with no land rent. Barring dramatic action, landlords will continue collecting rent from tenants, or will receive back payment in full.
As businesses fail and demand for commercial land declines, it is possible that the price of land will decline with it. However, while this may diminish the volume of land sales, it will not diminish the acreage of land that is available, nor the productivity it can support given adequate capital or labor. In other words, even if landowners see a diminution of revenue, it will not translate into any lost ability for the real economy to provide for the wants and needs of the people.
Why is this distinction important to discuss now? First, because it provides a coherent means by which to view the current crisis and evaluate solutions. Cash flowing into the economy now, from the Fed or the US Treasury, will likely flow primarily to the owners of land. A mandatory freeze of payments on rent and forbearance on mortgages, on the other hand, could redirect some of this flow towards the factors of production most at risk of atrophy. As long as banks have nearly unlimited access to credit to avoid an acute liquidity crisis, diminishing the revenue that flows to landowners and mortgage holders is likely the least-bad economic outcome; again because this revenue is not needed to invest in or maintain the amount of land that there is for human or physical capital.
Second, as we work to rebuild the economy that almost certainly will be devastated by the Covid-19 pandemic and the efforts to contain it, local governments will likely need more robust revenue sources to make up for plummeting sales taxes and stagnant property tax revenues. The decision to obtain that revenue through a tax on land, which this crisis has demonstrated, yet again, is of unchanging quantity, will accrue immense benefits to those polities willing to try it.