Editor’s note: This essay written by economist Mason Gaffney is republished on thedailyrenter.com with permission from the School of Cooperative Individualism.

A-1. Land is not produced nor reproducible

Land is not produced, it was created. It is the world, the planet from which man evolved, with the sun that energizes it and the orbit that tempers it. Land is a free gift, variously expressed in different philosophies as Spaceship Earth, the Big Blue Marble, God’s Gift, Creation, Gaia, The Promised Land, or nature. Mankind did not create The Earth with its space and resources, nor can we add to them. We can only acquire them, often by fighting, or rent-seeking, or in other counterproductive ways. Man at best improves and develops capacities inherent in the free gift. It is disappointing, and should alert us and make us suspicious, that economic analysis would ever purge out this paramount, self-evident truth.

“Land” in economics means all natural resources and agents, with their sites (locations and extensions in space). Land is not just the matter occupying space: it is space. It includes many things not colloquially called land, such as

• water and the beds under it,
• the radio spectrum,
• docks,
• rights of way,
• take-off/landing time slots for aircraft,
• aquifers,
• ambient air (the right to breathe it and the license to pollute),
• “air rights” to strata in the third dimension of cities,
• falling water,
• wild fish, game, and vegetation,
• natural scenery,
• weather,
• the environment,
• the ecology,
• the natural gene pool, etc.
• Any franchise, license or privilege giving territorial rights is a species of easement over land.
  
  • Your driver’s license is a right to use land;
  • Red lights remind us of the critical value of space at central locations, since two objects cannot occupy the same space at the same time.
  • It is worth a lot to have the right-of-way, as railroads do.

Economic land excludes many things, too, that are colloquially called land. It excludes land-fill, for example, by which many cities are extended into shallow waters. The site and seabed are properly land; the land-fill is an improvement. There is no “made land” in the economic sense: it is reallocated from other uses. Expanding cities take farmland from producing food and fiber, much of it for the expanding city itself. Filled land in shallow water near cities is taken away from anglers and sailors and viewers and ecologists, who now routinely organize to prevent it being “made” away with. Drained and filled wetlands are taken away from endangered species, as well as from their primal role as filters protecting coastal waters from river trash and pollutants. Thanks to the myopia and dereliction of economists, it has taken militant environmentalists to carry home this truth, developing in their struggle to be heard and understood a deep skepticism of economists and their “way of thinking.” Some economists and environmentalists are now coming to terms with each other, after decades of mutual shunning. Too many modern economists, however, still use their “way of thinking” to seal out important new evidence that doesn’t fit the model.

Capital (K) is that which has been produced but not yet used up. Capital is formed by human thrift, forbearance, investment and production. Only after mankind forms and makes capital does it bear much likeness to land, in that they coexist. Ordinary micro-economics obscures the differences because it deals mainly with relations of coexistence, ignoring the continual formation and destruction of capital, ignoring time and relations of sequence. Thus it excludes from its purview one of the prime differences between land and capital. The life of capital, like that of people, is marked by major sacraments of birth, growth, aging and death – all missing from micro theory. Economic life is a cavalcade in which the birth and death of capital are dated events. Micro deals mainly with how existing resources are allocated at a moment in time, not how they originate, grow, flourish, reproduce, age, die, and decompose.

Capital occupies space; land is space. In common micro theory, resources and markets come together at a point not just in time but in space. Again, it excludes from its purview one of the prime qualities of land.[6]


For the reasons given, alone, land and capital are mutually exclusive. There are, however, nine more, which follow.

A-2. Land as site is permanent and recyclable

Land as “site” (location plus extension) does not normally wear out, depreciate, spoil, obsolesce, nor get used up by human activities incident to occupancy and production. In contrast, capital depreciates from time and use, routinely and by nature. After being formed, it must be conserved from entropy by continual maintenance, repair, remodeling, safeguarding against theft and fire, and so on.[7] Like our own bodies, it returns to dust; land is the dust to which it returns. Inventories are depleted; moving parts wear out; fixed capital depreciates with use and time.


Land normally does not depreciate as a function of time. Most attributes of land also withstand use and abuse. Most land is, rather, expected to appreciate in real value in the long run. Values go in cycles, but the secular history is upwards as population, capital, and demands all grow while land remains fixed. Capital has a period of formation during which it accretes value by storing up other inputs and changing physical form, but that is a phase. Once formed, almost all capital fails with time.

Perhaps the most durable capital is intellectual, like the writings of Plato. These, however, do not endure generations without the continual human effort and expense of education. As schools starve and libraries close, it is sadly certain that much will be lost. Under any conditions much is twisted in transmission, like classical economics itself.

Capital, however durable, also obsolesces because it is subject to continual competition from streams of new products. Intellectual capital, however classic, is subject to endless competition from floods of new ideas and discoveries. Land does not obsolesce from this cause: there is no new land, let alone modem, state-of-the-art land. Both land and capital are subject to demand-obsolescence from changes in tastes and fashions, but overall the taste for land as a consumer good rises as incomes and wealth grow. The writer has documented elsewhere how the land share of residential real estate value rises sharply with its total value.[8] The land part of residential real estate is a “superior good”; the building part is not.


It follows that the demand for land arises over time with incomes, but faster than incomes. For example the soaring demand for golf has produced 150 golf courses in one California county (Riverside) alone, preempting a good bit of the usable land and a huge share of this natural desert’s limited water resources. The western quarter of Massachusetts, the Berkshires, with adjoining parts of Connecticut, New York, and Vermont, has become one vast country estate for suburban New Yorkers and retirees, and is priced high above its farm value. Ski resorts, hunting clubs, yacht harbors, spas, beach resorts, and such uses increasingly outbid mere utilitarian uses for prime lands. There is also a high and rising technical multiplier of demand for land to complement modem consumer capital. For example, the parking demands alone of 200 million private autos in the U.S.A. preempt an area as large as Maryland and Delaware combined. Unlike most of Maryland and Delaware, the parking lots are mostly on high-valued land in cities. Soaring demands and reuse values are thus the norm in an affluent society.

What can it mean to “consume” land, when it does not get used up? It can only mean to occupy or preempt a time-slot of space. That has the most profound implications for the meaning of “consumption” in economic thinking, and “consumer taxation” in fiscal policy. Economists have neglected and papered over these matters almost completely. These are pursued in B-13 below.

Some attributes of some lands do deteriorate from some uses or abuses. Extractive resources call for special analysis, which the writer has attempted elsewhere.[9] To avoid lengthy repetition from previous publications, the word “land” herein refers to the permanent qualities of land, exemplified by (but not limited to) site. Remember, land is not just matter, it is space itself.[10] It is not unusual for land first to be mined, then used for dumping wastes, then sealed over for urban use. I myself have lived comfortably over an old munitions dump on Lockehaven Drive, Victoria, B.C. Not far away is Butchart Gardens, a world-renowned beauty spot, fashioned in a once-ugly gash left by a stone quarry.


Land is reusable. All the land we have is second-hand, most of it previously-owned. Our descendants, in turn, will have nothing but our hand-me-downs. As there is never any new supply, the old is recycled periodically, and will be in perpetuity, without changing form or location. Melded briefly with fixed buildings, land survives them to go one more round of use. Even while melded with capital, land is fit for another use at any time, unlike the capital on it. Land retains a practicable, measurable, meaningful opportunity cost. Land value in cities may be defined as “what is left after a good fire”; arsonists take that quite literally. In Beverly Hills, California, “tear-downs” are routine as taste-obsolescence races through fashionable neighborhoods where the land outvalues even the elegant buildings. These are dated after thirty years.

The opportunity cost of capital is fleeting. Capital loses most of it the moment it is committed to a specific form, whose physical alternative use is often only as scrap. Land’s “opportunity cost” is real and viable at all times. The scrap value of capital is often zero or negative (radioactive waste supplying an extreme example).

Land may be afflicted with such “negative capital,” the harmful waste from prior usage. An example is the spent carcass of an old building needing costly demolition. Some would class that spent carcass as a subtraction from the site value, but “negative capital” makes more sense, as may be inferred by considering the relations between a landlord and a tenant in a perfect market. The lease holds the tenant liable for damages he does and wastes he leaves; the prudent landlord requires of the tenant a deposit, or in larger cases a bond, to assure performance. Both acknowledge that damage done by use is imputed to the user, not to the land.[11]

Too often, from institutional or market or human failure, the land is left damaged, with no recourse against those responsible. Then, indeed, the damage becomes part of the land, just as some of the good relics of history may as well be considered part of the land. Toxic wastes, and endemic parasites imported with previous crops or trees, become mixed into the dirt. We do not trivialize nor quibble over what to call such damage: it happens, and it impairs the reuse value of land. In such cases the site is less valuable, but still permanent and recyclable. Such cases are, fortunately, still more the exception than the rule. They are at most a minor qualification to the major points made here.

Physical abuse of land is less a problem, actually, than the fall of value that results from social decay. Much of land value is a social product. When a society sickens, declines, and self-destructs, as we know may happen, it lowers ground rents, which mirror social progress and decay. We cannot surely forecast that our own society will not self-destruct, as parts of cities already have. However, until it does, land will outlast capital economically. Even when it does, landownership may remain the last bastion, as happened in the feudal system. Even if barbarians overrun us, it is the land they will take: little else will remain.

A-3. Land supply is fixed

Being both unreproducible and permanent, land remains fixed.[12] Both the overall quantity and the special qualities of specific lands remain fixed. Capital changes its form and location with each turnover, while land remains the same. The Tyler Galleria neighborhood in Riverside, California, makes an example. In the last fifteen years over half the buildings have been replaced or heavily remodeled. Streets have been repaved and widened; utilities enhanced. Inventories have turned over hundreds of times; cars in the parking lots have come and gone thousands of times. Through it all, the land is the same.


The fixity of land has several aspects.

a. The overall planet is fixed. Even the planet may change, but “fixed” here means “given” or “exogenous” or “outside individual control,” not necessarily static. Cosmic and tectonic and climatic changes are given, so far as man is concerned. Changes caused by mankind collectively are given so far as individual landowners are concerned.

b. Land is fixed within political jurisdictions. Political jurisdictions are defined as areas of land. Capital and labor cross political boundary lines; land stays put. An “open economy” is open to money and goods, to capital and labor, not to land. For tax consequences, cf. A-4 and B-5 below.

c. Land as site is immobile in space, permanently.[13] Much capital, on the other hand, is physically mobile by wheel, hoof, wing or boat. California calls this “unsecured” property, and France calls it “meubles “, as distinct from the other kind which is “secured” and “immeuble.”[14] Most American Jurisdictions use the less expressive “personal” and “real” property for the same distinction.


In English the etymology may reveal the king’s underlying ownership: “real estate” probably springs from royal estate, “real either being contracted from “regal” or borrowed from the French and Spanish real, royal. Spanish law does recognize “regalian” ownership of subsurface minerals. (In Latin American history, this took the form of a 20% severance tax.)

Our word “realize,” meaning convert to money, likely derives from the fact that money was issued by kings and bore their images. The Spanish real was a silver coin of wide currency. Spanish coin was the western world’s hard money for four centuries.

Secured or “real” capital is capital affixed to land. The physical carcass of most buildings is rooted to the spot, leading some to allege buildings are as fixed in location as land. That would be specious, economically. The capital locked up in the carcasses of buildings is normally recovered, as they depreciate, in Capital Consumption Allowances (CCAs) which may be reinvested anywhere.

“Basic” micro economic theory, as ordinarily ordained today, is constructed so as to paper over this basic difference of land and capital. In its “short run” land and capital are both fixed. In its “long run” both are equally variable to “the firm,” the disembodied spirit used as its unit of analysis, existing at a point in time and space. Thus, one can specialize for a lifetime in “basic micro” while remaining unaware that capital, over time, changes its form and location as it turns over, unlike land. Land yields no such mobile funds as CCAS. It does not depreciate, and is priced accordingly higher, so its income is only enough to yield a return on the price paid, not a return of it. (See A-5, below)

Land is “mobile” only in the limited sense that its use may change. Some micro economists would have this sort of “mobility” equate land to capital. See A-5,a, below.

d. Land is fixed in form. Capital, in contrast, is Protean, assuming one form after another. Capital is also fungible with each turnover. Capital Consumption Allowances in money join the common worldwide pool of disposable capital. Money itself is not capital, but is generalized command over a share of the flow of current production. Thus, capital loses its specific identity with each turnover.

e. Acquiring land must mean taking others’. No one can get more land without others keeping less. One can acquire more capital by forming it through saving and investing. One can consume more by working more, while others work no less. Land is different: it is the most common basis of market power, therefore (cf. B-11, below).