7 ms·

This is not a paradox, it's one of the best known axioms of economics: https://en.wikipedia.org/wiki/Law_of_rent https://en.wikipedia.org/wiki/Law_of_rent The

This is not a paradox, it's one of the best known axioms of economics: https://en.wikipedia.org/wiki/Law_of_rent https://en.wikipedia.org/wiki/Law_of_rent The key driver is that land values rise when earnings rise. You can't move land, so there is set amount of it within commutable distance of these cities. Also, each bit is in a unique location relative to all the other bits, so every bit of land is either better or worse than the others in terms of your earning potential when you live there. Close to the centre = cheaper and quicker commuting, whereas further out means more expensive and slower. Buying or renting a bit of it to live on is always an auction, so the best bits (where you earn most) are won by those who those who feel it's worth paying extra to get them (because they are the ones who earn the extra income by living there). In this way, if wages rise, then the maximum bid that a person can justify paying in order to live in that city rises, and therefore property is more expensive. This is not a free market, BTW. Land is monopoly.

chimeracoder 11y ago
> This is not a paradox, it's one of the best known axioms of economics: https://en.wikipedia.org/wiki/Law_of_rent https://en.wikipedia.org/wiki/Law_of_rent I wish more people understood this principle, because so many superficial economic "analyses" I see in the news completely ignore it. By the way, you're giving the example of physical land, but the general form actually applies to property ownership of any form. (That is, the rent on any property will rise to be equal to the surplus that the renter receives from it, after accounting for transaction costs. In the long run, the property owner is always able to claim all of the surplus from the renter.)
- eevilspock 11y ago
  Landlords grow richer in their sleep, without working, risking, or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title. -- John Stuart Mill > In the long run, the property owner is always able to claim all of the surplus from the renter. Which to me is what's broken about land and other natural resources as private property. If the spirit and intent of a free market is to reward people for working hard, for innovation, and for solving problems, then this is the opposite. It rewards people for just sitting on their wealth. That a finite sum of money can buy you an infinite source of income is antithetical to free market principles. > This is not a free market, BTW. Land is monopoly. The only mitigating factor is property taxes, which as a stand-in for ground rents that geolibertarians and Georgists argue for. By the way, the latter are the more honest of the libertarians, as most other schools of libertarianism especially the popular form continually consider property taxes theft. I wish more libertarians understood the Matthew Effect as well as they did supply and demand.
  - ethanbond 11y ago
    For other readers (I assume you've read it or are aware of it), I really highly recommend at least skimming Progress and Poverty by Henry George [PDF: http://www.henrygeorge.org/pdfs/PandP_Drake.pdf http://www.henrygeorge.org/pdfs/PandP_Drake.pdf] It's mindblowing in its simplicity and how obvious it is in retrospect. Essentially that rent, so private land ownership, is the root cause of the persistence of poverty despite huge growth in production and capital. He goes on to make fairly strong (albeit polarizing) ethical arguments for the abolition of private land ownership and so on. Easy to read, pretty entertaining, and eye opening.
    - eru 11y ago
      We had a discussion on HN (https://news.ycombinator.com/item?id=10442929 https://news.ycombinator.com/item?id=10442929) about an Economist article about Georgism. The time is ripe. There's a German economist Silvio Gesell, who make similar suggestions. See https://www.community-exchange.org/docs/Gesell/en/neo/ https://www.community-exchange.org/docs/Gesell/en/neo/
    - gohrt 11y ago
      abolishing private land ownership has problems -- who decides how the land gets used? Ownership enables execution. Property taxes are a way to recover some rent from the property owner, while still enabling the independent decision making that capitablism relies on for its productive success
      - njs12345 11y ago
        I haven't read George's original works, but his philosophy allows for private ownership of land - it's just that the 'rent' of the land - the value derived solely from e.g. its location - will be taxed at a very high rate.
    - cybersyn 11y ago
      The original Atlantic article mentioned Pittsburgh as one of the cities in the "sweet spot" for affordability and social mobility. Interestingly, Pennsylvania happens to be the one state that has perhaps gone the furthest in implementing George's proposed land value tax reform (at the local level, mainly). Pittsburgh used a different form of property tax that taxed land at a far higher rate than improvements until 2001, and the Pittsburgh Improvement District (I am unfamiliar with what exactly this entails) still uses a pure land value tax as a surcharge on the city property tax. [https://en.wikipedia.org/wiki/Land_value_tax_in_the_United_States https://en.wikipedia.org/wiki/Land_value_tax_in_the_United_S...]
- devit 11y ago
  > the property owner is always able to claim all of the surplus from the renter Not really: this only applies if the demand curve is flat and different cities are not competition with each other. In practice, the demand curve is not flat because there are people that earn more than others, but they will still pay depending on the wage of the marginal/equilibrium person. Also, cities compete with each other so if e.g. Silicon Valley rents become sky-high because they capture all the value of tech companies, eventually companies will move or be started elsewhere, thus making it possible for employees to live there.
  - notahacker 11y ago
    This. More precisely, and on an ultra-micro level the surplus a property owner may be able to capture all of is the surplus compared with the next best available alternative site. If it's a retail unit in a rare spot next to a busy station, the owner of the property can capture [nearly] all of the leaseholders' additional expected profit due to heavy footfall, but not nearly all their profit period, because otherwise it becomes more profitable for store owners to pass on the opportunity in favour of opening on a site with low customer footfall but even lower lease rates. Similarly, suburban houses based right outside a high-paying office campus won't be priced at much of a premium to the surrounding suburbs, because workers there will expect to own a car anyway and won't mind a slightly longer commute that much. And all of this assumes there are multiple prospective buyers whose use of the site will generate that surplus. If the use of the site is dramatically more valuable for one prospective buyer than for all the other buyers (e.g. because they have a supplier next door), they'll still only have to bid a fraction more than a market price determined by other buyers without that advantage, and so the buyer gets to keep all that surplus.
drzaiusapelord 11y ago
Of course this is a free market, at least by colloquial standards. The premium end of this commodity (close to work, close to financial centers, etc) is more expensive. This is a feature, not a bug. Just because you don't have an endless amount of something at the exact same price, doesn't mean it can't be sold freely. >Land is monopoly. You are free to sell your home to whomever or buy from whomever. I don't think "monopoly" remotely applies. Monopoly would be if all property was owned by one entity, built up by one entity, and you had to deal exclusively with that one entity.
- eevilspock 11y ago
  You should read up on Geolibertarianism and Georgism. Today's land value tax advocates consider graduated land value tax to be unnecessary and problematic, leading to artificial subdivision (and phony subdivision) of land. The point is that Jefferson, to whom libertarians pay homage, considered land monopoly a great evil and land value tax a remedy, as did many other classical liberals. --http://geolib.com/essays/sullivan.dan/royallib.html http://geolib.com/essays/sullivan.dan/royallib.html This imperfect policy of non-intervention, or laissez-faire, led straight to a most hideous and dreadful economic exploitation; starvation wages, slum dwelling, killing hours, pauperism, coffin-ships, child-labour--nothing like it had ever been seen in modern times...People began to say, if this is what State abstention comes to, let us have some State intervention. But the state had intervened; that was the whole trouble. The State had established one monopoly--the landlord's monopoly of economic rent--thereby shutting off great hordes of people from free access to the only source of human subsistence, and driving them into factories to work for whatever Mr. Gradgrind and Mr. Bottles chose to give them. The land of England, while by no means nearly all actually occupied, was all legally occupied; and this State-created monopoly enabled landlords to satisfy their needs and desires with little exertion or none, but it also removed the land from competition with industry in the labor market, thus creating a huge, constant and exigent labour-surplus. --Albert J. Nock, "The Gods' Lookout" February 1934
BurningFrog 11y ago
> Land is monopoly. Only in the same sense that I have a monopoly on my Toyota.
- Stasis5001 11y ago
  Your Toyota is more of a commodity. There are millions out there that are functionally identical, and millions more can be made. A given piece of real estate with proximity to a major city is very different in this sense, as there are only so many plots of land like it.
  - yummyfajitas 11y ago
    There are only a fixed number of Toyotas. A monopoly is a market with a single seller, not a market with inelastic supply.
    - kyllo 11y ago
      There are only a fixed number of Toyotas. In what universe? In the one I live in, the number of Toyotas is steadily increasing as a function of time.
      - loco5niner 11y ago
        If we're arguing based on time, we might as well say that the tides are changing the amount of land available in any given geographical region. The only difference is scale (i.e. Toyota won't be putting out new vehicles forever)
  - deleted 11y ago
    [deleted]
  - BurningFrog 11y ago
    A given piece of real estate is a monopoly in the same way that a given individual car is. There are a large number of pieces of real estate with proximity to any major city. They may all be controlled by some monopoly, depending on local laws etc, but typically they don't. It's true that it's easier to make new cars than new land, but that does not in itself make the buying and selling of these things all that different. Note that the making of Toyotas actually is a monopoly.
hitekker 11y ago
Wikipedia: > John Stuart Mill called it the "pons asinorum" of economics. > Pons asinorum ... The name of this statement is also used metaphorically for a problem or challenge which will separate the sure of mind from the simple, the fleet thinker from the slow, the determined from the dallier; to represent a critical test of ability or understanding. > (Google) the point at which many learners fail, especially a theory or formula that is difficult to grasp. Didn't know this word before, interesting.
- not_that_noob 11y ago
  Latin for "bridge of donkeys" or "bridge of asses" :) That is to say, the ones who get it cross the bridge. The ones left behind are the donkeys.
  - hitekker 11y ago
    Even more interesting. If I were to look for irony, perhaps the speaker who uses this word might be seen as an ass of a different kind. A: "Truly this is the Pons asinorum of the matter." B: "There goes A, being a pretentious ass... again."
dragonwriter 11y ago
> This is not a free market, BTW. Land is monopoly. First, a monopoly in which there is a monopoly is still just as free (unregulated) as one that is otherwise similar but without the monopoly. Monopolies and externalities are among the things that are not inconsistent with a free market that are usually assumed away as preconditions in statements making claims about the efficiency or optimality of free markets. Also, more importantly, land is not a monopoly; its perhaps more common for land for particular uses being a monopolized good in that any particular parcel for sale will not have perfect substitutes available on the market such that the seller of a particular parcel may have pricing power, which is the usual test for a monopoly. (The presence of such a power indicates that their is a definable market in which that seller is the only seller, and its absence indicates that in the markets in which the good is relevant there are acceptable substitutes which compete on price.) So, it is probably defensible to claim that land is prone to monopolies, but inaccurate to say that land is a monopoly.
- roymurdock 11y ago
  Land is a "Resource," just like water, lumber, grain, and ore are generally considered resources. As we recall from Econ 101, Economics is the study of the allocation of scarce resources. Land becomes "Property" when we introduce the fundamental tool and building block of society: law. Property law grants the land owner certain rights and restrictions that are set, guaranteed, and enforced by society. Property can be considered a "Monopoly" only in the context of some sort of market, which implies supply, demand, and flow of goods. Say we own an acre of land in the middle of Los Angeles, and it is the only plot in the city with an oil derrick. If we define our market to be rentable land within the city of LA, we most definitely do not have a monopoly on the market. If we define the market to be rentable land in the "center" of LA, our power within the market has gone up, but we still do not have a monopoly on the market. If we define the market to be an acre of rentable land in the center of LA with an oil derrick, then we do have a complete monopoly on that specific market. So if you own land, you can monopolize a certain subset of a market, depending on how you define its parameters.
- eevilspock 11y ago
  The key thing to understand from the Wikipedia article mattgibson links to: Ricardo noticed that the bargaining power of laborers can never dip below the produce obtainable on the best available rent-free land, because whenever rent leaves them with less than they could get on that free land, they can simply move to the new location. The produce obtainable on the best available rent-free land is known as the margin of production. Since landlords have a monopoly over a given location, the only limiting factor for rent is the margin of production. Thus, rent is a differential between the productive capacity of the land and the margin of production. In the U.S. today, there is no free land. This changes everything. Landowners as a group have an effective monopoly: those who can't afford land have no choice but to rent from them, for one needs a place to sleep, grow food, and to just stand! Please read http://geolib.com/essays/sullivan.dan/royallib.html http://geolib.com/essays/sullivan.dan/royallib.html, or as ethanbond recommends in another comment, Progress and Poverty by Henry George.
saosebastiao 11y ago
This is entirely true, but its effects are exaggerated due to draconian zoning and regulatory issues (like parking). When you slap on height limits, use limits, and parking quotas, the marginal price increase for a given level of demand is drastically higher. The ratio of mobility to affordability is affected mostly by our (in)ability to extract value out of land.
api 11y ago
Thanks for posting this. It proves that I'm not insane. I've noticed for some time now that any increase in income in a region tends to largely be extracted as land rent and now I know that I'm not even close to being the first to notice this. It's sort of incredible to me that our industry is so beholden to this. Computer-related tech should be the least beholden to rent of almost any industry since we have this Internet thing that allows us to communicate instantly over long distances. But ours actually seems to be among the more geo-concentrated industries.
- totalrobe 11y ago
  Great comment. I grew up in florida and know so many bright kids that have to move across the country to the NE or California for tech jobs. Whereas you study accounting, medicine, law etc and can work anywhere.
p4wnc6 11y ago
Another way to say this is that what is commonly referred to as the American dream is in direct contradiction to the law of rent. The article chooses to phrase "the American dream" as "The American Dream begins with a good job and place to live that you can afford." Generally in this context 'a good job' is taken to mean that the pay and benefits offered as compensation elevate you comfortably above the total cost of living. As you pointed out, if a lot of people are colocated in a region with a scarcity of minimally-acceptable housing, then the first condition of the American dream (that a lot of these people have compensation comfortably in excess of the cost to live (e.g. the cost to buy the property they want)) necessarily implies that prices will be bid upward just to the point where all of the "comfortable excess" that the compensation-above-cost-of-living is eaten up by the elevated home prices. So the second condition of the American dream, ("a place to live that you can afford") can only be fulfilled if you change your perception about what kind of home you want -- and so a lot of the article can be understood as describing a preference shift in Millennials (and many others, for example I am a bit older than Millenials but also face this dilemma). Instead of preferring "normal American family homes" as have been readily available in many good-to-live-in places for about the last half century, we now have to say that that preference is no longer an affordable preference to have (even though probably most of us are unhappy that changing world circumstances has dictated this change in the affordability of the preference, and feel it is an overall bad sign for world economic progress). And we replace the preference with what seems to be more of a desire for social mobility, urban amenities, and proximity to very large employment hubs. The inevitable tension between the two components of the American dream, good job and affordable house, has caught up to us, which is perfectly predictable, and in response, it seems social mobility is more preferred than preserving the sort of American 'family home' lifestyle by foregoing wages and social mobility in order to live in a more affordable area. I expect that a lot of this has to do with status signaling and money, and probably also mate selection. The relative gains in status to pure wealth optimization seem much stronger now than before -- even if wealth was still the most dominant part of status in the past. This is anecdotal, so I could be very wrong, but it just seems to me that you could earn a lot less, but establish a family home, and still be a high-status member of a community in the past. But now, it's just money. It doesn't matter if you've built your own, stable life in a small town community in America, and you've done so with extremely impressive hard work, frugality, and wits, while also supporting and nurturing a family. If you do all that now, but you don't earn a high wage, you're treated as a total nobody for society to shit on and mock. But if you spend all day doing things that are arguably bad for society in a cubicle farm in a skyscraper and go home to a tiny apartment in a city where you'll never be able to buy property, yet your salary is in the top 25% in the country, you're treated like you deserve respect and like you are a productive member of society. More or less.

chimeracoder 11y ago

> This is not a paradox, it's one of the best known axioms of economics: https://en.wikipedia.org/wiki/Law_of_rent https://en.wikipedia.org/wiki/Law_of_rent I wish more people understood this principle, because so many superficial economic "analyses" I see in the news completely ignore it. By the way, you're giving the example of physical land, but the general form actually applies to property ownership of any form. (That is, the rent on any property will rise to be equal to the surplus that the renter receives from it, after accounting for transaction costs. In the long run, the property owner is always able to claim all of the surplus from the renter.)

eevilspock 11y ago
Landlords grow richer in their sleep, without working, risking, or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title. -- John Stuart Mill > In the long run, the property owner is always able to claim all of the surplus from the renter. Which to me is what's broken about land and other natural resources as private property. If the spirit and intent of a free market is to reward people for working hard, for innovation, and for solving problems, then this is the opposite. It rewards people for just sitting on their wealth. That a finite sum of money can buy you an infinite source of income is antithetical to free market principles. > This is not a free market, BTW. Land is monopoly. The only mitigating factor is property taxes, which as a stand-in for ground rents that geolibertarians and Georgists argue for. By the way, the latter are the more honest of the libertarians, as most other schools of libertarianism especially the popular form continually consider property taxes theft. I wish more libertarians understood the Matthew Effect as well as they did supply and demand.
- ethanbond 11y ago
  For other readers (I assume you've read it or are aware of it), I really highly recommend at least skimming Progress and Poverty by Henry George [PDF: http://www.henrygeorge.org/pdfs/PandP_Drake.pdf http://www.henrygeorge.org/pdfs/PandP_Drake.pdf] It's mindblowing in its simplicity and how obvious it is in retrospect. Essentially that rent, so private land ownership, is the root cause of the persistence of poverty despite huge growth in production and capital. He goes on to make fairly strong (albeit polarizing) ethical arguments for the abolition of private land ownership and so on. Easy to read, pretty entertaining, and eye opening.
  - eru 11y ago
    We had a discussion on HN (https://news.ycombinator.com/item?id=10442929 https://news.ycombinator.com/item?id=10442929) about an Economist article about Georgism. The time is ripe. There's a German economist Silvio Gesell, who make similar suggestions. See https://www.community-exchange.org/docs/Gesell/en/neo/ https://www.community-exchange.org/docs/Gesell/en/neo/
  - gohrt 11y ago
    abolishing private land ownership has problems -- who decides how the land gets used? Ownership enables execution. Property taxes are a way to recover some rent from the property owner, while still enabling the independent decision making that capitablism relies on for its productive success
    - njs12345 11y ago
      I haven't read George's original works, but his philosophy allows for private ownership of land - it's just that the 'rent' of the land - the value derived solely from e.g. its location - will be taxed at a very high rate.
  - cybersyn 11y ago
    The original Atlantic article mentioned Pittsburgh as one of the cities in the "sweet spot" for affordability and social mobility. Interestingly, Pennsylvania happens to be the one state that has perhaps gone the furthest in implementing George's proposed land value tax reform (at the local level, mainly). Pittsburgh used a different form of property tax that taxed land at a far higher rate than improvements until 2001, and the Pittsburgh Improvement District (I am unfamiliar with what exactly this entails) still uses a pure land value tax as a surcharge on the city property tax. [https://en.wikipedia.org/wiki/Land_value_tax_in_the_United_States https://en.wikipedia.org/wiki/Land_value_tax_in_the_United_S...]
devit 11y ago
> the property owner is always able to claim all of the surplus from the renter Not really: this only applies if the demand curve is flat and different cities are not competition with each other. In practice, the demand curve is not flat because there are people that earn more than others, but they will still pay depending on the wage of the marginal/equilibrium person. Also, cities compete with each other so if e.g. Silicon Valley rents become sky-high because they capture all the value of tech companies, eventually companies will move or be started elsewhere, thus making it possible for employees to live there.
- notahacker 11y ago
  This. More precisely, and on an ultra-micro level the surplus a property owner may be able to capture all of is the surplus compared with the next best available alternative site. If it's a retail unit in a rare spot next to a busy station, the owner of the property can capture [nearly] all of the leaseholders' additional expected profit due to heavy footfall, but not nearly all their profit period, because otherwise it becomes more profitable for store owners to pass on the opportunity in favour of opening on a site with low customer footfall but even lower lease rates. Similarly, suburban houses based right outside a high-paying office campus won't be priced at much of a premium to the surrounding suburbs, because workers there will expect to own a car anyway and won't mind a slightly longer commute that much. And all of this assumes there are multiple prospective buyers whose use of the site will generate that surplus. If the use of the site is dramatically more valuable for one prospective buyer than for all the other buyers (e.g. because they have a supplier next door), they'll still only have to bid a fraction more than a market price determined by other buyers without that advantage, and so the buyer gets to keep all that surplus.

drzaiusapelord 11y ago

Of course this is a free market, at least by colloquial standards. The premium end of this commodity (close to work, close to financial centers, etc) is more expensive. This is a feature, not a bug. Just because you don't have an endless amount of something at the exact same price, doesn't mean it can't be sold freely. >Land is monopoly. You are free to sell your home to whomever or buy from whomever. I don't think "monopoly" remotely applies. Monopoly would be if all property was owned by one entity, built up by one entity, and you had to deal exclusively with that one entity.

eevilspock 11y ago
You should read up on Geolibertarianism and Georgism. Today's land value tax advocates consider graduated land value tax to be unnecessary and problematic, leading to artificial subdivision (and phony subdivision) of land. The point is that Jefferson, to whom libertarians pay homage, considered land monopoly a great evil and land value tax a remedy, as did many other classical liberals. --http://geolib.com/essays/sullivan.dan/royallib.html http://geolib.com/essays/sullivan.dan/royallib.html This imperfect policy of non-intervention, or laissez-faire, led straight to a most hideous and dreadful economic exploitation; starvation wages, slum dwelling, killing hours, pauperism, coffin-ships, child-labour--nothing like it had ever been seen in modern times...People began to say, if this is what State abstention comes to, let us have some State intervention. But the state had intervened; that was the whole trouble. The State had established one monopoly--the landlord's monopoly of economic rent--thereby shutting off great hordes of people from free access to the only source of human subsistence, and driving them into factories to work for whatever Mr. Gradgrind and Mr. Bottles chose to give them. The land of England, while by no means nearly all actually occupied, was all legally occupied; and this State-created monopoly enabled landlords to satisfy their needs and desires with little exertion or none, but it also removed the land from competition with industry in the labor market, thus creating a huge, constant and exigent labour-surplus. --Albert J. Nock, "The Gods' Lookout" February 1934

BurningFrog 11y ago

> Land is monopoly. Only in the same sense that I have a monopoly on my Toyota.

Stasis5001 11y ago
Your Toyota is more of a commodity. There are millions out there that are functionally identical, and millions more can be made. A given piece of real estate with proximity to a major city is very different in this sense, as there are only so many plots of land like it.
- yummyfajitas 11y ago
  There are only a fixed number of Toyotas. A monopoly is a market with a single seller, not a market with inelastic supply.
  - kyllo 11y ago
    There are only a fixed number of Toyotas. In what universe? In the one I live in, the number of Toyotas is steadily increasing as a function of time.
    - loco5niner 11y ago
      If we're arguing based on time, we might as well say that the tides are changing the amount of land available in any given geographical region. The only difference is scale (i.e. Toyota won't be putting out new vehicles forever)
- deleted 11y ago
  [deleted]
- BurningFrog 11y ago
  A given piece of real estate is a monopoly in the same way that a given individual car is. There are a large number of pieces of real estate with proximity to any major city. They may all be controlled by some monopoly, depending on local laws etc, but typically they don't. It's true that it's easier to make new cars than new land, but that does not in itself make the buying and selling of these things all that different. Note that the making of Toyotas actually is a monopoly.

hitekker 11y ago

Wikipedia: > John Stuart Mill called it the "pons asinorum" of economics. > Pons asinorum ... The name of this statement is also used metaphorically for a problem or challenge which will separate the sure of mind from the simple, the fleet thinker from the slow, the determined from the dallier; to represent a critical test of ability or understanding. > (Google) the point at which many learners fail, especially a theory or formula that is difficult to grasp. Didn't know this word before, interesting.

not_that_noob 11y ago
Latin for "bridge of donkeys" or "bridge of asses" :) That is to say, the ones who get it cross the bridge. The ones left behind are the donkeys.
- hitekker 11y ago
  Even more interesting. If I were to look for irony, perhaps the speaker who uses this word might be seen as an ass of a different kind. A: "Truly this is the Pons asinorum of the matter." B: "There goes A, being a pretentious ass... again."

dragonwriter 11y ago

> This is not a free market, BTW. Land is monopoly. First, a monopoly in which there is a monopoly is still just as free (unregulated) as one that is otherwise similar but without the monopoly. Monopolies and externalities are among the things that are not inconsistent with a free market that are usually assumed away as preconditions in statements making claims about the efficiency or optimality of free markets. Also, more importantly, land is not a monopoly; its perhaps more common for land for particular uses being a monopolized good in that any particular parcel for sale will not have perfect substitutes available on the market such that the seller of a particular parcel may have pricing power, which is the usual test for a monopoly. (The presence of such a power indicates that their is a definable market in which that seller is the only seller, and its absence indicates that in the markets in which the good is relevant there are acceptable substitutes which compete on price.) So, it is probably defensible to claim that land is prone to monopolies, but inaccurate to say that land is a monopoly.

roymurdock 11y ago
Land is a "Resource," just like water, lumber, grain, and ore are generally considered resources. As we recall from Econ 101, Economics is the study of the allocation of scarce resources. Land becomes "Property" when we introduce the fundamental tool and building block of society: law. Property law grants the land owner certain rights and restrictions that are set, guaranteed, and enforced by society. Property can be considered a "Monopoly" only in the context of some sort of market, which implies supply, demand, and flow of goods. Say we own an acre of land in the middle of Los Angeles, and it is the only plot in the city with an oil derrick. If we define our market to be rentable land within the city of LA, we most definitely do not have a monopoly on the market. If we define the market to be rentable land in the "center" of LA, our power within the market has gone up, but we still do not have a monopoly on the market. If we define the market to be an acre of rentable land in the center of LA with an oil derrick, then we do have a complete monopoly on that specific market. So if you own land, you can monopolize a certain subset of a market, depending on how you define its parameters.
eevilspock 11y ago
The key thing to understand from the Wikipedia article mattgibson links to: Ricardo noticed that the bargaining power of laborers can never dip below the produce obtainable on the best available rent-free land, because whenever rent leaves them with less than they could get on that free land, they can simply move to the new location. The produce obtainable on the best available rent-free land is known as the margin of production. Since landlords have a monopoly over a given location, the only limiting factor for rent is the margin of production. Thus, rent is a differential between the productive capacity of the land and the margin of production. In the U.S. today, there is no free land. This changes everything. Landowners as a group have an effective monopoly: those who can't afford land have no choice but to rent from them, for one needs a place to sleep, grow food, and to just stand! Please read http://geolib.com/essays/sullivan.dan/royallib.html http://geolib.com/essays/sullivan.dan/royallib.html, or as ethanbond recommends in another comment, Progress and Poverty by Henry George.

saosebastiao 11y ago

This is entirely true, but its effects are exaggerated due to draconian zoning and regulatory issues (like parking). When you slap on height limits, use limits, and parking quotas, the marginal price increase for a given level of demand is drastically higher. The ratio of mobility to affordability is affected mostly by our (in)ability to extract value out of land.

api 11y ago

Thanks for posting this. It proves that I'm not insane. I've noticed for some time now that any increase in income in a region tends to largely be extracted as land rent and now I know that I'm not even close to being the first to notice this. It's sort of incredible to me that our industry is so beholden to this. Computer-related tech should be the least beholden to rent of almost any industry since we have this Internet thing that allows us to communicate instantly over long distances. But ours actually seems to be among the more geo-concentrated industries.

totalrobe 11y ago
Great comment. I grew up in florida and know so many bright kids that have to move across the country to the NE or California for tech jobs. Whereas you study accounting, medicine, law etc and can work anywhere.

p4wnc6 11y ago

Another way to say this is that what is commonly referred to as the American dream is in direct contradiction to the law of rent. The article chooses to phrase "the American dream" as "The American Dream begins with a good job and place to live that you can afford." Generally in this context 'a good job' is taken to mean that the pay and benefits offered as compensation elevate you comfortably above the total cost of living. As you pointed out, if a lot of people are colocated in a region with a scarcity of minimally-acceptable housing, then the first condition of the American dream (that a lot of these people have compensation comfortably in excess of the cost to live (e.g. the cost to buy the property they want)) necessarily implies that prices will be bid upward just to the point where all of the "comfortable excess" that the compensation-above-cost-of-living is eaten up by the elevated home prices. So the second condition of the American dream, ("a place to live that you can afford") can only be fulfilled if you change your perception about what kind of home you want -- and so a lot of the article can be understood as describing a preference shift in Millennials (and many others, for example I am a bit older than Millenials but also face this dilemma). Instead of preferring "normal American family homes" as have been readily available in many good-to-live-in places for about the last half century, we now have to say that that preference is no longer an affordable preference to have (even though probably most of us are unhappy that changing world circumstances has dictated this change in the affordability of the preference, and feel it is an overall bad sign for world economic progress). And we replace the preference with what seems to be more of a desire for social mobility, urban amenities, and proximity to very large employment hubs. The inevitable tension between the two components of the American dream, good job and affordable house, has caught up to us, which is perfectly predictable, and in response, it seems social mobility is more preferred than preserving the sort of American 'family home' lifestyle by foregoing wages and social mobility in order to live in a more affordable area. I expect that a lot of this has to do with status signaling and money, and probably also mate selection. The relative gains in status to pure wealth optimization seem much stronger now than before -- even if wealth was still the most dominant part of status in the past. This is anecdotal, so I could be very wrong, but it just seems to me that you could earn a lot less, but establish a family home, and still be a high-status member of a community in the past. But now, it's just money. It doesn't matter if you've built your own, stable life in a small town community in America, and you've done so with extremely impressive hard work, frugality, and wits, while also supporting and nurturing a family. If you do all that now, but you don't earn a high wage, you're treated as a total nobody for society to shit on and mock. But if you spend all day doing things that are arguably bad for society in a cubicle farm in a skyscraper and go home to a tiny apartment in a city where you'll never be able to buy property, yet your salary is in the top 25% in the country, you're treated like you deserve respect and like you are a productive member of society. More or less.