Human Action: A Treatise on Economics

by Ludwig VonMises

  3. The Submarginal Land

  The services a definite piece of land can render in a definite period of time are limited. If they were unlimited, men would not consider land a factor of production and an economic good. However, the quantity of soil available is so vast, nature is so prodigal, that land is still abundant. Therefore, only the most productive pieces of land are utilized. There is land which people consider—either with regard to its physical productivity or with regard to its location—as too poor to be worth cultivating. Consequently the marginal soil, i.e., the poorest soil cultivated, yields no rent in the Ricardian sense.7 Submarginal land would be considered entirely worthless if one were not to appraise it positively in anticipation of its being utilized in later days.8

  The fact that the market economy does not have a more ample supply of agricultural products is caused by the scarcity of capital and labor, not by a scarcity of cultivable land. An increase in the surface of land available would—other things being equal—increase the supply of cereals and meat only if the additional land’s fertility exceeded that of the marginal land already previously cultivated. On the other hand, the supply of agricultural products would be increased by any increase in the amount of labor and capital available, provided the consumers do not consider another employment of the additional amount of capital and labor more appropriate to fill their most urgent wants.9

  The useful mineral substances contained in the soil ate limited in quantity. It is true that some of them are the outgrowth of natural processes which are still going on and increasing the existing deposits. However, the slowness and length of these processes makes them insignificant for human action. Man must take into account that the available deposits of these minerals are limited. Every single mine or oil source is exhaustible; many of them are already exhausted. We may hope that new deposits will be discovered and that technological procedures will be invented which will make it possible to utilize deposits which today cannot be exploited at all or only at unreasonable costs. We may also assume that the further progress of technological knowledge will enable later generations to utilize substances which cannot be utilized today. But all these things do not matter for the present-day conduct of mining and oil drilling. The deposits of mineral substances and their exploitation are not characterized by features which would give a particular mark to human action dealing with them. For catallactics the distinction between soil used in agriculture and that used in mining is merely a distinction of data.

  Although the available quantities of these mineral substances are limited, and although we may academically concern ourselves with the possibility that they will be entirely exhausted one day, acting men do not consider these deposits rigidly limited. Their activities take into account the fact that definite mines and wells will become exhausted, but they do not pay heed to the fact that at an unknown later date all the deposits of certain minerals may come to an end. For to present-day action the supply of these substances appears to be so abundant that one does not venture to exploit all their deposits to the full extent which the state of technological knowledge permits. The mines are utilized only as far as there is no more urgent employment available for the required quantities of capital and labor. There are therefore submarginal deposits that are not utilized at all. In every mine operated the extent of the production is determined by the relation between the prices of the products and those of the required nonspecific factors of production.

  4. The Land as Standing Room

  The employment of land for the location of human residences, workshops, and means of transportation withdraws pieces of soil from other employments.

  The particular place which older theories attributed to urban site rent need not here concern us. It is not especially noteworthy that people pay higher prices for land they value more for housing than for land which they value less. It is a matter of fact that for workshops, warehouses, and railroad yards people prefer locations which reduce costs of transportation, and that they are ready to pay higher prices for such land in accordance with the economies expected.

  Land is also used for pleasure grounds and gardens, for parks and for the enjoyment of the grandeur and beauty of nature. With the development of the love of nature, this very characteristic feature of “bourgeois” mentality, the demand for such enjoyments increased enormously. The soil of the high mountain chains, once merely considered a barren dreariness of rocks and glaciers, is today highly appreciated as the source of the most lofty pleasures.

  From time immemorial access to these spaces has been free to everybody. Even if the land is owned by private individuals, the owners as a rule have not the right to close it to tourists and mountain-climbers or to ask an entrance fee. Whoever has the opportunity to visit these areas, has the right to enjoy all their grandeur, and to consider them his own, as it were. The nominal owner does not derive any advantage from the satisfaction his property gives to the visitors. But this does not alter the fact that this land serves human wellbeing and is appreciated accordingly. The ground is subject to an easement that entitles everybody to pass along and to camp on it. As no other utilization of the area concerned is possible, this servitude completely exhausts all the advantages the proprietor could reap from his ownership. Since the particular services which these rocks and glaciers can render are practically inexhaustible, do not wear out, and do not require any input of capital and labor for their conservation, this arrangement does not bring about those consequences which appeared wherever it was applied to lumbering, hunting, and fishing grounds. If, in the neighborhood of these mountain chains, the space available for the construction of shelters, hotels, and means of transportation (e.g., rack railroads) is limited, the owners of these scarce pieces of soil can sell or rent them on more propitious terms and thus divert to themselves a part of the advantages the tourists reap from the free accessibility of the peaks. If this is not the case, the tourists enjoy all these advantages gratuitously.

  5. The Prices of Land

  In the imaginary construction of the evenly rotating economy buying and selling of the services of definite pieces of land does not differ at all from buying and selling the services of other factors of production. All these factors are appraised according to the services they will render in various periods of the future, due allowance being made for time preference. For the marginal land (and, of course, for the submarginal land) no price is paid at all. Rent-bearing land (i.e., land that, compared with the marginal land, bears a higher output per unit of input of capital and labor) is appraised in accordance with the degree of its superiority. Its price is the sum of all its future rents, each of them discounted at the rate of originary interest.10

  In the changing economy people buying and selling land take due account of expected changes in the market prices for the services rendered by the soil. Of course, they may err in their expectations; but this is another thing. They try to anticipate to the best of their abilities future events that may alter the market data and they act in accordance with these opinions. If they believe that the annual net yield of the piece of land concerned will rise, the price will be higher than it would have been in the absence of such expectations. This is, for instance, the case with suburban land in the neighborhood of cities growing in population or with forests and arable land in countries in which pressure groups are likely to succeed in raising, by means of tariffs, the prices of timber and cereals. On the other hand, fears concerning the total or partial confiscation of the net yield of land tend to lower the prices of land. In everyday business language people speak of the “capitalization” of the rent and observe that the rate of capitalization is different with different classes of land and varies even within the same class with different pieces of soil. This terminology is rather inexpedient as it misrepresents the nature of the process.

  In the same way in which buyers and sellers of land take into account anticipated future events that will reduce the net return, they deal with taxes. Taxes levied upon land redu
ce its market price to the extent of the discounted amount of their future burden. The introduction of a new tax of this kind which is likely not to be abolished results in an immediate drop in the market price of the pieces of land concerned. This is the phenomenon that the theory of taxation calls amortization of taxes.

  In many countries the owners of land or of certain estates enjoyed special political legal privileges or a great social prestige. Such institutions too can play a role in the determination of the prices of land.

  The Myth of the Soil

  Romanticists condemn the economic theories concerning land for their utilitarian narrow-mindedness. Economists, they say, look upon land from the point of view of the callous speculator who degrades all eternal values to terms of money and profit. Yet, the glebe is much more than a mere factor of production. It is the inexhaustible source of human energy and human life. Agriculture is not simply one branch of production among many other branches. It is the only natural and respectable activity of man, the only dignified condition of a really human existence. It is iniquitous to judge it merely with regard to the net returns to be squeezed out of the soil. The soil not only bears the fruits that nourish our body; it produces first of all the moral and spiritual forces of civilization. The cities, the processing industries, and commerce are phenomena of depravity and decay; their existence is parasitic; they destroy what the ploughman must create again and again.

  Thousands of years ago, when fishing and hunting tribesmen began to cultivate the soil, romantic reverie was unknown. But if there had lived romanticists in those ages, they would have eulogized the lofty moral values of the hunt and would have stigmatized soil cultivation as a phenomenon of depravity. They would have reproached the ploughman for desecrating’ the soil that the gods had given to man as a hunting ground and for degrading it to a means of production.

  In the preromantic ages in his actions no one considered the soil as anything other than a source of human wellbeing, a means to promote welfare. The magic rites and observances concerning the soil aimed at nothing else than improvement of the soil’s fertility and increase in the quantity of fruits to be harvested. These people did not seek the unio mystica with the mysterious powers and forces hidden in the soil. All they aimed at was bigger and better crops. They resorted to magic rituals and adjurations because in their opinion this was the most efficient method of attaining the ends sought. Their sophisticated progeny erred when they interpreted these ceremonies from an “idealistic” point of view. A real peasant does not indulge in ecstatic babble about the soil and its mysterious powers. For him land is a factor of production, not an object of sentimental emotions. He covets more land because he desires to increase his income and to improve his standard of living. Farmers buy and sell land and mortgage it; they sell the produce of land and become very indignant if the prices are not as high as they want them to be.

  Love of nature and appreciation of the beauties of the landscape were foreign to the rural population. The inhabitants of the cities brought them to the countryside. It was the city-dwellers who began to appreciate the land as nature, while the countrymen valued it only from the point of view of its productivity for hunting, lumbering, crop raising and cattle breeding. From time immemorial the rocks and glaciers of the Alps were merely waste land in the eyes of the mountaineers. Only when the townsfolk ventured to climb the peaks, and brought money into the valleys, did they change their minds. The pioneers of mountain climbing and skiing were ridiculed by the indigenous population until they found out that they could derive gain from this eccentricity.

  Not shepherds, but sophisticated aristocrats and city-dwellers were the authors of bucolic poetry. Daphnis and Chloë are creations of fancies far removed from earthy concerns. No less removed from the soil is the modern political myth of the soil. It did not blossom from the moss of the forests and the loam of the fields, but from the pavements of the cities and the carpets of the salons. The farmers make use of it because they find it a practical means of obtaining political privileges which raise the prices of their products and of their farms.

  _______________________________

  1. It was, says Fetter (Encyclopaedia of the Social Sciences, XIII, 291), “a garbled marginality theory.”

  2. Cf. Amonn, Ricardo als Begründer der theoretischen Nationalökonomie (Jena, 1924), pp. 54 ff.

  3. Cf., for example, Haney, History of Economic Thought (rev. ed. New York, 1927), p. 275.

  4. Legal provisions concerning the separation of the right of hunting, fishing, and extracting mineral deposits from the other rights of the owner of a piece of land are of no interest for catallactics. The term land as used in catallactics includes also expanses of water.

  5. Thus also the problem of entropy stands outside of the sphere of praxeological meditation.

  6. Ricardo, Principles of Political Economy and Taxation, p. 34.

  7. There are areas in which practically every corner is cultivated or otherwise utilized. But this is the outcome of institutional conditions barring the inhabitants of these regions from access to more fertile unused soil.

  8. The appraisal of a piece of soil must not be confused with the appraisal of the improvements, i.e., the irremovable and inconvertible results of the investment of capital and labor that facilitate its utilization and raise future outputs per unit of current future inputs.

  9. These observations, of course, refer only to conditions in which there are no institutional barriers to the mobility of capital and labor.

  10. There is need to remember again that the imaginary construction of the evenly rotating economy cannot be carried consistently to its ultimate logical consequences (see above, p. 249). With regard to the problems of land one must stress two points: First, that in the frame of this imaginary construction, characterized by the absence of changes in the conduct of affairs, there is no room for the buying and selling of land. Second, that in order to integrate into this construction mining and oil drilling we must ascribe to the mines and oil wells a permanent character and must disregard the possibility that any of the operated mines and wells could be exhausted or even undergo a change in the quantity of output or of current input required.

  XXIII. THE DATA OF THE MARKET

  1. The Theory and the Data

  CATALLACTICS, the theory of the market economy, is not a system of theorems valid only under ideal and unrealizable conditions and applicable to reality merely with essential restrictions and modifications. All the theorems of catallactics are rigidly and without any exception valid for all phenomena of the market economy, provided the particular conditions which they presuppose are present. It is, for instance, a simple question of fact whether there is direct or indirect exchange. But where there is indirect exchange, all the general laws of the theory of indirect exchange are valid with regard to the acts of exchange and the media of exchange. As has been pointed out,1praxeological knowledge is precise or exact knowledge of reality. All references to the epistemological issues of the natural sciences and all analogies derived from comparing these two radically different realms of reality and cognition are misleading. There is, apart from formal logic, no such thing as a set of “methodological” rules applicable both to cognition by means of the category of causality and to that by means of the category of finality.

  Praxeology deals with human action as such in a general and universal way. It deals neither with the particular conditions of the environment in which man acts nor with the concrete content of the valuations which direct his actions. For praxeology data are the bodily and psychological features of the acting men, their desires and value judgments, and the theories, doctrines, and ideologies they develop in order to adjust themselves purposively to the conditions of their environment and thus to attain the ends they are aiming at. These data, although permanent in their structure and strictly determined by the laws controlling the order of the universe, are perpetually fluctuating and varying; they change from instant to instant.2

  The
fullness of reality can be mentally mastered only by a mind resorting both to the conception of praxeology and to the understanding of history; and the latter requires command of the teachings of the natural sciences. Cognition and prediction are provided by the totality of knowledge. What the various single branches of science offer is always fragmentary; it must be complemented by the results of all the other branches. From the point of view of acting man the specialization of knowledge and its breaking up into the various sciences is merely a device of the division of labor. In the same way in which the consumer utilizes the products of various branches of production, the actor must base his decisions on knowledge brought about by various branches of thought and investigation.

  It is not permissible to disregard any of these branches in dealing with reality. The Historical School and the Institutionalists want to outlaw the study of praxeology and economics and to occupy themselves merely with the registration of the data or, as they call them nowadays, the institutions. But no statement concerning these data can be made without reference to a definite set of economic theorems. When an institutionalist ascribes a definite event to a definite cause, e.g., mass unemployment to the alleged deficiencies of the capitalist mode of production, he resorts to an economic theorem. In objecting to the closer examination of the theorem tacitly implied in his conclusions, he merely wants to avoid the exposure of the fallacies of his argument. There is no such thing as a mere recording of unadulterated facts apart from any reference to theories. As soon as two events are recorded together or integrated into a class of events, a theory is operative. The question whether there is any connection between them can only be answered by a theory, i.e., in the case of human action by praxeology. It is vain to search for coefficients of correlation if one does not start from a theoretical insight acquired beforehand. The co efficient may have a high numerical value without indicating any significant and relevant connection between the two groups.3