Tax The Rents

Production requires Land (natural resources) and Labour (human effort). It do not require Capital (tools/machines, buildings, inventory). After all, the first of the Capital was built by direct application of labour on natural resources (by necessity).

Wild fruits can be collected without using any equipment (capital).

If the wild fruits thus collected are not immediately consumed, and are stored for later usage, then we have inventory. This is frozen labour. This is also capital because it can be used to attract animals and birds who can be caught and consumed as food. Thus, its proved that atleast one type of frozen labour - inventory - is capital.

Simplest of the tools - such as round stones or sharp branches of trees - are frozen labours because it took human effort to collect or round/sharp them. They are also capital because they can be used to grind grains to make them edible when they were not edible in their raw/natural form, or to hunt bigger animals that could not be hunted without them.

Complex tools and machines are made by using other tools and machines which may themselves were made by using yet other tools and machines, but, by necessity, they are at the end made by simple tools which are made by applying human labour directly to natural resources. Thus, all tools and machines, simple or complex, are frozen labours and capital.

Last of the types of capital left to discuss is buildings. Buildings are made by applying human effort either directly on natural resources - such as make a mud wall or stone wall - or by applying human effort on natural resources through tools and machines. Since, as shown above, tools and machines are just frozen labour, all buildings are not just capital but also frozen labour.

Since everything that is capital is also frozen labour, it can be safely deduced that capital is nothing but frozen labour itself.

Hence, as shown above, to produce something, only Land (natural resources) and Labour (human effort)  is needed, Capital is not a separate thing because its already included in definition of Labour.

Once a production is made, profit must be divided among the two factors of production. The share of land is rent, that of capital is called ROI, that of labour is called wages.

A shopkeeper who is a tenant of the shop literally do divide the proceeds of production in the 3 factors. A shopkeeper who owns his shop implicitly keeps the rent. If he rents out the shop to somebody else he can still gather the rent. One important thing to note here is that the shopkeeper is also getting ROI for capital in both cases. The capital here is the building, the machinery, the furniture etc of the shop. The most important part of land (i.e. the natural resources) here is none of the area of the surface of planet he is occupying, sunlight or wind etc but the physical location of the shop. The same area (measured in square yards) of the surface of planet at a lesser part of the city would not generate the same income.

Two identical buildings, lets say of barbers, which are identical down to the same surface area of the planet, same number of floors, same quality of building materials used, same skilled labour used in construction, same furniture, same lightning etc, which are also providing the exact same quality of service, but are in 2 different parts of city, the first in a posh area, the other in a slum, would generate drastically different incomes in both rents and total sales. Why? We already established that the two have the exact same capital and labour, the only difference therefore is in land but in what part of land? Clearly in location only.

Now the question is, what gives a location its value. Is it something natural, outside of human activities so that locations have implicit values and we humans can neither increase nor decrease such values, or is it something depending on human activities.

Do a 2500 sq kilometers area of land which is a potential sea port but is at present just an empty plot worths the same as a developed city of same area housing 25 million people? How many such empty plots can be purchased by selling the developed city?

Is a house in a village worths same as an identical house in a city?

Obviously human activities do give locations their values. When my neighbour renovates his house, my house also increase in value. When a new butcher shop opens in the neighbourhood, values of all the houses and shops increase. When people move away from a town, value of all shops and houses of the town decrease. Its the people that gives a location its value.

The first ones to buy a piece of land in a new part of city enjoys tens of times increase in value in a matter of a few decades. Such a huge profit is coming to them by no effort of them but by efforts of society. Its the society that populate the land, build the infra structure etc. Therefore, the landowners owe the increase in the value of land to the society. The society through its agent i.e. government should tax the increase in the value of land which comes through activities of society.

Another way of looking at this is, just because a person was borned at an earlier date dont give him any more right to any natural resource than a person borned today.

If a person buy a piece of land 3 decades ago and not build anything on it and is selling it now, he should get exact same value as was the original price of land, and all the remaining amount must go to the government in tax. The person did nothing to develop the land, holding a piece of land is not equal to developing it. Infact the person prevented the land from being developed, therefore must be taxed for all the years equal to the rent of the land minus the rent of the land at the cheapest place in the country.

Every citizen of a country do have right to occupy some land. Since every citizen do have such right we will amount that to the cheapest land to rent in the country because otherwise we would be favouring some citizens over others. Therefore cost of occupying a land, taken by govt in form of rent tax, would be market rent of the said land minus the lowest rent of the same surface area of any land available in the country.

The rent tax should be given for all land occupied by all citizens in the country regardless of the land being developed or not. The difference is, if the land is developed, for example a house or a shop is built on the land, only half of the market rent must be considered and from this half rent the rent of the cheapest rent must be deducted and whatever amount is left must be taken in the form of rent tax from the citizens. This is because, a developed land employ all the 3 factors of production in the development and although a citizen dont have any right on natural resources of the country more than any other citizen, he do have 100% right to enjoy the proceeds of his capital and labour and govt have no right to tax such proceeds. Govt can only tax the natural resources of the country.

Simply put, out of the 3 proceeds of production: rent, ROI and wages, govt can only tax the rent and all of it except the rent of the cheapest land in the country. Govt has no business taxing ROI or wages.

Rent Tax alone will suffice all expenses of govt plus leave a substantial amount which govt should give back equally to all citizens.

Rent Tax will prevent people from hoarding natural resources and therefore economic progress will happen without hurdles.