Following on from the "A Search-Theoretic Critique of Georgism" post earlier, I found this elaboration by one of the authors here.
Gochenour, gives us a valuable real life example of how landowners create land values, and therefore all Land is Capital etc, etc.
An illustrative example: say an undeveloped lot near a residential area is valued at $x, the sale price at auction.
The new owner, an entrepreneur, has local knowledge and believes that the lot is a good place for a business. He canvasses the neighborhood and decides to build a restaurant serving delicious BBQ sandwiches. He believes he has a solid chance of running a successful restaurant, so he takes the risk and embarks upon the project. Ten years later, the restaurant turns out to be a success.
Sadly, the restaurant burns to the ground in a freak conflagration. The rubble is cleared and we are left with an empty lot. But is it the same lot as before? Should it be valued at $x? Now, everyone knows a successful restaurant could be built here, before, no one knew. The “unimproved” value has changed. For that matter, the value of nearby lots is likely to have changed as well. What happened to the value of big commercial lots in semirural areas after the first successful Wal-Mart?
There are a couples of point here:
Firstly, the site described above had potential, which the search discovered (costs which the entrepreneur incurs before he bids for the site - he pays these in his capacity as entrepreneur and not in his capacity as landowner). The other people at the auction were too lazy, unimaginative, skint to put in a higher bid. Only later when the restaurant became a success was the full value of this location revealed. But it would have been revealed to anyone who built a well run enterprise from that location.
Can it really therefore be said, the restaurateur created the potential i.e. the added land value, or just exploited its full potential? What exactly was innovated? A tasty new way of BBQing ribs perhaps, but is that a new use for land? I'm pretty sure retail was discovered quite a long time ago.
If we take Gochenour's logic further, if someone naively pays too much for a plot of land, they are destroying land values? Personally, I think they are just an idiot. The only thing they've really destroyed is their bank balance.
At the end of the day, if any business has to include an under valued site as part of their plan, they haven't got a viable business.
Secondly, a lot NCEist use efficiency as a reason against LVT. What if in the example above the restaurateur had rented the plot instead. The landlord is in effect collecting private LVT. As we all know, had the restaurant been a rip roaring success he would have put his rents up.
So for consistency, as well as arguing against the public collection of site values on grounds of efficiency, NCEist's should also be calling for a ban on private landlords or for rent controls.
But, of course they never have and never will. Funny that.
