Normally the promoter of a new topic seeks to stress its distinctiveness. Ely's Outlines (and later works) conspicuously do the opposite. According to Ely, land value "is governed by the same laws that govern the values of other requisites of production" (1922, II, p.78). "The more recent theory of land income holds that land yields an income substantially of the same character as other forms of income" (1927, p.127). "Considered as property yielding income, land and capital are on exactly the same footing. A single-taxer (none are named) is much disturbed because the owner of a certain piece of land receives $30,000 a year in ground rents ... The same man (still unnamed) seems quite unworried by the fact that trust companies are turning over incomes just as great ... to clients ... some of whom are moral delinquents and intellectual incompetents" (1922, II, p.21). Land is indistinguishable from capital, and so "we should not tax separately the value of the land ... " (1922, III, p.115).
"... there is no surplus in land income. ... nobody works harder for what he gets ... than the landowner; and he usually gives a big return to society for what he receives" (1922, II, p.39, 53). Rising land prices are a payment for "continuous toil" (1922, II, p.36; Ely and Morehouse, pp. 194, 195), so land is really a labour product. The reader may detect a tendentious quality. What looks like unearned increment to land is really just "rent of conjecture," not peculiar to land (1922, II, pp. 34, 55). Presently we learn that land taxes are shiftable (1922, III, p.94), while "It is a great mistake to suppose" that sales and excise taxes are shifted to consumers (1924, p.24). More and more, one wonders why there should be a special Institute to study land, which is so much like everything else.
The promoter of a new topic normally tries to show its importance. Ely conspicuously does the opposite. Minimizing his topic, Ely wrote "... the last hundred years (1822-1922) ... shows the rent of land remaining fairly stationary" (1922, II, p.74). "The single tax will not yield enough revenue to meet those (governmental) expenses" (Ely and Morehouse, pp.323-24). In the future, he forecasts, land rent will fall further, owing to increasing wealth and technological progress (1922, II, p.13; Ely and Morehouse, p.262). Some rents will even become negative, dragging down the value of improvements (1922, II, p.73). There is some doubt if he believed this last point himself, because in 1924 he joined the "City Housing Corporation," buying 1100 lots in Long Island City, New York (Institute News, May, 1924). He was a Director of Fairway Farms Corporation, speculating in Montana and North Dakota farmlands, "to experiment with the agricultural ladder" (a nice touch) (ibid, October, 1924). Still, we have his forecast in print.
Another reason to promote research is to solve perceived problems. Again, Ely minimizes the task. According to him, there are no problems to be solved, except to put down unnamed single-tax agitators who would create problems by taxing land. The market already puts land to the best use, by Ely. "This idea that good land is held out of use in large areas is a fiction" (1922, III, p.98). The owner of land awaiting use provides gardens, lawns, and open space while he pays taxes to hold down taxes on the buildings of others (1922, III, p.103, 105, 106). "Very uncertain and often inadequate are the gains that finally come to him" (1922, III, p.106). Land speculators "purchase and sell land in order to help men acquire landownership." As to competition, it is perfect among landowners. Only non-land assets can be monopolized (1922, II, pp.52,53,73). Almost like a modern Rochester economist, Ely seems to be saying that land markets are 100% efficient; allocation is handled by the market. One wonders, why found an Institute to study land problems when there are no problems?
As for distribution, that is also as it should be. "Land is the poor man's investment" (1922, III, p.98). "The great millionaires prefer other forms of investment[53] ... other things pay better than land" (Hibbard, 1921). Educational and philanthropic institutions rest on landownership (1922, II, p.142). "Tenancy is also a good thing when it represents a rung in the agricultural ladder ... " (1922, III, p.53). "A properly controlled system of tenancy has a place ... as a stepping stone to ownership" (Ely and Morehouse, p.199). "The evils of tenancy have been grossly exaggerated" (1922, III, p.61). The virtues of tenancy are noted at length (1922, III, pp. 51-61). "English agriculture proves that we can have good agriculture with a system of tenant farming" (1922, III, p.61). The English Duke of Bedford is a good example, moved by noblesse oblige to provide a free bathhouse to the inhabitants of three villages on his estate of 51,643 acres, and to give them jobs building a pond for him (1922, II, p.61). Tenancy is caused by "incompetency"; tenants should be made more efficient through social welfare work (1922, III, p.59). A desirable percentage of tenancy is about 30% (1922, III, p.59).
Ely was well-connected, outstandingly so. His influence reached into the U.S.D.A., through Henry C. Taylor, head of the Bureau of Agricultural Economics, who was on his Board, and whom he hired at Northwestern when Taylor was dismissed in 1925. Under Taylor, five B.A.E. employees wrote "Farm Ownership and Tenancy" for the 1923 Yearbook of Agriculture (Gray, 1923). They write there that the high price of land has been given "exaggerated importance" as a cause of tenancy, and anyway, "it would be unfortunate to make the road to farm ownership so easy that farm ownership could be achieved by those who are unready." The authors include Lewis C. Gray, who surely knew better. The B.A.E. under Taylor also influenced Census Monograph No. IV, Farm Tenancy in the United States, by E.A. Goldenweiser and Leon Truesdell. The B.A.E. input came through O.E. Baker and W.J. Spillman, acknowledged by a note at the end of the introduction. Like the B.A.E. writers, Goldenweiser and Truesdell deal with tenancy as just a "rung on the agricultural ladder," an Ely invention. This is frustrating to the researcher on tenancy, for this classic monograph is a mine of useful information, with stimulating ideas. Something blocked the writers from developing those ideas and data in the direction they seem to lead.
None of the above positions seem to justify research to solve problems. The status quo is seen as satisfactory, except for one thing: overtaxation of land. There is the point of consistency. All the other premises help make a case for sheltering land from taxation. This does seem to be Ely's main point, although he is ever the sidewinder, never seeming to head where he is going. The exasperated Emil Jorgensen, after an exhaustive study of Ely's works, judged him harshly: his methods are the use of "unwarranted assumptions, of wrong inferences, of false suggestions, of insinuation, of half-truths and of outright misrepresentation" (Jorgensen, p.118). That is unkind, but seems to be on the mark in this case. It is consonant with what also irritated his right-wing critic who brought the 1894 case at Madison. Oliver Wells was wrong to persecute Ely, but he had studied his man. He complained that Ely's books are "studiously indefinite and ambiguous ... . They abound in sanctimonious and pious cant ... " (Ely, 1938, p.220). Just so. Constant equivocating and sidling and backtracking are his ways. Few but those already attuned to the single-tax case would notice how he keeps returning to the major theme of undercutting the case for a tax on land value.
We have seen above in passing some of Ely's penchant for abusing "the single taxer" in the course of making other points. He is now and then a litle more direct, although never completely so. "Because a colonization company[54] must operate with a large area of land, a high land tax may hamper or ruin such a company" (1922, III, p.29). "Few public utilities will escape taxation under the Ralston-Nolan Bill" (Hibbard). "Many are disturbed because property in land yields income. Is there anything ... which should lead to a special policy of taxation? Unless we are prepared to go over to Socialism ... we must expect to find men receiving an income from property, ... The solution of our land problems is not at all to be sought in confiscation of land values" (1922, III, pp. 102, 103, 105). "The effect of the singletax would ultimately be a system of State tenancy" (Ely and Morehouse, p.324). He favors public land purchase (presumably followed by tenancy), but not taxation. If we do raise land taxes, we must first indemnify the owners, because they have owned "from time immemorial" (1938, p.272). Sales of land to pay back taxes "pained me because of the tremendous economic loss involved ... tragic stories of poor settlers who lost their all, ... " (1938, p.234). Land taxes should be capped at 1.5% (1922, III, p.115). Without doubt he would be pleased with the 1% cap imposed since 1978 in California, a cap that in only 16 years has helped convert California from the most buoyant to the most depressed American State.
Finally growing bolder, in 1927 he writes forthrightly:
In 1921 New York City, spurred by the Manhattan Single Tax Club, exempted new dwellings of moderate size from the property tax for ten years. Ely demurs to this on distributive grounds - because it might "increase the final burden upon the land" (1922, III, p.115). By 1924 he is sure that it has done so, so that "the inducement to acquire land for residential utilization has been lessened" (Ely and Morehouse, p.286). The last statement seems to be spectacularly contrary to fact. Lawson Purdy and Edward Polak, both officials of New York City and writers in scholarly journals, reported that building permit requests rose by a factor of about 5, 1921-23 (cit. Jorgensen, p.159-62).
To avoid taxing land, Ely would tax consumption and labour. Having to pay taxes simply makes labour work harder (1922, III, p.69). (Compare this with the statement just above, that taxes on land lessen the inducement to use it for building.) There is a "margin of income for the payment of taxes by the great mass of people. One has only to watch expenditures for the 'movies'... to be convinced ... " (1922, II, p.119). "On every hand can be seen an enormous surplus of income over needs of subsistence" (III, p.93). There is no concern that such taxation might be "confiscatory." In the Ely lexicon only land taxes are confiscatory. "It is really an insult to the workingman to treat him as a tax exempt person" (1922, III, p.90). "We are unable, without ruin, to meet our growing needs by direct taxation, ... Taxes on consumption and various indirect forms of taxation must be employed ... (1922, III, p. 93).
Ely did not invent such ideas, but he gave them academic endorsement. In a few years they were preached from the top by the economic ruler of America, Andrew Mellon, Treasury Secretary under three Presidents from 1921-31, and by his successor Ogden Mills, Ely's ally in Congress. Both Mellon and Mills were major owners of the natural resources that Ely would relieve from taxation. They lost control of Washington in 1933, but Ely's ideas moved ahead rapidly in the states. The policies championed in Outlines of Land Economics, 1922, began taking over state governments in the 1930s, and have counter-revolutionized state and local government finance in the last 60 years. They bear major guilt for the decay of our once-vibrant cities and the depopulation of our farming areas.
By 1925 Wisconsin apparently lost its enthusiasm for Ely. La Follette's Wisconsin, of all the States, had least rejected Progressivism. The Regents resolved to accept no more donations from any incorporated educational endowment (Jorgensen, p.154). Ely may have seen this coming: he was already packing for a move to Northwestern. He added to his Board Frank Lowden, former Governor of Illinois and Republican Presidential timber,[55] and Nathan MacChesney, General Counsel for NAREB, and a trustee of Northwestern University. He boasted of his luxurious offices overlooking Lake Michigan, comparable to those he also boasted of in Madison (Ely, 1938, pp.245,247-48). He and his staff received premium salaries (ibid, p.248). Ely moved in the highest circles, and to that end went first class. It was an image-making strategy he had learned from watching Disraeli at Berlin in 1878 (Ely, 1938, p.55). When he launched his new Journal of Land and Public Utility Economics in 1924, it was most attractively presented. He wisely saw that it contained enough objective work to appear to be, and in many respects actually to be, a genuine scholarly journal: this, too, was part of his cultivated image.
"... Ely gradually became more conservative. ... in the 1920s his Institute ... was referred to disparagingly in a report on professional ethics by a Committee of the AAUP, in 1930" (Coats, 1987a, p.129). His son-in-law, Ed Morehouse, was its Director, but nepotism was the least of its sins, as we have seen.
Grace M. (Mrs. William) Jaffe became Ely's chief research assistant at Northwestern University in 1929. After they fell out, her memoirs give some insight into Ely's hostility toward Henry George. Doing research for his autobiography, she "discovered some of the less creditable aspects of his academic life, particularly his abject submission when accused of Socialism" (Jaffe, p.113). After that he grew increasingly conservative, and focused more on making money: reprinting and selling texts, consulting for utilities, and speculating in land. "Ely had succeeded in making a small fortune in the Wisconsin real estate business, buying land cheap, and selling it dear. This modus operandi brought him into acute conflict with Henry George's Single Taxers (Jaffe, pp.107-08)."
The bitterness of the relationship is apparent in the title of Jorgensen's monograph on Ely, False Education (1925). On Ely's side, bitterness is apparent from the material cited above from Outlines of Land Economics, etc., and from several disparaging allusions to George, single-taxers, and various pejorative codewords (economic sect, panacea) routinely used for single-tax and single-taxers in Ely's autobiography (1938, pp. 92, 162, 239, 241, 272). Jorgensen's style is heavy, but he did his homework. His charges are carefully researched and backed. They anticipated the later disparagement of Ely by the AAUP Committee on Professional Ethics.
By 1929 Ely was running out of steam, at least professionally (he was yet to sire two more children, when nearly eighty years old). Ely "had retired into a more or less permanent snooze, and was quite content to have the younger generation write his textbook (Outlines of Economics) for him. ... I was obliged, in order to protect the old man's reputation, to write the pages on 'Rent' and 'The Single Tax' for him. ... Every once in a while he would try to write part of his 'own' book. Ely left his MS on my desk. I read it carefully, but with horror. It was a libelous attack on the leader of the Single Tax movement. ... signed 'Richard T. Ely.' ... I sat down and wrote the section dealing with the economic theory of rent in general and with Henry George in particular. ... that section remained unrevised in later editions. ... Whether Ely ever read what his 'ghost writer' had written, I shall never know" (Jaffe, p.109).
This is the man who, in 1929, "was known as the Dean of American Economics" (Jaffe, p.107); who founded The American Economic Association, the academic discipline of Land Economics, and the Journal that now carries the same name, as an antidote to Georgist teachings about land. "Many of his students went on to distinguished careers in academic or public life" (Coats). In 1927 he was introduced to President Calvin Coolidge with these prophetic words: "Mr. President, here is Professor Ely, dean of American economists. If anything is wrong with the country it must be his fault" (Ely, 1938, p.276). Something was, and it must have been.
The modern American Economic Association holds him to its bosom: from 1963, it honors his memory every year with its invited Richard T. Ely Lecture, a tribute to his enduring influence over the ideas and ideals of the profession. In case any doubt remains over the role models of the Association, it bestows a second and third annual tribute. One is a Medal awarded in honor of John Bates Clark, who devoted his career to cleansing the lexicon of words needed to make the case for a tax on land values. The other Medal is in honor of Francis A. Walker, he who "would not insult his readers by discussing a project so steeped in infamy" as Single-tax.
The doctrine of "ripening costs"
Aside from his institution-building, what ideas did Ely add to NCE? He endorsed and widely popularized the points advanced by seminal NCE revisionists like Clark, Pareto, Seligman, Edgeworth, and Spahr. Ely saw land value as being mostly man-made. A catalogue of his anti-Georgist teachings is in Jorgensen (1925); we have surveyed them above.
In addition, Ely advanced his own seminal rationalization of land speculation, the doctrine of "ripening costs." Francis Edgeworth (1906, p.73) had toyed with the idea in his understated manner, but it was Ely who drove it home to the median midwestern Babbitt. By holding land idle during its rise of value, "I perform social service" (1920, p.127). The service is to preempt land from premature underimprovement while it ripens to a higher use. Holding costs and unrealized latent rents are "ripening costs." "The costs falling upon the holder of land during a period of ripening use are socially necessary and are properly chargeable to the increment in land value resulting from the change in use. ... in public utility economics ... losses sustained during the period of developing a going business are capitalized into the rate base" (1927, p.130, and p.130 n.1. Emphasis in original.).
"Ripening costs" marked a shift, but not a rift, in NCE. J.B. Clark (1899, pp.85-87), Alvin Johnson (1914, p.35), H.J. Davenport (1917), and later B.H. Hibbard (1930) credited land speculation with hastening the conquest of the frontier, which they, in the frontier tradition, premised to be an unmixed blessing. The "lure of unearned increment" actually stimulated building (today we call it "rent-seeking"). I find no record that Ely or the others tried to reconcile their polar positions. They were content to unite (notably excepting Davenport) in their damnation of George and the single tax. Clark, Johnson, and Hibbard damned it for slowing down settlement; Ely for speeding it up. No matter: the idea was to damn it, and that they did jointly, unvexed by inconsistencies.
Ely had got ahold of an important and timely truth. Sprawl of all kinds had gone too far; the "cowboy economy" needed reining in. This gave some plausibility, and sense of social responsibility, to what he said. However, he used this truth lopsidedly as a stick to beat down land taxes everwhere. "... it is proposed by some to tax land to the point of confiscation, in order to bring it into use. Yet we find that some kinds of land are being brought into use too rapidly, ... contrary to the principles of conservation" (1927, p.121). That is, he blamed land taxes in marginal areas for stimulating development; he never proposed the obvious counterpart, to raise land taxes on better lands to speed and fill out their development, to satisfy demand so it might stop pushing outwards. He also, without recognizing it, contradicted his ally Seligman, who was still repeating his claim that reliance on land taxes would destroy marginal communities because they would have no tax base. Ely, meantime, with his usual equivocation, was busy speculating in Montana lands for himself and his Institute.
During the Great Depression Ely's doctrine of ripening costs was ridiculed even by George Wehrwein, revising Ely's text, who pointed to empty land that was put into "cold storage, and loading the community with the frozen assets that result" (Ely and Wehrwein, 1940, p.149). This was almost Henry George talk! Worse, it was taken from a study by two of Ely's own proteges, H.D. Simpson and E.R. Burton (1931, p.44). The Great Depression really traumatized people, leading to agonizing reappraisals that lasted for a generation. Today, however, those events and misgivings are forgotten.
Even by his own lights, Ely's "social service" proved negative: his empty land rotted before it ripened, and he lost all in the crash. He was reduced to living on relatives and former students, until rescued by Nicholas Murray Butler, long-time patron of J.B. Clark and E.R.A. Seligman (Coats, 1987b; Ely, 1938, p.285). Seligman helped with his autobiography (Ely, 1938, p.viii).
However, with renewed rising land prices and galloping urban sprawl, the doctrine revived. It found its political outlet in 1957 when Governor Spiro Agnew of Maryland signed the first state law authorizing preferential assessment of farmland around growing cities, a movement that spread like lightning nationwide. In the profession, now consisting mostly of NCE rent-rationalizers, if has again become an article of faith. To them, markets are "efficient" so long as buyers make competitive returns. Whatever actually happens to the land must then be right, by definition. Even if they don't make competitive returns, they thought they were going to when they bought it (again by definition), and that is what really matters. It dovetails nicely with the "perfect markets" and "rational expectations" worldviews that would rationalize markets so perfectly there is no unearned wealth except by chance.
In this writer's view, the matter was nicely, if unintentionally, disposed of by Friedrich and Vera Smith Lutz (1951, pp.109-12). They wrote on optimal replacement timing under conditions of progressive obsolescence. All they did was ask how to maximize present value in perpetuity. They found that the expectation of higher future uses leads to speedier, not slower replacement of old by new uses. Their simple, basic mathematics has been entirely ignored by modern economists intent on replicating Ely's feat of rationalizing land speculation. Kris Feder's chapter in the present series of CIT books supplies a bibliography of current writings on the subject. (See also Gaffney, 1973, pp.141-42)
Another Ely innovation was to sneak in the price of land purchase as a social cost. "... get away from the old dogmatic treatment of the rent of land ... We have also taken over from public utility economics the idea of historical cost. When this method is pursued, it is difficult to find any peculiar or special surplus. ... inquiries ... indicate rather a relatively low income on the investment in land; ... need more research" bla-bla-bla. "... land economics ... as a result of observation, statistical inquiry and research, is reaching conclusions in regard to the income of land similar to those formulatd years ago by Professor John Bates Clark. ... Clark's works ... (use) deductive reasoning of a high order" (Ely, 1927,pp.127-28). No mere Methodenstreit would stand between fellow anti-Georgists.
From this fountain has sprung the whole stream of modern rationalization of markets whereby arbitrage leaves no potential gains unrealized, and this guarantees optimal allocation of land.
Yet another Ely innovation is to make high land prices stimulate saving and capital formation. This may follow directly from Clark's capital theory, but Clark carefully avoided capital formation. He always assumed a fixed capital supply, to avoid any difference of capital from land. He focused narrowly on allocation of a fixed quantity of scarce capital among competing ends. Ely, however, sidled into implying that high land prices are a cause of saving:
After 65 years of such education, Ely has won in academies and think-tanks and legislatures. We have done what he recommended, and more. Land prices have risen beyond his wildest dreams. Richly funded think tanks like the American Council on Capital Formation preach his gospel to every Congressman. Interestingly enough, however, the result has been a crisis of low savings rates, high capital imports, balance of trade deficits, and growing absentee ownership of U.S. assets.