Locke And The Price Of Land

Even though Locke adopted a labor theory of value, he was sensible to the role of prices in allocating resources. Simply as a matter of accounting for profits and losses in terms of prices paid and received, Locke found that natural materials traded at very small amounts relative to the price of labor and technology. He pointed out that excellent cropland was free for the taking in many places in the world, such as in regions of Spain (at the time) and in the "inland vacant places of America."25 Locke wrote of land in America that one cannot "acquire to himself a property to the prejudice of his neighbour, who would still have room for as good and as large a possession (after the other had taken out his) as before it was appropriated."26

Land was so plentiful relative to demand that the price of the marginal acre was minimal. Starting in 1863 under the Homestead Act, the U.S. government gave a quarter-section (160 acres) free to anyone who would farm it for five years. Labor commanded a scarcity price; land was free. By 1900, about 600,000 farmers obtained about 80 million acres of land under the act.

According to Locke, if the price of fertile land is negligible, as it was in America, the economic value of food "must all be charged on the account of labour, and received as an effect of that."27 Locke reasoned that of the prices we associate with agricultural commodities, "nine-tenths are the effects of labour. Nay, if we... cast up the several expenses about them ... we shall find that in most of them ninety-nine hundredths are wholly to be put on the account of labour."28 In the production of commodities, "Nature and the earth furnished only the almost worthless materials as in themselves."29

The price structure of agriculture has changed little since Locke's time. "The cost of labor is the biggest part of the total food marketing bill," the U.S. Department of Agriculture (USDA) has reported year after year.30 According to a 2004 USDA publication, "Nineteen cents of every dollar spent on U.S.-grown food goes to the farmer for the raw food inputs, while the other 81 cents covers the cost of transforming these inputs into food products."31 Of the 19 cents, land - the rent on the natural resource - represents perhaps one or two pennies.

In 2004, a typical acre of fertile soil in the American heartland sold at the average price of $1,780, at least a quarter of which can be attributed to the distorting effect of subsidies, according to USDA figures.32 Farmers who are paid - as a way to control surplus - not to grow crops bid up the price of land where not to grow them. Without these distortions, the prices of (or rentals for) cropland land in the United States would constitute about one-tenth of the farmer's expenses and thus less than 2 percent of the price of food. This is consistent with Locke's calculation that only one part in a hundred of the prices of agricultural products can be credited to the natural properties of the land, while 99 percent must be credited to labor and the tools it applies.

In The Curse of American Agricultural Abundance (2003), Willard Cochrane, a leading agricultural economist, argues that it would be more economical and efficient if the government stopped paying tens of billions in subsidies every year to prop up cropland values. Land would then revert back to prairie in the American West much as it has returned to forest in the East.33 Cochrane suggests that "large parts of the Great Plains should be converted into a fenceless 'buffalo commons.'"34 In the absence of government subsidies, farmland in the United States will continue its return to the natural condition and the negligible economic value it had in Locke's time. Locke was right. Because of its abundance relative to demand, fertile cropland continues to furnish only "almost worthless materials as in themselves," which can be obtained for almost nothing.

Every real estate broker can recite the three factors that control the price of an acre of land: location, location, and location. In 1840, Johann Von Thuenen showed that land values - or the "rents" farmers can extract from they land they farm - are higher the closer the land is located to cities even if the uses of the land are the same.35 Transportation costs will diminish the economic value of land, however fertile, that is far away from markets. Nothing has changed in 250 years since Von Thuenen wrote. The price of land (as Henry George noticed) has a lot to do with where the railroad (or metro) is built. The economic value of land still depends on its location, that is, on its convenience to highways, schools, restaurants, theaters, and society generally - its proximity to the amenity of urban living as opposed to what Karl Marx called the idiocy of rural life.36

Today, an acre of farmland commands the very highest price if it can be taken out of row crops and planted instead to shopping malls and condominiums. According to the USDA, "survey data indicated that agricultural land with a potential for immediate development (expected land use if sold) was valued at more than $5,700 per acre."37 To rent a ten-by-five foot parking space in Manhattan, New York, you must pay more than you would pay to rent a hundred acres of good farmland near Manhattan, Kansas.38 Economic returns to nature from agriculture are negligible, just as Locke thought.

In recent years, prices for land have risen somewhat in response to huge subsidies the government is now beginning to pour into the production of ethanol to be used to supplement petroleum in combustion engines. At this time, as much or nearly as much fossil fuel is required to produce and ship an equivalent amount of energy in the form of ethanol. Accordingly, subsidies to ethanol production buy few returns to the environment.39 The prospect of genetically engineered microbes capable of converting cellulosic biomass introduces the possibility of converting huge landscapes, now forested, into fast-growing poplar plantations, switchgrass operations, and other novel crops. If agriculture turns from producing comestibles to producing combustibles, the outcome for the environment is anyone's guess.

"Truly sustainable agriculture in America's future," an agronomist has written, "will include only the very few forms of agriculture that are compatible with urban life," such as nurseries and turf farms.40 This may also include the production of fuels useful for transportation. In 1928, humorist Will Rogers recommended another strategy for making farming sustainable. "I tell you turning your land into a golf course is the salvation of the farmer," he said. "The only thing to do with land now is just to play golf on it. Sell your land and caddie."41

Guide to Alternative Fuels

Guide to Alternative Fuels

Your Alternative Fuel Solution for Saving Money, Reducing Oil Dependency, and Helping the Planet. Ethanol is an alternative to gasoline. The use of ethanol has been demonstrated to reduce greenhouse emissions slightly as compared to gasoline. Through this ebook, you are going to learn what you will need to know why choosing an alternative fuel may benefit you and your future.

Get My Free Ebook

Post a comment