Max Hirsch: The Unsung Hero
Max Hirsch was an ardent proponent of Henry George’s economic philosophy and “single tax” doctrine.
The Georgist theory of land posits that rent is a community claim on the differential advantage of using supramarginal land over the margin of production. Within the Georgist framework, rent is unique. It represents, in tangible form, the advantage that others have over using superior land. It is the physical manifestation of all the externalities that determines the value of said land, which is common property.
The Austrian theory of capital and interest is one of valuation. Interest is time preference, and in simple terms, this refers to the satisfaction of wants in the present (present goods), against the satisfaction of wants in the future (future goods). It is the time preference of society that determines the interest rate, not vice versa. Put differently, it is the discount or exchange ratio of future goods against present goods, since people tend to prefer the same good earlier as opposed to receiving it in the future. It’s important to note that interest isn’t specific to just the loan market only, but it instead pervades the entire economy and presents itself at every stage of the production structure in the time market.
Contributions to economic theory
In Democracy vs Socialism, Max Hirsch combined the two; the Georgist theory of land and rent with the Austrian theory of capital and interest¹, as the two are very compatible and form a coherent foundation for spatial analysis.
Max Hirsch deemed the private appropriation of rent as “spurious rent” since this is a reflection of the capabilities of intramarginal land, which isn’t the property of any one individual but is the birthright of all mankind. The opposite of this, which he called “natural rent”, is its collective ownership. This is because it equalizes the natural opportunities to humanity, by taking the extra output produced on superior land and reducing it to yield the same earnings when equal exertion is applied to the least productive land in use.
Max Hirsch also provided a correction to Ricardo’s law of rent, stating that:
The rent of any piece of land is determined by the excess of its productivity over that of the equal area of the least productive land in use, after the sum of exertions which in both cases yield the most profitable result has been deducted.
In other words, the rent of land is determined by the excess output produced from its optimal application rather than the same application that labor and capital can secure from the least productive land in use.
The price of any durable good on the market is its capitalized rents, discounted via the interest rate (time preferences) to arrive at its market price. This is compatible with the Georgist theory of land due to the fact that land is a durable good, it is infinite in duration and it never depreciates. Thus, its rents can be discounted to reach its market price and the degree of monopoly.
Conclusion
All monopolies are induced by the state. The greatest monopoly, land monopoly, isn’t any different. The state allows for the extraction of rents, which is a deduction from the real wealth of society and acts as a tax for the use of more productive locations, to which they have no greater right to access than we do.
The reason why the private ownership of land rents is a form of exploitation is that it gives to those in excess of what they have contributed to producing wealth, without rendering any sort of service in return. Alternatively, the majority of laborers receive far less than their labor actually contributes, since most of their output goes to the land owner in the form of rent.
A land value tax is essential to solving the many ills facing our economy today. A 100% land value tax will reduce house prices, increase wages, improve factor mobility, increase effective demand and grow the economy.
