Landlords and capitalists

Jesse Myerson has an interesting piece about apartment rent out today. The piece is mainly about about how such rents are unearned income for landlords, who are thus like lords in the feudal sense of the word. Myerson then goes on to propose ways to deal with that. I wont talk too much about the specifics of his piece, but I am interested in his distinction between landlords and capitalists. Myerson writes:

Capitalism, which is supposed to have permanently replaced feudalism, allegedly favors profits as the basis for the incomes of owners—an enterprise invests in plant, equipment and labor to produce goods and services consumers purchase with their wages, and the surplus is captured by the owners. Notice how different profit is from rent: income that requires no ongoing cost of production, revenue that is simply a recurring toll on some property that already exists—income that is “unearned.” We lump rent-collection in with profits, but only the latter is capitalistic, liberal, and productive.

For those who talk about these things, this is not a fringe view. Michael Lind’s recent push for an anti-rentier movement relied upon similar distinctions. Capitalist profits are productive and legitimate while earnings people get from intellectual property and land rent are not: a line exists between them. I don’t see it.

To start, we need to be clear about what we are talking about when we discuss rent, especially when talking about the actual rent people pay for their housing. The sum people pay to rent space in housing is not purely land rent. After all, there is a building on that land, and you are paying for space in that as well. So we can distinguish between land-rent on the one hand and building-rent on the other. The rent you pay for an apartment goes to pay both, among other things. This distinction is important because, although people do not generally produce land, they do generally produce buildings.

Producing buildings is, well, productive. As Myerson points out, charging building rent is the business model for financing that production. On the most basic level, the subsequent collection of rents is supposed to “pay back” the money spent on the building, not unlike when a capitalist sells the goods it has produced, those revenues are supposed to “pay back” the money spent bringing the goods to market.

But neither the landlord nor the capitalist stops collecting money at the break-even point. It is that increment above the break-even point, in both cases, that is effectively unearned. It is easy to conceptualize how passive a landlord’s income is because you can think of them as simply owning something on paper, having their minions collect the money and maintain the building, and then receive a check in the mail each month or quarter. But a capitalist’s income is no less passive: buy a stock, receive a dividend.

The argument is that the capitalists need to make money above the break-even point. If not, why would they ever build out capital to begin with? Sitting on the cash would be just as valuable to them. So it is supposed to be what gets them to be productive. But the ability to collect building-rent beyond the break-even point is supposed to serve the same function. If they can’t score excess income from producing buildings on these lands, then why will they dedicate their resources to doing it?

So building-rents and profits are both, in a sense, derivative of production: in the building-rent case, the production of buildings, and in the profit case, the production of goods and services. But they are also both, in a sense, generators of passive, unearned income. If you are going to call one productive, then just go ahead and call them both productive. If you are going to call one lecherous, then just go ahead and call them both lecherous.

I bracketed land-rent at the top because I wanted to distinguish it from rent that comes from owning the building, which is a different matter. If your goal is merely to strip out land-rent, then land-value taxes seem entirely adequate to the task. We have a solution for clawing back the land-rent part of the apartment rent already worked out and conceptualized. Building-rent is different and will have to be tackled in a different way.

My own view aligns with the understanding that the passive incomes of both capitalists and landlords are basically the same. I do not find anything especially endearing about surplus that is captured by owners of firms over the surplus captured by owners of land and buildings. How you go about getting that surplus back is a huge task especially given that investment and ownership are largely private. Myerson’s plans include municipal ownership of all the land and use of community land trusts. Without going into the merits of those ideas, I will just say that socializing finance seems like an easier way to go here. If you want to publicly capture private streams of unearned income, then just have the state buy up the assets that deliver them, e.g. stock equity. Or to put it another way, just socialize finance.