Riotous Real Estate
Riotous Real Estate
by Mike Davis
Last February the sirens howled in Hollywood as the LAPD rushed reinforcements to the 5600 block of La Mirada Avenue. While a police captain barked orders through a bullhorn, an angry crowd of 3000 people shouted back expletives. A passerby might have mistaken the confrontation for a major movie shoot, or perhaps the beginning of the next great L.A. riot.
In fact, as LAPD Captain Michael Downing later told the press: “You had some very desperate people who had a mob mentality. It was as if people were trying to get the last piece of bread.”
The bread-riot allusion was apt, although the crowd was in fact clamoring for the last crumbs of affordable housing in a city where rents and mortgages have been soaring through the stratosphere. At stake were 56 unfinished apartments being built by a non-profit agency. The developers had expected a turnout of, at most, several hundred. When thousands of desperate applicants showed up instead, the scene quickly turned ugly and the police intervened.
A few weekends after this tense confrontation in Hollywood, another anxious mob — this time composed of more affluent home-seekers — queued up for hours for an opportunity to make outrageous bids on a single, run-down house with a cracked foundation in a nearby suburb renowned for its good schools. “The teeming crowd,” wrote Los Angeles Times columnist Steve Lopez, “was no surprise given the latest evidence that California’s public schools are dropout factories.”
Los Angeles’ under-funded, overcrowded, and violent schools, according to a recent report by Harvard researchers, currently fail to graduate the majority of their Black and Latino students, as well as one-third of whites. Parents, as a result, are willing to make extraordinary sacrifices to move their children to suburbs with functioning public education. This gives the old adage that “location is everything” in real estate a new twist: Housing in Southern California is universally advertised and graded by the prestige of local school districts.
The Southern California housing crisis, of course, has a sunnier side as well. In the last five years median home values have increased 118 per cent in Los Angeles and an extraordinary 137 per cent in neighboring San Diego. Homes, as a result, have become private ATM machines, providing their owners with magical, unearned cash flows for purchasing new sports utility vehicles, making down payments on vacation homes, and financing increasingly expensive college educations for their kids. Second mortgages and home refinancings, according to a Wharton Business School survey, have generated an astounding $1.6 trillion in additional consumption since 2000.
The great American housing bubble, like its obese counterparts in the UK, Ireland, the Netherlands, Spain, and Australia, is a classical zero-sum game. Without generating an atom of new wealth, land inflation ruthlessly redistributes wealth from asset-seekers to asset-holders, reinforcing divisions within as well as between social classes. A young schoolteacher in San Diego who rents an apartment, for example, now faces an annual housing cost ($24,000 for a two-bedroom in a central area) equivalent to two-thirds of her income. Conversely, an older school bus-driver who owns a modest home in the same neighborhood may have “earned” almost as much from housing inflation as from his unionized job.
The current housing bubble is the bastard offspring of the stock-market bubble of the mid-1990s. Housing prices, especially on the West Coast and in the East’s Bos-Wash corridor, began to rocket in the second half of 1995 as dot-com profits were ploughed into real estate. The boom has been sustained by sensationally low mortgage rates, thanks principally to the willingness of China to buy vast amounts of U.S. Treasury bonds despite their low or negative yields. Beijing has been willing to subsidize American mortgage borrowers as the price for keeping the door open to Chinese exports.
Similarly, the hottest home markets — Southern California, Las Vegas, New York, Miami, and Washington, D.C. — have attracted voracious ant columns of pure speculators, buying and selling homes in the gamble that prices will continue to rise. The most successful speculator, of course, has been George W. Bush. Rising home values have propped up a stagnant economy and blunted criticisms of otherwise disastrous economic policies.
The Democrats for their part have failed to address seriously the crisis of millions of families now locked out of home-ownership. In a bubble city like San Diego, for instance, less than 15% of the population earns enough to finance the cost of a median-value new home.
Accordingly, if “values” were the basis for the Bush victory last November, they were property values not moral principles or religious prejudices. In the face of the perverse housing bubble, the Kerry campaign, as with healthcare costs and the export of jobs, was simply running on empty. It offered no compelling alternative to the status quo. But the Republicans have more serious things to worry about than Democrats. As the real-estate bubble reaches its peak, George Bush may discover that he has been surfing a tsunami and that a towering cliff looms ahead.
The bubble has already burst in San Francisco, and the April 11th issue of Business Week headlined fears that a general deflation – perhaps of international magnitude – is nigh. What will life be like in the United States (or Britain or Ireland) after the home-equity ATM shuts down?
The business press, as always, reassures passengers that they are headed for a “soft landing,” a slowdown rather than a crash, but even a mild jolt may be sufficient to end the current anemic recovery and throw all the dollar-pegged economies into recession. More ominously, some eminently respectable Wall Street economists, like Stephen Roach of Morgan Stanley, have been warning of a dangerous negative-feedback loop between the foreign-subsidized housing bubble and the huge U.S. trade and budget deficits. (”The funding of America,” he has written, “is an accident waiting to happen.”)
At the end of the day, American military hegemony is no longer underwritten by an equivalent global economic supremacy. The housing bubble, like the dot-com boom before it, has temporarily masked a mess of economic contradictions. As a result, the second term of George W. Bush may hold some first-class Shakespearian surprises.
Mike Davis is the author of Dead Cities and the forthcoming Monster at the Door: the Global Threat of Avian Influenza (New Press 2005).
Copyright 2005 Mike Davis
somebody:
i live in austria and cannot stop wondering at the housing problems in the US. in the article it is pointed out - as an example - that in san diego only 15% of the population can afford a new home.
i compare this to vienna, where i live. in the times of the autro-hungarian empire, poor immigrants who came here from all corners of the empire would have to make do with a shift in a bed shared with 1 or two other people, in a little “better” houses there was still no running water but at a tap downstairs, the “bassena”. you can imagine the disastrous hygienic conditions.
after the habsburgs were run out (actually before, but they never had much freedom to do anything) the socialists or “social democrats” took over the govt of this city. the first thing they did was to build affordable flats for everybody. these new buildings had flats of 20 to 30 m2 and running water and toilets on every floor. by todays standars this is small stuff, but it was a giant improvement in the living conditions of people back then.
since then this city has offered more or less affordable housing to people with low income, and because of this the socialist party has been in power in this city more or less uninterrupted - except for the nazi time i think - since then.
given this record i wonder why no major or governor has come up with the idea of building flats on city money and rent them out at a reasonable (not to be confounded with “market-level) price to people with income below some limit. the idea may sound weird or even ignorant to americans, but i still dont see why any politico would renounce the major vote-getter issue of affordable housing for the poor. i realize the very different histories and political traditions of the US and most european countries but still, offering affordable housing to the poor has nothing to do with a patronizing, leftist or ‘mama’ government, but with the political class assuming their responsibility regarding the welfare of the people. any resulting increase in votes should be seen as not too scarce fringe benefits.
20 April 2005, 7:30 amJonas:
In Copenhagen, Denmark where I live, the city has done a great job of turning small(ish) affordable appartments into large expensive ones. This is a deliberate policy to attract good taxpayers. Of course it has the sideeffect of making housing extremely expensive.
A 35m2 apartment in Copenhagen can cost as much as a 350m2 house in the province. With the extremely high prices of cars/gas in Denmark (making transport very expensive), and the concentration of schools/universities in the cities, it is a very difficult situation especially for students.
21 April 2005, 7:00 pmJim Priest:
About two years ago the feeding frenzy started in Echo Park. You may recall the movie Chinatown. That’s Echo Park. Unfortunately, Yuppie scum in the film industry found out how beautiful it is and the median price of a home there has more than doubled in that time. I rented a really great two-bedroom in a quiet neighborhood for eight hundred a month. My landlord had paid about 100,000 for the place and he was cool as hell. Some real estate speculator walked by and offered him 400,000 on the spot. He has kids of his own, how could he resist? He helped me out with some relocation money and I found a place that was not near as nice in a crappy neighborhood in East L.A. for 1300. Now, a year and a half later, my new landlords are selling and I’m ass out. This time I get nothing and I’ve been just lucky enough to find a two bedroom apartment in Hollywood for 1400 for me and my two teenaged kids. So in a mere 18 months, I’ve gone from living in a charming little house in the fragrant trees to a sleazy apartment on Crack Alley and my rent has almost doubled.
23 April 2005, 7:08 pmSo the speculators produce nothing and they improve nothing and they don’t even have to put up any capital to make serious quick dollars- sometimes one or two hundred thousand dollars on a single house in less than a year- and the bankers make even more and do even less. Think about it. That place I had in Echo Park was built in 1924. The land and the materials and the labor in that place were paid back WITH INTEREST by World War Two and the bankers and realtors have been making money on it ever since.There’s no incentive for anyone to build low or even medium income housing in L.A. and every incentive not to. We’ve got to get organized against these pigs and I mean like now!!! There. I feel much better. Thanks.
Ed:
Two random thoughts:
1) Home ownership in the US is currently at 68%, well above historical averages and well above most European countries.
2) As Mark Twain said, “Buy land, they ain’t making it anymore.”
3) That $2000-a-month apartment in downtown San Diego would cost about $500 a month in plenty of places in the midwest.
Ed
23 April 2005, 10:00 pmOfficial token right winger
Jim Priest:
Thanks for your perspective, Ed but I have to ask
24 April 2005, 9:22 pma) Whered’ya get that 68%figure? Sounds pretty rosy to me. I’d sincerely love to read that report. It might give me hope.
b) I go to St Louis a couple of times a year and they have miles and miles of gorgeous fin de siecle houses just sitting there boarded up. That ain’t because people don’t think it’s hip enough in Missouri, it’s because there aren’t enough jobs. If I could make my L.A. salary in St. Louis, I’d have no choice but to move, as much as I love my fellow freaks in L.A. and as much as that kind of thing just undermines the whole idea of communities. Since you’re a “token right winger” perhaps you could share your thoughts on why the “free market” has failed to create supply here in L.A. when there is obviously so much demand.
chris daniels:
My oldest friend owns a house; he’s also in pretty deep debt. He was told by his real estate agent that he better sell his house as soon as he can. He’s working on it. The agent said that the SF Bay Area real estate market is “bound to collapse, sooner or later.” And that if it does collapse this year, it will be in August. I wonder how many real estate agents are telling their clients exactly the same thing…
25 April 2005, 2:49 pmEd:
Jim,
a) Google “US home ownership” and you will get numerous links, the first of which will likely be the US Census Bureau. Or try this link: http://www.census.gov/hhes/www/housing/hvs/hvs.html
b) Mark Twain addresses your second question quite well. There is a finite amount of land in town. Demand has long since exceeded the possible supply. To get more living space, you either have to go up (in the sky) or out (in the burbs). The free market has done plenty of both.
Ed
25 April 2005, 7:02 pmMark Monson:
Ed,
26 April 2005, 7:53 amSuburbs don’t happen because cities are full. Philidelphia has 33,000 vacant lots. Every American city is ringed by investment land that lies idle while the price appreciates. Housing costs are so high because of land investment. Long term land investment is attractive because holding land is cheap. By increasing taxes on unimproved land value, (don’t count buildings) vacant lots will be built up and land use costs will drop.
Ed:
Philadelphia has also lost 400,000 people, 50,000 households, and 200,000 jobs since 1970. Over 75% of the houses in Philly were built before 1960. Those lots aren’t vacant because of dastardly real estate speculators. They are vacant because nobody wants to move there.
26 April 2005, 8:30 pmsteve:
part of the exorbitant ground rents that can be charged in cities are due to the artificial constraints on the metro-area-wide housing supply constituted by exclusionary zoning regulations in the suburbs, regulations that don’t permit multi-unit structures or even single family homes on small lots to the extent that the market would bear.
ed, i challenge the implication i think i detect in your statements that the movement to the suburbs and the abandonment of philadelphia can be attributed simply to individual choice. too often we overlook the role of federal policies in underwriting the abandonment and deterioration of the older manufacturing cities (where the working class had organized itself) and the shift to the suburbs and the sunbelt– funding the highway system at the expense of public transit, guaranteeing suburban mortgages, redlining, military pork spending.
jim kunstler has observed that as the price of gas reaches some approximation of its real social cost, we’ll see center city land values remaining high even as exurban values evaporate.
-steve
26 April 2005, 9:52 pmsteve:
part of the exorbitant ground rents that can be charged in cities are due to the artificial constraints on the metro-area-wide housing supply constituted by exclusionary zoning regulations in the suburbs, regulations that don’t permit multi-unit structures or even single family homes on small lots to the extent that the market would bear.
ed, i challenge the implication i think i detect in your statements that the movement to the suburbs and the abandonment of philadelphia can be attributed simply to individual choice. too often we overlook the role of federal policies in underwriting the abandonment and deterioration of the older manufacturing cities (where the working class had organized itself) and the shift to the suburbs and the sunbelt– funding the highway system at the expense of public transit, guaranteeing suburban mortgages, redlining, military pork spending.
jim kunstler has observed that as the price of gas reaches some approximation of its real social cost, we’ll see center city land values remaining high even as exurban values evaporate.
-steve
26 April 2005, 10:05 pmMark Monson:
Ed
Do you really believe that if Philly’s vacant lots were put up for auction that nobody would bid?
Chronic urban lot vacancy is also the CAUSE of job loss, not just the result. Can there be any doubt that more affordable land is a boon to job creation, and that high land use costs lead to unemployment?
26 April 2005, 10:15 pmEd:
First, I need to point out that because of the delay while Stan screens posts for spam, Jim’s first post had not appeared when I made my first comments. My “3 random thoughts” post was in no way meant as a reply to his housing predicament. Reading the first few posts really makes me sound like a heartless ass.
To the rest of the discussion: of course I do not deny the effect that zoning, taxes, transportation, schools, gas prices, roads, mass transit, and all sorts of other factors have on real estate prices. That would be foolish.
But it is equally foolish to deny that the major factor in housing prices is demand, and that the overwhelming determinant of demand is location. “Location” is a subjective term, but proximity to an economically vibrant city center is clearly a highly desirable characteristic of both land and housing. Lots of people want it, and there is only a limited quantity to go around, so the price skyrockets. Not too hard to figure out. How many vacant lots are there in Manhattan these days?
Despite my status as token right winger of this blog, I’m not in favor of totally unfettered markets. Oftentimes the free market must be shaped by government policies to benefit the greater good. But blind attempts to blame capital investment for all the perceived evils and imperfections of the world is a fools errand. And tinkering with markets just to satisfy this or that aggrieved group almost always backfires, as in the case of rent controls in NYC and other cities in the NE.
So my original advice stands: move out of those crowded hellholes and go somewhere nice like Kansas, or Raleigh NC, or Tupelo MS, or Modesto CA. Get a low stress job, buy yourself a nice house for less than $1000 a month, and enjoy life instead of being pissed off at the rich people.
27 April 2005, 9:44 pmStan:
Scratch Raleigh. Prices have jumped here, too, while your best employment opportunities are at WalMart.
The structural issue is superficially demand, but much more than demand. Whose demand? Much of the ‘demand’ is speculative investment, and much of that hot money is being generated far faster than the net US commodities basket and stable credit levels that would balance it. It is being generated by a printing press… as fictional value. The reason the US gets away with this for now has been described by any number of people, and that is the peculiar position of the US as an imperial power based on its debtor (!) status (this, btw, can only be backed up by the worldwide deployment of massive military power). The same kind of fictional value that inflated the dotcom bubble that is now being pumped into a speculative real estate market.
The problem with hot-money is its short attention span. As soon as the prices begin falling again, they’ll bail en masse and strand individual homeowner/investors with the debts in a potentially deflationary environment. For the time being, the US can still export its deflation to other countries, but as Chalmers Johnson said, “Anything that can’t last forever, won’t.”
This is not a funtion of the fallacious “rational actor” so near and dear to the libertarian heart. This is capital doing what it always does, trying to escape its own law of value. Capitalism has always, and will always, attempt to privatize the gains and socialize the costs… so stand by. The so-called American middle class is about to become an ‘externality,’ and they’ve been so thoroughly anesthetized by tv and their SUV entertainment centers that they won’t even know what hit them.
The right will try to somehow convince them that its colored folks who are to blame.
28 April 2005, 6:46 amMark Monson:
http://cpmcnet.columbia.edu/dept/physio/schools/318/map00.html
says Manhattan had over 11,000 vacant lots in the year 2000.
Land rents and prices are greatly boosted by artificial scarcity due to land speculation and land investment bubble created by the banking sector.
The solution is land value taxation that ignore improvements and taxes only the unimproved value of sites. LVT takes the incentive out of bidding up lot prices with inflated bank created dollars and holding vacant lots in hopes of land price apprecation.
With LVT land prices and rents drop and workers benefit.
28 April 2005, 5:22 pmJim Priest:
Wow this is great. I was just kvetching and now there’s an actual discussion. While I appreciate the civility, I don’t see how the suggestion that I move out of this “crowded hellhole” that I’m proud to call my home and start from scratch in Kansas or Mississippi is a viable solution. I’ve worked my ass off to build a professional reputation here and to raise my kids here. Now I should leave so some trustafarian film school student can stay? More importantly, it misses my point entirely. The issue is speculation. The “owners” of the house I’m leaving created nothing and improved nothing. With no capital outlay whatsoever, they will reap a profit after taxes of about eighty thousand dollars for a few phone calls and a little paperwork. The banks are only too happy to underwrite this game beacause over the course of a 350,000 dollar loan they get about a million. Here’s the problem. For every 100,000 dollars loaned, the mortgage is 800 dollars. The speculators don’t pay that money- the tenants do. I’m as big a fan of Mark Twain as anyone, staunch anti-imperialist and anti-racist that he was but his musings are utterly irrelevant here. L.A. is freakin’ huge. There are plenty of vacant lots to build on here and plenty of buildings standing around waiting to be renovated and converted (not to mention plenty of people willing and able to do the work). Following basic capitalist logic, it makes no sense to renovate, build or convert when you can make easy money without doing any of these things, especially when to do so would destroy the artificially perpetuated shortage which allows the speculation to be so profitatble in the first place. I don’t know what the answer is- government regulation, punitive windfall taxes or maybe we should all just get pitchforks and torches and storm Brentwood. You can only push people so far before they start to push back. Anyways, thanks for the forum. I’m beginning to feel downright human.
28 April 2005, 8:55 pmEd:
You guys talk about “speculators” being the main cause of land prices, but you provide nothing to substantiate that claim. Is it so just because you believe it is so? What percentage of homes in LA are owned by non-occupants? How does that compare to other cities? To other countries?
And if the housing market is overheated and corrects or crashes, so what? The speculators lose their money. There is no reward without risk. It’s a self correcting process. If there was no risk, then you’d really see speculation. If you didn’t have to get shot, we’d all earn the Medal of Honor.
And please don’t start with the rhetoric about the clever evil capitalists escaping loss-free while the little guys are sunk by debt. I won’t lose my money, because I can still live in my house. That’s why it’s such a good investment. It’s a roof over our heads for my family regardless of whether the market says it costs $100K or $500K.
Speaking of which, Jim, if it is so easy and requires no capital outlay, why didn’t you buy your place? Could it be you are oversimplifying in order to demonize the “owner”?
28 April 2005, 10:23 pmEd:
Here’s a very pertinent link. It displays a table of housing price appreciation over the last 5 years in US metro areas: http://moneycentral.msn.com/content/Banking/Homebuyingguide/P85324.asp
LA home prices have appreciated 102% in the last 5 years, which is admittedly pretty ugly. If you live there and haven’t bought a house yet, you probably missed the boat. But if you bought the family home 10 years ago, you’re pretty happy.
On the other hand, Raleigh home prices have only appreciated 17% in the last 5 years. That barely keeps up with inflation. And there are plenty of other places like Raleigh.
The point is this. There are plenty of places in this country with good jobs, affordable housing, and great lifestyles. And lots of people are doing pretty well, with home ownership in this country at 69% of households, a historical high.
If you choose to live in an area where prices have shot through the roof, that’s your decision and there are probably good reasons for it. But don’t blame others for your choice, and don’t expect the government or someone else to bail you out by negating all the cons and leaving you with the pros.
29 April 2005, 7:37 amGreg D:
I know this is a serious thread, but some of the comments reminds me
of the old song:
“Whoopee ti yi yo,
Git along, little dogies,
It’s your misfortune
And none of my own;
Whoopee ti yi yo,
Git along, little dogies,
You know that Wyoming
Will be your new home.”
Personally, I’m rather glad I actually own my little quarter acre,
and I mean really own, free and clear. When I got stuck with a
15.5% interest rate back in the mid-80s I realized that whatever I did, I’d never get involved with the mortgage game again.
“Takes a lot to win,
even more to loose…”
Greg D.
29 April 2005, 1:18 pmMark Monson:
ED: You guys talk about “speculators†being the main cause of land prices, but you provide nothing to substantiate that claim.
MARK: Land investment, land banking, land speculation. All the same. Land appreciates in price for three reasons:
1. Increased demand. The growth of the community.
2. Decreased supply. Artifical scarcity from vacant lots and underused lots. Speculation.
3. Bubble pushed up by bank created funds. When real estate investors use credit to bid up land prices, the bubble inflates without causing general price inflation. This is because much of the money taken in from selling land is reinvested in more land. Land users have to bid against investors, so land use costs go up more than wages do.
ED: Is it so just because you believe it is so? What percentage of homes in LA are owned by non-occupants? How does that compare to other cities? To other countries?
And if the housing market is overheated and corrects or crashes, so what? The speculators lose their money. There is no reward without risk. It’s a self correcting process. If there was no risk, then you’d really see speculation. If you didn’t have to get shot, we’d all earn the Medal of Honor.
MARK: Two problems with the self correcting theory:
1. High land prices cause all sorts of problems like unemployment, forced poverty, crime, etc.
2. In a recession or depression, land prices are the last to correct. This is because unlike other investments, land requires no maintenance. Land speculators hold on in hopes of future price appreciation. They don’t sell when prices drop. They wait for the expected upturn.
29 April 2005, 9:25 pmEd:
Mark, it’s good that you are using actual economics in this discussion. Much better than anectodes and ideology. The basic mechanisms you describe sound plausible from a micro-economic perspective.
Yet you still don’t substantiate or quantify the problem. The supply and demand for a particular item is subject to the interlocking influences of many other factors, some direct and obvious, others indirect and obscure. The wage cost of Pakistani truck drivers in Saudi Arabia affects the price of a new house in LA.
It is inarguable that land investors/speculators are responsible for some part of overall land price inflation. But how much? Is it 1 percent? 10 percent? 200 percent?
Until this forum can answer that question with credible statistics and facts, all you’re offering is a hypothesis.
Ed
30 April 2005, 8:21 amMark Monson:
THE SLAVER
–Attributed to Mark Twain
Suppose I am the owner of an estate and 100 slaves, all the land about being held in the same way by people of the same class as myself. It is a profitable business, but there are many expenses and annoyances attached to it. I must keep up my supply of slaves either by buying or breeding them. I must pay an overseer to keep them continually to their work with a lash. I must keep them in a state of brutish ignorance (to the detriment of their efficiency), for fear they should learn their rights and their power, and become dangerous. I must tend them in sickness and when past work. And the slaves have all the vices and defects that slavery engenders; they have no self-respect or moral sense; they lie, they steal, they are lazy, shirking work whenever they dare; they do not care what mischief their carelessness occasions me so long as it is not found out; their labor is obtained by force, and given grudgingly; they have no heart in it. All these things worry me.
FLASH! ….
Suddenly a brilliant idea strikes me. I reflect that there is no unoccupied land in the neighbourhood, so that if my laborers were free they would still have to look to me for work somehow. So one day I announce to them that they are all free, intimating at the same time I will be ready to employ as many as I may require on such terms as we may mutually and independently agree. What could be fairer? They are overjoyed, and falling on their knees, bless me as their benefactor. Then they go away and have a jollification, and next day come back to me to arrange the new terms.
THEY BELIEVE …
Most of them think they would like to have a piece of land and work it for themselves, and be their own masters. All they want is a few tools they have been accustomed to use, and some seed, and these they are ready to buy from me, undertaking to pay me with reasonable interest when the first crop comes in, offering the crop as security. As for their keep, they can easily earn that by working a few weeks on and off on any of the plantations, or by taking a job clearing or fencing, or such like. This will keep them going for the first year, and after that they will be better able to take care of themselves.
HOLD ON, NOW!
“But,” softly I observe, “you are going too fast. Your proposals about the tools and seed and your maintenance are all right enough, but the land, you remember, belongs to me. You cannot expect me to give you your liberty and my own land for nothing. That would not be reasonable, would it?” They agree it would not, and begin to propose terms. A fancies this bit of land, and B that. But it soon appears that I want this bit of land for my next year’s clearing, and that for my cows, and another is too close to my house and would interfere with my privacy, and another is thick forest or swamps, and would require too long and costly preparation for me who must have quick returns in order to live, and in short that there is no land suitable that I care to part with.
THE BENEFACTOR
Still I am ready to do what I promised - “to employ as many as I may require, on such terms as we may mutually and independently agree.” But as I have now got to pay them wages instead of getting their work for nothing. I cannot of course employ all of them. I can find work for ninety of them, however, and with these I am prepared to discuss terms.
At once a number volunteered their services at such wages as their imagination had been picturing to them. I tell the ninety whose demands are most reasonable to stand on one side. The remaining ten look blank, and seeing that since I won’t let them have any of the land, it is a question of hired employment or starvation, they offer to come for a little less than the others. I tell these now to stand aside, and ten others to stand out instead. These look blank now, and offer to work for less still, and so the “mutual and voluntary” settlement of terms proceeds.
But, meanwhile, I have been making a little calculation in my head, and have reckoned up what the cost of keeping a slave, with his food and clothes, and a trifle over to keep him contented, would come to, and I offer that. They won’t hear of it, but as I know they can’t help themselves, I say nothing, and presently first one and then another gives in, till I have got my ninety, and still there are ten left out, and very blank indeed they look. Whereupon, the terms being settled, I graciously announce that though I don’t really want any more men, still I am willing, in my benevolence, to take the ten, too, on the same terms, which they promptly accept, and again hail me as their benefactor, only not quite so rapturously as before.
WAGE SLAVES? …
So they all set to at the old work at the old place, and on the old terms, only a little differently administered; that is, that whereas I formerly supplied them with food, clothes, etc., direct from my stores, I now give them a weekly wage representing the value of those articles, which they w ill henceforth have to buy for themselves.
There is a difference, too, in some other respects, indicating a moral improvement in our relations. I can no longer curse and flog them. But then I don’t want to; it’s no longer necessary; the threat of dismissal is quite as effective, even more so; and much pleasanter for me.
I can no longer separate husband from wife, parent from child. But then again, I don’t want to. There would be no profit in it; leaving them their wives and children has the double advantage of making them more contented with their lot, and giving me greater power over them, for they have now got to keep these wives and children out of their own earnings.
My men are now as eager as ever to come to me to work as they formerly were to run away from work. I have neither to buy or breed them; and if any suddenly leave me, instead of letting loose the bloodhounds, I have merely to hold up a finger or advertise, and I have plenty of others offering to take their place. I am saved the expense and worry of incessant watching and driving. I have no sick to attend, or worn-out pensioners to maintain. If a man falls ill there is nothing but my good nature to prevent my turning him off at once; the whole affair is a purely commercial transaction - so much wages for so much work. The patriarchal relation of slave-owner and slave is gone, and no other has taken its place. When the man is worn out with long service I can turn him out with a clear business conscience, knowing that the State will see that he does not starve.
Instead of being forced to keep my men in brutish ignorance, I find public schools established at other people’s expense to stimulate their intelligence and improve their minds, to my great advantage, and their children compelled to attend these schools. The service I get, too, being now voluntarily rendered (or apparently so) is much improved in quality. In short, the arrangement pays me better in many ways.
REJOICE! I AM CAPITAL AND I EMPLOY PEOPLE!
But I gain in other ways besides pecuniary benefit. I have lost the stigma of being a slave driver, and have, acquired instead the character of a man of energy and enterprise, of justice and benevolence. I am a “large employer of labour,” to whom the whole country, and the labourer especially, is greatly indebted, and people say, “See the power of capital! These poor labourers, having no capital, could not use the land if they had it, so this great and far-seeing man wisely refuses to let them have it, and keeps it all for himself, but by providing them with employment his capital saves them from pauperism, and enables him to build up the wealth of the country, and his own fortune together.”
Whereas it is not my capital that does any of these things. It is not my capital but the labourer’s toil that builds up my fortune and the wealth of the country. It is not my employment that keeps him from pauperism, but my monopoly of the land forcing him into my employment that keeps him on the brink of it. It is not want of capital that keeps the labourer from using the land, but my refusing him the use of the land that prevents him from acquiring capital. All the capital he wants to begin with is an axe and a spade, which a week’s earnings would buy him, and for his maintenance during the first year, and at any subsequent time, he could work for me or for others, turnabout, with his work on his own land. Henceforth with every year his capital would grow of itself, and his independence with it, and that this is no fancy sketch, anyone can see for himself by taking a trip into the country, where he will find well-to-do-farmers who began with nothing but a spade and an axe (so to speak) and worked their way up in the manner described.
ENTER THE LANDLORD ….
But now another thought strikes me. Instead of paying an overseer to work these men for me, I will make him pay me for the privilege of doing it. I will let the land as it stands to him or to another - to whomsoever will give the most for the billet. He shall be called my tenant instead of my overseer, but the things he shall do for me are essentially the same, only done by contract instead of for yearly pay. He, not I, shall find all the capital, take all the risk, and engage and supervise the men, paying me a lump sum, called rent, out of the proceeds of their toil, and make what he can for himself out of the surplus. The competition is as keen in its way for the land, among people of his class, as it is among the labourers for employment, only that as they are all possessed of some little means (else they could not compete) they are in no danger of immediate want, and can stand out for rather better terms than the labourers, who are forced by necessity to take what terms they can get. The minimum in each case amounts practically to a “mere living”, but the mere living they insist on is one of a rather higher standard than the labourers’; it means a rather more abundant supply and better quality of those little comforts which are next door to necessaries. It means, in short, a living of a kind to which people of that class are accustomed.
For a moderate reduction in my profits, then - a reduction equal to the tenant’s narrow margin of profit - I have all the toil and worry of management taken off my hands, and the risk too, for be the season good or bad, the rent is bound to be forthcoming, and I can sell him up to the last rag if he fails of the full amount, no matter for what reason; and my rent takes precedence of all other debts. All my capital is set free for investment elsewhere, and I am freed from the odium of a slave owner, notwithstanding that the men still toil for my enrichment as when they were slaves, and that I get more out of them than ever. If I wax rich while they toil from hand to mouth, and in depressed seasons find it hard to get work at all; it is not, to all appearances, my doing, but merely the force of circumstances, the law of nature, the state of the labour market - fine sounding names that hide the ugly reality.
If wages are forced down it is not I that do it; it is that greedy and merciless man the employer (my tenant) who does it. I am a lofty and superior being, dwelling apart and above such sordid considerations. I would never dream of grinding these poor labourers, not I! I have nothing to do with them at all; I only want my rent-and get it. Like the lilies of the field, I toil not, neither do I spin, and yet (so kind is Providence!) my daily bread (well buttered) comes to me of itself. Nay, people bid against each other for the privilege of finding it for me; and no one seems to realise that the comfortable income that falls to me like the refreshing dew is dew indeed; but it is the dew of sweat wrung from the labourers’ toil. It is the fruit of their labour which they ought to have; which they would have if I did not take it from them.
30 April 2005, 9:43 amJim Priest:
Ed, I appreciate your contrarianism but you keep evading the real issue. You cry out that no one is substantiating the claim that real estate speculation is the problem when post after post does just that. Put very plainly,each time someone makes a profit on a home, someone else’s rent goes up. This is redistribution of wealth from the working class to the owner class, pure and simple. You may dislike Karl Marx very much but you can not deny his science when he shows that money is nothing more than objectified labor. That’s my labor, pal. Not the banker’s and not the speculator’s. Home ownership in L.A. is about 40%. Address the issue, Ed. Supply is artificially low here. You keep telling me to move but does that really make sense? I mean someone’s got to stay around places like Los Angeles and create wealth and it ain’t the capitalists. Why don’t I just play the game myself? Number one, the speculator gets to play the game because he has wealth- real estate, liquid assets, etc. Therefore swinging a loan is a breeze. Number two, he actually did offer to help me get a place. The only sensible deal for me was a multi-unit building. In order to make the mortgage payments I’d have to use whatever means I could to remove the current tenants who are paying reasonable rents and replace them with tenants who pay twice as much. In other words, I would have to become a part of the problem. Not really a solution, is it? You seem to be accusing me of wanting the nanny state to suckle me. While it’s usually best to leave personal stuff out, let me respond by saying I’m a single father who has raised two children from infancy and has never taken one dime in government assistance. I’m only asking for fair play here.If a cop stops a purse snatcher, you don’t cry out against “government intervention” do you? Should big bad government stay out of it if I want to sell spoiled meat on the “free market”? I value your different perspective but I don’t see how we can discuss a solution if you keep claiming there’s no problem. There’s a real problem here, Ed. Here and in a lot of cities across the country. People are getting hurt. What do you suggest we do about it?
30 April 2005, 10:47 amEd:
That explains everything … in Mississippi in 1870. Or in feudal England in 1500. But it’s not really relevant to 21st century LA.
12 years ago I bought a house in Colorado. I saved up a down payment, took out a mortgage, and bought a starter home to live in. When I had to move 3 years later, the market was down, so I chose to keep the house and rent it, which I have done since then. I make just enough to cover my mortgage costs plus maintenance and management expenses. The amount I owe has gradually declined, while the value of the home has gradually risen. 15 years from now, I hope to sell that paid-off house to finance my kids’ college education.
So am I a vile capitalist, exploiting the workers with my unearned capital gains? Or am I a sensible worker, saving to provide for my family?
18 years ago, when I graduated from college, I took some good advice and started saving about 5% of my monthly income. I wish I had saved 10%, but I’m not that disciplined. That small monthly stipend has accumulated into a reasonable amount, which I have invested in various mutual funds. Bill Gates and Sam Walton work for me now. 30 years from now, I hope to expect a comfortable retirement on those mutual funds.
Am I a vile capitalist, taking my profit from the backs of the workers? Or am I a wise worker, saving to provide for my family? Do you really want to demonize me and people like me, and discourage other workers from doing the same thing?
Ed
30 April 2005, 11:37 amEd:
Karl Marx as “science” … now there’s a laughable proposition. How many successful Marxist states are there today? It’s hard to imagine a more discredited philosophy.
Jim, just saying something over and over in different ways does not make it so. Substantiation means facts, statistics, analysis.
I don’t deny housing prices are bad in LA, and that it hurts people. But neither you nor anyone else has offered one shred of proof that speculation is causing it, as opposed to simple heightened demand for a very limited resource, coupled with increased ability to pay.
You choose to live in LA. That’s your choice and your right. But if you can’t afford to live in the manner you think you deserve, nobody owes it to you to change the laws of supply and demand to accomodate your choice. You have other choices.
I want to live in Hawaii on the beach. But a nice house on the beach there costs at least a million bucks. I don’t have a million bucks, of course. Is it somehow my right to be able to afford a house on the beach in Hawaii? Are rich people somehow evil for being able to afford million dollar houses on the beach in Hawaii? Should there be a law limiting the price of beach houses so anyone who wants can afford one? What if 20 million people want to buy houses, but there’s only shoreline for 500 houses?
I’m not a heartless bastard. I feel for people who don’t have it as well as I do. But the answer is not blaming those who are successful, and destroying the mechanisms and institutions that have made our country prosperous. The answer is education, training, and incentives to be successful. Rather than moaning about the evil people who own real estate, we should be trying to figure out ways to enable the remaining 31% of America to own their own house too.
Ed
30 April 2005, 2:05 pmJim Priest:
Ed, First of all, the fact that so-called Marxist states have failed has nothing to do with Marx’s brilliance as an economist(economics is a science, isn’t it? What’s so laughable about Marx’s science?).You don’t need to read Capital if you don’t want to. The simplest examination of the facts will show that money is nothing but objectified labor. Marx just proves it very thoroughly and scientifically. That’s all I pointed out. I never said I wanted to live in a system of state communism. And I never accused you of being an evil capitalist or an evil anything. Capitalism is a system which rewards actions which are detrimental to the majority and punishes actions which are beneficial to the majority. That’s why, from the human perspective, capitalism is inherently evil. Are there decent, hard working people in the capitalist system? Sure there are. I like to think I’m one of them and you probably are too. You’ve worked hard and played your cards right and you should damned well be rewarded. I’ve worked pretty hard too. Yes, it’s true that I choose to live in Los Angeles. Given that I’ve been a law-abiding, tax-paying, business-supporting capital-producing member of the community for many years, I kinda thought I was entitled to be able to afford to work and live here, not in a “million dollar house on the beach in Hawaii”. For all your ad hominem evasions, this is not about me and it’s not about you. Consider the facts:
A) There are many, many vacant lots and convertible/restorable buildings here in Los Angeles.
B) Drive by any Home Depot parking lot any day and you’ll see scores of poor slobs clamoring for a day’s work - most of them damned hard workers and many of them highly skilled.
If you have the capital to put A and B together, you probably won’t because you’re better off buying and selling for maximun short term gain. Doesn’t make you Snidely Whiplash, just a sensible business person. If you choose, as some brave and honorable souls do, to create new housing in Los Angeles you must surmount mountains of red tape, risk tons of money and reap damned little reward for years, so it makes sense to build housing for upper income people. Creating new housing for lower or even middle income people would just plain be stupid. I’d love to hear suggestions about how to make it easier for people to supply a much needed commodity like affordable housing and make it harder for people to line their pockets at everyone else’s expense. Of course, if you’d rather just call me a lazy commie whiner, you could do that instead.
2 May 2005, 12:53 amGreg Denby:
For those who might want a fairly nice analysis, c. 1997, of why the prevailing
financial structure surrounding property/real estate (taxes, mortgage rate structure,
depreciation, etc) would lead directly to the dis-investment in industrial
properties and the creation of a real estate bubble, check:
http://www.cooperativeindividualism.org/hudson_and_noyes_taxing_full_rent.html
And for a simple indication that “speculation” is in fact a standard determinant of
a property’s market value, note:
http://www.proforcerealestate.com/commercialpopertyreportsample.htm
Greg D.
2 May 2005, 12:37 pmEd:
Jim, I never called you any names or attacked you. Attacked your arguments and ideas sure, but what do you expect on the internet?
I’d love to stay and quibble, but I’m off to defend the empire for a few months.
2 May 2005, 9:32 pmMark Monson:
ED: I don’t deny housing prices are bad in LA, and that it hurts people. But neither you nor anyone else has offered one shred of proof that speculation is causing it, as opposed to simple heightened demand for a very limited resource, coupled with increased ability to pay.
MARK: Without a doubt, land speculation contributes to overall land prices appreciation. It can’t be any other way because land speculation causes a virtual shortage of available plots. Simple suppply and demand.
If you really want to make it easier for people to become home owners then you should support taxing land values. LVT causes land prices to drop across the board making it easier for new home owners to get started.
3 May 2005, 4:24 am