by Dr. Mason Gaffney, Riverside, CA
editor's note: Dr. Gaffney's presentation, as well as
Arthur Yeatman's, was made at the Council of Georgist
Organizations conference, Sept. 22, 2000, in Des Moines, IA
during a Panel on "Sustainable Agriculture and Taxation
Policy: Public Finance Incentives for Community
Agriculture, Organic Production and a Vital Rural
Economy."
I have two ways of looking at this question of the
effect of property taxation on the size of farms:
interstate comparisons, and intertemporal comparisons, or
time series analysis. The latest data I used came in large
part from the 1987 "Agricultural Economics and Land
Ownership Survey" (AELOS). It was the first study of land
tenure since 1940 that distinguished between land values
and building values. Between the years 1900 to 1940, the
U.S. Census reported regularly on the concentration of
farms, and they divided their subject into land value,
building value, and population. In 1945 they stopped doing
it. The reason they started in 1900 was because of the
influence of Henry George and his followers, who were many,
strong and enthusiastic at that time. The reason they
stopped is because the Henry George movement had petered
out and lost its radical edge at that point. But in 1987
they did it again. Better yet, they used ownership units
as well as operating units (although that part of the study
was technically flawed, and hard to use). We had a
conference on it and we chewed over the data.
Here and now, in this brief talk, let's look just at
the trend over time. The national average of farm property
tax rates peaked in 1930 at 1.32 percent. It fell to 0.77
percent in 1945, and stabilized at about that level -- it
was 0.85 percent in 1987. The revenues were replaced by
sales and income taxes, which on the whole bear heavier on
urban activities.
Vanishing Farmers and Unaffordable Farms
You might say this would be a blessing for the
farmers who were now more free of these property taxes.
However, it didn't work out that way. The mean acres per
farm (the average, that is) had remained fairly constant
for 65 years (1870-1935) at about 155 acres, despite two
major industrial merger movements, including the steel
industry. After 1935 the mean value took off and had
tripled to 462 acres by 1987. As the number of farms were
falling, national population was on the rise. In 1900
there was one farm per 11 Americans; in 1987 there was one
farm per 113 persons. Farms became unaffordable for folks
starting at the bottom of the agricultural ladder.
Real wage rates, meanwhile since 1955, have not
risen as fast as real land prices, and they haven't risen
at all since 1975. This has raised the labor-price of land
(the number of days/years a person must work at the average
wage rate in order to raise the price of a farm.)
Coupling this with rising acres per farm, the labor-price
of a farm roughly tripled, from about 6 years' wages
(before payroll deductions) in 1954 to about 17 years'
wages in 1987. That, of course, doesn't mean you could
buy a farm in 17 years, unless you didn't eat anything and
saved every penny of your wages to buy a farm.
That is the mean size. At the same time,
concentration of ownership was rising. That was the
subject Henry George and Francis Walker debated way back in
the 1880s. In the process Henry George invented something,
later to be known as the "Lorenz Curve" - academicians are
not generous about crediting Henry George with his various
contributions to the discipline of political economy.
Basically this Lorenz Curve is a way of measuring
concentration by answering the question, what fraction of
all the land is owned by the top ten percent. The curve
extends from zero up to 100 percent. This curve has been
reduced to a single figure, called the Gini Ratio, which is
a measure of concentration which varies between zero and
one. At zero, everyone has the same amount; at one, one
person has it all.
In 1900 the Census Bureau began publishing farm
data ranked by acres per farm. Using those date, the Gini
Ratio was .58 in 1900. By 1930 the GR had gotten up only
to .63. This, remember, was the peak year of property
taxes, before the property tax started waning. The GR
began to rise faster, and by 1950 it was up to .70. It
plateaued there for 15 years and then rose again to .76 by
1987. That is a high degree of concentration. (By
comparison, GRs for personal income are much lower, about
.40, and are much more stable over decades.) The
accelerated rise since 1930 coincided with the rise of mean
acres per farm, and both followed the fall of property tax
rates.
The Gini Ratio has been criticized because it deals
only with the concentration among existing farms, and
doesn't take into account all of the former farmers who
left the business. To adjust for this, we can simply
add them to the distribution of the farms as farmers with
zero land. There are 4-1/2 million farms that died between
1935 and 1988. If you add in the farmers with zero acres
of land to the lowest bracket, that raises GR for 1988 from
.76 to .92, a radical rise of inequality since 1930 (.63).
But calculating the ratio this way gives you a better sense
of how concentration has shot up during and since the Great
Depression. In the Great Depression (1930-1941), six
million farms provided a refuge for the urban jobless and
homeless. Today, that refuge is closed. Mining has taken
over the Appalachians, where farmers could make moonshine.
Farming has been taken over by forestry and recreation in
the Ozarks.
The Rise of Land Quality in Vast Farms
A frequent way to trivialize this information on
concentration is to say "farms in the Census are ranked by
acreage and so the degree of concentration is a statistical
illusion." And "it looks like concentration because you
are mixing million acre ranches in New Mexico with family
farms in Iowa or New England, which are worth much more per
acre, and if you adjust for that it is not as
concentrated." That is a common allegation.
There are two things wrong with that allegation,
that make it pure humbug.
The first is, when you rank farms by acres per
farm, as the Census does, the quality of land in the top
bracket has been going up very sharply over this period.
One example has to do with irrigation. About 60 to
80 years ago, 1890-1930, irrigation was the refuge of the
small farmer -- it was the new frontier, and specifically
in California. A lot of publicity has been given to
something called the Irrigation District movement, whereby
farms and cattle ranches were incorporated into taxing
districts or irrigation districts, which taxed land and
exempted improvements and used tax powers to issue bonds
and build expensive irrigation units. And under this
system, people in the district paid for water whether they
used it or not, and caused a revolution in California
agriculture from 1900 to about 1930. It was a fantastic
case study in economic development (which has been mostly
ignored by academic and government economists). As a
result, the average size of a farm in California went way
down. And the concentration of land went way down, and
irrigation was at the forefront of this.
When irrigation was young in Anglo-America
(1890-1914), it was the recourse of small farmers and
ranchers. Then, vast spreads were subdivided to create
small irrigated farms. There was drastic subdivision and
intensification (1900-1930). After the 1930s drop in
property tax rates, this land has been reconsolidated. If
you don't tax land, conglomeration occurs inexorably. The
sections buy out the quarters. This has happened in
irrigated agriculture faster than almost anywhere else.
Ownership and control based on water have become highly
concentrated. Irrigated land is worth a lot more than dry
land.
Land in farms of 1,000 acres and over actually
dropped (nationally) by 15 percent from 1900 to 1910, the
only drop on record. Now, however, 34 percent of all
irrigated land is in the top bracket, farms of 2,000 acres
and over. Control of irrigated land means control over
water. Control of water gives control over arid lands
roundabout. Ownership and control based on water have
become highly concentrated. For farms with irrigated land,
the Gini Ratio is .82, substantially higher than the GR of
.76 for all farms.
From 1930-87, the fraction of all farm acres in units
of 1,000 acres and over rose from 28% of the total to 62%
of the total. That is a rise of 123% over the 1930 base.
That rise in degree of concentration is impressive, all by
itself. At the same time, however, the mean value per acre
in the largest spreads was rising much faster than that of
other farms. In result, the value of the real estate (land
and buildings) in these giant spreads rose from 8% of the
total in 1930 to 38% of the total in 1987. That is a rise
of 375% over the 1930 base.
The second thing that makes the trivialization humbug
is a statistical principle called "regression fallacy."
Many people, otherwise bright, are thicker than mud when it
comes to picking up on this principle, so there must be
some mental block built into the culture. Once you see
this "cat," however, it's pretty simple and
straightforward. It says that the degree of concentration
you find in any distribution depends on what you choose as
the ranking variable. If you want to compare the
concentration of value with the concentration of acreage,
you can't rank the farms by acreage and then take the top
bracket and ask what the value is. You have got to re-rank
them by value, and these are entirely different rankings
with an entirely different collection of farms in the top
bracket, and naturally these are more valuable farms.
This reranking, farm by farm, is almost impossible
to do from published census data, which come in large
groups. But I managed to do it with some other series, and
I can vouch for the fact that if you do rewrite the data by
value, you get a higher - not a lower - degree of
concentration in terms of value than in terms of acreage.
So, for those two reasons, concentration of land
ownership is not only high but it has risen at a very
rapid rate.
To sum up, rising acreages mean there are fewer farms
overall. Rising labor prices per farm mean aspiring
farmers who lack prior wealth can no longer buy in. Rising
Gini Ratios mean acreage is less equally shared among a
given number of farms. Higher quality land is moving into
bigger farms. "Gamma" is the top bracket acre value
divided by the mean acre value, and it is rising. The
Gamma data are confirmed by rising shares of cropland
and irrigated land in vast farms. Rising price to cash
flow (P/C) ratios reflect a higher land share of real
estate value (LSREV), and they mean it is harder for a
newcomer to acquire any farm acres. The combination means
the agricultural ladder has been pulled up. Entry is
nearly impossible for farmers lacking outside finance;
exit and latifundiazation proceed apace. These changes
accompanied and followed a 40 percent drop in farm property
taxes.
Conclusion: to redemocratize farming, promote small
farms and break up big ones, raise land tax rates.
----------------------------
editor's note: Dr. Mason Gaffney is a Professor of
Economics at U.Cal.-Riverside and a member of the Board of
Directors of the Robert Schalkenbach Foundation.
Dr. Gaffney authored Chapter 10, "Rising Inequality
and Falling Property Tax Rates," from which this excerpt is
taken. It is published in the book, "Land Ownership and
Taxation in American Agriculture, edited by Gene Wunderlich
(Westview Press, Boulder - S.F., 1992)
Dr. Gaffney is the author of numerous scholarly
papers, especially on taxation and natural resources. Dr.
Gaffney is the co-author with Fred Harrison of The
Corruption of Economics (1994, 272 pp. $16) and wrote the
"Land as a Distinctive Factor of Production" chapter in
Land and Taxation which was edited by Dr. Nicolaus Tideman
(1994, 182 pp., $20) -- both books are available from the
Robert Schalkenbach Foundation. Dr. Gaffney is also the
editor of Extractive Resources and Taxation (1967, listed
in the Schalkenbach catalogue as available from University
Microforms.) The toll free phone number of the Robert
Schalkenbach Foundation is 1-800-269-2555, and the website
is http://www.progress.org/books