Territocracy
A person who has title to land usually has substantial control over the use, transfer, and income from that territory
May 1, 2006
Fred Foldvary, Ph.D.
Economist

Territocracy means “rule by the big landowners.” You will not find the word in any dictionary, and a search for it in the Internet will turn up no web pages previous to the usage here. Territocracy is the control of government by those who have title to land, especially large plots of land.

It is odd, very odd, that such a term has not heretofore been coined and used. Do people think that landowners exert little control?

A person who has title to land usually has substantial control over the use, transfer, and income from that territory. In a competitive real estate market, the power of landlords is constrained by law and by the voluntary nature of the contract with the lessee. Nevertheless, what gives people the most power in a market is expansive entry, the ability to create new products and establish new firms. Because new land cannot be created, expansive entry is lacking in the land market; there is only replacement entry, the replacement of one title to land by another, and so landlords do wield substantial power over tenants, especially when new housing is artificially limited and made more costly by zoning, privilege-granting building codes, and other restrictions.

But territocracy extends beyond the power over the titled land, to the entire jurisdiction of government. The control of government by landowners can be explicit or implicit. In dictatorships, the rule by one man over some territory makes this an explicit territocracy. There can also be oligarchic territocracy, rule by several landowners.

The last explicit oligarchic territocracy in Europe was the small island of Sark, a semi-independent state under the British monarchy, aligned with nearby Guernsey in the Channel Islands of the United Kingdom, near France. Sark, one of the few places with no cars at all, was the last feudal lordship of Europe. The land in Sark was held by 40 landholders, who have had fief privileges and had controlled the Chief Pleas, the government legislature. All land was held on perpetual lease (fief) from the Seignure of Sark, the head of the government. In March 2006, the government became a democracy, ending “feudal” rule.

Landowners do not require explicit formal authority to exert effective control. Historically, the landed hereditary aristocracy was aligned with the monarch, and the nobility ruled the nation. In republics, as in much of Latin America, landownership derived from the conquest of the natives such as the Indians. Land tenure has been highly concentrated, and the military serves the interests of the landlord terricrats, who have effective control over the country. Throughout much of the less developed agricultural world, landlords command much of the land rent, and wages, set by the productivity of marginal lands, are low. Whether one is poor or rich mostly depends on how much land one owns.

The tenancy of urban land worldwide is little different from that of rural land. While home ownership is widespread in developed economies, title to commercial and industrial land is highly concentrated, and farmland is increasingly concentrated in agricultural corporations as farm crops and animals come under ever greater mass production. The power of territocracy can be seen most clearly in tax policy. All across the world, land value is tapped lightly for public revenue, while labor and capital are taxed heavily.

Spatial land has a peculiar characteristic in being fixed in quantity. (Pedants may point to the earth gaining in mass and surface area as meteors and photons strike the earth and become assimilated, but that has no economic relevance.) Therefore, territorial benefits, both natural and man-made, become capitalized into higher rentals and site values. Wages do not typically get capitalized, because higher wages attract entrants from other fields and expand the supply of labor. Likewise capital goods. But there is no expansive entry in the land business, so the effect is to lift up the rental.

If landowners pay for the civic infrastructure and services, then the price of land gets capitalized down by the payment. But if the works are paid for by taxes on labor and capital, then the site value remains high, and landlords get an implicit subsidy. Worker tenants and enterprise owners get double billed, paying higher rentals and also taxes. These taxes create a deadweight loss, as taxes on productive activity raises the price of goods, reduces output and investment, and thus resources do not get allocated to the uses most wanted by the public.

Most folks and even social-science scholars seem largely unaware of territocracy because unlike in Sark, the rule by the landed interests lacks visibility. One needs to understand ethics, governance, and economics to fully grasp how landowners rule. The landed interests contribute money to candidates who will serve their interests. These government officials block any attempts to stop the tax-subsidy of landownership.

In the USA, one can learn about the campaign contributions of the terricrats in the website Open Secrets. You can see there the current contributions to political campaigns and the top contributors and recipients. Real-estate pressure groups also contribute large sums to state and local candidates.

Of course there are other privileges in society which are subsidized, but ultimately, the greatest subsidized privilege is land ownership. The rich lawyer will put much of his money into a big house, which means high land value. A fat corporation may have much of its asset value in land, which is belittled by publishing only the historical purchase price, and masking the land rent in corporate profits. The rent of most residential land is masked as mortgage interest. Land is paradoxically visible in nature but hidden in economic thought by neoclassically merging it with “capital,” homogenized into a symbol, a big capital K. Verily, verily, the power of territocracy hath extended, yea even onto economic thought.

There are two remedies to territocracy. The state-based remedy is the abolition of taxes on labor and capital, both in income and sales, replaced by a tapping of land rentals or land values, exclusive of any improvements or labor services. This revenue source is a tap rather than a tax-in-substance because it collects values created by nature and community rather than by the land-title holder.

The purely voluntary remedy is the replacement of imposed government functions by voluntary contractual associations such as proprietary communities and civic associations, such as condominiums, land trusts, cooperatives, and homeowner associations). Unable to impose taxes, they would finance their public goods from fees, dues, assessments, and rentals. However called, these would essentially tap the site rentals.

Perhaps territocracy has not been recognized because it lacked a word. That is why I am filling this need by introducing it now. We will see whether it has traction. If you like it, use it, and it will become part of the language, and then part of the thought of the culture, and then, just maybe, right action will follow.

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Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.