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Message 2472
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| Subject: | Re: [socialcredit] Questions for Ed Dodson | | Date: | Monday, August 15, 2005 08:47:17 (-0700) | | From: | William B. Ryan <w_b_ryan @.....com>
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[Dodson] ...location rent is a "first cost" incurred.
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Ed, we're trying to pin down first principles. You've
strayed from the stipulations to my questions in a
rambling response that fails to address the questions.
In this case there is no "first cost." The landowner
doesn't have to pay rent to acquire the two parcels;
he already owns the parcels. He didn't pay rent when
he acquired the parcels because he inherited them from
a remote ancestor who acquired them by merely filing a
deed at the land grant office, after meeting certain
qualifications. The further stipulation is that no
rent has been collected from the parcels since the
beginning of time prior to the erection of the
McDonald's. They had always been vacant land.
Is it not correct in Georgist terms that the
McDonald's a thousand miles from anywhere will collect
no rent in the foreseeable future inasmuch as it will
presumably have no sales; whereas, the McDonald's
surrounded by hundreds of homes will collect rent
because it will in fact have sales?
Please answer.
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--- Ed Dodson <ejdodson@comcast.net> wrote:
Subject: RE: Questions for Ed Dodson
Date: Monday, August 15, 2005 10:00:49 (-0400)
From: Ed Dodson <ejdodson@comcast.net>
Ed Dodson responding...
Bill Ryan wrote:
Think of a landowner with two identical parcels,
except that one is a thousand miles from anywhere, and
the other at a street corner surrounded by hundreds of
homes. Imagine that the landowner erects an identical
McDonald's on both.
The questions: Is the difference in profit obtainable
from the McDonald's surrounded by hundreds of homes as
compared to the one a thousand miles from anywhere
"rent" in the Georgist sense? If so, why? If not,
why not?
Ed Dodson:
As real estate professionals continuously remind us,
the key to investing in real estate is location.
The rental value of the isolated location is likely to
be very low when compared to the location in the
bustling city. Retail would not be the highest and
best use for the isolated location, thus no retail
business owner is likely to incur the expense of
constructing a store -- even if the rental value of
the land is near zero -- because the potential revenue
to be generated is near zero. If the isolated location
contains below-ground minerals or harvestable trees,
then the rental value would be determined by market
forces competing for control over the location for
these purposes. How much the would bid for access
depends on forecasted profit margins. Thus, the more
efficient producer might bid more for access to the
land based on the ability to more efficiently use
labor and capital goods in the production process.
The demand for locations in a city for retail purposes
are high because the demand for retail products and
services is high. The key variable is high employment
of people who receive incomes high enough to consume
these retail products. A food service business such as
McDonalds would choose locations based on anticipated
foot traffic and sales volume. In some cases,
McDonalds might be able to acquire a vacant lot to
build its own restaurant. The challenge for McDonalds
operating in a densely-developed city is that land
prices are more liklely to be dictated by the
potential for development for high rise office towers
and condominiums. If McDonalds can find a lot that is
too small for this type of development (and, say, the
contiguous lots are unlikely to be acquired by a
developer and brought together for development) it may
be able to acquire the lot at a price within its
calculation of how much cost can be incurred and still
yield acceptable profit margins.
Thus, location rent is a "first cost" incurred. The
entrepreneur decides whether or not to bid to acquire
a location based on the above analysis, except for
investors who specialize in land investment and have
the financial capacity to inventory land over long
periods of time until a developer (or public entity)
comes along willing to pay the asking price. The
better capitalized housing developers engage in land
banking by taking options on land that is currently
rural but is in the expected path of development. They
may also purchase land zoned for agricultural use,
then lease the land back to the farmer under terms
that allow the land banker to cover annual taxes and
other costs of ownership.
"Profit" is an accounting term, rather than a term
appropriate to the laws of production and distribution
under political economy. McDonalds (and other
businesses or individuals similarly positioned) will
report profits based on the accounting of costs
against revenues. As an owner of land, some portion of
McDonalds' profit is net rent (i.e., the difference
between the gross rental value of the location owned
and the payment of this value to the community in the
form of a tax on land values. This does not mean that
the McDonalds' store will have a net profit, as other
costs of doing business -- including taxes on the
McDonalds' building itself, on the revenue generated
from sales, on the store's equipment and fixtures,
etc.) may erode the profit attributable to imputed
rent.
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