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Resources : Economics As If Values
Mattered
The Value of Land in Economics
First in a three-part series redefining land, labor, and capital.
Reprinted with permission from Sojourners
Magazine November 1993
BY CHUCK MATTHEI
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AS OFTEN AS economic issues occupy our personal thoughts or dominate
public discourse, the subject of "economics" remains confusing
and even intimidating to many people. It seems to be vast, highly
technical, and quite impersonal—yet we are each so profoundly
affected by its realities.
 Despite
appearances, economics is in essence a very personal and fundamentally
moral discipline. It is nothing short of the web of our material
relationships with one another and with the natural environment.
Economic relationships have personalities and personal histories.
Inescapably, these relationships physically manifest our social
and spiritual values.
Our language expresses this duality. "Values" are both
moral principles and economic measures. "Equity" is defined
both as a financial interest in property and as fairness or justice.
The root of "property" is also the root of "propriety."
But perception and practice often reflect a division between them.
Many of the economic problems confronting us can be understood
as the result of neglected or broken relationships. Americans celebrated
the fall of communism, citing its failure to respect individual
rights and the legitimate role of individuals in the economy. But
we have a tendency to polarize public and private interests and,
in our case, to mythologize the private sector and ignore the community
as a genuine economic actor.
If it will, the church can play a critical role in healing these
divisions. It has a unique contribution to make: philosophically.
by drawing on its theology of creation, its understanding of the
individual in community, and its preferential option for the poor;
practically, because it is the largest and most widespread nongovernmental
institution and one of the few stable institutions in low-income
communities.
The encyclicals and pastoral letters of recent years bear witness
to the intellectual acuity and moral insight of church leaders.
But by omission they also highlight a particular challenge. What's
too often missing is a simple, straightforward discussion of' how
individual Christians, parishes and other religious institutions
should live their economic lives. What’s needed is practical,
faithful advice on the myriad economic decisions each of us must
make: when and how to acquire, use, lease, or transfer real properly:
where and on what terms to place investments: what employment structures,
working conditions, and compensation scales to establish or advocate:
and more.
In practice, the division of faith and finance is nearly as common
within the church as it is outside. Some of these issues are complex,
with real institutional and personal consequences: it's important
to avoid oversimplification. Still, one cannot help remembering
O.K. Chesterton's observation that our problem "is not that
Christianity has been tried and found wanting, but that it has been
found difficult and not tried." In this lime of rising need
and diminishing charitable resources, the challenge of restoring
the commonwealth is not only a matter of theological consistency,
but may well be the only way to keep our social fabric from tearing
apart.
The following is the first in a series of three articles reflecting
on relationships along the three legs of the economic triangle—land,
labor, and capital—from the perspective of a community development
practitioner. They are by no means comprehensive, but they will
offer an overview of several constructive new initiatives and serve
as an invitation to readers to participate in such efforts.
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Land
TRADITIONALLY, land is the first leg of the economic triangle.
Even in a modem economy, it is the source of shelter, nourishment,
and raw materials for production—and literally the common ground
on which all social and economic activity takes place, all shaped
the character of American society and. for many individuals, real
property remains the greatest personal investment and economic asset.
Nevertheless, the most prominent domestic problem in the United
States in the past decade was homelessness and the crisis of affordable
housing. In the same period, tens of thousands of family fanners
left the land, and an already troubled national economy was further
burdened with nearly a trillion dollars in debt chat is significantly
related to the involvement of Financial institutions in speculative
real estate ventures.
Despite many good efforts, the problems still persist. In housing
as in health care. The evidence is that conventional social welfare
programs simply aren't working. The subsidies are inadequate and
inefficient. Needs are growing faster than available resources,
and political will is limited. But more fundamentally, conventional
programs cannot ultimately succeed because they are based on false
premises.
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The Myth Of Poverty
THREE WIDESPREAD MYTHS distort popular perspectives on poverty.
First is the “myth of poverty,” or the tendency to judge
the poor by their apparent deficiencies, ignoring very real economic
capacities.
Most low-income people are renters. Before Mrs. M became one of
the first homeowners in a new community land trust in Cincinnati,
Ohio she was paying $350 a month for a dilapidated apartment with
a market value of less than $15,000. Over her lifetime, with normal
rent increases, she would have paid several hundred thousand dollars
for a slum dwelling, far more than would have been required to purchase
the same (or better) housing on conventional terms. In fact, many
low-income families pay not only a higher percentage of income,
but a greater total amount than many homeowners pay—with none
of the same benefits.
Poverty is not simply a lack of income. Examine the economy of
most low-income communities and you will find far more money flowing
than one might suspect. The problem is that what flows in flows
right back out: and that is a problem of ownership.
From small urban neighborhoods to large areas, one of the most
common characteristics of low- income communities is a prevalence
of absentee ownership that rivals any Third World country. These
patterns may not represent our national average, but they are the
circumstances of the poor and a root cause of their continuing poverty.
The poor need equity before subsidies.
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The Myth Of Wealth
NEXT IS THE "MYTH of wealth." which is very respectful
of private initiatives and protective of private investment, but
often ignores the social contribution to property value. When individuals
purchase or improve properties, they create value. But when
a city government installs a subway line, giving" another neighborhood
the amenity of convenient transportation, that also adds value.
And when low-income ten ants organize to transform vacant lots
into mini-parks or otherwise make their community more desirable,
that too enhances property values. They themselves will receive
no economic return for their investment and may inadvertently accelerate
a process of gentrification that will displace them altogether.
The legal conception of property as a "bundle of rights"
(air rights, development rights, timeshares etc.) has an economic
corollary. Property value is a "bundle of values." It
comes from many sources both individual and communal. And this realization
may hold a key to solving our land and housing problems.
When we fail to measure the social contribution then we also fail
to utilize the social increment in value, the "commonwealth."
for the common good This is true when public funds are used to subsidize
housing in the private market, and it has been true of the management
of public timber, mineral, and grazing lands in the West and elsewhere.
If private trustees or investment managers were so heedless they
would be dismissed or held legally liable for breach of fiduciary
duties. But we have become accustomed to the neglect of public interests.
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The Myth Of Public Assistance
 LAST
IS THE "MYTH of public assistance." which portrays efforts
to bridge the economic gap as a process of taking from those who
have fairly earned and giving co those who have not (but probably
should have). This characterization stigmatizes the poor and fosters
resentment among the taxpaying public, creating a political climate
in which appropriation levels will never be adequate.
Even more important, it reflects only a partial understanding (perhaps
a willful blindness) of subsides in the housing market. In fact,
while the poor receive some services through direct appropriations,
a second set of indirect but very substantial subsidies are embodied
in the tax code. It is significant that these subsidies are not
even acknowledged as such: they are not subjected to annual review
and renewal: and. in great disproportion, they benefit the wealthier
sectors of society, not the poor.
If you ask a group of middle or upper-income homeowners. "How
many of you live in subsidized housing?" no hands will be raised.
But ask. "How many of you take advantage of the federal and
state home mortgage interest deductions?" and virtually every
hand will rise. Through this deduction alone, the federal treasury
gives up several times as much each year as the total amount spent
on housing assistance for the poor - and 80 percent of the financial
benefit accrues to (he wealthiest fifth of the population. The rationale
for this policy is the national commitment to helping every family
realize the American Dream of home ownership.
But this can hardly justify the deductions on million dollar homes,
second homes, or equity loans unrelated to housing acquisition.
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Property As Partnership
PROPERTY CAN never be wholly private or wholly public, but must
be seen as a partnership between the individual and the community.
This realization is implicit in the religious doctrine of stewardship
or Gandhi's concept of trusteeship. "The Earth is the Lord's."
It is not of our making and cannot be, in absolute terms, a private
possession.
There is growing public awareness of the environmental dimension
of land stewardship, but less attention to the social and economic
implications. A half-century ago, the early environmentalist Aldo
Leopold observed. "We abuse the land because we regard it as
a commodity belonging to us. When we see land as a community to
which we belong, we may begin to use it with love and respect."
It is not only the land itself, but also the entire community that
is affected.
In this partnership, individuals have a legitimate economic interest;
the community has a legitimate interest: and the original,
essential value of the creation may be considered, in the spirit
of the gospel, to be held in trust for the good of all and especially
for the poor.
Historically, the church has affirmed the legitimacy of private
ownership—but always qualified its affirmation by recognizing
that the private interest is not singular or absolute and that there
is a "social mortgage" on property. Our challenge is co
give this principle a practical, personal application in a modem
market economy.
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Models For Community Development
A NUMBER OF community development practitioners are doing just
that today. Perhaps the most distinctive of these new models, and
the most deliberate in its delineation of individual and community
interests and the relationship between them, is the community land
trust (CLT).
CLTs are democratically structured, nonprofit corporations that
own land and make it available to individuals and organizations
for residential, commercial, agricultural, public service, or other
appropriate purposes. Occupants may own the buildings and other
improvements they make on the land, and a lease agreement defines
the relationship and the rights and responsibilities of each party.
Through a CLT, individuals gain the essential benefits of ownership:
lifetime security and a legacy for their heirs, as long as they
will actually use the land: and fair equity for their personal investment
of capital and labor. But the community democratizes access, protecting
itself from the effects of absentee ownership and monopolization;
it has a stronger voice in planning decisions. And it reserves subsidies
and the social appreciation in land value for multi generational
benefit.
In different ways, public and private interests are also balanced
by limited equity cooperatives (in which every resident owns
a share but the transfer value is limited to preserve affordability)
and mutual housing associations MHAs, which are resident controlled,
not-for-profit housing corporations), and by deed restrictions,
"sleeping" mortgages, and other legal and financial devices.
Many of these techniques can be used in combination with one another.
For example, it is common for a CLT to hold land on which a group
of families own their building as a limited equity coop.
These models can be applied in cities, towns, and rural areas.
Over the past 15 years, there has been dramatic growth in the number
of such organizations. The scale of their development activity,
and the breadth of popular and institutional support. In important
ways, they bridge traditional political divisions. On the one hand,
they are cost-effective and create opportunities for individual
homeownership: on the other, they give low-income communities security,
economic power, and greater control over their own destinies.
For churches in particular, these efforts have both practical appeal
and spiritual affinity. From the outset, churches have provided
facilities, board and staff members, volunteers, and substantial
amounts of investment capital. For example:
- The West End Alliance of Ministers and Ministries initiated
the development of the Community Land Coop of Cincinnati (a CLT):
black and white churches joined together to establish the Time
of Jubilee CLT in Syracuse, New York.
- The Untied Methodist Church sponsored a pastor/organizer to
work with developing CLTs in Atlanta, Georgia: the Catholic archdiocese
in New York City assigned personnel to the sweat equity homesteading
projects of the RAIN CLT.
- The Dominican Sisters of the Sick Poor donated property in Ohio
and have now offered to donate land adjacent to their motherhouse
in Ossining, New York.
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Companion Initiatives
 There
are now more than 100 CLTs across the country, and many individual
coops or MHAs. Yet their numbers are still limited and most of this
development takes place in low-income communities where the need
is most urgent and where these models have obvious advantages over
conventional marker or public sector options.
Companion programs are now needed engages socially concerned property
owners in every geographical and economic sector, to make it clear
that the social mortgage is not a form of "second class
ownership for the poor" but rather, a guiding principle for
an equitable market. The new Equity Trust Fund (see box below) is
designed to be a vehicle for this commitment. It invites gifts from
the social appreciation in proper value and gifts of property to
be used to meet the needs of those who are disenfranchised or disadvantaged
by the same market that gives current owners a windfall profit.
The Equity Trust Fund is unique. There are many conservation organizations
that solicit land gifts, but this pro gram addresses human needs
as well. It does draw inspiration, however, from the Bhoodan/Gramdan
("land gift/village gift") movement of Gandhi's successor.
Vinoba Bhave and Javaprakash Narayan in India in the 1950s. While
that effort failed co meet its ambitious goal of providing for poor
landless peasants. It did redistribute more than a million acres,
achieving more than any government program.
The purposes of the Equity Trust Fund are educational and political,
as well as financial. It is designed to focus public attention on
basic questions of property and equity as participants go beyond
traditional charity to reform their own economic relationships.
Of course, CLTs and Equity Pledges alone cannot equal the volume
of need, but they can play a role in developing a political constituency
for properly reform. In Gandhi's conception, social change has three
dimensions: personal commitment, the "constructive program,"
and political campaigns. CLTs. coops. MHAs—this emerging "third
path" between the strictly public and private—represent
our constructive program.
The Equity Trust Fund offers individuals and institutions an opportunity
to express the values that underlie these efforts and to demonstrate
the will to make the personal changes that meaningful political
reform will require. For religious persons, it effectively combines
practical economic action with prophetic witness.
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An American Land Reform
LAND REFORM in the United States will not take the same forms as
in the Third World, but land reform is what we need. It should not
be seen as a confiscatory program but rather, one that reflects
renewed respect for one another and a new regard for equity in the
economic relationship between individuals
and communities.
Three principles should guide the development of a platform for
reform. First, public contributions should be treated as long-term
investments for the common good. Second, the poor should be able
to make full use of their assets. And third, the playing field should
be leveled so that all have the same opportunities, and preferential
subsides are allocated to those who genuinely need them.
Conventional land and housing programs are constrained by budget
limits that may well be a permanent feature of our political economy.
But many reform measures need not be costly, and some will actually
increase revenues or reduce the demand for future spending.
- Appropriations can be used much more efficiently if they are
allocated on a priority basis to projects that ensure long-term
affordability.
- Tax-default properties and the inventories from failed banks
and S<&Ls should be placed in land trusts, with only buildings
sold. And long-term lease fees used to recoup the public
investment.
- The flow of investment capital could be increased by encouraging
public and private pension funds, ensuring liquidity to give community
development funds greater access to institutional assets, and
applying the Community Reinvestment Act to insurance companies
and even charitable institutions.
- Tenants and community trusts should have a first right of refusal
for the purchase of rental properties and properties that have
received public subsidies, as is true for housing in Washington.
D.C., mobile home parks in Massachusetts, and farmland in Vermont.
- Tax reforms should be pursued, including capping mortgage-interest
deductions (or relating them to the percentage of income paid
for housing) and legislating more progressive capital gains and
property taxes.
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Facing The Challenge
THESE ARE BUT A FEW of the measures that might be included in an
American land reform agenda. They reflect the moral imperative to
help first those in greatest need. But this would not be a "poor
people's policy." Rather, it would be an inclusive effort to
establish a socially, as well as environmentally responsible land
ethic and more equitable market.
It is interesting that in the current national debate on health
care, an unusual degree of consensus has emerged chat the private
market alone cannot solve the problems, traditional subsidy programs
are financially ruinous, and structural reform of some kind is required,
in the previous years during which homelessness and the housing
crisis were in the spotlight of national concern, no similar call
for structural reform was heard.
Property is both a very basic issue and perhaps' the most controversial.
Genuine reform will be a very difficult challenge. Nevertheless,
as both social and environmental problems related to land continue
to mount and resources dwindle, it will become clear to more and
more people that we have only four alternatives. We can ignore these
problems and suffer the terrible social and economic consequences
of that neglect. We can continue subsidizing the private market,
generation after generation, at ever-higher levels of spending.
We can expand the public housing sector, which, though it provides
an important service, offers only a limited range of housing benefits
to residents and meets considerable resistance in many communities.
Or, finally, we can renew the covenant between the individual, the
community, and the land on which both depend - and embark together
on the path of economic reform.
For some, this process will bring new opportunities. From others,
it will also ask for sacrifices. It is appropriate - and perhaps
even necessary - that the initiative be taken by people of faith.
As the French philosopher Albert Camus said in response to a question
from a group of Dominicans, what the world expects of Christians
today is that they “speak out clearly and pay up personally.”
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Resources : Economics As If Values Mattered
The Value of Land in Economics
First in a three-part series redefining
land, labor, and capital.
Reprinted from Sojourners Magazine November 1993
BY CHUCK MATTHEI
Faith and Finance
Second in a three-part series redefining
land, labor, and capital.
Reprinted from Sojourners Magazine December 1993
BY CHUCK MATTHEI
The Spirit Of Work
Last in a three-part series redefining
land, labor, and capital.
Reprinted from Sojourners Magazine March 1994
BY CHUCK MATTHEI
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