How Rent Makes Poverty
Rent doesn’t go down and up: it is correlated with land values, which go up and up. Also, rents are charged in advance, so actually the tenant survives on what is left after the landlord is paid.A recent Los Angeles Times article shows an increase in child poverty to be connected with housing costs which are spiraling out of reach. Real wages are down again, while living costs are spiking: a second report in the same newspaper shows the asking rent for Southern California residential units now averaging $1,413 per month, far above a working class family’s means. To keep a roof over their heads, many are moving to unsafe neighborhoods like Central and South Los Angeles, working multiple jobs to pay rent, and living in seriously overcrowded units, causing the children to suffer. South Los Angeles statistics resemble those of some third world countries: poverty rates are high (over 30% in some zip codes), the children's schools are abysmal, child disease rates are high, birth weights are small, and violent crime rates are high. Fear, poor nutrition and bad education all ripple forward into the children's adulthood, perpetuating the poverty.
So we have fallen back on the market solution. This is the conservatives’ way. Conservatives say they understand: they blame poverty on sloth, bad behavior, and having too many children. They don’t approve of government handouts because such a policy would be a reward for indolence. Cheer up, say conservatives. While there is inconvenience to some, the system grows wealth; it continues to serve the greatest good for the greatest number. Because the economy is so huge and diffuse, you cannot pin the actions of one person onto the pain of another. In fact, the dynamics are mystical (the invisible hand). Using a dollar quantity for the poverty line reframes suffering and removes the moral sting. According to conservatives, the solution is to leave things alone—laissez-faire.
My thesis is that since the damaging consequences of poverty are profound and lasting, they can never be justified by saying that the economy is making some people wealthy. If it can be shown that the added wealth of some directly causes the suffering of others, then the problem becomes a moral one again. Further, if there were a single cause which we could adjust, then we could not hide behind the thicket of multiple-causation theories. We would be accountable for our inaction.
The cause is rent.
Economists have thrown an impenetrable veil over the concept of rent (economists’ definitions make many things incomprehensible) so I will clarify, briefly. Adam Smith said, rent is the quantity of money left over after a producer’s (farmer, factory owner’s) cost of production, and the landlord can take it. In other words, if a farmer rents a field and grows and sells his crop, then after subtracting his costs, the money left over can be charged by the landlord. That seems like a lot, but the landlord has the power to stop the whole operation. Amazingly, that definition has stood since Smith’s day. It was modified by Ricardo, who added that the quality of the location also affected the rent, and Malthus, who added that rents also respond to supply and demand. Malthus also wrote that rent may be inflated by land monopolies and by price fixing. Of course you can rent a car or a washing machine or an apartment, and in all cases the owner’s power is that he can stop your operation unless he gets what he wants. Smith’s definition is dispassionate; morally it is a cold vacuity. His definition also meant that the rent is calculated after the production season, and that it will go down if the producer has a bad season. All these variations are politically conservative.
Rents, while big money on a national scale, do not grow the nation’s wealth. This is because the money is only moved around, taken from the have-nots and given to the haves (what moderns would call a zero-sum exchange). That is how fortunes are made at the expense of the poor.The only strong disagreement came later from Henry George, an American, who in 1897 pointed out certain realities: rent doesn’t go down and up: it is correlated with land values, which go up and up. Also, rents are charged in advance, so actually the tenant survives on what is left after the landlord is paid. Next, monopolies (or partial monopolies) are common—if a landlord owns a small town, all his tenants will have to pay what he wants. Their only alternatives are emigration or death, and that is not supply and demand, it is greed. Also, rents, while big money on a national scale, do not grow the nation’s wealth. This is because the money is only moved around, taken from the have-nots and given to the haves (what moderns would call a zero-sum exchange). That is how fortunes are made at the expense of the poor.
Henry George got into things. Because of the simple points that rent has to be paid in advance and that rents always rise while wages do not, he said labor takes home less and less. He makes his general principle that “as land increases in value, poverty deepens." Classically, Adam Smith claimed that all the efforts of people seeking self-interest lift a society up, acting as a giant wedge driven under the society. Henry George said that rents actually tend to force the poor further down; the wedge is driven through the society. Rent is the culprit, he said, it is the thing that prevents a free market society benefiting everyone. It is eviscerating. It accounted for the widening inequality of his day, and he had powerful descriptions of American cities in which widespread destitution could be found in the midst of the greatest abundance. Since the law supports the haves, rent is legal robbery “..not like the robbery of a horse or a sum of money, that ceases with the act. It is a fresh and continuous robbery, that goes on every day and every hour... a toll levied constantly and continuously...it debases, and embrutes, and embitters.”
Keep in mind, Henry George said, land is inert. So are landlords: you do not have to exert any effort to sit and collect rents, so no new work is put into the economy. It contributes nothing. The opposite: as rents rise, it spurs a competitive rush to own land in speculation, rather than to be productive.
Only Karl Marx took a rhetorical step further than George, arguing that rent is a kind of exploitation, deliberately raised high by profit-maximizing capitalists to keep labor impoverished and desperate and willing to work at subsistence wages.
Another recent Los Angeles Times article describes the slow panic now spreading through the working poor in old neighborhoods like Echo Park and parts of Hollywood as building after building is remodeled and street after street is gentrified. Rents are bracketed up, tenants are forced out, and they can only find more expensive places to live. Los Angeles rents have jumped 82% in the last 10 years to an average of $1,750.
Nationally, rents are so far above wages that of the 3,141 counties in the United States, in only four of them can a person making minimum wage afford a one-bedroom apartment.Nationally, rents are so far above wages that of the 3,141 counties in the United States, in only four of them can a person making minimum wage afford a one-bedroom apartment.
Henry George lived in the Gilded Age, the age of the robber baron when laissez-faire was melded with Social Darwinism. It was also the time of the Populist uprising against landholders’ exploitation of sharecroppers. His descriptions of rich and poor juxtaposed fit modern America so well, we wonder why his theory is out of fashion. America has become more unequal than ever. Perhaps George was forgotten because he was not a revolutionary and the publication of his book Progress and Poverty did not start riots. And after the Populist movement faded, the nation didn’t do anything, again, defaulting to the market solution.
Today laissez-faire is popular again, with its refusal to recognize any moral wrong. A new wave of Social Darwinism holds that inequality and injustice are in the nature of things. Conservative economists are talking again about the invisible hand. There is the same deafness to social issues. Demands for justice are dismissed as too emotional. Any remedies that involve government planning are denounced as socialist.
Henry George’s solution was to tax land values to the point that land ownership – especially land monopolies – would become unattractive.
It is a general point that free markets do grow wealth, but they also grow inequality. New health studies show that unequal communities, states, and nations all have higher rates of certain diseases and shorter life expectancies than do egalitarian communities. If you live in an unequal society, your environment is more violent, and the steepness of the inequality predicts a raft of social ills. (Separately, poverty is correlated with poor health.)
So an obvious policy direction is to rebuild equality. That idea threatens trickle-down ideology, so there will be enormous resistance. But we have new economic evidence that wealth actually grows stronger when there is more equality.
Renters are everywhere. 61% of Los Angeles families are renters. But there is a glacial quietness on the topic of rent. Among people who benefit from this silence are landlords who consider themselves sensitive to social issues. They do not want to talk about rents.
Business is business, but for poor people, rent is always the biggest expenditure. Millions and millions of families are just getting by. There are others who have to choose between shelter and food. For all these people, rent is fear.
Our national child poverty rate has been reported variously at 17% and at 20.3%, but in Los Angeles County it is 24.6%.
Real, practical changes will not begin until poverty is reframed back from a dollar quantity to a moral problem for the nation.
Rent should be made an open topic—and a point of accountability.
Julian Edney holds a B.A. in Psychology from the University of California, Riverside and a M.Phil. and Ph.D. from Yale University, New Haven. He has written noted treatises on the topic of greed. He can be contacted through his website.
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This story was published on November 17, 2006.