Chapter dzǴ: Land, Money, and Capital Formation ȁȀȂA loose analogy holds here with creation and destruction of trade as
analyzed by the theory of customs unions. A union opens some trade
among member countries that trade barriers had formerly blocked, but
it also diverts to within the union some trade formerly carried on with
the outside world. In the absence of specific facts, one cannot conclude
which dominates—the benefits from trade creation or the damage from
trade diversion. In the present context, similarly, it is not obvious which
effect of private landownership prevails—the encouragement of total wait-
ing or the diversion of some waiting into accumulation of socially fictitious
wealth.
Ļis remark about encouragement and diversion needs to be sharp-
ened. Real resources cannot be diverted into accumulation of fictitious
wealth; what can be diverted, rather, is thewillingnessto postpone con-
sumption and accumulate and hold wealth. It is thus inexact in this con-
text to worry over any diversion of saving apart and distinct from its
decrease. Allais’s worry must mean that the propensity to save or wait
is gratified and sopped up by accumulation of wealth that, though gen-
uine from the private point of view, is fictitious from the point of view of
society as a whole. Ļis fictitious wealth—values created by competition
to own land that would physically exist anyway—makes the economywide
propensity to save slighter (as I interpret his view) than it would otherwise
be. (Ļe concepts of supply or diversion of waiting and the possible waste
of willingness to supply it speak further, by the way, in favor of the view
of waiting as a factor of production.)
Emphasizing the divergence of viewpoints further clarifies Allais’s
point. By owning land, the individual is transferring consumption from
the present to the future for himself but not for society except—and the
exception is important—insofar as substitution and arbitrage promote
capital-goods accumulation and the like because of waiting as such rather
than because of waiting performed through landownership in particular.
Ļrough landownership, waiting can be done from the private point of
view that is not waiting from the social point of view. (Waiting performed
through landownership and otherwise not performed at all, however, does
promote capital-goods construction through substitution and arbitrage,
so that the damage done through diversion of waiting into landownership
is partially and conceivably even more than fully offset.)
Areductio ad absurdumhelps convey Allais’s point. If saving and real
capital formation were to bring the marginal productivity of investment
and the interest rate extremely low, capitalizing land rents at that rate