Chapter dzǴ: Land, Money, and Capital Formation ȁȀȄSuppose a change in policy. A new tax (or, almost equivalently, some
sort of new social stigma) makes landownership less attractive than before.
Ļe old rate of return on land is inadequate. Landowners try to sell their
holdings and shift into securities until, at its reduced price, land bears
a percentage rate of return sufficiently higher than the rate on bonds to
compensate for the new disadvantages of owning it. Neither land itself
nor its services have become any more or less abundant than before, and
nothing obvious works unambiguously to raise or reduce the prices of its
services. Still, the development that made people want to sell land and buy
bonds depresses the bond interest rate and promotes real capital forma-
tion. With their prices reduced, the unchanged physical quantities of land
absorb less of the overall propensity to wait or save, assumed to remain
unchanged.
Ļe following question might seem to discredit Allais’s analysis. If
the overall propensity to save or wait has not increased, where do the
additional resources for capital-goods construction come from? How do
additional resources get released from providing current consumption? To
answer, we must distinguish between the degree of thrift, in other words,
the propensity to save or wait, expressible as a function of several vari-
ables, and the actual volume of saving or waiting performed. (Compare
the distinction between the schedule of demand for something and the
amount demanded or the distinction between the Keynesian consump-
tion function and the actual volume of consumption.) Ļe answer is that
the reduced attractiveness of land as an outlet for the propensity to save
affects the direction of that propensity at the margin in such a way fewer
resources do indeed go into current consumption and more into capital
formation.
Two ways of analyzing the result of the new tax or stigma attached
to landownership might seem to contradict each other. On the one hand,
penalizing waiting in a particular form would presumably help make aggre-
gate waiting less attractive, scarcer, and costlier. On the other hand, the
tax or stigma would reduce the land-wealth deterrent to saving and so pro-
mote satisfying the propensity to save through financing the construction
of real wealth.
Ļe difference in possible conclusions traces to differences in tacit
assumptions. One strand of analysis assumes that the penalty on waiting
performed through owning land deters waiting overall. It assumes rela-
tively slight substitutability among forms of waiting: not all the waiting
displaced from one particular form, land, switches to others; and the total