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Contents

UNVEILING THE MYSTERY Roots of the Argentinean Crisis
The Argentinean miracle of the 1860's
The issue of land and the Argentinean collapse
Land rent grows unceasingly
Who produces land rent
Land rent and the price of land
Who approprietes the land rent in Argentina?
Multiple content of realty rights on land property
Land rent and lease
Shares, currencies, securities and realty deed
The privatization of rent is a doing of the system
Effects of the appropriation of land rent by individuals
Privatization of the land rent reduces wages and interest
Cheap lands invite immigration to Argentina
Juridical order causes disorder
Private appropriation of land rent ruins society
Effects of speculation on land at the end of the 19th century
Privatization of land rent generates violent systems
Erroneous theories cause deep social conflicts
Production increases , but we have richer and poorer people.
If land rent is not collected it is necessary to create taxes
What should we do?
Bibliography

UNVEILING THE MYSTERY

Roots of the Argentinean Crisis
Héctor Raúl Sandler, Argentina

In memorian
To my dear friend Bob Andelson

The Argentinean miracle of the 1860's

"The explosive growth that Argentina experienced during the fifty years after 1860 is one of the most successful case historics of capitalist economics registers. There wasn't any other economic growth that had been so important and so quick. The only comparable case is that of the United States.

North American economic growth was of more magnitude at the beginning and at the end of its quickest expansion. But, in accordance with the traditional standards of growth - those that are centered on the proportions or percentages of change- the Argentinean economic growth registered higher values than that of North America and it has been the subject of numerous studies.

What's fascinating with the Argentinean case doesn't only reside in its astonishing initial success, but also in the fact of its relatively recent classification as land of colonization and of exportation economics. This last factor has provided the base to establish comparisons with other countries of recent colonization, especially the United States, Canada, Australia and New Zealand. Most of these comparisons, at least those that date from 1960 on, have been unfavorable to Argentina, because they have been centered on the lingering stagnation of its economics in the last half of the century.

As result of comparisons, a comprehensive bibliography proliferated by means of the question, "What went wrong? " is attempted to be answered. Or, as W. W. Rostow's aphorism asks, why did Argentina smash after taking off? (paraphrases of Tulchin, Joseph S. [24]).

The issue of land and the Argentinean collapse

The model of growth proudly proclaimed by the oligarchy presented, in fact, two serious errors right at the base of the economic order: the way of legally accessing the use of land and the privilege granted by law to land owners to take possession of the growing value of land.

The law of Emphyteusis of the Revolution of May was used for federal and unitary leaders "in fraude legis" , so that few monopolized the whole available land of the native territory. It was revoked on September 16 1857, being considered "communist" (sic), among other things. (Bartolomé Mitre [14, p.17]. Soon after, the right of property was regulated by Civil Code, authored by Vélez Sarsfield and approved at closed book by both houses. It is not necessary to make a great investigation to notice that the right of land property was, from then on, regulated by laws quite contrary to the progressive and popular vision of the men of May of 1810. A mere glance at the signs left by the own author of the code , presently standing , is enough to be convinced of it.

In according the principles of May Revolution of 1810 , land could not be sold except by exceptions positively allowed (1st Article of the Ordinance of July 1st, 1822, in Andrés Lamas [12]). On the contrary , by Civil Code, on 1865 land became goods in comercio. With it disappeared all distinction of juridical treatment between what was given to mankind to live and to produce and things produced by men by means of their work involving nature (articles 2311 and following and 2336 of Civil Code [4]).

This was the necessary consequence of having discarded the innovative right recently mentioned, to put in its place "the pure right of the Romans" (5th Paragraph of the note to the art. 2503 of Civil Code [4]).

With the acceptance of such a right it was consolidated, not only the robbery of land done until that moment, but rather it threw out the basis of a social order which was the exact repetition of the unfortunate history of old Rome. The words of the author of the Code when he argues on the foundations of property were and are purely rhetoric. It sounds quite good , because it is a serious truth , that property "should be better defined according its economic relationships: the right to enjoy the fruit of their toil, the right of working and of exercising their abilities as each one finds it better" (art.2506, 2nd paragraph of the note). However, this is the least effective right in today's Argentina. Our country has 36 million inhabitants. In spite of being a relatively uninhabitad country, there are almost 4 million unemployed or badly employed and about 3 million émigrés. What causes these effects? A legal mechanism because of which, men without any other resource to earn a living than their ability to work, are handicapped by their inability to access the land - rural and urban - because of its high market cost. When land owners are allowed to keep legally increasing its value, first an economic order and later a cultural order is generated. It works in such way that, in fact, there is no place to work. Of course, the national territory exists. But this land isn't accessible in most men's daily life. The current legal system has transformed land into the base of any speculative business, because it, instead of being at disposal of work and investment of capital, was and is object of an obscene speculation. Today, as it happened almost one century and a half ago, just 1% of the population owns more than 95% of the lands (Jacinto Oddone [33])

It is astonishing that foreign eyes are those that denounce what is at full sight of every one who wants to see. This general blindness comes, partly, from interests and ideologies that, on purpose or indirectly, maintain standing such an inhuman situation. Its effects can be seen in hundreds of "shanty towns" (in Buenos Aires, its peripheral districts or in the big cities), taken houses, clandestine hotels and in thousands of homeless families that must resort to charity. The density of Buenos Aires is about 15,000 p/km2 and Great Buenos Aires (Capital´s outskirts) is about 4,500 p/km2. The rate of population density in the rest of the country hardly reaches 5 p/km2. But this is just a relative amount, because there are provinces so rich that their natural resources are equivalent to those of entire countries while their population density doesn't even amount to 2 p/km2. To make matters worse, most of the population in these areas lives off public employment or public "plans of subsistence."

Although vested interests work to prevent the raising of the veil that hides the cause of such irrationality, such ignorance and lunacy must be trailed to the contents of the study plans, at all levels of education, especially Economics and Law studies, that have so much influence in the formulation of diagnoses and the adoption of government policies. In fact, except for individual exceptions that don't bear weight on the constitution of dominant knowledge, only in foreigners' works are there thoughts like the following:

The process of colonization of the pampas was already very advanced before government tried to correct the tendency towards the concentration of properties and tenancy, sanctioning laws whose objective consisted on the creation of a Jeffersonian standard of ownership of land. Laws were late and they never were supported. At the time of the centennial, the Government's surveys carried out by the Ministry of Agriculture confirmed what was already known: most productive land in the pampas was in relatively few owners' hands and there was in the whole country a wide class of lessees that worked under miserable conditions and who had little or no hope of being able at some time to own their own land.

The pattern of holding of the land was such that the organization of production allowed the maximization of the owners' earnings without necessarily implying the increase of production or the benefit for public welfare, not even the presence of an innovative managerial initiative. As answer to these surveys it was pointed out - in an accommodating way - that even when the presented facts could be precise and although it was lamentable that the original objectives had not been achieved, the great success of the development pattern was so evident that it didn't really suit to worry society with these results and that the surveys weren't to be taken as advisors of perfection. The taints of the pattern of growth were as evident in the city as in the country and they stood out as clearly in official reports as at the Congress, the press, and in a long series of works of social analysis. The usual answer professed that the "social problem " - as they denominated these difficulties - was the result of nefarious foreign influences, that a wrong type of immigration was allowed into the country, and that slumming and other evidences of social inequality would be eliminated in due course of time, together with the antisocial influences of the political body, to grant time to the wonderful and reestablishing process of growth to increase national wealth, thus solving the social problem. Anyone that thought otherwise was unpatriotic. The vast majority accepted the idea that export of meat, grains, wool and leather would guarantee the golden future of the country [paraphrases of Tulchin, J.A, [24] p.79 and following].

What follows is a new intent of mine to stimulate the scholars and people who worry about social problems in Argentina and Latin America, to devote themselves to examining the legal character of the main cause that generates them. This perspective, although it was quite well-known by the first centennial, has been forgotten by academic, political, social leaders and common people. An intellectual fog covers this cause and, consequently, public opinion is wrong when articulating on the problems society suffers.

Land rent grows unceasingly

The legal system established so that people of a society may have access to the economic expanse configured by their national territory, as long as population increases, public and private investment increase and social development - in a wide sense of the term- multiplies, an unavoidable effect will take place: the value of that economic expanse will grow in direct proportion to this growth. This is valid for any social organization considered in its entirety as a nation. The first cause is economic. The national territory is a finite fact, not expandable. On it all activities should be completed. Not only economic activities but all individual and social activities of the people.

Of the land and on the land, wealth assets (production assets) that men need to live and to develop are created with the individual and community effort. Scarce from its origin, land is - relatively - scarcer and scarcer due to population growth, investment necessities, and multiplication of individual activity. Those who believe that with technological progress the importance of the land diminishes are sorely wrong; it happens exactly the other way around.

In the complex division of work in a society in which it would be senseless, if everybody did the same thing, not all need to access to territorial space in a direct way to produce and to work; but everybody needs it equally to live. Partly they need it to reside; but in a fundamental way because to fulfill their necessities they require production values in exchange for products. And everything men produce is manufactured land. We are indirect consumers of land. Thus, the economic sphere of a people is neither an issue of country people nor of city people, neither of industrial workers nor of white collared workers; neither of old men nor of children; neither of men at the farm nor of women at home.

It is absolutely everybody's problem. However, paradoxically, it is the issue less mentioned by scholars, intellectuals, social and political leaders and the government. It is possible, that being such a transparent fact it is invisible to men and, consequently, everybody thinks that the way in which the actual law is regulating access to the land is the only correct way of doing it. This is a grave error.

An inappropriate way of legally ordering the direct and indirect use of the national economic territory determines most of our social problems. The reason why many people in the world cannot populate our empty country and why not few children of our homeland emigrate in search of better horizons has it's origin in the current system of property in conjunction with the system of resources of the State. (according to Juan C. Zuccotti, 10 in each 100 Argentineans live abroad [25]).

Because of the same reason that the value of the land increases with population, investment and development, the empty economic expanses - whatever the reason - are of littler value than those more populated. From their own experience everyone knows of the biggest land price in Buenos Aires than in any city of the provinces. He/she also knows that at the commercial areas of an one of those cities , the land is more expensive than in the periphery, and in the periphery, land is more expensive than in the open fields. He/she also knows that being of similar natural conditions, better located plots or those of easier access or those nearer to production centers are of greater value. An acre in Buenos Aires’ downtown would demand a figure with many more zeros than those we habitually see in the price of an agricultural acre in the best areas in the country.

In recent surveys carried out during the years 1998 and 1999, the value of the whole area (200 km2) of the City of Buenos Aires has been measured along with the appraisement gradient between each measurement, with these results: July/98, u$s 109,000 billion; Dec./98 u$s 111,477 billion (+2.2%); May/99 u$s 115,077 billion (+ 4.6%); coming July of 1999 it would be about 118,000 billion. That is to say that the value of the land has grown in one year around 9,000 billion dollars!

When Juan of Garay (the Founder of Buenos Aires by 1583) made the city plan and distributed the plots, they were not worth anything. By 1605, a plot in the neighborhood of the Council House (today the Plaza De Mayo) the same property was worth about $300 and by 1750, in San Miguel neighborhood ("the outskirts") a poor house was worth some $1800 (Juan Agustín García [27]).

Who produces land rent

The highest value of the space, considering the area of the country and the time taken into account, it is not a doing of its individual occupant, be he/she proprietor, tenant, lessee or usurper. It is the product of society's work. As this highest value of the space appears as revenue of the land, it has been denominated land rent (Achilles Loria, The Rendita Fundiaria)

The national economic space - that is, the space on which our ancestors have deployed, the current inhabitants deploy and our descendants will continue deploying their activity, is the Argentinean territory. Land rent extends as a mantle over the whole of that surface. Measuring its value on each point you could trace a peculiar topography. Contrary to the natural topographic that is permanent, the topography of the land rent varies as much as its producing agent varies: social development. If we delineate the mapping of land rent we would draw the topographic map of national land rent. Some few peaks would be as low as hills and they would correspond to the principal domestic cities. Their hillsides would descend abruptly in each periphery to become the lingering pampa's plateau. Depressed valleys corresponding to most of the lands that integrate the rest of the country. But at a point, on the edge of the Río de la Plata, the line would rise logarithmically up: value of the land corresponding to Great Buenos Aires. This malformation would powerfully get attention. On a surface hardly 0.1% of the native territory, more than 40% of the population's is settled, and 90% of the financial and cultural activity of the country takes place. Its value approaches 120.000 million dollars, equivalent sum to the external debt.

The unity of this mantle would put in evidence the continuity without cuts of the whole national economic space and its land rent, at the same time that it would show the lack of foundation, from economics point of view, of the habit of dividing the Argentinean surface in rural and urban land. This differentiation - that exists and it is useful to other ends - lacks interest in connection with the problem of land rent and social order. On the contrary, it muddles the vision of the problem and it has driven to terrible solutions (Carlos P. Carranza, The Agrarian reform in America).

Two outstanding aspects characterize land rent: a) it doesn't depend on the activity of an idividual proprietor and b) it exists depending of the cooperative activity of society as a community. A downtown parcel won't be worth a cent less if its proprietor has never done anything on it; its value will be given by the average value of the land for the area in that the parcel is. On the contrary, it doesn't matter what efforts the proprietor makes, their real estate value won't increase in a single cent.

Land rent accumulates on each parcel that integrates the economic space under pressure of the demands of society, which to satisfy its necessities should invest its work forces and its real capitals on that space. As regards economics, it was initially appreciated as a differential rent, in the sense that if the same quantity of work and capital is invested on two different parcels of land, and they give different yields, the difference is characteristic of the condition of each parcel (as said by the French physiocrats and David Ricardo, Principles of political economics). This condition can derive of endogenous causes (natural quality of the land, as described by François Quesnay) or exogenous, if it results from its location inside a bigger space, as Heinrich von Thünen, Alred Weber among others pointed out ( August Lösch, Teoría económica espacial, El Ateneo)

Land rent and the price of land

In a system like ours in which land is susceptible of being sold and bought, land rent can be, measured with great certainty by the real price of market; that is to say, for the quantity of currency that the buyer is willing to give for the conveyance of the title deed containing the real right of property on the parcel. However price should be distinguished from land rent. The value of land rent can be measured in money, which establishes its price; but an inflation perverted currency doesn't allow to measure with success rent through price. Secondly, even in cases of sound currency, the monopoly of lands produces a false land rent, because the high prices of those few lands that are indeed in trade would be deflated if those monopolized entered the market Fernando A. Scornik, El impuesto a la tierra).

It must be observed that those monopolized lands, as long as they're excluded from the trade, don't have a price, but they have the value called land rent. In countries in which sale and purchase are forbidden, as in collectivist systems, land would equally exist, although - in this case - it could not be measured by the price neither could be known.

Demand determines the existence and value of land rent on each parcel of the space; but, in certain circumstances, when the land demand is increased not only by economic necessity but for the pretense of protecting the value of the money (inflation), as we have just advanced, it usually generates "false rent" that incorporates to the sale and purchase price without reflecting, in consequence, the effective land rent. However, false rent blocks -just the same and sometimes worse than true rent- the access of workers and investors. That's why their practical treatment should not be different.

Who approprietes the land rent in Argentina?

Looking at the problem of constituting a fair economic order and self sustainability, there is a central question around the important issue of land rent. As it isn't a material thing, but an obligation value (something that he who wants to use the land should pay), is it necessary to wonder who is the beneficiary of that credit generated by the existent legal order?

When Civil Code established the tradability of the acreage of territorial expanse (except for specific exceptions like lakes, rivers, etc. (articles 2340 and correlative), it identified land with goods, that is to say, with things produced by men, meaning production values. Therefore, according to Civil Code, the landowner benefits from the greater value land acquires; that is to say, he/she appropriates the land rent. We call it privatization of land rent.

There are mainly two roads for the appropriation of land rent by the landowner: the sale contract or the lease contract. In both juridical businesses we always refer only to actual space, that is to say, the land free of improvements. Improvements are wealth, things produced by men.

In the first case ,sale , the proprietor transfers the title that contains the realty rights, with that he receives a price. This price , with the exceptions before mentioned, is land rent capitalized on the tract at the time of sale. In the case of leasing, the proprietor just releases a personal right of use on the land in the tenant's favor, for which reason he receives a rent. This rent is a percentage of the land rent capitalized . The proprietor regards the "value of the tract" as capital, and he charges the rent as the "interest" of that capital. In both cases the proprietor is beneficiary of the biggest value of the land, that is to say of the land rent accumulated by social work.

Land rent depends on the social development variable. There are country's general variable, region's variable and local’s variable. The proprietor, according to the velocity of that development and the intensity of capital investment and other people's work, can have modest or extraordinary revenues without doing ever minimum effort. The coincidence of the juridical ability of being able to sell and to lease , tradability of land, with the constant increment of land rent because of social development, encourage the business known as speculation on land. By means of the privatization of the rent land several families have kneaded fantastic fortunes at the end of the 19th century and the beginnings the 20th . These immense fortunes have left their trails in the city, such as the old San Martin Palace (Foreign Relations Ministry), the splendid palace that houses the embassy of Brazil, the magnificent palace that houses the embassy of France or the palace that serves as the seat of the archbishopric of Buenos Aires. All were private family houses.

Multiple content of realty rights on land property

This shows that, in fact, realty rights on land property, understood in principle as the holder's right to access and to use the land, allows something more than the exercise of these faculties. It also has as addendum the power to keep the social product known as land rent. A Buenos Aires credited real estate company, has summarized in few words this Argentinean fact. Its owner, has acquired knowledge that, regrettably, many technicians lack. When customers enter his parlor they see on a great red heraldic fringe in showy letters, almost a proverb - from an experienced man -, that reads: The best business on Earth is land itself . This sentence is fruit of a national experience. This following aphorism is attributed to Mrs. Alvear: "There are two kind of people: lunatics and sane. In Argentina sane are those that keep their lands and buy more; the lunatics are those that sell them" (Jules Huret [10]) She belonged to some the richest family in Argentina. The thought would be more complete should it say: this is the way it happens in all those countries in which legal order allows the proprietors of the land to increase its revenues based on the work and the investment of the other inhabitants.

The thoughts of the real estate agent in our example and of Mrs. Alvear's (if it is true that she said it) are true for several reasons. It is the best business because, the realty rights of property not only facilitate the use and fruition of the land, but also facilitate the pocketing of land rent once, in the event of sale, or continuously in the event of lease. There will be business that equals it, but not that overcomes it. Secondly, it is a business of in crescendo earnings, because as land rent grows through time, aided by social development that is impelled by population's increase, technological advancement and investment, it is only necessary to bide time. Finally, it is the surest. The advantage over production values - things made by men - is evident, because these things decay because of science and technology advancements, fashions and marketing. Things created by men are not eternal, they don't keep their initial utility and they stop being tempting to consumers for the most varied and sometimes capricious reasons. How different it is with the luck of land! Because of population's increase, because of bigger investment demands, because of the exponential increment of human necessities impelled by the desire of a greater well-being for a bigger number and even for the tendency to consumerism, land demand is constant. But it is not a commodity, neither created nor buildable by men, finite and unreplicable. There is not a man who can live without land, be that he consumes it directly or indirectly. Land is the base of