Public Goods and Private Communities by Fred Foldvary Chapter 8 Proprietary Communities and Community Associations
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Proprietary Communities and Community Associations Public Goods and Private Communities by Fred Foldvary Chapter 8 Proprietary Communities and Community Associations We now apply the territorial aspect of civic goods, examined in Chapter 3, with the theory of governance in industrial organization, examined in Chapter 4, to an analysis of contractual communities. Besides residential associations, consensual communities providing civic goods include hotels, shopping centers, condominiums, and recreational areas. These types of communities are analyzed by Spencer Heath MacCallum in The Art of Community (1970). MacCallum credits his grandfather, Spencer Heath, with originating the concepts of proprietary community administration (p. ix), so we turn first to Heath's work. Heath on proprietary communities Heath's main work, Citadel, Market and Altar (1957), appeared, ironically, shortly after the Samuelson and Tiebout models, but evidently did not attract academic attention. Heath had developed his concepts over 20 years earlier in a manuscript Politics versus Proprietorship (1936), subtitled "A Fragmentary Study of Social and Economic Phenomena with Particular Reference to the Public Administrative Functions Belonging to Proprietorship in Land - Proprietorship as a Creative Social Agency." It was a collection of his papers which Heath compiled and distributed "as a record of the development and earliest expression" of this work (iii). In one paper, "Creative Association," Heath wrote that the value of public services is manifested as the rent "which attaches to exclusive locations in proportion to benefits received by or at these locations." (p. 2). This central idea he obtained from Henry George, and the major essay in the 1936 collection is entitled "Henry George: A Further Application of his General Principles." Heath sees himself as extending the concepts of George, quoting from the preface to the fourth edition of Progress and Poverty (1975 [1879], p. xi), "What I have most endeavored to do is to establish general principles, trusting to my readers to carry further their applications where this is needed". But though Heath's theory of rent was adopted from George, Heath turned George's political program on its head. Whereas George regarded the landowner qua landowner as a passive receiver of rent which he has no part in creating, to Heath the landowner as an entrepreneur has the potential of becoming "a producer of and a restorer of land values" (p. 14). Since George himself (1975, p. 343) agreed that the value of improvements to land, such as clearing a forest or draining a swamp, belonged to the one doing the exertion, Heath did not directly contradict George, but he took George's concepts in a new direction, towards a society whose collective goods are provided by entrepreneurs who create location-specific capital goods which generate the rents that finance the Chapter 8 goods. George (p. 452) recognized that as persons, landowners are typically also laborers and owners of capital goods, but he did not envision the owner's role as a creator of land value. "The great Henry George," wrote Heath, did not discern "this natural, at once private and public function, of landowners to invest their rents and also apply their services in the administration of public affairs and to receive in compensation for their services all the increase of rent above the cost of government" (p. 15). Heath appeals to the historical example of medieval Europe, where "it was a frequent practice for lords of the land to organize free communities" (p. 16). The lords advertised for inhabitants, who received protection and services in exchange for the payment of rent. David Beito (1988), in his analysis of urban voluntary associations, also refers to historical studies by Thierry and Pirenne on the voluntary character of medieval cities. Each member of a "sworn commune" took a public oath to obey the city charter, agreements which "are the root of the restrictive covenants of modern times" (Beito, 1988, p. 2). Violators of the peace would be expelled from the city walls. Merchants dominated the leadership of the communes, and voluntary associations provided collective goods such as roads and defense. H. Berman (1983, p. 362) in his studies of medieval towns also found that they "did not simply emerge" but were founded, and their charters generally established liberties and self government. These "new municipal governments of Europe were the first purely secular political bodies, the first modern secular states" (p. 389). The "commune" was based on a covenant; the city charter was a social contract; "it must, indeed, have been one of the principal historical sources from which the modern contract theory of government emerged." The community was a "corporation (universitas)," a corporation being a "body of people sharing common legal functions and acting as a legal entity" (p. 393), much like modern civic associations. As Heath noted, these free cities were later absorbed by the emerging national states. In the present time, "what vitiates capitalism ... is not its growth but its immaturity; that the use of [private] capital ... has not been properly extended to community goods" (Heath, 1957, p. 20). The payment for such goods by rent would constitute a "welding of the particular interest with the general interest" (p. 21). The concept of the proprietary provision of community goods can be developed "with reference to the general sovereignty extending to the entire territory and the particular or residual sovereignty reposed in those who hold particular parcels of the territory by delegation of sovereign power" (p. 23), a concept similar to that presented in Chapter 5. In another paper, "Outline of the Economic, Political, and Proprietary Departments of Society," Heath viewed his concepts as a refinement of those of George (p. 65-6): "The proposal of Henry George to deprive the service department of society[,] that is, the political authority, of all its power of predatory taxation and thus restore the proprietary department to its function of disbursing the public revenue of rent to those public servants who collectively constitute the political department, carries with it the necessary implication that the proprietary department eventually will take on and exercise its full administrative functions over all the public services." But in a non-Georgian twist, Heath adds, "the balance of rent not required for these purposes will be the clear earnings of the proprietors who have administered and supervised the enterprise." Heath lumped together the site rent generated by civic goods with that due to natural Proprietary Communities and Community Associations conditions or population. Only the former are "clear earnings," and George's emphasis on site rents as a non-destructive source of community funds was based on the latter. What George did not envision was the possibility that governance itself could be proprietary or contractual. Heath's concept was expanded in his book Citadel, Market and Altar (1957). The historical appeal this time is to "Saxon England," in which community services were paid from ground rent by free holders to the land lords: `"And it was only from the hand of a public authority acting as owner of the community, and not as ruler over the persons and properties of its inhabitants, that these community services could be obtained by voluntary contract and for market value received" (p. 77). Anglo-Saxon community organization, culminating in the "Alfredian Renaissance," was proprietary government, and "there was no public revenue but rent" (p. 80). Lysander Spooner (n.d. [1852], p. 145) also described the Anglo-Saxon system as that in which "the state rested for support on the land, and not upon taxation levied upon the people personally." Freeholders held their lands on the condition of paying rents, in part by rendering military and civil services (p. 146), jury duty being among the latter. Although there is no present-day example of nation-wide proprietary administration, "In a modern hotel community, however, the pattern is plain. It is an organized community with such services in common as policing, water, drainage, heat, light and power, communications and transportation, even educational and recreational facilities such as libraries, musical and literary entertainment, swimming pools, gardens and golf courses, with courteous services by the community officers and employees" (Heath, 1957, p. 82). As to its operation, "The entire community is operated for and not by its inhabitants. Other than good behavior, they have no obligation beyond making the agreed on customary payments for the services they receive. And what they pay is voluntary, very different from taxation." Moreover, the payment is limited "by the competition of the market" (ibid.). Long-term residents in a hotel may have a contract obligating them to make payments, but one becomes a resident by making a voluntary contractual agreement. The agreement obligates the hotel proprietor to certain payment rates, unlike governments, which may arbitrarily change tax rates without being bound by any contractual agreements. Heath stated that "in all respects a public community is, in principle, the same as a hotel" (p. 146). When the proprietary concept is broadened to a larger community, the owners give "not mere occupancy alone, but positive and protective public services as well, for sake of the new rents and higher values that will accrue..." He foresaw "proprietary community-service authorities, organized as local community proprietors over extensive areas, comprising many communities and establishing associative relationships among themselves in order to provide wider services on a regional, a national and eventually on an international and world-wide scale" (p. 96). Unlike sovereign governance, proprietary administration is subject to a market discipline. As Heath put it, "the slightest neglect of the public interest or lapse in the form of corruption or oppression would itself penalize them by decline in rents and values." This is so relative to public governments, where, as Heath recognized, ownership and management are separate.