Speculators versus Farmers: A Review of The Land Trap

When I, a fellow Englishman, asked Paul Kingsnorth in the lunch queue at the 2023 Front Porch Republic conference what has caused agrarianism to be so weak back home in England, his reply was simple. England is deficient in that all-important asset: land. The country, being a relatively small land mass, has little land to begin with, and most of it is passed down within families. This leaves precious little available for any want-to-be agrarians.

There is a related factor connected to the land that harms the cause of English Agrarianism—and one which makes the problem of land availability significantly worse. The price of land has become prohibitively expensive, well beyond the meagre budgets of most small farmers (who are not known for their sizable savings). In this regard, the future looks very bleak. Forecasters predict that land is only going to become more expensive and thus ever more unaffordable and inaccessible for the agrarians of the future—and not just in England, but the world over.

To understand why land values tend to rise, it is vital we understand that land is an asset in a unique and special class of its own. In the words of Mike Bird, The Economist’s Wall Street editor and author of The Land Trap, “land wealth is not like any other wealth” and this, Bird outlines, is due to three interlinked properties of land, all of which contribute to rising prices.

First, apart from small areas of coastal reclamation, land cannot be created. Supply is fixed, which is problematic to say the least, when demand for land the world over is increasing. Secondly, land is essential for most economic activities of production, which explains why demand will always be high. For agrarians, the economic activities in question are the production of agricultural goods, but land is also essential for mining, forestry, factory production, energy generation—the list goes on. Finally, the value of land is partly dependent on the basis of its location. If a new railway station is built next to your plot of real estate, suddenly, through no work of your own, you have become a lot more wealthy.

However, these three properties of land have existed since the dawn of civilisation. By themselves, they cannot wholly explain why land has become so extortionately expensive in the modern era. The story of how this came to be and why it came about is the major theme of The Land Trap. The main character in the story for the last three hundred years, and the one that Bird argues is most responsible for the explosion in land values, is financialization.

The reason why land has become so conducive to financialization and has found itself in the grip of the speculators, is due to three additional properties of land that Bird identifies. First, land tends not to depreciate nor degrade physically: Once you own it, land as an asset is secure (apart from confiscation or dreaded Compulsory Purchase Orders). However, as a minor point of critique, agrarians would dispute this as from our perspective land can degrade in terms of its capacity for agricultural production and rising sea levels may lead to the loss of land in low-lying areas. Second, land cannot be hidden and, finally, land cannot be moved.

These properties mean that land has in effect become the ultimate form of collateral. Banks consider it a secure and recoverable asset and rising prices mean landowners can borrow increasingly large sums against its value. Thus, ever since the ability to use land as collateral was recognised in the early years of the American republic, it has fuelled economic investment and development. However, land has also been utilised for rampant speculation and profiteering. This, Bird argues, is “profoundly dangerous to our collective prosperity” (11), and he skilfully uses several case studies from around the world to hammer home his stark warning.

By analysing the history of land values and land policies in various countries such as Japan, USA, UK, and Hong Kong, Bird shows that it didn’t take much time at all after the enablement of land to be used as a collateral asset for land prices to become perhaps the most influential factor in the global economy and for land speculation to become rampant. Individuals, businesses, and entire countries, most notably Japan, have been propelled to financial booms—but also to financial busts when the price of land has burst. The health of the entire world economy has become significantly dependent on the upward trend in land prices and the immense amount of borrowing these values enable. It doesn’t take an expert to realise that this is a very volatile and dangerous situation for the global economy to be in. We only need to be reminded of the 2008 financial crash to see just how much carnage land bubbles can cause.

The main thesis of Bird’s book is that the global economy has become so closely wedded to land values and so dependent on land prices rising that it has landed in what Bird terms the land trap. By coining this memorable phrase to describe a ubiquitous but underappreciated phenomenon, Bird has done us all, especially agrarians and land reformers, a huge favour. Identifying, naming, and making others aware of an issue is the first and necessary step towards resolving it. Bird has done that for us, giving us a term we can use in our advocacy for fairer and more affordable access to the land that lays bare the issue for policy makers.

The dynamics of the land trap are relatively simple but incredibly difficult for modern economies to avoid. As already explained, when banks lend money to individuals and businesses, land is often used as collateral to obtain low-interest loans. These cheap loans allow large and small businesses (and even small Thai farmers to use an example of Bird’s) to make considerable investment into their activities (such as research, equipment, and materials) and the concomitant increase in productivity both in individual and wider economy terms, causes land rents and land prices to rise. Banks wish for this to happen as it safeguards the value of their collateral. This wouldn’t be problematic per se if it weren’t for the actors who come in next. The issue is that rising land values also make land attractive to speculators looking to make quick profits (sometimes land is flipped in as little as a day). As the speculative rush gathers pace, growing demand drives up land values further, resulting in a positive feedback loop whereby speculators borrow more cheap credit against the land they hold in order to buy more land, inflating the bubble to the brink of bursting.

This rush of speculative capital into land doesn’t just inflate land value bubbles, but it causes wider and systemic economic issues too. Most notably, speculation in land outcompetes investment into other more productive assets such as stocks and small businesses and reduces capital flowing into innovation and development. The productive parts of the economy are thus deprived of capital, leading to potential economic stagnation, unemployment, reduced consumer spending. To make matters worse, as Lars Doucet has pointed out, increasing land prices mean that businesses that rent their premises are forced to use more of their income paying off rising rents, decreasing their ability to invest, provide employment, and stay productive, which, in turn, further hampers economic growth in the wider economy. Eventually, the economic situation worsens to the extent that rents become unaffordable, business bankruptcies and foreclosures become widespread, debts default, banks collapse, lending evaporates, land prices fall, and the economy crashes into potentially “decades of seemingly irreversible economic stagnation” (151).

However, it is worth mentioning a potential perverse side effect of the land trap. Though there are many losers in a land trap scenario, there are also some winners waiting in the wings to scavenge on the carnage. It may be the case that some big businesses and wealthy individuals, whose cash reserves enable them to weather the economic storm, are able to benefit through taking advantage of cheaper land values, cheaper assets, and the ability to purchase collapsed and struggling businesses to increase their market share and dominance. In time, they will also be able to borrow against the value of their increased land holdings, setting in motion the whole wretched cycle all over again.

Unless radical land reforms are put in place, Bird argues it is likely our modern economies will fall into the land trap repeatedly. With each successive turn of the cycle and each successive boom and bust, our nations will suffer more serious economic carnage, increased big business consolidation, and greater loss of qualitative value in our economies and societies. This ought to matter deeply to agrarians, localists, and independent business owners. The health of our communities is being hindered by the speculative greed of our financial city hubs and the land traps they are leading us into. It is nigh on time that future land trap scenarios are prevented by the implementation of significant reforms. But how can this be achieved, especially when the vested interest in land financialization is so strong, and the reliance on land prices rising is so baked into the global economy?

One country that has managed to avoid this trap is Singapore. Space does not permit me to outline how and why; you will need to read the book for that. However, though lessons can be learnt from what Singapore has done, the applicability of its policies for both western economies and agrarian landscapes is limited. Other solutions are thus urgently needed.

Bird is an advocate of a Georgist land value tax (LVT) as a way of both disincentivising land speculation and accumulation and also for encouraging productive and efficient use of land that stimulates and grows economies. In terms of keeping land prices in check and preventing the land trap, LVT certainly has the potential for being successful. However, agrarians are likely to be dissatisfied with this solution. As Chris Smaje argues in Finding Lights in a Dark Age, LVT incentivises other forms of capital accumulation and may force farmers into agricultural intensification and industrialisation—the very agricultural practices we wish to avoid—in order to have the extra liquid capital needed to cover the tax. As Smaje argues, “There’s no contradiction between land value tax and accumulative and extractive capitalism.”

Perhaps a middle ground solution, therefore, could be based on a system of tax breaks for smallholders and small farmers who manage their land sustainably and according to the principles of agrarianism and good farming alongside a LVT regimen for other forms of land ownership and use. This could help keep land distributed fairly and actually incentivise agrarianism. This idealised scenario, however, is only a dream—and likely to remain one. For it to become reality, agrarianism needs to be valued in our societies and the halls of power once again, which is the very thing our current governments seem reluctant to do, as typified by the rough treatment small farmers have been receiving from the British government in the last two years. The search for a viable and effective solution to the land trap goes on.

So whilst The Land Trap is an excellent and timely book for bringing to our attention the danger of the land trap and for explaining why land prices remain high, it is weak when it comes to solutions that are likely to satisfy agrarians. Partly that is because agrarians are not the target audience. Indeed, agriculture as a whole receives scant and insufficient attention throughout the book. However, this drawback aside, The Land Trap is a book deserving of a wide readership. It more than achieves its stated aim in providing a history of land as an asset and explaining the theory behind the original idea of the land trap. And as Bird himself concludes, the first step to avoiding the land trap is to “understand that it exists” (292). The necessary work of exploring what are likely to be suitable land reforms for avoiding the land trap, and for enabling fair and distributed land ownership, is for another book entirely. Perhaps it is one an agrarian should write.

Image Credit: James Pierce Barton, “Kentucky Landscape” (1832)