Chapter V

The Frontier

The Profits of Free Lands

The frontier was to Americans what the empire was to the British. The two dynamisms were as alike as two peas. Dynamism, of course, is not the wheels but what makes them go round. The British, having a monarchy and caste system, made an ism of the empire. We made isms of our Constitution and federal system. But neither was dynamic in the sense just defined. Our founding fathers and their immediate successors sought to create in our political institutions and ideology brakes (checks and balances) rather than driving force. Of the latter they saw enough and too much in our frontiersmen and expansionists, who brought on the War of 1812 in the hope of taking Canada and who fought the Mexican War of 1848 for Texas and California. The British ruling classes had their brakes in the monarchy and the caste system, so they tried to make their empire, as a political ism or a spiritual value, as dynamic as possible.

The American frontier and the British Empire also have this in common: As historical processes, they are both over. As a place the American frontier ceased to exist about 1890, whereas the British Empire, as a place, still exists, having taken in some 800,000 square miles of German colonies as recently as the close of the World War. This acquisition of territory, unlike previous acquisitions, added nothing to British prosperity. As an historical process, the British Empire ended not long after the passing of the American frontier. The Boer War and the death of Queen Victoria at the turn of the century marked rather definitely the close of the British Empire as an expansive process. The conquest of the Boer Republic was the last profitable stroke of British imperialism. Empire is a process of expansion by conquest, not just the place so acquired. It is a matter not so much of being in the red on the map as of being in the black on the yearly balance sheet of international payments.

The socially important fact about an empire is getting it and, about a frontier, getting rid of it. The two processes amount to the same thing. Getting rid of the American frontier amounted to getting the American empire. Being republicans and Puritans, we could not well call ours an empire. We had no emperor. Besides, our governing, though not ruling, imperialists, the Eastern plutocracy, felt that the less said about their ownership and power, the better. They were interested in the take, not the glory. They wanted to rule indirectly and anonymously. Their principal device for ruling eventually, along in the eighties, came to be the modern corporation which has been called by the French, with their genius for logical definition, the société anonyme.

Briefly, so far as empire is concerned, it is the growth, not the existence, the getting, not the keeping that is historically significant and socially dynamic. A nation grows great by winning an empire. It cannot remain great merely by keeping one. Indeed, once it stops growing it will start decaying. This is clearly proved by Spain and Portugal both of which went into decline once they ceased to increase their imperial holdings. Mankind is destined to live by toil and struggle, not by absentee ownership. When a nation becomes stagnant to the extent of seeking to live securely on the income of foreign spoils won at the point of the sword in its more adventurous days, invoking world morality for the peaceful enjoyment of its earlier loot, that nation is ripe for destruction by younger social organisms whose people are more eager to live dangerously and more willing to die gloriously.

What we now call capitalism, democracy and Americanism was simply the nineteenth century formula of empire building as it worked in this country. Here the process was often called pioneering; its locus, the frontier. But the process, not the place, is the thing. Now that empire building along the lines of the nineteenth century formula is over, both for the British and ourselves, capitalism and democracy are over as we knew them in that past era. It is as simple as that. We may yet expand territorially by taking Canada, the Caribbean Islands, Mexico and Central America. Such expansion may prove necessary to our national security in this hemisphere. But it is unlikely to provide a social dynamism equal to that of the nineteenth century empire building. Unlike the Have-nots, we shall not expand because we are land hungry. Hunger is dynamic. In the twentieth century, unlike the nineteenth, no profit is to be made out of increasing available supplies of raw materials and foodstuffs. Profit making is dynamic. But, to be dynamic, it has first to be possible. The conditions creating this possibility are the primary dynamisms of capitalism.

The historical function of the frontier was to provide opportunities, incentives and escapes for individuals. Thus private enterprise, parliamentary democracy, liberal freedom and tolerance were made possible. Our problem today is self-preservation as a people. The solution must be sought in collective organization, not individual escape—to a better place, job or business. Our most influential thinkers today see this to be a problem of preserving a system which went with former opportunities, incentives and escapes. But no amount of fighting against Germans, Japanese or other foreign devils can possibly preserve what has already ceased to exist.

What actually is at stake is not America but the British Empire—British prestige, power and possessions all over the world. It is their tough luck as a people that by increasing the population of the British Isles in the pursuit of industrial and financial profits far beyond their insular means of subsistence they have made their self-preservation dependent on either (1) the perpetuation of a world system of free trade and international division of labor which was possible only in a frontier, empire building era, now over with no hope of restoration; or (2) the speedy emigration of half the population of these now inadequate isles. It is a confusion of issues to equate the defense of the American people with the perpetuation of an impossible world system of money and trade and of British imperial expansion and hegemony on the continent of Europe.

The American people can preserve themselves and their present continental possessions. But they cannot preserve either the American or the British systems of the nineteenth century, except as memories. These systems were the American frontier and the British Empire. It is not Hitler and Stalin who are making it impossible to turn back the clock.

It was Professor F. J. Turner’s great contribution to American social thought to give clear formulation to the now rather obvious idea that the creation of a new civilization is essentially a series of historical events rather than a collection of abstract definitions. He expressed the idea very well when, in an article in the Atlantic Monthly of February, 1903 on “Contributions of the West to American Democracy,” he said “Political thought in the period of the French Revolution tended to treat democracy as an absolute system applicable to all times and to all peoples, a system that was to be created by the act of the people themselves on philosophical principles. Ever since that era, (in 1939 as much as in 1903) there has been an inclination on the part of writers on democracy to emphasize the analytical and theoretical treatment to the neglect of the underlying factors of historical development.” Professor Turner had launched his really epochal thesis, though in an extremely mild form, in a paper he had read in July 1893 at Chicago before the meeting of the American Historical Association on “The Significance of the Frontier in American History.” Probably most of the army of students who have since read and written on Professor Turner’s great thesis have missed the force of his tradition-shattering idea.

Oversimplifying it one may say, Americanism is the frontier. It is not the Constitution or the federal system. Nor is it any mere system of ideas or collection of words. It is the events and experiences, the historical process, of the frontier. Professor Turner’s thesis is usually stated somewhat inadequately as follows: For the first time in history, a highly civilized people found themselves living on the edge of a limitless expanse of free land available for settlement and the development of whatever type of culture they desired, largely untrammeled by most of the heritages and restraints of older and more congested societies. But he really said a good deal more, as we can appreciate better now than in 1893, when he told American historians that, “The existence of free land, its continuous recession and the advance of American settlement westward, explain American development.”

In a particularly lyrical passage, Professor Turner said, “This perennial rebirth, this fluidity of American life, this expansion westward with its new opportunities, its continuous touch with the simplicity of primitive society, furnish the forces dominating American character.” And again, “The growth of nationalism and the evolution of American political institutions were dependent on the advance of the Frontier.” Americanism was a process rather than a principle. The principles were determined and validated by the events of the process. Even that most essential of social principles, social unity, was, in eighteenth and nineteenth century America, the product of the experiences of the frontier. On this subject Professor Turner writes, “The effect of the Indian frontier as a consolidating agent in our history is important. From the close of the seventeenth century various intercolonial congresses have been called to treat with Indians and to establish common measures of defense. Particularism was strongest in colonies with no Indian frontier. The frontier stretched along the western border like a cord of union. The Indian was a common danger, demanding united action.”

Free land and lavish gifts of natural resources to exploit were the frontier’s contribution to the success of private enterprise. The railways, of course, are the classic example of private enterprises being subsidized in their inauguration by colossal grants of public lands which were subsequently sold at huge profits by the operating companies. In the absence of these contributions today, we find the railroads bankrupt, pump priming deficits necessary and class conflict irrepressible. Capitalistic or private enterprise has always needed subsidies or something for nothing, like free lands and a perpetual land boom, to stimulate it to a necessary amount of activity. There is now a lack of risk capital seeking new ventures, notwithstanding the glut of savings and near zero money rates. The chief reason is that the day of rising land values and an abundance of windfall profits from the frontier is over. Even in the oil industry, in which wealth literally gushes from the ground, the incentives to extensive new investment are today comparatively small. Oil prices for most producing areas are unremuneratively low relatively to exploration costs and production uncertainties. Competition in some fields is so keen and monopoly in others so abusive that venture capital is not attracted in large volume into this bonanza industry, the chief need of which for the moment is curtailment of flow in already producing areas. Briefly, even the oil industry is no longer dynamic.

During the frontier era, even agriculture was dynamic. Now it is on relief. During the frontier era, a farmer did not have to be a good businessman or an efficient producer to attain a competence in his old age and leave a modest estate. Today farmers are getting two to three times as much out of a given piece of land or with a given amount of human labor as they got a generation ago. Yet the farmers are relief problem No. 2. The more efficient in production they become, the worse off they are. Formerly a farmer had merely to acquire a large tract of land in his youth, pay off his mortgage by selling off part of the land at a big profit, pay taxes which were extremely low and raise enough for his current needs. The rise in land values constituted for the average American farmer up to 1920 a steady and rapid source of enrichment without effort or risk on his part. He enjoyed a foolproof prosperity due to a perpetual land boom. This was the American way in agriculture. The story in terms of dollars and cents can be seen at a glance in the following figures from the Decennial Censuses since 1840. Even during the drastic deflation following the Civil War farm land values rose.








Number of farms in the United States in thousands







Value of land and buildings in thousands







Average value per farm







Average value of land per acre












Number of farms in the United States in thousands






Value of land and buildings in thousands






Average value per farm






Average value of land per acre






The most dramatic and perhaps the most conclusive proof that the frontier as a Constructive force is over may be seen in the stationing of border guards along the highways leading into California and other western states to stop the inflow of American workers and their families who might become an added charge on already overburdened relief and old-age pension rolls. There have even been cases of what was tantamount to judicial deportation of American families from one state to the state from which they came. The day is fast approaching when jobless and indigent Americans will require permits and visas to migrate from one community where they are on relief to another where they will immediately have to go on relief. Let an American share cropper of the South whose ancestors may have lived in this country for ten generations back try to take the traditional American way out of his economic impasse and he will soon learn from border guards that the American way of freedom of migration is past history and not current reality.

A most essential feature of the frontier and of the social philosophy it bred was that of escape. Most of our immigrants came here in flight from distasteful conditions abroad. Most of the migrants from the East to the West were moved by the same desire to find escape. The frontier was the Promised Land of the escapists, whether Pilgrim Fathers, poor gentlemen settlers in Maryland, debtors released from imprisonment for debt who settled in Georgia or Mormons in search of an area in which they could have as many wives as they liked. Two essentials of escapism as a practiced philosophy are a frontier and a population small enough to allow of rapid growth and fluid migratory movements. Sir Henry Maine, a great philosopher of the law, made a thesis of the point that the rise of modern civilization marked a transition from status (serfdom) to contract. Taking a view of only the legal aspect of the change, one is apt to infer that it occurred mainly because people preferred freedom of contract to fixity of status. The fact is, what made the transition possible was the frontier, not mass preference. There is freedom of contract in a significant sense only to the extent that there is opportunity for contract.

Now that the frontier is over, all social philosophies of which escape forms an integral part are wholly anachronistic. Today there is no frontier and no escape to be found in migration, so far as large masses of people are concerned. This goes for American share croppers and unemployed quite as much as for Polish Jews or German industrial workers. Much of the prevailing confusion of thought about international problems stems from a failure to recognize that the days of escape ended with or shortly after the first world war of this century. The passage of the restrictive immigration law of 1923 by the American Congress did more than the treaty of Versailles to seal the doom of democracy and capitalism in Europe. In the midst of the second great war of this century, many people in the allied countries and America reason somewhat as follows:

War is terrible. For the Germans it must be more terrible than for the British because the Germans are poorer. Therefore, the Germans may be expected sooner or later to revolt and force their government to accept peace on the allied terms, because this would at once give them the blessings of peace.

The Germans cherished that expectation in November 1918. They were subsequently disillusioned, not by the rigors of reparations in 1919-1923, but by the cessation of foreign loans in 1929 and the ensuing and consequent collapse of capitalism in Central Europe. The German people now know that a peace on the terms of the Allies which would involve the smashing of German national socialism could not be followed by capitalistic prosperity, because they know that if capitalism does not work well enough in America to reduce unemployment under ten million, it would work much less well in Germany if imposed as an allied condition of peace. And the Germans know that the failure of a peace on the terms of the Allies to yield prosperity to Germany would be due not so much to the rancor of the Allies as to the breakdown of their economic system which is another way of saying the end of the frontier.

The common people in America and England are somewhat less well aware of the facts of the world situation of capitalism, as the superior wealth of these democracies permits them to take better care of the unemployed and farmers by means of relief and doles, than is possible in poor countries like Germany. Popular faith in democracy and capitalism in America depends mainly on the size and duration of relief for the unemployed and the farmers. A philosophy of escape is still possible only because and as long as WPA can take the place of the frontier. The new American frontier is on the Treasury steps; the new American pioneers are the ham and eggers.

All social philosophies built around escape for persons and personal property have, during the past twenty years, receded further and further into the realm of the impractical. They are now more impractical throughout the world generally than they ever were before in all the two thousand years since the death of Julius Caesar. As late as the period from the nineties to 1914 and from 1919 to 1924, labor displaced in Europe by reason of the adoption of higher tariffs in America could easily migrate to this country to find employment in the booming new industries under tariff protection. Today there is no escape anywhere from the adverse effects of economic nationalism. There is no escape in free trade any more than there is in a flight to Mars, for free trade as we shall see further on is impossible. The plight of the political refugees during the past five years furnishes the most poignant proof of the end of the frontier and with it of all avenues of escape. Russia, the one country still with a frontier and an industrial revolution in progress, has not offered to take the political refugees. Socialism in action, unlike capitalism, is not a formula of individual escape or compatible with the practice of escapism. The Christian religion, which during the Dark Ages could always offer in its far-flung institutional centers sanctuary to fugitives from persecution other than its own, and from the world, is now wholly unable to open its doors anywhere to the political refugees of Europe. It has no temporal power or significant political influence as a social philosophy of other-worldly escape. The world is moving towards national socialisms and regional economies and away from formulas of escape. The one great area, Russia, in which escapism would still be most feasible, is a leader in the new quest after national self-sufficiency and socialist autarchy, or in the escape from escape.

It is in fashion these days to say that the end of the geographical frontier still leaves a limitless frontier of unsatisfied human wants and undiscovered inventions as a perennial source of opportunities and incentives to keep capitalism going. This argument, if it is to be dignified by that name, consists largely of a play on words and a confusion of thought. The frontier of need and discovery, so-called, is purely nominal, or a matter of giving the name of something that was real to something that is nothing but an unreal dream. The refutation of this argument is substantially the same as that made on pages 62-64 of the argument based on the alleged sovereignty of the consumer. If consumer desire instead of producer greed were the dynamic force under capitalism, the argument based on an assumed limitless frontier of needs, discoveries and technological changes would be entirely valid. In the processes of exploiting for private gain a rapidly growing supply of land and people, human needs did happen to get satisfied in increased volume. But this result was purely an incidental and, in no sense a dynamic or causative, factor in these processes. As long as supplies of land, labor and natural resources becoming available for exploitation were rapidly increasing, there was a constant shortage of capital, machinery, housing, transportation facilities and means of subsistence for the workers. This shortage constituted a real industrial frontier. It was a frontier of need, not luxury. Capitalism needs a frontier of scarcity which will keep interest rates high and profit margins wide. It cannot flourish on a frontier of industrial abundance in which interest rates would drop to zero and incentives to private investment would virtually disappear.

The cheerful optimists who talk so glibly about new horizons for capitalism, always fail to mention its most important new frontier of the past twenty or thirty years, namely, that of rising distribution costs. One, of course, understands why business optimists overlook this particular frontier on which capitalism has been expanding so rapidly of late years. This is a type of business expansion business enterprise has relied on to an increasing extent for volume and profits, but it is not a type of growth businessmen or economists care to boast about. This development has really amounted to a growing substitution of luxuries for necessities.

The Twentieth Century Fund published in 1939 an illuminating four hundred page study by a committee of experts entitled “Does Distribution Cost Too Much?” It is hard to escape the conclusion that the answer is “Yes,” though the committee does not definitely formulate it. The facts, however, are impressive. It was found that in 1929 of a total of sixty-six billion dollars paid by ultimate consumers, thirty-nine billion dollars or fifty-nine per cent represented costs of distribution. This percentage has been steadily rising for the past seventy years, the rate of increase being greatest during the past twenty years. Between 1870 and 1930 the number of workers engaged in distribution increased nine times while the number of those engaged in physical production, including, of course, the processes of manufacture, increased only three times.

This increase in distribution costs, of course, is by no means wholly bad from the point of view of welfare—the better the bottling of milk or packaging of bread, the more elaborate the facilities for refrigeration and distribution of fresh fruits and vegetables all winter long, the more facilities through which luxuries can be enjoyed by the masses, the better for general welfare. But while this trend may in large part mean higher living standards, it means disaster for private capitalism and it also means a lack of welfare for the victims of unemployment. The increase in distribution costs is due mainly to two important changes, the first of which has just been alluded to briefly, namely, that of a higher standard of living. The second change is that of increasing competition, as may be seen all over the countryside on sites where, within a stone’s throw of each other, from two to a half dozen filling stations with identical facilities and products and each costing from twenty-five thousand dollars to one hundred thousand dollars to install compete with each other, though any one of the competitors could easily take care of all the business shared by the lot of them. It may also be seen where a half dozen milk wagons cover daily the same territory. Over a billion dollars of unnecessary and surplus filling-station equipment has been installed and is being operated. On the count of competition, increased distribution costs are proving fatal to private capitalism. On the count of increased luxury consumption necessitating more expensive distribution and servicing, the trend is also sure to prove fatal to the profits system, since profits require keeping down wages once a static phase is reached. Our distribution plant and industries are unprofitable as business enterprises except in boom years like 1929 and 1937.

The trouble now is that, in a mature phase of industrialization, the point has been reached where the productive plant of the nation has an output in excess of the subsistence necessities of labor and demands of further profitable industrialization. This, of course, is why good capitalists—practical businessmen and theorists—are ever crying out for a revival of foreign trade and foreign investment. Many naive New Dealers have argued that higher living standards as a result of higher wages and taxes and lower profit margins and interest rates might take the place of foreign loans. The essence of the argument is that American capitalists might as well be mulcted by domestic socialism as by foreign defaults. The argument, however, is unrealistic, like those of all other reformist programs. It assumes that individual conduct is governed by a collective rationality, an obviously absurd assumption, though one of the foundation stones of the ideology of democracy and liberalism. Individuals who bought foreign government bonds to yield from 6 per cent to 8 per cent or who bought domestic equities at forty times their current earnings were acting on the basis of optimism rather than rationality or average experience. If businessmen and investors were to begin weighing contemplated ventures in the scales of experience and logic, capitalism would forthwith cease. The average businessman or the average investor has to believe that he is wiser and abler than the average and that he will achieve better than an average result. The average man who goes into business fails. For the average man to believe that he is abler than the average and will outdo the average in business competition or investment selection is, collectively considered, most irrational. But it is a form of irrationality necessary for private capitalism.

An economy of abundance type of national policy which tried to maintain consumer purchasing power by a combination of government spending, taxation and artificially high wages, with their corollaries of small profits and low interest rates, must, to the extent it is applied, paralyze capitalism. This it must do by reducing hopes and incentives to private investment and enterprise. For purposes of capitalism it is better to mulct capitalists by losses on foreign loans and periodical domestic crashes than to attempt to mulct them by taxation and artificially maintained wage levels. Capitalism does not need the certainty of a small profit for every investor and businessman, but the possibility of a large profit for the lucky ones. Capitalism, to work, must have a basis for big delusions. Ninety per cent of those who go into business for themselves fail within ten years. Over three fourths of the small businessmen, especially storekeepers and service tradesmen, work for practically nothing. They would do better to invest their capital at two per cent in government bonds and go to work for a large corporation for wages as unskilled laborers. Only the capacity of human nature for limitless self-delusion could feed every year thousands of new business adventurers into the game to lose their savings and go broke while they work for nothing. Yet a Fortune poll survey indicates that slightly over half of the American people would like to be in business for themselves. Probably a higher percentage of them like to play games for money. Foreign loans and foreign trade facilitate self-delusion even better than domestic investments and trade ventures. Capitalists can delude themselves with false hopes about the profits of foreign investment and trade more easily than about domestic trade prospects, but they cannot well entertain illusions or false hopes about present taxes. Capitalism needs the incentives of wild hopes, not the certainties of statistics of business failures, science and logic. The frontier of human needs which could be satisfied by planned production is not one on which private profit seeking can possibly flourish. The profit system can flourish only on the illusive hopes of business adventurers. Such hopes, though still widespread and strong, are now inadequate due to the lack of expansion.

To utilize the present potential output of industry, it is necessary to increase mass consumption of luxuries or, of course, to resort to pyramid building or war. War has the advantage of being orthodox while pyramid building or an increase in the consumption of luxuries by labor would clash with the imperatives of the profit system in a highly competitive and nonexpansive phase. To increase mass consumption of luxuries requires a raise either of real wages or taxation on the rich or both. Either means fewer incentives to new investment and enterprise and more unemployment.

Capitalism faces a dilemma it never faced before: it cannot raise living standards without reducing profits and the incentives to new investment and enterprise; at the same time it cannot maintain the necessary market for full production and employment without raising living standards or real wages at the expense of profits.

This dilemma never existed for capitalism as long as it had a frontier, rapid growth, migration and a flourishing industrial revolution in progress. Nor has it arisen overnight. Slowly and imperceptibly it developed during the twenties. Then the saturation point in industrialization and marketing by means of forced expansion of consumer credit was reached. Then the peak of population increase was passed. In that gestative period of the economic crisis of the thirties and war crisis of the forties it became necessary for an ever increasing percentage of total industrial production to be devoted to luxury goods and an ever decreasing percentage to necessity goods. Thus, today, the only way to keep the steel industry busy without war would be to make more workers drive automobiles for pleasure. The only way to solve the farm problem would be to have the working classes consume more luxury foods like meat, fruits, green vegetables and dairy products and to have industry find more luxury uses for agricultural fibers and oils. Such increased consumption, however, could occur only as a result of higher wages and/or higher taxes which, in turn, would mean smaller profit margins, Yet economic experts and practical businessmen keep saying with virtual unanimity and entire correctness that the first essential for a revival of private investment would be a drastic cut in wages and taxes. The dilemma is inescapable.

During the frontier days there was no such dilemma: Business could expand on an ever growing demand for necessities resulting from new territory and new population. Such expansion of the business market did not require a narrowing of profit margins. Today business could expand only on a rise in consumer demand resulting from higher real wages or higher taxes. Expansion so effected could only narrow profit margins, eventually if not immediately, and reduce incentives to new investment and enterprise. Therefore, talk about the frontiers of human needs, science and technological change is largely bunk so far as the dynamic problem of capitalism is concerned.

The extent to which the virtually perpetual frontier land boom of the nineteenth century in this country maintained business prosperity and stability has received little attention from economic historians and writers on the American way. The chief functions of the continuous land boom of the frontier era were to provide a perpetual stimulus to new construction and a sort of never ending partial indemnification for losses on business operations. There were during the nineteenth century many localized booms and depressions and, also, prolonged periods of commodity price decline and what were then called hard times. So far as the comforts of life were concerned, the entire nineteenth century was a period of hard times if comparison is made between living standards then and now. From the end of the Napoleonic Wars in 1815 to the beginning of the Gold Rush in 1849 and from the end of the Civil War in 1865 to the resumption of gold payments in 1879, commodity prices had a downward trend. But during each of these long periods of falling commodity prices, both urban and farm land values generally rose in most sections of the United States, and for the country as a whole. In consequence, practically every small businessman and homeowner who was able to hold on to a piece of real estate through several decades, as many did, thereby accumulated a fortune or a considerable profit entirely on unearned increment in land. Literally thousands of inefficient enterprises were kept in operation for years and some were eventually enabled to recapitalize and reorganize under more efficient management solely with the aid of land-sale profits, which, in many cases, were realized repeatedly during the period. Tens of thousands of incompetent American businessmen died or retired well off in spite of all their mistakes and failures, entirely as a result of having acquired for a song large holdings of land in a fast growing community.

With rising land values, business and investment incentives were never lacking. If one were too poor to buy on Broadway or in Back Bay, one could buy cheap farm acreage only a few miles away, acreage which is now valuable business property. Or if one were then too poor to buy near the growing eastern cities, one could get land for nothing or next to nothing in the faster growing communities and agricultural areas, first of the Midwest and later of the Far West. For the rest, one had only to hang on to grow rich or well off. As late as the twenties, fortunes were quickly made by the lucky, often on a shoestring, in real estate in Florida, Detroit and Los Angeles, to name only three important and well-known real estate boom areas of that period.

The war and postwar boom in real estate, of course, was due to a combination of factors, all of which were necessarily temporary. The most important, perhaps, was war inflation; another was the big wave of immigration, held back for five years by the war, then, rushing in like a flood tide during the five years just after the war, only to be stopped by our restrictive immigration law and policy adopted in 1923. Another constant factor of urban land price inflation during the entire first thirty years of the twentieth century was the rapid rate of industrialization and urbanization which went on during all of that abnormal period.

Professor R. Burr Smith, in an article on “Replanning for Depopulation” appearing in the National Municipal Review, showed that urban population of the United States increased 108.5% or more than doubled between 1900 and 1930. Experts, however, now estimate that in the corresponding thirty-year period from 1950 to 1960 urban population will increase by only 8.4%. And it is by no means certain that the change will not be a net decrease in urban population over this period. During the twenties urban land values rose because there was an annual net drift of 750,000 from country to city. That movement, obviously, could not continue with the chronic unemployment of the thirties.

Actually the birth rate in the cities is so low that only three cities in the country with a population over one hundred thousand have enough births to offset deaths. For most cities, the deficiency is between twenty per cent and thirty per cent of what is required to keep the urban population stationary. This deficiency has to be met by migration from country to city. If the thousands of young couples bravely buying in the city suburbs new homes on the installment plan fully understood the import of current population trends for near-future land values, there would be even less new building than there is at present. It must not be overlooked that going land values, subject now to a growing number of exceptions, still represent a generous discounting of future appreciation. That is to say, the American way in real estate is to pay considerably more for land than it would be worth if population increase and land-price rise were expected to be about to stop. If current population trends were correctly discounted in current land sales in our cities and their suburbs, there would be a catastrophic overnight collapse in real estate values over the entire nation.

During the frontier era, railroad building and technological and industrial change tended everywhere to raise land values, while, in the thirties, the automobile, good highways and technological and industrial change were all tending everywhere either to put a low ceiling on or, actually, to depress urban land values. The explanation is simple, though little recognized as yet by optimistic traditionalists who blindly assume that all improvement in transportation and technology must produce the same blissful consequences these changes wrought during the nineteenth century: the new railway added to land values by the simple mechanics of population growth, while new industries and technique created work and subsistence for more people, thus encouraging further population growth. Today the automobile takes people away from the urban centers by making available for residence limitless adjacent areas. Today land values in any one improved suburban zone cannot rise much above the cost of duplicating its facilities—street paving, water mains, sewers and lights—in any nearby rural acreage. The automobile and good roads make virtually boundless territory available for residence. Industrial and technological change are also favoring decentralization in production and curtailment in the demand for new labor. These trends make for lower land values and thereby reduce one of the chief incentives to private enterprise.

The end of the major incentive to new construction, rising land values, might, in itself, be enough to spell the doom of private capitalism. During the nineteenth century the speculative builder usually counted on a secular upward trend in land values to protect him against loss on any houses he might not be able to sell as soon as built. The same land-boom factor guaranteed mortgage lenders and banks. It enabled mortgage guarantee companies to flourish on the profits of a guarantee which was good as long as it was not needed and worthless as soon as it was needed. All these companies folded up in the last depression. One had advertised truthfully that for fifty years not a cent had been lost by purchasers of its guaranteed mortgages. The same perpetual land boom that enabled hundreds of thousands of somber American bankers to keep straight faces as they talked about sound financial principles and practices enabled almost every buyer of a new house on mortgage to feel confident that a rise in land value over a period of years would more than offset wear, tear and obsolescence, thus netting the buyer a sound profit on his sound equity in sound American real estate. These well-founded expectations of sound profits on our perpetual land boom constituted a perpetual incentive to new building both as a long-term investment and a short-term speculation. In the America of 1938, by no means the bottom of a depression, most sales of improved urban real estate, except new houses, took place at prices below assessed value, where assessments are made on the basis of supposed present worth and below what any court would allow in a condemnation proceeding.

At present new construction has to be artificially stimulated by special government financing under the F.H.A. These arrangements operate in combination with the demand of newly married couples for smaller two-children-maximum homes with the newest equipment and insulation which permit low upkeep costs. The new financing terms of the F.H.A. allow possession on a ten per cent down payment. Installments are often less than rent for comparable housing space. If this type of building goes on and the present downward trend of land values continues, it must happen in a few years that most of the houses now being built and sold on this basis will be thrown back on the government by the thousands by mortgage debtors who will then find it advantageous to give up their equities which will amount to less than the accrued depreciation in value on these properties and to buy or rent similar old houses.

The present home-purchase finance plans of the F.H.A. are all based on the assumption of stable land values and an unduly low allowance for wear, tear and depreciation from obsolescence. A collapse of this mortgage credit structure will most likely be averted through monetary inflation for our next war. But it is significant to point out the following two considerations: First, the government has to induce building by means of financing which is not sound or feasible for private capital; Second, the government has to look to eventual monetary inflation to avert a catastrophic collapse of the real estate credit structure it is now erecting.

The government’s depression agency for succoring distressed home-mortgage debtors, the H.O.L.C., now holds over a hundred thousand foreclosed properties. The banks, insurance companies and real estate credit institutions hold far more distressed real estate which they dare not attempt to liquidate in summary fashion, Notwithstanding the failure of creditors since 1932 to liquidate more than a small part of the foreclosed real estate of the depression, the government is coaxing with unsound loans persons of small means to buy or build new houses. The necessity for such financing to induce new construction and the necessity for eventual inflation to prevent its collapse give further proof of the end of the frontier dynamics.