This morning I read a fascinating article published by OZY about King Henry VIII and how his decision to sever ties with the Catholic Church helped lead to the rise of Capitalism and the Industrial Revolution. Although the article doesn’t explicitly focus on the fundamental differences between leased land and owned land, the author, Simon Constable, clearly has a good grasp of the forces that are in play.
The short story is this. Prior to 1536, the Catholic Church and its monasteries owned nearly 1/3 of the land in England and Wales. When King Henry VIII broke with the Catholic Church, he auctioned off most of the land, an act that created the English gentry, a new class of commercial farmers. These new landowners used their profits to invest in new technologies, which led to more innovation and industry. Here’s an excerpt from the article.
The lands previously owned by the monasteries were run more efficiently by the gentry, who used their profits to invest in new technologies, like textile mills, giving rise to more innovation and industry.
This boost in innovation didn’t happen overnight, but we know that when land is owned, rather than leased, owners have significantly more financial incentive to make improvements, since they get to keep the value of the improvements.
In this instance, initial improvements could have been as simple as adding fences or water mills, explains Wright — relatively modest investments that would instantly add value to the land and make it more financially productive. And while Henry’s purpose in selling the land to the highest bidder was to swell the crown’s coffers, the move also motivated the new owners to use their acreages in ways that justified paying top dollar. Moreover, the NBER researchers pointed to the expanding middle and lower gentry during that period, explaining that these were educated people with access to the latest commercial practices. They also noted that certain of the monastic orders were models of inefficiency, providing their former tenant farmers with the incentive to buy the land and work it more productively.
In Rankin County, Mississippi, every sixteenth section of land is owned by the state of Mississippi for the benefit of the school system in the respective counties. Having appraised numerous properties that are on leased land, I can attest to the fact that leased lands and the improvements thereupon, generally speaking, tend to be inferior to, and less desirable than, owned land with otherwise similar characteristics.
Here’s a link to the full article. It’s a quick read and well worth your time.
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