Originally the government permitted each to enjoy the natural advance in the value of his holdings—the unearned increment. In recent years it has discriminated and in certain classes of investments has sought to limit rewards to the equivalent of reasonable interest rates.

The first piece of land I ever owned was a half interest in one hundred and sixty acres. My law partner and I got four hundred and eighty dollars together and we bought one hundred and sixty acres at three dollars per acre. We put part of it under plow, rented it and within a few years, sold it. That land is no more productive today than when we sold it, but the rascal who owns it has watered the capitalization until when I buy a pound of butter or a dozen eggs I am helping to pay him a dividend on two hundred and fifty dollars per acre. We watered it a little, ourselves. We sold it, I remember, for twelve dollars and fifty cents an acre. That was the first dollar I had ever received that I had not earned in the hardest way. It was the first dollar of unearned increment that ever came my way. It was the first water, so to speak, I had ever tasted. I liked it.

I remember when John Trumm purchased that land of us. If he had said to me: “The country is new, population sparse, commerce limited; if these conditions change and the land advances in value, to whom will belong the unearned increment?” Very promptly I should have told him it would belong to him. There was not only a competency but a speculation in the purchase of that land.

But suppose he had said to me: “If I do not buy this land, I shall put my money into the Chicago, Milwaukee & St. Paul Railroad that is now building through the county. The country is new, the population sparse and commerce limited. If these conditions change and the railroad advances in value, to whom will belong the unearned increment?” In my innocence, I should have told him it would belong to him. I might have warned him that if it resulted like the first three attempts to build a railroad across Iowa, he would lose every dollar he invested, but if the time had then arrived, and if the road was built economically and operated efficiently, and did prove a success, it doubtless would advance in value and the unearned increment would belong to those who had shown great vision, taken great risk and exercised great skill.

I recall a man who purchased in an early day large bodies of Iowa land at from three to five dollars per acre. His rentals must have equalled twenty percent per annum on his investment. Then he watered the capitalization and sold these lands at seventy-five dollars per acre. They are now worth over two hundred dollars per acre. But, even at seventy-five dollars, they made him a millionaire, financially. Then he assailed the railroads for watering their capitalization, though money invested in a railroad never yielded a quarter as large returns as his land investments netted. His opposition to railroads, however, made him a millionaire, politically.

Some years ago a man asked me to join him and some friends in promoting a railroad to the coal fields of Alaska. I asked him who owned the coal and was told that anyone could have all he cared to buy at a nominal price. I called attention to a statute that forbade the same men owning both the railroad and the coal. Then I proposed that I take the coal and let him and his friends build the railroad. If they succeeded, I would then go to the Interstate Commerce Commission and get a rate that would give them six percent on their investment and I would take all the profit. I reminded him that the public thought six percent was enough for money invested in railroads. The road has never been built.

I met a friend not long ago who, in explaining that the world had been good to him, told me that some years before he had bought a large body of badly located but excellent timber back in the mountains of Washington, at fifteen cents per thousand on the stump. Then a railroad was built up to his holdings. That was some years ago and during the period of national development. When the road was completed, he went to the Interstate Commerce Commission and got a rate so that he was then selling his timber, which cost him fifteen cents per thousand, for five dollars per thousand, while those who builded the road are presumably getting six or eight percent on their investment and will until the timber is exhausted, when their road will be worthless. My friend is not a reactionary but is far-sighted. I think he said he studied finance from the standpoint of a farmer.

A few years ago, at a Chamber of Commerce dinner in New York, Myron K. Jessup asked me if I knew that he was once president of a railroad in Iowa. The road extended from Dubuque to Farley. I asked him if he remembered when an engineer by the name of Smith made a preliminary survey from Farley to Sioux City, and reported that there was nothing west of Iowa Falls worth building a railroad into. “Remember it!” said he. “He made that report to me.”

Think of it. A man living and in good health in 1906 who was old enough to be the president of a railroad at a time when two-thirds of the north half of Iowa was considered not worth developing. Ultimately the road was constructed and I happened to be at Storm Lake when the last spike was driven connecting the two ends of the road. This was in 1870. That whole stretch of country could have been bought at that time at an average of less than five dollars per acre. I remember riding forty miles without seeing a house. The lands I saw that day could not have been sold for two dollars and are now worth two hundred dollars per acre.

These lands were worthless without the railroad and the railroad relatively worthless without the lands. The lands, exclusive of improvements, have paid in rentals more than twenty percent on their cost and their present value is ninety-nine-one-hundredths water. No money invested in railroads or any other industry ever yielded returns comparable with that.

The wealth of the United States, estimated at two hundred and fifty billion dollars, is probably ninety percent water. Farm lands, timber lands, mineral lands, oil lands, town lots, originally cost very little. Deducting improvements, interest and taxes from rents and returns already received, plus the market value, and the difference is the unearned increment or the water that has been added to the original capitalization.

Suppose, if you please, we are just opening a new country. What policy would you recommend? Would you expect each one to attempt everything? Or would you encourage a division of labor and enterprise? I fancy we would follow the policy the Fathers adopted. We would encourage the improvements of lands, the construction of transportation facilities, the building of mills and factories, of stores and banks, the opening of mines and the development of water power, and then we would tacitly agree that whoever contributed in any manner to the common good should share equitably in the resultant unearned increment.