After that, there ensues a shortage of loanable and investable funds. That, in turn, slowly grinds down land prices and rents. This, I believe, makes sense of George's phrase, that rising rent cannot permanently force interest "below the point at which capital will be devoted to production." It would be clearer had he said at this juncture "below the point at which capital reproduces itself." Shortage of capital, and tightness of loans, finally force down land prices. Labor, meantime, endures a period of acute suffering after job-making investing dwindles down.
A. Property tax assessors should revalue land annually, thus showering cold water on incipient land booms.
B. High property tax rates on land put a cap on land booms. Consider the basic, simplified valuation equation, V = a/(i-g+t), where V is land value, a is current net rent, i is the interest rate, g is the expected growth rate of a, and t is the property tax rate. In the manic phase  of a land boom, as in California up to 1989, g --> i, and nothing holds down V except for t.
Through that mechanism, a high rate of property taxation applied to land (high t) averts negative capital formation.
10. Misallocating capital has much the the same economic effects as lowering the aggregate supply. Whenever capital is drawn into "hard" forms, with slow payout periods, there is the danger of its freezing up in an episodic "glitch," or credit crunch, in which case its value is lost. It becomes unrecoverable, which is the same as consuming or otherwise destroying it. Artificially raising demand for capital, leading it into wasteful, low-productivity uses, has similar effects. Overpricing land leads investors to overallocate capital to substitute for land. This takes several forms. A good single word covering that thought is "MALINVESTMENT", a term used by "Austrian School" economists today. Tragically, those who rally today under the label "Austrian" err seriously by attributing malinvesting solely to central bank policies, sweeping away and ignoring all other factors.
A. Heavy taxation of land, precluding overpricing, should prevent overallocation of capital to land substitution.
11. Taxing anything except land (e.g. retail sales, labor income, value-added) will sterilize marginal lands (and marginal activity on all lands). Thus, non-land taxes abort investment outlets, demand for capital, hence capital formation.
Part 2 of "Land Boom, Capital Stretchout, and Banking Collapse
MALINVESTING CAPITAL DUE TO OVERPRICING LAND
John Stuart Mill long ago pointed out that the level of rents and wages determines the structure and character of capital. High wages evoke labor-saving capital; high rents evoke land-saving capital.
In addition, high land prices induce owners to withdraw equity, and that consumes capital. When assets appreciate, the owners regard that as current income, most of which they will consume. Selling the assets may be part of that process, but the process also occurs silently without a sale: they might just borrow on the assets instead. Even more silently, they let the capital run down without replacement, "eating the seed corn", letting the rise of the underlying land value serve in lieu of a proper CCA (Capital Consumption Allowance).
"Neo-classical" thinking has blinded economists to those simple truths by melding land with capital. This writer has shown in detail how and why and by whom this was done (The Corruption of Economics, 1994), and will not repeat the history here. Our present point is to follow Mill's lead and relate it to the problems of unemployment and boom/bust cycles.
I. Misallocating capital by substituting it for overpriced land.