The real trouble must be that supply is somehow prevented from satisfying demand, that somewhere there is an obstacle which prevents labor from producing the things that laborers want. (V.125)
By Greg Moses
If you’ve been watching CNBC as much as I have lately, you’ve heard plenty of talk about the battle of economic paradigms between Karl Marx and Adam Smith. But a mailing from the Robert Schalkenbach Foundation that I’m unwrapping this Christmas Day reminds me that there is a third great alternative in Henry George.
George is interesting because he offers a homegrown American voice schooled upon the experience of the labor cycle in the young metropolis of San Francisco.
“Within a few miles of San Francisco is unused land enough to give employment to every man who wants it,” observed George from up close. “I do not mean to say that every unemployed man could turn farmer or build himself a house, if he had the land; but that enough could and would do so to give employment to the rest. What is it, then, that prevents labor from employing itself on this land? Simply, that it has been monopolized and is held at speculative prices, based not upon present value, but upon the added value that will come with the future growth of population.” (V.I.31)
But the privately-held lands of young San Francisco contradicted the more spontaneous declaration of land use that had made the founding of the metropolis possible.
Upon discovery that there was gold in them thar hills, says George, “it was by common consent declared that this gold-bearing land should remain common property, of which no one might take more than he could reasonably use, or hold for a longer time than he continued to use it. This perception of natural justice was acquiesced in by the General Government and the courts . . . .” (VII.V.3)
The 1949 gold rush produced a remarkable spontaneous disclosure of what counts for justice in land-labor relations. Henry George generalized the lesson into “the true remedy” of economic turmoil: “We must make land common property.” (VI.II.3)
On this view the most progressive kind of taxation is land taxation, because it encourages owners of land to either use it or sell it to someone who can use it. Land in use is land that wants labor; therefore land taxes are most likely to produce economic landscapes of labor in demand.
According to the Schalkenbach Foundation, the ideas of Henry George nurtured powerful progressive movements in the United States until World War I. After the war, Georgism was lumped together with Socialism and Communism as a target of red-scare repression.
The surprising thing is, if you are living the life of Texas politics, there is something Georgist that lives down in the bone. In the Texas body politic there is a deep aversion to income taxes, which makes property taxes important to the basis of the Texas common good. Texas has been bragging about its ability to maintain a more productive economy. Could the property tax bias have something to do with this?
In the recent pamphlet by the Schalkenbach Foundation, we are treated to one reason why the “property-tax rollback” movement should be considered retrograde. When the tax burden shifts from taxes on property to taxes on income and sales, then incentives can shift further in the direction of land monopolization, which means more unused land in the hands of hoarding elites, which means degrading demand for labor.
“Generations of propaganda have convinced even good liberals that property taxes fall squarely on the poor — to the mega-million dollar benefit of corporations like Standard Oil of California, the largest beneficiary of Proposition 13’s 1979 property tax rollback and freeze,” writes M. Mason Gaffney in a 1997 article reprinted for the recent catalogue. “The federal income tax, which once targeted unearned income from land, now devolves steadily into a payroll tax” (see pamphlet on “Economic Justice and Tax Reform Complete Catalogue 2008-2009,” p. 5).
Our interest in these issues was piqued when supply-side economist Arthur Laffer and associates began evaluating Texas, Oklahoma, and California state economies for their alleged friendliness to business. In the Oklahoma report, especially, the Laffer group displays their exuberant ideological bias against property taxation as they recount the good ole days of California’s Prop. 13, the movement that best defines the motivations of the Reagan era.
One thing that is more satisfying about Henry George compared to Laffer is George’s interest in labor demand. Of course Laffer cannot ignore labor demand, since business has to have labor. But Laffer appears not to consider any differential effects that different kinds of taxes might produce within a business environment. In fact, the Laffer reports may have the effect in Texas of encouraging policy makers to cut property taxes.
With respect to the relation between capital and labor, George argued that they are not natural enemies (VIII.II.19). If all taxes could displace land rent, then capital and wages alike would be set free from taxation. This is the part that Laffer takes for the whole.
What Laffer seems not to admit is that somewhere a public in fact exists as public. For George the public is disclosed in the social value of land. Therefore, to take back the value of land rent in the form of taxation is merely to balance the public account and return to the common treasury what only common effort can produce.
Thumping at the heart of George’s conception of justice is a theory about what makes human progress possible — “association in equality” (X.III.11). Which is one reason why civil rights becomes a condition of any progressive view of prosperity. While some voices will continue to complain that equality has too much of a leveling effect, George warns that inequality is what levels entire civilizations:
What has destroyed every previous civilization has been the tendency to the unequal distribution of wealth and power. This same tendency, operating with increasing force, is observable in our civilization to-day, showing itself in every progressive community, and with greater intensity the more progressive the community. Wages and interest tend constantly to fall, rent to rise, the rich to become very much richer, the poor to become more helpless and hopeless, and the middle class to be swept away. (X.IV.7)
We’ll keep an eye out for studies that test George’s theories in the world today. As the world re-thinks all kinds of economic assumptions from the valley of the latest economic bust, perhaps the Georgist theory of property taxation should be something we call to mind. Meanwhile, we’re happy to have a kind of Christmas gift in the form of newly wrapped ideas from that old American genius, Henry George.
See especially the Chapter on “Rent and the Law of Rent“
Larry Elliott asks for “the Keynes for our time” (22 December) and says that there sadly isn’t one. I disagree. It’s more a case that we need the Henry George of our time, and there are several that are ready and waiting. The fundamental issue behind our economic woes is our failure to tackle poverty. For Keynes, this is a problem delegated to full employment and the trickle-down effect, thus requiring the modern religion of GDP growth. Back in 1879, Henry George wrote Progress and Poverty, a bestselling book that
almost prophetic in explaining our current crisis. George explains why McJobs are on the increase; why house prices bubble; and why so many people are living on the breadline. He also proposed solutions, some of which almost got implemented in the 1909 People’s Budget – blocked by the Lords, which had a lot to lose.
I’ll offer three candidates for economic guidance: James Robertson, Vince Cable and Dr Adrian Wrigley.
When Larry Elliott, Caroline Lucas and team were putting together the Green New Deal, they would have done well to look back to James Robertson’s 1994 New Economics Foundation publication, Benefits and Taxes. Vince Cable is an obvious choice, not only for his grasp of the problems, but also for his ability to get others to open their eyes too. In particular, I include him for his leadership in advocating counter-cyclic fiscal measures, such as land value taxes. Adrian Wrigley of the Systemic Fiscal Reform Group has picked up Robertson’s 1994 work and got stuck into the task of how to implement this. I’ve not yet seen anything to match his proposals for unwinding the mess in a way that helps all and prevents a re-occurrence down the line.
Cllr Neale Upstone
Lib Dem, Cambridge
Progress and Poverty by Henry George (Cosimo, $15). Once a famous book by a famous author, now almost forgotten. George was a self-trained economist of the late 19th century. In Progress and Poverty, he explains to his own satisfaction–and pretty much to mine–how all the world’s evils are attributable to real estate. He overstates his case, but he does so with wit and excess that make the book fun to read. And it leaves you thinking . . .
Keynes admired the theories of his predecessor Silvio Gesell (Will Keynes save the world again, December 8). But he could not understand why Gesell devoted half of his theory to land values. “The part which derives from Henry George … is of altogether less interest” (The General Theory of Employment, Interest and Money).
In fact, George would have taxed land to stop land banking and property bubbles; Gesell would have taxed money to stop people hanging on to it. Both these anti-hoarding proposals are arguably more appropriate to the present situation than those of Keynes, praised by Larry Elliott, since he made the basic blunder of proposing to increase the money supply without stopping much of it going into land and property.
As explained by the economist Henry George in his book Progress and Poverty, the margin of production moves out farther and faster to less productive land when people can hold land even if they don’t use it. Those who want to use land must then push the margin to less productive land, which lowers the wage and increases the rent. After paying for labor and capital goods, what is left is land rent. As the margin of production moves to ever less productive land, wages fall and rent rises.
We can raise wages and reduce rent by avoiding the under-use of land, moving the workers back to more productive land. Land is used most productively when the rent is collected for public revenue or for distribution among the residents. Land is then not worth holding unless one uses it in its most productive use, since the rent paid to the community is based on the highest and best use of the land.
This would involve a tax shift, in which taxes that come from wages are replaced by public revenue from land rent, or from voluntary payments by folks who receive an equal share of the rent. Workers would get a double gain: higher wages from putting land to its most productive use, and the gain from keeping one’s full wage.
A complete efficiency tax shift would also eliminate taxes on interest, business profits, dividends, and value added. The increase in investment would make the economy grow faster, raising the wage level until poverty is extinguished.
The reason why poverty does not disappear today is that much of the gain from an economic expansion ends up increasing land rent rather than wages. If the rent is used for common benefits or distributed equally, then the public would benefit from both higher wages and a share of the greater rent. The elimination of wage taxes would also stimulate investment in human capital, since the reward would be higher. There would be more self-employment and more entrepreneurship.
The collection of the land rent would also eliminate economic depressions. The capture of economic expansion gains by land rent and land value spurs land speculation that carries the price of land so high it is no longer affordable. Investment slows down, causing a recession. This is what we witnessed during the past few years. The abolition of depressions would eliminate the cyclical poverty of hard times in depressed economies.