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August 1st, 2011 by Edward Miller

House of Cards | Esther Gibbons
House of Cards | Esther Gibbons
The world is a complex place, or so we are told here in the USA.

The pundits and journalists will tell you that there are no simple remedies to our problems, with an air of authority reserved only for those serious few with the courage to offer up this sober dose of “reality.” Besides, even if there were a simple solution, we can’t agree on the most basic of things anyways, since we are so “polarized,” or so the narrative goes.

So instead of actually solving problems, the best we can hope for is a series of convoluted band-aid solutions to fix whatever crisis is at hand.

Is unemployment soaring? Let’s produce a pathetic stimulus package that mixes the worst of both Keynesian and supply-side ideology.

Plagued by deficits? Let’s spend all our political energies on bickering about whether the top tax bracket should be 35% or 39.6%.

Of course we mustn’t forget to provide generous amounts of corporatism to the already-privileged.

So if the climate is in crisis, let’s give tradable pollution licenses based on how much one has been polluting historically, and give it a cute name like Cap and Trade.

And if prices in our cartelized healthcare sector are skyrocketing, just force everyone to buy private health insurance and label that “progressive.”

Everyone seems to agree there is something seriously wrong with the modern American political discourse. Some blame the Left, some blame the Right, and a fair number are now blaming the Center. There is plenty of blame to go around, and I would contend that we have a failure of critical thinking on the part of our intellectuals of all stripes.

It is undoubtedly the case that our establishment intellectuals are not chosen on the basis of their merit, but mostly on their compatibility with the interests of the privileged classes. Yet, I’m not just blaming the establishment figures; I’m blaming all politically-minded citizens who buy into their oh-so serious arguments and false political divisions.

What if I told you there was a solution which transcends political divisions? Which is consistent with the ideals of our Founding Fathers? Which can be implemented anywhere on the local, state, or federal level? Which can increase our overall prosperity, reduce inequality, promote peace, and improve the environment all at the same time? Which can do all this without any major restructuring of our institutions?

Assuming such a remedy even exists, surely it would be controversial, right? Something which all the various political ideologies could never agree on? Well the remedy does exist, and it has been supported by principled people of nearly every political persuasion, including some of the greatest minds in history.

The answer has nothing to do with techno-utopianism, monetary reform, deficit spending, austerity, or any of the other ideological cul-de-sacs commonly promoted.

Remedy you say? That’s preposterous!

It goes by the unassuming moniker of the Land Value Tax (LVT), which was most famously promoted by the American political economist Henry George. It is based on the notion that people ought to own what they produce, but since land is not a fruit of labor, private land ownership has no basis in natural rights and is thus the ideal source of government revenue. The Land Value Tax preserves the land title system, but simply makes it expensive to hoard land in unproductive ways.

Unlike common property taxes, the LVT does not count improvements to the land, such as buildings. Buildings are man-made, but land isn’t. When you tax buildings, you discourage people from building. Yet, when you tax land, the amount of land doesn’t decrease. The supply is fixed.

The Land Value Tax is an idea that has united in support people who would generally be considered political rivals: William F Buckley and Ralph Nader, Joseph Stiglitz and Milton Friedman, Aldous Huxley and Henry Ford, Clarence Darrow and William Jennings Bryan, Winston Churchill and David Lloyd George, the list goes on.

By untaxing labor and shifting as much taxation as possible onto land values, we enhance the incentives for production as desired by fiscal conservatives. Yet, it provides a huge source of natural and community-generated wealth to tap into, which is the ideal funding mechanism for virtually any infrastructure project or social program desired by those on the Left.

Those of a more “geo-libertarian” bent would prefer that revenue be distributed as a Citizen’s Dividend, rather than used to fund bureaucracy. Yet, if the funding of bureaucracy is to come from somewhere, they would strongly prefer it come from land values. Milton Friedman called it the “least bad tax” for this reason, but really it is far more profound than that.

The LVT strikes at the heart of the land monopoly. In a powerful speech, Winston Churchill said, “Land monopoly is not the only monopoly, but it is by far the greatest of monopolies — it is a perpetual monopoly, and it is the mother of all other forms of monopoly.” It is the essence of feudalism and for all of our supposed social progress we’ve yet to be free from it. Unless and until the land monopoly is destroyed, the positive effects of virtually all economic reforms are largely nullified.

Monopoly in the Park | Anna Fox
Monopoly in the Park | Anna Fox
Profits that are not a return to labor or capital are called economic rents, and are usually unearned incomes attributable to restricted access rights. One of the primary sources of rent is monopolization, and one of the greatest tools for achieving monopolization is actually government intervention on behalf of the monopolists. Historically, every major monopoly has been the beneficiary of enormous state-granted privilege. Whether it’s AT&T, Microsoft, or Standard Oil, the root of their power can invariably be traced to particular political privileges.

Taxing such privilege causes no disincentive for production because rents have nothing to do with production, they are a result of imbalances in power and imperfections in the market. Land, and the fruits of nature generally, are necessary for all production and even life itself. Therefore, when access to it is concentrated into the hands of a few, the rest have essentially no bargaining power.

Who Owns the Earth?

Photo by Kurt Elmelund
Photo by Kurt Elmelund
If all land on Earth is owned by a subset of the population, then the landless attain a status akin to that of trespassers on the Earth. If – as our moral instincts inform us – we all have a birthright to access the Earth, then this realization must be reflected in our political institutions. A Land Value Tax system recognizes that land titles are a practical way of allocating land use rights, but that the proceeds from such monopolization over locations on the Earth must be returned to their rightful owners, the community as a whole.

Really it isn’t a tax at all, in the usual sense of confiscating that which one produces. On the contrary, by allowing eternal sovereignties over our common inheritance without any repayment to society, one has essentially granted a subsidy to the landlords. Whenever anyone in the community does anything to improve the region, the land values rise. This occurs no matter what the intentions were. If a do-gooder builds a community center in an impoverished area, the land values and rents increase. Instead of helping the poor tenants in the region, the do-gooder may have just helped them right out of a home. Whilst the landlord could have been sleeping through the whole thing, and in the end see his land values rise.

Invent something to improve harvests? Excellent, more rent for the landlords and the exact same wages for labor. The same story could be said of welfare programs, basic income guarantees, and the like. If activists fight hard and turn the region into a bastion of civil liberty which attracts people from all around, it doesn’t matter if the landlords were sleeping or actively opposing the activists, they will see their land values rise, and the tenants will see their rents go up. The same is true again of government infrastructure projects, and anything else which makes a region attractive.

Back when I was a run-of-the-mill progressive, I would often echo progressive sentiments about how awful it is that people are forced into dangerous and low-wage jobs. This would provoke respectful but spirited debates with those who call themselves “libertarians.” They would say that nobody is forcing them to work. They were voluntarily agreeing to work.

Such debates were common around the Enlightenment. Thomas Malthus reacted to the Enlightenment notions about freedom leading to a golden age of prosperity. He claimed that natural resource scarcities and breeding patterns inevitably cause markets to reduce wages down to subsistence. He called this the Iron Law of Wages. He was certainly correct that something about the market system of his day (and our day), tends to drive wages down to a bare minimum. Yet, his emphasis on natural scarcities and overpopulation was unfounded.

David Ricardo responded forcefully to Malthus, and argued that actually the trends being witnessed were the result of what became known as the Law of Rent. Ricardo’s analysis of rent proved that once all freely available land is claimed, then as production increases, rent will eat up virtually all of the increase in production. This explains why all of the amazing technological improvements of the day were doing nothing to improve the conditions for the large masses of landless paupers.

This is why technology alone can’t save us; we need systemic reform. If you’re aware of the problems in the biotech industry regarding the patenting of life, you should recognize that is very much like another form of land monopoly, as it creates private sovereignties over the fruits of nature which should belong to all. Yet, biotech also increases the rent of real estate simply by improving crop yields or indeed whenever it does anything of value at all.

Same with any other advanced technology. We can’t rely on the super-rich to build us all nano-fabricated housing projects out of the goodness of their hearts, we need to reign in the privilege bestowed by the state upon private entities. I’m confident that the day they figure out how to upload minds into computers, they’ll still find a way to make you pay rent.

Ideology doesn’t matter, we’re in this together

While not everyone bases their political views on principles, I am confident that most do. In the case of LVT, it isn’t Right vs Left, but the principled vs the corrupt. Any serious political view, short of misanthropy, has every reason to support it.

– If you are an environmentalist, you should support Land Value Taxation in order to spark more efficient use of land. We’d still require all the usual mechanisms to internalize externalities, but the LVT alone would encourage all the more sensible agricultural practices promoted by environmentalists, such as permaculture and vertical farming. Industrial monoculture and factory farming is highly land-intensive. If holding land becomes expensive, then the markets would more accurately reflect the social costs of such massive landholding.

– If you are a humanitarian, you should support Land Value Taxation primarily because until the land monopoly has been defeated, no amount of philanthropy can possibly stop the trend of wages tending towards subsistence.

– If you are a serious technocrat, you should support LVT in order to reduce unemployment, increase wages, and promote peace. On a local scale there is evidence of all of this, including reduced crime rates. I have no doubt that if countries follow this model, we will see many former enemies become prosperous interdependent trading partners.

– If you believe in natural rights, you should support Land Value Taxation in order to end the confiscation of honest income and interest, and return that which belongs in the commons. The concept of the LVT really has its roots in the writings of people like Adam Smith, Thomas Paine, and others who passionately believed that labor is the sovereign property of the individual, but that the Earth is our common inheritance.

“Men did not make the earth… it is the value of the improvement only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds.” – Thomas Paine

Especially you, Progressives

It hardly seems possible that a concept which was supported by many of the original free market capitalist ideologues could be a progressive one. Yet, if you are a progressive, you absolutely should support Land Value Taxation, not as a small footnote of a larger platform, but as a central tenet.

The ideas of Henry George and the Single Tax Movement were one of the original inspirations of the Progressive Movement in the early 20th Century. Progressives like John Dewey were awestruck by the power of the arguments of Henry George in his masterpiece Progress and Poverty.

Of Henry George, Dewey wrote, “No man, no graduate of a higher educational institution, has a right to regard himself as an educated man in social thought unless he has some first-hand acquaintance with the theoretical contribution of this great American thinker.” To this day, some of the most principled progressives like Dennis Kucinich and Ralph Nader have drawn inspiration from him.

When you look at any vast fortune, you will virtually always find the heavy hand of government as part of the essential underpinning. Whether it is through regulatory capture, patents, state-sponsored licensing cartels, corporate personhood, or any other sort of government-granted privilege. Yet, as long as the mother of all monopolies remains, it would make no difference how many of those other privileges were struck down. The land monopoly would absorb all of the difference that the elimination of privilege might otherwise have made.

It is true that even under our land monopoly there are a small subset of progressive reforms that improve conditions of the lower classes, though often in an imprecise or inefficient manner. Yet, the only way one can even know what those are is though an understanding of the land monopoly. The reforms I am speaking of are very much like the previously mentioned artificial scarcities which favor big business. I am speaking of artificial labor scarcities.

The Fair Labor Standards Act of 1938 is a perfect example of this. By banning child labor and establishing the Eight Hour Day via overtime legislation, the FLSA restricted the supply of labor, increased leisure, and reduced the number of unemployed. Most think of it as the law which established the first federal minimum wage, but actually that was more like an afterthought meant to encourage automation in light of the artificial labor scarcity. The post-war economic boom and creation of the middle class was a result of such labor scarcities.

Unfortunately it is difficult to enforce overtime laws, and nowadays businesses have become so proficient at evading this regulation that it is practically non-existent for most. As with the income tax, overtime laws are not that difficult for people to evade. Even if it were a good idea, the government simply can’t be very efficient at sticking its nose into every business deal.

Land, however, cannot be hidden. It would therefore be much harder for individuals to evade. Thus, compared to many other economic reforms, it is fair, efficient, and straightforward. Our current system of real estate assessment would not even need to change drastically, and it could obsolete certain agencies like the IRS.

Income taxes cannot be truly progressive, by their nature, no matter what sorts of brackets are in place. Taxing income does not change the fundamental market power of individuals, and as such the burden of taxes are just passed around until the income distribution reflects market power. Again, it wasn’t income taxes that created the modicum of equality after WW2, it was merely labor scarcities, and those can only do so much.

Additionally, we are suffering under the volatility of speculative land bubbles, like the recent mortgage crisis, which are a byproduct of the land monopoly. Land is necessary for all economic activity, and when land is inflated in price, everything else tends to become inflated as well. Yet, it is still shocking how much of the bubble was directly tied to land.

When diagnosing the crisis, people like to point to all sorts of things such as derivatives, credit default swaps, collateralized mortgage obligations, and so on, yet they ignore that a huge portion off stuff was based on mortgages, i.e. the ability to speculate on land. The LVT would change all that in a truly progressive manner, and end the volatile land bubbles. It would reshuffle market power in favor of productive activity and away from unproductive hoarding of land. Most importantly, it would allow us to actually benefit from other sorts of reforms, and as such must be the top priority. Until then we’re merely reshuffling deckchairs on the Titanic.

Bring on The Remedy

Image by Nick Kenrick
Image by Nick Kenrick
There is hope. The hope lies not in austerity, monetary policy, deficit spending, or even technology. That last one was a hard pill I had to swallow, but the sooner we all accept that the better.

The beauty of this simple reform is almost surreal. It solves so much, yet asks so little. Instead of increasing bureaucracy, it would reduce it. Instead of weakening incentives for production, it would actually create them. Instead of encouraging waste and urban sprawl, it would promote efficient use of land.

The LVT has been experimented with in many times and places, and it has always succeeded to the extent that it was tried. It holds the potential for uniting principled minds of every persuasion, if only we can break free of the ignorance espoused by the talking heads who tell us that the only remedies available are painful and complex.

Let’s show those bastards that they’re wrong. A better way is possible, and through it we can finally reach that golden age we’re always dreaming of.

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21 Responses to “The Only Economic Reform Worth Talking About”

  1. wanna work together? where are you?

  2. I’ll be at the conference. I’m sure I’ll see you there 🙂

  3. […] Excerpted from Edward Miller: […]

  4. Congratulations on a very clear exposition of the essence of Henry George’s reform. Have you come across ‘The President’ ‘the novel by John Stewart which in fiction form suggests how Henry George’s ideas come into the mainstream during a presidential election year? Here’s a link to our website where you can read the first chapter by clicking on the icon below the book cover. http://www.ethicaleconomics.org.uk/2010/03/the-president/
    Would you be willing to review it if I sent you a copy?

    Regards

    Anthony Werner
    Shepheard-Walwyn Publishers
    London

  5. Great article. I completely agree that LVT is necessary.

    Once a post-scarcity economy takes hold, it will take on even more importance as it’s possible land could become one of the only remaining scarce goods. The question is how far you want to take it? Do you think it’s desirable for land to be divided equally amongst everyone? Another point to consider is that once automation replaces all jobs, there may no way for anyone to improve their situation unless they were lucky enough to own land.

  6. Sarah,

    My personal view is that all revenue from Land Value Taxation above that which is necessary for government expenditures be used for a Citizen’s Dividend which is distributed equally to all citizens. This would provide the voters with a strong incentive for small and efficient governance, and enhance civic-mindedness and a feeling among people that they are invested in society in an almost literal sense.

  7. Edward,
    How much revenue do you expect the LVT to raise since it is conceivable that this could be many citizens’ only income? Also, do you think the LVT should be the *only* tax or just an additional one?

  8. Estimates for the amount which could be raised are found here:

    http://progress.org/geonomy/Files/EEAPhl10_1.doc

    At that link it quotes the Federal Reserve:

    “The Board of Governors of the Federal Reserve System Finance and Economics Discussion Series published “The Price and Quantity of Residential Land in the United States” 2004-37 by Davis, Morris A., and Jonathan Heathcote, later republished 2007 in the Journal of Monetary Economics 54, no. 8 (November): 2595-620. The earlier version concluded that residential land amassed a value (a stock) equal to the GDP (a flow) as of 2003 Q3 and that housing investment leads the price of residential land by three quarters. The 2007 version estimated the value of residences to be $24.1 trillion, or 1.43 times greater than the stock market. Using the building-replacement scheme, they still conclude land equals 46% of total property value. They also estimated farmland at a bit under one fifth of home sites.”

    The annual rental value is different than the selling price, obviously, but that document does show beyond a shadow of a doubt that the rental value can fund government.

    By the way, that figure from the article (46% of 24.1 Trillion) is just the residential land value alone, not to mention all the other commercial, industrial, agricultural, and mining lands. The taxable rental value of the site should include all of the associated value. If mineral rights or airspace rights are included in that value, then that is to be taxed. If someone else has bought those rights, and broken up the various rights of the site to various owners, then they are all to be taxed. So we must remember that we are talking about the full value of all land and all natural resources within the nation, which is an astronomical sum.

    Yet, we must remember that even in the case of oil drilling, the value added by extraction and refining is not taxable. Only the unimproved value is taxable. We can also consider the electromagnetic spectrum to be a “fruit of nature,” and thus the companies which have legal monopolies over certain frequencies ought to be taxed annually on the rental value of the frequency.

    However there is one other source of revenue, besides taxes on rent, which is also worth considering. That would be “pigovian taxes.” It is important to internalize all negative externalities, for polluters and the like. Though this should really be seen as restitution, not as a source of revenue. That value should primarily be used for restitution or clean-up purposes.

    A general slogan for this sort of mentality is “tax bads, not goods.” Or the “green tax shift.” All of these reforms would dramatically improve the efficiency with which we manage our environment, but do so in a fair and equitable manner. Though only LVT hits at the root cause of poverty, and yet it is virtually unknown. Taxing pollution, on the other hand, is a well-known concept, and while it is nice and all, it cannot hope to end poverty or correct the injustices which stem from what Fred Harrison calls the “predator culture” who seek to gain by extracting the value generated by others. As long as our corrupt system of land tenure remains in place, no reforms of corruption in other spheres of life can reduce the amount which is being extracted; it can only shift it around.

  9. […] and Smith most of the times. Its defensor argue that LVT is mostly a matter of justice and, as Edward Miller (click to read his well received article on the subject) wrote me in a short and very introductory […]

  10. Thanks for this. I’m converted.

  11. Extending this concept further, would you support taxing all unearned income at 100%? It seems more in keeping with a meritocracy.

  12. What do you mean by unearned?

    I believe that virtually all methods by which economic rent is extracted from the community must be fought against, since they are at best imperfections in the market and, at worst, forms of thievery; however, standing above them all is the “robber who takes all that is left.”

    Some of the forms of thievery may be best dealt with via cracking down on them entirely, such as corporatism. Some are best dealt with via taxation, such as with Land Value Taxation and Pigovian Taxes.

    There are a lot of forms of “regulatory capture” by which banks, insurance companies, and many other industries extract monopoly rents. Thus, the rates you pay to these institutions are inflated well beyond what their cost ought to be in a functioning market. Many people want to include interest itself under the category of “unearned” but this is a fallacy. Loans are a real service, and ideally we should not interfere with voluntary agreements among two parties relating to the fruits of their own labor or previous voluntary transactions. Pragmatically speaking, interference is only called for when there are third parties who are harmed, such as in the case of negative externalities.

    There is a problem regarding all the existing wealth which has already been amassed by way of violence, theft, and fraud. However, dealing with that fact appropriately is outside the scope of this post, though there are many thinkers who have dealt with that subject. I will say that at least under a privilege-free LVT system, wages will rise quickly, and the rich would not be able to get richer fraudulently.

  13. I know you’re interested in post-scarcity scenarios but if automation ever does lead to massive unemployment, it will create a massive chasm between rich and poor. What effect, if any, would LVT have on mitigating this risk?

  14. I disagree with the premise that automation creates unemployment. Just because robots exist, that doesn’t mean shovels have been outlawed.

    To paraphrase Henry George, if you take any of the great masses of unemployed, and put them on an island, with their two hands they could provide food for their families, yet where productive power is the highest they cannot. What else can explain the involuntary idleness of workers, except that someone is denying them access to land.

    Automation can indirectly increase inequality under our feudalistic system of land tenure, but that is true of absolutely anything which helps people and raises productivity. It all increases the rent of land.

  15. I’m afraid I made a poor choice of words. I didn’t mean automation in the ordinary sense but that if ever an artificial human-level intelligence was created then it could displace ALL jobs since ultimately they all rely on using our intelligence. Just wondered if you had any thoughts on this scenario?

  16. Sorry for the delay in responding. It is true that with Artificial General Intelligence some sort of “fast takeoff” scenario could displace all human labor, but it is just as likely to do that via tiling the universe with paperclips as turning the world into one big disney land for humans.

    There is very little that can be said about AGI, however, I would speculate that whatever exponential trends occur during a period of recursive self-improvement would be counterbalanced by other factors like the law of diminishing marginal returns. Furthermore, if a fast takeoff is indeed unlikely, then I would speculate that a slow takeoff would see humans far more involved in the world. Given the law of comparative advantage, even if the AGI were better at everything, there would still be incentive for it to trade with us.

    See here:

    http://www.youtube.com/watch?v=38hvvAzgXZY

    It is for these reasons that I think AGI changes nothing about where we ought to focus our activism, especially for those of us who aren’t AI engineers. A healthy society is more likely to produce a benign AGI, and even if AGI never lives up to expectations, we’d still have the benefit of the improved society.

  17. What about public lands and undeveloped places like national and state parks, or privately owned preserves? How is wildlife habitat valued in this system? I place a lot of value on wild places where I can go and not see any human development. They are very important, not only to my happiness, but also to the lives of millions of different species. It sounds like this method of taxation would create an incentive for development, even in vital forests and wetland ecosystems. Would it not?

  18. Thanks for sharing your thoughts, Carly.

    As with virtually any tax structure, Land Value Taxation could exist under many sorts of ownership arrangements. Public lands are, by definition, exempt from taxation and any development which occurs there is purely at the discretion of the government. Private forest preserves and so on could conceivably be exempted from taxation, but one must be extremely careful with that. Such forest preserves should only be exempted if the land is to be protected in perpetuity, not just “coincidentally” when a land speculator wishes to hold it out of use.

    It is actually the case that land which is below the margin of production would essentially have no value since there is basically no capacity for speculation. Growth would occur, but it would be of the most efficient sort. LVT would need to be combined with Pigovian “Taxes” to fully internalize all true negative externalities, and if that were the case then I see no reason to believe that remote wilderness would be negatively affected. Indeed, if the full rental value of the sites were recaptured, there would not be any speculative profit to be had, and it is conceivable that such land could be relinquished from private ownership.

    Wilderness areas closer to cities would still need to be protected in the same way that forest preserves are now.

    Did you know that the greatest danger to the rainforests is not always even agriculture or industry, but homesteading? The reason is that the South Americans have been so impoverished by their corrupt and feudalistic system, even moreso than us. The latifundistas buy up huge swaths of land and the rents in the whole region rise, and there is nowhere left for normal folks to live a dignified existence. Many are actually driven into the rainforest, since that has become the new margin of production. It is free, and you can work the land without paying rent, and feed yourself and your family. Huge numbers of people have been driven to this.

    The answer is not to simply punish those poor folks and shut them off from what is currently their means of survival. The answer is to give them real alternatives on land of better quality that is closer to civilization where they could find better jobs and livelihoods, and sell their goods to a broader market, if only they had access. Remember, free markets require free land because the market IS land. The market is a place, hence why it is called the marketplace.

    You certainly aren’t alone in your appreciation of public space and natural habitats, and there are many ecologically-minded georgists such as Peter Smith, the Renegade Ecologist.

    Indeed, some of the original leading figures of the environmental movement were georgists, including Bolton Hall and Ralph Borsodi. John Muir, the founder of the Sierra Club, was apparently not usually interested in economics and therefore was never really a georgist, but he was profoundly influenced by a young Henry George.

  19. Carly why not watch a film I helped make made on the subject of Land Value tax and wildlife:

    http://www.youtube.com/watch?v=fFk2i6WO3K8

    Or watch Frank de Jong who has been at this longer than I

    http://www.youtube.com/watch?v=KB6zNyOXMBg&feature=player_embedded

  20. […] 1.) Increase political discussion about Land Value Taxation […]

  21. Awesome article, Edward!

    I can’t believe I’ve never seen this before.

    You should make this a WordPress site with social media integration.

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