Land Value Taxation will solve many of the 21st century's most serious social, economic and environmental problems, and promote justice, fairness and sustainability. We CAN have a world in which all can prosper.
Progress and Poverty, by Henry George Here are links to online editions of George's landmark book, Progress & Poverty, including audio and a number of abridgments -- the shortest is 30 words! I commend this book to your attention, if you are concerned about economic justice, poverty, sprawl, energy use, pollution, wages, housing affordability. Its observations will change how you approach all these problems. A mind-opening experience!
Henry George: Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth ... The Remedy This is perhaps the most important book ever written on the subjects of poverty, political economy, how we might live together in a society dedicated to the ideals Americans claim to believe are self-evident. It will provide you new lenses through which to view many of our most serious problems and how we might go about solving them: poverty, sprawl, long commutes, despoilation of the environment, housing affordability, wealth concentration, income concentration, concentration of power, low wages, etc. Read it online, or in hardcopy.
Bob Drake's abridgement of Henry George's original: Progress and Poverty: Why There Are Recessions and Poverty Amid Plenty -- And What To Do About It! This is a very readable thought-by-thought updating of Henry George's longer book, written in the language of a newsweekly. A fine way to get to know Henry George's ideas. Available online at progressandpoverty.org and http://www.henrygeorge.org/pcontents.htm
Where Else Might You Look?
Wealth and Want The URL comes from the subtitle to Progress & Poverty -- and the goal is widely shared prosperity in the 21st century. How do we get there from here? A roadmap and a reference source.
Reforming the Property Tax for the Common Good I'm a tax reform activist who seeks to promote fairness and reduce poverty. Let's start with the enabling legislation and state requirements for the property tax. There are opportunities for great good!
What more generous boost to the pay-day loan industry could Congress offer than a government shutdown, when so many Americans live paycheck to paycheck?
First it will affect the government employees, particularly those in the early years of their careers, who might not have a whole lot in the way of liquid savings, and those who have high fixed costs like mortgages, student debt, or children in college.
And then it will affect all those who depend on their patronage, including a lot of small businesses and their employees.
What a brilliant plan for forcing so many Americans into the hands of the pay-day loan industry!
And most of us are aware how difficult it will be for the latter group to dig themselves out. The government employees may eventually get paid -- they'll still owe the pay-day lenders exhorbitant interest, for the month or two. But it will be the second group that falls into the clutches of the legal loan sharks.
Brilliant. Simply brilliant. I wonder what the campaign contribution picture looks like.
What we have is a crisis of imagination. Albert Einstein said that you cannot solve a problem with the same mind-set that created it. Foundation dollars should be the best “risk capital” out there.
There are people working hard at showing examples of other ways to live in a functioning society that truly creates greater prosperity for all (and I don’t mean more people getting to have more stuff).
Money should be spent trying out concepts that shatter current structures and systems that have turned much of the world into one vast market. Is progress really Wi-Fi on every street corner? No. It’s when no 13-year-old girl on the planet gets sold for sex. But as long as most folks are patting themselves on the back for charitable acts, we’ve got a perpetual poverty machine.
It’s an old story; we really need a new one.
But perhaps Buffett's most important observation is this one:
"Inside any important philanthropy meeting, you witness heads of state meeting with investment managers and corporate leaders. All are searching for answers with their right hand to problems that others in the room have created with their left."
To which I can only insert ... "and are benefiting from."
He also points out,
As more lives and communities are destroyed by the system that creates vast amounts of wealth for the few, the more heroic it sounds to “give back.” It’s what I would call “conscience laundering” — feeling better about accumulating more than any one person could possibly need to live on by sprinkling a little around as an act of charity.
But this just keeps the existing structure of inequality in place. The rich sleep better at night, while others get just enough to keep the pot from boiling over. Nearly every time someone feels better by doing good, on the other side of the world (or street), someone else is further locked into a system that will not allow the true flourishing of his or her nature or the opportunity to live a joyful and fulfilled life.
I hope Mr. Buffett will take the time to read Henry George's "Progress and Poverty." He might be better able to identify the particular structures that create and maintain poverty and the concentrations of wealth, income and power. And, based on that last sentence, I think Buffett would appreciate the final section of P&P. (Bob Drake's 2006 abridgment is a fine starting place, but the unabridged is a pleasure of its own.)
Looking for the earliest references to "Labor Day" in the New York Times, I came across some interesting material. This comes from early September, 1887, 10 months after the 1886 NYC Mayoral election in which a coalition of labor groups asked Henry George to run as their candidate.
(An August 31, 2004 NYT article on the origins of Labor Day by Edward T. O'Donnell takes it back to September, 1882. Evidently the NYT of the day chose to take no note until after the Legislature had passed the bill establishing Labor Day. Nor does an archive search on "central labor union" provide as early a reference as the O'Donnell does; NYT's earliest is 9/15/1884.)
I'm still curious about how the first Monday in September was chosen. Was it only a coincidence that Henry George's birthday was September 2?
Labor Day and Idle Saturday
The last Legislature did two very foolish things when it established the first Monday of September as a holiday to be known as "Labor Day," and when it enacted that every Saturday afternoon should be a half holiday. Gov. Hill has more than the usual executive share of responsibility for the former of these performances. He recommended the measure beforehand because he thought that by pleasing "Labor" he would be playing a clever demagogue's trick, and the Legislature adopted the suggestion because its members were afraid of being outwitted by the Governor in their competition for the Labor vote. As a matter of fact, we have seen no evidence that the real workingmen demanded Labor Day. Most workmen can take a day off now and then at their own cost and take it when they want it, which they are not sure of doing if they take it on a fixed day. If they had any notion of getting Labor Day at the boss's expense that notion will be effectually dispelled. They will lose a day's work and forfeit a day's wages as on any other public holiday. The only people who are benefited by Labor Day are the people who are paid by the week or the month -- clerks, salesmen, bookkeepers, and so forth, and these do not count as "labor" at all in the estimation of the Knights.
It is silly to set apart a day on which no labor is to be done as Labor Day. It may also be mischievous. The use of the day which is suggested by its title is to organize demonstrations of Labor, by Labor, and for Labor. Now these demonstrations, as everybody knows, are apt to be demonstrations of the discontent which manual laborers, as well as laborers of other kinds, and idlers, and indeed all men whatsoever, feel about their lot, and attempts to hold somebody other than the discontented persons themselves to account for the unhappiness of their fates. With Labor this attempt takes the form of arraigning "Capital," or, concretely, of finding fault with the bosses. If, therefore, Labor Day is to be observed in any specific and distinguishing manner it will be used as a day on which one class of the community assembles to hear another class blackguarded, a suspension of labor being enjoined upon all classes for this purpose, and the whole performance going on under the express sanction of the State. To establish a holiday for this purpose is to give public authority to an un-American, undemocratic, and senseless procedure.
We have said that the only people really benefited from their own point of view by Labor Day are the men employed by the month as assistants in mercantile houses. They get their day off without any diminution of their pay. It is also for their express and exclusive benefit that the Saturday halfholiday has been established. This does "Labor" in the political sense no good whatever. If a laborer can afford to lose half a day's wages once a week he could in almost all callings arrange to do so without losing his place. If he cannot afford that loss it is a great piece of cruelty, in intention at least, for the law-making power to enact a statute which, if it were effectual, would compel him to do so. In cities, during the heat of Summer a kindly and sensible custom has grown up in many kinds of business of shutting up shop at noon on Saturday. It was very well to recognize and sanction this custom, and to encourage its extension, by making Saturday afternoon in July and August half holidays. There was no doubt a certain risk in doing this for men engaged in business that required constant communication with the banks. But the "heated term" coincides with the dullest season of such business, and the risk was worth taking. That is a very different thing from making fifty-two half holidays in the courts of the year during seasons when there is no pretext of necessity or use in idleness. If the law could be enforced it would cut down by one-twelfth the amount of work done in the State of New-York. That is a handicap which no industrial community in the world could successfully carry. Of course the law cannot be enforced. The laborers who are their own employers, including mechanics as well as farmers, will pay no attention to it whatever. Mechanics who work for other men will feel no more inclined to forfeit their wages on Saturday afternoons than on any other afternoons. Tradesmen cannot afford, now that the busy season is reopening, to lose their Saturday's trade, and even their clerks will not be benefited by the nominal half holiday if the disregard of the statute is so general as it now seems likely to be. The banks are bound by the law, and their clerks, with the clerks in public offices, will be able to spend Saturday afternoon in idleness. For this boon a new and perilous element is to be reckoned with in all credits and a source of disturbance to be introduced into business of all kinds.
Evidently this is not worth while. The judgment of all business men is that a weekly half holiday on which no debts are collectible, in addition to Sunday and adjoining it, is injurious and dangerous. Both the holiday laws should be repealed, the "Labor Day" law because it established a general holiday for the use of a special class, and the Saturday half holiday law because, except during the Summer months, the half holiday it establishes does more mischief than good.
This appeared in a California weekly 115 years ago. Much of it could have been written in 2011. Does this mean that these problems are eternal, necessary and simply can't be avoided?
Or does it mean that when we continue to maintain the structures that create these problems, we ought not to be surprised that the problem continues to show up?
These problems can be solved -- and prevented -- by a simple, logical, just, efficient reform of our tax structure. But almost none of our elected representatives are the least bit familiar with it. You might send yours a copy of Walt Rybeck's book, "Re-Solving the Economic Puzzle," if you think yours might have an open mind.
Young Men and Their Opportunities The San Jose Letter, February 1, 1896
But what are young men to do for a living? Did it ever occur to you that thousands of young Americans between the ages of 16 and 21 are pondering over that very question? What are they to do, indeed? Shall they study for a profession? Scores of young professional men in San Jose are not earning enough to pay their office rent, young lawyers, doctors, dentists, waiting for the practice that does not come.
The professions are overcrowded, some one says, let them learn a trade. What trade, pray? Would you have any of them learn the carpenter's trade, for instance? The valley is over-run with idle carpenters. Would you have them become house painters? Every other tramp one meets appears to be a painter. Would you have them learn the printer's trade? A dozen idle printers are clammoring for every place.
I was talking with a gentleman who is in the hardware business the other day. This question of idle young men came up. The merchant got down a list containing probably a score of names. Applicants, he told me, for a chance to learn the plumber's trade. "I have not a place," he said, "for one in twenty of them. They offer to work for nothing, if permitted to learn the trade. But idle journeymen apply for work every day."
It is so with every trade that may be named. Plenty of young men are fitting themselves for a $20 job, by spending months in learning shorthand and type writing. There was a time when a book-keeper could earn a living-assuring salary. He cannot now. Book-keepers, good enough for any average retail business, are hunting $40 jobs.
What are the young Americans of this generation to do, then? Such as have parents to furnish them with a home can work for $20 a month. Those with no home cannot compete with home-cheapened labor. The result is, San Quentin is filling up with young fellows under 25 years of age. Most of our tramps appear to be under 30.
Since the land is filled with idle doctors one can safely conclude that none want for medical assistance and advice. Since idle carpenters are begging for work, the people of America must have all the houses they want. There can be no more plumbing to do, for plumbers are idle; no houses that need painting for painters are tramping the country seeking work, no one without bread for there is no sale for breadstuffs, and bakers are without employment.
But, strange to say, hundreds of men are suffering for the services of the idle doctors. Families are shelterless, while carpenters are begging to build them houses. Men and women and children are suffering for bread while bread-stuffs rot, and bakers starve to death because they can find no one who can command their services.
Doctor A wants to build a house, and carpenter B is anxious to build it for him; but the house is not built. In the meantime Carpenter B's children die for the lack of medical assistance. Blacksmith C is unable to furnish his family with wood, for he "has no work." However, Wood-dealer D sees his horses go lame because he cannot afford to have them shod.
A very interesting state of affairs, is it not? Work that should be done, and plenty of it; while the young men of the nation are drifting to State prisons and the road because they can find no work.
This condition of affairs is new in America. Hungry men startle the well-fed, until they, too, hunger for the luxuries that once seemed necessities, then they are more than startled.
Along with this an evil is growing up in America that cannot be too earnestly condemned; it is that of the steadily growing custom of giving charity. The recipient of charity is demoralized. The American laborer wants work, not charity. When you give him charity you sink him to a condition lower than that of the negro slave. I know philantropists who employ Chinese, while white labor goes begging for a purchaser, who pompously "pay the white man's butcher bill." The white man wants to pay his own butcher bill, and demands work that will enable him to do it.
The evil results of this charity are doubled when school children are taught to "give to the poor." San Francisco has been turned into a pauper-making, pauper-sustaining educational institution. The papers reek with "charity," and the children are given lessons in pauperizing their elders. A year ago last winter the children were encouraged to feed the men employed at $1 a day in the Golden Gate Park. What did this mean? It meant that the children were made accustomed to see laboring Americans want for food, while the laborers, although working ten hours a day, were obliged to stoop to accept charity, and charity at the hands of children. It is very pathetic, this picture of Susie or Johnnie giving a ham sandwich or a piece of sponge cake to a hungry laboring American — a pretty picture, if you like; but the children are not benefited by it and the laborer can know no greater degradation. But, what are the young men who are leaving schools, colleges and universities each year to do for a living? Must the majority of them become objects of charity, to be given work, charity work, at wages which will not sustain life, only to be helped out of the difficulty by a lot of idle society women, who have nothing better to do than to take up the fad, charity; and by a parcel of school children who are encouraged in doing their little towards the ultimate pauperization of the American laborer?
This was most likely written by Franklin Hichorn, editor of The San Jose Letter.
The issue of whether and how we ought to tax large fortunes upon the death of the second-to-die of a wealth-holding couple seems to have gone away recently, but this report to the federal government in 1915 ("Final Report of the Commission on Industrial Relations") from a Commission created by a 1912 Act of Congress, provides some interesting and timely reading nearly 100 years later -- and not just for questions related to the estate tax, but for economic justice and stability in general. Those who have seen the film "Inside Job" will also find some interesting items below. (While initially I wanted to share the David Lloyd-George quote, the length of this post grew some: it was difficult to pick starting and ending points. This starts on page 23.)
This sense of tension and impending danger has been expressed by numerous witnesses before the Commission, but by none more forcibly than by Mr. Daniel Guggenheim, a capitalist whose interests in mines and industrial plants extend to every part of the country.
Chairman Walsh. What do you think has been accomplished by the philanthropic activities of the country in reducing suffering and want among the people?
Mr. Guggenheim. There has a great deal been done. If it were not for what has been done and what is being done we would have revolution in this country.
The sources from which this unrest springs are, when stated in full detail, almost numberless. But upon careful analysis of their real character they will be found to group themselves almost without exception under four main sources which include all the others. These four are:
1. Unjust distribution of wealth and income. 2. Unemployment and denial of an opportunity to earn a living. 3. Denial of justice in the creation, in the adjudication, and in the administration of law. 4. Denial of the right and opportunity to form effective organizations.
1. Unjust Distribution of Wealth and Income.
The conviction that the wealth of the country and the income which is produced through the toil of the workers is distributed without regard to any standard of justice, is as widespread as it is deep-seated. It is found among all classes of workers and takes every form from the dumb resentment of the day laborer, who, at the end of a week's back-breaking toil, finds that he has less than enough to feed his family while others who have done nothing live in ease, to the elaborate philosophy of the "soap-box orator," who can quote statistics unendingly to demonstrate his contentions. At bottom, though, there is the one fundamental, controlling idea that income should be received for service and for service only, whereas, in fact, it bears no such relation, and he who serves least, or not at all, may receive most.
This idea has never been expressed more clearly than in the testimony of Mr. John H. Walker, President of the Illinois State Federation of Labor:
A working man is not supposed to ask anything more than a fair day's wage for a fair day's work; he is supposed to work until he is pretty fairly tuckered out, say eight hours, and when he does a fair day's work he is not supposed to ask for any more wages than enough to support his family, while with the business man the amount of labor furnishes no criterion for the amount they receive. People accept it as all right if they do not do any work at all, and accept it as all right that they get as much money as they can; in fact, they are given credit for getting the greatest amount of money with the least amount of work; and those things that are being accepted by the other side as the things that govern in everyday life, and as being right, have brought about this condition, this being in my judgment absolutely unfair; that is, on the merits of the proposition in dealing with the workers.
The workers feel this, some unconsciously and some consciously, but all of them feel it, and it makes for unrest, in my judgment, and there can be no peace while that condition obtains.
In the highest paid occupations among wage earners, such as railroad engineers and conductors, glass-blowers, certain steel-mill employees, and a few of the building trades, the incomes will range from $1,500 to $2,000 at best, ignoring a few exceptional men who are paid for personal qualities. Such an income means, under present-day conditions, a fair living for a family of moderate size, education of the children through high school, a small insurance policy, a bit put by for a rainy day — and nothing more. With unusual responsibilities or misfortunes, it is too little, and the pinch of necessity is keenly felt. To attain such wages, moreover, means that the worker must be far above the average, either in skill, physical strength, or reliability. He must also have served an apprenticeship equal in length to a professional course. Finally, and most important, he or his predecessors in the trade must have waged a long, aggressive fight for better wages, for there are other occupations whose demand for skill, strength and reliability are almost as great as those mentioned, where the wages are very much less.
These occupations, however, include but a handful compared to the mass of the workers. "What do the millions get for their toil, for their skill, for the risk of life and limb? That is the question to be faced in an industrial nation, for these millions are the backbone and sinew of the State, in peace or in war.
First, with regard to the adult workmen, the fathers and potential fathers, from whose earnings, according to the "American standard," the support of the family is supposed to be derived.
Between one-fourth and one-third of the male workers 18 years of age and over, in factories and mines, earn less than $10 per week; from two-thirds to three-fourths earn less than $15, and only about one-tenth earn more than $20 a week. This does not take into consideration lost working time for any cause.
Next are the women, the most portentously growing factor in the labor force, whose wages are important, not only for their own support or as the supplement of the meager earnings of their fathers and husbands, but because, through the force of competition in a rapidly extending field, they threaten the whole basis of the wage scale. From two-thirds to three-fourths of the women workers in factories, stores and laundries, and in industrial occupations generally, work at wages of less than $8 a week. Approximately one-fifth earn less than $4 and nearly one-half earn less than $6 a week.
Six dollars a week — what does it mean to many? Three theater tickets, gasoline for the week, or the price of a dinner for two; a pair of shoes, three pairs of gloves, or the cost of an evening at bridge. To the girl it means that every penny mnst be counted, every normal desire stifled, and each basic necessity of life barely satisfied by the sacrifice of some other necessity. If more food must be had than is given with 15 cent dinners, it must be bought with what should go for clothes; if there is need for a new waist to replace the old one at which the forewoman has glanced reproachfully or at which the girls have giggled, there can be no lunches for a week and dinners must cost five cents less each day. Always too the room must be paid for, and back of it lies the certainty that with slack seasons will come lay-offs and discharges. If the breaking point has come and she must have some amusement, where can it come from? Surely not out of $6 a week.
Last of all are the children, for whose petty addition to the stream of production the Nation is paying a heavy toll in ignorance, deformity of body or mind, and permature old age. After all, does it matter much what they are paid? for all experience has shown that in the end the father 's wages are reduced by about the amount that the children earn. This is the so-called "family wage," and examination of the wages in different industries corroborates the theory that in those industries, such as textiles, where women and children can be largely utilized, the wages of men are extremely low.
The competitive effect of the employment of women and children upon the wages of men, can scarcely be overestimated. Surely it is hard enough to be forced to put children to work, without having to see the wages of men held down by their employment.
This is the condition at one end of the social scale. What is at the other?
Massed in millions, at the other end of the social scale, are fortunes of a size never before dreamed of, whose very owners do not know the extent nor, without the aid of an intelligent clerk, even the sources, of their incomes. Incapable of being spent in any legitimate manner, these fortunes are burdens, which can only be squandered, hoarded, put into so-called "benefactions" which for the most part constitute a menace to the State, or put back into the industrial machine to pile up everincreasing mountains of gold. *
In many cases, no doubt, these huge fortunes have come in whole or in part as the rich reward of exceptional service. None would deny or envy him who has performed such service the richest of rewards, although one may question the ideals of a nation which rewards exceptional service only by burdensome fortunes. But such reward can be claimed as a right only by those who have performed service, not by those who through relationship or mere parasitism chance to be designated as heirs. Legal right, of course, they have by virtue of the law of inheritance, which, however, runs counter to the whole theory of American society and which was adopted, with important variations, from the English law, without any conception of its ultimate results and apparently with the idea that it would prevent exactly the condition which has arisen. In effect the American law of inheritance is as efficient for the establishment and maintenance of families as is the English law, which has bulwarked the British aristocracy through the centuries. Every year, indeed, sees this tendency increase, as the creation of "estates in trust" secures the ends which might be more simply reached if there were no prohibition of "entail." According to the income tax returns for ten months of 1914, there are in the United States 1598 fortunes yielding an income of $100,000 or more per year. Practically all of these fortunes are so invested and hedged about with restrictions upon expenditure that they are, to all intents and purposes, perpetuities.
An analysis of 50 of the largest American fortunes shows that nearly one-half have already passed to the control of heirs or to trustees (their vice regents) and that the remainder will pass to the control of heirs within twenty years, upon the deaths of the "founders." Already, indeed, these founders have almost without exception retired from active service, leaving the management ostensibly to their heirs but actually to executive officials upon salary.
We have, according to the income tax returns, forty-four families with incomes of $1,000,000 or more,1 whose members perform little or no useful service, but whose aggregate incomes, totalling at the very least fifty millions per year, are equivalent to the earnings of 100,000 wage earners at the average rate of $500.
1 — The income tax statistics, as a matter of fact, cover only a period of ten months in 1914.
The ownership of wealth in the United States has become concentrated to a degree which is difficult to grasp. The recently published researches of a statistician of conservative views 2 have shown that as nearly as can be estimated the distribution of wealth in the United States is as follows:
2 — Prof. Willard I. King, The Wealth and Income of the People of the United States.
The "Rich," 2 percent of the people, own 60 percent of the wealth.
The "Middle Class," 33 percent of the people, own 35 percent of the wealth.
The "Poor," 65 percent of the people, own 5 percent of the wealth.
This means in brief that a little less than two million people, who would make up a city smaller than Chicago, own 20 percent more of the Nation 's wealth than all the other ninety millions.
The figures also show that with a reasonably equitable division of wealth, the entire population should occupy the position of comfort and security which we characterize as Middle Class.
The actual concentration has, however, been carried very much further than these figures indicate. The largest private fortune in the United States, estimated at one billion dollars, is equivalent to the aggregate wealth of 2,500,000 of those who are classed as "poor," who are shown in the studies cited to own on the average about $400 each.
Between the two extremes of superfluity and poverty is the large middle class — farmers, manufacturers, merchants, professional men, skilled artisans, and salaried officials — whose incomes are more or less adequate for their legitimate needs and desires, and who are rewarded more or less exactly in proportion to service. They have problems to meet in adjusting expenses to income, but the pinch of want and hunger is not felt, nor is there the deadening, devitalizing effect of superfluous, unearned wealth.
From top to bottom of society, however, in all grades of incomes, are an innumerable number of parasites of every conceivable type. They perform no useful service, but drain off from the income of the producers a sum whose total can not be estimated.
This whole situation has never been more accurately described than by Hon. David Lloyd-George in an address on "Social Waste":
I have recently had to pay some attention to the affairs of the Sudan, in connection with some projects that have been mooted for irrigation and development in that wonderful country. I will tell you what the problem is, — you may know it already. Here you have a great, broad, rich river upon which both the Sudan and Egypt depend for their fertility. There is enough water in it to fertilize every part of both countries; but if, for some reason or other, the water is wasted in the upper regions, the whole land suffers sterility and famine. There is a large region in the Upper Sudan, where the water has been absorbed by one tract of country, which, by this process, has been converted into a morass, breeding nothing but pestilence. Properly and fairly husbanded, distributed, and used, there is enough to fertilize the most barren valley and make the whole wilderness blossom like the rose.
That represents the problem of civilization, not merely in this country but in all lands. Some men get their fair share of wealth in a land and no more — sometimes even the streams of wealth overflow to waste over some favored regions, often producing a morass, which poisons the social atmosphere. Many have to depend on a little trickling runlet, which quickly evaporates with every commercial or industrial drought; sometimes you have masses of men and women whom the flood at its height barely reaches, and then you witness parched specimens of humanity, withered, hardened in misery, living in a desert where even the well of tears has long ago run dry.
Besides the economic significance of these great inequalities of wealth and income, there is a social aspect which equally merits the attention of Congress. It has been shown that the great fortunes of those who have profited by the enormous expansion of American industry have already passed, or will pass in a few years, by right of inheritance to the control of heirs or to trustees who act as their "vice regents." They are frequently styled by our newspapers "monarchs of industry," and indeed occupy within our Republic a position almost exactly analogous to that of feudal lords.
These heirs, owners only by virtue of the accident of birth, control the livelihood and have the power to dictate the happiness of more human beings than populated England in the Middle Ages. Their principalities, it is true, are scattered and, through the medium of stock-ownership, shared in part with others; but they are none the less real. In fact, such scattered, invisible industrial principalities are a greater menace to the welfare of the Nation than would be equal power consolidated into numerous petty kingdoms in different parts of the country. They might then be visualized and guarded against; now their influence invisibly permeates and controls every phase of life and industry.
"The king can do no wrong" not only because he is above the law, but because every function is performed or responsibility assumed by his ministers and agents. Similarly our Rockefellers, Morgans, Fricks, Vanderbilts and Astors can do no industrial wrong, because all effective action and direct responsibility is shifted from them to the executive officials who manage American industry. As a basis for this conclusion we have the testimony of many, among which, however, the following statements stand out most clearly:
Mr. John D. Rockefeller, Jr.: 1
1 — Before Congressional Investigating Committee.
..." those of us who are in charge there elect the ablest and most upright and competent men whom we can find, in so far as our interests give us the opportunity to select, to have the responsibility for the conduct of the business in which we are interested as investors. We can not pretend to follow the business ourselves.
Mr. J. Pierpont Morgan.
Chairman Walsh. In your opinion, to what extent are the directors of corporations responsible for the labor conditions existing in the industries in which they are the directing power?
Mr. Morgan. Not at all I should say.
The similitude, indeed, runs even to mental attitude and phrase. Compare these two statements:
Mr. John D. Rockefeller, Jr. My appreciation of the conditions surrounding wage-earners and my sympathy with every endeavor to better these conditions are as strong as those of any man.
Louis XVI. There is none but you and me that has the people 's interest at heart. ("II n'y a que vous et moi qui aimions le peuple.")
The families of these industrial princes are already well established and are knit together not only by commercial alliances but by a network of intermarriages which assures harmonious action whenever their common interest is threatened.
Effective action by Congress is required, therefore, not only to readjust on a basis of compensation approximating the service actually performed, the existing inequalities in the distribution of wealth and income, but to check the growth of an hereditary aristocracy, which is foreign to every conception of American Government and menacing to the welfare of the people and the existence of the Nation as a democracy.
The objects to be attained in making this readjustment are: To reduce the swollen, unearned fortunes of those who have a superfluity; to raise the underpaid masses to a level of decent and comfortable living; and at the same time to accomplish this on a basis which will, in some measure, approximate the just standard of income proportional to service.
The discussion of how this can best be accomplished forms the greater part of the remainder of this report, but at this point it seems proper to indicate one of the most immediate steps which need to be taken.
It is suggested that the Commission recommend to Congress the enactment of an inheritance tax, so graded that, while making generous provision for the support of dependents and the education of minor children, it shall leave no large accumulation of wealth to pass into hands which had no share in its production. 1 The revenue from this tax, which we are informed would be very great, should be reserved by the Federal Government for three principal purposes:
1— It is suggested that the rates be so graded that not more than one million dollars shall pass to the heirs. This can be equitably accomplished by several different gradations of taxation.
1. The extension of education.
2. The development of other important social services which should properly be performed by the Nation, which are discussed in detail elsewhere.
3. The development, in cooperation with States and municipalities, of great constructive works, such as road building, irrigation and reforestation, which would materially increase the efficiency and welfare of the entire Nation.
We are informed by counsel not only that such a tax is clearly within the power of Congress, but that upon two occasions, namely, during the Civil War and in 1898, such graded inheritance taxes were enacted with scarcely any opposition and were sustained by the Supreme Court, which held that the inheritance tax was not a direct tax within the meaning of the Constitution. We are aware that similar taxes are levied in the various States, but the conflict with such State taxes seems to have presented little difficulty during the period in which the tax of 1898 was in effect. Under any circumstances this need cause no great complication, as the matter could be readily adjusted by having the Federal Government collect the entire tax and refund a part to the States on an equitable basis.
There is no legislation which could be passed by Congress the immediate and ultimate efforts of which would be more salutary or would more greatly assist in tempering the existing spirit of unrest.
2. Unemployment and Denial of Opportunity to Earn a Living.
As a prime cause of a burning resentment and a rising feeling of unrest among the workers, unemployment and the denial of an opportunity to earn a living is on a parity with the unjust distribution of wealth. They may on final analysis prove to be simply the two sides of the same shield, but that is a matter which need not be discussed at this point. They differ in this, however, that while unjust distribution of wealth is a matter of degree, unemployment is an absolute actuality, from which there is no relief but soul-killing crime and soul-killing charity.
To be forced to accept employment on conditions which are insufficient to maintain a decent livelihood is indeed a hardship, but to be unable to get work on any terms whatever is a position of black despair.
A careful analysis of all available statistics shows that in our great basic industries the workers are unemployed for an average of at least one-fifth of the year, and that at all times during any normal year there is an army of men, who can be numbered only by hundreds of thousands, who are unable to find work or who have so far degenerated that they can not or will not work. Can any nation boast of industrial efficiency when the workers, the source of her productive wealth, are employed to so small a fraction of their total capacity?
Fundamentally this unemployment seems to rise from two great causes, although many others are contributory.First, the inequality of the distribution of income, which leaves the great masses of the population (the true ultimate consumers) unable to purchase the products of industry which they create, while a few have such a superfluity that it can not be normally consumed but must be invested in new machinery for production or in the further monopolization of land and natural resources. The result is that in mining and other basic industries we have an equipment in plant and developed property far in excess of the demands of any normal year, the excess being, in all probability, at least 25 percent. Each of these mines and industrial plants keeps around it a labor force which, on the average, can get work for only four-fifths of the year, while at the same time the people have never had enough of the products of those very industries — have never been adequately fed, clothed, housed, nor warmed — for the very simple reason that they have never been paid enough to permit their purchase.
The second principal cause lies in the denial of access to land and natural resources even when they are unused and unproductive, except at a price and under conditions which are practically prohibitive. This situation, while bound up with the land and taxation policies of our States and Nation, also rests fundamentally upon the unjust distribution of wealth. Land or mineral resources in the hands of persons of average income must and will be used either by their original owners or by some more enterprising person. By the overwhelming forces of economic pressure, taxation, and competition they can not be permitted to lie idle if they will produce anything which the people need. Only in the hands of large owners — free from economic pressure, able to evade or minimize the effects of taxation and to await the ripening of the fruits of unearned increment — can land be held out of use if its products are needed.
There can be no more complete evidence of the truth of this statement than the condition of the farms of 1000 acres and over, which, valued at two and one-third billion dollars, comprise 19 percent of all the farm land of the country and are held by less than one percent of the farm owners. The United States Census returns show that in these 1000-acre farms only 18.7 percent of the land is cultivated as compared with 60 to 70 percent in farms of from 50 to 499 acres. Furthermore, it is well known that the greater part of these smaller farms which are left uncultivated are held by real estate men, bankers and others who have independent sources of income. More than four-fifths of the area of the large holdings is being held out of active use by their 50,000 owners, while 2,250,000 farmers are struggling for a bare existence on farms of less than 50 acres, and an untold number who would willingly work these lands are swelling the armies of the unemployed in the cities and towns.
A basic theory of our Government, which found expression in the Homestead Acts, was that every man should have opportunity to secure land enough to support a family. If this theory had been carried out and homesteads had either gone to those who would use them productively or remained in the hands of the Government, we should not yet have a problem of such a character. But these acts were evaded; land was stolen outright by wholesale, and fraudulent entries were consolidated into enormous tracts which are now held by wealthy individuals and corporations.
The Public Lands Commission, after an exhaustive inquiry, reported in 1905:
Detailed study of the practical operation of the present land laws shows that their tendency far too often is to bring about land monopoly rather than to multiply small holdings by actual settlers.
. . . Not infrequently their effect is to put a premium on perjury and dishonest methods in the acquisition of land. It is apparent, in consequence, that in very many localities, and perhaps in general, a larger proportion of the public land is passing into the hands of speculators than into those of actual settlers making homes. . . . Nearly everywhere the large landowner has succeeded in monopolizing the best tracts, whether of timber or agricultural land. 1
1 — Senate Doc. 154, 58th Cong., 3d Sess., p. 14.
To one who has not read the preceding statements carefully, there may seem to be a contradiction in proposing to prevent great capitalists from creating an excess of productive machinery and overdeveloping mineral resources, while pointing out the necessity of forcing land and other natural resources into full and effective use by the people. The two propositions are, as a matter of fact, as fundamentally distinct as monopoly and freedom. The capitalist increases his holdings in productive machinery and resources only because through monopolization and maintenance of prices he hopes to reap rewards for himself or increase his power, while the aim in desiring the full development of land and other resources by the people is that they, producing for themselves, may enjoy a sufficiency of good things and exchange them for the products of others, and thus reduce to a minimum the condition of unemployment.
There are, of course, many other causes of unemployment than the inequality of wealth and the monopolization of land which there is no desire to minimize. Chief among these are immigration, the inadequate organization of the labor market, the seasonal character of many industries, and the personal deficiencies of a very large number of the unemployed. It can not be denied that a considerable proportion of the men who fill the city lodging houses in winter are virtually unemployables, as a result of weakness of character, lack of training, the debasing effects of lodging house living and city dissipation, and, last but not least, the conditions under which they are forced to work in the harvest fields and lumber, railroad and construction camps. The seasonal fluctuations of our industries are enormous, employing hundreds of thousands during the busy season and throwing them out on the community during the dull season, and almost nothing has been done to remedy this condition. It would be difficult to imagine anything more chaotic and demoralizing than the existing methods of bringing workmen and jobs together. Certain measures for dealing with these conditions, which are discussed elsewhere in the report, need to be pushed forward with all possible vigor. But it may be confidently predicted that the unemployment situation will not be appreciably relieved until great advances have been made in the removal of the two prime causes — unjust distribution of wealth and monopolization of land and natural resources.
The most direct methods of dealing with the inequality of wealth have already been briefly discussed and will be considered elsewhere in the report. "With respect to the land question, however, the following basic suggestions are submitted:
1. Vigorous and unrelenting prosecution to regain all land, water power and mineral rights secured from the Government by fraud.
2. A general revision of our land laws, so as to apply to all future land grants the doctrine of "superior use," as in the case of water rights in California, and provision for forfeiture in case of actual nonuse. In its simplest form the doctrine of "superior use" implies merely that at the time of making the lease the purpose for which the land will be used must be taken into consideration, and the use which is of greatest social value shall be given preference.
3. The forcing of all unused land into use by making the tax on nonproductive land the same as on productive land of the same kind, and exempting all improvements.
Other measures for dealing with unemployment are discussed under that head on p. 181.
The unemployed have aptly been called "the shifting sands beneath the State." Surely there is no condition which more immediately demands the attention of Congress than that of unemployment, which is annually driving hundreds of thousands of otherwise productive citizens into poverty and bitter despair, sapping the very basis of our national efficiency and germinating the seeds of revolution.
"There is nothing to fear," says the complacent Robert Collyer, "from the multimillionaire." The reason for Mr. Collyer's confidence is his assumption that "few fortunes survive three generations." This assumption is a pleasant tradition, formerly phrased as "three generations from shirt sleeves to shirt sleeves;" but it has long since ceased to express a fact, since John Jacob Astor showed Americans how to establish fortunes they have become as stable in America as in England.
But even if the tradition were as true today as it was in the earlier periods of the settlement of this new country, what satisfaction could a thoughtful man draw from it?
The social evil is not great fortunes. It is great poverty among those who earn so much wealth that they do not get.
To them it can make no difference whether fortunes are stable or not.
The great, obtrusive, undeniable and invariable fact is that no matter who may be rich nor how long his fortune may remain intact, the mass of those who do the work of the world, and without whose work there would be fortunes for nobody, are permanently poor and dependent.
To borrow a suggestive illustration from the gambling table, what matters it to the many who never win if the few who do soon lose their winnings again?
The Social Security Administration released some interesting information a few weeks ago (and corrected it after David Cay Johnston called attention to some anomalies in the data, which turned out to have resulted from false W-2's from two individuals; what's reported below is the corrected data) on 2009 wages.
First, here is a summarized table of the 150.9 million individual wage earners in 2009.
75% of wage earners earned $50,000 or under; 25% earned less than $10,000
Nearly 94% of wage earners earned less than $100,000. (Is this how you pictured it?)
The 6.3% of us who earned over $100,000 received over 30% of the wages.
In total, 32% of wage earners deferred any wages; the deferrals equaled just 3.56% of aggregate wages.
Net Compensation Interval
Number of Wage Earners
Percent of Total Wage Earners
Cumulative Percent Wage Earners
Percent of Aggregate Wages
Cumulative Percent Aggregate Wages
$0 to $10,000
$10,000 to $30,000
$30,000 to $50,000
$50,000 to $100,000
$100,000 to $500,000
memo: contributions to deferred compensation plans
These data do not include funds received by hedge fund managers which most of us would consider wages, but which get treated as capital gains, and taxed at a much lower rate than do all but the lowest wages. It would be interesting and useful to see those data arranged next to these.
One might use these data to consider whether there should be a separate bracket for higher incomes. Keep in mind that these are individual wages, net only of 401(k) type deferrals of income, not adjusted gross income at the taxpayer/household level.
The next table examines the amount of wage income which is represented by the portion of wages over $100,000, just below the current level at which one stops paying social security withholding.
Net Compensation Interval
Number of Wage Earners
Percent of Total Wage Earners
Cumulative Percent Wage Earners
Aggregate Wages over $100,000
Percent of Aggregate Wages
Cumulative Percent Aggregate Wages
$100,000 to $500,000
14.10/85.90 = 16.4%
So how does all this relate to this blog's focus on Land Value Taxation?
The focus is on smart, just, efficient taxation -- and on ending the privileges which enrich some people and impoverish the vast majority of us.
Many of the ways that people "earn" large salaries are in large part the result of our permitting privileges: the privatization of the value of natural resources; the privatization of the value of urban land; and structures which permit some sectors of the economy to skim off value created by all of us. (Did anyone yell FIRE?)
We have to hold the feet of our elected representatives to the fire: make it worth their while NOT TO obey the requests of their huge campaign contributors and TO listen to the rest of us and reconfigure the structures which funnel wealth and income into the pockets of the currently-and-traditionally-privileged folks.
Are you ready?
I think there were some signs in this recent midterm election that voters in several states were not bowled over by the well-constructed advertising and heavy media buys of some very rich candidates for office, and I find that encouraging. Connecticut's Foley and McMahon, California's Fiorino and Whitman, and a number of entities enabled by the Citizens United ruling by the Supreme Court spent large amounts of money, with very uneven results.
Well, from time to time, we hear that Americans aren't saving enough, and sometimes columnists ask for suggestions of how we might increase America's savings rate.
Moody's has provided the answer: cut federal income taxes on the highest income people, and they will save a significant portion of it. (The question arose because some say that in order to facilitate job creation, we ought to avoid increasing federal income taxes on the portion of taxable income over $250,000 per year.)
If the goal is to produce savings at the median, or at the 25th or 75th percentiles, or at the 10th or 90th percentiles, reducing taxes on the highest-income 2% or so is not going to serve the purpose. But it will satisfy the "increase America's saving rate" goal.
Before we went into this recent "bust" portion of our 18-year boom-bust cycle, a shocking proportion of Americans lacked sufficient savings to provide even a poverty-line existence for their families for as short a period as 3 months. (Edward Wolff of NYU wrote the study on this.) Most of us live paycheck to paycheck.
The notion of saving for a "rainy day," or even of saving to buy one's next car for cash, seems quaint and of-another-era, with so many of us paying more than 40% of our income for housing. (Yet we don't complain about owing our soul to the company store. Now it is the FIRE sector we owe.) And look at the measures we've used to substitute for people's inability to save a 20% down payment on a starter home!
But the best-off among us -- both those who have large amounts of wealth and many of those who receive high wages or high profits on their "labor" (even if their labor consists of reaping that which other people sowed, they do regard it as labor, and sometimes the IRS does, too -- unless they run hedge funds, in which case it gets treated just as if they'd actually invested their own capital in a way a corporation could use to enhance its operations!) -- can and do save and invest. And clearly this is an aspect of the wedge driven through society which Henry George described 130 years ago, driving some up and the vast majority down.
The wealthiest among us own, and take opportunities increase their holdings of, the corporations -- public and private -- which hold our best land (urban, oil-laden, etc.) and our non-renewable and/or otherwise finite natural resources. (See "stock ownership" in the tag cloud at left for the data.) We praise them as if they are somehow self-made, and let them parade about as such, and we gratefully accept their charity -- tulips and swimming holes on Park Avenue -- as if it made up for what they and their ancestors stole from us and ours, and what their children will reap from the labor of our children. We don't see the structures by which they do it -- we're so used to them that they are, like the air we breathe, invisible to us. But 120 years ago, most Americans did understand them. (Explore the free NYT archives, 1880 to 1900, for the name of Henry George, and do some reading. I suspect even the American history and American Studies majors will be surprised.)
I wonder to what extent this is a matter of people drawing down their holdings in order to live on them.
From the FRB's Survey of Consumer Finances, here's the distribution of stock ownership in 2007 (Total value: $4.598 trillion):
Top 1%: 51.9%
Next 4%: 30.5%
Next 5%: 8.0%
Next 40%: 9.0%
Bottom 50%: 0.6%
And here's the distribution of mutual fund ownership (outside of retirement assets). This includes stock and bond and REIT funds, but does not include money-market funds. (Total value: $4.093 trillion.)
Note: this understates the holdings of the top 1%, since the Fortune 400 families are excluded from the SCF. See Ponds & Streams.
Here are some excerpts from the NYT article. I wonder how "small investor" is defined. Does it mean all individuals, as opposed to foundations, pension funds, university endowments and the like? Does it mean those in the bottom 95% of the Net Worth distribution, who own just 40% of the value held by households?
Investors withdrew a staggering $33.12 billion from domestic stock market mutual funds in the first seven months of this year, according to the Investment Company Institute, the mutual fund industry trade group. Now many are choosing investments they deem safer, like bonds.
If that pace continues, more money will be pulled out of these mutual
funds in 2010 than in any year since the 1980s, with the exception of
2008, when the global financial crisis peaked.
Small investors are “losing their appetite for risk,” a Credit Suisse analyst, Doug Cliggott, said in a report to investors on Friday.
One of the phenomena of the last several decades has been the rise of
the individual investor. As Americans have become more responsible for
their own retirement, they have poured money into stocks with such faith
that half of the country’s households now own shares directly or
through mutual funds, which are by far the most popular way Americans
invest in stocks. So the turnabout is striking. ...
To be sure, a lot of money is still flowing into the stock market from
small investors, pension funds and other big institutional investors.
But ordinary investors are reallocating their 401(k) retirement plans, according to Hewitt Associates, a consulting firm that tracks pension plans.
Until two years ago, 70 percent of the money in 401(k) accounts it
tracks was invested in stock funds; that proportion fell to 49 percent
by the start of 2009 as people rebalanced their portfolios toward bond
investments following the financial crisis in the fall of 2008. It is
now back at 57 percent, but almost all of that can be attributed to the
rising price of stocks in recent years. People are still staying with
Another force at work is the aging of the baby-boomer generation. As
they approach retirement, Americans are shifting some of their
investments away from stocks to provide regular guaranteed income for
the years when they are no longer working.
And the flight from stocks may also be driven by households that are no
longer able to tap into home equity for cash and may simply need the
money to pay for ordinary expenses. ...
Fidelity reported that hardship withdrawals and loans from 401(k) accounts in their custody are up. But as one commenter pointed out,
Hardship withdrawals are truly an indication of economic distress.
I don't think so. When buying a new car to replace my 10+ year old car,
I took out a 401(k) loan instead of going to the bank. I'd rather pay
interest to myself and guarantee myself a 4.5% (or so) return on the
401(k) funds I took out.
I'll bet you that lots of people are
resorting to 401(k) loans for similar reasons, and that the growth in
loans has something to do with the difficulty in getting any kind of
His strategy makes sense to me. 4.5% is a whole lot more than money markets are paying, and less than one pays for a car loan.
Fidelity also reported that the average 401(k) in their custody was worth $61,800. It would be interesting to know the median value. I'm guessing it might be about 75% of the average.
Doing some housecleaning, I came across the May, 2006, issue of Harper's Magazine, whose cover story was entitled "The Road to Serfdom: An Illustrated Guide to the Coming Real Estate Collapse." On the promotional half-cover, the headline said "THE HOUSE TRAP: How the MORTGAGE BUBBLE Will Bankrupt Americans -- in 20 East Steps."
I looked online, and found a copy of the article in PDF format here, which permits me to throw away my hardcopy.
Never before have so many Americans gone so deeply into debt so willingly. Housing prices have swollen to the point that we’ve taken to calling a mortgage — by far the largest debt most of us will ever incur — an “investment.” Sure, the thinking goes, $100,000 borrowed today will cost more than $200,000 to pay back over the next thirty years, but land, which they are not making any more of, will appreciate even faster. In the odd logic of the real estate bubble, debt has come to equal wealth.
And not only wealth but freedom — an even stranger paradox. After all, debt throughout most of history has been little more than a slight variation on slavery. Debtors were medieval peons or Indians bonded to Spanish plantations or the sharecropping children of slaves in the postbellum South. Few Americans today would volunteer for such an arrangement, and therefore would-be lords and barons have been forced to develop more sophisticated enticements.
The solution they found is brilliant, and although it is complex, it can be reduced to a single word — rent. Not the rent that apartment dwellers pay the landlord but economic rent, which is the profit one earns simply by owning something. Economic rent can take the form of licensing fees for the radio spectrum, interest on a savings account, dividends from a stock, or the capital gain from selling a home or vacant lot. The distinguishing characteristic of economic rent is that earning it requires no effort whatsoever. Indeed, the regular rent tenants pay landlords becomes economic rent only after subtracting whatever amount the landlord actually spent to keep the place standing.
Most members of the rentier class are very rich. One might like to join that class. And so our paradox (seemingly) is resolved. With the real estate boom, the great mass of Americans can take on colossal debt today and realize colossal capital gains — and the concomitant rentier life of leisure — tomorrow.
If you have the wherewithal to fill out a mortgage application, then you need never work again. What could be more inviting — or, for that matter, more egalitarian?
That’s the pitch, anyway. The reality is that, although home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value.
Most everyone involved in the real estate bubble thus far has made at least a few dollars. But that is about to change. The bubble will burst, and when it does, the people who thought they would be living the easy life of a landlord will soon find that what they really signed up for was the hard servitude of debt serfdom.
From there, Hudson proceeds to list the 20 steps, each illustrated with a graphic. I encourage you to look up the original; the graphics are generally quite helpful to making the point -- but the text is valuable here.