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!
The rental value of land is due to our common human needs. No single individual -- the people as a whole produce that value. It grows larger as the population and its activities increase.
This natural law of rent gives the community the moral right to take all of this value which it creates.
The mistake is made of permitting a few to take this value, thus creating speculation in land, upsetting economic stability, necessitating unemployment and the recurring breakdowns in our civilization.
This fundamental wrong must be righted before wars and all injustice can be abolished.
Paying taxes is rarely pleasant, but as April 15 approaches it’s worth remembering that our tax system is a progressive one and serves a little-noticed but crucial purpose: It mitigates some of the worst consequences of income inequality.
If any of us, as individuals, are unfortunate enough to have income drop significantly, the tax on that income will plummet as well — and a direct payment, or negative tax, might even be received from the government, thanks to the earned-income tax credit. In this way, the tax system can be viewed as a colossal insurance system, guarding against extreme income inequality. There are similar provisions in other countries.
But it’s also clear that while income inequality would be much worse without our current tax system, what we have isn’t nearly enough. It’s time — past time, actually — to tweak the system so that it can respond effectively if income inequality becomes more extreme.
"Respond effectively if"???
How about policies that would prevent a large portion of our currentincome inequality by either pre-collecting, for public purposes, the economic rent which rent-seekers love to capture as long as we let it hang out there, or putting a market price on privileges of various kinds -- the right to collect tolls, the right to use the airwaves, the right to string wires of various kinds along public rights-of-way, to occupy other parts of the commons and charge others to use what one puts on it. One could call it "natural public revenue."
Bob Schiller knows some of the ways people grow wealthy in their sleep, without lifting a finger. He knows about boom-bust cycles, and the economic agony they cause to ordinary human beings in our society. He chronicles, he measures, he profits from the selling of those measurements.
Probably once or twice it has passed through his mind that by some simple alterations to public policy, we could make our economy more stable, our society more just.
Perhaps he has played the game Monopoly, and maybe he knows that it was not created in the 1930s, but has its roots in The Landlord's Game, created by late 1902, to teach the ideas of Henry George, who, it is likely, was at least mentioned in his Eco 101 textbooks, though perhaps glossed over by a busy and unaware instructor.
Does he seek to reduce the income inequality by preventing it, or only collecting some piece of the privilege-payments after the fact without tweaking the system that permits them even a tiny bit?
Milton Friedman, another economic eminence, maintained that land value tax was the "least bad" tax, but never lifted his voice to promote it further than that acknowledgment (in 1968 and 2006 and perhaps in between). He likely had other kinds of interests top of mind.
Let's not just "mitigate the worst effects." Let's acquaint ourselves with the structures that create those worst effects, and destroy them! Go to the root! Be radical! Eradicate those structures!
It was Henry David Thoreau who said,
"There are a thousand hacking at the branches of evil to one who is striking at the root."
Dare Professor Schiller strike at the root? Dare he point to the root? Has he sought the root? Or is he content with hacking -- nibbling -- at branches, which doesn't help the victims a tenth as much as striking at the root?
Ironically, Professor Schiller is the "Sterling Professor of Economics" at Yale. That seat was endowed by Jack Sterling (1844-1915), co-founder of the law firm Shearman & Sterling with Thomas G. Shearman (1834-1900)*, upon his death in 1918. Shearman knew where the root was, and devoted himself to seeking its eradication. (Explore the NYT archives for references.) It is ironic that nearly 100 years later, the occupant of that seat (and many other things at Yale) is content with nibbling. But maybe it isn't surprising. Lots of alumni would not be happy to have those roots identified, and even a tenured professor could be uncomfortable being the one to call attention. They might be the ones who endow the next set of professorships, from the gains they've made based on the unjust and unwise structures their respected -- and aspiring -- professors have failed to publicly question.
Let's not "insure against inequality." (Who gets to collect that insurance, and how does it compare to theirlosses?) Let's find ways to create a level playing field on which all can prosper. Sustainable and just to all.
And let's see about making it okay for tenured professors to share those ideas with their readers and students. And more profitable than promoting structures that need to be "insured against."
How far is the saying true that "Every one lives either by working, or
by begging, or by stealing."' Observe: This is primarily a question
merely of fact, and not of right or wrong. There may be (1) Right
Work and Wrong Work; (2) Begging that is justifiable, and Begging that
is unjustifiable; (3) Stealing which is pardonable, and stealing which
is unpardonable. In simply placing, therefore, any class of persons
under one or another of these three heads, I am not necessarily either
praising or blaming the individual members of that class. Again, of two
paid workers one may be greatly underpaid, and the other as greatly
overpaid. But neither is this consideration embraced in the question
before us. We have not to do, tonight, with the merits of any
individual, nor with the value or valuelessness of any kind of work, nor
yet with the equitable assignment in any particular case of the reward
of work. Let us, in the first place, classify the members of English
society by dividing them simply into — I. Workers, and II. NonWorkers.
I. Workers, e.g.: — Manual labourers, skilled and unskilled; domestic
servants; soldiers; sailors; farmers; clerks and overseers; professional
men; retail and wholesale dealers; merchants and manufacturers; bankers
(sleeping partners are excepted); teachers and preachers; artists,
authors, and editors; high officers and Ministers of State; the
Sovereign; housewives. All these are doing work, and are receiving pay
in coin or kind in return for their work. Some of them may be doing
unpaid (honorary) work as well as paid work; and others may be getting
interest (on a capital for which they never worked) in addition to those
wages of superintendence which are strictly the reward of a merchant's
or manufacturer's work. Again, some of them may be working in appointed
places for definite salaries, while others may be working, so to speak,
"on their own hook," or, in more elegant language, "paddling their own
canoe." By what mark, then, shall we distinguish the type of man who
lives by his work? What is his definition? He is the man who lives upon
pay, in coin or kind, which is given him in return for his personal
services. And only in proportion as his means of living are derived from
such pay, or from his personal labour on the soil, can he properly be
said to "live by working.'' We have next to consider who are the (II.)
Non-Workers of Society, and whether they may all, without exception, be
properly included in the two classes, "Beggars," and "Stealers" —
whether, in fact, this two-fold division of them is an exhaustive one.
Now, Beggars and Thieves are alike in these respects, that they, both of
them, consume without producing, enjoy without labouring, are served
but render no service to others, receive but give not in return, are
clever in subtraction, but failures in addition. Wherein, then, do they
differ from each other? They differ, for the purposes of the present
argument, only in the different dispositions of their respective victims
towards them. The victim of the Beggar is a willing victim; he is influenced by custom, or by compassion for weakness, pain, or privation. On the other hand, the victim of the Thief is an unwilling victim.
It may be that he is unconscious of the spoliation that is perpetrated
One might be led to ask, how many is enough, and how we might go about encouraging our best and brightest into careers that serve others instead of rent-seeking. Two generations ago, many became doctors, engineers and teachers.
What changes in public policy will reduce the returns now funneled so generously to the rent-seekers, leaving more for the folks who labor in the productive sectors of the economy?
Why do we pay so little attention to rent-seeking?
Why is rent-seeking taught to our MBAs, but the impacts of rent-seeking not taught to our liberal arts, social sciences, political science, public policy students?
D'ya think that the rent-seekers might really really like it this way??
Shiller: Too Many Graduating Seniors Go Into Finance
Too many of the our brightest people may be choosing careers in finance,
undertaking economically and socially useless — and even harmful —
activities, Robert Shiller, a Yale University economics professor,
writes in an article for Project Syndicate.
survey of elite U.S. universities showed that 25 percent of Harvard
graduating seniors, 24 percent of Yale graduating seniors and 46 percent
of Princeton graduating seniors were going into financial services in
2006, notes Shiller, co-creator of the Case-Shiller home price index.
While those proportions have fallen more recently, he explains that might only be a temporary effect of the financial crisis.
more are going into speculative fields like investment banking rather
than traditional finance such as lending, he says, citing a study by
Thomas Philippon of the Stern School of Business, New York University
and Ariell Reshef of the University of Virginia.
need some traders and speculators, Shiller concedes, as they provide
some useful service — sorting through information about businesses and
trying to judge their real worth.
"But these people's activities
also impose costs on the rest of us," he explains. Much of their
speculation and deal making is "pure rent-seeking."
other words, it is wasteful activity that achieves nothing more than
enabling the collection of rents on items that might otherwise be free."
working in speculative finance fields are like a feudal lord installing
a chain across a river to charge fees on passing boats, he argues.
Making no improvements to the river, the lord does nothing productive
and helps no one but himself. Few people will use the river if enough
lords put chains across it to collect fees.
working in speculative fields, he says, "skim the best business deals,
creating a 'negative externality' on those who are not party to them."
For example, they can reject bad assets, such as subprime mortgage securities, offloading them to less knowledgeable investors.
repeal of the Glass-Steagall Act, which blocked commercial banks from
investment banking, allowed bankers to act more and more like those
feudal lords collecting fees.
"In fact, the main advantages of
the original Glass-Steagall Act," he says, "may have been more
sociological than technical, changing the business culture and
environment in subtle ways. By keeping the deal-making business
separate, banks may have focused more on their traditional core
A paper by economists at Columbia University and Princeton published on the Social Science Research Network website
showed that over-the-counter (OTC) traders allowed informed dealers to
extract excessive rents and to undermine organized exchanges by
"cream-skimming" the best deals.
informational rents in OTC markets in turn attract too much talent to
the financial industry, which would be more efficiently deployed as
real-sector entrepreneurs," the paper asserts.
Plus, OTC dealers'
rents tend to increase "as there are more informed dealers, because the
greater cream-skimming by dealers worsens the terms entrepreneurs can
get for their assets on the organized exchange, and therefore their
bargaining power on OTC markets."
One of the reasons for our poor economic performance is the large distortion in our economy caused by the tax system. The one thing economists agree on is that incentives matter — if you lower taxes on speculation, say, you will get more speculation. We’ve drawn our most talented young people into financial shenanigans, rather than into creating real businesses, making real discoveries, providing real services to others. More efforts go into “rent-seeking” — getting a larger slice of the country’s economic pie — than into enlarging the size of the pie.
It doesn’t have to be this way. We could have a much simpler tax system without all the distortions — a society where those who clip coupons for a living pay the same taxes as someone with the same income who works in a factory; where someone who earns his income from saving companies pays the same tax as a doctor who makes the income by saving lives; where someone who earns his income from financial innovations pays the same taxes as a someone who does research to create real innovations that transform our economy and society. We could have a tax system that encourages good things like hard work and thrift and discourages bad things, like rent-seeking, gambling, financial speculation and pollution. Such a tax system could raise far more money than the current one — we wouldn’t have to go through all the wrangling we’ve been going through with sequestration, fiscal cliffs and threats to end Medicare and Social Security as we know it. We would be in sound fiscal position, for at least the next quarter-century.
to which I posted a response. The last time I looked, it was the only one, out of about 430, which discussed the issue of rent seeking. Here's what I wrote:
How do we unstack it? Collect the rent. Treat it as our COMMON treasure, not something subject to privatization by individuals, corporations, foundations, universities, etc.
Will it fund everything? We don't know. We can't know. We don't even collect the data that would permit us to calculate its magnitude. (Funny thing about that. Wonder who benefits from that. Could it be the rent-seekers?) Start collecting it, and using it to fund public goods.
At the same time, start reducing, even eliminating the dumb taxes which burden the economy: taxes on sales, buildings, wages, starting with the lowest wages earned. Watch the 99% recover. Watch the economy recover. The 1% will do all right under such a set up, but the rest of us will begin to thrive. Most likely, we'd be able to reduce the amount we need to spend on the social safety net, so that collected rent might cover a large share of our internal revenue needs.
What else might we collect revenue from? How about the privileges we've given out -- the privilege of using the airwaves (think how much a strong radio signal sells for in a large city) and the entire electromagnetic spectrum; franchises of various kinds, landing rights at LaGuardia, particularly at rush hour;
Then there are our nonrenewable and scarce natural resources: water, oil, natural gas, various metals. Royalties on many of these things are trivial, or they are going into private pockets, instead of being treated as our common treasure.
I wonder if Morgan the Pirate,
When plunder had glutted his heart,
Gave part of the junk from his ships he had sunk
To help some Museum of Art;
If he gave up the role of "collector of toll" And became a Collector of Art?
I wonder if Genghis the Butcher, When he'd trampled down nations like grass.
Retired with his share when he'd lost all his hair, And started a Sunday school class;
If he turned his past under and used half his plunder In running a Sunday school class?
I wonder if Roger the Rover,
When millions in looting he made,
Built libraries grand on the jolly mainland
To honor Success and "free trade;"
If he founded a college of natural knowledge Where Pirates could study their trade?
I wonder, I wonder, I wonder,
If Pirates were ever the same,
Ever trying to lend a respectable trend
To the jaunty old buccaneer game;
Or is it because of our Piracy Laws That philanthropists enter the game?
—Wallace Irwin, in Life. -- reprinted in The Painter and Decorator, a union journal, 1907
Quite belatedly, I found an interesting article on Taxi Medallions and Rent-Seeking. I particularly like the juxtaposition of the sidebar and the article's primary content; read the sidebar first.
Why did I include in the "categories" for this post "all benefits go to the landholder"? Because a taxi medallion is a privilege, which, in classical economics, is another form of "land." Read the sidebar!
There is an easy solution: auction off those privileges for limited periods of time. Lather, rinse, repeat!
The sidebar quotes Adam Smith "... the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce," which leads me to think about Henry George's axiom that
"The fundamental principle of human action — the law that is to political economy what the law of gravitation is to physics — is that men seek to gratify their desires with the least exertion." [Progress & Poverty Book III, Chapter 6 — The Laws of Distribution: Wages and the Law of Wages]
One quote from the body of the article:
Studies of economic losses due to rent-seeking and the resulting
monopolies have produced figures ranging from 3 to 12 percentage points
of national output for the US.
All of these are possible reasons why the city of Milwaukee might want
to limit the number of cab permits, but they do not imply that the
existing owners must have a permanent right to them.
The city could simply auction 321 licences every year or two and capture
all of the economic rents for itself. Another argument is that a permit
acts as a pension for drivers that would otherwise not have a business
they could sell on retirement. But that is true only for the first,
lucky generation of owners.
George Monbiot has an excellent article on tax in the Guardian this morning. At its core is an argument for land value taxation, which he explains has long had powerful support. As he puts it:
In 1909 a dangerous subversive explained the issue thus. “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains -– and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”
Who was this firebrand? Winston Churchill. As Churchill, Adam Smith and many others have pointed out, those who own the land skim wealth from everyone else, without exertion or enterprise. They “levy a toll upon all other forms of wealth and every form of industry”. A land value tax would recoup this toll.
[W]hat’s wrong with the argument the Terry Leahys and the Bob Diamonds make for their extreme wealth? Look, the line runs, we work bloody hard for it; we’re worth it. And it’s true: unlike previous generations of the ultra-wealthy, many of the modern super-rich work for a living, in running major businesses or in finance (although the Davos guestlist still includes plenty of sheikhs and royals). But that doesn’t mean they truly earn the millions they claim.
Take a look at who’s in the Davos set. Last spring, two American academics, Jon Bakija and Brad Helm, and a US Treasury official, Adam Cole, published the most comprehensive analysis yet of the richest 0.1% earners, based on tax returns. Of these top dogs, nearly two in three were top corporate executives and bankers. And the story in both those professions has not been of brilliant returns to shareholders or vast improvements for society, but of wealth extraction and lobbying politicians, Davos-style. In particular, the tale of modern high-finance is of generating transactions, whether in corporate mergers or sub-prime mortgages and then skimming off some of the cash.
That’s extracting rent in exactly the same way that the property owner does. Economically the logic is the same. This is all unearned income, and we should not be granting it favours which increase the divisions and stresses in society; we should be taxing it.
That means we need land value taxation for sure, but we need progressive income taxation, capital gains tax at the same rate as income tax and enforceable corporation tax too if these rents are to be collected. And then there’s the need for reform of inheritance tax.
I really must get round to writing the Joy of Tax. It is next on my list.
"This is where the debate about workers and shirkers, strivers and skivers should have led. The skivers and shirkers sucking the money out of your pockets are not the recipients of social security demonised by the Daily Mail and the Conservative party, the overwhelming majority of whom are honest claimants. We are being parasitised from above, not below, and the tax system should reflect this."
Although this is a UK-focused story, it has international relevance. As we've noted several times before, Land Value Tax is an essential element of any good tax mix. It's progressive, it doesn't damage productivity, and it curbs the abusive practice of economic rent extraction. The article has a particular opinion:
"It's not really a tax. It's a return to the public of the benefits we have donated to the landlords. When land rises in value, the government and the people deliver a great unearned gift to those who happen to own it."
Here are the opening paragraphs of a recent article about the complexities of Ground Lease contracts. I commend the entire article to your attention. It helps flesh out why and how the entire FIRE sector -- Finance, Insurance and Real Estate (as well as their attorneys) -- is receiving such a large share of the profits produced by the productive sectors of the economy. The owner of land, and the entities which lend on land, and insure the buildings and the revenue flow, all reap significant shares of what the tenants labor to create. Modern sharecropping. And the recipients of the ground rent get to parade as self-made men, people of awesome foresight and wisdom -- and even philanthropists (think Brooke Astor, the Fishers, and others in your own community) when they donate a small share back to a charity! As you read this, think both of Manhattan land and of land in your community's central business district, and along its major roads. (Location, location, location!)
If one wonders why (true) small business struggles, one might consider the complexity and expense of their ground leases, and contrast that with the Georgist alternative: that one's taxes would be simply the current rental value of the land, while the value of the building remains one's private property, not subject to taxation or going pouf! at the end of a ground lease.
The land lord is "supplying" something he didn't create. We ought to ease him out. Land value taxation is the obvious tool for reducing, and -- slowly or not -- eliminating, his "take" on those who do create. Think what it would mean if working people had that spending power, instead of the lords of the land.
All that land rent could be used to fund our community's needs, instead of lining the pockets of a few very "lucky" -- privileged -- duckies. (The analogies to chattel slavery are not a long stretch, once one starts to think about it. We should all own ourselves, and reap the fruits of our own labors.)
A lease is a lease is a lease – or so you may think. Yes, real property leases grant an estate in land to a tenant for a period of time. And yes, the tenant pays for that right of possession. But the action in a lease isn’t in the conveyance provisions; it’s in the contract provisions. Multiply out the rent and other annual monetary obligations by the length of the lease term (in years), and you’ll see that it might be (and often is) a big dollar contract. Even more important, unlike the vast majority of contracts whose obligations are satisfied in days or weeks, a lease contract goes unfulfilled for 50, 75, “99,” and even 500 years. That takes it beyond the life of the parties involved in its creation, and the future brings surprises. Neither Nostradamus nor Jules Verne got everything right.
Why a Ground Lease?
If a tenant has to build its own building (as is often the case), and has all of the burdens of ownership, why would it lease a property knowing that at the end of the lease term it has nothing left to show for its money and efforts? There are a number of common reasons, principal among them is that the owner won’t sell the land and the tenant has no alternative.
Real property often carries a long term unrealized gain, waiting to be taxed upon its sale.
Not every landowner is interested in making further active real property investments. This makes a like kind exchange unappealing.
Ground leasing the same land keeps ownership in the family. At the owner’s death, because of the current estate tax “stepped up basis” arrangement, the built in gain may never be taxed.
Published weekly, by Henry George,
at the office of The Standard, 25 Ann Street, New York
October 22, 1887
printed in The Standard,
October 8, 15 and 22, 1887
Mr. Edward Atkinson is a gentleman of whom I have no disposition to
speak in any other terms than those of respect and esteem. He
has done a vast amount of useful work; he is sincerely desirous of
promoting the welfare of mankind; he has done much for the
dissemination of sound ideas on economic questions, and he is always
sincere and earnest. His weakness is mostly in a too strong
conviction of his own infallibility, in the full persuasion that he
knows just what needs to be done, how it is to be done and when it
must be done, and a consequent peremptory method of disposing of
everybody as something very like a fool who does not agree with him
upon all these details. Thus, he has been for many years in
favor of free trade, and in former years he strenuously insisted
upon the vital importance of reform in that direction. He has
not recanted his opinions; but he has become more interested in
other questions, and now he has very little patience with, and
indeed, something very like contempt for, men who hold his opinions
as to free trade and think that issue more important than the new
questions which have recently attracted Mr. Atkinson's mind.
In May last Mr. Atkinson addressed the Boston labor lyceum,
ostensibly on the subject of the proposed eight hour law, but really
on the question, "How are the profits divided?" His address,
as revised, has but just come into my hands, and it raises some
issues which need further consideration and a broader view. In
reviewing its conclusions, it may be as well to accept its statement
of facts and statistics without dispute, for it is so evident that
Mr. Atkinson has overlooked important elements of the problem, upon
his own showing, that it is not worth while to enter into
controversy as to the facts or figures.
Mr. Atkinson claims that in $1,100,000 worth of cotton sheeting
there is not more than $145,000 profit to capitalists, while $15,000
go in taxes and $940,000 to labor. He makes no allowance
whatever for rent, except perhaps for the rent of the ground upon
which the mill stands. He assumes that 1,400 bales of cotton
can be grown upon land which pays no rent and costs nothing to the
cotton grower. Of course he makes no allowance for rent in the
cost of supplies, machinery, repairs, freight, etc. In one
place he says that rent does enter into the cost; in another he says
that if the landlord is taxed upon his rent he will add the tax to
the rent, and so it will enter into the cost; and finally he says
that rent amounts to a trifle less than 1% of sales, anyway.
Now the truth is that before this $1,100,000 worth of cotton
sheeting can get into the hands of the people there must be paid out
of the proceeds rent, or the interest on the cost of the land, which
is the same thing, on the land where the cotton is grown, on which
the supplies are manufactured, on which the railroad is laid, on
which the repairs are done, on which the sheeting mill is situated,
on which the great stores where the sheetings are sold stand, and,
finally, on which the residences of the 3,400 persons said to be
engaged in producing these goods also stand. All this is
plainly stated in Mr. Atkinson's "Distribution of Products."
We will leave Mr. Atkinson to reckon the amount of these items,
simply remarking that upon his own estimates the single item of the
rent of the stores in which the goods are sold would add $100,000 to
their cost, and that, making the most moderate allowance for the
rent of the other land used in this work of production, it is
obvious that rent alone would far exceed the whole sum Mr. Atkinson
has allowed to go to compensation for capital.
In the next place, Mr. Atkinson has fallen, for the moment, into the
old idea, long ago exploded by Adam Smith, but still current among
unthinking people, that what is spent by the rich in their personal
luxuries is as truly employed for the general good as that which is
spent in productive enterprise. He seeks to reduce the
$145,000 appropriated by capital by showing that much of this is
spent in employing labor. He might just as well include the
whole of it, because even the money which he charges to waste, as
spent on champagne, etc., is all paid out for labor of some kind.
The true rule is that nothing should be charged to labor except that
which is expended usefully and so as to promote reproduction.
A lord who employs a hundred servants to wait upon his idle and
useless person, not only wastes the money which he pays to them, but
also wastes their time and skill in occupations which neither help
him nor them to serve mankind any better than they would have done
before. Every dollar thus spent is devoted to waste, not to
I stumbled across an excerpt from this in The American Cooperator, and when I couldn't find the material in any of George's other books, I went looking for the source, an 1887 book with chapters by 16 authors.
Enjoy! (It prints out as about 9 pages, if you're so inclined)
THE HISTORY, PURPOSE AND
POSSIBILITIES OF LABOR ORGANIZATIONS
IN EUROPE AND AMERICA; GUILDS, TRADES-
UNIONS, AND KNIGHTS OF LABOR; WAGES AND PROFITS;
HOURS OF LABOR; FUNCTIONS OF CAPITAL; CHINESE LABOR:
COMPETITION; ARBITRATION; PROFIT-SHARING AND
CO-OPERATION; PRINCIPLES OF THE KNIGHTS OF
LABOR; MORAL AND EDUCATIONAL AS-
PECTS OF THE LABOR QUESTION.
EDITED BY GEORGE E. McNEILL,
First Deputy of Mass. Bureau of Statistics of Labor; Sec.-Treas. of D. A. 30, Knights of Labor.
ASSOCIATE AUTHORS: TERENCE V. POWDERLY, G. M. W., K. of L.; DR. EDMUND J. JAMES, University of Pennsylvania; HON. JOHN J. O'NEILL, of Missouri;
HON. J. M. FARQUHAR, of New York; HON. ROBERT HOWARD, of Massachusetts; HENRY GEORGE, of New York;
ADOLPH STRASSER, Pres. Cigar Makers' Union; JOHN JARRETT, of
Pennsylvania; REV. R. HEBER NEWTON, of New York; F K. FOSTER, of
Massachusetts; P. M. ARTHUR, Chief Engineer Locomotive Brotherhood; W.
W. STONE and W. W. MORROW, of California; FRANKLIN H. GIDDINGS,
"Springfield Union"; JOHN McBRIDE, Secretary Coal Miners' Union;
D.J.O'DONOGHUE, of Toronto, Canada; P. J. McGUIRE, Secretary Carpenters'
NEW YORK: THE M. W. HAZEN CO.
Copyright 1886, by
A M. BRIDGMAN & CO.
CHAPTER XXIII. THE LAND QUESTION.
MAGNITUDE OF THE QUESTION — FIRST PRINCIPLES — THE
LAND-OWNER THE ABSOLUTE MASTER OF MEN WHO MUST LIVE ON HIS LAND — THE
ORDER OF NATURE INVERTED — EQUAL RIGHTS TO THE USE OF THE EARTH —
SELFISHNESS, THE EVIL GENIUS OF MAN — THE IRISH PEOPLE FORCED TO BEG
PERMISSION TO TILL THE SOIL — APPROPRIATION OF THE CHURCH-LANDS — LAND
IN ITSELF HAS NO VALUE — THE GREAT CAUSE OF THE UNEQUAL DISTRIBUTION OF
WEALTH — NO HOPE FOR THE LABORER, SO LONG AS PRIVATE PROPERTY IN LAND
EXISTS — NOTHING MYSTERIOUS ABOUT THE LABOR QUESTION — THE DIFFICULTY IN
FINDING EMPLOYMENT — NATURE OFFERS FREELY TO LABOR — NATURAL MEANS OF
EMPLOYMENT MONOPOLIZED — SPECULATION IN THE BOUNTIES OF NATURE.
BENEATH all the great social questions of our time lies one of primary
and universal importance, the question of the rights of men to the use
of the earth.
The magnitude of the pecuniary interests involved, the fact that the
influential classes in all communities where private property in land
exists are interested in its maintenance, lead to a disposition to
ignore or belittle the land question: but it is impossible to give any
satisfactory explanation of the most important social phenomena without
reference to it; and the growing unrest of the masses of all civilized
countries, under conditions which they feel to be galling and unjust,
must at length lead them, as the only way of securing the rights of
labor, to turn to the land question.
To see that the land question does involve the problem of the equitable
distribution of wealth; that it lies at the root of all the vexed social
questions of our time, and is, indeed, but another name for the great
labor question in all its phases, it is only needful to revert to first
principles, and to consider the relations between men and the planet
We find ourselves on the surface of a sphere, circling through
immeasurable space. Beneath our feet, the diameter of the planet extends
for eight thousand miles; above our heads night reveals countless
points of light, which science tells us are suns, that blaze billions of
miles away. In this inconceivably vast universe, we are confined to the
surface of our sphere, as the mariner in mid-ocean is confined to the
deck of his ship. We are limited to that line where the exterior of the
planet meets the atmospheric envelope that surrounds it. We may look
beyond, but cannot pass. We are not denizens of one element, like the
fish; but while our bodies must be upheld by one element, they must be
laved in another. We live on the earth, and in the air. In the search
for minerals men are able to descend for a few thousand feet into the
earth's crust, provided communication with the surface be kept open, and
air thus supplied; and in balloons men have ascended to like distances
above the surface; but on a globe of thirty-five feet diameter, this
range would be represented by the thickness of a sheet of paper. And
though it is thus possible for man to ascend for a few thousand feet
above the surface, or to descend for a few thousand feet below it, it is
only on the surface of the earth that he can habitually live and supply
his wants; nor can he do this on all parts of the surface of the globe,
but only on that smaller part, which we call land, as distinguished
from the water, while considerable parts even of the land are
uninhabitable by him.
By constructing vessels of materials obtained from land, and
provisioning them with the produce of land, it is true that man is able
to traverse the fluid-surface of the globe; yet he is none the less
dependent upon land. If the land of the globe were again to be
submerged, human life could not long be maintained on the best-appointed
Man, in short, is a land-animal. Physically considered, he is as much a
product of land as is the tree. His body, composed of materials drawn
from land, can only be maintained by nutriment furnished by land; and
all the processes by which he secures food, clothing and shelter consist
but in the working up of land or the products of land. Labor is
possible only on condition of access to land, and all human production
is but the union of land and labor, the transportation or transformation
of previously existing matter into places or forms suited to the
satisfaction of man's needs.
Land, being thus indispensable to man, the most important of social
adjustments is that which fixes the relations between men with regard to
that element. Where all are accorded equal rights to the use of the
earth, no one needs ask another to give him employment, and no one can
stand in fear of being deprived of the opportunity to make, a living. In
such a community, there could be no "labor question." There could be
neither degrading poverty nor demoralizing wealth. And the personal
independence arising from such a condition of equality, in respect to
the ability to get a living, must give character to all social and
On the other hand, inequality of privilege in the use of the earth must
beget inequality of wealth and power, must divide men into those who can
command and those who are forced to serve. The rewards which nature
yields to labor no longer go to the laborers in proportion to industry
and skill; but a privileged class are enabled to live without labor by
compelling a disinherited class to give up some part of their earnings
for permission to live and work. Thus the order of nature is inverted,
those who do no work become rich, and "workingman" becomes synonymous,
with "poor man." Material progress tends to monstrous wealth on one
side, and abject poverty on the other; and society is differentiated
into masters and servants, rulers and ruled.
If one man were permitted to claim the land of the world as his
individual property, he would be the absolute master of all humanity.
All the rest of mankind could live only by his permission, and under
such conditions as he chose to prescribe. So, if one man be permitted to
treat as his own the land of any country, he becomes the absolute
sovereign of its people. Or, if the land of a country be made the
property of a class, a ruling aristocracy is created, who soon begin to
regard themselves, and to be regarded, as of nobler blood and superior
rights. That "God will think twice before he damns people of quality,"
is the natural feeling of those who are taught to believe that the land
on which all must live is legitimately their private property.
"Of course the fact that a chief or land-owner has bought and paid
for a particular privilege or species of taboo, or has inherited
from his fathers, doesn't give him in any moral claim to it. The
question is, Is the claim in itself right and reasonable? for a
wrong is only all the more a wrong for having been long and
— GRANT ALLEN, The British
Barbarians. (Words spoken by Bertram.)
Pigou, a key bridge figure in the history of his field, was one of the earliest classical economists to notice that markets do not always produce the best possible social outcomes. The pollution generated by a factory imposes costs on those who live downstream or in the path of its airborne emissions. The risks assumed by banks leading up to the recent financial crisis imposed costs on just about everybody. Market transactions often generate what economists call “externalities” — side effects, sometimes positive but often negative, that affect people who do not participate in the transaction.
Pigou, having recognized the problem, was the first to propose a solution. Society should tax the negative externalities and subsidize the positive ones. This simple notion — if you want less of something, tax it — is why his ideas periodically bubble up in the service of combating a recognizable cost to society, like pollution. We think that his approach offers an answer to another great problem of our time: inequality.
Does the extreme degree of inequality in America today really create, as Pigou would put it, negative externalities? Does the fact that hedge-fund manager Mr. Jones rakes in 100 or 1,000 times what office manager Mrs. Smith earns impose costs on everybody else? Plenty of Americans think not. Defenders of our skewed income distribution point out that a free-enterprise system requires some inequality. Unequal rewards give people an incentive to work hard and acquire new skills. They encourage inventors to invent, entrepreneurs to start companies, investors to take risks. It’s fine in this view that some people get astronomically rich. As Mitt Romney likes to say, “I’m not going to apologize for being successful.”
On the other side, many of us have a gut feeling that inequality has gone too far. Our times are reminiscent of the Gilded Age’s worst excesses. Hence the popularity of the Occupy Wall Street movement’s slogan, “We are the 99 percent.”
LVTfan here: Wouldn't it be better to prevent the inequality by such measures as treating the natural creation as our common treasure, instead of permitting its privatization and then taxing back what is taken? Treating the natural creation, and that which the community creates by its presence and its investment in public goods -- schools, roads, libraries, etc. -- as our COMMON treasure would create equal opportunity for all, a much better idea than permitting some to capture it and then taxing some of their booty back after the fact. When we let some reap what others sow, and then take back a share after the fact, we're still permitting them to reap which deprives the sowers of that right. Whether it be nature doing the sowing, or the community as a whole, no good can come of permitting the privatization of that. Henry George, in "Progress and Poverty" and "Social Problems" showed the logical, efficient, just way to do better.
The game’s true origins, however, go unmentioned in the official literature. Three decades before Darrow’s patent, in 1903, a Maryland actress named Lizzie Magie created a proto-Monopoly as a tool for teaching the philosophy of Henry George, a nineteenth-century writer who had popularized the notion that no single person could claim to “own” land. In his book Progress and Poverty (1879), George called private land ownership an “erroneous and destructive principle” and argued that land should be held in common, with members of society acting collectively as “the general landlord.”
Magie called her invention The Landlord’s Game, and when it was released in 1906 it looked remarkably similar to what we know today as Monopoly. It featured a continuous track along each side of a square board; the track was divided into blocks, each marked with the name of a property, its purchase price, and its rental value. The game was played with dice and scrip cash, and players moved pawns around the track. It had railroads and public utilities — the Soakum Lighting System, the Slambang Trolley — and a “luxury tax” of $75. It also had Chance cards with quotes attributed to Thomas Jefferson (“The earth belongs in usufruct to the living”), John Ruskin (“It begins to be asked on many sides how the possessors of the land became possessed of it”), and Andrew Carnegie (“The greatest astonishment of my life was the discovery that the man who does the work is not the man who gets rich”). The game’s most expensive properties to buy, and those most remunerative to own, were New York City’s Broadway, Fifth Avenue, and Wall Street. In place of Monopoly’s “Go!” was a box marked “Labor Upon Mother Earth Produces Wages.” The Landlord Game’s chief entertainment was the same as in Monopoly: competitors were to be saddled with debt and ultimately reduced to financial ruin, and only one person, the supermonopolist, would stand tall in the end. The players could, however, vote to do something not officially allowed in Monopoly: cooperate. Under this alternative rule set, they would pay land rent not to a property’s title holder but into a common pot—the rent effectively socialized so that, as Magie later wrote, “Prosperity is achieved.”
Readers of this blog know that Lizzie Magie had created her game and started to promote it by the Fall of 1902.
“Monopoly players around the kitchen table”—which is to say, most people—“think the game is all about accumulation,” he said. “You know, making a lot of money. But the real object is to bankrupt your opponents as quickly as possible. To have just enough so that everybody else has nothing.” In this view, Monopoly is not about unleashing creativity and innovation among many competing parties, nor is it about opening markets and expanding trade or creating wealth through hard work and enlightened self-interest, the virtues Adam Smith thought of as the invisible hands that would produce a dynamic and prosperous society. It’s about shutting down the marketplace. All the players have to do is sit on their land and wait for the suckers to roll the dice.
Smith described such monopolist rent-seekers, who in his day were typified by the landed gentry of England, as the great parasites in the capitalist order. They avoided productive labor, innovated nothing, created nothing—the land was already there—and made a great deal of money while bleeding those who had to pay rent. The initial phase of competition in Monopoly, the free-trade phase that happens to be the most exciting part of the game to watch, is really about ending free trade and nixing competition in order to replace it with rent-seeking.
This is a good article, and I commend it in its entirety to your attention. It also provides links to Tom Forsythe's new site, http://landlordsgame.info/, whose graphics show many early versions of the Landlord's Game, which I look forward to exploring. I learned for the first time that the game layout that I had thought was an early one, with a lake in the center, was actually a 1939 version, based on Lizzie Magie's design but published by Parker Brothers. (I ought to have figured that out sooner, since the board includes her married name!)
It is interesting that one of the earlier versions -- 1909 -- was based on Altoona's streets. In the past year, Altoona has shifted to taxing land and not taxing buildings to fund its municipal spending. (This was a gradual shift, accomplished over a number of years; they must have liked the effect!)
Henry George is the most famous American popular economist you've never heard of, a 19th century cross between Michael Lewis, Howard Dean and Ron Paul. Progress and Poverty, George's most important book, sold three million copies and was translated into German, French, Dutch, Swedish, Danish, Spanish, Russian, Hungarian, Hebrew and Mandarin. During his lifetime, George was probably the third best-known American, eclipsed only by Thomas Edison and Mark Twain. He was admired by the foreign luminaries of the age, too -- Leo Tolstoy, Sun-Yat Sen and Albert Einstein, who wrote that "men like Henry George are unfortunately rare. One cannot image a more beautiful combination of intellectual keenness, artistic form and fervent love of justice." George Bernard Shaw described his own thinking about the political economy as a continuation of the ideas of George, whom he had once heard deliver a speech.
Later, she writes,
George found most mysterious about the economic consequences of the
industrial revolution was that its failure to deliver economic
prosperity was not uniform -- instead it had created a winner-take-all
society: "Some get an infinitely better and easier living, but others
find it hard to get a living at all. The 'tramp' comes with the
locomotives, and almshouses and prisons are as surely the marks of
'material progress' as are costly dwellings, rich warehouses and
magnificent churches. Upon streets lighted with gas and patrolled by
uniformed policeman, beggars wait for the passer-by, and in the shadow
of college, and library, and museum, are gathering the more hideous Huns
and fiercer Vandals of whom Macaulay prophesied."
diagnosis was beguilingly simple -- the fruits of innovation weren't
widely shared because they were going to the landlords. This was a very
American indictment of industrial capitalism: at a time when Marx was
responding to Europe's version of progress and poverty with a wholesale
denunciation of private property, George was an enthusiastic supporter
of industry, free trade and a limited role for government. His culprits
were the rentier rich, the landowners who profited hugely from
industrialization and urbanization, but did not contribute to it.
had such tremendous popular appeal because he addressed the obvious
inequity of 19th century American capitalism without disavowing
capitalism itself. George wasn't trying to build a communist utopia. His
campaign promise was to rescue America from the clutches of the robber
barons and to return it to "the democracy of Thomas Jefferson." That
ideal -- as much Tea Party as Occupy Wall Street -- won support not only
among working class voters and their leaders, like Samuel Gompers, but
also resonated with many small businessmen. Robert Ingersoll, a
Republican orator, attorney and intellectual, was a George supporter. He
urged his fellow Republicans to back his man and thereby "show that
their sympathies are not given to bankers, corporations and
I commend the entire post, adapted from Freeland's new book, Plutocrats. It ends with these paragraphs:
today urgently needs a 21st century Henry George -- a thinker who
embraces the wealth-creating power of capitalism, but squarely faces the
inequity of its current manifestation. That kind of thinking is missing
on the right, which is still relying on Reagan-era trickle-down
economics and hopes complaints about income inequality can be silenced
with accusations of class war. But the left isn't doing much better
either, preferring nostalgia for the high-wage, medium-skill
manufacturing jobs of the post-war era and China-bashing to a serious
and original effort to figure out how to make 21st century capitalism
work for the middle class.
and the technology revolution aren't going away -- and thank goodness
for that. Industrialization didn't go away either. But between 1886,
when George lost the mayoral race, and the presidency of FDR, American
progressives invented, fought for and implemented a broad range of new
social and political institutions to make capitalism serve the whole of
society -- ranging from trust-busting, to the income tax, to the welfare
are living in an era of comparably tumultuous economic change. The
great challenge of our time is to devise the new social and political
institutions we need to make the new economy work for everyone. So far,
that is a historic task neither party is taking on with enough energy,
honesty or originality."
Along the same lines, you might find interesting an earlier post here, an article by Thomas Shearman entitled "Henry George's Mistakes." (He was a co-founder of Shearman & Sterling, and went on to write some excellent articles on plutocracy in The Standard, October, 1887.)
Well, not quite. The film's a little older than I am.
Watched that film last night ... great quote:
Billie: Because when ya steal from the government, you're stealing from yourself, ya dumb ass.
And when we allow others to steal from the commons what rightly belongs to the community, what are we? Some of that theft we all recognize as theft, and other kinds are perfectly legal, even honored, under our current laws. I find the latter even more troubling than the former.
And when neither our economists nor our leaders even SEE it, it is fair to call that a corruption of what their businesses are supposed to be.
Equity, therefore, does not permit property in land. For if
one portion of the earth's surface may justly become the
possession of an individual and may be held by him for his sole use
and benefit as a thing to which he has an exclusive right, then
other portions of the earth's surface may be so held; and eventually
the whole of the earth's surface may be so held; and our planet may
thus lapse into private hands.
— HERBERT SPENCER, in 1850, Social
Statics, Chap. IX.
In the early ages of society it would have been impossible to
maintain the exclusive ownership of a few persons in what seems at
first sight an equal gift to all (the land) — a thing to which
everyone has the same claim.
— WALTER BAGEHOT (1826-1877),
Economic Studies, Essay I., Part I., p. 31.
Let us suppose that a people is excluded from the ownership of the
land. I say that this exclusion, even if followed by no other
injustice (which I think impossible), by making a man a stranger to
the commonwealth, makes him indifferent to the existence of the
— MARMONTEL, Address in Favor of
the Peasants of the North (1757), Oeuvres, Vol X., p. 72.
"The wages problem resolves itself into a very simple question, viz.: Which is the better for a community — to have 10,000,000 men earning $2.50 a day, with hours that enable them to read and rest and pass a fair proportion of their time with their families, and at the same time have no millionaires, or to have those 10,000,000 men working fifteen hours a day at $1.50, and have a few score millionaires?"
The Standardwas devoted to issues like this, and makes excellent reading in this decade and century.
It might be worth noting that in those days when one spoke of a millionaire, the reference was to someone whose assets totalled over $1 million. Today, it is commonly used to refer to someone whose annual income is over $1 million. But you'll notice what workmen's wages were in 1887 -- $1.50 a day is $468 per year*, and likely didn't leave much, if anything, for savings. [6 days a week.]
So which IS better for the community? The families making $1.50 or $2.50 a day are spending nearly every penny of that, just in order to get by. The millionaires can only spend so much on the necessities of daily life, plus some generous amount on luxuries. The rest they will invest, one way or another, and the wise ones, in our current structure, will "invest" in land -- particularly choice urban sites -- and natural resources, since we as a society are so generous about letting the owners of these assets keep most of what those assets earn, despite them having nothing to do with having created those assets, and being in no position to create more in response to demand, which will naturally increase with population!!
THAT is the problem with our current "generosity."
The spending of the 10 million on the necessities of daily life creates jobs for a lot of other people. (The portion that goes to their landlords in payment for the right to occupy bits of urban -- or other -- land, DOESN'T create any jobs; it simply enriches the landlord. I don't begrudge the landlord the portion that relates to the building, or to services he provides, such as, say, a doorman in the city.)
The nobility and gentry and even those holy men, the abbots, not
content with the old rents that their farms yielded, nor thinking it
enough that they, living at their ease, do no good to the public,
resolve to do it hurt instead of good. . . . As if
forest and parks had swallowed up too little of the land, those
worthy countrymen turn the best inhabited places into solitude.
The post below this one, "Mitt Romney's 'Fair Share' " refers to his fair share of the costs of providing public goods.
But perhaps an equally important question is the nature of one's fair share of the output of our economy and the output of the earth. Some of the former output is the result of individual efforts, and one ought to be able to keep that portion. But at the same time we must recognize how much comes from the division of labor, from drawing down on the non-infinite supply of non-renewable natural resources on which all of us today must depend and on which future generations of human beings must rely. Those who draw down more than their legitimate share owe something to the rest of the community. Our wealthiest tend, we suspect, to use many, many times their legitimate share, and the median American likely draws far more than their share, when one considers the planet as a whole.
Perhaps "legitimate" is not the right word here. It refers to what is permissible under current law. (The word gets misused a lot -- see the discussion on "legitimate rape," which seemed to be about the circumstances under which a woman has a right to make a specific very personal, decision, and when it is considered by some to not be left to her and is the province of government, legislators or others.)
What is one's "fair share" of natural resources? America is using a hugely disproportionate share of the world's resources. Are we entitled to it because we're somehow "exceptional"? Because "our" God is somehow better than other nation's Gods? Or do we genuinely believe that all people are created equal, and intend to live our lives accordingly?
Our output of greenhouse gases exceeds our share of the world's population. This is not without consequences for the world, and for peace on earth.
We ought to be re-examining our incentives so that they move us in the direction we ought to be going, which is, to my mind, using less. We can build transportation infrastructure which will permit many more of us to move around with less impact on the environment. We can fund that through collecting the increases in land value that infrastructure creates. We can correct the incentives which cause us to use today's inferior technologies to extract natural resources from the earth in ways which damage the environment, as if ours was the final generation, or the only one worth serious consideration.
Better incentives could reduce, eliminate, even reverse urban sprawl. I refer specifically to land value taxation as a replacement for the existing property tax, particularly in places where assessments are for one reason or another not consistent with current property values -- e.g., California and Florida, parts of Delaware and Pennsylvania which currently use assessments from the 1970s, and many other places where assessments are simply out of whack with current reality!) We should be replacing sales taxes, wage taxes, building taxes with taxes on land value and on natural resources. Most of that value is flowing generously into private or corporate pockets, to our detriment. It concentrates wealth, income, and, of course, political power.
Collecting the rent, instead of leaving the lion's share of it to be pocketed by the rent-seekers, would go a long way to making our society and our economy healthier. Eliminating the privilege of privatizing that which in a wisely designed society would be our common treasure would make our society a better place in which to live, a place in which all could thrive and prosper without victimizing their fellow human beings.
A major theme of the underlying political debate in the United States is the role of the state and the need for collective action. The private sector, while central in a modern economy, cannot ensure its success alone. For example, the financial crisis that began in 2008 demonstrated the need for adequate regulation.
Moreover, beyond effective regulation (including ensuring a level playing field for competition), modern economies are founded on technological innovation, which in turn presupposes basic research funded by government. This is an example of a public good – things from which we all benefit, but that would be undersupplied (or not supplied at all) were we to rely on the private sector.
Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not.
But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share. ...
I have to disagree with the second sentence of this next paragraph. And I think Stiglitz knows better, if he stops to think about it:
Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable.
We don't need intrusive or coercive; we just need to start collecting the lion's share of the rent! Well, I suppose some rent-seekers would find this extremely intrusive -- it intrudes on their habit of self-enrichment by privatizing of what is rightly and logically our PUBLIC treasure, the logical way of financing PUBLIC goods. And Professor Stiglitz is quite aware of the value of natural resources; he may not be quite as conscious of the value of urban and other well-situated land.
Our national recordkeeping doesn't even collect the valuations of land and natural resources on any consistent basis! (One could reasonably argue that this failure-to-measure is a form of corruption!) What we don't measure we can't do anything about. And the powers that be are quite content with how we do things; the benefits accrue to them! And several generations of college-educated people know nothing about the issue, which was well known and widely discussed 100 years ago. (Look into the extensive Single Tax literature and the ideas of Henry George.)
Some more excerpts:
The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.
But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie.
Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; CEOs who exploit deficiencies in corporate-governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class households). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased.
Today, a deficiency of aggregate demand afflicts almost all advanced countries, leading to high unemployment, lower wages, greater inequality, and – coming full, vicious circle – constrained consumption. There is now a growing recognition of the link between inequality and economic instability and weakness.
There is another vicious circle: Economic inequality translates into political inequality, which in turn reinforces the former, including through a tax system that allows people like Romney – who insists that he has been subject to an income-tax rate of “at least 13%” for the last ten years – not to pay their fair share. The resulting economic inequality – a result of politics as much as market forces – contributes to today’s overall economic weakness.
We -- WE! -- built that -- and we ought to be collecting it, month in and month out, and keeping our hands off what the individual or small business or corporation DID build. (Of course, this presumes that each of us is expected to compensate the community for the pollution we create, and the non-renewable resources we take.)
Let it be observed that when land is taxed, no man is taxed; for the land produces, according to the law of the Creator, more than the value of the labor expended on it, and on this account men are willing to pay a rent for land.
— PATRICK EDWARD DOVE, Theory of Human Progression (1850), Chap. I., Sec. 2, p. 44
The ordinary progress of a society which increases in wealth is at all times to augment the incomes of landlords — to give them both a greater amount and a greater proportion of the wealth of the community, independently of any trouble or outlay incurred by themselves. They grow richer as it were in their sleep, without working, risking or economizing. What claims have they, on the general principles of social justice, to this accession of riches?
— JOHN STUART MILL, Principles of Political Economy, Book V., Chap. 2, Sec. 5
When I came across this article, 111 years old, I thought of the Ipswich, Massachusetts, trust established in 1650 by the gift of a fine 32-acre piece of land by a forward-thinking resident. His stated intention was that the land be kept by the town, forever, for the benefit of the public schools. Alas, it was poorly managed for a number of years, perhaps decades, and this appears to have been transformed, remarkably, into an excuse for the eager TENANTS to buy the land (and at less than half what I calculate it to be worth -- click on the "Little Neck Feoffees of Ipswich" link at left to see all my posts on the topic).
The tradition of school lands has served many communities very well. Part of Chicago was rented out to tenants and the revenues used to fund the city's schools.
But some fast-talkers appear to have convinced the powers-that-be in Ipswich, Mass., (including, remarkably, some judges and perhaps the state A.G.!) that "forever" is just temporary, and other investments are superior to the revenue from land and natural resources for funding public spending. (Not!) And the land will be there forever; a few decades of poor management is, in the long run, a triviality; the same would not be true of any of the substitute investments the Feoffees and their highly-compensated investment advisors will come up with.
(The first-quoted writer was the president of the Massachusetts Institute of Technology.)
The Lands Sub-Committee submitted the following report at the last annual meeting of the Progressive Liberal Association: --
General Francis Walker, in "First Lessons in Political Economy," says: -- "It certainly is true that any increase in the rental value or selling value of land is due, not to the exertions and sacrifices of the owners of the land, but to the exertions and sacrifices of the community. It certainly is true that economic rent tends to increase with the growth of wealth and population, and that thus a larger and larger share of the products of industry tends to pass into the hands of the owners of land, not because they have done more for society, but because society has greater need of that which they control."
On the same subject Thorold Rogers has expressed himself thus: -- Every permanent improvement, every railway and road, every bettering of the general condition of society, every facility given for production, every stimulus applied to consumption, raises rent. The land owner sleeps, but thrives."
The observant thinking man must admit that the above opinions are borne out by facts, but the importance to the community of the nationalisation of the land is unfortunately realised by comparatively few. If people would endeavour to understand its importance, there is little doubt that the majority would be forced to the conclusion that the private ownership of land is beyond question decidedly against the best interests of the State.
Cardinal Manning has said: -- "The land question means hunger, thirst, nakedness, notice to quit, labour spent in vain, the toil of years seized upon, the breaking up of homes, the misery, sicknesses, deaths of parents, children, wives, the despair and wildness which spring up in the hearts of the poor, when legal force, like a sharp harrow goes over the most sensitive and vital right of mankind. All this is contained in the land question." The opinion of the late Cardinal, expressed in such a forcible language, should at the very least induce people to study this question thoroughly. As a proof of its importance many object lessons are to be found -- as bearing upon it from a municipal point of view two may be mentioned. Doncaster in Yorkshire has no borough rate. Why? Because it is the owner of certain remunerative land; and Durban, in South Africa, for a rate of 1½d in the £ obtains the usual municipal services such as we possess in Christchurch, and in addition enjoys several others which we much desire to have. The difference is because in Durban its founders made reserve round the town which have not been alienated and have so increased in value that the rentals therefrom very nearly provide for all municipal requirements. The founders of Canterbury made a similar wise provision for Christchurch, but in an evil day the Provincial Council, when it took over the affairs of the Canterbury Association, sold the city's inheritance for a mess of pottage. It will doubtless be interesting to many to lean something of the history of the
CHRISTCHURCH TOWN RESERVES.
When constitutional government was established in Canterbury the Provincial Government took over the property of the Canterbury Association, including the town reserves of Christchurch and Hagley Park, the total area of these two being 897 acres, which, five years previoiusly, had been considered of the value of £2700. The Association had got into debt to the extent of nearly £29,000, which the Provincial Government paid with money raised on debentures, and proceeded to sell the reserves situated inside the belts. To prevent any misunderstanding as to the then estimated value of these town reserves, it is desirable to state that for the £29,000 mentioned the Association transferred to the Provincial Government all the property it possessed in Canterbury, which included other reserves than those in Christchurch, also plant, tools, survey maps and field books, which must have been value for a considerable portion of the sum named. By the deed poll of the Association these lands were to be held in trust for the purposes for which they were reserved, but a special Act of the Assembly was obtained to permit of their alienation. It has been truly said that the price of liberty is eternal vigilance. It is equally true with regard to reserves of land made for the benefit of the public; the people (every individual) should be ever on guard and watchful that no tampering with public reserves be allowed.
At the present day it is particularly interesting to consider what would now be the position of Christchurch if the reserves inside the belts had not been sold. What income would now be derivable therefrom?
Excluding twelve acres which were set apart by the Provincial Council as endowments for various religious bodies, the frontages of the reserves on the main streets of the city, as originally laid out in the extensions of these streets to the belts, amount to about 92,400 ft, after deducting 1¼ chains at each corner to avoid reckoning double frontages at corners. At 4s per foot frontage it would be £23,100. Bearing in mind that more than half the frontages have a depth of 5½ chains, it is estimated that if these lands were now let on building leases they would average a return of not less than 4s per foot, possibly more, and it is probably safe to say that the income therefrom would be £20,000 a year.
HOW WOULD CHRISTCHURCH BE AFFECTED.
The statement of accounts of the City Treasurer shows that for the year ending March 31, 1901, the rates assessed amounted to £28,526 --
General rate (omitting shillings and pence)
Special drainage rate
obtained by a total assessment of 2s 7½d in the pound, whereas, had the town reserves not been alienated, all the municipal services rendered would probably have been obtained for a modest rate of less than 9d. in the pound.
This is surely an object lesson which should be laid to heart by every inhabitant of the colony, as well as by the citizens of Christchurch, and should demonstrate how very desirable it is in the interests of the people as a community, that all land should be owned by the community, seeing that increased values of land are derived from the exertions and sacrifices of society. It will serve to show what enormous sums society thus pays to individuals to state that it is estimated that the value of land in London is increasing at the rate of 7½ millions annually; under the system of private ownership of land this large sum is accruing yearly in London alone to private individuals, and the public who must use the land, necessarily pay interest on that sum.
The Progressive Liberal Association earnestly commends these facts to the consideration of the people of New Zealand in the hope that they will insist upon a stoppage being put to the sale of Crown lands; and as regards the granting of leases in perpetuity, which, in parting with the possession for 999 years at a rental based on the present value, hands over to individuals the unearned increment for that unconscionably long period, it is hoped that a mandate will go forth from the electors of the colony insisting upon a periodical revaluation of the unimproved value. When these have been accomplished, there will be the question of the nationalisation of all the lands in the colony to be dealt with.
"That which was created for the use of all, the use of which is absolutely necessary for the existence of every individual, should be owned and controlled for the benefit of all. The private control of land is dead against the common welfare. Justice demands this, and what justice demands must sooner or later be conceded.
It will be thought an intolerable thing that men shall derive enormous increments of income from the growth of towns to which they have contributed nothing — that they shall be able to sweep into their coffers what they have not produced — that they shall be able to go on throttling towns, as they are well known to do in some cases. It is impossible to suppose that the system will not be vigorously, powerfully, persistently and successfully attacked.
—JOHN MORLEY, Speech at Forfar, October 4, 1897. The Times, October 5, 1897, p. 5, column 3.
Has no one in California figured out that when the calf is deprived of mother's milk, starvation is inevitable?
It has taken 34 years, but it is coming about.
Feeding calves grain, or seaweed, or sunflower seeds isn't as smart as letting it consume its natural food.
Taxing wages, sales and buildings isn't as smart as collecting the lion's share -- calf's share, if you will -- of the land rent for public purposes.
Proposition 13 was designed to make sure that the cows' milk was kept for the Irvines, the big landowners, the commercial property owners, and the longtime homeowners, while providing a diminishing fifth of it to the calf and supplementing with grain, seaweed and sunflower seeds.
The calf's digestive system has blown up because it was deprived of its proper food, and "nourished" with stolen fake food.
This quote is attributed to the Irish landlords, in an 1835 piece by Thomas Ainge Devyr entitled "Natural Rights: A Pamphlet for the People."
The statement bears thinking about: when private landlords collect high rents, they force their tenants to work quite hard -- keep in mind that they still have to pay taxes on various things in order to support local spending -- while the landlord has provided them NOTHING that he has made (and nothing he has bought from the fellow who made it, either).
But at the same time, it is worth considering what happens when the community collects reasonably high rents on the land, particularly urban land. When the community collects high rent, there are no vacant lots. There are relatively few underused lots. There is housing for all who want it. All this economic activity creates jobs -- for those who would design, those who would build, those who would maintain, those who would improve, those who would expand, those who would protect. All those workers' needs and spending create more jobs. Wages rise, as jobs chase workers.
So the phrase is not simply an 18th century rural one, but highly relevant in 21st century U.S. cities, towns and rural areas. When the community collects the land rent and recycles it to serve local needs -- schools, parks, well-maintained roads, public transportation systems, police, ambulance, fire protection, courts -- communities become good places to live. When we permit private landlords (be they individual or corporate, universities or trusts) to pocket those funds -- and perhaps "invest" the excess in acquiring more land on which to pocket the rent, those good things, if they happen at all, must be financed by high taxes on productive activity.
One is a virtuous circle; the other a vicious one. Which one is consistent with our ideals? If Life, Liberty and the Pursuit of Happiness are for ALL of us, then I think we have to opt for the virtuous circle.
Sir, Joseph Stiglitz is concerned that America has become less egalitarian, and no longer the land of opportunity (June 26). He mentions reducing rent-seeking as a solution, but he does not mention the paradigmatic form of rent-seeking: collecting the ground rents of land. If an increasing share of gross national product is going to the top 1 per cent, it is at least in part because they are the people who own most of the valuable land, and the rents of land are absorbing a larger share of production. No one is making more land to keep the price down by competition.
I'll leave it to you to go read the rest. (Registration is free.)
The following list comprises the most commonly asked questions about the concept of making land and resource rentals the source of revenue for government. As you continue this study, you will see the value from giving resources the respect they deserve and the benefits resulting from the freeing of labour, production and exchange from taxation. If you have any questions which are not covered here, or observations you would like to put to our panel, please feel free to do so by sending your question as an e-mail query and we will attempt to respond.
The inclusion of land and resources in the economic equation is central to any solution for revenue raising. A taxation solution which does not consider the nature of taxation itself and allows the continuing private monopolisation of community land and resources fails to recognise the essential role land plays in the economic equation and will not work. Land is the only element in the economic equation which is both fixed and finite. It can be monopolised. It is a unique class of asset which must be treated accordingly. If we were to wrest not the land itself, but its unimproved value from private monopolies and return the value to the community — whose very presence creates it — then we would have reduced many problems in one stroke with great benefit to production, to the environment and to the cause of individual freedom and justice.
On the subject of land and resource rents, Henry George said this:
The tax upon land values is the most just and equal of all taxes. It falls upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by nature be attained.
This excerpt makes some important points about a number of topics this blog focuses on:
why wealth and income concentration are not good for the economy;
rent and rent-seeking behavior
the extent to which the financial sector is absorbing the profits made by the productive sectors of our economy
I look forward to reading the book. I'll be curious to see whether Professor Stiglitz gets into what we can do via reforming our tax system to reduce the amount of rent that is available for private and corporate rent-seekers. Treat rent as our COMMON asset... Natural Public Revenue!! Don't leave it there for corporations to privatize.
It is no accident that the periods in which the broadest cross sections of Americans have reported higher net incomes — when inequality has been reduced, partly as a result of progressive taxation — have been the periods in which the U.S. economy has grown the fastest. It is likewise no accident that the current recession, like the Great Depression, was preceded by large increases in inequality. When too much money is concentrated at the top of society, spending by the average American is necessarily reduced — or at least it will be in the absence of some artificial prop. Moving money from the bottom to the top lowers consumption because higher-income individuals consume, as a fraction of their income, less than lower-income individuals do.
In our imaginations, it doesn’t always seem as if this is the case, because spending by the wealthy is so conspicuous. Just look at the color photographs in the back pages of the weekend Wall Street Journal of houses for sale. But the phenomenon makes sense when you do the math. Consider someone like Mitt Romney, whose income in 2010 was $21.7 million. Even if Romney chose to live a much more indulgent lifestyle, he would spend only a fraction of that sum in a typical year to support himself and his wife in their several homes. But take the same amount of money and divide it among 500 people — say, in the form of jobs paying $43,400 apiece — and you’ll find that almost all of the money gets spent.
The relationship is straightforward and ironclad: as more money becomes concentrated at the top, aggregate demand goes into a decline. Unless something else happens by way of intervention, total demand in the economy will be less than what the economy is capable of supplying — and that means that there will be growing unemployment, which will dampen demand even further. In the 1990s that “something else” was the tech bubble. In the first decade of the 21st century, it was the housing bubble. Today, the only recourse, amid deep recession, is government spending — which is exactly what those at the top are now hoping to curb.
The “Rent Seeking” Problem
Here I need to resort to a bit of economic jargon. The word “rent” was originally used, and still is, to describe what someone received for the use of a piece of his land — it’s the return obtained by virtue of ownership, and not because of anything one actually does or produces. This stands in contrast to “wages,” for example, which connotes compensation for the labor that workers provide. The term “rent” was eventually extended to include monopoly profits — the income that one receives simply from the control of a monopoly. In time, the meaning was expanded still further to include the returns on other kinds of ownership claims. If the government gave a company the exclusive right to import a certain amount of a certain good, such as sugar, then the extra return was called a “quota rent.” The acquisition of rights to mine or drill produces a form of rent. So does preferential tax treatment for special interests. In a broad sense, “rent seeking” defines many of the ways by which our current political process helps the rich at the expense of everyone else, including
transfers and subsidies from the government,
laws that make the marketplace less competitive,
laws that allow C.E.O.’s to take a disproportionate share of corporate revenue (though Dodd-Frank has made matters better by requiring a non-binding shareholder vote on compensation at least once every three years), and
laws that permit corporations to make profits as they degrade the environment.
The magnitude of “rent seeking” in our economy, while hard to quantify, is clearly enormous. Individuals and corporations that excel at rent seeking are handsomely rewarded. The financial industry, which now largely functions as a market in speculation rather than a tool for promoting true economic productivity, is the rent-seeking sector par excellence. Rent seeking goes beyond speculation. The financial sector also gets rents out of its domination of the means of payment — the exorbitant credit- and debit-card fees and also the less well-known fees charged to merchants and passed on, eventually, to consumers. The money it siphons from poor and middle-class Americans through predatory lending practices can be thought of as rents. In recent years, the financial sector has accounted for some 40 percent of all corporate profits. This does not mean that its social contribution sneaks into the plus column, or comes even close. The crisis showed how it could wreak havoc on the economy. In a rent-seeking economy such as ours has become, private returns and social returns are badly out of whack.
In their simplest form, rents are nothing more than re-distributions from one part of society to the rent seekers. Much of the inequality in our economy has been the result of rent seeking, because, to a significant degree, rent seeking re-distributes money from those at the bottom to those at the top.
But there is a broader economic consequence: the fight to acquire rents is at best a zero-sum activity. Rent seeking makes nothing grow. Efforts are directed toward getting a larger share of the pie rather than increasing the size of the pie. But it’s worse than that: rent seeking distorts resource allocations and makes the economy weaker. It is a centripetal force: the rewards of rent seeking become so outsize that more and more energy is directed toward it, at the expense of everything else. Countries rich in natural resources are infamous for rent-seeking activities. It’s far easier to get rich in these places by getting access to resources at favorable terms than by producing goods or services that benefit people and increase productivity. That’s why these economies have done so badly, in spite of their seeming wealth. It’s easy to scoff and say: We’re not Nigeria, we’re not Congo. But the rent-seeking dynamic is the same.
LVTfan here: Think what would happen if we SOCIALIZED rents, and substituted them as our revenue source for all the taxes we pay ... sales taxes, wage taxes, building taxes, excise taxes ...
Recall what Leona Helmsley told us: "WE don't pay taxes. The little people pay taxes." Think what a weight would be lifted off our economy if those taxes were taken off the produces of labor, and put onto Rent, in all its forms!