Your Book Review: Progress And Poverty

Finalist #3 of the book review contest

Apr 16 112 516

[This is the third of many finalists in the book review contest. It’s not by me - it’s by an ACX reader who will remain anonymous until after voting is done, to prevent their identity from influencing your decisions. I’ll be posting about two of these a week for several months. When you’ve read all of them, I’ll ask you to vote for your favorite, so remember which ones you liked. - SA]


In 1879, a man asked "How come all this new economic development and industrialized technology hasn't eliminated poverty and oppression?" That man was Henry George, his answer came in the form of a book called Progress & Poverty, and this is a review of that book.

Henry George is variously known for leading an early movement that popularized Universal Basic Income, sporting a fancy beard while shouting "The Rent Is Too Damn High!" and inspiring a popular board game that was shamelessly ripped off and repackaged as Monopoly.

But he didn't just write a book. He also ran for Mayor of New York city in 1886, beating out some rando Republican named "Theodore Roosevelt," but ultimately losing to the favored candidate of Tammany Hall, who saw George's radical economic ideas as a threat to their well-oiled political machine (Andrew Yang take note). He ran again in 1897 but died just 4 days before the election, prompting a national outpouring of mourning. According to Ralph Gabriel's Course of American Democratic Thought, in New York alone 200,000 people came to see his body lying in repose, half of which had to be turned away. For context, that one crowd was roughly the size of 10% of the entire population of New York at the time.

I'm writing this book review for three reasons:

  • George's arguments about land, labor, and capital present a fresh alternative to conventional ideas about "Capitalism" and "Socialism" (and whatever we mean by those on any given day)

  • The book has timeless advice for navigating modern crises such as ever-rising rents, homelessness, and the NIMBY vs. YIMBY wars.

  • This is a golden opportunity to shamelessly over-use the catchy phrase "By George!"

If I had to summarize the book in a single sentence I would put it this way:

Poverty and wealth disparity appear to be perversely linked with progress, The Rent is Too Damn High, and it's all because of land.

The Book as a Book

Progress and Poverty is quite readable compared to other 19th-century economic tomes, but has a tendency to repeat itself. This isn't without purpose – George goes to great pains not to be misunderstood; rather than expecting his readers to tease out the meaning of dense prose and spending the next century arguing with each other about what he "really meant", he goes on for pages and pages beating a single concept to absolute death, just to be sure.

As a 19th century treatise of Political Economy, the book doesn't match what a modern reader might expect from a book on Economics because it's not packed to the gills with charts, graphs, tables, and statistics (though it does provide a good number of citations and figures). Nevertheless his argument was compelling enough to spawn an entire economic school of thought known variously as Georgism or Geoism that persists to this day.

Nowadays Georgism gets slapped with the "heterodox" label, but it's still relevant enough to get the likes of Paul Krugman and Milton Friedman to grudgingly agree to key points, and Friedrich Hayek is alleged to have been inspired by it to pursue economics in the first place. Marx, on the other hand, wasn't a fan, seeing it as a last-ditch attempt "to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one... [George] also has the repulsive presumption and arrogance which is displayed by all panacea-mongers without exception." I guess you can't please everyone.

George spends the first few books of Volume I establishing terms and methodically tearing apart the prevailing economic theories of his day before presenting his own alternative theories about how the "three factors of production" – land, labor, and capital – relate to each other in the "laws of distribution." He then explains why the existing system causes poverty to advance alongside progress, and why we see industrial depressions. Then, he identifies the root cause of the problem (land ownership and speculative rent) and presents his solution (the Land Value Tax) in Volume II. He spends the entire second volume explaining why it is moral and just, how it should be applied, and why it will solve all of our problems.

For the sake of the reader's attention span, I'll just cover the chapters that constitute the core of George's philosophy. For sections I gloss over, I'll include a brief summary of the main point followed by a jump link to an appendix at the end of the article for those who want more detail. All block quotes are from Progress & Poverty unless otherwise marked.

Special thanks to my friend Adam Perry for helping me edit this piece, as well as to Nate Blair and blogger BlueRepublik (who have actual degrees in this sort of thing) for fact checking and answering my technical questions in the vain pursuit of not embarrassing myself.

Alright, let's dive in.

0. The Problem

George opens by observing an unkept promise made by Industrialists:

it was expected, that labor-saving inventions would lighten the toil and improve the condition of the laborer.

Industrialization should have freed humankind from drudgery and want. And yet George instead sees:

complaints of industrial depression; of labor condemned to involuntary idleness; of capital massed and wasting; of pecuniary distress among business men; of want and suffering and anxiety among the working class

If we finally have the necessary material conditions and technology for utopia, why this suffering, waste, and inefficiency?

And what's the deal with industrial depressions? How can there be periods where laborers desperately want to work but can't find employment at the very same time capital sits around in useless piles, begging to be put to productive use?

Contra popular explanations at the time, George argues it "can hardly be accounted for by local causes" such as military expenditures, tariffs, type of government, dense vs. sparse populations, or paper money vs. hard currency. This is because he sees the same basic problem everywhere no matter how different the countries themselves are. Behind all of these troubles George says there must lie a common cause.

Pulling no punches, the man lays the blame at the feet of progress itself:

that poverty and all its concomitants show themselves in communities just as they develop into the conditions toward which material progress tends - proves that the social difficulties existing wherever a certain stage of progress has been reached, do not arise from local circumstances, but are, in some way or another, engendered by progress itself

This is a pretty bold claim: namely, that the resilience of poverty, oppression, and inequality in the face of advancing economic development is not some embarrassing accident we'll eventually get around to fixing, it's an inescapable consequence of our socioeconomic system.


A Brief Interlude from the Future

It's been over 140 years since he wrote the book, so let's hop in my time machine and see how much of George's complaint is still relevant.

Back then, the United States was still in the throes of the Long Depression, which according to the shortest estimate lasted from 1873 to 1879.

Below is a graph (source) of the boom-bust business cycle going back to the 1870's - clearly, recessions were much more frequent and severe in George's time than they are today. The late 1800's were wracked with so many panics and crises in quick succession that some historians count the Long Depression as lasting for a full 23 years from 1873 to 1896!

After the Great Depression in the 1930's, we see a sharp decrease in the duration and frequency of recessions. They're still with us now (and the one we're currently in is the worst since the Great Depression), but you'd still rather be living in 2021 than 1879.

So, have we solved the problem? Is George's complaint obsolete?

I mean, this graph of GDP per capita from Stephen Pinker's Enlightenment Now makes it look like in many ways things are getting better:

And heck, extreme poverty has been going down everywhere:

But this can't be the entire picture, or nobody would be complaining about poverty and inequality.

Here - this graph (source), shows that as consumer goods have gotten cheaper in the United States, health care, higher education, child care, etc., have skyrocketed in price, which Scott examined in great detail in Considerations on Cost Disease.

And what about Inequality? In the USA it seems to have reverted to levels not seen since the Great Depression, and even when it was at its lowest in 1978, the top 0.1% (not even the top 1%!) still enjoyed a massively disproportionate share of Wealth (source):

And of course, The Rent Is Too Damn High:

(source):

(source):

Although 2021 seems better than 1879 in absolute material terms, George's complaint still rings true: healthcare and higher education are increasingly unaffordable, inequality is as bad as it ever was, and The Rent Is Too Damn High.

And even if all of these measures had improved as well, we still have to contend with a fundamental complaint: how can human civilization have piled up an amount of wealth best described as absolutely banana pants insane, and yetstill have poverty, oppression and cyclical recessions? Yes, greed, evil, and human nature will always be with us, but isn't it weird that we haven't eliminated these economic problems the same way we've eliminated Smallpox, Scurvy, and having to write your scathing polemics about Thomas Jefferson by candlelight with a goose feather?


Giving the mic back to George, he closes the chapter with this haunting quote, first written 142 years ago:

If there is less deep poverty in San Fran Francisco than in New York, is it not because San Francisco is yet behind new York in all that both cities are striving for? When San Francisco reaches the point where New York now is, who can doubt that there will also be ragged and barefooted children on her streets?

I'll just leave this here:

Number of Homeless Children in U.S. At All-Time High; California Among Worst States.

I. Wages and Capital

George insists sloppy terminology leads to sloppy thinking. Naturally, he spends an entire chapter beating words to death to correct this.

The Meaning of the Terms

Let's start with Wealth.

The common usage, both then and now, is "anything with an exchange value." George doesn't like how this mixes dissimilar things.

By George, what is wealth?

Wealth is produced when Nature's bounty is touched by human labor resulting in a tangible product that is the object of human desire.

Labor is required, but the amount and type doesn't matter - George offers the example of simply picking a berry off a bush as an act that transforms nature's gifts into human wealth. Note particularly that human desire is an important requirement of wealth; it doesn't matter how much work someone put into something, if it doesn't gratify human needs or desires in some way, it's not wealth.

Speaking of human desire, let's talk about Value.

Where does a thing's value come from? The prevailing theory of the day was the Labor Theory of Value which originated with Adam Smith and David Ricardo, which says that Labor is the source of value. The early formulations were a bit ambiguous, here's Smith in Wealth of Nations for instance:

The value of any commodity ... is equal to the quantity of labor which it enables him to purchase or command. Labor, therefore, is the real measure of the exchangeable value of all commodities.

So... is a thing's value how much labor it takes to make the thing, or how much labor someone's willing to exchange for the thing?

Nowadays Labor Theory of Value is most commonly associated with Marx. Marx picks a lane and says the value of something is tied to the amount of "socially necessary labor" required to produce it.

George goes the other way:

It is never the amount of labor that has been exerted in bringing a thing into being that determines its value, but always the amount of labor that will be rendered in exchange for it.

- Henry George, The Science of Political Economy, p. 253

In other words, "a thing's value is whatever someone is willing to pay for it." This is in line with the so-called marginal revolution (the movement, not the blog) and modern theories of value.

Labor

Labor is the exertion of human beings. It's possible to labor to no avail (try punching a concrete wall), but typically humans labor towards an end, such as gaining wealth. But whether or not we accomplish anything with our efforts, George calls them labor. Labor isn't just making things, by the way – it's also moving or exchanging them.

Production

Production is labor applied "to the production of wealth." You know, productively. This is all human exertion that isn't punching a concrete wall and rewards you for your efforts with something that fits the definition of wealth. Said wealth is the "product of labor."

Wages

whatever is received as the result or reward of exertion is "wages."

No distinction here is made between blue-collar work and white-collar work – whether one is called "hourly pay" and the other is called "annual salary," George calls them both "wages." It doesn't matter whether you receive them from your boss, from customers, or from nature. If you do work and get something from it, you have received "wages."

With those basics under our belt, let's circle back to Wealth:

What are some examples of wealth?

By George, Gold is wealth. Teddy bears are wealth. Tesla roadsters and candy canes and young adult vampire romance novels are wealth. The same goes for fish you've caught, deer you've hunted, and cool looking rocks you've picked up on your morning walk. The value of these things may differ, but as long as they're tangible, originate in nature, someone ever did a lick of work to make or acquire them, and a human being somewhere desires them for any reason, they're wealth.

It gets a little clearer when we ask what isn't wealth.

And by George, Money isn't wealth.

Articles of gold are wealth because they're tangible things that have been dug up, crafted, and fulfill certain human desires. But paper currency, digital currencies, and other things that aren't inherently valuable but merely represent value are not wealth (outside of putting their physical articles in coin collections or making paper airplanes, and so forth). Now don't get the man wrong, these things are certainly valuable. They're just not wealth. They are certificates that represent claims on wealth. For any computer programmers in the audience, money is a pointer to wealth.

Likewise Stocks and Bonds and other financial instruments are not wealth. These are also just claims on wealth. A creditor's title to Debt isn't wealth, either, it's just a claim on the debtor's (typically future) wealth. And, writing as he was not long after the Civil War, George points out that Slaves are not wealth either but, represent "merely the power of one class to appropriate the earnings of another class."

Wealth, thus defined, is the terminal "ground truth" bits of the economy, and all the financial layers on top are fancy IOUs that just encode various claims on it.

George offers a thought experiment to test if something is wealth: if you produce a pile of gold, fish, or Lego bricks, you've clearly increased the amount of wealth in the world. But if you produce a giant pile of IOUs that just records who owns what and who owes what to whom, it doesn't matter how many of them you pile up or how long the chains of ownership get, you still haven't increased the amount of real wealth in the world.

Again, this isn't saying the IOUs aren't valuable, they are. But they're only valuable because they ultimately point to real wealth. If you magically transported everyone over to a hypothetical Earth 2, carrying over all of Earth 1's money and financial instruments but none of Earth 1's tangible wealth, the value of all those IOUs would instantly evaporate.

Now what about digital goods? Leaving things like Bitcoin aside for the moment, let's consider the case of a digital image file:

By George, this is wealth.

Digital though it may be, it's physically encoded on a storage device somewhere, and is thus tangible (it's not a pure abstract concept flitting about in Platonic heaven) and has its origins in nature. Human exertion built the computer that encodes it, and clicking the button that saves it to disk or displays it on your screen is labor. Finally, it directly satisfies human desires (mine, at the very least). It's value may be negligible, but it's wealth.

By contrast, the digital bit sitting in some database that says I own a particular eBook or mp3 is just a digital IOU – a claim on the wealth that are the physical bits on my local storage device or remote server that digitally encodes the files. The fact that digital files don't seem particularly physical, and that they can be trivially and endlessly copied, doesn't mean that Henry George, magically transported to today, wouldn't regard them as wealth.

Okay, so is there anything else that's not wealth?

By George, Bitcoin isn't wealth, in case you were wondering. It's just a (very fancy) financial instrument, a digital claim on wealth. And that goes for most crypto assets – a token on some blockchain that says I own a painting by Banksy is just another IOU, regardless of the technical sophistication of its distributed trustless ledger.

What about intellectual property? Copyrights, patents, and trademarks are all different forms of Monopoly – the exclusive, government-granted legal right to do a particular thing (publish a certain book, manufacture a certain product, use a certain name in business, etc). The exclusive right to do or produce a thing, valuable as it may be, is not the thing itself. By George, Monopoly is not wealth.

But there is something big that is wealth – the C-word.

Capital.

By George, Capital is "wealth devoted to procuring more wealth", and it's the next thing he insists everyone is hopelessly confused about.

He quotes Adam Smith, agreeing with him thus far:

That part of a man's stock which he expects to afford him revenue is called his capital.

...and also gives us a short etymology lesson on the origin of the term:

The word capital, as philologists trace it, comes down to us from a time when wealth was estimated in cattle, and a man's income depended upon the number of head he could keep for their increase.

("Per capita" being the Latin for "by head")

By George, all capital is wealth, but not all wealth is capital.

George notes capital is often described as being "stored up labor", and endorses this view – but what it really means, is capital is stored up production. It's not literally the labor that's stored up but the wealth generated by it, set aside and then dedicated to the purpose of getting more wealth.

George insists that it is the owner's intention that transforms wealth into capital. If you buy an old factory to throw parties in for your hipster friends, it's just wealth. But the minute you decide to put it to work to make something useful (or start charging your hipster friends a cover charge at the door), it becomes capital.

George therefore further insists that a laborer's daily bread and the clothes on their back do not count as capital, because a person has to eat and wear clothes whether they work or not. The laborer's tools (and arguably their steel-toed work boots) can however be counted as capital, because their purpose is to assist the laborer in getting more wealth by working for wages, and the laborer wouldn't acquire, use, and maintain those things otherwise.

George has more exclusions:

We must exclude from the category of capital everything that may be included either as land or labor.

Human exertion (labor) by itself can never be capital. The products of human labor become capital when they are stored up and set to the purpose of getting more wealth. To muddle this distinction defeats the point of having separate terms for those things at all, and prevents us from reasoning meaningfully about how they relate to one another. Labor is not capital, and neither is labor by itself wealth, it produces wealth – and if it ain't wealth, it ain't capital.

And that brings us to land.

Land, land, land.

By George, land is not wealth.

And it's definitely not capital.

The unique specialness of land is George's entire schtick and the very core of his philosophy.

The term land embraces, in short, all natural materials, forces, and opportunities

That means that a field or a meadow is "land", as is a mountain. But so are the fish in the sea, the clouds in the sky, veins of gold in the earth's crust, and the oil deep under ground. These things aren't yet wealth – not until human beings both a) desire them and b) touch them with labor.

So... land is not wealth.

But... how come? I mean, look: land is tangible, it "comes from nature", humans are always productively applying their labor to it, and it certainly seems capable of gratifying human desires.

George sees this reasoning as understandable, but insists it's the root mistake that leads other political economists astray – because for George, land just is nature itself.

Come again?

Land is the ultimate source of all wealth, but it's most useful to think of it as a generator, acompletely separate entity from the wealth that human labor and desire draws from it. Players of Magic: the Gathering and Settlers of Catan should already have a solid grasp of this distinction:

In modern times, George would grant electromagnetic spectrum and orbital real estate for satellites the same status of "land" that already applies to farmland and terrestrial real estate. We don't even need to speculate about whether he'd attach this status to sunlight because he straight-up predicted solar power:

Even the lack of rain which makes some parts of the globe useless to man, may, if invention ever succeeds in directly utilizing the power of the sun's rays, be found to be especially advantageous for certain parts of production.

(That's from Protection or Free Trade, footnote 19)

The important thing to grasp about land is that it comes before everything humans do or make, and is itself a thing no human can make.

Okay, smarty-pants, what about the Netherlands? They've been making land for centuries! Well, land in the Georgist sense doesn't refer simply to "dry land", but also the sea bed, the oceans, and the skies above. The "new land" in the Netherlands counts as an improvement to land that already existed. The seabed was always there, but by filling it in so you can walk around on it, now it's more useful to us (George has a lot to say about improvements to land, which we'll get to later).

Okay, what is land not?

nothing that is freely supplied by nature can be properly classed as capital

By George, land is not wealth.
And since it's not wealth, it's not capital.

Okay, we get it. Land is very special to Mr. George and we must never put it in the same category as wealth, labor, capital, wages, production, money, or anything else. Why exactly is this so damn important?

Well, by George, if you treat land the same way you would a bar of pig iron, an hour of work, or a dollar bill, before you know it you'll get poverty paradoxically advancing alongside progress, inexplicable bouts of industrial depression, literal genocides and holocausts (he's dead serious about this), and The Rent Being Too Damn High.

With terminology now firmly established, George moves on to the relationship between wages and capital.

3-for-1 special on Wages, Capital, and Labor

I'm condensing three chapters here because they all deal with the same basic thing.

The question George wants to answer is:

Why, in spite of increase in productive power, do wages tend to a minimum which will give but a bare living?

The conventional wisdom of George's time is that wages are governed by a fixed ratio between the number of laborers and the amount of capital devoted to their employment, because "the increase in the number of laborers tends naturally to follow and overtake any increase in capital."

So it doesn't matter how much capital you throw at employing workers, it'll just attract even more workers splitting it up, so although wages might temporarily wiggle a bit in the long term they'll always settle back to a "natural" minimum. (As we'll see in the next section, this argument stems from Malthusianism).

George spends some time methodically poking holes in the theory (it's predictions don't line up with the facts he observes), and then sets out to prove his replacement theory (emphases mine):

wages, instead of being drawn from capital, are in reality drawn from the product of the labor for which they are paid.

He pulls a G.K. Chesterton to make his point:

During the time [the laborer] is earning the wages he is advancing capital to his employer, but at no time, unless wages are paid before work is done, is the employer advancing capital to him.

He starts by identifying the source of confusion:

Because wages are generally paid in money, and in many of the operations of production are paid before the product is fully completed, or can be utilized, it is inferred that wages are drawn from pre-existing capital

I mean, the old theory seems sensible: the employer has capital and uses it to pay wages. But however you slice it, capital's investment gets paid back by production when it takes its cut, so does it even make a difference to talk about where wages are "drawn" from? Value goes out, value comes in, isn't it all a wash?

By George, it isn't: in the old theory, because capital "must come first", it follows that "industry is limited by capital - that capital must be accumulated before labor is employed", which leads to a reductio ad absurdum –

We are told that capital is stored-up or accumulated labor – "that part of wealth which is saved to assist future production." If we substitute for the word "capital" this definition of the word, the proposition carries its own refutation, for that labor cannot be employed until the results of labor are saved becomes too absurd for discussion.

George anticipates the following rejoinder – Well, when we say 'labor is paid out of capital' we don't mean it as an absolute statement for all stages of human development (or else we have a chicken-and-the-egg problem and civilization could never have begun), we just mean it applies to, say, every civilization that's left the stone age.

George will have none of it and spends three entire chapters relentlessly beating to death the idea that wages are drawn from capital instead of from production.

He starts with the simple case where wages are paid in the form of direct, concrete wealth, then moves on to the more complex case where people are paid in money and other instruments.

Laboring for wages:

Imagine a fishing village where nobody cooperates – each person digs their own bait and catches their own fish. Then they discover labor specialization and realize they can catch more fish together if one specializes in digging and the other in catching. So the digger digs, the catcher catches, and they share the fish. The digger really contributes as much to the catch as the one who physically pulls the fish off the hook even though the digger never directly "caught" a fish, and the fish he gets for his work is directly paid out of his contribution to the total production. Later, our fisherfolk invent canoes, and one stays home making and repairing canoes. This increases the haul of the digger and catcher, and the canoe-er gets paid out of her contribution to the increased production. And so it goes as society continues to advance. The work the specialist puts in causes more fish to be caught, and that person's wages is drawn from the growing pile of fish. As George puts it: "Earning is making."

George gives another example:

If I take a piece of leather and work it up into a pair of shoes, the shoes are my wages – the reward of my exertion. Surely they are not drawn from capital – either my capital or any one else's capital – but are brought into existence by the labor of which they become the wages; and in obtaining this pair of shoes as the wages of my labor, capital is not even momentarily lessened one iota... As my labor goes on, value is steadily added, until, when my labor results in the finished shoes, I have my capital plus the difference in value between the material and the shoes.

And another:

If I hire a man to gather eggs, to pick berries, or to make shoes, paying him from the eggs, the berries, or the shoes that his labor secures, there can be no question that the source of the wages is the labor for which they are paid.

George goes on to say it doesn't matter if you're paid in money or directly in wealth, because the money is a direct claim on the underlying wealth. It also doesn't matter if you get paid on commission. Imagine a whaling ship where each crewman gets paid a share out of whatever the ship catches. When the ship sails back into port with a hold full of whale oil and bone, the crew gets paid in money, the owner simultaneously adds to his capital oil and bone. The crew's money directly represents their share of the concrete wealth that is the oil and bone. The owner's capital hasn't decreased, and the workers drew their wages directly from the production.

So let's get to the point, Mr. George – wages aren't drawn from capital but instead from production. Great, let's grant that – so what?

George hammers away at this because thinking wages are drawn from capital leads to a false conclusion, namely that "labor cannot exert its productive power unless supplied by capital with maintenance."

"Maintenance?" Well, workers need food and clothing and they get paid by their employers, so you could imagine capital as a limiting factor on labor. But by George, food and clothing isn't capital, it's just wealth, as we said before.

And with regard to wages, the point is that the employer always gets "paid" first, because the second the laborer produces value, the employer's capital increases:

As in the exchange of labor for wages the employer always gets the capital created by the labor before he pays out capital in the wages, at what point is his capital lessened even temporarily?

Okay, but what if I'm just a terrible businessman and I pay somebody $500 an hour to smash Ming vases, then sell the fragments as aggregate to a construction crew for a few pennies a pound, all at a tremendous loss? Surely then the laborer's wages must be drawn from my capital, because there's not enough productive value generated by the labor to draw them from!

George says okay, sure, but only because I'm an idiot and will soon be out of business:

Yet, unless the new value created by the labor is less than the wages paid, which can be only an exceptional case, the capital which he had before in money he now has in goods – it has been changed in form, but not lessened.

Fair enough, Mr. George, but what if I'm building some enormously expensive multi-decade project, like a dam or a nuclear power plant or a cathedral? The kind of thing we call a "capital-intensive" project? What do you have to say to that?

George points out that as laborers labor, they progressively add value to whatever they're producing. Take the case of a shipwright building ships for an employer – even if the boss can't sell a half-finished ship, it still holds value (for one, it costs less to finish a half-finished ship then no ship at all). And with every stroke of the laborer's work, the employer who owns the shipyard gets an incremental increase in his stock of capital.

It is not the last blow, any more than the first blow, that creates the value of the finished product – the creation of value is continuous, it immediately results from the exertion of labor.

A pedant would point out that the "last hit" that finishes the product which makes it ready for market adds disproportionate value, but George's point is just to establish that value is continuously created, and doesn't magically come into being allat once right at the end.

George further points out that if you look at things like agriculture you'll see the market directly acknowledging his theory:

As a plowed field will bring more than an unplowed field, or a field that has been sown more than one merely plowed... It is tangible in the case of orchards and vineyards which, though not yet in bearing, bring prices proportionate to their age.

George freely admits that capital can be required for certain kinds of work, but he disagrees with what its purpose is. It's not a pool that wages get paid out of.

He goes on for another chapter on "The Maintenance of Laborers Not Drawn From Capital" but I think we can safely skip it and move on. TL:DR – George hammers to absolute death the idea that Laborers derive their own maintenance (food/shelter/clothing/etc) from their wages, with George insisting it is drawn from production and... you guessed it, not from capital.

At least some of George's ideas will not seem so radical to modern readers (especially those already critical of capitalism or neoclassical economics), but it's important to understand that at the time almost everything he was saying was considered deeply radical and shocking. Capital was the fundamental driving force of the economy and labor was utterly dependent on it, and the Malthusian theory of overpopulation was the accepted explanation for why wages were low and workers were starving.

Political Cartoon literally demonizing Henry George – Puck magazine Oct. 20, 1886

The Real Functions of Capital

Okay, Mr. George. You've spent three whole chapters beating me over the head with what the functions of capital aren't. So what are the functions of capital?

Capital "increases the power of labor to produce wealth."

How?

  • By enabling labor to apply itself more effectively (power tools go brrrr)

  • By availing labor of the reproductive forces of nature (cows make baby cows)

  • By making possible the division & specialization of labor (you dig bait, I'll catch fish)

Capital is a force multiplier that supercharges the productive power of labor. It doesn't supply labor with raw materials (nature does), nor does it provide for the maintenance of workers (who eat bread by the sweat of their own brow).

George says this is why capital isn't a limit on industry.

...okay, George grants that capital may limit the form of industry. You can't plow without a plow or milk without a cow. George also grants that the lack of specialized tools can greatly limit productivity because you don't get the benefit of the force-multiplying effect of capital.

Um... aren't you contradicting yourself here, Mr. George? You spent all this time hammering home your doctrine of wages to prove that capital doesn't limit industry, but you just said its absence can limit both the form and the productivity of labor!

Time to unpack what we mean by "limit" and be super clear about it from now on:

But to say that capital may limit the form of industry or the productiveness of industry is a very different thing from saying that capital limits industry.

Okay, what do you mean?

For the dictum of the current political economy that "capital limits industry," means not that capital limits the form of labor or the productiveness of labor, but that it limits the exertion of labor.

Okay, I think I see what he's saying. The existing school of thought says that because capital provides labor with both materials and maintenance, therefore if capital dries up, labor productivity must go down because workers will have nothing to work on, and nothing to eat or wear. Labor is thus "limited" by capital, for without it is literally and metaphorically starved for capital.

But George says no – the only way capital actually "limits" productivity in real life is in the degrees by which it force-multiplies labor's productivity and unlocks certain forms of labor in the tech tree. The kind of "limit" George objects to is the idea that you need capital just to get any work done at all, or that without capital to sustain it, labor will shrivel up. Instead, capital is rocket fuel that labor supplies to itself by investing a portion of its wages.

And yet, with all the awesome slots we've unlocked on the tech tree, and barrels and barrels of rocket fuel to fire up eager laborers, we still find our economy sinking into mysterious depressions. Something is gumming up the works, but it's not a simple scarcity of capital:

the real limitation is not the want of capital, but the want of its proper distribution

Or as G.K. Chesterton said, "Too much capitalism does not mean too many capitalists, but too few capitalists." This might seem like a pedantic distinction – misallocated capital could be said to be "scarce" capital – but they're not the same thing at all. As Francis Bacon said in 1625:

Riches were like [Manure]: When it lay, upon an heape, it gave but a stench, and ill odour; but when it was spread upon the ground, then it was cause of much fruit.

Because the prevailing theories of George's time are based on incorrect ideas about the relation between wages and capital, "all remedies, whether proposed by professors of political economy or workingmen, which look to the alleviation of poverty either by the increase of capital or the restriction of the number of laborers or the efficiency of their work, must be condemned."

In short, more investment, more protectionism, and more efficiency programs can't, won't, and haven't fixed poverty and industrial depressions because they all proceed from false premises.

Having finally beaten the nexus of wages, capital, and labor into a bloody pulp, George turns his eyes towards another leading theory for why everything is terrible: the specter of overpopulation.

II. Population and Subsistence

The entire second book might as well be titled "Why Malthus is Dumb and Wrong and Bad."

It's dedicated to dunking on Malthusianism, a philosophy that ascribes economic crises to the exponential growth of the human population, which must necessarily end in catastrophe.

according to Malthusian theory, poverty appears as increase in population necessitates the more minute division of subsistence.

George attacks Malthusian ideas not just because they're wrong, but because they make it easier to accept the prevailing theory of wages (as more capital is allocated, laborers will keep popping up like weeds to gobble it up, so wages must eternally stagnate). George draws a straight line between these faulty ideas and holocausts and genocides – specifically citing how colonial oppression in China, India, and Ireland were explicitly justified on Malthusian grounds. One million people died in the English-engineered Irish potato famine alone, and when you add in those who fled the entire population declined by 25% percent. And this isn't a tenuous link either – George directly connects the completely avoidable famine to his favorite bugbear, private landownership and extortionate rent.

Given that Malthusianism is now widely discredited I'm just going to skip this chapter, but if you want to hear George in all his righteous fury, check out Appendix A (there's a link that returns here at the end):

Appendix A: George Dunks on Malthusianism


III. The Laws of Distribution

When society produces wealth, who gets different shares of it, and why?

Let's start by beating some words to death.

By George, we're told that there are three factors in production: Land, Labor, and Capital. For each of these terms there must be a "law of distribution" that explains how each gets compensated for its part in production.

The reward you get from production by owning Land is called Rent.
The reward you get from production by supplying Labor is called Wages.
The reward you get from production by supplying Capital is called ... um, what?

We're looking for a term that clearly expresses the return to capital alone and nothing else.

The closest thing we have is Interest, and that's probably good enough.

George gives the common definition of interest as "the return for the use of capital, exclusive of any labor in its use or management, and exclusive of any risk, except such as may be involved in the security." This is pretty close to what we want – something that expresses the sole return to capital without mixing in anything else.

But ... what about Profits?

Profits is "almost synonymous" with revenue, assuming you have some left after you deduct expenses. It means a gain in money or wealth, but the trouble is this gain is a mix of rent, wages, and "compensations for the risk peculiar to the various uses of capital." What we want is a term that means the return to capital alone, totally separate from the return to laborers and landowners.

To talk about the distribution of wealth into rent, wages, and profits is like talking of the division of mankind into men, women, and human beings.

George spends a few pages talking about how everyone from Adam Smith on down got confused about this (spoiler: it's tied up with thinking wages are drawn from capital), before presenting his model for how it all works. If you want to see him knock that stuff down, see Appendix B (there's a link that returns here at the end):

Appendix B: George dunks on the Conventional Laws of Distribution


Here's George's model for how it all works:

Land is"all natural opportunities or forces" and its return is rent
Labor is "all human exertion" and its return is wages
Capital is"all wealth used to produce more wealth" and its return is interest

George says the false assumption at the root of the old theories is in thinking of "capital as the prime factor in production, land as its instrument, and labor as its agent or tool."

George makes the following assertions:

  1. "Labor can be exerted only upon land"

  2. "It is from land that the matter which it transmutes into wealth must be drawn"

  3. "Capital is not a necessary factor in production"

Therefore, we should always put land first in all our inquiries rather than capital, which ought to come last.

George then sets out his three laws of distribution.

The Law of Rent

Let's be careful about the word "Rent." In modern usage, there is the concept of "Economic Rent" as well as "Rent" in the everyday sense of regular payments you make in exchange for the use of something that you are "renting." The modern definition of "Economic Rent", per Wikipedia is:

economic rent is any payment ... to an owner or factor of production in excess of the costs needed to bring that factor into production

To be clear, Economic Rent is a bad thing – all taking, no giving.

When George uses the word "Rent", he specifically means the return to land, and this is what he says it is:

Rent, in short, is the share in the wealth produced which the exclusive right to the use of natural capabilities gives to the owner.

Land has zero cost of production because it's already there and you can't make it. This means that any payment or benefit you can realize by excluding others from using land (or its fruits) is necessarily "in excess of the costs needed to bring that factor into production."

By George, all land rent is Economic Rent.

Furthermore, any piece of land has only one seller, and no producers. This further meets the definition of Monopoly– Greek for "one seller." This is why you hear Georgists talking about "Land Monopoly."

Land has value because people are willing to pay you for the privilege of using it.
The price of rent derives from the most marginal land available.

I'll explain with an example. Let's grade some imaginary lots according to their productivity by using abstract utility points, or "utils".

Lot A is good fertile land worth 100 utils.
Lot B is just as good, also worth 100 utils.
Lot C is crappy land worth 10 utils.

Let's say I own Lot A. I won't be able to charge you any rent to work on Lot A, if Lot B is freely available for anyone to use. Why would you pay even 1 util worth of rent if you could just work on Lot B, earn 100 utils, and keep it all?

But once I buy Lot B, now if you want access to 100-util Land you have to pay me. How much can I charge? Well, you could always work on Lot C for free, and it'll yield 10 utils. So the most I can charge is 90 utils (100 - 90 = 10).

So here's the Law of Rent – rent is determined by the "margin of production" (AKA the "margin of cultivation") – the difference between how much you can produce from a particular piece of land (Lot A or B) compared to the least productive alternative (Lot C).

Notice that I as the landlord am not really doing anything here other than owning the land, and yet I can extract a huge amount of value, because unlike capital, land is a hard limit on labor – you can't work without a place to work or without material that comes from nature. And so I take my share first without really contributing anything to production other than gatekeeping access to land.

Rent, in short, is the price of monopoly, arising from the reduction to individual ownership of natural elements which human exertion can neither produce nor increase.

C'mon, is land really such a big deal?

In the popular imagination we pit "capitalists" against "laborers" but a lot of those "capitalists" are landowners in disguise, because in non-Georgist frameworks land is typically considered a kind of capital. George says landowners oppress both labor and capital, cheating both hard work and investment out of their fair share.

Source: can't find the author of this image, closest I can get to its origin is this blog

Okay, but is this still relevant in the modern age, with the internet and work-from-home? Obsessing about land just feels so 19th century. Well, in Silicon Valley rents are famously off the charts, and those and all other rents seep into the economy at every level. Workers priced out of living close by have to spend more time and money commuting longer distances to work, and businesses must devote an increasingly larger share of their production to landowners who aren't actively contributing anything to productivity. What else could explain how a family of four making $100,000 in San Francisco is considered to be living below the poverty line?

Here, take a look at this chart (source):

I found this in a tweet by Thomas Piketty, and it shows the breakdown of personal assets in Spain over the last 100+ years. The bulk of the value of personal assets is from landownership. This is still the case even though the chart includes "financial assets" – which are just IOUs that ultimately have something real (e.g. land or wealth) underpinning their value. If we exclude those, the true portion of overall value represented by land is even higher than this graph first implies.

And this isn't just Spain. Here's a graph Nate Blair made for the UK, excluding all financial instruments and only looking at real assets:

Based on data from the United Kingdom National Accounts: The Blue Book 2017. Published Oct 31, 2017. Revision Period: Beginning of each time series. Date of next release: July 2018. The "privileges" in "Land and privileges" are things like taxi medallions and patents, that were worth "almost zero" according to Nate.

No matter how hard you try, "there is no occupation in which labor and capital can engage which does not require the use of land." Whenever anyone does labor, the owner of some piece of land – whether it's the farm in the middle of Kansas that grows your food, the lot upon which the server farm sending you these bytes sits, or the ground that right now sits beneath your feet – is sticking their finger in the pie.

George reminds us that labor and capital will have to share whatever landowners take off the top of production in rent:

As Produce = Rent + Wages + Interest,
Therefore, Produce - Rent = Wages + Interest

So... what happens when the productivity of land goes up?

Let's go back to Lot A and Lot B, both 100-util fields. Let's say they belong to different landlords, and I'm a tenant on Lot B. I improve the soil of the field I'm working on so now it's worth 110 utils. What happens?

My landlord raises the rent, of course!

The only way wages (the return to labor) and interest (the return to capital) can go up as productivity increases, is if land values fail to rise at the same rate.

The Law of Interest

George wants to find the fundamental reason capital is able to produce wealth and justly claim a fair share of production.

Remember that capital is wealth devoted to getting more wealth. So if capital is wealth that begets wealth, it makes sense that if I lend it out to you, I miss out on the potential for it to grow while it's out of my hands. George says I am justly entitled to ask for more back than I originally gave you.

Let's say I loan you some corn seeds for a season. Had I not leant them to you, in a season's time I could have grown my own crop of corn and been left with more seed than I started with. So in a perfectly square deal, you need to give me back what I started with and what I could have expected to gain from natural increase (less the value of the labor required to get things started).

Likewise with any other article of capital – say bricks or lumber. In the time I've spent without it while it was in your possession, I could have found someone else who had a better use for it than I did and exchanged it for something of theirs that I had a better use for, leaving me with capital of greater value. George says the act of progressively exchanging things in a way that increases subjective value for all involved is analogous to the natural forces of nature that make living capital (like corn and cows) grow over time.

Remember, "subjective value" is real value. In a game of Settlers of Catan, if I have two bricks and you have two lumber, neither of us can build anything. The simple act of trading one brick for one lumber means both of us are better off because each of us can now build a road. The amount of bricks and lumber in the world didn't increase, but the amount of roads (or potential roads) did, and that represents a real increase in wealth.

Interest thus springs from the "reproductive" powers of capital, whether that's biological reproduction, or the more abstract reproductive force of exchanging things so that you have a more valuable distribution of capital than you started with.

As for how it relates to the other two returns to production – the more powerful the "power of increase" the capital has, the greater return interest can claim compared to wages. If you're ploughing a field and I lend you a tractor which makes you ten times as productive, I can justly claim more compensation for that than if I lend you a mule that only makes you twice as productive. However, rent still holds the whip hand, so the margin of cultivation determines how much return is left over to divvy up between interest and wages.

This is because the net "reproductive" value of capital goes down given rent is a general tax on overall productivity. The amount I would have gained by using the thing productively over the period of time it was out on loan (the amount I can justly charge in interest) is reduced by how much I have to pay in rent.

The Law of Wages

Wages, like interest, are limited by the margin of production. Within that limit there's not much to understand about how wages work except that people seek to satisfy their desires "with the least exertion," which is a fancy way of saying people don't like to get ripped off. If two bosses offer the same exact job, but one offers higher pay, I'm taking that gig. If two bosses pay the same, but one is asking for twice as much work, I'll tell that boss where he can stick it.

Wages depend upon the margin of production, or upon the produce which labor can obtain at the highest point of natural productiveness open to it without the payment of rent.

So with all three laws established George sums it up like so:

Where land is free and labor is unassisted by capital, the whole produce will go to labor as wages.

Where land is free and labor is assisted by capital, wages will consist of the whole produce, less that part necessary to induce the storing up of labor as capital.

Where land is subject to ownership and rent arises, wages will be fixed by what labor could secure from the highest natural opportunities open to it without the payment of rent.

Where natural opportunities are all monopolized, wages may be forced by the competition among laborers to the minimum at which laborers will consent to reproduce.

This is the reason George says that wages are so high in "new countries" where there's more land available than in countries where it's been locked up for centuries.

Here's how it all fits together:

Though neither wages nor interest anywhere increase as material progress goes on, yet the invariable accompaniment and mark of material progress is the increase of rent – the rise of land values.

And:

where the value of land is highest, civilization exhibits the greatest luxury side by side with the most piteous destitution

IV. Effect of Material Progress upon the Distribution of Wealth

As a society undergoes material progress, the rent goes up. Why?

Let's break it down. Three things contribute to material progress:

  • Increasing population

  • Technological advance

  • Improvements in the social fabric

"Social fabric" is my term, George calls it "greater knowledge, education, government, police, manners, and morals, so far as they increase the power of producing wealth."

How does Populationgrowth affect the distribution of wealth?

Generally speaking, as you get more people your productivity grows exponentially rather than linearly:

The labor of 100 men ... will produce much more than one hundred times as much as the labor of one man

That's thanks to specialization and division of labor. This happens without needing any technological advance. And as labor's productivity goes up, it makes it worth developing on more marginal (ie, less productive) lands, pushing the margin of production down (and outward geographically), which gives landlords more room to jack up rents.

A bustling town is a more valuable and productive place to live than a tiny hut in the middle of a remote forest. In the town there's a butcher, a baker, a candlestick maker, and others to supply you with whatever your heart desires. In the middle of the forest you have to do everything yourself, regardless of how abundant the natural resources might be. Every neighbor that moves in to town makes you "richer" in this sense because they contribute to the total productive potential of your community.

Population increase also drives productivity by making things valuable that were useless before. Let's say there's some resource on some land, say iron ore. Even if you have all the technology to mine and smelt it, you probably aren't capable of doing this whole operation yourself, and if nobody else lives there you don't have anybody to sell the iron to. It's the presence of a civilization that will give that ore its value, and for that you need to increase the population. Until population shows up to give it value, the ore is "latent potential" in the land.

By George, increasing population increases the share of rent (and decreases the share of interest and wages) in two ways:

  1. It lowers the margin of production

  2. It brings out the latent potential of land


How does Technological advance affect the distribution of wealth?

Tech saves labor. It lets you accomplish the same thing with less work, or more things with the same amount of work. This leads to more wealth being produced. Now, what do you need to produce more things? Capital is nice to have, but the two things you must have are labor, and land. So wanting to make more things means more demand for land, because you can't labor without it. And when you reach the productive limit of the land available to you, you seek out more marginal lands, extending the margin of production. Demand for land goes up, land values go up, and soon enough The Rent Is Too Damn High.

This means that as you introduce advanced machinery, the extra productivity they bring gets soaked up in rising land values, which gets extorted as rent.

every labor-saving invention, whether it be a steam plow, a telegraph, an improved process of smelting ores, a perfecting printing press, or a sewing machine, has a tendency to increase rent.

As a historical aside, I'll point out an extreme example of this: the cotton gin. This device massively decreased the amount of labor required to process cotton, which ironically increased the spread of slavery (slaves being laborers compelled to pay all their wages in rent). As the amount of slave labor required to process a unit of cotton went down, the margin of production was extended to more marginal lands. This caused the rents on the best lands to go up, further enriching slave-owning plantation landowners and increasing their influence. With the margin extended, demand shot up for land previously deemed unsuitable for cotton production, increasing the pressure to admit new states to the union as slave states.

The gin's effect on entrenching slavery was so profound that it's commonly blamed for prolonging the institution and laying the foundations for the Civil War.


How does improved "social fabric" affect the distribution of wealth?

Improvements to the social fabric that just make society generically better do the same thing. If the people in a neighborhood are nicer and more helpful, provide a robust network of mutual aid, start a bowling league and book club, etc, land values rise. That's because it's more desirable and productive to live in a place where you can e.g. trust your neighbor to watch your kid for an hour while also teaching them to whittle. Land value goes up, and so does the rent.

Now, let's talk about the expectations raised by material progress.

What happens when people know something will increase in value?

That's right, they buy it up in a speculative frenzy and hold on to it forever, further driving the price up. With conventional speculative instruments like beanie babies or tulips, the bubble eventually pops. But Land has unique properties that allow this vicious cycle to continue more or less indefinitely.

What happens when a city is growing, technology is advancing, improvements are being made to land, and so forth? Land values go up. Sure, speculators can still lose their shirts if a city falls into decline, but this isn't nearly as hard to predict as volatility in penny stocks or what next year's hot Christmas toy will be.

So as soon as there's a whiff of progress in a given area everyone starts HODLing land, but not to use it themselves. In fact speculators often keep it out of use, because this forces people to use less valuable land instead, pushing the margin of production down even further, forcing land values up, and now The Rent Is Too Damn High.

Georgist pundit geoliberal explains the mindset of a speculator:

The only thing investors actually maximize is risk adjusted rate of return. When you know rents will increase, your best return comes from buying extra land, not improving the land you have

Illustration courtesy of geoliberal

This is how it's possible to have urban blight and slums in areas with extremely high land values. Even if there's a temporary dip in prices, speculators know that if they just keep HODLing the general trend – absent a local collapse – is that land value always goes up.

Here's George:

Take now... some hard-headed business man, who has no theories, but knows how to make money. Say to him: "Here is a little village; in ten years it will be a great city—in ten years the railroad will have taken the place of the stage coach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will in ten years, interest be any higher?" He will tell you, "No!" "Will the wages of the common labor be any higher...?" He will tell you, "No the wages of common labor will not be any higher..." "What, then, will be higher?" "Rent, the value of land. Go, get yourself a piece of ground, and hold possession."

...without doing one stroke of work, without adding one iota of wealth to the community, in ten years you will be rich! In the new city you may have a luxurious mansion, but among its public buildings will be an almshouse.

I don't think it's a coincidence that real estate is one of the oldest investments on Earth and the principal concern of basically every war ever.

V. The Problem Solved

We had two questions at the beginning of this book: why are there industrial depressions, and why poverty seems to advance alongside progress.

You guess it, it's all because of land and rent.

By George, industrial depressions are caused by land speculation

Speculation has a tendency to press the margin of production down until it's just past its limit, forcing labor and capital to accept returns so small that it actually hinders production or ceases altogether.

The saving grace is that as long as the population is growing and/or technology is improving, productivity will go up, and production will start again. But soon enough the land values go up. This drives speculators bidding up the price of land, anticipating future even higher land values, which stresses the productive margin again.

So you get a cycle – productivity rises, economy booms, land values rise, production stagnates or stops. No matter how complicated or sophisticated the economy gets with layer upon layer of financialization and abstraction, when you unravel it all George says this is the ultimate cause.

Periods of industrial activity always culminate in a speculative advance of land values, followed by symptoms of checked production

This is how you get the baffling situation where able hands are eager and willing to work, capital is ready to employ them, natural materials are abundant, and yet the laborers are idle and the factories stand empty.

So that's it for industrial depressions. What about the other paradox of poverty advancing alongside progress?

By George, poverty advances alongside progress because of rent

The reason why, in spite of increase of productive power, wages constantly tend to a minimum which will give but a bare living, is that, with increase in productive power, rent tends to even greater increase, thus producing a constant tendency to the forcing down of wages.

George backs this up with several pages of specific regional figures demonstrating how land values have continued to explode all over the world.

By George, on average and in the long run, no amount of hard work from labor, no force multiplication from capital, no increased gain from co-operation and specialization, no labor-saving invention or increase in personal efficiency, work ethic, or morals, can escape the long reach of rent.

In short, increased power of production has everywhere added to the value of land; nowhere has it added to the value of labor;

George notes that the mass die-off of the Black Death in England in the 1300's significantly reduced the productivity of the individual laborer, and yet wages went up. That's because the decreased population also caused a massive drop in competition for land, in turn causing rents to plummet. (For more detail on this read about the Peasants' revolt, also known as Wat Tyler's rebellion).

George says the opposite happened during the reign of Henry VIII, who seized the lands of the church and those held in common by the peasants, and handed them out to newly minted aristocrats, which was followed by suppressed wages.

In the reign of Henry VII., half a bushel of wheat would purchase but little more than a day's common labor, but in the latter part of the reign of Elizabeth, half a bushel of wheat would purchase three day's common labor.

He sums it all up like this:

Material progress cannot rid us of our dependence upon land; it can but add to the power of producing wealth from land; and hence, when land is monopolized, it might go on to infinity without increasing wages or improving the conditions of those who have but their labor.

So there's our answer: the monkey wrench that causes the boom-bust cycle of industrial depressions is rent, and even though we have more than enough material wealth to provide for everybody's needs, rent prevents us from distributing it fairly and equitably.

Volume II

Okay, The Rent Is Too Damn High, and now we finally know why. What are we going to do about it?

Insufficiencies of Remedies Currently Advocated

George goes down the list of everything we've already tried and why it hasn't worked (or has worked, but less well than we hoped), which you can read about in Appendix C (there's a link that returns here at the end):

Appendix C: The Insufficiency of Remedies Currently Advocated

The Remedy

George says the solution is to make land common property.

He doesn't want to confiscate land, or force everyone to live on some giant hippie commune. He proposes instead to let everyone continue to "own" land exactly as they do now, but we should impose a special tax to neutralize the perverse incentives of land rent.

He anticipates a lot of pushback on this, and promises that his remedy:

  • Is just

  • Can actually be practically applied

  • Will solve all our problems once and for all

Why the Remedy is Just

George asks, "what constitutes the rightful basis of property?" What gives you the right to say "this is mine?"

George asserts as self-evident the principle that a person is entitled to the fruits of their labor. What you make on your own time with your own resources, is yours to do with as you please – use it, give it away, trade it, destroy it. You don't harm anyone else doing so.

It follows that neither I nor anyone else am entitled to the product of your labor. If we're both independent hunter-gatherers, and you pick some berries from a bush, I don't have any fundamental right to demand them from you.

If you improve land in some way, you're entitled to own and use that, of course. That's the product of your labor. But to claim exclusive and permanent ownership of the land itself – from which all wealth springs and without which labor is impossible – is to demand the product of other's labor. So to invoke the sanctity of private property to defend private land ownership is self-refuting.

But what about the right of "I was here first?" Well, George points out that in most cases someone was there before you were, too (and often they were removed by force). Just because you arrived one second, one minute, one year, or one decade before someone else doesn't give you some fundamental right to exclude others from access to nature's free gifts. (Note: this doesn't give people the right to just come in your house and rifle through your underwear drawer at any time of day, we'll get to that).

And what about native populations? Isn't this just an excuse for colonialists to come in and steal their land by denying their claim of being on the land first? By George, no – this is a good time to point out that many Native Americans already had a roughly Georgist understanding of land – treating it as common property, and it was precisely the colonialists' conception of land as private property that was the mechanism by which the indigenous population was expelled and their lands seized.

The English first practiced this on their own people – once upon a time wide swaths of land in England were held in common until the government privatized those lands and gave them out to well-connected gentry in a process called Enclosure. If you've ever heard of the Luddites, you should know they weren't merely rebelling against the march of technology, they were also fighting against the forcible seizure of their lands by industrialists, who far from being salt-of-the-earth free-enterprise entrepreneurs, were in actual fact crony capitalists stealing the people's land with the aid of anti-free-market subsidies and armed thugs, all supported by Big Government™.

As a practical matter though, if you want to impose a Georgist policy, that only applies to territory your state has authority over. Indian reservations in the United States are supposed to be sovereign enclaves with their own jurisdiction. Native Americans should decide for themselves whether they want to adopt any particular policy.

The other reason the remedy is just, is that private ownership of land leads to serfdom.

The essence of slavery is that it takes from the laborer all he produces save enough to support an animal existence, and to this minimum the wages of free labor, under existing conditions, unmistakably tend.

George points out that even though Slavery was abolished, the Southern landowners just changed the brand name to "sharecropping" and were able to continue to extract tremendous wealth from "free" Black Americans in the form of rent.

Okay, but excluding evil Southern plantation owners, don't landlords deserve compensation for their work? What about Ms. Nguyen, the nice lady who manages your apartment block and went the extra mile for you when your A/C went out last summer?

I like Ms. Nguyen too, but let's contrast her with Mr. Slumlord, who owns the apartment block next door that's superficially identical, but who won't help you when your A/C goes out in the middle of summer.

Ms. Nguyen charges higher "rent" for her much better maintained units because part of that "rent" is actually her justly compensated wages for her labor in managing them, as well as interest from returns on the capital she's invested in their ongoing improvement and maintenance. She also collects a good bit of true Georgian rent because she is, after all, a landlord.

Mr. Slumlord puts in as little work as he can get away with and invests as little capital into maintenance as will keep the state off his back. His return is almost entirely rent. And the only reason he can charge rent in the first place is because of the valuable location – value the community produced, not him.

And that's the real injustice of land rent – the community produces the value, but the landlord charges rent to access it.

Practical Application of the Remedy

Okay, land as common property, rent must die, I'm sold. How do we actually do it?

George proposes a land value tax, or LVT.

Note I didn't say property tax. Property tax is a tax on the value of a piece of land and it's improvements. So if you're a homeowner, when you pay property tax, you pay tax for both the value of your house and the lot it's sitting on.

With land value tax you only pay tax on the "ground rent", which is the value of your land, but not the improvements.

What's an improvement?

By George, a little green house is an improvement. A fancy red hotel is an improvement. A garage, a sidewalk, a public park, a Starbucks, a hotdog stand, are all improvements. Installing a bunch of dikes in the Netherlands and dumping landfill into the seabed to turn wet land into dry is an improvement. All improvements come from labor, and optionally capital, and so its fair for those factors to take their return. If I "rent" you my hotdog stand (but not the lot it sits on) my return would be classified as interest in George's framework because the hotdog stand isn't land, it's capital – the stored-up fruits of my labor that I'm using to get more wealth.

(Modified from source, CC BY 2.0, author: Philip Taylor)

The problem with our current system is that when anyone in the community builds improvements, it makes adjoining land more valuable, and then those adjoining landlords jack up the rent. This makes things worse for everybody but the landlords. George's insight is that extra value from my improvement "spills over" from my land and is soaked up by the ground rent of your land.

So under a land value tax, we can correct for the perverse economic incentives, distortions, and oppressions that come from land rent, without having to actually take your land from you.

We may safely leave them the shell, if we take the kernel. It is not necessary to confiscate land — only to confiscate rent.

You also are 100% the owner of the improvements on your land, which won't be taxed. This is why Georgism doesn't mean people have the right to barge into your house in the middle of the night even though land is "held in common." Your house is still private property, but the value of the land it sits on is common property.

What if I plant some nice trees, and invest in some landscaping to stop erosion? Where's the line between "improvements" and "ground rent?" In most cases it's pretty straightforward to separately assess the value of a plot from the value of what sits on it (modern property tax assessors do this already), but George grants that in some edge cases with the passage of time at least some improvements will be subsumed into the land value and that's okay:

But it will be said: There are improvements which in time become indistinguishable from the land itself! Very well; then the title to the improvements become blended with the title to the land; the individual right is lost in the common right. It is the greater that swallows up the less, not the less that swallows up the greater.

Okay, ground rent bad. How much should we tax it?

By George, One Hundred Percent.

Take the rent the tenant has to pay each month, calculate the portion attributable to the value of the unimproved land itself, and send it to the taxing agency.

Effects of the Remedy

Wow! 100% tax rate on ground rent! Can we really do that? In practice Georgists often talk about rates closer to 85+% given real-world limitations in assessment, but the point is to hit it as hard as you possibly can. Get close enough and you still have good effects.

Won't land taxes jack up land prices? No, actually - in fact it will do the opposite, because such a tax is laser-calibrated to eliminate speculation, which makes up the bulk of inflated land values, and thus rent. Tax land for the full ground rent and you make real estate more affordable, not less.

Won't it enable an all-powerful centralized nanny state? Quite the opposite – land value assessment is a fundamentally bottom-up, localized task, so it naturally empowers local municipalities at the expense of distant central authorities. Also, income taxes, wealth taxes, investment taxes, etc, require an ever-vigilant centralized bureaucracy peeking into every aspect of an individual's life to catch tax evaders, who have every incentive to hide their assets or even just flee.

Perversely, the IRS currently audits the poor at the same rate as the top 1%, even though higher earners are responsible for withholding the vast majority of tax money in fraud.

Land can't move or hide, and nowadays we have tools like GIS to make it even easier to assess. Under land value tax, nobody needs to pry into your personal life or impose burdensome accounting rules on your small business that actually entrench the power of giant corporations (who have entire departments devoted to serving up the Double Irish with a Dutch Sandwich).


A Brief Interlude From the Future

Today land value tax is widely considered to be the only tax that doesn't suffer from Deadweight Loss.

Deadweight Loss is the lost economic activity or value caused by some policy. It's often summarized by the phrase "If you want less of something, tax it."

Look at this chart, for example:

(source, CC BY-SA 2.5, author: SilverStar)

The place where the demand curve (red) and supply curve (blue) meet is the equilibrium point that the market naturally tends towards. But if we impose a price control lower than what the market will bear, the yellow area of the curve shows economic activity that can't happen. If you put price controls on gasoline, for instance, you'll get shortages because there's more demand than supply, and supply can't profitably rise to meet the extra bit of demand that's willing to pay a little more.

But here's how things look with a land value tax, notice that the supply curve is vertical – that's weird, what does that mean?

(source, CC BY-SA 3.0, author: Explodicle)

A vertical supply curve means no matter what the price of land is, the same amount will always be supplied. This is because you can't make land – the supply is effectively fixed. Remember, the Netherlands doesn't count because the sea bed is land, and filling it in is just an improvement to land that already existed. And even if we granted "The Netherlands occasionally makes land" for the sake of argument, the amount of land "created" in this way is pretty darn negligible in the grand scheme of the economy, and almost exclusively the domain of governments or state-owned actors.

The supply of land being fixed has some really interesting properties. By contrast, consider oil, the supply of which is not fixed. If we tax oil, some of the more marginal wells will be too expensive to operate and make a profit, so producers shut those down and the supply of oil decreases. Deadweight loss comes from a producer's ability to change the amount of product they supply in response to price signals. You'll notice the above graph of land tax has no deadweight loss at all!

Since nobody produces land, it's the one thing you can tax without getting less of it. This drives out speculators entirely. Speculators can no longer distort rents by bidding up the price of land and holding it out of use, and can no longer compete with those who actually intend to use the land. This restores the proper balance of land, labor, and capital.

Now if you work harder, or invest more capital, you can actually expect to see an increasing return without it all being gobbled up by ever-increasing rent.

If you think about it this way, land value tax has negative deadweight loss, because it eliminates the speculative distortion that is the unearned privilege of landownership.

Okay, but won't the landlords just pass the land tax on to their tenants?

By George, no. Rent is a price, and price is governed by supply and demand. Supply of land is fixed, so land value tax has no effect on supply. What about demand? Except in cases where it causes the economy to boom (a good thing), land value tax won't increase land value – what it always does, however, is reduce the demand for land by speculators. If it costs nothing to hold on to land, of course I'm going to want to grab some and HODL. If the rent I could hope to gain is taxed away, I won't bother.

Consider the case of oil again, where a tax reduces the supply. Reduced supply, given unchanged demand, causes a rise in price. And you'll find the increase in price tracks very closely with the amount of tax.

Land value tax is just about the only kind of tax that can't be passed off to someone else. For more on deadweight loss and the land value tax, see Welfare Economics of the Land Value Tax by BlueRepublik.

So does this mean there can never be profitable landlords ever again? Of course not – they just have to earn their living honestly like everyone else. Remember, we don't tax the improvements, just the "ground rent." So Ms. Nguyen still gets paid for all her honest work and judicious investments, but Mr. Slumlord doesn't make a dime until he gets off his lazy butt and does something productive.

This is really important, because aside from speculation, the principal cause of land value increase is the productivity of your neighbors. An empty lot in the middle of nowhere is worthless, but an otherwise identical empty lot in the middle of New York city is priceless. As they say in real estate - "location, location, location." The reason location is valuable is because of the activity and contributions of the community, and yet the landlord claims the right to seize it all as rent.

Modern economists have some interesting things to say about George's ideas, too. In 1977 Joseph Stiglitz demonstrated that land rents have a tendency to almost perfectly equal the value of investment in public goods. He called this the Henry George Theorem. Milton Friedman famously called land value tax the "Least Worst" tax.

But one of my all-time favorite endorsements will always be that one time the economist Ramin Shokrizade unwittingly re-derived land value tax from first principles to (successfully!) fix recessions in EVE Online.


Okay, so we tax all the ground rent. It will remove the speculative component of the rent (because there will no longer be any incentive to jack the prices up artificially), but it won't drive the price down to zero. That's because 100% LVT is only achievable on a frictionless plane populated by spherical cows; here in the real world you'll be left with a small sliver of land value. And of course regardless of the LVT rate, houses and buildings will still have a price. And that's fine.

Land in Times Square will still be a lot more valuable than land in Podunk, Saskatchewan, but both will approach the same price as the LVT rate gets closer to 100%. This encourages people to actually make use of valuable land rather than holding it out of use, blighting the urban core and forcing development to sprawl out for miles in every direction, leading to worse transportation and more pollution.

But... doesn't this mean that if people aren't putting land to productive use, they'll eventually be pressured to sell it off to someone who will?

George sees this as a good thing.

Without land value tax you get situations where somebody can anticipate that an empty lot will become valuable in the future, buy it, HODL forever, lobby against future development that would depress their property values, and now you have the Bay Area's housing crisis.

Or buy an apartment block, do the absolute minimum the tenants will tolerate without killing you, constantly jack up the rent as the city grows, and you get slums.

As BlueRepublik observes in No, Georgism is Still Sane:

If you look at the commercial blight in New York City (http://www.vacantnewyork.com/) 90%+ is from landlords refusing to lease out to small businesses, waiting for a larger bank or big business to pay a higher rent bill. This causes property values of nearby businesses to drop, equity value to drop, and businesses to move out from the city center, increasing urban sprawl and urban blight. It’s a massive drain on personal wealth, and is very highly linked with poverty and higher crime rates. It’s also not a great model for having a stable social fabric.

In a fit of performance art, a Georgist by the name of Fay Lewis once famously bought an empty lot and stuck a big sign on it to demonstrate the principle in action:

Okay, but isn't building too much stuff bad for the environment? Won't this encourage over-development?

By George, no. What's bad for the environment is sprawl, which the current system encourages and which the land tax would directly attack. If you want dense, walkable cities that don't depend on cars to get around, you should eliminate land speculation.

A stronger objection to land value tax is when it's not some shifty speculator or a genocidal English landlord who suffers the brunt of it, but, say, this guy:

The premise of Pixar's movie Up is that Carl Fredricksen, a lovably grumpy pensioner, is the last holdout standing in the way of developers bulldozing the rest of his neighborhood in the name of Progress™. He refuses to sell because he can't bear to part with the house which for him is tied up with all the cherished memories of his departed wife.

This isn't just sentimental fiction, this is something that really does happen.

Isn't Georgism just going to price the poor Carl Fredricksens out of their homes so that someone with a more """productive""" use can have it instead?

There's several good response to this.

For starters, if you're worried about kindly old people losing their homes, that's a thing that's happening already, and most of the time it's because The Rent Is Too Damn High, and our existing system is net worse on this score. We are currently facing an unprecedented crisis of evictions in tandem with the COVID pandemic, and it's not like things were peachy before. And even though homelessness seems to be declining in the US overall, it's getting worse in the most prosperous cities, exactly as George predicted.

Okay, maybe it's better for renters, but what about people who own their homes, like Carl? Isn't it unfair to stick them with land taxes that might kick them out? What if they're retired?

Remember, let's not confuse land tax with land confiscation, Here's George (emphases mine):

I do not propose either to purchase or to confiscate private property in land. The first would be unjust; the second, needless. Let the individuals who now hold it still retain, if they want to, possession of what they are pleased to call their land. Let them continue to call it their land. let them buy and sell, and bequeath and devise it. We may safely leave them the shell, if we take the kernel. It is not necessary to confiscate land; it is only necessary to confiscate rent.

Okay, but you have to admit that even if the state isn't confiscating everybody's land, if you can't pay your land taxes you have no choice but to sell your land, right? Isn't this morally unjust to the Carl Fredricksens of the world?

First, it's not a given that Mr. Fredricksen will be worse off on net: he already pays income and sales taxes, capital gains on any investments, as well as property tax which taxes both land value and the value of his house. As speculators leave the real estate market the land tax that replaces his property tax drop will drop, and his house is an improvement that goes entirely untaxed.

Also, if the speculators holding onto all the most valuable real estate in the downtown districts are forced to give it up, there won't be as much competition for land and so there's a good chance developers won't be interested in trying to buy up land in a bedroom community in the first place.

BlueRepublik further points out that LVT can be used to fund a Universal Basic Income, which should soften the blow considerably:

Keep in mind also that the Georgist Land Value Tax is pair with a "Citizen's Dividend" or what we see as UBI, so that it's not the government claiming land rent, rather the land rent is taxed and split up equally for all men.

But as a matter of political practicality, in the rare event that after all that Mr. Fredricksen still somehow finds himself in the hole after LVT is applied, Nate Blair suggests a deferment option to grandfather the Carls of the world through the transition:

The LVT gets assessed annually for everyone, but owner occupiers (businesses and homeowners) can apply to defer the sum of those payments until they sell or transfer the land. Government can charge a nominal interest.

A final point of modern application of land value taxes is to level the playing field between different areas by eliminating "cost of living" discrepancies that arise entirely from speculative rent. This is pretty relevant given the "location pay" debate going on in Silicon Valley right now in response to increased remote work as a direct consequence of the COVID pandemic.


Back to George.

Great, we've taxed ground rent at 100% and eliminated speculation and all other manner of social ills. Now what do we do with the money?

Lots of things!

For one, you can get rid of some other taxes. Back in George's day it was even argued that a 100% land value tax on ground rents should be the only tax – the "Single Tax," replacing all other tariffs, duties, and other taxes (keep in mind this was in the late 1800's and Federal income tax wasn't introduced until the 16th amendment in 1913).

Remember, all these other taxes have deadweight loss. Income tax is a tax on labor, and so taxing it means we really do get less productive labor. The portion of property tax that targets improvements punishes you for investing in improvements, and sales tax is just straight up regressive, hitting the poor harder than the rich.

There's some argument today about whether the "Single Tax" would be enough to fund the modern US budget, with some Georgists saying it would be sufficient and others saying we would still need some other taxes but could at least significantly offset what we already have.

But by George, another thing we could do is just give all the money back to the people, as BlueRepublik mentioned above. This could be used as a straightforward Universal Basic Income – what George calls a Citizen's Dividend, or what Andrew Yang calls the Freedom Dividend. It could also be used for the funding of public goods. George doesn't see this as an act of charity on the state's behalf – the value of the land has its origin in the productive labors of the entire community, so it's a simple act of justice to give the returns to those who actually produced the value, which is society at large.

Another effect George asserts is that once land is no longer monopolized, labor is no longer forced into one-sided competition, so wages start to go up. Even better, laborers now have far more opportunity to go into business for themselves, which spurs innovation and investment.

So to sum up, if we tax the ever loving hell out of ground rent, George says we'll see the following benefits:

  • Make housing much more affordable

  • Eliminate perverse incentives and speculation

  • Encourage the most efficient use of land

  • End wage slavery and rack-rents

  • Encourage investment and innovation

  • Fund a Universal Basic Income and public goods

  • Lower or eliminate some other unpopular taxes

  • Not hand everything over to a centralized planned economy that probably won't work

The Rent is Too Damn High, but, by George,
it doesn't have to be.


Further reading:

on Georgism:

on Distributism (a close cousin to Georgism):


Appendices

These are optional elaborations on sections I glossed over because the Book Review Is Too Damn Long.

Appendix A: George Dunks on Malthusianism

Malthusianism in George's time was wildly popular, and often invoked by the ascendant proponents of Social Darwinism who took Charles Darwin's theory of "survival of the fittest" and recast it as a moral justification for the Just World Hypothesis. Essentially, those that are doing well do so because they are more "fit", and those that are less "fit" tend to perish, and furthermore, this brutal process will actively "improve" the human race. This philosophy was the energizing intellectual force behind both the Eugenics movement and Nazi Germany.

George clearly hates everything about this philosophy but attempts to steel-man it anyways:

The Malthusian doctrine, as at present held, may be thus stated in its strongest and least objectionable form:

That population, constantly tending to increase, must, when unrestrained, ultimately press against the limits of subsistence, not as against a fixed, but as against an elastic barrier, which makes the procurement of subsistence progressively more and more difficult. And thus, wherever reproduction has had time to assert its power, and is unchecked by prudence, there must exist that degree of want which will keep population within the bounds of subsistence.

The weak form of Malthusianism is "people are as dumb as deer and will breed endlessly until there's not enough food and everyone starves to death."

The strong form of Malthusianism is, "of course people aren't mindless deer charging into a brick wall, but there is a firm upper limit that can only give so much before nature will cull the herd without mercy."

And by George, we can't just dismiss the strong form out of hand: "what seems clearer than that there are too many people?"

However, George is suspicious of how easily the Malthusian theory justifies contemporary economic assumptions and assuages the moral sensibilities of the establishment:

The great cause of the triumph of this theory is that, instead of menacing any vested right or antagonizing any powerful interest, it is eminently soothing and reassuring to the classes who, wielding the power of wealth, largely dominate thought... It furnishes a philosophy by which Dives as he feasts can shut out the image of Lazarus who faints with hunger at his door;

He points out how it lets self-styled "Good Christian Men" reframe their own greed and indifference as just plain good sense:

In this view, he who in the midst of want has accumulated wealth, has but fenced in a little oasis from the driving sand which else would have overwhelmed it. He has gained for himself, but has hurt nobody. And even if the rich were literally to obey the injunctions of Christ and divide their wealth among the poor, nothing would be gained.

(Aside: I've heard this exact defense offered by many of my fellow Christians)

Okay, George makes a strong moral case. But a moral case isn't enough, and I think this is where many activists of all political stripes go wrong. If you attack the premises of an idea as "dangerous" because it could lead to bad consequences, you're still stuck with a real problem if the premises that animate that "dangerous" idea turn out to be actually true. If they're true we're stuck with them, and unless your competing policy admits to the same grim facts, your opponent will just dismiss your entire argument and more importantly, so will their audience.

But if the premises aren't true, then the dangerous and scary policy prescription – say, "let the Irish starve to death" – is both evil and unnecessary. History has shown that many officials will shrug their shoulders at "evil" policies so long as they believe them to be "necessary."

Cool, we've established that Malthusianism is bad.

Now let's establish that it's wrong.


A Brief Interlude from the Future

From where we're sitting in 2021, we don't even need George to refute Malthusianism, history has done that for us.

Instead of increasing at an exponential rate, fertility rates are crashing all over the world. Not in one country, but in virtually every country, and in many the birth rate is already below replacement. Fertility rates have been crashing so hard that some are calling it a "Global Fertility Crisis." The absolute size of the human population is still growing, but this is just due to inertia; the human population will peak somewhere between 9 and 10 billion in the 2060's, and then decline from there.

The two main things Malthus got wrong were failing to anticipate 1) advances in food production technology like the Green Revolution, and 2) that humans can control their own fertility rates.


George's strongest arguments against Malthusianism strike directly at the provably false claims of its 19th century proponents and provide some extremely salient applications of George's philosophy.

George takes up the cause of India, China, and Ireland, which were often cited as examples of "overpopulated" countries where many have starved and been forced to emigrate. Per the Malthusians, this is the fault of too many of these poor, ignorant, and deficient people crammed together in too small a space.

By George, it can't be the fault of population density – in his time, Germany, Belgium, England, Netherlands and Italy all have higher population densities than India, China, and Ireland, and could therefore support higher populations with the right conditions. And there's certainly nothing wrong with the people themselves:

This arises from no innate deficiency in the people, for the Hindoo, as comparative philology has shown, is of our own blood, and China possessed a high degree of civilization and the rudiments of the most important modern inventions when our ancestors were wandering savages.

Instead:

It arises from the form which the social organization has in both countries taken, which has shackled productive power and robbed industry of its reward.

India is poor not because it has too many Indians, but because it is oppressed by too many Englishmen:

The millions of India have bowed their necks beneath the yokes of many conquerors, but worse of all is the steady grinding weight of English domination... India now is like a great estate owned by an absentee and alien landlord

George gives us lots of details about the plight of India, China, and Ireland, but for the sake of brevity I'm just going to present the heartbreaking case of the Great Irish Potato Famine and let it stand in for all three.

To sum up, from 1845 to 1852 there was a period of mass starvation and disease in Ireland. About one million people died, and another million fled the country. The entire population dropped by about 25%:

The extreme poverty of the peasantry and the low rate of wages there prevailing, the Irish famine, and Irish emigration, are constantly referred to as a demonstration of the Malthusian theory worked out under the eyes of the civilized world.

Many prominent intellectuals of the day looked at the crisis, shook their heads, and said – what do you expect when those ignorant Irish Catholics breed like rabbits and strain Ireland's carrying capacity to its limit? It's just natural selection at work!

George will have none of it:

The laborer was just as effectually stripped by as merciless a horde of landlords, among whom the soil had been divided as their absolute possession, regardless of any rights of those who lived upon it.

Okay, they had to pay some rent, so what? Didn't they bring their suffering on themselves? Why, the intellectuals ask, didn't the Irish work harder, why did they not improve their local economy and agricultural base? And most importantly, why did they depend on a single monoculture crop (the potato) if a single blight could knock out their entire food supply?

By George, because The Rent Was Too Damn High!

tenants... even if the rack-rents which they were forced to pay had permitted them, did not dare to make improvements which would have been but the signal for an increase of rent. Labor was thus applied in the most inefficient and wasteful manner.

(emphases mine)

The Irish were really trapped. Working harder to improve the farmland to increase its yield could actually leave them worse off. Any increase in their land's productivity goes to the landlord in the form of increased rents. But even this structural impoverishment of the land wasn't sufficient to cause the famine. Ireland still produced enough food to feed its people:

For when her population was at its highest, Ireland was a food-exporting country. Even during the famine, grain and meat and butter and cheese were carted for exportation along roads lined with the starving and past trenches in which the dead were piled.

People were literally starving and dying, but because of the structure of land ownership they couldn't even pay their rent, let alone purchase the food grown from their own lands and raised with their own hands. Since the local population couldn't afford it, the (English) landlords sold it abroad to the highest bidder.

It went not as an exchange, but as a tribute – to pay the rent of absentee landlords; a levy wrung from producers by those who in no wise contributed to production... they lived on the potato, because rack-rents stripped everything else from them.

The Rent Is Too Damn High, and it's not because the designated underclass of the day have too many babies or are too uneducated, too ignorant, too religious, too lazy, or too foreign.

George gets really mad about this, and calls out John Stuart Mill and Henry Thomas Buckle by name for lending credence to the Malthusian explanation of Ireland's suffering.

I know of nothing better calculated to make the blood boil than the cold accounts of the grasping, grinding tyranny to which the Irish people have been subjected, and to which, and not to any inability of the land to support its population, Irish pauperism and Irish famine are to be attributed; and were it not for the enervating effect which the history of the world proves to be everywhere the result of abject poverty, it would be difficult to resist something like a feeling of contempt for a race who, stung by such wrongs, have only occasionally murdered a landlord!


Appendix B: George dunks on the Conventional Laws of Distribution

Conventional Law 1: Wages aredetermined by the ratio between capital devoted to the payment & subsistence of labor, divided up by the number of laborers.

Conventional Law 2: Rent is determined by something called the "margin of production," AKA the "margin of cultivation."

What's that?

Let L be some land.
Let W be the worst land available.
Let A = the produce L makes.
Let B = the produce you get applying the same amount of labor and capital to W.
The Rent of L is given by A - B.

The margin of production/cultivation is the difference between how much you can produce from a particular piece of land compared to the least productive alternative.

This is the only conventional law of distribution that George accepts as correct.

Conventional Law 3: Interest is the ratio between capital demanded by borrowers and supplied by lenders, falling as wages rise and vice versa. To quote Mill, interest is determined "by the cost of labor to the capitalist."

The problem with these three laws is if Land, Labor, and Capital are the only three factors of production, and each gets its own return, than the three returns should balance. In other words:

Return to Production = Rent + Wages + Interest

If your three returns sum to more or less than 100% of the return to production, something's off, and George says the old laws don't add up – the only one of these he accepts is the law of rent. What's wrong with the other two?

First we've got to stop using "profits" to mean a return to capital. If we look into a profit stream, we see more than one kind of thing. Conventional economists list the following:

  1. Wages of "superintendence"

  2. Compensation for risk

  3. Return for the use of capital

"Superintendence" is a fancy word for management. White-collar though it may be, it's still labor, and it's compensation is wages. That's not a return to capital.

As for compensation for risk, George says that risk averages out and disappears when you take the God's eye view and sum all of society's transactions together. If I take the winning side of a bet and you take the losing side, I enjoy gain, you suffer loss, but the amount of wealth in the world hasn't actually increased as a result of our bet.

That leaves return for the use of capital, which George calls interest.

"I shall therefore, consistently with the definitions of political economists, use the term interest as signifying that part of the produce which goes to capital."


Appendix C: The Insufficiency of Remedies Currently Advocated

Things we've already tried that George says aren't sufficient:

  • Austerity measures & smaller government

  • Improved education & worker training

  • Labor unions

  • Co-ops

  • Government redistribution of wealth

  • Land redistribution

Why they're insufficient:

Austerity & smaller government may help balance the budget, but it is not government spending but rather rent that limits workers' wages.

Education can help an individual, but when land is monopolized workers still compete with each other for labor, so if you send everyone to college all that's changed is now the minimum requirement for every job is a bachelor's degree, and rent still limits wages. What about vocational schools and direct worker training? Even if these are more relevant to teaching relevant skills that raise productivity, the same thing happens; land is monopolized, laborers compete with one another, rent soaks up the gains.

Unions can actually increase wages, because it's one of the few forces strong enough to stand against the power of rent. The problem is that unions face a never-ending uphill battle. We often think of "labor versus capital" but what we often call "capital" is just landowners in disguise (because conventional theories include land as a kind of capital). And landowners have a huge structural advantage in negotiations. Labor is the most vulnerable and will quickly starve if idle, but idle capital likewise earns nothing and is actively eaten away by maintenance costs and depreciation. Landowners however can just sit back and collect rent. Given that land is fixed, it's way easier for landowners to collude than it is for either labor or capital (sans land) to unionize.

Co-ops come in two forms: supplier co-ops and producer/worker-owner co-ops. The former can only lower the cost of exchanges by cutting out middlemen, and the latter just changes the structure of wages (profit-sharing instead of fixed pay). These are good things that help, but don't attack land monopoly and thus can't resist the power of rent.

Government redistribution of wealth through high taxes (presumably income or wealth) have two well known problems. First, you massively increase the size and scope of government, inviting corruption, an invasive surveillance state, and power-hungry politicians. Second, by taxing income or wealth you're also taxing production, creating "Deadweight loss." Also, given labor and capital can move, if you try to tax them more than they like they will just go somewhere else (note that land alone cannot do this). George grants that this kind of brute-force redistributive policy may well be better than the status quo, but we can do a lot better. George further predicts that trying to implement Socialism will lead to demagoguery and dictatorship in actual practice. He admires the ideal, but says that such a society must "grow" rather than be "manufactured."

As for land distribution, George finds fault with it. No matter how you tinker with the rules of who can own land and how or whether it can be sold, in the long run every system tends towards the consolidation of land ownership. Even if you go to the extreme, chop it all up and parcel it out, ownership will inevitably concentrate again.

Ultimately George says all of these remedies are insufficient because they don't address land monopoly and do little or nothing to attack the power of rent.

Discussion

George's book is referenced (prominently) in this page of the UBI Master Directory.

https://docs.google.com/document/d/1q9AkxTmaaWBGkXrhjP8dnkT5mbZ06Xax-RkfxJV9BNI/edit?usp=drivesdk

>Landowners however can just sit back and collect rent. Given that land is fixed, it's way easier for landowners to collude than it is for either labor or capital (sans land) to unionize.

Where I live in the Dominican Republic land prices are sky high. Comparable to coastal California land.

The land owners just wait.

That happened here too during our Celtic Tiger boom. Property speculators mushroomed, bought up and set up land banks, then sat back and waited for the inflated price to make it worth their while. Parcels of land changed hands multiple times, at increased prices each time, with nothing being built on them because it made more money to wait a little while for the price to keep going up then sell them on.

Of course, once the bubble burst, all this land was now relatively worthless. George is right there, but like any asset, if there is demand for it price will go up. I don't see how you can fix that by a simple land tax.

land value tax means there's no value to simply selling the land for the land - you would only buy a plot of land if you have a vision for what you want to build *on* it. in the heart of NYC, that's gonna look different than in a random small town, but in both instances, there's no value to just sitting on the land: https://www.bostonglobe.com/business/2019/07/03/one-third-acre-back-bay-location-parking-but-not-for-long-price-million/qyoEyaJMBE1qg9piuf5piI/story.html

you can't have a 'bubble' if there's no way to privatize the rise/fall in underlying land demand - those losses/gains would be shared by society - which is why LVT creates a virtuous cycle where governments and people have a shared incentive to increase land value through public works (this is stiglitz's 'henry george theorem'.

An LVT means that you need to pay yearly in order to sit on the land. This hits from two ends: A future developer is willing to pay less for the land because of the additional tax burden, and waiting for the parcel to go up in price quickly becomes a losing proposition. It would turn real estate, where waiting earns money, into an asset more like a car, where buying it makes sense if you're using it, but just sitting on it means you're losing money.

I suspect most of this locked up land is close to the beach, so they're waiting to sell out to a resort developer.

If there is land with a high price in the DR that doesn't have beach access? No idea why.

Yes. It seems to be true everywhere. I checked out some farm land in the interior. I thought, "I could afford that!" Turned out the price was per SQUARE METER.

Can you please provide some evidence?

What would an example look like?

I know nothing about the Dominican Republic per se, but I know that real estate in third world countries in general, and Ukraine in particular, is outrageously expensive, considering.

This is because real estate isn't viewed as an investment (in the sense of generating returns) as much as it is a relatively safe place to park money. Banks aren't trusted, and everyone knows that the local stock market is a mug's game. Currency and other restrictions may prevent local gentry from investing abroad or repatriating their gains, and besides, these investments aren't really understood or trusted either.

Land, houses, things one can touch and feel and that cannot be easily absconded with, that is where value is stored. In some societies, India, for instance, gold also plays a similar role. Gold has the advantage and disadvantage of being eminently portable.

A friend of mine worked as a corporate raider in Ukraine, playing various financial hide-the-sausage games with western investors. She would squirrel away her earnings in her mattress until the mattress started getting too lumpy, then buy another apartment and start the process over again.

She didn't rent out any of the places she owned, since even a cheap apartment cost some $250,000 and the rent it paid wasn't worth the hassle of chasing down renters every month, much less tenants trashing the joint or stealing the wiring.

She lived at home with her parents.

China's housing market is allegedly pretty crazy as well according to this source:

https://www.youtube.com/watch?v=jDIhTc6CJYY

That makes sense about not trusting banks. I rent a house in a nice part of Boca Chica, DR. The are building an apartment building on the lot behind my house. They started over two years ago.

It was December. First a couple of workman came and stripped every green leaf from the lot. Then they dug ditches, mixed concrete, and poured footings. Then built low concrete block walls. About 3 feet high. It looks like it will be four apartments.

They did all that work in ten days. Probably the fastest crew I have seen in this area. Then they went away. FOR A YEAR AND A HALF!

Last summer they came back and in another ten days completely finished the first floor including a very precise flat concrete floor at ceiling height.

By this time I could see by the plumbing stacks that they were not stopping at one floor. Too bad I thought. They are going to block the light from the north.

Then they went away again. It has been nine months and no new activity.

What is going on with this process? I think when they have money they build. Then they wait to accumulate more money. They are not borrowing money from a bank at the exorbitant interest rates here.

I've seen that movie before as well, even in places like Poland, which is very different and which has a different banking culture from, say, Ukraine.

My raider friend didn't owe money to any bank, FWIW. She bought her apartments for ca$h. As in "suitcases filled with bricks of green cash" like she was Tony Montana or something.

This start-stop process I described would not work with a wood frame house, but the cement blocks and concrete are resistant to the weather.

It seems odd given what happened to Ukrainian landowners within living memory. I would have thought portable wealth would be more popular? But I guess if land is all you got that's what you invest in.

I have wondered much the same thing.

The old lady I used to practice my Polish on told me in her day, it was gold that people used as a store of value, not land or Yankee Dollars.

I should have added: gold isn't hard to come by in Ukraine, but at the same time, you can drive through new housing developments that are entirely sold out, and that mostly sit empty.

Actually I'm not sure what you're referring to. Individual (not organizational) land and property ownership was resilient both to the collapse of the Soviet Union and occupation of Crimea. And even with occupied regions it's a bit of a tossup - if you owned land in the Crimea it's massively more expensive now, if you owned land in occupied Eastern Ukraine - it plummeted in value (but at least you still have it).

Additionally, in developing countries real estate is the only efficient source of collateral for loans for investment projects, bidding them up above their fundamental value, due to their high pledgability as an asset.

Not so much in Ukraine, in large part because of some of the vagaries of Ukrainian real estate law (if you change the "техосмотр" -the technical description of the real property as found on the deed, for instance, by changing the square area, you can get a corrupt judge to invalidate your mortgage and you can give your lender the middle finger).

"Banks aren't trusted"

Is this for a good reason? Do you think Ukrainians will start using any of the flashy new DeFi services?

I heard that cryptocurrencies / tokens / IPOs were pretty popular in Ukraine ? (Or maybe just in their infocom scene ?)

Sorry, this story about Ukraine is almost completely wrong (maybe, maybe it was somewhat true before the Russia-Ukraine war started in 2014). The reality is almost opposite - outside of the very top of the market, apartments are reasonably priced and generate nice return on investment. Prevailing rate seems to be around 800-1000 usd/sq.m., depending on condition and district., and 90% of the market is below $100k, I believe. For example, with $50k you can get a half-decent 1-bedroom apartment ("2-room"), and rent it out for maybe $300/month, so 7.2% p.a., not bad at all. New construction is abundant, as well. Of course, people still struggle as the average monthly income is around $400 or so.

Of course, at the very top, elite property is expensive, but there's very little being bought and sold, and owners are very very open to negotiation. I've been offered property at one of the most prestigious highrises in Kyiv for $2500/sq.m. which is like 50% of list price, guy owns several floors and is motivated to sell (won't be surprised if he's actually one of the corporate raider types who parked his money there).

forgot to add: am Ukrainian, currently living in Kyiv

Suffice it to say, very different from my experience when I lived there. You were hard pressed to find anything for less than $200K.

There was a Henry George School in Santo Domingo in the 1990s lead by Lucy Silfa. http://georgistjournal.org/2012/09/17/an-interview-with-dona-lucy-silfa/#more-396

Cool! I never would've guessed.

This is great. I'm going to create a page for Henry George in the UBI Master Directory. Probably "UBI and Georgist Philosophy". Then I will link this interview.

This is not my experience. Apart from prime beachfront land and downtown Santo Domingo, I could buy a small plot almost anywhere in the country.

Jump links to the appendix look broken, but I found Ctrl-F "Appendix-A" or whatever seems perfectly serviceable to locate the linked section, as well as to jump back to where it was referenced after you're done.

Author

1. I still don't understand the insistence on saying that workers are paid out of production rather than capital. For one thing, it seems transparently false - the review mentions the example of workers building a ship, which might take a year, but they still get paid even before the ship is built. It argues that they are paid from the partly-built ship, but they're clearly not - they're paid out of the saved money that the person who founded the shipbuilding company brought in (or borrowed). You could even demonstrate this by having the capitalist put highlighter marks on the particular dollar bills they bring to the venture, and then you will see that the workers get paid in highlighted dollars. But also, who cares? What hinges on this totally theoretical point? I still don't feel like the review/book explained this very well.

2. Would a land value tax unfairly benefit eg Google (who maybe need a little land for their HQ and a server farm, but land is only the tiniest fraction of their costs) compared to eg farmers (who need lots of land)?

Theoretically a land value tax should have no effect on the cost of renting land. It may even reduce the cost of rent (since just holding land is now costing you money- thus unused land maybe more likely to be rented out to recoup the cost of the tax). Thus it shouldn't be unfair to either Google or the farmer.

Essentially it transfers the value gained from holding the land to the government.

Author

I'm confused. Homeowners seem pretty against having the government raise property taxes, which I interpret as them reasonably expecting to have to pay more money to have a house. Increased property taxes on housing would hurt homeowners relative to, I don't know, homeless people. It would probably also hurt renters since the landlords would pass along some of their costs. Why would a land value tax be different?

Property taxes are very different, as the delta gain from the land improvement is not taxed.

How so? Property is reassessed at points in time. It can also be reassessed after a value-add project since permits have been issued thus notifying the local government that the value has changed.

He meant that the LVT does not tax land improvement, in contrast to how property taxes are determined.

George wants to capture the increased ‘land value’ the other landlords see when one improves their building and the others increase their rents. It is a specific example cited. In raising the LVT George ‘takes’ what isn’t due the non-improving owners.

The pragmatic use of LVT is to tax the purposeful idling or minimizing of what should be a property, sales, income... producing parcel. It is an targeted solution to an urban density problem.

You seem to be modelling it as if it were a tax that increased the costs associated with renting out land. It doesn't, it increases the cost of owning land.

Landlords cannot respond to this tax by raising rents to cover their losses. They remain in a competitive market. The marginal cost of supplying an additional unit of land hasn't changed because crucially the amount of land is fixed, and the tax is levied regardless of whether the land is rented out or not

Thus a land tax will indeed be awful for existing land owners, but renters will either do no worse or win somewhat. Future land owners will not suffer, because the land tax will be factored into the price.

This is because a land tax effectively devalues land by transferring its future earnings to the state.

The equilibrium price of land will thus remain the same in a standard neoclassical model of this market. Really it might even go down a bit, as land owners who were previously content not renting out their land need to cover the tax.

It actually works out more like an expropriation than a traditional tax.

Would this only work if the land value tax was applied everywhere, all at once?

Most land tax proposals do this in a country. Between countries, the markets are mostly separate.

The mechanism by which taxes are passed on depends on a supplier being able to change how much they supply based on the market price.

Sure, you can just say "hey I'm being taxed, so now I'm charging more for it" and *hope* people pay it, but the *economic force* that makes the market agree your offer is a worth taking is the fact that when you tax schnozzberries by a dollar per bushel, schnozzberry farmers on marginal plots that only had a profit margin of a dollar per bushel cease production. This drives down the supply, driving up the price, and so consumers are grudgingly willing to pay a dollar more per bushel even though the tax was originally levied on the supplier and not them.

With land all you can do is refuse to rent it out, but that's not the same as taking it out of production. It still exists, and you still pay land tax for holding it regardless of whether you rent it, whereas the farmer doesn't pay taxes on berries he doesn't grow. Without the ability to constrain the supply, and having to pay the tax simply for owning the land, you have no ability to affect the market price of land and thus pass on the tax to your renters. This is pretty widely recognized in modern economics and it's why folks like Friedman called Land Tax "the least bad tax."

Homeowners - yes.

Renters - no. Presumably they're already charged whatever could be squeezed out of them. Also, in the LVT-based system, if someone 'takes a stand' and demands a price which exceeds what they could pay - well, they'll be forced to move out. Which means now the owner pays the tax without making any profit. Which means they're son bankrupt and lose that land.

After some brief disruptions, the system should just stabilize. And now all rent goes to the state's budget. Which means it could, for example, remove income taxes. And do an UBI-lite with additional surplus (I'm assuming LVT > income taxes, but maybe not enough for true UBI sufficient for living off it). Which means surplus wealth of the labor increases (well... actually the corp. would just decrease wages, rly - it's quite obvious with Facebook paying less remote workers who moved out of high-cost areas... but that situation also shows Facebook was literally paying the USD by which they reduced the wages to the landowners!)

The bit with homeowners sucks through, very badly. Maybe the initial impl. should have some additional provisions just for that one time status quo changes.

Landlords can pass along the costs of property taxes because property taxes move the supply curve of property to the left, increasing price. This is not so for land value taxes - since the supply of land is fixed.

Except, by George's own definition, it's supply NOT fixed :

From the law of thermodynamics the sum of the *quantity* of land/nature/privilege + the *quantity* of wealth can only go down.

(However, their aggregate *value* can also go up, since scarcity increases the value of the item getting scarce.)

1) Higher taxes on a good reduces the price of that good. Under Georgism, existing homeowners will indeed be shafted. That's a feature, not a bug, albeit it certainly increases the difficulty of implementation.

2) Rent is not calculated by landlords seeking a given return, it is the maximum the market can bear (i.e. the maximum renters are able and willing to pay in that particular market).

2.1) Property taxes don't change a renter's ability to pay, for obvious reasons (there's no reason there should be a relationship between the job giving me a raise and property taxes).

2.1.1) At least not in the short run - in the long run one could argue that property taxes (albeit not land taxes, for reasons outlined above) discourage building more houses, as *new* projects are determined based on whether they pass a certain profitability threshold.

IANAGeorgist (lean Austrian, actually), I don't know what's what beyond the contents of this review, so please take everything I say with that in mind. That said:

1) I think it may be attempting to make a conceptual rather than literal point - that it's out of the expected value generated by the worker's labour that the wages are paid, and if that value wasn't being generated by said labour, then that labourer doesn't get hired. Just imagining the scenario as atemporal but still sequential - imagining that the labourer can take an arbitrary number of steps of labour in a single instant of time - makes it more understandable to me, and may help with the point being made at its root.

(Now, ours is the kingdom of the goddess Kali, she who is time and the devourer of time, and in her world, everything *doesn't* happen atemporally; additionally, in both worlds, losses are possible. But if this behaviour is repeated, the business entity or whatever doing this goes bust, so - short of an entire social-economic unit of people going collectively insane and losing their refpoints for what's up and down economically - this state of affairs can't continue for long. And even in cases of collective insanity, eventually people just die as their ability to produce even basic food is destroyed - witness Mao and his time, and the destruction of farmers' implements made of metal in a mad, quoxotic and insane quest to meet 'production quotas' for iron by throwing said implements into village furnaces that just... destroyed them, and produced useless iron. So the situation is eventually unstable - you either go out of business, or - if there are no brakes on this loop - your entire society goes insane and dies. But that's an aberrant case.)

2) I presume the expectation is that land value rent on farming is likely to be very, very low; and the gains from using modern agricultural technology (these gains would *not* be taxed, in the Georgist scheme, because it's the return on *capital*, NOT land) would be so enormously more significant than the land itself as a factor of what gets produced that it would basically be completely immaterial.

But all this is just a guess, please remember that IANAG.

IAAG, but I'm also a big dummy, and for what it's worth I thought that was a pretty good explanation and better than I would have done.

I agree that part of the review Scott references in 1) (and peeking at my copy of P&P to see what George says about it at length) is a bit fiddly. George's apparent hand-waving about risk as a justified return to capital feels like something I'd like to get a more involved take on too, in case the review isn't doing it justice, or George provides a better explanation outside of P&P.

My only take on 1) is that I think George is probably responding to established wisdom of his time which really sees capital as this absolutely fundamental thing that labor absolutely can't in any way shape or form function without, which the review touches on a bit later, and presumably this relentless beating to death of words and concepts is supposed to help him undermine that notion somehow.

My (possibly extremely dumb) take on 2) is that George might be less concerned with sticking it to the Googles[1] of the world then he does the EFFECT of Google moving in to Mountain view and all the landlords jacking up the rents for everybody until nobody can live there unless you work for Google. I also genuinely don't know if there's some weird ways land value taxes would actually hit Google pretty hard --- Amazon for instance actually has an enormous network of brick & mortar buildings in their distribution infrastructure that's a key part of their competitive moat. One thing's for sure -- Google's land can't send itself to Ireland and back to avoid taxation.

[1] (if they produce lots of value by hiring smart people to produce useful products without also gatekeeping access to natural resources, good for them -- though I wouldn't be surprised if George had many sharp words for them on the question of Monopolies in fields other than Land)

> (these gains would *not* be taxed, in the Georgist scheme, because it's the return on *capital*, NOT land

I don't think land value can be divorced from the possible uses it could be put to. In the city, you can see that the value of the land depends on the community around it, but in farming, isn't the value of the land dependent on the kinds of practices available to you to benefit from it?

Yeah the review goes into it. It gives the example of how you could have a some land with a "latent" resource in it that's worthless until someone discovers a use for it -- either by a community springing up, or someone just invents/discovers something new. The review also mentions a section where George addresses the possibility for the line between improvements & the "land itself" to start to blur (e.g. plant a forest on a plot and wait 20 years).

But you are still able to assess the value of the land separately from its improvements. Farmland being next to a good farm-to-market road increases its value, but the road belongs to the state and was paid for by taxes, the value the farmland gets from being next to it is not an improvement on the farm land itself. But if you plough the land and dig a well on it and build a toolshed and irrigate it and do all these other things, those are improvements and allegedly assessors are used to being able to suss these distinctions out already.

That all makes sense, it's more the idea that gains from modern agriculture would not be taken into account in land value that doesn't make sense to me. When someone invented modern acricultural techniques, that increased (unearned by the owner) the value of all acricultural land, simply by virtue of it being possible to apply them to the land. Of three kinds of land - (1) land that has had modern agriculture applied to it, (2) land that is amenable to having modern agricultural techniques applied to it, (3) land that is not amenable to having modern agricultural techniques applied it, the difference between (1) and (2) should obviously not form part of land value tax, but I the difference between (2) and (3) should. That means that at least some of the productive capability of modern agriculture would find its way into LVT.

> it's more the idea that gains from modern agriculture would not be taken into account in land value that doesn't make sense to me

Yeah I agree that the fact that *someone else* could *also* use modern agriculture on your farmland would serve to increase the unimproved value of your land. I think George says as much per the review -- improved technology increases productivity, which drives up land prices, extends the margin of production and all that.

I'm not George so I can't speak for the man, but basically his idea is not to tax capital or improvements like buildings, tractors, wells, etc, and he seems to imply that ploughing a field, planting a field, etc, all count as improvements as well (with the fuzzy boundary of some of these more organic improvements becoming indistinguishable from the land itself over time).

The potential for someone to come in and have a better use for your land then you do, which drives up its price, would be part of the base land value according to George, however, if I understand him right.

Why would you think that gains from modern agriculture wouldn't be taken into account ?

Value is relative, gains from modern agriculture make the wealth extracted from that nature to go up.

To take another, already used example : nature with oil in it would have a lot more value if it's economically viable to extract that oil than if it's not (also, once that oil is extracted it stops being nature and becomes wealth, so nature goes down).

Do you have a good link to an Austrian critique of Georgism (preferably not from Rothbard, whose arguments I tend find simplistic and terrible)? I would imagine such a critique leans heavily on time preference of workers and the need of capital to satisfy such high time preference. I agree that George is not claiming that the workers are actually paid from the proceeds of the sale, but that how much they are paid depends on how much the sale is expected to bring in. But again, this ignores the time value of money as well as the risk taken by the supplier of capital due to uncertainty.

IIRC, Eugen von Böhm-Bawerk makes approximately the argument you're making: that employers essentially front payment to the workers, expecting to be compensated for the payments (plus interests forgone) out of the revenue made by selling the product(s) made by the workers.

Henry Hazlitt has a famous book about economic fallacies, I don't recall the name, where one of the chapters is called something like "enough to buy back the product". Böhm-Bawerk's argument suggests that employees will be paid enough to pay for the product minus the interests they were essentially given for free by being paid before the product was sold.

In some sense, it's a loan in the opposite direction of time: the employer pays employees in monthly installments. The employees manufacture a giant schnozzberry. Once the schnozzberry is built, they (the employees) sell it on the market and give the employer the principal of the loan (which is the entire sales price). This is of course not what it says in anyone's employment contracts, but the flow of money, labor and berries over time is the same.

But of course, the actual loan-like thing is in the opposite direction: we all prefer money now to money later (since we can easily store it if we only want it later), and the employer hires people at wages which compensates for forgoing the expenditure of money between the time of wage payments and the (estimated) time of sale.

Google actually owns a surprising amount of land: On their balance sheet, "land and improvements" is ~50 billion out of 320 billion of total assets, or more than a seventh (IDK how much the *unimproved* land is though). Reason being, what land they do hold is likely extremely expensive per unit area compared to some pastures or farmland in the middle of nowhere. And even if it wouldn't affect them directly, a LVT would capture the increase in residential land values surrounding those tech companies, which Georgists probably see as more important.

On other tech companies:

Facebook doesn't seem to own nearly as much physical land, but it probably derives a significant portion of its revenue from network effects, which, if you squint a little, looks kinda like "land but on the internet" (physical land value = physical proximity to stuff, digital proximity to stuff = ???). Of course, it is dissimilar to land (physical or otherwise) because you can make more of it. Not actually being a Georgist, IMO it matters more that a) network effects can be taxed or regulated in similar ways, and b) taxing or regulating it competently would likely increase surplus. Same with Amazon and Twitter and Uber. Kinda similar with Netflix but clearly network effects aren't that powerful/valuable if everyone and their dog is starting a streaming service or two.

On point 1:

I feel like the issue here is that there's been a distinction between financial and economic (i.e. real, physical) capital drawn, not very clearly, and since pretty much everything can be attributed to financial capital it's more useful to talk about the future production that financial capital is attached to. But honestly I don't really care right now either.

Networks effects are kind of stretching it..?

Though the limited IPv4 addresses, weirdly, would I guess be considered to be nature (="land") by George ?

(Then IPv6 gets popular, and IPv4 nature value goes "poof" ?)

Also short, common-word *.com addresses! They're not making any more of those. I wonder what the weirdest, edgiest edge case of Georgist "land" would be...

http://sms.or.th/sms/images/pdf/Why%20Tax%20Land%20Value%20-%20Bill%20Batt.pdf gives some good presentations.

"Economic Rent, also known as ground rent or Ricardian rent, is the flow of value that explains the market price of all resources of nature. Their value is a

function of the demand people place on them, certainly not due to the

investment of labor that is made in them. Many natural resources besides land (really locations) yield rents: water, air, the electromagnetic spectrum, airport time slots, fossil fuel and mineral wealth are the most readily understood. But so are DNA and all the biota of the world, language, computer code and website domains. It is not hard to think of many parts of our market economy that command a price without any labor by human beings. These rents are a large portion of our common wealth – what was classically called "the commons."

I was thinking, that perhaps "people capable of programming computers" is such a limited resource - this was my impression about reading about the "IQ shredders" https://www.isegoria.net/2014/07/iq-shredders/

In theory you can give birth to and bring up additional smart people, so maybe it's not exactly fitting the definition of "land", but in practice it seems that smart people busy with high paid work aren't quite keen on multiplying, so it's suggested by the article that supply of this resource is actually shrinking over time.

So increasing salaries in IT can be viewed not as "wages" for "labor", but more like "rent" for the "land", where each programmer is a land-lord of their high-IQ brain.

Programmers are not a natural resource, they are human beings. I for one find this pretty offensive.

> In theory you can give birth to and bring up additional smart people

More people means not only more supply of labor, but also more demand for consumer goods. Fertility and immigration work similarly in this respect. [They also have differences, of course.]

Ethically, Immanuel Kant would suggest that code monkey breeding farms would treat people merely as means and not (also) ends in themselves, and would object on those grounds.

More prosaically, it's plausible that workers in selective professions collect a good chunk of salary and a little bit of oligopoly rent. However, oligopoly rents tend to dwindle as the number of competitors grow (c.f. https://en.wikipedia.org/wiki/Cournot_competition, reading "firms" as "workers"). Also, the main mechanism which enables mono- and oligopolies to charge a higher price is that of restricting supply. Provided the labor unions are not given the power to force some people out of the profession in question, there is no way (e.g.) one programmer could reduce the total number of programmer labor hours supplied by other programmers. If each programmer is one among very many (say, hundreds or maybe thousands), each person's decision to work a little less has a negligible impact on the wage bargaining position of the rest.

So I would guess workers in most selective professions overwhelmingly earn wages and basically no rent, provided inflow of people into that profession is only limited by competence and willingness.

Earning lots of money just because the supply and demand curves intersect and a market clearing price that's comfortable for you is not an example of rent.

Cournot competition is not the only oligopoly model. There's also https://en.wikipedia.org/wiki/Bertrand_competition and https://en.wikipedia.org/wiki/Stackelberg_competition.

Compare also to the long-run industry supply curve on p. 397 of Intermediate Microeconomics (5th ed.) by Hal Varian: loosely speaking, it shows that the more oligopolistic an industry is, the easier it is for slightly inefficient competitors to enter—their share of the oligopoly profits cover for their inefficiency. They are also more strongly incentivized by the greater oligopoly profits. In the limit, this behaves like perfect competition. I apologize that I can't find this diagram online.

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Domain names in general should be taxed as land, with the taxable base = asking price for the domain name.

This should get rid of a bunch of the ridiculous cybersquatting (yes a domain name I owned was snatched up by cybersquatters because I was too busy *having a baby* to notice the warnings that my card had expired)

Abt network effects, I'm not really sure it makes sense to try to shoehorn them into the Georgist framework. I think Georgism checks out, but a minimalistic, "single tax" idea is pointlessly restrictive.

LVT + various Pigovian taxes on luxuries & other stuff with negative externalities (so that they don't need to be illegal 'for people's own good e.g. heroin', and CO2) + some level of capital gains tax + maybe-very-minor-wealth-tax + inheritance-tax, progressive and with some reasonably high floor. That comes out the top of my head to replace all(?) other taxes (and probably still end up with a huge pile of cash to redistribute as a 'dividend' - or if not, do something else with them, or drop them in order of capital gains then wealth tax).

Network effects of Facebook are a really, really weird kind of monopoly resulting from pure inability to coordinate. The whole construct could be simply dissolved without taxing Facebook or dismantling it, actually.

I've already spoken about it online a few times, but thankfully someone elaborated on it recently. Weirdly it's Moldbug. Not sure how do links work in Substack comments, so: graymirror.substack . com/p/tech-solutions-to-the-tech-problem (just C-f "Protocol extraction" to skip the Cathedral-talk). I'll quote it below.

"One way to peacefully attack the tech behemoths is protocol extraction—analyzing and reconstructing the secret protocols that their apps use between client and server.

If these secrets were open to the world, any fool could write a Facebook client. This would set another power against Facebook: the power of the client against the server. For example, Facebook would struggle to force third-party clients to show its ads; even worse, multi-server clients would emerge and become the user’s true center of gravity, making it easy to switch servers and destroying the lock-in that is Facebook’s capital.

Obviously, these superior clients—a whole marketplace replacing a captive monopoly—would create immense consumer surplus. What Facebook has been doing is tying its monopoly in one market—social servers—to a monopoly in another—social clients. These are two separate lines of business that, if the Internet was used as the network it was supposed to be—a network of open protocols—would not be connected at all.

Obviously, this is exactly what antitrust law was meant to prevent. Obviously, the right remedy would be for a judge to order Facebook, or Congress to require all big social companies, to simply disclose the specifications for their internal APIs—and handle any packets matching these specifications, regardless of what software sent them. Congress could turn every app into an API, creating a Cambrian explosion of clients— not to mention a huge number of good American code-monkey jobs.

But of course the System will never do any such thing to itself. So that’s out, now. Still, sometimes when there’s a will there’s a way.

There is a will for one such API: the YouTube API, whose protocol is tracked by the famous youtube-dl project that—downloads YouTube videos. Even this is not easy. Still, it is physically impossible to create a protocol that cannot be reverse-engineered.

For a comparatively small amount of money, perhaps even funded anonymously, it might be possible to analyze, document and maintain the private protocols of all major social services—turning all their apps into APIs, and creating a compatibility library sound enough that a whole ecosystem of polysocial clients can stand firmly on it.

For tens of millions of dollars in code-monkey ramen (although you might want to spend at least as much on legal), you could devastate hundreds of billions of dollars in monopoly capital. Nothing personal—you’re just "commoditizing the complement." How about it, donors? I’d maybe go with… ZCash… for this one. (Maybe the world needs a donor-advised fund that makes distributions to ZCash addresses.)

Of course, this magic library is useless if no one’s phone will let them use it. This is another good thing for donors to support: free-software phone stacks. Which will work even better if they can reverse-engineer private Google protocols…"

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I'll note that decentralized alternatives to Whatsapp and Youtube already exist : Matrix and PeerTube as an example.

Matrix is particularly relevant, because that's what Gab uses now (though they decided to split themselves from the rest of the network).

But you'll notice that Parler was still created. Why ? I'd guess that because pre-Matrix Gab was not allowed on Apple Store & Google Play, and later lots of Matrix clients went to pains to specifically block Gab (more because they hated that kind of crowd than because they were forced to ?)

Gab is ActivityPub/Mastadon-fork, rather than Matrix btw (Matrix is more IM-focus than "general social media")—though it's not like there isn't a whole load of neonazi content on certain Matrix homeservers.

Network-effects-as-land is a stretch yeah, and on second thought I don't want to think of it that way any more than I want to think of intellectual property as land. Economically, they both attract rent though, and apparently George advocated for regulating "monopolies of scale" and that basically looks like what (I think) most people would be happy with.

Whoops, I indeed confused both "Ms", my bad !

----

But clearly georgists also consider intellectual "property" to be land/nature/privilege, and not to be wealth ?

peak.singularity mentioned Matrix, and I'd like to add that they do have bridges to Telegram and Facebook Messenger, among others, but the UX is not great, in part due to issues with login ("oh yes, it's very suspicious you're not logging in from an official client"). Similarly, services like nitter and bibliogram tend to end up rate limited, etc. On the other hand, I did manage to find what Henry George thought of natural monopolies the following being paragraph 11 of a platform he wrote:

"With respect to monopolies other than the monopoly on land, we hold that where free competition becomes impossible, as in telegraphs, railroads, water and gas supplies, etc., such business becomes a proper social function, which should be controlled and managed by and for the whole people concerned, through their proper governmental, local, state or national, as may be."

That's an issue with Telegram & Facebook Messenger, not Matrix.

(See also : Slack shutting down their IRC bridge.)

Also, I confused Matrix with Mastodon, but it's a great example of another federated and viable alternative.

----

George speaks about infrastructure here, which by his own definition should be considered as capital, rather than land/nature/privilege ?

I guess that he's a socialist in this way, considering that this kind of capital should be owned by the government ?

It is, and I believe many people, Georgists included, would consider it anticompetitive to a degree.

About infrastructure: A lot of it tends to already be owned by the government (roads, the post office, etc) and it's easy to see how a government can build more if it's beneficial enough to increase land rent by more than it costs. For that currently in private hands, I'd suppose it'd be most fair to have it brought back at a fair price and/or regulated to charge the marginal economic cost. Georgism seems to me as much an anti-monopoly movement as it is one specifically anti-land-monopoly, it's just that the land monopoly is the strongest: "the robber that takes all that is left", as he puts it in Protection or Free Trade.

In EU, the monopolies of mobile cariers were forced to provide access to their infrastructure to "virtual operators", so that the physical network (which causes the network effects) must be shared (at reasonable fee) with new players. I strongly believe a similar thing should be forced on Facebook (enforce that GraphAPI etc. give enough functionality to application developers that they can essentially run their own "social network" on the subgraph of the whole FB's graph), Slack (enforce that IRC bridges are again functional), Messenger (so that XMPP bridges work) etc. What do you think?

On first thought, yeah, but…

- this level of the Internet is way less standardized

- during the last years Facebook has been on the countrary clamping down on what it used to share, because some companies abused it (Cambridge Analytica, the recent phone numbers leak)

- I'm not sure that Facebook can even be 'retooled' this way : going from centralized to decentralized ?!

- the bridges kind of suck anyway, much better to have the functionality directly in the protocol, but what's even left of XMPP in Facebook Messenger ?

- Facebook (& its other companies like WhatsApp) is probably to big anyway at this point, it must be shut down

Actually, you might be onto something with these network effects :

https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty#comment-1768690

"After thinking about it, it's not just about fungibility, but about ease and durability of storage and transport :

At one end of the spectrum you have stuff like ice, oysters and strawberries, then further long the spectrum you have apples,

then in the middle (?) of the spectrum : stuff like grain and gold,

while the other end of the spectrum would be things like hawala, Internet-carried conventional banking and bitcoin."

And what does hawala, conventional banking (even with paper money) and bitcoin have in common ? They all require a network ! (And their "value" most likely rises with the usual network law, as the square of nodes ?)

Coming back to Facebook, remember Doctorow's "Whuffie" ?

(social reputation replacing money - note that that book predates Facebook by a year)

https://en.wikipedia.org/wiki/Down_and_Out_in_the_Magic_Kingdom

Also, remember how Facebook wanted to launch their own cryptocurrency ?

I read the ship thing as saying something like this:

Before anything is done, the laborer has some time T and the capitalist has some amount of capital K (which is some combination of money and shipbuilding resources I guess).

The laborer spends T and the capitalist spends some fraction of K (say aK, a < 1) to build half a ship, which is more valuable than T + aK.

But the ship is owned by the capitalist, so really all that's changed so far is that the capitalist has gained some value larger than T (since the capital transfer was just K -aK +aK). Thus, when the capitalist pays wages to the worker, you could say it's coming out of the value the capitalist and laborer generated together.

I'm not sure whether that makes any sense though, I Am Not An Economist.

Yeah that's mostly how I see it. If you are in the ship building business, then except for the first ship you build, you can see wages as coming from the sale of the ship. Your capital is all the stuff you bought to make the ships, dry docks, cranes, welding equipment. The first ship you build is a little special, and you have to borrow to make payroll.

> you have to borrow to make payroll [on the first ship]

Or save up money (or other payment forms).

Re: 1, I think George's point is that that capital didn't simply fall out of thin air or get plucked off a magic money tree. Those highlighted bank notes came from selling goods or providing a service, not by "and I reached under my mattress and there they were", before they were socked away in the bank as savings. So it all comes out of production - if the employer is paying his workers to build ships, he must be selling ships, so the money from selling ships yesterday pays today's wages. But you can't sell a ship until it's produced (well, you can build it on commission and get paid in stages until it's finally built, I guess), so it's the fruits of former production that give you that money. If the employer borrowed that money to set up a shipyard, then the money from the bank came from depositors who had saved it there from the proceeds of buying and selling.

It's the same notion about usury being a sin, where Dante includes moneylenders/bankers in the Seventh Circle of Hell (the violent) on the liminal edge where that circle transforms into the Eighth Circle (fraud). Usury is violence against nature, as it makes a sterile instrument (money) 'unnaturally' breed by interest, not by doing anything fruitful as being used for buying and selling but simply "pay me for letting you hold this money in your hand". If I lend you 100 nobbles, you can't just pay me back the 100 nobbles, you have to pay me back 120 nobbles. Where did the extra 20 nobbles come from? What is this charge for? It's an invisible cost, pulled out of the air.

This is specially clear with US dollars. If the treasury prints 100 USD and expects 101 back, where the extra 1 USD is going to come from? You can argue it came from previously printed USDs. But you can see that some basic math is not adding up. The monetary system basically requires some people to be bankrupt. Now the banks get bailed out with new printed USDs, this is an interesting legal scam. Owning the magic printer is kind of a Midas power. The philosopher's printer.

I don't think that quite works that way. Sure the money paid back to the banks, the banks can pay back to the treasury, decreasing total currency in circulation. But the interest paid on the borrowed amount is not paid back to the treasury but is spent on paying workers, rent, and as profits to the owners of the bank. That money continues being circulated.

As the review says, "money isn't wealth".

"George's"

> If I lend you 100 nobbles, you can't just pay me back the 100 nobbles, you have to pay me back 120 nobbles. What is this charge for?

It is a charge for lending the money rather than the other guy who's willing to pay you 119.99 nobbles.

And at root (and in a world with only one borrower) it's something to compensate you for your patience: you're spending money later rather than now, and you're giving up the flexibility to spend it whenever you want, until the loan is repaid (compared to just keeping the money in your mattress).

Can I borrow your car for 5 years at no charge if I promise to repair any damages? Would you feel entitled to compensation for something you lost? Should I pay at least your bus tickets in that period?

> Where did the extra 20 nobbles come from?

The borrower.

> it makes [money] breed by interest

Setting up a loan is not the same as creating new currency. Or rather, it can be in some banking systems, but the two don't necessarily have to go together.

Coming at it another way: the money in my bank account breeds not only when I lend it out, but also when I add my monthly wages and spend less (over time) than I earn. Are labor and lending equally unnatural acts of violence against nature?

[I'm not sure I'm arguing against your or Dante or both, but I want to put this out there anyways.]

Land is defined as stuff from nature. not land as land on earth

one example of land for google I presume is the https://www.google.com/ domain name. follow the idea, I assume that google gain value from other website existing and the stance is to tax google to subsidize society at large

So with this definition the government can tax whatever they want at whatever value they define and you can't argue?

uhm 2 things, 1. this already happened

2 I am just saying that domain name is in a certain way analogous to land, I am not saying anything else

It has absolutely not happened. The government, despite all the things it taxes, is pretty constrained in what it taxes and how much.

and 2 yes my complaint is that if you start reasoning like that everything is in a certain way analogous to everything else

I am just saying I can't argue how much money is being taken from me as tax and I am a citizen of 2 countries which meant I tried 2 taxation systems.

I was under the impression that Scott asked what would be analogous to land in the case of Google, hence my respond

I guess the core question would be : "Is it not wealth and can you monopolize this thing ?"

If yes to both, then it's nature-like and *should* be taxed to near 100% by the georgist Nature Value Tax ..?

The government (in a democracy) represents the people / voters, so yes...

I would point out that although there are some parallels with domain names to practices in real estate speculation (e.g. domain name squatting) a major difference is that you can create new domain names. I guess you can't create another www.google.com, but nothing in theory stops whoever mints new domains from spinning off www.google.fart

I wonder, how does trademark law applies to www.google.fart ?

According to randos on Quora it's a legal grey area at best and google would probably wrest it from you one way or another:

https://www.quora.com/What-is-the-legality-of-purchasing-a-competitors-domain-name

Arguably, though, the total value if you integrate over the space of domain names is bounded, i.e. the set of even slightly desirable domain names is finite. So in practice I think a kind of Georgian tax on domain names could be enacted by assessing the general desirability of your domain at regular intervals, e.g. using search trends or something more sophisticated. This would mean that a squatter would suddenly have to pay a hefty tax if their domain suddenly became culturally relevant.

Yeah might be worth considering! A use it or lose it fee for this kind of thing seems like it would solve some things whether or not you go full George with it or not.

I think the use of the term "land" here is unfortunate, because what George really means, I think, is "natural resources." But then people might not include land in that category, so perhaps we should use "land and other natural resources," understanding that this includes things such as the EM spectrum and domain names.

I've settled on calling it "land/nature/privilege", until a better term is found. I guess "that which generates rent" might work too ?

2. Google does own a lot of land, and patents/IP count as economic land. Oracle should be considered a landlord as much as it is an innovator- the patent wars were pure rent-seeking. (There's a balance here to encourage innovation, prizes for IP, or taxing IP ownership like land, could help).

Part of why, imo, george's movement got out-flanked aesthetically by marxism is precisely because he didn't care about *how much* wealth a person or company had, but *how* it was acquired. That's a little less straightforward than "eat the rich," so after george died it was difficult to keep the raggedy alliance of libertarians and socialists and labor together. The government also did some straight up monopoly-busting, land redistribution, etc, to address some of the problems. All property taxes are, in part, land value taxes- they just *also* are taxes on improvement, disincentivizing improvements.

Thus: https://www.bostonglobe.com/business/2019/07/03/one-third-acre-back-bay-location-parking-but-not-for-long-price-million/qyoEyaJMBE1qg9piuf5piI/story.html

To your first point, i think the other comments have responded better than I could've.

Really glad you put this review up - I've often thought that reading between the lines, the places where you tend to see government intervention as just vs unjust roughly align with georgist principles- and to be clear, henry george popularized them in the english-speaking world in the 19th century in this form, but the ideas have been talked about everywhere for most of human history (mencius, ibn khaldun, as mentioned some indigenous conceptions of ownership). 'Legal systems very different from our own' covers one or two of these examples, I believe.

> Part of why, imo, george's movement got out-flanked aesthetically by marxism is precisely because he didn't care about *how much* wealth a person or company had, but *how* it was acquired.

While you're right about Twitter meme content, when they talk theory Marxists and Georgists make the same distinction about "how it was acquired". The difference is that George says we'd be better off minimizing rent*, and Marx says we'd be better off minimizing both rent* and interest*.

(*where "rent" and "interest" are defined in the Georgist way as in the book review above)

marxism as an aesthetic is diff than marxism as written (though there are criticisms that apply to both).

Marxism "as written" is correct. Aesthetically they have cool flags and such.

"Part of why, imo, george's movement got out-flanked aesthetically by marxism is precisely because he didn't care about *how much* wealth a person or company had, but *how* it was acquired."

Marxism makes plenty of criticism about how wealth is acquired in a capitalist system.

Re: 1) I asked a Georgist friend of mine about this and here's his reply:

> I partly agree with Scott about the importance George puts on this question. The wage-fund, was a popular idea at the time and still has spin-offs today, like the idea that artificially enriching people who are already rich is a good way to increase capital creation.

> As for the merits, George made a strong case. Any exceptions, like the one George outlined, where labor accidentally produces nothing of value, are outliers. Remind Scott to stick with George's definition of 'capital' and it will make more sense. I've worked on a ship. I've repaired a ship. It wasn't done when I finished; it was just better. The ship was better and worth more. That was 'capital' I created with every hour of my work. It was not removed from anything that the ship owner had.

Re 2, land-based agglomeration effects are HUGE in Silicon Valley; Google has enriched landlords in the Bay Area by an amount that far exceeds its market cap. So in that sense, Google needs valuable land more than most businesses, though it pays for it indirectly through higher salaries. But the key point of Georgism is that people who are able to put land to _productive_ use actually benefit since they will be able to buy the land they need for much cheaper and pay the rents out of the value they extract.

> they're paid out of the saved money that the person who founded the shipbuilding company brought in (or borrowed)

As per the article, money is not capital. If that money was earned via production, the workers are paid out of production.

The boat, on the other hand, can be used for shipping, in which case it would be functioning as capital. So to summarize, the workers are paid from production (saved money) rather than capital (the ship).

Not really transparently false any more than saying that you're "spending the Bahamas trip money" on car repairs - all money is fungible so no money belongs to anything, right? But the only reason you loan the capital to build the boat is because you anticipate the labour put into the boat will pay back the capital. In a perfect-information world with zero percent interest, the capital wouldn't be relevant, but the labour still would be. That's the point Georgists are trying to make.

1) The consensus position he wants to debate is that it there’s too little capital chasing too many laborers.

2) The positions of "farmer" and "farmland owner" are already in practice quite distinct. Georgism would obliterate the returns on owning farmland but not on working it. Setting aside corporate tax, Google pays a kind of "tax" to the landlords of Mountain View through what are nominally wages. It argues we would all be better off if Google could grow even larger with that weight off its back.

I don't think that George would be happy with Google's monopolistic practices.

1. (paid out of production rather than capital) George is fighting the idea that without capital, there is no production and no work for workers. He says this is not true: only land is required. As long as you have land you can work and generate wages.

Capital does increase efficiency, and it does make longer-term project possible or at least more practical, but in the en it is not required.

It's all in support of its ultimate conclusion: land enables production and land only should get taxed.

Regarding highlighted dollars: sure, when profit is far in the future, workers are paid in capital. But this is only an advance on the proceeds of production. If you remove production, capital wouldn't flow to the workers as wages. If you remove capital, the workers could still generate wages (e.g. by picking berries and selling them, or whatever).

Yeah, though that's really stretching it : even non-human *animals* make capital in the form of tools !

And you're not going to be able to carry a lot of berries with your hands alone...

Philosophically, our bodies are both 'land' AND 'capital' (and thus 'wealth').

The fact that laborers are paid from their production is obvious. It is acknowledged by basically every economic school at this point. The origin of the actual bills used to pay them isn't relevant at all. This may have been controversial when George wrote, which is surprising to me.

"Thus, every patent reduced to an ownership claim over an expression of nature."

- https://mises.org/library/copyright-and-patent-benjamin-tuckers-periodical

By George, ideas are land. Google may hoard access to land they discovered value in [trade secrets], and Google may be granted temporary monopoly over land they discovered value in in exchange for making their discovery public [patents], but in any case Google is using a *lot* of land. Furthermore, the land *value* of the Googleplex and other properties is likely very high compared to farmland.

Thus, to your presumed point that a modernized land value tax might greatly shift the modern tax burden, that seems to entirely depend on the details of a specific proposal, the extent of its definition of "land", and the tax bill determined for modern "land". How much might Google be charged in comparison to WeWork or ExxonMobil?

As for the farmer, I think a quick search for the effective tax rate actually paid by America's largest corporations will show that the farmer already frequently pays a higher rate under the present system.

As to the fairness of who pays how much land value tax, I think the more interesting comparison would be between farmers and J. K. Rowling (as George seems to have a rather different view of copyrights than of patents). Indeed, a LVT seems like something where the farmers pay more than Rowling.

Regarding the highlighter marks: the way I read this, it seems to me like George's reply should be that, since dollar bills are not wealth, but merely a pointer to wealth, exactly which physical bills are being used to pay wages has no influence on where the actual wealth is coming from.

That being said, it also seems to me like the sort of counter-example mentioned (where wages are higher than the wealth labourers generate) should be fatal to this view, even if these examples are not sustainable (after all, they are certainly possible and might even be metastable if the person paying the wages is inefficiently juggling many different enterprises but not suffering net losses). I suppose George insists on this because it makes labourers seem less dependent on capitalists than the alternative, and he is trying to shift attention away from that particular interaction. I assume it is also possible to strengthen the position somehow with the sort of atemporal approach mentioned in another comment, but I can't see how that can ever both account for the aforementioned counter-examples and make any meaningful difference.

"As for compensation for risk, George says that risk averages out and disappears when you take the God's eye view and sum all of society's transactions together. If I take the winning side of a bet and you take the losing side, I enjoy gain, you suffer loss, but the amount of wealth in the world hasn't actually increased as a result of our bet."

But there are many bets which don't have people on both sides, an consequently a societies total transactions and economic activities can be more or less risky in aggregate.

what bets don't have someone on the other side? those just sound like 1 vs society, or the present beneficiaries of the status quo the gambler expects to change, the 'other side' is diffuse but exists

I was actually curious about this part of the review as it seemed like a bit of a hand-wave, can you give some more detail?

I'm a small business owner and I regularly find myself in situations where you hear "Okay, I'll pay you a good reasonable wage to do this work, and then I'm going to be taking a risk on whether it pays off, if it goes big then I get my big cut as I took nothing up front, if it doesn't pay off then I basically got nothing from the project." So there's this natural sliding scale between upfront compensation and revenue share (or equity) based on the risk someone takes on. How does this fit into the framework about the Georgist notion of capital?

Any bet against nature might qualify, e.g. saving money by constructing a weaker building is effectively betting against a catastrophic weather event. My understanding us that a lot of farming is essentially betting on the weather.

Tons of bets are not zero-sum! If I'm a miner I'll make a bet on where to excavate, and if it turns out I'm wrong, I lose, and in aggregate humanity loses too. (Still, it is probably true that in aggregate the win:loss ratio of all humans together is nearly constant)

If I bet my art collection will be stolen, but actually it would not have been, I can hire security, but no benefit accrues to me from that (a fact I cannot know, so I keep paying the guards anyway). btw you might point out that the security guard benefits from the wages, but the security guard would benefit equally from doing a productive job like "factory worker", and in the latter case aggregate wealth of society becomes higher. A malfunctioning society suffering from higher risk of theft (for whatever reason) will waste more labor on security guards and suchlike. By George, of course, the malfunction can print be traced somehow to landlords.

Collectively, most of humanity has spent the last 30 years making a bet that switching to clean energy isn't worth the cost, so let's just keep burning Georgian land (oil) until we run out. The consequences of that bet, good or bad, are largely independent from what the cost of switching to clean energy would have been. (aside: of course, there were some countries and businessmen who did invest in clean energy, and so we're finally starting to see some light at the end of this tunnel) By George, this is a special case though, a case in which human actions can affect the total supply and value of land.

Yeah, though wages are a distraction here - wages are value but they aren't wealth.

However, if the alternative to being a security guard is staying jobless, then *something* is gained by the whole society by you being hired as a security guard. It isn't wealth, but it isn't *just* value - what is it ?

In that case the gain is from wealth redistribution, as the marginal dollar is much more valuable to the security guard than the wealthy art-owner. The art-owner might have used the marginal money to buy an extra or upgraded car, while the otherwise-jobless security guard would use the same money for basic things like rent, food and furniture. Mind you, in a normal no-UBI society with a poor job market (so that the guard would otherwise be jobless), the art-owner has good reason to hire security guards, as unemployment tends to cause theft (crimes of desperation).

(edit: art theft isn't a normal crime of deperation, but working for the mafia could be, the latter being the sort to do this kind of theft)

Yeah, you're onto something - this is probably also related to network effects...

So how does this work empirically? I Googled Land Value Tax experiments, and the first result is a write-up on Harrisburg in 1982 and Allentown in 1996, which fixed blight and helped protect vulnerable groups through the use of LVT. Pennsylvania lets you tax land value more than building value.

https://www.strongtowns.org/journal/2019/3/6/non-glamorous-gains-the-pennsylvania-land-tax-experiment

It's worth mentioning here that there is at least one Philadelphia City Councilor who is serious about an LVT, which could have excellent results for the southeast part of the state. (The current Philadelphia wage tax is an excellent example of "if you want less of something, tax it". Many high-income jobs and individuals have moved to the suburbs because of the wage tax.) https://www.youtube.com/watch?v=QomEl3rV2LU

IANAGeorgiat - pretty committed Austrian, in fact - and I am enormously impressed by this review, and by the conceptual elegance of Georgism.

Like many other theorists, I find his analysis of the situation into its constituents astute, but am not sold on the solution until and unless it's empirically tried thoroughly. So here is what I've updated on, and the questions that have opened up for me as a result of reading this:

1) This summary has convinced me that the Austrian account of the 'mixing of labour' theory of ownership WRT that not created by the hand of man is not complete (it is hand-wavish as the best of times), and that a greater nuance is needed there to flesh it out. Good opportunity for theoretical *and* practical work!

2) The question of the equilibrium dynamics that result from this theoretical lacuna - the equilibrium being critiqued here being that of nearly all the gains of productivity and wealth (in the Georgist sense of those terms) being captured by rent, and the resultant unjust and overall shitty results - I am now convinced is a real one.

3) George does not address some very important question - who, whom? being the biggest one. There may be ways to fairly calculate how much the various levels of aggregation - neighbourhood, town, county, larger level entity, state, country, etc (and in some sense the world? potentially applicable to question of pollution, etc, and other commons problems?) - contribute to land value, thus leading to the rippling everywhereward of positive incentives. But who can be trusted to actually do this calculation, and not be a dickwad about it? What prevents higher-level landlords, etc, and all the resultant garbage just happening at a higher level - thus making everyone the milch cow of the state instead of Ms. Nguyen?

4) The problem of identification and sentiment is real, and I'm not going to pretend it's not. Stability is power, transience is impotence, as the ever astute Sir Appleby said of the civil service and elected politicians, respectively. I damn well want to be able to buy land in a city I expect to be a nice place and continue to live there because I saw the opportunity and took a risk on it. If I'm not renting to anybody, what the fuck, man, how can you just tell me to get up and get out?! This is outrageous! I live here! My friends and community are here! My extended family lives here! Fuck you and your economic optimisation, we're human beings, not soulless automatons in the service of economic efficiency (as *YOU* conceive of it - what happens if I don't agree with you?!). Completely unaccetable.

But... the problems are real, too! What is to be done?

Here's a proposed solution that immediately suggested itself to me:

a) If you rent out your land but do not use it yourself, then you have to pay the LVT.

b) If you use the land yourself, then you do not pay the LVT while you're using it, but your capital gains tax is massive - so there's still *some* gain to speculation, but very little/modest compared to what it is now.

c) If you sometimes own/use the land and sometimes rent it out, then some combination of the above two that I haven't though of but I'm reasonably confident exists and someone may be able to elucidate as a fun intellectual puzzle?

This clearly prevents the situation where I don't actually have property rights in the land which is my property, thus forcing me off my land; yet it also ensures that the only reason I'd have to *not* move off it and move somewhere else - or even better, develop it, pay the land rent, and collect on my investment in the improvement - is because I *actually want to stay there and/or use the land*, not just because I'm usuriously/avariciously HODLing.

I presume this has already been thought of by *someone*. (If not, you may thank me for making this not inhuman and Molochically horrible!) Any Georgists care to help me with this?

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Addendum: this seems a clean refinement of the Austrian theory of ownership, in that it is claiming that your ownership of something you have mixed your labour into should be qualitatively and quantitatively matched with the labour you have mixed into it - and since it is not in fact your labour that has created the land ex nihilo, it is impermissible to claim that your ownership extends to it - but it *is* in fact completely permissible to claim your ownership extends to it *in a way qualitatively and quantitatively matched with the labour you have put into it*.

This exposes a cleavage - that of 'property because labour mixed in' and 'property because it prevents disputes and resultant violence, and allows planning and action at all, and also man is a territorial animal and it's a basic instinct of his and you try to mess with this and it'll end horrifically', both of which are implicit in the Austrian analysis but not so clearly delineated.

(More about this an another top-level post; I believe it deserves independent discussion. There are also *serious* problems with Georgism's conceptual framework which I believe lead to tyranny and atrocity quite naturally in their full development/unfolding, but I think that I may be able to extract the *kernel* of the good idea from the oft moralistic and ressentiment-tinged *shell*...)

Georgism solves the first but not the second - it does not address my objection 4, which I hope the (seed of a) scheme I outlined above addresses and solves, in preventing expropriation, which is a terminal goal for me.

In general: Bravo, bravo! I have rarely if ever seen anyone actually a) show a real weakness/point of incompleteness in the Austrian categories, and then b) *refine* the conceptions it was working with, instead of just using it as a political cheap shot. Wonderful! I had become jaded by reading things which were clearly incoherent and not even rising to the level of being wrong for so long that I'd given up hope of constructive contributions from economic discourse. This was like a draught of cool water in the parched and dessicated heat of the desert of discourse today. Great good fortune to you, stranger, for this!

Re 3, the difference is that rent paid to a landlord doesn't come back to you in any meaningful way. But money paid to a state comes back to the citizens. (Not with perfect efficiency but significantly greater than the landlord)

I'd say its the opposite, the landlord at least faces some competition/incentive to add value and make more money. It's much easier for a renter to switch landlords than states.

> If I'm not renting to anybody, what the fuck, man, how can you just tell me to get up and get out?! This is outrageous! I live here!

I regret to inform you that property taxes already exist.

Yes, and that's also outrageous.

Another solution to (4):

You don't have to pay LVT on the first $750,000 of your primary residence.

Or make LVT a progressive tax, tied down to the net worth. Say, <$100K, none. >$500K, full. Some percentage at (several points) in between. $500K might be higher, dunno.

Or maybe it'd actually work to make it so that a person isn't charged a LVT on a land which is both a) owned by them, b) their primary residence. I'm not sure how enforcible is b), so maybe even "1 location of their own choosing". Where 'location' is restricted in various ways to fit only actual homeowners and not someone who owns a square kilometer of land or sth.

But it doesn't necessarily solve the problem of a family living in one place but one member just gave out property rights amongst them. Or a (criminal) landowner making an informal deal with some homeless people and giving them the property rights (enforced in ...criminal... ways)

" What prevents higher-level landlords, etc, and all the resultant garbage just happening at a higher level - thus making everyone the milch cow of the state instead of Ms. Nguyen?"

Nothing. The rents would still gobble up the value like they do now. Other than removing the speculation component from the equation - which doesn't work even if LVT is cautious, say, targeting 50% - you're paying indefinitely a huge sum of money _hoping_ land value will rapidly increase. Soon.

If you model 'the government' to which taxes flow as a third party, not a 'society' - then typical reaction is "government is stealing from these people, why are you supporting taking from them, why is their wealth a concern at all?". But that perspective reduces to nonsense given that government has power to take anything. So modelling it as a third-party enemy is pointless. All useful conversation needs to happen in the frame of "should WE tax it?".

If we approach it from that frame, it's the question of moving current system, with its sources of the budget -- to another one. Right now we tax various stuff, it goes into the budget. What if we do the LVT? Now all of the rent goes to the budget. Presumably it'd exceed income taxes. We _could_ drop them. Or not - it's a completely different question.

Assume for a second we move 50 years into the future. Now ~all owners of the land just inherited it. Should society's wealth really flow to them. What are the incentives? Why tax income, just to preserve their - ultimately based solely on status quo - property rights.

If we make "have a certain national budget" an invariant, why would we want to depress economic growth by _not_ shifting tax burden to the unavoidable sink - which extracts massive amounts of value in ways completely independent from the owner merit?

Rents can't be avoided if land is 'free'. If it's communal, you can't use it to build fixed structures on it - otherwise they're effectively not yours. If it's managed by the command economy.... well, it's just bad at allocating it properly. LVT seems like a sanest idea yet. Land is still allocated by market forces, but wealth isn't gobbled up by the - ultimately - feudal lords.

Also - recently I sort-of came up with a similar thing without hearing about LVT but couldn't figure out how to deal with common ownership of land while letting people actually... live. Now that I think of it, separating structure-value (improvement) from the land seems definitively doable to some extent. Details would be iffy, but suppose someone owns a piece of land with skyscraper plopped up on it.

All that is necessary to do is calculating the cost of building said skycraper - building the building - on a nearby, empty piece of government-owned land. Add some safety margin. Look into the documentation of an actual skyscraper.

Determining value of land seems a bit harder, but it could involve looking into the transactions of renters, for example. Not like state doesn't track renters and landlords.

AFAIK separating land ownership from structure-value ownership is already not that uncommon ?

The issue of the commons that you raise might actually have some very interesting implications. If the government now has a more direct financial stake in the wellbeing of the land then policing negative externalities becomes a way higher priority. If a company dumps toxic waste in a river and spoils the adjacent farmland, it is destroying the revenue base of the government.

Climate change is set to reduce a whole lot of land value and the resulting revenue projections in a hypothetical LVT state would align its priorities with mitigating it.

Anchor links (to appendices) are once again broken, linking to a different page entirely. Please replace them with relative links. (Or to this same page, which should work, although relative is of course better.)

Just a really great article!

Best mind-shifting thing I’ve read in a while. Thanks for the great write-up.

George: "I reject the production theory of value. All value is based on obervable exchange value" also George "clearly workers are paid out of production for the unsold ship because every rivet riveted increase the hypothetical exchange value of the unsold ship." How many buyers in the market for half finished ships? Pretty small - cant see how you can make the argument that workers are paid of *their* production - it's someone production to be sure - but every dollar in wage paid is an opportunity cost chalked up against a capital acquisition. therefore it *costs* capital.

While I find Georgism tempting, my problem with it is that, essentially, exclusion of rival uses for land is an externality, thus LVT is a Pigouvian tax, and "Coase plus Pigou is too much of a good thing" (http://www.daviddfriedman.com/Laws_Order_draft/laws_order_ch_4.htm). The issue, as I see it, is not that land is enclosed, but that that enclosure was accomplished by force (as in TFA's Henry VIII example) meaning that the market never had a chance to compensate the victims.

Whereas in a Friedmanite ancap utopia, I only recognise your title to some land because my protection agency has made a contract with your protection agency which includes some kind of land registry. Which *maybe* means that if an LVT works as well as advertised, then one would get written into those contracts, on a bilateral basis? This went in an unexpected direction...

>...exclusion of rival uses for land is an externality...

No, it's opportunity cost; distinct concepts.

It's both. From the perspective of society as a whole, it's an opportunity cost; but from the perspective of the individual using the land, the cost is borne by the other people who wanted to use it, which means it's an externality. (I mean, yes there's also the internal opportunity cost of the different potential uses a single person might have for that land, but precisely because that's not an externality it doesn't pose any problems of political economy.)

Great review! So what are some good arguments against Georgism? The link "If the Land Tax Is Such A Good Idea, Why Isn’t It Being Implemented?" doesn't really answer the question IMO, it reads more like a guide for how to argue for Georgism at the local level. Why aren't land taxes common and popular?

they were *extremely* popular while george was alive and roughly up until 40-years after. but the political structures at that time in countries like the UK where Churchill supported a 'People's budget' funded by a LVT included landowners in explicit power - the house of lords! Who could strike down LVTs. Georgism as a philosophy also lives in a weird space where it doesn't have as many punchy boogeymen as marxists, so it was out-competed by the left.

Georgist ideas were very influential on Sun Yat-Sen and wolf ladejinsky, who then impacted asian politics with some real-world tests on some of these principles.

In america, half of FDR's cabinet were georgists, but the LVT movement already 'failed', outcompeted by the income tax movement as the primary new funding mechanism. They tried to 'spread the manure' by encouraging suburbanization, which for a time worked as 'new land' to help laborers. But eventually, as pikkety points out, the bill comes due, and rents started picking up again, and ofc with the 07 crisis, we started building heaping mounds of speculation on land.

I would say the idea is once again gaining popularity. Georgists insist that the discipline of economics intentionally and systemically shut out the 3-factor model of production, but I think it was more stupidity than malice - suburbanization gobbled up the effects of land rents and things seemed to be going well for a few key decades, and marxism gobbled up the idea of political activism in the economics profession, it wasn't 'cool' to be a georgist after he died in most of the world.

Marxism doesn't have "punchy boogeymen", it has a completely rational and sensible analysis.

Can't it be both?

I don't think laying out the problems of society in a rational and very detailed manner should count as a "boogeyman". Marxist writings are very incisive.

I think you might be conflating Marxism, the economic analysis lens, and Marxism as it exists as a political tribe with political enemies.

As a political tribe the Marxists are correct and pick their political enemies wisely.

Oh god, here we go...

Hey, at least in *this* discussion Marx is actually relevant !

The pragmatic answer is because owners of land are politically and economically extremely influential, so their preferences take precedence over the common good

It seems like at least in built-out suburbia where houses have similar values, property taxes sufficiently approximate land taxes already, other than a few odd vacant lots, so turning it into a proper land tax would make little difference? Very high property taxes tend to be unpopular for the usual reasons. Saying "oh, it's a land tax now" isn't going to make higher property taxes popular, and neither is saying "plus, the point of this is to crash real estate prices."

Also, the main barrier to change is now zoning laws. Fixing this might allow single-family houses to be replaced by duplexes, triplexes, and so on, which would be a very good thing and some loosening up is happening already. But it's not clear we need higher property taxes to force the issue by getting a bunch of home owners to sell because the property tax is too damn high.

The spirit of land taxes might be preserved by not assessing new duplexes, apartment buildings, and so on at a higher rate than a regular house? Sort of a YIMBY discount. This won't appeal to people who want to stick it to the landlords, though. And, possibly there could be a gradual adjustment leaving property taxes at around the same rate on average for existing homeowners, but technically based on land value.

I'm still having trouble picturing how a land value tax is supposed to work.

If someone just doesn't pay, do you seize the land? That's how property taxes work. But if you seize the land and not the buildings on it, what happens? Or, if you don't seize the land, how do you collect?

If the tax exceeds what anyone reasonably expects to collect in rent or use-value, can they renounce ownership? What happens to the land then? Or does it become a hot-potato?

Is the tax based on the rent the land does receive? The rent it could receive? The rent, minus that part which is secretly the super's wages? The sales price? All these things seem gamable.

If an owner-occupier can defer the tax until sale or death, does this include a corporation? Because they can defer indefinitely, or be bankrupt when the time finally comes. For that matter, do we expect individuals to be able to pay when the tax finally comes due?

No need to be complicated here I think. Its just a tax like any other from an enforcement perspective.

There is a need to be complicated. How does the state collect the tax, and what happens if someone doesn't pay?

If there are no consequences to not paying, then why pay?

A lot of silliness would not show up if people had to consider how to implement the ideas they come up with.

The same way that property taxes are levied currently. The state sends you a bill; if you don't pay it, the consequence is that the state seizes it to pay your bill.

A private analogue of this is unpaid mortgages being seized by the bank via foreclosure. If you can't pay your monthly mortgage payment, you are forced to sell the property to someone who can.

I agree that in the edge case, the tax rate is so high that the expected value of the land is negative (no valuable non-taxed improvements, tax rate set incorrectly), and no one will buy it. Then you may need a mechanism to renounce ownership short of losing all your other assets via bankruptcy. This is why an 85% tax rate rather than 100% is suggested, but there's also a clear feedback mechanism where if the tax rate is inappropriate, everyone renounces/declares bankruptcy, and the locality recalibrates their tax rate.

But the point here is that this is a fundamental recalibration of land ownership as valuable only in so far as you have a productive outlet in mind for the land, so if you aren't using the land for an appropriate amount of labor/capital production, then it *should* be negative value (think depreciating/expensive-to-upkeep car, not appreciating urban plot).

But the land is "common", so it can't be seized. The only thing the state could seize would be any improvements - which apparently George is against.

So I'm really not sure how this would work.

The land isn't truly collectivized, it's still owned by a person -- the state is instead taxing 100% of the land-based rent. The point is to make owning raw land unattractive from a speculation/rent-seeking perspective, it is still valuable from a "Having a place to invest capital/labor" perspective.

The state could seize it from that person, then resell it to an entrepreneur who is willing to pay the tax rate in order to develop the land and profit from the improvements/labor they put in.

The state in this case would also be seizing any improvements on the land, but if they were valuable enough to matter, the owner could sell out to escape the tax burden instead of being seized (as gentrified residential-neighborhood owners currently might do when property taxes increase).

No, there really is no need whatsoever to be complicated.

What happens when you owe the government money for any other reason? It makes you pay the debt, one way or another.

That Georgism does not do general expropriation of improvements like Marxist collectivization doesn't mean it prohibits ordinary means of debt collection. Ordinary debt collection includes liens, seizures of assets, and garnishment of wages.

To add to this: how does the government collect if someone refuses to pay taxes on their labor income? Confiscate that person's labor??

One presumes there is a currently existing solution to this; you suggested some means. Using those means seems like the obvious idea to me.

The review mentioned that we already assess both the underlying value of the land as well as the value of improvements. This would be a tax based on the underlying value only. It's not the value of rent obtained, but for a well functioning assessment system, it would be pretty close to the value of the land without improvements if we were taxing 100%. Also as mentioned, many Georgists apparently say 85% would be a better number. So if the land's value, absent improvements, is able to extract $X in rent, the tax would be $X*0.85. If the landlord is able to provide improvements beyond $X (meaning, beyond the base value of the land's rent value, for instance by building better housing on it), then the landlord could collect much higher rent and make a tidy profit above the taxes.

The real kicker here is that the land would have to be productively used and could not sit idle. The main effect would be to reduce or remove speculation as a portion of the cost of land. A lesser but still significant effect would be to eliminate long standing rent charges when no additional value is being added (slum lords barely maintaining an apartment building but still charging steadily increasing rents).

>If someone just doesn't pay, do you seize the land? That's how property taxes work. But if you seize the land and not the buildings on it, what happens? Or, if you don't seize the land, how do you collect?

It doesn't have to work the way property taxes work. The assets they seize might not be the same as the assets being taxed. So maybe they would seize land and buildings together, or maybe some other asset.

Also, at least in spherical cow world, you should always have enough money to pay the tax, since what's being taxed is the money you earn above and beyond your wages and the return from your capital.

"Also, at least in spherical cow world, you should always have enough money to pay the tax, since what's being taxed is the money you earn above and beyond your wages and the return from your capital."

This is the part that makes the least sense, at least in places with a reasonably high proportion of homeowners. In a suburban area, most landowners will own a house with a yard, which they will live in, rather than rent out. They are paying their mortgage using the wages of their own labor from somewhere else.

Do mortgages suddenly disappear in Georgist spherical cow world? Or do the middle class stop owning their houses, and everyone rents?

You might be conflating houses with the land they are built on ?

Yes, that's definitely the part that's hard for me to conceptualize.

I don't live in a land of slumlords with fully paid off properties, so most rentals are a part of someone's house, that they are now, or were recently, paying off in the form of a mortgage. Thus, rents are priced at something approximating a percentage of the mortgage roughly corresponding to how much house I have reserved for me, plus annualized improvements, plus whatever makes it worthwhile for the landlord to do this. So maybe my rent is $600/month (real number from outside a big city), for a duplex apartment built into someone's house. I live near some other, similar houses, and some apartment buildings.

So now the government wants to tax 100% of the land value of this house. How will they do that? One way to calculate it seems to be whatever's left over after accounting for materials and labor. The house was built 70 years ago. So the cost of the original materials and labor plus maintenance will be... annualized over those 70 years? That can't be right? Compared to the rent for an entire house? To the rent for an empty field? There are no empty fields of comparable size anyone in the town is renting.

Maybe they do an appraisal, and decide that the house is worth $200,000, and $50,000 of that value is "unimproved land." Since nobody rents unimproved land, but some people buy it, how will that value be annualized into a "rent"? 1/30 o the cost of a 30 year loan? 1/x where x is the average amount of time the land is held?

Why do you think that nobody rents unimproved land ?

Yeah, valuation is hard and so is a whole discipline on its own, see this post by someone working in that field :

https://astralcodexten.substack.com/p/your-book-review-progress-and-poverty#comment-1761512

Owners are their own landlords; they're implicitly paying themselves rent.

"According to Ralph Gabriel's Course of American Democratic Thought, in New York alone 200,000 people came to see his body lying in repose, half of which had to be turned away. For context, that one crowd was roughly the size of 1% of the entire population of New York at the time."

I'm assuming this is a typographical error. Shouldn't it read "10 % of the entire population of New York at the time"?

I can’t be the only one who read that sentence as "half of his body had to be turned away" and had to reread it a couple of times to understand he meant *the crowd* was turned away

Lazy googling suggests New York had 2,000,000 people in 1897.

https://www.history.com/topics/us-states/new-york-city#:~:text=In%201895%2C%20residents%20of%20Queens,more%20than%202%20million%20people

Which, holy $#!+, does imply 10%! Either a typo or as I imagine, even the author of the review couldn't fathom it and assumed they'd made a mistake.

Gonna take a wild guess that some portion of that 200,000 crowd were visiting from out of state and abroad, but still, that's absolutely huge.

Author

I've updated the post to read "10%" - if the author disagrees, they can email me at [email protected] and tell me to change it back.

I'll always be happy to read an excoriation of the British over the Famine, but the tragedy was that it wasn't *deliberately* engineered, it just crystallised out of a set of conditions that had been set up for various historical and political reasons, and that only needed one little push for the entire thing to topple. I suppose George would feel vindicated in the post-famine era in Ireland, where people learned the (wrong?) lesson and "land hunger" became a thing - if you owned your own land, you couldn't be evicted. More land = more success and security. George would say "this is my textbook example of the wrongful use of land and how you set up further poverty and misery down the line".

Okay, let's step back from Irish history for a moment.

"Okay, but won't the landlords just pass the land tax on to their tenants?

By George, no. Rent is a price, and price is governed by supply and demand. Supply of land is fixed, so land value tax has no effect on supply. What about demand? Except in cases where it causes the economy to boom (a good thing), land value tax won't increase land value – what it always does, however, is reduce the demand for land by speculators. If it costs nothing to hold on to land, of course I'm going to want to grab some and HODL. If the rent I could hope to gain is taxed away, I won't bother."

Except that (a) if it's not profitable to charge high rents, I'll just hold on to my land. If it's not worth the while of speculators to pay me an inflated value for it, it's not worth me doing anything with it. Even renting it out, because you'll tax me on the value of the land and the rent will go to paying that, so I lose nothing even if I gain nothing by letting it lie idle for weeds to grow on. Indeed, if I manage things correctly, I may even be able to offset my tax liability against it as a loss! (b) land is valuable in proportion to demand. Large English estates often went under due to being "land rich, cash poor" and the shift in generation of income from 'rental income' to 'returns on investment' in the 19th century was driven by this (c) landlords will *always* find a way to pass on taxes to the tenants.

Let me tell you about a deliberate little fiddle of a rent scheme that everyone, including the government, winks at. HAP http://hap.ie/ is a new scheme that came in a few years ago to replace the former rent subsidy schemes in operation. At the time, still in the throes of the aftermath of the economic collapse, many landlords were willing and indeed glad to take on tenants who were in receipt of rent subsidies. However, as the economy improved and rents began to rise to the market rate, landlords were now reluctant to take those tenants as they could only afford a certain fixed rent. They preferred to go for tenants that they could charge full whack.

What to do? You had a problem of people waiting for social housing, who could not by themselves afford private rented accommodation, and thus a resulting homelessness problem. On the other hand, you're paying out taxpayers' money. If the rental allowance is *too* generous, this will lead to rent hikes because landlords *will* charge up to the limit. You as the government are caught between the rock of paying more and more in subsidies as landlords up the rent - which makes the voters angry - and the hard place of increasing homelessness - which makes a different sub-set of voters angry.

So, despite the fact that this is not supposed to happen, prospective tenants were given "nod and a wink" advice. When signing the rental agreement, the landlord would put down the notional value of rent charged - whatever the amount of the allowance was. Then the tenants would pay, out of pocket, a top up on that so the landlord was getting as near to market rate as possible. So the scheme to help the low-paid and those on social welfare avoid having to pay most of their money on rent ended up with... the low-paid and those on social welfare still having to pay most of their money on rent.

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My point about land value is that George is right in one way, and wrong in another. It's only worthwhile for speculators to hold onto that land until they get higher prices, in his example of the village that will get the railway in ten years time, *because* demand will boom with increasing opportunity, increasing trade, increasing employment. It's not worth the while of very many people to buy that cheap land and set up a business there if there is no local demand and no convenient means to ship their goods to market. They probably won't build housing either as the influx of population for the thriving town hasn't happened yet, so there is no demand.

So it makes more sense, if you have money and want to maximise your return on it, to buy now while the land is cheap and hold on to it in the expectation of the boom in value. He can certainly make a *moral* argument for why this is undesirable behaviour, but I don't see an *economic* one. Setting up a factory on the patch of land that will probably fail due to lack of outlets is wasting your money. Building houses that lack tenants is a waste of money. Maybe you can farm it, though if we're talking land in and around a village, that's probably not effective.

I've just skimmed your post but I feel you misunderstand, that the proposed tax is not only on the current rent. but it is tax on theoretical rent that can be extracted which again theoretically equal to the value gain by just holding the land [I am not sure how he propose to assess that]. if you have rental income it would be deducted to that. if you don't have rental income it would keep accumulating until you sold the land and realize your gain at which point the gov would collect the accumulated tax. this way owner occupy or inheritor would not have to pay the tax unless they sell the land

it is suggested that improvement [house, trees] would not be taxed but I don't understand how that would be enforced.

"but it is tax on theoretical rent that can be extracted"

Yeah, these are the kind of tricky little details that, should a Georgist land tax ever get passed, everyone is going to loophole the *hell* out of.

For example, in the case of Carl from "Up", his land tax would be based on where he's living. Formerly, this was in a residential area, so whatever the average value of houses in that area would be a basis for the tax on the land he occupies, let's say $300,000. He's not getting any rent on it because he owns the house and lives in it. Now, however, all the other houses have gone. This is now high-value development land, and the tax rate goes up accordingly. *Theoretically*, Carl can sell his plot for $1 million because it's the last plot that the developers need so they can go ahead. *Now* Carl has to pay land tax based on a value of $1 million. A retired man on a fixed income probably *would* have no choice but to sell his house, whatever George says about "no compulsory sale or purchase".

As to land tax for rental properties - suppose the property is in an area that is now gentrifying? Properties now become more valuable, land tax goes up accordingly. Landlord of rental property - be it a house or block of flats - is going to pass that on in rent increases to the tenants, let's be real here. Maybe he'll even sell the property as it is worth more now than any rent he is currently getting, in which case, good luck with finding new housing former tenants.

Or maybe the value of the tax will be pegged to the value of the property. This is a huge incentive not to maintain and upkeep it or add value in any way. "But that means low rents for the landlord?" Oh, my sweet summer child. Perhaps. But as long as the landlord can juggle "rent that I can charge for my slum apartment is just enough more than the land tax", they'll do it. And again, any tenants that don't like it can lump it and go trek twenty miles outside the city to find someplace to live that they can afford and is in better condition. Oh, you can't get public transport to your job from twenty miles outside the city? Well then, guess you have to put up with living in a slum apartment - after all, beggars can't be choosers.

I just want to make clear that I just want to add a minor correction to your post above. I do not understand the idea enough to say it is good or bad. I am just trying to steelman it for you.

now to derail the thread completely:

again Carl would not have to pay any tax unless he start renting it out or sell the land, as long as it is not used for rent extracting purpose [by actually renting or holding to push price up to sell] the tax remains theoretical [i.e. not collected].

I believe that the book addressed it as follow:

renter rent place A because it gives 10 ultis more than place B only on the land [assuming capital like the actual house/ apartment/ trees are simplified elsewhere], landlord extract 9.5 from renter. giving only 0.5 actual ultis to renter.

Gov, therefore, should tax the land from the landlord 9 ultis then redistribute to both now renter has 5 ultis [0.5+4.5]. landlord has 5 ultis [9.5-9+4.5]. Land lord can not raise the ultis extraction anymore else renter would just leave for place B.

again I am also confused as to how the 9 ultis would be calculated to tax, but if I am reading correctly, this should be the broad idea.

I was under the impression that the book proposed that land tax would replace tax on the house/appartment therefore incentivize house/apartment investment.

> again Carl would not have to pay any tax unless he start renting it out or sell the land,

That's not how land value tax works, it applies if you improve and rent out, or if you leave as an empty field, or if you live there or if you build a factory. The same amount in all cases. Clearly if you own the land, you are forced to "make use" of it and gain value of at leave the LVT, or else you'll need to sell.

That's the point.

"Landlord of rental property - be it a house or block of flats - is going to pass that on in rent increases to the tenants, let's be real here"

I think everything hinges on this. George asserts this won't happen, as do a lot of modern economists. I guess the real thing to do here is look for examples of LVT applied in practice and see if it holds up.

That’s the point I don’t understand. Each slum lord would be taxed the value of his rents (or 0.85 of it, say). Wouldn’t they all just raise their rents? The tenants have nowhere to go because every slum lord is doing this. So they either pay or become homeless.

If the Land Tax is converted to a universal basic income, then maybe the tenants will have more money, but it’ll go back to their landlord, wouldn’t it?

I guess what I’m asking is: What is the mechanism by which a LT eliminates slums? I think I get that it should happen, but I don’t see how.

The slum lords have to pay the LVT whether they have tenants or not. If they raise rents above what tenants are willing/able to pay, they lose money.

And then what? Say Mr. Slum Lord doesn’t understand economics, and after evicting all his tenants has to abandon the land. It goes back to the city for nonpayment of LT. How does this help the evicted tenants? Or is making slum tenants homeless the point of Georgism?

Presumably, a new slumlord buys it from the city and charges rent that people will pay, and/or the tenants pay the (now drastically lower) price of purchasing their own homes, or a developer bulldozes the slum to make a less-slummy place.

This would seem to dovetail magnificently with old school Space Libertarianism, and the allure of the Endless Frontier.

On the desolate icy expanses of Callisto and Pluto, and especially home on Lagrange, where the only land is locked up in cylinder habitats and is vacuum is free, virtually all of the value of land will have to come from capital.

Until some wiseguy buys up the rights to all the asteroids and starts speculating on rocks in the Kuiper Belt...

"George notes that the mass die-off of the Black Death in England in the 1300's significantly reduced the productivity of the individual laborer, and yet wages went up. That's because the decreased population also caused a massive drop in competition for land, in turn causing rents to plummet. (For more detail on this read about the Peasants' revolt, also known as Wat Tyler's rebellion).

George says the opposite happened during the reign of Henry VIII, who seized the lands of the church and those held in common by the peasants, and handed them out to newly minted aristocrats, which was followed by suppressed wages."

Yeah but it wasn't just "after the Black Death, land was cheap". Before, if there were three jobs for ploughmen going and you had ten peasants, then you can get away with paying a groat and a kick in the pants to your prospective employees. After the Black Death, if there are three jobs for ploughmen but also four jobs for blacksmiths, five jobs for millers, and six jobs for gravediggers (since the previous holders of these positions all took sick and died), and you have ten peasants, then you have to offer more than a groat and a kick in the pants. Maybe you have to go as high as three groats and no kicks to get a ploughman. Particularly if you took advantage of the low rents to add on twenty acres to your farm, now you *really* need ploughmen to make this profitable. Land can be zero to rent but it does you no good if all the peasants who would have worked it keeled over dead from the plague.

You've mentioned the Famine, but does George say anything about the Highland Clearances, where the value of land now lay in sheep-rearing rather than having tenantry on it?

"In the first phase, clearance resulted from agricultural improvement, driven by the need for landlords to increase their income (many landlords had crippling debts, with bankruptcy playing a large part in the history). This involved the enclosure of the open fields managed on the run rig system and the shared grazing. Especially in the North and West of the region, these were usually replaced with large-scale pastoral farms stocked with sheep, on which much higher rents were paid, with the displaced tenants getting alternative tenancies in newly created crofting communities, where they were expected to be employed in industries such as fishing, quarrying or the kelp industry. The reduction in status from farmer to crofter was one of the causes of resentment from these changes.

The second phase (c.1815–20 to 1850s) involved overcrowded crofting communities from the first phase that had lost the means to support themselves, through famine and/or collapse of industries that they had relied on (such as the kelp trade), as well as continuing population growth. This is when "assisted passages" were common, when landowners paid the fares for their tenants to emigrate. Tenants who were selected for this had, in practical terms, little choice but to emigrate. The Highland Potato Famine struck towards the end of this period, giving greater urgency to the process."

Going back to the Famine, the effects would have been mitigated if the landless labourers, who relied on the potato crop as their main food source, could have been absorbed into industrialised towns and cities as in England during the period of agricultural collapse post-repeal of the Corn Laws. But again, for various reasons, Irish industry had been deliberately crippled in order not to be competitor with British industries and to keep Ireland open as a market and as a producer of agricultural goods to feed Britain.

The appeal of "One Weird Trick" - in this case, the introduction of a land tax - to solve tangled problems is a perennial temptation to the human race, but simple answers generally don't work that well for complex problems.

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> Yeah but it wasn't just "after the Black Death, land was cheap". Before, if there were three jobs for ploughmen going and you had ten peasants, then you can get away with paying a groat and a kick in the pants to your prospective employees.

From my own understanding of P&P, and this review, George might be agreeing with you! You see, he is asserting that it is the total monopolization of land that drives laborers to compete with one another. In a world where land & natural resources aren't gatekept at the price of rent, they wouldn't have to bid against each other for labor -- the would just do whatever productive activity they wanted. We're so used to a world in which laborers "supply" themselves to "capital" for employment, that we take a simple # of laborers / # of paid jobs = price of labor formula for granted, but it's only "Hey I own the land, what will you agree to pay in rent for the privilege of working/living on it?". This is how labor productivity can skyrocket without laborers seeing any of the benefits.

So what I think George says about the black death is not "Well land is cheap now" but that it temporarily broke the back of land monopoly, and so labor didn't have to compete with itself and bid itself down to nothing.

RE: Highland clearances -- here's a full text of the book, CTRL+F didn't turn it up, but he might have mentioned it in another work?

https://oll.libertyfund.org/title/george-progress-and-poverty

>>Today land value tax is widely considered to be the only tax that doesn't suffer from Deadweight Loss.

Generally on board with LVT, but you may wish to add Pigouvian taxes on e.g. carbon emissions.

They kind of follow naturally : if you're destroying someone's (or everyone's) else's land, I assume that you would be taxed ?

The Land Value tax has another key benefit: it has falsifiable predictions, and can be implemented incrementally and achieve incremental benefits (as we've seen in some IRL implementations). Georgists sound like marxist cranks citing 19th century economists, but georgism itself is like an MSG that can be sprinkled over just about any political philosophy and 'fit in'.

Do you know of any good examples of localities who have implemented it and what were the results?

Going back and removing about 85% of the "By Georges" would be a considerable improvement to this essay.

Really? I got a giggle out of it every time.

By George, you're wrong!

Yes but also no.

It did get tiresome after a while, but I can appreciate having a schtick and sticking to it, and this was too good of a schtick not to use. We were warned, and honestly if I were in the author's shoes I would probably also have overused it so I can't be too mad about it.

Gotta stick to your schtick, by George

Simply implementing a Land Value Tax in the manner that George suggested will almost certainly trigger a banking/financial and economic crisis as the rents that this tax seeks to eliminate have been a) capitalised into the price of land and b)the land in question has been levered up to a very high degree. The LVT will cause a significant fall in prices which will lead to defaults, bank failures and even personal bankruptcies (e.g. a middle-class family with a 90% LTV mortgage in a metropolitan city). For example, the same problem applies in removing farm subsidies where the value of subsidies has been capitalised and levered such that any removal will trigger bankruptcies and financial losses.

This is not a criticism of George as the same conditions may not have applied in his time. One possible solution is to introduce the tax in stages with a modest tax to begin with.

No reason it has to be implemented at 100% instantly. You can implement it in gradually increasing amounts over a longer timescale, with advanced notice of the changes so people can financially adapt. That's how lots of laws are done.

I don't entirely disagree. As I mentioned, this is a possible solution but the timescales will need to be much longer than most people think. If you simply announce that taxes will go to 100% over a period of, say 10 years, the price of land will factor in this increased taxation in the future and fall almost immediately thus leading to pretty much the same consequences as if taxes had been implemented at 100% from day 0.

Hm, if you follow the theory, wouldn't it predict that the major benefits only occur when the LVT is very high? Essentially, the idea is that a LVT removes the incentive for (high) rents, isn't it? This is because with a 100% LVT, landowners don't profit from higher rents, so they don't charge them. However, when the LVT is 50%, they still have the incentive to get as much rent out of the land as possible.

This is not the only positive effect of LVT. Another one is that with 50% LVT, the rent does not go completely to the landowner, but to the state, which can (for example) redistribute it. This effect stays even with 50% LVT. But my impression from the book review was that George was rather aiming at the first point.

Another possibility that might or might not suffer from the same issues: instead of gradually increasing the percentage of LVT over time, you could also set a cap of X (per square meter or so), and charge only value that exceeds X. You could start with a high value of X, and decrease it over time. Or not decrease it -- as far as I understand, the main theoretical benefits that George predicts would already take place when you only charge value above X. Of course, both ideas (gradually increasing percentage and gradually decreasing cap) don't exclude each other. I would be interested to learn what people with more background in economics think of that.

Yes, of course, but a sudden transition to a 100% LVT (having a lot in common with expropriation) would be either politically impossible, or only possible after a revolution (which has its own issues).

If I understand correctly, the tax on the land shouldn't be 100% of the fair-market sale value of the land, but 100% of the fair-market value of the rent on the land, which would probably be something like 8% of the fair-market sale value of the land.

Yeah, that's what I said "a lot in common", not "outright" : 8% every year, that still adds up to 100% in 12.5 years.

But 50% LVT or even less will already help to make speculation less profitable and give therefore give some land back to the market that was blocked before. This could lower the price of land for anyone who wants to use it.

I suppose just knowing that significant LVT will come in the long therm will reduce speculation and prices

Just thinking about this as a landlord, it's clear that a LVT would immediately bankrupt me. I make a reasonable return on my property now, but an 85%+ LVT would cause me to lose lots of money, LOTS of money, and the value of the properties would plummet, so I would immediately lose an enormous amount of wealth (labor value that I converted into land + capital). If you eliminated all other taxes it would help but probably still be very problematic. I don't think phasing it in would be especially helpful unless over a really long period of time.

85% sounds incredibly high. Am I understanding correctly that you mean "pay 85% of the value of your land (sans buildings) to the government every year"? I was thinking more like 1%, especially to start.

What level of tax would make you continue to be a landlord without changing anything?

Is there a level of tax that would make you want to build more housing on your property so you could get more rent per land value?

Update: apologies, I now realize the proposal was 85% of ground-floor rent. That still seems crazy high.

There's also the argument that this would vastly reduce the value of land, so "100% of the value of land" doesn't mean nearly as much as "100% of what it costs to but in the current market"

OK but at the same time, if that's the case it would totally wipe out my equity and probably a lot of the bank's equity as well and we would take massive losses even if the rental business could continue, right?

Yes (the idea is to make land have zero value as equity). This is one reason to introduce it gradually instead of at once - if it sets in over several decades, then the equity will go down gradually instead of at once.

(As a minor math point here, I think this implies the tax increase function should be concave - higher taxes starting now affect everything the same, but higher taxes starting ten years from now also have some effect on values today, so for the value to decrease linearly the later tax increases should be smaller)

There are significant transaction costs in real estate, so an additional tax could be small enough that I would continue as I have, but it would have to be smaller than existing property taxes- 1% of existing value/yr or ~1.5 month's rent. That kind of a change wouldn't bankrupt me, but it would crush me and make it so that I was losing money, however a new buyer at a much lower price could presumably make money, so I would just get out and take the loss and would be better off that way.

> Is there a level of tax that would make you want to build more housing on your property so you could get more rent per land value?

Any level of tax would have that incentive - the land value component of your investment goes down, so the rent payoff component of your income from the land goes up and you have more incentive to increase it.

Your ability to do that with an existing structure is limited, particularly considering setbacks and other regulations. I.e. I could probably, theoretically, add a bedroom to a house if the numbers made sense, but I couldn't add a level. Might this system end up essentially eliminating single family housing as inefficient and replacing it with fewer, higher apartment towers? Maybe all the suburban developments would revert back to farmland? It's a bit hard to think through the dynamic effects of such a system.

Yeah, this is a general issue. Almost any idea to improve the american economy is a no-go so long as the current obstructive zoning law regime remains in place.

I've been noodling on this, and what do you think about this as a transition plan: When the LVT is implemented, the federal government immediately pays current landowners the current land value of their land. So that keeps current landowners whole and gets the thing off and running.

Downsides:

1. If you want this to be expropriative, the wealthy landowners are getting paid for the expropriation.

2. It's a lot of money. Can the feds borrow enough to cover the action?

You can't compensate for the loss in the value of land. It will be too expensive. For example, UK land value is more than £5 trillion (ref https://www.reuters.com/article/us-uk-property-land-idUSKBN1DZ2UT) and the govt can't even realistically make up for a 20% loss in value.

That sounds right to me and it's a huge barrier. I'm persuadable that LVT is the least worst tax, but if transitioning to it ruins all landowners and scuttles the economy as a whole due to vast and overwhelming societal disruption, then maybe it doesn't matter that it's least worst in theory!

I wonder if you could "ease into it" along the lines I'm talking about, say 1% a year?

Perspective: Currently something like 1/3 to 1/2 of our net worth would be taxed under an LVT. We couldn't possibly pay for it without selling the land (or maybe some sort of creative mortgages?)

One option would be to consider the land portion of the purchase price (with some reasonable level of interest added) a "prepaid LVT" and you don’t have to start paying until it’s used up. Meanwhile you continue to find the government with other taxes as the LVT phases in.

That should read "continue to *fund* the government."

Also this would hit people who used their real estate as a piggy bank somewhat hard (not judging, I’m in that category myself).

"Inflation is always and everywhere a monetary phenomenon"; if the Federal Reserve prints enough money, surely nominal prices won't drop and you don't get total economic collapse?

Whether the Fed can prevent a deep recession will depend on what tools they are willing to use. The current toolbox of QE + buying corporate bonds + liquidity facilities is insufficient. If the toolbox is expanded to include helicopter drops (which is really a monetary + fiscal intervention), then the recession can probably be contained. But this would still lead to bank failures and widespread bankruptcies among the property-owning middle class.

The alternative would be a bailout of the financial sector and the landowners but this would seem to defeat the purpose of the LVT.

It's going to be artificial anyway.

As we went from high levels of growth, to a stable economy, and now entering the period of structural economic contraction (we might be already there since ~2009, the GDP/year was never a good economic indicator, and I'm suspecting that it's being artificially propped up), it's going to be "interesting" to see how the political economy adapts.

It's not certain that capitalism can even *deal* with this kind of situation, since the assumption of growth is basically in its "DNA" :

https://www.ecosophia.net/a-sense-of-deja-vu/

That was a good link, thanks. Ol' Bucky Fuller had the right vision. None of this is ever going to make sense until we start measuring in units of energy, not units of currency, though his faith in computers' capacity to centrally plan hasn't been borne out. It would be interesting to try and adapt this Georgeist framework along those lines.

You could implement LVT in a graduated fashion tuning the tax in such a way that land values stay constant. Initially, this would result in very low rates but over time the tax will rise sufficient to neutralise the price impact of any increase in demand for land.