Murray Rothbard and Henry George
Both Austrian economics and Georgist economics stem from studying the nature of man, from individual actions, from praxeology. However, they arrive at different conclusions regarding the cause of the business cycle. Both the geolibertarians (Georgists) and the Austrian libertarians start from the same axiom of self-ownership, yet arrive at different conceptions of property. The argument between these two factions has been largely ignored, which is unfortuante. Rothbard, however, dealt with it.
Rothbard criticized the Georgists in The Single Tax: Economic and Moral Implications and Power and Market. One Georgist response is provided in The Geolibertarian FAQ by Todd Altman.
I believe that Altman is right when he says Rothbard took a wrong turn in saying that "since all right would be siphoned off to the government, there would be no incentive for owners to charge any rent at all." Here, Rothbard's assuming that the land value tax " would be set by an actual ground-rent charged by the landlord, rather than being an assessed value that would have to be recouped." I see no reason why the land value tax would necessarily be equal to the rent. From there on, due to his methodical nature, I believe Rothbard continues on the wrong path (with respect to that point).
However, there is a counter-point to the challenge to Rothbard's assumption. The socialists say that rent is unearned income, and thus theft, making no distinction between the value of land as is and the value added to it by man's labor. The Georgists refine this socialist argument, saying that the portion of rent earned because of the inherent value of the land is unearned, while the portion earned because of the improvements the landlords have made on the land due to their labor (or those they acquired the land from) is earned. This Georgist assertion has both theoretical and practical problems*.
The theoretical problem is that, from a certain point of view, we receive many benefits due to things we did not earn, both good and bad. Does anyone deserve have the type of mentality that causes him to want to rape women? Did Ghandi earn his natural gift of being an extremely kind and wise man? Did Stephen Hawking earn his genius? Did Micheal Jordan earn the natural talent, the mental strength, that made him into arguably the best basketball player ever? Did the heirs to the Rockefeller fortune earn that fortune? I am not a cripple, but did I earn the fortunate luck of not being a cripple? Did the cripple earn his or her unfortunate disability? Does the child born into a loving family earn that blessing? Did St. Lucifer earn his evil soul which caused him to be cast from heaven and set about as the epitome of evilness, did he deserve to come into existence evil? Did God earn Hiis existence as a perfect entity, free of any flaws?
I can go on and on, but the point is obvious. There are many things in life that we neither earn nor don't earn, neither desrve nor don't deserve -- they simply are. To follow the logic of the Georgists to it's completion opens the door to socialism, because we didn't earn the benefit that the underlying untransformed land provides; and we didn't earn the improved value we brought to the land by transforming it with our labor, as we didn't earn the skills, talents, and physical abilities necessary to transform the land. This logic does not necessarily lead to socialism, as it does not follow from the assertion that "I haven't earned anything that constitutes me and my work" that "everyone else deserves what constitutes me and my work". But the door is still wide open.
The practical problem is that, while you can divide the value of land between the portion due to it's natural state and the portion due to labor exerted on it, you can only arguably do this in theory and not practice. Since I as the rent-seeker don't have the option of specifying what I'd pay the landlord to live on his land were it an untransformed mess, there's no way to determine the untransformed value of the land, even from one individuals subjective standpoint. The value I attribute to something can only be objectively defined by a market transaction; thus, the value I ascribe to the untransformed land I am now sitting on simply cannot be determined, not even by myself. Sitting iin my house right now, it is a truism for me to say I value the land I own more in it's transformed, as opposed to untransformed, state. If I was typign this from laptop in a nuclear fallout are of the desert, it would be a truism to say that I would value that same land more if it were untransformed b y man's actions (unless I wanted to die). However, those are qualitative, not quantitative, statements. To tax the "unearned value of the land" we would need to determine what the value of the untransformed land is to the current landlord, which I have already shown is impossible, as determining value in monetary units requires a free-market transaction, and we cannot alternate between a transformed and untransformed state.
Even if we could magically alternate, we still could not determine at what price an individual values the untransformed land, as we would need a market transaction know anything about the value individuals place on something, which would require him to sell it to someone else. However, even a sale does not necessarily tell us how much the seller valued the property in monetary terms. It merely tells us that that price was one price in a range of prices at which the seller was willing to sell. The seller will not sell at any price below that, and will, according to neoclassicals, sell at any price above that. Of course, the neoclassicals err there in assuming a homo economus; the Austrians make no such assumptions, and allow for both economic and moral considerations on the part of sellers and buyers. Considering the economic side of man alone, there is no reason why a man wouldn't sell a candy-bar for $1,000,000 to a mentally retarded rich heir who really wanted it. Only when considering the moral dimension of man as well as the economic dimension can we allow for the possibility that a seller may refuse to sell at that high bid price (or will give it to the buyer for less than that absurd bid). The value the seller ascribed to his property would necessarily be the lowest price at which he would be willing to sell the untransformed property. So, the only way the Georgist tax-collector could determine what to peg the LVT at would be to read the mind of the current land-owner, in never-never-land where we can alternate between transformed and untransformed land.
The other problem is that now that we've forced the landowner to sell the land (which creates a disturbing coercion problem for libertarians in-and-of itself), he no-longer owns the land. The new buyer owns the land. Yet, the price at which the new buyer bought the land does not necessarily represent the monetary value he ascribed to the magically untransformed land (again, assuming never-never-land, where we can alternate between transformed and untransformed land). It only represents one price in a range of prices at which the buyer was willing to buy the land. The monetary value that the buyer subjectively ascribes to the land is the highest price at which he is willing to pay to obtain that land.
Again, if we succumb to the neoclassical fallacy of assuming homo economus there is no price so low that a buyer would not be willing to buy the land for it. According to the neoclassical delusions, I could not possibly refuse an offer by a prospective buyer to sell me his wife as a prostitute in exchange for $2; indeed, I could not even object to the idea that women could be used as units of monetary exchange. I would simply calculate that this I was buying sex with the man's wife for a very cheap price, and did not have to "buy" the possibility of sex for the very expensive price for which one normally has to pay for that consideration in a person's mind (namely, the "price" of love, sacrafice, devotion, respect, and so-on and so-forth). But I digress far from my criticism of Georgians (that criticism was aimed at neoclassical economists, not Georgian economists).
The criticism of the LVT which Rothbard levies is even more broad, which is that you cannot determine the value of the untransformed land, as the Georgians describe it. Their terminology discusses that as some absolutely determinable number. Yet, the value of untransformed land will be subjective, and will vary from people to people, and even from person A in situation X to person A in situation Y, or time X and time Y. As a vacationer, I will say that the value of the untransformed land in Antactica is zero -- I wouldn't pay anything for it. Indeed, it has negative value, from my pov -- you'd ahve to pay me to go there. As a researcher, it may have some value, as the cold temperatures could be used to store samples, without paying freezors. And that is only how the untransformed value varies for the same person, depending on the time and situation. What about between persons? To me, the value of the untransformed land at the crator of a volcano, where lava is getting ready to flow out, is zero. In fact, it has infinite negative value -- you couldn't pay me enough moeny to go anywhere near a volcano that's going to explode at some uncertain point in the near future. However, to a vulcanologist, this untransformed land would have great value. As Rothbard rightly notes, any attempt to to peg the value of the untransformed land would be arbitrary. Thus, Rothbard's assumption that the land value tax would be set to the rent rate is not as unjustified as it first seems -- why not? An army of arbitrary tax assessors could arbitrarily deem it that high.
The Georgist response to this, I anticipate, would be that you don't have to determine the value of the untransformed land to the landlord. You just have to determine it's highest value anywhere. For example, I may not personally attribute any value to an active volcano, but may still buy it, so as to sell it's use to a vulcanologist, who does value it. Yet, this runs into my earlier criticism that even in the case of completely untransformed land, you cannot determine how much an individual values it unless you can read his or her mind (that is, you can't tell the absolute lowest price at which he'd be willing to sell, or the absolute highest price at which he'd be willing to buy). And you also run into the practical problem of determining the highest value placed on the property by any individual (thus, it's highest valued use).
Of course, the Georgists can always say that all they mean is the value (price) at which the untransformed land is sold in the free market. To that, I will step back one step and say that you can't do that, because you can't magically alternate between transformed and untransformed land. I will also say that it's immoral to do that, as it would require forcing a sale of property by the owner, which constitutes the initiation of aggression. Also, by forcing the owner to sell, you've changed what would otherwise be the price of the magically untransformed land on the free market, because you've created a pressure on him to sell, which will drive the price down. Thus, you have defeated your own objective, and will almost necessarily underestimate the price at which the untransformed land sells on a free market without coercsion (by coercing the owner to sell, you've lowered the price). Thus, you have under-estimated the land-value tax.
Of course, Georgians could just ignore all of these difficulties and arbitrarily declare, by State fiat, what the untransformed value of the land is, thus what the unearned income is. This would be transparent and easily demolished. It would also be incorrect. Or they could bend over backwards trying to deal with all of the nuances by armies of tax assessors and philosopher kings. They would still be just as incorrect, though they would have bamboozled the public into thinking there's some merit to the process; however, in going through all of this, they will have eliminated a large portion (possibly all) of the wonderful taxes funds they claim would be provided by the LVT.
What good is it differentiating between earned rent due to your transformation of land, and unearned rent due to the "value fo the land" if you can't determine the point of that differentiation in practice?
Comments (18)
Brian W. Doss
I dont know why the trackback ping isn't working, but I have responded to this post over at Catallarchy.net.
Published: February 24, 2004 3:00 PM
David Friedman
One sophisticated criticism of the idea of basing taxation mainly on land was published by David Ricardo, responding not to Henry George, who I think hadn't been born yet, but Adam Smith. Smith had suggested that rent was a particularly suitable thing to tax.
Ricardo's response was that if rent was the main thing taxed, the value of land would depend very much on political decisions. So land would tend to be held not by the people best able to make use of it but by the people best able to predict and manipulate the political system that set the taxes.
The obvious Georgist response is that the tax is supposed to based on some objective measure of pure land rent, to which the obvious response, suggested by your piece, is that measuring that is hard, which leaves lots of room for politics.
Published: February 26, 2004 12:10 AM
Tracy Saboe
The Free State Project (unfortunately) seems to have a decent number of georgists in it.
It's very frusterating to me because I won't be able to abolish the property taxes is they get their way, even though property taxes is in my oppinion the most evil kind of taxation. (It turns you into a surf and forces you to rent your land from the government.)
Anyway, here's a reprint of one of my best posts against this nonsence.
http://forum.freestateproject.org/index.php?board=46;action=display;threadid=5808&start=0
BTW (if it's OK to make a Plug) we need Austrians in the Free State Project.
Tracy Saboe
Published: February 26, 2004 1:50 PM
BillG
I wonder if David Friedman would like to comment on his father's quote from Todd's FAQ?
Milton Friedman
"In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument..."
http://members.aol.com/_ht_a/tma68/geolib.htm
Published: February 26, 2004 2:21 PM
BillG
Tracy-
The assertion that the government insuring the collecting of a rightful debt and then returning it directly to the locals in the form of a pro-rata citizens dividend (see Thomas Paine's "Agrarian Justice") means that you are renting your land from the government (as in the government owns the land)is false.
Published: February 26, 2004 2:29 PM
BillG
David H.-
I believe the charge from the Geo-Libertarians is that the private ownership of land without the distribution of the extrinsically created rent is incompatible with the first principle of self-ownership.
Published: February 26, 2004 2:38 PM
David Heinrich
My explanation of Milton Friedman's comments -- in many ways, Milton Friedman isn't a libertarian. Milton Friedman wants to make the government more efficient, which is a disturbing thought. As Rothbard notes in Milton Friedman Unravelled (http://mises.org/journals/jls/16_4/16_4_3.pdf):
Quote:
"Milton Friedman has revealed his quintessential ro-income tax and egalitarian position in numerous ways. As in many other spheres, he has functioned not as an opponent of statism and advocate of the free market, but as a technician advising the State on how to be more efficient in going about its evil work."
Rothbard then notes Milton Friedman's role in the creation of the with-holding tax, one of the most horrible developments in The State, which has allowed It to tax at far higher rates than would otherwise be possible.
To be fair, Milton Friedman has contributed to a greater respect for liberty and a greater interest in libertarian ideas in many ways. Overall, he supports greater liberty and a smaller State, which is a good thing. Despite being flawed in some areas, Milton Friedman's "Capitalism and Freedom" is a strong defense of liberty (http://www.amazon.com/exec/obidos/ASIN/0226264017/ludwigvonmisesinst/104-3932720-0298346).
Published: February 26, 2004 4:56 PM
David Friedman
Bill G writes:
"I wonder if David Friedman would like to comment on his father's quote from Todd's FAQ?
Milton Friedman
"In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument..." "
I think it's a real quote.
But there is a large difference between saying it's the least bad tax, which is a position a variety of economists have supported from Adam Smith on, and saying it is a good tax, which is the usual position of Georgists as I have observed it. And there is also a difference between a tax on the site value of land and a tax that collects all of the site value of land--just as there is a difference between an income tax and an income tax with a rate of 100% on all income.
Published: February 27, 2004 6:59 PM
David Friedman
"My explanation of Milton Friedman's comments -- in many ways, Milton Friedman isn't a libertarian. Milton Friedman wants to make the government more efficient, which is a disturbing thought. As Rothbard notes in Milton Friedman Unravelled" ...
I last got into this argument a very long time ago, when Rothbard published two articles in a libertarian journal he then dominated, one attacking my father in particular and one attacking the Chicago School in general. I wrote a response, contrasting what Rothbard said my father believed with what my father said he believed--quoted from published work. The editor refused to accept it, pretty explicitly on the grounds that if Murray Rothbard and Milton Friedman disagreed about what Milton Friedman's views were, Rothbard was right.
I doubt it is worth reviving the controversy--I would rather argue about my ideas. However ...
"Rothbard then notes Milton Friedman's role in the creation of the with-holding tax, one of the most horrible developments in The State, which has allowed It to tax at far higher rates than would otherwise be possible.
"
An event which occurred during WWII. My father agrees that the withholding tax is a bad thing--he may even have agreed at the time. But he thought winning the war was a good thing.
People interested in my critique of Rothbard's attack on another economist he dislikes--Adam Smith--may want to use Google to search Usenet for my exchange with Vincent Cook (on the newsgroup humanities.philosophy.objectivism) dealing with Rothbard's two volume book on the history of economic thought. I think it provides pretty clear evidence that one ought not to trust Rothbard's account of other people's views.
For a later post by me summarizing the argument, see:
http://groups.google.com/groups?q=Rothbard+%22Adam+Smith%22+author:David+author:Friedman&hl=en&lr=&ie=UTF-8&selm=ddfr-2610992347550001%40ddfr.vip.best.com&rnum=2
Published: February 27, 2004 7:27 PM
Wirkman Virkkala
I was pleased to see Heinreich touch on the issue that most concerns me regarding the Georgist proposal, in his paragraph beginning "The criticism of the LVT which Rothbard levies is even more broad..."
Georgists distinguish between the site value and the value-added-through-labor of any parcel of land/space. And yet it seems obvious that site value increases (and decreases) according to the entrepreneurial successes (and failures) of human endeavor. Location theory, as elaborated by von Thunen and many scholars after, strikes me as much more interesting than Georgist tax proposals. And it strikes me that the elementary propositions of location theory falsify the claims of the Georgists. (But I'm not a location theorist, so what follows is my fallible grasp of the issues.)
The value of an unused (or abandoned) parcel of land may double or triple if a nearby business - or even a city park - becomes attractive overnight. But when the public fascination with the nearby attraction wanes, the value of that unused parcel can plummet. This can change yearly, monthly, even daily... How would the tax assessors handle it?
It seems to me that Rothbard has to be right, and George wrong. It may be the business of entrepreneurs to guess correctly the values of location, location, location, and then the added-on services they dream up, but remember: they often fail. The idea that tax assessors would be better at these evaluations seems nuts to me. Tax assessments on the value of property can't be anything but economically somewhat arbitrary figures for the extraction of loot. This is not science here, but the art of extortion (though "legalized," of course). Georgists in charge don't strike me as better extortion artists than what we have now. They say they'd extort less, but...
Considering the difficulties of assessment of value, I don't see the logic for Milton Friedman's "least bad" judgment of the land tax. It strikes me that a percentage extorted from the net earnings of an enterprise would be much less bad, if only because a tad less arbitrary.
But I'm not trying to argue for any tax!
Published: February 27, 2004 8:11 PM
Wirkman Virkkala
I was pleased to see Heinreich touch on the issue that most concerns me regarding the Georgist proposal, in his paragraph beginning "The criticism of the LVT which Rothbard levies is even more broad..."
Georgists distinguish between the site value and the value-added-through-labor of any parcel of land/space. And yet it seems obvious that site value increases (and decreases) according to the entrepreneurial successes (and failures) of human endeavor. Location theory, as elaborated by von Thunen and many scholars after, strikes me as much more interesting than Georgist tax proposals. And it strikes me that the elementary propositions of location theory falsify the claims of the Georgists. (But I'm not a location theorist, so what follows is my fallible grasp of the issues.)
The value of an unused (or abandoned) parcel of land may double or triple if a nearby business - or even a city park - becomes attractive overnight. But when the public fascination with the nearby attraction wanes, the value of that unused parcel can plummet. This can change yearly, monthly, even daily... How would the tax assessors handle it?
It seems to me that Rothbard has to be right, and George wrong. It may be the business of entrepreneurs to guess correctly the values of location, location, location, and then the added-on services they dream up, but remember: they often fail. The idea that tax assessors would be better at these evaluations seems nuts to me. Tax assessments on the value of property can't be anything but economically somewhat arbitrary figures for the extraction of loot. This is not science here, but the art of extortion (though "legalized," of course). Georgists in charge don't strike me as better extortion artists than what we have now. They say they'd extort less, but...
Considering the difficulties of assessment of value, I don't see the logic for Milton Friedman's "least bad" judgment of the land tax. It strikes me that a percentage extorted from the net earnings of an enterprise would be much less bad, if only because a tad less arbitrary.
But I'm not trying to argue for any tax!
Published: February 27, 2004 8:11 PM
David Heinrich
Prof. David Friedman
I'd be interested in the specific paper by Rothbard criticizing Milton Friedman, and your response.
Regarding your discussion of Rothbard's *History of Economic Thought*, I think it is a little bit too quick to say that the alleged errs of that book mean one should be hesitant about Rothbard's take on history in general. I believe that he didn't finish that book before he died, so an unfinished version was published; what modifications he may have made are unknown. I don't have a reference on that, and this is just from memory, so I could be completely wrong -- if so, I apologize in advance.
At any rate, I don't think Rothbard's obligated to paint a flattering picture of any economist. I think there is nothing wrong with focusing on negative aspects of economists works, especially ones that have been traditionally heralded. Those economists, if still alive, may not like it, nor may their admirers, but I don't see anything particularly wrong with it (just critical).
Your most interesting statement was, I think, here:
"'Smith proposed taxing the export of wool,' and not explaining that what Smith proposed was that the absolute ban on the export of wool be lifted and replaced by an export tax, is delibeate dishonesty, even though the statement is literally true."
This is I think what the crux of the argument boils down to. With regard to this, I don't think it's particularly atrocious. I think it's just Rothbard. From my understanding, he wasn't interested in making excuses or filling out historical context to rationalize what he thought were immoral positions. It seems that for Rothbard, it usually doesn't matter that someone's views are "less statist" than the typical view; what matters to Rothbard is where individuals views *are* statist. It seems that to Rothbard, it wasn't relieving that Smith supported the elimination of the ban -- in Rothbard's mind, that is an obvious non-event, something that simply should be period -- but rather disheartening that Smith supported an export tax.
It appears that sometimes when treating economists, Rothbard turns a blind eye to anything he would consider good, and only sees what he would consider bad.
Published: February 28, 2004 2:12 AM
Mark Thornton
David is correct that Milton does not like the withholding tax, would like to see it abolished, and that he only supported it as a wartime measure. Yet another reason to never go to war and another example of why we should never support "wartime measures."
With respect to Rothbard's critique of Smith, it is important to note that Smith would often support something, while at the same time criticising it so its difficult to determine exactly where he stood on issues. Readers could come away with many interreptations. I'm not a Smith scholar, but I have found that in my own research that touches on Smith's writings that he badly mangled critical historical facts and badly misled his readers. I can't tell if the mistakes were due to his shallow knowledge or if they were deliberate misrepresentations.
Published: February 28, 2004 11:10 AM
David Friedman
David Heinrich writes:
"It seems that for Rothbard, it usually doesn't matter that someone's views are "less statist" than the typical view; what matters to Rothbard is where individuals views *are* statist. It seems that to Rothbard, it wasn't relieving that Smith supported the elimination of the ban -- in Rothbard's mind, that is an obvious non-event, something that simply should be period -- but rather disheartening that Smith supported an export tax."
If that were Rothbard's position--and if he were honest--don't you think he would have mentioned the existence of the export ban? He can't expect his readers to know about it.
"It appears that sometimes when treating economists, Rothbard turns a blind eye to anything he would consider good, and only sees what he would consider bad."
Except, of course, when he arguing in favor of the economist in question, when he does the opposite--as in the case of Turgot.
Turgot proposed to the King of France that the entire French educational system be nationalized, with central government control. Smith discussed the question of government subsidies to education, concluded that they were not unjust but that it might be more prudent to have an entirely private system. Rothbard, without mentioning the former fact or accurately describing the latter, argues that Turgot is much more libertarian than Smith.
I have no objection to Rothbard criticizing people he disagrees with. My objection is that his criticisms are routinely dishonest. For more details, see the old Usenet post of mine that I already cited.
Mark Thornton writes, I think about Rothbard on Smith (although I may be misunderstanding him):
"I can't tell if the mistakes were due to his shallow knowledge or if they were deliberate misrepresentations."
I think if you go through the examples I cited in my old Usenet post, you will see that they cannot be explained as honest errors due to Rothbard's ignorance. And if they could be explained that way, it would have been highly irresponsible for Rothbard to have written the book in question, since that would mean that he was unfamiliar with the work of an economist whom he criticized at some length.
Smith's discussion of an export tax on wool is in the context of his discussion of the ban on exporting wool, which he devotes significant attention to. The "martial spirit" comment is in a context radically different from the way Rothbard represents it. It's true that a careless reader might well conclude that Smith was unambiguously in favor of public schooling--and some have. But that doesn't explain Rothbard's failure to mention Turgot's much worse position on the same issue, when contrasting Turgot to Smith.
Published: February 29, 2004 1:09 AM
jeff
Thornton was speaking of Smith, not Rothbard, and obviously so.
Published: February 29, 2004 6:17 AM
Mark Thornton
Yes, I was speaking of Smith, not Rothbard. I was saying that Smith either had a shallow knowledge of his subject (on the fine points related to my research--I'm not condemning everything he wrote) or he was trying to paint a slanted or misleading picture of the facts. The two examples that come to mind are his treatment of Cantillon and his treatment of the "regulated" companies.
Published: February 29, 2004 8:20 AM
BillG
labor-based property rights to the fruits of one's labor are absolute as they are a natural extension of your right of self-ownership.
whereas law-based property privileges are conditional as all privileges (private laws) shift costs off of the entitled and onto society (negative externalities) that are supposed to be justified by a greater good argument.
Locke was very clear about what the conditions were for turning common property (land, water, air, minerals, oil, etc) that pre-exist human labor into first law-based property privileges and then into labor-based property - his proviso and spoilage clauses.
The reason why is because beyond the proviso (enough and as good left for others) the last bundled ownership privilege appears (economic rent) which can only be satisfied by sacrificing the absolute labor-property rights of the excluded if the entitled monopolized the economic rent as it creates a legal and monetary obligation in essences shift costs onto society.
The only way to protect our absolute labor-based property rights is for the economic rent to remain owned in common (an equal citizens dividend for all) while the other four bundled law-based property privileges (use, exclusion, possession, transferability) can remain in private hands.
Published: October 3, 2005 5:39 PM
Lockhart
Because valuation of land in the hands of landlords has been irregular and unfair, it is assumed that it must always be so. Nothing is more erroneous. Valuation has hitherto depended on the caprice or passions of men; it is possible to base it on their reason. By having the right to value conferred on them landlords have been given motives to value from their own immediate point of view.
But an adequate valuation is necessary in the interests of business. The alienation of capital and labour from land is largely due to the manner in which land has been controlled. Excess of rent, insistence on slightly unreasonable conditions, indifference to the cultivation or development of their land on the part of owners, prevent land, capital and labour from being properly co-ordinated.
Economic science has made the existence of certain facts and the operation of certain laws clear enough to make an improvement in economic practice possible and even easy. There is a thing called economic rent. Rent is that part of the produce from any undertaking which remains after their accustomed returns have been reserved to the capital and labour engaged in it, the part which is normally due to land. But no serious use is made of this knowledge. Rents and prices above its economic value are frequently paid for land. When this excess is carried far enough, widespread unemployment and business depression occur. Wages, interest and rent fall.
Rents should be fixed by the government valuation because that valuation is the only available record of economic value, and no sound economic conditions are possible, unless the users of land are paying neither more nor less than the economic value of land. The valuation of land is one of the most fundamental activities in economic practice, and is subject to strict and unvarying laws. It is peculiarly-and exclusively a governmental or communal function.
The interpretation of the taxation of land values by some exponents gives the impression that it is to be the taxation of the highest bids or offers. They believe that these offers represent the actual values of land, and they propose not only to use them as the basis of taxation, but suggest that they should continue to be the amounts payable as rent. They contend that any other method of fixing values and rents is Socialism in a reprehensible sense of the word, and an interference with the liberty of individuals. Henry George was afraid of corruption, if the State should do anything more than take the value by means of a tax. He said it was not "necessary that the State should bother with the letting of lands, and assume the chances of favouritism, collusion and corruption that might involve. It is not necessary that any new machinery should be created. The machinery already exists. Instead of extending it, all we have to do is to simplify and reduce it. By leaving to landowners a percentage of rent, which would probably be much less than the cost and loss involved in attempting to rent lands through State agency, and by making use of this existing machinery, we may, without jar or shock, assert the common right to land by taking rent for public purposes." ( Progress and Poverty, Bk. VIII, chap. ii.)
Whether corruption was unusually prevalent among officials in the United States, or whether Henry George had not fully considered the practical application of his principle, this emphatic statement is out of harmony with the requirements of that principle itself, and with the results of experience. He modifies this statement in a later work, and leaves the question open: "Whether or no," he says, "this would prove finally the best way of obtaining for the community the full return which belongs to it is hardly at this stage worth discussing." (Social Problems, chap. xix.)
If the value of land belongs to the community, the management of this value also belongs to it. The taxation of land values carries with it a Government valuation of land. The Government valuation evokes the active interest and criticism of the landowners. Their activity opens the doors and invites or necessitates the interest of all other parties to produce an all-round, representative valuation. No one can say when the machinery for this purpose will be full-grown. When local men have their voice in valuing local land, the valuation will really express "the general sense of fair play and justice." And before this valuation all others will disappear.
Some argue that the economic value of land cannot be ascertained to-day, that a fair rent cannot be fixed, because land is withheld from use, and economic conditions are generally unsound. But the elements of economic science are never destroyed by a breach of economic laws, any more than the elements of physics are destroyed in a railway collision, or in the fall of a building. Experienced valuers can measure the demand for land, and its worth in money, to-day as accurately as ever they will measure it. That demand is less than it would be under free conditions, but, however it may alter, the art of measuring or valuing it is always the same. There are restrictions on the use of land which obstruct the free course of demand, and are unreasonable from the community's point of view. When the valuer after consulting local opinion had decided that restrictions were unreasonable, they would be removed, and capitalists and labourers would then be allowed to express their demand freely. On the same principle, and with the same object of maintaining the value of land, reasonable restrictions would be imposed, and with demand operating on this basis its measurement would be simple and absolutely certain.
Published: October 7, 2009 8:57 AM