Georgism

Georgism is concerned with the distribution of economic rent caused by land ownership, natural monopolies, pollution rights, and control of the commons, including title of ownership for natural resources and other contrived privileges (e.g., intellectual property). Any natural resource that is inherently limited in supply can generate economic rent, but the classical and most significant example of land monopoly involves the extraction of common ground rent from valuable urban locations. Georgists argue that taxing economic rent is efficient, fair, and equitable. The main Georgist policy recommendation is a land value tax (LVT), the revenues from which can be used to reduce or eliminate existing taxes (such as on income, trade, or purchases) that are posited to be unfair and inefficient. Some Georgists also advocate the return of surplus public revenue to the people by means of a basic income or citizen's dividend.

George popularized the concept of gaining public revenues mainly from land and natural resource privileges with his first book, Progress and Poverty (1879). The philosophical basis of Georgism draws on thinkers such as John Locke, Baruch Spinoza, and Thomas Paine. Economists from Adam Smith and David Ricardo to Milton Friedman and Joseph Stiglitz have observed that a public levy on land value does not cause economic inefficiency, unlike other taxes. A land value tax also has progressive effects. Advocates of land value taxes argue that they reduce economic inequality, increase economic efficiency, remove incentives to under-utilize urban land, and reduce property speculation.

Georgist ideas were popular and influential in the late 19th and early 20th centuries. Political parties, institutions, and communities were founded on Georgist principles. Early devotees of George's economic philosophy were often termed Single Taxers for their political goal of raising public revenue mainly or only from a land-value tax, although Georgists endorsed multiple forms of rent capture (e.g. seigniorage) as legitimate. One contemporary and friend of Henry George who advocated strongly for the Single Tax movement, and lectured at related organizations such as the Manhattan Single Tax Club, was Charles Frederic Adams. The term Georgism was invented later, and some prefer the term geoism as more generic.

Main tenets

Land rent and wealth

Henry George is best known for popularizing the argument that government should be funded by a tax on land rent rather than taxes on labor. He believed that although scientific experiments could not be performed in political economy, theories could be tested by comparing different societies with different conditions and by thought experiments about the effects of various factors. Applying this method, he concluded that many societal problems, such as poverty, inequality, and economic booms and busts, can be attributed to private ownership of the necessary resource: land rent. In his most celebrated book, Progress and Poverty, George argues that the appropriation of land rent for private use contributes to persistent poverty in spite of technological progress, and causes economies to tend toward boom-and-bust cycles. According to George, people justly own what they create, but natural opportunities and land belong equally to all.

The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community. It is the application of the common property to common uses. When all rent is taken by taxation for the needs of the community, then will the equality ordained by Nature be attained. No citizen will have an advantage over any other citizen save as is given by his industry, skill, and intelligence; and each will obtain what he fairly earns. Then, but not till then, will labor get its full reward, and capital its natural return.

— Henry George, Progress and Poverty, Book VIII, Chapter 3

George believed there is an important distinction between common and collective property. Although equal rights to land might be achieved by nationalizing land and then leasing it to private users, George preferred taxing unimproved land value and leaving the control of land mostly in private hands. His reason for leaving land in private control and slowly shifting to land value tax was that it would not penalize existing owners who had improved land and would also be less disruptive and controversial in a country where land titles have already been granted.

Georgists have observed that privately created wealth is socialized via the tax system (e.g., through income and sales tax), while socially created wealth in land values are privatized in the price of land titles and bank mortgages. The opposite would be the case if land rents replaced taxes on labor as the main source of public revenue; socially created wealth would become available for use by the community, while the fruits of labor would remain private. According to Georgists, a land value tax can be considered a user fee instead of a tax, since it is related to the market value of socially created locational advantage, the privilege to exclude others from locations. Assets consisting of commodified privilege can be considered wealth since they have exchange value, similar to taxi medallions. A land value tax, charging fees for exclusive use of land, as a means of raising public revenue is also a progressive tax tending to reduce economic inequality, since it applies entirely to ownership of valuable land, which correlates with income, and there is generally no means by which landlords can shift the tax burden onto tenants or laborers. Landlords cannot pass the tax on to tenants because the supply and demand of rented land is unchanged. Because the supply of land is perfectly inelastic, land rents depend on what tenants are prepared to pay, rather than on the expenses of landlords, and so the tax cannot be passed on to tenants.

Economic properties

Standard economic theory suggests that a land value tax would be extremely efficient—unlike other taxes, it does not reduce economic productivity. Milton Friedman called George's tax on unimproved land value the "least bad tax", since unlike other taxes, it would not impose an excess burden on economic activity (leading to zero or even negative "deadweight loss"); hence, a replacement of other more "distortionary" taxes with a land value tax would improve economic welfare. Joseph Stiglitz argues that a land value tax can improve the use of land and redirect investment toward productive, non-rent-seeking activities. Because land value tax would apply to foreign land speculators, the Australian Treasury estimated that land value tax was unique in having a negative marginal excess burden, meaning that it would increase long-run living standards.

Adam Smith first noted the efficiency and distributional properties of a land value tax in The Wealth of Nations

Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent. Both ground-rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. Though a part of this revenue should be taken from him in order to defray the expenses of the state, no discouragement will thereby be given to any sort of industry. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents and the ordinary rent of land are, therefore, perhaps, the species of revenue which can best bear to have a peculiar tax imposed upon them. ... Nothing can be more reasonable than that a fund which owes its existence to the good government of the state should be taxed peculiarly, or should contribute something more than the greater part of other funds, towards the support of that government.

— Adam Smith, The Wealth of Nations, Book V, Chapter 2

Benjamin Franklin and Winston Churchill made similar distributional and efficiency arguments for taxing land rents. They noted that the costs of taxes and the benefits of public spending always eventually apply to and enrich the owners of land. Therefore, they believed it would be best to defray public costs and recapture value of public spending by applying public charges directly to owners of land titles, rather than harming public welfare with taxes assessed against beneficial activities such as trade and labor.

Henry George wrote that his plan for a high land value tax would cause people "to contribute to the public, not in proportion to what they produce ... but in proportion to the value of natural [common] opportunities that they hold [monopolize]". He went on to explain that "by taking for public use that value which attaches to land by reason of the growth and improvement of the community", it would, "make the holding of land unprofitable to the mere owner, and profitable only to the user".

A high land value tax would discourage speculators from holding valuable natural opportunities (like urban real estate) unused or only partially used. Henry George claimed this would have many benefits, including the reduction or elimination of tax burdens from poorer neighborhoods and agricultural districts; the elimination of a multiplicity of taxes and expensive obsolete government institutions; the elimination of corruption, fraud, and evasion with respect to the collection of taxes; the enablement of true free trade; the destruction of monopolies; the elevation of wages to the full value of labor; the transformation of labor-saving inventions into blessings for all; and the equitable distribution of comfort, leisure, and other advantages that are made possible by an advancing civilization. In this way, the vulnerability that market economies have to credit bubbles and property manias would be reduced.

Sources of economic rent and related policy interventions

Income flow resulting from payments for restricted access to natural opportunities or for contrived privileges over geographic regions is termed economic rent. Georgists argue that economic rent of land, legal privileges, and natural monopolies should accrue to the community, rather than private owners. In economics, "land" is everything that exists in nature independent of human activity. George explicitly included climate, soil, waterways, mineral deposits, laws/forces of nature, public ways, forests, oceans, air, and solar energy in the category of land. While the philosophy of Georgism does not say anything definitive about specific policy interventions needed to address problems posed by various sources of economic rent, the common goal among modern Georgists is to capture and share (or reduce) rent from all sources of natural monopoly and legal privilege.

Henry George shared the goal of modern Georgists to socialize or dismantle rent from all forms of land monopoly and legal privilege. However, George emphasized mainly his preferred policy known as land value tax, which targeted a particular form of unearned income known as ground rent. George emphasized ground-rent because basic locations were more valuable than other monopolies and everybody needed locations to survive, which he contrasted with the less significant streetcar and telegraph monopolies, which George also criticized. George likened the problem to a laborer traveling home who is waylaid by a series of highway robbers along the way, each who demand a small portion of the traveler's wages, and finally at the very end of the road waits a robber who demands all that the traveler has left. George reasoned that it made little difference to challenge the series of small robbers when the final robber remained to demand all that the common laborer had left. George predicted that over time technological advancements would increase the frequency and importance of lesser monopolies, yet he expected that ground rent would remain dominant. George even predicted that ground-rents would rise faster than wages and income to capital, a prediction that modern analysis has shown to be plausible, since the supply of land is fixed.

Spatial rent is still the primary emphasis of Georgists because of its large value and the known dis-economies of misused land. However, there are other sources of rent that are theoretically analogous to ground-rent and are debated topics of Georgists. The following are some sources of economic rent.

• Extractable resources (minerals and hydrocarbons)
• Severables (forests and stocks of fish)
• Extraterrestrial domains (geosynchronous orbits and airway corridor use)
• Legal privileges that apply to specific location (taxi medallions, billboard and development permits, or the monopoly of electromagnetic frequencies)
• Restrictions/taxes of pollution or severance (tradable emission permits and fishing quotas)
• Right-of-way (transportation) used by railroads, utilities, and internet service providers
• Issuance of legal tender (see seigniorage)
• Privileges that are less location dependent but that still exclude others from natural opportunities (patents)

Where free competition is impossible, such as telegraphs, water, gas, and transportation, George wrote, "[S]uch business becomes a proper social function, which should be controlled and managed by and for the whole people concerned." Georgists were divided by this question of natural monopolies and often favored public ownership only of the rents from common rights-of-way, rather than public ownership of utility companies themselves.

Georgism and environmental economics

The early conservationism of the Progressive Era was inspired partly by Henry George, and his influence extended for decades afterward. Some ecological economists still support the Georgist policy of land value tax as a means of freeing or rewilding unused land and conserving nature by reducing urban sprawl.

Pollution degrades the value of what Georgists consider to be commons. Because pollution is a negative contribution, a taking from the commons or a cost imposed on others, its value is economic rent, even when the polluter is not receiving an explicit income. Therefore, to the extent that society determines pollution to be harmful, most Georgists propose to limit pollution with taxation or quotas that capture the resulting rents for public use, restoration, or a citizen's dividend.

Georgism is related to the school of ecological economics, since both propose market-based restrictions for pollution. The schools are compatible in that they advocate using similar tools as part of a conservation strategy, but they emphasize different aspects. Conservation is a central issue of ecology, whereas economic rent is the central issue of geoism. Ecological economists might price pollution fines more conservatively to prevent inherently unquantifiable damage to the environment, whereas Georgists might emphasize mediation between conflicting interests and human rights. Geolibertarianism, a market-oriented branch of Geoism, tends to take a direct stance against what it perceives as burdensome regulation and would like to see auctioned pollution quotas or taxes replace most command and control regulation.

Since ecologists are primarily concerned with conservation, they tend to emphasize less the issue of equitably distributing scarcity/pollution rents, whereas Georgists insist that unearned income not accrue to those who hold title to natural assets and pollution privilege. To the extent that geoists recognize the effect of pollution or share conservationist values, they will agree with ecological economists about the need to limit pollution, but geoists will also insist that pollution rents generated from those conservation efforts do not accrue to polluters and are instead used for public purposes or to compensate those who suffer the negative effects of pollution. Ecological economists advocate similar pollution restrictions but, emphasizing conservation first, might be willing to grant private polluters the privilege to capture pollution rents. To the extent that ecological economists share the geoist view of social justice, they would advocate auctioning pollution quotas instead of giving them away for free. This distinction can be seen in the difference between basic cap and trade and the geoist variation, cap and share, a proposal to auction temporary pollution permits, with rents going to the public, instead of giving pollution privilege away for free to existing polluters or selling perpetual permits.

Revenue uses

The revenue can allow the reduction or elimination of taxes, greater public investment/spending, or the direct distribution of funds to citizens as a pension or basic income/citizen's dividend.

In practice, the elimination of all other taxes implies a high land value tax, greater than any currently existing land tax. Introducing or increasing a land value tax would cause the purchase price of land to decrease. George did not believe landowners should be compensated and described the issue as being analogous to compensation for former slave owners. Other geoists disagree on the question of compensation; some advocate complete compensation while others endorse only enough compensation required to achieve Georgist reforms. Some geoists advocate compensation only for a net loss due to a shift of taxation to land value; most taxpayers would gain from the replacement of other taxes with a tax on land value. Historically, those who advocated for taxes on rent tax only great enough to replace other taxes were known as endorsers of single tax limited.