Prudent Press

4

Henry George and the Land Reform Movement

D.

Many of the old and the wise-men discussed in Part 4 and Part 5 of this series, have influenced and reminded contemporary scholars about the dangers that are inherent in the private banking system.

Well-known scholars thus far have understood that the private banking system is the root cause of the perpetuating debt and unsustainable growth that many countries have been experiencing.

These problems have forced many leaders to propose solutions to the current monetary system.

This movement is known as Monetary Reform, and within the movement there are quite a few different camps. These include;


Fiat Debt-Free Money Reformers (FDF)

Modern Money Theorists (MMT)

Post Keynesian Reformers (PKR)

Islamic Banking Advocates (IBA)

Social Credit Reformers (SCR)

Land Reformers (LR)

Hard Money Reformers (HM)

Competing Currency Reformers (CCR)

This article discusses the philosophies of political economist Henry George, and his proposals for monetary reform.

George had been a popular advocate for land reform, and had served to influence numerous academics, philosophies, and organizations around the world.

Many of his ideas were influenced by the economic instability in the Panic of 1873.

 

Panic of 1873

The Panic was precipitated by the rampant speculation that had been going in the railroad construction industry.

The abnormal growth in the industry had been caused by a large infusion of cash from speculators which then led to the overbuilding of docks, factories and ancillary facilities on private debt expansion (bank credit).

When this abnormal growth could not be sustained, numerous banks that had speculated in the railroad industry suffered from bankruptcy.

This caused a ripple effect where factories were forced to lay off workers due to the inability to acquire loans that were necessary for expansion.

As unemployment grew,  the cost of rent increased resulting in a rising gap between the rich and the poor.

George observed the wide-spread poverty in America at the time of the Panic.

He highlighted his observations in his book titled: Progress and Poverty, where he wrote,

Look over the world today; comparing different countries with each other, and you will see that it is not the abundance of capital nor the productiveness of labour that makes wages high or low, but the extent to which the monopolizers of land can, in rent, levy tribute upon the earnings of labour…In the new settlements, where land is cheap, you will find no beggars, and the inequalities in condition are very slight. In the great cities, where land is so valuable that it is measured by the foot, you will find the extremes of poverty, and of luxury. And this disparity in condition between the two extremes of the social scale may always be measured by the price of land.

Later on in his book, he added,

If men now unemployed were given the opportunity to produce wealth from the land, they would not only be employing themselves, but would be employing all the mechanics of the city, giving custom to the storekeepers, trade to the merchants, audiences to the theatres and subscribers and advertisements to the newspapers. I do not mean to say that every unemployed man could turn farmer or build himself a house, if he had the land; but that enough could and would do so to give employment to the rest. What is it, then, that prevents labour from employing itself on this land? Simply, that it has been monopolized and is held at speculative prices, based not upon present value, but upon the added value that will come with the future growth of population.

George stated that the primary cause of unemployment was due to the lack of land available for expansion and employment.

He argued that land was monopolized by landowners who engaged in speculative behavior to drive up its value.

Since the land was merely used for speculation and not for production, George argued that it led to inefficiencies in the economy.

To counter this speculative behavior,  George postulated in a progressive form of a land value tax that would tax land owners on the value of their unimproved land.

 

Land Value Tax (LVT)

http://www.savingcommunities.org/graphics/landtax/doublehouseproptaxcolor.gif

A land value tax is a tax on the unimproved value of land that disregards the value of buildings, personal property and other improvements.

George stated that this tax would deter land owners from holding land simply to gain on its appreciation. He also stated that it would discourage landowners from charging high rental rates to their tenants.

The land tax symbolized George’s view which was that since land belonged to everyone; the benefits of the economic rent should be received by everyone. To achieve this, the government would collect the tax revenues and then redistribute it amongst the people.

Notable proponents of this tax, such as Fred Foldvary, outlined two of its key benefits;

  1. The Land Value Tax  is based on the expenses of the landlord and not on the number of tenants, therefore the cost of rent would not increase
  2. The Land Value Tax encouraged landowners to develop vacant areas of land, thus discouraging speculative land holding

The graph below depicts the effect of a Land Value Tax on the Land owner.

http://upload.wikimedia.org/wikipedia/en/thumb/6/69/Perfectly_inelastic_supply.svg/500px-Perfectly_inelastic_supply.svg.png

As the graph shows, the effect of a land value tax would reduce the producer surplus, and increase the government revenue. Producer surplus represents the profits of the landowner. By attacking the landowner’s profits, George hoped to eliminate land speculation.

Ironically, a perfect illustration of the Land Value Tax is located in George’s home state of Pennsylvania.

 

The Pennsylvania Case

Harrisburg, Pennsylvania currently taxes land at a rate of six times that on improvements made since 1975.

The mayor of Harrisburg, Stephen Reed, stated that the implementation of this tax had reduced the number of vacant structures in downtown Harrisburg from around 4,200 in 1982 to fewer than 500 in 1995.

Reed outlined the effectiveness of the land value tax in a letter to businessman Patrick Toomey in 1994, when he wrote,

The City of Harrisburg continues in the view that a land value taxation system, which places a much higher tax rate on land than on improvements, is an important incentive for the highest and best use of land in already developed communities, such as cities. With over 90% of the property owners in the City of Harrisburg, the two-tiered tax rate system actually saves money over what would otherwise be a single tax system that is currently in use in nearly all municipalities in Pennsylvania. I should note that the City of Harrisburg was considered the second most distressed in the United States twelve years ago… Since then, over $1.2 billion in new investment has occurred here, reversing nearly three decades of very serious previous decline. None of this happened by accident and a variety of economic development initiatives and policies were created and utilized. The [tax] system has been and continues to be one of the key local policies that has been factored into this initial economic success here.

Reed stated that the land value tax increased economic efficiency since land was being put to more productive uses.

He also said that the tax prevented real estate bubbles that resulted in rising land prices. Real estate bubbles have occurred in the U.S. and are currently ongoing in Canada.

Reed is not the only supporter of the George’s proposals on land reform.

George’s s philosophies  served to influence many other academics and economists that went on to develop the economic philosophy of Georgism.

 

Georgism

Chromolithograph of Henry George, head and shoulders.

Georgists strongly support George’s ideologies on land reform.

They argue that there is no such thing as private property, since land cannot be owned by any single individual. As such, they advocate that the government should tax people on the value of their land.

They also argue that the government should not tax goods and services that are owned by the people since that is a by-product of their hard labour.

In addition, Georgists state that the proceeds from the land tax revenue should be utilized to improve society.

They outline two distinct methods for this;

1. Land tax revenues would be used to fund government projects and ventures

2. Land tax revenues would be redistributed to citizens as a national dividend

1) The government would fund its projects from the proceeds of the land value tax revenue. The additional revenue would enable the government to fund social welfare programs and  infrastructure projects to increase the standard of living in society.

2) The government would redistribute the revenues received by the land value tax to the public. This would essentially represent a national dividend to the people, and would reduce the income inequality as well. Georgists also argue that this dividend would provide a basic income to poor families that require necessities such as food and water.

Notable supporters of Georgism include economists Joseph Stiglitz and Milton Friedman.

Stiglitz agrees with George’s concept of the land value tax, stating that it would increase efficiency in the economy.

Stiglitz highlights the benefits of the land tax in his paper titled Principles and Guidelines for Deficit Reduction, where he writes

Land does not disappear when it is taxed. Henry George, a great progressive of the late nineteenth century, argued, partly on this basis, for a land tax. But it is not just land that faces a low elasticity of supply. It is the case for other depletable natural resources. Subsidies might encourage the early discovery of some resource, but it does not increase the supply of the resource; that is largely a matter of nature. That is why it also makes sense, from an efficiency point of view, to tax natural resource rent at as close to 100% as possible.

Friedman stated that the land value tax was a superior alternative to the other types of land tax systems that were in use at the time.

He emphasized his agreement in an interview where he said,

In my opinion, the least bad tax is the property tax on the unimproved value of land, the Henry George argument of many, many years ago.

New Keynesian economist Paul Krugman also acknowledges the benefits of the land tax value in an article titled: This Land is Your Land, where he says,

Well, look. Believe it or not, urban economics models actually do suggest that Georgist taxation would be the right approach at least to finance city growth. But I would just say: I don’t think you can raise nearly enough money to run a modern welfare state by taxing land. It’s just not a big enough thing.

Henry George’s teachings had also influenced many Canadian leaders.

 

Georgist Movement in Canada

Georgist ideologies had become very popular in Canada during the mid-1950s, particularly in Alberta when the provincial government implemented Land Value Taxation policies in 1962.

Georgist philosophies also grew in popularity during the  70s as a result of the Port Credit Project, led by Malcolm McCarthy.

This project involved an extensive site value assessment and taxation report with the cooperation of the town of Port Credit in Ontario.

President of the Henry George Foundation in Canada, John Fisher, had been instrumental in making land taxation a part of the official policy of the Green Party ever since 2000.

The founder of the Libertarian party of Canada, David Nolan, had also been an avid supporter of the Land Value tax system.

Nolan acknowledges his preference for the single land value tax in his article titled What IS a Libertarian, where he writes,

What kind of taxation is least harmful?…My own preference is for a single tax on land, with landholders doing their own valuation.

The influence of George’s teachings has also sparked an international grass-roots movement known as Earthsharing Canada.

The organization promotes the ideas of Henry George, and calls on governments to collect economic rent in the absence of taxes on income or consumption.

As recently as 2011, Earthsharing Canada has affiliated itself with the New Democratic Party Land Campaign, that strives to improve the understanding of and support for Land Value Taxation amongst members within the New Democratic Party.

George’s  influence had been so pervasive, it spawned the creation of yet another school of thought known as Geo-Libertarianism.

 

Geo-Libertarianism

Geo-libertarians follow many of the basic concepts fund in Georgism, including the benefits of a land value tax.

However, there are several key differences between Geo-Libertarians and Georgists.

Geo-Libertarians advocate the following;

  • Individual landholders may only be charged rent by local governments. Higher levels of government may be funded by the local governments, from charges against their aggregate land value
  • Rent should not be paid for the use of land, but only for the right to exclude others from that land, and for the protection of one’s title by government.
  • The Government must also pay rent on the land it holds

The fundamental difference between Georgists and Geo-Libertarians is their emphasis on government intervention.

Georgists advocate for more government intervention in the economy, where they argue that the government should own all the land (or nationalize it) and rent it back to the people.

As such, they support the idea of land tax revenue being used to fund social programs and infrastructure projects.

In contrast, Geo-Libertarians call for less government intervention in the economy.

In addition, Geo-Libertarians also tend to advocate for individualistic benefits, and would rather support the idea of land tax revenues going towards a national dividend.

Several criticisms have been launched at Henry George on his radical proposals for land reform.

 

Criticisms

A majority of the criticisms against George center on his proposals for a land value tax.

These criticisms are made by a variety of notable economist such as Karl Marx and Murray Rothbard.

Marx, a particular strong opponent of the land value tax, stated that it represented a way to sustain the oppressive capitalist system.

Marx’s criticisms were revealed in his letter to Friedrich Adolph Sorge where he wrote,

Theoretically the man [Henry George] is utterly backward! He understands nothing about the nature of surplus value and so wanders about in speculations which follow the English model but have now been superseded even among the English, about the different portions of surplus value to which independent existence is attributed–about the relations of profit, rent, interest, etc. His fundamental dogma is that everything would be all right if ground rent were paid to the state. All these “socialists” …have this much in common that they leave wage labour and therefore capitalist production in existence and try to bamboozle themselves or the world into believing that if ground rent were transformed into a state tax all the evils of capitalist production would disappear of themselves. The whole thing is therefore simply an attempt, decked out with socialism, to save capitalist domination and indeed to establish it afresh on an even wider basis than its present one.

Austrian economist Murray Rothbard also criticized Henry George on his proposals for land reform.

Rothbard had been critical of the land value tax and argued it would be impossible for governments to determine the value of the undeveloped land in order for it to be accurately taxed.

Rothbard outlined his criticisms in his paper titled: The Single Tax: Economic and Moral Implications and a Reply to Georgist Criticism, where he wrote,

The single tax theory is further defective in that it runs up against a grave practical problem. How will the annual tax on land be levied? In many cases, the same person owns both the site and the man-made improvement, and buys and sells both site and improvement together, in a single package. How, then, will the government be able to separate site value from improvement value? No doubt, the single taxers would hire an army of tax assessors. But assessment is purely an arbitrary act and cannot be anything else. And being under the control of politics, it becomes purely a political act as well.

Rothbard argued that the government was a creature of politics and, as such, should not directly or through tax assessors, determine the value of the land to be taxed. Instead, he argued that the value of the land should be determined by free market forces.

In addition, Rothbard also challenged George’s views on the use of productive land. He argued that unused land would be beneficial to the economy.

Later on in his paper, Rothbard added,

It is a fact that there is more land available in the world, even quite useful land, than there is labor to keep it employed. This is a cause for rejoicing, not lament. Since labor is scarce relative to land, and much land must therefore remain idle, any attempt to force all land into production would bring economic disaster. Forcing all land into use would take labor and capital away from more productive uses, and compel their wasteful employment on land, a disservice to consumers.

Here Rothbard argued that landowners have already decided on the most efficient use of their land.

Based on various factors, the landowner’s decisions to leave the land idle or to cultivate it to suit the needs of customers already ensures that the land is being utilized at maximum efficiency.

Thus, he argued that a Land Value Tax would lead to a decrease in economic efficiency.

Rothbard’s stance for less government intervention was echoed by future economists that followed the Hard Money path towards monetary reform.

Pt 15  of this series covers the Hard Money reformers and their proposals for monetary reform.

Contents:

Part 1 – The Overview of Canada’s Current Financial Position

Part 2 – How the Monetary System Works

Part 3 – The History of the Bank of Canada

Part 4 – The Dangers of Usury in the Banking System

Part 5 – The Dangers of Usury in the Banking System Pt 2

Part 6 – The Loss of Canadian Sovereignty

Part 7 – The Decline of Canada’s Economic Environment

Part 8 – The Movement for Monetary Reform

Part 9 – A Review of the Fiat Money System

Part 10 – The Fundamentals of Modern Money Theory

Part 11 – Endogenous Theories on Monetary Reform

Part 12 – Principles of the Islamic Banking System

Part 13 – A Review of the Social Credit Money System

Part 15 – A Review of the Austrian School of Economics and the Gold Standard

Part 16 – Currency Competition and Alternative Money Systems

Part 17 – The Shadow Banking System

Part 18 – Economic Recovery at the End of the Road

 

Comments (4)

  1. Very good article. One minor correction: The businessman “Patrick Tommy,” to whom Mayor Reed praised land value tax was actually Patrick Toomey, who responded by bringing land value tax to Allentown, PA. The famously conservative Toomey went on to become a Congressman and is now a US Senator. I suspect Toomey’s name in this article was the victim of an automated spell-checker.

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