I’ve often heard people say replacing taxes with a land ‘tax’ (more properly a land rent) sounds “very feudal”, as though it’s a bad thing. You can tell by their tone that it is said in a demeaning way.
Yes, it is feudal, after all the feu was the land charge, but we might remember that wages have never again been as high as they were in the fifteenth century and the first part of the sixteenth, and:
“Under the feudal system the greater part of public expenses was defrayed from the rent of land, and the landholders had to do the fighting or bear its cost. Had this system been continued, England, for instance, would to-day have had no public debt.
And it is safe to say that her people and the world would have been saved those unnecessary and cruel wars in which English blood and treasure have been wasted. But by the institution of indirect taxes and public debts the great landholders were enabled to throw off on the people at large the burdens which constituted the condition on which they held their lands, and to throw them off in such a way that those on whom they rested, though they might feel the pressure, could not tell from whence it came.
Thus it was that the holding of land was insidiously changed from a trust into an individual possession, and the masses stripped of the first and most important of the rights of man.
The institution of public debts, like the institution of private property in land, rests upon the preposterous assumption that one generation may bind another generation.” – Henry George, Social Problems, Chapter XVI ‘Public Debts and Indirect Taxation’
Public capture of the public’s rent, even though also mandated in the Bible to be the greatest of human rights, has gone missing from all bills of rights, so that a small number of super wealthy parasitical landowners are now able to pass their responsibilities off onto the rest of us.
We are even sometimes heard to argue in favour of these rent-thieves, derogatorily asserting that land taxes are ‘feudal’. Somebody has done a Goebbels-like job of disinformation.
How stupid have we become?
We believe we are at knowledge’s leading edge but have actually retrogressed into a new dark age in economics. We can communicate instantly with colleagues, family and friends around the world, but haven’t yet fathomed the truth about an economics that can hold civilisation together.
So, as world financial systems go out the back door, having confounded the modern neoclassical economist, the study of classical economics beckons us to re-discover economic rent [economic what?!] and to re-distinguish earned from unearned incomes.
In order to lift the veil on all this ignorance, let’s provide some Australian data:
In 2010, Australia’s publicly-generated land rent was $370 billion, but we chose to fine labour and capital $300 billion for working, and captured only $32 billion of this natural revenue source.
No prizes for guessing which 1% of the population received the greater part of the $338 billion that went uncollected, or why we’re descending into another economic depression.
Al Katzenberger’s precis of Henry George’s seminal work:
During the 19th century the US witnessed a huge increase in wealth-producing power. People naturally expected labor-saving inventions to lessen toil and improve working conditions for all; that the enormous increase in wealth producing power would wipe out poverty forever. Instead, however, squalor, misery, vice and crime increased and are still increasing everywhere as our villages, towns and cities grow and as new technologies bring advantages to improve methods of production and exchange.
The association of poverty with progress is the great enigma of our times. It is the source of our industrial, social and political difficulties. Our statesmen, philanthropists, and educators grapple with it in vain. This riddle, if not answered, will eventually topple our entire civilization. To solve the riddle, we must research the immutable laws governing the science of economics.
LAND, LABOR, CAPITAL
Land, labor, and capital are the three factors of production. The term land as used herein, is intended to include all natural resources, such as the earth and all its locations, minerals, oil and waterfalls as untouched by human hands; the term labor, all human exertion whether by brain or brawn or both; the term capital, all wealth (such as tools, machinery, investments and goods in process of exchange) used to produce more wealth.
The return to each factor is distributed as follows: landowners get the part called rent, laborers (whether by brain or by brawn, or both) the part called wages, and capital the part called interest. These terms mutually exclude each other. Any person may derive income from any one, two or all three of these sources; but to understand how the returns to each are exchanged we must keep them separate.
David Ricardo (1772—1823), an English economist, discovered that the rent, or the cost of land, is determined by the excess of its produce over that which the same application of labor can secure from the least productive land in use. This is proven by the fact that locations in active manufacturing and commercial areas are much more valuable than land (locations) in remote areas. The increase of rent (the return to the location owner) in the U.S. explains why wages and interest do not increase with the increase in productive power.
Wealth, which must be produced by humans, is divided into two parts by the rent line which is fixed by the return which labor and capital can obtain from the natural resources free to them without the payment of rent. From that part of the produce below this rent line wages and interest must be paid. All production above the rent line goes to the owners of land. Thus, where the value of land is low, there may be low production of wealth, and yet a high rate of wages and interest. Where the value of land is high, there may be enormous production of wealth, but with a low rate of wages and interest. The increase of rent explains why wages and interest do not increase.
The cause which enriches the landowner is the cause which tends to impoverish the laborer and capitalist (investor). Hence, the rate of wages and interest is everywhere fixed, not so much by the productivity of labor as by the value of land. Wherever the value of land is relatively low, wages and interest are relatively high. Wherever the value of land is relatively high, wages and interest are relatively low. Hence the increase of productive power does not result in increased wages, but rather results in increases in the value of land. Rent (which goes to the non-producing landowners) swallows up the whole gain, and poverty accompanies progress.
Human beings in the most abject, most helpless and hopeless condition, are in the great cities of the US. There you will find the ownership of a small location is worth a fortune, while actual wealth producers get only part of what they produce (landowners getting the rest) and willing workers can find no jobs and no land on which to apply their labor.
EFFECT OF MATERIAL PROGRESS UPON THE DISTRIBUTION OF WEALTH
The term wealth means anything of value produced by human effort. Thus, land (the earth and its locations) is not wealth, even though some locations are enormously valuable, because humans did not produce the earth. Wealth in all its forms is the product of labor applied to land or the products of land. The earth is not a product of labor. Thus while the earth is the source of all wealth, it is not, of itself, “wealth.” Therefore any increase in the power of labor – along with unsatisfied demands for wealth, generates increased demand for land, from which, alone, more wealth can and must be produced.
There are absolutely no limits to the progress of invention. Nor can we assign any limits to the increase of land rent, short of the whole produced. For, if labor-saving inventions proliferated until perfection was obtained, and the need for labor in wealth production was entirely done away with, everything the earth could yield could be obtained without labor. And no matter how small the population might be, if anybody but the landowners continued to exist, it would be at the whim or by the mercy of landowners’ bounty. This point, of the absolute perfection of laborsaving inventions, may seem far fetched, but it is the point to which the march of invention is directed every day.
The improvements which increase land rent include the improvements which directly increase productive power. Improvements in government, manners and morals indirectly increase land rent. Considered as material forces, the effect of all these is to increase productive arts. Their benefits are ultimately monopolized by the possessor of the land. If the corrupt governments of the great cities of the US were made models of integrity and economic efficiency, the effect would simply be to increase the value of land, not to raise either wages or interest.
THE PROBLEM SOLVED
There is a reason, in spite of the increase of productive power, wages constantly tend to a minimum which will give a bare living. With any increase in productive power, rents tend to even greater increase, thus producing a constant tendency to lowering wages. Thus, the laborer has no incentive to produce more, or more efficiently, as all his or her increased production ultimately winds up in the landowners pockets. The simple theory outlined here explains this conjunction of poverty with wealth and of low wages with high productive power. It explains why interest and wages are relatively higher in developing communities, though the average, as well as the total, production in well developed communities is greater. It explains why improvements which increase the total wealth, do not improve the rewards to labor or interest. It explains what is commonly called the conflict between labor and capital, yet demonstrates there is actually harmony of interest between labor and capital. Is it not a notorious fact, known to the most ignorant, that developing communities, where the total wealth is small, but where land is cheap, are always better communities for laborers than rich communities, where land is expensive? Wherever one finds land values relatively low, will one not find wages relatively high? Wherever land value is high, will one not find wages low? As land increases in value, poverty deepens and pauperism appears. Where land is cheap, you will find no beggars, and the inequalities of condition are very slight. In the great cities, where land is so valuable that it is measured and sold by the square 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. Land in and near the great cities is valuable, yet there you will see such great squalor, destitution and misery that you will stand aghast.
For land is for the habitation of people, the storehouse from which they must draw for all their needs. 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, material progress might go on to infinity without increasing wages or improving the condition of those who have but their labor. It can but add to the value of land and the power which its possession gives. Everywhere, in all times, among all peoples, the possession of land is the base of aristocracy, the foundation of great fortunes, the source of power.
The equal right of all men and women to the use of land is as clear as their equal right to breath the air. It is a right proclaimed by the fact of their existence. For we cannot suppose that some men and women have a right to be in this world and others do not. Any one human being who appropriates to himself or herself the individual right to the land of any community or country, could legally expel therefrom all the rest of its inhabitants. If you extend this right to the whole surface of the globe, where would non-landowning human beings have the right to live? This supposition is occurring on a growing scale, realized in actual fact. The comparative handful of proprietors who own large surfaces of the US are doing only what federal, state, and local laws give them full power to do (and what many of them have done already), excluding millions of American people from their natural birthright, the land. And such exclusions are as repugnant to natural right as the spectacle of the vast body of the American people being compelled to pay such enormous sums to the few landowners of their number for the privilege of being permitted to live upon and use the land which they, the landowners, so fondly call their own; which is endeared to them by memories so tender and so glorious, and for which they are held in duty bound, if need be, to spill their blood and lay down their lives.
Place one hundred men and women on an island from which there is no escape, and whether you make one the absolute owner of the other ninety-nine, or the absolute owner of the soil of the island, will make no difference either to the chosen one or to the other ninety-nine. It was not nobility that gave land, but the possession of land that gave nobility.
What is being proposed here is a simple yet sovereign remedy, which will raise wages, increase earnings of capital and give renumerative employment to whomever wishes it. The proposal is to appropriate land rent for public revenue, rather than rob producers of their rightful earnings by punitive taxation.
Now, as the taking of rent, or land value, must be increased as we abolish other “taxes,” we may put the proposition in practical form by proposing to abolish all taxation and derive all public revenue from a legitimate charge upon land location values.
“Taxation,” which lessens the reward of the producer, necessarily lessens the incentive to production. Thus, taxation which diminishes the earnings of the laborer or the returns to the capitalist tends to make the one less industrious and intelligent, the other less disposed to save and invest. “Taxation” which falls upon the processes of production interposes an artificial obstacle to the creation of wealth. If manufactures are taxed the effect is to lessen improvements: tax commerce and the effect is to prevent exchange; tax capital, and the effect is to drive it away. But the whole rental value of land may be taken as public revenue, and the only effect will to stimulate industry, to open new opportunities to capital and to increase the production of wealth. The charge on land location values may be assessed and collected with a definiteness that partakes of the immovable and inconcealable character of the location itself. Were all charges for public revenue placed upon location values, irrespective of improvements, generating public revenue would be so simple and clear, and public attention would be so directed to it, that valuation of the charge on any location could and would be made with the same certainty that a real estate agent can determine the price a seller can get for a lot.
The charge upon location values falls only upon those who receive from society a valuable benefit and falls on 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. When all location rent is taken via legitimate charges for value received for the needs of the community, no citizen will have an advantage over any other citizen save as is given by industry, skill, and intelligence; and each will obtain what he or she fairly earns. Then, and not until then, will labor get its full reward, and capital its natural return.
EFFECTS OF THE REMEDY
The advantage which will be gained by substituting for the many taxes by which the public revenues are now raised, a single just charge levied upon the value of locations, will appear more and more important the more it is considered. With the removal of all the burdens which now oppress industry and hamper exchange, production of wealth would increase with a rapidity now undreamed of.
Consider the effect upon the production of wealth. Abolishing all taxation which now hampers every wheel of exchange and presses upon every form of industry, would be like removing an immense weight from a powerful spring. The present method of taxation operates to penalize energy and industry and skill and thrift like a fine upon those qualities. If a person builds a ship we make the person pay for such temerity, as though an injury had been done to the state; if a railroad is opened, down comes the tax collector upon it, as though it were a public nuisance; if a manufactory is erected we levy upon it an annual sum which would go far toward making handsome profit. We say we want capital, but if any one accumulates it or brings it among us, we penalize him or her for it as though we were giving the person a privilege. We punish with a tax those who cover barren fields with ripening grain; we fine those who put up machinery and clean up a dump. To abolish these taxes would be to lift the whole enormous burden of penalties from productive industry.
To change the taxation from production to a charge on the value or rent of locations would give new stimulus to the production of wealth; it would also open new opportunities. For under this system no one would care to hold a location unless to use it, and locations now withheld from use would everywhere be thrown open to improvement. Millions of acres that today are being used inefficiently would return to their natural, pristine state.
The selling price of locations would fall; speculation in locations would receive its death blow; the monopolization of valuable locations would no longer pay. And it must be remembered that this would apply not merely to agricultural land, but to all locations … everywhere. Everywhere that locations had attained value, the generating of public revenue from those values, instead of operating, as now, as a fine upon improvement, would operate to motivate improvement. Whoever planted and orchard or sowed a field or built a house or built a manufactory, no matter how costly, would have no more to pay in location value charges than if such locations were kept vacant. The monopolist of agricultural locations would be charged as much as though those locations were covered with houses and barns, with crops and with stock. The owner of a vacant city lot would have to pay as high a charge for the privilege of keeping other people off of it until the owner wanted to use it as the neighbor who has a fine house upon his lot. It would cost as much to keep a row of tumble-down shanties upon valuable locations as if those locations were covered with grand hotels or a pile of great warehouses filled with costly goods.
Consider the effect of such change upon the labor market. Competition would no longer be one-sided, as now. Instead of laborers competing with each other for employment, and in their competition cutting down wages to the point of bare subsistence, employers would be everywhere be competing for laborers, and wages would rise to the fair earnings of labor. The employers of labor would not have merely to bid against other employers, all feeling the stimulus of greater trade and increased profits, but against the ability of laborers to become their own employers upon the natural opportunities freely opened to them by the location value charge which prevents the monopolization of locations.
It is manifest, of course that the change proposed here will greatly benefit all those who live by wages, whether of brain or of brawn. And it is likewise manifest that it will increase the incomes of those whose incomes are drawn from the earnings of capital, or from investments other than in locations. Farmers, not those who never touch farm equipment, but the working farmers who are such a large class in the U.S., will benefit by the proposed change. Paradoxical as it may appear to these farmers until they understand the full bearings of the proposition, of all classes above that of the laborer such farmers have the most to gain by deriving all public revenue from just charges on location values. The fact is that taxation, as now levied, falls on them with peculiar punitive severity. They are taxed on all their improvements, houses, barns, fences, crops, and stock. Farmers pay personal income taxes and sales taxes. The personal property which they have cannot be as readily concealed or undervalued as can the more valuable kinds which are concentrated in the cities. They are not only taxed on personal property and improvements, which the owner of unused locations escape, but their land is generally taxed at a higher rate than land held on speculation, simply because it is improved. But further than this all taxes imposed on commodities fall on the farmer without mitigation. The farmer would be a gainer by the substitution of a single charge upon the value of his or her location instead of all these taxes. The charge on location values would fall with greatest weight, not upon the agricultural districts, where location values are comparatively small, but upon the towns and cities where location values are high; whereas sales taxes and taxes upon personal income, personal property and improvements fall as heavily in the country as in the city. The result of a charge on location values would be that speculative values of locations would be kept down, and that cultivated and improved farms would have not payments to make to support government directly until the country around them had been well settled. In fact, paradoxical as it may at first seem to them, the effect of putting all charges for public revenue upon the value of locations would be to relieve the harder working farmers of all taxation. Wealth would not only be enormously increased, it would be equitably distributed. Not to mean that each individual would get the same amount of wealth. That would not be equitable distribution, so long as different individuals have different powers and different desires. But wealth would be distributed by the degree in which the industry, skill, knowledge or prudence of each contributed to the common stock. The non producer would no longer roll in luxury while the producer got but the barest necessities of animal existence. All fear of great fortunes might be dismissed, for when every person gets what each fairly earns, no one can get more than he or she fairly earns. How many men and women are there who can fairly earn a million dollars a year?
THE LAW OF HUMAN PROGRESS
Civilization is cooperation. Union and liberty are factors of civilization. What has destroyed every previous civilization has been the tendency to the unequal distribution of wealth and power. This same tendency, operating with increasing force, is observable in our civilization today. As corruption becomes chronic; as public spirit is lost; as traditions of honor, virtue and patriotism are weakened; as law is brought into contempt and reforms becomes hopeless; then in the festering mass will be generated volcanic forces, which shatter and rend when seeming accident give them vent. Strong, unscrupulous men and women, rising up, upon occasion will become the exponents of blind popular desires or fierce popular passions and dash aside forms that have lost their vitality. The sword will again be mightier than the pen, and carnivals of destructive brute force and wild frenzy will alternate with the lethargy of a declining civilization. Whence shall come the new barbarians? Go through the squalid quarters of great cities, and you may see, even now, their gathering hordes. How shall learning perish? Men and women will cease to read, and books will kindle fires. In the decline of civilization, communities do not go down by the same path by which they came up. For instance, the decline of civilization as manifested in government would not take us back from republicanism to constitutional monarchy, and thence to the feudal system; it would take us to emperorship and anarchy.
Where Liberty rises, there virtue grows, wealth increases, knowledge expands, invention multiplies human powers and in strength and spirit the freer nation rises among her neighbors. Where Liberty sinks, there virtues fade, wealth diminishes, knowledge is forgotten, invention ceases and empires once mighty in arms and arts become helpless prey to freer barbarians.
Only in broken gleams and partial light has the sun of Liberty yet beamed among men and women, but all progress hath she called forth. Shall we not trust Liberty? In our time as in times before, insidious forces that produce inequality are destroying Liberty. On the horizon the clouds begin to lower. Liberty calls to us again. It is not enough that men and women should vote; it is not enough that they should be theoretically equal before the law. They must have liberty to avail themselves of the opportunities and means of life; they must stand on equal terms with reference to the bounty of nature. This is the universal law. This is the lesson of the centuries. Unless its foundations be laid in justice the social structure of the United States or any other country cannot stand.
I looked for some hope to emerge from the weekend G20 talks in Washington. There was none. No ray of hope at all.
IMF Chairperson Christine Lagarde and World Bank President Robert Zoellick and others spoke in platitudinous terms, trying to say all the right things, but saying nothing that’s going to assist effective demand and recovery.
They believe they will be able to avoid sovereign debt default by demanding austerity measures and financial rectitude, but how will cutting government spending create demand and put people back to work?
All failed to see the elephant in the room. It’s not about credit and money, but about on what exactly money has been misspent.
Speculators, bankers and fund managers all need to be given a firm new direction which precludes the private capture of the public’s economic rent via land price bubbles.
The public’s land and natural resource rents needs to be captured for public revenue and the excess distributed as a dividend – equally to all citizens.
Banks who failed us should be let fail. Taxes on labour and capital need to be abolished.
No one said that.
It’s not looking good.
Worst of all, ‘the world greatest treasurer’, Wayne Swan, prevaricated when Barrie Cassidy questioned him this morning on The Insiders about the upcoming tax forum on 4 and 5 October. There is now no doubt that the Australian treasurer, amongst other recommendations, wants to hose down former Treasury secretary Ken Henry’s ideas for restructuring state land taxes.
Swan is clearly falling into line with the very worst aspects of his G20 confreres. Banks and political expediency, it seems, are more important than people and genuine tax reform.
Australian social documentarian Don Parham’s “The Third Way” has turned 21.
1990? Dated? In the year 2011, its message is more relevant than ever.
The IMF says we’re in a dangerous new phase “with a recovery that is much weaker than was predicted”.
Er, hate to tell you ….. there can be no recovery until we un-tax labour and capital, and then capture our economic rents for revenue. We’ve got to get things moving again.
This revenue switch is the sine qua non for financial recovery. It’s non-negotiable, guys. Without it, economies are going to experience a lingering death – like Japan’s after its colossal real estate bubble burst at the end of the 1980s.
Got it? No recovery without capturing land and natural resource rents instead of taxes.
So, please don’t mention the word “recovery” again until it’s in the same sentence as land and other natural resource rent capture. OK?
Henry Georgists aren’t fly-by-nighters. As the picture shows, we’ve been around a long time, patiently explaining how rent-seekers get a free ride off the annual value of the public’s natural resource rents, and how the parasitical behaviour of these people repetitively inflates speculative real estate bubbles that burst into financial chaos every eighteen years.
Over the years, I’ve seen countless attempts to rebut the Georgist claim that to set the economy to rights we need to abolish arbitrary taxation imposts and capture instead our economic rents for public finance – but none have come within a bull’s roar of refuting the idea, because they’ve all misrepresented the Georgist position in one way or another.
Why then hasn’t Georgism been taken up?
An argument is put that, if it worked, it would have been adopted by now, but this is to ignore the enormous political clout wielded by free-loading rentiers. (Remember Gina Rinehart and her billionaire friends spending millions to protest against the public getting its fair share of mineral rents? I note now people have taken the time to think it through, public opinion has turned in favour of the mining tax.)
I’ve previously mentioned that a land tax was: (a) argued by Leo Tolstoy to his friend Russian Prime Minister Stolypin in 1907 as a way of avoiding riots and revolution; (b) set as the cornerstone of the 1909 People’s Budget in Britain (but assiduously avoided by the British aristocracy by employing underhand techniques, not the least of which was manufacturing WWI); and, (c) actually introduced in Australia federally by the Fisher government in 1910.
So, one hundred years ago ,the case for a tax on land values was clearly being well propounded.
A hundred years on, with the symptoms of an economic depression all about us and nascent interest in the benefits of land value capture in the air again, it may well be that Georgism is the solution whose time has come.
AUSTRALIAN FINANCIAL REVIEW 20 September 2011:-
The tax forum to be held in Canberra on 4 and 5 October is to consider recommendations made by former Treasury secretary Ken Henry in ‘Australia’s Future Tax System’.
There will be 156 participants and 46 observers, but members the federal opposition have been excluded, as were applicants associated with Prosper Australia.
The participants will be made up of 32 community representatives, 32 business representatives and tax practitioners, 13 union representatives, seven superannuation fund and financial planning representatives, 20 academics and other tax experts, 19 federal ministers and MPs, nine federal crossbench politicians, five heads of federal agencies, eight state and territory government ministers, three local government representatives, five members of the Australia’s Future Tax System Review Panel and three members of the GST Distribution Review Panel.
Observers will be made up of 10 members of the general public, 10 students, 18 federal department and agency representatives and eight state and territory department representatives.
As Prosper Australia members have been precluded from attending, Karl Fitzgerald is having a Tax Summit special screening of the documentary “Real Estate 4 Ransom” at 6:30 pm on Tuesday 4 October at the Dendy Canberra Centre, level 2/148 Bunda Street. Karl will take questions after the screening.
There will be much more relevance to the tax-induced plight of world economies found in the documentary than will be canvassed at the forum, so all participants on 4th and 5th of October and members of the Coalition parties should also take the opportunity to attend on the evening of the 4th if they are at all interested in addressing real solutions to the global financial crisis.