SOME ASIAN LAND TAX HISTORY

In Land Cafe on 13 April 2011, Henry Law said:

There is a very old connection between LVT and China, long before Sun Yat Sen. The Physiocrats in the court of Louis XV were influenced by Jesuits who had been to China and related how the system of agriculture was organised by the Emperors. This story needs further investigation.

To which Roy Langston replied:

I pieced together some of that history a few years ago, drawing on a number of sources I ran across by accident.

It begins in India in the late 16th C, in the reign of the Mughal emperor Akbar the Great. Akbar was one of the two great Indian emperors, the other being Ashoka who ruled 2000 years earlier. Akbar was illiterate, but very wise and able. He had scholars read to him for hours almost every day, and became one of the most learned men of his time. His reforms included abolishing the jizya, a special tax on non-Muslims, and eliminating road toll privileges, monopolies, and religious discrimination in employment and trade.

Anyway, in 1580, after experimenting with various reforms to the Mughal tax system, Akbar and his revenue minister (who had also served under a rival king Akbar had defeated) devised an improved land tax system. It required payment in cash rather than in kind, and was based on the local value of the land’s average produce over the previous decade. Probably no large-scale tax system since the reforms of Augustus had come closer to being a tax on land rent.

The result, predictably, was an economic boom, and India became the richest country in the world. Yes, the richest. Its commercial empire included an international bank network with dozens of branches in China alone. A century after Akbar, even though most of his successors had been of modest ability and had reversed some of his policy achievements, the Mughal emperor was estimated to enjoy ten times the revenue of his richest European contemporary, Louis XIV.

In 1644 the Manchus conquered China and established the Qing dynasty. A few decades later, one of China’s most revered emperors, Kang Xi, came to power. He was also an extremely able and well-informed ruler, and made various reforms, including to the tax system which he brought closer to Akbar’s model while still retaining some distinctively Chinese features. It seems likely that Kang Xi’s tax reforms were consciously modeled on Akbar’s system, which was known to the Chinese government, to try to emulate India’s economic and especially agricultural success.

The shift to a more land-rent-centered tax system, along with Kang Xi’s military and administrative successes, ushered in an era of great prosperity in China that lasted over 100 years (this was the period the Jesuits in Louis XV’s court would have been reporting on in the mid-18th C). Unfortunately, Kang Xi also made a great error in his tax policy: he fixed the land tax, decreeing that it must never be increased. Rapid economic and population growth meant land rent was increasing but the land tax was not.

In addition, Kang Xi’s successors were much less conscientious in holding inflation at bay (and even sometimes caused it), so by the early 19th C, land tax revenues had fallen by 2/3 in real terms. Relative to total land rent, revenue probably fell by 80%-90%, and China descended into a period of weak government, high taxes on production and trade, rebellions, warlordism (in fact landlordism, much as happened in Western Europe after Roman government disappeared), poverty and stagnation.

It’s astonishing how often this theme is repeated in history: brilliant success for land rent recovery, followed by its abandonment by people who didn’t understand it and took the success for granted, followed by disastrous failure and collapse.

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A most interesting piece by Roy Langston in which the final sentence certainly rings true about Australia’s capital city Canberra which, founded and remaining nominally on a leasehold land system, had it finally scuttled by the John Gorton Liberal government in 1971 by dismissing the need for the land rent be collected. (Five cents was to be paid, if and when demanded!)  This was a sell-out to Canberran rent-seekers, partly in the hope that the federal government might win a Canberra by-election at the time.