PRE-1930 OPINIONS OF LEADING AMERICAN ECONOMISTS

received by the American Association for Scientific Taxation, 15 Park Row, New York City.

_______________________________________________

The phrase “unearned income” is quite generally used in a loose and ambiguous way and has consequently lost much of its real significance. No income is unearned which is received in payment for such economic services as would not be rendered in adequate degree except on that condition.

The real unearned income is that which accrues to an individual without his having done anything  which contributes to production. Of the several types of such income the most important is that which issues from the site-value of land. The recipient of such an income does nothing to earn it; he merely sits tight while the growth of the community about the land to which he holds title brings him an unmerited gain. This gain is at the expense of all true producers whether they be labourers, enterprisers or investors in industrial equipment. The taxation of this gain can do nothing to deprive the community of any service since the done is rendering none. The land will be there for the use of society whether the return from it is taxed or free. Society creates the value and should secure it by taxation.

The approach to scientific taxation involves a shifting of the burden from productive industry, where it now lies, to such incomes as these which are in truth unearned. Like many other reforms this must be accomplished only step by step but the path along which we ought to move lies clearly within our sight.

FRANK D. GRAHAM, Professor of Economics, Princeton University

___________________________________

The site-value of land is so obviously a socially created value that few, if any, theoretical economists worthy of consideration will deny it. Unfortunately, for reasons which appear utterly inconclusive, many of them oppose any effort to single out this value as a special object of taxation.  They object that the right to privately appropriate it has been purchased in good faith with money which we must presume to have been earned. The claim of these purchasers is indeed entitled to consideration, but why it should serve to perpetuate among future generations, a system which is as unethical as it is unsound economically, is beyond me.  This claim would but justify, at most, a bit of gradualness in our programme.

GLENN E. HOOVER, Assistant Professor of Economics and Sociology, Mills College

_________________________________________________

I favour a special tax on land values insofar as these values are the result of location rather than of fertility.  Fertility may be easily exhausted, it is difficult to conserve, and still more difficult to restore when once exhausted. The farmer must he left with an adequate motive for conserving fertility.  Therefore I should treat fertility as I would ditches and other improvements. Location value, however, is a different thing. It seems to me to be a good subject for special taxation.

TN CARVER, Professor of Economics, Harvard University.

___________________________________________________

I cannot agree that land value should be the sole source of public revenue.  Nevertheless, premising that so important a change should not be made abruptly, I favour the gradual reduction so far as possible of taxes on the products of labour and taking instead the economic rent of bare land.

IRVING FISHER, Professor of  Economics, Yale University

_________________________________________________

The present general property tax is unjust to farmers and uneconomic from the public standpoint, because it places high taxes on the farmers’ fertility, improvements, timber and personal property. This portion of his taxes should be greatly reduced and even abolished, on the part amounting to more than 60 per cent of agricultural values; but the bare land value, amounting to 40 per cent. or less, should be taxed at higher rates. By no possible effort or expense can he, as an individual, increase his bare land values. These are increased by the labour, management and thrift of other taxpayers and other industries in the form of highways, railways, schools and profitable markets.

Farmers’ bare land value for solely agricultural purposes, distinguished from its speculative value near cities, scarcely runs as high as 100 dollars per acre, but urban bare land values run as high as several million dollars per acre, while bare water-power values are becoming fabulous. Bare land values, including the value of mere waterpower, are due solely to scarcity, while the values of fertility, improvements, machinery and personal property are due mainly to thrift, good management and labour.

JOHN R. COMMONS, Professor of Economics, University of Wisconsin.

______________________________________________

I believe that we should increase the taxation of land, exclusive of improvements, at the same time that we decrease the taxation of the improvements thereon.

Such taxation of land should be increased gradually, not suddenly; and if extended over a long enough period of time, it would not be unwise to raise the tax to the point where it would appropriate to the state the greater part, if not the whole of, the economic rent. I do not believe however, in the Single Tax doctrine that such a land tax should be completely substituted for an other taxes.

RAYMOND T. BYE, Professor of Economics, University of Pennsylvania.

_____________________________________________________

It is obvious that the bare land with its contents and the waters that flow through and about it constitute the nature-provided environment of human beings and are rightly the subject of their equal claims. Also that the value-for-use of these natural resources is conditioned on population. It follows population as its shadow. It appears with the people and disappears when they go. This value, therefore, should, by the best of titles, be retained by the community as its most excellent source of public revenue.

The more the community draws upon this vast community-conditioned fund the less will be the forced contributions from capital and labour. This means that the greater and better distributed will be the purchasing power of the people.

Nor is the fiscal retention of bare-land rent to be regarded as a tax; being the rightful collection of revenue from the social estate, it is therefore not taxation, but, to its extent, displaces and avoids taxation.

I do not however regard as implicit in the principle of the social retention of land rent, the requirement that economic rent should constitute the sole source of public income. Never is any good revenue method rightly discredited by any other.

H I DAVENPORT, Professor of Economics, Cornell University.

___________________________________________________

I believe that the taxation now levied upon industry and consumption by our national, state and local governments should be removed completely and at once, and that the land-values of the country should be taxed to raise the revenues for the different branches of government. The land-value, which is a periodically accruing value, is the only measure of both community benefits and community ability to pay public revenues.

When we tax land-values we take, not the labour product of individuals, but a community product, to pay community expense.

The single tax on land-values is the only tax that collects from the people money in proportion to benefits received and ability to pay. It is the only tax that will cause reafforestation of our lands and thus the control of our rivers; the only tax that will put a check upon oppressive bureaucracy and oppressive captainship of industry; the only elastic tax whose elasticity is in direct relation to community needs and to community ability to pay. “Community” is used in both the local and the widest senses.

WILLIAM H DINKINS, Dean, and Instructor in Accounting & Economics, Selma University, Alabama.

____________________________________________________

I believe that one improvement in taxation policy could be made by increasing, gradually, the tax burden on bare land value and, correspondingly, lowering the burden on the improvements “in” and “on” the land.

Such a plan would take taxes to a greater degree from the socially-created portion of the property value and to a lesser degree from that portion of the value due to the work and thrift of the owner. Therefore, it would encourage work, thrift and wise investment.

In conclusion, I wish to say that I think the complete and scientific reform of the American Tax System is one of the most pressing present-day problems.

TJ ANDERSON, Jr., Associate Professor of Economics, Kansas State Agricultural College.

_____________________________________________

Similar opinions were received from numerous other economists, including:

Arthur T Hadley, former President of Yale University,

Tipton R Snavely, Professor of Economics, University of Virginia,

Paul H Douglas, Professor of Economics, Chicago University,

Thaddeus P Thomas, Professor of Economics, Goucher College, Baltimore,

Rev. Dr. John A Ryan, Catholic University of America.

As I’ve said elsewhere, some people believe the share market is the best economic indicator, but it’s not. You won’t have a recession or depression if the real estate market hasn’t burst first. It had in the mid-1920s: it hadn’t in October 1987.

So, what is the best leading economic indicator? The real estate market, of course. Credit is another good one, because it’s inextricably linked to real estate.

This fact has not been welcomed within mainstream nor libertarian economic circles because the study of economics was recast from classical to neo-classical economics primarily to conceal that the role of land is critical to understanding in what direction the economy is headed.

And right now, it’s certainly still headed down.

Proof can be found in the excellent graphs at researcher Philip Soos’ website.

Soos’ new site is a powerful exposition of mainstream economic’s sins of omission: of the corruption into which mainstream economics has been permitted to descend.

Economies will continue to lurch from disaster to disaster until they reincorporate land and land rent into their primary considerations, as once it was.  To ignore the facts does not change the facts.

Neil Mitchell has been on the radio this morning banging on about how fringe groups can get elected to the Senate. Therefore, the voting system for the Senate’s got to be reformed, he says. If he’s talking about “above the line voting” I’d have to agree with him, but he didn’t seem to be arguing that. The argument seemed to be that some of these people are idiots.  But, Neil, they can’t get any of their ideas up unless they’re supported by a majority of Senators, and Senators aren’t likely to support complete idiocy.

I think what you mean, Neil, is you’d like to see the Senate reflecting the ideas of the government of the day. You don’t want to see the government questioned or defeated on an issue in the Senate.

Then why not go the whole hog and say you’d like to see the Senate abolished, because that would provide the same result? You can probably put up quite good arguments to abolish the Senate, but that’s another issue from changing the proportional representation system of voting.

There’s a story about the US Senate that may be mythical, because I’ve seen it variously attributed to George Washington, Thomas Jefferson and Abraham Lincoln: but it does make a valid point.

An enraged politician tells the President the Senate is being obstructive and believes it ought to be abolished.

“No” says the President. “Why am I pouring my tea into this saucer?”

“To cool it” answered the politician.

“Just so” replied the President.

Poor Cats! Freo were too fast and strong, although your poor kicking early didn’t help. They shut down your run-on game and had you bombing long into a crowded goal square. You’ll have to introduce some pace from the twos, and you’ll need Josh Hunt’s experience in defence against Port Power next week.

__________________________________________

Prime Minister Tony Abbott, eh? Let’s see if you can discover the need for a tax shift.

I say ’twas the hostile divisions in the ALP, plus the increasingly hard economic times and, yes, poor housing affordability what caused it. Will the record drubbing be made worse than it looked on TV last night when the votes of those who voted early are included?

And do I smell a double dissolution in the air down the track over carbon pollution?

The mighty Cats v. Freo – and it’s down at the cattery!

Swinging voter installing a new government.  Hip pocket nerve again?

Leith Van Onselen had a great piece in MacroBusiness about Saul Eslake’s speech at the Henry George Dinner. The comments were also extensive and interesting (with one exception), and the fact that Saul himself dipped into the conversation made it a thoroughly enjoyable discussion.

Maybe my thoughts on Tuesday about the possibilities for reform on housing affordability were too glum.  If the politicians aren’t receptive, there’s still much thoughtful argument within the Australian community.

And with Victorian David Collyer standing for the Australian Democrats on a land tax platform for the Senate tomorrow, who knows?

Maybe we might even dream the Abbott government will have to tackle housing affordability properly?

________________________________

Another reason to be heartened: this from the Lowy Institute on the Australian mining tax debacle.

“By a sarcasm of law and phrase they were freemen. Seven-tenths of the free population of the country were of just their class and degree: small “independent” farmers, artisans, etc.; which is to say, they were the nation, the actual Nation; they were about all of it that was useful, or worth saving, or really respectworthy; and to subtract them would have been to subtract the Nation and leave behind some dregs, some refuse, in the shape of a king, nobility and gentry, idle, unproductive, acquainted mainly with the arts of wasting and destroying, and of no sort of use or value in any rationally constructed world.

And yet, by ingenious contrivance, this gilded minority, instead of being in the tail of the procession where it belonged, was marching head up and banners flying, at the other end of it; had elected itself to be the Nation, and these innumerable clams had permitted it so long that they had come at last to accept it as a truth; and not only that, but to believe it right and as it should be.  The priests had told their fathers and themselves that this ironical state of things was ordained of God; and so, not reflecting upon how unlike God it would be to amuse himself with sarcasms, and especially such poor transparent ones as this, they had dropped the matter there and become respectfully quiet.

…when the harvest was at last gathered, then came the procession of robbers to levy their blackmail upon it: first the Church carted off its fat tenth, then the king’s commissioner took his twentieth, then my lord’s people made a mighty inroad upon the remainder; after which, the skinned freeman had liberty to bestow the remnant in his barn, in case it was worth the trouble; there were taxes, and taxes, and taxes, and more taxes, and taxes again, and yet other taxes – upon this free and independent pauper, but none upon his lord the baron or the bishop, none upon the wasteful nobility or the all-devouring Church.”

I think it was at the October 1996 ACOSS-ACCI Tax Summit in Canberra chaired by Michael Schildberger that I found myself seated behind a bloke with an outstanding shock of black hair.

I’ve just seen him interviewed on Channel 24 this morning concerning the Reserve Bank’s likely thoughts on the cash rate, his hair now a little grey.

It was the same man, economist Saul Eslake, who presented the 122^nd Annual Henry George Commemoration Dinner last night at the Royal Society in Melbourne, on the anniversary of Henry George’s birthday.

Even by 1996 Eslake had established himself as a well-respected economist, having worked at McIntosh Securities and National Mutual Funds Management as chief economist before taking on the chief economist job at the ANZ Bank in 1995.

Commencing with the usual disclaimer that he was speaking in a personal capacity, not representing his current employer, Eslake’s professionally-delivered presentation provided both chapter and verse on the Australian economy in respect of population and housing and a decided nod to Henry George’s case for a land tax.

He showed first home buyers’ grants in actuality to be home vendors’ grants, and pointed to the damage negative gearing had inflicted upon the economy and to housing affordability.

It was all there.

But then came the crunch.  If you’ve only got 100,000 young Australians buying a home each year and taking on the pain of affordability, as against all those Australians with a home who are quite happy to see where their house prices lie, “As the Americans say: ‘Do the math!’”

Isn’t that the nub of the issue for those who see the need for a switch from taxes on labour and capital to the economic rent of land to set the economy aright – those such as Prosper Australia who hosted the commemoration dinner?

It’s a numbers game on which the dice are loaded against necessary reform.

_______________________________

After the event, I had a brief opportunity to ask Saul Eslake whether the numbers were quite so bleak: whether the cohort who had bought a home during the bubble and were finding it difficult to service the mortgage might also be latent land tax supporters.

“No, Bryan. They only look as far as interest rates for relief.”

So, if residential land price bubbles have delivered financial collapse to the world, but nobody wants to keep a lid on the price of their homes despite the thoroughly researched conclusions of fearless economists, it must be acknowledged the world economic outlook remains incredibly bleak.

Depression bleak?

Henry George’s remedy for economic depression is neither known about nor wanted.

In Unlocking the Riches of Oz I noted the trend since the 1970s of winding back property-based revenues in the US and Australia and replacing them by increasing taxes on labour and capital.

This reversed the manner in which infrastructure such as the provision of water, gas, electricity, highways, etc., had historically been funded out of the uplift in land values generated by these capital works, in favour of private-public partnerships (PPP) which can be seen as rent-seeking arrangements.

As the privatisation of publicly-generated income from land and natural monopolies has continued apace, the returns to labour and capital have declined concomitantly (except, of course, in those industries invested in land and natural resources, such as banking, real estate and PPPs).

That we’ve witnessed a remarkable decline in real average earnings and record levels of private debt since the 1970s is therefore no coincidence.

The need to end the private capture of publicly-generated economic rents should be obvious now to all but the dullest of minds.

Dr Gavin Putland’s ‘Financial Stability Contour Map’ provides proof of this argument for the economics technicians.

Julie Novak is an IPA Fellow. She would “emancipate” Australians by cutting back on central government spending – which I think is good.  If she were Prime Minister, she told Geraldine Doogue’s “Saturday Extra” on Radio National this morning, she’d let the local community look after the needs of those who were in difficulties of one sort or another, as once the local community used to. It’s not the role of a central government to do this, she said.

However, I can only give you  a maximum mark of 50% on that one, Julie, because you’ve only covered half the ground.

If you want to relieve us of unnecessary government and taxes, Julie, you’ve got to educate yourself to the more than one-third of the economy that is our natural resource rents. IPA member and former Victorian Liberal Party politician, the late Morris Williams, understood this well, but it now looks as though knowledge of publicly-generated economic rent completely eludes current members of the IPA.  In fact, it looks like the Institute has become sympathetic to rent-seekers.  [!]

You could do worse than pay heed to one of Africa’s real leaders, Julie. Former President of Botswana Festus Mogae, mentioned to Geraldine Doogue on the same program as you this morning: “Mineral rights should vest in the State …. for the benefit of all.” I think this may have gone over Geraldine’s head, as it does over the IPA’s.

Botswana has done pretty well out of diamonds on the basis of acknowledging the people as owners, but when Botswana transitions out of mining it needs to see the rent of land–under private title–offers just as secure an income as the rent that flowed so readily from diamonds.

You see, Julie, Australia once built dams, reticulated water and sewerage, constructed roads and highways, supplied gas and electricity from the uplift in rent that the provision of this infrastructure gave to the community–through local government rates, State and Federal land taxes and natural resource rents–but now we think we know better, so we’ve wound these back or abolished them and began to tax labour and capital more highly instead.

We’ve privatised our natural monopolies so the likes of Gina Rinehart and other resource plutocrats–the 0.1%–can rip us all off.

So, Julie, you can earn up to another 50% in your marks if you show you understand how we might un-tax labour and capital.

Meanwhile, under the existing tax regime, Julie, federal government excess is pretty much price we pay if we are to stave off revolution.