Georgism
Georgism, also called in modern times Geoism,[3][4] and known historically as the single tax movement, is an economic ideology holding that people should own the value that they produce themselves, while the economic rent derived from land—including from all natural resources, the commons, and urban locations—should belong equally to all members of society.[5][6][7] Developed from the writings of American economist and social reformer Henry George, the Georgist paradigm seeks solutions to social and ecological problems, based on principles of land rights and public finance that attempt to integrate economic efficiency with social justice.[8][9]
"Georgist" redirects here. For the Romanian political group, see National Liberal Party-Brătianu.
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 which 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 tax assessed on land value, arguing that revenues from a land value tax (LVT) can be used to reduce or eliminate existing taxes (such as on income, trade, or purchases) that are unfair and inefficient. Some Georgists also advocate for the return of surplus public revenue to the people by means of a basic income or citizen's dividend.
The concept of gaining public revenues mainly from land and natural resource privileges was widely popularized by Henry George through his first book, Progress and Poverty (1879). The philosophical basis of Georgism draws on earlier thinkers such as John Locke,[10] Baruch Spinoza[11] and Thomas Paine.[12] 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.[13][14] A land value tax also has progressive tax effects.[15][16] Advocates of land value taxes argue that they would reduce economic inequality, increase economic efficiency, remove incentives to under-utilize urban land and reduce property speculation.[17]
Georgist ideas were popular and influential during the late 19th and early 20th century.[18] Political parties, institutions and communities were founded based on Georgist principles during that time. Early devotees of Henry 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.[19] The term Georgism was invented later, and some prefer the term geoism as more generic.[20][21]
Reception[edit]
The economist Alfred Marshall believed that George's views in Progress and Poverty were dangerous, even predicting wars, terror, and economic destruction from the immediate implementation of its recommendations. Specifically, Marshall was upset about the idea of rapid change and the unfairness of not compensating existing landowners. In his lectures on Progress and Poverty, Marshall opposed George's position on compensation while fully endorsing his ultimate remedy. So far as land value tax moderately replaced other taxes and did not cause the price of land to fall, Marshall supported land value taxation on economic and moral grounds, suggesting that a three or four percent tax on land values would fit this condition. After implementing land taxes, governments would purchase future land values at discounted prices and take ownership after 100 years. Marshall asserted that this plan, which he strongly supported, would end the need for a tax collection department of government. For newly formed countries where land was not already private, Marshall advocated implementing George's economic proposal immediately.[103][104]
Karl Marx considered the single-tax platform as a regression from the transition to communism and referred to Georgism as "capitalism's last ditch".[105] Marx argued that, "The whole thing is ... 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."[106] Marx also criticized the way land value tax theory emphasizes the value of land, arguing that George's "fundamental dogma is that everything would be all right if ground rent were paid to the state."[106]
Richard T. Ely agreed with the economic arguments for Georgism but believed that correcting the problem the way Henry George wanted, without compensation, was unjust to existing landowners. In explaining his position, Ely wrote, "If we have all made a mistake, should one party to the transaction alone bear the cost of the common blunder?"[107]
John R. Commons supported Georgist economics but opposed what he perceived as an environmentally and politically reckless tendency for advocates to rely on a one-size-fits-all approach to tax reform, specifically, the "single tax" framing. Commons concluded The Distribution of Wealth, with an estimate that "perhaps 95% of the total values represented by these millionaire [sic] fortunes is due to those investments classed as land values and natural monopolies and to competitive industries aided by such monopolies", and that "tax reform should seek to remove all burdens from capital and labour and impose them on monopolies." However, he criticized Georgists for failing to see that Henry George's anti-monopoly ideas must be implemented with a variety of policy tools. Commons wrote, "Trees do not grow into the sky—they would perish in a high wind; and a single truth, like a single tax, ends in its own destruction." Commons uses the natural soil fertility and value of forests as an example of this destruction, arguing that a tax on the in-situ value of those depletable natural resources can result in overuse or over-extraction. Instead, Commons recommends an income tax-based approach to forests similar to a modern Georgist severance tax.[108][109]
Other contemporaries such as Austrian economist Frank Fetter and neoclassical economist John Bates Clark argued that it was impractical to maintain the traditional distinction between land and capital and used this as a basis to attack Georgism. Mark Blaug, a specialist in the history of economic thought, credits Fetter and Clark with influencing mainstream economists to abandon the idea "that land is a unique factor of production and hence that there is any special need for a special theory of ground rent" claiming that "this is in fact the basis of all the attacks on Henry George by contemporary economists and certainly the fundamental reason why professional economists increasingly ignored him".[110]
Robert Solow endorsed the theory of Georgism, while being wary of the perceived injustice of expropriation. Solow stated that taxing away expected land rents "would have no semblance of fairness"; however, Georgism would be good to introduce where location values were not already privatized or if the transition could be phased in slowly.[111]
George has also been accused of exaggerating the importance of his "all-devouring rent thesis" in claiming that it is the primary cause of poverty and injustice in society.[112] George argued that the rent of land increased faster than wages for labor because the supply of land is fixed. Modern economists, including Ottmar Edenhofer have demonstrated that George's assertion is plausible but was more likely to be true during George's time than now.[40]
An early criticism of Georgism was that it would generate too much public revenue and result in unwanted growth of government, but later critics argued that it would not generate enough income to cover government spending. Joseph Schumpeter concluded his analysis of Georgism by stating that, "It is not economically unsound, except that it involves an unwarranted optimism concerning the yield of such a tax." Economists who study land conclude that Schumpeter's criticism is unwarranted because the rental yield from land is likely much greater than what modern critics such as Paul Krugman suppose.[113] Krugman agrees that land value taxation is the best means of raising public revenue but asserts that increased spending has rendered land rent insufficient to fully fund government.[114] Georgists have responded by citing studies and analyses implying that land values of nations like the United States, the United Kingdom and Australia are more than sufficient to fund all levels of government.[115][116][117][118][119][120][121]
Anarcho-capitalist political philosopher and economist Murray Rothbard criticized Georgism in Man, Economy, and State as being philosophically incongruent with subjective value theory, and further stating that land is irrelevant in the factors of production, trade, and price systems,[122] but this critique is seen by some, including other opponents of Georgism, as relying on false assumptions and flawed reasoning.[123]
Austrian economist Friedrich Hayek credited early enthusiasm for Henry George with developing his interest in economics. Later, Hayek said that the theory of Georgism would be very strong if assessment challenges did not result in unfair outcomes, but he believed that they would.[124]
