Distributism and Henry George

Before reflecting on the relationship between Distributism and Georgism, a few observations about Henry George himself are in order. Economic historians tend to conveniently forget that, with the possible exception of Adam Smith, he was the most popular of all the modern economists. By any standards, his books were bestsellers and made economics accessible to the public. One measure of his popularity is the fact that at his death, over 100,000 people filed past his coffin, and thousands were left outside, unable to get in. It would be difficult to imagine such an outpouring of grief for the death of any other economist. Yet, this very popularity was the cause of resentment on the part of “professional” economists, who have, in the main, attempted to marginalize George, if not to ignore him entirely.

But this hostility is difficult to understand. There is nothing in George that is incompatible with Smith or Ricardo or Mill, or even with most of neo-classical economics (the one economist he really takes to task is Thomas Malthus.) Indeed, there is no particular part of Georgism that is original to Henry George; rather, his genius consists in taking what was already out there and drawing out the implications. Smith had already favored the land tax (see Taxes: Advice from Adam Smith), Ricardo had developed the Law of Rents, and even Walras and Marshall, founders of neo-classicism, recognized the special status that land had in economic theory. What George did was to base his political economy on the fact, a fact not really disputed in economic theory, that land derives its value not from the landlord but from the community. No reasonable economist disputes this. Yet, all the values created by the community are appropriated by the landlord. It is the classic example of economic rent, a value paid but not earned.

Socialism recognizes only public values of land, and capitalism recognizes only private values, and hence both provide an incomplete description of land, which has both public and private values. George's solution is elegance itself: he socialized ownership of land while privatizing its development. By “taxing” the full value of ground rent, he made speculation unprofitable. At the same time, the use of land, that is, improving it by farming, mining, or building, gets its full value without any taxation at all. In other words, the community gets what the community creates, and the individual gets what the individual creates.

Nor is Georgism without precedent in history, or even the present moment. Indeed, before the advent of the modern capitalist and socialist nation-state, land taxes tended to be the main support of the state. As Adam Smith noted, the “customary rents” of the English feudal land system functioned more as taxes than as rents, that is more as amounts paid for services to the property, and less as Ricardo's “economic rent.” Moreover, there are modern states which attempt to be Georgist. In Hong Kong (under the British) all the land was owned by the government and leased out to developers. In Singapore, the government owns 76% of all the land using the same system. Taiwan, Korea, and Japan, are all, in one degree or another “Georgist” and they are all successful economies. (The popularity of Georgism in the orient traces to the fact that Sun Yat-sen, the father of Chinese Nationalism, was a disciple of Henry George.) So we are not dealing with a mere abstract theory, but one with precedent and example.

However, it should be noted that none of these states are examples of pure Georgism, and therein lies the key to the relationship between Georgism and Distributism. In theory, in a free-market economy, it should be easy to determine the ground rent of any piece of property. But in practice, in places where there are vast concentrations of ownership, this task becomes impossible. Large landowners use any number of subterfuges to hide the true value of the land, since this is the basis of their taxes. Hence, in the modern world, actual Georgist states tend to consist of half-measures and compromises.

Distributists and Georgists have often exhibited a certain hostility towards each other, as if they were pushing rival theories. But they are not. In fact, the theories are complimentary. Rather, it is a question of priorities, which comes first. In my opinion, (being a distributist), a system of well-divided property is prior, and without this Georgism cannot really and truly be implemented. But in a system of well-divided property, a land tax is needed to ensure that the worker gets the full value of his work and to maintain the division of property. This is to say that Georgism requires Distributism for it implementation, while Distributism requires the land-tax, or else property will merely re-accumulate. As a further point, Georgism provides Distributism with access to a sophisticated political economy and tools of economic analysis, for which we do not have to apologize to the “orthodox” economists; in fact, the analysis and the tools are much better.

It would be better for both views to have a better understanding of each other, as they are complimentary theories, and each adds something that the other tends to lack.

12 comments:

John Kindley Wednesday, January 23, 2008 at 12:46:00 PM CST  

Well said. I would, however, agree with George and disagree with Singapore et al, about whether "government" should "own" all the land. (Indeed, critics of Georgism like to say that this is what Georgism amounts to.) Rather, George would say that the earth naturally belongs, not to the government, but to everyone in society equally.

I agree with you that a more distributist society will make a true Georgist system more politically possible. I think the best means to achieve a more distributist society is progressive taxation, and would put the priority on taxing the less well-off drastically less rather than taxing the wealthier more (though the latter is in today's environment still quite important, to reduce the undue influence concentrations of wealth have on government and the political process). And I further think that the best forms of progressive taxation, and the ones that should be most appealing to our society's sense of justice, are those solidly grounded in natural justice: i.e., the Georgist "single tax" on the unimproved value of land, and inheritance taxes (the latter of which can be shored up by gift taxes and luxury taxes, to ensure inheritance taxes as a source of revenue, at least until we achieve a more justly distributed economy that can afford to repeal these dubious forms of taxation). Until we achieve a society in which property is more justly distributed, I agree with you that income taxes on the highest earners have a place.

John Kindley Wednesday, January 23, 2008 at 4:09:00 PM CST  

Put another way, I would say that a truly free society is the ultimate "political" goal, that a just distribution of property is essential to that goal, and that Georgism is the best (though not the only) means to a just distribution of property.

The Dan Ward Thursday, January 24, 2008 at 5:56:00 AM CST  

I'm curious about the implications for an economy like the US, where things like software or services are creating much of the economic value, without being tied to land.

Kromkowski Thursday, January 24, 2008 at 8:51:00 AM CST  

One method of empirical evaluating land value taxation in the Distributist context ironically might be to actually look at the distribution of land value. GINI indexes abound for income but both academia and public policy experts have done very little on land value.

In an analysis of the land value distribution for Baltimore, MD; I found that the top 10% of land owners (all corporations) own 58% of the total land value. The bottom 10% of those who own any land own less than 1% of the total. In Baltimore nearly 40% of households own no land at all. But few households have no income at all. So it is very obviously that
land value is more maldistributed than income.

The distributional effect of implementing LVT can also be measured by looking at outcomes. Those who own no land see no difference in tax incidence when the traditional property tax is changed to an LVT. In general, vast majorities of owner occupied residential property tend to see tax reductions, while under-used or idle commercial and industrial and speculatively held land is taxed more heavily.

There are some old technical reasons, perhaps for the paucity of research; prior easy availability of data and the need to aggregate data. With computerization of cadestral rolls and the internet, data is much more easily obtainable. Google, for example, Maryland Land Value Tax Project, Indiana Land Value Tax Project, New York Land Value Tax Project, New Jersey Land Value Tax Project, all put together on a shoe string by non-profits, The Center for the Study of Economics and The Henry George Foundation of America.

Aggregation is also an important issue in doing such distribution analysis. Company A owns companies B1 and B2 and trades under the names C1 and C2. To really see how much Company A owns, a researcher would need to add Company A listing plus B1, B2, C1 and C2, plus all of the typos in in the spelling (plenty!)which make it look like there is a wide distribution. I solved this problem by looking at not only names by billing addresses. All of these ostensible owner names will have the same billing address. Of course governments who commission studies could make the job a lot easier by using tax id numbers for the property tax. Suprisingly, that practice is not as widespread as it should be.

Finally, the recent case of Clairton, PA is instructive from the distributionist context. Clairton's school board recently massively shifted the property tax from improvement value to land value. Not only did most residential owners pay less, but there was an equally notable increase in property sales. As speculators and unloaded properties. When 10 land owners sell to more than 10 new land owners. The distribution of land (a factor in production) becomes more widely and evenly distributed.

I certainly agree with Mr. Kindley that land value taxation needs to be one piece of puzzle. And land value taxation is not land nationalization as even George repeatedly stated, notwithstanding some of his rhetoric about the ostensible problem of "private property" in land.

What may also be of interest is Cobb and Rowe (2004), How the Income Tax Became a Tax on Labor.
http://www.schalkenbach.org/library/cobbroweincometax.html

caveat: Posted without careful proofreading.

M.Z. Forrest Thursday, January 24, 2008 at 9:40:00 AM CST  

I think a lot of distributists don't like the land tax, at least right away, is that they don't like property taxes. Property taxes make it difficult in many States to work 20 of 40 acres. I think many also fail in recognizing the true need for public land. Except in some peak oil scenarios, there will never be the situation where corporate farming will produce less for the masses than distributism. Even given a more level playing field, I think the underlying assumption that distributists wouldn't be driven out or that corporatists might be driven out is folly. Saying this offends the free market sensibilities of the distributist, but then again we have doctors with 40 acre estates of fallow land paying near nothing for their waste.

Anonymous,  Thursday, January 24, 2008 at 10:41:00 AM CST  

As to mzforest's comments:

1. Farm land is sold by the acre. City land is sold by the square foot.

So, the notion that the property tax makes in hard for someone to work 20-40 acres,
a. may really be aimed at the portion of the property tax that falls on the house and the barn; and
b. may be based on more on apocryphal data than reality.

I quickly looked at the Indiana and Maryland datasets I have. About half of "agricultural land" saves under LVT. The payers are those with lots of land value and hardly any structures (a tip off that the payers are agribusiness not the family farmer.)

In Maryland, looking at owner- occupied Ag land nearly 60% save.

See, a small sample here:
http://www.marylandlandtax.org/calculator/histogram/report?county_id=&jurisdiction_id=&addr=&j=County&class_id=5&prinres=H&census_tract=&submit=Submit+Query

2. Land value taxation should reduce the value of land. Because land is used more efficiently there is less sprawl and pushing out to the country.

3. Are we talking real farming or the kind of farming that involves making the last crop a bunch of houses or worse tax loss farming. A 1996 study found that annual farm losses New York State exceeded farm income! So exempting farm income from taxation may actually result in higher revenue because you'd also be exempting farming income losses.

4. Protections can be built into protect the true committed farming. Maryland for example has this.

5. It has been suggested by Gaffney(1992) and Hartzok (1999)that states with lower property taxes also had larger mean farm size and less equal distribution of farm sizes along with underuse and underimprovement of land.

Lindy Thursday, January 24, 2008 at 11:15:00 AM CST  

Oops. I wrote a response to John's original comment, but many things have intervened... Oh well, FWIW:

Thanks for your generous words, John. I'd like to respond to a few points.

First, I suspect that you give mainstream economists more of the benefit of the doubt than they deserve. I'm not sure what the criteria for "reasonableness" are, but it does seem to me that ecomomists are often willing to say reasonable things, in footnotes, appendices or obscure journals -- and then ignore those things when they are called upon to justify stupid and immoral policies. For example, Samuelson & Nordhaus are honorable men, I'm sure -- but their highly reasonable praise for the neutrality of the single tax is buried in an appendix, and not mentioned at all in their chapters on taxation or alternative economic systems, where it is highly relevant, to say the least!

Mainstream economists tend to do two obfuscational things with rent. The first is that the definition of rent is expanded to include a return to any factor that is fixed in supply, maybe even only temporarily -- so that there can be "quasi-rents" paid to sports starts or entertainers, and "rent" becomes something very much like "profit" (neither term is clearly defined, because no functional distinction is made between land and capital; the essence of capital slithers, as J. B. Clark says, into the form of whatever is used as such). The second thing is that even if they recognize that land is different, economists aren't willing to concede that this has any policy implications. Georgists say the rent of land should go to the community; economists say, "Whoa, pardner, you're being Normative, and we don't do normative. You're saying 'should,' but one shouldn't say 'should.'"

I disagree with what I think you're saying in the paragraph about the "impossibility" of assessing land values when ownership is highly concentrated. If there is such a difficulty, it is political in nature, not economic. Land values can be assessed based on this highest economic use that is permitted under current regulations and laws; it's not at all hard to figure out. Undoubtedly, various kinds of corrupt governments might not be interested in publishing the figures, but the figures are there, at least potentially. Real estate appraisers have no trouble coming up with them.

I think I can see your point about Georgism requiring Distributism for its implementation. But I don't think it's necessarily true. One could just as easily say that Georgism IS Distributism, in its fullest sense, without the bother of physically seizing and redistributing land, which, after all, has been shown to have many practical pitfalls.

This issue was dealt with in a simulation that we called The Alodia Story. A fictional West African nation adopted, (via an interesting "Deux ex Machina" backstory) a single tax fiscal policy and repudiated its foreign debt. We set up an online forum to explore how the scenario would play out, and we came up with some very sensible, counter-intuitive, but on the whole, I think, quite plausible ideas about how Georgism could lead to an organic redistribution of latifundia... I'm sorry to say I can't give our dwindling supply of "The Alodia Story" away, but here's where you can get one: http://www.henrygeorge.org/alodiabk.htm (I hope you won't mind the commercial plug... it's for a good cause.)

M.Z. Forrest Thursday, January 24, 2008 at 11:18:00 AM CST  

Anon,

I said property taxes, not land taxes deliberately. There seems to be an intrinsic opposition by most people to property taxes. I actually support them, although I would prefer a land tax. I'm just trying to understand aloud what distributist objections would be.

As to your second point, claiming lower property taxes by assessing only the land would lower values actually hurts the Georgian argument. If someone's rural estate is taxes at $5,000 presently and under a land tax it would be taxed at $4,000, how does it become a disincentive for owning rural estates? How would a 10% reduction in taxes harm a corporate farm? The use of a finite resource does not become more efficient by reducing its cost of use.

As to point 5, the studies I have seen that higher property (since so few tax unimproved land alone) taxed states had less of a real estate run up. New Hampshire is given as a common example. This would make sense since a greater share of the land rent is going to the government rather than being capitalized into the price of the property.

Kromkowski Thursday, January 24, 2008 at 2:48:00 PM CST  

To mzforest:

"As to your second point, claiming lower property taxes by assessing only the land would lower values actually hurts the Georgian argument."

In theory, LVT lowers land value at the margins (AG land) BECAUSE the speculators SELL. So I think its LVT -> SELLING -> Lower land value at the margins.

If those rural land barons who are actually speculators don't sell (i.e. they don't care about paying the increasing LVT), then I suppose the distributist might have a point, except for below. But it is not clear to me why they would not sell, when faced with the higher LVT.

But in any case, is the distributist argument one of increasing the distribution in terms of area or in terms of land value.

As I understand it according to distributism, the ownership of the means of production should be spread as widely as possible among the general populace, rather than being centralized via a few state bureaucrats (communism/socialism/nationalism) nor by wealthy private individuals (capitalism).

But measure of dispersion with respect to land is not area (who cares if one guy owns Greenland) it is the dispersion of the value of land. No?

John Médaille Friday, January 25, 2008 at 11:00:00 PM CST  

Lindy says ecomomists are often willing to say reasonable things, in footnotes, appendices or obscure journals -- and then ignore those things when they are called upon to justify stupid and immoral policies.

They must ignore the reasonable things, because they don't have a complete theory, and couldn't get a job if they did.

If there is such a difficulty [in determining ground rents], it is political in nature, not economic.

Exactly. Until ownership is widespread (or at least until the sentiment for ownership is widespread) there will be a political problem.

One could just as easily say that Georgism IS Distributism in its fullest sense...

That's fine with me; either way, you dissolve the difference (and hence the opposition) between the two.

...without the bother of physically seizing and redistributing land, which, after all, has been shown to have many practical pitfalls.

But we don't need to seize property, we just need to make over-accumulation unprofitable. LVT goes a long way in that direction.

Edward Rhodes Thursday, June 5, 2008 at 5:47:00 AM CDT  
This comment has been removed by the author.
Edward Rhodes Thursday, June 5, 2008 at 5:49:00 AM CDT  

I would be interested to find out more about the relationship between Georgism and the ideas of Thomas Spence. The two systems do appear to be based on similar ideological foundations, and come to similar conclusions (including both advocating a single tax on land).

I was wondering whether they were in some way linked or whether this was simply a case of two writers, separated by time and distance, independently coming up with similar ideas?

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