Wealth and Want
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Advice for Other Countries

Sometimes it is easier to visualize something different from what one is used to by envisioning how it would work in another country.  As you read these pieces, some of which were written when the former Soviet Union was at a point of opportunity last decade, think not just of the country under discussion, but also of Iraq and of the US. 

If we succeed in producing a democratic society in Iraq, but fail to make Iraq's land and natural resources the common property of all its people, have we accomplished anything important?  If the land and natural resources remain the revenue source for a few, the remainder of Iraq will be their subjects, even under putative democracy.   And in America, can we really claim to be the society that is a beacon for the world if a few own the lion's share of the corporate stock and the privately held businesses that control America's choicest land and natural resources?  Taxing land and natural resources offers us that potential.

Mason Gaffney: The Taxable Surplus of Land: Measuring, Guarding and Gathering It, for Moscow, Duma Parliamentary Hearings on Land Revenues, January 19, 1999

1. Common Property in Land is Compatible with the Market Economy.
2. The Net Product of Land is the Taxable Surplus
A. To socialize the taxable surplus, land rent, effectively, you must define and identify it carefully, and structure your taxes to home in on it.
B. Taxable surplus is also what you can tax without driving land into the wrong use.
C. To tax rent we must be sure there is rent to tax, and we must adopt public policies to husband and maximize it, and avoid policies that lower and dissipate it.
i. Avoid "perverse subsidies."
ii. Avoid letting lessees of public land conceal their revenues.
iii. Avoid letting lessees or taxpayers pad their costs to understate their net revenues.
iv. Avoid dissipating rent by allowing open access to resources like fisheries,
v. Avoid trying to distribute rents to consumers by capping prices below the market.
D. Raising output by removing tax bias
E. Maximizing public revenue.
F. Sustaining the tax base
3. Taxing the Net Product of Land Permits Untaxing Labor
4. Taxing the Net Product of Land Permits Untaxing Capital
5. Taxing the Net Product of Land Provides Ample Public Revenues: a Master Solution to Many Problems
A. Public revenues will support the ruble.
B. Your public credit will, of course, recover to AAA rating when lenders see that there is a strong flow of revenue to pay public debts.
C. Never again need you bend to any "advice" or commands from alien lenders, nor endure patronizing, humiliating homilies from alien bankers, nor beg any foreign power for aid.
D. If you again feel the need (as I hope you will not) to rebuild your military, you will of course require strong revenues.
E. Strong national revenues are required to unite Russia, and keep it one nation.

1. Common Property in Land is Compatible with the Market Economy.

You can enjoy the benefits of a market economy without sacrificing your common rights to the land of Russia. There is no need to make a hard choice between the two. One of the great fallacies that western economists and bankers are foisting on you is that you have to give up one to enjoy the other. These counselors work through lending and granting agencies that seduce you with loans and grants to learn and accept their ideology, which they variously call Neo-Classical Economics, or "monetarism," or "liberalization." It is glitter to distract you and pave the way for aliens to acquire and control your resources.

To keep land common while shifting to a market economy, you simply use the tax system. ...

Not only can you have both common land and free markets, you can't have one without the other. They go together, like love and marriage. You need market prices to help identify land's taxable surplus, which is the net product of land after deducting the human costs of using it. At the same time, you must support government from land revenues to have a truly free market, because otherwise you will raise taxes from production, trade, and capital formation, interfering with free markets. If you learn this second point, and act on it, you will have a much freer market than any of the OECD nations that now presume to instruct you, and that are campaigning vigorously to make all nations in the world "harmonize" their taxes to conform with their own abysmal systems.  ... Read the entire article

Mason Gaffney: Privatizing Land without Giveaway

I. An Emphasis on Synthesis
II. Reasons to Socialize Land Rent
A. Financial Reasons to Reserve Rent as a Tax Source
1. An entire nation cannot be sold off quickly at other than fire-sale prices. Mass privatization is a way of securing the worst possible bargain for the public selling the land.
2. In a massive general land sale, most land would be bid up by a small number of buyers with surpluses of "patient money," many of them looking toward use or resale in the distant future. These buyers are the kind stigmatized as "land speculators," for their traditional indifference to highest and best current use of land.
3. A government selling land, even at fire-sale prices, would be swamped with cash flow
4. Governments need revenues in perpetuity.
5. Private wealth being scarce in most Soviet republics, wealthy aliens would prevail in bidding for much of the best land.
6. The land market works better, on an ongoing basis, if land remains subject to regular taxes or other charges in perpetuity.
7. Counterproductive rent-seeking behavior, in the most primal sense, is maximized when land is simply privatized without the state's reserving substantial servitudes, especially tax power.
8. Local governments, traditionally undernourished and weak in much of the Soviet Union, also need revenues in perpetuity.
9. A means is needed gently to pry loose surplus land from state agencies like ministries in charge of production.
10. Public acquisition of lands for such uses as rights-of-way (r.o.w.), schools, reservoirs, air bases, parks, and watershed protection becomes much more costly when all land is privatized first.
B. Functional Reasons for Taxing Land Rent
1. Taxing land allows us to avoid taxing functional activities like production, exchange, work, saving, and investment.
2. Taxing land holds down its purchase price, thus easing and democratizing entry.
3. Taxing land drains cash from sleeping owners of surplus land, arousing them in the most compelling way to the otherwise overlooked opportunity cost of their surpluses.
4. Taxing land motivates sellers and moves the otherwise torpid land market.
5. Taxing land promotes markets by pushing central urban land into commercial uses yielding high cash flows.
6. Taxing land discourages the motives, currently powerful and dominant, to hold land mainly as a store of value and hedge against inflation.
7. It is arguable that taxes on bases other than land are largely shifted to - that is, are drawn from - land rent anyway.
C. Ethical Reasons for Taxing Land Rent
D. Political Reasons for Taxing Land Rent
III. Methods of Collecting Land Rent
A. Leasing vs. Taxation
B. Fixed Cash Payment vs. Participation
C. A Supplemental Tax on Land Gains?
D. Non-standard Resources and Their Rents
IV. Modifying the Credit System
A. Banking without Land as Collateral
B. The Hazards of Public Credit
V. Starting up the Market
VI. Summary and Conclusion

A geonomy respects the freedom of individuals, the limits of the environment, and the claims of future generations. Individuals must be free to organize their economic lives as they wish, within bounds determined by the equal freedom of others and the recognition that land, natural resources and environmental amenities are the common heritage of all generations.

For an economy emerging from central control, the first principle of geonomics is free enterprise. Individuals must be free to set up new enterprises, to charge whatever prices they and their customers mutually agree, and to pay whatever wages they and their workers mutually agree. Free enterprise requires free trade and freedom to use internationally valued currencies. There should be no taxes or other restrictions on what can be imported or exported and no restrictions on the use of foreign currencies. ... read the whole article
The optimal timing of development is an important allocative function that can be either enhanced or degraded by the impact of land taxes on land speculation. This paper discusses four types of taxes on land:
  • taxes on the rental value of land,
  • taxes on the sale value of land,
  • taxes on realized income from land, and
  • taxes on realized gains from the sale of land.

All four taxes reduce incentives for speculation in land, which is generally beneficial. The third and fourth produce distortions with respect to incentives to develop land, while the first and second do not. All four taxes have some beneficial effect of mitigating imperfections in capital markets. All permit reduction or elimination of taxes with significant dead-weight losses, such as those on improvements.


As formerly centralized economies move to adopt market practices, it will be very important for them to develop markets for land. People with good ideas for new businesses cannot implement their ideas unless there is some place where they can do so. It will not work to require every potential entrepreneur to convince a government official that his or her idea deserves an allocation of land. People who want to use land must be able to buy the right to use land from those who have that right. Land rights must be transferable to achieve a well-functioning market economy.

Of course, land will not be transferred by those who have the right to use it unless some payment is made. The possibility of payments for transferring the right to use land raises the specter of land speculators receiving large undeserved profits while holding economic development hostage. Is land speculation an unavoidable concomitant of a market economy?

This paper describes systems for assigning rental value to land through markets for the use of land that are created and managed by government officials. The central idea of the paper is that the full rent of land can be collected while achieving an efficient allocation of land if the rent for improved sites is revised annually, based on offers for the use of similar unimproved sites for the current year. The efficient allocation of land requires neither the sale of land nor leases of long duration at fixed rents.

Two systems for assigning rental value to land are presented. One system employs a market in which land is actually turned over to bidders for their use, while the other employs a market in options to use land. While these systems are applicable in many settings, they are particularly applicable to current conditions in the Soviet Union, where land is being transferred from public to private management. The new manager of each site will receive the profit or bear the loss from production on that site. The main question under consideration concerns the process to be used to determine how much must be paid for the use of each site. ... read the whole article

Constitutions must be amendable, to allow for the possibility of incorporating new moral insights into them. This impinges on the protection of expectations, including those regarded as property. Protection of property rights is achieved by constitutional restrictions on the ability of voters and legislators to reduce the value of property by regulation, taxation or expropriation. But such restrictions also prevent voters and legislatures from reflecting new moral insights in legislation, if those insights would reduce the value of property. There have been times in the past when moral development has compelled societies to change laws in ways that reduced the value of property (e.g., elimination of slavery). We cannot guarantee that there will be no future advances in our moral evolution that would require similar changes in laws, reducing or eliminating the value of what we now consider property. Looking forward to the possibility of such moral advances, we should design constitutions that permit amendments to reflect new moral insights, while prohibiting legislators (or voters in referenda) from passing laws that redistribute in ways not explicitly sanctioned by the constitution. ...

When respect for a newly understood moral truth requires the dissappointment of previously protected expectations, those who would push their fellow citizens to incorporate that truth into the governmental process should be obliged to have their ideas reviewed in a constitutional amnedment process that will ensure that they will be adopted only if a broad consensus on them is achieved. When people are ready to see a new moral truth, that truth can overcome such a hurdle. ... read the whole article

One of the reasons that the debate is so fierce between the advocates of rental and the advocates of private ownership of agricultural land is that each position has important strengths as well as important weaknesses. This paper argues that there is a third possibility between rental and private ownership that retains the strengths of both while avoiding the weaknesses of both. The third possibility is private possession of land. ...

Private possession of land is a form of land privatization that combines the attractive features of rental and private ownership without their disadvantages. The private possessors of land are entitled to possess and use as much land as they wish for as long as they wish and to transfer it to whomever they wish on whatever terms are mutually agreed. This provides incentives for efficient improvements to land. As a condition for continuing use of land, the private possessors are required to pay its assessed rental value in an unimproved condition to the local government. This keeps the price of titles of possession down to amounts approximating the sale value of improvements, eliminates the profit from land speculation, and provides a source of public revenue. The public collection of the rental value of land gives expression to the idea that land is the common heritage of all generations. The rental value of land would be determined by assessors, who would follow rental agreements and relate the value of each parcel to agreed rental prices of near-by, similar land, adjusted for the contribution of improvements to rental value. Before an effort is made to measure the rental value of agricultural land, there should be agricultural reforms to eliminate all restriction on what farmers grow, who they sell it to, or what prices they receive. And food should not be imported when it is available domestically at a lower price.

Payments for the use of land would be classified not as taxes, but rather as compensation for the use of common resources. Therefore these payments would not be affected by the law specifying that farmers are not required to pay taxes for five years. There could, however, be an exemption for a modest amount of rental value of land. read the whole article
Both for reasons of social justice and for reasons of economic efficiency, site value rating deserves a continued place in the programme of the Liberal Party.

The case for site value rating in terms of social justice is founded on two understandings: first, that the value of land in the absence of economic development is the common heritage of humanity, and second, that increases in the rental value of land arising from economic development and government expenditures should be collected by governments to finance those activities. What is meant by "land" is the unimproved value of sites and the value of extractable natural resources such as North Sea oil.

While there may someday be institutions capable of implementing a recognition of land as the heritage of all humanity on a worldwide basis, in the absence of such institutions each nation should implement a recognition that land within its boundaries is the common heritage of its citizens. This is accomplished not by making the nation a gigantic Common or by instituting government management of all land, but rather by requiring all persons and corporations that are granted the use of land to pay a fee or tax equal to what the rental value of the land they control would be if it were in an unimproved condition. ... read the whole article
Urban growth is desired because it raises peoples' incomes. In a market economy, incomes can be divided into components derived from four factors of production:
  • the rent of land,
  • the wages of labor,
  • the interest received from owning capital, and
  • the profits of entrepreneurship (the activity of choosing investments and organizing production).
Thus a successful urban growth strategy in a market economy must either increase the amounts of land, labor, capital and entrepreneurship that are used in a city or increase the payments that are made per unit of each factor, or both. ... read the whole article







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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper