Wealth and Want
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Unearned Increment
One person's unearned increment is another's — and likely many others' — lost birthright. Who is entitled to it? All of us! How do we implement this? Land value taxation.
Mason Gaffney, correspondence (used with permission)
We, like you no doubt, are basking in the unearned increment of the land under our house, turbo-charged by tax-exemption.  Two of our older children in Marin County are basking, too, and we take comfort in their well-being.  We deserve this, right?  Are we not of The Greatest Generation (how we love that toadying title)?  But how will your grandchildren afford a home at today's prices?  We get the increment, but they get the excrement.  Oh, well, the plunging dollar, crumbling infrastructure, far-called navies and troops melting away, soaring interest rates, higher taxes, incredible public debts coming due ... it'll all be different soon.  We may all grow poor together.

Henry George: The Wages of Labor
The worst evil of poverty is not in the want of material things, but in the stunting and distortion of the higher qualities. So, in another way, the possession of unearned wealth stunts and distorts what is noblest in man.

The evil is not in wealth itself – in its command over material things: it is in the possession of wealth while others are steeped in poverty; in being raised above touch with the life of humanity; from its work and its struggles, its hopes and its fears, and the kind sympathies and generous acts that strengthen faith in man and trust in God!

God’s commands cannot be evaded with impunity. If it be His command that men shall earn their bread by labor, the idle rich must suffer. And they do!

See the utter vacancy of the lives of those who live for pleasure; see the vices bred in a class who, surrounded by poverty, are sated with wealth; see the pessimism that grows among them; see that terrible punishment of ennui, of which the poor know so little that they cannot understand it!...  read the whole article

Henry George: The Single Tax: What It Is and Why We Urge It (1890)
Our plan involves the imposition of no new tax, since we already tax land values in taxing real estate. To carry it out we have only to abolish all taxes save the tax on real estate, and abolish all of that which now falls on buildings or improvements, leaving only that part of it which now falls on the value of the bare land, increasing that so as to take as nearly as may be the whole of economic rent, or what is sometimes styled the "unearned increment of land values." ...  read the whole article

Henry George: The Condition of Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)

The sympathy of your Holiness seems exclusively directed to the poor, the workers. Ought this to be so? Are not the rich, the idlers, to be pitied also? By the word of the gospel it is the rich rather than the poor who call for pity, for the presumption is that they will share the fate of Dives. And to any one who believes in a future life the condition of him who wakes to find his cherished millions left behind must seem pitiful. But even in this life, how really pitiable are the rich. The evil is not in wealth in itself — in its command over material things; it is in the possession of wealth while others are steeped in poverty; in being raised above touch with the life of humanity, from its work and its struggles, its hopes and its fears, and above all, from the love that sweetens life, and the kindly sympathies and generous acts that strengthen faith in man and trust in God.

Consider how the rich see the meaner side of human nature; how they are surrounded by flatterers and sycophants; how they find ready instruments not only to gratify vicious impulses, but to prompt and stimulate them; how they must constantly be on guard lest they be swindled; how often they must suspect an ulterior motive behind kindly deed or friendly word; how if they try to be generous they are beset by shameless beggars and scheming impostors; how often the family affections are chilled for them, and their deaths anticipated with the ill-concealed joy of expectant possession. The worst evil of poverty is not in the want of material things, but in the stunting and distortion of the higher qualities. So, though in another way, the possession of unearned wealth likewise stunts and distorts what is noblest in man.

God’s commands cannot be evaded with impunity. If it be God’s command that men shall earn their bread by labor, the idle rich must suffer. And they do. See the utter vacancy of the lives of those who live for pleasure; see the loathsome vices bred in a class who surrounded by poverty are sated with wealth. See that terrible punishment of ennui, of which the poor know so little that they cannot understand it; see the pessimism that grows among the wealthy classes — that shuts out God, that despises men, that deems existence in itself an evil, and fearing death yet longs for annihilation.

When Christ told the rich young man who sought him to sell all he had and to give it to the poor, he was not thinking of the poor, but of the young man. And I doubt not that among the rich, and especially among the self-made rich, there are many who at times at least feel keenly the folly of their riches and fear for the dangers and temptations to which these expose their children. But the strength of long habit, the prompting of pride, the excitement of making and holding what have become for them the counters in a game of cards, the family expectations that have assumed the character of rights, and the real difficulty they find in making any good use of their wealth, bind them to their burden, like a weary donkey to his pack, till they stumble on the precipice that bounds this life. ... read the whole letter

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q46. Would it not be confiscation so to increase the tax on land?
A. What would be confiscated? No land would be taken, no right of occupancy, or use, or improvement, or sale, or devise; nothing would be taken that is conveyed or guaranteed by the title deed.

Q47. What is the distinction between taxation and confiscation?
A. The sovereign state may appropriate private property of its citizens in two ways: (1) by confiscation; (2) by taxation. When one particular man by treason or otherwise has forfeited his rights as a citizen, the land and houses and personalty of this one man may all be "forfeit to the crown," while the validity and sanctity of 9,999 other men's rights are in no way infringed. This is confiscation. On the other hand, when the state, in order to obtain the revenue to meet the expenses of government, levies tribute upon its 10,000 citizens impartially, this is taxation.

Q48. But would it not be an injustice to the landowner?
A. If it be an injustice to tax hard-earned incomes (wages) to maintain an unearned income (net economic rent) that bears no tax burden, how can it be an injustice to stop doing so? There can be no injustice in taking for the benefit of the community the value that is created by the community.

Q61. Do you think there would be any injustice in taking by taxation the future increment in the value of land?
A. Fifteen professors of political economy have answered "Yes." Ninety-four have answered "No." ... read the whole article

Winston Churchill: Land Price as a Cause of Poverty (1909 speech in Parliament)

When the Leader of the Opposition seeks by comparisons to show that the same reasoning which has been applied to land ought also in logic and by every argument of symmetry to be applied to the unearned increment derived from other processes which are at work in our modern civilisation, he only shows by each example he takes how different are the conditions which attach to the possession of land and speculation in the value of land from those which attach to other forms of business speculation.

"If," he inquires, "you tax the unearned increment on land, why don't you tax the unearned increment from a large block of stock? I buy a piece of land; the value rises. I buy stocks; their value rises." But the operations are entirely dissimilar. In the first speculation the unearned increment derived from land arises from a wholly sterile process, from the mere withholding of a commodity which is needed by the community. In the second case, the investor in a block of shares does not withhold from the community what the community needs. The one operation is in restraint of trade and in conflict with the general interest, and the other is part of a natural and healthy process, by which the economic plant of the world is nourished and from year to year successfully and notably increased.

Then the right hon. gentleman instanced the case of a new railway and a country district enriched by that railway. The railway, he explained, is built to open up a new district; and the farmers and landowners in that district are endowed with unearned increment in consequence of the building of the railway. But if after a while their business aptitude and industry create a large carrying trade, then the railway, he contends, gets its unearned increment in its turn.

But the right hon. gentleman cannot call the increment unearned which the railway acquires through the regular service of carrying goods, rendering a service on each occasion in proportion to the tonnage of goods it carries, making a profit by an active extension of the scale of its useful business - he cannot surely compare that process with the process of getting rich merely by sitting still? It is clear that the analogy is not true. ... Read the whole piece

Clarence Darrow: How to Abolish Unfair Taxation (1913)

... Beyond a living all surplus goes to the monopolist, and it does go to him. You talk about a city of a million in 1915 — who would be benefited? Not the workingman; he would be far worse off than at present, for the greater the city the greater the poverty.

Taxes on goods are added to the price of goods and passed on to the consumer. There is only one kind of tax that is not a curse, and that is the land tax. If you tax a pair of shoes a dollar, the manufacturer will add that to the price of the shoes, and thus diminish the number of shoes the people can buy. The higher you tax the land the more land is thrown on the market and the easier it is to secure, and it is the only thing that increases by taxation.

The higher the tax on land the more it comes into use, and so "single tax" is a positive blessing. It is the only tax that does not come out of labor, it comes out of the monopolist; it stays right there, and that fact compels them to put the land to some use, and that employs labor. ... read the whole speech

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)

c. Significance of the Upward Tendency of Rent

Now, what is the meaning of this tendency of Rent to rise with social progress, while Wages tend to fall? Is it not a plain promise that if Rent be treated as common property, advances in productive power shall be steps in the direction of realizing through orderly and natural growth those grand conceptions of both the socialist and the individualist, which in the present condition of society are justly ranked as Utopian? Is it not likewise a plain warning that if Rent be treated as private property, advances in productive power will be steps in the direction of making slaves of the many laborers, and masters of a few land-owners? Does it not mean that common ownership of Rent is in harmony with natural law, and that its private appropriation is disorderly and degrading? When the cause of Rent and the tendency illustrated in the preceding chart are considered in connection with the self-evident truth that God made the earth for common use and not for private monopoly, how can a contrary inference hold? Caused and increased by social growth, 97 the benefits of which should be common, and attaching to land, the just right to which is equal, Rent must be the natural fund for public expenses. 98

97. Here, far away from civilization, is a solitary settler. Getting no benefits from government, he needs no public revenues, and none of the land about him has any value. Another settler comes, and another, until a village appears. Some public revenue is then required. Not much, but some. And the land has a little value, only a little; perhaps just enough to equal the need for public revenue. The village becomes a town. More revenues are needed, and land values are higher. It becomes a city. The public revenues required are enormous, and so are the land values.

98. Society, and society alone, causes Rent. Rising with the rise, advancing with the growth, and receding with the decline of society, it measures the earning power of society as a whole as distinguished from that of the individuals. Wages, on the other hand, measure the earning power of the individuals as distinguished from that of society as a whole. We have distinguished the parts into which Wealth is distributed as Wages and Rent; but it would be correct, indeed it is the same thing, to regard all wealth as earnings, and to distinguish the two kinds as Communal Earnings and Individual Earnings. How, then, can there be any question as to the fund from which society should be supported? How can it be justly supported in any other way than out of its own earnings?

If there be at all such a thing as design in the universe — and who can doubt it? — then has it been designed that Rent, the earnings of the community, shall be retained for the support of the community, and that Wages, the earnings of the individual, shall be left to the individual in proportion to the value of his service. This is the divine law, whether we trace it through complex moral and economic relations, or find it in the eighth commandment. ...

Q18. How would you reach the bondholder, or the man with money alone?
A. Why should we wish to reach him if his bonds or his money represent labor products to which he has honestly acquired a just title? This question is a legitimate offspring of the plundering theory that men should be taxed according to their ability to pay, the merits of which are considered on pages 7-9. It is a question which may also have been suggested by the fact that "bondholders" and "men of money" are so often men who have special privileges which coin money for them. There is a feeling that it would be unfair to allow such special privileges to escape taxation. It would be. But inquiry will show that the most important of these privileges rest in the ownership of land, and that the "bondholders" and "men of money" whom the questioner probably has in mind, are in fact great landlords; that is to say, that their fortunes are really based upon land. When land values were taxed, the great source of unearned incomes — land monopoly — would be practically abolished, and bondholders and men of money would be only those who earn what they have. Such property no man of honest instincts should wish to expropriate. ...

Q21. Do not the benefits of good government increase the value of houses as well as of land?
A. No. Houses are never worth any more than it costs to reproduce them. Good government tends to diminish the cost of house building; how, then, can good government increase the value of houses? You are confused by the fact that houses, being attached to land, seem to increase in value, when it is the land and not the house that really increases. It is the same mistake that a somewhat noted economic teacher, who advocates protection as his specialty, made when he tried to show that there is an "unearned increment" to houses as well as to lands. He did so by instancing a lot of vacant land which had risen in value from $5000 to $10,000, and comparing it with a house on a neighboring lot which, as he said, had also increased in value from $5000 to $10,000. At the moment when he wrote, the house to which he referred could have been reproduced for $5000; and had he been capable of thinking out a proposition he must have discovered that it was the lot on which the house stood, and not the house itself, which had increased in value.

... read the book

Upton Sinclair: The Consequences of Land Speculation are Tenantry and Debt on the Farms, and Slums and Luxury in the Cities

I know of a woman — I have never had the pleasure of making her acquaintance, because she lives in a lunatic asylum, which does not happen to be on my visiting list. This woman has been mentally incompetent from birth. She is well taken care of, because her father left her when he died the income of a large farm on the outskirts of a city. The city has since grown and the land is now worth, at conservative estimate, about twenty million dollars. It is covered with office buildings, and the greater part of the income, which cannot be spent by the woman, is piling up at compound interest. The woman enjoys good health, so she may be worth a hundred million dollars before she dies.

I choose this case because it is one about which there can be no disputing; this woman has never been able to do anything to earn that twenty million dollars. And if a visitor from Mars should come down to study the situation, which would he think was most insane, the unfortunate woman, or the society which compels thousands of people to wear themselves to death in order to pay her the income of twenty million dollars?

The fact that this woman is insane makes it easy to see that she is not entitled to the "unearned increment" of the land she owns. But how about all the other people who have bought up and are holding for speculation the most desirable land? The value of this land increases, not because of anything these owners do — not because of any useful service they render to the community — but purely because the community as a whole is crowding into that neighborhood and must have use of the land.

The speculator who bought this land thinks that he deserves the increase, because he guessed the fact that the city was going to grow that way. But it seems clear enough that his skill in guessing which way the community was going to grow, however useful that skill may be to himself, is not in any way useful to the community. The man may have planted trees, or built roads, and put in sidewalks and sewers; all that is useful work, and for that he should be paid. But should he be paid for guessing what the rest of us were going to need?

Before you answer, consider the consequences of this guessing game. The consequences of land speculation are tenantry and debt on the farms, and slums and luxury in the cities. A great part of the necessary land is held out of use, and so the value of all land continually increases, until the poor man can no longer own a home. The value of farm land also increases; so year by year more independent farmers are dispossessed, because they cannot pay interest on their mortgages. So the land becomes a place of serfdom, that land described by the poet, "where wealth accumulates and men decay." The great cities fill up with festering slums, and a small class of idle parasites are provided with enormous fortunes, which they do not have to earn, and which they cannot intelligently spend. ...

In Philadelphia, as in all our great cities, are enormously wealthy families, living on hereditary incomes derived from crowded slums. Here and there among these rich men is one who realizes that he has not earned what he is consuming, and that it has not brought him happiness, and is bringing still less to his children. Such men are casting about for ways to invest their money without breeding idleness and parasitism. Some of them might be grateful to learn about this enclave plan, and to visit the lovely village of Arden, and see what its people are doing to make possible a peaceful and joyous life, even in this land of bootleggers and jazz orchestras. ... read the whole article


Mason Gaffney: Nonpoint Pollution: Tractable Solutions to Intractable Problems

The Special Challenge to Economic Thinking
The Search for Surrogates
Sources of Nonpoint Pollution
What Problems are Created?
What Problems are Unsolved by Excise Taxes on Surrogates?
The Case of Forestry
The Case of Urban Settlement
The Case of Agriculture
The Common Theme from Forest, City and Farm
Solutions

THE SEARCH FOR SURROGATES
The frustrated economist, unable to tax runoff, still has a bag of tricks.  He looks for surrogates to tax, something in a sack or bottle that moves through a market: Aha! pesticides, fertilizers, salt, they'll do nicely to tax.  Thus we will "internalize the externalities" and have "proper pricing of inputs" to create incentives for correct "trade‑offs" in the "production functions," and we're nearly home.  Well, halfway home.  

Well, we've made a start.  A few problems remain.  One is that a plurality of economists don't like the effluent charge approach anyway, even for point sources.  They follow Coase and prefer to grant pollution entitlements to be traded in a free market.  Incredibly (to me) this view has prevailed.  

In principle they profess not to care what worthy few get the original entitlements, but in practise a select company of ancient and honorable polluters get them.  We now call these "offset rights," a new form of property.  In the L.A. Basin (South Coast Air Quality Management District), a few have grown rich by establishing their respective histories of pollution which they can now sell to others who wish to continue this wholesome tradition.  The demonstration effect on those contemplating new and as yet unregulated forms of pollution may be imagined.  

Those needing air to breathe?  Well, according to the modern philosophers they can enter the market, buy up offset rights and retire them.  Thus is fulfilled Robert Ingersoll's forecast a century ago that if some corporation could bottle the air they would charge us to breathe.  It seems to confirm this dour warning from a former Secretary of Labor: 

"We soon  discovered ...  the danger of allowing economic policy to be dominated by business or financial interests or, which usually comes to the same thing, orthodox economic analysis."  (Marshall, p.ix) (emphasis added)

The public has learned what is being done to it, finally, and is rebelling at the Coase logic, which only a Chicago economist could love.  Offset rights are on the ropes.  To simplify, therefore, I am not going to speculate how Coase might be applied to nonpoint, but just ignore it.  I will treat effluent charges, and taxes on surrogates, as the conventional economic solution to pollution.  

But before leaving this there is a lesson in it.   The holders of offset rights, whether "ancient and honorable" or "innocent purchasers," are demanding compensation.  Never mind about asking them to pay the victims; they demand payment to stop!  (Polakovic, 1987) 

They will probably get it, for if the system be changed, there will be a taking of something, which they claim is property.  Such is the force of the Great Secular Superstition, that unearned gains are sacred, even those originating with something as unworthy as dumping crud on other human beings.  This superstition is why effective control seems so expensive.  My remarks will not be instructed by it.   ...

This perversion does not occur by accident.  Spread and sprawl in forestry, cities and agriculture are common results of the dominant force driving American politics, the quest for unearned increments to land value.   ...  Read the entire article

Walter Rybeck: The Uncertain Future of the Metropolis
The single element that makes me apprehensive about the future of our cities is our land system. Tentacles of our misguided land policies are choking almost every vital aspect of metropolitan life. This is doubly worrisome, because the full dimensions of the land problem have barely surfaced in the public consciousness. To put it in the vernacular, most of us don't know what's eating us.

We have scarcely begun to identify the causes of today's city land problems. This is not to denigrate the legions of good folk -- officials and citizens alike -- who are trying desperately to cope with the daily disasters. But without a better notion of what is producing these disasters, we are unlikely to stem the flood.

A major problem, certainly, is our distorted land system that operates around the clock and around the calendar, and under the full sanction of the law. It rips off the poor, saps small business, and deprives municipalities of their rightful revenue.

The people as a whole create land values, not only by their presence, but also through participation in government, as taxpayers. Schools, firehouses, streets, police, water lines -- the whole gamut of public works and services that enhance a neighborhood are converted into higher land values. The taxpayers of the entire country, through federal aid for our multi-billion-dollar Metrorail project, have been boosting Washington, D.C. land values mightily.

Not all land values are manmade. Inherent qualities also give land special advantages: fertile soils in farming districts, scenic views in residential areas, subsurface riches of coal, oil, and minerals. None of us, as landlords, tenants, or governments, can lay claim to having created these values. The people who have been drawing up an international law of the Seas have characterized these natural endowments as "the common heritage of mankind", where no people, individually or collectively, produce these land values, it is difficult to argue with the conclusion that they belong to all people equally.

If the institution of private property has a sound foundation, and I believe it does, then it rests on the principle that people have a right to reap what they sow, to retain for themselves what they themselves produce or earn. Land values, produced by all of society, and by nature, do not conform to this prescription. ...

Decade after decade, billions of dollars in urban land values are being siphoned off by a narrowing class that has no ethical or economic claim to them. To be outraged when a few ghetto dwellers, in an occasional frenzy of despair, engage in looting on a relatively miniscule scale, but to remain indifferent to this massive, wholesale looting, is worse than hypocritical. It is to ignore a catastrophic social maladjustment, more severe, I believe, than anything the U.S. has experienced since slavery. ...

But I sense that we are drifting rapidly towards a landlord-dominated society. ...

Before that happens, the opportunity awaits to see whether a reasonably free economy can still be made to work. Unless we tackle the land question, and the looting of America, that game may be forfeited.

The future of the metropolis is uncertain. The choice is ours. We can intervene in the way society is now headed, to preserve the American dream. Or, we can continue along the present path and await the American nightmare.  Read the whole article
Mason Gaffney:  Sounding the Revenue Potential of Land: Fifteen Lost Elements
Taxing unearned increments as current income.  There is a swelling of land gains as a component of income. Gains on land value are a form of land rent, eminently taxable. Great is the need for objective economists to establish the taxability of capital gains, to show how to tax unrealized gains as they accrue. It’s surprisingly easy: levy a property tax based on the market value of appreciating land. That is just what the property tax was, before the current movement to limit assessed valuations to capitalized income from current use only. Read the whole article
Mason Gaffney: The Taxable Capacity of Land

Those getting the cold shower, meantime, may resist it. In California, the land of extremes, we got Howard Jarvis and Prop. 13. This Constitutional Amendment capped the property tax rate at 1%, and virtually froze assessed values until land sold. Then the boom really went wild. I myself, after campaigning hard against Jarvis, unexpectedly made $200,000 in a few months after it passed. Buyers were chasing me around the block, just to buy a scrap of land I happened to have in the right place at the right time. It was blind luck, but the money was as good as though I had earned it honestly: better, in fact, because 60% of the gain was not even reportable as taxable income. It was a once-in-a-lifetime experience, but buyers and sellers came to regard it as normal, and only fair. They saw regular annual increments as a divine right of property. For a few mad years, they were.  ...   Read the whole article 

 

California homeowners are wallowing in unearned increments beyond the dreams of avarice, while its governments are courting bankruptcy. Warren Buffett dared point this out, and overnight changed from the Oracle of Omaha into the Numbskull of Nebraska because he does not understand the "reality of California politics," the oxymoron du jour.

Most candidates for Governor fled like startled deer. Buffett's sponsor, well-tailored Mr. Muscles, recalled meeting a tearful widow who said she would have been taxed out of her home were it not for Prop 13. Poor thing, her home had risen in value. No one asked her name, or whether she knew what she was talking about, or had her claims audited - being a tearful widow "on a fixed income" insulates one from reality checks. The press chimed in with pix of poster oldsters, gazing from their multi-million dollar perches over the blue Pacific, fretting about Buffett's solecism and its possible effect on them, never mind anyone else.

Fact is, unearned increments ARE income, at the time they accrue. Illiquid? They are better than cash income because you can turn them into cash by borrowing on them, and pay no income tax on the cash. If you have trouble with that, the tax man himself will arrange it for you by placing a tax lien on your appreciated home, rather than foreclose and evict you. This helps explain why we never actually see one of these evicted widows suffering from unearned increments -- they are maudlin figments for mythmakers. The evictees we do see are renters who couldn't pay, and had no equity to mortgage. Who cries for them? ...
Governor Gray Davis, supposedly fighting to close a deficit, chimed in endorsing Prop 13, citing the mythical widow again to explain why non-residential property, about 2/3 of the tax base, should enjoy low rates. Faced with a negative poll, he backed right down from his "land tax on wheels," the higher vehicle registration fee.
  • No one has said a word about a severance tax on oil and gas, although California is the only major producing state without one. 
  • No one has crusaded for a severance tax on water withdrawals, although it would solve both our revenue and water crises in one stroke.
  • No one has said word one about taxing the taboo lands used for golfing, timber, or farming. ... Read the whole article

Michael Hudson: The Lies of the Land: How and why land gets undervalued

Turning land-value gains into capital gains
Hiding the free lunch
Two appraisal methods
How land gets a negative value!
Where did all the land value go?
A curious asymmetry
Site values as the economy's "credit sink"
Immortally aging buildings
Real estate industry's priorities
THE FREE LUNCH     Its cost to citizens     Its cost to the economy
Hiding the free lunch
BAUDELAIRE OBSERVED that the devil wins at the point where he convinces humanity that he does not exist. The Financial, Insurance and Real Estate (FIRE) sectors seem to have adopted a kindred philosophy that what is not quantified and reported will be invisible to the tax collector, leaving more to be pledged for mortgage credit and paid out as interest. It appears to have worked. To academic theorists as well., breathlessly focused on their own particular hypothetical world, the magnitude of land rent and land-price gains has become invisible. But not to investors. They are out to pick a property whose location value increases faster rate than the interest charges, and they want to stay away from earnings on man-made capital -- like improvements. That's earned income, not the "free lunch" they get from land value increases.
Chicago School economists insist that no free lunch exists. But when one begins to look beneath the surface of national income statistics and the national balance sheet of assets and liabilities, one can see that modern economies are all about obtaining a free lunch. However, to make this free ride go all the faster, it helps if the rest of the world does not see that anyone is getting the proverbial something for nothing - what classical economists called unearned income, most characteristically in the form of land rent. You start by using a method of appraising that undervalues the real income producer, land. Here's how it's done.    Read the whole article


Herbert J. G. Bab:  Property Tax -- Cause of Unemployment  (circa 1964)
Ricardo believed that ground rents and the value of land have a tendency to rise continuously and that this benefits solely the landowners. The progress of industrialization and urbanization in the second half of the 19th century resulted in a rapid increase in the value of urban land and the owners of such land reaped tremendous profits. This led John Stuart Mill to observe, that "Only the landowners grow richer, as it were in their sleep without working, risking and economizing". He called for the taxation of land in order to recapture the unearned increment accruing to the land owners.

The apostle of land taxation is Henry George. In his famous book Progress and Poverty he develops his single tax theory. He tries to show that poverty and unemployment and other evils are caused by the land monopolists. Henry George's theory is similar to that developed by John Stuart Mill. Land values are based on ground rents which are created by the community and not by the land owners. Therefore the community is justified in recapturing these rents by a single tax on land.

For these reasons increases in land values can be prevented by taxing land at an appropriate rate. Yet urban land values have increased tremendously during recent years. For instance in Los Angeles county the assessed value of land increased from $1,972 millions in 1952 to $4,002 millions in 1962, an increase of a little over 100%. The assessed values, are supposed to represent 25% of the market value. Thus the unearned increment in land values during this period amounted to not less than $8 billions. Even this figure is an understatement because it is based on assessed values and land is greatly underassessed. While land values have risen by about 10% yearly, property taxes assessed on land averaged about 1.5%. Thus a person owning vacant or underimproved land would have earned about 8 1/2% per year just by withholding land from its proper use.
Read the whole article
Henry George: Justice the Object -- Taxation the Means (1890)
We used to be confronted constantly by the question: "Well, after you have divided the land up, how do you propose to keep it divided?" We don't meet that question now. The Single Tax has, at least, this great merit: it suggests our method; it shows the way we would travel — the simple way of abolishing all taxes, save one tax upon land values. Now, mark: One tax upon land values.

We do not propose a tax upon land, as people who misapprehend us constantly say. We do not propose a tax upon land; we propose a tax upon land values, or what in the terminology of political economy is termed rent; that is to say, the value which attaches to land irrespective of any improvements — in or on it; that value which attaches to land, not by reason of anything that the user or improver of land does — not by reason of any individual exertion of labour, but by reason of the growth and improvement of the community. A tax that will take up what John Stuart Mill called the unearned increment; that is to say, that increment of wealth which comes to the owner of land, not as a user; that comes whether he be a resident or an absentee; whether he be engaged in the active business of life; whether he be an idiot and whether he be a child; that growth of value that we have seen in our own times so astonishingly great in this city; that has made sand lots, lying in the same condition that they were thousands of years ago, worth enormous sums, without anyone putting any exertion of labour or any expenditure of capital upon them.

Now, the distinction between a tax on land and a tax on land values may at first seem an idle one, but it is a most important one. A tax on land that is to say, a tax upon all land — would ultimately become a condition to the use of land; would therefore fall upon labour, would increase prices, and be borne by the general community. But a tax on land values cannot fall on all land, because all land is not of value; it can only fall on valuable land, and on valuable land in proportion to its value; therefore, it can no more become a tax on labour than can a tax upon the value of special privileges of any kind. It can merely take from the individual, not the earnings of the individual, but that premium which, as society grows and improves, attaches to the use of land of superior quality.  Read the entire article

Winston Churchill: The People's Land  
...If the railway makes greater profits, it is usually because it carries more goods and more passengers. If a doctor or a lawyer enjoys a better practice, it is because the doctor attends more patients and more exacting patients, and because the lawyer pleads more suits in the courts and more important suits. At every stage the doctor or the lawyer is giving service in return for his fees, and if the service is too poor or the fees are too high, other doctors and other lawyers can come freely into competition. There is constant service, there is constant competition; there is no monopoly, there is no injury to the public interest, there is no impediment to the general progress.

Unearned increment Fancy comparing these healthy processes with the enrichment which comes to the landlord who happens to own a plot of land on the outskirts or at the centre of one of our great cities, who watches the busy population around him making the city larger, richer, more convenient, more famous every day, and all the while sits still and does nothing. Roads are made, streets are made, railway services are improved, electric light turns night into day, electric trams glide swiftly to and fro, water is brought from reservoirs a hundred miles off in the mountains -- and all the while the landlord sits still.To not one of those improvements does the land monopolist as a land monopolist contribute, and yet by every one of them the value of his land is sensibly enhanced. He renders no service to the community, he contributes nothing to the general welfare; he contributes nothing even to the process from which his own enrichment is derived. If the land were occupied by shops or by dwellings, the municipality at least would secure the rates upon them in aid of the general fund, but the land may be unoccupied, undeveloped, it may be what is called 'ripening' -- ripening at the expense of the whole city, of the whole country, for the unearned increment of its owner. Roads perhaps may have to be diverted to avoid this forbidden area. The merchant going to his office, the artisan going to his work, have to make a detour or pay a tram fare to avoid it. The citizens are losing their chance of developing the land, the city is losing its rates, the State is losing its taxes which would have accrued if the natural development had taken place; and that share has to be replaced at the expense of the other ratepayers and taxpayers, and the nation as a whole is losing in the competition of the world -- the hard and growing competition of the world -- both in time and money. And all the while the land monopolist has only to sit still and watch complacently his property multiplying in value, sometimes manifold, without either effort or contribution on his part; and that is justice!

Every one of those improvements is effected by the labour and at the cost of other people. Many of the most important are effected at the cost of the municipality and of the ratepayers.

Unearned increment reaped in exact proportion to the disservice done. But let us follow the process a little further. The population of the city grows and grows still larger year by year, the congestion in the poorer quarters becomes acute, rents and rates rise hand in hand, and thousands of families are crowded into one-roomed tenements. There are 120,000 persons living in one-roomed tenements in Glasgow alone at the present time. At last the land becomes ripe for sale -- that means that the price is too tempting to be resisted any longer -- and then, and not till then, it is sold by the yard or by the inch at ten times, or twenty times, or even fifty times, its agricultural value, on which alone hitherto it has been rated for the public service. The greater the population around the land, the greater the injury which they have sustained by its protracted denial, the more inconvenience which has been caused to everybody, the more serious the loss in economic strength and activity, the larger will be the profit of the landlord when the sale is finally accomplished. In fact, you may say that the unearned increment on the land is on all fours with the profit gathered by one of those American speculators who engineer a corner in corn, or meat, or cotton, or some other vital commodity, and that the unearned increment in land is reaped by the land monopolist in exact proportion, not to the service but to the disservice done. ...

Now let the Manchester Ship Canal tell its tale about the land. It has a story to tell which is just as simple and just as pregnant as its story about Free Trade. When it was resolved to build the Canal, the first thing that had to be done was to buy the land. Before the resolution to build the Canal was taken, the land on which the Canal flows -- or perhaps I should say 'stands' -- was, in the main, agricultural land, paying rates on an assessment from 30s. to L2 an acre. I am told that 4,495 acres of land purchased fell within that description out of something under 5,000 purchased altogether. Immediately after the decision, the 4,495 acres were sold for L777,000 sterling -- or an average of L172 an acre -- that is to say, five or six times the agricultural value of the land and the value on which it had been rated for public purposes.

Now what had the landowner done for the community; what enterprise had he shown; what service had he rendered; what capital had he risked in order that he should gain this enormous multiplication of the value of his property! I will tell you in one word what he had done. Can you guess it! Nothing.

But it was not only the owners of the land that was needed for making the Canal, who were automatically enriched. All the surrounding land either having a frontage on the Canal or access to it rose and rose rapidly, and splendidly, in value. By the stroke of a fairy wand, without toil, without risk, without even a half-hour's thought many landowners in Salford, Eccles, Stretford, Irlam, Warrington Runcorn, etc., found themselves in possession of property which had trebled, quadrupled, quintupled in value.

Apart from the high prices which were paid, there was a heavy bill for compensation, severance, disturbance, and injurious affection where no land was taken -- injurious affection, namely, raising the land not taken many times in value -- all this was added to the dead-weight cost of construction. All this was a burden on those whose labour skill, and capital created this great public work. Much of this land today is still rated at ordinary agricultural value, and in order to make sure that no injustice is done, in order to make quite certain that these landowners are not injured by our system of government, half their rates are, under the Agricultural Rates Act, paid back to them. The balance is made up by you. The land is still rising in value, and with every day's work that every man in this neighbourhood does and with every addition to the prosperity of Manchester and improvement of this great city, the land is further enhanced in value.

The shareholders and the ratepayers I have told you what happened to the landowners. Let us see what happened to the shareholders and the ratepayers who found the money. The ordinary shareholders, who subscribed eight millions, have had no dividend yet. The Corporation loan of five millions interest on which is borne on the rates each year, had, until 1907, no return upon its capital. A return has come at last, and no doubt the future prospects are good; but there was a long interval -- even for the corporation. These are the men who did the work. These are the men who put up the money. I want to ask you a question. Do you think it would be very unfair if the owners of all this automatically created land value due to the growth of the city, to the enterprise of the community, and to the sacrifices made by the shareholders -- do you think it would have been very unfair, if they had been made to pay a proportion, at any rate, of the unearned increment which they secured, back to the city and the community? ... Read the whole piece

Bill Batt: Painless Taxation

Abstract
Real tax reform could do away with those taxes that are resented by the large proportion of our population. We could replace all taxes on wages and on interest by instead taxing economic rent. Rent is windfall income; it is income that arises not from the efforts of any person or corporation; it comes about as a surplus gain from common social enterprise. There is ample moral warrant for society to lay claim to that which it has created, as well as to that which no individual or party has earned. Analysis increasingly makes clear that economic rent in all its forms is far larger than official government figures indicate; in fact it is likely sufficient to supplant all current taxes on labor and capital (wages and interest) which are acknowledged to have so many negative effects. Recovering economic rent in all its manifestations by taxing its various bases actually can foster economic performance and yield other benefits that make it the natural source of revenue for governments. Such a tax is essentially painless. ...

The Tax Base

The next concern should be upon what base to impose a tax — not about taxing whom but taxing what. There are only three possibilities, as all revenue streams necessarily come from one of three factors of economic production —

1) upon resources found raw in nature (what was classically called land),
2) upon our labor, or
3) upon things created by human hands or minds (capital).

No other source exists; every possible tax must be on one or some combination of these parts. Each of these factors has its price: the price of land is counted in economic rent; the price of labor is in wages, and the price of capital (its liquid form) is in interest.

Any tax on capital has its downside effects, so that taxing savings causes people to save less, taxing consumption causes people to buy less, and taxing buildings causes people to build less. The result is that economists as well as businessmen usually frown upon taxing capital. Another alternative is to tax labor, but it is even more widely understood that taxing labor normally discourages people from working as much as they would in the absence of a tax. From this comes sentiment against taxing labor, even though for want of any alternative, people have today commonly come to accept it as a necessity. But electing to tax labor, just as for taxing capital, forecloses a discussion of the virtues of taxing land — not necessarily land as earth, but rather land as location. Yet land rent is the most attractive tax base of all, as rent is not earned; it is windfall income, entirely the result of being well situated in any market of scarce natural resources and where community demand (rather than one's own efforts) leads to an appreciation of that land's price. To be sure many people have learned to position themselves in situations where a land's market value is likely to rise — indeed these people come to think of themselves as astute investors. But the fact is that that market gain is not of their own doing at all; it is the result of common enterprise creating a surplus that comes to settle on land sites. An investment in land, in any form it might take, is speculation in greater or lesser degree.

Land in all its forms is a tax base that also conforms well to all the classic principles of sound tax theory as enumerated above. Land is classically taken to mean not just surfaces of the earth but places in time, in space, in any medium whether it be solid, liquid or gas, and even as a form of light, in the electromagnetic spectrum, and in life forms. One needs to return to 19th century classical economic definitions of the factors of production to appreciate the separate significance of land as it was understood in its manifold forms. One should ask how it is that land, so important to 19th century classical economic theory, has been given so little attention today in neoclassical economics. This is a story only now recovered from the dusty archives of academic economic history. Once understood and appreciated, it may be one of the greatest, if very silent, political revolutions of world history.[4] ... read the whole article

Bill Batt: The Nexus of Transportation, Economic Rent, and Land Use
What is Land Rent?
John Houseman, an actor perhaps most widely known as Professor Kingsfield in the long-running TV series, The Paper Chase, later became the pitchman for Smith Barney. In that advertisement, his tag line was "We make money the old-fashioned way -- we earn it."

That we should earn our money rather than live off the efforts of others seems a simple enough moral tenet. But it seems to have lost its cogency in contemporary economic thought. More than a century ago John Stuart Mill noted that
Landlords grow richer in their sleep without working, risking or economizing. The increase in the value of land, arising as it does from the efforts of an entire community, should belong to the community and not to the individual who might hold title.(1)

Today, on the other hand, the unearned surplus which classical economists called rent attaches to monopoly titles -- largely the scarce goods and services of nature like locational sites, and has totally disappeared from economic calculus. Yet this is the primary vehicle by which wealth is captured by economic elites. If government recaptured the socially-created economic rent from land sites that comes from the investment of the collective community, we could eliminate other taxes that are both more onerous and create a drag on the economy that makes us all poorer. There are many websites that explain how this can be done, ways that not only beget greater economic efficiency but also bring about economic justice.(2) The surplus economic rent that derives from community effort is its rightful entitlement.

Where does economic rent most tend to lodge? In the center of cities where people are. And also proximate to heavy social investments -- such as railroad and metro stations, public and office buildings, hotels and conference centers, and anywhere there is high traffic in personal or market exchanges. The land value in New York City is higher than all the rest of the New York state combined, even though it is only a minute fraction of the area. One 9-acre site south of the United Nations Building was recently sold to a developer intent on building luxury condominiums facing the East River. That site sold for $680 million, and would have been higher had the existing structure, an obsolete power plant, not have to be razed.(3) Land values in any given area tend to rise and fall together, and tend also to form a contour somewhat comparable to a topographical survey map. In a city's center are the highest value locations, analogous to a mountain peak. Once one departs from that center, land values fall in direct proportion to the value of their use, made more or less attractive by whatever social attributes are provided in the proximate areas. Two illustrations from small and medium sized cities in the United States illustrate the point. ... read the whole article

Bill Batt: The Compatibility of Georgist Economics and Ecological Economics
As with all nineteenth century moral philosophers, Henry George subscribed to a belief in natural law. The natural order of things as he saw it required that land be held in usufruct and that rent from such should be returned to society. The theory was inspired by his deeply religious roots and grounded in his reading of the prominent thinkers that predated him. The natural order was also a moral order, and the failure to comply with the order of nature and society as he saw it was a perversion of justice. The fruits of the land belonged to everyone, just as the fruits of one’s own labor were uniquely one’s own. Since one owned one’s body, one was entitled to keep the product of one’s physical efforts. Society had no more right to confiscate the earnings of one’s sweat and brow than it ought to leave in the hands of rich landowners the rent that was everyone’s inherent birthright to be shared. There were just and unjust taxes, and the only just tax was that which grew out of rent, of the unearned increment that visited certain land sites as windfall gains because of the efforts and investments by the community. Income and excise taxes were unjust and confiscatory — even theft, as especially were tariffs. Taxing or collecting land rent alone was the means of ending poverty and restoring progress. Indeed many Georgists reject use of the word tax entirely, preferring instead to talk instead about rent collection. There is even a lapel button Georgists use that says “Abolish all taxes; collect ground rent instead.”... read the whole article

Bill Batt: How the Railroads Got Us On the Wrong Economic Track
In classical economics, the definition of capital grew out of labor mixed with earlier capital. Land, by conventional definition, was not capital, nor was it a component of wealth. Rather land was its own category. Conflating land into capital allowed land rent to be hidden and diluted in ways so that the unearned increment arising from social improvements fell to speculators rather than being returned to society in rent.... read the whole article

Mason Gaffney: Nonpoint Pollution: Tractable Solutions to Intractable Problems
The public has learned what is being done to it, finally, and is rebelling at the Coase logic, which only a Chicago economist could love.  Offset rights are on the ropes.  To simplify, therefore, I am not going to speculate how Coase might be applied to nonpoint, but just ignore it.  I will treat effluent charges, and taxes on surrogates, as the conventional economic solution to pollution.   

But before leaving this there is a lesson in it.   The holders of offset rights, whether "ancient and honorable" or "innocent purchasers," are demanding compensation.  Never mind about asking them to pay the victims; they demand payment to stop!  (Polakovic, 1987)  

They will probably get it, for if the system be changed, there will be a taking of something, which they claim is property.  Such is the force of the Great Secular Superstition, that unearned gains are sacred, even those originating with something as unworthy as dumping crud on other human beings.  This superstition is why effective control seems so expensive.  My remarks will not be instructed by it.   ...

THE COMMON THEME FROM FOREST, CITY AND FARM
Market failure, public programs and perverse incentives in the land market create a gross bias towards spreading out too much.  This aggravates otherwise fairly tractable runoff problems.  The more Tierra Desnuda, the more runoff.   

This perversion does not occur by accident.  Spread and sprawl in forestry, cities and agriculture are common results of the dominant force driving American politics, the quest for unearned increments to land value.   

Thorstein Veblen in his final testament, Absentee Ownership, noted that American farmers  
...have always, ... wanted something more than their ... share of the soil; not because they were driven by a felt need of doing more than their fair share of work ..., but with a view to ... getting a little something for nothing in allowing their holdings to be turned to account (Veblen, pp. 138-40).  

To enhance those values they will now invoke any complaisant higher power, and since God already did His bit by donating the Earth, they turn to Government.   

But the profile of land values is like a volcanic island.  To raise the top and the slopes and the shores we must also raise the shallows above sea level, where they shed the waters and come into use.   

Rising population is one factor pushing up the profile of values, but not the strongest one.  Increased demand per capita is the main factor.  These demands include all the spurious demands described above, like the demand of government for land to "bank" and hold idle, and the demand of speculators "with a view to getting a little something for nothing."   ...    Read the whole article

Frank Stilwell and Kirrily Jordan: The Political Economy of Land: Putting Henry George in His Place

George saw land as a community resource provided by nature, to which every human being had an equal right. He argued that, since land was fixed in supply, the system of private land ownership allowed the wealthy few to enjoy exclusive rights to land and its benefits, while alienating the poorer majority from land ownership and forcing them to pay rent to landowners in order to access this necessary resource. Moreover, the collection of rents by landowners allowed them to increase their wealth without contributing to the productive efforts of society. As the population grew, so too did the demand for land, forcing rents and land values ever higher. In addition, increases in land value resulting from publicly-funded developments, such as roads and public transport systems, unduly benefited landowners at the expense of the community. Such unearned gains from landownership encouraged speculation in land, pushing prices even higher, while exposing the economy to the risks of speculative ‘booms’ and ‘busts’. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)


Commons Rent

It shouldn’t be thought that the commons is, or ought to be, a money-free zone. In fact, an important subject for economists (and the rest of us) to understand is commons rent.

By this I don’t mean the monthly check you send to a landlord. In economics, rent has a more precise meaning: it’s money paid because of scarcity. If you’re not an economist, that may sound puzzling, but consider this. A city has available a million apartments. In absolute terms, that means apartments aren’t scarce. But the city is confined geographically and demand for apartments is intense. In this economic sense, apartments are scarce. Now think back to that check you pay your landlord, or the mortgage you pay the bank. Part of it represents the landlord’s operating costs or the bank’s cost of money, but part of it is pure rent — that is, money paid for scarcity. That’s why New Yorkers and San Franciscans write such large checks to landlords and banks, while people in Nebraska don’t.

Rent rises when an increase in demand bumps into a limit in supply. Rent due to such bumping isn’t good or bad; it just is.We can (and should) debate the distribution of that rent, but the rent itself arises automatically. And it’s important that it does so, because this helps the larger economy allocate scarce resources efficiently. Other methods of allocation are possible. We can distribute scarce things on a first come, first served basis, or by lottery, political power, seniority, or race. Experience has shown, though, that selling scarce resources in open markets is usually the best approach, and such selling inevitably creates rent.

Rent was of great interest to the early economists — Adam Smith, David Ricardo, and John Stuart Mill, among others — because it constituted most of the money earned by landowners, and land was then a major cost of production. The supply of land, these economists noted, is limited, but demand for it steadily increases. So, therefore, does its rent. Thus, landowners benefit from what Mill called the unearned increment — the rise in land value attributable not to any effort of the owner, but purely to a socially created increase in demand bumping into a limited supply of good land.

The underappreciated American economist Henry George went further. Seeing both the riches and the miseries of the Gilded Age, he asked a logical question: Why does poverty persist despite economic growth? The answer, he believed, was the appropriation of rent by landowners. Even as the economy grew, the property rights system and the scarcity of land diverted almost all the gains to a landowning minority. Whereas competition limited the gains of working people, nothing kept down the landowners’ gains. As Mill had noted, the value of their land just kept rising. To fix the problem, George advocated a steep tax on land and the abolition of other taxes. His bestselling book Progress and Poverty catapulted him to fame in the 1880s, but mainstream economists never took him seriously.

By the twentieth century, economists had largely lost interest in rent; it seemed a trivial factor in wealth production compared to capital and labor. But the twenty-first century ecological crisis brings rent back to center-stage. Now it’s not just land that’s scarce, but clean water, undisturbed habitat, biological diversity, waste absorption capacity, and entire ecosystems.

This brings us back to common property rights. The definition and allocation of property rights are the primary factors in determining who pays whom for what. If, in the case of pollution rights, pollution rights are given free to past polluters, the rent from the polluted ecosystem will also go to them. That’s because prices for pollution-laden products will rise as pollution is limited (remember, if demand is constant, a reduction in supply causes prices to go up), and those higher prices will flow to producers (which is to say, polluters).

By contrast, if pollution rights are assigned to trusts representing pollutees and future generations, and if these trusts then sell these rights to polluters, the trusts rather than the polluters will capture the commons rent. If the trusts split this money between per capita dividends and expenditures on public goods, everyone benefits.

At this moment, based on pollution rights allocated so far, polluting corporations are getting most of the commons rent. But the case for trusts getting the rent in the future is compelling. If this is done, consumers will pay commons rent not to corporations or government, but to themselves as beneficiaries of commons trusts. Each citizen’s dividend will be the same, but his payments will depend on his purchases of pollution-laden products. The more he pollutes, the more rent he’ll pay. High polluters will get back less than they put in, while low polluters will get back more. The microeconomic incentives, in other words, will be perfect. (See figure 6.1.)

What’s equally significant, though less obvious, is that the macroeconomic incentives will be perfect too. That is, it will be in everyone’s interest to reduce the total level of pollution. Remember how rent for scarce things works: the lower the supply, the higher the rent. Now, imagine you’re a trustee of an ecosystem, and leaving aside (for the sake of argument) your responsibility to preserve the asset for future generations, you want to increase dividends. Do you raise the number of pollution permits you sell, or lower it? The correct, if counterintuitive answer is: you lower the number of permits. ... read the whole chapter

from A History of Pennsylvania, by Phillip S. Klein and Ari Hoogenboom, p. 441

More than any other person, Gifford Pinchot dominated Pennsylvania in the 1920s and early 1930s. Serving as governor from 1923 to 1927 and from 1932 to 1935, Pinchot gave Pennsylvania a progressive administration during the reactionary 1920s. Pinchot was born in Connecticut, but his family came from Milford, where his grandfather had settled and prospered. His father made a fortune as a New York merchant, married the daughter of millionaire New Yorker Amos R. Eno, and built the family mansion Grey Towers just outside Milford. Pinchot was committed to public service. "My own money," he remarked in 1914, "came from the unearned increment on land in New York held by my grandfather, who willed the money, not the land, to me. Having got my wages in advance that way, I am now trying to work them out." ...

 

 

 

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