LVRG Scrapbook — Wednesday, July 12, 2006:
Greens vs. Georgists
Prosper Australia Working Paper No.3,* by Gavin R. Putland
Abstract
Certain economic assets (called site-like assets in this paper) are not produced by private human effort. Greens and Georgists concur in recognizing and emphasizing this class of assets, but view it in different ways. For Greens, whose fundamental goal is ecological sustainability, site-like assets are chiefly gifts of nature which are valued in terms of their capacity to sustain life in all its forms. For Georgists, whose fundamental goals are economic justice and economic efficiency (which they see as not only compatible, but synonymous), the archetypal site-like asset is land, whose economic value per unit area is due mainly to location, and whose capacity to sustain life may be indirect (expressed through economic transactions). As land is also a gift of nature, there is considerable overlap between these two views. There are also similarities between the specific policies of the two groups. But at present the overlap in policies does not seem related to the overlap in the views of site-like assets, suggesting that there is scope for further convergence in policy, and perhaps also in philosophical foundations.
Contents
3.1 Economic theory
3.2 Ethical theory
3.3 Specific policies
3.4 Miscellaneous
1. Historical introduction
This quote would draw a knowing nod from any modern Green:
[T]he productive capacity of our soil is being steadily reduced, which, practically, amounts to the same thing as reducing its quantity. Speaking generally, the agriculture of the United States is an exhaustive agriculture. We do not return to the earth what we take from it; each crop that is harvested leaves the soil the poorer. We are cutting down forests which we do not replant; we are shipping abroad, in wheat and cotton and tobacco and meat, or flushing into the sea through the sewers of our great cities, the elements of fertility that have been embedded in the soil by the slow processes of nature, acting for long ages.
So too would this one, for different reasons:
These islands are the breeding places of the fur seal, an animal so timid and wary that the slightest fright causes it to abandon its accustomed resort, never to return. To prevent the utter destruction of this fishery [sic], without which the islands are of no use to man, it is not only necessary to avoid killing the females and young cubs [sic], but even such noises as the discharge of a pistol or the barking of a dog. The men who do the killing must be in no hurry, but quietly walk around among the seals who line the rocky beaches, until the timid animals, so clumsy on land but so graceful in water, show no more sign of fear than lazily to waddle out of the way. Then those who can be killed without diminution of future increase are carefully separated and gently driven inland, out of sight and hearing of the herds, where they are dispatched with clubs.
But neither passage was written by any modern Green. Both were written in the 19th century by one Henry George (1839–1897); the first is from Chapter 3 of Social Problems (1883), and the second from Chapter 1 of Book VIII of Progress and Poverty (1879). Moreover, while the first passage indeed expresses indignation over deforestation and soil degradation, any Green who thinks the second passage denounces the annual Canadian seal hunt will be disappointed, and not only because the islands in question are part of Alaska. George continued:
[T]hese islands have been leased at a rent of $317,500 per year... They have already yielded two millions and a half to the national treasury, and they are still, in unimpaired value (for under the careful management of the Alaska Fur Company the seals increase rather than diminish), the common property of the people of the United States.
His point was that a natural resource can be sustainably exploited without being privatized. But that, as far as it goes, should still meet with the approval of Greens, who demand sustainability and tend to oppose privatization.
What philosophy drove this Henry George to express some Green values a century before there was any political movement calling itself Green? Could some features of his philosophy be instructive to Greens? Conversely, could some features of Green philosophy be instructive to modern Georgists? And, all value judgments aside, should not these questions be of academic interest?
2. Terms and concepts
The comparison between Greens and Georgists will be most accessible to the reader if presented in tabular form. But this requires brevity of expression, which in turn requires some preparatory definitions and explanatory notes.
A site is a piece of ground or airspace, including any attached legal rights to build on that ground or into that airspace or to use the ground or buildings for particular purposes, but excluding any actual buildings. This terminology allows for the possibility of strata titles, and for the influence on "land" values of building rights and other attached rights.
The essential economic property of sites is that taxpayers can neither create sites nor move them into (or out of) the taxing jurisdiction. It is this property that causes most of the fruits of economic progress to be absorbed in higher real estate values; any increase in capacity to pay for sites does not induce a free-market increase in supply, but simply drives up rents and prices.
The reason why site values do not quite absorb all of the fruits of economic progress is that sites are not the only assets that taxpayers can neither create nor bring into the taxing jurisdiction. Other such assets include mineral deposits, statutory monopolies, natural monopolies [1], electromagnetic spectrum assignments, licences that are limited in number, airport and seaport time slots and other rights of way, pollution rights, water rights, fishing rights, forestry rights, patents, copyrights, and any other exclusive privileges conferred by governments. For convenience, we shall describe all such assets as site-like assets. (Note: We hope it is obvious that expressions such as "pollution rights" and "water rights" refer to legal rights, not necessarily moral rights!)
Other assets — that is, assets that taxpayers can produce and/or move between jurisdictions — we shall call house-like assets. Thus a house-land package comprises a house-like asset (the building) plus a site-like asset (the land).
The economic return on a site-like asset is called economic rent. Thus economic rent is a return to monopoly or privilege or protection. Most importantly, economic rent is a return that cannot be justified as an incentive for productive activity, because the assets that yield economic rent cannot be "produced" by private agents; from this it follows that economic rent may be taxed at arbitrarily high rates (up to 100%) with no negative impact on production, hence no increase in prices.
While "rent" in everyday language refers to a periodic payment for the use of any sort of asset, economic rent comes only from site-like assets and is not necessarily realized as a periodic payment. By convention, the term rent-seeking refers exclusively to the pursuit of economic rent (e.g. by means of lobbying and PR campaigns designed to influence public policy).
Site-like assets may be further classified as holdable or depletable. A holdable site-like asset is one whose exploitation requires possession or occupation, but not destruction or consumption; examples include sites and electromagnetic spectrum. A depletable site-like asset is one whose exploitation involves destruction or consumption; the most obvious examples are mineral deposits, especially fossil fuels. Rights to exploit self-renewing natural resources, such as forests and fisheries, are holdable to the extent that the exploitation is sustainable, and depletable to the extent that it is unsustainable. Such resources, as distinct from the rights to exploit them, can be considered to be in both categories.
Campaigning against taxes on site-like assets is a highly visible form of rent-seeking. A holdable asset may be subject to a holding tax, i.e. a periodic tax apportioned to the value of the asset. This value may be annualized (i.e. a rental value) or capitalized (i.e. a lump-sum value). A holding tax based on the capitalized value automatically takes less than the whole rental value, because the capitalized value is the purchase price of the after-tax rental value. A depletable asset may be subject to a severance tax, i.e. a tax on depletion. This tax may be specific (apportioned to quantity, e.g. weight), or ad-valorem (apportioned to value). It is important to note that if an asset is subject to both a holding tax and a severance tax, this is not exactly "double taxation", because the severance tax liability reduces the market value on which the holding tax is calculated; the two taxes are not simply additive.
3. Tabular comparison
Using the terms defined so far, we can begin to compare the views of Greens and Georgists.
3.1 Economic theory
| Issue | Green response | Georgist response |
|---|---|---|
| Meaning of capital | Site-like assets tend to be treated as a form of capital, because they can be traded for other forms of capital and are productive like other forms of capital. | In accordance with the terminology of classical economists, "capital" refers exclusively to house-like assets from which the owners expect revenue. Capital needs to be accumulated by private effort, whereas site-like assets are pre-existing or created by society or by fiat. |
| Meaning of profit | Return on productive assets. | Return on productive house-like assets (i.e. on true capital). |
| Can profits be excessive? | Yes. | Excessive "profits" are not really profits, but rather economic rent. Profits tend to be competed down to the minimum for which people will consent to invest in capital. If the profits in any industry rise above that minimum, more competitors are attracted into the industry, and the additional competition drives down profits. If "profit" rises above the minimum for any considerable time, it must be due to protection from competition; that is, it must be economic rent rather than true profit. Any amount of privatized economic rent is excessive in that it is not an incentive for production. |
| Origin of asset values | ? | As no rational person will pay more for an existing asset than for an equivalent new one, the market value of a house-like asset cannot rise above the depreciated replacement cost. This mechanism does not work for site-like assets, because they cannot be "replaced" by the market. Rather, the market value of a site-like asset rises with effective demand. For a house-like asset, the capitalized value is the fundamental value, and the rental value is the interest and depreciation thereon. For a holdable site-like asset, the rental value is the fundamental value, and the capitalized value is the discounted present value of the expected future after-tax rent. If access to a certain class of site-like assets is essential, the economic rent of such assets will be all-devouring, i.e. will absorb the entire capacity to pay; this is the case with sites and (if water rights are separate from land rights) water. If the entire rental value of a site-like asset is taken as tax, the capitalized value is zero; but if (as at present) neither the entire rental value nor the entire future increase in that value is taken as tax, the capitalized value tends to increase with effective demand. This increase causes a speculative demand for site-like assets, which adds to the rents and prices of such assets, because both renters and potential buyers must compete with the speculators. |
| Cause of recessions | ? | At the end of a speculative bubble in a site-like asset market (usually the land market), owners who have paid too much have difficulty servicing their loans, and must reduce their expenditure. As one agent's expenditure is another's income, and as one agent's debt is another's asset, a chain reaction ensues. (Remedy: Tax economic rent, thereby discouraging speculation and preventing bubbles.) |
| Fundamental cause of economic inequality | No single cause is considered more "fundamental" than others. | Private retention of (all-devouring) economic rent. The benefits of production are soaked up in the values of site-like assets, which the producers (mostly workers) must either rent, or purchase with borrowed money. The asset owners benefit from this process in their capacity as owners, but do not contribute to it in their capacity as owners (even if they do happen to contribute in other capacities). |
| Fundamental cause of unemployment | No single cause is considered more "fundamental" than others. | Private retention of (all-devouring) economic rent. Jobs cannot be created unless (i) the employer can pay for a business site out of the proceeds of the business, and (ii) the workers can pay for residential sites within commuting distance of the business, out of wages that the employer can pay out of the proceeds of the business. If private retention of economic rent is permitted, speculators squeeze potential employers and workers out of the property market. Moreover, the public revenue that is not raised through public collection of economic rent must be raised through taxes on productive activity. Such taxes deter production and therefore raise prices and feed inflation, raising the so-called natural rate of unemployment, which is the minimum unemployment rate that causes enough wage restraint to give stable inflation. Central banks adjust interest rates so as to maintain unemployment at the natural rate. |
| Does labour-saving technology cause unemployment? | Yes. | Only in the short term. To "save" labour is get more output for each unit of labour — in other words, to increase the power of labour. In recent centuries, technology has increased the power of labour not by a few percent, but by multiples ranging from dozens to billions. So if unemployment were simply caused by "labour-saving" technology, the unemployment rate would not be 5% or 15%, but more like 99%. Logically, a saving of labor can be manifested as higher unemployment for given output and given working hours, or higher output for given working hours and given unemployment, or shorter working hours for given unemployment and given output. Technology by itself does not explain the proportions between these three manifestations, and therefore does not explain the unemployment rate. |
| Causes of trade deficits | Low wages in poorer competing nations. Export subsidies in richer competing nations. | Income tax, which applies to export income and therefore acts like a tariff in every country of destination. Indirect taxes, whose compliance costs feed into export prices even if the taxes themselves do not. Private retention of economic rent, which not only necessitates the aforesaid taxes but also diverts foreign investment from production to speculation. (Concerning the Green responses: There is more scope for cutting costs through automation than through reducing wages. Export subsidies for selected industries cannot improve overall competitiveness when they are funded by taxes that reduce the competitiveness of other industries.) |
| Who wins when wages rise? | Workers. | Residential site owners. Any initial advantage to workers is competed away in rents and prices of residential sites. In the end, workers gain only if they own the sites or otherwise share in the economic rent thereof (e.g. if the economic rent is used for public revenue and/or distributed as a citizens' dividend). |
| Who wins when wages fall? | Employers. | Commercial and industrial site owners. Any initial advantage to employers is competed away in rents and prices of commercial and industrial sites. In the end, employers gain only if they own the sites or otherwise share in the economic rent thereof. |
| Effect of Australian industrial relations reforms | Employers win at the expense of workers. | Commercial and industrial site owners, who tend to be big-time property investors, win at the expense of residential site owners, who are more likely to be mum-and-dad investors. |
| Effect of third-world debt forgiveness | The benefit will (somehow) trickle down to the poor. | The benefit will be absorbed in the values of site-like assets. The poor will gain only if they own the assets (which is not likely) or otherwise share in the economic rent thereof (e.g. if the economic rent is used for public revenue and/or distributed as a citizens' dividend). If debt relief (or, for that matter, debt restructuring) is to help the poor, it must be contingent on a shifting of the tax burden off production and onto economic rent. |
| The "growth fetish" | One cannot have indefinite economic growth in a finite ecosystem. | Certainly the ecological footprint of the economy must be limited. But this does not of itself imply that GDP must be limited, because (i) activities with negative ecological footprints (e.g. planting trees, replacing cars with buses) are still positive contributions to GDP, and (ii) GDP growth can be the result of technological progress making it possible to do more with less. GDP measures economic value added, not ecological value subtracted. |
| Overpopulation | Population must be limited not only to avoid ecological collapse, but also to avoid local poverty. | The population-carrying capacity of the planet is obviously limited. But one must also be on guard against vested interests that blame population for problems that are actually caused by their own preferred policies, e.g. IMF-mandated privatizations of site-like assets [2]. |
3.2 Ethical theory
(In this subsection, "rights" refer to moral rights unless otherwise qualified. For convenience, "ethical theory" is taken to include questions of economic policy on which people tend to make moral-philosophical judgments.)
| Issue | Green response | Georgist response |
|---|---|---|
| Origin of property rights | No unified theory. | The right of ownership consists solely in the human right to enjoy the net product of one's labour (broadly defined) and saving. Saving is the source of capital, which multiplies the power of labour. On this basis, both consumer goods and (true) capital can rightly be private property. Any other legal basis of ownership is necessarily at the expense of producers and is therefore a disincentive for production, as well as an incentive for whatever non-productive activity is rewarded by legal property rights. |
| Private property in site-like assets | No unified theory. But the Greens' support for severance taxes seems to acknowledge that (at least) depletable site-like assets are common property. | By natural law, site-like assets are not private property because they are not produced by private effort. If the discovery or public creation of such an asset incidentally requires private effort (e.g. exploration or invention), the economic rent of the asset is the logical fund from which to reward that private effort (e.g. through mining rights or patents). But it is incumbent on the State to ensure that the resulting diversion of economic rent into private hands does not overshoot its purpose (as it tends to do in the face of well-funded lobbying and PR campaigns by the rent-takers). |
| Private property in land. | Sympathy for the view that indigenous people rightly own land by reason of first occupancy. Contrary sympathy for the view that present title holders rightly own land because they paid for it, although they didn't pay the indigenous people... | Land is not the product of human effort, let alone private human effort. However, the economic value of land — that is, its economic rent — is created by demand from the community and is therefore, by natural law, common property. Regardless of whether or how the land itself is divided up, the communal property right is satisfied provided that the economic rent of the land is shared (e.g. used for public revenue). The idea that the land or its bounty is a common birthright has support in the ancient wisdom of indigenous peoples and in the Judeo-Christian roots of western civilization (cf. Leviticus 25:13–16,23–28). The contrary idea that land is private property comes from the pagan Greco-Roman roots of western civilization. |
| Private property rights over the earth | The earth is not yours to destroy. The State, by means of taxes and other penalties, should deter you from destroying any part of it. | The earth is not yours to monopolize. (Destruction is merely the ultimate form of monopolization.) Therefore, if you do monopolize any part of the earth for any reason, you owe compensation to those whom you exclude from that part. If your monopoly is recognized by the State, it is incumbent on the State to organize the compensation — e.g. by using the economic rent as public revenue and/or distributing it as a citizens' dividend. If the compensation payable by you is reduced because you have "bought" your monopoly, the compensation payable by the seller must be correspondingly increased to give full justice to those who are excluded. The right to exclude others from part of the earth cannot be bought from anyone except those who are excluded. The right to exclude them now cannot be bought from someone who excluded them in the past, and the right to exclude future generations cannot be bought from the present generation. |
| What is equity in taxation? | Taxation in proportion to capacity to pay. | The origin of that "capacity to pay" also matters. If the capacity to pay is the result of productive effort, taxing it is confiscation of rightful property — i.e. theft — and deters production, to the detriment of society. But if the capacity to pay is the result of economic rent, taxing it does not deter any productive activity, and returns to the community what rightly belongs to the community; failure to tax it would be theft from the community. When equity is qualified in this way, the demands of equity become identical to the demands of efficiency (maximizing the incentive to produce). |
| What is the most equitable tax? | An income tax with a high threshold and strongly progressive rates. | Full public appropriation of economic rent. The ownership of site-like assets is so concentrated that even a "flat" tax on economic rent is more progressive than the most "progressive" feasible income tax. And if all the economic rent were taken, there would be no need for income tax (progressive or otherwise). |
| Inheritance taxes | Mostly in favour, with a view to reducing the concentration of wealth. | Against, while conceding that taxes on inheritances are both more equitable and more efficient than taxes on earned income, but not as equitable or as efficient as taxes on economic rent per se. To the extent that an estate was accumulated through productive effort, it was the rightful property of the testator — to be bequeathed as the testator saw fit, without interference from the tax authorities. To the extent that the estate was the product of privatized economic rent, it should not have been allowed to accumulate in the first place; the economic rent should have been taxed before death. Exception: Georgists concede that if the occupant of a residential site is income-poor, the tax on the economic rent should be deferable until the site is sold or bequeathed; in those circumstances, the tax can take on the superficial appearance of an estate tax. |
| Socialist or capitalist? | Not sure. Presumably somewhere in between. | For succinctness one might say "capitalist as regards house-like assets and socialist as regards site-like assets". But in this formula, "capitalist" is understated in that capitalist governments tax returns on true capital, whereas a Georgist government would not; and "socialist" is overstated in that socialist governments micro-manage assets, whereas a Georgist government would simply collect the economic rent. Marx branded George "capitalism's last ditch". George branded Marx "the Prince of muddleheads" for failing to develop the distinction between capital and land, but apparently did not see this failure as a defining feature of socialism. That was left to another Georgist, Max Hirsch (1853–1909), who wrote the first systematic demolition of socialism in book form (Democracy versus Socialism, Melbourne, 1901). Thereafter, Georgists tended to regard "socialist" as a term of derision. |
| Left or Right? | Left. | Left in the sense of being radical (at least by modern western standards), but not in the sense of being socialist or interventionist. Terms such as radical centre and third way would be apt if they had not been hijacked by other groups who lack the Georgists' intellectual coherence. |
| Wet or Dry? | Wet. Governments must intervene in the economy to protect the weak and protect the environment. | The Driest of the Dries. The biggest and most objectionable government intervention in the economy, and the cause of most of the problems that allegedly justify other interventions, is the creation and enforcement of unearned privileges disguised as private property rights over assets which, by natural law, are not private property. The mirror-image of this intervention is the array of taxes that confiscate earnings which, by natural law, are private property. Then come the complexities designed to blunt the disincentive effects of the taxes, and the further complexities designed to close loopholes opened by the earlier complexities, and so on ad absurdum. When the primary intervention and its mirror-image are done away with, let us see how many other interventions are needed. |
| Should the public sector be large or small? | This question is hard to distinguish from the previous one. | The degree of interventionism ("Wetness") is not synonymous with the size of the public sector. If a generous citizens' dividend were implemented and counted as public expenditure, the public sector could be large but passive; this would not constitute interventionism. By removing the fundamental causes of economic inequality and associated social problems, Georgist policies would reduce the need for public spending in many areas. Hence, if there were no citizens' dividend, there would be a substantial reduction in the size of the public sector. All this is said by way of prediction, not value judgment. The Georgist understanding of property rights implies (and this is a value judgment) that the size of the public sector should be determined by the amount of economic rent. But this statement is not as definite as it may seem, because public expenditure is also a cause of economic rent; the amount of economic rent in the economy is not a "given", but is to some extent a function of public policy. |
3.3 Specific policies
| Issue | Green response | Georgist response |
|---|---|---|
| Severance taxes | In favour. By raising the prices of resource depletion and of all products that depend on resource depletion, severance taxes encourage the conservation of resources and the development of sustainable alternatives. "Tax bads, not goods." The distributional effects of the price rises can be counteracted through the social security system; indeed, social security benefits tend to be better targeted than the "benefits" of not taxing resource depletion. | Divided. Purists argue that if a depletable resource is accessible from a particular site, it will add to the site value and therefore can be taxed through the site value, and that a severance tax would be redundant (not to be confused with double taxation) because it would reduce the taxable site value. Others retort that a holding tax on the site does nothing to encourage conservation of the depletable resource, but rather encourages accelerated depletion in order to minimize duration of occupation and hence the tax bill, and that it is more intuitive to have holding taxes for holdable resources and severance taxes for depletable resources. |
| Sin taxes, e.g. excises on tobacco and liquor | In favour. "Tax bads, not goods." | United on not taxing goods, but divided on taxing bads. Purists argue that excises not only fail to target economic rent but also invite evasion and corruption. Some add that governments should not profit from activities that they ostensibly want to discourage, wherefore the discouragement is better achieved by education. Others argue that the purpose of sin taxes is to compensate the community for the costs attributable to the "sin", in which case the taxes should be high enough to cover those costs, but no higher. Still others profess wider agreement with the call to "tax bads". |
| True-cost pricing | Strongly in favour as regards depletable site-like assets, and resources that can be exploited sustainably but have costs of distribution and supply — e.g. water. This is an exception to the claim that Greens are Wet. But there is a blind spot for the true cost of occupying sites — or rather preventing others from occupying them. | Strongly in favour, at least as regards holdable site-like assets, especially sites; but some have a blind spot for the cost of resource depletion over and above the rent of the site from which the depletion is done. Concerning water, the Georgists' generally Dry outlook seems to demand that water be priced at true cost and that any resulting hardship be offset through the social security system, e.g. by a citizens' dividend (see next item). Thus it is accepted (e.g.) that rice growers on the world's driest continent should not get subsidized water. But the pricing of water for domestic use is an emotive and divisive issue among Georgists; this seems anomalous. |
| Guaranteed minimum income (GMI), also called basic income, or citizens' income, or citizens' dividend | Largely in favour, partly in order to offset the expected distributional effects of the Green version of true-cost pricing; but it is not clear how the GMI is to be paid for. | Among the earliest supporters of a GMI, but not unanimously so. A recognizable school of Georgist thought advocates the distribution of economic rent through a non-means-tested GMI, usually called a citizens' dividend. The Alaska Permanent Fund, which distributes oil revenue, is often cited as a worthy pilot project (but alleged not to go far enough, in that oil revenue is not the only form of economic rent). Most Georgists of this school assume that the dividend would leave less revenue for government services, and consequently advocate a minimal State. Others reject this reasoning on the ground that the dividend would add to site rents and therefore be self-funding. Compared with Greens, Georgists who support a GMI are more likely to advocate activity tests (albeit with a very broad definition of activity, based on a broad work ethic), and less likely to advocate means tests (which, like taxes, discourage productive effort by reducing the reward). |
| How to pay for infrastructure | General taxation. Spending less on alternatives where possible (e.g. spending less on roads to help pay for public transport). | The market value of the benefit of infrastructure is the price of access to the infrastructure. The price of access has two components: the obvious one, namely the charges (fares, tolls, etc.) payable for actual use of the infrastructure; and the less obvious but more significant one, namely the price of living or doing business in a location when the service provided by the infrastructure is available, as opposed to a location where it is not available — in other words, the uplift in site values caused by provision of the infrastructure. The latter component, being net of charges for actual use, is also the benefit of the infrastructure to the public (as opposed to the provider). So, if an infrastructure project passes a public cost/benefit test, the uplift in site values will exceed the cost, so that reclaiming the uplift through the tax system will at least cover the cost, and usually yield surplus revenue which can be used for (e.g.) tax cuts. |
| Public transport | In favour, because public transport systems cause less pollution and take up less space than the cars that they displace. | In favour, because of economies of scale and economies of specialization, and because public transport, like any desirable infrastructure, automatically pays for itself under a Georgist revenue system. |
| How to decentralize population | By government intervention? | By removing income taxes and indirect taxes that cause otherwise viable rural communities to become unviable. In contrast, taxes on the economic rent of sites cannot cause otherwise viable communities to become unviable, because, as no rational person will pay rent for an unviable site, the economic rent of a site reflects its margin of viability. |
| How to reduce urban sprawl (other than by decentralization, above) | Impose growth boundaries. Spend taxes on public transport systems, which take up less area than cars and their supporting motorways, driveways, and parking facilities. | Roll back income taxes and indirect taxes in favour of site value taxes, which make public transport pay for itself, and which impose a price on the use of space and therefore motivate people to use it as efficiently as possible, so that those who need sites for housing or other legitimate purposes need not leapfrog over vacant or derelict sites held by speculators in anticipation of capital gains. |
| How to reduce homelessness | Provide more public housing. | Exempt buildings from the municipal rating base and remove taxes that inflate building costs. Impose a holding tax on site values so that site owners must build accommodation and offer it to tenants in order to cover the tax. These measures would increase the supply of accommodation and therefore make rents more affordable. Then let's see how much need there is for public housing. (There will be some need, but not as much as at present.) That said, public housing is certainly preferable to rent assistance, which tends to be competed away in higher rents. |
| Privatization of services | Natural monopolies and essential service providers should be publicly owned. | All long-term monopolies, whether natural or statutory, should be publicly owned so that the economic rent can be used for public revenue in lieu of taxes on productive effort. If provision of a service is contestable, the interests of consumers are best protected by competition between multiple providers, none of which needs to be publicly owned. If a service is essential, and if competing providers would tend to neglect remote areas, a statutory monopoly is one way to extend access. But there are other ways (e.g. public tenders). |
| Public health services; public education | Health and education services must be public in order to guarantee access regardless of capacity to pay. | A distinction must be made between provision and funding. Guaranteed access may require public funding, but not public provision; indeed, as the provision of health and education services is clearly contestable, it should be private. Eliminating the basic causes of poverty (private retention of economic rent, and taxation of productive effort) would make it much easier for people to purchase the health and education services that they need. When that has been done, let's see how much need there is for public funding. (There will be some need, but not as much as at present.) |
| Equal opportunity | Promoted on an issue-by-issue basis | Under present policies, the maintenance of the "natural rate" of unemployment requires a certain percentage of people to be failures. The modern debate about equal opportunity is a zero-sum game in which various groups try to rescue their own members from the pool of failures, while letting others fall in. A Georgist economy does not need failures. That said, the Georgist formulation of property rights is a radical rejection of any form of unearned privilege. It may be also of interest that Henry George was among the earliest advocates of voting rights for women. |
3.4 Miscellaneous
| Question | Greens | Georgists |
|---|---|---|
| Rise to political prominence | 1980s (starting in Germany). | 1880s (starting in USA). |
| Recognized founder | No individual in particular. | Henry George (1839–1897), who drew heavily on Adam Smith, David Ricardo, and John Stuart Mill. |
| Basic text | None in particular. | Henry George, Progress and Poverty: An inquiry into the cause of industrial depressions and of increase of want with increase of wealth... The Remedy (1879); Abridged Ed. by A.W. Madsen (1953). |
| Any obvious demographic bias? | No. Greens are of both genders, all ages, and all walks of life. | Yes. The typical Georgist is male, middle-aged or older, and well educated. Engineers have long been over-represented in the ranks. More recently, information technologists have become prominent. |
| Party discipline | Loose and decentralized. | Looser, and mostly outside any formal party system. Comparisons with "trying to herd cats" are heard from within the ranks. |
4. Discussion
On economic theory, Greens and Georgists clearly differ, although the questions that the Greens leave open (origin of asset values and cause of recessions) or answer vaguely (causes of inequality and unemployment) offer some scope for convergence. The Georgist emphasis on economic rent is a unifying theme, enabling the Georgists to answer more questions while making fewer assumptions.
On ethical theory, Greens and Georgists again differ. The greens show a multifaceted concern for environmental protection and economic equity, but lack a theory on the origin of property rights, whereas the Georgists seem to build their entire ethical system on a particular theory of the origin of property rights. But it so happens that when this theory is applied to taxation, it results in an exceptionally progressive system. More generally, the theory calls for sharing of economic rent, which tends to redistribute income from the asset-rich to the asset-poor. The Georgist theory of equity, being based on property rights, does not set out a priori to take from the rich and give to the poor; but when put into practice it does precisely that, to an extent that even Greens would find impressive. Thus, while the premises are starkly different, the conclusions have much in common.
Examination of specific policies yields further examples of convergence. Both groups support public transport, albeit for different reasons. Both groups tend to oppose privatization of public enterprises, while differing on the reasons and details. Both groups express indignation about urban sprawl and unaffordable housing, although their different economic theories lead to different policy responses.
On severance taxes and sin taxes, the Greens are clearly more decisive and cohesive than the Georgists. While the Georgist theory of property rights suggests that depletable site-like assets are social assets, holding taxes on the sites from which the assets are exploited do not reliably socialize the value of the assets themselves. This observation amounts to a Georgist case for severance taxes, which not all Georgists accept. Georgist opinion on sin taxes is even more divergent. In contrast, the Green call to "Tax bads, not goods" is an effective rallying cry. The resulting policies are simple and sellable and, from a purely Georgist viewpoint, offer a solution to the problem posed by the value of a depletable resource. The solution is imperfect in that, if there is to be any incentive to extract the resource, the tax must not take the entire market value of the resource; hence the rate of taxation would be somewhat arbitrary. But a universal holding tax on site values would be welcomed by Georgists as a step in the right direction, even if its rate were also somewhat arbitrary — as it would be if it were based on capitalized values. Georgists might therefore consider whether the Greens have a missing piece of the Georgist puzzle.
Because the rent of a site is determined by capacity to pay, it does not feed into the prices of products that can be produced on the site, but rather is determined by those prices. So when true-cost pricing is applied to the holding of sites, it does not add to downstream prices, but rather makes it unattractive to hold idle sites and prevent other people from using them. Similar comments apply to other holdable site-like assets. In contrast, severance taxes on depletable assets reduce their supply and raise their prices, and hence feed into downstream prices, so that a "true-cost" policy applied to depletable assets does affect downstream prices. But what is the "true cost" of depleting a resource, if not simply the price for which the depleted portions can be sold today? Clearly the answer is somewhat arbitrary, and therein lies another source of arbitrariness in severance taxes. No such arbitrariness attaches to a holding tax taking the entire rental value (i.e. the entire publicly created value) of a holdable site-like asset; in this sense, the Georgist "true-cost" pricing of holdable assets is more objective than the Green "true-cost" pricing of depletable assets.
That said, it is clear that Greens and Georgists can learn from each other on "true-cost" pricing, because each group tends to see only part of the problem — the Greens tending to forget holdable assets (especially sites), and the Georgists tending to forget depletable assets.
On other issues, the Georgists show the benefits of their coherent economic and ethical theories. In the tables, notice how often the Georgists provide one answer while the Greens provide several or none. Notice how often the Greens need to strike a balance between competing goals (e.g. incentive vs. capacity to pay; infrastructure vs. tax cuts; growth boundaries vs. affordability of housing), while the Georgists do not. But also notice that in the examination of specific policies, the arguments offered by Georgists are economic rather than ethical, as if the ethical background were an "optional extra", interesting for its own sake but not essential to the formulation of Georgist policy. This observation helps to explain why there is continuous and often heated debate among Georgists concerning the extent to which their policies can be compromised for political reasons, and whether such compromises actually enhance political feasibility. The answer to the latter question depends on whether the Georgist message is seen as ethical or economic. If it is seen to be based on an ethical theory (on the origin of property rights), then its political credibility depends on its policy prescriptions being entirely consistent with that theory. If, on the contrary, it is seen merely as the pursuit of certain economic advantages, then those advantages can be weighed against any number of other considerations, presumably including politics.
The Georgists' economic focus extends to their understanding of site-like assets. For Georgists, what matters about such assets is not what they are, but what they are not: they are not the products of private human effort. That they tend to be gifts of nature is incidental. Even George's concern about deforestation and soil degradation (quoted in the Introduction) is explainable in terms of the loss of economic potential. The proposition that nature is entitled to preservation regardless of its utility — even public utility — is Green; the Georgist system does not deny it, but simply says nothing about it.
The Green focus on nature, however, seems to undervalue the fact that land is a natural resource. The idea that the rental value of land should be publicly retained is Georgist, not Green, and cannot be fairly described as an area of convergence between Green and Georgist policies; while most Green parties are sympathetic to some form of land value taxation, none yet admits that such taxation should take the whole rental value or that public revenue should come only from taxes on site-like assets, notwithstanding that such views would be quite consistent with the Greens' emphasis on "eco-taxes".
5. Conclusion
The Georgist philosophy features few premises, many conclusions, a high degree of logical integration, and a remarkably complete harmonization of economics and ethics. It addresses many issues of concern to Greens and promises a wide range of outcomes of which Greens would undoubtedly approve, although they would be initially unsettled by some of the diagnoses and prescriptions (and some of the rhetoric). The Green philosophy also has a heavy emphasis on ethics, but has more premises, fewer logical connections, and a greater need to balance, rather than reconcile, economic and ethical goals. An example of reconciling these goals is the Greens' support for severance taxes, which concurs with the assumption that depletable resources are common property. This Green insight could be added to the Georgist system, extending the latter's coverage without damaging its coherence. It is also arguable that the call to "Tax bads, not goods" could be adopted by Georgists in support of severance taxes and sin taxes. In other respects, however, Green economics seems to cry out for a unifying theme. The Georgists have one to offer.
Notes
[1] A natural monopoly is a business which by its very "nature" does not admit genuine competition. It is typically a networked service business in which any new competitor wishing to serve its first customer must either replicate the whole network (which is prohibitively expensive) or connect to the existing network on terms dictated by the incumbent owner or by some agency of government.
[2] The classical economists up to and including John Stuart Mill subscribed to the "Malthusian" theory that any improvement in the condition of workers would cause them to breed more, until the pressure of population cancelled the improvement — unless separate measures were taken to restrain the reproductive urge. This theory was an existential threat to all social reform movements, including Georgism, that sought the elimination of poverty. Consequently the early Georgists were at pains to point out that, under established economic policies, wages were reduced to subsistence levels long before population pressed against the capacity of nature. The subsequent development and widespread acceptance of reliable methods of family planning (which would have horrified Parson Malthus) defused the issue in the sense that, even if poverty was party due to overpopulation, efforts were alleviate poverty were no longer automatically self-defeating. "Malthusianism" was redefined as the belief that something needs to be done about population growth, for reasons which may or may not be economic. Thus it became possible for a Georgist to be a Malthusian, albeit for reasons which were more likely ecological than economic.
__________
* First published Jul.12, 2006. Discussion section added Sep.4, 2006 (with numerous consequential amendments). Reformatted & relocated Nov.2, 2011.
