Henry George, a Prophet
Whose Time has Come
Robert V. Andelson
[Reprinted from Land & Liberty,
July-August 1993. This essay originally appeared in German in the 19
December 1992 edtion of Neue Zurcher Zeitung, Zurich]
IF THE collapse of Marxism is to be seen as a triumphant vindication
of capitalism, one would expect the economies of substantially
capitalist nations to be vibrantly successful and overwhelmingly
popular. Yet this is not the case. Their performance in virtually the
entire Western world has become lackluster at best, and even the
economic dynamism of Japan has given way to stagnation and
retrenchment. With the end of the Cold War has come a general mood of
disillusionment and disaffection.
Under these circumstances it is-not surprising that the ideas of
Henry George (1839 -1897), the self-taught American political
economist and social philosopher whose master-work, Progress and
Poverty (1879), was for perhaps half a century the world's
best-selling book in economics, are now being examined with new
appreciation. For it was George who, while affirming the equity and
efficiency of genuine free markets, uniquely isolated the chief
debilitating flaw in "Capitalism" as it typically exists in
practice, at the same time pointing the way to its remediation.
Although set in the context of late 19th century America, his analysis
is universal in its scope, and its relevance today even greater than
when it was initially propounded.
His Life and Influence
George learned to set type as a youth in Philadelphia. Moving west to
seek his fortune, he earned a precarious living as a journeyman
printer in San Francisco, then became a newspaper reporter, editor,
and eventually the publisher of his own daily. After the publication
of
Progress and Poverty, he settled in New York City and spent
the remainder of his life lecturing (frequently abroad) and writing,
producing six more books: The [Irish] Land Question (1881),
Social Problems (1883), Protection or Free Trade?
(1885), The Condition of Labour (1891), A Perplexed
Philosopher (1892), and The Science of Political Economy
(unfinished but published posthumously in 1897). His literary style
has seldom been matched in force or clarity.
In 1885, George ran for mayor of New York City on a reform ticket
While he had no real ambition to hold public office, he saw this as a
means of focusing attention on his beliefs. According to most
authorities, he actually received the most votes, yet, since the
official count was rigged by the Democratic Party machine, he came in
second, ahead of the Republican candidate and future president,
Theodore Roosevelt. He was prevailed upon to run again in 1897, but
was felled by a fatal stroke five days before the balloting. George
was literally a martyr to his cause, for his doctors had warned that
his frail health could not withstand the rigors of another campaign.
His funeral was marked by an outpouring of public grief unprecedented
in the city's history. Even those who opposed his ideas applauded his
motives and acknowledged the nobility of his character.
After his lifetime, George's influence was eclipsed by that of Marx
and Kevnes, but his avowed disciples have included many eminent
figures. Leo Tolstoy tried to persuade the tsar to adopt his reform.
Shortly before Sun Yat-sen's death, the father of the Chinese republic
declared his intention of implementing it there. Even Winston
Churchill was for several years an ardent advocate of the position,
and never ceased to believe in it although political considerations
militated against his continued championship.
With certain notable exceptions, academic economists have until
rather recently tended to ignore or to dismiss George -- this despite
the fact that Joseph Schumpeter, the magisterial historian of economic
theory, unambiguously affirms his technical competence. But today
American economists throughout the political spectrum, from Milton
Friedman and Arthur Laffer to Kenneth Boulding and William Vickrey,
have publicly espoused key elements of George's thought. Vickery was
last year's president of the American Economnic Association. He was
among the distinguished scholars (including three Nobel laureates in
economics) who signed a letter (Nov. 7, 1990) urging then Soviet
President Gorbachev to institute a land plan along basically Georgist
lines.
His System
George is best known for the theory that most of the market value of
land exclusive of improvements ("economic rent") should be
appropriated by society and applied to general public purposes, with
corresponding abolition of taxation on the fruits of human effort.
His system rests upon the Lockean premise that private property is
ultimately justified by the right of an individual to his labor as an
extension of himself. Since land is not created by human labor but by
God as a fund of opportunity for the use of all, the argument for
private ownership cannot apply to it. Economic rent constitutes an
exact measure of the disadvantage sustained by those who are denied
the chance to use a site or natural resource on equal terms because of
its preemption by the owner; therefore, it should be taken by the
community as an indemnity to them, subsidizing protective and other
social services that would otherwise have to be paid for by a levy on
the produce of their labor.
George characterized this as "the taking by the community for
the use of the community of that value which is the creation of the
community"
(Progress and Poverty, Book VIII, Chap.3), for he contended
that rent (when not artificially inflated by land withholding,
speculative or otherwise) is essentially a social product -the result
of population, public demand, government services, and the aggregate
improvements and activities of all individuals in a given area, not
the result of anything the owner, as such, may do to a particular
site.
Since he advocated the use of the tax mechanism to collect economic
rent for society, his proposal is popularly known as the "Single
Tax," but it is really not so much a tax as a public fee, not
withstanding the fact that it eminently satisfied all of Adam Smith's
"Canons of Taxation." Although he thought, probably
correctly in his day, that this source would be more than adequate to
support all legitimate government functions, his position would not
necessarily preclude other benefit fees if economic rent should prove
inadequate. A small percentage of the rent would be left to the owner
as an agency commission and an inducement to retain title. Inasmuch as
he would be liable for the remainder of the rent regardless of; how
his land were used, the owner would have an irresistible incentive
cither to put it to its optimum use or make it available to someone
who would. He would have no motive for speculation.
George's program, although radical in the sense of attacking the root
cause of economic maladjustment as he saw it, is conservative in
accepting self-interest as the normative economic motive, and in
avoiding drastic methods that might rend the social fabric. (It would
be imple-rriJnted in gradual stages.) As Schumpeter remarks, "he
was careful to frame his 'remedy' in such a manner as to cause minimum
injury to the efficacy of the private enterprise economy" (History
of Economic Analysis [1954],p.865). In fact, its object was to
enhance that efficiency.
Partial but substantial applications of his approach in Australia,
Denmark, Taiwan, and elsewhere have tended to stimulate production,
improve land use, and encourage better and more affordable housing.
The social utility of Australia's limited but significant land-value
tax is revealed in a survey comparing the three states that have much
heavier land-value taxes and much lower improvement taxes with the
other three. During the half-century covered by the survey, the first
group (Queensland, New South Wales, and Western Australia) saw far
more land put under crops, while the second group (South Australia,
Victoria, and Tasmania) experienced decreases. The value of
improvements as compared to land was 151% in the first group as
against only 79% in the second; it was highest of all, 198%, in
Queensland, which collected the highest proportion of economic rent.
The first group enjoyed higher factory wages, more purchasing power,
a greater volume of retail sales, higher capital investment in plant
and machinery, more housing construction, and greater increases in
assets of financial institutions and cooperative societies. The flow
of population from the second group to the first showed that people
found superior opportunities where taxes were derived to a greater
extent from land values than from production. Again, Queensland showed
the heaviest inflow of people. (A.R. Hutchinson, etal., Public
Charges Upon Land Values [Melbourne: Land Values Research Group,
1961].)
More recent research confirms the continued thrust and pertinence of
the survey's remarkable findings. (A.R. Hutchinson, et al., Natural
Resources Rental Taxation in Australia [Melbourne: Land Values
Research Group, 1977], especially pp. 18-19.)
Denmark derives almost its entire local real estate tax from the
value of land alone. There is no longer any local tax on residential
buildings, and the land-value tax applies to all but church, park,
defense, and transport sites. While the taxation of real estate has
sharply declined as a percentage of the general level of taxation in
Denmark over the past 40 years, as an absolute amount land-value taxes
are still high enough to make speculative withholding of developable
urban sites "almost non-existent." (Personal communication
to David Richards from Anders Muller, economist at the Danish Inland
Revenue Directorate, and author of studies on the property tax in
Denmark.) In the agricultural sector, the effect of the system has
been to replace farm tenancy with independent small-holding. Taiwan's
approach has been characterized as "the most successful of
postwar land reforms." (Fred Harrison, The Power in the Land
[London:Shepeard-Walwyn, and New York: Universe Books, 1983].) In
addition to large-scale redistribution, the system is marked by a tax
on the unimproved value of land (based on self-assessment), with a
separate tax at higher rates on vacant and underimproved sites. Also,
a steeply graduated land-value increment tax is imposed on increases
in value over a 10-year period and at time of sale. As early as 1967,
10 years before the plan went into full operation in its present form,
C.F. Koo, president of the Chinese National Association of Industry
and Commerce, concluded at the first stages had already performed a
critical role in encouraging the island's transformation. Before the
reform, he explained, landlords had no incentive to invest in
industry, for they could prosper by gouging tenants and by reaping
unearned land values. The land reform, Koo said, vastly minimized both
these forms of exploitation, "thus removing the obstacle that
stood in the way of industrial development and creating remarkable
change in the social economy." (F.F. Koo, "Land Reform and
Its Impact on Industrial Development in Taiwan," in J.R. Brown
and Sein Lin, eds., Land Reform in Developing Countries
[Hartford, CT: University of Hartford Press, 1968], p. 375.)
Free Trade
George rigorously advocated free trade. He was a decentralist, an
unremitting foe of Marxism, a staunch believer in Natural Law, and a
devout though undogmatic Christian. His system represents a balance
between individualis and communitarianism, holding that for the
individual to secure what rightfully belongs to him, the community
must secure what rightfully belongs to it. It has contemporary
implications that go beyond its original purview -- e.g., ecological
conservation through use of taxation to internalize pollution costs.
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