Where the Georgists, the Greens
and the Indians Meet

Ian T.G. Lambert

[August, 1991]

David Ricardo referred to rent as the return "for the use of the original and indestructible powers of the soil". The reason he used the term "soil" was because Ricardo, like the Physiocrats, viewed agricultural land as the main source of rent. In terms of the Britain of his day, empirically he may have been correct.

Henry George took Ricardo's definition and modified it only slightly. Effectively, he substituted the term "site" for "soil". He rightly saw that land could be put to all sorts of productive uses other than agriculture. In an industrialised society this is easier to see. The superstore makes very little use of the soil on which it stands. It is the site, or location, which is so valuable.

But just as George had to extend Ricardo's concept, so must we now extend George's. Georgists should be very cautious in doing so, but not afraid to do so; for as Nietzsche said: "one rewards a teacher badly if one remains only a pupil".

Ricardo and George lived and wrote at a time when methods of wealth production must have seemed indefinitely renewable. George died before the advent of the internal combustion engine. Man used horses for transport and production. For as long as horses and men continued to breed, a system of agriculture which used horses and labourers was perpetually renewable. George specifically cited man's ability to harness and use the reproductive forces of nature in his refutation of Malthus* theory of over population. Every new child born brought into the world not merely another mouth to feed but hands and feet with which to feed itself, by sowing and reaping. Man was not reliant on nature merely to supply apples that happened to fall from trees, but could cultivate great groves of apple trees.

However, in the twentieth century we have learnt the awful truth that natural resources of many kinds are not renewable, or at least cannot be renewed at the rate they are being consumed. Coal and oil are just two examples. It is not true that the soil or the site has nothing but "original and indestructible powers".

Henry George believed passionately that the earth morally belonged to all mankind, present and future generations. Thomas Jefferson referred to the current generation merely as tenants for a day. The American Indians believed and still do believe that the Great Spirit gave them their land for the use of present and future generations. (Indeed, many Indian nations believed this so strongly that they did not believe it possible for them to agree to give their lands to the European settlers. All that could be achieved was for individual Indians to agree to give up their individual rights, but that could not prevent future generations from asserting their rights, which were inalienable except by their own act or by voluntary consent.)

Consistent with these ideas, many nations had a horror, the magnitude of which we find difficult to comprehend, of extractive industry. Extraction was seen as theft from future generations. They did believe in agriculture, provided the agricultural use did not impair the utility of the land for future generations -- in modern parlance, we would say provided it was not over intensive.

When Georgists propose land value taxation, or site value rating as it might more accurately be termed, they are demanding that all of the community should, economically, benefit equally from existing land use. This may prevent the industrial mining entrepreneur from "stealing" minerals from the present community, but it does not prevent the present community from stealing from future generations.

This point is best understood by means of an example. Suppose an oil company takes oil from the ground. "Ah," say the community, "that oil really belongs to us; you must compensate us for it." Accordingly, the company makes a compensation payment. The oil is burnt and consumed. Along comes a future generation. "Where is the oil?" they say, "for we need it badly". "Don't worry" say their parents' generation, "we may not have the oil, but we have all this money instead". the seemingly ungrateful reaction of the new generation will be to throw the money back in their parents' faces -- just as the Indians threw the white man's money back at him:

"Our land is more valuable than your money. It will last forever. It will not even perish by the flames of fire. As long as the sun shines and the waters flow, this land will be here to give life to men and animals. We cannot sell the lives of men and animals; therefore we cannot sell this land. It was put here for us by the Great Spirit and we cannot sell it because it does not belong to us. You can count your money and burn it within the nod of a buffalo's head, but only the Great Spirit can count the grains of sand and the blades of grass of these plains." -- a chief of one of the principal bands of the Northern Blackfeet.

All money can be represented by a debt (e.g. a bank deposit), but debts do not enter into the aggregate wealth of a community because, as George pointed out, for every creditor who has an asset there must be a debtor who has a liability of corresponding amount; so the effect when aggregated is zero. Simply put, the new generation say "You have used our oil and we don't have anything to show for it".

Now, all Georgists know that one of the great benefits of land value taxation is that it penalises under use of land and promotes economically more efficient use of land. "But", cry the Greens in horror, "what you are advocating can only lead to over use of land, with an explosion in development and extraction". Georgists usually reject this idea out of hand, in my view unwisely; for the cry of anguish from, the Greens is the cry of future generations not to dissipate their inheritance.

This is where the Georgists and the Greens meet, on either side of a wall called conservation; it is our task to demolish this wall that separates us. The Greens do not seem to have any credible solutions to the economic problems; so it is we, the Georgists, who must try from our side.

The arch enemy, of Georgists is the land speculator -- the speculator in "raw" land, not buildings or improvements. Georgists, quite rightly, look on speculators in commodities as providing a service to the community. They buy goods when they are cheap (not much needed) and sell goods when they are dear (more needed).

The question has frequently been raised why oil producers do not cut back production more when the price falls. For all sorts of reasons they do not. In recent years, Texan oil barons have bought up cheap North Sea oil, which they intend to sell in the future, when it is a more scarce commodity. Such people make not only a profit for themselves but also provide a service to the community, in preserving for future use a commodity which is growing ever more scarce.

Now, observe carefully:

A first oil baron buys up North Sea oil and stores it in great containers on his land. Is this oil land or wealth? The Georgist has no difficulty in answering wealth.

A second oil baron buys up North Sea oil and stores it by pumping it down into a nearly exhausted oil reservoir. Is this oil land or wealth? There seems to be no logical basis for distinguishing between storage on the surface and storage below ground. So this too must be wealth.

A third oil baron buys up North Sea oil. He is a long term speculator. He stores the oil by pumping it down into an old reservoir. But he has no use for the capital and dismantles the oil well and machinery and sells it. All that remains is a full oil reservoir with no well. Is this oil land or wealth? Hmn;, let's move on.

A fourth oil baron has two oil wells. He pumps up oil from one, for sale. However, having pumped it up he decides to store it. He decides to store it underground in the second oil well. He pumps it down there. He dismantles the capital and sells it. What remains is a full oil reservoir with no well. Is this oil land or wealth? (Surely the answer is no different from the third example.)

A fifth oil baron is about to drill a well and pumps out oil from an existing (natural) reservoir. But the markets change. He decides not to exploit this resource, for the time being. He leaves the oil in the reservoir, in the hope that it will be a more valuable resource in the future. Is this oil land or wealth? Most Georgists have no doubt that this is land. But at what stage did wealth become land, or vice-versa?

Now, if the oil speculator plays a proper role in the economy, how is he to be rewarded under a political system which has land value taxation. Can it be right that the fifth oil baron should be taxed less if he pumps the oil up from underground and stores it in containers on the surface, like the first oil baron, than if he stores the oil in the ground? This must be wrong. The first and fifth oil barons must be taxed on the same basis.

(In practice, this must mean that we need a system in which the oil in the fifth example can be viewed as wealth, for it is the different classifications in the two examples that creates the problem.)

Now let us return to our original problem, the idea of rent being the return for the use of the original and indestructible powers of the soil or the site. Is the fifth oil baron, who does not use his oil, to pay the same rent as a sixth oil baron who does? If, after a year, the site passes to another owner, the fifth oil baron is passing on a site much more valuable than the sixth, should the new owner pay the same rent in taxes (or taxes in rent) in both cases? The truth is that the sixth oil baron has been afforded more than the use of the original and indestructible powers of the site; he has used the destructible powers of the site as well. The fifth oil baron "uses" the oil, in the sense that he has current enjoyment of it, but when he has finished "using" it, it will remain unchanged. On the other hand, the sixth oil baron is not "using it" so much as "consuming" it, and this must call for a different treatment.

Let us return to the ethical basis for land value taxation. It is that the land belongs to the community. The user of land must compensate the rest of the community for his exclusive occupation and use of his land. Effectively, he must buy from the community the right to exclusive occupation and use of the land. Because that right is a right for a specified period, land value taxation must be levied on a time basis. Typically it is levied on an annual basis, on the annual "rent", but this is mere convention; there is no reason why it should not be a shorter or longer period. Annual land value taxes are the community's way of selling the right to the use of land.

But the right to consume a natural resource is not so limited in time. Once the resource is consumed, it cannot be consumed or used again. Thus, the "tax" on oil must be a once-and-for-all payment to the community -- effectively, a "severance" payment. The community is simply selling the oil.

Here, then, is our solution. In relation to a site, land value taxation must be levied in relation to the original and indestructible powers of the site. So, for example, if the site has a valuable (natural) oil reservoir, the value of that does not enter into its assessable rental value. However, coupled with the obligation to pay such rent in taxation to the community must also be the condition that none of the resources is consumed. The right to consume the resources is something that must be bought from the community.

In our examples, then, the first and fifth oil barons pay the same land value taxation based on rent assessed by ignoring the oil. The first oil baron bought the (produced) oil from another party. It is wealth and he is free to consume it as he pleases, or to pass it on. The fifth oil baron has a choice. He can buy the (natural) oil - more correctly the right to consume it - from the community, in which case it then becomes wealth, whether or not stored underground. Alternatively, he can simply use the site, pay his land value taxes, and leave the oil with the community as, part of the land.

This is how the speculator in commodities is rewarded. The speculator may believe that oil is currently under valued, that future generations will value it more. If so, he will buy from the community the right to consume the oil, at its current value, and will leave it underground. He will withhold the oil from consumption in the hope that it will prove more valuable in the future. But he may be wrong. New forms of energy may emerge that will render the oil worthless. Such are the risks that any speculator takes.

I am convinced that it is here where the Georgists, the Greens and the Indians meet. I do not pretend that there are not associated problems. There are many. For example, how does one assess the amount of such severance payments? The assessed value of a site may be wrong, but it can always be adjusted. The community may have lost revenue but it is not prejudiced for the future. Not so with severance payments; they are once-and-for-all. Are the rights to use and enjoy land, on the one hand, and to consume natural resources, on the other hand, to be capable of different ownership, or must one go with the other? What is to happen if one person occupies a site and does not consume the resources, but pays full rent and another person comes along willing to pay the community for the right to consume the land? Is the first person to be allowed to exclude the second, when the second and the community may both be losers? Is the answer to allow the first to continue to occupy the land at the current rent but on condition that he now buy the right to consume the oil? If he wishes to withhold the oil from use must he not compensate the community for that privilege?

I do not pretend to have all the answers. All I ask is that Georgists recognise that land value taxation needs to be adapted to deal adequately with extractive industry and that it is here that the Georgists, the Greens and the Indians will find themselves on truly common ground.