Prosper Australia

The Howard government’s industrial relations agenda is supposedly about job-creation, as if the cost of labour — including wages and salaries, penalty rates and other perks, and the difficulty of reversing bad hiring decisions — were the last remaining barrier to full employment.

Sorry that we have to state the bleeding obvious, but:

• Jobs cannot be created unless the employer can pay the rent or mortgage on the business premises out of the proceeds of the business; and
• Jobs cannot be created unless the workers can pay the rent or mortgage on housing within commuting distance of those jobs, out of wages that the employer can pay out of the proceeds of the business.

So, if job-creation is the aim, why is the Government so concerned about the cost of labour and so unconcerned about the cost of accommodation? Why is it bad news when wages blow out, but good news when housing prices blow out? Why is the Government willing to force down labour costs by freeing up the supply of labour — e.g. by requiring more disabled people to seek work — but not willing to force down accommodation costs by freeing up the supply of accommodation — e.g. by taxing vacant land so that the owners have to build on it, and taxing unoccupied premises so that the owners have to seek buyers or tenants?

The only possible explanation is that the unearned profits of property speculators are considered more important than the earned wages of workers. In other words, the property market is privileged while the labour market is not.

In every marginal electorate, politicians promise to take revenue raised by nationwide or statewide taxes and spend it on projects that confer purely local economic benefits. This practice is corrupt and unnecessary — corrupt because a minority of taxpayers are bribed at the expense of the majority, and unnecessary because, if a project is economically justified, it can be funded out of the benefit that it confers — and, by implication, from within the area that gets the benefit.

If a project confers a benefit on a limited area, you can’t share in the benefit unless you live or do business in the area; and for that purpose you need access to real estate in the area. Therefore the market value of the benefit is manifested as uplifts in land values in the affected area. If the project satisfies a cost-benefit test, the total uplift will exceed the cost, so the project can be funded by clawing back only a fraction of the uplift through the tax system, leaving the rest of the uplift as an unearned windfall for owners of property in the affected area — and without burdening the taxpayers outside that area.

This funding mechanism can be set up in a revenue-neutral manner by increasing marginal land tax rates and abolishing or reducing other taxes. Then, when a certain project increases land values in a certain area, the land tax assessments automatically rise only in that area, even if the government funding the project is responsible for a much larger area, such as the State or the Commonwealth. The affected property owners can only gain, because their tax bills don’t increase unless their land values do, and their land values don’t increase unless, in the judgment of the market, the owners are better off in spite of the tax implication. Moreover, the higher the marginal rate of land tax, the greater the range of projects that become self-funding through the ensuing uplifts in land values, hence the greater the number of projects that actually proceed, delivering windfalls to property owners — and the greater the range of other taxes that can be scrapped when the new system is introduced.

In short, when a public project passes a cost-benefit test, and when its benefit is confined to a specific area and measurable in economic terms, there is “never ever” any excuse for failing to fund the project, and “never ever” any need to draw funding from outside the affected area. Voters should therefore punish any politician who claims that the government can’t afford a much-needed project in their area, or who promises to spend their taxes for the economic benefit of any other area!

The Mitcham-Frankston tollway, also known as EastLink, will reduce commuting times in suburbs serviced by the tollway and in suburbs serviced by alternative routes, such as the untolled Springvale and Stud roads, whose congestion levels will be reduced by EastLink. The market value of this benefit (net of tolls) will be manifested as uplifts in land values in the lucky suburbs (because you have to live or work in those suburbs to get the benefit). So owners of property in those suburbs will benefit from EastLink even if they don’t use it and don’t pay the toll on it. But people who live in rental accommodation and who commute via EastLink will pay for it twice — they’ll pay the toll and their rents will go up. How equitable is that?

To satisfy the “beneficiary pays” principle, road projects must be funded out of the uplifts in land values that they cause. If a project satisfies a cost-benefit test, the total uplift will exceed the cost, so the project can be funded by clawing back only a fraction of the uplift through the tax system, leaving the rest of the uplift as an unearned windfall for the property owners.

This system can be set up in a revenue-neutral manner by abolishing payroll tax and other job-destroying State taxes, and strengthening land tax. From then on, desirable infrastructure pays for itself through the increase in taxable land values that it causes. The higher the marginal rate of land tax (or the fraction of properties to which that marginal rate applies), the greater the range of projects that become self-funding through the ensuing uplifts in land values, and the greater the range of other taxes that can be scrapped when the new system is introduced.

Property owners can only gain from this arrangement, because their tax bills don’t increase unless their property values do, and their property values don’t increase unless, in the judgment of the market, the owners are better off in spite of the tax implication. Indeed, if projects pay for themselves, they are more likely to proceed, so property owners are more likely to get the uplifts in land values. The tax means the owners get only a fraction of the uplifts, but a fraction of something is better than 100 percent of nothing!

So is there ever any need for tolls? Yes — on certain routes, at certain times of the day, tolls can prevent congestion by encouraging travel at other times. But they are not needed 24/7, and they are never needed for funding.

In this age of internationally mobile capital, we are repeatedly told that if we want to attract and retain investment, we must make our tax system more “competitive”. Very conveniently for the investors, competitive taxes are taken to mean low taxes, in which case governments must engage in a “race to the bottom” — competitively cutting taxes and public expenditure, sacrificing their schools, hospitals, transport systems and other essential services on the altar of global finance.

Fortunately this is bunk. In fact the attractiveness of the tax system to investors has more to do with the type of tax than with the amount of tax collected. “Taxes ain’t taxes!”

Consider land tax — that is, a holding tax of a certain percentage per annum on the value of land, excluding buildings. Clearly the land can’t flee overseas to escape the tax. As land is a limited natural resource and has no cost of production, its price is determined simply by what people are willing to pay for it. A holding tax on land reduces what buyers are willing to pay and encourages selling, and therefore reduces land prices. More importantly, it drives speculators out of the market, further reducing prices for the benefit of productive investors. So productive investors actually find it easier to acquire land. Similarly, land tax does not discourage investors from renting land for productive purposes; on the contrary, it forces landlords to offer their properties at affordable rents in order to attract tenants and cover the tax liability. Neither does it discourage building on the land, because that is another way to earn income to cover the tax, and because the tax does not apply to the buildings themselves.

So land tax can raise revenue without discouraging productive investment. To replace existing taxes by land tax is to go straight to the bottom as far as investors are concerned, but requires no sacrifice of revenue or essential services.

The flat tax fanatics are back. They say that if there were only one rate of income tax, the system would be simpler, and the rich couldn’t reduce their tax by converting one kind of income into another kind taxed at a lower rate. In the case of a pure flat tax — that is, a tax with one rate and no tax-free threshold — the tax rate could be lower, and the rich couldn’t claim multiple thresholds by splitting income between persons or between financial years.

But of course such reforms would make the tax system less progressive — a “progressive” tax being a tax that takes a higher fraction of income as income increases.

Well, it so happens that the more income people earn, the higher the fraction of their annual income that they tend to have tied up in assets. This fraction rises very rapidly with income; for example, if you can barely pay the mortgage on your home, you probably know of people who own numerous properties but whose salary is only slightly higher than yours.

So a pure flat tax on asset values — that is, a certain small percentage of the value per year, with no tax-free threshold — is highly progressive because “progressiveness” is defined in terms of income, not assets. With no threshold, there is no possibility of juggling assets to claim multiple thresholds. What if your income was high in the past but is now low — e.g. because you have retired — leaving you asset-rich but income-poor? No problem: you can defer the tax until you sell or bequeath the asset; deferral takes the place of thresholds. If the flat asset tax is confined to assets that taxpayers can neither create nor destroy nor move out of the taxing jurisdiction — assets such as land and monopolies — taxpayers’ efforts to minimize their tax by rationalizing their asset holdings do not affect the total stock of assets and therefore do not cause any overall loss of revenue. So all the advantages claimed for a pure flat (income) tax are retained.

We don’t have to choose between flat taxation and progressive taxation. By taxing assets instead of income, we can have a tax that is both flat and progressive!

SPIN: The First Home Owners’ Grant (FHOG) helps first-time home buyers enter the market.

FACT: More precisely, the FHOG helps first-time buyers to compete with other buyers who can use the equity in their old homes to bid up prices. But by increasing bids from first-time buyers, the FHOG also raises prices, especially at the bottom of the market where first-time buyers are concentrated. Thus the FHOG partly defeats its own purpose. Moreover, the FHOG only helps people who are rich enough to be contemplating home ownership; it does nothing for life-long renters.

SOLUTION: Make the grant available only for new homes in order to encourage construction, so that the increase in demand is offset by the greatest possible increase in supply. Then make the grant available to investors as well as intending owner-occupants, so that the increase in supply extends to rental accommodation. But keep the grant in the form of a fixed sum per dwelling, so that investors have an incentive to build a larger number of cheaper dwellings rather than a smaller number of more expensive ones; that maximizes the supply at the affordable end of the market. In short, turn the FHOG into a New Home Builder’s Grant.

Because new homes and “first homes” historically account for similar fractions of turnover in the housing market, this reform would be roughly budget-neutral. But more of the outlay would be spent on increasing the supply of housing for the benefit of renters and first-time buyers, not pumping up prices for the benefit of established investors.

In 1978 the voters of California, resentful of increases in property tax assessments caused by rapidly rising land values, enacted Proposition 13, which added Article 13A to the state constitution. This Article limited annual property taxes to 1% of the assessed value, capped annual increases in the taxable value until the property was sold, and required that the assessed value be the combined value of land and buildings — not the value of the land alone as with the Australian “land tax”. Thus the voters ensured that property owners would be taxed more heavily than ever before, because land tax takes only as much from property owners as it delivers to the Treasury, while almost every other tax takes more from property owners than it delivers to the Treasury.

The overall supply of land is fixed. From the viewpoint of the taxpayer, the supply of land zoned for any particular purpose is also fixed, as is the supply of land within acceptable distance of any particular services, infrastructure, or markets. Yet access to suitably located land is essential to life and livelihood. Therefore land rents and land prices are competed upward until they absorb the entire capacity to pay. All taxes are deductions from that capacity. If a tax is only a deduction from taxpayers’ capacity to pay for land, it will take as much from landowners as it delivers to the Treasury. But most taxes do more than that; most taxes target productive transactions, causing otherwise viable transactions and hence otherwise viable enterprises to become unviable. Thus they reduce the total capacity to pay for land — and reduce the income of landowners — by more than the tax paid: property owners are overcharged!

Direct taxation of land values avoids the overcharge because the taxable value is independent of, and therefore cannot deter, any productive activity of the taxpayer. (Even selling the land does not destroy the taxable value or the incentive to use the asset productively, but merely transfers both to the buyer.) As there is no loss of production, property owners suffer no loss apart from the actual tax paid.

Voters don’t have a choice between property taxes and non-property taxes. They have a choice between visible, efficient property taxes and hidden, inefficient property taxes. The voters of California picked the latter.

Opinion pollsters have consistently found that voters are more likely to support or tolerate a proposed tax if the revenue is hypothecated (i.e. reserved or “earmarked”) for a purpose of which the voters approve. They catch is: how can the voters know that the revenue will be spent as promised?

For example, a rational property owner should support a property tax if the revenue is spent on infrastructure that raises his/her property values by more than the amount of the tax. But how does the owner know that the tax will be spent in that way?

If the tax is properly implemented, the answer is: “Because if the government doesn’t spend the revenue as promised, it won’t get the revenue!”

Suppose a tax recovers a fraction 1/x of all real increases in site values. Then the government will have a financial incentive to invest in any infrastructure project that increases site values by more than x times the cost of the project, because such a project will pay for itself (and more) through part of the uplift in site values that it causes, while the affected property owners will retain the rest of the uplift as an after-tax benefit. But if the government doesn’t proceed with the project, the uplift won’t happen and the associated revenue won’t come in. And you won’t contribute to that revenue unless your property increases in value.

A tax on uplifts in site values is not a means of raising revenue for promised projects that may or may not proceed as promised. Rather, it is a means of making desirable infrastructure projects pay for themselves if and only if they go ahead, so that the government doesn’t get the tax unless it delivers the infrastructure.

Victor Lebrun

Victor Lebrun was a personal friend and Secretary to Leo Tolstoy. This is a translation of his article published in the July 1956 issue of the French periodical, Contre-Courant, and reprinted in the July-September 1956 issue of the French Georgist magazine Terre et Liberte. Its historical interest, in view of the establishment of Communism in Russia in 1917, needs no emphasis.

In giving his extreme and sympathetic attention to other thinkers and writers, the great Tolstoy differed essentially from his colleagues - the geniuses of all countries and all centuries. But nothing shows the complete honesty and surprisng liberty of his spirit more than his attitude towards Henry George.

Conversion to Georgism

It was at the beginning of 1885 that he happened to lay his hands on the books of the great American sociologist. By then the moral and social doctrine of the thinker had been solidly and definitely established. Man’s supreme and unique duty was to perfect himself morally and not to co-operate with the wrong. Thus the social problem would be automatically solved when the majority has understood the true meaning of pure Christianity and when it has learned to abstain from all crimes which are frequently and commonly committed. All reasoning about the precise nature of the citizens’ rights, about laws, about the organisation of governmental compulsion for their protection is anathema to the great thinker.

But…hardly had Tolstoy had a glance at Social Problems and Progress and Poverty and he was completely captivated by George’s outstanding exposition. His strict daily routine is broken.

‘This morning I read George instead of writing’ ,Tolstoy confesses in a letter to his wife. Two days later he adds: ‘I read my George’. (He says ‘my’. He never said this of any other author). ‘This is a very important book. This is a step forward of equal importance to the liberation of our serfs. This is the liberation of the earth from private ownership.’

‘Their point of view in this matter is the control of men. And it is necessary to read George, who defined the problem with precision and definitively. After this there is no more debating, one has to take resolutely one side or the other. Personally I demand much more than he does: but his project is the first step of the ladder which I would like to climb.’

And the thinker does not hesitate any longer. From this encounter on he resolutely and enthusiastically takes George’s side, and to his last breath for a quarter of a century, he makes every effort without relaxation to make his discovery known. He publishes articles on George: he writes introductions to the remarkable translations of his works.

Letters to Stolypin

The correspondence of the Georgist Tolstoy with the Prime Minister of the time is also astonishing. Here the summits of the two camps clash, the two leading theories, those who ‘think right’ and the honest ones.

In 1907 the people were exasperated. The peasant revolt was in full swing. And the Minister made his soldiers fire at the crowds, hanged peasants almost daily, imprisoned and deported them by the thousands. The gallows had been named after him ‘Stolypin’s necktie’. Tolstoy suffered terribly from the crimes and the hatred he saw growing on both sides. Finally he lost his patience. On the 26th July, 1907, he sent word to the Prime Minister:

‘Peter Arcadievich, I write to you under the impulse of my best feelings towards the son of my friend.

‘You are on the wrong road. You have two possibilities in front of you: the one is to continue not only to take part in but direct all the deportations, forced labour, executions, and not having achieved your aim, leave behind you a sordid memory. Or, doing the opposite, advance the peoples of Europe by helping to destroy the old, enormous injustice of the appropriation of the soil. In the latter way you would truly accomplish a great and good task, and you would appease the people through the most efficient of processes by giving satisfaction to their most loyal demands.

‘This would stop these horrible crimes which are perpetrated on the side of the revolutionaries as well as on the side of the Government.

Leo Tolstoy’

It is after three months that the Minister decides to reply:

‘Leo Nicolaievich, don’t think that I have not given my attention to your letter. I couldn’t answer it because it touched me where it hurt. You consider to be wrong what I consider to be for the welfare of Russia…

‘I don’t deny the doctrine of Henry George but believe that the Single Tax could in time (sic) help in the struggle against the big estates. At present I don’t see any reason why we should, here in Russia, chase the owners from their lands, which they cultivate better than the peasants. Quite the contrary, I see the necessity of making it possible for the peasants to acquire a piece of land of their own…

‘How could I do anything else than what I consider to be right. And you write to me that I am on the road of bad repute, of cruel actions, and above all of sin. Believe me that, feeling the possibility of approaching death, one cannot avoid thinking of these questions, and my road seems straight to me. I understand that it is completely in vain that I write this letter.

‘Accept my apologies.

Yours, Stolypin.’

This is the Prime Minister’s answer. And he goes on with his countless crimes.

On the 28th January, 1908, Tolstoy loses patience:

‘Peter Arcadievich, why? Why are you losing yourself in going on with your erroneous action which can only lead to aggravation of the general situation and of your position in it? Courageous, honest and noble man, and I know you as such, should not persist with his errors, but should recognise them and direct his forces to correct their consequences…

‘Your two errors: the violent struggle against the irresistible force of the people, and the consolidation of the ownership of land can be corrected by a simple, clear and achievable reform. It has to be recognised that the territory of the country is the equal property of the entire population, and a land tax has to be established which would correspond exactly to the privilege enjoyed by each site. This rent would replace entirely all taxes.

‘Only this measure can appease the people … Only this measure can dispose of the horrible repression which those who revolt have to suffer …I repeat that I write this to you wishing you the best and loving you …

Leo Tolstoy.’

This second letter remained unanswered, but the terrible agony of the horrible regime remained.

Some time later the Prime Minister was assassinated by a revolutionary, and in 1918 the communists gained power. The hoarders of territory refused to pay the nation the economic rent. Now everything was taken from them. None escaped punishment.

It is terrifying to re-live this era, to re-read this correspondence.

The Economy of the Future

In thanking George for a present of his works, the master asks the intermediary to tell him that he is ‘ enchanted by the clarity, the mastery and conclusions of his expositions; that George was the first who had put down solid foundations for the economy of the future, and that his name would always be remembered with gratitude by mankind.’

Tolstoy wrote to his wife - at the time of George’s death: ‘Henry George is dead, it is strange to say but his death surprised me like the death of a very close friend. The newspapers announce his passing and do not even speak of his books, which are so remarkable and of such great importance.’

A fragment of Tolstoy’s introduction to Social Problems shows to what degree he appreciated his works. The great master wrote:

‘Henry George said: “To those who have never studied the subject, it will seem ridiculous to propose as the greatest and most far-reaching of all reforms a mere fiscal change. But whoever has followed the train of thought through which in preceding chapters I have endeavoured to lead, will see that in this simple proposition is involved the greatest of social revolutions - a revolution compared with which that which destroyed ancient monarchy in France, or that which destroyed chattel slavery in our Southern States were nothing”.

‘And see, this is just the enormous importance of the big and real reform proposed by George that has not been understood in the world until now.’ Tolstoy continues:

‘George’s idea which changes the way of living of the people, to the advantage of the big majority - at present downtrodden and silent, and to the detriment of the ruling minority–this idea is expressed so convincingly and effective- ly and above all so simply that it is impossible not to understand it. For this reason, there is only one way to fight against it, to falsify it and to keep silent about it. Both are practised with such pains that it is difficult to induce people to read George’s books attentively and to deepen his doctrine. In the whole world, among the majority of intellectuals the ideas of George continue to be misinterpreted, and the indifference towards them appears to grow.

‘But a precise, and consequently fertile thought, cannot be destroyed. However one tries to strangle it, it remains more alive than all the other doctrines which are vague and devoid of meaning and behind which one tries to force it. Sooner or later truth will pierce the veil by which it is hidden, and will throw light over the world.

Such is the thought of Henry George’.

Other Letters

To TM Bondaref, who had written from Siberia asking for information about the ‘Single Tax’. THIS IS Henry George’s plan:

The advantage and convenience of using land is not everywhere the same; there will always be many applicants for land that is fertile, well situated, or near a populous place; and the better and more profitable the land, the more people will wish to have it. All such land should, therefore, be valued according to its advantages: the more profitable - dearer; the less profitable - cheaper. Land for which there are few applicants should not be valued at all, but allotted gratuitously to those who wish to work it themselves.

With such a valuation of the land - here in the Toula Government, for instance - good arable land might be estimated at about 5 or 6 roubles the desyatina; kitchen-gardens in the villages, at about 10 roubles the desyatina; meadows that are fertilized by spring floods at about 16 roubles, and so on. In towns the valuation would be 100 to 500 roubles the desyatina, and in crowded parts of Moscow or Petersburg, or at the landing-places of navigable rivers, it would amount to several thousands or even tens of thousands of roubles the desyatina.

When all the land in the country has been valued in this way, Henry George proposes that a law should be made by which, after a certain date in a certain year, the land should no longer belong to any one individual, but to the whole nation - the whole people; and that everyone holding land should, therefore, pay to the nation (that is, to the whole people) the yearly value at which it has been assessed. This payment should be used to meet all public or national expenses, and should replace all other rates, taxes, or customs dues.

The result of this would be that a landed proprietor who now holds, say, 2,000 desyatina, might continue to hold them if he liked, but he would have to pay to the treasury - here in the Toula Government, for instance (as his hodling would include both meadow- land and homestead) 12,000 or 15,000 roubles a year; and, as no large landowners could stand such a pay- ment, they would all abandon their land. But it would mean that a Toula peasant, in the same district, would pay a couple of roubles per desyatina less than he pays now, and could have plenty of available land nearby, which he would take up at 5 or 6 roubles per desyatina. Besides, he would have no other rates or taxes to pay, and would be able to buy all the things he requires, foreign or Russian, free of dutv. In towns, the owners of houses and manufactories might continue to own them, but would have to pay to the public treasury the amount of the assessment on their land.

The advantages of such an arrangement would be:

1. That no one will be unable to get land for use.
2. That there will be no idle people owning land and making others work for them in return for permission to use that land.
3. That the land will be in the possession of those who use it, and not of those who do not use it
4. That as the land will be available for people who wish to work on it, they will cease to enslave themselves as hands in factories and works, or as servants in towns, and will settle in the country districts.
5. That there will be no more inspectors and collectors of taxes in mills, factories, refineries and workshops, but there will only be collectors of the tax on land which cannot be stolen, and from which a tax can be most easily collected.
6. (And chiefly) That the non-workers will he saved from the sin of exploiting other people’s labour (in doing which they are often not the guilty parties, for they have from childhood been educated in idleness, and do not know how to work), and from the yet greater sin of all kinds of shuffling and lying to justify themselves in commiting that sin; and the workers will be saved from the temptation and sin of envying, condemning and being exasperated with the non-workers, so that one cause of separation among men will be destroyed.

To a German Propagandist of Henry George’s Views.

It is with particular pleasure that I hasten to answer your letter, and say that I have known of Henry George since the appearance of his Social Problems. I read that book and was struck by the justice of his main thought - by the exceptional manner (unparalleled in scientific literature), clear, popular and forcible, in which he stated his cause - and especially by (what is also exceptional in scientific literature) the Christian spirit that permeates the whole work. After reading it I went back to his earlier Progress and Poverty, and still more deeply appreciated the importance of its author’s activity.

You ask what I think of Henry George’s activity, and of his Single Tax system. My opinion is the following:

Humanity constantly advances: on the one hand clearing its consciousness and conscience, and on the other hand rearranging its modes of life to suit this changing consciousness. Thus, at each period of the life of humanity, the double process goes on: the clearing up of conscience, and the incorporation into life of what has been made clear to conscience.

At the end of the eighteenth century and the commencement of the nineteenth, a clearing up of conscience took place in Christendom with reference to the labouring classes - who lived under various forms of slavery - and this was followed by a corresponding readjustment of the forms of social life, to suit this clearer consciousness: namely, the abolition of slavery, and the organization of free wage-labour in its place. At the present time an enlightenment of men’s consciences is going on in relation to the way land is used; and soon, it seems to me, a practical application of this new consciousness must follow.

And in this process (the enlightenment of conscience as to the utilization of land, and the practical application of that new consciousness), which is one of the chief problems of our time, the leader and organizer of the movement was and is Henry George. In this lies his immense, his pre-eminent, importance. He has helped by his excellent books, both to clear men’s minds and consciences on this question, and to place it on a practical footing.

But in relation to the abolition of the shameful right to own landed estates, something is occurring similar to what happened (within our own recollection) with reference to the abolition of serfdom. The Government and the governing classes - knowing that their position and privileges are bound up with the land question - pretend that they are preoccupied with the welfare of the people, organizing savings banks for workmen, factory inspection, income taxes, even eight-hours working days - and carefully ignore the land question, or even, aided by compliant science, which will demonstrate anything they like, declare that the expropriation of the land is useless, harmful, and impossible.

Just the same thing occurs, as occurred in connection with slavery. At the end of the eighteenth and the beginning of the ninteenth centuries, men had long felt that slavery was a terrible anachronism, revolting to the human soul; but pseudo-religion and pseudo- science demonstrated that slavery was not wrong, that it was necessary, or at least that it was premature to abolish it. The same thing is now being repeated with reference to landed property. As before, pseudo- religion and pseudo-science demonstrate that there is nothing wrong in the private ownership of landed estates, and that there is no need to abolish the present system.

One would think it would be plain to every educated man of our time that an exclusive control of land by people who do not work on it, but who prevent hundreds and thousands of poor families from using it, is a thing as plainly bad and shameful as it was to own slaves; yet we see educated, refined aristocrats - English, Austrian, Prussian, and Russian - making use of this cruel and shameful right, and not only not feeling ashamed, but feeling proud of it.

Religion blesses such possessions, and the science of political economy demonstrates that the present state of things is the one that should exist for the greatest benefit of mankind.

The service rendered by Henry George is that he has not only mastered the sophistries with which religion and science try to justify private ownership of land, and simplified the question to the uttermost, so that it is impossible not to admit the wrongfulness of land-ownership - unless one simply stops one’s ears - but he was also the first to show how the question can be practically solved. He first gave a clear and direct reply to the excuses, used by the enemies of every reform, to the effect that the demands of progress are unpractical and inapplicable dreams.

Henry George’s plan destroys that excuse, by putting the question in such a form that a committee might be assembled tomorrow to discuss the project and to convert it into law. In Russia, for instance, the discussion of land purchase, or of nationalizing the land without compensation, could begin tomorrow; and the project might - after undergoing various vicissitudes - be carried into operation, as occurred thirty-three years ago* with the project for the emancipation of the serfs.

The need of altering the present system has been explained, and the possibility of the change has been shown (there may be alterations and amendments of the Single Tax system, but its fundamental idea is practicable); and, therefore, it will be impossible for people not to do what their reason demands. It is only necessary that this thought should become public opinion; and in order that it may become public opinion it must be spread abroad and explained - Which is just what you are doing, and is a work with which I sympathize with my whole soul, and in which I wish you success. [1897.]

* The Emancipation of the Serfs in Russla was decreed in 1861, and was accomplished during the following few years.

Tolstoy, Leo, Essays and Letters, Oxford University Press, 1911,

Chapter XV1 Letters on Henry George, pp 213 - 238

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

by Upton Sinclair

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.

This condition wrecked every empire in the history of mankind, and it is wrecking modern civilization. One of the first to perceive this was Henry George, and he worked out the program known as the Single Tax. Let society as a whole take the full rental value of land, so that no one would any longer be able to hold land out of use. So the value of land would decrease, and everyone could have land, and the community would have a great income to be spent for social ends.

A few years ago, out here in Southern California, a fine enthusiast by the name of Luke North started what he called the “Great Adventure” movement, to carry California for the Single Tax. I did what I could to help, and in the course of the campaign discovered what I believe is the weakness of the Single Tax movement. Our opponents, the great rich bankers and land speculators of California, persuaded the poor man that we were going to put all taxes on this poor man’s lot, and to let the rich man’s stocks and bonds, his inheritance, his wife’s jewels, and all his income, escape taxation. The poor man swallowed this argument, and the “Great Adventure” did not carry California.

So, I no longer advocate the Single Tax. I advocate many taxes. I want to tax the rich man’s stocks and bonds, also his income, and his inheritances, and his wife’s jewels. In addition, I advocate a land tax, but one graduated like the income tax. If a man or a corporation owns a great deal of land, I want to tax him on the full rental value. If he owns only one little lot, I don’t want to tax him at all. Some day that measure will come before the voters of California, and then I should like to see the bankers and land speculators of the state persuade the poor man that the measure would not be to the poor man’s advantage!

…I have before me a little book entitled “Enclaves of Economic Rent,” by C. W. Huntington….This book is published by Mr. Fiske Warren, a millionaire paper manufacturer who lives at Harvard, Massachusetts, and believes in the Single Tax by way of enclaves….I sought to persuade Mr. Warren that a great crisis was impending; that the inequality of wealth in our society a thing continually growing worse, was bound to bring a smash-up long before mankind had been persuaded to live in enclaves. To this Mr. Warren answered, in substance: “You may be right; but if this civilization collapses, something else will have to be put in its place, and it may be useful to men to have a model of a better community.”

…How are these enclaves run? The principle is very simple. The community owns the land, and fixes the site value year by year, and those who occupy the land pay the full rental value of the land they occupy. Improvements of any kind are not taxed; you pay only for the use of what nature and the community have created. The community takes all this wealth and uses it, first to pay all the taxes on the land [and buildings -ds] the remaining money being expended for community purposes, by the democratic vote of all.

What this means in practice you can see from the town of Fairhope, Alabama. Fairhope began nearly thirty years ago, with three hundred and fifty acres, and now has nearly four thousand acres. Its land is estimated to be worth a million dollars. But instead of this wealth being distributed among private owners, in accordance with the guessing power or each individual, the whole rental value is the property of the community, and the whole community prospers by the labors of each one.

What this means in the way of moral values you may judge from one sentence in the little book: and I will follow the example of the book and quote this sentence in the same cold and unemotional fashion: “No resident of Fairhope has been defendent in a criminal case in county court.” Perhaps I should add that there is no place except the county court where anyone could be a defendent; there has never been a court or jail or anything of that sort in Fairhope.

Or take the colony of Arden, Delaware, which is just south of Philadelphia. I could not say that no resident of Arden has ever been a defendent in a court–I myself having been one of eleven men who were arrested by a constable from the city of Wilmington, and sent to prison for the crime of playing baseball and tennis on Sunday! It is that kind of humourous story which you read about Arden, and not the seriousefforts which are there being made to solve a great and pressing social problem.

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.

The above essay by Upton Sinclair is from Enclaves of Economic Rent C. W. Huntington (ed), Fiske Warren, Harvard Massachusetts, 1924

Dan Sullivan

What I find particularly interesting is a passage that, to me, shows how class envy was used to shift us from the highly principled Georgist message to the “us-them” Marxist message. Here is the passage to which I refer:

“A few years ago, out here in Southern California, a fine enthusiast by the name of Luke North started what he called the “Great Adventure” movement, to carry California for the Single Tax. I did what I could to help, and in the course of the campaign discovered what I believe is the weakness of the Single Tax movement. Our opponents, the great rich bankers and land speculators of California, persuaded the poor man that we were going to put all taxes on this poor man’s lot, and to let the rich man’s stocks and bonds, his inheritance, his wife’s jewels, and all his income, escape taxation. The poor man swallowed this argument, and the “Great Adventure” did not carry California.

“So, I no longer advocate the Single Tax. I advocate many taxes. I want to tax the rich man’s stocks and bonds, also his income, and his inheritances, and his wife’s jewels. In addition, I advocate a land tax, but one graduated like the income tax. If a man or a corporation owns a great deal of land, I want to tax him on the full rental value. If he owns only one little lot, I don’t want to tax him at all. Some day that measure will come before the voters of California, and then I should like to see the bankers and land speculators of the state persuade the poor man that the measure would not be to the poor man’s advantage!”

Of course, what happened when lefties like Upton Sinclair sold out to the expedient of class envy, was that the privileged classes strategically caved on these other taxes, so that now we do tax the rich man’s stocks and bonds (and also the poor man’s retirement funds) and his inheritances (if he is not rich enough to hold them overseas) and his wife’s jewels (which merely causes unemployment among jewelers). And since these various unprincipled measures have been disastrous, people are now suspicious of any tax that falls on the rich, including the one proper tax, for which Mr. Sinclair, had he not been impatient for cheap victories, would have held out.

It is often asserted that Henry George paved the way for the Progressive Movement, which in turn paved the way for the Socialist Movement. This passage, to me, is the *essential* description of how our own “allies” derailed us.

Thus I regard as critically important, the following passage from paragraph 18 of Tom Paine’s “Agrarian Justice”:

“While, therefore, I advocate the right, and interest myself in the hard case of all those who have been thrown out of their natural inheritance by the introduction of the system of landed property, I equally defend the right of the possessor to the part which is his.”

We must oppose those who would make public property private, but we must equally oppose those who would make private property public. In my opinion, Georgism was undone, not by its enemies, but by its shallower allies who were more enamored of victory than of principle.

The rest of the Upton Sinclair article is wonderful, but this passage is especially wonderful in its own perverse way, because it is a window into exactly where the movement went astray.

Dan Sullivan