A New Route to Social Equity: Henry George and the Science of Geonomics
Throughout the modern era there has been a near-constant struggle between the principles of social justice expressed by eighteenth century writers like Tom Paine and even Adam Smith, and the desire of the rich to monopolize both wealth and power. Paine and the French Physiocrats observed that land and natural resources were provided by God or nature for the use of all, and that nothing could be made or grown without access to them. They argued that because the land and natural resources were provided by Providence and not by any human act, equity demanded that their fruits be shared by all. To be sure, work and tools were required to grow crops or mine ore, and those who provide them should receive fair compensation. But the value provided by nature should not accrue to any individual.
Socialists focus on control of the means of production, but without access to land and its resources wealth and machinery would be worthless. No one can exist, let alone produce anything without a place to do it, and both materials and, increasingly, energy are needed for any serious production. Because of its unique character, the Classical economists (unlike their “neop-classical” counterparts) recognized Land (including all natural resources) as a distinct factor of production, together with Labour and Capital.
Henry George (1839-1897), was the last of the great Classical economists. His first book, Progress and Poverty (1879), was the best-selling book in English to that date, save only the Bible. George wrote several other popular but substantial books, and also had an international reputation as a lecturer, speaking throughout the English-speaking world, from Australia to England. He greatly influenced philosophers and politicians from Leo Tolstoy and G. B. Shaw to Clarence Darrow, Sun Yat Sen and Winston Churchill, among many others.
Like Tom Paine, George drew a sharp distinction between land and capital. Capital, he said, was a subset of wealth, i.e. that part of wealth which is devoted to economic activity; to production, transportation, sales, or services provided for profit. Like labour, capital represents human effort and deserves fair recompense. Land, however, is another matter. It is produced by no person, and whoever uses it prevents others from doing so. Moreover, most of the economic value of land is created by society as a whole, not by the “owner”. Population growth creates demand for land and for resources, and population, together with public roads, pipelines, and utilities cause the value of land to rise even if the owner does nothing with it. Since the economic value of raw land and its natural resources results entirely from social action, that value should be shared by all and not accrue to any single “owner”. George said that this result could easily be accomplished by taxing away all or most of the “economic rent”— i.e. the rent that raw land or its resources would bring on the open market.
George added that society should collect the rent not only from land and natural resources, but also that accruing from special privileges such as patents and licenses like taxi licenses, radio and TV licenses, satellite orbits etc. which enable a few to profit from monopolies Everything beyond a fair return for the inventor or license holder’s time and ingenuity should accrue to society as a whole.
Neo-Classical Economics and the Appropriation of the Commons
George’s ideas were ridiculed by the new breed of academic “Neo-Classical” economists, who asserted that land and natural resources were merely subsets of capital, not qualitatively different from tools and factories. This doctrine represents a radical departure from Classical economics, and lies at the heart of “modern” or Neo-Classical economic theory. The private sequestration of land and other natural resources has become a fundamental dogma of the Neo-Classical faith.
Of course land holding is nothing new, nor was it in George’s day; but even now real estate is treated quite differently from other property. It has its own terminology and is governed by a discrete body of law. Even in England, the term “landowner” did not come into use until the 1600’s. The prior term was “landholder”. Unlike manufactured goods which are made by people and sold to others, so that their provenance can be traced to the maker, land tenure is rooted either in long habitation or more usually in violent theft—called conquest. The principal thief (‘king’ or ‘conqueror’) granted pieces of land to his followers who held ‘title’ to it from the thief-in-chief, the king. Unlike Labour, which is actual individual effort, or Capital, the title to which is rooted in the labour which gave it its form, title to Land is rooted in the private appropriation of a common resource, usually by force. Title to Land is almost invariably founded on the most recent theft to be legitimized by the local legal system.
It is not practical in modern society for most resources to be held in common. In practice, this usually leads to bureaucratic management which often benefits no one very much. True commons tend to suffer ‘The Tragedy of the Commons.’ Overuse or abuse benefits an abuser much more than it harms any individual user, so there is much more incentive to abuse than to prevent abuse, until it is too late. For example, if I put one more sheep on the common than it will adequately maintain, each person’s sheep will only be slightly less well nourished but I will have an extra sheep. This encourages others to also run more sheep, and soon the grass is gone.
Beginning with the Norman Conquest, much of England’s land was enclosed by those who rendered service to the king. Later on, those with the wealth and political power began to pass legislation legalizing their appropriation of the remaining commons (the ‘Enclosure’ movement). Nor did appropriation stop with the land. One after another, farmland, timber, hydrocarbons, minerals, fish, pollution and carbon sinks (such as air and water), plant and animal species and now even DNA sequences have been sequestered for private profit. Today, corporate scouts roam the planet looking for genetic material which might have commercial value, in order to patent it.
The privatization of public resources has been justified and applauded by the Neo-Classical economic priesthood, who claim that it creates a rising tide of prosperity that elevates all boats. This claim is repeated constantly, not only by economists and the business elite, but also by journalists and politicians. But no matter how large the crowds that admire the emperor’s fictional clothes, it does not change the fact that he is naked.
According to the Centre For Social Justice’s Growing Gap Report by Armine Yalnizyan, a Toronto Economist:, “The role of the transfer system (income supports from government) and tax system… provided remarkable stability in the distribution of incomes over the last generation. This stability is [now] deteriorating dramatically and rapidly: since 1994, the ratio of after-tax income between richest and poorest families has escalated to the highest point since 1973. The fastest change has been in the last year for which we have data, between 1995 and 1996… Governments have told us we can “grow our way to equity,” that the market will produce results that make everyone better off, but it’s becoming evident that inequality is growing in Canada despite economic growth.”
The inequity of ownership resulting from private sequestration of land is palpable in the statistics of land ownership, as is shown below:
|Location||Concentration of ownership|
|Brazil||2% of landowners control 60% of the arable land (as of 1985)|
|El Salvador||2% of the population owns 60% of the land|
|Great Britain||2% of the population owns 74% of the land|
|Pakistan||3% of the population owns 80% of the land|
|USAM||3% of population owns 95% of privately held land (as of 1979)|
|Florida||1% of the population owns 77% of the land|
(Data compiled by Alanna Hartzok)
In Arizona, California, Maine, Nevada, New Mexico and Oregon, one percent of the population owns over two-thirds of the land.
Nevertheless, there are real benefits to having a personal or family interest in land. How then can we reap the benefits of private use and enjoyment while maintaining the equity and sense of respect inherent in common ownership?
The Geonomic Solution
Henry George suggested that society should collect rent for the Land (as broadly defined) from those who command exclusive use of this common heritage. He recommended that the rent be used to replace existing taxes, which in those days were mainly tariffs and excise taxes, both of which tended to inhibit economic activity. Today, the principal taxes are income tax, payroll taxes and sales taxes, all of which impinge negatively on employment and economic activity, and which also tend to impact most heavily on people with lower incomes. They are also very hard to administer, requiring an army of accountants and tax collectors, and relatively easy to avoid or evade, creating an array of loopholes and exceptions, and a large “underground economy.”
- A Georgist or Geonomic tax code, based on the taxation of land and natural resources, but not of improvements to the land, has the following effects, among others:
- It reconciles common land and resource rights with private tenure, enabling society to collect the value accruing from its actions yet preserving the benefits of private ownership.
- It enables the reduction or elimination of payroll taxes and taxes on labour and capital, by shifting the burden to land and natural resources.It reconciles equity and efficiency, which Neo-Classical economists and institutions like the IMF and the WTO claim must be traded off against one another. Land is immobile and it cannot be hidden. Surprisingly, the value of residential lots tends to vary more than the value of the buildings on them. Open assessment records would ensure fairness. Resource taxes would help to assign their true value to dwindling natural resources which are often sold for far less than their replacement would cost, and in many cases (due to subsidies) for less even than the true cost of recovering them. Even radical Neo-Conservatives like Milton Friedman, who is opposed to all taxes, has acknowledged that the land tax is the least harmful tax.
- It can finance generous public services without driving away business or population and without stifling useful employment or taxing investment in real capital. Neither land nor resources are mobile. Those who would live or do business in a jurisdiction must use land to do so. At present, those who use land, whether to extract resources or build houses or business facilities, are often heavily subsidized. A land tax which recovered most of the economic rent would recover for the community the value created by the community.
- It contains urban sprawl by encouraging the intensive development of urban land and by making the developers and owners of suburban land pay more of the true costs of providing them with roads and utilities, which are now heavily subsidized by the rest of the community. It is much less costly to provide public utilities to developments in or near the urban core than in outlying districts. Most North American cities have very low population density. Since World War II the tendency has been to abandon urban cores for car-dependent suburbs, whose wide streets and large lots serve little purpose other than to keep neighbours apart. The preference for them is based more on habit than convenience or reason. Higher densities can actually make neighbourhoods safer and more vibrant. Narrow streets and front porches encourage social contact and promote safety. Greater density makes neighbourhood coffee shops, stores and mini parks—as well as public transit— economically and socially viable. Lack of sprawl preserves the surrounding countryside for agriculture, green space, and parks.
- It creates jobs without inflation or deficits. It is the only tax of any serious revenue potential that does not bear down on and suppress production and exchange. Unlike income and payroll taxes, it does not penalize work and employment. Unlike sales tax and GST it does not penalize production and trade. But it does assign their true value to natural resources and thereby offers a powerful incentive to husband and preserve them.
Geonomics meshes very comfortably with other tax shifting measures being advocated by many progressive economists and environmentalists. The general idea of green and equitable tax shifting is to stop taxing “goods” like employment, initiative, and economic activity and start taxing “bads” like carbon emissions and other pollutants, traffic congestion, speculative holding of vacant urban lots, and reckless use of common goods like fish, old growth forests, and water. An essential corollary is to stop the subsidizing of “bads” which is all too prevalent in modern society.
Jeffery Smith, the Portland-based founder of Geonomics, suggests that land taxes could not only fund necessary public services but also provide a "Geo-dividend," a basic income for everyone, as the Alaskan state oil royalty does for Alaskans.
The stated purpose of economic progress has always been to provide more goods with less effort, to provide greater leisure for people to pursue the arts and personal development. Today we have incalculably more total wealth and more efficient production than ever before, but we also have less balance. A few are immensely wealthy. But most working people work harder than ever just to stay afloat. Forty years ago, most families had only one member working outside the home. Today it usually takes two or more people working just to provide the basic necessities. Millions are unable to find even minimum wage work, and almost every day we hear of more mass layoffs and more deep wage cuts.
As Henry George said long ago, whoever is able to deny people access to the land is able to wring from them all but the barest means of subsistence. He can force them to work like slaves for less than the cost of maintaining slaves. Actual access to land is no longer practical for many people, but Geonomic taxes could recover the value of the land and other common resources for the good of all.