Wealth and Want author: Bill Batt

Papers prepared for the NYS Governor's Commission on Property Tax Relief [the Suozzi Commission]:

We face a far greater problem on account of the way in which America has allowed its landscape to be configured than most people today realize. Over-reliance upon the car causes inefficiencies in transportation patterns and thereby disenfranchises the poor, the disabled, the young and the old from their right to mobility. One 1993 study concludes that "when the full range of costs of transportation are tallied, passenger ground transportation costs the American public a total of $1.2 to $1.6 trillion each year. This is equal to about one-quarter of the annual GNP and is greater than our total national annual expenditure on either education or health." Just the costs of motor vehicle accidents nothing else represents a figure equal to 8 percent of the American Gross Domestic Product. Conventional American land use configurations and the automobile dependent lifestyle that goes with it sap our resources and what effort could be used for other ventures and activities. Since so much of this activity is consumption and not production, it weakens America's world economic position and precludes reinvestment in more productive areas. Because of the way in which we have encouraged development, people who need jobs are frequently too poor to own the cars necessary to get to them.

Because our society is characterized by suburban sprawl and is therefore motor vehicle dependent, community is destroyed. George Kennan expresses this well in the book cited earlier, but it is more empirically documented in a recent article entitled "Bowling Alone", which David Broder of the Washington Post considered the most important academic article of 1995. The author of that piece, Harvard Professor Bob Putnam, shows that our communal relationships are declining, and that an ever smaller proportion of the population is involved in social activities of a cooperative and communal nature. As Tocqueville noted, this used to be the unique strength of American society; we're now losing it. Suburban sprawl and the automobile play a large part in this. And the reason we have these land-use configurations is in good part, to my way of thinking, due to our property tax policies and our subsidies to motor vehicle transportation.

It doesn't take much reflection to realize that the practices which we are following are unsustainable. This is true not only environmentally but also economically and socially. Author James Howard Kunstler recently has described in his book Home from Nowhere how our cities are becoming not only ugly but unlivable. The irony is also that, by having followed the legacy of classical economics, we could easily have provided for all our government services through taxes based on land value. Read the whole article

All of these concerns been addressed by public policy measures of varying and imaginative quality over the course of the past half century, but success is at best mixed. It is difficult, however, to talk about the implementation of site value taxation without also taking into account how such a policy would fit with application of other instruments. ...

When one looks at the value of land in any broad way, its value will be highest at the center and falls as one looks out to the frontier. The highest value land, that with the greatest accrued rent, is at the very center of the city -- usually where the commercial parcels are located. In the spring of 1998, one land parcel (the building was to be razed) of less than an acre and split in two pieces in New York City's Times Square was sold by Prudential Life to Disney for an estimated $240 million,19 more than the value of all the land and buildings together in the lands north of the Mohawk River/Erie Canal in New York State. The highest value land is typically surrounded by a belt of residential areas, and with farmlands starting at the fringe. The more valuable parcels are taxed, the more their titleholders will find ways to recover their carrying costs. And it cannot affect the behavior of tenants as any change in burden is not passed through. In this sense, land value taxation fosters clustered development and reverses the egregious patterns of sprawl. ...

And since we know that it is typically the wealthier element of the society that owns there is a certain fairness in this. Of those parcels that currently pay taxes on their real property, about half are homeowners, and the remainder are commercial, industrial, and agricultural titleholders. Agricultural parcels typically have very little market value because their location is so remote; they would have little if any tax burden. Commercial parcels, in contrast, are usually sited in very high value locations, and therefore would pay the most. A shift of taxes away from buildings and onto land alone typically relieves homeowners, and adds to the burden of high value parcels (usually in commercial cores) that are underused relative to their value -- fully depreciated structures, parking lots, drive-in banks, gas stations, fast food services, and so on. Read the whole article

Today, on the other hand, the unearned surplus which classical economists called rent attaches to monopoly titles -- largely the scarce goods and services of nature like locational sites, and has totally disappeared from economic calculus. Yet this is the primary vehicle by which wealth is captured by economic elites. If government recaptured the socially-created economic rent from land sites that comes from the investment of the collective community, we could eliminate other taxes that are both more onerous and create a drag on the economy that makes us all poorer. There are many websites that explain how this can be done, ways that not only beget greater economic efficiency but also bring about economic justice.(2) The surplus economic rent that derives from community effort is its rightful entitlement. ...

... capital investments affect the market value of locational sites by conveying rent to those in any way benefitting from the service. That rent accruing to proximate sites and can easily recaptured to pay off the debt service of project construction. Typically rent collection is ignored, however, left instead in the hands of titleholders whose sites are serviced by the infrastructure investment. This drives speculation in land, with all the negative effects it brings both economically and politically. In fact the rent created by capital investment in transportation can be enormous.

This paper constitutes an effort to compare, and if possible to integrate, the emerging discipline of ecological economics with Georgist economics. Ecological economics has the current distinction of having established, to its credit, a collegial, cross-disciplinary organization, a professional journal, and at least one graduate program authorized to grant doctorates in this subject. It has established itself sufficiently to have had annual international conferences for a decade and a half, and seen its works cited in several other scholarly disciplines. Georgist economics, while having no established doctoral program so distinctively tailored, has among its fold many economists of established pedigree, and many others outside the academy who contribute significantly to its discourse. There have been Henry George Schools in major cities around the world for decades, a network of organizations, frequent conferences, and at least thirty websites that exist to explicate and purvey the Georgist outlook.

The starting point of the Georgist framework is rigorous definition of the three factors of production— land, labor, and capital, as in classical economics. It should be further pointed out that these factors are mutually exclusive and jointly exhaustive of all things of economic value. Something must necessarily be in one category or another; there is nothing outside this total classification. Understanding of what constitutes labor differs little from definitions given elsewhere, regardless of which theory is used. But definitions of land and capital differ somewhat from common practice as well as sometimes in theory. Therefore, it is helpful to spend time explicating the definitions of each as they are used in Georgism, and to point out where these definitions diverge from those most often employed in neoclassical economics applications. Many contemporary economics texts begin by taking note of the land-labor-capital distinction, but then make little use of it later. These distinctions will make apparent why Georgist economics leads to very different explanations of economic phenomena as well as to different policy solutions.

Critical to an understanding of Georgist economics is its recognition of land as a special and unique factor of production. “Land,” to Georgists, as true for classical economists throughout the 19th century, is taken to mean not just the surface of the earth and locational space; it means also any and all those natural resources and non-human works that today can exact a market price. It includes the wealth of the earth in all its natural forms, the air and water as well as material elements. It includes phenomena of value like the electromagnetic spectrum used to transmit communications signals, and landing time slots such as have value at airports. As the world economies enter a new age of high technology, these radio spectrums and time allotments have gained ever increasing value. So also with geosychronous satellite orbits and most recently the genetic codes of all the biota on earth.10

Sites have value relative to their location, and this is largely a function of where people choose to congregate. The highest value lands, in urban areas and in developed nations, have market worth many times that of sites even short distances away. Remote land sites sometimes have no market value whatsoever, and they are typically not “owned” by private individuals or corporations because they are not attractive for economic use. ...

... it becomes important, critically important, to understand the meaning of “ownership” and “property” in the Georgist lexicon. But it is not difficult, for they continue to have their classical meanings, just as for John Locke, Adam Smith, and all the major forerunners and thinkers of classical economics until the advent of neoclassical economics. What was the meaning of ownership and property in their classical sense? Property was the product of human labor and capital, and that alone. Items of property were household goods, personal attire, armaments, and similar such goods. Property belonged in the category of capital. Land was not part of property, but rather was its own category. Land, broadly defined, belonged to everyone and was the common heritage of all humanity. One could no more “own” land than one could own water, air, or other parts of nature, at least in the sense of ownership that people often use today. Much like the native-American concept of ownership, it was part of what was classically called “ the commons.” “What is this you call property?” Massasoit, a leader of the Wampanoag, asked the Plymouth colonists whom he had befriended in the 1620s. “It cannot be the earth, for the land is our mother, nourishing all her children, beasts, birds, fish, and all men. The woods, the streams, everything on it belongs to everybody and is for the use of all. How can one man say it belongs to him?” Indeed Georgists see a moral equivalency between monopoly ownership of land and nature and the ownership of slaves! ...

Lastly, one must appreciate that the market value of “land” of every sort is entirely rent, as there is no human factor of labor that accounts for its origination. Services of nature have no prior cost to bring them into production existence — the electromagnetic spectrum, for example, exists regardless of human presence on earth and so presumably does time. Ocean fish, fossil fuels, and heavy metals are all found in nature, not the result of human creation. They are, in 19th century classical economics, the fruits not of man’s labor but of God’s. And it is to God, or at least to God’s representative on earth — the lords and kings — that rent was owed, just as much as it was their role to provide reciprocal services to the tenants of the land. That bargain, so well refined in feudal economic arrangements, was an equilibrium balance, disrupted, one might say, by the annulment of rent collection and the exploitation of land without recognition of its price. The practice effectively ended with what in Britain is known as the “enclosure movement” of the early Tudor reign, driving the peasants off the land into cities to provide cheap labor for the early English industrialists.28 But the theory continued long afterwards. Georgists today argue that land rent should be collected from titleholders so that it is not left to render economic distortions. This in turn affects the price of labor and the price of money. Government’s role, whatever else it does, is at the very least responsible for defending the commons, to ascertain titles and to collect rent. Although there are many differences about the proper role, scope and domain of government among Georgist adherents, the collection of rent and the supervision of open markets is central to its tenets. Read the whole article

During the height of debate about American involvement in Vietnam, the argument was frequently made that, if we didn’t stop the communists in Southeast Asia, they would be at the shores of California in five or ten years. The challenge to America, it was proposed, was to stop the initiatives far from where there would be any danger threatening to us, even at great cost, and even if the immediate threat to us was inconsequential. You will recall this as the “domino theory,”1 one of the prime arguments for American involvement in Southeast Asia.

We often hear opposition to a policy proposal because it approaches a practice that “down the line” we find abhorrent, even though there is nothing particularly offensive about the proposal itself. The English language is replete with metaphors about practices which, once started, will evolve beyond the capacity of our own control. We speak, for example, of chain reactions (here the reference obviously to nuclear energy), or of things being inexorable or inevitable once begun. The metaphors are usually mechanistic and from the physical world, even when discussing political, economic, social or psychological dynamics.

Consider some others which you will recognize immediately. We must be wary of “letting the genie out of the bottle,” or allowing “the camel’s nose under the tent,” or “opening Pandora’s box, “or “leading [anyone] down the garden path.” So we must “nip things in the bud,” because otherwise we will “open up the floodgates” and “if we give them an inch, they’ll take a mile.” If you can think of others, let me know; I’m making a collection of them.

These are known in philosophy as wedge arguments. We’re hearing them more and more, perhaps because public policy matters are framed by politicians and pundits in sound bite format. Search “slippery slope” on the web and you’ll come up with hundreds of hits. The arguments seem, on their face, difficult to answer, even if we’re often nonetheless vaguely uncomfortable with them. What I hope to do here is to explore in an analytic way what in these arguments is sound and what is fallacious or preposterous. Some recent textbooks in logic have taken pages to analyze these patterns of thought — but how many of us have taken a course in logic recently! ...

Some explanations reflect downright corruption. The earliest cars manufactured in this country and in Europe were electric; streetcars also were largely electric powered until a conspiracy of the automobile and petroleum industry exerted its force to ensure that fossil fuel powered motor vehicles would dominate our transportation and land use patterns.15 Our motor-vehicledependent and urban sprawl configurations can be explained by powerful interests continually pressing for policies to make us so. One might even conclude that the decision to drive on the right side of the road was equally as much a defining moment.

And I hope that you will forgive me for mentioning another great conspiracy in American history, the subject of my Torch presentation about four years ago. That story recounted how the American railroad industry, in collusion with the banks, induced the founders of the American economics profession to change definitions and formulas so that they would be relieved of taxation on their land holdings and speculation would be rewarded.16 This dividing line between classical and neoclassical economics is responsible I believe for many of our economic problems today—economic cycles, an inequitable tax structure, poverty and unemployment, urban sprawl and the gutting of urban centers. Only now is this economic ideology, almost sacrosanct for a century, falling apart and seen for what it is. Read the whole article

These figures are even today the honored founders of an esteemed profession. So great was their victory over rival schools of thought that they are a century later seen as paragons of clear thinking and virtue. The intrigue and the inside deals are long forgotten. The lineage to contemporary scholarship continues in a "chain unbroken from Seelye to Clark to Johnson to Knight to Stigler, Friedman, Harberger and now thousands of Chicago-oriented economists." Indeed, when Henry George ran for mayor of New York in 1897, it was against the wealthy patrician Seth Low, President of Columbia University, who had recently recruited Clark to come to Columbia. To really understand the academic tension of the period, one must look at the published papers, the speeches and debates, the newspaper articles, and the citations at the end of those articles. These, even more than the interlocking directorates of faculty appointments, explain how much George was opposed, perhaps more feared. Was it for the falsity of his views? Clearly not, as few critics then or since then have managed to strike a knock-out blow against his theories. Rather, it was the threat George represented to powerful interests that required him to be defeated, and in doing so they succeeded but only in the short run, as they were within decades victims of their very successes. Today we see that the railroads have failed in this country for lack of traffic. It will soon be evident why. Read the whole article

It is often argued that the most efficient solution to the challenge of providing water to all people is to employ a paradigm that recognizes water as a good and service to be priced by market mechanisms. But many conventional economic models fail to see water as the natural birthright of all people. To reconcile these positions, one needs to step back to a framework of thinking arising from 19th century classical economics. Renewed interest in these, especially by environmentalists, offers a way of resolving distributive justice with market efficiency. If you search on Google the words "economic justice," it brings up first the work of the Banneker Center and associated sites that rely on a social philosophy especially applicable to questions about the ownership of nature and its services. ...

But only recently, with the advent of data availability and increased computer power, is it possible to demonstrate that Henry George was right: i.e. that taxing what he called "land" - really meaning all natural capital and resources rather than labor or human capital - constitutes the best possible tax design we could have.

If these natural resources are a "commons" worthy of being preserved as the birthright of all humanity, their use can be rented at rates sufficient to cover the costs of not only the provision of those services but for all public needs. All taxes are ultimately shifted through the economy to rest on what classical economists call land rent in any 9case, and levying the taxes directly on rent improves efficiency by eliminating "deadweight loss." Moreover, taxing or collecting what classical economists call economic rent bears all the hallmarks of a perfect tax -- fairness, simplicity, stability, administrability, neutrality, and efficiency.

Wealth and Want
... because democracy alone is not enough to produce widely shared prosperity.
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... because democracy alone hasn't yet led to a society in which all can prosper