Adam
Smith
Civil government, so far as it is instituted for the security of property,
is in reality instituted for the defense . . . of those who have some property
against those who have none at all. — Adam Smith, 1776
As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed, and demand a rent even for its natural produce. — Adam Smith, Wealth of Nations
"Both ground-rents and the ordinary rent of land are a species of revenue which the owner, in many cases, enjoys without any care or attention of his own. The annual produce of the land and labour of the society, the real wealth and revenue of the great body of the people, might be the same after such a tax as before. Ground-rents, and the ordinary rent of land are, therefore, perhaps the species of revenue which can best bear to have a peculiar tax imposed upon them."
Henry George: Progress & Poverty: Wages & Capital:
The Meaning of the Terms (Book I, Chapter 2)
"That part of a man's stock," says Adam Smith (Book
II, Chap. 1), "which he expects to afford him a revenue, is called his
capital," and the capital of a country or society, he goes on to say,
consists of
(1) machines and instruments of trade which facilitate and abridge
labor;
(2) buildings, not mere dwellings, but which may be considered instruments
of trade -- such as shops, farmhouses, etc.;
(3) improvements of land which better fit it for tillage or culture;
(4) the acquired and useful abilities of all the inhabitants;
(5) money;
(6) provisions in the hands of producers and dealers, from the sale of which
they expect to derive a profit;
(7) the material of, or partially completed, manufactured articles still in
the hands of producers or dealers;
(8) completed articles still in the hands of producers or dealers.
The first four of these be styles fixed capital, and the last four circulating
capital, a distinction of which it is not necessary to our purpose to take
any note. ... read the entire chapter
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
4. CONFORMITY TO GENERAL PRINCIPLES OF TAXATION
The single tax conforms most closely to the essential principles of Adam
Smith's four classical maxims, which are stated best by Henry George 19 as
follows:
The best tax by which public revenues can be raised is evidently that which
will closest conform to the following conditions:
- That it bear as lightly as possible upon production — so as least
to check the increase of the general fund from which taxes must be paid
and the community maintained. 20
- That it be easily and cheaply collected, and fall as directly as may
be upon the ultimate payers — so as to take from the people as little
as possible in addition to what it yields the government. 21
- That it be certain — so as to give the least opportunity for tyranny
or corruption on the part of officials, and the least temptation to law-breaking
and evasion on the part of the tax-payers. 22
- That it bear equally — so as to give no citizen an advantage or
put any at a disadvantage, as compared with others. 23
19. "Progress and Poverty," book viii. ch.iii.
20. This is the second part of Adam Smith's fourth maxim.
He states it as follows: "Every tax ought to be so contrived as
both to take out and to keep out of the pockets of the people as little
as possible over and above what it brings into the public treasury of
the state. A tax may either take out or keep out of the pockets of the
people a great deal more than it brings into the public treasury in the
four following ways: . . . Secondly, it may obstruct the industry of
the people, and discourage them from applying to certain branches of
business which might give maintenance and employment to great multitudes.
While it obliges the people to pay, it may thus diminish or perhaps destroy
some of the funds which might enable them more easily to do so."
21. This is the first part of Adam Smith's fourth maxim,
in which he condemns a tax that takes out of the pockets of the people
more than it brings into the public treasury.
22. This is Adam Smith's second maxim. He states it as
follows: "The tax which each individual is bound to pay ought to
be certain and not arbitrary. The time of payment, the manner of payment,
the quantity to be paid, ought all to be clear and plain to the contributor
and to every other person. Where it is otherwise, every person subject
to the tax is put more or less in the power of the tax gatherer."
23. This is Adam Smith's first maxim. He states it as
follows: "The subjects of every state ought to contribute towards
the support of the government as nearly as possible in proportion to
their respective abilities, that is to say, in proportion to the revenue
which they respectively enjoy under the protection of the state. The
expense of government to the individuals of a great nation is like the
expense of management to the joint tenants of a great estate, who are
all obliged to contribute in proportion to their respective interests
in the estate. In the observation or neglect of this maxim consists what
is called the equality or inequality of taxation."
In changing this Mr. George says ("Progress
and Poverty," book viii, ch. iii, subd. 4): "Adam Smith
speaks of incomes as enjoyed 'under the protection of the state'; and
this is the ground upon which the equal taxation of all species of
property is commonly insisted upon — that it is equally protected
by the state. The basis of this idea is evidently that the enjoyment
of property is made possible by the state — that there is a value
created and maintained by the community; which is justly called upon
to meet community expenses. Now, of what values is this true? Only
of the value of land. This is a value that does not arise until a community
is formed, and that, unlike other values, grows with the growth of
the community. It only exists as the community exists. Scatter again
the largest community, and land, now so valuable, would have no value
at all. With every increase of population the value of land rises;
with every decrease it falls. This is true of nothing else save of
things which, like the ownership of land, are in their nature monopolies."
Adam Smith's third maxim refers only to conveniency of
payment, and gives countenance to indirect taxation, which is in conflict
with the principle of his fourth maxim. Mr. George properly excludes
it.
a. Interference with Production
Indirect taxes tend to check production and cause scarcity, by obstructing
the processes of production. They fall upon men as they work, as they
do business, as they invest capital productively. 24 But the single
tax, which must be paid and be the same in amount regardless of whether the
payer works or plays, of whether he invests his capital productively or wastes
it, of whether he uses his land for the most productive purposes 25 or in lesser
degree or not at all, removes fiscal penalties from industry and thrift, and
tends to leave production free. It therefore conforms more closely than indirect
taxation to the first maxim quoted above.
24. "Taxation which falls upon the processes of production
interposes an artificial obstacle to the creation of wealth. Taxation
which falls upon labor as it is exerted, wealth as it is used as capital,
land as it is cultivated, will manifestly tend to discourage production
much more powerfully than taxation to the same amount levied upon laborers
whether they work or play, upon wealth whether used productively or unproductively,
or upon land whether cultivated or left waste" — Progress
and Poverty, book viii, ch. iii, subd. I.
25. It is common, besides taxing improvements, as fast
as they are made, to levy higher taxes upon land when put to its best
use than when put to partial use or to no use at all. This is upon the
theory that when his land is used the owner gets full income from it
and can afford to pay high taxes; but that he gets little or no income
when the land is out of use, and so cannot afford to pay much. It is
an absurd but perfectly legitimate illustration of the pretentious doctrine
of taxation according to ability to pay.
Examples are numerous. Improved building lots, and even
those that are only plotted for improvement, are usually taxed more than
contiguous unused and unplotted land which is equally in demand for building
purposes and equally valuable. So coal land, iron land, oil land, and
sugar land are as a rule taxed less as land when opened up for appropriate
use than when lying idle or put to inferior uses, though the land value
be the same. Any serious proposal to put land to its appropriate use
is commonly regarded as a signal for increasing the tax upon it.
b. Cheapness of Collection
Indirect taxes are passed along from first payers to final consumers through
many exchanges, accumulating compound profits as they go, until they take
enormous sums from the people in addition to what the government receives.26
But the single tax takes nothing from the people in excess of the tax. It
therefore conforms more closely than indirect taxation to the second maxim
quoted above.
26. "All taxes upon things of unfixed quantity increase
prices, and in the course of exchange are shifted from seller to buyer,
increasing as they go. If we impose a tax on money loaned, as has been
often attempted, the lender will charge the tax to the borrower, and
the borrower must pay it or not obtain the loan. If the borrower uses
it in his business, he in his turn must get back the tax from his customers,
or his business becomes unprofitable. If we impose a tax upon buildings,
the users of buildings must finally pay it, for the erection of buildings
will cease until building rents become high enough to pay the regular
profit and the tax besides. If we impose a tax upon manufactures or imported
goods, the manufacturer or importer will charge it in a higher price
to the jobber, the jobber to the retailer. and the retailer to the consumer.
Now, the consumer, on whom the tax thus ultimately falls, must not only
pay the amount of the tax, but also a profit on this amount to everyone
who has thus advanced it — for profit on the capital he has advanced
in paying taxes is as much required by each dealer as profit on the capital
he has advanced in paying for goods." — Progress and Poverty,
book viii, ch. iii, subd. 2.
c. Certainty
No other tax, direct or indirect, conforms so closely to the third maxim. "Land
lies out of doors." It cannot be hidden; it cannot be "accidentally" overlooked.
Nor can its value be seriously misstated. Neither under-appraisement nor
over-appraisement to any important degree is possible without the connivance
of the whole community. 27 The land values of a neighborhood are matters
of common knowledge. Any intelligent resident can justly appraise them, and
every other intelligent resident can fairly test the appraisement. Therefore,
the tyranny, corruption, fraud, favoritism, and evasions that are so common
in connection with the taxation of imports, manufactures, incomes, personal
property, and buildings — the values of which, even when the object
itself cannot be hidden, are so distinctly matters of minute special knowledge
that only experts can fairly appraise them — would be out of the question
if the single tax were substituted for existing fiscal methods. 28
27. The under-appraisements so common at present, and
alluded to in note 25, are possible because the community, ignorant of
the just principles of taxation, does connive at them. Under-appraisements
are not secret crimes on the part of assessors; they are distinctly recognized,
but thoughtlessly disregarded when not actually insisted upon, by the
people themselves. And this is due to the dishonest ideas of taxation
that are taught. Let the vicious doctrine that people ought to pay taxes
according to their ability give way to the honest principle that they
should pay in proportion to the benefits they receive, which benefits,
as we have already seen, are measured by the land values they own, and
underappraisement of land would cease. No assessor can befool the community
in respect of the value of the land within his jurisdiction.
And, with the cessation of general under-appraisement,
favoritism in individual appraisements also would cease. General under-appraisement
fosters unfair individual appraisements. If land were generally appraised
at its full value, a particular unfair appraisement would stand out in
such relief that the crime of the assessor would be exposed. But now
if a man's land is appraised at a higher valuation than his neighbor's
equally valuable land, and he complains of the unfairness, he is promptly
and effectually silenced with a warning that his land is worth much more
than it is appraised at, anyhow, and if he makes a fuss his appraisement
will be increased. To complain further of the deficient taxation of his
neighbor is to invite the imposition of a higher tax upon himself.
28. If you wish to test the merits in point of certainty
of the single tax as compared with other taxes, go to a real estate agent
in your community, and, showing him a building lot upon the map, ask
him its value. If he inquires about the improvements, instruct him to
ignore them. He will be able at once to tell you what the lot is worth.
And if you go to twenty other agents their estimates will not materially
vary from his. Yet none of the agents will have left his office. Each
will have inferred the value from the size and location of the lot.
But suppose when you show the map to the first agent you
ask him the value of the land and its improvements. He will tell you
that he cannot give an estimate until he examines the improvements. And
if it is the highly improved property of a rich man he will engage building
experts to assist him. Should you ask him to include the value of the
contents of the buildings, he would need a corps of selected experts,
including artists and liverymen, dealers in furniture and bric-a-brac,
librarians and jewelers. Should you propose that he also include the
value of the occupant's income, the agent would throw up his hands in
despair.
If without the aid of an army of experts the agent should
make an estimate of these miscellaneous values, and twenty others should
do the same, their several estimates would be as wide apart as ignorant
guesses usually are. And the richer the owner of the property the lower
as a proportion would the guesses probably be.
Now turn the real estate agent into an assessor, and is
it not plain that he would appraise the land values with much greater
certainty and cheapness than he could appraise the values of all kinds
of property? With a plot map before him he might fairly make every appraisement
without leaving his desk at the town hall.
And there would be no material difference if the property
in question were a farm instead of a building lot. A competent farmer
or business man in a farming community can, without leaving his own door-yard,
appraise the value of the land of any farm there; whereas it would be
impossible for him to value the improvements, stock, produce, etc., without
at least inspecting them.
d. Equality
In respect of the fourth maxim the single tax bears more equally— that
is to say, more justly — than any other tax. It is the only tax that
falls upon the taxpayer in proportion to the pecuniary benefits he receives
from the public; 29 and its tendency, accelerating with the increase of the
tax, is to leave every one the full fruit of his own productive enterprise
and effort. 30
29 The benefits of government are not the only public
benefits whose value attaches exclusively to land. Communal development
from whatever cause produces the same effect. But as it is under the
protection of government that land-owners are able to maintain ownership
of land and through that to enjoy the pecuniary benefits of advancing
social conditions, government confers upon them as a class not only the
pecuniary benefits of good government but also the pecuniary benefits
of progress in general.
30. "Here are two men of equal incomes — that
of the one derived from the exertion of his labor, that of the other
from the rent of land. Is it just that they should equally contribute
to the expenses of the state? Evidently not. The income of the one represents
wealth he creates and adds to the general wealth of the state; the income
of the other represents merely wealth that he takes from the general
stock, returning nothing." — Progress and Poverty, book
viii, ch. iii, subd. 4. ... read the book
Fred Foldvary: Geo-Rent:
A Plea to Public Economists
Ground-rents,
and the ordinary rent
of land, are, therefore, perhaps, the species of revenue which can best
bear to have a peculiar tax imposed upon them. . . . The annual produce
of the land and labour of the society, the real wealth and revenue of
the great body of the people, might be the same after such a tax as
before. . . . [A tax of this kind would be] much more proper to be
established as a perpetual and unalterable regulation, or as what is
called a fundamental law of the commonwealth, than any tax which was
always to be levied according to a certain
valuation. ─Adam Smith ([1776],
844, 834)
Lindy Davies: Socialism,
Capitalism and Geoism
see the discussion
Frank Stilwell and Kirrily Jordan: The
Political Economy of Land: Putting Henry George in His Place
Land is the most basic of all economic resources, fundamental to the form
that economic development takes. Its use for agricultural purposes is integral
to the production of the means of our subsistence. Its use in an urban context
is crucial in shaping how effectively cities function and who gets the principal
benefits from urban economic growth. Its ownership is a major determinant
of the degree of economic inequality: surges of land prices, such as have
occurred in Australian cities during the last decade, cause major redistributions
of wealth. In both an urban and rural context the use of land – and
nature more generally – is central to the possibility of ecological
sustainability. Contemporary social concerns about problems of housing affordability
and environmental quality necessarily focus our attention on ‘the land
question.’
These considerations indicate the need for a coherent political economic
analysis of land in capitalist society. Indeed, the analysis of land was
central in an earlier era of political economic analysis. The role
of land in relation to economic production, income distribution and economic
growth was a major concern for classical political economists, such as Smith,
Ricardo and Malthus. But the intervening years have seen land slide
into a more peripheral status within economic analysis. Political economists
working in the Marxian tradition have tended to focus primarily on the capital-labour
relation as the key to understanding the capitalist economy.1 Neo-classical
economists typically treat land, if they acknowledge it at all, as a ‘factor
of production’ equivalent to labour or capital, thereby obscuring its
distinctive features and differences. Keynesian and post-Keynesian economists
have also given little attention to land because typically their analyses
focus more on consumption, saving, investment and other economic aggregates.
... read the whole article
Fred E. Foldvary — The
Ultimate Tax Reform: Public Revenue from Land Rent
What qualities make for the best (or least-bad) tax system? Public finance
economists identify simplicity, efficiency, fairness, and revenue sufficiency
as the proper objectives of tax policy.4 In his Wealth of Nations,5 Adam
Smith identified equality, certainty (clear manner and quantity), convenience,
and economy in collection. Transparency is also an important criterion; visible
taxes are better than hidden taxes.
In Progress and Poverty (1879), his most important book, Henry George contended
the ideal tax would most closely conform to the following conditions, similar
to those of Smith:
1. That the tax bears as lightly as possible upon production, minimizing
the excess burden or deadweight loss.
2. That the revenues be easily and cheaply collected, and fall as directly
as may be upon the ultimate payers—so as to take from the people
as little as possible in addition to what it yields the government.
3. That it be certain and visible, so as to give the least opportunity
for tyranny or corruption on the part of officials, and the least temptation
to lawbreaking and evasion on the part of the taxpayers.
4. That it be equitable, giving no citizen an arbitrary advantage or privilege,
and in being consistent with moral principles.6 ...
Land value taxation is central to the political philosophy of the founding
fathers of the United States. Far from being a new idea, or the idea of a
small group of thinkers, it is a concept embraced by many of the most important
figures from our history: John Locke, Adam Smith, Thomas Paine, Thomas Jefferson,
and today, Milton Friedman. Land value taxation is part of America’s
proud and distinguished tradition of political philosophy. Surely it belongs
in the national debate over how best to reform the nation’s tax system.
... read the whole document
Peter Barnes: Capitalism
3.0 — Chapter 6: Trusteeship of Creation (pages 79-100)
Commons Rent
It shouldn’t be thought that the commons is, or ought to be, a money-free
zone. In fact, an important subject for economists (and the rest of us) to
understand is commons rent.
By this I don’t mean the monthly check you send to a landlord. In
economics, rent has a more precise meaning: it’s money paid because
of scarcity. If you’re not an economist, that may sound puzzling, but
consider this. A city has available a million apartments. In absolute terms,
that means apartments aren’t scarce. But the city is confined geographically
and demand for apartments is intense. In this economic sense, apartments
are scarce. Now think back to that check you pay your landlord, or the mortgage
you pay the bank. Part of it represents the landlord’s operating costs
or the bank’s cost of money, but part of it is pure rent — that
is, money paid for scarcity. That’s why New Yorkers and San Franciscans
write such large checks to landlords and banks, while people in Nebraska
don’t.
Rent rises when an increase in demand bumps into a limit in supply. Rent
due to such bumping isn’t good or bad; it just is.We can (and should)
debate the distribution of that rent, but the rent itself arises automatically.
And it’s important that it does so, because this helps the larger economy
allocate scarce resources efficiently. Other methods of allocation are possible.
We can distribute scarce things on a first come, first served basis, or by
lottery, political power, seniority, or race. Experience has shown, though,
that selling scarce resources in open markets is usually the best approach,
and such selling inevitably creates rent.
Rent was of great interest to the early economists — Adam Smith, David
Ricardo, and John Stuart Mill, among others — because it constituted
most of the money earned by landowners, and land was then a major cost of
production. The supply of land, these economists noted, is limited, but demand
for it steadily increases. So, therefore, does its rent. Thus, landowners
benefit from what Mill called the unearned increment — the rise in
land value attributable not to any effort of the owner, but purely to a socially
created increase in demand bumping into a limited supply of good land.
The underappreciated American economist Henry George went further. Seeing
both the riches and the miseries of the Gilded Age, he asked a logical question:
Why does poverty persist despite economic growth? The answer, he believed,
was the appropriation of rent by landowners. Even as the economy grew, the
property rights system and the scarcity of land diverted almost all the gains
to a landowning minority. Whereas competition limited the gains of working
people, nothing kept down the landowners’ gains. As Mill had noted,
the value of their land just kept rising. To fix the problem, George advocated
a steep tax on land and the abolition of other taxes. His bestselling book
Progress and Poverty catapulted him to fame in the 1880s, but mainstream
economists never took him seriously.
By the twentieth century, economists had largely lost interest in rent;
it seemed a trivial factor in wealth production compared to capital and labor.
But the twenty-first century ecological crisis brings rent back to center-stage.
Now it’s not just land that’s scarce, but clean water, undisturbed
habitat, biological diversity, waste absorption capacity, and entire ecosystems.
This brings us back to common property rights. The definition and allocation
of property rights are the primary factors in determining who pays whom for
what. If, in the case of pollution rights, pollution rights are given free
to past polluters, the rent from the polluted ecosystem will also go to them.
That’s because prices for pollution-laden products will rise as pollution
is limited (remember, if demand is constant, a reduction in supply causes
prices to go up), and those higher prices will flow to producers (which is
to say, polluters).
By contrast, if pollution rights are assigned to trusts representing pollutees
and future generations, and if these trusts then sell these rights to polluters,
the trusts rather than the polluters will capture the commons rent. If the
trusts split this money between per capita dividends and expenditures on
public goods, everyone benefits.
At this moment, based on pollution rights allocated so far, polluting corporations
are getting most of the commons rent. But the case for trusts getting the
rent in the future is compelling. If this is done, consumers will pay commons
rent not to corporations or government, but to themselves as beneficiaries
of commons trusts. Each citizen’s dividend will be the same, but his
payments will depend on his purchases of pollution-laden products. The more
he pollutes, the more rent he’ll pay. High polluters will get back
less than they put in, while low polluters will get back more. The microeconomic
incentives, in other words, will be perfect. (See figure 6.1.)
What’s equally significant, though less obvious, is that the macroeconomic
incentives will be perfect too. That is, it will be in everyone’s interest
to reduce the total level of pollution. Remember how rent for scarce things
works: the lower the supply, the higher the rent. Now, imagine you’re
a trustee of an ecosystem, and leaving aside (for the sake of argument) your
responsibility to preserve the asset for future generations, you want to
increase dividends. Do you raise the number of pollution permits you sell,
or lower it? The correct, if counterintuitive answer is: you lower the number
of permits. ... read
the whole chapter
Dan Sullivan: Are you a Real
Libertarian, or a ROYAL Libertarian?
Classical liberals recognized
that exclusive access to land, and
especially to more land than one was using, was a privilege that
should be paid for, thereby eliminating the need for taxes. It is not
a fee for using land, but a fee for the state privilege of denying
use of that land to everyone else.
Men did not make the
earth.... It is the value of the
improvement only, and not the earth itself, that is individual
property.... Every proprietor owes to the community a ground rent for
the land which he holds. --Tom Paine, "Agrarian
Justice," paragraphs 11 to 15 Another means of
silently lessening the inequality of [landed]
property is to exempt all from taxation below a certain point, and to
tax the higher portions or property in geometrical progression as they
rise.--Thomas Jefferson
Today's land value tax advocates
consider graduated land value tax
to be unnecessary and problematic, leading to artificial subdivision
(and phony subdivision) of land. The point is that Jefferson, to whom
libertarians pay homage, considered land monopoly a great evil and
land value tax a remedy, as did many other classical liberals:
Ground rents are a
species of revenue which the owner,
in many cases, enjoys without any care or attention of his own. Ground
rents are, therefore, perhaps a species of revenue which can best bear
to have a peculiar tax imposed upon them. --Adam Smith
Landlords grow richer in their sleep, without working,
risking,
or economizing. The increase in the value of land, arising as it does
from the efforts of an entire community, should belong to the community
and not to the individual who might hold title. --John Stuart Mill ... Read
the whole piece
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