This article was written for
the former Soviet Union, during their transition from communism, in the
hope that they would see the justice and wisdom
in adopting Henry George's remedy. (See "advice to
" for more
Mason Gaffney: Privatizing Land Without
II. Reasons to Socialize Land Rent
A. Financial Reasons to Reserve
Rent as a Tax Source
1. An entire nation cannot be
sold off quickly at other than fire-sale prices. Mass privatization is
a way of securing the worst possible bargain for the public selling the
2. In a massive general land sale, most land would be bid up by
a small number of buyers with surpluses of "patient money," many of
them looking toward use or resale in the distant future. These buyers
are the kind stigmatized as "land speculators," for their traditional
indifference to highest and best current use of land.
3. A government selling land, even at fire-sale prices, would be
swamped with cash flow
4. Governments need revenues in perpetuity.
5. Private wealth being scarce in most Soviet republics, wealthy
aliens would prevail in bidding for much of the best land.
6. The land market works better, on an ongoing basis, if land
remains subject to regular taxes or other charges in perpetuity.
7. Counterproductive rent-seeking behavior, in the most primal
sense, is maximized when land is simply privatized without the state's
reserving substantial servitudes, especially tax power.
8. Local governments, traditionally undernourished and weak in
much of the Soviet Union, also need revenues in perpetuity.
9. A means is needed gently to pry loose surplus land from state
agencies like ministries in charge of production.
10. Public acquisition of lands for such uses as rights-of-way
(r.o.w.), schools, reservoirs, air bases, parks, and watershed
protection becomes much more costly when all land is privatized first.
B. Functional Reasons for
Taxing Land Rent
1. Taxing land allows us to
avoid taxing functional activities like production, exchange, work,
saving, and investment.
2. Taxing land holds down its purchase price, thus easing and
3. Taxing land drains cash from sleeping owners of surplus land,
arousing them in the most compelling way to the otherwise overlooked
opportunity cost of their surpluses.
4. Taxing land motivates sellers and moves the otherwise torpid
5. Taxing land promotes markets by pushing central urban land
into commercial uses yielding high cash flows.
6. Taxing land discourages the motives, currently powerful and
dominant, to hold land mainly as a store of value and hedge against
7. It is arguable that taxes on bases other than land are
largely shifted to - that is, are drawn from - land rent anyway.
C. Ethical Reasons for Taxing Land
D. Political Reasons
for Taxing Land Rent Read
the whole article
Mason Gaffney: The Taxable
Capacity of Land
Another attractive feature of
land taxation is its interesting positive effect on the economic base
of a city. It strengthens it by its tendency to hit absentee owners harder
than resident owners. The
land fraction in real estate is generally highest in the CBD of any city,
so that is a favorite place for absentees to buy and hold. They like
the steady income, and the "trophy" quality. The
surplus in real estate is what attracts outside buyers, and land is what
yields the surplus. About 2/3 of downtown Los Angeles is owned
by non-resident aliens, for example. In a more workaday city, Milwaukee,
the absentee owners consist of former residents, or their heirs, who
grew too rich to abide the harsh winters.
Consider the effect on your balance
of payments. When you get more tax money from absentees, money that used
to flow to Tehran, Zurich, or Palm Beach now flows into your local treasury
to pay your local teachers and city workers, and relieve your builders
and building managers. In this way taxing land actually acts to undergird
the value of its own base. ... Read the whole article
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
10. Effect of Remedy Upon Wealth Production (in the unabridged P&P: Part
IX — Effects of the Remedy: Chapter 1 — Of the effect upon the
production of wealth)
... Well may the community leave to the individual producer all that prompts
him to exertion; well may it let the laborer have the full reward of his
and the capitalist the full return of his capital. For the more that labor
and capital produce, the greater grows the common wealth in which all may share.
And in the value or rent of land is this general gain expressed in a definite
and concrete form. Here is a fund which the state may take while leaving to
labor and capital their full reward. With increased activity of production
this would commensurately increase.
And to shift the burden of taxation from production and exchange to the
value or rent of land would not merely be to give new stimulus to the production
of wealth; it would be to open new opportunities. For under this system
no one would care to hold land unless to use it, and land now withheld
from use would everywhere be thrown open to improvement.
The selling price of land would fall; land speculation would receive its
death blow; land monopolization would no longer pay.* Millions and millions
of acres from which settlers are now shut out by high prices would be abandoned
by their present owners or sold to settlers upon nominal terms. And this
not merely on the frontiers, but within what are now considered well settled
* The fact that a tax on the rental value of land cannot
be shifted by landowners to tenants, though recognized by all competent
economists, is sometimes a stumbling block to persons untrained in
economics. The reason such a tax cannot be shifted is that it cannot
limit the supply of land. Landowners are presumably, before the tax
is laid, charging all the rent they can get. There is nothing in a
tax on the rental value of land to make tenants willing to pay more
or to make land more difficult to hire. On the contrary, more land
will be on the market, because of such a tax, rather than less, since
the tax puts a heavy penalty on holding land out of use and unimproved
for mere speculation. The competition of former vacant land speculators
to get their land used will make land cheaper to rent rather than more
expensive. And since only the net rent remaining after the tax is subtracted
is capitalized into salable value, land will be very much cheaper to
And it must be remembered that this would apply, not merely to agricultural
land, but to all land. Mineral land would be thrown open to use, just as
agricultural land; and in the heart of a city no one could afford to keep
land from its most profitable use, or on the outskirts to demand more for
it than the use to which it could at the time be put would warrant. Everywhere
that land had attained a value, taxation, instead of operating, as now,
as a fine upon improvement, would operate to force improvement. Whoever
planted an orchard, or sowed a field, or built a house, or erected a manufactory,
no matter how costly, would have no more to pay in taxes than if he kept
so much land idle.
- The monopolist of agricultural land would be taxed as much as though
his land were covered with houses and barns, with crops and with
- The owner of a vacant city lot would have to pay as much for the
privilege of keeping other people off of it until he wanted to use
it, as his neighbor
who has a fine house upon his lot.
- It would cost as much to keep a row of tumble-down shanties upon
valuable land as though it were covered with a grand hotel or a pile
warehouses filled with costly goods.
Thus, the bonus that wherever labor is most productive must now be paid
before labor can be exerted would disappear.
- The farmer would not have to pay out half his means, or mortgage
his labor for years, in order to obtain land to cultivate;
- the builder of a city homestead would not have to lay out as much
for a small lot as for the house he puts upon it*;
- the company that proposed to erect a manufactory would not have
to expend a great part of its capital for a site.
- And what would be paid from year to year to the state would be in
lieu of all the taxes now levied upon improvements, machinery,
*Many persons, and among them some professional
economists, have never succeeded in getting a thorough comprehension
of this point. Thus, the editor has heard the objection advanced
that the greater cheapness of land is no advantage to the poor
man who is trying to save enough from his earnings to buy a piece
of land; for, it is said, the higher taxes on the land after it
is acquired, offset the lower purchase price. What such objectors
do not see is that even if the lower price of land does no more
than balance the higher tax on it, (and this overlooks, for one
thing, the discouragement to speculation in land), the reduction
or removal of other taxes is all clear gain. It is easier to save
in proportion as earnings and commodities are relieved of taxation.
It is easier to buy land, because its selling price is lower, if
the land is taxed. And although the land, after its purchase, continues
to be taxed, not only can this tax be fully paid out of the annual
interest on the saving in the purchase price, but also there is
to be reckoned the saving in taxes on buildings and other improvements
and in whatever other taxes are thus rendered unnecessary. H.G.B.
Consider the effect of such a change upon the labor market. Competition
would no longer be one-sided, as now. Instead of laborers competing
with each other for employment, and in their competition cutting down
to the point of bare subsistence, employers would everywhere be competing
for laborers, and wages would rise to the fair earnings of labor. For
into the labor market would have entered the greatest of all competitors
the employment of labor, a competitor whose demand cannot be satisfied
until want is satisfied — the demand of labor itself. The employers
of labor would not have merely to bid against other employers, all
feeling the stimulus of greater trade and increased profits, but against
of laborers to become their own employers upon the natural opportunities
freely opened to them by the tax which prevented monopolization.
With natural opportunities thus free to labor;
- with capital and improvements exempt from tax, and exchange released
from restrictions, the spectacle of willing men unable to turn
their labor into the things they are suffering for would become impossible;
- the recurring paroxysms which paralyze industry would cease;
- every wheel of production would be set in motion;
- demand would keep pace with supply, and supply with demand;
- trade would increase in every direction, and wealth augment on every
hand. ... read the whole chapter
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
11 Effect of Remedy Upon the Sharing of Wealth (in the unabridged P&P: Part
IX Effects of the Remedy — Chapter 2: Of the Effect Upon Distribution
and Thence Upon Production
But great as they thus appear, the advantages of a transference of
all public burdens to a tax upon the value of land cannot be fully
appreciated until we consider the effect upon the distribution of wealth.
Tracing out the cause of the unequal distribution of wealth which
appears in all civilized countries, with a constant tendency to greater
and greater inequality as material progress goes on, we have found
it in the fact that, as civilization advances, the ownership of land,
now in private hands, gives a greater and greater power of appropriating
the wealth produced by labor and capital.
Thus, to relieve labor and capital from all taxation, direct and indirect,
and to throw the burden upon rent, would be, as far as it went, to
counteract this tendency to inequality, and, if it went so far as to
take in taxation the whole of rent, the cause of inequality would be
totally destroyed. Rent, instead of causing inequality, as now, would
then promote equality. Labor and capital would then receive the whole
produce, minus that portion taken by the state in the taxation of land
values, which, being applied to public purposes, would be equally distributed
in public benefits.
That is to say, the wealth produced in every community would be divided
into two portions.
- One part would be distributed in wages and interest between individual
producers, according to the part each had taken in the work of production;
- the other part would go to the community as a whole, to be distributed
in public benefits to all its members.
In this all would share equally — the weak with the strong,
young children and decrepit old men, the maimed, the halt, and the
blind, as well as the vigorous. And justly so — for while one
part represents the result of individual effort in production, the
other represents the increased power with which the community as a
whole aids the individual.
Thus, as material progress tends to increase rent, were rent taken
by the community for common purposes the very cause which now tends
to produce inequality as material progress goes on would then tend
to produce greater and greater equality.
Who can say to what infinite powers the wealth-producing capacity
of labor may not be raised by social adjustments which will give to
the producers of wealth their fair proportion of its advantages and
enjoyments! With present processes the gain would be simply incalculable,
but just as wages are high, so do the invention and utilization of
improved processes and machinery go on with greater rapidity and ease.
But I shall not deny, and do not wish to lose sight of the fact,
that while thus preventing waste and thus adding to the efficiency
of labor, the equalization in the distribution of wealth that would
result from the simple plan of taxation that I propose, must lessen
the intensity with which wealth is pursued. It seems to me that in
a condition of society in which no one need fear poverty, no one would
desire great wealth — at least, no one would take the trouble
to strive and to strain for it as men do now. For, certainly, the spectacle
of men who have only a few years to live, slaving away their time for
the sake of dying rich, is in itself so unnatural and absurd, that
in a state of society where the abolition of the fear of want had dissipated
the envious admiration with which the masses of men now regard the
possession of great riches, whoever would toil to acquire more than
he cared to use would be looked upon as we would now look on a man
who would thatch his head with half a dozen hats.
And though this incentive to production be withdrawn, can we not spare
it? Whatever may have been its office in an earlier stage of development,
it is not needed now. The dangers that menace our civilization do not
come from the weakness of the springs of production. What it suffers
from, and what, if a remedy be not applied, it must die from, is unequal
Nor would the removal of this incentive, regarded only from the standpoint
of production, be an unmixed loss. For, that the aggregate of production
is greatly reduced by the greed with which riches are pursued, is one
of the most obtrusive facts of modern society. While, were this insane
desire to get rich at any cost lessened, mental activities now devoted
to scraping together riches would be translated into far higher spheres
of usefulness. ... read the whole chapter
H.G. Brown: Significant
Paragraphs from Henry George's Progress & Poverty:
12. Effect of Remedy Upon Various Economic Classes (in the unabridged P&P: Part
IX: Effects of the Remedy — Chapter 3. Of the effect upon individuals
When it is first proposed to put all taxes upon the value of land, all
landholders are likely to take the alarm, and there will not be wanting
appeals to the fears of small farm and homestead owners, who will be
told that this is a proposition to rob them of their hard-earned property.
a moment's reflection will show that this proposition should commend
itself to all whose interests as landholders do not largely exceed their
as laborers or capitalists, or both. And further consideration will
show that though the large landholders may lose relatively, yet even
case there will be an absolute gain. For, the increase in production
will be so great that labor and capital will gain very much more than
lost to private landownership, while in these gains, and in the greater
ones involved in a more healthy social condition, the whole community,
including the landowners themselves, will share.
- It is manifest, of course, that the change I propose will greatly
benefit all those who live by wages, whether of hand or of head
-- laborers, operatives, mechanics, clerks, professional men of all
- It is manifest, also, that it will benefit all those who live partly
by wages and partly by the earnings of their capital -- storekeepers,
merchants, manufacturers, employing or undertaking producers and
exchangers of all sorts from the peddler or drayman to the railroad
owner -- and
- it is likewise manifest that it will increase the incomes of those
whose incomes are drawn from the earnings of capital. ... read
the whole chapter