Paying the Wrong Party
Henry George: The Condition
of Labor — An
Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)
Your use, in so many passages of your Encyclical, of the inclusive term “property” or “private” property,
of which in morals nothing can be either affirmed or denied, makes your meaning,
if we take isolated sentences, in many places ambiguous. But reading it as
a whole, there can be no doubt of your intention that private property in
land shall be understood when you speak merely of private property. With
this interpretation, I find that the reasons you urge for private property
in land are eight. Let us consider them in order of presentation. You urge:
1. That what is bought with rightful property is rightful property. (RN,
paragraph 5) ...
2. That private property in land proceeds from man’s gift of reason.
(RN, paragraphs 6-7.) ...
3. That private property in land deprives no one of the use of land. (RN,
paragraph 8.) ...
4. That Industry expended on land gives ownership in the land itself. (RN,
paragraphs 9-10.) ...
5. That private property in land has the support of the common opinion of
mankind, and has conduced to peace and tranquillity, and that it is sanctioned
by Divine Law. (RN, paragraph 11.) ...
6. That fathers should provide for their children and that private property
in land is necessary to enable them to do so. (RN, paragraphs 14-17.) ...
7. That the private ownership of land stimulates industry, increases wealth,
and attaches men to the soil and to their country. (RN, paragraph 51.) ...
8. That the right to possess private property in land is from nature, not
from man; that the state has no right to abolish it, and that to take the
value of landownership in taxation would be unjust and cruel to the private
owner. (RN, paragraph 51.) ...
4. That Industry expended on land gives ownership in the land itself. (9-10.)
Your Holiness next contends that industry expended on land gives a right
to ownership of the land, and that the improvement of land creates benefits
indistinguishable and inseparable from the land itself.
This contention, if valid, could only justify the ownership of land by those
who expend industry on it. It would not justify private property in land
as it exists. On the contrary, it would justify a gigantic no-rent declaration
that would take land from those who now legally own it, the landlords, and
turn it over to the tenants and laborers. And if it also be that improvements
cannot be distinguished and separated from the land itself, how could the
landlords claim consideration even for improvements they had made?
But your Holiness cannot mean what your words imply. What you really mean,
I take it, is that the original justification and title of landownership
is in the expenditure of labor on it. But neither can this justify private
property in land as it exists. For is it not all but universally true that
existing land titles do not come from use, but from force or fraud?
Take Italy! Is it not true that the greater part of the land of Italy is
held by those who so far from ever having expended industry on it have been
mere appropriators of the industry of those who have? Is this not also true
of Great Britain and of other countries? Even in the United States, where
the forces of concentration have not yet had time fully to operate and there
has been some attempt to give land to users, it is probably true today that
the greater part of the land is held by those who neither use it nor propose
to use it themselves, but merely hold it to compel others to pay them for
permission to use it.
And if industry give ownership to land what are the limits of this ownership?
If a man may acquire the ownership of several square miles of land by grazing
sheep on it, does this give to him and his heirs the ownership of the same
land when it is found to contain rich mines, or when by the growth of population
and the progress of society it is needed for farming, for gardening, for
the close occupation of a great city? Is it on the rights given by the industry
of those who first used it for grazing cows or growing potatoes that you
would found the title to the land now covered by the city of New York and
having a value of thousands of millions of dollars?
But your contention is not valid. Industry expended on land gives ownership
in the fruits of that industry, but not in the land itself, just as industry
expended on the ocean would give a right of ownership to the fish taken by
it, but not a right of ownership in the ocean. Nor yet is it true that private
ownership of land is necessary to secure the fruits of labor on land; nor
does the improvement of land create benefits indistinguishable and inseparable
from the land itself. That secure possession is necessary to the use and
improvement of land I have already explained, but that ownership is not necessary
is shown by the fact that in all civilized countries land owned by one person
is cultivated and improved by other persons. Most of the cultivated land
in the British Islands, as in Italy and other countries, is cultivated not
by owners but by tenants. And so the costliest buildings are erected by those
who are not owners of the land, but who have from the owner a mere right
of possession for a time on condition of certain payments. Nearly the whole
of London has been built in this way, and in New York, Chicago, Denver, San
Francisco, Sydney and Melbourne, as well as in continental cities, the owners
of many of the largest edifices will be found to be different persons from
the owners of the ground. So far from the value of improvements being inseparable
from the value of land, it is in individual transactions constantly separated.
For instance, one-half of the land on which the immense Grand Pacific Hotel
in Chicago stands was recently separately sold, and in Ceylon it is a not
infrequent occurrence for one person to own a fruit-tree and another to own
the ground in which it is implanted.
There is, indeed, no improvement of land, whether it be clearing, plowing,
manuring, cultivating, the digging of cellars, the opening of wells or the
building of houses, that so long as its usefulness continues does not have
a value clearly distinguishable from the value of the land. For land having
such improvements will always sell or rent for more than similar land without
If, therefore, the state levy a tax equal to what the land irrespective
of improvement would bring, it will take the benefits of mere ownership,
but will leave the full benefits of use and improvement, which the prevailing
system does not do. And since the holder, who would still in form continue
to be the owner, could at any time give or sell both possession and improvements,
subject to future assessment by the state on the value of the land alone,
he will be perfectly free to retain or dispose of the full amount of property
that the exertion of his labor or the investment of his capital has attached
to or stored up in the land.
Thus, what we propose would secure, as it is impossible in any other way
to secure, what you properly say is just and right — “that the
results of labor should belong to him who has labored.” But private
property in land — to allow the holder without adequate payment to
the state to take for himself the benefit of the value that attaches to land
with social growth and improvement — does take the results of labor
from him who has labored, does turn over the fruits of one man’s labor
to be enjoyed by another. For labor, as the active factor, is the producer
of all wealth. Mere ownership produces nothing. A man might own a world,
but so sure is the decree that “by the sweat of thy brow shalt thou
eat bread,” that without labor he could not get a meal or provide himself
a garment. Hence, when the owners of land, by virtue of their ownership and
without laboring themselves, get the products of labor in abundance, these
things must come from the labor of others, must be the fruits of others’ sweat,
taken from those who have a right to them and enjoyed by those who have no
right to them.
The only utility of private ownership of land as distinguished from possession
is the evil utility of giving to the owner products of labor he does not
earn. For until land will yield to its owner some return beyond that of the
labor and capital he expends on it — that is to say, until by sale
or rental he can without expenditure of labor obtain from it products of
labor, ownership amounts to no more than security of possession, and has
no value. Its importance and value begin only when, either in the present
or prospectively, it will yield a revenue — that is to say, will enable
the owner as owner to obtain products of labor without exertion on his part,
and thus to enjoy the results of others’ labor.
What largely keeps men from realizing the robbery involved in private
property in land is that in the most striking cases the robbery is not
but of the community. For, as I have before explained, it is impossible for
rent in the economic sense — that value which attaches to land by reason
of social growth and improvement — to go to the user. It can go only
to the owner or to the community. Thus those who pay enormous rents for the
use of land in such centers as London or New York are not individually injured.
Individually they get a return for what they pay, and must feel that they
have no better right to the use of such peculiarly advantageous localities
without paying for it than have thousands of others. And so, not thinking
or not caring for the interests of the community, they make no objection
to the system.
It recently came to light in New York that a man having no title whatever
had been for years collecting rents on a piece of land that the growth of
the city had made very valuable. Those who paid these rents had never stopped
to ask whether he had any right to them. They felt that they had no right
to land that so many others would like to have, without paying for it, and
did not think of, or did not care for, the rights of all. ... read the whole letter
Louis Post: Outlines of Louis F. Post's
Lectures, with Illustrative Notes and Charts (1894)
II. THE SINGLE TAX AS A FISCAL REFORM
1. DIRECT AND INDIRECT TAXATION
Taxes are either direct or indirect; or, as they have been aptly described, "straight" or "crooked." Indirect
taxes are those that may be shifted by the first payer from himself to others;
direct taxes are those that cannot be shifted.5
5. "Taxes are either direct or indirect. A direct tax is one which
is demanded from the very persons who, it is intended or desired, should
pay it. Indirect taxes are those which are demanded from one person in the
expectation and intention that he shall indemnify himself at the expense
of another." — John Stuart Mill's Prin. of Pol. Ec., book
v, ch. iii, sec. I.
"Direct taxes are those which are levied on the very persons who it
is intended or desired should pay them, and which they cannot put off upon
others by raising the prices of the taxed article.. . . Indirect taxes on
the other hand are those which are levied on persons who expect to get back
the amount of the tax by raising the price of the taxed article." — Laughlin's
Elements, par. 249.
Taxes are direct "when the payment is made by the person who is intended
to bear the sacrifice." Indirect taxes are recovered from final purchasers. — Jevons's
Primer, sec. 96.
"Indirect taxes are so called because they are not paid into the treasury
by the person who really bears the burden. The payer adds the amount of the
tax to the price of the commodity taxed, and thus the taxation is concealed
under the increased price of some article of luxury or convenience." — Thompson's
Pol. Ec., sec. 175.
The shifting of indirect taxes is accomplished by means of their tendency
to increase the prices of commodities on which they fall. Their magnitude
and incidence 6 are thereby disguised. It was for this reason that a great
French economist of the last century denounced them as "a scheme for
so plucking geese as to get the most feathers with the least squawking."7
6. Jevons defines the incidence of a tax as "the manner in which it
falls upon different classes of the population." — Jevons's Primer,
Sometimes called "repercussion," and refers "to the real as
opposed to the nominal payment of taxes." — Ely's Taxation, p.
7. Though his language was blunt, the sentiment does not
essentially differ from that of "statesmen" of our day who meet
all the moral and economic objections to indirect taxation with the one
reply that the people
would not consent to pay enough or the support of government if public revenues
were collected from them directly. This means nothing but that the people
are actually hoodwinked by indirect taxation into sustaining a government
that they would not support if they knew it was maintained at their expense;
and instead of being a reason for continuing indirect taxation, would, if
true, be one of the strongest of reasons for abolishing it. It is consistent
neither with the plainest principles of democracy nor the simplest conceptions
Indirect taxation costs the real tax-payers much more than the government
receives, partly because the middlemen through whose hands taxed commodities
pass are able to exact compound profits upon the tax,8 and partly on account
of extraordinary expenses of original collection;9 it favors corruption in
government by concealing from the people the fact that they contribute to
the support of government; and it tends, by obstructing production, to crush
legitimate industry and establish monopolies.10 The questions it raises are
of vastly more concern than is indicated by the sum total of public expenditures.
8. A tax upon shoes, paid in the first instance by shoe manufacturers, enters
into manufacturers' prices, and, together with the usual rate of profit upon
that amount of investment, is recovered from wholesalers. The tax and the
manufacturers' profit upon it then constitute part of the wholesale price
and are collected from retailers. The retailers in turn collect the tax with
all intermediate profits upon it, together with their :usual rate of profit
upon the whole, from final purchasers -- the consumers of shoes. Thus what
appears on the surface to be a tax upon shoe manufacturers proves upon examination
to be an indirect tax upon shoe consumers, who pay in an accumulation of
profits upon the tax considerably more than the government receives.
The effect would be the same if a tax upon their leather output were imposed
upon tanners. Tanners would add to the price of leather the amount of the
tax, plus their usual rate of profit upon a like investment, and collect
the whole, together with the cost of hides, of transportation, of tanning
and of selling, from shoe manufacturers, who would collect with their profit
from retailers, who would collect with their profit from shoe consumers.
The principle applies also when taxes are levied upon the stock or the sales
of merchants, or the money or credits of bankers; merchants add the tax with
the usual profit to the prices of their goods, and bankers add it to their
interest and discounts.
For example; a tax of $100,000 upon the output of manufacturers
or importers would, at 10 per cent as the manufacturing profit, cost
at a profit of 10 per cent to wholesalers it would cost retailers $121,000,
and at 20 percent profit to retailers it would finally impose a tax burden
of $145,200 — being 45 per cent more than the government would
get. Upon most commodities the number of profits exceeds three, so that
taxes may frequently cost as much as 100 per cent, even when imposed
only upon what are commercially known as finished goods; when imposed
also, the cost of collection might well run far above 200 percent in
addition to the first cost of maintaining the machinery of taxation.
It must not be supposed, however, that the recovery of indirect taxes from
the ultimate consumers of taxed goods is arbitrary. When shoe manufacturers,
or tanners, or merchants add taxes to prices, or bankers add them to interest,
it is not because they might do otherwise but choose to do this; it is because
the exigencies of trade compel them. Manufacturers, merchants, and other
tradesmen who carry on competitive businesses must on the average sell their
goods at cost plus the ordinary rate of profit, or go out of business. It
follows that any increase in cost of production tends to increase the price
of products. Now, a tax upon the output of business men, which they must
pay as a condition of doing their business, is as truly part of the cost
of their output as is the price of the materials they buy or the wages of
the men they hire. Therefore, such a tax upon business men tends to increase
the price of their products. And this tendency is more or less marked as
the tax is more or less great and competition more or less keen.
It is true that a moderate tax upon monopolized products,
such as trade-mark goods, proprietary medicines, patented articles and
is not necessarily shifted to consumers. The monopoly manufacturer whose
prices are not checked by cost of production, and are therefore as a
rule higher than competitive prices would be, may find it more profitable
the burden of a tax that leaves him some profit, by preserving his entire
custom, than to drive off part of his custom by adding the tax to his
usual prices. This is true also of a moderate import tax to the extent
upon goods that are more cheaply transported from the place of production
to a foreign market where the import tax is imposed than to a home market
where the goods would be free of such a tax — products, for instance,
of a farm in Canada near to a New York town, but far away from any Canadian
town. If the tax be less than the difference in the cost of transportation
the producer will bear the burden of it; otherwise he will not. The ultimate
effect would be a reduction in the value of the Canadian land. Examples which
may be cited in opposition to the principle that import taxes are indirect,
will upon examination prove to be of the character here described. Business
cannot be carried on at a loss — not for long.
9. "To collect taxes, to prevent and punish evasions, to check and
countercheck revenue drawn from so many distinct sources, now make up probably
three-fourths, perhaps seven-eighths, of the business of government outside
of the preservation of order, the maintenance of the military arm, and the
administration of justice." — Progress and Poverty, book iv,
10. For a brief and thorough exposition of indirect taxation
read George's "Protection
or Free Trade," ch. viii, on " Tariffs for Revenue."
Whoever calmly reflects and candidly decides upon the merits of indirect
taxation must reject it in all its forms. But to do that is to make a great
stride toward accepting the single tax. For the single tax is a form of direct
taxation; it cannot be shifted.11
11. This is usually a stumbling block to those who, without much experience
in economic thought, consider the single tax for the first time. As soon
as they grasp the idea that taxes upon commodities shift to consumers they
jump to the conclusion that similarly taxes upon land values would shift
to the users. But this is a mistake, and the explanation is simple. Taxes
upon what men produce make production more difficult and so tend toward scarcity
in the supply, which stimulates prices; but taxes upon land, provided the
taxes be levied in proportion to value, tend toward plenty in supply (meaning
market supply of course), because they make it more difficult to hold valuable
land idle, and so depress prices.
"A tax on rent falls wholly on the landlord. There are no means by
which he can shift the burden upon anyone else. . . A tax on rent, therefore,
has no effect other than its obvious one. It merely takes so much from the
landlord and transfers it to the state." — John Stuart Mill's
Prin. of Pol. Ec., book v, ch. iii, sec. 1.
"A tax laid upon rent is borne solely by the owner of land." — Bascom's
"Taxes which are levied on land . . . really fall on the owner of the
land." — Mrs. Fawcett's Pol. Ec. for Beginners, pp.209, 210.
"A land tax levied in proportion to the rent of land, and varying with
every variation of rents, . . . will fall wholly on the landlords." — Walker's
Pol. Ec., ed. of 1887, p. 413, quoting Ricardo.
"The power of transferring a tax from the person who actually pays
it to some other person varies with the object taxed. A tax on rents cannot
be transferred. A tax on commodities is always transferred to the consumer." — Thorold
Rogers's Pol. Ec., ch. xxi, 2d ed., p. 285.
"Though the landlord is in all cases the real contributor, the tax
is commonly advanced by the tenant, to whom the landlord is obliged to allow
it in payment of the rent." — Adam Smith's Wealth of Nations,
book v, ch. ii, part ii, art. i.
"The way taxes raise prices is by increasing the cost of production
and checking supply. But land is not a thing of human production, and taxes
upon rent cannot check supply. Therefore, though a tax upon rent compels
land-owners to pay more, it gives them no power to obtain more for the use
of their land, as it in no way tends to reduce the supply of land. On the
contrary, by compelling those who hold land on speculation to sell or let
for what they can get, a tax on land values tends to increase the competition
between owners, and thus to reduce the price of land." — Progress
and Poverty, book viii, ch. iii, subd. i.
Sometimes this point is raised as a question of shifting the tax in higher
rent to the tenant, and at others as a question of shifting it to the consumers
of goods in higher prices. The principle is the same. Merchants cannot charge
higher prices for goods than their competitors do, merely because they pay
higher ground rents. A country storekeeper whose business lot is worth but
few dollars charges as much for sugar, probably more, than a city grocer
whose lot is worth thousands. Quality for quality and quantity for quantity,
goods sell for about the same price everywhere. Differences in price are
altogether in favor of places where land has a high value. This is due to
the fact that the cost of getting goods to places of low land value, distant
villages for example, is greater than to centers, which are places of high
land value. Sometimes it is true that prices for some things are higher where
land values are high. Tiffany's goods, for instance, may be more expensive
than goods of the same quality at a store on a less expensive site. But that
is not due to the higher land value; it is because the dealer has a reputation
for technical knowledge and honesty (or has become a fad among rich people),
for which his customers are willing to pay whether his store is on a high
priced-lot or a low-priced one.
Though land value has no effect upon the price of good,
it is easier to sell goods in some locations than in others. Therefore,
though the price
and the profit of each sale be the same, or even less, in good locations
than in poorer ones, aggregate receipts and aggregate profits are much greater
at the good location. And it is out of his aggregate, and not out of each
profit, that rent is paid, For example: A cigar store on a thoroughfare supplies
a certain quality of cigar for fifteen cents. On a side street the same quality
of cigar can be bought no cheaper. Indeed, the cigars there are likely to
be poorer, and therefore really dearer. Yet ground rent on the thoroughfare
is very high compared with ground rent on the sidestreet. How, then, can
the first dealer, he who pays the high ground rent, afford to sell as good
or better cigars for fifteen cents than his competitor of the low priced
location? Simply because he is able to make so many more sales with a given
outlay of labor and capital in a given time that his aggregate profit is
greater. This is due to the advantage of his location, and for that advantage
he pays a premium in higher ground rent. But that premium is not charged
to smokers; the competing dealer of the side street protects them. It represents
the greater ease, the lower cost, of doing a given volume of business upon
the site for which it is paid; add if the state should take any of it, even
the whole of it, in taxation, the loss would be finally borne by the owner
of the advantage which attaches to that site — by the landlord. Any
attempt to shift it to tenant or buyer would be promptly checked by the competition
of neighboring but cheaper land.
"A land-tax, levied in proportion to the rent of land, and varying
with every variation of rent, is in effect a tax on rent; and as such a tax
will not apply to that land which yields no rent, nor to the produce of that
capital which is employed on the land with a view to profit merely, and which
never pays rent; it will not in any way affect the price of raw produce,
but will fall wholly on the landlords." — McCulloch's Ricardo
(3d ed.), p. 207
2. THE TWO KINDS OF DIRECT TAXATION
Direct taxes fall into two general classes: (1) Taxes that are levied upon
men in proportion to their ability to pay, and (2) taxes that are levied
in proportion to the benefits received by the tax-payer from the public.
Income taxes are the principal ones of the first class, though probate and
inheritance taxes would rank high. The single tax is the only important one
of the second class.
There should be no difficulty in choosing between the two. To tax in proportion
to ability to pay, regardless of benefits received, is in accord with no
principle of just government; it is a device of piracy. The single tax, therefore,
as the only important tax in proportion to benefits, is the ideal tax.
But here we encounter two plausible objections. One arises from the mistaken
but common notion that men are not taxed in proportion to benefits unless
they pay taxes upon every kind of property they own that comes under the
protection of government; the other is founded in the assumption that it
is impossible to measure the value of the public benefits that each individual
enjoys. Though the first of these objections ostensibly accepts the doctrine
of taxation according to benefits,12 yet, as it leads to attempts at taxation
in proportion to wealth, it, like the other, is really a plea for the piratical
doctrine of taxation according to ability to pay. The two objections stand
or fall together.
12. It is often said, for instance, by its advocates, that house owners
should in justice contribute to the support of the fire departments that
protect them and it is even gravely argued that houses are more appropriate
subjects of taxation than land; because they need protection, whereas land
needs none. Read note 8.
Let it once be perceived that the value of the service which government
renders to each individual would be justly measured by the single tax, and
neither objection would any longer have weight. We should then no more think
of taxing people in proportion to their wealth or ability to pay, regardless
of the benefits they receive from government than an honest merchant would
think of charging his customers in proportion to their wealth or ability
to pay, regardless of the value of the goods they bought of him." 13
13. Following is an interesting computation of the cost
and loss to the city of Boston of the present mixed system of taxation
as compared with the single tax; The computation was made by James R.
Carret, Esq., the leading conveyancer of Boston:
Valuation of Boston, May 1, 1892
Land... ... . .. ... .. ... .. $399,170,175
Buildings ... ... ... ... ..$281,109,700
Total assessed value of real estate $680,279,875
Assessed value of personal estate $213,695,829
.... .... ... ... ... ... ... ... .... .... .... ...
.... ... $893,975,704
Rate of taxation, $12.90 per $1000
Total tax levy, May 1, 1892 $11,805,036
Amount of taxes levied in respect of the different subjects
of taxation and percentages of the same:
Land .... .... .... .... $5,149,295 43.62%
Buildings .... .... .. $3,626,295 30.72%
Personal estate .. $2,756,676 23.35%
Polls ... .... ... .... .... ...272,750 2.31%
But to ascertain the total cost to the people of Boston
of the present system of taxation for the taxable year, beginning May
1, 1892, there should be added to the taxes assessed upon them what it
cost them to pay the owners of the land of Boston for the use of the
land, being the net ground rent, which I estimate at four per cent on
the land value.
Total tax levy, May 1, 1892 ... ... ... ... .... ....
.... .... .... ..... .... .... .... .... .... .... ..$11,805,036
Net ground rent, four percent, on the land value
($399,170,175)..... ... ... ...$15,966,807
Total cost of the present system to the people of
Boston for that year ... $27,771,843
To contrast this with what the single tax system would
have cost the people of Boston for that year, take the gross ground rent,
found by adding to the net ground rent the taxation on land values for
that year, being $12.90 per $1000, or 1.29 per cent added to 4 per cent
= 5.29 per cent.
Total cost of present system as above .. .... .... ....
.... .... .... .... .... ....$27,771,843
Single tax, or gross ground rent, 5.29 per cent
on $399,170,175 ... ..$21,116,102
Excess cost of present system, which is the sum
taxes in respect of buildings, personal property,
and polls .... ...... .. $6,655,741
But the present system not only costs the people more
than the single tax would, but produces less revenue:
Proceeds of single tax ... ... ... ... ..... .... ....
..... .... .... .... ..... ..... .... $21,116,102
Present tax levy ... ... ... ... ... .... .... ....
..... .... .... .... .... .... .... .... ....$11,805,036
Loss to public treasury by present system ... ....
.... .... .... .. ..... ..$9,311,066
This, however, is not a complete contrast between the
present system and the single tax, for large amounts of real estate are
exempt from taxation, being held by the United States, the Commonwealth,
by the city itself, by religious societies and corporations, and by charitable,
literary, and scientific institutions. The total amount of the value
of land so held as returned by the assessors for the year 1892 is $60,626,171.
Reasons can be given why all lands within the city should
be assessed for taxation to secure a just distribution of the public
burdens, which I cannot take the space to enter into here. There is good
reason to believe also that lands in the city of Boston are assessed
to quite an appreciable extent below their fair market value. As an indication
of this see an editorial in the Boston Daily Advertiser for
October 3, 1893, under the title, "Their Own Figures."
The vacant lands, marsh lands, and flats in Boston were
valued by the assessors in 1892 (page 3 of their annual report) at $52,712,600.
I believe that this represents not more than fifty per cent of their
true market value.
Taking this and the undervaluation of improved property
and the exemptions above mentioned into consideration, I think $500,000,000
to be a fair estimate of the land values of Boston. Making this the basis
of contrast, we have:
Proceeds of single tax 5.29 per cent on $500,000,000 ...
.... .... .... $26,450,000
Present tax levy ... .... ... .... .... .... ....
.... ..... .... .... .... .... ..... .... .... ..$11,805,036
Loss to public treasury by present system ... ...
... ... .... .... .... ....$14,644,974
3. THE SINGLE TAX FALLS IN PROPORTION TO BENEFITS
To perceive that the single tax would justly measure the value of government
service we have only to realize that the mass of individuals everywhere and now,
in paying for the land they use, actually pay for government service in proportion
to what they receive. He who would enjoy the benefits of a government must use
land within its jurisdiction. He cannot carry land from where government is poor
to where it is good; neither can he carry it from where the benefits of good
government are few or enjoyed with difficulty to where they are many and fully
enjoyed. He must rent or buy land where the benefits of government are available,
or forego them. And unless he buys or rents where they are greatest and most
available he must forego them in degree. Consequently, if he would work or live
where the benefits of government are available, and does not already own land
there, he will be compelled to rent or buy at a valuation which, other things
being equal, will depend upon the value of the government service that the site
he selects enables him to enjoy. 14 Thus does he pay for the service of government
in proportion to its value to him. But he does not pay the public which provides
the service; he is required to pay land-owners.
14. Land values are lower in all countries of poor government
than in any country of better government, other things being equal. They
are lower in cities of poor government, other things being equal, than
in cities of better government. Land values are lower, for example, in
Juarez, on the Mexican side of the Rio Grande, where government is bad,
than in El Paso, the neighboring city on the American side, where government
is better. They are lower in the same city under bad government than
under improved government. When Seth Low, after a reform campaign, was
elected mayor of Brooklyn, N.Y., rents advanced before he took the oath
of office, upon the bare expectation that he would eradicate municipal
abuses. Let the city authorities anywhere pave a street, put water through
it and sewer it, or do any of these things, and lots in the neighborhood
rise in value. Everywhere that the "good roads" agitation of
wheel men has borne fruit in better highways, the value of adjacent land
has increased. Instances of this effect as results of public improvements
might be collected in abundance. Every man must be able to recall some
within his own experience.
And it is perfectly reasonable that it should be so.
Land and not other property must rise in value with desired improvements
in government, because, while any tendency on the part of other kinds
of property to rise in value is checked by greater production, land can
not be reproduced.
Imagine an utterly lawless place, where life and property
are constantly threatened by desperadoes. He must be either a very bold
man or a very avaricious one who will build a store in such a community
and stock it with goods; but suppose such a man should appear. His store
costs him more than the same building would cost in a civilized community;
mechanics are not plentiful in such a place, and materials are hard to
get. The building is finally erected, however, and stocked. And now what
about this merchant's prices for goods? Competition is weak, because
there are few men who will take the chances he has taken, and he charges
all that his customers will pay. A hundred per cent, five hundred per
cent, perhaps one or two thousand per cent profit rewards him for his
pains and risk. His goods are dear, enormously dear — dear enough
to satisfy the most contemptuous enemy of cheapness; and if any one should
wish to buy his store that would be dear too, for the difficulties in
the way of building continue. But land is cheap! This is the
type of community in which may be found that land, so often mentioned
and so seldom seen, which "the owners actually can't give away,
But suppose that government improves. An efficient administration
of justice rids the place of desperadoes, and life and property are safe.
What about prices then? It would no longer require a bold or desperately
avaricious man to engage in selling goods in that community, and competition
would set in. High profits would soon come down. Goods would be cheap — as
cheap as anywhere in the world, the cost of transportation considered.
Builders and building materials could be had without difficulty, and
stores would be cheap, too. But land would be dear! Improvement
in government increases the value of that, and of that alone.
Now, the economic principle pursuant to which land-owners are thus able
to charge their fellow-citizens for the common benefits of their common government
points to the true method of taxation. With the exception of such other monopoly
property as is analogous to land titles, and which in the purview of the
single tax is included with land for purposes of taxation, 15 land is the
only kind of property that is increased in value by government; and the increase
of value is in proportion, other influences aside, to the public service
which its possession secures to the occupant. Therefore, by taxing land in
proportion to its value, and exempting all other property, kindred monopolies
excepted — that is to say, by adopting the single tax — we should
be levying taxes according to benefits.16
15. Railroad franchises, for example, are not usually
thought of as land titles, but that is what they are. By an act of sovereign
authority they confer rights of control for transportation purposes over
narrow strips of land between terminals and along trading points. The
value of this right of way is a land value.
16. Each occupant would pay to his landlord the value
of the public benefits in the way of highways, schools, courts, police
and fire protection, etc., that his site enabled him to enjoy. The landlord
would pay a tax proportioned to the pecuniary benefits conferred upon
him by the public in raising and maintaining the value of his holding.
And if occupant and owner were the same, he would pay directly according
to the value of his land for all the public benefits he enjoyed, both
intangible and pecuniary.
And in no sense would this be class taxation. Indeed, the cry of class
taxation is a rather impudent one for owners of valuable land to raise against
the single tax, when it is considered that under existing systems of taxation
they are exempt. 17 Even the poorest and the most degraded classes in the
community, besides paying land-owners for such public benefits as come their
way, are compelled by indirect taxation to contribute to the support of government.
But landowners as a class go free. They enjoy the protection of the courts,
and of police and fire departments, and they have the use of schools and
the benefit of highways and other public improvements, all in common with
the most favored, and upon the same specific terms; yet, though they go through
the form of paying taxes, and if their holdings are of considerable value
pose as "the tax-payers" on all important occasions, they,
in effect and considered as a class, pay no taxes, because government, by
increasing the value of their land, enables them to recover back in higher
rents and higher prices more than their taxes amount to. Enjoying the same
tangible benefits of government that others do, many of them as individuals
and all of them as a class receive in addition a tangible pecuniary benefit
which government confers upon no other property-owners. The value of their
property is enhanced in proportion to the benefits of government which its
occupants enjoy. To tax them alone, therefore, is not to discriminate against
them; it is to charge them for what they get.18
17. While the landholders of the City of Washington were
paying something less than two per cent annually in taxes, a Congressional
Committee (Report of the Select Committee to Investigate Tax Assessments
in the District of Columbia, composed of Messrs. Johnson, of Ohio, Chairman,
Wadsworth, of New York, and Washington, of Tennessee. Made to the House
of Representatives, May 24, 1892. Report No. 1469), brought out
the fact that the value of their land had been increasing at a minimum
rate of ten per cent per annum. The Washington land-owners as a class
thus appear to have received back in higher land values, actually and
potentially, about ten dollars for every two dollars that as land-owners
they paid in taxes. If any one supposes that this condition is peculiar
to Washington let him make similar estimates for any progressive locality,
and see if the land-owners there are not favored in like manner.
But the point is not dependent upon increase in the capitalized
value of land. If the land yields or will yield to its owner an income
in the nature of actual or potential ground rent, then to the extent
that this actual or possible income is dependent upon government the
landlord is in effect exempt from taxation. No matter what tax he pays
on account of his ownership of land, the public gives it back to him
to that extent.
18. Take for illustration two towns, one of excellent
government and the other of inefficient government, but in all other
respects alike. Suppose you are hunting for a place of residence and
find a suitable site in the town of good government. For simplicity of
illustration let us suppose that the land there is not sold outright
but is let upon ground rent. You meet the owner of the lot you have selected
and ask him his terms. He replies:
"Two hundred and fifty dollars a year."
"Two hundred and fifty dollars a year!" you
exclaim. "Why, I can get just as good a site in that other town
for a hundred dollars a year."
"Certainly you can," he will say. "But
if you build a house there and it catches fire it will burn down; they
have no fire department. If you go out after dark you will be 'held up'
and robbed; they have no police force. If you ride out in the spring,
your carriage will stick in the mud up to the hubs, and if you walk you
may break your legs and will be lucky if you don t break your neck; they
have no street pavements and their sidewalks are dangerously out of repair.
When the moon doesn't shine the streets are in darkness, for they have
no street lights. The water you need for your house you must get from
a well; there is no water supply there. Now in our town it is different.
We have a splendid fire department, and the best police force in the
world. Our streets are macadamized, and lighted with electricity; our
sidewalks are always in first class repair; we have a water system that
equals that of New York; and in every way the public benefits in this
town are unsurpassed. It is the best governed town in all this region.
Isn't it worth a hundred and fifty dollars a year more for a building
site here than over in that poorly governed town?"
You recognize the advantages and agree to the terms.
But when your house is built and the assessor visits you officially,
what would be the conversation if your sense of the fitness of things
were not warped by familiarity with false systems of taxation? Would
it not be something like what follows?
"How much do you regard this house as worth? " asks
"What is that to you?" you inquire.
"I am the town assessor and am about to appraise
your property for taxation."
"Am I to be taxed by this town? What for?"
"What for?" echoes the assessor in surprise. "What
for? Is not your house protected from fire by our magnificent fire department?
Are not you protected from robbery by the best police force in the world?
Do not you have the use of macadamized pavements, and good sidewalks,
and electric street lights, and a first class water supply? Don't you
suppose these things cost something? And don't you think you ought to
pay your share?"
"Yes," you answer, with more or less
do have the benefit of these things, and I do think that I ought to pay
my share toward supporting them. But I have already paid my share for
this year. I have paid it to the owner of this lot. He charges me two
hundred and fifty dollars a year -- one hundred and fifty dollars more
than I should pay or he could get but for those very benefits. He has
collected my share of this year's expense of maintaining town improvements;
you go and collect from him. If you do not, but insist upon collecting
from me, I shall be paying twice for these things, once to him and once
to you; and he won't be paying at all, but will be making money out of
them, although he derives the same benefits from them in all other respects
that I do." ...
d. Effect of Confiscating Rent to Private Use.
By giving Rent to individuals society ignores this most just law, 99 thereby
creating social disorder and inviting social disease. Upon society alone,
therefore, and not upon divine Providence which has provided bountifully,
nor upon the disinherited poor, rests the responsibility for poverty and
fear of poverty.
99. "Whatever dispute arouses the passions of men,
the conflict is sure to rage, not so much as to the question 'Is it wise?'
as to the question 'Is it right?'
"This tendency of popular discussions to take an
ethical form has a cause. It springs from a law of the human mind; it
rests upon a vague and instinctive recognition of what is probably the
deepest truth we can grasp. That alone is wise which is just; that alone
is enduring which is right. In the narrow scale of individual actions
and individual life this truth may be often obscured, but in the wider
field of national life it everywhere stands out.
"I bow to this arbitrament, and accept this test." — Progress
and Poverty, book vii, ch. i.
The reader who has been deceived into believing that Mr.
George's proposition is in any respect unjust, will find profit in a
perusal of the entire chapter from which the foregoing extract is taken.
Let us try to trace the connection by means of a chart, beginning with the
white spaces on page 68. As before, the first-comers take possession of the
best land. But instead of leaving for others what they do not themselves
need for use, as in the previous illustrations, they appropriate the whole
space, using only part, but claiming ownership of the rest. We may distinguish
the used part with red color, and that which is appropriated without use
with blue. Thus: [chart]
But what motive is there for appropriating more of the space than is used?
Simply that the appropriators may secure the pecuniary benefit of future
social growth. What will enable them to secure that? Our system of confiscating
Rent from the community that earns it, and giving it to land-owners who,
as such, earn nothing.100
100. It is reported from Iowa that a few years ago a workman
in that State saw a meteorite fall, and. securing possession of it after
much digging, he was offered $105 by a college for his "find." But
the owner of the land on which the meteorite fell claimed the money,
and the two went to law about it. After an appeal to the highest court
of the State, it was finally decided that neither by right of discovery,
nor by right of labor, could the workman have the money, because the
title to the meteorite was in the man who owned the land upon which it
Observe the effect now upon Rent and Wages. When other men come, instead
of finding half of the best land still common and free, as in the corresponding
chart on page 68, they find all of it owned, and are obliged either to go
upon poorer land or to buy or rent from owners of the best. How much will
they pay for the best? Not more than 1, if they want it for use and not to
hold for a higher price in the future, for that represents the full difference
between its productiveness and the productiveness of the next best. But if
the first-comers, reasoning that the next best land will soon be scarce and
theirs will then rise in value, refuse to sell or to rent at that valuation,
the newcomers must resort to land of the second grade, though the best be
as yet only partly used. Consequently land of the first grade commands Rent
before it otherwise would.
As the sellers' price, under these circumstances, is arbitrary it cannot
be stated in the chart; but the buyers' price is limited by the superiority
of the best land over that which can be had for nothing, and the chart may
be made to show it: [chart]
And now, owing to the success of the appropriators of the best land in securing
more than their fellows for the same expenditure of labor force, a rush is
made for unappropriated land. It is not to use it that it is wanted, but
to enable its appropriators to put Rent into their own pockets as soon as
growing demand for land makes it valuable.101 We may, for illustration, suppose
that all the remainder of the second space and the whole of the third are
thus appropriated, and note the effect: [chart]
At this point Rent does not increase nor Wages fall, because there is no
increased demand for land for use. The holding of inferior land for higher
prices, when demand for use is at a standstill, is like owning lots in the
moon — entertaining, perhaps, but not profitable. But let more land
be needed for use, and matters promptly assume a different appearance. The
new labor must either go to the space that yields but 1, or buy or rent from
owners of better grades, or hire out. The effect would be the same in any
case. Nobody for the given expenditure of labor force would get more than
1; the surplus of products would go to landowners as Rent, either directly
in rent payments, or indirectly through lower Wages. Thus: [chart]
101. The text speaks of Rent only as a periodical or continuous
payment — what would be called "ground rent." But actual
or potential Rent may always be, and frequently is, capitalized for the
purpose of selling the right to enjoy it, and it is to selling value
that we usually refer when dealing in land.
Land which has the power of yielding Rent to its owner
will have a selling value, whether it be used or not, and whether Rent
is actually derived from it or not. This selling value will be the capitalization
of its present or prospective power of producing Rent. In fact, much
the larger proportion of laud that has a selling value is wholly or partly
unused, producing no Rent at all, or less than it would if fully used.
This condition is expressed in the chart by the blue color.
"The capitalized value of land is the actuarial 'discounted'
value of all the net incomes which it is likely to afford, allowance
being made on the one hand for all incidental expenses, including those
of collecting the rents, and on the other for its mineral wealth, its
capabilities of development for any kind of business, and its advantages,
material, social, and aesthetic, for the purposes of residence." — Marshall's
Prin., book vi, ch. ix, sec. 9.
"The value of land is commonly expressed as a certain
number of times the current money rental, or in other words, a certain
'number of years' purchase' of that rental; and other things being equal,
it will be the higher the more important these direct gratifications
are, as well as the greater the chance that they and the money income
afforded by the land will rise." — Id., note.
"Value . . . means not utility, not any quality inhering
in the thing itself, but a quality which gives to the possession of a
thing the power of obtaining other things, in return for it or for its
use. . . Value in this sense — the usual sense — is purely
relative. It exists from and is measured by the power of obtaining things
for things by exchanging them. . . Utility is necessary to value, for
nothing can be valuable unless it has the quality of gratifying some
physical or mental desire of man, though it be but a fancy or whim. But
utility of itself does not give value. . . If we ask ourselves the reason
of . . . variations in . . . value . . . we see that things having some
form of utility or desirability, are valuable or not valuable, as they
are hard or easy to get. And if we ask further, we may see that with
most of the things that have value this difficulty or ease of getting
them, which determines value, depends on the amount of labor which must
be expended in producing them ; i.e., bringing them into the place, form
and condition in which they are desired. . . Value is simply an expression
of the labor required for the production of such a thing. But there are
some things as to which this is not so clear. Land is not produced by
labor, yet land, irrespective of any improvements that labor has made
on it, often has value. . . Yet a little examination will show that such
facts are but exemplifications of the general principle, just as the
rise of a balloon and the fall of a stone both exemplify the universal
law of gravitation. . . The value of everything produced by labor, from
a pound of chalk or a paper of pins to the elaborate structure and appurtenances
of a first-class ocean steamer, is resolvable on analysis into an equivalent
of the labor required to produce such a thing in form and place; while
the value of things not produced by labor, but nevertheless susceptible
of ownership, is in the same way resolvable into an equivalent of the
labor which the ownership of such a thing enables the owner to obtain
or save." — Perplexed Philosopher, ch. v.
The figure 1 in parenthesis, as an item of Rent, indicates potential Rent.
Labor would give that much for the privilege of using the space, but the
owners hold out for better terms; therefore neither Rent nor Wages is actually
produced, though but for this both might be.
In this chart, notwithstanding that but little space is used, indicated
with red, Wages are reduced to the same low point by the mere appropriation
of space, indicated with blue, that they would reach if all the space above
the poorest were fully used. It thereby appears that under a system which
confiscates Rent to private uses, the demand for land for speculative purposes
becomes so great that Wages fall to a minimum long before they would if land
were appropriated only for use.
In illustrating the effect of confiscating Rent to private use we have as
yet ignored the element of social growth. Let us now assume as before (page
73), that social growth increases the productive power of the given expenditure
of labor force to 100 when applied to the best land, 50 when applied to the
next best, 10 to the next, 3 to the next, and 1 to the poorest. Labor would
not be benefited now, as it appeared to be when on page 73 we illustrated
the appropriation of land for use only, although much less land is actually
used. The prizes which expectation of future social growth dangles before
men as the rewards of owning land, would raise demand so as to make it more
than ever difficult to get land. All of the fourth grade would be taken up
in expectation of future demand; and "surplus labor" would be crowded
out to the open space that originally yielded nothing, but which in consequence
of increased labor power now yields as much as the poorest closed space originally
yielded, namely, 1 to the given expenditure of labor force.102 Wages would
then be reduced to the present productiveness of the open space. Thus: [chart]
102. The paradise to which the youth of our country have
so long been directed in the advice, "Go West, young man, go West," is
truthfully described in "Progress and Poverty," book iv, ch.
iv, as follows :
"The man who sets out from the eastern seaboard
in search of the margin of cultivation, where he may obtain land without
paying rent, must, like the man who swam the river to get a drink,
pass for long distances through half-titled farms, and traverse vast
areas of virgin soil, before he reaches the point where land can be
had free of rent — i.e., by homestead entry or preemption."
If we assume that 1 for the given expenditure of labor force is the least
that labor can take while exerting the same force, the downward movement
of Wages will be here held in equilibrium. They cannot fall below 1; but
neither can they rise above it, no matter how much productive power may increase,
so long as it pays to hold land for higher values. Some laborers would continually
be pushed back to land which increased productive power would have brought
up in productiveness from 0 to 1, and by perpetual competition for work would
so regulate the labor market that the given expenditure of labor force, however
much it produced, could nowhere secure more than 1 in Wages.103 And this
tendency would persist until some labor was forced upon land which, despite
increase in productive power, would not yield the accustomed living without
increase of labor force. Competition for work would then compel all laborers
to increase their expenditure of labor force, and to do it over and over
again as progress went on and lower and lower grades of land were monopolized,
until human endurance could go no further.104 Either that, or they would
be obliged to adapt themselves to a lower scale of living.105
103. Henry Fawcett, in his work on "Political Economy," book
ii, ch. iii, observes with reference to improvements in agricultural
implements which diminish the expense of cultivation, that they do not
increase the profits of the farmer or the wages of his laborers, but
that "the landlord will receive in addition to the rent already
paid to him, all that is saved in the expense of cultivation." This
is true not alone of improvements in agriculture, but also of improvements
in all other branches of industry.
104. "The cause which limits speculation in commodities,
the tendency of increasing price to draw forth additional supplies, cannot
limit the speculative advance in land values, as land is a fixed quantity,
which human agency can neither increase nor diminish; but there is nevertheless
a limit to the price of land, in the minimum required by labor and capital
as the condition of engaging in production. If it were possible to continuously
reduce wages until zero were reached, it would be possible to continuously
increase rent until it swallowed up the whole produce. But as wages cannot
be permanently reduced below the point at which laborers will consent
to work and reproduce, nor interest below the point at which capital
will be devoted to production, there is a limit which restrains the speculative
advance of rent. Hence, speculation cannot have the same scope to advance
rent in countries where wages and interest are already near the minimum,
as in countries where they are considerably above it. Yet that there
is in all progressive countries a constant tendency in the speculative
advance of rent to overpass the limit where production would cease, is,
I think, shown by recurring seasons of industrial paralysis." — Progress
and Poverty, book iv, ch. iv.
105. As Puck once put it, "the man who makes two
blades of grass to grow where but one grew before, must not be surprised
when ordered to 'keep off the grass.' "
They in fact do both, and the incidental disturbances of general readjustment
are what we call "hard times." 106 These culminate in forcing unused
land into the market, thereby reducing Rent and reviving industry. Thus increase
of labor force, a lowering of the scale of living, and depression of Rent,
co-operate to bring on what we call "good times." But no sooner
do "good times" return than renewed demands for land set in, Rent
rises again, Wages fall again, and "hard times" duly reappear.
The end of every period of "hard times" finds Rent higher and Wages
lower than at the end of the previous period.107
106. "That a speculative advance in rent or land
values invariably precedes each of these seasons of industrial depression
is everywhere clear. That they bear to each other the relation of cause
and effect, is obvious to whoever considers the necessary relation between
land and labor." — Progress and Poverty, book v, ch. i.
107. What are called "good times" reach a point
at which an upward land market sets in. From that point there is a downward
tendency of wages (or a rise in the cost of living, which is the same
thing) in all departments of labor and with all grades of laborers. This
tendency continues until the fictitious values of land give way. So long
as the tendency is felt only by that class which is hired for wages,
it is poverty merely; when the same tendency is felt by the class of
labor that is distinguished as "the business interests of the country," it
is "hard times." And "hard times" are periodical
because land values, by falling, allow "good times " to set
it, and by rising with "good times" bring "hard times" on
again. The effect of "hard times" may be overcome, without
much, if any, fall in land values, by sufficient increase in productive
power to overtake the fictitious value of land.
The dishonest and disorderly system under which society confiscates Rent
from common to individual uses, produces this result. That maladjustment
is the fundamental cause of poverty. And progress, so long as the maladjustment
continues, instead of tending to remove poverty as naturally it should, actually
generates and intensifies it. Poverty persists with increase of productive
power because land values, when Rent is privately appropriated, tend to even
greater increase. There can be but one outcome if this continues: for individuals
suffering and degradation, and for society destruction.
Q22. What difference would it make to tenants whether they paid land
rent to the community or to private owners?
A. When they pay it to the community they are paying it in part to themselves,
and what others pay they share in; for they are part of the community. They are
also exempt from taxes. And since there would be no inducement to speculate in
land if rent went to the community, land would be more plentiful and rents would
consequently be lower. ... read the book
Charles B. Fillebrown: A Catechism
of Natural Taxation, from Principles of
Natural Taxation (1917)
Q28. How are landlords privileged?
A. Because, in so far as their land tax is an "old" tax, it is
a burdenless tax, and because their buildings' tax is shifted upon their
tenants; most landlords who let land and also the tenement houses and business
blocks thereon avoid all share in the tax burden.
Q51. Does not a land tax increase house rent or store rent?
A. The landlord, as a rule, exacts the full ground rent for the use of his land.
Neither by taking three dollars nor $30 per thousand in taxation can land to
be made worth any more for use.
Q55. How would the single tax effect the tenant?
A. It would neither increase nor decrease his land rent. It would reduce his
house rent by the amount of the house tax. ... read the whole article
Peter Barnes: Capitalism
3.0 — Chapter 1: Time to Upgrade (pages 3-14)
More than a century ago, English economist John Ruskin observed that the
same economic system that creates glittering wealth also spawns what he called
illth — poverty, pollution, despair, illness. It makes life comfortable
for some, but does so at considerable discomfort to others.
Modern economists’ term for illth is negative externalities. By this
they mean the costs of economic transactions that are “external” to
the parties involved. The classic example is a factory that dumps effluent
into a river. Unlike homeowners who pay for garbage pickup, the factory’s
owners pay nothing for disposing their waste into the river. But humans and
other creatures living downstream do pay a cost. Plants and animals suffer
and die, while cities have to build expensive treatment plants. From the
standpoint of the factory owner, none of this matters. But from the standpoints
of nature and society, these are negative externalities. (There can, sometimes,
be positive externalities — for example, if your
neighbor repaints her house, that may increase the value
For a long time, economists assured us that the wealth spewed out by our
economic machine was so great, and the illth so trivial, that we didn’t
need to worry about negative externalities. If this was ever true, it’s
assuredly true no longer. Contemporary climate change is, quintessentially,
a problem of negative externalities. We pay owners of land beneath
which fossil fuels lie. We pay drillers, refiners, transporters, and retailers.
But we don’t pay nature, or anyone else, for dumping heat-trapping
gases into the atmosphere. We shift this cost to our children, and take a
free ride. We party, they pay. ... read
the whole chapter