Chapter 4--Binary Intervention: Taxation (continued)
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Chapter 4—Binary
Intervention: Taxation (continued)
6.
The Incidence and Effects of Taxation
Part IV: The
“Single Tax” on Ground Rent
We have refuted elsewhere the various arguments that form part of the
Henry Georgist edifice: the idea that “society”
owns the land originally and that every new baby has a
“right” to an aliquot part; the moral argument that
an increase in the value of ground land is an “unearned
increment” due to external causes; and the doctrine that
“speculation” in sites wickedly withholds
productive land from use. Here we shall analyze the famous Georgist
proposal itself: the “single tax,” or the
100-percent expropriation of ground rent.
One of the first things to be said about the Georgist theory is that it
calls attention to an important problem—the land question.
Current economics tends to treat land as part of capital and to deny
the existence of a separate land category at all. In such an
environment, the Georgist thesis serves to call attention to a
neglected problem, even though every one of its doctrines is fallacious.
Much of the discussion of ground-rent taxation has been confused by the
undoubted stimulus to production that would result, not from this tax,
but from the elimination of all other forms of taxation.
George waxed eloquent over the harmful effect taxation has upon
production and exchange. However, these effects can as easily be
removed by eliminating taxation altogether as by shifting all taxes
onto ground rent.
In fact, it will here be
demonstrated that taxation of ground rent also hampers and distorts
production. Whatever beneficial effects the single tax might have on
production would flow only from the elimination of other taxes, not
from the imposition of this one. The two acts must be kept conceptually
distinct.
A tax on ground rent would have the effect of a property tax as
described above, i.e., it could not be shifted, and it would be
“capitalized,” with the initial burden falling on
the original owner, and later owners escaping any burden because of the
fall in the capital value of the ground land. The Georgists propose to
place a 100-percent annual tax on ground rents alone.
One critical problem that the single tax could not meet is the
difficulty of estimating ground rents. The essence of the single tax
scheme is to tax ground rent only and to leave all capital goods free
from tax. But it is impossible to make this division. Georgists have
dismissed this difficulty as merely a practical one; but it is a
theoretical flaw as well. As is true of any property tax, it is
impossible accurately to assess value, because the property has not
been actually sold on the market during the period.
Ground-land taxation faces a further problem that cannot be solved: how
to distinguish quantitatively between that portion of the gross rent of
a land area which goes to ground land and that portion which goes to
interest and to wages. Since land in use is often amalgamated with
capital investment and the two are bought and sold together, this
distinction between them cannot be made.
But the Georgist theory faces even graver difficulties. For its
proponents contend that the positive virtue of the tax consists in
spurring production. They point out to hostile critics that the single
tax (if it could be accurately levied) would not discourage capital
improvements and maintenance of landed property; but then they proceed
to argue that the single tax would force idle land
into use. This is supposed to be one of the great merits of the tax.
Yet if land is idle, it earns no gross rent
whatever; if it earns no gross rent, then obviously it earns no net
rent as ground land. Idle land earns no rent, and therefore earns no
ground rent that could be taxed. It would bear no taxes under a consistent
operation of the Georgist scheme! Since it would not be taxed, it could
not be forced into use.
The only logical explanation for this error by the Georgists is that
they concentrate on the fact that much idle land has a capital
value, that it sells for a price on the market, even though
it earns no rents in current use. From the fact that idle land has a
capital value, the Georgists apparently deduce that it must have some
sort of “true” annual ground rent. This assumption
is incorrect, however, and rests on one of the weakest parts of the
Georgists’ system: its deficient attention to the role of
time.
The fact that currently
idle land has a capital value means simply that the market expects
it to earn rent in the future. The capital value of ground land, as of
anything else, is equal to and determined by the sum of expected future
rents, discounted by the rate of interest. But these are not presently
earned rents! Therefore, any taxation of idle land violates the
Georgists’ own principle of a single tax on ground rent; it
goes beyond this limit to penalize land ownership further and to tax
accumulated capital, which has to be drawn down in order to pay the tax.
Any increase in the capital value of idle land,
then, does not reflect a current rent; it merely reflects an upgrading
of people’s expectations about future rents. Suppose, for
example, that future rents from an idle site are such that,
if known to all, the present capital value of the site would be
$10,000. Suppose further that these facts are not generally known and,
therefore, that the ruling price is $8,000. Jones, being a farsighted
entrepreneur, correctly judges the situation and purchases the site for
$8,000. If everyone soon realizes what Jones has foreseen, the market
price will now rise to $10,000. Jones’ capital gain of $2,000
is the profit to his superior judgment, not
earnings from current rate.
The Georgist bogey is idle land. The fact that land is idle, they
assert, is caused by “land speculation,” and to
this land speculation they attribute almost all the ills of
civilization, including business-cycle depressions. The Georgists do
not realize that, since labor is scarce in relation to land,
submarginal land must remain idle. The sight of
idle land enrages the Georgist, who sees productive capacity being
wasted and living standards reduced. Idle land should, however, be
recognized as beneficial, for, if land were ever fully used this would
mean that labor had become abundant in relation to land and that the
world had at last entered on the terrible overpopulation stage in which
some labor has to remain idle because no employment is available.
The present writer used to wonder about the curious Georgist
preoccupation with idle, or “withheld,” ground land
as the cause of most economic ills until he found a clue in a revealing
passage of a Georgist work:
“Poor”
Countries Do Not Lack Capital.
Most
of us have learned to believe that the people of India, China, Mexico,
and other so-called backward nations are poor because they lack
capital. Since, as we have seen, capital is nothing more than wealth,
and wealth nothing more than human energy combined with land in one
form or another, the absence of capital too often suggests that there
is a shortage of land or of labor in backward countries like India and
China. But that isn’t true. For these
“poor” countries have many times more land and
labor than they use. . . . Undeniably, they have everything it
takes—both land and labor—to produce as much
capital as people anywhere.
And
so, since these poor countries have plenty of land and labor, it
follows that landlords must be withholding land from use. Only this
could explain the low living standards.
Here a crucial Georgist fallacy is exposed clearly: ignorance of the
true role of time in production. It takes time to
save and invest and build up capital goods, and these capital goods
embody a shortening of the ultimate time period needed to acquire
consumers’ goods. India and China are short of capital
because they are short of time. They start from a low level of capital,
and therefore it would take them a long time to reach a high capital
level through their own savings. Once again, the Georgist difficulty
stems from the fact that their theory was formulated before the rise of
“Austrian” economics and that the Georgists have
never reevaluated their doctrine in the light of this development.
As we have indicated earlier, land speculation performs a useful social
function. It puts land into the hands of the most knowledgeable and
develops land at the rate desired by the consumers. And good sites will
not be kept idle—thus incurring a loss of ground rent to the
site owner—unless the owner expects a better use to be
imminently available. The allocation of sites to their most
value-productive uses, therefore, requires all the virtues of any type
of entrepreneurship on the market.
One of the most surprising deficiencies in the literature of economics
is the lack of effective criticism of the Georgist theory. Economists
have either temporized, misconceived the problem, or, in many cases,
granted the economic merit of the theory but cavilled at its political
implications or its practical difficulties. Such gentle treatment has
contributed greatly to the persistent longevity of the Georgist
movement. One reason for this weakness in the criticism of the doctrine
is that most economists have conceded a crucial point of the Georgists,
namely, that a tax on ground rent would not discourage production and
would have no harmful or distorting economic effects. Granting the
economic merits of the tax, criticism of it must fall back on other
political or practical considerations. Many writers, while balking at
the difficulties in the full single-tax program, have advocated the
100-percent taxation of future increments in ground
rent. Georgists have properly treated such halfway measures with scorn.
Once the opposition concedes the economic harmlessness of a ground-rent
tax, its other doubts must seem relatively minor.
The crucial economic problem of the single tax, then, is this: Will a
tax on ground rent have distortive and hampering effects? Is it true
that the owner of ground land performs no productive service and,
therefore, that a tax upon him does not hamper and distort production?
Ground rent has been called “economic surplus,”
which would be taxed up to any amount with no side effects. Many
economists have tacitly agreed with this conclusion and have agreed
that a landowner can perform a productive service only as an improver,
i.e., as a producer of capital goods on land.
Yet this central Georgist contention overlooks the realities. The owner
of ground land performs a very important productive service. He brings
sites into use and allocates them to the most value-productive bidders.
We must not be misled by the fact that the physical stock of land is
fixed at any given time. In the case of land, as of other goods, it is
not just the physical good that is sold, but a whole bundle of services
along with it—among which is the service of transferring
ownership from seller to buyer. Ground land does not simply
exist; it must be served to the
user by the owner. (One man can perform both functions when the land is
“vertically integrated.”)
The landowner earns the highest ground rents by allocating land sites
to their most value-productive uses, i.e., to those uses most desired
by consumers. In particular, we must not overlook the importance of
location and the productive service of the site owner in insuring the
most productive locations for each particular use.
The view that bringing sites into use and deciding on their location is
not really “productive” is a vestige of the old
classical view that a service which does not tangibly
“create” something physical is not
“really” productive.
Actually, this function is
just as productive as any other, and a particularly vital function it
is. To hamper and destroy this function would have grave effects on the
economy.
Suppose that the government did in fact levy a 100-percent tax on
ground rent. What would be the economic effects? The current owners of
ground land would be expropriated, and the capital value of ground land
would fall to zero. Since site owners could not obtain rents, the sites
would become valueless on the market. From then on, sites would be free,
and the site owner would have to pay his annual ground rent into the
Treasury.
But since all ground rent is siphoned off to the government, there
is no reason for owners to charge any rent. Ground rent will
fall to zero as well, and rentals will thus be free. So, one economic
effect of the single tax is that, far from supplying all the revenue of
government, it would yield no revenue at all!
The single tax, then, makes sites free when they
are actually not free and unlimited, but scarce. Any good
is always scarce and therefore must always command a price in
accordance with the demand for it and the supply available. The only
“free goods” on the market are not goods
at all, but abundant conditions of human welfare that are not the
subject of human action.
The effect of this tax, then, is to fool the market into believing that
sites are free when they are decidedly not. The result will be the same
as any case of maximum price control. Instead of commanding a high
price and therefore being allocated to the highest bidders, the most
value-productive sites will be grabbed by first comers and wasted,
since there will be no pressure for the best sites to go into their
most efficient uses. People will rush in to demand and use the best
sites, while no one will wish to use the less productive ones. On the
free market, the less productive sites cost less to the tenant; if they
cost no less than the best sites (i.e., if they are free), then no one
will want to use them. Thus, in a city, the best, or most potentially
value-productive, sites are in the “downtown”
areas, and these consequently earn and charge higher rents than the
less productive but still useful sites in the outlying areas. If the
Henry George scheme went into effect, there would not only be complete
misallocation of sites to less productive uses, but there would also be
great overcrowding in the downtown areas, as well as underpopulation
and underuse of the outlying areas. If Georgists believe that the
single tax would end overcrowding of the downtown areas, they are
gravely mistaken, for the reverse would occur.
Furthermore, suppose the government imposed a tax of more
than 100 percent on ground rents, as the Georgists really envision, so
as to force “idle” land into use. The result would
be aggravated wasteful misapplication of labor and capital. Since labor
is scarce relative to land, the compulsory use of idle land would
wastefully misallocate labor and capital and force more work on poorer
land, and therefore less on better land.
At any rate, the result of the single tax would be locational chaos,
with waste and misallocation everywhere; overcrowding would prevail;
and poorer sites would either be overused or underused and abandoned
altogether. The general tendency would be toward underuse of the poorer
sites because of the tax-induced rush to the better ones. As under
conditions of price control, the use of the better sites would be
decided by favoritism, queuing, etc., instead of economic ability.
Since location enters into the production of every
good, locational chaos would introduce an element of chaos into every
area of production and perhaps ruin economic calculation as well, for
an important element to be
calculated—location—would be removed from the
sphere of the market.
To this contention, the Georgists would reply that the owners would not
be allowed to charge no rents, because the government’s army
of assessors would set the proper rents. But this would hardly
alleviate the problem; in fact, it would aggravate matters in many
ways. It might bring in revenue and check some of the excess demand of
land users, but it would still provide no reason and no incentive for
the landowners to perform their proper function of
allocating land sites efficiently. In addition, if assessment is
difficult and arbitrary at any time, how very much more chaotic would
it be when the government must blindly estimate, in the absence of any
rent market, the rent for every piece of ground land! This would be a
hopeless and impossible task, and the resulting deviations from
free-market rents would compound the chaos, with over- and underuse,
and wrong locations. With no vestige of market left, not only would the
landowners be deprived of any incentive for efficient allocation of
sites; they would have no way of finding out
whether their allocations were efficient or not.
Finally, this all-around fixing of rents by the government would be
tantamount to virtual nationalization of the land, with all the
enormous wastes and chaos that afflict any government ownership of
business—all the greater in a business that would permeate
every nook and cranny of the economy. The Georgists contend that they
do not advocate the nationalization of land, since ownership would
remain de jure in the hands of private individuals.
The returns from this ownership, however, would all accrue to the
State. George himself admitted that the single tax would
“accomplish the same thing [as the land nationalization] in a
simpler, easier, and quieter way.”
George’s method,
however, would, as we have seen, be neither simple, easy, nor quiet.
The single tax would leave de jure ownership in
private hands while completely destroying its point, so that the single
tax is hardly an improvement upon, or differs much from, outright
nationalization.
Of course, as we shall see
further below, the State has no incentive or means for efficient
allocation either. At any rate, land sites, like any other resources,
must be owned and controlled by someone, either a private owner or the
government. Sites can be allocated either by voluntary contract or by
governmental coercion, and the latter is what is attempted by the
single tax or by land nationalization.
The Georgists believe that ownership or control by the State means that
“society” will own or command the land or its rent.
But this is fallacious. Society or the public cannot own anything; only
an individual or a set of individuals can do so. (This will be
discussed below.) At any rate, in the Georgist scheme, it would not be
society, but the State that would own the land. Caught in an
inescapable dilemma are a group of antistatist Georgists, who wish to
statize ground rent yet abolish taxation at the same time. Frank
Chodorov, a leader of this group, could offer only the lame suggestion
that ground land be municipalized rather than nationalized—to
avoid the prospect that all of a nation’s land might be owned
by a central government monopoly. Yet the difference is one of degree,
not of kind; the effects of government ownership and regional land
monopoly still appear, albeit in a number of small regions instead of
one big region.
Every element in the Georgist system is thus seen to be fallacious. Yet
the Georgist doctrines hold a considerable attraction even now, and,
surprisingly, for many economists and social philosophers otherwise
devoted to the free market. There is a good reason for this attraction,
for the Georgists, though in a completely topsy-turvy manner, do call
attention to a neglected problem: the land question. There is
a land question, and no attempt to ignore it can meet the issue.
Contrary to Georgist doctrine, however, the land problem does not
stem from free-market ownership of ground land. It stems from failure
to live up to a prime condition of free-market property rights, namely,
that new, unowned land be first owned by its first user, and that from
then on, it become the full private property of the first user or those
who receive or buy the land from him. This is the free-market method;
any other method of allocating new, unused land to ownership employs
statist coercion.
Under a “first-user, first-owner”
regime, the Georgists would be wrong in asserting that no labor had
been mixed with nature-given land to justify private ownership of
sites. For then, land could not be owned unless it were first used and
could be originally appropriated for ownership only to the extent that
it was so used. The “mixing” of labor with nature
may take the form of draining, filling, clearing, paving, or otherwise
preparing the site for use. Tilling the soil is only one possible type
of use.
The use-claim to the land
could be certified by courts if any dispute over its ownership arose.
Certainly the claim of the pioneer as first finder and first user is no
more disputable than any other claim to a product of labor. Knight does
not overdraw the picture when he charges that
the
allegation that our pioneers got the land for nothing, robbing future
generations of their rightful heritage, should not have to be met by
argument. The whole doctrine was invented by city men living in
comfort, not by men in contact with the facts as owners or renters. . .
. If society were later to confiscate the land value, allowing
retention only of improvements or their value, it would ignore the
costs in bitter sacrifice and would arbitrarily discriminate between
one set of property owners and another set.
Problems and difficulties arise whenever the “first-user,
first-owner” principle is not met. In
almost all countries, governments have laid claim
to ownership of new, unused land. Governments could never own original
land on the free market. This act of appropriation
by the government already sows the seeds for distortion of market
allocations when the land goes into use. Thus, suppose that the
government disposes of its unused public lands by selling them at
auction to the highest bidder. Since the government has no valid
property claim to ownership, neither does the buyer from the
government. If the buyer, as often happens, “owns”
but does not use or settle the land, then he becomes a land
speculator in a pejorative sense. For the true user, when he
comes along, is forced either to rent or buy the land from this
speculator, who does not have valid title to the area. He cannot have
valid title because his title derives from the State, which also did
not have valid title in the free-market sense. Therefore, some
of the charges that the Georgists have leveled against land speculation
are true, not because land speculation is bad per
se, but because the speculator came to own the land, not by
valid title, but via the government, which originally arrogated title
to itself. So now the purchase price (or, alternatively, the rent) paid
by the would-be user really does become the payment of a tax
for permission to use the land. Governmental sale of unused land
becomes similar to the old practice of tax farming,
where an individual would pay the State for the privilege of himself
collecting taxes. The price of payment, if freely fluctuating, tends to
be set at the value that this privilege confers.
Government sale of “its” unused land to
speculators, therefore, restricts the use of new land, distorts the
allocation of resources, and keeps land out of use that would be
employed were it not for the “tax” penalty of
paying a purchase price or rent to the speculator. Keeping land out of
use raises the marginal value product and the rents of remaining land
and lowers the marginal value product of labor, thereby lowering wage
rates.
The affinity of rent and taxation is even closer in the case of
“feudal” land grants. Let us postulate a typical
case of feudal beginnings: a conquering tribe invades a territory of
peasants and sets up a State to rule them. It could
levy taxes and support its retinue out of the proceeds. But it could
also do something else, and it is important to see that there is no
essential difference between the two. It could parcel out all of the
land as individual grants of “ownership” to each
member of the conquering band. Then, instead of or in addition to one
central taxing agency, there would be a series of regional rent
collecting agencies. But the consequences would be exactly
the same. This is clearly seen in Middle Eastern countries, where
rulers have been considered to own their
territories personally and have therefore collected taxes in the form
of “rent” charged for that ownership.
The subtle gradations linking taxation and feudal rent have been
lucidly portrayed by Franz Oppenheimer:
The
peasant surrenders a portion of the product of his labor, without any
equivalent service in return. “In the
beginning was the ground rent.”
The
forms under which the ground rent is collected or consumed vary. In
some cases, the lords, as a closed union or community, are settled in
some fortified camp and consume as communists the tribute of their
peasantry. . . . In some cases, each individual warrior-noble has a
definite strip of land assigned to him: but generally the produce of
this is still, as in Sparta, consumed in the
“syssitia,” by class associates and companions in
arms. In some cases, the landed nobility scatters over the entire
territory, each man housed with his following in his fortified castle,
and consuming, each for himself, the produce of his dominion or lands.
As yet, these nobles have not become landlords, in the sense that they
administer their property. Each of them receives tribute from the labor
of his dependents, whom he neither guides nor supervises. This is the
type of medieval dominion in the lands of the Germanic nobility.
Finally, the knight becomes the owner and administrator of the
knight’s fee.
Of course, there are considerable differences between land speculation
by the original buyer from the government and a feudal land grant. In
the former case, the user eventually purchases the land from the
original buyer, and, once he does so, the tax has been fully paid and
disappears. From that point on, free-market allocations prevail. Once
land gets into the hands of the user, he has, as it were,
“bought out” the permission tax, and, from then on,
everything proceeds on a free-market basis.
In contrast, the feudal
lord passes the land on to his heirs. The true owners now have to pay
rent where they did not have to pay before. This rent-tax continues
indefinitely. Because of the generally vast extent of the grant, as
well as various prohibitory laws, it is most unusual for the feudal
lord to be bought out by his tenant-subjects. When they do buy out
their own plots, however, their land is from then on freed from the
permission-tax incubus.
One charge often made against the market is that
“all” property can be traced back to coercive
depredations or State privilege, and therefore there is no need to
respect current property rights. Waiving the question of the accuracy
of the historical contention, we may state that historical tracings
generally make little difference. Suppose, for example, that Jones
steals money from Smith or that he acquires the money through State
expropriation and subsidy. And suppose that there is no redress: Smith
and his heirs die, and the money continues in Jones’ family.
In that case, the disappearance of Smith and his heirs means the
dissolution of claims from the original titleholders at that
point, on the “homestead” principle of
property right from possession of unowned property. The money therefore
accrues to the Jones family as their legitimate and absolute property.
This process of converting force to service, however, does not work
where rent paid for ground land is akin to regional taxation. The
effects of speculation in original land disappear as the users purchase
the land sites, but dissolution does not take place where feudal land
grants are passed on, unbroken, over the generations. As Mises states:
Nowhere
and at no time has the large-scale ownership of land come into being
through the working of economic forces in the market. It is the result
of military and political effort. Founded by violence, it has been
upheld by violence and by that alone. As soon as the latifundia are
drawn into the sphere of market transactions they begin to crumble,
until at last they disappear completely. Neither at their formation nor
in their maintenance have economic causes operated. The great landed
fortunes did not arise through the economic superiority of large-scale
ownership, but through violent annexation outside the area of trade. .
. . The non-economic origin of landed fortunes is clearly revealed by
the fact that, as a rule, the expropriation by which they have been
created in no way alters the manner of production. The old owner
remains on the soil under a different legal title and continues to
carry on production.
7.
Canons of “Justice” in Taxation
A.
The Just Tax and the Just Price
For centuries before the science of economics was developed, men
searched for criteria of the “just price.” Of all
the innumerable, almost infinite possibilities among the myriads of
prices daily determined, what pattern should be considered as
“just”? Gradually it came to be realized that there
is no quantitative criterion of justice that can be
objectively determined. Suppose that the price of eggs is 50¢
per dozen, what is the “just price”? It is clear,
even to those (like the present writer) who believe in the possibility
of a rational ethics, that no possible ethical philosophy or science
can yield a quantitative measure or criterion of justice. If Professor
X says that the “just” price of eggs is
45¢, and Professor Y says it is 85¢, no philosophical
principle can decide between them. Even the most fervent
antiutilitarian will have to concede this point. The various
contentions all become purely arbitrary whim.
Economics, by tracing the ordered pattern of the voluntary exchange
process, has made it clear that the only possible objective criterion
for the just price is the market price. For the
market price is, at every moment, determined by the voluntary, mutually
agreed-upon actions of all the participants in the market. It is the
objective resultant of every individual’s subjective
valuations and voluntary actions, and is therefore the only existent
objective criterion for “quantitative justice” in
pricing.
Practically nobody now searches explicitly for the “just
price,” and it is generally recognized that any ethical
criticisms must be leveled qualitatively against the values of
consumers, not against the quantitative price-structure that the market
establishes on the basis of these values. The market price is the just
price, given the pattern of consumer preferences. Furthermore, this
just price is the concrete, actual market price,
not equilibrium price, which can never be established in the real
world, nor the “competitive price,” which is an
imaginary figment.
If the search for the just price has virtually ended in the pages of
economic works, why does the quest for a “just tax”
continue with unabated vigor? Why do economists, severely scientific in
their volumes, suddenly become ad hoc ethicists
when the question of taxation is raised? In no other area of his
subject does the economist become more grandiosely ethical.
There is no objection at all to discussion of ethical concepts when
they are needed, provided that the economist realizes always (a)
that economics can establish no ethical principles
by itself—that it can only furnish existential laws to the
ethicist or citizen as data; and (b) that any
importation of ethics must be grounded on a consistent, coherent set of
ethical principles, and not simply be slipped in ad hoc
in the spirit of “well, everyone must agree to this. . .
.” Bland assumptions of universal agreement are one of the
most irritating bad habits of the economist-turned-ethicist.
This book does not attempt to establish ethical principles. It does,
however, refute ethical principles to the extent that they are
insinuated, ad hoc and unanalyzed, into economic
treatises. An example is the common quest for “canons of
justice” in taxation. The prime objection to these
“canons” is that the writers have first to
establish the justice of taxation itself. If this cannot be proven, and
so far it has not been, then it is clearly idle to look for the
“just tax.” If taxation itself is unjust, then it
is clear that no allocation of its burdens, however ingenious, can be
declared just. This book sets forth no doctrines on the justice or
injustice of taxation. But we do exhort economists either to forget
about the problem of the “just tax” or, at least,
to develop a comprehensive ethical system before they tackle this
problem again.
Why do not economists abandon the search for the “just
tax” as they abandoned the quest for the “just
price”? One reason is that doing so may have unwelcome
implications for them. The “just price” was
abandoned in favor of the market price. Can the “just
tax” be abandoned in favor of the market tax? Clearly not,
for on the market there is no taxation, and therefore no tax can be
established that will duplicate market patterns. As will be seen
further below, there is no such thing as a “neutral
tax”—a tax that will leave the market free and
undisturbed—just as there is no such thing as neutral money.
Economists and others may try to approximate neutrality, in the hopes
of disturbing the market as little as possible, but they can never
fully succeed.
See Murray
N. Rothbard, The Single Tax: Economic and Moral Implications
(Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1957);
also idem, A Reply to Georgist Criticisms
(mimeographed MS., Foundation for Economic Education, 1957).
George virtually admitted
as much:
To
abolish the taxation which, acting and reacting now hampers every wheel
of exchange and presses upon every form of industry, would be like
removing an immense weight from a powerful spring. Imbued with fresh
energy, production would start into new life, and trade would receive a
stimulus which would be felt to the remotest arteries. The present
method of taxation . . . operates upon energy, and industry, and skill,
and thrift, like a fine upon those qualities. If I have worked harder
and built myself a good house while you have been contented to live in
a hovel, the tax-gatherer now comes annually to make me pay a penalty
for my energy and my industry, by taxing me more than you. If I have
saved while you wasted, I am mulct, while you are exempt. . . . We say
we want capital, but if anyone accumulate it, or bring it among us, we
charge him for it as though we were giving a privilege. . . . To
abolish these taxes would be to lift the enormous weight of taxation
from productive industry. . . . Instead of saying to the producer, as
it does now, “The more you add to the general wealth, the
more shall you be taxed!” the state would say to the
producer, “Be as industrious, as thrifty, as enterprising as
you choose, you shall have your full reward . . . you shall not be
taxed for adding to the aggregate wealth.” (Henry George, Progress
and Poverty [New York: Modern Library, 1929], pp.
434–35)
George himself can hardly be
blamed for the weak treatment of time, for he could draw only on the
classical economic theories, which had the same defect. In fact,
compared with the classical school, George made advances in many areas
of economic theory. The Austrian School, with its definitive analysis
of time, was barely beginning when George framed his theory. There is
less excuse for George’s modern followers, who have largely
ignored all advances in economics since 1880. On George’s
contributions, see Leland B. Yeager, “The
Methodology of George and Menger,” American Journal
of Economics and Sociology, April, 1954, pp. 233–39.
Phil Grant, The
Wonderful Wealth Machine (New York: Devin-Adair, 1953), pp
105–07.
For a critique of
George’s peculiar theory of interest, see
Eugen von Böhm-Bawerk, Capital and Interest
(New York: Brentano’s, 1922), pp. 413–20,
especially p. 418 on the capitalization of idle land.
Men
do hold land “speculatively” for an expected
increase in value. This is a social service, tending to put ownership
in the hands of those who know best how to handle the land so that the
value will increase. . . . They obviously do not need to keep it idle
to get the increase, and do not, if there is a clear opening for
remunerative use. . . . If land having value for use is not used by an
owner, it is because of uncertainty as to how it should be used, and
waiting for the situation to clear up or develop. An owner naturally
does not wish to make a heavy investment in fitting a plot for use
which does not promise amortization before some new situation may
require a different plan. (Frank H. Knight, “The Fallacies in
the ‘Single Tax,’ ” The Freeman,
August 10, 1953, pp. 810–11)
“Land itself does not
service civilized men any more than food itself does. Both are served
to them.” Spencer Heath, How Come That We Finance
World Communism? (mimeographed MS., New York: Science of
Society Foundation, 1953), p. 3. See also Heath, Rejoinder
to “Vituperation Well Answered” by Mason Gaffney
(New York: Science of Society Foundation, 1953).
See
Spencer Heath, Progress and Poverty Reviewed (New
York: The Freeman, 1952), pp. 7–10. Commenting on George,
Heath states:
But
wherever the services of landowners are concerned he is firm in his
dictum that all values are physical. . . . In the exchange services
performed by [landowners], their social distribution of sites and
resources, no physical production is involved; hence he is unable to
see that they are entitled to any share in the distribution for their
noncoercive distributive or exchange services. . . . He rules out all
creation of values by the services performed in [land] distribution by
free contract and exchange, which is the sole alternative to either a
violent and disorderly or an arbitrary and tyrannical distribution of
land. (Ibid., pp. 9–10)
George, Progress and
Poverty, p. 404.
To
collect such rent, the government would in practice have to compel the
owner actually to use the land in the best way, hence to prescribe its
use in some detail. Thus, we already see that the advantage of taxation
over socialization of management has practically disappeared. (Knight,
“The Fallacies in the ‘Single
Tax,’” p. 809)
Must
we suppose that land . . . distributes itself? . . . It can be and
often is distributed by the government of a prison camp or by the
popularly elected denizens of a city hall. . . . Alternatively, in any
free society its sites and resources must be and chiefly are
distributed by the process of free contract in which . . . the
title-holder is the only possible first party to the contract. From him
flows his social service of distribution. The rent is his automatic
recompense, set and limited in amount by the free market. (Heath, How
Come That We Finance World Communism? p. 5)
See
also Heath, The Trojan Horse of
“Land Reform” (New York: n.d.), pp.
10–12, and Heath, Citadel, Market and Altar
(Baltimore: Science of Society Foundation, 1957).
Frank Knight says of the
Georgist dream of every man’s unconditional right of access
to the soil, that (1) “everyone actually has this right,
subject to competitive conditions, i.e., that he pay for it what it is
worth,” and that (2) the only viable alternative would be to
“get permission from some political agent of
government.” For
any
attempt to give every person an unconditional right to access to the
soil would establish anarchy, the war of all against all, and is of
course not approximated by a confiscation and distribution of
“rent” or its employment for “social
ends.” (Knight, “Fallacies in the ‘Single
Tax,’” p. 810)
Frank Chodorov, The
Economics of Society, Government, and the State (mimeographed
MS., New York: Analysis Associates, 1946).
American homestead legislation,
while attempting to establish a “first-user,
first-owner” principle, erred in believing that a certain
type of agriculture was the only legitimate use for land. Actually, any
productive activity, including grazing or laying railroad tracks,
qualifies as use.
Knight, “Fallacies in
the ‘Single Tax,’” pp. 809–10.
Oppenheimer, The
State, pp. 83–84. On the breakup of feudal domains
into separate substates, see ibid., pp.
191–202.
It must be repeated here that
direct users would not be the only ones ever permitted to own land in
the free market. The only stipulation is that use be the principle that
first brings original, unused land into
ownership. Once ownership accrues to a user, then
the user can sell the land to a speculator, let it be idle again, etc.,
without distorting market allocations. The problem is the original
establishment of valid titles to property. After valid titles are
established, the owner can, of course, do what he likes with his
property.
Note the assumption that Smith and
his heirs die out or cannot be traced. If they can be, then the
property rightly reverts to them in a free-market system.
Ludwig von Mises, Socialism
(New Haven: Yale University Press, 1951), p. 375.
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