This post is more of an exercise, to try to understand more deeply the importance of land in our society before, now, and in the future. To do that I will explore the Georgism ideology and allow myself to go down on related tangents. I will not discuss topics that stray too much from that such as whether chasing maximum productivity is the way forward or if this is more easily solved by nationalizing all natural resources.
So what is Georgism? according to wikipedia, it’s an economic ideology holding that, the economic rent derived from land —and all natural resources— should belong equally to all members of society, although people should own the value they produce themselves.
Before diving into the theory and justifications for this tax, I must mention that if you want an understanding of Geogism the best resource I have found by far is this 4-part analysis by Lars Doucer hosted by the AstalCodex substack. While I will try to be clear and correct with my explanations, I expect there will be some inaccuracies due to my lack of understanding and the way I write.
George Henry, the American that named this movement was a really interesting character. I recommend reading his wiki since many of his ideas are more easily understood given the context of his life. Born in Philadelphia in 1893 to a lower-middle-class family, he stumbled for most of his early life, living in different cities and working as a typesetter among other jobs. Married in 1861, he wasn´t especially lucky, with his family nearly starving at some points, he had to resort to begging for money multiple times. He started gaining notoriety in journalism for his op-eds and created his newspaper though it struggled a lot. Eventually, he was able to evolve into politics and writing and was extremely successful. His popularity, and that of his book, was such that his funeral in New York, in 1897, was one of the most massive of its times.
The book that he wrote, which exceeded in copies all other books written in English except the Bible during the 1890s, was called:
Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy
Published in 1879, in its pages, George tries to understand why poverty accompanies economic and technological progress and why economies exhibit a tendency toward cyclical boom and bust. George argues for a solution via a single tax, a land value tax (LVT from now on).
The influence of this book is vast and present. But surprisingly nowadays he is by no means a recognizable name and his theories are secluded to niche politics enthusiasts. Recently, as I was discovering his work myself, I observed a renewed interest in the topic, possibly related to the housing crisis new generations are facing. One interesting thing I find is that Henry George was seen as kind of a socialist in his time while today he would be more of a libertarian.
Apparently, on a visit to New York City, George was struck by the paradox that the poor in more advanced cities were much worse off than the poor in less developed places. He argued that a sizeable portion of the wealth created by social and technological advances in a free market economy is possessed by land owners and monopolists via economic rents and that this concentration of unearned wealth is the main cause of poverty.
To produce anything there are at least 3 things that need to come together, commonly called the production factors: capital, labor, and land (there is some debate whether “entrepreneurship” is a fourth factor but not relevant in this case). The land is much more important than it is currently given credit. We can increase capital, we can increase labor, but we cannot increase land. Land is often considered a kind of capital in both Marxist and liberal ideologies, thus undermining its importance. Every single thing that we do needs land, so who owns it becomes a really important matter.
These 3 factors have their respective owners -landowners, workers, and investors-. Human labor makes stuff, and then some of that stuff is saved up (capital) and reinvested so we can make new stuff faster and better. But none of that can be done without access to land. Interestingly, if we don’t pay labor or capital they will go somewhere else, but land can’t run away. So what kind of value are the landowners providing? I argue none (or extremely little). In comparison, rent takes up a huge chunk of a person’s income in most modern societies, and usually, that chunk is bigger the more developed.
Taxes, as much as they fuel our society, act as suppressors of the thing they are taxing. That is not bad in itself, as taxing harmful products helps maintain its demand and supply low, and that’s useful for items like alcohol and cigarettes. However, when we tax labor (income tax), there are no positive consequences other than the money obtained for the state, and we are effectively discouraging it. The same thing happens with capital and “entrepreneurship”, where taxes hinder investment and innovation.
Owning the land entitles you to a share of any capital and labor produced (and quite a big one at that). So at the end of the day, the current way we manage land is just a private tax on the whole economy.
What differentiates land from all the other types of assets is that is hard-limited, it has a fixed supply. There is a finite amount of land and (currently) no good way to make more of it (though I’m sure that will come at some point). So in taxing it, we aren’t getting any of the negative consequences and many good ones that I´ll be explaining.
Right now land is mostly in the hands of a few privileged, and they are already imposing a tax (rent) on its user, but that tax is going into their pockets. Land, same as air and the sun, is a natural resource that I believe should belong to all members of society equally. It only makes sense that the benefit of using that land reflects on all of the members of said community. For example: when land is bought in a city, what the buyer is hoping for is that the value of that land goes up thanks to development around it (funded mostly by taxing labor and capital, but also debt that comes down the same way as inflation and interest rates). But then the surge in value is captured by the property owner. This for me feels like a badly designed incentive, that is actively making the housing crisis worse.
That last part might have scared some people, but neither me nor George are planning to abolish your right of possession (for now). George was not a socialist of any kind, he was a believer in capitalism and thought that implementing this tax would help the economy since having to pay for the land also incentivized development and dissuaded speculation. Georgists could be classified as that of a YIMBI today. Society should hold the income generated by land alone in common, but individuals should hold title to land and get to decide what they want to do with it. That is because the state can’t be trusted to develop and distribute land in the most efficient manner (capitalism is decent at that), but it can redistribute wealth quite fairly.
One thing that is important to clarify, the tax only affects unimproved land, meaning any businesses or edifications are not taxed this way. Most countries would need to implement a land tax reform to bring this to reality. As I mentioned before, this not only applies to land but to all the resources that hold the same set of characteristics. Natural resources such as gas or petroleum would suffer the same treatment, in a similar way that Norway manages theirs nowadays. Also included in this category we can find orbital real estate for satellites, electromagnetic spectrum, water, and mineral rights… These are called land-like assets and interestingly they appear a lot in video games, especially MMOs. That has allowed us to observe these theories in artificial environments. I believe that with the advent of space travel, we will find many other resources like that and this would set a nice precedent. (Or maybe you think its better he who finds it keeps it and we get an anarcho-libertarian utopia)
What defines a land-like asset is not a firm line, but generally fits the criteria that: it is strictly scarce and cannot be produced, it is necessary for production or living, and it’s more or less valuable because of its location.
George and his followers believed that if the LVT were to be implemented, it could substitute all other taxes. While a priori that might seem impossible nowadays. I was surprised by the research published by Lars Doucet that showed that, at least in America, it was much more plausible than originally expected. Either way, few people defending LVT will fight you on that and are mostly content with reducing income tax.
A common argument is that the whole theory is nice, but if it ever gets implemented the tax would just get passed onto the tenants and end up doing more bad than good. Again, this is a complex topic that I don’t feel confident enough to explain, and once again I will redirect the reader here to find some empirical studies that seem to prove that that won’t be the case. The reasoning once again comes down to the fixed supply of land, which makes it behave very differently than other traditional markets.
An interesting concept in this context is Ricardo’s Law of Rent. It roughly establishes that, without LVT, the owner of some land can charge rent up to the difference between their land’s productivity and the best freely available alternative, establishing the “margin of productivity.” This means that as productivity rises, so does the rent. At least from my point of view, this law has been ratified with time. As Adam Smith puts it: “The rent of land, therefore, considered as the price paid for the use of the land, is naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of the land, or to what he can afford to take; but to what the farmer can afford to give.”
Also interesting is the concept of ATCOR (all taxes come out of rent), which while not as widely accepted as Ricardo’s law. The idea is that when we lower other taxes, the revenue base is not lost, but shifted to land rents and values, which can then yield more taxes. There is also EBCOR (excess burden comes out of rent), which is a bit more complex so I won’t try to explain it. This post summarises the surface level pretty well.
The implementation of LVT would give the tenants much more leverage since the landlord will have to pay the tax whether he is renting his land or not. Land speculation sucks, it’s holding hostage the most valuable resource that we have and lowering productivity. LVT can solve this nicely by giving more leverage to tenants instead of landowners.
Georgism, as an ideology consists of more than just LVT, and another proposal put forward by George, was that of the “Citizen’s Dividend”. Now mostly known as UBI (universal basic income), it will be a topic for this blog in the future so I’m not going to comment on it now. I’m convinced that in our current world, it is inevitable, but the question remains on how and when it will come into effect. The only thing I will mention is that LVT makes even more sense when the UBI is implemented, as to not have the benefits of the universal income get eaten by increased rent.
Random fact, in 1903 Lizzie Magie created a game that she hoped would explain the single-tax theory of Henry George. It was intended as an educational tool, to illustrate the negative aspects of private monopolies. The game was called Monopoly.
LVT is widely considered by most scholars the least harmful tax to the economy, and it usually has popular support, since the main losers will be landowners. The main reason given for why it isn’t happening in more places is that the people who hold the power have no benefit from it. Landowners tend to have more financial means and thus more political influence, so it’s difficult to bring it to reality. I haven’t found much criticism towards georgism online and of what I found, most argued that it wasn’t a radical enough solution, so I welcome any discussion on the topic. Some other critiques that I won’t pretend to have read are here and here.
Finally, I’m going to talk about the implementation and some cool examples. Georgism has never been implemented in the strict way that George intended it (though we probably wouldn’t want it that way), but many people have been influenced by his ideas and it was brought into practice in some cases.
I guess that LVT is much easier to calculate and collect that income and capital tax. The IRS costs $14.3 billion a year to the US to track people who hide their money through various loopholes and countries, while the other is just there, it can’t go anywhere and there is no way to hide it. It then becomes a matter of determining the value of the land to tax it. This is difficult since the way land is appraised right now everywhere comes down to Total Value = Land Value + Improvements Value.
Well, this to me sounds like a technology problem, and not particularly difficult at that. One interesting approximation used experts and empirical values to assign scores to a set of weights that form a big equation. More complex methods involve regresion and kernels with decent results. You could probably do it manually with a bunch of people and it still be cheaper than IRS.
To me seems like a solvable problem, but the main takeaway is that you don’t need a 100% accurate appraisal of the land (if that is even possible) to get most of the benefits of georgism. And that margin of error in the value of land becomes bigger the lower the tax is. But how big is that tax exactly? Strict LVT proponents advocate for a 100% tax on the value of property. That’s not the best way to introduce it, so most people agree that a 50% tax would also be fine for the most part.
Another argument in favor of the ease of implementation of Georgism is the fact that it doesn’t involve a revolution. Even further, one could start by implementing a 1% tax to see how it goes and start rolling it out progressively and fixing its holes without disrupting no one. This has been done in some places, where the property tax was split in half, the other half being land tax.
There is an open letter addressed to Gorbachev in 1990 urging him to establish a Land Value Tax to provide a stable basis for the new economy as Russia struggled to rise from the collapse of communism. I find this is the best elevator (a long one) pitch one could make for Georgism.
One of my favorite examples in favor of Georgism is the MMO Eve Online. I watched this 5-hour video explaining the fascinating history and conflicts in the game and the relationship to Georgism is pretty clear, but difficult to understand without some context in the game. The main land-like assets found in the game are the spaceship factories that are all provided directly by the developers (you can’t make more) and are necessary for the production of spaceships. These assets create monopolies when hoarded by a group that gives them an unfair advantage and if developers were to establish an LVP it would incentivize the production of ships and improve the game-state. There have been multiple real-state crises in this game, this post (Once again by Lars Doucet) highlights some other examples in digital realms(typically MMOs) that to me are quite interesting. Another medium that could benefit a lot from LVT is blockchain and cryptocurrency games, but those are mostly a scam anyway so they don’t care.
Singapore is a cool country, and one of the key factors that led them to the position they are in today was their policies on land, that while not strictly Georgist, make use of many of his ideas. In 1966, the government passed the Land Acquisition Act, granting broad powers to acquire land “for any public purpose” and freezing the price of the land. They also required landowners to pay a levy when the value of their land increased as a result of planning permission being granted. Then they proceeded to raise the publicly-owned share of land from 44% in 1960 to 76% by 1976. Today, more than 90% of the land is owned by the state. The land is typically sold on 99-year leases, after which it would revert to public hands. This sends a very aggressive message against speculation, which is especially damaging in places where land is extremely scarce like islands. Proceeds from all these transactions are funneled into national wealth funds that currently stand among the biggest in the world (behind China, UAE, Norway…). With this much cash, the government can lower both labor and capital taxes incentivizing the economy.
Taiwan is another highly interesting place that underwent a land reform during the 1950s that applied to farms. Given its success, it was then applied to cities. Taiwan has become a remarkably successful country, and while their application of LVT is not too Georgist, it certainly made a difference and allowed them to develop without slumps and high employment.
There are some cases of LVT implemented throughout the EEUU, most famously, Joe Biden grew up on one of those. There is some information online if you care but the success was limited since it was usually applied to small areas or the tax was too small to be relevant
Finally, Norway is one of the most referenced examples and for a reason, since his wealth fund is one of the most famous in the world. the history of its foundation is fascinating and it applies the georgist principle to its main scarce resource, petroleum.
Some bibliography(there is much more information out there but I tend to forget to save my sources):
https://web.archive.org/web/20140110172449/http://www.cooperativeindividualism.org/chandler-tertius_tax-we-need-1980-02.html https://cooperative-individualism.org/dodson-edward_taiwan-a-georgist-success-story-2006.htm https://youtu.be/smi_iIoKybg Some other statements that proves that land is a big deal. https://cooperative-individualism.org/?ref=thebrowser.com https://www.masongaffney.org/publications/G2009-Hidden_Taxable_Capacity_of_Land_2009.pdf https://youtu.be/anrWTf1brSE (ecconoboi lars) https://www.utopianurbanism.com/p/guest-mike-curtis-of-arden-delaware#details https://www.countere.com/home/how-georgism-rules-the-community-of-arden-delaware https://www.reddit.com/r/Geoanarchism/comments/m8gfci/what_is_geoanarchism/ https://kaalvtn.blogspot.com/p/index.html https://youtu.be/4fKfz9Mkzv4 (podcast Lars) https://progressandpoverty.substack.com/p/what-georgism-is-not https://www.orionsarm.com/fm_store/Critique%20of%20Georgism.htm
There is no conclusion to this post on my part, I learned a lot exploring this and haven’t found a convincing argument to not support at least a partial LVT. If you have one please contact me, else join me in interrumting any economics discussion with: LVT would solve that!
Edit: Found a really interesting read about Georgismo en España, also Non-Euclidean Georgism, making fun of how land has this effect where the smaller scale you use to measure the bigger it will be.
Edit 2: From a HN comment on car washes: “I really hate sounding like a broken record but this is just another instance of how low property taxes and the absence of land value taxes massively benefits low-value businesses. The real business of car washes is real estate, it’s profitable enough to get 3-4x leverage with a low interest loan.”