The Danish-American Georgist

Frank F. Bille

[A paper presented at the International Georgist Conference, New York,
New York, 30 August to 5 September, 1964]

HENRY GEORGE'S AGREEMENT WITH JAKOB E. LANGE

In The Great Landlord and his Tenants, my unpublished book which has circulated in a few hundred copies as. a manuscript edition, I have'expounded theories which, to me, are beyond dispute because in Danish Georgism they are taken for granted. Yet to the American Georgist these theories sound like heresy. I am referring to certain fundamental economic facts upon which the Danish Georgists have built their theory of how to accomplish the complete transition from taxation to rent-collection.

To begin with, it must be said that the theory of transition has emerged in Denmark as a result of seventy-five years, of conscious efforts of Danish Georgists to meet the one overwhelmingly important requirement: A transition, whether it be gradual or spontaneous, must restore justice to all citizens without inflicting undue hardship on any particular class or group; it must be easy to understand, and practical in application.

To accomplish this, a succession of very able men have analyzed the problems and produced detailed plans which from time to time have been published and discussed in the journals of the Danish Justice Party and the Danish Henry George Association, and even in the ordinary daily newspapers.

On the other hand, the American Georgists have not, to the best of my knowledge, worked out any such plan for America.

For me to see, there is a difference in the understanding of basic economic facts which accounts for the American idea that all we have to do is start collecting the economic rent of land for public purposes, and all will be well. This idea is strongly entrenched because it is what Henry George himself says, in his books.

However, Henry George had a second thought which was not, to my knowledge, published in America. I quote from Oluf Pedersen's book "Fuld Grundskyld i Danmark", published 1948 in Copenhagen: ( Oluf Pedersen is a member of the Justice Party; seated in the Danish Parliament (Folketinget) until 1960; a cabinet member of the tripartite coalition government 1957-60 in which this Justice Party (Retsforbundet) seated three of its members in coalition with Liberals (Radikale) and Social Demokrats (Socialdemokrater).

Chapter IV, page 39:

THE PRACTICAL REALIZATION OF FULL GROUND DUTY

Following the publication of Henry George's Progress and Poverty, many individuals had gained an entirely new understanding of how a society ought to be organized, and his thoughts found militant friends like the fiery Sophus Berthelsen and the more realistic Jakob E. Lange.

It came as a quite natural development that also the question of incorporating these ideas into Danish Law was raised. From the very beginning, Jakob E. Lange was convinced that the problem of indebtedness, especially the mortgage debts, must be solved when the full Land Rent, or Ground Duty (in Danish "Grundskyld") were to be collected for a public revenue.

When in 1889 Henry George was on a speaking tour in England, Jakob E. Lange made use of the opportunity and went to England to meet him and to discuss the problem with him. The memoirs of Jakob E. Lange relate that Henry George completely accepted his standpoint; an eventual full Ground Rent which were to exceed the present property taxes ought to be proportioned between the title owner and the mortgage holder. This agreement between Henry George and Jacob E. Lange is also found expressed in the later correspondance between the two.

This consensus .notwithstanding, Henry George was strongly against the idea of paying a compensation, since this would weaken the results of the reform.

There was, however, much resistance against a proportionment of the full ground rent within the group of people who promoted the ground rent ideas. They tended to prefer a gradual transition.

When the Justice Party (Danmarks Retsforbund) :was founded, the concept of full.ground rent was made the fundamental principle of the "State of Justice" ("Retsstaten"), and to further its inception and for an amortisation of the public debt it was proposed that a duty of 25% of all net wealth be levied once and for all. (1919)

Also other parties have taken up the question of an equalization of the burden of full ground rent. The liberal Party (Radikale) whose program advocates the rights of the society to take the value created by the society, … had established a commission; on :the subject. In the commission's report it was stated that four of its five members were in favor of an expanded ground duty with the mortgage debt taken into account. (1928)

The Social Democrats … proposed that the ground rent be taken for a public revenue through full ground duty … against bonds to the title holders; the bonds to carry a 3-1/2% interest and to be amortized in 60 years, ... a very timid proposal, but in S. Vang's dissenting report which was simultaneously submitted, the possibility of a levy on all tangible net wealth was mentioned, and with that we approach the same principle as that of the Justice Party proposal which, unlike the Liberal, and the Social, Democratic proposals, has been worked out as a legislative bill.

The Justice Party has founded its economic policy on Ground Duty and Free Trade in connection with a reduction of the powers of the State. ...

The recent proposals are founded on an equalization of the losses sustained by the landlords on appropriation by the public of all land values. Also the proposals set forth by the author of this book are built on the principle that all investments in real property, title ownership as well as mortgage ownership, must take the loss on public appropriation of the land values, while other investments must pay a corresponding duty for elimination of the public debt.

The first legislative bill on this line was introduced, on July.26, 1934, and the latest one was "Proposal for Law concerning Orderly Public Economy." It was introduced in the "Folketing" August 24th, 1945, with a view on the then present situation, for a solution of the problems which are just as acute today.

All land values are proposed to be appropriated by the public through the medium of full ground duty. The first year's assessment is 4-1/2 per cent of the land value in addition to the already existing ground duty on real estate. The following years a full ground duty should be assessed according to a special valuation.

The valuation is to be done every year by the public assessors. The ground duty to be assessed so high that land will become available without price.

On the other hand, no parcel must be assessed so heavily as to prohibit transfer to other owner against full payment for privately made improvements) landscaping and buildings.

The land remains privately owned, but its value is to be appropriated by the public. On appropriation, the titleholder will suffer a loss equal to the value of the land exclusive of improvements.

The question is, WHO OUGHT TO TAKE THIS LOSS?

It is not the land itself that is appropriated; the titleholder still owns it. It is the land value that is taken, but who owns the land value ?

This was the problem which Jacob E. Lange talked over with Henry George in 1889. Lange maintained that the mortgage holder ought to partake in a new ground duty. Henry George acclaimed this viewpoint, and it seems to me quite self-evident.

The question is then, how can such an equalization be carried out in practice?

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From this account it is evident that Henry George himself had seen the necessity of an equaliziation of the losses between title holders and mortgage holders, and that among leading Georgists in Denmark this viewpoint is so clear as to seem self-evident, insomuch that it is not even deemed necessary to explain the scientific facts which make it self-evident.

It is, therefore, my obligation towards my American readers to clarify the theory of transition which in The Great Landlord and his Tenants has been treated "only briefly and summarily.

I do this in response to a number of letters received from friends who generally express approval or at least are neutral on everything in the book except this controversial transition plan.

It is possible that most of the misunderstanding is due to the interpretation of the terms used. Almost all of the letter-writers have the impression that the term "equalization of losses" necessarily must be of the same effect as the term "compensation". Before I attempt to explain the difference, the term "False Capital" must be clarified, because the whole theory of transition is a theory on "how to eliminate False Capital and prevent new formation of the same. "

"False Capital", as distinct from "True Capital", is defined as: The capitalized value of/monopolized special privileges", or as in my booklet UNTAX, "The capitalized value of a population enslaved under the monopolies and the powers of government." In UNTAX there is a specification of this "False Capital" which I will repeat, with one correction:

• 1. The Purchase Price of Land, exclusive of all improvements, is a false capital.
• 2. The Purchase Price of Chattel Slaves, if slavery were allowed, would be a false capital.
• 3. Money and Bank Credit in the possession of the Banking System is a false capital to the extent it represents the capitalized value of the banks' incredible privilege of creating credit. Money and Bank Credit in the hands of others cannot be, termed "false capital". Since money is the "evidence of a credit given and a promise received" it can be classified as an extension of the businessman's accounts receivable which is a part of his "liquid capital assets".
• 4. Outstanding Loans of Banks, to the extent they represent monetization of Debt, are false capital. (a) Government Bonds; (b) All other financing.
• 5. Mortgages, bonds and shares, to the extent they represent the capitalized value of .land, are false capital.

There may be several other forms of "False Capital", but these are the ones which can be identified by their sources, Land Monopoly and Money Monopoly.

Most Georgists, both in Denmark and in the U.S. are unfamiliar with monetary theory and have consistently taken the stand not to become involved in the controversy aroused by the "money alarmists". They usually fend off with the old familiar glib retort, "If I had all the LAND in the world and you had all the MONEY, what would you do when I said GET OFF MY LAND OR PAY! ..."

It is not possible to solve the land question without solving the money question, for "the land monopoly and the money monopoly are two sides of the same counterfeit coin." False capital arising out of both monopolies is interchangeable, and false capital is interchangeable with true capital, and with money and credit. The title ownership in land is exchanged against a check and a mortgage. The check is drawn against a bank deposit which originated in bank credit, which the bank just created. The mortgage holder receives payments from the title holder and is thus, in effect, getting a big share of the land rent which the title holder is collecting from the tenants. Maybe the mortgage holder is a bank. In that case the bank had paid off the former title holder with fictitious bank credit created on basis of the mortgage which is-accepted on basis of the land value. Thus land value caused a debt to be made, and the debt caused money to be created. This is monetization of debt, and inflation of; the money supply.

Now suppose that, miraculously, we persuaded the nation to accept our sound philosophy of land value taxation to its full extent as supposedly taught by Henry George. The full economic rent of the land would have to be paid by the title holders, and the taxation of production and income would cease; the banking system would be as before; outstanding loans and mortgages based on land values would remain intact and enforceable; the public debt would not be repudiated but paid off (or so it is hoped); government activity to be curtailed, etc.

Suppose that a certain property yields an annual land rent of $1,000 which has become capitalized as a land value of $20,000, and there is a building on it worth $40,000, for a total of $60,000, which is what the present owner paid for it recently. His own investment is $40,000, and the bank has financed the $20,000 mortgage. It can truly be said that the $1,000 annual land rent caused the land value of $20,000, caused the debt of $20,000, and caused the false capital of $20,000 in the form of the .mortgagee held by the bank. As a matter of fact, the title holder's payments to the bank exceed by a rather large amount the $1,000 which he actually reaps himself as land rent, for the payments are for both interest and amortisation.

Now, according to the new "single tax" arrangement, he must pay the $1,000 land rent to the public treasury in spite of the fact that not he, but the bank, is the actual recipient of the benefits. Since he does not have any un-earned net income, the $1,000 land rent to the public must come out of his WAGES, which was exactly what we wanted to avoid. The supposed "land rent" he pays is nothing but another form of INCOME TAX. And the mortgage holder who actually still receives the benefits of the land rent may now keep all of it, for he is not required to pay anything. The title holder pays twice, and the mortgage holder has an unearned income that is not taxed at all. We are back in the mess we came from! Thank God, the nation has not bought the idea!

To restore JUSTICE it is necessary to identify and eliminate the big false capital in all the different manifestations, of which the actual land value is only the primary farm from which all the others evolve. The false capital has two sides, a positive and a negative. The positive side is the side of the "creditor - owner" who possesses an "asset", though it is a false and fictitious asset. The negative side is the side of the "debtor" who in order to obtain title to land has entered into "liabilities" or "debt", though they are false and fictitious liabilities.

To eliminate only some of the false "assets" and none of the false "liabilities" would not only be bloody injustice, it would be disastrous to the Georgist philosophy and might permanently destroy even our own faith in the good cause.

Actually, the big false capital has become so completely diffused and mixed up with true capital that any attempt to single out and eliminate the false capital in specific instances would lead to new serious imbalances and endless rescue operations. The Danish Georgists have seen this, and the much disputed Equalization Schedule in The Great Landlord And His Tenants is inspired by the Danish plan.

The procedure is to eliminate the false capital created by the twin monopolies, the land monopoly and the money monopoly, by taking away the unearned land rent and the unconstitutional and immoral private monetization of debt and restore the revenues from these two sources to the public treasury to which they rightfully belong. By letting every owner of true and false capital specify his assets and his liabilities as per one certain day, the amounts and the proportions of true and false capital are determined in each individual case, and the natio nal to ta1s and proportions are determined by adding up all the individual statements. The national proportion of false capital as a percentage of total net worth is then used for equalisation of the losses sustained by the owners of land and government bonds which no longer have any value. If for instance the national average is 40%, any man whose loss exceeds 40% of his net worth will receive compensation for the excess, and any man whose loss is less than 40% will have to contribute to the compensation. If a man's loss is exactly 40% he will neither receive compensation nor contribute anything.

The transactions are facilitated by means of a special bond issue which is matched, dollar for dollar, by a special issue of obligations. The man who must contribute can do this by signing obligations in the amount owed, and the bonds issued on basis of the obligations are then paid to those who are to receive compensation. As the obligations are paid off, the funds received are used for retiring the bonds.

It must be realized that the losses are only losses on the paper, and even though a man may have to fulfill obligations which exceed his total liquid assets, he has the freedom of choice whether to pay his obligations off slowly with interest on unpaid balance, or liquidate some of his capital assets and pay off at once. Besides, the complete absence of taxes will in most cases more than make up for the temporary burden of obligations.

The transition with equalization will, therefore, not necessitate forced sale of property and will not cause any disturbance of business. The great day on which all the changes take place is only a common, national deadline for re-shuffling of the cards, and the rest is nothing but bookkeeping which can be done by modern electronic equipment.

The debtor with great liabilities and high land values will be the recipient of rather large amounts of bonds because his net worth is low. However, the bonds will go through Escrow and be applied to his debt which will be reduced by the amount of the bonds.

The equalization will not affect those citizens who do not own any wealth above a certain minimum. Personal belongings are exempt for a certain amount per person, in my example it is set at $600 per person which means that a family of two adults and four children would be exempt from partaking in the equalization for the first $3,600 worth of wealth which the family owns.

Of course, it is impossible for me to cover all the aspects of this transition plan which, if put into effect, would mean nothing less than an economic revolution of gigantic proportions. I hope that these few pages have made it clear enough that I do hot propose to compensate the landowners - or anybody else - for the loss of land values, but I do propose to equalize that loss in such a manner that nobody in particular will be punished for our economic sins. In so doing I believe that I am contributing to the formation of a Georgist philosophy that will be more acceptable to the public because it is True Capitalism.

The main argument which my friends and correspondents bring up against the equalization plan is that it is an unnecessary complication, unnecessary because nobody any longer adheres to the idea of a sudden transition from taxation to land rent collection. Since the transition necessarily must be gradual, so they argue, the ill effects which I have predicted will not occur, at least not to a degree worth our concern, "After all, you can't make an omelet without breaking some eggs", says one; "By the time the people have become convinced of the truth and vote for land value taxation most of the speculative water will have been squeezed out, and the anticipated reduction of prices, will begin to take place long before actual effectuation of the reform", says another. I wish I could agree, but things are not that simple.

In the first place, Henry George's philosophy was more than just fiscal reform, it was RESTORATION OF JUSTICE. The very thought of restoring justice by peacemea1 application during a period of one or two generations is repugnant.

The complete transition with equalization of losses described in the foregoing is actually gradual in its effects. It begins with a comprehensive survey and a complete fixation of all the economic facts as they relate to each and every individual and every economic unit. From that point of fixation, the actual transition progresses in an orderly and planned fashion. The period of transition lasts from the day of fixation till the time when all the special "Jubilee Obligations" have become amortized and all the "Jubilee Bonds" redeemed in the process. Meanwhile, all taxation of production and income will have ceased, and the assessments of land rent will have been revised annually upwards until the full benefit of liberty from taxation has found full expression in the land rent. Government will have been reduced to its proper function; monetization of debt by banks will have ceased, and the rightful and constitutional monetization o if the Nation's credit, will add new revenue to the Nation's treasury. These gigantic changes will take time, but the transition will progress by the free will actions of all the individual's acting together according to law, and sooner or later the whole economy will be completely adjusted to the fact that the FALSE CAPITAL was eliminated.

Georgists have refrained from advocating this "radical" approach and have adopted the view that the transition can be done by a gradual application of a higher and higher rate of taxation upon the land values without regard to the debt incurred by the landowners. The question in my mind is whether this procedure is not a deception adhered to because of the awesome magnitude of the problems and the urge to find a compromise. Gradual adoption of land value taxation has some very obvious, fundamental weaknesses. In the first place, the land value must be capitalized before it can be the object of taxation. Next, this capitalized value will, more often than not, be mortgaged or, if not directly mortgaged, cause a debt to be created. Third, this creation of a debt will cause the creation of additional bank credit and higher deposits on checking accounts. Fourth, the false capital will therefore not reside with the title owner alone but will have become dissipated through the whole financial community. Fifth, if land value taxation is levied on the title owner alone and the proceeds used for diminishing the taxation of income from other sources, we will have accomplished very little in the direction of justice; Indeed, we will be taxing the true wages and interest accruing to the title owner while at the same time un taxing the land rent accruing to the mortgage owners and the banks. That is no way for us to make friends and influence people for the Georgist philosophy! Only the practically extinct tribe of landowners without debt will seem to fit the traditional Georgist theory, and since it is a fact that the land monopoly and the money monopoly together have managed to load us with a debt at least equal to the total land values, I for my part cannot help but have my reservations concerning the lopsided gradual application of land value taxation with careful preservation of FALSE CAPITAL.

I present these thoughts without being able to fully comprehend all the pros and cons, but the development in Denmark seems to indicate rising indebtedness and continued inflation in spite of the expanded land value taxation. The Danish Georgist Knud Tholstrup, for 12 years representing the Justice Party in the "Folketing", has published a booklet "Inflation can be stopped" which concludes as follows, "The only way to stop inflation is to stop the formation of false capital, or false buying power." Mr. Tholstrup knows the false capital represented by mortgages but seems unaware of the phenomenon called monetization of debt which is the very act of inflating the money supply by the creation of bank credit. Therefore, his own logic compels him to define money ac being "all evidences of ownership" which, of course, falls a little short of being an exact definition. The book is available from the Henry George School of New York.

The Danish Justice Party, in order to get action on lard value taxation, was forced to accept compromises such as the surtax levied on the seller of valuable land, whereby he must remit to the State any excess profit above a certain assessment. This procedure is faulty because it applies only in case of sale, and the fact that the State receives part of the money does not alter the fact that the title owner must make mortgage debt just the same.

Had the Danish Georgists been influential enough to effectuate the well balanced plan of transition as developed by their finest men from Jacob E. Lange and Henry George to Oluf Pedersen and Viggo Starcke, that small nation would have put a large looming milestone on the pages of world history, and the turning point in world economics would have been as significant as the Declaration of Independence and the advent of the United States of America.

Maybe that was the reason why hidden reactionary forces combined their resources in an all out effort to misrepresent and slander the Justice Party before the election in I960. With no daily paper to represent its views, the Justice Party was defenseless against, the outrageous distortions, and the party lost all its seats in the "Folketing". But in departing they said, WE SHALL RETURN.