Taxes and Rent
[Reprinted from The Freeman, September, 1939]
The State -- an organization of officials (elected, appointed, or
self-appointed), detached from the producing population and
legislating for it - lives by taxes. It could not exist if its power
to tax production were abolished. Therefore, it is necessary to the
existence of the State that its power to tax be unlimited by law, that
this power be enhanced by public debt and public needs.
True, the outcome of an increasing tax burden is to destroy
production - the source of all taxes. But the State is not concerned
with the "long run." The break-down of our productive system
can be delayed for years, perhaps centuries, because producers can be
taught to adjust themselves to lower living standards at a rate so
gradual as to be almost imperceptible. For instance, Americans can
hardly believe that Americans will ever be coolies; yet the same
economic forces that have reduced the Chinese worker to bare
subsistence are at work in this country. In some parts of our country
the degrading process already has reduced American workers to that
Taxes not only have the effect of decreasing the purchasing power of
wages, but also of creating privileges for powerful groups. Thus, not
only do the workers clamor for more taxes for alms, but the privileged
groups see in the State's fiscal power an instrument for their own
benefit. Political support for the State thus comes from two
economically opposed camps -- the privileged and the robbed.
The State does use a portion of its tax-collections to render certain
necessary social services. Some of these services -- like roads, post
offices, fire departments -- aid production, thus continuing for a
longer time the source of taxation, gut, the tendency is for rent to
absorb at an even faster rate than taxes the productive increases .due
to these social services.
The taxing power of the State is not limited by the cost of
efficiency of these social services. If the State is wasteful it can,
and does, make up the deficiency by further levies on production.
Budgets determine rates of taxation; the desire to pay taxes does not
determine budgets. There is no way, under the tax system, to measure
the value of the State to those who pay the taxes out of their
Rent is the only measure for testing the value of social services. If
these services are really social, if they aid workers in production or
in the enjoyment of life (which is the object of production), rent
will increase. If government is wasteful, rent will decrease. Rent is
extremely sensitive to social services, and to social disservices.
It is obvious that if rent were socialized - that is, publicly
collected and used for social purposes - the power of the State would
decline, and eventually disappear. The governing body could not hide
its inefficiency or corruption behind tax levies. Rent would be the
barometer of government's. value to the citizenry, and the readings
would be quite visible. The producers would be buying social services
just as they buy private services or goods. The price would be rent.
Government would come into the market.
By the way, rent is a measure of social services even when it is
privately collected. But, since it is privately collected, it is
useless (save to the landlords) as a measure of the value of
The socialization of rent would destroy taxes. The State (as we know
it) would disappear; and such government as we would have would be
always subject to the economic instrument of rent.