versus Georgist Economics
[Reprinted from The Illinois Georgist, Vol.5,
No.3, Fall 1993]
This summer I had the good fortune to attend a five day seminar on
Austrian economics at the Foundation for Economic Education in
Irvington-on-Hudson, New York. I specifically went to find the
Austrian perspective on George. I was pleased to find an outstanding
library at FEE with many books and articles on George. Also the
instructors, Dr. Hans Senholz, Dr. Israel Kirzner, Dr. Ed Opitz, were
all familiar with George's ideas and patient with my many questions. I
would especially like to thank Dr. Opitz, who because of his great
respect for A. J. Nock, had studied George a great deal and generously
provided me with letters he had written to debate George's ideas with
fellow members of FEE.
The Austrian disagreements with George center on their contention
that land is not a unique factor of production. To Austrians land is
bid upon, like labor and capital, by entrepreneurs competing for
scarce resources to supply consumers with the goods they want. Market
pricing allocates land to those who want it most. Any attempt to tax
land results in effective land nationalization. Since it is impossible
to separate the contribution of land from improvements any taxing
scheme would be arbitrary. Granting authority to the government to tax
ground rents, rather than leading to greater justice and freedom,
would only expand the power of government and their control over our
George defines land as not just the surface of the earth but all
natural resources. Wealth is produced when man, through his labor,
harnesses the forces of nature to serve his ends. Land is passive in
the production process. By itself it does nothing to satisfy men's
desires. It is only when man mixes his labor with the natural
resources that value is created. George fully supports the Lockean
homesteading principle, whereby the right to ownership is earned
through improving land. Property is established through productive
work. George, by separating and distinguishing the factors of
production into land, labor and capital, provides a clearer
understanding of the production process and the economic problem than
do the Austrians that lump together land and capital.
Dr. Israel Kirzner objects that under the land tax sites would no
longer be put to their highest use. In his words, "Downtown
Manhattan could have a chicken farm next to a high rise." Most
people who have thought about the land tax have come to the exact
opposite conclusion. Some fear overdevelopment. They're concerned
there will be no parking lots because they don't generate enough
revenue to pay the tax. One can rest assured, however, that developers
will take into account the needs of the car owner when the value of
their offices, stores and apartments could not be realized if there
was no way of reaching them.
It is true the land tax would spur development as those with prime
locations would have to put them to their best use to pay the taxes.
Holding property off the market would be difficult in that the owner
could be paying as much tax as his neighbor with a fully developed
lot. The chicken coop owner would surely be bought out by a more
This highlights the difference between a land tax and land
nationalization. Under the land tax, individuals would still hold the
titles in land, and land would still trade. One would simply lose the
privilege of receiving the benefits of holding out of use the best
site or the land richest with natural resources. These benefits would
be distributed evenly through the taxing mechanism. When the land tax
is used to replace taxes on incomes and interest it becomes the
ultimate supply side solution to spurring economic growth. The active
elements in production, labor and capital, have the right to keep all
they earn, while the benefits of the passive element, land, are
distributed back to society. It is society progressing in population
and improvements that causes the value of land and natural resources
to increase. The land tax returns these increases to their source.
Some authors believe that a land tax would be impossible to implement
because of the difficulty in separating the value of land from its
improvements. The answer to this problem has already been solved by
the real estate appraisal profession. Through their three pronged
approach to estimating value, the cost approach, the comparable
property approach, and the income approach, they describe the methods
of approximating a value for lands. The comparable properties method
can be applied to valuing two sites. After adjusting for differences
in the building and improvements the remaining value is attributable
to the site. If we're dissatisfied with the appraisal process we need
only compare it with our current methods for measuring income taxes to
realize that precision is not an attribute of the taxation process.
Dr. Opitz noted that the power to tax and the power to control access
to the land are too dangerous to be lodged together within one group.
"It would be in the interests of liberty to keep the two
functions separated." I sympathize with Dr. Opitz's concerns.
However, history teaches us that the only effective guard against
excess governmental power is an alert and ever vigilant citizenry.
Separation of powers, Bills of Rights and Constitutions are more words
on paper unless people are prepared to voice their objections and act
to stop injustice. An educated and aware population is the only
effective check to arbitrary political power.
To me George's ideas withstood the test of Austrian criticism. There
is more that could be said on each of these issues. Both schools have
much they could learn from the other. I welcome contributions from
anyone with further thoughts on these issues.