Henry George on My Mind
Michael Kinsley
[Reprinted from the New York Post, 24
October, 1989;
copyrighted held by The New Republic, Inc.]
Some agency in Tokyo announced recently that Japan is now richer than
the United States, thanks largely to the explosion in Japanese land
prices. Adherents of the American economic philosopher Henry George
will recognize the fallacy immediately. How is a society enriched by
the fact that the same land now sells for twice as much? This simply
represents a transfer of wealth to land owners from those who wish to
own land: overwhelmingly, other Japanese.
Henry George was born 150 years ago in Philadelphia. He dropped out
of school at age 13, wound up working as a printer in San Francisco
and, in 1879, self-published his masterwork, "Progress and
Poverty." It became a best-seller, and George himself became "the
third-most famous man in the United States" after Mark Twain and
Thomas Edison, according to his granddaughter Agnes George DeMille
(yes, the choreographer). Soon after George died in 1897, however, his
theories were almost completely forgotten.
George began from the premise that there are three factors of
production -- labor, capital and natural resources (primarily land).
All the world's wealth is created from these elements and divided
among the worker, the capitalist and the landlord. But whereas the
return to labor is the reward for effort and the return to capital is
the reward for saving, the return to land is the reward for nothing
more than possession of a limited resource.
The rising value of land, George reasoned, is not the result of the
owner's efforts but a result of the growth of society. If you own
land, "you need do nothing more. You may sit down and smoke your
pipe; you may lie around like the lazzaroni of Naples or the leperos
of Mexico; you may go up in a balloon, or down a hole in the ground;
and without doing one stroke of work, without adding one iota to the
wealth of the community ... you will be rich."
The landowner's profit, George maintained, is merely a tax on the
truly productive factors, labor and capital. And George's solution was
to tax away the entire rental value of land, using the proceeds to
abolish all other taxes. "Taxation which diminishes the earnings
of the laborer or the returns of the capitalist," he argued in
good supply-side fashion, "tends to render the one less
industrious and intelligent, the other less disposed to save and
invest." By contrast his solution would, in one swoop, "raise
wages, increase the earnings of capital, extirpate pauperism, abolish
poverty, give remunerative employment to whoever wishes it, afford
free scope to human powers, lessen crime, elevate morals and taste and
intelligence, purify government and carry civilization to yet nobler
heights."
Obviously there are problems with this magic cure-all. Land is not
the root of all economic evil. And George had no satisfactory answer
to the complaint that most current owners of natural resources paid at
least part of their current value, so expropriating all that value
through taxation would he unfair.
But George's instinct that the hidden "landowners tax" on
the productive elements of society would grow with time and prosperity
is probably correct. According to Federal Reserve figures, the share
of America's national wealth represented by land grew from a fifth in
1946 to a quarter in 1988. There is the same amount of land in America
as there was at the beginning of the postwar boom, but landowners'
claim on all the wealth that has been produced since then has grown
disproportionately.
Real estate has always been the largest category in the "Forbes
400" list of the richest Americans. In the 1989 list, just
published, it slips narrowly to second place with 77 out of 400. But
most on the list owe at least a part of their wealth to ownership of
real estate or mineral resources such as oil. America's richest man,
John Kluge, increased his fortune by $2 billion last year simply by
owning cellular telephone franchises given away free by the
government. Henry George was viciously witty about fortunes built on
government-granted monopolies.
What I like best about Henry George is the way he combines radical
egalitarianism with an equally radical belief in free-market
capitalism. But he noted the difference between capitalism in theory
and the actual economy he saw around him. He distinguished between the
accumulation of wealth and the creation of wealth. And he recognized
that wealth accumulated in nonproductive ways was not merely unfair
but actually bad for economic growth.
George would sneer at the policy of giving away broadcast licenses
for free. He would understand the logic of an excess-profits tax on
domestic oil and gas. He would see the futility of various current
liberal schemes to "help" first-time home buyers through
government subsidies, all of which will simply get capitalized into
higher home prices. He would go ballistic over the idea of reopening
the capital gains tax break for real estate.
Above all, perhaps, George would observe how the developed world has
been suffering in recent years from real estate sickness. At times
when the reward for happening to own a middle class house has been
greater than the reward for middle-class labor, this disease has
twisted values, sucked away productivity and redistributed wealth at
random. And if, as many believe, the process is now going into
reverse, the dislocations will be just as severe.
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