Physiocratic Ideals Resurrected
for 21st Century Change

Edward J. Dodson

[February, 2011]

For almost all of human history people formed natural societies based on kinship and a shared ethnic identity. With settlement in one place, each society had to develop norms for the allocation of land for living, for growing food and other purposes. Every territory involves location advantages that gave to some soils of greater fertility or richness of minerals or accessibility to sources of water. Some means of recognizing these advantages was warranted to establish equality of opportunity. However, what also developed in virtually every society was the appearance of hierarchies within which a minority seized and held control over the access to nature and how what people produced was distributed. A resulting unjust distribution of wealth was institutionalized, a situation that has continued to this day all around the globe.

Moral philosophers grappled with the system of socio-political arrangements and institutions that created societies with a small number of haves and a large number of have-nots. Few were brave enough to directly challenge the status quo. Almost always, those who did had their lives shortened.

In the mid 18th century, a group of French intellectuals led by Francois Quesnay, Anne Robert Jacques Turgot, Pierre-Samuel Dupont de Nemours and others provided the first comprehensive response to hierarchical privilege and a program to remove privilege peacefully. They provided a scientific analysis of societal organization and political economy, explaining the true dynamics by which wealth is produced and distributed. Their analysis revealed that the great source of misery in every society was landed privilege, with long-standing norms converted into formal property law enabling the landed to claim wealth produced by others without providing any services in return or themselves producing wealth.

What these "Physiocrats" explained is that the value of nature comes to have an exchange value as the increase in population creates scarcity. At some point in the growth of every society, land with the greatest potential for wealth production becomes fully occupied. In the early phases of societies, the advantage is associated with agriculture, later with commerce and high-density residential and commercial development. This locational advantage yields to those who control the best locations what the Physiocrats described as an unearned form of income, an unjust claim on the societal fund referred to as "rent." They argued that as no individual produced locational advantages, the rent associated therewith was the common wealth, to be collected by government for use in paying for public goods and services.

Landed interests in France naturally recoiled against the Physiocratic efforts to introduce reforms based on their sense of justice. Turgot, who had been appointed Finance Minister, was removed from office after the King was pressured by the aristocracy to abandon Turgot's program of reform.

Later in the 18th century many other reformers took up the Physiocratic calls for reform of the system of land tenure and government revenue. Benjamin Franklin fully embraced the Physiocratic ideal and brought their ideas back to America upon his return from France. Thomas Paine argued the Physiocratic case in his tract Agrarian Justice. And, in the 1880s the cause was take up by the American newspaper editor and reformer Henry George, who came to the same conclusions prior to ever reading the Physiocratic writings.

Our failure to adopt the Physiocratic common wealth system is the fundamental reason why our society has been plagued by ongoing, widespread poverty. The problem must be addressed at multiple levels of government by restructuring of how we raise revenue to pay for local government, for our public school system, for state responsibilities and for the federal government.

At the level of local government (including counties) and school districts, the primary change required is to restructure property taxation to achieve the full exemption of all property improvements (i.e., buildings of all kinds) and move to a land-only property tax base. The amount of tax any landowner should be required to pay for the combined expenses of local government and school districts is what land held would lease for under competitive market conditions. This revenue is what the Physiocrats described as the "rent of land." Public collection of more than this amount confiscates private property. Collection of less than this amount is, in effect, a subsidy to landowners that then requires the taxation of earned income and commerce in order to meet government expenses.

Sufficient revenue for state governments and the federal government will potentially be available as a share of the revenue collected by local government -- if the full location "rent" is actually collected. Thus, there exists the potential for the opposite system of revenue sharing from that which is now relied upon. The taxation of what people earn by producing goods and providing services to others can be greatly reduced or even eliminated.

State and federal governments also have the critical responsibility to restructure the manner by which private individuals and entities exploit publicly-owned resources, such as timber, minerals, water or grazing lands. Access to these resources must be awarded under competitively-bid leaseholds so that the full market rents are returned to society. Subsidies to landowners have for centuries distorted competitive markets by driving up the price of land at the expense of all others. The time has come to bring about an end to these injustices.

Raising the public consciousness to a level where elected officials get the message and take action is not going to happen without an enormous struggle. Reform-minded citizens have been trying to bring about the above changes for over a century with very little to show for the efforts. Privilege is both deeply-entrenched and is aided by a broadly-held view that the economic game can be won by those who understand the rules and make the right moves. As strong as the gambling instinct might be, casino owners know that the odds are greatly in favor of those who make the rules.