My Critique of Modern "Georgism"

Harry Pollard

[A series of exchanges on issues relating to political economy, extending over a period of months during 2014 / Part 1 of 2]

My one hour speech at the Newport Beach conference [in 2014] on being skeptical was stopped abruptly at less than 40 minutes. This was necessary to bring the program back on time, but it stopped me from delivering my final skepticism -- my views on Henry George's analysis. I argue that beginning with Henry George himself and continuing up to the present, we have lost sight of the real meaning of economic rent.

My credentials, such as they may be, are that I've been teaching George since my first miserable three student class in Hammersmith, London, in 1948. Over the years I've made a number of changes to the Georgist curriculum including its latest manifestation as a full semester credit course in economics for high school students. (About 1,000 seniors a year graduate from our schools and we are fortunate to have first-class public school teachers running the program.)

You will probably think that I am describing things that don't exist in reality, but bear with me. Why they don't exist will become clear.

I shall use the classical division of three Functions of Production -- Land, Labor, and Capital along with their returns -- Economic Rent, Wages, and Interest.

However, for this discussion I shall concentrate on land and labor. It is normal for labor to use capital for it multiplies his production at small cost. The use of capital increases wages. This is true whether it is a smithy working at his forge or an assembly line worker at General Motors. So, we will be discussing economic rent and wages.

Our venue will be the city, where the most important economic rents are to be found.

The amount of economic rent will depend on the size of the community and its economic well-being. Improvements such as infrastructure are sometimes said to create economic rent, but it is probable that they only move it from one place to another. The subway line that takes people downtown may direct rent from the suburbs to the downtown. It doesn't create economic rent.

It's also suggested that erecting buildings produces economic rent, but they don't. Buildings follow rent. When economic rent is sufficient, buildings may be erected to take advantage of it, but they don't create it. Gentrification also takes advantage of economic rent increase rather than creating it.

Economic rent is a value that attaches to a land location with an address. We say that production takes place on land. That's too broad to be useful. It takes place on a location. Yet, a location needs to be specific. It needs an address. Oil isn't drilled on land, or even on a land location. It is drilled (say) 300 yards south-east of the intersection of Interstate 80 and State Road 44.

Further, for a given community size and well-being, the amount of economic rent remains constant. I first heard this contention from those excellent Georgists -- the Farmer Brothers -- in Toronto. I remember discussing this with Mason Gaffney many years ago and we agreed that this is not so. We were both wrong. Economic rent may move around, increasing in one place even as he decreases in another, but it remains the same (until changes in population or economic conditions occur).

However, this is a minor point compared with the major error of modern Georgism. We have confused the meaning of economic rent.

There are (at least) two kinds of rent -- Economic Rent and Contract Rent. Economic rent is the target of Georgists. It is a value that attaches to a location (with an address) and is the consequential effect of the gathering community.

Contract rent is what is paid by one to another. Property assessors measure contract rent and so do modern land-value taxers when they arrive at the enormous sums to be collected by their tax.

In fact, contemporary land-value taxers and Georgists spend their time discussing contract rent rather than economic rent. But, are they not the same?

Well, not really!

Economic rent, the value that attaches to a land location, is determined in a free market. The free market will detect changes in population and economic well-being and alter the values accordingly. However, the land location market is not free.

Two requirements are necessary for a completely effective free market. There should be no restriction on production, and there should be no restriction on movement to market. This optimum is seldom attained but with land locations the free market cannot work at all.

Land locations cannot be produced and they cannot be moved to market. (A given location may be divided but this is simply the same location with two addresses.)

It is pretty obvious that nothing can be done without land. Humanity must have a location to produce, must have a location on which to live, needs a location just to stand. The demand for land locations is continuous and even desperate. This combination of an intense need for a land location combined with limited opportunities for fulfillment raises the contract rent of locations. This contract rent will keep rising stimulated by the actions of those who hold land locations.

We should look at the psychology of land holding.

If you are producing goods in a factory you want throughput. You want to clear your shelves so that you can fill them again with new production.

If you hold a land location, you have no inducement to sell. You have a rising market and once you've disposed of the land you are no longer a landholder. There is a certain cachet to being a landholder. It's a mark of superior status that that has endured throughout history.

So, you become a collector and your land becomes a collectible! A collector has little interest in present market value but thinks only of anticipated value -- the expected future value of his collectible. Some collectibles do change hands and it is likely to be at the anticipated price.

Other collectors are professional land speculators who hold land not to use but to enjoy the increase in value that comes with an advancing economy. A favorite example of mine concerns "developers" who bought the 13 hectare derelict Battersea power Station in London for £10 million in 1993, did nothing until they sold it at the end of 2006 for £400 million.

Such land speculators are now dubbed property investors.

Intense demand combined with a reluctance to supply raises contract rents to high levels. We know that these contract rents are much higher than economic rents (the value caused by the presence and access of the community). So, from where does this extra payment come?

There is any only one source -- wages.

If labor pays economic rent for a location, nothing is taken from his wages. He pays (say) $100 a week for a location. He gets back from the location a value of $100 a week. He keeps his full wage. If he must pay (say) $500 a week contract rent for that location, the other $400 comes from his wages.

As contract rents rise, wages diminish which leads to a natural ceiling of contract rents. When any further increase would stop production, the ceiling is reached. This occurs when labor with the poorest productivity cannot survive on lower wages.

As Henry George said grimly, any further exaction would lead to "a cessation of life".

I call this contract rent ceiling rack-rent, an old term which is appropriate.

When modern land-value taxers calculate total rent that could be collected they are not referring to economic rent but to rack-rents. Actual economic rent is much less than these calculations. I suspect that the total economic rent for a city would be sufficient to run the city and not much else. (there may be a natural relationship here). Property assessors measure rack-rent which helps to explain why some of our friends calculate extraordinary returns from their expected land-value taxes.

It has been argued that all taxes come from economic rent (I argued that myself). It just isn't so. They are paid from rack-rent, as are the rewards of privilege (private laws benefiting some at the expense of others.).

Also, we should note that a modern land-value tax is actually taking wages - albeit at secondhand. Rack-rent takes the wages and the land-value tax collects some of it.

Rack-rent is why poverty is always with us in spite of LBJ's "War on Poverty". It provides the answer to Henry George's famous question (sic) "Why in spite of the enormous increase in the power to produce is it so hard to make a living?"

So, are we advocates of a better tax system, or are we fighting poverty, unemployment, and theft?

AN EXCHANGE OF VIEWS

FRED FOLDVARY

If liberty means anything at all, it means the right to tell people what they do not want to hear." - George Orwell

HARRY POLLARD

Good quote!

I shall use the classical division of three Functions of Production -- Land, Labor, and Capital along with their returns - Economic Rent, Wages, and Interest.

FRED FOLDVARY

Harry, as you know, I have been saying that George's term "interest" is confusing and antiquated.

Financial capital gets interest, but capital goods have a "capital yield".

"Interest" is a payment by borrowers to savers in order to shift a purchase from the future to the present day.

HARRY POLLARD

Your point is well made. However as you will have noticed I remove interest pretty quickly from the discussion. Labor uses capital to multiply production. The cost is minimal compared with its advantage. (Later, as rack-rent mounts, the situation changes.)

FRED FOLVARY

HP: The subway line that takes people downtown may direct rent from the suburbs to the downtown. It doesn't create economic rent.

Yes, but not because of redirection. The rentals in the suburbs will increase because of the faster transportation to the city. The suburbs become more attractive to tenants. Rentals in the city center increase if there is greater enterprise there due to better transit. The increase in rentals is actually a capital yield on the transit as a capital good, not really land rent.

HARRY POLLARD

I usually flesh out my definition of economic rent by saying it is a result of the presence and access of the community. If no-one rode the subway, would economic rents change in the city center? Necessary to the increase in economic rents would be the presence and access of people. We can note that with the increase of multiplexes in city centers, local movie houses tend to close. I would say some economic rent has moved.

FRED FOLDVARY

HP: It's also suggested that erecting buildings produces economic rent, but they don't. Buildings follow rent.

It is a simultaneous process. Higher rent indeed induces more buildings. But why is there higher rent? There is higher population, infrastructure, and commerce. More buildings and other improvements make the location more productive, increase the population, and induces even higher rentals. Improvements have spillovers that raise site rentals. Here is a new shop; more people will business there. Profits rise. So rentals rise.

HARRY POLLARD

Higher population, infrastructure, and commerce is another way of saying that economic rent is the consequential result of the community and its well-being - the point I have made.

An entrepreneur would be pretty silly to set up a shop in an area with low rent. Rather he will go to a high rent area because that indicates the "presence and access" of the community. I create an example to make the point.

Let's assume that a mammoth entertainment center is erected downtown because that's where most people can be. Lots of people come to the entertainment center and all around it economic rents rise because people have come there. Then some cases of Ebola occur in the entertainment center and the people stay away, leaving the place empty. The economic rent of the area will drop perhaps to zero. However, and this is something I will take up later for is an important part of the puzzle, it is likely that the contract rents will not drop. Also, that the selling price of locations close to the entertainment center will not drop.

Then it's found that it wasn't Ebola but just a mild flu. People come pouring back into the entertainment center and economic rents rise.

FRED FOLDVARY

Economic rent is a value that attaches to a land location with an address.

HP: Yes

FRED FOLDVARY

Further, for a given community size and well-being, the amount of economic rent remains constant.

HP: Yes

FRED FOLDVARY

HP: There are (at least) two kinds of rent - Economic Rent and Contract Rent. Economic rent is the target of Georgists. It is a value that attaches to a location (with an address) and is the consequential effect of the gathering community. Contract rent is what is paid by one to another.

I call that a "contract rental" to keep "rent" defined as the economic rent. A contract rental that is higher than the economic rent implies that the tenant is paying an implicit tax on his income, due to the interventionist reduction of improvements.

HP: Property assessors measure contract rent and so do modern land-value taxers when they arrive at the enormous sums to be collected by their tax.

The sums include rents that hide in profits, taxes, interest, and false assessments.

I've said often that we would not know how much rent there is until we collect it. When assessor Ted Gwartney left Greenwich, Connecticut, a large part of the collected property tax was based on land locations - on rent. It would be interesting to hear his comments.

FRED FOLDVARY

HP: In fact, contemporary land-value taxers and Georgists spend their time discussing contract rent rather than economic rent.

Yes, most of them.

HP: Two requirements are necessary for a completely effective free market. There should be no restriction on production, and there should be no restriction on movement to market.

Yes.

HP: If you hold a land location, you have no inducement to sell.

There is some inducement to rent the land out to obtain a financial rental. But that can be lower than the inducement to just hold the land without any rental income.

HP:Such land speculators are now dubbed property investors.

Not by economists.

HP: Unfortunately, by the media and politicians!

Intense demand combined with a reluctance to supply raises contract rents to high levels. We know that these contract rents are much higher than economic rents (the value caused by the presence and access of the community).

FRED FOLDVARY

And they get even higher from zoning restrictions and other laws, which further reduce building.

HP: So, from where does this extra payment come? There is any only one source - wages.

FRED FOLDVARY

The higher contract rentals are also paid from lower capital yields (and lower enterprise profits, which imply lower wages and lower capital yields).

HP: It all depends by what you mean by "capital yields". If you are referring to the return to labor and you are saying that wages fall, which is quite correct. If you are referring to the Georgist term for interest, the opposite may be true. In a situation in which many wish to borrow but few are available to lend, interest rates may well be higher than they need.

HARRY POLLARD

I call this contract rent ceiling rack-rent, an old term which is appropriate.

FRED FOLDVARY

Good. But I call it rack-rental, to leave "rent" as pure land rent. The rack rental = the contract rent minus the economic rent. (I suppose "rack rent" sounds better.)

HP: I suspect that the total economic rent for a city would be sufficient to run the city and not much else.

FRED FOLDVARY

The Henry-George theorem by Stiglitz suggests that rent = the cost of all productive public goods.

HP: Property assessors measure rack-rent.

FRED FOLDVARY

Yes, but they don't measure the suppressed rent, the reduction of economic rent due to taxes on labor and capital. Since much taxes are at the expense of rent, the removal of taxes increases economic rent, offsetting the elimination of rack-rentals.

HP: It has been argued that all taxes come from economic rent (I argued that myself). It just isn't so.

FRED FOLDVARY

I think most of (but not all) tax revenue comes from economic rent. They are paid partly from rack-rentals and partly from economic rent, as the rent is reduced by reducing profits, and some tax is paid from rental income.

HP: Also, we should note that a modern land-value tax is actually taking wages - albeit at secondhand. Rack-rent takes the wages and the land-value tax collects some of it.

FRED FOLDVARY

But LVT also reduces rack-rentals, thus raises wages.

HP: Rack-rent is an extra added to economic rent. Any reduction in rack rent is unlikely to reach down to economic rent. Taxes and the payments to privilege come out of rack rent. George discussed the costs of privilege with a little tale about you walking down an alley. He related the costs of privilege to robbers who stole various things from you as you went down the lane. But then he said it didn't matter if at the end of the lane it was a robber who stole everything you had left. That robber was of course the landholder.

Good story but the theme of modern politics is massive amounts of privilege. They all get their cut, along with taxes from rack-rent.

Does "LVT" raise wages? It depends and we will discuss it later.

FRED FOLDVARY

Rack-rent is why poverty is always with us in spite of LBJ's "War on Poverty".

There are also other reasons. Mal-education, minimum wage laws, taxes on labor, restrictions on self-employment.

HP: If our education was perfect, taxes on labor abolished, restrictions ended, minimum wage laws repealed, would poverty be ended? I fear not!

HARRY POLLARD

Dave Wetzel added some information about the Battersea power station - my example of land speculation in London. He pointed out that "John Broome purchased it for £1.5 million in 1987".

So, this example of land speculation becomes:

• The 13 hectare (32 acres) Battersea Power Station became derelict in 1982.
• It was purchased by John Broome for £1.5 million pounds in 1987.
• A developer bought it for £10 million in 1993.
• Nothing was done to it until the end of 2006 when it was sold for £400 million.
• American readers can add 50% to these figures to get a rough approximation of dollars.

It is a part of everyday politics to ask for higher taxes on the very rich. This is a hopeless policy.

Is simply taxes the poor at secondhand - rather like modern policies of land-value tax reform.

Don't tax the robber - rather, stop the robbery!

MIKE CURTIS

Thank you Harry, I think you have articulated your understanding of economic rent very well. I share your title: Skepticism, because I disagree with almost everyone about everything.

HP: As I said at the Conference, skepticism is good. However, it should be reasonable skepticism. I began my speech discussing the banning of DDT. I declared that DDT was the most effective, safest, and cheapest pesticide we have so far discovered.

It is likely that not a person in the room believed me.

Yet, all one had to do was to count the birds fish and game before and after DDT. Had they done so, they would have found the creatures had thrived. One recalls Rachel Carson's sad description of the world without robins. Yet, according to the anti-DDT Audubon Society's annual bird count (which Rachel read) there were 12 times as many robins after DDT as before. As for its effect on humans (OMigosh, Mother's milk is full of it, the World Health Organization reported on its use in the antimalarial campaign. They sprayed the insides of living quarters.

"It is so safe, that no symptoms have been observed among the spraymen or among the inhabitants of the spray areas, which numbered respectively 130,000 and 535 million at the peak of the campaign."

Effective?

The WHO reported that in India alone, the annual death rate from malaria was reduced from 750,000 to 1,500

The final irony and to the skeptic irony is important, this cheap pesticide with a small profit margin was replaced by pesticides that cost three times as much and had to be applied four times during the season - DDT was applied once. The environmentalists had vastly increased the profits of the chemical companies that they were supposed to oppose!

As I said at the conference, you've been conned. (Yet, I doubt that I dented the conditioning.)

These, and other examples of reasonable skepticism I gave, led to skepticism of my own philosophy.

MIKE CURTIS

Perhaps you will comment further in regard to Henry George's laws of wages and rent. My understanding is that Henry George says: wages will be equal to what labor and capital produce, minus what is necessary to induce the storing up of capital - at or on the best land that is free. In the absence of free land, wages of the least productive workers will fall to a bare subsistence; all other workers will get higher wages based on the supply and demand for the higher skills and knowledge, and capital will get what is necessary to induce the storing up of capital.

HP: The action of the market is to relate all wages to those at the bottom (except some premium wages paid to celebrities and those with special skills). If the bare subsistence wage is $5 dollars an hour but you produce twice as much, the market is likely to give you $10 an hour. Produce 10 times as much and you are likely to get $50 an hour. Needless to say, the restricted market we have today can interfere with this.

I haven't pursued this but I suspect that when higher taxes are applied to higher wages, the market will exert pressure to restore the relationship. In other words, in the example above, if the higher wage is taxed, the market will raise the wage so that after tax the five times relationship will be back. This leads to the thought that the taxes levied on obscenely high incomes may simply push them higher. Something to think about!

MIKE CURTIS

My thinking was that the presence of people created the synergy that yielded land rent. That the infrastructure enabled a greater concentration of people and therefore more land rent. I even considered that an abundance of high-rise buildings would enable a greater concentration of people, and if those people actually resided in New York with a million people per square mile, it would make each of them more productive than they would be if they were living in rural Georgia.

If I understand you correctly, you are saying NO. The concentration of people does not increase productivity.

HP: The concentration of people does increase productivity. You'll recall I said that urban economic rent depends on the number of people in the community and their well-being. Well-being includes advantages such as infrastructure along with other good results of people concentration.

MIKE CURTIS

To your final point on adopting the Single Tax. Wouldn't the Single Tax end land speculation, and wouldn't that establish free land. If it would, wouldn't you have to know how much could be produced where the land is free, in order to know how much Potential Rent there would be on all better land, and before you could say how much land rent would be available to the government and society?

HP: George's Single Tax would certainly end speculation. Present land value taxation efforts will not. I'll say again that we will not know how much economic rent there is until we collect it.

HARRY POLLARD

I pointed out that all wages (except for celebrities and those with special skills) rested on the wages of those at the bottom - the subsistence level workers. That if you produce five times as much as the lowest worker the market is likely to give you five times the pay. Implied is that if the wages of the bottom tier of workers is raised above subsistence level, everyone's wages will rise. Of course, higher levels are taxed more heavily and I commented. Dave Wetzel picked up on this.

DAVE WETZEL

On 11 January 2015 at 17:46, Harry Pollard wrote:

I haven't pursued this but I suspect that when higher taxes are applied to higher wages, the market will exert pressure to restore the relationship. In other words, in the example above, if the higher wage is taxed, the market will raise the wage so that after tax the five times relationship will be back. This leads to the thought that the taxes levied on obscenely high incomes may simply push them higher. Something to think about!

In 2000 Transport for London wanted to hire Bob Kiley, from New York, as London's Transport Commissioner for the same salary he was earning in New York. So the salary offered was £400k p.a. Before accepting, Bob Kiley got his accountants to check his tax position and finding that UK income tax was much higher than in New York stated he had to decline the position. Consequently, The Mayor offered him a bonus of £300k p.a. giving a total salary of £700k. Who paid the income tax - Bob Kiley or the passengers on the Underground and the buses?

Similarly, in 1953 when William Morris, Lord Nuffield, retired as Chairman of the British Motor Corporation (BMC, the manufacturer of Morris, MG, Austin, Austin Healey, Wolseley and Riley cars) the company wanted to give him a retirement gift of £5k but with his income tax rate of 95% it was pointed out that he would only receive £250 net. Consequently they gave him a retirement gift of £200k leaving him with £5k net of tax. Who paid his income tax - Lord Nuffield or the consumers of BMC products?

BILL BATT

With reference to this latest piece of yours, however, I hope you might take the time to explore and explain the concept of rent -- meaning here both economic rent and rack rent as you use it -- in terms of its properties as a stock or a flow. Stock and flow are basic economic concepts in contemporary economics even though the classical economists didn't use them. Nonetheless they are applicable. The clearest and simplest explication is in Wikipedia. But unfortunately the word rent doesn't yet appear in that discussion at all.

In this most recent piece you've sent, you talk about how economic rent can migrate from one address to another. I suppose in the sense of the Wikipedia entry, it's a flow, but I think of it more a matter of its "sloshing around," following the productivity of labor and capital. Using the term flow implies that it has a direction, and probably not very true of rent shifting as we know it. An example I often use is how the rental value of my landsite is less a matter of what I do than what all my neighbors do. There is some analogy to the flow of water here insofar as it settles to the lowest levels. But in the case of rent it tends toward the highest points.

So I mention all this because I'd like you to try your hand at putting the idea of rents into the terminology of stock and flow. I think it might help clarify lots of our assessment and property tax quandaries. thanks in advance.

HP: I do get tired of the plethora of definitions that flood out of neoclassical analysis. Henry George did very well with seven basic definitions of terms and a couple of assumptions. I would say that rent is definitely a flow. You may remember that in my example I didn't say that the economic rent of a location is $100, but rather $100 a week.

Perhaps the reason why rent is not mentioned in 'stock and flow' is that the term in neoclassical economics has become somewhat amorphous. They appear to have shoved it under the rug and then averted their eyes - pretending it's not there.

The result is that the Austrian economists push the free market without realizing that the market can never be free unless the land problem is solved. Those less wedded to the free market seem to think that it has to be heavily regulated to be free!

Yet, the free market is by far the best way to run the economy. The action of a free market is to improve quality while reducing prices. Some of those on the left point out that this applies to labor which will produce more and more for ever lower wages. Yet, this doesn't matter when those at the bottom are no longer receiving subsistence wages and can earn a reasonable living, but that isn't the situation now.

The neo-classicals have dozens of ways to solve the persistence of poverty. They all fail. Popular now - and pressed by the President - is a higher minimum wage. How can the these neoclassicals think that "minimum wage" legislation will do the trick when rack-rent will remorselessly attack the minimum requiring ever new "minimums"? But then, they are just as oblivious to rack-rent as they are to economic rent.

Sorry to be so hard on the neoclassicals but we are in a dangerous economic mess because they will not (cannot?) try to answer Henry George's basic question (sic) 'With the enormous increase in the power to produce, why is it so hard to make a living?'

HARRY POLLARD

In a previous E-Mail I suggested that all wages - other than premium returns going to celebrities and those with very special skills - rested on the wages received by those at the bottom of the heap, those at the subsistence level.

ALANNA HARTZOK

Makes no sense to me. Raising the wage of lowest income worker does not raise wages accordingly.

HP: It depends what you mean by raising the wage. If you mean raising the wage by legislative action, such as the ridiculous minimum wage laws, you're right. However, the Georgist would raise wages by ending involuntary unemployment. You must ask yourself, "does everyone have everything that they desire" including leisure time and playtime? Surely, the answer is a resounding no. So, why is anyone who wants to work unemployed?

One of Henry George's two basic assumptions was "Man's desires are unlimited." If it is true and it certainly seems true to me there can be no unemployment. Replace "Man's" with "People's" for political correctness.

When labor is no longer begging for a job but rather the reverse, that employers are begging for labor, wages will rise and so will the wage of everyone else above subsistence. This is simply a market phenomenon. In the market, prices including wages take station. I often liken it to ships in a wartime convoy. For protection from submarines the ships must stay close - but not too close. So ships in the convoy are in constant movement, sometimes a little closer, sometimes little further away.

This is how market prices behave. If the market wage at the bottom moves up, other wages will also move up to maintain the relationship.

We have been so conditioned by the persistence of unemployment and poverty that we think it is normal. The Georgist doesn't think it's normal at all, which separates our solution from the existing failures.

ROY DOUGLAS

I am still far from clear (a) about the distinction between Economic Rent and Contract Rent and (b) why it matters in terms of economic policy which should be pursued.

HP: Urban Economic Rent is a community created value that attaches to a location. The values are there whether or not the location is used and whether or not the payment changes hands for the use of it.

Contract rent is a payment made by one person to another. When the demand for locations is constant and even desperate, but the supply is limited both naturally and deliberately, contract rents rise. They keep rising until they become rack-rent. (The highest amount that can be demanded for a location while maintaining production.)

Contract rent is not economic rent in the present economic and political conditions. When labor uses a location he receives from it the advantage of economic rent. Yet, he must pay a contract rent far higher than economic rent. The extra amount he must pay comes from his wages. This is why wages are reduced with the wages of the poorest producers at subsistence levels.

This is the reason for the persistence of poverty and unemployment. Any "solution" that doesn't handle this will fail.

And they all do.

ROY DOUGLAS

A parallel may throw light on my own scepticism. In the last few months I have been reading quite a lot about the Byzantine Empire. Again and again, the minds of residents, from the Emperor to the humblest peasants, were directed to abstruse points of theology rather than focusing attention on practical matters, like applying the moral principles of the Sermon on the Mount. If people in power had bothered more about such things, there can be little doubt that (a) the lives of their subjects would have been a lot happier, and (b) the Empire itself would have prospered more. I can amplify that point with examples if you wish.

HP: The trouble with analogies is that they are analogies.

The points I am making are hardly abstruse. They concern the very direction of our activities and are perhaps the reason why basic Georgism is in peril.

ROY DOUGAS

The relevance of this to your points is that Georgists all agree that LVT would do a lot of good in a lot of directions. Let us, therefore, concentrate our intellects and energies on finding ways of achieving LVT rather than on philosophical subtleties which, wherever the answer lies, will have very little positive effect on the advancement of our cause. My own experience of Georgists (and I do not exclude myself from these strictures) suggests that they expend an enormous amount of time and energy arguing with each other and considerably less time and energy looking outwards to the non-Georgist world and seeking to advance the time when Georgist ideas will be put into effect. I suspect that Henry George, from the skies, is nodding approval to these sentiments.

HP: As Prof. Joad would probably have said "It all depends by what you mean by LVT." Present efforts to get some LVT are not likely to advance the cause of Georgism. As I pointed out, the most they are likely to accomplish is to recover some rack-rent. As the source of rack-rent is wages, LVT is a tax (at secondhand) on wages. The same argument can be presented against the present political desire to tax the very rich. If a person has become wealthy because of his ability to produce it's pretty silly to tax him. You want him to continue his worthwhile efforts, so it is not sensible to penalize him for doing what we want.

However, the source of income of the obscenely rich is inevitably privilege of some kind. The greatest privilege is the ability to exact rack-rent. In recent emails, we have seen how in the US hundreds of thousands of acres of ranch land are being purchased not to farm or raise cattle, but to enjoy the normal appreciation in land value. Such people are no longer called land speculators but property investors. in an urban environment, we also saw how Islington - a London suburb - is experiencing large numbers housing sales to buyers who appear to have no intention of filling them with people. They are simply speculating in land, beg pardon, investing in property.

Modern governments seem to spend their time more on providing privilege incomes than in passing laws. Rack-rent isn't the only income for the very rich. However, if you tax these "fat cats", you are simply taking some of the exaction. The correct policy is to end the income from privilege, get rid of the exactions. At the top of the list is the ability to take rack-rent.

Don't hold your breath waiting for correct action. As Henry George said, correct action will follow correct thought and there is little evidence that modern politicians think about anything but there re-election.

So, will a land-value tax "do a lot of good"?

Well, as Milton Friedman said, it's the least bad tax. But, is that all? I fear that LVT will do little else than be "least bad". Georgists have to remember that the objective of collecting economic rent is not to apply a pretty good taxing method. Also, it's not to get revenue in the best possible way.

The reason for collecting economic rent is to produce a society free from want and unemployment; a society in which 'liberty and justice for all" is a reality and not just a stock phrase.

So how do we get to that ideal?

Well, first we have to appreciate the difference between economic rent and rack rent. But then we should look at the mechanism of achieving a Georgist society.

It begins when present holders of speculative land begin to unload their vacant and underused land. This happens when the economic rent collection (or land-value tax) is high enough to force the unloading. If it is less than this not a great deal of improvement will be seen. With any land-value tax there will be an economic consequence as is noticed in the two rate cities of Pennsylvania. But, to achieve the Georgist goal there must be a general unloading of speculative land which will lead to a severe drop in prices. To achieve this means that much of the economic rent will need to be collected. (For justice, all should be collected.)

Is such a reform possible? Yes it is, but it won't be easy.

PART TWO