Georgist Thoughts

I started writing this in Uppsala, Sweden, on the sixth of eight stops of a two week European speaking trip¹ after a conversation with a Swedish graduate student who is both an anarcho-capitalist and a Georgist, a combination that raises interesting problems.

Georgism

Henry George was a prominent 19^th century American economist, chiefly remembered today for the single tax, the idea that government ought to be funded by taxing away all income from the site value of land with any excess distributed to the population. His modern followers are a faction, I think the most intellectually coherent faction, among left libertarians, libertarians who for the most part share the economic and political beliefs of other libertarians but identify more with the left than the right in modern-day America.² Some offer libertarian arguments for some form of income transfer, in the Georgist case funded by a tax on the site value of land.

Two lines of support, moral and economic, can be offered for the Georgist position, each with problems. The moral case starts with the problem of initial appropriation, the question of how a land owner gets the right to exclude others from “his” land. Libertarians usually base property claims on creation; I made it so it is mine. Land was not, with rare exceptions, created by human effort.³ Georgists conclude that the site value of land, the value net of any improvements, is the common heritage of mankind, ought to be shared among all by being taxed away, used to fund government with any excess distributed.

The economic argument starts with the dead weight cost of taxation. We would like an economic system where things get done if and only if they are worth doing, if the cost is less than the value. If I am subject to a 25% income tax it does not pay me to spend four dollars of effort on producing five dollars of value even though doing so would produce a net gain of a dollar, and similarly for other forms of taxation. The exception is taxation of something in perfectly inelastic supply, something neither created nor destroyed, something there will be the same amount of whatever we do.

Such as land.

Things worth doing that are not done because taxes distort incentives are a net cost of taxation, a cost we would like to minimize.

Problems

The problem with the moral argument is that not only did I not create my land, my government did not create it either, hence it has no more right than I do to exclude trespassers, hence no moral right to transfer the right to exclude to me in exchange for payment.

The problem with the economic argument is that in order to tax site value you have to measure it. The market value of land includes the value of improvements so is not a measure of the site value. The anarchist Georgist I talked with proposed that each land owner declare a site value for his land to be taxed at and be obligated to sell the land at that price to any buyer willing to guarantee to remove all improvements. That would, like other versions of the self-declared property tax, give the land owner an incentive not to understate his site value to hold down the tax but it would also give him an incentive not to make improvements, since they would be destroyed without compensation if someone bought the land at the declared price.

He would, in the proposed system, have the option of raising his claimed site value in response to an offer to buy at the initial price, but that opens up an opportunity for extortion. Suppose you have a ten thousand dollar piece of land with a fifty thousand dollar house on it. I can force you to raise your claimed site value to thirty thousand, tripling the tax you have to pay, by offering to buy the land at any price lower than that. Alternatively I can refrain from doing so — for a modest payment.

If we assume no such strategic behavior by buyers we get a similar problem in the other direction. A land owner makes improvements in his land that are hard to reverse — fertilizing if, for example, or clearing it. He then claims a site value well below the actual value of the unimproved land, confident that the cost of reversing his improvements is too high to make it in anyone’s interest to buy the land and be obligated to do it.

A different problem with the single tax was pointed out by David Ricardo, responding not to George, who had not yet been born, but to earlier arguments for a land tax.

And if it be considered, that land, regarded as a fit subject for exclusive taxation, would not only be reduced in price, to compensate for the risk of that taxation, but in proportion to the indefinite nature and uncertain value of the risk, would become a fit subject for speculations, partaking more of the nature of gambling, than of sober trade, it will appear probable, that the hands into which land would in that case be most apt to fall, would be the hands of those, who possess more of the qualities of the gambler, than of the qualities of the sober-minded proprietor, who is likely to employ his land to the greatest advantage. (David Ricardo, Principles of Political Economy and Taxation, Chapter 14)

Carrying his argument one step farther, a land tax with a realistically imagined government would make land most valuable not in the hands of those best able to use it but in the hands of those with the best political contacts, the best ability to get their land assigned a low site value. Given the difficulty of measuring site value, that could be a serious problem.  

Solutions???

I have a solution to the moral problem although, like most Georgist proposals, it has serious problems of implementation. In my version of Georgism each individual can choose to opt into or out of the Georgist system. If he opts in he must pay the tax on his land, is entitled to receive his share of the distribution of excess tax revenue, does not have a right to trespass on the land of anyone else who has opted in. If he opts out he does not pay the tax, does not receive a share of the revenue, retains the right to trespass on other people’s land but has no legal right to exclude trespassers from land he claims. Nobody’s rights are being violated since the only people a land owner can use force to exclude are those who have voluntarily given up their right to trespass on other people’s land in exchange for their share of the revenue from the single tax and the right to have their own property claims enforced — at least against those who have made the same bargain.

An owner who has opted in does not have the right to exclude trespassers who have rejected the bargain from his land but can exclude them from his house since it was produced by human effort, making it ordinary property. He can make trespass on his land inconvenient by building a wall or planting a hedge⁴ but has no legal right to forcibly remove such a trespasser from his land. Someone who has opted out of the Georgist system is in the same situation with regard to all potential trespassers.

One difficulty with my solution is that part of the land tax is used to fund government services which a non-payer will get, such as the protection provided by national defense. In the anarchist version of Georgism, in contrast, there is no government to be funded, so all of the revenue goes to those who have accepted the bargain.

Unfortunately …

The Harder Problem

The problem of initial appropriation is not new to me; I raised it in the introduction to the first edition of my first book, offered a not entirely satisfactory solution in the third edition. Georgism is not new to me either; one of my favorite colleagues from my years at VPI was a committed Georgist who proposed a variety of ingenious solutions to the problem of measuring site value.

What revived my interest in the subject was the idea of combining Georgism with anarcho-capitalism. Henry George assumed the existence of a state that could enforce the single tax he proposed. That would be doable, whether or not morally justified — states routinely collect taxes — if only we had a satisfactory way of measuring site value. It is less clear how one could do it without a state, in a system where both law and law enforcement are private and decentralized. How do you make it in the interest of a private arbitration agency to rule that a land owner must contribute the site value of his land to a fund for general distribution? How, under my variant, do you get private courts and private rights enforcement agencies to rule that a land owner may use force to expel a trespasser only if both he and the trespassers have signed on to the Georgian bargain? How do you use the legal institutions of a stateless society to determine site value?

That is the hard problem, the puzzle. Suggested solutions welcome.

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1. For a definition of “Europe” that stretches from Iceland to Georgia.

2. My account of left libertarianism from my blog.

My argument with one faction from an earlier post here.

“Left libertarian” can also refer to libertarians in an older sense more common in Europe than in the U.S., anarcho-communists and syndicalists.

3. Non-Georgist libertarians offer a variety of solutions to the problem, some of which I discuss in Chapter 57 of The Machinery of Freedom.

4. Which gets us to something close to an earlier idea of mine for solving the problem of initial appropriation.