by Dr. Michael Hudson
New York, NY
[The following speech was presented by Dr. Hudson July 19, 2003 in Bridgeport, CT at the annual conference of the Council of Georgist Organizations, in a session, "Missed Opportunities, Great Economics but Terrible Politics."]
Ideas have consequences. There is a tendency to infer that the largest and best ideas have the greatest consequences. But this assumption is not borne out by history, and the reasons should be fairly obvious once one thinks about it.
For one thing, ideas don't exist in a vacuum. They are put forth in the context of a world composed of vested interests. Each interest, and even each pre-existing idea, has a specific gravity of its own. This gravitational pull affects the trajectory of new ideas introduced into the system.
The biggest ideas are those that affect the vested interests most strongly. For this very reason the vested interests either pull these big new ideas into their own sphere, or seek to repel them much as a lion would repel a powerful rogue outsider from coming into the pride.
Matters are further complicated by the fact that ideas are themselves immaterial. They must be introduced into the world on a vehicle, and this vehicle in the first instance is a person, in the second instance an institutional context - a context composed of newspapers and journals, books and their reviews, universities and their status systems, lobbying institutions and the politicians they influence, and finally lawyers and policy makers or even religious leaders and their doctrines in the case of the highest and most powerful ideas.
Each of these vehicles, from individuals to institutional structures, comes with a more or less idiosyncratic and often accidental set of characteristics that influence the ideas much as a clarinet or other musical instrument introduces overtones into the notes being played.
Nowhere are these worldly and material dimensions to the history of ideas more clearly expressed than in theories of land rent and other forms of economic rent. One hardly would expect matters to be otherwise in view of the fact that rent has been the major economic phenomenon throughout history. It has been the major path to wealth, and once obtained it has been the major way of maintaining wealth and social status. In this respect the economy and even society is all about rent - and its associated land pricing and land tenure, as well as the value of mineral rights, monopoly rights and other rent-yielding resources.
A great economist said these things. And we all know his name: Thorstein Veblen.
Ideas about rent and its taxation are ideas about how society should organize and dispose of its economic surplus. Because these ideas are political, one would expect all the forms of individualism and idiosyncrasy that have been found with reformers throughout history.
From the Ricardians came the criticism of rent from the vantage point of bankers and industrialists seeking to channel rent revenue into capital formation, and using it as the tax base so that profits would not be taxed, or the spending and income of workers whose expenses would be added to the minimum wage cost of industrial employers. From the Socialists came the criticism that rent was unearned, and that land was simply one of those pressure points where owners could act as economic toll-takers and demand a rental fee for access to what was a precondition to production - land sites - but did not in itself entail outlays to produce and hence did not add value. The Socialists agreed with the Ricardians (and for that matter with the Physiocrats and with the fiscal systems of classical Greece and Rome) that groundrent should be the basis for taxation. Kindred to this position was that of the American tax reformer Henry George, describing how land ownership had been appropriated from the public domain, often by insider dealing within the public sector, (as he had seen most flagrantly in his country's vast land grants given to the railroads.)
Yet despite the fact that they were united by a similar analysis of groundrent, George, the Socialists and the Classical Economists moved in opposite directions politically. For generations to come, this divergence in directions shaped the coloration of rent theory and the fiscal policy that it implied.
The explanation is to be found in the positioning of rent theory within its holders' overall view of society - how society functioned and how it ideally should function. In this respect the social destiny of the idea of land rent became a function not so much of the theory of rent itself as of broader theories of overall society. This broad context shaped the sonorities and overtones of rent theory - ultimately, ironically, in a way
that led to its being almost entirely removed from social,
political, economic and academic consciousness altogether.
The history of rent theory thus becomes of sociological
interest precisely because it is a seemingly "big idea"
whose effect has shrunken steadily since it was expounded
two centuries ago. Today it is more likely to elicit a
response of cognitive dissonance than a reverberation of
recognition in the minds of most people.
Henry George was remarkably perceptive about the danger
of Marxian socialism leading to dictatorships of the
bureaucracy. And the Socialists for their part were
short-sighted in not seeing that the only kind of socialism
that would work was one that retained market reference
points. Every successful economy in history has been a
mixed economy, in which the private and public sectors
relate to each other through a system of mutual checks and
balances. This is how Sumer and Babylonia were organized,
and industrial Britain at its takeoff, and America in its
rise to industrial power after its Civil War.
But today, both sides have polarized between the
one-sided anti-government politics of libertarianism and
the shreds of post-Stalinist socialist theory. What has
been missed is the fact that government does have a
legitimate role in collecting economic rent - unearned
income created by and rightly belonging to the community,
as Henry George advocated - and in using this revenue as
the basis for public finance of public services and
inherently rent-generating infrastructure and other public
enterprise.
Even today, many socialists view Henry George as one of
themselves because of his eloquent writing along these
lines. Yet the institutions ostensibly endowed to promote
his ideas have ignored the largest potential pool of his
supporters, to focus on groups whose antipathy to
government prejudices them against a full collection of
land rent and other forms of economic rent, and leads them
to advocate privatization rather than public collection of
rent-yielding assets.
How did this state of affairs come about?
Why has land-rent taxation failed so disastrously in
the political arena, if it is so good? The idea of basing
the entire tax base on a rent tax rather than taxing
profits or wages would make society much richer and be much
fairer than the existing system. Most people believe in
fairness and economic justice. Why then hasn't the
taxation of economic rent (and land rent in particular)
attracted more widespread support?
I believe (1) that the movement to tax economic rent
has been trivialized, and (2) that this is the result of
its having been hijacked by a group of people whose
ideology is basically averse to the ideas of Henry George.
But first, let me give you some background on why I think
this is so.
I think that the failure of Georgism is attributable to
the fact that it pulls its punches so seriously as to
cripple its basic message - the message of economic justice
that made Progress and Poverty so successful as a vehicle
to advocate the taxing of land rent.
Henry George helped establish the principle that land
rent was the major form of economic surplus in any economy
- and to make matters worse, it was unearned. The private
appropriation of rent diverted this surplus income from
being invested in capital formation to increase the
productive powers of labor, and hence the flow of output
that was supposed to increase living standards over time.
Progress was subverted to an impoverishing dynamic.
Politically, George was an individualist and opposed
the centralized government advocated by Marx and the
Socialists. However, many people found a problem with
George's idea, and these people included many of his own
followers. The enormous magnitude of land rent meant that
a land-tax would swell rather than shrink government tax
revenue.
How would this translate into government spending, and
hence the economic activism and political power of
government? Does a full land-rent tax mean Big Taxation,
and if so, does this mean Big Government? And as an
individualist, didn't George oppose Big Government?
I will get into this problem later in my talk.
I would like to ask this audience a number of
questions.
First, what do you believe in more? Would you
rather (1) cut taxes, or (2) raise the property tax to the
land's full rental amount?
Many advocates of the two-rate tax (buildings will be
untaxed, a small part of the land rent will be taxed, with
no increase in overall real estate tax revenues) present
Pennsylvania as a Georgist pilot project. Yet the state's
property tax is only 1% of the land price - or rather, I
should say, the APPRAISED land price. Appraisals indicate
only a fraction of the actual market price, as they
notoriously lag behind market sales prices.
From the outset, leading advocates of untaxing
buildings have insisted on two things. First is the
"revenue neutrality" of property taxes, so that the overall
tax take should not rise. Yet the essence of George's tax
philosophy is that the land's full economic rent should be
taxed. If it were, this would result in an approximate
ten-fold increase in Pennsylvania's overall tax rate. In
view of this "revenue neutrality" as a condition for
getting support from local mayors (and hence, from their
major campaign contributors, the financial and real estate
industries), I do not see how such a tax program can be
viewed as a step toward a land-rent tax. It seems instead
to be an alternative.
A second condition of the two-rate tax program as
presented to Pennsylvania mayors is the promise that there
will be no general re-appraisal of property. Yet if land
is to be taxed rather than buildings, it is economically
impossible to do this without creating a land-rent map.
This kind of map is needed to smooth out the arbitrary
variations that result from site-by-site appraisals at
different periods of time, based on sales or transfers at
different points of time.
My statistical research shows that a full tax on the
land's rent (not buildings, just the site's rental valuation) would be about 10 percent
of the property's market price, in contrast to
Pennsylvania's 1%. This would multiply the existing
property tax ten-fold.
So, I would like to re-ask my question. How many
of you are in favor a full land-rent tax (LRT)?
How many of you believe that this could be done
without creating serious economic problems?
I have heard the argument from many Georgists that
there would be no overall economic problem because what the
government collects in land-rent tax will be matched by a
corresponding un-taxing of labor and capital.
If the economy were a single-celled organism, an amoeba
or other shapeless protozoan, this would be the case. But
we live in a multilayered economy. It is true that overall
functions could un-tax labor and capital and make up the
difference with a land tax. This is what George said, and
it is what I believe and support.
However, the incidence of taxation would affect various
classes differently. Labor and (physical) capital would
benefit. Good. But the landlords would not come out even.
They would find the rent of their land sites taxed.
How would they pay? The statistics I began to publish
for the Henry George School back in 1995 show that the
problem they face is that they already have pledged this
rent to the banks. Real estate speculators - who I believe
are the betes noires of most people of the people here
today - are not all that interested in rent. WHAT THEY
WANT ARE THE CAPITAL GAINS. They seek these gains by
borrowing as much credit as they can from the banks,
pledging the property's rental income to pay the interest.
WHAT THEY SEEK IS LEVERAGE. In the process of getting
this, they load down property with debt, and they pledge
its rent to the mortgage lenders. This turns the rent into
the backing for the economy's private-sector savings,
making it unavailable for taxation.
The government would tax this rental income if it
collected all the land rent. Therefore, collection of this
rent would lead to widespread defaults on mortgage debts of
landlords. The banks would be in trouble. And when banks
are in trouble, so are the savers who deposit their money
with banks. They would turn to the federal government to
bail them out, as they did when the most reckless S&Ls went
broke in the late 1980s. Claims by depositors led to the
Moral Hazard of the FSLIC bailing them out. (Moral Hazard
occurs when people expect the government to bail the banks,
other financial institutions and savers in general from
their losses. These bailouts create debts that will be
carried by increasing taxes. The tax increase would fall
mainly on labor in today's fiscal environment.)
The FSLIC went bankrupt, and the government had to go
into debt estimated variously at between $300 and $500
billion, when all future interest charges are taken into
account.
For this reason, a land-rent tax would create a
financial crisis. And it would add to the tax burden, at a
time when land is being untaxed and labor is being taxed
more heavily.
The government also would collect the capital gains
that speculators aim for, for these gains represent the
capitalized value of the rent flow that the government
refrains from taxing.
Now I should say that despite this problem, I believe
in the LRT. I am willing to see such a crisis, and in fact
I think it would be purgative. One of the main arguments
for a LRT is that it would refocus our financial system
away from lending against real estate for speculative
purposes, and shift lending to finance fixed capital
formation.
But how many of you are willing to see this occur?
When we speak of being fiscally "revenue neutral," we
must remember that government exists both at the national
and state and local levels. The property tax is local;
the taxes that George believed should be cancelled are
those that fall on labor and capital.
Today, these are primarily the federal income tax and
tariffs, collected at the national level. Hence, local
government tax receipts would benefit at the expense of
federal receipts - UNLESS the tax laws are changed to make
the real estate tax a federal tax.
I believe that this is what Henry George wanted to see.
He was not supportive of starting locally by creating rent
enclaves. Although he thought that the guiding idea of
local experiments such as New Hope, Alabama was correct, he
saw the local avenue of rent reform as a Sisyphusian task,
at best merely a demonstration project. Rather than
withdrawing from the fight for nation-wide reform, he
sought to make land-rent taxation a national effort.
I believe that this is the only political way to tax
the land's rent. How many of you agree? Are you willing
to see land be taxed at the federal level, or are you
localists?
Now I have another set of questions.
One of the major arguments of the two-raters is that
it spurs construction. They point especially to the
promised effect of "developing" all those low-rise parking
lots. I assume that one-story "taxpayers" also will be
developed.
I'll leave aside for a moment the question of whether
this really is a philosophy that many people will devote
their lives to promoting. If you are not a building
contractor, is building up parking lots really the most
important thing that you can do to promote economic
justice? Henry George approached every issue from the
vantage point of economic justice. I hardly can imagine
him working as a lobby for the construction industry today.
Let me only discuss the practical matters here. What
do you believe has more of an effect on spurring
construction (assuming that to be the single most important
measure of social well-being, your ticket to moral heaven,
so to speak): cutting property taxes on buildings and
shifting them to land, or shifting the interest rate?
Remember, the two-rate tax is "revenue neutral." Given
a maximum rate of 1%, this means that the shift for most
properties is only a fraction of a percent. Yet in recent
years we have seen mortgage interest rates shift by four
percentage points. The norm for long-term interest rates is to fluctuate by about one
percentage point each year.
Isn't this variation in construction costs larger than
the effect that a two-rate tax would have? Where then is
the great impetus to new construction to come from?
I now would like to ask a set of questions having
to do with political strategy.
Who do you believe was more radical: Karl Marx, or
Henry George?
Perhaps I should point out that most of the labor and
related social reforms that Marxian socialists advocated
back in his day, the late 19th century, were actually
adopted by the 1930s in most countries.
But one reform was not adopted, and it was the very
first item mentioned in the Communist Manifesto. That was
the nationalization of land. I need hardly point out to
this audience that in his day, Henry George was viewed as
just as much of a threat as was Marx.
Already in Marx's 1846 critique of Proudhon, in The
Poverty of Philosophy, written a generation before George
published Progress and Poverty, he pointed to the fact that
although industrialists wanted to base the tax on land rent
rather than on themselves or on the labor they employed,
when push came to shove they would defend the principle of
exempting property from taxation.
In view of the fact that the major asset in every
economy even in today's world is land, not industrial plant
and machinery, one must come to a striking conclusion: The
theory of rent and its implications for land taxation is
more radical than Marx's labor theory of value.
The reason is simple enough to anyone who looks at the
national economic statistics for any economy. When
economic theory is at issue, the motto of the investigator
should be the same as that of any good investigative
reporter: Follow the money.
The largest asset in any economy, even in today's
industrial and post-industrial age, is land and other
rent-yielding assets: mineral rights, the electromagnetic
radio spectrum, and the sectors that recently have been
privatized throughout the world as governments have sold
them off in an attempt to carry their public debts.
It has been easier for the wealthy classes in every
nation to support social democratic programs than to accept
land taxation, for a much larger economic return accrues to
land ownership in the form of economic rent than can be
made as profit by employing wage-labor.
A century ago, socialists recognized this, and embraced
Henry George as one of their own. But George rejected
their appreciation as he ran for mayor of New York City in
1886-87. Seeking the support of capital rather than labor,
he expelled the followers of Daniel de Leon and insisted on
rewriting the fusion-party program that had nominated him
so as to exclude its labor planks, and put forth land
taxation as a cure-all.
This led to a break between his followers and those of
the socialists. More and more intellectuals shifted to the
socialists, because they had a broader view of economic
reform that encompassed land taxation but did not exclude
labor and housing reform and related reforms that
subsequently became mainstream in character, most notably
during the New Deal decade under Franklin Roosevelt in the
United States.
An indication of how thoroughly socialists had absorbed
the land taxers is apparent from the fact that the major
books of investigative journalism documenting the railroad
land grants and other appropriations of land were published
by none other than Marx's own American publisher, the
Chicago firm of Charles H. Kerr. Kerr was the only
publisher who would print books by George's followers and
many investigative journalists inspired by him from the
1890s through the early 1900s.
In Australia, the European publishers of Marx's
Capital, Swan Sonnenschein, published major tracts by
one-time George collaborators such as Michael Flurscheim.
By the first decade of the 20th century, the economic
program of land taxation that George had excited so many
people about had passed to the socialists. In Britain,
George Bernard Shaw and his fellow Fabians whose political
activity had been inspired largely by Henry George had
moved into the socialist camp. The same was true in
country after country.
As I noted above, the political problem faced by
Georgism had been expressed clearly by Marx already in
1847, the year before he wrote the Communist Manifesto with
Frederick Engels. Criticizing the socialists who found in
Ricardo and Proudhon the idea that to tax land rent
represented the most important political reform, Marx
wrote: We understand such economists as Mill, Cherbuliez,
Hilditch and others demanding that rent should be handed
over to the state to serve in place of taxes. That is a
frank expression of the hatred the industrial capitalist
bears towards the landed proprietor, who seems to him a
useless thing, an excrescence upon the general body of
bourgeois production.
The problem, however, was that rent was after all
the major return to property. Marx warned that when push
came to shove, property owners would hold onto rent most
tenaciously of all.
Most relevant to the present discussion is the degree
to which Marx's notes drafted in the early 1860s for his
posthumously published Theories of Surplus Value
anticipated George's Single Tax as an expression of class
conflict over what form of revenue to tax - rent, profit,
or interest:
Landed property is a means for grabbing a part of the
surplus-value produced by industrial capital. ... The
abolition of landed property in the Ricardian sense, that
is, its conversion into State property so that rent is paid
to the State instead of to the landlord, is the ideal, the
heart's desire, which springs from the deepest, in most
essence of capital. Capital cannot abolish landed
property. But by converting it into rent [which is paid to
the State] the capitalists as a class appropriate it and
use it to defray their State expenses, thus appropriating
in a roundabout way what cannot be retained directly.
In this passage Marx made explicit the fiscal policy
crisis implicit in classical economics and its rent theory. By making this conflict so
visible between industrial capital and society's landlords
on the one hand and labor on the other, Marx showed his
radicalism to be simply the logical conclusion of classical
political economy. In this respect the subsequent reaction
against Marx, and even against George, was inherently
against the logic of classical economic thought itself.
One must conclude that the advocacy of rent taxation
was the most radical economic reform proposed by the 19th
century. Yet today it has been trivialized into a merely
marginal reform, as if manipulating a tax of less 1% of the
land's market value can transform economies - and also as
if land taxation would not transform the entire economic
system.
So land taxers are forced to confront the problem of
just how radical George's idea really was. How are they to
handle this problem? A radical idea cannot succeed without
recasting people's view of how the overall economy
operates, and indeed of the direction in which economic
history is moving.
The socialists have placed their reforms in this
big-picture perspective. Yet the followers of George have
let rent theory be marginalized into the academic
sub-discipline of "land economics" and "real estate
studies," departments that invariably cater to the real
estate interests.
Needless to say, that discipline has been appropriated
primarily by the landlord classes and the construction
industry as a how-to-do-it study of the ways to get rich
through land speculation and property ownership. I venture
to say that nobody knows the principles of land taxation
and land rent better than Donald Trump. What is remarkable
is that the topic almost has disappeared from the agenda of
economic reformers today.
The result is that land taxers are coming to look much
like QWERTY reformers of the typewriter keyboard. A shift
to a non-QWERTY layout may indeed succeed in higher typing
speeds, but is this really an ideal that people are willing
to devote their lives to achieving? Or are there other
economic reforms more pressing?
By the 1920s the followers of Henry George (still
called Single Taxers, not yet "Georgists") had become known
mainly for becoming anti-Bolsheviks. They moved to the
right wing of the political spectrum, supporting free trade
and even "hard money." Whereas George's earlier followers
had addressed the debt issue along with the land issue, the
heads of the land-tax parade came just in time to be
hard-money advocates.
If there is a single theme of my explanation, it is
that the Henry George movement has been taken over by a
group of people whose main concern is to oppose government.
I refer especially to the followers of Ludwig von Mises and
Frederick Hayek, and to the hard-money advocates that have
played so important a role in the major Henry-George
institutions, along with the supporters of Ayn Rand.
What makes their support of the land-rent tax so
problematic is that if it were collected, it would amount
to some 40% of national income. On its face, this would
seem to imply big government. Indeed, this is what H.G.
Wells complained of in his discussion of George. (Almost
nobody before Jeff Smith suggested a citizen's dividend,
except of course for the Athenians 2500 years ago.)
To resolve this problem, the anti-government
individualists have decided that they really do not want to
collect the land's ENTIRE rent, but only a small part of
it, while abolishing other taxes (or at least, taxes on
capital.
The upshot has been a shift in the focus of George's
followers into areas that are basically antithetical to the
philosophy he put forth in Progress and Poverty. These
"Georgists" have become apostles of property ownership, not
of labor or even of industrial capital, but finance
capital.
With these observations in mind, I would like to
ask a few more questions.
If full taxation of economic rent is indeed so
important that it should be the mother of all reforms, how
can its effects be described without explaining how they
will be felt throughout the entire economy? How can rent
theory be put forth as a distinct area of study, without
being an economy-wide theory?
If a macroeconomic approach is needed, then obviously
finance needs to be incorporated. After all, my statistics
have shown that the land's rental income has been pledged
to mortgage lenders in order for property owners to borrow
the money to buy real estate that is rising in price -
rising at a more rapid rate, I should point out, than the
rate of interest, in most periods. This explains its
allure to investors. The exception occurs in periods where
the inevitable financial and real estate bubble bursts.
Yet rent theory has been amputated from financial
analysis. The economic and political reality is that a
full land-rent tax would indeed transform the economy. For
one thing, it would re-focus the banking sector away from
mortgage lending that finances the bidding up of prices for
properties already in place. If the government fully taxed
the rent and land-price gains, banks would find their
market in lending to finance actual fixed capital
formation.
How is it that the land-value tax has no theory of how
the economy as a whole works? How is it that for an entire
century this proposed reform has not been given a sense of
proportion by the publishing of annual statistics - or any
statistics whatsoever, at any point in time - to estimate
just how much rent actually exists to be collected? The
result of this neglect has been that most economic writers
have been able to trivialize discussions of land taxation
by estimating that it is only about 2% of national income.
This trivial 2% number comes from a misreading of
America's national income and product accounts (NIPA) and
its line for "rent." This line refers solely to the
imputed rent of owner-occupants, as if they paid rent to
themselves for the homes that they have bought. It does
not relate to commercial rents or the rent of corporately
owned property. This rental income can be found under
"profit," a word which traditionally has been associated
with the return to capital, not to land or other property rights.
The failure to explain just how large a magnitude
rental income is - and how large a magnitude "capital
gains" are, gains which are composed primarily of
land-price gains - has enabled most economic observers to
construct models of the economy that leave land and its
rent out of account, subsuming land into "capital."
The question that really needs to be asked now is, how
has public attention and that of economists and policy
makers been so thoroughly diverted away from the magnitude
and importance of land rent? The answer must involve
acknowledgement of how politically and intellectually
self-defeating the land-tax movement has been for more than
a century.
Rent theory has been amputated from financial analysis
by our own Georgist organizations. This seemingly has been
done as a result of the infiltration by a minority of
highly ideological individuals who have taken over the
major grant-giving organizations of the land-tax movement:
the Lincoln Institute in Arizona and its Cambridge
offspring, the Lincoln Land Institute; the Henry George
School of Social Science in New York, and the Robert
Schalkenbach Foundation also in New York, as well as a few
smaller foundations in Pennsylvania and other institutes
whose major focus has become the promotion of the
marginalizing two-rate tax policy which appeals to local
real estate developers.
Inadvertently, or on purpose? These funding
institutions have diverted the land-tax discussion away
from economy-wide issues, and hence from the kind of topic
that is able to mobilize most peoples' economic idealism,
toward the more marginal QWERTY-type logic of a two-rate
property tax that would help build up all those
underutilized parking lots, much to the glee of the
construction industry.
Yet as I pointed out above, one of the strongest
arguments for taxing the land rather than profits and wages
is that this is a precondition for shifting the banking
system away from inflating real estate and stock-market
bubbles that are based on "rent-collecting" sectors of the
economy.
I and others have been told by many Georgists that
inasmuch as the land tax is locally imposed in the United
States, we should work locally through the mayor's office.
The problem with this is that mayoral campaigns are
financed largely by the real estate and banking sectors.
And the last thing that these campaign contributors want to
hear about is a land tax.
Except for the two-rate tax, that is. Given the
existing appraisal techniques, the market value of
high-rise buildings is attributed mainly to capital
structures (at today's reproduction costs), not the land.
The effect of the two-rate tax in large cities - New York
City and most others where the bulk of U.S. property values
are concentrated - would be to untax tall, absentee-owned
commercial buildings. To be "revenue neutral," this tax
would be shifted to low-rise, residential structures. In
this respect the tax burden would be shifted from property
owners onto labor. Is this what Henry George wanted?
This phenomenon is instantly apparent to anyone who
"follows the money trail" and starts off by looking at the
statistics. In my many years of relationship with the
Henry George School and the Robert Schalkenbach Foundation,
this seems to be the reason why the publication of
land-rent statistics has been opposed. The real-estate and
construction-industry advocates, anti-tax protestors,
property and "hard money" advocates that dominate their
boards have little interest in explaining how their own
particular theoretical beliefs lead to anti-labor,
pro-landlord policies in practice.
Henry George sought to put forth an alternative to
socialism and big government. But did he intend a
libertarianism based on self-interest, on the idea that
without economic "incentives" and payment people would not
behave fairly?
Did George believe that tax revenue was bad and should
be reduced? Or did he want to tax the land fully?
The guiding principle here should be just what Henry
George insisted on: the principle of economic justice. He
sought to create a level playing field - within the context
of freedom and capitalism.
There is a general awakening today that what is
blocking a level playing field is the financial system.
Specifically, the economy is being loaded down with debt.
And about 70% of bank loans in America and Britain consist
of mortgage loans attached to property, absorbing its
economic rent.
Most people who look at new proposals and theories that
are new to them want a theory that can explain the economy
as a whole. And as most of you here already know, rent is
the most important flow in any economy, past or present.
But this message can't be got across to people without
putting rent in proportion to profits, interest, wages and
taxes.
Why isn't this being done? Or I should say, why is it
only being done by Donald Trump and by the real estate
industry, not by followers of Henry George? Why is rent
being calculated by bankers to see how much money they can
loan against it, but not by tax reformers?
George did not want the socialist state advocated by
Marx. But he did believe in justice. Yet today, the
discussion of justice has been monopolized by the Marxists,
along with left-wing churches in Europe. Also monopolized
by Marxists has been the study of economic history and the
history of economic thought.
Yet economic history could well be written as the
history of how the land was taxed and how landowners shed
this tax by shifting it onto other classes. This is how
George himself began Progress and Poverty, with his
discussion of the history of property as described by
Laveleye and other French socialists. Why is it that
George's followers have given up the task?
George certainly would not have wanted government
statistics to hide the magnitude of rent. But this is what
is being done. Why are these national statistics not
re-cast in a way that would show the actual magnitude of
rent and compare it to industrial profits and labor's wage income over and above basic
break-even needs?
How are we to get to the level playing field in today's
economic climate that favors landowners by supplying them
with credit and tax favoritism?
The statistics are there. But they are not published,
and not interpreted and charted. Without statistics, how
can advocates of land taxation convince people as to how
important it is, and how radically it would transform
society?
For decades the Henry George School and Schalkenbach
have been building up their financial capital but
withholding it while the intellectual capital of the
land-tax movement has been depleted. Potential
sympathizers and legitimate academics have been driven
away, and the credentials of the boards of directors of
these institutions has been degraded.
I know many prestigious academics who support land-rent
taxation. They have been driven away. I have met many
financial managers who believe that the financial system
should be re-directed by shifting fiscal policy toward land
taxation rather than the present-day fiscal favoritism for
land speculation (most notably the recent tax giveaways by
the Bush tax plan that cut land-price "capital" gains and
abolished the inheritance tax, which fell largely on
inherited landed property) but they have not been made to
feel comfortable in the company of those who consider
themselves to be George's followers.
So it seems to me that the land-tax movement has been
hijacked by those whose agenda is not compatible with that
of full land-taxation, but have another ideology in mind.
I have seen a fear of reaching out to socialists, yet
from the very outset they have been the most active
supporters of George and his belief that the land belongs
in the public domain. They are willing to accept the
land-tax idea, all the more so as it now seems to be a
major way to cope with the form of perverse globalization
that is occurring by privatizing the public domain to pay
off public debts in many countries.
Another group of potential supporters lies in the
environmental movement, the anti-IMF and World Bank reform
movement, and anti-globalization movement. Yet all these
groups have been shunned by the main organizations that are
supposed to be committed to promoting the land-rent tax.
Today the economy is leading to a New Enclosure
Movement. The public domain - the domain whose revenues
Henry George believed should be taxed - is being
appropriated. This is occurring not by military force, but
by financial insider dealing under pressure of debts that
are crippling governments.
The last thing that Georgists want is a new feudalism -
one with Donald Trump as king, and his bankers sitting
behind him collecting what he and other rent-takers
appropriate from the economy.
Opposing such takeovers is a winning message.
But to get it across, we must follow the money trail,
publish the statistics and show the magnitude of what is
happening - and demand accountability from the institutions
that are supposed to promote the ideas of economic justice
that Henry George popularized so successfully in his day.
At this point you may begin to wonder why I was invited
here today.
Nobody likes to make an audience feel uncomfortable or
to be the bearer of bad news. I'm well aware that the
dominant mentality through the ages has been to "shoot the
messenger." So why have I been invited?
I assume that the reason is that I'm willing to say
what I think. Others who think as I do have simply been
told (as I have been told) to go away and leave the
Georgist movement alone. Many of my friends have done just
that. They've been told (as I've been told) that there is
no room for social reformers in the land-tax movement, that
the way to succeed is not to frighten people but to go step
by step, incrementally and marginally.
This is not the way to go.
Dr. Michael Hudson may be emailed at
Hudsonmi@aol.com. He is the author of "Debt and Economic
Renewal in the Ancient Near East," "Privatization in the
Ancient Near East and Classical Antiquity," "Urbanization
and Land Ownership in the Ancient Near East," and is an
author in "A Philosophy for a Fair Society". All of the
books are available from the Robert Schalkenbach
Foundation, www.schalkenbach.org/books.