The Multiple Benefits of Economic Rent Capture

Frank deJong

[ GroundSwell, July-August 2008]

This past July, I joined Green Party of Ontario members Mike Nickerson (author of Life Money and Illusion), Bruce Hearns (GPO Finance Critic), Donna Dillman and John Fisher in attending  a conference in Kansas City, MO, dedicated to promoting the work of the 19th century American economist Henry George.  This conference is an annual event, part of the international Georgist movement calling on governments to collect economic rent instead of taxes on income and consumption.

In his seminal book Progress and Poverty (1879), George builds on the work of Adam Smith, David Ricardo and John Steward Mill, enumerating the multiple benefits to the economy and society when governments are financed by collecting economic rent.   Economic rent refers to the societal surplus that flows to assets like land, resources, the right to pollute, billboards, the stock market, the electromagnetic (EM) spectrum, agricultural quotas, etc.  Although this wealth rightfully belongs to the community, which created it in the first place, it presently flows to private asset owners, forcing governments to damage the economy by taxing incomes and consumption.  This economic theory is supported in the work of, among others, Winston Churchill, Dr. Sun Yet-Sen, Mark Twain and by John Kenneth Galbraith, who called the idea "compelling".

Speakers and panelists at the conference argued that taxing incomes makes people more expensive to hire, that taxing capital increases the cost of borrowing, that taxing profits pushes companies closer to bankruptcy, and that taxing consumption raises prices.  Economists call these dead weight taxes that stifle economic vitality and cause unemployment and poverty.  On the other hand, funding government programs by capturing the community-generated, unearned income that accrues to desirable finite assets increases economic efficiency, eliminates poverty and unemployment, halts sprawl, conserves resources and reduces pollution.

Conference presenters explained that economic rent capture has many profound and beneficial implications. Collecting unearned income rather then earned income eliminates antipathy toward paying taxes, since people keep all of the hard-earned cash earned from jobs and businesses. Collecting economic rent from the relatively few sources is far less bureaucratic then administering the taxation of hundreds of millions of jobs, businesses and purchases.  Infrastructure becomes self-financing, since collecting the rise in land value is used to finance the project.  Economic rent capture eliminates real estate speculation, which is the root cause of recessions and depressions, including the present crash. Taxing pollution and stimulating the productive economy biases toward labour-intensive local production raises wages and spawns new businesses. Right-pricing land stops sprawl and fosters walkable communities linked by transit.

Economic rent capture has been practiced extensively in the past and is clearly beneficial in jurisdictions where it is used today.  Alberta and Winnipeg used it in the early 20th century, Japan, Hong Kong and Taiwan are more recent examples, and it is how Sydney paid for their Olympics. Alaska, Alberta and many other countries use it when collecting oil royalties.

With communism, socialism and Marxism now abandoned in favour of free markets, with interventionist Keynesianism discredited as doing more harm than good, and with trickle-down economics mocked as a cynical justification for unconscionable wealth disparity, governments should now return to what Fred Foldvary calls "Foundational Economics", quash the damaging speculative economy and allow a purely entrepreneurial economy to work its magic.