land rent and traditional economics

Real world examples

The tide of history is toward land rent:

Business
Business advances by rewarding people who create wealth, so they can create more. It's the property principle at work. Land rent is merely the property principle applied to the biggest property of all: land value.

Democracy
Democracy is a crude form of land rent: leaders who increase the value of their state are rewarded, and others are forced to leave.

Justice
Justice is another application of the property principle: You cause a problem? You pay for it. You create something good? You are rewarded.

Experiments with land rent

So far, all experiments have been very small, yet they have dramatic results. Most experiments end due to strong opposition, campaigning, lobbying, delaying and obfuscation by landowners.

Examples are in chronological order. I am indebted to Jeffery J. Smith for most of this. For details see his article "Where Tax reform Has Worked" and similar articles on progress.org

How Japan escaped its medieval economy
Japan, 1800s: “...the 19th century "Japanese miracle" was achieved, at the outset, on a foundation of land-value taxation. An efficient centralized bureaucracy was set up. A modern army and navy were established. Compulsory education was introduced. Manufacturing, mining, transportation, and banking were promoted, frequently with advice from European and American experts. And a bicameral Diet or Legislature was formed, with an elected House of Representatives." - From Japan, American Journal of Economics and Sociology, Dec, 2000 by Yoshisaburo Yamasaki, Robert V. Andelson.

How California changed from a dust bowl to a breadbasket
California, 1890s: The California state government passed the 1887 Wright Act, which allowed communities to create by popular vote irrigation districts to build dams and canals and pay for them by taxing the resultant rise in land value. ... In ten years, the Central Valley was transformed into over 7,000 independent farms. Over the next few decades, those tree-less, semi-arid plains became the "bread basket of America", one of the most productive areas on the planet.

Why Sydney is such a great place, even for the poor
Australia, 1900s: The biggest city in Australia, Sydney, levies only one tax - on land. Neither Sydney's tax nor Canberra's lease recovers all the land's Rent, so these cities also get revenue from the federal government. But the poorer sections of both cities bear no resemblance to the degrading slums of nearly all American cities. ... Around Melbourne, some towns tax land alone. Dr. Ken Lusht, visiting from Penn State, found they have 50% more built value per acre than those that tax both land and buildings

Why some Canadian towns are bigger than others
Western Canada, 1910s: As they came into being, many towns of the prairie provinces decided to go with the collection of site Rent exclusively. Generally they outgrew and out-served their neighboring towns.

How a ghost town became the richest city in the country
South Africa, 1920s: Johannesburg, which began as a mining town, was rapidly becoming a ghost town when the ore was being played out early last century. To avoid such a fate, the city councilors shifted their property tax from buildings to land, rescuing their town. Johannesburg grew to become the financial capital of the nation, eclipsing Cape Town, a port situated on one of the most strategic points on the planet, which taxed land and buildings equally, a victory similar to Albany, New York, outpacing New York City. Jo-burg enjoyed the fastest site-recycling rate in the world, a little over 20+ years, meaning urban sites were kept at best use, so sprawl was precluded. Sadly, after apartheid ended, the new government reverted to the conventional property tax, assuming (mistakenly) that it would increase their take from wealthier neighborhoods.

Why New York is so great
New York City, 1920s: A law had been passed allowing New York City for the next ten years to tax land but not the buildings on it. New construction more than tripled while in other big cities it barely doubled. Not only was there more housing, and thus lower cost apartments, there were more jobs and higher wages for construction workers, and more business for merchants who sold goods to the employed workers.

Land rent could have prevented the Wall Street Crash.
New York City, 1929: Economic good times in New York came to an end when owners in 1928 began to anticipate the expiration of the tax-shift law. The drastic decline in building starts contributed to the stock market crash of 1929. Another cause was the dust bowls, caused by farmers having no incentive to improve their land (land rent changes this), but most of it was speculation: people expected to get money simply by owning things they did not create. Land rent is specifically designed to make that impossible.

Land rent economists predicted the 2008 crash.
While on the subject of global recession, Jeffery Smith's article, written in 2004, contains this line: "Watching land prices inflate in the 80's, followed by farm takeovers and slowed housing starts, land-focused econometricians predicted land prices to hit bottom in about 1990, then next around 2008." And sure enough, the crash was triggered by sub prime loans: loans based on a property speculation bubble, something that cannot happen with land rent.

The secret behind the miracle of Singapore and Hong Kong
East Asia, 1940s: Singapore and Hong Kong were both founded on a large element of land rent, and saw explosive economic growth.

The secret behind Japan's post war boom
Japan, 1940s: Gen. Douglas MacArthur, an admirer of Henry George, forced the Japanese provisional government to write a diluted form of land rent into their new democratic constitution (it limited rent paid by tenants to land owners, since they did not create the land). South Korea and Taiwan (see below) adopted a similar Rent reform. All three saw massive economic growth. The bubble only burst for Japan in the late 1980s due to massive land speculation, which would be impossible if they had full land rent.

Why Taiwan had world record growth
Taiwan, 1940s: Old Formosa was mired in poverty and fast breeding. Hunger afflicted the majority of people who were landless peasants. Less than 20 families monopolized the entire island. ... the new Nationalist Government of Taiwan instituted its "land to the tiller program" which taxed farmland according to its value. ... Taiwan began to set world records with growth rates of 10% per annum in their GDP and 20% in their industry.

How Russia could have avoided economic crisis
In 1991, thirty economists, including three then Nobel-prize winners (one signer, William Vickrey, won the prize later), signed a letter to Soviet president Mikhail Gorbachev advising him that “It is important that the rent of land be retained as a source of government revenue” (Tideman, 1991, p. 226). Had this prescription been heeded either by this last Soviet president or his Russian successor, the massive capital flight and the financial crises in large part due to tax evasion in Russia may well have been avoided. Subsequent Russian history has been in large part a result of and a reaction to those crises. - see Fred E. Foldvary, "Public Revenue from Land Rent"

What happens if you remove tax?
Denmark, 1969. Until 1969, the Danish government calculated tax based on the previous year's income. In 1970 they started to calculate tax based on the current year's income. The Danes saw that in 1969 it didn't matter what they did, it would not affect tax. So from 1968 to 1969, they doubled the increase in production (4% to 8%), halved the inflation rate (8% to 3.5%), quadrupled investment increases (5% to 20.5%), raised savings by a quarter (from 2.9 million kroner to 3.8), and employed nearly all workers.

Why don't we see more land rent in America?
In many of the United States, the land tax is unconstitutional. When the Single Tax movement was at its peak and a threat to absentee landlords, they lobbied legislators to require the taxing of location and improvement together. But Pennsylvania is the only state where cities are allowed to charge more rates for land than buildings, if they wish. The cities that do it develop 16% more per year than their neighbors.

Georgism

Land rent is as old as the hills, but was popularized by Henry George in the 1800s, through his book "Progress and Poverty." Followers of George are called Georgists, and the principle of replacing taxation with land rent is called Georgism or Geonomics (geo-economics, or the economics of land)

This site is not Georgist

This web site could be called neo-Georgist, but it differs from classical Georgism in four ways:

1. Land does not belong to all

Georgists start from the assumption that land belongs to all. This is an attractive idea, but I don't see the logic behind it. Logically, a thing belongs to whoever created it. The most we can say is that the rentable value of land belongs to society, while the land itself belongs to the universe. It's a technical point, but important if you care about logic.

2. Taxation is theft

Georgism is sometimes called "Land Value taxation" of "The Single Tax," and Georgists commonly argue for gradual changes in the tax system. But this web site argues that the whole concept of taxation is fundamentally and irredeemably wrong.

Taxation is a transfer of wealth from you to the government. Land rent is not taxation because there is no transfer: the value of the bare land is always the property of the government, whether they choose to use it or not.

3. Catch the vision

Georgists commonly argue for gradual change. For example, by shifting the burden of tax more toward property, or by instituting a "citizen's dividend" that pays citizens when natural resources are sold. But that tinkering around the edges of a broken system, I prefer the visionary approach.

4. Choose your own government

The Georgist goal is the natural justice that comes from man equal access to land. But this web site goes much further: land rent is a way to measure the value of governments, and thus allow experimental governments that make their parent governments a profit.

In other words, land rent is the key to choose your own government, leading to choice, freedom, and optimal government for all. Add the wealth and justice inherent in land rent, and land rent offers nothing less than a perfect world.

Imagine a desert island

Economists traditionally explain economics in terms of a desert island. So here is land rent in terms of a desert island:

Under a tax system...

Imagine a desert island where people grow bananas. The tax rate is fifty percent. (This is a combination of income tax, sales tax, buildings tax, government insurance, licenses, fuel duty, the cost of an accountant, and so on.) So every day you pick 100 bananas, but only keep 50. You sell them at the market for a coconut each.

You have a kid brother who would like a job picking bananas, but unfortunately the business can't afford it. Nobody will buy any more bananas at current prices. So your kid brother is unemployed. He sits around the house making trouble.

Under a land rent system...

One day the governor of the island decides that all these taxes are far too complicated. He wants an easy life. He notices that you pay fifty bananas in total, so he gets rid of all the taxes, and replaces them with a 50 banana rent for every house on the island. The governor now has a much easier life and can spend his days sunbathing instead of bookkeeping.

Now your kid brother can get a job and you can pick 200 bananas a day instead of 100. but you still pay the same 50 banana rent. So instead of 50 bananas you now have 150!

Why everyone has more bananas

You can now afford to halve your prices: selling TWO bananas for a coconut. Word soon spreads round the other villages, and you quickly sell all 150. So you now have 75 coconuts instead of the usual 50. You're rich!

Meanwhile the villages have more bananas and more coconuts left over, so they are richer too. And better fed. And the governor? Not only does he have an easier life, he doesn't have to pay unemployment support to your brother, so he's richer too. Everyone benefits!

...and lower rent

Other islands now copy (they don't all make bananas, some make canoes, some make hats, etc.) and the islanders notice something. In the old days, tax and politics were very complicated. Nobody really knew what was going on. But now it's simple: every house costs 50 bananas (or 50 coconuts).

Then one governor decides to lower his land rent to 40 coconuts. (He doesn't need as much money, as there isn't any unemployment and nobody needs welfare.) Suddenly everyone wants to live on his island, and his income doubles! The other governors have to either reduce their land rent or offer much better services at the same price.

...and better government

None of this was possible under a tax system, because it was just too complicated. There was no simple way to compare different islands, but now it's easy.

The smarter islanders start to compare similar islands under different political strategies (more regulation or less? More cities or more parks? A public or private health system?) As they gather more data they are able to put a clear coconut value on every idea, and then simply choose the best ones.

Pretty soon every island is more beautiful, more peaceful, the people are happier, there is no injustice. And all because the original governor wanted to spend more time on the beach.

Capitalism, socialism, etc.

Every political system has some good and some bad. If we take just the good, we end up with land rent.

Capitalism

Capitalism is "an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market " Capital is "assets that add to the long-term net worth of a corporation." (Webster's Dictionary)

Land rent is the purest form of capitalism because it is based entirely on an absolute unbending belief in property. Private or corporate bodies own absolutely everything they create, with no tax to pay. The page on logic explains why.

Socialism

Land rent solves the root cause of all socialist grievances: unjust allocation of land. With land rent, nobody can make a cent simply by owning land, everyone must work to create their own wealth. The logic of land rent proves why governments have absolute ownership of the value of bare land. It also shows where that ownership ends, preventing the abuses that have given socialism a bad name.

Land rent quantifies the problem of the ragged trousered philanthropist: it shows exactly how much money is currently being taken from society (mostly poor) and given to land owners (mostly rich). It then shows how everyone, including the rich, would be even richer if this money was returned to its rightful owner.

Religions (Christianity, etc.)

Land rent provides a solid foundation for beliefs shared by almost all religions:

1. Mankind does not own the earth, it is only borrowed and should be shared. The logic of land rent proves it and shows exactly what it means.

2. A better society is possible. Land rent allows every group to create its own mini government with its own laws. At last you can have the utopia you dream of, and demonstrate to the world how it is better, or at least be free to practice your own religion the way you want to. As long as you pay your rent.

Humanism

Humanism is "a doctrine, attitude, or way of life centered on human interests or values; especially a philosophy that usually rejects supernaturalism and stresses an individual's dignity and worth and capacity for self-realization through reason." (Webster's Dictionary)

Land rent is the only economic system that can be proven rationally. And its values are based entirely on human desires: how much one is willing to work in order to live in a particular society.

As with religious and other groups, land rent allows humanists to create their own state with their own laws, and measure its value to the world.

Libertarians

Libertarians routinely complain that governments take too much money, but they are powerless to stop it. Without land rent, nothing will ever change.

Land rent gives you the power to choose your own form of government. It also guarantees that nobody else will lose out, because choosing your own government (based on land rent) is a simple business arrangement where everybody benefits.

Conclusion

In general, land rent is the only rational economic system, and the only system to give freedom and to solve all human problems. Whatever you want, land rent provides it, because land rent is nothing more than justice. What more is there to say?

What economists say

Elastic and inelastic taxes

Every economist, from Adam Smith to Milton Friedman, agrees that if you tax anything then tax land more and tax land less. This is because work is "elastic" - it stretches. If you make it more expensive to work then a business will have to charge more for it, and so they will sell less, and so employ fewer people. So taxing work results in less work. In contrast, land is "inelastic" - it does not stretch. If you tax land there will still be the same amount of land. In fact, the land will produce even more work than before because nobody will leave land idle if it costs them money. So taxing work leads to less wealth, but taxing land leads to more wealth.

Traditional Ricardan rent theory

In traditional Ricardan rent theory, the supply of land is fixed and therefore as population and demand for land increases, it's price (rent) will also increase. The land owner becomes richer, but the ordinary workers do not benefit.

Land rent changes that. If the rent goes to the government then the citizens expect the government to spend it on something useful. Otherwise they kick the government out. What will they spend it on? Roads, education, fiber optic cables, reducing crime, etc. All this leads to more productivity. This is on top of the increased wealth already noted.

For more details

Scattered around this page are quotes from famous people, economists and others, about land rent. For more details, visit progress.org.

Note: economists generally only look at land rent from a wealth creation perspective, they do not consider the next step, the implications of being able to measure the value of governments.