I have been interested in Henry George and Georgism for a few years now, but I got especially interested in reading Progress and Poverty when I found out that Henry George's funeral was the largest funeral in New York City history when he died, surpassed only by JFK decades later. George published Progress and Poverty in 1879, at the tail end of the depression that followed the Panic of 1873, which was the worst economic crash in American history until the Great Depression. The fundamental thesis of the book is that the value produced by labor and capital is disproportionately captured by lucky landholders who happen to own property adjacent to the cities that spring up due to industry and progress. The book feels very much of its place and time. It is hard to ignore that George is writing at the same time as the "closing of the frontier," when land suddenly became scarce in America. Americans realized at this time that having new land constantly being opened up is a huge boon to economic growth, and once it is all owned, that path to prosperity shrivels.
George separates out laborers, capitalists, and landlords as the three critical groups in the book. Laborers use their hands or skill to earn a wage. Capitalists use their money to earn interest (or what we might call a return today). Landlords use their land to earn rent. I've got to say that the first few "books" of the book (its divided into ten "books") are tedious. George goes through his definitions of each concept in painstaking detail that I won't go into here. At one point he gets into a whole refutation of Thomas Malthus that was interesting, but unrelated to my reasons for reading the book.
The fundamental problem that George addresses is that "If I buy land for a small price and hold it until I can sell it for a large price, I have become rich, not by wages for my labor or by interest upon my capital, but by the increase of rent." If a capitalists risks his money by investing it and makes a return, we can say he earned it. If a laborer works through her skill to earn a wage, we can say she earned it. But when a landowner takes rent just for being located nearby the productivity of the other two, it is hard to say he has earned it. In book five, George writes:
Take now... some hard-headed business man, who has no theories, but knows how to make money. Say to him: "Here is a little village; in ten years it will be a great city—in ten years the railroad will have taken the place of the stage coach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will in ten years, interest be any higher?" He will tell you, "No!" "Will the wages of the common labor be any higher...?" He will tell you, "No the wages of common labor will not be any higher..." "What, then, will be higher?" "Rent, the value of land. Go, get yourself a piece of ground, and hold possession." And if, under such circumstances, you take his advice, you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon or down a hole in the ground; and without doing one stroke of work, without adding one iota of wealth to the community, in ten years you will be rich! In the new city you may have a luxurious mansion, but among its public buildings will be an almshouse.
The problem is that wages do not depend solely upon the productivity of the laborer and interest/return does not depend solely on the productivity of the capital. Both are only able to take the scraps left over once rent is taken out by the landowner. As productivity increases, wages should increase. But this can be overtaken by increases in rent, leaving more productive workers with less money. As George writes,
But labor cannot reap the benefits which advancing civilization thus brings, because they are intercepted. Land being reduced to private ownership, every increase in the productive power of labor but increases rent--the price that labor must pay for the opportunity to utilize its powers; and thus all the advantages gained by the march of progress go to the owners of land, and wages do not increase. Wages cannot increase; for the greater the earnings of labor the greater the price that labor must pay out of its earnings for the opportunity to make any earnings at all.
In this sense, land speculation can cause recessions in developing and progressing places. When, in these places, speculators expect a higher price of land, they may raise rents to the point that it becomes unproductive to employ people, raising the unemployment rate. And George makes a great point that any unemployment (defined as the rate of joblessness for those who want to be employed) is unacceptable. He writes that, "though custom has dulled us to it, it is a strange and unnatural thing that men who wish to labor, in order to satisfy their wants, cannot find the opportunity..."
But none of this is to say that land isn't important, but just the opposite. Land, to George, is the fundamental building block of the economy, and he compares it to the base of a pyramid. As long as that base is growing, the rest of the economy can grow. So just like the frontier expanding. But when the growth of land ceases, the rest cannot be built any further. So this is the cause of much economic strain- not that land is finite in the geological/geographical sense, but that land is finite in the useful economic sense. When all the land in and around a city is owned by sellers who are waiting for a higher price, rents rise. As a result, real wages fall, as do the returns on investment, killing motivation to work and reason to invest in a city, which will lead to the death of the city.
George's thinking clicks into my own thoughts about capitalism and my recent reading in The End of History and the Last Man when he writes that "Everywhere, in all times, among all peoples, the possession of land is the base of aristocracy..." In that sense, as capitalism, the more free and efficient economic system has come to replace feudalism, ruled by the aristocracy, the private ownership of land is a holdover from the older, feudal system. That is fine on its own. However, the ability of landowners to earn speculative rents from their property (the passive income that everybody wants) is fundamentally aristocratic, undemocratic, and threatens the legitimacy of the capitalist system, which depends on the productivity of the laborer and the capitalist.
The solution George proposes is to make land common property by taxing the economic rents from land appreciation. He argues that there is no natural right of any person to land and that it follows that current title is illegitimate. He says that it makes sense that someone would own something that they make, but since no one makes the land but God, it doesn't make sense for anyone to own it. The distinction between wealth and land is that wealth is made up of things that are the produce of labor and land is made up of the "gratuitous offerings of nature." So, George writes that a man who clears a forest or drains a swamp can claim the value of the improvements he made, but cannot claim the value of the underlying land itself. If I remember correctly, John Locke wrote that this would entitle a man to both the improvements and the land, so that would be a critical distinction.
To affect his plan, Henry George proposes not that the government seize land, but that it create a tax on land that taxes the appreciation of land without including the improvements made on the land. This way, all landowners informally become tenants of land, who cannot speculate on it. This would make the government essentially the landlord of the entire country. The obvious issue with what George proposes is that people who are land rich but cash poor will lose in the changes that he would make. But George believes the societal benefits would be greater than the costs to that class. He points out that ownership of land isn't what makes it fruitful, but the security of labor, which often comes with ownership of land. A fixed level of rent can provide that security rather than ownership. One thing I don't think George clarifies enough is how to accurately assess the values of land without corruption causing problems. But I think his overall point is right when he says that if you take two people of equal incomes, one from labor and one from the rent of his land, the one who is laboring is far more beneficial to society, and he should be privileged under our taxes, not the other way around. It is really kind of crazy how much higher taxes are on labor through the income tax than they are on land through property or land value taxes. If you buy land and build a factory on it, you end up paying more taxes to operate the factory than you do on the vacant lot.
In the end, I think George is heading in the right direction but with some significant issues. One is that land values may go down, and if the only tax is the one he proposes, that would kill government revenue. Another is that some land has resources on it, and that makes it more valuable rather than being next to a city, which would affect valuations. Another is that it is difficult to assess land values accurately and fairly. One last thing is that, partially because of when he is writing, George has a blind spot for conservation of natural land, where we would not want to encourage more development. But that said, I think there are definitely ways to implement more taxes on vacant lots and unused lands that could promote productivity. I imagine putting taxes on lands the highest in city centers, but then offset by reductions in taxes if you make improvements like housing, commercial, or industrial uses. Then parking garages and mansions would be the most expensive to maintain in city centers, pushing them out and pulling apartments and businesses in. Through some planning and zoning, you could also keep industrial uses isolated from the rest. Then I think you could let people keep land vacant and wooded, but on the condition that the public be able to access the natural area as a park. I would try to put these in pockets within cities and then in rings around cities. Ultimately, George is right about tax incentives and land, and this was a worthwhile read.
Miscellaneous Facts:
- It is crazy to read this book and see how little people knew back then. At one point, George writes that we cannot know whether or not the population of the Earth in 1879 was bigger than at any previous time, something that is now an obvious fact. Apparently, Montesquieu had asserted that the population of the planted had declined since the beginning of the Christian era. Very interesting is that George brings up ancient American civilizations to show that populations may have been larger. Of course, they were larger in the Americas until the spread of European diseases. I liked that George specifically mentioned the mounds of the Mississippi valley.
When George discusses the social problem of land ownership, he identifies that peasants can only be freed by land reforms that make them the owners of the land or by urbanization, which frees them of the need to work the land.
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