Few economists are as broadly appreciated today as Henry George. Economic thinkers and ideologues of different stripes – conservatives, liberals, and leftists alike – usually look approvingly on at least some of his ideas. Over a century ago, he sought to explain the paradox of how prospering societies can leave so many in poverty; why living standards were not growing at the same rate as technological progress. To George, it did not look as though progress and poverty were all that opposed. In the 19th century especially, many agreed.
Where Henry George fixed the blame may seem unusual at first. Unusual because to George it was the unearned rents of landowners that were the cause of continued misery in a world of plenty. He may have a point though; while economies have transitioned from agrarian to industrial to post-industrial, land remains an economic chokepoint. No matter how much progress comes about, no one can manufacture more land. Though Henry George’s ideas have seen little application, economists and politicos from the neoliberal and social democratic traditions alike continue to praise them. They remain relevant today, a potential solution to problems of urban housing affordability and income inequality.
Henry George
Henry George was born in Philadelphia in 1839, the son of a publisher of religious texts. Taking on the family business was not to be though as George left school before turning 14, working briefly as a clerk in an import-export firm before joining the crew of a ship bound for India and Australia. After manning a lighthouse tender on the American west coast, he jumped ship in San Francisco. George went on to work as a printer, journalist, and editor, having learned typesetting in his youth. His experiences in that fast-growing city informed his economic opinions which have always seemed most applicable to such burgeoning urban environments as San Francisco in the mid-19th century.
He was more than just a journalist and an economic thinker though. Henry George was also an activist, a frequent campaigner, seeking elected office in both California and New York. He also travelled on lecture tours across America and Britain. After publishing Progress and Poverty, the book that made him famous, George even ran for Mayor of New York. Though he came in second to Abram Hewitt, who won with 41% of the vote to his 31%, he did manage to beat the future President Theodore Roosevelt who came in third. He ran for Mayor again in 1897 but died not even a week before election day.
Progress and Poverty
Henry George’s typesetting skills came in handy when he went about having his book, Progress and Poverty, published. The book was initially rejected by the New York publishing companies, so he borrowed the money needed to self-publish it. Only then, with the type plates already set and thus a major expense taken out of the equation, was the book accepted and published by an actual publishing firm, D. Appleton and Company, a big 19th century American publisher.
The inspiration for this book came from the conundrum of how increasing land values were worsening poverty in America. George noted in Progress and Poverty that while the landowners were benefiting from this appreciation, they usually were not at all responsible for it coming about. A landowner benefiting from a rise in land values earns an income quite unlike that of a wage-earner or an entrepreneur who creates value and is compensated for it. Thus, George argued that rent earned on unimproved land, or the rent on any property attributable to its raw land, belonged to the public.
In 19th century America, land became more valuable thanks to urban growth, road and utility connections, and more productive agriculture, industry, and commerce and as land values grew, rents rose. However, as George saw it, the property owner benefiting from this did nothing to earn this rent because the drivers of land values are social in nature; they are a function of human progress. Thus, while income from improvements on land can be said to be ‘earned’ income, the rents and property appreciation attributable to raw land were ‘unearned’; there was no labor nor capital investment required to earn it. Essentially, George argued, in the impoverished wards of cities, those unable to afford these rents were essentially being hurt by progress, to the benefit of landowners.
Henry George’s ideas were hardly that radical; they had been expounded by past classical economists. Adam Smith said high ground-rents were a product of good government and singled out such rents for taxation, saying that an income “which owes its existence to the good government of the state, should be taxed peculiarly”. David Ricardo also noted the peculiarity of ground rents, rents on unimproved land, given that such land cost nothing to produce. The problems Henry George investigated were pondered by other 18th and 19th century economists and are still pondered through to today. The ‘gentrification’ of American cities would likely be the issue of today that George would be most happy to discuss.
Single Tax
To recapture unearned income from land, George proposed a tax on land values. This tax would be strictly on the unimproved value of the land and, as such, would differ from most conventional property taxes. It was called the ‘single tax’ because the revenue raised would alleviate the need for other taxes, like import tariffs (George also strongly opposed protective tariffs). The American writer and commentator, William F. Buckley Jr., described the single tax as a levy where if a parking lot was right next to the Empire State Building, both properties would pay the same amount in tax.
Many saw the Georgist land value tax as preferable to other forms of taxation. Whereas taxes on business income or wages are taxes on productive behavior, they would argue that taxes on unearned rents or appreciation are not. Similarly, whereas capital and employment are inconstant and taxation would reduce the quantity of capital or labor employed, land is fixed; there would be no loss of land merely because it was taxed. These attributes increased the appeal of what George was proposing. The single tax looked to be a particularly efficient way of recapturing the gains of social progress for more equal redistribution.
“The tax upon land values is, therefore, the most just and equal of all taxes. It falls only upon those who receive from society a peculiar and valuable benefit, and upon them in proportion to the benefit they receive. It is the taking by the community, for the use of the community, of that value which is the creation of the community.” – Henry George, Progress and Poverty
Besides drawing on the ideas of preceding economists like Smith and Ricardo, George developed his own following among modern economists and commentators. These Georgist devotees included conservatives like Buckley and free-market oriented economists like Milton Friedman. Both were especially drawn to the single tax, which Friedman referred to as “the least bad tax”. The single tax, they argued, was particularly efficient because land does not disappear in the slightest because it is taxed, unlike labor and capital.
Though for somewhat different reasons, George’s ideas resonate among left-leaning economists as well. Some, like Joseph Stiglitz point to the ability of a land tax to fund local public investment while tackling economic inequality. Taxing unimproved land might not only limit the damage of land speculation and promote new housing development, it may also raise the funds needed to fund housing subsidies and other benefits or investments. There is also something to be said for the difficulty of dodging the single tax; whereas incomes can be shifted to offshore entities, land is fixed in place.
The single tax on land saw some application in the United States generations after Progress and Poverty was published. In the last two decades, some local governments have experimented with Georgist ideas in Pennsylvania, the state of Henry George’s birth. Take the case of Altoona in central Pennsylvania. The city, a long declining former railway hub, saw its population halve since its 1930s peak. The city of 45,000 was funded exclusively by a tax on unimproved land from 2011 to 2017. It was, to use Buckley’s example, a city where a parking lot would pay the same sum in taxes as the Empire State Building. Except, there was no Empire State Building in Altoona and this perhaps explains the mixed results of the experiment.
The idea behind the single tax was that it would encourage property reinvestment, improving the housing stock and revitalizing the city. After all, under such a tax, property-owners developing vacant sites or renovating their real estate would see no rise in tax. However, results were mixed. The tax change seemed to some as successful in reducing blight but since land values in the city were low to begin with, landowners who saw no productive use for their property were often unable to even give the property away. The tax, when placed on relatively worthless land, essentially gave many properties a negative value. The Financial Times summed it up this way: “Altoona is using [a land value tax] in a city where neither land nor buildings have much value.” In retrospect at least, it was not a place where George’s ideas would seem most applicable. A land tax might very well prompt a greater supply response in growing, expensive cities like San Francisco or Toronto.
Lesson
That land reform holds the key to tackling poverty in a modern, wealthy society may seem suspect. The importance of land to economic prosperity in an agrarian economy is quite obvious, but not so for a post-industrial one; perhaps Henry George’s ideas are simply less applicable today. Regardless, many think that what he proposed in Progress and Poverty almost a century and a half ago is just as relevant today as it was then. Given that so much economic activity happens in the world’s largest and most expensive cities, places which can fit only so many people, it is not so farfetched that progress and poverty are indeed still linked through land.
Further Reading
1. Hooper, Charles L. “Henry George.” Econlib, The Library of Economics and Liberty.
2. Neklason, Annika. “The 140-Year-Old Dream of ‘Government Without Taxation’.” The Atlantic, Atlantic Media Company, 15 Apr. 2019.
3. O’Donnell, Edward. “Henry George and the Crisis of Inequality.” C-SPAN, 22 Oct. 2015.
4. The Editors of Encyclopaedia Britannica. “Henry George.” Encyclopædia Britannica, 25 Oct. 2018.
5. Why Henry George Had a Point. The Economist Newspaper, 2 Apr. 2015.
