Georgism, in modern times also called Geoism, and known historically as the single tax movement, is an economic ideology holding that persons should own the value that they produce themselves, while the economic rent derived from land—including from all natural resources, the commons, and urban locations—should belong equally to all members of society. Developed from the writings of American economist and social reformer Henry George, the Georgist paradigm seeks solutions to social and ecological problems based on principles of land rights and public finance that attempt to integrate economic efficiency with social justice.Hudson, Michael; Feder, Kris; and Miller, George James (1994). A Philosophy for a Fair Society . Shepheard-Walwyn, London. .
Georgism is concerned with the distribution of economic rent caused by land ownership, natural monopolies, pollution rights, and control of the commons, including title of ownership for natural resources and other contrived privileges (e.g., intellectual property). Any natural resource that is inherently limited in supply can generate economic rent, but the classical and most significant example of land monopoly involves the extraction of common ground rent from valuable urban locations. Georgists argue that taxing economic rent is efficient, fair, and equitable. The main Georgist policy recommendation is a land value tax (LVT), the revenues from which can be used to reduce or eliminate existing taxes (such as on income, trade, or purchases) that are posited to be unfair and inefficient. Some Georgists also advocate the return of surplus public revenue to the people by means of a basic income or citizen's dividend.
George popularized the concept of gaining public revenues mainly from land and natural resource privileges with his first book, Progress and Poverty (1879). The philosophical basis of Georgism draws on thinkers such as John Locke, Baruch Spinoza, and Thomas Paine.Agrarian Justice, Wikisource edition, paragraph 12 Economists from Adam Smith and David Ricardo to Milton Friedman and Joseph Stiglitz have observed that a public levy on land value does not cause economic inefficiency, unlike other taxes. A land value tax also has progressive effects. Advocates of land value taxes argue that they reduce economic inequality, increase economic efficiency, remove incentives to under-utilize urban land, and reduce property speculation.
Georgist ideas were popular and influential in the late 19th and early 20th centuries.The Forgotten Idea That Shaped Great U.S. Cities by Mason Gaffney & Rich Nymoen, Commons magazine, October 17, 2013. Political parties, institutions, and communities were founded on Georgist principles. Early devotees of George's economic philosophy were often termed Single Taxers for their political goal of raising public revenue mainly or only from a land-value tax, although Georgists endorsed multiple forms of rent capture (e.g. seigniorage) as legitimate. One contemporary and friend of Henry George who advocated strongly for the Single Tax movement, and lectured at related organizations such as the Manhattan Single Tax Club, was Charles Frederic Adams.New-York Tribune. "Dinner of the Manhattan Single Tax Club." Nov 16, 1892 · Page 7 The term Georgism was invented later, and some prefer the term geoism as more generic.
Main tenets Land rent and wealth
Henry George is best known for popularizing the argument that government should be funded by a tax on land rent rather than taxes on labor. He believed that although scientific experiments could not be performed in political economy, theories could be tested by comparing different societies with different conditions and by thought experiments about the effects of various factors. Applying this method, he concluded that many societal problems, such as poverty, inequality, and economic booms and busts, can be attributed to private ownership of the necessary resource: land rent. In his most celebrated book, Progress and Poverty, George argues that the appropriation of land rent for private use contributes to persistent poverty in spite of technological progress, and causes economies to tend toward boom-and-bust cycles. According to George, people justly own what they create, but natural opportunities and land belong equally to all.
George believed there is an important distinction between common and collective property. Although equal rights to land might be achieved by nationalizing land and then leasing it to private users, George preferred taxing unimproved land value and leaving the control of land mostly in private hands. His reason for leaving land in private control and slowly shifting to land value tax was that it would not penalize existing owners who had improved land and would also be less disruptive and controversial in a country where land titles have already been granted.
Georgists have observed that privately created wealth is socialized via the tax system (e.g., through income and sales tax), while socially created wealth in land values are privatized in the price of land titles and bank mortgages. The opposite would be the case if land rents replaced taxes on labor as the main source of public revenue; socially created wealth would become available for use by the community, while the fruits of labor would remain private. According to Georgists, a land value tax can be considered a user fee instead of a tax, since it is related to the market value of socially created locational advantage, the privilege to exclude others from locations. Assets consisting of commodified privilege can be considered wealth since they have exchange value, similar to taxi medallions. A land value tax, charging fees for exclusive use of land, as a means of raising public revenue is also a progressive tax tending to reduce economic inequality, since it applies entirely to ownership of valuable land, which correlates with income, and there is generally no means by which landlords can shift the tax burden onto tenants or laborers. Landlords cannot pass the tax on to tenants because the supply and demand of rented land is unchanged. Because the supply of land is perfectly inelastic, land rents depend on what tenants are prepared to pay, rather than on the expenses of landlords, and so the tax cannot be passed on to tenants.Adam Smith, The Wealth of Nations Book V, Chapter 2, Part 2, Article I: Taxes upon the Rent of Houses
Economic properties
Standard economic theory suggests that a land value tax would be extremely efficient—unlike other taxes, it does not reduce economic productivity. Milton Friedman called George's tax on unimproved land value the "least bad tax", since unlike other taxes, it would not impose an excess burden on economic activity (leading to zero or even negative "deadweight loss"); hence, a replacement of other more "distortionary" taxes with a land value tax would improve economic welfare.Foldvary, Fred E. "Geo-Rent: A Plea to Public Economists". Econ Journal Watch (April 2005) Joseph Stiglitz argues that a land value tax can improve the use of land and redirect investment toward productive, non-rent-seeking activities. Because land value tax would apply to foreign land speculators, the Australian Treasury estimated that land value tax was unique in having a negative marginal excess burden, meaning that it would increase long-run living standards.
Adam Smith first noted the efficiency and distributional properties of a land value tax in The Wealth of Nations
Benjamin Franklin and Winston Churchill made similar distributional and efficiency arguments for taxing land rents. They noted that the costs of taxes and the benefits of public spending always eventually apply to and enrich the owners of land. Therefore, they believed it would be best to defray public costs and recapture value of public spending by applying public charges directly to owners of land titles, rather than harming public welfare with taxes assessed against beneficial activities such as trade and labor.
Henry George wrote that his plan for a high land value tax would cause people "to contribute to the public, not in proportion to what they produce ... but in proportion to the value of natural [common] opportunities that they hold [monopolize]". He went on to explain that "by taking for public use that value which attaches to land by reason of the growth and improvement of the community", it would, "make the holding of land unprofitable to the mere owner, and profitable only to the user".
A high land value tax would discourage speculators from holding valuable natural opportunities (like urban real estate) unused or only partially used. Henry George claimed this would have many benefits, including the reduction or elimination of tax burdens from poorer neighborhoods and agricultural districts; the elimination of a multiplicity of taxes and expensive obsolete government institutions; the elimination of corruption, fraud, and evasion with respect to the collection of taxes; the enablement of true free trade; the destruction of monopolies; the elevation of wages to the full value of labor; the transformation of labor-saving inventions into blessings for all; and the equitable distribution of comfort, leisure, and other advantages that are made possible by an advancing civilization. In this way, the vulnerability that market economies have to credit bubbles and property manias would be reduced.
Sources of economic rent and related policy interventions
Income flow resulting from payments for restricted access to natural opportunities or for contrived privileges over geographic regions is termed economic rent. Georgists argue that economic rent of land, legal privileges, and natural monopolies should accrue to the community, rather than private owners. In economics, "land" is everything that exists in nature independent of human activity. George explicitly included climate, soil, waterways, mineral deposits, laws/forces of nature, public ways, forests, oceans, air, and solar energy in the category of land.George, Henry (1905). Protection or Free Trade While the philosophy of Georgism does not say anything definitive about specific policy interventions needed to address problems posed by various sources of economic rent, the common goal among modern Georgists is to capture and share (or reduce) rent from all sources of natural monopoly and legal privilege.
Henry George shared the goal of modern Georgists to socialize or dismantle rent from all forms of land monopoly and legal privilege. However, George emphasized mainly his preferred policy known as land value tax, which targeted a particular form of unearned income known as ground rent. George emphasized ground-rent because basic locations were more valuable than other monopolies and everybody needed locations to survive, which he contrasted with the less significant streetcar and telegraph monopolies, which George also criticized. George likened the problem to a laborer traveling home who is waylaid by a series of highway robbers along the way, each who demand a small portion of the traveler's wages, and finally at the very end of the road waits a robber who demands all that the traveler has left. George reasoned that it made little difference to challenge the series of small robbers when the final robber remained to demand all that the common laborer had left. George predicted that over time technological advancements would increase the frequency and importance of lesser monopolies, yet he expected that ground rent would remain dominant. George even predicted that ground-rents would rise faster than wages and income to capital, a prediction that modern analysis has shown to be plausible, since the supply of land is fixed.