Paying the Wrong Party

Henry George: The Condition of Labor — An Open Letter to Pope Leo XIII in response to Rerum Novarum (1891)

Your use, in so many passages of your Encyclical, of the inclusive term “property” or “private” property, of which in morals nothing can be either affirmed or denied, makes your meaning, if we take isolated sentences, in many places ambiguous. But reading it as a whole, there can be no doubt of your intention that private property in land shall be understood when you speak merely of private property. With this interpretation, I find that the reasons you urge for private property in land are eight. Let us consider them in order of presentation. You urge:

1. That what is bought with rightful property is rightful property. (RN, paragraph 5) ...
2. That private property in land proceeds from man’s gift of reason. (RN, paragraphs 6-7.) ...
3. That private property in land deprives no one of the use of land. (RN, paragraph 8.) ...
4. That Industry expended on land gives ownership in the land itself. (RN, paragraphs 9-10.) ...
5. That private property in land has the support of the common opinion of mankind, and has conduced to peace and tranquillity, and that it is sanctioned by Divine Law. (RN, paragraph 11.) ...
6. That fathers should provide for their children and that private property in land is necessary to enable them to do so. (RN, paragraphs 14-17.) ...
7. That the private ownership of land stimulates industry, increases wealth, and attaches men to the soil and to their country. (RN, paragraph 51.) ...
8. That the right to possess private property in land is from nature, not from man; that the state has no right to abolish it, and that to take the value of landownership in taxation would be unjust and cruel to the private owner. (RN, paragraph 51.) ...

4. That Industry expended on land gives ownership in the land itself. (9-10.)

Your Holiness next contends that industry expended on land gives a right to ownership of the land, and that the improvement of land creates benefits indistinguishable and inseparable from the land itself.

This contention, if valid, could only justify the ownership of land by those who expend industry on it. It would not justify private property in land as it exists. On the contrary, it would justify a gigantic no-rent declaration that would take land from those who now legally own it, the landlords, and turn it over to the tenants and laborers. And if it also be that improvements cannot be distinguished and separated from the land itself, how could the landlords claim consideration even for improvements they had made?

But your Holiness cannot mean what your words imply. What you really mean, I take it, is that the original justification and title of landownership is in the expenditure of labor on it. But neither can this justify private property in land as it exists. For is it not all but universally true that existing land titles do not come from use, but from force or fraud?

Take Italy! Is it not true that the greater part of the land of Italy is held by those who so far from ever having expended industry on it have been mere appropriators of the industry of those who have? Is this not also true of Great Britain and of other countries? Even in the United States, where the forces of concentration have not yet had time fully to operate and there has been some attempt to give land to users, it is probably true today that the greater part of the land is held by those who neither use it nor propose to use it themselves, but merely hold it to compel others to pay them for permission to use it.

And if industry give ownership to land what are the limits of this ownership? If a man may acquire the ownership of several square miles of land by grazing sheep on it, does this give to him and his heirs the ownership of the same land when it is found to contain rich mines, or when by the growth of population and the progress of society it is needed for farming, for gardening, for the close occupation of a great city? Is it on the rights given by the industry of those who first used it for grazing cows or growing potatoes that you would found the title to the land now covered by the city of New York and having a value of thousands of millions of dollars?

But your contention is not valid. Industry expended on land gives ownership in the fruits of that industry, but not in the land itself, just as industry expended on the ocean would give a right of ownership to the fish taken by it, but not a right of ownership in the ocean. Nor yet is it true that private ownership of land is necessary to secure the fruits of labor on land; nor does the improvement of land create benefits indistinguishable and inseparable from the land itself. That secure possession is necessary to the use and improvement of land I have already explained, but that ownership is not necessary is shown by the fact that in all civilized countries land owned by one person is cultivated and improved by other persons. Most of the cultivated land in the British Islands, as in Italy and other countries, is cultivated not by owners but by tenants. And so the costliest buildings are erected by those who are not owners of the land, but who have from the owner a mere right of possession for a time on condition of certain payments. Nearly the whole of London has been built in this way, and in New York, Chicago, Denver, San Francisco, Sydney and Melbourne, as well as in continental cities, the owners of many of the largest edifices will be found to be different persons from the owners of the ground. So far from the value of improvements being inseparable from the value of land, it is in individual transactions constantly separated. For instance, one-half of the land on which the immense Grand Pacific Hotel in Chicago stands was recently separately sold, and in Ceylon it is a not infrequent occurrence for one person to own a fruit-tree and another to own the ground in which it is implanted.

There is, indeed, no improvement of land, whether it be clearing, plowing, manuring, cultivating, the digging of cellars, the opening of wells or the building of houses, that so long as its usefulness continues does not have a value clearly distinguishable from the value of the land. For land having such improvements will always sell or rent for more than similar land without them.

If, therefore, the state levy a tax equal to what the land irrespective of improvement would bring, it will take the benefits of mere ownership, but will leave the full benefits of use and improvement, which the prevailing system does not do. And since the holder, who would still in form continue to be the owner, could at any time give or sell both possession and improvements, subject to future assessment by the state on the value of the land alone, he will be perfectly free to retain or dispose of the full amount of property that the exertion of his labor or the investment of his capital has attached to or stored up in the land.

Thus, what we propose would secure, as it is impossible in any other way to secure, what you properly say is just and right — “that the results of labor should belong to him who has labored.” But private property in land — to allow the holder without adequate payment to the state to take for himself the benefit of the value that attaches to land with social growth and improvement — does take the results of labor from him who has labored, does turn over the fruits of one man’s labor to be enjoyed by another. For labor, as the active factor, is the producer of all wealth. Mere ownership produces nothing. A man might own a world, but so sure is the decree that “by the sweat of thy brow shalt thou eat bread,” that without labor he could not get a meal or provide himself a garment. Hence, when the owners of land, by virtue of their ownership and without laboring themselves, get the products of labor in abundance, these things must come from the labor of others, must be the fruits of others’ sweat, taken from those who have a right to them and enjoyed by those who have no right to them.

The only utility of private ownership of land as distinguished from possession is the evil utility of giving to the owner products of labor he does not earn. For until land will yield to its owner some return beyond that of the labor and capital he expends on it — that is to say, until by sale or rental he can without expenditure of labor obtain from it products of labor, ownership amounts to no more than security of possession, and has no value. Its importance and value begin only when, either in the present or prospectively, it will yield a revenue — that is to say, will enable the owner as owner to obtain products of labor without exertion on his part, and thus to enjoy the results of others’ labor.

What largely keeps men from realizing the robbery involved in private property in land is that in the most striking cases the robbery is not of individuals, but of the community. For, as I have before explained, it is impossible for rent in the economic sense — that value which attaches to land by reason of social growth and improvement — to go to the user. It can go only to the owner or to the community. Thus those who pay enormous rents for the use of land in such centers as London or New York are not individually injured. Individually they get a return for what they pay, and must feel that they have no better right to the use of such peculiarly advantageous localities without paying for it than have thousands of others. And so, not thinking or not caring for the interests of the community, they make no objection to the system.

It recently came to light in New York that a man having no title whatever had been for years collecting rents on a piece of land that the growth of the city had made very valuable. Those who paid these rents had never stopped to ask whether he had any right to them. They felt that they had no right to land that so many others would like to have, without paying for it, and did not think of, or did not care for, the rights of all. ... read the whole letter

Louis Post: Outlines of Louis F. Post's Lectures, with Illustrative Notes and Charts (1894)

II. THE SINGLE TAX AS A FISCAL REFORM

1. DIRECT AND INDIRECT TAXATION

Taxes are either direct or indirect; or, as they have been aptly described, "straight" or "crooked." Indirect taxes are those that may be shifted by the first payer from himself to others; direct taxes are those that cannot be shifted.5

5. "Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another." — John Stuart Mill's Prin. of Pol. Ec., book v, ch. iii, sec. I.

"Direct taxes are those which are levied on the very persons who it is intended or desired should pay them, and which they cannot put off upon others by raising the prices of the taxed article.. . . Indirect taxes on the other hand are those which are levied on persons who expect to get back the amount of the tax by raising the price of the taxed article." — Laughlin's Elements, par. 249.

Taxes are direct "when the payment is made by the person who is intended to bear the sacrifice." Indirect taxes are recovered from final purchasers. — Jevons's Primer, sec. 96.

"Indirect taxes are so called because they are not paid into the treasury by the person who really bears the burden. The payer adds the amount of the tax to the price of the commodity taxed, and thus the taxation is concealed under the increased price of some article of luxury or convenience." — Thompson's Pol. Ec., sec. 175.

The shifting of indirect taxes is accomplished by means of their tendency to increase the prices of commodities on which they fall. Their magnitude and incidence 6 are thereby disguised. It was for this reason that a great French economist of the last century denounced them as "a scheme for so plucking geese as to get the most feathers with the least squawking."7

6. Jevons defines the incidence of a tax as "the manner in which it falls upon different classes of the population." — Jevons's Primer, sec. 96.
Sometimes called "repercussion," and refers "to the real as opposed to the nominal payment of taxes." — Ely's Taxation, p. 64.

7. Though his language was blunt, the sentiment does not essentially differ from that of "statesmen" of our day who meet all the moral and economic objections to indirect taxation with the one reply that the people would not consent to pay enough or the support of government if public revenues were collected from them directly. This means nothing but that the people are actually hoodwinked by indirect taxation into sustaining a government that they would not support if they knew it was maintained at their expense; and instead of being a reason for continuing indirect taxation, would, if true, be one of the strongest of reasons for abolishing it. It is consistent neither with the plainest principles of democracy nor the simplest conceptions of morality.

Indirect taxation costs the real tax-payers much more than the government receives, partly because the middlemen through whose hands taxed commodities pass are able to exact compound profits upon the tax,8 and partly on account of extraordinary expenses of original collection;9 it favors corruption in government by concealing from the people the fact that they contribute to the support of government; and it tends, by obstructing production, to crush legitimate industry and establish monopolies.10 The questions it raises are of vastly more concern than is indicated by the sum total of public expenditures.

8. A tax upon shoes, paid in the first instance by shoe manufacturers, enters into manufacturers' prices, and, together with the usual rate of profit upon that amount of investment, is recovered from wholesalers. The tax and the manufacturers' profit upon it then constitute part of the wholesale price and are collected from retailers. The retailers in turn collect the tax with all intermediate profits upon it, together with their :usual rate of profit upon the whole, from final purchasers -- the consumers of shoes. Thus what appears on the surface to be a tax upon shoe manufacturers proves upon examination to be an indirect tax upon shoe consumers, who pay in an accumulation of profits upon the tax considerably more than the government receives.

The effect would be the same if a tax upon their leather output were imposed upon tanners. Tanners would add to the price of leather the amount of the tax, plus their usual rate of profit upon a like investment, and collect the whole, together with the cost of hides, of transportation, of tanning and of selling, from shoe manufacturers, who would collect with their profit from retailers, who would collect with their profit from shoe consumers. The principle applies also when taxes are levied upon the stock or the sales of merchants, or the money or credits of bankers; merchants add the tax with the usual profit to the prices of their goods, and bankers add it to their interest and discounts.

For example; a tax of $100,000 upon the output of manufacturers or importers would, at 10 per cent as the manufacturing profit, cost wholesalers $110,000; at a profit of 10 per cent to wholesalers it would cost retailers $121,000, and at 20 percent profit to retailers it would finally impose a tax burden of $145,200 — being 45 per cent more than the government would get. Upon most commodities the number of profits exceeds three, so that indirect taxes may frequently cost as much as 100 per cent, even when imposed only upon what are commercially known as finished goods; when imposed upon materials also, the cost of collection might well run far above 200 percent in addition to the first cost of maintaining the machinery of taxation.

It must not be supposed, however, that the recovery of indirect taxes from the ultimate consumers of taxed goods is arbitrary. When shoe manufacturers, or tanners, or merchants add taxes to prices, or bankers add them to interest, it is not because they might do otherwise but choose to do this; it is because the exigencies of trade compel them. Manufacturers, merchants, and other tradesmen who carry on competitive businesses must on the average sell their goods at cost plus the ordinary rate of profit, or go out of business. It follows that any increase in cost of production tends to increase the price of products. Now, a tax upon the output of business men, which they must pay as a condition of doing their business, is as truly part of the cost of their output as is the price of the materials they buy or the wages of the men they hire. Therefore, such a tax upon business men tends to increase the price of their products. And this tendency is more or less marked as the tax is more or less great and competition more or less keen.

It is true that a moderate tax upon monopolized products, such as trade-mark goods, proprietary medicines, patented articles and copyright publications is not necessarily shifted to consumers. The monopoly manufacturer whose prices are not checked by cost of production, and are therefore as a rule higher than competitive prices would be, may find it more profitable to bear the burden of a tax that leaves him some profit, by preserving his entire custom, than to drive off part of his custom by adding the tax to his usual prices. This is true also of a moderate import tax to the extent it falls upon goods that are more cheaply transported from the place of production to a foreign market where the import tax is imposed than to a home market where the goods would be free of such a tax — products, for instance, of a farm in Canada near to a New York town, but far away from any Canadian town. If the tax be less than the difference in the cost of transportation the producer will bear the burden of it; otherwise he will not. The ultimate effect would be a reduction in the value of the Canadian land. Examples which may be cited in opposition to the principle that import taxes are indirect, will upon examination prove to be of the character here described. Business cannot be carried on at a loss — not for long.

9. "To collect taxes, to prevent and punish evasions, to check and countercheck revenue drawn from so many distinct sources, now make up probably three-fourths, perhaps seven-eighths, of the business of government outside of the preservation of order, the maintenance of the military arm, and the administration of justice." — Progress and Poverty, book iv, ch: v

10. For a brief and thorough exposition of indirect taxation read George's "Protection or Free Trade," ch. viii, on " Tariffs for Revenue."

Whoever calmly reflects and candidly decides upon the merits of indirect taxation must reject it in all its forms. But to do that is to make a great stride toward accepting the single tax. For the single tax is a form of direct taxation; it cannot be shifted.11

11. This is usually a stumbling block to those who, without much experience in economic thought, consider the single tax for the first time. As soon as they grasp the idea that taxes upon commodities shift to consumers they jump to the conclusion that similarly taxes upon land values would shift to the users. But this is a mistake, and the explanation is simple. Taxes upon what men produce make production more difficult and so tend toward scarcity in the supply, which stimulates prices; but taxes upon land, provided the taxes be levied in proportion to value, tend toward plenty in supply (meaning market supply of course), because they make it more difficult to hold valuable land idle, and so depress prices.

"A tax on rent falls wholly on the landlord. There are no means by which he can shift the burden upon anyone else. . . A tax on rent, therefore, has no effect other than its obvious one. It merely takes so much from the landlord and transfers it to the state." — John Stuart Mill's Prin. of Pol. Ec., book v, ch. iii, sec. 1.

"A tax laid upon rent is borne solely by the owner of land." — Bascom's Tr., p.159.

"Taxes which are levied on land . . . really fall on the owner of the land." — Mrs. Fawcett's Pol. Ec. for Beginners, pp.209, 210.

"A land tax levied in proportion to the rent of land, and varying with every variation of rents, . . . will fall wholly on the landlords." — Walker's Pol. Ec., ed. of 1887, p. 413, quoting Ricardo.

"The power of transferring a tax from the person who actually pays it to some other person varies with the object taxed. A tax on rents cannot be transferred. A tax on commodities is always transferred to the consumer." — Thorold Rogers's Pol. Ec., ch. xxi, 2d ed., p. 285.

"Though the landlord is in all cases the real contributor, the tax is commonly advanced by the tenant, to whom the landlord is obliged to allow it in payment of the rent." — Adam Smith's Wealth of Nations, book v, ch. ii, part ii, art. i.

"The way taxes raise prices is by increasing the cost of production and checking supply. But land is not a thing of human production, and taxes upon rent cannot check supply. Therefore, though a tax upon rent compels land-owners to pay more, it gives them no power to obtain more for the use of their land, as it in no way tends to reduce the supply of land. On the contrary, by compelling those who hold land on speculation to sell or let for what they can get, a tax on land values tends to increase the competition between owners, and thus to reduce the price of land." — Progress and Poverty, book viii, ch. iii, subd. i.

Sometimes this point is raised as a question of shifting the tax in higher rent to the tenant, and at others as a question of shifting it to the consumers of goods in higher prices. The principle is the same. Merchants cannot charge higher prices for goods than their competitors do, merely because they pay higher ground rents. A country storekeeper whose business lot is worth but few dollars charges as much for sugar, probably more, than a city grocer whose lot is worth thousands. Quality for quality and quantity for quantity, goods sell for about the same price everywhere. Differences in price are altogether in favor of places where land has a high value. This is due to the fact that the cost of getting goods to places of low land value, distant villages for example, is greater than to centers, which are places of high land value. Sometimes it is true that prices for some things are higher where land values are high. Tiffany's goods, for instance, may be more expensive than goods of the same quality at a store on a less expensive site. But that is not due to the higher land value; it is because the dealer has a reputation for technical knowledge and honesty (or has become a fad among rich people), for which his customers are willing to pay whether his store is on a high priced-lot or a low-priced one.

Though land value has no effect upon the price of good, it is easier to sell goods in some locations than in others. Therefore, though the price and the profit of each sale be the same, or even less, in good locations than in poorer ones, aggregate receipts and aggregate profits are much greater at the good location. And it is out of his aggregate, and not out of each profit, that rent is paid, For example: A cigar store on a thoroughfare supplies a certain quality of cigar for fifteen cents. On a side street the same quality of cigar can be bought no cheaper. Indeed, the cigars there are likely to be poorer, and therefore really dearer. Yet ground rent on the thoroughfare is very high compared with ground rent on the sidestreet. How, then, can the first dealer, he who pays the high ground rent, afford to sell as good or better cigars for fifteen cents than his competitor of the low priced location? Simply because he is able to make so many more sales with a given outlay of labor and capital in a given time that his aggregate profit is greater. This is due to the advantage of his location, and for that advantage he pays a premium in higher ground rent. But that premium is not charged to smokers; the competing dealer of the side street protects them. It represents the greater ease, the lower cost, of doing a given volume of business upon the site for which it is paid; add if the state should take any of it, even the whole of it, in taxation, the loss would be finally borne by the owner of the advantage which attaches to that site — by the landlord. Any attempt to shift it to tenant or buyer would be promptly checked by the competition of neighboring but cheaper land.

"A land-tax, levied in proportion to the rent of land, and varying with every variation of rent, is in effect a tax on rent; and as such a tax will not apply to that land which yields no rent, nor to the produce of that capital which is employed on the land with a view to profit merely, and which never pays rent; it will not in any way affect the price of raw produce, but will fall wholly on the landlords." — McCulloch's Ricardo (3d ed.), p. 207

2. THE TWO KINDS OF DIRECT TAXATION

Direct taxes fall into two general classes: (1) Taxes that are levied upon men in proportion to their ability to pay, and (2) taxes that are levied in proportion to the benefits received by the tax-payer from the public. Income taxes are the principal ones of the first class, though probate and inheritance taxes would rank high. The single tax is the only important one of the second class.

There should be no difficulty in choosing between the two. To tax in proportion to ability to pay, regardless of benefits received, is in accord with no principle of just government; it is a device of piracy. The single tax, therefore, as the only important tax in proportion to benefits, is the ideal tax.

But here we encounter two plausible objections. One arises from the mistaken but common notion that men are not taxed in proportion to benefits unless they pay taxes upon every kind of property they own that comes under the protection of government; the other is founded in the assumption that it is impossible to measure the value of the public benefits that each individual enjoys. Though the first of these objections ostensibly accepts the doctrine of taxation according to benefits,12 yet, as it leads to attempts at taxation in proportion to wealth, it, like the other, is really a plea for the piratical doctrine of taxation according to ability to pay. The two objections stand or fall together.

12. It is often said, for instance, by its advocates, that house owners should in justice contribute to the support of the fire departments that protect them and it is even gravely argued that houses are more appropriate subjects of taxation than land; because they need protection, whereas land needs none. Read note 8.

Let it once be perceived that the value of the service which government renders to each individual would be justly measured by the single tax, and neither objection would any longer have weight. We should then no more think of taxing people in proportion to their wealth or ability to pay, regardless of the benefits they receive from government than an honest merchant would think of charging his customers in proportion to their wealth or ability to pay, regardless of the value of the goods they bought of him." 13

13. Following is an interesting computation of the cost and loss to the city of Boston of the present mixed system of taxation as compared with the single tax; The computation was made by James R. Carret, Esq., the leading conveyancer of Boston:

Valuation of Boston, May 1, 1892
Land... ... . .. ... .. ... .. $399,170,175
Buildings ... ... ... ... ..$281,109,700
Total assessed value of real estate $680,279,875
Assessed value of personal estate $213,695,829
.... .... ... ... ... ... ... ... .... .... .... ... .... ... $893,975,704
Rate of taxation, $12.90 per $1000
Total tax levy, May 1, 1892 $11,805,036

Amount of taxes levied in respect of the different subjects of taxation and percentages of the same:
Land .... .... .... .... $5,149,295 43.62%
Buildings .... .... .. $3,626,295 30.72%
Personal estate .. $2,756,676 23.35%
Polls ... .... ... .... .... ...272,750   2.31%

But to ascertain the total cost to the people of Boston of the present system of taxation for the taxable year, beginning May 1, 1892, there should be added to the taxes assessed upon them what it cost them to pay the owners of the land of Boston for the use of the land, being the net ground rent, which I estimate at four per cent on the land value.

Total tax levy, May 1, 1892 ... ... ... ... .... .... .... .... .... ..... .... .... .... .... .... .... ..$11,805,036
Net ground rent, four percent, on the land value ($399,170,175)..... ... ... ...$15,966,807
Total cost of the present system to the people of Boston for that year ... $27,771,843

To contrast this with what the single tax system would have cost the people of Boston for that year, take the gross ground rent, found by adding to the net ground rent the taxation on land values for that year, being $12.90 per $1000, or 1.29 per cent added to 4 per cent = 5.29 per cent.

Total cost of present system as above .. .... .... .... .... .... .... .... .... ....$27,771,843
Single tax, or gross ground rent, 5.29 per cent on $399,170,175 ... ..$21,116,102
Excess cost of present system, which is the sum of
taxes in respect of buildings, personal property, and polls .... ...... .. $6,655,741

But the present system not only costs the people more than the single tax would, but produces less revenue:

Proceeds of single tax ... ... ... ... ..... .... .... ..... .... .... .... ..... ..... .... $21,116,102
Present tax levy ... ... ... ... ... .... .... .... ..... .... .... .... .... .... .... .... ....$11,805,036
Loss to public treasury by present system ... .... .... .... .... .. ..... ..$9,311,066

This, however, is not a complete contrast between the present system and the single tax, for large amounts of real estate are exempt from taxation, being held by the United States, the Commonwealth, by the city itself, by religious societies and corporations, and by charitable, literary, and scientific institutions. The total amount of the value of land so held as returned by the assessors for the year 1892 is $60,626,171.

Reasons can be given why all lands within the city should be assessed for taxation to secure a just distribution of the public burdens, which I cannot take the space to enter into here. There is good reason to believe also that lands in the city of Boston are assessed to quite an appreciable extent below their fair market value. As an indication of this see an editorial in the Boston Daily Advertiser for October 3, 1893, under the title, "Their Own Figures."

The vacant lands, marsh lands, and flats in Boston were valued by the assessors in 1892 (page 3 of their annual report) at $52,712,600. I believe that this represents not more than fifty per cent of their true market value.

Taking this and the undervaluation of improved property and the exemptions above mentioned into consideration, I think $500,000,000 to be a fair estimate of the land values of Boston. Making this the basis of contrast, we have:

Proceeds of single tax 5.29 per cent on $500,000,000 ... .... .... .... $26,450,000
Present tax levy ... .... ... .... .... .... .... .... ..... .... .... .... .... ..... .... .... ..$11,805,036
Loss to public treasury by present system ... ... ... ... .... .... .... ....$14,644,974

3. THE SINGLE TAX FALLS IN PROPORTION TO BENEFITS

To perceive that the single tax would justly measure the value of government service we have only to realize that the mass of individuals everywhere and now, in paying for the land they use, actually pay for government service in proportion to what they receive. He who would enjoy the benefits of a government must use land within its jurisdiction. He cannot carry land from where government is poor to where it is good; neither can he carry it from where the benefits of good government are few or enjoyed with difficulty to where they are many and fully enjoyed. He must rent or buy land where the benefits of government are available, or forego them. And unless he buys or rents where they are greatest and most available he must forego them in degree. Consequently, if he would work or live where the benefits of government are available, and does not already own land there, he will be compelled to rent or buy at a valuation which, other things being equal, will depend upon the value of the government service that the site he selects enables him to enjoy. 14 Thus does he pay for the service of government in proportion to its value to him. But he does not pay the public which provides the service; he is required to pay land-owners.

14. Land values are lower in all countries of poor government than in any country of better government, other things being equal. They are lower in cities of poor government, other things being equal, than in cities of better government. Land values are lower, for example, in Juarez, on the Mexican side of the Rio Grande, where government is bad, than in El Paso, the neighboring city on the American side, where government is better. They are lower in the same city under bad government than under improved government. When Seth Low, after a reform campaign, was elected mayor of Brooklyn, N.Y., rents advanced before he took the oath of office, upon the bare expectation that he would eradicate municipal abuses. Let the city authorities anywhere pave a street, put water through it and sewer it, or do any of these things, and lots in the neighborhood rise in value. Everywhere that the "good roads" agitation of wheel men has borne fruit in better highways, the value of adjacent land has increased. Instances of this effect as results of public improvements might be collected in abundance. Every man must be able to recall some within his own experience.

And it is perfectly reasonable that it should be so. Land and not other property must rise in value with desired improvements in government, because, while any tendency on the part of other kinds of property to rise in value is checked by greater production, land can not be reproduced.

Imagine an utterly lawless place, where life and property are constantly threatened by desperadoes. He must be either a very bold man or a very avaricious one who will build a store in such a community and stock it with goods; but suppose such a man should appear. His store costs him more than the same building would cost in a civilized community; mechanics are not plentiful in such a place, and materials are hard to get. The building is finally erected, however, and stocked. And now what about this merchant's prices for goods? Competition is weak, because there are few men who will take the chances he has taken, and he charges all that his customers will pay. A hundred per cent, five hundred per cent, perhaps one or two thousand per cent profit rewards him for his pains and risk. His goods are dear, enormously dear — dear enough to satisfy the most contemptuous enemy of cheapness; and if any one should wish to buy his store that would be dear too, for the difficulties in the way of building continue. But land is cheap! This is the type of community in which may be found that land, so often mentioned and so seldom seen, which "the owners actually can't give away, you know!"

But suppose that government improves. An efficient administration of justice rids the place of desperadoes, and life and property are safe. What about prices then? It would no longer require a bold or desperately avaricious man to engage in selling goods in that community, and competition would set in. High profits would soon come down. Goods would be cheap — as cheap as anywhere in the world, the cost of transportation considered. Builders and building materials could be had without difficulty, and stores would be cheap, too. But land would be dear! Improvement in government increases the value of that, and of that alone.

Now, the economic principle pursuant to which land-owners are thus able to charge their fellow-citizens for the common benefits of their common government points to the true method of taxation. With the exception of such other monopoly property as is analogous to land titles, and which in the purview of the single tax is included with land for purposes of taxation, 15 land is the only kind of property that is increased in value by government; and the increase of value is in proportion, other influences aside, to the public service which its possession secures to the occupant. Therefore, by taxing land in proportion to its value, and exempting all other property, kindred monopolies excepted — that is to say, by adopting the single tax — we should be levying taxes according to benefits.16

15. Railroad franchises, for example, are not usually thought of as land titles, but that is what they are. By an act of sovereign authority they confer rights of control for transportation purposes over narrow strips of land between terminals and along trading points. The value of this right of way is a land value.

16. Each occupant would pay to his landlord the value of the public benefits in the way of highways, schools, courts, police and fire protection, etc., that his site enabled him to enjoy. The landlord would pay a tax proportioned to the pecuniary benefits conferred upon him by the public in raising and maintaining the value of his holding. And if occupant and owner were the same, he would pay directly according to the value of his land for all the public benefits he enjoyed, both intangible and pecuniary.

And in no sense would this be class taxation. Indeed, the cry of class taxation is a rather impudent one for owners of valuable land to raise against the single tax, when it is considered that under existing systems of taxation they are exempt. 17 Even the poorest and the most degraded classes in the community, besides paying land-owners for such public benefits as come their way, are compelled by indirect taxation to contribute to the support of government. But landowners as a class go free. They enjoy the protection of the courts, and of police and fire departments, and they have the use of schools and the benefit of highways and other public improvements, all in common with the most favored, and upon the same specific terms; yet, though they go through the form of paying taxes, and if their holdings are of considerable value pose as "the tax-payers" on all important occasions, they, in effect and considered as a class, pay no taxes, because government, by increasing the value of their land, enables them to recover back in higher rents and higher prices more than their taxes amount to. Enjoying the same tangible benefits of government that others do, many of them as individuals and all of them as a class receive in addition a tangible pecuniary benefit which government confers upon no other property-owners. The value of their property is enhanced in proportion to the benefits of government which its occupants enjoy. To tax them alone, therefore, is not to discriminate against them; it is to charge them for what they get.18

17. While the landholders of the City of Washington were paying something less than two per cent annually in taxes, a Congressional Committee (Report of the Select Committee to Investigate Tax Assessments in the District of Columbia, composed of Messrs. Johnson, of Ohio, Chairman, Wadsworth, of New York, and Washington, of Tennessee. Made to the House of Representatives, May 24, 1892. Report No. 1469), brought out the fact that the value of their land had been increasing at a minimum rate of ten per cent per annum. The Washington land-owners as a class thus appear to have received back in higher land values, actually and potentially, about ten dollars for every two dollars that as land-owners they paid in taxes. If any one supposes that this condition is peculiar to Washington let him make similar estimates for any progressive locality, and see if the land-owners there are not favored in like manner.

But the point is not dependent upon increase in the capitalized value of land. If the land yields or will yield to its owner an income in the nature of actual or potential ground rent, then to the extent that this actual or possible income is dependent upon government the landlord is in effect exempt from taxation. No matter what tax he pays on account of his ownership of land, the public gives it back to him to that extent.

18. Take for illustration two towns, one of excellent government and the other of inefficient government, but in all other respects alike. Suppose you are hunting for a place of residence and find a suitable site in the town of good government. For simplicity of illustration let us suppose that the land there is not sold outright but is let upon ground rent. You meet the owner of the lot you have selected and ask him his terms. He replies:

"Two hundred and fifty dollars a year."

"Two hundred and fifty dollars a year!" you exclaim. "Why, I can get just as good a site in that other town for a hundred dollars a year."

"Certainly you can," he will say. "But if you build a house there and it catches fire it will burn down; they have no fire department. If you go out after dark you will be 'held up' and robbed; they have no police force. If you ride out in the spring, your carriage will stick in the mud up to the hubs, and if you walk you may break your legs and will be lucky if you don t break your neck; they have no street pavements and their sidewalks are dangerously out of repair. When the moon doesn't shine the streets are in darkness, for they have no street lights. The water you need for your house you must get from a well; there is no water supply there. Now in our town it is different. We have a splendid fire department, and the best police force in the world. Our streets are macadamized, and lighted with electricity; our sidewalks are always in first class repair; we have a water system that equals that of New York; and in every way the public benefits in this town are unsurpassed. It is the best governed town in all this region. Isn't it worth a hundred and fifty dollars a year more for a building site here than over in that poorly governed town?"

You recognize the advantages and agree to the terms. But when your house is built and the assessor visits you officially, what would be the conversation if your sense of the fitness of things were not warped by familiarity with false systems of taxation? Would it not be something like what follows?

"How much do you regard this house as worth? " asks the assessor.

"What is that to you?" you inquire.

"I am the town assessor and am about to appraise your property for taxation."

"Am I to be taxed by this town? What for?"

"What for?" echoes the assessor in surprise. "What for? Is not your house protected from fire by our magnificent fire department? Are not you protected from robbery by the best police force in the world? Do not you have the use of macadamized pavements, and good sidewalks, and electric street lights, and a first class water supply? Don't you suppose these things cost something? And don't you think you ought to pay your share?"

"Yes," you answer, with more or less calmness; "I do have the benefit of these things, and I do think that I ought to pay my share toward supporting them. But I have already paid my share for this year. I have paid it to the owner of this lot. He charges me two hundred and fifty dollars a year -- one hundred and fifty dollars more than I should pay or he could get but for those very benefits. He has collected my share of this year's expense of maintaining town improvements; you go and collect from him. If you do not, but insist upon collecting from me, I shall be paying twice for these things, once to him and once to you; and he won't be paying at all, but will be making money out of them, although he derives the same benefits from them in all other respects that I do." ...

d. Effect of Confiscating Rent to Private Use.

By giving Rent to individuals society ignores this most just law, 99 thereby creating social disorder and inviting social disease. Upon society alone, therefore, and not upon divine Providence which has provided bountifully, nor upon the disinherited poor, rests the responsibility for poverty and fear of poverty.

99. "Whatever dispute arouses the passions of men, the conflict is sure to rage, not so much as to the question 'Is it wise?' as to the question 'Is it right?'

"This tendency of popular discussions to take an ethical form has a cause. It springs from a law of the human mind; it rests upon a vague and instinctive recognition of what is probably the deepest truth we can grasp. That alone is wise which is just; that alone is enduring which is right. In the narrow scale of individual actions and individual life this truth may be often obscured, but in the wider field of national life it everywhere stands out.

"I bow to this arbitrament, and accept this test." — Progress and Poverty, book vii, ch. i.

The reader who has been deceived into believing that Mr. George's proposition is in any respect unjust, will find profit in a perusal of the entire chapter from which the foregoing extract is taken.

Let us try to trace the connection by means of a chart, beginning with the white spaces on page 68. As before, the first-comers take possession of the best land. But instead of leaving for others what they do not themselves need for use, as in the previous illustrations, they appropriate the whole space, using only part, but claiming ownership of the rest. We may distinguish the used part with red color, and that which is appropriated without use with blue. Thus: [chart]

But what motive is there for appropriating more of the space than is used? Simply that the appropriators may secure the pecuniary benefit of future social growth. What will enable them to secure that? Our system of confiscating Rent from the community that earns it, and giving it to land-owners who, as such, earn nothing.100

100. It is reported from Iowa that a few years ago a workman in that State saw a meteorite fall, and. securing possession of it after much digging, he was offered $105 by a college for his "find." But the owner of the land on which the meteorite fell claimed the money, and the two went to law about it. After an appeal to the highest court of the State, it was finally decided that neither by right of discovery, nor by right of labor, could the workman have the money, because the title to the meteorite was in the man who owned the land upon which it fell.

Observe the effect now upon Rent and Wages. When other men come, instead of finding half of the best land still common and free, as in the corresponding chart on page 68, they find all of it owned, and are obliged either to go upon poorer land or to buy or rent from owners of the best. How much will they pay for the best? Not more than 1, if they want it for use and not to hold for a higher price in the future, for that represents the full difference between its productiveness and the productiveness of the next best. But if the first-comers, reasoning that the next best land will soon be scarce and theirs will then rise in value, refuse to sell or to rent at that valuation, the newcomers must resort to land of the second grade, though the best be as yet only partly used. Consequently land of the first grade commands Rent before it otherwise would.

As the sellers' price, under these circumstances, is arbitrary it cannot be stated in the chart; but the buyers' price is limited by the superiority of the best land over that which can be had for nothing, and the chart may be made to show it: [chart]

And now, owing to the success of the appropriators of the best land in securing more than their fellows for the same expenditure of labor force, a rush is made for unappropriated land. It is not to use it that it is wanted, but to enable its appropriators to put Rent into their own pockets as soon as growing demand for land makes it valuable.101 We may, for illustration, suppose that all the remainder of the second space and the whole of the third are thus appropriated, and note the effect: [chart]

At this point Rent does not increase nor Wages fall, because there is no increased demand for land for use. The holding of inferior land for higher prices, when demand for use is at a standstill, is like owning lots in the moon — entertaining, perhaps, but not profitable. But let more land be needed for use, and matters promptly assume a different appearance. The new labor must either go to the space that yields but 1, or buy or rent from owners of better grades, or hire out. The effect would be the same in any case. Nobody for the given expenditure of labor force would get more than 1; the surplus of products would go to landowners as Rent, either directly in rent payments, or indirectly through lower Wages. Thus: [chart]

101. The text speaks of Rent only as a periodical or continuous payment — what would be called "ground rent." But actual or potential Rent may always be, and frequently is, capitalized for the purpose of selling the right to enjoy it, and it is to selling value that we usually refer when dealing in land.

Land which has the power of yielding Rent to its owner will have a selling value, whether it be used or not, and whether Rent is actually derived from it or not. This selling value will be the capitalization of its present or prospective power of producing Rent. In fact, much the larger proportion of laud that has a selling value is wholly or partly unused, producing no Rent at all, or less than it would if fully used. This condition is expressed in the chart by the blue color.

"The capitalized value of land is the actuarial 'discounted' value of all the net incomes which it is likely to afford, allowance being made on the one hand for all incidental expenses, including those of collecting the rents, and on the other for its mineral wealth, its capabilities of development for any kind of business, and its advantages, material, social, and aesthetic, for the purposes of residence." — Marshall's Prin., book vi, ch. ix, sec. 9.

"The value of land is commonly expressed as a certain number of times the current money rental, or in other words, a certain 'number of years' purchase' of that rental; and other things being equal, it will be the higher the more important these direct gratifications are, as well as the greater the chance that they and the money income afforded by the land will rise." — Id., note.

"Value . . . means not utility, not any quality inhering in the thing itself, but a quality which gives to the possession of a thing the power of obtaining other things, in return for it or for its use. . . Value in this sense — the usual sense — is purely relative. It exists from and is measured by the power of obtaining things for things by exchanging them. . . Utility is necessary to value, for nothing can be valuable unless it has the quality of gratifying some physical or mental desire of man, though it be but a fancy or whim. But utility of itself does not give value. . . If we ask ourselves the reason of . . . variations in . . . value . . . we see that things having some form of utility or desirability, are valuable or not valuable, as they are hard or easy to get. And if we ask further, we may see that with most of the things that have value this difficulty or ease of getting them, which determines value, depends on the amount of labor which must be expended in producing them ; i.e., bringing them into the place, form and condition in which they are desired. . . Value is simply an expression of the labor required for the production of such a thing. But there are some things as to which this is not so clear. Land is not produced by labor, yet land, irrespective of any improvements that labor has made on it, often has value. . . Yet a little examination will show that such facts are but exemplifications of the general principle, just as the rise of a balloon and the fall of a stone both exemplify the universal law of gravitation. . . The value of everything produced by labor, from a pound of chalk or a paper of pins to the elaborate structure and appurtenances of a first-class ocean steamer, is resolvable on analysis into an equivalent of the labor required to produce such a thing in form and place; while the value of things not produced by labor, but nevertheless susceptible of ownership, is in the same way resolvable into an equivalent of the labor which the ownership of such a thing enables the owner to obtain or save." — Perplexed Philosopher, ch. v.

The figure 1 in parenthesis, as an item of Rent, indicates potential Rent. Labor would give that much for the privilege of using the space, but the owners hold out for better terms; therefore neither Rent nor Wages is actually produced, though but for this both might be.

In this chart, notwithstanding that but little space is used, indicated with red, Wages are reduced to the same low point by the mere appropriation of space, indicated with blue, that they would reach if all the space above the poorest were fully used. It thereby appears that under a system which confiscates Rent to private uses, the demand for land for speculative purposes becomes so great that Wages fall to a minimum long before they would if land were appropriated only for use.

In illustrating the effect of confiscating Rent to private use we have as yet ignored the element of social growth. Let us now assume as before (page 73), that social growth increases the productive power of the given expenditure of labor force to 100 when applied to the best land, 50 when applied to the next best, 10 to the next, 3 to the next, and 1 to the poorest. Labor would not be benefited now, as it appeared to be when on page 73 we illustrated the appropriation of land for use only, although much less land is actually used. The prizes which expectation of future social growth dangles before men as the rewards of owning land, would raise demand so as to make it more than ever difficult to get land. All of the fourth grade would be taken up in expectation of future demand; and "surplus labor" would be crowded out to the open space that originally yielded nothing, but which in consequence of increased labor power now yields as much as the poorest closed space originally yielded, namely, 1 to the given expenditure of labor force.102 Wages would then be reduced to the present productiveness of the open space. Thus: [chart]

102. The paradise to which the youth of our country have so long been directed in the advice, "Go West, young man, go West," is truthfully described in "Progress and Poverty," book iv, ch. iv, as follows :

"The man who sets out from the eastern seaboard in search of the margin of cultivation, where he may obtain land without paying rent, must, like the man who swam the river to get a drink, pass for long distances through half-titled farms, and traverse vast areas of virgin soil, before he reaches the point where land can be had free of rent — i.e., by homestead entry or preemption."

If we assume that 1 for the given expenditure of labor force is the least that labor can take while exerting the same force, the downward movement of Wages will be here held in equilibrium. They cannot fall below 1; but neither can they rise above it, no matter how much productive power may increase, so long as it pays to hold land for higher values. Some laborers would continually be pushed back to land which increased productive power would have brought up in productiveness from 0 to 1, and by perpetual competition for work would so regulate the labor market that the given expenditure of labor force, however much it produced, could nowhere secure more than 1 in Wages.103 And this tendency would persist until some labor was forced upon land which, despite increase in productive power, would not yield the accustomed living without increase of labor force. Competition for work would then compel all laborers to increase their expenditure of labor force, and to do it over and over again as progress went on and lower and lower grades of land were monopolized, until human endurance could go no further.104 Either that, or they would be obliged to adapt themselves to a lower scale of living.105

103. Henry Fawcett, in his work on "Political Economy," book ii, ch. iii, observes with reference to improvements in agricultural implements which diminish the expense of cultivation, that they do not increase the profits of the farmer or the wages of his laborers, but that "the landlord will receive in addition to the rent already paid to him, all that is saved in the expense of cultivation." This is true not alone of improvements in agriculture, but also of improvements in all other branches of industry.

104. "The cause which limits speculation in commodities, the tendency of increasing price to draw forth additional supplies, cannot limit the speculative advance in land values, as land is a fixed quantity, which human agency can neither increase nor diminish; but there is nevertheless a limit to the price of land, in the minimum required by labor and capital as the condition of engaging in production. If it were possible to continuously reduce wages until zero were reached, it would be possible to continuously increase rent until it swallowed up the whole produce. But as wages cannot be permanently reduced below the point at which laborers will consent to work and reproduce, nor interest below the point at which capital will be devoted to production, there is a limit which restrains the speculative advance of rent. Hence, speculation cannot have the same scope to advance rent in countries where wages and interest are already near the minimum, as in countries where they are considerably above it. Yet that there is in all progressive countries a constant tendency in the speculative advance of rent to overpass the limit where production would cease, is, I think, shown by recurring seasons of industrial paralysis." — Progress and Poverty, book iv, ch. iv.

105. As Puck once put it, "the man who makes two blades of grass to grow where but one grew before, must not be surprised when ordered to 'keep off the grass.' "

They in fact do both, and the incidental disturbances of general readjustment are what we call "hard times." 106 These culminate in forcing unused land into the market, thereby reducing Rent and reviving industry. Thus increase of labor force, a lowering of the scale of living, and depression of Rent, co-operate to bring on what we call "good times." But no sooner do "good times" return than renewed demands for land set in, Rent rises again, Wages fall again, and "hard times" duly reappear. The end of every period of "hard times" finds Rent higher and Wages lower than at the end of the previous period.107

106. "That a speculative advance in rent or land values invariably precedes each of these seasons of industrial depression is everywhere clear. That they bear to each other the relation of cause and effect, is obvious to whoever considers the necessary relation between land and labor." — Progress and Poverty, book v, ch. i.

107. What are called "good times" reach a point at which an upward land market sets in. From that point there is a downward tendency of wages (or a rise in the cost of living, which is the same thing) in all departments of labor and with all grades of laborers. This tendency continues until the fictitious values of land give way. So long as the tendency is felt only by that class which is hired for wages, it is poverty merely; when the same tendency is felt by the class of labor that is distinguished as "the business interests of the country," it is "hard times." And "hard times" are periodical because land values, by falling, allow "good times " to set it, and by rising with "good times" bring "hard times" on again. The effect of "hard times" may be overcome, without much, if any, fall in land values, by sufficient increase in productive power to overtake the fictitious value of land.

The dishonest and disorderly system under which society confiscates Rent from common to individual uses, produces this result. That maladjustment is the fundamental cause of poverty. And progress, so long as the maladjustment continues, instead of tending to remove poverty as naturally it should, actually generates and intensifies it. Poverty persists with increase of productive power because land values, when Rent is privately appropriated, tend to even greater increase. There can be but one outcome if this continues: for individuals suffering and degradation, and for society destruction.

Q22. What difference would it make to tenants whether they paid land rent to the community or to private owners?
A. When they pay it to the community they are paying it in part to themselves, and what others pay they share in; for they are part of the community. They are also exempt from taxes. And since there would be no inducement to speculate in land if rent went to the community, land would be more plentiful and rents would consequently be lower. ... read the book

Charles B. Fillebrown: A Catechism of Natural Taxation, from Principles of Natural Taxation (1917)

Q28. How are landlords privileged?
A. Because, in so far as their land tax is an "old" tax, it is a burdenless tax, and because their buildings' tax is shifted upon their tenants; most landlords who let land and also the tenement houses and business blocks thereon avoid all share in the tax burden.

Q51. Does not a land tax increase house rent or store rent?
A. The landlord, as a rule, exacts the full ground rent for the use of his land. Neither by taking three dollars nor $30 per thousand in taxation can land to be made worth any more for use.

Q55. How would the single tax effect the tenant?
A. It would neither increase nor decrease his land rent. It would reduce his house rent by the amount of the house tax. ... read the whole article

Peter Barnes: Capitalism 3.0 — Chapter 1: Time to Upgrade (pages 3-14)

More than a century ago, English economist John Ruskin observed that the same economic system that creates glittering wealth also spawns what he called illth — poverty, pollution, despair, illness. It makes life comfortable for some, but does so at considerable discomfort to others.

Modern economists’ term for illth is negative externalities. By this they mean the costs of economic transactions that are “external” to the parties involved. The classic example is a factory that dumps effluent into a river. Unlike homeowners who pay for garbage pickup, the factory’s owners pay nothing for disposing their waste into the river. But humans and other creatures living downstream do pay a cost. Plants and animals suffer and die, while cities have to build expensive treatment plants. From the standpoint of the factory owner, none of this matters. But from the standpoints of nature and society, these are negative externalities. (There can, sometimes, be positive externalities — for example, if your neighbor repaints her house, that may increase the value of yours.)

For a long time, economists assured us that the wealth spewed out by our economic machine was so great, and the illth so trivial, that we didn’t need to worry about negative externalities. If this was ever true, it’s assuredly true no longer. Contemporary climate change is, quintessentially, a problem of negative externalities. We pay owners of land beneath which fossil fuels lie. We pay drillers, refiners, transporters, and retailers. But we don’t pay nature, or anyone else, for dumping heat-trapping gases into the atmosphere. We shift this cost to our children, and take a free ride. We party, they pay. ... read the whole chapter