Georgist System is Prudential

Foldvary makes a good case for a Georgist land system. Going to the general principles, land is not a product of man, but of nature, and common ownership seems to be the best way of accruing general benefits while allowing for individual entrepreneurial successes. The concept of a land value tax adequately accomplishes this, as it socialises rent and puts it under democratic control via decentralised governance. However, this should realistically coincide with government decentralisation and dismantlement, as well as work with counter-economic institutions, such as by becoming an alternative funding source in resilient communities that eventually spreads out due inherent efficiencies. (by the blog author)

by Fred E. Foldvary

Georgist System is Prudential

Kevin claims that I deny occupancy and use is relevant to legitimate appropriation. Kevin states that the choice of rules regarding the ownership of land “is a prudential matter.” However, if one believes that there exists a universal morality, an ethic that transcends culture and is a moral imperative for all humanity, then this universal ethic would indeed apply first principles to property in land as it does to the property in one’s body and life.

Otherwise, this natural moral law, or universal ethic, would prescribe that the ownership of land and its rent is a prudential matter. Would that proposition apply also to the ownership of persons, so that the ownership of other human beings, as slaves, is a prudential matter — perhaps a matter of efficiency rather than of inherent equity? I am confident that Kevin would reject the morality of prudential slavery.

Then why would the ownership of natural resources be prudential when the self-ownership of personhood is based on first principles? As Georgists point out, land is necessary for life, and when land ownership is monopolized by a few, they in effect enslave the rest.

In fact, Georgist policy is efficient (hence prudential) as well as equitable, as the payment of community rent promotes an efficient use of land while avoiding the imposition of a deadweight loss. It also provides payment by the title holder for the value generated by the community’s civic goods.

Georgism does not hold the possession of underused land as immoral, because in Georgist ethics, justice is satisfied when the title holder or the tenant pays the community rent. The rent properly belongs to the people, and the title holder has proper rights of possession so long as he pays the rent to the owners. If the title holder chooses to keep the land idle, he is at least compensating the community for his exclusive possession. The title holder is not harming others, because he has paid compensation. Paying a rent that is based on the highest and best use of the land would tend to put land to that best use is a prudential benefit.

It is possible that a few land holders would possess most of the land and hold much of it out of use, even when they pay out all the rent, but it is not clear why this would be likely. In today’s world, big landowners are highly subsidized. Corporate farms receive subsidies and protection from foreign competition (e.g., import quotas), financial firms get bailed out when in trouble, and, aside from such corporate welfare, government provides the enormous implicit subsidy of higher land value due to its public goods paid for by taxes on workers and produced goods.

Remove the subsidy and have the land holders pay rent, and it is unclear why they would suffer the losses from underused land. Of course today the landlords, employers, and corporate producers and retailers have the upper-hand and offer contracts of adhesion. But when rent is distributed equally, then a major source of inequality is eliminated, and with the purchase price of land driven close to zero by the community collection of the rent, the exploitation of tenants would not be feasible if people could acquire land at low cost.

The insecurity of possession is indeed a problem. Today, for example, governments at all levels may use civil asset forfeiture to confiscate real estate on the mere suspicion of the property being involved in a crime, usually related to drugs. The requirement to pay rent can push a tenant out if he loses his habitual income, but that also applies to tenants renting from landlords. If land-value taxation became the prevailing practice, there would be a demand for security, and the market would respond with a supply, namely insurance. A tenant would be able to buy insurance against a loss of income or against a sudden large increase in the rent. Insurance trades known payments in exchange for a reduction in uncertainty.

But too much security of possession would defeat the prudential efficiency of Georgist policy. If all places are absolutely secure, then the efficient use of land gets defeated. Thus, society should accept some insecurity in exchange for the flexibility that enables the best use of land. The greater goal is to have some roof, somewhere, not necessarily a particular roof. Moreover, in the full employment envisioned by Georgists, due to the elimination of barriers to employment and self-employment, the typical worker would have the wage, plus a share of the rent, that enables him to have a dwelling.

Very few people in developed economies today wish to be outside the cash nexus, but for those who do, arrangements could be made to pay rent in kind or rebate the rent back. It is not good policy to let a tiny minority prevent good governance for the rest.

Some Georgists have proposed a homestead exemption, but that puts landowners at an advantage relative to renters. The better remedy is a basic income, as each person receives a cash dividend from the rent. The basic income would enable those with low wages to afford to pay for one’s dwelling.

Land rent arises from natural features, from population and commerce, and from the provision of public goods. Ideally, the rent from natural resources, including the extraction of oil and minerals, should be distributed to all human beings. The rent from commerce and population is best distributed locally, and the rent from public goods would be paid by the providers, such as a local government. These are the “relevant communities” I mentioned.

Kevin seeks a direct link between the use of roads and the cost of providing them. Presumably private enterprise seeks to provide services efficiently, so we can examine what hotels and shopping centers do. The hotel and shopping mall offer vertical transit — elevators and escalators — at no user charge. The elevator user has a tiny marginal cost (of electricity), close to zero. The hotel efficiently practices marginal-cost pricing by making the elevator free. The presence of the elevators makes the rooms in upper floots more attractive; thus, the elevator generates a higher room rental. The elevator cost is efficiently paid from the room charge. The entrepreneur who builds the hotel compares the cost of elevators with the expected greater rental from having one more elevator. That creates the link between the use of elevators and their cost. A city providing public transit could do the same: Previse free transit, other than congestion charges, and pay for the transit from the higher city rentals generated by the transit. The same applies to roads: The provider compares the cost of the road to the greater rentals generated by the road. If the rentals are not more than the cost, the road is not built. However, if tolls can pay for a road, there is no objection from Georgists, and heavy trucks should also pay a fee to compensate for the damage they cause.

I agree that civil society has become atomized. Both the Georgist reform and the occupancy system favored by Kevin would be more feasible with a radically decentralized governance. We can bring back the village by replacing mass democracy with small-group voting for neighborhood councils, in a bottom-up structure. The enforcement issue is an institutional matter that can vary. Of course in panarchy, many types of social structures would co-exist, including communal and Georgist communities. But the issue here, for me, is the justice of the land tenure system as a whole.


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