Murray Rothbard on Georgism: Part 2

A Reply to Georgist Criticisms

[This article was written to clarify points made in
"The Single Tax: Economic and Moral
Implications" (reprinted here as Volume II, Chapter
19), and distributed by the Foundation for
Economic Education, Irvington-on-Hudson, New
York, July 1957.]

Overall, it seems that one of the main Georgist
fallacies is a confusion of economic and moral
arguments for their program. Both types of
arguments have their place, we can all agree, but the
Georgists persist in using moral arguments in places
where technical economic arguments are called for.
In the strictly economic sense, land is not a unique
asset in two main ways: (1) in the nature of "rent"
and (2) in its being capitalized on the market.

Rent, as Frank A. Fetter brilliantly pointed out, is
the hire-price of a unit of a durable asset. (We might
even go further and say that rent is any unit-price of
a good.) The selling-price of an asset on the market
will be the capitalized value of its expected future
rents: the capitalization to take place at the going
rate of interest. The rate of interest is the price of
"time," and hence future earnings are discounted
back to the present at this rate. A piece of land sells
now at the discounted sum of its future rents.
Similarly, any asset will sell at the capitalized value
of its future earnings; and where these earnings
accrue from hiring out, the rent selling-price
relation will be the same. If Rembrandts are
habitually rented out to museums, they will earn,
say, per monthly rents; tuxedos will earn nightly
rents, and so on. Admittedly, land differs from
improvable capital because land is not replaceable,
and therefore land earns ultimate rents. Or, to
phrase it differently, a machine may earn rents
(usually in self-imputed earnings, but sometimes as
being "hired out") but they are gross rents, since it
in turn must be produced by land and labor. Over
the whole economy, then, the prices of capital
goods are imputed backward to land and labor, until
finally, the net incomes are earned by: land, time,
labor (including entrepreneurship). However, land
is also capitalized on the market and any increase in
its prospective earnings raises its capital value.
Hence, land's net rents are also capitalized, and we
have as ultimate net incomes only: labor (earning
wages), time (earning interest) and profits (for
entrepreneurial foresight) minus losses (for poor
entrepreneurial judgment).

Rembrandts are similar to land because both are
fixed in quantity (Rembrandts even more so) and
because the same question arises as to markets and
productivity. In short, does the Georgist believe that
the rental value of Rembrandts (assume that all
Rembrandts are rented out to museums) will
continue to be the same, because the "market" will
take care of things, even if the rental earnings from
Rembrandts are taxed 100 percent? The Georgist
has a curious conception of the market; he considers
that the market is independent of the actions of an
important part of its constituent individuals: the
suppliers. On the contrary, there is no entity
"market" which will take care of finding correct
rents. If the shell of ownership is left and its
contents confiscated by the State, there will be no
incentive for owners (whether of land or
Rembrandts) to allocate the assets to the highest
bidders and most productive uses. There is no
inconsistency when I point out that everyone will
rush to grab the best locations if land were free; it
would be the same if Rembrandts were suddenly
declared free by the government (or if there were a
100 percent tax on their value). The point is that the
owners will have no incentive to allocate.
Rembrandts, which also earn net rents, are the same
as land; the difference of course being that chaos in
land sites is a far more serious thing than chaos in
the price of Rembrandts.

The Georgist rejects the analogy of the Rembrandts
because, he says, land value is created by the
community. But what of Rembrandt values? Does
not the increase in population, the development of
the community, account for the increase in
Rembrandt values? Will anyone pay much for
Rembrandts in a primitive society? The Georgist
rejects the application of the same "community"
argument to the Reverend Pentecost because he
served the community by his labor; the theatrical
costumer also is said to earn "wages." The
entrepreneur earns some wages for his labor, but he
also earns profits for his foresight, and particularly
interest for his advancement of capital, or time. In
fact, many investors earn interest and profit without
doing any "work" at all. Would Georgists then join
the Marxists and confiscate such "unearned"
interest? Why not?

It seems to me that Georgists give away their entire
case when they graciously allow the landowners to
keep 5-10 percent of their rent. This concedes that
the landowner does perform some service, and if
one concedes that he should keep some rent, where
are we to draw the line? Why not let him keep 25
percent, or 50 percent, or 99 percent? Apparently,
some Georgists would let the landowner keep the
equivalent of a broker's commission for distributing
sites. But this again puts a very narrow "labor
theory of value" on the owner's service. The
Rembrandt owner, for example, may hire a broker
for 5-10 percent to sell or rent his paintings. Would
Georgists then confiscate 90 percent of Rembrandt
values?

The fact remains that just as the costumer earns
interest plus managerial wages plus profit, so will a
landowner earn interest plus managerial wages plus
profit (and "wages" can include wages of "decision-
making"). The profit goes to better forecasters, and
poorer ones will suffer losses.

Assessment may be done every day, but this does
not make it any less arbitrary. Assessment where
the entire rent market is abolished, as the single tax
will effectively do, will be all the more impossible
and arbitrary. Further, we learn that improvements
which last beyond the owner's life are considered
part of the land by the Georgists and would be taxed
accordingly. Things get worse and worse. This
means that long-range improvements will be
penalized by the single tax and will not be made.
Thus, the single tax will tax long-range
improvements as well as original site value.
Georgists may deny that they wish to force all land
into production, but they imply this when they keep
referring to currently idle land that should be used,
and "idling" land that should be used for more
valuable things. Nowhere have I seen Georgists say
that any currently-used land should be rendered
idle. Actually, there is no reason for speculators to
abstain from earning rents on their land unless it
were too poor to earn rents; earning rents does not
prevent land values from rising. Further, if idle land
earns no rents, then it has no "rental value" to be
taxed. The "rental value" is only the discounted sum
of expected future rents, and is unrelated to current
rents. Taxing them, therefore, will tax land more
than 100 percent of its rental value.

I will not deal with what I consider grave fallacies
in capital and production theory because they take
us too far afield from the main problem. I will
simply state that production takes place in many
stages, and involves an ever-greater structure of
capital-and that we would not be able to replace
depreciating capital were it not for the growing
structure of capital invested by our ancestors,
improving our living standards. The
"contemporaneous pipeline" is not only inventory;
it is the gradual wearing down of fixed equipment
and plant-which must be built ahead of time for
use in advancing future consumption. Governments
err in backward countries in not allowing security of
private property and therefore the accumulation of
savings.

Finally, if wages are OK because earned in the
market place, then so are rents, and interest, and
profits.

So much for the economical rebuttal. On the strictly
ethical problem, I am willing to refer again to my
essay. What I am advocating is appropriation of
unused land by the first user-the "pioneer" -and I
did not at all consider the problem of feudal land,
which America fortunately escaped. I am no friend
to feudal landownership based on conquest-but a
discussion of this would have gotten us far afield.
What I am arguing for in this essay is the ethical
validity of absolute ownership by the pioneer and
his heirs and assigns.

Some Georgists lay great emphasis on the fixity of
land: the supply of land sites is fixed and so
increased population raises land values; again,
horses are not fixed in supply but land is. Rebuttal
to this is in two parts: (a) land sites may be fixed,
but so are Rembrandts. Why not confiscate
Rembrandt value? (b) physical land may be fixed,
but the service of supplying the land is not; it is the
productive service by the site-owner that generates
value, and it will be gravely discouraged by taxes
on land values. A 100 percent tax on land values
will generate chaos in land and therefore in
production generally; a lesser degree of taxes will
inflict lesser damage, but damage there most
certainly will be.

Finally, many Georgists have, by inference, accused
me of wishing to levy taxes on production, and have
expounded on the beneficial effects that would flow
once such taxes were lifted from the economy. I
have great respect for many aspects of Henry
George; and none more than for his passages on the
benefits that would ensue once taxes were removed
from production. Our difference is that I believe
that land value taxation would also blight
production, and, further, be unjust rather than the
contrary. If we wish to establish justice and remove
taxes from production, some other means than land
value taxation will have to be found.
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[End of Part 3]

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