Georgism Crash Course

Georgism¹ is the position that income tax, sales tax, property tax, and all other taxes should be abolished and replaced with taxes on natural resources (NRT) and land values, which would fund all government services. The idea is that society would greatly benefit from overhauling the taxation system:

• Goods and services would become cheaper (due to abolishing sales taxes).
• Employees would command higher wages by getting to keep more of their labor (due to abolishing income taxes).
• Employers would be able to buy more labor for less money (due to abolishing income taxes).
• Housing would be more affordable (due to abolishing property taxes & landlords being incentivized to build more housing per acre).
• People who own buildings wouldn’t be disincentivized to not upgrade them anymore. If property taxes are abolished, then people won’t get penalized for renovating their properties.
• The economic inputs of the economy would get taxed instead of the economic outputs, so there would be incentives to use the inputs (Land & Natural Resources) more efficiently. This is important because there is a fixed, finite amount of valuable land and natural resources on Earth, and we want to avoid resource degradation. Natural resource taxation also wouldn’t penalize people for generating greater economic outputs, unlike the current taxation system.
• NRT would increase economic stability by bootstrapping the entire economy to the prices of its economic inputs. Economic instability is built into the current system since the prices of the economic outputs of the economy depend on an endless circle of other economic outputs that is ultimately grounded by a combination of resource extraction fees, regulations, licenses, taxes, government fiat, etc. Markets generate prices, but they generate them from other prices too, which are ultimately determined by the prices of the economy’s inputs to production.
• Urban sprawl would be non-existent (by eliminating land speculation and encouraging urban space to be optimized).
• Private land monopolies wouldn’t exist anymore.
• Pollution would be disincentivized. Pollution taxes are a logical conclusion from recognizing that land belongs to everyone equally.²
• Since the wealthiest people are naturally the ones who own the most land and the most valuable land, Land Value Tax would reduce economic inequality, because the LVT would mostly fall on the wealthiest members of society.³
• Not only does land value tax tend to fall on the wealthy, but it is also the best tax to place on the wealthy because land cannot leave the country. Even if the possessors of the most valuable land gave up their land and left the country, whoever ends up becoming the new possessors of the land would become the new title holder who has to pay the land value tax. We can be certain that someone will definitely take the land title and pay the LVT if the land is as valuable as it is.
• If the ongoing AI boom automates a lot of white collar work and mainly leaves behind lower-paying blue collar jobs and mass unemployment, then eliminating taxes that hurt the middle class will be especially important for compensating for reduced incomes. (See my thoughts on automation and mass unemployment here).
• It is extremely difficult to do tax evasion under LVT, since land cannot be concealed or moved overseas. Land titles are also easily identified, since they are registered with the public. Land value assessments are usually considered public information, which is available upon request. This transparency reduces tax evasion.
• A person who claims land can occupy it as long as they pay the appropriate Land Value Tax for the land that they’re occupying. This resolves Tragedies of the Commons, while simultaneously ensuring that everybody benefits from it, not just the one single person who is occupying the land. This is a win-win, unlike Communism where there is the Tragedy of the Commons (ToC), or Anarcho-Capitalism where there is no ToC, but property owners get unfairly wealthy for value that they did not create.
• When everybody owns land equally², this ensures that everybody has equal access to the three factors of production: Land, Labor, and Capital. It follows that economic productivity is increased, and wealth inequality is dramatically reduced. The massive wealth inequality that exists today is in large part caused by the skewed and unequal ownership of highly valuable land.
• Replacing all the inefficient forms of taxation with NRT would lead to a simplified tax code that makes taxes straight-forward and easy to file. This would eliminate all the wasteful economic activity that is spent each year looking for tax loopholes, deductions, and lobbying.
• Real estate bubbles and recessions won’t be possible anymore if land is taxed at 100% of its value. The world would be so much better off if Japan’s Lost Decade, the Great Recession, and China’s upcoming real estate bubble and recession never happened. Also note that land speculation is undesirable for all human societies since it is a form of rent-seeking.
• Cities that use pro-Georgist urban planning would have no need for cars and no need to save up as much money to buy houses or pay rent. For most houses, most of the value is concentrated within the land that the house sits on, not the actual house itself. By eliminating the need to buy two of the most expensive items that people will ever buy within their lifetimes, the economy becomes drastically more efficient because all the money being used to buy those expensive things (houses and cars) can now be used to buy more important things instead.

Historically, Georgism used to have millions of followers, until it gradually lost its popularity over the 20th century due to a succession of many unfortunate events. As the linked essay explains, the reasons for why this happened have nothing to do with the rationality nor the feasibility of Georgism.

Formal Statement of the Space Utility Optimization Principle (SUOP):

“When the optimized arrangement of a collection of objects in 2D or 3D space maximizes the (collective) value or utility that people derive from that space’s optimized arrangement.”

The derived value from the arrangement of objects within a space can be:

• Psychological value from the perspective of a single person (e.g. the arrangement of keys on a keyboard, FILO and LIFO storage arrangements, etc).
• Social value from the perspective of a society (e.g. urban planning, memory allocation in computer systems, etc).
• Biological value when dealing with the arrangement of organs, tissues, cells, cellular structures, etc within an organism.

With regards to applying the SUOP, some of these phenomena revolve around the most efficient arrangement of system components in a given 2D or 3D space:

• Land Distribution.
• Urban Planning. The most important buildings and areas should be located near the city center.
• Memory Allocation (malloc). The arrangement and allocation of memory in a computer affects the computer’s performance.
• The arrangement of components on a circuit board is important. The various versions of the Raspberry Pi have their current circuit board configurations because they were the most effective for its design.
  • Similarly, adding more memory to the Ergodox EZ would require upgrading the processor, which would require changing the entire circuit board. Small changes have big effects on determining what the most optimal space arrangements are.
• LIFO and FILO storage (physical).
• LIFO and FILO data structures.
• The arrangement and layout of GUIs.
• The keys on the keyboard, Qwerty vs Colemak, the positions of caps lock vs backspace, etc.
• Mathematical Optimization.
• If the arrangement of organs inside of an organism were different, the various organ systems of the body would work less efficiently, perhaps even ceasing to function correctly at all.

The SUOP is useful for thinking about Spatial Economics and Economic Location Models.

---

If the human brain had a vastly different arrangement of all the neurological components that make it up, it probably wouldn’t work as well as it does in most cases. Examples:

• The occipital lobe that controls vision is located in the back of the brain instead of the front. I hypothesize that this is done to increase the number of connections with the rest of the brain.
• The left hemisphere of the brain controls the right side of the body, and the right hemisphere of the brain controls the left side of the body. Similarly to the occipital lobe, I hypothesize that this is also done to increase the number of connections of these hemispheres with the rest of the brain, compared to if the same side of the brain controlled the same side of the body.
• The most important functions of the brain (the ones that sustain the organism’s life) are located near the center of the brain, which gives them the best real estate and the closest possible distances to all the other regions of the brain, and especially the spinal cord.

In left-handed people, different areas of the brain are associated have different functions. For example, while language production is left-lateralized in up to 90% of right-handers, it is more bilateral, or even right-lateralized, in approximately 50% of left-handers. Although left-handedness is associated with many maladaptive traits, it’s sometimes associated with extraordinary cognitive abilities as well. I hypothesize that the SUOP is related to the adaptivity and maladaptivity of left-handedness, when combined with different genes. The idea is that changing the neuroanatomy of the brain would change the brain’s abilities. Different brain structures (including different lateralizations) optimize different cognitive functions. So, it may be possible to relate this observation/hypothesis to the SUOP, as a more general principle.

See: Why It’s Good To Have A Weak Hand - Minute Earth.

---

These other concepts revolve around competition for spots within a fixed reserve or supply that can support the objects occupying the spots or spaces within that reserve, particularly when all the spots within the reserve are equally (or near-equally) valuable. They are distinguished from the previous examples by not depending on the arrangement of objects within a physical space, but rather by whether the object is merely occupying the space or not. Many of these spaces aren’t 2D or 3D:

• Tasks and errands compete for our limited attention spans in our finite 24-hour day cycles (so there is a limited number of work/tasks we can do each day). The only way to spend more time doing something is to spend less time doing something else that’s less important.
• On a CPU (single core or multi-core), processes all compete to run through the CPU’s finite number of cores. Only one process can occupy a physical core at a time (or multiple, if there are virtual cores), so an efficient operating system must prioritize running the most important processes first, according to a specific set of criteria.
• If you have a hard drive that can only store a limited number of things, then you would probably want to store the most important things on the hard drive in order to get the greatest value out of your hard drive.
• Only the fittest organisms can manage to survive and populate an environment that has a fixed carrying capacity. Whether by natural causes or by population control, every organism can only exist at the cost of another. The same principle applies for reproduction licenses.
• Memes compete for slots/space in our minds since there is a limited amount of memes, ideas, and activist causes that any single person could promote at only one time.
• Portions of the Electromagnetic Spectrum (for radio communication licenses).
• Geostationary Orbits.
• Domain Names.

Georgism is merely an extended application of the Space Optimization Principle to land distribution and all other forms of economic land. For all these other applications, the arrangement of objects in a given 2D/3D space matters greatly. Any change to the arrangements that causes space to be used less efficiently would have huge negative impacts on the functionality of the system. In all of these situations, that is clearly something that we should strive to avoid, so why would it make any sense to not do the same for land distribution? If land value is not taxed, then there is no guarantee that it will be used as efficiently as possible. By contrast, the OATP is finder’s keepers, so there is nothing to ensure that land (space) is being used as efficiently as possible. The OATP naturally leads to suboptimal outcomes to everyone overall.

Main Article: Natural Resource Taxation - Blithering Genius

Markets are an excellent mechanism for organizing production and distribution, but they don’t generate prices ex nihilo. Market prices are circular. The price of a product depends on three factors:

1. The prices of the inputs to its production.
2. The prices of competing products.
3. The supply and demand for the product, given the prices of other products.

So, prices depend on prices. Markets are a way to continuously optimize a collection of prices relative to one another, but this circularity must be bootstrapped for markets to work. In modern societies, prices are bootstrapped in an ad hoc way, using a combination of resource extraction fees, regulations, licenses, taxes, government fiat, etc. This causes market prices to depend on external conditions in ways that are random and unclear, without any design or plan. – Blithering Genius, Natural Resource Taxation

---

Bootstrapping is about getting a circular process going. Natural resource prices partially determine the cost of goods and services in the economy, but not entirely. Market prices are circular, so they need to be bootstrapped in some way. Money is another example of a circular flow that has to be bootstrapped in some way, which is typically done with debt.

The best way to bootstrap market prices is to appraise the physical inputs to the economy (natural resources) based on their utility, scarcity and downstream effects (such as pollution). Natural resource taxation should be applied at the point of use, extraction, or degradation. All prices ultimately depend on the prices of natural resources, and the prices of natural resources are not entirely determined by the market. We have exactly two choices:

1. Set a baseline for regulating prices, thus leading to a more stable, more predictable economy.
2. Don’t set a baseline that controls all the other prices, thus leading to an unstable, unpredictable economy.

There is no justification for why the second option is better than the first.

Prices for natural resources should be defined in a principled way⁵, based on their utility, scarcity, and negative externalities (e.g. pollution). Natural resource taxation should be applied at the point of use, extraction, or degradation. Land should be taxed based on the potential uses of the land, the land’s location value, and the state-provided infrastructure in the region. Biological resources, such as lumber and fish, should be taxed based on sustainability and balancing other uses. (Forests are not just a source of lumber. They also provide wildlife habitat, watershed management, recreation, etc.) Geological resources, such as iron and coal, should be taxed based on their scarcity, long-term value and downstream effects. The use of water (other than rain) should be taxed. Land taxation would take the value of rainfall into account. Air and water pollution should be taxed.

– Blithering Genius, Natural Resource Taxation

Today, we can observe that there are enormous corporations like British Petrol or De Beers that became super rich due to their monopolies and private ownership over things like oil, natural gas, precious metals, diamonds, etc. Many of these corporations earn billions of dollars every year. But is it really fair that they should get billions of dollars annually, just because they managed to claim the land containing those natural resources before anybody else could, under a Finders’ Keepers system? They certainly deserve some money for doing the labor necessary for extracting those natural resources, but they didn’t do any labor to physically create the resources. That is called rent-seeking, and it doesn’t contribute to economic growth at all. If anybody is going to be making billions of dollars off of selling coal, oil, iron, copper, cobalt, natural gas, etc, it better be the government so that everybody else can pay fewer taxes. Most economists agree that land monopolies and natural monopolies are the greatest monopolies of them all since they have the fewest competing alternatives for when monopolies do form.

Geoists propose that the Earth’s natural resources belong to literally everybody.² The government manages this collective ownership in order to resolve the tragedy of the commons (hence, we also support creating a global government). Everybody owning natural resources is the same thing as nobody owning natural resources. So, the idea is that if you want to claim natural resources exclusively for yourself, then you need to stake your claim to them by buying them from everybody (the government). Buying the natural resources from everybody (the natural resource tax) is how you establish your private ownership to do whatever you want with them. The alternative to collective ownership of natural resources is private ownership of natural resources, which leads to economic inefficiency.

This misses the point. If everyone (xor no one) owns natural resources, a couch potato doesn’t own the Earth’s natural resources anymore than anyone else does, and vice versa. If you want natural resources, then you have to work for them. And a hard worker will obviously obtain more natural resources than a lazy couch potato. That’s the whole point.

Read More: The Georgist Theory of Property (GTP).

We disagree with Henry George on the following points. We have many other disagreements, but these are the main ones:

• Henry George took prices and value for granted when he was talking about how land value tax would be assessed. He didn’t understand that it would be more efficient if the government appraises the value of natural resources, which would bootstrap all the prices in the economy. It’s not practical (or possible) for a government to assess natural resource values the same way real-estate agents do.
• Henry George was harshly critical of Malthusianism and Neo-Malthusianism. The former is warranted to some extent, but the latter is not. We’ve refuted Henry George’s defense of Cornucopianism.
• Henry George supported a Citizen’s Dividend, which is known today as Universal Basic Income (UBI). We agree with Georgists that taxes on natural resources would make UBI feasible, but we do not support UBI.
• Henry George believed in morality. We believe that morality is an illusion.
• Henry George favored the Environmental Hypothesis, whereas we favor the Hereditarian Hypothesis.
• Henry George had a naive theory of civilizational decline, whereas our theory recognizes the importance of fossil fuels, population dynamics, applied evolutionary biology. We also understand that the scale of technology depends on the scale of civilization. Our theory is more realistic.

I tend to refer to my proposal to use Pigouvian taxes and tax natural resources as “Georgism”, since it’s already a widely used term that’s associated with similar proposals. However, it must be clear that the economic policies that I propose are not the same as what Henry George proposed. There were a collection of economists throughout history who also proposed taxing land and natural resources, so Henry George wasn’t the only one.

Blithering Genius and I are just another two of the more modern economic thinkers in favor of NRT, and dare I say, the most innovative ones. The ideas that we propose on how natural resource taxation should be approached, how it should be done, what to do with the tax revenue, the implications of Georgist theory, etc are quite from most previous pro-LVT economists. Our proposals should not be thought of as a “corruption” of George’s thinking, especially when most of George’s ideas weren’t very original to begin with. His thinking and proposal were built on the thinking of others who lived before him, like David Ricardo.

Any conversion over to a Georgist taxation system would have to be a gradual process, taking at least 30 years in order to give everybody enough time to re-adjust their personal finances, especially for the people who are relying on land speculation as part of their retirement portfolio. But once society is through that, the economy will be better off than it was before the transition and it should be smooth cruising from there on out.

The most important question regarding the implementation of Georgism is how the value of natural resources would be assessed everywhere. This page talks about how that could be done for land value, while prices for other natural resources would be set according to their utility, scarcity, and downstream effects (including pollution). There is the possible concern that land values could be appraised in such a way that promotes corruption or cronyism, but this isn’t a very good argument because prices have to be bootstrapped somehow. If anything, implicit ad hoc pricing creates even more opportunities for corruption and evasion, in comparison to taxing natural resources at the point of extraction. If the government doesn’t set prices for natural resources, then markets won’t be bootstrapped, and we’ll have a tragedy of the commons. Additionally, anybody who insists that natural resource values can never be fairly appraised would have to reject the validity of all the other general variables on this list, lest they would have contradicting beliefs.

In order for land value and natural resource taxes to be truly effective, they must be widespread (and preferably regulated by a global government), otherwise those who don’t have to pay a natural resource tax will have an advantage over those who do. Likewise, if a Georgist government imposes taxes on negative externalities, like pollution, there would need to be a tariff on goods from countries which didn’t impose such a tax. Otherwise you would just be subsidizing pollution elsewhere.

Footnote 3 describes another possible drawback.

If everybody owns land equally and the population increases, then this creates two problems:

1. The Iron Law of Wages would eventually apply to society since evolution always selects for high-fertility.
2. The absence of population control would make it theoretically possible for different factions of the population to increase their fertility, in order to collectively receive a greater proportion of the citizen’s dividend (if there is one).

Both of these issues could be resolved by population control, which will inevitably be necessary anyway sooner or later in order for modern civilization to avoid collapsing and continue prospering. Most Georgists would like to believe that populations are self-regulating, but there’s no evidence to prove this. The Overpopulation FAQs on this site and my rebuttal to chapters 6-9 of Henry George’s Progress and Poverty both explain why Cornucopianism is wrong.

We don’t propose that natural resource taxes be the only taxes for a society. They should make up the majority of government revenue, but each of the following taxes have important functions in society:

• Head taxes would help partially resolve the free-rider problem with respect to government services, would distribute influence over the government, and don’t discourage the production of wealth. Since head taxes are the opposite of Universal Basic Income, it’s not possible for a society to have both, so we propose other alternatives instead.
• Reproduction taxes aren’t proposed by most Georgists, but they are within the scope of taxing collective rents. So, they’re basically just Georgism applied to population control and carrying capacities.
• Tariffs could have geopolitical advantages when used strategically.
• To some extent, inflation is a consequence of fiat currency and economic growth.

See: Economic Literature Review Summarizing Studies On Land Value Tax.

Lastly, see the Georgism FAQs page, the Henry George AI Robot, or the Georgism Subreddit for any other questions you may have.