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Georgism Crash Course

Understanding Natural Resource Taxation

1. What Georgism Is, and Why It’s Worth Trying

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.

1.1. The Georgist Theory of Property Versus the OATP

The Original Appropriation Theory of Property (OATP) is a Finder’s Keepers approach to property and land rights. It is also the main culprit behind real-estate recessions, the ever-increasing cost of housing, inefficient urban planning, increased pollution, and so much more.

The Georgist Theory of Property (GTP) can be stated using the following reasoning:

  1. Every person owns themself.
  2. Every person thus owns the labor that they produce.
  3. Every person thus owns anything produced by the combination of their labor and their capital.
  4. People can trade things created with their labor for things that other people created with their labor.
  5. Land is not created by labor.
  6. But land is necessary in order to be productive (because it’s one of the three factors of production: land, labor, and capital).
  7. For everybody to have an equal right to be productive4, everybody must have an equal right to land.
  8. In order to have a free-market economy, everybody must have an equal right to be productive4, otherwise the economy is anti-free-market.

Conclusion: In order to have a truly free-market economy, everybody must have an equal right to land. Likewise, no one should have unchecked ownership of land because they did not create the land, lest the economy be anti-free-market.

The only perspective from which the OATP could be considered “better” than the GTP is from people who already have power and want to maintain their existing power structures. This is indeed the main reason why the world has not adopted the GTP. Power is self-justifying. And then there’s the fact that most people don’t have good economic intuitions for understanding how a Georgism-like system would be more economically efficient for everybody overall.

Read More: Why The GTP Beats The OATP By Every Measure Possible.

1.2. Georgism Compared to Other Economic Ideologies

Unlike Capitalism, Socialism, and Communism, Georgism has never been tried before, and yet it is different from all of them, as it is the only one where everybody is guaranteed equal access to all Three of the Factors of Production. It is definitely worth giving Georgism a chance to see how it performs compared to our current finder’s keepers system.

The following table shows a simplified, yet useful understanding of how Geoism / Georgism compares to other more widely known economic ideologies, with respect to whether or not each one of the Three Factors of Production is private or public.

  Capitalism Georgism Socialism Communism
Land Private Public Public Public
Capital Private Private Public Public
Labor Private Private Private Public

The following sayings are often associated with each Factor of Production being “public”:

Basically, the distinction between whether each factor of production is public or private is whether it is owned by the state or owned by individual entities.

1.3. Why Everybody Owns Land Equally

But if a landowner has to pay taxes on their land, then they don’t truly own it.

Correct, they don’t truly own it. The rightful owners of the Earth’s land is (collectively) everybody:

  1. If someone steals something and sells it to someone else, then the transaction is not valid, because people cannot trade things that they don’t legally own.
  2. If stolen property is used within a transaction, then the transaction is invalid, and the property has to be returned to the original owner.
  3. Claiming land that is already owned by someone else is invalid. Settling it is tantamount to stealing it.
  4. Before any of the Earth’s land was ever privately owned by anybody, land was not owned by anybody, which is essentially the same as everybody owning the Earth’s land equally.
  5. Everybody was therefore the original owners of the Earth’s land.
  6. All current landowners acquired their land by either: stealing it, settling it, inheriting it, or buying it.
  7. Land that was bought or inherited was originally possessed by someone who stole, settled, inherited, or bought it.
  8. All privately owned land was either settled or stolen at some point, by [6] and [7].
  9. All settled land was stolen at some point, by [5] and [3].
  10. If land was initially stolen, and passed onto its current owners through a combination of settlement, theft, inheritance and trade, then none of those transactions were valid because stolen property was used in the transactions, as established in [1] and [2].
  11. All privately owned land was stolen at some point in human history.
  12. All privately owned land should therefore be returned to its original owners: Everybody.

Occupying land prevents other people from using it. If land is owned equally, then a person who fences off land to prevent other people from using it (without giving due compensation) is effectively stealing that land from the commons. Most people have no solutions for resolving this injustice, whereas Georgists have a clear solution. Georgists propose that people can privately possess land, as long as they pay compensation to the original owners, in the form of taxes on land value and natural resources.

Can people own nature comic Land speculators in a nutshell

1.4. Addressing Objections to Equal Land Ownership

But if everybody owns land equally, isn’t that the same thing as nobody owning any land at all?

Technically yes, but that does not constitute an argument against equitable land ownership. Georgism still solves the Tragedy of the Commons with respect to land because Georgism explicitly allows private possession of land.

Why is everybody owns land equally the same thing as nobody owning any land at all?

Because there’s nothing to differentiate the two. The Raven Paradox is relevant to this discussion here. Information is created by recognizing differences and patterns.

Alternatively, if we argue that there is no “original owner” for land, then the land was simply there then some guy decided it magically became his and he decided to use force to defend it from others.

But all things are made of natural resources. So, if an individual can’t own natural resources to begin with, then they can’t own anything that’s produced using the natural resources.

Every person owns the labor that they produce. Picking an apple from a tree is “buying” the apple in a sense, with one’s labor. Collecting sticks to build a fire is the acquisition of land via one’s labor. So, is building a shelter, tools, etc. Even if an individual doesn’t own any natural resources to begin with, they could always trade their labor for natural resources.

Moreover, Georgists have no problem with people claiming land, if there is plenty of land available for everyone. The game theory problems and the necessity of taxing land to solve those problems only start when more people want land than there is land available (see: visual infographics). Hence, we’re always guaranteed that some people would already be owning some natural resources (or products created with natural resources) before there would ever be any need for a society to tax natural resources.

But if all the world’s land is already claimed, and late-comers can make claims to land, there will be irresolvable conflicts. The OATP is the only fair way to resolve land ownership.

This is not true. In fact, OATP proponents would argue that if people have to pay taxes on their land, then they don’t truly own all of it because the government would be owning part of their land. (And they have to, because otherwise there’s no way for most people to feasibly protect their property rights.) Since Georgism achieves equal land ownership by collecting land rents and redistributing the value to everybody else, it’s perfectly possible for first-comers and late-comers to own land equally, without all the wealth inequality that the OATP causes.

2. Visual Diagrams For Understanding Georgism

2.1. Supply-Demand Curves For Understanding NRT/LVT

The following links show some interactive graphs, charts, numbers for modeling how the mathematics and economics of Georgism work.

A supply and demand graph showing the effects of land value taxation.
Figure 1: A supply and demand diagram showing the effects of land value taxation. Since the supply of land is fixed, the burden of the tax falls entirely on the land owner. There is no change in the rental price and quantity transacted, and no deadweight loss.
A supply and demand graph illustrtaing taxation at 100% of land value.
Figure 2: In this case, land is taxed at 100% of its value, eliminating the landowner surplus completely. The ownership of land becomes worthless except to those who value it higher than market rents.

Figure 2: Perfectly Inelastic Supply, CC BY-SA 4.0, by Explodicle.
Figure 3: Maximum Taxation With Perfectly Inelastic Supply, CC BY-SA 4.0, by Explodicle.
Figures 2 and 3 differ from the original images since the transparent backgrounds in the original images was replaced with solid white backgrounds.

2.2. Why Georgism Would Make Housing More Affordable

Since LVT would make landlords pay the same amount of tax no matter how much or how little housing they build on the same plot of land, LVT would encourage landlords to build more housing. This would make housing more affordable everywhere, whereas property taxes make housing more expensive by punishing landlords who choose to build more housing and punishing people who renovate their properties.

The diagram below helps explain why LVT cannot get passed onto the tenants, whereas property taxes can. Since LVT would increase competition in the housing market by incentivizing landlords to build more housing, housing prices would decrease, while the tax rates stay the same (unless the value of the land changes).

An infographic comparing property taxes with land value taxes
Figure 3: Comparison of Property Taxes with Land Value Taxes
Comparison between land value taxes and property-taxes, based on land area and building size Parking lots don't pay enough land value taxes
Land Percentage Share of Home Prices
Figure 4: The economic value of most houses is contained in the land that the houses sit on, rather than the buildings themselves.

Relevant Video: How to be a Landlord 101: Being A Landlord Gives You The Right To One-Third Of A Household’s Income.

Relevant Video: How to be a Landlord 201.

2.3. Visualizing The Effects Of Natural Resource Taxes

A visual graph of all the outcomes and benefits of Land Value Tax.
Figure 5: You can download this image by right clicking it and saving it, if you wish. If you do so, you are encouraged to share it and spread the word.

If you would like to view different versions of the graph above, you can view the following links:

2.4. Ricardo’s Law, Land Speculation, Mortgage Debt, and Lending

2.5. The Geo-Austrian Theory On The Boom And Bust Cycle

This video gives a good introduction to the Austrian School of Economics.

The boom and bust cycle is mainly caused by land speculation. It is visually illustrated in this infographic (the third in a three-part series on Georgism). It works as follows:

  • The Fed manipulates rates below the natural rate to artificially boost growth with cheap credit.
  • Loose monetary policy combined with boosted growth causes inflation.
  • The Fed is forced to raise rates to put downward pressure on prices.
  • Investment in high-order capital goods like housing slows as rates rise.
  • Mortgages become more expensive.
  • Demand for homes falls.
  • Construction slows down in other sectors of the economy as investments turn bad.
  • Banks toughen lending rules as growth in property prices slows.
  • Demand falls further and supply begins to increase.
  • Uncertainty in the real estate market causes a credit crunch for homeowners.
  • The credit crunch extends to asset-backed commercial paper.
  • A reduction in the supply of loanable funds raises rates further, significantly discounting future cash flows and corporate profits.
  • Homeowners with adjustable mortgages begin to default.
  • Supply increases further and home prices start to fall significantly.
  • The stock market crashes.

It is said that a real estate bubble causes an economic depression every 18 years on average. The last one happened in 2008, so that would place the next depression for ~2026, but our ability to accurately predict the exact year has been thrown off due to the economic aftermath of the coronavirus lockdowns.

Average 18-Year Real Estate Cycle
Figure 6: A major real-estate-caused recession occurs every 18 years on average.

3. The Space Utility Optimization Principle

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.
  • 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.

4. NRT as a More Efficient Way to Bootstrap Market Prices

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

What does it mean to “bootstrap” prices?

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.

4.1. Addressing Objections To Bootstrapping Prices With NRT

Taxing natural resources would only be a form of price-fixing.

This claim misunderstands what prices are and why they exist. Prices are information used for allocating resources efficiently. They make it possible for economies to function without a central planner. Since the costs of natural resources cannot be determined by human preferences alone (as explained below), and since they partially determine all the other prices in the economy, we cannot allocate natural resources efficiently if we don’t appraise natural resources in the first place. If prices in the economy are not bootstrapped, then that would defeat the purpose of prices. By contrast, price-fixing would be an arbitrary price ceiling or price floor that decreases the efficiency of allocating natural resources.

Human preferences can bootstrap all other prices.

No, they cannot. Human preferences certainly influence prices, but “human preferences” are not sufficient for bootstrapping market prices because human preferences also depend on prices, which depend on prices, which depend on prices, and so on, which ultimately depend on the prices of natural resources.

The cost of labor can bootstrap all other prices.

No, it can’t. Realistically, the cost of building almost anything in the real world is never going to be very simple, especially if everything is being produced on an industrial scale. Even for something as simple as a pencil, that still requires a lot of natural resources for its production, as Milton Friedman once beautifully demonstrated. And then we have to consider all the prices and factors that went into producing the tools, erasers, metal bands, yellow paint, etc that were used to build pencils and such. All those prices eventually depend on the prices of the natural resources that were used to build the pencil.

But natural resource taxation would require price-setting by government bureaucrats, which is an opportunity for corruption.

That is true, but prices have to be bootstrapped somehow. Markets aren’t magic. 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.

4.2. What Henry George Didn’t Understand About Assessing Land Values

In Chapter III: The Proposition Tried by the Canons of Taxation from the original version of Progress and Poverty, Henry George wrote the following paragraph:

But there is no necessity of resorting to any arbitrary assessment. The tax on land values, which is the least arbitrary of taxes, possesses in the highest degree the element of certainty. It may be assessed and collected with a definiteness that partakes of the immovable and unconcealable character of the land itself. Taxes levied on land may be collected to the last cent, and though the assessment of land is now often unequal, yet the assessment of personal property is far more unequal, and these inequalities in the assessment of land largely arise from the taxation of improvements with land, and from the demoralization that, springing from the causes to which I have referred, affects the whole scheme of taxation. Were all taxes placed upon land values, irrespective of improvements, the scheme of taxation would be so simple and clear, and public attention would be so directed to it, that the valuation of taxation could and would be made with the same certainty that a real estate agent can determine the price a seller can get for a lot. – Henry George

This paragraph seems to be the only part of Progress and Poverty where George talks about how land values should be determined. It’s clear that George wanted the government to assess the value of land, but it’s not clear how he thought the government should approach it, or if he ever thought about that at all. In particular, the last sentence in the paragraph suggests that George was not aware of the circularity of market prices or how the prices for natural resources influence all the other prices in an economy. If he was aware of this, then he would’ve understood that a rational government would approach the value assessment of land and natural resources much differently from how a real estate agent would under our current economic system.

Henry George took it for granted that the government can “assess” the value of land in monetary terms, but that is impractical. It’s not possible either unless the government implements ad hoc regulations for setting prices, which would be economically inefficient. By contrast, our proposal for natural resource taxation would be much more efficient.

5. Clarifying Natural Resource Taxation

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.

But collective ownership of natural resources would entitle lazy people to natural resources.

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).

5.1. The Differences Between NRT and LVT

The term “Land Value Tax” (LVT) is used more commonly than “Natural Resource Tax” (NRT), but “land” is an ambiguous concept with many different meanings and definitions. “Land Value Tax” typically refers to either: 1. the economic definition of land, or 2. Location Value Tax. Sometimes, people will even use NRT and Land Value Taxation as interchangeable terms because “land” itself is defined as natural resources that exist in finite supply, in the economic sense of the term.

We should note that Henry George was explicitly in favor of taxing natural resources:

The term land necessarily includes, not merely the surface of the earth as distinguished from the water and the air, but the whole material universe outside of man himself, for it is only by having access to land, from which his very body is drawn, that man can come in contact with or use nature. The term land embraces, in short, all natural materials, forces, and opportunities, and, therefore, nothing that is freely supplied by nature can be properly classed as capital. – Henry George

Since it often isn’t clear which definitions people are using, I prefer to use the following definitions:

  • “Natural Resource Tax” (NRT) refers to every natural resource, which includes physical land.
  • “Land Value Tax” refers to the appraised value of a 2D (or 3D) area of physical land. Location values are included in land values.
  • “Location Value Tax” refers to taxes on real estate values.
  • “Polution Tax” refers to taxes on any kind of pollution. Carbon taxes are a type of pollution tax.
  • “Pigouvian Tax” refers to taxes on any market activity that generates negative externalities (i.e., external costs incurred by third parties that are not included in the market price). Since there are negative externalities to using natural resources, occupying land, and pollution, all Georgist taxes can be considered Pigouvian and vice versa.

Location value taxation is a more specific type of land value taxation that only refers to real estate values, which are mainly determined by a location’s proximity to various goods and services in most cases. Location Value Taxation (LVT) is particularly unique since real estate is the one natural resource that every country has in common, and also tends to be the natural resource with the highest economic value. For that reason, location value taxation would be the primary form of natural resource taxation that makes up the majority of government revenue, under Georgism.

In the appropriate contexts, “Location Value” is often a more preferable term to “Land Value” because it avoids the misconception that Georgists are concerned with land area, rather than location values.

Note that “land value” technically isn’t equivalent to a “property tax on the unimproved value of land”, as some people have claimed. The value of a location has the potential to fluctuate since most of the land value of residential areas is derived from their locations, namely all the businesses, shops, services, etc in the community surrounding that land. In other words, improving the land around the location of a given parcel of land amounts to improving the location (and land) value. This means that, location value tax (and land value tax more generally) will tax parcels based on improvements to the surrounding land, but not improvements to the land parcel itself. People have a right to own all improvements that they make to land that they possess, when those improvements were made using the fruits of their labor.

In Ireland, the term “Site Value Tax” is used instead of “Land Value Tax”. There may be other names for these concepts as well in other regions of the world.

Read More: General Single Measurements For Multiple Variables.

5.2. Exhaustive List of the Commons

Main Article: Exhaustive List of the Commons.

Besides real estate, other sources of Georgist tax revenue include:

  • Extractable resources (mineral deposits and hydrocarbons)
  • Severables (forests, fish stocks, etc)
  • Restrictions/Taxes on pollution or severance
  • Anything that has economic demand that exceeds a fixed supply:
    • Geosynchronous Orbits
    • Airway Corridors
    • Portions of the electromagnetic spectrum
    • Domain Names
    • Right-of-way (transportation) used by railroads, utilities, and internet service providers
    • Reproduction Licenses
  • Et Cetera

All of these would be subject to the appropriate amount of tax, as set by the market for Land Rent.

6. Famous Economists Who Have Endorsed LVT

6.1. Adam Smith’s Endorsement of LVT

Adam Smith, in his 1776 book The Wealth of Nations, rigorously analyzed the effects of a land value tax, pointing out how it would not hurt economic activity, and how it would not raise contract rents.

Ground-rents are a still more proper subject of taxation than the rent of houses. A tax upon ground-rents would not raise the rents of houses. It would fall altogether upon the owner of the ground-rent, who acts always as a monopolist, and exacts the greatest rent which can be got for the use of his ground. More or less can be got for it according as the competitors happen to be richer or poorer, or can afford to gratify their fancy for a particular spot of ground at a greater or smaller expense. In every country the greatest number of rich competitors is in the capital, and it is there accordingly that the highest ground-rents are always to be found. As the wealth of those competitors would in no respect be increased by a tax upon ground-rents, they would not probably be disposed to pay more for the use of the ground. Whether the tax was to be advanced by the inhabitant, or by the owner of the ground, would be of little importance. The more the inhabitant was obliged to pay for the tax, the less he would incline to pay for the ground; so that the final payment of the tax would fall altogether upon the owner of the ground-rent. – Adam Smith, The Wealth of Nations, Book V, Chapter 2, Article I: Taxes upon the Rent of Houses

6.2. Henry George’s Endorsement of LVT

“Now, what is necessary to enable labor to produce these things, is land. When we speak of labor creating wealth, we speak metaphorically. Man creates nothing. The whole human race, were they to labor forever, could not create the tiniest mote that floats in a sunbeam—could not make this rolling sphere one atom heavier or one atom lighter. In producing wealth, labor, with the aid of natural forces, but works up, into the forms desired, pre-existing matter, and, to produce wealth, must, therefore, have access to this matter and to these forces—that is to say, to land. The land is the source of all wealth. It is the mine from which must be drawn the ore that labor fashions. It is the substance to which labor gives the form. And, hence, when labor cannot satisfy its wants, may we not with certainty infer that it can be from no other cause than that labor is denied access to land?” – Henry George, Progress and Poverty, Book V, Chapter I, Page 272.

“But if one man owned the island, and if we went there and you people were fools enough to allow me to lay claim to the ownership of the island and say it belonged to me, then I could charge a monopoly rent; I could make you pay me every penny that you earned, save just enough for you to live; and the reason I could not make you pay more is simply this, that if you would pay more you would die. … ”If we were to go to that island that we imagined, and if you were fools enough to admit that the land belonged to me, I would be your master, and you would be my slaves just as thoroughly, just as completely, as if I owned your bodies, for all I would have to do to send you out of existence would be to say to you “get off my property.” That is the cause of the industrial slavery that exists all over the world, that is the cause of the low wages, that is the cause of the unemployed labor.“ – Henry George, The Land for the People, Speech 1889.

6.3. Milton Friedman’s Endorsement of LVT

Watch: Milton Friedman’s Endorsement of Land Value Tax.

7. Our Disagreements With Henry George

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

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.

8. Any Potential Drawbacks?

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:

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.

Footnotes:

1

Georgism is sometimes called Geoism. Historically, it was known as the Single Tax Movement.

2

Georgism achieves equal or near-equal ownership of natural resources for everybody by redistributing natural resource values from the possessors to everybody else, whether they possess any natural resources or not (after all government revenue is paid). It’s debatable whether this is truly “equal ownership of land” since paying the government revenues is prioritized over redistributing the value of all natural resources, but it’s still true that it’s a more equitable redistribution of the Earth’s value nonetheless.

3

Although there is a consensus among economists that Land Value Tax cannot be passed onto the tenants, most of these conclusions have not taken into account the effects of capital markets at all. It could be the case that higher tax rates might cause an exodus of capital from real estate, unless there are factors that this arguments fails to account for. If this effectively makes it possible to pass LVT onto the tenants, then LVT would not be a progressive tax that primarily taxes the wealthy (but that is not to say that wealth equality is a particular important goal for society). We may not be able to know the exact effects that LVT has on tenants until we try it, but if there are any problems, we may be able to resolve them with government regulation(s).

4

Having an equal right to be productive means having an equal opportunity to be as productive as anyone else.

5

We are aware of the economic calculation problem, and we recognize that any appraisal of natural resources based on utility, scarcity, and externalities is ultimately subjective. But this would still be more preferable than using ad hoc pricing instead. No economist has given a justification why the latter should be better than the former. It’s also logically inconsistent to oppose land value appraisal, if one supports other g-factors.

Last Modified: 2024 December 15, 17:23

Author: Zero Contradictions