[Lars Doucet won this year’s Book Review Contest with his review of Henry George’s Progress and Poverty. Since then, he’s been researching Georgism in more depth, and wants to follow up with what he’s learned. I’ll be posting three of his Georgism essays here this week, and you can read his other work at Fortress Of Doors]
Hi, my name's Lars Doucet (not Scott Alexander) and this is a guest post in an ongoing series that assesses the empirical basis for the economic philosophy of Georgism.
Part 0 - Book Review: Progress & PovertyPart I - Is Land Really a Big Deal? 👈 (You are here) Part II - Can Land Value Tax be Passed on to Tenants? Part III - Can Unimproved Land Value be Accurately Assessed Separately from Buildings?
Extremely special thanks to Count Bla and Alexandra Elbakyan
For those of you wondering who this "Lars" guy is, I'm the Astral Codex Ten reader who reviewed Henry George's Progress & Poverty for the book review contest. Henry George is the founder of an economic philosophy known as Georgism which is principally concerned with the deprivations caused by unchecked rentiers. George is famous for promoting two specific policies, the Land Value Tax (LVT) and the Citizen's Dividend (what we would now call a Universal Basic Income).
I was shocked and humbled when this readership selected me as the winner. Even more shocking was how many people from around the world wrote to me about their interest in the article. Family, friends, and acquaintances for sure, but also a lot of total strangers–including business owners, activists, podcasters, online game designers, investors, even government officials from around the world. Scott's blog has way more reach than I realized.
This fills me with a sense of responsibility. If there's a chance people might make policy decisions based on my writing, I need to make sure I haven't been taken in by an argument that's just really persuasive; it had also better be true. What follows therefore is my best attempt at a fair, rigorous, and (where possible) empirical assessment of whether the claims of the Georgist movement stand up to scrutiny.
Let's admit some bias upfront. I'm a Georgist, and I would be happy to find this philosophy true and sad to find it false. But by George, what would make me really sad is to live in a world where Georgism is wrong but where I blissfully continue to believe in it anyway. In that world, I would waste time and energy advocating for a policy that doesn't work at best, and harms society at worst. I'll do my best to kick the tires here, and hopefully the commentariat will point out any of my blind spots. It's impossible for this to not come across as an advocacy piece to some degree, but I promise to give all my critics plenty of surface area to attack.
Some readers of the book review were understandably skeptical that Georgism actually works in practice, so this week I'm going to empirically assess "the big three" critiques that come up the most often:
Today we'll start with point 1, and subsequent articles posted in the next two days will address points 2 and 3. I'll probably write further articles on the subject, but I make no presumptions about whether I'll have worn out my welcome on Astral Codex Ten by then.
If you haven't read the Book Review yet, I've posted a brief recap of the relevant concepts below. Otherwise, feel free to skip directly to the subsequent section.
Georgism is a school of political economy that is really upset about, among other things, the Rent Being Too Damn High. It seeks to liberate labor and capital alike from those who gatekeep access to scarce "non-produced assets," such as land and natural resources, while still affirming the virtues of hard work and free enterprise. George uses the term "Land" to mean not just regular land, but everything that is external to human beings and the things they produce–nature itself, really.
Georgism's chief insight is to move economic thinking from a two-factor model (Labor and Capital) to a three-factor model (Land, Labor, and Capital). It's chief (but not only) policy prescription is the Land Value Tax (LVT), which taxes real estate at as close to 100% of its "land rent" as possible (the amount of rent due to the land alone apart from "improvements" such as buildings). In actual practice, most Georgists seem to think 85% is a reasonable figure to target.
Let's carefully unpack what those terms means. "Land value" refers to the full market value of a property, excluding all of its improvements, such as buildings. This is the portion of a property's value arising solely from its location and natural attributes (agricultural fertility, endowment of stuff like water, minerals, etc.). "Land rent" (AKA "ground rent") refers to the recurring rental income a property is capable of generating from the market because of its land value.
It is Land Rent which Land Value Tax is intended to capture. You can think of it as a Location or Site Value Tax if that's more helpful. It's not a tax on the full market purchase price of a property, nor is it a fixed amount of tax per acre of land, but rather a tax proportional to the market value of the land alone (or better yet, the land rent). When assessed correctly, as LVT approaches 100% the market selling price of the land itself will approach zero.
Don't let the "100%" confuse you, either. If a piece of land costs $10,000 to buy, and is leased for $500/year, then an LVT that captures 100% of the land rent is $500/year, which works out to a 5% annual tax of the land value.
LVT should not be confused with a property tax. Property taxes consider land plus improvements (typically buildings). An LVT considers land value alone.