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Henry George's political critics
American Journal of Economics and Sociology, The, Jan, 2008 by Michael Hudson
Economic theorizing is not like the natural sciences. To the extent that theories justify or criticize specific policies, they affect the vested interests. Economists are notorious for starting with a policy conclusion and then reasoning backward to create a line of analysis whose logic leads up to it--free trade or protectionism, as well as arguments over whether all forms of income are earned or some are unearned "free lunches." The element of personality also is at work. For these reasons, the most relevant explanatory tools do not necessarily win out in the intellectual struggle for existence.
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Rent theory and tax policy are a case in point. If a realistic explanation of how the world works were the decisive factor in determining the success of an analytic theory, economic thought would focus on how property rights in land, natural monopolies and finance obtain the economic surplus and what they do with it. This was the approach taken by classical political economy, using the labor theory of value to isolate economic rent as a tool to define unearned income as the excess of market price over cost value--the element of price that could not be resolved into director indirect "real" costs, ultimately reducible to labor. The policy conclusion was that land and its rent should form the national tax base, on the grounds (as Adam Smith put it) that landlords loved to reap where they did not sow. This view gained influence from David Ricardo through John Stuart Mill to Henry George. It followed that taxes could fall on this income without increasing costs to the rest of the economy. The government would collect rent in lieu of taxes that otherwise would fall on productive labor and industry.
Ricardo warned that rising ground rent would allow Britain's landowners to monopolize growth in income unless the nation ended its protective agricultural tariffs and imported cheaper crops from abroad. (Britain repealed its Corn Laws in 1846 in an affirmation of free trade.) John Stuart Mill's father, James Mili, extended Ricardo's theorizing to advocate that "all taxes should be imposed only on rent." The Swiss economist A. E. Cherbuliez asked, "Why do people not take a step further and abolish private ownership of land?" Inasmuch as "landowners are idlers," the state could liberate industry to "take an unprecedented leap forward" by replacing taxes with rent. (1)
In What is Property, P. J. Proudhon (1840) stated famously that "Property is theft." The anarchistic socialist Benjamin Tucker (1893: 361), translated Proudhon's book into English and described socialism as "the great Anti-Theft Movement of the nineteenth century." Henry George became the most widely read economic journalist of his day, thanks to Progress and Poverty (1879). His narrative of how private land ownership was carved out of the public domain, from antiquity's military seizures through Britain's Enclosure movements, capped half a century of proposals to effectively nationalize the land by taxing its rental value.
The broad thrust of British and French political economy was that land and its rent should not be left in the possession of families who had done nothing to create it, but merely collected its rental income "in their sleep," as J. S. Mili put it. Land was created by nature, not landlords, and its rising market price reflects overall prosperity levels. The proper objective of democracies was to throw off the legacy of feudal Europe's ownership patterns, by taxing land and other rent-yielding natural resources and monopolies rather than labor of capital created by labor.
Land remains the largest asset even in today's industrial and high-technology economies. Most "capital" gains are still land-price gains, which substantially exceed corporate profits. Yet land no longer stands at the center of economic thought. Postclassical economics has provided an ideological umbrella to reverse the classical view of land's rental value as constituting an "unearned increment." Mainstream thought now merges land, monopolies and high nuance amorphously into capital-in-general, lumping economic rent and interest indiscriminately with the earnings of all other property. The upshot is that despite its economic importance, the land and its rental value--along with monopoly rent--have become nearly invisible in today's national statistics and theorizing. Britain has not published land assessments since 1872, and today's official U.S. statistics produce nonsensical undervaluations of land.
Land taxation has turned out to be the most difficult to achieve of all the 19th century's economic reforms. Precisely because land's market value was (and remains) much larger than that of industrial capital, the struggle to tax or nationalize ground rent was the most radical reform proposed in the 19th century, more challenging than the labor reforms called for by the socialists. And thanks to the legacy of European feudalism, landowners dominated the upper chambers of government in most countries, possessing a political power that neither industrialists nor labor could claim. Accusing taxation of being theft, property owners have mobilized this power to counter reformers seeking to tax their land, its rising rental value and price gains. British attempts to legislate a national land tax ended in the parliamentary crisis of 1909-1910, when the House of Lords refused to ratify the land tax that the House of Commons had passed. In the United States, the federal income tax originally taxed land-price ("capital") gains at as high a rate as earned income, but subsequently slashed the rate in half. At the state and local level, property taxes have declined steadily as a proportion of fiscal revenue since 1930.
