34: Blaug: edging toward full appreciation

American Journal of Economics and Sociology, The,  April, 2004  by Mary M. Cleveland

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Blaug then moves on to a section on "Site Value Taxation."

   Ricardian theory showed that ground rent, being a return to a
   nonreproducible natural agent, was eminently suitable for taxation.
   His mentor and disciple, James Mill, was the first to draw the
   obvious corollary that all future increments in rent from some
   current base year could be taxed away without serious harm. Ricardo
   himself was not happy with the proposal but it remained an academic
   question in his lifetime. But with the publication of John Stuart
   Mill's Principles in 1848, a section of which reproduced his
   father's arguments, and the subsequent formation of the Land Tenure
   Reform Association under Mill's aegis, the idea caught on. John
   Stuart Mill proposed totally to exempt present rents and to tax "the
   future increment of unearned rent" by taxing the capital gains of
   increases in the price of land. Henry George in Progress and Poverty
   (1879) went a little further and proposed to confiscate all rents in
   the manner of the physiocrats, a measure that he claimed would
   abolish poverty and economic crises, the latter being simply the
   result of speculation in land values. This would be a "single tax"
   because he thought that its proceeds would be sufficient to defray
   the entire expenses of the state. His proposal was widely
   misunderstood, partly because of his own clumsy exposition, as
   advocating nationalisation of land. In point of fact, he only
   proposed to tax pure ground rent, exempting the returns from site
   improvements. In short, "the single tax" was designed to reduce the
   price of land as mere space to zero, leaving untouched the rentals
   of property located on the land; it was intended to put all property
   on the same basis irrespective of its location. (29)

So far so good. Maybe as a matter of strategy, George should not have written "we must make land common property,"--even though he immediately explained what he meant.

Blaug continues:

   The Marshallian objection to the "single tax" is obvious: all
   economic agents, not simply land, may earn "rents" in the short run;
   and even Ricardian differential rents are incentive payments in the
   long run; encouraging the economical use of fertile and therefore
   scarcer land. George might have replied that no quasi-rent has
   either the persistence or the generality of ground rent and Marshall
   would probably have agreed with that. Furthermore, if it were
   administratively feasible to distinguish pure economic rent for land
   as a distance-input from rent for site improvements of all kinds,
   the Marshallian argument would lose some of its force: the
   elasticity of supply of space is indeed very low (notice, however,
   it is not zero because land has depth as well as length and width).
   What George was after was to destroy land speculation and he should
   have devoted all his energies to clarifying the distinction between
   a tax on "site values" and a tax on "betterment." But this aspect of
   his argument was little developed in Progress and Poverty. Instead,
   George directed all his fire at the suggestion that landlords should
   be compensated once and for all for the rents that the state would
   tax away; he realised that this would reduce his proposal to that of
   taxing merely future increments of the rental values. (30)