I get several E-mails (regularly) from so-called Georgists who want to know how the Single Tax proposal of Henry George, outlined in his 1879 book Progress and Poverty, fits in with Modern Monetary Theory (MMT). I have resisted writing about this topic, in part, because the adherents of this view are vehement, like the gold bugs, and by not considering their proposals in any detail, I can avoid receiving a raft of insulting E-mails. But, more seriously, I see limited application. In general, the Georgists I have come across and the literature produced by those sympathetic to the Single Tax idea, is problematic because there is a presumption that national governments need tax revenue to fund their spending. Clearly, this is an assertion that MMT rejects at the most elemental level. But there is some scope for considering their proposal once one abandons the link between the tax revenue (which they call rent) and government spending capacity. The question that arises, once we free ourselves from that neo-liberal link, is whether a land tax has a place in a government policy portfolio with seeks to advance full employment, price stability and equity. The answer to that question is perhaps. I am writing about this today and tomorrow (with an earlier related post – Tracing the origins of the fetish against deficits in Australia) as part of my research into the life of Clyde Cameron, given I am presenting the fourth Clyde Cameron Memorial lecture tomorrow night in Newcastle. I hope this three-part blog suite is of interest. In some parts, the text is incomplete.…Bill Mitchell – billy blog
Henry George and MMT
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia
15 comments:
I've come to the conclusion that George-ism is a religion, not a branch of economics. :-)
George-ism mixes half-truths with false assumptions:
The idea was that the owners of land did nothing to create the land but could still collect rental income with no further effort.
But how did the owners come to own the land in the first place? Unless they inherited it, stole it, or were otherwise gifted the land, then they bought it at fair market value, which means that any rental income was already factored into the price they paid for the land.
capitalists and other owners of central business district property “would pay a lot more than they now pay into the Treasury” because of their land holdings.
That may have been true 150 years ago, but it's not true today. Today the 1%'s wealth is primarily in financial assets and in business equity, not in real estate.
But the 99%'s largest asset is their home, hence a land-only tax would be extremely regressive.
Further, according to the post-Keynesian view that taxes are usually passed onto consumers, then a land tax would merely be passed onto renters, rather than coming out of the owner's pocket.
It is true that land is a monopoly, and that landowners sometimes -- not always -- are able to command monopoly rents. If so, then that should be reflected in the landowner's income, and could be captured by a progressive income tax.
If the landowner inherited his land rather than working to buy it, that could be addressed by taxing inheritance.
Taxing land to address monopoly makes about as much sense as taxing operating systems to address Microsoft's monopoly.
From one Dan to another, well said!
"I've come to the conclusion that George-ism is a religion, not a branch of economics"
Rather brave to suggest that any branch of economics is anything other than a religion.
They all represent equations and justifications for a particular set of moral philosophy viewpoint. Scripture if you like.
Taxing land, or a 'hut tax' makes perfect sense as the basis for maintaining the value of the currency.
It is the unchanging base for currency demand and it is fairly distributed across the entire population based upon the size of their hut or land and its location, and therefore is entirely progressive.
You can't make land any more, and you can't move it. Therefore it is a perfect taxable vehicle.
Income tax is a frictional tax and should be barely be there in bad times, other than to correct the obvious distributional failures of a capitalist system. It should ramp up as the economy starts to overheat.
For me a combination of the two makes the most sense. What I really don't get is the love of the sales tax. That doesn't seem to make any sense at all.
I guess I favor Pigovian taxes -- taxes applied to market activities that generate negative externalities (costs to society). There are negative externalities to various items of consumption, such as gasoline. Also, some types of financial transactions seem like good candidates.
"I've come to the conclusion that George-ism is a religion, not a branch of economics"
Rather brave to suggest that any branch of economics is anything other than a religion.
They all represent equations and justifications for a particular set of moral philosophy viewpoint. Scripture if you like.
As professional philosopher, I came to the conclusion long ago that various philosophies are justifications for particular worldviews based on different lifestyles, embedded in complex systems and context-dependent.
Anthropologists and sociologists know this. See, for instance, Randall Collins's magistral work, The Sociology of Philosophies.
Economists argue over this as if they are arguing over scientific truths when they lack models that are insufficient to be reliably predictive and therefore cannot generate hypothesis based on a general case.
Why? Because the assumptions are both historical and at least in part normative, so the model cannot generate a theory that is a general description.
And where do these assumptions arise? From introspection, just like philosophers. They generalize from their own experience and reflection, with all its cognitive-affective bias, both personal and social.
The conclusion is radical uncertainty not only about the future but also about basic beliefs.
In comparative spirituality, there is a distinction made between agnostics (those who don't know ultimate truth) and gnostics (those who do). But this remains a claim for those who do not know, for by definition only gnostics have the criterion, which is more developed consciousness that underlies more developed states of awareness.
Does that make me a skeptic or "postmodern"? No, I am a logician. I ask for criteria when a claim is made, and I trace it back to a circular argument, infinite regress, or what is postulated as self-evident.
The ordinary criterion is agreement, and that is relative to the parties, who can only come to agreement with a system they both accept. Agreement generally only concerns what is trivial anyway. There is no overarching worldview that is logically compelling based a a logic that exclusive of other logics, or warranted based on evidence that is exhaustive. Since criteria are the boundary conditions of a worldview, there are no criteria that can be shown to be absolute either.
Why am I so sure of this. It is the story of the history of thought. Thus far, the enduring questions have no definitive answer outside a particular worldview. There is even limited choice of worldview, since humans are bound by historical and social conditioning of which they are not fully aware. This summarizes the human condition.
Neil, does hut consumption increase proportional to income and wealth?
If we had a hut-only tax, don't you think that the rich would be smart enough to move their wealth out of huts and into some other asset that was not taxed?
Is there any evidence that there was more "friction" when the US top marginal income tax rate was 91%?
Despite George's theoretical arguments against taxing "labor" (as if income had anything to do with labor), the reality is that progressive income taxes seem to work just fine.
Regarding taxing negative externalities, that is worth considering, but I suggest also considering regulating or rationing negative externalities. I.e., if you want to reduce fuel consumption, then ration fuel. If you want to reduce child abuse, then outlaw child abuse. Taxes might have some dampening effect on the targeted activities, but the degree of dampening is not certain, and the tax would have more impact on the poor than on the rich.
Our society has been so thoroughly indoctrinated by neoliberalism that our kneejerk reaction to every problem is to devise a market-based solution, like a carbon tax, instead of a New Deal style command economy.
It's really a land value tax, rather than a tax on real estate, as some mistakenly think. The land and and the improvements are valued separately. This distinction is (usually) followed by tax assessors.
For example, improvements can be valued based on replacement cost. Obviously there is no replacement cost for the land itself, since it is a natural given.
Land value appreciates from improvement, not only to the parcel itself but also the surroundings, which may be quite extensive.
The owner of the property is in no way responsible for increase in land value owing to changes in the surrounding that increase the value. This increase over a period is the land value rent and the land value tax is applied to the rent.
Land value can also decrease in value, for example, through extraction from the property, and also from declining adjacent values that may be quite extensive, for example, owing to natural disaster, human destruction, and negative externality like pollution, etc. Think, "Not in my backyard." It's also why there is redlining by banks, which may not be motivated by outright bias but to protect the property value that the bank has previously loaned against.
@DL
1.Buying something from earned income doesn't confer moral ownership. Think stolen property or slaves.
2. The compensation you owe the community is measured as the rental value of land your property occupies. The top 1% of households own 40-50% of all land by value. Or three times more than they currently pay in tax.
3. 99% of the population are not freehold title owners.
4. Land has a value but no cost of production. It is threfore the purest of monopolies. Prices are set only by affordabilty. An increase in costs to the landlord cannot therefore be passed onto a tenant.
5. Monopoly rents should always be taxed or regulated away entirely. Because a) monopolies hurt consumers b) because they are not by definition earned, taxing them carries no deadweight costs.
6. Would working to buy a share in a monopoly/slaves be better than just inhertiting them?
7. Microsoft is heavily taxed as a monopoly by the EU. It is granting of patent privilages that gift these companies unfair competitive advantage. Just like the granting of freeholder privilage.
Many Georgist happening to believe in free trade and ending intellectual property rights just as much as they do in shared land rent.
@DD
LVT is a Pigouvean Tax on the negative externality caused by exclusive occupation of valueable land.
Which gives it it's efficency.
Ben J-- Good points. Georgeism still doesn't add up for me as a comprehensive economic philosophy. Do you agree that by limiting its scope to taxation of land, that it's a relatively minor and/or obsolete school of economic thought? Is there a more comprehensive version of Georgeism about?
One of the things that I like about MMT is that it has combined numerous good economic schools (institutional economics, chartalism, functional finance, stock flow consistency, Minsky's work, etc). It would be interesting to me to somehow fit George's ideas within this framework.
”In comparative spirituality, there is a distinction made between agnostics (those who don't know ultimate truth) and gnostics (those who do) ….. “ [TomH]
A third alternative is 'spirituality' has nothing to do with it :-) - human beings in general (regardless of education or belief) simply ignore what is within; ignore the thirst that leads to it; never exploring it, uncovering it, understanding it. Too busy with their world-views. Or try to find it in books, or something outside of themselves; something that they have never lost – a promise fulfilled, more beautiful than a rainbow! And yet we ignore. More an initial matter of where the attention and focus goes. And in the process undo everything we understand about existence, and reassemble it in a new light.
”Thus far, the enduring questions have no definitive answer outside a particular world-view. There is even limited choice of world-view, since humans are bound by historical and social conditioning of which they are not fully aware. This summarizes the human condition. “ [TomH]
Not quite: - a world-view is simply mind: The mind is born in darkness, lives in darkness, dies in darkness. [Upanishads] For mind to be 'enlightened' people need only stop ignoring and start experiencing. I think the first steps were laid out long ago: find your thirst; let the heart do the walking! Only then does mind become a tool – prior to that it wanders and wonders!
Yes, but that is one's subjective experience that remains personal. The experience is undeniable but how to interpret the experience is another matter. Thinking about an experience or communicating it is different from the experience itself. Then language and the logic on which it is based intervene.
I am on your side in this, but take my word for it, this has been argued ad nauseam and there is no objective criterion for subjective experience that will compel others to accept any more than the report of the experience as such. Meaning is another matter entirely. Then there is also the question of self-delusion.
I am convinced based on my own experience and studying the testimony of mystic that there is something beyond ordinary experience available and that it is found widely both historically and geographically, seemingly precluding diffusion as an explanation. But my experience is personal and all I can do is testify to it. As far as the interpretation I accept is concerned, it is based on conviction, which again is personal.
Part of the teaching that this expereince is communicable by one who is sufficiently developed to be able to do so. There are ample reports that it is indeed communicable , and I can testify to that in the affirmative, too.
Experiential reports are the subject of psychology, but cognitive science and philosophy strive to go further to discover whether there is also epistemological or metaphysical import (non-exclusive disjunction).
To establish this, some test needs to be designed and that requires some criteria for evaluating the result. Then the question arises what the criteria for those criteria may be. Experience is its own criterion as an experience, but as soon as one attempts to go beyond experience alone, issues arise and no compelling answer has been forthcoming based on any criterion that can be shown to be absolute.
But this doesn't necessarily imply that approaching such issues is merely a waste of time either. This involves the domain of quality rather than quantity, for example, and it is the concern not of science but rather of art, the humanities, and religion, all of which attempt to capture what lies beyond the senses.
This is the realm that Ludwig Wittgenstein explored as a philosophical logician, for example.
”….there is no objective criterion for subjective experience ….” [TomH]
Exactly! Tibetan monks rolled on the floor laughing when researchers wired them up to an electroencephalograph.
”Experience is its own criterion as an experience, but as soon as one attempts to go beyond experience alone, issues arise and no compelling answer has been forthcoming based on any criterion that can be shown to be absolute.” [TomH]
Exactly! But can we distinguish between knowledge of the mind and ‘knowing’, ‘gnosis’ by the heart. When the heart knows, that is absolutely 1000% Absolute, because consciousness comes face to face with that Energy that is within. It is not a matter for debate or conjecture – no questions arise; there is just Being, Knowing! Mind is simply a witness; it is the heart that carries the consciousness and experience. As you say, mind then formulates the experience in clumsy words – which may carry a taste of the experience if the speaker is skilled (not me unfortunately)! When one heart that knows communicates with another heart that knows, the recognition is instantaneous and infallible (but not as you say to other minds).
Psychology does not recognise the heart in a human being – it is fascinated by mind and the ‘self’ that lives in the mind; a ‘wave’ of the mindstuff. It only recognises the outer world but no inner world. It has no knowledge of the Self that dwells within and no idea what that Self can communicate of itself to the heart ‘to know’. If it continues along its current trajectory Psychology will never know. No matter – it has always been the concern of the individual human heart – not art, humanities or religion. Behind all of these you will find a human being?
It is possible: on that we both heartily agree. Cheers Tom!
@DD
Property rights(including our own bodies) are the foundation upon which we build a civilized society and prosperity.
It we have got the definition of property rights incorrect(which we have in the past, so this evolves), the World we inhabit will be poorer, unjust and violent.
Sharing the Earth with other human beings is about as deep as political economy gets.
Henry George was proceeded by many other great men who knew this insight. Which is why the label "Georgism" grates a bit. Many people from both extremes of the political spectrum put the idea of shared land rent at the heart of their thinking.
If it has the power to reconcile and unite people with otherwise such opposite beliefs, it must have something going for it.
If we don't learn to share the Earth(land rent), we will never evolve to reach our full potential.
Some people call this Geoism, i prefer to call it (real) free market capitalism.
Thanks, Ben. I like the sentiment.
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