Chapter 2. Henry George’s Property Rights Law: A Modern Land Commons

Land and other aspects of nature’s wealth are monopolized by private collection (capture) of rental values on what nature offers free to all. Before going on to their final reward, almost every economist of high standing will say Henry George’s Progress and Poverty, describing the simplicity, efficiency, and justice of society’s collection of resource rents replacing all other taxes, outlines the most efficient and just economic structure.

Although this economic structure has been proposed by various highly respected thinkers for 300 years, America’s preeminent economic philosopher, Henry George, is the leading authority on the subject. This chapter is his 1879 classic, Progress and Poverty, condensed and simplified.1

The monopolization of social wealth started centuries ago as the powerful structured superior rights into ownership of land. As British Prime Minister Winston Churchill said, land is “by far the greatest of monopolies, it is a perpetual monopoly, and it is the mother of all other forms of monopoly.”2 Later monopolization of industrial and social technologies, through patents and licenses, are structured along the principles of those same property rights laws.

If you feel threatened by such a simple solution for maximum economic efficiency as offered by Henry George, keep in mind that when society collects its full due in resource rents all private-property use rights will be retained. Ownership of land for homes, businesses, and production will be both easier and cheaper. Considering taxes abandoned would equal the value of resource rents collected, sites for homes and businesses would cost nothing. With resource rent being paid out of cash flow being slightly cheaper than paying interest on current land purchase contracts, removal of monopolization would not only increase your right to land and the profits from its productive use, it would ensure those rights.

Those rental values come right back to all citizens through being spent on infrastructure. Society is doubly repaid by all other taxes disappearing. Triply repaid considering the initial cost to own land drops to zero.

Land is Social Wealth

If a person were born with fully developed intelligence, physical ability, and judgment, but without social conditioning, one of the first confusing realities he or she would face is that all land belongs to someone else. Before one could legally stand, sit, lie down, or sleep, he or she would have to pay, or have the implicit permission of, whoever owned that piece of land. This can be shown to be absurd by reflecting on the obvious: land, air, and water nurture all life and each living thing requires, and is surely entitled to, living space on this earth. No person produced any part of it, it was here when each was born, and its bounty is everybody’s common right.

By observing title claims in action, earlier economic philosophers were able to deduce that the essential factor in accumulation of wealth was the appropriation of a useful part of nature by claiming exclusive private title to land and, unless they pay a private tax known as land rent, alienating all others from its use. All other monopolies follow these principles:

The first man who, having enclosed a piece of ground, bethought himself as saying “this is mine,” and found people simple enough to believe him, was the real founder of civil society. From how many crimes, wars, and murders, from how many horrors and misfortunes might not any one have saved mankind, by pulling up the stakes, or filling up the ditch, and crying to his fellows: “Beware of listening to this impostor; you are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to nobody.”3

Jean Jacques Rousseau, in A Discourse on the Origins of Inequality, was outlining the injustice of one person having unrestricted ownership of another’s living space. This practice is only customary. It is part of social conditioning, spin, “frameworks of orientation,” that locks society within belief systems. Being thoroughly conditioned, and having never experienced or imagined anything else, few realize that under exclusive private ownership of land, and other aspects of nature’s wealth including both mechanical and social technologies, they do not have all their rights. Instead, the possibility of eventually owning one’s piece of land or a license to practice within a monopolized structure—banking, insurance, law or other social technologies—is viewed as full rights. Being conscious of the not-so-distant past when common people did not have even those rights, citizens view and celebrate these limited rights as full rights.

Mark Twain recognized that appropriation of nature’s gifts in unrestricted private title by one person means alienation and loss of rights for others. His article, “Archimedes,” in Henry George’s paper The Standard, July 27, 1889, describes how, if he owned the entire world, all the wealth of the world would be his and all the world’s citizens would be his slaves.

While one’s lack of full and equal rights is difficult to visualize when a person is accustomed to exclusive ownership to what nature provided free for all, it is easy to see if one uses a gift of nature, such as air, that has not yet been alienated from the commons. Air is one of nature’s gifts and if a group could claim title to it, when windmills were invented, such efforts were made, each person would have to pay for the right to breathe just as now they have to pay for the right for a place to live.

Water was still free long after land was fully claimed. As population density increased and water became scarce, it became profitable to claim exclusive title to water. Whenever those claims of ownership are encoded in law, water sources will develop high capitalized values and society would become accustomed to paying dearly for its drinking water. As one analyzes monopolies, it becomes apparent that exclusive title to gifts of nature creates unnecessary social costs while simultaneously creating massive wealth for monopolists. Instead of society paying non-producing monopolists, a proper share of nature’s bounty should be distributed to all citizens through conditional titles to land, and equal rights to patents and a nation’s financial, and communications systems. The secondary monopolies—insurance, health care, law, etc—are social technologies with modest amounts of tangible, labor-created values. They are eliminated by replacing marketing rights (licenses within a monopolized structure) with rights to those services.

Pride in Ownership Must be Maintained

Land is, unquestionably, social wealth. However, the right to one’s space on this earth, the pride it returns to its owner, and the care normally given to one’s personal property, are compelling reasons to keep land under a conditional form of private ownership. If equal rights for all to a share of the production of land are acknowledged through society collecting resource rents, private ownership is socially efficient and fully justifiable. What is unjust is the unrestricted monopolization of what nature freely provides on, above, and under, land. It is necessary to keep private ownership of land and its benefits while eliminating land monopolization and its unavoidable inequities.

The Feudal Origins of Land Titles

Societies have battled for title to land for millennia. One society’s violent claim to land is another society’s violent loss. Today’s landowners are the descendants of the winners of the latest clashes of cultures. After the collapse of the Roman Empire at the hands of the Germanic tribes, the common people regained their rights to the land, and the use of nature’s wealth in common again developed a powerful following.4 Their belief in freedom and natural rights resembles our belief in these principles today.

However, this reversion to social wealth in public ownership came under attack by powerful clans. Petr Kropotkin, a unique historian, describing the repression of these rights as the origin of the modern state: “Only wholesale massacres by the thousand could put a stop to this widely spread popular movement, and it was by the sword, the fire, and the rack that the young states secured their first and decisive victory over the masses of the people.”5 Those people were struggling against imposition of a legal structure which protected exclusive title to land, and all the resources on and under the land, previously owned, and used, by all in common.a

As described by Kropotkin, the medieval roots of our culture grimly parallel the massive slaughter in many countries of the developing world today. People in these countries are fighting to retain, or reclaim, their right to a fair share of the earth’s wealth, resources now owned by the cultural descendants of earlier violent thefts of land. The resemblance here is not a coincidence; current struggles are a continuation of that medieval battle over who shall have rights to nature’s wealth and, as we have stated and will be demonstrating further, today’s land titles are feudal exclusive property rights. However unjust, if legal title to land or any other gift of nature can be established (the privatization process) those with unrestricted title can, through the collection of rental values, lay claim to wealth produced by others.

In the 14th century, the sharing of social wealth in common was still practiced by local communities. But, tragically, that century saw the beginning of a 300-year-effort by the aristocracy of Europe to erase all trace of communal rights. Kropotkin explains:

The village communities were bereft of their folkmotes [community meetings], their courts and independent administration; their lands were confiscated. The guilds were spoilated of their possessions and liberties, and placed under the control, the fancy, and the bribery of the State’s official. The cities were divested of their sovereignty, and the very springs of their inner life—the folkmote, the elected justices and administration, the sovereign parish and the sovereign guild—were annihilated; the State’s functionary took possession of every link of what formerly was an organic whole. Under that fatal policy and the wars it engendered, whole regions, once populous and wealthy, were laid bare; rich cities became insignificant boroughs; the very roads which connected them with other cities became impracticable. Industry, art, and knowledge fell into decay.6

Though privatization of the commons started with the Statute of Merton in 1235, the continued efforts to alienate the individual from common use of the natural wealth of the land are documented in Britain by the nearly 4,000 enclosure acts passed between 1760 and 1844 that effectively gave legal sanction to this theft.7 Those enclosure acts were the continued privatizations which, in turn, are the continuations of rent seeking legal structures appropriating wealth produced by others.

For the powerful to protect their title further, it was necessary to erase from social memory all traces of the earlier custom of social ownership of social wealth. Kropotkin points out, “It was taught in the universities and from the pulpit that the institutions in which men formerly used to embody their needs of mutual support could not be tolerated in a properly organized State.”8 Classics for the past 400 years justified that injustice and we hear those justifications yet today: “This is the most efficient and proper social structure.”

The classic descriptions of the evolution of capitalism explain how trade and industrial capital usurped the preeminent position of nobility with their historical title to all land. Yet in parts of Europe an elite social class still owns large tracts of land. As late as 1961, the Duke of Bedford, the Duke of Westminster, and the British Crown owned the most valuable sections of London, and large estates still abound throughout the countryside. In fact, at the turn of the 20th century,

the English upper class consisted … of around ten thousand people drawn almost entirely from a core of 1,500 families…. The aristocracy owned great estates and houses and works of art—but, above all, they owned land. Well over ninety percent of the acreage of Britain was theirs.9

Today’s neoliberal philosophies are ongoing efforts to prevent a rekindling of mutual support beliefs and social wealth held in common. Today we are taught, by those who parrot the original disinformation, that an efficient economy requires all property being privately owned with each individual a “free” bargaining agent. To avoid repetition, I suggest returning to the Introduction and read again that analysis on exclusive titles to nature’s wealth having descended from aristocratic law and how today’s property rights laws are little more than aristocratic law. Their massive appropriation of unearned wealth is the beating heart of today’s monopolies.

Henry George’s and our disagreement with current property rights laws is that title to land, or any other gift of nature, including both mechanical and social technologies, should, since no person built this natural wealth and all are entitled to their share, be conditional. Exclusive title as opposed to conditional title is that remnant of feudal law which is the primary cause of today’s inefficient economies creating a wealthy few and an impoverished many.

Private Ownership of Social Wealth Moves to America

Parts of America’s land ownership were originally structured under the same property rights laws as in Europe. The “manorial lords of the Hudson Valley” owned huge estates “where the barons controlled completely the lives of their tenants.” One such estate in Virginia covered over five million acres and embraced 21 counties.10 Such excessive greed contributed to the widespread dissatisfactions that fueled the American Revolution.

Under Governor Benjamin Fletcher, three-quarters of the land in New York was granted to about thirty people. He gave a friend a half million acres for a token annual payment of 30 shillings. Under Lord Cornbury in the early 1700s one grant to a group of speculators was for two million acres…. In 1689, many of the grievances of the poor were mixed up in the farmers’ revolt of Jacob Leisler and his group. Leisler was hanged, and the parceling out of huge estates continued.11 [B]y 1698, New York had given thousands of acres to the Philipses, Van Cortlands, Van Rensselaers, Schuylers, Livingstons and Bayards; by 1754, Virginia had given almost three million acres to the Carters, Beverleys, and Pages—an early example of government “aid” to business men.12

Despite the egalitarian rhetoric of the American Revolution and an attempt to place a proclamation in the Declaration of Independence for a “common right of the whole nation to the whole of the land,” the powerful looked out for their own interests by changing the wording of Locke’s insightful phrase: “All men are entitled to life, liberty and land.” This powerful statement that all could understand coming from a highly respected philosopher was a threat to those who monopolized the land, so they restructured those words to “life, liberty and [the meaningless phrase] pursuit of happiness.” The substitution in America’s Declaration of Independence of phrases which would protect every person’s rights to nature’s wealth for words protecting only the monopoly rights of a few should alert one to check the meaning and purpose of all laws of all societies carefully. Only portions of the huge estates described below were confiscated, and “speculation in western lands was one of the leading activities of capitalists in those days:”13

Companies were formed in Europe and America to deal in Virginia lands, which were bought up in large tracts at the trifling cost of two cents per acre. This wholesale engrossment soon consumed practically all the most desirable lands and forced the home seeker to purchase from speculators or to settle as a squatter. [Moreover, observes Beard], as the settler sought to escape the speculator by moving westward, the frontier line of speculation advanced.14

Some of America’s famous leaders were deeply involved:

In the Ohio Valley a number of rich Virginia planter families, amongst whom were counted both the Lees and the Washingtons, had formed a land company and this, the Ohio Company, founded in 1748, was given a crown grant of half a million acres.15 [And with] every member of the Georgia legislature but one [having] acquired a personal interest in the speculation schemes, [they sold thirty-five] “million acres to three … land speculating companies for a total payment of less than $210,000.16 [That is six-tenths of a cent per acre. Thus,] as the frontier was pushed back during the first half of the nineteenth century, land speculators working with banks [and corrupt legislators] stayed just ahead of new immigrants, buying up land cheap and then reselling it at high profits.17

Those who participated in these later land grabs knew well the route to wealth lay in claiming exclusive title to land so those who followed would have to buy it from them. Whether rented, or sold at high capitalized values, a share of the wealth produced would be siphoned to the owners without expenditure of their labor.

Individuals, such as the butcher’s son John Jacob Astor who had title to much of Manhattan Island, became immensely wealthy. Matthew Josephson, in Robber Barons, and Peter Lyon, in To Hell in a Day Coach, document the greatest land grab in history when the railroads, through control of state and federal governments, obtained unrestricted title to 183 million acres of land, 9.3% of the land in the United States. By the turn of the century this included “more than one-third of Florida, one-fourth of North Dakota, Minnesota, and Washington and substantial chunks of 25 other states.”18

The state of Texas was the most generous of all: at one point they had actually given away about eight million more acres than they had in their power to bestow; as it finally turned out, they forked over to twelve railroad companies more than thirty-two million acres, which is more real estate than can be fitted inside the boundaries of the state of New York.19

Those to whom this land was parceled out had taken care to buy Congress and codify their exclusive title in legal statutes, inequality structured into property rights law. The arrival of the railroads provided easy access to these lands and, as Henry George taught us, made them valuable. Instead of immigrants being allowed to choose land on a first-come first-served basis and using its rental value to develop social infrastructure, the land-hungry poor were forced to buy from these profiteers. Land sales by speculators were contracts siphoning a part of the future labor of those who bought the land to the speculator.

America’s celebrated Homestead Act of 1862 came after most of the choice land had already been claimed by speculators. Some 600,000 pioneers received 80 million acres under this act, but this was less than half that allotted to the railroad barons, who were only the latest in a long line of profiteers. These new lords of the land thoroughly understood the legal mechanics of siphoning wealth produced by others to themselves. They knew all the surplus land had to be owned before their land could have significant value, thus the Homestead Act was vital to their plans of attaining great wealth.

Saleable Land Titles Permitted the Mobilization of Capital

Once land had been confiscated from the masses in the Middle Ages, it belonged permanently to the lord of that land and could only be lost through war. When English law changed to permit the sale of land, this created the foundation for modern capitalism. When an entrepreneur wished to speculate by building a factory or ship, land could be mortgaged for that venture. This provided a broader base of wealth to loan against than loaning against potential profits from monopoly trade rights issued to favored friends by royalty.

The privatization of land and resultant mobilization of capital was a key stage in the development of capitalism that expanded rights to more people. However, those exclusive titles to nature’s wealth still maintained the structure of law which permitted nonproducers to claim what is properly social wealth.

An efficient economy will have neither those capitalized appropriated values nor the huge blocs of capital currently buying and selling them. Starting from a clean slate, money had to be created to buy those first capitalized values and, when those exclusive titles are restructured to conditional titles, a return to that clean slate, that amount of money, roughly 60% of all finance capital, must disappear right along with the capitalized values of all monopolies that finance capital had been buying and selling.

Slave labor was also a method to accumulate capital and pockets of slavery remain today. Export platforms in the developing world that avoid taxes and pollution laws and pay dimes per hour for workers to produce items for sale in the developed world, where workers with the same qualifications are paid $6 to $24 an hour, is a simple capital accumulation scheme akin to slavery.

The forced acceptance of opium sales to China a century ago and the turn-a-round sales of drugs to the developed world today accumulates capital. Charging Japan’s well-paid citizens triple the price for Japanese manufactures or food as the same item would cost in Europe or America was also a capital accumulation scheme.

The “Robber Barons” of the late 19th and early 20th centuries accumulated capital at an unnecessarily great cost to all others in America. That cost is not acknowledged because, even with massive destruction of natural wealth, timber, topsoil, etc, the remaining vast resources could still provide a good living for the relatively small population. The timber burned to clear the land could have provided a fine set of hardwood furniture for every family on earth and topsoil could have been preserved to feed people for millenniums.

Through hard work, frugality and-or good fortune, a family owns a valuable piece of land. When the breadwinner’s buying power decreases or ceases due to death, tracts of land are sold off piecemeal to maintain the accustomed standard of living. All money from land sales deposited within the banking system as savings become part of the nation’s finance capital. Eventually all the lands are sold, some of the money becomes accumulated capital, and the part spent to maintain the family, that also could have been accumulated capital if that person had worked for his or her living, becomes consumed capital.

John Jacob Astor’s exclusive title to a large share of, and piecemeal sale of, Manhattan Island is probably America’s leading example of wealth accumulation through land monopolization. As tracts of land became smaller and smaller, their use values, and thus their capitalized monopoly values, rose higher and higher. The values, potential capital, unrealized, the capital wasted through high living of heirs and the enormous monopolized values restricting others’ rights to land tells us there are better ways to accumulate capital.

A simple adjustment in the law, society collecting resource rents and returning it to the citizenry through building infrastructure and providing other social needs, attains those rights. The “mother of all monopolies,” the private taxation of land, will have been eliminated. Each will have rights to land and their share of the wealth produced.

Profound Thinkers Who Believed in Society Collecting Resource rent

The French Physiocrats were the originators of laissez faire, the philosophy of little government interference. They held as a cornerstone of their beliefs—appropriated from the work of John Locke, William Penn, Baruch Spinoza, and Richard Cantillon 50 to 100 years earlier—that society should collect resource rents. One of their most respected members, Mirabeau the Elder, held that this would increase social efficiency equal to the inventions of writing or money.

David Ricardo formulated the law of rent, which supports the logic of Mirabeau’s statement. Put in simple terms, Ricardo’s law of rent means that all income above that necessary to sustain labor will be claimed by the owners of the land without the expenditure of their labor. A land monopolist retains ownership of land until some innovative entrepreneur sees its potential for more productive use. The high price demanded effectively siphons a part of the wealth produced by that entrepreneur and society’s labor to the previous owner, now the holder of that mortgage and sales contract.

It was Henry George who most clearly understood how Ricardo’s law of rent siphoned society’s surplus wealth to the owners of land and how that monopoly maintained itself through the ever-rising price of land. He outlined how wealth came directly from land and accrued to the owner; how all wealth above the survival needs of the hard working people flowed to those with title to the land without expenditure of their labor; how these profits capitalized land values ever higher, perpetuating the flow of newly produced wealth to titleholders; how commercial successes were dependent on location and those profits too went largely to owners riding its value up to ever-higher levels.

Adam Smith’s statement “every improvement in the circumstances of society raises rent” tells us he knew titles to land claim much of the wealth produced by the increased efficiencies of society.20 The respected economist John Kenneth Galbraith, although questioning changing tax policy at this late date, accepted the justice of society collecting resource rents. In 1978, the conservative economist Milton Friedman stated, “In my opinion the least bad tax is the property tax on the unimproved value of land.”21

Earlier philosophers who believed in the free enterprise philosophy of the Physiocrats, “society collecting the land rent,” include Thomas Paine, who is credited with proposing much of the Bill of Rights; William Penn, the founder of Pennsylvania; Herbert Spencer, the noted philosopher in his classic Social Statics; Thomas Sperry of the Newcastle Philosophical Society; and philosopher John Stuart Mill. These early economists were not radicals. They all “believed in the sacredness of private property, particularly land.”22

The Robert Schalkenbach Foundation lists over 100 more famous thinkers —including Confucius, Moses, Thomas Jefferson, Mark Twain, Henry Ford, John Maynard Keynes, Albert Einstein, President Eisenhower, and several popes—who recognized the principle that the natural product of the land belongs to all citizens, and lists various places in the modern world where these policies have been, at least in part, implemented.23 In the late 19th century and early 20th century, Henry George’s concept of a more efficient property rights law had substantial influence and candidates for public office were being advised to take a stand for society collecting resource rents.24

But those who owed their fortunes to the structure of property rights and taxes were too well entrenched to be dislodged. Their fear of Henry George’s inclusive philosophy motivated the funding of neoliberal economics professors and politicians to prevent governments from adopting those policies, silenced the democratic dialog begun by Henry George, and protected their vested monopoly interests.25

Just as corporations today fund professors and universities to produce studies that support their products or causes—the pay is good, both in money and identity, and one can find professors to produce studies to back up any cause—those who opposed Henry George’s vision paid scholars to bend the truth and thus prevented people from insisting on their democratic rights.

Those corrupt scholars accomplished this feat by distorting economic language and later academics unwittingly continue to teach that elite-protective philosophy. Classical economics clearly points out finance capital combines three elements of production—resources (land), labor, and industrial capital—to produce a nation’s wealth. Biased neoliberal economists combined land with industrial capital leaving only industrial capital and labor as elements of production. Those redefined terms created an economic jargon, confused the public debate, and prevented the spreading of the concept of society collecting resource rents.26

Mason Gaffney’s and Fred Harrison’s analysis of the working papers of these professors leaves no doubt they were specifically designing their philosophy to eliminate the threat of Henry George’s inclusive property rights laws. This is a replay of Kropotkin’s statement, “It was taught in the universities and from the pulpit that the institutions in which men formerly used to embody their needs of mutual support could not be tolerated in a properly organized State.”27

Commercial Land

Visualize a trade in a primitive society with someone standing by collecting tribute for trading on a particular piece of ground. The landowner does no productive labor, he or she only monopolizes that land. Of course, to avoid paying tribute, early traders only needed to move to another piece of land. Today that nearby land would also be claimed.

As David Ricardo and Henry George taught us, the closer one approaches the center of commerce, the higher the price of land. Every transit line from the suburbs to a commercial district will raise commercial land values a calculable amount. This high value represents the cheapness and the quantity of trades within any population center and that savings, efficiency of trades, is recognized by the price business is willing to pay for that land.

Because rent lays claim to a large share of the wealth produced by commerce, the land values are very high in large population centers. Land values gradually lower as the distance from the center of population becomes greater and the trades become less frequent and more expensive. In a matter of minutes on an acre in the middle of a city there would be millions of dollars’ worth of trades in grain, diamonds, stocks, land, finance capital, or consumer products. A share of each trade is remitted to the landowner as rent, thus the high value of land within population centers.

It is not unusual for commercial land to be valued at three, four, or even 10 times the value of the buildings placed upon it.28 Probably the highest priced acre in the world was in the center of Tokyo, valued, before prices dropped over 75%, at $1.5 billion. The space of one footprint in Tokyo was valued at $8,000. The land area of the 23 wards of Tokyo was equal in monetary value to the entire land area of the United States. The land upon which the emperor’s palace sat was valued at the price of all the land in California. All the land in tiny Japan was worth four times as much as all the land in America. “In fact, the real estate value of Tokyo [in 1989] at $7.7 trillion [was] so high that, once collateralized and borrowed against, at 80% of the then current value, it could buy all the land in the United States for $3.7 trillion, and all the companies on the New York Stock Exchange, NASDAQ and several other exchanges for $2.6 trillion.”

Farm Land

The quality of farmland depends on rainfall, growing season, fertility, and accessibility to markets. Once the quality has lowered to where one can earn only the wages expended in production or distribution at the margins, meaning the economic edge of profits, the land’s value reaches zero.

By exporting food to countries that, if their lands, resources, and trade were not monopolized, could just as well feed themselves, and by farming the public Treasury, agriculture in the United States has made handsome profits and evaded Ricardo’s law of rent. Unearned incomes (resource rents) from the monopoly created by those laws are capitalized into, and maintain the value of, land. Under Ricardo’s law of rent, but without sales to countries able to feed themselves or government supports, the price of the current high priced farm land of America would be almost zero. The $28 billion paid by the American government in 2005 and the $350 billion paid out in the richest 30 countries put the high value on that land.

Home Sites

In smaller cities of America, a typical $240,000 house will be on a $120,000 lot. In major population centers, it is not uncommon for the same house to cost double, triple, or even 10 times that price. In Honolulu and parts of California a comparable home would be over $1 million and in Washington, DC it would be $1.6 million. As labor and material costs are relatively equal, the price differentials are the costs of land functioning under Ricardo’s law of rent. The price of land accurately measures the resource rents paid by producers of wealth to the monopoly landowners who did no work.

The powerbrokers took from the Physiocrats’ free enterprise philosophy only that which protected, and further extended, their wealth and power. As historically most members of legislative bodies were large landholders, naturally they did not accept that society should collect resource rents. If that were to happen, everyone would have rights to their share of nature’s wealth. The “divine rights” of private ownership of social wealth siphoning large amounts of wealth from those who produced to those who did not, those capitalized monopoly values bought and sold on the markets, would be converted to “conditional rights” where only those who produce are paid. The use value of land is then distributed to all through socially collected resource rents funding governments, education, roads, etc.

Take homes for an example: real estate taxes are currently levied mostly on the improvements and only a small part on the land. The tax structure is the key to land monopolization. At 7% interest, the previously described $120,000 lot, if sold, would return $8,400 per year. The taxes on this typical home would be possibly $4,200 and the land possibly $500. Removing all taxes on the house and placing them on the land, for a total of $4,700, and collecting the same tax on all equally-valued unused lots and a lesser, but still substantial, tax on lots of lower use value, would convert current privately-collected land rent, a private tax, to socially-collected resource rent. Those lots would then produce no profit and the price of that land drops to zero.

There would be only small net savings for homeowners. The amount once paid annually in interest on land purchases would now be paid to society as resource rent. Even though the monetized value of the land disappears, its use value actually increases. As capitalized value in land would be eliminated, the purchase price would be only the value of labor and material that built the house. The initial capital required to purchase a home would drop to the cost of building the house or the depreciated value of an older home. The annual cost of resource rent is offset by the even greater reduction in taxes, the purchase price of a home lowering 50 to 90%, and those socially collected rents, along with banking profits, building and maintaining a nation’s infrastructure, providing health care, and, though it may also be done through payroll deductions, even retirement.

Occasionally a city council person will become aware of the social efficiency of taxing unused land within their jurisdiction. If idle land is properly taxed it will quickly be put to use. But these alert local officials quickly find that, frightened by Henry George’s exposure of their centuries-old land monopolization scheme, powerbrokers have inserted restrictions into state constitutions and passed laws on local communities’ ability to tax land.

Land held in unrestricted private ownership entitles the owners to large rental values which create high capitalized values. True free enterprise requires eliminating land monopolization through exclusive titles, society should collect the rent. The net cost to the homeowner would be slightly lower, much lower if Mason Gaffney and Fred Harrison’s estimation of 35% of national income being resource rent is correct, but there would be no interception of others’ labor through private collection of rent on what nature provided to all for free. With most other taxes eliminated and those rental values returned right back to the society, and the purchase price dropping to zero, the citizenry are triply repaid for restructuring to social collection of rental values of nature’s wealth and technologies.

Oil, copper, iron ore, and the like, while still in the ground, are land and can very properly be privately owned so long as the resource rents are paid to society. The world has adequate reserves of most of these minerals. It is only richer deposits and cheaper labor in the developing world that make their minerals more available. Under Adam Smith’s unequal free market philosophy, the developed world’s more expensive deposits are not mined until the undeveloped world’s cheap deposits are exhausted.

Developing land—clearing, drainage projects, shaping the land, irrigation dams, canals, and so forth—all involving capital expenditures and labor, require special consideration. Those who invest in such improvements should be well paid. However, unconditional title to land development becomes exclusive title to the land. Currently the government pays a substantial share of development costs. Investors-developers can be fully reimbursed by deducting the remaining costs from resource rents.

The market measures the rent value of land. The resource rent collected by society would be slightly less than that now collected both publicly (taxes) and privately (interest). The price spread of resource rents between the choice sites and lower-valued sites should still be maintained. The current private resource tax, some interest and all resource rents, are converted to socially-collected rent that would be slightly lower than the former combination of taxes and land payments.

If Society Collected Resource Rents, Other Taxes Could be Eliminated

According to Gore Vidal:

In 1986 the gross revenue of the government was $794 billion. Of that amount, $294 billion was Social Security contributions, which should be subtracted from the National Security State. This leaves $500 billion. Of the $500 billion $286 billion went to defense; $12 billion to foreign arms to our client states; $8 billion to $9 billion to energy, which means, largely, nuclear weapons; $27 billion to veterans’ benefits, the sad and constant reminder of the ongoing empire’s recklessness; and finally, $142 billion to loans that were spent, over the past forty years, to keep the National Security State at war, hot or cold. So, of 1986’s $500 billion in revenue, $475 billion was spent on National Security business…. Other Federal spending, incidentally, came to $177 billion … which is about the size of the deficit, since only $358 billion was collected in taxes.29

In 1929, federal government expenditures were 1% of GNP, at the peak of the Cold War, they were approximately 24%.30 David Stockman, a member of President Reagan’s cabinet, calculated that after deducting bureaucratic waste and payments to

law firms and lobbyists and trade associations in rows of shining office buildings along K Street in Washington; the consulting firms and contractors; the constituencies of special interests, from schoolteachers to construction workers, to failing businesses and multinational giants, all of whom came to Washington for money and legal protection against the perils of free competition … that leaves seventeen cents for everything else that Washington does. The FBI and national parks, the county agents and the Foreign Service and the Weather Bureau—all the traditional operations of government—consumed only nine cents of each dollar. The remaining eight cents provided all the grants to state and local governments, for aiding handicapped children or building highways.31

The American government no longer keeps track of total land valuations. Extrapolating from 1990 land values of $3.7 trillion,32 we can safely say 2008 values of land were well over $10 trillion. Resource rents at 4% of value would be over $400 billion per year. That is over three times the percentage of GDP that ran the peaceful American government in 1929b and to that must be added the resource rents from oil, minerals, timber, etc. To those rental values we must add profits collected through socially-owned banks. Society will have adequate funds for all essential services.

When necessary to regulate commerce, other taxes are proper but those funds should also be returned to society through social services. For example, ecological taxes can support pollution-free energy development and resource conservation. The proper level of sin taxes, alcohol, tobacco, etc, would lower disease through lowering consumption and the funds collected would offset health care costs incurred from such habits.

All farmers and business people know that machinery and inventory are relatively easy to obtain; it is the price of land that restricts ownership of farms and businesses as well as the homes just discussed. While land prices would drop to zero, use values and private ownership rights would actually increase. Commerce would flourish as business people, farmers, and other entrepreneurs, all true producers, would be able to start businesses with only the capital necessary to buy buildings, machinery, and inventory. They do not have to purchase monopoly values that, in the form of use values, belong to everyone.

Resource rent being paid to society out of cash flow means only hard working and talented people would own farms and businesses. The mechanism whereby excessive rights of absentee or incompetent landowners intercept the labor of others through exclusive titles would be replaced by society receiving the earnings from that social wealth. Labor costs to industries and businesses would be reduced by whatever taxes labor previously paid. The elimination of all taxes, and a lowering of finance capital costs makes replacing all taxes with society collecting resource rents and banking profits a bargain for any business.

Although society would be enormously richer, land will not have monetized (capitalized) value against which money can be loaned. The sale value would be calculated as the rental value one pays to society monthly or, as in the case of farmers, annually. Society collecting resource rents would create a modern land commons in which the wealth produced would, in the form of economic infrastructure and essential services, be distributed relatively equally while retaining the efficiencies of private ownership. Society, not the landowners, puts that value there by increased population, roads, water systems, sewers, electricity, communication systems, etc. The wealth collected through land rent, profits of socially-owned banks, and all other rental values collected from nature’s resources and technologies would be returned to the people through the cost of social services—measured in labor time, capital costs, and natural resources use to provide it—dropping 50% or more. Opportunities to appropriate unearned wealth will be almost nonexistent and all would be well cared for even as all the functions of government are well funded. There would be no taxes beyond that for secure retirements and resource protection.

When society collects the rental values of the land and natural resources which nature offers to us all for free, the monopolization of land disappears and are transposed into equally shared use values, each has a right to their share of land and resources for homes, businesses, or industries.

Michael Hudson and Baruch A. Levine, Privatization in the Ancient Near East and Classical World, trace the 5,000 year history of privatization of nature’s wealth. Henry George’s property rights laws, restructuring those exclusive titles to conditional titles, as applied in this thesis, has, in one stroke, retained the claimed efficiencies of privatization—private property, individualism, competition—even as it restores in modern form the commons that was the original economic structure for every people on earth.

Footnotes

1. In The Earth Belongs to Everyone, chapter one, published by this institute, Alanna Hartzok addresses the formalization of the privatization process into modern law as starting with the Statute of Merton in England in 1235. Many other authors address important aspects of that system of theft of wealth produced by others designed centuries ago that need to be collated as sources and citations. The privatizations ongoing today are extensions of that same process, read Shock Doctors, by Naomi Klein. The rule of thumb is that privatizing the commons doubles costs and creates a mega wealthy class as it impoverishes the masses. The 50% overcharge today (those doubled costs) is the same 50% of a serf’s production paid to aristocracy a thousand years ago. Lawmakers today are continually expanding those aristocratic rights and deferring to the rights of the masses only when the threats of ballot box revolutions are high. Steven Hiatt, Editor, A Game As Old As Empire: and Chalmers Johnson, Nemesisa: The Last Days of the American Empire add to this picture.As Co-Director of Earth Rights Institute. Alanna is currently directing a 34 member International Advisory Group which is developing a program on land value capture (Henry George’s philosophy) for the UN Habitat’s newly-launched Global Land Tool Network (see www.earthrights.net). This effort is in the forefront to reclaim the rights lost through the privatization process. Back to text
2. The 2007 budget is $2.4 trillion. But Social Security is a paid-for insurance, not rightly part of that budget and that applies to health care. With costs hidden in other parts of the budget, the actual cost of the military is far above the $439.3 billion listed. We will be listing other areas where massive savings are possible (see Conclusion). Assuming Stockman’s estimate that only 17 cents of each budget dollar will operate “all the traditional operations of government,” those needs in this year’s budget are $470 billion. Back to text

Endnotes

1. All works of Henry George and many authors writing on him are available from the Robert Schalkenbach Foundation, 41 East 72nd St., NY, NY 10021 (212-988-1680). Back to text
2. Mason Gaffney and Fred Harrison, The Corruption of Economics, (London: Shepheard-Walwyn, 1994), pp. 13, 193. Back to text
3. Michael Parenti, Power and the Powerless (New York: St. Martin’s Press 1978), pp. 184-85, quoting Jean Jacques Rousseau, “A Discourse on the Origins of Inequality,” in The Social Contract and Discourses (New York: Dutton, 1950), pp. 234-85. Back to text
4. Kropotkin, Petr, Mutual Aid, (Boston: Porter Sargent Publishing Co., no date) p. 225. Back to text
5. Ibid. Back to text
6. Ibid., p. 226. Back to text
7. Ibid., pp. 234-35. Back to text
8. Ibid., p. 226. Read also George Renard’s Guilds in the Middle Ages (New York: Augustus M. Kelley, 1968), chapters 7-8. Back to text
9. Lewis Mumford, The City in History (New York: Harcourt Brace Jovanovich, 1961), p. 264; Angela Lambert, Unquiet Souls (New York: Harper and Row, 1984), p. 6. Back to text
10. Charles A. Beard, Economic Interpretation of the Constitution (New York: Macmillan, 1941), p. 28; Howard Zinn, A People’s History of the United States (New York: Harper Colophon Books, 1980), p. 48. Back to text
11. Zinn, People’s History, p. 48. See also Howard Zinn, The Politics of History (Chicago: University of Chicago Press, 1990), pp. 61-68. Back to text
12. Herbert Aptheker, The Colonial Era (New York: International Publishers, 1966), pp. 37-38. Back to text
13. Zinn, People’s History, p. 83; Herbert Aptheker, The American Revolution (New York: International Publishers, 1985), p. 264, quoted in Beard, Economic Interpretation, p. 23; Petr Kropotkin, The Great French Revolution (New York: Black Rose Books, 1989), p. 143. Back to text
14. Beard, Economic Interpretation, pp. 23, 27-28, quoting C.H. Ambler. Back to text
15. Olwen Hufton, Europe: Privilege and Protest (Ithaca, NY: Cornell University Press, 1980), p. 113. Back to text
16. Herbert Aptheker, Early Years of the Republic (New York: International Publishers, 1976), p. 125; Abraham Bishop, Georgia Speculation Unveiled (Readex Microprint Corporation, 1966), in forward. Back to text
17. James Wessel, Mort Hartman, Trading the Future (San Francisco: Institute for Food and Development Policy, 1983), p. 14. Back to text
18. Quoted by Peter Lyon, To Hell in a Day Coach (New York: J.B. Lippincott, 1968), p. 6. See also Edward Winslow Martin, History of the Grange Movement (New York: Burt Franklin, 1967); Joe E. Feagin, Urban Real Estate Game (Engelwood Cliffs, NJ: Prentice-Hall, Inc., 1983), pp. 57-58; speech by U.S. Representative Byron Dorgan, North Dakota, the statistics researched by his staff and quoted in The North Dakota REC (May 1984). Back to text
19. Lyon, To Hell in a Day Coach, p. 6. Back to text
20. Adam Smith, The Wealth of Nations (New York: Modern Library Edition, Random House, 1965), pp. 247, 647, 773-98. Back to text
21. 101 Famous Thinkers on Owning Earth (New York: Robert Schalkenbach Foundation); Durand Echeverria, The Maupeou Revolution (Baton Rouge: Louisiana University Press, 1985), p. 182; Guy Routh, The Origin of Economic Ideas (Dobbs Ferry, NY: Sheridan House, 1989), p. 62; John Kenneth Galbraith, Economics in Perspective (New York: Houghton Mifflin, 1987), chapter 5, especially pp. 55, 168; Mark Blaug, Great American Economists Before Keynes (Atlantic Highlands, NJ: Humanities Press International, 1986), p. 86. Back to text
22. Herbert Spencer, Social Statics (New York: Robert Schalkenbach Foundation, 1995 unabridged edition); Dan Nadudere, The Political Economy of Imperialism (London: Zed Books, 1977), p. 186; Phil Grant, The Wonderful Wealth Machine (New York: Devon-Adair, 1953), pp. 416, 434-38; Hufton, Privilege and Protest, p. 113. Back to text
23. 101 Famous Thinkers. Back to text
24. Eugene M. Tobin, Organize or Perish (New York: Greenwood Press, 1986), pp. 14, 21, 56. Back to text
25. Gaffney and Harrison, Corruption of Economics. Back to text
26. Ibid. Back to text
27. Kropotkin, Mutual Aid, p. 226. Read also George Renard’s Guilds in the Middle Ages (New York: Augustus M. Kelley, 1968), chapters 7-8. Back to text
28. Grant, Wonderful Wealth Machine, pp. 389-95. Back to text
29. Gore Vidal, “The National Security State: How To Take Back Our Country,” The Nation, June 4, 1988, p. 782. Back to text
30. E.K. Hunt, Howard J. Sherman, Economics (New York: Harper and Row, 1990), p. 511. Back to text
31. William Greider, The Education of David Stockman and Other Americans (New York: New American Library, 1986), pp. 6, 17. Back to text
32. Samuelson, “ Great Global Debtor,” p. 40. Back to text

This is a chapter from the book, Money; A Mirror Image Of The Economy. Visit that link for more information about the book.