The Georgist Land Value Tax considered

When I was an undergraduate economics student and before I came to understand and embrace Austrian economics, I had a particularly interesting class with a visiting professor, Fred Foldvary, on Comparative Economic Systems. It was through his class that I was pointed to the Austrian school, as our in-class debates suggested to him that I may already be an Austrian (rather, he said "so, you agree with Mises on this", and I replied, "huh?").

Prof. Foldvary himself was a Georgist, and on occasion in class would expound on the concept of unearned rent and land use problems, which I thought was rather interesting at the time. A land value tax, to eliminate all other taxes! What a good way to promote 'efficient use of land' and eliminate all the distortions from other taxes, I thought...

Of course, as I became more and more libertarian, as well as learned more about the Austrian school, I fell away from my initial flirtation with the LVT, on the grounds that trying to determine and promote 'efficient' land use by central decree was folly, and that who was to say what value from land really came from 'speculation' vs. 'earned effort', etc.

A more rigorous consideration of the Georgist LVT concept on Austrian grounds has just been posted by David J. Heinrich over at the Mises Blog, going into the theoretical and practical problems of separating out the "earned" from "unearned" value of land in order to implement a LVT. Theoretically, we get any number of things from nature (skills, abilities, historical accident of being born poor or rich) which we do not "earn", leading us to question why any unearned boon from land is uniquely bad in this regard. Heinrich says of the practical problem:

The practical problem is that, while you can divide the value of land between the portion due to it's natural state and the portion due to labor exerted on it, you can only arguably do this in theory and not practice. Since I as the rent-seeker don't have the option of specifying what I'd pay the landlord to live on his land were it an untransformed mess, there's no way to determine the untransformed value of the land, even from one individuals subjective standpoint. The value I attribute to something can only be objectively defined by a market transaction; thus, the value I ascribe to the untransformed land I am now sitting on simply cannot be determined, not even by myself.

[...]

Even if we could magically alternate [between a transformed and untransformed state], we still could not determine at what price an individual values the untransformed land, as we would need a market transaction know anything about the value individuals place on something, which would require him to sell it to someone else. However, even a sale does not necessarily tell us how much the seller valued the property in monetary terms. It merely tells us that that price was one price in a range of prices at which the seller was willing to sell. The seller will not sell at any price below that, and will, according to neoclassicals, sell at any price above that. Of course, the neoclassicals err there in assuming a homo economus; the Austrians make no such assumptions, and allow for both economic and moral considerations on the part of sellers and buyers. Considering the economic side of man alone, there is no reason why a man wouldn't sell a candy-bar for $1,000,000 to a mentally retarded rich heir who really wanted it. Only when considering the moral dimension of man as well as the economic dimension can we allow for the possibility that a seller may refuse to sell at that high bid price (or will give it to the buyer for less than that absurd bid). The value the seller ascribed to his property would necessarily be the lowest price at which he would be willing to sell the untransformed property. So, the only way the Georgist tax-collector could determine what to peg the LVT at would be to read the mind of the current land-owner, in never-never-land where we can alternate between transformed and untransformed land.

The other problem is that now that we've forced the landowner to sell the land (which creates a disturbing coercion problem for libertarians in-and-of itself), he no-longer owns the land. The new buyer owns the land. Yet, the price at which the new buyer bought the land does not necessarily represent the monetary value he ascribed to the magically untransformed land (again, assuming never-never-land, where we can alternate between transformed and untransformed land). It only represents one price in a range of prices at which the buyer was willing to buy the land. The monetary value that the buyer subjectively ascribes to the land is the highest price at which he is willing to pay to obtain that land.

To me these are pretty much deal-ending problems. When I initially talked to my father about my new fangled Georgist ideas for a Land Value Tax and unearned values, rents, etc, he countered by questioning why an old lady who owned her home should be taxed out of it solely because of the behavior of other people around her? She loses her property that she worked for and exchanged earned labor for because of general land speculation, which Georgists usually declaim as bad and inefficient but in this case would be abetting through the LVT. Should it be any right of the state to tell individuals where they can and cannot live, what the actual value of their land is, or what the 'most efficient' use of their land is? As Heinrich suggests in his post, that leaves the door wide open for socialists of any stripe to "re-regulate" re-nationalize "rationalize" market outcomes to fit political decrees and egalitarian blueprints.

It would seem to me that the only correct and moral way to approach land use is to simply recognize and protect individual property rights, and insist that all property transfers be voluntary and not coerced by government or private threats of violence. In such as case where such protection exists, people wishing to change land use will have to bid sufficient resources to change the current owners' minds about selling. This would seem to me to ensure that the actual value of the land be taken into account (including people's desires to maintain a residence rather than a corporation or land-developer's desire to make an office park, mall, warehouse, etc).

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Pauk Birch has a thorough

Pauk Birch has a thorough Critique of Georgism, as does Uncle Murray.

It strikes me that the

It strikes me that the summary Austrian case against Georgism is essentially the same as the summary case against an Epsteinian eminent domain exception: if you take subjectivity of value seriously, the value-based justifications for the forcible-reallocation decisions involved evaporate.

Subjectivity of value, I think, is one of the most underappreciated of Austrian foundational axioms: it is a vastly powerful weapon for slashing away at all manner of statist proposals, and it forces antagonists either to:

1. try and avoid thinking through the full implications of accepting subjectivity

2. rigorously justify the existence of non-subjective valuation

Now, I don't see how you can really accomplish (2), but does anyone here know of any good attempts at doing so (preferably accessible to readers without a PhD in economics or philosophy)?

For Nicholas: This might

For Nicholas: This might not fully answer your question(s), but James Buchanan has a book, "Cost and Choice," published in 1969, in which he discusses Mises, Hayek and the concept of cost and valuation and the theoretical implications of subjectivity. Buchanan lists (at least up through 1969) most of the economists who made attempts to define objective cost. Note: Buchanan finds them to be lacking in theoretical rigor and unsatisfactory. He identifies the correct theory of cost and valuation as proceeding from Mises to Hayek as well as Wicksteed and Robbins. To quote Buchanan, "At this juncture (post-Hayek) in the development of economic theory, we must, I think, ask why the convincing arguments of Hayek exerted so little weight. Without question, objectivist economics continues to carry the day, and few of its practitioners pause to examine critically its methodological foundations." Hence the problem.

One of the implications for the Georgists and their land tax from a Buchananite (and by extension Misesian/Hayekian)perspective is the opportunity costs associated with land ownership and use: their proposal doesn't weigh opportunity costs in the valuation of land and its use, as well as their attendant impact on expectations of profits. It's a huge hole (IMO) that the Georgists don't appear to even recognize.

Steve, Thanks! That's just

Steve,

Thanks! That's just the sort of thing I wanted.

Nicholas, From a hard-left

Nicholas,

From a hard-left perspective, check some articles by Robert Vienneau, such as:

A Sraffian Interpretation of Marx

Reswitching And The Cambridge Capital Controversy

"Frequently Asked Questions about the Labor Theory of Value"

Just as a note, you should

Just as a note, you should remember that Georgists do not subscribe to the labor theory of value. In the Georgist world, LVT stannds for "land value tax".