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Author Topic: Economics According To George (Henry George, that is...)  (Read 30363 times)

Brian Kelley

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Re:Economics According To George (Henry George, that is...)
« Reply #15 on: August 16, 2003, 10:56:09 pm »

By the way, I recently posted an opinion on the question of "common" property. It, like "common good", is a fallacy, as I cannot be considered an owner of a piece of real estate unless I can dispose of my shares as I see fit.

This idea which George calls common property is in actuality already in effect, as eminent domain exists. Also, real estate is routinely confiscated by several other means: 1) taxes 2) de facto seizure through environmental restrictions 3) actual seizure of mineral rights 4) deprivation of the full value through zoning restrictions. I would work against all these things, and would never agree to a proposal such as the one outlined in the articles referenced here. Private property is the foundation of capitalism and of liberty.

I was reading Eric Hoffer last night;

"The real "haves" are they who can acquire freedom, self-confidence, and even riches without depriving others of them. They acquire all of these by developing and applying their potentialities. On the other hand, the real "have nots" are they who cannot have aught except by depriving others of it. They can feel free only by diminishing the freedom of others, self-confident by spreading fear and dependence among others, and rich by making others poor."
« Last Edit: August 16, 2003, 11:06:16 pm by Brian Kelley »
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RhythmStar

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Re:Economics According To George (Henry George, that is...)
« Reply #16 on: August 16, 2003, 11:02:01 pm »

Rythmstar,

You haven't answered the questions regarding the inequities of the transition from the current system to the George system.

True.  I am not certain of the best way to make the transition.  Some states, such as New Hampshire, are close already -- abolish the Sales and Capital Gains taxes and you're practically there!  Of course, the Feds would still be taxing you, but maybe a Georgist system in NH would (if successful) spark a rethink there too.

As a practical matter, the best way would be for someone to simply buy out the current owners.  Or, buy unimproved land from the existing public lands, then form a Georgist colony.  However, in my spreadsheet, the landowner with tenants gets an immediate increase in real income, due to the abolition of taxes.  So, while it is hard to express the transaction in familiar terms, the landholders would indeed be compensated.

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Since all taxes are concentrated in the land rent tax, a vacancy could bankrupt a landlord quickly. Or is the tax only applied to income?

The Land Tax is actually referred to as a Rent.  So, I presume that the rent is due as long as the person holds the title.

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If, as you say, an owner of a 50 unit apt complex pays the same tax as the neighbor who has a single unit on an identical lot, there certainly would be a massive population shift to multi family units.

I would think the major incentive for multi-family dwellings would be the tax-free improvement rents available to the developers.  


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The transition to George's system would be very costly to owners of property having a high land-to-value ratio.

Perhaps.  I can't claim to have all of the variables worked out, but I still get the nagging feeling that current valuations are not representative of valuations under the Single Tax.  One has to examine the reason for the high valuation -- is it largely because of improvements, or is it intrinsic to the land itself in an unimproved state?  

Also,  I must admit that the notion of variations in land taxes based on economic zones is my embellishment.  George does not include that, I think, preferring a flat rate for all lands.  To me, it only seemed reasonable that intrinsically more desireable locations might be appraised higher.  However, it may be that a common rate is the better solution.

Perhaps it is a good time to remember that the only purpose of taxation at all is to fund the legitimate activities of government.  I think reducing that cost by at least 2/3s of its current size would be a Good Thing.  IAC, as long as the revenue is sufficient to fund the government, then there is no reason to charge more for one plot of land over another.

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As you explained it, we would have a land rent tax rather than land property tax or land capital gains tax, do I have this right?

There would be no land capital gains, as land would be a liability to own.  The land rent is due from the landholder, but they should pass it on to their tenants, or to the expenses of whatever activities they perform on the land to gain income.  Or, the wealthy might simply lounge on the land and live off the tax-free income of their Interest or other investments.  Their choice.

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Currently hundreds of thousands of landlords pay mortgages on their rent houses and have little cash flow at all. They hope to profit from appreciation.

Appreciation would still occur, but it would be appreciation of the improvements (the house) and thus be tax free.  

As a practical matter, the land rent should not be set so high as to overcome the benefit to all from the abolition of all other taxes.  In my spreadsheet example,  an arbitrary valuation of 50/50 to land/improvements was used. If I use your figure of a land/improvements ratio of 85/15, then I get the following:

Aggregate tax rate: 50%
Land Value: $100
Improvement Value: $15
Tenant Rent (land + improvements): $115

Landowner pre-tax: $115
Landowner after tax income: $57.50

Tenant pre-tax (arbitrary amount near 4 times rent): $400
Tenant after-tax: $200
Tenant after-rent: $85

Government revenue: $257.50

Note how Gov makes the most by far from this single economic transaction stream in the current system?

Using the Georgist formula with your value ratio:

Land tax rate: 95%
Land Value: $100
Improvement Value: $15
Tenant Rent (land + improvements): $115

Landowner pre-tax: $115
Landowner after tax income: $20.00

Tenant pre-tax (arbitrary amount near 4 times rent): $400
Tenant after-tax (no tax to tentant): $400
Tenant after-rent: $285

Government revenue: $95

Note that the tenant has an extra $200 to spend?  That suggests to me that the landowner's improvements are undervalued, as is the land itself!  Let's see what happens when we adjust those values to approach the tenant's previous net:

Land tax rate: 95%
Land Value: $150
Improvement Value: $100
Tenant Rent (land + improvements): $250

Landowner pre-tax: $250
Landowner after tax income: $107.50

Tenant pre-tax: $400
Tenant after-tax (no tax to tentant): $400
Tenant after-rent income: $150

Government revenue: $142.5

Now, both the landowner and the tenant are demonstrably more well-off than they were before.  And the government is getting a bit more than I would prefer, but the government's take is reduced by a 3rd.  

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That's how it was for me.  Any disruption in cash flow would be disastrous. In the roller coaster years following such a transition most would get foreclosed.

As demonstrated, the actual cash-flow to the landholder is increased by greater liquidity in the market, since all taxes aside from the land tax are abolished.  This means that land rents (the land tax) and improvement rents (the other part of the tenant rent) both rise to more accurately reflect their value.  If the mortgage remains the same, the landowner has positive cashflow from this git-go.

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If the gov't increases the tax value of the land to pay for a war, landlords in the above situation would bankrupt.

Again, the tenants pay no taxes and constitute the majority of the voters.  So, as long as landholders pass the land tax directly to the tenant, then an amazing thing happens -- the majority pays their own way, even when the bill comes from Uncle Sam.  This is (I think) an even more profound corollary of the Single Tax than the abolition of all other taxes!  :)

I have to go now and get some programming done (sigh), but this has been a most enjoyable discussion.  Thank you very much, as you are helping me understand this area and my own thoughts on it better.  You obviously have a lot more experience with land ownership than I do.

I be back! :)

RS
« Last Edit: August 16, 2003, 11:05:23 pm by RhythmStar »
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Leonard

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Re:Economics According To George (Henry George, that is...)
« Reply #17 on: August 17, 2003, 09:18:32 pm »

Georgism has a certain simplicity to it, and I cannot say it is as bad as taxing everything (the way we currently do).  However it is still flawed from a free market perspective.

It's worth it for people that really think that "land", or anything else, is "unearned", to read Rothbard's critique of Georgism.  Rothbard makes a number of arguments, but to my mind the most trenchant is in demolishing the idea that there is any such thing as "land", as a category, sitting out there with value pre-attached waiting to be taxed.

"Land" in its raw state has exactly zero value.  That's because in its raw state, there are no people anywhere near it, and thus, it produces nothing.  As soon as you introduce people, land starts to gain value; but it gains value from them, and in fact "the" value is not singular, but rather plural: the values for any bit of land is in the minds of the people that perceive it.  The value is entirely in us, for value is subjective.  Everything that makes land valuable - improvements such as clearing, draining, and tilling; having people nearby to eat produce; buildings put on it; having people nearby to want to rent the buildings - all of these things are products of human effort, not of the land itself.  Practically all of what has value in the real world is produced by man, not natural.

There is, practically speaking, no such thing as wealth that falls from the sky.  All wealth is a result of human activity, and should belong to them that created it.  
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Leonard

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Re:Economics According To George (Henry George, that is...)
« Reply #18 on: August 17, 2003, 09:22:37 pm »

That said, if we must have a system of wealth confiscation, I think basing it on land is practically speaking a good idea (not the least because georgist arguments can be made with a straight face by many libertarians).  

Case in point: New Hampshire, which collects practically all the taxes it runs on via property taxation.  The nearly-single tax in NH has the effect of reining in the state, because the people can see it clearly, and hate paying it.  (This is by no means one of the standard arguments for Georgism.)
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RhythmStar

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Re:Economics According To George (Henry George, that is...)
« Reply #19 on: August 17, 2003, 11:19:26 pm »

That said, if we must have a system of wealth confiscation, I think basing it on land is practically speaking a good idea (not the least because georgist arguments can be made with a straight face by many libertarians).  

Case in point: New Hampshire, which collects practically all the taxes it runs on via property taxation.  The nearly-single tax in NH has the effect of reining in the state, because the people can see it clearly, and hate paying it.  (This is by no means one of the standard arguments for Georgism.)

Actually, that very argument is made at the Georgist site, only it is encapsulated in the Canons of Taxation:  http://www.henrygeorge.org/canons.htm

A tax that "falls directly on the ultimate payer" has precisely the quality you speak of -- letting people see plainly what government services cost.   I believe that such awareness breeds vigilance, which in turn serves to keep government running more efficiently than it ever can with a broad, complex, 'hidden' taxation.

Also, as to the point about Rothbard and his assertion that land in its raw state has zero value... well, that's precisely the tenet underlying the Single Tax.  It is the productivity increases that come with the economic development that confer land its perceived value (along with natural aspects like harbor access, etc.).   A bay without a harbor and wharf has little (if any) value.  Put a town around it and a railroad leading out of it and shippng to and from, and the land becomes very valuable indeed.   Thus, society is the appreciator of land value, and the Single Tax allows society to recover a share of that value, to pay for services, such as recognizing and enforcing land titles, etc., that facilitate such appreciation.

IAC, it's ultimately all about whether or not there is to be government at all.  If there is, then the Single Tax is the least onerous of all possible taxes, as this leaves all capital and labor free to flourish.    

In addition, I think the corollaries are very healthy for society.  Land not able to be pressed into immediate profit is left fallow --- No Man's Land, as Zack would say -- because holding title to idle land is a liability.  Ultimately, I think that would be a good thing, as more open land means an easier path for those who would press it into production.  Land becomes its own economic stimulus package. :)

RS
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Norris

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Re:Economics According To George (Henry George, that is...)
« Reply #20 on: August 18, 2003, 02:20:43 pm »

Leonard,
Somewhat off the subject but I disagree with your land value comments in reply#17 paragraph3.

Raw, barren and unimproved land has considerable value in that it contains an increasingly precious commodity--- solitude.
The only way a freedom lover/nature lover/privacy lover like me can enjoy the outdoors is to buy his own land. I'm currently in the process of selling a section of desert for well over double what I paid for it, the buyer is paying to insure his solitude.

More than once I've profited by selling land to adjacent landowners by instilling fear in their hearts that I intended to develop (I'm such a rat).

What makes land valuable often is what it DOESN'T have around it.
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Norris

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Re:Economics According To George (Henry George, that is...)
« Reply #21 on: August 18, 2003, 02:51:03 pm »

Rhythmstar,
In principle, I'm undecided how well the Georgian system would function. There are so many variables and it would take weeks to sort it out.

With an objective like FSP, one must find ground between principle and pragmatism.

If FSP were starting with an uninhabited island and if the Georgian principle is sound, then we might have something.
Selling liberty isn't easy. Having the Georgian system on our platform would cast a dark cloud of uncertainty on property owners. I couldn't sell it to the rich or the poor. The suggestion of such a complicated transition  would place too much of a burden on voters to analyze.

In any case, it's interesting speculate what problems would arise and what market forces would look like both during the transition and after the dust settles.
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BillG

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Re:Economics According To George (Henry George, that is...)
« Reply #22 on: August 18, 2003, 10:52:55 pm »

RhythmStar-

You are one brave dude taking on these Rothbardians on private privledge rights!!!

Read what David Nolan founder of the Libertarian Party and world-famous World's Smallest Political Quiz had to say about the land value tax - and please note valuation comments...BRILLIANT!:

"What kind of taxation is least harmful? This is a topic still open for debate. My own preference is for a single tax on land, with landholders doing their own valuation; you'd state the price at which you'd be willing to sell your land, and pay taxes on that amount. Anyone (including the tax collector) who wanted to buy it at that price could do so. This is simple, fair, and minimizes government snooping into our lives and business. Is this "the" libertarian position on taxes? No. But all libertarians oppose any form of income tax. "

http://www.lp.org/lpn/9503-essence.html

Also one must also understand that the money collected in the form of site valuation does NOT have to go into the hands of any government official. A better solution is for it to converted into a pro-rata "citizens dividend" and then if you will have people pay users fees for what the user.

http://www.progress.org/dividend/cdwhence.html

For all those others who are not swayed by reason - one last propsal.
             "Just through the damn money in the sea"

we still we be better off as a society rather than having this money being pocketed by private individuals via gov't granted priviledge...

BillG (not Gates)
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Brian Kelley

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Re:Economics According To George (Henry George, that is...)
« Reply #23 on: August 18, 2003, 11:06:01 pm »

IAC, it's ultimately all about whether or not there is to be government at all.  If there is, then the Single Tax is the least onerous of all possible taxes, as this leaves all capital and labor free to flourish.    

It is not the least onerous of all possible taxes. That would be no tax. Barring that, a voluntary tax would be less onerous. A lottery would be much less onerous than this confiscation of land through extremely high taxation.

Nevada has done quite well with low property taxes, and could have gotten by entirely without them by taxing gambling revenue if the state hadn't wanted so badly to control real estate. This is what every state wants, because only free people own private property.

If a government doesn't have ultimate control over land, what power has it really got?

This Georgian scheme eliminates real estate as private property. The reason this scheme is so often called communist is that the first plank in the communist manifesto is abolition of private property.
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Brian Kelley

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Re:Economics According To George (Henry George, that is...)
« Reply #24 on: August 18, 2003, 11:16:17 pm »

With an objective like FSP, one must find ground between principle and pragmatism.

Never sacrifice your principles for pragmatism. That's what Bill Clinton does.
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RhythmStar

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Re:Economics According To George (Henry George, that is...)
« Reply #25 on: August 18, 2003, 11:22:58 pm »

FWIW, I downloaded and read the Rothbard paper.  I expected more.  The man is barely able to contain his political prejudice enough to even seem to provide a rational and well-supported refutation (he in fact fails to deliver this).  Rothbard does less in his whitepaper to debunk George with numbers (the presumable home-court for an economist) than I did to support George in a few BB messages.  Also, he is incorrect in his assertion that George proposes a 100% tax.  Rather, the proposal is for 95%, which seems like a trivial difference, but when you compare the results (I started with a 50/50 split), the 95% tax actually seems to yield better results (odd that).

I always knew software engineering was more of a 'hard' science than economics.  Now I have the proof.  (sigh)

RS
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Norris

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Re:Economics According To George (Henry George, that is...)
« Reply #26 on: August 19, 2003, 08:12:46 am »

With an objective like FSP, one must find ground between principle and pragmatism.

Never sacrifice your principles for pragmatism. That's what Bill Clinton does.
That's a good philosophy that usually doesn't work.
If, after our move, the media tells our chosen state we are here to implement private roads, prostitution, legal heroin, the Georgian system, privatizing all their Federally owned hunting grounds and forests to be developed/harvested  by the private sector, and myriad other issues that are correct according to Randite libertarian philosophy but have more pain than gain, the only ones to benifit from FSP will be the moving companies.

The workable area between principle and pragmatism is a very narrow corridor, possibly too narrow for FSP to succeed, freedom advocates are few.
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Leonard

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Raw land is valueless
« Reply #27 on: August 19, 2003, 09:39:29 am »

Raw, barren and unimproved land has considerable value in that it contains an increasingly precious commodity--- solitude.

Sure.  But the value is in the minds of those that can benefit from that solitude - usually the neighboring owners.  The piece of land itself, as it was created, is not what has value.  The value comes from its proximity to something else.

We can see this easily enough by a simple thought experiment.  I own 40 acres of trees on a hilltop in East Tennessee.  Let us assume they are quite remote.  Would you swap them for one acre next to your house, assuming both parties retain full rights to develop?  Of course not.  

There is a mighty hole at the center of Georgist thought.  The values that land has are a result of human efforts.  Almost none of its values are inherent.  How much is an acre worth on the moon?  How much was an acre worth in the stone age?  How many acres of land would it take to induce you to take a one-way trip back to the stone age?  If you think on these questions you will find that land has value, for you, largely because of things not on or part of it - i.e., that it has cheap transport connections to places where you can buy necessities, and see people you love; that it exists in a society where you can get modern medical care, computer services, etc.  In your case, that it separates you from other things.  None of these things are inherent in the land.  Therefore the "raw" land (if such a thing were identifiable) has almost no value at all.  Almost all of its value, for you, is derived from human actions.
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Leonard

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What Georgism Taxes
« Reply #28 on: August 19, 2003, 09:54:17 am »

RS, while it is true that Rothbard is an economist, he is an Austrian.  And we are not particularly into numbers.  We are more into philosophy.  In any case one does not debunk philosophical ideas, like the basis for taxation, with numbers.  If I say that the average American pays $2157 in income taxes that says exactly zero about whether or not income taxation is morally acceptable.

Rothbard used 100% for a very good reason, IMO: there is nothing in Georgism that excludes it.  You say George proposed 95%.  Very well, why?  Under what principle?  Either the raw land really is collectively owned, or it is not.  If it is, under what principle do we "give away" even 5% of the rent?

If Georgists cannot articulate a good philosophical reason why their tax should be 1, or 2, or 95, or 100%, then there is no reason to think that it would be any particular value.  And we know from the real world that taxation levels tend to creep up.  What's the difference between 95 and 96%, especially given that The Children have some new, serious needs?!

Rothbard criticizes the single tax at 100%, I would guess, because it is easiest to do so there.  It is easier to analyze, and it is easier to show extreme, bad results.  You, of course, have the option to say that 100% is right out for you.  But until you can rule it out of the philosophy as a whole, Rothbard's criticisms apply.

Incidentally, I think that most, if not all, of Rothbard's arguments will end up applying practically as strongly for a 95% level as for 100%.  I don't recall any that rely on that last 5% - the market distortion in land speculation, for instance, is still very much there when holding land is "only" penalized 19/20 as much.  This still will have the effect of (almost) eliminating speculation and its important market function of allocating land to the highest value.  But I'd have to reread the thing carefully to be sure that all the arguments still hold weight.
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RhythmStar

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Re:What Georgism Taxes
« Reply #29 on: August 19, 2003, 12:04:16 pm »

RS, while it is true that Rothbard is an economist, he is an Austrian.  And we are not particularly into numbers.  We are more into philosophy.  In any case one does not debunk philosophical ideas, like the basis for taxation, with numbers.  If I say that the average American pays $2157 in income taxes that says exactly zero about whether or not income taxation is morally acceptable.

Dictionary problem then.  My definitions of economist and moral philosopher hold that they are different, albeit not mutually exclusive, things.

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Rothbard used 100% for a very good reason, IMO: there is nothing in Georgism that excludes it.  You say George proposed 95%.  Very well, why?  Under what principle?  

The royalty to landholders is intended to capitalize the value of land and bring market forces to bear on that process.   It is a pragmatic consideration.

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Either the raw land really is collectively owned, or it is not.  If it is, under what principle do we "give away" even 5% of the rent?

A right of property in movable things is admitted before the establishment of government. A separate property in lands not till after that establishment.... He who plants a field keeps possession of it till he has gathered the produce, after which one has as good a right as another to occupy it. Government must be established and laws provided, before lands can be separately appropriated and their owner protected in his possession. Till then the property is in the body of the nation.  --Thomas Jefferson

The land is not owned by anyone.  Two people arguing over who owns the land is like two fleas arguing over who owns the dog.  How can you own something you neither created, nor destroyed?  The land is here for us to use and the only claim we have on it as individuals is that which our fellow humans deign to respect, or that we impose upon others by force of arms.   A decent discussion of the origins of this culture's attitudes towards land titles (note the royal ring to that :) ) is found here:  

Are You a Real Libertarian or a Royal Libertarian?

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If Georgists cannot articulate a good philosophical reason why their tax should be 1, or 2, or 95, or 100%, then there is no reason to think that it would be any particular value.  And we know from the real world that taxation levels tend to creep up.  What's the difference between 95 and 96%, especially given that The Children have some new, serious needs?!

Children?  What's that got to do with anything here?  We're talking about tax policy, economic growth, and proper checks and balances.  As for value, the value of land is created by society... even wilderness is so valued by it's relative nature when compared to the urban areas -- if all were wilderness, none would appreciate!  Furthermore, it is only the Law that grants title to land.  So, if we are to live as civilized beings and not Afghani warlords, our land is ruled by Law and that rule not only grants and defends our Titles, it appreciates the value of the land.   Land I might add that is only morally held in a private, government-enforced  monopoly, if it is put to some valued use (even if that use is a wildlife park).

Personally, I think the Austrian School does the world a bit of disservice by making a utilitarian science for the efficient and prosperous organization of society into religion.  Reasonable humans are allowed (indeed inevitably fated) to disagree.  In all other domains but religion, such disagreements may be solved with negotiation and compromise.  In making economics a religious discipline, the Austrian school introduces an element of absolutism that is counter-productive.   If this school is to be the savior of freedom, no wonder we are so oppressed... by moral absolutists!

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Rothbard criticizes the single tax at 100%, I would guess, because it is easiest to do so there.  It is easier to analyze, and it is easier to show extreme, bad results.  You, of course, have the option to say that 100% is right out for you.  But until you can rule it out of the philosophy as a whole, Rothbard's criticisms apply.

I say Rothbard has criticized nothing but his own misunderstandings of the innards of the Georgist concept.  I believe this is simply because he is steeped in the European Royalist tradition and suffers from a severe case of Throneroom Envy.   He has internalized the old saw "A man's home is his castle."  Dominion is a fallacy of Heavenly proportions, as there simply is no such thing, if you reject force and fraud.  

Your works are your property.  God's works are no man's property.  Yet, we have all been given the right to share in God's works, as we need a site upon which to produce our own works (our True Property).  So, there is no conflict between the Single Tax and private property.  In fact, the Single Tax is merely a utilitarian method of funding the government, whose law enforcement activities grant and defend the very titles that the landholder possesses.

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Incidentally, I think that most, if not all, of Rothbard's arguments will end up applying practically as strongly for a 95% level as for 100%.  I don't recall any that rely on that last 5% - the market distortion in land speculation, for instance, is still very much there when holding land is "only" penalized 19/20 as much.  This still will have the effect of (almost) eliminating speculation and its important market function of allocating land to the highest value.  But I'd have to reread the thing carefully to be sure that all the arguments still hold weight.

Try rereading it with a spreadsheet handy.  You might be suprised at the results.  :)

The Single Tax does not impoverish landholders, as both they and the tenents benefit from much greater liquidity in the markets.  And with no taxes at all on labor or capital (and no hidden tax in the form of complex tax laws), the Free Market in True Property booms, making the Single Tax a minor annoyance.  Yet, because of the ability of the minority landholders to pass the tax onto the majority tenants as PART of the tenant rents, the unlanded majority must carry the brunt of the Single Tax, which is the best way I can think of to keep them from picking their more successful fellow's pockets (as they do today).

RS

« Last Edit: August 19, 2003, 02:06:26 pm by RhythmStar »
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Irony is the innate perversity of circumstance. -- William House
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