That's So Hundred-years-ago

We sometimes hear people say that Georgist ideas are out of date. Even if Henry George was onto something way back in the nineteenth century, that's hardly relevant now, when only two percent of the population are farmers, and we have all sorts of ways of doing things unknown back then. Can an economic theory from the age of steam engines fit a society that uses nuclear reactors and computer networks?

People who sneer at George's "19th century nostrum" often themselves hold views dating to the 18th century, if not to Ptolemaic Egypt, but let us leave that to one side. It is, after all, reasonable to raise the question of whether a theory valid in one set of circumstances is applicable in another, or whether the remedy for one ill will only make matters worse for another sufferer in another climate.

Henry George, that man of the nineteenth century, believed that depressions and unemployment were caused by land speculation, and illustrated his hypothesis with what he had observed in his own time: "If the population of California had steadily grown when the long, costly, fever- haunted Isthmus route was the principal mode of communication with the Atlantic States, it must, it was thought, increase enormously with the opening of a road which would bring New York Harbor and San Francisco Bay within seven days' easy travel, and when in the state itself the locomotive took the place of stage coach and freight wagon. The expected increase of land values which would thus accrue was discounted in advance. Lots on the outskirts of San Francisco rose hundreds and thousands per cent., and farming land was taken up and held for high prices, in whichever direction an immigrant was likely to go.

"But the anticipated rush of immigrants did not take place. Labor and capital could not pay so much and make fair returns . . . As the transcontinental railroad approached completion, instead of increased activity, symptoms of depression began to manifest themselves . . ." (Progress and Poverty, Book V, Chapter 1.)

Today, railroads are not the cutting edge of progress; we have airplanes and the Internet. So, even if George was right about the cause of the depression of the 1870's, does anything similar happen today? And would George's proposed remedy of a single tax on the value of land put the unemployed of today to work?

Let us turn to a front page article in the Wall Street Journal, January 24, 2000, written by Peter Landers, whom I do not recall meeting at a Georgist convention, but who seems to have seen for himself some of the same things that Henry George did. After speaking of the capital and labor markets in Japan, he writes, "The most difficult hurdle for Japan to clear is the third element of production, land. Nine years after Japan's real- estate bubble burst, the nation's leaders are still reluctant to let supply and demand alone rule the property market.

"There's a square block in Nihonbashi, the center of commerce in the capital for 400 years, that used to hold a big department store owned by Tokyu, one of the nation's oldest retailers. After Tokyu closed the store a year ago, it couldn't find a buyer for the land at the price it wanted. So a government-affiliated body bought the land above the market price for 51.4 billion yen."

In other words, the Japanese government is not only permiting land speculation, but deliberately subsidizing it, spending the taxpayers' money to keep land prices from falling to affordable levels. Why? Partly, one suspects, the raw political influence of landowners, but that isn't all. Japanese politicians, like many politicians elsewhere, probably combine personal ambition and greed with a genuine desire to do good for their country, and, as the Wall Street Journal goes on to say, "[F]alling land prices would probably cause more bankruptcies and unemployment, as banks and construction companies that are still hiding their real-estate losses would be forced to come clean. This isn't a chain of events politicians in Japan are eager to set in motion, particularly during an election year."

If the Japanese government bit the bullet and sold that block of Nihonbashi for whatever it would bring, a number of unemployed would-be construction wokers could find jobs replacing or refurbishing the store that formerly stood there. Then more people could find jobs working in the store, or possibly in a factory or warehouse or office building on the site. That would help absorb the unemployed from the wave of bankruptcies and unemployment that would follow when land speculators' balance sheets went south. Replacing Japan's income and sales taxes with land value taxation would bring about new factories, stores, warehouses, and office buildings on many vacant lots in the middle of built-up areas, providing millions of more jobs, and also enabling countless salarymen to live closer to their jobs, and spend less time packed into trains commuting.

But there's no need to go to Japan for an example of land speculation. Just try finding a place to live in Silicon Valley, and you'll find out for yourself that the Internet has not made land irrelevant. Land near the cutting edge R&D facilities of the computer age is expensive, just as land near the transcontinental railroad was more than a hundred years ago. Thus, the high salaries some people earn for their high tech work are to a great extent absorbed by landowners who contribute nothing to production except their gracious permission to use some of what God created. The lower salaries that other people earn for working as janitors or teachers or policemen make it impossible for them to live anywhere near their jobs.

The situation can be greatly ameliorated, at the same time relieving producers from the taxes that punish them for creating wealth, but that would require the world to rediscover an unfashionable 19th century nostrum.

Nicholas Rosen -- May 1, 2000

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