What is Georgism?
Have you ever wondered:
Why is there so much inequality in our society?
Why is it so hard for ordinary people to get ahead?
Why do we keep spending more and more money on public services (education, transportation, etc.) but the quality seems to go down?
Why do things like computers and refrigerators get cheaper but the really big ticket items like education, healthcare, and housing get ever more expensive?
Why is the rent so damn high?
Why does economic growth harm our environment?
Why does neither political party have a compelling answer to any of these questions that actually makes a noticeable difference?
It turns out that a 19th century American economist named Henry George had answers to all of these questions.
His solution is at once radical and incrementalist; thrilling and boring.
Since it’s an old idea, Georgism has actually attracted a pretty wide range of supporters. 20th century socialists like Ida B. Wells and Sara Bard Field called themselves Georgists. So did arch-conservatives like William F. Buckley and Milton Friedman.
Georgists believe in a third way that is neither capitalism nor socialism, but takes the best parts of both. (And no it’s not Neoliberalism!)
Georgists believe in Dynamism and Decency. The dynamism of capitalism brings wealth in the form of vaccines, microbreweries, and technology. The decency of socialism brings Universal Basic income, environmental stewardship, and an ever rising social safety net.
Henry George’s core insight can be summed up with the old-timey political cartoon at the top of the page.
In our era of gridlock and partisanship, might the time be right for this third way?
Land is special
Economists say there are three “factors” of production: Land, Labor, and Capital.
Love him or hate him, we’re all kind of still stuck in Karl Marx’s framing of an eternal struggle between Labor and Capital. Marx, like many economists, lumped Land and Capital into one bucket.
But George saw that this obscured something crucial: Land is really special.
Why?
First, Land is uniquely necessary for making wealth. It’s easy to see that Labor can create wealth without Capital: just imagine a person picking apples by hand in an orchard. It’s also possible for Capital to create wealth without much proletarian Labor: picture a hedge fund minting money with money.
However, neither Labor nor Capital can make wealth without Land. This is obvious in the case of the apple picker. The orchard needs to go somewhere. But capital also needs a place to live: office-buildings, server farms, and factories need to sit somewhere too.
Second, Land is uniquely scarce. While the pool of Labor can increase through population growth, and the pool of Capital can grow through accumulation and technological innovation, the pool of available Land is fixed! They aren’t making any more Land.
(And before you mention the Dutch, we’re using capital-L “Land” to refer to any naturally occurring opportunity or resource that was not created by human hands. This includes oil deposits, fisheries, oceans, the sea floor which the Dutch turn into dry land, the electromagnetic spectrum, radio frequencies, etc. For much, much more detail on these dynamics read this excellent book review of Progress and Poverty).
Summing up, George understood that Land is different from Labor and Capital in that:
Everyone needs it (it’s fundamentally necessary for wealth creation)
We cannot make more (it’s fundamentally in fixed supply)
So?
Well, what happens when demand is high, and supply is fixed?
What do we mean by Rent?
Bear with us on the Wonky Econ Definition Train just a little longer.
In economics, each of the three factors of production (Land, Labor, and Capital) have earning potential. Land earns Rent. Labor earns Wages. Capital earns Interest.
But the term upper-case-R “Rent” is confusing because we use lower-case-r “rent” in everyday language. Many of us, myself included, pay lower-case-r “rent” to a landlord.
It’s extra confusing because the lower-case-r rent that I pay my landlord is actually made up of two economic components:
The upper-case-R Rent earned by the Land
The “Wages” owed to the landlord for his “Labor” in improving the land
We don’t think of landlords as earning Wages; we think of them as earning lower-case-r rent.
But it’s essential to separate the work that landlords do which earns Wages (e.g. installing double-pane windows, fixing the heater, adding a hot tub) and the deed to the Land which earns upper-case-R Rent.
This is not an academic distinction. It’s core to everything because it turns out that the portion of “rent” that is upper-case-R Rent dwarfs the part that is Wages.
Georgists love and support landlords working hard to earn Wages through improvements to their property.
However, Georgists don't believe that landlords should be allowed to keep the upper-case-R Rent from their Land.
Why?
Upper-case-R Rent is special
Like Land, upper-case-R Rent is special. Of the three types of earnings, Rent is the only one that can be earned without doing any work.
It’s self-evident that Labor requires work. Capital also requires work: the machines and products have to be invented, the business strategies dreamed up.
But Rent can be collected merely by holding onto a little piece of paper that says you own the Land.
And here’s a dirty little secret: upper-case-R Rent’s value is entirely created by the community - i.e. laborers and capitalists.
If more people (i.e. laborers) move to an area, the Rent will increase due to increased demand for Land. If more technology and innovation (i.e. Capital) move to an area, the Rent will also increase due to increased demand for land. This is because with more technology I can produce more on a given piece of land than before.
It turns out we’re getting hit from both sides! Our society is growing ever richer through population growth and innovation. And thus, as George predicted in 1879, no matter how much progress we make as a society, the Rent keeps going up.
The fruits of progress aren’t accruing equally to all in society, but are instead being captured by landlords who continue to raise the rent.
This is causing, like, all of our problems.
Land’s value comes from the community
This is all veering quickly into The Danger Zone of wonky, technical, and boring economics.
So let me ground it in reality:
I live in the Mission District of San Francisco - World Capital of Gentrification. Over the past 10 years, lower-case-r “rents” have exploded.
Why?
A tech boom brought more people (Labor) who could earn higher salaries due to technological innovation (Capital).
Tech companies created high paying jobs, which attracted a lot of workers. Those workers attracted more Capital and investment in things like fancy coffee shops, wine bars, local theater groups, restaurants, and breweries.
This created a self-reinforcing cycle of demand that created some of the highest average rents in the country.
Now, did the landlords of San Francisco do more work causing them to earn more Wages? Mostly no!
It was almost purely the return on Land, not the structures. Upper-case-R Rent went up and that drove lower-case-r up.
Who caused the upper-case-R Rent to rise? The community!
It as the people who make the Mission an awesome place to live: the entrepreneurs and laborers who invent awesome cocktails, maintain our parks, make delicious food, and put on one-person plays at the Marsh.
Henry George said that this kind of profiteering on upper-case-R Rent was unjust. Because the people who made the Land more valuable weren’t reaping the benefits. In fact, they were worse off because it cost them more to live.
The Paradox of Progress and Poverty
What’s happening in San Francisco is happening across the country. We are making Progress: our population is growing and our technologies are improving.
This creates ever increasing demand on a fixed supply of Land. Thus all the benefits of Progress get soaked up in the form of ever rising Rent.
And this cycle is why you cannot have Progress without Poverty. (It's also a potential cause of the much discussed "cost disease").
This is why even when we increase spending on public goods like school and transportation, we never seem to have enough.
This is why despite being one of the all time wealthiest societies, we have not solved poverty and it seems to be getting worse and more heart wrenching than ever.
This is why your taxes feel high but the benefits can feel low.
This is why no matter how much money we spend on reducing poverty through charity, non-profits, and government programs, we will never solve poverty. All of our spending and investment will eventually find its way into the hands of private landlords.
If you feel the game is rigged, you are not entirely wrong.
George’s solution: The Citizen’s Dividend
There is Good News: Henry George had a simple solution to fix this paradox.
Tax away all of the upper-case-R Rent (i.e. the part that is unearned by the landlord and created by the community)
Return it to We the People via The Citizen’s Dividend
If we do this, we will reap the benefits of Progress (Dynamism) and eliminate Poverty (Decency).
This is done by putting every member of the community in the position of the landlord. This is done by taxing ALL upper-case-R Rent so that landlords can only make Wages but not Rent.
The goal is not to ruin landlords, merely to make them earn their keep.
This tax revenue is then redistributed back to We the People - turning us all into landlords who benefit when our communities get richer.
After all, the Rent is driven up by the hard work of the people. Shouldn’t we get it back?
This form of taxation creates an ever rising floor. When innovation and population growth make land more valuable, taxes automatically rise in proportion to offset that rise in Rent.
Thus if a tech boom hits our city, the government will receive more revenue to subsidize lower-case-r rents and provide services.
This is a massive improvement over our current system where we constantly have to scratch and claw for more funding of public services from people like this.
Replacing all other taxes
But Georgism isn’t just for socialists. Arch-conservatives like Milton Friedman are into it. Why?
George believed that the amount of tax revenue we can raise from Land so monumentally dwarfs what we can collect in other taxes, that we could entirely eliminate or at least significantly reduce all other taxes on income, sales, property, capital gains, etc.
Whether and how we would do this is a story for another post. But it’s the thing that ties it all together and makes it a potentially bipartisan solution.
What’s next
Georgism can answer a lot of fundamental questions about what’s happening in our society in a unique and novel way. In coming posts we’ll explain how under Georgism:
We can remove a significant and hidden drag on the economy
We can lower the cost of living significantly
We can put more money in the pockets of everyday folks like you
We can have a rising social safety net that increase automatically with increasing prosperity
We can make Billionaires actually pay their fair share - today and forever!
Hopefully you’re nodding along as you read this. But you probably have questions and objections like, “Yeah yeah, I’d love to stop paying income taxes, see my cost of living go down, and make life easier for ordinary folks, but:
Is Land really that important?
What about retirees?
Do people still own their homes?
What is the incentive to improve properties if we tax them heavily?
What about small businesses? What if they cannot pay their rent?
I am a homeowner - won’t this screw me?
I don’t want to live in a Manhattan-ized Urban Monstrosity! I like my quiet little town!
Sure this is exciting stuff, but it’ll never happen will it?
What about the seemingly impossible Transition?
At the end of the day, Georgism is wonky - it’s an update to the tax code after all.
It’s also foreign enough that it’s easy to get confused on the basics.
The goal of this blog is to break down these questions and solutions into simple bite-sized posts so that we get our heads around whether or not this Georgism thing actually makes sense.
In the coming posts we hope to answer your questions - so email us if you have some already that we have not yet answered!