An alternative to Marxist explanations of inequality

Long ago (in 2006!), I wrote a blog post proposing that property taxes should replace other taxes (e.g., on income). Some people suggested that I was following in the footsteps of Henry George (1839-1897), a self-taught economist who proposed a single tax on land as a replacement of all other taxes. I had never heard of George (!) and disagreed on taxing land (his idea) vs taxing land+improvements (mine), but I made a note to look him up some day.

Well, this weekend brought that day, and I started to read his Progress and Poverty (1879) — the third (!) most popular book of the 19th century. (It’s available for free download due to its expired copyright.)

While reading, I realized that (a) George was just as upset about inequality and poverty as Marx but that (b) he identified an equally — and perhaps more realistic — “engine of inequality” — land and other natural resources (water, oil, minerals and metals).

NB: George wrote without knowledge of Marx’s work (Vol I was published in German in 1867 and English in 1887) — and vice versa (Marx was very sick in the years before his death in 1883), so we’re talking about a classic case of “ships passing in the night.”

Marx had focussed on capitalists using their marker power to take advantage of a “reserve army of labor” that was oversupplied due to the Malthusian trap, but he undermined his own argument (this is distilling thousands of pages, some not written by Marx, and not always in agreement) by claiming that capital would get richer over time but still command enough market power (via “scarcity rents”) to continue to take advantage of labor.

Anyways, I am fascinated by George’s claim that those who own land/resources can take advantage of both capital and labor due to their control of the scarcer resource. Economists say that such control allows the owner to charge (or make) “rents,” i.e., profits that cannot be competed away through competition.

The value of land, for example, depends on “location, location, location,” so landlords in Amsterdam need not fear competition from landlords in Halfweg (a small town outside A’dam). The same can be said for owners of water in some parts of California vs those with water in Missouri, or owners of natural gas these days in Europe. Transport and other technology can bring competition, but it’s not nearly as easy to bring competition against land as it it is against labor (“I’ll hire that guy just off the bus”) or capital (“I can borrow money from that guy”).

My one-handed conclusion is that George was onto something when he identified land (and resources) as a source of rents, and thus a driver of inequality due to the extra profits and market power of those owners. His proposal to tax such rents and distribute them to citizens also makes sense, which is why I proposed such taxes as a way to fund basic income in 2014.

I can’t wait to read more of his book 🙂