Alan Kohler: Listen to George

Cross-posted from Alan Kohler’s The Constant Investor, the 2nd time he has written about Georgism in recent years.

Saturday was the 178th birthday of Henry George, who, in 19th century America, worried about inequality and puzzled over why technology was not delivering better results for working people, rather like economists and central bankers are doing today.

His solution? That government should be funded by a tax on land rather than taxes on labour.

Henry George reminds us that there’s nothing much new in the world. In his masterpiece, Progress and Poverty, George wrote: “At the beginning of this marvellous era it was natural to expect, and it was expected, that labour-saving inventions would lighten the toil and improve the condition of the labourer; that the enormous increase in the power of producing wealth would make real poverty a thing of the past.

But “disappointment has followed disappointment, and that discovery upon discovery, and invention after invention, have neither lessened the toil of those who most need respite, nor brought plenty to the poor”.

Progress and Poverty was published in 1879 and sold three million copies, outselling the Bible for a while.

Henry George was self-taught. He left school at 14 and got a job as foremast boy on a ship headed for Melbourne, although it’s unclear whether he got here.

He became a journalist, read prodigiously and wrote a big book with a big idea, then went on the speaking circuit, tried to get into politics and died of a stroke at the age of 58. Like JM Keynes, Karl Marx and Ronald Reagan he has been immortalised with an “ism” — Georgism — plus the diehard Henry George League, which in this country has become “Prosper Australia”.

Although his idea caused a sensation at the time, and achieved a cult-like following, it never actually happened because rich landowners were then, and still are, in charge.

And even when Keynesianism meant that taxes on labour proved inadequate to fund the ever-expanding demands on government, politicians still veered away from land taxes and went for taxes on consumption instead, while Reaganism, and now Trumpism, reduced income taxes on the rich.

The other reason Georgism never took off might have been that Henry George actually went a bit further than simply proposing a land tax. In the chapter of Progress and Poverty headed “The True Remedy”, he wrote:

“This, then, is the remedy for the unjust and unequal distribution of wealth apparent in modern civilisation, and for all the evils which flow from it: We must make land common property.” (His italics).

Karl Marx was proposing something similar around the same time, but he and George didn’t see eye-to-eye because the American correctly thought Marx’s ideas would lead to dictatorship.

Unlike Marx and his disciples in Europe and Asia, Henry George was an idealist who believed in the essential goodness of human nature: “I … propose to show that the laws of the universe do not deny the natural aspirations of the human heart; that the progress of society might be, and, if it is to continue, must be, toward equality, not toward inequality.”

But the first part of Progress and Poverty is mainly an argument against the private ownership of land, which was never going to get very far with anyone in post-civil war United States, let alone the bankers and industrialists who were in charge of the place at the time (and still are).

But in Book 8, Chapter 3, he gets to the idea of taxing privately owned land as an alternative to making land common property, writing: “Taxes levied upon the value of land cannot check production in the slightest degree, until they exceed rent, or the value of land taken annually, for unlike taxes upon commodities, or exchange, or capital, or any of the tools or processes of production, they do not bear upon production.”

Taxes on the earnings of the labourer or the returns of the capitalist “render the one less industrious and intelligent, the other less disposed to save and invest”.

Taxes on “things of unfixed quantity” (that is, GST or import tariffs) increase prices and are shifted from seller to buyer, increasing as they go.

Land taxes, he argued, not only don’t check production, they “tend to increase production”.

And here we are, 138 years later, with Donald Trump, Brexit and a serious problem with inequality and the uneven consequences of technology.

Wages growth is stubbornly weak and productivity is surprisingly low despite a wave of new technology. Central banks are forced to distort the price of credit and inflate asset prices in a so far vain attempt to encourage output and income growth, and there are growing calls for some kind of Universal Basic Income to deal with the problem of technology displacing workers, as it did in Henry George’s day.

Maybe it wouldn’t be happening if Henry George had been listened to first time around, but we’ll never know.

Maybe it’s time to listen to him now.