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The Basic Fundamentals of Georgism

Although the political-economic philosophy of Henry George was once common to most literate people in the western world and even beyond, the past century has seen its resurgence in many quarters. This is due in part to the advent of easier communication through the Internet and other avenues.  But it is also due to the power of computers and available data that allows demonstration and simulation of models that show the tractability and validity of Georgist ideas.

The basic idea is quite simple, and has roots traceable to ancient cultures and civilizations: that any materials of market value that are not created by human hands or minds are owned by people in usufruct, and only those items of our own creation can be owned outright. The contrast is usually drawn between market items owned provisionally, in usufruct, and those owned in fee simple. Other terms often used to draw the contrast are articles in leasehold versus those held as freehold.

Classical economics, growing largely out of the writing of Adam Smith’s Wealth of Nations, followed by further works of Thomas Malthus, David Ricardo, John Stuart Mill, and culminating best with Henry George’s noted opus Progress and Poverty, outlined clearly the framework from which the modern Georgist paradigm exists. George died in 1897 and his tradition remained strong until the 1920s, after which it was supplanted by a discourse that dominated economics throughout the end of the last century. 

Unlike the thinking that characterizes what is labeled neoclassical economics, classical political economy was framed by three factors of production – land (meaning any and all resources with market value not of human origin), labor (the product of people’s minds and sweat), and capital goods, the products of the first two factors (tools). Each of these factors had its price: the price of capital was interest on its use, the price of labor was wages, and the price, really the yield, of land was its rent. It is rent that has largely disappeared from the measurement of natural resource use. This is because land, the wealth of nature, has been been conflated into capital along with other capital goods so that both are regarded as capital assets.

Georgist thought also maintained that the resources of nature were the common heritage of humanity, the birthright of everyone, and that the market yield that arose from their use constituted a rent that should be recaptured by society to pay for the goods and services, which the public needed. Henry George argued that the public collection of resource rents would be sufficient to pay the costs of all such needs so that there would be no call for the taxation of labor or capital goods. Contemporary economists who subscribe to the Georgist view, like Joseph Stiglitz, have named this the Henry George Theorem.

If the collection of revenue from the flow of resource rents can be called a tax, the act of doing so would have the effect of protecting what has historically been the “commons.” Today, whether it is in the form of pristine nature, rents collected from such, or the resulting provision of public goods and services, all of these have the effect of being the modern-day commons.

A century ago, the Georgist idea was sufficiently logical and compelling enough that millions of people were persuaded by it. Progress and Poverty, the first of George’s six books and many articles and speeches, was translated into 14 languages and sold more copies in a short period than any book ever published -except the Bible. The persuasive power of George’s language was, by itself, sufficient to win the day. Today, Georgist acolytes are able, with the power of empirical analysis using computers and available data, to make tractable arguments that add to persuasive language. It is also possible to show that the tax regimes that presently prevail have marked downside effects, whereas a tax on the flow of resource rents has all the attributes of a perfect tax.  This, follows all of the principles of sound tax theory that have obtained in recent decades.

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