Will Cryptocurrencies Force Land Value Taxation?

By Frank de Jong

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.”
~ R. Buckminster Fuller

Cryptocurrencies, like Bitcoin, are a form of anonymous, electronic currency that is not backed by any government or bank. From any phone or computer, anyone can exchange their national currency for a cryptocurrency, and use it, like any other currency, to buy and sell goods or services.

The critical difference between government or bank-backed currencies and cryptocurrencies is, precisely, that cryptos function without the oversight or control of central banks or national governments. Cryptos are anonymous, as was said, so sales, income or business taxes cannot be applied to transactions for which they are used.

The use of cryptos has been rising in popularity. If this trend continues, more and more salaries, sales and business transactions will be removed from the reach of government taxation, thereby forcing governments to seek other sources of revenue. In all likelihood, governments will quickly discover that land value taxation can serve as their alternative source of revenue; and in fact this source of revenue will be seen as more equitable since it isn’t earned income. It will, as well, have more societal support. Collecting the rental value of public assets, like land and its natural resources, along with levies for the privilege of polluting, will be seen as ideal sources of government revenue, because they are less costly to administer, because they are difficult to evade, and because there are far fewer points of taxation.

Could the rise of cryptocurrencies be the long-awaited phenomenon that finally forces governments to switch from economy-damaging, dead-weight taxes to economy-enhancing value capture? 

Milton Friedman, it may be recalled, predicted anonymous e-cash 21 years ago, arguing that electronic currencies would make it harder to collect taxes, thus leaving governments few options but to move to LVT.

By making earned income more difficult for governments to socialize, crypto-currencies will be doing the work of the angels. Earned income belongs exclusively to the person or business that earned it, and which the government has no right to. With job-killing, income taxes increasingly unavailable, governments will be forced to do the right thing, to finance programs by capturing unearned income, that is, the economic rent that accrues to sites, sources, sinks and to privileged access to public infrastructure. 

Serendipitously, it may indeed be cryptocurrencies that finally end up requiring people and businesses to compensate the community for their privileged access to the commons. Financing government programs by collecting rent actually invigorates the productive economy by removing the incentive to speculate on assets like land and resources.  This, in turn, leaves investors no option but to invest in the productive economy. A secondary benefit will be a leveling out of the speculation-driven real estate and of recurrent resource boom-and-bust cycles.

In future, people may consider the separation of money and State to be as important as we now consider to be the separation of Church and State.

Decentralized e-currencies are a valuable experiment which may demonstrate that a natural rate of interest can evolve, independent of banks and bankers. Theoretically, a natural interest rate would reflect the productivity of the economy, but without any need for central bank or governmental intervention or manipulation. Cryptos do not pay interest like the banks do, because they do not need to, and thus they are currency that central banks cannot engineer to depreciate.

If you’re curious about cryptocurrences, then have some fun, experiment from the comfort of your living room. Convert some of your fiat to Bitcoin or Ether or Litecoin and buy something with it. The experience will change your life.  Plus, you will familiarize yourself with a technology that could help usher in the changes long envisioned and worked for by the international Henry George movement.

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