The Single — The Rent, Plate v

If rent is a surplus that does no economic work — a payment for owning a scarce thing rather than for any contribution to it — then a moral question follows with some force: should it be received by private owners at all? The nineteenth century's most influential answer came not from a professor but from a self-taught journalist, Henry George, whose Progress and Poverty (1879) outsold every economics book of its age and built, on a single idea, a political movement that briefly shook two continents.

George fixed on a particular feature of land rent, most visible in cities. The value of a parcel of urban land, he observed, is created almost entirely by the community around it — by the streets and sewers, the neighbors and shops, the growth of population and commerce that make a location desirable. The owner who merely holds the parcel, doing nothing, watches its value swell as the city rises around him, and pockets the increase. George called this the unearned increment: value the community creates and the landowner captures, for no reason but that he holds the title. It was Ricardo's surplus, restated with moral heat — rent as a private appropriation of a public creation.¹

1. Henry George, Progress and Poverty (1879): the unearned increment of land value, created by the surrounding community and captured by owners who do nothing. J.S. Mill had earlier proposed taxing the future unearned increment of land, but George made it the center of a mass movement.

From this came George's famous remedy: a single tax. Since the rent of land is a surplus the community creates, society should reclaim it through a tax on land values — on the value of the bare location, not of the buildings or improvements upon it, which are the owner's own work. And George went further: this single tax on land, he argued, would yield revenue enough to fund the whole of government, so that every other tax — on wages, on trade, on goods — could be abolished. One levy, on the one income that was purely unearned, in place of all the levies that fell on effort and enterprise.²

2. The single tax: a levy on land value alone — deliberately exempting buildings and improvements, which are the owner's product — proposed as sufficient to replace all other taxation. The Georgist movement was a major force in late-nineteenth-century reform politics on both sides of the Atlantic.

⁂

Here the argument takes the turn that has kept it alive in economics long after George's moral fervor faded, and that has won it the assent of economists who agree on almost nothing else. Nearly every tax does damage beyond the revenue it raises, because it changes behavior at the margin: tax wages and people work or report less; tax capital and investment falls; tax a good and less of it is made. That change is the deadweight loss of taxation — value destroyed over and above the money collected. But the supply of land is fixed. It cannot be produced, cannot flee the jurisdiction, cannot shrink in response to a tax. Tax the rent of land and the quantity of land is exactly what it was; no behavior changes, nothing is destroyed, and the tax falls entirely on the idle surplus identified in the previous plate. A tax on pure rent is the one tax with no deadweight loss — efficient precisely because rent does no economic work, and so can be taken without deterring anything.³

3. The no-deadweight-loss property: because the supply of land is perfectly inelastic, a tax on its rent changes no behavior and destroys no value, falling entirely on the idle surplus. It is the rare case where the equity argument (the income is unearned) and the efficiency argument (the tax is undistorting) point the same way — which is why economists as far apart as Milton Friedman have called a land-value tax the "least bad" tax.

The proposal is not without real difficulties, and honesty requires them. First, measurement: separating the value of the bare land from the value of the buildings and improvements on it is genuinely hard, though assessors do it imperfectly every day, and modern data have made it easier. Second, transition: today's land values are already capitalized into the prices current owners paid, many in good faith and with borrowed money; to impose the full tax now would inflict a one-time capital loss on them, which raises a fairness question about the transition distinct from the justice of the steady state. Third, magnitude: in Ricardo's agrarian economy the rent of land was a large enough share of national income to fund a government; in a modern economy the rent of bare land is a smaller slice, so the "single" tax is now generally proposed as one tax among others rather than the only one.⁴

4. Three difficulties: the practical problem of assessing land separately from improvements; the transition problem, since current prices have already capitalized expected rents and a tax imposes a one-time loss on present owners; and magnitude — the rent of bare land being too small a share of a modern economy to be the sole tax. These have turned the modern proposal from George's single tax into a land-value tax among others.

George's deepest contribution, for the purposes of this volume, was not the specific proposal but the principle beneath it: that the right base for taxation is rent — the unearned surplus that does no work — because taxing it neither shrinks the scarce thing nor deters any activity. That principle reaches far beyond land. Every modern policy that aims to capture a rent for the public is Georgist in spirit: the auctioning of radio spectrum to the highest bidder rather than its free gift to incumbents, congestion charges on scarce road space, royalties on the extraction of finite minerals, windfall taxes on fortunes made by luck or position, the taxation of monopoly profit. In each, a scarce thing throws off a rent, and the rent is captured for the public without distortion, because by its nature it could be taken without changing behavior. George was the first to see, systematically, that the line between rent and reward is the line along which a tax can be laid without harm.⁵

5. The Georgist principle generalized: rent is the ideal tax base. Modern instances include the auctioning of radio spectrum (informed by Vickrey's auction theory), congestion pricing of scarce road space, severance taxes on resource extraction, and windfall or monopoly-profit taxes — each capturing a rent without the deadweight loss that attends taxes on produced things.

George answered the moral question — rent is unearned, therefore take it — and the answer proved, unusually, to be efficient as well as just. But his world was one of natural scarcity: land that simply existed, and grew dear as the population pressed upon it. The next plate confronts a harder and more modern truth — that scarcity, and the rents it yields, are very often not found but made; and that the making of them, and the scramble to capture them, can destroy more than the rents are worth.