Progress and Poverty

My time studying Economics here at Columbia has been strange in some ways, as I’ve found many things in Economic theory to not be very good descriptors of the problems they’re trying to address. (An example, in my macro class, when addressing the issue of “where economic growth came from”, they’d studied it and broken it down into growth from labor, growth from capital, and growth from technology. The first two can be measured somewhat, but the third cannot, and this is where a very large portion of the growth comes from. So they defined technology growth as being whatever isn’t the first two types. And some genius got a Nobel prize for coming up with this. *shakes head*)
But recently, in my last semester, I came across a piece of work that makes all the pain and nonsense in some of the other classes worth it; it’s something that reminds me why I got into studying Econ in the first place. The book is called “Progress and Poverty” by Henry George.
Henry George (1839-1837) lived in California and was concerned with the question of why poverty seemed to be increasing and getting worse in spite of all the progress brought about through the industrial revolution. His answer, in simple form, was that poverty comes from landowners restricting access to land (and for George, land meant “natural resources”, so iron ore in the ground and a good fishing stream were all land in his mind), such that people must pay them for access, and landowners set the rates (collecting “rent”, in economic terms). He said most men, given natural resources, could make something out of it, at least enough to survive on and usually more than a surplus. But if they don’t have free access to resources, they’re in bad shape.
The answer to this problem for George was what he called the single tax. He proposed taxing the value of land (not real estate, which is land and buildings, but just the value of the land), and nothing else. This type of system has a number of advantages. In Economics, all taxes are known to have adverse effects, because they give people an incentive to use less of something. But if you tax land, people will still use it because it is in fixed supply. The benefits from the added value of some types of usable land (a mine is more valuable land than a desert) will go back to the community through the taxes, and basically helps to encourage better & more equitable access to land.
This system, which today is usually called Land Value Tax (LVT) has several other very powerful advantages, and it has very few drawbacks. The only real big objection is that it will decrease land values, which make up a large source of the wealth in any country. And those who own land have a strong incentive not to let this happen.
However, the important thing to consider is that much of that loss in value is just a loss in book value. And because there would be no other taxes, you’d be able to put land to more productive uses. And it could go a long way towards solving some very large inequalities.
I read through the book, it’s old but it’s well written and isn’t very long, and have been deeply influenced by the idea, the more I’ve thought about it. I’m planning to write a paper on it for my class, since this system is used in some places like Taiwan. It was very inspiring though to come across one big idea in my studies here that captured my interest; I’m glad to know it hasn’t all been utility functions and OLS regressions.