There are numerous issues which can lead to economic problems and poverty. The intention of this article is not to diminish these issues, which include such things as crime, fraud, corruption, regulation, control of the media, education, health, monopolization of capital, insurance, speculative bubbles in commodities or industries, the military industrial complex, the police state, the nanny state, pollution, drugs, employment issues, trade issues, and degenerative behavior.
This article instead tries to identify the two core issues which leads to systematic poverty during prosperity, and which makes economics known as the dismal science. Economics does not have to be dismal if the two roots of the dismal science are exposed and understood. It are these two roots which could also be considered the roots of tyranny itself.
Henry George and others believe labor to be the basis of property rights. Wages earned through labor and interest earned through capital produced with labor are considered earned income. Other sources of income exist which are considered unearned wealth. Rent or unearned increments of wealth acquired through the value of land is considered a primary source of unearned income.
Henry George expanded that if the right to land is not secured, then the right to your wages would not be secured, that it would be stolen through rent. Having your labor stolen through taxation of labor and through rent was considered a primary source of poverty and social problems. His remedy was to tax away the rent to fund government while at the same time eliminating taxation on earned wealth and eliminate the need for the government to violate your right to your earned income.
“For as labor cannot produce without the use of land, the denial of the equal right to use of land is necessarily the denial of the right of labor to its own produce.” — Henry George
“Charity is false, futile, and poisonous when offered as a substitute for justice.” — Henry George
“At the bottom of every social problem we will find a social wrong.” — Henry George
It should be noted that taxation on labor and the theft of earned income is wholly destructive. The more earned income is taxed or stolen in other means, the worst the conditions. Furthermore, the taxation of earned income is the worse possible trade tariff. A tax on earned income is a negative trade tariff, a trade tariff on domestic production, and a trade tariff against yourself. There is no wonder that jobs are being outsourced and off-shored while we increasingly impose a trade tariff on our own labor and real capital produced with our own labor while we compete with slave labor and crony capital in nations with even less economic justice. The less earned income is taxed or stolen, the more people are able to solve their own problems to prevent poverty, the more able we will be to compete with foreign production, and the better the prosperity. There is no dismal nature of creating poverty among prosperity when it comes to untaxing earned income and stopping the theft of earned income.
It should also be noted that taxing away land values stops speculation in land values, which prevents a speculative boom and bust cycle in land values.
The Bible also made this same distinction between labor being earned wealth of the person who labored and the unearned income of rent being the shared wealth of all in Ecclesiastes.
“Moreover the profit of the Earth is for all….” — Ecclesiastes 5:9
“Behold that which I have seen: it is good and comely for one to eat and to drink, and to enjoy the good of all his labour that he taketh under the sun all the days of his life, which God giveth him: for it is his portion. Every man also to whom God hath given riches and wealth, and hath given him power to eat thereof, and to take his portion, and to rejoice in his labour; this is the gift of God.” — Ecclesiastes 5:18-19
Albert Nock sums up the observations and the problems of the land problem.
“This imperfect policy of non-intervention, or laissez-faire, led straight to a most hideous and dreadful economic exploitation; starvation wages, slum dwelling, killing hours, pauperism, coffin-ships, child-labour — nothing like it had ever been seen in modern times…People began to say, if this is what State abstention comes to, let us have some State intervention.
“But the state had intervened; that was the whole trouble. The State had established one monopoly — the landlord’s monopoly of economic rent — thereby shutting off great hordes of people from free access to the only source of human subsistence, and driving them into factories to work for whatever Mr. Gradgrind and Mr. Bottles chose to give them. The land of England, while by no means nearly all actually occupied, was all legally occupied; and this State-created monopoly enabled landlords to satisfy their needs and desires with little exertion or none, but it also removed the land from competition with industry in the labor market, thus creating a huge, constant and exigent labour-surplus.” — Albert J. Nock
The importance of solving the land problem is summed well by Winston Churchill.
“It is quite true that the land monopoly is not the only monopoly which exists, but it is by far the greatest of monopolies — is a perpetual monopoly, and it is the mother of all other forms of monopoly. It is quite true that unearned increments in land are not the only form of unearned or undeserved profit which individuals are able to secure; but it is the principal form of unearned increment which is derived from processes which are not merely not beneficial, but which are positively detrimental to the general public. Land, which is a necessity of human existence, which is the original source of all wealth, which is strictly limited in extent, which is fixed in geographical position — land, I say, differs from all other forms of property in these primary and fundamental conditions.” — Winston Churchill
Henry George explained the problem and provided a remedy. The remedy of George was a single land value tax on land, which would tax 95% of the undeveloped rental value of land, and remove all other forms of taxation.
The Bible had a similar remedy of Henry George in Leviticus with the 50-year land lease, which is essence a 100% land value tax, combined with a jubilee to turn over and revalue the land.
“The land shall not be sold for ever: for the land is Mine, for ye are strangers and sojourners with Me. And in all the land of your possession ye shall grant a redemption for the land.” — Leviticus 25:23-24
Thomas Paine introduced the idea of one-time citizen dividend funded with collected land rents with his remedy in “Agrarian Justice,” which is a literal interpretation of the demand in Ecclesiastes that the profit of the Earth is for all.
However, the prevailing remedy was the fundamentally flawed remedy of Thomas Jefferson that progressive property taxes should be used. While the prevailing remedy did prevent outright monopolization of land, it still resulted in the problems which Henry George observed, that development and efficient use of land was stunted because developed values were taxed and the land was still being monopolized and unearned wealth of rent on undeveloped land values were still being stolen since undeveloped land values were not being taxed enough.
George, though he did not go into the issue at length, also believed money issued as debt by banks and the issuance of hard currency, which is money issued as debt with interest, rent, and wages owed to the person who found the precious natural resources, to the person who produced the hard currency, and to the person who stores and loans the hard currency, to be a principle source of unearned wealth.
The Bible mentions that money should not be issued with interest and also makes statements against interest earned through financial capital.
“Thou shalt not lend upon usury (interest) to thy brother, interest on the money, or on anything that is lent with interest.” — Deuteronomy 23.19
Georgists, classical liberals, and others believe that money issued as debt to be a primary source of unearned wealth which robs those who labor and a principle cause of poverty and most notably the boom/bust business cycle.
It was also observed that during credit expansion and prosperity, that there also existed a growing condition of poverty. It is for this reason why economics is considered a dismal science in that progress creates both prosperity and poverty.
It is George who identified the mistreatment of land values as earned income to be the principle source of this dismal duality of poverty increasing with prosperity, with monetary issues playing a minor role. Today, more people believe land and money to be equal partners in creating poverty among prosperity, and they join many others in history of the great concern of the monetary problem.
In my Georgist circle of friends, it has been discussed which issue was most important to solve. The short answer is that both need to be solved since solving one would make the other worse.
If you solve the money problem, another land and housing bubble would be created, leading to poverty of the youth and less fortunate, among prosperity. Land would reach values where the young and less fortunate, whether through mistake, disability, or lack of skills, would find it more and more difficult to afford land. Well-educated and young professionals could even find it very difficult. Only those with land wealth or inherited wealth could afford the land. This would eventually lead to a bust in the real estate market.
If you solve the land problem, development would increase as developed values are untaxed, leading to rapid credit expansion, leading to poverty as debt exponentially increases to pay interest on debt, and leading to the same problems associated with a housing bubble, where the young and less fortunate are less able to afford the cost of living among the prosperity of credit expansion and development boom. This would eventually lead to a credit crunch and contraction.
Builders would not speculate on land values. They would speculate on the landed development, placing a greater emphasis on high-end development rather than affordable development. Builders would also put a premium on credit, making credit less affordable. All but the wealthy and banks could afford such a boom, until a crash, where people would be left unemployed, still unable to afford the empty and developed land even though land values have dropped. It happened with just property taxes. It would surely happen with LVT. A development boom and crash would be fine if it were not tied to money supply.
Both situations would lead to a bust. The newly created prosperity from solving one problem would make the other problem worse. When this paradox is understood, you understand why economics is called the dismal science. However, it does not have to be paradox if both problems are solved. Thus, it is important when speaking of fixing the monetary problem to talk of the land problem. It is important to talk of the land problem when speaking of the monetary problem.
While Henry George spoke of monetary reform, he did not do so at the length of solving the land problem. The land problem was perhaps more obvious in the days of Henry George than the monetary problem. The land problem was easier to observe and understand the problems. Also, as Winston Churchill also indicated, the land monopoly differs from the monetary problem or other problems in that the need for land is more fundamental than money or other concerns in securing the rights to the fruits of one’s labor. However, the fundamental reason why the monetary problem is equal to the land problem is that legal tender is necessary to pay land rents to the government or the land owner. Thus, the need to secure one’s right in land is equivalent in nature to the need to secure a stable monetary system free of usury.
The difficulty of solving the land problem over the monetary problem is that there are more participants in land tyranny than monetary tyranny. There are more land owners and those who live off rent, than there are chartered banks and those who live off the interest in the issuance of money. Those who do live off rent are not necessarily living off land values but the investment into developed land. Those who support fixing the land problem do not want people to lose their investment in the developed value. Georgists do not want to discourage the building and maintenance of property. They are just asking to give up the unearned increments in land value, which is still a difficult thing to ask from those who found unearned wealth in increased land values.
Today, you have even more land owners but more people who live off financial capital rather than people who live directly off rent (undeveloped land values). Financial capital is indirectly related to living off rent, since it is financial capital which purchases land and natural resources to produce products. The land problem is as much a tyranny of the landed majority than a tyranny of a few, and is still as difficult, if not more difficult, to solve today.
Since the housing market recently collapsed, the tyranny of the land owner is much less since it is the land owners who have distanced themselves from their losses in land values as fault of their own. Today, they realize the value of the land is not their fault. It is much more difficult for individuals to let go of their unearned and undeserved profits than it is to let go of their undeserved losses. Today, we do have an opportunity to tax away land values since land values are at a bottom, so it stays at the bottom and remains more affordable for all when a new prosperity comes about, and the unemployed are once again employed and able to afford land.
The difficulty of solving the monetary problem is in that it is more difficult to understand and that the bankers work hard to make sure people do not understand the problem. If widespread understanding of the problem is achieved, the problem would be more easy to solve since it is a tyranny of a minority. The majority would surely join together quickly if the majority understands the problem.
Solving the money problem in America would at once relieve Americans of paying interest to the bankers for the value of their own economic productivity. It would also relieve them of the burden of income taxation and the interest they pay on national debt to aristocrats around the world, including the Chinese government, if the government actually did print the money interest-free to fund government and to provide for the public good of having a stable medium of exchange, rather than allow the banks to print the money as interest-bearing debt. It would end the grip the big banks have over our government, eliminating a lot of the corruption.
Several people throughout history identified the problems and identified how the control of the issuance of the money is control over a nation. The control of a nation should be in the body elected to do so. The control of the issuance of legal tender should be in the body elected to do so. It should not be in the private control of banks chartered by the government.
Thomas Edison sums up the problem and solution in a newspaper article.
“It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.” — Thomas Edison
Modern economist, Stephen Zarlenga, from the American Monetary Institute sums up the simplicity of the solution.
“According to this theory, it is possible to avoid a collapse following a period of credit expansion simply by converting the existing volume of bank credit into actual money having an existence independent of the debt, and at the same time take away the banking system’s privilege of creating any more credit, i.e., force the banks to confine their lending operations to the lending of existing funds.” — Stephen Zarlenga
The benefits of course would be that the the conversion of interest-bearing credit to public debt-free currency would mean the government could use the money to pay off the national debt, saving the tax payer trillions in interest payments while also providing tax-free revenue to fund the government.
The monetary problem is obviously a problem for the national government to solve. It is already the constitutional duty of the American government to do so. The savings and tax-free revenue would enable to the national government to eliminate the income tax.
The question remains where it would be best to solve the land issue, on the state level, where property taxes are often already collected, or on the national level? George’s populism was the simplicity of his single tax, the land value tax, to fund national government while also solving the land problem.
However, this would leave the state governments to impose less-favored methods of taxation, including property taxes, driving up the cost to develop land, income taxes, driving labor and capital out of the state, sales taxes, reducing consumption in the state and imposing a regressive tax structure, or corporate taxes, driving corporations out of the state. The sales tax would probably be the most favorable tax if it were made progressive with a rebate, granting a minimum amount of resources to each citizen. Like the land value tax, it would reduce demand and drive down prices to where prices would be more affordable.
The question still largely remains if it would be better to reform state governments to a land value tax system and the national government to a progressive sales tax, or would it be better to reform the national government to a progressive sales tax and the states to a land value tax system?
I originally argued that the state governments should implement land value taxes while the national government should implement a progressive national sales tax since the states already tax real estate and the Fair Tax plan already exists for the national level.
Given the importance of solving both problems, fixing the monetary and land problems as a package at the national level would be desired. There would be time to solve the other problem after one of the problems are solved. However, the pain and difficulty of doing so would be greater as a boom from solving one problem would immediately give birth to tyranny and poverty among prosperity before the inevitably bust because of the other unsolved problem. It could be sold as a populist package, monetary reform and the single tax.
The states would then be forced towards a progressive sales tax as they deal with the problems their individual dismal tax packages cause. They could also explore more direct taxation of natural resources, such as excise taxes on oil, or explore the use of state banks like the Bank of North Dakota to supplement the financing of state government. The national government could also keep a corporate tax and distribute revenues of the land value tax to the states in proportion to the amount collected from each state.
A national LVT would create great resistance among states who use property taxes to fund their governments. It was offered that the national government could allow deductions for land value taxes paid, which would be a way to motivate the states to reform their tax systems towards LVT. However, this would defeat the purpose of LVT.
Another option would be use the national LVT as a funding package for state governments. This might meet constitutional resistance, though it would be in the spirit of the Constitution in that the national government would be acting to make sure individual property rights are more properly protected from the actions of government. The populist package in that regards would be a more complicated monetary reform and tax reform package.
I am starting to favor the use of monetary reform to include eliminating wages as taxable income as a populist package to address both concerns. This would allow unearned wealth to be still taxed as earned income while eliminating the taxation of wages. This would not be ideal, but it would be a pragmatic way to bring about monetary reform and indirectly replace the taxation of earned income with the taxation of unearned income.
In all, since the solutions would likely not implement complete economic justice, I still favor the use of a citizen dividend, like Milton Friedman, MLK, and Thomas Paine all proposed, funded with the national monetary reform and single tax on land as part of the national populist package. This would provide a good role model of good risk management and best practices in the guarantee of economic justice where economic injustice will exist and persist, especially at the state and local level, even in the best attempt to understand and address the issues, helping all to deal with the consequences of economic injustice in a flat and universal way, whether needed or not. It would help guarantee the Biblical demand the profit of the earth is for all and that issuance of money is a non-profit institution free of usury.
Solving both problems at once with a simple and populist package would go a long way in correcting the economic injustice caused by state intervention in the granting and enforcement of land titles and the legal tender chosen to fund such enforcement, especially when combined with a citizen dividend to help ensure the new science of economics free of dismal choice works. Some may argue that the citizen dividend would result in many living off the bottom. That would be their choice. However, I am certain that most of humanity will want more out of life, expect more of themselves, and try to achieve more with economic injustice out of their way, and the citizen dividend would give them the safety net to encourage them to try without them calling for the state to intervene to provide social programs if they should fail to do so for whatever misfortune might cause failure. It is then that we may start to isolate and address these other events of misfortune after economics solves the root causes of the creation of poverty among prosperity.
