What does land tax, Monopoly, and Australia have in common?
Last week I wrote a piece about land tax and some economists who say we should tax land more so we can cut taxes on business and labour income.
Today, let’s read a bit more about Henry George (1839-1897), the once-famous American who made similar arguments more than 100 years ago, and who has inspired those economists.
It’s a fascinating story with Australian links, and ties to a famous boardgame.
Land is rewarded for others’ hard work
We’ll begin with an image.
Have a read of the message on this old billboard:
What thoughts occur to you when you read that?
In today’s context, where something deeply wrong with Australia’s economic management has driven property prices to socially-destructive levels, that billboard carries a sting.
Australians have been watching property values rise at a supernormal pace in recent years while the value of their wages has deteriorated in relation to those property values.
At the same time, they’ve seen the federal government becoming more reliant on taxing workers’ incomes as its other sources of tax revenue have been undermined.
Why does the government insist on punishing effort by over-taxing the earned income from work, investment and innovation, while rewarding rent-seeking and speculation by under-taxing the unearned income from the private ownership of land, natural resources and monopolistic advantage?
Henry George tackled these questions over 100 years ago.
He published a book, Progress and Poverty (1879), that dealt explicitly with these issues, which sold millions of copies and helped to spark the Progressive Era in the United States and a worldwide social reform movement.
And a decade before that, he wrote a hugely popular essay, “What the Railroad Will Bring Us” (1868), about the soon-to-be-completed Transcontinental Railway in the United States that was then about to link California to the Atlantic coast by railway for the first time.
Mr George argued that the railway would bring huge benefits to California, but it could also concentrate wealth in the hands of people who controlled it, and who owned the land around it, to the detriment of wage labourers.
See a quick history of the railway in this video.
Australians in the late 1800s were well aware of Mr George and he was convinced to travel here to share his economic opinions.
On 6 March, 1890, he arrived in Sydney Harbour from San Francisco, accompanied by his Australian-born wife, Annie.
He was met at Circular Quay by a large crowd and taken by horse-drawn coach to town hall where mayor Sydney Burdekin made an official speech of welcome.
A banquet was held in his honour that evening at the town hall.
On 8 March, he gave his first public lecture at Protestant Hall in Sydney’s CBD (where Mark Twain famously spoke five years later, on his world speaking tour).
And during his 98-day stay in Australia, he ended up giving 48 lectures, nine sermons, and numerous interviews, in 38 different cities and towns, while having to retrace the same route several times because the path of his lecture tour had been so poorly designed.
It was a trial of physical and mental endurance.
See his gruelling itinerary below:
But his reputation preceded him and he was greeted by generous crowds, often thousands of people, and media reports routinely noted his eloquence and wit.
He stayed on message in his public lectures, sticking to two themes: land-value tax, and free trade.
On land tax, he argued all taxes could be abolished (including income tax) and replaced with a “Single Tax” on land values, and that that tax could produce more than enough revenue to cover government spending and improve the living standards of the communities from which it was collected.
On trade, he argued passionately for the free trade and against protection. He said a single tax and free trade were complements.
Is Henry George still relevant today?
If you haven’t heard of Mr George, don’t worry.
There are reasons why his name has been largely forgotten by the mainstream, which we don’t have time to rehearse today (it’s a topic for a future piece).
But his legacy in Australia is embedded in the way the Australian Capital Territory has historically treated land.
And here’s what the renowned economist Ross Garnaut had to say last year about Mr George’s continued relevance for Australia, in a fascinating speech in Melbourne (here’s the transcript).
“The main ideas in George’s work seem to me to be broadly right now, as they were then,” Professor Garnaut said.
“He wanted to tax land and other rent as the main source of government revenue. Rent taxes raise revenue without sacrifice of total income and output.
“Governments spend a lot more now than then. Then there was no Medicare. No government then thought about spending $369 billion on nuclear submarines.
“It may have been realistic to think of rent taxes raising most government revenue back in the 1890s. We need other sources of taxation today, but we would be better governed if taxation of rent contributed a much higher proportion of the total,” he said.
Professor Garnaut said Mr George wanted to promote competition and break up monopolies wherever possible, but he also recognised some economic activities weren’t suitable for competition and so were natural monopolies.
“It wouldn’t be economically efficient to have multiple electricity suppliers running multiple transmission lines down the same street,” he said.
“George wanted natural monopolies to be held in public ownership. Railways were the most important natural monopolies in the 1890s.
“[And] where the activities of one firm imposes costs on others, George wanted to tax them to deter the activities and to balance the cost. That’s relevant to my work on climate change,” Professor Garnaut said.
The “Monopoly” boardgame
At any rate, I’ll leave you with a question.
Have you played the Monopoly boardgame?
It was originally called The Landlord’s Game, and it was patented in the United States in 1904 by the feminist and writer Elizabeth Magie.
Ms Magie designed the game to teach people about the economic principles of “Georgism,” to show how rents can impoverish tenants and enrich property owners.
The game eventually evolved into the Monopoly we know today, while losing its specifically-Georgist messaging.
For example, the original “No Trespassing. Go to Jail” square morphed into the “Go Directly to Jail” square. “The Poor House” square, where you used to be sent if you became bankrupt, became the “Free Parking” square.
And to fit with the general theme, the story of the true origins of Monopoly was almost forgotten, buried beneath a layer of myths.
But it has been rediscovered in recent decades, illuminating the Georgist insights that have been there all along.