Henry George's Ingenious Tax: A Contemporary Restatement

Henry George (1839 - 1897) left an intellectual legacy which is shrouded under a cloak of controversy. "Professional economists who focused attention on the single-tax proposal and condemned Henry George's teaching, root and branch, were hardly just to him. . . ." (Schumpeter 1954, p. 865). This essay tries to do justice to Henry George from the point of view of economic theory and many relevant practical questions that we face in 1997. The single tax proposal is looked upon from the point of view of constitutional economics, and it emphasizes the wider applicability of Henry George's basic notions. In order to understand Henry George's central message, it is important to anchor it in the ocean of economic literature. Henry George was not making a modest tax proposal. He was not an expert in real estate taxation, as one might think upon reading many renditions of his scheme (Hooper, 1993). In order to understand George's contribution, it is important to make a distinction between a specific proposal that can be implemented and an entire system which, upon implementation, creates a framework of rules that is itself self-enforcing. Henry George proposes a fiscal constitution which, due to the single tax requirement and the specific meaning he gives to the notion of land is indeed a self-enforcing system of rules. George offers a veritable constitution that has a multitude of ramifications and a large variety of different applications often overlooked in the literature. While the first section of this article deals with the major criticisms of Henry George in the context of constitutional economics, Section II explores the wider applications of George's basic notions. It appears that the George system is particularly well-suited for promoting economic development, and most particularly in those precise circumstances where a market economy is in need of further growth and development. This condition is, of course, currently most urgently present in Central and Eastern Europe which, in different ways, is groping towards the establishment of new economic systems built on the debris of the state socialist economic orders of the old Soviet type that collapsed in 1989. This is the subject of Section III. Major Criticisms of George Criticism of Henry George's tax proposal is widespread. Sometimes his scientific writing is simply brushed aside as the tinkerings of an outsider. Often times his work is ignored completely. Invariably, his critics fail to see the systemic nature of his policy proposals. The different parts of George's economics are interrelated and support each other. In principle, there are three basic substantive arguments aimed at his work and one that had better be termed "rhetorical". Joseph A. Schumpeter, who also has lavish praise for George, offers all four arguments (Schumpeter, 1954). We can therefore take his formulations as a convenient starting point for a centennial reappreciation. Before doing that, however, it is probably sensible to briefly restate George's program in the concise form in which he put it: "This, then, is the remedy for the unjust and unequal distribution of wealth apparent in modern civilization, and for all the evils which flow from it; We must make land common property" (George, 1879, p. 328). Implementing the principle of common property in land, George wanted to fully tax the land rent but leave everything else, including income, transactions, and the improvements upon land untaxed. The first quote from Schumpeter contains both the first and substantive argument as well as the rhetorical charge typically levelled against George. Schumpeter, in discussing the physiocrats and notably Quesnay, builds a bridge between the physiocrats' single tax (un impot unique) proposal and the one offered by Henry George a century later. He puts this discussion into the general context of physiocrat economic policy recommendations. Schumpeter wrote, Finally we must not forget that French agriculture in 1760 was not interested in protection: there was no "danger" of large wheat imports as a normal phenomenon; and free trade in agricultural products would have, if anything, increased their prices.