An Entrepreneurial Implementation of Georgism
Do you have more details on how these land leases would be distributed? In particular, if there is a current leaser who has the right to use the land, how does someone else acquire that lease? By persuading the current leaser? Or by persuading the city's land authority? I see potential problems either way.
"Ownership of those shares entitles you to a proportional slice of everything the Commonwealth City owns today (all the land within the city) and to a proportion of all future ground rents it collects."
I have always been interested in Georgism and LVTs for a few reasons. They align incentives for capital allocators in government. They have no deadweight loss vs other kinds of tax, and have a natural check on overreach if tax rates go too high. And in particular, they stop land from stealing from labor and capital; everyone benefits from the value that everyone creates together.
On this last point - "everyone" - would suggest to me that a corporate shareholder structure might get complicated.
Who is and is not an owner? How does one acquire shares? By paying for them, or by moving into the area, or both? Would shareholders be permitted to own shares in the Commonwealth City without living there?
With the disclaimer that I do not have literally any professional skill in any related fields and could easily be missing something glaringly obvious...
It seems to me that the idea of shares here could also possibly be used for a more "political" implementation.
That is, my limited understanding is that one of the major obstacles to implementing Georgism is that fundamentally, you're taking value from landowners. Whether or not they are able to retain ownership of the land itself, even a solution where for example you let whatever they initially paid give them a sort of "buffer" against the LVT doesn't really make it fair. They bought the land as an investment expecting it to appreciate in value, and now it's being turned into a cost instead.
But it seems like you could do something where you compensate the landowners for the new tax with shares of the income generated by the tax, with shares proportionate to the current value of their land, such that the income received from the shares should roughly equal the tax they pay for the land.
The trick, I think, would be having a distinction between temporary shares, which have a cap on their income and can be bought back for a fixed amount (which any income from shares counts towards, but which is some percentage higher than the base value of the share), versus permanent shares that aren't capped and can generally be bought and sold at whatever prices that market allows. With each resident of the city able to hold a maximum number of permanent shares based on total shares available divided by population (non-residents could only hold temporary shares).
So actual like home and small business owners should mostly break even, landlords would probably end up getting a short-term boost from their temporary shares that would eventually fade out but still presumably be profitable if they're doing the actual work to be competitive (and the short-term boost should give them the time to do so, or to sell to somebody who can), and even speculators should end up seeing a positive return on their investment, but not as big a one as they would have gotten if they had been able to just hold indefinitely.
Over time as the city buys back the temporary shares, they can distribute some to residents freely, with others held to either provide income for other things or sold at regular market values. Or sold to non-residents as temporaries as a loan-like option for generating revenue. And then over time you could fiddle with the numbers to do things like replacing other taxes at the cost of lower income from shares and/or higher land taxes, or whatever.
Excellent! This will be help for our LVT implementation projects in Baltimore, Nigeria, Philippines and Indonesia. see www.theIU.org
I think the writers about this subject should be complemented for their good work, but unfortunately it is unlikely that many people will seriously appreciate it. This is because they do not have a good understanding about our social system and how it works.
For that reason I am suggesting that "Progress and Poverty" is far too long and wordy for us today to bother to follow all of its details, but we certainly need something to bring us into the "Big Picture" of macroeconomics. My book "Consequential Macroeconomics--Rationalizing About How Our Social System Works", might be a bit better in this respect, although it was inteneded for an academic following too.
If you write to me at firstname.lastname@example.org I will gladly send you a free e-copy of this 310-page explanation, which might be used for teaching after reviewing my two short working papers (not more than 10 pages): SSRN 2865571 "Einstein's Criterion Applied to Logical Macroeconomics Modelling" and my SSRN "A Mechanical Model for Teaching Macroeconomics". All of which explain and express our past dreary subject in a new and more lively way that is more easier to understand.
...Have you read Spencer Heath? This is his model, more or less.
In any case, this schema still divorces claimants to returns on ground rent ("shareholders") from the producers of land value (everyone in the city), rematerializing the landlord/tenant relationship, though admittedly in a more aligned way. Ideally you would establish this institution as a for-profit SOE to replace municipalities as legal entities and just give any remaining dividend after public goods investment to all lawful permanent residents.
The more capitalists the greater the poverty but the more understanding about how our social system of macroeconomics actually works, the less poverty.
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Making Macroeconomics a Much More Exact Science
Today macroeconomics is treated inexactly within the humanities, because it appears to be a very
complex and easily confused matter. But this does not give it fair justice, because we should be trying
to find a viable approach to the topic and examine it in a way that avoids these problems, and for us to
better understand of what it comprises and how it works. Suppose we ask ourselves the question: “how
many different KINDS of financial (business) transaction occur within our society?” The simple and
direct answer shows that that only a limited number of them are possible or necessary.
Although our sociological system comprises of many millions of participants, to properly answer this
question we should be ready to consider the averages of the various kinds of activities (no matter who
performs them), and simultaneously to idealize these activities so that they fall into a number of
commonly shared operations. This approach uses some general terms for expressing the various types
of these transactions, into what becomes a relatively small number. Here, each kind is found to apply
between a particular pair of agents—each one of which has individual properties. Then to cover the
whole sociological system of a country, it requires only 19 kinds of exchanges of the goods, services,
access rights, taxes, credits, investments, valuable legal documents, etc., verses the mutual and
opposing flows of money.
The argument that led to this initially unexpected result was prepared by the author. It may be found in
his working paper (on the internet) as SSRN 2865571 “Einstein’s Criterion Applied to Logical
Macroeconomics Modeling”. In this model these double-flows of money verses goods, etc., necessarily
pass between only 6 kinds of role-playing entities (or agents). Of course, there are a number of different
configurations that are possible for this type of simplification, but if one tries to eliminate all the
unnecessary complications and sticks to the more basic activities, then these particular quantities and
flows provide the most concise yet fully comprehensive result, which is presentable in a seamless
manner, for our whole social system and one that is suitable for its further analysis.
Surprisingly, past representation of our sociological system by this kind of an interpretation model has
neither been properly derived nor formally presented before. Previously, other partial versions have
been modeled (using up to 4 agents, as by Professor Hudson), but they are inexact due to their being
over-simplified. Alternatively, in the case of econometrics, the representations are far too complicated
and almost impossible for students to follow. These two reasons of over-simplification and of complexity
are why this pseudo or non-scientific confusion has been created by many economists, and it explains
their failure to obtain a good understanding about how the whole system works.
The model being described here in this paper is unique, in being the first to include, along with some
additional aspects, all the 3 factors of production, in Adam Smith's “Wealth of Nations” book of 1776.
These factors are Land, Labor and Capital, along with their returns of Ground-Rent, Wages and
Interest/Dividends, respectively. All of them are all included in the model, as a diagram in the paper.
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(Economics’ historians will recall, as originally explained by Adam Smith and David Ricardo, that there
are prescribed independent functions of the land-owners and the capitalists. The land-owners speculate
in the land-values and rent it to tenants, whilst the capitalists are actually the owners/managers of the
durable capital goods used in industry. These items may be hired out for use. Regrettably, for political
reasons, the concept of these 2 different functions were combined by John Bates Clark and company
about 1900, resulting in the later neglect of their different influences on our sociological system-- the
terms landlord and capitalist becoming virtually synonymous along with the expression for property as
The diagram of this model is in my paper (noted above). A mention of the related teaching process is
also provided in my short working paper SSRN 2600103 “A Mechanical Model for Teaching
Macroeconomics”. With this model in an alternative form, the various parts and activities of the Big
Picture of our sociological system can be properly identified and defined. Subsequently by analysis, the
way our sociological system works can then be properly seen, calculated and illustrated.
This analysis is introduced by the mathematics and logic, which was devised by Nobel Laureate
Wellesley W. Leontief, when he invented the important "Input-Output" matrix methodology (that he
originally applied only to the production sector). This short-hand method of modeling the whole system
replaces the above-mentioned block-and-flow diagram. It enables one to really get to grips with what
is going-on within our sociological system. It is the topology of the matrix which actually provides the
key to this. The logic and math are not hard and are suitable for high-school students, who have been
shown the basic properties of square matrices and the notation of the calculus.
By this technique it is comparatively easy to introduce any change to a pre-set sociological system that
is theoretically in equilibrium (even though we know that this ideal is never actually attained--it simply
being a convenient way to begin the study). This change creates an imbalance and we need to regain
equilibrium again. Thus, sudden changes or policy decisions may be simulated and the effects of them
determined, which will point the way to what policy is best. In my book about it, (see below) 3 changes
associated with taxation are investigated in hand-worked numerical examples. In fact, when I first
worked it out, the irrefutable logical results were a surprise, even to me!
Developments of these ideas about making our subject more truly scientific (thereby avoiding the past
pseudo-science being taught at universities), may be found in my recent book: “Consequential
Macroeconomics—Rationalizing About How Our Social System Works”. Please write to me
at email@example.com for a free e-copy of this 310 page book and for any additional information.
How Land Value Taxation (LVT) Can be Made Politically Acceptable (In Answer to David Tiggs)
Much as the Single Tax proposal of Henry George is greatly appreciated here for having the most significant ethical principles at its core, one finds that its introduction is simply not practical. Apart from use of the word “Tax”, which in any case no politician wants to propose or introduce, we must eliminate the offense that these proposals for LVT will cause to landlords. Obviously they will be strongly opposed to having to pay a new tax (or anything else we might like to call it). Then the solution is not to fight them, nor try to convince them on ethical grounds, but to find a way to make them want to pay for their land access rights, through revenues.
To achieve this there should be introduced a gradual change in the way that land is being owned. This requires the making of some new laws. Whenever a site or prospect of land (or real-estate with buildings} is being offered for sale, or whenever ownership of such a site is being transferred between family members (and on which an inheritance-tax would normally be collected), the change being introduced here is that the government automatically buys the land at its current normal price. This is done simultaneously when the buildings are being sold in the usual way, or when their ownership is being transferred. (The courts shall be empowered to settle the land-value, if or when doubt is expressed–prepared land-value maps being publicly accessible.)
The previous landlords or their heirs will no longer have any serious financial objection, since the money from the land sale will greatly exceed the subsequent annual lease-fee (see below) for access rights to this land. This change will also eliminate the (hated) inheritance-tax. It is estimated that this process of all the land sales and governmental purchases will be spread over at least 40 years.
Immediately a site belongs to the government, this land should be offered for occupation and use by it being leased. The first refusal for this must be to the new or bequeathed owner of any buildings thereon. The lease-fee should be set according to normal amounts of rent for other similar sites, (and again the courts should decide on it, when there is disagreement.) The above first refusal for this leasing offer is necessary, because any buildings of practical use and value on the site will still be sold or bequeathed as items of durable capital goods, as before.
However, the government should deny access to the site and its buildings, until the site is being leased to the person or organization who/which have purchased (or have inherited) the buildings in the usual way. All taxes that are applied to subsequent building development on the site and its additional value should be abolished at this time.
Then the new owner would acquire the building-property more cheaply than before, because it is now without the price of the land under and around it. Such a buyer can then use or give for hire (rent-out) any building for its access rights and use, as if it were any other item of durable capital goods. In the unlikely but possible chance of the land leaser not owning the buildings, his/her incoming ground-rent (from the building owner), shall be legislated not to exceed the out-going lease-fees by more than 2% (say). Should nobody initially lease the site and its buildings (if any), because of there being no demand for their use, the buildings may be pulled down by the next (eventual) leaser, who will be free to re-develop the site, and normally would want to do so.
The government should borrow the money for site purchase, or even can offer national redeemable “land-bonds” to raise money for it. The previous landlords might even be inclined to purchase these bonds, which presumably are a more stable source of income than the tenant’s rent was. As the lease money begins to flow to the government, it uses this to:
a) repay part of its loan for site purchase, which may be extended, and b) purchase more sites as and when they become available, and c) cover the interest on the loan and on the new bonds and their eventual redemption, and d) eventually and gradually reduce and eliminate the many other kinds of taxation.
It will be appreciated that over the long-term the lease fees are equivalent to LVT, but due to the greed of landlords (who behave as if they were capitalists), the income from land sales will satisfy them better than their being more directly taxed. Eventually nearly all the land would then be leased from the government. Because the selling of land is a natural process which (if anything) is encouraged by the land returning to public benefit, the resulting lower priced buildings will ease their sale and this will not place such a limitation on their (entrepreneur) owners, who probably want to develop the sites.
Nationally leased land, in countries like Hong Kong, Singapore and Estonia, is close to 100%, and this kind of revenue gathering regime is known to be most successful, for the rate of growth of national prosperity. This proposal is not the same as land nationalization (at least no more than what currently applies), since no additional regulations are placed on how the land is to be used.
Also when the previous landlords have more money to spend, some or most of it will be invested in durable capital goods, making production costs lower as obsolescent durable items are more easily replaced. Consequently, the national prosperity will increase from the government’s investment in land values, too.