Abstract
The Henry George Theorem states that the level of total rents in a country is nearly equal to the total costs of government in that area. There are several unconvincing “proofs” that make this claim. A widely circulated such proof, when inspected closely, is incoherent and unrealistic in its assumptions. Applying the previous chapter’s approach, one can develop a model that shows how rents and the growth of government move together, while allowing for plausible divergences. This suggests that the Henry George Theorem offers a good approach and should figure in policy discussions. An appendix by Andrew Mazzone recalculates rents in the 2016 US National Accounts and shows that redefining rents in a more inclusive manner suggests that rents could come close to financing the costs of government.
[T]he value of land is at the beginning … nothing, but as society develops by the increase of population and the advance of the arts, it becomes greater and greater. In every civilized country, even the newest, the value of land taken as a whole is sufficient to bear the entire expenses of government. In the better developed countries it is much more than sufficient.
—Henry George
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Notes
- 1.
See the website www.foldvary.net/ec156/week-4/hgt. Also Atkinson and Stiglitz (1987), pp. 523–5. Plus the article by R Arnott and J Stiglitz (1989), in QUARTERLY JOURNAL OF ECONOMICS, 93.
- 2.
Correspondence with Andrew Mazzone, 2015–16.
- 3.
Mason Gaffney (2009), argues that rents and land values are systematically understated, and distorted, in official statistics, and that reconceptualizing them would make it possible to define new kinds of taxes on land and rent that would replace many other taxes—income and sales—so that taxes on “land and rents,” newly understood, would be sufficient to cover today’s government spending. (Andrew Mazzone, in a manuscript edited by me and published at the end of this chapter, develops a similar case.) This position is not widely accepted, though a careful reading of Gaffney’s commentary on official reporting of real estate is immensely rewarding and illuminating. The problem: Gaffney and Mazzone show us that undoing what they consider distortions of “land and rent” in the official figures will give us taxable concepts of both, sizeable enough perhaps to provide the necessary funds, especially by clearly defining “ monopoly rents.” Many economists disagree. But while the reconsidered figures do tell a good story, it is not at all clear that the “clarified” ideas designate what is driven by growth. Yes, perhaps we can define “land and rents” in a wide enough way to provide taxes sufficient to support modern government, without creating a heavy drag on the economy, but does that concept of “land and rent” designate the features of the economy whose value is driven by the Ricardian and Georgist forces defined earlier in the account of the development process? Are “monopoly rents” driven by growth in the same way that “land rents” are? We can easily think of examples of monopoly/oligopoly increasing in stagnant industries (radio, newspapers), for example. More work is needed.
- 4.
Actually—to nitpick a little—the net stimulative impact will also depend on the difference between the consumer spending of the new government employees, and the spending they were undertaking before, adjusted for how this was financed.
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Nell, E. (2019). A New Look at the “Henry George Theorem”. In: Henry George and How Growth in Real Estate Contributes to Inequality and Financial Instability . Palgrave Studies on Henry George for the 21st Century. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-18663-0_4
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