Ownership and Georgism

Written on July 27, 2008. Written by .

Land's End

Land’s End
A philosophical introduction to Georgism.
Photo courtesy of The Brit_2

Ownership is the relationship between an entity (usually a person) and an object (either tangible or abstract) in which the entity has complete control of the object including control of its ownership status e.g. the ability to transfer ownership to others. Complete control includes the ability to use, modify, rent, sell, and even destroy the object, regardless of the morality of these actions. The fact that you are not permitted to randomly shoot people with your gun is not because your ownership prevents you.

It seems almost impossible to envision a civilized society without the enforcement of property rights. But at the same time, it is easy to think of examples of civilized societies in which property rights were devastating to the lives of many individuals – any society that accepted slavery. The problem arose because of incorrect assumptions about how ownership can be initially acquired. Europeans thought that simply finding and capturing Africans entailed ownership of them. With this historical lesson in mind, we should be careful to avoid making such mistaken assumptions today.

So let’s investigate all the ways that you can come to own something. You own anything that someone else owned and voluntarily transferred ownership to you. This is automatically true since the owner has this ability in the definition. You own anything that you make out of things that you own. This is also automatically true by the definition since you can modify your property. The only question left is whether you own what you find laying around if nobody else owns it.

In the past, it was reasonable to think that people should automatically own land when they are the first to settle on it. But as the world’s population increases, this concept is becoming more strained. For many poor people, paying rent to landowners is what keeps them in “wage slavery”. There was a time when you could venture a few miles out from the center of town and build yourself a house without selling yourself into part-time slavery. Now almost all land in America is owned and finding a place to set up a dwelling is not so easy.

In those days long ago, it didn’t really make a difference whether land was privately owned because there was such an abundance of it. But now land is less abundant and private ownership imposes a non-negligible cost on bystanders – in a sense I am being imposed upon because I cannot build myself a house anywhere I want. This may not sound like a huge imposition, but it can be in some cases, particularly if the cost of land is extremely high. What gives others the right to prevent you from building a house wherever you want? It is their property rights. They probably acquired the land from someone by purchasing it, but that ownership is only valid if the seller actually owned the property in the first place. So the issue traces back to the original claimant of the land who just grabbed it. I don’t see any justification for their ownership. The burden of proof lies on those who claim that they own something. Until they provide such justification, I don’t see why they own it any more than I do. Furthermore, the assumption that finding a resource entails ownership can lead to ridiculous consequences. For example, it could be used to justify giving Christopher Columbus and his descendents complete ownership of the Americas.

You might question whether I agree with the concept of Laissez-Faire economics. Actually I agree with it, but there are different ways to interpret it based on your concept of ownership. For example, lets say a company is drilling for oil that lies entirely under land that they have purchased. And say that one of their neighbors drills down at a diagonal to reach the oil supply and starts extracting oil. If the government steps in to prevent this, then that is not “hands off” in the most direct sense of the term because they are interfering with the economic activities of the oil drillers. The interference is justified if and only if the oil supply is assumed to be the property of the company that owns land above it. I have not yet heard a good argument for this assumption.

So what alternatives are there? Consider oil for example. Whenever a company drills for oil and sells it, I am being deprived of the opportunity to extract that oil myself in the future. Ownership rights have been awarded to the oil company without compensation to the public. Of course it would be unreasonable to require oil companies to negotiate with every citizen of the country before drilling. But it would be reasonable to impose a tax on oil and distribute the revenues evenly amongst all the citizens of the country.

This policy would require a fair means of determining the tax rate. It would be disastrous to tax all their profits away, and it would be wrong to do so because they are providing a service by performing the extraction, which they should profit from. But only a fraction of their profits come from the added value, and the bulk comes from the value of the resource itself. The value of the resource should be entirely taxed away. This could be accomplished by varying the tax rate on oil until the price of an oil field on the real estate market is exactly equal to the price of an equivalent piece of land that contains no oil. Then the market value of oil in the ground would be zero. Therefore simply controlling a natural resource would give you no economic benefit. Instead it is your productivity in extracting the oil more efficiently than your competitors which generates your profits in this economy.

This type of economic system is known as Georgism. The concepts applied in the oil example extend to all other natural resources, including land. And there is reason to believe that such policies would facilitate the optimal utilization of resources. For example, land in the US is taxed at very low rates, which permits residents to hold on to land even when they are not using it. In a Georgist system, nobody would actually own land. Individuals would lease it from the public and if they were not using it, they would quickly terminate their lease, leaving the land open for public use. And unowned land can be built on, as long as you understand that the next leasor could evict you and knock down your house. But having more unowned land would at least give more poor people the option to live in modest cabins without paying any rent or taxes, while collecting natural resource revenue checks. In theory, a citizen could live a modest life without being employed and without the existence of a welfare system that utilizes violent forms taxation such as income taxes and sales taxes. No aspect of Georgism is violent or involuntary! You do not have to exploit the earth. You can squat on land or rent from someone else and avoid businesses that involve mining or drilling. But if you do choose to exploit natural resources, you are required to pay the associated fees.

One of my big concerns in economic theory is unfairness. I consider fairness to be a state of affairs in which every individual earns an amount of money proportional to their productivity. Of course this is vague, but it is also clearly not always satisfied. And I do not think it is possible to eliminate unfairness, it is a natural phenomenon. But I think there may be contributions to unfairness that need not be present, and these I would prefer to mitigate. The four main contributors to unfairness are: luck, positive feedback (its easier to make money when you already have it), exploitation, and invalid property rights. I’m pretty sure the first two are natural. The second two might not be, and that is where we need to focus our attention. Georgism may be a step in the right direction.

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2 Comments so far
  1. LVTfan July 27, 2008 9:25 pm

    Bravo! Well said!

  2. mspice August 1, 2008 4:59 am

    there would be a ton of details to work out, but this seems like the first moral justification for a property tax i have heard.

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