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Now the Synthesis: Capitalism, Socialism and the New Social Contract.

This book is intended to help frame economic policy in the twenty-first century. Altogether eleven authors ask us to look beyond socialism and capitalism toward a feasible third alternative that is called the "new social contract." That third alternative is none other than a rehabilitated version of Henry George's teachings complete with the single tax proposal and the elimination of "passive" capital gains on land ownership. This is a Henry George that has forgotten about land speculators and railroad crooks and now is focussed on the evils of ecological mishap and environmental degradation.

The cover-jacket reminds us that the world needs to be taught "how to liberate the creative powers of the individual while protecting our natural habitat." This slender volume contains that lesson for our times. In addition to the ten essays of varying degrees of sophistication, the book contains an "Open Letter to Mikhail Gorbachev" of the then-still unified U.S.S.R. urging that leader not to distribute the land to the common folk. That letter was signed by no less than three Novel prize winners (including J. Tobin, F. Modigliani, and R. Solow) and a host of other distinguished economists (W. Samuels, R. Dorfman, R. Musgrave, etc.). The general reader may conclude that those who signed the "Open Letter" also endorse the analysis and consequent reform package sketched in the volume itself. This implication may not at all be true or even what the signatories were told when they "signed up" in 1990, but that is the practical effect of what is before the reader's eyes.

Let us clear up some background matters. Henry George wrote Progress and Poverty in 1879 when America was mostly rural and tremendous fortunes were made by land speculators, who (with the help of the United States government) cleaned the land of Native Americans. The railroads were built and soon after the villages, towns and cities sprang up as part of what was to become less than a half-century later the most powerful and wealthy democracy on earth. George wanted men and women to benefit from their mental and manual labors but not from the passive appreciation of land values due to circumstances outside their control. The value premiums created as externalities (due to population growth, public creation of infrastructure, etc.) should not be appropriated by existing property owners but be available to the entire community. George was confident that a tax on the site-value of land would raise enough revenue to replace other forms of taxation completely. With the single tax on land, other disincentive taxes (such as the income tax) would be removed and economic progress thereby encouraged.

The editor of the book, Mr. Richard Noyes, has provided a readable introduction and also a follow-up essay that conjures up Hegel's dialectical method in order to examine the exact nature of the historical progress at work today. Mr. Noyes divines that at this moment in time and at century's end a new synthesis is now upon us. The Owl of Minerva is coming to roost at the grave site of Henry George. Georgism is the synthesis of capitalism and its spectacular material success with socialism and its commitment to equality and social justice.

In the next essay, Professor N. Tideman (V.P.I.) confronts the problem endemic to Georgist tax reform proposals, namely, of what to do about those millions of land owners who have innocently paid a purchase price for land that included the "site-value" component that the Georgists now wish to claim for the tax fund. Consider the case of the lonely senior citizen couple who have saved for decades to pay off that mortgage loan and now look forward to capturing the site-value of their real estate investment as their retirement income. If the state now institutes a single tax to eliminate the site-value, who will save the lonely couple from the homeless shelter? Should the millions of citizens who lose their capital value be compensated?

According to Tideman, compensation is not at all necessary. The American Constitution has permitted the wholesale confiscation of market value from existing property owners on other occasions, so why not now? According to Tideman's legal analysis of the "takings issue," the Georgist program of reclaiming site-value without compensating the losers, is to be conducted in the same way as when the United States slaves were freed without compensating the slave owners one red cent. Let the losses fall where they may.

In the next piece, a British business consultant, Mr. Francis M. Smith, summarized some of the wheeling and dealing that is now quite common between land developers and zoning commissioners. Essentially they "horse trade." The developer petitions the zoning commissioners for a waiver so that it can develop a certain part of town in a way that is at variance with the town's zoning plan. The developer speaks to the politicians about the political advantages (to them!) of giving in. The town officials demand parks, homeless shelters, catch basins, etc. To the extent that the town officials get these and other things, then to that extent an implicit type of de facto land-site taxation is already in place in most towns and cities where urban planning is common. The Georgist reform package would simply institutionalize what is now common practice.

Mr. Fred Harrison (Director for the Center for Incentive Taxation) reminds us that Gorbachev was floundering for five long years (since 1985) about what "post-socialist society" should look like. The Henry George solution was "in the air" but the stubborn leaders of the U.S.S.R. failed to pluck it from the air. If you look for endorsements of Henry George by leftists, you can find them in many unexpected places; for example, in Marx's Communist Manifesto land-value taxation is listed, the Christian-socialist Tolstoy became a George-disciple toward the end of his life circa 1910, and the Sun Yat-Sen's proposed land reforms were in the spirit of Henry George. According to Harrison, the leaders of the Soviet Union (now read "Soviet Republics") can come out and adopt the Georgist reform package without apology and remorse.

Political Scientist James L. Busey (University of Colorado) reviews the land question in Central America and Latin America. He suggests that the adoption of some version of Georgist teachings can save Central and South America from further war and rebellion. Professor Jerome F. Heavey (Lafayette College) address colonialism and absentee rent-racking in Ireland and other places and remarks about how damaging this has been for economic survival. Finally, Mr. David Richards reviews the so called "green parties" in Europe and the extent to which they recognize the fundamental principle that "no generation has a freehold on this earth." This sets the tone for what I consider to be the most stimulating essay of the group.

Jurgen Backhouse (University of Limburg) and J. J. Krabbe (Wageningen Agricultural University) offer a splendid rehabilitation and modernization of Henry George's teachings. The authors present a persuasive gloss on Progress and Poverty: We learn that George recognized that the productive use of land depends on those capturing a return on their improvements. It is not at all necessary that the land be privately owned. Furthermore, the central focus of George's theories was nature itself, waterfalls, sunshine, oil and natural gas reserves and fisheries and not just the land narrowly defined as "real estate." Indeed, George is the pioneer of the "materials balance" ideas of Resources for the Future and had George lived beyond the time when the United States frontier had closed he would have joined forces with those who oppose the destruction of natural resources and the environment. If George could return from the grave he would be a "green."

How about the current rush of schemes to limit pollution by issuing a fixed number of "rights to pollute"? The authors remind us that many of these novel programs condone existing pollution activity by "grandfathering" existing polluters and only limiting additional pollution by auctioning off a (limited number) of rights to pollute. These practices produce a windfall to those who now own unimpaired natural resources or who are grandfathered in. That windfall must be wrested away from these usurpers since they have not earned it. The state should tax it away and then use the proceeds of the tax for the good of the entire community.

Backhouse and Krappe read Henry George as stating that no man or woman is entitled to benefit except from improvements that he or she makes. According to Backhouse and Krappe, this also implies that no man can benefit from destroying resources due to pollution and overuse. That is why polluters must restore what they have destroyed before leaving. To avoid the bankruptcy "out," all future developers should post a bond (purchase land restoration insurance) before beginning a project.

Two smaller contributions follow. The first, by a gentleman farmer in Birkshire, England who asserts that most of the ecological disasters of the world are due to the unnatural diversion of international trade patterns caused by protectionism. I did not find this thesis particularly plausible. The second essay is by C. Lowell Harriss, (Columbia University, Emeritus) and President of the Schalkenbach Foundation. Harriss reminds us that Henry George was concerned with free trade and with the single tax idea so as to enable men and women to "utilize their potential for a better life." I found Harriss's thesis both plausible and pleasant.

The book concludes with that notorious "Open Letter to Mikhail Gorbachev" that I mentioned earlier. As might be expected the letter urges him not to privatize the land. Instead, Gorbachev is urged to distribute short-term leases and periodically review the rents so that whenever the site becomes more valuable because of social changes the site-value tax (i.e., rent) can be raised so that the benefit can be appropriated for public use.

This reviewer finds this affirmation of faith in government institutions problematic and disturbing. It seems pitifully obvious to me that Soviet bureaucrats faced with the prospect of raising rents on captive tenants who have committed funds to improvements will be quick to do what Soviet leaders have always done in these situations: extort favors, bribes and in general discourage tenant-entrepreneurs. The tenant-entrepreneurs anticipating this result will be reluctant to commit any resources toward land improvement and this will defeat the Georgist nostrum completely. Perhaps, what is needed is fusion of Henry George with good old Virginia School political economy or Austrian School common sense. That super-synthesis would remind the hopeful Georgists of what most people in the old Soviet Union now realize too well: if property rights are centralized, who is to regulate the regulators?

This book is worth a read. It should be required reading in any course on the history of economic thought that wishes to show how simple classical-school ideas about land rent and its origin can fuel wholesale packages for radical reform and even earn the imprimatur of no less than three Nobel Prize winners in economics!
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Author:Moss, Laurence S.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jul 1, 1993
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