Larry wrote that "[t]he basic Georgist insight is that  
public goods...can be profitably financed in ways that  
do not seriously disturb the existing allocation of  
resources." And he refers to urban economics texts as  
a place where you can find the name "Henry George"  
attached to this insight. Too bad for urban economics  
which, like television economics, is perhaps yet  
another case of too many wings of economics.  
  
As I see it, Larry, this second basic insight is just  
as wrong as the first one. Probably more so, since it  
employs the policy non-relevant idea of a public good.  
  
The insight you describe assumes that resources  
somehow exist without entrepreneurship. The problem of  
allocating them is a simple maximization problem. Yet,  
in a market economy there would be no resources  
without entrepreneurship. Parcels of land would exist,  
but they would not be a resource. And no one would  
know how to use the land to satisfy wants. One of the  
tasks of entrepreneurship is to identify how items  
like parcels of land in different places and other  
items and actions can be combined and coordinated to  
satisfy consumer wants.   
  
Assume that, in a market economy, entrepreneurship has  
appraised the land and put the different parcels to  
different uses. If parcels of land are taxed,  
entrepreneurs will act differently toward land than  
otherwise. (Keep in mind that I am talking about a  
modern economy. Even primitive peoples know very well  
how to use parcels land. But they have no markets and  
no entrepreneurship. The �average Jane� in a modern  
market economy has practically no idea of the most  
economical use of a parcel of land.)   
  
Under these conditions, taxing site values would  
affect entrepreneurship in the same way that a tax of  
any other kind would affect it. I will grant that the  
Georgian tax cannot affect the production of  
improvements to land that have already occurred.  
Bygones are bygones. I will also grant that such a tax  
is an easy way to raise revenue to pay for �public  
goods.� But the Georgian tax does affect the  
production of NEW improvements. It causes landowners  
to build taller and deeper in order to economize on  
the use of land. However, extra stories to a building  
that are added only because of a land value tax will  
not ordinarily be in the interest of consumers. If it  
were not for the tax, the city would expand in length  
and width, instead of in height and depth.  
  
Of course, the problem is more complicated than one  
can describe by referring to only three dimensions.  
But this should be sufficient to make my point.  
  
This second insight, it seems to me, is just the first  
insight in a different package. The Georgian tax is  
still an effort to tax the elusive unearned increment.  
Could we say that it is an exercise best studied by  
economists in yet another wing of economics,  
�advertising economics�?  
  
Pat Gunning