Dear colleagues:  
  
The discussion about taxing unearned increments is a splendid example of talking past each
other, myopia, and the intrusion of ideology into analysis.
  
I am reminded of the Chicago-School leader who once remarked to me, "Warren, your talking
about power is placing you perilously close to Marxism," with the obvious implication that
I should desist.  And now I am said by Jim Ahiakpor to be a Marxist (in disguise; Mason
Gaffney and Sumitra Shah have seen through such name-calling) and want to make two points:
(1) Power is an important subject whether or not one obfuscates the fact.  (2) Think of
all the economists who are infinitely more important to the discipline than me, who
believed that power is important:  Smith, Weber, Taussig, Pareto, Schumpeter, Wieser,
Knight, Simons, Viner, Commons ... and so on.  What company I keep.  Yes, Pareto was
called the Marx of the right by some people, some of whom were lambasting him for being so
and others only seeking to make sense of him.
  
Jim Buchanan considers me subversive for some of my positive analysis, and I consider him
to be performing the High Priest role, with respect to the analysis of power.  So it goes.
  
I am amazed at the frequency of and degree of reliance on tangential propositions by
opponents to George.  In contrast, the adherents to George, of various types, largely
focus on the central issues.  I think that a content analysis of the postings on this
subject would show this--though quite possibly only replicate the problem.  Take the top
footballer example:  one can use it as a wedge--well, you want to tax land but not the top
footballers' high salaries--or, as is arguably more appropriate, as an example of
temporary versus permanent inelasticity.  And the case for land-value entrepreneurs is
infinitely weaker than the case for all other, productive entrepreneurs.
  
The central issue concerns the definition of economic/Ricardian rent as the return to an
owner of an asset in permanent or temporary inelasticity of supply.  Given the usual
diagram, the supply curve [of land] is pretty much inelastic, i.e., vertical.  As
population growth increases, the demand for food increases, and the demand for land on
which to grow food and for other population-growth uses also increases, through no
contribution of the owner of unimproved or improved land.  Here we have unearned
increments in juxtaposition to income earned/derived from productive activity.  The
justification for distribution on the basis of productivity [cet. par. circularities] is
central to the Protestant Ethic and mainstream economics, even much heterodox economics.
  
So there is a volume of unearned income being produced.  There is competition to acquire
it.  One can call the seekers thereof entrepreneurs.
  
Now, to several people's chagrin I sought to characterize what is going on in this
competition by an analogy with Marx, who envisioned the production of value, surplus
value, by workers [value over and above the value of their labor power], because they are
required to work longer hours than necesesary to repay their wages with output and the
ownership of output goes to the capitalist [statement of fact].  The labor theory of value
in general and the notion of the value of labor power are, as I have said in print,
largely metaphysics, no less and no more so than utility analysis.  What happens is that
the bourgoisie in Marx's model compete to acquire the surplus value.  Those opponents of
George, Pat Gunning, who I do not recall having met personally, and Larry Moss, who is not
only a past president of HES, as am I, but a good friend of mine, and our wives of each
other as well, bring in the role of the entrepreneur in deals involving land.  My point,
per the analogy, is that they are competing for George's land rent just as the capitalists
were competing for Marx's surplus value.  I did not then nor do I now intend to call
George a Marxist.  George was defending distribution on the basis of productivity; and in
this and comparable respects was Ricardian and conservative.  I would argue that even Marx
was not a Marxist in the usual pejorative sense in this matter:  just as George opposed
distribution by capturing unearned income, Marx opposed distribution by forcing workers to
produce surplus value going to the capitalists (who fight over it).  In a series of
writings David Ellerman has identified the mechanism by which capitalist appropriates
surplus value--acquiring title to the goods produced in part by labor.  So Marx was more
pro-productivity distribution than many other people; as was George.
  
I believe, and have believed since my undergraduate days, that economic rent as a positive
proposition has not been shown to be wrong and to have been routed, as Pat says.  The
implication of unearned income is a partly positive and partly normative proposition.  The
implication that taxing unearned increments will largely have no disincentive effects is
also largely, even asymptotically totally, a positive proposition.
  
I have been aware of the problems of taxing the unearned increment(s) (choice of base
year, loss, etc.) also since my undergraduate days. also the significance of competition
between different kinds of users of land.  But to claim that entrepreneurs seeking to
capture land rent constitutes evidence that George is wrong, is itself wrong.  That part
of their activity involving improvements should be considered productive; but the act of
purchase and sale of unimproved land is in itself not a contribution to GNP, tho the
services of transfer agents arguably are.
  
I am amazed that Pat believes it is better to tax consumers' surplus than George's
unearned increment.  No measurement problems, there, I guess.
  
Several books have been written on the enemies of George, at least one on opposition from
within economics.
The striking thing is that numerous economists spoke publically against George for his
ostensible attack on property rights--the tax on land would of course change the
opportunities accruing from land ownership, i.e. ownership rights, the right to capture or
to try to capture unearned increment--as if rights appertaining to land have never
otherwise been changed.  But many of these same economists supported the taxation of land
rent on the grounds indicated above.  Why did they say two different things?  Inasmuch as
George's analysis and proposal was considered anathema by the landed aristocracy and
others, in England and elsewhere, to be seen as pro-Georgist made one subversive in their
eyes.  But economists were seeking status in the world and did not want to be seen as
unsafe.  Also, George was not one of "us".
  
Roger Sandilands, among others, has responded on many points in a sensible manner, such
that I feel no compulsion to take them up myself.  His quote from Smith is, of course, a
gem.  But so are his handling of largely irrelevant [to the main issues] side points.  His
articulation of the problem as the failure to appreciate the distinction between land and
capital is incisive.
  
Yes, taxing the unearned increment would reduce the volume of entrepreneurial activity in
quest of such gain, but that is no social loss; indeed, the resources (monies, chiefly)
could be used in making improvements.  Such skill should not be socially wasted, and if,
as Pat says it will be, such is a tax on their activity, it will lessen the opportunities
open for reaping where one has not sown (Smith).  Pat's doubt that one can meaningfully
distinguish between improved and unimproved land is incredulous.  As is the query, if the
land is unimproved, who wants it?  Pat does not know the meaning of unimproved land or
else is being disingenuous--sorry Pat, but I call it like I see it!  Your contribution to
this discussion lacks the solidity of your contributions to other discussions on the list.
  
Mason Gaffney's line that if licenses are worthless, give them to him, seems at first
glance to be silly.  But the claim that they are worthless is akin to the believer in
Stigler's Coase Theorem, and his argument of the allocative neutrality of rights, and
correlatively the claim that income and wealth distributions are irrelevant.  At the basic
suggestion of my colleague, Al Schmid, I once was on a panel when a believer in the
Theorem [which Coase has repudiated, saying he was trying to argue the opposite] literally
said wealth and income distributions are irrelevant, I asked, well, how about giving me
your wallet?  He was speechless.
  
Land is physically productive with regard to food; the rent of land derives from its
inelasticity of supply relative to demand, as above.  Oil is inelastic in supply, defining
supply as total oil found and as yet not found (and somewhat elastic in another sense
insofar as discovered oil is responsive to exploration entrepreneurs); but oil is a
bothersome gooey, sticky substance and not a natural resource until the internal
combustion engine is created that has a need for oil.  The owner per se of oil land does
nothing and yet reaps where he has not sown.  Whether oil is a pest or a resource, it
exists, contra Pat, without entrepreneurship pertinent to it, except re discovery.
  
Larry Moss claims a Henry George Theorem which inverts George and reduces entrepreneurship
to discovery of opportunity.  Well,  (1) sure, if one understands Ricardo and George, one
can buy unimproved land and wait for society to grow up around it/population increase, and
capture rent; and (2) opportunity to capture rent is not the same thing as opportunity to
produce, the former is a matter of competition over unearned increment, just as in Marx's
case it is competition over surplus value.  I suppose anything that can be labelled
competition now becomes like labeling anything opportunity.  Civil wars and gang wars,
etc., can so be labelled--in comparison to really earning a productive living.  The
inversion of George is a ploy to obfuscate the difference been unearned and earned, ala
Ricardo and George.  Sorry, Larry!
  
James Ahiakpor attributes the case for taxing land rent as envy or covetous behavior.
This is unbelievably simplistic.  I do not deny that someone somewhere was jealous of
landowners--tho I expect more were critical of the governing powers that were part and
parcel of landownership [see references below].  No, Jim, the case is not that.  Given
that taxes have to be raised [you do not like that, but it seems a sensible place to
start], the normative argument is made that it is better to raise them with taxes that
have no disincentive effects than with taxes on productive activity having disincentive
effects.
  
I do not claim that George's analysis has the highest practicality or moral claim of any
possible public policy.  I do think that the case for it, outlined above, makes a great
deal of positive and normative sense.  I have not made a career of promoting George's
point of view but it is more convincing than much of the pie-in-the-sky policy agendas of
people of all ideologies.
  
One further and final point:  I oppose gambling, not least state lotteries.  Inter alia,
they distract people who cannot afford to gamble from seeking productive careers.  It is
much like entrepreneuring after unearned increment and surplus value in that respect.   If
we repeal state lotteries we deny them this opportunity to compete for the money (money
that is often, I am told, justified by saying it goes for education, money that is
fungible and enables the state to finance education at the same level as before lotteries,
cet. par., yet cutting back on spending tax revenue spent for education).
  
A coda:  We all say stupid things.  When I was an undergraduate student, hearing that
rainbarrells were important to the viability of early cities, I asked, but they are so
small, how can that be?  When I was told that gutters on roofs acted as rain collectors, I
learned how little I understood of many things.
  
  
  
References  
  
With Kirk D. Johnson and Marianne Johnson, "The Duke of Argyll and Henry George:  Land
Ownership and Governance," in John Laurent, ed., HENRY GEORGE'S LEGACY IN  ECONOMIC
THOUGHT, Northampton, MA:  Edward Elgar, 2005, pp. 99-147.
   
  
With Marianne Johnson and Kirk Johnson.  2004-2005. "The Duke of Argyll and Edwin L.
Godkin as Precursors to Hayek on the Relation of Ignorance to Policy," Part I.  Storia del
Pensierro Economico, vol. 1, no. 1 (2004), pp. 5-32.  Part II, idem, vol. 1, no. 2 (2004)
pp. 37-67.  Part III, idem, vol. 2, no. 1 (2005), pp. 35-71.  Part IV, idem, vol. 2  no. 2
( 2005), pp. 19-38.
  
  
Warren Samuels