To Mason and John:
It occurs to me that your main interest is not in how to interpret
Clark. It is in Georgism. So let me deal with that, from the
entrepreneur view of course. By doing this, I can comment on what I
think are your real concerns while elucidating the point of view that I
have described as present in the work of Davenport, Knight and Mises but
which.in my opinion, has gone largely unrecognized by historians of
economic thought as well as mainstream economists.
Surely, you both realize that, regarding a place to park money, land is
not superior to others places. If it were, under the conditions of the
market economy, the only sensible explanation would have to be that
entrepreneurs had systematically undervalued land in relation to other
things and actions. We would not expect them, once they found this out,
to repeat their errors. It follows that to tax land in the future and to
not tax the other things and actions whose market value increase would
be unjust. The "parking money" argument for taxing land does not wash.
(Is it possible that what you really have in mind is taxing inheritance
and gifts?)
Property and actions may increase in market value for reasons that are
not economic. But one must assume that this fact is beside the point.
since practically everyone would agree that income earned from
noneconomic actions is in a different category from income earned in
helping with the supply of consumer goods. In other words, if you can
show that an increase in the price of land is due to something other
than entrepreneurship or luck, we must shift the argument to other
considerations besides economics. I might well agree with whatever
conclusions you reach about taxing an increase in the price due to
noneconomic considerations.
One of Mason's concerns, as I interpret him, is with speculative gain.
He thinks that speculative gains should be treated differently from
income earned from other economic sources. To the extent that
speculative gains are due to luck, I would agree. And, no doubt, more of
such gains are due to luck than earnings from other activities. But
speculative gains are not entirely due to luck. To the extent that they
are due to the making of more accurate appraisals than others, I
disagree. A person who makes a more accurate appraisal of property may
also divert it to a different use. Thus an entrepreneur who anticipates
that farmland is more valuable as living space can dissuade investment
in irrigation or fertilization by bidding the land away from those who
would improve on its use in order to farm it. Since it is not practical
to distinguish entrepreneurs who plan to divert property to a different
use from those who do not, an effort to tax the latter will almost
certainly dampen the incentives of the former. Also, to tax speculative
gains would not only reduce speculation, it would reduce hedging. In
short, speculation performs an economic function.
Finally, regarding luck. If it were practical to distinguish increases
in market value due to luck from those due to entrepreneurship, I would
agree to allowing lucky increases to be taxed. Lucky increments in
wealth are unearned. However, I do not know a way to do this. Do you? Of
course, governments impose heavy taxes on people who play the lottery.
One might argue that this is a tax on lucky increases. On the other
hand, one might argue that it is a tax on play. Whatever one calls it,
it is a game run by the government and not a market economy phenomenon.
So it is not directly relevant to the issue. The issue is whether a
government can, practically speaking, tax gains in market interaction
that are due to luck without causing consequences that are worse than
the money benefits coming from the taxes.
Best wishes,
Pat Gunning
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