Hi, HESers Apparently, I hold a minority position. Fortunately, scientific issues are not decided by majority vote. Regarding Roy�s points, my post aimed to avoid the dubious distinction between what George called �ground rent� and other rent. I am not persuaded that this distinction has theoretical significance or that it is practical. I am not speaking only for myself. I have learned a lot from studying Davenport, Wieser, Knight and Mises. My remarks reflect that learning, in retrospect, as Mark would put it. Roy accepts this distinction and says that it should not be too difficult to separate the two. Roger seems to concur. We (my dead economist colleagues and I) believe the distinction itself is vague and that it would be impossible to identify �ground rent.� Of course, some �professional valuation officer� could attach a price to a parcel of land by doing a mental experiment. But we are not talking about some government bureaucrat attaching A price, we are talking about attaching THE price that reflects an UNEARNED INCREMENT and one that, if this increment was taxed, would not have adverse incentive effects on the production of consumers� surplus. As we see it, giving such a job to the kinds of �professionals� who are usually assigned such tasks would lead to just the opposite of what George thought could be achieved. It would not destroy the economy, but it would be no more justifiable from an economic or ethical point of view than any other kind of tax. Let me explain why we believe this. The majority cannot deny, we maintain, that if it were not for the competing entrepreneurial appraisals, no �ground rent� or any other kind of rent would exist. Indeed, no prices could exist without entrepreneurial appraisals. Prices do not establish themselves. Of course, there are past prices but these are continually being challenged and revised by current entrepreneur appraisers. Both an existing owner and all of the prospective owners of a parcel of land or site act as entrepreneurs and, consequently, make appraisals. The interaction of the appraising entrepreneurs determines ALL prices. The appraisals of entrepreneurs are based on expected uses. Each of the separate competing entrepreneurs brings his own distinct and private human capital and possibly that of his assistants and partners to bear on the matter. If he believes that he needs more knowledge to make a good decision, he may cause the human capital to be produced that he believes is needed to make the decision. In today�s high-tech world, the ability to appraise is typically a resource that has been at least partly produced for the distinct purpose of making an appraisal that is superior to that of other entrepreneurs. (This is the deeper implication of Polly�s observations.) The ability to appraise is the consequence of an entrepreneurial venture in which a would-be appraiser has invested. If the venture is a success, the superior appraisal is made and the price of the appraised item rises. The item is more valuable in the eyes of the producing entrepreneur. Under pure market economy conditions, this implies that it benefits consumers. In other words, the effort that goes into producing the information that causes the market price to rise has the unintended effect of producing consumers� surplus. It is an example of Smith�s invisible hand. These ideas apply no less to land than to all of the other resources. The ideas are the backbone of the neoclassical revolution. They were produced mainly by Menger and Clark. They were taken for granted by economists like Wicksteed, Fetter, Davenport, Knight, and Mises. It is obvious that others who are called neoclassicals did not grasp or accept these ideas. And those who did accept (the above mentioned neoclassical economists) them did not express them in this way, partly no doubt because they were living and fighting for the revolution, and not reporting on it in retrospect. There are formal classes that help to train real estate agents how to make appraisals. But there is no set formula for deciding the present value of the future net revenue that can be earned from using a parcel of land in a particular place with particular characteristics with one of a practically infinite set of other resources for some demand-satisfying purpose. Entrepreneurship, almost by definition, cannot be learned from power point lectures. If the land tax bureaucrat makes a credible threat to take away a part of the expected profit from an increase in price, she also takes away part of the incentive to make the superior appraisal and the incentive of the owner to put himself in the position to benefit from someone else�s appraisal. �She squeezes the consumers� surplus out of the entrepreneurial tube.� Entrepreneurs attach a market price to a site in anticipation of the revenue they will earn if they own the site. Suppose that a site already has buildings on it. Then an entrepreneur may assign a revenue product that is greater than the same site if it had no buildings but less than a site that had buildings that he regards as suitable for the most profitable use. Or, he may assign a revenue product that is less than if there were no buildings. If the site is on potentially fertile land that can be farmed, an entrepreneur who is planning a shopping center or an apartment complex may have to compete with one who is planning to turn it into rice paddies. These are only two of the numerous potential entrepreneurs who may be appraising the site. The numerous potential uses of a site and the numerous individuals whose entrepreneurship may play a role in raising the site�s market value suggest that the �ground rent� is itself variable and dependent on entrepreneurial appraisals and entrepreneurial knowledge much of which is produced. Or, to put the issue in a way that is more consistent with my earlier post, it is not possible for a government agent or an economist to separate, for practical purposes, the unearned from the earned increment, if indeed there is an unearned increment. Let us suppose that �ground rent� exists. Then the payment received by the owner of a site must contain both this and other rent. Any realistic implementation of the �ground rent tax� would require a government agent to determine (1) what is in the minds of the many different entrepreneurs and (2) what the rent would be if, somehow, there were no current entrepreneurs. It is not credible to think that we could find someone to do this job, even if we did not have to worry about rent-seeking and other public choice issues. To think otherwise is tantamount to committing the central planning fallacy. This, in simple terms, expresses Davenport�s critique and, more generally, the (correctly understood) neoclassical critique of the single tax ideology. But the errors continue to be made. Let me try to give some reasons why people, including apparently our own society, continue to make errors. Some people think that a tax on land rentals will cause rich people to pay a greater share of the tax burden. This thinking is popular but fallacious. No one in her right mind advocates taxing gross ground rent, whatever that is. The reason is that in a pure market economy, the current owner of a parcel of land is most likely to have bought it with the proceeds of her productive work and entrepreneurial skill. To tax the future rent would be to punish someone from using her savings to buy ground or sites instead of condos, holiday trips, lazy-boy chairs, and HES subscriptions. The more advanced thinkers aim to tax APPRECIATION of land values. But they also make a mistake. They do not realize that such appreciation cannot occur without some entrepreneur believing that his appraisal is superior to someone who owns the land now. A tax on the appreciation in value would necessarily reduce the production of the information needed by entrepreneurs to make the superior appraisals. We say succinctly and anthropomorphically that land prices have appreciated. Then we reason fallaciously that we can tax the increase in market value because land cannot move. What we ought to say, in accord with the neoclassical revolution, is that competing entrepreneurs have bid higher prices. If we keep this in mind, we would understand immediately that to tax any appreciation in price, including that of land, amounts to taxing the activities of the entrepreneurs that cause the price to rise. It would have an effect that is comparable to the effect of taxing middleman activity. As Frank Knight pointed out, the entrepreneur is, in a grand sense, the agent of the consumer. He is the goose who lays the golden eggs. To tax the goose is to reduce the incentive to lay. Reference Gunning, J. Patrick (1997) "Herbert Davenport on the Single Tax." American Journal of Economics and Sociology. 56: (4): 565-574. (Pre-publication copy available on request.) Gunning, J. Patrick. (1998) "Herbert J. Davenport's Transformation of the Austrian Theory of Value and Cost." In Malcolm Rutherford (ed.). The Economic Mind in America: Essays in the History of American Economics: London: Routledge. (Pre-publication copy available on request.) Pat Gunning