Pat Gunning raises some theoretical arguments about the land tax. This post addresses those arguments, leaving all the practical issues of land taxation that he also discusses aside. Pat argues that entrepreneurs are needed to discover the value of land, or of any asset. I agree. But I disagree with his conclusion that this is necessarily an argument against the land tax. The reason is that the market price reflects the combined judgment of all entrepreneurs of the future stream of earnings that will come from that asset. In the pure market economy that Pat speaks of all individuals (entrepreneurs) have access to that market price. It is the informational content of the market price. Now say that some information comes out that pushes the relative market price of that asset up. The holder of that asset will be richer, and holders of other assets will be poorer (if the change is only one reflecting relative changes in the price of the asset subset). I agree that if the holder of the asset is to be taxed only on the appreciation of the asset, that he will have less incentive to study the nature of the asset pricing. But that is not how I see a land tax operating is the pure market economy that Pat posits. (I only talk about appreciation of the asset (and not the asset tax) here to avoid problem that Pat states; actually, I see the issue of asset tax or asset appreciation tax as just a starting point issue similar to problems in taxation whenever one has capitalized future rents.) My argument is that in this pure market economy entrepreneurs would also find that some of the assets that they bought would also possibly fall in value since I have posited only relative asset price changes. If the asset appreciation tax were neutral--that is if the entrepreneur can deduct the asset depreciation from what he or she would otherwise pay in taxes, then his or her incentive is not changed. (subject to a few conditions) Of course if this were the case--if there were only relative changes in asset prices--it is also true that the asset appreciation tax would produce no revenue. But that is not what most of us, including Henry George, expected for the land tax. They expected that the appreciation tax would produce revenue, which means that they expected that the asset would rise in relative value above what the market has valued the asset at. (This expectation goes back to Ricardo, who built it into his theory of income distribution.) This means that the change in asset price is not only expected to be a relative change, but one which generally increases the value of assets, in this case land. When asset values on average rise, then the asset appreciation tax would generate positive revenue, which means that the average expectation has to be that the price of these assets (land) will rise and thus does not fully reflect the expected future appreciation that it should in a pure market economy. In this case the asset tax would affect that portion of the entrepreneurial incentives to figure out how much land in general was going to appreciate. (The issue of entrepreneurial incentives still does not affect entrepreneur's incentives to figure out relative values of land.) Why might not the price of land fully reflect future appreciation? The reason has to be some monopoly or restriction in the market. My sense is that the restriction comes in the capital (credit) market. Credit is highly restricted. If all agents had access to infinite capital resources, then they could all bet on future appreciation of assets (subject to bankruptcy laws). In this case the price of the asset would likely be far higher than it is, and the land appreciation tax (with deductions for depreciation) would bring in zero revenue. But where that is not the case, and there is limited access to borrowing, then those entrepreneurs who are able to bet on the land appreciation are those with access to credit. Those without access to credit are excluded from the market. In this case, the land tax serves as a tax on those with differential access to credit. If that differential access to credit is due to a monopoly restriction, then the land tax is actually a tax on those subset of entrepreneurs with monopoly access to credit. It is a tax on monopoly, which makes George's association with the monopoly game all the more interesting. Dave Colander