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Mutualist Blog: Free Market Anti-Capitalism

To dissolve, submerge, and cause to disappear the political or governmental system in the economic system by reducing, simplifying, decentralizing and suppressing, one after another, all the wheels of this great machine, which is called the Government or the State. --Proudhon, General Idea of the Revolution

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Sunday, April 02, 2006

The Mechanics of Anarcho-Georgism

Fred Foldvary has several interesting articles on Georgist theory at Free Liberal. In one, he points to Henry George's distinction between taxes in form vs. taxes in substance.

The American 19-century economist Henry George distinguished between taxes in form and taxes in substance. In substance, a tax is a forced payment to government, or a cost imposed by government, which is not related to any benefit or to any harmful act done by the taxpayer. In contrast, a payment to government which is a payment for causing damage, or is offset by a benefit, appears like a tax in form, but is not a tax in substance.

One of my biggest objections to Georgism (at least as a long-term system, rather than a transitional one), is that it's a poor way of financing excludable services. There are precious few, if any, genuine public goods. A great deal of the economic rent accruing to landowners comes from externalities of subsidized transportation infrastructure, utilities, etc. Internalizing these externalities by financing the services with user-fees would greatly reduce the site rent. And eliminating subsidies to sprawl, by encouraging decentralized, mixed-use development, would greatly reduce the premium on favorably sited land.

Of course, so long as some government services, like schools, are subsidized from general revenue, a land value tax is the least harmful and unjust way of doing it. But as government support of special privileges is withdrawn, and the market redistributes income downward, the schools should be shifted to a system of user-fee financing.

One obvious objection to George's distinction is that payment for private services on the market is voluntary--unlike a land value tax. Foldvary has at least a partial answer to this. In another piece, he speculates on how rent collection would be enforced under anarcho-Georgism. Besides the standard means of putting a lien on property for non-payment of the land value tax, he suggests a community might instead

declare the delinquent title holder to be outside the law, not subject to the protection of the governing agency, nor entitle[d] to any of the agency’s services. The governing agency would not respond in the case of theft, trespass, fire, or assault. His outlaw status would be known to the public, and he would be prohibited from using civic services such as libraries, streets, schools, parks, and governmental public transit.

With a properly implemented system of rent-based public revenue, it should not be a crime to refuse to pay the community rent. Nobody would go to prison for not paying taxes.

In a morally proper legal system, the only crime should be coercive harm to others. The refusal to do something should not be a crime. Only those who actively commit harm to others would be treated as criminals who harm society in general as well as specific victims.

And such communities, he writes in still another article, might be contractual:

Another variant is geoanarchism, in which people would live in contractual communities whose public goods are financed from land rent. These would include land trusts, condominiums, residential associations, proprietary communities (such as shopping centers and hotels), and apartment buildings. Membership in a community would be voluntary. These communities would associate together in networks and leagues. The members would share the belief that the land rent should be collected and distributed to all members equally or else used for public goods.

Under “geo-archy,” communities would create higher-level associations to provide public goods with a wide scope such as defense. Most communities would be members of the greater association, which would provide for a uniform rule of law at the highest level of association. Individuals and communities who are members would receive a package of goods, including security and access to public works, which makes membership advantageous. Members could secede, but would lose the package, so secession would be limited. Folks would therefore have the advantages of a state, but without the tyranny.

The greater association could include “anarcho-capitalist” communities that do not use land rent for their public finance. Economic theory indicates that the geoanarchist communities would have greater prosperity, since communities that do not use land rent for public goods would find that their public works get capitalized into higher rents, making the residents pay double for public goods, once as fees and then again as higher rent. Most folks would rather pay once than twice, so they would move out of anarcho-capitalism into geoanarchism.

P.M. Lawrence, whose astute comments frequently appear on this blog, had this to say (posted by Norman Singleton at the Lew Rockwell blog):

One problem area, the biggest, is the idea that people could effectively secede as individuals if they didn't like what was on offer in a geoanarchist community. This wouldn't be true if - like landlords - all communities were pretty much the same and had taken up all resources. It would be a hollow mockery like pointing unhappy bank customers to the availability of other banks; in a country like Australia they are all much of a muchness. The problem of states would re-emerge in a different form, with the communities working like ground cover plants to make a network externality preventing any shift in the system of uniform geoanarchist communities. The only way there could be true choice is if there were other communities around that were anarchist without the "geo-".

In my view, Foldvary's voluntary Georgism is more likely to fail in the opposite direction. It would amount, in practice, to voluntary Georgism among those who are either breaking even under the present system, or are net rent-payers--while the net rent recipients self-select out of the system. If his system of contractual rent-paying communities coexists in the same geographical space as those with other arrangements, and his communities allow the contracting of services by other means, the biggest recipients of rent under the present system will have the biggest incentive to secede. For anyone who is a net rent-receiver, the rational choice will be to secede, to hire private police and other services on a fee-for-service basis, and to pocket the rest of the rent. The threat of outlawry and denial of services by the community will be akin to a threat to throw Brer Rabbit in the briar patch.

Georgism, like any other set of land tenure rules, can survive as a system only where there is a consensus on a single set of rules for a given geographical area. There must be a single body of libertarian property law in each area, backed by majority consensus, whether Lockean, Georgist or the Ingalls-Tucker of ownership based on occupancy and use.

P.M. Lawrence also expresses a view on the general Georgist approach that I have a lot of sympathy with:

Geoanarchism, or even anything with that much of a Georgist base, presumes an enduring problem with landlordism and gives up on it, preferring palliative care.

That's why I prefer occupancy-and-use tenure, in most cases. Absentee landlord rent, and public service externalities that can be internalized by user fees, are far bigger sources of total rent than the residual site rent that would remain after these problems are fixed.

I think the same can be said for Georgism's treatment of externalities. It treats externalities as a given, locks them into place, and then attempts to ameliorate them at the macro level through the land value tax. Land value tax is a big hammer for dealing with externalities, which can be better handled on the micro scale by user fees. It treats all the forms of rent, which are created by poor internalization of the costs of public services, as an aggregate, and then treats land rent as a proxy for all the assorted externalities and subsidies created by the community. This leaves a very weak connection between the amount one pays in taxes, and the value of any particular service (undermining, in other words, George's own distinction between a tax in form and a tax in substance), and thus weakens any incentives to economize on the consumption of particular services in light of the cost of providing them.

11 Comments:

Blogger Trevor said...

Kevin,

I understand what you are saying but I’d be interested in seeing how this would work. The LVT is a big messy thing but at lease it is easily implantable. How would we set up fee-based systems for ALL the externalities we have? Are we going to charge people to use roads? Should people pay a fee for living close to a church or other civic building/art? There seem to be many externalities that are hard to quantify.

Or am I misunderstanding you?

April 03, 2006 7:41 AM  
Anonymous Stefan said...

Well I assume Kevin and the anarcho-georgists are not naive enough to think that every externality needs to be internalized. If I live next door to some nice people, for example, why in god's name would I have to pay for something like that? Or if someone is playing some cool music on their stereo in a park, do I owe them a price for this "externality"? The real world is not like Galt's Gulch, nor should it be...

April 03, 2006 4:16 PM  
Blogger Kevin Carson said...

Trevor and Stefan,

No, I definitely don't see a need to internalize every externality. Once you eliminate externalities that are created by government (i.e., subsidized transportation and utilities, and site rents from excessive centralization caused by zoning), and restore the full vigor of tort liability, what's left over isn't that big a deal to me. Externalities that result from voluntary behavior (e.g., the increase in your neighbor's property value from your nice landscaping job) are just part of life.

Actually, Trevor, I do support supporting roads with access fees whenever it's feasible: especially the interstates and urban freeway systems. Commercial and residential streets could probably be handled with some sort of assurance contract system.

April 03, 2006 7:00 PM  
Anonymous P.M.Lawrence said...

Well, I've left this post long enough for others to comment.

KC, when I commented on the Geoanarchist stuff, the criticism wasn't of the mechanics; it would "work" in that sense. Rather, its failing would be in achieving any real freedom of choice and action as all options converged by groupthink on quasi-landlords in the form of the communal bodies.

I also don't see people opting out as a failure, since they would either have to abandon their fixed assets attached to premises, or else sell up at discounted prices because of Georgist charges already in place. Thus they wouldn't simply take their advantages and run.

Essentially, it's the part of my material you didn't quote, relating to absentee landlordism, only expanded by what happens if the landlords try to cash out their revenue stream rather than stay outside while collecting it.

Most of all, though, I don't see Georgist approaches as being part of a useful transition unless circumstances were close to that to begin with. The problem is that it takes a transition to get to that in the first place, unless you want to create both ethical and economic problems there too.

So Georgism makes a useful reference point in considering the issues, but not an actual useful milestone to be attained.

As for non-state externalities being a non-problem, they are certainly not material at the moment, but they do exist and so any scheme that doesn't allow for that could allow for them to grow.

Trevor, large public works have been financed in the past through public subscription and the creation of charitable endowments. There is no reason why "privatising" shouldn't create a starter stock like that and then have everything topped up by private bequests etc. as before.

April 06, 2006 9:06 PM  
Blogger Kevin Carson said...

I understood what you meant by the mechanics of it (at least I think I did); but I didn't think the crowding out phenomonen you referred to was nearly as likely as a failure in the opposite direction, if opting out was possible. As I understood Foldvary's article, the landlord wouldn't have to pay off the community to cash out. If the only enforcement was "outlawry" and denial of community services, but they were free to make other contractual arrangements, they would simply become non-participants coexisting with a voluntary Georgist arrangement in the same geographical area.

April 06, 2006 9:31 PM  
Anonymous P.M.Lawrence said...

KC, I may have some advantage over you in knowing some cases where this outlawry thing was actually used - some as recently as the 19th century.

Outlawry was the threat applied to coerce cathedral chapters to select the right candidate for bishops in England, and was used as late as the 19th century.

And a King of Madagascar used it to eliminate pagan priests, albeit at high costs in terms of social disorder.

Basically, all ordinary activity becomes impossible, and it also becomes impossible to acquire defensive services (since they don't know if they will be paid) or to collect rents and maintain property (since you can't be everywhere at once).

It works as a signal marking the target out as fair game. He cannot coexist in situ in these circumstances - which is what I meant by having to abandon his property.

April 07, 2006 7:07 AM  
Blogger Kevin Carson said...

But as I mentioned in the post, I don't think Foldvary objects to a variety of competing security, library, fire, etc. services alongside those of the "community." Which means the practical effect of outlawry under his setup would be very different from the cases you describe--it would, in practice, simply amount to excommunication from one competing provider of public services among many.

April 07, 2006 11:16 AM  
Anonymous P.M.Lawrence said...

KC, that's stunningly plausible at first read through, but in fact it's almost precisely the reverse of what would happen. Remember the whole ground cover plant thing I was objecting to. Well, while Foldvary might not object in theory to the existence of geographically competing alternative arrangements, in practice they would face the precise same problem getting started, being supported by their first few customers and so on, all in the face of a local Geoanarchist hegemenony. They wouldn't be able to compete while they were still small.

What's more, even if some did somehow get started, any arbitration that could exist, if it were also consistent with Geoanarchism, would require the competing system to pay out the Geoanarchists for their loss of revenue base for each new opt out. If it didn't, the arbitration would be unacceptable to the Geoanarchist community. In such cases there is usually a resort to force to settle the matter, and again local hegemony would favour the status quo - Geoanarchism.

April 09, 2006 2:31 AM  
Anonymous Land Value Tax said...

Kevin,

I think you make a good point that a land value tax alone might not be proper. John Medaille in his book suggests a land value tax partnered with user fees (as you suggest) and taxes on monopoly level profits.

The key to a "Free Market" is to make companies (and individuals) availing themselves of "Externalities" or "privilege" pay their own way!

December 28, 2010 6:15 PM  
Blogger Philosopher3000 said...

In CA we have a constitutional change that extends a permanent property-tax freeze to commercial investment property owned by corporations. http://www.closetheloophole.com/

March 18, 2012 2:42 PM  
Blogger Philosopher3000 said...

In CA we have a constitutional change that extends a permanent property-tax freeze to commercial investment property owned by corporations. http://www.closetheloophole.com/

March 18, 2012 2:43 PM  

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