The Transitional Economic Model for, Ultimately, the World

Was Henry George correct that land is the ultimate source of wealth, when coupled with labor, and that its ownership by some and exclusion from it for others, is what too largely generates wealth in the form of monopoly rents and their attending privileges? Yes, and there is little doubt about it among informed economists. Listen carefully to Nobel Laureate, Joseph Stiglitz, for example. But is Henry George's notion of but a single tax, placed on land, the solution? Perhaps but perhaps not.

Here is why, in my view. Understanding the basics and certainly the nuisances of the Georgists' position is not as easy as one might think. New purchasers of land, for example, will proclaim that, given the price they paid, they receive no rents and that those who sold to them escaped with them. Much confusion can easily ensue and be extended. It has been some time since the commons was fenced for exclusive, private and privileged use.

I think the better approach near term and as a transitional model is that of the Scandinavian countries where very high and very progressive marginal income tax rates are used to generate a social dividend which is then used for single payor national healthcare systems, good infrastructure, nearly free higher education for all qualified and the like. It is doable and more understandable for most. But we should not stop there as the Scandinavians do, but use their model as a transitional one. But transition to what and how? A model for the world I suggest, in the form I now describe.

We need then to transition from high marginal income tax rates of the Scandinavian countries to a system that targets for taxation monopoly rents and unearned income, lowering income taxes as such new taxes generate equivalent or better revenue. High taxes on unearned income should include those on capital gains, those on interest "earned" from newly created money in the form of bank loans, monopoly rents over and above profits earned without restrictions or restraints on output, and, yes, Henry George's now no longer single, but still a tax on land. The core idea is to tax income that is not earned the old fashion way, by actual human labor.

This moves us strongly in the direction of realizing land and labor are the only real sources of income and wealth. Marx's surplus theory of labor is not far off the mark, especially if we consider land rents as the ultimate source of all capital. Even in Chicago's PhD program I was taught, Marx's labor theory of value did not miss by much but it ignored a return on capital. But is not capital nothing more than accumulated monopoly rents from fencing in the commons and excluding others from the land's use by making the commons private property?

Isn't there a marriage to be had here between Marx's labor theory of value and then Henry George's theory of privilege and land rents, as a replacement for the concept of capital. Not that capital should not receive the value of its marginal product, it is only that that return should now proportionally belong to every one, not just the privileged class, the heirs of and successors to the fencers. I suggest a whole new system that merges the traditional economic model with that impliedly suggested by Henry George and Karl Marx. It would work much better and similarly to what we have, but the mal-distribution of income would largely vanish.

Everyone would earn the value of what their labor produces plus their equal share of rentals from land based income and from other unearned income, the latter of which should be taxed at rates approaching 100 percent as the model suggests. Stability of the economic system would also be much more assured if the lucre of speculation was in effect confiscated.

A whole new model in the path of progress awaits the Scandinavian countries which have already mounted the first hurdle . . . the knee jerk reaction to higher and more progressive income tax rates that conservatives becry as the loss of freedom and liberty and the trashing of the constitution. But so far in America we are penguins waddling in the ice age where regressivists prevail over or at least stop progressivists and the income defense industry works hard to hold us back and keep the lucre where it is.