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Sunday, April 5, 2015

Holte's Law applied to Rothbard on LVT

I was looking to see what the Royalists (Von = Lord) such as Von Mises and Hayek had to say about Georgism. And I came to Rothbard's writings. Rothbard wrote about Henry George, but I also have to invoke "Holte's Law" in reading him, which is if an Austrian School propagandist likes it, be skeptical. And the Corollary, if an Austrian School propagandist hates it, it's probably spot on. Rothbard despised Henry George. And more importantly, if you want to find out the truth among a pack of liars read the enemies of your liar friends. They'll either tell you the truth, or give you diamonds mixed in with their dreck you can sort through. Thus when the Austrian folks invoke:

"Rothbard's Law: the tendency of people to specialize in what they are worst at." [http://mises.org/library/progress-and-poverty-how-book-came-be-written]

I invoke Holte's law. Rothbard attacks George with this strawman:

"George saw the credit-fueled land speculations of the 19th century and concluded that these unproductive activities were due to private ownership of land, which he proposed to end in the name of promoting prosperity. It was a mistake of cause and effect." http://mises.org/library/progress-and-poverty-how-book-came-be-written]

Rothbard and the Austrians feared George enough to try to both attack him and try to appropriate his name (damning with faint praise). That in itself recommends him to me. First Henry George was not advocating socializing ownership of land. He wanted to tax unearned land rents. That is not "ending private ownership" at all. Why would Rothbard make a false argument? I think it's because he spent his life specializing at teaching Austrian Economists, something he could never do that well because Austrian Economics is mostly dreck. Rothbard can't even describe Georgism accurately, writing:

"According to the single tax theory, individuals have the natural right to own themselves and the property they create. Hence they have the right to own the capital and consumer goods they produce. Land, however (meaning all original gifts of nature), is a different matter, they say. Land is God-given. Being God-given, none can justly belong to any individual; all land properly belongs to society as a whole."

Single taxers do not base their argument for Land Value Taxation on Land being "God-Given", nor on "none can justly belong to any individual", they simply don't say that. I've had long arguments with Georgists who will explain how that is just not an accurate statement of his ideas. On the contrary people have a "God-Given." Georgists explain that the right to "property in land" has to be a common right because it is a right that all deserve and not just an aristocracy, no matter how broad:

"If production gives to the producer the right to exclusive possession and enjoyment, there can rightfully be no exclusive possession and enjoyment of anything not the production of labor, and the recognition of private property in land is wrong. For the right to the produce of labor cannot be enjoyed without the right to the free use of the opportunities offered by nature, and to admit the right of property in these is to deny the right of property in the produce of labor. When non-producers can claim as rent a portion of the wealth created by producers, the right of the producers to the fruits of their labor is to that extent denied. There is no escape from this position." [http://www.henrygeorge.org/rightful.htm]

But if that were the only straw in Rothbard's argument it would be belied by his admission that Georgists don't believe in simply taking land and make the argument that unearned rent is a big portion of the problem. Rothbard then puts up more straw:

"The deficiency in that argument is the neglect of the time factor in production. Capital is the product of human energy and land . . . and time. The time-block is the reason that people must abstain from consumption, and save. Laboriously, these savings are invested in capital goods." [http://mises.org/sites/default/files/Single%20Tax%20Economic%20and%20Moral%20Implications_2.pdf]

This is straw because it a; is extrinsic to the argument he's "refuting", and b; Henry George doesn't neglect time factors in his argument because what is essential to his argument is the notion that there is a moral ownership to be gained from people's labor. Henry George acknowledges the importance of capital and specifically exempts it from Taxes for that reason. Not only is the time factor important in values, but the reality of depreciation means that most physical investment requires constant reinvestment to maintain value. Something Rothbard neglects.

His next caveat raises questions to me:

"The single tax theory is further defective in that it runs up against a grave practical problem. How will the annual tax on land be levied? In many cases, the same person owns both the site and the man-made improvement, and buys and sells both site and improvement together, in a single package. How, then, will the government be able to separate site value from improvement value? No doubt, the single taxers would hire an army of tax assessors. But assessment is purely an arbitrary act and cannot be anything else. And being under the control of politics, it becomes purely a political act as well. Value can only be determined in exchange on the market. It cannot be determined by outside observers." [Rothbard Critique]

I've raised this issue, and since it's coming from Rothbard, I'm sorry I did. The easiest way to get around this would be to levy the tax at point of sale. But LVT folks, in reality, usually don't lobby for a 100% tax but some version of a partial tax, and the issue of assessing land values can be based on the same kinds of data that come from current real estate taxes. He calls it defective because of this, but so is every other tax in some way. Those that are easy to calculate are usually regressive and fall mostly on workers and poor. Income taxes tend to fall on workers, or fail to account for capital investment. So on the one hand whenever Rothbard says anything red flags go up for me. But on the other hand, the best way to test an argument is to test the arguments of the critics.

Rothbard then claims that a Land Value Tax would be arbitrarily applied. His assumption is on the assumption of the natural right of ownership:

"In our world, the only naturally free goods are those that are superabundant—like air. Goods that are scarce, and therefore the object of human action, command a price on the market. These goods are the ones that come into individual ownership. Land generally is abundant in relation to labor, but lands, particularly the better lands, are scarce relative to their possible uses." [Moral Implications_2.pdf]

Rothbard's assumption is that any common property will be misallocated because:

"Compelling any economic goods to be free wreaks economic havoc."

But common ownership doesn't imply making it "free" to the user. It just means that the governance of that resource needs to be done in the interest of the common-wealth and not the private separate wealth. Private ownership is an avenue to inequality and there is no evidence to support the libertarian/Conservative contention that freedom = economic havoc. Though in the case of goods that are held for purely private use, when ownership is not connected to labor and the person who owns the good is not responsible for paying for external costs, downstream costs and other externalities -- the resource definitely gets misallocated.

And Rothbard's comment "a 100 percent tax means that land sites pass from individual ownership into a state of no-ownership as their price is forced to zero" belies that the tax is designed to fall on unearned rents and speculative appreciation and isn't designed to fall on capital goods or the housing/buildings on the land. On the contrary a high LVT rate will encourage owners to put money into increasing the value of the capital goods that use that land in order to avoid the tax on economic rent. As someone said the LVT tax is designed to make landlords efficient rent collectors for local government. It might make landlords actually work for a living. What it definitely wouldn't do would be to "no-ownership" as a properly designed LVT tax won't fall on home owners or production facilities. It's designed to make the land work. And that is if you buy his arguments that the LVT tax would actually be at 100% of the assessed value. It just doesn't follow (non sequitur) that:

"favoritism and “queuing up” will settle allocation, instead of economic efficiency. In short, there will be land waste on a huge scale. Not only will there be no incentive for those in power to allocate the sites efficiently; there will also be no market rents and therefore no way that anyone could find out how to allocate sites properly."

Which of course is balderdash. Even if there were the risk that a 100% tax on land rents would dissuade people from owning land for renting to others, it would not dissuade productive use or home use. But all Rothbard and the other Austrians were betraying was their craving for economic Royalism over any kind of commonwealth:

"For in any economy, a useful resource cannot go unowned without chaos setting in; somebody must manage and own—either private individuals or the government. "

The idea that people can be trusted to manage a common resource is foreign to them. Yet we know that private ownership is as chaotic and prone to mismanagement as pure anarchy. But the alternative according to the American Way of doing things is; commonwealth.

Now I tell a story. When this country was first settled, the first instincts of the Royalist Elite were the same as those of the Vons and Vans of the Austrian School, to replicate the aristocratic structure of Dark Ages Europe. My State of Maryland, was founded on this principle. It was to be the property of Vast Estates owned by foreign landlords. That didn't work. The folks brought in as slaves (on 7 year contracts if white, or permanently if black) ran away or otherwise rebelled. The authorities went to permitting property because aristocratic control equals slavery and stifles innovation, personal liberty and survival for the majority. Rothbard feared Henry George and that is why he misrepresents his teachings.

Further Reading:
http://mises.org/rothbard/georgism.pdf
http://www.henrygeorge.org/rightful.htm

Henry George as an Excellent Economics Teacher

Austrian Economics is but a handmaiden to aristocracy and privilege. George's arguments about Land value segue off off John Locke's arguments for the right of commoners to own property and his arguments against royalty. It is precisely because we all have an equal right in property that unearned values in land must be taxed. He gets attacked by both socialists and elitists because of this. But he's just right.

Further Readings:

http://mises.org/rothbard/georgism.pdf
http://www.henrygeorge.org/rightful.htm
http://holtesthoughts.blogspot.com/2015/03/the-target-of-progressive-taxation-and.html
http://mises.org/library/progress-and-poverty-how-book-came-be-written

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