When we think of progress, we often equate it with wealth. After all, isn’t a booming economy with new technologies, businesses, and opportunities supposed to uplift everyone? Surprisingly, a 19th-century political economist, Henry George, posed a thought-provoking question: Why does poverty persist and worsen as societies grow richer?
In his seminal work “Progress and Poverty” (1879), George draws parallels between the America of his time and our modern digital economy, revealing timeless insights into the mechanics of wealth and inequality. This blog will explore some of his critical observations on the “what,” “why,” and “how” of this enduring problem.
At first glance, wealth seems like an obvious result of labour and capital – workers and machines producing goods for society. George agrees with this but emphasises an overlooked factor: land. To him, land, labour, and capital form the triangle that creates wealth. Imagine a cake where these three ingredients come together to bake something valuable. But as the cake grows larger, who gets the biggest slice?
In George’s analogy, landowners enjoy the most significant cut simply by virtue of owning land. Whether it’s a vast farm or a prime plot in a bustling city, land increases in value as communities prosper. George argues that while labourers and capitalists (investors) contribute to creating wealth, the majority is ultimately captured by those who own the land. Much like how the best seats in a concert venue are reserved for those who can afford them, landowners get the prime share, not because they work harder, but simply because they control the land.
Imagine moving into a new town where land is abundant and cheap. You can build your home, plant crops, and sell your produce. This was the case in 19th-century America when settlers moved westward. However, as the community developed, rents began to rise. Landowners increased their fees because, as more people came, the land became more valuable.
George’s observation is similar to how housing prices in modern cities rise due to increasing demand. For example, New York City’s real estate market is sky-high, not because the buildings are made of gold, but because the land itself is valuable. As communities grow, so does the price of land. According to George, this rising rent is the crux of the problem. As more wealth is generated, a more significant portion is funnelled into paying for land, leaving less for workers and investors.
This is the vicious cycle of progress and poverty! The core of George’s argument is that as societies progress, poverty doesn’t diminish; it intensifies. He likens this to a game of Monopoly, where one player owning fundamental properties steadily bankrupts the others. The few who control land continue to accumulate wealth, while workers and capitalists see diminishing returns for their efforts. This is why, in booming cities, we often see stark contrasts – skyscrapers of wealth alongside streets of homelessness.
George uses historical examples, like the California Gold Rush, to highlight how this works. In the early days of the gold rush, anyone could stake a claim and make their fortune. But over time, speculators swooped in, buying up land and raising rents. This dynamic, George argues, led to a situation where those with land grew rich without lifting a finger while those without struggled to survive.
So, what’s George’s solution: tax the land, not the people? Rather than confiscating land from the rich, George suggests a more straightforward solution: tax the land. Specifically, he advocates for taxing the ‘unearned’ wealth that landowners gain simply by owning valuable property. This ‘unearned’ wealth refers to the increase in land value that is not a result of the landowner’s efforts or investments but rather due to external factors such as community development or infrastructure projects. This tax would be fair because the value of land, especially in urban areas, is created by the community, not the individual landowner. In essence, if a plot of land becomes more valuable because a city builds infrastructure, shouldn’t the community benefit from that value?
In practical terms, this would mean landowners pay taxes based on the value of their land, not the improvements they’ve made to it (like buildings). This is the essence of George’s land tax proposal. It’s like charging someone to rent prime real estate in a town square, where the value comes from the location rather than what’s built on it. The tax would be calculated based on the market value of the land, which would be periodically reassessed to reflect changes in the area’s development and demand. This would ensure that landowners contribute to the community’s wealth in proportion to the value their land gains from community development.
So, why do George’s ideas still resonate today? In today’s world, George’s ideas seem strikingly relevant. The rise of the tech economy and urbanisation has caused land values in major cities to skyrocket while income inequality continues to widen. Wealth accumulates at the top, but as George astutely noted in the 19th century, this is not merely due to entrepreneurs’ genius or capitalists’ hard work. Much of it is tied to landownership and the rents that follow. For instance, consider the case of a small business owner in a gentrifying neighbourhood. As the area becomes more desirable due to community development, the value of the land on which their business operates increases, leading to higher rents and potentially forcing them out of the area. This is a direct result of the increasing value of land, not their efforts or investments.
Consider modern startups that owe their success as much to Silicon Valley’s ecosystem (an expensive piece of land) as to their innovative products. George’s land tax proposal might sound radical. However, it strikes at the heart of a system where wealth increasingly pools in fewer hands, often through mechanisms that benefit landowners rather than society.
In conclusion, “Progress and Poverty” is more than just an economic critique of the past; it’s a blueprint for understanding our present and rethinking our future. It serves as both a mirror reflecting our current economic realities and a compass guiding us toward potential solutions. By framing land as the silent beneficiary of economic progress, George challenges us to look beyond the simple narratives of hard work and innovation. Instead, he invites us to understand and address the hidden mechanisms, like rising rents, that fuel inequality even in wealthier societies. This understanding can empower us to make informed decisions about our economic systems.
If George were alive today, he might point to our cities, filled with multi-million-rand dwellings and those struggling to rent, and say, “See? The more things change, the more they stay the same.” The question is: will we take his advice and tax the land or continue to play by rules that leave many of us out of the game?
By embracing George’s principles, we can aspire to create communities where prosperity is shared rather than hoarded—a vision worth pursuing for future generations. This vision can inspire us to work towards a more equitable society where everyone has a fair share in the wealth they help create.
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