Reductio Ad Absurdum of Land vs In Place Liquidation Value As Tax Base

Due to all the nonsense regarding political economy and real estate nowadays, I figured I’d start posting some of my thoughts as they occur to me on the relationship between political economy and asset value, particularly liquidation value in-place, since people are finally starting to at least pretend to be interested in the fundamentals of political economy.

For 17 years now I’ve been advocating a Citizens’ Dividend paid for by a Net Asset Tax as the correct political economy.  My nearest intellectual neighbors, and to some extent my intellectual ancestors, are the Georgists—the Land Value Taxation (LVT) folks who claim that, with minor exceptions, all economic rent falls on land value.  My definition of “economic rent” is basically that portion of value deriving from positive externalities minus negative externalities where negative externalities are usually identified as various forms of pollution or negative environmental impact.  In essence, in the ideal system of “economic justice”, all positive externalities would be internalized by assigning them back to their source (e.g., Norman Borlaug’s family or at least his ethny would receive the value of his work on the “green revolution” just as “pollution taxes” attempt to assign negative externalities back to their sources).  This redefinition of “economic rent” is not that of the economists such as Riccardo and Smith who originally used the term, so some may take issue with my definitions at the outset.

The Land Value folks have a very good prima facie case in that, whatever else the government might do, government’s primary role is as a land trust set up by the founders to benefit their posterity.  A government without territory might make cute science fiction but it is not current or historic reality for valid reasons quite accessible to common sense.  This is, of course, the reason any government that fails to enforce the popular will regarding immigration loses its legitimacy and should immediately be overthrown, in a national emergency, by those loyal to its constitution, but that is another topic.

Instead of Land Value, I advocate Liquidation Value In Place and have had many on-going discussions with the LVT folks without much resolution.  It is particularly slippery because they are prone to redefining “land” to include not only such abstractions as orbital slots for geostationary satellites, but also state-granted monopolies.  This semantic slipperiness makes it very difficult to get a handle on the debate.  For example, what is a “property right” but a limited monopoly (exclusive control of said property) upheld by the government? 

So I am left attempting to poke holes in the very idea that land itself, land in the common sense version, is a reliable basis for political economy.  This takes me into dangerous intellectual territory—beyond “common sense” but I didn’t violate common sense first in this debate given the increasingly flexible definitions of “land” used by the LVT folks.

So here is my Reductio Ad Absurdum regarding Land Value:

What if, say, Ted Turner, one of the largest land owners in the world, decides to reduce the assessment of his land by burying anti-personnel mines all over his ranches?  The Land Value advocate might respond:  “But he just lost the value of his own use of the land!” Not if Ted is clever.  He can, for example, place hard-encryption transponders on his cattle to temporarily disarm the mines.  He might use the same encryption to post to Usenet the location of all his mines so that only he and his authorized agents can navigate the land without harm.  Ted has used technology to transfer value from his land to a piece of intellectual property:  his encryption key.

The Land Value folks have to do yet another ad hoc modification of their definition of “land”—one of a multitude—to account for this transfer of value, while Liquidation Value In Place has no difficulty following the transferred value to the encryption key as a piece of intellectual property.

Posted by James Bowery on Wednesday, November 12, 2008 at 08:39 PM in
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