by Thomas G. Shearman,
The Standard, August 31, 1889,
Since the mistakes of Moses were so triumphantly demolished by Colonel Ingersoll, his example has been followed by numerous writers, who, possibly because they concluded that the Mosaic field has been sufficiently occupied, have devoted themselves to an equally triumphant demonstration of the mistakes of Henry George. Space could not be afforded for even an abstract of these brilliant productions. Crushed by the duke of Argyll, refuted by Mr. Mallock, extinguished by Mayor Hewitt, undermined by Mr. Edward Atkinson, exploded by Professor Harris, excommunicated by archbishops, consigned to eternal damnation by countless doctors of divinity, put outside the pale of the Constitution by numberless legal pundits, waved out of existence by a million Podsnaps, and finally annihilated by Mr. George Gunton, still Henry George’s theories seem to have a miraculous faculty of rising from the dead. For it is certain that his general doctrines are more widely believed in today than ever before; while the one practical measure which he advocates for present and immediate enactment is accepted by a vast number of intelligent men on both sides of the Atlantic. It is, therefore, still worth while to look into this terrible delusion, and to inquire seriously what are these fatal mistakes which, being so often slain, nevertheless live.
Mr. George has devoted a large portion of his book, Progress and Poverty, to the assertion and illustration of his belief that, all over the civilized world, the rich are growing richer and the poor relatively poorer. He undertakes to trace the cause of the assumed evil to the private ownership of land and the steady increase of economic rent. He insists, with admitted eloquence and earnestness, that privately ownership of land must be abolished; but he proposes one remedy and only one, the concentration of all taxes upon ground rent alone. He urges that those taxes should be increased to such an amount as will absorb ground rent. This, in view of all statements made by George’s opponents, would seem to be really only a matter of detail, concerning which any one might be at liberty to entertain, as Mr. Disraeli used to say, a “pious opinion.” For they all, with one voice, maintain that ground rent would never be sufficient to meet the existing taxes; and so this question, if any of Mr. George’s critics are correct, could never arise.
To a practical mind there are only two important questions involved in this controversy. First, is there any undesirable tendency toward the concentration of wealth in the hands of a few? Secondly, is the concentration of all taxes upon groundrent alone a real, just and effective remedy?
Let us look into the facts. As lately as 1847, there was but one man in this country who was reputed to be worth more than $5,000,000; and though some estimated his wealth at $20,000,000, there is no good reason for believing it to be so great. The wealth of his lineal descendants is estimated at $250,000,000, or $50,000,000 each. In 1867, in the New York constitutional convention, one of the most prominent delegates stated that he could name thirty men, residing in that state, whose wealth averaged $15,000,000 each. The St. Louis Globe recently published a list of seventy-two persons who were worth, collectively, the whole amount of our national debt, averaging $18,000,000 each. The wealthiest railroad manager in America, in 1865, was worth $40,000,000, but not more. His heir died recently, leaving an estate of nearly $200,000,000; and there are several gentlemen now living who are worth over $100,000,000 each. Within a short period, a number of quiet, unobtrusive men, of no national fame, have died in Pennsylvania, leaving estates of over $20,000,000 each. Twenty living persons, in the oil business, are reputed to be as rich. Forty persons could be easily named, none of them worth less than $20,000,000, and averaging $40,000,000 each. At the lowest reasonable estimate, there must now be more than 250 persons in this country whose wealth averages over $20,000,000 each. But let us call the number only 200. Income tax returns in Great Britain and the United States show that, in general, the number of incomes, when arranged in large classes, multiplies by from three to five-fold for every reduction in the amount of one-half. … For extreme caution, however, we estimate the increase in the number of incomes at a very much lower rate than this. At this reduced rate, the amount of wealth in the hands of persons worth over $500,000 each in the United States would be about as follows:
200 persons at $20 million,
400 persons at $10 million,
1,000 persons at $5 million,
2,000 persons at $2.5 million,
5,000 persons at $1 million,
15,000 persons at $500,000;
for a total of $31.5 billion.
This estimate is very far below the actual truth. Yet, even upon this basis, we are confronted by the startling result that 25,000 persons now possess more than half the whole national wealth, real and personal, according to the highest estimate ($60 billion) which anyone has yet ventured to make of the aggregate amount. Nor is this conclusion at all improbable.
Let us test the question in another way. Eastern savings banks show an average deposit of $365. This sum represents the extreme savings of the average thrifty workingman of the east. But even estimating that 20,000,000 workers of 1889, earning an average of less than $400 each, of whom 5,000,000 are women and children, have saved, on the average, $600, still their average savings would not amount to $12 billion, or $1,100 for each average family. Let us suppose that the 1,000,000 workers of superior class, earning an average of $1,000 each, have saved $3,000—a monstrous exaggeration. This would make their total possessions $3 billion. The result would be to show that 21,000,000 persons had saved up in the whole course of their lives $15 billion, leaving $45 billion in the possession of not more than 400,000 persons.
Look again. Excluding churches, public buildings, etc. from the items of wealth enumerated in the census estimate for 1880, it is reduced to $41 billion. Railroads, telegraphs, shipping, mines, quarries, canals, merchandise, and specie account for $13.5 billion. These certainly do not belong to $400 workingmen. $5 billion is charged to household furniture, paintings, and jewelry. Two-thirds of this would be an extreme allowance for the 9,700,000 families of the poorer class; but let us allow them more, and estimate the furniture of the 300,000 richer families at only $5,000 each. Farms stand for $10 billion, of which more than one-fourth were owned by landlords and leased to tenants, while one-fifth were so large as to imply wealthy owners; and mortgages were certainly outstanding for more than one-fifth of the rest. Business and residential real estate, water power, etc., were estimated at about the same value. Of this, at least three-fourths was owned by the wealthy class, either absolutely or by mortgages. On this basis we arrive at the following estimate of the possessions, in 1880, of not more than 300,000 persons:
Railroads, shipping, mines, merchandise, specie, etc. $13.5 billion;
Farms, 45%: … $4.5 billion;
Mortgages on farms, 20%: … $1 billion;
Other real estate: … $7.5 billion;
Furniture, etc. … $1.5 billion;
totalling … $28 billion.
The total nation wealth held as private property being $41 billion, this estimate confirms the previous one, that a small minority of the people own two-thirds of the national wealth. Is Mr. George so very much mistaken, in view of these figures, when he asserts that the rich are growing richer and the poor relatively poorer?
A sufficient cause for the immense and growing chasm between the rich and the poor of this country is to be found in indirect taxation. The population of the United States has increased in 25 years from 35 billion to 60 billion. Let us call the average 45 billion. The average annual taxes for the same period have been about $175 million on imports, $136 million on domestic productions, $14 million on incomes, $25 million miscellaneous, and $300 million state and local taxes, mostly on houses and improvements and personal property. Duties on imports have entailed an average increase of prices on domestic goods to the amount of fully thrice the duties, say $525 million.
Excise duties, by promoting monopolies, have largely increased prices, as in the well-known case of matches, where a duty of one cent caused an increase in price of two cents. Let us, however, call this increase only 1/5 of the excise, or $27 million. But upon these taxes there are three profits, made by the importers or manufacturers, the jobbers, and the retailers, amounting to not less than 20% in all, or $172,600,000. Two- thirds of the state and local taxes are paid by middleman, who of course add a profit; this may be put as low as 5%, or about $10 million. The grand total now comes to $1,384,000,000 per annum, as the average annual burden born by the people for 25 years past. Of this all was indirect taxation, except something over $100 million; leaving the average annual burden imposed by direct taxation at $1,280,000,000.
This burden was distributed as equally as possible by natural laws, in proportion to the expenditure of each income receiver in the support of his family. As each worker supported, on the average, three persons, including himself, the people may be divided into 15 million families, or rather groups of three. On the basis of the careful estimate of Mr. Atkinson, 14 million of these must have been supported upon incomes of less than $400 (in my judgment less than $350), 700,000 on less than $1000, and the other 300,000 on larger incomes. Yeah average annual earnings of the nation during 25 years cannot have exceeded $7.5 billion. Allowing 15% as savings, destruction, and cost of replacement, and adding to this the tax burdens, which must be paid out of savings, there would remain, as the sum expended in the support of the people, an average of less than $5.1 billion per annum. This the burden of indirect taxation has averaged 25%. We are now prepared to calculate the effect.
Supposing them exempt from taxes, still it would be unreasonable to expect the mass of the laborers to support their groups of three on less than $300 a year. Their burden of taxation, then, has averaged 25% on this, or $75 a year. Contrast with this the case of men who enjoyed and income of $1 million, which a fortune of $15 million would on average easily have produced in simple interest during this period. Allow them $100,000 each, for a modest living on which their tax would be $25,000 each. From what fund would these taxes be paid? Obviously, from what would have been saved but for taxation, not from what was spent. This fund, in the case of the masses, would amount to $200 each; tax, $75. In the case of the great millionaires, $900,000; tax, $25,000. Tax on the property of the very rich, less than 3%. Tax on the property of the masses, more than 75%.
What would be the result, at the end of the year, on these two classes? Assume only 200 such very wealthy men; yet their savings would be, under such taxation, $175 million. Assume only 600 more, with incomes of $500,000 each, spending $50,000, and taxed therefore $12,500; their net savings would be $437,500 each, or $262,500,000 in all. But 800 rich man would save $437,500,000. The savings of the 14 million laborers could not exceed $25 each, or $350 million. But if taxes could be dispensed with, the savings of the millions of poor men would have reached $1.4 billion, while those of the 800 rich would not have exceeded $450 million.
Here is a mathematical demonstration that the mere fact of indirect taxation is sufficient to strip the poor of 3/4 of their natural savings, and to concentrate a majority in the hands of an infinitesimally small part of its number.
What, then, is the remedy proposed by the wild fanatic whose blunders we are considering? It is threefold.
First, the total abolition of indirect taxation.
Secondly, the substitution of a single tax on ground rent, the only sufficient form of strictly direct taxation which has ever been invented.
Thirdly, the gradual increase of this direct tax, if necessary to that end, to an amount sufficient to absorb ground rents. That is all.
The third branch of this proposition is the only one which has brought the penalties of everlasting damnation upon Mr. George’s head from the hand of Dr. Van Dyke. But Professor Harris and Mr. Atkinson are sure that they have saved his soul, at the expense of his arithmetic, by demonstrating that the rent is a very insignificant item, which would not suffice to meet the present necessary taxes. Assuming for the moment, that Mr. George’s arithmetical critics have delivered his soul from sheol, let us try to rescue his body from the lunatic asylum.
Every form of tax upon personal property or improvements upon land, whether in the form of a tariff, and excise, a license, or a so-called “direct tax” upon their value, is, in the inherent nature of things, an indirect tax. It is and always must be shifted from the original tax payer to the final consumer. In many individual cases the original tax payer is unable thus to shift the tax; but in the event he is crippled in business, and if the difficulty is permanent, he is ruined and driven out of business, to give place to a shrewder man, who makes the customer pay the tax in the end, with a bigger profit than would have contented the week or man.
There are no direct taxes worth discussing, except the income tax, the succession tax, and the tax on land, valued without reference to its improvements. The income tax opens the door to innumerable frauds, and plus a premium upon perjury and corruption. If adopted in this country as the sole method of taxation, it will open the way to such plunder of the honest rich as will make them sigh for Henry George and his tax on rent. Poor folk and rascals will escape from all taxation whatever. If made high enough to support the cost of all government, it will fail, because it will be evaded. There remains only the tax on land values, or the natural rent of land, irrespective of improvements.
This tax is absolutely direct. It cannot be evaded. It cannot be shifted by the original taxpayer. That is an axiom of economic science. If it were not so, there would not be a particle of the clamor which is raised against it. The thunders of the pulpit would have slept forever, if the landowner could make poor folk pay his land tax with a little profit. The adoption of this tax would therefore put an end to all the unnatural impoverishment of the poor and enrichment of the rich, which take place under the present system. It would amount to a total abolition of taxation, as to that vast majority of the poor who own no land. Whereas now they pay both rent and taxes, then they would pay rent alone! This simple fact is a complete answer to the inquiry: “How are the masses to get the benefit of taxing rent?” As to such of the poor as own land, they would be relieved from the taxes which they now pay on personal property and improvements, that is, from more tax than would be added to their land tax. For we need reckon none among the poor who are own more than $3,000 worth of land clear, that being more than the average value of improved farms; and those who own less than $6,000 worth of improved real estate are now paying more taxes indirectly than they could ever be required to pay under the single tax system.
Let us briefly consider “Henry George’s Mistake about Land,” as set forth by Prof. W.T. Harris in the Forum for July 1887. That “mistake” lies in his assumption that ground rent would be sufficient to defray all the expenses of government, national, state, and local. Prof. Harris finding that the official assessment of real estate in this country, in 1880, was about $13 billion, and estimating that this was 2/3 of the market value, and the value of the land alone about ½ of the whole, or somewhat less than $10 billion, calculates the ground rent at 4% on this sum, or $400 million per annum; which of course is wholly insufficient to meet the taxes of $700 million levied in 1880. He then refers to Great Britain and Ireland, where, he says, land forms only one-fifth of the total wealth, with an annual rental of £65,442,000. As British taxes altogether amount to about £118,500,000, it is clear that if this estimate is correct, the single tax would not suffice to meet British taxes.
Taking the first case of the United States, the census report of 1880 shows conclusively that assessments are worthless as a means of estimating real values. They vary from 10% to 70% of the true value of real estate, and no average can be estimated from them. The senses of 1880, upon which Professor Harris relies to show the proportion of land to the aggregate wealth, and which he must not therefore desert for local assessment tables, contains items of real estate, including all privileges over land, aggregating over $28 billion. Adopting the rule of division between land and improvements propounded by him, the lowest estimate of pure land values for 1880 would be between $15 billion and $16 billion. There is no estimate whatever of wild lands belonging to private individuals, unconnected with farms, the value of which could hardly have been less than $2 billion; but of this we will take no notice. The rental of 4% for 1880, upon which Prof. Harris bases his calculation, is utterly absurd. Strictly first-class mortgages could not be placed at less than 5% in the city of New York in 1880; and such mortgages averaged, the country over, nearer seven percent than six. It is impossible that the ownership of land, which is no better than a second mortgage, should not, on the average, produce a rate of interest higher than a first mortgage. The lowest rate of interest to be allowed on the value of the land would therefore be 6½ %. But to this must be added the amount of taxation which actually fell upon land values in 1880. This could not have been less than ½ of 1%. Such taxes, being paid by landlords and not by tenants, necessarily depreciate the market value of the land; and this amount should be either added to the rent, or deducted from the amount expected to fall upon lands in consequence of the adoption of the single tax, since this falls upon it already.
It follows that the ground rent of the United States, in 1880, was considerably over $1 billion. The taxes for that year were about $700 million. But of this, $100 million was levied only for the purpose of paying up a surplus. The necessary taxation what is only $600 million; and the land owners of the United States would have been able to pay all taxes and yet retain a very large surplus. The value of land in the United States is now not less than $20 billion; but the rate of interest is lower, and ground rent has not increased in equal proportion to nominal values.
Turning to Great Britain, the mistakes of professor Harris can be really shown to be vastly greater then any mistakes of Henry George. His fundamental errors are three.
He mistakes the rent of agricultural lands alone for the whole rent of the United Kingdom;
he mistakes the valuation of “houses” for that of structures alone, without the lots beneath them; and
he assumes that railways are not built upon land.
The following are the official figures for 1884, taken from the British Inland Revenue Report, to which we append a very low estimate of the proportion of mixed land values which should be charged to ground rents alone:
BRITISH PURE ANNUAL LAND VALUES, 1884:
Lands, returned as such … £65,442,000;
Manors, tithes, fences, etc…. 853,000;
Fishing and shooting rights … 572,000;
Markets and tolls … 607,000;
totalling … £67,474,000.
BRITISH MIXED ANNUAL LAND VALUES, 1884:
Houses and lots … £127,050,000;
Canals, water works, mines, gas, iron, etc. … 22,381,000;
Railways 33,050,000; sub-totalling … £182,481,000;
One-half of these values as land … £91,241,000;
Total land values … £158,715,000.
Now the whole net amount of British taxes is £118,500,000. But of this over £27,500,000 is already assessed upon pure land values. The adoption of the single tax would therefore increase the burden upon land only by £91,000,000. The net rental value of land being over £158,000,000, it follows that the land owners of Great Britain and Ireland could pay all national and local taxes, and still retain for their own benefit the comfortable margin of £67,000,000. Prof. Harris will do well to study his statistics carefully before he again undertakes to exhibit “the mistakes of Henry George.”
There still remains the question: “Is the remedy just? Many of Mr. George’s critics (notably Mr. Gunton) are debarred from raising this question, since they assert the absolute right of the state to deal with all property as may be deemed expedient.”
But the majority of them are better represented by Dr. Van Dyke, who thinks the proposition of Mr. George “thoroughly unrighteous.” So far as we can make out, this is because the state has in the past allowed private individuals to appropriate land and its rent to their own use, and is therefore estopped from taking away that rent by taxation. But land has always been taxed. In most of our large cities it is now theoretically taxed at least 2% on its value; often 3%. Why should a tax of two or 3% be just and righteous, but a tax of four, five or 6% incur penalties of everlasting damnation? Is it because land is especially singled out for taxation? Then is there not at least equal wickedness on the part of Congress, which for half a century singled out the business of importation as the only subject of taxation, and still taxes it ten times as heavily as anything else? Does the wickedness consist in taxing land up to its full value? Then is it not equally wicked to tax the poor man’s window glass 100% upon its value? Does the wickedness consist in imposing a tax for the purpose of accomplishing some ulterior result? How about our whole tariff legislation, which is avowedly maintained for an ulterior purpose? How about the tax on banknotes, which was levied for the express purpose of destroying state banks? How about the tax on oleomargarine? Is it wicked to tax property out of existence, without giving compensation? Why do not those who urge this plea petition Congress for compensation for those whose wealth has been destroyed and whose occupation has been taken away by taxes avowedly levied for that purpose? Not one of these critics has ever suggested such a petition; not one of them would sign such a petition; and not one of the many thousands who have suffered from such tax laws ever thought of presenting such a petition.
Judged by any standard which has ever been applied to public affairs, even by clergymen, the proposition of a single tax on land values is perfectly reasonable, moral and honorable. As to the amount of such a tax, that is a question to be decided by a wise expediency. There is not the slightest moral obligation on the park of the state to make the tax small, or to leave any margin to landowners, so long as no more is taken than is needed for the honest use of the state.
It is not necessary to follow any further the proposition of Mr. George to increase taxation up to a point which would practically absorb all ground rent. Every one of the critics who has discussed the point at all has committed himself to the theory that no such artificial increase of taxation would be necessary to absorb rent. Moreover, it is not a practical question at present, and will not be for a very long time to come, if ever. Taxation rises quite fast enough, without artificial efforts to increase it. In forty years, in Ohio, population increased 100%, assessed wealth 1000%, and taxation 1300%. It is sufficient for the present to show that the actual remedy proposed by Henry George for the evils of our present social condition, the only practical measure which he asks to have adopted today is a real remedy, an adequate remedy, and a just remedy. The criticisms of his adversaries have been directed to mere side issues, to his minor arguments, to his intellectual processes, to his illustrations, to anything except the real pith of the matter in hand. Not one of them has really wrestled with the problem; not one of them (except Mr. Atkinson) has been even approximately correct in his statistics; not one of them has failed to commit mistakes in his reasoning and his calculations far more serious than any which can be fastened upon Henry George.