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What is land?

One argument put forward against LVT is that ‘land’ (in the physical sense) is ‘not so important any more in a modern economy’. The proponent then mentions something like intellectual property rights (copyrights, patents etc), points at a few companies who make large amounts of money from them (Facebook etc) and says that is what we should be taxing.

Clearly, in overall financial terms, this is a feeble argument. The value of IP is in distant second place to the value of land. Facebook’s worldwide profits are $16 billion (about $3 per user), so even if everybody in the UK is on Facebook and generates $3 profit, that’s about £150 million a year. Compare that with the total site-only rental value of UK land, which is about £250,000 million a year. That’s not physical land value (undeterminable) but location value (easy to measure and can only exist if the government provides ‘public services’).

Under general Georgist principles, government protection of copyrights and patents should either be watered down OR if we decide that it is desirable, the extra profits accruing to the rights holders should be taxed at higher rates (they ought to pay for the value of the government protection of these rights). This goes without saying and shows that the opponents of LVT have not understood the basic principle.

And under general Georgist principles, there are many other things which are good sources of taxation besides land (even though the revenues would only be a fraction of the potential revenues from LVT), be it oil and minerals; exclusive right to use certain radio frequencies; personal number plates; taxi driver permits; it is a very long list.

What do all the things on the list have in common?

They are all things which have no cost of production, where supply is limited (whether by nature or by the government), and quantity cannot be increased by the productive sector.

You can work hard and make a car or a table or a CD player and sell it, so those aren’t ‘land’. But however hard you work or are willing to work,
– you cannot increase the surface area of the earth at a particular location*;
– you cannot print and sell Harry Potter without JK Rowling and her publisher’s permission;
– the amount of oil and minerals under the earth is a fixed (albeit unknown) amount.
– you cannot increase the width of the radio spectrum;
– you can get a physical number plate made for less than £10, but you can’t choose which letters and digits are on it (so you can’t just make a load of ‘A1’ number plates and sell them for £10,000 each);
– you cannot drive a taxi or mini-cab if the local council limits the number of permits and has already issued the maximum number.

And all these things wouldn’t have value if supply were not restricted and if governments didn’t do what governments do. Their value bears no relation to the efforts of the owner.

– Oil and mining companies and their employees work very hard at extracting the stuff, but how hard they work does not affect its value. The current world market price of oil or gold just is what it is, and might be above or below the cost of extraction from any particular well or mine.

– When the telecoms companies bid for radio spectrum, they guesstimate what end users are willing to pay for mobile services, deduct a guesstimate and their costs and the residual value is what they were prepared to bid.

– Microsoft have created some neat software, but without copyright and patent protection, they might not have bothered so it would have much lower value.

– Taxi drivers work hard, but they understand supply and demand, which is why they lobby heavily against the likes of Uber. The extra they earn because of restrictions is unearned, it is ‘rent’ and they rent they get is from ‘land’ (in the economic sense used here), the council or city could reduce their earnings by this much at the stroke of a pen by abolishing the limit on the number of permits.

* You cannot create new land by reclaiming the sea. You are merely drying out existing land. That does not increase the surface area at that location, it is merely a change of use. This is an expensive process and is only worth doing if location values are very high. So it’s worth doing off the coast of Monaco (and within its jurisdiction), it would be ruinous to do the same exercise half a mile down the coast if you were merely creating more France.