Henry George: Prophet of the Gilded Age

In 1873, Mark Twain published his satirical novel, The Gilded Age, an era magnificently recreated in all its greed, ruthlessness and ostentation in the new HBO series of the same name. Post-Civil War business boomed under President Ulysses Grant. John D. Rockefeller and Andrew Carnegie founded the oil and steel industries. While new banks popped up like mushrooms, J.P. Morgan steadily built his banking empire. Railroads were the hot investment of the day. Funded by European speculators, new lines snaked across the continent bringing people west and produce east.

A young San Francisco journalist, Henry George, watched with concern. He had just published a short book, Our Land and Land Policy (1871), denouncing land grabs by Union Pacific Railroad amid the frenzy of land speculation in the new state of California.

Then, disaster. Many banks were heavily invested in railroads. In September 1873, the big New York City bank, Jay Cooke & Company, suddenly went bankrupt. Bank runs began across the nation, railroads failed, businesses cut wages and laid off workers. The police beat up unemployed protesters. The next ten years would long be known as the Great Depression. Back in San Francisco, George struggled to keep his newspaper going and his family fed. Meanwhile, appalled by the suffering he witnessed, he plunged into writing his next book.

The title says it all: Progress and Poverty, An Inquiry into the Cause of Industrial Depression, and of Increase of Want with Increase of Wealth…The Remedy. (1879). Timely and eloquent, the book soon swept the world, translated into some forty languages. In his introduction George posed a paradox:

“It is true that wealth has been greatly increased, and that the average of comfort, leisure, and refinement has been raised; but these gains are not general. In them the lowest class do not share…. It is as though an immense wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down.”

George gave a simple explanation: As the economy grew, more and more of the benefits flowed to owners of land and other scarce natural resources. The benefits were unearned, derived from the mere fact of holding title. Especially in speculative frenzies such as that in California, absentee landowners like the railroads withheld good land from use, forcing workers onto inferior land and lowering wages. When land prices got too far out of line with reality, a sudden panic would collapse banks and send the economy into free fall.

George’s remedy was equally simple: shift all taxes onto land and use the revenues for public benefit. His audience easily understood, because in his day, state and local governments relied largely on property taxes. (The Federal Government relied on tariffs.) Since only a minority of citizens owned substantial property, everyone rightly understood property taxes as wealth taxes, much of which fell on corporations like the hated railroads. Taxing land meant leaving out the buildings and other improvements and raising rates to cover the difference. The obvious intended effect would be to penalize those who held good land from use. In California, that would force absentee speculators to sell off their land to small settlers. The tax would also pop speculative bubbles.

George drew both his analysis and his remedy from the classical economic tradition of Adam Smith, David Ricardo and John Stuart Mill. Unlike them he crusaded across the English-speaking world for land taxes and many other reforms, such as the secret ballot, votes for women, anti-trust, ending discrimination against Irish immigrants and other minorities, and public ownership of natural monopolies like utilities. He developed a huge following, particularly in the labor movement. Responding to voters, political leaders implemented his reforms to varying degrees in many parts of the US and around the world. California irrigation districts still rely on land taxes, as do major cities like Sydney Australia.

With labor support, George ran for mayor of New York City in 1886, coming second to the Tammany candidate, but beating the Republican candidate, Theodore Roosevelt. (The campaign will be featured in the HBO drama.) George died suddenly in 1897 in the midst of a second campaign for mayor. A hundred thousand people joined his funeral procession, one of the most magnificent in New York history. The Georgist movement continued, merging into the Progressive Movement of the early 20th Century. In 1913, Georgists helped design the progressive federal income tax. Some advisors to Woodrow Wilson and Franklin Roosevelt were Georgists.

More recent Georgist success stories, little-recognized as such, include the Asian “tigers”: Taiwan, South Korea, Hong Kong and Singapore. Here, redistribution of land, land taxes and land leasing went to fund universal health care and education, producing instant modern economies.

I first encountered George in 1970, while working for Ralph Nader. Nader, an admirer of George, sent a team of us “Nader’s Raiders” to California to identify the largest California landholders—still including Union Pacific—and show how they obtained huge benefits at taxpayer expense. The biggest boondoggle was the California State Water Project. Visible from the moon, it brought water from northern California all the way to San Diego, providing “surplus” water cheaply to giant landowning corporations on the west side of the San Joaquin Valley.

Despite the abuses our project documented, we Naderites felt a self-righteous optimism that we were leading a growing movement, continuing the tradition of prior activists. Little did we know at the time that the 1970s, for all their faults, represented the high point of reform, the time of greatest economic equality in the US before or since. It all quietly began to crumble in the 1980s Reagan Era. Taxes were cut for the rich and riddled with loopholes, anti-trust enforcement dwindled, unions were undermined.

Worst of all from a Georgist perspective was the great property tax revolt. The reforms under FDR plus the post-WW II GI bills, created an economy where ordinary (white) blue-collar workers could afford their own small houses. Homeownership rose from around 45% in the 1940s to 65% in the mid 1970s. But widespread property ownership enabled wealthy interests to strike back. They called the estate tax a “death tax.” And they claimed, with labor union support, that ordinary property taxes were a “regressive” burden on small homeowners.

In 1978, Californians voted for Proposition 13, rolling back and freezing property taxes. Sold as relief for homeowners, Prop 13 applied to all property. Standard Oil of California saved $25 million a year in taxes. California schools went from among the best in the country to among the worst. Prop 13 was a classic “pittances to the poor justifying windfalls to the wealthy.”

Other states followed with constitutional amendments and crippling restrictions on local government’s ability to impose property taxes. In 2010, Andrew Cuomo campaigned on freezing property taxes, over the strenuous objections of local school officials. Meanwhile, even before the 1970s, tax assessors responded to the growing unpopularity of property taxes by not raising effective rates when property values soared. When New York City almost defaulted the late 1970s, effective rates had fallen to a small fraction of rates in the 1940s. No wonder the city couldn’t pay its bills!

The great property tax revolt made the US tax and benefit system less progressive, as sales taxes usually filled the gap and services were cut, especially for the poor.*

In Progress and Poverty, George observed that civilizations rise and thrive when their citizens cooperate as equals. But when growing wealth creates ever more inequality and corruption, civilizations collapse from within. The barbarians who sacked Rome in 410 AD met little resistance. George warned the same could soon happen in the United States—and might indeed have happened but for the powerful reform movement he helped inspire.

“Whence shall come the new barbarians?” George demanded. “Go through the squalid quarters of great cities, and you may see, even now, their gathering hordes. How shall learning perish? Men will cease to read, and books will kindle fires and be turned into cartridges.”

Today’s new barbarians have already smashed their way into the US Capitol Building. The book burners aren’t be far behind.

*NOTE on property taxes and land taxes.

A well-administered land or property tax falls at the same flat rate on estimated market value of land or all property within a jurisdiction. Nonprofit and government property is usually exempted. Assessors are supposed to raise (or lower) estimates of value– “assessments”– as the market rises (or falls). Typically, to minimize complaints, they allow assessments to fall way behind the market.

The property tax is intrinsically highly progressive because ownership of property is highly concentrated compared to income. For example, in the US the top 10 percent own about 90 percent of stocks and about 70 percent of all wealth, including homes. The top 10 percent receive only something over 30 percent of income.

A land tax at a flat rate is more progressive than a property tax because land ownership is more concentrated. Moreover, large landowners tend to own better quality land and use it less intensively, including simply holding land vacant as did and does Union Pacific. A switch from a property tax to a land tax, keeping collections the same, would reduce taxes on small owners and raise it on large ones.

It’s a fallacy to claim the property tax is “regressive” because rich districts can afford good schools at low rates while the opposite holds for poor districts. The same is true for any local tax; revenue sharing between districts or a state property tax can solve the problem.

When blue collar-workers became able to afford their own houses, they encountered property taxes as a big once-a-year lump (unless it was included with monthly mortgage payments). So of course they hated the tax and unions supported them.

Earlier generations would have understood that while the tax seemed like a burden, the bulk of it fell on much bigger and richer property owners. The revenue would go toward paying for services, like schools, that small owners disproportionately enjoyed.

Posted February 12. 2022 on the Dollars & Sense blog.

An earlier version was published February 2, 2022 on The Editorial Board, a newsletter published by John Stoehr.

Comments are closed.