Competitive Common Ownership

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"Political economists concerned about the monopoly power created by private property therefore continued to search for alternatives to central planning. One formulation was for the government to own land and other “gifts of nature", but allowing them to be competitively managed.

“Artificial capital” — useful things produced by humans — would remain privately owned to reward those who create it. The government would rent out the land to those it deems most likely to use it productively and could terminate the lease when it finds someone who is willing to pay more to use the land than the current tenant. In these schemes, people rent land but do not own it; private property in land is abolished. T his idea came to be called competitive common ownership and was a core dogma for many of the figures who shaped twentieth- century economic thought. Two of the three fathers of the great advance in economic thought known as the “marginal revolution” (William Stanley Jevons, Léon Walras, and Karl Menger) were deeply skeptical of private property. Jevons wrote, “Property is only another name for monopoly.”

In his treatise on the social economy, Walras stated, “Declaring individual land ownership . . . means . . . thwarting the beneficial effects of free competition by preventing the land from being used as is most advantageous for society.”

Walras believed that land should be owned by the state and the rents it generated should be returned to the public as a “social dividend,” either directly or through the provision of public goods.13 By ending “individual landownership and monopolies” he aimed to “suppress” the “true causes . . . of . . . feudality.”

Walras described his approach as a form of socialism, what he called “synthetic socialism.” However, Walras was hostile to central planning, fearing that planners would themselves become monopolistic feudal lords. He wanted landed property to be controlled by society through a process of competition and wanted returns on that property to be enjoyed by society. As these widely divergent ideas of socialism indicate, “society” can manage resources it controls in many ways. In the late nineteenth century, socialism was a rather amorphous term and was not always associated with central planning. Socialists agreed on only one point: that traditional private property and the inequality of its ownership posed significant challenges to prosperity, well-being, and political order."


The Defects of Georgism

"Henry George, whom we met earlier, proposed what was perhaps the most prominent idea among economists for solving the monopoly problem. He argued that the “simpler, easier and quieter way” to achieve common ownership than state ownership would be to “appropriate land rent for public use, by taxation.”15 George’s land tax differed from today’s property taxes, which are charged at a low rate, usually 1–2%, but take as a base the full value of a home, which is usually determined by a government appraiser. On the one hand, George’s land tax would have been much higher: the full value of the rent one would have to pay to occupy the land. On the other hand, it would have completely exempted the value of structures built on the land. Assessors would have to determine how much of the house’s value arose from the unimproved land lying beneath the house (that is, how much the property would be worth if the house were knocked down) based on recent sales of nearby vacant lots. This full land value would be taxed away, but the homeowners would keep any extra value created by the structures on the land. Taxing away all such “land rent” would mean that while owners could enjoy the full value of anything they built on the land, they would have to pay to the government any value of the land itself, just as someone who leased the land would. “Land monopolization would no longer pay. Millions of acres, where others are now shut out by high prices, would be abandoned or sold at trivial prices.”

If the government imposes a ax on ownership of land, then people who can use their land productively will do so and be able to pay the tax, while those who would otherwise be happy to let it sit vacant will sell the land in order to avoid the tax. George’s proposals quickly captured the public imagination. Monopoly, perhaps the most popular board game ever, was originally titled The Landlord’s Game. Elizabeth Magie designed it in 1904 as a way to educate the public about George’s ideas. According to the rules we are now familiar with, each player tries to monopolize properties in order to bankrupt the other players and drive them out of the game. However, the original game (which one can purchase from Folkopoly Press on eBay) had different rules under which a tax on land rents (though not on the houses built upon them) funds public works, giving players free access to the utilities and railroads, and paying out a social dividend that augments the wages earned when passing what is now called “Go.”

These rules make domination by one player impossible and ensure that as every player develops her properties, all players benefit. By 1933, American philosopher John Dewey estimated that George’s Progress and Poverty “had a wider distribution than almost all other books on political economy put together.”

Many eminent politicians and thinkers were Georgists, including the aristocratic Winston Churchill, the radical progressive Dewey, and the Zionist visionary Theodore Herzl. Yet Georgism had some serious defects. Because the tax would expropriate all the value of land lying beneath any structure, it provided no incentive for possessors to invest in, or even care for, the land. This is the problem of investment inefficiency. At the time, investment inefficiency for land was not considered a problem, because people thought that land did not need maintenance and the only value that could be added to land was through above- ground structures like houses. But these assumptions ignored environmental damage. As ecologist Garrett Hardin observed many years later, land without a single owner often becomes overgrazed, eroded, and polluted in what he labeled the “tragedy of the commons.”

George’s scheme ran into even greater problems with natural resources that can be depleted, like metal from mines or oil from wells. If all the value of land is taxed away, the possessor of such a resource will remove the oil or ore as quickly as possible, leading to waste. In addition, George’s scheme would have been an administrative nightmare. George distinguished between naturally occurring land, which should be taxed, and everything built on top of it or using it—what he called artificial capital—which should not be taxed. This distinction was, well, artificial. Factories are built from metal drawn from mines and, once built, may be monopolized just as much as land may be. Also, a factory cannot be easily moved about, and it may help develop a neighborhood, which increases the value of the land. This would have made it fiendishly difficult to distinguish between the value arising from the land and the value of the structures built on top of it. Consider, for example, the Empire State Building. What is the pure value of the land beneath it? One could try to infer its value by comparing it to the value of adjoining land. But the building itself defines the neighborhood around it; removing the building would almost certainly change the value of the surrounding land. The land and the building, even the neighborhood, are so tied together, it would be hard to figure out a separate value for each of them. The same would hold true for many neighborhoods, defined less by their purely physical location than by many other factors, such as the look and feel of their architecture and the relationship among buildings, streets, parks, and paths. The Battle for the Soul of “Socialism” George’s ideas gained popularity in the early twentieth century, a period of social upheaval and intellectual ferment. Growing inequality and industrial tensions strained the social fabric of wealthy countries. The Social Democratic party in Germany, the Labor Party in England, the Progressive movement in the United States, and the French Section of the Workers International rose to prominence. Colonies increasingly chafed under the domination of the empires. Two world wars threw the established social order into question and destabilized many governments. In the 1930s, the first truly global depression undermined confidence in traditional laissez- faire capitalism."


A better way to balance the demands of investment efficiency and allocative efficiency: “Partial Common Ownership

"A better approach is to find a way to balance the demands of investment efficiency and allocative efficiency. We will call this approach “partial common ownership”—a halfway house between common ownership and traditional private property. Partial common ownership optimizes allocative efficiency and investment efficiency within a single property regime, as the common ownership can deter monopoly power while the private ownership encourages investment."

More at [1], pp. 52+