Progress, Poverty, and Feasible Taxation

Henry George Graduate Prize in Economics Essay Submission

Submitted by:

Matthew Walshe

April 8, 2014

(revised version submitted on June 11, 2014)

Progress, Poverty, and Feasible Taxation

Should you ever find yourself questioning why political economics has been permanently

stained with such an unfortunate moniker as the ‘dismal science,’ the following passage will likely

convince you of the aptness of this characterization.

Labour cannot reap the benefits which advancing civilization thus brings, because they

are intercepted. Land being necessary to labour, and being reduced to private ownership, every

increase in the productive power of labour but increases rent—the price that labour must pay for

the opportunity to utilize its powers; and thus all the advantages gained by the march of progress

go to the owners of land, and wages do not increase. Wages cannot increase; for the greater the

earnings of labour the greater the price that labour must pay out of its earnings for the

opportunity to make any earnings at all. The mere labourer has thus no more interest in the

general advance of productive power than the Cuban slave has in advance in the price of sugar.

And just as an advance in the price of sugar may make the condition of the slave worse, by

inducing the master to drive him harder, so may the condition of the free labourer be positively,

as well as relatively, changed for the worse by the increase in the productive power of his

labour. For, begotten of the continuous advance of rents, arises a speculative tendency which

discounts the effect of future improvements by a still further advance of rent, and thus tends,

where this has not occurred from the normal advance of rent, to drive wages down to the slave

point—the point at which the labourer can just live. And thus robbed of all the benefits of the

increase in productive power, labour is exposed to certain effects of advancing civilization

which, without the advantages that naturally accompany them, are positive evils, and of

themselves tend to reduce the free labourer to the helpless and degraded condition of the slave.1

Indeed, a dismal science, a more appropriate title I do not believe there is. An entire

civilization destined to see the benefits of enhancing their productivity entirely devoured by land

owners in the form of rent must imply than any incentives to do so must quickly dissipate. But,

alas, there is a solution. Or, to use the vernacular of Henry George, a remedy. As proposed by

George, land must be made common property. Furthermore, any and all returns to production

which are owed to the land as rent must be returned in tax to the state. The argument behind such

a radical idea is founded upon natural law as well as the ability of the taxation of rent to encompass

1 George (1881)

all the favourable characteristics that we would hope to be found in any form of taxation (if indeed

there exists such things). It is my aim to summarize the ideas within Progress and Poverty with

particular emphasis on the proposition put forth by George which suggests that the taxation of rent

is, in every conceivable respect, the optimal form of taxation. This is supplemented with a further

discussion surrounding natural law and its place within economic policy. As will be demonstrated,

economic policy need always attempt to adhere to three fundamental principles held dear to the

population; and George’s proposed single tax does just that. Finally, an examination of more recent

literature reveals that many facets of the applicability and feasibility of the single tax have been

called into question, not the least of which concerns the necessary apportionment of land and its

improvements—it is this issue that I wish to address in further detail.

1. Progress and Poverty: A Summary2

1.1 The factors of production and their due returns

I doubt not that there are thousands of men who have vainly puzzled their brains over this

confusion of terms, and abandoned the effort in despair, thinking that as the fault could not be in

such great thinkers, it must be in their own stupidity.3

As the beneficiaries of the work of Henry George, his contemporaries, and many other

great minds that followed, it is perhaps all too simple to take for granted something as seemingly

trivial as the appropriate definitions of the factors of production: land, labour, and capital.

However, it should be recognized that, at the time of his work, the factors of production as currently

described by leading political economists had, upon careful examination, inconsistent and

contradictory definitions. Even greater confusion would have resulted had one attempted to find

any unanimity when attempting to define the returns to these factors. The terms rent, wages, and

2 A summary of Henry George’s Progress and Poverty, Cambridge University Press (2009[1881]) 3 George (1881)

interest were often defined in such ways that required subdivision and overlap; necessarily

violating the basic requirement that they must form a mutually exclusive and exhaustive set of the

various forms by which production is distributed.

For the three most basic factors from which all production stems, it would seem perfectly

appropriate to define them in such a way that preserves their innate basicness. By Henry George,

we are provided with these succinct descriptors. “The term land includes all natural opportunities

or forces; the term labour, all human exertion; and the term capital, all wealth used to produce

more wealth.”4 A direct implication of note is that wealth, in its most basic form, is merely the

result of labour’s application to the land. Moreover, capital, being a particular form of wealth,

could not, and cannot, exist without labour. Thus, any attempt to analogize labour and capital with

a chicken and an egg should be entirely dismissed. Land, labour, and capital—by convention, and

by order of appearance—against that there can be no debate.

And to the factors of production must be returned the spoils of the produce—exclusively

and in their entirety. In reward for the use of the natural opportunities provided by the land owner,

rent; as payment for his efforts applied in the production of wealth, wages; and to the owner of

pre-existing wealth used in the further creation of wealth, interest. To none of these forms of

distribution, however, is there an implied sole recipient. A capitalist who owns her own land upon

which she exerts her labour is not merely a capitalist, but a land owner and a labourer and is thus

entitled to receive interest, rent, and wages; but that which she receives in wages is exclusively as

compensation for her labour.

In consideration of the topic to which I will later turn my attention, it is necessary to

supplement further the constitution of rent. For this purpose, we must concern ourselves not with

4 George (1881)

the value of land as an absolute, but rather, by its value in relation to other land. We use, as a

standard of comparison, the margin of cultivation, which is the best available land that may be had

without any payment. Now, if we were to imagine what labour and capital could produce with

their exertion on this land, anything over and above, applied to alternative land, may be defined as

owing in rent. In short, to the owner of land is paid the excess of that which an identical application

of labour and capital could produce on land which is freely available. This suggests that when

labour and capital are used in production at the margin of cultivation, the entire return to production

is distributed as wages and interest, simply because there is no rent to be had. It is on this land

where the rate of wages and interest are determined. Conversely, it is on the most valuable land in

use where rent will garner the greatest proportion of the returns to production, while the remainder

is paid out in wages and interest.

1.2 Productivity, population, and land speculation

To see human beings in the most abject, the most helpless and hopeless condition, you

must go, not to the unfenced prairies and the log cabins of new clearings in the backwoods,

where man single-handed is commencing struggle with nature and land is yet worth nothing, but

to the great cities, where the ownership of a little patch of ground is a fortune.5

Imagine, if you will, a world inhabited only by people whose demand for wealth is limited

to their basic requirements for survival. On second thought, let us not restrict ourselves to such an

extreme notion. Rather, suppose that these people have a demand which is fixed at any finite level.

A level where, once achieved by an individual, he or she is content and wants for nothing more.

In this world, any improvements in productivity would serve merely to reduce the amount of labour

and capital that must be applied to the land in order to satisfy this finite demand for wealth. In this

world, the rate of wages and interest, determined at the margin of cultivation, would necessarily

5 George (1881)

rise, thereby granting labourers and capitalists an exceedingly greater proportion of the returns to

production. In this world, however, we most certainly do not live. Returning to reality, it is more

accurate to describe the demand for wealth as positively correlated with our ability to produce

wealth. Therefore, productivity improvements serve, not to save labour, nor to save capital, but

rather, to advance our demand for wealth amidst our realization that our ability to produce said

wealth has been enhanced.

Could labour and capital by themselves be applied to one another to produce this ever-

expanding desire for wealth, we could attain the same outcome as we did in our fictitious world.

Of course, this too would exist only in fiction, as the essential ingredient in the recipe for wealth

is land. Thus, the increased demand for wealth must necessarily be accompanied by an increased

demand for land. By virtue of the preceding, the advancement of productivity will be accompanied

by an increase in the value of land. Even in the absence of population growth, wages and interest

can never expect to obtain a greater proportion of production since, any and every improvement

made to the productivity of labour and capital will necessarily increase land values and, therefore,

provide more rent for the land owner to extract from the produce.

Population growth and land speculation will give even greater power to the advancement

of rent at the expense of wages and interest. In the creation of a community, people give value to

land for no other reason than what is provided by their density, interdependence, and any

opportunities created by their mere coexistence. The benefits of specialization, the wide consumer

base, the public domain—all of these things serve to create greater value in land than would exist

where people were but sparsely populated. For any individual that recognizes these tendencies of

productivity improvement and population growth to continually bolster the value of land, there is

thus a profitable opportunity. Amidst the opportunity to buy today what can almost surely be sold

tomorrow at a greater price, there arises the incentive to purchase land merely to hold it as its value

inevitably appreciates; thereby entitling its owner to the collection of great sums of rent. “You may

sit down and smoke your pipe…and without doing one stroke of work, without adding one iota to

the wealth of the community, in ten years you will be rich!”6 From these forces of population

growth and land speculation will arise further detriment to the wages and interest paid to the

labourer and capitalist. Where people grow in number, so will the value of the land, even that

which already earns much rent; and so will these people be forced to further extend the cultivation

of land; and so will speculation only exacerbate this tendency. The result—valuable land stretched

further from the margin of cultivation while, simultaneously, the margin is pulled from the bottom

down—the extraction of exceedingly greater proportions of rent at the expense of wages and

interest.

1.3 The remedy as founded upon natural law

The equal right of all men to the use of the land is as clear as their equal right to breathe

the air—it is a right proclaimed by the fact of their existence. For we cannot suppose that some

men have a right to be in this world and others no right.7

Along with anything produced by a labourer’s exertion on the land with or without the use

of capital, there is a title. A title of ownership belonging to its producer(s) until which time that

title may be transferred to another. Based upon the law of nature, a man must have the exclusive

right of ownership to any form of wealth that he may produce. Capital, as merely a specific form

of wealth must, therefore, have an owner, the capitalist. To claim right to land, however, is to claim

ownership over a factor of production which exists in complete separation of anyone’s production.

The remedy, as proposed by George, states that all land must be made common property. In its

6 George (1881) 7 George (1881)

simplest form, this proposal is an application of natural law to private property. Since no man can

rightfully bear claim to the existence of land, no man can claim ownership of said land, and thus,

private land ownership must be viewed as a violation of the law of nature.

But, in the interests of justice, is it fair that we simply confiscate this land from its so-called

owners and return it to the state? According to George, it is not the confiscation of land that is

required, but the confiscation of rent. “Let the individuals who now hold it still retain, if they want

to, possession of what they are pleased to call their land. Let them continue to call it their land.

Let them buy and sell, and bequeath and devise it. We may safely leave them the shell, if we take

the kernel.”8 After all, rent is merely the value assigned to one piece of land in excess of its value

at the margin of cultivation. Moreover, this additional value in no way, shape, or form represents

an improvement provided to it by its holder. Rather, it is the community, the state, and all its people

who have instilled in this land its intrinsic value. Is it not, therefore, consistent with natural law

that all of them, not just the holder, should reap the rewards of that to which they have added

value? And is it not a blatant violation of this law to permit a land owner to idly capitalize on all

future value that will accrue to the land while denying another the access to an essential input into

production?

1.4 Taxation of rent as the optimal form of taxation

The best tax by which public revenues can be raised is evidently that which will closest

conform to the following conditions:

1. That it bear as lightly as possible upon production—so as least to check the increase

of the general fund from which taxes must be paid and the community maintained.

2. That is be easily and cheaply collected, and fall as directly as may be upon the

ultimate payers—so as to take from the people as little as possible in addition to what

it yields the government.

3. That it be certain—so as to give the least opportunity for tyranny or corruption on the

part of officials, and the least temptation to law-breaking and evasion on the part of

the taxpayers.

8 George (1881)

4. That it bear equally—so as to give no citizen an advantage or put any at a

disadvantage, as compared with others.

When we impose a tax on any of the factors of production, we do so to a necessary input

into the production process. The implication of which is to apply a disincentive to produce. The

labourer, when taxed for his labour income, does not reap the entire benefits of his labour.

Similarly, the capitalist, when taxed for the use of her capital is, in some sense, penalized for

allowing it to be used in such a way. With this form of taxation, we certainly cannot expect that

the labourer nor the capitalist should strive to any great extent to improve the productivity of their

labour and capital when, inevitably, part of these gains will be taken from them as though they had

somehow acted in disservice to the state by doing so. The confiscation of rent, however, does not

share these undesirable qualities as it does not create a disincentive to produce. In fact, quite the

opposite. If we view the collection of rent by private landholders as what it truly is, an income

resulting from the monopolization of land, it is apparent that this taxation of rent is already being

collected. The problem, however, is that the tax is imposed by the land holder on the labourer and

capitalist, not to be returned to the state to benefit the people as should be the case with land as

common property. The collection by the state of that which is already being collected by private

land owners, the redistribution of the revenue to its rightful recipients, the community as a whole,

and the removal of all other forms of taxation will, therefore, remove all impediments to

production. And not only remove the impediments, but provide incentives for it. The wealthy land

owner, who is wealthy not by his skills or his knowledge, but solely by his possession of land, will

no longer enjoy profit from his speculation. His land, like all other land with value, will owe in

rent. Rent that will make it unaffordable not to either put this land to its most productive use, or to

leave it for another who is willing to do so. Therefore, from all land, including land sitting idle for

the purpose of speculation, there must necessarily generate greater wealth.

The implications for equality are perhaps even more apparent. Not only is there new

permission to access land which was previously left idle for speculation, but labourers and

capitalists are now permitted to be compensated for their contributions to production—totally and

entirely, without penalty. Whatsoever is deemed the result of the worker’s exertion will be returned

to him in commensurate wages—nothing more, nothing less. For investing in capital and

permitting its use in production, the capitalist will earn what is owed to her for its use—without

penalization. And to the land holder who chooses to improve his land will accrue all the benefits

of his improvements—wholly, and tax-free. From each what he contributes to production; to each

what he is rightfully owed for his contribution.

A single tax to appropriate rent should also eliminate the ability to evade taxes as they are

now imposed. The complex structure of taxation has a number of shortcomings in that, it is not

always easy to discern the amount owing, and there is most certainly an incentive for the tax payer

to take measures which reduce his tax burden. The costs of abiding by and enforcing these tax laws

impose further indirect costs on society resulting in a situation where the community incurs greater

expense than what is ultimately collected and redistributed by the state. According to George, the

remedy he proposes corrects for this deficiency since, while many forms of wealth may be easily

hidden from authorities in order to evade taxes, land does not have this elusive property.

Furthermore, he argues that the value of land is easily determinable and, therefore, the amount that

is due to be appropriated by means of taxation is certain.

2. Natural Law and its Role in Economic Policy

Advocates of modern economic theory, insofar as this theory is nonreligious, would suggest

that there is little of use in a natural law framework that, in their view, is primarily faith based

and therefore nonscientific.9

I concluded the previous discussion of natural law by asking rhetorically whether allowing

for private land ownership, by excluding prospective labourers from the opportunity to produce

wealth, was a violation of natural law; and whether the monopolization of rent by a land owner

was yet another violation of said law. The answers to the aforementioned questions are certainly a

matter of debate, complicated further by an even more contentious query. Does there exist such a

thing as natural law? And if so, does it have any place within political economics? In a classical

sense, and as defined by Thomas Aquinas, the theory of natural law is by and large a spiritual and

religious issue. The Thomistic definition10 centers on a basic premise within Christianity which

teaches that all humans are created in the image and likeness of God11 and thus enter into existence

with inherent inclinations of duty, not just to themselves, but to their fellow man and woman. In

its most nascent forms, then, natural law is predicated upon religious affiliation, or, at the very

least, upon some belief in a higher power. In fact, even the conversations with Henry George

regarding the law of nature are replete with references to the ‘Creator’ and ‘Almighty.’ A debate

regarding the existence or non-existence of God is most definitely beyond the scope of this paper

(but evidently well within the scope of every family function that I can ever expect to attend) but,

thankfully, it is also unnecessary. It is my contention that, even absent a concern for religion or

spirituality, there are fundamental principles of right and wrong to which a vast majority of the

9 Moreno-Riano (2005) 10 Aquinas (1946) 11 Genesis 1:27

populous would subscribe. Furthermore, all public policy, as George’s single tax policy supposes

to, need always observe and adhere to these normative economic principles.

An important distinction made early on in any aspiring economist’s academic career is the

one to be made between positive and normative economics. Positive economics being the answer

to the question what is, while the latter addresses what ought to be—likely the more subjective of

the two conjectures. Conversely, natural law deals with “objectivity of morality.”12 It would seem

to me, then, that, at the very least, the existence of natural law, and its place within the realm of

economic policy implies that, within normative economics, there is something to be agreed upon—

that somewhere amidst the masses of public policy debates there lies some inherent distinction

between right and wrong that is common among the populous. I happen to side with Henry George

when I stress that whether this inherent belief is derived from existence or experience is a “debate

[that] is merely verbal and unnecessary…for the purposes of political economy.”13

But finding a consensus would seem a tall order. As a contemporary illustration, the Tim

Hudaks of the modern political economic actors would advocate low corporate taxes, drastic cuts

to government spending, and provincial debt reduction as surefire policies to promote economic

growth. The Kathleen Wynnes, on the other hand, would criticize that austerity measures,

especially in the presence of a still fragile provincial economy not yet fully emerged from

recession, is a misguided approach that jeopardizes recovery. And the Andrea Horwaths would

propose that…the Kathleen Wynnes are not to be trusted. I certainly do not advocate the use of the

current Ontario provincial election to serve as a microcosm of modern political economic theory,

however, it does provide a depiction of the inherent subjectivity associated with public policy, and,

12 Moreno-Riano (2005) 13 Peddle (2012)

more generally, with normative economics. When it comes time to answer the question of what

ought to be, there is often little to be agreed upon save for the lack of agreement.

Even if evidenced only anecdotally, the existence of natural law is all but denounced.

However, even amidst widespread disagreement on myriad politico-economic issues, I do argue

that there are nevertheless fundamental principles of the economy that at least an overwhelming

majority of the population expect to be upheld. In essence, just as there are canons of taxation,

there are analogous canons of public policy. As outlined by Ben Bernanke (2007), these are

“equality of economic opportunity,” “no guarantee of equality of economic outcomes,” and “the

placement of some limits on the downside risks to individuals affected by economic change.”14

With regard to the first, it is imperative to remember that labour, separate from land, is

futile exertion. It is merely an active factor of production that requires its passive counterpart, land,

to become productive. Private property, insofar as it restricts a labourer’s potential to produce, is

a denial of equal economic opportunity, and thus, a violation of the law of nature. The Georgian

tax policy makes no such restrictions whilst also addressing the remaining two principles. The

socialization of land is a far cry from a communist agenda. A land holder is entitled to the value

of his improvements only to the extent that he is willing to exert his efforts in making them. A

similar sentiment may be echoed for the labourer and capitalist, and thus, the economic outcome

is determined solely by the economic agent, with no guarantees of equality. Lastly, given that the

single tax is expounded as the remedy to the “persistence of poverty amid advancing wealth,”15 it

is apparent that the Georgian tax policy does, in fact, succeed in addressing each of the canons of

public policy.

14 Bernanke (2007) 15 George (1881)

3. Land, Improvements, and the Issue of Apportionment

This scheme for the socialization of land is, in its logic, probably the most seductive and

plausible of all socialist schemes. If the factual assumptions on which it were based were

correct, i.e. if it were possible to distinguish clearly between the value of the ‘permanent and

indestructible powers of the soil,’ on the one hand, and, on the other, the value due to the two

different kinds of improvements—that due to communal efforts and that due to the efforts of the

individual owner—the argument for its adoption would be very strong.16

Among the many criticisms of the single tax, including its alleged inability to fully finance

government expenditure or to significantly better the condition of the impoverished, one particular

concern involves the legitimacy of apportioning the improvements from the land. The quotation

above from Hayek (1960) is but one attack on the feasibility of the Georgian tax policy, but many

others from what has often been referred to as the omeletist school17 echoed this sentiment. In

contrast, other economists believe the value of land and its improvements to be separable and

additive, thereby providing support for the applicability of such a tax. Finally, others, including

Henry George in response to his critics, argue that such stringent apportionment may not be

necessary for the implementation and effectiveness of the proposed single tax.

Perhaps the greatest obstacle to overcome when assigning a value to land or its

improvements is to first define value. The most intuitive way to do so is likely with the sale price,

but this is not the only way. If we assume competitive markets comprised of rational buyers and

sellers, then a sale price must closely reflect the true market value of any purchased good. The

complication, of course, is that property sales are most often executed as a bundle of land and its

improvements. We must therefore confront the issue of whether the value of any good is merely

the sum of the marginal values of each of its contributions, or if a good once combined possesses

a value that is inextricably tied to the interactions among its components (like an omelet—clever,

16 F.A. Hayek (1960) 17 Ozdilek (2011)

right?). Given that sales of vacant land are few and far between, and sales of buildings without

land perhaps even more so18, we are, in many respects, limited by this so-called sales method in

that what we observe is overwhelmingly the combined sale of land and building. To address this,

other ideas have been proposed such as the income method and the cost method; both of which are

considered in conjunction with the apportionment techniques to which we now turn; neither of

which is without its own shortcomings.19

From the property assessment literature we find a number of apportionment techniques

used by economists and assessors that are used in order to partition real estate into a value for land

and a value for improvements. To begin, consider the proportional (fractional) apportionment

technique which is based on the assumption that land value represents some fixed proportion of

the value of the property as a whole20. This technique should immediately be seen to lack reliability

for a couple of reasons. For one, it may only be applied after some agreed upon ratio has been

established. This means that either some rule of thumb or alternative estimation method must first

be put in place to determine the appropriate fractional values of land and building. Additionally,

there is nothing to suggest that a ratio, once determined, is constant even within a specific time

period. In fact, some empirical results suggest that, not only do estimated land values increase as

proximity to the Central Business District (CBD) decrease, but that the proportion of value

attributed to land also increases21. Therefore, assigning a fixed ratio of total property value to

represent the value of the land without accounting for this possible relationship could produce

unreliable results.

18 Mills (1998) 19 The discussion of the Sale, Income, and Cost Method is derived from Hendricks (2005) 20 Ozdilek (2012) 21 Ozdilek (2012)

As an alternative valuation technique, some have considered residual apportionment22. To

apply this method, we must first produce a value for either land or its improvements, then the

residual value is attributed to the other. To apply this technique based on the cost method, the

estimated value of the building is provided by its replacement cost. After which, the remainder of

the full market value as determined by sale price is assigned to the value of the land. The main

criticism of this procedure is the failure of replacement costs to adequately reflect current market

forces. According to Hendricks (2005), “an old building in desperate need of replacement would

command a greater market share than it deserves.”23 Alternatively, for income-producing property,

the income method may be applied where the present value of free cash flows expected to accrue

to the improvements is regarded as its value. In many ways, however, this does not address the

issue at hand as we must first decide how income to the property as a whole is to be partitioned

between what is owed to the land and what is owed to the building. The residual apportionment

technique is intuitively appealing—the value of the property less the value of the improvements

leaves the value of the land. However, one complication arises because comparable sales of

buildings without land are not observed24 and we must resort to valuation methods encumbered by

their own sources of unreliability. Furthermore, as noted by Mills (1998), we leave all the error in

the estimate of the land value.

To value land directly, the method of comparables using vacant land sales has been

proposed. The basic idea is that transactions in vacant land should provide fundamental market

values for land which could be further applied in the valuation of land, whether vacant or improved

upon. As an example, a recent sale price for a vacant property could be expressed as a price per

22 Ozdilek (2012) 23 Hendricks (2005) 24 Hendricks (2005)

square foot and applied in further valuation. Unfortunately, the reliability of such a technique is

suspect mainly because of the inadequate sample size25. It is generally agreed upon that the value

of land is determined by far more attributes than merely its size. Therefore, to apply the method of

comparables, we must observe enough vacant land sales to permit the valuation of land that is

similar in many other respects. Not to mention, our sample may be restricted in another sense. It

has been expressed that vacant land sales are likely to take place after demolitions and under other

special circumstances, meaning that the sales prices are not always negotiated at arm’s length26.

For all the reasons that we have discussed, it is the opinion of Ozdilek (2012) and Mills

(1998) that the hedonic price apportionment technique as applied with the sales method of

valuation is perhaps our most reliable way to determine the value of land separate from its

improvements. In short, the use of a large sample size of real estate sales, which is particularly

accessible with respect to family dwellings, should allow us to obtain reasonably accurate

estimates of the land as distinct from the building. The economic literature is replete with papers

that focus on hedonic pricing, many of which consider pricing functions which decompose the

value of a family home into the marginal contributions of various housing and community

attributes. Far fewer, however, attempt to decompose the value of these homes into a value for

structure and a value for land.

One such study by John M. Clapp (1980) is conducted using residential sales data from

Chicago, Illinois. He proposes a hedonic model with sales price as the dependent variable having

a linear relationship to various structural and situational characteristics. Each situational factor

enters into the model multiplied by lot size so as to produce as estimate of its contribution to the

sales price per square foot of land. As a measure of accessibility, the author includes a variable for

25 Mills (1998) 26 Hendricks (2005)

the straight line distance from the CBD, but this is noted to be rather restrictive by Jackson,

Johnson, and Kaserman (1984). Instead, their study using similar data from Knoxville, Tennessee

proposes a measure of accessibility based on a trend surface analysis represented by a third-degree

polynomial in Cartesian coordinate space; all of these variables entering significantly into the

model. Still, lacking in both of these papers was an extensive set of locational characteristics, but

in Cheshire and Sheppard’s (1993) paper, they improve upon this deficiency by including

“character of neighbouring houses and households, localized traffic effects and the quality of the

micro environment and local public goods such as schools.”27 The method employed by the authors

was to successively add these location-specific variables into the model in order to capitalize their

respective contributions into a land value.

The hedonic pricing approach to land valuation rests on a particularly strong assumption—

one with which the omeletist school would take particular issue. This, of course, is the ability to

parse out each particular component of the property value and, furthermore, to assign all of the

aforementioned as belonging to either land or building, but not both. A further restriction is that

the choice of functional form is somewhat arbitrary28. For instance, the decision regarding whether

a variable enters linearly or nonlinearly is purely at the discretion of the practitioner. Finally, as

mentioned in Cheshire and Sheppard (1993), there is no decided upon list of variables that provide

an exhaustive set of factors to determine land value. These complications make the hedonic method

an imperfect approach, but taken together, the results of Ozdilek (2012), Guerin (2000), and

Gloudemans (2002) suggest that there may be an element of robustness with the hedonic

procedure.

27 Cheshire and Sheppard (1993) 28 Cobb (1984)

In the Ozdilek (2012) study “using 13,384 arm’s length sales of single-family properties

on the Island of Montreal during the year 2003,”29 a strictly linear model is specified which

assumes two independent bundles of factors: site accommodation factors and building

accommodation factors that contribute to the value of the land and improvements, respectively.

The average value of land in the study is estimated at $49,300 compared to $100,311 for the

improvements, which represent 33% and 67% of the average total property value, respectively.

Guerin (2000) and Gloudemans (2002) estimate similar models, however, their inclusion of vacant

land sales within their data set assigns a meaningful interpretation to the constant term—the

estimated value of unimproved land. The adjusted R-squared obtained in both papers exceeds 90%

and suggests a similar fraction of value attributable to land versus building as implied by Ozdilek

(2012). For Guerin’s (2000) study of residential sales in Peterborough, the average value of land

is estimated at $45,222 which represents approximately 31.2% of the property value. As for

Gloudeman’s (2002) results with data from Edmonton, the average land value is found to be

$57,000 representing roughly 35.6% of the total property value.

Over a century after its publication, the issues addressed in Progress and Poverty are as

relevant now as they were in his time. Growing income inequality and “the persistence of poverty

amid advancing wealth”30 are problems that we still face as a society. The remedy, as expressed

by Henry George, is a single tax—the confiscation of rent to replace all other forms of taxation.

But within the remedy there appears to be yet another problem. The taxation of rent would

apparently rest invariably on our ability to accurately value land as it would exist separate from its

29 Ozdilek (2012) 30 George (1881)

improvements which, as I hopefully have demonstrated, is far from an exact science. But, perhaps

it need not be.

I regard it as certain that it must always be impossible to take economic rent exactly, or

to take it all, without at the same time taking something more…Theoretical perfection pertains to

nothing human. The best we can do in practice is to approach the ideal.31

31 Quotation from Henry George in an article from The Standard, August 17, 1889. Obtained from Andelson

(2000)

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