For several decades now it has been fashionable for rich and successful people in America to say that they fans/followers of Ayn Rand. Such people – whose list includes Travis Kalanick, Donald Trump and Alan Greenspan – then usually go on to say that Rand’s bestselling book “The Fountainhead” had a profound influence on their life with its “greed is good” message. We also read “The Fountainhead” as teenagers, were impressed by it for about 24 hours by which time sharing an oily masala dosa at the school canteen convinced us that the only greed which works in India is for good food.
Back in America, the author of this Vanity Fair piece, Michael Kinsley, makes a convincing argument that Rand is now passe given that self-evident challenges of economic inequality and growing political division facing the US. So who should newly minted American billionaires turn to so as to bring meaning & direction in their lives? Kinsley says: “My dear billionaire, you need an economist almost no one has heard of. One who addressed the most pressing problems of today, which do not include the insufficient greed of rich people. But one who was not completely out of sympathy with rich people, either.
May I nominate Henry George (1839–97)—economist, pamphleteer, journalist? Once famous, he is now widely forgotten. He described himself as a man who came out of the great American West, which he did—but only after he got there via Philadelphia, where he was born. He later moved to New York City, ran for mayor, and attracted 10,000 people to a political rally (but lost nonetheless). He made the best-ever short defense of free trade: You wouldn’t fill your harbor with rocks to keep out goods your citizens want to buy, would you? Well, that’s what you’re doing when you slap tariffs on imports.
George’s masterwork, published in 1879, was Progress and Poverty, which set forth to explain how “increase of want” could go hand in hand with “increase of wealth.” Thus George took on precisely the question we face today: not the general question of poverty or inequity, but why specifically are middle-class incomes stagnating, and incomes of people at the bottom falling, while those at the top continue to rise?”
George central insight – which is unfortunately a little close to the bone for the team at Marcellus – is that it is all but inevitable that ‘landlords’ (or in modern jargon, ‘assets owners’ who own physical and financial assets) will keep getting richer and richer at the expense of those who provide labour. Why? Because the return on assets almost always grows faster than wages. This is the same insight that made Thomas Piketty a rockstar economist a decade ago. So what is the solution?
“George distinguished, in other words, between the capitalist who is truly productive and the capitalist who is simply a “landlord.” If you’re a landlord, he wrote, “you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico; you may go up in a balloon or down a hole in the ground; and without doing one stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich!…”
Henry George believed that the landlord’s share of wealth that all of us have helped to accumulate is inherently illegitimate and should be confiscated. He wouldn’t send in the National Guard to seize people’s property. He would instead confiscate the value of unimproved land—that is, land that had not been improved by, say, building on it—by taxing its annual value at a rate of 100 percent.
“But,” you’re thinking, “that would make the property itself worthless.”…you’re right. Making the property worthless is the whole idea. Society gets the value of the property. Taxes on the other factors of production—labor and capital—can be reduced, or even eliminated. This is why people who are dedicated to promoting George’s ideas are known as “single-taxers.”
The landlord will have little choice but to put the property to its “highest and best use.” This raises another difficulty with George’s idea: we no longer believe—or at least we no longer assume—that the “highest and best use” of a piece of land is to throw up another reflective-glass skyscraper. “Highest and best use” is a legal term that doesn’t distinguish between “use” that is the most profitable and “use” that is best for society. Jane Jacobs won that battle. And, anyway, today’s landlords probably paid full price for their monopolies. The people who originally benefited from the monopoly have long since disappeared with their ill-gotten gain. So there would be practical problems figuring out what is taxed, and by how much.
But George got the main things right. Free markets are best (provided they are really free). A lot of markets that masquerade as free really aren’t. And we often tax the wrong things—ignoring wealth that accomplishes nothing while taxing labor and capital that are actually productive. After his book came out, Henry George was the most famous economist in the world for a while. The Thomas Piketty or John Kenneth Galbraith of his time. An intellectual with star quality, and total conviction of the rightness of his argument.”
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Note: The above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. The information provided is intended for educational purposes only. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India (SEBI) and is also an FME (Non-Retail) with the International Financial Services Centres Authority (IFSCA) as a provider of Portfolio Management Services. Additionally, Marcellus is also registered with US Securities and Exchange Commission (“US SEC”) as an Investment Advisor.
