I coined the term “geolibertarian” in 1981 to designate the branch of libertarian philosophy which deems the natural rent to equally belong to human beings.
Public finance theory prescribes land rent as an efficient source of public revenue. The issue here is whether there is harmony between what is economically efficient and what is morally right.
The term “rent” has several meanings. In classical economics, “rent” is the return or yield of land as a factor of production. The classical economists such as Adam Smith and David Ricardo recognized that landowners, as an ideal type or economic role, receive land rent without contributing anything.
“Land” in economics means natural resources. Land includes three-dimensional space; natural materials such as oil, water, and minerals; wildlife and genetic endowments, and the electro-magnetic spectrum. Nature and natural resources are prior to and apart from human action. Thus the value added to a site due to exploration, extraction, and improvements are not natural, but rather labor and capital goods. If one clears trees or drains water, this improvement is a capital good. Material land becomes a capital good after being extracted. Spatial land never gets altered, so it remains land regardless of the changes in the materials in that space.
Those who claim that land is produced have a physical definition of land, as a surface area, rather than the economic meaning. Landowners can also be entrepreneurs and owners of capital goods, but those are separate roles and the return to those activities is wages and capital yields, not land rent.
Because landowners do nothing to receive rent, other than holding a legal title, economists generalized the term “rent” to “economic rent,” income beyond what is needed to put a factor into its most productive use. Public choice economists then applied economic rent to the privileges and subsidies obtained from government, hence the term “rent seeking.” Popularly, “rent” means any payment for the use of a resource or product, such as renting a car. The term “rental” is clearer when the object being used is not land or when it refers to the financial payment a tenant pays to an owner, which would typically also include payments for capital goods and labor as well as land.
The supply of spatial land, as the amount available, is fixed by nature. Within some boundary, space cannot be imported, nor can it be produced. The opportunity cost of the provision of land is zero. Graphically, the supply curve is a vertical line.
The supply of land offered for sale or rent can vary, so this supply can be graphically upward sloping. Also the supply of land for a particular use can vary. When economists refer to the fixed supply of land, that means the total amount available within some boundary, not the plots offered for sale or the supply offered for particular uses.
The rental of a plot of land depends on the natural features, the neighborhood population and commerce, and the nearby infrastructure and other public goods. The land rental due to the local public goods is not the rent of a natural resource; rather, it is a rental due to these capital goods and labor services. The market price or value of land derives from the rent of land. In a market, the price of land is generally the annual rent divided by the rate of interest, similar to the price of a bond. If there is a property tax on the land value, the rent pays the tax as well as the return to the owner, hence the value of land equals the rent divided by the sum of the interest and tax rates. A higher tax rate reduces the price of land, but does not affect the rent.
Classical economists such as Ricardo recognized that land rent is based on the differences in productivity of various grades of land. Given the same quality of labor and capital goods, the superior lands fetch a rent that leaves wages and capital yields equal (in long-run equilibrium) in the various grades of land. Land rent is a pure surplus that can be tapped for public revenue without any deadweight loss on production, consumption, or investment.
Much of the gains from economic expansion are captured by higher land rent. Landowners benefit from the innovations, entrepreneurship, and investments of the non-landed. Also, when the public goods are provided by government and financed from taxes on labor and capital goods, the increase in land rent and land value is a forced transfer of wealth to landowners from worker-tenants who are double-billed for these goods, paying both higher rent and taxes.
The ethics of land rent depend on the equality premise of natural moral law. John Locke wrote in his Second Treatise that human beings are all “equal and independent.” Independence here means that persons think and feel individually. This concept is related to methodological individualism, and to subjective values. Equality puts subjective values on an equal moral basis.
The equality premise is not, of course, economic or social, nor is it a matter of intelligence. Human equality is biological. There is no inherent quality in human beings that makes one set morally superior and other inferior. Human beings are biologically endowed with the capacity for volition, awareness, and reason. These features are a capacity, even it not actualized at some moment. As Henry George put it in Progress and Poverty, nature makes “no distinction between master and slave.”
The application to land is the question, how is proper ownership of land determined? The equality premise of natural moral law implies equal self-ownership, hence a person properly fully owns his wages and the products of labor. But self-ownership does not apply to what persons have not produced, namely natural resources.
The two moral possibilities for proper claims to land are homesteading and equal benefits. Property rights in land can be divided into rights of possession and rights to the yield or rent of land. Homesteading works well for rights of possession. If you enter a theater, you have a commonly recognized right to sit in any unoccupied seat. But that does not imply you own the seat; you may only occupy it during the performance.
Those who advocate homesteading rules have to confront the fact that almost all the land title today originate in conquest. The view that the current occupant is the homesteader if there are no heirs of the original owner is in effect a rule that favors the status quo. By that rule, if one murders the current occupants and they have no heirs, the conqueror has proper possession. It is also arbitrary how much area, how much time, and what kinds of uses constitute rightful homesteading.
The Lockean proviso was that one may obtain unclaimed land if there is land of equal quality freely left for others. There are various interpretations of the proviso, and some libertarians simply reject it. Regardless, the premise of human equality alone implies that the benefits of natural resources be shared equally. The benefits of land generate land rent. Hence equality requires that each person own an equal share of the natural land rent. That puts all human beings in an equal moral position with respect to land. If one person has a greater share of rent than another, that puts him in a superior position.
If all persons are receiving an equal share of the rent, then possession does not matter so much. If the rent is tapped for public revenue, the amount is based on the highest and best use of sites, regardless of the current use or rental payments. Large estates would not matter, since the rent is shared with the rest of the relevant community.
Geolibertarianism leaves the title holder with full rights of possession, so long as the community rent is paid. Thus there is no zoning, building codes, and other land-use restrictions, so long as any damage such as pollution is compensated.
The rentals due to infrastructure should be paid to the providers. If a private firm or community association provides the public goods, then the residents would pay a rental or fee to the provider by contract. If government provides the public goods, it would collect the generated rentals.
Geolibertarianism can be applied in a both a minarchist or anarchist setting. In minarchy, given that there is an government that takes in revenue, geolibertarianism is coherent, whereas an allodial minarchy, in which the land title holders keep all the rent, is incoherent, because the public goods generate land rent and become a subsidy to landowners, contradicting the libertarian rejection of government subsidies.
In an anarchist setting, geo-anarchism is implemented by the market for civic services. With no taxes on labor or goods, landowners would have to pay for the public goods that service their land. Tenants would pay a rental for public goods, just as a hotel does not charge the guests according to their wage income, not does it levy a surcharge on the goods in its stores. The public goods – elevators, corridors, lobby, security – are paid from the room charges. Geo-anarchism would approach the equal benefit ideal if most of the residents believe in it, but if not, the market selection of efficient provision would move the economy in the direction of tapping land rent for community services.