The Geolibertarian Ethics of Land Rent

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.

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  • Jessica Flanigan

    You write, 
    “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. ”

    I see that it’s an argument that moral properties supervene on natural properties, but why are the moral properties equal when the natural properties are not, it seems like the argument is missing a step here. I’m curious about why you think that even though people’s volitional capacities vary their moral status does not? I know that such arguments have been given by Kantian-types about why the nature of moral address or of reasoning more generally presupposes equality, but that seems like a really substantive premise that’s super hard to establish. What do you think?  

    • People’s reasoning capacities vary, too. On that basis Aristotle claimed that some people are natural slaves.

      And why should the biological properties that ground moral status be volition, awareness and reason, rather than, say, physical strength?

      It is all arbitrary, isn’t it?

      Why doesn’t Fred just come out and say ‘I propose a moral principle according to which…’ and then offer some arguments for why that moral principle should be preferred to potential rivals?

      • foldvary

        Morality derives from the nature of chosen human action, not from physical strength, and that is why the capacity to reason grounds moral status rather than physical strength.  If it is all arbitrary, there is no morality.  I thought I did provide arguments for why moral equality implies equal shares in the benefits of natural non-human resources.

    • foldvary

      The relevant natural properties are equal.  The basis for human action in conscious volition is equal.  Differences in intelligence are not differences in basing behavior on reasoned choice.  Thus as I analyze it, volitional capacities are indeed equal.  If one rejects moral equality, the alternative is inequality, so one then needs a basis for that.  The default of equality seems less arbitrary.  

      • Econ Amateur

        Far less arbitrary.   Since upon the assumption of inequality, the next step is assigning the lesser rights to the lesser race and the greater rights to the master race.   These assignments would then need even more arbitrary reasoning.

        The assumption of equality is of course nothing more then a choice.  But the only other choice is supremacy for some and subservience for others.  That people mock the choice for equality means they are hiding their own choice.   Why wont they just come out and say why they are so superior?

  • Fred, very good post, but I find your use of the word “rent” confusing. Sometimes you appear to mean “rental income” earned by a landlord, and at other times “rental expense” or “rental income tax” paid by the landlord.

    • Fred cited Ricardo’s definition that it is the difference between the least productive land in use and that of every quality. Rent is the price of an access right, and the value is passed around from person to person but what is being considered is the value itself.

      • Why not simply say “rental income” when that is meant, or a “tax on rental income” when that is meant?

        We can’t tax landlords for income that hasn’t been realized, or for the income producing capacity of land (though that often roughly factors into land prices).

        •  Rent is an “ideal type,” just as Fred said about landlords as a role. We speak of Labor, Wages, Capital, Interest, and Land as ideal types, and the missing piece there is Rent… though I admit it seems as though it is voodoo as far as many are concerned.

          • Yes, so let’s try to make it real. At bottom, Fred seems to be saying that modern taxes on rental income earned by landlords is not being taxed properly and/or adequately. (And I would agree.)

          • foldvary

            And “landlords” includes all land owners.

        • foldvary

          One can indeed tax a landlord for income that has not been realized.  Indeed, a land value tax should be based on the highest and best use of a site, not what happens to be the current use.  After the earthquake of 1906 in San Francisco, real estate owners had to pay the same property tax as before, which induced them to quickly rebuild.  If a landlord lacks the income to pay the rent, he is using the  land suboptimally.  

          • Here’s where I think the LVT will run into Constitutional problems, but this is just my personal opinion, so other lawyers are welcome to comment. 

            It’s one thing to tax land based on comparable market values, and I understand that land with high natural resource potential will likely have a higher market value, but to try to capture something like “the highest and best use,” the landlord will probably argue that s/he is being taxed for unrealized income, income which has not properly been “severed from the capital” (using the word “capital” in the general sense that the land, ocean, air, etc. is being used as a means of production):

            “Income may be defined as the gain derived from capital, from labor, or from both combined,’ provided it be understood to include profit gained through a sale or conversion of capital assets . . . . Brief as it is, it indicates the characteristic and distinguishing attribute of income essential for a correct solution of the present controversy. The government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word ‘gain,’ which was extended to include a variety of meanings; while the significance of the next three words was either overlooked or misconceived. ‘Derived-from- capital’; ‘the gain-derived-from-capital,’ etc. Here we have the essential matter: not a gain accruing to capital; not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value, proceeding from the property, severed from the capital, however invested or employed, and coming in, being ‘derived’-that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal- that is income derived from property. Nothing else answers the description.” Eisner v. Macomber, 252 U.S. 189 (1920)

          • On the other hand, and on a more positive note for the LVT, since underlying land, ocean, air, rivers, mountains, etc. really can’t be owned by anyone (but only used or given access rights to), a federal LVT would likely not be subject to the restrictive Direct Tax Clauses (again in my unofficial opinion).

            And I’m saying this knowing that the Supreme Court has previously held that real estate, in general, must follow the apportionment and proportionality rules mandated by the Direct Tax Clauses. In other words, the Direct Tax Clauses were really designed for only for federal taxes levied on “property because of ownership.”

          • Owner-occupied residence pay a property tax even though they are not receiving an explicit rental, hence they are taxed on unrealized income. If a landowner is not using his site to its full potential, he is depriving the community of opportunities for production and investment, and the rent payment is compensation. The Constitution authorizes the federal government to levy a direct tax on land value so long as the funds are collected from the states in proportion to population. Moreover, some options and futures contracts are taxed on their unrealized gains.

    • foldvary

      By rent I mean the economic rent of a plot of land, the amount that would be paid by a tenant for the highest and best use of the site.  The payment of rent by one party constitutes income to another party.  The recipient may be a private landlord,  a community association, or a government.

      • Thanks, that helps. 

        So, let’s say we have a farmer, fisherman, miner, or any small businessperson for that matter, who, after paying all property taxes (and even a hypothetical LVT), and after paying fair wages to himself and a few workers, earns an annual profit of $10,000, then pays $3,000 income tax to state and federal governments and retains $7,000.

        Would it be accurate to say that the total annual “rent yield” of the earth for this businessperson was $10,000, with the $3,000 paid to government being its share of the “rent”?

  • These two sentences contradict each other:

    Those who claim that land is produced have a physical definition of land, as a surface area, rather than the economic meaning. 

    The supply of spatial land, as the amount available, is fixed by nature.

    In the first sentence you deny that the creation of new combinations of matter that duplicate qualities of natural land constitute “new” land. In the second sentence you claim that the set of all things with the qualities of natural land is fixed. This equivocation between land as natural resources and land as space to do work is the core problem with Georgism and all of its variants. 

    The idea of land rent being especially problematic is fundamentally an argument based on land ownership excluding people from certain gains (i.e. an argument based on land as space to do work). But because they want to use economic arguments and distinguish natural versus produced gains, Geolibs insist on land as natural resources. But, as Hillel Steiner’s essay pointed out, the fact that all improvements fundamentally stem from natural resources causes property in general to be problematic. Thus, there is no way to make land “special” relative to other kinds of property. Any concept of ownership that conforms to our sense of justice will work for land as well as anything else.

    • foldvary

      The economic definition of land excludes improvements, while the physical meaning use by some critics of Georgism includes improvements.  Land is indeed physical, and the economic meaning includes only the natural physicality.  I said that spatial land is fixed; other types of land such as oil get depleted, and other forms such as natural forests can grow.  I don’t see where there is equivocation.

      Natural material resources such as oil become transformed into capital goods after being altered by human action.  I don’t see why the ownership of gasoline is problematic just because gasoline comes from natural oil.  Georgist policy would tap the economic rent of the oil, and after that, the owner has full rights of possession and yield.  The classical economists recognized that each of the three factors – land, labor, and capital goods – are “special” in having distinct characteristics.  Land is prior to and apart from human action, which makes it special relative to labor and capital goods.   The consequences are also special, e.g. a tax on labor reduces output, while a tax on spatial land value does not hamper production.  These differences can be observed empirically.

      • OK, it seems you’re avoiding common Geolib errors. That’s good. You’ve decided to fully commit to a natural resources definition of land. But there are some problems with this variant:

        1) The extraction of resources inherently means the exclusion of others from what was once available to all. Wouldn’t this render the extraction of non-renewable resources more ethically problematic than, say, farmland? After all, the farmland is still there and could be put to different uses, while oil or minerals are forever extracted. And since you call extracted oil capital wouldn’t this undermine the ethical status of capital goods as well?

        2) If some “land” is consumable, then it makes no sense to talk of land having a vertical supply curve. The supply curve does slope, with more extraction occurring at higher prices. Ah, but you counter that extracted land is capital, well then wouldn’t that mean that only resources still in the ground generate economic rent? In which case, wouldn’t Georgism incentivize strip mining, draining aquifers, over-fishing etc. since that would lower your taxes? And if economic rent does apply to extracted resources, then why are Geolibs OK with un-taxed private ownership of capital goods (since these contain extracted resources)?

        3) As Kevin Carson points out, all of the other libertarian theories of land assume labor mixing is required for property to come about. Thus, it’s unclear where economic rent arises except in cases of land property systems that everyone opposes (except maybe naive, non-proviso Lockeans). It seems like the problem can be solved by other means.

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    You say, “Regardless, the premise of human equality alone implies that the benefits of natural resources be shared equally.” This doesn’t follow at all.  Libertarians have what we consider strong arguments to the conclusion that “the premise of human equality” implies simply that all persons have equal rights against being oppressed or being subject to involuntary violence or fraud. On this interpretation of “human equality,” people have an equal right to enter into voluntary transactions to buy, sell or trade land. You have provided no argument against the libertarian perpsective, merely asserted without justification that something must be true, which isn’t. 

    • foldvary

      Suppose one person owned all the land and set a rent equal to all tenants’ income beyond subsistence.  Would that not be oppression?  The argument for equal ownership of land rent has to be contrasted with its alternative, homesteading.  If equal sharing is rejected, the acceptance of homesteading is not a default; it too requires justification.  If equal ownership of rent is problematic, the homesteading doctrine is more so, and so the less arbitrary system wins.


        It would be, and it would also be unjust under many libertarians’ understanding of the homesteading paradigm. You must have heard of Nozick’s adaptation of Locke’s proviso, which addresses just such a scenario, right? What objection do you have to the justice of Lcoek’s proviso, thus construed? Please see my earlier comment to Prof. Mack. It is highly counter-intuitive that people come to own things or have a beneficial interest just by being born. Does this right apply to distant galaxies?

        • I reject Nozick’s view that the allodial ownership of land is acceptable as long as it does not make anyone worse off. But other are worse off with an inferior share of land rent. The issue is not private property per se. Given private property in one’s body and products of labor, the question is whether the property of the rent of land belongs to just some or to all equally. It seems intuitive to me that just by being born, a person owns his body and time. The unequal ownership of rent seems no more intuitive than an equal share. Moreover, if equal sharing of rent is rejected, I have seen no coherent alternative for public revenue.

          • MARK_D_FRIEDMAN

            I repeat, Nozick requires that land be improved to confer ownership in addition to not worsening the condition of others, either at the time of acquisiiton or later. Have you read much of David Schmitz? In his “The Institution of Property,” he says this:

            “Consider the Jamestown colony of 1607. Exactly what was it,
            we should ask, that made their situation so much better than ours? They never had to worry about being overcharged for car repairs….

            Many philosophers say, in effect, that original appropriators
            got the good stuff. We got ugly leftovers. But in truth, original appropriation benefits latecomers far more than it benefits original appropriators. Original appropriation is a cornucopia of wealth, but mainly for latecomers rather than
            for the appropriators themselves. The original appropriators never dreamt of things latecomers take for granted. The poorest among us have life expectancies exceeding theirs by several decades.”

            In other words, original appropriation is not a zero-sum game, but a positive sum game.

        • Econ Amateur

          The idea of allodial itself is in contention with the proviso.   Locke did not say only at the moment of homestead he left the proviso open.  Meaning it continues at all times to apply.    But the very meaning of “allodial” is that ownership rights do not change.   So the constantly adapting proviso can not ever be applied in an allodial fashion.

          This should be immediately obvious that conditions of freedom today only answer to the conditions of today.    Appeals to the past are nothing more then ways to justify privilege by bringing in irrelevant events.

    • Kevin EarthSoul

      It seems to me that claiming right to raw natural resources that one did not themselves make by their own labor is an act of fraud that steals from others who have no less right to making that claim. And, as Fred pointed out in the article, all these land rights trace back to an act of violent conquest, as well.

      • “It seems to me that claiming right to raw natural resources that one did not themselves make by their own labor is an act of fraud that steals from others who have no less right to making that claim”

        It seems to me that being the first one to find, emborder and incorporate a raw material into your life’s plan gives you a stronger objective link to that material than anyone else. On what grounds may anyone else limit what you may do with that material? (aside from using the material to harm others, of course)

        It would also seem to me that taking the position “you can’t own what you didn’t create” is akin to the position “you can’t own anything” including your own body as you didn’t make the carbon or any of the elements that make it up.

  • G Kochanski

    But doesn’t the highest or best use depend on what your neighbor is doing?   Someone builds an airport, the best use is probably a parking lot, a FedEx warehouse, or similar.   Absent the airport, the best use might be a cow pasture.

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  • Kevin EarthSoul

    In a practical sense, how do you feel about rapid changes in land value and the rents rising along with them causing people to be priced out of their homes? If I build a home in a suburban environment, and as urban expansion occurs, my land value increases, but my income does not, I may reach the point where I can no longer afford the rent on the land. I will be forced out of the home I built.

    What would the effect be if we exempted rent a certain amount of land upon which people build a personal first home?

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