On Separating the Landowner’s Earned and Unearned Increment: A Georgist Rejoinder to F. A. Hayek

Abstract

On a given site, some increments of rent or land value may reflect improvements by the owner, either to it or to adjacent sites he or she also owns. Because these increments cannot always be distinguished with precision from the value arising from natural features and/or from improvements due to communal efforts, F. A. Hayek dismissed the Georgist paradigm as fatally flawed. This paper disputes Hayek’s criticism on the following grounds: 1. As Professor Backhaus observed, the degree of certainty in measurement demanded by Hayek is more rigorous than that required in practice for enforceable tax assessment. 2. Under a Georgist‐style system, landowners who improve their land would, in any case, get to keep much more of the fruits of their efforts than under any alternative public revenue system. 3. The distinction between value produced by the owner, on the one hand, and that produced by nature and society, on the other, remains authoritative as an ideal even if not perfectly realizable in practice; hence, there is a sense in which even the theoretical elegance of Georgism is not undercut by Hayek's criticism.