Editorial
Physiocratize
by Fred E. Foldvary, Senior EditorTo "physiocratize" means to reduce taxes on labor and capital and shift the source of public revenue to site rentals or land value. The physiocrats were a school of economic thought in France during the 1700s. They called their theory "physiocracy," meaning the rule of natural law. The Greek word "physio" means nature, as in physics and physical.
The physiocrats theorized that there are laws of nature that apply to society, just as there are natural laws that apply to physics and biology. A "natural law" of science means a regularity that describes some phenomenon such as gravity. Just as there is a law of gravity that describes how objects are mutually attracted in proportion to the product of their masses and inversely to the square of their distance, so too there are laws of society that describe, for example, how people gain from exchange due to differing comparative advantages and marginal utilities.
The physiocrats recognized that exchange -- buying, selling, trading -- is socially beneficial, and anything that impedes trade hurts the economy. So they advocated laissez faire, the policy of not interfering with production and trade by restrictions and taxes. They also recognized that land yields a surplus they called the "net product," the output net of costs. We now call it rent.
Because it is a surplus beyond economic costs, land rent can be tapped for public revenue without hurting production. Rent is a cost for the individual land user, but for the economy and society, land is not a cost, because it is already here, no more can be produced, and it does not require leisure. Furthermore, the physiocrats recognized that the land rent rises with the greater productivity of the economy. Infrastructure investments get capitalized into higher land values, so it is equitable and efficient to use that generated rent to pay for such civic works.
So the physiocrats advocated a policy of having one single tax on land rent. A hundred years later, Henry George in America described the same ideas in his books. He took these ideas further, showing in Progress and Poverty how the failure to physiocratize causes business cycles and creates poverty. His followers too called the policy the "single tax."
There has not been a word to designate the shifting of public revenue to land rent. I have heard the term "Georgify" used, but the term has been used for other meanings, and it seems to me too centered on one man rather than on the idea. Hence, I propose "physiocratize" to mean the shift of public revenue to land rent or land value, with the reduction or elimination of taxes on peaceful and honest productive activity.
Physiocratizing the economy will reduce poverty, smooth out business cycles and prevent depressions, increase wages, reduce unemployment, lower housing costs, and enhance social harmony. It is not the only reform needed, of course. We need to legalize victimless acts, downsize bloated government, decentralize the concentration of political power, privatize services to make them more efficient, in addition to physiocratizing public revenue.
Legalize, downsize, decentralize, privatize, and physiocratize!
Physiocratizing helps do the other four, since land rent is suitable as a local source of local public finance, unlike taxes on income or sales. Taxes on labor and capital make these shrink, hide, and flee. Tap the land rent, and the space will remain unchanged. Space cannot hide, and it can't flee. Land rent can also be collected by private communities such as land trusts and homeowner associations to finance their local territorial services. We need to physiocratize in order to better downsize and decentralize government. Decentralizing in turn can help legalize victimless acts by shifting the laws to more local governances. Privatizing is complementary to untaxing labor and capital.
So open your dictionary, and after "physiocrat," write in "physiocratize" and its meaning. Type it up on a piece of paper and slip it into library dictionaries so they will have it also. When you stand in line, ask the person next to you if he knows what "physiocratize" means. You can then explain that it's a new word, and say what it means. In protest marches, carry a big sign saying "physiocratize!" The word "physiocratize" is a powerful tool that can greatly enhance our educational efforts.
If society is wise, it will physiocratize!
Copyright 2004 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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