Geoism Proven To Work - Denmark example
Denmark prospered under the Geoist system for 3 years until vested interest of landowners scupperred it. The Danes, by old tradition, have been accustomed to the concept that the land belongs to the people. The rapid industrialisation and land enclosures of the 18th and 19th centuries began in the UK and made an impact in Denmark challenging this tradition. More land was turned over to industry as industrialisation grew in Denmark.
Liberals Adopt LVT
Farmers were pressed in the later half of the 19th century; many of them supported the ideas contained in the book "Progress and Poverty", by Henry George, the biggest selling book in the world after the Bible at the time. As the economic situation became tougher for small farmers, a so called "Georgist" movement began and the Danish Henry George Union was founded in 1902. Some of its more active members wanted a better platform for their political ambitions, and these members cooperated with other philosophic groups and public leaders in forming a Liberals Party declaring that:
- Land value taxation, LVT, (site revenue) should collect all the publicly created rent of land for government expenses;
- Income Tax to be abolished accelerating the free market;
Around this time, Karl Marx was advocating that the workers unite to fight the desperate conditions of the working man in an era of great wealth creation. The Danes took the line of Henry George. Social Democrats were inspired by George advocating in its political program the taxation of land value, known as site revenue.
Parties joined to create the Economic Justice Party
Over the next fifty years, not only in Denmark but around the world, there was long and intense debate about liberty and freedom amongst free traders, pacifists, humanists, philosophers and religious institutions alike. Many of these people went to each other's meetings and contributed articles to each other's publications. Finally, they knew each other so well, that a union was establish with the object of appealing to voters for seats in the Danish Parliament. The Justice Party was formed.
The economic policy of the Justice Party was simple; to collect tax only from the
value of Land and abolish all taxes on Labour and Capital. For a new political party, their effect was astonishing. Progress was quick and in 1952, they won 12 seats of a possible 179. They effected the appointment of a Government commission for ground rent in Denmark, who wrote its report clearly advocating the benefits of site revenue. In 1957 three parties, the Justice Party, the Social Democrats (Labour) and the Radical Left Wing Party (Liberals) formed what was to become the most prosperous ever Danish Government - later termed the Ground Rent Government.
The three political parties made an agreement based upon the following:
- Collection taxes from the values of land only (using Land Value Tax)
- Liberalisation of trade
- A tax freeze
It was generally expected that after formation of the government, some kind of Land Value Tax would be introduced. Land speculation ceased immediately in anticipation of LVT. Legislation on taxation of increased land value was prepared, presented to parliament and passed.
The economic effects of the cessation of land speculation were astounding and aroused much attention. On the 2nd October, 1960, the New York Times headlined, "
Big Lesson from a Small Nation."
Prior to the election of 1957, Denmark had a sizable deficit on her balance of payments, was considerably in debt abroad, burdened with a relatively high interest rate, high unemployment figures and an annual rate of inflation of approximately 5%.
From 1957 to 1960, the following improvements in Denmark took place:
- The big deficit on her balance of payments was turned into a surplus.
- Denmark's total debts abroad amounting to 1,600 million kr. were reduced by one quarter to about 400 million kr.
- The rate of interest, and hence mortgage levels dropped.
- Unemployment was soon replaced by almost full employment, together with considerable increases in production and wages.
- Inflation was brought to a standstill. All wage increases were real wage increases, the highest ever in Denmark.
- No other taxes were levied during this period. (except one, referred to later).
- The time was free of strikes. Industrial production rose 32%,
- investment rose 135%
- Savings increased immensely, as once again it became profitable to accumulate savings.
After three years in power, Denmark had no foreign debt, no inflation and an unemployment level of 1%, considered full employment. So why did it not continue?
- Until 1960, the Social Democrats were advocating LVT for the purposes of government social responsibilities, the Radicals and Justice Party advocated LVT for the purposes of income tax reduction. A minor conflict developed.
- Prior to 1960, "Georgist" beliefs dictated that when a heavy "tax" is levied upon land value, land price will decrease. The consequences of full employment, no inflation, no foreign debt, increasing production and rising real wages however, brought about a prodigious demand for homes and of course land. Enterprise flourished and also demanded more land. Land prices did not initially fall, as was predicted. In fact land prices rose. The Justice Party was unprepared for this.
- In the late fifties, the Danish foreign debt was seen to be at crisis level. To assist in reducing the debt the Ground Rent Government levied one new income tax. This resulted in real incomes being eroded, due to the progressive nature of income tax on higher incomes. The self interested wealthy landowners had a field day confusing the fact that overall, taxes did go down by 10%. The general public found little reason to doubt the anti-Georgist literature stating that LVT was simply another tax on top of all the other taxes. The landowners had no problem in fanning the now growing belief that the "socialists", (read communists, given the Cold War era), wanted to get hold of your property.
At the general election of 1960, the opposition had the largest budget ever in any Danish election campaign, financed by the Conservatives and self-interest groups of landowner associations. With its limited financial resources and lacking support from the daily press, the Justice Party was unable to withstand the attacks. Agitation against the LVT legislation continued after the election with the new weakened government giving in. Further strong pressure from landowner associations had the LVT laws repealed in 1964.
After 1964:
- The currency surplus became a currency deficit.
- The annual deficit on the balance of payments in 1972 was 3 billion kr.
- Debts abroad since have risen remarkably.
- The effective rate of interest rose substantially.
- Land prices jumped sky-high. Denmark's overall land value rose from 17 billion kr. at the assessment of 1960 to 67 billion in 1969, reaching 100 billion at the next assessment in 1973.
- Rents in new housing are six fold of those of 1964.
- The rate of inflation rose from barely 1 per cent to 5-7 per cent and was 8.6 per cent in 1965, the year after repeal of the land tax law in 1964.
- Taxes have risen again and again and are today five times higher.
A comparison between the three periods, before, during and after the so-called "Ground Rent Government," gives a clear picture of the importance of eliminating land speculation. LVT did that painlessly with great cascading economic effects.
The failure of the Justice Party was a naïve underestimation of the facts that
- The population were not educated to what LVT was - Only few Danes understood what LVT was and its effects. Most people were not aware of the positive effects enjoyed because of LVT and that the possibilities in general would improve further when more LVT was levied. People in general did not understand that the revenue of LVT belonged to them all, in common.
- Landowners & Self-Interest Groups Opposed - The extremely powerful opposing powers dominating the public media - electronic and printed - imposed on people in general the understanding that LVT was a tax like all other taxes. The put over that it would be unjust if only landowners should pay all taxes, etc. Further they emphasized that poor citizens having no income or only small income would not take advantage of reduction of income taxes, which was crucial because many LVT proponents promised reduced income tax when LVT was publicly collected.
- Land prices rose - This was unexpected with the Justice Party predicting land prices would drop. The reason why was that Land Value Tax diverted investment from land into enterprise, expanding enterprise, creating a demand for land. The demand for homes also was a factor is rising land prices. When the economy settled after the initial boom, land prices would settle. This was not communicated to the population.