Goodbye To The Last True Georgist Economist: Mason Gaffney

Mason ("Mase") Gaffney died on July 26 in Redlands, CA of Covid-19 at age 96.  He was both a great guy as well as arguably what the title to this says: "the last true Georgist economist," with such economists being followers of Henry George, whose 1878 book, Progress and Poverty, was the best-selling book on economics in the US during the 19th century.  George was a journalist who ran unsuccessfully for Mayor of New York.  His book, drawing on influences from Quesnay and Ricardo, advocated that there be a single ("site") tax on land, replacing other taxes.  Advocates of this view, such as Mase, argued that it brought about an economy that was both equitable and efficient.

Gaffney became a follower of Henry George in 1940 in his senior year of high school, when he read Progress and Poverty while convalescing from an accident.  He started at Harvard in econ in 1941, but dropped out from majoring in econ due to his disgust with the non-Georgist approach in the department there, joining the US military to fight in WW II.  He would later say that a virtue of an overseas military deployment was that it made one appreciate life as one felt they were living on "borrowed time."  In any case, he ended up having quite a lot of it.

After the war he attended Reed College and got his PhD at UC-Berkeley.  He worked in many places around the US, including at the US Dept. of Agriculture for awhile, but mostly in academic positions, ending up at UC-Riverside in 1976, where he remained until his retirement in 2012.  I think he stopped attending conferences after that, but I remember seeing him at some up to about that time, when, well into his 80s he was very lively and articulate and fun to talk with.

Unsurprisingly he became a major leader, maybe the major leader, of the organized Georgist movement in mid-century US, working the the Robert F. Schalkenbach Foundation on this and founding the long-running Committee on Taxation, Resources, and Economic Development (TRED), which had some prominent members including the late Nobelist, William Vickrey.  This group did a lot of lobbying and writing of letters to people in many nations and even religions (such as the Pope) urging the adoption of the single land (or site) tax.

He had at least some partial successes in some places, including New Zealand and Taiwan, among a few others.  While very few nations were willing to completely go with such a tax given that in modern economies with large governments they are unlikely to provide enough revenue to fund everything, in quite a few municipal areas there have been efforts to at least tax structures on land at a lower rate than the land they sit on, thus moving in a Georgist direction.  The old argument is that this discourages leaving land vacant and combats pure land speculation, among other things.  The main place in the US that did this for many decades, but eventually gave it up, was the city of Pittsburgh, where several urban economists claimed that it had the desirable effects argued for it.

If the land tax is so much better than the property tax, its great rival at the local (and more practical) level, why then do we see it so rarely used?  This actually goes back to my own PhD dissertation at UW-Madison on "Essays Related to Spatial Discontinuities in Land Values at the Urban-Rural Margin," which involved me gathering lots of data on sales of vacant land around Madison, both inside the city and outside.  I became aware that there could be administrative and just plain old data problems for the land tax in an urban area.  There are lots of sales of vacant land at or near the edge of a city where it is expanding and vacant formerly rural land is getting built on.  But in the interior of a built-up city there are many fewer, a thin market, with the upshot that prices on such sales can wildly vary for plots of land not too far apart and not all that different from each other.  One can scarf over such peculiarities of thin data coming from thin markets, but it involves the imposing of a certain amount of arbitrary judgment that can become subject to whim and influence from especially wealthy and powerful landowners in such downtown areas. The hard fact is that it is simply a lot easier to use a property tax given that there are so many more sales in central areas providing a reasonably reliable data base for property values, although even with these influence and corruption happen in the real world involving assessments of such valuable property.

Interestingly, in recent years since the crash of the real estate bubble starting in 2006 led to the Great Recession, there has been a revival of interest in Georgist ideas, and although I do not think there has been that much implementing of them in practice, I have seen quite a bit of economics literature on the topic that largely reinforces the old arguments for how such an approach might be both equitable and efficient.  Mase got a new burst of support near the end of his life.

As a final note I shall observe  something not mentioned in the various obituaries and commentaries I have seen on him following his passing.  This involves work he did on forestry economics, an unsurprising adjunct to his main interests.  There has been a long debate in that field over "optimal rotation of a forest," the question of how long one should let a tree, or a forest of similar trees, grow before harvesting them for timber (or more general uses, but the older literature focused simply on the timber value.  This is now largely resolved in the existing literature, but well up into the 1970s there was an old debate about this, with obviously what the real discount rate (or interest rate if you prefer) playing a crucial role, with generally speaking higher such rates implying shorter rotation periods, whichever formula being used.

For a long time in the English language literature the dominant solution was due to Irving Fisher from his influential 1905 The Theory of Interest, with the problem being one of his iconic ones in developing his theory.  His solution was neatly intuitive and simple: cut the tree (or trees) when its growth rate equals the real rate of interest (Fisher was the one who first emphasized the importance of real versus nominal interest rates). As long as the tree(s) is growing more rapidly than the rate of interest, the tree's owner's wealth is growing more rapidly than money sitting in a bank.  But once that growth rate falls below the real rate of interest then one gains more wealth by cutting down the tree and selling it for timber and then putting the money so gained into a bank to earn interest.

It turns out that despite having such an intuitively appealing solution, Fisher was wrong.  He left out an important part of the rotation question, in particular he failed to take into account the implication of replanting another tree (or trees in a forest) after the tree(s) is/are cut down, which is what is implied by the term "rotation," a patch of land on which trees grow, are cut down, are then replanted with more growth, and so on, in principle forever.  It turns out that this complicates the solution and implies a shorter rotation period than the Fisher solution as, assuming a positive real interest rate, one wants to get those new young and more rapidly growing trees into the ground sooner.  An actual analytical solution was in fact discovered in the 1840s by a once-little known German foresty economist named Martin Faustmann, who wrote the solution in an obscure pamphlet that would eventually be translated into English in the 1960s.  We do not need the details of this that are more complicated than Fisher's solution, but as noted it implies a shorter rotation period than Fisher's and can be generalized to account for non-timber amenities, and so forth.

In any case, it turns out that before Faustmann's pamphlet was translated and became known in the English language literature, there were two American economists who figured out that Fisher was not right and why, although neither of them went all the way to come up with the precise analytical solution.  One of those the late Armen Alchian.  The other was the now late Mason Gaffney, who always thought very seriously and deeply about the land and what it produces and how people use it.

Barkley Rosser