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April 23, 2006
David Warsh, Proprietor


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Back To the Future?

A century after the devastating San Francisco earthquake, are there lessons from that city’s remarkable revival that might be useful to New Orleans today?

There are, according to Mason Gaffney, professor of economics at the University of California at Riverside. San Francisco, 1907 to 1930, was a case study in born-again disaster recovery, he says in an article in the alternative montly Dollars and Sense. It’s available on his Website as well.

“San Francisco bounced back so fast its population grew by 22% from 1900 to 1910, in the very wake of its destruction; it grew another 22% from 1910 to 1920 and another 25% from 1920 to 1930, becoming the tenth largest American city. It did this without expanding its land base, as rival Los Angeles did, and without stinting its parks.”

No obvious advantage accounts for this feat. “Its rail and shipping connections were inferior to the major rail, port, and shipbuilding complex in rival Oakland, and even to inland Stockton’s. It was hilly; much of its flatter space was landfill, in jeopardy both to liquefaction of soil in another quake and to precarious land titles. Its great bridges were un-built, so it was more island than peninsula.”

Indeed, San Francisco in those years was known mainly “for eccentricity, drunken sailors, tong wars, labor strife, racism, vice, vigilantism, and civic scandals. In its hinterland, mining was fading and irrigation barely beginning. Lumbering was far north around Eureka; wine around Napa; deciduous fruit around San Jose. Berkeley had the state university, Sacramento the capital, Palo Alto Stanford, Oakland and Alameda the major U.S. Navy supply center”

So how did the San Francisco do it? One advantage in particular is being overlooked, says Gaffney. “Reams are in print about how Henry George was not elected Mayor of New York, but nothing about how his colleague Edward Robeson Taylor was elected mayor of San Francisco” in 1907, the year after the earthquake.

Henry George? Edward Robeson Taylor? A generation of Americans born after the Civil War, at least a certain subset of them, accorded Henry George the status of economic prophet that a later generation reserved to John Maynard Keynes. George’s great book, Progress and Poverty, appeared in 1879, at a time when Americans felt themselves at the mercy of economic forces they could neither understand nor control.

George argued that a single tax on land, exempting labor, buildings and other forms of capital, coupled with government prizes for invention and innovation (instead of patents) were a surer way to stimulate growth and insure an equitable distribution of income and wealth than were the more complicated schemes of income taxation then just coming into vogue.

Economists labeled George a crank. He failed utterly to link up with their broader, deeper analytic tradition. And by 1897, when he died four days before the election in his second campaign for mayor of New York City, Henry George had become, at least to most Americans, merely another reformer who had mistaken some part of the truth for the whole of it, in a class, perhaps, with Karl Marx or Christian Scientist Mary Baker Eddy.

After he lay in state in Grand Central Station, however, he left behind, “an indefatigable corps of followers…, propagandizing Single Tax idea and preparing for the millennium,” (as Harvard University’s Daniel Aaron described it in 1951 in his  chapter on George in Men of Good Hope: A Story of American Progressives — still the best way to meet George, along with several others of his ilk, including Edward Bellamy, William Dean Howells and Thorstein Veblen).

Among these disciples was Edward Robeson Taylor, who in 1879 had helped George polish Progress and Poverty, even contributing directly to a section called “The Application of the Remedy.” And, notes Gaffney, who it must be clear by now is a latter-day Georgist himself, “While George was barnstorming New York City and the world as an outsider, Taylor stayed home [in San Francisco] and rose quietly to the top as an insider.” In 1907,  Taylor was elected mayor.

Asks Gaffney, “If you had been a partner in writing Progress and Poverty, and composed its call to action, and become mayor of a razed city with nothing to tax but land value, what would you tax?”  And that is exactly what Taylor did.  He raised the assessment on land to replace the part of the tax base that had been lost in the fire. The city’s credit was restored; it immediately began borrowing to restore infrastructure. After a brief interregnum, Taylor’s reign gave way in 1911 to that of Mayor James Rolph, who continued in his footsteps for 19 years, building city-owned water facilities, tunnels, street-cars lines and a Civic Center. The result was density:  tightly packed residential housing and taller buildings with more mass transit.

How exactly did single tax work its magic in San Francisco? In modern-day language, it solved a coordination problem. It forced people to get the most out of the land by building on it. (What is a skyscraper, goes an old saw, but a machine for getting cash out of the ground?) Taxing land disproportionately was a way “kindling a new kind of fire under landowners to get on with it or get out of the way,” says Gaffney.

In 1907, single-tax ideas were in the air. Cleveland, Detroit, Toledo, Milwaukee, Chicago, Vancouver and Houston all had mayors who insisted on taxing buildings less and land more. “It was the golden age of American cities, when they grew like fury, and also with the grace of the popular ÔCity Beautiful’ motif,” Gaffney says.

Also in the air in the first years of the new century, however, at least in university towns, was marginal productivity theory. And before long, that doctrine, associated, at least in America, with John Bates Clark, the first great American economist, eclipsed Georgist ideas more or less completely.  (Ironically, it was an English Georgist, Philip Wicksteed, who gave its elegant mathematical formulation.) Marginal productivity theory held that in competitive markets, everything came out for the best. Land, labor and capital, all added to what we now call GNP in accordance with the extra bit of wealth their respective contributions produced, nothing more, nothing less. The comforting implication, at least in its vulgar version, was that every agent of production received exactly what it deserved. Wages, rents and share prices, all were set as if by a wonderful machine. By 1948, the American Economic Association had created its John Bates Clark Medal for the most productive economist before the age of 40, the first of which went to Massachusetts Institute of Technology’s Paul Samuelson.

That was the year Mason Gaffney began his graduate studies in economics at the University of California at Berkeley. He sought to counter his teachers’ skepticism about his Georgist convictions with a dissertation on “Land Speculation as an Obstacle to Ideal Allocation of Land.”  For the most part he failed. That didn’t prevent him from having a long and successful career.

Gaffney’s biography says that he has been a professor of economics at several universities; a journalist with Time, Inc.; a researcher with Resources for the Future, a think-tank; the head of the British Columbia Institute for Economic Policy Analysis, which he founded; an economic consultant to several businesses and government agencies; and a frequent speaker in political campaigns. He has been professor of economics at U.C. Riverside since 1976. He lives nearby in an avocado grove.

All the while, economics has been slowly making its way back to consider, in light of what it knows now, many of the ideas that it had swept past in its exhilarating 20th century dash to pluck the low-hanging fruit: accepting some, continuing to reject others, among them Georgist notions of various sorts. Proposals for stimulating the growth of knowledge, for example, considered radical when they were put forward in strictly literary terms by Henry George, recently have been restated formally in Rewards vs. Intellectual Property Rights by Steven Shavell of Harvard Law School and Tanguy Van Ypersele of the University of Namur. The Institute for Advanced Study’s Eric Maskin has advocated a new assault on the deepest problems of cooperative game theory, hoping to better understand how coalitions form and behave. Bargains among coalitions are at the heart of many Georgist prescriptions for cities — but their very existence is ruled out by cooperative theory in its current (primitive) state.

Thus, even in the 21st century, folk wisdom continues to be arrayed against social science, regularly enough. To help New Orleans, Gaffney recommends strong dose of Georgist tax policy, based on San Francisco’s experience and designed to revive the private sector of the city –begin by adjusting tax assessments to tax land more heavily than the buildings that may rise on it. Plow the proceeds into public works for the city — and rely on the federal government to invest in better flood controls for the mighty river. New Orleans city voted Saturday on a field of 24 candidates. A runoff for the top two vote getters is scheduled for May 20. That is time enough to compare the candidates’ positions on city tax policy.

But whoever wins in New Orleans might profit from a quiet hour with Gaffney’s story. In his poem, “Why Wait for Science?” Robert Frost mocked the gloom arising from the conviction that we already have learned all there is to know:

Sarcastic Science, she would like to know,

In her complacent ministry of fear,

How we propose to get away from here

When she has made things so we have to go

Or be wiped out.

Frost’s conclusion:

The way to go is just the same

As 50 million years ago we came.

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