lvt productivity

there’s a claim that lvt is beneficial because it causes land to be more productively allocated. but this is irrational, because the the measure of “productivity” is just “how much someone will pay for something”, and land is always owned by whoever pays the most for it, by definition.

for instance, imagine there’s a productive farm or apartment complex deemed to be worth 1M dollars. alice offers 1.1M for it, and then ceases operations. the “naive georgists” will argue that she’s using it “less productively”. but this is definitionally false — she paid more for it than anyone else valued it. the land is objectively more productive than it was before.

this issue can be harder to grasp if we come across alice after the fact, and observe that “her land is just sitting idle, not being used productively”. we’ll just see that she’s hoarding “unproductive” land, and refusing to sell it. but it is productive, by definition. alice proved this by paying what she paid for it. or, if you want to refuse to buy that simply because the value appreciated after she bought it — then she’s revealing that preference equally by refusing to sell.

barring any market failures, goods and services are always allocated in a pareto optimal way.

the good argument for lvt

now, there are two good arguments for land value taxes. first, they have no deadweight loss, so if we replace other taxes with lvt, we improve total economic output. further, if we redistribute the proceeds in a progressive way (funds flow disproportionately to poorer people), then we improve net utility due to the income effect (decreasing marginal utility of wealth). but the “improves allocative efficiency” argument is pure mythology.