Henry George Theorem

The Henry George Theorem, named for 19th century U.S. political economist and activist Henry George, states that under certain ideal conditions, aggregate spending by government will be equal to aggregate rent based on land value (land rent). Although these conditions never obtain in reality, actual conditions are often close enough to the theoretical ideals that the great majority of government spending does indeed appear as increased land value. This general relationship, first noted by the French physiocrats in the 18th century, is one basis for advocating the collection of a rent/tax based on land values to help defray the public expenditures which created the land values in the first place. Henry George popularized this method of raising public revenue in his works, especially in the international bestseller, Progress and Poverty (1879).

In 1977, Joseph Stiglitz showed that under certain conditions, spending by the government on public goods will increase aggregate land rents by an equal amount. This result was dubbed by economists the Henry George Theorem, as it characterizes a situation where Henry George's “single tax” is not only efficient, it is also the only tax necessary finance public expenditures. Henry George had famously advocated for the replacement of all other taxes with a "single tax" on land value.

More recent economists have discussed whether the theorem provides a practical guide for optimal population size of political entities. Mathematical treatments of the theorem suggest that an entity obtains optimal population when the opposing marginal costs and marginal benefits of additional residents are balanced.