Peter Thiel's Real Secret: He Wants Innovation to Stop
Peter Thiel's Real Secret: He Wants Innovation to StopWhat Peter Thiel Really Wants Is to End Innovation.
Peter Thiel likes to be seen reading Henry George. He has taught Progress and Poverty at Stanford, sat down with Tyler Cowen to work through it seminar-style, and recently gone on record calling the state of Anglosphere housing a Georgist catastrophe: rents eating a rising share of ordinary incomes, land values inflated by scarcity that owners did nothing to create, zoning laws doing the work that enclosure acts once did. It is, on the face of it, a perfectly good Georgist diagnosis. He has even admitted that as a venture capitalist, most of the capital he pours into a company ends up in a landlord’s pocket rather than in innovation. No wonder he wants land rents reclaimed by society so we can eliminate taxes on labour and investments.
He is, of course, correct: it is the economic rent of land and monopoly that kills our economy, costs millions of jobs, creates grinding poverty and unemployment and stops investment into a better future. Thiel’s public philosophy is, of course, fundamentally hypocritical. For economic rents are not just the profits of land monopoly; they are also in other monopolies such as government licenses and intellectual property. In Thiel’s book, Zero to One, the argument he makes is structurally identical to the one Georgists make about land, just made to protect the monopolies his business aims to capture. Competition, Thiel says, is for losers. The firms that matter escape competition altogether and build a defensible monopoly: Google in search, a network effect nobody can dislodge, a moat wide enough that no rival ever gets close enough to force a price war. He is admirably honest about the mechanics too; he notes that monopolists routinely lie about how competitive their market is, precisely so regulators leave the moat alone. So here is a man who wants the unearned rent extracted from land, because no one created that value and no one should get to sit on it, while writing an entire investment doctrine urging founders to build the exact same kind of unearned, defensible position in markets instead. A search monopoly does not exist because Google works harder than everyone else in perpetuity; it exists because switching costs, data advantages and scale effects make it prohibitively difficult for a better product to displace it, which is the definition of rent that George gave to enclosed land. He is basically saying society should reclaim the economic rent when I’m paying it and protect me when I’m collecting it. Society should reclaim the economic rent when I’m paying it, and protect my rent when I’m collecting it. Moats and patents: the double-edged swordThe standard defence is that innovation rent is not land rent because it is contestable. A landlord’s plot cannot be out-competed by a better plot; a search engine, in principle, can be out-competed by a better search engine. Monopoly, on this account, is the prize that funds the moonshot, the R&D budget that a firm ground down by competition could never afford. The trouble is that the same mechanism that is supposed to reward the initial breakthrough goes on collecting long after the breakthrough has been fully paid for and reasonable profit taken; at that point it stops funding innovation and starts suppressing it. A patent exists to give an inventor a temporary monopoly in exchange for disclosure; in practice, pharmaceutical firms evergreen patents with trivial reformulations to extend exclusivity for decades past the original invention, tech firms build patent thickets deliberately dense enough to make a new entrant’s legal bill higher than their engineering bill, and a monopolist with an entrenched moat has every incentive to spend on lobbying and litigation to keep the moat intact rather than on the next genuine improvement. That is creative destruction not fostering innovation; it is rent-seeking. Boldrin and Levine made this case: intellectual monopoly rewards the position, not the invention, and the two increasingly diverge the longer the monopoly is allowed to stand. This is where the Georgist remedy actually is the means to foster greater innovation and revolutionise enterprise and investment. Government revenue should be taken as intellectual property matures, with only short windows where it is untaxed. Making businesses and investors spend more money on innovation than lawyers and lobbyists. Untaxed land rent doesn’t just enrich the landlord unfairly; it removes the pressure to use the land productively at all, which is the argument for a land value tax over a tax on improvements. Apply the same logic to a business moat, and you force intellectual property owners to force best use of those assets, driving innovation to ever greater heights. Any monopoly rent left untaxed removes the pressure to keep innovating once the moat is dug; a rising levy on monopoly profits, patent extensions past their original, short-term, or state-granted licences, the kind of instrument I sketched in my essay “The Moat”, restores exactly that pressure. It does not confiscate the initial reward for the breakthrough; a founder still captures the full return in the years when the invention is genuinely novel and contestable. It simply ensures that the reward keeps shrinking as the “invention” turns into inertia, so that capital and talent are pushed back out to compete for the next zero to one rather than stifled behind a wall of legal defence and political corruption. Thiel’s own instinct about land points to the answer for his own industry, if only he would follow it through. Untaxed rent, whether it sits under a building or under a patent portfolio, does not reward creation; it rewards possession. Tax the rent, wherever it turns up, and you get more Googles being built and fewer Googles being defended. The fight for the throne of rentStrip away the economics jargon and the whole fight looks like this: every monopoly is really just stealing rent from every other monopoly. There is only so much rent to go around in an economy at any one time, so a search monopoly and a payments monopoly and a landlord’s monopoly are all quietly at war with each other over the same pool of unearned income. When Google’s advertising take grows, someone else’s take shrinks. When rents on office space rise, businesses have less left to pay staff or reinvest. It isn’t creation against creation; it’s rent-collector against rent-collector, each one hoping to grab the biggest slice before anyone notices. The same can be said about why taxing wages, trade, and ordinary investment is, as Thiel exposes, robbing him of income from his investment. His investments have to pay a massive amount of rent and taxes, and he wants them both gone to maximise his own rents. Without wage, trade and investment taxes, he can claim more of this for himself. Thiel is unusual in this regard, as most monopolists are often quite relaxed about those taxes on wages and trade, even while they fight monopoly taxes tooth and nail. A tax on wages or turnover hits the productive side of the business too; the engineers, the shopkeeper, but it makes their own moat higher in fending off potential competition. Those that must pay taxes have fewer resources to fight established monopolies. Those that must pay taxes have fewer resources to fight established monopolies. But they are all forgetting the most important economic insight made: ATCOR - All Taxes Come Out of RentThiel's mind seems to understand these issues, and that all taxes reduce potential rents and other monopolies steal their own economic rent; his public statements and writings are just his inventive mind trying to stack the economic rules to maximise his own ability to collect those rents, just as landowners have for millennia in making the rules up so their unearned ‘rents’ are protected in our financial and cultural rules and in the academic space where economists mentioning this are shunned and pushed out of their positions and influence. Most economists never approach this subject, and my advice is you stop now and study two of the great colossi of economic thought. John Locke and Prof. Masson Gaffney John Locke made the case nearly two centuries before Gaffney had the name for it; ATCOR stands for “All Taxes Come Out of Rent,” and long before Physiocracy existed as a school at all. In 1691, in his letter Some Considerations of the Consequences of the Lowering of Interest and the Raising the Value of Money, he set out a plain observation about who really carries a tax burden. A tax laid directly on land feels harsh to the landholder, Locke wrote, because it is money leaving his pocket in plain sight; and it is exactly this visibility that makes him forward to shift it instead onto commodities, dressing the same burden up as a duty on trade or goods so that it appears to fall on someone else. Locke's point was not simply that landlords are cunning; it was that the appearance of a tax and its true incidence are two different things, and that a levy nominally placed on trade will, once prices and rents settle, work its way back to the one asset that cannot be moved, hidden, or produced in greater quantity to escape it. Simply, a tax on goods or wages actually suppresses the rents of land and creates an economic distortion lowering the productivity of the whole economy. That is the seed of everything that follows: Quesnay and the Physiocrats built their whole fiscal doctrine on it sixty years later, Smith folded it into the Wealth of Nations, and Gaffney, two centuries after that, simply gave Locke's insight its acronym and its modern proof. The ATCOR principle is now most associated with the American economist Mason Gaffney, who developed it in the late twentieth century as part of his wider defence of land value collection for mainstream public finance. The idea is that in a competitive market, most taxes levied on wages, trade or capital end up being absorbed, in the long run, by a fall in land rent rather than by workers or businesses directly. Landowners cannot pass a tax on wages upward the way a shopkeeper passes on a sales tax; instead, higher taxes on productive activity reduce what businesses can afford to pay for a given site, which reduces the site’s rental and capital value. So a tax that looks like it is falling on labour or enterprise is, over time, actually being paid for out of the pool of economic rent that would otherwise have accrued to the landowner. Gaffney used ATCOR to argue that a land value capture is not simply one tax choice among many, but is uniquely non-distortionary compared to the alternatives, since it collects directly what other taxes only reach indirectly and inefficiently, after first discouraging the wages, trade and investment they fall on along the way. Never needing to innovate againToday’s tech monopolists are gaining power and looking to collect more rents through regulation and market manipulation, maximising their unearned take. Their new monopolies will suppress land value in the future, but such monopolies still squeeze productive activity generally. All rent, be it tech monopoly or land monopoly, must be recovered by society, and Thiel’s sleight of hand must be recognised for what it is: theft of the innovation and economic health of our communities, both now and in the future. Recover the rent directly and you take exactly the part nobody earned, leaving wages, trade and genuine investment alone. That is the whole case for creating a truly better world for us all. This is the final point we all must learn that the tech bros — Thiel included — are hiding. Ask any of them what the moat is for, and they will tell you it buys freedom to keep innovating. But follow the incentive to its natural conclusion, and the real prize on offer is the opposite of innovation. It is the chance to stop innovating. Build the moat wide enough, entrench the position deep enough, and the entrepreneur’s actual ambition is to work themselves out of a job: to stop competing, stop building, stop taking risks, and simply sit on the position they’ve captured, collecting the rent it throws off for as long as nobody can dig them out. That is not the innovator’s dream. It is the landlord’s dream, dressed up in a black T-shirt on a TEDx platform. Every entrepreneur who tells you they are fighting to keep innovating is, if the moat is doing its job, actually fighting for the day they never have to innovate again. You're currently a free subscriber to Peter Smith Rewilding. For the full experience, upgrade your subscription.
|
Comments
Post a Comment