The need for such bodies was obvious at the time—trusts had consolidated market power across a wide variety of products, from steel and oil to tobacco and matches. To maintain market position, these trusts aggressively bought out or undersold competitors, bribed regulators, suppliers, and merchants, and engaged in all manner of collusion to secure price fixing cartels where a single monopolist was unable to corner the market. Enterprising journalists—known as the muckrakers—made their names exposing the depth of these trusts and the flagrant corruption that allowed them to build their empires. The response was relatively rapid. From the assassination of President William McKinley, and rise of Teddy Roosevelt, to the outbreak of World War I, ‘trust busting’ was seen as a noble pursuit for the federal government. Every president in the era engaged at least in anti-monopolistic theater, even if sometimes their efforts generated more smoke than fire.

A key tool for busting these monopolists was criminal law. Legislators defined a set of anticompetitive practices, and companies accused of this behavior could be prosecuted. Notable examples included exclusive dealing, tying the sale of products, and predatory underpricing. Companies found guilty were broken up or fined heavily, both to deter monopolistic behavior and to give an opening to potential competitors. The U.S. Department of Justice’s Antitrust Division retains jurisdiction over criminal enforcement.

America’s other national antitrust body is the Federal Trade Commission (FTC), charged with preventing market consolidations. The FTC and the Justice Department share federal responsibility for civil enforcement, jointly overseeing issues like merger review, litigation, and conduct review.

The FTC is quite clear that simply being a monopoly is not illegal. What is illegal, however, is engaging in anticompetitive practices to seize or maintain a monopolistic position. Over the 20th century, the logic of antitrust jurisprudence and enforcement went from understanding monopoly power as harmful in-and-of-itself, to seeing monopoly as mainly a problem when it can be shown to “harm the consumer.” The logic rests on the assumption that while some monopolies are a natural market outcome that is good for the consumer, the worst monopolies are the result of specific efforts to subvert markets, in order to win prices or levels of market share that would not be achievable in a competitive market.

This is as true for matches or cigarettes as it is for steel and oil, all of which were prominent 20th century monopolies. If you run a match factory, your selling price will be above your manufacturing cost so that you can make money. This leaves an opening for other firms to win market share by having a smaller profit margin. As such, you can’t get a monopoly on matches. Upfront cost of manufacturing equipment complicates this picture, but doesn’t fundamentally change it unless it becomes a dominant part of the cost structure.

In such a market, companies engage in anticompetitive practices to maintain their position—pressuring potential suppliers or buyers into exclusive contracts, for example. The FTC and the Antitrust Division of the Department of Justice have tools to identify and intervene in these cases, even if it may not do so with adequate gusto. However, it is the nature of many products to produce monopolistic markets, regardless of the behavior of the specific firms.

The existence of natural monopolies is hardly a novel realization. Regulators are well aware that in many cases, there is no good economic reason for two competitive firms to emerge. This is often because the good they are selling is ‘non-rival’—meaning that the purchase of the good doesn’t substantially impact supply. Matches are a rival good—if I buy a pack of matches, you can’t buy the same pack, and the overall quantity available for sale in the short-term has diminished. If the match factory has to increase costs to produce more matches in the short-term, other factories can step in and compete if their marginal costs are lower. So a monopoly in matches will generally require some manner of illegal anticompetitive behavior to maintain.

A train ticket on the other hand, is a rival good only when the train starts to fill up. On an uncongested line, train tickets are essentially non-rival goods. A single rail line between two medium-sized cities may be perfectly capable of handling all the passengers likely to want to move between those cities. The upfront costs of building a competing rail link are so high, and the marginal costs of adding a few more cars or locomotives to the existing line so low, that there is no reason another firm would be able to spring up between the two towns. In other words, we have a natural monopoly.

Recognizing this problem, Congress established the Interstate Commerce Commission in 1887, primarily to regulate railroads. The commission was intended to establish political control over some of the most powerful monopolistic forces of the day. The power which these monopolies exercise when unchecked are why transportation, utilities, and other apparent natural monopolies are generally heavily regulated or outright controlled by local or national governments. Attempting to build a functioning market for these commodities would be nearly impossible, as having two firms competing would require the creation of immense amounts of redundant infrastructure and would thus likely raise, not lower, overall prices faced by consumers.

However, in the most quickly growing sectors of the modern economy, natural monopolies are rising in prominence. Google is much more like a railroad or electrical company than the old monopolies centered on the production of physical products. Almost all of Google’s costs are connected to the creation of the initial research, development, and design of its search and advertising systems. If a good search algorithm, infrastructure, and dataset are difficult to create, but once created can be used by a billion individuals for nearly the same cost as it can be used by a hundred million, there is little economic logic for having multiple firms creating search algorithms. Other search engines like DuckDuckGo have to compete in niches that Google doesn’t fill, like privacy, different features, and not being Google.

Similarly, any firm engaged in the creation of digital media faces a similar cost curve. The cost of producing an operating system, video game, or even a film is nearly entirely in the initial production and marketing, and in the built-up productive infrastructure and intellectual property rights, again meaning that competing with an established firm on their turf is exceptionally difficult.

The results are easily visible in the markets. Apple and Google control almost the entire market for smartphone operating systems, three firms control a majority of console gaming revenue, and Disney earned nearly 40% of total film industry revenues in the United States since 2000. Even firms producing physical products—like automobile companies or device firms—have concentrated their efforts on the parts of their business that are the most amenable to natural monopoly formation. As such, fewer corporations are earning most U.S. profits. In 2016, 28 corporations together earned half the profits of the entire S&P 500, and nearly every sector is more consolidated than it was a few decades ago.

Of course, there are many small and medium-sized enterprises still operating in the U.S. Indeed, many of these larger firms depend on these smaller firms—smaller manufacturers that create the component parts of many of these products, or even the products themselves, as well as contractors, merchants, franchisees, etc. These firms in many cases compete with one another. Coca-Cola benefits from the low prices that result from competing bottling companies (producing a rival service), which allows even greater margins for their core business: branding and developing new formulas—the non-rival components of the business. Apple can take bids for various components of their iPhone and keep manufacturing costs to about a third of their overall sales price, thereby deriving their major profits from branding and design.

There is nothing illegal about this. It’s simply making savvy use of different market structures to maximize profit. Even when a crime may have been committed in forming these monopolies, or in using it to force entry into other markets, the burden of proving it may be far too much to handle. The FTC has an annual budget of around $300 million. By contrast, these large corporations report profits in the billions, per quarter. Taking such a corporation to court on an issue that strikes at the very heart of their profit engine is an incredibly expensive undertaking.

Regulating mergers to prevent the creation of these megacorporations runs into obstacles quite quickly. It doesn’t prevent companies from organically growing to immense size, or from pre-emptively swallowing up competitors while those competitors are still small enough to slip under the FTC’s authority. And in practice, it doesn’t even prevent some anticompetitive mergers like Facebook’s purchase of Instagram.

But a more fundamental problem cuts to the heart of monopoly power’s advantages: some markets tend so strongly towards consolidation that firms that can’t grow to immense size simply perish.

Google never had to purchase the myriad search engines they were competing with. They simply had to outperform them, and the nature of its business was such that it could rapidly grow to take on customers without increasing the marginal cost. At this point, another firm sinking billions into coming up with an algorithm and network effects to match Google may require an enormously inefficient replication of economic resources. This is the weakest point in the American state’s current legal and political frameworks for governing monopolies, and the one which requires the most systematic rethink of the technological power of these monopolies is going to be properly harnessed.

What are the implications of this trend for governance? Simply put, the current antitrust model may not address the whole problem. When firms can replicate their ‘product’ a million or a billion times for minimal extra cost, firms can easily establish monopolistic or oligopolistic positions without participating in any anticompetitive practices, at least not on a scale that is provable in court.

The large economic and financial power that comes with the natural monopoly position can then be used to subsidize entry into other markets. For example, Google’s smartphone market share could not have been achieved without the search and advertising monopoly cash cow to back the project financially. These activities could be considered anticompetitive, but under the current regime they are not.

Monopolies in these sectors of the economy are a natural tendency that should be treated as a relatively normal part of the economy, albeit one that requires special regulation, like the sort we already apply to other natural monopolies.

What are the options? One, of course, is nationalization. Outside of the U.S., this has been frequently applied to sectors of the economy lending themselves to natural monopoly. Just as rail, electricity, and telecoms have frequently been nationalized in other countries, functions like internet searching engines and social media could also be. However, this may require more state capacity than we have. Currently, the institutional expertise for governing large nationalized industries is low. The extreme factionalism of U.S. politics may also provide too great an incentive for politicians to treat nationalized entities as vehicles for short-term patronage.

Another, more feasible option is to treat such monopolies like utilities. The logic for this decision is simple: having judged the benefits of monopolistic power to be advantageous, the state nonetheless acts to ensure that these benefits are not simply privatized. Abuses of market power must be regulated against, and the freedom to take risks and innovate properly used. If high market power translates into nothing more than lazy stagnation and executive bonuses, then it is useless. If it translates into throwing enormous financial power around to expand the monopoly into other markets, in some cases it may be harmful.

Effectively regulating technology infrastructure monopolies as utilities, however, requires an expanded understanding of who is impacted by market consolidation. Current monopoly policy has a sole focus on the costs to consumers alone, ignoring other metrics like wages or innovation. By this logic, a monopolistic firm with in-house supply chains located in China, which produces little by way of groundbreaking research, would be an American economic success story—provided only that its products had the lowest possible cost.

Highly concentrated markets tend to reduce not only the number of sellers of a good, but the number of buyers for goods it uses. This is particularly true for labor: as few tech companies dominate the market, there are also fewer employers for programmers and similar careers. Silicon Valley companies have already been found illegally colluding to lower wages, but any standard economic theory holds that even with free competition between firms for employees, wages are going to be inefficiently low in an economy with high levels of monopsony power.

The distinction between consumers and producers, moreover, becomes increasingly difficult to maintain with a platform business, like YouTube. In this case, the same individual may partner with YouTube to produce content, consume other people’s videos, and advertise their own content on the platform. As Chris Gillett has pointed out, one way Amazon has avoided creating too much political resentment is by focusing on providing a stellar consumer experience. Gillett notes that Amazon does this not only with its prices and service, but by a similar confusion of roles: “many of those adversely affected by Amazon in one capacity benefit from it in another, [and] this throws a major wrench into the state’s task of deciding how to deal with its growing power.” Widening the definition of who has a legitimate grievance to bring against a monopolist is critical to adequately regulating this problem.

So, states which seek to govern monopolies must refine the definition of who is a stakeholder.  Not only consumers, but also employees, competing firms, and vendors who deal with monopolies need to be considered when assessing if the size of a firm necessitates a specialized response. Moreover, the state itself is a stakeholder—if very large firms threaten the freedom of state power, action must be taken. Amazon and other tech giants which take on work contracting for the government are major examples, especially in Amazon’s HQ2 campaign, where it extracted concessions from multiple municipalities to house its new office. Having too few and too big firms dealing with the government gives them too much negotiating leverage against the public interest. Firms in a position to wield editorial power over the public conversation, like Facebook and Twitter, threaten the ability of the state to commit to freedom of speech. The appropriate action will depend on determining what the sources of a firm’s monopoly position are.

One of the most challenging components of these enormous firms is the control of property-producing monopolies. Apple, Disney, and Google all control specific intellectual property—both copyrights and patents—that allow them to exert monopoly power by preventing competition against future products as well as present ones. A major advantage of this is the tax advantage to holding international property. Not only is it untaxed by local authorities, unlike basically any physical property, it is easy to move around and register in different jurisdictions and with subsidiary companies. Apple came under fire for doing exactly this with its Irish subsidiary until recently, to avoid income taxes.

The effect of property itself, especially intellectual property, as a type of monopoly is particularly salient when looking at these firms. If Apple holds a key smartphone patent, for example, it can set its price to license it out. That price will likely be higher than is socially efficient, because there are no competitors offering the same license; as a result, fewer firms will pay to use it, and the overall efficiency of the economy is diminished due to this ‘hold out’ problem.

Economist Glen Weyl’s proposal for a tax based on a self-evaluated sales price for such monopolies, at which the owner is thereafter compelled to sell the monopoly right, seems particularly appropriate for these cases. This tax would deal with the holdout problem by requiring that registered property be self-assessed in value. Firms would then pay a percentage of that value as a tax. Market discipline forces them to honestly disclose their true valuation of ownership rights: the obligation to sell if offered their stated price prevents undervaluation, while the tax on the same value penalizes them for overvaluation.

If firms faced the possibility of a mandatory sale of their intellectual property, they would likely be much more open to licensing it. This would open the possibility of greater competition while also spreading technological advances more rapidly. Both of these mechanisms allow for greater economic efficiency and less wasted effort in the creation of redundant technologies and in litigation over patents. But insofar as this ownership grants legitimate value, particularly in terms of gains from research and innovation, companies would be able to take advantage of it—and be properly priced for the privilege of doing so. By employing a legal framework based on understanding the value of property as a mechanism and the incentives of large firms, the state can both harness the power of intellectual property and pre-empt their stagnation. If another firm were able to use the intellectual property rights to a certain technology more profitably, they could gain control of it.

Apart from the benefits of property as such, monopolies are abetted simply by the massive amounts of cash that certain firms can accumulate. Temporary natural monopolies—like those gained by inventing a key technology or marketing a revolutionary product—can be converted into something like corporate dynasties, where the cash flow from previous products is used to quickly buy up any competing products and either incorporate or smother them. The top 10 cash-rich firms in the U.S. currently hold liquid assets worth $721 billion dollars. By comparison, total annual U.S. non-defense discretionary spending stands at $700 billion. At some point, this sheer amount of cash becomes a threat to the proper functioning of the market and state alike.

Simply put, that amount of disposable cash makes firms difficult to regulate and prosecute, as they can retain legal resources far in excess of what the government can pit against them. And it’s not clear that their ability to buy start-ups is always economically efficient. While they may scale up new technologies at times, in many cases truly disruptive technologies or products are underdeveloped when they are owned by the exact firms they would disrupt. Reducing firms’ ability to accumulate such an enormous amount of liquidity may require a direct tax on the revenues of the largest firms in monopolistic or oligopolistic markets. Natural monopolies are effectively private rights to extract rents from the economy. Taxing these rents by some means shifts the tax burden off of more efficiently productive work, diminishes the incentives for cornering the market, and reduces the ability to accumulate too much cash. Of course this must be balanced with the value of private earned wealth for investment, and the financial incentive for innovation, which often creates new monopolies.

Finally, there are some firms, like Amazon, that are near unassailable because of their sheer scale. This scale is part of their unique value as well: it allows them to provide lower prices and greater selection to their customers.  Breaking up Amazon into several competing firms, therefore, may help its vendors and competitors, but would almost certainly raise prices, as the smaller resulting companies would lack that critical scale and have more redundancy. But also, Amazon’s division structure preempts the effectiveness of a breakup if it should occur. Amazon’s Internet retail empire, it would seem, is a natural monopoly. The advantages of scale are too great to replicate at a smaller scale.

As such, large platform companies are becoming political actors in which states have significant interest. Weakening their capacity seems to be a doomed endeavor, undermining not only the company but even the interests of the state which pursues this strategy. In such a case, the FTC’s common approaches—fines and break ups—can do little good. Instead, the firm needs to be governed more like a utility, common carrier, or some new category of natural monopoly understood to be semi-public infrastructure. Just as a power company is regulated in how much profit it can earn, how it must treat its customers, the kind of environmental impact it must strive for, and what additional businesses it can participate in, such a regulatory system is needed for Amazon and other large firms that compare to it in size. A competent regulatory structure must be able to referee the claims of consumers, employees, vendors, and the state, and ensure that the inevitable scale of these natural monopolies is not used to unfairly disadvantage other stakeholders.

Our current FTC, Antitrust Division, Department of Commerce, and other government departments are of course inadequate to the task of applying this paradigm. They don’t currently have the competence to assess various claims by stakeholders, and how those interests can be coordinated with each other, with national interests more generally, and with interests of state. Nor is there any politically realistic path by which they could gain these capabilities in the short term.

They would need to operate on a strategic vision for the economy. Just as a committee regulating a utility needs to set the metrics for success by how they contribute to a long-term plan, those charged with regulating monopolies must direct these megafirms to ends that are beneficial to the U.S. as a whole.

Gaining the ability to strategically direct the largest firms and the economy overall will require a systematic study and application of how countries with more robust forms of state capacity have managed monopolistic firms. To quote Ben Landau-Taylor and Oberon Dixon-Luinenburg’s article on lessons from the machine tool industry: “coordination among the economic power centers of American society must be reestablished to rebuild the engine of creation.”

In the current period, no less than the industrial revolution, the state has a responsibility to direct the economy so as to ensure that we retain access to important technologies and industrial capacity. As AI, energy technology, and other sectors enter into a new era, it will be more important than ever to ensure that the massive companies that dominate the U.S. economy, which may be at the cutting edge of these tech revolutions, are accountable to the interests of the country as a whole.

Increasing the institutional and legal competence of the Commerce Department and other relevant bodies, or their successors,will not come overnight. It would require funding, staffing, and research in order to create a body that can start to understand and quantify the immense and complex firms it is charged with regulating. This would require statutory changes, of course—expansion of the FTC’s authority to implement monopoly governance even in cases where no wrongdoing has been proven, and more political will to enforce current legal tools against monopoly empires.

But first we need a new consensus for how monopolies are governed. As long as governments are limited to regulating mergers or to criminal prosecution of the worst abuses of monopoly power, they’ll be several steps behind the most powerful and profitable corporations, and the economies they are supposed to be managing will suffer as a result. Moreover, they will risk clumsy and reactive approaches to regulating monopoly power which could end up gutting American technological power altogether.

The biggest monopolies in need of regulation are in many cases household names enjoying considerable consumer goodwill. They have access to enormous material, legal, and rhetorical resources. No casual or half-baked approach can be taken to regulating them. For an agency or regime to gain the political capital to properly govern these corporations, it would need to carefully build broad public and elite understanding of the issue of monopoly power. It would also need careful negotiation with the firms in question to ensure their relative cooperation.

Rather than idealized heroes of humanity or caricatured villains, monopolies and the people who run them must be understood as a natural consequence of certain markets. Their regulation is a natural matter of state.

I remember, after having come down from the country, sitting on Christmas eve in the gallery of the old American Theatre, among the gods, when a new drop-curtain fell, and we all sprang to our feet, for on that curtain was painted what was then a dream of the far future, the overland train coming into San Francisco.

The completion of the railroad was poised to connect the city to the rest of the country, promising to stimulate even greater development. Many correctly believed that it would transform San Francisco from a gold rush outpost to one of the top metropolises of the country. However, even in the midst of this excitement, George foresaw the limits on who would benefit:

[A]nd after we had shouted ourselves hoarse, I began to think what good is it going to be to men like me? those who have nothing but their labour? I saw that thought grow and grow; we were all—all of us, rich and poor—hoping for the development of California, proud of her future greatness, looking forward to the time when San Francisco was to be one of the great capitals of the world; looking forward to the time when this great empire of the West was to count her population by millions, and underneath it all came to me…What about the masses of the people?

What about them? They are members of the community, and their work and social value are what makes the value of the city. But they don’t get a larger slice of the pie when it grows; they don’t own any share of the common venture of the city. In fact, they have to pay rent for their share, so when the city grows, any gain in quality of life or economic position comes right out of their paycheck and into the landlord’s pocket. Even a small business like a restaurant sees much of its gain slurped up into competition for space. Most of the gain goes to passive landowners, who didn’t even have to do any work for it. There’s an incentive problem here and a misallocation of everyone’s resources.

The growth of the digital economy centered in San Francisco is an event to match the scale of the arrival of the railroad. In the world of technology, the city is one of the great capitals of the world; the population just of the Bay is in the millions, and the Bay’s hinterland reaches to tens of millions. But activists, analysts, and residents are still asking George’s question: what about the masses of people? While median incomes may be higher in San Francisco than elsewhere in the country, housing costs eat up much of the difference—while household income is 65% higher than the median in the U.S., rents are 78% higher. The city and the counties around it are running up against an old problem, one which has not been alleviated by the dramatic economic changes—that of land, and the hard limits on its availability within traveling distance. This scarcity has expressed itself as astronomical rents and a seemingly intractable homelessness problem, even in the midst of some of the fastest economic growth in the world. And as much as the city prides itself on bringing about the future, the truth is that it’s been wrestling with this same problem for over a hundred years.

George himself predicted that increased economic prosperity alone would never fix San Francisco’s socioeconomic ills. In 1879, when the city was still much less developed than the Eastern seaboard, he wrote: “When San Francisco reaches the point where New York now is, who can doubt that there will also be ragged and barefooted children on her streets?” Today the Bay Area bears out this prediction. The only missing part is the children, ragged or otherwise. Given the persistence of the problem and its consistent nature, it is worth examining the explanation George offered and the solution he proposed.

This brings us to the more immediately practical element of governance: policy.

Policy discussion is usually terrible for a simple reason. For the average person, policy discussions represent bloodless statistics, disembodied proposals, and an infinite scroll of historical trends and qualitative analysis. In other words, they seem disconnected from the actual experience of life. Daily work, families and houses, and the flowing currents of warm bodies that make up a city in which a person actually lives seem to exist in a different universe.

This disparity did not exist for Henry George when he was living in San Francisco as it began its ascent. His discussions of land, tax, and resources were inseparable from a vision of cities as engines of wealth, shared in by the same people who created it. As a result of its focus on land, George’s proposals demand the perspective of building up a city or even a country. It restores policy as real decision-making, which animates the lives of families, workers, communities, and cities. As San Francisco and many other cities endure the barriers foreseen by George, the same discussion offers the chance to re-center the life of the city as the object of policy.

George began his work by identifying a flaw in the dominant economic models—classical and Marxist—and, by extension, in the decisions of those governing the development taking place around him. Building on work by David Ricardo and John Stuart Mill, these paradigms treated land like any other form of capital. However, unlike factories or railroads or any other physical capital, no matter how high the rental price of land rises, no more can be brought to market. As Mark Twain put it, “Buy land, they aren’t making any more.”

Since land doesn’t respond to the normal incentives that encourage the creation of more capital or labor, it requires more careful stewardship than capital or labor to achieve efficient use. The results of the lack of this attention to land are visible everywhere but are most critical where land is in the highest demand. Valuable land is used inefficiently or not at all, sunk costs and landowner resistance make it difficult to change that use even when the inefficiency has become obvious, and physical restrictions make it nearly impossible to bring new land to market to replace it. For a city to develop, land must be put to denser and more intensive use, or it will be stuck with sprawl, high rents, and limited growth. Achieving that development, given the constraints of limited supply, sometimes requires a more deliberate approach to growth.

This is exactly the struggle facing San Francisco today.

The best way to bring about this more careful stewardship within a market economy is to change the incentives embedded in our tax structure and the barriers in zoning and codes. San Francisco is a perfect place to start. All policy requires a subject, a determined goal-seeking actor for whom that policy is crafted and by whom it is executed. Let’s imagine a hypothetical San Francisco city government, full of energy and confidence with a political mandate to truly govern, which was gunning for the city’s rejuvenation. Such a government could take strides toward its goal by transitioning from sales and property taxes to land value taxes. Under a land value tax, the city essentially charges a community fee for the exclusive occupation of a plot of land. A land value tax differs from the familiar property taxes in that it disregards the improved market value of the land through buildings and such and instead assesses the tax burden as if it were an empty plot. The overall goal is to encourage more economic development of land without penalizing that development by taxing the improved value.

“But,” the skeptical voices of San Francisco’s leadership would likely inquire, “what incentives have you changed? Show us the mechanism!”

For George himself, the justifications were philosophical as well as economic. He adhered to a liberal tradition, which tied in property to the virtue of labor put into its creation. Since land is not created by human labor, property in land cannot be justified by those same arguments.

But whatever one’s views on this tradition, there is a strong economic logic to fall back on. There is little question that individuals respond to incentives and attempt to avoid taxes. As such, taxes on windows reduce windows, taxes on cigarettes aim to reduce smoking, and so on. With the exception of taxes levied specifically to reduce the prevalence of a particular consumer choice (called Pigouvian taxes), this change in consumption in response to taxation is referred to as deadweight loss. Naturally, however, the quantity of land in a given jurisdiction, unlike the quantity of labor or improvements, cannot change, and thus, deadweight loss is avoided.

Another result of this unchanging quantity of land, referred to in economics as inelasticity, is that the burden of taxation lies almost entirely with the owners of land and not with renters. When a tax appears to raise the price of a good—as with cigarettes or gasoline—it is the result of less of the good being produced. After all, if producers could sell the same quantity of gasoline for a higher price, they, of course, would—but the ability of their competitors to undercut them limits the potential prices. The rise in price associated with a tax occurs as the tax levied increases effective production costs and creates a supply shock, reducing the overall quantity of the goods supplied and raising prices to reflect that lower quantity.

With land, on the other hand, a tax cannot produce a supply shock; the supply of land is fixed. If the market for land will support a $25,000 yearly rent for a plot before the tax, it is because that’s the price where the quantity supplied and quantity demanded are equal. After the tax, the quantity supplied has not changed, so the equilibrium point of supply and demand will remain at the same price. The price may even decline as landlords opt to put more rental space on the market to cover the tax, increasing supply. In this way, a tax on land is quite unique and functions differently than a tax on buildings, rentals, or any other asset that can be created or destroyed by normal economic processes. While the nominal value of the land may fluctuate and be impacted by taxes, the real quantity is static.

This logic in and of itself does not fully justify a policy. It only outlines a possible tool that can be wielded by those in the position to govern. The context in which someone wields it and the goals for which it is used—these elements, altogether—create the real policy.

But for a government with the goal, means, and authority to make San Francisco into the engine of innovation and wealth that it should be, the tool is incredibly powerful. By the power of incentive, the land value tax removes a number of barriers that currently undermine the development of beautiful, livable, and environmentally friendly communities.

Several shifted incentives would bring about this outcome. First of all, there is a transfer of wealth from detached, low-density homeowners to higher-density apartment and commercial landlords, as they now pay the same taxes, but the latter get more rental income. This immediately produces an incentive to either build higher-density buildings and find higher-density uses for existing buildings or sell to developers who will. Of course, this only works if the costs and legal barriers to building are low enough not to be prohibitive. But those barriers, like building codes, zoning, NIMBY vetocracy, and rent control, would also have to be tackled for a complete developmentalist program. Our hypothetical developmentalist city government would have to deploy more tools than just the land value tax to find and break through every barrier to development. But the land value tax and its intended behavioral changes are a powerful foundation and guiding intention for those secondary policies to build on.

This real-world complexity of the behavioral structure of society is part of why armchair marginalist policymaking can’t actually produce desired outcomes on its own and why policy discussion has that strange detached feeling to it: there are always many barriers to any particular change, some hidden. Real change has to be pursued by a persistent and powerful agency, not just one-off policy recalibrations. The intention and capacity to govern is a more important determinant of desirable outcomes than any given policy tool.

Second, the land value tax would represent a transfer of wealth from landowners to renters through the increased density of housing supply that it would stimulate. Renters who now spend, in many cases, over 50% of their income on rent would suddenly have much more disposable income. When a single cost looms that large in people’s cost structure, even relatively small changes can have large effects. That disposable income would translate into wealthier, more livable communities and higher economic viability for local commerce and services. Further, a land value tax would decrease the value of land as a passive speculative investment, which would have the effect of reallocating capital to more productive purposes and partially mitigate the asset inflation problems that make home ownership inaccessible to younger buyers. Again, this serves the goal of a more flourishing and livable city.

Land is underused in San Francisco. To secure its future development, the city has to change the incentives surrounding land and capital use. For every development project, the land value tax incentivizes the investment of more capital in order to use less land over time. Space-saving construction—like underground instead of surface parking, extra stories on buildings, and the like—typically costs more upfront. In the current tax code, where assessments are based on full improved value, these sorts of developments carry a heavier annual tax burden. In San Francisco, the last sale of the property is used to assess its value, plus a maximum yearly increase of 2%, and that value is taxed at 1.18%, regardless of which portion is land and which is improvements. However, the San Francisco County assessor estimates the total land stock in the city to be $110 billion, nearly half the total property tax role. Therefore, a 2.5% land tax could entirely replace the current property tax.

Shifting to a land-based tax system would encourage developers and remodelers to put more money into the initial construction of their buildings in order to get as much value as possible out of a smaller space. Tall buildings downtown and dense neighborhoods like Chinatown and the Mission District would see savings, while Sunset and other neighborhoods dominated by single-family homes would see an increase in taxes. I did some calculations using data available from the city to estimate the changes. Of a few sample properties I looked at, the biggest savings were in a block in Chinatown, which would pay 43% less. In Clarendon Heights, on the other hand, taxes would increase by 48%.

This would obviously be an immense shock to many neighborhoods, and the best approach would be to gradually phase in the changes and potentially offer deferrals for homeowners on fixed incomes who were hit harder by these taxes. As time passes, however, we could expect that neighborhoods would evolve to get more use out of each expensive square foot. If zoning allows, the single-family residential neighborhoods would be nudged to evolve into the sort of mixed-use neighborhoods common in the Mission District or Chinatown, two-to-five story buildings predominating and commercial and residential uses nearby one another, ultimately making more walkable, less automobile-oriented neighborhoods. And it is likely that zoning will follow—as landowners start to pay by the square foot, they can be expected to start lobbying for more freedom to make use of their limited space. Shifting the incentives of landowners is perhaps the most important outcome of a land value tax, as it would better align their interests with those of renters since both would benefit from more capital investment and densely utilized land.

But you can’t talk about changing tax assessments without talking about how that would actually work. The current system is a mixture of legislated rates and mechanisms and some discretionary assessment power by the office of the assessor. Changing that would be a difficult coordination and legislation problem under the current system. The ideal outcome would be, again, a mixture of transparent and easy-to-compute mechanisms and some discretionary judgment. The task of actually making that change would involve considerable study of the problem, including the details of what the city bureaus are actually capable of and some institution building. As such, it is again not the domain of bloodless policy knob tuning from the sidelines but of a competent, powerful, and determined government grappling with the problem in an active way.

The density that would result from this kind of policy isn’t an end in itself. Its first and most obvious major effect is increased housing supply, leading to some combination of lower rents and higher population, and in turn, supporting more productive activity overall. It’s also a tool for re-imagining the city—its built environment and its flow of life. And there is an explicit vision of the city that predominates here. Density is the large-scale effect of a city organizing its environment to prioritize homes, transport, workplaces, and public green spaces. It prioritizes a greater number of people having access to the necessities of life and building families, rather than only that proportion able to purchase or rent single-family houses with an insurmountable price tag. An especially important goal is bringing workers and jobs closer together. If every individual has more jobs within a given commuting distance, they are more likely to find employment that meets their financial and lifestyle needs. If a given location where a job is has more nearby housing supply at lower rent, again, it is easier to choose a walking commute. This is a major reason why increasing density in cities is associated with increasing economic mobility.

It’s a common trap to think about policy decisions as merely responding to the data provided by markets in labor, real estate, and the like. But in fact, these markets lie downstream of law, policy, and the city’s built environment. Most companies are choosing cities based on the environment they provide. Historically, this becomes especially transparent when the world’s largest companies encourage large cities to court them, as Amazon did when it pushed cities to try and out-compete each other to become the location of Amazon HQ2.

When considering markets as downstream phenomena, it becomes obvious that big cities have leeway in choosing which markets to encourage. Markets are tools, not states of nature. For example, small-and-medium-sized enterprises (SMEs) depend on reliable, low-barrier legal institutions and markets for demand and labor supply. Since they often operate on lower profit margins, these changes can often determine whether or not they operate at all. While many small towns have seen their SME sector hollowed out and out competed by the country’s Walmarts, cities provide a much more sustainable environment for SMEs to operate in. By encouraging a built environment that lets SMEs, employees, and customers live closer to each other, San Francisco could diversify the sizes and sectors represented in its economic life, as well as increase the capacities of the larger tech players that call the city home.

From the perspective of city government, greater density also means it is easier to provide city services. The cost of city services like roads, water, and even fire departments and police is dependent not just on population but on the physical distances involved. A less dense city requires more per capita spending on pipes and roadways, and requires more fire and police stations than a denser one providing the same services. This is one reason why more densely populated cities typically are more efficient at providing city services. A study published in the Government Finance Review in 2015 found, unsurprisingly, that “communities realize savings from the spatial efficiencies created by more compact development (higher densities) and the ability to make use of existing infrastructure when growth follows an “infill” strategy” of increasing the area available for housing and businesses within the existing boundaries of the city.”

In other words, cities should view density as not only a social and economic benefit but also as budgetary savings when it comes to growth. The same level of growth will be easier to service in a higher-density city. As city residents use more and more land, they stretch city budgets and require more spending on city services. Tying local taxes to underlying land value, not property value, ensures that the city can properly absorb the costs of this kind of growth when it does occur; denser growth will be more concentrated in the municipal core and require less expansion of transportation and services This density is also a tool for ecological stewardship: denser cities permit lower per capita carbon use, less paved area per person, and greater preservation of habitats and open spaces. This is already visible in San Francisco: Sunset and Richmond districts produce around 40 metric tons of carbon emissions per household, while the densest zip codes produce fewer than 30 metric tons.

While San Francisco is currently a disaster when it comes to public order and cleanliness, a city government that explicitly sought to create safe and family-friendly public green spaces would ensure that density is not only economically and environmentally friendly but creates neighborhoods full of life and social connection.

A developmentalist city government would have to counter opposition to both the land value tax itself and the density which it is used to achieve. The above focus on social and green spaces helps to alleviate one of the major anti-density concerns: that density itself will be burdensome and unpleasant. This response is visceral—the metaphor of packed sardines is frequently invoked, and at the mention of residential density, Americans especially start to imagine either 19th-century tenements or dystopian sleeping tubes. This is a falsehood in and of itself: the total amount of living area in a denser development can, in fact, be greater than in a less dense one because taller buildings and more efficient parking allow every square foot of city space to host two or three square feet of offices, apartments, or shopping.

But the fact is that the forms of density and the experience of it are themselves downstream of policy. Just as the land value tax is a tool to create density, density itself is also a tool to create a great and prosperous city. It should not be taken as an end in itself. One simple policy is to allow ultra-localized voting controls over the type of building projects that occur, with supermajority voting to ensure that a single objector does not stall the process.

A denser city seems worse for automobile transportation, but it gives rise to opportunities for a more socially and environmentally healthy transportation system. As people live in denser areas—and more mixed-use ones—they tend to use automobiles less frequently or forgo owning them entirely. The hassle of starting and parking a car simply isn’t worth it for most people taking short trips, and the percentage of trips that are short is much greater in a high-density, mixed-use development. This less frequent travel can actually translate to less congestion as density rises. This not only reduces the environmental impact of cities but also provides numerous health benefits, both to those who now forgo driving in favor of more active options and to everyone breathing the air in the city. The social benefits of more regular face-to-face contact with neighbors also cannot be discounted.

But the greatest obstacle to unleashing San Francisco’s productive energies and to building a city in which families can live and thrive is not simple policy objections. Rather, it’s the massive coordination problems that beset most of California’s state and city politics. Making these outcomes possible requires coordination among many stakeholders: California would have to reduce the scope of Prop 13, the voters of San Francisco County would have to agree on a billion-dollar change to their tax system, and zoning boards would have to react in a timely manner to allow land use to change to reflect the new system.

It’s difficult to see how San Francisco could get the job done by itself without support from the state level and even the federal level. Ideally, the different levels of government would be united on what is needed to build the future of American cities—at the very least, they wouldn’t get in each other’s way. But if the city were able to employ the land value tax and achieve the reforms discussed above, it would be a milestone in the city’s life. A strong precedent would be set for recognizing the nature of land as a commons in law and in the tax code. Moreover, it would do so in a way that balances the collective stewardship of a commons with the autonomy of residents. The taxation needed to cover public costs would focus more on the use of common resources and proportionally less on the real proceeds of individual labor.

A city government that understands that these markets exist downstream of policy and higher-level coordination would escape one of America’s most fatal governance traps. Cities from San Francisco to Detroit have hollowed out as governments have shrugged their shoulders, using the ‘realities’ of the market as an excuse for inaction. If one of America’s greatest cities proved this to be no more than a convenient fiction, it would be increasingly difficult for other cities—not to mention state and federal governments—to excuse their political sloth. Indeed, those who successfully carry out such policies at the city level would likely gain tremendous opportunities at these higher levels.

Reformers are often accused, not always unfairly, of ignoring the reality of individual wants and needs in favor of an idealized vision of society that fits their policy but bears little resemblance to actual conditions. A Georgist land value tax isn’t like that. It starts with two facts. The first is the finitude of the land in San Francisco; the second is the power of well-aligned incentives. The land value tax brings policy in line with reality. But in doing so, it doesn’t limit the city’s potential—it unleashes future growth. It does not force residents to subsume their own good for that of the collective but instead rewards the efficient use of community assets.

From the perspective of city government, using a land value tax as a structuring framework for a larger initiative for densification and rebuilding represents a shift away from technocratic policy-mongering. Contemporary American governance is plagued by a surplus of grifters, offering a disparate array of optimizations, marginal improvements, and success metrics. This is policy done by wonks, not visionaries. San Francisco must have a clear and bold vision of what it must become. Policy should be the result of reverse-engineering that outcome to figure out the path to success. A prosperous and growing metropolis demands density and its benefits, which in turn requires that the fixed land supply be properly managed. The land value tax is the right approach, as Henry George foresaw generations ago.

Such a change would fuel the city’s future growth and incentivize the heights of civic achievement. More importantly, it would ensure that all San Franciscans stood to gain from the realization of this potential. That is a city worth building.