Henry George: Political Ideologue, Social Philosopher and Economic Theorist (Studies in Economic Reform and Social Justice)

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Henry George: Political Ideologue, Social Philosopher and Economic Theorist (Studies in Economic Reform and Social Justice)

Studies in Economic Reform and Social Justice HENRY GEORGE: POLITICAL IDEOLOGUE, SOCIAL PHILOSOPHER AND ECONOMIC THEORI

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Studies in Economic Reform and Social Justice

HENRY GEORGE: POLITICAL IDEOLOGUE, SOCIAL PHILOSOPHER AND ECONOMIC THEORIST Edited by Laurence S. Moss

Henry George: Political Ideologue, Social Philosopher and Economic Theorist. Edited by L. S. Moss © 2008 the American Journal of Economics and Sociology. ISBN: 978-1-405-18751-0

The Series Studies in Economic Reform and Social Justice

Laurence S. Moss, Series Editor Robert V. Andelson, ed. Land Value Taxation Around the World, 3rd edition Critics of Henry George, 2nd edition, volume 1 (2003) Critics of Henry George, 2nd edition, volume 2 (2004) J. A. Giacalone and C. W. Cobb, eds. The Path to Justice: Following in the Footsteps of Henry George Christopher K. Ryan Harry Gunnison Brown An Orthodox Economist and His Contributions Philip Day Land:The Elusive Quest for Social Justice, Taxation Reform and a Sustainable Planetary Environment Laurence S. Moss, ed. Natural Resources, Taxation, and Regulation: Unusual Perspectives on a Classic Topic Laurence S. Moss, ed. Henry George: Political Ideologue, Social Philosopher and Economic Theorist

Studies in Economic Reform and Social Justice

HENRY GEORGE: POLITICAL IDEOLOGUE, SOCIAL PHILOSOPHER AND ECONOMIC THEORIST Edited by Laurence S. Moss

© 2008 by the American Journal of Economics and Sociology 350 Main Street, Malden, MA 02148-5020, USA 9600 Garsington Road, Oxford OX4 2DQ, UK 550 Swanston Street, Carlton, Victoria 3053, Australia All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, except as permitted by the UK Copyright, Designs, and Patents Act 1988, without the prior permission of the publisher. First published 2008 by Blackwell Publishing Ltd. Library of Congress Cataloging-in-Publication Data has been applied for. A catalogue record for this title is available from the Library of Congress. Set in 10 on 13pt Garamond Light by SNP Best-set Typesetter Ltd., Hong Kong Printed and bound in Singapore For further information on Blackwell Publishing, visit our website: http://www.blackwellpublishing.com

Dedication To the Memory of Robert V. Andelson For his many contributions To our understanding of the ideas of Henry George

Contents Editor’s Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix IDEOLOGY AND POLITICAL PARTIES Henry George’s Political Critics—Michael Hudson . . . . . . . . . . . . . . . 1 GEORGE’S IDEAS IN DEBATE Henry George, Emile de Laveleye, and the Issue of Peasant Proprietorship—Jerome F. Heavey . . . . . . . . . . . . . . . . . . . . . . . . 47 Frank H. Knight’s Criticism of Henry George—Ross B. Emmett . . . . . 61 SOCIAL PHILOSOPHY Apprehending the Social Philosophy of Henry George— Charles R. McCann, Jr. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 CONCEPTUAL DEBATES REGARDING LAND AND RENT The Marginalists Who Confronted Land—Fred E. Foldvary . . . . . . . . 89 Keeping Land in Capital Theory: Ricardo, Faustmann, Wicksell, and George—Mason Gaffney . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 COMMUNICATIONS Comment—Mark Perlman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149

Editor’s Introduction Robert V. Andelson died on November 8, 2003. This was only weeks after he had carefully reviewed and submitted the second, expanded edition of his master work, Critics of Henry George. As had been the case in the first edition, various scholars were assigned the job of reviewing debates between Henry George and his army of critics. In the second edition, several chapters were revised and rewritten and, most significantly, new chapters were added. The revised edition was included as part of our Studies in Economic Reform and Social Justice feature of the American Journal of Economics and Sociology as volume 62:5 in 2003 and volume 63:2 in 2004. It is also available in a hardcover two-volume book edition with an index, by way of Blackwell Publishers. Altogether, Georgist scholars have cause to celebrate. But with the passing of Robert Andelson, what forms should this celebration take? The Editorial Board of the AJES decided to encourage academic sessions at future academic conferences, thereby honoring Andelson. He would have been delighted by the interest in his scholarly work. The first session was held at the Eastern Economic Association meetings in New York City on March 5, 2005. Those sessions attracted papers by Charles R. McCann, Jr., Jerome Heavey, Ross Emmett, and Michael Hudson. The eminent and now also recently deceased editor and author Mark Perlman sent in some laudatory comments about the Andelson session, which I have included as a communication to this volume. Mark Perlman passed away on May 3, 2006, and his writing remains in the form that he originally sent. The following year, at the June 2006 meeting of the History of Economics Society at Grinnell College, another session produced some path-breaking work on Henry George’s rent theory. One important paper on the influence of George’s ideas on economic theory was by Fred F. Foldvary. That same session also included Mason Gaffney’s paper urging economists to keep land and its valuation as part of capital theory, and not as a topic completely submerged in which land and rent has disappeared from view. American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

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It is not clear whether we have entered the age of a “Georgist revival” in economic reform and the proverbial quest for social justice. I do think that this volume and others like it will promote this development but, as Ludwig Lachmann warned, the future, while unknowable, is also imaginable. Can we imagine a reworking of the entire theory of capitalism based on the idea of Georgist monopoly rents? Alternatively, does a Georgist perspective offer hope for piecemeal policy reforms?

IDEOLOGY

AND

POLITICAL PARTIES

Henry George’s Political Critics By MICHAEL HUDSON* ABSTRACT. Twelve political criticisms of George were paramount after he formed his own political party in 1887: (1) his refusal to join with other reformers to link his proposals with theirs, or to absorb theirs into his own campaign; (2) his singular focus on ground rent to the exclusion of other forms of monopoly income, such as that of the railroads, oil and mining trusts; (3) his almost unconditional support of capital, even against labor; (4) his economic individualism rejecting a strong role for government; (5) his opposition to public ownership or subsidy of basic infrastructure; (6) his refusal to acknowledge interestbearing debt as the twin form of rentier income alongside ground rent; (7) the scant emphasis he placed on urban land and owneroccupied land; (8) his endorsement of the Democratic Party’s freetrade platform; (9) his rejection of an academic platform to elaborate rent theory; (10) the narrowness of his theorizing beyond the land question; (11) the alliance of his followers with the right wing of the political spectrum; and (12) the hope that full taxation of ground rent could be achieved gradually rather than requiring a radical confrontation involving a struggle over control of government. Economic theorizing is not like the natural sciences. To the extent that theories justify or criticize specific policies, they affect the vested interests. Economists are notorious for starting with a policy conclusion and then reasoning backward to create a line of analysis whose logic leads up to it—free trade or protectionism, as well as arguments over whether all forms of income are earned or some are unearned “free lunches.” The element of personality also is at work. For these reasons, the most relevant explanatory tools do not necessarily win out in the intellectual struggle for existence. *The author is Distinguished Research Professor of Economics, University of Missouri (Kansas City). American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

Henry George: Political Ideologue, Social Philosopher and Economic Theorist. Edited by L. S. Moss © 2008 the American Journal of Economics and Sociology. ISBN: 978-1-405-18751-0

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Rent theory and tax policy are a case in point. If a realistic explanation of how the world works were the decisive factor in determining the success of an analytic theory, economic thought would focus on how property rights in land, natural monopolies and finance obtain the economic surplus and what they do with it. This was the approach taken by classical political economy, using the labor theory of value to isolate economic rent as a tool to define unearned income as the excess of market price over cost value—the element of price that could not be resolved into direct or indirect “real” costs, ultimately reducible to labor. The policy conclusion was that land and its rent should form the national tax base, on the grounds (as Adam Smith put it) that landlords loved to reap where they did not sow. This view gained influence from David Ricardo through John Stuart Mill to Henry George. It followed that taxes could fall on this income without increasing costs to the rest of the economy. The government would collect rent in lieu of taxes that otherwise would fall on productive labor and industry. Ricardo warned that rising ground rent would allow Britain’s landowners to monopolize growth in income unless the nation ended its protective agricultural tariffs and imported cheaper crops from abroad. (Britain repealed its Corn Laws in 1846 in an affirmation of free trade.) John Stuart Mill’s father, James Mill, extended Ricardo’s theorizing to advocate that “all taxes should be imposed only on rent.” The Swiss economist A. E. Cherbuliez asked, “Why do people not take a step further and abolish private ownership of land?” Inasmuch as “landowners are idlers,” the state could liberate industry to “take an unprecedented leap forward” by replacing taxes with rent.1 In What is Property, P. J. Proudhon (1840) stated famously that “Property is theft.” The anarchistic socialist Benjamin Tucker (1893: 361), translated Proudhon’s book into English and described socialism as “the great Anti-Theft Movement of the nineteenth century.” Henry George became the most widely read economic journalist of his day, thanks to Progress and Poverty (1879). His narrative of how private land ownership was carved out of the public domain, from antiquity’s military seizures through Britain’s Enclosure movements, capped half a century of proposals to effectively nationalize the land by taxing its rental value.

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The broad thrust of British and French political economy was that land and its rent should not be left in the possession of families who had done nothing to create it, but merely collected its rental income “in their sleep,” as J. S. Mill put it. Land was created by nature, not landlords, and its rising market price reflects overall prosperity levels. The proper objective of democracies was to throw off the legacy of feudal Europe’s ownership patterns, by taxing land and other rentyielding natural resources and monopolies rather than labor or capital created by labor. Land remains the largest asset even in today’s industrial and hightechnology economies. Most “capital” gains are still land-price gains, which substantially exceed corporate profits. Yet land no longer stands at the center of economic thought. Postclassical economics has provided an ideological umbrella to reverse the classical view of land’s rental value as constituting an “unearned increment.” Mainstream thought now merges land, monopolies and high finance amorphously into capital-in-general, lumping economic rent and interest indiscriminately with the earnings of all other property. The upshot is that despite its economic importance, the land and its rental value—along with monopoly rent—have become nearly invisible in today’s national statistics and theorizing. Britain has not published land assessments since 1872, and today’s official U.S. statistics produce nonsensical undervaluations of land. Land taxation has turned out to be the most difficult to achieve of all the 19th century’s economic reforms. Precisely because land’s market value was (and remains) much larger than that of industrial capital, the struggle to tax or nationalize ground rent was the most radical reform proposed in the 19th century, more challenging than the labor reforms called for by the socialists. And thanks to the legacy of European feudalism, landowners dominated the upper chambers of government in most countries, possessing a political power that neither industrialists nor labor could claim. Accusing taxation of being theft, property owners have mobilized this power to counter reformers seeking to tax their land, its rising rental value and price gains. British attempts to legislate a national land tax ended in the parliamentary crisis of 1909–1910, when the House of Lords refused to ratify the land tax that the House of Commons had passed. In the United States, the

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federal income tax originally taxed land-price (“capital”) gains at as high a rate as earned income, but subsequently slashed the rate in half. At the state and local level, property taxes have declined steadily as a proportion of fiscal revenue since 1930. This power of the vested interests made it politically easier to reform industrial practice than to fully tax ground rent and land-price gains. The Progressive Era’s major achievements were to regulate monopolies via the Sherman Anti-Trust Act of 1890 and railroads by the Interstate Commerce Commission, to break up Standard Oil, and to enact public laws ameliorating labor’s working and housing conditions. The reform process led to progressive income taxation after 1913, and in the 1930s to the New Deal’s regulatory agencies and public infrastructure investment. George and his followers played almost no role in these reforms. By the 1880s he was the most widely read reformer, and his renown had become as widespread as that of any other economist. Many industrial and labor reformers and muckrakers from the 1880s onward credited Progress and Poverty with having inspired them. However, George rebuffed their invitation to join them. Criticizing policies that he felt to be socialist, he turned many reformers who shared his views on land taxation into his most trenchant critics. His explanation for this deteriorating relationship was that the effect of his Single Tax would be so far-reaching that it would reshape society to facilitate all other reforms, and indeed would make most unnecessary. The Single Tax therefore had to precede all other reforms. This narrow focus isolated George from reformers who came to view the land tax as being so sharp a challenge to the propertied interests that they turned to more readily achievable public regulation and more general tax reforms. Most of these policies in fact were achieved within half a century, while advocacy for land taxation has been declining steadily for over a hundred years. The land’s rental income has now been largely freed from the tax collector (to be taken by bankers and other mortgage lenders, to be sure), shifting the fiscal burden from property to labor via taxes on consumption and wage income. George had two political decisions to make as to how best to promote land taxation in the face of the power wielded by

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landowners. His first decision was to throw down the gauntlet by advocating the Single Tax to fully collect ground rent. His second decision was how to relate this policy to those of other reformers, whose concerns were broader. Socialists were the most vocal reformers. Marx’s version of the labor theory of value focused on the markup employers charged for the products of labor as compared to the wages they paid. His solution was to nationalize industry and take over government to promote working-class interests rather than those of the landed aristocracy, industrialists and financiers. Less extreme reformers, including many inspired by George’s writings, wanted the government at least to operate monopolies and basic infrastructure. Despite endorsing this position, George refused to join forces with reformers whose agendas included policies besides land taxation. He opposed socialist ownership of capital and even refrained from advocating industrial and financial reforms. George’s intolerance in rejecting these reforms helped push his single tax advocacy to the outer periphery of the political spectrum. This personal and political attitude undercut the tax reform George hoped to bring about. He came to be viewed as his own worst enemy. This paper therefore deals not with his economic views as such, but with criticisms by his contemporaries who sympathized with land taxation but disagreed with George’s sectarian political strategy to achieve it. George’s unwillingness to forge political alliances poses the question of how much the success of an economic theory depends on the strategy by which it is introduced. What is the role of character in determining the fortunes of one economic doctrine rather than another? The materialist view of history implies that an appropriate body of theory tends to emerge when necessary, formulated by individuals who best fit the needs of their time. But inasmuch as land and its rent remain as economically dominant today as in the past, this cannot be a sufficient explanation. Why did so central a plank of classical economic reform disappear so thoroughly from popular consciousness and professional discourse? May a seemingly appropriate and realistic body of theory lose out in the political and intellectual marketplace? To what extent does the

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determining factor in the success of an economic theory lie in the political lobbying of special interests rather than its objective explanatory capability? As Ecclesiastes 9:11 and 9:16 put matters: The race is not to the swift, nor the battle to the strong . . . nor yet favor to men of skill; but time and chance happen to them all. . . . Wisdom is better than strength: nevertheless the poor man’s wisdom is despised, and his words are not heard. I George’s First Political Venture Whets His Appetite

SOCIALISTS AND OTHER REFORMERS were George’s warmest supporters in the early years following publication of Progress and Poverty. As a journalist and widely acclaimed public speaker, he denounced private appropriation of the public domain and natural monopolies so eloquently that it appeared to be a general attack on property, prompting a number of labor and socialist groups to nominate him as their fusion candidate and standard-bearer in New York City’s 1886 mayoral election. George was of two minds about running for office. He saw the campaign as an opportunity to spread his gospel of land taxation, but feared that his reputation would suffer from too close an association in dealing with labor parties whose denunciations of capital— especially by Daniel de Leon’s Socialist Labor Party—threatened to alienate the circles at which he aimed his message. As a condition for accepting the nomination, he insisted that he write the fusion platform himself, and proceeded to strip away most of the labor planks in order to concentrate on the Single Tax. The History of Labor in the United States, compiled by George’s one-time supporter John Commons, reports that he stipulated that at least 30,000 voters should pledge themselves, over their signatures, to vote for him. The conference enthusiastically accepted his condition, and the work of gathering the signatures was begun at once.

However, “the platform presented first was quietly dropped, although it met with general approval.” George rewrote it, and “naturally made the single tax the issue. The labour demands were compressed into one plank,” emphasizing such relatively marginal issues as court

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procedures for selecting jurors, stopping police disruption of peaceful public assembly, enforcing the inspection of buildings for safety and sanitary conditions and equal pay for women employed in public work. Another plank dealt with over-crowding in tenements, but the remedy advanced was not regulation of buildings but the single-tax idea of abolishing all taxes on buildings and substituting heavy taxation of land values irrespective of improvements. The remaining four planks advanced the single tax, demanded the government ownership of railways and telegraphs, and dealt with the existing political corruption. From the standpoint of labour, therefore, the platform was not satisfactory.2

George was edged out by the Tammany Hall candidate, and after some internal feuding he proceeded to form his own political party. As he became more sectarian, 12 criticisms of his political strategy became paramount: 1. George’s refusal to join with other reformers to link his proposals with theirs, or to absorb theirs into his own campaign; 2. his singular focus on ground rent to the exclusion of other forms of exploitation; 3. his almost unconditional support of capital, even against labor; 4. his economic individualism rejecting a regulatory or planning role for government; 5. his opposition to public ownership of resources and enterprises; 6. his refusal to acknowledge interest as the twin form of rentier income alongside ground rent; 7. the scant emphasis he placed on urban and owner-occupied land; 8. his endorsement of the Democratic Party’s free-trade platform; 9. his rejection of an academic platform to elaborate rent theory; 10. the narrowness of his theorizing beyond the land question; 11. the alliance of his followers with the right wing of the political spectrum; and 12. the hope that full taxation of ground rent could be enacted gradually rather than requiring a radical confrontation to shift control of government.

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Rather than being intrinsic to the Single Tax, these positions reflected George’s personal views. They effectively ended the dialogue between his followers and other reformers of his day. By 1888, George’s most important political ally, Father McGlynn—who had been excommunicated from the Catholic Church for his support of George—felt obliged to expel him from the United Labor Party, of which George was the original leader in the aftermath of his 1886 New York City campaign. The party soon fell apart.3 1. George’s Refusal to Link His Proposals with Those of Other Reformers

Even as the various labor parties of New York City joined to nominate him for mayor against Tammany Hall in 1886, George was a political loner. He was most comfortable as the center of attention giving a speech. Playing to his audience on such occasions, he was at the peak of his inspirational powers. Yet he proved unable to work well with potential allies who had reforms of their own to promote. George’s early supporters had interests in a broader range of reforms than just the land tax, including labor’s working and housing conditions, the regulation or nationalization of monopolies and basic economic infrastructure and public creation of credit. In view of the entrenched political power of landlords, most reformers saw that only a strong government would have the power to assert the public right to subordinate property interests to those of society at large. But George’s individualistic ideology led him to oppose strengthening government. This created some bewilderment as to just how he hoped to legislate the land tax and nationalize the railroads, telegraph system and other monopolies. One sympathizer with whom George fought was Edward Bellamy, whose Looking Backward was the best-selling novel since Uncle Tom’s Cabin. In 1889, George felt uncomfortable, when the Ballamyites’ journal, the Nationalist, discussed the possibility of political co-operation with the single-taxers. Thousands who do not want to go all the way with George, said one communication to that journal, do want “the nationalization of land, railroads, telegraphs, etc., which is the rockbed of socialism,” and nationalists should recognize that George was the man who alerted the country to the need for those kinds of socialization.4

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However, Barker concludes: To be enveloped in utopian socialism seemed to George a prospect hardly more attractive than to be identified with the Marxian variety of the movement.

George’s aloof behavior as a politician contrasts with that of Marx, who spent much of his time with associates organizing groups to create a following. When the German-American ironmaker Michael Flürscheim arranged for George to co-chair the Land Reform Conference in Paris in 1889, for example, George spent most of his time in his hotel room rather than working with the delegates to promote his ideas.5 George ended up alienating the political groups whose interests were most sympathetic to the economic reforms he proposed. He initially visualized the outcome of his proposed reforms as akin to socialism, writing in his preface to Progress and Poverty that he wanted to unite the school of Adam Smith and Ricardo with that of Ferdinand Lassalle and Proudhon. But he came to reject the latter two, and by the late 1880s he and the socialists came to view each other as rivals. Most reformers continued to view George as belonging to their camp in criticizing the abuses of large absentee landowners and monopolists, but the Single Taxers became more an inward-looking sect than an effective political movement. They did not even have a publishing company of their own, leaving the major books by writers influenced by George to be published by Marx’s American publisher, Charles H. Kerr in Chicago, and by Marx’s British publisher, Swan Sonnenschein (whose Perth office published Flürscheim’s Clue to the Economic Labyrinth).6 2. George’s Single-Minded Focus on Land Rent Rather than Other Forms of Exploitation

The reform movement that gained momentum in the 1880s was largely inspired by George, and investigative journalists such as Ida Tarbell, Gustavus Myers and Upton Sinclair acknowledged the influence of Progress and Poverty. However, George’s single-minded focus on ground rent, initially his greatest journalistic asset, ultimately became a shortcoming. Although he advocated that natural

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monopolies should be publicly operated, starting with the railroads and telegraph, he felt so strongly that a land tax had to come first that he directed his followers not to press for other reforms until the Single Tax was enacted. This meant not working with groups that focused on these reforms, despite their harmony with George’s beliefs. Denouncing ground rent as the unearned income of “privilege” had won George a large following. But as Simon Patten summarized George’s one-sidedness position in 1891, he thinks our whole civilization is at stake; that there is no other remedy for our present evils but a radical change in our system of land-tenure; that if this one evil were removed, all other evils would disappear of themselves; that no progress can be made without the change he advocates, and that there is no other remedy but the one he has in mind.7

The problem, Patten explained, was that moving against just one monopoly (land) would simply leave more economic rent for others to appropriate: It is, therefore, a popular error to suppose that the rent of land absorbs the whole of the surplus. According to the Ricardian theory of distribution, this would be so, but this theory gives an undue emphasis to land as an economic factor . . . the surplus, however, may be absorbed in many ways. . . . Our railroads are now getting a large share of this surplus. As the owners of farms are separated from the market of their produce by long distances, they must make use of our railroad system to transport their grain. Any increase in the rates of transportation, therefore, will act as a reduction of rent, and if the railroad system of our country has its stock largely watered, it will reduce the value and rent of lands, and in this way a large portion of the surplus will go to the owners of railroads, rather than to the owners of land.8

George’s logic was that taxing the entire ground rent would leave none for the railroads to appropriate. To nationalize the railroads and other monopolies without a land tax would simply leave more revenue for landlords to charge as ground rent. It followed that a land tax was more economically efficient in principle. But most reformers did not find it more politically effective. They saw the opportunity to break up or regulate monopolies to be more immediate. For one thing, property taxes were imposed locally. The long fight to achieve a national income tax ended up requiring the Supreme

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Court to affirm its constitutionality. National land taxation involved a deeper political confrontation than did labor and monopoly reforms, making it more radical than the neat technical adjustment represented by George and his followers. Another problem on the political front was that home ownership was so widespread in America that most families and businesses wanted the land value of their property for themselves. The Single Taxers might have won homeowners and small-business proprietors to their cause by proposing to exempt a minimum amount for owner-occupied homes so that the tax would fall mainly on large absentee owners. But their doctrinaire approach prevented them from proposing such a compromise. In 1924, Upton Sinclair observed that the narrow focus of the Single Taxers became their political undoing by blocking what seemed to be a natural alliance with other reformers. A few years ago, out here in Southern California, a fine enthusiast by the name of Luke North started what he called the “Great Adventure” movement, to carry California for the Single Tax. I did what I could to help, and in the course of the campaign discovered what I believe is the weakness of the Single Tax movement. Our opponents, the great rich bankers and land speculators of California, persuaded the poor man that we were going to put all taxes on this poor man’s lot, and to let the rich man’s stocks and bonds, his inheritance, his wife’s jewels, and all his income, escape taxation. The poor man swallowed this argument, and the “Great Adventure” did not carry California. So, I no longer advocate the Single Tax. I advocate many taxes. I want to tax the rich man’s stocks and bonds, also his income, and his inheritances, and his wife’s jewels. In addition, I advocate a land tax, but one graduated like the income tax. If a man or a corporation owns a great deal of land, I want to tax him on the full rental value. If he owns only one little lot, I don’t want to tax him at all. Some day that measure will come before the voters of California, and then I should like to see the bankers and land speculators of the state persuade the poor man that the measure would not be to the poor man’s advantage!9

A few years earlier the sympathetic Charles Fillebrown (1917) put forth a similar explanation for the failure of George’s followers to win more support for land taxation. In a chapter devoted to “Henry George and the Economists,” he attributed the problem to George’s

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intolerance of any other reform except his own, coupled with an anti-academic posture imitated by his followers: Unquestionably, there has been among the professional economists a tendency not so much to attack as perhaps to ignore the single taxers. . . . Jealous for their champion and sharing his sensitiveness to the indifference of the professors, single taxers have allowed themselves even in scattered times and places to generate and foster a spirit of animosity sufficient to keep the opposing lines well-defined.

Fillebrown quoted from a letter written by a Swarthmore professor describing the typical Single Taxer as “generally a man of intolerably dogmatic and doctrinaire spirit,” driving erstwhile sympathizers away “from wearing the label ‘single taxer,’ lest the inference be drawn by the public that, because they believe in the single tax, they are no longer free to believe in anything else.” In his 1928 preface to the U.S. edition of The Intelligent Woman’s Guide to Socialism, George Bernard Shaw made a similar observation. George did not acknowledge injustice stemming from causes other than private ownership of the land and natural monopolies, or explain how the government would spend the rent it was to tax: Nowadays we have multimillionaires everywhere; but they began in America; and that is why I wonder this book of mine was not written in America by an American fifty years ago. Henry George had a shot at it: indeed it was his oratory (to which I was exposed for fortyfive minutes fortyfive years ago by pure chance) that called my attention to it; but though George impressed his generation with the outrageous maldistribution of income resulting from the apparently innocent institution of private property in land, he left untouched the positive problem of how else income was to be distributed, and what the nation was to do with the rent on its land when it was nationalized, thus leaving the question very much where it had been left a century earlier by the controversy between Voltaire and the elder Mirabeau, except for the stupendous series of new illustrations furnished by the growth of the great cities of the United States. Still, Americans can claim that in this book I am doing no more than finishing Henry George’s job.10

It was a job that George himself was unwilling to do. Railing at economic injustice rather than creating alliances, he asked that other reformers stop their activities until full land taxation was achieved. Only after people had seen the positive effect of full land taxation,

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George insisted, would it be appropriate to address whatever economic problems remained. Had reformers followed this advice they still would be waiting, as land and wealth taxes have been rolled back at an accelerating pace in recent decades. 3. George’s Support of Capital Against Labor

Assuming subsistence wages (the so-called Iron Law of Wages) as a fact of life, Ricardo described landlords as seeking to maximize their rental income at the expense of industrial profits, without much reference to the working class. The land rents supported by England’s Corn Laws raised the price of grain, and hence the subsistence wage that employers had to pay. The revolutions that swept continental Europe in 1848 had stopped short of supporting labor, prompting Karl Marx to view the struggle over ground rent as an internecine fight within the propertied classes. The debate over land taxation thus turned on who would get society’s economic surplus: landlords, industrial capital or labor. The political aim of Ricardo’s rent theory, he wrote, was simply to buttress the program of taxing the land rather than industry. It did not go so far as to free labor from the oppressive factory system, monopoly pricing and financial trusts. Upon being sent copies of Progress and Poverty in 1881, Marx wrote to John Swinton that it was “a last attempt to save the capitalist regime.”11 He dismissed the book as saying precisely what his 1847 critique of Proudhon had forecast that industrial capital would advocate in its conflict with the landlord class: “We understand such economists as Mill, Cherbuliez, Hilditch and others demanding that rent should be handed over to the state to serve in place of taxes. That is a frank expression of the hatred the industrial capitalist bears towards the landed proprietor, who seems to him a useless thing, an excrescence upon the general body of bourgeois production.”12 The proposed land tax was the Ricardian policy whose political role he had disparaged for a generation—the program of industrial capital and the urban bourgeoisie, stopping short of full-fledged socialism and public ownership of the means of production. Socialists and labor reformers echoed this view. In an ongoing debate with the Georgist Joseph Fels in the London socialist weekly

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The New Age, socialists in 1912 asked what in the Single Tax was there “to prevent the capitalist class, of which Mr. Fels is such an amiable member, from intensifying their monopoly of Capital and Raw Material? Obviously nothing. The class of Rent, in fact, is abolished only to swell the classes of Interest and Profits.”13 Yet the remarkable popularity of Progress and Poverty stemmed precisely from its juxtaposing the interest of labor and the public in general to that of the landlord. Writing more than six decades later in the United States, where wage levels had risen above subsistence levels, George gave wage earners a political interest in taxing land and related resource rents. The political twist that helped Progress and Poverty achieve such great popularity was to show that ground rent was paid out of wages as well as profits, at least in America’s high-wage economy. As Patten pointed out, Ricardo juxtaposed “profits and wages, or profits and rent, but never rent and wages. If he had broken away from his concrete thinking enough to contrast wages and rent, he would have forestalled Henry George, since the latter writer has nothing new of theoretical importance except this contrast neglected by Ricardo and his followers.”14 George’s shift of emphasis implied that workers and small businessmen as well as industrialists would benefit by basing the fiscal system on a rent tax. George often supported labor. At a meeting at Cooper Union in New York on July 12, 1894, he declaimed against President Cleveland’s decision to send federal troops to Chicago to break the Pullman strike. He also denounced the arrest of the socialist leader Victor Debs. But after his 1886 mayoral campaign dropped the labor coalition’s planks of reforming workplace and housing conditions, George sought political support increasingly from capital, as if it were less narrowly class-interested than labor. He even went so far as to claim not to see a difference between labor unions and industrial monopolies, as if unions were on the same level as the company towns and trusts that imposed abusive working and housing conditions. When confronted with criticisms of monopoly capital or finance capital, George replied that this was not what he meant by capital. His point of reference was small businessmen working with their own tools and savings. Claiming that to tax capital would discourage the

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incentive to invest in productive activity, he viewed capital as aiming to produce wealth, not to aggrandize itself by predatory, exploitative practices (apart from monopolies). He denounced privilege as threatening this middle-class vision, but socialists replied that special privilege and insider control was the essence of the capital they were talking about. They accused the Single Taxers of blaming landlords for what rightly should be blamed on capital. In a 1905 debate in Chicago between socialists and Single Taxers, Algernon Simons (editor of the International Socialist Review) disparaged Henry George Jr. for telling us that the tobacco trust rested upon the ownership of a little chunk of land down in Cuba which the trust had bought only after its position had been assured. . . . This was his argument, that the trusts can not exist without land.

Yet “land is of less and less importance” for most monopolies.15 Patten likewise argued that monopoly power of apart from landlordship was growing. George went so far as to accuse his supporter Father McGlynn and Catholic officials associated with the Knights of Labor of succumbing to socialism. In The Condition of Labor, written in 1891 to challenge Pope Leo’s logic for excommunicating McGlynn, he wrote that thoroughgoing socialism . . . fails to see that oppression does not come from the nature of capital, but from the wrong that robs labor of capital by divorcing it from land, and that creates a fictitious capital [in the form of financial securities] that is really capitalized monopoly.

George did not pursue his financial views along the latter lines, except to criticize the government’s public debt, whose interest charges were paid out of taxes.16 Endorsing interest on money that had been earned “legitimately,” he did not find the private sector’s debt burden to be problematic. He implied that people would not be forced into debt if not for absentee land ownership and monopolies. The Single Tax would cure this problem, and seemingly all other problems of capital, by providing enough revenue so that governments did not need to borrow, and by making housing more affordable by removing the motivation for land speculation. This program assumed an idealized form of industrial capital whose boundaries with monopoly capital and private-sector finance capital were not clear.

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The American Journal of Economics and Sociology 4. George’s Individualism Rejecting a Regulatory or Planning Role for Government

The theory of rent as unearned income was mobilized for political reforms that went far beyond those of Ricardo and even J. S. Mill. In keeping with its denunciation of property ownership, the Communist Manifesto’s first policy measure was “Confiscation of property in land and application of the rent to public purposes.” The idea was to turn the landed estates over to the cultivators who worked them. As Frederick Engels suggested: The great estates of the Junkers east of the Elbe can be given for rent without any difficulty . . . to the present-day laborers, and can be cultivated collectively.17

The German socialist Ferdinand Lassalle wrote to Marx in 1853 that he regarded Ricardo’s theory of ground rent as the “most eminent communist feat” in developing a socialist land policy. A decade later he wrote to Karl Rodbertus referring to the idea of abolishing ground rent by levying a tax on it, and asked: “How can that be done? Very simple; simply by levying a tax which will leave free the land of the lower classes, but tax all the margin of cultivation out of the land of the higher classes.”18

Apart from not taxing self-support land, this was Henry George’s proposal. However, as the American socialist Louis Untermann explained, the rent tax addressed only the land problem, not the wage contract or related labor conditions: Lassalle never indulged in any illusions as to the efficacy of that Single Tax idea for the emancipation of the working class.

This would require the government to play an active role on behalf of labor, not only through regulation but also by ownership of the means of production. While most reformers advocated breaking up or regulating monopolies, George rejected attempts at regulation as being “feeble” and ineffective. Nor could monopolies practically be taxed, he believed: It would be extremely difficult, if not altogether impossible, to levy taxes by general law so that they would fall exclusively on the returns of such

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monopoly and not become taxes on production or exchange, it is much better that these monopolies should be abolished.19

George disparaged anything less than outright government ownership of natural monopolies.20 This radical position would have rejected the public regulation achieved during America’s Progressive Era from Republicans in the 1890s through Franklin Roosevelt’s New Deal. George’s critics viewed nationalizing monopolies as socialist, making his position so extreme as to neutralize its force—precisely what his supporters accused socialists of doing. George did not explain how the government should price monopoly services. Patten helped explain matters by treating public infrastructure as a “fourth” factor of production (alongside labor, land and capital). It’s return should be measured not by how much profit it could make, but by how much it could lower costs for the economy at large. He urged the government to subsidize basic transportation and other infrastructure so as to lower the economy’s price structure to make the nation more competitive. But George never advocated such “interference” with presumably maximum economic rent—whatever “the market” could bear. His vagueness left the issue of public ownership without rigorous analysis or specific policy aims. For example, The Single Tax Platform: Adopted by the National Conference of the Single Tax League of the U.S. at Cooper Union, N.Y., Sept. 3, 1890 was not clear as to what the pricing policy should be: With respect to monopolies other than the monopoly of land, we hold that where free competition becomes impossible, as in telegraphs, railroads, water, and gas supplies, etc., such business becomes a proper social function, which should be controlled and managed by and for the whole people concerned, through their proper government, local, state or national, as may be.

But what exactly was “proper,” and what should their management philosophy be? Without explaining this, the platform left the meaning obscure. Instead of addressing how to price monopoly output, George merely railed at the inequity of special privilege in private hands. As in the case of the Single Tax, the ideal of outright government ownership was too extreme to succeed in America at that time,

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although Britain and most other European countries easily took that path. What Republican administrations did do was to create public agencies to check the autonomy of monopolists and their financial operators. It proved much easier to create the Interstate Commerce Commission (weak as it was) and enact antitrust legislation than to challenge landowners with a tax to collect their full ground rent. George’s position of public ownership was theoretically logical but politically unachievable at the time. Driving away would-be allies who pressed for reforms along the lines of least political resistance, Single-Tax evangelism advocated public ownership of monopolies, while holding a rosy view of capital and a highly negative view of government—an odd combination. Despite the fact that George’s policy seemed to be socialist, he sided with free-enterprise advocates whose major objective was to minimizethe role of government. 5. George’s Opposition to Public Ownership of Land

In Progress and Poverty, George recommended either nationalizing the land or taxing away its full rental value. He derided Herbert Spencer for advocating public purchase of land, saying that this would be like paying slave owners for property that was stolen in the first place. But in contrast to his proposal that the government should own monopolies, George came to believe that land nationalization involved an unnecessarily trauma. Opposing “big government,” he hoped to mollify the vested interests—or at least the emerging middle class—by claiming that taxing the land’s full rental value would avoid interfering with existing property rights. This failed to convince property owners, who denounced George as a socialist despite his protestations to the contrary. George reasoned that his Single Tax would enable “the market” to determine rental levels and hence fiscal revenue. Taxing hoarded land at a rate that would bring it into the market would lower access costs to those who would use it to best economic effect. A rent tax would collect the maximum possible user fees (as today’s followers of George advocate). But did this mean that the state should endorse rack-renting (charging whatever leaser-users would pay)? Or, should

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it subsidize the land’s rental chair so as to minimize the cost of living and doing business? By not confronting this issue, George implied that the maximum market rent would be the most efficient. This was not the logic followed by most reformers, who looked to government ownership to minimize the national cost structure by keeping infrastructure in public hands. Simon Patten, for example, found public investment to represent a “fourth” factor of production alongside labor, land and capital. Taxes would be “burdenless” if invested in internal improvements, headed by transport infrastructure to lower distribution costs. “The Erie Canal keeps down railroad rates, and takes from local producers in the East their rent of situation. Notice, for example, the fall in the price of [upstate New York] farms through western competition” by making low-priced crops available from Western farms. Likewise in the cities, he believed, public transport would minimize property prices (and hence economic rent) in the center relative to the outlying periphery.21 Under a regime of “burdenless taxation” the return on public transportation investment would not take the form of profit directly but would be reflected in lowering the economy’s overall price structure. Rather than adding to prices as occurred when Britain and France levied taxes to pay for war, this would “promote general prosperity.” Whereas military levies were a pure burden to taxpayers, “in an industrial society the object of taxation is to increase industrial prosperity”22 by lowering costs rather than generating rents for private owners. So if the government did own natural monopolies—or was in a position to tax their rental value—should it charge the maximum rent-racking rate, or provide a subsidy? The argument for taxing differential land rent is that some sites enjoy a better rent-oflocation, and the market helps allocate these sites to the most “economic” users. But what of public infrastructure, communications, water and power, and other natural monopolies whose costs are economy-wide? George’s opposition to government led him to ignore this question altogether. But it became a leading plank of the Progressive Era’s idea of how to make the U.S. economy more competitive.

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The American Journal of Economics and Sociology 6. George’s Refusal to Address the Problem of Interest-Bearing Debt

Given Wall Street’s role in backing monopolies and loading down their rent-yielding activities with “watered costs”—bonds and bank loans whose interest was paid out of economic rent—there was a growing feeling that any serious policy toward property and monopolies had to involve reforming and regulating society’s financial structure. A large part of George’s audience therefore found the debt problem to be as important as the rent problem. Proudhon and other French socialists had pointed to the tendency of compound interest to increase the volume of debts beyond the economy’s ability to pay. Most reformers viewed rent and interest as twin forms of rentier income, which government agencies would collect under a more rational economic system. In good classical fashion, George defined rent as that portion of price that did not reflect cost-value and hence was an unnecessary cost. Most typically, landowners charged rent at the expense of capital and labor. Like Ricardo, however, George refrained from dealing with the other rentier burden: money interest. It was a nonproduction charge that burdened labor and capital, and even landowners who bought rent-yielding resources on credit and paid out their rental income as debt service. Today, creditors have become the ultimate recipients of the economy’s rental revenue. This incipient tendency was perceived already in George’s day, but he did not address it. Part of the problem was his conflation of physical capital with financial capital. It was characteristic of his time to call the profit of industrial capital “interest,” although finance was taking on an independent life of its own instead of becoming subordinated to the dynamics of industrial capital, as the French St. Simonians and Marxists had anticipated. Wall Street was busy capitalizing ground rent and monopoly rent into interest charges and “watered costs” as it used real estate, the railroads, agriculture and financial trusts as vehicles to issue bonds and stocks. George’s refusal to deal with the debt problem alienated some of his strongest supporters. Michael Flürscheim, a leader of the European land reform movement, expressed his impatience with George’s focus on the land to the exclusion of all other rentier revenues:

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Henry George, his predecessors and disciples, have rendered an invaluable service to the world by clearly demonstrating the part played by land in the process of distribution. They have gone too far, however, in making the monopolization of land solely responsible for the miscarriage of economic progress . . . Not only have they left out of sight the important role performed by Money in the human tragedy, but they have not even dreamt of the possibility that this despised Money might, after all, play the part of the principal villain.23

Arthur Kitson made a similar complaint: It is strange that land reformers are so absolutely blind to this fact. One never hears of money-lords begging for land on which to employ their wealth. But landlords are continually becoming indebted to the money power for the use of money. In other words, land is far more plentiful and more readily procurable than money. And to-day money is made more essential to men than land. And into the hands of the money power the land must inevitably fall 24

as rental revenue was paid out as interest on mortgage debt. When Flürscheim urged George to address interest as the other form of rentier income, George refused, writing: You have many friends among our people in Australia, and a number of the active single-tax men are converts to your theory as to the death of interest. I am as far as ever from seeing it, and my rumination strengthens the belief that you and they are in error.25

Similar urgings by other Americans, his British audience, and even Tolstoy failed to move George to acknowledge the importance of interest. This prompted Tolstoy to complain that George proposes to declare all land government property, and to substitute a rent-tax for all the direct and indirect taxes, that is, everyone using land should pay the government its rental value. What would the outcome be? Land would belong to the government . . . but therefore would remain the forcible collection of the tax and rental values, there would so remain slavery. The land-cultivator, in a bad year, not being able to pay the rent exacted from him by force, would have to enslave himself to the man with money in order to keep his land and not lose everything.26

Creditors would end up with the surplus by advancing rent or tax money to cultivators in bad years. Fixing the tax in advance would force cultivators into trouble in years when crop revenues fell or when

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infirmity, drought, flooding or other problems impaired their ability to harvest their crops and pay the rent and taxes due. Later, to be sure, Tolstoy came to realize that the rental value could be assessed on an annual basis so as not to tax more than the land would permit in a given year. As society’s landowner, the government could reduce taxes in times of harvest failure (or in times of bumper crops when prices fell) to reflect the actual crop revenue. Flürscheim forecast that the greatest obstacle to a land tax would be the financial interest. By collecting all the rent for the state, the Single Tax threatened not to leave any available for mortgage lenders, except for interest paid out of the profits of capital invested in buildings and other improvements. This made the mortgage lender “the most serious obstacle in the path of a single-taxer.” Financial interests lobbied to protect the rent-extracting sectors, recognizing that what the governments did not collect as taxes would be available to pledge as interest. “To tax away the rental value of the land destroys the best part of the mortgagee’s security, and mortgagees are smart enough to be perfectly conscious of this fact,”27 Flürscheim explained. The first hint of such legislation would lead bankers to call in mortgages throughout the country. J. W. Bennett, an advocate of nationalizing society’s credit functions, was typical of writers who accepted George’s critique of unearned income but saw that the solution had to include reform of the financial as well as the fiscal system. In A Breed of Barren Metal (1895), he wrote: The laws of rent have been examined by a master whose work I shall not attempt to improve upon. While there are many of the details of the theory of Henry George which I cannot accept, I believe his main idea to be correct. I do not deem his remedy quite effective,

for it left out of account “the justice of interest-taking and its influence upon the distribution of wealth.”28 On the backs of the landlords rode their creditors. The rentier problem thus was twofold, with land rent being the most visible form of what George called “value from obligation.” John Brown, another Kerr author, prefaced his Parasitic Wealth (1898) with a eulogy for Henry George, calling him the “master mind of the century” as far as the land question was concerned. “There is

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but one justifiable tax and that is the land tax,” he added, “—the ‘single tax’ advocated by Mr. Henry George.” However, he explained: “Rent and Interest are the price society pays for limitation,” an access price for landed property, and interest for access to credit. “They are exactly the same thing under two different names.” A land tax would deal with only half of this problem. A public credit system was needed to collect the financial component of rentier income for the state.29 Brown melded George’s ideas easily into those of socialist reform, above all with regard to society’s interest-bearing credit multiplying at a compound “geometric” rate. The transformation of rent into interest charges led Herbert Spencer to abandon his early view (in Social Statics) that private ownership of land was not ethically justifiable and could be solved by governments buying out the landlords. Brown noted that Spencer modified his views as to the practicability or even desirability of its nationalization, seeing that in any scheme of just compensation to land owners, the interest on purchase money would probably exceed the cost of rent. Mr. Henry George has found fault with Mr. Spencer for this change of front, but when we fairly consider the reasons, we can hardly blame Mr. Spencer for believing that the lot of the dispossessed would not be improved by simply converting land rent into money rent.30

Describing George’s 1889 lecture tour to Europe, his biographer Charles Barker notes that George decided that European radicalism . . . was too much opposed to interest taking to suit his own position. Many think that interest on capital is quite wrong, he wrote home, but none knows how to capture it, except by the state operation of all business.31

George was unwilling to accept the prospect of the public sector acting as society’s banker and credit creator as well as rent collector. When the wealthy Birmingham manufacturer Thomas Walker proposed that “interest on capital should be captured for the public as fully as the rent of land,” George considered him to be fuzzy-minded. Writing to the British printer J. C. Durant: George explained what was worrying him about his friends in England. It was “the wobbling, the compromising, the affiliating with Socialists, and the admixture of our ideas with ideas that are directly opposed to them.”32

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Walker ended up giving most of his financial support to the Fabians. Other writers suggested that the government should create credit for itself. George in fact approved of the greenbacks, a successful example of this, and he denounced Wall Street machinations in his newspaper columns and other writings. Yet he opposed critics of the financial system and its interest burden as strongly as he had opposed the socialists. He conflated interest with profit, and finance capital with industrial capital, much as his followers have accused postclassical economists of confusing rent with profit and land with capital. George treated the debt problem as one of banks issuing currency, and blamed depressions on banks over-issuing credit. But he did not view debts mounting up at compound interest as a problem independent of the currency question.33 He denounced public debt, urging the government to create its own money (greenbacks) rather than borrowing from banks or issuing interest-bearing bonds. This was the program of the Greenback Party, but George made no alliance with it. He simply said that by abolishing the land monopoly, the Single Tax would end the dynamic that drove people into debt, so that the interest burden no longer would be a serious problem. 7. George’s Ricardian Emphasis on Rural Land

Ricardo claimed that marginal lands did not obtain economic rent, only more fertile ones. But the development of fertilizers and industrialization of agriculture have raised farm productivity steadily over the past few centuries, disproving his idea of innate fertility differentials (the soil’s “original and indestructible powers”) causing ground rent. The tendency to identify economic rent with rural land looked anachronistic as agriculture employed a shrinking proportion of the U.S. population, making urban sites the highest-priced land. By George’s day the importance of rural land was shrinking relative to urban sites, and location—including zoning rights—was seen to be much more important than virgin soil fertility. George described land prices as rising with society’s general level of prosperity and population. This was becoming primarily an urban phenomenon, complicating the politics of land taxation beyond

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George’s denunciation of British absentee landlords in Ireland. Ground rent in an increasingly urban industrial environment called for a broader analysis than Ricardo had formulated. One corollary was that all property owners obtained rent— homeowners and industrialists as well as the absentee landlords on whom George placed major emphasis. What he criticized most strongly were landlords in possession of large tracts of property, deriving their income from raw land ownership alone. But the wide distribution of U.S. home ownership and business property made the politics of land ownership (and hence, land taxation) more complex in America than in Britain and other countries that still bore the legacy of feudal landlordship. U.S. real-estate investors have successfully appealed to homeowners for political support in opposing property taxes. George’s supporter Louis Post recognized that if you measure land by the demand for it and its value, we use more land in cities than do our farmers. The mines furnish material as well as the farms. The city furnishes sites, the great country furnishes the highways that control industries and control commerce.34

It followed that the analysis of rent should be extended throughout the economy’s land, natural resources and transportation system. On the basis of this perception the Single Taxers might have broadened the classical distinction between unearned rent and industrial profits. But they followed Ricardo and George in focusing on ground rent, only paying lip service to monopoly rent and financial interest. In Ricardo’s day, bankers backed industrialists against British landlords, anticipating a major loan market to develop for export and import financing as agricultural protectionism was repealed. But as mortgage lending has become the major focus of modern banking, the financial sector has thrown its lobbying efforts increasingly behind property owners. This has transformed the political alignments with regard to land taxation. If George and subsequent Single Taxers had done their statistical homework, they could have demonstrated that the market price of real estate, mining, transportation and other natural monopolies far exceeds that of industrial capital. But George’s followers preferred abstract deductive logic to empirical analysis, and did not give a sense of proportion as to where the economy’s ground

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rent was being generated. Nor was there an awareness of how mortgage credit would become the major factor raising land prices.

8. George’s Free-Trade Stance

George’s major diversion from his land-tax campaign was his excursion into the free-trade debate to support Grover Cleveland for president on the Democratic ticket in 1892. The Single Taxers argued against tariff protection as heading the list of “special privileges” and hence monopoly rent. But as Simons pointed out: It is said that the tariff is the foundation of industrial trusts, and yet trusts are located in England, the classic land of free trade.35

He added that the sugar trust was campaigning for free trade with Cuba so as to lower its costs of obtaining the commodity, widening its monopoly trading profit all the more! Protectionists pointed to the tendency of free trade historically to go together with the extraction of economic rent from plantation monocultures (latifundia), mining and natural monopolies, breeding monocultures and supporting slavery and religious intolerance. At the University of Pennsylvania, Robert Ellis Thompson pointed out that free trade regimes throughout the world typically opposed free speech and supported either slavery or ecclesiastical domination—what today would be called failed states—whereas protectionists tended to support freedom of speech and political association.36 It was the protectionist Republican Party that passed the Sherman Anti-Trust Act and associated regulation to break up the Standard Oil monopoly and major mineral trusts, and Theodore Roosevelt who became the era’s major trustbuster. George did not acknowledge the tendency of free trade to reinforce monopoly power. By throwing his support behind free trade, he also avoided dealing with the link between trade policy and environmental degradation. One of the most sophisticated arguments against Ricardian free-trade doctrine focused on the environmental costs of export monocultures, above all soil depletion and related overhead costs that did not enter into the marketplace’s balance sheet of outlays and income. Patten’s Economic Basis of Protection (1890) elaborated an

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argument that had been made since the 1840s regarding how free trade had exhausted the South’s cotton and tobacco lands and stripped Michigan of its forests: Any land is poor land for one crop. It becomes . . . superior land only when a suitable rotation of crops brings out all its qualities. The course of foreign trade may make the use of land for a single crop more profitable for a time, yet the gain to the owner is at the expense of the productive qualities of the land. Free-trade thus prevents a well-balanced development of the group of industries which will make the most of the land.

In the U.S. Patent Office reports for the years 1849 and 1852, Daniel Lee had provided a statistical estimate of the cost of America’s soildepleting modes of cultivation. Farm income was reduced by about 10 cents per acre on 100 million of the 125 million acres of improved farmland then in cultivation. The value of these farmlands was reduced by some $300 million per year (an average $3.00 an acre, or nearly 20 percent of the crops’ sales value) through removal of minerals from the soil by the agricultural methods then in use.”37 The implication is that rent in the form of indirect future cleanup costs to society do not show up in market pricing. George did not think along these lines, apparently because the approach was associated with protectionism rather than free trade. Today the environmental movement is emphasizing the problem of depletion afresh, seeking more renewable patterns of growth by imposing taxes to recapture such “external” cleanup costs. 9. George’s Rejection of an Academic Platform to Elaborate Rent Theory and Taxation

In 1877, two years before publishing the book that made him famous, George was considered for the chair of political economy at the University of California at Berkeley. Barker reports: On this occasion Henry told Annie George that he wished for no title in the world, unless it was that of “Professor.”

But at his interview he indulged in a tirade against economists, claiming that they had made no “substantial improvement” since Ricardo.38 His belligerent attitude foreclosed the opportunity to gain a

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platform to challenge the postclassical “value-free” economics that conflated land with capital and denied that any form of income was unearned. Sophisticated discussion of economic rent was left to “institutionalists” such as Veblen, Patten and Commons. George’s followers emulated his stance, eschewing the academic status needed to legitimize their challenge to postclassical economics and its defense of the vested property interests. It was left to the institutionalists and Marxists (and most recently, the post-Keynesians) to provide the major academic challenges to this mainstream economic thought. Already in George’s day, Patten criticized John Bates Clark for making the economic conditions that justify our present system of land-tenure so prominent that the reader will at least be uncertain whether any moral principle is involved. According to the economic data he presents, rent in the economic sense, if not wholly disregarded, at least receives no emphasis. Land seems to be a form of capital, its value like other property being due to the labor put upon it.39

Postclassical economics—especially the libertarian value-free analysis supported by most of George’s followers—has followed Clark in defining every income recipient as a “factor of production,” whose value reflects its “productive contribution.” This rationalizes the status quo’s distribution of wealth and income, by denying in principle the notion of unearned income.40 Yet George’s followers quickly lost the academic battle to Clark, and the analysis of rent all but disappeared from the intellectual spectrum. Little attempt to quantify the magnitude of ground rent or other forms of economic rent has been made in recent decades. George’s decision to boycott academia in favor of a journalistic approach thus had political consequences, inasmuch as academic perceptions and statistical analyses carry policy implications. By associating land and its rent with landlords as a distinct class best personified by British landlords, for instance, George downplayed the rents accruing on land owned by working families and commercial businesses. His followers still might have demonstrated the degree to which rent is concentrated in the hands of the super-rich, polarizing the economy to favor large absentee owners and monopolists. But they undertook no statistical research. Their silence has enabled

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property interests to make a populist appeal to consumers in their role as homeowners to support a general reduction of real estate taxes. Meanwhile, the role of ground rent in economic theory and social reform was waning. This was partly because America’s “economy of abundance” stood in sharp contrast to the class barriers that concentrated ground rent in the hands of Britain’s hereditary aristocracy. Upward mobility enabled workers to own their homes and even become small businessmen and property owners. Patten explained that American homeowners benefited from the rental value of their property just as did large landowners. Rent was becoming democratized rather than being an economic gain restricted to a distinct class. During the last decade of George’s life (he died in 1897), a postclassical body of economic thought began to take shape that shifted the focus away from rent theory and the land issue. The categories of classical political economy were made amorphous by treating land simply as a form of capital, and rent as a return on business outlays. Depicting land from the businessman’s vantage point, as a capital investment, Clark described business owners buying a plant, equipment and land in combination, so that the return to land was equalized with that of profits in general. Acting in their own self-interest, large real-estate owners were joined by finance and monopolies lobbying to free land from taxation. Policy “think tanks” were created to influence fiscal policy, the mass media were controlled to shape public opinion, and academic initiatives were mobilized to counter the idea that rental income was unearned. These efforts succeeded in rolling back property taxes— shifting the burden onto workers and consumers—and stripping academic economics of its classical concern with rent theory. Alfred Marshall solved this problem by generalizing the concept of economic rent as accruing not only to land and mineral deposits but also to monopolies and finance, along with quasi-rents for low-cost industrial producers. This became the main way in which rent theory survived in academia. He supported capital to such an extent that he made little effort to explain just where its profits ended and monopoly rent began. His illustrative examples in Progress and Poverty depicted workers as making their own tools—axes or canoes—and deriving a profit from their added productivity, like small businessmen working

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on their own account.41 Whereas socialist and labor reformers referred to expensive machinery in large urban factories employing labor under exploitative terms, or monopolies seeking extortionate revenue without costs, George treated capital merely as tools embodying labor. 10. The Narrowness of George’s Theorizing Beyond the Land Question as Such

George’s single-mindedness made his call for economic reform narrower than most of his admirers desired. Although his journalistic writings denounced the railroad barons, Wall Street trusts and stock watering (diverting income to insiders by issuing bonds to them), his political program did not address bad working conditions and related exploitation of labor and consumers, or urban housing, or natural monopolies apart from land or finance capital and the volume of debt expanding through the dynamics of compound interest. Financially, George viewed savings as consisting of labor’s saved-up earnings, not in its manifestation of finance capital. This microeconomic approach prompted Flürscheim to accuse George’s brand of individualism as being naïve: Free competition had gradually eventuated in the most extensive monopoly the world ever saw; subjection to a few plutocrats proved to be the latest phase of individualism.42

Lacking a broad theory of capital along the lines Veblen was soon to analyze, George left himself without a way to measure how much income represents socially necessary profit as compared to unearned economic rent. He did not come to terms with the extent to which much of what passed for “capital” was property in the form of special privilege akin to land rent. The upshot is that rather than generalizing the concept of economic rent to apply to industrial capital (what Marshall called quasi-rents), monopolies and finance capital, and rather than proposing an across-the-board policy challenging all forms of rentier income (as Flürscheim, Patten and others urged), George made the Single Tax his single reform policy. He focused on economic polarization developing only from land monopoly, not from the dynamics of industrial and financial capital. The irony is that whereas Marx assumed that productive industrial credit would develop in due course, banks have found economic rent

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to be the most attractive form of revenue to capitalize as collateral for their loans. Bank credit now serves mainly to bid up prices for rentyielding properties. Taxing rent rather than wages and profits would make it unavailable to pledge as collateral, and therefore would tend to channel more credit to tangible capital formation. The failure of George and his followers to theorize along these lines held them behind other reformers, leading to splits within the Single Tax movement, especially in Britain, where the School for Economic Science moved away from George to place major emphasis on debt and financial reform.

11. George’s Alliance with the Right Wing of the Political Spectrum

By the early 20th century, George’s economic individualism had allied itself with libertarian anti-government ideology. This led to a political alignment of Single Taxers just the opposite of what his early supporters favored. His opposition to public regulation (Section 4 above), along with his support of capital (Section 3) even when it became monopolistic, extortionate or abusive of workplace conditions prompted the socialist Arthur Lewis to observe in 1916 that “what Huxley calls George’s ‘superfluous rhetorical confectionery’” alienated his natural constituency, splitting the land tax off from contemporary reform movements. As soon as pro-labor reformers “saw the real bent of his teaching they began to oppose [it],” Lewis concluded. In 1883, when he visited England to lecture on the invitation of the Land Reform Union, the treasurer, Mr. Champion, and the secretary, Mr. Frost, both Socialists, waited on George and told him that, unless he advocated the nationalization of capital as well as land, the Socialists in the organization would be compelled to oppose his campaign. To this George sharply and justly replied that they should have been able to find out from his books what he stood for before they invited him.43

The upshot was that other reformers went their own way, leaving the land issue to the Single Taxers alone. What made their efforts so unsuccessful was the fact that despite George’s denial that his Single Tax was socialist, this was not how property owners saw it. The threat it posed to property and its income seemed more immediate and far-reaching than industrial socialism. The vested interests—including the financial interests, which in

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Ricardo’s day had favored industry rather than the landed interest— responded by promoting an anti-government individualism and a claim that all income was earned. This left by the wayside the idea of exploitative, unearned property and monopoly income as economic rent, picked up neither by the political right or the left. H. G. Wells worried that a full land tax would lead to much larger government. He wrote in his autobiography that he had picked up a copy of Progress and Poverty at a college bookstore during his Oxford days, and found it as implicitly statist as Marxism. The difference was that where Marxism advocated direct political control of the state by the working class, Wells believed that George’s program would lead to this same end simply by fiscal policy. He saw the life of mankind limited and dwarfed by the continual rise in rents. His naive remedy was to tax the landowner, as Marx’s naive remedy was to expropriate the capitalist, and just as Marx never gave his disciples the ghost of an idea for a competent administration of the expropriated economic plant and resources of the world, so Henry George never indicated how, in the world of implacable individualism he advocated, the taxing authority was to find a use for its ever-increasing tax receipts.44

Economic rent accounts for about a third of national income (and the bulk of “capital gains” in the form of loans and financial securities capitalizing the flow of rent). Should the government charge the full economic rent available under market conditions? Or, should it refrain from charging rent for essential public utilities? Neither George nor his followers answered these questions by explaining how their land tax proposal would work in practice. “If land were nationalised, and afterwards chartered to an Agricultural Guild, its amenities would be socialized,” wrote the editors of London’s New Age.45 “By this means the amenities that now confuse the Single-taxers would be eliminated as matters of contention.” But without proposing a quantitative explanation of how government would collect and distribute the flow of rent, George’s followers lacked a clear basis for engaging in serious political discussion. Their argument remained more philosophical than concrete. “The tenacity with which the Single-tax proposal sticks to life is proof that it contains an element of reason,” The New Age editors observed, “but the fact that its adherents do not increase in numbers is

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evidence that it also contains elements of unreason.” The missing element ultimately was political. It would take until the end of the 20th century for some of George’s followers to propose paying a “citizens’ dividend” out of public collection of land and resource rent, e.g. along the lines that the State of Alaska has done with its oil royalties. This would solve the problem to which Wells pointed, and would appeal to the libertarian movement that emerged in the late 20th century. But that movement is essentially anti-tax. In particular, it opposes taxing the higher wealth brackets— precisely those on whom a land tax would fall most heavily. The natural political allies for a land tax thus are not libertarian tax cutters advocating small government. George’s individualism thus turned out to be the Achilles heel of his reform effort, while his narrow focus on the ground rent of large absentee landlords set his Single Taxers apart from other reformers. The 20th century saw many libertarians sympathize with his individualism, but their opposition to strong government has disabled its ability to tax rent and land-price gains. The political effect of libertarian populism has been to oppose the taxation of property. This makes “libertarian Georgism” something of an oxymoron, and helps explain why there is less interest today in taxing real estate and monopolies than existed in George’s day, in contrast to the populist momentum that once existed for the Single Tax. 12. George’s Hope that the Single Tax Could Be Enacted Gradually Without Radical Confrontation

By the mid-20th century the major industrial economies had adopted most of the reforms advocated by George’s contemporaries. Land taxation was the major reform not to survive. Part of the explanation is that the labor and social welfare reforms proposed in George’s day were less threatening to property—and to mortgage lenders and other financial interests—than taxing ground rent. Full land taxation could have succeeded only by keeping the issue before the public and at the center of academic economics, combined with lobbying efforts backed by research reports and policy think tanks. Instead, George and his followers acted as if a few simple ideas would take on a life

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of their own. On purely abstract philosophical grounds without supporting statistical documentation to explain just what land taxation would mean in practice. This made the political platform nebulous as far as the concrete interest of voters was concerned. Central to George’s evolving political strategy was his hope that land taxation could be introduced gradually, as a merely technical reform with minimal political confrontation. The failure of this approach is reflected in the fact that of all the major reforms in George’s day, the Single Tax actually was the most radical, given the embedded character of land tenure in society’s wealthiest and most politically powerful families, and the fact that mortgage lending was becoming the banking industry’s major business. A wide gap existed between the far-reaching political implications of George’s land tax and the tentative political steps that he and his followers took. On the one hand he claimed that the Single Tax would transform the economy so fundamentally that it had to be the pivot on which all other reforms turned. This conviction led him to reject working with other reformers, whose efforts he felt to be a distraction. Yet his alliance with capital led him to pull his punches politically, by not acknowledging how great a threat the taxation of ground rent and other economic rent posed to the vested interests. Political confrontation was especially muted after his 1886 mayoral adventure inspired dreams of political acceptability among well-to-do supporters. After his death George’s followers proposed even more minimalist solutions, focusing on marginal local rather than national reforms. Robert Andelson recently observed: In recent years, the Georgist camp has sustained something of a rift between those who would direct its limited resources toward local (usually two-rate) property tax reform, and those who would focus on ambitious nationwide agendas.

The latter consider it “municipal trivialization” to woo city mayors and other local politicians and their major campaign contributors—real estate developers—as the cutting edge of land taxation.46 One wonders how people ever could have expected this local constituency to be a major vehicle for land taxation. Noting that “only homeopathy maintains that remedies are very effective in minute doses,” Andelson finds that

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land-value taxation now seems to be in retreat in so many places where it was established. Too mild an application of a beneficial program will produce benefits too mild to stimulate strong and enduring general support.

Andelson has cited my answer (Hudson 2000) to a hypothetical question he raised regarding how a tax on the land’s rent might be phased in gradually.47 The political problem is that such a tax would stop new purchases of property by buyers whose major attraction to real estate is the prospect of rising land prices and continued tax subsidy for absentee ownership and land speculation (e.g., by taxing capital gains at a lower rate than profits and other income, by deferring taxation of such gains, by almost unlimited depreciation allowances, and by tax deductibility of interest payments). Withdrawal by speculators would reduce demand by 15 to 20 percent, lowering property prices sharply. Meanwhile, introducing a full rent tax slowly and marginally would give property owners and Wall Street plenty of time to organize a public relations campaign to lobby against the tax and prevent further increases from being realized. It would be the late 19th-century fight all over again. In sum, what appeared merely as a rent problem in George’s day has become a financial problem now that mortgage bankers end up with most of the current rental income. Taxing rents fully today would threaten indebted real estate (and monopolies) with default and banks with insolvency. Although landlords no longer control the world’s lawmaking bodies, land and natural monopolies remain the economy’s largest assets, and hence the major form of collateral that can be pledged to creditors to pay interest charges. This fact has prompted the financial sector to throw its political support behind real estate and monopolies as its major customer. II Conclusion: George’s Political Legacy

PROGRESS AND POVERTY helped inspire the reform movement in the United States, yet George withdrew from its leadership despite his early position at its forefront. He was a loner, not a joiner. When New York City’s labor coalition nominated him as their celebrity

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candidate for mayor in 1886, he stripped away their reforms and ended up fighting with the political leaders and activists who were his natural constituency, moving to the right of the political spectrum. A modern-day follower of George has likened his attitude to what Sir Basil Liddell-Hart called the “martyr” character, in contrast to the “strategist.”48 The martyr’s lot is to declare what is right for the world to hear without softening the message, and typically to suffer the consequences, almost reveling in rejection by the vested interests. The strategist’s task is to get measures implemented. George selected followers whose tactics emulated his spirit of martyrdom rather than developing alliances. Following his proclivities, they moved to the right wing of the political spectrum rather than working with the most successful reform groups. To be sure, many socialists and anarchists, including Emma Goldman, were sent around the country speaking before early Henry George clubs. After George’s death, Louis Post’s Single-Tax periodical The Public was broadly pro-reform and gave sympathetic coverage to socialists. Still, the failure of the Single Tax movement can be attributed largely to its adoption of George’s own idiosyncrasies. He criticized the evils of landlordism without confronting the abuses of capital or placing land and real estate in the financial context of interest-bearing mortgage debt. Most seriously, he chose followers who made little attempt to develop a more general analysis along the broad lines that other reformers were pursuing. By focusing on ground rent to the exclusion of other forms of rentier income, and by opposing public regulation of industrial capital, they became opponents of mainstream reformers. Most became anti-socialist libertarians by the mid-20th century. Few played a role in academic economic discussion, nor did they create think tanks or research organizations to advocate land taxation. Most reformers, and also most industrialists for that matter, looked to the government to regulate the economy so as to minimize the exploitation and extortionate pricing in excess of what Patten called “physical valuation,” that is, direct non-rentier costs. A strong government was the only power able to counter monopolies, tax the land and collect economic rent.

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George’s strongest political quality—his ability to place the problem of land and its rent at the center of political discussion—became his greatest shortcoming when it became exclusive and sectarian. Rent theory came to be so closely associated with George’s increasingly pro-capital, anti-labor and anti-government politics that the land tax began to sound crankish, prompting other reformers to avoid it. Even critics of property came to reject George. The reforms of the New Deal in the United States and of Britain’s Labour Party and other European social democratic parties followed just the opposite political alignment and strategy from that which he advocated. Their reforms were successful; the Single Tax was left standing at the gate. This is what makes George so tragic a figure. His self-centered personality and political behavior helped bring about the opposite effect from that which he hoped to see. A major reason why subsequent reformers have ignored the land tax has been its identification with George’s reputation and his propensity—carried on by his followers—to fight against other reforms, especially those involving labor or strengthening government regulatory power. His denunciation of the landlord’s free lunch inspired many muckrakers to expose the railroads, mining trusts and other trusts being forged in Wall Street offices and other financial centers, and to denounce watered financial costs as being as economically unnecessary as land rent. But George himself not only refrained from extending his concepts, he attacked his own associates for “diluting” the aim of taxing the land. His “Single Tax” thus became so single-minded as to make his followers sectarian. Promoted by a sect of martyrs, the Single Tax remained the most deeply challenging and hence implicitly revolutionary proposal of the 19th century, without the political tactics that would have been needed to achieve concrete reforms in the face of the power wielded by property owners over government, the press and universities. The cultishness of Single Taxers became an excuse for dropping rent theory from the academic curriculum, despite its position at the center of classical political economy challenging landlords and other vested interests. The tragedy of Henry George was his self-destructive political strategy after he got bit by the political bug in 1885. He alienated his closest followers and would-be supporters by refusing to discuss debt

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and interest. His Single Tax offended the propertied classes by threatening their free lunch. His Progress and Poverty made land taxation a popular political cause. This made his natural allies the socialists and labor parties. But he offended them by his attacks on government and on labor unions, leaving his followers to focus so one-sidedly on land rent that rent theory itself came to be viewed as an ill-tempered sectarian exercise. Every dramatic hero has a tragic flaw. That of George was his encouragement of increasingly cultish followers who sought support from the propertied interests themselves—the very class against whom land taxation was directed—and from anti-socialists. George threw his support behind “capital,” and although his sectarian journal criticized monopoly gains, his books did not extend the critique of economic rent beyond land. The result was a failure to analyze extortionate monopoly “super-profits” as rent. So thoroughly did advocates of public rent collection disappear from active participation in public debate after the income tax was introduced that no meaningful calculations were made as to just how much land rent, monopoly rent or other economic rent existed to be taxed, how large the market value of land was or the annual gains in market price. Thus, as rentier interests lowered the tax rate on “capital” gains sharply below income tax rates on earned income (wages and profits), there was no basis for pointing out that most “capital” gains consist of rising land prices. Land remained the largest economic asset throughout the 20th century, and remains so today. But lacking a sense of proportion regarding the magnitude of its rent and proper valuation, advocates of land taxation had scant grounds for participating in debates over fiscal policy, or for countering the academic tendency to minimize rent. This attempt to trivialize ground rent and land valuation was shared by government statisticians. There was, in short, almost nothing to criticize in the idea that George had tried to popularize in Progress and Poverty. After World War I the economic, professional and political discussion became a one-sided defense of untaxing property rent and land-price gains. There probably can be no greater temptation to sectarian infighting than the existence of a financial endowment. This became the case

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with the Georgist-funded institutions, and helps explain the long history of lawsuits among them. Claims to be a “true believer” have become weapons—although legally blunt ones—as George is not around to respond. One looks in vain for followers of George with prestigious economic credentials such as those of other nonmainstream schools—the Marxists, Keynesians, monetarist Chicago School or post-Keynesians. Each of these schools has established its own journals and books, university departments, academically respected statistics and indeed, commentary on economic and social history to establish a working relationship with the mainstream. This cannot be said of George’s followers, and the problem may be traced back to George himself. In retrospect, one must conclude that George the politician turned out to be the worst enemy of George the economic journalist and reformer. This was the common theme of George’s political critics. Rarely has so well argued a tax reform with so wide an early following been handled with such political ineptitude. In my own belief, the main reason why George’s followers have been so politically ineffective in mobilizing popular support (or even discussion) of a land tax is their attempt to become junior partners in a political alliance with libertarians that never had much chance of success. Libertarian ideology in America is essentially an anti-tax ideology, and a land tax remains among the most politically contentious economic proposals, having been a major factor impelling mainstream economics since Clark’s day away from the classical antipathy toward the “free lunch” of economic rent to a rationalization of such rent—and even land-price gains—as being earned. By turning the Henry George Schools into a funnel into the anti-tax ideology of Ayn Rand and Ludwig von Mises, George’s followers have walked into an effective political wall, while breaking with the opposite wing of the political spectrum that still treats Progress and Poverty as a socialist classic. This political position reflects that of George himself. In the final analysis, this political problem boils down to one of personalities as loners prone to sectarianism, and a reluctance even to take their case of outsiders, that is, to the mainstream. Although Georgism failed to achieve land-value taxation for three reasons. First, although more than a century has passed since George’s death,

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Georgists have made no attempt to quantify the magnitude of land rent that can be taxed. Without such a calculation, it is not possible to give a sense of proportion as to how much of the federal, state and local budgets a land tax could provide. Second, no concept of economic rent has been popularized, although this concept was central to classical political economy. Land rent is the paradigmatic example, but other forms of property rent are also important—minerals and fuels, the broadcasting and communications spectrum, patents and monopoly rent. Without distinguishing gross real estate rent from net economic rent—and distinguishing the rent-of-location for land sites from that portion of gross rent that reimburses property owners for their buildings—there is no basis in theory, and hence in statistics and fiscal practice, for appraising the magnitude of economic rent. Third, Georgists have made no attempt to trace who ends up with land rent and other economic rent. This misses the symbiosis between mortgage banking and real estate that has developed over the past century. In Ricardo’s day, finance backed industry against England’s landlord class, anticipating that free trade would greatly expand markets for commercial lending. But by the late 19th century it became clear that real estate, monopolies and other rent-yielding assets were the major market for bank loans. For real estate investors in today’s world, the motto is: “Rent is for paying interest.” What the tax collector relinquishes is “freed” to be pledged to banks—for loans to buy rent-yielding property. But Georgists have deemed the analysis of finance and Wall Street to be a socialist concern, and emulate George’s own conflation of physical and financial capital. There has been no attempt even to trace the incidence of land-price gains (“capital” gains), and many Georgists view such gains as legitimate returns to capital rather than as financial capitalizations of land rent bid up on credit. Not even the post-2002 real estate bubble has spurred research and publication along these lines. The failure to place land rent and other forms of economic rent in its macroeconomic setting has blocked a serious discussion of land-value taxation from academia and congressional law making, and hence from playing the popular role that it did in George’s own day.

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Notes 1. Cherbuliez (1841: 128ff.). The title of this work, Wealth or Poverty? is remarkably similar to George’s Progress and Poverty. Marx (1971:Part III, 397ff) cites this work in reviewing the early literature on rent theory and land-tax policy. 2. Commons (1918: 448ff). Commons had founded a Henry George club when in college. His subsequent views reflect the disillusionment that many of George’s early admirers felt. 3. Barker (1955: 513ff). 4. Ibid., 563. Barker points out (565ff) that on the occasion of an academic debate in which George participated at the annual meeting of the American Social Science Association in George’s annus horrabilus 1889, E. R. A. Seligman pointed out that “Bellamy’s socialism had grown at George’s expense because it recognized that other values than land gained unearned increments.” Seligman elaborated this line of criticism in subsequent writings. 5. Ibid., 533 points out that this meeting “does seem a high point in Henry George’s lifetime. Yet he actually attended only one or two sessions. . . . He found freedom, before he left, to do some sight-seeing in the City.” 6. As late as 1923, George’s political manager Louis Post, who became Assistant Secretary of Labor from 1913–1921, published his Deportations Delirium of Nineteen-Twenty with Kerr. 7. Patten (1891: 355). 8. Ibid., 361. By “watered stocks,” Patten meant arbitrary financial charges for securities issued and built into the railroads’ transport charges, typically for “fictitious” capital claims arranged by the insiders who controlled the railroads for their own gain. 9. Sinclair (1924). For a discussion, see http://earthsharing.org.au/node/ 35. 10. Shaw (1995: 587ff). 11. For a full bibliography of Marx’s observations on George, see Hal Draper, Marx-Engels Cyclopedia (New York, Schocken Books), The MarxEngels Glossary (New York: 1986), p. 78, The Marx-Engels Register (New York: 1985), #E174 (p. 104), and The Marx-Engels Chronicle (New York: 1985), pp. 217 (#23), 218 (#31), 220 (#61), 228 (#19), 229 (#27), 245 (#47). In April or May of 1881, Marx received copies of Progress and Poverty from John Swinton and Willard Brown, and later another from Friedrich Sorge, organizer of the Working Men’s Party in New York. On June 2, he described George as a “panacea monger,” and on December 15 he noted that George had embarrassed himself as a “humbug” on his lecture trip to Ireland and England. He made marginal notes in George’s book on The Irish Land Question, which Sorge asked to publish along with Marx’s letters regarding George. These observations were printed in Engels’, 1887 pamphlet on The Labor Movement in America. The George movement—The Knights of Labor—The Socialists.

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12. Marx, [1847]: 155. 13. Letter from Nelson Field, The New Age, July 4, 1912, p. 239. The debate had begun in December 1908 and continued through Mr. Fels’s death in 1914. 14. Patten, “The Interpretation of Ricardo,” Quarterly Journal of Economics 7 (April 1893): 322–353, in Essays in Economic Theory (1924): 153. Hudson (1975) discusses Patten’s points further. 15. Anon., Socialism vs. Single Tax (1907: 45). A similar point is made in Maguire and Harriman (1895). 16. Progress and Poverty, Book 3, Ch. 4: “a government bond is not capital, nor yet is it the representative of capital. . . . The immense sums which are . . . taken from the produce of every modern country to pay interest on public debts are not the earnings or increase of capital—are not really interest in the strict sense of the term, but are taxes levied on the produce of labor and capital, leaving so much less for wages and so much less for real interest.” By “interest in the strict sense of the term,” George meant profits on direct investment. 17. Engels to Otto von Boenigk, Aug. 21, 1890 (Marx and Engels n.d.: 716). 18. Quoted by Louis Untermann, Anon. (1907: 4ff). 19. Social Problems, Ch. 16, and Progress and Poverty, Book 8, Ch. 3. 20. In “The Letter Carriers” (The Standard, July 14, 1888), George wrote: “The true reason for carrying of letters by the government is that the business is in its nature a monopoly. . . . as the development and integration of society goes on, still other necessary monopolies are arising. Thus the proper functions of government—national, state, and municipal—are constantly increasing.” See also Social Problems (Ch. 16, “The Functions of Government”): “The great ‘railroad question,’ with its dangers and perplexities, is a most striking instance of the evil consequences which result from the failure of the state to assume functions that properly belong to it. . . . a union of railroading with the other functions of government is inevitable. We may not like it, but we cannot avoid it. Either government must manage the railroads, or the railroads must manage the government.” Citing the Post Office, as well as England’s telegraph and parcel-carrying and savings-bank businesses as efficient government enterprises, George concluded: “All I have said of the railroad applies, of course, to the telegraph, the telephone, the supplying of cities with gas, water, heat and electricity,—in short to all businesses which are in their nature monopolies. . . . Businesses that are in their nature monopolies are properly functions of the state.” 21. Patten (1892). 22. Patten (1892: 96). 23. Flürscheim (1902: 353). 24. Arthur Kitson, A Scientific Solution of the Money Question, quoted in Flürscheim (1902: 356).

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25. Flürscheim (1902: 491), citing a letter of Aug. 28, 1890. 26. Tolstoy (1891: 133ff). This was the first major group of social essays translated into English. Flürscheim picked up Tolstoy’s essay in his Clue to the Economic Labyrinth (156ff). George’s followers have failed to mention this critique. 27. Flürscheim (1902: 85). 28. Bennett (1895: 38 and 26). 29. Brown (1898: 91, 127, and 94). 30. Brown (1898: 91). 31. Barker (1955: 533). 32. Ibid., 564. 33. The most he would grant was that “[t]here is no more reason why the state should lend its machinery of constables, sheriffs, courts, and . . . its prisons to the collection of the debts of the individual, than that it should undertake to black his boots in the morning or tuck him into bed at night. The abolition of all laws for the collection of private debts would not only free our judicial machinery from a clogging mass of business which to a large degree prevents its performance of proper functions, but it would unquestionably lead to a far higher standard of personal and commercial morality, since character would then be the prime element in credit” (“‘Various Matters:’ On the Debt,” The Standard, Feb. 11, 1888). In addition to being legally unattainable under the conditions of modern civilization, George’s position did not address the problem on which his financiallyoriented critics focused. 34. Socialism vs. Single Tax (see fn 12):17. 35. Ibid. 36. Thompson (1882). 37. See especially Report of the Commissioner of Patents, 1849 and 1852, Vol. II: Agriculture. I have surveyed these environmental arguments as they pertain to the trade debate in Economics and Technology in 19th-Century American Thought: The Neglected American Economists (New York: Garland, 1975): 353–370. 38. Barker (1955: 241). 39. Patten (1891: 356). 40. See Mason Gaffney, “Neo-classical Economics as a Stratagem Against Henry George,” in Gaffney and Harrison (1994: 29–163). 41. In Capital and Interest (1890), Eugen Böhm-Bawerk criticized George’s views as an example of “naive productivity theory” of capital and interest. 42. Flürscheim (1902: 471). 43. Arthur Lewis, Ten Blind Leaders of the Blind (Chicago: Charles H. Kerr):39f. 44. Wells (1936: 37). 45. “A Reformer’s Note Book,” The New Age, November 14, 1918, p. 26.

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46. Robert V. Andelson, “Neo-Georgism,” in Andelson (2004: 723). For a similar judgment, which he traces back to George’s own personality and policy, see Wenzer (2000). I discuss much the same points in Hudson (2004). 47. Ibid., 724ff., citing Hudson (2000: 23ff), “Land Taxation in Mesopotamia and Classical Antiquity,” in Andelson (2000: 23ff). 48. Hart (1967: xx–xxi). I am grateful to Dan Sullivan for this and for drawing my attention to numerous references from George’s writings, to Mark Sullivan for the reference to Tucker and to Bill Frambach for the Fillebrown reference.

References Andelson, Robert V. (2000). Land-Value Taxation Around the World. Oxford: Blackwell. ——. (2004). Critics of Henry George, Vol. 2. Oxford: Blackwell. [Anon.]. (1907). Socialism vs. Single Tax. A Verbatim Report of a Debate Held at Twelfth Street, Turner Hall, Chicago, December 20th, 1905. Chicago: Charles H. Kerr & Co. Barker, Charles Albro. (1955). Henry George. Oxford: Oxford University Press. Bennett, J. W. (1895). A Breed of Barren Metal. Chicago: Charles H. Kerr & Co. Böhm-Bawerk, Eugen. (1890). Capital and Interest [reprint Augustus M. Kelley]. Brown, John. (1898). Parasitic Wealth, or Money Reform. Chicago: Charles H. Kerr & Co. Cherbuliez, A. E. (1841). Richesse ou pauvrete. Exposition des causes et des effects de la distribution actuelle des riches socials Paris/Geneva: La Gallois. Commons, John R., ed. (1918). History of Labor in the United States (4 vols). New York: MacMillan. Fillebrown, Charles Bowdoin. (1917). The Principles of Natural Taxation. Chicago, JL: A. C. McClurg & Co. Flürscheim, Michael. (1902). Clue to the Economic Labyrinth. London: Swann Sonnenschein. Gaffney, Mason. (1994). “Neo-Classical Economics as a Strategem against Henry George.” In The Corruption of Economics. Ed. Mason Gaffney and Fred Harrison. London: Shepheard-Walwyn. Hart, Basil Lidell. (1967). Strategy. New York: Praeger. Hudson, Michael. (1975). Economics and Technology in 19th-Century American Thought: The Neglected American Economists. New York: Garland Press.

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——. (2000). “Land Taxation in Mesopotamia and Classical Antiquity.” In Land-Value Taxation Around the World. Ed. Robert V. Andleson. Malden, MA: Blackwell. ——. (2004). “Has Georgism Been Hijacked by Special Interests?” GroundSwell 17(1): 11⁄2, 4, 9–12. Kitson, Arthur. (1895). A Scientific Solution of the Money Question. Boston, MA: Arena Pub. Co. Lewis, Arthur. (1906). Ten Blind Leaders of the Blind. Chicago: Charles H. Kerr. Maguire, J. G., and Job Harriman. (1895). Single Tax vs. Socialism Debate Between James G. Maguire, M. C. and Job Harriman, June 16th, 1895. San Francisco, CA: American Section, Socialist Labor Party. Marx, Karl. (1847). The Poverty of Philosophy. Moscow: Progress Publishers. ——. (1971). Theories of Surplus Value (3 vols). Moscow: Foreign Languages Publishing House. Marx, Karl, and Frederick Engels (n.d.). Selected Works. Moscow: Foreign Languages Publishing House. Patten, Simon. (1891). “Ethics of Land Tenure.” International Journal of Ethics (1 April). ——. (1892). “The Theory of Dynamic Economics.” In: The Publications of the University of Pennsylvania, Political Economy and Public Law Series 3(2). ——. (1924). “The Interpretation of Ricardo.” In Essays in Economic Theory. Ed. Rexford G. Tugwell. New York: A. A. Knopf. Proudhon, P. J. (1876). What is Property? New York: Benjamin R. Tucker. Shaw, George Bernard. (1995). The Complete Prefaces: Vol. 2: 1914–1929. London: Lane. Sinclair, Upton. (1924). “The Consequences of Land Speculation are Tenantry and Debt on the Farms, and Slums and Luxury in the Cities.” In: Enclaves of Economic Rent for the Year 1923 (pp. 2–6). Harvard, MA. Thompson, Robert Ellis. (1882). Elements of Political Economy, with Special Reference to the Industrial History of Nations, 3rd ed. Philadelphia: Porter & Co. Tolstoy, Leo. (1891). Church and State, and Other Essays. New York: Benjamin R. Tucker). Tucker, Benjamin R. (1893). Instead of a Book. New York: Benjamin R. Tucker. Wenzer, Kenneth C. (2000). “The Degeneration of the Georgist Movement: From a Philosophy of Freedom to a Nickel and Dime Scramble.” In: The Forgotten Legacy of Henry George (pp. 46–91). Eds. Kenneth C. Wenzer and Thomas R. West. Emancipation Press. Wells, H. G. (1936). The Shape of Things to Come. New York: MacMillan.

GEORGE’S IDEAS

IN

DEBATE

Henry George, Emile de Laveleye, and the Issue of Peasant Proprietorship By JEROME F. HEAVEY* ABSTRACT. In Emile de Laveleye’s demonstration that communal landholding was universally a characteristic of primitive societies, Henry George saw evidence of a golden age before the development of private ownership of land. Though he agreed with George that unequal access to land was a major cause of the social evil of poverty, de Laveleye did not consider it the sole cause of poverty. Where George would nationalize land rent, de Laveleye would make private ownership more widespread; and he faulted George for giving too little attention to the question of how government would use the revenue from a land tax, and for failing to consider the concentration of capital as a cause of poverty.

I Introduction

ROBERT ANDELSON timed the first edition of The Critics of Henry George to celebrate the centennial of Progress and Poverty. The appearance of a second and enlarged edition a quarter of a century later was testimony to the growing interest in reexamining the debates between George and his critics. All who are interested in Henry George and who wish to learn about the reception that his work received can be grateful to Dr. Andelson for bringing together in one set of volumes these critiques of George by significant and influential writers on the land question. *The author is at the Department of Economics and Business, Lafayette College, Easton, PA 18042; e-mail: [email protected] An earlier version of this paper was presented at the Eastern Economic Association meetings in March 2005. American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

Henry George: Political Ideologue, Social Philosopher and Economic Theorist. Edited by L. S. Moss © 2008 the American Journal of Economics and Sociology. ISBN: 978-1-405-18751-0

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This paper discusses one of those critics, Emile de Laveleye, a man who studied the land question as carefully as did Henry George, who provided some of the important evidence upon which George based his conclusions, who saw much to praise in George’s work, and who was in considerable, though not complete, agreement with George on the importance of the land question to the social problem of poverty. However, de Laveleye differed with George on the solution to the problem and on the roles of capital and government. De Laveleye was an informed and careful critic, and his analysis can contribute to understanding George’s proposals and to evaluating their application in the 21st century. II Primitive Property

EMILE DE LAVELEYE (1822–1892) was a Belgian scholar and professor of political economy at the University of Liege. He was a contemporary of Henry George, and his major work was, like George’s, a study of the land question. His most famous book, De La propriété et de ses formes primitives, was published in 1873. The English translation by G. R. L. Marriott appeared in 1878, with the title Primitive Property. It is an investigation, across all the continents, of the early forms of property in land. The two men were familiar with each other’s work. In Progress and Poverty George quoted from Primitive Property1 and from an important paper that de Laveleye had given at London’s Cobden Club.2 Within a year of the publication of Progress and Poverty, de Laveleye had written a review of that book, and in 1882 he wrote a 21-page critique in the Contemporary Review. Both men explored the relationship between the distribution of land and the social evil of poverty. Both were convinced that the root of that evil was to be found in humanity’s unequal access to land. De Laveleye’s studies led him to conclude that the form of private property familiar to us today is a recent development, that in every society’s past the soil was held in common by communities bound by kinship. A characteristic of this communal land holding was that the period of time for which an individual had exclusive use of a plot of

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land was limited, usually to a few years, at the end of which time land was redistributed among the members of the commune. But: notwithstanding the periodic partition of lands, it is always to the advantage of the cultivator to till it well, as he alone takes the harvest, be it good or bad. This practice, therefore, strange as it appears, does not prevent the usufructuaries giving the soil good manure and proper dressings. (1878: 30)

A parallel passage from Progress and Poverty illustrates how fully George and de Laveleye agree that private property in land is not a necessary condition for production. All that is necessary is the right to the fruits of one’s labor. What is necessary for the use of land is not its private ownership, but the security of improvements. It is not necessary to say to a man, “this land is yours,” in order to induce him to cultivate or improve it. It is only necessary to say to him, “whatever your labor or capital produces on this land shall be yours.” Give a man security that he may reap and he will sow . . . . The ownership of land has nothing to do with it. (1992: Book VIII, Ch 1:398)

As the Russian mir testified, communal holding of land had not completely disappeared by the late 19th century. De Laveleye wrote that: Slavophils boast of these [communal] institutions as peculiar to their race, and assert that they must secure its supremacy, by preserving it from the social struggles which are destined to prove fatal to all Western States. Now, however, it can be proved,—and we shall here endeavour to prove,—that these communities have existed among nations most distinct from one another,—in Germany and ancient Italy, in Peru and China, in Mexico and India, among the Scandinavians and the Arabs—with precisely similar characteristics. When this institution is found among all nations, in all climates, we can see in it a necessary phase of social development and a kind of universal law presiding over the evolutions of forms of landed property. (1878: 2–3)

When Roy Douglas wrote a chapter on de Laveleye in The Critics of Henry George, he titled him “A Critic Ripe for Conversion.” These passages from the two authors illustrate why Douglas and other writers might have thought de Laveleye almost a full Georgist. Certainly, George and de Laveleye agreed on the importance of the land question. And de Laveleye’s view of the consequences that must befall a society that did not solve the land problem is no less apocalyptic than anything George wrote.

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The American Journal of Economics and Sociology The destiny of modern democracies is already written in the history of ancient democracies. It was the struggle between the rich and the poor which destroyed them, just as it will destroy our liberties, unless we guard against this danger. The ancient legislations did not fail to recognize the fundamental truth, so constantly repeated by Aristotle, that liberty and democracy cannot exist without equality of conditions. (1882: 804)

In all of this, de Laveleye appears to be a sharer in the Georgist creed, but what he says next explains why Douglas describes him as in need of conversion: To prevent insurrections and revolutions, it is therefore necessary that every citizen should have some property. . . . Montesquieu, summing up the doctrines of the ancients, reiterates again and again that equality of property is the only basis of democracy. (1882: 805)

Douglas and other writers, such as Barker, express surprise that de Laveleye, who is so right about the question, should be so wrong about the answer. How could a scholar so much in agreement with George on the nature of the problem be so misguided as regards the nature of the solution? Part of the explanation is that George and de Laveleye drew significantly different lessons from the latter’s survey of primitive societies. In Book VII, Ch. 4, George wrote: the investigations of such men as Sir Henry Maine, Emile de Laveleye, Professor Nasse of Bonn, and others, into the growth of institutions, prove that wherever human society has formed, the common right of men to the use of the earth has been recognized, and that nowhere has unrestricted individual ownership been freely adopted. (1992: 370)

George sees the disturbance of these primitive arrangements as the great injustice and the source of all social evil, but de Laveleye calls the primitive property arrangements “a phase of social development.” A few years later, in “Progress and Poverty: A Criticism,” he would write: but if private property has gradually everywhere replaced collective possession, it must present some advantages, and indeed so soon as improved culture necessitated the employment of capital on land, private and perpetual property became the natural and necessary reward of those labours. (1882: 798)

To the Georgist, this is heresy.

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III Peasant Proprietors

THOUGH DE LAVELEYE agreed with George that the cultivator does not require permanent property in the land in order to have an incentive to till the soil, he might require it as an incentive for long-term investment: What periodic partition does prevent, in great measure, is permanent and costly improvement, which a temporary possessor will not execute, as another would reap the profits. It is in this respect that the village community is evidently inferior to individual property. In all western Europe we have to admire the marvels accomplished by private ownership: while, in Russia, agriculture abides by the processes of two thousand years ago. (1878: 30)

De Laveleye saw communal holding of property as only one phase in the development of society, to be succeeded by private property when the latter system becomes the more efficient of the two. One of the developments that will bring this about is the addition of significant capital to agriculture, lengthening the time necessary for the tiller to harvest the fruits of his or her improvements to the soil. Of course, if the value of the improvements can be separated from the value of the land, then it is possible for the tiller to have private ownership of the one without private ownership of the other. In the time of George and de Laveleye such an arrangement was well known in part of Ireland. There, the “Ulster Custom,” enjoyed by Protestant tenants in the north, recognized the tenant’s rights to fair rent, fixity of tenure, and free sale of improvements. The reform begun by Prime Minister William Gladstone’s Irish Land Bill, which de Laveleye praised, was an extension of these “Three Fs” to the rest of the country. In practice, recognition of these tenants’ rights created a system of “dual ownership,” effectively giving the tenant occupancy in perpetuity, as long as the rent was paid, and the power to sell that right of occupancy. The landlord retained the legal title and the right to receive a rent, but the tenant could appeal that rent if he considered it unfair, and the land courts did regularly reduce rents. The dual ownership system in Ireland lasted only a short time, for Gladstone’s reform also made provisions for

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tenant purchase of land. These provisions were expanded by subsequent legislation, and within a few decades a population of tenants had become a population of peasant proprietors. There is a second factor leading to the development of private ownership. The communal landholding described by de Laveleye is kinship based, but in the state of society where most economic transactions occur between strangers, rather than between kin, individual ownership may be more efficient than communal ownership, just as money is more efficient than other forms of promises between strangers. Thus, while de Laveleye saw the transition from communal to individual ownership as an efficient step in the development of society, George saw it as a decline. Another instance where the two men drew different lessons from the same event is illustrated by George’s quotation, in Progress and Poverty, of a passage from Primitive Property that describes the situation of Flemish farmers, small landowners themselves, who rented out a part of their land. The tenant, although ground down by the constant rise of rents, lives among his equals, peasants like himself who have tenants whom they use just as the large landholder does his. His father, his brother, perhaps the man himself, possesses something like an acre of land, which he lets at as high a rent as he can get. In the public house peasant proprietors will boast of the high rent they get for their lands, just as they might boast of having sold their pigs or potatoes very dear. Letting at as high a rent as possible comes thus to seem to him quite a matter of course, and he never dreams of finding fault with either the landlords as a class or with property in land. His mind is not likely to dwell on the notion of a caste of domineering landlords, of “bloodthirsty tyrants” fattening on the sweat of impoverished tenants and doing no work themselves; for those who drive the hardest bargains are not the great landowners but his own fellows. Thus, the distribution of a number of small proprietors among the peasantry forms a kind of rampart and safeguard for the holders of large estates, and peasant property may without exaggeration be called the lightning conductor that averts from society dangers which might otherwise lead to violent catastrophes. The concentration of land in large estates among a small number of families is a sort of provocation of leveling legislation. The position of England, so enviable in many respects, seems to me to be in this respect full of danger for the future. (1992: VI, 1, 326–327)

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George then says: “To me, for the very same reason that M. de Laveleye expresses, the position of England seems full of hope.” That is, George expects that the extreme concentration of private land ownership in England is so objectionable that it must soon be rejected in favor of social ownership. “An equal distribution of land is impossible, and anything short of that would be only a mitigation, not a cure, and a mitigation that would prevent the adoption of a cure” (1992: VI, 1, 326–327). But that “mitigation” is precisely the cure that de Laveleye espoused. Referring to this passage in his Contemporary Review article, de Laveleye remarks that: I cannot admit that a more general distribution of land would not ameliorate the condition of agriculturalists. In support of his theory Mr. George does me the honor of quoting what I wrote in the Cobden Club volume . . . that small Flemish [tenant] farmers were far more rack-rented that the tenants of English landlords, even in Ireland; but this, of course, does not apply to small proprietors who have a share in all the advantages that economic progress may bring to the possessors of the soil. (1882: 796)

A few pages before the long passage quoted by George, de Laveleye had written: “As a rule peasant property is an excellent thing wherever the proprietor is himself the cultivator” (1881: 475). Heresy again. Were “an equal distribution of land” possible, we expect might that George would see it as a means to assure the just distribution of land rent. In the ideal arrangement, the land would be divided among households in such a way that every household would capture the same share of economic rent. In such a society, the total income of a household would consist of wages and rent. To the extent that a household would “exploit” itself by charging a rack rent to its own labor, it would also enrich itself by increasing its rental income. Clearly, the division between rental income and labor income would be meaningless. An analogous situation today is the sole proprietorship, where it makes no difference whether the net income is called the owner’s wage or the owner’s profit. Either way it is the income of the same person. Of course, the world is not described by this ideal arrangement, nor is everyone engaged in agriculture or extractive industries. In the

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developed countries, the majority of the population is urban, and in the developing countries, the proportion of the population that lives in urban areas is steadily increasing. Absolute equality of ownership in land is, as George said, an impossibility, but is it possible to have the ownership of land distributed in such a way that the resulting distribution of rental income would reach some acceptable level of equality? And can the acceptable level of equality be something less than perfect equality? Henry George explicitly argued that the answer to both questions is “no.” But the equality of ownership espoused by de Laveleye would be only a means to an end. The purpose of equality of ownership would be to assure that everyone would receive an equal share of rent. It is equality of rental income, not equality of ownership, that is the objective. But the land tax itself would also be only a means to an end. The choice between private and social ownership should be based on which is the better instrument for achieving equal sharing in rent. George wrote less about de Laveleye than de Laveleye wrote about George. In a letter dated February 17, 1880, George wrote to Dr. Taylor: I got yesterday the first European notice of our book. It is in the Parisian “Review Scientifique” signed by Emile de Laveleye. I got Phil Roach to translate if for me. It is first class—says the book has instructed him and led him to think, indorses substantially the whole programme; says the chapter on Decline of Civilization is worthy of being added to “DeTocqueville’s immortal work, etc.”3 (Barker 1955: 331)

Certainly, there was much in Progress and Poverty that de Laveleye approved, and there was much that he praised in his long commentary on the book in 1882, but there were significant disagreements as well. Charles Albo Barker summarizes the 1982 critique: This time the Belgian scholar shifted the weight of his comment away from the earlier degree of approval; he made a pretty evenly balanced series of observations pro and con. The socialist in him found many faults with George’s pro-capitalist ideas; with the book’s justification of interest and other rewards to Investment, with what Laveleye called George’s exaggeration of the increment of land values (even in California), and with his under appreciation of the profits taken in mining lands by reason of capital

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monopoly (apart from site monopolization) . . . and he repeated his original counter-proposition, that the best land reform would be lease tenures from the state. (Barker 1955: 385) IV The Role of Government

PUTTING ASIDE the matters on which George and de Laveleye agree, and the less significant of the items on which they disagree, there are three essential matters on which their opinions diverge. These are the role of government; the question of whether unequal access to land is the sole cause of social misery; and the growing importance of capital— the last two of these matters being sides of the same coin. De Laveleye is a supporter of a tax on land, but he does not consider it a panacea: While willing to admit the advantages of the tax-rent, which Mr. George so ably explains, I do not see in it the complete solution of the social problem. In the first place Mr. George does not sufficiently consider the important question as to what use the revenue thus placed at the disposal of the state would be put to . . . . If the revenues be expended fruitlessly by the state the situation becomes worse instead of better. (1882: 800)

Douglas contends that George provided a sufficient rejoinder to this objection in such sections as Book VI, Ch. 4, though George’s discussion of government in a land tax regime is mostly a listing of what government will no longer need to do.4 George assumed that rent properly collected would be rent properly distributed, and he stated his confidence that if all rent were to be collected by government, then government would provide its services in such a way that all persons would be equal sharers in these benefits. His confidence in the ability of government to achieve a just distribution of land tax revenue is in strong contradiction of his general disparagement of government motives and actions. In Book VI, Ch. 1, Section I, he explains why greater economy in government and reduction of government expenditures, though it would reduce the tax burden on those who live by their labor, would not improve their lot. And in Section VI of that chapter he argues against increased government interference in the economy, in other words, socialism, as contrary to the individual liberty that is essential for the life and development of society.

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George’s criticism of government extends beyond a condemnation of other taxes, and a selection of passages from Book VIII, Ch. 4 illustrates his contradictory attitude toward government: Indirect taxes are largely raised from those who pay little or nothing consciously. In the United States the class is rapidly growing who not only feel no interest in taxation, but have no concern in good government. But it may be asked: “If the tax on land values is so advantageous a mode of raising revenue, how it is that so many other taxes are resorted to in preference by all governments?” The answer is obvious: The tax on land values is the only tax that does not distribute itself. It falls upon the owners of land, and there is no way in which they can shift the burden upon anyone else. Hence, a large and powerful class is directly interested in keeping down the tax on land values . . . The ingenuity of statesmen has been exercised in devising schemes of taxation which drain the wages of labor and the earnings of capital as the vampire bat is said to suck the lifeblood of its victim.5

Why should so untrustworthy a system of government be entrusted with the stewardship of humanity’s patrimony? If legislators design taxes with an eye to their own benefit, will they not design expenditure programs out of the same selfish interest? De Laveleye makes a very modest statement of his reservations when he claims that George “does not sufficiently consider the question as to what use the revenue thus placed at the disposal of the state would be put to” (1882: 800). Government is much larger now than it was in 1879, and rentseeking behavior is ubiquitous. Public choice theory only confirms the description of “statesmen” as self-seekers that George expressed in Progress and Poverty. De Laveleye proposed the division of power by distributing rent among many self-interested small proprietors. If, instead, the single tax concentrates control of the mighty engine of rent among a handful of those “ingenious statesmen” described by George, how is it to be assured that they will use this power for the common good? V The Importance of Capital

GEORGE WROTE that once the rent tax was in place, “of the wealth produced in every community . . . [o]ne part would be distributed in

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wages and interest between individual producers, according to the part each had taken in the work of production” and “[i]n a condition of society in which no one need fear poverty, no one would desire great wealth—at least, no one would take the trouble to strive and to strain for it as men do now” (Book IX, Ch. 2). These lines are beautifully utopian, envisioning a world in which, though capital would be important to the production of wealth, no one would wish to accumulate any great amount of it, and thus a world in which accumulation of capital in the hands of a few can never lead to disparities of wealth and poverty: I come now to the essential part of Mr. George’s work. If misery and riches spread simultaneous, the cause, he says, is the defectiveness of the laws with regard to the distribution of property. . . . But I think that Mr. George is wrong in stating that this increase is the sole cause of the inequality of conditions. There is another, no less important,—viz., the constant increase of capital. One of the German “fathers” of scientific Socialism, RodbertusJagetzow, proved beyond a doubt that the share of total production absorbed by capital increases as the means of production are improved, while the relative portion received by wages diminishes . . . . The immense fortunes amassed so rapidly in the United States, like those of Mr. Gould and Mr. Vanderbilt, now proverbial, were the results of railway speculation, and not of the greater revenues of value of land. (1882: 793–795)

Roy Douglas takes particular exception to the Gould-Vanderbilt example, arguing that those fortunes were amassed by acquiring land on which to build railroads and state monopolies to prevent competition, that “these fortunes were mainly built, not on the value of capital, but on the value of land, and on the value of state monopoly” (2003: 50). The use of this example recalls de Laveleye’s criticizing George, quoted above by Barker, for his “under appreciation of the profits taken in mining lands by reason of capital monopoly (apart from site monopolization).” Perhaps the Gould-Vanderbilt fortunes demonstrated that great fortunes were no longer the result solely of large land holdings. From his research, de Laveleye had concluded that the primitive mixture of capital and land led to the development of individual ownership. The enormous growth of capital in more recent times, he might have added, makes it impossible to separate the question of land from the question of capital. Though, in some quarters, Henry

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George was called a socialist because he espoused the cause of the nationalization of land values, de Laveleye, himself a socialist, described George as a capitalist. He wrote that this matter of capital affected the very basis of George’s economic theories, and he faulted George for failing to take account of the large and growing share of income absorbed in the form of interest and dividends. While George argued that the elimination of taxes on labor and capital would encourage the production of wealth, and de Laveleye agreed with this, the latter argued further that unless population is constant, wages would return to their former level and all the benefit would go to the state as an increase in revenue and to capitalists as an increase in interest and deposits. VI Conclusion

DE LAVELEYE concluded his critique of Progress and Poverty with these words: “In my opinion there is but one true cure for the social evil: it is individual property generalized and assured to all” (1882: 801). It would be a mistake to interpret the word “property” as meaning only land. For individuals in the developed countries, avoidance of poverty requires access to capital, and especially to human capital. Even in the developing countries, most of the population is no longer engaged in agriculture or extractive industries. As the work of Hernando de Soto has shown, for many people the most important factor in overcoming poverty is not access to land but access to capital. De Laveleye’s critique suggests two tasks for Georgists. The first is an articulation of the role of government. At present, land rent is captured by many individual property owners, some of whom capture very large shares, but most of whom capture modest amounts of rent. Among the latter are individual owners of homes and small businesses. The land rent tax would concentrate all of this economic power in the hands of government. George’s explanation of how this would work is not adequate. Among the unanswered questions are the following: Will the federal, state, and local governments each have taxing power? How will land tax revenue be distributed among these levels? If the per capita level of rent is not the same in all regions, is

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there to be an equalization mechanism? If land must not, in justice, belong to any individual, may it belong to a group of individuals, to those who live in a particular town or a particular state, or a particular country? If nothing less than an equal distribution of the rent is acceptable, how is this to be accomplished not only within but across political boundaries? George wrote that an equal distribution of property was impossible, and nothing less was acceptable. Is an equal distribution of rent possible, and if it is not, is anything less acceptable? These questions of how rent is to be collected and distributed are crucial to determining how the different governments will determine their expenditures. And then there is the issue raised by George himself, quoted earlier, that government is unreliable, that those in office will use their power to promote their own interests rather than the common good. The second task suggested by de Laveleye’s critique is a further exploration of the importance of capital. De Laveleye’s analysis predicts that if rental income were distributed in accordance with George’s vision, still poverty would persist because of the concentration of capital income. George did not give this adequate attention in his own analysis, yet it must be resolved by those who seriously propose George’s policies in this century. Notes 1. See George (1992: 371, 374) for direct quotations from Primitive Property. George quotes indirectly in a few other places. 2. See George (1992: 325–326). 3. I have not read this review, but perhaps George saw more praise in it than was there, for he was sometimes too ready to perceive acceptance of his ideas where it may not have existed. An example of this may be the value placed on a letter received from British Prime Minister William Gladstone acknowledging receipt of an author’s copy of Progress and Poverty. “Gladstone, on one of his customary postal cards said (Hawarden, November 11, 1879): ‘Accept my best thanks for the copy of your interesting work, which reached me to-day and which I have begun to examine. There is no question which requires a more careful examination than the land question in this and other countries, and I shall set great store on whatever information you may furnish under this head’ ” (1911: 323). Despite what Henry George or his disciples might choose to believe, this postcard from Gladstone is not evidence that Progress and Poverty was having an impact on British policy

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making. It is a polite acknowledgment of the receipt of an unrequested book. In his diary, Gladstone described George’s book as “impractical.” Contrast this with the letter that Gladstone wrote on June 3, 1881, requesting that if the Cobden Club volume were out of print a new edition be published. 4. Nor would standing armies “long remain after the reversion to the old idea that the land of a country is the common right of the people of the country” (1992: 455). Elimination of standing armies assumes that all of a country’s neighbors would recognize that the land of Country A belonged exclusively to the people of Country A and that people of Countries B, C, and so forth had no right to use it. 5. This is reminiscent of Karl Marx’s statement that capital has a “vampire thirst for the living blood of labour” (quoted in Heilbroner 1999:155). References Barker, Charles A. (1955). Henry George. New York: Oxford University Press. Douglas, Roy. (2003). “Laveleye: A Critic Ripe for Conversion.” In The Critics of Henry George, 2nd ed. Ed. Robert V. Andelson. Malden, MA: Blackwell. George, Henry. (1992). Progress and Poverty. New York: Robert Schalkenbach Foundation. George, Henry, Jr. (1911). The Life of Henry George. Garden City, NY: Doubleday, Page and Co. Heilbroner, Robert. (1999). The Worldly Philosophers. New York: Simon & Schuster. Laveleye, Emile de. (1878). Primitive Property. Trans. G. R. L. Marriott. London: Macmillan and Co. ——. (1881). “The Land System of Belgium and Holland.” In Systems of Land Tenure in Various Countries: A Series of Essays Published Under the Sanction of the Cobden Club. Ed. J. W. Probyn. New York: Cassell, Petter, Galpin. ——. (1882). “Progress and Poverty: A Criticism.” Contemporary Review November: 786–806.

Frank H. Knight’s Criticism of Henry George By ROSS B. EMMETT* ABSTRACT. The ferocity of Knight’s comments on Henry George may come as a surprise to those who are not familiar with his criticisms of other economists and philosophers. But, in fact, his criticisms of George are not due to specifically Knightian insights on George’s approach, but rather reflect the different philosophical framework from which neoclassical economists like Knight think. At the core of Knight’s disagreements with George is his neoclassical theory of rent, as the Georgist critics of Knight understand. The article reviews the philosophical, economic, and ethical ideas that underlay Knight’s neoclassicism, and hence inform his criticism of George. The economic and social ideas of Henry George are as a whole at the same pre-arithmetical level, the level of those held before and since his time by all who have held any at all, apart from an insignificant handful of competent economists and other negligible exceptions. Henry George’s claim to be an economist (or social philosopher either) rests on the possession of linguistic powers not uncommon among frontier preachers, politicians, and journalists, and on the fact that his particular nostrum for the salvation of society appeals to a number of people, no doubt for the same reasons that made it appeal to him, and which give many other nostrums their appeal.1

*Ross B. Emmett is Associate Professor, James Madison College, Michigan State University. His two-volume edited collection The Selected Essays of Frank H. Knight was published by the University of Chicago Press in 1999. He is the editor of the forthcoming Elgar Companion to the Chicago School of Economics, the executive editor of the Biographical Dictionary of North American Economists, forthcoming with Thoemmes/ Continuum, and an editor of Research in the History of Economic Thought and Methodology. These comments prepared in response to Plassmann, F. and T. N. Tideman. (2004). “Frank Knight’s Proposal to End Distinctions Among Factors of Production and his Objection to the Single Tax.” History of Political Economy 36(3): 505–519; and Tideman, N. and F. Plassmann. (2004). “Knight: Nemesis from the Chicago School.” In: Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty. Ed. R. V. Andelson. Malden, MA, Blackwell. American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

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The intensity of Frank Knight’s attack on Henry George’s system of political economy may come as a surprise to some. For those who know of Knight’s attacks on the systems of other philosophers and social scientists of the time—from John Dewey and Mortimer Adler to Jacques Maritain and Terence Hutchison—it has a familiar ring.2 What comes as a surprise to someone familiar with those other attacks is that, whereas their intensity is matched by their frequency, Knight only makes his attack on George twice—in a review of a book on George’s philosophy in 1933 and then again in a short essay on the “single tax” published 20 years later in The Freeman.3 Other views that Knight attacked with equal ferocity were accorded more frequent attention in his work. Despite the forcefulness of his attack on George, Knight grouped his system with that of Major Douglas and other populist approaches, all of which receive little attention in his work. In the short compass of my comments on this session, I will identify three aspects of Knight’s attack on George that may help us to understand the nature of his attack, and why Georgist critiques of Knight such as the one offered recently by Tideman and Plassmann are less a criticism of unique Knightian views than the difference between the philosophical positions underlying George’s interpretation of classical economics and neoclassical theory. Let me preface my remarks by thanking Tideman and Flassmann for providing a Georgist response to Knight that usefully focuses the issues between Knight and George. Their article demonstrates that Knight didn’t simply misunderstand George, but disagreed with him on what both authors thought were central philosophical, ethical, and economic issues. As they say at the end of their article: The heart of the disagreement between Knight and George’s supporters is that George’s supporters see an important difference between the rent of land and other returns.4

Knight would agree with this characterization of the disagreement, but refuses to give ground to George’s supporters. What we are presented with, then, is a contrast between two economic approaches that disagree strongly about a central assumption. I have no intention of trying to settle the dispute! The first aspect of Knight’s response to George is philosophical. To put it simply, Frank Knight was allergic to proposals that called for

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single solutions to the problems of modern society. Today, we know him as a pluralist.5 In his own time, he was known for his skepticism about the overextension of any single principle of social or economic philosophy. George’s single-tax proposal seemed tailor-made to draw Knight’s ire: The single principle is that land rents should return to the society at large. George’s public promotion of his principle emphasized the fact that it would cure the evils of society, ending poverty through common prosperity. Knight’s response to philosophical systems that suggest one remedy for society’s ills is encapsulated in his 1951 presidential address to the American Economic Association: The right principle is to respect all the principles, take them fully into account, and then use good judgment as to how far to follow one or another in the case in hand. All principles are false, because all are true—in a sense and to a degree; hence, none is true in a sense and to a degree which would deny to others a similarly qualified truth. There is always a principle, plausible and even sound within limits, to justify any possible course of action and, of course, the opposite one. The truly right course is a matter of the best compromise, or the best or “least-worst” combination of good and evil. As in cookery, and in economic theory, it calls for enough and not too much, far enough and not too far, in any direction. Moreover, the ingredients of policy are always imponderable, hence there can be no principle, no formula, for the best compromise.6

This argument was repeated time and time again in his responses to various “solutions” to the social problem. His three favorite targets in the early 1930s were the neoscholasticism of Robert Hutchins and Mortimer Adler, the pragmatism of John Dewey, and positivism.7 He eventually combined the former with other religious approaches under the general heading of moralism. The second and third of these approaches were also merged, under the term he introduced: scientism. The second aspect of Knight’s attack on George that bears mention is, of course, economic. In the early 1930s, Knight began to rethink his way through economic theory, starting with cost theory. George’s single-tax theory was built upon the classical cost theory of David Ricardo, with its tripartite division between land, capital, and labor. It was this classical cost theory on which Knight focused his theoretical criticism. The language was strong, reminding us of

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Knight’s general rhetorical strategy of attack: His article on Ricardian theory (Knight 1999c), he tells us, is written on the premise that study of the classics is motivated by an interest in correcting their mistakes. Tideman and Flassmann make Knight’s rejection of classical cost theory the center of their critique of his response to George. They argue that Knight’s refusal to treat land differently than labor and capital simply misses the obvious fact that marginal land is brought into economic use not by its improvement, but by one economic agent excluding others from use of the land. Assuming that justice demands that everyone be able to enjoy land’s rewards, taxing land rents brings economics and ethics together. The problem here is not that Knight rejected what Georgists see as the obvious claims of justice, nor is it that Knight misunderstood the economic process of bringing marginal land into economic use. Rather, Knight disagrees with George and classical economics on the central issue of land use. Knight’s economic theory is built on the assumption that there is no difference between the way in which land, labor, and capital are brought into economic use. As he says in the second essay, the acquisition of “unearned wealth” by the heirs of those who initially acquired land is “not a sequel peculiar to land.”8 In Knight’s estimation, no factor of production is simply acquired—they are always produced. Or, to put it differently, if land may be acquired unimproved, so too may labor or capital. Knight’s position is one of the fundamental differences between neoclassical and classical economics. Finally, Knight’s attack on George has an ethical aspect. For Knight, social problems are ultimately ethical in character, not simply economic. No “single tax” can replace the wisdom gained from judgment of what we want now, and what we may come to be later. For Knight, social problems can only be addressed by social discussion, in which we consider the options, judge the relevance of various principles, and reflect upon who we are and what is good for us. The outcomes of those discussions can never be known in advance, either by appeal to moral principles or scientific prediction. George’s single-tax proposal, in Knight’s estimation, tries to substitute “scientific” conclusions for social discussion.9

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Notes 1. Knight, F. H. (1933b). “Review of The Philosophy of Henry George, by George R. Geiger.” Journal of Political Economy 41(5): 687–690. 2. See Knight, F. H. (1947). “Pragmatism and Social Action.” In: Freedom and Reform: Essays in Economics and Social Philosophy. New York: Harper & Bros; Knight, F. H. (1999). “ ‘What is Truth’ in Economics?” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press; Knight, F. H. (1999). “The Rights of Man and Natural Law.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press; and Knight, F. H. (1999). “God and Professor Adler and Logic.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. 3. The review was actually published twice: Knight, F. H. (1933a). “Review of The Philosophy of Henry George, by George R. Geiger.” International Journal of Ethics 44(1): 162–165; (1933b). “Review of The Philosophy of Henry George, by George R. Geiger.” Journal of Political Economy 41(5): 687–690; (1953). “The Fallacies of the ‘Single Tax’.” Freeman August: 809–811. 4. Tideman, N., and F. Plassmann. (2004). “Knight: Nemesis from the Chicago School.” In: Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty. Ed. R. V. Andelson. Malden, MA, Blackwell. 5. Hands, D. W. (1997). “Frank Knight’s Pluralism.” In: Pluralism in Economics: New Perspectives in History and Methodology. Ed. A. Salanti and E. Screpanti. Cheltenham, UK: Elgar. 6. Knight, F. H. (1999). “The Role of Principles in Economics and Politics.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. 7. Knight, F. H. (1947). “Pragmatism and Social Action.” In: Freedom and Reform: Essays in Economics and Social Philosophy. New York: Harper; Knight, F. H. (1999). “ ‘What is Truth’ in Economics?” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press; Knight, F. H. (1999). “Modern Thought: Is It Anti-Intellectual?” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. 8. Knight, F. H. (1953). “The Fallacies of the ‘Single Tax’.” Freeman August: 809–811. 9. Knight, F. H. (1999). “Virtue and Knowledge: The View of Professor Polanyi.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. References Hands, D. W. (1997). “Frank Knight’s Pluralism.” In: Pluralism in Economics: New Perspectives in History and Methodology. Ed. A. Salanti and E. Screpanti. Cheltenham, UK: Elgar.

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Knight, F. H. (1933a). “Review of The Philosophy of Henry George, by George R. Geiger.” International Journal of Ethics 44(1): 162–165. ——. (1933b). “Review of The Philosophy of Henry George, by George R. Geiger.” Journal of Political Economy 41(5): 687–690. ——. (1947). “Pragmatism and Social Action.” In: Freedom and Reform: Essays in Economics and Social Philosophy. New York: Harper. ——. (1953). “The Fallacies of the ‘Single Tax’.” Freeman August: 809–811. ——. (1999a). “God and Professor Adler and Logic.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. ——. (1999b). “Modern Thought: Is It Anti-Intellectual?” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. ——. (1999c). “The Ricardian Theory of Production and Distribution.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. ——. (1999d). “The Rights of Man and Natural Law.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. ——. (1999e). “The Role of Principles in Economics and Politics.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. ——. (1999f). “Virtue and Knowledge: The View of Professor Polanyi.” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. ——. (1999g). “ ‘What is Truth’ in Economics?” In: Selected Essays by Frank H. Knight. Ed. R. B. Emmett. Chicago: University of Chicago Press. Plassmann, F., and T. N. Tideman (2004). “Frank Knight’s Proposal to End Distinctions Among Factors of Production and His Objection to the Single Tax.” History of Political Economy 36(3): 505–519. Tideman, N., and F. Plassmann. (2004). “Knight: Nemesis from the Chicago School.” In: Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty. Ed. R. V. Andelson. Malden, MA, Blackwell.

SOCIAL PHILOSOPHY Apprehending the Social Philosophy of Henry George By CHARLES R. MCCANN, JR.* ABSTRACT. It is the purpose of this essay to consider but three questions regarding the social philosophy of Henry George that have to now received insufficient attention: George’s views with respect to the nationalization of land, the efficacy of socialism, and the place of the individual. One may conclude that George is ostensibly an individualist, who nonetheless declares an intent to limit individuality by social restraint; he cherishes the ideals of utopian socialism, while denouncing the directed order; he advocates the nationalization of land, but then is willing to accept private ownership (albeit without aggrandizement). Much is to be done in coming to terms with the fullness of the proposals offered by this social activist and radical philosopher. Robert Andelson’s impressive collection of critical appraisals of the principles and ideas of Henry George brings into focus nearly all of the major controversies surrounding George’s masterwork, Progress and Poverty. That this single work, from a journalist, no less, a mere popularizer, whose knowledge of economic theory came through an appreciation of the writings of the classical economic thinkers and not through any formal academic training, should generate such intense international interest and no small amount of consternation is a testament to the power of the message, if not the messenger. The Andelson collection stands as a testament to the grandeur of George’s work. Many of the great economists of George’s time (and *The author is a Research Associate, Department of Economics, University of Piltsburgh. This is a revised version of a paper presented at the 31st annual meeting of the Eastern Economic Association, held in New York City, March 4–6, 2005. I wish to thank Laurence Moss and Mark Perlman for helpful comments on earlier drafts. American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

Henry George: Political Ideologue, Social Philosopher and Economic Theorist. Edited by L. S. Moss © 2008 the American Journal of Economics and Sociology. ISBN: 978-1-405-18751-0

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since) contributed to the debate as to the substance of Progress and Poverty and the merits of the arguments therein developed. Francis A. Walker, John Bates Clark, Alfred Marshall, Richard T. Ely, Frank H. Knight, and F. A. Hayek are but a few of the eminent academics who felt it necessary to confront George on the issues addressed in his great book. While the coverage afforded by Andelson is impressive, some few lacunae remain. It is the purpose of this paper to consider but three questions that have to now received insufficient attention: George’s views with respect to the nationalization of land, the efficacy of socialism, and the place of the individual. I Argyll’s Attack

WE SHALL BEGIN by considering a quite serious charge leveled by the critic who perhaps took the greatest offense. In an acknowledged but otherwise neglected essay on Progress and Poverty, George Douglas Campbell, the eighth Duke of Argyll, presents an interpretation of George that is absolutely uncompromising in its ferocity and tenor. In “The Prophet of San Francisco” (1884), Argyll states in no uncertain terms his opinion of the works of George (not confined to Progress and Poverty): “Never, perhaps, have communistic theories assumed a form more curious, or lent themselves to more fruitful processes of analysis, than in the writings of Mr. Henry George” (Argyll 1884: 540).1 George’s depiction of the conditions of modern society is little more than “a picture only of the darkest shadows with a complete omission of the lights,” a portrayal of the problems afflicting industrial society that one might more realistically expect to find in the pages of a Victorian novelist than in what purports to be a sober analysis of the circumstances of the working classes and the plight of the poor. This representation is the drama of a “Pessimist,” who “has a theory of his own as to the only remedy for all the evils of humanity; and this remedy he knows to be regarded with aversion both by the intellect and by the conscience of his countrymen” (1884: 541). His solution to the ills of society, appearing to Argyll to call for a wholesale alteration of the

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existing social order, commends him as a “Preacher of Unrighteousness,” a scourge of custom and tradition, and destroyer of those institutional structures that are essential to the stability of any society. This is highlighted in the fact that “he goes to the roots of things, and shows us how unfounded are the rules of probity, and what mere senseless superstitions are the obligations which have been only too long acknowledged” (1884: 548). George’s great Satan is Thomas Robert Malthus, the preacher cum economist whose theory of population George expends considerable space in criticism—specifically, he argues that the Malthusian philosophy requires a static vision of human progress and so is in conflict with development theories, such as those of Herbert Spencer. To Argyll, George is as all communists who seek to promote their peculiar theories of social development by condemning the conclusions of the Parson—in the present case, Argyll insists that George actually accepts the empirical evidence as to the validity of Malthus’s theory, while stubbornly refusing to admit it the status of a law of economic development (Argyll 1884: 541–542).2 The reason is clear enough: “it would not suit his theory to admit that this cause can possibly be anything inherent in the constitution of Man, or in the natural System under which he lives.” He dares not place blame or lay fault, nor even deign to allow a place to such a notion as desert. Acknowledging the validity of a “law” of population would then certainly be out of the question, as it would not serve the ends to which George wishes to direct attention, for to do so would compel him to address the question of the moral character of man—a question of central import to Malthus—and to acknowledge the inevitability of the outcome. Instead, he changes the direction of the debate, focusing the force of his attack on the observation “that in all nations individual men, and individual communities of men, have hitherto been allowed to acquire bits of land and to deal with them as their own.” In so doing, George opts for a structural explanation, absolving the individual from any complicity in his own condition (1884: 542). This is, in compact form, the nature of the disagreement. It remains to delve into the specifics of George’s philosophy to see whether there is any merit to the charges.

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The avowed purpose of Progress and Poverty is to identify the source of increasing poverty in societies of great and increasing wealth and prosperity, a condition George takes to be endemic in the material progress of the modern industrial (read: capitalist, private property) economy.3 Such high rates of economic growth and the increases of national income and wealth that result from the modern industrial order act to exacerbate and not to alleviate the suffering of the laboring masses languishing in intolerable conditions amidst luxury and opulence. The reason for such disparity is (for George, at least) patently obvious: The wealth resulting from material progress manifests itself not in the furtherance of social well-being, but in the amassing of great personal fortunes, leading to gross inequalities in the distribution of wealth and in continually worsening relations among members of the community (now divided by virtue of the formation of social and economic classes). Capitalism and private property are, to George, the culprits. As one cannot rely on the institutions of the industrial order, left to their own devices, to provide the solution, George is led to consider six possible alternatives that had been regarded by others concerned with finding an answer as having potential—economy in government (restrictions on national debt and public expenditure), education of the workers (including the inculcation of habits of industry and thrift), unionization (as a direct means to increase wages and to protect labor), cooperation of labor and capital, governmental direction of the economy (socialism), and the redistribution of land. Each of these measures is deficient to the extent that each fails to address the “true” cause of poverty amidst wealth—that the wages of labor and the return on capital both decline in an advancing economy as a result of the inexorable increase in the share of the product of land rent (George 1879: Book VI, Ch. I).4 Some more robust remedy must be offered.

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With the problem thus stated, any proposed remedy must account for the fact of rent as an unearned and thus undeserved increment, and as such the argument to which our efforts must be directed redounds to the validity in terms of justice and morality of the private ownership of a common resource. It is almost axiomatic (for George) that there exists a “real and natural distinction” between the produce of labor and the “gratuitous offerings of nature,” the former being identified with the production of genuine wealth, the latter with the natural bounty of land (George 1879: 337). Only those things that have their source in human exertion may be granted the status of property; the true and rightful basis of property—the natural right of ownership—derives ultimately “from the title of the producer” and rests “upon the natural right of the man to himself,” and so possession by natural right and natural law is predicated solely on the existence of such title (1879: 334–335). As one can only legitimately claim ownership to the produce of one’s own labor, there is no moral basis on which to assert a “right” in nature to private property in land; land has “none of the moral sanctions of property” (George 1898: 265), and so all such titles are the creations of man, codified in law.5 It is with respect to made law, not natural law or natural right, that the sources of poverty and other of the social ills are to be found. Gross distortions in the distribution of wealth, in George’s view the very essence of injustice, are due to the monopolization of land, that is, with land being accepted in custom and law as the private possession of a select few instead of being regarded as the common property of the people as a whole (George 1879: 288). The vehicle by which this injustice has been allowed to occur is most clearly and evidently the very institutions of the State through which appeals are directed to the alleviation of the social maladies, although the ramifications of these arrangements were and are little appreciated and understood. Yet for George, the answer to the question of the source of social injustices is obvious: It is the disparity in wealth, brought about by institutional arrangements that have established private ownership in land, a system “which ultimately determines the social, the political, and consequently the intellectual and moral condition of a people” (1879: 295).

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What is the solution to the problem as stated, that is, the “evil” of private ownership of a resource that must be understood as being a common asset? For George, the solution is not as simple or straightforward as one might expect. He accepts that the notion of restricting land ownership or redistributing land holdings is not one to which any serious consideration should be given, as “[a]n equal distribution of land is impossible, and anything short of that would be only a mitigation, not a cure, and a mitigation that would prevent the adoption of a cure” (George 1879: 327). Any such “cure” for the manifest inequity of the property arrangement must account for the development of the society as a whole, and be such as to remedy as well the great social evils brought about by the private holding of the common resource, including among those evils poverty, inequality in the distribution of wealth, the existence of class distinctions (the subjugation of the many by the few), and those social injustices associated with the fact of labor being denied the full value of its product. This latter “fact” is the great concern that motivates George in his quest: If a man be rightfully entitled to the produce of his labor, then no one can be rightfully entitled to the ownership of anything which is not the produce of his labor, or the labor of some one else from whom the right has passed to him. If production give to the producer the right to exclusive possession and enjoyment, there can rightfully be no exclusive possession and enjoyment of anything not the production of labor, and the recognition of private property in land is a wrong. (George 1879: 336)

The private ownership of land cannot, in the end, be defended, according to George, by resort to arguments predicated on justice, as each has as equal a right to land as to air, that is, “a right proclaimed by the fact of their existence” (George 1879: 338). If, indeed, it is a “truth” that is beyond doubt, the acceptance of which is immediate once the facts are presented, “that there is and can be no just title to an exclusive possession of the soil, and that private property in land is a bold, bare, enormous wrong, like that of chattel slavery” (1879: 358), the most effective solution to the problems of poverty, inequality, and social injustice must be common

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ownership of land. As land “rightfully belongs to no individual or individuals but to the community itself,” private holdings, unjustified on any moral ground, represent that very evil that is the root cause of these iniquities (George 1898: 265). To extirpate poverty, to make wages what justice commands they should be, the full earnings of the laborer, we must therefore substitute for the individual ownership of land a common ownership. Nothing else will go to the cause of the evil—in nothing else is there the slightest hope. (George 1879: 328)

One simply cannot deny, declares George, what is by force of reason and empirical demonstration the great truth: “that the unequal ownership of land necessitates the unequal distribution of wealth.” With the problem thus identified, it remains only to effect a solution that is more than a mere palliative (as would, for instance, be the case with redistribution). As it is abundantly evident that in the nature of things unequal ownership of land is inseparable from the recognition of individual property in land, it necessarily follows that the only remedy for the unjust distribution of wealth is in making land common property. (George 1879: 329)

George’s first-best solution is, therefore, the confiscation by the State of all privately-held land holdings. It is to the State to ensure that the economic advantages accruing to those very few who have the great good fortune to hold title to the source of all wealth be, if only on moral grounds alone, imparted to all; fairness justifies any action that would lead to a more equitable result. By “abolishing all private titles, declaring all land public property, and letting it out to the highest bidders in lots to suit, under such conditions as would sacredly guard the private right to improvements,” one would “satisfy the law of justice” as well as “meet all economic requirements” (George 1879: 403). Thus does George seem intent on nationalization of land as the solution to those social disparities he takes great pains to identify. He even notes that, were people to become so incensed at the inequities engendered by the continuation of a system so blatantly unjust, they may very well take it upon themselves to nationalize land “in a much more direct and easy way than by purchase,” suggesting that his method would achieve the same end, while imposing a considerably lower toll (1879: 362–363).

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A difficulty, however, presents itself in the means to the effectuation of such a program, not the least of the problems being that of compensation for those who would be dispossessed, and the questions raised as to the justice of such a plan. After some consideration (and considerable venting), George finally seems to acquiesce, to allow that, after all, it may be possible to continue to tolerate private ownership in land, as long as the fruits of that ownership are distributed in such a manner as they would were the land taken as common property. It is not land ownership, per se, that is the great evil.6 It is the unjust and unearned increment to land owners, in other words, rent, which must be addressed. Land holders would be allowed to retain title to the land itself, and even to retain possession of improvements made upon the land as well as any and all personal property (George 1879: 367). But the rent, or the gain from the land that would ordinarily accrue to the title holder, would be completely appropriated by the State in the interests of the society as a whole. “We may safely leave them the shell, if we take the kernel. It is not necessary to confiscate land; it is only necessary to confiscate rent” (1879: 405; emphasis in original). The great transformation would then be from private ownership to private possession, with the distinction resting on the control of the unearned increment, that is, rent.7 “Let the land owners have, if you please, all that the possession of the land would give them in the absence of the rest of the community. But rent, the creation of the whole community, necessarily belongs to the whole community” (1879: 365–366).8 Thus is George prepared to accept a severely limited “revolution,” forgoing wholesale confiscation in the interests of a more immediate means to the equitable distribution of the product.9 C. A Note on Nationalization

Despite George’s own testimony on the matter, some have suggested that he did not in fact advocate the nationalization of land. Jack Schwartzman (2003), for one, insists that George was actually opposed to a policy of land nationalization.10 In addition, Schwartzman argues that George did not advocate “government aggrandizement,” and so his denial of socialist tendencies shows that, at least to Schwartzman,

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George’s “own mind was crystal clear” (Schwartzman 2003: 333). However, George’s own words call into question this conclusion: In this way [appropriating land rent through taxation] the State may become the universal landlord without calling herself so, and without assuming a single new function. In form, the ownership of land would remain just as now. No owner of land need be dispossessed, and no restriction need be placed upon the amount of land any one could hold. For, rent being taken by the State in taxes, land, no matter in whose name it stood, or in what parcels it was held, would be really common property, and every member of the community would participate in the advantages of its ownership. (George 1879: 406)

Schwartzman could then only realistically arrive at his conclusion by limiting attention to the second sentence of the above-quoted passage, while ignoring the first and the fourth, and, for that matter, much of the material in the book as a whole.

III George and Socialism

DOES GEORGE advocate socialism? Most modern commentators, it appears, answer in the negative,11 while some consider him important to the cause of socialism in that he took them to the mountaintop from which they could view the promised land.12 William Morris, the British poet, essayist, designer, and part-time political agitator, expressed his belief that, despite differences between himself and many of the other British socialists, on one side, and George, on the other, “we feel that his enemies are ours also, and that his end like ours is the winning of a due share of happiness and refinement for the workers of the world” (Morris 1884: 4). On the other hand, Karl Marx, who, in The Communist Manifesto, advocates the abolition of private property in land and the taking of all rents by the State for the public interest (Marx 1888: 74), nonetheless could not resist heaping derision on George: While Progress and Poverty “is significant in being a first, if unsuccessful, attempt at emancipation from orthodox political economy,” it is yet obvious that George’s program, as with all other such offerings affecting the appropriation of land rent, “is merely an attempt, tricked out with socialism, to save the capitalist régime and, indeed, to

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re-establish it on an even broader basis than at present” (Marx 1881: 101; emphasis in original).13 Marx’s alter ego, Friedrich Engels, continuing along similar lines, opines thus: What the Socialists demand, implies a total revolution of the whole system of social production; what Henry George demands, leaves the present mode of social production untouched, and has, in fact, been anticipated by the extreme section of Ricardian bourgeois economists who, too, demanded the confiscation of the rent of land by the State. (Engels 1887: 438–439)

To examine George’s position with respect to the question of socialism, we must turn to a review of his presentation in The Science of Political Economy (1898). Here, George argues that socialism suffers from four major faults that prevent it from being a viable economic and political philosophy. First, it is not “scientific,” inasmuch as it denies the validity of natural laws. Hence, it cannot be regarded as within the scope of political economy. Second, it is anti-religious and atheistic, and so “more destitute of any central and guiding principle than any philosophy I know of.” Third, it has no concept of the individual and hence no mechanism for the protection of individual rights (George 1898: 198). The fourth fault lies with the form of cooperation demanded of a socialist society. George identifies two forms of cooperation, directed and spontaneous (also termed conscious and unconscious).14 The former type aims at a specific result, and so is ends-directed; the latter has no identifiable aim, but rather is the result of the uncoordinated actions of many independent individual wills, each acting in his or her own best interest (George 1898: 383). The latter form of cooperation is that seen in the workings of the free market; the former is the form of cooperation required of socialistic schemes for the regulation and direction of economic activity. Directed action has a place, but that place is within the narrow confines wherein such activities are controlled to a given goal. Carried beyond this limited field of endeavor, such regulation fails. This George sees as “the fatal defect” of socialism—“any attempt to carry conscious regulation and direction beyond the narrow sphere of social life in which it is necessary, inevitably works injury, hindering even what it is intended to help” (1898: 391).15

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With the above stipulation as to George’s attitude toward socialism, we must return to his proposals in Progress and Poverty. Is the underlying philosophy of this work really nothing more or less than an advocacy of socialism (or, as Argyll insists, communism16)? George himself seems to suggest as much, as he readily acknowledges that socialism is both “grand and noble,” and even “possible of realization.” Given such expressions of support, he is not, it would seem, opposed on principle to such a utopian social order. However, as George recognizes that socialism is not simply confined to the governmental control of the means of production, but is instead a “state of society,” it is patently obvious, and is in fact so acknowledged, that such foundational structures as would be necessary for the realization of this ideal cannot be erected as superstructures upon an existing foundation to which it is of itself incompatible. A socialistic society cannot be “manufactured.” Rather, as society is an organism, such changes as would be required for its realization must be the result of spontaneous order, such that from “the free and natural development of all the parts will be secured the harmony of the whole” (George 1879: 321). The form of cooperation necessary to the direction of society must be of the spontaneous or unconscious variety, as noted. This should not, however, be taken as evidence against the allegation that George’s utopia is indeed socialistic, his protestations to the contrary notwithstanding. It is merely indicative of George’s belief that any such structural change cannot be confined to one aspect of the social order, but must instead be effected throughout—the transformation must be made wholesale through the political, economic, and social orders, and must be seen as a natural progression, not an imposition of an alien philosophy. Yet that socialism qua utopianism should ideally develop spontaneously does not prevent George from advocating its advance through directed means. The taking by the State of private property in land (whether the physical property or the factor product is quite irrelevant) will of itself effectuate great social change, which change may indeed be gradual and spontaneous. Under his proposal, the administration of justice, to take but one example, would be greatly improved, as land disputes would be all but eliminated. The reason for the elimination of such disputes is quite evident: The State would be “virtually acknowledged as the sole owner of

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land,” and so those who occupied the land would henceforth be little more than “rent-paying tenants” of the State (George 1879: 454–455). The resulting simplification of the governmental function would also, in George’s mind, be consistent with the ideals of Thomas Jefferson17 and Herbert Spencer,18 in the sense that this would eventuate in the end of government “as a directing and repressive power,” while at the same time achieving a realization of his personal (and quite independent) ideal, “the dream of socialism” (1879: 455–456): We should reach the ideal of the socialist, but not through government repression. Government would change its character, and would become the administration of a great co-operative society. It would become merely the agency by which the common property was administered for the common benefit. (George 1879: 456–457)

As if any further evidence were needed, one may review George’s statement on the subject elicited in a debate with the British Marxist Henry Mayers Hyndman: I can understand how a society must at some time become possible in which all production and exchange should be carried on under public supervision and for the public benefit, but I do not think it possible to attain that state at one leap, or to attain it now. (George and Hyndman 1885: 377; also quoted in Morton 1898: 228)

So while George seems to evince a disposition to socialism, his reluctance to advocate its pursuit may be said to have been on pragmatic rather than dogmatic grounds. Why, then, given his statements as to the desirability of achieving the socialist ideal, are so many reluctant to identify George with a philosophy to which, despite his overt protestations to the contrary, he clearly has such affinity?19 Perhaps it is because his program for the amelioration of the conditions of the poor and the dispossessed in industrial society is not one of radical social change but a more nuanced approach to that of, say, Marx, one that focuses more on the proximate cause. Consider in this regard George’s understanding of land and capital and the significance of the distinction. Importantly, and critical to his appreciation by the Marxists, George does not equate land with capital, and therefore his call for the appropriation of land (by whatever means) does not imply advocacy of State control of the means of production, by which is typically under-

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stood State ownership or State control of capital. Capital is, after all, “a term used in contradistinction to land and labor” (George 1879: 38), essentially being, as Marx observes, “stored-up labor” (1879: 164). It is “a tangible, material thing—matter changed in place, form or condition, so as to fit it for human uses, and applied to aiding labor in the production of wealth or direct satisfactions” (George 1898: 297).20 This makes capital of a fundamentally different nature from land, land being a factor fixed and determined, the true source of wealth. The dispute we must consider, then, is not between capitalist and laborer, but between landowners and those dependent upon the land, this latter “class” including both capitalist and laborer.21 Although land is defined especially broadly, as including “not merely the surface of the earth as distinguished from the water and the air, but the whole material universe outside of man himself” (George 1879: 38), it does not, insists George, include within its scope the unique resource of capital. As land and capital are distinct, the nationalization of land (or the taking of its product) cannot be equated (at least in George’s mind, and to his supporters) with any advocacy of socialism.22 In essence, George handles the tension between his tax initiative and the rest of his social philosophy by redefining the class in order to remove himself from it. He is neither a socialist nor a communist because he does not propose the public ownership of capital. In fact, he is rather consistent in his advocacy of free competition and individual enterprise, arguing that it is the monopoly of land holdings and not the monopoly of capital that is responsible for the immiseration of labor—were land more equitably divided, the workings of the free market would ensure the social progress of George’s vision, with the general attitude of laissez-faire making possible the realization of the socialist ideal (George 1879: xvii). Let George have the last word on this matter: We differ from the socialists in our diagnosis of the evil and we differ from them as to remedies. We have no fear of capital, regarding it as the natural handmaiden of labor; we look on interest in itself as natural and just; we would set no limit to accumulation, nor impose on the rich any burden that is not equally placed on the poor; we see no evil in competition, but deem unrestricted competition to be as necessary to the health of the industrial and social organism as the free circulation of the blood is to the health of the bodily organism—to be the agency whereby the fullest coöperation is to be secured. We would simply take for the community what belongs to

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Thus does George appear not so much the utopian socialist as the utopian capitalist, who sees in both a spirit of cooperation born of moral nature, which impels individuals to advance the welfare of all. IV George and Individualism

THE ARGUMENT OF George’s defenders seems to be that he cannot be considered a socialist because in his writings and speeches he consistently maintains a philosophy that may best be identified as individualist.23 This, of course, leads one to consider the question as to whether George may in fact be classed as an individualist. The evidence in this regard is, to say the least, not such as to suggest a conclusive answer. As with much of George’s commentaries, for every passage seeming to corroborate such an assertion, another can be found that may be construed otherwise. We shall, nevertheless, attempt such a classification. George, at times, maintains that the individual matters only insofar as he or she is part of the whole, the community. One cannot acknowledge the person apart from the society. Here his rhetoric is quite consistent with the position of Spencer, to the extent that Spencer’s social philosophy may be interpreted as being predicated on an encumbered, organic individualism (even though George may appear to hold to a social ontology).24 As an example, George’s position as to land reflects such a philosophy, his insistence upon a transcendent common good providing for him a more than adequate justification for his disquisition respecting the ethics of private holdings. Thus is George led, with respect to the single question of the ownership of the common resource, to disparage the individualist (and largely secularist) philosophy of laissez-faire as he promotes a more organicist (and ethically imbued) philosophy, such as that associated with communitarianism or conservatism.

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Argyll, his most ardent critic, obviously concurs in such a judgment. He rejects the notion that George is an individualist, as to be such would be inconsistent with his organicist, “communistic” tendencies: Like all Communists, he [George] regards Society not as consisting of individuals whose separate welfare is to be the basis of the welfare of the whole, but as a great abstract Personality, in which all power is to be centred, and to which all separate rights and interests are to be subordinate. (Argyll 1884: 546)

George himself, in more than one isolated passage, seems actually to substantiate such a conclusion, referring to the good of the community, and the needs of the social organism. Consider but the following commentaries from Progress and Poverty on the nature of man in his relation to society: There are people into whose heads it never enters to conceive of any better state of society than that which now exists—who imagine that the idea that there could be a state of society in which greed would be banished, prisons stand empty, individual interests be subordinated to general interests, and no one seek to rob or to oppress his neighbor, is but the dream of impracticable dreamers, for whom these practical levelheaded men, who pride themselves on recognizing facts as they are, have a hearty contempt. But such men—though some of them write books, and some of them occupy the chairs of universities, and some of them stand in pulpits—do not think. (George 1879: 464; emphasis added) Man is social in his nature. He does not require to be caught and tamed in order to induce him to live with his fellows. (George 1879: 509) Now the growth and development of society not merely tend to make each more and more dependent upon all, and to lessen the influence of individuals, even over their own conditions, as compared with the influence of society; but the effect of association or integration is to give rise to a collective power which is distinguishable from the sum of individual powers. (George 1879: 515)

And finally, consider the following from The Science of Political Economy: But man is more than an individual. He is also a social animal, formed and adapted to live and to coöperate with his fellows. It is in this line of social development that the great increase of man’s knowledge and powers takes place. (George 1898: 21)

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The American Journal of Economics and Sociology It is in this social body, this larger entity, of which individuals are the atoms, that the extensions of human power which mark the advance of civilization are secured. The rise of civilization is the growth of this coöperation and the increase of the body of knowledge thus obtained and garnered. (George 1898: 21–22)

That George views man as inherently a social animal is not, of course, sufficient to reject the claim that he is also an individualist; Ludwig von Mises, to whom one would never think of denying the appellation, makes the same declaration in Human Action (1949). Yet Mises (and others similarly inclined) would not have deigned to declare that each should subordinate personal interests to the general interest, or even to acknowledge the validity of such a concept. Personal liberty and personal freedom are the summum bonum in this regard. For George, by contrast, the summum bonum cannot be identified with individual desires, but is more appropriately expressed in terms of the bonum commune. This is the source of the great ideological divide. Thus, if one is to insist that George’s philosophy is individualist, one must also accept that he is not an individualist of the libertarian variety, nor even an individualist in the liberal tradition. Yet at the same time, one is loathe to attribute uncritically to him an ontology that denies individuality and thus asserts an independent community interest, as one may find, for example, in the communitarianism of Alasdair MacIntyre25 and even to a lesser extent in the conservatism of John Kekes.26 George’s variant of individualism is more attuned to that of John Dewey27 or Michael Walzer,28 both of whom emphasize individuality over individualism, in effect an “individualism” enveloped by a communitarian frame. This at once allows us to place him with Spencer, whose individualism seemed to find a peaceful coexistence within the social order. V Conclusion

The meaning of the title of this essay—“Apprehending the Social Philosophy of Henry George”—should now be apparent. This has been an attempt to grasp (if not fully to comprehend) the intent of Henry George’s social prescriptions and to place them in philosophical perspective, not an effort at consolidation or reappraisal.

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For all that has been written on his social, political, and economic thought, Henry George remains something of an enigma. He is ostensibly an individualist, who nonetheless declares an intent to limit individuality by social restraint; he cherishes the ideals of utopian socialism, while denouncing the directed order; he advocates the nationalization of land, but then is willing to accept private ownership (albeit without aggrandizement). Still, much is to done in coming to terms with the fullness of the proposals offered by this social activist and radical philosopher. Notes 1. Argyll is not alone among contemporaries in his characterization of George as a communist. See also the American educator and philosopher William Torrey Harris: “Karl Marx announced the pessimistic doctrine that under the existing conditions the rich are growing richer and fewer, the middle class fewer and poorer, the poor poorer and more numerous. It was this view, apparently, that led Mr. George to devote his attention to the subject of progress and poverty” (Harris 1887: 440). 2. “[L]ike all Communists, Mr. George hates the very name of Malthus. He admits and even exaggerates the fact of pressure as applicable to the people of America. He admits it as applicable to the people of Europe, and of India, and of China. He admits it as a fact as applicable more or less obviously to every existing population of the globe. But he will not allow the fact to be generalised into a law. He will not allow this—because the generalisation suggests a cause which he denies, and shuts out another cause which he asserts. But this is not a legitimate reason for refusing to express phenomena in terms as wide and general as their actual occurrence. Never mind causes until we have clearly ascertained facts; but when these are clearly ascertained let us record them fearlessly in terms as wide as the truth demands. If there is not a single population on the globe which does not exhibit the fact of pressure more or less severe on the limits of their actual subsistence, let us at least recognise this fact in all its breadth and sweep” (Argyll 1884: 541). 3. “This fact—the great fact that poverty and all its concomitants show themselves in communities just as they develop into the conditions toward which material progress tends—proves that the social difficulties existing wherever a certain stage of progress has been reached, do not arise from local circumstances, but are, in some way or another, engendered by progress itself” (George 1879: 7–8). 4. That this is not the case, and, in examining the empirical evidence, was not the case even at the time George wrote, see George Gunton (1887), and Harris (1887). A prominent corporate attorney and acquaintance of George,

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Thomas Shearman (1889), offers an unconvincing defense. (Shearman, by the way, is credited with having coined the term “Single Tax.”) On Harris’s attacks, see Charles Collier (2003). 5. “Since natural law can take no cognizance of the ownership of land, they [the political economists] are driven in order to support this preassumption to treat distribution and property as matters of human institution solely” (George 1898: 460–461). 6. Leo Tolstoy, however, does see private ownership of land as a great evil, and credits George with such an understanding as well: “I think Henry George is right that the removal of the sin of property in land is near, that the movement evoked by him was the last birth-throe, and that the birth itself is imminent—the liberation of men from sufferings they have borne so long” (Tolstoy 1905: 305). Yet while Tolstoy’s recommendation for the Russian Slavs is for the abolition of private ownership in land, he recognizes that George did not, in fact, require state ownership, but only a tax on land value (1905: 286). 7. Such a characterization may be found in John Pullen (2005). Pullen reads George as advocating abolition of private ownership, when he requires only restrictions, and so George is said to be confused in distinguishing ownership and possession. Yet a careful reading suggests George accepts that his second-best solution is indeed a restriction, not a wholesale abolition. 8. Gunton notes that such a plan “is a violation of his [George’s] fundamental proposition. To be consistent with his own definition he must insist that taxes shall be equally levied upon all values except labor, because all values except labor are land values. . . . Why should one class of land be discriminated against in favor of another?” (Gunton 1887: 25). 9. In a debate with Henry Hyndman, George expresses his position quite clearly: “I advocate the recognition of equal rights to land. As for any particular plan of doing this, I care little; but it seems to me that the only practicable way is to take rent for common purposes” (George and Hyndman 1885: 369). 10. Roy Douglas (2003) offers a similar argument. 11. Including Leland Yeager (2001) and James Busey (2003), to name but two. 12. Such is the perspective of George Bernard Shaw, a leading Fabian socialist: Progress and Poverty “was the work of a man who had seen that the conversion of an American village to a city of millionaires was also the conversion of a place where people could live and let live in tolerable comfort to an inferno of seething poverty and misery. Tolstoy was one of his notable converts. George’s omission to consider what the State should do with the national rent after it had taken it into the public treasury stopped him on the threshold of Socialism; but most of the young men whom he had led up to it went through (like myself) into the Fabian Society and other Socialist bodies” (Shaw 1928: 468).

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13. Marx also allows a personal aside: “He [George] also has the revolting presumptiousness [sic] and arrogance that is the unmistakable hallmark of all such PANACEA-mongers” (Marx 1881: 101). 14. The reader will note here the “influence” (unattributed) of Adam Ferguson. 15. In addition, George observes that socialism “fails to see that oppression does not come from the nature of capital, but from the wrong that robs labor of capital by divorcing it from land, and that creates a fictitious capital that is really capitalized monopoly. It fails to see that it would be impossible for capital to oppress labor were labor free to the natural material of production; that the wage system in itself springs from mutual convenience, being a form of coöperation in which one of the parties prefers a certain to a contingent result; and that what it calls the ‘iron law of wages’ is not the natural law of wages, but only the law of wages in that unnatural condition in which men are made helpless by being deprived of the materials for life and work. It fails to see that what it mistakes for the evils of competition are really the evils of restricted competition—are due to a one-sided competition to which men are forced when deprived of land. While its methods, the organization of men into industrial armies, the direction and control of all production and exchange by governmental or semigovernmental bureaus, would, if carried to full expression, means Egyptian despotism” (George 1891: 60–61). 16. After all, Marx himself notes that “Communism deprives no man of the power to appropriate the products of society; all that it does is to deprive him of the power to subjugate the labour of others by means of such appropriation” (Marx 1888: 70). 17. In his reply to Argyll, George quotes Jefferson approvingly: “I hold with Thomas Jefferson, that ‘the earth belongs in usufruct to the living, and that the dead have no power or right over it’ ” (George 1884: 138–139). 18. George offers agreement with Spencer’s argument as presented in Social Statics that land may, in accordance with “moral law,” be appropriated by the State (George 1879: 404). This position Spencer later repudiated, for which George roundly criticized him in A Perplexed Philosopher (1892). 19. Notes Shaw: “George actually felt bound to attack the Socialism he had himself created; and the moment the antagonism was declared, and to be a Henry Georgite meant to be an anti-Socialist, some of the Socialists whom he had converted became ashamed of their origin, and concealed it; whilst others, including myself, had to fight hard against the Single Tax propaganda” (Shaw 1904: 477). 20. “Capital is simply wealth (that is to say, the material products of human labour exerted upon land) applied to assist in further production” (George and Hyndman 1885: 374).

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21. Although, as Gunton observes, if indeed we accept George’s notion that land “‘necessarily includes not merely the surface of the earth . . . but the whole material universe outside of man himself,’” it must include all materials formed therefrom, as man can do no more than give utility through change in form to these offerings of nature (Gunton 1887: 23–24). 22. Cf. V. I. Lenin: “Confusing private ownership of land with the domination of capital in agriculture is a characteristic mistake of the bourgeois land nationalisers (including Henry George, and many others)” (Lenin 1907: 401). 23. Yeager (2001: 18–20) and Schwartzman (2003: 332) make this claim. 24. On this aspect of Spencer’s philosophy, see McCann (2004). 25. See especially his After Virtue (1981). 26. See especially The Case for Conservatism (1998). 27. Dewey’s The Public and Its Problems actually reads as George sans natural law and theism. 28. Walzer’s communitarianism differs from that of others within the “communitarian movement” in advancing an individualist ontology.

References Argyll, Duke of. (1884). “The Prophet of San Francisco.” Nineteenth Century 15(86): 537–558. Busey, James L. (2003). “Alcázar’s ‘Most Voluminous of All Assaults.” In: Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty. Ed. Robert V. Andelson. Malden, MA: Blackwell. Collier, Charles F. (2003). “Harris and His Anachronistic Attack.” In: Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty. Ed. Robert V. Andelson. Malden, MA: Blackwell. Dewey, John. (1927). The Public and Its Problems. New York: Henry Holt and Co. Douglas, Roy. (2003). “Laveleye: A Critic Ripe for Conversion.” In: Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty. Ed. Robert V. Andelson. Malden, MA: Blackwell. Engels, Friedrich. ([1887] 1990). “The Labor Movement in America.” Preface to the American edition of The Condition of the Working Class in England. In: Karl Marx/Frederick Engels Collected Works, Vol. 26: Frederick Engels: 1882–89. New York: International Publishers. Ferguson, Adam. ([1767] 1995). An Essay on the History of Civil Society. Ed. Fania Oz-Salzberger. Cambridge: Cambridge University Press. George, Henry. ([1879] 1929). Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth: The Remedy. New York: Modern Library. ——. (1884). “The ‘Reduction to Iniquity’.” Nineteenth Century 16(89): 135– 155.

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——. ([1891] 1906). The Condition of Labor: An Open Letter to Pope Leo XIII. In: The Complete Works of Henry George, Vol. 3: The Land Question. New York: Doubleday Page and Co. ——. ([1892] 1940). A Perplexed Philosopher. New York: Robert Schalkenbach Foundation. ——. ([1898] 1962). The Science of Political Economy. New York: Robert Schalkenbach Foundation. George, Henry, and H. M. Hyndman. (1885). “Socialism and RentAppropriation: A Dialogue.” Nineteenth Century 17(96): 369–380. Gunton, George. (1887). “Henry George’s Economic Heresies.” Forum 3(1): 15–28. Harris, W. T. (1887). “Henry George’s Mistake About Land.” Forum 3(5): 433–442. Kekes, John. (1998). The Case for Conservatism. Ithaca, NY: Cornell University Press. Lenin, V. I. ([1907] 1962). The Agrarian Programme of Social-Democracy in the First Russian Revolution 1905–1907. In: V. I. Lenin Collected Works, Vol. 13, June 1907–April 1908. London: Lawrence and Wishart. MacIntyre, Alasdair. (1981). After Virtue. Notre Dame, IN: Notre Dame University Press. Marx, Karl. ([1881] 1990). “Marx to Friedrich Adolph Sorge” (June 20). In: Karl Marx/Frederick Engels Collected Works, Vol. 46, Marx and Engels: 1880– 1883. New York: International Publishers. ——. (1888). The Communist Manifesto. Ed. Frederic L. Bender. New York: W. W. Norton. [English translation of 1872 German edition.] McCann, C. R., Jr. (2004). Individualism and the Social Order: The Social Element in Liberal Thought. London: Routledge. Mises, Ludwig von. (1949). Human Action. New Haven: Yale University Press. Morris, William. (1884). “Henry George.” Justice 1(12): 4. Rpt. in Salmon, Nicholas, Ed. (1994). William Morris: Political Writings: Contributions to Justice and Commonweal 1883–1890. London: Thoemmes Press. Morton, Oliver T. (1898). “Henry George and His Final Work.” Dial 24(283): 226–228. Pullen, John. (2005). “Henry George’s Land Reform: The Distinction Between Private Ownership and Private Possession.” In: Henry George’s Legacy in Economic Thought. Ed. John Laurent. Cheltenham, UK: Edward Elgar. Schwartzman, Jack. (2003). “Ingalls, Hanson, and Tucker: Nineteenth-Century American Anarchists.” In: Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty. Ed. Robert V. Andelson. Malden, MA: Blackwell. Shaw, George Bernard. ([1904] 1972). Letter to Hamlin Garland (29 December). In: Bernard Shaw: Collected Letters, 1898–1910. Ed. Dan H. Laurence. London: Max Reinhardt.

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——. (1928). The Intelligent Woman’s Guide to Socialism and Capitalism. New York: Brentano’s Publishers. Shearman, Thomas G. (1889). “Henry George’s Mistakes.” Forum 8(1): 40–52. Spencer, Herbert. (1872). Social Statics, or, the Conditions Essential to Human Happiness Specified, and the First of Them Developed. New York: D. Appleton. Tolstoy, Leo. ([1905] 1937). “A Great Iniquity.” In: Recollections and Essays by Leo Tolstoy. Trans. Aylmer Maude. London: Humphrey Milford. [Originally published in The Public, August 1905.] Walzer, Michael. (1983). Spheres of Justice: A Defense of Pluralism and Equality. New York: Basic Books. Yeager, Leland B. (2001). “Henry George and the Austrians.” American Journal of Economics and Sociology 60(5): 3–23.

CONCEPTUAL DEBATES REGARDING LAND

AND

RENT

The Marginalists Who Confronted Land By FRED E. FOLDVARY* ABSTRACT. Although the neoclassical turn in economics demoted land as a factor, important economists of neoclassical thinking, from neoclassical predecessors such Hermann-Heinrich Gossen through figures such as Leon Walras, did view land as a distinct factor of production. Walras, in particular, favored the use of land rent for public revenue. This paper examines the treatment of land by several neoclassical and Austrian economists and shows how, although the neoclassical school today has managed to bury land, some of the key figures who founded these schools did confront land as a factor. The burial of land is thus not inherent in neoclassical economics, but is a historical development that can be reversed.

Is land “special”? Each factor of production is “special” in having unique characteristics that are important in its contribution to the production of wealth. Labor is special because, if there is no slavery, then each worker is self-owned, and labor can only be hired over time and not owned by another persons. Capital goods are special because they are produced and are owned as well as hired. Land is special because it is a natural resource, not created or altered by human action. None of the factors of production have any special theory associated with them. The same theories of supply and demand, of elasticity, of marginal productivity, and of equilibrium or disequilibrium apply to all the factors.

*The author teaches economics at Santa Clara University; e-mail: [email protected] Parts of this paper are adapted from Gerstein and Foldvary (2006). An earlier version of the paper was presented at the HES 2006 Conference at Grinnell College, Iowa, at the session on “Henry George’s Influence on Economic Theory,” June 25, 2006. American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

Henry George: Political Ideologue, Social Philosopher and Economic Theorist. Edited by L. S. Moss © 2008 the American Journal of Economics and Sociology. ISBN: 978-1-405-18751-0

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Thus, Carl Menger (1871: 169), founder of the Austrian School, stated: “The existence of the special characteristics that land and the services of land . . . exhibit is by no means denied. . . . [Land] is fixed as to situation.” Menger (1871: 167) accepted as an application of general economic theory the classical Ricardian theory of differential land rent. Menger wrote, however, that Ricardo “brought to light merely an isolated factor having to do with differences in the value of land but not a principle explaining the value of the services of land to economizing men.” The land factor is divided into several types of land that have different characteristics. The supply of material land differs from that of spatial land or wildlife resources. Territorial space, the threedimensional surface of Earth, is fixed in supply on Earth, and therefore has no cost of production; but that characteristic is not true of other types of natural resources. The fixed supply that makes territorial space special as a subfactor is also true for other subfactors. There is for capital goods a fixed supply of antiques, and for labor a fixed supply of Mason Gaffneys. What makes the characteristic of a fixed supply special for space is that all matter has to be located in space, while we can live happily without antiques. Another special feature of space is that there are economies of density and proximity associated with some locations. Thus, by its necessity and productivity, land ownership is an entry monopoly, in that entry into the land business is possibly only by the transfer of title, as it is impossible to enter the spatial land business by increasing the supply. Mason Gaffney (1994) has presented the case that the neoclassical turn deliberately buried land. But just as land cannot be physically hidden, its rent cannot simply be ignored. In macroeconomics it is masked as part of interest and profit. In microeconomics, rent is masked as the producer surplus. Most teachers of economics don’t examine the paradox of there being no economic profit in a long-run competitive equilibrium, and yet the firms allegedly get a producer’s surplus, which is an economic profit. The paradox goes away when we realize that the surplus does not go to the owners but flows through as a return to the land factor. But several of the economists of the neoclassical turn did recognize the importance of land and its rent. This does not contradict Gaffney’s

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proposition but actually complements it, to show that the first neoclassical economists did not sweep land out of economics but rather it was subsequent landed interests who hijacked economics in order to make land invisible.

I The Neoclassical Turn

THIS CONCEPT OF marginal utility was pioneered by Jules Dupuit in papers published from 1844 to 1853, in which he developed the distinction between marginal and total utility and their relationship to demand and prices. The key theoretical insight of the neoclassical turn was the relationship of marginal utility and price. As stated by Menger (1871: 139): “The value of a particular good . . . is thus for him equal to the importance of the least important of the satisfactions assured by the whole available quantity.” The price one is willing to pay for another liter of water depends on the subjective value of the next liter, having already consumed some usual amount. This is similar to the theory of marginal productivity, by which a factor is paid its marginal product, not its average product. The crown of marginal analysis is optimality, that benefits are maximized where marginal costs equal marginal benefits. When marginal analysis became mathematized, it was simpler to use two factors, and rather than use land and labor, the original factors, mathematical economists used labor and capital, as capital goods could change while land was fixed. But some of the marginalists and their predecessors did not lose sight of the special role of land in economic theory and in the economy.

II Hermann Heinrich Gossen (1810–1858)

THE GERMAN ECONOMIST Hermann Henrich Gossen developed a theory of consumption based on marginal utility, published in Entwicklung der Gesetze des menschlichen Verkehrs, und der daraus fliessenden

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Regeln für menschliches Handeln (The Development of the Laws of Human Commerce, and of the Consequent Rules of Human Action), published in Brunswick in 1854. Gossen’s thought included the principle of diminishing marginal utility (the law of satiable wants, Gossen’s first law), the conditions for maximizing utility (that of the marginal utility of a unit of money being equal among all goods, Gossen’s second law), and the relationship between diminishing marginal utility and the law of demand. Regarding land, Gossen proposed that the state buy land and rent it out. The state, with better credit, would be able to buy land at favorable terms. As described by Walras (1990: 229), Gossen’s policy was that ownership of land would eventually belong entirely to the community, and that the community would lease plots to whomever offered to pay the highest rent. Gossen justified the collection of ground rent from efficiency rather than justice. He recognized that the highest land rent is generated by the most productive use of land. Gossen’s work was ignored by economists other than Jevons and Walras. Walras (1990: 231–232) lamented that Gossen’s ideas were ignored even in Germany. Although Gossen’s work has become recognized in the history of thought, his ideas about land and public finance continue to be ignored.

III Friedrich von Wieser (1851–1926)

CARL MENGER’s brief writing on land has been mentioned above. Another Austrian, Freidrich von Wieser, paid considerable attention to land and rent. A student of Menger, Wieser developed the concept of opportunity cost, and was the first economist to use the term “marginal utility” (Grenznutzen). In Natural Value (1889), he developed the theory of the imputation (Zurechnung) of value to factors from the values of the goods they produce. Ricardo had already analyzed that the rent of farmland is determined by the price of corn rather than the other way around. As a forerunner of Mises and Hayek in the calculation debate regarding socialism, Wieser found that the prices of factors and goods

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play a fundamental role in determining the optimal allocation of scarce resources. Even a communist state had land rent and should account for it. Regarding land rent, Wieser (1927: 340) recognized that: “Urban rent is that part of the rental which is paid as a premium for the advantages of the better location.” Joseph Schumpeter (1954: 935) says of Wieser’s (1909) work on urban rent that it: reads like an application of Ricardo’s theory of rural ground rent, Ricardo’s marginal land being replaced by the “peripherical” urban land that yields no higher rent when used for building than it would in its optimal agrarian use.

Moreover, Wieser (1889: 62–63) stated: The rent of land is probably the formation of value most often attacked in today’s economy. However, I think I shall demonstrate that even in a communist state, there must be a rent of land. This type of state, in certain circumstances, must calculate the output of land and must calculate in certain portions of land a larger output than in other ones: the circumstances on which such calculation is dependent are essentially the same that fix the magnitude and existence of the rent. The only difference is that in the current circumstances, rent goes to the private owner of the land which in a communist state would go to the whole community. (quoted in Ekelund and Hébert 1992: 352)

As Ekelund and Hébert (1992: 352) point out: Wieser’s analysis of value showed that the formation of value is a neutral phenomena. An understanding of natural value did not give any evidence in favour or against a socialist organization for society. . . . The natural value was the basis of value in all societies, in spite of the fact that natural value could be concealed by other factors (such as controls, authorizations, great differences in purchasing power and monopolies). Wieser was one of the first economists to point out the generality of valuation based in utility and in a very clear way, the usefulness of the market system whatever the social organization.

Murray Rothbard (1962: ch.12), an opponent of land-value taxation, criticized Hayek (1960) for stating that: the socialization of land [as a single tax] is, in its logic, probably the most seductive and plausible of all socialist schemes. If the factual assumptions on which it is based were correct, i.e., if it were possible to distinguish

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Rothbard added, “[a]lso see a somewhat similar concession by the Austrian economist von Wieser,” in “The Theory of Urban Ground Rent.” Wieser criticized the income distribution of the economies of his day. Wieser offered as examples of unearned income the urban rents raised by the increase in population and rents of rural land in big farms, as well as the abuses in the shares in the stock exchanges (Ekelund and Hébert 1992: 358). Wieser deplored monopolies of resources and products, but as reforms he concentrated on labor negotiation, antitrust legislation, and free trade. Thus, while he did not specifically advocate that public finance be based only on rent, nevertheless Wieser should be included as an economist of the marginal revolution, who recognized, confronted, and analyzed land and rent rather than dismiss it or blur it into other factors.

IV Léon Walras (1834–1910)

SON OF ECONOMIST Auguste Walras, Léon carried forward his father’s ideas on land. In 1870 he obtained a position as professor in the Faculty of Law in what would later be the University of Lausanne in Switzerland. From 1874 to 1877 he published the two parts of his Elements of Pure Political Economy, and in subsequent years he published The Mathematical Theory of Bimetalism, the Mathematical Theory of Social Wealth, and the Theory of Money. In 1892 he abandoned teaching, publishing his Studies of Social Economics (1896a, 1896b) and in 1898 Studies of Applied Political Economy, these two works being a compilation of previous writing, and the basis for the analysis presented here. A contemporary of Henry George, Walras mentioned George in his “Mathematical Theory on the Price of Land and Its Repurchase by the State” “as one of the many socialists I can mention who supported the right of the community over land.”

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Walras is widely known for his theory of general equilibrium and the Law of Walras. Walras’s law states that with n markets (hence, n equations and n items), if n-1 markets are in equilibrium, then the nth market must also be in equilibrium. There cannot be a net excess quantity demanded or supplied for the whole economy. What is almost unknown is Walras’s thought on social justice. Walras presented a solution for the distribution of the “social wealth” that was not due to individual exertion. He advocated the nationalization of land and the abolition of the prevailing tax system. Even if this could not be achieved in the near future, Walras believed that these ideal policies should be like a lighthouse, guiding politicians toward the right reforms. Walras’s thought on social justice was connected to his marginal analysis. The intersection from which both his theories—on general equilibrium and on justice—diverge is the concept of what Walras called rareté, or marginal utility. Walras used mathematics to demonstrate that utility is maximized where the marginal utilities are proportional to the prices. The price of a good increases if its marginal utility increases or if the quantity diminishes. The application to land is that in a growing economy, wages do not necessarily increase, while land rent necessarily increases. The intensity of the final needs satisfied by a plot of land, that is, the marginal utilities, keep growing along with the increase in population. Walras stated that: the fact of the appreciation of the land rent in a progressive society is a fact well proved by experience and well explained by reasoning, from which one concludes that to leave lands to individuals, instead of reserving them for the state, implies allowing a parasitical class taking advantage of the enrichment that should instead satisfy the always growing demand for public services. (1896b: 324)

This is the key point of Walrasian social and moral theory. If the value of land comes from nature and social effects from the growth of society, why should we not leave the benefit for the whole society? Walras believed that it is very difficult to cure wrongs already created, but that we can improve the future. Following Gossen’s prescription, Walras proposed the purchase of land by the state, which would then lease it out to the highest bidders. Walras

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proposed that the government would use the increase in the land rents that it would receive to finance the purchase until fully paid for, and then the state would use the rent as a source of income. Walras (1896b: 416–417) asked: Why we should allow that on one side for landowners get ever richer, while on the other side, the “proletarians” (low-skill workers) get [relatively] poorer by the sole fact that society develops? There is no right against right, and there is no time limitation status in favor of such an inequity, which is always persistent . . . A collective property of land, and the lack of taxes which would be its consequence, are not only two acts of justice, they are acts of essential interest for a nation that wishes to live. Justice is not a luxury, as we would say of a painting that one is deprived of hanging in one’s living room, if we have failed to purchase it; it is to society what health is to a human being, a thing the lack of which condemns society to obscurity and misery . . . Hence, if we have lost it, and wish to recover it, a regime, a treatment, an operation would be needed; it is necessary to undergo it. We must ask only one question: to know whether the sick person has the strength to support the treatment.

Walras was under no illusion that economists would accept his policy for justice and public finance. To economists, Walras (1896b: 424) had this to say: If you dare to put yourselves apart from the accepted ideas, all the academies, all the societies, all the journals, all the newspapers will close their doors before you. On the contrary, if you give evidence of submission in the contests that are open before you in this age in which the desire for fame and the need of success are so acute, your fortune will be completely secured.

Thus, said Walras, the establishment would support economists who support the status quo, and reformers would have a tough time getting accepted. Nevertheless, he thought that the value of a social and economic theory does not depend on the possibilities they may have to be immediately put into effect (1896b: 326). Unlike Henry George, Walras did not believe that the private ownership of land and its rent was inherently unjust. In seeming contradiction to his view of justice in the distribution of the rent, Walras (1896b: 421–423) stated:

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The owner of capital, whether personal, movable, or immovable, is the owner of the rent, the work, or the benefit of this capital, and owner of the products he receives as lease, salary or interest in exchange for the service of this capital.

This included land, which is why Walras proposed the repurchase of land and not its expropriation. Evidently, Walras thought that, once a person has bought land in the expectation of obtaining its rental value, it would be unjust to take this away by force. Thus, said Walras (1896b: 422): There are thus two types of social wealth to distribute: land and personal faculties, and there are two categories of society to which social wealth may be divided, the state and the individual. According to the principle of inequality of human traits, personal faculties should be attributed to the individual, and according to the principle of equality of conditions, lands should be attributed to the state. To say more than this is useless.

Walras noted that both conservative and socialist economists disregarded the central issue of land, whether because of lack of interest or lack of knowledge. Most economists ignore capitalization, the appreciation of land rent, and land value resulting from the increase of the marginal utility of land in a progressing society. This is, said Walras (1896b: 422), the theory of distribution of wealth based on justice. Walras’s theory of property encompasses a theory of taxation. The state as owner of the land should live on the income of the land, using part of it for its current expenses for public services, and using the rest in the formation of capital goods in the public interest. Walras (1896b: 424) thought it absurd to let private parties get the rent, and then tax their labor: After having let all social wealth [rent] fall into private property, efforts to obtain the income of the state become futile. Just as the individual has no right to the rent of land, the state has no right to an individual’s labor, wage, or products. It has no right to the capital, earnings, or interest coming from labor. It has no right to any property other than the rent of land.

Walras (1896b: 424) further wrote that: nature has given the land to all, and our personal abilities to each one. In accord with moral principles that can be deduced rationally, I conclude that we should use ground rent in common and our wages individually. If

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Walras (1896b: 424) notes that although there is not necessarily a pre-established equality between the territorial rent and the financial needs of the state, there is a harmony in the fact that “the total amount of territorial rent increases or decreases with the population and wealth of the nation, and as a consequence with the financial needs of the state,” similar to what Henry George wrote. On whether rent is greater or less than the revenue need for public goods, the position of Walras (1896b: 424) is that “the income of the state is variable, and an adaptation [of spending to revenue] is possible.” Walras proposed a combination of land-value taxes and land purchasing and leasing by the state. He said that the first step, however incomplete, would be to establish and administer land-value taxation by the state as also a co-owner of the land. This way, the state would be assured its portion of the rent and its future increase. In the system that he explains in his “Mathematical Theory of the Price of Land and its Repurchase by the State,” Walras (1896b: 424– 426) proposed that the state, without altering the basic elements of the land tax, become in effect a co-owner. Thus, the state would already be a partowner and would then purchase from landowners their remaining part, compensating them with bonds. The state, finally, would lease lands that would belong to it, to renters whether they be households, farmers, or industrial and merchant tenants. The amount of interest paid on the bonds could exceed in the beginning the amount of the ground rent that it would receive from the leaseholds, but as the leases generally increase with each renewal, and the payments to individual owners diminish by the redemption of titles, the deficit would turn into a surplus. When this process reaches its finally stage, the state, owner of all the land, will thrive on leasing it, and taxes would be abolished. The modern world would have cured its social wound, a thing that the ancient world could not accomplish.

Thus by obtaining lands for the state, we would confront and solve the primary social problem, the maldistribution of wealth among men in

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society, and, corresponding to this, preventing landowners from benefiting disproportionately from the increasing productivity of the economy. In his vision of competition and a free market, Walras (1896b: 424–426) also wanted to avoid monopolies in industry, to prevent particular industrialists from exploiting their pricing power to make extraordinary gains. The state, he says, should intervene to enhance competition (i.e., reduce pricing power), and when it cannot do so, it should undertake the activities directly or regulate the firms in the most convenient way. The inclination of landowners, workers, and capitalists is to create a monopoly in the input services, and that of entrepreneurs is to form monopoly cartels for products. If the monopoly is contrary to the public interest, the state should impede these in every case that is not based on natural moral law.

For Walras, one condition of competitive private enterprise is that the individuals are free to increase their utility. The other condition is that the number of firms in an industry can freely increase. The first is not possible in collective services, and the second is not possible for natural monopolies. Such industries, he concludes, should be run by the state or under its supervision. Walras may have underestimated the knowledge needed to carry out such a policy, and the political incentives that could result in outcomes far removed from the ideals he espoused. Walras differs sharply from Henry George on compensation to landowners, Walras believing that the title holders should be paid the market price, George being opposed to compensation. There is otherwise remarkable agreement on economic and moral theory and on policy. George was unfamiliar with Walras’s ideas or the similar ideas of his father, August Walras. The Walrases’ writings were not widely propagated in translation until after the death of George. What is interesting in Walras is that his policy is not centered only on the theme of tapping land rent to solve the social question. In addition, like George, Walras makes economic freedom—free trade, free markets, and competition—a foundation for his system. Like George, Walras paid homage to the French physiocrats of the 1700s, who

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espoused free trade and the impôt unique, the single tax on land rent. For Walras, the free market is the general and superior basis for the production of wealth. Walras (1896b: 426–429) declared: It will always be the honor of the first economists (the Physiocrats) to have recognized, our merit, that of the mathematical economists, to have demonstrated, that the free market is, within certain limits, a self-propelled and self-regulated means for the production of wealth, if we deem people capable of knowing and pursuing their interests, that is to say, that they are rational and free-willed persons. Given this condition, which is sound and legitimate, we shall demonstrate, as we have already seen, that in a free and competitive economy, prices and quantities spontaneously tend towards an equilibrium which maximizes utility and reflective of the scarcity of and value ascribed to resources.

In connection with protectionism, Walras (1896b: 425–426) and George are of one mind: Regarding commerce, the great question put forward whether there shall be free international trade or else protection. Applied economics, based on pure theory, shows that free exchange, the essence of industrial and commercial activity, has only advantages and no harm, but only if the socialization of land and the suppression of taxes is also resolved.

Walras (1896b: 426–429) added: No applied science will know how to offer a general and superior rule with better proof than this one of the free market. Nevertheless, it bears repeating that to institute and maintain a competitive free market is a legislative task, one of complicated legislation, a task that necessarily pertains to the state.

That such important thoughts regarding land and taxation, by such a prominent economist as Walras, could be sequestered in such a way only demonstrates how much the monopolistic power of land ownership drives publication and education in our “free” societies.

V Vilfredo Pareto (1848–1923)

AN ITALIAN ECONOMIST AND SOCIOLOGIST, with respect to general equilibrium and the application of mathematics to economics, Vilfredo Pareto

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was a disciple and follower of Walras, who in fact nominated Pareto to succeed him in the chair of political economy at the University of Lausanne in 1893. However, Pareto did not follow Walras’s ideas on land nationalization, being more inclined toward solutions based on taxation, although proposed in a rather diffuse and tangential way. Like Walras, Pareto was at first an engineer, graduating from the Polytechnic University of Turin. His “Manual of Political Economy,” published in 1906, contains his major contributions to economics, including his theory of ordinal utility, his analysis of tastes and obstacles in the determination of value, his theory about the maximization of “ophelimite” (a term he takes from Greek and with which he refers to marginal utility), and a statistical theory about distribution of income, known as the “Pareto income curves” or “Law of Pareto.” Joseph Schumpeter (1954: 859) distinguished among four spheres of Pareto: sociology, the Pareto law of the statistical distribution of income, his theory of value, and the rest of his economics. Regarding Pareto’s political views, Schumpeter (860) says: watching with passionate wrath the doings of politicians in the Italian and French liberal democracies, he was, by indignation and despair, driven into an anti-étatiste attitude which, as events were to show, was not really his own.

Regarding his “income curves,” Pareto (1896: 408) said: Experience reveals to us a singular fact: that the curve of distribution of income has little variation, either in space or in time, for civilized societies for which we have statistical information.

According to Pareto, there is something in human nature, which he did not identify, that causes an unequal distribution of wealth. Whatever system may be adopted, the inequality curve will tend to return to its original position. Hence, the only hope for social improvement comes from economic growth: To increase the lowest level of income or to diminish the inequality of incomes, it is necessary that wealth grow faster than population. Here we may see that the problem of improving the conditions of the poorer classes is mainly a problem of the production of wealth. (1896: 408)

Differing from the English partial-equilibrium tradition of Marshall and Pigou, Pareto built his theory of economic growth on Walrasian

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general equilibrium. For Pareto, the cost of production does not determine the price of a good, but neither does the price of the good determine the cost. These figures are simply related by the conditions of equilibrium. This contrasts with Austrian theory, in which the factor prices are imputed from the value of the goods they produce. In a competitive industry, prices do tend to equal costs of production, but only because if the subjective value of the good is too low, the factors will not be employed at all. If the price of a good yields an economic profit, more factors will be attracted, increasing the supply, reducing the marginal utility and price, and thus making the price equal to the marginal costs of production. Pareto (1906, quoted in Boncoeur and Thouement 2000: 51) adds: It is good to note that the strength of the opinion according to which there must be one cause for value is so big that even Leon Walras could not avoid it. . . . Walras expresses contradictory notions. On the one hand he says that “all the unknowns of the economic problem depend on all the equations of economic equilibrium,” which is a good theory, and on the other hand he says that it “is true that marginal utility (ophelimite) is the cause of the value of exchange,” and this is reminiscent of past theories that do not correspond with reality. Nevertheless in his texts he points out that the merchandise is “scarce” for the desires to be satisfied as a consequence of the obstacles that should be faced to obtain it. In this context, that is to say having in mind the obstacles, the notion that “scarcity is the cause of the value of exchange” is less inaccurate.

Pareto was thus more of a general equilibriumist than Walras. An economist of the Austrian School would point out here that costs are also subjective, the economic cost being in reality the foregone opportunity, what is given up in doing something. Thus, the opportunity cost of labor is the foregone leisure, and the amount of labor one supplies depends on the relative subjective values, and marginal utilities, of more goods versus more leisure. Land has no opportunity cost, so its market price is unrelated to any social cost, but is based on the marginal utility of extra land or the imputed value of the goods produced at that site. Henry George’s (1897: 252–253) view of the relationship between prices and subjective values is much like that of the Austrians. To George, value is:

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a feeling, and so long as it remains merely a feeling, it can be known only to and can be measured only by the one who feels it. It must come out in some way into the objective through action before anyone else can appreciate or in any way measure it. . . . Thus it is that there is no measure of value among men save competition or the haggling of the market, a matter that might be worth the consideration of those amiable reformers who so lightly propose to abolish competition.

Pareto builds his socioeconomic analysis upon what he calls the “maximum of ophelimite,” known as the “Pareto optimum.” He starts from the premise that it is impossible to measure interpersonal utility, which cannot be expressed with numbers. Free trade is based, as stated by Adam Smith, on the idea that the exertions of individuals pursuing their interest and personal benefit, under the pressure of competition, will result, as if guided by an invisible hand, in the general welfare of society. The British philosopher Bentham, founder of philosophical utilitarianism, later defined social well-being as the sum of the utilities of all the members of society. But the neoclassicals deemed it impossible to compare different persons’ satisfactions, as it was impossible to cardinally measure an individual’s utility. Pareto proposed a solution to this quandary, based in the “indifference curves” of the consumer, proposed by Edgeworth in 1881. Pareto thus develops the theory of ordinal utility, based in the assumption that the consumer is capable of classifying in a coherent way different baskets of goods in ordinal orders according to preference. An indifference curve does not represent a cardinal amount of utility, such as a person’s height, but just an ensemble of baskets of goods occupying the same level of total utility in the preferences of the consumer. When a consumer passes from one curve to a higher curve, he may say he increases his satisfaction, but not by how much. The difficulties inherent in the cardinal measure of utility are avoided, but the effectiveness of the system ceases when we try to project comparisons of interpersonal utilities to judge a certain economic condition. But with ordinal indifference curves, we can determine utility maximization within a budget constraint, namely, the highest indifferent curve tangent to the budget line. That tells us the mix of goods that maximizes an individual’s utility.

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Pareto applies this to the economic welfare of a group of persons. Pareto’s social optimum consists of reaching an economic condition, such that it is not possible to improve the position of anyone without worsening that of another. As long as we have not reached this situation, Pareto optimality has not been achieved; a “Pareto improvement” is then possible, where one can increase the utility of one person without reducing that of anyone else. In the Paretian approach, this optimum is a criterion of efficiency rather than of distributive justice. Many Pareto-efficient states are far from being ethically optimal. Pareto leaves justice to applied economics, political science, and sociology. However, Pareto optimality is congruent with the Georgist insight that we can have both more efficiency and more equity relative to today’s economy. A shift to public revenue from land rent would increase efficiency and equity, as Mason Gaffney has also pointed out. In principle, we could pay those who lose from the shift and still have an overall gain, so the Georgist tax shift, abolishing taxes on productive action and shifting public revenue to land rent, would be a Pareto improvement. Without compensation, however, Pareto optimality is useless for policy, since almost any change will make somebody somewhere worse off. With respect to government, Pareto (1896: 386–387) states that there is a political type of class struggle: in which each class tries to seize the government to turn it into a machine of exploitation. The struggle of certain individuals to take possession of the wealth dominates the entire history of humanity. It hides and disappears under the most diverse pretexts, which have often mislead historians. . . . The dominant class does wrong not only to the classes that are dispossessed; it does wrong to the whole nation, because as exploitation generally goes together with the destruction of wealth, often considerable, it reduces the lowest incomes as it increases the inequality in the distribution of income.

With this summary of Paretian thought, we may now analyze Pareto’s ideas with respect to natural resources, what Pareto calls “territorial capitals.” Following Walras, Pareto differentiates between “territorial capitals,” “mobile capitals,” and “personal capitals,” or in classical terms, land, capital goods, and labor. Pareto’s terminology points to

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the neoclassical attempt to classify land as just another form of capital good. Pareto begins the chapter dedicated to “territorial capitals” in his “applied political economy” by pointing out that economic theory should take territorial capitals in “the condition they are,” that is to say, without differentiating the improvements made in the past that are incorporated into earth, such as fertilizers, canals, drainage of swamps, and so on, for which Pareto says it would be difficult to distinguish the improvement value from that of the land free of improvement. Pareto (1896: 391) then states: The price of the services of territorial capitals is established, at least as a first approximation, in the same way as the price of the services of all the other capitals, namely, the price that equalizes the quantities supplied and demanded.

However, Pareto (1896: 392) immediately points out that when it comes to the investment of savings in new capital goods, there are substantial differences. While savings can be applied to mobile capitals (steam engines, ships, houses) and to personal capitals (what is now called human capital: skills, training, education), in contrast: there are other capitals for which savings can be transformed only with great difficulty: those capitals for which the quantity remains fixed, given a closed economy. Those are territorial capitals, mines, etc.

Pareto indicates, as a consequence, that the possessors of natural resources are in a better position than the other owners to secure extraordinary benefits in the case of increasing demand; while the other capitals, in the same case of increasing demand for their services, can only secure economic profits for more or less short periods, because attracted by the high profits, new capitals will come and the competition will tend to reduce the price and profits. In contrast, the holders of territorial capitals “enjoy a more concrete monopoly, which in certain cases can be an absolute one. They will be able to obtain substantial gains.” Thus the first observation of Pareto that the price of the services of territorial capitals (the rent) is fixed in the same way as the prices of the services of all the other capitals may now be seen to have significant qualifications. The rent of land is determined in the same

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way as the return to other factors only with respect to the economic process, the elements of supply and demand, but the essence is different because “territorial capitals” are different. The effect on society and the implications for policy are profoundly different between land and the other factors. As Pareto himself points out, land is immobile and fixed in its amount within some territorial boundary. As a consequence, rent is a monopoly price, in the classical sense of monopoly as an industry in which there is no entry to expand supply. Capital goods do not generally have such a monopoly, since a higher return attracts firms to increase the supply. What for land is the rule, monopoly, is for mobile capitals the exception. Despite his recognition of the fixed supply of land and its capture of external benefits, Pareto (1896: 394) nevertheless says that: the economic importance of territorial capitals has been exaggerated up to the point of pretending that the principal cause of poverty is the fact that all lands are occupied.

That argument states that if lands were not all occupied, if there were free land of equal quality, the capitalist would not be able to appropriate a surplus value because the worker, instead of being employed by the capitalist, “could establish himself on a plot on free land.” Arguing against this proposition, Pareto states that even if there may be free land in new countries, the person wanting a particular site, for example, in Paris, will not accept a plot in the Pampas. Another error, said Pareto, is the proposition that any man could be a farmer. That is the extent of Pareto’s argument on the connection between land and poverty. Pareto says that even if free land is available, this does not preclude poverty, since this is not relevant to those far away, and anyway, not everyone can be a farmer. Pareto does not really confront the actual arguments of those linking land to poverty, that were there to be additional lands in the local economy, free of rent, of the productive quality already existing, it would increase the marginal product of labor, and thus the wage level, since that portion of output now going to rent would instead go to wages. Pareto was evidently not familiar with the key argument of Henry George that

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the ability to claim land without the payment of rent to a community induces a movement of the margin of production to less productive areas, reducing wages and raising rent, thus contributing to poverty. Although he missed the connection to poverty and downplayed the economic importance of land, Pareto (1896: 396–397) recognized its social importance: But if the economic importance of territorial property has been exaggerated, its social importance remains intact. In our societies, from ancient times until nowadays, political power has belonged, with rare exception, to the owners of the land . . . and there must be some reason to explain the privileges which the possessors of territorial capitals enjoy.

One could question how it is possible that something with “little economic importance” has such a great social importance and be the base of so much political power. It is obvious that the one thing is related to the other. It is the economic importance that generates the social importance and the political power! Pareto (1896: 397) does seem to sense the possibility of the connection: If those privileges are or are not separable from the possession of territorial capitals . . . If we may separate them, we may consider territorial capitals exclusively from the economic point of view, as the maximum utility will be obtained by the free market . . . If on the contrary we are able to demonstrate that ownership of territorial property is, at least in our societies, totally linked with the faculty of extracting contributions from the rest of the population, the problem would change completely and we could not then separate the economic from the social part.

If the latter be true, Pareto suggests various solutions, but at the end opts for none. At any rate, the solutions are for a problem whose existence is for him not clear. The first solution proposed by Pareto is pyrrhic: to simply accept the privileged situation that territorial property gives to certain citizens. For Pareto there is nothing in that notion that is contrary to general utility. Pareto’s (1896: 397) second solution is to extend property rights in land to almost every citizen; in which case, he says, it would cease to be a privilege. This is the “land reform” that has to a small degree been attempted in some developing countries. Of course, as a general

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solution, a division of land titles is impractical, especially as it would have to be redone continuously as the population grows and turns over. Pareto does not like this solution because “nations in which a large part of the population are small owners do not have exceptionally notable moral and political qualities.” Besides, he says, small-scale property ownership is not compatible with efficient large-scale industry such as in agriculture. Pareto’s third solution is the socialist one of: giving to the state the property of territorial capitals and moreover, generally, also the property of mobile capitals, conferring to it at the same time the indirect advantages that are joined to these properties.

Pareto considers nationalizing only the land as an option for newly settled countries. Pareto rejects the socialist solution, saying that there is no guarantee that the destruction of wealth would be less in such a system, although he accepts the proposition that if all capitals would be transformed into collective property, the land rent would benefit the entire society instead of only enriching some individuals. He compares the collective property of all capitals with the alternative socialist ideal whereby each worker would be the owner of the territorial and mobile capitals he uses, which he considers an impossible achievement in practice. As for compensating the owner in the case of the purchase of land by the state, Pareto (1896: 400) is neutral, stating that there are no reasons to be generally for or against it. It depends on the time and country, since, according to him, it is impossible to know in advance if it will benefit the state, due to the variations in land prices, “although the general movement is upwards.” Pareto does not even mention the proposals of Gossen and Walras. Regarding new countries, Pareto says it is feasible for the government to decide which is more convenient, leasing land for long periods or selling it. Pareto does not mention the possibility of permanently leasing the land, with a periodically revised assessment. Though a tax on land rent is not one of his “solutions,” Pareto (1896: II, 127) does elsewhere (in a footnote) discuss the Ricardian concept of rent, saying:

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J. S. Mill saw in the increase of the rent . . . a taxable object. This would be, in any case, a better solution that the one we first examined (the socialist one) within an exclusively theoretical goal. Walras also deals with this question.

Thus Pareto acknowledges this solution but does not analyze it and, while not opposing it, does not propose it, nor does he recognizes its social implication. The essence of Pareto regarding land is his relativism and his pessimism. He was a relativist because he thought that optimal types of land tenure may vary according to the country, the historical moment of its development, and the economic conditions. Times have not always been as they are now, and surely they will change in the future; regarding which is the best system, Pareto (1896: 410) says: we have unfortunately very little light on the matter. We only know for certain that types of property and of land exploitation must vary according to the circumstances.

He (1896: 416) adds: It is possible that there is not only one evolution of territorial property, but many, that may differ according to peoples and places. We should study them separately without pre-conceptions, observing the facts of the present and obtaining historical documents for the past.

Pareto’s (1896: 394) pessimism was based on the above-discussed permanence of income distribution curves. He stated, “if men do not become better, the shape of the social regime may change, but not its substance.” With respect to wealth, Pareto was optimistic that a policy of free trade and private property would secure a maximum of social utility. He points out (1896: II, 113) that when the rent of land is the consequence of “acts of government,” it would be sufficient to impede those acts for that rent to disappear. With such a statement, he shows that the effect of social progress on rent—which generally consists of increasing it—is something he did not really understand. Following the logic of his thought, all acts of good government should be stopped because almost every action of good government tends to increase the rent!

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To understand the failures, doubts, and contradictions in the Paretian analysis of “territorial capitals,” we must analyze his failures and ambiguities in his analysis of the rent of land. Pareto (1896: II, 113) criticizes the definition of rent given by Ricardo: “rent, says Ricardo, is that part of the product of land paid to the owner for the right to exploit the natural and indestructible faculties of the ground.” According to Pareto, this definition has no meaning at all because every time that a person acquires a service, he acquires the right to exploit “natural faculties.” “In the breeding of rabbits, for example, there is the faculty of reproduction that nature gives to rabbits, or when we pay the visit of a doctor, we acquire, at least partly, the use of the natural faculties of his brain.” Really, the error is Pareto’s. In Ricardo’s conception, the origin of rent is not from “natural agents,” which Ricardo recognizes as existing also in industry, but from the fixed character of land. If there were an abundance of free land, affirms Ricardo (1821: 34–35): following the common principles of supply and demand, no rent would be paid for that land, for the same reasons that nothing is paid for air and water or for any of the gifts of nature which exist in unlimited quantity. With a given quantity of materials and with the assistance of atmospheric pressure and steam elasticity, machines may do their jobs and abbreviate human labour greatly, but no charge is demanded for the use of these natural aids, because they are inexhaustible and at the disposal of any person. . . . It is only then because land is not unlimited in quantity and uniform in quality and that due to progress in population, land of inferior quality or less well located is called to culture, that a rent is paid for its use.

Hence, it is not the “natural faculties” as such, but the fixed, entrymonopolistic character of land that originates rent. That is why there is always rent, even under a socialist regime. Private ownership of land only permits appropriation of the rent by the landowner. Regarding economic value, Ricardo (1821: 6) said: What anything is really worth for the man who has acquired it and now wishes to dispose of it or exchange it for another thing, is the toil and difficulties he may save and impose on other persons

This hints at the true economic cost of labor, the opportunity loss, the foregone leisure, as the ultimate cost, as land has for society no

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economic cost. However, as an explanation of value, the Austrians are clearer in tracing all market prices to subjective values. Pareto (1896: II, 124) also criticizes the Ricardian concept that rent is not a part of the cost of production. (Ricardo’s famous statement is that corn is not high because rent is high; rather, rent is high because the price of corn is high.) Pareto analyzes this in an unsystematic way, sometimes from the point of view of an economist observing the facts and for whom the rent is not a part of the cost, and other times from the position of the firm for which rent is undoubtedly a part of its cost. Pareto continues by putting forward some questions to be answered: 1. 2. 3. 4. 5.

Does rent exist for all territorial capitals or only for some of them? Is rent something special referring only to territorial capitals? What is the origin of rent? Is rent useful for mankind or for a particular society? Are there means to remedy the evils caused by rent without producing even greater evils?

Pareto’s answer to the first question is that rent exists for almost all land. The more accurate answer is that rent exists for land whose productivity is greater or equal to that at the margin of production, beyond which submarginal land has no market rent. With respect to the second, Pareto’s answer is negative. For Pareto, rent is not exclusive of territorial capitals, as other capitals in specific circumstances may produce rents, although land rent is the most important. With reference to the origin of rent, Pareto (1896: 124) says that: it is due to the cause of all values, that is to say to the marginal utility of the services of the capital. In particular, it is due to the differences in productivity among such capitals, related to the fluency with which we may obtain them by saving.

This is an incomplete answer, as the supply of land of a particular quality, relative to marginal land, sets the rent, utility being equivalent to the productivity. With respect to the fourth question, Pareto’s answer is negative: rent diminishes the marginal utility enjoyed by society, because it creates obstacles to the equality of the net rates of interest, which is a condition for the maximum of marginal utility.

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We can note here that if almost all the rent is collected for public revenue, then land is not purchased for its return, and the rent no longer negatively affects the rate of interest. For the last question, we have an extraordinary and precise observation, totally coinciding with the viewpoints of Walras and George: Rent is the price of a monopoly affecting the whole society and creating, when private appropriation is allowed, a sector of privileged people, and causing economic distortions! However, he thinks that the methods proposed to abolish this appropriation of rent could be even more harmful for society. Pareto (1896: 128) accepted the validity of Henry George’s criticism of “territorial property in the United States,” thus limiting the geographic application of George’s critique, which does not actually match with George’s ideas, since his ideas do not refer to one country, but to land in general. Thus, regarding the remedies, Pareto (1896: 128) is rather obscure. He seems to believe in a right to property that should always scrupulously be respected: “the advantages for society would surpass the inconveniences that it may produce.” Nationalization of land seems to Pareto a remedy worse than the disease, although he points out that the main problem in connection with nationalized rent resides in the fact that it is not uniform in space and time and hence reaching a satisfactory general solution is difficult. Nevertheless, his position is clear in the sense of fighting against speculation and against government policies that tend to increase rent artificially. Although he is far from being emphatic about it, Pareto seems inclined to solutions based on taxation, at least for appreciation. However ambiguous and contradictory Pareto was regarding land rent, the textual evidence does show some recognition by Pareto of the distinctive character of land as an economic factor. VI Alfred Marshall (1842–1924)

ROBERT HÉBERT (2003) presents four propositions of Henry George regarding land that Alfred Marshall argued against. First, that progress causes poverty. Marshall was right in arguing that absolute

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poverty had decreased, but George meant poverty in a relative sense. Second, that high rents cause low wages. What George meant was that the movement of the margin of production to less productive land raises rent and lowers wages. The concept of the margin of production is ignored in neoclassical economics. Third, that land rent is a monopoly price. Land is not an absolute monopoly of one owner; what George meant was the entry monopoly, an inability to expand the supply. Fourth, that land-value taxes stimulate production. This is so because land is used more productively, and also for replacing deadweight-loss taxes. Marshall wrote an article “On Rent” in 1893. Regarding the “special” status of land, Marshall (1893) wrote: The rent of land appears to differ in degree rather than in kind from the net income yielded by other agents of production, the supply of which may be taken as fixed for the time under discussion, whether that be long or short.

But Marshall recognizes what modern economics texts forget, that the Producer’s Surplus is a convenient name for the genus of which the rent of land is the leading species. Producer’s Surplus is the excess of the gross receipts which a producer gets for any of his commodities over their prime cost; that is, over that extra cost which he incurs in order to produce those particular things, and which he could have escaped if he had not produced them.

Regarding the taxation of the rent, Marshall says: Land in a new country, but only there, resembles a manufacturing plant from this point of view. The settler engages in a risky occupation open to all; and one of the chief motives to his exertion is the hope of becoming the possessor of title deeds to land that will rapidly rise in value. A tax on any part of his gains, present or in the near future, would instantly discourage the enterprise of himself and others, and make itself felt strongly in the supply and therefore in the price of agricultural produce. Accordingly, the whole of his income is to be regarded as earnings and profits, or at most as a quasi-rent and not as rent proper: although even in a new country a far-seeing statesman will feel a greater responsibility to future generations when legislating as to land than as to other forms of wealth; and even there land must be regarded as a thing by itself from the economic as well as from the ethical point of view.

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Marshall thus uses a different definition of land than that of the classical economists, particularly Henry George. If a tax discourages enterprise, then the tax is on enterprise and the products of enterprise, not on land as such. The Georgist land tax should exclude improvements, which include the increases in the site value due to improvements of the owner. Marshall seems to understand this, saying: [O]n the other hand the soil receives an income of heat and light, of rain and air, which is independent of man’s efforts; most of its advantages of situation—which are especially important in the case of urban land—are independent of the action of its immediate owners; and a special tax on these would not much affect production directly. I regard the income derived from them as true rents for all practical purposes. The difference between the rent of land and the quasi-rents of most other things lies in the fact that their hire can never for any long time diverge much from normal profits on their cost of production; while the supply of fertile land cannot be adapted quickly to the demand for it, and therefore the income derived from it may for a long time together, or in some cases even permanently, diverge much from normal profits on the cost of preparing it for cultivation.

Here again, Marshall mixes in capital goods attached to land to the land itself. Marshall recognized the margin of production: The producers who are in doubt whether to produce anything at all, may be said to lie altogether on the margin of production (or, if they are agriculturists, on the margin of cultivation).

In summary, Marshall’s thought on land is fundamentally consistent with that of Henry George, the difference being Marshall’s incomplete appreciation of the effect of land speculation and his absence of a clear distinction between land and capital goods.

VII Conclusion

IN THIS PAPER, I seek to show how the economists of the marginal turn confronted the land issue, and that some of the important neoclassical

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pioneers did pay attention to land, and that land played a central role in Walras’s policy. Doubtless, George had many more things in common with the marginalists than he thought he had, and vice versa. Many scholars have taken for granted that for the marginalist, land is simply a form of capital. But for some of the most distinguished, this was not so. For some of these, the determination of the price of land and other factors coincide in method, but do not coincide in the economic impact and the characteristics of the object of valuation. Regarding the unfortunately derogatory attitude of George toward the marginalists, we believe it may have a simple explanation: George had discovered and gained an understanding of a great social truth. He was not the first to see it, but he was the first one to express it as a central moral and economic concept, doing so with pristine clarity and impeccable logic to the public. For the thinker who has before his eyes a truth of this kind, the supposed experts that do not see this deserve to be chastised. If marginal analysis shunts land to the margins, then something must be very wrong with the analysis. Had George known the works of Gossen and Walras, maybe he would have changed his attitude. Finally, some thoughts about Pareto’s “pessimism.” Contrary to what Pareto found, the current distribution of income varies widely among countries. Notably, in Taiwan during the last half of the 20th century, the economy achieved a high rate of growth with a remarkably egalitarian distribution of income, and without welfare-statist redistribution. No doubt its land reform and the taxation of land in the early stages of its development after 1950 contributed to both the growth and equality. Pareto’s pessimism applies when reforms only treat the effects of inequality, but not, evidently, when the causes are confronted and remedied. Without detracting at all from Mason Gaffney’s research finding that neoclassical economists deliberately buried land, we can see that this was so for particular neoclassical economists and the interests they catered to, and for the school that dominates economics today, but as this paper shows, we should recognize that the burial of land was not an inherent part of the neoclassical turn but a hijacking of that historical development.

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Boncoeur, Jean, and Hervé Thouement. (2000). Histoire des idées economiques, de Walras aux contemporaines. Paris: Nathan. [English translation in text by Fernando Scornik Gerstein and Fred Foldvary.] Ekelund, Robert B., and Robert F. Hébert. (1992). Historia de la Teoría Económica y de su Método. Madrid: McGraw Hill Interamericana en España. Gaffney, Mason. (1994). “Neo-Classical Economics as a Stratagem Against Henry George.” In: The Corruption of Economics. London: ShepheardWalwyn. George, Henry. ([1897] 1981). The Science of Political Economy. New York: Robert Schalkenbach Foundation. Gerstein, Fernando Scornik, and Fred Foldvary. (2006). “The Marginalists and the Special Status of Land as a Factor of Production: Gossen, Wieser, Walras, and Pareto.” Unpublished ms. Hayek, F. A. (1960). The Constitution of Liberty. Chicago: University of Chicago Press. Hébert, Robert F. (2003). “Marshall: A Professional Economist Guards the Purity of His Discipline.” In Critics of Henry George, 2nd ed. Ed. Robert V. Andelson. Malden, MA: Blackwell. Marshall, Alfred. (1893). “On Rent.” Economic Journal 3. Available at: http:// socserv2.socsci.mcmaster.ca/~econ/ugcm/3ll3/marshall/rent Menger, Carl. ([1871] 1976). Principles of Economics. Trans. James Dingwall and Bert Hoselitz. New York: New York University Press. Pareto, Vilfredo. ([1896] 1964). Cours d’economie politique. Geneva: Librairie Droz. ——. (1906). Manuale di economia politica [Manual of Political Economy]. Milan: Societa Editrice Libraria. Ricardo, David. ([1821] 1973). The Principles of Political Economy and Taxation. London: Guernsey Press. Rothbard, Murray. (1962). Man, Economy, and State. Princeton, NJ: Van Nostrand. Ch. 12 rpt. online (2004): http//www.mises.org/rothbard/mes/ chap12c.asp Schumpeter, Joseph A. (1954). History of Economic Analysis. New York: Oxford University Press. Walras, Léon. ([1896a] 1967). Studies in Social Economics. Lausanne: F. Rouge and Co. [English translation in text by Mason Gaffney]. ——. ([1896b] 1990). Etúdes d’économie sociale. Paris: Economica. [English translation in text by Fernando Scornik Gerstein, with paraphrasing by Fred Foldvary.] Walras, Auguste, and Léon Walras. (1990). Oeuvres Économiques complétes, Paris: Economica.

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Wieser, Friedrich von. (1889). Der Natürliche Werth [Natural Value]. English trans. 1893, available at: http://socserv2.socsci.mcmaster.ca/~econ/ugcm/ 3ll3/wiser/natural/index.html. ——. (1909). “Theorie der städtischen Grundrente” (“Theory of Urban Ground Rent”). In: Essays in European Economic Thought. Ed. Louise Sommer. Princeton, NJ: Van Nostrand. ——. ([1927] 1967). Social Economics. Trans. A. Ford Hinrichs. New York: Augustus Kelley.

Keeping Land in Capital Theory Ricardo, Faustmann, Wicksell, and George By MASON GAFFNEY* ABSTRACT. Most economists today live in a two-factor world: There is just labor and capital. Land, so central to classical political economy, has been swallowed into capital and “disappeared.” This paper surveys some of the better historical treatments of land and capital, their interrelations, and how they support modern Georgists and Greens who want land to reappear.

I Introduction

David Ricardo had a theory of land rent, of course, plus a practical understanding of compound interest and the relationship of capital to labor. He wove these together in his theory of value. He saw how the flow of investing into creating jobs and incomes led to higher employment; he was concerned that excessive conversion of working capital into fixed capital would reduce that vital flow. This concern would resurface with Mill, Jevons, the Austrians, Wicksell, and possibly— indirectly—in Keynes. Martin Faustmann showed how to convert irregular pulses of cost and revenue, as in forestry, into the level annual equivalent, to define and find the regular flow of site rent. He made this a performance standard to maximize. In the process he showed how to find the optimal time to harvest and replace forests. As an important byproduct, his formula shows that rents vary inversely with interest rates, and this effect tempers the effect of interest rates on financial maturity. An *The author is Professor of Economics at the University of California, Riverside. This paper was originally written for the annual meeting of the History of Economics Society (HES), Grinnell College, June 25, 2006. The writer thanks Robert Dimand for generous references to the literature; Mary M. Cleveland for editorial advice; and Marianne Johnson for insightful suggestions about integrating the materials. American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

Henry George: Political Ideologue, Social Philosopher and Economic Theorist. Edited by L. S. Moss © 2008 the American Journal of Economics and Sociology. ISBN: 978-1-405-18751-0

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even more important byproduct (quantitatively) is to adapt Faustmann to time the salvaging of sites under old buildings by clearing and renewing the sites. He showed how to convert the infinite flow of such rents into a present value, or discounted cash flow (DCF). His site value measure combines the DCF of generation 1 with the reuse value of a site, providing a mathematical basis for George’s later observations on the damage done by land speculation. There was a flurry of interest in reviving Faustmann from about 1957–1976. Economists now neglect his work again; some industrial foresters may be subverting it for wrong ends. Böhm-Bawerk and other Austrians revived Ricardo’s concept of working capital versus fixed capital, using other terminology while still crediting Ricardo’s priority. J. B. Clark and Frank Knight expurgated the Austrian idea of a “period of production” because it would up-end Clark/Knight’s conflation of land and capital. Knight’s Chicago School dominates academe today, while Austrians survive only in odd corners. Wicksell improved on Böhm-Bawerk in three ways. He “normalized” the model of tree growth, showing how Austrian capital intensity works as a relation of coexistence (at any moment of time), not just as a relation of sequence. Second, he restated the misunderstood and maligned “wages-fund” theory as a “wages-flow” theory, a basis for reviving Ricardo’s concern that converting working capital to fixed capital would disemploy labor. Third, he insisted that the wages-flow employs land as well as labor—a finding implicit in Faustmann, also. Henry George divided land price into two parts: DCF from the current use, plus the DCF from all future generations of use. He observed that the value derived from the later generations, discounted to the present, often keeps land from its highest and best use today because of speculation. This effect, immanent in all land markets, makes landowners collectively act like a universal cartel, pushing labor and capital to lands of lower quality, depressing wage and interest rates. The policy implications are that George’s proposed policy of focusing taxes on land value, and relieving commerce, industry, labor, and capital from taxation, would enhance human welfare in many ways.

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II How Ricardo’s Theory of Value Includes Land and Capital

RICARDO ([1817] 1963) OPENS his Principles by noting that “the value of (some commodities) is determined by their scarcity alone,” and exceeds the value of labor embodied in them ([1817] 1963: 5). One example he offers is “grapes grown on a particular soil, of which there is a very limited quantity.” That is, a wine’s terroir adds to its value. On page 7 he generalizes that the value of a commodity is enhanced by the “additional quantity of labor which the cultivation of inferior land requires.” That is, it’s the labor required on marginal land that equals value. On better land it takes less labor to produce the same value, so rent enters into value (whether as cause or effect we need not settle here). It is misleading to call that a “labor theory of value,” as some do. One need only read Ricardo with reasonable sympathy to see that his value theory is quite sophisticated and comprehensive. He assumes, perhaps too sanguinely, that his readers will see the extended implications of matters he covers only tersely. As to capital, Sections IV and V of Chapter 1, “On Value,” are all about the incorporation of imputed interest into value: Value . . . varies with the unequal durability of capital, and by the unequal rapidity with which it is returned to its employer. ([1817] 1963: 21)

In Chapter 31, “On Machinery,” Ricardo picks up these ideas again to show how a reallocation of capital from working capital to fixed capital may disemploy labor. Some later commentators have alleged that Ricardo didn’t really mean it, or was aberrant when he wrote it. Yet, it follows from his analysis in Chapter 1, Sections IV and V. Ricardo does not mention Ludd, and he carefully avoids endorsing smashing of machinery. It is common to interpret Jevons as anti-Ricardian. This may be a case of Jevons’s protesting too much, in his introduction, to differentiate his product from Ricardo’s. It may also be a case of one critic copying from another who copied from another, and so on; for if we read Jevons himself, he writes that his views “on this subject are in fundamental agreement with those adopted by Ricardo; (which they are) . . . (as opposed to) some later economists” (1957: 222). He then

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replicates Ricardo’s points as cited above (“Theory of Capital,” Ch. 7, esp. 222–245). Austrian economists picked up on Ricardo’s basic idea, and gave him credit by describing their finding as “Ricardo effect.” They invented their own terminology, writing of “higher and lower orders of capital.” Their treatment of land is somewhat negligent and incidental; yet their “period of production” idea implies a sharp distinction between capital, which has one, and land, which does not. It was for this underlying reason, according to Stigler, that J. B. Clark and Frank Knight feuded so long and intransigently against Austrians Böhm-Bawerk, Friedrich von Hayek, Fritz Machlup, and others (Stigler 1941: 278). Clark and Knight aimed to wipe out any bright line, or any line at all, between land and capital. If libertarianism and anti-Marxism were the dominant issues, Chicagoans and Austrians would merge in mutual admiration and support. Instead, rampant Chicagoans let Austrians survive mainly on the margins of the profession. III Martin Faustmann and Other Forest Economists

MARTIN FAUSTMANN was a German forest economist, writing in 1849, who undertook to find the annual value of a forest site yielding a periodic future stream of revenues. The aim was to find the “highest and best use” (as we say today) of the site; to make commensurable different uses with different yields over different time periods and with different costs. He called this measure Bodenrente (ground rent). Anglophonic foresters call it “soil rent,” but soil per se is only one of several components that make forest sites yield rent: rain, temperature, slope, hours and angle of sunshine, and access to markets are as or more important. I will denote it by “B,” for Bodenrente, and Anglicize it as ground rent or site rent. (See Table 1.) Faustmann began with the planting cost (P) of a tree at time zero. He compounded this forward to the time (n) of harvest, using a market rate of interest (i). Compounding P makes it commensurable with the net value of the harvest at time n (S, for stumpage, which is the sale value less the cost of harvest). Finally, he annualized (or

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Table 1 Harvest time Interest rate Sinking fund factor Planting cost Stumpage (net sale value) Net stumpage = -Pein + S Ground rent

n i SFF P S NS B

“levelized,” as some prefer to say) this value by multiplying it times the sinking fund factor (SFF). Algebraically, we now have:

SFF = i ⎡⎣e in − 1⎤⎦

(1)

B = ⎡⎣ −Pe in + S ⎤⎦ × SFF

(2)

Note that we now have labor, capital, and land compressed into one expression; and maximizing this expression is a performance standard, that is, the highest and best use of land subject to market wage rates (included in P and subtracted from S) and a market interest rate (found in in and the SFF). Note also that the SFF accumulates the rent of the forest site, year by year with interest, into the value of the final product, S. This is a point on which the great Knut Wicksell insisted, but that most other economists have omitted. Even Wicksell never expressed it as compactly or correctly as Faustmann in Equation (2). Ohlin hit on it in 1921, but never developed it, and apparently never checked the forestry texts to credit Faustmann’s finding of 72 years earlier. To simplify the notation, I will now consolidate the items in the brackets into one, calling it net stumpage, or NS. Note, however, that these items may include a lot more than the P value I am making invisible. There may be any number of intermediate costs and revenues at times other than time zero and time n, the ones shown explicitly. Just compound each item forward to year n, using the appropriate number of years in each case. That makes them

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commensurable so you may add (or subtract) them together. Furthermore, these intermediate revenues may be falling, rather than rising to a climax as in the forestry case. Thus, the formula can be adapted to apply to factories, office buildings, milk cows, or anything. The idea is to consolidate all intermediate values at one point in time, n, and then levelize them into Bodenrente. Now we have:

B = NS × SFF

(3)

This levelized Bodenrente applies to years zero to n. To capitalize the rent in perpetuity, divide Equation (3) by i. Faustmann called this the “Site Expectation Value” (Bodenerwartungswerte). (In fact, that is how he originally derived his formula, which one may derive in several ways.) Dividing by i cancels the numerator of Equation (1), so we have:

Site value = NS ⎡⎣e in − 1⎤⎦

(4)

The pesky little “-1” in the brackets in the denominator of Equation (4) makes the difference between the discounted cash flow (DCF) of one generation of land use, and the DCF of infinite repeating generations of land use. Foresters have preserved Faustmann’s formula in a few texts, but have not taken kindly to it. That is because it contains compound interest, which most foresters (not all) wish would go away. They dislike it because timber culture is so capital-intensive that it needs a low rate of interest to justify itself in competition with rival uses of land and capital—and foresters are in the business of justifying timber culture. Instead, they generally prefer another performance standard that Germans call Waldrente, and Anglophones call forest rent. This is NS/n, where P is not compounded forward to year n but just subtracted from S as though they were simultaneous (so NS = -P + S). This, of course, results in higher values of forest rent. We will soon see that this forest rent is the same as Faustmann’s ground rent where a zero interest rate is applied. I have seen no evidence that foresters derived it that way, or understand the relationship, although surely some do. Many of them, however, disparage Faustmann’s result as coming from putting mathematical or greeneyeshade values, which they scorn, above forest values, which many

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embrace rather too romantically. Let us not scoff, for they are sensitive to collateral forest values that one-dimensional financial “rationality” easily neglects. Rather, let us see what economists can learn from this. Above all, let us not think foresters put no value on time, just because they use a zero rate of interest. They are not maximizing NS, but NS/n, that is NS per year. NS per acre per year is site rent, once they have dismissed compound interest. In practice the forest management regime that maximizes NS/n is sometimes fairly close to the one that maximizes Faustmann’s site rent, so that rough-and-ready foresters have set aside the differences as nitpicking. This is antiintellectual and caters to innumeracy, and yet it contains an important lesson for economists. This is, when interest rates are low, rent rises, and stands in for interest as a cost of time. We return to this below. Very few have been found who anticipated Faustmann. Discussions are found in Samuelson (1976), Scorgi and Kennedy (1996), Gane (1968), Ince (1999), Brazee (2001), Lofgren (1983), and others. Ohlin discovered the principle, apparently independently, in 1921, 72 years after Faustmann, but never developed it or discovered it was already in the forestry literature. Other good discussions are in Bentley and Teeguarden (1965), Pearse (1967), Scott (1987), Ellerman (2004), and several works of David Klemperer (e.g., 1996, 2001). A. Capital Distinct from Land

Note how Faustmann’s reasoning distinguishes clearly between capital and land. Ever since J. B. Clark, neoclassical economists have conflated capital with land, denying the classical tripartite division of factors into land, labor, and capital. Yet, felling, trimming and bucking trunks, and hauling away logs separates a tree from its former site so visibly and materially it is hard to deny. It is true that the capital in the tree includes stored-up site rent, with interest—that is inherent in the SFF used in Faustmann’s formula. We will see later how Wicksell handled this last point. B. Two Sources of Site Value

Site value is seen to consist of two distinct parts. The first part derives from the present use: Call it generation 1, or G1. Discount the NS from

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G1 to the present in the usual way. Denote site value as W (from Werte). Add to that the DCF of all later generations, G2, as of time n. This is also W (assuming identical future cycles of planting and growth). Discount it to the present. Now we have:

W = [ NS + W ] e in

(5)

Solving for W, we have Equation (4) again:

W = NS ⎡⎣e in − 1⎦⎤

(4, repeated)

Some will object, and rightly so, to the simplifying assumption that future cycles exactly replicate the first one. The formulation in Equation (5) is useful when we want to adapt Faustmann to conditions when the expected value of W at time n exceeds the value from generation 1. Klemperer and Farkas (2001) have recently opened this topic in Forest Science, and there is an interesting but short literature on the impact of taxes on the “ripening” of suburban land into higher uses. It is mnemonic to call W from generation 1 the “possessory” value, and value from later generations the R value, where R stands for resale, reuse, regeneration, renewal, or another “re”-word meaning a new start on the old site. Some call it “speculative” value because the uncertainty of specific forecasts rises with their futurity and novelty. Anyone pursuing those threads may adapt Faustmann’s formulation to untangle them. It waited on Henry George (q.v.) to pursue them seriously. He was moved by observation and intuition, without benefit of formal capital theory. We will see how theory can throw light on the case that troubled George. C. Site Rent Rises as Interest Rates Fall

This is a most important result, one that is flouted daily in the business press, in academic literature, and in pleas to redistribute wealth and income from rich to poor by lowering interest rates. In the two-factor world of neoclassical economists, land is just another form of capital; by implication, rents and interest rates must move in sympathy. This has become the working assumption behind many public policies, some introduced from the “left” and some from the “right,” but equally mistaken.

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Table 2 in

The SFF = i / [e - 1] (as a Percentage, Rounded) with Different Values of the Interest Rate i and the Term n i (%)\ n→

0.1 0.5 1 3 5 10

5

10

20

50

19.95 19.75 19.50 18.54 17.60 15.41

9.95 9.75 9.51 8.57 7.71 5.82

4.95 4.75 4.52 3.65 2.91 1.57

1.95 1.76 1.54 0.86 0.45 0.07

When interest rates rise, site rents fall. Equation (2) tells us there are two reasons for this. The more obvious reason is that P, the initial planting cost, is compounded forward to year n, using a market rate of interest, before being subtracted from S (stumpage) in year n. The second reason is less obvious, but equally weighty and general: The SFF is also a decreasing function of i. This is not obvious because both the numerator and denominator of the SFF are increasing functions of i. Both approach zero as i approaches zero, so we cannot demonstrate the point by the easy reductio ad extremum of letting i equal zero. Rather, we can tabulate values of the SFF to show how it varies with i. It approaches a limit of 1/n as i → 0. I begin with very low values of i, so the top row of Table 2 makes the point.1 Note that the values are rounded. D. When to Terminate Investment Cycles

The best forest sites, the ones that are “warm, wet, and flat,” are where timber grows fastest, and where succeeding crops may be replanted soonest. Faustmann therefore focused on finding the optimal harvest time, to maximize site rent. This turns out to be the year when the value of timber’s current annual growth just covers the sum of interest on the stumpage (S) and the site rent (B). (Gaffney 1957 covers the interesting problem of simultaneously finding the highest and best value of B while also using it to determine itself.)

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From Table 2, when n = 50 and i = 5 percent or more, the SFF is negligible compared with interest on S. Practical foresters often just ignore it. However, when n = 10 and i = 5 percent, the SFF is 8 percent, and plays a larger role than i in determining harvest dates. A great deal of timber now matures in less than 20 years, especially in the southeastern United States, where sites are “warm, wet, and flat,” and the Southern yellow pine thrives. When the interest rate falls, easing the pressure to harvest mature timber, site rent rises, partially offsetting and tempering the first effect. So the net effect of interest rates on harvest times is much weaker than the simpler analysis, still found in textbooks, would indicate. But replacement analysis concerns much more than timber. The greater practical role of site rent is in determining when to clear aged buildings and renew the site. Here there is no salvage value, but only a weak and dying cash flow or service flow. Ratcliff (1949) and Gaffney (1964, 1969) have addressed this case. Here is where site rent, B, is essential to the decision of timing. The salvage value of a decrepit, obsolete building is close enough to zero that we may ignore it. Unlike mature timber, it has no growth rate, so we cannot use the simple old formula that capital is mature when its growth rate equals the interest rate. If we were to use that formula for timber and generalize from it, we would be left with no reason at all to clear and renew sites with old buildings. The economic reason to tear down old buildings is to salvage their sites for future use, and begin realizing the potential rent. To calculate that rent, we pencil out the capital cost of rebuilding, the timing and value of future cash flows, and their likely duration. Then we “levelize” those values, just as Faustmann did for timber (Equations (2) and (3)). In this case it is customary and intuitive to make a procedural change from Faustmann. Instead of compounding all values forward to the terminal year, n, discount all future values to time zero, add them up, and subtract the initial capital cost, P. Then levelize them and convert them into the annual rent by applying the installment plan factor (IPF), which is the same as the SFF multiplied by ein. Thus the result is identical with compounding each value forward to year n, and applying the SFF. I bring it up here because it corresponds more

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closely with the way builders see the matter, just as Faustmann corresponds with how foresters see it. Recent neoclassical theorists have done little with the question of when it is economical to salvage and renew urban sites. It is a practical and theoretical question of high and growing importance. I can only surmise that this neglect results from recent neoclassical training that suppresses thoughts that entail distinguishing land values from building values. This training, in which moderns are heavily invested, tells them there are only two factors: labor and capital. Notice, now, how the rate of interest affects site rent. Higher interest rates mean lower site rents. Thus, instead of speeding the end of life of old capital, higher interest rates retard it, by lowering site rents, which are here the only cost of time, the only economic force prompting clearance and renewal. This makes sense in its own right; a builder faced with higher interest rates will perceive their force on his decision in his own way. But if economic theory is to help him, or predict what he will do, it needs the help of something like Faustmann’s formula. E. The Flurry of Interest in Faustmann, c. 1957–1975

The revival of Faustmann’s work attracted a good deal of interest after 1957. Jack Hirshleifer circulated it among the economic “elite,” while many forest economists saw it as a useful tool. Samuelson endorsed it. Among economists this interest died out after a while. Both Hirshleifer (1970) and his colleagues Alchian and Allen later published works in which they regressed to the old winery example where wine is immature so long as its value is growing faster than the interest rate—with never a mention of site rent. Samuelson omitted it when holding up his end of the Cambridge controversy, where it might have helped his case.2 I can only surmise that this regression resulted from their discomfort, as neoclassical economists, with distinguishing land from capital. The support of industrial foresters was something of a Faustmannian bargain. Industry economists seized on Faustmann to put a gloss of rationale on rapid cutting, even abusive cutting, such as clearing steep slopes, polluting streams and fisheries, roading erosively, endangering rare species, and so on. They attacked the U.S. Forest Service,

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using Resources for the Future, Inc. (R.F.F.) as a vehicle. Their influence on R.F.F. is manifest in the list of major contributors, listed in every annual report, that kept that organization afloat after the Ford Foundation withdrew its support after 1971. This writer, an R.F.F. associate researching the undertaxation of forests and forest land, was blandished and courted by timber lobbyists, declined, and soon found it better to accept work elsewhere. Trying to publish such findings in academic journals has been a nightmare: Industry tentacles reach deep into the clerisy. U.S. schools of forestry have become adjuncts of the industry, as their deans troll for grants and avoid offense. They influence many scholarly journals. A leading professor of forestry threatened to retaliate professionally if I wrote that timber owners in 1944 secured preferential capital-gains tax treatment, while troops overseas were receiving 1040 tax forms at mail-call—a soldier’s meager pay is “ordinary” income. A current incident illustrates the culture of complaisance with industry demands. An apolitical graduate student in the School of Forestry at Corvallis, Daniel Donato, found evidence that certain salvage logging practices retard regeneration. This finding troubled industry officers and allied state legislators. These admonished the dean, writing in the familiar, insolent tone a king might use with his jester. The dean and some senior professors joined an effort to stop Science from publishing the findings (Boxall and Wilson 2006). IV Eugen von Böhm-Bawerk and Other Austrians

BÖHM-BAWERK, as is well known, published a weighty tome on capital theory, dueled over it with J. B. Clark, and helped found the Austrian School of economics. He dealt with financial maturity of timber, and discounted cash flow, and other basic elements of finance. In debating Clark, insofar as one can follow their involuted arguments, BöhmBawerk insisted that capital has a “period of production,” and stated or implied that land has none—a solecism to Clark. George Stigler, echoing Clark and Knight, objects to the Austrian School concept of a “period of production” because it presumes a difference between capital, which has one, and land, which does not (Stigler 1941: 278).

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There is no clue that Böhm-Bawerk ever heard of Faustmann, or consulted the vigorous and extensive German literature on forest economics. Like Alchian and Allen later, Böhm-Bawerk simply tells us that timber is immature as long as its value is growing faster than the interest rate. Wicksell archly expressed an expository problem that also stands between Böhm-Bawerk and most readers: “he loves to pile up difficulties in order that he may remove them later” (Gaffney 1983: 201). V Knut Wicksell

WICKSELL ([1893] 1954) MODESTLY paints himself as a “Swedish Austrian,” a disciple of Böhm-Bawerk. He then proceeds to improve on the master. One great contribution is his normalizing Böhm-Bawerk’s model of growth over time, a relation of sequence, into the corresponding relation of coexistence. His model uses maturing wine as the example, and economists often call it the “grape-juice model” (Wicksell [1901] 1934: 172–176), but it applies to all growing capital like trees. Here he deftly converts Böhm-Bawerk’s model of an even-aged forest into the corresponding normalized or “going-concern” forest, where ages are staggered so there is at any time one tree of every age. The whole life span of a single tree is then represented simultaneously by a crosssection of the normalized forest. Wicksell then shows that the higher capital content of a longer-lived tree (the accumulated interest over time), which Böhm-Bawerk conceives in the time dimension, makes the normalized forest equally capital-intensive at every moment in time. A mathematician might sniff that he merely inverted the order of integration. Perhaps that is all he did mathematically and conceptually, but he did it in an economic model, while others were struggling unsuccessfully to fit BöhmBawerk’s ideas into their neoclassical models from which time had been largely banished—and rejecting or isolating the ideas when they could not fit them into their static, Clarkian models. From 1870–1920, “much of the economics was . . . an economic theory of acapitalistic production. Considerations of capital theory proper . . . simply disappear from the picture” (Robbins 1934: xiv).3

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Wicksell immediately used his normalized model to demonstrate how a lower interest rate makes for a more capital-intensive economy, as trees (or wines) are replaced more slowly, so there is more timber outstanding at any given time, while the labor of planting and harvesting remains constant. Conversely, a lower wage rate leads to shorter cycles so that more labor is employed per unit of capital. (Lower taxes on labor would have the same effect.) Factor proportions will adjust to match any given supply of capital with any given supply of labor. Thus, Wicksell used Böhm-Bawerk to complete Ricardo’s and J. S. Mill’s and Jevons’s cruder demonstrations that factor proportions are malleable, and tend to an optimal equilibrium with full employment of labor and capital, both. Adam Smith’s invisible hand had dealt mainly with commodities. Ricardo and Mill extended the idea to comprehend factor proportions as well. Marshall regressed in this respect toward Smith when he developed supply and demand analysis, mainly with respect to commodities with limited markets. The profession generally has followed Marshall’s commodity-based model. Even Keynes, dealing with aggregate supply and demand, limited demand by a propensity to save (in excess of investing) that allegedly rose with income. Keynes, while crediting Wicksell with some other inspirations, paid no heed to Wicksell’s simple “grape juice” demonstration of the variability of factor proportions. Keynesians for decades brushed such questions aside as mere “structural” issues, unworthy of their time. Latter-day “supply-siders” and “growth-men” continue to shunt them aside, focusing on raising GNP with fixed factor proportions as the single-minded goal of thought and policy. Friedrich and Vera Lutz (1951) repeat Wicksell’s normalized model, but then turn around and botch it, in an otherwise flawless book. They use their own rather stilted terminology, from which fourletter words like “land” and “site” are absent. They cite neither Faustmann’s nor Wicksell’s previous work. Having first arrived at Faustmann’s solution with a single-aged stand of timber, they claim the normalized model leads them back to a longer optimal rotation period. In a word, they do this by including land in the single-aged model, then omitting it from their normalized model. The details are in Gaffney (1957).

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Wicksell also contributed a correction and revival of the misapprehended “wages-fund” theory. He correctly reformulated it as the “wages-flow” theory. It is the flow of capital into investing, not a fixed fund of capital, that hires workers and creates incomes. Wicksell showed how the flow/fund ratio rises when capital turns over faster, as in the grape-juice model, so a fixed fund of capital can generate more investing whenever a surplus of labor seeks jobs. Or, by slowing its turnover, it can afford more investment opportunities when the supply of capital is in surplus (Wicksell 1901: 193–194). Thus, Wicksell laid the groundwork for a macro economics, and policy measures derived therefrom, that would be based on real turnover of real capital, and not just flows of spending money (Gaffney 2003). Earl Rolph, in a stimulating but unpublished paper, tried to show that Keynes’s Treatise on Money incorporated such ideas—to which Rolph was cool. If Keynes did that then, he dropped it from his General Theory that became the basis of standard macro theory for years. Macro is the poorer for it. Wicksell’s turnover of real capital is what could have bridged and still should bridge the chasm between macro and micro, and save macro from the futility and frustration of latter-day devices like the Phillips curve, growth theory with fixed proportions, rational expectations, and Barro’s twist on the Ricardian equivalence theorem. A third Wicksell contribution was to incorporate land into his capital theory. He insists in his wages-flow theory that the flow of investing pays not just wages but site rent. This point was already inherent in Faustmann’s use of the SFF to define rent, but there is no evidence that Wicksell was any more aware of Faustmann than was the Austrian, Böhm-Bawerk. Faustmann had never related his work to any macro-economic idea like the wages-fund theory. Considering that all were central Europeans who published in German, it was a rueful isolation of related work into airtight compartments, to the impoverishment of all. A common way to dismiss Wicksell and Böhm-Bawerk is to allege that their theories and models apply only to timber, and a limited range of kinds of living and appreciating capital like timber and wine. My colleague Karl Uhr (R.I.P.), a lifelong student of and leading authority on Wicksell, taught that. Hans Brems, a native

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Dane steeped in Wicksell, held a related opinion. Assets like timber and wine are now generally called “point-input, point-output” assets (PIPO), and treated, if treated at all, as a trivial, exceptional special case. This is a mathematical error. The PIPO case is the building block for all capital theory, from which its other familiar formulae are derived by summation. Discounted cash flow, sinking fund, compounded cash flow, installment plan factors, capitalization in perpetuity, internal rate of return . . . all can be derived, jointly or separately, as summations of geometrical progressions of PIPO cases. What is true for the basic element is likely to hold also for the summations. Above (Section III.C), I pointed out how Faustmann’s formula, ostensibly dealing with timber growth, can be adapted to deal with all capital assets, with any time-patterns of inputs and outputs whatsoever. To respond to the error of isolating the PIPO case, the writer has published a set of models showing how to replicate Wicksell’s grapejuice model with depreciating assets, or with a constant-valued asset of finite lifespan (Gaffney 1976). The last, the “cow-sow model,” is the easiest to grasp and requires little mathematics or capital theory. A cow is assumed to yield a constant milk flow over 10 years, then suddenly be slaughtered for the hide and meat, which are sold for exactly the original cost of birthing and weaning. There is a herd of cows whose ages are staggered. Cut the lifespan to five years, and the ratio of cows (capital) to the costs of slaughter and birthing (labor) is halved. Let each cow require a fixed complement of land, and the ratio of land to labor is likewise halved. The “clean sock” model is even simpler, more homely and intuitive. To have a clean pair of socks every morning, I can have one pair of socks and wash them by hand every night. (Some can recall that situation, as soldiers or students.) If I choose to save labor by washing once a week, I will need seven pairs of socks, with added storage space, a hamper, a washer, and so on. Baumol (1965) makes a similar point, mutatis mutandis, with his cash flow model. Perhaps Gaffney, like Faustmann, published in the wrong place at the wrong time, for his findings went unnoticed by the macro economists of his day. Or perhaps Gaffney got it wrong: That is for others to judge.

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VI Henry George

GEORGE ON CAPITAL THEORY is best forgotten. He is best known for his observations on land ([1879] 1938). The gist of Progress and Poverty is that land markets function badly, keeping the best lands from their highest uses and creating an artificial scarcity. He likens this to a universal cartel. George’s goal is to break the cartel, thus creating jobs, raising wage rates, and raising production and living standards. We find in Progress and Poverty three major reasons why land markets (absent land-value taxation) perform badly. One is “land speculation,” conceived as “holding for the rise” and, by strong implication, as a “store of value” without regard to current use. A second is the appetite of the rich for land as an item of consumption for recreation, for amenity, and for show, as exemplified then by English noblemen’s “deer parks,” and today by the vast manorial holdings of rich Americans in once-rural counties, marina space for their mega yachts, airspace for their private planes, urban land for grounds around their mansions, trophy golf courses and polo fields, hunting clubs, and so on. A third is that our Solons base taxes on using and improving land, with hardly any on just holding land. The “excess burden” of such taxation takes the form of underusing land. Gaffney (2006) has undertaken to show this excess burden in terms of the capital theory that George lacked. George’s effort to formalize his capital theory is weak. He lacks any mathematics of finance. He flays the wages-fund theory without citing any advocate, or seeming to understand it. He attributes the productivity of capital solely to living things like livestock. Then other uses of capital, which he says are not productive, must pay interest because of arbitrage. Let us forgive him these trespasses; they are isolated from his major thesis. His powers of observation, and his intuitions about land values, were sound and original, and may be formalized in terms that would satisfy a Wicksell or a Faustmann. We can express his idea of land speculation in terms of Equation (5). Let B1 be the land rent in current use until time n; B2, for rent in subsequent use. Multiply B1 by the discounted cash flow

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Table 3 in

1 / (e - 1) as a Function of Interest Rates, i, and Lifespans, n i\n

10

20

30

2% 4% 8% 12% 16% 20%

451.67% 203.32% 81.60% 43.10% 25.30% 15.65%

203.32% 81.60% 25.30% 9.98% 4.25% 1.87%

121.64% 43.10% 9.98% 2.81% 0.83% 0.25%

factor = (1 - e-in)/i. Multiply B2 by 1/iein to discount its value to time zero. We can write present value W as the sum of two terms:

W = B1(1 − e −in ) i + B2 ie in

(6)

The ratio of the second to the first term is B2/B1 * 1/(ein - 1). This obviously falls as i and n increase. Table 3 shows 1/(ein - 1) as a function of i and n. If we look at the column under n = 20 years, a person with a discount rate of 2 percent values B2 over B1 approximately 100 times as much as does a person with a discount rate of 20 percent! Now make B2 >> B1. The value of W is dominated by B2. Enter the phenomenon we know today as “capital market failure.” Those with good collateral obtain cheaper credit, or impute a lower discount rate, than do those without collateral—regardless of the quality of a proposed investment. To simplify, we are not far off the mark to postulate that a struggling startup entrepreneur—the kind that gives capitalism its dynamic—can place no value at all on the second term, B2/iein. This entrepreneur is desperately seeking capital, paying high interest rates that devalue later uses so much that he ignores them. At the other extreme, a passive investor seeking a store of value that keeps with no care might place little value on the first term, B1(1 - e-in)/i, and, applying his low

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discount rate, place a high value on the second term. The startup entrepreneur, financed with costly venture capital, would view the passive investor as a “dog-in-the-manger,” as George did. The passive investor would view the newcomer as a nuisance and interloper today, and a possible meal ticket for tomorrow. Cleveland (1984) has developed this theme at length. W grows rapidly as time passes and the present approaches n, where B2 is to displace B1. This annual increment may be high enough to warrant holding the land for its appreciation alone. Of course, one could also use it at the same time, and some do; but others hold more land than they have time to bother using, or using well or fully. As an example, my family and I have lived on the same low hill since 1976, a quarter-mile from the city’s major shopping “galleria” and its many satellites, two major interchanges, a railway station, a large hospital, and dozens of little shops and services. Eight of the neighboring plots have not been used during that 30-year period, while new building proceeds in leaps and bounds dozens of miles further out. There are also many householders whose yards and curtilages include an extra lot or two for future resale. Each owner has his or her own story and reasons, often of a “passive-aggressive” hue, but meantime the lands have about octupled in value, doubling every 10 years, for an annual return of 7.2 percent. That is more than one can make in the bank, and it is free of any tax on “ordinary” income, and may never be taxed at all. To accommodate the inchoate dreams of people like my neighboring landowners, young people getting started are priced out of the land market for homes and businesses. The New York Times of June 13, 2007 brings the news: From 1990 to 2004, the number of 25- to 34-year-old residents in the 52 counties north of Rockland and Putnam declined by more than 25 percent. In 13 counties that include cities like Buffalo, Syracuse, and Binghamton, the population of young adults fell by more than 30 percent. In Tioga County, part of Appalachia in New York’s Southern Tier, 42 percent fewer young adults were counted in 2004 than in 1990.

New York pays to educate them by taxing sales and incomes, mostly from work; then they take their bodies, filled with human capital and

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the spirit of enterprise, to greener pastures. This is a recipe for decadence and desuetude in a once-vibrant region. The market may be topping out—who can be sure?—but 30 years at 7.2 percent, tax-deferred or tax-free, has been a good run. The real growth rate is less than the nominal rate, due to inflation, but real interest rates are also lower than nominal rates, for the same reason, and fully taxable besides. Purists may say the owners would maximize their wealth by using the land as it appreciates, but they don’t, which speaks volumes. Economists need to explain what they observe, not just what their ideology says might or should be. It was just such an observation in the hills above Oakland that pricked Henry George, originally an investigative reporter and editor, to write Progress and Poverty. Gale Johnson (1950) and Stephen Cheung (1969) have explained the neglect of land in terms of share tenancy. A share tenant will take as much land as the landlord will allow because there is no fixed cost of taking more. Sharecropping creates an incentive structure that motivates the cropper to substitute land for labor (as much as the landowner allows) until the marginal product of land is zero. Our tax system, except for the property tax on land, operates something like sharecropping. We do not pay a tax for the land we hold, but only for the use we make of it: We “share the crop” with the fisc. The analogy needs modifying because we pay to buy land, and forego gain by holding it, unlike the share tenant. Yet at the same time we accrue gain “in our sleep,” as Mill said, by just holding it. The market as a whole operates against that fiscal background, which bids us substitute land for capital and labor. VII Conclusion

RICARDO, FAUSTMANN, Böhm-Bawerk and other Austrians, and Wicksell all contributed mightily to capital theory. Ricardo, Faustmann, Wicksell, and Henry George also contributed to our understanding of land values and rent. George, the least mathematical but the most observant of the lot, pointed up major flaws in land markets, exacerbated by flaws in tax policy. We can use mathematics and insights

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from the others to expound more fully what George merely observed, and help evaluate his proposals to raise wage rates, and marginal returns on investing, by perfecting land markets. Notes 1. Do not despair of evaluating a ratio that approaches 0/0. One of the Bernoullis solved this long ago, and named the solution for a wealthy patron, so it appears in many calculus texts as “L’Hôpital’s Rule.” 2. My esteemed colleague Mary M. Cleveland thinks not, and I have yet to prove her wrong. 3. It was Auguste Comte who wrote that all science consists of relations either of coexistence or sequence. Clark confined neoclassical economics into a box that shut out relations of sequence. Wicksell’s model neatly combines both kinds of relations. References Baumol, William. (1965). Economic Theory and Operations Analysis. Englewood Cliffs, NJ: Prentice-Hall Co. Bentley, William, and Dennis Teeguarden. (1965). “Financial Maturity: A Theoretical Review.” Forest Science 2(March): 76–87. Boxall, Bettina, and Janet Wilson. (2006). “A Student’s Forest Paper Sparks One Hot Debate.” L.A. Times, June 11: A1+. Brazee, R. J. (2001). “The Faustmann Formula: Fundamental to Forest Economics 150 Years After Publication.” Forest Science 47(4): 441– 442. Cheung, S. N. S. (1969). The Theory of Share Tenancy. Chicago: University of Chicago Press. Cleveland, Mary M. (1984). “Differences Between Large and Small, Given Appreciating and Depreciating Capital, and Variations in Land Quality.” In: “Consequences and Causes of Unequal Distribution of Wealth.” PhD diss., U.C. Berkeley. Ellerman, David. (2004). “Series-Parallel Duality and the Faustmann-OhlinGaffney Problem.” Unpublished ms. Faustmann, Martin. (1849). “Berechnung des Werthes welchen Waldboden. . . fur die Waldwirtschaft besitzen.” Allgemeine Forst und Jagd-Zeitung 25: 441–455. Rpt in M. Gane, Ed. (1968) Martin Faustmann and the Evolution of Discounted Cash Flow. Trans. W. Lennard. Institute Paper 42. Oxford, UK: Commonwealth Forestry Institute. Gaffney, Mason. (1957). Concepts of Financial Maturity of Timber and Other Assets. Agricultural Information Series 62. Raleigh: North Carolina State College.

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——. (1964). “Property Taxes and the Frequency of Urban Renewal.” Proceedings. NTA, 57th Annual Conference, Pittsburgh, PA. ——. (1969). “Land Planning and the Property Tax.” Journal of the American Institute of Planners May: 178–183. ——. (1976). “Toward Full Employment with Limited Land and Capital.” In: Property Taxation, Land Use and Public Policy. Ed. Arthur Lynn, Jr. Madison: University of Wisconsin Press. ——. (1983). “Tax Reporting and the Commerce Clause.” In: Fiscal Federalism and the Taxation of Natural Resources. Eds: Charles McLure and Peter Mieszkowski (pp. 199–203). Lexington: Lexington Books. ——. (2003). “Taxes, Capital and Jobs.” Geophilos 3(1): 62–75. ——. (2006). “A Simple Measure of Tax Bias.” American Journal of Economics and Sociology 65(3): 433–449. Gane, Michael, Ed. (1968). Martin Faustmann and the Evolution of Discounted Cash Flow. Institute Paper 42. Oxford, UK: Commonwealth Forestry Institute. George, Henry. ([1879] 1938). Progress and Poverty. New York: Modern Library. Hirshleifer, Jack (1970). Investment, Interest, and Capital. Englewood Cliffs, NJ: Prentice-Hall. Ince, Peter J. (1999). “Faustmann and the Forestry Tradition.” Proceedings of the International Symposium. Baton Rouge School of Forestry, Wildlife and Fisheries, Louisiana State University Agricultural Center. Jevons, William Stanley. ([1882] 1957). The Theory of Political Economy. New York: Kelley and Millman. Johnson, Gale. (1950). “Resource Allocation Under Share Contract.” Journal of Political Economy 58(April): 111–123. Klemperer, David. (1996). Forest Resource Economics and Finance. New York: McGraw-Hill. Klemperer, David, and Daniel B. Farkas. (2001). “Impacts on Economically Optimal Timber Rotations When Future Land Use Changes.” Forest Science 47(4): 520–525. Lofgren, Karl. (1983). “The Faustmann-Ohlin Theorem.” History of Political Economy 15(2): 261–264. Lutz, Friedrich, and Vera Lutz. (1951). Theory of Investment of the Firm. Princeton, NJ: Princeton University Press Ohlin, Bertil. (1921). “Till Fragen om skogarnas omloppstid.” In: Ekonomisk Tidskrift, “Festschrift to Knut Wicksell.” Rpt. and trans. (1995) “Concerning the Question of the Rotation Period in Forestry.” Journal of Forest Economics 1: 89–114. Pearse, Peter. (1967). “The Optimal Forest Rotation.” Forestry Chronicle 43(June): 178–195. Ratcliff, Richard U. (1949). Urban Land Economics. New York: McGraw-Hill.

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Ricardo, David. ([1817] 1963). Principles of Political Economy and Taxation. Homewood, IL: Richard D. Irwin. Robbins, Lionel. (1934). “Introduction.” In: Lectures on Political Economy. Trans. E. Classen. New York: Macmillan Company. Samuelson, Paul. (1976). “Economics of Forestry in an Evolving Society.” Economic Inquiry 14: 466–492. Rpt. (1995) Journal of Forest Economics 1(1): 115 ff. Scorgi, Michael, and John Kennedy. (1996). “Who Discovered the Faustmann Condition?” HOPE 28(1): 77–80. Scott, Anthony. (1987). “Martin Faustmann.” In: The New Palgrave. Ed. Eatwell et al. Stigler, George J. (1941). Production and Distribution Theories. New York: Macmillan. Wicksell, Knut. ([1893] 1954). Value, Capital and Rent. Trans. S. H. Frowein. London: George Allen and Unwin. ——. ([1901] 1934). Lectures on Political Economy. Trans. E. Classen. New York: Macmillan Company.

COMMUNICATIONS Comment By MARK PERLMAN*

Commentators are supposed to comment. Doing so involves either working “within the box”—that is, within the confines of the papers involved—or going “beyond the box”—that is, using the papers to extend the discussion beyond where the papers took it. But even before I turn to that exercise I want to commend both Robert V. Andelson, the editor of Critics of Henry George: An Appraisal of Their Strictures on “Progress and Poverty” and Laurence Moss, the series editor. These two volumes, as volumes, should be, in my opinion, required reading as well as the basis of a required reactive essay for any student wanting to study the history of ideas. I will return to this point at the end of my comments on McCann’s and Hudson’s sharply focused papers. I “Within the Box”

McCann is concerned with three questions about George’s personal orientation: (1) When all was said, what did he favor with regard to the ownership of land? (2) For all of his statements and alliances, was George in favor of socialism? and (3) Where should George’s ideas be placed in the spectrum that runs from extreme individualism to extreme communitarianism? Answers to these three queries will yield, McCann avers, a pretty good perception of George’s social philosophy underlying his proposals. McCann’s contribution, a major one, is that the complexities (for some, the contradictions) in George’s answers made his ideas seem *The author was University Professor Emeritus at the University of Pittsburgh from 1961 to 1993, and continued writing until his death in 2006. He was the founding editor of the Journal of Economic Literature and the author (with Charles R. McCann) of The Pillars of Economic Understanding, Volumes I & II. American Journal of Economics and Sociology, Vol. 67, No. 1 (January, 2008). © 2008 American Journal of Economics and Sociology, Inc.

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murky or, at least, inadequate for a persuadable political program. To put McCann’s point into the language he and I use, George’s views had contradictory authority foundations, both seen originally as Lockean. Locke’s principal contribution was the argument taken originally from the Psalms, that the Earth belonged to the Lord, and that man’s right to that which was produced on the Earth was the result of man’s labor. This nifty argument justified the American farmer-settlers (and those engaged in commerce dealing with their products) taking title to the land—the native Americans, according to the Lockean view, had never “improved the land,” by which he meant that they had not used it by means of their own labor to produce anything of value. But Locke’s argument was hardly produced in a vacuum. Whatever may have been the origin of land ownership in Britain, the laws in Locke’s time relating to its tenancy were the most complicated set pertaining to any form of ownership; if anything, since then the complexity has increased. To put the matter briefly: (1) George bought Locke’s view but twisted it somewhat to adjust for nonfarming use of land. George embraced the Lockean system as his authority. (2) Where he differed was that Locke wrote in the service of the very wealthy Shaftsbury family interests, with little or almost no concern for questions about the unequal distribution of wealth. George was part of the egalitarian (populist-Progressive) movement of the latter third of the 19th and first two-thirds of the 20th century—a movement, as we academics learned last November, is now all but defunct. What George offered as a way to capture undeserved wealth was to tax the undeserved surplus, much as Cournot was to do with his duopoly model. (When the accompanying Cournot text is absorbed, Cournot’s geometry made his ideas academically attractive, and professional economists tend toward medieval realism rather than medieval nominalism; they like realism’s ideas rather than nominalist’s facts.) Professor Hudson is concerned with the incompatibility of George’s political alliances, most of which he attributes to George’s intellectual inflexibilities as well as to his strange capacity to choose to deal with the wrong group when there was a choice to be made. George focused his attack on the inequality of the distribution of wealth (and probably income), an idea underlying the commitment

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to socialism of its adherents, when he might have made a stronger alliance with the Midwestern farmers and Midwestern small-town populists whose hatred of the power of the railroads and similar large businesses (often in the form of trusts) had a much greater number of active voters. But they were largely propertied landowners (acres and acres of only slightly improved farm lands) and not sympathetic to land taxes of any form. Certainly not his crowd of choice. George was a Knights of Labor man, when he should have been dealing with Samuel Gompers. Why? Because Gompers was both morally and intellectually capable of understanding why his unions, not involved in the Harvester strike itself, should protest the cruel and unusual sentences meted out to the Haymarket Riot criminals (some of whom were not actually on the scene); George was motivated too simple-mindedly to appreciate the political implications of his reticence. I read Hudson’s judgment focusing on George’s self-identification as a prophet with so strong a belief in his message as to be unable to put it into a locally workable outcome. George should be compared to the prophet Jonah. Jonah, as you recall, was fed up with the Lord’s orders to preach destruction hither and thither, only to have the Lord make a sucker of him when it came to action. So first he fled by ship and ended up in the belly of a large sea-going Leviathan. Realizing that he couldn’t escape his God-ordered destiny, Jonah then agreed to go to Ninevah, where he preached his prophecy of destruction, retired to a nearby hilltop, and waited for results. First, he sweated in the great heat, but suddenly a vine with gourds sprouted up to shield him from the sun. Later, just as suddenly, the vine wilted, and Jonah once again was clearly uncomfortable and became angry because, as usual, his prophecy was failing. According to the story, God then came to him and said: “Are you so angry over the gourd?” “Yes,” he said. “Mortally angry.” The Lord said: “You are sorry for the gourd, though you did not have the trouble of growing it, a plant which came up in the night and withered in a night. And should I not be sorry for the great city of

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Ninevah, with its hundred and twenty thousand who cannot tell their right hand from their left, and cattle without number?” (Jonah IV, 9–11) Hudson’s paper documents the Jonah-like proclivities that seemingly detracted from the effectiveness of George’s message. If Jonah, as the scriptures tell us, had God’s ear and was ineffective as a prophet, why should Henry George have fully succeeded? But George was not all that unsuccessful. For about 35 years, 1967–2002, I paid Pittsburgh real estate tax, where there was and is a Henry George real-estate-tax system. My tax rate on the portion of my land where I had a house and a garage was significantly lower than the high rate paid on the remainder of the property that seemed devoted mostly to improving the view—note I said rate, not amount. II “Outside the Box”

When I first began teaching the history of economic thought, I depended most heavily upon a pirated Taiwanese version of Schumpeter’s 1954 History, which I had purchased in 1962 but not really examined. For a very long time thereafter, I was much taken with his schema of the filiation of ideas. It was one of three ways to handle economic thought, the other two being Wesley Clair Mitchell’s approach, which saw the evolution of economic thought as a continuous debate between Plato-like abstraction (medieval realism) and Aristotle-like empiricism (medieval nominalism). In time, I developed my own approach, which Dr. McCann and I wrote up in the first volume of our Pillars of Economic Understanding: Ideas and Traditions. I came to realize that ideas are free-floaters; they need an institutional side to keep them alive. Samuelson’s 1947 Foundations was just such a free-floater. The reason he succeeded, where any number of mathematical economists really had not, was his establishment of one of the three great economics graduate teaching departments in the latter half of the 20th century. Changes in the content of the 16 revisions of his introductory textbook (always moving away from economic reform concerns, toward encouraging facility with abstract reasoning) also played a part—but like Marshall’s Principles, its part was the testing of their departments as teaching institutions.

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What Studies in Economic Reform and Social Justice may well be is the institution that keeps alive certain deserved free-floating ideas until the time comes when some tax analysis institutions will reconsider who bears the burden of education and other necessary collective activities.

Index for HENRY GEORGE: POLITICAL IDEOLOGUE, SOCIAL PHILOSOPHER, AND ECONOMIC THEORIST

A Absentee landowners, 9, 11, 15, 25, 28, 33, 35 Adler, Mortimer, 62, 63 Agricultural Guild, 32 America. See United States American Economic Association, 63 Andelson, Robert V., ix, 34, 35, 47, 67, 68, 143 Critics of Henry George, ix, 47, 49, 143 Argyll, Eighth Duke of (George Douglas Campbell), 68–69, 77, 81 George, Henry, attack on, 68–69 Aristotle, 50, 146 Austrian School, 89, 90, 102, 111, 119, 120, 122, 130–131, 138 Capital theory and, 130–131 B Barker, Charles Albo, 23, 27, 50, 54, 57 Barro, 133 Baumol, William, 134 Bellamy, Edward, 8 Looking Backward, 8 Bennett, J. W., 22 A Breed of Barren Metal, 22 Bentham, 103 Böhm-Bawerk, Eugen von, 120, 122, 130–133, 138 Capital theory and, 130–131 Brems, Hans, 133 Britain and British, 2, 3, 18, 19, 21, 23, 25, 26, 29, 31, 37, 40, 52, 53, 144 Corn Laws, 2, 13 Enclosure movement, 2

Hereditary aristocracy of, 29 House of Commons, 3 House of Lords, 3 Labour Party, 37 Landlords, 25, 28 Socialists, 75 Brown, John, 22, 23 Parasitic Wealth, 22 C California, 11, 27, 54 Cambridge controversy, 129 Capital, 1, 3, 5–7, 13–15, 17–20, 22–25, 28–31, 34, 36, 38, 40, 47–51, 54–59, 63, 64, 70, 78, 79, 91, 97, 105, 111, 115 Importance of, 56–58 Capital gains, 3, 4, 32, 35, 38, 40 Capital goods, 89, 90, 91, 97, 104–106, 114 Capital theory, ix, 119–141 Austrian School and, 130–131 Böhm-Bawerk, Eugen von and, 130–131 Faustmann, Martin and, 122–130 Forest economists and, 122–130 George, Henry and, 135–138 Introduction, 119–120 Ricardo, David and, 121–122 Wicksell, Knut and, 131–134 Catholic Church, 8, 15 Charles H. Kerr (publisher), 9, 22 Cherbuliez, A. E., 2, 13 Cheung, Stephen, 138 Chicago, 9, 14, 15 Chicago School, 39, 120, 122 China, 49 Clark, John Bates, 28, 29, 39, 68, 120, 122, 125, 130

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Cleveland, Grover, 14, 26 Cobden Club, 48, 53 Commons, John, 6, 28 History of the Labor in the United States, 6 Confiscation, 16, 73, 74, 76 Contemporary Review, 48, 53 Cooper Union, 14, 17 Corn Laws (Britain), 2, 13 Cost theory, 63, 64 Cournot, 144 Cuba, 15, 26 D Democratic Party, 1, 7, 26 Dewey, John, 62, 63, 82 Donato, Daniel, 130 Douglas, Roy, 49, 50, 55, 57 Dupuit, Jules, 91 Durant, J. C., 23 E Eastern Economic Association, ix Economic theory, ix, 5, 6, 29, 63, 64, 67, 90, 91, 96, 99, 105, 129, 131 Edgeworth, 103 Ely, Richard T., 68 Emmett, Ross, ix, 61 Enclosure movement (Britain), 2 Engels, Frederick, 16, 76 England. See Britain and British Erie Canal, 19 F Fabians, 24 Factor of production, 17, 19, 28, 64, 89 Faustmann, Martin, 119–141 Capital theory and, 122–130 Fels, Joseph, 13, 14 Fillebrown, Charles, 11, 12 Flürscheim, Michael, 9, 20–22, 30 Clue to the Economic Labyrinth, 9 Foldvary, Fred F., ix, 89 Forest economists, 122–130 France and French, 3, 19, 101 Physiocrats, 99 Socialists, 20

Free trade, 1, 2, 7, 26–27, 40, 94, 99, 100, 103, 109 G Gaffney, Mason, ix, 90, 104, 115, 119, 134, 135 George, Henry Academic platform, rejection of by, 27–30 Argyll, Eighth Duke of, attack of on, 68–69 Capital, views on, 13–15, 56–58, 135–138 Condition of Labor, 15 Confrontation, wish to avoid of, 33–35 Free-trade stance of, 26–27 Government’s role, views on, 16–18, 55–56 Individualism and, 80–82 Interest-bearing debt, refusal to address by, 20–24 Knight, Frank H.’s criticism of, 61–66 Land rent focus of, 9–13 Laveleye, Emile de and, 47–60 Narrow theorizing of, 30–31 Nationalization, views on, 74–75 Peasant proprietorship and, 47–60 Political critics of, 1–45 Political legacy of, 35–40 Private ownership of land, 70–75 Progress and Poverty, 2, 4, 6, 9, 13, 14, 18, 29, 32, 35, 38, 39, 47–50, 52, 54, 56, 58, 67, 68, 70, 75, 77, 81, 135, 138, 143 Public ownership of land, opposition to, 18–19 Reformers, other, and, 8–9 Right-wing tendencies of, 31–33 Rural land, emphasis by on, 24–26 Science of Political Economy, 76, 81 Socialism and, 75–80 Social philosophy of, 67–88 Germany, 49, 92 Gladstone, William, 51 Goldman, Emma, 36 Gompers, Samuel, 145

Index Gossen, Hermann-Heinrich, 89, 91–92, 108, 115 Land issues and, 91–92 Gould-Vanderbilt fortunes, 57 Government, 1–3, 5, 7, 8, 12, 15–24, 32, 33, 36–38, 47, 48, 55–56, 58, 59, 70, 74, 77, 78, 96, 104, 109 Role of, 16–18, 55–56 Greenback Party, 24 Grinnell College, ix Growth theory, 133 H Harvester strike, 145 Hayek, F. A., 68, 92, 93, 122 Haymarket Riot, 145 Heavey, Jerome, ix, 47 Hébert, Robert, 93, 112 Henry George Schools, 39 Hilditch, 13 Hirshleifer, Jack, 129 History of Economics Society, is Hudson, Michael, ix, 1, 143–146 Human capital, 58, 105, 137 Hutchins, Robert, 63 Hutchison, Terence, 62 Hyndman, Henry Mayers, 78 I Income tax, 4, 10, 11, 38 India, 49 Individualism, 1, 7, 16–18, 30–33, 80–82, 143 International Socialist Review, 15 Interest-bearing debt, 1, 20–24, 36 Interest rates, 119, 120, 123–129, 131, 132, 136, 138 Interstate Commerce Commission, 4, 18 Investment cycles, 127–129 Ireland, 25, 51, 53 Irish Land Bill, 51 Iron Law of Wages, 13 Italy, 49 J Jefferson, Thomas, 78 Jevons, William Stanley, 92, 119, 121, 132

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Johnson, Gale, 138 Jonah, 145, 146 K Kekes, John, 82 Keynes, 119, 132, 133 General Theory, 133 Treatise on Money, 133 Keynesians, 39, 132 Kitson, Arthur, 21 Knight, Frank H., 61–66, 68, 120, 122, 130 George, Henry, criticism of, 61–66 Knights of Labor, 15, 145 L Labor, 1–8, 11, 13–17, 19, 20, 30, 33, 37, 49, 58, 63, 64, 70–72, 79, 89–91, 97, 102, 104, 106, 110, 119–121, 123, 125, 129, 132–134, 138, 144 Labor theory, 2, 5 Labour Party (Britain), 37 Lachmann, Ludgwig, x Land Reform Conference (Paris, 1889), 9 Land reform movement, Europe, 20 Land Reform Union, 31 Land rent, 9–13, 19, 22, 23, 30, 37, 38, 40, 47, 53, 58, 63, 64, 70, 75, 89, 90, 92, 93, 95–97, 99, 100, 104, 108, 111–113, 119, 135 Lassalle, Ferdinand, 9, 16 Laveleye, Emile de, 47–60 Primitive Property, 48–50, 52 Lee, Daniel, 27 Leon, Daniel de, 6 Lewis, Arthur, 31 Liddell-Hart, Sir Basil, 36 Locke, John, 144 London, 13, 32, 48 M Machlup, Fritz, 122 MacIntyre, Alasdair, 82 Macro theory, 133 Maine, Sir Henry, 50 Malthus, Thomas Robert, 69

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Marginalists, land confrontation by, 89–117 Gossen, Hermann Heinrich, 91–92 Marshall, Alfred, 112–114 Neoclassists, 91 Pareto, Vilfredo, 100–112 Walras, Léon, 94–100 Wieser, Friedrich von, 92–94 Maritain, Jacques, 62 Marriott, G. R. L., 48 Marshall, Alfred, 29, 30, 68, 101, 112–114, 132, 146 Land issues and, 112–114 Marx, Karl, and Marxism, 5, 9, 13, 16, 20, 28, 30, 32, 39, 75, 76, 78, 79 Communist Manifesto, 16, 75 McCann, Charles R. Jr., ix, 67, 143, 144, 146 McGlynn, Father, 8, 15 Menger, Carl, 90–92 Mexico, 49 Michigan, 27 Mill, James, 2 Mill, John Stuart, 2, 3, 13, 16, 109, 119, 132, 138 Mises, Ludwig von, 39, 82, 92 Human Action, 82 Mitchell, Wesley Clair, 146 Monopoly/monopolies/monopolists, x, 1–6, 8–21, 24–26, 28–33, 35, 36, 38, 40, 55, 57, 71, 79, 80, 90, 93, 94, 99, 100, 105, 106, 110, 112, 113 Montesquieu, 50 Morris, William, 75 Moss, Laurence, 143 Myers, Gustavus, 9 N Nasse, Professor, 50 Nationalization, 8, 18, 23, 31, 58, 67, 68, 73–75, 79, 83, 95, 101, 112 Neoclassical theory, 62 New Age, The, 14, 32 New Deal, 4, 17, 37 New York City, ix, 6, 8, 14, 35 New York State, 19, 137 New York Times, 137

Ninevah, 145, 146 North, Luke, 11 O Oakland, 138 Oxford, 21 P Pareto, Vilfredo, 100–112, 115 Land issues and, 100–112 Patten, Simon, 10, 14, 15, 17, 19, 26, 28–30, 36 Economic Basis of Protection, 26 Peasant proprietorship, 47–60 Perlman, Mark, ix, 143 Peru, 49 Phillips curve, 133 Pigou, 101 Pittsburgh, 146 Plassmann, F., 62 Plato, 146 Point-input, point-output assets (PIPO), 134 Polytechnic University of Turin, 101 Pope Leo XIII, 15 Postclassical economics, 3, 24, 28, 29 Post-Keynesians, 28, 39 Post, Louis, 25, 36 Private ownership of land, 70–75 Progressive Era, 4, 17, 19, 144 Proudhon, P. J., 2, 9, 13, 20 What Is Property, 2 Public, The, 36 Public benefit/interest, 78, 80, 97, 99 Public debt, 15, 24 Public choice theory, 56 Public credit system, 8, 23 Public ownership of land, 1, 7, 13, 17, 18–19, 33, 38, 73 Public regulation, 4, 17, 31, 36 Public revenue/finance, 89, 92, 94, 96, 104, 112 Pullman strike, 14 R Rand, Ayn, 39 Rent theory, ix, 1, 2, 7, 13, 27–30, 37, 38

Index Republican Party, 17, 18, 26 Resources for the Future, Inc. (R.F.F.), 130 Ricardo, David, 2, 9, 13, 14, 16, 20, 24, 25, 27, 32, 40, 63, 90, 92, 93, 110, 111, 119–141 Capital theory and, 121–122 Distribution theory, 10 George’s views on, 24–26 Principles, 121 Rodbertus-Jagetzow, 57 Rodbertus, Karl, 16 Rolph, Earl, 133 Roosevelt, Franklin, 17 Roosevelt, Theodore, 26 Rothbard, Murray, 93, 94 Rural land, 24–26, 93, 94, 135 S Samuelson, Paul, 125, 129, 146 School for Economic Science, 31 School of Forestry at Corvallis, 130 Schumpeter, Joseph, 93, 101, 146 Schwartzman, Jack, 74, 75 Shaw, George Bernard, 12 Intelligent Woman’s Guide to Socialism, 12 Sherman Anti-Trust Act of 1890, 4, 26 Simons, Algernon, 15, 26 Sinclair, Upton, 9, 11 Single Tax, 4–8, 10–12, 14–18, 21–24, 30–38, 56, 62–64, 93, 100 Single Taxers, 8, 9, 11, 12, 15, 22, 25, 26, 31–33, 37 Site rent, 119, 122, 125–129, 133 Site value, 114, 120, 124–126 Smith, Adam, 2, 9, 103, 132 Social and moral theory, 95, 99 Social democrats, European, 37 Socialism, 2, 8, 9, 13, 15, 31, 55, 57, 67, 68, 70, 75–80, 83, 92, 143, 145 Socialist Labor Party, 6 Spencer, Herbert, 18, 23, 69, 78, 80, 82 Social Statics, 23 Standard Oil, 4, 26 Stigler, George, 122, 130

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St. Simonians (French), 20 Subsidies, 1, 17, 19, 35 Supreme Court, 10 Swan Sonnenschein (publisher), 9 Swarthmore, 12 Swinton, John, 13 Switzerland, 94 T Tammany Hall, 7, 8 Tarbell, Ida, 9 Taxation, 1, 3–7, 11–13, 19, 24, 25, 27–30, 33–36, 38–40, 56, 75, 93, 97, 98, 100, 101, 112, 113, 115, 120, 135 See also Income tax; Single Tax Thompson, Robert Ellis, 26 Tideman, N., 62, 64 Tolstoy, Leo, 21, 22 Tucker, Benjamin, 2 U Uhr, Karl, 133 Ulster Custom, 51 Unearned increment, 2, 3, 74 United Kingdom. See Britain and British United Labor Party, 8 United States, 3, 11, 12, 14, 17, 19, 24, 25, 27, 29, 35, 37, 39, 56, 57, 112, 128 Forestry schools, 130 U.S. Forest Service, 129 U.S. Patent Office, 27 University of California at Berkeley, 27 University of Lausanne, 94, 101 University of Liege, 48 University of Pennsylvania, 26 Untermann, Louis, 16 V Value theory, 121 Veblen, 28, 30 W Wages-flow theory, 120, 133 Wages-fund theory, 120, 133, 135 Walker, Francis A., 68 Walker, Thomas, 23, 24

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Wall Street, 20, 24, 30, 35, 37, 40 Walras, Auguste, 94, 99 Walras, Leon, 89, 92, 94–102, 104, 108, 109, 112, 115 Land issues and, 94–100 Walzer, Michael, 82 Weiser, Friedrich von, 92–94

Land issues and, 92–94 Natural Value, 92 Wells, H. G., 32, 33 Wicksell, Knut, 119–141 Capital theory and, 131–134 World War I, 38