On Entrepreneurship, Growth and Rent-Seeking: Henry George
William J. Baumol
[An excerpt from American Economist, Vol. 48,
March, 2004. William J. Baumol teaches economics at New York
Progress and Poverty, that memorable work of Henry George,
leaves us with three main messages: first, that the rent of land is an
egregious contributor to inequality; second, that rent, unlike other
income sources, can be taxed without detrimental incentive effects;
and third, that this is so because pure rent is a payment for which
the recipient provides no production to society in return. These ideas
continue to stir his followers to this day, which at once raises a
question. Since, as a share of the Nation's income, the rent of land
has fallen to a mere two percent, how can anything so minuscule merit
our attention, or the attention of the designers of economic policy?
I will show here that George's analysis continues to be pertinent and
important, but is so primarily when it is generalized and its
applicability thereby extended well beyond its original bounds.
Economists have focused on the last of George's three observations
listed above -- rent as the payment for zero contribution by the
recipient -- and now use the term to refer to any such uncompensated
payment. When, for example, a business conspiracy accumulates large
monopoly earnings in an industry whose output is, if anything, reduced
in the process, then economists deem that collaboration to have
resulted in the acquisition of substantial "rent." It is
rent in this generalized sense that is at the forefront of modern
economic developments, as will be shown here.
Of course, the newspapers tell us every day, in sensational terms,
that rent-seeking and rent-getting...