Lessons in Fundamental Economics
George A. Briggs
[A summary based on the course in Fundamental
the Henry George School of Social Science]
1. COMMENT ON HENRY GEORGE'S DEFINITIONS
Many years ago, when I first read Progress and Poverty, I had
a difficult experience, At that time I was working for ten dollars per
week. My employer who was about my own age, gave his wife six hundred
dollars per month solely for household expenses. I was willing to
concede that he was abler than I, but did not believe the difference
in our incomes truly measured his superior ability. Someone told me I
might find the causes of economic maladjustment explained in Henry
George's book. So I tackled it.
I had had no previous experience with closely-knit precise thought
except in mathematics, where the symbols used, unlike common words,
can have only one meaning for each. Then, too, my mind was full of
preconceptions as to the meaning of words. For these reasons, while I
followed Henry George's eloquence with delight and shared the
enthusiasm of his great .heart, I could not go with him in many of his
arguments, nor to his conclusions. It took me a long time to free
myself from habit-bound compartmentalized convictions with reference
to the processes and instrumentalities of wealth production.
Later, much later, it came to my more-or-less feeble intelligence
that, scattered throughout the book there was a series of definitions
which covered the field and which when taken separately or together
were as definite and as compelling as the axioms of Euclid.
Painstakingly I gathered these together and memorized them. "Then,"
as captions of silent pictures used to say, "came the dawn."
It has occurred to me that others may find themselves in my former
predicament. So I present, herewith, nine major definitions, together
with what they are not, as well as what they are. It is my hope that
they may be as useful to others, who for the first time are studying
Henry George's Progress and Poverty, as they were to me.
WEALTH -- All material things produced by labor for the
satisfaction of human desires, having exchange value.
Since George treats of the production and distribution of wealth, our
first task then is to inquire what he means by wealth. He defines it
as being material objects produced by human labor for the satisfaction
of human desires and having exchange value. Nothing which lacks any of
these four characteristics, according to George, constitutes wealth.
Even if permitted by law, a slave would not be wealth because,
although a slave has exchange value, he lacks some of the other
characteristics. In like manner stocks, bonds and mortgages are not
wealth. They are exchangeable certificates of ownership in something
which is supposed to have exchange value. Nor is money to be
considered as wealth except for the material of which it is composed.
The government imprint which constitutes it as money makes it a
measure of, value and a medium of exchange. As such it is
indispensable to modern industry. But it is a fiat of government and
obviously a fiat of government is not a material object.
When we speak of land we know it is a material object which will
satisfy human desires and has exchange value. But we cannot consider
it wealth because it is not produced by human labor, improvements on
land, however, have all four characteristics and therefore under our
definition are wealth.
We must also eliminate human skills and ability from the category of
wealth. They satisfy human desires and as in the case of celebrated
surgeons or inventors, their services have exchange value, but their
services are not material objects. The tools they use, however, have
all four characteristics and therefore are wealth. So are houses,
factories, industrial building of all kinds, tools, machinery, stocks
of merchandise and innumerable other things which are material
objects, produced by human labor for the satisfaction of human desires
and having exchange value.
There can be no excuse for misunderstanding George when he uses the
term of wealth. We may do so because of conscious or unconscious
preconceptions. But these are obstacles, not excuses.
PRODUCTION -- All activities necessary to create and to bring
wealth from the place of its origin to the ultimate consumer.
Production of wealth is commonly thought of as something that happens
in a factory or on a farm. The factory makes, say, automobiles, or the
farmer grows wheat. Since automobiles and wheat are wealth, it is
easier than not to consider the production complete when the
automobile is ready for use or the wheat is harvested. George uses the
term in a wider sense. Since wealth is produced to satisfy human
desires, it cannot be said to be completely produced until it is used
by the ultimate consumer to satisfy his desires.
Take coffee as an example. It may be grown on the highlands of Costa
Rica or Panama or in Brazil. But usually it must go far and through
many hands before is it prepared and handed to you by a maid, if you
are lucky enough to have one, at your table. It has been carried
towards you by steamships and railroads. It has been handled by
importers, wholesalers, jobbers and retail merchants. All these have
been factors in bringing it to the place where, and the time when, it
will satisfy your desire for it. It has been wealth all the time, of
course, but it has not been produced for you until then.
So far as the steamship company is concerned, for example, coffee has
been produced when delivered to the importer to satisfy his desires.
But he would have no such desires if it merely piled up in his
warehouse and 'had no further use. The cycle of production does not
end until the ultimate consumer receives the product. Any and all
agencies and instrumentalities in this cycle are factors in
Here again it is not difficult to understand George, unless your
preconceptions cause misunderstandings, and without understanding you
cannot make a valid judgment either for or against George's proposals.
DISTRIBUTION -- The division of wealth among the factors
necessary for its production. These include only Land, Labor, and
Capital, and they receive, respectively, Rent, Wages and Interest.
When we speak of distributing wealth, most commonly we think of
carriers and dealers who handle the product but do not make it.
George, as we have seen, considers all these as factors in production.
He uses the term distribution in an entirely different sense. To him
it means division of the proceeds among the factors of production.
In the case of coffee, the human agencies such as the farmer, the
steamship company, the importer, the wholesaler, the jobber and the
retailer, are all paid for their share in producing coffee for use.
Then, in their business, each of them uses other wealth. The steamship
company must have ships. The importer must have warehouses and other
equipment. And so on down the line. Then the farmer must have land on
which to grow the coffee. Thus we have three factors among which to
divide the proceeds. These are the land, the human element, and the
wealth used by the latter to promote production.
According to George then, there are three factors in production and
only three. These he terms Land, Labor and Capital.
LAND -- All the material universe outside of man and his
To the term land, George gives a broader definition than commonly
thought of. Always, however, he uses the word in precisely the way he
defines it. This is true of his use of all terms. It is this custom
which gives such clarity and force to George's writings, once the
reader has tentatively suspended his own loose conceptions of meaning
and is willing for the time, for the sake of understanding, to accept
Land, to him, is our entire physical environment, except man and his
products. Thus a virgin forest is land. A cultivated forest, on the
other hand, is wealth. Unmined ore is land, while mined ore is wealth.
Wild animals and birds, while free, are land. Domestic animals are
wealth. In the one case we have features of environment as yet free
from the manipulations of man. In the other we have features of
environment which have been planted, grown, excavated, killed,
captured or bred by man for use. One is land, the other is wealth. In
like manner water in a stream is land, but when used for irrigation or
when a dam obstructs its flow and diverts the water to turn a wheel or
a turbine, it becomes wealth. For then it is a material object,
produced by man at the place of its use, for the satisfaction of human
desires and having exchange value.
In a treatise on wealth production, this wider use of the term land
not only is justified but necessary. This is true because from every
feature of our physical environment human labor creates wealth. From
the ocean it produces salt, iodine, agar and fish; from the air,
oxygen, nitrogen and occasionally an edible wild bird; from a virgin
forest, lumber. The entire field would not be covered if George
limited the meaning of land to dry earth.
LABOR -- All human energy engaged in the production of wealth.
Here again George's definitions is more inclusive than that of common
usage. To him labor includes all activities of man for the production
of wealth. Thus in addition to skilled and unskilled workers, the
executive at his desk, the salesman out after business, the engineer
and the technologist, all are laborers, and their activities in
producing wealth are labor. All exert human energies, whether mental
or muscular, in the productive cycle whereby wealth is gradually moved
from the place of its origin to satisfy desires of the ultimate
consumer. The term labor thus acquires dignity as well as precision in
CAPITAL -- Wealth used for the production of more wealth.
In modern industry tools and equipment are essential to the
production of wealth. These include machinery, power equipment,
transportation facilities, warehouses, factories and other industrial
buildings, stocks of merchandise and numerous other things. As we have
seen, each and all of these are wealth. But now because of their
special uses, George feels they deserve a separate category. So he
defines capital as being wealth used for the production of more
wealth. It cannot be confused with land because land, within the
framework of our definitions, is not wealth. It cannot be confused
with skills and other human capacities, whether congenital or
cultivated, because these when used to produce wealth are labor.
Thus there is no confusion of thought as to the three factors in
production. The line of cleavage between them is clear and
unmistakable. Any given factor is at once seen to be either land,
labor or capital. In the division of wealth among the three factors, a
name must be given to the part received by each. These George
designates as rent, wages and interest.
RENT -- The short of wealth that is paid for the us* of Land.
George defines rent as the share of production received for the use
of land. Amounts paid for the use of buildings, machinery, etc., do
not constitute rent because they are not paid for the use of land.
Nothing paid for the use of anything except land may be called rent.
And nothing paid for the use of land may be called anything except
rent. Here again the definition is precise and affords no place for
looseness or confusion of thought. Here again the only obstacles to
understanding are habitual preconceptions which have no place in
WAGES -- The share of wealth that constitutes the reward of
Wages, according to George, constitutes labor's share of wealth. It
is the reward of the active factor for its part in producing wealth.
Thus, all who are actively engaged in production, physically or
mentally, receive wages. In common usage, wages are considered only as
the compensation paid to an employee, usually a manual worker. But
George's definition of wages is just as inclusive as his definition of
labor. It includes all returns to the human factor in the production
of wealth. Thus the entrepreneur who is engaged in the production of
wealth is receiving wages just as truly as his employees. This is
beclouded by the fact that the entrepreneur often receives interest
and rent as well. If we keep in mind our basic definitions we can
mentally separate the three returns, even though received by the same
person. There is no place in fundamental economics for the spurious
INTEREST -- The share of wealth that is paid for the use of
The term interest, according to George, refers exclusively to the
share of production that goes to capital, which in turn, as we have
seen, consists of wealth used for the production of more wealth.
Current usage lends itself to confusion. Sometimes returns for use of
capital are referred to as rent, as for example the use of a building.
With George, of course, such returns are called interest. Then again,
since money is not wealth, it cannot be called capital, and returns
for its use cannot be called interest. By its use, however, one kind
of wealth may be speedily exchanged for another. Then, too, anything
which has exchange value, as for example land, which is not wealth,
may be exchanged for money, which in turn may be used to secure
anything else which has exchange value. It is a draft on all kinds of
things which have exchange value and measures the difference in value
between them. Nothing is implied here to denounce payment for the use
of money. All that is meant, as stated above, is that since money is
not wealth, any payment for its use cannot logically be called
If the reader has been patient enough to accompany me thus far, and
to familiarize himself with the nine primary definitions of Henry
George, he will note that there are no gaps between these definitions
and no overlapping. Each has a precise, never-varying meaning. At
every step in the production and distribution of wealth, the informed
reader will have no doubt as to the category to which every factor
belongs. He will have a key to understanding, a standpoint from which
to view the multiplicity of phenomena involved in production and
With this clarity of vision, freed from habitual preconceptions and
misconceptions, he may, I hope, with zeal and enthusiasm, follow
George in his
Progress and Poverty to understand how and why in the midst of
untold riches, either poverty or near poverty is almost the universal
lot of man. He will see how this deplorable condition may be remedied
and how achievement of economic security may become the rule, and not
the rare exception it now is.
2. THE SOURCE OF WAGES
(The Wages Fund Theory -- Fact or Fancy?)
Popular fallacies are long lived. Many people still believe in the
Wages Fund Theory which was advanced in the Eighteenth Century. At
that time men assumed wages came from capital. The Wages Fund Theory
claimed that the amount of capital limited wages; the mote laborers,
the less wages for each. Economists have long since dismissed this
theory as false, and we can understand why it is false if we
investigate the real source of wages, step by step.
1. Why discuss wages?
Because, says Henry George, "Poverty is the tendency of wages to
fall to a minimum which will give but a bare living." The
majority of men are laborers and depend wholly on their wages far
existence. If all laborers had sufficient wages to furnish adequate
food, clothing and shelter there would be no poverty. Therefore,
before attempting to solve the problem of poverty, we must understand
what wages are and where they come from.
2. What are wages?
Wages are the worker's share of the wealth he has helped produce by
his labor. They may be any material thing. If he works in a shoe
plant, the part of the shoes he has helped produce will be his wages.
If, as is usually the case, the employer pays wages in money, he is
merely buying from the worker the shoes which came to the worker as
his share of the production. The worker will spend the money as he
pleases; his actual wages were in the form of shoes.
3. Where do wages come from?
Well, let's look at the record - way back.
In primitive society each man hunted, fished and cultivated the earth
with rude implements to supply his own needs. The game our Grandfather
Cave Man caught and the scant harvest he gathered from the land were
his reward for his labor. They comprised his wages and his entire
wealth. If harvest and hunting were good, he feasted; if poor, he
Had Machine Age Joe met Grandfather Cave Man and asked, "Who
pays you?" he'd have been called a dimwit by Grandpa. In basic
English, Grandpa would have answered, "I make club. Hunt through
forest. Find bear. Kill. Eat meat. Wear skin. Catch own dinner. Catch
own wages. No catch, no eat." Grandpa Cave Man didn't have to
study economics to know where his wages came from. He went out to
nature and by his labor produced his wages - his food, clothing and
4. But wasn't primitive man poor?
Yes. Very poor indeed. He produced little, therefore his wages were
low. He had to do everything himself. Naturally, his production was
limited to necessities - no luxuries.
5. How did men learn to produce more?
As men associated, they soon discovered they could produce more if
each specialized in some branch of industry and then exchanged his
product. The colorful life of the market place arose. Here Farmer Tom
brought his melons and corn; Shepherd David his wool, meat and furs;
Weaver Bill his cloth. Others became woodcutters and stonemasons,
building better homes in exchange for Tom's and David's and Bill's
surplus food and clothing.
Men developed new techniques, better instruments - chisels, plows,
needles, looms, harness. These first tools - rude capital - and
specialization of labor, enabled all to draw greater abundance and
comfort from nature. Men became civilized and wealthier by living and
working in a cooperative society.
6. When men exchanged did each laborer's wages still come from
his own production?
Yes. The system was the same as in primitive society - only the
method changed. Farmer Tom grew more corn than he needed because, by
so doing, he knew he could trade it for David's wool to clothe
himself. When Tom exchanged his extra corn for David's extra wool he
was really producing wool as well as corn, because, had there been no
market place, neither would have produced a surplus. No one could go
to the market place empty handed. Each laborer still produced his own
wages before he bartered or consumed them.
7. But where do wages come from now that laborers are paid in
From the laborers' own production. Invention of money greatly
facilitated exchange, but could not change the system. Now laborers
each ply a specialized trade. Often, however, they use an employer's
tools. Good old nature still supplies the raw materials (wood, oil,
minerals, land to cultivate, ocean fishing grounds). Laborers and
employers must always depend on nature for the basic materials they
Let's watch today's laborers. Taking iron ore, laborers use furnaces,
cranes, rolling mills belonging to employers, and produce steel
girders for new apartment houses. Instead of taking to market a couple
of girders each Saturday night as his part of the week's production,
the steel worker sells his share to his employer. "How much will
you pay me for forty hours of steel girder making?" He exchanges
his own production for money right at the steel mill and then goes to
market and buys other laborer's production of milk, meat, shoes,
chairs. It's the same old system streamlined.
8. Isn't the employer's capital reduced when he pays wages in
No. Certainly not. The employer, Mr. Capital, hires laborers to
produce for him a certain form of wealth -shoes, let's say. Mr. C.
starts the week with capital (a factory, machines, bank balance*, and
leather) and labor (employees). Using Mr. C's machines, the laborers
skillfully work up the leather into a more valuable product - shoes.
Friday, Mr. C. pays wages and takes inventory. In place of raw leather
and money* he finds he has a stock of finished shoes ready for market.
Labor has added to his capital stock before being paid. Mr. C has
merely changed his capital into another form. If wages were paid from
capital, the employers would have less capital. Yet at no time during
the week has capital been lessened. (*Figurative use of "money"
9. But some claim wages come from capital. Is this true?
No. Labor produces wealth before being paid. Production need not
depend on capital or money. Labor only needs access to land (natural
resources) to produce all forms of wealth, including capital.
Now some capitalists who desire to accumulate wealth or capital in a
certain form - freighters, let's say, will hire laborers to produce
the ships. These ships will not be ready for months; yet laborers are
paid each week. Don't wages come from capital there? No. Every week
the ships grow bigger before the laborers are paid. The capitalist is
gradually changing his form of capital into more and more ship. The
laborers are gradually adding to the general stock of wealth and
capital before being paid. Wages are still coming from labor's
10. O.K. But we know we need capital. What for?
To facilitate production. A plow is capital. A farmer can produce a
far larger crop with a plow than if he cultivated the ground with bare
Although capital isn't used to pay wages, its functions in the
production of wealth should not be dismissed lightly. The use of tools
and machines (capital) makes labor more effective. Capital in the form
of stored seeds and breeding animals enables us to utilize the
reproductive forces of nature. Because of its exchangeability, capital
permits the division and specialization of labor, thereby enhancing
production considerably. It is, in reality, labor's third arm in the
production of wealth.
Interestingly enough, capital prospers or languishes as laborers
prosper or suffer. For example, the late 1920s were considered good
times. Then the wages of labor and the interest on capital were both
high. During the 1930s, in what we call "depression years,"
wages and the returns on capital were low.
11. What, then, is the only source of wages in any form of
Labor production is the only source of wages in any society.
"Production is the mother of wages" is a true adage. In
primitive times the laborer produced all his food, clothing and
shelter directly from nature. In early exchange society he bartered
his surplus production for other wealth in the market place. In
today's complex money-exchange system he produces wealth in a special
form for an employer who pays him in money and markets the product.
It's all the same system. We always find labor increasing the general
stock of wealth before receiving wages. His production is his sole
source of wages; his only method of feeding, clothing and sheltering
3. TOO MANY PEOPLE ?
(A Look at the Malthusian Theory)
In 1798 Dr. Thomas Malthus, an English clergyman, gained fame by
advancing a theory as to the cause of poverty. "Poverty appears
as increase in population necessitates a more minute division of
subsistence," he stated. He thought that every generation
increased the world's population geometrically; as 2, 4, 8, 16, 32:
while subsistence only increased arithmetically; as 1, 2, 3, 4, 5.
Such reasoning comforted men of affluence and helped them to believe
it impossible to better the condition of the poor. They joined Dr.
Malthus in saying that unless the masses restricted their numbers by
late marriage or birth control, nature would take action through wars,
plagues and famines to eliminate surplus population.
1. Was Dr. Malthus scientific in his reasoning?
No. Later economists pointed to the lack of any scientific data to
substantiate his geometric and arithmetic ratios.
To justify his assumption that nature could not provide sufficient
subsistence, he would have to prove (1) Nature was used to the fullest
extent; (2) No other cause for poverty was possible. He made no
attempt to prove either of the above conditions, nor could he have
2. Are all natural resources used fully?
No. In reality, in every known period of history, large areas of
arable land are unused; held as game preserves, forests, or idle and
uncultivated tracts by private owners; closed to possible exploitation
by the thousands in need of food. Wherever these conditions prevail
men cannot claim nature miserly; must realize instead that man-made
laws restrict full production of food.
3. Are there other man-made handicaps to full production?
Yes. Unjust laws restricting exchange and production, or forceful
levying of heavy tolls on producers are evident in many countries.
China's endless history of robber bands seizing peasants' crops each
harvest is one instance; Ireland exporting food to pay absentee
landlords during her famine is another. Destructive warfare, involving
scorched earth policies and slaughtering of livestock, caused millions
to starve in past wars. Crushing taxes keep laborers poor and prevent
them from accumulating capital to aid in production. These reasons
keep "backward" countries like India "backward."
Ignorance, too, retards production.
4. But aren't some nations too heavily populated?
No. Population is dense in many countries where the standard of
living is relatively high. Belgium has 710 inhabitants per square
mile; the Netherlands 690. India which is commonly considered "overpopulated,"
has only 200 per square mile; and China only 100. (World Almanac 1941,
Page 850.) History tells us the Middle East, the Nile Valley, Northern
Africa, Mexico, supported dense populations in former centuries.
5. Can densely populated countries be wealthy?
Yes. Concentrated population, we know, increases per capita ability
to produce. Working together, ten men can build a house more than ten
times as quickly as if each worked alone. Division of labor,
specialization and use of inventions permit far greater production per
capita than in self-sustaining primitive economies.
Today our farms are "factories in the fields," producing
with machinery and fewer men food for all; leaving cities free to
manufacture other goods; thus raising total productive capacity
U.S. Yearbook of Agriculture, 1940, states: "Up to 1820 more
than 90% of workers were engaged in agriculture. With the rise of
factory production and the growth of industrial-agricultural
inventions, the proportion of the total working population engaged in
agriculture began to decline.
By 100 only 42% were engaged in
agriculture; by 1930 only 20%. This may be taken as a rough measure of
the increase in efficiency in agriculture, keeping pace with increased
efficiency in urban industries."
Farms, cities, countries, hemispheres exchange their products, making
possible a varied plenty undreamed of in the past primitive isolated
Steady advances in science and invention prove that productive
ability increases faster than population. Conclusion:
Considering that denser population increases per capita ability to
produce, more men should mean more wealth.
An overcrowded world? No country has yet made full use of its
material resources. We ourselves know that in times of depression,
when wages are low and poverty is rampant, our resources are only
partly used. Instead of nature being miserly, its bounties remain
untapped. Farms, oil wells and mines are abandoned and production is
curtailed on the land and in factories.
No. The theory of "overpopulation" does not explain why
poverty persists in the midst of advancing wealth. We must look
further for a valid reason for poverty.