Causes of the Business Depression
Henry George
[An article first published in Once a Week, a
New York periodical, 6 March, 1894]
I AM asked by "Once a Week" to state what, in my opinion,
are the causes of the existing business depression. It should be
possible to do more. For the method that has fixed with certainty the
causes of natural phenomena once left to varying opinion or wild
fancy, ought to enable us to bring into the region of ascertained fact
the causes of social phenomena so clearly marked and so entirely
within observation.
To ascertain the cause of failure or abnormal action in that complex
machine, the human body, the first effort of the surgeon is to locate
the difficulty. So the first step towards determining the causes of
business depression is to see what business depression really is.
By business depression we mean a lessening in rapidity and volume of
the exchanges by which, in our highly specialised industrial system,
commodities pass into the hands of consumers. This lessening of
exchanges which, from the side of the merchant or manufacturer, we
call business depression, is evidently not due to any scarcity of the
things that merchants or manufacturers have to exchange. From that
point of view there seems, indeed, a plethora of such things. Nor is
it due to any lessening in the desire of consumers for them. On the
contrary, seasons of business depression are seasons of bitter want on
the part of large numbers -- of want so intense and general that
charity is called on to prevent actual starvation from need of things
that manufacturers and merchants have to sell.
It may seem, on first view, as if this lessening of exchanges came
from some impediment in the machinery of exchange. Since tariffs have
for their object the checking of certain exchanges, there is a
superficial plausibility in looking to them for the cause. While, as
money is the common measure of value and a common medium of exchange,
in terms of which most exchanges are made, it is, perhaps, even more
plausible to look to monetary regulations. But however important any
tariff question or any money question may be, neither has sufficient
importance to account for the phenomena. Protection carried to its
furthest could only shut us off from the advantage of exchanging what
we produce for what other countries produce; free trade carried to its
furthest could only give us with the rest of the world that freedom of
exchange that we already enjoy between our several States; while
money, important as may be its office as a measure and flux of
exchanges, is still but a mere counter. Seasons of business depression
come and go without change in tariffs and monetary regulations, and
exist in different countries under widely varying tariffs and monetary
systems. The real cause must lie deeper.
That it does lie deeper is directly evident. The lessening of the
exchanges by which commodities pass into the hands of consumers is
clearly due, not so much to increased difficulty in transferring these
commodities as to decreased ability to pay for them. Every business
man sees that business depression comes from lack of purchasing power
on the part of would-be consumers, or, as our colloquial phrase is,
from their lack of money. But money is only an intermediary,
performing in exchanges the same office that poker-chips do in a game.
In the last analysis it is a labour certificate. The great mass of
consumers obtain money by exchanging their labour, or the proceeds of
their labour, for money, and with it purchasing commodities. Thus what
they really pay for commodities with is labour. It is not merely true
in the sense he meant it that, as Adam Smith says, "Labour was
the first price, the original purchase money that was paid for all
things." It is the final price that is paid for all things.
The lessening of "effective demand," which is the proximate
cause of business depression, means, therefore, a lessening of the
ability to convert labour into exchange able forms -- means what we
call scarcity of employment. These two phrases are, in fact, but
different names for different aspects of one thing. What from the side
of the business man is "business depression," is, from the
side of the workman, "scarcity of employment." The one
always comes with the other and passes away with the other. They act
on each other, and again react, as when the merchant or manufacturer
discharges his employees on account of business depression, and thus
adds to scarcity of employment. But in the primary causal relation
scarcity of employment comes first. That is to say, scarcity of
employment does not come from business depression, as is sometimes
assumed, but business depression comes from the scarcity of
employment. For it is the effective demand for consumption that
determines the extent and direction in which labour will be expended
in producing commodities -- not the supply of commodities that
determines the demand.
What is employment? It is the expenditure of exertion in the
production of commodities or satisfactions. It is what, in a phrase
having clearer connotations, we term work. For the term employment is,
for economic use, somewhat confused by our habitual distinction
between employers and employees. This distinction only arises from the
division of labour, and disappears when we consider first principles.
I employ a man to black my boots. He expends his labour to give me the
satisfaction of polished boots. What is the five cents I give him in
return? It is a counter or chip through which he may obtain at will
the expenditure of labour to that equivalent in any of various forms
-- food, shelter, newspapers, a street-car ride, and so on. In final
analysis the transaction is the same as if I had employed him to black
my boots and he had employed me to render to him some of these other
services; or as if I had blacked my own boots and he had performed
these other services for himself. Even in a narrow view there are only
three ways by which men can live -- by work, by beggary and by theft;
for the man who obtains work without giving work is, economically,
only a beggar or a thief. But on a larger view these three come down
to one, for beggars and thieves can only live on workers. It is human
labour that supplies all the wants of human life -- as truly now, in
all the complexities of modern civilisation, as in the beginning, when
the first man and first woman were the only human beings on the globe.
Now, employment, or work, is the expenditure of labour in the
production of commodities or satisfactions. But on what? Manifestly on
land, for land is to man the whole physical universe. Take any country
as a whole, or the world as a whole. On what and from what does its
whole population live? Despite our millions and our complex
civilisation, our extensions of exchanges and our inventions of
machines, are we not all living as the first man did and the last man
must, by the application of labour to land? Try a mental experiment:
Picture, in imagination, the farmer at the plough, the miner in the
ore vein, the railroad train on its rushing way, the steamer crossing
the ocean, the great factory with its whirring wheels and thousand
operatives, builders erecting a house, line men stringing a telegraph
wire, a salesman selling goods, a bookkeeper casting up accounts, a
bootblack polishing the boots of a customer. Make any such picture in
imagination, and then by mental exclusion withdraw from it, item by
item, all that belongs to land. What will be left? Land is the source
of all employment, the natural element indispensable to all work. Land
and labour -- these are the two primary factors that, by their union,
produce all wealth and bring about all material satisfactions. Given
labour -- that is to say, the ability to work and the willingness to
work -- and there never has and never can be any scarcity of
employment so long as labour can obtain access to land. Were Adam and
Eve bothered by "scar city of employment"? Did the first
settlers in this country or the men who afterwards settled those parts
of the country where land was still easily had know anything of it?
That the monopoly of land -- the exclusion of labour from land by the
high price demanded for it -- is the cause of scarcity of employment
and business depressions is as clear as the sun at noonday. Wherever
you may be that scarcity of employment is felt -- whether in city or
village, or mining district or agricultural section -- how far will
you have to go to find land that labour is anxious to use (for land
has no value until labour will pay a price for the privilege of using
it), but from which labour is de barred by the high price demanded by
some non-user ? In the very heart of New York City, two minutes' walk
from Union Square will bring you to three vacant lots. For permission
to use the smallest and least valuable of these a rental of $40,000 a
year has been offered and refused. This is but an example of what may
everywhere be seen, from the heart of the metropolis to the Cherokee
Strip. Where labour is shut out from land it wastes. Desire may
remain, but "effective demand" is gone. Is there any mystery
in the cause of business depression? Let the whole earth be treated as
these lots are treated, and who of its teeming millions could find
employment?
At the close of the last great depression I made "An Examination
of the Cause of Industrial Depression" in a book better known by
its main title, "Progress and Poverty," to which I would
refer the reader who would see the genesis and course of business
depressions fully explained. But their cause is clear. Idle acres mean
idle hands, and idle hands mean a lessening of purchasing power on the
part of the great body of consumers that must bring depression to all
business. Every great period of land speculation that has taken place
in our history has been followed by a period of business depression,
and it always must be so. Socialists, Populists and charity- mongers
-- the people who would apply little remedies for a great evil -- are
all "barking up the wrong tree." The upas of our
civilisation is our treatment of land. It is that which is converting
even the march of invention into a blight.
Charity and the giving of "charity work" may do a little to
alleviate suffering, but they cannot cure business depression. For
they merely transfer existing purchasing power. They do not increase
the sum of "effective demand." There is but one cure for
recurring business depression. There is no other. That is the single
tax -- the abolition of all taxes on the employment and products of
labour and the taking of economic or ground rent for the use of the
community by taxes levied on the value of land, irrespective of
improvement. For that would make land speculation unprofitable, land
monopoly impossible, and so open to the possessors of the power to
labour the ability of converting it by exertion into wealth or
purchasing power that the very idea of a man able to work, and yet
suffering from want of the things that work produces, would seem as
preposterous on earth as it must seem in heaven.
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