Over Production
Henry George
[Reprinted from The North American Review,
Vol. 137, Issue 325, December, 1883]
ALTHOUGH this is hardly a time of abnormal business depression, a
great part of the industrial energies of the country are unemployed
because of what is commonly called overproduction. We hear so much,
and from so many quarters, of this over-production that it is no
wonder that there are many who hold, more or less definitely, that the
great improvements in machinery and industrial processes have brought
dull times; that the difficulty so many find in making a living is due
to the increased capacity given to labor by discovery and invention,
which have so reduced work that there is not now enough of it to go
around, and that, to secure a more equitable division of the precious
thing, we should limit the amount of work any one is permitted to do.
Ideas which thus reverse the principles we instinctively recognize in
the every-day affairs of life are by no means confined to what are
considered the less intelligent classes. They permeate the press, crop
out in all discussions, and are carried into effect in legislation. No
more than the housewife wants grease spilled over her kitchen floor,
that she may have the work of cleaning it up, does any one want work
for the sake of work. What they want is the things that work produces.
Yet we maintain a tariff having for its express purpose the pre-
venting of other nations from robbing us of work, and trunks are
searched and mail matter opened lest any one should escape the penalty
of bringing into the country the product of work done abroad. And so
while workingmen protest against production by convict labor,
manufacturers see no better remedy for dullness of trade than
curtailing production. If there really be such a thing as general
overproduction, if we are really suffering from a plethora of wealth,
then the remedy lies in the destruction of wealth. This is a reductio
ad absurdum. But the fact cannot be disputed that the period of
the Civil War, when the greatest destruction of wealth this country
ever saw was going on, was a time of great business prosperity and
industrial activity. Nor can this be explained upon any theory that we
were then borrowing of the future. To borrow of the future is a
physical impossibility. By no process of financial juggling can any
one eat to-day the egg that is to be laid to- morrow. The ships that
were sunk, the houses that were burned, the shot and powder fired
away, and the immense amounts of other wealth unproductively consumed
or wantonly destroyed were not future ships, houses, powder, and shot,
but existing products of labor. Nor did we even borrow from abroad. As
a people, we owed less to foreign nations at the end than at the
beginning of the war.
Is there, then, such a thing as overproduction? Manifestly, there
cannot be, in any general sense, until more wealth is produced than is
wanted. In any unqualified sense, over- production is preposterous,
when everywhere the struggle to get wealth is so intense; when so many
must worry and strain to get a living, and there is actual want among
large classes. The manner in which the strain of the war was borne
shows how great are the forces of production which, in normal times,
go to waste; proves that what we suffer from now is not
overproduction, but underproduction.
Relative overproduction there, of course, may be. The desires for
different forms of wealth vary in intensity and in sequence, and are
related one with another. I may want both a pair of shoes and a dozen
pocket-handkerchiefs, but my desire for the shoes is first and
strongest; and upon the terms on which I can get the shoes may in
large measure depend my ability to get the handkerchiefs. So, in the
aggregate demand for the different forms of wealth, there is a similar
relation. And as, under the division of labor characteristic of the
modern industrial system, nearly all production is carried on with the
view, not of consumption by the immediate producers, but of exchange
for other productions, certain commodities may be produced so far in
excess of their proper proportion to the production of other
commodities, that the whole quantity produced cannot be exchanged for
enough of those other commodities to give the usual returns to the
capital and labor engaged in bringing them to market. This
disproportionate production of some things, which is overproduction in
relation to the production of other things, is the only kind of
overproduction that can take place on any considerable scale, and the
overproduction of which we hear so much is evidently of this
character.
But what is the cause of this relative overproduction? That is the
important question. Does it spring, as some of the socialists seem to
think, from the lack of intelligent direction in production, which
requires for its remedy governmental supervision of industry? Is it
due to any removable cause, or must we, as the penalty for having
called steam and machinery to the aid of human muscles, accept
conditions in which men suffer from want while warehouses are glutted?
To answer these questions let us examine the phenomena more closely.
What is relative overproduction when viewed from one side is evidently
relative underproduction when viewed from the other. And what we call
overproduction as to any particular commodity or commodities may
proceed from increased production of things of one kind or from
decreased production of things of other kinds. Thus the original
impulse which produces relative overproduction may be one stimulative
of production or one restrictive of production. But, while the
phenomena of relative overproduction may thus arise from causes
opposite in essential character, it is only within a limited field and
to a limited extent that causes so different in their nature can
produce similar results. This we may see if we note the different
general effects which follow increase or diminution of production in
any special branch of industry. Let us suppose, for instance, that
there is, from some discovery or improvement, an increase in the
production of coal, out of proportion to the increase of other
productions. More coal thus being brought to market than can be sold
at previous rates, the price falls. The result is, that all the
consumers of coal who so desire can increase their consumption of
coal, and those who do not wish more coal can increase their
consumption of other things, while, in all branches of industry where
coal is used, the cheapening of coal reduces cost and stimulates
production. Thus the general effects of the increase in the production
of coal, as they become diffused over the whole field of industry, are
to increase all other production, and to re-establish an equilibrium
between the production of coal and the production of other things on a
basis of increased production.
But suppose some cause, natural or artificial, to cheek the
production of coal so that it falls below the previous proportion to
other production. Its price rises, and the consumers of coal must use
less coal or less of something else. Miners, transporters, etc., of
coal find themselves out of employment, and their power of purchasing
commodities cut off or diminished. At the same time, the enhanced
price of coal makes production more costly in all branches of industry
which make use of coal, and thus the general effects of the diminution
in the production of coal are to reduce all other production, and the
restoration of equilibrium, when it again takes place, will be on a
basis of diminished production. Thus we see that the general effect of
increase of production in any particular branch of industry is to
increase production in all branches, while the general effect of
decrease of production in any particular branch of industry is to
generally decrease production.
Or to put it in another way: Trade being the exchange of commodities
for commodities, in which money is but the common measure of values
and instrument of transfer, supply of commodities of one kind is
demand for commodities of other kinds. Whatever, therefore, causes the
bringing to market of an increased amount of commodities, at once
increases the supply of those commodities and the demand for other
commodities, thus increasing the volume of trade and generally
increasing production. Whatever, on the other hand, diminishes the
amount of commodities brought to market, at once decreases supply and
diminishes demand, lessening the volume of trade and decreasing
general production.
This we see very plainly in relation to those branches of production
in which the varying character of the seasons causes marked
alterations. Good crops mean increased demand of all kinds, active
trade, and general prosperity, although it maybe that to many farmers,
or perhaps to farmers in general, the immediate benefit of unusually
large crops is neutralized by the lower prices consequent on relative
overproduction. And reversely, although to many farmers, and perhaps
to farmers in general, the immediate effect of a poor crop may be
compensated for in higher prices, yet poor crops mean to the community
at large decreased demand of all kinds, dull trade, and hard times. It
is thus apparent that, while relative overproduction of any commodity
or group of commodities may arise either from increase in the
production of these commodities or from decrease in the production of
other commodities, yet there are differences in the general results
springing from these two differing causes which will enable us to
infer from which of the two any particular disturbance of the
equilibrium proceeds. If the nature of the primary cause be to
increase production, its secondary or diffused effects must be to
stimulate production generally, to augment the volume and increase the
briskness of trade; and whatever be the disturbance in the branch or
branches of production in which the impulse is first felt, it will
soon pass away as the stimulating impulse communicates itself to other
branches. But when the nature of the primary cause is to check
production, the impulse persists in the checking of other production,
and its general effects are to diminish demand and cause dullness in
trade, the disturbance which it first causes tending to perpetuate
itself in wider circles, causing a dislocation in the interlaced
machinery of production and exchange, which is finally reduced only at
the cost of deprivation and suffering.
To illustrate, let us suppose discoveries or inventions which so
increase productive power in certain branches of industry that, even
with the increased demand which follows reduced price, not so many
hands are needed in those employments as before. But the same cause
which thus displaces labor in certain employments operates, in the way
before pointed out, to create a greater demand for labor in other
employments and thus to facilitate redistribution without loss or
suffering. Suppose, however, a check to production, which operates to
a like extent in lessening the demand for labor in the same branches
of industry. The cause which thus displaces labor in these departments
operates, in this case, to reduce the demand for labor in other
departments, making it harder instead of easier for the labor
displaced in one occupation to find employment in others. Displacement
thus tends to further displacement, and waste and suffering are
extended and protracted.
Looking at the phenomena which present themselves to-day in the
dullness of trade, the forced idleness of laborers, and the
curtailment of production in so many branches of industry, and which
in times of marked industrial depression present themselves in
aggravated form, there can be no difficulty in deciding to which class
of primary causes they are due. They are not due to causes primarily
operating to increase production, even if to increase it
disproportionately, but to causes which primarily operate to cheek
production. It is not true, as the New York Herald says, in cutting
down the margin of the news-dealers, that the country is producing too
much an assertion that in one form or another is echoed generally by
the press. What is true is that the country is producing too little.
Reductions in wages and in profits, the fall of interest, dullness of
trade, the involuntary idleness of men who would gladly be at work,
are not the symptoms of too great a production of wealth; they are the
symptoms of restriction upon the production of wealth.
Nor have we far to look to recognize restrictions upon the production
of wealth sufficient to account for all these phenomena restrictions
which prevent that interaction of demand and supply which, under
conditions of freedom, will determine the proportion that all branches
of production should bear to one another with infinitely greater
promptness and exactness than could any human intellect. In the first
place, almost all our taxes, either purposely or incidentally,
restrict production. Taxes upon the exchange of commodities are as
much taxes upon the production of commodities as taxes directly levied
upon production. We maintain an enormous tariff upon imports for the
express purpose of hampering and restricting the exchange of
commodities a tariff which extorts from the producers of the country a
greater revenue to the Government than even the profligacy which it
has engendered can find excuse to spend; which in addition extorts
from producers a probably still greater sum for the benefit of favored
individuals and corporations, whose lobbyists almost mob Congress when
any proposition for the reduction of taxation is made ; and which
still further causes waste and loss that probably exceed both what
goes to the Government and what goes to the favored interests. Our
national internal revenue taxation is, moreover, not merely for the
most part a direct tax upon production, for, whatever may be said
against the use of whisky and tobacco, their production, from the
economic stand-point, is as truly the production of wealth as is the
production of bread and cheese, but it is a taxation which creates
monopolies.
Nor have we even internal free trade, although, thanks to the
constitution, the political power is prohibited from interfering with
it. But we have suffered the corporations to whom we have left the
control of the great highways over which our internal commerce must
pass, to assume the taxing power. They are not only suffered to
practically charge their own prices for transportation, but they are
permitted to impose what are virtually differential duties. They not
only charge more for carrying goods a shorter distance than for a
longer distance, but make discriminations not founded upon bulk,
weight, or risk, which have the same effect as protective duties,
drawbacks, and bounties.*
To all these checks and impediments to production, these barriers
which prevent that free interaction of supply and demand which would
automatically preserve the proper proportion between the various forms
of production, we must add in the account much of the taxation levied
by our States, counties, and municipalities. How local taxation
operates to check production, we may see from the marked stimulus that
has in some of the States been given to certain forms of production by
the promise of exemption from taxation for a term of years. But it is
hardly necessary to point to these, since it is self-evident that the
taxation of wealth must tend to reduce the production of wealth. To
tax savings is clearly to lessen the incentive to save; to tax
buildings, to lessen the incentive to build; to tax the improved farm
on its improvements is to lessen the reward of the farmers toil and to
discourage improvements. In fact, our State and local taxes are in
large part as stupid as our national taxes. Even one too careless or
too dull to see through the fallacies of protection must see that to
tax wealth is to lessen it, and to tax improvements is to check
improvement. When dogs are too many, we impose a dog tax. To lessen
the number of liquor saloons, we impose a tax upon liquor saloons; and
in the same way taxes upon buildings, or goods, or ships, or
railroads, or any other desirable form of wealth must operate. Thus in
many ways, directly and indirectly, purposely and incidentally, is
production hampered and checked. But after we have considered all
this, a still greater and more important check to production remains.
What is production? In all its forms, it is, in the last analysis,
the exertion of labor upon land. Therefore, the value of land the
price that labor must pay to obtain the use of land operates as a
constant bar to production. We are accustomed to regard increase in
land values as the evidence of general prosperity. So it is, after a
fashion, just as the greatness of the burden piled upon a mules back
is evidence of his strength. But those who get their living by their
labor have as much reason to congratulate themselves upon the advance
of land values as the pack-mule has to congratulate himself on the
increase of his load. The increase of land values means that labor
must pay more for the use of land; that of the aggregate production a
larger share must go to those who do nothing to aid production; for
though the individual land-owner may be also a laborer or a
capitalist, or both, yet no land-owner, as a land-owner, contributes
in any way to production. He is a mere burden and parasite a dead
weight that production is forced to carry, because of his
appropriation of the natural factor of production. To see how the
value of land and especially that speculative value that is an
anticipation of what labor in the future may be forced to pay bars and
checks production, whoever reads this may see if he will look around
him. Wherever men have begun to settle and land to acquire value,
there the repressive effect upon the production of wealth is visible.
To illustrate by an example. In New York, the pressure of population
is so great that no one, unless he be rich, dreams of having a house
to himself. The vast majority of the people live, family above family,
in one, two, or three rooms, most of them wanting in light, in
ventilation, and in facilities for cleanliness and decency.
Tenement-houses, fifteen stories high, are now being put up, and the
newer dwellings cover ninety feet of one-hundred-foot lots. Yet on
Manhattan Island there are over fifty-eight thousand absolutely vacant
lots; and, to say nothing of Brooklyn, over one-half of the land
within the corporate limits of New York is unbuilt upon. Why does not
the great demand for houses cover all these vacant lots in a single
season with buildings? It would, were there not a barrier to the
production of houses that rises with the demand. That barrier is the
high price of land. Before the man who wishes to build a house can get
a lot on which to build he must pay from $5000 to $75000, or agree to
pay an equivalent ground-rent; and when he gets his house built, he
will be fined with a tax upon it for having thus added to the wealth
and conveniences of the city. And so goats and rubbish occupy vacant
lots, while human beings are crowded into tenement-houses under
conditions that produce physical disease and moral deterioration.
What may be seen in New York may be seen in degree in every city in
the land; and through the country, population will be found to be
scattered and emigrants toiling past vacant or half-used acres,
impelled by the same cause. Wherever population is likely to come,
wherever labor will soon seek for land, there does the
dog-in-the-manger plant himself, to prevent production until he gets
his legalized black-mail, and in many cases refusing what black-mail
he could now get, in the hope of greater black-mail in the future.
Here is the great check to production, which, gathering force with
every season of half-way prosperity, so restricts production as to
disturb the symmetry and co-indination of industry, and, propagating
itself in lessened demand, produces these phenomena so generally
attributed to overproduction.
It must be manifest, indeed, to any one who will think a moment, that
phenomena so wide-spread and persistent must come mainly from barriers
which prevent labor from applying itself to land. The occupations
which most largely and directly make use of land are the primitive and
fundamental occupations. All other occupations rise out of and rest
upon these. The manufacturer and merchant presuppose the farmer. A
community could not exist in which all men were tailors, printers,
jewelers, or machinists. Starvation would ensue. But communities in
which all men are farmers may exist. That is to say, in all the
secondary and derivative occupations, production depends upon
production in other occupations, but in the primary occupations which
directly obtain wealth from nature there is no such limitation. In
these, men can directly supply their primary wants, and in- creased
production in these increases the demand for production in secondary
occupations which minister to secondary wants. Thus, when land is free
to the laborer, whatever relative overproduction may occur can only be
trivial and temporary, the possibility of indefinite expansion in the
primary occupations sufficing to take up the displaced labor and
restore equilibrium. Chronic dullness of trade, protracted industrial
depression, is only possible when this recourse is prevented.
What, and what alone, is needed to secure the proper proportion of
the different forms of production, the health and symmetry of the
industrial organism, is freedom. Idle labor, wasting capital, the glut
of markets, the co-existence of poverty and of unused wealth are the
results of restrictions which prevent the free circulation of
productive forces. The remedy is in the removal of restrictions. This
may be accomplished in a simple way.
Taxation upon the production, exchange, or accumulation of wealth
checks production; but taxation which falls upon land values reduces a
barrier to production. Therefore, to give productive forces freedom,
all we have to do is to concentrate our taxation upon land values. And
in thus making land free to the laborer, in thus removing the
restrictions which now hamper the interaction of supply and demand, we
should so simplify our governmental machinery, so remove corrupting
influences from our politics that we might, without fear of jumping
from frying-pan to fire, include in the province of public
administration such properly public functions as the working of
telegraphs and railroads.
* When such duties [turnpike tolls]
are imposed not according to bulk or weight, but according to the
supposed value of the goods, they become properly a sort of inland
customs or excise which obstructs very much the most important of all
branches of commerce, the interior commerce of the country. Adam
Smith, Wealth of Nations, Book V., Chap. II.
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