Henry George and the Austrian Economists
Oscar B. Johannsen
[Reprinted from the American Journal of Economics
and Sociology, December, 2001]
ALTHOUGH, UNFORTUNATELY, HENRY GEORGE did not appreciate the Austrian
School of Economics, there is much in common between his thinking and
that of the Austrians.
Professor Yeager has pointed out "how similar Henry George's
views on economic research methods are to the views of his Austrian
contemporary, Carl Menger," noting among other similarities, the
parallelism of their methodological tenets. (1)
The Austrian School, of whom besides Carl Menger, the founder, the
most prominent members have been Eugene von BohmBawerk, Ludwig von
Mises, and Friedrich A. Hayek, is known for its individualistic
approach to economics. Mises goes so far as to state that "economics
is not about goods and services, it is about the actions of living
Murray N. Rothbard, the best known of the American economists who
espouse the Austrian School's approach, emphasizes that "only an
individual has a mind; only an individual can feel, see, sense, and
perceive; only an individual can adopt values or make choices; only an
individual can act." (3)
While the individualism of Henry George may not be quite as apparent
as the Austrians', his life's work was directed toward creating
conditions which would enable the individual to lead the kind of life
he wished, qualified only by his not interfering with the right of
another individual to live as he wished. And George was only too aware
that it was people who created the institutions which he believed were
not only the cause of poverty amidst plenty, but were also largely
responsible for inhibiting the freedom of the individual.
While George rejected the Austrian theory of value, and argued for
what amounts to a labor-saving theory, nonetheless his concept of
value did in some measure coincide with the Austrians'. He said
value's "essential element is subjective, not objective; that is
to say, lying in the mind or will of man, and not lying in the nature
of things external to the human will or mind." (4)
Since the very basis of the Austrian concept of value is subjective,
it is apparent that George's understanding of value paralleled theirs.
However, he either did not understand or did not appreciate the
importance of marginal utility, a concept of which Menger was one of
the original propounders.
Both George and the Austrians are free market economists. They
believe in the free and unhampered marketplace, with governmental
interference reduced to a minimum.
Point of Divergence
BUT ONE FUNDAMENTAL difference exists which is of major significance:
The treatment of land as property. Any other differences, such as
value and the degree of governmental activity, fade into
insignificance by comparison.
As regards property, Menger said "The entire sum of goods at an
economizing individual's command for the satisfaction of his needs, we
call his property." (5)
Rothbard states that "each individual, as a natural fact, is the
owner of himself the ruler of his own person. The 'human' rights of
the person that are defended in the purely free-market society are, in
effect, each man's property right in his own being, and from this
property right stems his right to the material goods that he has
Henry George essentially arrives at the same basis of property. He
asks, "[W]hat constitutes the rightful basis of property? ... Is
it not, primarily, the right of a man to himself, to the use of his
own powers, to the enjoyment of the fruits of his own exertions? ...
As a man belongs to himself, so his labor when put in concrete form
belongs to him." (7)
Although both George and Rothbard base property rights on the fact
that each individual owns himself, Rothbard does not infer from this
fundamental principle the same deduction that George does.
Rothbard broadens his concept of property to include land. He says, "[I]f
a free society means a world in which no one aggresses against the
person or property of others, then this implies a society in which
every man has the absolute right of property in his own self and in
the previously unowned natural resources which he finds, transforms by
his own labor and then gives to or exchanges with others." (8)
Just why, because an individual owns himself and thus that anything
he produces means that he also owns "previously unowned natural
resources," that is, owns land, is not clear. Rothbard sets up as
the criteria for the ownership of land that it is "a prime
condition of free-market property rights, namely, that new, unowned
land be first owned by its first user, and that from then on, it
becomes the full private property of the first user or those who
receive or buy the land from him. This is the free-market method; any
other method of allocating new, unused land to ownership employs
statist coercion." (9)
Thus, private property in land, according to Rothbard's standard,
originates in the "first user, first owner" concept.
Assuming this is correct, how great an area of land is concerned? What
are the boundaries--a square foot, a square mile, a million square
miles? If boundaries are set, who sets them? Rothbard is opposed to
any governmental agency delimiting the boundaries, as this would
constitute "statist coercion." But, certainly some
boundaries must be set, and if that is the case, someone has to do it.
Who does it? Who in the free market does it?
Of course, the Biblical student might wryly point out that Adam was
the first user of the earth, as he must have expended his labor on it.
Thus, he owned it, as there was no one else before him, not even Eve.
As he owned it, he could give it to anyone he wished. Since all the
peoples of the world are his heirs, and since presumably he willed the
land to his heirs, then all the people of the earth own it. This is
the concept which, in effect, is implied in George's thought.
Since, according to George, property rights are based on human labor,
then private property in land could not be justified as no human
created the land. He said, "This right of ownership that springs
from labor excludes the possibility of any other right of ownership.
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 someone 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."
Though George believed that private property in land is wrong, it did
not mean that he opposed the private possession of land. On the
contrary, he urged it. He recognized that unless an individual (after
taking into account the rights of others) was assured that the entire
product of his labor was his own property, he would not produce, or at
least would only produce as little as possible. For George, in effect,
the question was a simple one. Since all men have equal rights to the
land, and since it is impossible for two men to occupy the same place
at the same time, some means must be adopted to allot the land with
justice to all. In his view, in a sophisticated society, this could be
accomplished by society renting out the land to the highest bidder,
thereby collecting what is known as economic rent. In other words,
since all could bid, all had an equal opportunity to have access to
whatever land they wished.
Because he recognized that his suggestion was a revolutionary one,
and because governments exist throughout the world, George advocated
an expedient. This was to leave land in the hands of the present
owners and utilize the governmental apparatus to do what it is already
doing in most nations. In America, local governments were already
taxing real estate. He suggested, then, that all that needed to be
done would be to tax only the value of the land, so as to obtain the
economic rent, and to remove all taxes from improvements and
production. This remedy has come to be known as the single tax.
Most of the Austrian economists are not opposed to government. On the
contrary. For example, Mises said, "[S]tate or government is the
social apparatus of compulsion and coercion. It has the monopoly of
violent action ... The state is essentially an institution for the
preservation of peaceful interhuman relations." (11) However,
Rothbard's view of government is such that, even if he believed that
the government's collection of economic rent would result in better
conditions (which he does not), he would still be opposed since he is
against all governmental activity.
Cause of Poverty
BECAUSE THE AUSTRIANS and George view private property in land
differently, it is not surprising that their views of the causes of
involuntary poverty and unemployment, as well as of the business
cycle, also differ.
The Austrians, on the whole, believe unemployment is caused by
governmental interferences which cause wage-rates to exceed labor's
marginal productivity. Either by government lease or indirectly by
means of the monopolistic power of unions which is granted by
government, wage-rates are kept above the point at which all who
wished to work could work. So, just as when the price of a commodity
is kept above the point which would "clear the market," a
surplus of the commodity results, so artificially maintaining
wage-rates above what would be the market rates causes a surplus of
labor, i.e., unemployment.
In Mises' view, the rises and falls of the expansion and deflation of
the business cycle are caused by governmental interference in the
monetary system. By means of its central bank, the government fosters
the artificial expansion of money and credit. This easy money policy
results in lower interest rates, which make it appear profitable to
erect plants and produce goods which are really not desired. The
depression which follows is the curative by which the excesses are
removed from the marketplace.
George, on the other hand, posited that involuntary poverty and
unemployment are due to the hindrances placed on access to land.
Private property in land leads to speculation, with the speculators
holding land out of use for ever higher prices. This means, in effect,
that land is not readily available to labor and capital, so that
unemployment results. This is easily seen in an agricultural society
for, if farmers do not have land on which to work, they become
unemployed. In highly developed industrial societies, while the
relationship of man to the land persists, it is not as obvious. Thus,
few recognize the relationship between the system of land tenure
practiced and unemployment.
In George's eyes, the principal cause of the business cycle is
speculative increases in land values. In boom times, speculation in
land becomes so intense that prices rise to heights that make land too
expensive for businessmen to hire or buy. Production then slows and
with it labor becomes unemployed. In deflation, the speculative
increases in land values drop until finally a point is reached where
businessmen find it once again profitable to produce. Business then
goes back to work, hiring labor and investing in capital, so the cycle
Though there are differences between George and the Austrians, there
is probably a greater degree of parallelism between his views and
theirs than with any other school of economic thought. While the
difference in the treatment of the land is important, both George and
the Austrians are alike in their emphasis on the individual as the
They both believe in allowing the individual the greatest degree of
freedom of action possible to produce. They both tried to be as
scientific in their work as possible, and yet underneath it all, an
ethical base appears. Though as economists, the Austrians tried to
erect an amoral science, yet as private citizens they advocated the
free market, the freedom of the individual and justice to all, as did
NOTES AND REFERENCES
- Yeager, Leland B., "The
Methodology of Henry George and Carl Menger," American
Journal of Economics and Sociology, April, 1954, pp. 233-238.
- Mises, Ludwig von, Human
Action, Yale University Press, New Haven, 1949, p. 354.
- Rothbard, Murray N., Individualism
and the Philosophy of the Social Sciences, Cato Institute, San
Francisco, 1979, p. 57.
- George, Henry, The Science
of Political Economy, Robert Schalkenbach Foundation, New
York, 1981, p. 251.
- Menger, Carl, Principles
of Economics, The Free Press, Glencove, Ill., 1959, p. 76.
- Rothbard, Murray N., Power
and Market, Institute for Human Studies, Inc., Menlo Park,
Calif., 1970, p. 176.
- George, Henry, Progress
and Poverty, Robert Schalkenbach Foundation, New York, 1979,
- Rothbard, Power and Market,
- Ibid., p. 98.
- George, Progress and
Poverty, p. 336.
- Mises, Human Action,