A Critique of Henry George's Remedy
to Poverty and Industrial Depressions
Charles Abrams
[Reprinted from Chapter XII, "Transvaluation,"
in Revolution In Land, published in 1939 by Harper &
Brothers]
Land In The Marxian Frame
A manifest social injustice enshrined and sanctioned in Ricardo's
system needed only to be approached from another angle in order to
turn Ricardo's conservatism inside out into the most complete
radicalism. Knowing this, Karl Marx made use of suggestions in William
Godwin's
Social Justice (1793), Charles Hall's The Effects of
Civilization in European States (1805), and William Thompson's
Inquiry into the Principles of the Distribution of Wealth most
Conducive to Human Happiness (18--); for Godwin, Hall, and
Thompson had all glimpsed, without stating it, the principle of
surplus value which became the cornerstone of Karl Marx's system. His
monumental treatise on Capital, first published in 1867,
became the fundamental text of the new school of scientific socialism.
Marx was not the first to raise the embarrassing question which the
economists had carefully avoided: "What is the source of capital
and profit?" but he was the first to give a perfectly clear and
definite answer. This can be stated very simply: the product of labor
is sold for move than the cost of labor; the difference is known as
surplus value. The individual laborer becomes enormously more
productive under capitalist economy through the specialized division
of labor and the use of machinery; he now produces much more than the
cost of his subsistence, which is all that he receives back in wages;
the rest -- surplus value - goes as profit to the employer. Industrial
profit is therefore based upon the exploitation of labor. This is
true, even though the manufacturing process requires the investment of
a large amount of capital, for capital represents merely the
accumulated profits of the past, that is, it is simply the product of
earlier exploitation.
The mere recognition of surplus value would hardly be sufficient to
clarify the matter; but here Marx introduced two additional doctrines.
He held that the ever increasing concentration of capital was
inevitable, but he saw the ultimate doom of the system of capitalistic
production in the class struggle between labor and capital. The former
results from the very nature of competition, which is a struggle for
existence between producers, insuring, as in the biological world, the
survival of the fittest -- the fittest, in economics, being the
wealthiest or the most efficient, whether in the technique of
production or in the strategy of business negotiation. Competitive
capitalism would thus sooner or later develop into monopoly
capitalism. Many members of the middle class would be forced down into
the ranks of the workers; wages would fall lower and lower as the
result of the existence of an increasing army of the unemployed always
ready to furnish cheap labor; and destitution would become even more
widespread. Meanwhile, however, labor would have become
class-conscious and aware of the exploitation involved in the very
nature of the profit system. Hence as soon as it became sufficiently
numerous to have the physical power, and sufficiently well organized
to be able to use it, it would rise, take over the machinery of
government by force and reorganize it, abolish all private ownership
of the means of production, and inaugurate the cooperative society
envisaged by socialism.
Marx was the first to make serious use of the historical method in
economics, and in his recognition of the fact of exploitation and the
tendency toward monopoly, he was far more realistic than the
economists who had preceded him. Like them, however, his reasoning
often tended to be a priori and deductive rather than
inductive, and like them he sometimes failed to recognize the
non-economic factors that enter into economics. He saw that labor's
share of the national income tends constantly to decline relatively to
the share of capital, but he did not see that its absolute increase in
prosperous times, manifested by rising real wages, might be sufficient
to prevent, or at least postpone, the widespread destitution he
foresaw.
Furthermore, if there is a fundamental antagonism between labor and
capital, inasmuch as it is to the interest of labor to have wages high
and to that of capital to have them low, there is also a fundamental
antagonism between agriculture and both labor and capital, inasmuch as
it is to the interest of the former to have agricultural prices high
and to that of the latter to have them low. The modern industrial
situation has not conformed to the Marxian pattern of the two-ringed
circus, but has usually been more like a three-ringed circus with a
number of side shows added.
Marx did not closely examine the intricate problems of land
relationships. But he expressed the view often enough that the
monopoly of landed property, by excluding the producer -- the peasant
-- from the soil, was really the whole basis of the development of the
capitalistic system. The landlord, in his exploitation, followed much
the same line as exploitation in other modes of production. But land
rent was even less justified to Marx than capitalist profit. For the
capitalist at least performed an active function in developing surplus
value, while the landowner simply took the ground rent, created
without his assistance. Land ownership did not create that portion of
value transformed into surplus profit. It simply enabled the landlord
to take the surplus profit out of the industrial capitalist's pocket
and put it into his own.
Certain Deviations
But things do not seem to have worked out invariably in that way.
What has actually happened is that the industrial capitalist has
simply succeeded in forcing the price of the landowner's products to a
level insufficient, at least so far as the average farm owner is
concerned, to buy a bare subsistence. The superior organization of
industry, the comparative diffusion of agricultural land ownership,
and the abundance of land have been chiefly responsible for this. The
working owner's income has fallen below the wage level of the urban
worker, pushing the wages of farm labor to a level even lower.
Landlords, whether or not they operate their property themselves, are
no longer "exploiters," for there is little left to exploit.
The oversupply of land and the consequent loss of bargaining power by
its owners are new and unforeseen developments. In this competitive
scheme, characterized by the hegemony of industry, land monopoly would
be unprofitable even if it were possible, while the working farmer is
frequently little more than a laborer with a title deed. As for the
agricultural landlord, his rent is often insufficient to compensate
him for the loss of fertility of his soil. Strange as it may seem, it
is not unusual for him to shut his eyes to waste, live in the present
alone, and be utterly unconcerned about future yield.
Monopolization of land is the last thing in the world any capitalist
would attempt. Diffusion of land ownership appeals to the
industrialist, for thereby the price of farm products is forced down,
permitting the cheaper purchase of raw materials. Rent, to which
Ricardo paid so much attention, is only of minor importance under the
new dispensation.
Ricardo said that when land was most abundant, productive, and
fertile, it yielded no rent. The rent yielded by such land in America
has now almost reached that stage, but has been affected by one other
factor; The advance of machinery and the surplus of agricultural
workers created by industrial development increased production so much
that the surpluses created ultimately forced agricultural prices and
agricultural rents down to almost nominal levels. And urban rents have
come to depend far less on differential site values than on financing,
labor and material costs, intensity of use, and other factors.
Economics in Two Dimensions
If the problems of land seemed interesting enough to Marx, yet
curiously detached from the central theme of his thought, they seemed
to the land reformers, who followed and elaborated the germinal
thought of Quesnay, to occupy a position of commanding strategic
importance. To them, with their different frame of reference and
different origin of coordinates, the relations flowing from ownership
and exploitation of land seemed fundamental.
Much of their thought today appears unrealistic and sentimental. We
live in a world they could only dimly envisage. Not the slow,
inevitable change of the seasons, the age-old progression from sowing
to harvesting, is dominant in us today, but the sharp staccato rhythms
of industry, implacably insistent, rule imperious and unquestioned --
and all our wistful dreaming cannot restore that other world, in which
they lived and moved, and which necessarily conditioned the pattern of
their thought.
Although the industrial system was well under way, the world of the
land reformers was still predominantly agricultural and predominantly
individualistic. The city was still the tributary of the vast rural
plains that formed the backbone of the nation. The volume of stock
holdings and other personal property was still relatively small all
over the world. Land was still the dominant form of wealth. In many
countries, its ownership was concentrated, and that concentration
appeared to be steadily increasing. Numerous striking instances of
injustice, of hardship, and of windfall profits in land appealed to
the imagination rather than to calm, sober analysis. They served to
mask the fundamental underlying trends of Society, and to conceal the
true direction in which the young industrial economy of the Western
world was moving. In this way they led to what, in retrospect, we now
recognize as erroneous conclusions.
The concentration of landed wealth which faced these earlier
economists was a concentration whose outward symbol was the manor
house and the, "no trespass" sign. It was an unyielding and
indolent ownership which stubbornly resisted change and maintained the
attitude that what was should continue to be. Opposed to this was the
expansive force of industry. Concentration of ownership here appeared
in essence dynamic; the size of operating units would necessarily tend
to increase, since up to a certain limit production costs would drop
in proportion; and the physical volume of production might increase
manifold, to the general good of all. And these early economists saw,
opposed to the expansive force of industrial capital, opposed to the
vast tide of physical and cultural improvement due to this new mode of
production, the landowner, in the growing city, in the factory suburb,
or on his broad acres in the pleasant English countryside. They saw
him sharing in this new stream of wealth produced by industry --
sharing passively, but none the less lavishly, by the sole reason of
his ownership.
Business was still a personal matter, operated or actively supervised
by those who expected to take the profits or Bear the losses. The
position of the landowner seemed untenable to those who sought to
contrive a theoretical foundation for the accomplishments of the
rising business order. For the landowner, through no positive merit or
of his own, yet asserted a prior claim upon the wealth produced by the
activity of entrepreneurs, by the willingness of capitalists to take
risks, by the physical work of laborers; and the landowner's position
was obviously exposed to serious ethical questioning -- the more so
since most of the real property in Europe had been acquired by
inheritance and not by purchase. From Ricardo, attacking the agrarian
tariffs as unjust enrichment of the land-owning class, as silly and
futile attempts to set the clock back, through Mill and Spencer,
denying all right of private property per se in land, without
advocating confiscation of rights already vested, to Henry George,
denouncing all rent as medieval and unjust, a millstone around the
neck of progress -- was an ordered and inevitable progression.
A Question of Emphasis
To the land reformers, land rent was the alpha and omega of all
tragedy, all injustice and suffering and wrong.
This view of land was oversimplification with a vengeance. It was
like selecting any point on the circumference of a circle, and saying
that every other point was a consequence of it. Or like taking one
indispensable part of a machine and saying that that was what made the
machine go.
Their most prominent representative, of course, was Henry George.
With the theories of the noted economist John Stuart Mill as a back
ground, he developed the arguments for the single tax -- easily the
most controversial of all subjects in the mid-Victorian and
late-Victorian periods, since socialism had not yet become entirely
respectable. Confronted with the privileged position of the British
landlords, Mill had drawn mildly radical conclusions from Ricardo's
theory of the continual rise of rent. While strongly opposed to any
more intervention of the government in the economic sphere than was
strictly necessary, he made an exception in the case of land, the
rent-profits from which, he held, might suitably be made a special
object of taxation.
Mill had said:
Suppose that there is a kind of income which constantly
tends to increase, without any exertion or sacrifice on the part of
the owners: those owners constituting a class in the community, whom
the natural course of things progressively enriches, consistently
with complete passiveness on their own part. In such a case it would
be no violation of the principles on which private property is
grounded, if the state should appropriate this increase of wealth,
or part of it, as it arises. This would not properly be taking
anything from anybody; it would merely be applying an accession of
wealth, created by circumstances, to the benefit of society, instead
of allowing it to become- an unearned appendage to the riches of a
particular class.
Now this is actually the case with rent. The ordinary progress of a
society which increases in wealth, is at all times tending to
augment the incomes of landlords; to give them both a greater amount
and a greater proportion of the wealth of the community,
independently of any trouble or outlay incurred by themselves. . . .
I see no objection to declaring that the future increment of rent
should be liable to special taxation; in doing-which all injustice
to the landlords would be obviated, if the present market-price of
their land were secured to them; since that includes the present
value of all future expectations. With reference to such a tax,
perhaps a safer criterion than either a rise of rents or a rise of
the price of corn, would be a general rise in the price of land. It
would be easy to keep the tax within the amount which would reduce
the market-value of land below the original valuation: and up to
that point, whatever the amount of the tax might be, no injustice
would be done to the proprietors.[1]
In this suggestion of a "special tax" lay the germ of Henry
George's more drastic theory of the "single tax."
Henry George's famous Progress and Poverty shows no
familiarity with Marx's work, which was still almost entirely
neglected in America. In 1879, when the first edition of Progress
and Poverty was published, Das Kapital had not yet been
translated into English, though in the original German it had been
current for some twelve years.[2] Instead, George went back, like
Spencer and Mill, and for that matter, like Marx himself, to Ricardo.
In the monopolistic character of land rent he found the sole cause of
the hideous anomaly that increasing progress seemed to mean increasing
poverty. Not only land rent, he held, was determined by the difference
between the value of the richest land and that on the margin of
cultivation; the same factor determined interest and wages.
"The general rate of interest," George argued, "will
be determined by the return to capital upon the poorest land to which
capital is freely applied -- that is to say, upon the best land open
to it without the payment of rent."[3] Similarly, "wages
depend upon the margin of production, or upon the produce which labor
can obtain at the highest point pf natural productiveness open to it
without the payment of rent."[4] Thus only could be explained the
fact, made much of by George, that interest and wages rise and fall
together. Labor is not exploited by capital, but both the laborer and
the capitalist are exploited by the landlord.
Ricardo had asserted that land rent continually increases and it did
not occur to George to question the truth of this thesis, or to
examine how far such a tendency, if it really existed, was
significant. Taking it at its face value, he deduced that there was an
inevitable tendency to speculate on future profits, so that land
values periodically rise to a point where capital cannot continue to
be profitably invested; and the consequent withdrawal of capital
upsets industry after industry and brings unemplbyment in its train.
The whole economic scheme becomes disorganized, and we have recurrent
crises, each of which endures until land values fair temporarily to a
point where capital will be induced to reinvest and the old process
will begin all over again.
Henry George's remedy was simple; by shifting all taxation to land
alone, land values would be depressed until private ownership would
cease to be profitable and the land would revert to the public, to
whom it properly belongs. There would be no injustice in this, since,
as George pertinently remarked, the mere fact of ownership does not
increase production one whit, and the landlord's profit is derived
from an "unearned increment" which he does not bring about
and to which he has no moral claim.
Henry George's eyes were fixed upon the past, which supplied the data
on which all his logical deductions were based. But at the very time
when he was writing, land was beginning to lose the privileged
position he assigned to it, and henceforth, land values would become
more and more dependent upon industry instead of the reverse. George
did not foresee, as Marx did, the rise of monopoly capitalism; and he
was curiously tender toward capitalist ownership, justifying interest
on the ground that it represented "the reproductive forces of
nature, such as the natural growth in vegetable and animal life."
He apprehended keenly the vivid contrast between landowner and
producer; he saw the dead hand exacting tribute from the living world,
from industry and commerce and peasant alike. He saw that this indeed
was inequity, but he did not see that the dead hand of rent was only
one element in an infinitely vaster complex of vested rights. Debtor
and creditor, exploiter and exploited, these relationships were for
him included in or synonymous with the great fundamental concept of
landlord and tenant. From that it was only a step to say that if wages
were increased, rents would increase pari passu. From that it
was only a step to say that all inequalities, all injustice, all
exploitation came from rent and would vanish with the social
appropriation of rent. Confucius had moralized about the essential
goodness of all men at birth. George, with the Spencerian background,
with the ethical approach, had generalized from the equality and the
economic expansion of a new country to the thesis, like Confucius,
that all men were good. Maladjustment, he thought, came from one screw
in the social mechanism. Align that, appropriate rent, and all the
other delicately balanced cams and gears of an organism essentially
analogous to a man-made machine would, henceforth function in orderly
and harmonious rapport.
In a word, with Henry George moral indignation took the place of
objective scientific analysis; he felt that he had laid his ringer
upon the ultimate root of all the evils in the system when he
condemned as unjust enrichment one form alone of the obstructive
vested rights taking toll, like the robber barons of old, of wealth
they had not actively helped to produce. It was far too obvious a
solution; but his individualism would not permit him to see that there
were other basic evils, of which rent was only a special case. Granted
the full validity of his case against unearned increment; granted the
complete flawlessness of his attacks on rent as usurpation by
fortuitous private landowners of what rightfully was the common
property, belonging to the entire people; granted all this, it still
was a non sequitur that all oppression would end with the
appropriation by society of only a single element of economic
oppression. The demand for the abolition of rent was an emotional
response, unsupported by more than sketchy statistical analysis, and
conditioned primarily by an unwavering emotional allegiance to the
tenets of individualism and of business enterprise. It was perhaps the
only response possible, aside from an apologetic attitude which would
do violence to the profoundest instincts of logic and common sense;
but it was, nevertheless, still an evasion.
Poet and Prophet
To link together Henry George and Karl Marx has, in latter times,
come to be another evasion not very dissimilar. The implication that
Marx, too, was merely "another reformer," another theorist
who from the intricacies of Hegelian metaphysics forged a tool of
economic analysis trenchant, yet essentially one-sided -- the
innuendo, as a matter of emotional color, rather than the explicit and
easily refutable categorical statement -- this has been a popular way
of prefacing discussions of past trends in social thought, and an easy
way of dismissing Marx in a few colorless I sentences.
Marx, too, was limited and conditioned by the age in which he lived.
He was limited above all by the poverty of the statistical equipment
and methods of analysis then current. But it would indeed be a willful
perversion to attempt to maintain the thesis that, like George, he
abstracted, he simplified, he, too, singled out one and only one
element of the system for condemnation as the root of all evil.
He envisioned not reform but transfiguration. He saw a new heaven and
a new earth, but he knew, as a social scientist, that it would come in
its appointed time. He was no evangelist. Henry George, was.
These Later Years
Subsequent economic theory need not detain us. The final form of
orthodox political economy, the system of "marginal utility"
based upon the margin of demand, was as deductive as other economic
systems.
An entirely new approach was at last initiated by the American
economist, Thorstein Veblen, who developed a brilliant and novel
analytical technique and applied it to the current patterns of social,
financial, and technical organization. Among his numerous studies, he
brought out the hitherto neglected role of the inventor and technical
expert, whom he considered more responsible for the increase of
production than the owners of capital, who, as he showed, are
frequently engaged in limiting, or, in his own language, "sabotaging"
production in the interest of higher prices and larger profits. The
American institutionalist direction in economics, of which Veblen was
the most striking representative, has gone on to trace the agency of
institutions, thus abandoning, to a certain extent, the older point of
view as to the relative immutability of the natural laws of economics,
the validity of which is now perceived to depend on the existence of
ideal conditions of unrestricted competition. Today the free
functioning of these laws is checked on every hand by all kinds of
newly organized institutions representing labor, capital, or that
greatest of all institutions, the government. It was no accident that
with the advent of the Roosevelt administration in 1933 a prominent
part was taken by representatives of this direction -- among others,
Moley, Tugwell, and Berle -- in formulating the policies of the New
Deal.
Disappointment
But the institutionalists have advanced no new theory of land. With
regard to our special subject, the study of economic theory, orthodox
and unorthodox, ends in disappointment. One has learned much about
prices and profits and wages, but no special application of all this
to land has been made. The speculations of Mill, Spencer, and George
indicated a vague recognition of the fact that land was following a
separate course from industry, but they failed to realize the true
nature of this course or that it was really determined not by the
nature of land but by the nature of industry itself. Since Henry
George there has, in fact, been little serious fundamental theorizing
on land economics, though much invaluable work has been done on
zoning, housing, conservation, and other practical applications.
If in the end we conclude that the nationalization of land is
probably approaching, the outlook must arouse a certain sardonic
amusement when we see that this policy, advocated by Henry George
because of the excess profits from land, is likely to be adopted for
the opposite reason that land today yields excess losses.
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