A Dialogue on Political Economy
Edward J. Dodson
[A dialogue involving several participants based on the writings of
important contributors to the dialogue on "the land question"
and economic justice, held in 1982 at the Henry George Institute, New
York, NY]
Political economy has undergone intensive
analysis for a period of several centuries. And yet , all the writings
and discussion generated have yet to produce a consensus of thought on
the political and economic problems experienced by the world's
societies What you are about to read is the result of research into
the writings of some of the world's most learned and respected
contemporary and historical personalities in the realm of political
economy. Their ideas are brought together in the form of a dialogue,
as though they were seated all in a room engaging in a substantive
debate. The role of "moderator" has been created to
stimulate and guide this exchange.
MODERATOR
Welcome to this roundtable discussion on the subject of political
economy. Our guests include some well-respected authorities on
political economy and spokesmen for certain particular points of
view where policies, prescriptions and issues are concerned. With us
today are Robert L. Heilbroner, Adam Smith, Karl Marx, Henry George,
Lester C. Thurow, John Maynard Keynes, Gunnar Myrdal, C. Lowell
Harris, Arthur Laffer and (although he represents more of a
political than economic perspective), former President of the United
States, John Adams.
I would like to begin our discussion by asking Professor Heilbroner
to comment on what has been a very long and unsuccessful search for
solutions he has himself termed "the Economic Problem."
Professor Heilbroner?
ROBERT HEILBRONER
Thank you. As a starting point to this discussion, I would suggest
to my colleagues that the trouble with economics is that it will not
stand still. Issues change, ideas change, understanding changes .
Even the past does not look exactly the same from one year to the
next, and the present is apt to alter almost out of all recognition.
[1]
MODERATOR
How, then, Professor Heilbroner, is one to approach the study of
political economy in a manner which has a reasonable opportunity to
produce understanding?
ROBERT HEILBRONER
I would emphasize a broad understanding of economic history --
not, of course, to learn names and dates, but to gain a sense of the
evolution of the economic system, of the internal changes that have
gradually altered the setting of economic life, and of the
trajectory of economic evolution. [2]
MODERATOR
Your comments on the importance of understanding economic history
are ones with which I believe any of your colleagues would agree. It
strikes me that the most significant changes first occurred during
that time period when the last remnants of feudalism in the
European-centered economy were losing ground to the merchants of the
nation-states and "capitalism." Economic historians have
pointed to the 16th century for evidence of this process of change.
Do you see this period, Professor Heilbroner, as a period of major
change?
ROBERT HEILBRONER
Yes, of course. Let me address for a moment these issues of
historical change and the growth in the role of government. In
antiquity and feudal times one could not easily separate the
economic motivations or even the economic actions of the great mass
of men from the normal round of existence itself. The peasant
following his memorial ways was hardly conscious of acting according
to "economic" motivations; indeed, he did not: he heeded
the orders of his lord or the dictates of custom. Nor was the lord
himself economically oriented. His interests were military or
political or religious, and not basically oriented toward the idea
of man or increase. The making of money was a tangential rather than
a central concern of ancient or medieval existence. [3]
One further comment, if I may. An essential part of the evolution
of the market society was thus not only the monetization of life but
the mobilization of life -- that is, the dissolution of ties of
place and station which were the very cement of feudal existence.
And this essential requirement of mobility lends to a further point.
Mobility meant that any job or activity was now open to all comers.
Competition appeared. Now any worker and any employer could be
displaced form his task by a competitor who would do the job more
cheaply.
MODERATOR
Gentlemen, Professor Heilbroner has presented several rather
direct statements concerning the development of political economy as
an historical process. I'd like to first ask our Scottish colleague,
Adam Smith, who we all know as the author of the economic treatise
The Wealth of Nations, how his analysis of these historical
processes compares with those of Professor Heilbroner.
ADAM SMITH
Well, now. What Professor Heilbroner seems to be saying, without
really saying it, is something about the nature of man and the
nature of political economy which which I can agree. Approaching the
historical evolution of the subject somewhat differently, I would
spread the science of economics into two general divisions, which
may be named natural economics and political economics. Let me
explain what I mean by this separation. The first observes and
records the behavior of the human race in obtaining its necessary
sustenance, as it could reasonably be expected when not interfered
with nor diverted by any outside force. This, however, is a state
which does not actually exist anywhere in the civilized world. The
organization of a civilized society supposes some impairment of
individual rights, and some restraint of natural individual impulses
and desires. Until human nature becomes perfect, such restraints are
necessary; the problem is to keep them within the narrowist possible
limits. [5]
MODERATOR
That, Professor Smith, has remained a largely unresolved issue
even through the present day. This argument over the proper role of
the "state" in the political economy is one of crucial
importance. Your ideas, Professor Smith lie at one end of the
theoretical spectrum; at the other, perhaps, are those of Karl Marx.
Herr Marx, how do you view the question of individual rights, the
power of the state and what best responds to human nature?
KARL MARX
Pardon me, please, if I bypass this question for the moment. I,
too, would like to comment on the historical processes involved in
the evolution of human society. I would simply add, here, that even
when a society has got upon the right track for the discovery of the
natural laws of its movement it can neither clear by bold leaps, nor
remove by legal enactments, the obstacles offered by the successive
phases of its normal development. But it can shorten and lessen the
birth-pangs. [6] That is all
I wish to say.
MODERATOR
What you've done, I believe, Herr Marx, is to move our discussion
into another area of historical disagreement where the study of
political economy is concerned. You seem to have equated change with
progress. One of your contemporaries, Mr. Henry George (who is best
known for his monumental work Progress and Poverty,
attempted to distinguish between these two concepts. How, Mr.
George, would you react to Herr Marx on this issue?
HENRY GEORGE
Today or a hundred years ago, when I wrote Progress and
Poverty, are much the same. Time has passed, change has
occurred, but have progress really resulted? By simple observation,
I recognized that wealth had been greatly increased, and that the
average of comfort, leisure, and refinement had been raised;
however, it was true then and is true today that these gains are not
general. In them the lowest class do not share. I do not mean that
the condition of the lowest class has nowhere nor in anything been
improved; but that there is nowhere any improvement which can be
credited to increased productive power. I mean that the tendency of
what we call material progress is in nowise to improve the condition
of the lowest class in the essentials of healthy, happy human life.
Nay, nor, that it is still further to depress the condition of the
lowest class The new forces, elevating in their nature though they
be, do not act upon the social fabric from underneath, as was for a
long time hoped and believed, but strike it at a point intermediate
between top and bottom. It is as though an immense wedge were being
forced, not underneath society, but through society. Those who are
above the point of separation are elevated, but those who are below
are crushed down.[7]
MODERATOR
Does this imply, Mr. George, that like Karl Marx you also see the
process ending in an inevitable struggle of one class against the
other?
HENRY GEORGE
With all due respect to Herr Marx and the large following he has
secured, his analysis is materially flawed because he fails to
properly distinguish between ownership "classes" which are
productive, and therefore advance the progress of society, and those
which are nonproductive. By its very nature ownership of capital
must involve production in order to generate new wealth. Ownership
of land, on the other hand, requires no such ownership activity,
only the growth of the community. What Professor Heilbroner terms
the "economic problem" can be largely solved by giving
labor a free field and its full earnings; take for the benefit of
the whole community that fund which the growth of the community
creates, and want and the fear of want would be gone. The springs of
production would be set free, and the enormous increase of wealth
would give the poorest ample comfort The progress of science, the
march of invention, the diffusion of knowledge, would bring their
benefits to all. [8]
MODERATOR
So, in your opinion, Mr. George, the real struggle is not between
labor and capital; rather, labor and capital are united in a bitter
struggle against the landowners. Is that a fair restatement?
HENRY GEORGE
Yes, I have no objection to your summary of my comments. I would,
however, like to hear Herr Marx's response; that is, if he has one.
MODERATOR
Herr Marx?
KARL MARX
Thank you. Viewed from the present, one cannot but marvel at the
improvements in the conditions now experienced by a substantial
number of workers in the capitalist societies . To what can be this
credited? To the generousity of capitalists? To the productivity of
labor? Or, perhaps, to the organization of labor into powerful
political and economic voices? Long before the period of Modern
Industry, cooperation and the concentration of the instruments of
labor in the hands of a few, gave rise, to great, sudden, and
forcible revolutions in the modes of production, and
consequentially, in the conditions of existence, and the means of
employment of the rural populations. I concede to Mr. George that
this contest at first took place more between the large and the
small landed proprietors, than between capital and wage-labor; on
the other hand, when the laborers are displaced by the instruments
of labor, by sheep, horses, etc., in this case force is directly
resorted to in the first instance as the prelude to the industrial
revolution. The laborers are first driven from the land. Land
grabbing on a great scale is the first step in creating a field for
the establishment of agriculture on a great scale. [9]
MODERATOR
What Mr. George seems to be saying, Herr Marx, is that the
capitalist as capitalist is not necessarily the culprit. Certainly,
the motivations of the various competing groups during the sixteenth
century were many -- the struggle for power between the feudal lords
and the monarchies, the conflict between Protestantism and the Pope,
the formation of nation-states, the beginnings of colonialism -- and
all played a role. What Mr. George concludes, however, is that a
general concentration of control over land among nobles of an
earlier era and other interests today lies at the heart of this
class struggle. Over time, many of the large landowner families has
increased their power by also actively accumulating large quantities
of available capital.
Let's hear from British economist John Maynard Keynes on this
question of distribution. Lord Keynes, is there such a thing as the
potential for an equitable distribution of wealth in a capitalist
economy?
JOHN MAYNARD KEYNES
Mr. George and others may not agree, but one thing we must
recognize is that under the system of "Laissez-faire" and
an international gold standard such as was orthodox in the latter
half of the nineteenth century, there was no means open to a
government whereby to mitigate economic distress at home except
through the competitive struggle for markets. [10]
Having said that, I certainly agree that the outstanding faults of
the economic society in which we live are its failure to provide
full employment and its arbitrary and inequitable distribution of
wealth and incomes. However, it must be said that since the end of
the nineteenth century significant progress towards the removal of
the very great disparities of wealth and income has been achieved
through the instrument of direct taxation -- income tax and surtax
and death duties -- especially in Great Britain.[11]
MODERATOR
You see the intervention of government through taxes on income and
wealth as an appropriate approach to the distribution problem, then,
Lord Keynes?
JOHN MAYNARD KEYNES
I strongly believe so.
MODERATOR
Though there may be others, I suspect one member of our group in
particular may strongly disagree, Professor Arthur Laffer of the
University of California, and architect of what has come to be
called "supply-side" economic theory. Professor Laffer,
would you care to respond to Lord Keynes?
AUTHOR LAFFER
To begin with, I strongly believe the demand side policies which
had been applied in their entirety did not avert the economic
collapse of the mid-1970s and in my view actually brought it about.
The most damaged by the contraction were the disenfranchised members
of society, including minorities, youths and the chronically
disadvantaged. [12]
MODERATOR
If the demand management policies originally developed by Lord
Keynes during the "Great Depression" are inappropriate,
what will work?
ARTHUR LAFFER
Basically, people don't work to pay taxes but instead work to
receive something after tax. Likewise, businesses don't invest as a
matter of social conscience but do so to make an after-tax return on
their investments. It is axiomatic that when more of a good is
produced its price falls. Tax rate reductions do lead to more
production and if combined with a good monetary policy should reduce
inflation. [13]
MODERATOR
Another guest, C. Lowell Harriss of Columbia University, has been
involved in some rather significant research with the Tax
Foundation, and I would like to have him comment on your statements
Professor Laffer. Professor Harriss?
C. LOWELL HARRISS
Well, research into tax rates indicates that when total taxes are
as high as they must be to finance modern levels of spending, tax
rates will also be. high enough to influence behavior. But the
present practice of imposing rates of around 50 percent on the
returns to capital of corporations is scarcely essential A lower
rate on a larger base offers an alternative. [14]
MODERATOR
What about that Mr. George? Do you feel as do Professors Laffer
and Harris on the importance of the rate of taxation imposed?
HENRY GEORGE
As to the question. of taxation, the mode of taxation is, in fact,
quite as important as the amount. [15]
MODERATOR
Gentlemen, the reality of the world has been an absence among even
the so-called "advanced" and industrialized societies of a
political economy able to produce an adequate standard of living for
all, Why do you thing this is so? Yes … Adam Smith.
ADAM SMITH
As the study of political economy has evolved, far too few of
those in our profession paid much attention to the lessons taught by
history. In every instance, as soon as the land of any country has
all become private property, the landlords, like all other men, love
to reap where they never sowed, and demand a rent even for its
natural produce. The wood of the forest, the grass of the field, and
all the natural fruits of the earth, which, when land was in common,
cost the laborer only the trouble of gathering them, come, even to
him, to have a price fixed upon them. The man who cultivates the
land must give up to the landlord a portion of what his labor
collects or produces. This portion, or, which comes to the same
thing, the price of this portion, constitutes the rent of land which
must be included in the price of most commodities. [16]
MODERATOR
What about those societies where private ownership of land has
been eliminated, as in most of the communist-run societies?
ADAM SMITH
I'm willing to address this point; however, I'd like to hear from
someone here who actually had to face the issue of private property
in land as a basic political issue.
MODERATOR
And who is that, Professor Smith?
ADAM SMITH
Well, within this gathering I suggest we hear from one of
America's original founding fathers and former President of the new
nation, John Adams.
MODERATOR
President Adams?
JOHN ADAMS
I, too, believe that property in the soil is the natural
foundation of power and authority. Three cases of soil ownership are
supposable. First, if the prince own the land he will be absolute.
All who cultivate the soil, holding it at this pleasure, must be
subject to his will. Second, here the landed property is held by a
few men the real power of the government will be in the hands of an
aristocracy or nobility, whatever they are named. Third, if the
lands are held and owned by the people and prevented from drifting
into one or a few hands, the true power will rest with the people,
and that government will, essentially, be a Democracy, whatever it
may be called. Under such a constitution the people will constitute
the State. [17]
MODERATOR
To which form of land ownership would you ascribe communism as
practiced in the modern era?
JOHN ADAMS
One may draw one's own conclusions based on the extent to which
political and individual freedoms also exist.
MODERATOR
And yet, the protection of property rights was an extremely
important issue behind the conflict between the American colonies
and its mother country, England. Why, then, is the private
accumulation of land such an important element to you, Mr. George,
and the others here who represent the classical perspective on
political economy?
HENRY GEORGE
The long-term effects are best illustrated by the constant
existence of speculation where private ownership has been protected
by the governing authority. Essentially, the influence of
speculation in land in increasing rent is a great fact which cannot
be ignored in any complete theory of the description of wealth in
progressive countries. It is the force, evolved by material
progress, which tends constantly to increase rent in a greater ratio
than progress increases production, and thus constantly tends, as
material progress goes on and productive power increases, to reduce
wages, not relatively, but absolutely. It is this expansive force
which, operating with great power in new countries, brings to them,
seemingly long before their time, the social diseases of older
countries. In short, the general and steady advance in land values
in a progressive community necessarily produces that additional
tendency to advance which is seen in the case of commodities when
any general and continuous cause operates to increase their price.
[18]
GUNNAR MYRDAL
Thank you very much, Mr. George. As you suggest, findings in a
study we did on Southeast Asia in the late l960s revealed there are
other factors that, by keeping down the labor productivity, together
are responsible for low average incomes and low standards of life.
Very low living levels decrease the amount of labor input and also
the intensity and efficiency of the work actually performed on the
land by the labor force. Low incomes are only the other side of low
labor productivity; a vicious cycle makes poverty and low levels of
living, or low labor productivity; self-generating.
Behind this unfortunate causal mechanism there is a social system
of institutions and power relations, that is severely inimical to
productivity, at the same time as low productivity establishes
itself as the norm. And within this social system, both shaped by it
and upholding it, are the ingrained attitudes of people in all
classes. Among the non-physical factors that keep down labor
productivity are also the primitive techniques employed in
agriculture, likewise both a function of the existing social system,
which deprives the tillers of both capital and incentives to greater
effort, and a prop to that system. [19]
MODERATOR
That sounds very much like a prescription for social and political
upheaval, which has certainly been the experience in Southeast Asia.
Professor Heilbroner, can you add anything to Gunnar Myrdal's
statement?
ROBERT HEILBRONER
In my view the prerequisite for economic progress for the
underdeveloped countries today is not essentially different from
what it was in Great Britain at the time of the industrial
revolution, or what it was in Russia in 1917. To grow, an
underdeveloped economy must build capital. [20]
MODERATOR
How important to capital building are these social and political
factors discussed by both Gunnar Myrdal and Henry George?
ROBERT HEILBRONER
Very important, obviously. How is a starving country to build
capital when 80 percent of its people are scrabbling on the land for
a bare subsistence? The crowding of peasants on the land has
resulted in a diminution of agricultural productivity far below that
of the advanced countries. Hence the abundance of peasants working
in the fields obscures the fact that a smaller number of peasants,
with little more capital could raise a total output just as large.
By raising the productivity of the tillers of the soil, a work force
can be made available for the building of roads and dams, while this
"transfer" to capital building need not result in a
diminution of agricultural output. [21]
MODERATOR
Is this a realistic approach to a solution, Professor Heilbroner,
when there is so much political turmoil in most of these countries?
ROBERT HEILBRONER
Understand that what I have outlined is not a formula for
immediate action. In many underdeveloped lands, the countryside
already crawls with unemployment, and to create overnight, a large
and efficient farming operation would create an intolerable social
situation. We should think of the process as a long-term blueprint
which covers the course of development over many years. It shows us
that the process of development takes the form of a huge internal
migration from agricultural pursuits, where labor is wasted, to
industrial and other pursuits, where it can yield a net contribution
to the nation's progress. [22]
MODERATOR
The problem I see in your statement is that even in the developed,
industrialized capitalist economies unemployment and underemployment
remain as major problems. And, government redistributive programs
have not addressed the issue of creating productive employment
opportunities. Not much time remains, but I would like to hear from
Lester Thurow, whose book Zero Sum Society attempts to deal
with this. Professor Thurow?
LESTER THUROW
To have no government programs for redistributing income is simply
to certify de facto that the existing market distribution of
incomes is equitable. One way or another, we are forced to reveal
our collective preferences about the "just" distribution
of economic resources. As a result, one basic responsibility of
government in a market economy is to create an equitable
distribution of income and wealth if it has not been produced by the
market.[23]
MODERATOR
What do you see as the role of the political economist in light of
the increasing dependence upon government to achieve some degree of
economic justice?
LESTER THUROW
My feeling is that although modern economics springs from the
search for a definition of economic justice, it has largely
abandoned that search. Thus, nineteenth century economists, such as
John Stuart Mill and our other historical colleagues, spent much of
their time searching for the principles that would lead to a
condition of equity. But by the l940s, economists reluctantly came
to the conclusion that there were no economic statements that could
be made about equity. [24]
MODERATOR
Would you agree, Mr. George, with Lester Thurow's conclusion that
equity is an illusionary economic concept?
HENRY GEORGE
I have written, and still believe, that the association of poverty
with progress is the great enigma of our times. It is the central
fact from which spring industrial, social, and political
difficulties that perplex the world, and which statesmanship and
philanthropy and education grapple in vain. From it come the clouds
that overhang the future of the most progressive and self-reliant
nations. So long as all the increased wealth which modern progress
brings goes but to build up great fortunes, to increase the luxury
and make sharper the contrast between the House of Have and the
House of Want, progress is not real and cannot be permanent. To
educate men who must be condemned to poverty, is but to make them
restive; to pass on a state of most glaring social inequality and
political institutions under which men are theoretically equal, is
to stand a pyramid on its apex. [25]
MODERATOR
Thank you Mr. George. Time has elapsed, so I hope this discussion
has for all of you been as informative and enlightening as it has
for me.
REFERENCES
- Robert L. Heilbroner, The
Economic Problem, Prentice-Hall, Englewood Cliffs, New Jersey,
1970, Preface v.
- Ibid., ix.
- Ibid., pp.59-60.
- Ibid., p.65.
- Arthur Hugh Jenkins, Adam
Smith Today, Richard R Smith Co., New York, 1948, p. 25.
- Karl Marx, Capital,
The International Publishers Co., New York, Reprinted 1939.
Author's Prefaces xviii-xix.
- Henry George, Progress and
Poverty, Robert Schalkenbach Foundation, New York, Reprinted
1954. pp. 8-9.
- Ibid., p. 461.
- Marx, p. 430.
- John Maynard Keynes, The
General Theory of Employment, Interest, and Money, Harcourt
Brace Jovanovich, New York, Reprinted 1964, p. 382.
- Ibid., pp. 372-373.
- Arthur B. Laffer, "Reagan's
Policies a Sound Departure", Los Angeles Times, July 8, 1981.
- Ibid.
- C. Lowell Harriss, "Taxation
of Business: Fundamental Issues", Essays on Taxation,
Tax Foundation Inc., New York, 1974, p. 52.
- Henry George, p. 409.
- Arthur Hugh Jenkins, p. 60.
- John Adams, Works,
Volume III, p. 466.
- Henry George, p. 259.
- Gunnar Myrdal, Asian Drama,
Volume I, Pantheon Books, 1968, p. 433.
- Heilbroner, p. 640.
- Ibid., p. 641.
- Ibid.
- Lester C. Thurow, "Toward
A Definition of Economic Justice", The Public Interest,
No. 31 (Spring 1973), p. 82.
- Ibid., p. 82.
- Henry George, p. 10.
