The Free Market of Henry George

Harry Pollard

[Reprinted from Fragments, 1976-79]

HENRY GEORGE'S analysis in Progress and Poverty leads to the conclusion that a classical free market is not possible until the "land problem" is solved.

AH sciences begin with assumptions. For George there are two: "Man's desires are unlimited", and "Man seeks to satisfy his desires with the least exertion."

Value is what men desire. It is synonymous with "worth" and describes that which is preferable. As free men seek an increase in values by cooperation, a market develops. Specialization becomes the path to greater riches, and so the market soon adopts the characteristics of a "clearing house -- a place where goods are routed to their greatest value increase. A network of relationships grows, with each participant seeking constantly to improve his position."

This network is controlled by the price-mechanism. This is the market process whereby production is stimulated by a higher price, even as consumption is checked; and, conversely, whereby production is checked by a lower price, even as consumption is stimulated.

George argues that the price-mechanism will provide proper returns to his (classical) factors of production. The market will fairly determine the wages of Labor, the interest of Capital, and the rent of Land. This holds true only when all factors are drawn to market by price-mechanism pressure. But those who possess Land do not react to it as do those who "possess" Labor or Capital.

Labor and Capital must watch market prices and react quickly to change. The highest price goes to the swift, for the very act of supply lowers the price. Labor cannot hold back for a higher wage or it faces starvation. Capital with unused machines earns nothing. Because of the immediacy of market pressure, the market earns its reputation for efficient allocation.

As civilization advances, products increase, become more varied, and above all, become cheaper. Cheapness is the measure of progress. But there's the rub. Though decreasing product prices are evidence of an advancing society, so also is increasing land rent.

Rent of a location is the sum of its advantages, less the sum of its disadvantages, over marginal land, i.e., land which can be had for nothing. As people gather together to produce and trade, their very actions and presence are measured by increased rent. Increases in population tend to bring marginal land into use. To obtain future income, one needs merely to hold such land until needed. So, soon there is no land which is not held by someone. The landholder adopts a policy which runs counter to price-mechanism pressure: "Trade land tomorrow rather than today."

The necessary conditions for an effective market are not being met. Essential to the price-mechanism is that increased production and supply follow a price rise. But new land cannot be produced, and what exists is kept from the market. Price-mechanism fails -- it cannot turn back the price rise. The price-mechanism, faced by "land-shortage" and ever rising prices, waxes impotent and disgraced, the butt for collectivist scorn and the object of distrust even by those who believe in a free society. The land market becomes a witches' brew.

George follows this scenario to its final act -- a paralyzed economy leading to a crash and a general collapse of land prices. His solution is a particularly elegant one, for, by laying upon landholders a charge equal to their unearned return, he simply makes land responsive to the price-mechanism.

Once Land is as costly to keep out of production a-, are Labor and Capital, response to price-mechanism pressure is assured. With all factors under control, the market may be left alone to do its superlative job.

History abounds with instances of "failed laisser-faire." In every case, the failure stemmed not from a free market that was not adequate, but from a free market that was not truly free.