A Democratic Economics
Henry George
Vernon Louis Parrington
[Chapter 4, Volume 3, Main Currents in American
Thought,
published by Harcourt, Brace and Company, 1927, pp. 125-136]
While the academic economists were thus providing a new body of
capitalistic theory, from the ranks of the people came a group that
was bent on bringing economic principles into greater conformity to
what they considered democratic needs. The economics of bankers and
manufacturers they regarded as a selfish class economics and they
proposed to democratize the body of economic thought as Tom Paine and
Jefferson had democratized the body of political thought. Since the
days of John Taylor such amateur economists had been plentiful in
America, and in the post-war days when the country was in the throes
of the Industrial Revolution, they sprang up at every cross-roads.
George Henry Evans, Horace Greeley, Peter Cooper, Parke Godwin,
Wendell Phillips, Albert Brisbane, Hinton R. Helper, "Coin"
Harvey, were only a few out of the many who in their own way were
seeking in economics a road to freedom. They were not formal
economists; they were little read in the history of economic thought;
in so far as they may be accounted a school they were mostly the
unclaimed progeny of French Physiocratic theory who did not recognize
their own father. Yet they were vastly concerned to bring economic
theory into some sort of realistic contact with the facts of American
experience and the ideals of democracy; and their immediate objective
was the overthrow of current Manchester principles and the erection in
their stead of a body of theory based on the needs of the producer and
the consumer rather than the middleman.
Of this characteristic native group, largely ignored by our formal
historians, by far the ablest and most influential was Henry George, a
thinker created by the impact of frontier economics upon a mind
singularly sensitive to the appeal of social justice, singularly
self-sufficient in its logic. He remains still our most original
economist. Beyond the Ricardian theory of rent, with its corollary of
unearned increment, he owed little to Europe and nothing to academic
American economists. From the first he was a free4ance, returning to
the origins of things-as Tom Paine had advised long before-and
thinking "as if he were the first man who ever thought." His
major doctrines he arrived at largely independently, ignorant of the
fact that his impot unique had been earlier elaborated by the
Physiocratic school, till long after he had come to identical
conclusions. His matured philosophy was the outcome of the meditations
of a Jeffersonian idealist contemplating the divergence between the
crude facts of exploitation all about him and the eighteenth-century
ideal of natural justice; and he became, in consequence, the voice of
idealistic America seeking to adjust the economics of a rapidly
changing society to the ends of democratic well-being. The passion of
the reformer was in him, but wedded to the critical mind of the
analyst; and this accounts for the wide appeal of Progress and
Poverty that for thousands of Americans removed economic theory
from the academic closet and set it in the thick of political
conflict. Henry George humanized the dismal science and brought it
home to the common interest. With his extreme simplification no doubt
he fell into the same error the classical school had fallen into
before him; he left too many elements out of his equation; but he
succeeded in the same way they had succeeded -- he made of economic
theory a weapon to use in the struggle between the exploiters and the
exploited. After Progress and Poverty the social economist
could cross swords with the Ricardians.
Henry George is readily enough explained in the light of his
environment. He was intellectually native to the West, but it was the
West of the Gilded Age with its recollections of an earlier agrarian
order. Upon the gigantic exploitation of post-war times, carried
forward in the name of progress, he threw the experience of two
hundred and fifty years of continental expansion. That experience had
undergone a subtle change as the settlements moved through the Inland
Empire, a change marked by the spirit of capitalistic expansion with
its crop of unearned increment. On the frontier, land speculation was
often the readiest means to wealth. To the west of the Allegheny
Mountains land had long been the staple commodity, with the buying and
selling of which every community was deeply concerned; and from the
dramatic repetition of that experience in California, Henry George
clarified the principle upon which he erected his social philosophy,
namely, that a fluid economics begets an equalitarian democracy and
homespun plenty, and that with the monopolization of natural resources
a static economy succeeds, with its attendant caste regimentation and
augmenting exploitation. In the days when he was meditating his social
philosophy, California was still in the frontier stage of development,
but amidst the hurrying changes a fluid economics was visibly
hardening to the static, with a swiftness dramatic enough to Impress
upon him the significance of a story that had been obscured in earlier
telling by the slowness of the denouement. The vast cupidity of
business in preempting the virgin resources of California, and in
particular the technique of Leland Stanford and the Central Pacific
Railway group, provided an eloquent object-lesson that set him to
examining the long history of land-jobbing in America in its remoter
social bearings. From such inquiry emerged the cardinal principles of
an economic theory that must be reckoned the ultimate expression of a
school of thought that beginning with Quesnay a hundred years before,
and first interpreted for America by John Taylor and the
Jeffersonians, was finally buried in a common grave with the kindred
doctrine of natural rights.
It was no accident that his mind fastened upon land monopoly as the
deeper source of social injustice. As a child of the frontier he
thought in terms of land as naturally as the money-broker thinks in
terms of discounts. His psychology was that of the producer rather
than the middleman. Land, with all its potential wealth of field and
orchard and forest and stream, with its unmeasured resources of coal
and iron and oil and timber, was the fruitful gift of nature to man;
and the true measure of social well-being, he believed, is the measure
in which labor is free to use such natural resources for productive
purposes. Land monopoly was an ancient evil that had laid its blight
on every civilization. The expropriation of natural resources was the
origin of rent, and rent was a social tax parasitic in nature.
Unearned increment was a moiety wrested from the producer, that waxed
ever greater with the increase of production. Henry George was well
aware how deeply rooted in American psychology was the love of
unearned increment. Since the far-off days when the agent of the
Transylvania Land Company wrote in 1775 that the Ohio Valley abounded
in land-mongers, the rage for expropriative speculation had mounted
steadily; and the railway land-grants of his day were a fitting climax
to a policy that in every generation had brought forth such fruits as
the Yazoo frauds. The land question was a perennial western problem.
For years Horace Greeley in the Tribune, had spread amongst
the farmers the "Vote Yourself a Farm" propaganda. The
protest of the small western settler against the middleman policy of
the government in alienating great blocks of the public domain to
speculative companies, had added thousands of votes to the Republican
party, and the result was the Homestead Act of 1862. But the fruits of
the Act were partly destroyed by huge grants to railway promoters, and
the time had come, George believed, when the problem must be envisaged
in all its complexities and the American people brought to understand
how great were the stakes being gambled for.
The disease had so long been endemic in America that the remedy must
be drastic. No patent nostrums would serve. The vividness of his
experience in the West had thrown into sharp relief his earlier
experiences in the East, and made him distrustful of all social
panaceas that hopeful idealists were seeking in Europe. With any form
of collectivistic theory he would have nothing to do. Marxian
socialism he looked upon as an alien philosophy, inadequate in its
diagnosis and at fault in its prescription. The ills of America --
perhaps of Europe as well -- must be cured by another regimen. Progress
and Poverty grew out of his experience as he watched the heedless
alienation of the public domain. It was his reply to the policy of
preemption, exploitation, and progress of the Gilded Age.
Philadelphia-born, he early suffered in his personal fortune from the
periodic hard times that ran so disastrous a cycle in the days when
America was in thoughtless transition from an agrarian order to an
industrial. His scanty schooling came to an end before he had reached
his fourteenth year, and at sixteen he saw no better opening in life
than to ship before the mast to Australia. On his return he learned to
set type, but times were bad and opportunity declining to knock at his
door, he worked his way through the Straits of Magellan, landing in
San Francisco in 1858, on his way to Salem, Oregon, where he worked
for a time in a shop. With the exhaustion of the diggings he made his
way back to San Francisco, and began a long series of restless
ventures in the newspaper field, with only his hands for capital --
none very successful, none quite a failure, but returning him useful
dividends in the form of a serviceable prose style. At twenty-two he
plunged into an improvident marriage with a girl of eighteen, and the
next dozen years brought many privations to the little family.
Fate had not yet taken Henry George in hand to lead him into his life
work. All the economics he then knew had been learned in the rough and
tumble ways of a western print-shop. In 1869, at the age of thirty,
while on a business trip to New York City, he was confronted by the
contrast between wealth and poverty there nakedly exposed -- so unlike
what he had known at San Francisco. It was a prod to his social
conscience, and as he contemplated the wretchedness of the East Side
he registered a vow to explore the hidden causes of social disease. He
had given no serious thought to economic questions, and now almost
casually he went to the Philadelphia public library to look into John
Stuart Mill's Political Economy. He accepted Mill's views on
wages without critical examination, and wrote his first important
article -- on the Chinese question in California. In the meantime a
group of California railway promoters had been buying and selling
legislators in their work of building up private fortunes out of a
public monopoly; and it was the contemplation of wealth acquired by
such methods, together with the gamble of land speculation in Oakland
in consequence of the proposal to establish there the western terminal
of the continental railway, that clarified for Henry George the great
principle he was to expound in Progress and Poverty ten years
later.
The first drift in his intellectual development had been a drift hack
to the old Jeffersonianism from which the country was swiftly moving.
As an editor he was an outspoken Democrat of the primitive school,
opposed to protectionism, subsidies, a centralizing political state,
and the corruption that follows in the train of paternalism as
sickness follows infection. In a pamphlet written in 1870, he
expounded his political faith thus:
Railroad subsidies, like protective duties, are condemned
by the economic principle that the development of industry should be
left free to take its natural direction. They are condemned by the
political principle that government should be reduced to its minimum
-- that it becomes more corrupt and more tyrannical, and less under
the control of the people, with every extension of its powers and
duties.
They are condemned by the experience of the whole
country, which shows that they have invariably led to waste,
extravagance and rascality; that they inevitably become a source of
corruption and a means of plundering the people.[George,
Life of Henry George, pp. 216-217]
Having thus indoctrinated himself in the Jeffersonian liberalism with
its foundations laid in natural rights and its conception of a
decentralized society, the following year, at the age of thirty-two,
he sat down to the serious elaboration of his views. Our Land and
Land Policy, National and State, was an explorative pamphlet that
went to the heart of the problem as he had come to understand it. The
kernel of the work is the question of the relation of land to labor,
of rent to wages; and the conclusion to which it led was the doctrine
of the social ownership of socially created values, which justice
requires shall return to society in the form of an equalized tax that
shall absorb the unearned increment. Around this fundamental doctrine
was grouped a considerable body of ideas that had been expounded by
earlier liberals. How much he borrowed and how much he arrived at
independently, cannot easily be determined; such diverse thinkers as
James Harrington, Locke, the Physiocrats, Tom Paine, Karl Marx, John
Stuart Mill, William Ellery Channing, might well have contributed to
this provocative document, if George had been acquainted with them.
Like Harrington was the assumption of economic determinism -- that
ownership of the land implies the rulership of society. From the
school of Locke came the conception of natural rights, but interpreted
rather in terms of Tom Paine and of William Ellery Channing. From Mill
came the conception of unearned increment; from Marx the law of
concentration; and from the Physiocrats the conception of a natural
order and the doctrine of an impot unique. And all this set in
a framework of American economic history, which reveals with shrewd
insight the disastrous tendency of the traditional policy of land
alienation in great blocks to middle-men, with the attendant rise of
rent.
How intimately he was related in his thinking to the French liberals
of the eighteenth century, may perhaps be sufficiently suggested in
his interpretation of the doctrine of natural rights -- a doctrine the
new realistic school from Calhoun to Woolsey and Burgess was
subjecting to critical analysis. By uniting the individualism of
Locke's doctrine of property with the Physiocratic doctrine of social
well-being, he gave a sharp turn to the conception that, like
Jefferson's, set it widely apart from the exploitative interpretation
preferred by the Hamiltonian followers of Locke. The gist of his
conception is thus set down:
Now the right of every human being to himself is the
foundation of the right of property. That which a man produces is
rightfully his own, to keep, to sell, to give or to bequeath, and
upon this sure title alone can ownership of anything rightfully
rest. But man has also another right, declared by the fact of his
existence -- the right to the use of so much of the free gifts of
nature as may be necessary to supply all the wants of that
existence, and which he may use without interfering with the equal
rights of anyone else; and to this he has a title as against all the
world.[Ibid., p.223]
Much of Henry George is compressed within these few lines, that
suggest as well the diverse liaisons of his thought. In his conception
of the right of every man to himself he is in agreement with William
Ellery Channing, who used the argument in his attack on slavery, and
with Emerson, Parker, and the Transcendental radicals generally. It is
an interpretation of natural rights that sprang easily from the
Unitarian-Transcendental conception of the sacredness of the
individual, and that was given wide currency by the anti-slavery
propaganda. From his deduction that the right to property flows from
the right to self, came his theory of tax-equity that was to play a
major role in the formulation of his principle of taxation. If society
may not justly take from the individual what the individual has
created, it must seek its revenues elsewhere than in a
personal-property tax; and where should it look if not to those values
which society has created The inalienable right of the individual to
what he has produced does not extend to the appropriation of wealth he
has not produced, and a sharp line is drawn between the rights of the
individual and the rights of society, between production and
exploitation. Herein lies the justification of the single-tax -- a
principle derived by crossing Locke with the New England school.
From the classical economists Henry George got little. He had a quiet
contempt for them he was never at pains to conceal. He was convinced
that they had distorted the whole science of economics. As the earlier
Tories with their sacred arcane imperii had done with
political government, they had involved economics in abstract theory,
removing it from the comprehension of the common man. At the best they
had dehumanized it to the status of a dismal science, with their
postulate of an economic man and their pessimistic outlook. At the
worst they had shaped it into a potent weapon for the exploiting
class, who gravely invoked economic law -- which none understood -- to
justify class policies of state. In an address delivered at the
University of California, Henry George paid his respects to the
classical school in these words:
The name of political economy has been constantly invoked
against every effort of the working classes to increase their wages
or decrease their hours of labour.
Take the best and most
extensively circulated textbooks. While they insist upon freedom for
capital, while they justify on the ground of utility the selfish
greed that seeks to pile fortune on fortune, and the niggard spirit
that steels the heart to the wail of distress, what sign of
substantial promise do they hold out to the working man save that he
should refrain from rearing children?[Ibid.,
p.277]
For political economy thus degraded from its high place and become
the slut of private interest, Henry George proposed to do what Tom
Paine had done for political theory a hundred years before-he would
transfer it from the closet to the market-place by exposing the shabby
arcana imperii and bringing it within the comprehension of
common men. He would bring home to the popular intelligence a
realization of the dynamics of economic law and its bearing upon
social well-being, that men might plot a fairer course for society.
This was the deeper purpose of Progress and Poverty -- to
humanize and democratize political economy, that it might serve social
ends rather than class exploitation. The Rights of Man and
Progress and Poverty may be reckoned complementary works,
applying to related fields the spirit released to the modern world by
the great thinkers of Revolutionary France. The foundations on which
they both rest is the eighteenth-century conception of natural law,
all-comprehensive, beneficent, free, enshrined in the common heart of
humanity, and conducting to the ultimate of social justice.
As a necessary preliminary to his purpose, Henry George was forced to
clear the ground of old growths. Before he could declare the truth he
must uproot certain of the Malthusian and Ricardian heresies. He must
substitute a sociological interpretation, based on historical reality
in western civilization, for a set of economic abstractions, based on
the political and economic accidents of England in post-Napoleonic
days. The Manchester school, it must be remembered, was an embodiment
of the aspirations of the rising middle class; it was a philosophical
attack upon the vexatious restrictions laid upon capitalism by
government in the hands of the landed aristocracy. It conceived of
economic principles as of concern only to the owning classes, and its
theory took a special and narrow form from the current struggle
between the landed and capitalistic interests. In a Parliamentary
debate over the corn laws in 1814, Alexander Baring, the banker,
assumed that the working classes had no interest at stake. To argue
that they were affected, he said, was "altogether ridiculous;
whether wheat was 130s. or 8os., the laborer could only expect dry
bread in the one case and dry bread in the other."[Quoted
by Wesley Clair Mitchell in The Trend of Economics, edited by
R.G. Tugwell, p.5] In Francis Wayland's Elements of
Political Economy, published in 1837, a similar narrow view of the
field of economics was expressed. That an adequate political economy
must be social, that it must be something very much more than a
merchant's vade mecum, or handbook of profit rules, Henry
George grasped as clearly as Ruskin; and he attacked certain of the
Manchester principles with the ardor of a social prophet. Of these the
classical wage-fund theory seemed to him the most vicious, and he was
at vast pains to prove that wages are drawn from the produce of labor
and not from a preexistent capital-fund. Having established this to
his satisfaction, he turned to consider the economic effects of
monopolistic expropriation of natural resources, and discovered the
explanation of the augmenting poverty of civilization in the shutting
out of labor from the sources of subsistence, that is in land
monopoly.
The argument is based on the Ricardian theory of rent. Though George
rejected the classical wage-fund theory, he accepted without
qualification the classical rent-theory, and discovered the kernel of
his philosophy in the doctrine of social fertility. If rent is the
difference between the income-value of a given piece of land and that
of the least valuable in the neighborhood, it measures the difference
between the yields per acre on the richest and the leanest soil with a
like outlay of labor and capital. So in an urban community rent arises
from what may be called social fertility -- that is, from a
monopoly-value in a given neighborhood. Such monopoly-value arises
from strategic location; the desirability of a given tract for
dwelling, factory, or shop. The number of persons daily passing will
determine the rental value for shop purposes; the accessibility to
docks, railways, raw material, power, markets, labor-surplus, will
determine its rental value for factory purposes. In every such case,
however, it is society and not the individual that augments rent, and
this unearned increment increases with the growth of the community.
From every advance of civilization it is the landlord who profits. He
is a social parasite, the nether millstone between which and material
progress the landless laborer is ground.
In every direction, the direct tendency of advancing
civilization is to increase the power of human labour to satisfy
human desires -- to extirpate Poverty and to banish want and the
fear of want.
But Labour cannot reap the benefits which
advancing civilization thus brings, because they are intercepted.
Land being necessary to labour, and being reduced to private
ownership, every increase in the productive power of labour but
increases rent -- the price that labour must pay for the opportunity
to utilise its power; and thus all the advantages gained by the
march of progress go to the owners of land, and wages do not
increase.[Progress and Poverty, Book
IV, Chapter 4]
Labour and capital are but different forms of the same thing --
human exertion. Capital is produced by labour; it is, in fact, but
labour impressed upon matter.
The use of capital in production
is, therefore, but a mode of labour.
Hence the principle that,
under circumstances which permit free competition, operates to bring
wages to a common standard and profits to a substantial equality --
the principle that men will seek to gratify their desires with the
least exertion -- operates to establish and maintain this
equilibrium between wages and interest.
And this relation
fixed, it is evident that interest and wages must rise and fall
together, and that interest cannot be increased without increasing
wages, nor wages be lowered without depressing interest.[Ibid.,
Book III, Chapter 5]
There is no inherent antagonism between labor and capital, Henry
George was early convinced. The Marxians with their theory of a class
war were mistaken in their analysis. It is rent that is the true
source of social injustice, and the clash of interests in society lies
between the producer and the parasitic rent-collector. In every
society the appropriation of measured increment has enslaved the
ownerless. In all civilizations, from ancient Peru to modern Russia,
it has subjected the worker to exploitation. Helot, villein, serf, are
only different names for a common slavery, the profits of which go to
the landlord. In modern times the Industrial Revolution has changed
the form of serfdom, only to intensify and embitter it. The Manchester
factory-hand was in worse plight than the medieval villein after the
Black Plague. Dispossessed of his acres by the enclosure movement, he
had been thrown into the hoppers of industrialism and ground to
pieces. He was helpless in the hands of the masters, who with their
monopoly of land and the machine, in control of the common heritage of
trade processes, raw materials, transportation, credit, and the
law-making and law-enforcing machinery, were taking from labor an
augmenting toll of its production. Hence the close correlation between
material progress and proletarian poverty. Hence the logical outcome
of the Industrial Revolution, when it should have run its course, was
the reduction of the worker to the level of a slave, compared with
whose material condition the status of the southern bond-slave was
enviable. The southern apologists of slavery had been right; the negro
on the plantation enjoyed advantages denied to wage4abor under
industrialism.[See Ibid., Book VII,
Chapter 2]
Having thus analyzed the forces at work in modern society, and wedded
a flamboyant material progress to a slattern poverty, Henry George
proposed his sovereign remedy-the return to society of social values,
hitherto expropriated by means of the private ownership of land, and
the removal of the burden of indirect taxation from the hack of
productive labor. The Ricardian theory of rent, interpreted in the
light of eighteenth-century laissez faire of free competition,
of a beneficent natural law, of social justice -- conducted to
unforeseen social issues. If labor and capital are individual, the
fruits of both should return to their producers. Society has no just
claim on what society has not produced, and the individual has no just
claim to that which his labor or capital has not produced. Render unto
Caesar the things that are Caesar's, and to the individual citizen the
things that are his -- such to Henry George was the sum of the law of
distribution. Land monopoly was a refined denial of natural rights. "The
equal right of all men to the use of the land is as clear as their
equal right to breathe the air-it is a right proclaimed by the fact of
their existence:"[Ibid., Book VII,
Chapter 1] Unearned increment was the shackles wherewith labor
was bound. In the name of social justice strike those shackles from
the limbs of men and progress would never again have its ears filled
with the wailings of poverty. The workman would once again sing at his
work, and the sunshine of well-being fall pleasantly on the land.
A brilliant thinker, with a passionate sympathy for the exploited of
earth, this knight-errant from out the newest West ardently believed
in the sufficiency of his social philosophy to all needs. In him the
French Revolutionary doctrine came to its most original expression in
America. No doubt, like his progenitors, he oversimplified the
problem. Society is more complex than he esteemed it; individual
motives are more complex. It is perilous to subordinate psychology to
abstract theory; the ideal of justice is always running afoul of
immediate and narrow interest. Later academic economists have dealt
sharply with Henry George, but what have they done to justify their
magisterial tone? The science of economics is still cousin-german to
philosophy in its fondness for spinning tenuous subtleties; it is
still system-ridden, still too much the apologist for things as they
are. From its servitude to a class Henry George essayed to deliver it.
In fastening upon monopoly as the prime source of social injustice, he
directed attention to the origins of exploitative capitalism. He did
more than any other man to spread through America a knowledge of the
law of economic determinism. He opened a rich vein and one that needs
further exploring. The suggestive principle of unearned increment
calls for further expansion to embrace other forms than rent, to fit
it to the needs of a complex society. What he seems not to have seen
was the wider range of economic determinism -- that changes come only
when the existing order has become intolerable to great classes, and
the grip of use and wont is loosened by the rebellions born of exigent
need. "For ever the fat of the whole foundation hangeth to the
priest's beard," asserted a quaint Beggars ' Petition in appeal
to Henry VIII against the monasteries, and in that comment were the
seeds of the Reformation. When the beards are few to which the fat
hangs, the time is ripe for an upheaval. An arch-idealist, Henry
George would hasten the change by appeal to reason. Like Godwin and
Tom Paine he believed that reason will make its own way, forgetting
that reason waits upon interest, and the day of its freedom is long
delayed. Yet if he was oversanguine, why account that to his
discredit?
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