The Physiocrats and Henry George

Axel Fraenckel

[A paper presented at the 4th International Conference of the International Union for Land Value Taxation and Free Trade, Edinburgh, Scotland, 29 July to 4 August, 1929]

When Henry George wrote his first book, he did not know the French Physiocrats of the second half of the 18th century even by name. Later he read only the short expositions of their doctrine that are to be found in English books. He did not know French, and translations as well as exhaustive accounts of those exponents of the impot unique (the " Single Tax " men of their day) were wanting in English. From what he had heard about them, George supposed that in their "single tax" the Physiocrats meant equal rights to land through land value taxation. At any rate, the Physiocrats did call for the abolition of all taxes, full Free Trade, and one single tax on land ; and they used arguments based upon natural law which were nearly the same as those of George ; and George mentioned them with enthusiasm in Progress and Poverty (Book VIII, Chap. 4), Protection or Free Trade (Chaps. 2 and 26) and The Science of Political Economy (Book II, Chap. 5, and Book III, Chap. 6). He even calls his own adherents " neo-physiocrats," and dedicated his Protection or Free Trade to Quesnay and his friends in very warm words.

It may be that even if he had realized what the doctrines of the Physiocrats really were, George would still have dedicated his Free Trade book to that French school since its services to the Free Trade cause were beyond question. George knew the contribution of the Physiocrats to Liberalism and he knew that Adam Smith had intended to dedicate his principal work to Quesnay. The old doctor died, however, two years before the Wealth of Nations saw the light in 1776. From a closer study of their works, George would further have appreciated the ideas of freedom that in spite of all else did run through their teachings; and he would have seen the important part they played in fields other than political economy in its narrow interpretation. "I ask not veneration of the form but the recognition of the spirit," he said in his address on Moses; by straining it a little the same remark might apply, so far as the Physiocrats are concerned. The social truth, as Henry George has said, is never new, and George was always glad when he heard of others who had given voice to ideas the same as, or similar to, his own.

One thing alone would have attracted George to the Physiocrats - their denunciation of the old system of taxation and their views in regard to the functions of the State - even though these philosophers, starting from almost the same premises, and applying apparently the same means, made proposals the exact opposite of his own in strengthening the time-honoured forms of individual rights to property.

The tribute to the French philosophers in Protection or Free Trade would possibly have been paid even if George had known their ideas. But he would have had his enthusiasms modified somewhat, and there would have been less misunderstanding about the Physiocrats in the succeeding decades.

I.

The Physiocrats were, of course, far from being without forerunners. Their spiritual ancestors may be found among the stoics of old as well as among moderns like Cantillon and Locke. But they were the first to proclaim so vigorously the existence of external and unchangeable natural laws that could not be disobeyed. They should always be remembered because they maintained - often with far-fetched or false arguments and more with the intuition of genius than with profound researches-that there need be no conflict between the community and the individual; that the social edifice had its origin not only in power, but also in justice and moral law.

They realized that fixed laws ruled economic phenomena, and in all earnestness they analysed these laws far beyond the limits of the community, glancing at the same time at the historical development and at various institutions of social life. They were ardent Free Traders and pacifists, and the wild man of the school, Turgot, as Minister effected important reforms. They inspired reforms to the benefit of the farming population throughout Europe and were the forerunners of modern international law. They saw the dangers of national debts, not least of which is the creation of false capital. Dupont de Nemours saw in time the dangers of inflation in the seventeen-nineties, and fought it politically, partly with success.

Man was, according to their opinion, influenced by two principles: the feeling towards association, and the motive of personal interest. It was only in appearance that these principles were in opposition to one another. Taken together, they created harmony. In order that human powers may flourish, personal freedom must be fundamental in social life. But if the individual is to be allowed freely to carry on his trade and develop his talents and abilities the right of private property must be maintained. To own goods and chattels was a means of self-support and property in land was merely an extension of such ownership, because all labour had its basis on the land. The right to own land was, therefore, the goal and the compensation of labour. By that, everyone would reap the benefit; and who would undertake the outlay unless private property was fully secured? It was Turgot who defended private property in land in the name of "human conventions arid civil laws." Without such security the physical laws of social life decreed by the Creator could not assert themselves. Thus these philosophers were sworn advocates of private property in land, and (be it well noted) did not at all seek to have it shared among a greater number. Like the classical economists, they failed to see that there was a monopoly element that could and should be eliminated without violation to individual responsibility and without reducing the returns to labour. They were optimists, looking lightly upon the poverty problem. Their fight for Free Trade and a single tax on land has made many people, although quite wrongly, think of them as predecessors of Henry George. They lived before the time of great cities with their manufactures and the speculation in rapidly increasing land values. They stood for quite a different system of taxation than that advocated by Henry George, and aimed at anything but the better distribution of land or the raising of wages.

The Physiocrats believed that only the agricultural industry could give a social surplus or "net product." They were impressed by the principle of growth and by the wealth of resources that lie in Nature. Here in this constant revival was the assistant of the landowner. They lived at a time when the great landowners were often mere rent-drawers and tenants did the work on the land. So it might be that the Physiocrats overlooked the social and economic importance of commerce and industry. Of course, they knew well enough that these occupations also were essential but they did not hold the opinion that they yielded the community a final or net surplus. Therefore, it was the land - that is, the agricultural land - that ought to pay all the expenses of the community. Urban land was never mentioned, and if George had only read a tolerably good English version of their writings his suspicions would have been aroused. The Physiocrats held the view that in the last analysis all taxes fell upon agriculture, no other industry being able to pay them. At that time the French people were plagued by the most oppressive taxes, which at the same time gave vicious privileges to certain classes. All business was hindered in this way, but still worse were the customs tariffs and the great number of foolish provincial duties. The Physiocrats took very little interest in the purely social effects of all this harmful taxation; Turgot alone touched upon that question. They believed, however, that the system indirectly caused great poverty, and that trade and conditions would be better for all if that system was abolished. And for that reason also they advocated a single tax on the " net product " from agricultural land. In that way the purchasing power of the people would be greatly increased, and so there would be restored to agriculture the amount which, according to the calculations of the Physiocrats though it was not equal to the account rendered by Providence, should be paid in taxation. Did not agriculture feed us all? They reckoned that 30 per cent per annum of the "net product" would suffice, and they estimated the "net product" at 2,000 million livres yearly. Necker's Budget for 1781 amounted to 610 millions, which was nearly as much as the proposed tax on land.

The Physiocrats believed, and here they were quite right as in much else they criticised, that the existing taxation system cost far too much to industrial life and to the people. Several of them, and Turgot was inclined to agree, computed that agriculture paid in these taxes more than double the amount (owing to the cost of administration) it would have paid to a tax assessed on the '' net product''; and it seems that they did not take into this account the indirect benefits that were to be expected. Land taxation was clear and simple and could not be concealed. They demanded their "single tax " for the good of agriculture and the community. It was shown what agriculture must be rid of, if it was to be saved from decay. Security and property rights would be strengthened.

To the objection that the tax would not yield enough, they replied, as Georgeists do to-day, that society must keep its expenses within its proper revenues. They wished to limit the expenses of the State much on the same plan as the Justice League in Denmark propose to-day. Mercier de la Riviere was foremost in urging that the King should not make laws, as laws had already been prescribed by the Natural Order - by Providence.

As a shareholder in the "single tax," it was to the interest of the Sovereign that private property should be preserved and that the "net product" should increase. The modern Georgeist also regards the ground rent contribution as a measure of the wealth belonging to the community and of the means afforded to the politicians for administration. Like many who stand to-day for equal rights, the Physiocrats sought to escape the word "tax." They often showed how legitimate their single tax was by calling it a "loyer" or rental payment, nearly synonymous with the Danish word "skyld" or the Greek "leiturgia" of Solon's time. George is on the same ground in Chap, xxv of his Protection or Free Trade.

The Physiocrats had no perception of economic rent or of land values as such. Even if the "net product" often does represent the ground rent, the Physiocratic taxation cannot stand comparison in any respect with the Taxation of Land Values which applies to all land including the uncultivated as well as the land in towns; the Physiocratic tax would take only 30 per cent of the approximate ground rent of such farm land as is used.

Quesnay seems to have had a vague understanding of Land Value, and in an isolated passage there is an argument resembling that of the Georgeists; but as to any change in social conditions, such as George believed was possible, there was never a hint. Quesnay utters words of warning in regard to the sacredness of property rights: -

"The ownership of landed and personal property must be assured to those who are their legitimate owners, since the security of property is the essential foundation of the economical order of society. Without the assurance of ownership, land would remain waste." - (Maximes Generales 5.)

And Dupont says: "The object of this taxation is the preservation of property rights " (Ed., Daire, p. 351); while Mercier insisted that " taxation must never undermine the sacred rights of property " (Ed., Daire, p. 447).

Quesnay is the champion of the great estates and declares that to tax the labourer is to put a burden on labour; but the argument is that it is the employer who is the real payer! He declaimed against the view that low prices of corn were good for the people, his view being that low corn prices meant low wages and would decrease the "net product." Turgot expressed a similar opinion. It is interesting to notice that Quesnay thought the decline and fall of the Roman Empire was due to the decay of her agriculture; but he does not deplore, as George did, the way in which the land was appropriated by the few. He did not look on that as a calamity nor see in it the cause of decline.

It is no wonder that only comparatively few prominent men outside this narrow circle favoured this dangerous form of individualism. In vain the elder Mirabeau tried to convert Rousseau. Voltaire satirized them in L'homme aux quarante Ecus, and Mably, a clergyman, in his Doutes proposes aux Philosophes Economistes. with vigour and with much talent, criticized the attitude of the philosophers towards private property. It is characteristic that while Mably devotes two-thirds of his book to contesting Mercier's legal despotism and otherwise opposed the Physiocratic view on private property, he does not go into the common-sense suggestions and proposals regarding tax abolition, and relief to agriculture and commerce, although he gives the philosophers credit for that. This shows how little attention is paid to sensible things when criticism exerts itself in other directions.

II.

The peculiarity of the "net product" is its purely material character. It is above all something tangible and perceptible. It is the result of Nature's co-operation with man. Economic rent, on the other hand, is a value not material in character. Other theoretical distinctions might also be mentioned.

Emile Rivaud, in his book Henry George et la Physiocratie (Paris, 1907), written as a thesis for his doctorate, shows how the "net product" and economic rent are mutually dependent on one another. He writes (p. 35): -

"The net product exists in the shape of wealth as soon as man applies himself to the land which creates it. but its value is levied by the owner in the shape of rent only from the time when the increase of demand compels men to turn themselves towards less fruitful lands. Originally, as material wealth actually produced, it manifests itself only as a displacement of wealth in the shape of rent; and that is the reason why Ricardo was able to say that rent was but a creation of value. But the creation of value supposes a previous creation of wealth, offered by Nature. The creation of a rent for land is conceivable only in so far as that land produces more wealth than another for the same amount of effort, so that the 'net product' in value is eventually integrally expressed by the rate of the Ricardian rent and becomes coincident with it."

In other words, economic rent presupposes a net product, and the latter can only be expressed through economic rent. The Physiocrats did not realize this, because they did not see the influence of social development. They did not see that the value of commodities varies in relation to demand, but fastened upon the quantity of production and the effect of that on prices and other circumstances.

George saw well enough that the two conceptions approached one another, and then the agreeable-looking programme of the Physiocrats brought him to the wrong conclusion. He was, however, quite clear about the mistaken view of the Physiocrats that agriculture was the only occupation that can yield "a surplus," and he believed that this mistake - which in his attachment to the school he thought might be a case of confusing terminology - was the reason why the programme of the philosophers did not succeed. Strangely enough, he did not then observe their omissions in regard to urban land values and perhaps this would have opened his eyes to the true facts of the case.

Another thing that helps to understand his misconception is that, in his Science of Political Economy, George states that he got his information mainly from Macleod's Elements of Economy (1881), from which he quotes a long extract. It was excellent matter, sure to have filled George with enthusiasm and dealing with many of the Physiocratie meditations on natural law by which he himself was guided, although on quite a different road than that taken by the French school.

When one consults Macleod's book, only a few lines are to be found dealing with the "net product," with the promise to return to the subject in a succeeding chapter - which never comes! A similar promise never fulfilled is found in the previous edition (1872). This case is a warning to writers; the sins of the fathers are inherited.

The distinguished Danish Economist, Professor L. V. Birck, recently wrote in a Swedish review (Statvetenskapligt Tidsskrift) as follows : -

"The law in regard to the rent of land is again under discussion, partly because the number of people both across the sea and in Europe who believe in the Georgeistic tax on the rent of land, is increasing, partly because we again are forced to investigate the old Physiocratic doctrine that ultimately all taxation comes out of the rent of land."

Of course this author knows his subject and it cannot be said that he is altogether wrong in what he writes; but what he says is altogether misleading.

Emile Rivaud, in the treatise already mentioned, which is not sufficiently known, has not laid sufficient stress on what, from the point of view of natural rights and morals, attracted George towards the French philosophers. Nor does Rivaud mention Macleod. He says at the end of his book that the Physiocrats might have been a little less optimistic if they had foreseen the future conditions of the wage-earners in a state of society less individualistic than theirs. But, he adds, they never would allow anyone to throw a critical glance at their dogma of private property.

Thinkers cannot, however, transport their minds from the present to a succeeding epoch, especially as there has been such an immense change in the whole picture of society and of the world. And one body of people who think on the same lines at one time seldom do so at another. The Physiocrats went as far as anyone can go in a radical-individualistic direction without proposing measures to break the land monopoly. George regrets that in the French Revolution the aspirations of the Physiocrats went down. When the land taxes of the early Revolution and some ten years before - taxes that had only a slight tinge of Physiocratic colour - were gradually reduced and ultimately ceased to be of consequence, the deeper cause was neither the Revolution nor the above-mentioned misconception of agriculture as the sole productive industry.[1] It is important to bear in mind that the revolutionaries, excepting Marat and Robespierre, who from 1791 to 1793 maintained that the land belonged to all, deprecated any agrarian legislation. The blame for this was the Physiocratic influence with its bewildering teaching in the matter of property rights. So it was that in 1793 the death penalty was meted to those who even proposed "lois agraires" or spoke against property-rights, and that was at a time when human life did not count for much. The Physiocrats caused the land problem to evaporate. The social contract and welfare ideas of Locke and Rousseau became predominant - people could understand them. The other ideas, in view of their inconsequence in the popular mind, found no soil for growth. Even to-day there is hardly any country where more than in France it is so difficult to deal with the vested forms of property rights; that is, with the monopoly in land. Even the Communists do not venture to talk about landed rights and privileges. The Physiocratic doctrine certainly contributed to the misunderstanding on the land question that came with and after the Revolution, and it gave people at a later stage trust in the belief that all was well.

History allows no sudden jump. The first confusion having been caused in the matter of property rights, Adam Smith and the Liberalism of followers had to run the whole course. It was then that Henry George came to banish what is essentially a monopoly standing in the way of free competition, and so laid the foundation for a real revival of the ideas of natural rights.

This, of course, is not written in order to disparage those philosophers whose versatility and wide vision has been indicated, but to try and put them in their proper place. Some Georgeist writers are inclined to advance the claims of these men at the expense of Rousseau. It is true that Rousseau's views on State and Property were objectionable from a Georgeist point of view, and that by contrast with the philosophers of "the natural order" he got hold of the wrong end of Locke's ideas. These in turn were illogical and brought much perplexity. But the Physiocrats did the same with their doctrine, which did injury to the solution of the land question and of the social problem. But Rousseau, too, has to be studied by reference to his own time and his predecessors. (His greatness lies especially in his having stood for democracy and in his views on education.)

Still it may be possible that the social-individualistic development could have made headway if the Physiocratic ideas really could have succeeded and if these ideas had been accompanied by rational land taxation and Free Trade. But they could not, because they had other tendencies with which people were not willing to be associated. The genuine Physiocracy was tried only in Baden by an admirer of the French school, the Margrave Carl Friederich, who, advised by the Physiocrats, carried through their "single tax" in certain local districts. It proved ineffective if not disastrous, but. as his French friend said, that was only because the districts were too small. It may be mentioned that Baden was the German province which, fifty years ago, was foremost in farming legislation. The village council owned the land in common, and when young couples married they at the same time took over some acres and the right of possessing them for lifetime. Every child born in wedlock was given the right to a new plot of land, and what was not so assigned for use was ceded to the highest bidder. Whether it is the Physiocratic spirit that has thus lived through several generations and found such contradictory and interesting expression may be left for discussion.

III.

We now see what unites and what distinguishes the two economic schools and what might make it appear that they stand for the same thing. We also see where those two conceptions of Society approach one another and where they widely differ; where they have the same goal but very different motives; finally, where they had different aims although using the same arguments.

The Physiocratic view on the functions of the State and the limits that should be imposed is interesting. It comes near to the Georgeistic view and it approved means that had more than an outward semblance to those of George. In Denmark there is a philosophic school which has carried George's ideas farther, and has formed a political party. This school maintains that equal rights can only be established when the rent of land is used for common purposes in the strictest sense of the term. Although George criticizes State Philanthropy and sees many of the dangers that surround modern democracy, nevertheless he considered that some part of the rent of land might be spent upon social or educational objects.

The French school wished to preserve land ownership in the hands of one small class. George advocated the extension of land ownership by a change in the form of property rights. The right of the community to the values created by the community and the right of the individual to the values created by his labour -and in that way - the equal rights of all to the land.

In spite of all, George was related to the Physiocrats because they were pioneers' to that Liberalism he wished to see developed further. The Physiocrats formed the first school of national economy and were the forerunners of modern sociology.

One of the many reasons why the Physiocrats ought to be remembered is that they were not bewildered by the complicated nature of society, but proposed simple methods for social betterment. Both national economy and sociology have unfortunately stared themselves blind at details without understanding what liberation really meant. It is essentially a sociological question to analyse the relation between the individual and the community, and here George has given the most valuable contribution. According to him, all brilliant epochs in the history of mankind were marked by the spirit of liberty and all periods of reaction by the opposite spirit. Here he has given Sociology a fingerpost in the study in the various eras of civilization. Sociology investigates the various forms of property rights to which George gave a new form.

While political economists can easily criticize the Physiocrats, they have only been able to attack George with arguments which are gradually getting fewer and more timid, only expressing doubt as to the possibility of its practical operation. But that is a matter of politics. Justice cannot be reconciled with injustice. A just state can be gradually established, having regard to the present complicated structure of social life and with fairness to landowners in the method adopted. So it is with all progress. Meanwhile, there need be no rash action. The claims of a single generation of monopoly-holders must not obstruct a policy the principle of which is eternal. Moreover, it is proved that the existing taxes are a heavy burden upon the whole community. These taxes are so costly in their effects, and the values that will be created by establishing equal rights should be so manifold that a relatively rapid adoption of the full policy should involve economic loss only to a very small section of the people. Here also the Physiocrats saw something new, in the light of which they affirmed (what was altogether an exaggeration) that all taxes were ultimately borne by agriculture. George declared that the taxes were paid by land and by labour, and that to-day is the common opinion.

George's fundamental outlook on social development is beyond challenge. His doctrine of equal right is challenged only by those who think that differences in ability or faculties call for more State action than deemed necessary by him and especially by many of his present-day followers. But his outlook on social development and his conception of equal rights cannot be weakened by considerations of that kind ; and, as it happens, the practical turn taken by Socialists to-day seems to follow his standard rather than that of Marx.

When Europe fully recovers from the post-War effects - which will not be possible as long as thirty tariff barriers exist and co-operation is far to seek - it is possible that new invention and discovery will create new riches and will hasten such social developments that they who get it on the ground floor will make great fortunes; the power of special privilege will be increased, leading to conflict between classes and nations and ultimately to new wars.

The vital importance of social co-operation has been emphasized by no one more than by Henry George. By contrast with the Physiocrats he saw that only by lessening the differences in social conditions was it possible to bring about the much-desired social co-operation. He showed how progress stimulated the co-operation which the Physiocrats had already conceived in regard to collaboration between nations and as Turgot had put into practice between the French provinces. Since that time, technical progress has reduced distances to such an extent that the suppression of European customs would be a parallel to the reform Turgot carried through when he suppressed the internal French customs.

Georgeism holds that all progress is more or less delusive so long as the land does not belong to the whole people and only a minority enjoy the fruits of progress. Again the difference between the Physiocrats and Henry George shows itself clearly. He simplified one of the world's greatest problems by making the land question a land value question, pointing out the difference between the substance and its value. He provided a new conception of justice, and ought long ago to have influenced scientific thought in greater degree, seeing that he was the first to give a new and logical foundation to natural rights. Yet we have to recognize that the human mind moves slowly, that political economy is still young among the sciences and that society finds itself in a mesh of rights and wrongs.

The signs of the times indicate that the political economists are not all apathetic about the establishment of that equal right which alone can purge social conditions and purify social life.

The relation between the Physiocrats and George builds the road between two significant stopping-places in the train of thought. Liberalism means free competition, but this can only exist when the monopoly is abolished that now obstructs and makes it a caricature. Remedies to relieve an immediate need may be worth while, provided that they do not counter more durable progress. The older Liberalism resorted to such means. But the new Liberalism marches only on and along the road laid and paved by Henry George. For in the capitalistic age it was George who made clear what was genuine and what was false capital. And in his "rights of Nature" he did not forget the rights to Nature.

NOTES

1. In our time France has imposed land-taxes which, it is very interesting to notice, introduce really Physiocratic principles in legislation. Inflation has however made them less important in spite of supplementary duties on uncultivated land, etc.