Review of the Book

Henry George's Legacy in Economic Thought
edited by John Laurent

Donald E. Frey

[Reviewed for EH.NET (May 2006) by Donald E. Frey, Department of Economics, Wake Forest University. Donald Frey is completing a manuscript, America's Economic Moralists, which includes a discussion of Henry George]

This book, edited by John Laurent (University of Southern Queensland, Australia), contains eleven essays dealing with highly diverse aspects of the ideas of Henry George, the nineteenth century American economic reformer. Several of the contributors are Australians, in whose country George had a significant influence on public policy. Although George is little known today, these essays demonstrate that he was significant in the history of economics and that his ideas have some relevance to contemporary issues. George's most famous work was Progress and Poverty (1879), which I summarize next before reviewing the book at hand.

Henry George's Progress and Poverty

George tried to explain the paradox of persistent poverty amidst economic progress; he sought an alternative to Laissez Faire, which he understood to justify the inevitability of poverty. Laissez Faire, as theory, rested on a triple base: the wages-fund theory, Malthusian population theory and Ricardo's rent theory. The first held that wages were paid from a pool of funds set aside by employers. This left the worker beholden to the employer class and devoid of any claim to the economic output that workers themselves produced. Malthusian theory held that population would outrun food production, thus driving wages down to subsistence (i.e., the wages-fund would be divided among more and more workers). Finally, Ricardo's rent theory held that fertile land would reap higher and higher rents as farmers bid more and more for the right to till the better land; growing population would intensify the bidding for fertile land as more marginal land was forced into production. George emphasized that these theories had an ethical meaning: "poverty, want, and starvation are by this theory not chargeable either to individual greed or to social maladjustments; they are the inevitable results of universal laws, with which ... it were as hopeless to quarrel as with the law of gravitation" (George, Progress and Poverty, p. 99). George set out to show that because two of these laws were wrong, poverty was not inevitable; further, poverty could be ended by just laws that captured land rents for the public good.

In his attack on the wages-fund, George argued that workers are paid from current production -- i.e., workers had a legitimate claim on what they produced, and what they produced was growing, not a static fund. In this approach George anticipated modern income and product accounts, which treat wages as charges against production. In his attack on Malthusianism, George argued that injustice, not over-population, was the cause of poverty. In fact, claimed George, denser populations resulted in more productive industry. Although his discussion of productivity increases is not entirely clear, George seemed to invoke what are now known as urbanization economies, which occur when economic activity is densely concentrated. Productivity would far outpace Malthusian population growth, he thought.

Although productivity growth ought to have made all people richer, this was not occurring because landlords were reaping most of the gains, which were generated by the creativity of society itself. Without lifting a finger, land owners collected rising land rents and land prices as a more productive economy, needing space, drove up the value of good locations. In short, George generalized Ricardo's rent theory beyond an agricultural framework.

George thus attributed poverty in the midst of highly productive societies to the inequality created by huge land rents. This could not be morally justified, he argued. First, poverty itself was so distorting of human goodness, that it should not be tolerated if a remedy could be had (e.g., George, p. 461). Secondly, absolute private-property rights to land were wrong because "no one can be rightfully entitled to the ownership of which is not the produce of his labor [i.e., land]" (George, p. 336). Land, which is not produced by any human, is part of the common heritage of all. He said "the unjust distribution of wealth" (George, p. 342) was due to the "fundamental wrong" of land ownership.

His solution to this was a steep tax on the value of land. Set high enough to capture all rents for society, he thought that a land tax could replace other taxes; because of this, others dubbed it the "Single Tax." George never advocated outright expropriation of land, recognizing that society could capture the fruits of progress without government ownership. Though some considered this socialistic, it was decidedly non-Marxian, for capitalists were as victimized by landlords as were laborers.

George also refuted the restatement of Laissez Faire presented by the Social Darwinists. He referred to the "hopeful fatalism" of popular Social Darwinism, in which social evils "are the impelling causes which drive man on, by eliminating poorer types," relying on "hereditary transmission" through fitter individuals who shape society (George, p. 480). But, he said, this argument comes face to face with "an enormous fact," namely that civilizations generally don't progress (p. 481-2): "If progress is to be the result of fixed laws, inevitable and eternal, which impel men forward, how shall we account for [retrograde civilizations] " (George, p. 482)? George concluded that "what has destroyed all previous civilizations has been the conditions produced by the growth of civilization itself" (George, p. 488). In nineteenth-century western nations, the obvious civilization-destroyer in his view would have been private appropriation of land rent (George, p.514).

Review of Henry George's Legacy in Economic Thought

Henry George's Legacy divides into chapters devoted to George's connection to the ideas of his own time and chapters considering current issues where his ideas might be relevant. The introductory chapter provides a very useful outline of George's influence in Australia and New Zealand and a short introduction to most of the issues considered in later chapters.

In the second chapter, Erin McLaughlin-Jenkins dissects the 1890s attack on Henry George by an aging Thomas Huxley, well-known defender of Darwinism and capitalism. Determined to blast socialism, Huxley chose to refute George, whom he erroneously considered a socialist; George was even lower in Huxley's estimation for also daring to question the way Darwinism had been applied to social thought. McLaughlin-Jenkins argues that Huxley erroneously claimed George followed Rousseau, misrepresented George as a leveler, advanced a fictitious history of property to justify vested land interests, and generally missed the point of George's Progress and Poverty. Huxley also used physical-science concepts mostly to obfuscate the issues and support the wages-fund. According to McLaughlin-Jenkins, Huxley -- an agnostic -- was also angered by George's temerity in noting the similarity between Darwinist social thought and that of "the natural theologians whose authority the Darwinians had undermined in the first half of the century" (Laurent, p. 47). In short, Huxley's stance on capitalism and science, which had once been progressive, had become reactionary by the 1890s. The essay illustrates beautifully how often special pleading passed as social analysis in the nineteenth century. Perhaps George was wrong, but not for Huxley's reasons.

The Duke of Argyll was a class-interest reactionary, who defended the landed aristocracy against George. The chapter on the Duke on Argyll by Warren Samuels, Kirk Johnson and Marianne Johnson roams leisurely through the social and intellectual landscape of Argyll's writing and George's reactions. (Only 13 pages of a 48-page essay are expressly devoted to Argyll's writings; the rest sets the context of the debate at great length.) The essay points out Argyll's essentially feudal view of relations between landowners and renters, and his assertion that landownership itself is productive activity. Argyll also sought to legitimate existing patterns of land ownership, despite their checkered history. Again, this chapter is less about George and his ideas than about the reaction of vested interests to him. The chapter also usefully points out how elastic natural-law arguments could be: both Argyll and George made natural-law arguments about land rights, yet drew opposite conclusions.

Another historical essay, by John Laurent, asks whether George was an evolutionary economist. Laurent, who draws from George's later essays, reviews the many points at which George showed familiarity with and interacted with evolutionary ideas, which were Malthusian in nature. Laurent questions why George rejected Malthusian population theory, given that population pressure drove the rent increases that were central to his own theory. Laurent notes what I consider the central reason, namely that George rejected Malthus for moral reasons: Malthusianism made poverty "inevitable" and so absolved society of ethical responsibility for poverty. Yet, despite this insight, Laurent still seems to think George should have appreciated the contribution of Malthus to his own theory. Here, I would disagree; George did not need Malthusian population growth to create land rents. My reading of George's model does not have rising rents resulting from rising population, per se. Rather George explained rising rents as the result of increasing productivity due to increasing population density (and perhaps other causes) rather than due to population as such (see Progress and Poverty, Book IV, II).

Laurent shows that over his life-time George had a strong grasp of evolutionary ideas and agreed in some places with the Social Darwinists. However, in making an assessment, most weight probably should be given to George's major work, Progress and Poverty, which is distinctly negative toward Social Darwinism. In that work, George, the religious humanist, objected to the materialistic and reductionist tendencies in Darwinism. Also, he rejected Lamarkian ideas held by Social Darwinists (correctly observing that a "child no more inherits his father's knowledge than he inherits his father's glass eye"). And he rejected the evolutionary implication that societies invariably progress (which would have portrayed nineteenth-century industrial economies as the apex of human development). In fact, he argued, most societies become static and decline; in his era, that decline would be due to land-ownership laws that divert the fruits of progress to an unproductive landlord class.

A chapter by Rob Knowles demonstrates that George's ideas could be translated into another idiom. Knowles argues that Leo Tolstoy appropriated many of George's ideas to advance his own reform agenda for Russia. Perhaps the largest lesson of these historical chapters is that George was seen through the lenses that contemporary readers brought with them to his writings. However, the second portion of Henry George's Legacy shows that George's ideas can also emerge in modern debates as well.

Laurence Moss's chapter argues that the increment in land values caused by social progress, which George identified, may provide a way to fund public goods (provided they bestow most benefits on those located closest). Moss observes the standard economic result that projects with public-good characteristics may go undone in the absence of subsidy. However, if a proposed real-estate development with public-good characteristics promises to raise the value of surrounding locations, the developer who owned the surrounding properties could provide the public good and be compensated by the gains in surrounding property values. Moss notes that "the private provision of public goods ... is one of the most stunning accomplishments of private entrepreneurs in the post-war U.S. economy" (Laurent, p. 163). Indeed, planned communities (e.g. Columbia, MD) have been developed on this principle. Although his interpretation stands Henry George on his head, Moss credits him with identifying the phenomenon.

In the first of a pair of articles, John Pullen takes a philosophical look at the distinction between private ownership and private possession of land. George believed that his tax proposal would effectively replace private ownership with private possession. Pullen argues that this way of putting it may have been a rhetorical mistake that alienated potential support for George's ideas; Pullen suggests a term such as "conditional" ownership. In his second chapter, Pullen reviews a series of objections to George's land-value tax; these range from the philosophical to the pragmatic. His conclusion is that the objections are formidable enough that a thorough-going Single Tax is still unlikely to occur.

Terry Dwyer's chapter relates land-value taxation to contemporary trends in regulatory economics -- specifically the tendency toward privatization of industry with monopoly characteristics. Dwyer notes that bad implications for efficiency of monopoly have dropped from recent discourse as inefficient prices are charged to cover capital investment by privatized monopolies. He argues the efficiency might be restored -- as well as a measure of equity -- by taxing enhanced land values created by an infrastructure monopoly.

Two concluding chapters argue that heavy taxes on land, of the sort inspired by George, have more relevance in the twenty-first century than before. The essay by Frank Stilwell and Kirrily Jordan and the essay by Phillip Day both argue that a land tax is compatible with environmentalism. As Laurent notes in his introduction, this is a novel interpretation, for George and his followers argued that the Single Tax would encourage more intensive use of land. Typically, they argued that the Single Tax would capture speculative profits from those who held idle land while awaiting for a price rise. A steep tax on land would encourage its development to earn a return to pay the tax. More intense development hardly seems something that would conserve nature. I think a case could be made (perhaps a general-equilibrium analysis to the effect that more intense use of urban land would result in denser use of less land overall). However, the chapter does not set out a model and convincing detail.

These authors also point out that there may be new reasons for considering a land tax that were not relevant in George's own era. In our era of globalization, taxes on other factors, which have become increasingly mobile, may be shifted. The immobility of land may become a particularly important consideration for taxation policy as taxes on land cannot be shifted. This immobility also means that society suffers no efficiency penalty in taxing land.

None of these authors suggests that George's recommendations could have radically changed social history. However, each of them shows, in one way or another, that George left a significant legacy in economic thought and policy.

Reference

Henry George. Progress and Poverty (fiftieth anniversary edition), New York: Schalkenbach Foundation, 1936.