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?