See discussions, stats, and author profiles for this publication at: https://www.researchgate.net/publication/292565642

Natural Law and the Political Economy of

Chapter · January 1992

CITATIONS READS 0 5

1 author:

Roger Sandilands University of Strathclyde

87 PUBLICATIONS 302 CITATIONS

SEE PROFILE

All content following this page was uploaded by Roger Sandilands on 08 February 2016.

The user has requested enhancement of the downloaded file. All in-text references underlined in blue are added to the original document and are linked to publications on ResearchGate, letting you access and read them immediately. 4

Natural Law and the Political Economy of Henry George by Roger J. Sandilands University of Strathclyde

Henry George's fame in the fields of , politics and literature rests largely on his powerful book, Progress and Poverty, first published in 1879. The centenary of this event sparked a modest revival of interest in George's work among academic economists, including a special session devoted to him at the December 1979 American Economics Association meetings in Atlanta[1]. Generally, however, his work has been neglected by twentieth-century economists and, as Robert Heilbroner (1969) remarked, he is cast as a member of the economics "underworld". If any economics undergraduate has heard his name it is usually through a passing reference in a first-year textbook to the Single Tax Movement. The impression is then given by the text that George was a single-issue fanatic. The student is told that a tax on land rents is theoretically interesting and that it would have no disincentive effects but that it is either imprac• tical to separate land from improvements or that rents are not sufficiently important to warrant much attention to them as a major source of government finance. However, Henry George not only continues to hold the interest of a small number of professional economists, including names such as Kenneth Boulding, L.B. Yeager, William Vickrey, Dick Netzer, C. Lowell Hariss and Mason Gaffney, but also a wider following in fields other than economics and among the general public This is because George was assuredly not a single issue fanatic but ranged over the whole field of economics, politics and philosophy and, in addition, led an extremely rich and col• ourful life that has attracted the attention of several biographers[2]. Born in Philadelphia in 1839 he left school at 14 and after a brief period in San Francisco he went to sea as foremast boy on a 14-month trip to Australia and India with a merchant ship. Thereafter he trained as a typesetter in Philadelphia, sailed back to California as a ship's storekeeper, prospected for gold on Vancouver Island, Canada, and set up a small printing business in San Francisco. Later he joined the San Fran• cisco Times as a typesetter but rapidly moved into reporting and editorial positions, rising to managing editor in 1867 at the age of 28. He developed a keen interest in economic issues such as railroad and press monopolies and the effect of Chinese im• migration on US wages. He corrresponded with John Stuart Mill on the latter issue and immersed himself in Mill's writings and those of other great classical economists, especially the French physiocrats, Smith, Ricardo and Malthus. By 1871 George had already hit on his insight into land ownership as the key to unlocking the riddle of why poverty marched side by side with progress. In that year Natural Law and Political Economy 5

he published a long pamphlet, Our Land and Land Policy, National and State, in which he explained the advantages of land taxes to provide for the expenses of govern• ment and remove the weight of taxation from productive industry. He became increasingly involved in Democratic politics and in 1876 the new Demo• cratic Governor of California appointed George to a sinecure as State Inspector of Gas Meters to reward his political help and to enable him to devote himself to writing. Pro• gress and Poverty followed in 1879. This catapulted George to fame. In 1880 he moved permanently to New York City. Here he devoted himself to writing and politics but also made several lecture tours of Britain, Ireland and Australia where his oratorical powers attracted huge audiences. His radical ideas sometimes also attracted the police. His most notable publications were The Irish Land Question (1881), Social Pro• blems (1883), Protection or Free Trade (1886), The Condition of Labour (1891), A Perplexed Philosopher (1892) and The Science of Political Economy (1898) which, not quite complete, was published posthumously. He died of a stroke in 1897 when, against medical advice, he ran for mayor of New York, a position he had also sought in 1886 when he came in second, ahead of Theodore Roosevelt.

Natural Law and the Classical Tradition For the economist Progress and Poverty and The Science of Political Economy repre• sent his greatest contributions. The first of these books reviews the orthodox theories of production and distribution of the day, paying particular attention to the physiocrats, Adam Smith, Ricardo, Malthus and John Stuart Mill. All but Malthus are treated with great respect. From them he takes on board the labour theory of value and the principles of free trade and competition. However, he is particularly critical of the wages fund doctrine espoused by the classical writers and replaces this with a theory of wages paid not out of past accumulation of capital but out of labour's current production on the least productive land in use. George reserves his greatest scorn for Malthus' theory of wages based on population growth constantly beating not only on man's limited capital stock but on nature's niggardly store. In the second of his economic treatises, The Science of Political Economy, George again reviews the classical writings but also assesses the value theories of the Austrians and Anglo-Germans, among whom he lists Marshall, Jevons, Bohm-Bawerk, Menger and Marx. George places particular stress on the need for clear and consistent defini• tions which would make possible the correlation of production and distribution theories that also accord with the underlying laws of nature. George insisted that only by discovering these natural laws can we hope to place the study of political economy on a scientific basis. This contrasts with the confused study of "economics" by writers who are distracted by human laws and institutions that interfere with the natural, production-based channels of distribution[3]. Thus George's greatest heroes were the French physiocrats whose name was derived from the word physiocratie, or government in the nature of things, or natural order (SPE, p. 145n). George traces the influence of the physiocrats on Adam Smith, although along with Smith he accepts the criticism that the physiocrats spoiled their case by the unwarranted claim that agriculture was the only productive sector in the sense of producing a "surplus" — the produit net upon which an impot unique should be levied — while other sectors were "sterile". 6 Journal of Economic Studies 13,5

More important for George was their view that the economic system was governed by natural law, which thrived on liberty to promote maximum growth: "she is... to wealth what sunshine is to grain"[4]; and on justice to secure just property rights to the fruits of labour. In the natural order man must work to survive. For this he needs liberty to pursue his best interests, bounded always by the equal rights of other in• dividuals in society. The most important feature of this liberty was free exchange. Society was necessary to promote progress, but society could only be held together by liberty and justice, with an authority which bases human law on the natural law of freedom and on the natural justice that upheld the equal rights of all individuals to the fruits of their own labour. Adam Smith developed many of these ideas in The Wealth of Nations and George admired greatly his contribution to an understanding of natural laws and to the development of a true political economy which George understands as a science that seeks to discover the nature of wealth and the laws of its production and distribution. Individual liberty was of paramount importance but so too was co-operation which, with free exchange, permitted the division of labour to be extended. However, there were two issues on which Henry George thought Smith was misguided or unclear and which led his less gifted followers into even greater confusion. These were (i) the wages fund doctrine and (ii) the meaning of wealth.

Wages-Fund Doctrine and Marginal-Productivity Theory The wages fund doctrine asserted that there is a fixedfun d of capital which is available to employ labour. This implied that capital employs labour and that employment can only expand if the wage rate falls or if capital is first increased. By contrast, George insisted that it is labour that employs capital and not the other way round[5]. In the natural order it is nature (land) which precedes man (labour), and land and labour produce, and hence precede, capital. Therefore, labour need not be paid out of a pre• existing stock of capital from which workers are advanced those commodities needed to sustain them through their work. In fact, workers are seldom paid in advance of the rendering of labour. They are paid at the end of the day, the week or the month. As they work so they produce. It is out of this produce that wages are paid. Even if they are working to build a large ship that takes years to complete the value added to the ship is an addition to the capitalist's capital. As work proceeds the capitalist pays the labourer his wages and the labourer uses these to buy wage goods. The capitalist runs down his stock of money, one form of (liquid) capital, but simultaneously adds to his stock of capital in another form (the ship). Thus wages are not paid from capital but from the product of labour. With every additional worker there is an addition to the true wages fund. The value added currently to the ship in effect exchanges for the equally current production of food, clothing and other wage goods. These ideas were explained in the opening chapters (Book I) of Progress and Poverty. George's full theory of wages, however, was only advanced later, in Book III, after he had explained the theory of rent. His rent theory follows that of in emphasising the differential fertility, accessibility or other desired characteristics of land. As labour is forced to settle and work on less productive land so labour's additional output will decline. Competition amongst labourers and the fundamental law of human nature — that man seeks to satisfy his desires with the least possible Natural Law and Political Economy 7

exertion — ensure that employers pay only what it is necessary to pay, and wages tend to equalise at the level of the value of output on the least productive land in use. There rent tends to zero, and wages to labour and interest on capital capture what we would now call their marginal product. In fact, John Bates Clark acknowledged the debt he owed to Henry George in in• spiring his The Distribution of Wealth: A Theory of Wages, Interest and Profits, published in 1899, in which he presented a complete marginal productivity theory of factor pricing for all factors of production. Nevertheless, it is very doubtful whether George would have been happy with the directions in which Clark extended his own theory of wages. As is implied by the title of his book, Clark saw no need to make a sharp distinc• tion between land and capital in the way that George did. Thus there is no special theory of rent in Clark's book. Clark thus missed the crucial point in George's theory that land is inherently non-homogeneous and fixed in supply whereas capital goods can be reproduced and moved around to ensure that the return to capital tends to be equalised at a level that just covers the real costs of production. Clark's modern neo-classical followers also miss the essence of George's approach which stresses the non-homogeneity of land. They tend to draw diagrams purporting to show "the" rent of land as determined by the intersection of a downward-sloping land demand curve with a vertical land supply curve. This "equilibrium " of land would only be "the" price if all land were homogeneous, like sacks of wheat or bar• rels of beer. In fact, land is very heterogeneous and there is a wide array of rents for different plots.

Definitions of Wealth Before we explore further the nature of George's marginalist analysis compared with modern neo-classical developments, let us now turn to the second important point on which George considered Smith and his followers to be unclear, namely in their definitions and use of the term "wealth". Henry George cited many influential authors to show how little agreement existed on the definition of this basic term. George was conscious that unless there be agreement on definitions, and unless definitions are made explicit and consistent, there can be no scientific progress. In the preface of Book II of SPE on "The Nature of Wealth", George quoted Aristotle: "Definitions are the basis of systematic reasoning". The clue to the definition that most satisfied Henry George was provided by Adam Smith in the title of his book The Wealth of Nations, but otherwise Smith gave no precise, explicit or consistent definition except "the annual produce of the land and labour of society" (SPE, p. 146). Smith's followers objected that this definition included all the useless products of land and labour as well as the useful. However, most of them defined wealth as anything that has ex• change value and George devoted subtantial space in his books to explaining the con• fusions arising from this definition. In particular, it led these writers to view land, slaves and bonds as wealth. George pointed out that while these may be wealth for their individual owners they do not represent the wealth of nations. To define wealth as anything that has value leads economists away from a true political economy into what George contemptuously referred to as "economics". 8 Journal of Economic Studies 13,5

Instead, George defined wealth as "natural products that have been secured, moved, combined, separated, or in other ways modified by human exertion so as to fit them for the gratification of human desires" (SPE, p. 147). Alternatively, "wealth is labour impressed on matter to fit it for human satisfaction". Wealth has to have an exchange value. But not everything that has an exchange value is wealth. In particular, land is not wealth. Its value arises not from production — it was created, not produced — but "from obligation": from the obligation to give one's labour in exchange for the free gifts of nature. In modern parlance it is a transfer payment: what the seller gains the buyer loses. There is not an exchange of production. There is not an exchange of labour. If the value of land increases it is not because land or the landowner has produced more. It is only that they can claim a larger amount of what is produced from those who do produce.

Diminishing Returns and the Natural Division of the Product We must now ask why it is that the owners of land are able to obtain a portion of national production at the expense of labour and capital. To answer this question Henry George develops Ricardo's theory of diminishing returns, a theory Ricardo ap• plied only in the context of agriculture. Ricardo's law of diminishing returns helps explain why rent is paid to land, although it is often claimed that George did not really understand or fully accept this law because otherwise he would not have been so vehemently hostile to Malthus' theory of popula• tion and the iron law of wages. Malthus claimed that population pressure inevitably causes poverty because of the niggardliness of nature. According to Malthus, therefore, poverty and pestilence are the harsh laws of nature that can only be avoided through birth control and other restraints on population growth. George, by contrast, emphasised the beneficence and munificence of nature and claimed that poverty was not a natural state and that population growth was not its cause. While he accepted that population growth forced recourse to less and less fer• tile or accessible agricultural land or to peripheral urban land with relatively fewer amenities he also believed that greater numbers could simultaneously increase the pro• ductive powers of those living and working on intra-marginal land. Thus there was no necessary contradiction between a declining marginal product and a rising average product as population increased. (Though George did not use this terminology himself, this does appear to be his meaning.) However, it is the productivity of labour on marginal land, not labour's average productivity, which establishes the "natural" wage rate. It is the natural rate because it is determined by the natural forces of competition and the fundamental law of human nature already mentioned, which implies that no-one will pay higher wages than necessary and no-one will accept lower wages than necessary. Marginal land is no-rent land and so labour (together with labour "stored-up" in capital) working there receives the full value of its marginal product, but not the full value of its average product. The difference is captured, again through competition for the more desirable land, as rent. The productivity of labour and capital working on marginal land may fall, or rise only slowly, as population increases. But, since this would imply an increasing gap between marginal and average productivity, total rent, Natural Law and Political Economy 9

or surplus, necessarily increases in absolute value. If this surplus were shared equally by the community which created it then, George claims, poverty would disappear. George defines poverty as a level of income that commands less than the value of the services that a person renders, or is willing to render, "for in our civilisation of today we must take note of the fact that men willing to work cannot always find op• portunity to work" (SPE, p. 306). This involuntary unemployment arises when land speculation causes land to be held for the sake of profit from rising rather than for use. In these circumstances the margin of cultivation is pushed out artificially far, causing the previous marginal, no-rent land to command a rent, thus pushing wage and interest rates below their "natural" levels. This is the essence of George's "natural" theory of the business cycle (P & P, Book V, chapter 1)[6]. Modern economists have generally taken an indulgent view of speculation, on the grounds that it may smooth out price fluctuations and dampen business cycles. To buy when prices are low may revive production. To sell hoarded stocks when prices are high may reduce prices and so curb abnormally intensive business activity. Whatever the merits of this argument for commodities, George views land speculation in a com• pletely different light. Land is not produced, but is fixed in supply. To hold land idle for speculative purposes will drive up its price but cannot thereby increase its output. It can only reduce the current output of produced commodities and services by forc• ing labour and capital to use less productive land and by driving down the returns to labour and capital. For, with a given or a falling value of production, an increase in land prices and rents must necessarily reduce the amount received by other factors of production. Rents are transfer payments. George's solution for poverty, unemployment and the business cycle is then the same: tax land values. This destroys the motive to hoard land, bringing more into use, thereby restoring the natural wage and the natural rate of interest. It also restores rent to the community which has collectively created it. Poverty disappears not simply because labour and capital (stored-up labour) now receive higher wages and interest but because they receive between them the whole of the value of production which they, as the "active" factors, have produced by adapting matter found in nature — combining, transporting, moulding; by growing — cultivation and breeding; and by exchanging the results. On this view land is the "passive" factor. Rent is paid to land not because it is more productive but because it is scarce; not because it costs more — it costs nothing to society as a whole. It is the free gift of nature, to which society has attached a value through the forces of competition.

Concepts of Competition and Monopoly in the Land Market Those who demand land are in competition with each other for the best sites and those who sell are also competing with each other. The price or rent of each site will be the outcome of these competitive forces on the demand and supply sides. Never• theless, Henry George refers repeatedly to the monopoly of land and this has caused much agitation among critics such as Alfred Marshall who claimed quite unfairly that Henry George failed to see that there are millions of landowners vying with each other for tenants, and that there are many plots of similar character on offer[7]. Marshall's criticisms are accepted by many modern economists (e.g. Hébert, 1979; Bolton, 1985). 10 Journal of Economic Studies 13,5

However, George was obviously not so naive as to be unaware of these competitive forces in the land market. He nevertheless spoke of "monopoly" for two reasons. First, the price of land exceeds its real costs of production. Secondly, George had witnessed the process whereby title to all the land of the United States passed into the hands of a relatively small number of private persons or state agencies. In practice this led to some hoarding of land which shifted out the margin of cultivation and drove wages and interest below their "natural" levels in the way we discussed above. This implied that land was monopolised in the sense that there was no longer free access to land at the "natural" margin of cultivation. However, it is the first of these reasons for viewing land as a monopoly that has attracted most critical attention from modern economists. Neo-classical economists from Marshall down have rejected Ricardian and Georgian rent theories on the ground that land has an opportunity cost. Neo-classical economists effectively reject or ig• nore the real (labour) cost approach. George did acknowledge the opportunity cost argument, though not by that name. He did not object to land going to the highest bidder. He vehemently opposed rent controls as another pernicious example of human law trying to override natural law (SPE, p. 446). However, the pricing system, including rents as the price of land, performs two main functions: the allocative and the distributive. George had no strong objection to market prices determining the efficient allocation of land between competing uses. So he ap• proved of rent being paid for the use of land. Part of the value of total production thus flowed naturally to land. What was not natural, however, was that individuals should lay claim to that rent as a right arising from private ownership of land. If land is the free gift of nature, created and not the result of man's labour, then it is a gift bestowed on mankind as a whole, with everyone having an equal right to a share in that part of total production that is a surplus provided by nature rather than the result of specific individuals' efforts. Since no human effort was required to create land, its real (labour) cost of produc• tion is zero. Yet intra-marginal land commands a positive price — its rent. In the modern theory of the firm the degree of monopoly enjoyed by a firm is measured by the excess of price over (marginal) costs of production. George's characterisation of rent as the monopoly price of land would, therefore, seem to be in accord with the conventional modern theory of the firm and therefore not a matter of such con• troversy. Yet, as we have seen, Marshall and his followers do object to the land market being described as monopolistic. The disagreement arises because of different definitions of cost. With the neo• classical opportunity cost approach, Ricardian or Georgian rent virtually disappears. The "economic rent" of a central city site is not the £100,000 a year rent it might yield if used for a cinema but only the difference between that rent and the rent, say £99,000 a year, it would yield if used for a disco. Neo-classical economic rent is then only the differential "transfer earnings" of £1,000 a year and George's radical view of rent as an important source either of injustice or of potential state revenue is con• veniently swept away. However, if we applied this same logic to the modern textbook theory of enterprise monopoly we would have to conclude that, say, a monopoly seller of whisky would not be earning monopoly profits if it also had the opportunity to be a monopoly Natural Law and Political Economy 11

supplier of beer that would yield the same profits. But in fact, of course, the modern textbook does not apply such logic to enterprise monopoly. The degree of monopoly is measured not by the difference between revenues and the opportunity cost of resources used by the monopolist but by the difference between revenues and the cash costs of factor inputs priced at the going rates for wages, interest and land rents[8]. Likewise, George measures the degree of monopoly in the land market by the dif• ference between revenues from sale or rent of land and the real costs of production of land which are zero. Real (labour) costs of production help determine whether a market is monopolistic. Opportunity costs help us decide whether resources, including land, are being used efficiently. George employs both concepts in their appropriate context.

Rents as the Natural Source of State Revenues For George, the great merit of the "single tax" on land rents is that it deals simultaneously with the ethical case for transferring monopoly gains from private land• owners to the community as a whole while also ensuring that efficiency and the in• centive to produce are not undermined. A proportional tax on land values would en• sure that land continued to be allocated to its most productive uses because users would still be obliged to pay relatively more for the relatively more productive land. Only the relatively more productive activities could pay the rent tax and still yield enough to pay labour and capital the normal wages and interest. Marginal, no-rent land would of course pay zero tax and would continue to yield just sufficient output to reward labour and capital at their normal competitive rates of pay. It would no longer pay to hold land idle for speculative purposes if the tax were levied on the rent that land could command if put to its optimum permitted use. The increase in the amount of land placed on the market for use would increase, tending to reduce the competitive levels of pre-tax rent, and pulling in the "margin of cultiva• tion". On the other hand, if the tax on land values were accompanied by a correspond• ing reduction in taxes on production (including sales taxes and taxes on wages and interest) it is to be expected that production would be stimulated, with an induced increase in the demand for land (space). Thus there would be an offsetting upward pressure on land rents and a tendency for the "natural" source of government revenues to expand. In other words, George expected the rent tax to be a "buoyant" tax that would expand naturally and spontaneously with the increase in national income.

The Incidence of Taxation and the Natural Share of Rent in National Income This is a view that has been disputed by modern economists who claim that George was hopelessly wrong in his prediction that land and natural resource rents would account for an ever increasing share of national income as income expanded. Samuelson, for example, states that pure land rent today in the United States is barely 5 per cent of the total GDP and that, ...if Henry George were alive today and facing the need of Government for more than 25 per cent of GNP, he would perhaps change the name of his movement from 'the single tax' to 'the useful tax on unearned land surplus' (Samuelson, 1980, p. 530). George, however, may have been less compromising than Samuelson suggests. George was not impressed by the kinds of surface phenomena defined and measured by modern 18 Journal of Economic Studies 13,5

national income statisticians. Instead he looked below the surface for the natural cur• rents of production and distribution and the ultimate incidence of taxes. Following the physiocrats, he believed that taxes on production or on labour and capital ultimately were paid out of rent (though, as we have seen, George did not confine his analysis to rent on agricultural land alone). As we have seen, George believed there was a "natural" level of wages to labour and interest to capital that was determined by the returns to these factors on marginal land where rent is zero and the entire product is shared exhaustively between the two "active" factors of production. Taxes on wages, interest or the sale of products would all tend to reduce output, employment and and also to increase the gross levels of wages and interest in order to maintain net wages and interest near their "natural" levels. This can be illustrated diagrammatically, as in Figure 1.

In this diagram we measure output and real wages on the vertical axis and the pro• portion of all land in use we measure on the horizontal axis. The marginal product of land declines as more land is brought into use (ignoring the dynamic economies Natural Law and Political Economy 13

of scale that Henry George would have emphasised in discussing the advance of popula• tion and industry that brings more land into use). This arises either from the declin• ing natural fertility of the soil or from declining accessibility of mineral deposits or of goods and services and amenities generally. For simplicity, let us assume that the only factor of production co-operating with land and natural resources is labour, which receives wages for its efforts. (Capital can be thought of as "stored-up" labour and interest as indirect wages). The greater the level of employment the greater the proportion of land called into use. On marginal land, in the absence of government and taxation, labour takes the whole of the value of production as its wage OWN. Competition establishes this as the going wage for all labour, abstracting from wage differences due to differences in skills and effort. Productivity on intra-marginal land is greater, however, and this gives rise to rent. The total wages bill is given by the rectangle OWNEN2; the total amount of rent is the triangle WN XE. Wages plus rent together constitute total wealth, or national output and income. Now consider the effect of a proportional value-added tax on output[9] of, say 25 per cent, measured by the ratio XY/OX. If this tax is levied on the output produced on marginal land it would, by increasing product prices, reduce the net real income of labour working there below the natural wage, to an amount N2A. In order to main• tain post-tax real wages at the natural level of OWN gross wages must rise to OWG. In effect, the tax is passed on to employers who would, however, then reduce their demand for labour. Output and employment would fall until only ON1 land is in use with a new "margin of cultivation" or margin of land use at which rent is zero. Rent of E'Z that was previously paid on marginal land at N1 is now paid instead as taxes to government. Thus we see that the output tax falls partly on labour's income, by reducing the total level of output and employment, but mainly falls on rent. Total rent has fallen from triangle WN XE to the very small triangle WG YB. Tax revenues are given by the area XYZE'. Now consider the effect of a proportional tax on rental income, this time equal to, say, 50 per cent, measured by the ratio XY/XWN. At the margin rent is zero and so rent tax is zero there. Net wages are therefore unaffected by this tax and remain at OWN. Total tax revenues are measured by the triangle XYE while YWNE rent re• mains in the hands of landowners. Now compare the results of these two tax regimes. In the case of the production tax regime national income is smaller. Rent is measured as only the net rental income of landlords and the share of this measured rent in national income is given by the ratio of the two areas WNYZ and OXE'N1 In the case of the rent tax regime total gross rents are measured by the whole area WNXE which is seen as a substantially greater fraction of national income (OXEN2) than in the previous case. As predicted by Henry George rent is then seen as a large and growing share of national income as income expands. If we take account of dynamic changes that George emphasised, such as economies of scale, induced innovation and external economies as output and emploment ex• pand, then we should expect the "marginal product of land" curve, XE'E, to shift upwards during the change from the production tax regime to the land tax regime. This would raise the productivity of all land including land hitherto considered marginal, at N2 This could either raise the natural wage rate above OWN if the same 14 Journal of Economic Studies 13,5

level of employment continued, using the same amount of land as before; or it may lead to an increase in employment, using a greater amount of land until a new margin of cultivation is established with the natural wage rate tending to fall back towards OWN. In both cases the absolute amount of rent would be greater than suggested by the more static analysis described in Figure 1. Whether or not the share of rent in national income would increase is more ambiguous, depending as it does on the relative elasticities of employment and land use in response to the initial impact ef• fect on the wage rate of the rise in the productivity of previously marginal land. In either case, however, it is clear that the conventional approach to the measure• ment of rent by both modern economic theoreticians and national income statisti• cians differs completely from the political economy of Henry George and gives rise to a substantially lower estimate of the rental share in income and hence of the possibilities for financing the bulk of the expenditures of modern governments from this "natural" source. There has been some limited progress towards the adoption of Georgist prescrip• tions with land-value-tax experiments in countries such as Australia, New Zealand, Denmark, South Africa and parts of the United States, especially as the basis for local rather than national government finance (see further, Prest, 1981). These ex• periments have in general demonstrated the practicability of separating the value of improvements from the value of unimproved site values. However, major political obstacles have often stood in the way of more vigorous and comprehensive coverage. In general, academic economists have not been greatly interested in the issues because of the widespread belief that rents are not a very significant part of national income. If, however, Henry George and the French physiocrats were right in their belief that the ultimate incidence of taxation falls on land and natural resource rents then it calls for a much more serious consideration of the single tax or the impot unique than neo-classical economists have accorded it.

Notes 1. See also Andelson (1979), Lindholm and Lynn (1982), The Henry George Research Programme, Pace University (1982), and Lewis (1985). 2. These include those by his son, Henry George Jr. (I960), Stephen Cord (1965) and Jacob Oser (1974). 3. See The Science of Political Economy, New York, Robert Schalkenbach Foundation, 1953, Book IV, Chapters II and III, cited in text as SPE. 4. Progress and Poverty, Book X, Chapter V, cited in text as P&P. 5. An interesting appraisal of George's contribution to the theory of wages and the rejection of the wages fund doctrine is gi\en in Taussig (1896). 6. See also Harrison (1983). 7. A discussion of Marshall's views can be found in Coase (1969). 8. There is a danger of some confusion in our attempt to measure the degree of monopoly when we include land rents as a cost of production for a firm. A firm occupying intra-marginal land has to pay rent either as an "imputed" payment if an owner-occupier or explicitly if a tenant. It is only when the firm's total revenues exceed total costs inclusive of rents that it is described as a monopolist in the production of the commodity produced. However, this does not mean that we have disposed of the separate question of land monopoly. Land rents are paid, implicitly or explicitly, both by monopolistic and by perfectly competitive firms. 9. This is the simplest case for our purposes. Similar, although not identical, results are obtained if we analyse instead a proportional tax on wages and/or all incomes including rents. In the modern economy the most realistic case would be a mixture of sales taxes and income taxes. Natural Law and Political Economy 15

References Andelson, R.V., (Ed.), Critics of Henry George, London, Associated University Presses, 1979. Bolton, R., "Three Mysteries about Henry George", in Lewis (1985). Coase, R.H., "Three Lectures on Progress and Poverty by Alfred Marshall", Journal of Law and Economics, Vol. 12, 1969, pp. 184-226. Cord, S., Henry George, Dreamer or Realist? Philadelphia, University of Pennsylvania Press, 1965. George, H. Jr., The Life of Henry George, New York, Robert Schalkenbach Foundation, 1960. Harrison, F., The Power in the Land, London, Shepheard-Walwyn, 1983. Hébert, R.F., "Marshall: A Professional Economist Guards the Purity of his Discipline", in Andelson (1979). Heilbroner, R.L., The Worldly Philosophers: The Great Economic Thinkers, Harmondsworth, Penguin, 1969. The Henry George Research Programme, Pace University, Henry George: His Continuing Relevance, New York, Pace University, 1982. Lewis, S.R., (Ed.), Henry George and Contemporary Economic Development, Williamstown, Williams Col• lege, 1985. Lindholm, R. and Lynn, A., (Eds.), Land Value Taxation: The Progress and Poverty Centenary, Madison, University of Wisconsin Press, 1982. Oser, J., Henry George, New York, Twayne Publishers, 1974. Prest, A.R., The Taxation of Urban Land, Manchester, Manchester University Press, 1981. Samuelson, P.A., Economics, 11th edition, New York, McGraw Hill, 1980. Taussig, F., Wages and Capital, 1896, reprinted edition, New York, Augustus M. Kelly, 1968.

View publication stats