Henry George's System of Political Economy

History of Political Economy History of Political Economy 11 :I 0 1979 by Duke University Press Henry George’s system of political economy Charles Collier, Hamilton College I. Introduction Henry George is now remembered, if he is remembered at all, as a somewhat eccentric propagandist who had curious ideas about property rights and an unsound fiscal po1icy.l The point so often missed is 1. George argued that the only truly legitimate property rights were those based upon the production of the good involved. Of course, it was possible to acquire a good from the producer in legitimate ways, but the first right, and hence all subsequent rights, had to be based upon the production of the good. George extended that belief to conclude that since nobody ever produced the naturally given land, exclusive of improvements nobody could ever justifiably own land. Individuals could claim valid property rights to all of the improvements which they had made. Further, George argued that increases in land value were inevitably due to social developments. That is, he believed that society “produced” all land value increments, including the very first increment which gave land its initial value. He concluded that since the product belongs to the producer, all land value was the one property right which could never be traded away. He used his interpretation of the philosophy of Thomas Jefferson to support that claim. George believed that the doctrine “All men are created equal” necessarily implied that all men were also to have equal access to land, the source of all life- sustaining products. He then argued that no generation ever had the right to give up the social claim to land value by allowing private property rights in land. That, said George, would necessarily interfere with the perceived natural rights of all subsequent genera- tions. It is worth noting that Jefferson’s phrase, “The earth belongs in usufruct to the living, and . the dead have no power or right over it,” is probably the single most-quoted phrase in all of George’s writings. The belief that society could never legitimately give or trade away its rights to land value meant for him that all existing private ownership of land was morally illegitimate. For that reason he had no qualms about proposing to end all private ownership of land. George, however, was an indi- vidualist who believed in self-interest. He realized that it would be in the interest of individuals and society for society to let individuals use-but not own-the land. The users were simply to pay the owner for the use. That payment was to be in the form of a 100 percent tax on rent or land value. (He believed that nationalization of the land would be as undesirable as it would be unnecessary.) George also believed that since individuals produced all things which were not naturally given, these things belonged solely to individuals and hence were not appropriate objects for taxation, which in- fringed upon these property rights. The tax on land value was, then, the only tax-it was known as the single tax although George was less than happy about that-which should be imposed. The fullest account of George’s views about property is “The ‘Reduction to Iniquity’ ” originally written for the Nineteenth Century of July 1884, The essay now appears in Henry George, The Land Question: Property in Land and The Condition of Labor (New York, 1965), pp. 41-74. Published by Duke University Press History of Political Economy Collier - Henry George’s system 65 that underlying the policy prescriptions there is a systematic analysis of political economy. The components of the system are scattered and sometimes stated implicitly, but they are there nonetheless. This arti- cle presents an outline of Henry George’s system of political economy. The issue of the single tax, the subject of so much passionate debate, will be discussed only when related to the formal system of analysis. There can be no doubt that George intended to undertake a formal study of the interrelationships of the economy. He explained that his major work, Progress and Poverty, was written specifically to present completely and clearly the relations among views which he had earlier expressed in less systematic fashion.* He began his final work, post- humously published, The Science of Political Economy (the title itself is suggestive) with the statement “I shall try in this work to put in clear and systematic form the main principles of political economy.’’3 George always referred to his science as political economy. Clearly, he meant to confine his inquiry to what today would be called macroeconomics. He noted, “Political economy, therefore, is a par- ticular kind of economy. In the literal meaning of the words it is that kind of economy which has relation to the community or state; to the social whole rather than to individual^."^ The discipline was to be divided into three, and only three main parts: (i) the nature of wealth, (ii) the laws of production, and (iii) the laws of distribution of ~ealth.~ The first two main parts were defined in a more or less standard fashion, but for the third, the term distribution was defined so as to include only the division of the product among the aggregate factor shares. Specifically, it did not relate to distribution among individuals. Further, he claimed that the inquiry was complete once the aggregate distribution had been determined. Consumption was expressly ruled out of political economy because it dealt exclusively with individuals. George believed that an excessive concern with matters related to individuals was a trait of the new study called economics.6 Further, taxation was also ruled out of the science on the ground that it was a 2. Henry George, Progress and Poverty: An Inquiry into the Cause of Industrial Depressions and of Increase of Want with Increase of Wealth . The Remedy (New York, 1962), p. xi. The work first appeared in 1879. 3. Henry George, The Science of Political Economy (New York, 1%8), p. xxxi. The work first appeared in 1897. 4. Ibid., p. 66. 5. Ibid., p. 421. 6. George always used the term economics in a pejorative sense to refer to what he considered to be a bastardization of the true science, revitalized “classical political economy.” Published by Duke University Press History of Political Economy 66 History of Political Economy 1 I :I (1979) product of human law, not the natural laws which governed the ele- ments of political economy.’ 11. The Static Model Henry George’s whole system of political economy was inspired by the following ‘observation. In many countries of the world there had been considerable material progress over time, and this progress had clearly benefited some people. But there had also been increased poverty in the same places at the same time. It appeared to him-and he never questioned the validity of the appearance-that progress and poverty were different results of the same development. More important, it appeared to him that there was a causal relation between the two phenomena: This fact-the great fact that poverty and all its concomitants show themselves in communities just as they develop into condi- tions toward which material progress tends-proves that the social difficulties existing wherever a certain stage of progress has been reached do not arise from local circumstances, but are, in some way or another, engendered by progress itself.8 George’s whole system can be viewed as the framework for an analysis of this apparent causal relation and a discussion of the policy measures which can be used to remedy the social difficulties which it presented. The most important behavioral principle in George’s system is ‘‘the principle of least exertion. ’ ’ Indeed, it is called ‘‘The Fundamen- tal Law of Political Economy” and George devoted an entire chapter of The Science to it: “The primary postulate on and from which [political economy’s] whole structure is built is not that men are governed only by selfish motives, or must for its purposes be considered as governed only by selfish motives; it is that all men seek to gratify their desires whatever those desires may be, with the least exer- ti~n.”~George maintained that all economic reasoning should be 7. Ibid., p. 426. George criticized John Stuart Mill’s belief that distribution should be excluded from political economy because was a matter of human law. He rea- soned that while a society could distribute existing goods in any way it wished, an inappropriate distribution would adversely affect future production. See The Science, Book IV, ch. 2. Since George went on to contend that taxes on goods whose supply was not perfectly inelastic would hinder future production of those goods, one would have expected him to include taxation among the topics within the purview of political economy. But he did not include it. 8. George, Progress and Poverty, pp. 7-8. 9. The Science, p. 91. The chapter referred to above is Book I, ch. 12. When set into its complete context the quoted passage served two purposes: it set out what Published by Duke University Press History of Political Economy Collier - Henry George’s system 67 based upon this principle, which, he insisted, plays the same role in political economy as the law that bodies in motion seek the line of least resistance plays in physics. He also claimed that the principle was as natural and as important as the law of gravitation.1° George’s value theory dealt exclusively with value in exchange.

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