Economic Insights FEDERAL RESERVE BANK OF DALLAS VOLUME 10, NUMBER 2 Henry George Antiprotectionist Giant of American Economics Americans are again confronted, both Today’s policy discussions are often domestically and internationally, with the argued as if the issue under considera- clash of protectionist and free trade senti- tion is unique to our time. Because we often forget—or never knew—the rel- ment. A deeply divided U.S. House just evant history, we can fail to see that barely passed the Central American Free almost every policy argument has his- Trade Agreement. Politicians who a few years torical precedent. This is certainly true back supported the North American Free of the hot-button issues of globalization Trade Agreement now adamantly oppose and protectionism. Although many be- CAFTA. Americans are torn between enjoying lieve them unique to our day, antiglob- alization—with its concomitant protec- the benefits of globalization, with its tionist sentiments—salts human history. increased consumer choices and lower Mercantilist doctrine, which is pro- prices, and worrying about the costs to the tectionist, dates to mid-17th century nation that some claim come with global free Europe. As international trade grew, so, trade. too, did the demand for government There is nothing new about this clash of intervention to protect domestic manu- Library, The New York Science, Industry & Business Library, Lenox and Tilden Foundations Astor, factures by discouraging imports and ideas, as this latest points Henry George Economic Insights subsidizing exports. Even nations com- out; they have been vigorously debated mitted to obtaining the benefits of free before, most notably during the late 19th trade have not been immune to mer- ing in California a decade after the century. In the center of that debate was one cantile doctrine. For over a century, the state’s famous gold discovery. of this nation’s most famous economists— American government raised the major- San Francisco offering little in the Henry George. Today, few Americans recog- ity of its tax revenue through the impo- way of employment, George accompa- sition of import tariffs. But protectionist nied a cousin to British Columbia to help nize his name, yet his Progress and Poverty is economic policy has always had critics, him open a store for gold miners at the the best-selling economics book ever written one of the most thoroughgoing of whom northern tip of the Fraser River. The and outsold all English-language books save was Henry George. work was hard, and after an argument the Bible in the late 1890s. He touched off a George was born in 1839 in Phila- with his cousin, George left the store’s worldwide movement for major tax reform, delphia.1 His was a varied and fascinat- employ. He was on the verge of taking and societies and institutions still bear his ing life, shaped by economic hardship. up mining, but the discouraging stories At 16, he shipped out on the Hindoo as of those returning from the fields sent name and span the globe. Who was George? a deckhand, voyaging from New York him back to San Francisco instead in Why was he so influential? And what did he to Australia and India. After more than late 1858. Once there, he landed a type- have to say about protectionism that we a year at sea, he returned to his family setting job that enabled him to live more might profit from today? We offer this short and entered the printing business. When comfortably than he had in Canada. biographical piece to answer these questions. that didn’t work out, he decided to The new job didn’t last, though, and emigrate to California and to get there, George soon became a rice weigher in — Richard W. Fisher signed aboard another ship as store- a local warehouse, studying and read- President keeper. George docked in San Francisco ing by night, a man with no friends and Federal Reserve Bank of Dallas at age 19, another fortune seeker arriv- no money to go out, socialize and find area newspapers, his first foray into the The Single Tax on Land public arena of ideas and policy debate. After studying the classical political economists’ writings—including work by the French His formal education was limited, but physiocrats, Adam Smith, David Ricardo, Thomas Robert Malthus and John Stuart Mill—George that didn’t stop him from becoming self- concluded that economic rent was an unproductive and unfair residual value that served only to educated in political economy. Having enrich landowners while contributing nothing to the productive process itself. The amount of rent been a protectionist before (he wrote was determined solely by the collective demand for land. George’s basic idea, which he did not in his journal) engaging in “logical claim was original, was to tax away all land rent and abolish all other taxes. He did not advocate thought on the matter,” he quickly con- confiscation of the land, arguing that it would be both unfair to current owners and unnecessary verted to the free trade position. In a for his system to work. The whole community, whose demand for land caused rent, would reap debate in Sacramento (probably in 1868), the benefit of those rents. Labor and capital—so often burdened by the patchwork of taxes on labor, savings and entrepreneurs—would be unleashed because none of these would be taxed, he stated his position clearly through a nor would improvements to raw land, such as factories and other buildings. telling rejoinder to the evening’s pro- Many taxes of the sort George advocated exist today, including any property tax that distin- tectionist speaker. If the speaker were guishes between raw land value and site improvements. A tax on land, a fixed-supply input, does correct, George challenged, the not have the same supply-side disincentive effect as a tax on labor or capital. No one denies this remotest places on earth ought to be basic contention of classical economics. Other objections, however, are valid, especially the obser- the best places to live since they would vation that as total government expenditures rise, no tax on land alone can finance that spending. be the most prosperous. It was a sim- For his part, George believed that land tax revenues were the upper bound on appropriate, moral ple yet thought-provoking reply that taxation. Because of his views on taxes, his ideas have influenced many competing political move- demonstrated the silliness of protection- ments—from Fabian socialism to development economic theory and even modern libertarianism. ist dogma. George further announced George’s influence can also be seen in modern environmentalism, which views nature as a com- that at the beginning of the evening he mon gift to all, as well as in urban planning theory. (Gaffney 1987) Progress and Poverty was a big best-seller; it outsold all books in the English language save had been a protectionist, but after lis- the Bible as the world entered the 20th century. In some ways, the focus on the single-tax pro- tening to the speaker’s arguments, he posal has prevented a general appreciation of the totality of George’s work. His was a clear and was leaving the meeting a free trader powerful voice for free international trade, and he convinced even labor union members and many because “protection was defensible only socialists of his day of free trade’s superiority. How much has changed! upon the theory that the separation of Because George believed that the only just tax was one applied to land rent, he opposed tar- mankind into nations implied their iffs on goods traded across international borders. But there is little doubt when reading his work industrial and commercial antagonism.”2 that it wasn’t mere logical consistency that motivated him to endorse open trade; he endorsed it Over the next 10 years, George because free trade was an economic principle in which he strongly believed. His position arose edited two small newspapers and ran from a careful theoretical examination of the entire issue, and he shared his views in speeches unsuccessfully for political office. He was around the world and in his very popular Protection or Free Trade, published in 1886. ■ appointed state inspector of gas meters in 1876, and dutifully worked to im- prove the safety of California’s natural any. When the warehouse closed, to Sacramento so Henry could set type, gas infrastructure, often over the objec- George set off on foot for the gold but that opportunity soon collapsed tions of gas-related business interests. fields. But broke and hungry, he re- with the firm’s demise, and they re- His ideas concerning the relation- turned to San Francisco without making turned to San Francisco to find work ship between land rents and poverty it there. He landed work setting type, but scarce there as well. When their second began to crystallize, and he often wrote found himself unemployed shortly there- child was born and they were penni- pamphlets and editorials arguing his after when the job market dried up. It less, George was reduced to begging. views. His ideas attracted a growing was then that he finally had a piece of Happily, he was able to get some money number of followers. On Sept. 18, 1877, good luck—meeting his future wife, just by asking a stranger for it. Other- in Sausalito—just north of San Fran- Annie Corsina Fox. Their courtship and wise, he wrote in his journal, he would cisco and his new home—George marriage coincided with the nation’s probably have killed the man to secure began writing a potential magazine plunge into civil war and the young funds to feed his children.