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Business Depression

Business depression effects everyone. If we knew of a way to eliminate or largely smooth the "business cycle" — which enriches a few on the way up and impoverishes many on the way down — shouldn't we investigate it fully and enact it?

Henry George: Causes of Business Depression (1894)

By business depression we mean a lessening in rapidity and volume of the exchanges by which, in our highly specialized industrial system, commodities pass into the hands of consumers. This lessening of exchanges, which from the side of the merchant or manufacturer we call business depression, is evidently not due to any scarcity of the things that merchants or manufacturers have to exchange. From that point of view there seems, indeed, a plethora of such things. Nor is it due to any lessening in the desire of consumers for them. On the contrary, seasons of business depression are seasons of bitter want on the part of large numbers of want so intense and general that charity is called on to prevent actual starvation from need of things that manufacturers and merchants have to sell.

Protection ...
Free trade ...
Money ...
The lessening of "effective demand," which is the proximate cause of business depression, means, therefore, a lessening of the ability to convert labor into exchangeable forms means what we call scarcity of employment. These two phrases are, in fact, but different names for different aspects of one thing. What from the side of the business man is "business depression," is, from the side of the workman, "scarcity of employment."  ...

What is employment? It is the expenditure of exertion in the production of commodities or satisfactions. It is what, in a phrase having clearer connotations, we term work. For the term employment is, for economic use, somewhat confused by our habitual distraction between employers and employees. ...  Even in a narrow view there are only three ways by which men may live -- by work, by beggary, and by theft; for the man who obtains work without giving work is, economically, only a beggar or a thief. But on a larger view these three come down to one, for beggars and thieves can only live on workers. It is human labor that supplies all the wants of human life as truly now, in all the complexities of modern civilization, as in the beginning: when the first man and first woman were the only human beings on the globe. ...

Now employment or work is the expenditure of labor in the production of commodities or satisfactions. But on what? Manifestly on land, for land is to man the whole physical universe. Take any country as a whole, or the world as a whole. On what and from what does its whole population live? Despite our millions and our complex civilization, our extensions of exchanges and our inventions of machines, are we not all living as the first man did and the last man must, by the application of labor to land? Try a mental experiment: Picture, in imagination, the farmer at the plow, the miner in the ore vein, the railroad train on its rushing way, the steamer crossing the ocean, the great factory with its whirring wheels and thousand operatives, builders erecting a house, linemen stringing a telegraph wire, a salesman selling goods, a bookkeeper casting up accounts, a bootblack polishing the boots of a customer. Make any such picture in imagination and then by mental exclusion withdraw from it, item by item, all that belongs to land. What will be left?

Land is the source of all employment, the natural element indispensable to all work. Land and labor — these are the two primary factors that, by their union, produce all wealth and bring about all material satisfactions. ...  Where labor is shut out from land it wastes. Desire may remain, but "effective demand" is gone. Is there any mystery in the cause of business depression? Let the whole earth be treated as these lots are treated and who of its teeming millions could find employment?   ...Read the entire article
Henry George: The Great Debate: Single Tax vs Social Democracy  (1889)
The cause of industrial depressions is not too much production, but it is the speculative increase in the value of land, and throwing idle men back to compete with each other for work. (Applause.) That is the cause. (Hear, hear.)

Henry George: Progress & Poverty: Introductory: The Problem

So long as all the increased wealth which modern progress brings goes but to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent. The reaction must come. The tower leans from its foundations, and every new story but hastens the final catastrophe. To educate men who must be condemned to poverty, is but to make them restive; to base on a state of most glaring social inequality political institutions under which men are not fully equal, is to stand a pyramid on its apex.

All-important as this question is, pressing itself from every quarter painfully upon attention, it has not yet received a solution which accounts for all the facts and points to any clear and simple remedy. This is shown by the widely varying attempts to account for the prevailing depression. They exhibit not merely a divergence between vulgar notions and scientific theories, but also show that the concurrence which should exist between those who avow the same general theories breaks up upon practical questions into an anarchy of opinion.

  • Upon high economic authority we have been told that the prevailing depression is due to over-consumption;
  • upon equally high authority, that it is due to over-production; while
  • the wastes of war,
  • the extension of railroads,
  • the attempts of workmen to keep up wages,
  • the demonetization of silver,
  • the issues of paper money,
  • the increase of labor-saving machinery,
  • the opening of shorter avenues to trade, etc., etc.,

are separately pointed out as the cause, by writers of reputation.

And while professors thus disagree, the ideas

  • that there is a necessary conflict between capital and labor,
  • that machinery is an evil,
  • that competition must be restrained and interest abolished,
  • that wealth may be created by the issue of money,
  • that it is the duty of government to furnish capital or to furnish work,

are rapidly making way among the great body of the people, who keenly feel a hurt and are sharply conscious of a wrong. Such ideas, which bring great masses of men, the repositories of ultimate political power, under the leadership of charlatans and demagogues, are fraught with danger; but they cannot be successfully combated until political economy shall give some answer to the great question which shall be consistent with all her teachings, and which shall commend itself to the perceptions of the great masses of men. ... read the entire chapter

Henry George: Progress & Poverty: The Current Doctrine of Wages — Its Insufficiency

For instance, of $100,000 devoted in an old country to manufactures, $80,000 would probably be expended for buildings, machinery and the purchase of materials, leaving but $20,000 to be paid out in wages; whereas in a new country, of $30,000 devoted to agriculture, etc., not more than $5,000 would be required for tools, etc., leaving $25,000 to be distributed in wages. In this way it is explained that the wage fund may be comparatively large where capital is comparatively scarce, and high wages and high interest accompany each other.

* "Some Leading Principles of Political Economy Newly Expounded," Chap. 1, Part 2.

In what follows I think I shall be able to show that this explanation is based upon a total misapprehension of the relations of labor to Capital — a fundamental error as to the fund from which wages are drawn; but at present it is necessary only to point out that the connection in the fluctuation of wages and interest in the same countries and in the same branches of industry cannot thus be explained. In those alternations known as "good times" and "hard times" a brisk demand for labor and good wages is always accompanied by a brisk demand for capital and stiff rates of interest. While, when laborers cannot find employment and wages droop, there is always an accumulation of capital seeking investment at low rates.* The present depression has been no less marked by want of employment and distress among the working classes than by the accumulation of unemployed capital in all the great centers, and by nominal rates of interest on undoubted security. Thus, under conditions which admit of no explanation consistent with the current theory, do we find high interest coinciding with high wages, and low interest with low wages - capital seemingly scarce when labor is scarce, and abundant when labor is abundant.

* Times Of commercial panic are marked by high rates of discount, but this is evidently not a high rate of interest, properly so called, but a but rate of insurance against risk.

All these well known facts, which coincide with each other, point to a relation between wages and interest, but it is to a relation of conjunction, not of opposition. Evidently they are utterly inconsistent with the theory that wages are determined by the ratio between labor and capital, or any part of capital.... read the entire chapter

H.G. Brown: Significant Paragraphs from Henry George's Progress & Poverty, Chapter 5: The Basic Cause of Poverty (in the unabridged: Book V: The Problem Solved)

The great problem, of which these recurring seasons of industrial depression are but peculiar manifestations, is now, I think, fully solved, and the social phenomena which all over the civilized world appall the philanthropist and perplex the statesman, which hang with clouds the future of the most advanced races, and suggest doubts of the reality and ultimate goal of what we have fondly called progress, are now explained.

The reason why, in spite of the increase of productive power, wages constantly tend to a minimum which will give but a bare living, is that, with increase in productive power, rent tends to even greater increase, thus producing a constant tendency to the forcing down of wages.

Land being necessary to labor, and being reduced to private ownership, every increase in the productive power of labor but increases rent — the price that labor must pay for the opportunity to utilize its powers; and thus all the advantages gained by the march of progress go to the owners of land, and wages do not increase. ... read the whole chapter


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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper