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Political Economy

What is Political Economy? 

One dictionary defines it as "The social science that deals with political science and economics as a unified subject; the study of the interrelationships."

Henry George described it this way:

The science which investigates the laws of the production and distribution of wealth concerns itself with matters which among us occupy more than nine tenths of human effort, and perhaps nine tenths of human thought. In its province are included
      • all that relates to the wages of labour and the earnings of capital;
      • all regulations of trade;
      • all questions of currency and finance;
      • all taxes and public disbursements
- in short, everything that can in any way affect the amount of wealth which a community can secure or the proportion in which that wealth will be distributed between individuals.
— Henry George, 1877 speech "The Study of Political Economy"

Henry George: The Increasing Importance of Social Questions (Chapter 1 of Social Problems, 1883)

[18] The evils that begin to appear spring from the fact that the application of intelligence to social affairs has not kept pace with the application of intelligence to individual needs and material ends. Natural science strides forward, but political science lags. With all our progress in the arts which produce wealth, we have made no progress in securing its equitable distribution. Knowledge has vastly increased; industry and commerce have been revolutionized; but whether free trade or protection is best for a nation we are not yet agreed. We have brought machinery to a pitch of perfection that, fifty years ago, could not have been imagined; but, in the presence of political corruption, we seem as helpless as idiots. The East River bridge is a crowning triumph of mechanical skill; but to get it built a leading citizen of Brooklyn had to carry to New York sixty thousand dollars in a carpet bag to bribe New York aldermen. The human soul that thought out the great bridge is prisoned in a crazed and broken body that lies bedfast, and could watch it grow only by peering through a telescope. Nevertheless, the weight of the immense mass is estimated and adjusted for every inch. But the skill of the engineer could not prevent condemned wire being smuggled into the cable.

[19] The progress of civilization requires that more and more intelligence be devoted to social affairs, and this not the intelligence of the few, but that of the many. We cannot safely leave politics to politicians, or political economy to college professors. The people themselves must think, because the people alone can act.

[21] The intelligence required for the solving of social problems is not a thing of the mere intellect. It must be animated with the religious sentiment and warm with sympathy for human suffering. It must stretch out beyond self-interest, whether it be the self-interest of the few or of the many. It must seek justice. For at the bottom of every social problem we will find a social wrong. ... read the entire essay

 

Henry George: The Wages of Labor

We see in these social and industrial laws so close a relation to the moral law as must spring from the same Authorship, and that proves the moral law to be the sure guide of man where his intelligence would wander and go astray. This is the reason why our beliefs tend towards, nay, are indeed the only beliefs consistent with a recognition of the Supreme Law which men must follow if they would secure prosperity and avoid destruction.

This is the reason why to us Political Economy only serves to show the depths of wisdom in the simple truths which common people heard gladly from the lips of the Carpenter of Nazareth!

Thus, to us, all that is needed to remedy the evils of our time is to do justice and give freedom.

It is because that in what we propose – the securing to all men of equal natural opportunities for the exercise of their powers and the removal of all legal restriction on the legitimate exercise of those powers we see the conformation of human law to the moral law; that we hold with confidence not merely that this is a sufficient remedy for the present condition of labor, but that it is the only possible remedy! ...  read the whole article

Henry George: Progress & Poverty: Introductory: The Problem

... This association of poverty with progress is the great enigma of our times.
  • It is the central fact from which spring industrial, social, and political difficulties that perplex the world, and with which statesmanship and philanthropy and education grapple in vain.
  • From it come the clouds that overhang the future of the most progressive and self-reliant nations.
  • It is the riddle which the Sphinx of Fate puts to our civilization, and which not to answer is to be destroyed.
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.

It must be within the province of political economy to give such an answer. For political economy is not a set of dogmas. It is the explanation of a certain set of facts. It is the science which, in the sequence of certain phenomena, seeks to trace mutual relations and to identify cause and effect, just as the physical sciences seek to do in other sets of phenomena. It lays its foundations upon firm ground. The premises from which it makes its deductions are truths which have the highest sanction; axioms which we all recognize; upon which we safely base the reasoning and actions of every-day life, and which may be reduced to the metaphysical expression of the physical law that motion seeks the line of least resistance--viz., that men seek to gratify their desires with the least exertion. Proceeding from a basis thus assured, its processes, which consist simply in identification and separation, have the same certainty. In this sense it is as exact a science as geometry, which, from similar truths relative to space, obtains its conclusions by similar means, and its conclusions when valid should be as self-apparent. And although in the domain of political economy we cannot test our theories by artificially produced combinations or conditions, as may be done in some of the other sciences, yet we can apply tests no less conclusive, by comparing societies in which different conditions exist, or by, in imagination, separating, combining, adding or eliminating forces or factors of known direction.

I propose in the following pages to attempt to solve by the methods of political economy the great problem I have outlined. I propose to seek the law which associates poverty with progress, and increases want with advancing wealth; and I believe that in the explanation of this paradox we shall find the explanation of those recurring seasons of industrial and commercial paralysis which, viewed independent of their relations to more general phenomena, seem so inexplicable. Properly commenced and carefully pursued, such an investigation must yield a conclusion that will stand every test, and as truth will correlate with all other truth. For in the sequence of phenomena there is no accident. Every effect has a cause, and every fact implies a preceding fact.
That political economy, as at present taught, does not explain the persistence of poverty amid advancing wealth in a manner which accords with the deep-seated perceptions of men;
  • that the unquestionable truths which it does teach are unrelated and disjointed;
  • that it has failed to make the progress in popular thought that truth, even when unpleasant, must make;
  • that, on the contrary, after a century of cultivation, during which it has engrossed the attention some of the most subtle and powerful intellects, it should be spurned by the statesman, scouted by the masses, relegated in the opinion of many educated and thinking men to the rank of a pseudo-science in which nothing fixed or can be fixed--must, it seems to me, be due not to any inability of the science when properly pursued, but some false step in its premises, or overlooked factor in its estimates. And as such mistakes are generally concealed the respect paid to authority, I propose in this inquiry take nothing for granted, but to bring even accepted theories to the test of first principles, and should they not stand the test, to freshly interrogate facts in the endeavor to discover their law.
I propose to beg no question, to shrink from no conclusion, but to follow truth wherever it may lead. Upon us the responsibility of seeking the law, for in the very heart of our civilization to-day women faint and little children moan. But what that law may prove to be is not our affair. If the conclusions that we reach run counter to our prejudices, let us not flinch; if they challenge institutions that have long been deemed wise and natural, let us not turn back. ... read the entire chapter
Reducing to its most compact form the problem we have set out to investigate, let us examine, step by step, the explanation which political economy, as now accepted by the best authority, gives of it.
The cause which produces poverty in the midst of advancing wealth is evidently the cause which exhibits itself in the tendency, everywhere recognized, of wages to a minimum. Let us, therefore, put our inquiry into this compact form:

Why, in spite of increase in productive power, do wages tend to a minimum which will give but a bare living?

The answer of the current political economy is, that wages are fixed by the ratio between the number of laborers and the amount of capital devoted to the employment of labor, and constantly tend to the lowest amount on which laborers will consent to live and reproduce, because the increase in the number of laborers tends naturally to follow and overtake any increase in capital. The increase of the divisor being thus held in check only by the possibilities of the quotient, the dividend may be increased to infinity without greater result.
In current thought this doctrine holds all but undisputed sway. It bears the indorsement of the very highest names among the cultivators of political economy, and though there have been attacks upon it, they are generally more formal than real.* It is assumed by Buckle as the basis of his generalizations of universal history. It is taught in all, or nearly all, the great English and American universities, and is laid down in textbooks which aim at leading the masses to reason correctly upon practical affairs, while it seems to harmonize with the new philosophy, which, having in a few years all but conquered the scientific world, is now rapidly permeating the general mind.... read the entire chapter

Rev. A. C. Auchmuty: Gems from George, a themed collection of excerpts from the writings of Henry George (with links to sources)

Social Study

I BELIEVE that in a really Christian community, in a society that honored, not with the lips but with the act, the doctrines of Jesus, no one would have occasion to worry about physical needs any more than do the lilies of the field. There is enough and to spare. The trouble is that, in this mad struggle, we trample in the mire what has been provided in sufficiency for us all; trample it in the mire while we tear and rend each other. — The Crime of Poverty

WHOSE fault is it that social conditions are such that men have to make that terrible choice between what conscience tells them is right, and the necessity of earning a living? I hold that it is the fault of society; that it is the fault of us all. Pestilence is a curse. The man who would bring cholera to this country, or the man who, having the power to prevent its coming here, would make no effort to do so, would be guilty of a crime. Poverty is worse than cholera; poverty kills more people than pestilence, even in the best of times. Look at the death statistics of our cities; see where the deaths come quickest; see where it is that the little children die like flies — it is in the poorer quarters. And the man who looks with careless eyes upon the ravages of this pestilence; the man who does not set himself to stay and eradicate it, he, I say, is guilty of a crime. — The Crime of Poverty

SOCIAL progress makes the well-being of all more and more the business of each; it binds all closer and closer together in bonds from which none can escape. He who observes the law and the proprieties, and cares for his family, yet takes no interest in the general weal, and gives no thought to those who are trodden underfoot, save now and then to bestow alms, is not a true Christian. Nor is he a good citizen. — Social Problems — Chapter 1, the Increasing Importance of Social Questions

WE cannot safely leave politics to politicians, or political economy to college professors. The people themselves must think, because the people alone can act. — Social Problems — Chapter 1, the Increasing Importance of Social Questions ...

"Wise" and "Babes"

IT is as bad for a man to think that he can know nothing as to think he knows all. There are things which it is given to all possessing reason to know, if they will but use that reason. And some things it may be there are, that — as was said by one whom the learning of the time sneered at, and the high priests persecuted, and polite society, speaking through the voice of those who knew not what they did, crucified — are hidden from the wise and prudent and revealed unto babes. — A Perplexed Philosopher (Conclusion)

THAT thought on social questions is so confused and perplexed, that the aspirations of great bodies of men, deeply though vaguely conscious of injustice, are in all civilized countries being diverted to futile and dangerous remedies, is largely due to the fact that those who assume and are credited with superior knowledge of social and economic laws have devoted their powers, not to showing where the injustice lies but to hiding it; not to clearing common thought but to confusing it. — A Perplexed Philosopher (Conclusion)

POLITICAL economy is the simplest of the sciences. It is but the intellectual recognition, as related to social life, of laws which in their moral aspect men instinctively recognize, and which are embodied in the simple teachings of him whom the common people heard gladly. But, like Christianity, political economy has been warped by institutions which, denying the equality and brotherhood of man, have enlisted authority, silenced objection, and ingrained themselves in custom and habit of thought. — Protection or Free Trade, Chapter 1 econlib

HE term Land in political economy means the natural or passive element in production, and includes the whole external world accessible to man, with all its powers, qualities, and products, except perhaps those portions of it which are for the time included in man's body or in his products, and which therefore temporarily belong to the categories, man and wealth, passing again in their reabsorption by nature into the category, land. — The Science of Political Economy — unabridged: Book III, Chapter 14: The Production of Wealth, Order of the Three Factors of Production abridged: Part III, Chapter 10: Order of the Three Factors of Production

THAT land is only a passive factor in production must be carefully kept in mind. . . . Land cannot act, it can only be acted upon. . . . Nor is this principle changed or avoided when we use the word land as expressive of the people who own land. . . .

That the persons whom we call landowners may contribute their labor or their capital to production is of course true, but that they should contribute to production as landowners, and by virtue of that ownership, is as ridiculously impossible as that the belief of a lunatic in his ownership of the moon should be the cause of her brilliancy. — The Science of Political Economy unabridged: Book III, Chapter 15, The Production of Wealth: The First Factor of Production — Landabridged: Part III, Chapter 10: Order of the Three Factors of Production

I AM writing these pages on the shore of Long Island, where the Bay of New York contracts to what is called the Narrows, nearly opposite the point where our legalized robbers, the Custom-House officers, board incoming steamers to ask strangers to take their first American swear, and where, if false oaths really colored the atmosphere the air would be bluer than is the sky on this gracious day. I turn from my writing-machine to the window, and drink in, with a pleasure that never seems to pall, the glorious panorama.

"What do you see?"  If in ordinary talk I were asked this, I should of course say, "I see land and water and sky, ships and houses, and light clouds, and the sun drawing to its setting over the low green hills of Staten Island and illuminating all."

But if the question refer to the terms of political economy, I should say, "I see land and wealth." Land, which is the natural factor of production; and wealth, which is the natural factor so changed by the exertion of the human factor, labor, as to fit it for the satisfaction of human desires. For water and clouds, sky and sun, and the stars that will appear when the sun is sunk, are, in the terminology of political economy, as much land as is the dry surface of the earth to which we narrow the meaning of the word in ordinary talk. And the window through which I look; the flowers in the garden; the planted trees of the orchard; the cow that is browsing beneath them; the Shore Road under the window; the vessels that lie at anchor near the bank, and the little pier that juts out from it; the trans-Atlantic liner steaming through the channel; the crowded pleasure-steamers passing by; the puffing tug with its line of mud-scows; the fort and dwellings on the opposite side of the Narrows; the lighthouse that will soon begin to cast its far-gleaming eye from Sandy Hook; the big wooden elephant of Coney Island; and the graceful sweep of the Brooklyn Bridge, that may be discovered from a little higher up; all alike fall into the economic term wealth — land modified by labor so as to afford satisfaction to human desires. All in this panorama that was before man came here, and would remain were he to go, belongs to the economic category land; while all that has been produced by labor belongs to the economic category wealth, so long as it retains its quality of ministering to human desire.

But on the hither shore, in view from the window, is a little rectangular piece of dry surface, evidently reclaimed from the line of water by filling in with rocks and earth. What is that? In ordinary speech it is land, as distinguished from water, and I should intelligibly indicate its origin by speaking of it as "made land." But in the categories of political economy there is no place for such a term as "made land." For the term land refers only and exclusively to productive powers derived wholly from nature and not at all from industry, and whatever is, and in so far as it is, derived from land by the exertion of  labor, is wealth. This bit of dry surface raised above the level of the water by filling in stones and soil, is, in the economic category, not land but wealth. It has land below it and around it, and the material of which it is composed has been drawn from land; but in itself it is, in the proper speech of political economy, wealth; just as truly as the ships I behold are not land but wealth, though they too have land below them and around them and are composed of material drawn from land. — The Science of Political Economy unabridged: Book IV, Chapter 6, The Distribution of Wealth: Cause of Confusion as to Propertyabridged ...

The Laws of Social Life

TAKE now some hard-headed businessman, who has no theories, but knows how to make money. Say to him: "Here is a little village; in ten years it will be a great city — in ten years the railroad will have taken the place of the stagecoach, the electric light of the candle; it will abound with all the machinery and improvements that so enormously multiply the effective power of labor. Will, in ten years, interest be any higher?"

He will tell you, "No!"

"Will the wages of common labor be any higher; will it be easier for a man who has nothing but his labor to make an independent living?"

He will tell you, "No; the wages of common labor will not be any higher; on the contrary, all the chances are that they will be lower; it will not be easier for the mere laborer to make an independent living; the chances are that it will be harder."

"What, then, will be higher?" " Rent; the value of land. Go; get yourself a piece of ground, and hold possession."

And if, under such circumstances, you take his advice, you need do nothing more. You may sit down and smoke your pipe; you may lie around like the lazzaroni of Naples or the leperos of Mexico: you may go up in a balloon, or down a hole in the ground; and without doing one stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich! In the new city you may have a luxurious mansion; but among its public buildings will be an almshouse. — Progress & Poverty — Book V, Chapter 2: The Problem Solved: The Persistence of Poverty amid Advancing Wealth

THERE may be disputes as to whether there is yet a science of political economy, that is to say, whether our knowledge of the natural economic laws is as yet so large and well digested as to merit the title of science. But among those who recognize that the world we live in is in all its spheres governed by law, there can be no dispute as to the possibility of such a science. — The Science of Political Economyunabridged: Book I, Chapter 14, The Meaning of Political Economy: Political Economy as Science and as Artabridged: Part 1, Chapter 12: Political Economy as Science and Art

THE domain of law is not confined to physical nature. It just as certainly embraces the mental and moral universe, and social growth and social life have their laws as fixed as those of matter and of motion. Would we make social life healthy and happy, we must discover those laws, and seek our ends in accordance with them. — Social Problems — Chapter 22: Conclusion

POLITICAL economy is not a set of dogmas. It is the explanation of a certain set of facts. It is the science which, in the sequence of certain phenomena, seeks to trace mutual relations and to identify cause and effect, just as the physical sciences seek to do in other sets of phenomena. It lays its foundations upon firm ground. The premises from which it makes its deductions are truths which have the highest sanction; axioms which we all recognize; upon which we safely base the reasoning and actions of every-day life, and which may be reduced to the metaphysical expression of the physical law that motion seeks the line of least resistance — viz. that men seek to gratify their desires with the least exertion. Proceeding from a basis thus assured, its processes, which consist simply in identification, and separation, have the same certainty. In this sense it is as exact a science as geometry, which, from similar truths relative to space, obtains its conclusions by similar means, and its conclusions when valid should be as self-apparent. — Progress & Poverty — Book I, Chapter 1, Wages and Capital: The Current Doctrine of Wages — Its Insufficiency

WHETHER it proceed from experience of the irksomeness of labor and the desire to avoid it, or, further back than that, have its source in some innate principle of the human constitution, this disposition of men to seek the satisfaction of their desires with the minimum of exertion is so universal and unfailing, that it constitutes one of those invariable sequences that we denominate laws of nature, and from which we may safely reason. It is this law of nature that is the fundamental law of political economy — the central law from which its deductions and explanations may with certainty be drawn, and, indeed, by which alone they become possible. It holds the same place in the sphere of political economy that the law of gravitation does in physics. Without it there could be no recognition of order, and all would be chaos. . . . It is no more affected by the selfishness or unselfishness of our desires than is the law of gravitation. It is simply a fact. — The Science of Political Economy unabridged: Book I, Chapter 12, The Meaning of Political Economy: Fundamental Low of Political Economyabridged: Chapter 10: The Fundamental Law of Political Economy
IN the economic meaning of the term production, the transporter or exchanger, or anyone engaged in any subdivision of those functions, is as truly engaged in production as is the primary extractor or maker. A newspaper-carrier or the keeper of a news-stand would, for instance, in common speech be styled a distributor. But in economic terminology he is not a distributor of wealth, but a producer of wealth. Although his part in the process of producing the newspaper to the final receiver comes last, not first, he is as much a producer as the paper-maker or type-founder, the editor, or compositor, or press-man. For the object of production is the satisfaction of human desires, that is to say, it is consumption; and this object is not made capable of attainment, that is to say, production is not really complete, until wealth is brought to the place where it is to be consumed and put at the disposal of him whose desire it is to satisfy.  — The Science of Political Economy unabridged: Book III, Chapter 1, The Production of Wealth: The Meaning of Productionabridged: Part III, Chapter 1, The Production of Wealth: The Meaning of Production

PRODUCTION and distribution are not separate things, but two mentally distinguishable parts of one thing — the exertion of human labor in the satisfaction of human desire. Though materially distinguishable, they are as closely related as the two arms of the syphon. And as it is the outflow of water at the longer end of the syphon that is the cause of the inflow of water at the shorter end, so it is that distribution is really the cause of production, not production the cause of distribution. In the ordinary course, things are not distributed because they have been produced, but are produced in order that they may be distributed. Thus interference with the distribution of wealth is interference with the production of wealth, and shows its effect in lessened production. — The Science of Political Economyunabridged Book IV, Chapter 2, The Distribution of Wealth: The Nature of Distributionabridged Part IV, Chapter 2, The Distribution of Wealth: The Nature of Distribution

OUR inquiry into the laws of the distribution of wealth is not an inquiry into the municipal laws or human enactments which either here and now, or in any other time and place, prescribe or have prescribed how wealth shall be divided among men. With them we have no concern, unless it may be for purposes of illustration. What we have to seek are those laws of the distribution of wealth which belong to the natural order — laws which are a part of that system or arrangement which constitutes the social organism or body economic, as distinguished from the body politic or state, the Greater Leviathan which makes its appearance with civilization and develops with its advance. These natural laws are in all times and places the same, and though they may be crossed by human enactment, can never be annulled or swerved by it. It is more needful to call this to mind, because, in what have passed for systematic treatises on political economy, the fact that it is with natural laws, not human laws, that the science of political economy is concerned, has, in treating of the distribution of wealth, been utterly ignored, and even flatly denied. — The Science of Political Economyunabridged: Part IV, Chapter 1, The Distribution of Wealth: The Meaning of Distributionabridged: Part IV, Chapter 1, The Distribution of Wealth: The Meaning of Distribution

THE distinction between the laws of production and the laws of distribution is not, as is erroneously taught in the scholastic political economy, that the one set of laws are natural laws and the other human laws. Both sets of laws are laws of nature. The real distinction is that the natural laws of production are physical laws and the natural laws of distribution are moral laws. . . . The moment we turn from a consideration of the laws of the production of wealth to a consideration of the laws of the distribution of wealth, the idea of ought or duty becomes primary. All consideration of distribution involves the ethical principle, is necessarily a consideration of ought or duty — a consideration in which the idea of right or justice is from the very first involved. — The Science of Political Economyunabridged: Book IV, Chapter 4, The Distribution of Wealth: The Real Difference Between Laws of Production and of Distributionabridged: Part IV, Chapter 3: The Distribution of Wealth: Physical and Moral Laws

Co-operation and Competition

MANY if not most of the writers on political economy have treated exchange as a part of distribution. On the contrary, it belongs to production. It is by exchange, and through exchange, that man obtains, and is able to exert, the power of co-operation which, with the advance of civilization, so enormously increases his ability to produce wealth. — The Science of Political Economyunabridged: Book III, Chapter 11, The Production of Wealth: The Office of Exchange in Productionunabridged Chapter 9, The Office of Exchange in Production

THEY who, seeing how men are forced by competition to the extreme of human wretchedness, jump to the conclusion that competition should be abolished, are like those who, seeing a house burn down, would prohibit the use of fire.

The air we breathe exerts upon every square inch of our bodies a pressure of fifteen pounds. Were this pressure exerted only on one side, it would pin us to the ground and crush us to a jelly. But being exerted on all sides, we move under it with perfect freedom. It not only does not inconvenience us, but it serves such indispensable purposes that, relieved of its pressure, we should die.

So it is with competition. Where there exists a class denied all right to the element necessary to life arid labor, competition is one-sided, and as population increases must press the lowest class into virtual slavery, and even starvation. But where the natural rights of all are secured, then competition, acting on every hand — between employers as between employed, between buyers as between sellers — can injure no one.

On the contrary it becomes the most simple, most extensive, most elastic, and most refined system of co-operation that, in the present stage of social development, and in the domain where it will freely act, we can rely on for the co-ordination of industry and the economizing of social forces.

In short, competition plays just such a part in the social organism as those vital impulses which are beneath consciousness do in the bodily organism. With it, as with them, it is only necessary that it should be free. The line at which the state should come in is that where free competition becomes impossible — a line analogous to that which in the individual organism separates the conscious from the unconscious functions. There is such a line, though extreme socialists and extreme individualists both ignore it. The extreme individualist is like the man who would have his hunger provide him food; the extreme socialist is like the man who would have his conscious will direct his stomach how to digest it. — Protection or Free Trade, chapter 28 econlib

 

... go to "Gems from George"

Frank Stilwell and Kirrily Jordan: The Political Economy of Land: Putting Henry George in His Place

Land is the most basic of all economic resources, fundamental to the form that economic development takes. Its use for agricultural purposes is integral to the production of the means of our subsistence. Its use in an urban context is crucial in shaping how effectively cities function and who gets the principal benefits from urban economic growth. Its ownership is a major determinant of the degree of economic inequality: surges of land prices, such as have occurred in Australian cities during the last decade, cause major redistributions of wealth. In both an urban and rural context the use of land – and nature more generally – is central to the possibility of ecological sustainability. Contemporary social concerns about problems of housing affordability and environmental quality necessarily focus our attention on ‘the land question.’

These considerations indicate the need for a coherent political economic analysis of land in capitalist society. Indeed, the analysis of land was central in an earlier era of political economic analysis. The role of land in relation to economic production, income distribution and economic growth was a major concern for classical political economists, such as Smith, Ricardo and Malthus. But the intervening years have seen land slide into a more peripheral status within economic analysis. Political economists working in the Marxian tradition have tended to focus primarily on the capital-labour relation as the key to understanding the capitalist economy.1 Neo-classical economists typically treat land, if they acknowledge it at all, as a ‘factor of production’ equivalent to labour or capital, thereby obscuring its distinctive features and differences. Keynesian and post-Keynesian economists have also given little attention to land because typically their analyses focus more on consumption, saving, investment and other economic aggregates.

However, there is an alternative current of political economic thought for which ‘the land question’ is central. This is the tradition based on the ideas of Henry George. This article seeks a balanced assessment of the usefulness of George’s ideas in the modern context. It outlines how insights derived from Georgist thinking can help in dealing with contemporary economic, social and environmental problems, while noting deficiencies and additional concerns. Following a general summary of Georgist ideas and policy proposals, six themes are addressed:

      • the moral issue,
      • wealth inequality,
      • housing affordability,
      • environmental concerns,
      • urban development and
      • economic cycles.

In each case it is argued that Georgist insights provide a valuable but incomplete basis for analysis and policy. ...

The Moral Issue

Georgism has a distinctive ethical basis. So a review of the contemporary relevance of Georgist political economy can usefully begin by making this explicit. The key moral issue is the private appropriation of public wealth. As George recognised, land is a ‘gift from nature’ and, as such, is rightfully a community resource. Hence, those deriving benefits from the private ownership of land should recompense the community for the privilege. This principle has strong echoes of the idea of ‘usufruct’, a pre-capitalist term denoting a person’s legal right to use and accrue benefits from property that does not belong to them. In return, the user is obliged to keep the property in good repair and pay all costs as a ‘ground rent’ (‘Lectric Law Library, n.d). The concept of ‘usufruct’ has fallen out of common usage, so one hesitates to try to revive it. Moreover, as Richards (2002) notes, ‘it is difficult to image how this word could be employed, or brought back into circulation, in the modern world, since we live in a world in which people tend to be remarkably unsympathetic to the property rights or claims of others’.

However, the principle of ‘usufruct’ goes to the heart of the question of how best to balance collective and individual rights and interests. George’s solution of a tax on the value of land squarely addresses this issue. By returning a proportion of the land value to the community in the form of taxation revenue, restitution would be paid for the use of a community resource. This is an ethical justification for land taxation.

Indeed, one could say that the term ‘tax’ is a misnomer because what is really involved is value created by the community being retained by the community rather than being appropriated by private landholders. For example, under current arrangements landowners receive ‘windfall’ gains when the market value of their land rises as a result of publicly provided infrastructure being built nearby, or when local government zoning decisions reclassify their land as appropriate for further development. In this way, individual landowners stand to reap huge benefits at the expense of community-generated processes. Such arrangements create an odd incentive: allowing landholders to appropriate the unearned wealth generated by rising land values, thereby rewarding this unproductive activity, while taxing productive endeavour. The Georgist land tax ‘remedy’, by contrast, would eliminate such perverse incentives and thereby more effectively align private and public interests in the use of society’s resources.

However, the Georgist position cannot claim to provide a fully comprehensive solution to the moral issue of balancing individual and collective rights. While land tax addresses the private appropriation of wealth from land, it does not address the appropriation of wealth from other sources. The characteristically Georgist focus on land as the source of the maldistribution of wealth is limiting in this respect. Political economists have long argued that the accumulation of capital also arises from the exploitation of labour, for example. Whether the exploitation of labour is systemic, as Marx argued, or exceptional is properly a matter of debate. Either way, the point is that an ethical basis for the economic system, and for the tax system in particular, needs to take account of both land-related and other sources of unjustifiable wealth appropriation. The moral issue thereby links with a second concern of more explicitly economic character – the sources of inequality in the distribution of wealth.

Wealth Inequality

Georgist analysis strongly emphasises landownership as a principal source of inequality. Because land is a strictly limited resource, its private ownership necessarily excludes large sections of the community from its benefits. A landowning class thereby gains political economic power. In George’s own time the social identity and power of this landowning class was distinctive. Those who could not afford to buy land were forced to pay rent to the wealthier few who could. By taxing the value of land, George posited that publicly created wealth could be recouped from the private landowners and redistributed throughout the community more equitably in order to address social goals. ...

Conclusion

Enthusiastic proponents of Henry George’s ideas have often presented them as a panacea for the economic, social and environmental problems that beset contemporary society. Indeed, the Georgist analysis does have much to offer. By more adequately addressing land as a unique economic, social and ecological resource, it can help to reveal underlying causes of currently pressing issues such as declining housing affordability, growing economic inequality, and environmental decay.

The Georgist land tax ‘remedy’ can also play an important role in the redress of these problems. However, there are limitations to the modern application of George’s ideas, as outlined in this article. While a uniform land tax is a necessary component in addressing contemporary political economic problems, it is not sufficient. It needs to be set in the context of a broader political economic analysis and policy program, also addressing public housing, urban and regional policies, environmental taxes and regulations, ‘floors and ceilings’ to limit income inequalities and macroeconomic stabilisation.

While the Georgist analysis redresses the general neglect of land in modern economic orthodoxy, it is important not to go too far to the other extreme. In other words, the important emphasis on land should not come at the expense of attention to problems associated with labour and capital and to the complex forms of government policy necessary for the balancing of contemporary economic, social and ecological concerns. The Georgist analysis needs to be integrated into a comprehensive political economic analysis of contemporary capitalism.

So what does ‘putting Henry George in his place’ entail? It means recognising the political economic importance of land and the potential social gains from the extension of land taxation. Equally, it means recognising the necessity of relating Georgist ideas and policy prescriptions to a broader canvas of modern political economy, including the analytical traditions associated with Karl Marx, J. M. Keynes, and J. K. Galbraith, and modern environmental economics. Henry George’s place is in good company. read the whole article

 

Nic Tideman: The Political Economy of Moral Evolution

This paper argues that a liberal theory of the resolution of disagreements about the requirements of justice must include the possibility of secession. When such a possibility is allowed, it can be predicted that there will be changes not only in the character of disputes about the requirements of justice, but also in the patterns of taxes and public expenditures. There will be a greater propensity for seeing the other side's point of view in disputes about the requirements of justice, and a greater tendency to support public activities by efficient taxes on the beneficiaries of public expenditures. ... read the whole article

The message of the Gospels is that our sins are forgivable, that death is not to be feared because our true lives are spiritual rather than physical, and that participation in the kingdom of God -- a new and better life in this world as well as the next -- is accessible to all who orient themselves to God.

Drawing on the Old Testament, Jesus taught that our first commandment is that we love God with all our heart, and all our soul, and all our mind, and all our strength, and that our second commandment is that we love our neighbor as ourselves.1 When asked who our neighbor is, he replied with the parable of the good Samaritan, implying that anyone we encounter is our neighbor. 2 Jesus taught an ethic in which there are no bounds on our obligations to others:  ...

When asked by Peter, "Lord, how oft shall my brother sin against me, and I forgive him? till seven times?" Jesus replied, "I say not unto thee, Until seven times: but, Until seventy times seven."  In other words, we are to forgive indefinitely.

This unbounded obligation to others is reconciled with the need to survive through the introduction of the idea that it is not through our own anxious efforts, but through God's provision for us that we survive: ...

The message of the Gospels denies the validity of concern for material scarcity. This is made particularly clear in the accounts of the feeding of the multitudes with just a few loaves and fishes.

comprehending this counterintuitive idea, that material scarcity is not to concern us, is brought out by the accounts of how even Jesus' disciples did not understand the message: ...

Without a concept of material scarcity it is difficult to construct an economic theory, as material scarcity is central to economic theory. And yet, even without a concept of material scarcity there is an allocation problem to be solved--the allocation of our efforts.

In the parable of the talents we are told that we will be expected to accomplish something with the resources that are put into our hands. 8 This parable is followed in Matthew by a teaching that may be taken as an indication of what constitutes accomplishment: ...

In other words, every person is a manifestation of God, and anything that we can do to help anyone is to our credit.

There is thus an unlimited task for each of us. No one of us will ever be able to say, "I have done every last thing that might be required of me. I have no further obligations." But neither are we to be concerned that that which we have left undone might be held against us. For if we refrain from judging others, we ourselves will not be judged:  ...

With this message of the Gospels in mind, turn now to the problem of political economy, the problem of what principles ought to govern the organization of the production of goods and their distribution.

One might first ask whether the requirement that we abandon concern for scarcity would preclude production. The answer is no, it is not production that we are cautioned to avoid, but anxiety. There are any number of reasons why we might allocate some of our time to production, without being anxious about our own material requirements. We feel called to undertake a particular kind of work, so we do it, trusting that any material needs we may have will be satisfied. If we want to undertake our productive activities in conjunction with others, that's fine, too. Associating with others provides us with opportunities to be useful to them.

Among those who are close to us there is no need for prices and markets, because we can see easily enough how we can be of service to them. But human discernment is limited, and prices and markets help us to be aware of what is valued by people who are less close to us. ...

Refraining from the use of force is a recurring theme in the political economy of the Gospels. We are called to refrain from the use of force in defense of property. We are called to refrain from the use of force in financing public activities. We are called to refrain from the use of force in providing for those who might otherwise lack. And we show our love for those who do not wish to participate in our political economy by leaving for them the same per capita value of land and natural resources that we claim for ourselves.

Consider now how this framework bears on some traditional questions of economic ethics. Take first the problem of the just price. This simply is not an issue. If two people have the opportunity to trade--to cooperate--on terms that are mutually agreeable to the two of them, it is not for us to say that they ought to be trading on other terms. Between people who love one another, the problem of settling on the terms of trade is no more difficult than the problem when friends eat lunch together of deciding who will pick up the tab, or how it will be split.

That those outside a relationship are not called upon to prescribe its terms is supported by a passage from Luke: ...

Relations between employers and employees are a special case of relations between traders. ...
The problem of worker management is not a problem either. ...

Corporate responsibility may be more of an issue for a Gospel-based political economy. The corporate form of organization permits us to participate in the establishment and management of firms while knowing very little about the other people with whom we are involved or the actions that are taken on our behalf. If this leads us to support implicitly actions of managers in their concern for the bottom line that we could not in good conscience take ourselves, then there is something troubling about our participation in corporations. We need to find ways of managing the resources under our control that do not lead us to endorse implicitly and to profit from actions that we would not endorse directly or take ourselves.

The grand question of economic ethics, the question of whether capitalism or socialism is the more appropriate form of political economy, is another non-question from the perspective of the Gospels. Everyone who wants to live under socialism should be free to live under socialism, and everyone who wants to live under capitalism should be free to live under capitalism. In whichever group we fall, we will want to insure that those who want to organize their lives by different principles of political economy have their share of land and natural resources with which to do so.

A political economy based on the Gospels is a political economy based on love. As the First Epistle of John says, "There is no fear in love; but perfect love casteth out fear."17 To construct a political economy of the Gospels we must be free of fear: free of fear that others may rob us; free of fear that others may not contribute to the provision of public goods or to provision for those who might otherwise lack; free of fear that our incomes will be too low or the prices we face too high; free of fear that if we don't do something, someone will be exploited. Only when love has replaced all fear in our hearts will we be able to construct the political economy of the Gospels. Read the whole article


Mason Gaffney: For Want of a Landlord
In 1620 the Mayflower landed at Plymouth Rock with its intrepid band, and supplies and provisions for the first winter. These Pilgrims were of the working poor, ready and able to turn their hands to labor. They had carpenters, masons, joiners, bakers, farmers, chandlers, boatsmen, fishers, hunters, and other useful types. ...

Yet all their hard work and frugality and mutual aid and shrewd trading availed them nought, God did not prosper their ventures. Poverty and distress prevailed; crops withered; timbers rotted; stores spoiled; women sued for divorce; discontent ran riot. The Elders pondered. As luck would have it, one bachelor had packed along a book on Political Economy for the lonely evenings. Studying one night he suddenly cried "Eureka! Political Economy will save us!"

"What! What could it be?" cried the Elders all together. "Tell us, prithee, before the vision leaveth!"... read the whole article






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