The marginalists who confronted land

American Journal of Economics and Sociology, The,  Jan, 2008  by Fred E. Foldvary

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Walras is widely known for his theory of general equilibrium and the Law of Walras. Walras's law states that with n markets (hence, n equations and n items), if n-1 markets are in equilibrium, then the nth market must also be in equilibrium. There cannot be a net excess quantity demanded or supplied for the whole economy.

What is almost unknown is Walras's thought on social justice. Walras presented a solution for the distribution of the "social wealth" that was not due to individual exertion. He advocated the nationalization of land and the abolition of the prevailing tax system. Even if this could not be achieved in the near future, Walras believed that these ideal policies should be like a lighthouse, guiding politicians toward the right reforms.

Walras's thought on social justice was connected to his marginal analysis. The intersection from which both his theories--on general equilibrium and on justice--diverge is the concept of what Walras called rarete, or marginal utility.

Walras used mathematics to demonstrate that utility is maximized where the marginal utilities are proportional to the prices. The price of a good increases if its marginal utility increases or if the quantity diminishes. The application to land is that in a growing economy, wages do not necessarily increase, while land rent necessarily increases. The intensity of the final needs satisfied by a plot of land, that is, the marginal utilities, keep growing along with the increase in population. Walras stated that:

   the fact of the appreciation of the land rent in a progressive
   society is a fact well proved by experience and well explained by
   reasoning, from which one concludes that to leave lands to
   individuals, instead of reserving them for the state, implies
   allowing a parasitical class taking advantage of the enrichment
   that should instead satisfy the always growing demand for public
   services. (1896b: 324)

This is the key point of Walrasian social and moral theory. If the value of land comes from nature and social effects from the growth of society, why should we not leave the benefit for the whole society? Walras believed that it is very difficult to cure wrongs already created, but that we can improve the future. Following Gossen's prescription, Walras proposed the purchase of land by the state, which would then lease it out to the highest bidders. Walras proposed that the government would use the increase in the land rents that it would receive to finance the purchase until fully paid for, and then the state would use the rent as a source of income.

Walras (1896b: 416-417) asked:

   Why we should allow that on one side for landowners get ever
   richer, while on the other side, the "proletarians" (low-skill
   workers) get [relatively] poorer by the sole fact that society
   develops? There is no right against right, and there is no time
   limitation status in favor of such an inequity, which is always
   persistent ...

   A collective property of land, and the lack of taxes which would be
   its consequence, are not only two acts of justice, they are acts of
   essential interest for a nation that wishes to live. Justice is not
   a luxury, as we would say of a painting that one is deprived of
   hanging in one's living room, if we have failed to purchase it; it
   is to society what health is to a human being, a thing the lack of
   which condemns society to obscurity and misery ...

   Hence, if we have lost it, and wish to recover it, a regime, a
   treatment, an operation would be needed; it is necessary to undergo
   it. We must ask only one question: to know whether the sick person
   has the strength to support the treatment.