Henry George and Austrian economics - History of Thought

American Journal of Economics and Sociology, The, Dec, 2001 by Leland B. Yeager

what is utilized in production is not merely the sum of the physical power of the units, but the sum of their intelligence.

... while in the second kind of cooperation the sum of intelligence utilized is that of the whole of the cooperating units, in the first kind of cooperation it is only that of a very small part.

In other words it is only in independent action that the full powers of the man may be utilized. The subordination of one human will to another human will, while it may in certain ways secure unity of action, must always where intelligence is needed, involve loss of productive power. (SPE:392-93)

George understands the roles of exchange, markets, prices, and money in accomplishing spontaneous coordination; and he is skeptical (SPE:445-46) that government regulation of prices and wages and interest rates can achieve its intended purposes:

Exchange is the great agency by which ... the spontaneous or unconscious cooperation of men in the production of wealth is brought about and economic units are welded into that social organism which is the Greater Leviathan. To this economic body, this Greater Leviathan, into which it builds the economic units, it is what the nerves or perhaps the ganglions are to the individual body. Or, to make use of another illustration, it is to our material desires and powers of satisfying them what the switchboard of a telegraph or telephone or other electric system is to that system, a means by which exertion of one kind in one place may be transmitted into satisfaction of another kind in another place, and thus the efforts of individual units be conjoined and correlated so as to yield satisfactions in most useful place and form, and to an amount exceeding what otherwise would be possible .(SPE:399-400)

Socialism

GEORGE REJECTS SOCIALISM, understood as collective or state management of all means of production (SPE:198), on the grounds that it would restrict the scope of spontaneous coordination. Attempting conscious coordination of work requiring spontaneous coordination

is like asking the carpenter who can build a chicken-house to build a chicken also.

This is the fatal defect of all forms of socialism--the reason of the fact, which all observation shows, that any attempt to carry conscious regulation and direction beyond the narrow sphere of social life in which it is necessary, inevitably works injury, hindering even what it is intended to help.

And the rationale of this great fact may ... be perceived when we consider that the originating element in all production is thought or intelligence, the spiritual not the material. This spiritual element, this intelligence or thought power as it appears in man, cannot be combined or fused as can material force. (SPE:391-92)

The last sentences quoted remind us of the emphasis of present-day Austrians on the creative role of entrepreneurship. They also remind us of Julian Simon's emphasis, in a recent book, on The Ultimate Resource--human intelligence and ingenuity.

To develop his points further, George asks us to imagine that "the very wisest and best of men were selected" to direct a socialist economy. Consider