8 Cathrein's careless clerical critique - Part II: nineteenth-century British and continental critics

American Journal of Economics and Sociology, The,  Nov, 2003  by Robert V. Andelson

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Our cleric then turns his attention to George's second proof that rent tends, with progress in production, to swallow up an ever-larger percentage of the national wealth. This is the contention that, in spite of increasing productivity, interest and wages as a relative portion of the total revenue do not increase, and that consequently rent must increase.

With respect to interest, Cathrein maintains that if by interest is understood the return to any particular capital investment, the statement may be correct. But if by interest is understood the aggregate return to all existing capital, the statement "taken in its generality" is untrue. He asserts that while the rate of interest may decrease because of decreasing risk, the amount may increase because of increased capital investment.

Cathrein's reasoning in this passage contains three flaws: First, George, following accepted practice in political economy, explicitly excludes the rewards of risk from his definition of interest. (6) Second, if one ignores Cathrein's mistaken explanation for the decrease in the rate of interest, and simply accepts his observation that the rate may decrease while the amount increases, the observation, far from refuting George's argument, merely underscores the fact, emphasized by him, that capital, unlike land, is elastic, and that its return per unit diminishes with enhanced supply. Finally, Cathrein confuses amount with proportion. George never denied that the total amount of interest may expand with greater capital investment. He was instead concerned to show that the proportion of the total product going to interest decreases relative to that going to rent. In asserting the former idea, Cathrein thinks that he has destroyed an argument that actually he leaves untouched.

Having, as he believes, dispatched George's teaching on the decrease of interest, Cathrein assails his teaching on the decrease of wages as equally unsound. This contention is based solely upon the accusation that George is guilty of an inexcusable confusion of terms when he claims that wages, in spite of the increase in productive power, tend to a minimum that will give but a bare living. (7) Cathrein holds that in political economy the word wages properly refers only to compensation for hired labor, whereas George uses it to mean all earnings of exertion. Yet it is, in fact, the latter that, as George notes, (8) is the standard sense in which the term is used by most political economists. Cathrein, who cites Lassalle as his authority, (9) evidently confounds socialist usage with orthodox usage!

"We would be at a loss," he comments, "to name a political economist who ever dared to affirm that all income from labor falling to manufacturers, merchants, bankers, etc., tends to a minimum which will give the bare necessaries of life. They affirm this only of those working for hire, especially of operatives in factories." (10) George, in point of fact, does implicitly affirm precisely that which no political economist, to Cathrein's knowledge, dares affirm. (11) But to say that all earnings of exertion tend to such a minimum is not to say that they all reach or equally approach it. One need but peruse George's discussion of the differences between wages in different occupations to understand why those who engage in certain callings are protected from the full impact of this tendency. As for the wages of superintendence in mercantile pursuits, George remarks that they largely resemble the prizes in a lottery, in which the great gain of one is made up from the losses of many others--as evidenced by the phenomenon that over 90 percent of the mercantile firms that commence business ultimately fail. (12)