10 Rae: a journalist out of his depth - Part II: nineteenth-century British and continental critics

American Journal of Economics and Sociology, The,  Nov, 2003  by Aaron B. Fuller

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Toynbee declared that "economists have to answer the question whether it is possible for the mass of the working classes to raise themselves under the present conditions of competition and private property. Ricardo and Henry George have both answered, No." Citing evidence from various sources, including the Contemporary Review, of which Rae was an associate editor, Toynbee counters the idea of increasing poverty by noting that "it is a fact that though the cost of living has undoubtedly increased, wages have risen in a higher ratio," that there has been "strong proof of a rise in agricultural wages," and that "the facts make it clear that the working classes can raise their position, though not in the same ratio as the middle classes." (14)

It is almost certain that Rae was aware of these criticisms made by Marshall and Toynbee. Marshall was already a well-known professor and his lectures were published in various newspapers in 1883. Toynbee's citations of evidence to prove that poverty was not increasing relied heavily on articles appearing in the Contemporary Review. In effect, Rae's challenge to George's proposition that poverty was increasing with progress amounts to a summary of one of the standard criticisms of George's ideas readily available to Rae in the accessible literature. Rae's challenge was not unique.

Unique or not, a separate question asks who was right concerning the empirical evidence. Was poverty in fact increasing or decreasing? The empirical evidence is contradictory, and even today it is impossible to determine with a high degree of certainty whether poverty, expressed as changes in the standard of living and changes in real wages, was increasing or decreasing in the decades immediately prior to the 1880s. (15) Rae claims to have defeated George's assertion of increasing poverty because George failed to cite the wage and income data familiar to Rae and others like Toynbee and Marshall. But these data were fragmentary and subject to criticism even in the 1880s, so that Rae cannot lay claim to empirical superiority compared to George when the data turn out to be unreliable.

Rae's reiteration of the idea that George was wrong about increasing poverty's accompanying progress failed to address the central issue of what George meant by his claimed observation. Rae correctly noted that at times George seemed to refer to absolute income levels and standards of living, while at other times George seemed to refer to relative differences between and among income classes. But Rae reads the mixture of absolute and relative income differences as confusion on George's part, and does not attempt to analyze the implications of George's treatment of poverty. In fact, George's observation of progress's accompanying poverty may be interpreted as an early assessment of the structural changes that occur when an economy shifts from dependence on individual self-sufficient landownership to a dependence on interdependent specialized division of labor. In absolute dollar income terms, poverty emerges with progress because progress entails the growing division of labor with its associated dependence of one specialized producer on the products of other specialized producers, and the producers who do not own specialized factors of production like land will not enjoy the increased rents owing to the specialized factors from increased usage. According to George, progress creates poverty that did not exist in nonmarket or limited-market economies because it creates rental premiums for the specialized factors of production like land. Thus, as economies become industrialized and specialized in the name of progress, they evolve a real, absolute difference between those individuals who own specialized factors and those who do not. This is the nature of the "wedge" that is driven between different elements in an economy, a wedge between those who own specialized factors and those who do not.