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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Rae's statement that the wages-fund theory was abandoned by Mill in response to Thornton's strictures is not in every sense correct. Mill, it is true, thought these strictures so persuasive that he acceded to them in his review of the book in which they were advanced. (20) Yet he did not delete the theory from the seventh (1871) edition of his Principles, the last to appear in his lifetime, although in a footnote to his preface to that edition, he did direct attention to Thornton's book, his review, and Thornton's reply, without, however, indicating that his review contained a repudiation of the theory. Neither was it deleted from subsequent editions. The active debate over the wages fund had begun in earnest in 1879 with the publication of Henry Sidgwick's "The Wages Fund Theory" in The Fortnightly Review, and it continued throughout the 1880s and into the 1890s in the journal articles produced by a host of economists including Walker, Carver, Clark, Commons, Davenport, Hadley, Hollander, Johnson, Laughlin, Macvane, Veblen, Taussig, Edgeworth, Webb, Marshall, and others. (21) Rae's claim that the wages fund was not to be met as a living economic doctrine is an indictment of his appreciation of the status of the concept when George attacked it in 1879, and provides an explanation of why he thought George was wasting his time on a long-settled issue. Rae himself did not understand that the wages fund was alive and well.

On George's "Remedy"

Rae discussed George's proposal for a tax on land rent in the final section of the chapter. Contrasting George's expansive claims for the effects of such a tax with the dictates of common sense, Rae suggested that George expected too much to flow from the imposition of a tax on land rent. Rae's moderation, with which we can agree, is not carried over into his analysis of the land-rent proposal. In general, Rae misrepresents and misinterprets the implications of a tax on land rent. As an example, he is astounded at George's "scheme" to destroy individual ownership but not individual occupation. What Rae fails to recognize through the veil of the rhetoric is that it is not the property right to utilize a piece of land that George's taxation will change, but the right to acquire the economic rent of the land. There is nothing inconsistent in proposing that physical ownership of land be preserved while the property right to acquire, buy, and sell the expected rental increments is appropriated to a central authority. Given that individuals attempt to make themselves as well off as possible, and do not attempt to make themselves worse off, the removal of the property right to acquire economic rents will encourage land to be utilized in its highest valued uses, that is, those uses where its contribution to the real product of economic activity is greatest. This is the fundamental basis for George's rhetorical claims of advantage under a system of land-rent taxation.

Concluding Evaluation

John Rae's criticisms of Henry George's ideas are surprisingly unsophisticated for someone who could have been expected to be familiar with Adam Smith's conceptual foundations in The Theory of Moral Sentiments and the Wealth of Nations. George was a student of Smith's ideas, and much of the structure of the concepts in Progress and Poverty as well as George's other works is derived from George's understanding of Adam Smith. The Smithian connection has not been extensively pursued here because Rae did not pursue it, even though we could have expected it of him as Smith's principal biographer. If Rae had understood Smith's conception of commercial society as the embodiment of natural liberty, which is in turn an embodiment of Smith's conception of the passion for self-preservation, he would have had the perspective from which to view George's ideas in their proper context. But Rae was not aware of the fundamental elements of Smith's conceptual foundations, and in turn could not be aware of the elements of George's foundations. Instead, he was caught up in George's rhetorical dash and sought to combat the impact of the rhetoric with rhetoric of his own. This caused him to misread George's doctrines as being closely akin to those of socialism, when in fact George was a thoroughgoing free-market advocate.