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18 Clark: apostle of two-factor economics - Part III: nineteenth-century Americas critics
American Journal of Economics and Sociology, The, Nov, 2003 by Kris Feder
We are left with more questions than answers. At stake are the foundational categories of economic theory. Is "land," as George defined it, a distinctive, original, and indispensable factor of production? Does the rent of land have analytic significance for economic behavior? Is there a methodological justification for classifying productive resources according to any simple taxonomy?
George and Clark were agreed that the laws of production belong to the first natural division of economics, which Clark called "universal" or "primitive" economics. As both writers observed, they operate even in a Robinson Crusoe world with no exchange. (53) In the Crusoe economy, said George, the elemental fact of production is evident: "Nature gives only to labor." (54) The Crusoe model is an ideal instrument for exploring George's distinctions among "land," "labor," and "capital," as well as Clark's alternative conceptions of "capital" and "capital goods." In a model of pure production, value from obligation cannot exist and there can be no fallacy of composition in the analysis of wealth and capital. There are no markets, because there is no one with whom Crusoe can exchange. He is neither debtor nor creditor; there is no one from whom he could borrow or lend. No one arrives either to offer or to demand payment in exchange for the use of the island. No one challenges his claim of exclusive possession, so long as he lives--yet he has no property rights, because there are no social arrangements defining the proper relations of exchange.
The methodological starting point for economic analysis is the universal "economic problem": Human desires are unlimited, but the resources with which to satisfy them are scarce. Economics is concerned with individual and social behavior involving purposeful choice among alternative uses for scarce resources. * An economic agent is a decision maker who chooses with purpose. If meaningful distinctions are to be drawn among labor, land, and capital as productive factors, they must be relevant to the decision problems facing economic agents. A chemist or physicist might identify no fundamental distinction between human decision makers, human artifacts, and the natural substances of the earth; all material things are composed from a finite number of chemical elements and presumably obey the same physical laws. A cellular biologist might identify no essential difference between a farmer and his cows. Does Robinson Crusoe, in his struggle to survive, distinguish labor from land and land from capital?
George's functional economic distinction between land and labor is based on the perspective of the human decision maker seeking to assure his own survival and well-being. Crusoe learns which things he can control and which things he cannot; that is, he learns the difference between himself as an agent and the environment in which he finds himself. Labor, according to George, is the "active" factor of production; land is the "passive" factor. (55) It is not, however, the physical action of the muscles that makes labor "active." A dairy cow is active in the same sense. The relevant actions are the decisions of the agents who employ cows and other resources for the purpose of gratifying their desires. To the economist, cows are different from humans because humans do not recognize cows as free agents who choose to engage in voluntary transactions with humans according to a mutually agreed system of property rules. Cows are outside the circle of exchange.
