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

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Taken alone, this line of argument presents a weak case against the single tax. George had emphasized that land is productive. He held, not that rent is a deduction from wages, but that rent and wages are both determined at the margin of production, one necessarily rising as a share when the other falls. The marginal productivity principle shows that, if homogeneous land is exchanged in competitive markets, rent is the marginal product of land, just as the wage is the marginal product of labor. The symmetry, however, does not extend to the realm of justice. As George observed, wages are paid in return for the exertion of the laborer, but rent compensated no exertion on the part of the landlord. Clark did not argue otherwise. He avoided the point, preferring to attack from other angles.

He offered a second ethical argument against the single tax. He asserted that the state is the original, absolute owner of land, a perspective decidedly more German than American. According to Clark, individuals have no natural property rights in land or its rent. The state may give or sell land to individuals, whereupon that land becomes their absolute, exchangeable, and perpetual property. However, the state may neither tax land that it has once alienated, nor lease land that it owns to individuals on periodic terms--for this would be to permit the state to implement a Georgist program. Property in land, insisted Clark, is absolute, whether the owner is an individual or the state, and absolute ownership is, by definition, perpetual ownership. (14) Though an individual may wish to use a piece of land for only five years, or thirty, or seventy, to acquire an exclusive claim he must be willing and able to purchase, up front, the present value of all future rents in perpetuity.

Clark's positive arguments against George were more intricate. They combined the theory of marginal productivity with a microeconomic model of competitive static equilibrium to yield a new framework for the analysis of production and distribution.

Paradigm Shift: Two-Factor Economics

The most remarkable feature of Clark's system, and the one most obviously designed to close the book on Henry George, was the two-factor theory of production and distribution. Whereas the principle of marginal productivity suggests, at most, that rent can be viewed as the marginal product of land as well as a differential surplus, Clark's definition of capital eliminates land rent as a category of income. According to Clark, labor and capital are the primary factors of production. "Land" is not an original or distinct factor but merely a type of capital good; it has no special significance in economic analysis.

   Land and artificial goods are blended in an intimate mixture....
   There are
   only two generic members in the combination by which the rate of
   wages
   is determined.... IT]he variations in the comparative amounts of
   these
   two agents, labor and capital, determine both wages and interest.
   (15)