19 Patten: a study in intellectual dishonesty - Part III: nineteenth-century Americas critics

American Journal of Economics and Sociology, The,  Nov, 2003  by Charles F. Collier

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George's dynamic theory of income determination was derived from the Ricardian rent theory applied to the extensive margin, and from some of his own ideas about speculation, increased population, improvements in the arts of production, and material progress. Briefly, George argued that once population increased, the arts of production improved, and/or the amount of material wealth increased, the demand for land would also increase, causing rent to rise. Speculators, anticipating even further increases, would purchase land, and hold it idle or underused while waiting for its value to increase even more. (19) Laborers, barred in large measure from the chance to work on speculatively held land, would either go to the city and become a class of urban poor, or move to hitherto submarginal plots of land and settle on them. When the new plots were settled, the rent on all plots already inside the margin would increase and rent would arise for the first time on the former marginal plots. Hence aggregate rents would rise. Moreover, since all wages were ultimately based upon the productivity of labor applied to marginal land, wages would inevitably fall as long as the margin of cultivation or building continued to extend downward and outward. And since the ratio of wages to interest was supposed to be constant, it seemed to follow that the rate of interest would also fall.

Patten was less concerned with income distribution theory than was George. In a significant sense that was logical, given Patten's concern for dynamics. While there is, of course, a dynamic theory of income distribution, it was not uncommon for then-current writers who were concerned primarily with dynamics to pay little attention to that theory. Patten's distribution theory, such as it was, showed several crucial differences from George's. In essence, Patten's rent theory was closer to Malthus's than to Ricardo's in the sense that it placed heavy emphasis on social factors. Like George, but for a different reason, Patten believed in a social law of increasing returns to factors of production. He contended that social innovations and mechanical inventions would more than offset the diminishing returns that applied to the factors considered separately. (20) Patten also seems to have rejected the classical idea that rent and profits vary inversely. He did not believe that profits would tend to zero in competitive long-run equilibrium. His conclusion seemed to follow from his consideration of a dynamic economy. Since new industries were always forming and firms were always introducing new inventions, there was always some profit accruing to somebody somewhere. That, he argued, was sufficient to prove that profits do not tend to zero. (21) But, it is not clear that Patten realized that the traditional statement was to hold only in equilibrium and was not intended to apply to the case he considered. Patten was, in fact, discussing a different proposition, not refuting a classical one.

Patten did not consider interest to be a cost of production, although it is not precisely clear why he didn't. Instead, Patten adopted what was essentially a time-preference theory of interest, which stated that when one saved, he gave up a certain amount of goods today for an anticipated preferred bundle of goods in the future. Given the fact that people tend to prefer goods in the present, one could be enticed into saving only if he were offered more goods in the future. (22) It is hard to find in Patten's work a definite statement of a law of wages that is comparable in analytical quality with George's. Instead, Patten devoted most of his discussion of the topic to consideration of the social factors that caused changes in wages. These included the rate at which new job opportunities opened up, laborers' preference for present over future goods (labor produces goods that will be available in the future, but it must be paid in the present; hence the wages paid were said to be some function of the present value of the future goods), the consumption habits of the citizens, the state of the arts of production, the foreign trade policy of the nation, (23) and, as discussed earlier, the rapidity with which diminishing returns to labor apply.