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Henry George re-visited

American Journal of Economics and Sociology, The, Nov, 2005

THE CENTRAL MESSAGE OF THE PRECEDING CHAPTERS IS NOT NEW. It has been propounded before--more than a century ago. It was propounded in 1879 by American social philosopher and political economist Henry George, whose best known book Progress and Poverty was republished in millions of copies and translated into 15 languages. It had a profound influence upon socio-economic debate for some 50 years thereafter, and an impact upon land administration policy and practice in many parts of the world, not least in Australia and New Zealand at the time of federation.

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The fact that this may surprise some present-day readers is part of the enigma that this present volume has sought to address. Around the turn of the century, his name was a household word. Yet today, only a relatively small band of dedicated adherents are familiar with Henry George's writing, and economics and commerce students can complete their university courses without ever having heard his name.

The original version of Progress and Poverty ran to nearly 600 pages. An easier reference is the 238-page centenary edition published in 1979. (1) Even so, George's somewhat florid 19th-century style (adorned with a scholarly wealth of historical, classical and biblical allusions) and his frequent recourse to homespun, albeit shrewdly perceptive, analogies tend to cloud his message for 20th-century readers. His extensive refutation of Malthus, for example, is outdated (in the terms in which it was couched), and his elaboration of marginal utility theory is unnecessary. Which is fortunate, because events since 1879 have arguably increased the relevance of basic Georgist philosophy and can be shown to have significantly increased the practicability of its implementation.

For present purposes the essential elements of Georgism can be sufficiently distilled. Henry George set out to address a paradox. For him the enigma was the paradox patently evident in Anglo-American society of his time: the paradox of continuing poverty and inequality, notwithstanding the technological advances of the industrial era, which should have improved the human condition and advanced the happiness and welfare of all members of society. The pervasive theme of Progress and Poverty is thus quite literally expressed in its title.

The paradox of course persists, arguably in sharper focus--even if 20th-century sensibilities, resigned to its long continuance, have been inured by complacent acceptance of its seeming inevitability.

The essence of the Georgist remedy can be paraphrased quite simply: in any community the revenue needed for community purposes should be raised by requiring all occupiers of the community's land to reimburse the community in proportion to the value of their share of the land, instead of requiring them to pay taxes levied on the income earned from their labour. This, George argued, would go to the heart of the paradox by mitigating poverty and inequality. The obligation to pay an annual rent to the community would reduce, indeed eliminate, the price of land. Affordable access would therefore be opened up to land being withheld from productive use by speculators. The accumulation of unearned wealth from community-created land values would be thwarted. Wage and salary earners would be relieved of the burden of taxes levied on the income earned from their labour and skills. And the owners of capital would similarly be relieved of the burden of taxes levied on the interest earned from productive investment of their capital.

These are essentially the benefits that have been argued, deductively, in Chapters 6 and 7. In Progress and Poverty George's approach was a protracted analysis of the relationship between the three factors of production: land, labour and capital. By demonstrating that all production derives from the application of labour and capital to land, that capital is essentially wealth created by labour and that land is in finite supply while labour and capital are variables, his aim was to show how an increase in production created by the application of labour and/or capital increased the value of land. This increase in the value of land increased the proportion of wealth, which an owner of land required for production could claim, either by way of increased rent or an increased selling price. Since the supply of land was finite, an owner of land could control its market supply. Without any contribution of labour or capital himself, he stood to gain whenever an increase in population or community development required an increase in production.

Central to the Georgist argument of course is recognition of the unique character of land. As a finite resource provided by nature, land was fundamentally different from labour and capital, which represented, respectively, human effort and the accumulated means of production acquired by human effort. Thus George argued that, if land needed for a productive enterprise was held by a private owner, what was left for labour (by way of wages or salary) and what was left for capital (by way of profit or interest) would be determined by what was left after the landowner claimed his rent or sale price. In other words, the relative shares of labour and capital in the rewards of an enterprise, and indeed the viability of the enterprise, would depend on the availability and quality of labour (or alternative technology) and the cost of interest on capital. But the proportion of return that labour and capital together obtained from an enterprise was dependent upon the proportion taken out in land rent or land price by whoever controlled the availability of the land needed for the enterprise.

Business Services Industry

Henry George re-visited

American Journal of Economics and Sociology, The, Nov, 2005

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