Seeking institutionalist signposts in the work of Henry George: relevance often overlooked

American Journal of Economics and Sociology, The, April, 1993 by James H. Horner

I

Introduction

INSTITUTIONALISTS do not claim Henry George as one of their own. George's work in general would be considered teleological and thus removed from the evolutionary approach to political economy. Much of Georgian economics is based on natural laws and religious teachings which institutionalists have challenged since the time of Thorstein Veblen. The evolutionary approach is centered on an analysis of constant change and rejects predetermined ends or finality in economics; yet, a closer look at Georgian economics reveals that his work is more processual (and thus more evolutionary) in nature than is commonly thought. Important institutionalist signposts can be found in the work of Henry George.

One of the most important signposts is the recognition and analysis by George of institutions. Both George and Veblen described the nature of institutions as being habitual forms of behavior and thought. George explored the invidious nature of institutions (especially private property) which would lead to an inequitable distribution of income and wealth and thus ensure the perpetuation of poverty. As Jurgen Backhaus and J.J. Krabbe note, George understood that there are "institutions in society which hold back economic progress."(1)

George warned of the inclination of orthodox economics to serve as apolgetics for an unjust system. Institutionalists from Veblen to William Dugger would later follow in this critique of the economics profession. As a result of this, both institutionalists and George have at best been ignored and at worst been ridiculed by orthodoxy. They are in effect professional outsiders within their own discipline.

Henry George was a social reformer. He was not satisfied with merely describing the unjust poverty of his time; to the contrary, he advocated major social reform of the system. The call by George for reform was later incorporated into the work of John R. Commons and now appears in the neoinstitutionalist work of Marc Tool and Kendall Cochran.

The purpose of this paper is to explore the institutionalist signposts which appeared in the work of George long before the institutionalist school began. The recognition of these signposts should generate an increased appreciation for the relevance of Henry George.

II

The Economics of Henry George

RENT WAS UNEARNED INCOME to George. People were entitled to keep only that income which resulted from their own labor. It is important to note that George advocated the confiscation of rent and not of land; consequently, he did not favor the nationalization of real property. Private ownership could be tolerated as long as the landowner received the same compensation as the other factors of production--a normal rate of return.

The unearned portion of income in the economy came from the productive forces of the land and the landowner contributed nothing to this process. George advocated a "single tax on land value" that would confiscate the unearned income from the private ownership of land. The tax would "abolish all taxation save that upon land values."(2) George thought such a tax would still allow the private ownership of land but at the same time eliminate the surplus of landowners.

For George, natural laws were "the immutable will of God" and could not change because of "observation and reason." The classical school confused "laws of man" with "laws of nature." For George, the intent of natural order was the equality of men. John Dewey believed that George adopted historical concepts of nature as "a means of expressing the supremacy of ethical concepts" and stated that "I think George was in the right."(3) George's concern for equality and ethics in economic analysis which distinguishes him from more traditional economists, is also shared by institutionalists.

As institutionalists emphasize today, George centered his analysis in an interdisciplinary approach. The questions he explored were forced upon him by the subject matter under consideration and not by some disciplinary boundaries that developed at other times and under other circumstances. As Jurgen Backhaus notes, "When George looks at the effects of his 'remedy', he takes them up in this order: Effects on (1) production, (2) distribution, (3) individuals and classes, and (4) social organization and social life."(4)

III

The Challenge to Orthodoxy

BOTH HENRY GEORGE AND THE INSTITUTIONALISTS posed a challenge to the normal science of their day as they have questioned the accepted paradigms of economics. George made many enemies in the profession as a result of his outspokenness and his biting attack on classical economic doctrines such as Adam Smith's wage-fund theory and Malthus's law of population.(5)

George rejected Malthusian population theory because the problem of poverty stems, not from the miserly "laws of nature," but rather from the arrangement of social institutions. Malthus did nothing more than provide "the wealthy with a comfortable theory for putting upon the Originating Spirit the responsibility for all the vice, crime and suffering."(6) The "unjust actions of men" were responsible for these factors and constituted "the black spot of our nineteenth century civilization." A century later, Thomas DeGregori would refer to these unjust acts as "immoral."(7)