Henry George: precursor to public choice analysis - economist

American Journal of Economics and Sociology, The, April, 1998 by Thomas E. Borcherding, Patricia Dillon, Thomas D. Willett

I

Introduction

It would require less than the fingers of the two hands to enumerate those who, from Plato down, rank with Henry George among the world's social philosophers...No man...has a right to regard himself as an educated man in social thought unless he has some first-hand acquaintance with the theoretical contribution of this great American thinker (John Dewey 1928).

Henry George is now remembered, if he is remembered at all, as a somewhat eccentric propagandist who had curious ideas about property rights and an unsound fiscal policy (Charles Collier 1979).

THE ABOVE EPIGRAPHS, separated by fifty years, are contrasting signposts indicating the decline in intellectual awareness and status of Henry George's work during this century. His ideas on political economy once had great currency in many areas of policy, yet today he is remembered almost exclusively for his recommendation of the Single Tax on land, a policy rooted in his profound concern for social and economic reform.(1) In this paper we call attention to George's early insights into the dangers of rent seeking by special interests. These insights are useful illustrations of the type of political economy that has come to be called public choice analysis.(2)

II

Henry George, Public Choice Analysis, and Rent Seeking

TRADITIONALLY, POLITICAL SCIENTISTS analyze the state (the public sector) and political processes; economists analyze markets (the private sector) and the impacts of economic policies. Public choice analysis, popular in the last few decades, is a productive way to think about issues of great importance to Henry George. It applies the tools of economics to the material of politics. Mueller (1979) defines public choice as "the economic study of non-market decision making."(3) Another label, "rational choice analysis," describes the application of economic methods to problems of the policy process. It is now used by political scientists and sociologists(4) as well as economists. This approach, quintessentially economic, argues that the analysis of the political market (i.e., of the decision process in the public sector), like the analysis of the private market, must be grounded on rational individuals pursuing their own self-interest, not on an organic state separate from the individuals composing it.(5) Public choice analysis sensitizes us to the power of special-interest groups and makes us skeptical about the efficiency of government; it makes us think like Henry George.

The broad term "political economy" includes any analysis that brings to bear the insights of both political science and economics. In George's time, economics was, in fact, called political economy. (By the middle of the twentieth century, that label was associated nearly exclusively with Marxist analysts.(6) Only in the last two decades has the term political economy become mainstream again.) Although disillusioned with most of the practitioners of political economy, George believed in its principles, especially the effects of incentives. He was, therefore, one of the earliest public choice analysts,(7) as evidenced by his remark that "political economy, fearlessly pursued, must lead to conclusions that will be as a lion in the way to those who have any tenderness for `vested interests'"(1886:9).

In a nearly modern way Henry George combined a profound belief in the allocational efficiency of markets with a deep-seated suspicion of government interventions. He believed so much in the power of unrestricted markets that he referred to the state's conscious attempts at coordination as

like asking the carpenter who can build a chicken-house to build a

chicken. This is the fatal defect of all forms of socialism .... Any

attempt to carry conscious regulation and direction beyond the narrow

sphere of social life in which it is necessary, inevitably works injury,

hindering even what it is intended to help (1898:391-92).

George did advocate public schools and government ownership of natural monopolies--hardly socialist policies by modern or even Victorian standards(8)--but asked that we imagine efforts to direct a socialist economy by even the very best and wisest of men:

[t]he task that would be put upon them in the ordering of the when, where,

how and by whom that would be involved in the intelligent direction and

supervision of the almost infinitely complex and constantly changing

relations and adjustments involved in such division of labor that goes on in

a civilized community. The task transcends the power of human intelligence at

its very highest....And so it is the spontaneous, unconscious cooperation

of individuals which, going on in the industrial body,...conjoins individual

efforts in the production of wealth, to the enormous increase in productive

power, and distributes the product among the units of which it is composed.

It is the nature and laws of such cooperation that it is the primary province

of political economy to ascertain (1898:428-29).

Thus George went to the heart of socialism's disintegration.(9) It is absolutely clear that he appreciated the benefits of allocating resources via markets and the role of independent, unregulated individual action to make markets function efficiently.(10) The principle of the individual rational actor is the starting point for all public choice analysis. It is the relentless application of this model in situations of collective action that gives the public choice approach its distinctive analytical slant and its emphasis on political markets. George's insight into the possibility of political market failure is all the more stunning for its having been so neglected.