Chapter 1: "The Inquiry Narrowed
to the Laws of Distribution the Necessary Relation of These Laws."
Chapter 2: "Rent and the Law of Rent"
Chapter 3: "Interest and the Cause
of Interest"
Chapter 4: "Of Spurious Capital and
of Profits
Often Mistaken for Interest"
Chapter 5: "The Law of Interest"
Chapter 6: "Wages and the Law of
Wages"
Chapter 7: "The Correlation and Coordination
of these Laws"
Chapter 8: "The Statics of the Problem
Thus Explained"
1.
What is "distribution"? 154-55
Is it part of modern micro, macro, or something else? (No page
reference.)
Distribution is the division of economic values among parties,
or, for short, "cutting the pie." George here deals
with "functional" distribution of output. That is the
division of the product among the functional factors of production:
land, labor and capital. Today, the process of determining how
much each input adds to output, and how much of the pie should
be its portion, is called "imputing." Misimputing, which
is all too common, is called "arrogating." Learn and
remember the word "arrogating," too. It is one of the
deadly sins of economics.
Locke, Quesnay, Smith, Malthus, Ricardo, Mill, etc. al., the pioneers
of our discipline, dealt with functional distribution. It was
a central concern of classical "political economy."
Modern micro and macro neglect distribution. A residual treatment
of the tools you need to understand functional distribution is
found in the part of micro called "production economics."
Some micro texts explain "Euler's Theorem," which helps,
once you really understand it. Most economists today downplay
the social and distributive implications, however, emphasizing
instead the managerial and allocative aspects.
As to macro, early Keynesian macro emphasized functional distribution
only as it affected consumption: wages were thought to be more
spent on consuming than property incomes are. Keynes of the 1930s
took this as an argument for resisting wage cuts. Champions of
higher wages have always used this argument, indeed, and still
do, but it has boomeranged: today it is used as an argument for
raising property income, to increase saving. Most macro theory
today pays no attention at all to the division between rent and
interest, a glaring weakness in macro that continues to the present.
Modern macro rather resembles, in its intellectual structure and
reactionary social purpose, the travesty of the wages/fund doctrine
that George attacked.
(Some economists classify distribution theory and the like under
"meso" economics.)
2. "The problem is not production,
but distribution." 154
Does this statement summarize George's
position?
George wanted to divide the pie
differently, but that was partly in order to make the pie bigger—he
was concerned with production, not just distribution. He championed
a functional policy of distribution: distribute the pie according
to the contributions people make to it, thus maximizing incentives
to produce wealth, and allocating resources to their best uses.
He shows that workers and savers contribute, but landowners per
se do not. It is the last point that differentiates George from
ordinary champions of free markets—the ones who modestly
call themselves "mainstream."
3.
Profits and interest, 156ff.
a. How does George distinguish
profits from interest?
Profits are the sum of three
parts: interest proper (which is "pure" interest, something
like the risk-free prime rate); risk premium; and wages of superintendence.
George does not mention that profits as generally used are net
of interest paid out, and the rate of return (ROR) on equity is
profit divided by equity capital, where equity capital is total
assets less debt.
George stresses that "wages of superintendence" are
a large part of profits. That is true for small unincorporated
businesses, and the writers he is citing are from the era before
corporations were as dominant a form as now. Today in corporations,
wages of superintendence are deducted as salaries and bonuses
(and some illicit boodling) of managers, before figuring profits.
He only mentions in passing that profits include rent. The omission
must be imputed to absent-mindedness when writing late at night,
because elsewhere it is clear this is his major point. Actually
corporate profits today include large rents, and can be steady
or rising even when the marginal rate of return on capital is
falling.
b.
How does George criticize earlier writers on this? 159
George criticizes other writers
for regressing from their own definitions, and using profit to
mean the return to capital. They contract the meaning of "wages"
to its narrow colloquial sense, and put wages of superintendence
in with profits. The result is to blur the distinction between
returns to labor and those to capital.
It would be more characteristically Georgist to fault them for
arrogating the returns of land to the credit of management or
capital. That is what they do. Managers entrusted with valuable
lands love to understate the lands' value, arrogating its productive
contribution to themselves, making themselves look good and justifying
raising their salaries.
4.
Why does it matter how we define interest? 158
We are on the job of "assigning causes that fix the general
rate of interest." Profit is an amalgam of various elements,
including rent. Rent varies inversely with interest. In addition,
profits go down when debt rises, even though the returns to capital
and land remain the same. Changes in profits, as the term is generally
used, therefore do not tell us what is happening to the MROR on
capital proper. That is important for policy, because it is the
MROR that motivates and stimulates the investing that makes jobs
and incomes.
"Profits," as usually measured and defined, may actually
rise while MROR falls, and it is rents that rise. Occasionally
some smart economist figures this out. Rarely, some constructive
economist comes into power and takes appropriate action: Walter
Heller is a prime example, with his Investment Tax Credit (ITC).
The ITC is a tax preference that is limited to investing to create
new capital, thus raising the MROR without raising rents. Keynes,
who stressed the importance of raising the MROR, would have approved.
The mass of ordinary "mainstream" economists, meantime,
mill around ineffectually, clueless and unavailing, silent and
apparently in darkness on this vital point.
If Land were convertible into Capital, and vice versa, their returns
would rise and fall together. However, they are not mutually convertible:
that is why George and the classics defined the elements of economics
as they did.
5.
What does George mean, "The laws of the distribution of wealth
are obviously laws of proportion,..." 160
The shares must add up to 100%, so the whole system must be explained
together, not just one part at a time. George was system-minded,
and was pushing for a unified theory whose parts all harmonized.
In this he was ahead of his times. His contemporaries who developed
the unified theory more elegantly and academically were a man
he had inspired, Philip Wicksteed, and another man he had challenged,
J.B. Clark. Wicksteed and Clark both produced comprehensive marginal
productivity theories showing how the total product is "exhausted"
when all factors are paid their marginal products.
6.
What is the law of rent? 161
"Rent is determined
by the margin of cultivation; all lands yielding as rent that
part of their produce which exceeds what an equal application
of labor and capital could procure from the poorest land in use."
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:
1.
Is there rent when the landholder and the user are the same?
165-66.
Yes, there is what we now call
"implicit," or tacit, rent. Tacit rent is also called
"imputed" rent because its quantity has to be imputed.
A large share of business profit is imputed rent today. For some
businesses it is nearly all of profit. How else would you impute
the profit of a parking lot, for example? The operator likes to
arrogate it to the credit of his efficiency or productivity. The
efforts of managers to do so cause much confusion on this point,
and much understatement of true rent.
Logically George should extend this to the imputed rent of land
under and around owner-occupied residences. He never addresses
this in this book, although he does in later works. Economists
today routinely speak of imputed rent on owner-occupied residences.
They also, unfortunately, underestimate its amount, and vastly
underestimate the share of it that imputes to land, especially
in the residences of the rich.
The importance of this question may be seen by noting that credit
secured by residential property is considerably more than the
national debt today. [See figures in the data sections of the
Federal Reserve Bulletin, the Survey of Current Business, the
Statistical Abstract, some Almanac, of wherever you can find data
on mortgage debt.]
2.
How is ground rent related to the price of land? 166
Which is cause and which is effect?
Ground rent is capitalized into
land value. V=a/i, where V is value, a is annual ground rent,
and i is the interest rate (expressed as a decimal, not a percentage).
When rents are expected to change over time, more complex formulae
are required. [See M. Gaffney, "Land as a Distinctive Factor
of Production."]
3.
How is rent related to the "productiveness" of land?
166
Rent is from the excess productiveness
over marginal (rent-free) land. There is no point in paying for
what you can get free.
4.
What is the law of rent? 168
168 has it; also 161 above.
5.
Is George's statement of the rent law adequate? 168
Not on p. 168. Here, he refers
only to "the same application" of labor and capital.
That does not account for additional rent rising from additional
application of labor and capital to better land.
Seizing on this partial statement, captious critics have accused
George of understanding only the "extensive" margin,
not the "intensive" one. A hasty reader might get that
impression, from George's frequent references to the placer gold
fields, the frontier, free land, etc. This criticism is not really
supportable. On p. 169 we find that when wages fall, labor resorts
"... to inferior lands, or to inferior points on the same
lands ..." This phraseology, repeated elsewhere, clearly
refers to an intensive as well as an extensive margin.
If George were writing a text, 40 years after others had discovered
and developed the point, it would be fair to criticize his statement
as unclear and incomplete. Judging him as the pioneer that he
was, however, he seems to have the elements of a correct statement
in place. Remember, he was aiming at (and hit) a wide popular
audience who would have had little patience with fine points.
Even some economics students today have trouble understanding
the intensive margin of production, incredible as that may seem.
6.
As to uniformity, how does rent differ from wages and interest?
170
Wages and interest tend to a
common level through the interflow and competition of mobile factors.
Rent differs from place to place.
7.
Is rent purely agricultural, or does urban land also yield rent?
170
Ricardo treated rent as a product
of diminishing returns, which he associated with farming. Manufactures
he supposed to evince increasing returns, hence to yield no rent.
Marx followed that idea, too. George pioneered the application
of diminishing returns to cities. One cannot explain urban rent
without it.
As George's movement evolved it became primarily focused on taxing
city land, whose values were rocketing up with rapid industrialization,
commercialization, and urbanization. Some modern writers, like
Jeffrey Lustig of CSU Sacramento, persist in labeling George an
"agrarian" reformer, because of the common threads in
him and Jefferson, Lincoln, and the populists. Vague as the term
"agrarian" is, it comes far from describing the versatility
of George's thinking, and the reform proposal it led to. It also
overlooks George's personal life and background, which were intensely
urban.
8.
How does George coordinate the laws of distribution? 171
Wages and interest get what is
left after rent is taken out. The sum of the shares is 100%, so
each law implies the others.
George always makes rent the first claimant, with others getting
the leavings, or the "residual," as it is put. Other
economists using the residual method give labor/capital their
marginal products, with rent getting the residual. George's approach
makes the landholder less passive and reactive, more importunate
and demanding. George's approach has a lot to be said for it in
terms of realism. Landholders are paid first when: a) they are
paid up front by selling title to the user; b) they charge a cash
rent; c) appraisers and tax assessors separate land from building
values by using the "building-residual" approach; d)
urban speculators buy old junkers and tear them down for the land
underneath them. Rent takes priority over other claims on the
product because landlords have the power to evict for non-payment.
Few can survive eviction, so rent comes first.
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1.
What is George's procedure, calculated to produce a unified theory?
173
We will seek each law separately:
the laws of wages, interest, and rent. Then we will see if they
"correlate," meaning "add up to 100%." Cf.
p. 216, and Chapter 7, where George recaps and wraps this up.
This book is well articulated and hangs together.
We are witnessing here the conception, if not the birth of the
unified marginal productivity theory of distribution. J. B. Clark
and Philip Wicksteed picked up from here. This is what Marx never
did get.
2.
What does George mean by "interest"? 173
As we saw earlier under "The
Meaning of the Terms," George means the rate of return on
capital proper, net of land. Keynes called this the "Marginal
Efficiency of Capital" (MEC). Today we call this the "Marginal
Rate of Return" (MROR), as against the Average ROR (AROR),
which includes land rent.
3.
How does George's use of "interest" differ from that
used in today's published national income accounts? 173
George's interest includes all
marginal returns for the use of capital and not merely those that
pass from borrower to lender. (Today we say it includes tacit
as well as explicit interest.) Thus it includes the return on
all owned capital. It excludes, however, the rent of land. It
excludes most interest paid on loans, for that would be double
counting: the return to owned capital is what he means by interest.
George is not trying to measure interest, but identify the forces
that determine interest rates and the MROR on investing. Today
we say there is a "structure" of rates that rises and
falls together, subject to common forces, and we take the "prime
rate," virtually risk-free, as the index to the whole structure.
George is saying, let's see what determines this prime rate. Thus
he, like modern economists, is not denying risk, but abstracting
from it, to focus on other matters.
It strikes us strangely today to read George's usage where "interest"
includes the net yield of owned capital. To avoid confusion, from
here on I will use the following terminology. NROK means the Net
Return on Capital (George's "interest.") MROR means
the Marginal Rate of Return on Capital (MNROK/MK).
4.
What happens to interest rates as society progresses? 174
They fall. George is here reflecting
the teaching of 19th century classical economics, reinforced by
his direct observation as a San Francisco journalist. Malthus,
Ricardo, Mill, and Marx all saw advanced countries as creating
more capital than could be absorbed at positive interest rates.
Malthus, Ricardo, and Mill attributed this to diminishing returns,
i.e., applying more and more capital to a fixed base of land.
Marx attributed it to under-consumption. George's analysis here
is addressed to the Malthus-Ricardo-Mill view. Later, p. 266,
he discusses under-consumptionism, which he calls the "over-production"
theory, as was done in his day (same idea, different name).George
observed what was lately called the "continental tilt"
of interest rates, with higher rates in growth areas like California.
The "tilt" is the lure by which they import capital
from stable or declining areas in the east.
The existence of a prime rate at 20% in 1981, 102 years after
George's prediction, and 120 years after Mill's and Marx's, makes
one wonder, though, if zero-interest is our destiny after all.
Capital shortage seems to be the lot of most economies, most of
the time. The potholes in our streets display a huge need for
more capital now, and continually.
George is on stronger ground when he scolds Mill for assuming
always an opposition of wage rates and interest rates. Too bad
he didn't quote Mill more, but he could have, for Mill, generally
so brilliant, is guilty on this point.
5. What is the relationship between
interest rates and the "productiveness" (evidently meaning
average product) of capital? 174
Inverse. This is hard to measure
directly, but he has in mind that rents are very high in London,
and high rents imply a high average product of capital, and a
high average rate of return (AROR). But the interest rate (MROR)
is low there.
6.
Is capital rewarded because of inventions and technology?
179, 195
George says no, here and elsewhere.
Inventions are one thing; saving is another. There is no reason
why the productivity of the tool should inure to savers in general.
To be sure, a swarm of capital-using inventions would raise the
demand for capital; but many inventions are capital-saving (a
recent such invention is fiber-optic cable).
He also observes that interest rates do not rise with the "march
of invention," but are very low in the cradle of invention,
England. What are high there are land values.
7.
To what does George attribute interest? 180 ff.
To the productivity of capital.
He exemplifies this by the generative powers of nature, or life,
that work while man sleeps.
George correctly associates interest with time, and says time
is productive because life grows. Capital is interchangeable and
exchangeable, so if it yields an increase in living forms, then
no one will invest capital in other forms without requiring an
increase there, too. He invokes the principle of arbitrage, as
he does so often.
8.
What besides biological growth is a productive use of capital?
185
On p. 185, George allows that
capital yields an increase when used in exchange. Recalling that
he has defined capital as wealth in the course of exchange, this
could be construed as covering everything, but that is evidently
not how he means it. He writes on p. 186 that "adapting"
is also productive, without reference to exchange (and on p. 73-74
he treats Robinson Crusoe's canoe as capital, with no possibility
of exchange). What he is leading towards is a more general definition
of capital as everything that man has produced, but not yet consumed.
The reason he has not consumed it immediately must be because
it yields, in some sense, an increase.
? The details of George's interest
theory are poorly developed, but this chapter contains the elements
of a sound productivity theory of interest. Like the Physiocrats,
George stresses the productivity of living capital. Like his contemporaries
Wicksell, Boehm-Bawerk, and Jevons, he stresses the role of capital
in carrying goods over time. Like a modern Chicago economist,
he leans hard on the role of arbitrage, which tends to equalize
MRORs in all alternative uses of capital.
************************
1. What does "spurious"
mean?
False; pretended.
2.
Are land values capital? 189
No. See Gaffney, "Land as
a Distinctive Factor of Production." Land and capital are
mutually exclusive, and each is "limitational" (meaning
some amount, however small, is required for all production).
3.
Do government bonds represent capital? There are two answers,
depending on how the bonds are used.
a. Page 190, not if the money
was wasted. George's example of waste is military spending. This
is closely paraphrased from Mill, whom George studied closely
and for whom he held a love-hate fascination. Mill hedged by saying
that sometimes military spending is justified; George omits that
part. Other passages and works, however, as well as his personal
history, indicate he did regard some military spending as productive.
George notes in Book VII that military spending is mainly to acquire,
retain, and police land, so the land is what the bonds represent.
This of course justifies taxing the land to pay off the bonds,
even if the land receives no other public services. On p. 384
George notes this, citing Andrew Bisset, The Strength of Nations.
This book describes the military finances of Wm. The Conqueror
and his successors. George's biographers tell us that reading
Bisset's book is what crystallized George's thinking on land taxation.
In the present passage, George seems to imply that the taxes in
question will come from wages and interest, not rent. Later, however,
in Protection or Free Trade? (1886), George clarified his position,
saying that all taxes ultimately come out of rent, no matter what
their original impact. This is another tenet that he shares with
Francois Quesnay, the leading Physiocrat. It is called "The
Physiocratic Theory of Tax Incidence," and is used by many
modern economists. It is valid in respect to "open economies,"
meaning small jurisdictions with open borders for the movement
of labor and capital.
b. Page 191, public works are
a "productive" use of capital. Bonds issued to build
them represent that capital. He gives this point only half a paragraph,
but it is there.
In 1887, eight years after George published Progress and Poverty
in California, and one year after he had run for Mayor of New
York City, Assemblyman C.C. Wright of Modesto, California, carried
legislation to let small farmers form and control Irrigation Districts
that could issue bonds to finance irrigation works. They could
and did tax real estate in the districts to pay off the bonds.
In 1907 a new law let them exempt all improvements and assess
land only. Most of them promptly did so. In 1917, exempting improvements
was made mandatory. Many of these California districts are premier
practical demonstrations of George's land tax, at least at a local
level. They are, of course, rural, although George's main influence
was in cities. They display the versatility of his brand of "land
reform": it applies to land per se, whether rural or urban.
The bonds are not liens on the capital in the works, but on the
lands the works serve.
4. How do corporations pay dividends
on stock issued in excess of capital received? ("Watered"
stock is the common term.) 191
By acquiring and exploiting a
monopoly, so that profits are much greater than a return on the
real capital used. On these monopoly profits "certificates"
are issued, and "interest and dividends paid." That
means the promoters who created the monopoly turn it into immediate
cash by selling part of the company to new shareholders, and/or
by borrowing on it by selling bonds.
George at this point attributes these monopolies simply to the
power of massed capital. One wonders why George, the land reformer,
does not associate the railroad monopolies with their vast land
grants, and their valuable rights-of-way. Probably it is because
he was already well known for making that point in his earlier
work, Our Land and Land Policy (1871). That book was a pioneering
expose of the railroad land grant scandal and its excesses. It
is still cited today by historians as a path-breaker. One suspects
that he was holding in reserve his big guns about land monopoly,
to maintain the attention of readers who had been conditioned
to think in more conventional terms. At this time he was reaching
out to the European-trained socialists.
Note the big dig at Western Union, p. 193. George's San Francisco
newspaper had suffered losses when WU, the big news monopoly of
the time, had given preferential treatment to his competitors.
George had launched an expensive, unsuccessful attack on the WU
monopoly.
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:
1.
How can capital be increased? 195
a. By saving, which George describes
as reallocating labor to produce capital instead of immediately
consumable goods.
b. By converting wealth into
capital. See also p. 200.
Here he clarifies the relationship between consumer capital and
capital-in-exchange: they are mutually convertible. Mill had said
the same thing. You can live on your household capital while producing
exchangeable capital, turning one kind into another.
Ricardo and Mill had written also of a conversion of capital between
forms. They distinguished circulating and fixed capital. Only
circulating capital, consisting of "subsistence," constituted
the wages fund, but this fund was augmentable by converting fixed
into circulating capital. Ricardo is explicit that this black/white
distinction is only an expository convenience: the two forms shade
into each other, and are mutually convertible. Thus Ricardo's
wages-fund was augmentable by converting fixed capital back into
circulating form.
In George, the same mutability of capital is accomplished by converting
consumer capital into exchangeable capital. So George and the
wages-fund theorists are not so different in substance, they just
use different figures of speech to get at the same phenomenon:
capital is malleable, unlike land. It is too bad that George never
got around to reconciling his views with those of the wages-fund
theorists: it could be done.
Still, George focuses attention here on a point neglected by others.
In World War II (the big one) we drew down accumulated consumer
capital like prewar cars, houses and furniture to pour capital
into war plants. There is a reservoir of consumer capital that
can be converted to other uses in time of need. This has the same
effect as an elastic supply of Circulating Capital (CK).
That kind of thinking is needed today. Now, most economists lean
exclusively on net capital formation as a way to supply needs
for capital. They leave out two elements of flexibility in economic
life. a) They leave out the mutability, convertibility, and versatility
of the given stock of capital. b) They leave out the evolution
of technology. Inventors respond to economic needs. When capital
is scarce, we get capital-saving technology. It is embodied in
the capital stock just as quickly, or as slowly, as the stock
turns over.
Once we appreciate the role of capital turnover and convertibility
in the macro-economy, we can also appreciate the trouble caused
when turnover is blocked. Fixed capital (FK) can be converted
to CK only at a rate limited by the built-in ability of the FK
to yield Capital Consumption Allowances (CCAs). Extremely durable
capital usually yields CCAs only very slowly. Land-saving capital
is extremely durable. Overpricing of land leads to an excess of
land-saving capital. This can lead to a liquidity jam or glitch
in the macro-economy. We develop this theme later, as something
needed to round out George's theory of depressions.
2.
What is the relation of capital to labor? 198
Capital is stored-up labor. His
point is that capital is augmentable, and therefore does not put
a cap on employment, as land may.
Today we would add that capital may also be stored-up land services,
as when land is used to grow timber. It may also be stored up
services of capital itself, as when a tree adds another layer
of wood to itself. That simply fortifies the basic point, however,
that capital is augmentable.
3.
How can capital get more without labor's getting less?
199
By adding more to output. Neither
takes from the other: "each gets only what he adds to the
common fund." Note the word "adds." This is marginal
analysis being born.
George does not say it here, but his point is that the presence
of more and better land raises the marginal product of both labor
and capital, so each adds more to the common fund.
4.
Are capitalists a separate class from laborers? 200
The classes "shade off into
each other by imperceptible gradations." Here is the western
American speaking, and reacting against the English assumptions
of Mill. Those irritated him and help account for his attack on
the WFT of Mill, whom he otherwise greatly admired. Mill sympathized
with the plight of the "working classes," and sought
to elevate them, but it never occurred to him they were other
than a separate class. He viewed them with Pavlovian British condescension.
There is a lot of class built into "classical" economics.
The class model offends George: he aspires to make capitalism
democratic. His models are Jefferson, Lincoln, Greeley of the
New York Tribune, McClatchy of the Sacramento Bee, and George
W. Julian, the principled, egalitarian Senator from Indiana. Marx,
by contrast, seizes and insists on the class model. He would not
want capitalism any other way: it is his foil to condemn it. George
rejects the assumption of rigid class structure also because it
restricts economic mobility.
5.
What determines the interest rate? 201
The interest rate is determined,
like wages, by the productivity of capital on marginal land. Modern
economists would phrase it "at the margin." It is standard
investment analysis to rank investments, and all their incremental
parts and dimensions, in diminishing order of RORs. The idea is
to accept only those that equal or surpass the "hurdle rate."
Marginal land is where the ROR = the hurdle rate, so nothing remains
for rent. It is also where AROR = MROR.
6.
What happens to the yield of investments in excess of the common
interest rate? 201
Excess yields are caused by use
of superior land, and are captured by the differentially high
rents of that land. Interest rates tend to a common level, through
the action of arbitrage; rents remain highly differentiated from
site to site. Land value depends on "three factors: location,
location, and location." Interest rates are the same from
location to location.
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1.
What causes the variation in wages between different employments?
206-08
George says Adam Smith covered
it well. Maybe so, but he left out a lot that is considered important
today. Labor markets are more sharply divided than the classicals
may have allowed. Admission to the class who receive wages of
management is restricted by a permanent economic factor that virtually
guarantees the permanence of a dual labor market.
The factor is this. Wages of superintendence are generally higher
for those who have more assets to superintend. There being no
substitute for an owner's care and concern, the law of diminishing
returns tells us that unequal distribution of wealth leads to
unequal wages of superintendence at the margin. Ross Perot's decisions
over his billions are much more consequential than yours or mine
over our mites, yet we all have all the time there is, no more
and no less.
By comparison, the points more frequently heard, while important
as symptoms, seem secondary. Social class, and the class content
of education, are the results of unequal distribution of property.
For example, you might learn just as much law at Citrus Belt night
school as at Stanford Law School, the most expensive one in the
USA, but the contacts and references aren't the same.
Financing expensive education is called "creating human capital."
The word "creating" is a little misleading, because
it is more often a matter of converting existing wealth into a
new form. In this modern "certification society" some
occupations are closed off by licensure. You have to spend time
and money to get the license. Thus, there is a class structure
within labor that reflects in part the prior distribution of property.
There are non-property factors, too. Within licensed groups, cliquishness
and old-boy networks and politicking guarantee that neither ability
nor prior wealth gets all the rewards. Labor markets are not totally
blocked—after all, Lee Iacocca made it, and this nation
has a long tradition of melting in immigrants. Within bureaucracies,
employers often actually prefer immigrants, as well as native-born
Americans from poorer backgrounds, because their lesser degree
of security makes them more docile and complaisant. They are so
glad to get into the American system, they take more abuse, and
feel less shame about polishing the apple.
So George may be overstating things a bit to assume so much mobility
among all forms of labor, but he would probably allow as much.
The exceptions really do little damage to his case, and even strengthen
it. In his limited time he could not get around to developing
every point. Later writers in his tradition, like Thorstein Veblen,
have done so at length.
2.
Where do wages equal the average product of labor? 206
On marginal land (and, tacitly,
using little or no capital). We teach this in production economics
today.
3.
What would George say about Say's Law? 208
The passage on 208 supports it,
but elsewhere we find hints of underconsumptionism in George.
He did not see a conflict between demand side and supply side
economics: he proposed to raise both supply and demand. As a supply-side
economist, he represents an ultimate: no economist ever devised
a program more thoroughly geared to increasing production.
4. On what wages do all other wages
depend? 212
All wages depend on wages in
the lowest stratum. It would be more defensible to say that the
whole structure tends to rise and fall together, subject to common
influences, and that is substantially what George means. Here,
as in his interest theory, his MO (modus operandi) is to take
one part of an interdependent whole as the determinant, and let
it govern all the rest. It is an expository device, not a fixed
dogma.
5.
How are wages affected by locking up superior land? 212-13
Wages are forced down, along
with the margin of production. Here, George foreshadows his major
thesis, much as a composer prepares the ear by dropping fragments
of his major themes and melodies in his introductions.
6.
What determines wages? 213
What labor can earn at the margin
of production. It would be better to say that wage rates and the
margin of production are mutually determined by the supply and
demand of labor. Here, as elsewhere, George's MO is to take one
piece of a large, interdependent whole, and make it the determinant,
relying on arbitrage or other market forces to adjust everything
else. This should be regarded as a mannerism, more than a substantive
matter. It does not really invalidate his points.
7.
Of what law is the law of wages a corollary? 216
Of the law of rent. It is obvious,
but earlier writers have not seen it, although "if it were
a dog it would bite them." Winston Churchill, in his youth
a crusader for Georgist policies in Britain, commented on this.
Quoth Sir Winston, "Many a man stumbles over the truth only
to pick himself up and hurry along as though nothing had happened."
******************
Recaps the laws of distribution,
showing their correlation as George promised.
******************
1.
What keeps wages and interest from rising as their average products
rise? 222
The landholders' share rises
and soaks up much of the gains of material progress.
Today, economists express this by saying "excess profits
are imputed away." They mean by this that they inure to the
fixed factor in production, land. In terms of conventional cost
curves, Rent = [P - AVC] x Q, where P is the price of the product,
Q is the quantity, and all factors but land are included in AVC.
Land is the FC. AFC magically rises to soak up all profits above
cost. That magic is how land rents arise.
On 223, just as on 171, he has rent taken out first; wages and
interest get the leavings.
*********************
