Henry
George and
The Reconstruction Of Capitalism
Dr.
Robert V. Andelson (1931-2003) was Professor Emeritus of Philosophy,
Auburn University, and Distinguished Research Fellow, American Institute
for Economic Research.
This essay was first published in booklet form in 1994 by the Robert
Schalkenbach Foundation (New York), American Institute for Economic
Research (Great Barrington, Massachusetts), and Public Revenue Education
Council (Saint Louis).
To order a copy, please visit
our on-line bookstore, found in "Publications" (left).
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...
[He is] certainly the greatest
that this country has produced.
No man ... has the 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
With the fall of the Iron Curtain, people
all over the world seem to be searching for a "Middle Way."
Except in North Korea and Cuba, doctrinaire Marxism has been repudiated
virtually everywhere, even by the Left. Socialism has become passé.
Its adherents are no longer riding the crest of the wave of the
future. Even the most energetic apostles of federal meddling, John
Kenneth Galbraith, for example, eschew the Socialist label.
Yet, on the other hand, the free market economists
of the classical period would scarcely recognize Capitalism as we
know it in America today. Such luminaries of industry and finance
as Lee Iacocca and Felix Rohatyn advocate a measure of government
intervention that would have seemed entirely insupportable to Cobden
or Ricardo. In the political field, the major candidates differ
mainly on matters of degree. It is not so much a question of "Shall
there be federal aid?" as of "How much federal aid shall
there be?" or of "How shall it be administered?"
As long ago as the late 1940s, "Mr. Conservative" himself,
Senator Robert A. Taft, sponsored a bill for federal housing. Later,
another Senate Republican leader, Bob Dole, was a major architect
of the food stamp program, which is itself a dole, not just for
the poor, but, above all, for agribusiness. A Republican president,
Richard Nixon, instituted price controls, and cut the dollar loose
from its last tenuous backing with the cynical quip, "We are
all Keynesians now."
But what we are presented with, from Right to
Left, is not a coordinated structure embodying the best elements
from both sides, not even a well-thought-out attempt at syncretism,
but rather a bewildering welter of jerry-built solutions, each one
based on political and emotional considerations and lacking any
functional relationship to a unified system of socio-economic truth
- let alone any rootage in a grand scheme of teleology or ethics.
A little Socialism here, and a little Capitalism
there; a concern for the public sector here, and a concession to
the profit motive there; a sop to the "underprivileged"
here, and a bow to incentive there - put them all together, and
what have you got? Nothing but a great big rag-bag, a haphazard
pastiche of odds and ends without any bones and without any guts!
Nevertheless, there is a Middle Way. There is
a body of socio-economic truth which incorporates the best insights
of both Capitalism and Socialism. Yet they are not insights that
are artificially woven together to form a deliberate compromise.
Instead, they arise naturally, with a kind of inner logic, from
the profound ethical distinction which is the system's core. They
arise remorselessly from an understanding of the meaning of the
commandment: "Thou shalt not steal." This Middle Way is
the philosophy associated with the name of Henry George.
I like to picture economic theory as a vast jigsaw
puzzle distributed across two tables, one called Capitalism and
the other, Socialism. But mingled with the genuine pieces of the
puzzle are many false pieces, also distributed across both tables.
Most of us are either perceptively limited to one table, or else
we are unable to distinguish the genuine pieces from the false.
But Henry George knew how to find the right pieces, and, therefore,
he was able to put the puzzle together - at least in its general
outlines. I don't claim that he was infallible, or that there isn't
further work to be done. Yet if I find a little piece of puzzle
missing here or there, it doesn't shake my confidence in the harmony
of the overall pattern he discerned. It doesn't make me want to
sweep the puzzle onto the floor and start all over again from scratch.
Henry George was born in 1839 in Philadelphia,
and died in 1897 in New York City. It was in the San Francisco of
the 1870s that he wrote his master-work, Progress and Poverty.
For the greater part of his adult life he had been a working newspaperman,
beginning as an apprentice typesetter and making his way up to the
editor's desk. His was a peculiarly Californian saga. His philosophy
was forged out of his observation of conditions in a burgeoning
new state, where he was able to examine, as in a laboratory, the
genesis and development of social and economic processes. Progress
and Poverty has been translated into at least 27, languages.
Among books of nonfiction, its sale was for
many decades exceeded only by the Bible. At Oxford University, in
the English literature department, it is used as a model of the
finest prose. The rest of Henry George's life was one great crusade
for social justice, at the end of which he literally martyred himself
by campaigning for public office against his doctors' urging. In
the midst of the campaign he died, and was spontaneously accorded
the greatest funeral that New York City had ever witnessed.
His genius has been glowingly acknowledged by
such renowned figures as philosophers John Dewey and Mortimer J.
Adler, presidents Woodrow Wilson and Dwight D. Eisenhower, scientists
Alfred Russel Wallace and Albert Einstein, essayists John Ruskin
and Albert Jay Nock, jurists Louis D. Brandeis and Samuel Seabury,
columnists William F. Buckley and Michael Kinsley, and statesmen
Winston Churchill and Sun Yat-sen. These names cover the entire
political spectrum from Conservative to Liberal, yet all of them
saw something of immense value in George's thought. I'll take time
to quote from only one of these
testimonials - the one by Dr. Sun Yat-sen, the founder and first
president of the Republic of China. "I intend," he declared,
"to devote my future to the welfare of the Chinese people.
The teachings of Henry George will be the basis of our program of
reform." I think we may safely say that had Dr. Sun lived to
carry out his promise, the Chinese mainland would not today be Red.
But Taiwan, where it has been carried out, by no means fully but
to a considerable extent, has, as a result, witnessed a spectacular
transformation from abysmal poverty to vibrant prosperity distributed
so as to benefit all levels of the population.
I said that I'd quote from only one testimonial,
and I'll keep my word. But I do consider it apposite to mention
that Count Tolstoy, author of War and Peace, Anna Karenina,
and of the explicitly Georgist novel, Resurrection, wrote
a long letter to Tsar Nicholas 11 in January, 1902, warning of mounting
public disaffection, and pleading for reform along Georgist lines
as the most immediate measure necessitated both by the demands of
justice and the threat of socialist revolution. It was followed
in May of the same year by a letter to another member of the imperial
family, spelling out the specifics of George's proposal. May one
not reasonably assume that, had Tolstoy's warning and plea been
heeded, Russia would have been spared more than seven decades of
Communist tyranny; its satellite and subject nations, their respective
periods of Marxist domination; and the West, the burden of the Cold
War? Or that, by disregarding that warning and that plea, Nicholas
11 forfeited the lives of hapless millions, including, ironically,
his own and those of his cherished wife and children?
For a long time, it was the fashion among academic
economists to ignore or patronize Henry George -- whether for his
lack of formal credentials, for his propensity to mingle moral arguments
with economic ones, or for other perceived intellectual crimes even
more monstrous. Today, this is becoming less and less the case,
although, of course, there were honorable exceptions from the outset.
But now we find economists of every stripe, including at least four
Nobel laureates, united in agreement that George has much to say
that is of vital contemporary importance. The list is far too long
to read in its entirety, but it includes such names as Gary Becker,
Kenneth Boulding, James Buchanan, Milton Friedman, Mason Gaffney,
Lowell Harriss, Alfred Kahn, Arthur Laffer, Franco Modigliani, Warren
Samuels, Robert Solow, James Tobin, and William Vickrey -- the last
of whom served recently as president of the American Economic Association.
In the preface to the fourth edition of Progress
and Poverty, Henry George wrote: "What I have done in
this book, if I have correctly solved the great problem I have sought
to investigate, is to unite the truth perceived by the school of
[Adam] Smith and Ricardo to the truth perceived by the schools of
Proudhon and Lasalle; to show that laissez faire (in its full true
meaning) opens the way to a realization of the noble dreams of socialism..."
Let us return now to our illustration of the economic jigsaw puzzle,
and take a look at the pieces which he selected from the two tables
of Capitalism and Socialism.
We will begin with the Capitalist table. George
considered himself a purifier of Capitalism, not its enemy. He built
upon the foundations laid by the classical economists. The skeleton
of his system is essentially Capitalist. In fact, Karl Marx referred
to George's teaching as "Capitalism's last ditch." George
believed in competition, in the free market, in the unrestricted
operation of the laws of supply and demand. He distrusted government
and despised bureaucracy. He was no egalitarian leveler; the only
equality he sought was equal freedom of opportunity. Actually, what
he intended was to make free enterprise truly free, by ridding it
of the monopolistic hobbles which prevent its effective operation.
In his book, The Condition of Labor,
George said: "We differ from the Socialists in our diagnosis
of the evil, and we differ from them in remedies. We have no fear
of capital, regarding it as the natural handmaiden of labor; we
look on interest in itself as natural and just; we would set no
limit to accumulation, nor impose on the rich any
burden that is not equally placed on the poor; we see no evil in
competition, but deem unrestricted competition to be as necessary
to the health of the industrial and social organism as the free
circulation of the blood is to the bodily organism -- to be the
agency whereby the fullest cooperation is to be secured."
Why did George take so many pieces from the Capitalist
table? Because, I think, they are all corollaries of one big piece,
namely, the moral justification for private property. You see, George,
who was a devout though non-sectarian Christian, had a stout belief
in the God-given dignity of the individual. This dignity, he held,
demands that we recognize that the individual possesses an absolute
and inalienable right to himself, which is forfeited only when he
refuses to accord the same right to others. The right to one's self
implies the right to one's labor, which is an extension of one's
self, and therefore to the product of one's labor - to use it, to
enjoy it, to give it away, to destroy it, to bequeath it, or even
(if one so desires) to bury it in the ground.
Now, taxation as ordinarily understood, especially
when based upon the "ability to pay" principle, is a denial
of this right. It is a denial of it because it represents a tribute
levied on the product of an individual's labor. It is a denial of
it because it rests upon the assumption that the community at large
has a right to assess individuals disproportionately to the benefits
which they receive from the community at large. And so George rejects
as collectivistic many institutions that most present-day defenders
of free enterprise would never dream of questioning - income taxes,
tariffs, sales taxes, corporate taxes, personal property taxes,
etc. This makes him in one sense an arch-Conservative, yet prominent
Socialists like Walter Rauschenbusch and George Bernard Shaw have
testified that it was Henry George who first kindled their concern
for social justice. To understand the reason for this, we must direct
our attention to the other table, the table labeled "Socialism."
In fitting together the economic jigsaw puzzle,
George took only two pieces from the Socialist table. But what large
and what strategic pieces they were! The first of these was his
insistence that all persons come into the world with an equal right
of access to the goods of nature. The second was his contention
that the community has a right to take that which the community
produces.
Actually, these pieces had landed on the Socialist
table only by default. They had originally been part of the theory
of Capitalism, as outlined by John Locke, the Physiocrats, and Adam
Smith. But Capitalism in practice ignored them, and so became a
distorted caricature. George's notion was to rescue these lost elements,
and restore balance and proportion to the Capitalist table.
Now, if private property derives its moral justification
from the right of a human being to the fruits of his or her own
efforts, clearly the land and the other goods of nature do not belong
in the category of private property because no human efforts created
them. And the value that attaches to them is not the result of anything
their title-holder does to them; it is the result of the presence
and activity of the community
around them. Someone can build a skyscraper in the desert and the
ground upon which it stands will not be worth a penny more because
of it, yet a city lot with nothing on it may be worth a fortune
simply because of the number of people who pass by it daily.
Why, asked Henry George in effect, should private
individuals be allowed to fatten upon the unearned increment of
land - upon the rise in value which the community creates because
of population increase and the growth of public services? Why should
certain people be allowed to levy tribute upon others who desire
access to their common heritage? But, you might object, the present
owner may have paid hard-earned money for his land. Has he not,
therefore, a vested right? To this, George would have answered:
If one unwittingly buys stolen goods, the rectitude of one's intentions
establishes no right against the legitimate owner of those goods.
Henry George was not the first thinker to comprehend
the difference between land and other kinds of property. John Locke
said that
"God gave the world in common to all mankind.... When the 'sacredness'
of property is talked of, it should be remembered that any such
sacredness does not belong in the same degree to landed property."
William Blackstone wrote: "The earth, and all things therein,
are the general property of all man-kind, from the immediate gift
of the Creator." Thomas Paine stated that "men did not
make the earth... It is the value of the improvements only, and
not the earth itself, that is individual property." According
to Thomas Jefferson, "The earth is given as a common stock
for men to labor and live on."
John Stuart Mill wrote: "The increase in
the value of land, arising as it does from the efforts of an entire
community, should belong to the community and not to the individual
who might hold title." Abraham Lincoln said: "The land,
the earth God gave to man for his home, sustenance, and support,
should never be the possession of any man, corporation, society,
or unfriendly government, any more than the air or water, if as
much." In the words of Herbert Spencer, "equity does not
permit property in land ... The world is God's bequest to mankind.
All men are joint heirs to it."
But it was Henry George who emphasized this distinction
and placed it at the very center of his system. At present we have
the ironic spectacle of the community penalizing the individual
for his industry and initiative, and taking away from him a share
of that which he produces, while at the same time lavishing upon
the nonproducer undeserved windfalls which it -- the community --
produces. Henry George built his whole program around the principle:
Let the individual keep all of that which he or she produces, and
let the community keep all of that which it produces.
Land monopoly is the great monkey-wrench which
is caught in the works of the free enterprise system, and which
prevents the proper meshing of its gears; it is the hidden cancer
that is eating out the heart of Capitalism. Early in this century,
a great statesman described its virulent effects in the following
words:
While the land is what is called "ripening"for
the unearned increment of its owner, the merchant going to his office
and the artisan going to his work must detour or pay a fare to avoid
it. The people lose their chance of using the land, the city and
state lose the taxes which would have accrued if the natural development
had taken place, and all the while the land monopolist has only
to sit still and watch complacently his property multiplying in
value, sometimes many fold, without either effort or contribution
on his part.
This evil process strikes at every form of
industrial activity. The municipality, wishing for broader streets,
better houses, more healthy, decent, scientifically planned towns,
is made to pay more to get them in proportion as it has exerted
itself to make past improvements. The more it has improved the town,
the more it will have to pay for any land it may now wish to acquire
for further improvements.
The manufacturer proposing to start a new
industry, proposing to erect a great factory offering employment
to thousands of hands, is made to pay such a price for his land
that the purchase price hangs around the neck of his whole business,
hampering his competitive power iii every market, clogging him far
more than any foreign tariff in his export competition, and the
land price strikes down through the profits of the manufacturer
on to the wages of the workman.
No matter where you look or what examples
you select, you will see that every form of enterprise, every step
in material progress, is only undertaken after the land monopolist
has skimmed the cream off for himself, and everywhere today the
man or the public body that wishes to put land to its highest use
is forced to pay a preliminary fine in land values to the man who
is putting it to an inferior use, and in some cases to no use at
all. All comes back to the land value, and its owner is able to
levy toll upon all other forms of wealth and every form of industry.
Those were the words of Winston Churchill. And
if you will examine the history of the major American depressions,
you will find that virtually every one of them was preceded by a
period of intense land speculation which had an inflationary effect
upon the whole economy. In 1836, in 1857, in 1873, in 1893, and
in 1929 - in every instance, the big crash was precipitated by the
bursting of the land bubble.
The purely economic ramifications of land monopoly
are so vast as to be staggering. Land monopoly does not affect rents
alone. It affects wages, prices, production, the cost of government,
and the distribution of purchasing power. It is the major cause
of slums and blighted areas. It is the greatest single breeder of
revolution around the world.
Had it not been for land monopoly, the Bolsheviks
could never have gained power in Russia. Mao Tse-tung and his so-called
"agrarian reformers" (and I use that term advisedly) could
never have wrested control of China. Fidel Castro would never have
arisen in Cuba. Because of land monopoly, El Salvador has endured
decades of murderous civil war. Because of land monopoly, the Amazon
rain forest is being rapidly destroyed to make room for settlers
who have been denied a foothold elsewhere except on terms that offer
little better than starvation. These are just a few obvious examples,
taken almost at random. Because of land monopoly, Latin America
and the Middle East are veritable tinder boxes, ready to explode
at any moment. We in the U.S. may not yet have reached that state,
but we're moving in that direction. How much longer can we go on
propping up a rotten structure by borrowing against the future?
Well, exactly how did Henry George propose to
deal with the problem of land monopoly? Did he advocate that privately
held land should be expropriated and divided up? Quite the contrary.
That remedy is as ultimately ineffective as it is ancient. There
is more truth than fiction in the aphorism that the French Revolution
delivered the peasants from the aristocrats only to hand them over
to the usurers, and what was true of the peasants was equally true
of the soil they tilled. Thus has it ever been with programs of
expropriation and redistribution.
Under Henry George's system, private land titles
would not be disturbed one iota. No one would be expropriated. Instead,
the community would simply take something approaching the total
annual economic rent of land for public purposes. This amount would
be determined by the value of each site on the free market, not
by any arbitrary governmental fiat. In other words, the privilege
of monopolizing a site is a benefit received from society and for
which society should be fully compensated; and so, under the Georgist
system, the person who wished to monopolize a site would pay a rent
for it to the community, approaching 100 percent of its annual rental
value, exclusive of improvements.
Let me emphasize that last phrase, "exclusive
of improvements." The apartment house owner would pay the full
value of his lot, and nothing on his building; the factory owner
would pay the full value of his site, and nothing on his factory;
the farmer would pay the full value of his ground, and nothing on
his structures or his crop, his livestock or his machinery; the
homeowner would pay the full value of his lot, and nothing on his
house. If the land had no market value, the owner would pay nothing;
if it had a value, he would pay regardless of whether he were using
it or deriving income from it.
This would, of course, eliminate all speculative
profit in landholding, squeeze the "speculative water"
out of land prices, and in effect bring back the frontier by making
cheap land readily available to everyone - at least initially. The
result would be to raise the margin of production, increase real
wages, and stimulate building and productivity. Eventually, the
flourishing economy would cause use value to exceed the former speculative
value, but instead of being engrossed by those who make no contribution
to the economy, land rent would flow into the public coffers in
place of taxes levied upon labor and capital. The land-value charge
is really what Walt Wryneck so aptly calls "a super user's
fee." For the privilege of exclusive access to and disposition
of a site and its natural resources, the owner pays an indemnity
to those who are thereby dispossessed - an indemnity reflecting
precisely the market value of his privilege, collected through the
tax mechanism and relieving them of the burden of payment for public
services. What could be more fair?
Actually, I daresay that each one of you, probably
without realizing it, frequently pays something that partakes of
the principle of such a "super user's fee" whether you
own land or not. Every time you put money in a parking meter, you
are purchasing a temporary monopoly of the parking space. Don't
ever complain about having to put money in a public parking meter;
it's a bargain for you. You're getting a free gift from the community
- the difference between what you pay and what a commercial parking
lot in the vicinity would charge!
I have spoken of land monopoly as a cancer, and
so it is. Yet land often cannot be used efficiently unless monopolized.
The Georgist remedy does not provide for the excision of land monopoly
but rather for its transformation from malignant to benign. For
the monopoly of land can be fair and even salutary if the monopolizer
pays into the public treasury a sum that reflects substantially
the market value of his privilege.
Perhaps this would be a good place to interject
that when economists speak of "land", they are talking
about nature. The term embraces not only space on the earth's surface
but also natural resources -- oil in the ground, virgin timber,
wildlife, the oceans and other natural bodies of water, the airwaves,
airspace, etc. To capture for the public the value of these natural
goods, land-value charges may in some cases need to be supplanted
by or combined with other methods such as severance taxes and auctioning
of leases. But the principle is the same.
If time were not limited, I could talk at length
about specific advantages of the Georgist system. I could go into
the "canons of taxation," and show how it fulfills better
than any other method these ideal criteria whereby economists measure
the effectiveness of a system of public revenue. I could give concrete
illustrations of how it is working right now in Denmark, in Australia,
in New Zealand, in Taiwan, and even in some areas in the U.S.
This is not the idle pipe-dream of an armchair
visionary. It has been tested by experience. Let me just cite the
Hutchinson Report, a survey comparing the various Australian states
in terms of the degree to which they use the Henry George approach.
It found that wages, purchasing power, growth of industry, volume
of retail sales, land under cultivation, value of improvements,
and population gain through immigration from other states were in
every case greater in direct ratio to the proportion of revenues
derived from the public collection of ground rent. To me, this is
the most conclusive argument anyone could ask for!
Of course, Henry George's proposal has nowhere
been fully implemented. Even where it has been implemented substantially,
its beneficial impact has invariably been blunted by countervailing
policies, oftentimes at other levels of government. It is not a
panacea. To be completely effective, it would need to be supplemented
by other reforms, such as measures to assure a stable currency.
But of it this much can be said: All other systems have been found
wanting. This alone has worked whenever and wherever it has been
tried to the extent that it has been tried. I submit that it is
now deserving of actualization on a broader and more thoroughgoing
scale.
Nobody, to my knowledge, advocates that it be
instituted whole-hog overnight. But it could be phased in in easy
stages so as to obviate the risk of shock and dislocation. And it
is my considered opinion that, by the time the system were in full
effect, the revenues produced by collecting land values alone would
suffice to meet all legitimate public needs. This may not have been
true during the Cold War, with its staggering burden of nuclear
defense. But with that burden lifted, and with the need for welfare
of all kinds evaporated because of the full employment and other
social benefits that the system would naturally engender, and for
other reasons, which time precludes my specifying here, I really
think that we could dispense with taxes on incomes, improvements,
sales, imports, and all the rest. If I am unduly optimistic in this
belief, and the public appropriation of land-values were insufficient,
this would be no argument against using it as far as it could go.
There are two things which a government can never
do and still be just: The first of these is to take for public purposes
what rightfully belongs to private individuals or corporations.
The second is to give to private individuals or corporations what
rightfully belongs to the public. All wealth that is privately produced
rightfully belongs to private individuals or corporations, and for
the government to appropriate it is unjust. But land rent is publicly
produced, and for the government to give it to private individuals
or corporations is equally unjust. He who thinks himself prepared
to justify in principle the private monopolization of land rent,
must also be prepared to justify in principle the jobbery of the
Tweed Ring and the looting of Teapot Dome - not to mention the escapades
of Michael Milken, Ivan Boesky, and Charles Keating.
In closing, I will summarize with a quotation
from the late Dr. Viggo Starke, for many years a member of the Danish
cabinet: "What I
produce is mine. All mine! What you produce is yours. All yours!
But that which none of us produced, but which we all lend value
to together, belongs by right to all of us in common." This,
in a nutshell, is the philosophy of Henry George.
This essay is a revised version of the text of an address
delivered by Dr. Andelson, in Great Barrington on 9 July 1992
to the AIER fellows, staff, and guests.
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