|Wealth and Want
|... because democracy alone is not enough to produce widely shared prosperity.
Progress and Poverty Today -- Introduction to the New Abridged Edition of Progress and Poverty
As this book was written, the Industrial Revolution was transforming America and Europe at a breathless pace. In just a century, an economy that worked on wind, water, and muscular effort had become supercharged by steam, coal, and electricity. Canals, railroads, steamships and the telegraph were linking regional economies into a national and global network of exchange. The United States had stretched from coast to coast; the western frontier was evaporating.
American journalist and editor Henry George marveled at the stunning advance of technology, yet was alarmed by ominous trends. Why had not this unprecedented increase in productivity banished want and starvation from civilized countries, and lifted the working classes from poverty to prosperity? Instead, George saw that the division of labor, the widening of markets, and rapid urbanization had increased the dependence of the working poor upon forces beyond their control. The working poor were always, of course, the most vulnerable in depressions, and last to recover from them. Unemployment and pauperism had appeared in America, and indeed, were more prevalent in the developed East than in the aspiring West. It was "as though a great wedge were being forced, not underneath society, but through society. Those who are above the point of separation are elevated, but those who are below are crushed down." This, the "great enigma of our times," was the problem George set out to solve in Progress and Poverty.
Economists will recognize his analysis as a precursor to the modern marginal productivity theory of functional distribution. His story is framed in the language of what is today called classical political economy, though George was careful to avoid inconsistencies of definition and reasoning which, he showed, had led other economists astray.
A central feature of the British classical school was the classification of productive resources into three "factors of production" - labor, land, and capital. Most classical economists had conceived of these in terms of three great social classes (the workers, the landed aristocracy, and the capitalists). George, on the other hand, identified them as functional categories, distinguished by the conditions under which the factors are made available for production.
In a competitive economy, the
earnings of the factors of
production measure their separate contributions to the value of the
product. Payments for the use of labor are called wages; payments for
land are called rent; the income of capital is interest. In George's
terms, the distress of the working classes had to do with a
persistently low level of real wages. "Why," he asked, "in spite of
increase in productive power, do wages tend to a minimum which will
give but a bare living?"
The book proceeds systematically. First, George explores the prevailing scholarly and popular explanations, which relied principally on the famous population theory of Malthus, in combination with the "wage fund" theory of British political economy. Together these theories implied that the aggregate income of labor depends upon the amount of capital devoted to the payment of wages. An increase in wages required an increase in the amount of capital per worker. However, any rise in living standards above mere subsistence motivated workers to marry younger and bear more children, until population growth caused capital per worker - and, therefore, wages - to recede again.
Moreover, population growth
diminished agricultural productivity
by forcing recourse to inferior soils. Technological advance and
capital accumulation might afford a period of relative prosperity -
but ultimately, increasing applications of labor to a fixed amount of
land could raise output only at a diminishing rate. In short,
immutable laws of nature - the population principle and the law of
diminishing returns to land - were widely believed to explain the
persistence of poverty.
To George, the Malthusian analysis
was abhorrent: It asserted that
no institutional reform could fundamentally alter the pattern of
income distribution, and that charitable support for the needy only
compounded the problem - by lowering death rates and raising birth
In his own analysis, George takes
meticulous care to avoid
inconsistencies of definition and reasoning. ...
Public debate about economic policy revolves today, as it always has, around a tension between two fundamental social goals. Economists and policymakers lament a perennial "trade-off between efficiency and equity." ...
Most economists deem it their business to evaluate the efficiency of policy choices, but, claiming no special knowledge of ethics, they leave it to philosophers and the political process to evaluate questions of justice. Can it be true that society's arrangements to provide for common needs must always confront a divisive choice between equity and efficiency - between what is fair and what is feasible?
Henry George not only denied it; he asserted the reverse: Full recognition of economic rights and responsibilities would reveal the goals of equity and efficiency to be mutually reinforcing. Neither social justice nor a well-functioning free market system can long be enjoyed without the other. "The laws of the universe are harmonious," George proclaimed. His analysis showed that the root cause of widening inequality lies not in the laws of nature, but in social maladjustments which ignore them. Moreover, the breach of justice which underlies the problem of poverty is not merely incidental to economic development; it impedes development, leading to wider and wider inequality.
George emphasized that unequal
distribution is itself wasteful of
Unemployment and underemployment
of labor mean that energy and
intelligence go untapped. ...
In short, an unjust system of privileges and entitlements tends to cause misallocation of resources, macroeconomic instability and stagnation, political corruption, and social conflict that ultimately may threaten whole civilizations. George's central contribution was to show that the distinction between individual property and common property forms a rational basis for distinguishing the domain of public activity from that of the private. ...
George's insights have wide application to modern problems. ...
Modern fiscal and monetary policies have not resolved the problem of macroeconomic fluctuations. Yet a half century before Keynes, George outlined a theory of boom and bust which explained the underlying instability of the market economy under present fiscal institutions. ...
Many American cities are plagued by the twin problems of urban decay and suburban sprawl. ...
Thus, George's synthesis informs a research program of remarkable breadth. Some writers understand Georgism to constitute a distinct paradigm of political economy, one which reconciles the contradictions between the two competing paradigms dominant in the world today - the mainstream neoclassical school, which tends to focus on the impressive efficiency properties of free markets, and Marxist socialism. Other Georgist writers believe that Georgism can and should be explained in the modern language of neoclassical economics. What is certain is that geoclassical thought bears crucially on some of the foremost controversies in America and the world today. Read the whole article
Michael Hudson and Kris Feder: Real Estate and the Capital Gains Debate
1 Introduction THE CAPITAL GAINS CONTROVERSY | WHAT IS MISSING FROM THE CAPITAL GAINS DEBATE?
2 Depreciation and Capital Gains
3 How Mortgage Debt Converts Rent into Interest
4 Capital Gains Taxation in Real Estate
5 Government Statistics on Real Estate Asset Gains
6 The Political Context of Real Estate Taxation
7 Policy Conclusions
DO NOT REDUCE CAPITAL GAINS TAXES ON BUILDINGS.
DO NOT PERMIT BUILDINGS TO BE DEPRECIATED MORE THAN ONCE
DO NOT REDUCE CAPITAL GAINS TAXES ON LAND
IMPROVE THE QUALITY OF STATISTICS AND REFORM NIPA ACCOUNTING PRACTICES
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Wealth and Want
... because democracy alone hasn't yet led to a society in which all can prosper