Wealth and Want
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Interest and Wages

The three factors that contribute to production — land, labor and capital — each receive a return. Land earns rent, labor earns wages, capital earns interest. Land is, by its nature, fixed in supply: when demand for land rises, no more land can be created, so land price rises. When land gets a higher return, labor and capital by definition get a lower return. Labor is supplied by human beings, day by day. Capital is supplied by human beings, from their savings. Why should the owners of land — who didn't produce even a square foot of it — collect more rent simply because land is fixed in supply, depriving labor and capital of their just return?

Labor cannot wait as long as capital can. Capital is often patient money — but everyone needs to eat every day, and needs shelter every day. So people will accept lower wages, if they must, in order to eat. Those without any savings have no option. When we make snips in our social safety net, the result is to force people to accept low wages, even if they are not sufficient to meet their most simply defined needs.

When the rent on land is mostly left in the pockets of the landholders, they get rich in their sleep, and they need not put good land to good use. When we fail to collect the rent as our common entitlement, we have to tax wages and interest to fund our common spending. And what is the effect of our common spending? It makes land more valuable! So the landholders can charge those who need good sites a higher rent. What a privilege for the landholders. What an injustice for anyone who needs land — all of us!

We may each wear three hats: as workers (labor), as landholders (land) and as capitalists (capital). To the extent that we permit our laws and our system of taxation to favor the holders of land, we disadvantage those who work and those who save and invest in wealth-producing goods (capital). While 2/3 of us consider ourselves homeowners (whether or not we own our homes outright), we may think that structures which favor the holders or land work to our personal benefit, even if society as a whole is disadvantaged. But the fact is that most of the benefit goes to those who own our most valuable land, which can be 100,000 times as valuable, per acre, as good agricultural land. Thus, our interests as workers and as savers are not served when we allow privilege to landholders.

Money that must be spent to acquire land is not available for capital or labor, and, equally seriously, when taxes are based on profits, those who produce must pay twice, first to the landlord or landseller and then to support government through taxes on things that shouldn't be taxed.

 

Henry George: What the Railroad Will Bring Us [Californians, and particularly San Franciscans]  (1868)

For years the high rate of interest and the high rate of wages prevailing in California have been special subjects for the lamentation of a certain school of local political economists, who could not see that high wages and high interest were indications that the natural wealth of the country was not yet monopolized, that great opportunities were open to all -- who did not know that these were evidences of social health, and that it were as wise to lament them as for the maiden to wish to exchange the natural bloom on her cheek for the interesting pallor of the invalid?

But however this be, it is certain that the tendency of the new era -- the more dense population and more thorough development of the wealth of the State -- will be to a reduction both of the rate of interest and the rate of wages, particularly the latter. This tendency may not, probably will not, be shown immediately; but it will be before long, and that powerfully, unless balanced and counteracted by other influences which we are not now considering, which do not yet appear, and which it is probable will not appear for some time yet.

The truth is, that the completion of the railroad and the consequent great increase of business and population, will not be a benefit to all of us, but only to a portion. As a general rule (liable of course to exceptions) those who have it will make wealthier; for those who have not, it will make it more difficult to get.
  • Those who have lands, mines, established businesses, special abilities of certain kinds, will become richer for it and find increased opportunities;
  • those who have only their own labor will be come poorer, and find it harder to get ahead --
    • first, because it will take more capital to buy land or to get into business; and
    • second, because as competition reduces the wages of labor, this capital will be harder for them to obtain.
What, for instance, does the rise in land mean? Several things, but certainly and prominently this: that it will be harder in future for a poor man to get a farm or a homestead lot. In some sections of the State, land which twelve months ago could have been had for a dollar an acre, cannot now be had for less than fifteen dollars. In other words, the settler who last year might have had at once a farm of his own, must now either go to work on wages for some one else, pay rent or buy on time; in either case being compelled to give to the capitalist a large proportion of the earnings which, had he arrived a year ago, he might have had all for of himself. And as proprietorship is thus rendered more difficult and less profitable to the poor, more are forced into the labor market to compete with each other, and cut down the rate of wages -- that is, to make the division of their joint production between labor and capital more in favor of capital and less in favor of labor.

And so in San Francisco the rise in building lots means, that it will be harder for a poor man to get a house and lot for himself, and if he has none that he will have to use more of his earnings for rent; means a crowding of the poorer classes together; signifies courts, slums, tenement-houses, squalor and vice.

San Francisco has one great advantage -- there is probably a larger proportion of her population owning homesteads and homestead lots than in any other city of the United States. The product of the rise of real estate will thus be more evenly distributed, and the great social and political advantages of this diffused proprietorship cannot be over-estimated. Nor can it be too much regretted that the princely domain which San Francisco inherited as the successor of the pueblo was not appropriated to furnishing free, or almost free, homesteads to actual settlers, instead of being allowed to pass into the hands of a few, to make more millionaires. Had the matter been taken up in time and in a proper spirit, this disposition might easily have been secured, and the great city of the future would have had a population bound to her by the strongest ties-a population better, freer, more virtuous, independent and public spirited than any great city the world has ever had.

To say that "Power is constantly stealing from the many to the few," is only to state in another form the law that wealth tends to concentration. In the new era into which the world has entered since the application of steam, this law is more potent than ever; in the new era into which California is entering, its operations will be more marked here than ever before. The locomotive is a great centralizer. It kills towns and builds up great cities, and in the same way kills little businesses and builds up great ones. We have had comparatively but few rich men; no very rich ones, in the meaning "very rich" has in these times. But the process is going on. The great city that is to be will have its Astors, Vanderbilts, Stewarts and Spragues, and he who looks a few years ahead may even now read their names as he passes along Montgomery, California or Front streets.  With the protection which property gets in modern times -- with stocks, bonds, burglar-proof safes and policemen; with the railroad and the telegraph, after a man gets a certain amount of money it is plain sailing, and he need take no risks. Astor said that to get his first thousand dollars was his toughest struggle; but when one gets a million, if he has ordinary prudence, how much he will have is only a question of life. Nor can we rely on the absence of laws of primogeniture and entail to dissipate these large fortunes so menacing to the general weal. Any large fortune will, of course, become dissipated in time, even in spite of laws of primogeniture and entail; but every aggregation of wealth implies and necessitates others, and so that the aggregations remain, it matters little in what particular hands. Stewart, in the natural course of things, will die before long, and being childless, his wealth will be dissipated, or at least go out of the dry goods business. But will this avail the smaller dealers whom he has crushed or is crushing out? Not at all. Some one else will step in, take his place in the trade, and run the great money-making machine which he has organized, or some other similar one. Stewart and other great houses have concentrated the business, and it will remain concentrated.

Nor is it worth while to shut our eyes to the effects of this concentration of wealth. One millionaire involves the little existence of just so many proletarians. It is the great tree and the saplings over again. We need not look far from the palace to find the hovel. When people can charter special steamboats to take them to watering places, pay four thousand dollars for the summer rental of a cottage, build marble stables for their horses, and give dinner parties which cost by the thousand dollars a head, we may know that there are poor girls on the streets pondering between starvation and dishonor.  When liveries appear, look out for bare-footed children. A few liveries are now to be seen on our streets; we think their appearance coincides in date with the establishment of the almshouse. They are few, plain and modest now; they will grow more numerous and gaudy -- and then we will not wait long for the children -- their corollaries.

But there is another side: we are to become a great, populous, wealthy community. And in such a community many good things are possible that are not possible in a community such as ours has been. There have been artists, scholars, and men of special knowledge and ability among us, who could and some of whom have since won distinction and wealth in older and larger cities, but who here could only make a living by digging sand, peddling vegetables, or washing dishes in restaurants. It will not be so in the San Francisco of the future. We shall keep such men with us, and reward them, instead of driving them away. We shall have our noble charities, great museums, libraries and universities; a class of men who have leisure for thought and culture; magnificent theatres and opera houses; parks and pleasure gardens.... read the whole article

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... because democracy alone hasn't yet led to a society in which all can prosper