Andrew Mazzone and I collaborated on a project to review the work of the nineteenth-century American economist Henry George, especially his landmark book Progress and Poverty (1879), to see how George’s work stood up in the light of modern economics and to determine what could be brought up to date and applied to the contemporary world. We wanted to establish that George’s work was relevant and also to criticize American academic economics for having overlooked or rejected George both in his own time—when his work was a worldwide sensation—and afterward, even today. Andrew died suddenly in the middle of the project. This book is a tribute to him and completes what we began.
George began his career as an author and public personality with Progress and Poverty, arguing that progress brought poverty in its wake and that poverty might even outpace progress—an important, original point of view that has not lost any of its relevance since George’s time. In fact, in our age of burgeoning inequality it may be more relevant today than ever. The grounds for this paradoxical interlinking of progress and poverty lay in the effects of rising rents. For George, rents were payment—not for the use of land in the usual sense, but for pure access to specific spaces and locations. But why should some people have the right to limit others’ access to the use of the earth; surely it belongs to us all? Worse, he argued, the limiting of access—by demanding payment—would undermine the benefits of innovation and hard work.
To prevent this linking of progress and poverty, George said a major policy shift in taxation was required. This is well known among economists as the Georgist “single tax” on rents, based on the Henry George Theorem, linking overall rents and the cost of government.
Since George’s time there has been progress, both in the economy itself and in economic analysis: the economy has been growing, and growth models have become highly sophisticated (in many cases focusing on matters that were central to George a century earlier). But that progress has also led to poverty, obvious in the economy itself. Our mainstream economics is also poverty-stricken, intellectually, however. Our analytical models do not explain the persistence of poverty very well, nor do they account for crises and crashes, let alone the recent and stubborn growth of inequality. The mainstream theory of income distribution—marginal productivity (which assumes diminishing returns for all three factors of production and that markets will “coordinate” their adjustment)—is hopelessly flawed (George rightly rejected an early version of it). And contemporary economic theory has almost completely lost sight of rents and real estate—even though real estate was center stage in the global financial crisis of 2008, a crisis directly resulting from speculation in the housing market. And in 2016 Donald Trump, a real estate developer whose rise to power is intimately linked to rents and real estate speculation, was elected president. With a solid Republican majority in Congress, he began to implement a set of relentlessly regressive “trickle-down” economic policies that can be expected to lead to more poverty among vast segments of the population. Andrew and I wanted to find insights and tools in George’s thought to counter this trend—to support progress and alleviate poverty.
Before Andrew died, we had settled on five main points in George’s writing that we wanted particularly to explore:
- 1.George emphasized cooperation as well as competition in regard to increasing productivity. He saw that the division of labor and cooperation that emerged, based on mutual trust, as settlements developed on new land, created value in “location” and generated increases in output, while bringing about innovation. This is what generated the “differentials” on which rent is based (as we will explain). The emergence of differentials could be associated with increasing productivity.
- 2.George and his followers claimed that the total value of land in a region would tend to equal the value of the aggregate output of that region.
- 3.Further, they claimed that total rents would tend to equal the costs of government, so that taxing rents would pay for government.
- 4.They contended that, unless prevented by an activist government, inequality in wealth and income, roughly between the upper and lower classes but also between other significant groups, would tend to rise inexorably.
- 5.And, finally, George repeatedly attacked land speculation and its tendency to withdraw land from productive use and to promote concentration—a point that seemed to both Andrew and myself to have a direct bearing on today’s world. Only today it’s not land alone but finance generally that is subject to speculative excesses, leading to booms and crashes. The extension of George’s ideas from land to finance needed to be worked out.
I wrote up notes on theory, while Andrew worked on national accounts, reexamining rents, costs of government, land values, and gross national product (GNP). I eventually put my notes together into two more-or-less finished articles to present at the annual Conference of the Eastern Economic Association in March 2017, in New York City. Andrew’s illness had prevented him from being able to keep up with his research; all he had were notes. He died suddenly, just before the conference. Nevertheless, I presented what we had, including his notes. The talks I gave at that conference formed the basis of this book.1
A Quick Look at Henry George
Economists have given George short shrift, which is a shameful oversight—he has much to teach us. He was uniquely American, perhaps our greatest economist, certainly our most original. He was justly famous and heralded in the nineteenth century, and his book Progress and Poverty, which is the source for much of our analysis in these pages, was the best-selling book on economics of that century. Today, George is obscure and all but forgotten, although his arguments, shockingly effective in their day, are still pertinent and powerful—and are currently being reexamined in some advanced quarters! (Posner and Weyl 2018).
George was a force to be reckoned with in the America in which he lived. He was a kind of archetypal American, a strong individualist but equally passionate about the values of the community. He was a self-made man, an autodidact who withdrew from formal education in favor of home tutoring and never attended university. He left his home in Philadelphia at the age of 15 and went to sea for three years, traveling first to Australia, then after returning, leaving the East for the West and settling in San Francisco in 1858. He became a printer, then a newspaperman, an editor, and, finally, a writer. The frontier and the dynamics of westward expansion shaped his economics—and the railroads shaped his views of “monopoly,” or market power. He developed a picture of the way the economy works that balanced individualism and cooperation, expressed our strengths as both a country and a people, and identified an enduring tension in our character and polis. He lectured on this in Europe and debated Alfred Marshall. George returned to the East and entered politics, running for mayor of New York in 1886. He died prematurely (having earlier suffered a stroke) in 1897 at the age of 58, at the height of his popularity.
Moral insight is the bedrock of George’s economics. He favored initial equality: everyone has an equal right to share in what the earth has to offer—a powerful claim, difficult to reject, hard to make precise. He was enchanted by the West’s great prairies, its vast expanses of meadow and forest, the land that stretched on and on, America’s wide-open spaces with deep rich soil. He saw the implications of free land in the frontier of his day, a place where labor could reap the full proceeds of its work, thus providing a magnet for workers from the cities of the east. As a result of this attraction, wages in the east had to stay high enough to keep labor from migrating to the frontier. High wages also meant that manufacturing would benefit from labor-saving innovations. So American business had a high-wage, high-tech profile from the start.
George saw the significance not only of cooperation but also of trust, that each part of a process created by the division of labor has to trust that the other parts will work responsibly. George understood the importance of honesty and keeping promises. Who will extend credit to someone who cannot be trusted? Who will accept bills from them? Will they deliver the goods in good shape? We have to believe that the other party or parties will do their share on time and in the right way. One of the most important moral issues for George was land ownership: who had the right to own land, and so to exclude others from any part of the earth or from the use of its fruits? His answer was that the right to ownership arose from labor—you owned what you made or created. But no one made or created land (in the pure sense), so no one had a right to own it; no such right could exist.
For George, the American economy of the nineteenth century was a dynamic system. Technology and productivity were continually improving. But the greater the progress the system made, the more poverty it created. Why? This was the fundamental question he asked and sought to answer—and it is still, arguably, the most important question for economists and one of the most enduring and troubling paradoxes in our world today.
“ Ownership,” George argued, results from making things: if you grow vegetables, they are yours; if you make a hoe to cultivate your garden, it is yours—because you made it. If you make it with a friend, it belongs to both of you. If a company makes it, it belongs to the company. That is the foundation of ownership rights, and, of course, there are complications. Land, however, is not made by anyone (think of space); it is there for everyone. And it should not be polluted or despoiled by anyone. In this, George anticipated both the conservation ...