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Friday, May 8, 2015

Progress and Poverty, Then and Now

Today's debate over inequality and progress is much the same as in George's day

Everyone seems to know about Thomas Piketty’s Capital in the Twenty-First Century. It’s all about unequal distribution of wealth and the government measures we need to fix it. But we’ve been here before.

Deja vu. The same focus drove the public debate more than a century ago.

It’s strange how a bestselling book from a century ago could so completely disappear from view. But that’s the case with Henry George’s Progress and Poverty, written in 1879. It became the single most influential book on economics during the highest period of economic growth ever recorded. This was true for decades after its publication.

I’ve seen it in used book stores for years but never bothered to pick it up. I recently had the chance to read George’s book through. The themes of the book were strangely familiar. In fact, in many ways, they are identical: the problem of massive poverty amidst plenty, the corrupt relationship between wealth and political power, the sense that the social order has vast potential that is being locked up by a ruling elite. It’s all here in George’s book.

“The present century has been marked by a prodigious increase in wealth-producing power,” reads the opening salvo. This was America in the Gilded Age, when double-digit growth was not unusual. The country was on a gold standard. New innovations and their disbursement through the population were dramatically changing the culture and challenging people’s thinking on economics. There were railroads, steel, internal combustion, flight, the telephone, electricity, and huge developments in medicine. Life spans increased, income boomed, and infant mortality receded.

It was the birth of the modern world, and George became its leading social and economic thinker. There was probably not an intellectual in the English-speaking world between the book’s appearance and the 1930s who did not read the book. Most everyone praised it, including Albert Einstein, Frank Chodorov, Leon Tolstoy, Philip Wicksteed, F.A. Hayek, John Dewey, and Bertrand Russell, among thousands of others. The praise extended far beyond politics, with free-market radicals and socialists all finding ways to credit his contributions as their primary influence.

The book eventually sold 6 million copies and was translated into 15 languages, becoming the second-best selling book next to the Bible (before Ayn Rand’s Atlas Shrugged displaced it for that title). This is notoriety is especially unusual given that George was never formally educated beyond the age of 14. He was a sometime businessman who grew up in poverty, eventually becoming a writer for newspapers. He had no academic standing at all.

What was the argument? On technical matters, George sought to address why it is that poverty persists despite the massive rise of wealth. How could so many create and possess such vast new wealth, while yet so many remain in a state of grueling poverty?

It was the inequality that struck him, and his casual observation seemed to suggest that the inequality grew even as wealth expanded. He noted that the poor in New York, where wealth was highest, were worse off than they were in California even though the West had far fewer barons of great wealth. How can we account for this? He was also struck by the cycles of boom and bust that caused so much suffering among so many, and speculated on their cause.

“So long as all the increased wealth which modern progress brings goes but to build up great fortunes, to increase luxury, and make sharper the contrast between the House of Have and the House of Want,” he wrote, “progress is not real, and cannot be permanent. The reaction must come. The tower leans from its foundations, and every new story but hastens the final catastrophe.”

His core theory was that the untaxed private ownership of land and resources was locking up wealth in a way that it could not be accessed by everyone but its owners. The value of land rose higher and higher, even though its owners were not themselves producing anything.

This was particularly true of the railroads, he noted. Wherever the tracks were laid, and the banks appeared, we saw large pockets of wealth appear, but it was channeled only to the few who were involved in land speculation.

He said that this was due to the fact that land is an example of a fixed resource. It doesn’t grow in supply. So when it becomes more valuable, the rent to the land flows only to its owner, who unjustly benefits while everyone else suffers.

His solution was a broad and sweeping tax on land, which he proposed as a replacement to all other existing taxes, including excise taxes of all sorts and also all tariffs (he was a radical proponent of free trade between nations). This tax, wrote George, would fund the whole of the government in all its operations and help discourage the monopolization of land in the hands of a few. This would create the conditions for a more widespread sharing of wealth.

What’s crucial here is that George was not in any way a socialist. In fact, he saw government as a tool of the ruling class that should not be empowered.

“The ideas that there is a necessary conflict between capital and labour,” he wrote, and “that machinery is an evil, that competition must be restrained and interest abolished, that wealth may be created by the issue of money, that it is the duty of Government to furnish capital or to furnish work, are rapidly making way among the great body of the people, who keenly feel a hurt, and are sharply conscious of a wrong. Such ideas, which bring great masses of men, the repositories of ultimate political power, under the leadership of charlatans and demagogues, are fraught with danger.”

Though he believed that poverty was traceable to private land, he nowhere proposed the end of private ownership of every sort. Indeed, he was a champion of all forms of private ownership, trade, innovation, and association.

“Laissez faire (in its full true meaning) opens the way to the realization of the noble dreams of socialism,” he wrote.

His one exception was land. He believed that a land tax would perfect the vision of Adam Smith and David Ricardo.

Why was this book so stunningly popular? There was in the world at that time a rising fear of socialist revolution. The socialists were gaining ground in Europe, and among academia generally, and a widespread fear of an all-out worker revolution was common.

George’s passion on the issue of poverty and equality, together with what seemed to be a common-sense solution, offered an alternative to revolutionary upheaval and the imposition of despotism. He seemed to provide a way to save economic freedom from being overthrown, at once protecting the rights of the wealthy while spreading the benefit of that wealth more broadly among the population. This solution had a huge appeal.

There is an additional factor here. Massive portions of this book are devoted to pushing the land tax idea as an explanation for poverty and cycles of business activity. He saw this solution as a way of lessening the overall tax burden on society.

“Nearly all of the manifold taxes by which the people of the United States are now burdened have been imposed rather with a view to private advantage than to the raising of revenue,” he wrote, “and the great obstacle to the simplification of taxation is these private interests, whose representatives cluster in the lobby whenever a reduction of taxation is proposed, to see that the taxes by which they profit are not reduced.”

His technical analysis here was deeply flawed. There is no theoretical case for singling out land as a unique form of property. Yes, it is limited, but so are all resources. The supply of and demand for valuable land is subject to all the usual economic laws. A tax on land is a tax on people, and this reduces overall prosperity.

And, in any case, this policy idea cannot account for the appeal of the book — the tax never happened nor was ever likely to.

To understand its draw, one has to move to the last chapters, which lay out a beautiful vision of a liberal economy, universal prosperity, and the moral urgency of freedom. He believed it belonged to all peoples in all times, and he was convinced that it could be had in the new century. In this sense, he defined the very essence of what became the highest aspirations of the best intellectuals of his age.

For, in the end, he was a lover of freedom and free markets. “We honour Liberty in name and in form. We set up her statues and sound her praises. But we have not fully trusted her.”

And he loathed power:

With the growth of the collective power as compared with the power of the individual, his power to reward and to punish increases, and so increase the inducements to natter and to fear him; until finally, if the process be not disturbed, a nation grovels at the foot of a throne, and a hundred thousand men toil for fifty years to prepare a tomb for one of their own mortal kind.

George’s perspective makes for a striking contrast to the views of other contemporaries, who expressed alarm at the radical demographic changes of the last quarter of the 19th century. Population exploded, infant mortality collapsed, and the middle class dawned and began to earn new levels of income.

These were the two warring factions at the time: those who aspired to global prosperity and those who wanted to use government to stop the progress of peoples and restore ruling class control of a static society. Intellectuals like T.S. Elliot and D.H. Lawrence, along with the Ivy League faculties of colleges and universities on the East Coast, were pushing for eugenic policies to curb the rise of a new middle class. They feared, even hated, the advance of commercial society.

Henry George, despite his confused economics and his advocacy of the land tax, was an eloquent and passionate advocate of the free society pushed toward progress through a laissez-faire economy. He rallied around the principle of association as the basis for the existence of society as we know it, and the lack of association or its forbidding is the condition that leads to its unraveling. He saw people as an asset that made society more prosperous, and thereby completely rejected the Malthusian idea that more people leads to more poverty.

His massive influence is sometimes credited with many of the reforms of the progressive era, but he is more correctly seen as a critical influence in the development of the 20th century libertarian tradition. In short, his concern for equality led him to seek conditions to raise everyone up, not merely build the state to tear down wealth.

“Liberty calls to us again,” he wrote. “We must follow her further; we must trust her fully. Either we must wholly accept her or she will not stay. It is not enough that men should vote; it is not enough that they should be theoretically equal before the law. They must have liberty to avail themselves of the opportunities and means of life.”