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Thursday, January 22, 2015

Visions of Progress: Henry George vs. Jane Jacobs

Or, Would You Rather Live in Georgetown or Jacobsville?

Henry George and Jane Jacobs each have an enthusiastic following today, including, I’m sure, some readers of The Freeman.

For those who might not know, Henry George is the late-19th-century American intellectual best known for his proposal of a “single tax” from which he believed the government could finance all its projects. He advocated eliminating all taxes except that on the rent of the unimproved portion of land. He viewed that rent as unjust and solely the result of general economic progress unrelated to the actions of landowners.

Jane Jacobs, writing about one hundred years later, is an American intellectual best known for her harsh and incisive criticism of the heavy-handed urban planning of her day. She advised ambitious urban planners to first understand the microfoundations of urban processes — street life, social networks, entrepreneurship — before trying to impose their visions of an ideal city.

Much has been written, pro and con, on George’s single tax and also on Jacobs’s battles with planners the likes of Robert Moses, and if you’re interested in those issues you can start with the links provided in this article. Here I would like to contrast their views on the nature of economic progress and the significance of cities in that progress.

Some interesting parallels

There are some interesting parallels between George and Jacobs.

Both were public intellectuals who rebelled against mainstream economic thinking — for George it was classical economics, for Jacobs neoclassical economics. Both had a firm grasp of how markets work, were critical of crony capitalism, and concerned with the problems of “the common man.” And both established their reputations outside of academia.

George was a strong advocate for free trade and an opponent of protectionism. He also understood Adam Smith’s explanation of the invisible hand. As George writes in his Science of Political Economy, “To find a fully civilized people we must find a people among whom exchange or trade is absolutely free, and has reached the fullest development to which human desires can carry it. There is, as yet, unfortunately, no such people.”

Similarly, Jacobs understood how spontaneous social processes solve the problem of dispersed local knowledge and how ordinary people can successfully cope with most of their own problems.

But there are, as I see it, at least two areas where they fundamentally differ. Those differences echo those we see today between current mainstream economics and the economics of Mises and Hayek.

The nature of progress and poverty

Although George criticized many aspects of classical economics (for example, the wage–fund doctrine), he held two important ideas that often characterize that school of thought. The first is that market competition and private property (with the notable exception of land) keep things fair and orderly, which accounts for his favorable attitude toward free trade. The second is that there is a logic to competition that pushes the economy relentlessly forward and against which ordinary people are mostly powerless. That is where he differs considerably from Jacobs.

David Ricardo, an outstanding figure of the classical school whose theory of land-rent George borrowed from heavily, argued that in a competitive market system population growth will put ever-greater pressure on farmers to bring land under cultivation that is less and less fertile. That, in turn, lowers land productivity, raises food prices, and drives wages down to subsistence level. In the meantime, rent on the more fertile land (marginal land earns no rent) rises inexorably. At subsistence wages, population growth ceases, profits shrink, and the economic system reaches a “stationary state,” which innovation may temporarily forestall but cannot prevent. Pretty bleak!

George therefore advocated a single, confiscatory tax on land because he felt that the owners of land, by virtue of their monopoly ownership, enjoy predictably rising rents without engaging in productive activity. Much as some popular economists today believe that capital automatically earns a return to those rich enough to accumulate it and so may be taxed without ill effect, George believed that taxing the “unearned” portion of land rent would not only be just but could resolve poverty and a myriad of other social and fiscal problems.

George wrote most of his most important economic tracts in the 1870s and 1880s, about the same time that classical economics was beginning to wane. Broadly speaking, one way of looking at the project of classical economics (including much of Karl Marx’s economics) is through its concern with large societal forces — for example, Malthus’s population doctrine, Ricardo’s stationary state, and Marx’s material forces of history — against which individuals’ efforts were ineffectual.

That outlook began to change in the early 20th century, when economic theorists shifted focus toward the individual’s perceptions and expectations and how they interact with other people’s perceptions and expectations to generate patterns and outcomes that are typically (though not always) benign. Theorists also asked how that order happens even though no one either intends it or has sufficient knowledge to achieve it even if they did intend it. The answer, at least to the likes of Ludwig von Mises, F.A. Hayek, and Israel Kirzner, is that the economic system has to be congenial to trial and error such that the beneficial and orderly consequences of success stay ahead of the costly and chaotic consequences of error.

Enter Jane Jacobs

In her Economy of Cities, Jacobs makes the startling claim that “poverty has no causes. Only prosperity has causes.” In other words, poverty is the default condition of humankind; it is what happens when there is no progress. For Jacobs, the main drivers of prosperity are individual innovators. Innovation is messy because what innovation depends on — trial and error — is messy and seemingly chaotic. Yet, innovation results when resourceful and imaginative people gather the diverse inputs they need to try to do something different. Progress is not inevitable, but in the right environment it has happened and can continue to happen. For Jacobs, that environment is a living city.

A city that brings people with diverse knowledge, skills, and tastes together in proximity enables the kind of experimentation needed for innovation. If knowledge were perfect, we wouldn’t need to experiment. True, great cities are consequently places of inequality, noise, congestion, and disease, which is the negative side of ambitious people seeking to better their situations. But history shows that when the environment is right — when the rules of the game are right — the positives tend to outweigh the negatives, although sometimes just barely. Which is why Jacobs praised the inefficiency of cities:

I propose to argue that these grave and real deficiencies are necessary to economic development and thus are exactly what make cities uniquely valuable to economic life. By this, I do not mean that cities are economically valuable in spite of their inefficiency and impracticality but rather because they are inefficient and impractical.

That understanding of the nature of social processes in the presence of imperfectly informed but alert and resourceful individuals places Jacobs squarely on the same side of economic theory as Mises, Hayek, and Kirzner.

George wrote about progress, of course, but he didn’t seem to appreciate, as Jacobs did, the microfoundations of that progress. It’s not surprising, then, that he disparaged great cities, approvingly quoting William Cobbett, who famously described 19th-century London as a Great Wen. Apparently, George didn’t appreciate that many of the considerable vices of cities are the price of the very progress that he cherished, a price that growing millions worldwide have been and are still willing to pay, both to move to large urban centers and to stay in them.

  • Sanford Ikeda is a Professor and the Coordinator of the Economics Program at Purchase College of the State University of New York and a Visiting Scholar and Research Associate at New York University. He is a member of the FEE Faculty Network.