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Show Page 12 The Ogden Valley news Volume XXIII Issue X June 15, 2016 Book Review “Progress and Poverty” by Henry George By Forrest Brown I recently learned about a little-known man who was living in San Francisco in the late nineteenth century when he wrote Progress and Poverty. What intrigued me so much about this obscure man was that during his heyday, he was very popular—his ideas inspiring passionate debate among many intellectuals. After Henry George published Progress and Poverty in 1879, a political movement began to grow in the United States around his work. Progress and Poverty has been compared to some of the greatest works of the English language. The problem Henry had when he wrote it—he was totally unknown and no one would print his book. Consequently, he and some of his friends set the type themselves and produced an author’s edition, which eventually found its way into the hands of New York publisher D. Appleton & Company. An English edition soon followed, which aroused enormous interest across America and Europe. Alfred Russel Wallace, renowned English scientist and writer, said of Henry’s book, “It is the most remarkable and important book of the present century.” John Dewey wrote, “Henry George is one of a small number of definitely original social philosophers that the world has produced . . . from Plato down.” Soon, Henry George was known internationally, becoming the third most famous man in the U.S. surpassed only in public acclaim by Thomas Edison and Mark Twain. Join me as we review this little acknowledged, but important work of Mr. George. Henry George wrote Progress and Poverty in 1879 spending time on it daily after his working hours, during the only leisure time open to him. He had no real training in political economy as he had quit formal schooling in the seventh grade. Prior to this, he had spent time on a ship as a seaman after which he ended up in San Francisco as a journeyman printer. All he knew of economics were the basic rules of Adam Smith and some of the philosophies of Herbert Spencer and John Stuart Mill. Henry was endowed with curiosity and a strong attentiveness to all that went on around him. His attributes included being a scholar and a historian, along with a wit that set him apart from others. He read what he needed to read and he took the unique opportunity of studying the formation of civilization in the early stages of the American Industrial Revolution. He saw a city of tents and mud change into a fine town of paved streets and decent housing, with tramways and buses. As he viewed these tremendous changes hap- pening across America, he also witnessed the beginning of wealth and the appearance of scarcity. Mr. George’s book is divided into ten parts with forty-four short sections. In his introduction he discusses some of the great inventions that came out of the industrial revolution. He also saw many of the problems that existed. He writes: Who could have foreseen the steamship, the railroad, the tractor? Or factories weaving cloth faster than hundreds of weavers? Who could have heard the throb of engines more powerful than all the beasts of burden combined? Or envisioned the immense effort saved by improvements in transportation, communication, and commerce? Surely, these new powers would elevate society from its foundations, lifting the poorest above worry for the material needs of life. Imagine these new machines relieving human toil, muscles of iron making the poorest worker’s life a holiday, giving our nobler impulses room to grow. Given such bountiful material conditions, surely we could anticipate the golden age long dreamed of. How could there be greed when everyone had enough? How could things that arise from poverty—crime, ignorance, brutality—exist when poverty had vanished? Such were the dreams born of this wonderful century of progress. True, there were disappointments. Discovery upon discovery, invention after invention still did not lessen the toil of those who most need relief or bring plenty to the poor. But it seemed there were so many things that could be blamed for this failure that our faith has hardly weakened. Surely we would overcome these difficulties in time. He begins the first part of his book on Wages and Capital by discussing why traditional theories of wages are wrong. He goes against existing theory that wages equals the ratio between the number of workers (labor) and capital. Mr. George questions the validity of this theory, saying: It has already been assumed that wages are drawn from capital. If capital is the source of wages, it logically follows that total wages must be limited by the capital devoted to wages. Hence, the amount individual laborers can receive must be determined by the ratio between their number and the amount of capital available. This reasoning process is logically valid. However, as we have seen, the conclusion drawn from it does not fit the observed facts. Therefore, the problem must be in the premise. I am aware that the idea that wages are drawn from capital is one of the most fundamental and widely accepted theorems of current political economy, accepted as axiomatic by all the great economists. Nevertheless, I think I can demonstrate that this is a fundamental error. It forms the basis of a long series of errors that distort the practical conclusions drawn from them. The proposition I intend to prove is this: Wages are not drawn from capital. On the contrary, wages are drawn from the product of labor where they are paid. He goes on to write that there are more complex factors involved when we are trying to determine the real cost of labor. He shows us the many benefits derived from the division of labor, opposed to each of us producing our own material needs, and how this leads to an overall satisfaction for civilization as a whole. He states: Modern economy is a vast and intricate network of production and exchange, with complex operations infinitely subdivided into specialized functions. Yet looking at production as a whole, we see it is the cooperation of all to satisfy the desires of each. Keeping this in mind, we see clearly that the reward each obtains, though engaged in diverse tasks, comes truly and directly from nature as the result of that particular exertion. It is no different from the efforts of the very first human. Division of labor, when fairly established, benefits all by common pursuit. It is used instead of individuals attempting to satisfy all of their wants by directly resorting to nature on their own. As they exchange with each other the product of their labor for the products of others’ labor, they are really applying their own labor to the production of the things they us—just as if each person had made each item alone. They are, in effect, satisfying their own particular desires by the exertion of their own individual powers . . . If we follow them through the complexities of what we call civilization, we can clearly see the same principles. In every case where labor is exchanged for commodities, production actually precedes enjoyment. Such wages are not the advance of capital. We see that Mr. George distinguishes between wages and capital and that understating the difference is important. This is applicable in our time as we are confronted with some demanding that we arbitrary raise the rate of minimum wages without understanding how that added costs affects the business owners of the capital, which, in turn, must pass on added costs to the consumers. Next, Henry discusses population and subsistence and the laws of distribution. It is interesting to note that Henry George recognizes a strong relationship between this and wages. He explains this is basic terms saying that interest must rise and fall with wages. He gives a great example of this, declaring: The price of flour is determined by the price of wheat and cost of milling. Even over long intervals, the cost of milling hardly varies. But the price of wheat varies greatly and frequently. Hence, we correctly say that the price of flour is governed by the price of wheat. To put this in the same form as the preceding discussion: The cost of milling fixes a certain relation between the value of wheat and the value of flour. This ratio is constantly maintained by the interaction between the demand for flour and the supply of wheat. Hence, the price of flour must rise and fall with the price of wheat. We can leave the connecting link, the price of wheat, to inference. We would then say that the price of flour depends upon the character of the seasons, wars, etc. This, in sum, is the law of interest: The relation between wages and interest is determined by the average power of increase that attaches to capital from its use in reproductive modes. As rent arises, interest will fall as wages fall, or will be determined by the margin of production. In the sections that follow, Henry George discusses the effects of population growth on the distribution of wealth, the effect of technology, the root causes of recessions, the persistence of poverty despite increasing wealth, ineffective remedies, the true remedy, the injustice of private property, the canons of taxation, the effects on productions, and the law and causes of human progress. Of particular interest are his ideas on the cause of recessions because most of us have felt the negative effects of a recession in our own lifetime. Part of the issue with recessions is that production and consumption cannot meet and satisfy each other. This, it is commonly agreed, arises from speculation. But speculation in the products of labor simply tends to equalize supply and demand. It steadies the interplay of production and consumption, much like a flywheel in a machine. Explaining this further Mr. George writes: Therefore, the problem must be speculation in things that are not the product of labor. Yet it must be things needed for production. And finally, it must be things of fixed quan- tity. The cause of recurring recessions must be speculation in land. This process is obvious in the United States. During each period of industrial activity, land values rose steadily, culminating in speculation that drove them up in great jumps. This was invariably followed by a partial cessation of production, reducing effective demand as a correlative. A commercial crash generally accompanied this. A period of comparative stagnation followed, during which equilibrium was slowly reestablished. Then the same cycle began again. In recent years we have seen the exact things that Mr. George discusses at to cause of recessions. We saw great increases in the prices of land and homes and in some areas they became greatly inflated. We also saw that our Gross National Product, i.e. the sum total of what we produce, go down which in the long run hurts our local and national economies as jobs go overseas to more efficient nations with lower wages. Another area that Henry George seems to have a handle on is private property and taxation. He states that all of us have rights to the land that is before us and that it is something that existed before we humans began to divide up and conquer. He says: This is a right that is natural and inalienable. It is a right that vests in every human being who enters the world. During each person’s stay in the world it can be limited only by the equal rights of others. If all people living were to unite to grant away their equal rights, they could not grant away the rights of those who follow them. Have we made the earth, that we should determine the rights of those who come after us? No matter how long the claim, nor how many pieces of paper are issued, there is no right that natural justice recognizes to give one person possession of land that is not equally the right of all other people. The smallest infant born in the most squalid room of the most miserable tenement acquires, at the moment of birth, a right to land equal to millionaires. And that child is robbed if that right is denied. We see that Henry George was a proponent of the single tax on land. The government, he augured, should finance all of its projects with the proceeds from only one tax not the multiple taxations we pay to federal, state, local agencies. The single tax that he believes in would be on the unimproved value on the land not the improvements that we as owners make with buildings, homes, and landscaping. He states that the value of land comes from its natural value and the value that is created by improving it. Most taxes, as noted by Mr. George, stifle productive behavior such as income tax, which generally reduces people’s incentive to earn more income. Mr. George was not simply trying to design a system of taxation devoid of problematic consequences. He felt that a tax on the land is really a tax on the productive potential of the landowners. He was aware that over a long period of time some improvements would blend in with the natural state of the land and could be considered part of the intrinsic value of the land. The bottom line is that Mr. George saw that the over taxation of land and property tends to lead to the land not being used in a more productive state thus helping cause a slowdown in the fruitfulness of the people which on a large scale leads to a recession. In speaking on Henry George’s contributions to our society, Agnes George de Mille writes, “Henry George was a lucid voice, direct and bold, that pointed out basic truths . . . Each age has known such diseases and each age has gone down for lack of understanding. It is not valid to say that our times are more complex than ages past and therefore the solution must be more complex. The problems are, on the whole, the same. The fact that we now have electricity and computers does not in any way controvert the fact that we can succumb to the injustices that toppled Rome. To avert such a calamity, to eliminate involuntary poverty and unemployment, and to enable each individual to attain his maximum potential, George wrote his extraordinary treatise a hundred years ago. His ideas stand: He who makes should have; he who saves should enjoy; what the community produces belongs to the community for communal uses; and God’s earth, all of it, is the right of the people who inhabit the earth.” If you want to read Progress and Poverty, you can find it at <www.henrygeorge.org/pcontents.htm> Let me know your thoughts on this at <brownfamily09@msn.com> MAXIMIZE YOUR REtIREMEnt OptIOns No Obligation Consultation CWelling@SFP.us 801-827-0163 Calvin Welling, CLU, ChFC, CFP Financial Advisor ZNielson@SFP.us 801-827-0164 Zachary A. Nielson Financial Advisor www.sfp.us 2225 Washington Blvd. Suite #230 Ogden, UT 84401 111 E. 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