I haven’t found much cogent criticism of Henry George, and I’m always open to reading any serious critiques. In the discussion page of the wikipedia article on Georgism there was a link to a mutualist critique located within W. H. Van Ornum’s book “Why Government at All?”
The focus of this blog post will be Chapter 2. If there are any other parts which you, my dear reader, find in need of a retort, I will kindly oblige.
- [George] defines interest as “all return paid for the use of capital, including compensation for risk.” But capital being a part of wealth is necessarily subject to the laws which govern wealth. Yet wealth is extremely perishable. From the time of its production it begins immediately to decay. Some forms of it will decay in a few days; some in a few weeks; and comparatively little will endure for a term of years. Now it is ridiculous to claim that it is still used after it has ceased to exist. But does interest cease when the capital, for the use of which it is paid, has perished? Not a bit of it! It remains a perpetual tax upon labor until the original amount of capital, undiminished by waste, has been restored.
By the definition of political economy, interest is simply the return from capital, regardless of the payment schedule. If it is all paid in a lump sum, then one doesn’t have to factor in the time value of money, but if the payment schedule to the producer is longer, then you are simply doing the same thing as paying in a lump sum but as if you had taken out a loan from the producer to pay it.
- Mr. George says: “That I, having a thousand dollars, can certainly let it out at interest, does not arise from the fact that there are others, not having a thousand dollars, who will gladly pay me for the use of it, if they can get it no other way; but from the fact that the capital which my thousand dollars represents has the power of yielding an increase to whoever has it, even though he be a millionaire.” Suppose then, a miser has the thousand dollars, and hoards it, how much increase will it yield him? Or even if invested in those forms which Mr. George assumes will yield a natural increase, such as orchards and vine yards, or herds and flocks, how will he utilize that increase without labor? Admitting the necessity  for labor in such cases, he still holds that “there is a distinguishing force co-operating with that of labor, which makes it impossible to measure the result solely by the amount of labor expended.” And so too, in precisely the same way, and to the same extent, when the mechanic utilizes the power of the steam, the waterfall, or of electricity to aid him in his work is “there a distinguishing force co-operating with that of labor, which makes it impossible to measure the result solely by the amount of labor expended.” Where does the product of this “distinguishing force” go to?
Everything is a part of nature, including humans, but it is access rights which we must be concerned with, not the question of whether something is natural. If we ask, “is this natural” to any phenomenon, the answer will virtually always be yes. Human labor directs the power of nature in ways useful to humans, and what George is asking is why one human is allowed to direct that power and another not allowed.
If all of the economic rent of a given location is paid out, then all of the forces of nature in addition to the community-generated wealth of the region would be factored in, and all production would have the rent fully accounted for… and as Ricardo showed, that recapture of the rent could not be “passed on to other classes of consumers.”
Some define all taxation as theft, so terminology becomes the issue here. One can only be stolen from, in any meaningful sense, if one has just claim over the possession in question. The recapture of rent is often misleadingly labelled as a “tax” in the same way that internalization of externalities is often misleadingly labeled as a “tax.” It is really more like restitution than taxation. Just as externalities could be internalized in any number of ways, so could rent be re-captured. Fred Foldvary put forth a model of geo-anarchism that does so via means not unfamiliar to mutualists.
- I think that even Mr. George will not deny that it rightfully constitutes a part of the rewards of labor. If this is true in the case of electricity it is true in that of interest. If not, why not? Again, if interest represents the average natural increase due to the reproductive forces of nature distinguishable from labor, why does it constantly fall? Is this distinguishing force less and less active? If so, may it not ultimately stop altogether? Interest would then abolish itself.
George explains why interest constantly seems to be falling under our current political-economic paradigm in the chapter titled The Law of Interest. The reason for this apparent contradiction (which is a theme he returns to often… why progress and poverty seem to go hand in hand) is that rent is eating up such a large share of total production, and that share actually increases as we see gains in efficiency, as per Ricardo’s Law of Rent.
What is left over after rent takes its slice is Wages and Interest, and, ceteris paribus, they tend to approximate one another since if wages are higher than interest we will tend to see an increase in the number of people choosing labor over entrepreneurship… which really gets at another fundamental point of George which is that capital is merely stored-up labor and there really are only two fundamental factors of production… nature and human creativity.
- No! The real truth is that one of the appliances, which have been devised to facilitate the exchange of wealth is money; and monopoly has seized upon that just as it has upon everything else which it can control, and by limiting the amount has been able to extort a price for its use. It differs in no respect from taxes and tariffs, or rents and royalties levied upon the production and exchange of wealth, for the benefit of those who do not labor.
It seems to be the idea of loans which mutualists object to, yet the need for loans is not a result of the Money Monopoly or any such thing, it is a result of the time value of money, differing needs and wants, and differences in the distribution of capital.
There is such a thing as seigniorage, which is a means of “extoring a price” for the use of money, though it is a rather trivial issue today. It is properly classified as economic rent, and as such could be subject to georgist taxation, but there are bigger fish to fry.
- Suppose now, I want a watch. The materials for its construction are in the earth. They are component parts of the land,—several bits of land. Labor is applied, and those bits of land are changed into several kinds of pig metal. But the only real change is that the labor has been impressed upon those bits of land. They have taken on the concrete form of pig metal, but they remain simply land plus labor. Exclude the land, and the labor, and nothing remains. Take another step toward the production of the watch, and we have but repeated the first; and when we have finished the watch, it is still only land plus labor. Exclude these two, and nothing remains; therefore, according to Mr. George’s own formula, capital is nothing. Apply the same process to any other form of wealth, and the result is precisely the same. Capital has not been a factor in its production, and is not entitled to share in the proceeds.
George would not say capital is not a factor at all, but that it is more or less a sub-factor. It is human creativity in a stored-up form. It can get tricky considering how many capitalists are simply rentiers in disguise since they lobby for protective tariffs, barriers to entry, patents, and so on… but if we speak of production by capitalists without special privileges, we don’t have to be very concerned, because as was mentioned previously:
- Interest falls because the number of capitalists, and the aggregate amount of capital seeking borrowers, increases faster than the borrowers do. The competition brings down the price.
- There is a circulation of wealth, and if that circulation is free, the distribution will remain unchanged, because the producer will insist upon getting an equivalent before he will part with it. The thing that does take place is a concentration; and it begins at the moment when the product passes from the hands of the laborer to the employer. The laborer is not free. He has been compelled to enter into a contract of employment by which he must give up his product for a stipulated price, which is inadequate. The concentration begins there. The circulation is not free. The inequalities here set up are further increased by every law or regulation which interferes with the freedom of that circulation. Is this too nice a distinction? I think not. To speak of the distribution  of wealth, when we mean a concentration, is to lay the foundation for serious errors. From this come all the arbitrary schemes for effecting an enforced equality of distribution, instead of simply clearing away the obstructions to the freedom of that circulation.
George would certainly agree that limitations on how people can go about trading the fruits of their labor are unjust restrictions of liberty, but when it comes to limitations to one’s sovereignty over land, there can indeed be solid justifications, and both georgists and mutualists recognize the injustice of absentee landlordism. Even Locke was concerned about this when he developed the Lockean Proviso, but George’s solution is far easier to administer.
If one wants to take a deontological position that at the highest meta-political level there exists a natural right to universal usufruct, then so be it, but within that we can cooperatively homestead Georgist communities… and I guarantee they would outcompete any mutualist communities. Though under no circumstance can the recapture of economic rent be put in the same category as taxation which steals from the fruits of labor, nor should it be confused for an advocacy of statism. It is a practical concept that can be administered under any number of political arrangements.