Henry George and Nineteenth-Century Economics: The Village Economy Meets the Railroad

I Introduction Henry George was a troubling figure to economists of his day. His sins were manifold: he was self-taught; while addressing important problems of his day, he appeared to challenge the status quo; and, worst of all, he presented solid economic theory in a form that commoners could and did appreciate. These facts alone should earn him a prominent place among the economic cranks of history. To make matters worse, Henry George's stance was decidedly radical, distancing himself from political economy while embracing strongly held beliefs of working people. Even so, Henry George's economics sits firmly on the theory of marginalism, while pointing to a minimalist role for government. He saw no conflict between labor and capital. In this sense, Henry George appeals to libertarians. Perhaps George is so difficult to pigeon-hole because he wrote during a period of momentous economic transition. His book lies on both sides of the divide. On the one hand, he reflected an earlier age, when category "Working Man" included almost everybody, except bankers, speculators, and sometimes lawyers. Farmers, operators of small businesses, artisans, as well as the factory workers all comprised an amorphous working class. From this perspective, the notion of class was fatally blurred. Except for the few people who dealt in fictitious capital, most people were workers. Given the conditions at the time, George's emphasis on land seemed natural. To the extent that class was relevant, land ownership rather than occupation seemed to be crucial. Most of the workers had rural roots. They aspired to hold land. For them, as well as for the bulk of the farmers in the country, land was a source of sustenance and a way of life; but for others, land was merely an object of speculation. Even the railroads were, in the eyes of their promoters, primarily a means to sell land and/or paper assets at a substantial profit. George, like many American writers on economics, opposed the theories of David Ricardo. George had more in common with the so-called Ricardian socialists, who, despite their name, had little in common with Ricardo. Like the Ricardian socialists, George believed that a few institutional changes would suffice to allow the market to bring about a relatively egalitarian prosperity. Unlike the Ricardian socialists, George had one foot solidly in a more modem age. He had seen the destruction of the first industrial depressions of the modem world. Accordingly, his book reflects a deep sympathy for those who were never to share in the prosperity of the coming Gilded Age. George's project Was quintessentially American. George thought that making land common property could strangle the parasitic growth that was sucking the life out of hard working farmers and other "Working Men." Why, the Republican Party after all was initially the work of land reformers! (Commons 1958) In this spirit, George proclaimed, "The 'tramp' comes with the locomotive, and almshouses and prisons are as surely the marks of 'material progress' as are costly dwellings, rich warehouses, and magnificent churches." (George 1879, p. 7) I endorse these words, with the caveat that George's railroads were not the harbinger of modem industry. Instead, they were based more on land than industry. This new industrial world was far more complex than the world George envisioned. The economic crashes that he witnessed were not merely the result of speculation or the siphoning off of wealth to landholders. Something new was afoot. The modem industrial enterprises of the day shared an important characteristic with the railroads: high fixed costs and low marginal costs. Given this cost structure, competitive pricing would force prices to move toward marginal costs, resulting in bankruptcy. Henry George and Charles Francis Adams, Jr. Speculation was indeed a problem in George's time. The railroads especially raised the popular ire. …