Henry George Wrestles wiþ Protection

A keynote for the launch of the critical edition of Henry George's "Protection or Free Trade"

Jun 04, 2021

Join the Robert Schalkenbach Foundation for a virtual book launch celebrating the release of The Annotated Works of Henry George: Protection or Free Trade (Vol. IV) 7 PM EDT, Thursday, June 3, 2021: <https://schalkenbach.org/book-release/>

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“I well recall the day”, wrote Henry George in his The Science of Political Economy, “when, checking my horse on a rise that overlooks San Francisco Bay”—a view much like this one behind me, although it looks very different now; indeed it looks different:

the commonplace reply of a passing teamster to a commonplace question, crystallized, as if by lightning-flash, my brooding thoughts into coherency, and I there and then recognized the natural order…. Yet at that time I had never heard of the Physiocrats, or read a line of Adam Smith…. I printed a little book, Our Land and Land Policy…. A scholarly lawyer A.B. Douthitt told me that what I had… was what the French “Economists” a hundred years before had proposed.”

George was discussing what sociologist of knowledge Robert Merton called “multiples”: people thinking along the same lines, at first independently, but then discovering that what they knew or almost knew has been arrived at by something else. This is the “deepest of pleasures”, George wrote, looking inside himself: “to hear of others who have seen” a truth when “you have seen a truth that others around you do not see”.

Henry George, born in Philadelphia, left school at 14 in 1854. A year later he was in the Pacific on the Hindoo, out of Philadelphia on its way to Melbourne and Calcutta. He wound up on the Pacific coast of North America. He would stay for 22 years. Only in 1880 did he leave California, to write and speak and debate and talk in the North Atlantic intellectual sphere. In between, he was self-educated from his own observations and from the books he found in the California-in-the-1870s context.

This, I think, accounts for economists’ relative neglect of George.

He was always extremely happy to discover that he agreed with Francois Quesnay or Adam Smith or Alfred Marshall, but he did not draw on them. Thus all of George’s works are written in an intellectual dialect that is not-quite-economese. We recognize the ideas in it. But there expression seems a little unfamiliar to us. And so for points where we could cite Smith or Ricardo or Quesnay or Marshall or George, we cite the orthodox economists because our dialect is directly descended from theirs. We thus give George—and Quesnay, who is in much the same position—short shrift.

Plus there is the fact that George was definitely in-economists-face bigtime:

Political economy’s professors and teachers have almost invariably belonged to or been dominated by that class which tolerates no questioning of social adjustments that give to those who do not labor the fruits of labor’s toil. They have been like physicians employed to make a diagnosis on condition that they shall discover no unpleasant truth. Given social conditions such as those that throughout the civilized world today shock the moral sense… in the colleges and universities… it is idle to expect any enunciation of truths unwelcome to the powers that be…

and:

It is true, as Macaulay said, that if large pecuniary interests were concerned in denying tbe attraction of gravitation, that most obvious of physical facts would have disputers…

But even though Henry George did not feed much into the currents of academic discussion that led to today’s discipline of economics, he did have enormous intellectual influence in America. It is an important fact that Progress and Poverty had enormous rhetorical force in its day—a much more readable and, except for would-be professors in dusty rooms, a more convincing book than the works of the economists. Henry George Jr. claimed in 1905 that two million copies of Progress and Poverty had been printed. The best-selling book of the 1800s in the United States was, of course, the Bible. the second best-selling was Uncle Tom’s Cabin. Ben-Hur comes, I believe, third. Progress and Poverty is fourth—outstripping the book that I think is number five, Edward Bellamy’s 1887 very badly written utopian novel Looking Backward. We know the impact of Uncle Tom’s Cabin:”so this is the little lady who started this big war” goes the apocryphal story of Abraham Lincoln’s meeting with Harriet Beacher Stowe in 1862.

Bellamy had an impact. George had a bigger one.

One of the interesting puzzles in North Atlantic political economy around 1900 is that the United States had a Progressive Era but Great Britain did not. In the mid-1920s John Maynard Keynes, in his The End of Laissez-Faire, pointed out that most of British public discussion about economics was based on a general belief that economists taught or perhaps should teach laissez-faire as a general rule, and he pointed to the extraordinary reach of Jane Marcet’s Conversations on Political Economy and Harriett Martineau’s Illustrations of Political Economy in creating that belief. America had George and Bellamy as the mass-market writers on political economy. Britain had Marcet and Martineau. It is not stupid to think that perhaps that made the difference.

We, however, not here to talk about land-value taxation. We are not here to talk about Henry George’s role in trying to advance our democracy by instituting the secret ballot—Jill Lepore says that we owe it more to him than to anybody else <https://www.newyorker.com/magazine/2008/10/13/rock-paper-scissors>. We are here to talk about protection—tariffs, and quotas—or free trade. So let us start by listening to Henry George about how in arguing for freer trade he is swimming against the current, rolling the Sisyphean stone up the hill, for he is in very bad intellectual company. In America, the advocates of free trade had been future Confederates strongly attached to their natural right to sell tariff-free to British factories and thus collect every possible cent from the cotton they sweated out of their slaves with the lash. And in America the advocates of free trade, as Matthew Downhour quoted George in the article he wrote for Liberal Currents last week <https://www.liberalcurrents.com/applying-the-lessons-of-georges-protection-or-free-trade/>:

have, for the most part, not only professed no special interest in the well-being of the working classes and no desire to raise wages, but have denied the justice of attempting to use the powers of government for this purpose. The doctrines of free trade have been intertwined with teachings that throw upon the laws of nature responsibility for the… poverty of the laboring class, and foster a callous indifference to their sufferings…. While protesting against restrictions upon the production of wealth they have ignored the monstrous injustice of its distribution…

So let us start by listening to Henry George on how tariffs are in fact an act of economic war—but an economic war waged by a government against its own economy:

Trade is not invasion. It does not involve aggression on one side and resistance on the other…. We say… the United States [forced trade] upon Japan. But… what was done was not to force the people to trade, but to force their governments to let them…. Trade does not require force. Free trade consists simply in letting people buy and sell as they want to buy and sell. It is protection that requires force, for it consists in preventing people from doing what they want to do. Protective tariffs are as much applications of force as are blockading squadrons, and their object is the same—to prevent trade.The difference between the two is that blockading squadrons are a means whereby nations seek to prevent their enemies from trading; protective tariffs are a means whereby nations attempt to prevent their own people from trading. What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war…

Milton Friedman called that the most rhetorically brilliant argument for free trade ever. I suspect that Friedman was less pleased by what came at the end of the book. For George cautioned:

What have we proved? Merely that it is the tendency of free trade to increase the production of wealth…. But from this it does not follow that the abolition of protection would be of any benefit to the working class. The tendency of a brick pushed off a chimney top is to fall to the surface of the ground. But it will not fall to the surface of the ground if its fall be intercepted…. The tendency of anything that increases the productive power of labor is to augment wages, but it will not… [if] laborers are forced by competition to offer their services for a mere living…

Milton Friedman believed to his dying day that anything that increased the productive power of labor did augment wages unless government regulation to establish and maintain monopoly power in the economy interfered. But Henry George disagreed. He saw, in fact:

Existing conditions… prevent[ing] the working classes from getting the benefit of this tendency…

In fact, George said, even the claim that freer trade is good for the working class was made only in countries that were at least semi-democracies:

In countries where the working classes have little or no influence upon government it is never even pretended that protection raises wages . It is only in countries like the United States, where it is necessary to cajole the working class, that such a preposterous plea is made. And here the failure of protection to raise wages is shown by the most evident facts…

And all this posed a deep and serious problem for free-traders:

The problem we must solve [is] to explain why free trade or labor-saving invention or any similar cause fails to produce the general benefits we naturally expect, [it] is a problem of the distribution of wealth. When increased production of wealth does not proportionately benefit the working-classes, it must be that it is accompanied by increased inequality of distribution. In themselves free trade and labor-saving inventions do not tend to inequality of distribution. Yet it is possible that they may promote such inequality…

George’s solution was the single tax, the unimproved land rent tax. The root problem was people who took without working by means of control of resources that no human had made. The solution was to take those earnings that were paid not for human effort but for natural scarcity made actual and chargina a price in the marketplace, and recycle those earnings back to the people.

Now Henry George was 100% right in identifying the problem. Wolfgang Stolper and Paul Samuelson writing in 1941 is now the standard reference <https://www.jstor.org/stable/2967638>. Consider a trading economy in which there are two countries each of which produces the same two goods—call them food and crafts—using two factors of production, labor and land, with food being the more land-intensive good. Labor will be the relatively scarce factor in one country and the relatively abundant factor in the other. A reduction in tariffs will raise wages in the country where labor was the relatively abundant factor, and in which freer trade will raise exports of labor-intensive craft goods. It will reduce them in the country where labor was the relatively scarce factor by subjecting the craftwork sector to foreign competition and reducing the price of craft goods.

As Dani Rodrik likes to point out, the distributional effects from trade policy swamp the production-increasing effects—although the production-increasing effects are there. And so freer trade can raise worker wages only if it diminishes the market-social power of the owners of non-labor factors of production. And that, by necessity, can be the case only half the time.

Now you soften or harden this conclusion by bringing in other considerations.

(1) A market economy is a tremendously effective societal calculating and organizational machine for crowdsourcing and then coordinating solutions to the problems that the market economy sets itself. It was Friedrich von Hayek’s genius to most clearly see this. But the principal problem that the market economy sets itself is to maximize the satisfaction of the desires of those who own valuable property, like land—to provide them with the greatest amount of the necessities, conveniences, and luxuries of life that they think they need.

(2) Have other goals than the convenience of property-owners? The market economy will satisfy other goals only as a byproduct of satisfying that one.

(3) Thus the market economy, by itself, will not be very good at generating rapid economic growth:

(a) The rich who own valuable property are likely to be shorter-sighted, and prefer to live well by importing foreign luxuries than to divert earnings from exports to importing technology-embodying capital goods to boost production.
(b) The market does not really “see” the advance of technological knowledge either in blueprints and such that can be covered by patents or in the tacit experience of communities of engineering and organizational practice that learn by doing and from experience.
(c) Let me give another quote from Protection or Free Trade:
Inequality in the distribution of wealth tends to lessen the production of wealth on the one side, by lessening intelligence and incentive among workers; and, on the other side, by augmenting the number of idlers and those who minister to them, and by increasing vice, crime and waste. Now, if increase in the production of wealth tends to increase inequality in distribution, not only shall we be mistaken in expecting its full effect from anything which tends to increase production, but there may be a point at which increased inequality of distribution will neutralize increased power of production, just as the carrying of too much sail may deaden a ship's way…

Of course, a democracy—or any other kind of political society—will not be happy with a market economy that ruthlessly crowdsources solutions to the problem of making the rich as comfortable as possible, and then ruthlessly implements them. People demand more than just the elimination of all rights that are not property rights, and the devaluation of those property rights that are not necessary to produce the things for which the current rich currently have a serious jones. People think that they have a right to stable employment—that their job, and their ability to quickly get another equivalent job if their old jobs end, should not be hostage to their region and their industry passing some maximum-profitability test administered by a group of financiers thousands of miles away. People think that they have a right to an income level they deserve by virtue of who they are and how they played by the rules to get to their position, and that the economy needs to be arranged to provide that level of income. People think that their community is in some sense theirs, and that the economy should be arranged to shape it to their liking.

As Hungarian-Jewish-Toronton moral philosopher Karl Polanyi put it, the market economy turns land, labor, and finance into commodities to be moved about to satisfy the maximum-profitability test. And people do not like that, and react. They may grudgingly accept the market economy. They will not accept a market society. And free-trade movements that do not inquire deeply, deeply into distribution will run into trouble, bigtime.

The original political economists were very, very concerned with distribution. Think of old Adam Smith, who wrote that a society so unequal that the bulk of the people were poor could not be a prosperous or a happy society:

Servants, labourers, and workmen… make up the far greater part…. What improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be ﬂourishing and happy, of which the far greater part of the members are poor and miserable…. It is but equity, besides, that they who feed, clothe, and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed, and lodged…

However, ever since political economy began to divorce itself from its fundamentalist utilitarian Benthamite roots that all economic arrangements are damned if they do not produce the greatest good for the greatest number, it has tended to fall into an equally hardline fundamentalist position on the other side.

What is that position? It is that questions of distribution are questions of value that are beyond economics’s scope, that economics is concerned only with efficiency, and after things that hobble market efficiency are taken away, then all the economist can say is: “the market giveth, the market taketh away: blessed be the name of the market”. In large part, I think, because Henry George was off setting his thought in its intellectual concrete in San Francisco, he escaped this tendency. Instead, his watchword was always: “the market was made for man, not man for the market”. That point of view has very powerful virtues.

Milton Friedman told you, and I tell you: Henry George’s Protection or Free Trade is still well worth reading.

Thank you.

2761 words

References

Matthew Downhour: Applying the Lessons of George’s "Protection or Free Trade" <https://www.liberalcurrents.com/applying-the-lessons-of-georges-protection-or-free-trade/>

Henry George: The Science of Political Economy <https://books.google.com/books?id=ssBNAQAAMAAJ>

Henry George: Our Land and Land Policy <https://books.google.com/books?id=haGdel4mwOMC>

Henry George, Jr.: The Life of Henry George, by His Son <https://books.google.com/books?id=TAUPAAAAQAAJ>

John Maynard Keynes: The End of Laissez-Faire <https://www.panarchy.org/keynes/laissezfaire.1926.html>

Kimberly J. Largent: Harriet Beecher Stowe: The Little Woman Who Wrote the Book that Started This Great War <https://ehistory.osu.edu/articles/harriet-beecher-stowe-little-woman-who-wrote-book-started-great-war>

Mark J. Perry: Some Economic Lessons About Trade for Donald Trump from Milton Friedman and Henry George <https://www.aei.org/carpe-diem/some-economic-lessons-about-trade-for-donald-trump-from-milton-friedman-and-henry-george/>

Henry George Wrestles wiþ Protection

A keynote for the launch of the critical edition of Henry George's "Protection or Free Trade"

References

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