Our Unconscious Economic Theories
|July 13, 2002||Posted by Staff under Progress Report, The Progress Report|
Ideas That Obstruct Economic Justice
Why have the economic views commonly known as Georgism or geoism not become more popular? Perhaps, says author Ian Lambert, people in our civilization hold unconscious assumptions about economics that preclude, or make it difficult to understand, the Georgist viewpoint.
We are reprinting Lambert’s important presentation on this subject in weekly installments.
by Ian Lambert
Section 5. The Zero Sum Society
The idea that all values are relative is directly mirrored by the theory of the “zero sum society”. This basically hypothesizes that all material gains or advances by one member of society are necessarily at the expense of some other member of society. Society cannot advance materially in aggregate; all it can do is provide for a more or less just distribution of “wealth” (usually undefined) amongst its members. (In Britain and elsewhere, the rise of a new underclass of homeless poor amidst the new yuppies has caused people once again to wonder if the zero sum society hypothesis is not true after all.)
This is a profoundly damaging idea. It is the translation into economic terms of Nietzsche’s eternal recurrence. It is economic nihilism. It rejects the very concept of material progress, except by one person at the expense of another; it certainly rejects the idea that a whole society can progress materially.
It is surely the coupling of the idea of moral populism, the principle of equality, and the hypothesis of the zero sum society in the minds of people at large that accounts for the explosion all over the world of participation in public lotteries. People feel that, while we cannot each hope to be a millionaire, yet each of us should be given the equal opportunity to become a millionaire, through the lottery system. Yet, the implications of a lottery system for society as a whole are clear; it cannot be productive; it is fundamentally unproductive. Its only justification can be on the basis of consumption; but people do not view it solely as a matter of consumption; in a funny way they often view it as an “investment”, particularly when challenged as to why they “choose to waste their money in this fashion”.
Yet, this idea is not new. It was prevalent even in George’s time. Indeed, in “Progress and Poverty” George foresaw the inevitable nihilism of the twentieth century. He foresaw this great cry of despair from our great cities, a cry of the most profound anguish principally because it runs counter to our basic concept of trade and exchange. For in every exchange which is voluntary, each gives away what is of less value to him and receives what is of more value to him. Both are better off; if they were not, they would not exchange. Indeed it is the very basis of such exchanges that enables us to say with any meaning that the aggregate value of wealth in a society may (or may not) increase with time. (If all values are relative this is truly impossible.)
Moreover, in terms of international trade the theory of the “zero sum society” hypothesizes that the process of international trade is necessarily the exploitation of one country by another, that all trade is a form of war. It is not surprising, therefore, that phrases such as “trade war”, “sucking in imports”, “being washed up on a tide of imports”, “protection of domestic producers” are in political currency. But countries do not trade with each other, at least in the free world; individuals and businesses trade with each other, each on the basis (as in every exchange) that he is receiving more in value than he is giving away.
It is particularly ironic that British politicians should fall for this, for two taxes in Britain are levied on the assumption that aggregate values increase in time: value added tax and capital gains tax. In the case of value added tax, each producer must pay tax (output tax) on what he produces, but at the same time he may reclaim the tax (input tax) which he paid on all inputs (raw materials, services) etc. The only person who cannot reclaim such tax is the consumer. (If he could, clearly there would be no net tax yield to the Inland Revenue, just money moving in a circle; but consumption is not part of production.) Likewise, in the case of capital gains tax, each taxpayer only pays tax on his net gains, losses being tax deductible. Unless there were aggregate gains to the society, the tax would yield nothing (except insofar as there was a general rise in prices due to inflation; but Mrs. Thatcher introduced an inflation index relief; so inflation alone would yield nothing from capital gains tax for the Inland Revenue).
And yet, as with all heresies there is a half-truth at the heart of the zero sum society hypothesis. It is true that in certain limited respects one section of society advances at the expense of another. So it is with economic rent.
It is noticeable that, while other entrepreneurs become multi-millionaires, for example in manufacturing, by undercutting their competition and selling better quality products at a lower price, real estate moguls become multi-millionaires by hiking up rents (or, what amounts to the same thing, resale prices). Recently in Britain, some economists have declared that they see rising house prices as a sign of the increasing “wealth” of British society. The man in the street knows better. He knows it means more for those who own property, less for those who do not. Such a conclusion would be correct, but it does not mean that the whole economy is a zero sum game.
6. The Relativity of Poverty and Economic Justice
Poverty is one of those concepts which is at one and the same time both easy and profoundly difficult to define. We all have a profound sense of poverty even if we cannot articulate it. The poor are those who struggle for existence; the rich are those who live in luxury. Yet, one of the greatest social changes of this century has been the drift, away from a position where the poor worked all the hours God gave while the rich idled, to a position where the richest in our society – Michael Milken, Robert Maxwell, Sir James Goldsmith are examples – work incredibly long and arduous hours, while the poor (particularly those in trade unions) work an ever diminishing working day; indeed, many are unemployed. Such a change would certainly have surprised Thorstein Veblen. Yet, it is this social change which often masks the true nature and origins of poverty, for it promotes the idea that riches are the result of hard work and poverty the result of sheer idleness. This may be true of the individual; I may well be richer if I work harder (particularly if I am self-employed); but it does not explain why some who work (or are willing to work) hard are conspicuously unable to improve their lot, while others who may work just as hard are profoundly the richer. Thus it is, for example, that people seriously wonder how in a just society a working income of US $500 million in one year can arise to an individual (Michael Milken) no matter how hard he works; deep down people suspect that something somewhere is very seriously awry.
The notion that poverty is purely relative is nothing new. Jesus’ comment that “the poor you always have with you” has oft been misquoted in its favor. In recent years, under the Thatcher Government in Britain it has raised its ugly head again, with ministers maintaining that there is no poverty in Britain, with a wilful blindness that might even make Stalin blush. Their point is, of course, that Britain in the 1990s does not know quite the same poverty it experienced in the 1930s. (It has also been rightly objected by some conservatives that in many respects the “poverty line” and what constitutes “poverty” for certain public statistical purposes have been defined in such a way that, by definition, there will always be a certain percentage of society that is said to be “below the poverty line” because “poverty” is actually defined in relative terms.)
All this is as may be. Poverty is not a purely material issue, a matter of whether some enjoy more comforts than others – that is inevitable – it is a moral issue. George believed, above all else, in economic justice (a term to which we are now almost wholly deaf – we are truly at a loss to know in what “economic justice” consists).
In “The Science Of Political Economy” George attempted a definition of poverty. The hallmark of poverty was that the poor received less in value than (by their production and exchange) they gave; or as George himself put it:-
“Here is the normal line from which what we call wealthiness and what we call poverty take their start. He who can command more service than he need render is rich. He is poor, who can command less service than he does render or is willing to render” – (SPE).
How was this possible? All commodities having value from production were such that the giver in exchange received more than he gave. So too it was that with debts, whose value was through obligation, the giver received as much as he gave, for the debtor was only obliged to repay what he had originally received (albeit at interest, to compensate for the delay in repayment). It was only that property which imposed obligation while giving no value, rendering no service – principally land – which could be the cause of poverty.
George saw poverty and riches as two sides of the same coin, economic injustice. He passionately believed in economic justice before charity. His disgust with public, conspicuous charitable giving by the rich, in order to salve their guilty social consciences, long predated Ayn Rand’s “The Virtue Of Selfishness”:
“Rich and poor are thus correlative of each other; the existence of a class of rich involving the existing of a class of poor, and the reverse; and abnormal luxury on the one side and abnormal want on the other have a relation of necessary sequence ….
…. And when [Christ] said, “It is easier for a rich man to enter the kingdom of heaven!” He simply put in the emphatic forms of Eastern metaphor a statement of fact as coldly true as the statement that two parallel lines can never meet.
Injustice cannot live where justice rules, and even if the man himself get through, his riches – his power of compelling service, without rendering service – must of necessity be left behind. If there can be no poor in the kingdom of heaven, clearly there can be no rich!
And so it is utterly impossible in this, or in any other conceivable world, to abolish unjust poverty, without at the same time abolishing unjust possessions. This is a hard word to the softly amiable philanthropists who, to speak metaphorically, would like to get on the good side of God without angering the devil. But it is a true word nevertheless.” – Henry George (SPE).
END OF PART THREE
Ian Lambert is a globetrotting man of many talents. This presentation was originally made at the 10th Annual Conference Of The Council Of Georgist Organizations, Santa Fe, New Mexico, July, 1990.
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