Money and Monetary Reform
Henry George’s Concept of Money and Its Application to 21st Century Monetary Reform
What exactly is money? Are we suffering from an inferior monetary system? How can we be sure?
We are pleased to present an essay by Stephen Zarlenga of the American Monetary Institute. Zarlenga considers American economist Henry George's views on money and their modern implications. It's a long essay, so we will bring it to you in weekly installments.
This version of Zarlenga's article has been edited for extra brevity. If you wish to see the entire article in its original, or for further information, visit the American Monetary Institute web site at www.monetary.org
Preface and Synopsis
Attesting to the importance of Henry George’s life and work are the estimated 5 million copies of his books in circulation; the active Henry George organizations and schools around the globe with thousands of supporters and uncountable others who still respond to his name with “Oh yes - the single tax”. A man considered important enough to require the attention of one of the political establishment’s most potent operators to derail his 1886 campaign for Mayor of New York City. George was influential enough to merit that POPE LEO XIII direct a section of a Papal encyclical at his work in 1891.
This kind of effect, I’d suggest, was not generated by the economic theorizing or theoretical observations of any individual or school, but has resulted from what was really a great moral crusade for economic justice.
To George, the land question was the key means to that end, and his name is rightfully associated with land tax reform - with the “single tax”, described below. But although that was his main focus, there was a lot more to George than that. As Ken Wenzer pointed out “An important element of Georgism was reform of the banking and monetary system” That’s the main focus of this paper.
My task has been to find and present George’s monetary views, within the context of his own times and values; and to evaluate their relevance to present day questions. A task made more complex by the confusion and misinformation in which the monetary subject has traditionally been shrouded. For this reason it was necessary to organize the paper into several steps. Step one describes George’s major views and values; step two describes the real monetary context of his time, separating out the monetary myths. George’s explicit monetary views are presented in step three. Step four draws some “Georgist” conclusions on monetary reform today and offers suggestions for consideration.
This study was proposed because several years ago on first reading George, I found indications that his monetary views might have been quite advanced and potentially relevant to present day arguments over the proper monetary role of government. This research has confirmed that - to a much larger and clearer extent than I had imagined.
The conclusion of AMI’s monetary research to date is that such monetary systems cannot be reconciled with two of George’s overriding requirements: that social institutions be consistent with individual self-determination; and with the principal of equal rights.
True monetary reform must take a better path. AMI’s research indicates that money, properly defined, is a legal institution of society and government; not a commodity or economic good of the markets; that if money is a legal institution, then the control of monetary systems can be rightfully viewed as a proper function of government; much as the law courts are. This broad definition or attribute of money leads directly to conclusions on what is needed for a monetary system to operate justly; not favoring one or another group through the establishment of special monetary privileges. This study finds (repeatedly in his own words) that Henry George in large part shared this view.
This viewpoint does go counter to the current idolization of free markets, and the faith being placed in them to automatically create optimum results for mankind. But the overwhelming body of historical evidence that we’ve studied indicates that while some things can and should be left to free markets; a society’s monetary system is emphatically not one of them.
GEORGE’S WORLD VIEW
We now step back a bit from our monetary topic to note the major aspects of George’s work which will later help place his monetary ideas into context. This paper does not assume the reader is well versed in his work.
THE MORAL CRUSADER
“(Political Economy) may be argued in a great many different ways, but I prefer the ground that its opponents have taken, the ground of justice. I believe that justice is the supreme law of the universe”, wrote Henry George
One of George’s important accomplishments was the re-introduction of moral issues into economic thought. From Adam Smith’s Wealth Of Nations (1776) and earlier, there had been a tendency for moral questions - evaluation of the right or wrong - the good or evil of economic policies to be largely ignored or shunted aside and replaced by a questionable utilitarianism which generally ended up supporting the status quo of the power structure.
Thus Ingram wrote of Adam Smith that “He does not keep in view the moral destination of our race, nor regard wealth as a means to the higher ends of life.”
One of Smith’s contemporaries - economist Reverend Thomas Malthus - twisted morality to preach that the poor must choose between what he called “vice” - having children and therefore engaging in sex - or starvation. Economics rightly earned the title of “the dismal science”.
In The Scholastic Tradition
But there is nothing dismal about George’s writings, which can be seen as in the much older tradition of the Catholic “Scholastics” or “Bookmen” - the church scholars of about 1100 to 1500 AD who were very familiar with the existing written works available in the west. The Scholastics made the first attempt at a science of economics to build a rationally based moral code of business behavior and determine what should be, rather than what was. To their credit, they were much more influenced by Aristotle than by the bible, and many of them such as Albert the Great of Cologne and his student Thomas Aquinas were later canonized as saints.
Though George was generally well read, I didn’t find indications that he was aware of this body of work which has become better known in the English speaking world since the 1940’s. When George uses the term “Scholastic” it is to refer negatively to the university economists of his day.
While the content of George’s work differed greatly from that of the Scholastics; their form was very similar. George did not focus on the issues of concern to the Scholastics - mainly usury, and the “just price”- but he would have probably felt very much at home with their method, and especially with their deep concern for justice. Their method - a reliance largely on theoretical reasoning - is useful for investigating questions of morality, but not as useful in determining questions of fact or of utility. Interestingly, most 19th and 20th century economists continued using the Scholastics theoretical method, but ignored the moral questions and inappropriately applied it to other matters. George, concentrating on moral issues, generally avoided this error.
GEORGE’S GUIDING PRINCIPLES
Also diverging from the Scholastics was the manner in which George’s guiding principles were framed. The great goal of justice was shared by both, but the Scholastic’s aims were more socially oriented - a just order of society, in conformity with reason, observation, tradition and law - natural, human, and sacred law. George’s primary guidelines on the other hand, are framed in a much more individualistic fashion.
The two core principles which are George’s anchors, are evident - and explicit - throughout his writings: The principle of equal rights, and of individual self determination. George expresses this as “The law of human progress…the moral law…the equality of right between man and man …(and) the perfect liberty which is bounded only by the liberty of every other…” (P&P, 526)
THE RELIGIOUS FACTOR
Though religion was important to George, in today’s terminology it would be more accurate to regard him as a highly spiritual man rather than an overly religious one. Barker’s Biography of George informs us that he went through an adolescent period of atheism, before returning to his Anglican roots.
Much can be seen in George’s powerful answer to a wrathful God:
“…Little children are dying every day…because having come into this world- those children of god … find that there is not space on the earth sufficient for them to live; and are driven out of gods world because they can’t get room enough, cannot get air enough, cannot get sustenance enough. I believe in no such god. If I did, though I might bend before him in fear, I would hate him in my heart. Not room enough for little children here!” (Standard, June 22, 1889)
In other words, not only the plutocrats, but God too, can be made morally accountable to the requirements of Man’s justice - God is not really “allowed” to be capricious and arbitrary.
Thus George was far from a bible thumper and recognized the danger of bibliolatry - deifying the Bible by regarding its writings as the absolute word of God. He explicitly addressed this problem:
“Here in New York, for instance, the spirit of our institutions and of religious fairness is violated by the rule which requires the reading of a chapter from the bible at the opening of the public schools. This is a relic of Protestant bibliolatry that ought to be suppressed. The bible has no more business in our schools than has the Koran or the Book of Mormon.” (Standard, June 22, 1889)
One can guess George’s reaction to the backward tide of bibliolatry which has swept over our nation in the past several decades.
George was also sensitive to the dangers of sectarianism:
“I care nothing whatever for creeds - religion lies beneath creeds….But the essence of religion is the desire to do something for others than oneself, is the feeling that in working for the good of mankind one is working on the side of that great power that is all good…the men who are with us… are in their hearts religious men…” (Standard, August 3, 1889)
Consistent with his spiritualism, George harbored no racism. Belittling the idea of the hereditary transmission of social habits he wrote:
“In any large community we may see, as between different classes and groups, differences of the same kind as those which exist between communities which we speak of differing in civilization - differences of knowledge, beliefs, customs, tastes, and speech, which in their extremes show among people of the same race, living in the same country, almost as great as those between civilized and savage communities” (P&P, 492)
George admired many aspects of Judaic law but not in a superstitious way:
“This very day the only thing that stands between our working classes and ceaseless toil is one of these mosaic institutions….(given the state of political economy, it is certain that) the working classes would get no more for seven days’ labor than they now get for six…That there is one day in the week that the working man may call his own… is due through Christianity, to Judaism…”
And he described the Jews as:
“…a people who, though they never founded a great empire nor built a great metropolis, have exercised upon a large portion of mankind, an influence, widespread, potent, and continuous, … two thousand years been without country or nationality, yet have preserved their identity … - a people who unite the strangest contradictions; whose annals now blaze with glory, now sound the depths of shame and woe” (also see P&P, 498)
GEORGE’S MIXED METHODOLOGY
George used both of the two main methods available to serious researchers - the theoretical/deductive method, and the empirical/inductive method.
Using the Theoretical Method, one starts with axioms or principles thought to be true or accurate. Then logical deductions or conclusions are carefully drawn from those hypotheses.
The Empirical Method is based more on actual experience - on observation and cataloging of data, and on experimentation if possible, under controlled, repeatable conditions where variables can be observed and their effects noted. Logical reasoning is then applied to the observed data to consistently “explain” them by theoretical constructions. More often than admitted the theoretical constructs come first, with researchers later searching out the facts.
The great advances in the physical sciences of the past three centuries are laid to the empirical approach, and the scientific method.
Henry George’s mixed approach was largely deductive, and one often observes in Progress and Poverty the evident pleasure he derived from taking his readers through several deductive steps in clinching his arguments.
In several works he relates his use of what he called “mental experiments”:
“Its processes…consist chiefly in analysis…And, although…we can not use… experiment by artificially produced conditions… we (may) find …experiments already worked out for us (in the diversity of human experience). …There is at our command a method …what may be called mental experiment. You may separate, combine or eliminate conditions in your own imagination, and test in this way the working of known principles.”
“Now, just such mental operations as this are all that is required in the study of political economy. Nothing more is needed (but this is needed) than the habit of careful thought - the making sure of every step without jumping to conclusions. This habit of jumping to conclusions - of considering essentially different things as the same because of some superficial resemblance - is the source of the manifold and mischievous errors which political economy has to combat.”
“Thus in the main the science of political economy resorts to the deductive method, using induction for its tests…its most useful instrument is a form of hypothesis which may be called that of mental or imaginative experiments by which we may separate, combine or eliminate conditions in our own imaginations, and thus test the workings of known principles… we have only to be careful as to the validity of what we assume as principles.” (SPE, 100; also see SPE, 29, 30, 98)
But one can sense a bit of over-confidence in his method when George writes “nothing more is needed”. Because the key - and problem - is the amount of surety and confidence which can be placed in those necessary starting points - the “known principles”. Its a bit like aiming a long range rifle. If the sights are only just slightly off, or even near perfect, the further one gets from the barrel, the easier for the aim or trajectory to be off the mark.
Another big risk of overly relying on the deductive method, is that once a falsehood enters the hypothesis it will muck up the whole works. And especially in political economy, which has been abused for centuries, intuitive certainty in a hypothesis is no guarantee of its validity, for the “intuition” may have resulted simply from exposure to the endless repetition and even the promotion of error by special interests.
One good example of this is Adam Smith’s primary hypothesis and view that selfishness is at the base of all human activity, discussed below.
George was sufficiently aware of these problems to normally exercise great care in his definitions, attempting to discern carefully in the use and meanings of his terminology to get to bedrock; much more so than the typical political economist.
Next week: Major Themes Emphasized by Henry George
Stephen Zarlenga has published 20 books on banking, politics and philosophy. In 1996 he helped to found the American Monetary Institute dedicated to the independent study of monetary history, theory and reform. His newest book is The Lost Science Of Money.
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