Charity, Prosperity, Economics
|January 9, 2007||Posted by Staff under Archive, Progress Report, The Progress Report|
The Ethics of Macro-Compassion
Charity, Prosperity, Economics
Should charity be necessary in a prosperous society? Is it a good sign or a bad sign? Can measuring differences in personal income tell you how fair an economy is?
We are pleased to present the first weekly installment of a six-part exploration by David H. Chester, looking into the topics of charity, compassion and economics.
by David H. Chester
With our increasing knowledge of macroeconomics, there is a need to question some of Henry George‘s prior assumptions and statements. This study initially describes his original ideal, but it then focuses on certain charity-related aspects of it. Expressed in Georgist terms, the resulting discussion provides insight into the ethical basis of his political philosophy.
1. The Imperfect Utopia
During the settlement of a new region, the best-landed prospects are taken by the pioneers, whose goals are comparatively modest. But as the population spreads, later-arrivers can claim the rights to sites that they reserve for subsequent sale. The value of a plot of land depends on its size, topology, fertility (known mineral deposits, water, flora and fauna) and ease of communication with the centers of population (where the most expensive ground is always found). In particularly it is this last feature that improves with time, and site-values are dynamic. Communal knowledge, about each site and its accessibility, changes when new areas become viable. Consequently, the site-values are greatly enhanced by the surrounding population. Whilst material goods have value due to the labor previously expended on them, the value of a site is due solely to its potential for use, without it needing to be worked.
However, in many countries the owner/occupier of a site can trade its access rights as if they were items of goods. This means that the society confers on these land-lords the property-values of their sites, which are legally protected from interference. Useful sites are often enclosed to deny economic activity on them by outsiders, unless there is a prior agreement for payment of the associated ground rent. Thus, the land-lords are at an economic advantage compared to the land-less workers, who must rent some land and offer their labor, both in order to reside and earn a living, because no useful land is freely available.
Henry George’s proposal for the Taxation of Land-Values¹, would re-arrange the national economy, permitting greater equality of opportunity for the production of goods and the supply of services, for commerce, public utility, recreation and residence. Ideally this might be achieved by forceful unrestricted access to all natural resources particularly land, which he regards as a common bountiful asset. However, in practice, instead of directly opposing the restricted rights described above, George suggests that it would be sufficient to collect the ground rent (of the undeveloped site-value) as national revenue. This tax would replace the other forms of direct and indirect taxation, that are currently borne by the community. These kinds of taxes reduce the motivation for people to perform normal macro-economic activities, to work, produce, trade, consume, have/raise children, save and invest.
Substitution of ground rent as the source of national income would do more than redistribute the burden of the annual national budget. It would eliminate the advantage in withholding land or its inappropriate use (for reasons of speculation, political pressure, ignorance or pride), which would no longer benefit the owner. Without this land monopolization, its price would fall and the workers would be able to find sites that they could more easily afford to use. Thus the improved opportunities resulting from both these effects would reduce unemployment. In addition, it would gradually eliminate the current source of corporate investment, which exploits much of what actually comprises the ground rent. This change also will tend to inhibit the monopolization of the ensuing capital in the form of durable goods, such as buildings and heavy machinery.
The introduction of George’s rent collection policy together with the eventual abolition of the other kinds of taxation, thus removes these impediments from the efficient operation of our macroeconomic system. It enables the production of greater and more useful quantities of goods for consumption and investment, quickening the rate of material progress and providing more latitude for economic activity as a vital characteristic of our social behaviour. In general families would be able to enjoy the results of their labor more directly, in keeping with Isaiah’s utopian ideal, Ch.65 vs.21-22:
- And they shall build houses and inhabit them;
and they shall plant vineyards and eat the fruit of them.
They shall not build and another inhabit;
they shall not plant and another eat.
As at present the economic system would still have to self-equilibrate, by an iterative series of contractual balancing actions that affect the distribution of wealth². By incorporating T.L.V., the free-market economic forces would play a larger part, with the subsequent avoidance of monopolistic control of the supply (and demand) of goods and services. Entrepreneurs would be encouraged to explore the system for useful gain and the supply of more efficient production, whilst the demand side of it would be able to function in a more natural manner without being strained by imposition of the anti-production tax framework.
This situation is the opposite of the Marxist ideal for regulating the nationwide supply of goods to the working population — trying to meet their needs, regardless of the quantity that each is supposed to unselfishly produce and unwastefully consume³. Thus the Georgist approach denies this extreme Socialist doctrine, whilst supporting the equality of opportunity (which he regarded as economic justice), encouraging enterprise and competition.
However this Georgest utopia is imperfect. There still remains the all too human problem of unequal ability to produce and earn, and the dissimilar capacity to purchase and consume. Not everyone is endowed with the same talents nor appetites. The variation in the ability to provide and to enjoy the produce is determined by different personal characteristics, as well as by the various numbers of earners and dependents in each household. Even with T.L.V. in place there would be non-uniform ownership of the capital invested in production. And this would still result in significant differences between the rich and poor, although the previous major influence of land monopoly (along with much of the ensuing capital-investment) would no longer distort the macro-economy to the same degree as before.
Next week: Poverty Relief – The Missing Ingredient
REFERENCES AND NOTES
1. “Progress and Poverty; An Inquiry Into the Cause of Industrial Depression and of Increase of Want with Increase of Wealth“, Henry George 1879, reprinted by The Robert Schalkenbach Foundation, New York, Century edition 1979, Book VII, Chapter II, pp 338-342.
2. Described in “Elements d’Economie Politique Pure“, Leon Walras 1877. In this original work on economic equilibrium, Walras describes it as a “tatonnement” or groping process (presumably by Adam Smith’s “invisible hand”! as described in his “The Wealth of the Nations“, 1776). The various editions of Walras’s book contain differences in the mathematical treatment, but they were all based on the price equilibrium problem in a multi-sectored economy having consumer and producer functions. Even today the general equilibrium theories are not general enough to explain the fluctuations and instability of business cycles.
3. Due to the Socialist creed: “From each according to his ability, to each according to his need!”, which was first proclaimed by Louis Blanc (early French Socialist), in “L’Organisation de Travail“, 1839.
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