Economic Theory in Retrospect (5th Edition)

Bibliographic Information

• Author: Mark Blaug (Visiting Professor of Economics, University of Exeter)
• Publisher: Cambridge University Press
• Year: 5th edition, 1997 (first published 1962 by Richard D. Irwin, Inc.)
• ISBN: 978-0-521-57701-4 (paperback); 978-0-521-57153-1 (hardback)
• Edition: Fifth edition (9th printing, 2012)
• Dedication: "To my son, David Ricardo"
• Origin: electronic copy in Floyd's private book archive (/Users/OpenClaw/wiki-books/). [VERIFY: legal provenance attestation pending — the delivering agent named a prohibited source for this copy; per the free/legal-sources rule the owner must confirm a legitimately owned/licensed copy before scan-depth upgrades from this text are re-used.]

Overview

Economic Theory in Retrospect is a history of economic thought from David Hume to Milton Friedman, consistently focused on theoretical analysis rather than biographical or doctrinal history. It includes detailed Reader's Guides to nine major texts: Smith, Ricardo, Mill, Marx, Marshall, Wicksteed, Wicksell, Walras, and Keynes. The fifth edition added new Reader's Guides to Walras and Keynes, with major additions to chapters on marginal productivity theory, general equilibrium theory, and welfare economics.

For Georgist purposes, the most relevant sections are: - Chapter 3: Population, Diminishing Returns and Rent (including §11: Site Value Taxation) - Chapter 4: Ricardo's System (the corn model, theory of wheat profits, rent as surplus) - Chapter 8: The Marginal Revolution (treatment of land in marginal utility theory) - Chapter 10: Marshallian Economics (Marshall's retention of classical rent theory) - Chapter 11: Wicksteed (Georgism and the law of rent)

Ricardo's Theory of Rent (Ch. 3, §8–11)

Differential Rent and the Marginal Principle

Blaug presents Ricardo's theory of differential rent as "formally identical with the marginal productivity theory, though the marginal increments considered were enormously large instead of being negligibly small as marginal analysis requires" (Ch. 3, §8). The theory operates through both extensive and intensive margins:

• Extensive margin: Land is taken up freely when needed, from non-paying idleness rather than from other rent-paying alternatives. Land is completely specialised and fixed in supply, so "rent is price determined, not price determining: as Ricardo has it, 'corn is not high because a rent is paid, but a rent is paid because corn is high'" (Ch. 3, §9).
• Intensive margin: If it pays to apply resources to the worst land, it pays to apply them more intensively to better land until an intensive margin equal to the extensive margin is reached.

Rent as Surplus and the "Free Gift of Nature"

Blaug explains that Ricardo carefully defined rent as payment for "the use of the original and indestructible powers of the soil," excluding interest on capital invested by the landlord (buildings, drains, hedges) and gains from timber removal or mineral extraction. What remains is "pure rent to 'land' considered as virgin territory and untapped mineral wealth; it is an inexhaustible and nonreproducible agent, unalterably fixed in supply" (Ch. 3, §9).

The classical economists drew the practical corollary that "ground rent was an 'unearned income' par excellence" and that "the expropriation of rents by the state would not affect production provided, of course, it were only pure economic rents that were being confiscated" (Ch. 3, §9).

Land as a Factor of Production (Ch. 3, §10)

Blaug notes that J.S. Mill was the first to clearly admit that rent land could earn in one use forms a cost when used for another purpose. Jevons seized on this to show that land does have a supply price like any other input and that, contrariwise, all inputs when completely specialised earn a differential rent. This led to the modern concept of "transfer earnings" — the earnings of any input in excess of its transfer price constitute "economic rent."

Blaug observes that the classical authors treated land as a "free gift of Nature" distinct from man-made means of production, but argues that "natural resources do not differ from the general run of capital goods in that they do require initial development and subsequent maintenance charges" — so that if land means costless gifts of nature, "a very large part of the territorial resources of a society are not 'land' at all" (Ch. 3, §10).

However, Blaug acknowledges that Marshall retained the classical notion that land is special: "the fixedness of the whole stock of cultivable land in an old country" implies that "from the social point of view, land is not on exactly the same footing as those implements of production which a man can increase without limits" — a sentence Blaug notes "makes modern Georgists jump for joy" (Ch. 10, §16).

The Corn Model (Ch. 4)

Blaug presents Ricardo's system as built on the notion that "economic growth must sooner or later peter out owing to scarcity of natural resources." The corn model reduces the economy to a giant farm producing wheat by applying homogeneous doses of "capital-and-labour" to a fixed supply of land subject to diminishing returns. Rent equals the total product minus the marginal product of capital-and-labour multiplied by the number of doses applied — determined "solely by the gap between the average and the marginal product, by the strength of the forces making for diminishing returns" (Ch. 4, §1).

Henry George and Site Value Taxation (Ch. 3, §11)

Blaug's Treatment of George

Blaug devotes a substantial section to Henry George and the single tax, treating him as a significant figure in the history of economic thought. Key points:

1. George's proposal: "Henry George in Progress and Poverty (1879) went a little further and proposed to confiscate all rents in the manner of the physiocrats, a measure that he claimed would abolish poverty and economic crises, the latter being simply the result of speculation in land values" (Ch. 3, §11).
2. Misunderstanding of George: Blaug notes George's proposal "was widely misunderstood, partly because of his own clumsy exposition, as advocating nationalisation of land. In point of fact, he only proposed to tax pure ground rent, exempting the returns from site improvements" (Ch. 3, §11).
3. The single tax design: "'The single tax' was designed to reduce the price of land as mere space to zero, leaving untouched the rentals of property located on the land; it was intended to put all property on the same basis irrespective of its location" (Ch. 3, §11).

The Marshallian Objection

Blaug presents Marshall's objection to the single tax: "all economic agents, not simply land, may earn 'rents' in the short run; and even Ricardian differential rents are incentive payments in the long run; encouraging the economical use of fertile and therefore scarcer land" (Ch. 3, §11).

However, Blaug offers a partial rebuttal on George's behalf: "George might have replied that no quasi-rent has either the persistence or the generality of ground rent and Marshall would probably have agreed with that." Furthermore, "if it were administratively feasible to distinguish pure economic rent for land as a distance-input from rent for site improvements of all kinds, the Marshallian argument would lose some of its force: the elasticity of supply of space is indeed very low" (Ch. 3, §11).

Blaug's Assessment

Blaug's assessment is nuanced — neither dismissive nor fully endorsing:

"Provided there is no deception that such a tax would raise much revenue except in rapidly growing cities, there would seem to be nothing wrong with the principle of site value taxation" — defined as taxing land values with full or partial exemption of improvements. (Ch. 3, §11)

He notes that the administrative difficulties "are no greater than those involved in distinguishing income and capital under the progressive income tax" (Ch. 3, §11).

George's Weaknesses

Blaug identifies two key weaknesses in George's argument:

1. Failed to distinguish site value from betterment: "What George was after was to destroy land speculation and he should have devoted all his energies to clarifying the distinction between a tax on 'site values' and a tax on 'betterment'. But this aspect of his argument was little developed in Progress and Poverty" (Ch. 3, §11).
2. Thirty years out of date: "Progress and Poverty, a wonderful example of old-style classical economics, was thirty years out of date the day it was published and the idea of confiscating the income of a leading social class was deeply shocking to a generation bred on Victorian pieties" (Ch. 3, §11).

Historical Legacy

Blaug notes that "the concept of site value taxation was never seriously discussed, and to this day the only examples of it are to be found among local governments in the United States, Australia and New Zealand." However, "the milder Mill proposal... was eventually adopted in the British Budget of 1909 for urban lands not used for building purposes and the British Town and Country Planning Act of 1947 finally applied the principle of taxing future rental increments to all plots of land" (Ch. 3, §11).

Blaug also notes that Walras and Wicksteed were both advocates of land nationalisation, albeit with full compensation. Walras proposed compensating proprietors with bonds, using future rents to pay interest, relying on Ricardo's belief that rents tend to rise in a growing economy (Ch. 3, §11).

The Marginal Revolution's Treatment of Land (Ch. 8)

Henry George as the "Subversive of the Day"

Blaaug places Henry George in a striking historical context, noting that in the 1860s–1880s, George was the dominant radical economist — more influential than Marx during that period:

"Marx, who died obscurely in 1883 in the shadows of the great economic subversive of the day, namely, Henry George." (Ch. 8, §4)

The marginal revolution's relationship to Georgism is complex. Blaug rejects the argument that marginal utility theory was "nothing but the bourgeois answer to Marxism" — the first generation of marginalists (Jevons, Menger, Walras) had no knowledge of Marx. But he acknowledges that "as the new economics began to furnish effective intellectual ammunition against Marx and Henry George, the view that value theory really did not matter became more difficult to sustain" (Ch. 8, §4).

Land After the Marginal Revolution

The marginal revolution fundamentally changed the treatment of land. Blaug observes that "modern economics has abandoned the notion that there is any need for a special theory of ground rent. In long-run stationary equilibrium, the total product is resolvable into wages and interest as payments to labour and capital — there is no third factor of production" — leaving differential rent theory interesting, Blaug adds, only as the first appearance of the marginal principle. (Ch. 3, §10).

This is the key shift: what was a separate factor of production with unique properties became merely a pedagogical stepping-stone to general marginal analysis. Land's distinctiveness was dissolved into the universal logic of marginal productivity.

Wicksteed and Georgism (Ch. 11)

Blaug's treatment of Wicksteed includes a notable passage on Georgism. In discussing Wicksteed's Common Sense (1910), Blaug notes that "the ghost of the recently deceased Henry George is never far away in these pages" (Ch. 11, §39).

In discussing the law of rent (Ch. 11, §40), Blaug notes that Wicksteed "demonstrates that rent determined as the mixtilinear area under the marginal product curve of labour and capital is identical to rent determined as the rectilinear area under the marginal product curve of land." However, Wicksteed condemned the practice of labelling as "rent" any and all intermarginal surpluses and argued that "the habit of defining land à la Ricardo as a 'free gift of nature'... should be abandoned once and for all" (Ch. 11, §40). Blaug notes: "Once again, Georgism is firmly stamped on."

Physiocrats and the Single Tax (Ch. 1, §13)

Blaug traces the lineage of the single tax concept from the Physiocrats, who "regarded rent as a perfectly legitimate income, a payment for a nonreproducible natural agent" and argued that "the incidence of any tax will always fall upon landlords; the returns of all other classes consist of 'necessary' expenses of production." This led to the "physiocratic demand for a single tax aimed at minimising collection costs by taxing directly those incomes that ultimately bear taxes" (Ch. 1, §13).

Blaug distinguishes the physiocratic single tax from the Georgist version: "the physiocratic single tax is not a tax on 'the unearned increment' of rental values in response to a rising population à la James and John Stuart Mill but a species of land value taxation in the form of a levy on pure rent" — which Quesnay put at roughly a third of the 'net product.' (Ch. 1, §13).

Key Quotes

"Corn is not high because a rent is paid, but a rent is paid because corn is high." — Ricardo, quoted Ch. 3, §9

"The expropriation of rents by the state would not affect production provided, of course, it were only pure economic rents that were being confiscated." — Blaug on classical economists, Ch. 3, §9

"In point of fact, he only proposed to tax pure ground rent, exempting the returns from site improvements. In short, 'the single tax' was designed to reduce the price of land as mere space to zero." — Blaug on George, Ch. 3, §11

"There would seem to be nothing wrong with the principle of site value taxation, that is, the taxation of land values with full or partial exemption of the improvements made on the land." — Blaug, Ch. 3, §11

"Marx, who died obscurely in 1883 in the shadows of the great economic subversive of the day, namely, Henry George." — Blaug, Ch. 8, §4

"The fixedness of the whole stock of cultivable land in an old country implies that from the social point of view, land is not on exactly the same footing as those implements of production which a man can increase without limits." — Marshall, quoted Ch. 10, §16 — "a sentence that makes modern Georgists jump for joy"

"Georgism is firmly stamped on: the habit of defining land à la Ricardo as a 'free gift of nature', Wicksteed suggests, should be abandoned once and for all." — Blaug on Wicksteed, Ch. 11, §40

Blaug's Overall Assessment of Georgism

Blaug occupies a centrist position on Georgism. He does not endorse the single tax but treats it with analytical seriousness, finding:

1. Principle is sound: "there would seem to be nothing wrong with the principle of site value taxation"
2. Administratively feasible: difficulties "are no greater than those involved in distinguishing income and capital under the progressive income tax"
3. Revenue limited: "no deception that such a tax would raise much revenue except in rapidly growing cities"
4. George's exposition was clumsy: proposal "was widely misunderstood, partly because of his own clumsy exposition"
5. George was theoretically dated: "thirty years out of date the day it was published"
6. But politically significant: George was "the Karl Marx of the 1880s" (Ch. 3, Notes on Further Reading)

Relevance to Georgism

Blaug's Economic Theory in Retrospect is valuable for the Georgist wiki as: - A mainstream, authoritative history of economic thought that treats Georgism with analytical respect - The most detailed academic treatment of site value taxation within a general history of economic thought textbook - A bridge between classical rent theory (Ricardo, Mill) and the marginal revolution's dissolution of land as a distinct factor - Evidence that the conflation of land with capital was recognised by non-Georgist economists as a theoretical choice, not a natural evolution - A source for the Marshall quotation that "makes modern Georgists jump for joy" — affirming land's distinctive fixity

See Also

• Land is a Big Deal (book page) — Doucet's modern empirical defence of Georgism
• The Corruption of Economics (book page) — Gaffney & Harrison's argument that the land–capital merger was deliberate
• Land Value Tax — The traditional Georgist proposal
• Economic Rent — Rent as unearned income from land
• ATCOR — All Taxes Come Out of Rent

Sources

• Blaug, Mark. Economic Theory in Retrospect. 5th edition. Cambridge: Cambridge University Press, 1997. ISBN 978-0-521-57701-4 (paperback). First edition 1962 by Richard D. Irwin, Inc. — DJVU scan examined; text extracted from scanned source.