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A Dialogue on Political Economy
Edward J. Dodson
[A dialogue involving several participants based on the writings of
important contributors to the dialogue on "the land question"
and economic justice, held in 1982 at the Henry George Institute, New
York, NY]
Political economy has undergone intensive
analysis for a period of several centuries. And yet , all the writings
and discussion generated have yet to produce a consensus of thought on
the political and economic problems experienced by the world's
societies What you are about to read is the result of research into
the writings of some of the world's most learned and respected
contemporary and historical personalities in the realm of political
economy. Their ideas are brought together in the form of a dialogue,
as though they were seated all in a room engaging in a substantive
debate. The role of "moderator" has been created to
stimulate and guide this exchange.
MODERATOR Welcome to this roundtable discussion on the
subject of political economy. Our guests include some well-respected
authorities on political economy and spokesmen for certain particular
points of view where policies, prescriptions and issues are concerned.
With us today are Robert L. Heilbroner, Adam Smith, Karl Marx, Henry
George, Lester C. Thurow, John Maynard Keynes, Gunnar Myrdal, C.
Lowell Harris, Arthur Laffer and (although he represents more of a
political than economic perspective), former President of the United
States, John Adams.
I would like to begin our discussion by asking Professor Heilbroner
to comment on what has been a very long and unsuccessful search for
solutions he has himself termed "the Economic Problem."
Professor Heilbroner?
ROBERT HEILBRONER Thank you. As a starting point to this
discussion, I would suggest to my colleagues that the trouble with
economics is that it will not stand still. Issues change, ideas
change, understanding changes . Even the past does not look exactly
the same from one year to the next, and the present is apt to alter
almost out of all recognition.
[1]
MODERATOR How, then, Professor Heilbroner, is one to
approach the study of political economy in a manner which has a
reasonable opportunity to produce understanding?
ROBERT HEILBRONER I would emphasize a broad understanding of
economic history -- not, of course, to learn names and dates, but to
gain a sense of the evolution of the economic system, of the internal
changes that have gradually altered the setting of economic life, and
of the trajectory of economic evolution.
[2]
MODERATOR Your comments on the importance of understanding
economic history are ones with which I believe any of your colleagues
would agree. It strikes me that the most significant changes first
occurred during that time period when the last remnants of feudalism
in the European-centered economy were losing ground to the merchants
of the nation-states and "capitalism." Economic historians
have pointed to the 16th century for evidence of this process of
change. Do you see this period, Professor Heilbroner, as a period of
major change?
ROBERT HEILBRONER Yes, of course. Let me address for a
moment these issues of historical change and the growth in the role of
government. In antiquity and feudal times one could not easily
separate the economic motivations or even the economic actions of the
great mass of men from the normal round of existence itself. The
peasant following his memorial ways was hardly conscious of acting
according to "economic" motivations; indeed, he did not: he
heeded the orders of his lord or the dictates of custom. Nor was the
lord himself economically oriented. His interests were military or
political or religious, and not basically oriented toward the idea of
man or increase. The making of money was a tangential rather than a
central concern of ancient or medieval existence.
[3]
One further comment, if I may. An essential part of the evolution of
the market society was thus not only the monetization of life but the
mobilization of life -- that is, the dissolution of ties of place and
station which were the very cement of feudal existence. And this
essential requirement of mobility lends to a further point. Mobility
meant that any job or activity was now open to all comers. Competition
appeared. Now any worker and any employer could be displaced form his
task by a competitor who would do the job more cheaply.
MODERATOR Gentlemen, Professor Heilbroner has presented
several rather direct statements concerning the development of
political economy as an historical process. I'd like to first ask our
Scottish colleague, Adam Smith, who we all know as the author of the
economic treatise
The Wealth of Nations, how his analysis of these historical
processes compares with those of Professor Heilbroner.
ADAM SMITH Well, now. What Professor Heilbroner seems to be
saying, without really saying it, is something about the nature of man
and the nature of political economy which which I can agree.
Approaching the historical evolution of the subject somewhat
differently, I would spread the science of economics into two general
divisions, which may be named natural economics and political
economics. Let me explain what I mean by this separation. The first
observes and records the behavior of the human race in obtaining its
necessary sustenance, as it could reasonably be expected when not
interfered with nor diverted by any outside force. This, however, is a
state which does not actually exist anywhere in the civilized world.
The organization of a civilized society supposes some impairment of
individual rights, and some restraint of natural individual impulses
and desires. Until human nature becomes perfect, such restraints are
necessary; the problem is to keep them within the narrowist possible
limits.
[5]
MODERATOR That, Professor Smith, has remained a largely
unresolved issue even through the present day. This argument over the
proper role of the "state" in the political economy is one
of crucial importance. Your ideas, Professor Smith lie at one end of
the theoretical spectrum; at the other, perhaps, are those of Karl
Marx. Herr Marx, how do you view the question of individual rights,
the power of the state and what best responds to human nature?
KARL MARX Pardon me, please, if I bypass this question for
the moment. I, too, would like to comment on the historical processes
involved in the evolution of human society. I would simply add, here,
that even when a society has got upon the right track for the
discovery of the natural laws of its movement it can neither clear by
bold leaps, nor remove by legal enactments, the obstacles offered by
the successive phases of its normal development. But it can shorten
and lessen the birth-pangs.
[6] That is all I wish to say.
MODERATOR What you've done, I believe, Herr Marx, is to move
our discussion into another area of historical disagreement where the
study of political economy is concerned. You seem to have equated
change with progress. One of your contemporaries, Mr. Henry George
(who is best known for his monumental work
Progress and Poverty, attempted to distinguish between these
two concepts. How, Mr. George, would you react to Herr Marx on this
issue?
HENRY GEORGE Today or a hundred years ago, when I wrote
Progress and Poverty, are much the same. Time has passed,
change has occurred, but have progress really resulted? By simple
observation, I recognized that wealth had been greatly increased, and
that the average of comfort, leisure, and refinement had been raised;
however, it was true then and is true today that these gains are not
general. In them the lowest class do not share. I do not mean that the
condition of the lowest class has nowhere nor in anything been
improved; but that there is nowhere any improvement which can be
credited to increased productive power. I mean that the tendency of
what we call material progress is in nowise to improve the condition
of the lowest class in the essentials of healthy, happy human life.
Nay, nor, that it is still further to depress the condition of the
lowest class The new forces, elevating in their nature though they be,
do not act upon the social fabric from underneath, as was for a long
time hoped and believed, but strike it at a point intermediate between
top and bottom. It is as though an immense wedge were being forced,
not underneath society, but through society. Those who are above the
point of separation are elevated, but those who are below are crushed
down.[7]
MODERATOR
Does this imply, Mr. George, that like Karl Marx you also see the
process ending in an inevitable struggle of one class against the
other?
HENRY GEORGE With all due respect to Herr Marx and the large
following he has secured, his analysis is materially flawed because he
fails to properly distinguish between ownership "classes"
which are productive, and therefore advance the progress of society,
and those which are nonproductive. By its very nature ownership of
capital must involve production in order to generate new wealth.
Ownership of land, on the other hand, requires no such ownership
activity, only the growth of the community. What Professor Heilbroner
terms the "economic problem" can be largely solved by giving
labor a free field and its full earnings; take for the benefit of the
whole community that fund which the growth of the community creates,
and want and the fear of want would be gone. The springs of production
would be set free, and the enormous increase of wealth would give the
poorest ample comfort The progress of science, the march of invention,
the diffusion of knowledge, would bring their benefits to all.
[8]
MODERATOR So, in your opinion, Mr. George, the real struggle
is not between labor and capital; rather, labor and capital are united
in a bitter struggle against the landowners. Is that a fair
restatement?
HENRY GEORGE Yes, I have no objection to your summary of my
comments. I would, however, like to hear Herr Marx's response; that
is, if he has one.
MODERATOR Herr Marx?
KARL MARX Thank you. Viewed from the present, one cannot but
marvel at the improvements in the conditions now experienced by a
substantial number of workers in the capitalist societies . To what
can be this credited? To the generousity of capitalists? To the
productivity of labor? Or, perhaps, to the organization of labor into
powerful political and economic voices? Long before the period of
Modern Industry, cooperation and the concentration of the instruments
of labor in the hands of a few, gave rise, to great, sudden, and
forcible revolutions in the modes of production, and consequentially,
in the conditions of existence, and the means of employment of the
rural populations. I concede to Mr. George that this contest at first
took place more between the large and the small landed proprietors,
than between capital and wage-labor; on the other hand, when the
laborers are displaced by the instruments of labor, by sheep, horses,
etc., in this case force is directly resorted to in the first instance
as the prelude to the industrial revolution. The laborers are first
driven from the land. Land grabbing on a great scale is the first step
in creating a field for the establishment of agriculture on a great
scale.
[9]
MODERATOR What Mr. George seems to be saying, Herr Marx, is
that the capitalist as capitalist is not necessarily the culprit.
Certainly, the motivations of the various competing groups during the
sixteenth century were many -- the struggle for power between the
feudal lords and the monarchies, the conflict between Protestantism
and the Pope, the formation of nation-states, the beginnings of
colonialism -- and all played a role. What Mr. George concludes,
however, is that a general concentration of control over land among
nobles of an earlier era and other interests today lies at the heart
of this class struggle. Over time, many of the large landowner
families has increased their power by also actively accumulating large
quantities of available capital.
Let's hear from British economist John Maynard Keynes on this
question of distribution. Lord Keynes, is there such a thing as the
potential for an equitable distribution of wealth in a capitalist
economy?
JOHN MAYNARD KEYNES Mr. George and others may not agree, but
one thing we must recognize is that under the system of "Laissez-faire"
and an international gold standard such as was orthodox in the latter
half of the nineteenth century, there was no means open to a
government whereby to mitigate economic distress at home except
through the competitive struggle for markets.
[10]
Having said that, I certainly agree that the outstanding faults of
the economic society in which we live are its failure to provide full
employment and its arbitrary and inequitable distribution of wealth
and incomes. However, it must be said that since the end of the
nineteenth century significant progress towards the removal of the
very great disparities of wealth and income has been achieved through
the instrument of direct taxation -- income tax and surtax and death
duties -- especially in Great Britain.[11]
MODERATOR You see the intervention of government through
taxes on income and wealth as an appropriate approach to the
distribution problem, then, Lord Keynes?
JOHN MAYNARD KEYNES I strongly believe so.
MODERATOR Though there may be others, I suspect one member
of our group in particular may strongly disagree, Professor Arthur
Laffer of the University of California, and architect of what has come
to be called "supply-side" economic theory. Professor
Laffer, would you care to respond to Lord Keynes?
AUTHOR LAFFER To begin with, I strongly believe the demand
side policies which had been applied in their entirety did not avert
the economic collapse of the mid-1970s and in my view actually brought
it about. The most damaged by the contraction were the disenfranchised
members of society, including minorities, youths and the chronically
disadvantaged.
[12]
MODERATOR If the demand management policies originally
developed by Lord Keynes during the "Great Depression" are
inappropriate, what will work?
ARTHUR LAFFER Basically, people don't work to pay taxes but
instead work to receive something after tax. Likewise, businesses
don't invest as a matter of social conscience but do so to make an
after-tax return on their investments. It is axiomatic that when more
of a good is produced its price falls. Tax rate reductions do lead to
more production and if combined with a good monetary policy should
reduce inflation.
[13]
MODERATOR Another guest, C. Lowell Harriss of Columbia
University, has been involved in some rather significant research with
the Tax Foundation, and I would like to have him comment on your
statements Professor Laffer. Professor Harriss?
C. LOWELL HARRISS Well, research into tax rates indicates
that when total taxes are as high as they must be to finance modern
levels of spending, tax rates will also be. high enough to influence
behavior. But the present practice of imposing rates of around 50
percent on the returns to capital of corporations is scarcely
essential A lower rate on a larger base offers an alternative.
[14]
MODERATOR What about that Mr. George? Do you feel as do
Professors Laffer and Harris on the importance of the rate of taxation
imposed?
HENRY GEORGE As to the question. of taxation, the mode of
taxation is, in fact, quite as important as the amount.
[15]
MODERATOR Gentlemen, the reality of the world has been an
absence among even the so-called "advanced" and
industrialized societies of a political economy able to produce an
adequate standard of living for all, Why do you thing this is so? Yes
… Adam Smith.
ADAM SMITH As the study of political economy has evolved,
far too few of those in our profession paid much attention to the
lessons taught by history. In every instance, as soon as the land of
any country has all become private property, the landlords, like all
other men, love to reap where they never sowed, and demand a rent even
for its natural produce. The wood of the forest, the grass of the
field, and all the natural fruits of the earth, which, when land was
in common, cost the laborer only the trouble of gathering them, come,
even to him, to have a price fixed upon them. The man who cultivates
the land must give up to the landlord a portion of what his labor
collects or produces. This portion, or, which comes to the same thing,
the price of this portion, constitutes the rent of land which must be
included in the price of most commodities.
[16]
MODERATOR What about those societies where private ownership
of land has been eliminated, as in most of the communist-run
societies?
ADAM SMITH I'm willing to address this point; however, I'd
like to hear from someone here who actually had to face the issue of
private property in land as a basic political issue.
MODERATOR And who is that, Professor Smith?
ADAM SMITH Well, within this gathering I suggest we hear
from one of America's original founding fathers and former President
of the new nation, John Adams.
MODERATOR President Adams?
JOHN ADAMS I, too, believe that property in the soil is the
natural foundation of power and authority. Three cases of soil
ownership are supposable. First, if the prince own the land he will be
absolute. All who cultivate the soil, holding it at this pleasure,
must be subject to his will. Second, here the landed property is held
by a few men the real power of the government will be in the hands of
an aristocracy or nobility, whatever they are named. Third, if the
lands are held and owned by the people and prevented from drifting
into one or a few hands, the true power will rest with the people, and
that government will, essentially, be a Democracy, whatever it may be
called. Under such a constitution the people will constitute the
State.
[17]
MODERATOR To which form of land ownership would you ascribe
communism as practiced in the modern era?
JOHN ADAMS One may draw one's own conclusions based on the
extent to which political and individual freedoms also exist.
MODERATOR And yet, the protection of property rights was an
extremely important issue behind the conflict between the American
colonies and its mother country, England. Why, then, is the private
accumulation of land such an important element to you, Mr. George, and
the others here who represent the classical perspective on political
economy?
HENRY GEORGE The long-term effects are best illustrated by
the constant existence of speculation where private ownership has been
protected by the governing authority. Essentially, the influence of
speculation in land in increasing rent is a great fact which cannot be
ignored in any complete theory of the description of wealth in
progressive countries. It is the force, evolved by material progress,
which tends constantly to increase rent in a greater ratio than
progress increases production, and thus constantly tends, as material
progress goes on and productive power increases, to reduce wages, not
relatively, but absolutely. It is this expansive force which,
operating with great power in new countries, brings to them, seemingly
long before their time, the social diseases of older countries. In
short, the general and steady advance in land values in a progressive
community necessarily produces that additional tendency to advance
which is seen in the case of commodities when any general and
continuous cause operates to increase their price.
[18]
GUNNAR MYRDAL Thank you very much, Mr. George. As you
suggest, findings in a study we did on Southeast Asia in the late
l960s revealed there are other factors that, by keeping down the labor
productivity, together are responsible for low average incomes and low
standards of life. Very low living levels decrease the amount of labor
input and also the intensity and efficiency of the work actually
performed on the land by the labor force. Low incomes are only the
other side of low labor productivity; a vicious cycle makes poverty
and low levels of living, or low labor productivity; self-generating.
Behind this unfortunate causal mechanism there is a social system of
institutions and power relations, that is severely inimical to
productivity, at the same time as low productivity establishes itself
as the norm. And within this social system, both shaped by it and
upholding it, are the ingrained attitudes of people in all classes.
Among the non-physical factors that keep down labor productivity are
also the primitive techniques employed in agriculture, likewise both a
function of the existing social system, which deprives the tillers of
both capital and incentives to greater effort, and a prop to that
system.
[19]
MODERATOR That sounds very much like a prescription for
social and political upheaval, which has certainly been the experience
in Southeast Asia. Professor Heilbroner, can you add anything to
Gunnar Myrdal's statement?
ROBERT HEILBRONER In my view the prerequisite for economic
progress for the underdeveloped countries today is not essentially
different from what it was in Great Britain at the time of the
industrial revolution, or what it was in Russia in 1917. To grow, an
underdeveloped economy must build capital.
[20]
MODERATOR How important to capital building are these social
and political factors discussed by both Gunnar Myrdal and Henry
George?
ROBERT HEILBRONER Very important, obviously. How is a
starving country to build capital when 80 percent of its people are
scrabbling on the land for a bare subsistence? The crowding of
peasants on the land has resulted in a diminution of agricultural
productivity far below that of the advanced countries. Hence the
abundance of peasants working in the fields obscures the fact that a
smaller number of peasants, with little more capital could raise a
total output just as large. By raising the productivity of the tillers
of the soil, a work force can be made available for the building of
roads and dams, while this "transfer" to capital building
need not result in a diminution of agricultural output.
[21]
MODERATOR Is this a realistic approach to a solution,
Professor Heilbroner, when there is so much political turmoil in most
of these countries?
ROBERT HEILBRONER Understand that what I have outlined is
not a formula for immediate action. In many underdeveloped lands, the
countryside already crawls with unemployment, and to create overnight,
a large and efficient farming operation would create an intolerable
social situation. We should think of the process as a long-term
blueprint which covers the course of development over many years. It
shows us that the process of development takes the form of a huge
internal migration from agricultural pursuits, where labor is wasted,
to industrial and other pursuits, where it can yield a net
contribution to the nation's progress.
[22]
MODERATOR The problem I see in your statement is that even
in the developed, industrialized capitalist economies unemployment and
underemployment remain as major problems. And, government
redistributive programs have not addressed the issue of creating
productive employment opportunities. Not much time remains, but I
would like to hear from Lester Thurow, whose book
Zero Sum Society attempts to deal with this. Professor Thurow?
LESTER THUROW To have no government programs for
redistributing income is simply to certify
de facto that the existing market distribution of incomes is
equitable. One way or another, we are forced to reveal our collective
preferences about the "just" distribution of economic
resources. As a result, one basic responsibility of government in a
market economy is to create an equitable distribution of income and
wealth if it has not been produced by the market.[23]
MODERATOR What do you see as the role of the political
economist in light of the increasing dependence upon government to
achieve some degree of economic justice?
LESTER THUROW My feeling is that although modern economics
springs from the search for a definition of economic justice, it has
largely abandoned that search. Thus, nineteenth century economists,
such as John Stuart Mill and our other historical colleagues, spent
much of their time searching for the principles that would lead to a
condition of equity. But by the l940s, economists reluctantly came to
the conclusion that there were no economic statements that could be
made about equity.
[24]
MODERATOR Would you agree, Mr. George, with Lester Thurow's
conclusion that equity is an illusionary economic concept?
HENRY GEORGE I have written, and still believe, that the
association of poverty with progress is the great enigma of our times.
It is the central fact from which spring industrial, social, and
political difficulties that perplex the world, and which statesmanship
and philanthropy and education grapple in vain. From it come the
clouds that overhang the future of the most progressive and
self-reliant nations. So long as all the increased wealth which modern
progress brings goes but to build up great fortunes, to increase the
luxury and make sharper the contrast between the House of Have and the
House of Want, progress is not real and cannot be permanent. To
educate men who must be condemned to poverty, is but to make them
restive; to pass on a state of most glaring social inequality and
political institutions under which men are theoretically equal, is to
stand a pyramid on its apex.
[25]
MODERATOR Thank you Mr. George. Time has elapsed, so I hope
this discussion has for all of you been as informative and
enlightening as it has for me.
REFERENCES
- Robert L. Heilbroner, The
Economic Problem, Prentice-Hall, Englewood Cliffs, New Jersey,
1970, Preface v.
- Ibid., ix.
- Ibid., pp.59-60.
- Ibid., p.65.
- Arthur Hugh Jenkins, Adam
Smith Today, Richard R Smith Co., New York, 1948, p. 25.
- Karl Marx, Capital,
The International Publishers Co., New York, Reprinted 1939.
Author's Prefaces xviii-xix.
- Henry George, Progress and
Poverty, Robert Schalkenbach Foundation, New York, Reprinted
1954. pp. 8-9.
- Ibid., p. 461.
- Marx, p. 430.
- John Maynard Keynes, The
General Theory of Employment, Interest, and Money, Harcourt
Brace Jovanovich, New York, Reprinted 1964, p. 382.
- Ibid., pp. 372-373.
- Arthur B. Laffer, "Reagan's
Policies a Sound Departure", Los Angeles Times, July 8, 1981.
- Ibid.
- C. Lowell Harriss, "Taxation
of Business: Fundamental Issues", Essays on Taxation,
Tax Foundation Inc., New York, 1974, p. 52.
- Henry George, p. 409.
- Arthur Hugh Jenkins, p. 60.
- John Adams, Works,
Volume III, p. 466.
- Henry George, p. 259.
- Gunnar Myrdal, Asian Drama,
Volume I, Pantheon Books, 1968, p. 433.
- Heilbroner, p. 640.
- Ibid., p. 641.
- Ibid.
- Lester C. Thurow, "Toward
A Definition of Economic Justice", The Public Interest,
No. 31 (Spring 1973), p. 82.
- Ibid., p. 82.
- Henry George, p. 10.
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