A Dialogue on Political Economy
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[A speech first delivered in 1982 at
the Henry George Institute, New York, NY]
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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.
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?
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]
How, then, Professor Heilbroner, is one to approach the study
of political economy in a manner which has a reasonable opportunity to
produce understanding?
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]
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?
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.
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.
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]
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?
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.
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?
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]
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?
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]
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?
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?
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]
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?
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]
You see the intervention of government through taxes on
income and wealth as an appropriate approach to the distribution
problem, then, Lord Keynes?
I strongly believe so.
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?
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]
If the demand management policies originally developed by
Lord Keynes during the "Great Depression" are inappropriate,
what will work?
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]
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?
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]
What about that Mr. George? Do you feel as do Professors
Laffer and Harris on the importance of the rate of taxation imposed?
As to the question. of taxation, the mode of taxation is, in
fact, quite as important as the amount.
[15]
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.
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]
What about those societies where private ownership of land
has been eliminated, as in most of the communist-run societies?
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.
And who is that, Professor 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.
President 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]
To which form of land ownership would you ascribe communism
as practiced in the modern era?
One may draw one's own conclusions based on the extent to
which political and individual freedoms also exist.
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?
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]
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]
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?
In my view the prerequisite for economic progress for the
underdeveloped countries today is not e3sentially 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]
How important to capital building are these social and
political factors discussed by both Gunnar Myrdal and Henry George?
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]
Is this a realistic approach to a solution, Professor
Heilbroner, when there is so much political turmoil in most of these
countries?
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]
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?
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]
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?
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]
Would you agree, Mr. George, with Lester Thurow's conclusion
that equity is an illusionary economic concept?
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]
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
[1] Robert L. Heilbroner, The
Economic Problem, Prentice-Hall, Englewood Cliffs, New Jersey,
1970, Preface v.
[2] Ibid., ix.
[3] Ibid., pp.59-60.
[4] Ibid., p.65.
[5] Arthur Hugh Jenkins, Adam Smith Today, Richard R Smith
Co., New York, 1948, p. 25.
[6] Karl Marx, Capital, The International Publishers Co., New
York, Reprinted 1939. Author1s Prefaces xviii-xix.
[7] Henry George, Progress and Poverty, Robert Schalkenbach
Foundation, New York, Reprinted 1954. pp. 8-9.
[8] Ibid., p. 461.
[9]Marx, p. 430.
[10] John Maynard Keynes, The General Theory of Employment,
Interest, and Money, Harcourt Brace Jovanovich, New York,
Reprinted 1964, p. 382.
[11] Ibid., pp. 372-373.
[12] Arthur B. Laffer, "Reagan's Policies a Sound Departure",
Los Angeles Times, July 8, 1981.
[13] Ibid.
[14] C. Lowell Harriss, "Taxation of Business: Fundamental
Issues", Essays on Taxation, Tax Foundation Inc., New
York, 1974, p. 52.
[15] Henry George, p. 409.
[16] Arthur Hugh Jenkins, p. 60.
[17] John Adams, Works, Volume III, p. 466.
[18] Henry George, p. 259.
[19] Gunnar Myrdal, Asian Drama, Volume I, Pantheon Books,
1968, p. 433.
[20] Heilbroner, p. 640.
[21] Ibid., p. 641.
[22] Ibid.
[23] Lester C. Thurow, "Toward A Definition of Economic Justice",
The Public Interest, No. 31 (Spring 1973), p. 82.
[24] Ibid., p. 82.
[25] Henry George, p. 10.
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