An interesting reflection on the nature of neo-classical economics can be gained by a consideration of Professor Blaug's treatment (in his Economic Theory in Retrospect, 1985) of the obscure German economist Johann Heinrich von Thunen. It has been suggested that one of the important reasons why Henry George has been neglected by economists was because of his failure to comprehend marginalism.[1]

Although the most essential feature of his theory necessarily involves employment of the concepts of marginalism, it is true that he failed to comprehend marginal analysis as stated in general terms. Indeed he spent considerable energy in combatting 'marginalism' as he understood it, namely the so-called 'marginal utility theory of economic value' . But his severe criticisms of this theory (in The Science of Political Economy, Bk II) ought not be interpreted as an attack upon marginalism as such, but an attack upon a theory of value which he saw as being not only completely erroneous, but also as an effective instrument of confusion in the conservative reaction against any attempt (whether Georgist or socialist) to get off the ground a radical or ethical critique of existing Systems of property. And indeed it seems to me that George not only showed the marginal utility theory of economic value to be an apologetic piece of nonsense, but also and somewhat incidentally perfected the theory of economic value to such a degree that a satisfying synthesis of 'right-wing' concepts of market-allocation of resources and 'left-wing' concepts of property being merely a system of exploitation can easily be had, by using the single tool of Georgean value theory. But The Science of Political Economy has been ignored even more so than Progress and Poverty. All this, however, is another story, albeit a very interesting one.

As quoted before (in Good Government, Sept. 1986), Blaug states that 'The whole of neoclassical economics is nothing more than the spelling out of this principle (the equimarginal principle) in ever wider contexts...' It seems to me that this is a fair reflection on 100 years of neo-classical economics, summing up both its strengths ('spelling out of this principle') and its appalling weaknesses ('nothing more than this'). Evidence of the truth of this can be seen in Blaug's treatment of George and von Thunen. As discussed before.

Blaug's treatment of George is cursory and uninterested. But his treatment of Thunen is the more lengthy and very interested. And the reason for these respective treatments is simply that George did not endeavour to express any of his views using marginal analysis, whereas Thunen attempted to express all of them in that way, and was apparently the first to do so. Blaug finds space for complimentary discussions of Thunen's marginal productivity theory and wage theory (pp.322-324), and his location theory and theory of rent determination (pp.614-618). But the focus of these discussions is on Thunen as a pioneer in the use of marginal analysis, and not on what jumped out of the page at the Georgist reader: 'He (Thunen) had become convinced in the closing years of his life that the low wages and poverty of large sections of the working class in much of Europe was principally due to the absence of free land: America was less troubled by poverty, he thought, because of free land available on the frontier. ...Thunen claimed that his formula for the natural wage ('the square root of ap', which he had engraved on his tombstone when he died in 1850) was approximated under frontier conditions in the USA... (p.324).

But in the final analysis marginal analysis is merely an arithmetic for understanding and expressing equilibrium in various defined conditions. The use of economics is not in the definition of conditions and the performance of calculations to arrive at the equilibrium value, but in the understanding of the institutional barriers to the maximisation of the product and the equitable distribution of it. What is of greatest interest is not marginal analysis, but analysis of property rights. Determination of wage rates by productivity of marginal land is not as interesting as the implications of a system of property rights where ground rent is privately appropriated, namely the possibility of large-scale land under-utilisation, with consequent depression of productivity of marginal land and privatisation of increased surplus of intra-marginal land (the correlative of reduced wages).


NOTES:

[1] Approach to economic problems via examination of marginal cases. (editor)