Volume 10, Number 2, 2005
Federal Reserve Bank of Dallas
Henry George: Antiprotectionist Giant
of American Economics
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| Americans
are again confronted, both domestically
and internationally, with the clash of protectionist
and free trade sentiment. A deeply divided
U.S. House just barely passed the Central
American Free Trade Agreement. Politicians
who a few years back supported the North
American Free Trade Agreement now adamantly
oppose CAFTA. Americans are torn between
enjoying the benefits of globalization,
with its increased consumer choices and
lower prices, and worrying about the costs
to the nation that some claim come with
global free trade.
There is nothing new
about this clash of ideas, as this latest
Economic Insights points out; they
have been vigorously debated before, most
notably during the late 19th century. In
the center of that debate was one of this
nation’s most famous economists—Henry
George. Today, few Americans recognize his
name, yet his Progress and Poverty
is the best-selling economics book ever
written and outsold all English-language
books save the Bible in the late 1890s.
He touched off a worldwide movement for
major tax reform, and societies and institutions
still bear his name and span the globe.
Who was George? Why was he so influential?
And what did he have to say about protectionism
that we might profit from today? We offer
this short biographical piece to answer
these questions.
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Richard W. Fisher
President
Federal Reserve Bank of Dallas |
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Henry George: Antiprotectionist
Giant of American Economics
Today’s policy discussions
are often argued as if the issue under consideration
is unique to our time. Because we often forget—or
never knew—the relevant history, we can fail to
see that almost every policy argument has historical
precedent. This is certainly true of the hot-button
issues of globalization and protectionism. Although
many believe them unique to our day, antiglobalization—with
its concomitant protectionist sentiments—salts
human history.
Mercantilist doctrine, which is
protectionist, dates to mid-17th century Europe. As
international trade grew, so, too, did the demand for
government intervention to protect domestic manufactures
by discouraging imports and subsidizing exports. Even
nations committed to obtaining the benefits of free
trade have not been immune to mercantile doctrine. For
over a century, the American government raised the majority
of its tax revenue through the imposition of import
tariffs. But protectionist economic policy has always
had critics, one of the most thoroughgoing of whom was
Henry George.
George was born in 1839 in Philadelphia.
[1] His was a varied and fascinating life, shaped by
economic hardship. At 16, he shipped out on the Hindoo
as a deckhand, voyaging from New York to Australia and
India. After more than a year at sea, he returned to
his family and entered the printing business. When that
didn’t work out, he decided to emigrate to California
and to get there, signed aboard another ship as storekeeper.
George docked in San Francisco at age 19, another fortune
seeker arriving in California a decade after the state’s
famous gold discovery.
San Francisco offering little
in the way of employment, George accompanied a cousin
to British Columbia to help him open a store for gold
miners at the northern tip of the Fraser River. The
work was hard, and after an argument with his cousin,
George left the store’s employ. He was on the
verge of taking up mining, but the discouraging stories
of those returning from the fields sent him back to
San Francisco instead in late 1858. Once there, he landed
a typesetting job that enabled him to live more comfortably
than he had in Canada.
The new job didn’t last,
though, and George soon became a rice weigher in a local
warehouse, studying and reading by night, a man with
no friends and no money to go out, socialize and find
any. When the warehouse closed, George set off on foot
for the gold fields. But broke and hungry, he returned
to San Francisco without making it there. He landed
work setting type, but found himself unemployed shortly
thereafter when the job market dried up. It was then
that he finally had a piece of good luck—meeting
his future wife, Annie Corsina Fox. Their courtship
and marriage coincided with the nation’s plunge
into civil war and the young groom’s unpromising
employment prospects. But unlike his other fortunes,
which always gyrated wildly, the marriage was a wonderfully
successful rock on which he and his wife built the remainder
of their lives.
The war years were a time of bitter
privation for the couple. They moved to Sacramento so
Henry could set type, but that opportunity soon collapsed
with the firm’s demise, and they returned to San
Francisco to find work scarce there as well. When their
second child was born and they were penniless, George
was reduced to begging. Happily, he was able to get
some money just by asking a stranger for it. Otherwise,
he wrote in his journal, he would probably have killed
the man to secure funds to feed his children. Hitting
bottom, he outlined the steps he planned to take to
improve himself and, he hoped, his family’s lot.
The man who would write Progress and Poverty—the
best-selling economics book in history—was no
stranger to either.
George finally landed steady printing
work and began writing pieces for area newspapers, his
first foray into the public arena of ideas and policy
debate. His formal education was limited, but that didn’t
stop him from becoming self-educated in political economy.
Having been a protectionist before (he wrote in his
journal) engaging in “logical thought on the matter,”
he quickly converted to the free trade position. In
a debate in Sacramento (probably in 1868), he stated
his position clearly through a telling rejoinder to
the evening’s protectionist speaker. If the speaker
were correct, George challenged, the remotest places
on earth ought to be the best places to live since they
would be the most prosperous. It was a simple yet thought-provoking
reply that demonstrated the silliness of protectionist
dogma. George further announced that at the beginning
of the evening he had been a protectionist, but after
listening to the speaker’s arguments, he was leaving
the meeting a free trader because “protection
was defensible only upon the theory that the separation
of mankind into nations implied their industrial and
commercial antagonism.”[2]
Over the next 10 years, George
edited two small newspapers and ran unsuccessfully for
political office. He was appointed state inspector of
gas meters in 1876, and dutifully worked to improve
the safety of California’s natural gas infrastructure,
often over the objections of gas-related business interests.
His ideas concerning the relationship
between land rents and poverty began to crystallize,
and he often wrote pamphlets and editorials arguing
his views. His ideas attracted a growing number of followers.
On Sept. 18, 1877, in Sausalito—just north of
San Francisco and his new home—George began writing
a potential magazine article that would eventually become
Progress and Poverty.
At that time, the nation was suffering
a severe industrial depression, and anarchy and disorder
reigned. The situation cost many lives, and vandalism
by mobs of the newly unemployed caused millions in property
damage. George’s friends convinced him to expand
the article into a book. He labored for 17 months, with
the final result first published for general distribution
in New York in 1880. Sales were slow initially but soon
grew, as did George’s reputation.
He embarked for Europe to help
spread his vision for ending poverty, which was set
out in the book. He proposed a single tax on land to
replace the taxes labor and capital owners paid, shifting
the entire tax burden onto inelastically supplied land
rent. Two outcomes of such policy would be a reduction
in unearned rental incomes as land became a public good
and an increase in labor’s disposable income.
(See the box titled "The Single
Tax on Land.")
After a year in Europe debating
some well-known opponents—among them, economists
such as the great Alfred Marshall—George returned
to America a famous man. It was time, he knew, to spread
his vision at home. Low-cost editions of his writings
sold very well, and politicians and political parties
courted him. George had ignited a large social movement
that demanded land reform of the sort he proposed in
Progress and Poverty, the so-called single
tax on land.[3]
In 1886, George ran for mayor
of New York City. Backed by most unions, he presented
a real threat to the Democratically controlled political
machine, which offered him a Congressional seat if he
would forgo the election. “Wanting to raise hell,”
George declined the offer and accepted the United Labor
Party’s draft to run for mayor. In retaliation,
his campaign was subjected to dirty tricks and his reputation
smeared.
George did not win, but he did
beat Theodore Roosevelt, the Republican candidate, by
8,000 of the 120,000 votes counted for both men. That
tally was, of course, done by the Democrats and is undoubtedly
inaccurate because George’s party had no poll
watchers to help oversee the ballot count. Considering
that his opponents portrayed him as a man whose followers
were “anarchists, nihilists, communists and socialists”
who would bring the French Revolution’s many excesses
to New York, George’s showing was surprisingly
strong. But he would never again win as many votes and
was crushed at the polls when he ran for secretary of
state as the United Labor Party’s candidate in
1887.
George subsequently left politics
to write and speak. He edited The Standard,
a New York-based paper, and often wrote long pieces
supporting his ideas for publication in its pages. He
traveled widely to rally supporters and debate opponents.
When in other countries, he always looked for policies
and practices that he thought could benefit the United
States—for example, Australia’s voting procedures.
Even as he aged, his energy was amazing, for such travel
was not easy then. He wrote more books, including The
Condition of Labor and The Science of Political
Economy. For a time, it seemed the entire nation
was debating protectionism and free trade after five
Democratic congressmen placed Protection or Free Trade
into the Congressional Record in 1890.
George died in 1897 while again
running for mayor of New York, a political campaign
he knew would probably kill him. He renamed the Independent
Party that had drafted him the Party of Thomas Jefferson
and ran under that banner. George believed that Jefferson
represented true democracy, while Alexander Hamilton’s
Federalists represented the plutocracy.
The public reaction to George’s
death was unlike that generated by the passing of any
other economist. More than 100,000 people turned out
to view his body and join in the procession to his burial
site. His death was a major international news story,
and papers everywhere ran generally supportive or wildly
enthusiastic editorials about his ideas. Even his political
and ideological opponents expressed admiration for George’s
commitment to his beliefs and his unflagging, principled
approach to political struggle, which had always been
open and free debate as a process by which to discover
the truth. In this, he was quintessentially American.
Nobel economist Milton Friedman
once said that of all the ways to tax, “In my
opinion the least bad tax is the property tax on the
unimproved value of land, the Henry George argument
of many years ago.”[4]
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Robert L. Formaini
Senior Economist |
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| Notes
-
Almost all the biographical details
in this article are from The Life
of Henry George, by Henry George
Jr. (Honolulu, Hawaii: University Press
of the Pacific), 2004.
-
The speaker George challenged was William
H. Mills, land agent of the Central
Pacific Railroad.
-
The single tax remains one of the most
examined, supported and criticized of
all the theoretical ideas ever put forth
in economics. For a small sample of
the (thus far inconclusive) debate,
see Critics of Henry George,
edited by Robert V. Andelson (London:
Associated University Press), 1979.
-
Interview published in Human Events,
Nov. 19, 1979.
Sources and Suggested
Reading
Gaffney, Mason (1987),
“Henry George,” in The New
Palgrave Dictionary of Economics (New
York: Stockton Press), 514–15.
George, Henry (1891),
The Condition of Labor: An Open Letter
to Pope Leo XIII (New York: John W.
Lovell).
–––––
(1898), The Science of Political Economy
(New York: Doubleday and McClure).
–––––
(1935), The Land Question (New
York: Robert Schalkenbach Foundation), orig.
pub. 1881.
–––––
(1939), Progress and Poverty (New
York: Robert Schalkenbach Foundation), orig.
pub. 1879.
–––––
(1980), Protection or Free Trade
(New York: Robert Schalkenbach Foundation),
orig. pub. 1886. |
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The
Single Tax on Land
After studying the
classical political economists’ writings—including
work by the French physiocrats, Adam Smith,
David Ricardo, Thomas Robert Malthus and
John Stuart Mill—George concluded
that economic rent was an unproductive and
unfair residual value that served only to
enrich landowners while contributing nothing
to the productive process itself. The amount
of rent was determined solely by the collective
demand for land. George’s basic idea,
which he did not claim was original, was
to tax away all land rent and abolish all
other taxes. He did not advocate confiscation
of the land, arguing that it would be both
unfair to current owners and unnecessary
for his system to work. The whole community,
whose demand for land caused rent, would
reap the benefit of those rents. Labor and
capital—so often burdened by the patchwork
of taxes on labor, savings and entrepreneurs—would
be unleashed because none of these would
be taxed, nor would improvements to raw
land, such as factories and other buildings.
Many taxes of the
sort George advocated exist today, including
any property tax that distinguishes between
raw land value and site improvements. A
tax on land, a fixed-supply input, does
not have the same supply-side disincentive
effect as a tax on labor or capital. No
one denies this basic contention of classical
economics. Other objections, however, are
valid, especially the observation that as
total government expenditures rise, no tax
on land alone can finance that spending.
For his part, George believed that land
tax revenues were the upper bound on appropriate,
moral taxation. Because of his views on
taxes, his ideas have influenced many competing
political movements— from Fabian socialism
to development economic theory and even
modern libertarianism. George’s influence
can also be seen in modern environmentalism,
which views nature as a common gift to all,
as well as in urban planning theory. (Gaffney
1987)
Progress and Poverty
was a big best-seller; it outsold all books
in the English language save the Bible as
the world entered the 20th century. In some
ways, the focus on the single-tax proposal
has prevented a general appreciation of
the totality of George’s work. His
was a clear and powerful voice for free
international trade, and he convinced even
labor union members and many socialists
of his day of free trade’s superiority.
How much has changed!
Because George believed
that the only just tax was one applied to
land rent, he opposed tariffs on goods traded
across international borders. But there
is little doubt when reading his work that
it wasn’t mere logical consistency
that motivated him to endorse open trade;
he endorsed it because free trade was an
economic principle in which he strongly
believed. His position arose from a careful
theoretical examination of the entire issue,
and he shared his views in speeches around
the world and in his very popular Protection
or Free Trade, published in 1886. |
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What Is
Prevented by Protection?
Protection
implies prevention. To protect is to preserve
or defend. What is it that protection by
tariff prevents? It is trade. To speak more
exactly, it is that part of trade which
consists in bringing in from other countries
commodities that might be produced at home.
But trade, from which
“protection” essays to preserve
and defend us, is not, like flood, earthquake,
or tornado, something that comes without
human agency. Trade implies human action.
There can be no need of preserving from
or defending against trade, unless there
are men who want to trade and try to trade.
Who, then, are the men against whose efforts
to trade “protection” preserves
and defends us?
If I had been asked
this question before I had come to think
over the matter for myself, I should have
said that the men against whom “protection”
defends us are foreign producers who wish
to sell their goods in our home markets.
This is the assumption that runs through
all protectionist arguments—the assumption
that foreigners are constantly trying to
force their products upon us, and that a
protective tariff is a means for defending
ourselves against what they want to do.
Yet a moment’s
thought will show that no effort of foreigners
to sell us their products could of itself
make a tariff necessary. For the desire
of one party, however strong it might be,
cannot of itself bring about trade. To every
trade there must be two parties who mutually
desire to trade, and whose actions are reciprocal.
No one can buy unless he can find some one
willing to sell; and no one can sell unless
there is some other one willing to buy.
If Americans did not want to buy foreign
goods, foreign goods could not be sold here
even if there were no tariff. The efficient
cause of the trade which our tariff aims
to prevent is the desire of Americans to
buy foreign goods, not the desire of foreign
producers to sell them. Thus protection
really prevents what the “protected”
themselves want to do. It is not from foreigners
that protection preserves and defends us;
it is from ourselves.
—Protection
or Free Trade, 45–46 |
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True Free
Trade
The mere abolition
of protection—the mere substitution
of a revenue tariff for a protective tariff—is
such a lame and timorous application of
the free-trade principle that it is a misnomer
to speak of it as free trade. A revenue
tariff is only a somewhat milder restriction
on trade than a protective tariff.
Free trade, in its
true meaning, requires not merely the abolition
of protection but the sweeping away of all
tariffs—the abolition of all restrictions…on
the bringing of things into a country or
the carrying of things out of a country.
But free trade cannot
logically stop with the abolition of custom-houses.
It applies as well to domestic as to foreign
trade, and in its true sense requires the
abolition of all internal taxes that fall
on buying, selling, transporting or exchanging,
on the making of any transaction or the
carrying on of any business, save of course
where the motive of the tax is public safety,
health or morals.
Thus the adoption
of true free trade involves the abolition
of all indirect taxation of whatever kind,
and the resort to direct taxation for all
public revenues.
But this is not all.
Trade, as we have seen, is a mode of production,
and the freeing of trade is beneficial because
it is a freeing of production. For the same
reason, therefore, that we ought not to
tax any one for adding to the wealth of
a country by bringing valuable things into
it, we ought not to tax any one for adding
to the wealth of a country by producing
within that country valuable things. Thus
the principle of free trade requires that
we should not merely abolish all indirect
taxes, but that we should abolish as well
all direct taxes on things that are the
produce of labor; that we should, in short,
give full play to the natural stimulus to
production—the possession and enjoyment
of the things produced—by imposing
no tax whatever upon the production, accumulation
or possession of wealth (i.e., things produced
by labor), leaving every one free to make,
exchange, give, spend or bequeath.
—Protection
or Free Trade, 286–87 |
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How Is
Free Trade Advocated?
Thus it is that free
trade, narrowed to a mere fiscal reform,
can appeal only to the lower and weaker
motives—to motives that are inadequate
to move men in masses. Take the current
free trade literature. Its aim is to show
the impolicy of protection, rather than
its injustice; its appeal is to the pocket,
not to the sympathies. Yet to begin and
maintain great popular movements it is the
moral sense rather than the intellect that
must be appealed to, sympathy rather than
self-interest. For however it may be with
any individual, the sense of justice is
with the masses of men keener and truer
than intellectual perception, and unless
a question can assume the form of right
and wrong it cannot provoke general discussion
and excite the many to action. And while
material gain or loss impresses us less
vividly the greater the number of those
we share it with, the power of sympathy
increases as it spreads from man to man—becomes
cumulative and contagious.
But he who follows
the principle of free trade to its logical
conclusion can strike at the very root of
protection; can answer every question and
meet every objection, and appeal to the
surest of instincts and the strongest of
motives. He will see in free trade not a
mere fiscal reform, but a movement which
has for its aim and end nothing less than
the abolition of poverty, and of the vice
and crime and degradation that flow from
it, by the restoration to the disinherited
of their natural rights and the establishment
of society upon the basis of justice. He
will catch the inspiration of a cause great
enough to live for and die for, and be moved
by an enthusiasm that he can evoke in others.
—Protection
or Free Trade, 315–17 |
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| About
Economic Insights
Economic Insights
is a publication of the Federal Reserve
Bank of Dallas. The views expressed are
those of the authors and should not be attributed
to the Federal Reserve System.
Please address all
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Economic
Insights
Public Affairs Department
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