Nell henry george and how growth in real estate contributes to inequality and financial instability (2019)

PALGRAVE STUDIES ON HENRY GEORGE
FOR THE 21ST CENTURY

Henry George and How
Growth in Real Estate
Contributes to Inequality
and Financial Instability
Edward Nell


Palgrave Studies on Henry George
for the 21st Century
Series Editor
Edward Nell
New School
New York, NY, USA


This is a series in memory of Henry George, taking off from his writings
and dealing with the issues he raised in his time, as they persist, but also
taking his approach into our time and dealing from his perspective with
some of today’s most pressing issues and problems in the political economy.
This series contextualizes Henry George as an important figure in what is
currently a widespread pattern of interest in critiques of mainstream economics. Much critical work in economics in the late twentieth century was
aimed at critiquing and destroying mainstream theory, particularly those
aspects that appeared to support and justify neoliberal policies. But after
the crash of 2008, much more attention is being paid to non-mainstream
approaches that offer new explanations of economic phenomenon. This
series fits that mold, drawing on a uniquely significant American figure
once widely known and venerated but lost sight of during the dominance
of mainstream neoclassical theory.

More information about this series at
/>

Edward Nell

Henry George and
How Growth in Real
Estate Contributes to
Inequality and
Financial Instability


Edward Nell
New School
New York, NY, USA

ISSN 2524-8847    ISSN 2524-8855 (electronic)
Palgrave Studies on Henry George for the 21st Century
ISBN 978-3-030-18662-3    ISBN 978-3-030-18663-0 (eBook)
/>© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Nature
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This book is dedicated to the memory of Andrew Mazzone, my friend,
colleague, and the President of the Henry George School of Social Science
from 2013 until his death in 2017. Andy’s commitment to bring Henry
George’s ideas into the twenty-first century was the reason for my joining the
Board and the driving force behind this book.


Preface: About Henry George

Henry George was born in Philadelphia in 1839, the second of ten children.
His father was a clerk at the Philadelphia Customs House, a devout
Episcopalian, and a publisher of religious works. But the family lived modestly.
George attended school until the age of 13, when he told his father that
he desired “to go out into the world” to work and help support the family.
He worked odd jobs and learned to set type. At 16, he sailed to Australia
and India as a ship hand, eventually returning to the United States. At age
18, he headed west in search of gold.
George spent 1858  in West Coast mining camps and settled in San

Francisco in 1859. He found employment as a compositor. He met and
married Annie Corsina Fox in 1861. George struggled to find employment and pursued a career in journalism. George published his first book,
Our Land and Land Policy: National and State, in 1871.
In his landmark book Progress and Poverty (1879), George proposed a
deceptively simple solution to the problems of economic inequality and
industrial depression. He called for the replacement of all federal, state,
and local taxes with one tax on land. His proposal became known as the
“single tax.” Taxing only land values, George believed, would generate all
the revenue needed to operate government and produce ever greater levels of opportunity.
In the winter of 1881–1882, George embarked on the first of several
tours of the British Isles. He influenced English politics, helping spur not
only a popular land reform movement but also modern British socialism
and Irish nationalism.
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PREFACE: ABOUT HENRY GEORGE

Back in the United States, George was invited to testify before the
Senate Committee on the Relations between Labor and Capital in 1883.
He published Social Problems, a compilation of his editorials. The United
Labor Party nominated him to represent the interests of more than
150,000 working men and women in the New York City mayoral race of
1886. Although he lost the election, his campaign attracted national attention as the culmination of what some commentators called “the year of
labor.” He out-polled Theodoee Roosevelt in that election. 
The campaign also ignited religious controversy. In 1891, Pope Leo
XIII placed Progress and Poverty on the Vatican’s List of Forbidden
Books. George wrote a powerful commentary on the Pope’s approach to

land and rents.
George edited a weekly newspaper and authored three books: The
Condition of Labor (1891), The Perplexed Philosopher (1892), and The
Science of Political Economy (1898).
He was nominated again for mayor of New York in 1897. Three days
before the election, on October 29, 1897, he suffered a stroke and died.
His funeral two days later was likened in size to that held for General
Grant. The New York Times reported: “No demonstration of popular feeling on the death of a public man since Lincoln’s body lay in the City Hall
has been so imposing in extent and character as that of yesterday. Call it, if
you will, hero worship; but its object was really a hero.”
New York, NY, USA

Edward Nell


Acknowledgments

This book was written on the run and produced in a flash in order to
honor Andrew Mazzone at the opening of a new phase—which he himself
planned—in the history of the Henry George School of Social Science. To
make this happen a number of people had to work exceptionally hard and
do exceptionally good work. Tom Phillips did an immensely helpful reading and editing of the first full draft. Barbara Ross then followed up with
subsequent drafts. Kenneth Wapner discussed every stage of the book with
me and helped over and over with difficult passages, seeing it through
from start to finish. Sam Truitt did wonderful work preparing the book
and cleaning it of errors and infelicities. Many thanks to the President,
Board of Directors, and Staff of the HGSSS, especially Andrada Chercheres,
for supporting this project and providing help at crucial moments. And I
owe a special debt to the outstanding editors at Palgrave, Elizabeth Graber
and Sophia Siegler. Finally I want to thank my wife Marilyn Adams for her

patience, sound advice, and common sense.

ix


Contents

1Introduction: Reviving the Work of America’s Most
Original Economist  1
A Quick Look at Henry George   4
Bibliography   7
Part I Progress and Rents   9
2Understanding Rents in the Real Economy 11
Henry George’s Idea of Progress  12
Growth Models and the Treatment of Rent  13
The Classical View  17
Factor Markets  18
Henry George’s Treatment of Distribution  21
Rents and Real Estate  23
Bibliography  25
3Growth and Rents in the Real Economy 27
4A New Look at the “Henry George Theorem” 35
The Traditional Case  36
Rents, Demand Pressure, and Taxes  39
Discussion of Revised 2016 GDP Accounts, by Andrew Mazzone  45
Bibliography  49
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xii 

CONTENTS

Part II Moving to Macroeconomics  51
5Savings and Investment, from the Price Mechanism
to the Multiplier 55
The Price Mechanism and Marshallian Technology  56
Growth and the Price Mechanism: Flexible Prices and the
Golden Rule  61
The Growth Rate in Diagrams  63
Bibliography  69
6From Craft to Mass Production 71
Changes in the “Production Function”: The Multiplier
Replaces the Price Mechanism  73
Adjustment to Demand Fluctuations in the Mass Production
Economy  76
Moving Ahead: Land  82
Bibliography  83
7Growth and Rents in Today’s Economy 85
Growth Today: A First Look  88
Bringing in Rents  92
Bibliography  96
Part III Rents, Real Estate Values, and Financialization  97
8Real-Financial Linkages and Holding Securities 99
The Question of Real-Financial Linkages 100
The Financial Sector: Portfolio Holdings of Securities 103
The Securitization of Rents 106
Bibliography 111
9Growth and Inequality in the Financial System113
The Influence of Liquid Capital on Wages and Salaries,

the Role of the Financial Sector, and Why This Phenomenon
Was Not Seen Before 114
A Simple Model of Wealth Accumulation and Inequality
(with Linear Coefficients) 116
Toward a More Complete Model 119


 CONTENTS 

xiii

10Rents and the Securities Markets121
Real-Financial Instability 127
Bibliography 134
11Conclusions135
Bibliography139
Index143


List of Figures

Fig. 5.1
Fig. 5.2

Fig. 5.3

Fig. 5.4
Fig. 6.1
Fig. 6.2
Fig. 6.3

Fig. 6.4
Fig. 6.5

Adjustment to demand fluctuations in the craft economy
(showing a rise in the real wage)
58
Growth rates and marginal products: in this diagram the
marginal product of capital equals the growth rate, g, as
described below. But the diagram can be re-imagined by
relabeling the axes as Y/K vertical and N/K horizontal. Then,
following the same line of argument, the slope of the line rising
from the origin will be W/N = w, the real wage, and the
section of the vertical axis marked will measure I/K = g, while
the tangency point will show the real wage = the marginal
product of labor. (A project for readers: sketch the relabeled
diagram and trace out the argument showing that the system
will settle at the point of tangency. Evaluate the underlying
assumptions.)64
Adjustment to an increase in growth rate. (The vertical
distance between the dotted parallel lines should be less than
that between the solid lines, indicating that the real wage is
now lower.)
65
An upward shift of the production function, leading to a fall in
prices and a rise in the real wage
66
Consumption moves with investment
73
Behavior of profits
75

Adjustment in the mass production economy
77
Effects of interest on saving and investment
81
The central bank’s interest rate determines employment
81

xv


xvi 

List of Figures

Fig. 7.1
Fig. 8.1
Fig. 8.2
Fig. 8.3
Fig. 10.1

Growth and wages
The issuing and holding of debt and equity
All securities issued will be held
The level of risk
Growth and the valuation ratio

87
104
110
110

128


CHAPTER 1

Introduction: Reviving the Work of America’s
Most Original Economist

Abstract  The book begins with Andrew Mazzone, his desire to reexamine
Henry George’s work, his sudden death, and how the book came to be written. It takes George’s dynamic vision and approach as a position from which
to challenge mainstream economics’ obsession with equilibrium, enabling a
focus on the paradoxical fact that progress also generates poverty. The book
has three parts: the first on rents, land values, and the costs of government; the
second filling in a picture of macroeconomics for George, who long preceded
Keynes; and the third, drawing on George’s approach, examining the contribution of rents to the growth of inequality and financial instability.
Keywords  Henry George • Equality • Rent • Macroeconomics
• Economic growth
Andrew Mazzone and I collaborated on a project to review the work of
the nineteenth-century American economist Henry George, especially his
landmark book Progress and Poverty (1879), to see how George’s work
stood up in the light of modern economics and to determine what could
be brought up to date and applied to the contemporary world. We wanted
to establish that George’s work was relevant and also to criticize American
academic economics for having overlooked or rejected George both in his
own time—when his work was a worldwide sensation—and afterward,
© The Author(s) 2019
E. Nell, Henry George and How Growth in Real Estate Contributes to
Inequality and Financial Instability, Palgrave Studies on Henry George
for the 21st Century, />
1

2 

E. NELL

even today. Andrew died suddenly in the middle of the project. This book
is a tribute to him and completes what we began.
George began his career as an author and public personality with
Progress and Poverty, arguing that progress brought poverty in its wake
and that poverty might even outpace progress—an important, original
point of view that has not lost any of its relevance since George’s time. In
fact, in our age of burgeoning inequality it may be more relevant today
than ever. The grounds for this paradoxical interlinking of progress and
poverty lay in the effects of rising rents. For George, rents were payment—
not for the use of land in the usual sense, but for pure access to specific
spaces and locations. But why should some people have the right to limit
others’ access to the use of the earth; surely it belongs to us all? Worse, he
argued, the limiting of access—by demanding payment—would undermine the benefits of innovation and hard work.
To prevent this linking of progress and poverty, George said a major
policy shift in taxation was required. This is well known among economists as the Georgist “single tax” on rents, based on the Henry George
Theorem, linking overall rents and the cost of government.
Since George’s time there has been progress, both in the economy itself
and in economic analysis: the economy has been growing, and growth
models have become highly sophisticated (in many cases focusing on matters that were central to George a century earlier). But that progress has
also led to poverty, obvious in the economy itself. Our mainstream economics is also poverty-stricken, intellectually, however. Our analytical
models do not explain the persistence of poverty very well, nor do they
account for crises and crashes, let alone the recent and stubborn growth of
inequality. The mainstream theory of income distribution—marginal productivity (which assumes diminishing returns for all three factors of production and that markets will “coordinate” their adjustment)—is
hopelessly flawed (George rightly rejected an early version of it). And contemporary economic theory has almost completely lost sight of rents and

real estate—even though real estate was center stage in the global financial
crisis of 2008, a crisis directly resulting from speculation in the housing
market. And in 2016 Donald Trump, a real estate developer whose rise to
power is intimately linked to rents and real estate speculation, was elected
president. With a solid Republican majority in Congress, he began to
implement a set of relentlessly regressive “trickle-down” economic policies that can be expected to lead to more poverty among vast segments of
the population. Andrew and I wanted to find insights and tools in George’s
thought to counter this trend—to support progress and alleviate poverty.


1  INTRODUCTION: REVIVING THE WORK OF AMERICA’S MOST ORIGINAL… 

3

Before Andrew died, we had settled on five main points in George’s
writing that we wanted particularly to explore:
1. George emphasized cooperation as well as competition in regard to
increasing productivity. He saw that the division of labor and cooperation that emerged, based on mutual trust, as settlements developed
on new land, created value in “location” and generated increases in
output, while bringing about innovation. This is what generated the
“differentials” on which rent is based (as we will explain). The emergence of differentials could be associated with increasing productivity.
2. George and his followers claimed that the total value of land in a
region would tend to equal the value of the aggregate output of
that region.
3. Further, they claimed that total rents would tend to equal the costs
of government, so that taxing rents would pay for government.
4. They contended that, unless prevented by an activist government,
inequality in wealth and income, roughly between the upper and
lower classes but also between other significant groups, would tend
to rise inexorably.

5.And, finally, George repeatedly attacked land speculation and its
tendency to withdraw land from productive use and to promote
concentration—a point that seemed to both Andrew and myself to
have a direct bearing on today’s world. Only today it’s not land
alone but finance generally that is subject to speculative excesses,
leading to booms and crashes. The extension of George’s ideas from
land to finance needed to be worked out.
I wrote up notes on theory, while Andrew worked on national accounts,
reexamining rents, costs of government, land values, and gross national
product (GNP). I eventually put my notes together into two more-or-less
finished articles to present at the annual Conference of the Eastern
Economic Association in March 2017, in New York City. Andrew’s illness
had prevented him from being able to keep up with his research; all he had
were notes. He died suddenly, just before the conference. Nevertheless, I
presented what we had, including his notes. The talks I gave at that conference formed the basis of this book.1
1
 There will be a second phase in the work that Andrew and I began. This will pull together
a range of other papers presented at the conference and contributions by interested parties
associated with the Henry George School of Social Science and Andrew, to make a larger volume that will cover a range of issues concerning modernizing the economics of Henry George.


4 

E. NELL

A Quick Look at Henry George
Economists have given George short shrift, which is a shameful oversight—he has much to teach us. He was uniquely American, perhaps our
greatest economist, certainly our most original. He was justly famous and
heralded in the nineteenth century, and his book Progress and Poverty,
which is the source for much of our analysis in these pages, was the best-­

selling book on economics of that century. Today, George is obscure and
all but forgotten, although his arguments, shockingly effective in their day,
are still pertinent and powerful—and are currently being reexamined in
some advanced quarters! (Posner and Weyl 2018).
George was a force to be reckoned with in the America in which he
lived. He was a kind of archetypal American, a strong individualist but
equally passionate about the values of the community. He was a self-made
man, an autodidact who withdrew from formal education in favor of home
tutoring and never attended university. He left his home in Philadelphia at
the age of 15 and went to sea for three years, traveling first to Australia,
then after returning, leaving the East for the West and settling in San
Francisco in 1858. He became a printer, then a newspaperman, an editor,
and, finally, a writer. The frontier and the dynamics of westward expansion
shaped his economics—and the railroads shaped his views of “monopoly,”
or market power. He developed a picture of the way the economy works
that balanced individualism and cooperation, expressed our strengths as
both a country and a people, and identified an enduring tension in our
character and polis. He lectured on this in Europe and debated Alfred
Marshall. George returned to the East and entered politics, running for
mayor of New York in 1886. He died prematurely (having earlier suffered
a stroke) in 1897 at the age of 58, at the height of his popularity.
Moral insight is the bedrock of George’s economics. He favored initial
equality: everyone has an equal right to share in what the earth has to
offer—a powerful claim, difficult to reject, hard to make precise. He was
enchanted by the West’s great prairies, its vast expanses of meadow and
forest, the land that stretched on and on, America’s wide-open spaces with
deep rich soil. He saw the implications of free land in the frontier of his
day, a place where labor could reap the full proceeds of its work, thus providing a magnet for workers from the cities of the east. As a result of this
attraction, wages in the east had to stay high enough to keep labor from
migrating to the frontier. High wages also meant that manufacturing

would benefit from labor-saving innovations. So American business had a
high-wage, high-tech profile from the start.


1  INTRODUCTION: REVIVING THE WORK OF AMERICA’S MOST ORIGINAL… 

5

George saw the significance not only of cooperation but also of trust,
that each part of a process created by the division of labor has to trust that
the other parts will work responsibly. George understood the importance
of honesty and keeping promises. Who will extend credit to someone who
cannot be trusted? Who will accept bills from them? Will they deliver the
goods in good shape? We have to believe that the other party or parties
will do their share on time and in the right way. One of the most important moral issues for George was land ownership: who had the right to
own land, and so to exclude others from any part of the earth or from the
use of its fruits? His answer was that the right to ownership arose from
labor—you owned what you made or created. But no one made or created
land (in the pure sense), so no one had a right to own it; no such right
could exist.
For George, the American economy of the nineteenth century was a
dynamic system. Technology and productivity were continually improving. But the greater the progress the system made, the more poverty it
created. Why? This was the fundamental question he asked and sought to
answer—and it is still, arguably, the most important question for economists and one of the most enduring and troubling paradoxes in our
world today.
“Ownership,” George argued, results from making things: if you grow
vegetables, they are yours; if you make a hoe to cultivate your garden, it is
yours—because you made it. If you make it with a friend, it belongs to
both of you. If a company makes it, it belongs to the company. That is the
foundation of ownership rights, and, of course, there are complications.

Land, however, is not made by anyone (think of space); it is there for
everyone. And it should not be polluted or despoiled by anyone. In this,
George anticipated both the conservation movement of the 1890s and
today’s environmental movement.2
No one should be able to exclude others without good and specific
reasons that rest on the public good. These questions are not simple, and
neither are George’s arguments. But they are very much worthwhile, and
they call for a critical examination of the tendency so evident today toward
greater and greater concentration of ownership.
 George supported fair treatment and the rights of indigenous peoples, but he wrote very
little about them. The issues of ownership, rights to use, and access are extremely complex,
and they are only touched on here. However, what seems more readily defensible is that
everyone has an equal claim at birth. One can’t reasonably be punished for choosing the
wrong parents.
2


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E. NELL

I have expanded the points Andrew and I investigated to give the book
the kind of technical detail that we both wanted when we first began our
conversation. It was our hope that the book would be read by economists
and others interested in policy and the fraught, often improperly understood, relationship between politics and economics. Although the book is
largely technical, we have tried to make this introduction and some of the
basic arguments in the text clear enough to be understood by everyone.
The book is divided into three parts. The first lays out the basic concept
of rent, so central to George, and how it is driven by growth. It presents
the idea of rent as an unjust payment, in George’s view, and it critically

reviews some of his basic doctrines, accepting and praising his account of
rents arising on the “unbounded savannah,” and accepting (partially and
for special circumstances) his theory of wages. The book rejects his theory
of capital and interest but then explores and partially accepts two important claims: that the total land values of an area will tend to be equal to or
near the total GNP of that area, and that the total cost of government in
an area will be equal to or near the total aggregate of rents in that area.
The book’s second part takes George’s idea of “progress” and turns it
into macroeconomics. We move the center of our analysis from a largely
agrarian economy to an economy based primarily on industry and services,
a trend that was already happening while George lived and would continue and accelerate during the twentieth century as economic activity
moved from the countryside to the cities. As we study this we find a new
“margin of production” at the point where new plant and equipment outstrips the old and adds what economists call “superprofits” to rents.
George does not examine how saving and investment work or how they
interact with the price mechanism. But we do it for him, relying on
Marshallian ideas with which he was familiar, and the result is a picture of
how the pressures of supply and demand, governed by “marginal conditions,” provide a degree of stabilization. And then we see this picture
gradually dissolve under the pressures of innovation, to be replaced by the
destabilizing mechanism of the multiplier-accelerator. Keynes-Kalecki, in
short. Understanding this is necessary to drawing a complete picture of
“progress”—economic growth—that works for today, making it possible
to examine how progress regenerates poverty now.
The third part of the book extends George’s ideas about growth-driven
rents, now affecting the value of securities in real estate companies, and
brings this into the globalized world of modern finance. We clarify the mix
of independence and interdependence between the real economy and the


1  INTRODUCTION: REVIVING THE WORK OF AMERICA’S MOST ORIGINAL… 

7

financial system. We can then explore George’s claim that the economy
tends to move toward greater and greater inequality. We find that claim
justified, but driven by financial sector relationships  as much as by land
and  rent issues. Rents are now a part of a larger private sector financial
system that excludes (or excessively burdens) a majority of the population,
just as private property in land excluded or burdened them in George’s
time. Rents, themselves, however, do reappear in a new guise in the financial system, and we will see that they now play a dangerous and damaging
role, pushing the economy into instability.
As we discuss in the book’s conclusion, Andrew and I came to agree
with George’s suggestion that growth that drives rents creates instability
and has a tendency toward greater inequality, a tendency that, in today’s
economy, is manifested through the financial system, which has largely
absorbed real estate but is still responsive to the pressures it creates. We
appreciated George’s excellent analytical economics, and we came to see
that he was also a philosopher and a visionary. He asked for the justification of our institutions and the grounding of our beliefs, and he challenged the status quo—asking, in particular, how great wealth could
coexist with deep poverty in a civil society. We both felt strongly that there
is a great need for such vision and such questioning among economists
today, in an era marked by the ascendance of the reactionary economic
ideas of Paul Ryan and Donald Trump. We hope this book will be a beginning, providing the tools for economists and others to start evaluating and
utilizing George’s uniquely American ideas. It is designed to provide a
sound foundation on which committed researchers in the field can help to
build a more just and stable economy. This is what Andrew wanted.

Bibliography
Posner, Eric and Weyl, E. Glen, 2018, RADICAL MARKETS: Uprooting
Capitalism and Democracy for a Just Society, Princeton, NJ: Princeton
University Press.

PART I

Progress and Rents

The starting point for Henry George’s argument, and what is missing in
most mainstream textbooks, is a good account of rents—what they are,
what (if anything) justifies them, how they work, and what effects they
have on the economy. His answers were clear and straightforward: rents
are unjustified and unjustifiable payments for access to the space and fruits
and enjoyment of the earth—the inheritance of us all—and they rise with
“progress,” ultimately generating increased inequality and, therefore, poverty. Quite a claim, and off-putting to the economists of his day, who were
generally well disposed to the emerging capitalist system and did not like
what they regarded as wild and extreme criticism. Even if private land
ownership is, in the end, unjustifiable, nothing can be done about it, his
critics said. Confiscating land would cause chaos, unmanageable uproar,
and so on. How much worse, then, that George should have advocated a
quite different, and clearly manageable, position: land ownership should
be left alone, but rents should be taxed to the full—and used to pay the
expenses of government, expenses that, if government is truly democratic,
should be beneficial to the general public, to us all. Land belongs to us all;
by taxing rents to support government, the earnings of land will go to the
benefit of all.
The first chapter in this part surveys the idea of rent, contrasting George
and Ricardo, and showing that George’s approach, though it makes use of
a notion of the marginal product of labor, is incompatible with, and superior to, conventional marginal productivity theory. The second chapter
examines the connections between growth, rents, and land values, assessing
and finding support for the surprising claim that aggregate land values in an


10 

Progress and Rents

area will tend to equal or be near to the GNP of that area, while the third
shows that George’s claim that rents, properly understood and fully taxed,
can finance the costs of government was good for his time and is not so
far-fetched even today, although saying this requires us to reconsider
“monopoly rents.”


CHAPTER 2

Understanding Rents in the Real Economy

The rent of land is determined by the excess of its produce over that
which the same application can secure from the least productive land
in use.
—Henry George

Abstract  George understood “progress”—economic growth—to be disruptive and innovative, taking place through developments that changed
the proportions and relative prosperity of different sectors. He began his
analysis with the movement of settlers to the “unbounded savannah,”
where they cultivated fertile land, cooperated and established the division
of labor, increasing productivity, and, as a result, they became a complex
society with differential advantages and disadvantages to certain locations
and parcels of land. Rents thus emerged (modeled using Sraffa’s equations). This picture is a good basis on which to build an approach to
inequality and instability, but it is not consistent with the factor markets of
conventional marginal productivity theory. George’s approach is superior.
Keywords  Progress • Poverty • Division of labor • Rent • Differentials
Henry George grew up in an era in which America’s westward expansion

was a primary force in the young country’s economic development. Feudal
Europe and its economic stasis were, for George, not part of the distant
© The Author(s) 2019
E. Nell, Henry George and How Growth in Real Estate Contributes to
Inequality and Financial Instability, Palgrave Studies on Henry George
for the 21st Century, />
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E. NELL

past. Following the breakup of feudalism, he saw agriculture dependent
on human and animal power, and manufacturing dominated by small-­
scale, craft technologies. In postfeudal Europe, rents went to landlords—
the former feudal lords—and were paid by capitalist farmers and small
business craftsmen. Wages were more related to subsistence than to the
productive value of labor. In the United States, however, family farmers
generally owned the land (but often subject to mortgages), just as small
businesses were owned and operated by families. And in the West there
was free land—good, productive land. Anyone in a low-wage occupation
could pull up stakes and move west to acquire and cultivate it.
George anticipated many of the ways in which the nineteenth-century
craft economy would change—the growth of monopoly and big business,
the development of corporations and joint stock companies. What he
could not have anticipated was how the role of rents, real estate, and
monopoly in the economy would change greatly with the arrival of mass
production. Rents and monopoly earnings have since been folded into
profits; real estate is now valued by capitalized earnings and has been securitized, becoming another part of capital. George did not accept folding

rents into profits, and we shall see that he was right to keep them separate.
Rent on land and rent from monopolies arise from economic forces that
are distinctly different from those that determine profits on capital. George
is one of the few, perhaps the only, major economist to have built his
theory of long-run development largely around the impact of progress on
the behavior of rents, and the consequences for the composition of output
and the distribution of income.

Henry George’s Idea of Progress
“Progress,” in George’s thinking, is based on what we call “economic
growth”—but it is much more than that. It drives the economy; it leads to
prosperity; it means greater command over nature, greater productivity,
and new inventions. And it also brings about poverty. That is the problem
George proposes for political economy: how is it that progress brings about
poverty?—a good question, for George’s time and for ours. Contemporary
mainstream economics does not ask this question; rather, it asks, how do
free markets bring about the best possible use of scarce resources?
Optimality, not poverty, is what economics textbooks give us today.
Progress, for George, is disruptive, bringing about turmoil and change. By
contrast, in most mainstream growth models expansion takes place in given,
fixed proportions: the system swells up, and all the parts stay in the same