George's Malthusian Correction
Not long ago, I mentioned Henry George and my desire to find his book, Progress and Poverty. I did! And now I am plowing through it as I can. George's writing can best be described as Victorian; long sentences with a flow quite unlike today's more preferred writing style. You'll see for yourself in some of the excerpts (should you continue reading).
Before you click away, he let me know about a controversy dating way back to 1887 of which I had never heard, but which tells me that the state of economics education/dissemination has not really changed that much. I've made it past Book III of P&P, and much of it has been dedicated to George's hating on a name still quite familiar today; Reverend Thomas Malthus. Decrying that Malthus was wrong or whatever is not the anomaly here; George is pointing out what errors he finds in Malthus because of a unique reading of Malthus apparently quite popular in George's time.
Before we jump into George's criticism, let's briefly review Malthus' theory as summarized in An Essay on the Principle of Population. In a nutshell, he notes that a population has a tendency to expand faster than the population's food supply. If this continues unchecked, the result will be an over-population relative to resources and a quick Malthusian catastrophe (I personally prefer "Malthusian correction"; hence this post's title), where famine or war brought by famine or migration (where possible) will be either necessary or inevitable to reduce the numbers of people relying on that now reduced food supply.
George rips into Malthus' logic pretty savagely in his book in ways I won't bother to recount; but Charles Mann in his book 1493 notes that Malthus' conclusions, if not his exact logic, were reached just 5 years prior to Malthus in China by a civil servant named Hong. "Sometime in 1793 Hong Liangji thought of an idea that may never have occurred to anyone else before," Mann writes.
After finally winning a place in the Qing bureaucracy at the age of forty-four . . . he was sent as an education inspector to Guizhou Province, in the southwestern hinterland. Essentially a sloping, heavily eroded limestone shelf, the province is a humid jumble of steep gorges, protuberant hills, and long caverns. It was another target for Qing occupation, thronged with migrants from central China who were pushing out its original inhabitants, the Miaio. The newcomers were climbing up the hills, planting maize, and beginning families. Hong wondered how long the boom could last.
"Today's population is five times as large as that of thirty years ago," he wrote, with perhaps pardonable exaggeration, "ten times as large as that of sixty years ago, and not less than twenty times as large as that of a hundred years ago." He imagined a man with "a ten-room house and 100 mu [about seventeen acres] of farmland." If the man married and had three adult sons, then eight people-the four men and their wives-would live on the parents' farm.
Eight people would require the help of hired servants; there would be, say, ten people in the household. With the ten-room house and the 100 mu of farmland, I believe they would have just enough space to live in and food to eat, although barely enough. In time, however, there will be grandsons, who, in turn, will marry. The aged members of the household will pass away, but there could still be more than twenty people in the family. With more than twenty people sharing a house and working 100 mu of farmland, I am sure that even if they eat very fugally and live in crowded quarters, their needs will not be met.
Hong conceded that the Qing had opened up new land to support China's population. But the amount of farmland had
only doubled or, at the most, increased three to five times, while the population has grown ten to twenty times. Thus farmland and houses are always in short supply, while there is always a surplus of households and population. . . .
Question: Do Heaven-and-earth have a way of dealing with this situation? Answer: Heaven-and-earth's way of making adjustments lies in flood, drought, and plagues.
Five years later, in England, a similar notion came to another man: Rev. Thomas Robert Malthus.
(Charles C. Mann, 1493: Uncovering the New World Columbus Created, Alfred A. Knopf, 2011, pp. 177-178.)
I'm not trying to knock Henry George here. I just want to reassure everyone that Malthus was indeed up to something with his theory. The problem for George, though, had little to do with the overarching theory and more to do with forces that warped the theory to suit their own selfish ends.
Before diving into the warping, however, we need to understand what George was trying to do with Progress and Poverty. (Instead of page numbers which vary from printing to printing, I've decided to link instead to an online copy and reference the Book, Chapter, and Paragraph. That way the source material reference does not even require an exercise in trust!) From the opening chapter, George notes that where technological and social progress goes, poverty is not far behind:
This 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 with 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. It is the riddle which the Sphinx of Fate puts to our civilization and which not to answer is to be destroyed. So long as all the increased wealth which modern progress brings goes to build up great fortunes, to increase luxury and make sharper the contrast between the House of Have and the House of Want, progress is not real and cannot be permanent. The reaction must come. The tower leans from its foundations, and every new story but hastens the final catastrophe. To educate men who must be condemned to poverty, is but to make them restive; to base on a state of most glaring social inequality political institutions under which men are theoretically equal, is to stand a pyramid on its apex.
(Book 1, Introduction, Paragraph 5.)
He then notes that the way to discover the connection between progress and poverty "must be within the province of political economy to give such an answer." Why?
For political economy is not a set of dogmas. It is the explanation of a certain set of facts. It is the science which, in the sequence of certain phenomena, seeks to trace mutual relations and to identify cause and effect, just as the physical sciences seek to do in other sets of phenomena. It lays its foundations upon firm ground.
(I. 17.)
Ah, but not ground that proved firm enough. It turns out that political economists before him-many of them well known even today-got a few of the details, well, wrong, "due not to any inability of the science when properly pursued, but to some false step in its premises, or overlooked factor in its estimates." (I. 20.) To correct this, George declares early that "as such mistakes are generally concealed by the respect paid to authority, I propose in this inquiry to take nothing for granted, but to bring even accepted theories to the test of first principles, and should they not stand the test, freshly to interrogate facts in the endeavor to discover their law." (Ibid.)
The first misstep, the first fallacy tackled in P&P "is the idea that the sum to be distributed in wages is in each community a fixed one. . . ." (Book I. Chapter I. Paragraph 6). In other words, capital is needed before workers can be hired. When there are "too many" laborers, the wage offered each decreases simply because though the number of laborers increases, the capital-again, the theoretical source of wages-does not.
For, upon the assumption that wages are drawn directly from capital, and not from the product of the labor, is based, not only the doctrine that wages depend upon the ratio between capital and labor, but the doctrine that industry is limited by capital-that capital must be accumulated before labor is employed, and labor cannot be employed except as capital is accumulated. . . .
In short, all the teachings of the current political economy, in the widest and most important part of its domain are based more or less directly upon the assumption that labor is maintained and paid out of existing capital before the product which constitutes the ultimate object is secured.
(I. I. 16-17.)
Though it seems obvious, it is still wrong. I have to say, I must admire George for the logic of his following analysis. I hope you agree, it cuts to the most basic situation of survival in which we humans might find ourselves.
To illustrate: In the simplest state of which we can conceive, each man digs his own bait and catches his own fish. The advantages of the division of labor soon become apparent, and one digs bait while the others fish. Yet evidently the one who digs bait is in reality doing as much toward the catching of fish as any of those who actually take the fish. So when the advantages of canoes are discovered, and instead of all going a-fishing, one stays behind and makes and repairs canoes, the canoe-maker is in reality devoting his labor to the taking of fish as much as the actual fishermen. . . . The common expression, "I made so and so," signifying "I earned so and so," or "I earned money with which I purchased so and so," is, economically speaking, not metaphorically but literally true. Earning is making.
(I.I.26)
Before we dismiss the elegant logic by noting that money is involved in wages, and that money is "capital", we should remember that it is really not. As a finance professional once told me, money is "a claim on future labor." After all, it is issued by banks as their "credit function," described below in 1933 by Winthrop W. Aldrich, President of Chase National Bank:
The commercial bank's . . . primary credit function is performed by lending money for short periods to finance self-liquidating commercial transactions, largely in the movement of goods and crops through the various stages of production and distribution; and in the making of short-term loans against good collateral.
(Stock Exchange Practices. Hearings before the Committee on Banking and Currency Pursuant to S.Res. 84 and S.Res. 56 and S.Res. 97, aka the Pecora Commission Report, p. 155. NB: Page number refers to the original document and not the PDF page number.)
By "lending money for short periods to finance . . . the movement of goods and crops through the various stages of production and distribution", banks inject markers that self-liquidate upon repayment. Thus, a dollar circulating is created by a known quantity of a monetized item; the amount of money injected into the economy thus reflects the value of items circulating at that time.
Getting back to George, "wages are the earnings-that is to say, the makings of labor-not the advances of capital,"
and that the laborer who receives his wages in money (coined or printed, it may be, before his labor commenced) really receives in return for the addition his labor has made to the general stock of wealth, a draft upon that general stock. . . ; and that neither the money, which is but the draft, nor the particular form of wealth which he uses it to call for, represents advances of capital for his maintenance, but on the contrary represents the wealth, or a portion of the wealth, his labor has already added to the general stock.
(I. I. 26, I underlined.)
Now let's bring Reverend Malthus into this mix.
George minces no words in his summation.
We have seen that capital does not advance wages or subsist laborers, but that its functions are to assist labor in production with tools, seed, etc., and with the wealth required to carry on exchanges.
We are thus irresistibly led to practical conclusions so important as amply to justify the pains taken to make sure of them.
For if wages are drawn, not from capital, but from the produce of labor, the current theories as to the relations of capital and labor are invalid, and all remedies, whether proposed by professors of political economy or workingmen, which look to the alleviation of poverty either by the increase of capital or the restriction of the number of laborers or the efficiency of their work, must be condemned.
(I. V. 18-20.)
The following bit of detail I have not confirmed (since I have not read the cited work):
The "Essay on Population" was avowedly a reply to William Godwin's "Inquiry concerning Political justice," a work asserting the principle of human equality; and its purpose was to justify existing inequality by shifting the responsibility for it from human institutions to the laws of the Creator.
(II. I. 16.)
To comment on that declaration I would have to read both works, so I'll stifle my surprise and continue. George declares-though I will have to take his word for it, since this is the first I've heard of this-that political economists and other thinkers of the 19th century used Malthus' theory to put forth the rationalization that, since capital was required for wages, and since capital is just like the food supply in the natural world, the more workers there are competing for any given employment, the less each should be paid.
Did you get that? Apparently, it was common in George's time to equate the productive capacity of the natural world with money in the financial world, and to use Malthus as the reason.
What a crock of shit. I'm not surprised he was angry. I think he denounces this twist of logic and observation angrily enough.
Now, as then, the Malthusian doctrine parries the demand for reform, and shelters selfishness from question and from conscience by the interposition of an inevitable necessity. It furnishes a philosophy by which . . . wealth may complacently button up its pocket when poverty asks an alms, and the rich Christian bend on Sundays in a nicely upholstered pew to implore the good gifts of the All Father without any feeling of responsibility for the squalid misery that is festering but a square away.
(II. 1. 16.)
Testify, Brother George, testify!
For poverty, want, and starvation are by this theory not chargeable either to individual greed or to social mal-adjustments; they are the inevitable results of universal laws, with which, if it were not impious, it were as hopeless to quarrel as with the law of gravitation.
(Ibid.)
Amen!
In this view, he who in the midst of want has accumulated wealth, has but fenced in a little oasis from the driving sand which else would have overwhelmed it. He has gained for himself, but has hurt nobody.
(Ibid.)
Nobody, I say! NOBODY WAS HURT!!!
And even if the rich were literally to obey the injunctions of Christ and divide their wealth among the poor, nothing would be gained. Population would be increased, only to press again upon the limits of subsistence or capital, and the equality that would be produced would be but the equality of common misery.
(Ibid.)
Why would you want to produce misery!?! Didn't you read? "NOTHING would be gained" from dividing wealth!!! It would just hasten the inevitable correction!
And thus reforms which would interfere with the interests of any powerful class are discouraged as hopeless. As the moral law forbids any forestalling of the methods by which the natural law gets rid of surplus population and thus holds in check a tendency to increase potent enough to pack the surface of the globe with human beings as sardines are packed in a box, nothing can really be done, either by individual or by combined effort, to extirpate poverty, save to trust to the efficacy of education and preach the necessity of prudence.
(Ibid.)
So, if you want to help the suffering poor, chop off their balls! Bind up their tubes! Teach them to avoid breeding when poor! It's the only way!
If that was actually taught, I can blame George not one whit for his anger. That kind of logical pretzel deserves to be untwisted.
As far as the not-so-twisted logic Malthus presents, George realizes there might be some truth to it. He notes that "that the limit to the population of the globe can be only the limit of space." (Book II. Chapter 3. Paragraph 8.)
Which, in a time after the devastation of the Civil War and countless wars in Europe, wars which killed many a farmer and left fields fallow and abandoned; in a time when vast estates are enclosed against development for the pleasures of a landed class; in a time when technological progress was finding greater and greater production from formerly barren and destitute natural resources; worrying about the limit of space on the planet "is so far off as to have for us no more practical interest than the recurrence of the glacial period or the final extinguishment of the sun." (II. 3. 9.)
Well, folks, here we are, worrying not about "the recurrence of the glacial period or the final extinguishment of the sun" but about the loss of every glacier thanks to the carbon dioxide-trapped and thus built-up heat from a sun far from being extinguished. A different concern, but one that is troubling, especially to farmers who must rely on repeatable weather phenomenon in order to plant and harvest successfully.
Still, I do think George's renunciation of a twisted Malthusian excuse was right and proper. In fact, it was probably so right and proper that it seems to no longer be mentioned today. Given that Progress and Poverty sold two million copies before the turn of the last century-possibly more than any other book in the United States' history up to that time other than the Bible-maybe we have George to thank for a complete ignorance of that silly self-serving pretzel logic.