Mon Mar 9th, 2009 at 01:40:49 AM EST
I have seen Neo-Classical Economics described as an attempt to side step Karl Marx's labor theory of value. However, Mason Gaffney shows that it was more properly an attempt to redefine economics in order to confound Henry George, who was an immensely more threatening figure to capitalism in the English speaking world.
Neoclassical economics is the idiom of most economic discourse today. It is the paradigm that bends the twigs of young minds. Then it confines the florescence of older ones, like chicken-wire shaping a topiary. It took form about a hundred years ago, when Henry George and his reform proposals were a clear and present political danger and challenge to the landed and intellectual establishments of the world. Few people realize to what degree the founders of Neo-classical economics changed the discipline for the express purpose of deflecting George and frustrating future students seeking to follow his arguments. The strategem was semantic: to destroy the very words in which he expressed himself. Simon Patten expounded it succinctly. "Nothing pleases a ...single taxer better
than ... to use the well-known economic theories ... [therefore] economic doctrine must be recast" (Patten, 1908: 219; Collier, 1979: 270).'
(more below the fold)
Why did Henry George inspire such a significant, coordinated effort? Gaffney explains:
Henry George came out of a raw, naive new colony, California, as a scrappy marginal journalist. Yet his ideas exploded through the sophisticated metropolitan world as though into a vacuum. His book sales were in the millions. Seven short years after publishing Progress and Poverty in remote California he nearly took over as Mayor of New York City, the financial and intellectual capital of the nation. He thumped also-ran Theodore Roosevelt, and lost to the Tammany candidate (Abram S. Hewitt) only by being counted out (Barker, 1955: 480-81; Myers, 1907: 356-58; Miller, 1917: 11). Three more years and he was a major influence in
sophisticated Britain. In 1889, incredibly, he became "adviser and field general in land reform strategy" to the Radical wing of the Liberal Party in Britain, where he was not even a citizen. "It was inevitable that, when [Joseph] Chamberlain bowed out, George should become the Radical philosopher" (Lawrence, 1957: 105-06). It also happened that when Chamberlain bowed out, the Radical wing became the Liberal Party. It adopted a land-tax plank after 1891 (The "famous Newcastle Programme"), and came to carry George's (muted) policies forward under the successive Liberal Governments of Campbell-Bannerman, Asquith and Lloyd George.
How could a marginal man come out of nowhere and make such an impact? The economic gurus of the day, even as today, were in a scolding mode, blaming unemployment on faulty character traits and genes and demanding austerity. They were not intellectually armed to refute him or befuddle his listeners. He had studied the classical economists and used their tools to dissect the system. Neo-classical economics arose in part to fill the void,to squeeze out such radical notions, and be sure nothing like the Georgist phenomenon could recur.
From the NCE project to the present--a brief synopsis from Gaffney.
Having taken shape in the 1880-l890s, Neo-Classical Economics (henceforth NCE) remained remarkably static. Major texts by Alfred Marshall, E.R.A. Seligman and Richard T. Ely, written in the 1890s, went through many reprints each over a period of 40 years with few if any changes. "It was for the Chautauqua Literary and Scientific Circle (1884) that I wrote the first edition of my Outlines, under the title Introduction to Political Economy. In this first edition of the Outlines there is to be found the general philosophy and principles that have shaped all future editions, including that of 1937" (Ely, 1938: 81).2
Not until 1936 was there another major "revolution," and that was hived off into a separate compartment, macro-economics, and contained there so that it did not disturb basic tenets ofNCE. Compartmentalization, we will see in several instances, is the common NCE defense against discordant data and reasoning. After that came another 40 years of Paul Samuelson's
"neoclassical synthesis". J.B. Clark's treatment of rent, dating originally from his obvious efforts to refute Henry George (see below), "has been followed by an admiring Paul Samuelson in all of the many editions of his Economics" (Dewey, 1987: 430).
To most modern readers, probably George seems too minor a figure to have warranted such an extreme reaction. This impression is a measure of the neo-classicals' success: it is what they sought to make of him. It took a generation, but by 1930 (the Neo-Classical Economists) had succeeded in reducing him in the public mind. In the process of succeeding, however, they emasculated the discipline, impoverished economic thought, muddled the minds of countless students, rationalized free-riding by landowners, took dignity from labor, rationalized chronic unemployment, hobbled us with today's counterproductive tax tangle, marginalized the obvious alternative system of public finance, shattered our sense of community, subverted a rising economic democracy for the benefit of rent-takers, and led us into becoming an increasingly nasty and dangerously divided plutocracy.(My bold)
Gaffney shows the "Personal Involvement of George with Early Neo-classicals"
Several major figures in the neo-classical revolution had personal contact with George. Among these were J.B. Clark, Philip Wicksteed, Alfred Marshall, E.R.A. Seligman, and Francis A. Walker. Wicksteed was friendly; the others decidedly not so. There is no doubt George was much on their minds and in their hearts, not with the warmth of friendship but the fire of enmity.
JOHN B. CLARK
No single figure personifies the change from classical political economy to neo-classical economics, but J.B. Clark exemplifies it. His aim was to undercut Henry George's attack on landed property by erasing the classical distinction of land and capital. His method was to endow capital with a Platonic essence, a deathless soul transcending and surviving its material
Clark's capital being deathless it is just like land, and theorists after Clark have made land just another kind of machine. The economic world was thenceforth divided into just two elements, labor and capital. "...that destroys the equality of capital to accumulated savings, and dismisses all Ricardian and Malthusian problems in one fell swoop" (Tobin, 1985). He might have added, it dismisses all Georgist, conservationist, spatial, temporal and environmental questions. It put blinkers on economic theorists
which they wear to this day.
J.B. Clark's bibliography includes at least 24 works directed against George, over a span of 28 years, 1886-1914. These are in the bibliography to the present work. They begin with The Philosophy of Wealth, 1886. In this work Clark refutes "financial heresies and strange teachings concerning the rights of property ... " (1886: 1-2). The only such strange teaching specified waits to p.126, where a "Mr. Henry George" is accused of "ignoring the productive action of capital". That is a strange complaint to raise against one who recommended untaxing capital, but there it is.
Clark's next astounding assertion may have been prompted by the European's dispossession of the Native Americans, but surely it must also apply to the successive waves of invaders into the Roman Empire as well.
Clark points out that wealth is created "from the mere appropriation of limited natural gifts .."and that repelling intruders "is almost the only form of labor which exists in the most primitive social state" (p.10). The atmosphere as a whole, showers or breezes, "minister transiently to whomsoever they will, and, in the long run, with impartiality". Therefore they are not wealth. Those who appropriate them create wealth by so doing. The essential attribute of wealth is "appropriability," to create which "the rights of property must be recognized and enforced Whoever makes, interprets, or enforces law produces wealth". He gives to commodities "the essential wealth-constituting attribute of appropriability". He goes on in that vein: those who seize land and exclude others thereby produce its value; George, who would untax capital, is guilty of ignoring its productive action.
Next came Capital and its Earnings, 1888. Frank A. Fetter, a disciple of Clark, commented as follows in the course of an encomium to Clark: The probable source from which immediate stimulation came to Clark was the contemporary single tax discussion. ... Events were just at that time crowding each other fast in the single tax propaganda. Progress and Poverty ... had a larger sale than any other book ever written by an
American. ... No other economic subject at the time was comparable in importance in the public eye with the doctrine of Progress and Poverty.
Capital and its Earnings "... wears the mien of pure theory ... .but ... one can hardly fail to see on almost every page the reflections of the contemporary
The Stratagem against Henry George's single-tax discussion. In the brief preface is expressed the hope that 'it may be found that these principles settle questions of agrarian socialism.' Repeatedly the discussion turns to 'the capital that vests itself in land,'...(Fetter, 1927: 142-43) Clark's argument rose from an "original polemical impulse..". (ibid.:144).
Remember, those are not the words of a critic, but a militant disciple of Clark. Fetter was more Clarkian than Clark, criticizing him only for his occasional backing and filling. He was certainly more forthright and importunate. The very candor and extremism of Fetter's exposition, giving a quick take on Clark, makes his chapter a good display of Clark's essential
Clark came to reside in the Economics Department at Columbia, one of J.P. Morgan's many interests. Columbia was, at the time, the most richly endowed university in the USA and Morgan felt the need of the best defense available against the dangerous ideas of George, who resided in and was a public actor in New York City and State politics. He could readily afford the modest price.
There are those who have thought that Clark was arguing against Marx, but Gaffney refutes that theory at length and points out that, at the time, Marx was an obscure figure in the USA, was an atheist, and had been almost entirely focused on Europe. He never had significant appeal in the USA. George, on the other hand, grew out of native soil, was embraced by Gompers and other Trade Unionists, and formulated his ideas in ways that resonated with the American ethos.
Gaffney goes on to similarly describe other promanent NCEs such as Edwin R.A. Seligman, Chairman of the Department of Economics at Columbia and recruiter of Clark to his institution and General Francis A. Walker, first President of the American Economic
Association, President of M.I.T., and Director of the US Census who, in 1883 was demolished by George in a public debate but went on to marginalize the importance of land. He adopted the policy of ridiculing and trivializing the ideas while ignoring the man.
In England George's reception was more cordial. Philip Henry Wicksteed was much taken by George's Poverty and Progress, as was George Bernard Shaw. That mutual interest brought Wicksteed and Shaw together and had a significant effect on the Fabian Society. Alfred Marshall had a famous debate with George at Oxford in 1883. Despite this event Gaffney characterizes Marshall's relation with George as being "...rather one of caution, compromise, ambivalence, and gradualism." Gaffney amusingly attributes to Marshall the imprint on neo-classicism of "...his two-handedness, that notorious quality of economists that later disturbed President Harry S. Truman." (Truman called for one handed economists.)
Gaffney provides a guided tour of late 19th and 20th century US economic and political struggles and casts a highly illuminating light upon the role of private interests and their (ultimately successful) efforts to surplant the public interest with their own very narrow interests and shows how this critically proceeded through the re-casting of the terms of debate for economics and training of generations of US citizens at universities in a brand of economics highly favorable to the interests of the wealthy few. Through meticulous documentation and citations he shows how Neo-Classical Economics came to be the standard system taught in all US universities and how it has retained its position.
His paper, "Neo-classical Economics as a Stratagem Against Henry George," is available on his web site in PDF format and is available commercially in "Neo-classical Economics as a Stratagem Against Henry George," in Fred Harrison, The Corruption of Economics. London: Shepheard-Walwyn Publishing Co. pp. 29-164. I find it exciting reading. When I was about 20 years old I changed the focus of my inquiries from "how the world worked" to "how did we get so fucked up?" Gaffney provides a lot of the answers.
He also provides a sense of the fundamental differences that could have been realized in making our society more humane and egalitarian via the application of George's philosophy, which carefully married "socialist" ideals to a properly functioning capitalism through a more rational tax policy.