Progress and Poverty (George)/Chapter XIII

by Henry George

Chapter XIII The primary cause of industrial depressions

There is a cause, not yet adverted to, that must be taken into consideration to explain fully the influence of material progress upon the distribution of wealth. That cause is the confident expectation of the future enhancement of land values which arises in all progressive countries from the steady increase of rent and which leads to speculation, or the holding of land for a higher price than it would otherwise bring.

We have hitherto assumed, as is generally assumed in elucidations of the theory of rent, that cultivation extends to less productive points only as opportunities at the more productive points are fully utilized. But in rapidly progressing communities, where the steady increase of rent gives confidence to calculations of further increase, this is not the case. The confident expectation of increased prices produces, to a greater or less extent, the effects of a combination among landholders and tends to the withholding of land from use in expectation of higher prices, thus, forcing the margin of cultivation farther than required by the necessities of production.

This may be seen in every rapidly growing city. If the land of superior quality as to location were always fully used before land of inferior quality was resorted to, no vacant lots would be left as the city extended nor would we find miserable shanties in the midst of costly buildings. These lots, some of them extremely valuable, are withheld from use or from the full use to which they might be put, because their owners, not being able or not wishing to develop them, prefer, in expectation of the advance of land values, to hold them for a higher rate than could now be obtained from those willing to develop them. And in consequence of this land being withheld from use, or from the full use of which it is capable, the margin of the city is pushed away so much farther from the centre.

But when we reach the limits of the growing city - the actual margin of building which corresponds to the margin of cultivation in agriculture - we shall not find the land purchasable at its value for agricultural purposes, as it would be were rent determined simply by present requirements; but we shall find that, for a long distance beyond the city, land bears a speculative value based upon the belief that it will be required in the future for urban purposes; we shall find that, to reach the point at which land can be purchased at a price not based upon urban rent, we must go very far beyond the actual margin of urban use.

Effects of land speculation

Given, then, a progressive community in which population is increasing and one improvement succeeds another, land must constantly increase in value. This steady increase naturally leads to speculation in which future increase is anticipated and land values are carried beyond the point at which, under the existing conditions of production, the accustomed returns would be left to labour and capital.

Production therefore begins to stop. There is not necessarily, or even probably, an absolute diminution in production; but there is what in a progressive community would be equivalent to an absolute diminution of production in a stationary community - a failure in production to increase proportionately, owing to the failure of new increments of labour and capital to find employment at the accustomed rates.

This stoppage of production at some points must necessarily show itself at other points of the industrial network in a cessation of demand which would again check production there and thus the paralysis would communicate itself through all the interlacings of industry and commerce producing everywhere a partial disjointing of production and exchange and resulting in the phenomena that see to show over-production or over-consumption, according to the standpoint from which they are viewed.

The period of depression thus ensuing would continue until (1) the speculative advance in rents had subsided; or (2) the increase in the efficiency of labour, owing to the growth of population and the progress of improvement, had enabled the normal rent line to overtake the speculative rent line; or (3) labour and capital had become reconciled to engaging in production for smaller returns. Or, most probably, all three of these causes would cooperate to produce a new equilibrium, at which all the forces of production would again engage, and a season of activity ensue; whereupon rent would begin to advance again, a speculative advance would again take place, production be again checked, and the same round be gone over.

Conflicting explanations

These seasons of depression are always preceded by seasons of activity and speculation, and on all hands the connection between the two is admitted - the depression being looked upon as the reaction from the speculation, as the headache of the morning is the reaction from the debauch of the night. But as to the manner in which the depression results from the speculation, there are two classes or schools of opinion.

One school say that the speculation produced the depression by causing over-production and they point to warehouses filled with goods that cannot be sold at remunerative prices, to mills closed or working on half-time, to mines shut down and steamers laid up, to money lying idly in bank vaults and to workmen compelled to idleness and privation. They point to these facts as showing that the production has exceeded the demand for consumption and they point moreover to the fact that when government during war enters the field as an enormous consumer brisk times prevail

The other school say that the speculation has produced the depression by leading to over-consumption, and point to full warehouses, rusting steamers, closed mills, and idle workmen as evidences of a cessation of effective demand, which, they say, evidently results from the fact that people, made extravagant by a fictitious prosperity, have lived beyond their means and are now obliged to retrench - that is, to consume less wealth. They point, moreover, to the enormous consumption of wealth by wars, by the building of unremunerative railways, by loans to bankrupt governments, etc., as extravagances which, though not felt at the time, just as the spendthrift does not at the moment feel the impairment of his fortune, must now be made up by a season of reduced consumption.

Neither over-production nor over-consumption

Each of these theories evidently expresses one side or phase of a general truth, but each of them evidently fails to comprehend the full truth. As an explanation of the phenomena, each is equally and utterly preposterous.

For while the great masses of men want more wealth than they can get, how can there be over-production? And while the machinery of production wastes and producers are condemned to unwilling idleness, how can there be over-consumption?

When, with the desire to consume more, there coexist the ability and willingness to produce more, industrial and commercial paralysis cannot be charged either to over-production or to over-consumption. Manifestly, the trouble is that production and consumption cannot meet and satisfy each other.

How does this inability arise? It is evidently and by common consent the result of speculation. But of speculation in what? Certainly not of speculation in things which are the products of labour - in agricultural or mineral productions or manufactured goods, for the effect of speculation in such things is simply to equalize supply and demand, and to steady the interplay of production and consumption by an action analogous to that of a fly-wheel in a machine.

If speculation be the cause of these industrial depressions, it must be speculation in things not the production of labour, but yet necessary to the exertion of labour in the production of wealth - of things of fixed quantity; that is to say, it must be speculation in land.

The check to production

All trade, let it be remembered, is the exchange of commodities for commodities, and hence the cessation of demand for some commodities, which marks the depression of trade, is really a cessation in the supply of other commodities. That dealers find their sales declining and manufacturers find orders falling off, while the things which they have to sell, or stand ready to make, are things for which there is yet a widespread desire, simply shows that the supply of other things, which in the course of trade would be given for them, has declined. In common parlance we say that "buyers have no money," or that "money is becoming scarce," but in talking in this way we ignore the fact that money is but the medium of exchange. What the would-be buyers really lack is not money, but commodities which they can turn into money - what is really becoming scarcer is produce of some sort. The diminution of the effective demand of consumers is therefore but a result of the diminution of production.

This is seen very clearly by storekeepers in a manufacturing town when the mills are shut down and operatives are thrown out of work. It is the cessation of production that deprives the operatives of means to make the purchases they desire and thus leaves the storekeeper with what, in view of lessened demand his a superabundant stock, forcing him to discharge some of his clerks and otherwise reduce his demands. And the cessation of demand (I am speaking, of course, of general cases and not of any alteration in relative demand from such causes as change of fashion) which has left the manufacturer with superabundant stock and compelled him to discharge his hands, must arise in the same way. Somewhere, it may be at the other end of the world, a check in production has produced a check in the demand for consumption. The lessening of demand without want being satisfied shows that production is somewhere checked.

People want as much as ever the things the manufacturer makes just as the operatives want the things the storekeeper has to sell. But they do not have as much to give for them. Production has somewhere been checked and this reduction in the supply of some things has shown itself in cessation of demand for others, the check propagating itself through the whole framework of industry and exchange.

The real obstacle

The industrial pyramid manifestly rests on the land. The primary and fundamental occupations, which create a demand for all others, are evidently those that extract wealth from nature; and hence, if from one exchange point to another and from one occupation to another we trace this check to production, which shows itself in decreased purchasing power, we must ultimately find it in some obstacle that checks labour in expending itself on land. And that obstacle, it is clear, is the speculative advance in rent, or the value of land, which produces the same effects as (in fact, it is) a lock-out of labour and capital by landowners.

This check to production, beginning at the basis of interlaced industry, propagates itself from exchange point to exchange point, cessation of supply becoming failure of demand, until, so to speak, the whole machine is thrown out of gear, and the spectacle is everywhere presented of labour going to waste while labourers suffer from want. Though custom has dulled us to it, it is a strange and unnatural thing that men who wish to labour, in order to satisfy their wants, cannot find the opportunity. We talk about the supply of labour and the demand for labour, but evidently these are only relative terms. The supply of labour is everywhere the same - two hands always come into the world with one mouth; and the demand for labour must always exist as long as men want things which labour alone can procure.

We talk about the "want of work," but evidently it is not work that is short while want continues; the supply of labour cannot be too great, nor the demand for labour too small, when people suffer for the lack of things that labour produces. The real trouble must be that supply is somehow prevented from satisfying demand, that somewhere there is an obstacle which prevents labour from producing the things that labourers want.

Denial of access to land

When we speak of labour creating wealth, we speak metaphorically. Man creates nothing. The whole human race, were they to labour for ever, could not create the tiniest mote that floats in a sunbeam - could not make this rolling sphere one atom heavier or one atom lighter. In producing wealth, labour with the aid of natural forces but works up preexisting matter into the forms desired and must therefore have access to this matter and to these forces - that is to say, to land. The land is the source of all wealth. It is the mine from which must be drawn the ore that labour fashions. It is the substance to which labour gives the form. And hence, when labour cannot satisfy its wants, may we not with certainty infer that it can be from no other cause than that labour is denied access to land?

When in all trades there is what we call scarcity of employment, when everywhere labour wastes while desire is unsatisfied, must not the obstacle that prevents labour from producing the wealth it needs lie at the foundation of the industrial structure? That foundation is land. Milliners, optical instrument makers, gilders and polishers are not the pioneers of new settlements. Miners did not go to California or Australia because shoemakers, tailors, machinists and printers were there. But those trades followed the miners. It is not the storekeeper who is the cause of the farmer; it is the farmer who brings the storekeeper. It is not the growth of the city that develops the country - it is the development of the country that makes the city grow.

If men now unemployed were given the opportunity to produce wealth from the land, they would not only be employing themselves, but would be employing all the mechanics of the city, giving custom to the storekeepers, trade to the merchants, audiences to the theatres and subscribers and advertisements to the newspapers. I do not mean to say that every unemployed man could turn farmer or build himself a house, if he had the land; but that enough could and would do so to give employment to the rest. What is it, then, that prevents labour from employing itself on this land? Simply, that it has been monopolized and is held at speculative prices, based not upon present value, but upon the added value that will come with the future growth of population.

Let the reader remember that it is only the main causes and general courses of industrial depressions that we are seeking to trace or in fact that it is possible to trace with any exactness. Political Economy can only deal, and has only need to deal, with general tendencies. The derivative forces are so multiform, the actions and reactions are so various, that the exact character of the phenomena cannot be predicted. We know that if a tree is cut through it will fall, but precisely in what direction will be determined by the inclination of the trunk, the spread of the branches, the impact of the blows, the quarter and force of the wind; and even a bird lighting on a twig, or a frightened squirrel leaping from bough to bough, will not be without its influence. We know that an insult will arouse a feeling of resentment in the human breast, but to say how far and in what way it will manifest itself, would require a synthesis which would build up the entire man and all his surroundings, past and present.

The social phenomena which all over the civilized world appall the philanthropist and perplex the statesman, which hang with clouds the future of the most advanced races and suggest doubts of the reality and ultimate goal of what we have fondly called progress, are now explained.

The reason why, in spite of the increase of productive power, wages constantly tend to a minimum that will give but a bare living, is that, with increase in productive power, rent tends to even greater increase, thus producing a constant tendency to the forcing down of wages.

This explanation is in accordance with all the facts.