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VALUE
We have now seen that supply and demand for the economy as a whole is not determined by the value of money. That is, a change in the value of the dollar does not cause a change in the supply or demand of anything but dollars. What, then, does determine how much or how little is produced in an entire economy?
We know that the total production in an economy is the sum of all the individual goods and services produced in that economy. We also know that the quantities demanded of most goods and services increase when their prices are reduced. And, so long as the cost of production is sufficiently less than the price, the quantity supplied will at least equal the quantity demanded. However, if costs are not sufficiently below price to satisfy suppliers, production will be reduced or stopped. Costs must be a determining factor of how much or little is produced in an economy.
Are not costs just another name for prices? Well, nearly so, but not quite. The money costs of materials and labor could just as well be called prices of these things. But, what about opportunity costs? Can the foregone opportunity of a suntan be called a price? If so, how many dollars is a suntan worth? Or what about the foregone opportunity of a monopoly (economic) profit? And just what is it that separates normal wages or profits from monopoly earnings? Could the abuses of monopoly powers be the underlying cause of economic recessions or depressions? Could these abuses of monopoly powers prevent able and willing people from partaking in the productive opportunities of a free society?
In "A CURE FOR UNEMPLOYMENT" it was shown that monopoly abuses of corporations and unions can be restrained by price controls. But we have also seen that the general price level (the value of the dollar) does not affect the production level in the economy as a whole.
A man named Henry George analyzed the problem of economic production and distribution over 100 years ago. His analysis can only be called masterful. Much of what I am saying in these pages is a result of the clarity of argument he presented in his book "PROGRESS AND POVERTY" first published in 1879.
In that book he proposed that the way to assure economic progress and eliminate poverty was to impose a 100% tax on the economic (monopoly) rent of land. I will not attempt to repeat his arguments here. One reason is I do not agree with his remedy. But mostly it is because I could not do the master justice, and his books are still in print. They are available from: ROBERT SCHALKENBACH FOUNDATION, 5 East 44 Street, New York, N.Y. 10017.
I do not agree with Henry George's remedy to cure the ills of society, but his assessment of the cause of these ills is beyond agreement. It simply is. The cause of poverty and the restraints on progress is the ability to monopolize the use of land.
The errors of his proposed remedy are that firstly he proposed to tax only the economic rent of land as that term is conventionally used. But his arguments were developed using a version of the economist's theory of production, especially their definition of land. Secondly he proposed to tax land at 100% of its monopoly rent. But monopoly is necessary for exchange value. And, exchange value is the essence of production.
Economists have developed their theory of production using what they call the factors of production. The factors economists use to explain their theory are land, labor and capital.
Land as economists define it is not just land as the term is conventionally used. Land is the existence of nature. It includes not just dry land but the oceans and air as well. Land also includes the birds, animals and plants we find in the land (water and air.) Some of the land is not even substance. It is the force of the wind, the warmth of the sun and the electromagnetic spectrum that carries the signals for radio and television programs. Land is all that is in nature.
Labor is any effort by man to increase the value of land. It is the work of the fisherman who brings forth fish from the sea. It is the husbandry of the farmer who entices nature to bring forth food to sustains us. It is the efforts of the businessman who assembles the factors of production in a more efficient way. It is the triviality of a writer putting his thoughts on paper. All these things are labor.
Economists define capital as anything that is bought or created to produce wealth. It is the tools and factories used to expand the productivity of labor. It is the materials gathered to be changed into final products. It is those final products while they are held for sale. It is the trains, planes, trucks and boats used to carry things from place to place. All of these things are capital.
Most of us consider money to be capital. Economists say money is not capital. Although they often leave their definition of capital at home when they speak in public, when economists define capital they say money is not capital. In fact, money is almost the only thing that cannot be capital. Capital is real. Money is abstract. Money can be used to buy capital. It can also be used to measure the value of capital. But, in and of itself, money is not capital.
Some economists say land can be capital. Henry George defined land and capital such that the term land excludes that portion of the substance of nature that has been modified into wealth by the labor of man. Capital he defined as that portion of wealth that is dedicated to the production of more wealth.
What is it that truly distinguishes land from capital? Is land a form of capital? Are land and capital distinct things? Or is capital a form of land?
If land is a form of capital then capital and labor are the necessary and sufficient factors of production. If land and capital are distinct things then all three are necessary for production. If capital is a form of land then only land and labor are necessary for production. Which is true? And does it matter?
I have said that Henry George was correct in his analysis that the cause of poverty and restraints on economic progress is the ability of some people to monopolize the use of land. And, that his remedy is wrong because his analysis is based on land while his remedy is based on land.
It is true that to eliminate restraints to progress we must eliminate the ability of monopolists to exploit labor by denying it the resources of nature that are necessary to create wealth. Monopoly is also necessary to create wealth. Without monopoly there is no wealth.
A long time ago a Greek named Aristotle observed that there are two kinds of value. There is use value and there is exchange value. The usual way we think of creating wealth is through the use of land and labor to create use value. This is the value we hold for the food that sustains life, the clothing and shelter that protects us from the elements and the entertainments that amuse or inform us. All of these things require land and labor to produce. It is also true that land and labor are sometimes used to make things that are intended only for exchange. But are land and labor sufficient to produce exchange value?
Exchange value is a peculiar thing. Like use value it requires land to exist. It also requires something more. For exchange value to exist, it is necessary that use value not be free. It must be monopolized. Anything people can get free has no exchange value. It does not matter how useful it is. It does not matter how big or small, heavy or light, rare or common, concrete or abstract, if it is free it can have no exchange value. To produce exchange value it is necessary that people be prevented from obtaining all they want for free. Nearly everything people want is made ofland. Land as economists define it. All that is is either a product of nature or a modification of the stuff of nature.
Some of what we find useful is useful just as it occurs in nature. Like the air we breathe. Other things only require they be found and moved to become useful. Like the fish in the sea. They have no value until they are removed from the sea and brought to market. Most of what we desire requires that the substance of nature be both relocated and modified in either simple or complex ways.
The trees in nature need to be changed in shape and size to become the lumber with which we build our houses. The iron ore of nature must be refined and reformed in complex steps to become the nails to fasten lumber or the automobiles and other machines and tools we find so useful. Always these things are made of the substance of nature. Land as the economists define it. To have exchange value it does not matter how simple or complex the changes are to the substance of nature. It matters only that people be denied the ability to obtain these things for free. The amount of exchange value is limited only by the opportunity of people to obtain similar or satisfactory alternative things for lesser or no cost. Does anyone have the right to prevent others from having access to the land that is necessary to create value?
Socialists say no. They say land belongs to no one or to everyone. Each of us has an equal right to its use. None of us has any right to deny it to others.
Libertarians say yes. They say it is not the substance of nature which has value but the labor of man that creates value from the substance of nature. Land belongs to he who has by his labor created its value. No one has the right to free use of value created by the labor of another.
Being the nice guy I am, I say both are right. Fickle also, I say both are wrong. It is true as the socialists say: "Man has created none of the substance of nature. No man has the right to deny others the free gifts of God or nature." It is also true as the libertarians say: "No one has the right to the value of another's labor." But what is free and what is value? And does right have anything to do with reality?
Socialists perceive of nature as free and belonging to no one. But is it free? The air we breathe costs us nothing. We pay no one for the fish we take from the sea. Where land is not owned by someone the fruits of nature and meat on the hoof are there for the taking. These things cost us nothing. That is we do not have to pay anyone for what we take. But are they free?
Perhaps the air is. We sacrifice nothing to breathe. But all the other things cost us something. They cost us the alternative things we could have been doing instead of finding, gathering, moving or modifying the substance of nature. Opportunity cost as economists label these alternatives. The substance of nature is not free. It has an opportunity cost.
Libertarians perceive the value of things as the result of man's labor in finding, gathering, moving or modifying the substance of nature. But is the value they perceive use value or exchange value? Man's labor does create use value. There are substantial differences in the use values of fish in the sea or meat on the hoof and fish or meat on the table, cotton on the bush or trees in the forest and clothes on our backs or roofs over our heads, and iron ore in the ground and cars to drive.
If the value perceived is the use value created by labor one must concede this use value ought to belong to its creator. But the reality of civilized life is that our efforts are often to obtain exchange value, not to create use value. What is the reality of exchange value?
Exchange value is the result of monopoly. Unless others are denied free access to the things they want, exchange value does not exist. It does not matter if the value is supplied by land or labor. Anything that is free has no exchange value.
The air we breathe has substantial use value, but it remains free. Wars have little use value but free they are not. Without the ability to deny people free air, the air we breathe has no exchange value. With the ability to deny us freedom, salvation or karma governments, popes and ayatollahs induce people to fight wars. The reality of exchange value is the ability to deny free use of things people want. That is monopoly.
Some monopolies are substantial and others are not. I have a monopoly on the pen and paper I am using to write these thoughts. This is not a significant monopoly. If others have need of pen and paper their opportunities are many. Because of those opportunities I can not abuse my monopoly to exploit the desires of others. But my monopoly is necessary. Without a monopoly on this land (pen and paper are land as defined by economists) anyone stronger than me could do the world a favor and take this land from me. But, then, I in turn could take what I want from those weaker than me. All of this would be fine if only the stronger want pens and paper, and if pens and paper grew on trees. But all who want pens and paper are not strong, and pens and paper are made from the substance of nature but they do not grow on trees. They require the labor of man to exist.
Who among us is to expend his labor to create these things if they immediately become free to anyone strong enough to take them? Or if the society decides, independent of labor's efforts, who is to be entitled to use what is?
Without the ability to demand value in exchange for the value we create we have little incentive to create. This is the determinant of economic production in a society. Production is limited to that which can be defended. Exchange is limited to those things that can be exchanged more easily than they can be taken or created. The progress of a society is limited by its willingness to recognize and support the rights of individuals to monopolize that portion of land they make valuable by their labor. Failure to recognize this need for monopoly is the fallacy of socialism.
There is also the other extreme that limits economic progress in a society. That is the reality that land is an essential element for production. The government that grants or enforces unrestricted monopoly to some ultimately reduces or eliminates the opportunities of less favored individuals and sows the seeds of poverty and discontent. Opportunity is necessary for production. Understanding this dichotomy of monopoly is the road to progress without poverty.
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