Tuesday, February 16, 2021

The Henry George logic of wages as an economic rent

George was concerned that property owners gained all the economic rents. But his logic relies on a quite arbitrary and limited concept of property rights.

We know, for example, that human slaves could historically be the exclusive property of another person.

By George’s logic, the economic gains to human-type property owners would be an economic rent, just as the gains to location-type (or land-type) property owners are an economic rent.

From the viewpoint of property and economic rents, freeing slaves transferred a property right, in the form of the right to choose labour tasks and receive payment for them, from the slave owner to the slave.

Thus, the wages of freed slaves are the economic rent from the property right they now own. The owner of human-type property still gets the rent. It is just that each person became an own-slave-owner.

Hence, when modern Georgists say things like “all taxes come out of rents” they are just saying “all taxes come from property rights owners who can capture the economic surplus.” Or simply, “all taxes come from someone.” 

But because the understanding of property rights is limited mainly to location-type resources, not human and other resources, they miss a big part of the economic picture. While it is certainly the case that owners of location-type property need not labour for their share of economic gain, changes in the distribution of the ownership of location-type property can spread those gains more widely, just as a change in the distribution of slave-type property owners spread the gains from human labour. 

George's idea of a tax on the value of location-type property is a good way to socialise the gains from concentrated land ownership. In the modern era of high top labour incomes, taxes on the high value of these human-type property rights might also be a good way to socialise some of these economic rents.

The balance of wages, profits and rents, are not a product of physical aspects of production, but rather than property rights distributions. George somewhat indirectly makes this point when he writes:
Where land is free and labour is unassisted by capital, the whole produce will go to labour as wages.

Where land is free and labour is assisted by capital, wages will consist of the whole produce, less that part necessary to induce the storing up of labour as capital.

Where land is subject to ownership and rent arises, wages will be fixed by what labour could secure from the highest natural opportunities open to it without the payment of rent.
Where property rights to land are limited (i.e. land is free), wages and capital owners get all the surplus. As one would expect, only those with property rights can get a share of the surplus. If then property rights to capital were removed, or limited, then all the gains would go to labour. We can get any economic distribution we like with different sets of rights (aka rules). 

The relationship between George's insights on rents and the concept of property rights need more careful consideration in the modern world where the evolution of property rights tends to be invisible to many economists and policymakers. 

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