Political Economy and Services

by Lindy Davies

Georgists set great store in Henry George’s scheme of economic definitions — and rightly so; they are a powerful logical tool. “Once you understand these definitions,” I have told students, “you can actually infer the whole rest of the course.” The ability to unambiguously divide the economic world into three mutually-exclusive factors makes everything easier, especially when compared to the trackless wastes of conventional, neoclassical theory. Political economy, Henry George tells us, is “the science which treats of the nature of wealth and the laws of its production and distribution.”

George’s neat scheme of definitions runs into a bit of a snag over the question of services. In George’s view, services — defined as valuable processes resulting in not the creation of material goods, but rather the direct satisfaction of desire — are not the main thing. In The Science of Political Economy he puts it this way:

The barber, the singer, the physician, and the actor do not produce wealth, but direct satisfactions. But not only are their efforts which are expended in this way mainly devoted to the procurement of wealth, which they get in exchange for their services, but any exchange between themselves of services for services takes place through the medium of wealth. To this we may add that the laws which govern the production and distribution of services are essentially the same as those which govern the production and distribution of wealth. Thus we see that all the ends of political economy may be reached if its inquiry be an inquiry into the nature of wealth and the laws that govern its production and distribution.

George’s reasoning, usually crystal-clear, is a tad murky here. It is entirely possible for people to exchange services for services without any mediation of wealth. And if the laws that govern the production and distribution of services are essentially the same as those that deal with wealth, then why the distinction?

Furthermore, George clearly understands that the point of economic activity (despite his stated definition) is not to provide people with valuable stuff (wealth), but rather to satisfy their desires.

…wealth is not the only result of human exertion, nor is it indeed the final cause of human exertion. That is not reached until wealth is spent or consumed in satisfaction of desire. Wealth itself is in fact only a halting-place or storehouse on the way between prompting desire and final satisfaction; a point at which exertion, journeying towards the satisfaction of desire, remains for a time stored up in concrete form, and from whence it may be called forth to yield the satisfaction which is its ultimate aim. And there are exertions aiming at the satisfaction of desire which do not pass through the form of wealth at all.

The “barber, the singer, the physician and the actor” exert labor in the production of services, and they are paid for this. It would seem, then, that what they do is part of political economy, and that they get a portion of the “wages” slice of the overall wealth pie. Seems straightforward enough. But, along comes a literal reader of George to point out that, by definition, “the wealth pie” includes wealth only, not services — and therefore, wages paid to services are some sort of secondary distribution of wealth, perhaps akin to taxation, or theft, in that the return to services is “not part of political economy.” And, well, I guess one could put it that way, but I have no idea what would be clarified or explained by doing so. For one thing, services are quite unlike theft (or taxation of production, which is morally theft). Services are freely undertaken and compensated at their market value. Furthermore, although we tend to think of labor providing services, there are many ways in which the other factors also provide the direct satisfaction of desires. A public restroom, for example, is capital that provides a service. As with all capital there is labor involved in its maintenance — but the capital itself is what satisfies our desires there. And, in terms of land: people will pay admission fees just to gaze upon a distinctive natural vista — the Grand Canyon, say. Our desire is to see the beautiful place, and the Grand Canyon satisfies it directly. Egad! This means that some services aren’t even produced by labor!

One might ask why this discussion is important for anyone but a couple of crusty old Georgists debating theory in the library of the Henry George School, far from light or relevance. I would suggest, though, that the 19th-century attitude embodied in “why political economy considers only wealth” is a large — but entirely removable — stumbling block in the way of modern application of George’s thought. George set out to understand and remedy the processes by which rapid material advances in production brought poverty and industrial depression in their wake. These processes had everything to do with the production of material wealth. George had no inclination to consider any downsides or limits to the amazing march of improvement in the arts of production. He was bullish on population, quipping that “the earth could maintain a thousand billions of people as easily as a thousand millions.” Elsewhere, of course, he qualified that rather nonsensical statement by affirming that the solution to the problem mistakenly called “overpopulation” is the natural demographic shift that comes with a certain level of human progress. Nevertheless, like other writers of his day, Henry George didn’t think in terms of “carrying capacity” or any potential for “global environmental catastrophes.” Nowadays we do, though.

What has all this to do with the role of services in political economy? Quite a lot. The ultimate aim of political economy, George tells us, is the satisfaction of desires. Writing as he did in a time of flourishing industrial progress, he could perhaps be excused for seeing that as a moot point. Services are well and good; but they aren’t very important; they follow the same laws as wealth, and wealth is the main thing. However, the 21st Century has brought us a new class of desires that cannot be satisfied with stuff. It’s fashionable in some circles today to talk of “ecosystem services” — such as the capacity of the earth’s atmosphere to soak up the waste gases of our incessant industry and transportation. That’s a bona fide service, provided by the natural world, that’s getting more valuable all the time. Political economy really can’t avoid considering such things.

Henry George’s instincts were right on the money, even if his frame of reference made it difficult for him to see the implications. At a certain stage of civilization, the production of wealth is everything: providing food, clothing and shelter is, by far, the most important aspect of economic activity. But as material progress advances, higher-order desires for luxury, artistic or scientific things gain more importance. The consumption of services — haircuts, national parks, internet cafes — is part of this process. Eventually there comes a day when our desire for less — less pollution and environmental degradation — starts to take on great prominence.

George’s insistence that “political economy only consider wealth” seems to suggest that he would regard the GDP as a more-or-less acceptable indicator of economic progress. Many georgist sympathizers today, however, most emphatically do not. Unfortunately, however, attempts to fashion a more complete or responsible indicator often make the mistake of incorporating subjective elements that make a mockery of rational economic analysis. Henry George did not fall into that trap. He neatly cut the normative/positive knot, by challenging society to remove privilege, and then let the market be free.

George was on the right track in saying that the basic point of economic activity is the satisfaction of human desires. In the twenty-first century, one profoundly important desire is that the human experiment on earth find a way to sustain itself without destroying its home. Were he writing today, George would have no trouble connecting the dots. He’d define political economy as “the science which treats of the nature of economic value, and the laws governing the production and distribution of valuable goods and services.” It doesn’t roll as neatly off the tongue, but neither does it torture logic.

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