Georgism on the Eve of the Great Depression

By Ed Dodson

In the summer of 1929 — just three months before the crash of the stock market in the United States — was held the Fourth International Conference of the International Union for Land Value Taxation and Free Trade, in Edinburgh, Scotland. John J. Murphy presented a paper which stated “there ha[d] been little effort to affect taxation — national, state, or local — by legislation” in the United States. Thanks to the efforts of Georgists such as Percy Williams, one significant exception was the City of Pittsburgh. During 1912, Georgists brought in the movement’s heavy-weights — Henry George, Jr., Frederic C. Howe, Louis F. Post, Joseph Fels, Lawson Purdy, and others — to speak to Pittsburgh’s civic leaders on the virtues of what became known as “the graded tax plan.” The result was passage of a bill by the Pennsylvania legislature in 1913 enabling Pittsburgh to put the plan into effect in five stages ending in 1925. A year later, Georgists established The Henry George Foundation of America with its headquarters in Pittsburgh.

Although the successful campaign to bring Pittsburgh (and a second second-class city, Scranton) in a Georgist direction provided a base from which the Henry George Foundation could promote “the Pittsburgh plan” throughout Pennsylvania, Murphy’s assessment was all too accurate. As he surveyed the situation in the United States, Murphy reported:

I wish I could present a more optimistic picture. A nation inflated with universal prosperity, which, according to our present Secretary of Labour, James J. Davies, means 14 per cent rich and 86 per cent living on wages below the computed cost of living, has no time to think about economic political reforms based on justice and fair dealing.

It is surprising that few of the papers delivered at the 1929 conference warned of the coming economic problems, despite the fact that so many signals were evident to those holding a Georgist perspective. One writer, Carl Marfels, asked rhetorically, “Why cannot demand and supply be brought into touch with each other?” He then offered the reason why societies desperately needed to know:

The answer to this question is of extraordinary urgency as the discontent among the masses in all civilized countries is assuming alarming proportions; and not only in the ranks of wage-workers, but also in the ranks of self-supporting manufacturers, tradesmen and merchants. …General discontent and crime are increasing to such an alarming extent that even the middle classes, driven to despair, no longer shrink from Bolshevist ideas, and the legislator stands impotent in the face of all that has been described.

The one person who might have offered a detailed forecast of the world economy but who did not make the trip to Edinburgh was Harry Gunnison Brown. In his 1925 book, Economic Science and the Common Welfare, Brown observed that one serious threat to economic stability — the run on banks by depositors — could be addressed in the United States by the Federal Reserve’s power to increase the supply of currency and get needed “Federal Reserve notes to solvent member banks whose customers are demanding their money.” Provided businesses still enjoyed demand for their products and services, credit could also be made available through additional Federal Reserve loans to member banks. Brown noted that the effect would be much better if the Federal Reserve maintained reserves for these purposes rather than simply issuing new notes.

Brown’s biographer, Christopher K. Ryan, records that “after 1930 Brown published sparsely in the field of international trade and finance.” Given the times, and his commitment to public policy advocacy, his choice is difficult to understand. Other commitments certainly kept him focused elsewhere. In addition to his teaching assignments at the University of Missouri, he was working on a second book, The Economic Basis of Tax Reform, which appeared in 1932. We must remember there was no Georgist school of economists working together on national and international issues. There was no research institute publishing papers and holding conferences to effectively enter the “public dialogue” and to challenge conventional wisdoms. Edward C. Harwood’s venture into this realm — the American Institute for Economic Research — was not established until 1934. Two years earlier, Harwood’s book, Cause and Control of the Business Cycle, attempted to explain to a shell-shocked public — and to economists trained in Neo-classical theory — why production and employment had come crashing down. He recalled an exchange with the eminent economist Irving Fisher, who “apparently believed that there was no inflation in 1928 and 1929 because the commodity price-level did not rise in those years.”

Harwood suggested that Fisher and other economists direct their attention to the securities and land markets, where speculation caused runaway price inflation: “In the case of securities, [the check against commodity price inflation provided by foreign competition] … cannot act. In the absence of any outside check, the situation is similar to the famous tulip speculation which occurred in the Netherlands, or even to the ill-fated Florida land boom.” Other than this brief mention, however, Harwood passed over the dynamics of land markets and the impact of government’s methods of raising revenue on the business cycle. Another Georgist of note absent from the 1929 conference was Francis Neilson, although he had taken “an active part in the land campaign” of 1912 in Britain. During the Depression years, Neilson worked on the book Man at the Crossroads, (1937) examining his own “economic principles”. Although his own investment losses during the early 1930s were significant, he managed to recover better than most: “I succeeded in laying… a financial foundation which, in a few years, helped to retrieve seventy-five per cent of my losses. How this was accomplished I do not know.” His familiarity with Henry George’s analysis of business cycles did not prevent him from holding stocks too long when the speculative fever of 1929 was in full swing.

It is also worth noting the financial fortunes of another writer who had spoken and written extensively on the land question – Winston Churchill. Not that Churchill would have accepted an invitation to speak to International Union members that year (he was by this time firmly in the Conservative camp), but he had departed on the 3rd of August for a vacation in North America, first to Canada and then the United States. “On the Atlantic coast he paid a courtesy call on Herbert Hoover; toured Civil War battlefields, … and was in New York … when the market crashed,” writes William Manchester (The Last Lion, 1983). He actually visited the New York Stock Exchange on the 30th of October. He later wrote: “No one who has gazed on such a scene could doubt that this financial disaster, huge as it is, cruel as it is to thousands, is only a passing episode in the march of a valiant and serviceable people who by fierce experiment are hewing new paths for man….” Personally, Churchill lost a good deal in the market as an active speculator. By the time he returned to England, he would realize the scale of economic contraction unfolding.

Philip Snowden, Britain’s new Chancellor of the Exchequer, wrote to the conference planners: “It will not be possible for me to attend the International Conference which is to be held in Edinburgh at the end of this month, but I send you just a few words to express the hope that the Conference will be useful in stimulating international interest in the co-related questions of Land Values and International Free Trade.” The Labour Government formed by Ramsay MacDonald already faced the problems of high unemployment and an industrial recession linked to severe problems in the coal industry. Very little of significance was accomplished before the full brunt of the Great Depression was felt.

What could have been an international conference of enormous importance in examining the global state of affairs and warning of the coming Depression instead concentrated on the various efforts to promote the taxation of land values in the countries represented. Henry George’s most important contribution to the science of political economy — his explanation for the cause of industrial depressions — received no attention. Only one presenter, Chester C. Platt, investigated the hyper land speculation that occurred in the State of Florida during the 1920s; however, even Platt failed to connect these events with the larger national and international picture.

Some of the same signals present in mid-1929 are with us again. The question for us is whether — even though there are far fewer of us engaged — we are better prepared to send out a warning to our countrymen. Fred Harrison’s new book, Boom Bust: House Prices, Banking and The Depression Of 2010, provides the details. What we need, now, is a concerted strategy to bring this perspective to the fore in every country where we still have a functioning presence.

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