by Lindy Davies

It’s very likely that we Georgists will keep trying to “diagnose our failure” until society finally adopts the Georgist remedy. One chestnut that’s resurfaced recently is the notion that our focus on the land monopoly, while OK as far as it goes, naively ignores other modern evils that do just as much damage. In particular, some Georgist circles have been abuzz about Karl Polanyi’s contention that land, labor and money are really “fictitious commodities” which must not be given over to the cruel, callous Invisible Hand of the market.*

I’ve been trying to wrap my mind around the idea that land, labor and money are not to be “commodified.” What is a commodity? I think we can synthesize various definitions to say that a commodity is something that is voluntarily exchanged, in arms-length transactions, for other valuable things. “Arms length” is a key phrase, because such exchanges don’t have to depend on familiarity or personal trust; obviously, this greatly expands the field on which exchanges can be made, expanding the synergistic benefits therefrom. This is the familiar logic that undergirds the market economy.

Karl Polanyi, on the other hand, didn’t believe that the market economy can be trusted. He argued that if land, labor and money — parts of the economy that are utterly essential to our well-being  — are left to the market, society will proceed inexorably toward debasement and ruin.

What sort of things, then, should be “commodified”? Well, widgets — hula hoops, toasters, things like that; it would be permissible to have a free market in capital and consumer goods. Yet, it’s hard to see how such a market could be “free” in any meaningful sense if its most vital inputs, labor and capital, as well as its medium of exchange, were subject to government control. Nevertheless, that seems to have been where Polanyi was leading us. He did not envision a planned economy a la Karl Marx. He was a big fan of Franklin D. Roosevelt’s New Deal; he wanted capitalism to fix itself with a vibrant public sector and a social-democratic welfare state.

In the United States, post-WWII prosperity exhibited many elements that Polanyi would have approved of. The G.I. Bill facilitated widespread home ownership. The Interstate Highway System and other public works expanded public infrastructure. Union membership was strong, peaking around 1955; college graduation rates steadily climbed. Marginal tax rates were high (unthinkably high by today’s standards), with a top rate of over 90% as late as 1963. Corporate tax rates were also roughly twice what they are now. In Europe, things moved even farther in this direction. Britain, for example, established its National Health Service in 1948, and imposed substantially higher tax rates than the US, even during the tax-cutting regime of Margaret Thatcher. Without going into book-length specifics, we can note that there was a general trend in the first or “free” world during the 1950s and 60s toward high tax rates, robust public spending and relatively widely-shared prosperity. Poverty was not eradicated (and the benefits of general prosperity were often denied to African Americans and other minorities) but there was, at any rate, a large and growing middle class, an influential cohort that expected things to keep getting better, especially for their children.

Yet, starting in the 1970s, that progress eroded — until now we see rates of income- and wealth-disparity that rival those of the 1890s. Many commentators are now saying that Polyani’s views have been vindicated by the increasingly harsh and severe character of modern capitalism: debt burdens, austerity, huge and deepening inequality and the subjugation of national policies to global financial forces. But there are two ways of looking at those dire problems. Are we seeing the chickens of capitalism coming home to roost? Or, are we seeing the unsustainability of the very social-democratic, welfare-state policies that Polanyi advocated?

As economic factors or components, labor, money and land are quite different. What they have in common, according to Polanyi, is that they are too important to be commodified — their value must not be determined by self-interested market actors. If they are, their social value will be ignored, and society will fall into dysfunction. But there are, of course, huge questions of how these things would be valued, if not by the “higgling of the market.” Let’s look at each in turn.

Labor

People agree to work for employers, for a negotiated wage that is, by definition, less than the value of the goods and services that their labor-time creates. Were this not so, profit-seeking employers would not hire workers. For Marxists, this is the basis of surplus value, an inherent part of capitalist production. Thus, they believe that the “capitalist mode” inexorably leads to ever-worsening conditions for industrial workers and eventual revolution. The fact of surplus value is countermanded, however, (to a greater or lesser extent, depending on social conditions) by the fact that workers benefit from exchanging their labor-time for a given wage rate; doing so tends to get them a better return for their labor than their best alternative. This could be due to the economies of scale and other synergistic processes in a modern, interdependent economy (I might know how to do heart surgery, but not have my own hospital in which to perform it). But, it may also be due to an utter lack of alternatives for self-employment. In that case, employees still make a rational choice to accept the offered wage — it’s better than the alternative: unemployment, and possibly starvation.

Georgists counter that commodification of labor is not the problem. Rather, it is the unjust and artificial restriction of labor’s alternatives, caused in the main by land speculation, that increases the available supply of labor and lowers wages. The solution to this is to create a new economic situation in which unused and underused resources are put into production, thus providing those marginal workers with better alternatives. Because there is far more valuable land available than is currently being productively used, we can confidently predict that a Georgist economy would release usable rent-free land at the margin. In addition, because such land is currently in use and provided with public infrastructure, this existing infrastructure could be maintained, serving the newly-free land, at minimal cost to society.  In such an economy, basic labor would have realistic alternatives for self-employment, and wages would rise, as employers were obliged to compete for newly-scarce workers. Nevertheless, wages would still be set by market forces. The Georgist remedy would significantly raise their market value of workers, despite the fact that they would still be “commodified.”

In an advanced Georgist economy, another policy alternative would be a basic income, paid to every citizen out of society’s rent fund. This would further decrease the available supply of workers at a given wage level — without altering the basic fact that labor’s return would be set by market forces.

Money

The colloquial sense of “commodity” is of a consumable item, produced for sale in the market. Money isn’t that, obviously; it’s a medium of exchange. Nevertheless, money is all about arms-length transactions, and one might think that if there’s anything we shouldn’t worry about being “commodified,” it would be money. The issue for Polanyi was the danger of allowing market forces to determine the value, and therefore the supply, of money. He felt that would lead to panics, runs on banks, booms and busts, financial crises — and well, he seems to have been prescient on that score.

Economic historians point out that the institution of money was subsequent to, and evolved out of, credit — deferred exchanges based on trust within a community. Yet over time, as horizons broadened, it became advantageous to have a means by which to confidently trade with strangers: thus the development of money, whose value people trust implicitly. Money is, essentially, a labor-saving invention, one of society’s many “improvements in the arts of production.”

In the 19th century, free trade policies coupled with adherence to the gold standard made it difficult for governments to intervene to help struggling workers in times of inflation or depression. Polanyi felt that the emphasis on “sound money” would always lead to the kind of social stress that gave rise to fascism in 20th-century Europe. Eventually, the gold standard gave way to the discipline of bond markets, which serve to further restrict governments’ options to spend on social needs. Austerity has become a byword of the global economy.

Today, the supply of money is mainly determined by private credit markets; money is loaned into existence by banks. Central banks can influence the money supply by changing the base rate of interest, or altering banks’ reserve requirements. However, they cannot determine the supply of money; uncontrolled spirals of either inflation or deflation are still possible. Some monetary reformers argue that the current system gives monopoly power to private banks, and that this is a terrible way to provide society with the money it needs. They argue that a better way would be for money not to be loaned into existence, but spent into existence by government. In the words of monetary reformer Stephen Zarlenga, money’s fundamental nature is that of “an abstract legal power of government” whose control must be wrested from private hands.

Among the various theories about how things ought to be divided up between individuals and the community, one sensible one is Henry George’s contention that enterprises that are monopolies in their nature should be controlled by the government. Land ownership is a natural monopoly, of course. Others include railroad rights-of-way, highways, power lines, broadcast frequencies and sites in geosynchronous orbit. How about banking? Undoubtedly there are many problems with money and banking today (for a rundown, just listen to any speech by Elizabeth Warren). But is private banking inherently monopolistic? If we give it a moment’s thought, I think we’ll have to see that it isn’t. If I want to use a piece of land, I am competing against all the other people who want to use the same piece of land. The owner can charge the highest price that any one of us is willing to pay to get access to that site. But, if I want to borrow money, a number of banks are competing for my business. There may be fewer than there used to be, and they all might benefit from subsidies and guarantees that limit competition. But, if those cushions were taken away, the banking industry would be more competitive, not less. The basic problem isn’t that the banking system is private — it’s that privately-owned land is the major source of loan collateral.

Land

Our readers don’t need to be reminded that private ownership of land is problematic. But, does that mean that land must not be commodified? There is a market in land; there long has been. Reports on this market make up a big part of the economic news. Land reform through public seizure and redistribution has never been a thinkable policy in developed economies, and in any case has never been effective. Here again, Henry George offers a sensible guiding principle. “It is not necessary to confiscate land,” he wrote, “it is only necessary to confiscate rent.” But rent is a market-based figure. You might even say that rent is the empirical result of a process of commodification.

One of the classic lines of criticism leveled at the Georgist remedy is the notion that by forcing land into use, it would lead to overdevelopment; society would build too high, eat up too much green space, use too much energy and spew too much pollution. This would fit with a glib reading of Polanyi’s thesis: we can’t just let the market — even a Georgist market — have its way with Mother Earth; we’ll destroy her before we’ve even stopped to think. The fallacy in this is that it depends on an incorrectly restricted definition of “land.” Obviously, local overdevelopment creates externalities. It is vital to remember the classic definition of economic land: “the entire material universe, except for human beings and their products.” That includes the oceans and the atmospheric commons. Economic actors must be obliged to pay for all of the natural opportunities they use — and were they so obliged, prosperity would not bring an unsustainable environmental downside in its wake.

I would argue that this economic paradigm shift can happen, on the scale that it truly needs to happen, only if market forces are brought to bear. Consider the value of ecosystem services, which I believe is a resource rent like any other, and whose value therefore must serve as public revenue. It seems to me that local ecosystem services are quite accurately valued by the market, and their integration into conventional markets has had positive environmental impacts. We worry, rightly, about unsustainable overfishing in the oceans — yet fishing in inland rivers and lakes is effectively managed by government permitting. Collectively, private landowners, engaging in “NIMBY environmentalism,” have helped to restore wildlife habitat with surprising speed in many parts of the United States. It won’t be easy to impose market values on global ecosystem services — but it is by no means impossible.*

Damaging practices create costs that people actually pay. Assessing those costs is something that needs to be done, and smart people are working on ways to do it. I can’t imagine how their value could possibly be recovered, if such things were considered off limits to the market.

Does the reader suspect this position to be insufficiently radical, or to represent a capitulation to right-wing or “capitalistic” sensibilities? If so, please be reminded that the atmospheric commons, which most people agree is under threat, is a global resource. Its protection depends on some form of global jurisdiction. The external costs of greenhouse-gas pollution are paid by the entire world. Indeed, I think this fact explains the seeming irrationality of climate-change deniers: to committed nationalists, global
climate change is, literally, unthinkable. No doubt the task before us is dauntingly huge — but what’s the alternative?

Sacred Land

Over the last couple of months the world has been watching the standoff over the Dakota Access Pipeline. The Sacred Stone Camp now hosts a larger coalition of Native American groups than has gathered together in many decades. The proposed pipeline route doesn’t explicitly cross the Standing Rock Sioux Reservation, but it does cross a number of ancient village and burial sites — as well as the Missouri River, which, in itself, makes a lot of people nervous.

Are they trying to build the pipeline across sacred land, and should it be opposed on that basis? That’s a tough one: I mean, here I am arguing that we should marketize everything, in the name of economic justice! What about the market value of the sacred?

It may well be that things are so mixed up in our post-modern, post-industrial, post-everything world that a clear first-principled answer isn’t always available. But let’s see what we can do. I’d be the first to agree that separation of Church and State is an important principle, and justice is served by taking certain places out of economic consideration on that basis. I’d also agree that all Native Americans, and particularly the Sioux in this region, have been so egregiously robbed of their sovereign lands for so long that they deserve the benefit of the doubt in situations like this. And it could also be said that the cause of these gathered “Protectors” has struck a chord in many people because of a deepening conviction that fossil fuel development has gone too far, that our biosphere is in peril and a stand ought to be taken. For all these reasons, I unequivocally support those who’ve gathered to protect Sioux lands against violation by an oil pipeline.

But that leaves open the larger question: what about sacred land? I always think of how Chief Seattle put it, when he was asked, by President Franklin Pierce, to sell his people’s land. Seattle acknowledged that there was nothing he could do to stop this “sale” from going forward — yet it was, nevertheless, an utterly absurd and immoral concept. Seattle replied, “We will consider your offer. When we have decided, we will let you know. Should we accept, I here and now make this condition: we will never be denied to visit, at any time, the graves of our fathers and our friends.” And where are these graves to be found? Seattle was clear: every square foot of every bit of land of the Americas.

We live in a modern, diversified, commodified economy — which, by the way, yields amazing benefits, enabling an undreamed-of level of prosperity, an astounding capacity for fulfilling the subtlest, most challenging human desires and aspirations. Yet, the inescapable truth of Seattle’s speech, and of a great many indigenous traditions around the world, is that all land is sacred — including the air, the water, and everything under the ground. Nor is that an archaic notion; sacredness doesn’t expire. I believe there is only one way we can resolve this paradox, and the time to do so is short. We should believe in the market; let it do its job and work its wonders — and we should make sure the community takes the market value of the earth for the benefit of all. That is the only way to make sure that all “commodities” will be truly and honorably valued.