Henry George - Progress and Poverty

Notes from the text:
Introduction

• The gist of his argument is that the areas of greatest progress are the areas of greatest poverty. The progress that generates luxuries for some creates poverty for others.
• This is most highly concentrated in the most developed, wealthiest cities
• Workers emigrate to developing areas seeking higher wages, capital flows there seeking higher interest
• Progress does not prevent poverty, but rather, just as progress advances to the point where some live a life of ease, other willing workers are unable to find work. "Beggars and prisons are the mark of progress as surely as elegant mansions, bulging warehouses, and magnificent churches."
• The basic argument is that producers become more efficient and reduce their need for labor, and wages are driven down in favor of profits
• Important to note, the alternative -- a lack of progress -- no one lives in luxury, but all who desire work are able to make a living working
• This may partially explain why the majority of large well established cities are blue states, and why more rural areas tend to be red states. They experience different economic environments -- one has great riches and great poverty, preferring that government do something about the imbalance, the other having less striation and less luxury, but the ability to make a living. Also included in the red states are the up and coming cities in Texas, sprawled out and not yet over populated and over run by the ill effects of progress.
• One important question which I hope the author addresses is, does progress inherently create poverty, or is it due to a correctable factor, such as more fairly distributing wage amongst workers. A company could hire fewer workers in favor of fixed capital, but so long as he keeps wage and profit in the same balance, the same amount of money is getting back into the local economy, and another company could take up those fired employees.
• Another prophetic quote, "Progress simply widens the gulf between rich and poor. It makes the struggle for existence more intense. Wherever these forces are at work, large classes are maintained on charity."
• My own thoughts: Technological advances are key to economic progress, just as it is key to military success (can include innovative devices as well as innovative techniques). The difference is that while military advances equally benefit (or hurt) a country's citizens, economic advances benefit only those partaking in it. If military worked the same way, then only the soldiers and generals would benefit from success on the battlefield. We also treat our military members as heroes for their efforts, and to some extent we treat economic "generals" as idols. Why not be more forthcoming with that treatment, but also ask more from them. Thank them for pushing this country forward, but also recognize that this is truly the rising tide that is meant to raise all boats. It would absolutely be best if this be recognized through company policy, rather than through legislation.

Part1: Wages and Capital
Ch1: Why Traditional Theories of Wages are Wrong

• Traditional theories rely on three axioms: 1) Wages are set by the ratio between workers and capital available for labor, 2) Population increases faster than capital (and is in fact restricted by capital), and therefore 3) wages always tend toward the lowest levels workers will tolerate
• Interesting that prices are also supposed to tend to the lowest levels consumers will tolerate, but that supposition isn't occurring, while lowest wages are
• quick comment on the fallacies of protectionism on pg 9
• would be interesting to see a plot of the ratio (work force/compensation) or even (employed work force/compensation) over time, and see how that stacks up against median wage over time
• I disagree with his logic regarding the relationship between wages and interest from the traditional perspective. If wage is determined by the ratio of labor force and capital, and capital not used on wage may be invested elsewhere, then a high demand for labor resulting in high wage would mean less funds available for investing elsewhere, so high demand for capital, and high interest rates, which as he observes is what we do actually experience. However, you could have higher wage, with fewer workers and not see the amount of capital used for wage change at all, and consequently not see any change in interest rates, which I think is also reflected by reality
• George states that "Wages are not drawn from capital. On the contrary, wages are drawn from the product of the labor for which they are paid." (regarding production of goods, not services)
• If wages are drawn from capital then: labor is limited by capital, labor can only be employed after the accumulation of capital, conversion of circulating capital to fixed capital reduces capital available for wage (I disagree, it just gets transferred to the wage of producers of fixed capital), more laborers can be employed at low wage than at high wage (...disproving this would pretty well blow my mind. Even proving his statement here would not discount this notion), profits are high when wages are low.
• Argues that if capital is the store of labor's value, then requiring capital in order to permit labor is to require labor in order to permit labor, requiring that there be some initial injection of capital to allow the first labor to begin
• In actuality, that is exactly what happens. The government either injects money directly, or money is created through debt taken on by an entrepreneur (but of course borrowed money is just saved money from someone else, so truly money is only injected at some point by the government)
• Something I have also attempted to explain, and the basis for my own economic solutions, "There is a fundamental truth in all economic reasoning that we must firmly grasp and never let go of. Modern society, though highly developed, is only an elaboration of the simplest society." pg. 13
• Trade allowed for division of labor, money replaced bartering to simplify the exchange process and further the benefits of specialization, but our wage in money still represents the relative value of our own labor in terms of what we could get had we traded directly. With such a vast market, it is difficult to accurately place a value on wage, though it is done automatically through supply and demand for labor (and in the traditional notion, that is relative to the supply and demand for capital), just as supply and demand for the products sets prices, which must also limit wage for the labor going into that product.
• Also of note is that the division of labor permits specialization, even if unrelated, if the goods are exchanged, then my bread making has contributed to the ability of a berry picker, by freeing up the time he would have to have spent on doing multiple tasks less efficiently; thus, both benefit. Likewise, the worker bees are what make it possible for the CEOs to specialize in managing.
• In primitive societies, production precedes enjoyment. A fisherman and a canoe maker must each provide their labor before either may receive the benefits of that labor. 
• But is that necessarily different from traditional thought? Employees work first, get paid later, it's just that the employer must have the money by the time pay day comes around. Likewise in nature, the fish must previously be in the river before the fisherman and canoe maker may enjoy the fish. If the fisherman knew there was no fish there, he wouldn't go fishing, likewise an employee would not go to work if he suspected his boss couldn't pay him.
• The important point though, is that money is just the representation of how much of the total product of society the worker has earned -- a place holder/marker. It is not a prerequisite to the work itself. (last paragraph pg 15)

CH 2: Defining Terms

• Wage - Compensation paid to someone for their exertion in producing wealth -- labor of any sort
• Capital - wealth/stock devoted to producing more wealth/stock
• Confusions: There are things equivalent to possessing capital, and whether or not something is or is not capital is determined by its use
• Interest - Return for the use of capital
• Rent - Return for the use of land
• Land - the whole material universe outside of humans themselves - land, water, animals, sky, etc.
• Wealth - "Increase in the amount of bonds, mortgages, or notes cannot increase the wealth of the community, since that community includes those who pay as well as those who receive. Slavery does not increase the wealth of a people, for what the masters gain the enslaved lose. Rising land values do not increase the common wealth, as whatever landowners gain by higher prices, tenants or purchasers lose in paying them. All this relative wealth is undistinguished from actual wealth in legislation and law, as well as common thought and speech. Yet with the destruction of nothing more than a few drops of ink and a piece of paper, all this “wealth” could be utterly annihilated. By an act of law, debts may be canceled, slaves emancipated, land made common property. Yet the aggregate wealth would not be diminished at all—for what some would lose others would gain. Wealth was not created when Queen Elizabeth graced her favorite courtiers with profitable monopolies, nor when Boris Godunov declared Russian peasants to be property. The term wealth, when used in political economy, does not include all things having an exchange value. It includes only those things that increase the aggregate wealth when produced or decrease it when destroyed." p.23
• Should this sentiment not be extended to the earth? Whatever wealth created is removed from the resources of the earth, thus should be limited by the rate at which the earth can replenish itself.
• A random observation: I just told my boss about the nature of poverty in cities, and he immediately concluded it's because that's where all the socialist money goes. There are certain people whose brains I think have a talent for making any stat -- true or false -- conform to their existing view of the world, rather than asking what the nature of that stat is, and how it could be proven. And this has nothing to do with intelligence, he is a very smart person. In this case, the depths of poverty that are pervasive within a city exist in large cities all over the world, regardless of the social system, and I would probably argue that it is less severe in the more socialized states... though that's neither here nor there.
• Considers wealth to include tangible things that have a real value, not just a relative value. Things that are made of natural substances, converted by human labor for human use
• Wealth is not the sole objective of labor - because there are also service and transportation jobs - but is the objective of "productive labor"
• Capital - Agrees with Adam Smith that capital is "that part of a man’s stock which he expects to yield him a revenue."
• in terms of wealth, capital is the wealth that is not yet exchanged, or that is dedicated to production
• considers transportation, storekeepers, middlemen, etc. to be a part of production
• I would tend to consider those services rather than production. They provide the service of getting a product from point A to point B, but the absence of their service does not destroy capital

CH3: Wages are Produced by Labor, not Drawn from Capital

• Argues that if you pick wild berries, those berries are your wage, with no capital involved. However, in the next example - shoe making from leather and thread - he states that the leather and thread are the initial capital, labor is applied and value added, and the resulting product is pre-existing capital + value added by labor. He argues the difference in the value of the original materials and the final product are the wage. Then, in the first example, the initial "capital" is the berry, and the wage would be the value of bringing the berry from the bush to home. 
• His explanation is muddled, but his point is a good one; that is, value is in each of us and is in our own efforts. The things we receive for our efforts must also have value, or we should not exchange our labor value for them
• The further point he makes I think is less true; he argues that our efforts are the precondition to production, not the capital, but I think that is only because he does not consider natural resources to be capital. I don't know if there's a difference to him between water in a stream or water in a pipe, but where a farmer gets his water doesn't make it to be capital or not, it's whether he uses it to grow crops. There must be something to be had in exchange for labor, be it the thing produced by labor, or money that is paid for the thing produced, and in order to produce anything there must also be the resources (capital) to produce it!
• Argues the fund used to pay wage is the fund created by labor, but I think there is too much instantaneous transaction going on here: Producer procures necessary capital for production, and must be confident he has a buyer or would go out of business. He fronts the money to pay for wage, knowing that he can get more money once the produced goods are sold to buyers. Buyers are either end consumers or a middleman to an end consumer, but in the absence of payment from end consumers, there would be no wage. THAT is where the capital ultimately comes from. Let me see if I can better explain George's theory:
• In the absence of money, wage would be the difference in value between the resources used and the product produced, and if the effort is put forth to create something for oneself, then the laborer is also the end consumer. Once we start making things for other end consumers, the value is still that difference, but if no consumer will pay for the product, then someone between laborer and retailer will get stuck with that product and will have effectively paid for something for which they had no need. If that is the expected outcome, then the supply of capital going to the production of that good will dry up, and no one will be hired to produce it, the value in each laborer will no longer be used to create that product, and will hopefully be set to more necessary productive means. In essence, desire for a product could also be considered capital, as that desire is represented in money and ultimately pays for wage and capital going into that product.
• To summarize: A businessman anticipates there being an end consumer who will pay for the product of the labor, and can either front the money for wage or pay after the exchange, but the desire for the product must exist (either before or after production), and that desire must manifest itself in some form of payment, or future production will halt.
• "Production is the source of wages. Wages come from the fruits of labor—not the advance of capital. Labor always precedes wages." p. 31 - I would consider none of that to be true even considering his explanation
• The point he's confusing is that wages may also be paid prior to completion of a product. I may be paid every 2 weeks for something completed only once every 2 years, but that doesn't mean I'll keep on doing it until completion without pay. What he may not be accounting for is the value added by the employer, which may include coordinating many efforts into a single product, and also anticipating market behavior. An employer could be seen as a temporary consumer because he really does buy the product until the time when he passes it on to a real end consumer. His wage may be derived from his labor in coordinating a work force, and his willingness to pay for a product until it can be exchanged with an end consumer.
• He makes an argument that the food and clothing needed by each worker does not count as capital, because it is expected an employee will feed and clothe himself regardless of whether the employer provides breakfast and a uniform.
• This is true to an extent, but clothing is capital if it's in some way necessary for the job, such as protective clothing or a uniform. If we were talking about a stable of horses used for production, then surely the oats fed to the horses would be considered capital. I believe the way these things should be viewed is that employers hire able employees just as they purchase functioning equipment. They pay for a person's work or a company's machine based on its ability to perform its function. If a person were so hungry and naked that he could not work, then the employer would hire someone else. Going back to Adam Smith's definition of capital being that part of a man's stock being put to productive purposes, that might go to say that the portion of a man's wage being put to being employable would be considered capital. Food that is sustenance and not luxury, clothing worn to work or an interview, water for a shower, etc. should be considered an employee's own capital in the sale of himself as a worker. The employer is buying the finished product that man has produced and presented as well as the labor to be performed.
• This is a good argument for liveable wages, because even in cases where food and uniforms are provided, hygiene, sleep, sanity, etc. are typically not. Even if a worker would work for less than a liveable wage out of desperation, they would eventually be run down to nothing and be unable to perform their job. The employer would hire the next person willing to work at that rate, until they were run down to nothing. Why does it seem obvious that if we were to work and starve cattle to death that it would be an unsustainable business practice, but when it comes to people, somehow the market magically sets what a person should be willing to work for and live on.
• Can someone in the US live on Chinese wages? Not really, because it's what the wages can buy that matters.
• Is running an employee into the ground the way you can do to cattle really an issue? No, there are many many more sacrifices an employee could make before they would become useless to the employer, especially when there are jobs where a depressed, mindless drone can perform the functions just as easily. That seems to be a good argument for people striving to do work that requires a fully functioning, intelligent human being.
• "How can it be said that wages are advanced by capital or drawn from preexisting capital? The value paid in wages is an exchange for value created by labor. And the employer always gets the capital created by labor before paying out capital in wages. At what point, then, is  capital lessened, even temporarily?" p. 33 - Here George blatantly disregards the risk taken on by the employer, further confirming my suspicion that he has completely overlooked the role and value of employers.
• His cotton into cloth example is HORRIBLE, he gives a list of items used in production, then just says resources are converted to final goods, there is some wear and tear to equipment, money supply goes down in exchange for the labor, and goods sold for a profit. So, since there is a net increase in capital, there was no advance of capital!??!?! NOOOO! All those things listed as being used to accomplish production were an advance of capital, how else would they have gotten there??? These are all provided by the employer with the expectation of a return on that capital!
• Next example is even worse, "Let’s say I go to a broker to exchange silver for gold. As I give them my silver, they hand me the equivalent in gold (minus commission). Does the broker advance any capital? Certainly not! What they had before in gold, they now have in silver (plus profit!). Since they received the silver before paying out the gold, they did not—even for
  an instant—advance any capital." p. 36 He has the roles completely reversed in this analogy. The employer is the one with the silver, handing those resources to the employees to have them converted into something more valuable in exchange for a commission (wage), then the employer gets his product which he expects to sell for more than whatever he paid to have it produced. But it is the EMPLOYER who advances the capital, it is the employer who risks not getting in exchange what he was promised by the labor (money changers), it is NOT the labor who has advanced ANYTHING >.<!!!
• I'm skipping the rest of this chapter, this is absurd

CH 4: Workers Not Supported by Capital

• John Stuart Mill asserted that people are maintained “not by the produce of present labor, but of past.” p. 41. If he thinks he's going to disprove this statement based on the foundations laid out in the previous chapter, I may as well skip this chapter as well.
• If the classicists had laid out the desire for goods as a form of capital, would that have changed anything? Desire for goods is what converts money into capital, and employers assuming they can get more capital than they have paid is what makes them continue doing business.
• If that is how capital is created, is capital destroyed by taxes? Not if those taxes are used to also perform a desired function, but if it is done so inefficiently, then surely there should be some sort of efficiency factor applied. For example, in a perfectly competitive market there should be no efficiency mark down of capital used, however the more monopolistic a market, the more an efficiency factor -- determined by the monopolies -- should be applied.
• skimming this chapter I am certain Geroge is an idiot, moving on to the next chapter.

CH 5: The True Functions of Capital

• Lists all the legitimate restraints capital has on production, but still insists a lack of capital does not restrain industry except in a few special cases. Just because the norm is for it to not happen, does not mean it doesn't happen. People rarely drown or starve to death, but it doesn't mean they don't require food and oxygen to survive.
•  Goes on to blame government rather than a lack of capital with very little evidence
• His argument that indigenous people would not benefit from capital may be correct, but his reasoning is flawed. Knowledge of how to use the particular types of capital is one thing, and having a people who would want the products of that labor are another, neither of which have anything to do with whether a shortage of capital hinders progress.
• Cool quote, "No matter how much water you pour in a bucket, it can never hold more than a bucketful." p. 50 Should apply the quote to the vast wealth of the rich
• Super wrong quote, "Other things being equal, the more labor, the higher wages should be."

Part 2: Population and Subsistance
CH 6: The Theory of Population According to Malthus

• Malthusian Population theory: human populations tend to expand geometrically until resources can no longer sustain such growth (resources growing arithmetically). The corollary is that as resources dwindle, crime and poverty naturally arise in the void. George sees this as an all too convenient theory for the rich who would be told that even if they did spread their wealth, it is only natural that the most dense populations will experience crime and poverty.
• Ricardo made a similar theory as it applied to rents: Rents go up as cultivation extends to less and less fertile lands
• According to Malthus, "Poverty is due to the pressure of population against subsistence. Or in its other form, the number of laborers will always increase until wages are reduced to the minimum of survival." p.56 I wonder if this is actually true. Does someone need to be getting paid at the threshold of survival in order to stop the population from growing? If everyone is making a healthy living in a certain area, will others migrate there and flood the labor markets until undercutting takes us back to that minimum threshold? Is minimum wage then holding that minimum theshold artificially high, above the "survival" threshold, allowing people to continue to live wasteful lives and collecting government checks?
• On that same thread, is welfare and minimum wage what permit continued over population in the ghettos?
• are there certain prerequisites to progress? Like, before we can have things like welfare, is there not a certain level of financial maturity required of the public, and also an understanding of sex ed (condoms, abstinence, BC, etc.) to slow population growth in impoverished groups? In order to have a minimum wage, do we need to either ensure that people can earn liveable wages world wide or stop immigration and even internal migration?
• George seeks to disprove these theories

CH 7: Malthus vs. Facts

•  Asserts that because it is impossible to truly distinguish causes of poverty and want, that it cannot be said that it is population growth rather than things like government and war
• Asserts that population ebs and flows, rather than growing constantly, which modern population censuses can clearly show is wrong.
• Haha, I love the lack of foresight on p. 61, talking about China and India's population densities, well a few centuries later it is a REAL problem, each country now having populations rivaling the entire global populations at the time of George's writing.
• WHAT!?! then he argues that increasing the capital of the lower classes could not have helped their abject poverty so long as the kings and princes held so much wealth.... that makes NO sense, and didn't he just argue that Malthus's convenient theory was designed to tell the rich not to provide that much needed capital? Do the rajas need to be poor in order for peasants to have adequate tools to work their fields? No.

I think I need to stop reading this book. Many of his observations so badly need to be addressed, but his conclusions are pathetically bad. For instance, the avarice of the ruling classes in India were surely overly indulgent, but to draw from this fact that increased capital could not have helped the poor is just wrong. Sure there are other issues that also need to be addressed here, but that doesn't mean that having more capital is useless.

Understanding

Yin's latest homework assignment is a very interesting one; she is to write a paper on what she thinks should be the new American Dream. I suggested it should be "Understanding," that we should all strive to better understand each other and the world we live in. I think there are clear examples to be drawn from in international policy, domestic policy, economics, and cultural benefits. I'll write down what I think those are later, but one thing that struck me is that understanding is a double edged sword. If you think a problem could be solved if your opponent could only see things your way, then they likely think exactly the same thing. Who's to say which view is the one that needs to be understood? For example, what if I think Pastor Terry Jones should see things my way and not be a fearful bigot? What if he thinks I need to see things his way and be more realistic about who the enemies of America are? Are we to meet somewhere in the middle, simply because an opposite opinion exists to set the terms of compromise? Surely both perspectives are not equal. Should there instead be fundamental rules of understanding such as, when meaningful data exists, go with that, when there is meaningful data EXAMINE IT AGAIN to make sure it really is meaningful, when in doubt bend to the less hateful/harmful perspective. What other general guidelines should exist? Interesting philosophical question that I'm sure someone has addressed, but a quick google search is turning up nil.

Update: So, that ended up being way too difficult of a topic to write about, so Yin changed the new American Dream to be better overall health. I thought it was an interesting subject as well, so I wrote this outline which I would have used, though she didn't use it:

Intro:

While the “American Dream” has made America the wealthiest country in the world, the failings of American culture are all over the news – the recent killings in Connecticut, before that a murder spree in a Colorado theater, before that the trial of a woman killing her infant child in Colorado, etc. Another battle being played out on the news for the last four years has been the struggle over health care. There are many forms of health, and America is failing at most of them. America is addicted to sweet, salty, fatty junk food; doesn’t get enough exercise; depressed and over-worked; struggles with drug abuse – legal and illegal; is desensitized to sex and violence; and does a poor job getting psychological help to those who need it. These are signs of a deeper problem than a lack of access to care, it is a sign of complete societal failing. If America could have one new dream, it should be to have a truly healthier society.

Outline

·         Intro – sequence of items in intro serve as outline for the rest of the paper

·         Paragraph 1 – Address stressful American Lifestyle

o   Work too many hours per day

o   Leads to poor diet and no time for exercise

o   Dependence on caffeine also decreases quality of sleep

o   All of this is the price we pay to survive, most of us paycheck to paycheck, and that is a leading cause of depression (this could be its own paragraph)

·         Paragraph 2 – Drugs

o   America is over medicated

o   Pharmaceutical industry has paid to keep us that way

o   America self-medicates with drugs and alcohol, and is encouraged to do so socially

·         Paragraph 3 – Desensitivity

o   American media is flooded with sex and violence – in the news, movies, video games, music, etc.

§  While individuals may not necessarily emulate what they see, there is a cultural shift, and where the extremities lie shifts as well

o   Desensitivity to adultery, divorce, bad parenting, and other family breakers

·         Conclusion – Most of these issues cannot be legislated, and even if they could, prohibiting some activities or requiring others will not make those things happen. Government cannot solve these problems, it is up to individuals to strive for a higher standard than the old, monetary American Dream. The old American dream didn’t make us all wealthy, but it did make America the richest country in the world; likewise, the new American dream won’t make us all healthy in all the ways described, but if we put our minds to it, we could become the healthiest country in the world.

Frank P. Ramsey

I was reading through some lecture notes on the Ramsey Growth Model of economics, and was astounded to see the years Frank Ramsey lived in were only from 1903 to 1930. He died at age 26, but before going, he had become a professor of mathematics, and contributed to both philosophy and economics. This is clearly a sign I need to be less lazy. There's also a ton of related books and articles I would like to read to follow up on his theories:

• His own writings on economics:  subjective probability and utility (1926), optimal taxation (1927) and optimal one-sector economic growth (1928)
•  His writings on philosophy: Universals (1925), Facts and propositions (1927), Universals of law and of fact (1928), Knowledge (1929), Theories (1929), On Truth (1929), and General propositions and causality (1929)
• The thesis of one of his friends/colleagues in philosophy: Wittgenstein’s Tractatus Logico Philosophicus
• Game theory writings that brought his philosophy of knowledge and probability to the forefront: "Theory of Games and Economic Behavior" by Neumann and Morgenstern

Taught at King's College, as did John Maynard Keynes; I should look into their econ department

Mankind

I was watching History Channel's "Mankind: The Story of All of Us" last night, and it's fascinating to see who becomes a great historical figure. Those most worth mentioning were the revolutionaries who shifted power, the great inventors, and the maven explorers. The comments of the great kings were also interesting; their ideas weren't new, but were common across geographical and cultural lines. Most strove to unite vast kingdoms and create peace through unity and domination. But they all go about it in the same old war-mongering way, because of their lust for power. If you were to take that lust out of the equation, there would only be peace and unity, leaving out the domination. In the latest Arab Spring movement, I think it was clear that a common chord was struck all over the world, demanding better leadership. Regime after regime fell in the Middle East, not because some great conqueror was toppling them, but because people saw their neighbors rise up, and felt a unity with them, and a desire to do the same. We each had our own grievances specific to our region, but were united in a desire for greater accountability, less corruption, inequality, and a chance to be heard in a more democratic society. There is never any war between Nebraska and Texas, Massachusetts and Connecticut, etc.; what would it take to make that a true statement of all neighbors? What would it take to make a United States of the World? A common constitution by which we all abide, a common currency, and likely an unacceptable loss of local sovereignty?

I'm also correcting Yin's paper on "The Rich and the Rest of Us," and it occurred to me the author cannot get his mind wrapped around the unimportance of wealth in the first place. By claiming that losing one's money and property can strip a person of their dignity and identity gives far too much power to money itself. It's likely a true statement, and may be how the dispossessed feel, but there is little emphasis on the need for a full paradigm shift, rather than just shifting around in the shallow, materialistic mindset we have now.