Abstract
A modern real-side growth model is developed, allowing for effects on distribution and for demand-driven innovation; it also features a wage-accumulation curve—Joan Robinson—and rents can be introduced, driven by both growth and innovation.
The wide-spreading social evils that everywhere oppress men amid an advancing civilization spring from a great primary wrong: the appropriation, as the exclusive property of some men, of the land on which and from which all must live. From this fundamental injustice flow all the injustices that distort and endanger modern development, that condemn the producer of wealth to poverty and pamper the nonproducer in luxury, that rear the tenement house with the palace, plant the brothel behind the church, and compel us to build prisons as we open new schools.
—Henry George
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Notes
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- 2.
Each point on this curve will be associated with a set of prices. Such prices can be established as the result of firms following a markup pricing strategy, as demonstrated in Nell (1998a, b, chap. 10). The aggregate markup equations resulting from this process translate directly into Sraffa-like wage-profit trade-offs.
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An example of a simple, linear version:
$$ g=G- aw/p+ hx $$$$ g= bw/p+ jx $$$$ x= cg $$where a, b, c, h, j > 0, and G is the maximum growth rate (the standard ratio). The solution is:
$$ w/p=G\left(1- jc\right)/\left[a\left(1- jc\right)+b\left(1- hc\right)\right] $$and it is sufficient for w/p > 0, that c, h, j < 1.
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George was well aware of the importance of education and the improvement of skills in raising wages and living standards (provided the education was practical). Obviously, if some workers acquired skills and others did not, those with greater skills would do better in the market. But if wages rose and all workers became more educated and skillful, then it would be difficult to force wages down again. “Wherever the material condition of the laboring classes has been improved,” he writes, “improvement in their personal qualities has followed.… These qualities once attained (or … their concomitant—the improvement in the standard of comfort) offer a strong, and in many cases, a sufficient, resistance to the lowering of material condition” (309). So George sees higher wages leading to increases in education and skills and, in general, to a rise in living standards. Our addition to this is that such increases will make households more creditworthy, and thus lead to growth in consumer spending. George, however, argues that increases in wages normally cannot be sustained—indeed, will seldom occur—because improvements in productivity will be captured by rises in rents. But, as noted earlier, his analysis is defective, and the facts don’t support the claim. (But that does not mean chap. 1 of book 6 should be rejected. The six “proposed remedies” for low wages and poverty are indeed “insufficient,” severally and together, to eliminate poverty, and for the reasons he advances. It’s just that they are not wholly insufficient: wages can and have advanced with productivity, living standards have risen, and poverty has been reduced. But it is still the case that progress—growth—reproduces poverty and drives rising inequality.)
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- 7.
This equation is derived from the price-profit, growth-quantity equations (Sraffa 1960; Pasinetti 1977; Nell 1998a) and explains how firms with market power, following the growth of demand, will set prices to provide the profits that will support the investment needed to meet that growth of demand, thus giving rise to price-profit equations that can be formed into a wage-accumulation curve.
- 8.
Finance might have an impact on “ monopolization”—the development of positions of market power—through the investment policies of hedge funds and other financial companies: in order to spread risks investment policies typically invest widely, thus frequently ending up on both or all sides of a competitive market. Brisk competition will lead to some firms gaining, others losing, and this would be reflected in stock prices and earnings. But what if instead of competing, they all worked together, with the investing fund acting as coordinator? All would do well, and no one would make losses. Except the public.
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Nell, E. (2019). Growth and Rents in Today’s Economy. In: Henry George and How Growth in Real Estate Contributes to Inequality and Financial Instability . Palgrave Studies on Henry George for the 21st Century. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-18663-0_7
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