The Natural Economic Order/Part II/Chapter 6

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Such are the far-reaching consequences of nationalisation of the land; but nevertheless the importance of this reform - great though it is - must not be exaggerated. Free-Land is not, as many are inclined to imagine, a panacea. Henry George was of opinion that Free-Land would eliminate:

Interest, Economic Crises, Unemployment.

He did not, indeed, support this belief with the same confidence and wealth of ideas as his main contention, and this lukewarmness proves that he was aware of his lack of clear insight and had doubts about this part of his theory. But these doubts are not shared by his disciples.

What with Henry George was not much more than an opinion held without deep conviction became with his disciples an unquestioned dogma. The only exception is Michael Flürscheim; and it was for this reason that he was unpopular with the other land reformers, although it was he who succeeded in reviving the idea of land reform in Germany.

Free-Land influences the distribution of the product; unemployment and economic crises however are not problems of distribution, but problems of exchange or commerce, even interest, although it influences the distribution of the product for more powerfully than does rent on land, is merely a problem of exchange, for the action that determines the amount of interest, namely the ratio in which existing stocks of products are offered in exchange for products of the future, is an exchange, and nothing but an exchange. With rent, on the other hand, no exchange takes place, the receiver simply pockets the rent without giving anything in return. Rent is a part of the harvest, not an exchange, and that is why the study of the problem of rent can offer no basis for the solution of the problem of interest.

The problems of unemployment, economic crises and capital-interest cannot be answered unless we examine the conditions under which exchange takes place. Henry George did not undertake this examination, nor have the German land reformers made the attempt; and for this reason they are utterly unable to explain the existence of capital-interest, economic crises and unemployment. Henry George's theory of capital-interest, still held, to their confusion, by the German land reformers, is an incredibly crude "theory of fructification", which utterly fails to account for any phenomenon connected with capital-interest or unemployment. And his theory of economic crises (disproportion between the consumption and the incomes of the rich) is equally superficial.

This has been the weak spot of the land reform movement hitherto. It was asserted that land reform would in itself solve the social problem, but no satisfactory scientific explanation of the most serious drawbacks of our economic system was forthcoming. And the land reformers, besides failing to produce a theoretic explanation, were also unable to suggest practical remedies for the drawbacks of our economic system. The wage-earners, to whom, also, the land reformers promise salvation, cannot be rescued from their desperate plight solely by nationalisation of the land. They demand the full proceeds of labour, that is, the abolition of both rent on land and capital-interest; and they also demand an economic system excluding crises and unemployment.

This exaggeration of the effect of land nationalisation has caused incalculable damage to the whole movement.

We shall now examine the condition under which capital-interest, crises and unemployment are produced, and we shall discuss the measures necessary for the removal of these evils. We are thus about to approach what is notoriously the most intricate of all economic problems. The reader need not, however, be alarmed, for the problem has been rendered perplexing only by pseudo-scientific methods of investigation; in reality the facts are rigorously co-ordinated; and we have only to begin at the right place to discover the co-ordination.