disturbed them from some normal level of activity can be ascribed, in the main, to external influences over which there was no control. Hunter-gatherers may have gone hungry at times because the herds failed to return to the traditional grazing grounds. In agrarian systems, famines occurred because of inclement weather. This is not to deny that problems did not originate from within the system. Over-zealous hunting can deplete the available stock of animals in a tribe’s territory; over-intensive cultivation can turn soil into a dust bowl. But these were aberrations, cases of unwise, irregular, self-destructive, management of affairs by individuals, and were not entailed by the mode of production itself.
Because these systems were stable, over very long periods of time, scholars classified them as ‘stagnant’ societies. But the peoples themselves were content. They were culturally equipped to deal with deviant cases within their ranks, and they developed elaborate rituals to explain, if not to control, the ‘acts of god’.
Industrial society, by contrast, has in its short life been riddled with regular economic crises which appear to be caused directly by malfunctioning elements of the system itself. If the record is to be believed, capitalism suffers from internal contradictions which preclude stable production of goods and services over a long period of time.
The view that the industrial mode of production based on the private ownership of capital was inherently defective was promoted at a very early stage by left-wing critics. One was Robert Owen, who attributed unemployment to ‘under-consumption’. His solution was to create small, self- contained communities. Members would share a communal ethic and earn their living by agriculture and industry in which machinery would be carefully controlled. Owen’s scheme was promoted in the House of Commons during the first major industrial recession, in the late 1810s. It was advocated in 1817 by De Crespigny, who placed great store by the claim that people were rendered unemployed by the advance of technology.1 The theoretical critique from the left was advanced by Frederick Engels in The Condition of the Working Class, who argued that capitalism operated through cyclical fluctuations and that therefore the system had to create and maintain a permanent reserve of workers. Karl Marx elaborated on the inevitability of these characteristics. Anarchy reigned because of the multiplicity of individual decisions: entrepreneurs could not have perfect knowledge of the state of the developed market. Furthermore, the maldistribution of income as a result of private ownership of capital meant that labour could not buy back all that it produced. From this, it followed that at certain times there would be ‘over-production’. The excess of goods in relation to demand would set in motion a recession, because entrepreneurs were forced to cut back on output and new investment. Only planning from the centre — where the decision-makers had an overview of the total system—would eliminate the risk of wrong decisions. This would create a rational programme of economic activity. Only social ownership of the means of production would ensure that the rate of consumption was tailored to output. In a word — socialism.2
The over-production thesis did not mean that recessions were always caused by the inability of labour to buy up the goods which it produced. Marx said that rising wages also caused crises, for among capitalists ‘the stimulus of gain is blunted’.3 Attempts to make up for a decline in the rate of profit, by increasing aggregate profit, merely reinforces the over-production of commodities on sale in the market. Marxists, therefore, have got it both ways. Either there are recessions because the wages of labour are too low, or because wages are too high! And in both cases capital is said to be unable to adjust itself smoothly, and this results in dis-equilibrium.
There have been many theoretical attempts from the time of Marx to Keynes to explain why the modern industrial economy staggers from one recession to another with the predictability of the seasons. All the variables — trends in national income, consumption of durable goods, fresh formation of fixed capital, phases in the innovation of consumer goods and processes of production — have been scrutinized in the search for the cause of trade cycles. Most of these attempts are of a descriptive rather than explanatory character.
With the fall from popularity of the Keynesian doctrine — the tools of which failed to assist the politicians to prevent or even to ameliorate the recession which struck the capitalist West in the 1970s — there has been a hiatus in public policy formation. In desperation, there has been a fail-back to simplistic ‘solutions’ like the monetarism which found popularity in Britain in the early 1980s. These, however, have been attempts at sitting tight in the hope of happier days to come, relying on the principles of sound budgeting for individual households rather than for nations.
With one major exception, no-one has offered land speculation as the possible explanation for cyclical recessions. This hypothesis was advanced by Henry George. Land speculation, he said, was not the only cause of depressions; but it was ‘the great initiatory cause’.4
George was not satisfied with conventional ‘explanations’. How could it be, he wondered, that there was ‘under-consumption’ when people were hungry, poorly clothed, badly housed? They were willing to consume more — what stopped them? And how could it be that there was ‘over-production’ by capitalists who were supposed to be in search of profits? Supply might be larger than demand for a particular product at a given moment in time; but what stopped the entrepreneur from cutting his price, selling off his goods and smoothly moving into a more profitable field of activity?
George concluded that land monopoly was to blame. It operated at two different levels of intensity. Speculation caused depressions by enabling people to demand prices which were extraordinarily high: effectively, the monopolists demanded a part of tomorrow's output today. The effect of this is to milk the returns to capital and/or labour. But this can only be tolerated up to a point, beyond which it becomes uneconomic to employ either capital or labour; unemployment ensues. Secondly, land monopoly enables speculators to hold land idle in the expectation of future capital gains. This is the wait-and-see strategy. As a result, scarce land is withheld from production in itself preventing new employment — and as a consequence of the contraction in supply, this pushes up the level of rents of land in use. This has the effect of bankrupting some firms which would otherwise be profitable and competitive.
Production [wrote Henry George] therefore, begins to stop. Not that there is necessarily or even probably, an absolute diminution in production; but that there is what in a progressive community would be equivalent to an absolute diminution of production in a stationary community — a failure in production to increase proportionately, owing to the failure of new increments of labour and capital to find employment at the accustomed rates.5
This produces ‘a partial disjointing of production and exchange’, which manifests itself in apparent over-production and under-consumption. A decline in output continues until one or a combination of three things happens:
(1) the speculative advance in rents terminates;
(2) an increase in the efficiency of capital and/or labour results in an increase of income and a readjustment of the distribution in relative shares going to the factors of production; or
(3) labour and capital reconcile themselves to lower returns in wages and interest.
Henry George provided an account of how recessions cause the collapse of banks, the bankruptcy of firms and the panic of speculators who find that they have to finance loans at high interest rates for land which is suddenly seen to be over-valued. He used largely impressionistic evidence to support his theory. For this he cannot be criticised, for it is only in recent years that statisticians have produced data in anything like sufficient quantity and quality to enable us to elaborate the theory in a scientific
