Academic journal article History of Economics Review

A Note on Henry George's Concept of Value from Obligation

Academic journal article History of Economics Review

A Note on Henry George's Concept of Value from Obligation

Article excerpt

Abstract: Henry George distinguished between value created by production and value created by what he called 'obligation'. He argued that value from production adds to both individual wealth and common wealth; whereas value from obligation adds to individual wealth--that is, the wealth of an individual who has the power to impose the obligation on others--but not to common wealth. It merely redistributes wealth from one individual to another. He claimed that there are numerous examples of values being created by obligations, the principal example being the ownership of land. Although George's concept of value from obligation leaves a number of questions unanswered, this paper argues that the concept remains a useful analytical tool that does not deserve to be neglected in the history of economic thought.

1 Introductory Remarks

In the final years of his life, Henry George had been working towards the publication of a small textbook in which he proposed to 'present in brief the principles of a true political economy' (1) and which, he believed, would constitute a reconstruction of political economy'. (2) The work was commenced in 1891, after George returned from his lecture tour of Australia and a trip around the world in 1890. The manuscript remained incomplete at his death on October 29, 1897, but he had told his son that it was complete 'in its main essentials'. After some minor amendments, it was published later in 1897 under the title The Science of Political Economy. It was organised in five Books namely, Book I, The meaning of political economy; Book II, The nature of wealth; Book III, The production of wealth; Book IV, The distribution of wealth; and Book V, Money the medium of exchange and measure of value.

In Book II, Chapter 14, 'The two sources of value', he argued that there are two causes and two kinds of value namely, value from production and value from obligation--and that the mere recognition of this distinction 'would of itself do much to extricate political economy from the utter maze into which a century of cultivation has brought it in the closing years of the nineteenth century' (George 1962, p. 261). George had very little respect for the conventional political economy of his time, a feeling that was, and still is, heartily reciprocated.

For George, value from production 'consists in application of labor in the production of wealth which adds to the common stock of wealth'. He said it is 'the only kind of value which gives wealth', where wealth was defined as 'natural products so secured, moved, combined or altered by human labor as to fit them for human satisfaction' (George 1962, p. 272). Value from obligation, however, 'does not result in increase in the common stock, or in the production of wealth; it affects the distribution, not the production, of wealth'. It consists merely of 'the power of one individual to demand exertion from another individual', and 'adds nothing to the common stock, all it affects is a new distribution of what already exists in the common stock' (George 1962, p. 259). (3)

In elaborating this difference between the two kinds of value, George distinguished 'Individual Economy' from 'the economy of the Society or the aggregate'. He argued that from the point of view of an individual, it makes no difference whether wealth is obtained by adding to the general stock, or 'simply because he holds the power of demanding exertion from others'; 'in either case he gets and they give'. But value created by obligation 'adds nothing to the common stock, all it effects is a new distribution of what already exists in the common stock, and in the politico-economic sense, is not wealth at all' (George 1962, p. 259). Thus, according to George, value from production adds to both individual wealth and common wealth; whereas value from obligation adds to individual wealth--that is, the wealth of an individual who enjoys the power to impose obligations on others--but not to common wealth. …

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