Henry George and Austrian economics - History of Thought

American Journal of Economics and Sociology, The,  Dec, 2001  by Leland B. Yeager

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Regarding land rent, George was avowedly a follower of Ricardo (P&P:165-72). His conceptions of capital and its productivity were incomplete. He had a fructification theory of interest, centering around a supposed "reproductive or vital force of nature," illustrated by the growth of crops, the reproduction of animals, and the maturing of wine in storage (P&P, esp. pp. 179-82).

He did share insights with the Austrians, however, on the vital role of time in the productive process. He devotes a whole chapter of Science of Political Economy to this topic:

[I]f I go to a builder and say to him, "In what time and at what price will you build me such and such a house?" he would, after thinking, name a time, and a price based on it. This specification of time would be essential.... This I would soon find if, not quarreling with the price, I ask him largely to lessen the time.... I might get the builder somewhat to lessen the time... ; but only by greatly increasing the price, until finally a point would be reached where he would not consent to build the house in less time no matter at what price. He would say [that the house just could not be built any faster]....

The importance ... of this principle that all production of wealth requires time as well as labor we shall see later on; but the principle that time is a necessary element in all production we must take into account from the very first. (SPE:369-70)

The implication, which practically cries out to be made explicit, is that output is not even ultimately attributable to labor (and land) alone; the tying up of wealth over time is also necessary. Since this service is both productive and scarce--since it is demanded and is limited in supply--one can hardly expect it to be free. In short, George was on the right track in capital and interest theory; but his achievement was incomplete.

Money

GEORGE AND THE Austrians shared insights even on such relatively specific topics as money and the analogy that money and language bear to each other. They were not simply agreeing with everyone else that both are useful social institutions. They recognized both, in Hayek's words, as "results of human action but not of human design." (That insight may be familiar nowadays, but it was not so when George and Menger and even when Hayek were developing it.) Instead of being deliberately invented and instituted, money evolved spontaneously. George explains that it evolved from the most readily exchangeable commodities, which individuals employed in indirect barter because doing so afforded them economies in conducting their transactions. The medium of exchange naturally drifted into being also used as the measure of value or unit of account.

George anticipated the analogy more recently developed by Hayek and others:

While the use of money is almost as universal as the use of languages, and it everywhere follows general laws as does the use of languages, yet as we find language differing in time and place, so do we find money differing. In fact, as we see, money is in one of its functions a kind of language--the language of value. (SPE:494)