Roger Sandilands has reproduced from Henry George, what I had already  
noted as an elementary distinction between capital and land.  Alas, he  
fails to point out, if he's recognized it, the error into which George  
is led by his firm association of capital with only produced goods to be  
used in further production.  This is the source from which George thinks  
that the classical explanation of wages as being paid out of previously  
accumulated capital to be just plain nonsense.  Instead, George insists  
that wages are paid out of current production for which labor is  
currently hired.  
  
In short, George failed to recognize the difference between capital as  
capital goods from capital as funds, a problem that has afflicted  
several other notable analysts in the past.  Thus George quotes Adam  
Smith's listing of the constituents of capital, which include "money,"  
and couldn't appreciate money's rightful place in the definition.  This  
is how George could feel confident in declaring the classical wages-fund  
explanation of wage rates as being erroneous.  
  
George's muddled understanding of the distinction between capital as  
funds and capital goods, the latter being a subset of the former, also  
shows up clearly in his dispute with classical analysis in chapter 1 of  
his famous book.  Thus, when it is explained that higher wage rates may  
be paid if a larger share of capital were devoted to the wages fund than  
if a larger share were devoted to capital goods -- "machinery and  
material" -- George considers the explanation a "fundamental error."  
That failure on the part of George also prevents him from recognizing  
that there is no necessary connection between wage rates and the level  
of interest rates.  Correctly understood, interest rates are determined  
by the supply and demand for capital or savings (funds) while wage rates  
are determined by the supply and demand for labor, the wages fund  
constituting the demand for labor.  
  
It seems incredible to me that George bases much of his argument for the  
single-tax proposal on such a fundamental error, besides the argument  
that no one should own land since it is given by nature.  Donald Frey  
restates this claim by George but without criticism:  
  
"In his attack on the wages-fund, George argued that workers are paid  
from _current production_ -- i.e., workers had a legitimate claim on what  
they produced, and what they produced was growing, not a static fund. In  
this approach George anticipated modern income and product accounts, which  
treat wages as charges against production."  
  
How is it that anyone can fail to recognize that most producers borrow  
funds (capital) out of which they purchase capital goods, including raw  
materials, and rent the services of land and labor (from the wages fund)  
before attaining revenue from production?  And that such funds had to  
have been saved out of previously earned income to be offered on loan?  
Otherwise, they have to come up with their own savings or capital (funds).  
  
Indeed, the more I read of George's "Progress and Poverty," the more  
faults I find in his work.  I get the same incredulous feeling I got in  
the summer of 1985 when I stumbled upon the fact that the reason J.M.  
Keynes thought that he had found the missing link in classical  
macroeconomics was that they didn't have a valid theory of interest.  
And in attempting to prove that point in the first footnote to chapter  
14 of the General Theory, it is quite clear that Keynes could not  
recognize capital in the classical theory of interest as funds.  He then  
proceeded to declare Marshall restatements of the classical theory of  
interest as "nonsensical" and "absurd."  
  
Henry George does about the same thing in chapters 1 and 2 of his book.  
I'm almost tempted to do for George what I've been trying to do for  
Keynes in macroeconomics.  Just as I felt in the case of Keynes, I can't  
now believe that the fundamental sources of George's errors have not yet  
been published.  Besides, I doubt that there is much interest in  
economics for explaining how George got it wrong.  Just as George  
correctly recognizes that the value of land increases as the need to use  
it (demand) increases with industrial progress, I would need to know  
that there is much demand for such an effort to take up documenting the  
sources of George's errors.  Perhaps Roger and Warren might help me in  
that regard.  
  
James Ahiakpor