Chapter III
An Examination of Prof. Ely’s Three “Key” Books
from False Education by Emil O. Jorgensen, 1925

We have now seen how the “Institute for Research in Land Economics and Public Utilities,” directed by Prof. Richard T. Ely in the University of Wisconsin, originated. We have learned when it was formed; who is on its staff; who is putting up the money to run it; and why the money is being furnished. Moreover, we have shown that the real purpose of Professor Ely and his financial backers is not research to find the scientific solution of our economic problems, but an insidious attempt to get control of the well-springs of knowledge and to lead the people away from what increasing numbers of men are certain is the scientific solution—namely, the gradual abolition of all taxes except that upon land values.

But our story is not yet ended. Let us now take a look at the shrewdness of the professor, the marvelous ingenuity by which he expects to carry out his great scheme of hiding economic truth and fostering economic error—and not get caught at it!—the matchless skill by which he proposes to have fifty books written on land economics to guide the public mind out of the right road into the wrong one—and not be suspected of having such an object in view. But to see this clearly it will be necessary for us to examine with some care the roots that he has planted for the growth of his great “educational” tree.

Let us be perfectly fair with Professor Ely. Let us assume that his motives are the purest and his intentions are the very best. Let us assume that his one desire is not to promote error, but to seek truth, and that his sole object is not to hide the solution of our land and tax problems, but to discover and disclose that solution, regardless of what it is or where it may be. Let us give him the benefit of every doubt and extend to him the fullest credit for courage, honesty and sincerity in what he is doing.

Can any charge then be laid against him?

Yes. The charge of incompetency must then be laid against him. If Professor Ely is sincere in the task that he has undertaken, then, as an economist, he is incapable, inefficient, and utterly unfitted for the position he holds. Then the books which he has already written and which he proposes to have his assistants, under his direction, write for the “guidance of state, national and international policy” must be relegated to the scrap-heap as unscientific, illogical and unsound.

The first thing that anyone must do when undertaking a technical discussion or analysis of any kind is to lay down carefully the terms, and the meaning of the terms, that he expects to use. For unless this is done the discussion will inevitably wind up in genera misunderstanding and confusion of thought.

In the field of economics full and complete definition of terms and absolute accuracy in the use of these terms, is especially necessary. For economics is essentially an abstract science; it deals with the natural laws underlying the production and distribution of wealth; it has for its goal, not merely the finding of the right economic relations between man and man and the earth upon which he lives, but the prescribing of the best measures for the maintenance of such right relations. Hence in economic discussion, unless the terms to be used are first carefully laid down, defined and adhered to, the reasoning is almost certain to be faulty and the final conclusions as equally certain to be wrong.

Of course the number and kind of terms to be employed may vary somewhat in the different economic branches. For example, the terms used in a scientific discussion of capital may vary to a degree from the terms used in a scientific discussion of labor, and the terms used in a scientific discussion of land may vary somewhat from the terms used in a strictly scientific discussion of either capital or labor.

But while some of the terms employed in one division of economics may not be exactly like the terms employed in another division, yet in all divisions of economics there are certain basic and common terms—dove-tailing with one another—that must be laid down and precisely defined before the analysis of any economic problem can safely proceed. These basic and correlated terms are “land,” “labor” and ” capital”—called the factors of production; “rent,” “wages” and “interest”—called the factors of distribution; and “wealth.”

The extreme importance of having these seven terms accurately defined, and their underlying laws thoroughly understood by a student before carrying him into any discussion in the realm of economies, is very apparent. For these terms are the guides by which the student steers his course. They are the elements by which he tries all his reasoning. They are the lamps under whose light he tests all his conclusions. Hence, without a full knowledge of these terms, and the laws underlying each, the student’s ability to reason in a straight line is hopelessly out of the question, and the action of his mind will be a good deal like the movement of a kite without a tail, or a ship without a rudder.

Naturally, therefore, any book or series of books which attempted to analyze a great economic problem without first settling beyond all dispute its terminology, would have a fatal weakness that could never be overcome. But it is just such fatal weakness that the books written by Professor Ely for the guidance of his Institute have. In his three “foundation” books written for the Institute in 1922, three books which he has entitled the “Outlines of Land Economics,”[1] and which he says “form the basis” for forty-seven other “more specialized works,”—in these three foundation books the definition of the primary terms in economics, and the laws governing them, are not only inadequately developed, but in many cases missing altogether.

There is, in these books, absolutely no definition to be found anywhere of the term “wealth”—doubtless the most important term to the seeker of truth in the whole sphere of economics. “Land” and “labor” are sufficiently defined for clarity of thought, but “capital” is not. To the definitions “rent” and “wages” no objection can be made, but because of the absence of any definition of “wealth” and an inadequate definition of “capital” the definition of “interest” is very much in the dark.

But this is not all. The usage of such terms as have been laid down is of times not consistent—the usage being frequently in one sense and as frequently in another sense. Moreover—and here is the worst defect of all—an explanation of the necessary laws underlying the three factors of distribution—rent, wages and interest—is, in these foundation books, absent entirely.

This being the substance and the quality of the base upon which the economic philosophy of Professor Ely and his Institute is to be raised, what chance has the student for clear and logical thinking! What hope is there that his reasoning will bring him to a sound conclusion? What possibility is there of his ever finding the scientific solution of our land and tax problems? There is no possibility at all.

With his primary terms confused and undefined, and the essential laws and principles governing them remaining unexplained, the student who would follow Prof. Ely is as helpless mentally as a mechanic without his tools. He cannot, from the knowledge that has been given him, distinguish clearly between a false premise and a correct one; cannot tell the difference between a right and wrong conclusion. To him the most fundamental questions of political economy could be submitted with but small chance of receiving an answer that could stand the test of careful examination. He cannot know for sure whether slaves are wealth or not; whether they should be placed in the category of labor or capital; or whether the returns for their services should be classified as wages or interest. He will not be able to state without guessing whether a commercial bond is capital or whether it isn’t; whether its income represents wages, interest or rent, a combination of two, or a combination of all three. Ask him whether an increase in land values represents an increase in the wealth of the community and he will not be able to answer you positively—and prove it. He cannot know for certain and without a reference to Professor Ely’s books, whether land values should be placed on the debit side of the economic ledger or on the credit side; whether there is more unearned increment in land rent than there is in wages or interest, or whether there is less unearned increment; which is the most fitting subject for taxation and which is the least fitting. He cannot, in short, prove or disprove in a scientific manner any economic proposition of a fundamental nature laid before him. For the chemicals by which he makes his tests are missing; the elementary principles by which he tries his reasoning are gone. He is lost. He is like a vessel that has slipped her moorings and drifted into the whirlpool; like a mariner sailing the seas without a compass. The only certain thing that could be expected from one attempting to build upon the three basic books written by Professor Ely for the guidance of his Institute members would be, not that his labors would bring him nearer to the solution of our land and tax problems, but that they would carry him farther away.

Even, therefore, if Professor Ely were honest, even if his motives and intentions were the very purest, he would have to be charged with incompetency and his three foundation books, upon which forty­seven other books are to be published by his Institute for the “guidance of state, national and international policy,” relegated to the limbo of economic fallacies as unscientific and unsound.

But the charge of incompetency cannot be made against Professor Ely. Professor Ely is competent. He has been professor of economics in famous universities for well-nigh forty years. He has read as many books on politico-economic subjects as any living man. He as studied the works of Henry George. He knows the constructiveness of correct definition and complete terminology and the destructiveness of incorrect definition and incomplete terminology. He understands well the analytical power of him who is equipped with a full knowledge of the fundamental terms, principles and laws of political economy, and he understands equally well the analytical weakness of him who is not so equipped.

It cannot be said, therefore, that Professor Ely is incompetent. He is not incompetent; he is intellectually dishonest. His purpose is not to enlighten the subject of land economics, but to befuddle it; not to inform his students and followers, but to confuse them; for only by so doing can he and his financeers effectively halt the world-wide movement in the direction of the only sound solution of our economic problems—namely, the abolition of all taxes save that upon land values.

Let us remember in passing that the movement to transfer taxes from the fruits of capital and labor to the value of the bare land only —a proposal commonly called the single-tax—owes its origin to Henry George, whose book “Progress and Poverty”[2] was first published in 1879. In this masterful work, Henry George—without doubt the most powerful thinker in the field of economics that the world has ever seen—raised political economy to an absolute science, defined the primary terms with a precision and thoroughness that has since admitted of no dispute, showed the harmony and the necessary relation of these terms to each other, revealed the co-ordination of the natural laws and principles underlying them, and by a chain of reasoning which has stood every test of logic and scientific analysis, reached the conclusion that the remedy for our gravest economic problems, and particularly our land and tax problems, lies in deflecting all taxes from the fruits of human industry to the value of the bare land.

Incidentally, one of the truths, hazily recognized by numerous economists previous to his time, but conclusively proved by Henry George in his “Progress and Poverty,” is that the economic rent of land is a surplus unearned fund, created, not by individuals but by society—the whole community—and a surplus fund therefore which properly belongs to the whole community; while wages of labor and interest on capital are funds created, not by the whole community but earned by the individual members of the community, and are funds therefore which rightly belong to those individual members. It is perhaps upon this truth, more than upon any other, that the justice and soundness of Henry George’s proposal to abolish all taxation save that upon land values rests.

Of course there has always existed from the very beginning a most bitter hostility on the part of “vested-interests” and land speculation groups to the land value tax and much prejudice among the mass of the people has been worked up against it. But owing to the firm foot -hold in actual legislation that the doctrine has now secured in many parts of the world and the great satisfaction that it is giving wherever tried to any extent—notably in Australia, New Zealand, South Africa, Denmark and other places—this prejudice is gradually passing away. So steady, in fact, is the progress of the land value tax movement throughout the world that it has now become clear to the interests fattening on the unearned increment in our own country that, unless the Henry George theory is combated in a scientific manner, or in a manner that has all the appearance of being scientific, and its underlying principles discredited, its adoption in the United States is, within another decade or two, a foregone conclusion.

But to overthrow the Henry George doctrine by scientific methods is like trying to overthrow the law of gravitation. For the Henry George doctrine is built upon principles as fundamental in their character as the law of gravitation. It rests upon natural laws that govern the actions of men and these laws never change. They are eternal. Notwithstanding this the decree of the beneficiaries of special privilege and monopoly is that the doctrine of Henry George must be scientifically overthrown and discredited beyond all hope of redemption!

The task resting upon Professor Ely is therefore not a simple one. His job of trying to discredit the land value tax principle in a scientific way is a good deal like trying to prove in a scientific manner that water runs up hill, that three plus three equals seven, that a man can go in opposite directions at the same time, or that a curved line is the shortest path between two points.

To an ordinary scientist such a task would be quite impossible. But not to Professor Ely. Professor Ely knows exactly how it can be done—and not be caught at it!

He has two methods at his command—both very simple but very effective.

His first method is to avoid complete terminology, accurate definition, and consistency in the use of his terms; also to omit showing the necessary relation of the primary economic terms to each other and disclosing the laws underlying them.

His second method is to cover his efforts thickly with “professional authority,” “educational sanction,” and university ranks, titles and degrees.

The first method he has learned from experience, will effectively prevent clarity of thought, logical reasoning and any challenge of his arguments by his students; the second method will insure belief and confidence in his conclusions.

With the skillful use of these two methods of attack Professor Ely can make himself complete master of the situation. He can prove or disprove any economic proposition his heart desires without running the slightest risk of being checked up but with the most perfect assurance of being believed. He can demonstrate beyond all shadow of a doubt that a man who holds land idle is just as useful to society as a man who improves his land—if not a little bit more so; that land values are wealth just like houses and haystacks and horseshoes are wealth; that there is no difference between a natural resource and a factory so far as income is concerned; that taxation of thrift and enterprise is not harmful to the body economic, but beneficial; that taxes should not be deflected from industry and consumption to land values, but should be deflected from land values to industry and consumption; that the economic principles underlying the land value tax theory, even if they were all right many years ago, are not now applicable; that economic rent is no longer unearned by landowners, but earned; and that wages and interest are no longer earned by labor and capital, but largely unearned.

Professor Ely, with his two powerful methods of procedure, can not only go through these mental gymnastics and intellectual contortions and get by with it, but he does do it! Observe, for example, the ease with which, in the second of his three basic volumes written for the benefit of his Institute and for the “guidance of state, national and international policy,” he juggles and shapes to suit his purpose the character of the income of all the land, labor and capital in the world:[3]

“The older economists of the Classical School looked upon the rent of land as a surplus over and above the costs of production. It was the one great illustration of unearned wealth. Some attributed it to the bounty of nature, others thought it due to the niggardliness of nature; but in either case rent was a surplus. The doctrine of rent made a rift, as it has been called, in the economic harmonies, for all other kinds of income were thought to be earned.

*****

“As economic evolution has proceeded, however, changes have come about; and one of the chief peculiarities of this evolution has been the emergence of one form of surplus after another. Scattered all over the economic field of production and distribution we find the surplus—the excess over and above the return that is required to secure the application of the requisites of production. … Another type of surplus is the personal surplus—the return made for extraordinary capacity. This is very large—perhaps the largest—at the present time. … Interest is in part a surplus. … It is likely that in the last few years the largest item in the economic surplus has been the gains of conjecture—that is, the gains that are due to luck and chance and are not within the control of the individual, nor even in some cases, within the control of society.

*****

“The surplus then is no anomaly. It results from unequal advantages of producers—those peculiar advantages derived sometimes from human resources, sometimes from natural resources. … Considered as property yielding income, land and capital are on exactly the same footing. A single-taxer is much disturbed because the owner of a certain piece of land receives $30,000 a year in ground rents without any burden of taxes, expense of improvements, etc., all of which are paid by the tenant. The same man seems quite unworried by the fact that trust companies are turning over incomes just as great from stocks and bonds, to clients who perform no personal services whatever, some of whom are moral delinquents and intellectual incompetents.

*****

“From the individual point of view, at any given moment in civilized society, there is no surplus in land income … The return to the pioneer in increased value of the land is a cost—a payment for the continuous toll, often lasting for several generations, that has been expended upon the land. … Land requires more care and gives smaller returns in proportion to what is put into it in the way of capital and enterprise, than standard investments of other kinds. … It is probable that nobody works harder for what he gets, considering it by and large, than the landowner; and he usually gives a big return to society for what he receives.”

There are, in the above sentences and paragraphs, just eleven fundamental errors—eleven errors involving the prosperity, the happiness and the very safety of civilization, but Professor Ely’s students evidently do not know it. How can they know it? The economic equipment by which they may try his reasoning has not been given them. The necessary terminology, principles and laws by which they can test his conclusions have been withheld. They are helpless. They are like a mariner sailing the ocean without either rudder or compass. No guides are at hand to steer by, no anchors to let down in ease of trouble, no sheltering harbors to enter in case of storm. Professor Ely can make the gravest errors and he does make them; he can omit the most essential discussions and he does omit them; he may advance the most preposterous propositions and he does advance them, but his students will not crack a smile. They are under his control completely—as completely as a farmer’s bull led by a ring in his nose, and what is at once both tragic and comical their minds are being lulled into an hypnotic sleep by the accumulation of professional authority and university degrees with which all his books are so lavishly stamped. Only one possible course appears to be open to the students and that is to follow Professor Ely like a flock of sheep follows its shepherd—timidly, blindly, faithfully—never stopping for a moment to question his motives, his logic, his conclusions, or to inquire whether he is leading them to green pastures or to the slaughter pen.

Perhaps never before in the history of economic science has the great difference between truth and fallacy been more strikingly illustrated. For truth can be both understood and believed; but fallacy can only be believed, it can never be understood. The teacher who asserts that the multiplication table is correct need not ask the pupil to believe her; she need only ask that the pupil rightly understand her. But the teacher who, for any reason, insists that the multiplication table is wrong cannot allow herself to be understood, her chief hope of winning her point will have to be placed on simply being believed.

This is exactly the difference between Henry George and Professor Ely. Henry George, when setting out in his “Progress and Poverty” to find the scientific solution of our economic problems, discouraged every tendency on the part of his readers to accept his statements on mere faith, and begged his readers only to understand him. For he always felt certain that “when men think right, they will vote right.” But Professor Ely, who has a very different object in view, must pursue an entirely opposite method. He must first take precautions to see that he is not clearly and fully understood, and second, he must take equally great precautions to see that in the end he will have the student’s confidence and belief in what he says.

Here is the first lesson that Henry George hammered and drilled into those who came to sit at his feet:[4]

“The power to reason correctly on general subjects is not to be learned in schools, nor does it come from special knowledge. It results from care in separating, from caution in combining, from the habit of asking ourselves the meaning of the words we use and making sure of one step before building another on it—and above all, from loyalty to truth.”

Taking this firm ground as a starting point Henry George laid down in his great book the all-essential terms and definitions in economic science, showed their laws and relation to each other, gave his followers the instruments by which they may try his reasoning and test his conclusions, and with these inspiring words plunged into the prodigious task before him:[5]

“I propose to beg no question, to shrink from no conclusion, but to follow truth wherever it may lead. Upon us is the responsibility of seeking the law, for in the very heart of our civilization to-day women faint and little children moan. But what that law may prove to be is not our affair. If the conclusions that we reach run counter to our prejudices, let us not flinch; if they challenge institutions that have long been deemed wise and natural, let us not turn back.”

That was the spirit of Henry George! That was the mental quality and moral fibre of him who discovered the only sane and logical solution of our serious economic problems, who gave to bewildered humanity the knowledge of how it may elevate society to a better, higher and grander civilization, and whose constructive and practical doctrines have now taken deep and firm root throughout the world. Different indeed is the case with Professor Ely. Professor Ely likewise knows the importance to logical thinking of correct and complete terminology. He knows the relation of the economic terms to each other and the laws and principles that underlie them. He realizes also the benumbing effect that an overdose of professional authority has upon the mind of the average person. Yet this, by his actions, is exactly what he says:

“I shall write three basic books on land economics, upon which the members of my Institute shall write forty-seven more books, supposedly for the purpose of finding the solution of our land and tax problems. In these three books I shall avoid defining any terms or explaining any laws or principles by which my students can analyze my arguments or test my conclusions. To make sure, however, that my statements, and the statements of my assistants, will not be questioned by anyone, I shall label them with school, college and university authority and stamp them with all the professional ranks, titles, and degrees that I can assemble.

“In my apparent search for the solution of the problems of land and taxation, I shall challenge no predatory institution; I shall disturb no monopoly; I shall offend no citadel of privilege; on the contrary I shall do all I can to uproot the very measure that is most hostile to them—the land value tax doctrine of Henry George. For upon me is the responsibility, not only of safeguarding for the future, but of increasing if I can, the large unearned profits of the corporations and organizations who are financing me.”

That is the spirit of Professor Ely! That is the mental and moral calibre of the man who, sitting in the University of Wisconsin, is now reaching out to grasp the well-springs of knowledge and who has laid down the foundation upon which fifty books are to be written for the guidance of state, national and international policy!

[1] Published by Edwards Brothers, Ann Arbor, Mich.

[2] Published by Doubleday, Page & Co., New York.

 

[3] “Outline of Land Economics,” (Edwards Brothers, Ann Arbor, Mich., 1922) Vol. II, pp. 16, 17, 18, 19; 21, 34, 36, 39, 53.

[4] Henry George, A Perplexed Philosopher, Introduction, Doubleday, Page & Co., New York.

 

[5] Progress and Poverty, p. 13.