Sorry Steve, this is a bit long, but it goes a way towards showing why things are the way they are.
The Classical Political Economists called it "The Iron Laws" (Ricardo) and "All Devouring Rent" (George).
The economists in the article we read are kind of rediscovering it again - but in a more complicated and less understandable fashion. Also, neither Ricardo, not George emphasized the influence of land speculation which shortened the time frame for the descent into poverty and its corollary the ascent into great wealth.
Ricardo and Malthus really visited two aspects of the same problem. Let's stay with Ricardo for a moment. This was his analysis. Let's assume too that every worker is equally productive. We can do that with a model, and we can always bring back knowledge, skill, and other abilities, later.
Let's assume an empty island Let's also assume that there is plenty of good land around on which anyone can earn $100 a day. The first settlers will do very well on that good land. Until it's all filled up. Then the next person to enter the labor market will have to settle on poorer land. Call it $80 a day land.
He'll be followed by other's also getting $80 on the available land.
Or, he can work for the original settlers on their $100 land. He won't work for less than $80. Maybe they'll give him a dollar or two to persuade him to work for them. Or, maybe he'll take a dollar or two less, because now he's among other people with pubs and whatnot rather than being out in the boondocks.
One way or the other, the fabled price mechanism of the free market will operate around $80 - determined by "the best available rent-free land".
For when our laborer worked for $80 on the $100 land, the other $20 went to the landholder as Rent. And so it begins, the first privilege. When you and I are getting back $80 for a days work, the original landholder is getting $100 plus $20 rent from each worker.
I won't take you through the routine where when the $80 is all used up dropping wages to $60 a day, then $40, then $20 until it can go no deeper - it has reached subsistence and people are starving. The price mechanism works at every level, so even at the bottom - let's call it $5 a day - the wage fluctuates up and down sometimes at (say) $5.10, sometimes at $4.90.
Those who cannot survive at $4.90 die, thereby introducing a shortage of labor, whereupon the wage might rise to $5.10 until the "good life" produces more children and the wage slips back to $4.90. That blamed price mechanism works all the time and now you know why economics is called the Dismal Science.
The Golden Age of English Labor - as Thorold Rogers called it - was a price mechanism fluctuation that with the end of the good years dropped wages back to subsistence.
However, the price mechanism doesn't drop Wages. As you can see, there are two components of wages. The principal determinant is the "Alternative". If the Alternative is $50 a day, you won't work for $40 - that's all the Alternative is. Once the Alternative is established, the price mechanism will hunt around it - as it is supposed to do. If there is free land around worth $50 a day wage - wages in the city will not go lower than $50. (Of course, your return from work is more than money.)
The market mechanism is completely impersonal. It neither raises, nor lowers wages. It simply reacts to a situation moving always to an equilibrium. So, it will hunt around $100 a day, or $5 a day. It has no other effect on wages.
Modern Neo-Classicals mix together the Alternative and the price mechanism, thereby confusing completely any real study of wages. But, boy, do we have lots of statistics!
You'll notice that Ricardo's analysis parallels Malthus', as the settlers fills the island with "overpopulation".
Incidentally, in the high school courses, my hair stood on end as I realized what I was doing. I had talked of "immigrants" coming to the island and as each new lot came, wages were forced lower.
I went back through the courses and changed immigrants to settlers. It was a narrow escape!
So, that is a description of Ricardo's Iron Laws and also of George's all-devouring rent. However, Ricardo missed something and George didn't emphasize it. Say Keith's family is the first on the island. They plant seed and have little to do until the next harvest. So Keith puts his useless (but brawny) sons to work building a fence around the $100 a day land.
Then, I arrive with my family and settle on $80 land. I see what Keith did, and proceed to fence in all the rest of the land, leaving only the $5 land. (Silly me! I should have enclosed ALL the rest of the land leaving Keith fuming.)
Anyway, the Kurtz family arrives and their only Alternative is $5 a day land. That's where they settle. They do, but are instantly in poverty. Also, the island is overpopulated causing deprivation to the Kurtz's. After all there is no land available for them, so that is obvious evidence of overpopulation.
So, choose your poison. Is the Kurtz family in a Malthusian bind, or a Ricardian trap? It matters not. They and the other settlers searching for free land gradually fill the island, working for the landowners with their Alternative $5 a day land setting their wages.
How long before rumbles among the peasantry lead to confrontations. One such - in real life - was actually named the Peasants' Revolt. All the peasants wanted was a reduction in the Rents. The King promised they would get the reduction, but all they got was nothing. Of course their leader - Wat Tyler - was hanged, drawn, and quartered, and if you don't quite know what that is, you don't want to know.
It was one of many such revolts. Marx didn't have it quite right. Workers don't rise against capitalists. Peasants rise against landlords. and may pull in the workers.
These are not really communist revolutions. They are peasant revolutions - often led by communists.
So, back on Fantastic Island, the landlords may get alarmed. So, they give some of the Rent they take from the peasants back to them in food stamps or something. This is the kind of "countervailing privilege" I've mentioned in other posts.
You don't abolish your privilege. You give a little back - just enough to keep the underprivileged quiet. But, hold it! Is land ownership a privilege?
Without doubt. In Europe and elsewhere the sword preceded the land title and the ennoblement of the land holders followed it.
The history of land titles in the US is a story of force, fraud, and theft, where rather unsavory gentlemen joined equally unsavory government officials in taking the land from under our feet.. When they sang "This land is Our Land" they meant it.
How all this relates to today, when no-one uses land any more should be in another post.
Harry
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Steve wrote:
Interesting article..... I've not studied this topic in any detail, but in a complex system, it seems speculative - except for the obvious fact that if no excess wealth then no saved wealth.
Steve
WEALTH SPAWNS CORRUPTION
Physicists are explaining how politics can create the super-rich.
http://www.nature.com/nsu/020121/020121-14.html
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Harry Pollard
Henry George School of LA
Box 655
Tujunga CA 91042
Tel: (818) 352-4141
Fax: (818) 353-2242
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