This unvoiced question lies hidden at the center of many of the most pressing policy debates in economics today. From discussion in the US over whether ‘Every billionaire is a policy failure’, to those in Africa about the proper role of foreign, especially Chinese, investment in devising an effective development strategy, the question emerges. On the one hand liberals, especially classical liberals in the vein of Adam Smith, argue that investment in capital involves no coercion and in fact frees up more opportunities for other members of society. On the other hand leftists argue that workers and peasants the world over have lost agency and been forced into low paying or unfulfilling work as a result of global capitalism.
The pro-capital side tends to be more theoretical, while the anti-capital side is more experiential. Liberals argue that wealth is not zero-sum, that investment in capital increases the wealth available to everyone, and so while it may increase inequality, it does not reduce the agency or absolute material prosperity of even the workers who don’t own any capital. They point to the grand sweep of history, the overall material gains of most of the world’s population, and above all the economic theory of individual choice and rational actors. After all, no one forces anyone to do a particular job, so anyone who takes the job must have decided this is their best possible option. And if the job itself exists only because someone invested in the capital—a restaurant, a factory, etc—then the investor must necessarily have improved the lot of the worker.
The anti-capital side—generally but not always consisting of leftists—argues from experience. To a low wage worker it certainly doesn’t feel like there are other options or that the work relationship was freely entered into. While the overall condition of humankind may have improved, there seem to be many cases where an influx of capital made one generation actually more miserable than their predecessors. A textile worker in 1820 Manchester or 1990 Jakarta or even an intern in 2019 San Francisco may be perfectly justified in feeling that they are less free than their parents or grandparents. How is this the case, when each worker is employing more capital and thus producing more wealth than their predecessors? Liberals often struggle to explain these instances in a way that is consistent with their economic beliefs, even as they updated their own political positions to deal with the obvious facts. Leonard Hobhouse, for example, described the coerced worker in his seminal work Liberalism in 1911,
Here was the owner of a mill employing five hundred hands. Here was an operative possessed of no alternative means of subsistence seeking employment. Suppose them to bargain as to terms. If the bargain failed, the employer lost one man and had four hundred and ninety-nine to keep his mill going. At worst he might for a day or two, until another operative appeared, have a little difficulty in working a single machine. During the same days the operative might have nothing to eat, and might see his children going hungry. Where was the effective liberty in such an arrangement?
Hobhouse goes on to describe how liberals thus had to, in the early 19th century, begin to move away from laissez faire economics in order to safeguard actual, effective liberty. Modern liberals followed much the same route—almost anyone describing themselves as a liberal today would probably agree with Hobhouse’s assessment, at least when applied to 19th century factories. But while Hobhouse recognizes the coercive potential of property, he doesn’t provide an explanation for why the issue arose, suggesting that it is perhaps the difference of scale between capital and labor that creates the difference. This may well be part of it, but I would propose a different explanation for why capital becomes coercive: elasticity.
Elasticity is an elementary economic concept, taught in the first couple weeks of a entry level econ course, but rarely explored in all its implications. It basically describes the tendency of the supply or demand of a good to adjust to a change in conditions, usually (but not always) price. It is most frequently discussed in terms of demand: the demand for drinking water is rather inelastic (the amount a person needs is fairly fixed, and free or expensive water will impact that only a little), while demand for diamonds highly elastic (at a low enough price even a person who never thought of buying diamonds would do so).
However, elasticity of supply, though rarely discussed in introductory economics courses, turns out to be of critical importance when discussing the implications of capital property. Property that is of elastic supply—goods, tools, factories, etc.—is much less likely to create coercive conditions than property of inelastic supply, especially land. Simply building a massive textile factory in Manchester does not coerce anyone to work there—ceteris paribus, the factory simply gives the local farmers the choice to work in the factory, or not. It may increase inequality, since the factory owner will collect returns on his investment, but in itself it should not depress living standards of anyone else. Factory wages will have an effective minimum—whatever the income would be of those some workers if they stayed in their traditional economies. Moreover, if the profits of the factory are high enough, other factories will open to take advantage of the same market niche, providing more jobs and thus more bargaining power to workers.
But the whole wage calculus changes if in the same period common agricultural land is being enclosed and small farms incorporated into large estates (this was the case for England during the Industrial Revolution). The workers, having lost their alternative and thus their bargaining power, are stuck in the calculus Hobhouse describes. The millions of pounds invested in purchasing and enclosing land does coerce the farmers, insomuch as no matter the price of land, the quantity remains the same—it is supply inelastic. It is thus not the investment in physical capital that creates the coercion, but the consolidation of inelastic capital—land—that does so.
The mid-19th century American economist Henry George observed the same pattern with the gold rush in California and the subsequent economic development between 1849 and 1879. The initial stages of the gold rush were not, in absolute terms, very productive: a lack of capital meant most gold was extracted by hand, so the total wealth was limited, but workers had a great deal of freedom and overall poverty was low. However, as the land and mineral rights were bought up or granted away, capital poured into the state. Capital increased overall production, but the monopolization of the inelastic factors of production nonetheless served to lower wages substantially.
As George points out in his book Progress and Poverty, however, not only relative wages but also relative returns on capital investment fell, as interest rates dropped as well. If the elastic capital (mining equipment, buildings, railroad tracks, etc) were coercing labor, one would expect the fruits of the coercion to show up in skyrocketing profits and high interest rates. But interest rates fell and corporate bankruptcies were the norm, culminating in the panic of 1873. George explained: at the same time real wages fell, land prices were skyrocketing, as speculators anticipated rising land costs with the completion of the transcontinental railroad. Their hopes were disappointed—but the fact that land prices could escalate so quickly (as they did recently prior to 2007 in the United States) demonstrates how land differs from other capital: its near perfect inelasticity means that as the price rises, supply cannot rise with it.
The story of land prices and rents taking a painful cut out of rising productivity in San Francisco will of course sound familiar to anyone currently living in that city, which recently announced that a family living on less than $117,000 a year would be considered ‘low income’—driven primarily by much higher housing costs than the rest of the country. The reason is not difficult to surmise: San Francisco consists of the same 47 square miles today as it did in 1849, and very high land prices can do little to expand that supply.
This lens—of elastic vs inelastic capital, and the power of the latter—is a powerful and underused analytical tool for analyzing systemic inequality. Booker T. Washington’s ambitious plan to advance African Americans by investing in their human and physical capital largely fell flat because they were consistently locked out of inelastic capital, both in rural areas (by the failure to redistribute southern land and their exclusion from the Homestead Act) and in urban ones (by de jure segregation, redlining, and other means). Martin Luther King commented on this in a 1967 interview:
America was giving away millions of acres of land in the west and the Midwest. Which meant there was a willingness to give the white peasants from Europe an economic base.
And yet it refused to give its black peasants from Africa who came involuntarily, in chains, and had worked free for 244 years any kind of economic base.
And so emancipation for the negro was really freedom to hunger. It was freedom to the winds and rains of heaven. It was freedom without food to eat or land to cultivate and therefore it was freedom and famine at the same time.
The skills African Americans could bring to the labor market could not earn them a fair wage if they lacked an economic base, and while they could (and did) build their own workshops and stores and universities, they could not build land to replace that which was monopolized by whites. Shortly before his death, King expanded this concept to include other inelastic factors of production in his speech “Where do we go from here?”, rhetorically asking: “‘Who owns the oil?’ You begin to ask the question, ‘Who owns the iron ore?’” 
King focuses on the oil itself, not the wells, and the iron ore, not the mines or refineries. The reason is simple: he understood that the allocation of inelastic resources was one of the surest ways to maintain white supremacy in the United States.
The same pattern can be observed worldwide. Liberals in Mexico have long targeted foreign (as well as church) ownership of land and subsurface resources—understanding the way in which foreign ownership of a thousand acres or rights to an oil deposit is qualitatively different than foreign ownership of a factory of the same value. Jacobo Arbenz in Guatemala attempted the same in the 1950s, posing a threat to US ownership of land used to grow bananas and other fruits, only to be undermined and overthrown with the help of the United States government, a fate which also befell his contemporary targeting foreign ownership of oil rights, Muhammed Mossadegh, in Iran.
None of this is to say that inelastic capital needs to be abolished or nationalized in any or even most cases. However, when developing policies around investment incentives, tax structure, etc., the difference between elastic and inelastic capital needs to be considered.
The differentiation between elastic and inelastic capital is thus a powerful tool for analyzing how coercive capital ownership can be—but it has unfortunately been obscured by both socialists and neoliberals for some time. Marx himself rejected it out of hand, writing to Engels about Henry George that “He understands nothing about the nature of surplus value and so wanders about in speculations which follow the English model but have now been superseded even among the English, about the different portions of surplus value to which independent existence is attributed—about the relations of profit, rent, interest, etc”—essentially criticizing George’s careful division between interest on what he terms capital (referring to elastic capital) and rent on what he terms land (but which really applies to all inelastic capital).
For Marx of course such a division was inadequate, as it failed to hold the bourgeoisie responsible for the subjugation of the proletariat and allowed for a solution to coercive property without a communist revolution. Interestingly, neoliberals have participated in the same blurring. Economics education at the undergraduate level almost never makes a clear distinction between these factors of production, instead treating all capital as equal in most conceptual frameworks taught to undergrads. In policy, as well, the United States frequently conflated the nationalization of inelastic factors of production (which the US had previously tolerated in Mexico and Taiwan and had even instigated in post-war Japan) with communist demands to nationalize all the means of production in order to justify the overthrow of individuals like Arbenz and Mossadegh.
If liberals can reverse this trend and regain the analytic tool of elasticity when evaluating property, there are many potential benefits. First, current problems can be more accurately assessed. From gentrification in the Bronx to Chinese investment in Africa, the impact of outside capital investment depend tremendously on the elasticity of what that money is buying, and so any investigation into these phenomena should start by asking these questions. Second, by improving economics education (both formal and media) to include the differentiation between land and capital, liberals can make common cause with leftist groups, where appropriate, while also offering well-considered alternatives to socialist programs that can achieve the same liberating results of reducing coercion by means of property without the stifling economic impacts of punishing investment in elastic capital.
Featured image is Canned Food Factory, by Poyet