At C4SS--"Intellectual Property" is Not Progressive

At C4SS--The Digital Copying Glass is Half Full

At C4SS--R.A. Wilson: Optimist?

At C4SS--Colin Ward, RIP

"When we compare the Victorian antecedents of our public institutions with the organs of working-class mutual aid in the same period the very names speak volumes. On the one side the Workhouse, the Poor Law Infirmary, the National Society for the Education of the Poor in Accordance with the Principles of the Established Church; and, on the other, the Friendly Society, the Sick Club, the Cooperative Society, the Trade Union. One represents the tradition of fraternal and autonomous association springing up from below, the other that of authoritarian institutions directed from above."
--Ward, Social Policy: An Anarchist Response.

C4SS First Quarter Fundraiser Almost Over

I just thought I'd remind anyone who's inclined to donate to the C4SS 1st Quarter fundraiser, and hasn't already done so, that things are winding down. Next Friday, Feb. 26, is the last day. As you can see from the Chipin widget in my sidebar, we've taken in just under half of the funding target. That means that, even though all of us writers have kept up the schedule we committed to based on $2945 in funds for the quarter, we'll get paid about half of what was originally budgeted. So absent a big surge in contributions, C4SS will probably have to drastically scale back our Second Quarter publication schedules to reflect what people have demonstrated they're actually willing to pay for.

If you're interested in contributing, you can just click on the Chipin widget to the left.

And thanks to all who do, and all who've contributed so far.

At C4SS-- So-Called Free Trade Agreements are to Free Trade, as the Ministry of Love is to Love

At C4SS--Capital: A Diversion?

...if we do our jobs right, seizing the privileged classes’ surplus wealth will be a moot point, because before we’re done it will all be worthless to them anyway. The state capitalists have pursued models of extensive growth from adding more subsidized inputs, because the state has given them preferential access to capital and large tracts of land. The counter-economy, as a matter of necessity, must follow an intensive growth model based on more efficient extraction of value from the same level of inputs....

The main struggle, from the standpoint of the counter-economy, won’t be remedying the lack of capital—the capital is becoming increasingly useless to us. The struggle will be combating the state capitalist system’s attempts to prohibit doing things more cheaply and efficiently. Reducing the capital outlays and overhead costs of the countereconomy, and defending it against attempts at suppression, are our main revolutionary orders of business.

New Proudhon Anthology Forthcoming

Iain McKay, principal author of An Anarchist FAQ, has edited a new Proudhon Reader to be published by AK Press later this year.

This is the first serious attempt at a Proudhon anthology since Stewart's Selected Writings, and far superior in both organization and extent. Unlike Stewart's selections, McKay's are organized according to work and excerpted at length, functioning more like a collection of abridged texts as opposed to Stewart's approach of organizing snippets into a sort of anarchistic Bartlett's Familiar Quotations. The generous range of materials includes a lot of newly translated stuff, some of it by Shawn Wilbur of Corvus Editions.

The table of contents can be found here, and an extended introduction here.

At C4SS--That Magical Water's Edge

At P2P Blog: Dialogue with Richard Stallman on "Intellectual Property"

At C4SS--"Some Thoughts for the Coming Year (and Beyond)"

At C4SS--"News Flash: We 'No Longer Control Our Government'"

At C4SS: Statism ≠ Socialism; Pro-Market ≠ Pro-Business

At C4SS--"Unintended Consequences": A Feature, Not a Bug

Cross-posted from P2P Blog: Abundance Creates Utility But Destroys Exchange Value

What’s variously called the “cognitive capitalism” model, or Paul Romer’s New Growth Theory, assumes that technological progress and increased efficiency will lead to “economic growth” in the sense of the total volume of monetized economic activity. But this presumes the use of “intellectual property” and other forms of artificial scarcity to capitalize efficiency improvements as a source of rents, rather than allowing market competition to pass reduced costs on to the consumer in the form of lower prices.

But similar assumptions are found, in a weaker form, even among people who aren’t exactly friends of the proprietary content industries. This includes Chris Anderson’s “Freemium” model, and similar arguments by Mike Masnick at Techdirt. Their basic idea, which is great as far as it goes, is to use free content to piggyback monetized auxiliary services: Linux distros offering tech support and customization, music companies selling certified authentic copies available at a convenient location, Phish selling concert tickets, etc.

One thing they fail to adequately address, though, is that the total amount of cash available from such auxiliary services is less than what proprietary content brought in. Or to take Anderson’s example, Encarta sales didn’t bring in money equivalent to the exchange value it destroyed for Britannica et al. And Wikipedia destroyed billions in net monetized value for both hard copy encyclopedias and Encarta.

In Masnick’s and Anderson’s model, though, the total size of the monetized economy overall still continues to increase. A reduction in the total money expenditures (and hence labor) required to obtain a consumer good will simply free up purchasing power and increase demand for new goods in some other sector.

The problem is, this assumes that total demand is infinitely, upwardly elastic.

Jeff Jarvis sparked a long chain of discussions by arguing that innovation, by increasing efficiency, results in “shrinkage” rather than growth. The money left in customers’ pockets, to the extent that it is reinvested in more productive venues, may affect the small business sector and not even show up in econometric statistics.

Anton Steinpilz, riffing off Jarvis, suggested that the reduced capital expenditures might not reappear as increased spending anywhere, but might (essentially a two-sided coin) be pocketed by the consumer in the form of increased leisure and/or forced on the worker in the form of technological unemployment.

And Eric Reasons, writing about the same time, argued that innovation was being passed on to consumers, resulting in “massive deflation” and “less money involved” overall.

Reasons built on this idea, massive deflation resulting from increased efficiency, in a subsequent blog post. The problem, Reasons argued, was that while the deflation of prices in the old proprietary content industries benefited consumers by leaving dollars in their pockets, many of those consumers were employees of industries made obsolete by the new business models.

Effectively, the restrictions that held supply in check for IP are slowly falling away. As effective supply rises, price plummets. Don’t believe me? You probably spend less money now on music than you did 15 years ago, and your collection is larger and more varied than ever. You probably spend less time watching TV news, and less money on newspapers than you did 10 years ago, and are better informed.

I won’t go so far as to say that the knowledge economy is going to be no economy at all, but it is a shrinking one in terms of money, both in terms of cost to the consumer, and in terms of the jobs produced in it.

And the issue is clearly shrinkage, not just a shift of superfluous capital and purchasing power to new objects. Craigslist employs fewer people than the industries it destroyed, for example. The ideal, Reasons argued, is for unproductive activity to be eliminated, but for falling work hours to be offset by lower prices, so that workers experience the deflation as a reduction in the ratio of effort to consumption:

Given the amount of current consumption of intellectual property (copyrighted material like music, software, and newsprint; patented goods like just about everything else), couldn’t we take advantage of this deflation to help cushion the blow of falling wages? How much of our income is dedicated to intellectual property, and its derived products? If wages decrease at the same time as cost-of-living decreases, are we really that bad off? Deflation moves in both directions, as it were….

Every bit of economic policy coming out of Washington is based on trying to maintain a status quo that can not be maintained in a global marketplace. This can temporarily inflate some sectors of our economy, but ultimately will leave us with nothing but companies that make the wrong things, and people who perform the wrong jobs. You know what they say: “As GM goes, so goes the country.”

Contrary to “Free” optimists like Chris Anderson and Kevin Kelley, Reasons suspects that reduced rents on proprietary content cannot be replaced by monetization in other areas. The shrinkage of proprietary content industries will not be replaced by growth elsewhere, or the reduced prices offset by a shift of demand elsewhere, on a one-to-one basis.

Mike Masnick, of Techdirt, praised Reasons’ analysis, but suggested—from a fairly conventional standpoint—that it was incomplete:

So this is a great way to think about the threat side of things. Unfortunately, I don’t think Eric takes it all the way to the next side (the opportunity side), which we tried to highlight in that first link up top, here. Eric claims that this “deflation” makes the sector shrink, but I don’t believe that’s right. It makes companies who rely on business models of artificial scarcity to shrink, but it doesn’t make the overall sector shrink if you define the market properly. Economic efficiency may make certain segments of the market shrink (or disappear), but it expands the overall market.

Why? Because efficiency gives you more output for the same input (bigger market!). The tricky part is that it may move around where that output occurs. And, when you’re dealing with what I’ve been calling “infinite goods” you can have a multiplicative impact on the market. That’s because a large part of the “output” is now infinitely reproduceable at no cost. For those who stop thinking of these as “goods that are being copied against our will” and start realizing that they’re “inputs into a wider market where we don’t have to pay for any of the distribution or promotion!” there are much greater opportunities. It’s just that they don’t come from artificial scarcity any more. They come from abundance.

Reasons responded, in a comment below Masnick’s post (aptly titled “The glass is twice the size it needs to be…,” that “this efficiency will make the economic markets they affect “shrink” in terms of economy and capital. It doesn’t mean that the number of variation of the products available will shrink, just the capital involved.”

He stated this assessment in even sharper terms in a comment under Michel Bauwens’s blog post on the exchange:

While I certainly wouldn’t want to go toe-to-toe with Mike Masnick on the subject, I did try to clarify in comments that it isn’t that I don’t see the opportunity in the “knowledge economy”, but simply that value can be created where capital can’t be captured from it. The trick is to reap that value, and distinguish where capital can and where it cannot add value. Of course there’s money to be made in the knowledge economy—ask Google or Craigslist—but by introducing such profound efficiencies, they deflate the markets they touch at a rate far faster than the human capital can redeploy itself in other markets. Since so much capital is dependent upon consumerism generated by that idled human capital, deflation follows.

Neoclassical economists would no doubt dismiss Reasons’ argument, and other theories of technological unemployment, as variations on the “lump of labor fallacy.” But their dismissal of it, under that trite label, itself makes an implicit assumption that’s hardly self-evident: that demand is infinitely, upwardly elastic.

That assumption is stated, in the most vulgar of terms, from an Austrian standpoint by a writer at LewRockwell.com:

You know, properly speaking, the “correct” level of unemployment is zero. Theoretically, the demand for goods and services is infinite. My own desire for goods and services has no limit, and neither does anyone else’s. So even if everyone worked 24/7, they could never satisfy all the potential demand. It’s just a matter of allowing people to work at wages that others are willing and able to pay.

Aside from the fact that this implicitly contradicts Austrian arguments that increased labor productivity from capital investment are responsible for reduced working hours (see, e.g., George Reisman–who also incidentally conflates capital accumulation with innovation, thus ignoring the fact that innovation is more likely to make investment capital superfluous), this is almost cartoonish nonsense. If the demand for goods and services is unconstrained by the disutility of labor, then it follows that absent a minimum wage people would be working at least every possible waking hour—even if not “24/7.” On the other hand if there is a tradeoff between infinite demand and the disutility of labor, then demand is not infinitely upwardly elastic. Some productivity increases will be lost through “leakages” in the form of increased leisure, rather than consumption of increased output of goods. That means that the demand for labor, even if somewhat elastic, will not grow as quickly as labor productivity.

Tom Walker (aka Sandwichman), an economist who has devoted most of his career to unmasking the “lump of labor” caricature as a crude strawman, confesses a degree of puzzlement as to why orthodox economists are so strident on the issue. After all, what they denounce as the “lump of labor fallacy” is based on what, “[w]hen economists do it, …is arcane and learned ceteris paribus hokus pokus.” Given existing levels of demand for consumer goods, any increase in labor productivity will result in a reduction in total work hours available.

Of course the orthodox economist will argue that ceteris is never paribus. But that demand freed up by reduced wage expenditures in one sector will automatically translate, on a one-to-one basis, into increased demand (and hence employment) in another sector is itself by no means self-evident. And an assumption that such will occur, so strong that one feels sufficiently confident to invent a new “fallacy” for those who argue otherwise, strikes me as a belief that belongs more in the realm of theology than of economics.

The cognitive capitalism and New Growth Theory models are an updated version of Daniel Bell’s “post-industrial” thesis. The problem is, post-industrialism is self-liquidating. Technological progress destroys the technical prerequisites for capturing value from technological progress.

P. M. Lawrence Comments re Lew Rockwell on the Jobs Problem

Lew Rockwell recently posted an article at the Mises site, How to Fix the Jobs Problem (also on his own blog here), with a blog entry at the Mises blog. It missed a great many things that should have affected its conclusions, and even got some stuff downright wrong (e.g., "Read any account of economic history from the late Middle Ages through the 19th century and try to find any evidence of the existence of unemployment. You won't find it.")

So I tried to make a rather long post in rebuttal and correction at the Mises blog. Strangely, it is still being held for moderation and shows no signs of appearing (I also haven't had a reply to the email it mentions). I thought it might be of interest to other readers, so here it is with a little more material and links.

---

This article appears to be drawing on some remarks in a recent article of Louis James and Doug Casey's at Lew Rockwell's site, or something very similar. As it happens, I emailed Doug Casey about it. The following is the body of that email, slightly reformatted:-

You are quoted as agreeing with "...leftists complain that globalization is unfair to poor countries – but in fact, modern production is becoming increasingly independent of geography, so pay rates worldwide are trending towards more equality than the world has ever seen. Wages are rising in the third world and dropping in the first. Like it or hate it, it's capitalism that has been helping the poor around the world, with real, productive work..."

And then as saying '...properly speaking, the "correct" level of unemployment is zero. Theoretically, the demand for goods and services is infinite. My own desire for goods and services has no limit, and neither does anyone else's. So even if everyone worked 24/7, they could never satisfy all the potential demand. It's just a matter of allowing people to work at wages that others are willing and able to pay.'

In actual fact, although total cash wages are rising in the third world, wage levels/rates there are not rising, because the tendencies the other way are stronger (the "iron law of wages" is prevailing, on the whole). The main overall effect is simply to lower wages and wage rates in places where they are higher, while the cash economies in the third world grow at the expense of non-cash resources without improving living standards for most people there. It is quite possible that there is a tipping point, one that high wage countries once passed and that low wage countries are still below. The final effect may well be to drag all wages below that - if things are allowed to run that far.

Also, it is not the case that 'the "correct" level of unemployment is zero', because wage levels that would produce that effect are not sufficient for everybody involved to survive on. In developed countries there is a floor set by the price of staples, since those countries have full cash economies; in developing countries this is much less significant, as people there still have some access to subsistence resources and only need top up wages rather than living wages, much as you describe having existed in the Great Depression only on a proportionally larger scale - and it is these countries that will set wage levels (in other times and places, e.g. in newly created colonies, people generally had enough resources of their own to live off and they could afford to be self-sufficiently "unemployed"; while that lasted wage levels had to be high to get anybody to work for wages - which is why the colonialists introduced taxes that created a demand for cash). In developed countries not all people will be able to take the jobs on offer without dying so, unless welfare or wage subsidies etc. are available to mop them up, at the margins they will either do that or turn to predatory behaviour - crimes of necessity. So your zero unemployment approach would contain disguised unemployment even without welfare etc. - it would omit the dead, the dying, and the criminal.

With that as background, I can add some more relating to Lew Rockwell's new material:-

• "The high minimum wage... high payroll tax... laws that threaten firms with lawsuits should the employee be fired... laws that established myriad conditions for hiring... mandated benefits that employers are forced to cough up for every new employee under certain conditions", and possibly "[t]he age restrictions that treat everyone under the age of 16 as useless... labor-union laws that... keep out workers who would love a chance to offer their wares for less", are indeed barriers to reducing unemployment (although, in the case of the minimum wage, that is only because of the particular way it is implemented, by mandating it - see below), apart from some rare oligopsonistic special cases in which they actually help (or maybe not so rare).
  
  
• "The unemployment subsidy in the form of phony insurance that pays people not to work" is incorrect; it does not pay people not to work, because it is lower than the other barriers Lew Rockwell lists and the ones he doesn't, like the ones I covered in the email I quoted above. However, funding it does throw a general burden on the economy; among many other adverse consequences, part of the effect of that is to increase unemployment - but not in that way.
  
  
• "The high cost of business start-ups in the form of taxes and mandates... withholding tax that prevents employers and employees from making their own deals... social-security and income taxes that together devour nearly half of contract income... labor-union laws that permit thugs to loot a firm" are not barriers of that sort. That is, they increase the cost of doing business, but depending on the business that can range anywhere between having a serious effect reducing its hiring to having none at all (or even actually increasing it, in the rare special cases I mentioned). There is also a general burden on the economy, but as before that doesn't produce that sort of barrier.
  
  

For the reasons given in the email, "if they were eliminated today... the unemployment rate would collapse very quickly. Everyone who wanted a job would get one" is incorrect - although it would definitely help.

"In a market-based labor contract, there is no exploitation" is wrong, because it doesn't allow for the effect of the deck being rigged previously, so to speak; it just describes playing fair with the cards as they are.

"Read any account of economic history from the late Middle Ages through to the 19th century and try to find any evidence of the existence of unemployment. You won't find it. Why is that? Because long-term unemployment is a fixture of the modern world, created by the interventionist state."

Bluntly, here Lew Rockwell doesn't know what he is talking about. Until a relief system was introduced it was an endemic feature of the Tudor period in England, for instance, and many contemporary sources and later historians describe it, e.g. Thomas More in his Utopia. Google for "Elizabethan Poor Laws" to find out more. There was similar distress in England that first gradually and then sharply increased over the eighteenth century, which was why the Speenhamland System was brought in to relieve it late in the century. (Of course, the term "long term unemployment" wasn't used in those days.)

"There is no [in]voluntary unemployment in a free market, because there is always work to be done in this world. It is all a matter of making the deal."

That is also addressed in the email.

"So it is hard for me to take seriously all the political plans for ramping up intervention in the name of curing unemployment".

Now we come to it. Actually, there are quite a few related ways, none of which have been tried or even seriously considered. They vary in how directly and quickly they would work and in how much funding they would need (none, in some cases), but they all have the feature of being Pigovian, i.e. being distortions applied to counter the other distortions (so it wouldn't actually be necessary to eliminate them, although it would still be helpful as that would minimise waste), or Coasian (these are political in the larger sense, and might not involve governments taking steps rather than allowing others to implement them). I described one of them in a submission to the Henry Tax Review, which is specifically for the Australian situation but will serve for wider illustration. That would actually deliver a minimum wage, but in a different way and not by mandating it. I consider it a valuable transitional stage towards a completely non-governmental approach, partly because it is fast acting and has no costs, and partly because of where we are coming from, i.e. a status quo distorted by the state - and that includes the effects of past distortions that would keep working for a long while under their own momentum even if the state stopped current distortions.

All this should clarify some of the other commenters' musings for them, too.

--P. M. Lawrence