The Utility of Disutility

Bill at Impossibilist Blog raises some interesting questions about my version of the labor theory of value, rooted in the disutility of labor.

Now - I can heartily agree the value of labour - i.e. of work done - is the labour time invested in it. I can further happily agree that one basis for this is the disutility to the worker of performing the labour.

The question arises though - does this vary according to the nature of the work, or is it in fact a generalised disutility common to all workers. Is it a scalar or binary matter. If the latter, then Marx is right, we cannot discern the value of a type of labour performed through the market value of the goods.

To elucidate the question, he proposes a hypothetical example:

A village - small - an homogenous populaton where everyone shares a common set of core skills and everyone can basically do everyone elses job.

Thus, everyone could do the work, but for a variety of reasons they don't - they specialise. Some might be good at certain tasks. Some might not like certain tasks. Some might have a favoured location. It might be heriditory tradition. When they exchange, though, they know they could have made the product themselves. They know roughly how long it would have taken them; and how long it is generally taken to perform that task. They can then exchange goods to what they consider to be an equal value - if only after haggling.

In that case, Bill says, the disutility of labor would be binary--that is, "labour time would resolve down to an equal general equivilent between economic actors."

Now, according to Mises, the disutility of labor as such has a binary quality to it; specific forms of work may be more unpleasant or repugnant than others, but all labor carries some disutility by its very nature, regardless of the pleasantness or unpleasantness incidental to the work. Indeed, part of the pleasure incidental to some forms of skilled work, associated with the sense of craftsmanship, involves satisfaction at minimizing superfluous or unnecessary efforts.

But despite the binary nature of this basic level of disutility, common to all labor, the total disutility of labor experienced by a worker has a scalar quality, resulting from the greater or lesser unpleasantness of particular forms of work.

Marx may have been right that it is impossible to get, ex post, from the exchange-value of specific goods to the value of the labor embodied in them. Even leaving aside the scalar or binary quality of labor's disutility, it's impossible to tell from a snapshot of current prices how far a specific price deviates from the equilibrium value.

But from the disutility of labor, combined with other a priori assumptions about the nature of human beings as utility maximizing beings, we can deduce that all exchange values are a combination of labor value and scarcity rents. Some of the scarcity rents are for naturally inelastic goods, like economic rent on land and natural resources. Others are short-term rents on elastic goods, whose supply hasn't yet adjusted to demand. But most important is the category of rent on artificially inelastic goods, like vacant land to which access is controlled by a landlord, usurious interest rates resulting from banking market entry barriers, and monopoly prices to the consumer resulting from state-enforced cartels.

So even though the labor theory of value, as explained in terms of subjective disutility, has little use for empirical analysis of specific prices, it has a great deal of value as an a priori tool of analysis. The central insight of classical political economy, that price moves toward cost, unless impeded by secondary factors, is a vitally important one. The other major insight developed by Ricardo's radical disciples, equally important, concerns the role of "artificial rights of property" and other state-created scarcities, in causing deviation from the cost principle. Taken together, they can be put to revolutionary conclusions. And a labor theory of value founded on the disutility of labor ties in well with both of these insights: As Tucker said, "under free competition there is no price where there is no burden." And as a corollary, "is there anything that costs except labor or suffering (another name for labor)?" [Instead of a Book, 1973 Gordon Press facsimile edition, 214, 403]


The scalar quality of the disutility of labor, likewise, may scuttle Marx's identification of exchange value with straight labor-time. Similarly, Bill has in the past, in other venues, raised the question of identifying the discrete labor-contribution of an individual worker in production that requires collective labor. The answer: in a free labor market, the individual worker can withdraw his labor from the production process when his wages are insufficient to compensate his experienced disutility. When labor, collectively, receives its full product without paying scarcity rents to the owners of capital and land, the product of labor will be distributed among laborers individually according to their disutility--through, as Hogskin put it, the higgling of the market:

Each labourer produces only some part of a whole, and each part having no value or utility of itself, there is nothing on which the labourer can seize, and say: "This is my product, this will I keep to myself." Between the commencement of any joint operation, such as that of making cloth, and the division of its product among the different persons whose combined exertions have produced it, the judgment of men must intervene several times, and the question is, how much of this joint product should go to each of the individuals whose united labourers produce it?

I know no way of deciding this but by leaving it to be settled by the unfettered judgments of the labourers themselves. If all kinds of labour were perfectly free, if no unfounded prejudice invested some parts, and perhaps the least useful, of the social task with great honour, while other parts are very improperly branded with disgrace, there would be no difficulty on this point, and the wages of individual labour would be justly settled by what Dr Smith calls the "higgling of the market." Unfortunately, labour is not, in general, free; and, unfortunately there are a number of prejudices which decree very different rewards to different species of labour from those which each of them merits.

Bill's picture, in his hypothetical example above, of the disutility of labor evening itself out through self-selection in a largely worker-controlled labor market, reminds me of Franz Oppenheimer's idea that under the inducements of a truly free labor market, labor would distribute itself among employments until incomes became "equal"--in my terms, equal in relation to given quantities of subjectively perceived effort. He quoted with approval Adam Smith's claim that

[t]he whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality.

He also cited, with similar approval, von Thunen's equilibrium at which "labor of equal quality is equally rewarded in all branches of production...."

Jehu Eaves' Critique of My Work

Jehu Eaves has written a thoughtful, multipart "critical examination of Kevin Carson's mutualism" at Gonzo Times.

Eaves begins in Part One by acknowledging the truth of my account of the state's indispensible role in the primitive accumulation process and the rise of capitalism, but defends Marx against the charge that he denied the indispensibility of the state. "He writes of the bloody violence unleashed on the floating population of England under Henry VIII, and, moreover, the history of plunder and colonization, and intensified inter-state conflict that accompanied the rise of Capital...."

Eaves quotes Marx again, in Part Two, reiterating his argument that "Wage Slavery was, in Marx’s opinion, not a result of nature, nor was it the mere product of preexisting social development."

And in Part Three, he asserts once again that I would "get no argument from Marx" regarding the claim that "every step in the development of Capital has required State coercion and violence...."

Here I would just say that the problem with Marx is that he describes the state's role in ways that imply its indispensibility in some places, while hedging on it in others. He is ambivalent. And Engels, in Anti-Duhring, flat-out asserts that the process of separation of capital from labor and the rise of wage-employment as the predominant model for organizing production would have occurred even if not a single hectare of peasant land been expropriated. (My reading of Engels will become a topic of dispute later on).

In any case, Eaves himself acknowledges that bloody, brutal state coercion was central to the rise of capitalism and the wage system as we know it. And more importantly, he acknowledges that

Even with the appearance of commodities, trade, money, etc. the emergence of capitalist social relations is not a necessary outcome. It occurs in history only when the owner of the means of production and subsistence enters into a specific relationship with another who has the “freedom” to sell her capacity to labor and is, moreover, compelled by circumstances, on pain of starvation, to sell this capacity. However, as was shown in the previous post, even facing starvation, it still took relentless state violence over many decades — centuries — for this mass of pitiful sub-humans to be broken to a life of wage slavery.

Wage slavery is no natural state for any human being. Despite the violence of the State and the efforts to starve them into submission, domesticating human beings to the routine of modern wage slavery was nowhere near as clean and elegant as is implied by the supply/demand curve of the simple-minded economist. It was — and remains today — an arena of constant violent aggression within society against the worker, in which every means available — political, military and economic — are brought to bear to compel her submission.

Despite all this in defense of Marx himself, Eaves seconds my scorn for modern-day Marxists. Interestingly, in Part Two, he seems to be of the opinion regarding Marx that (in the words of Nietzsche) "There was one Christian and he died on the cross."

On the other hand, we have the Marxist, who, despite his self-identification, could not pick Karl Marx out of a crowd of well shaven Keynesian economists. Unlike the Anarcho-Capitalist — who, reflecting his social base, decries the imposts of the Fascist State on the meager wealth of the petty capitalists, marginalized from productive employment of their capital by the progress of Capital itself, and forced to scurry about in various speculative enterprises to protect it from inflation — the Marxist is a poseur, who advocates on behalf of the wage slave — but only so far as she remains a slave of the State. Reduction of hours of labor to end unemployment forever? The Marxist has never heard of such nonsense, despite having read Capital, where Marx explicitly referred to it as the “modest Magna Carta” of the working class. In any case, the Marxist explains, we need the Fascist State to “invest” in “infrastructure” and “green jobs”, so the active laboring population must be worked to its absolute limit and the unemployed left to starve, so that the Fascist State may have the resources it needs to accomplish this. (Taking a page from the talking points memo of Fascist economists like Paul Krugman, the Marxist has taken to referring to wasteful Fascist State expenditures as “investments”.) If, by some fantastic chance, working people should overthrow this Fascist State, the Marxist explains, even then compulsory labor cannot be done away with. The workers is not prepared intellectually to manage her own affairs without the despotism of the party-state, which alone has the foresight and vision to manage society on her behalf until such time as she is deemed capable. When might this be? The party-state will know it, when the time arrives, of course.

Eaves' main area of disagreement with me, stated in Part Three, concerns my difference from Marx -- and himself -- "on the question... of, which, the State or Capital, is the driving force in this development," and my belief that "the State is the autonomous actor in the development of capitalist exploitation...." He takes what, in the terminology of 20th century Marxist analysis, would be considered a much more purely instrumental role of the state in relation to capital. The role of the state, although essential, is an inevitable outgrowth of the nature of capital:

However, even if we... assume the State has acted throughout history directly on its own behalf as the social capitalist, it is still obvious that the inherent contradictions of the capitalist mode of production impose on the State-Capital entity precisely the same laws as are imposed on the total social capital when it is formally operating independent of the State. The entirely formal distinction between the State, on the one hand, and the total social capital, on the other, has absolutely no impact on the influence of the relations of production on political relations generally, but only on the ways this influence is expressed in actual political events.

This is because, in historical materialism, the State, whatever its relation to the existing mode of production prevailing in society, is nevertheless only a body composed of members of society carrying out the particular public functions of the State. It is a part of the general division of labor prevailing in society, and not, as mainstream political-economy would have us believe, an entity standing outside this division of labor. It does not matter in the least whether politics forms a sphere separate from the direct exploitation of labor power in the capitalist mode of production — as, for instance, is said to prevail in the United States — or is entirely fused with this direct exploitation of labor power — as might be argued in the case of the People’s Republic of China at present — the contradiction arising from the process of production of surplus value itself gives rise to the same necessities.

Moreover, in every historical epoch known to us, the State is not, and has never been, anything but a given quantity of surplus product of the existing mode of exploitation of labor organized in the form of the State. Since, in all epochs for which historical records are available, it is composed of men and women who are, by definition, unproductive drones within society, wasting the productive capacity of society on efforts, which, under any and all previous epochs, are entirely superfluous to human needs, it follows that its entire constitution depends on the productive labor of the remaining portion of society, and on the actual mode of production of surplus product prevailing in the society, however historically determined. For the State to be otherwise, it would no longer be the State, but a particular element of the productive capacity of society itself.

Now, as to the chicken-or-egg question of the state versus capital, I would argue that they've existed in a dialectical relationship from the beginning. The state has existed since its first origins as an instrument for the "poliitcal means" of extracting wealth from labor, and existed -- at least in some form -- before the rise of modern capitalism. The rise of the absolute monarchies in early modern times and the rise of modern capitalism were parallel developments, feeding off one another in a dialectical manner. The monarchies aided the rise of the nascent mercantile capitalist class in the towns and their corruption of the craft guilds into oligarchies, while capitalists elbowed their way into a larger and larger share of the seats at the table -- alongside the landed interests -- in the "executive committee of the ruling class." The state, to some extent for its own autonomous reasons, took actions that -- wittingly or unwittingly -- promoted the growth of capitalism and the wage system, but at every step in the process the growing capitalist class changed the character of the state, and the state in dialectical fashion changed to reflect the character of the coalition of ruling class forces.

And at any point in this process, I would argue, the state itself constituted some portion -- in its own right -- of the ruling class. In some societies, the state itself is the primary component of the ruling class, extracting surplus value directly (as in the so-called Asiatic Mode, in which a despotic state is superimposed on the peasant communes, with village society itself organized on the neolithic pattern (something like the English open-field model) that predated the rise of the state. Even under capitalism, the state pursues autonomous interests of its own, with the state apparatus itself occupying some of the chairs on the executive committee alongside the representatives of capital.

Eaves' next area of disagreement with me is my "offensive" and "absurd" attribution to Marx of the belief that "the system of Wage Slavery could only be abolished given the abolition of labor itself," and that

Wage Slavery could not be abolished until the productive forces founded on Wage Slavery "had reached their fullest possible development under that society." Carson offers not one bit of evidence to support this outrageous claim, and is demonstrably wrong on it.

But Eaves himself excerpts this passage from Marx from my Studies in Mutualist Political Economy:

No social order is ever destroyed before all the productive forces for which it is sufficient have been developed, and new superior relations of production replace older ones before the material conditions for their existence have matured within the framework of the old society. Mankind thus inevitably sets itself such tasks as it is able to solve, since closer examination will always show that the problem itself arises only when the material conditions for its solution are already present or at least in the course of formation. In broad outline, the Asiatic, ancient, feudal and modern bourgeois modes of production may be designated as epochs marking progress in the economic development of society.

And he follows it directly with this quote from me:

For the Marxists, a “higher” or more progressive form of society could only come about when productive forces under the existing form of society had reached their fullest possible development under that society. To attempt to create a free and non-exploitative society before its technical and productive prerequisites had been achieved would be folly.

As far as I can tell, they say essentially the same thing. I leave it to the reader to decide.

In Part Four, Eaves goes on to argue that Marx himself acknowledged that the prerequisites for a free and cooperatively organized society already existed within industrial capitalism, in his own day, and that no further development of productive forces need occur before such a society could be viable. Marx himself argued that industrial capitalism had already created sufficient productive forces for a socialist society to exist.

In the German Ideology, Marx explains that Capital has already rendered a great mass of society propertyless, and produced great wealth and culture, based on a great increase in productive power of labor. It had already developed the productive forces and brought about universal competition within society; which produced a global labor force of wage slaves, made each nation dependent on the revolutions of the others, and effectively created a perverse sort of global community founded on wage slavery.

Thus, in 1845, Marx argues, the premises for a voluntary association were already in existence. These developments, in Marx’s opinion, not only made a free and non-exploitative society possible, they made its eventual emergence inevitable.

Perhaps so. But first, this is not inconsistent with a belief that the PAST development of industrial capitalism had been necessary to create the productive forces which existed in Marx's day, or that the rise of industrial capitalism and the wage system fulfilled a progressive role in creating these productive forces that would have been impossible in a society of peasant proprietors. Second, the argument that the productive forces already achieved made inevitable the emergence of socialism does not contradict my paraphrase of his argument; it affects, not the principle I attributed to Marx, but only the periodization of its application. And third, the evidence that Eaves amasses does not change the implications of the material from Marx that I quoted -- which I believe I interpreted correctly. It just indicates that Marx was ambivalent and conflicted, and -- like most thinkers, myself included -- was not fully consistent throughout his entire body of work.

And for what it's worth, my interpretation of Marx on this question owes nothing to Benjamin Tucker. I'm not even aware that he ever addressed this specific issue.

Interestingly, in Part Four Eaves himself characterizes Marx's argument in a way that -- to me at least -- seems to be a paraphrase of my own position:

Even if we consider Carson’s assertion that

'Just social and economic relations are compatible with any level of technology; technical progress can be achieved and new technology integrated into production in any society, thorough free work and voluntary cooperation.'

we only arrive at the conclusion that in all epochs men and women have struggled to put an end to the exploitation of their labor under whatever were the prevailing conditions of its extraction and realize a society in which they were not treated as the property of another in one guise or another. Marx makes no argument against this assertion, except to state that, owing to the conditions of society up to Capita,l all of these attempts merely end in new fetters on the individual. While the existing mode of the exploitation of labor is abolished, it is merely replaced by a new mode of exploitation. He does not offer a theoretical response to Carson’s hypothetical argument, but a historical one, in which men and women replace one limited mode of existence with another.

Isn't that what I said Marx said?

Then Eaves immediately seems to hedge on this:

However, Marx never once argued development of the productive forces could not take place within a producer owned context; he only argued that the actual historical development of productive forces took place in opposition to peasant property and the free cities. Far from making the patently absurd argument that development of the productive forces could not take place within the context of producer control over the forces of production, Marx made the argument that, with the system of wage slavery, producer control of the productive forces could be achieved only through their voluntary association and the means of production made the common wealth of society — there was no other possible route to ownership and control over the means of production by the great mass of propertyless wage slaves other than by establishing this control in a voluntary cooperative union.

I think he did, in fact, at least "once" argue this, in the passage I quoted. Marx's argument was not simply an empirical description of how history had actually occurred -- it was a theoretical argument that a new system of organizing production could only come about when the productive possibilities of its predecessor had been exhausted.

Eaves continues:

From these passages, it is clear that Marx could not have believed that a non-exploitative society had to wait until the productive forces created by wage slavery reached their fullest possible development, because he believed the system of wage slavery itself created barriers to development of the productive forces.

On the contrary, this simply proves that Marx believe the building up of productive forces necessary for socialism had already occurred, or was almost complete, and that he was witnessing in his own time the birth pangs of those productive forces "bursting out of their capitalist integument." But his belief that the productive forces were already achieved does not in any way contradict his belief that they had to have already been achieved, at some point -- even if the process was complete in his day -- before wage slavery could be superceded.

In Part Five, Eaves writes:

Kevin Carson’s attempt to synthesize the arguments of Anarcho-Capitalism and Marxism was always a fool’s errand. He produces a mash up of a critique of Capital from the viewpoint of the capitalist and from the viewpoint of the laborer, when what was really called for from him is a critique of capitalist labor itself — of the relation between these two classes and the implications this relationship has on the emergence and development of the Fascist State. We are led to believe that the relation between property and wage labor is entirely innocuous save for Fascist State intervention. Thus, Carson makes the assertion that wage labor can exist in a non-exploitative society without ever investigating the nature of wage labor itself as a historical social form. He essentially treats the worker as a self-owned commodity and applies to the labor market the same analysis he applies to the market in shoes.

Is this possible? Marx, who before he even begins to consider the commodity in circulation, and before he considers it as an essential element of the capitalist mode of production, takes the time to consider the commodity in its own right as an object. He begins by noting that every commodity has a two-fold character — that, for the producer, it satisfies no need for her and exists for her only as an object to be exchanged, a social use value. Without these two together, it is not a commodity....

My error, Eaves writes, is "the very idea that human capacities can simply be treated as another commodity for sale." Of my assertion that "the natural wage of labor in a free market is its product," he writes,

The only thing differentiating one set of human capacities from another are not the uniquely human desires and wants of the individuals concerned, nor how these unique desires and wants are expressed in their activities, but the impersonal exchange value contained in each as expressed in so many ounces of gold. Thus, human beings can be compared to each other as one might compare linen and coats.

I believe the alienation of labor as such has less to do with the formal characteristics of wage labor, than it does with the social context in which it exists. In a society where self-employment, cooperative organization or informal production for barter is the norm, and wage labor is atypical and usually merely an irregular source of supplementary income, it will have a fundamentally different character from a society where full-time wage labor is the norm. And likewise, it will have a different character in an economy where most business enterprises produce for a local market with customers and trading partners who are known to the producers.

Regarding Anti-Duhring, Engels' argument did not merely concern the emergence of pre-capitalist private property from communal property without the state. It concerned the development of capitalism itself without the expropriation of peasant land -- regardless of how it was owned. The issue is not whether the emergence of private property requires force, but whether the expropriation of the peasantry and concentration of property in the hands of a small landed oligarchy requires force.

In Part Six, Eaves makes this assertion:

...in Marx’s actual theory the worker is never paid “less than her product”, since the only “product” in her possession is her labor power. There is no reason to explain how she is compelled to receive less than the value of this commodity; there is no need to appeal to vague nonsense phrases like “social power” or “market power” to explain profit....

My argument is not that the worker receives less than the market value of her labor power under capitalism, as a result of state-enforced artificial scarcity of the means of production, but that she receives less than the value of the product of her labor. They are two entirely different things. The value of labor power is less than the embedded labor-value in the product of labor precisely because artificial property rights and artificial scarcity cause the worker to sell her labor-power for a price less than the value of her product. The capitalist is able to sit in the position of a monopsonist, targeting the price of labor-power to the minimum value the worker is willing to accept rather than the free market value of her labor, for the same reason that a monopolist is able to target price to the consumer's ability to pay rather than cost of production.

Carson wants the worker to be paid the full value produced by the actual consumption of the labor power; but, as we can now see, when the labor power is actually being exploited, it is no longer the property of the worker — it belongs to the capitalist who purchased it. The exchange of money for the commodity was only the first step and has been completed. It is now the property of the capitalist — although it still physically stands before him in the body of the worker. The labor power is not put to work until the capitalist has closed the deal to the satisfaction of both parties. Carson is entirely correct to say that the value of the labor power is its product, but this value is determined by the use to which its owner will now put it. Carson wants to skip over this observation, or treat it as inconsequential to the discussion; but it is, in fact, the heart of the matter. When the laborer puts her own labor power to use as an individual producer, its usefulness for her is directly realized in the product her labor can produce. If we could speak of value (wage) in this context (which, of course, would be silly) the “natural wage” of this labor would indeed be its product. This does not change one iota if we now assume the labor power is employed, not by the direct producer, but by the capitalist: the same condition holds: the usefulness of the labor power for the capitalist is directly realized in the product it produces.

Is there anything in this latter act of exploitation that requires State intervention? Is there anything in the latter act that requires unequal exchange in the former? Is there any reason why just this sort of exchange cannot happen completely as described in the absence of the State?

The concrete values which the capitalist must pay for labor-power, versus what he can receive for the worker's labor product, are not constants. They are heavily influenced by the structure of privilege. The capitalist's power of exploitation is conditioned by the question of whether or not he has to compete with the possibility of self-employment. And the more artificially scarce and expensive the means of production, the less competition the capitalist faces from self-employment.

I'd like to thank Jehu Eaves for the attention and effort he devoted to producing his critique of my work.

Capitalism and Un-Freedom (More on Contract Feudalism)

A bon mot from Lenin's Tomb (via Freiheit und Wissen):

The illusion of a free and equal contract between employee and employer is one that exerts considerable hold, particularly given the paucity of industrial conflict over the last fifteen years. The thought that the situation might be rigged in advance, by virtue of the capitalists control of the means of production, is so obvious that it eludes many people who otherwise place themselves on the Left.

In part, this is because people are prepared from an early age to expect and accept this state of affairs. In high school Business Studies class, I was shown along with my class mates a video sponsored by some bank which purported to demonstrate how the division of labour came about. It all took place, it seemed, in a relatively benign and peaceful fashion, with no intruding political questions or economic phases. From the cavemen to cashcards, it was really all about work being broken down into separate tasks which would be undertaken by those most able to do them. Then, finding contact with nearby villages, they would trade things that they were good at making for the things that the other villages were good at making. David Ricardo chortled from beyond the grave. The only interesting thing about this propaganda video is that it raised not a single eyebrow - as how could it? One is led to expect to work for a capitalist without seeing anything necessarily unjust about it, and one has nothing to compare it to. The worker is taught to sell herself (all those job interview training schemes) without perceiving herself as a commodity.

I had a similar reaction to all those passages on time-preference in Bohm-Bawerk and Mises that just accepted, as a matter of course, that one person was in a position to "contribute" capital to the production process, while another person for some mysterious reason needed the means of production and the labor-fund that were so graciously "provided." The old bourgeois nursery tale of primitive accumulation is still a favorite, although it has been thoroughly discredited by commentators ranging from the statist Marx....

In times long gone-by there were two sorts of people; one, the diligent, intelligent, and, above all, frugal elite; the other, lazy rascals, spending their substance, and more, in riotous living. The legend of theological original sin tells us certainly how man came to be condemned to eat his bread in the sweat of his brow; but the history of economic original sin reveals to us that there are people to whom this is by no means essential. Never mind! Thus it came to pass that the former sort accumulated wealth, and the latter sort had at last nothing to sell except their own skins. And from this original sin dates the poverty of the great majority that, despite all its labour, has up to now nothing to sell but itself, and the wealth of the few that increases constantly although they have long ceased to work.

to the free market socialist Franz Oppenheimer.

According to Adam Smith, the classes in a society are the results of "natural" development. From an original state of equality, these arose from no other cause than the exercise of the economic virtues of industry, frugality and providence. Since these virtues are pre-eminently those of a bourgeois society, the capitalist rule, thus sanctioned by natural law, is just and unassailable. As a corollary to this theorem the claims of Socialism cannot be admitted....

For them, class domination, on this theory, is the result of a gradual differentiation from an original state of general equality and freedom, with no implication in it of any extra-economic power....

This assumed proof is based upon the concept of a "primitive accumulation," or an original store of wealth, in lands and in movable property, brought about by means of purely economic forces; a doctrine justly derided by Karl Marx as a "fairy tale." Its scheme of reasoning approximates this:

Somewhere, in some far-stretching, fertile country, a number of free men, of equal status, form a union for mutual protection. Gradually they differentiate into property classes. Those best endowed with strength, wisdom, capacity for saving, industry and caution, slowly acquire a basic amount of real or movable property; while the stupid and less efficient, and those given to carelessness and waste, remain without possessions. The well-to-do lend their productive property to the less well-off in return for tribute, either ground-rent or profit, and become thereby continually richer, while the others always remain poor. These differences in possession gradually develop social class distinctions; since everywhere the rich have preference, while they alone have the time and the means to devote to public affairs and to turn the laws administered by them to their own advantage. Thus, in time, there develops a ruling and property-owning estate, and a proletariat, a class without property. The primitive state of free and equal fellows becomes a class-state, by an inherent law of development, because in every conceivable mass of men there are, as may readily be seen, strong and weak, clever and foolish, cautious and wasteful ones.

As a free market anti-capitalist, of course, I have to stipulate that there's nothing inherently wrong with wage labor. There's nothing inherently wrong with someone owning means of production, and hiring the labor of another to work them--if (and it's a big if) there was no coercion involved in acquiring the means of production, and no coercion is involved in the terms under which the worker must sell his labor. Under such circumstances, the owner's means of production are simply his own crystallized labor, and his returns from ownership are nothing but the cost of amortizing that labor. The natural wage of labor, under such circumstances, is its full product. And all exchanges are exchanges of labor. After all, as Benjamin Tucker put it, the whole point of socialism, rightfully speaking, is that labor should be paid its full product--not that being paid is a bad thing.

[Johann] Most being a Communist, he must, to be consistent, object to the purchase or sale of anything whatever; but why he should particularly object to the purchase and sale of labor is more than I can understand. Really, in the last analysis, labor is the only thing that has any title to be bought or sold. Is there any just basis of price except cost? And is there anything that costs except labor or suffering (another name for labor)? Labor should be paid! Horrible, isn't it? Why, I thought the fact that is not paid was the whole grievance. "Unpaid labor" has been the chief complaint of all Socialists, and that labor should get its reward has been their chief contention. Suppose I had said to Kropotkin that the real question is whether Communism will permit individuals to exchange their labor or products on their own terms. Would then Most have been as shocked? ....Yet in another form I said precisely that.

Now these principles would be a great guide to practice, if we lived in a free market society that had evolved peacefully from the society of the High Middle Ages, based on free exchange between peasant proprietors living on their own land and self-governing tradesmen in the town communes.

As it is, however, the means of production, during the centuries of the capitalist epoch, have been concentrated in a few hands by one of the greatest robberies in human history. The peasants of Europe were driven off the land by state-approved robbery, and driven into the factories like cattle. Their movements during the early industrial era were restricted by what amounted to an internal passport system, and their bargaining power in the labor market restricted by draconian Combination Laws enforced by administrative fiat. And even in the so-called "free market" that ensued, owners of capital and land were able to exact tribute from labor, thanks to state policies that restricted workers' access to cheap, self-organized capital, and forced them to sell their labor in a buyer's market. So the worker has been robbed doubly: by the state's initial use of force to forestall a producer-owned market economy; and by the state's ongoing intervention that forces him to sell his labor for less than his product. The vast majority of accumulated capital today is the result, not of the capitalist's past labor and abstention, but of robbery.

E.F. Schumacher vs. Liberal Technocrats on Third World Development

Techocratic liberals, in their analysis of American economic history, have tended to assume that large enterprises possess inherent efficiencies, and that such "economies of scale" explain their growth. Interestingly, their assumptions are mirrored even by some Austrians, who seem to think that capital-intensiveness (or "roundabout" production methods) involve unlimited, or almost unlimited efficiencies.

E. F. Schumacher effectively demolished similar assumptions by technocratic liberals in the context of Third World development. He cited the argument of Kaldor and others that

The amount of available capital is given. Now, you may concentrate it on a small number of highly capitalised workplaces, or you may spread it thinly over a large number of cheap workplaces. If you do the latter, you obtain less total output than if you do the former.

He went on to quote directly Kaldor's assertion that "research has shown that the most modern machinery produces much more output per unit of capital invested than less sophisticated machinery which employs more people." And since the amount of capital is assumed to be fixed, this quantity sets "the limits on wages employment in any country at any given time." Kaldor's argument continues, at length:

If we can employ only a limited number of people in wage labour, then let us employ them in the most productive way, so that they make the biggest possible contribution to the national output, because that will also give the quickest rate of economic growth. You should not go deliberately out of your way to reduce productivity in order to reduce the amount of capital per worker. This seems to me nonsense because you may find that by increasing capital per worker tenfold you increase the output per worker twentyfold. There is no question from every point of view of the superiority of the latest and more capitalistic technologies. [Industrialisation in Developing Countries, edited by Ronald Robinson (Cambridge University Overseas Study Committee, Cambridge, 1965), quoted in Small is Beautiful, p. 182]

Notice, right off, Kaldor's implicit assumption that capital is to be invested in "wage labor," rather than (say) making self-employment or small-scale cooperative production more efficient. And notice his assumption that "we" are employing "them." Needless to say, even the most "liberal" of technocratic liberals views the recent centuries' history of primitive accumulation and top-down industrialization from the standpoint of the victor. The standpoint of "liberal" development economists is essentially that of the old colonial powers: Third World countries are seen mainly as sources of raw materials and other export goods, rather than in terms of domestic production for the internal market. [Schumacher, Small is Beautiful, p. 216]

Schumacher administered a well-deserved intellectual beating to Kaldor, pointing out that the quantity of available capital was not in fact static, and that bringing unemployed labor into productive use, even in labor-intensive forms of production, would increase the total pool of income from which investment capital might be saved.

The output of an idle man is nil, whereas the output of even a poorly equipped man can be a positive contribution, and this contribution can be to "capital" as well as to "wages goods." [Ibid., pp. 182-83]

The question is whether investment capital is to be obtained through the traditional method of "primitive accumulation"--i.e., robbing the laboring classes of their small property and squeezing them dry--or by enabling labor to keep its full output, and cooperatively pool its own surplus income as an investment fund to increase its standard of living over time.

Schumacher also argued that the ratio of output to capital investment was irrelevant in itself, unless one addressed the most effective ratio of capital to labor in the context of large quantities of unused labor. The ratio of output to labor might be maximized with production methods that resulted in a less than optimum ratio of output to capital investment. The goal is not the maximum return on capital investment, but to enable labor to produce the maximum possible output to support itself. [Ibid., pp. 182-84] In fact, the goal of capital investment, from the capitalist's point of view, it not necessarily to increase the return per unit of capital, but to substitute capital for labor power even when the total output is not thereby increased. The substitution of capital-intensive for labor intensive forms of production is often aimed, not at any abstract criterion of "efficiency," but at reducing the employer's dependence on wage labor. [Ibid, p. 183]

It also matters, I should add, where the "output" goes. It makes little difference to the dispossessed peasant how "efficient" industry is, if he is unemployed and therefore unable to buy its output under any circumstances. On the other hand, if he is employed, even in more labor-intensive (and thus less "productive" by Kaldor's standard) industry, he will be able to buy a larger portion (infinitely larger, compared to zero) of the resulting output. The products of intermediate technology more than likely are not intended for the export market, but for local consumption by those who could not afford the output of "modern" industry in any case.

And even by the standards of Galbraithian technocracy, it turns out that centralized, capital-intensive industry is by no means as "productive" as the technocrats think. When reduced distribution costs are taken into consideration, and transportation subsidies do not artificially increase the division of labor past the point of diminishing returns, we find that small-scale production for local markets, using labor-intensive techniques or multi-purpose machinery, may actually be cheaper per unit of output. Schumacher pointed out that

a considerable number of design studies and costings, made for specific products in specific districts, have universally demonstrated that the products of an intelligently chosen intermediate technology could actually be cheaper than those of modern factories in the nearest big city. [Ibid., pp. 185-86]

Another, related argument Schumacher demolished is that centralized, large-scale industry is necessary to make optimal use of a limited supply of entrepreneurial skill--supposedly quite scarce in the Third World. Like capital, entrepreneurial skill should be concentrated in a few blockbuster projects. Schumacher responded, quite sensibly, that no such thing as generic "entrepreneurial ability" existed outside the context of the specific form of technology being used.

Men quite incapable of acting as entrepreneurs on the level of modern technology may nonetheless be fully capable of making a success of a small-scale enterprise set up on the basis of intermediate technology.... [Ibid., p. 185]

According to Schumacher, native development officials in the Third World mirror the assumptions of Western technocrats. The manager of an African textile mill, for example, explained that it was highly automated because

African labour, unused to industrial work, would make mistakes, whereas automated machinery does not make mistakes. The quality standards demanded today... are such that my product must be perfect to be able to find a market." [Ibid., p. 194]

On the other hand, the capital-intensiveness of such production is an effective entry barrier such that production is dominated by a few blockbuster projects, likely funded with foreign aid money or World Bank loans. And the relatively small number of workers employed, concentrated in urban areas, means that the vast majority of the population will lack the purchasing power needed to buy the factory's output. Hence the manager's assumption, which he never stops for a minute to examine, that his "perfect" product is being produced for the demanding standards of the export market, or for a small urban luxury market of the comprador bourgeoisie. Were intermediate-scale production technology used, with local labor employed in much larger quantities, the more widely distributed purchasing power would likely result in a ready local market for goods produced to somewhat less exacting standards.

Elsewhere, Schumacher cited a discussion in a World Bank study of the prospects for developing small and medium-sized towns. The study made short work of the issue, dismissing the possibility on the grounds that such localities "lack[ed] the basic infrastructure of transport and services," and that "[m]anagement and professional staff [were] unwilling to move from the major cities." As Schumacher crowed,

the proposition, evidently, is to transplant into a small place the technology which has been developed in such a way that it fits only a very large place. [Good Work, p. 48]

William Greene: Individualist Anarchists in the First International

Shawn Wilbur has some new William Greene texts at In the Libertarian Labyrinth blog. I quote from two of my favorites. First:

TO THE REV. H. W. FOOTE, Minister of King's Chapel, Boston.

You say (p. 14), "The honest price of riches, ever since the beginning of human society, has been work, self-denial, intelligence," &c. You begin very far back; but can you think of any special instance in point? The patriarch Jacob became rich through the blessing of the Almighty, not by work. The methods employed by him to increase his flocks and herds, at the expense of his father-in-law, were not those you specify. To-day men get rich, not by work, but by interest on money, the accumulation of rents and dividends, and the like; or by the rise in the value of real estate, monopolizing to themselves the profits that belong, not to themselves, but to whole neighborhoods; and so on....

But it's the second, "Address of the Internationals," that I find especially interesting from an individualist anarchist perspective. The role of American individualist anarchists in the International Working Men's Association is a fascinating topic that's received far too little attention. It's touched on in James Martin's Men Against the State (chapters 5 and 6 are online here), and in somewhat greater depth in Timothy Messer-Kruse's The Yankee International: Marxism and the American Reform Tradition, 1848-1876. I quote at length, starting with Shawn Wilbur's preface:

[The Address of the Internationals also appeared in the Fragments, after separate pamphlet publication in 1873. Although this was apparently a work "by divers hands," much of the language and subject matter is very obviously Greene's. Note that this piece was issued after the IWA had largely self-destructed, and certainly after the American individualists had been cast out from among its numbers, so it is, perhaps, less a document of the "First International" than a statement of belief in an unceasing revolutionary struggle. Understood in this way, the connections of the International with the Knights Templar and some of the more bizarre elements of the piece are more understandable.]

Not to mention Greene's rather purple descriptions of the International, in terms reminiscent of the Church Militant. Or maybe it's just a New England Transcendentalist thing. Next comes an introduction later added by Greene:

NOTE.—The Boston Section, No. I (French-speaking), of The Working-People's International Association, detailed a committee, in the latter part of the year 1872, consisting of "citizens Gruber, Sandoz, Greene, Prand, Coquard, and Jotterand," to draw up an address, explaining and defending the distinctive principles of the society. The committee attended to their duty, drew up the address, sent it to the headquarters of the association, and, after an interval of many weeks, received it back again, but covered all over with notes and observations. The changes recommended by the chiefs of the society were incorporated into the text; and the address was read before the New England Labor Reform League, at its regular convention for the year 1873. It was afterwards published by the Co-operative Publishing Company. Although the address was the work of many hands, yet, as the present writer saw his way clear to sign it, and finally did sign it, and now deems it worthy of being preserved in some more permanent shape than that of a loose pamphlet, it is here given as a sequel to the foregoing articles.

W. B. G....

In the main body, Greene takes a critical view of the collectivist strain of socialism's visceral rejection of wage labor as such (not necessarily the same as the "wage system," by the way), and profit. His defense of wage labor in principle, so long as the wage is not driven down by privilege, prefigured Tucker's later debates with Johann Most. As Tucker said, it's understandable that communists don't want anything sold, but why labor in particular? The whole point of socialism, after all, is precisely that labor be paid its full product. The word "profit" Greene uses in the sense of an accounting surplus, rather than returns on accumulated wealth as such, and so probably exaggerates his differences with the socialists (including Tucker) who use it in the second sense.

Amelioration of the condition of the working people is not exactly the emancipation of the working-people. The amelioration of the condition of the poorer classes, through the exercise of alms-giving and charity, means a postponement of the emancipation of the working-classes, and a perpetuation of existing privileges. The privileged classes are, without doubt, disposed to alleviate individual cases of suffering; for it is not to be presumed that they have no natural sympathy for the human beings they employ: nevertheless, as a general thing, they are not in favor of the economic emancipation, at the expense of their own privilege, of the entire working-class. The reform called for by the International Association is organic, and naturally incapable of being brought about by mere acts of charity....

Many working-men maintain that there should be an immediate radical change in the constitution of the workshop, and that all production should take place, hereafter, under the principle of co-operation. According to them, the workmen of every shop ought to organize themselves into companies owning their own tools; ought to contribute to the common product by their labor; ought to be paid by receiving their fair share of the common product when it is created; and ought to direct and govern the business of the workshop democratically, and by the majority rule. Among the objections to this scheme, the following may be mentioned: The company would have to buy their raw material, and sell their product, in the market; and purchases and sales can seldom be conducted to good advantage by workmen in business meetings, and deciding matters by majority votes. Persons who know the least would talk the most; persons of very little capacity would make the greater number of the motions; and much, if not all, of the time, would be wasted in determining points of order. "Many men, many minds." The company would probably end by employing a competent merchant to do their buying and selling. This merchant, a man outside the solidarity of the co-operators, would be able to direct his purchases and sales to his own advantage, and would, almost inevitably, usurp a privileged position. Furthermore, since working-men differ in capacity and assiduity, and since combined production requires a central direction, a manager, or foreman, with authority to discriminate in the matter of wages, would be found necessary. This manager would be a privileged person; and the company would be in his power. If they should quarrel with him, he would move into the next street, set up a workshop for himself on the wages principle; and nearly all the best workmen would go with him. He and the merchant would hold the company in their hands. If the co-operative workshop should be under the patronage and charge of the State, the case of the workmen would be still worse; for privileged positions would be created in the company for the purpose of providing places for mere politicians, or for the exercise of nepotism.

The success of the co-operative principle in companies organized for consumption [protective-union stores], and in mutual insurance-companies, is conceded. The success of productive enterprises carried on under the principle of industrial partnership, which is a mixed wages-and-share system, with the important risks falling on the employers, is also conceded.

But the hitherto uniform failures of strictly co-operative companies for production render it necessary that the International Association should patiently wait, before it gives its approval to any scheme of cooperative production, until that scheme shall have been thoroughly thought out, and until a guaranty shall be given that it will not "tend to the constitution of new privileges."

"The General Statutes" state the third fundamental principle of the Association in the words following:—

"The subjection of the laborer to capital is a source of all political, moral, and material servitude."

Many labor-reformers affirm that the fact of WAGES is the special source of the political, moral, and material servitude of the working-men to their employers. These reformers say, "Wages is slavery; and the man who works at wages sells himself and his children for slaves."

The word "wages" is old, and was current among English-speaking people, with its present meaning, long before the existing wages-system came into being. According to the common popular sense of the word in New England at the present day, a man may say, I wage a dollar, I wage a horse, meaning, I bet a dollar, I bet a horse. The word "wages" implies an element of risk. If a competent person devise some important undertaking, provide himself with capital, hire working-people at wages, and begin to carry out his plans, the money he advances from day to day, or from week to week, to the working-people, in wages, is money wagered by him; for the undertaking may ultimately fail, and yield no return for the outlay. The workingman wagers his pay for the current day only, or for the current week; but the employer wagers all that he invests in the undertaking. If the undertaking be carried on according to a share-system, and not according to a wage-system, the workman will have to contribute his share of the capital in the beginning, and wait for his pay and his share of the profits, until the work is ended, and the product is transmuted into money; the workman risking the loss, in the case of failure, not only of the capital by him contributed, but also of all the labor he has expended. Perhaps every one is willing to hold shares in privileged joint stock companies, and to receive a percentage, without himself working, of the product of other people's labor; but for every one person who is willing to work upon a strictly equitable share-system, taking his own risks, and insuring himself, a hundred other persons will probably be found who prefer to work at stipulated wages. Working-men are not, as a general thing, of the opinion, that "the man who works at wages sells himself and his children for slaves." The phrase, "wages is slavery," first put forth in the neighborhood of Boston, some twenty-five years ago, by the Brook Farm Fourierists, has met with a temporary but undeserved success.

The wages of labor are determined, under the existing system, by competition in the labor market; the employers striving, through combinations among themselves, and the exercise of legal and political privileges, to lower the rate of the workman's remuneration, while the workmen strive, through counter-combinations, and other processes, to raise the rate of their own pay.

Properly-directed and successful labor always leaves a profit; and it is a mistake to suppose, with some of the extreme labor-reformers, that all profit is extortion and robbery. When Robinson Crusoe was alone in his island, he planted seed which he had providentially put away in his pocket; and, from the consequent harvest, he laid aside seed for the next year, and had enough left to supply him with food, and a little more. This little more was clear profit. Nature worked with Robinson, giving him an increased product, and making no charge for her aid....

"The General Statutes" of the Working-People's Association make little, if any, reference, either to profits, or to the fact of wages: they declare no vain war against poverty in the abstract; neither do they denounce capital or the capitalists. They simply denounce that "subjection of the workingman to capital" which necessitates the existing wage-system, which creates the sovereignty of the capitalists, which makes an iniquitous division of profits inevitable, which causes the poverty of the working-people, and which brings about the existing political, moral, and material servitude of laborers to their employers. Capital is innocent enough. What is capital? It is the surplus product of labor laid aside, and used in reproduction. It is wealth invested in trade, in manufactures, or in any business requiring expenditures with a view to profit.7 "The General Statutes" condemn, not capital at all, not the surplus product of labor, not profits saved up and used in reproduction, but "the subjugation of the laborer to capital, " which is something altogether different. Capital is created by the laborer; and the existing subjection of the laborer to capital is the result of an unnatural subjugation of a creator by its own creature. It is the abuse of capital, the unjust privilege of capital, its domination over the laborer, not capital itself, that is in fault....

The best part of the article, without a doubt, is Greene's analysis of privilege as a state construct:

"The subjugation of the working-man to capital" is not an ultimate fact: there are grounds and reasons for that "subjugation." Those grounds and reasons are to be found in positive and arbitrary legislation, which creates privileges. Protective tariff laws enhance the price of products, and so carry diminished consumption, and consequent privation, into every poor household in the land: they, moreover, strengthen and confirm the control of the labormarket by capital. Arbitrary privileges granted to chartered corporations translate themselves into outrages upon wage-laborers. Restrictions upon the use of a circulating medium based on products—whether those restrictions take the form of swindling banking-laws, or of laws (such as those borne on the Massachusetts Statute-book) prohibiting the circulation of bills-of-exchange, due-bills, checks and drafts, and the like, as currency—deprive the working-man of natural and just rights, and put him at disadvantage. It is not necessary to speak of railroad monopolies, of the giving-away of public lands to speculators, and of a thousand kindred iniquities. All laws creating privileges tend and work to defraud the working-man of his fair wages; and it is by the operation of tyrannical and wicked positive laws, and not, as is sometimes calumniously affirmed, by the improvidence of the laborer, that the working-man has been and is brought into "subjection" to capital. That subjection is, therefore, arbitrary, artificial, and not natural: it is contrary to the normal order of things. It is impossible to organize a privilege in favor of the working-man, as such; for, as soon as a working-man is privileged, he is a member of the favored classes, and must exercise his privilege, if at all, to the detriment of working-people. The International Association, in its Inaugural Address of 1864, defines its position as follows: "Landlords and money-lords will always make use of their political privileges to defend their economic privileges. Instead of helping on the emancipation of labor, they will continue to clog it with all possible obstacles. The achievement of political supremacy has, therefore, become THE FIRST DUTY of the working-class.

....The privilege of capital is guaranteed by the courts, and defended by the whole armed power of the State, military and naval. Saint James says, "Go to now, ye rich men, weep and howl for your miseries that shall come upon you. Your riches are corrupted, and your garments are motheaten. Your gold and silver are cankered, and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days. Behold, the hire of the laborers who have reaped down your fields, which is of you kept back by fraud, crieth: and the cries of them which have reaped are entered into the ears of the Lord of Sabaoth." Woe to them that bring about iniquity by law! The prophet Micah says, " Woe to them that devise iniquity, and work evil upon their beds !—when the morning is light, they practise it, because it is in the power of their hand." The prophet Habakkuk says, "Woe to him that buildeth a town with blood, and etablisheth a city by iniquity!" The prophet Amos says, "Hear this, O ye that swallow up the needy, even to make the poor to fail from the land, that ye may buy the poor for silver, and the needy for a pair of shoes!" The prophet Isaiah says, "Woe unto them that join house to house, that lay field to field, till there is no more place, that they may be alone in the midst of the earth!" King Solomon says, "There is a generation that are pure in their own eyes, and yet is not washed of their filthiness; a generation, O how lofty are their eyes! and how their eyelids are lifted up a generation whose teeth are as swords, and their jaw-teeth as knives, to devour the poor from off the earth, and the needy from among men. The horse-leech hath two daughters" (land-monopoly and money-monopoly), "crying, Give, give!"

Economic laws creating privileges are usually enacted at the instance of persons intent upon private interest, and for temporary purposes, without foresight of the permanent privileges which those laws create. For example, the banking-laws were passed in the interests of the stockholders and officers of the banks, without any special intention, or even thought, of annoying the working-people in their exchanges of labor for labor. The giving-away of the public lands was, and is, for the purpose of enriching the persons who received them, and are receiving them, not for the purpose of leaving future generations of working-men without homes. The immediate purpose is to cheat and rob the people, not to enslave them. The whole thing is one of shortsighted avarice, rather than of concerted ambition; and the subjection of the laborer comes incidentally only, and "without observation." The servitude of the working-class is of indirect but efficacious LEGAL origin: the emancipation of the working-class must come, therefore, the nature of the State being what it now is, from political action, resulting, not in the making of new laws,—for very few new laws, perhaps none, are called for,—but in the repeal of all existing laws that breed and hatch out privileges It is for this reason that "the achievement of political supremacy by the working-class has become A DUTY."

The members of the International are no office-seekers. They are confident, that, with the abolition of privileges, nine-tenths of the existing political offices, since they are constituted as privileges, and with a view to the protection of privileges, will also be abolished. The abolition of privileges would also abolish the necessity for ninety-nine one-hundredths of the current legislation. Many members of the International maintain that office-holders should no longer be paid, as they are now, fancy salaries, but that they should be paid, like other working-men, simple working-men's wages. This plan succeeded well in the Commune of Paris, during the siege, and provided a superior class of public functionaries. Better men, and more competent men, taken directly from the working-class, were hired by the Commune, at a dollar and a half per day, than had been hired by the old governments at five times those wages. If special honor is attached to any position, that honor should be counted as a part of the wages; and the pay in money should be proportionably less. If there were no privileges to be protected, the necessities for political government would go on gradually diminishing; and the social autonomy of the people would gradually establish itself outside of the government. "The best government is the government which governs least." The public treasury ought to be kept at all times nearly empty, so that knaves and adventurers may not be tempted to thrust their fingers into it. The people should be rich, and the government should be very poor. The triumph of the International would throw an effectual wet blanket on the existing lust for public positions, and would cause a return to productive pursuits, and to day's wages, of many very brilliant, but now worse than useless, members of society....

What is required at the present time is not so much equality before the laws as equal laws: that is to say, laws that do not themselves bring forth and perpetuate inequality; for laws organizing privilege have not, of necessity, a respect for particular persons; since they may have the effect to render it inevitable that a privileged class shall exist, without themselves designating the persons who are to compose that class. The privileged man of the period may say, "I took the world as I found it; and by taking the world as I took it, since we both of us have to deal with the same world, you also may perhaps, if you show the same talent, diligence, and perseverance that I showed, attain to a position similar to the one I hold. There is equality after all; for every one of us faces the same chances." The college sophomore may say to the freshman, "I kick you in accordance with time-honored custom; but I, also, was kicked, in my time, by my predecessors; and, if you wait patiently, you may, in your turn, kick your successors. There is an equality in the matter; for, ultimately, all kick, and all are kicked." Would there not be a better equality, and at the same time more justice and more dignity, if no one should kick, and no one should be kicked? Justice—not equal chances in injustice, not the satisfaction of knowing that you may, if you have luck, bite as much as you are bitten, and eat as much as you are eaten—ought to govern the world....

Klassen on Rural Homesteading for the "Time of Troubles"

Via Ender's Review, June 5. Robert Klassen has some observations that should be of interest to any lefty who's into Peak Oil, any Misesian who believes we're headed for a crackup boom, or anybody in general who believes state capitalism is headed for some kind of messy crisis of inputs: "The Transition II."

How can communities be organized to survive the threat? I would like to begin to try to answer that question by talking about the farm where I grew up.

This farm was located two-miles west of LaPorte, Indiana. The town was named by French trappers as "The Door" out of the forests to the prairies of rich soil to the south. Our farm sat on the edge of the glacial boundary, on the leftover sand and clay and stones of the melted glacier. Around sixty-five acres, the soil was fertile enough to grow anything appropriate to that climate with sufficient patience and labor.

Our family consisted of three generations, eight adults and nine children, living in three separate households. Our immediate neighbors lived on parcels of one to ten acres and comprised a dozen adults and two-dozen children. By working together in completely free and informal manner, expressing an innate spirit of cooperation, all of these people survived the privations of the Depression and WWII without suffering. How?

What I remember most clearly is a spontaneous division of labor, and trade. Our family produced raw milk, chickens, eggs, fruit, cider, honey, and grains. One neighbor specialized in strawberries and sweet corn, another in vegetables, another in goat products. Food was traded within the group, and the surplus was sold in individual roadside stands.

There was no fuzzy warm feeling of family or community here, that was simply the way things were done. There was a fierce sense of property ownership, and woe betide cheats or trespassers, including children – maybe especially children who stole watermelons. Borrowed tools were returned promptly, and if a neighbor asked for help with a major job, one would be wise to arrive early and stay late, or at least until milking time....

State sponsored corporations are trying to sell these people single-harvest hybrid seeds, and discourage the use of native seeds that will reproduce identical genetic copies year after year for free. I have to agree that costly hybrids are inappropriate to poor subsistence farmers even though potential yields may be many times greater, because high-tech agriculture presupposes high-tech farmers, which they are not. The matriarch interviewed in this essay simply said no to hybrid seeds. No sale. What’s wrong with that? It doesn’t take a UN resolution to say, I won’t buy it.

Klassen says one thing I disagree with:

This kind of rural model cannot be imported to the cities, and city dwellers would not willingly be exported to the rural model. The millions of hungry urban people require intensive mechanized agriculture with its high-yield hybrid seeds, fertilizers, pesticides, and herbicides plus thoroughly educated farming practitioners and skilled banking creditors. For urban dwellers rhapsodizing on an organic garden theme in nature, I suggest they try it before they try to sell the idea: turn over an acre with a spade, break it up with a hoe, rake it out, plant it, cultivate and harvest by hand, and then talk about it. They didn’t call it back-breaking work for nothing. Even Thoreau hired a teamster with oxen and plow to break Emerson’s land at Walden.

First of all, he sets up a false dichotomy between "intensively mechanized" chemical agriculture and spadework. What about the possibility of appropriate-scale mechanization: i.e., the use of a simple rototiller? They won't throw you out of the organic club for using it. Second, even without any mechanization at all, there's a lot (really a lot) less spadework involved in intensive raised bed techniques than in spading up a field for row crops. One double-digging job for a bed can last for years, with only U-bar cultivation subsequently, if you're careful not to compact the soil. Third, the vacant space in even a built-up city is sufficient to meet a surprising proportion of people's total needs, what with rooftop gardens, vacant lots, small yards, and the like. John Jeavons, through years of experimentation, has managed to get the amount of space needed to produce an average person's diet (meat included) down to 4,000 sq. ft. Fourth, from the point of view of labor-time, such techniques are probably a net plus for most people, if you compare the amount of time it takes to grow the stuff to the amount of time you'd have to work to earn it. Borsodi calculated, in Flight From the City, that the total cost of labor and supplies to grow and can one's own tomatoes was about a third less than the grocery store price.

I recently received, by email, this criticism of Borsodi's latter claim, with the request that I post it on my blog:

Of the many comments I would like to make, I'm only going to focus on one comment you made in your Rejoinder to George Reisman, who, by the way, is a PHD and should be addressed accordingly.

Your rejoinder states,

"......Further, as counter-intuitive as Reisman may find it, the economies of mechanized farming and food processing are not that great even over the ordinary techniques of the average backyard gardener. Borsodi did a careful study of all the costs (including labor time and supplies) involved in growing and canning vegetables at home, and found that it was cheaper overall to grow one’s own. As I said above, the increased overhead and distribution costs of large scale production offset many of the economies that Reisman is so enamored of."

What you fail to recognize, as did Borsodi, is the violation of the fundamental rules of economics, (see Hazlitt, “Economics in One Lesson” for further clarification). Namely, Borsodi's ‘careful study’ obviously does not calculate ‘the costs to society’ if everyone had to take the time to can their own vegetables. Would we have electricity?, Automobiles?, High rise buildings?, etc.? if Edison, Ford, Carnegie, etc. spent most of there time canning vegetables, baking bread, building their homes, etc? Of course not!

May I suggest that you read Prof Reisman's book Capitalism and study the recommended readings he provides, then come back and see if you still think Mutualism is viable. Until you complete this exercise and master that body of economic knowledge, your ideas cannot be considered reasonable by any intellectual that does have that body of knowledge (economics) mastered. You owe this to your participants and followers that, I believe, are being led down a path of economic ignorance....

Sincerely,
Mark Baumann
Project Manager, The Boeing Company

Mr. Baumann's interpretation of Hazlitt sounds remarkably like a public good argument for innovation, if (as it seems) he posits some sort of "cost to society" that's not reflected in the costs of materials and one's own labor time. Remember, Borsodi's calculation of costs included the average value of labor time involved in growing and canning. So if he was correct, there would be a net gain in time for a person of average income in doing it himself; he wouldn't "have to take the time," but rather would choose to spend the time doing it himself instead, in order to maximize his own available time.

Remember, also, that Borsodi's calculation was made using an average wage. Someone who earns significantly more than the average for an hour's work might find it pays better to buy groceries. And whether an hour spent inventing automobiles is more remunerative than an hour raising one's own vegetables is an individual decision, based on the individual's perception of cost. If the individual perceives the potential payoffs from invention to exceed the benefits growing vegetables, he's free to do so. If not, I see no reason for him to feel under obligation to worry about "social cost." Besides, if growing one's own vegetables reduces the total labor time needed for procuring food, a person will have more time left over for other pursuits. If anything, in a society with less dependence on wage labor and more bargaining power for labor, and with decentralized small-scale production, I'd expect more productive innovation by people tinkering in small shops.

If the costs and benefits of various uses of an hour's labor are fully internalized by the laborer, then it seems to me that a simple economic calculation of comparative advantage will lead to the most "socially useful" use of time. Unless, again, you're proposing some public good standard of the "best" individual use of time apart from individual calculations of efficiency? If the individual is expected work longer hours to buy something than it would take to make it himself, because his wage-labor is more socially useful, it seems you're elevating some standard above demonstrated preference.

I've already read Economics in One Lesson, but I'll add Reisman's book to my reading list lest I wander off the Celestial Highway onto the Path of Economic Ignorance. As for my "followers," Mr. Baumann flatters me: these cats don't much care to be herded.

By the way: I believe it's fairly standard in this genre to refer to authors by last name without any honorific. At least I don't recall seeing any prefatory "Mr." cluttering up "Carson" in Reisman's article. And in the States, at least, any insistence on the social use of "Dr." by PhDs produces an effect more comical than anything else.

The Conflation Conflict

Roderick Long created quite a stir with his recent article in Cato Unbound, "Corporations versus the Market; or, Whip Conflation Now."

He attracted some criticism for his list of the ways that government intervention benefits big business, specifically, against its smaller competitors and against the general public:

As I have written elsewhere:

One especially useful service that the state can render the corporate elite is cartel enforcement. Price-fixing agreements are unstable on a free market, since while all parties to the agreement have a collective interest in seeing the agreement generally hold, each has an individual interest in breaking the agreement by underselling the other parties in order to win away their customers; and even if the cartel manages to maintain discipline over its own membership, the oligopolistic prices tend to attract new competitors into the market. Hence the advantage to business of state-enforced cartelisation. Often this is done directly, but there are indirect ways too, such as imposing uniform quality standards that relieve firms from having to compete in quality. (And when the quality standards are high, lower-quality but cheaper competitors are priced out of the market.)

The ability of colossal firms to exploit economies of scale is also limited in a free market, since beyond a certain point the benefits of size (e.g., reduced transaction costs) get outweighed by diseconomies of scale (e.g., calculational chaos stemming from absence of price feedback)—unless the state enables them to socialise these costs by immunising them from competition – e.g., by imposing fees, licensure requirements, capitalisation requirements, and other regulatory burdens that disproportionately impact newer, poorer entrants as opposed to richer, more established firms.

Nor does the list end there. Tax breaks to favored corporations represent yet another non-obvious form of government intervention. There is of course nothing anti-market about tax breaks per se; quite the contrary. But when a firm is exempted from taxes to which its competitors are subject, it becomes the beneficiary of state coercion directed against others, and to that extent owes its success to government intervention rather than market forces.

Intellectual property laws also function to bolster the power of big business.

But what ignited the real controversy was his claim that the net impact of government intervention promotes larger firm size than would prevail in a free market:

In a free market, firms would be smaller and less hierarchical, more local and more numerous (and many would probably be employee-owned); prices would be lower and wages higher; and corporate power would be in shambles.

Part I. Roderick Long vs. Peter Klein

The first and most important negative reaction came from Peter Klein:

As Roderick rightly points out, in the mixed economy large corporations are among the prime beneficiaries of government largess, such that a wholesale defense of "big business" is silly and counterproductive for libertarians. However, Roderick spoils (for me, anyway) an otherwise excellent summary by jumping to the unwarranted conclusion that today's corporations are, on average, larger, more hierarchical, and more diffusely owned than the firms that would emerge under laissez faire....

Klein listed a number of specific objections to Long's argument, based on past arguments with both Long and me.

The problem is that [Long's and Carson's] argument cuts both ways. Certainly large firms benefit from the state. But so do small firms. Corporations are under stricter antitrust and regulatory scrutiny, are more likely to be the victims of political rent extraction (in Fred McChesney's sense), and are subject to stricter disclosure requirements (SOX being only the most visible, recent example) than their smaller competitors. Small firms benefit from state-funded incubators, SBIR awards, regional development grants, and a host of other interventions designed to foster "entrepreneurship." Trade barriers, war, state control of education, and a host of other interventions retard the international division of labor, reduce stocks of human capital, and lower the marginal product of labor, all of which reduce the scale and scope economies that favor large-scale production.

Which set of effects outweighs the other? It is impossible to say, ex ante. The firm on the purely free market could be larger, more vertically integrated, and more hierarchical than the typical corporation under the mixed economy. Moreover, the worker-owned cooperative, the partnership and proprietorship, the decentralized "open-production" system, all suffer from serious incentive, information, and governance problems, almost none of which are mentioned in the anti-corporation libertarian literature. I suspect this literature's preference for small-scale production is based primarily on aesthetic, rather than scientific, grounds.

Further, Klein challenged Long on his failure to address the large body of literature on the organizational weaknesses of worker cooperatives. He cited arguments in an earlier blog post of his at Organizations and Markets on the agency and incentive problems entailed in "Vaguely Defined Property Rights" in alternative organizational models (i.e., stakeholder ownership as an alternative to traditional residual claimancy by shareholders). In such organizations, he argues, free rider problems result from property rights not being adequately defined to ensure that actors "bear the full costs or receive the full benefits of their actions." Agency problems result, as well, from property rights being "non-tradable, insecure, or unassigned." Cooperatives and stakeholder organizations also have a problem with short time horizons among their members.

An anonymous email correspondent of Stephan Kinsella's (surely not Mary Rosh!), remarking on Klein's critique, wrote

Long is taking some haymakers right on the chin. I don't see how he makes an effective rebuttal. He should throw in the towel.

Klein's response is what I was waiting for. A truly devastating dissection of Roderick's argument, which now lies in shambles....

I give him credit for kickstarting a very welcome conversation on the corporation. Caplan is right -- this conversation has been ridiculously lively. But as the conversation continues, Long's contribution is getting more and more demolished. That's not surprising. Long's anti-corporate view relies heavily on Carson, and many of Carson's positions can't stand up to serious scholarly scrutiny. When Long presided over a symposium issue of JLS on Carson's work, it was obvious that he sympathizes with it, but he played it safe by criticizing a relatively minor mistake by Carson. Now that he has openly defended one of Carson's more central claims, he is getting the same pummelling that Carson would take if his scholarship ever received more mainstream attention.

Well, golly! As unprepared as I am to deal with criticisms by mainstream academicians and all, I'll give it my best shot.

From my perspective way out here in the outer reaches of crankdom, anyway, Klein's arguments don't seem all that "devastating." His examples of antitrust law and protectionism aren't even relevant to the point at issue. Antitrust law, in the handful of occasions where it has been used to significant effect, has affected the balance of power--not between large and small firms--but between gigantic firms and absolutely gargantuan firms (i.e., between oligopoly firms and monopoly firms). And protectionism benefits mainly national industrial giants at the expense of transnational firms (when Long's argument concerns the role of state intervention in enabling those giant national firms to come into existence in the first place).

As P.M. Lawrence pointed out in the comments to Klein's critique,

This affects the competitiveness of mega-firms with large firms. It has no bearing on the competitiveness of smaller firms with these.

Long responded, along similar lines, that trade barriers "insulate large firms from foreign competition," which means "they must be divided between the two sides."

Antitrust law, in particular, is a poor choice of example. The Clayton Act was showcased by Gabriel Kolko in The Triumph of Conservatism as an example of Progressive Era legislation passed at the behest of big business to restrain competition. Its practical effect, through restraints on "unfair competition," was to bolster attempts by trade associations to restrict price cutting. It thereby permitted, for the first time, stable oligopoly markets under the control of a handful of firms. As Butler Shaffer elaborated, in In Restraint of Trade, the "unfair practices" subsequently defined by FTC regulation included "selling of goods below cost or below published list of prices for purpose of injuring competitor...."

As for Klein's arguments on the agency problems resulting from vaguely defined property rights in cooperatives, this strikes me as almost a mirror-image description of the agency problems in the conventional, allegedly shareholder-owned corporation. As Long responded,

I found this claim puzzling, since “vaguely defined property rights” are notoriously a problem that plagues the corporate form. It is unclear who owns the corporation, given that there is no identifiable group whose relationship to the corporation involves the usual characteristics of ownership such as unlimited liability (in tort). Note that I’m not claiming that shareholders ought to have unlimited liability; at any rate, I see the point of the argument that their separation from direct day-to-day control makes their exemption from liability reasonable. (I’m undecided as to whether I agree or disagree with that argument, but at any rate I don’t automatically dismiss it.) But the case against regarding them as fully liable seems like an equally good case against regarding them as full owners; it turns them into something more like clients of the corporation, leaving it unclear where the real ownership lies. Perhaps some division of ownership between shareholders and managers can be achieved contractually in a way that mirrors current corporate structure, but even so, corporate ownership will then be neither more nor less “vague” than in non-corporate forms of enterprise.

Klein, in his rejoinder, fixated mainly on Long's reference to limited liability, arguing against holding shareholders stritly liable for the corporation's actions and debts. But this is a bit like Lincoln's Jesuit who, accused of killing ten men and a dog, triumphantly produced the dog in court. From reading the paragraph above, it should be clear that Long mentioned limited liability as one facet of a broader problem: the vagueness of ownership rights in the corporation, given the ambiguous division of control between management and shareholders. Klein failed to address the broader issue at all.

Klein's rejoinder also included a restatement of the agency problems resulting from a lack of tradable ownership claims, which mean that

owners do not share the gains from increases in the capital value of the firm, and have reduced incentives to pursue long-term objectives.

There is, in fact, a considerable body of literature on the agency problems resulting from vaguely defined property rights in the conventional corporation. The problems, briefly stated: that tradeable instruments do not constitute ownership claims in any real sense; that internal stakeholders like human capital have no property rights in the equity they create (and hence no incentive to increase productivity); and that management not only self-deals from capital it did not contribute, but also appropriates the productivity gains created by others' efforts, and therefore has the time horizons of a Turkish tax farmer. Corporate mangement--standing in as "owner" to risk capital that involves no personal loss, and assigning transfer prices to goods for which there is no outside market--resembles nothing so much as the management of state enterprises under Lange's market socialism, "playing at market" in Mises' memorable phrase.

Shareholders have few or no genuinely enforceable ownership rights now, for which reason management has "reduced incentives to pursue long-term objectives." There is also a wide body of literature on the short time horizons of corporate management: their gutting of human capital, stripping of assets, and hollowing out of long-term productive capability in order to maximize short-term paper returns and game their own bonuses and stock options. Robert Jackall (Moral Mazes) uses the terms "starving" and "milking." If anything, corporate management's tendency toward such behaviors has been grossly exacerbated by the ostensible resurgence of "shareholder capitalism" and the "entrepreneurial firm" since the 1980s.

Luigi Zingales, for example, argues ("In Search of New Foundations," The Journal of Finance, August 2000) that a major problem is that much if not most of the value of the ostensibly shareholder-owned corporation results from the human capital contributed by internal stakeholders, but that this value is not reflected in formal ownership rights. The result is that much of the value created by internal stakeholders is expropriated by management, thus undermining the incentives of human capital to invest its efforts in the organization.

The root of all these problems is the very pretense that management represents shareholders or that the latter are the owners in any real sense, which is as transparently false a legitimizing ideology as the claim of Soviet industrial management to represent the workers or the workers' state. Corporate management, in fact, is a self-perpetuating oligarchy in control of a free-floating mass of unowned capital. It uses its purported representation of shareholders as a legitimizing ideology to insulate it from accountability to internal stakeholders, and is free to expropriate the latter's efforts because of the vaguely defined property rights in the organization.

More generally, hierarchy and the separation of labor from residual claimancy are inherently prone to incentive and agency problems, because conflict of interest is the primary result of the authority relationship. Authority is a means for externalizing costs on subordinates and appropriating the fruit of their efforts. Worker cooperatives require far less front-line supervision precisely because the work force has residual claimancy and internalizes the results of its ownership. In addition, the cooperative avoids many of the Hayekian information problems involved in the centrally planned corporation because those in possession of distributed or idiosyncratic knowledge about production are in control of the work process.

I have found that the most useful contributions of radical organization theory are often derived from the insights of mainstream organization theory, logically implicit in mainstream theory but never developed to its obvious conclusion in mainstream work. Zingales' argument, for example, is based on a classic article by Sanford Grossman and Oliver Hart ("The Costs and Benefits of Ownership," Journal of Political Economy 94:4, 1986) on the way assignment of property rights in the firm affects incentives; parties without residual claimancy, they argue, will be less likely to invest in the productivity of the firm because of the lack of ownership rights in their share of the increase. It's also a commonplace of organization theory that residual claimancy should normally be vested in the owner of the hardest to monitor factor or the factor with the highest agency costs, in order to economize on monitoring costs. As I argue in Chapter Nine of my forthcoming book, labor (as a result of the problems inherent in incomplete contracting and endogenous enforcement) is almost always the factor hardest to monitor.

Residual claimancy by workers is so rare, despite being the most efficient solution to the agency problems involved in hierarchy and the separation of labor from ownership, because it conflicts with the structural presuppositions of actually existing capitalism. The conventional firm presupposes hierarchy and the divorce of labor from ownership, and then tries to find a mechanism to elicit effort from those who have no rational interest in maximizing productivity. All the management fads of the week, from the 1990s on, are reminiscent of the old anarchist joke about the cook who tries serving poison mushrooms with white sauce, poison mushrooms with brown sauce, grilled poison mushrooms, etc., and wonders why he can't find a recipe that doesn't give him the bellyache. All the management theory experiments with hierarchy-plus-this and hierarchy-plus-that are attempts to find, against all odds, an efficient way of organizing business enterprise based on inherently irrational principles.

In his response to Klein, Long also addressed the example of government aid to small businesses. The effect, he said, was not to promote small business at the expense of large, but to promote small business at the expense of smaller.

...to borrow Bastiat’s phraseology, the small firms that benefit from government assistance are those that are seen; the ones that are most harmed by government action are those that are unseen because they are prevented from coming into business in the first place. In the absence of licensure, zoning, and other regulations, how many people would start a restaurant today if all they needed was their living room and their kitchen? How many people would start a beauty salon today if all they needed was a chair and some scissors, combs, gels, and so on? How many people would start a taxi service today if all they needed was a car and a cell phone? How many people would start a day care service today if a bunch of working parents could simply get together and pool their resources to pay a few of their number to take care of the children of the rest? These are not the sorts of small businesses that receive SBIR awards; they are the sorts of small businesses that get hammered down by the full strength of the state whenever they dare to make an appearance without threading the lengthy and costly maze of the state’s permission process. The assistance that small firms receive comes largely at the expense, not of larger firms, but of still smaller firms—or of those who would start such smaller firms if they could.

As Jesse Walker has observed:

Removing occupational licensing laws alone would unleash such a flood of tiny enterprises—many of them one-man or one-woman shows, sometimes run part-time—that I doubt the elimination of antitrust law and small-business setasides would offset it. Especially when large businesses have proven so adept at using antitrust and setasides for their own purposes.

A genuine freed market, then, might well see what Sam Konkin described as the dissolution of the proletariat in the entrepeneuriat.

Klein, in his rejoinder, responds to this with his own argument from "the unseen":

But the same argument applies to large firms. We see those that benefit from government action, but we don't see those that are harmed--the small firms that would have become large, the large firms that would have become larger or more diversified or more hierarchical or whatever, were it not for the predator state. Imagine the large, highly efficient firms we might see in a truly free market!

The problem with this argument is the discrepancy between the room for growth at the low and high ends of the size spectrum, respectively. At the lower end, the ability of individuals to form small businesses with almost no capitalization outlays, relying mainly on the spare capacity of the household capital they already own (starting a neighborhood bakery with one's ordinary kitchen oven, starting a cab service with a car and cell phone, etc.), would likely result in at least an order of magnitude increase in the number of small businesses. What corresponding room for expansion is there at the high end of the spectrum? The gap between the largest firms that exist now and the largest conceivable firm isn't all that great; compared to the explosion of self-employment in the household and informal economy, and the proliferation of small ad hoc businesses outside of current local licensing and "safety" regimes, what significant difference is there between an industry controlled by three or four oligopoly firms engaged in slightly unstable administered pricing, and an industry controlled by a single monopoly firm engaged in perfect administered pricing? At the high end of the spectrum, as both Long and P.M. Lawrence pointed out, the alternative is between enormous and gargantuan. At the small end, it's a choice almost between two different worlds.

What I find especially astonishing is that Klein ignores the high-end limits to growth implied by his own article, the classic "Economic Calculation and the Limits of Organization." By the line of argument set out in that article, the predominant oligopoly firms in the existing manufacturing sector are already demonstrably above Rothbard's threshold of calculational chaos. Rothbard argued, specifically, that rational calculation becomes impossible whenever no external market exists for an intermediate good. Since, in fact, the majority of intermediate goods used by the typical manufacturing corporation are firm-specific, their transfer prices must be assigned internally rather than based on outside markets.

Part II. Roderick Long vs. J.H. Huebert and Walter Block

Will Wilkinson objected to Long's emphasis on transportation subsidies as a centralizing force (favoring Wal-Mart's "warehouses on wheels" business model, in particular).

...when the primary subsidy is the national and local automobile-centric transportation infrastucture, I can’t really see the point in picking on a company that makes consumers better off by making the most of the tax-funded infrastructure everyone uses.

J.H. Huebert and Walter Block make a similar argument.

it's not clear why government roads give Wal-Mart an advantage over local businesses. Perhaps Long is arguing that Wal-Mart wouldn't be able to deliver goods to its stores but for the roads, and then local businesses (selling locally produced goods?) would remain in business....

We hate to commit the tu quoque fallacy, but do not Roderick Long and his leftist confreres also use these vehicular thoroughfares? If so, this charge of his against Wal-Mart comes with particular ill grace from that source. And while there might be a hermit or a Rip Van Winkle who does not utilize statist streets and roadways, virtually everyone is "guilty" of this behavior – and the market for everyone’s products (even philosophy lectures) is distorted by the roads’ presence.

This argument, that everyone benefits from infrastructure, is a common one. But as Long pointed out,

the fact that everyone uses the tax-funded highway system doesn’t mean that everyone benefits from it equally; firms with wider distribution, and so higher shipping costs, benefit more from public highways than their competitors, and to this extent public funding of highways constitutes a net redistribution from local firms to nationwide firms.

It should be self-evident that when the state subsidizes particular inputs, it amounts to a shift in competitive advantage toward firms whose business model relies most heavily on those inputs, and away from those whose business model does not.

Huebert and Block continue on the same issue, recycling the familiar argument that the free market might make long distance transportation cheaper:

But there is no reason to think that Wal-Mart – or some other big business – wouldn't find other ways of delivering goods over long distances in a free market. Indeed, but for government intervention in the market for roads and transportation generally, it is entirely possible that there would be better, cheaper means for Wal-Mart to get goods to its stores.

The free market might very well provide cheaper roads, in the sense of their total net cost. But the problem is not so much their net cost from the standpoint of society as a whole, as the portion of net cost that is borne by those who impose that cost. As Long argues:

Huebert and Block speculate that, but for state intervention, Wal-Mart might have at its disposal some even cheaper means of distribution. No doubt it would. But surely what’s at issue is not Wal-Mart’s absolute cost level, but whether, thanks to government intervention, its costs are artificially lower than those faced by its competitors.

As for the rest of the Huebert-Block critique, it doesn't just tend toward incoherence. It's already there. In making their criticisms they display the most superficial awareness, not only of the actual content of the articles by Long and by Charles Johnson that they're criticizing, not only of the Rothbardian tradition which they ostensibly espouse, but of what they've written elsewhere in the same article.

For example, their objection to Long's use of the term "corporate power":

Long writes that "Corporate power depends crucially on government intervention in the marketplace."

But what does he mean by "corporate power"? A corporation is merely a group of individuals who have entered into a particular type of business relationship. The corporate form allows them to be known collectively by their business's name instead of their own names. And it allows them to enter into contracts under which they limit their own liability – something which is perfectly legitimate under libertarianism. (Objectivist historian Robert Hessen has made this point well in his book, In Defense of the Corporation....)

The corporation, therefore, has no power to speak of.

Instead, only the state has power.

But as Long points out, Huebert and Block go on to write, scarcely twelve lines later:

There is a kernel of truth in Long’s viewpoint – some larger firms do use the apparatus of the state to steal an advantage over smaller competitors. As a matter of history, things work out this way more often than in the opposite direction.

After essentially restating Long's argument, Huebert and Block compensate by putting a different argument in Long's mouth:

But Long appears to assume that big firms should always gain at the expense of their smaller rivals.

Huh? As Long explicitly stated (in a comment under Klein's initial critique):

We both agree that there are governmental benefits and governmental burdens flying in all directions; the question is whether there's any perceptible systematicity as to the direction of benefits and burdens.

His argument, from the beginning, has been not that government benefits big business alone, but that "the primary and disproportionate beneficiaries of government privilege tend to be corporations, particularly large corporations."

And Long provides a number of citations to no less an authority than the Big Dawg himself, one Murray Newton Rothbard, on the existence of corporate power.

Incidentally, in speaking of corporate power I am simply following the example of Murray Rothbard—a theorist of whom Huebert and Block, Rothbardians both, ordinarily think quite favorably. Rothbard had no problem referring to the “corporate power elite” (here), or describing political favoritism as a case where “government confers this power on a particular business” (here), or labeling our current political system a “corporate state” (here). Moreover, Rothbard defined the “ruling elite” (here) as consisting not only of the “kings, politicians, and bureaucrats who man and operate the State,” but also those “groups who have maneuvered to gain privileges, subsidies, and benefices from the State.” Of course Huebert’s and Block’s status as Rothbardians does not mean that they must agree with Rothbard about everything; and perhaps this is an area where they think Rothbard went astray. But in that case, if, as they say, my “importance as a libertarian philosopher” makes my comments “all the more alarming,” Huebert and Block must presumably be still more alarmed at the potentially malign influence of such similar comments coming from Rothbard, a far more prominent and influential libertarian thinker than myself. Or if they aren’t, why aren’t they?

Consider also this Rothbard quote, courtesy of Peter Klein:

...in the contemporary world of total neo-mercantilism and what is essentially a neo-fascist “corporate state,” bigness is a priori highly suspect, because Big Business most likely got that way through an intricate and decisive network of subsidies, privileges, and direct and indirect grants of monopoly protection.

In addition, this argument from Huebert and Block has a couple of other weaknesses.

First, Hessen argued, not that the corporation is currently a contractual means by which investors agree to limit liability, but that that benefit could be achieved by free contract absent the current statutory regime of general incorporation. And in any case, the argument misses the point: that by making the process automatic and providing a ready-made procedure for it, rather than requiring investors to negotiate it with other parties from scratch, the state privileges the corporate form against other alternatives and weakens the bargaining power of those who would prefer not to deal with it. I mean, doesn't NLRB certification just recognize an entity that could be formed entirely by contract?

And second, their emphasis on the corporation-state dichotomy ignores the issue of the corporation's role as a component of the state, or of the coalition of ruling class forces in control of the state. Murray Rothbard himself was quite friendly toward the Power Elite analysis of C. Wright Mills and G. William Domhoff, which stressed the rotating pool of personnel between the top political appointees of the state and the senior management and boards of directors of the corporation. Or as Brad Spangler put it, the guy holding the bag is as much a robber as the guy holding the gun.

Huebert and Block also make the rather astonishing argument that the very existence of any small business at all alongside big business proves something (I'm not sure what, exactly) about the relative privileging of big against small:

From the fact, however, that tiny grocery stores exist cheek by jowl with large corporations in this industry, we can deduce that there cannot be advantages for the latter that are so strong as to drive into bankruptcy the former, even in our mixed economy. Similarly, there are small restaurants that continue to serve the public, in the face of gigantic chains and franchises such as McDonalds, Wendy’s, Burger King, etc. Long gives us no compelling reasons why McDonald’s would go away but local hamburger stands would thrive if the state were to disappear.

If this argument means anything--and to be charitable I suppose we must assume it does--it means that the state's privilege to bigness isn't sufficient to drive small business off the field altogether. I'm not aware of anyone who would argue differently, because obviously it would be an extremely difficult argument to sustain on empirical grounds. The disagreement, rather, concerns the extent to which McDonald's could survive alongside small local restaurants in a freed market.

In his response, Long not only cited McDonald's reliance on subsidized transportation for its business model and its benefiting from the USDA Market Promotion Program (a benefit unavailable to mom and pop burger joints). He also reiterates his argument from "the unseen," used against Klein above:

Moreover, it costs $250,000 to start a McDonalds franchise; would such franchises really be competitive with small local firms if the cost of starting the latter were not set artificially high by licensure, zoning, quality standardization, and other regulatory requirement?

Huebert and Block also object to Long's treatment of differential tax breaks as benefiting some businesses against others, drawing on the old Austrian argument that tax loopholes are entirely different from subsidies.

They are, indeed, entirely different--at least technically. But as I have argued elsewhere, they have the same practical effect as subsidies. The effect of offering tax loopholes to those firms engaged in favored business models (e.g. accelerated depreciation, the R&D credit, the deduction of interest on debt, exemption of stock transactions involved in mergers from capital gains) has exactly the same effect, mathematically, as would obtain from starting with a tax rate of zero and then imposing punitive taxes on the competitors of those following such business models.

Long himself has been careful to avoid any generalizations about culpability for such tax benefits. Nevertheless, he argues, they clearly benefit some businesses at the expense of others, and make some business models artificially competitive.

But of course I never said it was wrong to accept selective tax breaks. If a neighborhood thug breaks everyone’s leg but mine, because he likes me, I’m not obligated to demand that he break mine too. My point was just that if I then win all the footraces against my neighbors, I probably owe my success to the thug’s intervention – perhaps innocently so, assuming I did nothing to encourage the thug’s policy, but innocent or not, I still can’t say it was simply through my own talents and effort that I succeeded.

Along the same lines, Huebert and Block write,

Apparently Long is blaming Wal-Mart for profiting from selling goods that were transported over government roads that already existed and were not built for Wal-Mart's benefit. It is not at all clear what Wal-Mart could do to avoid criticism for this. What method of transporting goods isn't subsidized?

But to repeat, the point is not that Wal-Mart is culpable for benefiting from such subsidies--merely that they do benefit, and that their business model requires such subsidies. Once again, quoting Long:

But whether or not Wal-Mart is to blame for highway subsidies, the fact remains that it does benefit from them more than its local competitors do, and to this extent its success is not a product of the market and so is not a reliable predictor of what we might expect to see if the market were freed.

Perhaps the most egregious misreading Huebert and Block make is of Charles Johnson's blog post on labor unions, and Long's use of it in his own article.

Long also laments that our hampered free market doesn't give unions enough power. He writes: "Legal restrictions on labor organizing also make it harder for such workers to organize collectively on their own behalf."

Given that the law allows some workers to not only organize themselves but also coercively organize others, it's not clear what Long is talking about. To support his claim, he cites a blog post which laments that U.S. labor laws do not go far enough. We should support current labor laws, says Long's source, but ideally we will return to the days of more "militant" unions.

You remember "militant" unions – the kind that used to (and, well, still do) beat and kill workers who do not cooperate with them. Long and his "comrade," of course, make no mention of the unions' bloody history.

It's hard to find a charitable explanation, short of dyslexia, for H & B's mischaracterization of Johnson's argument as a lament that "U.S. labor laws do not go far enough." As Long points out,

...Huebert and Block duly clicked on the link; but evidently they read Johnson’s piece with even more haste than they read mine, for they produce a truly bizarre summary of it: according to Huebert and Block, Johnson “laments that U.S. labor laws do not go far enough. We should support current labor laws . . . but ideally we will return to the days of more ‘militant’ unions.” In fact Johnson’s article calls for the repeal of all labor legislation ad its replacement by an unregulated labor market....

As for the rest of it, since Johnson's entire post was an extended analysis of the specific ways in which the law restricts the freedom to organize collectively, Long's rejoinder recapitulated the argument (no doubt thanklessly) for H & B's benefit, and Johnson followed it up with a rejoinder of his own, I refer you to them. Suffice it to say here that essentially every characterization made by H & B is nearly a 180 degree reversal of Long's and Johnson's actual argument.

H & B continue, on the same subject:

Unions are like a tapeworm on the economy, sucking sustenance out of businesses. The entire rust belt is a result of unions demanding wages higher than worker productivity. The present problems of the Detroit Three (Ford, Chrysler, General Motors) are mainly dues to their foolishness in not withstanding the unwarranted demands of the United Auto Workers.

Replace "unions" and "wages" with "CEOs" and "salaries," and you get a pretty accurate assessment of the situation. The present problems of the Detroit Three, in fact, are mainly due to the mismanagement and pathological management accounting system described by William Waddell and Norman Bodek: valuing inventory as an asset, absorbing overhead by "selling it to inventory" instead of addressing it directly, and treating management as a fixed cost, while treating human capital as a variable cost.

One of the coauthors expressing this outrage over union greed, by the way, is also a well-known defender of price-gougers as heroes of the free market. But as I've said elsewhere, any time you see libertarians attacking a specific example of behavior they normally defend in principle, you can guess the principle in this specific case is being used to the benefit of workers. As Brad Spangler once challenged the author of an anti-union diatribe at Mises.Org,

Are you implying that sellers ought only passively accept or decline deals and never assertively negotiate with a potential buyer, merely so long as more than one potential buyer exists?...

1) If so, do you apply that dictum universally, or just in the case of labor deals?

2) If so, AND if you limit that view solely to the labor market, then I must ask what (in economic terms) is so special about labor?

If so, AND if you apply it universally, then I must say you're really doing yourself a disservice when it comes to selling a home or car....

That statement [that there is no way to sell anything for a higher price than the highest bidder is willing to pay] sort of misses the point -- namely, that rhetorical efforts to systematically discourage assertive negotiation by one subset of transaction participants (under color of economic thought) are a misguided effort to cripple the market's own discovery process for determining what "the highest bidder is willing to pay."

Part III. Roderick Long vs. Stephan Kinsella

Some of Long's critics focused, not so much on the argument itself, as what it "sounds like." Stephan Kinsella, in comment under Klein's first post at Mises Blog, objected to Long's reference to

the surreal insanity that actually characterises the daily work experience in large businesses--"Dilbert" is popular because it's so depressingly accurate. It's a lot to swallow to suppose that that situation owes little or nothing to governmental distortions.

His response:

The Dilbertish portrayal of the "daily work experience" as depressing has a Marxian whiff about it, doesn't it? And it lacks a sense of perspective--cubicle life seems far preferable to working in the coal mines, which itself must have seemed preferable to a pre-industrial hand-to-mouth subsistence existence.

In a subsequent comment, he wrote:

And it is indeed true that criticisms of corporate power are usually anti-market ideology, and should be dismissed as such. Critics of corporations are in the grip of anti-market ideology, as Roderick notes. When left-wingers complain about corporate libertarians, they are confused. They are not responding sincerely or honestly to a genine tendency.

This is not the first occasion on which Kinsella has dismissed arguments on such "sounds like" grounds. For example, in an argument over whether the state, by reducing the transaction costs of establishing the corporate form, shifted bargaining power toward those who prefer the corporate form, responded:

The notion of "bargaining power" is leftist to the core.

In that case, Murray Rothbard must have been "leftist to the core," since he repeatedly remarked on the effect of state policies in making some factors artificially scarce in relation to others, and thus artificially inflating their returns.

Such an approach is ironic, given Kinsella's vulnerability to a similar line of attack. For example, criticisms of "intellectual property"--one of his own pet issues-- are also usually associated with "anti-market ideology." In fact, I personally encountered a Randroid who refused to hear any arguments against IP law as a monopoly because it "reminded him of" what he constantly heard from the "commies." This is the same line of "reasoning" used by neocons' who dismiss Justin Raimondo as a "librull" because anti-war arguments these days are conventionally associated with the Left.

Part IV. Roderick Long vs. Bryan Caplan

Bryan Caplan raises a series of objections to Long's assessment of the prevailing effect of government intervention. First, immigration:

...I'm afraid Rod overlooks much more important beneficiaries of government privilege than corporations: Lower-skilled workers in the First World. Lower-skilled workers in places like the U.S. earn several times as much as equally-qualified people in the Third World. The reason is clearly immigration restrictions--with modern transportation and credit markets, there's no way that price differentials of that size could long persist....

My point is that compared to immigration restrictions, government privileges to corporations are barely worth mentioning - and yes, that includes the unprecedented bailouts of 2008.*

[* Consider: If the only effect of immigration restrictions were to double the earnings of 70,000,000 Americans from $10,000 per year to $20,000 per year, the annual effect of immigration restrictions would equal the cost of the notorious $700 billion bailout!]

The most glaring problem with Caplan's argument is the fundamental self-contradiction involved in his statement of it. At one point, he reassures us, "I'm the first person to point out that immigration hurts lower-skilled Americans less than most people think." Now surely, if unrestricted immigration could in fact result in the wages of 70 million people being halved, that's probably not less of a hurt to lower-skilled Americans than "most people think." But the contradiction deepens. As evidence of his reassurance on the relative harmlessness of immigration, he links to an earlier post of his in which he cited George Borjas' estimate that immigration has reduced the wages high school dropouts by 8%. Caplan, in that post, argues that the long-term effect of immigration on dropout's wages is only half that, and the effect on all wages is zero:

Immigration has enabled millions to live vastly better lives with no long-run effect on average wages.

So which is it? Will immigration hurt lower-skilled Americans more or less than most people think? Will it cut the wages of seventy million people in half, by 8%, by 4%, or by zero?

On a less fundamental level, there are problems with the way Caplan frames the issue. First, he neglects the extent to which state policy has shaped the overall economic structure within which labor is hired in the first place. The state's policies of subsidizing technical education, R&D, capital accumulation and firm size have promoted a business model based on capital substitution and deskilling, and led to a two-tier labor force. In an American economy based on the integration of small-scale electrical machinery into local craft production (in other words, an economy on the model of Emilia-Romagna rather than Sloan and Chandler), there probably wouldn't be nearly as many unsilled workers in the first place.

Second, he neglects the extent to which the existence of large, low-wage labor forces in the Third World, seeking employment in the West, is the product of neoliberalism--an economic model in whose development the state has played a central role. If a few hundred million less peasants had been evicted from their land over the past several decades, in a modern-day reenactment of the Enclosures, the pool of people willing to accept wage labor on whatever terms offer would likely be diminished. If neoliberal and Washington Consensus policies had not promoted a model of economic "development" based on extractive industries, cash crop farming, and the supply of sweatshop labor to foreign capital, rather than small-scale industrialization for local markets, likewise, the available supply of immigrant labor would probably be diminished.

In short, Caplan accepts as "normal" the current structure of the state capitalist economy, the current balance between skilled an unskilled labor in the American economy, and the current wage levels and desire for foreign work in the Third World at face value. Then he examines how a change in a single factor, holding all the other factors in the mercantilist-corporate economy constant, would affect labor. This is what C. Wright Mills called "crackpot realism." A good example of crackpot realism is Ralph Kramden, speculating on the outcome of one of his get-rich-quick schemes: "Norton, when I'm a rich man, I'll have a phone put in here on the fire escape, so I can make my big business deals when I have to sleep out here in the summer."

Caplan's argument also begs the question of just how effective current immigration restrictions actually are. Arguably, the neither-fish-nor-fowl regime currently in place has little effect in terms of constraining employers' access to illegal immigrant labor, if they actually want it badly enough. As often as not, the state looks aside with a wink and a nudge as employers hire illegal aliens. The main effect of their formal illegal status is to increase their dependence on keeping the employer's favor for their continued stay here, and thus reduces their bargaining power. For this reason, employers relying heavily on an illegal workforce are most prone to modern-day slavery and other abhorrent practices. And arguably, the present regime is the worst of all possible worlds from the standpoint of the bargaining power of native labor. If borders were genuinely and completely closed, of course, the bargaining position of native workers would be improved. But if immigration were completely unrestricted, it's plausible that absolute levels of immigration would increase modestly at most, while immigrant workers would be much more likely to organize openly against their employers and protest unacceptable working conditions. At present, employers have access to about as much illegal help as they want, despite the laws on paper, but can use the technical "illegal" status to reinforce workers' reliance on the as patron and prevent them standing up for their rights.

Caplan's second objection is that government aid cannot ultimately benefit corporations. Against Long's argument, which he restates as "government support for corporations allows them to survive despite blatant inefficiency," Caplan writes:

But does this really make sense? Suppose, for example, that the government made corporations tax-exempt. Would this actually benefit corporations? In the short-run, yes. But these short-run profits would encourage the formation of more corporations - and the dissolution of non-corporations. This process would continue until corporations earned only a normal rate of return. Even with favorable tax treatment, corporations based on "insane directives" would still go bankrupt.

This doesn't mean that differential tax treatment is harmless. When you encourage less efficient forms of business, you reduce production, and the world gets poorer. But the primary victims of these inefficiencies aren't small businesses; they're consumers - the ultimate inelastic resource.

Huh? Caplan seems to be taking the factor of differential tax benefits to corporations in isolation, holding constant all other factors like ease of market entry and restraints on competition within an industry, and then arguing that aid to corporations would cause them to outbreed their habitat like deer and suffer a large-scale die-off. But the argument is not simply that government policy favors the existence of something that's called a "corporation." It's that the government skews the market toward fewer, larger firms and toward a stable oligopoly structure that shuts smaller, more efficient competitors out. The whole point, from the standpoint of big business, is for the handful of incumbent firms to control output and prices and restrict market entry in order to prevent competition from lowering the rate of profit.

Third, Caplan argues that double taxation of corporate income, under the corporate income tax, discourages corporations "when they are more efficient than other forms of organization." The corporate income tax, Caplan writes,

matters less than it used to, but the U.S. federal government still gets 15% of its revenue from it. That's about $375 B. Except for the year of the bail-out, it would be very hard for all corporate welfare combined to approach this figure.

Of course, if I'm right about tax incidence, the main effect of the double taxation of corporate income isn't that corporations suffer. The main effect, rather, is that we discourage corporations when they are more efficient than other forms of organization.

Now, this may occur at the small end of the scale, when a sole proprietor considers incorporating to shield his income from liability; if his income is taxed twice, he may decide the benefits of the corporate form are not worth it.

But again, the debate does not concern the magical virtues of everything with an "LLC" after its name. The corporate form is important primarily to the extent that it affects the main dynamic under question: the balance of power between large and small firms. For the question actually being debated--the contribution of government policy to the predominance of big business--Caplan's is a singularly unfortunate choice of examples.

The real "main effect" of the corporate income tax is to encourage retention of earnings rather than the payout of dividends that might be reinvested by shareholders in other portfolio items (e.g., smaller, more efficient startup firms). The overwhelming majority of new capital investment in the large corporation is financed by retained earnings. And as Martin Hellwig argues, in most cases this does not mean that large corporations must carefully prioritize in order to ration new capital investment within the strictures of retained earnings. It means that the capital available from retained earnings exceeds the opportunities for sensible investment. The effect is that the big keep getting bigger, and experience a glut of capital; capital tends to pool inside the large organizations, while small startup firms are stunted from lack of circulation.

This effect is reinforced, by the way, by SEC security registration regulations which restrict the investment opportunities available to ordinary small investors largely to large, established national firms. Only "accredited" investors, who tend to fall in the top two percent of income, can buy stock in small, local firms.

All this is in addition to other effects of the corporate income tax. For example, Caplan mistakenly compares the total incidence of corporate income tax liabilities with "corporate welfare," as if the relevant comparison were between the liabilities and benefits to "corporations" as a whole. But the debate concerns the relative competitive advantage conferred on big business as against small. And the relevant information for such an assessment is not the total scale of "corporate welfare," in the sense of direct government expenditures. It is the differential application of the corporate income tax between large and small corporations. The corporate income tax is an ideal cartelizing device, heightening the difference in privilege between favored and nonfavored firms. And the firms favored by differential tax exemptions are, overwhelmingly, those described by Thomas Ferguson as the centerpiece of FDR's big business coalition (large, export-oriented, capital-intensive, and high tech). They are, essentially, the commanding heights of the corporate economy: primarily Galbraith's "technostructure" and the large group of firms that received the majority of their R&D funding from the state during WWII and the decades immediately following. When the cumulative effect of the R&D credit, the exemption of interest, and the depreciation allowance are taken into account, firms that hit the trifecta (capital- and tech-intensive firms that engage most heavily in mergers in acquisitions) often pay little or no corporate income tax.

The difference in privilege is heightened by the fact that what income tax does fall on the largest, most favored corporations can be passed on through administered pricing, whereas the share that falls on smaller firms in the competitive sector cannot.

Suffice it to say that any enemy of big business should have, among his top priorities, the abolition of the corporate income tax--or at the very least, closing all tax loopholes and then lowering the tax rate to revenue-neutral levels.