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Source link: http://archive.mises.org/4949/the-real-friends-and-enemies-of-wage-earners-an-intellectual-challenge-to-the-left/

The Real Friends and Enemies of Wage Earners: An Intellectual Challenge to the Left

April 26, 2006 by

The reaction to my article on the United Automobile Workers and GM , confirms how many people—namely, “liberals,” “moderates,” socialists, communists, syndicalists, “mutualists” and others—believe that businessmen and capitalists are the enemy, and labor unions and labor legislation, the friend, of wage earners. This is an enormous error, with devastating consequences. The integration of Austrian and Classical economics carried out in Chapters 11 and 14 of my book Capitalism: A Treatise on Economics proves the exact opposite of this belief. It proves that businessmen and capitalists are the friend, and labor unions and labor legislation, the enemy, of wage earners.

Here, in briefest essence, is how.

The greater is the respect for the property rights and economic freedom of businessmen and capitalists, the greater is the degree of saving in the economic system and thus the higher is the demand for labor relative to the demand for consumers’ goods and thus the higher are wages relative to profits. At the same time, the greater is the demand for capital goods relative to the demand for consumers’ goods, and the greater are the incentives to develop and introduce improved products and methods of production. The result of this combination is continuing capital accumulation and a rising productivity of labor.The effect of the progressive rise in the productivity of labor achieved under capitalism is a progressively increasing supply of consumers’ goods relative to the supply of labor and thus progressively falling prices of consumers’ goods relative to wage rates. (In the face of an increasing quantity of money and rising monetary demand for both labor and consumers’ goods, the result is wages rising faster than prices. Either way, the result is rising real wages.)

The rise in real wages, the result of the saving and innovation of businessmen and capitalists, and of wage earners who become businessmen and capitalists, is a growing ability of wage earners to afford to work shorter hours, and to dispense with the labor of their children, and also increasingly to afford improvements in working conditions of the kind that do not pay for themselves through increased productive efficiency. In this way, the saving and innovation of businessmen and capitalists are what are in fact responsible for all of the improvements in the conditions of wage earners typically, and utterly mistakenly, attributed to labor unions and labor legislation.

Labor unions do not even know how to raise real wages. All they are concerned with is raising the money wages and protecting the jobs of the members of their particular union. Since labor unions do not control the quantity of money or volume of spending in the economic system, the only way that they can raise the money wages of their members is by artificially reducing the supply of labor in their field. But the effect of this is to correspondingly increase the supply of labor and reduce wage rates in other fields. In other words the success of any given union is obtained at the expense of the loss of wage earners in the rest of the economic system. And the losses necessarily outweigh the gains, because an essential aspect of the process is workers being forced into jobs requiring less skill and ability than the jobs from which they are expelled.

If the unions, or the unions plus minimum-wage laws, succeed in raising wage rates throughout the economic system, the effect is corresponding unemployment in the economic system, as well as higher prices because of higher costs and reduced production. If the unions can succeed in having the government and its central bank increase the quantity of money in pace with their wage demands, the unemployment may be avoided but the effect is still rising prices along with the rising wages, and no rise in real wages. Moreover, the undermining of capital accumulation that results from the policy of inflation serves to reduce and, if great enough, reverse the rise in the productivity of labor and real wages.

The efforts of unions to protect the jobs of their members is a policy of actively combating the rise in real wages of workers throughout the rest of the economic system. As should be clear from what has already been said, the way real wages rise is not from the side of the average worker earning more money. Earning more money is the result merely of the increase in the quantity of money, or of the reduction in the supply of labor available in the market by forcing part of it into unemployment.

Real wages rise as the result of capital accumulation and the rise in the productivity of labor, which operates to make prices fall relative to wage rates. In combating the rise in the productivity of labor, unions actively combat the rise in real wages. Thus, for example, when the printing unions opposed computerized typesetting, and thus the resulting lower costs and lower prices of printed matter, they were combating the rise in real wages of workers throughout the economic system who otherwise would have obtained printed matter for less money and had correspondingly more money to spare for other things (which workers displaced from printing could have helped to produce). Identically the same thing is true any time any union opposes labor saving improvements: both the buying power of wage earners throughout the economic system and the supply of goods for them to buy are held down.

Yes, a union may behave this way out of fear of the difficulties its workers will have in finding new jobs. But those difficulties would be far less if money wage rates in the economic system were lower and thus the quantity of labor demanded were greater. And what would make that possible is the absence of coercively imposed union pay-scales and of minimum wage laws.

Yes, there are times when employers treat their employees disrespectfully, indeed, may even treat them as essentially valueless. But what causes such conditions is an excess of the supply of labor available over the quantity of labor demanded. In such conditions an employer need not fear the loss of an employee because he can be immediately replaced from the ranks of the unemployed, and the employee will be ready to accept abuse out of fear that he will not be able to find another job.

But what causes this situation is wage rates held too high relative to the demand for labor. It arises under a system of fractional reserve banking, when credit expansion is followed by financial contraction and wage rates have not yet fallen to the point required by the contraction. Let wages rates fall and the quantity of labor demanded increase to equal the supply available. At that point, the scarcity of labor will be felt and the employee will cease to be instantly replaceable from the ranks of the unemployed. Plus, he will be able to find other jobs, and thus not be prepared to accept abuse. The solution is again a free market. And ironically, to the extent that labor unions and minimum wage laws prevent the adjustment of wage rates to the demand for labor and thus the market’s natural achievement of essentially full employment, they are responsible for the bad treatment of workers that their supporters complain of. (Be sure to watch for the mirror image of the phenomenon of someone being treated as valueless, the next time price controls are imposed on gasoline. Then, as in the early ‘seventies, there will be a shortage of gasoline and surplus of customers, who will appear to be economically valueless because instantaneously replaceable from a waiting line, and ready to accept abuse because of no where else to go to be supplied.)

The fall in wage rates needed to eliminate unemployment serves to increase production at the same time that it reduces the costs of production. It thus serves to bring down prices. It also eliminates the burden of supporting the unemployed. As a result, it is almost certain that it soon results in a rise in real take-home wages.

There are people who produce so little per hour that they must work many hours to provide for their minimum necessities, and even use the labor of their children as a source of additional earnings. It is of no more help to such people to compel them to work less, and to do without the labor of their children, than it would be to compel Robinson Crusoe to work less or Swiss Family Robinson to work less and to do without the labor of its children. Crusoe and the Robinson family do the work they do because that is what they need to do to live. Compelling them to work less is to compel poor people to be poorer than they need to be. It is the same in the conditions of society. It is no consolation that those who cause the greater poverty of the poor say that they have good intentions and want to help. They cause harm and need to learn to stop.

As shown, what actually reduced the working day and abolished child labor was not destructive state interference but the dramatic and progressive rise in the productivity of labor brought about by businessmen and capitalists. That raised real wages and made it possible for more and more workers to be able to afford to accept the comparatively lower earnings of jobs with shorter hours and to eliminate the need to send their children to work. As a growing proportion of wage earners came to prefer shorter hours, the effect was the same as a growing proportion of workers coming to prefer any one set of occupations over another, namely, a fall in the wages of the preferred occupations relative to the wages in the occupations not preferred. Thus, the wages of jobs with shorter hours incur a discount, while the wages of jobs with longer hours gain a premium. This makes it profitable for employers to shorten the hours of work. This is how the free market shortens hours.

My challenge to the left is to read and study these ideas at length and in depth in my book, Capitalism: A Treatise on Economics, Chapters 11 and 14 in particular. I say to the left, take the risk of giving up the fallacies you presently regard as knowledge, in order to gain the satisfaction of having actual knowledge. Stop supporting the enemies of economic progress and the harm they do to wage earners and give your support to the actual friends of economic progress and of wage earners. The transformation of you leftist intellectuals into advocates of capitalism would actually help greatly to change the direction of the world and, if it is the overcoming of poverty that you want, move it in the direction in which you say you want it to go.
——–

This article is copyright © 2006, by George Reisman. Permission is hereby granted to reproduce and distribute it electronically and in print, other than as part of a book and provided that mention of the author’s web site www.capitalism.net is included. (Email notification is requested.) All other rights reserved. Reisman is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996) and is Pepperdine University Professor Emeritus of Economics. His book is available through Mises.org, Amazon.com, and on his web site.

{ 226 comments }

BillG (not Gates) May 11, 2006 at 12:17 pm

Yancey,

you infer an assumption that is nowhere to be found in my statements…

today we privatize the benefits of enclosing the natural commons and socialize the costs in the form of negative externalities.

this is the essence of the neo-classical/marginalist utility revolution that the Austrian school sits on top of (treat the natural commons as private capital)…

all that is needed to protect the absolute property rights of the excluded to their labor products as the classical liberals proscribed is to simply internalize externalities.

so the obvious answer is to privatize costs and socialize benefits.

the sole role then of government is to protect the labor-based property rights of those being subjected to negative externalities (a tax in kind but not in substance).

limit the use of the natural commons to the sustainable yield sell annual titles for that amount of access on the open market.

collect the economic rent and distribute it directly and equally to all those whose property rights to their labor had been in the past violated by negative externalities as the rightful owners of the commons (all of us equally).

Paul Edwards May 11, 2006 at 12:23 pm

“Actually I trust politicians even less than businessmen. But, from a conceptual point of view, I consider that the state – as a representative structure – has an obligation to stop greedy capitalists from cornering most of the planet’s wealth.”

Putting aside the invalid premise of the need to protect the planet’s wealth from free market monopolies, let’s look at the fallacy behind “the state – as a representative structure”.

This inconsistency is prevalent. The “conceptual point of view” is in fact a euphemism for the phrase “to accommodate my conclusions about the state which are inconsistent with my premises and plain reason”.

Concretely speaking, there is no “representation” of the individual by the state. The state represents itself and answers to itself. The state has no obligation to do anything its constituents might want. If it had such an obligation, its agents would be punished when they failed to execute this alleged obligation. They are not punished, and can not be, because they are bound by no contract; they are agents with no principal, and so they do as they like. Furthermore, if there were such a contract, as democracy stands today, it would be void, because it would be a contract to perform theft and murder against one segment of the nation on behalf of another. This, of course is criminal, and cannot be upheld in a court of law. Also, if state officials were our agents, we would also be held accountable when they acted criminally on our directions. But they do not act on our directions, as everybody knows, because no contract exists that directs them to do so.

What a con of incredible proportions it has been to present the democratic state as representative of the people. How incredibly pervasive that single bogus idea has become, and despite the obvious evidence that it is a bold-faced fraud. It certainly serves its intended purpose though, when a person can say he does not trust politicians, but yet he fully expects the “state” to fulfill its “obligations”. Can propaganda be any more successful than that?

Roger M May 11, 2006 at 1:11 pm

Albatroz,
Brazil is an interesting case. I just spent a few weeks studying it for an article. Ethanol supplies 15% of Brazil’s fuel needs, but the government spent about $10 billion to save $1.5 billion in oil imports per year. The auto makers spent the money on developing the engines that could burn both ethanol and gasoline. Articles focus on the number of cars that burn ethanol, but Brazil only has about 22 million cars, compared to the US’s 133 million. Most of the vehicles in Brazil are trucks and busses that burn deisel and can’t burn ethanol. Ethanol replaces gasoline, not deisel. By the way, ethanol contains just 60% of the energy found in a gallon of gasoline, so you have to burn almost twice as much per mile.

Brazil makes ethanol from sugar cane, which produces about 8 times the energy as it consumes in the production. The US makes ethanol from corn, which only produces 26% more energy than the process consumes. If the US wants to burn ethanol, we need to switch to sugar cane. We use corn because the large ag businesses, such as Archers Daniel Midland, grow corn and they bribed congressmen (your beloved state) with campaign contibutions to pay for their corn-based ethanol.

Brazil is at, or very close to self-sufficiency in oil, but not because of ethanol. They also began drilling for oil off the coast and have been able to replace what they imported.

Ethanol was viable while commodity prices were low, but they are climbing now along with the price of oil. Some day, when oil becomes expensive enough, ethanol will be a good substitute. But when that time arrives, all of the research will have been done long ago, most of it by private companies.

As for oil companies investing in research, check out the DOE’s web site. The DOE provided matching funds for research and in most cases, the major oil companies provided 70-80% of the research funds. But for the most part, oil companies are betting on hydrogen as the next fuel.

Albatroz May 11, 2006 at 1:29 pm

Paul,

Your – and most people’s – mistake is to take our usual so-called democratic institutions as the only possible model. Venezuela – so much disliked by libertarians – introduced a very interesting innovation, which is the possibility of withdrawing mandates from elected officials, by means of referenda. If the politician you helped to elect does not perform in accordance to the promises made, you can kick him out. In that way you create conditions for elected politicians to be accountable for their actions, much before the mandate comes to an end. This novelty and a more widespread use of referenda can help governments becoming more representative of people’s ideas and wishes. If that can be achieved, I see no valid reason for the state not to intervene in our behalf. Libertarians idea that the state can and should be replaced by market forces, is indeed a weird one, only put forward to underline libertarians deep dislike of all forms of government. Only the problem is not the state but the model we chose to select our rulers.

Albatroz May 11, 2006 at 1:38 pm

Roger,

Thank you for the very interesting data on Brazil. The point I was making is that the Brazilian state was more successful in implementing an alternative to oil than any oil company. Ethanol may have been more expensive than oil, but the money spent in growing sugar cane and transforming it in ethanol was kept in Brazil, and helped the local economy. Money to pay for cheaper oil would leave the local economy and would not contribute to the creation of jobs for Brazilians. I aggree that there would be some benefit to the Brazilian economy if energy could be supplied at a lower price, but I think that the advantages of saving 1.5 billion dollars a year were greater than the disadvantages for firms of having an energy source somewhat more expensive. Fundamentalist libertarians will, obviously, disaggree…

George Gaskell May 11, 2006 at 1:48 pm

Libertarians idea that the state can and should be replaced by market forces, is indeed a weird one, only put forward to underline libertarians deep dislike of all forms of government.

It is the libertarian position that one does not “replace” the state with “market forces.”

First, there is no such thing as a “market force.” There is behavior. There is voluntary behavior and there is coerced behavior. There are economic realities and immutable principles of economics, which is merely one form of the science of complex systems.

(I have tried to outline one such aspect of complexity — prices as information and the market as an information processor, but you have not even attempted to address these more theoretical comments.)

Second, one does not “replace” the State with a free market. The State is a metaphor, a euphemism for a particular mode of behavior — aggression by proxy, with a pretense of legitimacy for its organized coercion.

We are opposed to all forms of government because we are opposed to all forms of coercive aggression, even the ones that attempt to diguise themselves with a pretense of benevolence.

One might say that we should allow people to act in a mutually productive way, free from aggression against their life, liberty and property. One might do so by abolishing the State (i.e., putting an end to that particular mode of coercive behavior). But one does not “replace the State with market forces.”

Albatroz May 11, 2006 at 2:06 pm

George,

I stand corrected on what terminology is concerned.

“There is voluntary behavior and there is coerced behavior.”

Is it your point that all voluntary behaviour is beneficial, and that all coerced behaviour is harmful? If not, how do you propose to implement favourable coercive behaviour (stopping people from stealing, for instance) while avoiding harmful coercive behaviour? And how would you foster beneficial voluntary behaviour while discouraging or stopping harmful forms of voluntary behaviour (once more, stealing from other people)?

Yancey Ward May 11, 2006 at 2:31 pm

BillG,

How do you determine the cost of the externalities? I have questioned you numerous times about how to assess the economic rent of land, and you continue to give vague generalizations.

Let us take land, since it comprises the natural resources for the most part. The only valid way that I see, to assess economic rent, is to open auction the leases for defined periods of time. This is the only way to fairly determine what value has been denied to the communutity by the enclosure. Do you agree or disagree?

George Gaskell May 11, 2006 at 2:34 pm

how do you propose to implement favourable coercive behaviour (stopping people from stealing, for instance) while avoiding harmful coercive behaviour?

This question is addressed to distinction between an anarcho-capitalist society and a minimalist State. Among libertarians, this is known as the difference between anarchists and minarchists.

A minarchist state would, for example, be committed to freedom of prices, freedom of contract, enforcing property rights, protecting the right of free entry into all markets, rejection of subsidies, etc.

All of this could be done while still performing the usual roles of arresting and punishing criminals, preventing murders, thefts, etc. The only thing a minarchist state could not do, of course, is claim to refrain for engaging in theft itself, since states collect taxes in order to fund these operations, and taxes are by definition collected at gunpoint.

Minarchists essentially argue that some form of State is necessary, but that it is still wrong, and are fine living with that conundrum. In any event, minarchist libertarians believe that liberty is a matter of degree, that there are more and less intense forms of coercion, that communism is a little more oppressive than socialism, which is a little more oppressive than social democracy, and so forth.

However, this distinction between minarchism and anarchism, while very interesting, is not what is at issue in this thread, nor the discussion over the last several days about the market for natural resources, specifically oil.

As a result, explaining how and why a society should abolish the state altogether would be off-topic. It would also tend to leave behind the far more basic and relevant discussion, which is how making markets more free, by merely moving in a more libertarian direction (i.e., something less than a radical, immediate abolition of the State) would improve the quality of life and increase a territory’s material wealth.

Since you do not agree with the basic proposition that making markets more free (by freeing commodity prices and ending subsidies), I do not see how leaping ahead to a discussion of the distinction between minarchism and anarchism would be very helpful.

And how would you foster beneficial voluntary behaviour

I would not foster anything. People do this on their own. It is the basis for all of civilization.

All forms of trade are cooperative. All voluntary trade is mutually beneficial — no one would voluntarily enter a transaction unless he believed he would benefit. For the trade to occur, this must be true for both parties. That’s simply the definition of “voluntary.”

The reason that both can (and usually do) benefit is that each party has his own subjective criteria as to what constitutes a “benefit.” The two parties do not want exactly the same thing. Their needs and preferences are asymmetrical. Both gain as the result of making the trade, each in his own subjective way.

Thus, all voluntary behavior is beneficial, and mutually productive.

Now that I have addressed your questions, how about my comments on prices as information, and the impossibility of improving economic results by interfering with them?

Roger M May 11, 2006 at 2:36 pm

Albatroz,
Are Brazilians better off with ethanol? The government subsidized the ethanol jobs, but it didn’t create any; it merely took jobs from one segment of the economy through taxes, and gave those jobs to the ethanol segment. There would be no net increase in jobs. The money to subsidize ethanol came from high gasoline taxes. The government has to tax ethanol less in order to persuade people to buy it. Economists should look at the opportunity costs: Could that money spent on subsidizing ethanol have been used more productively elsewhere? Probably.

As for keeping the money in Brazil, again that’s just pure mercantilism. If imports damage a country’s economy, then we should shut them all out immediately by making all imports of any goods illegal. It would be immoral to do less. In fact, we should go to war with any country that tries to sell us something. Oh, wait, European countries did that for about two hundred years.

But if it’s true that we can import some things cheaper than we can make them ourselves, such as automobile fuel, we should do so. The savings will go to purchase other things made locally and create more jobs in those sectors. Both the importer and the exporter become richer as a result.

Yancey Ward May 11, 2006 at 2:46 pm

Albatroz,

Brazil spent more resources making ethanol than it would have spent using petroleum. That the ethanol is made locally is irrelevant. By your economic logic the Brazilian government could have just as easily paid citizens to collect their feces, ferment it, and collect the methane and become energy producers. That way every Brazilian could have a job as an energy producer. Your understanding of economics is laughable.

BillG (not Gates) May 11, 2006 at 2:59 pm

Yancey wrote:

“The only valid way that I see, to assess economic rent, is to open auction the leases for defined periods of time. This is the only way to fairly determine what value has been denied to the communutity by the enclosure. Do you agree or disagree?”

BillG responds:

I think you are too hung up on trying to exactly match the market valuations with personal utility values.

land value taxation is about market values not personal utility…

yes when a title comes on the market it becomes an objective data point (personal utility) but we are looking for market valuation as it is all the members of the community who are being excluded – thus the aggregate effect of all individual community members actions.

Yancey Ward May 11, 2006 at 3:08 pm

BillG,

An open auction gives you the market value of the lease. The winning bidder gets the lease at his personal utility value, whereas the losing bidders had different utility values.

In what other ways would we determine the rent?

Albatroz May 11, 2006 at 3:51 pm

Some people here seem to think that their arguments become more convincing if laced with abuse against those who think differently. I hope that is not part of the libertarian ideology… But, anyway, it is getting a bit tiring to try and argue in a civilized manner with those who seem to think that manners are part of the repressive system… I am going to get some fresh air elsewhere. In spite of the differences of opinion, I would like to thank Roger M, George Gaskell and Tokyo Tom for their views. And I hope you will be all around when your free market colapses under the weight of its obvious shortcomings…

Vince Daliessio May 11, 2006 at 4:18 pm

Albatroz sez;

“And I hope you will be all around when your free market colapses under the weight of its obvious shortcomings…”

What “free market” is he talking about? I don’t see one anywhere around here… only merchantilism.

Roger M May 11, 2006 at 4:38 pm

Albatroz,
Thanks for sparring! The main reason I post comments is to sharpen my thinking on economic issues and it works only if there’s someone to disagree with. You’re a worthy opponent!

BillG (not Gates) May 11, 2006 at 5:26 pm

Yancey wrote:

“In what other ways would we determine the rent?”

BillG responds:

I would do it exactly how you devised for titles to use the sky as a sink up to the sustainable yield and then return the economic rent (formerly the negative externalities) directly and equally to the owners of the sky as a common asset.

but with regards to land it is not necessary…I would do nothing different then what we do today for real property assessment except we no longer have to assess anything built with human labor.

Paul Edwards May 11, 2006 at 6:00 pm

Albatroz, (in case you come back)

“Your – and most people’s – mistake is to take our usual so-called democratic institutions as the only possible model. Venezuela – so much disliked by libertarians – introduced a very interesting innovation, which is the possibility of withdrawing mandates from elected officials, by means of referenda. If the politician you helped to elect does not perform in accordance to the promises made, you can kick him out.”

Under democracy we can also “kick him out”. But what can we replace him with? Another criminal who we can later kick out as well, and another. The referendum does not enhance democracy in principle. It is but a little wrinkle in it.

“In that way you create conditions for elected politicians to be accountable for their actions, much before the mandate comes to an end.”

Are you telling me your politicians are forced to be accountable to you? I am amazed, but I will accept this is how you feel. But have you never wished they would encroach less on your life, not tax you so heavily, not subsidize something you don’t believe in, and yet found that he did not heed your wishes and nor did his successor? If not, I am impressed. But tell me this: if you happened to desire to be done with your relationship with your representatives altogether, and simply wished to represent yourself by living un-censored, un-taxed and unregulated, would your representative agree to your request? Would he remain accountable to your desires? If so, you’ve got what I want, and I’m envious.

“This novelty and a more widespread use of referenda can help governments becoming more representative of people’s ideas and wishes.”

Is it your impression that governments are looking for help to become more representative of people’s wishes? If so, your view of the nature of the people in government is the opposite from mine. What I think they are looking for is ways to impose what they think is best on you, despite what you think. That is why they are in power: to exercise it; not take two-bit orders from those who they perceive, in truth, as the dumb masses who don’t know what is best for them.

“If that can be achieved, I see no valid reason for the state not to intervene in our behalf.”

And that “if” I take it is more than a hypothetical, I presume. Venezuela’s state has achieved this if I understand you correctly. Let us say you are correct and I am wrong. Say the state wants to and indeed can actually discern what the majority wants on all issues, and implements it with force and ensures that it does not impose its own desires on the majority. What of the minority; can they also influence decisions, or must they first become part of the majority. Is the majority’s desire necessarily ethical and do they truly care about justice? Does it matter; perhaps we shall assume that what the majority wants and gets is just by definition. The libertarian does not presume this.

“Libertarians idea that the state can and should be replaced by market forces, is indeed a weird one, only put forward to underline libertarians deep dislike of all forms of government. Only the problem is not the state but the model we chose to select our rulers.”

The state and the market are not replacements for each other. The former exists parasitically on the latter. The free market is an abstraction for a collection of free individuals voluntarily trading for their own mutual benefit. The state is an abstraction for a minority of individuals exercising coercive powers over this market. It unnaturally hamstrings the natural market and does it by compulsion and threat of violence. It is not based on voluntary exchange, but instead on coercive monopolization and confiscation. It is this fundamentally criminal nature of the state, rather than the details of its implementation, that libertarians object to.

averros May 11, 2006 at 7:41 pm

Folks, stop arguing with Albatroz, he’s a classical troll — engaging in all kinds of demagoguery, ignoring logic, and twising everyone’s words.

Not to mention that he seems to have no clue whatsoever about economics — of any kind, nor about libertarian ethics and ideas. All his statements is pure socialist propaganda. That horse was beaten to death so many times that it takes willful blindness not to notice the pulp.

Do not feed the troll. He’s either genuinely brainwashed and/or stupid — and in this case you won’t change his mind, or he’s a paid or volunteer provocateur, in which case you also won’t be able to change his mind.

Albatroz May 12, 2006 at 3:07 am

Paul,

Your civility deserves a (last) comment.

Presumably you accept that a firm needs a management, people who decide how the firm should be run, what to produce, how, and with what production factors. Presumably workers or employees are not left alone to make those decisions by themselves. By other words, there is a “government” in that firm, without which the firm could not function and be successful. If you accept that some people may direct other people within a production context, why not on a political community context? Workers can opt out if they are unhappy? But so can citizens. If I am not happy with the country I am in, I can move. Managers can be honest but politicians (properly chosen) not? Or are you saying that you don’t care whether managers are honest or not, since bankruptcy is the punishment for ineptitude? Except that a dishonest manager may be quite successful, just like politicians.

One of your fellow libertarians referred to being a minarchist rather than an anarchist. But either you accept government or you don’t. Having a little bit government is like being a little bit pregnant. It doesn’t make sense. I can understand your being fed up with governments of all kinds. But a society of individuals completely free of ties to one another, without rules or rulers is an impossible dream. In fact it surprises me that you are not more in favour of workers self-management or cooperatives, where there are no bosses, since this would, presumably, be closer to your libertarian ideal.

The whole libertarian movement seems to me to be run by emotions rather than by reason. You can’t get rid of people who manage some of your interests in your name. You just have to improve the way you choose them. I aggree that our so-called democracy is in fact a stinking oligarchy. But if we change the rules we may get closer to a real democratic system. That seems to me to be the mais issue. Not getting rid of any government.

Good luck to you

Albatroz

George Gaskell May 12, 2006 at 4:51 am

Workers can opt out if they are unhappy? But so can citizens. If I am not happy with the country I am in, I can move.

This State=company idea is an exceedingly poor analogy.

One of its many flaws is that an important aspects of a free market (in addition to free prices, discussed above) is that entrepreneurs form new companies in order to take advantage of inefficiencies or other sub-optimal performances of existing companies. The companies that do a better job at meeting their customers’ wants and needs succeed. States have no such characteristics. As the War of 1861 illustrated, you cannot secede from a State without being forced back in at gunpoint. You cannot form your own autonomous, independent territory, not without being shot at.

Another is that employment is voluntary, and therefore mutually beneficial, just like a trade of commodities. State-membership is involuntary, and is asserted over everyone who happens to be within a particular geographical territory, and even some others who aren’t. To say “you can move” is a flippant and inadequate response. Moving means being dispossessed of one’s property, which libertarians take very seriously.

In short, the difference between a State and a company is the same thing as the difference between slavery and a contract. Let’s say you have a man who is born a slave, who works as an agricultural laborer his whole life, lives on the plantation, which provides him with his basic necessities. Compare him to another man who is a farm employee, who works for money, who then uses that money to buy his basic necessities. Now, it is possible that these two men have virtually identical lives. But one is a slave and the other earns his living by making contracts — voluntary trades with others. Do you see a difference between these two people’s lives?

Albatroz May 12, 2006 at 5:52 am

George,

You missed my point completely. I was referring to structures – whether firms or states – having need of “managers”. If those “managers” are seen as necessary and positive in firms, why not in states? You may say that managers in firms manage their own affairs, but what about the employees? Do they have any saying in the running of the firm? Don’t they benefit from good management and suffer from poor management? Is it acceptable that their only choice is sticking by or leaving? As you say, employment is voluntary, but it can just be the least of two evils: having a lousy job or none at all. Isn’t this similar to what you complain about in states and governments? If politicians can be made accountable for their actions, can we not have good politicians as we can have good managers? Isn’t this anti-government obsession a bit irrational? Even granting that our present way of choosing rulers is pretty bad.

BillG (not Gates) May 12, 2006 at 7:21 am

George wrote:

“This State=company idea is an exceedingly poor analogy.

…As the War of 1861 illustrated, you cannot secede from a State without being forced back in at gunpoint. You cannot form your own autonomous, independent territory, not without being shot at.

Another is that employment is voluntary, and therefore mutually beneficial, just like a trade of commodities. State-membership is involuntary, and is asserted over everyone who happens to be within a particular geographical territory, and even some others who aren’t. To say “you can move” is a flippant and inadequate response. Moving means being dispossessed of one’s property, which libertarians take very seriously.”

BillG responds:

yes, the state = a landlord is a much more appropriate analogy.

Yancey Ward May 12, 2006 at 8:46 am

BillG,

Ok, fair enough.

Just for clarity, would you agree that a 100 acre pasture homogenous in its characteristics divided into two 50 acre lots, one of which remains unchanged, and the other contains a car factory must have the same economic rent; otherwise you would be taxing the improvements if the one with the factory had a higher tax?

Also, would you agree that the basis of the assessed rent has to use as the primary factor the winning bid for the lease, and an adjustment factor that consists solely as a multiplier that is know well before the auction and cannot be changed during the term of the lease?

I apologize if you find my questions somewhat repetitive or annoying, but having dealt with many geo-libertarians in the past who refused to put aside arbitrarily assigned rents, I always attempt to pin down what they believe the proper implementation of their philosophy is so that I know what I am dealing with.

George Gaskell May 12, 2006 at 9:13 am

If those “managers” are seen as necessary and positive in firms, why not in states?

Because there is a vast difference in terms of (a) the factors that determine how people are being “managed,” and (b) the alternatives available to those who are “managed.”

A company is a shorthand term for one or more owners of some form of property, together with the owner’s employees. These owners have developed some service or product that is useful in the market — an economic good. They cannot produce this good on their own, so they enter into contracts with others (the employees) to cooperate, for mutual benefit, toward achieving this goal.

Employers and employees assume duties toward one another, and they do so voluntarily. Neither party will assume these duties unless they expect that doing so will be beneficial. Further, doing so will always be the best known course of action from among all existing alternatives.

As I said before, the two parties to a transaction typically have asymmetrical needs and wants. In the case of employment, the employee needs the security of a fixed, immediate and stable payment (i.e., reduced risk). The employer has a longer time-horizon (i.e., can bear greater risk). The employer can wait longer for his payment (which comes from his customers). He therefore accomodates the employee’s desire for certainty by paying him a fixed sum up front, paying it long before the income from the employee’s labor is realized in the market. Thus the employee gains immediate payment, and a reduction of risk and uncertainty (as to what the price his product will earn when it is finally sold). He also gives up his autonomy when it comes to the selection of tasks.

When an employer “manages” his employees, he is selecting these tasks. That is part of the bargain that formed the basis of the employment contract. If the tasks selected are unappealing to the employee for any reason, the employee must make the economic decision about what is more important to him: avoiding the task, or the benefits of continuing the employment. If at any time he decides that the costs outweigh the benefits, he is always free to make a better arrangement from among all of the available alternatives.

(Remember, every person evaluates the “costs” and “benefits” according to different criteria and in different priorities.)

Also, the selection of tasks by the employer is always controlled by the utility of those tasks in the marketplace. The employer is not managing his employees because he likes managing people. He does so because he is trying to produce a good that is attractive to customers in a competitive marketplace.

Therefore, the “management” we find in the context of employment is always guided by these twin economic factors: the need to obtain labor that produces a good that is successful in the market, and the need to provide benefits to employees that outweigh the employee’s potential desire to work elsewhere.

Since everyone in a free market is free to choose the best course of action (however he subjectively defines “best”) from among existing alternatives, everyone has the greatest opportunity to improve his situation. As long as there are free markets for (a) labor and (b) the goods that are produced by that labor, conditions in both these areas will tend toward being optimal.

Contrast these economic factors and decisions to how a State “manages” people. State-based economic decisions (i.e., what to do and how to do it) are based on conflict and coercion, not mutual benefit. People are not allowed to weigh costs and benefits for themselves. These decisions are dictated for them by others. Start new companies is prohibited or restricted, even if doing so would be peaceful and economically successful.

Also, a State is not competitive in the marketplace. It produces no good that it must sell to willing customers. It obtains its income by taxation. If, in the case of state-owned businesses, it produces a good that fails to be successful in a market, it will typically nationalize the entire market within its territory by eliminating domestic competition. When it cannot do so and must compete internationally, it will then subsidize the production of the good with tax revenues, thus passing the true costs of production onto people outside of the company.

The people who run the company also have no incentive to make difficult changes in they way they do business, since they will not realize the benefits of doing more work than the minimum.

As a result of these economic factors, over the long term, the quality of the good produced tends to go down, the costs of production tends to go up, and the working conditions of the employees tend to deteriorate.

In the case of oil, incidentally, there is a LOT of oil in the US. It is merely more expensive to produce it here, in part because the price of labor for oil workers (and other production factors) is higher in Texas than in places like Saudi Arabia and Venezuela. Workers have better alternatives. It is also, for geographic reasons, easier to extract oil from Kuwait than it is from Louisiana. Which is fine. If foreign oil is cheaper to produce in a free market, it is therefore more economically efficient that the cheaper oil be extracted first.

Thus, once again, the price system points the way toward economic efficiency for everyone.

Paul Edwards May 12, 2006 at 10:20 am

Albatroz,

“Presumably you accept that a firm needs a management, people who decide how the firm should be run, what to produce, how, and with what production factors. Presumably workers or employees are not left alone to make those decisions by themselves. By other words, there is a “government” in that firm, without which the firm could not function and be successful.”

I agree completely. In this case, we are using the term “government” to mean some form of hierarchical management structure. That’s cool. I govern my household in this way as well.

“If you accept that some people may direct other people within a production context, why not on a political community context?”

I’m glad you ask. Let’s see if I can focus the difference in these two scenarios to a needle point: states depend on coercion. All other free market forms of “government” are void of coercion. They are voluntary. States cannot be justified. All other free market forms of government are entirely justified.

“Workers can opt out if they are unhappy? But so can citizens. If I am not happy with the country I am in, I can move.”

As a worker you work on a voluntary basis for a company that is ethically justified in its existence and in negotiating the terms of employment with you. You can quit your job and go to work with a competitor or a company that at least competes in the job market. All of this is voluntary. As a citizen, on the other hand, you are subject to legislation in an involuntary basis under a state that is entirely unjustified. Your right to remain living un-molested by a coercive state far and away trumps its non-existent right to tax and coerce you because it claims a monopolistic jurisdiction over the territory you live in.

“Managers can be honest but politicians (properly chosen) not?”

Managers of free market firms are in place, in the ultimate and final analysis, to maximize customer happiness. The profit motive necessarily ensures this. Politicians are agents of a coercive monopoly. There are no profit and loss market forces, nor is there any force at all that motivates him to satisfy any customer or anyone. They depend on demagoguery and deception and illegitimately doling out special privileges to obtain and maintain political power. Their sole purpose is to wield this power.

“Or are you saying that you don’t care whether managers are honest or not, since bankruptcy is the punishment for ineptitude? Except that a dishonest manager may be quite successful, just like politicians.”

Under a free market, with private courts and a naturally more diligent and awake nation, fraud would be punished more easily because there would be no arbitrary political power to peddle influence, advantage and favor to favored individuals. Those with money would have it and keep it only by satisfying and continuing to satisfy their customers. There would be no privileged wealth.

“One of your fellow libertarians referred to being a minarchist rather than an anarchist. But either you accept government or you don’t. Having a little bit government is like being a little bit pregnant. It doesn’t make sense.”

I can’t speak for the minarchists, but as for me, I agree with you.

“I can understand your being fed up with governments of all kinds. But a society of individuals completely free of ties to one another, without rules or rulers is an impossible dream. In fact it surprises me that you are not more in favour of workers self-management or cooperatives, where there are no bosses, since this would, presumably, be closer to your libertarian ideal.”

The libertarian ideal is very simple: non-aggression. There are several equivalent ways to put this; I’ll enumerate some of them:

1. no initiation of force/violence.

2. no coercion

3. complete respect for the institution of private property and the homesteading principle

4. private enforcement of natural law

5. completely free markets

What this means is that those who wished to be capitalists could do so. Those who wanted to be employees could do so; entrepreneurs, check, contractors, check. But: steal, confiscate, legislate, commit fraud, or murder: uh uh. This rules out private criminal behavior and it rules out a state.

“The whole libertarian movement seems to me to be run by emotions rather than by reason. You can’t get rid of people who manage some of your interests in your name.”

If you accept the legitimacy of the state, then you can’t get rid of the state. If not the former, then the latter also does not hold. In the free market, there is no such thing as not being able to get rid of a supplier of ANY service. If I am unsatisfied with the service, I can switch or quit. And there is no one to point a gun at me or send me to jail for this.

“You just have to improve the way you choose them. I aggree that our so-called democracy is in fact a stinking oligarchy. But if we change the rules we may get closer to a real democratic system. That seems to me to be the mais issue. Not getting rid of any government.”

A rose by any other name would smell as sweet. And a state is a coercive monopoly of ultimate decision making over a claimed territory. This is the essential nature of a state. It is a criminal organization, and it can’t be spruced up sufficiently to avoid being so.

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