Three Voluntary Economies
Three Voluntary Economies was originally published in the Summer 1995 issue of Formulations by the Free Nation Foundation, written by Philip E. Jacobson.

Voluntary vs. Command Economies

A free nation is not necessarily a Capitalist nation. As we seek to describe the institutions of a free nation we must consider all the alternatives. In the United States, libertarians tend to associate the idea of an economy based on voluntary relations with cash-based, for-profit enterprises. Other voluntary economic relations are possible. In addition to enterprises based on private monetary profit, there are at least two others which do not use this approach. one is the system based on charitable donations, usually of cash. The other is the system based on the charitable donation of labor.

It is often assumed by libertarians in America that, were it not for violent intervention by government or by criminals, most economic activity would be handled through profit-making business relations. This seems more a reflection of the history of the American economy than of economic analysis. It is far from true that philosophical libertarianism requires any inherent bias towards profit-oriented money economies. The older libertarian tradition of Europe (advocated in the U. S. by thinkers like Noam Chomsky) presumes that freedom from government intervention would make communes or labor-union-based syndicates (based on labor charity) the primary type of economic organization. In practice, economic relations in a society characterized by an advanced division of labor tend in all cases to be mixtures of the three economies mentioned above. The extent to which a given economic relationship is one or another of these three depends on particular situations and the preferences of individual human participants. The basic dichotomy between voluntary and involuntary relations should be the only moral division in the theory of libertarian economics.

The distinction between the “American-style” (often described as “conservative” or “rightist”) and “European-style” (often described as “liberal” or “leftist”) visions is a false one. It serves only to divide the advocates of freedom and allow advocates of conscription to play them off against one another. This has serious political implications which should be examined, but this essay will not do so. One political factor is important, however. The use of community moral pressure for or against an enterprise is of different significance for each of the three systems. Some politicians encourage the use of one of the economic types over the others because these politicians feel more comfortable with that type when trying to mobilize community pressures. This in turn can influence the prosperity of real enterprises within the context of a voluntary economic system.

The Three Types

Cash-for-Profit Economy

The primary characteristic of the cash-for-profit economy is an exchange of cash for goods or services. A variation of this theme involves barter instead of cash.

This system is strongly associated with private property. The provider must have a clear property title to any goods involved in a transaction, which will be transferred to the receiver. The receiver of the goods or services must also have clear title to the cash transferred to the provider. In some manner, an offer to sell is involved, followed by an acceptance of that offer. This is almost always understood to be a contractual relationship, though the contract may be only implied. Communications may be limited to the parties involved, but the most successful enterprises usually express their offer openly within a community of potential clients.

Moral pressure is limited in this system. Any legal transactions between the receiver of cash and the receiver of goods or services are usually acceptable though they may be distasteful to third parties. Third parties may engage in ostracism in order to discourage the transaction, but this may be difficult to organize. Transacting parties who fear ostracism can often keep their activities out of the view of third parties. It is easier to influence the customers of a cash-for-profit enterprise to withhold funds from it by pointing to the flaws in the product or service received, rather than to the use of the profits. This is most effective through word of mouth between customers rather than through organized efforts. But while the use of the profits may be difficult to monitor, the primary application of the funds paid by customers, namely the providing of the product or service, is almost always visible to them. When many enterprises compete in the same industry, a considerable advantage is given to one with a good reputation.

Cash Charity Economy

The primary characteristic of a cash charity economy is that a contribution of cash is made in exchange for assurance that the contribution supports a project which is worthy. As with the “cash-for-profit” economy, this system can be based on “barter” via contributions in kind.

The system is associated with both private property and collective property. The contribution can be made from private or community funds. The receiver of charity is often thought to hold the contribution in trust for a specific community or for the public at large. Unsolicited contributions are possible, though as with cash-for-profit enterprises successful cash charity enterprises usually solicit contributions publicly. While no contractual relationship is implied (unless contributions are earmarked) there are usually general expectations on the part of the contributor which relate to the way in which the enterprise presents its image to the public.

Unlike the cash-for-profit system, a considerable moral pressure regarding use of contributions is easy for any contributor. This is due to the informal quasi-contractual relationship established when the enterprise solicited the contributions. The enterprise is expected to “do good” even when it cannot legally be forced to do so. When contributions are earmarked, the relationship becomes fully contractual and the contributor can demand specific use of the contribution. It is also easy for third parties to put pressure on the enterprise. Any member of the community advertised as a beneficiary of the contributions, or anyone accepted by the public as an advocate for that community, has a moral right to criticize the enterprise. Successful attacks on the enterprise’s public image will tend to decrease contributions to it, even if it has no competitors. Attacks are particularly easy since many if not most of the contributors will receive no benefit from the enterprise directly and will have no direct knowledge of its success in achieving its stated mission. When representatives of the enterprise challenge their critics, they will tend to claim greater expertise. But if, as is often the case, the representatives are paid for their work, the critics can claim purer motives.

Labor Charity Economy

The primary characteristic of a labor charity economy is the contribution of labor in exchange for a sense of satisfaction, either because the work is enjoyable or because it achieves desirable ends, or both.

A labor economy is associated with collective property — labor is guided by an administrative system thought to hold trust for a specific community or for the public at large. Often the source of contributed labor is also the beneficiary, as in a commune or other labor-owned enterprise. The sense of community ownership may be fostered by an overtly collectivist contract or by less legalistic means. An enterprise which is owned by a minority of its labor force or by individuals not part of the labor force may still have a collective property concept. Its management may attempt to instill a company spirit. Its workers may unite informally or via a union to express their sense of involvement and their stake in the enterprise. Where labor is strictly voluntary and unpaid, the relationship between the enterprise and the contributors is similar to a charity. One distinct difference is that the contributors can usually see how their contribution affects the enterprise’s effort to achieve its mission.

Moral pressure on the enterprise is easy for any contributor. Since the contributors are already organized and usually in communication with one another, they can usually apply great pressure when they share a common view. In comparison to a cash-for-profit enterprise, moral pressure is also easy for any member of the community who is seen as an intended beneficiary of the contributions or for any advocate for that community. As stated above, in many cases the contributors are the beneficiaries. But when the beneficiaries are not contributors, it may be difficult for outside advocates of the beneficiaries to put moral pressure on the enterprise, as compared to the situation for a cash charity enterprise. The contributors of labor will tend to be seen as having good intentions as well as having greater expertise than outsider critics.

Most Economies are Predominantly of One Form, But All Economies are Mixed

A given enterprise usually subscribes to one of the three economies, officially. But while this orientation will tend to be the dominant one, elements of the other two will creep into its day-to-day practice. Any healthy organization must be flexible. Dynamic management will tend to look the other way if they or if the organization can benefit from an “alternative” economic relationship. But even if management opposes “impure” relationships, real conditions, for reasons of personal benefit or of ideology, may tempt individuals within the enterprise to mix economies.

It is rare for a cash-for-profit enterprise to use the patterns of a cash charity enterprise (except as camouflage), but employees of such enterprises do much better if they feel a sense of ownership — even if there is no legal basis for the feeling. Therefore a cash-for-profit enterprise usually contains some elements of labor charity economics. An employee may merely take personal pride in the product or service being produced. The employee may identify with the organization because of the working conditions or the type of people who also work there. Management may specifically encourage this with encouraging words or even programs where employees own a portion of the enterprise. When management tends to treat the enterprise as entirely out of the hands of its labor force, labor charity economics may still come into play, though with negative motivation. Peer groups will support at least some “corruption” in favor of employee control. This may be very limited in practice, perhaps employees deciding to change a rule or two when managers aren’t looking. Or it may involve the formation of a labor union which is hostile to management. Whether the motivations are benign or negative, it is hard to exclude labor charity economics from cash-for-profit enterprises.

A cash charity enterprise will usually accept donations of labor as well, thus supporting a mixed economy. In any case the atmosphere of the organization will tend to make the employees identify with their work, encouraging labor charity economics. Thus the labor charity trends mentioned above with regard to a cash-for-profit enterprise will be stronger. But true cash-for-profit economics can also develop in a cash charity enterprise. In some situations, special training may be required to perform important labor in the enterprise, and professionalism will be high. Employees may need to dedicate themselves so much to the profession that they cannot normally make a living unless the charity pays them for their labor (as with doctors in a charity hospital). In addition, some individuals will tend to look out for themselves to the extent that they see the pay they receive as a source of personal profit. Paid employees may ask for bonus systems and benefits which are associated with claims that they are responsible for the enterprise’s growth as measured by its size or its cash flow. These benefits may come to resemble those given to high-level employees of cash-for-profit style corporations. Managers may come to value the enterprise in proportion to its scale, trying to obtain “excess” income for the enterprise, to expand its capital base as is done in cash-for-profit enterprises.

A labor-charity-based organization may accept cash or in-kind donations, thus giving it some of the characteristics of a cash-charity-based enterprise. The enterprise may pay some of its workers in cash and/or provide rewards to them which are tied to its success. In such cases the rewards may not be competitive with those given in cash-for-profit enterprises but they may modify the workers’ perspective in that direction in the ways mentioned above for cash charity economics. A labor charity enterprise may sell its product or service on the open market. It may provide special benefits, discounts or voting rights to customers who have contributed either labor or cash, thus giving these customers a status similar to that of a stockholder in a cash-for-profit system.

The Type of Economy in an Organization is Only Partly Connected to Its Dominant Ideology

Organizations which portray themselves in loudly ideological terms often give special praise to one of the three types of economy. Yet they may benefit predominantly from participation in one or both of the other types. The former Soviet Union extolled the virtues of collective enterprise, a labor charity system where the labor and the beneficiaries were the same community. It also praised charitable contributions across international borders. Yet much of its international economic activity was conducted as if it were one large cash-for-profit enterprise, even when it dealt with other “socialist” nations. Many religious organizations emphasize the virtues of giving and present themselves as cash charity organizations. Yet they often maintain substantial investments in cash-for-profit enterprises used (among other things) to provide luxurious living accommodations for their leaders. The Libertarian Party of the United States argues that the vast majority of economic functions should be performed by cash-for-profit enterprises. Yet it is organized primarily as a labor charity and to a lesser extent as a cash charity. Its cash-for-profit activities are negligible and of very limited success.

An Organization may Relate via One Economy in One Context, but via Another Economy in Another Context

Both cash charity and labor charity enterprises can engage in the sale of goods and services on the open market. They may behave as cash-for-profit enterprises when dealing with these customers, though the profits may go to philanthropic activities like feeding the poor or supporting medical research. Enterprises which are clearly cash-for-profit in their general operations may make substantial contributions as cash charity enterprises. At times these contributions may be made as guarantees to the buyer of goods or services (i.e., “ten cents from every dollar purchase goes towards xxx charitable fund”).

Within a Libertarian Context, All Three Economies are Valid, Subject Only to the Free Choices of the Individuals Patronizing Them

A society’s culture may encourage all enterprises within it to use only one type of enterprise. Public schools and other institutions in the United States tend to encourage its citizens to expect cash-for-profit enterprises to handle most economic relations. Cash charity enterprises are recognized as honorable though secondary institutions in the United States. Labor charity enterprises are given relatively small encouragement. In a similar way, institutions in the former Soviet Union encouraged citizens to endorse labor charity enterprises, especially enterprises controlled “by the people” via government institutions. Cash charity enterprises were not encouraged as an alternative. Cash-for-profit enterprises were made illegal or very difficult in most industries. As a practical matter, neither of these societies has been libertarian in either the American sense or the European sense. In both societies, the government, while entertaining the rhetoric of freedom, intervened heavily against freely-formed economic associations.

It is difficult to predict which social factors would encourage which type of economy in the absence of initiated force. Whether it is the government suppressing the establishment of privately owned cash-for-profit businesses or a private corporation hiring thugs to beat striking workers, free association has had little chance to show its form. Limited success has been achieved by each of the three forms of economy at different times and in different places. Intelligent management in any enterprise can benefit from being open to opportunities in all three types of economy.

All libertarians should be tolerant of enterprises using any of the three voluntary economies. It is a fine thing to discuss and praise one’s favorite, especially as an alternative to coercive systems. And a certain amount of rivalry among the three types is to be expected, even encouraged, in a free society. But advocates of each type should not adopt overly chauvinistic positions. At a time when the greatest threat to prosperity is the encroachment of coercive systems on the free associations of individuals, all libertarians should rejoice at the success of any enterprise based on voluntary relations.

The Anatomy of Escape
Free Markets & Capitalism?
Markets Not Capitalism
Organization Theory
Conscience of an Anarchist