Mutual Exchange is the Center’s goal in two senses — we favor a society rooted in peaceful, voluntary cooperation, and we seek to foster understanding through ongoing dialogue.

Mutual Exchange will provide opportunities for conversation about issues that matter to the Center’s various publics. A lead essay, deliberately provocative, will be followed by responses from inside and outside of C4SS. Contributions and comments from readers are enthusiastically encouraged.

The following Mutual Exchange began as a Molinari Society Symposium on Spontaneous Order scheduled for the December 2010 meeting of the Eastern Division of the American Philosophical Association in Boston; when that was snowed out, the venue was shifted, by the kind invitation of the Ludwig von Mises Institute, to the March 2011 Austrian Scholars Conference in Auburn, Alabama.

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I’m grateful to Nina, Reshef, and David for their thoughtful comments on my paper. My responses follow.

Most of Nina’s questions are for Charles; but she does ask why, in my survey of spontaneous-order mechanisms that explain the dominance of corporatism, I make no appeal to “mechanisms expressing sociability, or the desire to fit in with the group”; she speculates that it might be because this is “not a mechanism associated with spontaneous order.” Actually I do think this mechanism is an instance of spontaneous order (in all three of Charles’ senses); the reason I didn’t mention it is that it doesn’t explain the specific appeal of corporatism in particular. The desire to fit in with one’s peers acts as a conservative force tending to maintain any social system in place, whether corporatist or anti-corporatist.

Admittedly, though, a combination of establishment propaganda and the normalising practices of government schools and corporate workplaces tends to strengthen this tendency by inculcating and reinforcing conformist values.

Reshef’s comments puzzle me. He suggests that Charles and I are “downplaying the depth of the problems” of communicating our ideas to those who share the dominant vision. We “seem to think that we can just give the invisible hand description of the emergence of some social order, and that that would instantly make sense” to those we are trying to convince; but there is “reason to be more pessimistic,” Reshef insists, because people do not all “have to see the same thing, the same pattern.”

It’s odd to see a point I thought I had made at some length being offered as something I’d failed to pay any attention to. What was all my discussion about Kuhnian paradigms, and black spades with red borders, and Galilean versus Aristotelean perception of pendulums, if not a recognition and extended discussion of the very issue that Reshef raises here? And what is Charles’ discussion of myrmidons, or his appeal to the example of Wikipedia, or his analogy between the role of police-blotter rapists in Brownmiller’s theory and lawyers in Hayek’s theory, if not an effort to “tempt people, somehow, to see things in a certain light, and identify certain patterns”?

Reshef goes on to suggest that if “some dispersed, polycentric, acts are acts of wrongful violence,” then “the anarchist seems to have no reason to reject the state,” since “the mere rejection of an archē, a sovereign, does not guarantee a good social order.” But the anarchist claim is that being a state is sufficient for being a system of wrongful violence, not that it is necessary. One might as well argue that if there are diseases other than leprosy, then there is no reason to oppose leprosy, since being free of leprosy does not guarantee that one is healthy overall.

Reshef further suggests that if “state power itself depends on spontaneous order mechanisms,” then “the anarchist seems to have no reason to be an adherent of spontaneous order, for it may lead to the creation of a state.” If Reshef means that the mere fact that something is a spontaneous-order mechanism is by itself no reason for the anarchist automatically to favour it, then of course I agree – but again I am puzzled as to why Reshef thinks this is a problem for, rather than an essential part of, what I was saying. A bit of light is shed by Reshef’s remark that “Johnson and Long do not make their claims in order to question spontaneous social order, but to support it.” But the whole point of both my and Charles’ papers was that some spontaneous orders are good and some are bad, not to take a stand “for” or “against” spontaneous order considered as a homogeneous glop.

Reshef asks what makes anarchy desirable, if merely being a spontaneous order is not enough to make it so. Or in other words: “What exactly makes the state a bad social order?” A full answer to that question goes beyond the scope of this discussion, but essentially a forced monopoly is a) bad in itself because it claims rights for some people that it denies to others, and b) bad in its consequences because, as a monopoly, it is subject to incentival and informational perversities that have disastrous effects on the lives of the people it purports to govern. (I say a bit more here.)

Reshef also asks what is “the point of advocating the use of spontaneous means, if these are the only kind of means in existence.” But neither Charles nor I ever suggested that all and/or only spontaneous means (in all three senses?) should be used, nor can I see that anything we said supports the claim that all means are spontaneous. Reshef describes me as holding that “the means of the state are also in the last account spontaneous.” If that means that the state’s use of non-spontaneous means depends on spontaneous means, then yes; but if that means that the state uses only spontaneous means, then no. Compare the claim that I can’t use matches to make a campfire unless oxygen is present; this doesn’t imply that in making the fire I use only oxygen and not matches as well.

Reshef challenges my attribution to Wittgenstein of the claim that “when otherwise sensible people say crazy, obviously false things – such as that only part of me exists at this instant, or that we can’t directly perceive tables and chairs – it’s because they are in the grip of a picture.” Instead Wittgenstein suggests that we lack enough common ground with such a person to communicate with her.

In response, I wish to distinguish what Wittgenstein says about people who are living a different form of life – like the wood-sellers in his Foundations of Mathematics, who sound like deviant speakers of our own language but in fact are perfectly competent speakers of a different language – and those, like the philosophers that Wittgenstein criticises at PI 116, who have fallen for “bewitchments of language” and are failing to make sense in any language.

As for the suggestion that Wittgenstein sees nothing “bad about being in the grip of a picture,” I would point to PI 115 (and its context, especially the aforementioned PI 116).

Reshef also takes me to attribute to Wittgenstein (and, I guess, to endorse in propria voce) the claim that “A rule has any obligatory force, just if people normally obey it.” But I’m not sure why he thinks this.

The passage of mine that he quotes in support of his interpretation – namely that “A constitution is not some impersonal, miraculously self-enforcing robot. It’s an ongoing pattern of behavior, and it persists only so long as human agents continue to conform to that pattern in their action” – was about constitutions (in the institutional sense), not rules, and was about their existence, not their obligatory force.

David worries that on my view, “under the state system, prices are no longer established through market competition”; instead, “powerful corporations control monopolistic or oligopolistic markets,” in which wages “depend, to a large extent, on bargaining power,” insmuch as “workers’ marginal productivity leaves open vast zones of indeterminacy.”

Against this, David appeals to the following Austrian theses:

a) “The fact that a business has gotten to its position through government aid does not by itself change the way it sets prices.”

b) “Neither is it the case that large firms operate by setting monopolistic or oligopolistic prices rather than competitive ones.”

c) “[Z]ones of indeterminacy are mythical.”

With regard to (a), I’m less concerned with how the firm got to its position than with how it is ongoingly maintained there. Likewise with regard to (b), what makes firms oligopolistic is not their size, nor their mere fewness, but insulation from competition through barriers to entry. Moreover, since we (David and I) are Austrians, not neoclassicals, we must bear in mind the existence both of nonmonetary incentives and of factors impeding equilibration.

Consider the following example. In the 1940s, my grandmother moved to Florida and outraged the other white housewives in the neighbourhood by paying her black servants higher wages than was customary in the area. The neighbours’ complaints were twofold: by paying higher wages, my grandmother was both “stealing away” the best servants, and encouraging higher aspirations among the black servants generally. (Now my grandmother’s primary motive, as I understand it, was not humanitarian, exactly – and certainly not antiracist; but neither was it the prudential one of attracting the best help. Rather, it was something more like a feeling that it was tacky to pay wages as low as her neighbours were paying. She’s not the hero of this story; she regarded blacks, and servants generally, as her social inferiors. But she regarded people who, by her lights, underpaid and exploited their servants as her social inferiors also.)

In effect, the white housewives had been functioning as an informal cartel – a cartel that had long been fairly stable, since for most of its members the fear of social sanctions from their peers outweighed the temptation of hiring the best workers. Hence the cartel was broken (to the extent that it was) not from within but from without, since my grandmother did not intend to live in Florida permanently, and her own mores, derived from her own peer group, mattered more to her than the mores of temporary neighbours that she looked down on in any case.

If the white Florida housewives had been homo œconomicus profit-maximisers, then their desire to hire the best servants would have led them to bid up wages; but their desire to hold blacks down, and/or their fear of social pressure from others who sought to hold blacks down, outweighed their desire to compete for the best servants. (Note that a commitment not to compete along the wages dimension is consistent with competing along other dimensions; and likewise, competing on wages within a certain range is consistent with the range’s contours themselves being set by non-competitive considerations. So the line between competition and oligopsony is fuzzy, not sharp.) But such internal pressure is less able to fend off external competitors with a different set of social ties.

The moral is that, as I’ve argued elsewhere, cartels are often easier to break from without than from within:

[P]ressure within a selectively cooperative venture … may be strong enough to discourage defections. … The pull of the bottom line can be quite limited in the face of social ostracism by one’s peers. … But that is precisely why I stress the importance of free competition. … The easier it is for a new venture to start up, the easier it is for harmful cooperative ventures to be undermined from without.

Turning to the case of corporatism: it’s likewise easier for a cartel of employers to maintain itself if their numbers are kept artificially low and it is rendered artificially difficult for new firms to arise to compete with them. (Though I speak of a cartel, there needn’t be conscious collusion among employers to keep wages down; a common set of cultural assumptions and expectations will do the trick.)

As for (c), I think there are likewise good Austrian reasons for believing that in a corporatist economy – one that encourages companies to grow in size and complexity beyond the point of efficiency, by socialising the costs of doing so while privatising the benefits – such zones of indeterminacy will be substantial. As I’ve argued elsewhere:

There is certainly a tendency for workers to be paid in accordance with their marginal revenue product, but the tendency doesn’t realise itself instantaneously or without facing countervailing tendencies, and so does not license the inference that workers’ wages are likely to approximate the value of their marginal revenue product – just as the existence of equilibrating tendencies doesn’t mean the economy is going to be at or near equilibrium. …

First of all, in the real world most employers do not know with any great precision their workers’ marginal revenue product. Firms are, after all, islands of central planning – on a small enough scale that the gains from central coordination generally outweigh the losses, but still they are epistemically hampered by the absence of internal markets. This would be true to some extent even in a genuinely freed market, and is still more true in a hampered market where government privileges encourage greater firm size and centralisation.

A firm confronts the test of profitability as a unit, not employee by employee, and so there is a fair bit of guesswork involved in paying workers according to their profitability. … [A]n entrepreneur doesn’t have to solve those problems perfectly in order to prosper – as anyone who has spent any time in the frequently insane, Dilbert-like world of actual industry can testify. … A firm that doesn’t pay adequate attention to profitability is doomed to failure, certainly; but precisely because we’re not living in the world of Platonic competition, firms can survive and prosper without being profit-maximisers. They just have to be less irrational than their competitors. Indeed, it’s one of the glories of the market that it can produce such marvelous results from such crooked timber.

Moreover, a preference for underpaying workers may be a “consumption good for managers” (as it arguably was for my grandmother’s neighbours) that “can be treated as part of the manager’s salary-and-benefits package,” just as “some managers order fancy wood paneling for their offices.”

I would also add – going back to my earlier reference to the “common set of cultural assumptions and expectations” that can maintain cartels even in the absence of conscious collusion – that if (as is only natural) employers tend to have an overstated view of the contribution that managers make to a firm’s profitability, and an understated view of the contributions of rank-and-file employees, the calculational chaos inherent in privileged firms’ tendency to grow in size and complexity beyond the point of profitability means that it will be much harder for this error to be corrected by price signals than it would be in a freed market.

Rothbard himself says that “[t]he greater the number and variety of goods available … the more negligible will zones of indeterminacy become.” In other words, zones of indeterminacy decrease as competition increases. Surely the corollary is that zones of indeterminacy increase as competition is artificially constrained. To quote Rothbard again: “All forms of government regulation of business, in fact, penalize efficient competitors and grant monopolistic privileges to the inefficient.”

Against my claim that the corporatist labour market is largely oligopsonistic, David cites Mises’ claim that there is “no such thing as a mixed economy, a system that would stand midway between capitalism and socialism” (by which he means “midway between free markets and state-socialism”). But in saying this Mises does not deny that a third system is possible. How could he, when we are so clearly living in a system that is neither pure state-socialism not a pure free market? On the contrary, in the very same paragraph Mises goes on to call interventionism (of which corporatism is the preeminent form) a “third pattern which has its own particular features and must be judged according to its own merits”; in this passage, he simply denies that this third pattern is a blend of the other two, insisting that it is “something entirely different from each of them.” Elsewhere he of course denies that interventionism is “feasible as a permanent form of economic organization.” But that’s not the same thing as saying it doesn’t exist – for si monumentum requiris circumspice.