There’s a wonderful phrase for how capitalism works in the real world (I’m not sure who first came up with it, but I associate it with Noam Chomsky): “The socialization of risk and cost, and the privatization of profit.”
That’s a pretty good description of what the state does under actually existing capitalism, as opposed to the free market. Just about everything we identify as problematic about corporate capitalism — the exploitation of labor, pollution, waste and planned obsolescence, environmental devastation, the stripping of resources — results from the socialization of cost and risk and the privatization of profit.
Why haven’t the cybernetic revolution and the vast increases in productivity from technological progress resulted in fifteen-hour work weeks, or many necessities of life becoming too cheap to meter? The answer is that economic progress is enclosed as a source of rent and profit.
The natural effect of unfettered market competition is socialism. For a short time the innovator receives a large profit, as a reward for being first to the market. Then, as competitors adopt the innovation, competition drives these profits down to zero and the price gravitates toward the new, lower cost of production made possible by this innovation (that price including, of course, the cost of the producer’s maintenance and the amortization of her capital outlays). So in a free market, the cost savings in labor required to produce any given commodity would quickly be socialized in the form of reduced labor cost to purchase it.
Only when the state enforces artificial scarcities, artificial property rights, and barriers to competition, is it possible for a capitalist to appropriate some part of the cost savings as a permanent rent. The capitalist, under these conditions, is enabled to engage in monopoly pricing. That is, rather than being forced by competition to price her goods at the actual cost of production (including her own livelihood), she can target the price to the consumer’s ability to pay.
That form of enclosure, via “intellectual property,” is why Nike can pay a sweatshop owner a few bucks for a pair of sneakers and then mark them up to $200. Most of what you pay for isn’t the actual cost of labor and materials, but the trademark.
The same is true of artificial scarcity of land and capital. As David Ricardo and Henry George observed, there is some rental accruing on the natural scarcity of land as a non-reproducible good. There’s considerable disagreement among Georgists, mutualist occupancy-and-use advocates, and other libertarians as to whether and how to remedy those natural scarcity rents. But artificial scarcity, based on the private enclosure and holding out of use of vacant and unimproved land, or on quasi-feudal landlord rights to extract rent from the rightful owners actually cultivating arable land, is an enormous source of illegitimate rent — arguably the major share of total land rent. And regardless of any other steps we may be advocate, principled libertarians are all in favor of abolishing this artificial scarcity and — at the very least — letting market competition from vacant land drive down land rent to its natural scarcity value.
We favor, as well, opening up the supply of credit to unfettered market competition, abolishing entry barriers for the creation of cooperative lending institutions, and abolishing legal tender laws of all kinds, so that market competition will eliminate a major portion of total interest on money.
But while demanding the socialization of rent and profit may be frowned upon by capitalists as “class warfare,” they’re totally OK with the socialization of their operating costs. The main reason modern production is so centralized and both firms and market areas are so large, is that the state has subsidized transportation infrastructure at the expense of the general public, and made it artificially cheap to ship goods long distance. This makes large-scale, inefficient producers artificially competitive against small-scale producers in the local markets they invade with the state’s help. That’s why we have giant retail chains driving local retailers out of business, using their own internalized “warehouses on wheels” wholesale operations to distribute goods manufactured by sweatshops in China.
The past forty years’ loss of biodiversity, deforestation, and CO2 pollution has occurred because the ecosystem as a whole is an unowned dump, rather than being a regulated commons. The state typically preempts “ownership” of forests, mineral deposits, etc. — often to the prejudice of indigenous peoples already inhabiting the areas — and then gives privileged access to extractive industries that are able to strip mine them of resources without internalizing the actual costs incurred.
As surprising as it might seem, there’s a strong parallel between this free market vision of abundance and the Marxist vision of full communism. Carl Menger wrote of economic goods (i.e., goods subject to economic calculation because of their scarcity) becoming non-economic goods (i.e., that their abundance and near-zero production cost would make the cost of accounting greater than the production cost, if any). This parallels a major strain of thinking among socialists in the free culture/open source/P2P movement. They see the communist mode of production practiced by Linux and other open-source developers as the kernel of a new post-capitalist, post-scarcity social formation. Much as capitalist production started out in tiny islands inside the larger feudal economy and later became the core of a new, dominant social formation, commons-based peer production is the core around which the post-capitalist economy will eventually crystallize.
And we free marketers are also information communists. We want the benefits of knowledge and technique to be fully socialized. The largest single share of profit under the current model of corporate capitalism is embedded rents on the artificial scarcity of knowledge and technique.
In a society where waste and planned obsolescence were no longer subsidized, and there were no barriers to competition socializing the full benefits of technological progress, we could probably enjoy our present quality of life with a fifteen-hour work week. And in a society where the dominant mode of production was craft production with cheap, general-purpose CNC machine tools (as Kropotkin anticipated over a century ago in Fields, Factories and Workshops), the division of labor and the dichotomy between mental and physical labor would be far less pronounced.
Taken together, these two outcomes of free market competition in socializing progress would result in a society resembling not the anarcho-capitalist vision of a world owned by the Koch brothers and Halliburton, so much as Marx’s vision of a communist society of abundance in which one may “do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic.”
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Translations for this article:
Compare Bastiat: "the function of property, or rather of the spirit of property, is continually to enlarge the communal domain." http://oll.libertyfund.org/?option=com_staticxt&a…
"Individualism, Collectivism, and Other Murky Labels" http://www.thefreemanonline.org/columns/tgif/murk…
Interesting article. Couple of things:
1) As stuff becomes cheaper, people decide they want more stuff. That's part of the reason why we don't have 15 hour work weeks.
2) I don't really get the trademark argument. People choose to purchase shoe's bearing Nike's trademark because they believe in the company. This is to avoid confusion, and I don't see how it inhibits free competition. Somebody could make an identical pair of shoes that didn't bear the Nike trademark; they could even claim that the shoes were identical to Nike's shoes without violating the trademark. It's unclear to me that trademarks even fall under the category of "intellectual property," since they basically just prevent false claims about product origins.
3) In your laundry list of artificially subsidized benefits to large corporations and environmental destruction, you forgot to mention foreign interventionism. There might be far less outsourcing and we might already be on alternative energy sources if we weren't constantly intervening to protect global trade routes, access to foreign markets, and the price of oil.
I am also curious about the Nike argument. The author references that Nike pays only a few bucks to make shoes. But what about all their marketing costs? Nike spends a lot to get Michael Jordan to endorse Nike products, which is at least one reason why people pay much more for Nike shoes.
" they could even claim that the shoes were identical to Nike's shoes without violating the trademark"
Just like generic drugs that say "compare to active ingredient in X".
The thing about trademark is that it's handled from the perspective of "company rights" to a brand, which is silly. Companies sue people all the time over parody uses of their trademarked images, which is part of the problem.
The valid concern Trademark is meant to address js fraud; namely, my attempt, as Company B, to defraud you, the consumer, by making you think I'm selling a product made by Company A. But since trademarks are, and by law HAVE TO BE, CONTINUOUSLY AND RUTHLESSLY, even at the expense of basic decency (if you lax up on your trademark enforcement, even to avoid suing a well-intentioned mom and pop operation, it establishes precedent that it is no longer protected) enforced by their owners, it doesn't matter whether or not a customer was actually decieved into believing he was buying a different brand or maker. Studies of "bootleg" goods, esp. in 3rd world markets or markets with lax enforcement, show that virtually EVERYONE buying the product knows it isn't the real deal. For many it's about fashion/labels, for others aspiration (D'Addario guitar strings are a great example of this latter). But it doesn't matter if a customer WAS decieved; if there's even a CHANCE of it, a company will (because it MUST if it wants to stop real deciet) file suit.
My recent post anarchei:
If one defines capitalism as an economic arrangement…
1) looks like an inconvenient objection. Even if we take away Keynesian demand stimulus, government spending and the like, it seems that when (most) products become cheaper we tend to consume them more. ¿Isn't that a hindrance to abundance?
Very interesting article. I would love to see these ideas on the nature of a fully free-market debated more thoroughly and definitively between the right and left wings of libertarianism so that we can arrive at the truth and unite. I hope that Roderick, Sheldon and others will help distribute or at least make more available this article to prominent people within the more mainstream libertarian faction so that we can have that debate sooner rather than later.
Debated, of course. Arrive at the 'truth', perhaps (all conclusions are provisional). Unite? Note likely. I don't think it will eliminate the differences, so much as clarify them. It does not have to mean both sides become enemies, just that they are different.
Once upon a time, Proudhon came to a similar conclusion, but considered it a bit less than desirable. http://libertarian-labyrinth.blogspot.com/2008/11…
My recent post Individualities and Collectivities – Rights and Strengths
A quote of possible interest or relevance: "Rules are important only to the extent that they allow the outcomes resulting from the choices of participants to be unambiguously specified. … Any other game with possibly quite different rules but leading to the same relations among the choices and the outcomes is considered equivalent to the game in question. In short, game theory is concerned with rules only to the extent that the rules help define the choice situation and the outcomes associated with the choices. Otherwise the rules of games play no part in game theory." –Anatol Rapoport, Two-Person Game Theory
My recent post Students for a Stateless Society (re)Introduced
Excellent post Kevin, this is text-book stuff. Will definitely translate to Español and post ASAP.
The environment is an issue. If we were to have strong property rights, how would we assign blame for diffuse atmospheric pollution? If we had a "well-regulated commons," who would overlook the commons and enforce the regulations?
I'm also curious about the "regulated commons." ¿How is it supposed to work?
In my opinion, environmental issues can be handled in a polycentric, market-produced law through property rights with easements and class actions. Further regulation will be needed if we also want to preserve the environment for future generations, or just because we believe it has a value on its own, and maybe that fits a "regulated commons." If there is a demmand for such laws they will be produced.
"Why haven’t the cybernetic revolution and the vast increases in productivity from technological progress resulted in fifteen-hour work weeks, or many necessities of life becoming too cheap to meter? The answer is that economic progress is enclosed as a source of rent and profit."
Add to that the erosion of the value of the dollar as well as ever-increasing taxes, fees, fines, seizures, duties, and tolls siphoning wealth from the productive sector. It is maddening to think of the potential wealth and productivity of the world if not for the theft and meddling by The State.
Copying in a diaspora* post I just made.
Wonderful! Kevin Carson is very erudite, and (almost) a closet anarcho-capitalist. The quotes above are mostly strait Rothbardian anarcho-capitalism, except with some weird non-standard jargon. E.g. The phenomena that more and more things become cheap or free in stateless natural capitalism, he refers to as “socialism.” Later he refers to the natural results of free market capitalism as communism! That’s just terminology. Kevin is pretty good about distinguishing between actually existing capitalism (“corporate capitalism”) and free market capitalism, and between artificial scarcity caused by State aggression and natural scarcity. End corporatism, end IP, end government ownership and control of land and banking, all good stuff! I caught only a few things an anarcho-capitalist would disagree with.
Kevin Carson> The past forty years’ loss of biodiversity, deforestation, and CO2 pollution has occurred because the ecosystem as a whole is an unowned dump, rather than being a regulated commons.
I would change the last two words to “private property.” The commons is a recipe for tragedy of the commons, overuse, waste, like we have now. Things are getting polluted because of a lack of private property, in the oceans, the air, for aquifers, etc.
Kevin Carson> This parallels a major strain of thinking among socialists in the free culture/open source/P2P movement.
Should read “socialists and capitalists.” Many or most open source folks are hard core libertarian capitalists. But maybe he’s just using “socialist” in his weird sense again.
And one real howler:
Kevin Carson> … resembling not the anarcho-capitalist vision of a world owned by the Koch brothers and Halliburton
LOL! Kevin knows better than this. The anarcho-capitalist vision is quite the opposite of the corporatist Koch/Halliburton fascism. This is the only place he falls for vulgar anti-capitalism.
The idea of an ever increasing amount of “gratuitous utility” was discussed by one of my mentors, Frederic Bastiat.
And so, as I have already said many times and shall doubtless say many times more (for it is the greatest, the most admirable, and perhaps the most misunderstood of all the social harmonies, since it encompasses all the others), it is characteristic of progress (and, indeed, this is what we mean by progress) to transform onerous utility into gratuitous utility; to decrease value without decreasing utility; and to enable all men, for fewer pains or at smaller cost, to obtain the same satisfactions. Thus, the total number of things owned in common is constantly increased; and their enjoyment, distributed more uniformly to all, gradually eliminates inequalities resulting from differences in the amount of property owned. – Bastiat, [Economic Harmonies Chapter 8, Private Property and Common Wealth] (http://oll.libertyfund.org/titles/bastiat-economic-harmonies-boyers-trans#lf0187_div_084).
Jacob, your quotes are a good demonstration of how so-called left libertarians are closet anarcho-capitalists, or something damn close.