In a recent column, I referred to Auburn University Professor Roderick Long’s concept of “conflationism”:
“Left-conflationism is the error of treating the evils of existing corporatist capitalism as though they constituted an objection to a freed market. Right-conflationism is the error of treating the virtues of a freed market as though they constituted a justification of the evils of existing corporatist capitalism.”
In a recent interview on Reason.tv, Veronique de Rugy of George Mason University’s Mercatus Center, committed the latter fallacy of right-conflationism. She criticized the Occupy movement for focusing its outrage on the 1% richest Americans, whose wealth (she said) is not gained at the expense of the 99% — but rather from providing goods and services that people want to consume.
This is a fundamental non-sequitur. By definition, any economic transaction — no matter how monopolistic — must provide a good or service that someone wants to consume. A man who sells glasses of water in the middle of the desert for a quit-claim on your life savings is, obviously, providing something someone wants — and wants quite desperately. When a robber points a gun at me and says ‘Your money or your life,’ I’m paying for something of immense value to me.
So what? That by no means rules out the possibility that one person is also, at the same time, benefiting at someone else’s expense. Consider how monopoly pricing works:
In a free market, the value of goods is determined by the marginal utility of the last unit produced; with no entry barriers, new entrants will compete to supply needs until the marginal utility of the last unit produced to the buyer equals the marginal cost of production. To translate it from the language of marginalist economics to that of Ricardo, a competitive marketplace normally drives the price of reproducible goods toward the cost of production.
A monopoly short-circuits this process: Absent competition, the seller can target the price so that the utility is just barely worth it to the buyer after paying the price, with the seller pocketing the difference between a sales price targeted to the buyer’s ability to pay and the marginal cost of production.
And for reproducible goods, the latter state of affairs only holds true when there are barriers to entry enforced by the state. Such entry barriers include absentee ownership of vacant and unimproved land, by which the landlord is able to extract rents from the rightful first owner and thus leave the occupant barely enough utility from living or working on the land to make the transaction worthwhile. They include ‘intellectual property,’ by which Microsoft can price at $200 a software CD that cost $5 to make, or Pfizer can mark up a patented drug by 2000%.
Like the robber in the example above, the landlord, Microsoft and Pfizer, with the help of the state, points a gun at you and says “Pay up, and I’ll let you keep — not your life — but some portion of the utility from your land, your software, your medicine. You will either work twice as hard to feed me in addition to yourself, or you will not eat at all.”
In our economy, in fact, the largest concentrations of wealth are earned through entry barriers of this kind. The super-rich have, indeed, gotten rich at the expense of the 99%. They have no more earned their wealth through an uncoerced exchange of value for value with equals, than did the medieval lord of 700 years ago who compelled the peasants to work half the week on his manorial domain as a condition of working their own lands during the other half.
De Rugy’s claim is really an enthymeme — an incomplete syllogism in which one of the premises is unstated. The enthymeme is usually a rhetorical device in which the speaker appeals to the unstated prejudices of the audience. The unstated premise is an unexamined cultural assumption shared by the audience, which is left unstated because to state it might invite critical examination. Her enthymeme is as follows:
Major premise: In a free market, wealth comes from providing useful goods and services, and not at other people’s expense. Minor premise (unstated): The system we live in now is a free market. Conclusion: The people who got rich under our present system did not do so at anyone else’s expense.
The unstated minor premise, that the present system of corporate capitalism is a free market, takes us back to right-conflationism. De Rugy is defending actually existing corporate capitalism, and the wealth obtained under it, as if it were a free market.
That’s a premise that, if it were explicitly stated and held up for critical examination, would not bear much scrutiny.