Anarcho-Communism: Impossible Dilemmas

Anarcho-communism seeks to merge two distinct philosophies into one socio-economic system. The two philosophies, for the purpose of this article, can be defined as follows:

  1. Anarchism: (literally: “no rulers”) the rejection of government and belief that society ought to be organized voluntarily.
  2. Communism: (literally: “common”, “universal”) the ordering of society where the means of production are owned collectively, and good are distributed by the maxim “from each according to their ability, to each according to their need.”

Rather than beat around the bush, I’ll state this explicitly: anarcho-communism is its own reductio ad absurdum. Should an anarcho-communist society be established, it would either cease to be anarchic, communistic, or both. This article will explain how by exposing anarcho-communism’s three fatal flaws.

Fatal Flaw One: Exploiting the Workers

Let us travel in our mind’s eye to the anarcho-communist land of Marxistan. Here, the revolution is complete and the proletariat have unseated the bourgeoisie, and the power has been given back to the people! Now the revolutionaries have returned home to live free of their corporate overlords in peace. How could this glorious display of the victory of communism sow the seeds of worker exploitation in Marxistan?

Let’s imagine that comrade Murray has been reading too much Hoppe and now thinks he’s some kind of entrepreneur who is entitled to keep his own private property, and do what he pleases with the fruits of his labor. He decides that he no longer wishes to remain in the commune. There’s only one problem: Murray is a farmer. “His” house is an old family farm, and he along with some other workers harvest grain for the bread lines – err… makers, bread makers. The field he works is rather large, so when he starts talking about it being his property, there’s cause for concern.

So Murray wants to leave the commune. Obviously, if Marxistan is a voluntary society, he must be allowed to leave (otherwise, we would have a different issue, addressed below). The question is what he will be allowed to keep as a person who is no longer in the commune? Given that anarcho-communism is to be a voluntary system, if he were to simply withdraw his home and farm from the commune we see the first manifestation of the first of our fatal flaws.

If members of the commune can simply chose to leave, and in the absence of an agent of force (which would be statism, see below) preventing the leaving party from taking with them what possessions they deem theirs, the remaining members of the commune are exploited. They are exploited in the sense that they all consent to the redistribution of goods, while one individual can simply take more than their fair share, which in turn lowers the available goods available for redistribution. Without a mechanism of force keeping either Murray or that which he would otherwise take with him in the commune, those who do remain in the commune can potentially be exploited by anyone who chooses to leave the commune. Given that one of communism’s chief goals is to prevent the exploitation of the workers, it seems odd that the very nature of an anarcho-communist society would allow such easy exploitation.

Over time, as more individuals in Marxistan see their comrades leave, and they grow poorer and poorer, they come to realize that their particular brand of communism – rather than failing – just wasn’t “real” communism. As such, with what remaining strength they have left, they pack up their “personal” property and head to our next fabled land.

Fatal Flaw Two: State Communism

Welcome to Castroland! Just like Marxistan, Castroland has had a successful communist revolution, but unlike Marxistan, Castroland understands that there needs to be some ways to keep the workers from being exploited. After seeing what happened to their exploited brothers, the Castrolanders have a few changes they’re going to make in order to ensure a more prosperous society for all workers.

So in this society, Randy has been reading too much Rothbard. He too decides to leave the commune. Murray packs up his things, loads his truck with enough food stores to get him by for a while, and begins to drive in the direction of Ancapistan.

Unluckily for Randy, he is stopped before he can get too far. He is informed by his fellow citizens that he is not allowed to leave Castroland! Randy informs them that his association with Castroland is voluntary, and he no longer wishes to continue that association. However, after the fall of Marxistan, the citizens of Castroland do not wish to be exploited. Randy is told that he must go back. Since Randy has no other option, he returns home.

At this point, we must understand that Castroland is no longer an anarchy. Should Randy have made further attempts to leave Castroland, he would have either succeeded in doing so, exposing Castroland to the same exploitation as Marxistan. The only other option is to forcibly keep Randy in Castroland. This is already statist, but the problem goes deeper…

At this point, we have two questions we must ask as to what Randy’s fate is going to be given that Randy cannot leave:

  1. Will he still be made to contribute?
  2. Will he still receive benefits from the commune?

If he will both contribute and receive benefits, he’s essentially in the same position as he was before, except he cannot leave. This makes Randy a prisoner. Keeping an individual imprisoned requires aggression against them, thus making Randy subservient to some ruler over him. In this, Castroland has become a communist state rather than an anarchist commune.

If he will be made to contribute, but receive no benefits, the punishment for his desire to leave is becoming a slave. To make Randy a slave, there must be some agent aggressing against him, which again makes Castroland a communist state rather than an anarchist commune. Additionally, Randy is still a member of the commune, and thus his exploitation in this regard causes him to exploited, which brings us back to the problems discussed above.

If Randy, for some reason, is not made to contribute, but still receives benefit from the community, he becomes a leech which further exploits the Castrolanders, which brings us back to the problems discussed above.

If Randy is not made to contribute and will also not receive benefits, then he is independent from the commune, and forcing him to stay is arbitrary. There is no benefit to to commune in keeping him, and ultimately, this scenario could lead to him being made a prisoner or a slave as described in the previous scenarios.

Finally, if Castroland doesn’t seek closed borders, they may opt to prevent those desiring to leave, like Randy, from bringing any property with them. This, however, would still require an enforcement agent, who would appropriate one’s property apart from their consent. In order for Castroland not to be exploited out of existence like Marxistan, it must exploit those who wish to leave in order to prevent the exploitation of those who wish to stay. Regardless of whether or not Castroland has open or closed borders, to preserve the means of production and the distribution of goods apart from exploiting the workers, Castroland will quickly find itself requiring an agent of aggression. Castroland is a communist state, not an anarchist commune.

Fatal Flaw Three: Social Hierarchies as Safeguards

With the fall of Marxistan, and the descent of Castroland into statism, is there any hope for the revolution? There’s one final option that we can examine. Let us imagine, once more, that the communist revolution is complete. However, this time, learning the lessons of Marxistan and Castroland’s failures, the last beacon of equality proudly waves the black-and-red flag: Obamalia!

In Obamalia, there is no agent of enforcement, which prevents them from becoming a state, but to offset the possible exploitation of the commune by departing comrades, Obamalia requires all incoming members to the commune to receive limited benefits as to not exploit the existing members who have contributed additional resources. So when Bob and Tom wish to leave Obamalia, the commune bids them adieu, but to offset the lost production and the net loss in goods, the commune places new members Paul and Karl in a new members status. They receive less benefits until they contribute enough to the commune to alleviate any exploitation that may occur from either when they may leave; essentially they “pay it forward” as they arrive.

While this may sound just fine, and Paul and Karl may accept this arrangement, it is also not communistic. This intentional generation of social hierarchy accompanied by voluntary wage differentials is more akin to capitalist tendencies than communist ones. Yet this system would theoretically work. The only parts of the system that would not behave as an anarcho-communist society would be the entry and exit system. However, to abandon communist principles to fix communism is nonsensical. In the truest sense, the “success” of Obamalia is that its quasi-communism works so long as it is built upon a foundation of capitalist principles.

So under examination, the concept of anarcho-communism faces the problem of failing to be communism by allowing unrestricted exploitation of workers, failing to be anarchic by requiring agents of aggression to prevent exploitation, or must abandon core principles in order to remain communistic on the surface. From these options, an anarcho-communist society will either collapse all together, devolve into statism, or be communist in name only while hijacking free market principles.

For those of you more visually-inclined, click HERE or on the image below:


Child Labor and the Third World

I have seen the above video making the rounds on Facebook. I have seen people calling for boycotts, regulations, and other methods of “combating” situations like this for children in the third world. I think all of those solutions, while they mean well, are absolutely the wrong way to go about this. Situations like the one in the video above are used by those ignorant of economics with giant bleeding hearts to further some wrong-headed solution they think will save these children. I have written about child labor in the past, but since this video is making the rounds, I figured that I should cover the topic again 1.

Is Child Labor Really Bad?

For many, such a question seems pointless. “Of course it’s bad! That’s why we abolished it here in the United States!” they say. My retort is usually, “Did outlawing child labor actually end child labor?”. “Of course!” is usually the reply. I think such a reply outs such a person as both ignorant of economics and history. So lets delve into why such a common “fact” isn’t actually fact at all. Austrian Economist Ludwig Von Mises noted that, “in the capitalist society there prevails a tendency toward a steady increase in the per capita quota of capital invested… …Consequently, the marginal productivity of labor, wage rates, and the wager earners’ standard of living tend to rise continually” 2. Such a statement seems like a bold claim, particularly in such a climate as we have now where the average person has a relative skepticism of capitalism due to socialist and statist propaganda. “Capitalism” is a dirty word these days. But as the data has shown, free markets and economic freedom are directly correlated with a higher standard of living 3. The graphs below show how those in nations with more economic freedom (who more closely resemble a truly unhampered market), enjoy many other benefits associated with a higher standard of living.

We can see that government taking a step back from the economy creates more economic freedom which means those that live within a country are able to more easily accumulate capital. Accumulating capital raises the standard of living which lowers the amount of full-time hours required to survive and also means things like child labor become unnecessary. Thomas DiLorenzo notes that in 1870, the average number of hours considered “full-time” were 61. Today, it’s only 34 4. And if the data shows that less regulation, not more, creates a higher standard of living, that means regulations like abolishing child labor either do nothing to improve the standard of living or actively make the rise in the standard of living more difficult.

Bangladesh is a perfect example of this. In the 1990s, Bangladesh was faced with the United States and other western nations banning imports from the poor country because of its use of child labor. The Bangladesh government passed laws banning child labor which forced factory owners to fire around 30,000 children 5. No doubt those with bleeding hearts suffering from economic ignorance would count such an outcome as a victory. Unfortunately, it was not. Those that think such an outcome was ideal (hooray! We ended child labor!), are blind to the unforeseen consequences that occurred. I want to ask such people who may have cheered at this outcome, what they think happened to those children? Did they just magically go to school? No, of course not. Those kids took the sweatshop jobs because it was better than any other option open to them. “According to the British charity Oxfam, these kids didn’t go back to school or find better lives. Most of them took worse jobs or ended up on the streets. Thousands of children went into prostitution” 6. Those ignorant of the economic realities of the world don’t seem to grasp the fact that ignorance has consequences. Whether they realized it or not, their preference for ending child labor in Bangladesh was a preference that said, “I would rather you kids become prostitutes and sleep on the street than work in the ‘terrible conditions’ of the sweatshop”.

So what we have learned here is two-fold: (1) Free markets and economic freedom are directly connected to a continually rising standard of living. It becomes easier to gain capital and lowers the required number of hours of labor to live, which means longer work days and work weeks are no longer needed and children eventually no longer need to work in order to help support the family. (2) People will always seek the maximum value. In the case of job selection, they want the best pay and the best conditions and how these things are balanced are going to be subjective to each individual (that’s why here in the states, someone becomes a crab fisherman and someone else, a chef). Which means when even a child selects a job in a mine or factory, it’s because that was probably the best option available to them. So limiting that choice of that child is probably the worst thing those with bleeding hearts can do (as made clear by the Bangladesh example).

Back to the Congo and What to Do

So let us go back to the Congo. What are the options for this kid in the video? Well, prostitution is probably his last option after this mine since prostitution, and child prostitution in particular, are still a huge problem in the Democratic Republic of Congo 7. Either prostitution or child soldiering seem to be the only other viable job opportunities to these kids 8. UNICEF reported in 2011 that 30,000 kids lived on the streets 9. Really, given the nature of this data, that kid is probably a lucky one to even have a job mining. The fact that Sky News and those sharing the video are not talking about the lesser options available to kids in this country is a giant red flag that they want to push anti-capitalist propaganda at the expense of children rather than actually help said children.

So what is the solution then? Pressure, but of a different kind. Instead or pressuring bans and government regulation, pressure should be placed on the Congo government to liberalize markets. Currently, The Democratic Republic of Congo is ranked 117 in economic freedom, placing it in the “mostly unfree” category 10. Given the data already presented here, the solution is quite clear, free up the market and let that liberalization of the market allow that observation Mises had in a rising standard of living to occur naturally in the country. This would easily phase out the need for child labor. For those who want to do something, they should put their money where their bleeding hearts are and provide economic opportunities to people there by investing in businesses that will treat their workers kindly and fairly (or starting their own business there that will do just that). Create a demand, and there will be an entrepreneur there to provide it.

As a final thought I would like to point something out. Child labor has been around since before the idea of “capitalism” was even coined. Children had to work because, as I have already noted, their was not enough capital accumulated to phase it out. It wasn’t until the advancements brought about by capitalism that created efficiency and reduced the needed number of hours spent laboring, that children no longer needed to work. Simply put, those that want to place the laurels on government for ending child labor are doing so on false claims. The data provided here, hopefully, clearly illustrates that point.


Let me Stop you at “Post Scarcity”

Communists, socialists, and leftists are generally confused on what “scarcity” is. This isn’t surprising considering the fact that language has been one of the first things these kinds of people have attempted to poison with their confused and emotive rhetoric. 1 Words mean nothing until they do mean something and that line is decided arbitrarily by the leftists emotions of him/her/”ze”/”zir” self. The problem with the perspective of some communists and socialists is the denial of scarcity as a real problem.

Let me clarify (I’m not a leftist so I think solid definitions are important).

Many do acknowledge that scarcity is a problem but the catcher is that they believe that scarcity is a problem for the capitalist only. Recently, an Anarcho-Communist told me in a debate group that “scarcity is artificial and caused by capitalism.” I fail to see how this is so. If I want to do X with good G and you want do Y with that very same good (and X and Y are both mutually exclusive), there is scarcity in regards to good G if there is only one available to us. 2 We either need to come to blows over the resource (the Communist solution via the proletariat or working class “seizing the means” from the bourgeoisie class), or adhering to a first user homesteading principle (the Anarcho-Capitalist solution). But let us dissect this concept that scarcity is artificial and caused by capitalism. If this is an accurate and true assessment of reality, then there should be archaeological evidence of a time when, prior to capitalism, man lived in a world with no scarcity. We should be able to look at primitive cultures and see how their ideology magically willed scarcity out of existence, creating plenty for all.

Plains Warfare in the Americas

It is safe to say that the natives of North America did not practice capitalism. This is why Anarcho-Primitivists (essentially communists who take communism to one of its many moronic but logical conclusions) praise primitive cultures and that way of life. If capitalism is the cause of scarcity, rather than a tool in managing it, then how do Anarcho-Primitivists and Communists explain the following:

“Human skeletons from as early as the Woodland Period (250 B.C. to A.D. 900) show occasional marks of violence, but conflict intensified during and after the thirteenth century, by which time farmers were well established in the Plains. After 1250, villages were often destroyed by fire, and human skeletons regularly show marks of violence, scalping, and other mutilations. Warfare was most intense along the Missouri River in the present-day Dakotas, where ancestors of the Mandans, Hidatsas, and Arikaras were at war with each other, and towns inhabited by as many as 1,000 people were often fortified with ditch and palisade defenses. Excavations at the Crow Creek site, an ancestral Arikara town dated to 1325, revealed the bodies of 486 people–men, women, and children, essentially the town’s entire population–in a mass grave. These individuals had been scalped and dismembered, and their bones showed clear evidence of severe malnutrition, suggesting that violence resulted from competition for food, probably due to local overpopulation and climatic deterioration…

…Archaeological data on war among the nomadic Plains hunters are few, but some nomads were attacking farmers on the edges of the Plains by at least the 1500s. By the eighteenth century, war was common among the nomads, apparently largely because of conflicts over hunting territories.” 3

Somehow, scarcity still existed for native cultures in north America in regards to arable land, food, and hunting grounds. So much so, that warfare among the indigenous tribes was commonplace. But wait, I thought that scarcity was caused by capitalism and yet here we see cultures that did not practice such an economic system still killing each other over “scarce” resources?

Plymouth Colony and 1621

Some may find this example hard to grasp at first, but once the true history of Plymouth is understood, socialism and scarcity are also understood in a better light. The official story of Thanksgiving is that the colonists arrive and half of them die to starvation. But they learn some valuable agricultural techniques from the natives and have a bountiful and full harvest in 1621. As thanks for this bounty, the tradition of giving thanks at harvest for the bounty God has blessed us with is created called “Thanksgiving”. Except, this isn’t what happened at all.

Officially, there was nothing going on but death and famine in 1621 and 1622. Things didn’t actually change until 1623. 4 Richard Maybury notes the following in regards to the economic changes of 1623:

“But in subsequent years something changes. The harvest of 1623 was different. Suddenly, ‘instead of famine now God gave them plenty,” Bradford wrote, ‘and the face of things was changed, to the rejoicing of the hearts of many, for which they blessed God.’ Thereafter, he’wrote, ‘any general want or famine hath not been amongst them since to this day.’ In fact, in 1624, so much food was produced that the colonists were able to begin exporting corn.

What happened? After the poor harvest of 1622, writes Bradford, ‘they began to think how they might raise as much corn as they could, and obtain a better crop.’ They began to question their form of economic organization.

This had required that ‘all profits & benefits that are got by trade, traffic, trucking, working, fishing, or any other means’ were to be placed in the common stock of the colony, and that, ‘all such persons as are of this colony, are to have their meat, drink, apparel, and all provisions out of the common stock.’ A person was to put into the common stock all he could, and take only what he needed.

This ‘from each according to his ability, to each according to his need’ was an early form of socialism, and it is why the Pilgrims were starving. Bradford writes that ‘young men that were most able and fit for labor and service’ complained about being forced to ‘spend their time and strength to work for other men’s wives and children.’ Also, ‘the strong, or man of parts, had no more in division of victuals and clothes, than he that was weak.’ So the young and strong refused to work and the total amount of food produced was never adequate.

To rectify this situation, in 1623 Bradford abolished socialism. He gave each household a parcel of land and told them they could keep what they produced, or trade it away as they saw fit. In other words, he replaced socialism with a free market, and that was the end of the famines.” 5

How, pray tell, was scarcity such a problem for such a pure socialist economy at Plymouth? Surely, the moment they abolished private property and shared everything in common, a golden age devoid of scarcity should have taken hold. Yet, starvation and death was all they knew of in this new world until they adopted a form of private property and capitalistic economy. Surely, the outcome of events would be the other way around if the communist and socialist was accurate in blaming capitalism for scarcity and maintaining that all we need to do is abolish private property and capitalism in order to reach this heaven on earth known as “post scarcity”.

Human Action Refutes the Communist

Not only are socialists and communists terrible students of history, they also do not understand logic and economics. Let me provide a scenario to explain. Say you are washed up on a deserted island with nothing but the clothes on your back. You are the only one on this island therefore “capitalism” is simply not possible. Does this mean that you will magically have all of your needs met or will you still have to engage in economic action, be it labor or anything like that, in order to satisfy any needs you may have? You have to labor in order to survive. You have a desired end, continuing to live, and so you take action by applying the scarce means and resources in your control towards this end. You use your labor, energy and time (all scarce resources available to you) in order to hunt, fish, and gather the food and resources you feel you need to survive. If scarcity was not a natural factor of reality, all of our wants would be met instantly and there would be no need to act. So either the communist or socialist has not really thought about their ideas, or they are engaging in some kind of secular religion were salvation and paradise will arrive the moment we all abandon property and live like the colonists at Plymouth before 1623.

Humans engage in action by applying their scarce means towards their varying ends. This is the action axiom and it is obviously problematic for collectivists of any stripe. So, these collectivists attempt a refutation and fail to understand that they are falling into a performative contradiction. This is because the action axiom is a “synthetic a prior proposition” and any refutation requires the action axiom to be true in order for it to be shown false. Such “refutations” can then be easily thrown out as the axiom cannot both be true and false at the same time. Recently, one of these collectivists types tried to refute this point by saying the following:

“Your ‘a priori’ proposition is not a priori. The system we derive a priori we know will either be incomplete or self-contradictory. Even if we could rely on a priori reasoning (if it is possible), we could not know that 1. There are individuals, 2. Individuals act, 3. Individuals have means, 4. Means are scarce, 5. Individuals can control means, 6. Individuals have ends, or 7. Individuals vary.”

This person has just engaged in action by attempting to refute the action axiom by applying the scarce means in their control towards it (their time, mind, body, computer/phone, etc).

“[T]he proposition that humans act … fulfills the requirements precisely for a true synthetic a priori proposition. It cannot be denied that this proposition is true, since the denial would have to be categorized as an action — and so the truth of the statement literally cannot be undone… This also implies that the action axiom is a statement about a fact of reality. Even though an individual might try to deny the axiom, his real behavior attests to its existence. Action is the deliberate employment of means for attaining ends. In this case, the actor’s end is the denial of the action axiom. His attempted means is the statement, ‘Humans do not act.’ While his endeavor is bound to fail, he still acts so long as he thinks that the means he employs will arrive at the end he seeks.” 6

The mere fact that we take action implies scarcity and there is no way to refute this observation without contradicting one’s self entirely. It’s safe to say that the communist and socialist lives in a fantasy world. Any acceptance of their stupidity in regards to philosophy, ethics, and economics is death a sentence.

Liberty Classroom!


The Bastardization of Value

As part of Kevin Carson’s mutualist economic theories  in Studies in Mutualist Political Economy, he necessarily supports a labor theory of value (LTV).  However, recognizing the failures of the classical LTV, he attempts to recast the theory as a subjective one.  Instead of having value simply because the laborer works for a certain number of hours, Carson contends that this value arises because of the psychological cost of labor to the laborer.  In other words, what Mises referred to as the “disutility of labor”¹ in his treatiseHuman Action.  However, even with a most gracious interpretation, Carson presents zero rationale for the valuations of others beyond the producer – a key aspect of the exchange economy.  Why should I, as the buyer of a product, value a good as I do?  I have not labored to produce it at all.  Nor does Carson explain why, for instance, a laboring carpenter might choose to design a new chair rather than a new bookcase in the same amount of time.  The (disutility of) labor involved is the same.  Only the results differ – but if this is relevant, then value cannot solely be from the disutility of labor.

And yet, this disutility, Carson contends, is the “real” cost of labor, and thus the basis for exchange value (as he contends prices tend to equal costs).  This he claims is the necessary outcome, as:

A producer will continue to bring his goods to market only if he receives a price necessary, in his subjective evaluation, to compensate him for the disutility involved in producing them. And he will be unable to charge a price greater than this necessary amount, for a very long time, if market entry is free and supply is elastic, because competitors will enter the field until price equals the disutility of producing the final increment of the commodity.

Here Carson’s view of price formation and competition is flawed. In an evenly rotating economy, the price of a good or service will equal its cost of production because the valuation consumers place upon consumer goods will be imputed backwards to the prices of the factors of production used to produce said consumer goods. The supply will consist of individuals who are willing to sell their product at a price which they believe is more valuable than the good they give up. It cannot be established a priori that the disutility of an individual’s labor is what causes them to rank their good above or below the compensation they receive on the market. If one started with the imaginary construction of the evenly rotating economy in disequilibrium, entrepreneurs would enter a new industry up to the point in which the costs of factors of production are bid up, with the necessary allowance for time preference, to the productive capability they yield in the production of their respective consumer goods. Note that entrepreneurs enter markets based upon the expectation of a profit and/or higher rates of return, and not because of a discrepancy in the disutility of labor and the price of a particular good. Entrepreneurs do not calculate in disutility; they appraise the value of their capital stock, labor inputs, and their final products using market prices, irrespective of the disutility of labor involved in the production of the good.

And here is the root of the error that Carson makes.  There is no uniform “subjective disutility of labor”.  Each individual has a different view of this disutility and this differs according to the law of diminishing marginal utility as well – each hour given up has an increasing disutility, while the benefits of laboring for that hour are diminishing in utility.

While true that the laborer will stop working at the point where the subjective benefits gained are viewed as less valuable than the subjective cost of laboring, this only creates a lower bound on compensation.  Instead of his hypothetical with elastic supply, the resulting market looks far closer to something like this chart Rothbard uses in Man, Economy and State(Chapter 2, Section 5: “Determination of Price: Equilibrium Price” ) to explain the formation of an equilibrium price.  As can be seen by the chart, multiple sellers (and buyers) profit by obtaining a difference between the minimum (maximum) price they are willing to pay and the price they actually do pay on the market.

graph

 

Further, as people have different disutilities of labor, we can find that this is only one factor in the determination of price. Should I go to two bakers and examine the price of bread, I will not pay one more because he worked harder at the baking of the bread – had more subjective disutility to his labor.  This is irrelevant to me as a consumer.  I will pay according to how much I value the bread.  Bread of a greater subjective quality after the same time investment will be compensated higher in all cases – the disutility to the baker only factors in should he cease baking as it is too costly to him.  Again, we find, only the lower bound is created here.

This lower bound due to the subjective disutility of labor is simply a part of what the Austrians refer to as “reservation demand”.  Rothbard discusses this concept in Man, Economy, and State Chapter 2, Section 8 “Stock and the Total Demand to Hold”:

The total demand-stock analysis is a useful twin companion to the supply-demand analysis. Each has advantages for use in dif­ferent spheres. One relative defect of the total demand-stock anal­ysis is that it does not reveal the differences between the buyers and the sellers. In considering total demand, it abstracts from actual exchanges, and therefore does not, in contrast to the sup­ply-demand curves, determine the quantity of exchanges. It re­veals only the equilibrium price, without demonstrating the equi­librium quantity exchanged. However, it focuses more sharply on the fundamental truth that price is determined solely by utility. The supply curve is reducible to a reservation demand curve and to a quantity of physical stock. The demand-stock analysis there­fore shows that the supply curve is not based on some sort of “cost” that is independent of utility on individual value scales. We see that the fundamental determinants of price are the value scales of all individuals (buyers and sellers) in the market and that the physical stock simply assumes its place on these scales.²

While we can see that the equilibrium price then is influenced by both the seller and the buyer’s valuations.  As such, the seller is not paid according to his valuation alone – nor is the laborer paid on his valuation of labor’s disutility.  Just as some individuals will not labor as they will not receive enough compensation to make it a good bargain to them, there are people who are paid more than the minimum it would take for them to overcome the subjective disutility of laboring.

Another thing is that goods with higher prices are made with less pleasant labor – the more the work sucks, the more the good will cost. Which is already wrong enough intuitively and from experience, but it gets worse. I have an array of productive tasks to choose from. Those with higher utility (higher prices) come with higher disutility (less pleasant labor). I’ll make the selection either to maximize utility or to avoid disutility. If I want to minimize disutility, I’ll make my way down the list and find that I can best minimize disutility by selecting none of them – by not laboring it all. If I decide to try to maximize utility, Carson’s made a circular argument: I’m only doing this labor because of the price of the final product, which he claims comes from the labor itself, when the price in this case is necessarily antecedent to the labor. So if Carson is correct, people must make productive choices in favor of avoiding disutility, and nobody would ever work.

Carson’s formulation of the LVT also creates a curious implication that if someone really dislikes their job, the work they do is somehow “worth more” (another consideration is the utility of leisure forgone, but this is not the same as the disutility of the labor itself – the dislike of laboring, regardless of what is forgone).  After all, they have a higher subjective disutility of labor the less they enjoy doing that work.  But then, I enjoy my work – why is it that I get paid so much, while a garbage collector does not get paid so much?  This is clearly a conundrum that must be explained in greater detail to see where the error lies.

To illustrate, we start with a highly specific factor of production – one suitable only to the production of a single good. As an imperfect example (because they all are – specificity is a matter of degree, and I’m not sure there can be a purely specific factor) let’s say the skilled labor necessary to make an old school folded-steel katana as the Samurai used to make. Carson’s LTV says the value of this guy’s labor is a function of his distaste for it – its subjective disutility, for him. Austrian subjective theory of value (STV) says that by virtue of its specificity to the task, his wage will be determined by the price of the katana he produces, which will itself be a function of supply and demand. Say the sword costs $10,000. Its production involves some nonspecific factors of production like charcoal for the fire and carbon, iron for the blade, leather for the grip. As non-specific factors, the costs of these items are determined by the prices of all the goods whose production requires them, a fact which leads to the error of assuming their cost determines prices, since no single producer can have a very important influence on their price, owing to their non-specificity.

Now,  it could be asked that if costs don’t determine price, then why does labor-saving technology tend to bring prices down? However, labor-saving tech invariably leads to dramatic increases in supply. It’s still 100% supply and demand, and one of those variables is changed by the deployment of capital. You could posit a situation where this isn’t the case, where capital lowers costs but doesn’t allow any more of the good to be produced (or where the producer chooses not to exploit the possibility of increasing supply). In this case the price doesn’t change – the seller has no incentive to lower the asking price, and the buyer’s situation is unchanged. The seller will just reap additional profits.

In our  katana example, these costs are trivial compared to the price, so for simplicity I think it’s safe to ignore them. If we’re looking at this empirically it would be easy to reach the conclusion that the sword is so expensive because the skill to produce it is rare and demands a high wage – that is, it’s expensive to produce and therefore expensive to buy. But this is an error. A Samurai-quality folded-steel refrigerator housing would involve a nearly identical skill set, and what is its price? It has none, because it doesn’t get produced, because nobody has a use for such an item that would impel him to pay enough for it to be produced. Likewise, if the difficult and labor-intensive process of producing a Samurai sword resulted in a product not easily distinguishable from the weapons you can get for $100, there would be no market for this skill and the swordmaker’s wage would be very small – because, again, price determines cost. But as it happens, our swordmaker’s efforts produce a sword with qualities no other sword can (presently) match. No other method of production yet exists to replicate the product of his skill.

Thus, if we assume the market price of this sword is $10,000 and ignore the cost of the leather and so on, how much will the swordmaker get for making the katana? If we also ignore the likelihood that there will be middle-men between the producer and the buyer, the answer is $10,000. If we don’t ignore that, the figure will probably be trivially different, and we could analyze the specifics but they’re not especially relevant here. What would happen if the few people willing to pay this kind of money for a sword in the era of guns all died of old age, and nobody was left who was willing to pay more than $1000? STV says the wage of the swordmaker will plummet, and if no swordmaker is willing to ply his trade for $1000 per item, these swords will cease to be produced and the swordmakers will enter some other line of production.  If this is true – and it clearly is – then STV is correct, LTV is erroneous, and we find that price determines cost, not the other way around. Cost is, after all, just another price which in the LTV remains to be explained.

What leads to the error in the LTV, as I mentioned above, is that most factors of production are nonspecific. The iron used in the sword, for example, is used in the production of millions of different goods, so there is no single good the price of which is likely to noticeably affect the price of iron, which is determined by the prices of all those goods.  As such, we “see” that the price of iron determines the cost of producing the sword – but in reality, the only reason the price of iron stays high while the price of the swords plummets is because the iron is highly desired for production of other goods – hammers, refrigerators, etc.

In response to this, Carson (or any other supporter of this theory) could respond that the sword maker not being willing to work to make the sword at a $1000 price is due to the disutility of labor thus “proving him right”. However, this disutility is itself a subjective measure based on opportunity cost, well noted in Austrian theory, but can only put a floor on the price from one producer. As any source of reservation demand would do.  And so we are back to the original problem – the assumed universality of what is in fact a subjective and variable consideration.

Carson, in effect, assumes away the buyer of the service.  But what is it that creates a situation where a person would pay nothing for multiple hours of a laborer making mud pies, $10 an hour for a fry cook at McDonald’s, $30 an hour for a computer programmer, but effectively thousands of dollars an hour for the labor that went into producing Van Gogh’s Starry Night?  Surely, painting masterpieces can’t be that onerous?  And what reason would one wine have a price of $500 on the market while another, made with the same techniques and labor, go to market for only $20?  Why should aging spirits add to the price? After all, this takes no labor at all, as the good just sits for a determined period of time   Rather, it seems that the Austrian analysis in its original form was correct – what matters is the supply of a good and how much it is in demand, with the subjective disutility of labor only relevant in determining at which point individual laborers will stop producing, and even then only in comparison to the utility they obtain from laboring.

It seems that Carson’s “recasting” of the labor theory of value is nothing more than a rather weak attempt to revive the LTV (which is akin to still arguing the world is flat) because he finds it ideologically necessary for his mutualist proposals. Robert Murphy makes the point here:

“As this simplistic numerical example illustrates, one could theoretically trace back the expenditures on inputs until all intermediate capital goods had been eliminated. This procedure is quite similar, of course, to the process by which Austrians impute all net productivity to the “original factors” of land and labor. The difference, however, lies in the fact that the labor theorist of value does not believe the owner of an original natural resource can earn a rent on his or her factor input.  Because only human beings experience discomfort from providing labor, even the prices of natural resources can ultimately be reduced to inputs of labor; Mother Nature never charges for her services.”³

In other words, the physiocrats only thought about land, the classical economists only thought about labor, the Knightians ignore land and labor, the right way is to consider both land and labor. Essentially what I mean by this is if LTV is wrong, Carson’s entire worldview goes with it, so he desperately wants to rescue it. You could ask how that conclusion is reached, sure. Well it depends on seldom-encountered details about what the theory actually says, but it seems to come down to the concept of “surplus value” that rightfully belongs to labor but is appropriated by the capitalist. Under a subjective theory of value it’s an awful lot harder to arrive at justifications for workers seizing the means of production. That’s a big part of it anyway, but it’s very pervasive throughout leftist thought.The LTV is necessary to get to the conclusion that for-profit firms are unnecessary, which is where economic calculation plays a big factor. Without rental prices for land, money, and human capital, society can’t calculate. Occupancy and use ownership, like Carson advocates, by definition eliminates all rental prices for land, human capital, and money (and any other form of capital). In addition to that, Carson completely ignore economies of scale: it’s believed that, absent the state, no large firms will exist, democratic or otherwise. It completely ignores relatively fixed costs that occur due to non-specificity of production inputs, and it involves an enormous pretense of knowledge to even make that prediction. Furthermore, it (quite conveniently) delegitimatizes all private business larger than a mom and pop shop. Carson’s whole ideology seems to be built on the idea that value is the product of labor. “Labor owns its product”, etc, which provides the justification for all the notions of workers seizing capital from its owners (which is handy since Carson’s favorite economic arrangements of collections of poorer laborers wouldn’t be able produce any new capital).

In closing, most LTVs are “nuanced”, but those nuances – for example, the “socially necessary” modification – are either meaningless, or lead you straight back to STV. “Socially necessary” labor time is supposedly the time an average person (skill, etc.) must expend on labor to produce the “socially necessary” supply of a good (i.e. the supply that matches with demand). If the market for a commodity is oversupplied, then labor-time has been expended in excess of what was socially necessary, and exchange value falls. If the market for a commodity is under supplied, then the labor-time expended on its production has been less than what is socially necessary, and exchange value rises. It’s basically supply and demand in the first place, with some nonsense about average productivity of an “average” worker (there is no such thing). The average person could labor for decades to do none of what I can do in 10 minutes as a web designer, and the same thing for me trying to design and build a skyscraper.  Even a highly practiced janitor will be far quicker at cleaning a building than I would. The whole concept is absurd. “Socially necessary” labor time concepts are supposed to explain the obvious fact that mud pies have no value, because mud pies are “socially unnecessary” and ergo so is the labor that produces them.But how can we define “socially necessary” without reference to what people are willing to buy, which brings us back to STV? I dare an explanation to be presented for “socially necessary labor time” without arriving at STV. Or to be more explicit, this is simply supply and demand in the final analysis and the addition that a person who takes four times as long to produce a good gets less is a tautological addition that does not need such an explanation. (In fact, it is merely a roundabout way to explain that one gets paid the same for a good no matter how much time was spent on it – a drastic hole in the “standard” labor theory of value.)

Yet, Carson’s theory of value doesn’t solve the “socially necessary” problem by a long shot. Like so many other busted theories, it takes the existence of capital as a given and merely redistributes it. It doesn’t only fail to solve for how new capital will come about – it renders capital production virtually impossible, and mass abject poverty inevitable.  All of this stems from an error of focusing on one small aspect of the process of price formation – the reservation demand of an individual laborer – as the “source” of value, instead of the preference scales of the participants involved.

Lastly, it draws a lot of his conclusions elsewhere into question. The primary result of a faulty labor theory is an erroneous price theory and failure to recognize the importance of subjective determination of marginal cost. The problems will compound from there, similar to if you were trying to solve a complex mathematical equation but forgot to carry the 1 in the first of 50 steps. The first noticeable problem is marginal analysis as set forth by Menger. Focusing on the “subjective disutility” takes the analysis out of the means-ends framework; the basis for analysis of human action in the span of economics. Second issue: price theory. If you have a faulty marginal analysis, your price theory will also fail. And the fact that his theory can only account for some prices but not why, say, diamonds sell for so much. Does it take more labor to bring up the diamonds of the same weight but different quality? No. Carson tries to get around this with an opportunity cost argument for labor which doesn’t make much sense: if a diamond asteroid lands and diamonds are plentiful (and the diamonds cartel ends) the opportunity cost for labor won’t change but the price of diamonds will decrease  which is an argument against Carsons theory.

Carson can’t help but get a lot of things wrong starting with a problem like his LTV. However, between that and his other questionable positions (free market as socialism, Hayeks Knowledge Problem, interest rates would be zero in a free market), it brings him into suspect. If your starting point is incorrect, anything you deduce from that will result in the same.

 

 

[1] Human Action XXI. WORK AND WAGES

  1. The Supply of Labor as Affected by the Disutility of Labor

http://mises.org/humanaction/chap21sec7.asp

[2] Man, Economy, and State Chapter 2, Section 8 “Stock and the Total Demand to Hold”

http://mises.org/rothbard/mes/chap2c.asp

[3] The Labor Theory of Value: A Critique of Carsons Studies in Mutualist Political Economy

https://mises.org/journals/jls/20_1/20_1_3.pdf

Further reading:

Principles in Economics by Carl Menger

http://mises.org/Books/Mengerprinciples.pdf

Man, Economy, and State, with Power and Market by Murray Rothbard

http://mises.org/document/1082/Man-Economy-and-State-with-Power-and-Market

Kevin Carson as Dr. Jekyll and Mr. Hyde by Walter Block

https://mises.org/journals/jls/20_1/20_1_4.pdf

Freedom is Slavery: Laissez-Faire Capitalism is Government Intervention: A Critique of Kevin Carsons Studies in Mutualist Political Economy by George Reisman

https://mises.org/journals/jls/20_1/20_1_5.pdf

Special thanks to: Robert Murphy, Rocco Stanzione, Andrew Criscione, Andrew Katherman, Von Fugal, Jason Lee Byas.

This post is republished with permission from We the Individuals. Find more of their articles here.

[Part of An Anarcho-Capitalist Case Against Left-Libertarianism series]


“It’s the End of the World as We Know It, And I Feel Fine”

Leftists everywhere are are talking about how the victory of Trump is the beginning of the end. That the US as we know it is doomed. And as they destroy their country in “protests” (riots) because Donald Trump is going to destroy the country too (I know, it makes no sense) I think it’s important to talk about what the “end” entails. Is it a bad thing and are their instances in history we can look to as to what we could expect? I think the answer to both questions is easily found. We need to look no further than the Roman Empire and its collapse.

The Fall of Rome

Rome fell for a number of different reasons. One theory says Christianity is what brought it down. 1 The basic idea behind this theory is that Christianity was a very inclusive religion, and that once Rome accepted it and adopted it as its state religion, the Roman State became more inclusive as well. Prior to the acceptance of Christianity, the ability to become a citizen and serve in the army was a guarded privilege. Once this privilege became more common in the decline of the empire, it caused that sense of unity in being “Roman” to disappear thus causing its downfall from within. While this seems like a fascinating theory, I don’t think it is the reason Rome fell. It may have contributed to its demise, but Rome was failing and Christianity, if it had any effect at all, was simply a small contributing factor to the economic troubles the empire had for itself.

The chart above shows the decline of the quality (silver content) of Roman currency. You can see they began to inflate their money supply (through coin clipping or mixing in base metals) in order to pay for expansions and any other stately need. This increase in the money supply then meant that the purchasing power of the money decreased. When the scarcity of something increases, it’s safe to assume that its price will diminish compared to other goods. Money is not exempt from this economic rule.

Above we can see that the US Government has done much the same thing to our modern money through central banking and inflationary monetary policy. Like the Roman Empire, the US government has sought to increase the money supply through inflation in order to pay for war and foreign interventions. And just like Rome, this economic policy will be its downfall. We are seeing it now. The average American, much like the average Roman at the time, is aware that something is wrong but cannot posit exactly what it is. They turn to demagogues like Trump or Sanders for fallacious populist answers and get “Bread and Circuses” to distract them from the troubles that are at their front door.

Mises points out the following in his treatise on economics, Human Action:

“What brought about the decline of the empire and the decay of its civilization was the disintegration of this economic interconnectedness, not the barbarian invasions. The alien aggressors merely took advantage of an opportunity which the internal weakness of the empire offered to them. From a military point of view the tribes which invaded the empire in the 4th and 5th centuries were not more formidable than the armies which the legions had easily defeated in earlier times. But the empire had changed. Its economic and social structure was already medieval.” 2

At its height, the Empire had a high division of labor. It would be fallacious to say that this was the kind of free market Anarcho-Capitalists argue for, but it was definitely a hampered but developed economy. Trade was strong, which fostered this division of labor, and it’s what allowed the Empire to remain strong and protect its frontier borders. As the currency degraded in quality, it’s logical to say that its effectiveness in defending its borders would decrease too. This is all due to the destruction of the division of labor caused by monetary manipulations within the Empire. Mises further notes:

“The showdown came when in the political troubles of the 3rd and 4th centuries the emperors resorted to currency debasement. With the system of maximum prices, the practice of debasement completely paralyzed both the production and the marketing of the vital foodstuffs and disintegrated society’s economic organization. The more eagerness the authorities displayed in enforcing the maximum prices, the more desperate became the conditions of the urban masses dependent on the purchase of food.

Commerce in grain and other necessities vanished altogether…

…A tendency toward the establishment of autarky of each landlord’s estate emerged. The economic function of the cities, of commerce, trade, and urban handicrafts, shrank. Italy and the provinces of the empire returned to a less advanced state of the social division of labor. The highly developed economic structure of ancient civilization retrograded to what is now known as the manorial organization of the Middle Ages.” 3

Medieval monetary inflationary policies, coupled with price controls, caused prices to be unstable which caused problems within the markets and cities. This caused people to flee the city and return to a less advanced kind of division of labor. A more subsistence and primitive form of living which in turn reduced production. Reduced production meant reduced support and resources for maintaining the borders until nothing could be defended. What we are really seeing here is the Austrian business cycle theory. Monetary policies that distorted the market created a bubble (the boom) which would eventually burst (the bust). The return to the simpler division of labor was the market attempting to correct itself since its current path was no longer sustainable. Unfortunately, the barbarians took advantage of this market correction caused by government intervention and ravaged Rome until it was no more. “Groups such as the Visigoths, Vandals, Angles, Saxons, Franks, Ostrogoths, and Lombards took turns ravaging the Empire, eventually carving out areas in which to settle down.” 4 In 476, the last Roman Emperor in the west, Romulus, was overthrown by Germanic leader Odoacer. Odoacer’s people settled the region that once had been part of the “Great Roman Empire”. 5

Do we need to worry about modern day Visigoths and Vandals? Not so much in my opinion. To me, the fear mongering of Muslim invaders is overblown and the rioting of the leftists can only go so far, especially in an armed society like the US (so long as it stays armed). But the US Empire cannot escape the economic disasters it has sown for itself. Perhaps the only “barbarians” we will have to worry about are those in power now, who caused this economic disaster, being unwilling to relinquish power peacefully. But as Hoppe has pointed out, this risks them losing public favor. Government is by it’s nature, an entity that appropriates property by force and against the property owners real consent. And any firm that does so creates victims. And if those victims decide that enough is enough, that exploitative firm will diminish in size or cease to exist all together. It is public opinion and favor that is one of the main contributing factors to the size and existence of government. 6

What Happens After the Fall?

The US will in fact go the way of Rome. It will crumble and it will become a part of history. As horrifying as that sounds to some, there is no escaping this fate. But like the time after the demise of Rome, there are some pluses and positive outcomes. The most precious and important being decentralization. The break up of the leviathan like state meant smaller governments. And for libertarians and Anarcho-Capitalists, this is a positive idea. For much of the Middle Ages, there was mass decentralization as far as state authority is concerned. There were hundreds of tiny kingdoms all over. In fact, the concept of the modern state that is as large as it is now is… well… a very “modern” concept. Louis Rouanet at the Mises Institute notes, “…over the centuries, a long evolution of the institutions gave birth to personal liberty. Although the European aristocracies and states were restricting freedom, they were forced to grant more autonomy to their subjects, for, if they did not, people were opting out by migrating or using black markets.” 7 It is easy to see that if the decentralized nature of Europe after Rome fell was retained with the modern advancement of free markets and the division of labor, how much more incredibly wealthy Europe could have been than it was or currently is now.

So we can see that the end will come at some point. But it really isn’t “the end of the world”. There may be some bumps on the way to decentralization and liberty, but statism has a price and that price must be paid in some way. The US will fall and it already is falling. A Trump presidency (or a Hillary one if she had one) is only an indicator the end began a long time ago. The end will not occur because of a single bad leader. That bad leader came to be because previous statist rulers made choices that allowed the current terrible leader to even come about, and public opinion allowed it. The good news is that mass decentralization could be in our future. We are seeing it with secession being a real topic of discussion, even among leftists, and this is a beautiful thing. We have talked about secession since we started this blog in 2014. People laughed at us then so it’s great to see those mockers take the idea seriously now. We are living in interesting times and the ground is more fertile than ever before for these ideas on liberty and freedom. Let’s plant those seeds.