The Devil Is in the Details

In the many discussions I’ve been in where I’ve argued against capital hiring labor and in favor of labor hiring capital, inevitably someone poses a question like the following:

“This contract [wherein labor hires capital] can say just about anything, stipulating how the capital is used down to any detail. How is this different from an employment contract?”

Well, if the details in question go as far as being functionally identical to employment, it wouldn’t be very different. In fact, it would be an employment contract. What makes a contract an employment contract isn’t that the words “Employment Contract” are written at the top. What a contract is or isn’t is going to be a matter of the reality of the situation it brings about. So if employment contracts are not seen as valid contracts in a given society, then they can’t “say just about anything, stipulating how the capital is used down to any detail.” It’s not about avoiding the “magic words” but about actually eliminating the renting of people, explicitly or through legal gamesmanship.

Intellectual Trespassing as a Way of Life

David Ellerman, a major source of inspiration for this blog, has started his own blog. I hope my few readers will wander over there and subscribe. The first post on associational speech is an absolute home run.

PS – There are two Ellerman blogs. The one above is his current events and social science blog. This one is his logic and mathematics edition.

Annie Rent Your Gun

I have, in the past, referred to Theodore Burczak’s article “A Critique of Kirzner’s Finders-Keepers Defense of Profit” because of its mention of David Ellerman’s labor theory of property (not to be confused with the much-maligned labor theory of value). I recently read Kirzner’s response from the same journal issue (The Review of Austrian Economics, 15:1, 2002) and I would like to address his comments. The original article had two lines of criticism but here I’m only concerned with the first line that directly refers to Ellerman’s ideas, since this has been a popular topic on my blog. My goal is not to defend Ellerman here but to demonstrate that Kirzner doesn’t appear to understand the ultimate point of the theory he is rejecting.

The House Always Wins

To justify labor contracts, we need to look at them from a new point of view. We need to see them as wagers. For example, you do not exchange title to your body and its labor for money. Instead, you make a bet with your employer. You bet that you will work for the employer and he bets that you won’t. You risk nothing except your reputation for promise-keeping (which you don’t own anyway) and the transformations that you make to the employer’s property that result from any labor that you may perform at his request. The employer risks paying you money (wages) and other benefits, and capital investment. If you perform the services as prescribed by the terms of the bet (employment contract) then the employer “loses,” and the wages that he wagered (note the similarity between these two words) and the other benefits he risked become your property and the transformations that you made to his property by the labor that you performed become the employer’s property. If you decide not to work for the employer (if you quit your job) then you lose (or fail to gain) title to whatever wages and benefits were detailed in the terms of the bet.

–Roy Halliday, “The Gambling-Stakes Paradigm for Loans and Labor Contracts”

Um…no.

With all due respect to Halliday, whose essay is otherwise very good, this is just another example of the bizarre metaphors some people feel compelled to create to avoid simply describing work as it is: cooperation.

Life on Mars

In a recent post by Cork, he quotes the following from Rothbard:

But more deep than that is the fact that Karl [Hess] after having been an anarcho-capitalist for some time shifted over to become an anarcho-communist or anarcho-syndicalist. I don’t really see any basis for collaboration between the two groups, because even if we are both against the existing state, they would very quickly come up with another state. I don’t think you can be an anarcho-communist or an anarcho-syndicalist. You know if the commune runs everything, and decides for everything, whether it is a neighborhood commune or a mass country commune – it really does not matter in this case, somebody’s got to make the communal decision. You can’t tell me that you’ll have participatory democracy and that everybody is going to equally participate. There is obviously going to be a small group, the officiating board or the statistical administrative board or whatever they want to call it, whatever it’s going to be, it’s going to be the same damn group making decisions for everybody. In other words, it’s going to be a coercive decision for the collective property. It will be another state again, as far as I can see. So I really can’t see any basis for collaboration. That is really part of a broader analysis of the communist versus the individualist position.

However, I see a big blind spot in the logic here. It operates from the view that in an anarcho-capitalist society, all interactions will be market interactions and that there will be nothing approaching the social anarchist’s “preferred institutions”. There won’t be “a small group of elites controlling and planning the economy”. But what about the firm? Is the firm not a large part of life?

Confessions of an Economic Metaphor

The fruitful field
Laughs with abundance

-William Cowper

[T]hat so far as it is a fallacy, it is always the sign of a morbid state of mind, and comparatively of a weak one.

-John Ruskin

Ruskin is writing about the pathetic fallacy in art: the treatment of inanimate objects as if they were human. Whether it is appropriate in art is perhaps a question of taste, what one believes is the purpose of art, or a weak and morbid state of mind. But in economics (and in speaking of production in particular), this kind of personification happens too often, in my opinion, and can cause very serious errors if taken literally.

I propose that the way we choose to talk about production can matter a great deal. The metaphor can affect the way we actually view production. In particular, it may affect how we make important legal determinations concerning the very structure of the firm; it ceases to be a metaphor and begins to affect our “state of mind”. If you commit the pathetic fallacy, the time has come to confess.

De-Klein-ed: A Fictional Encounter in Five Acts

My post “Vaguely Defined Property Rights Indeed” was, at its core and in its title, a response to Peter Klein’s involvement in the “conflation debate”. Klein pointed out that cooperatives (his all-purpose stand-in for labor-managed firms) “all suffer from serious incentive, information, and governance problems, almost none of which are mentioned in the anti-corporation libertarian literature.”

Klein was referring to his 2007 article “Vaguely Defined Property Rights” where he essentially argues, using Mike Cook as a primary source, against the LMF on consequentialist grounds. There is a danger that by engaging him on this level, I may be validating the importance of efficiency over what essentially is an issue of inalienable rights, the proper imputation of responsibility and property appropriation. During the Abolition movement, it would have been unnecessary to argue about the relative efficiency of slavery for example. That said, I will carry on nevertheless.

I had the good fortune to discuss these concerns with David Ellerman, whose ideas I referenced in the previous post. Therefore, I will present here a fictional conversation in five acts between Peter (in the form of his article) and David (in excerpts from my conversation with him). Hat tip to David for allowing me publish this private correspondence and providing my readers with rare and valuable insight.

Who Put the “Capital” in “Capital-ist”?

When you ask most capitalists what a capitalist system is, they will usually say a system of free markets and private property.

I confess to being perplexed by this. I’m certainly no expert in philology but it seems a very strange choice of root word for such a definition. It is important, I think, to remind ourselves of the real economic meaning of capital.

They Only Come Out at Night

Late the other night, not long after publishing my first real post, I received a comment from the subject of my post, Stephan Kinsella, who continues his recent trend of support for the principles underlying labor self-management. Oddly, perhaps in an attempt at humor, he decided to disguise this support in a polemic tone. So in the spirit of things, I’ll play along. It’s always nice to engage with a fellow native son of Baton Rouge. And I don’t mind a little droll humor. You might even see me use some around here occasionally.

I’m not sure if it was the early hour or what, but he appeared to have not read my post very carefully since many of his responses were swinging at ghosts and a large majority of his “objections” actually serve to buttress my point.

Vaguely Defined Property Rights Indeed

Author’s note: I originally and mistakenly attributed some of Stephan Kinsella’s quotes to Peter Klein. I’ve made the necessary corrections. My apologies to Klein and Kinsella.

Anyone with even a tangential connection to the blogosphere of the libertarian left has probably caught wind of the shit-storm set off by Roderick T. Long’s Cato Unbound article, “Corporations versus the Market; or, Whip Conflation Now.”

If you have ever knocked over a hornet’s nest, kicked an anthill or tossed holy water on a coven of vampires, then you will not be surprised that the response has been fast, furious, scattered and heated. The battle lines were quickly drawn in blogs and forums. In this corner, the “Left”, concerned with the role that government plays in enabling big business privilege. And in this corner, the “Right”, who, while acknowledging the role of government in impeding the free market, don’t see any particular reason to oppose the structure of business-as-usual and additionally find it praiseworthy on many counts and the natural result of respect for property rights.

Kevin Carson has recently come to Long’s defense in what serves as a good summary of some of the back-and-forth. The first part of Carson’s analysis focuses on Peter Klein’s reaction to Long so this too is where I started my catch-up work on the debate. I did not get very deep into the comments, when I noticed something unexpected: Stephan Kinsella providing an excellent argument in support of a 100% labor-managed economy.