Let me start by saying I’m a long-time admirer of Anthony Gregory’s writing, and I’m as surprised as he is that this has turned into a significant disagreement. Frankly, given our considerable areas of agreement, I’m having a hard time figuring out why my commentary piece (“Corporations are People? So Was Hitler”) set him off.
Gregory’s first objection, in “Contra Kevin Carson,” is to my assertion that the profits of large corporations are disproportionately the result of state-enforced unequal exchange (monopolies, artificial property rights, entry barriers, etc.).
Right away, Carson assumes the premise that corporate profits generally result from “state-enforced unequal exchange.” Surely workers and consumers often face state-imposed burdens that reduce their chances for optimally beneficial exchange. But does this mean that corporate profit makers benefit at their expense? Isn’t it possible for both sides even of an “unequal” transaction to be worse off, at the margin, because of the state involvement, and yet be better off for having made the trade?
In most cases, though, I don’t think it’s a matter of “both sides” being worse off as a result of state intervention. When it comes to the dominant corporations in our economy, they are better off than an exchange in a free market economy would have made them. A rent, by definition, is the difference between the price that would have been sufficient incentive for the seller to bring a good to the market, and the price that the consumer is still willing to pay for the net utility of receiving the good. By definition, when it results from state-enforced scarcities or entry barriers, this rent is exploitative.
What about the many entrepreneurs who profit one year only to lose plenty the next? Was it at their expense that consumers and workers profited?
I’m not sure what relevance such entrepreneurs have to my column. I don’t dispute for a minute that there are genuine entrepreneurs in the competitive sector of the economy. What they have to do with the management of giant corporations engaged in administered pricing, in oligopoly markets where two or three firms control half the market — and whose pattern is usually closer to enormous profits one year, big profits the next, and a tax writeoff the next — isn’t clear to me.
Here I must agree with the Austrian insight that if two parties come to make a deal, especially if they both walk away satisfied, their demonstrated preference is that the deal was not at their expense but at the overall improvement of their situation, and this should not be undermined by third-party observers.
Well, sure. Even the consumer who buys a product from a monopoly provider can be said — on the basis of demonstrated preference — to assign greater utility to engaging in the transaction than to refraining from it. But that’s the whole point of being in a monopoly position: you can set the price to a level at which the consumer just barely considers the choice to buy as preferable to not buying — rather than engaging in a competitive market in which the price will tend to gravitate toward the actual cost of providing a good or service. When someone buys a glass of water in the middle of the Sahara for $1000, she considers the transaction to be a net positive benefit compared to dying of thirst — so what? The question is which of the parties to the transaction is in the dominant position, and how that affects the terms of exchange — and the returns on it for the dominant party.
And if a party’s revealed preference for an exchange over no exchange is sufficient to demonstrate its non-exploitative nature, I submit that’s a very low hurdle to clear. But I deny that it is sufficient. Exploitation, or privilege — by definition — is the use of coercive power to restrict the range of alternatives available to disadvantaged party, so that she is forced to choose an alternative far inferior to what would have been available absent such restriction. When a consumer buys a CD or DVD at a 1000% copyright markup because it is illegal for a competitor to replicate the content for sale, the consumer may consider it a net positive to pay the enormous markup compared to not having access to the content at all. But it is clearly exploitative. A medieval peasant might consider it a net positive to pay the lord of the manor a third of his produce as rent in kind, in return for access to the land, rather than to starve. So what?
If the fact that the consumer receives greater utility from engaging in a transaction than from not doing so is proof that an exchange isn’t exploitative, then no monopoly in history has ever qualified as exploitative by this standard. The monopolist engages in price segmentation and dumping so as to target the price to the consumer’s ability to pay, and still receive a bare net utility over and above the price she pays. By the very nature of monopoly, the monopolist has to allow some net utility for buying over not buying in order to make any sales at all.
In order to profit from increases in productivity that result from technological progress, the monopolist must allow the consumer to receive a bit of it to make it worth paying for even under monopoly conditions. This means that the net productivity gain must be divided (say) 9-1 in favor of the monopolist instead of the monopolist taking the whole pie — but the whole gain would wind up going to the consumer if unfettered competition were allowed to socialize the benefits, under the conditions of a freed market.
Typically, it is true, workers’ and consumers’ exchange would have been even more fruitful for them if not for the state. Sometimes the state even creates captive labor and consumer markets for corporations. But the sheer productivity in even the hampered market economy, whereby workers and consumers have in many ways improved their lot over the years, even if not as much as they should have, would seem to indicate that not all their interactions with corporations come at their net expense. They may benefit much less than they should, due to the state, but surely the typical experience of consumers or workers engaged even in a corporatist system is not one of overall victimization….
Gregory isn’t the first to raise this objection to my critique of state capitalism. It’s a very ingenious argument. Stephan Kinsella, for instance, has repeatedly argued that the American model of corporate capitalism must have a significant admixture of free market elements, because rather than becoming paralyzed by calculation problems it has resulted in the increased productivity and increased standards of living we witnessed in recent decades.
But as seemingly ingenious as it is, I don’t believe this argument can stand up in the face of analysis. If it proves anything, it proves too much. Even the feudal economy of the Middle Ages, even the planned economy of the old Soviet Union, achieved significant levels of technical progress. It seems even an extremely modest leavening of freedom, even in societies that are quite authoritarian or totalitarian, is sufficient to allow a significant amount of economic and technological progress despite the level of statism.
I would also argue that the conventional measures of standards of living in the United States should be taken with a grain of salt. The corporate economy produces cars, refrigerators, televisions, and computers that consumers certainly find preferable to those ten years ago, and the great majority of consumers prefer buying them on available terms to doing without. But the prices for which they sell are probably several times greater than they would be on a free market, because they are produced by heavily cartelized industries which can pass the cost of wasted inputs and bureaucratic overhead onto the consumer through administered pricing, and in which the internal culture of the dominant firms is overwhelmingly characterized by calculational chaos. The component hardware and software are proprietary, and thus marked up several hundred percent.
As is the case with the price of goods and services, so also measures of economic growth and GDP essentially define the consumption of inputs as the creation of value. So we have an economy in which the quality of goods and services seems to be improving significantly, and consumers prefer having them to not having them. But we also have an economy in which there is no way of determining whether the inputs wasted to create these things were worth it, or whether people would willingly buy them given the range of alternatives in a free market. There is use-value of a sort, even significant progress in the creation of use-value, but an overall atmosphere of calculational chaos — just as in the old USSR. And I submit that, to the extent that consumers accept a lesser degree of utility than they would in a free market, and that they pay a higher price for their utility in labor hours than they would in a free market, the deficit they experience is — in the words of Benjamin Tucker –matched by an equal deficit on the part of the dominant classes under state capitalism.
Gregory seems especially rankled by my use of Hitler.
…[E]very system of class exploitation in human history has served the interests of some group of human beings. In every society in history, no matter how brutally exploitative, of course the ill-gotten gain was consumed by “people.” Roman patricians who lived off the sweat of slaves were people, and so were feudal landlords who gouged rents from the peasantry. I suspect it was “people” — evil people — who profited from the gold teeth extracted at Auschwitz.
Now, I for one always enjoy a good comparison to the Nazis, and am on record in opposing Godwin’s Law. But this comparison appears very unreasonable. If the idea is that there is a fair parallel to be drawn between those who profit off corporations and those who thrive on slave states and concentration camps, I find much to protest here. I know this is a reductio ad absurdam argument, but it seems fatally flawed even in its fundamental conception. A consumer walking into a Wal-Mart and buying a new stereo and CD might have been much better off if the state didn’t impose protectionist barriers to foreign electronics producers, increase the cost of recorded music through copyright, and impose a hundred other costs on the buyer. Yet he is hardly a victim of the exchange itself. He can choose not to buy these goods at all, and still get along fine in the world. He really is choosing to give his money to corporations, however flawed the underlying structure of the economy. Moreover, although any given corporation may benefit from state intervention, it might suffer as well.
To apply Carson’s analogy, if the Wal-Mart customer is the man whose gold teeth are being extracted at Auschwitz, Wal-Mart isn’t the Nazi sadist doing the extracting – it’s the merchant who sold him the teeth.
Here he misses the point. It wasn’t an “analogy” at all. It was — as he himself acknowledges just a paragraph earlier — a reductio ad absurdam. Those are two very different things. My intent was to point out the idiocy of Romney’s implication that a system isn’t exploitative if the beneficiaries are human beings. Every system of exploitation in human history, by definition, has benefited human beings. The ruling class in every single system of exploitation was composed of human beings. One can demolish Romney’s attempt to argue that corporations are good because “the money goes to people” by simply listing the worst people in history; if a system is non-exploitative because its beneficiaries are all people, no matter how rotten, then no system in human history has ever been exploitative.
As for the other stuff sandwiched in that quote, I’ve already challenged the significance Gregory attaches to the fact that consumers “freely” choose the least bad among a constricted range of alternatives.
And the glib assertion that a given corporation might suffer as well as benefit from state intervention is a remarkable bit of legerdemain to tuck into a throwaway line. An ant might whip an elephant. But I’m putting my money on the elephant.
I do agree that corporate personhood can pose problems and that only individuals have rights…. But Carson seems to be going much further in his critique, not simply questioning the categorization of corporate fictions as “people,” but in fact agreeing that they constitute people while harshly judging the ethical status and productive role of these people being discussed.
Actually, I took no position one way or the other on the corporate personhood issue — i.e., on the fact that the corporation is legally considered a person separate and distinct from the shareholders severally or collectively — in the column which Gregory is criticizing. Romney’s quip that “corporations are people,” despite all the significance attached to those words in the liberal/progressive blogosphere, had nothing to do with the corporate personhood issue. He was, rather, alluding to the thesis — popular in the nineties — of “people’s capitalism” or “pension fund socialism.” The money corporations make is good, Romney said, because it all goes to people. That — and only that — was the sense in which I attacked the statement that “corporations are people.”
Do corporate profits often rely on state intervention? Of course. But they are not necessarily exploitative. They are certainly not always at the expense of consumers and workers. We actors in the marketplace, even one tainted by state involvement, do not always fall neatly into these categories of being consumers and workers or corporate beneficiaries. And many people who profit from corporate enterprises do so at great risk, putting everything they have on the line, without which entrepreneurship and thus economic growth and therefore civilization itself would be impossible. Surely big business has thrived on the state. I have made this point many times myself…. But support from the state is not a necessary element to corporate profits, nor are all corporations even in our world on balance predatory institutions whose gains always come at the expense of workers or consumers.
I believe the great majority of oligopoly corporations, in markets where a handful of firms controls more than half of market share, do in fact gain at the expense of workers and consumers.
Support from the state may not be necessary to profit as such. There would surely be entrepreneurial profit of the kind Gregory describes, accruing to those who receive greater than marginal returns by being the first to perceive and meet some unmet need, or who are first to market with some innovation. But such profits would be ephemeral, and would always be in a process of being driven to zero by new entrants to the market.
And to the extent that the market rate of return on capital and land is larger than its natural value as a result of artificial scarcities and artificial property rights enforced by the state, then every firm that enjoys the higher rate of return as a result of coercively-enforced privilege is objectively exploitative. To the extent that business firms in the dominant sectors of the economy are larger and fewer, and prices stickier, than they would otherwise be, the super-profits extracted from consumers through unequal exchange are objectively exploitative.
In the end, people who choose to buy from corporations or work for them, when in fact there are alternatives out there, do so because they stand to benefit themselves. In a truly free market, certainly many more good alternatives would be available. But this doesn’t mean the economic choices people actually make in our flawed world are themselves exploitative or oppressive.
Sure it does. If the range of alternatives is smaller than it would be in a free market and the most satisfactory alternatives from the standpoint of workers and consumers are taken off the table, and corporate profits and management salaries are larger than they would otherwise be as a result of this restricted range, then — regardless of whether some alternatives still exist — the reduced utility that results from workers and consumers choosing less than optimal alternatives is exploitative and oppressive.
A person can be better off from an exchange, and still be exploited. By its very nature, to repeat, monopoly pricing targets the price to the highest amount the consumer is able to pay and still get enough utility to make the exchange worthwhile.
Gregory makes a great deal of my defense (a defense I regarded as rather backhanded at the time) of public school teachers in the context of the Scott Walker controversy in Wisconsin.
But even without knowing exactly what a free society would look like, it is hard for me to see on what libertarian grounds Carson is more willing to humanize public school teachers than corporate beneficiaries…. The amount of state privilege involved in propping up the child indoctrination racket is surely comparable to, if not far exceeding, what is entailed for the average corporation.
I see the alliance between big business and big government as structurally central, as the defining feature, of our political-economic system. The “Power Elite” running the nexus of state, finance capital and corporate management occupies the same position in the present system as landlords did seven hundred years ago. The public education system is very much a second-tier component of this system.
The difference is this: Public school teachers are performing a function — education — that, at least in some regards, would still exist in a free society. And they are doing it in a context in which the state has preempted the function to a great extent and crowded out alternatives. In a society where the biggest local tax most people pay is a property tax to fund the schools, most people will send their kids to the public schools as a default option. So those who wish to teach but would like to do so in a non-state framework find their range of alternatives greatly and artificially diminished, compared to the opportunities in the state-owned system. Although the diminution of alternatives is not as great in degree, it is the same in kind as that faced by workers in state enterprises in the old Soviet bloc.
I see teachers and firefighters, to a considerable extent, as people performing functions that would be legitimate in some form in a stateless society, and performing them in the face of a need to make the best of a statist system. Their position may be formally privileged, but it is a secondary, subordinate and instrumental position of privilege.
The rentiers and senior managers who live off corporate profits, on the other hand, are not making the best of a bad situation not of their making, or in a secondary position of privilege. They are at the heart of a corporate ruling class, and the corporate ruling class is in a position to make rather than take the range of alternatives. The public school system was created as a means to an end determined by the nature of the ruling class: from its earliest days, it was shaped primarily by employers’ needs for docile, obedient, trained labor.
Gregory might as well argue that the parish priest was equally as privileged as the nobleman living off the rents of entire provinces, because he was paid with tithes. But the privilege that the village clerk received, like that of the public schoolteacher, was secondary and instrumental. In both cases, the recipient receives some crumbs off the table in return for helping to promote the primary privileges of the first tier of the ruling class — the class for whose benefit the system exists.
I think Gregory is much more of a pluralist than I am when it comes to class analysis. Like David Friedman, he sees the ruling class as a fortuitous cluster of interests that just happened to latch onto the state, rather than a coherent coalition. As Friedman wrote in The Machinery of Freedom:
It seems more reasonable to suppose that there is no ruling class, that we are ruled, rather, by a myriad of quarreling gangs, constantly engaged in stealing from each other to the great impoverishment of their own members as well as the rest of us.
So we’re all victims of statism, peasant and landlord alike, and we should just let bygones be bygones. Or, as Homer Simpson might put it, “…we could sit here and try to figure out… who forgot to pick up who till the cows come home. But let’s just say we were both wrong, and that’ll be that. Now how ’bout a hug?”
a primary group that has achieved a position of structural hegemony, a group central to class consolidation and crisis in contemporary political economy. Rothbard’s approach to this problem is, in fact, highly dialectical in its comprehension of the historical, political, economic, and social dynamics of class.
Gregory also objects to this passage in my column.
….[J]ust before I heard about Romney’s latest blooper, I was reading about a study by psychologist Dacher Keltner. The life experience of the rich, he says, makes them less empathetic and more selfish than ordinary people. Part of this is willful obtuseness; legitimizing ideologies not only inure the exploited to getting the shaft, but enable the exploiters to sleep at night by reassuring themselves that the poor really deserve it.
The rich justify their relations with other social classes with the help of the Americanist ideology, whereby they exaggerate their own perceived rugged individualism and see their wealth as the result of character: “They think that economic success and political outcomes, and personal outcomes, have to do with individual behavior, a good work ethic….”
In other words, fake “free market” ideology — as opposed to the real thing — is the opiate of the elites.
He objects to that passage, first, on the grounds that it bears some resemblance to “the Marxist polylogism that Ludwig von Mises roundly refutes in his brilliant works including Human Action.”
“Americanist ideology,” Carson argues, resonates with people based on class, rather than on philosophical principles of potentially universal appeal. He is not saying that class determines one’s philosophical reasoning, but it comes close.
I don’t think it’s close at all, unless any suggestion that groups with common social experiences tend to filter reality in common ways is “polylogist.” This strikes me as something of a knee-jerk reaction, akin to reflexive appeals to “methodological individualism” evoked from some quarters when I engage in class analysis. I don’t think Gregory, or anyone else, applies monologism and methodological individualism as strictly across the board as he does in the cases he selects for negative attention. A thinking person simply couldn’t do so, without detaching herself completely from common sense thinking.
For one thing, I think Carson is off the mark if not simply wrong. Plenty of poorer Americans buy into vulgar, fake free-market ideology, and plenty of rich people denounce the free market — whether the real thing or its counterfeit — all the time. Poor people vote Republican to protect themselves from “socialism.” And there are those, including me, who oppose corporatism vehemently and yet still prefer it to the state socialism often advocated by most factions of the left. Meanwhile, there are about half a dozen lavishly wealthy anarchists who come to mind whose market radicalism is pretty damn genuine. Then there are the rich socialists, and the poor socialists, and everything in between. Moreover, Romney, if we are going to try to read his thoughts as Carson appears to be doing, probably doesn’t believe any of his own rhetoric. He isn’t defending “fake ‘free market’ ideology” to sleep better at night — but rather to win votes.
Sure. That’s why I said “legitimizing ideologies not only inure the exploited to getting the shaft, but enable the expoiters to sleep at night by reassuring themselves that the poor really deserve it [emphasis added].” The same hegemonic ideology can perform different functions for different classes. I’ve quoted — many times — Stephen Biko’s dictum that the most powerful weapon in the hands of the oppressor is the mind of the oppressed.
But most important, it is a mistake to take this route in critiquing someone’s point. If Romney is wrong to humanize corporations in the way he did, and I don’t think his point was nearly as trivial as Carson does, it is not necessarily a reflection of Romney’s class. This Marxian way of looking at the world is poor theoretical analysis. I’ve heard people from all across the economic spectrum sound like Romney talking about corporations.
Again, sure. It wouldn’t be much of a legitimizing ideology if it didn’t fool the ruled into accepting the interests of their rulers as legitimate, in addition to reassuring the rulers of their own legitimacy. That’s why you can see howling mobs of Tea Party members, drawn in considerable proportion from the ranks of the working poor, who sincerely believe they’re being exploited mainly by ACORN and its constituency of people who “don’t even pay any taxes.”
It wasn’t long ago that the divide-and-conquer system of racism, which served the primary purpose of making both poor blacks and poor whites easier to exploit, was enthusiastically supported by dirt poor crackers in the sincere belief that they had a shared interest in “racial purity” in common with the guy in a mansion on a hill who owned half the county. Meanwhile, the guy in the mansion and his friends from the local gentry sipped their mint juleps laughed themselves silly at the gullibility of the redneck in the wife-beater undershirt.