Counter-Argument to db0’s refutation of

December 11, 2008

This is a response to a recent post by db0  claiming to refute the Austrian view of exploitation.  It also references some of his comments on the website in relation to his post.  For the record, I also don’t consider myself to be an expert in either Austrian or Marxian theory, although I have read some of both.  I’m an engineer, for christ’s sake!

The reason that readers may appear to engage in “Groupthink” is that Austrian economics is the product of deductive, logical reasoning derived from axiomatic principles.  One could also say that mathematicians engage in groupthink – but again it is only because they have each followed the same rigorous logic to get there.  In light of this, I’ll leave db0 alone on the title of his blog and spelling of “infinity”…

If you want to refute a logical argument, you need to either disprove the fundamental axioms or identify gaps in the reasoning. db0 argues that morality is what’s missing.  However, he has not stated the axioms or assumptions to define this principle.

At the risk of building a straw man, let’s define some axioms to support db0’s argument:
1. Survival – Everyone has the right to eat.
2. Fairness – Everyone has the right to the full value created by their labor.

And the assumptions:
1. Food is scarce (otherwise it would be free), and subsistence costs $10/day.
2. Labor is the only cost incurred in producing and selling a widget (otherwise the capitalist is in fact adding value, and is thus not idle or exploitative).
3. The capitalist has monopoly control over the supply of widgets, and $12 is the optimum monopoly price, with 1 widget/day the optimum monopoly supply to force this price.
4. The capitalist also has monopoly control over the demand for labor, otherwise the worker could negotiate better terms.

In db0’s argument, the capitalist is violating Axiom 2 by not paying the worker the full price for which the widget is sold.  Let’s consider some additional cases:

Case 1: The capitalist has $100, only gains $2 a day, and also has to eat.  After 10 days, he has $20, which is the sum of his exploitative profits so far.  After 2 more days, he has $4 and finds himself in the same position as the worker, since $4 can’t buy a meal.  If the capitalist starts with $1000, this process takes longer but the result is the same.  Everyone starves.

Case 2: Let’s assume now that the capitalist can sell the widget for $20.  This is the minimum price required to sustain the whole process and preserve his savings.  The problem here is that a buyer who has $20 could afford to hire the worker for $10, and use his other $10 to feed himself that day.

This means that assumptions 2, 3, and 4 are now invalid since the capitalist no longer has monopoly control over widget supply (3) or labor demand (4), and the buyer needed no additional capital to exploit the worker and produce his own widget (2).

So either everyone eventually starves, which violates axiom 1, or the assumptions required for this argument are invalid.

Case 3: What is the moral solution?  Should the capitalist give the worker $12 for every widget sold (as required by axiom 2)?  In this case the roles would be reversed after 10 days, since the worker would now have $20 and the capitalist $0.  Two days later (assuming that the capitalist is now working for the worker and receiving $12 per widget), the capitalist-turned-worker would have $4 and again, everybody starves.  Regardless of whether the capitalist has given the worker $10 or $12 per widget, the result is exactly the same.

So the main moral challenge underpinning the whole system is assumption 1 – food is scarce.  Any moral solution then should work towards reducing the scarcity of food.

The free market would accomplish this through multiple entrepreneurs, funded by greedy capitalists, competing to develop cheaper food production and delivery technology.  Since the capitalist saves more money from each widget he sells, he can invest in more projects to undercut prices on other capitalists through more efficient production.

What is the populist solution?  Communal farms?  There is nothing preventing the existence of these in a free market society.  If you can make these sustainable, great!  More power to you.  The capitalists will happily pay you for any surplus so that they can continue their imperial conquests.  They have no need or recourse to seize your land unless you offer to sell it to them at an agreed price.

The danger of populist rhetoric is that it is immediately romantic and appealing without requiring the reader or writer to follow the logic all the way through.  The common approach is to use the “fairness” axiom to justify active coercion of whoever has saved more than someone else at a given moment.  I have yet to see a populist solution that doesn’t start with violence and end in mass starvation (and more violence).