Counter-Argument to db0’s refutation of Mises.org

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 Mises.org 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 Mises.org 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).

8 Responses to Counter-Argument to db0’s refutation of Mises.org

  1. Joe says:

    Here’s an addendum, posted on db0’s blog in response to the notion that a capitalist still earns $2 for nothing if there are $3 worth of material costs required for production, and he charges $15 for the widget:

    So what is the moral solution here? If the capitalist is removed from the picture, each worker can collect $15 for the widget he has created, netting $3. It’s a perfect world.

    However, who is buying this widget? Why are they required to pay more for it than it cost to produce? Isn’t the buyer in fact the person who is being exploited here?

    Let’s consider the buyer’s identity:
    1. Capitalist – Since $15 is more than an exploited worker could possibly accumulate, and is more than the $10 required for sustenance, this must be a luxury item that only exploitative capitalists can afford. But since this capitalist hasn’t done any work to earn his $15, this money really belongs to other workers. So now our workers are exploiting other workers and have become greedy capitalists themselves.

    2. Worker – let’s imagine that a worker starved himself enough to save $15, and can now buy the widget. In this case our workers are gaining from a fellow worker’s choice to starve.

    So to preserve fairness (every worker receiving the full value of his labor), the widget should only be sold at cost. Likewise, widget B produced by the buyer should be sold at cost to avoid exploiting worker C, and so on. This results in a sustenance economy with no additional capital or incentives available to enact improvements.

    And since there are no capitalists with extra money saved, the only viable goods are those required for survival, meaning that our factory will close down and the workers will all be back out on the street. Everyone starves.

  2. Joe says:

    And another – in response to comments on Mises.org:

    db0 states: “If one thing that annoys most about AnCaps is how easily they jump to conclusions. I have had no teachers. I am self-tought.”

    At the risk of repeating myself, Austrian economists tend to agree with each other because they have started with a few basic axioms and individually followed the same process of deduction to arrive at similar conclusions. Do Mathematicians “jump to conclusions” when they agree that pi is an irrational number (or that 2 is spelled “two”)?

    This is what sets Austrian theory apart from other theories of economics which tend to start with a problem and try to figure out how to solve it based on the resources at hand.

    This stuff does not take years of study. I have been reading Austrian literature for about a month, and I have a good enough understanding of it to see why populist systems don’t work (see my previous comment and blog).

    I don’t think populist systems are morally wrong – they generally have some very noble principles. I would love to live in a world where a hard day’s work earned the right to any good I wanted. But Austrian reasoning – specifically an understanding of scarcity – shows very clearly why they don’t work.

    I’m an engineer. If I design a mechanism that doesn’t work, I have to reconsider the design and find a way to make it work – or consider an alternative solution that has been shown to work. If someone builds a bridge based on my faulty design, it will collapse and people will die. This is true even if my bridge was very appealing to look at and solved a problem that no other design could.

    db0 states: “If your austian school has dealt with my refutations and you believe they are not worth it, you have to choices, refute me or ignore me.”

    The problem is that populist rhetoric like yours is immediately appealing to anyone, as was my bridge design. However, when you put in the effort to thoroughly analyze the proposed solutions, you can clearly see where the problems lie.

    If you were able to successfully convince a majority of voters that communism is the ideal system, or that my bridge is the perfect solution, these systems could be enacted.

    Just as an understanding of mathematics can show why the bridge will fail, an understanding of Austrian reasoning shows why communism doesn’t work. Therefore the Austrians need to persistently challenge anyone who tries to win people to their cause without understanding all of the consequences.

  3. Sumgi says:

    “The reason that Mises.org readers may appear to engage in “Groupthink” is that Austrian economics is the product of deductive, logical reasoning derived from axiomatic principles.”

    That’s just wanking right there. Just patting your own back. It’s framing. You wrote that solely because it reads as if non-austrians don’t use logic and reasoning.

    It’s also worth noting that the vast majority of economics uses empirical data over thought experiments. Also Austrianism doesn’t use axioms. It is based off of presuppositions. An axiom is self-evidently true like “all bachelors are unmarried”. Hayeks view of human nature is not an axiom and it’s refutable by empirical study.

  4. Db0 says:

    Your argument is so simple to refute it does not even require a specific blogpost.

    First: Your first case fails because you assume that the capitalist deserves to survive without labouring. If the Capitalist became a labourer like the worker, then he would be able to use this labour to produce a widget he could sell himself for 12 and survive.

    Second: Food is not scarce because it is not free. That is circular reasoning. Food is scarce because there is a profit to be made and that requires scarcity. The problem Capitalism has is not how to provide enough food for everyone, but how to make a profit providing food to everyone. Were we to have an overproduction of food (as many believe we have already) then there would be no profit in producing it and thus the production would fall until scarcity was created which could then be made profitable. Alternatively, artificial scarcity and bottlenecks would be introduced.

    Third: To your argument against the buyer being exploited.
    No they are not. Each worker produces a widget with the necessary labour time and exchanges it with another widget produced with the same amount of labour-time. The exchange is fair. What triggers the exchange is simply the subjective utility of the widget for each person.

  5. Joe says:

    Sumgi,

    I haven’t accused anyone else of “Groupthink”. If I had, then your accusation of framing would have some merit. My intent was simply to show that common thoughts can be arrived at through independent deductive reasoning, and that the Austrians emphasize this reasoning as a core principle. If other schools of thought employ a similar process, I will consider their arguments as well. I’m somewhat new to the formal study of all of this and am eager to read contrasting viewpoints. So far the Austrians make the most sense to me.

    The Austrian theory of economics as a subset of praxeology is based on Mises’ Human Action Axiom – that conscious beings make choices based on their own individual preferences. From this axiom, and the assumption that lesiure time is a desired good, the general mechanics of an economic system can be derived (see Rothbard’s “Man, Economy, and State”).

    These preferences could be altruistic as well as egoistic without changing the behavior of the system. The methods and factors that each individual uses to formulate their personal preferences are irrelevant to this basic economic system – It is not concerned with specific goods or objectives. This falls into other philosophical areas such as psychology and ethics. Various combinations of ethics, psychology, economics, and other fields on a mass scale yield various theories for political systems.

    The Libertarian political system espoused by the Austrians generally takes a utilitarian ethical approach, and an individualistic psychological approach. When coupled with economics based on the human action axiom, this appears to produce a system that incrementally improves everyone’s satisfaction over time. This doesn’t mean that people can’t or shouldn’t act altruistically – only that they are not required to in order to make the world a better place.

    Most of the empirical experiments in economics that I’ve read about have been disappointing in that they are rarely able to effectively isolate a particular parameter. Even when sample sizes are large there are often external factors that cannot be completely ruled out. This is the problem with trying to empiricize a social science – somewhere along the way you have to assume that nobody is lying or that everyone has followed the rules. And the old adage “Correlation does not imply causation” is all the more relevant to experiments that don’t completely isolate a parameter.

    I keep hearing that Hayek’s view of the mind has been empirically disproven, but have yet to see any links to this evidence. I haven’t personally read much Hayek yet, so I can’t defend his views.

  6. Joe says:

    db0,

    I created this argument as an attempt to put your example into more rigorous deductive terms. If I have misstated axioms or assumptions, please let me know.

    My first case results with the capitalist and worker being in the same position with the exception that the capitalist still controls the means of production. I take it that you disagree with my “survival” axiom, which is what has been violated. Perhaps “everyone needs to eat” is a more appropriate wording – removing the ethical imperative.

    In this case, you are correct – the capitalist can start producing 1 widget/day to survive while allowing the worker to starve. This becomes essentially the same situation as in the addendum where the capitalist is removed from the picture – except that if both capitalist and laborer can continue to work, the capitalist would save enough for a day off every few days while the laborer would need to work every day on his sustinance wage.

    So it’s really a matter of who controls use of the means of production. If the workers owned the factory, they would have this control. So what happens when the factory is fully utilized and a new person reaches working age and needs a job? Does one of the current workers give up their job? Do they pool their $2 profits together to build an additional workstation? Does the newbie have to pay this back, or is it a gift? If he pays it back, does he pay interest, or are the other workers assuming risk for him as a gift? If he pays it back, does he retain control over the use of his workstation? If he doesn’t pay it back, do the other workers retain this control? Is the worker who refuses to give up his workstation any more moral than the capitalist who at least fed the guy?

    The control of the means of production can be deduced from the definition of property rights, and I think that the fundamental difference between capitalistic and socialistic theories is the ownership of unclaimed natural resources, or land. The Austrians say nobody owns it. Marx says everybody owns it. Environmentalists might say that it owns itself (therefore nobody can claim it without stealing it). I think that none of these views are or can be self-evident and require an external theory of ethics to define them clearly.

    Personally, I’m still undecided although I obviously lean towards the Austrian view, based on a utilitarian ethical approach (the ends justifying the means). I think that an unhampered free market can increase everyone’s individual happiness more peacefully, effectively and sustainably than a socialist one, therefore I must accept the definition of property rights that results in a free market being moral.

    This is why I’m looking for explanations of peaceful, effective, and sustainable systems based on Marx. Tomb Like Bomb pointed me to Parecon, and I’m not convinced as I discussed on the Mises.org blog.

    Regarding the scarcity of food – It would still be scarce even if all of it’s producers were giving it away at a loss (a scenario that wouldn’t last very long). It would also still be scarce if it were sold at the cost of production. If the food producers were subsidized through taxes so that workers could eat for free, it would still be scarce and technically not free – the capitalists would just be paying the farmers directly (probably under coercion) instead of going through the workers. In this case few capitalists would stay in business and the subsidies would run out, revealing the scarcity again to the workers.

    The only way it wouldn’t be scarce is if you could snap your fingers and pull a pork chop out of thin air – in which case it would be free. Any other process of food production requires land, time and labor, all of which are inherently scarce.

    By the way, if there is any overproduction happening now, it is the result of farm subsidies that prop up otherwise unprofitable farms. Any price reduction as a result of this overproduction is compensated for in the form of taxes or inflation to provide these subsidies.

    Regarding the exploited buyer, the assumption of a universal fixed price for a day’s work brings up the scarcity of particular jobs (movie stars vs sewer cleaners) which I discussed with Tomb Like Bomb on Mises.org. How is the price of a day’s work set?

    What happens when there is a glut of widgets? Will a worker then accept $11 for his widget in order to make a sale? Does this mean that he is exploiting the other workers who have kept their price at $12 and can’t sell? In this case, the opportunistic buyer would be exploiting the worker for $1, which is basically the same conclusion as my original argument. Does the entire population absorb this glut by devaluing a day’s work?

  7. bopot says:

    I find it bizarre when right-wingers pretend they can’t see exploitation. It requires willful ignorance. I suspect they see it plainly enough, as it is self-evident, but they insist on examining the minutiae of every little detail, hoping to find a chink in the armor, as though flawed logic – assuming it were found – were enough to discredit an entire argument. Given enough time to formulate an argument, one could likely “disprove” his own existence, but it wouldn’t do diddly squat to make him any less real.

    If a worker makes a widget, and widgets are worth $10, the worker has earned $10.

    The capitalist says the worker owes him half: $3 for the overhead on his widget factory, and $2 for his pocket.

    If the workers owned the factory, they could take home $7 instead of $5.

    The capitalist is an unnecessary middleman, leeching off the labor of the workers.

    He is a welfare recipient, yet he dares to decry welfare.

    He is a thief, yet he dares to declare “taxation is theft!”

    He is the worst kind of hypocrite.

    A socialist market is not only possible, it is closer to the libertarian principle of participatory government (which they don’t *really* endorse, as evidenced by their squeamishness about democracy; a few of the more honest ones are even willing to admit they prefer monarchy — they don’t *really*, for obvious reasons, but they recognize the trap they’re in, so they sacrifice political self-determination in order to maintain economic “self-determination” [a criminal twisting of the idea], which shows their true allegiance and motivation). Socialism means a democratic workplace. Capitalism means a monarchic one. These are simple axiomatic tautologies, as plain as the nose on your face. But some people are willing to cut off their noses to spite their faces — and maintain their hoard of gold and privilege.

  8. Joe says:

    bopot,

    I previously stated that populist rhetoric is immediately appealing. People with your mentality are who it appeals to, and are why I consider it dangerous. You refuse to acknowledge the process of deductive reasoning because it’s easier to recite a few slogans that you probably read on db0’s blog. At least db0’s arguments have some substance although I don’t think he has followed them through completely.

    Your argument seems to be based on an ethical notion of the worker’s “right” to a certain price. So far in this post and related comments I have only brushed past ethics, because first I’m trying to find a socialist economic model that is universally applicable, effective, and sustainable without violence. Having done this (if one exists), then I will start considering various ethical arguments to decide which model I think enables the greatest morality.

    If a political system is thought of as a car, then economics corresponds to the functional mechanics of the car, while ethics and psychology correspond to how you drive it. The characteristics of the engine and other parts influence how you can drive it, and limit your abilities to perform certain maneuvers. You can’t improve the mechanics of the car by driving it a certain way, these limitations will always exist. Likewise, the way you choose to drive it limits the car to certain motions.

    So economics provides a means for analyzing long-term effects and feasibility of choices based on any set of ethics, while ethics provides a means of filtering the choices that can be made. As long as people feel that they have some right to personal property, whether or not this coincides with a particular ethical view, market forces will exist. If prices are fixed through popular mandate, then these forces will appear in fluctuating production quantities, surpluses, or shortages, which would in fact amplify the market forces. Even if they agree to share everything, the scarcity of various jobs available will generate inequalities that result in the same market forces. This is why I consider any system that promises to suppress market forces to be unstable and counterproductive. It is also why I think that arguments starting with ethics need to be tested for economic feasibility before they can be fully understood.

    In a free market, every decision you make is a vote. If you choose not to buy an apple, this has some effect, albeit a small one, on future apple production and/or prices. Would your single electoral vote to lower the national or global price of apples have a greater effect? The difference between “market democracy” and electoral democracy is that in a market you immediately reap the rewards of your vote by gaining the means to a preferred end, and you are personally and wholly responsible for bearing any costs involved. For more of my thoughts on the efficacy of an electoral democracy, see my comments on the Mises.org blog post.

    Regarding the morality – which seems to be your main concern – of a market democracy vs an electoral one: the only difference between a democracy and a hegemonic oligarchy is that the power can change hands more often, and this is regarded as a check on power. How many elections per day would you need to match the number of votes that are placed on the market in a given day?

    You may argue that this means that people who hold more exchangeable goods (such as money) at a given time have more power to influence the market. While they may be able to buy more goods at higher prices more often, each purchase costs them some of their power unless it is an investment by which they can profit by efficiently providing a good that improves the lives of consumers. In addition, a mass of people who can only afford to pay $1 for an apple provides apple producers with much more incentive to lower prices to meet that threshold than a few rich people who might each buy 1 apple/day at $2.

    Let’s ask anyone living in a socialist country how democratic their workplace is (if they’re one of the lucky few who have a workplace). There are plenty of corporations in the capitalistic world that are 100% employee-owned, meaning that any profits go to the workers, and the workers vote on corporate decisions. However, this also means that the workers share the risk of bearing any losses if market conditions vary from their predictions.

    I’ve never heard of a Libertarian principle of participatory government – a google search comes up with links to “Libertarian-socialist” pages. Real Libertarians are happy to let you start your own commune or employee-owned business by voluntarily pooling resources with others – as long as you don’t come to their house and demand at gunpoint that they join in. If you can show that it’s a successful business model – one that creates profits for its owners (the workers) by benefitting consumers – then the Libs will jump on the wagon.

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