Posts tagged Adam Smith

Bits & Pieces on Free Market Anti-Capitalism: the Many Monopolies

I concluded my earlier remarks on rigged markets and captive markets by offering this quick gloss on the free-market anti-capitalist thesis: that the recognizable patterns of capitalist economics result from the fact that certain key markets – importantly, the labor market, housing rental market, and other key markets are rigged markets – and in particular, indirectly-created captive markets, in which working-class folks in need of houses or jobs are driven into a market where they are systematically stripped of resources and alternatives, faced by artificially high costs, and generally constrained to negotiate with incumbent market players who have been placed in an artificially advantageous position over them through repeated government interventions in their favor.

Claims like this – that big government tends to disproportionately benefit big business at the expense of ordinary workers, by creating rigged markets and concentrating access to resources – may be controversial in libertarian circles now; but they are hardly unusual in the long view of libertarian history. Before the 20th century coalitions against the New Deal and Soviet Communism, libertarian writers, from Smith to Bastiat to Spencer, had little interest in tailoring their politics to conservative or pro-business measurements. They frequently identified capitalists, and their protectionist policies, as among the most dangerous enemies of free exchange and property rights. The individualist Anarchist Benjamin Tucker, writing in 1888,[1] called for Absolute Free Trade … laissez faire the universal rule, while describing this doctrine of complete laissez faire and free competition a form of Anarchistic socialism. Let’s bracket discussion of that semantic decision for the moment; the important contribution is Tucker’s identification and analysis of four great areas where government intervention artificially created or encouraged class monopolies – concentrating wealth and access to factors of production into the hands of a politically-select class insulated from competition, and prohibiting workers from organizing mutualistic alternatives. The Big Four monopolies Tucker identified as central to the Gilded Age economy were:

  1. The Land Monopoly – government concentration of ownership of land and natural resources through the enforcement of legally-fabricated land titles (such as preferential land grants to politically-connected speculators, or literally feudal land claims in Europe). Since Tucker, the land monopoly, already key to the Gilded Age economy, has radically expanded – with the frequent nationalization of mineral and fossil fuel resources throughout, and the emergence of local zoning codes, complex housing construction codes, land-use restrictions, “Urban Renewal,” municipal “development” rackets and Kelo-style eminent domain seizures, and a host of local policies intended to keep real estate prices high and permanently rising. In a freed market, land ownership would be based entirely on labor-based homesteading and consensual transfer, rather than on military conquest, titles of nobility, sweetheart “development” deals, or eminent domain seizures, and land would tend (ceteris paribus) to be more widely distributed, with more small individual ownership, dramatically less expensive, with more ownership free and clear, and could as easily be based on sweat equity and homesteading of unused land, without the need for any commercial cash exchange.

  2. The Money Monopoly – government control over the money supply, artificially limiting the issue of money and credit to a government-approved banking cartel. Tucker saw this as the source of both monopoly profits for the incumbent banks, and the artificial restriction of access to capital to those large, established businesses which the large, established banks preferred to deal with, while suppressing competition from mutual credit associations and other means by which workers might be able to pool their own resources and access credit on more advantageous terms than those offered by commercial banks. Tucker, in 1888, was writing about the Money Monopoly before the Federal Reserve or the conversion to a pure fiat currency, before the SEC, FDIC, TARP, banking holidays, bailouts, or the myriad other means by which government has insulated big bankers and financiers from market consequences, or erected regulatory barriers to entry which insulate politically-approved business models from market competition.

  3. The Patent Monopoly – government grants of monopoly privileges to patent-holders and copyright holders. Tucker argued that patents and copyrights did not represent a legitimate private property claim for their holders, since it did not protect any tangible property that the patent-holder could be deprived of, but rather prohibited other market actors from peacefully using their own tangible property to offer a good or service that imitated or duplicated the product being offered by the holder of the so-called Intellectual Property. These prohibitions, enforced with the explicit purpose of suppressing market competition and ratcheting up prices, in order to secure a long period of monopoly profits for the IP-holder, now constitute more or less the entire business model of Fortune 500 companies like General Electric, Pfizer, Microsoft, or Disney, and have only gotten longer and harsher in their legal sanctions, as IP monopolists have insisted on the need for more and more insulation from free market competition.

  4. The Protective Tariff – Tucker identified the tariff as a monopoly in the sense that it artificially protected politically-favored domestic producers from foreign competition. While the tariff has declined noticeably in political and economic importance since the 1880s, tariffs remain a distorting force within limited domains (for example, agriculture), and the specific mechanism of import tariffs is much less important, for Tucker’s purposes, than the overarching aim of protecting connected incumbents – whether through tariffs on incoming foreign goods, export subsidies to outgoing domestic goods, through political manipulation of fiat currency exchange rates, or through other means.

As I’ve tried to indicate, Tucker’s Big Four remain pervasive, and at least three of those four have in fact dramatically expanded their scope and invasiveness since Tucker’s original description of them. If we were to try to make a similar list of all the major ways in which local, state, federal and foreign governments now intervene to protect incumbent interests and place barriers to entry against potential competitors, there’s no knowing how many monopolies we’d be dealing in; but I think that there are at least four new major monopolies, in addition to Tucker’s original four, which are worthy of special notice for their pervasiveness and importance to the overall structure of the state-regulated economy.

First, the agribusiness monopoly: since the New Deal, an extensive system of government cartels, subsidies to ratchet up prices for sale in American markets, more subsidies to artifically lower prices for export, surplus buy-up programs,[2] irrigation projects, and the like have tended to ratchet up food prices for local consumers, to make importing and exporting produce over tremendous distances artificially attractive, to distort agricultural production towards the vegetable and animal products that can most successfully attract subsidies and government support projects, to favor large-scale monocrop cultivation over smaller-scale farming, and generally to concentrate agriculture into factory farming and industrialized agribusiness.

Second, the security monopoly: because of government’s massive expansion of standing military forces, and paramilitary police forces, the past century has seen the creation of a gigantic industry full of monopsonistic, government-driven rigged markets, with nominally private companies subsisting largely or entirely on tax-funded government contracts – companies like Lockheed-Martin, General Dynamics, Raytheon, the rest of the military-industrial complex, and the growing number of companies (such as Taser) who cater primarily to government police forces or other Homeland Security agencies.

Third, the infrastructure monopoly: that is, federal, state, or local government monopolization, tax subsidies, and allocation of access to transportation and communications infrastructure. So, for example, the monopoly offers a benefit to big-box retailers like Wal-Mart, whose business models are enabled by, and dependent on, government subsidies to road-building and maintenance, and the resulting artificially low costs of long-haul trucking. Similarly, incumbent media companies have built empires in part because access to broadcast bandwidth has been restricted and politically allocated through the FCC, while access to cable, telephone, and fiber-optic bandwidth has been tightly controlled and restricted through local governments’ monopoly concessions to incumbent cable and telecommunications companies.

Fourth, we might add regulatory protectionism: the proliferation of commercial regulations, government bureaucracy and red tape, business license fees, byzantine tax codes, government-enforced professional licensure cartels and fees (for everything from taxi-driving to hair braiding to interior design) – all of which, cumulatively, tend to benefit established businesses at the expense of new upstarts, to protect those who can afford the fees and lawyers and accountants necessary to meet the requirements from competition by those who cannot, and generally to the poor out of enterpreneurial opportunities, independent professions and more autonomous alternatives to conventional wage labor.

In addition, we should also mention the structural effects of mass criminalization, incarceration, and deportation of socially or economically marginalized people. Activist libertarians have often condemned, on a moral level* the government’s War on Drugs, or Border Apartheid, or other government efforts to criminalize the poor and subject them to imprisonment for victimless crimes. As well they should — these government wars are nothing more than massive violence and cruelty directed against innocent people. But there has not yet been enough recognition of the structural, economic by-products of government policies which, for example, lock 1 out of every 3 African-American men in a cage, potentially for years at a time, taking away years of their working life and permanently stigmatizing them as they try to reenter the labor market and civil society, or which constantly threaten undocumented immigrants with the threat of arrest, imprisonment, and exile from their homes and livelihoods. Such massive government violence, dispossession, and constraint on livelihoods is sure to have massive impacts on the conditions under which many poor and legally-vulnerable people enter into labor markets, housing markets, and all other areas of economic life.

This is, of course, only the beginning. You could easily subdivide some of these monopolies into smaller monopolies; and there are no doubt many more broad classes of monopoly which could be mentioned. But I think that Tucker’s Big Four, which are still present and have mostly grown in their size and importance since Tucker’s day, and these new Big Five, alongside them, get us a lot closer to understanding why so many markets work the way they work. They are, in any case, enough to make the point, and also to raise some likely objections from conventionally pro-capitalist libertarians, which we had better deal with before we spend too much time elaborating on the subject.

I’ll be turning to some of those objections in the next instalment.

  1. [1] State Socialism and Anarchism: how far they agree and wherein they differ
  2. [2] In particular, the USDA’s massive buy-up programs for school lunches and the military.

Carson in the Freeman: Hierarchy or the Market

I’ll be posting about my talk at the LP meeting soon, I promise, but I just blew an afternoon on painting a fence (in order to appease our complex’s property manager). I hear that this is the sort of thing that’s supposed to make men feel a sense of vigor and pride and accomplishment. But mostly it just made me want to take a hot bath and zone out with the TV until tomorrow.

Fortunately, other people do the thinking so I don’t have to. In particular, here’s a shout-out and congratulations to Kevin Carson (and thanks also to the indefatigable Sheldon Richman) for another fine article in The Freeman, on Hierarchy or the Market:

F. A. Hayek, in The Use of Knowledge in Society, used distributed, or idiosyncratic, knowledge—the unique situational knowledge possessed by each individual—as an argument against state central planning.

Milton Friedman’s dictum about other people’s money is well known. People are more careful and efficient in spending their own than other people’s money, and likewise in spending money on themselves more so than in spending money on other people.

A third insight is that people act most efficiently when they completely internalize the positive and negative results of their actions.

The corporate hierarchy violates all of these principles in a manner quite similar to the bureaucracy of a socialist state. Those at the top make decisions concerning a production process about which they likely know as little as did, say, the chief of an old Soviet industrial ministry.

The employees of a corporation, from the CEO down to the worker on the shop floor, are spending other people’s money, or using other people’s resources, for other people. Its managers, as Adam Smith observed 200 years ago, are managers rather of other people’s money than of their own.

By its nature, the corporation substitutes administrative incentives for what Oliver Williamson called the high powered incentives of the market: effort and productivity are separated from reward.

. . . The state’s entry barriers, like licensing and capitalization requirements for banks, reduce competition in the supply of credit and drive up its price; enforcement of artificial titles to vacant and unimproved land has a similar effect. As a result, labor’s independent access to capital is limited; workers must sell their labor in a buyer’s market; and workers tend to compete for jobs rather than jobs for workers.

State subsidies to economic centralization and capital accumulation also artificially increase the capital-intensiveness of production and thereby the capitalization of the dominant firm. The effect of such entry barriers is to reduce the number of employers competing for labor, while increasing the difficulty for small property owners to pool their capital and create competing enterprise.

The cumulative legacy of these past acts of state-assisted robbery, and ongoing state-enforced unequal exchange, determines the basic structural foundations of the present-day economy. These include enormous concentrations of wealth in a few hands, the absentee ownership of capital by large-scale investors, and a hired labor force with no property in the means of production it works.

Necessarily, therefore, the absentee owners must resort to the expedients of hierarchy and top-down authority to elicit effort from a workforce with no rational interest in maximizing its own productivity.

. . .

The problem is not hierarchy in itself, but government policies that make it artificially prevalent. No doubt some large-scale production would exist in a free market, and likewise some wage employment and absentee ownership. But in a free market the predominant scale of production would likely be far smaller, and self-employment and cooperative ownership more widespread, than at present. Entrepreneurial profit would replace permanent rents from artificial property and other forms of privilege. Had the industrial revolution taken place in a genuine free market rather than a society characterized by state-backed robbery and privilege, our economy today would probably be far closer to the vision of Lewis Mumford than that of Joseph Schumpeter and Alfred Chandler.

— Kevin Carson, The Freeman 58.3 (April 2008): Hierarchy or the Market

Read the whole thing.

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