Tuesday, February 2, 2016

Ownership,Trade and Equilibrium: Locke, Graunt and Gracian

"It is impossible that the primary law of nature is such that its violation is unavoidable. Yet, if the private interest of each person is the basis of that law, the law will inevitably be broken..." -- John Locke, Essays on the Law of Nature
Baltasar Gracian's Oráculo manual y arte de prudencia (1647), John Graunt's Natural and Political Observations made upon the Bills of Mortality (1662) and John Locke's Essays on the Law of Nature (1664) all appeared within the span of 17 years in the middle of the 17th century. Gracian bequeathed to economic discourse the philosophical concept of laissez faire, Graunt laid the foundations for quantitative social science, Locke unambiguously defined the natural law constraint that he later alluded to in the famous fifth chapter of his Second Treatise on Government, "Of Property."

"Is every man's own interest the basis of the law of nature?" Locke asked in the title of his eighth essay on the law of nature. "No," was his emphatic answer.

Why not? Because...
...when any man snatches for himself as much as he can, he takes away from another man’s heap the amount he adds to his own, and it is impossible for anyone to grow rich except at the expense of someone else.
Is that a zero-sum game Locke was referring to? Yep, because...
...surely no gain falls to you which does not involve somebody else's loss.
Because taking more than one's share, is to rob others of their share, Locke reiterated in "Of Property."

Locke was not alone among his contemporaries in positing a zero-sum contest. Graunt -- with possibly an assist from William Petty -- argued that putting beggars to work would only take work away from non-beggars:
…if there be but a certain proportion of work to be done; and that the same be already done by the not-Beggars; then to employ the Beggars about it, will but transfer the want from one hand to another…
There is only a certain proportion of work to be done because, Graunt maintains, "there is but a certain proportion of trade in the world..."

This idea that there is only a certain proportion of work to be done or certain proportion of trade in the world would come in for rebuke from Dorning Rasbotham some 118 years later:
There is, say they, a certain quantity of labour to be performed. ... The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go.
Those who have listened to Sandwichman's rant over the years will recognize the above as the locus classicus of the "fixed amount of work" fallacy claim that David Frederick Schloss would eventually dub "Theory of the Lump of Labour." What I want to call attention to, though, is that the proponents of this fallacious theory were not ignorant poor people, shifty trade union agitators or vitriolic Luddites. They were the forefathers of political economic thought: John Locke, John Graunt and William Petty.

The identity of these zero sum proponents is significant, not because it lends prestige to the idea that there is a fixed amount of work but because of the idea's inextricable entanglement with the other contributions of these worthy gentlemen. Locke's vindication of private ownership of property is founded on and legitimated by his natural law philosophy. Rejecting that philosophy renders the subsequent rationale incoherent. The case against the adoption of Gracian's laissez faire and equilibrium by subsequent authors is more indirect but implicates the same premise of a closed system that when rejected, invalidates the conclusion.

The "obverse" of the lump of labor -- Say's law of markets -- relies fundamentally on equilibrium of supply and demand and on the sanctity of private property. Both principles must be discarded if the zero-sum, fixed amount of work, closed system is to be rejected.

Awareness of a fundamental anomaly in orthodox political economy keeps recurring -- Mill's recantation of the wages-fund doctrine, Keynes's repudiation of the "supply creates its own demand" dogma (after which it was supposed to have "sunk without trace"). John R. Commons succinctly identified the anomaly with the incongruous attributes of wealth, as defined by economists:
Going back over the economists from John Locke to the orthodox school of the present day, I found they always had a conflicting meaning of wealth, namely a material thing and the ownership of that thing. But ownership, at least in its modern meaning of intangible property, means power to restrict production on account of abundance while the material things arise from power to increase the abundance of things by production, even overproduction.
Ownership is thus opposed to abundance that escapes its grasp. Perhaps Locke was on to something after all when he observed that "it is impossible for anyone to grow rich except at the expense of someone else." But it is not a physical amount that the grasping individual steals "from another man's heap." It is instead a capability and productive potential that the wealthy monopolize and hoard. One of the ways the owners impose on everyone else is by propagating myths about the sanctity of private property, the self-adjusting character of the price system and the fallacy and futility of any attempt by anyone other than owners to regulate or restrict production on behalf of the wider community of non-owners.


Denis Drew said...

Jimmy Hoffa would say that labor owned half the means of production -- the labor half -- and that short of law requiring labor, ownership and the (ultimate) consumer to get together to set all product prices (an impractical way to sell candy bars), that collective bargaining is the only way to keep labor in the product price setting game.

I know the dictionary definition of "perfect competition." I don't know if economists (or some economists and not others) think that any deviation from results in lower efficiency. Seems to me that imposing market power just rearranges distribution of the "lump of product." No matter.

What I want to load on the balance in favor of labor unions is that by definition unions bring the market closer to perfect competition -- by balancing the monopoly power of labor -- one seller (ask any conservative if a labor union is a monopoly) against the monopsony power of ownership -- one buyer.

Ownership could counter that there are many "one buyers" in the labor market. That is certainly closer to perfect competition than only one big buyer who hires everyone: that would allow ownership to get away with paying computer programmers and burger flippers the same. What multiple monopsonists set up (which is what we have in the US today) is a subsistence plus ladder where labor's price is set by subsistence (if that much) plus how ever much more labor has to give compared to other labor (not how ever much the ultimate consumer might have paid).

If another definition of efficiency could be maximizing psychic satisfaction/dissatisfactions all around -- as is achieved when labor/owner/(ultimate) buyer get together to make a deal -- then collective bargaining is the only known way to promote maximum efficiency. A multiple-monopsonists/subsistence-plus market prejudices production in favor of which employees can be most/least squeezed by market muscle.

Low skill labor market monopsony is three-ways intense: the customary race-to-the-bottom price problem, aggravated by the infinite supply of interchangeable employees, which employees have to sell today or "throw away" (not to mention miss meals).

Sandwichman said...


Tuesday happens to be the day I teach collective bargaining. So, in principle, we are agreed about collective bargaining being "the only known way to promote maximum efficiency." But I would go further to say that the Wagner Act administrative model of collective bargaining is not collective enough. What I mean is that North American unions operate on a business unionism model collectively bargaining for largely individualized wage and benefit packages. The historical exception to that rule came in campaigns for shorter hours of work, which today are virtually off the agenda of organized labor.

Collective bargaining for collective outcomes would mean adopting the perspective that labor power is a common pool resource. That is actually what I am getting at obliquely in the above discussion -- the possessive individualist reading of Locke's "Of Property" is not consistent with Locke's natural law philosophy. Thomas Hodgskin's reading of Locke, in Labour Defended against the Claims of Capital, IS consistent with that philosophy.