Author: Flash

“Learn Economics!“


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Many of those who exhort others to “learn economics” barely grasp marginalism, as can readily be verified by posing the following simple question:

“Is the value of a capital good subjective?”

To which your typical poorly read laissez-faire ideologue will parrot something along the lines of:

All value is subjective. There is no way to objectively ascribe value to anything. A million tons of gold could be worth a lot or worth nothing, depending on the factors at play.

OK then…

That sort of answer belies confusion around the meaning of the term “objective”.

objective is a matter of perception

When an entrepreneur assesses a machine, although not in possession of perfect information, that assessment is being made as objectively as possible. The entrepreneur is not deciding whether the machine is nice looking, pleasant sounding, or tasty… but rather attempting to calculate how much money it will make. While different entrepreneurs might reach different conclusions, they are each attempting to be as an objective as possible in doing so. Furthermore there’s no requirement for an objective analyses to be 100% accurate! Being objective isn’t synonymous with being right. It’s about being free from feelings and bias.

More crucially:

At the end of a machine’s life, when all its utility has been realised, it’s possible to precisely determine how profitable it has been in retrospect, by deducting its purchase price and lifetime running costs from its total productivity plus whatever can be realised for it as scrap. This is objectively the value realised from that capital good expressed in monetary terms.

Not only is this evidently the correct answer, it doesn’t actually contradict the STV.

This misconception around how capital goods are valued highlights a common misinterpretation of the Subjective Theory of Value, and also economics in general. It’s usually indicative of someone who imagines that there’s very little overlap between the various schools of economics, when in fact they all treat capital goods much the same way, take for instance Austrians vs Marxians

The Austrian View

lots of Austrian economists

The situation with capital goods differs from that of consumer goods in that capital goods are used for making money, therefore their utility can literally be measured in money. A rational entrepreneur will weigh up the productivity of the equipment verses its lifespan, running costs, service intervals, and maintenance costs. These factors can generally be gleaned from the specification, so the entrepreneur will objectively select whichever option can deliver the highest profitability for whatever outlay falls within budget, whilst also taking any other aspects such as the form factor into account.

Although the relative value of a capital good is objectively determined by profitability, the price paid for it remains dependent on supply and demand.

The Marxian View

Karl Marx & Friedrich Engels

When people purchase goods they are doing so to use them, and use value (utility) is subjective to the individual’s particular needs and aspirations. The exchange value (price paid) can objectively be measured in money, for example if someone pays $500 for a product then any observer would objectively agree that $500 had been paid.

Capital goods are used in production, therefore their use value can be quantified in money. A capitalist will weigh up the productivity of the machine verses its lifespan, running costs, service intervals, and maintenance costs. Assuming all of these can be calculated and for comparable machines, then the capitalist will objectively select whichever one generates the highest rate of profit for whatever outlay falls within their budget, whilst taking account of physical factors such as the space they have available in which to house it.

It’s important to comprehend that while the use value of a capital good is objectively determined by its rate of profit, the exchange value for that rate of profit is in turn dependent on the demand for whatever is being produced.

Subjective Exceptions

If an entrepreneur/capitalist were to irrationally select a capital good based on its colour or how it smelled then they’d invariably be outcompeted by other more rational actors. Those subjective factors only come into play where the products are objectively equal in all other respects, and this is seldom the case. For this reason comparable capital goods tend to appear a lot more homogenous, since there’s far less commercial advantage to be gained from investing in their looks.

looks can be important dependant on the setting (photo credit: saravutpics/Shutterstock.com)

There are also some exceptions to this. For example if a restaurant has its coffee machine on display then greater consideration would be given to style.

Competing Theories of Value

is value subjective or does it depend on labour? (photo credit: AlexLMX/Shutterstock.com)

Reading through both explanations should highlight something that anyone who has actually bothered to learn economics will already be aware of: Menger and Marx don’t actually disagree on the nature of what’s occurring, they just explain it in different ways.

marginal utility

Since most “learn economics” types have never read any economics beyond basic marginalism, they tend conflate explanations of utility (use value) with the competing theories of STV and LTV… so for the absolute avoidance of doubt all economists (yup, including Marx) share the orthodox view that the prices of goods arise from market forces. This has never been even remotely controversial.

is value subjective?

The STV is not about the value of everything being subjective, which is how “learn economics” types understand it. It’s about how market prices (exchange values) are ultimately dependent on the marginal utility of goods.

As highlighted above by von Mises, Austrian economists theorise that the utility (use value) of a good is perfectly synonymous with its market price (exchange value). This is the Subjective Theory of Value. However, as we’ve just seen, in the instance of capital goods the market price is tethered to profitability; anything profitable has a non-zero value that increases linearly with said profitability. Austrians are thus highlighting that:

  1. …the profitability of a capital good depends on the utility of whatever it’s producing…
  2. …and on its purchase price…
  3. …which in turn depends on how much entrepreneurs are prepared to invest in order to achieve said rate of profit…

…which brings us back to the first point. Damn!

There’s an easy way to exit this circular reasoning though – since capital goods only exist to produce consumer goods for profit, the utility of a capital good does not arise by its consumption. Very few people purchase a lathe for entertainment or to act as an ornament. The purpose of a capital good is to make money, so it can be objectively valued on how much money it’s likely to make/is making/did in fact make, at any given moment in time.

Carl Menger
Founder of the Austrian School
Architect of the Subjective Theory of Value

So there you have it in the words of Menger himself (click on his photo for the full text). How valuable is my tractor today? Well it made me $500 after taking account of operating costs and depreciation. That’s an objective measurement, one that can be itemised on a balance sheet.

The basis of STV is that all value is dependent on the marginal utility of consumer goods (and services), which also impacts on the profitability of capital goods since this is dependent on the prices consumer goods are being exchanged for. STV is far more complex that the glib assertion that “all value is subjective”. A more accurate way of phrasing it is “all value arises subjectively”, because that’s the phenomenon that the theory is actually describing.

Classical and Marxian advocates of the Labour Theory of Value suggest that the value of a product can instead be measured according to the hours of socially necessary labour time needed to efficiently produce it.

or is value derived from labour?

The basis of this belief being that where the decision was taken to manufacture something, then someone must have persuaded workers to manufacture not only that product but consequentially all the components needed for assembly, and also to mine and refine all the raw materials that go into those. Since that would have entailed financially compensating numerous workers throughout the supply chain for the hours they variously expended on doing so, the instigator of this process must have perceived it to be worth the effort. LTV is therefore figurative in the sense that it can notionally assign value to anything, irrespective of commercial viability, based on the socially necessary labour time required to manufacture it.

value is a matter of perspective

According to LTV a good is only viable if consumers feel that it’s worth exchanging at least as much of their own labour for it, as went into producing it. LTV is predicated on socially necessary labour time rather than money, which is why it’s more applicable in scenarios such as mutualism and collectivism where money is eschewed in favour of labour vouchers.

LTV considers value from the perspective of manufacturing a good, while STV considers value from the perspective of marketing a good. Setting logical fallacies aside, there isn’t a right way of looking at this, it’s merely a case of chicken and egg.

The Exergy Theory of Value

The problem with applying STV or LTV to production is that both ignore the impact of the second law of thermodynamics, by assuming that natural resources are ‘free’ to whomever has claimed them, rather than accounting for those as finite. STV even goes so far as to ignore the energy expended by labour.

Rather than opting to quantify value in money or labour time, we can instead consider the Joules of energy consumed by the delivery process less energy wasted. This is known as “exergy”.

exergy is energy used less energy wasted

A “million tons of gold” therefore has an absolute non-zero exergy value (it was created by nuclear fusion in a star) that can be quantified in Joules. Likewise should that gold be fashioned into rings then those rings will also possess an exergy value in Joules, a value greater than that of the raw unprocessed gold.

labour without energy is a corpse, capital without energy is a sculpture

The Exergy Theory of Value is consistent with thermodynamics and even has scope to be mathematically validated. As such ETV can be considered the truth per se. This is why many anarchist economists are now advocating ETV, since that has the potential to transform economics from a social science into a physical science, and thereby unify umpteen competing ideological schools into a pragmatic scientific discipline.

The Property Registration Problem in the Anarcho-Capitalist Individualwealth[sic]


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Yup, you guessed it, the title of this essay parodies “The Economic Calculation Problem in the Socialist Commonwealth” by Ludwig von Mises. The following text doesn’t attempt to address that particular work, although a comprehensive debunking of the ECP by socialist economist Robin Cox can be found here.

Briefly though… Ancaps love to misconstrue that the calculation problem is somehow applicable to stateless socialism, even though Mises was quite explicit that it wasn’t:

oops… a bit awkward that

As you can see from the quote above, this point is somewhat obscured by Mises insistence on referring to libertarian socialism as “workers’ capitalism”.

But enough of that! Our essay will instead establish why stateless capitalism could never be economically viable, and how attempts to make it so would dispel any notion of it being ‘anarchist’.

Background

Capitalism depends on abstract property rights, those is where the owner is neither the occupier nor user of the property in question. This scenario is presently upheld via a system of land registration encapsulated in cadastral maps, which are legitimised by the state and underpinned by its monopoly on force.

a cadastral map delineates private property

In the absence of government, property rights simply default to mutual respect and the natural desire for social harmony. That scenario is termed “occupancy & use” or “possession property”, and is a fundamental tenet of anarchism. The rightful occupier/user is whomever is commonly recognised [see note 1] to occupy, possess, or use the asset in question. The onus being on establishing this by peaceful means, and not laying claim to assets that are commonly recognised to be occupied or used by someone else. Disputes can then be settled by negotiation, entering into arbitration or seeking adjudication, rather than resorting to force.

occupancy & use depends on mutual respect (photo credit: howcolour/Shutterstock.com)

[NOTE 1: “commonly recognised” infers that property is not automatically deemed to be abandoned the instant an occupier/user is no longer present.]

Laissez-Faire Forms of Capitalism

The political theory known as minarchism proposes retaining a minimal state and its related security force primarily for the purpose of maintaining abstract property rights. Anarcho-capitalism (ancap) is an economic ideology that seeks eliminate the state and all the taxes associated with it, whilst somehow maintaining those same abstract property rights.

a stateless society that upholds abstract property rights

Abstractions such as absentee ownership would be straightforward… provided there’s an incumbent occupier or user such as a tenant, guard or other employee, who is under a contractual obligation not to assume ownership of the property in question.

Vacancy

Ancaps do however face another significant challenge to peacefully imposing their property norms. Issues would still arise where a property was left vacant or unused, since that might not be ‘commonly recognised’ as having a rightful occupier/user.

others might peacefully claim property left vacant (photo credit: guss.95/Shutterstock.com)

In the case of an absentee landlord, it may well be that neighbouring occupiers are not in fact cognisant of the status of the property in question. They might assume that it’s been abandoned, may be unaware of the landlord’s identity, unwilling to get involved, or simply not prepared to lend assistance to someone they do not experience any meaningful social interaction with.

neighbours look out for one another

The presence of buildings, for rent signs, or passive security measures such as fences and private property notices are not reliable indicators of occupancy in and of themselves, and may degrade, collapse or go missing due to erosion, natural ingress or vandalism.

signage is only a deterrent when it appears to be current (photo credit: callumrc/Shutterstock.com)

The Property Registration Problem

It’s hard to prevent people from peacefully establishing occupancy or use of vacant or unused property that someone else owns, unless there’s a process for registering property that everyone agrees to abide by… since any solution to property registration depends on near universal support and adoption, otherwise the resultant registry is rendered devoid of legitimate authority.

legitimacy depends on consent (photo credit: vchal/Shutterstock.com)

Therefore in order for capitalists to peacefully uphold abstract property rights within a stateless society, they must:

1. Somehow enshrine abstract forms of property ownership as a positive right. Thereby imposing an obligation upon others to facilitate someone owning private property that he or she neither occupies nor uses. However, this begs the question as to why anticapitalists would voluntarily agree to support the universal adoption of capitalist property norms?

2. Oversee the society wide adoption of a decentralised registry. Although this is perfectly feasible from a technical standpoint, and could perhaps be implemented using blockchain technology, there’s little or no prospect of mass adoption by anyone other than capitalists. To start with anticapitalists would see little benefit in registering ownership of any property that they’re occupying or using. Furthermore, given that the vast majority of anticapitalists fundamentally reject abstract forms of property ownership (such as land-lording), it’s reasonable to assume that most would choose not to validate the legitimacy of any such registry.

Clearly neither of those options are viable, given that both depend on the support and cooperation of significant numbers of people who are ideologically opposed to capitalist property norms. Furthermore, any attempt to forcibly impose a positive right to abstract forms of property ownership or mandate property registration, would surely bear out the longstanding criticism that anarcho-capitalism is more akin to neofeudalism than anarchism.

good ideas don’t require force

The obvious solution would be for ancaps to ditch the obsession with abstract forms of ownership and instead adopt occupancy & use. This could be on the basis that where a property is recognised as being occupied (even if said occupant is a tenant, guard, or employee) then no one else can peacefully establish occupancy of it without the prior consent of the recognised occupant.

It’s therefore then worth examining what it is that motivates ancaps to insist on a positive right to abstract forms of property ownership, when surely all they need do is install tenants or hire guards?

guards are an option (photo credit: Andrey_Popov/Shutterstock.com)

The problem is that much of the planet’s usable landmass is currently vacant but in private ownership. In the US some 59% of all land is in private ownership but with most of it not being occupied or used, a situation that is presently being upheld by the state. A vast army of tenants and/or guards would be needed to occupy that real estate, several orders of magnitude beyond those presently active in those respective markets.

stats for the US

The tenant/guard solution would result in an unprecedented demand for both tenants and guards resulting in a chronic scarcity of both. Rental charges would plummet to the extent that landlords would be reduced to acting as social housing providers. It may even be that tenants could demand a wage, since they’d essentially be functioning as live-in security. And as for actual guards… well such high demand would push the market rate for those into the stratosphere. Capitalists would end up paying to hang onto property, rather than accumulating wealth from owning it, therein defeating their own economic objective. Ergo absenteeism simply isn’t cost effective without tax funded cops to uphold it.

Perhaps it’s no coincidence that capitalism evolved out of feudalism via mercantilism during the emergence of the nation state, since capitalism is dependent on the state to enforce the legitimacy of abstract property rights.

it can be expensive to uphold absenteeism (photo credit: UncleFredDesign/Shutterstock.com)

Even a blind monkey with a glass eye stuffed up its butt can see that stateless capitalism wouldn’t be feasible if landlords had to pay tenants to occupy/use their property. It appears most ancaps are of course fully cognisant of this problem, because why else would they be so shrill and insistent about everyone adhering to their property norms? What might transpire should their demand that everyone adhere to Neolockean property norms be rejected?

Where an absentee landlord is unable to maintain their claim, then a reasonable view would be “well tough shit – that person is no longer entitled to that property”.

boo hoo (photo credit: Zdorov Kirill Vladimirovich/Shutterstock.com)

Denial

Deontological ancaps for the most part tend to deny the reality of this situation; they shamelessly rationalise that the act of peacefully occupying or using property that clearly isn’t occupied or in use… may somehow constitutes aggression.

but the NAP… (photo credit: Volodymyr TVERDOKHLIB/Shutterstock.com)

They then justify the use of force to retake said property as an act of self-defence by the absentee landlord. Hence the weird obsession that they have with the Non-Aggression Principle (NAP). This standpoint is somewhat disingenuous to say the least, since any legitimate defence of property would surely never start out as initiating an assault upon it, and would instead be deemed a violation of the NAP.

Consequences

Consequentialist ancaps on the other hand glibly suggest that the solution is actually to booby trap absentee property with sentry guns, landmines,, poison gas, incendiary devices, Semtex… you name it!

nothing even slightly dystopian about this

Trespassers? No problem they’d either be shot to pieces or reduced to smithereens! Tenants refusing to pay their rent? Just release the poison gas! Strikers equipped with gas masks occupying their workplace? Either incinerate them, or failing that just blow up the whole damn building!

Conclusion

Abstract ownership on a large scale would be rendered economically non-viable in a stateless society. We’re then left with the disturbing scenario, whereby if capitalists were unable to peacefully impose their property norms, then they’d instead aim to replace the nation state with a dystopian hellscape.

Capitalists are Really Just Energy Vampires


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Capitalism is an economic system where wealth is supposedly accumulated via the ownership of capital.  This essay looks at what capital actually is, and whether the return on a capital investment is really generated by the capital itself, or through the cynical exploitation of workers and consumers.  

what is capitalism? (photo credit: nuvolanevicata/Shutterstock.com)

Some basic business economics are touched upon, along with more complex stuff such as Capital Theory, the Cambridge Capital Controversy, the Labour Theory of Property, and the essay even rounds out with a brief introduction to the Exergy Theory of Value. Everything is presented in very simple terms, and anyone with decent arithmetic skills should be capable of following the thrust of it.

Business Economics

To begin to understand how capitalism operates, imagine that you are someone with money to invest in a small business, in exchange for a share of the company, in the hope that this will produce a financial return.

the angel investor (photo credit: Costello77/Shutterstock.com)

Example

You hook up with a guy called Billy who has £5,000 to start a landscaping business, but who needs a total of £10,000 to purchase the equipment (capital goods). The banks wont lend to him because he hasn’t established a credit rating. However, you view Billy as a good risk, so you invest £5,000 in exchange for a 51% share of the landscaping business. One of the conditions in the shareholder’s agreement, is that the business will pay Billy wages at the market rate for whatever labour he performs, and that any surplus achieved beyond that is divested as profit by way of share dividend.

capital goods are used to make money (photo credit: Varavin88/Shutterstock.com)

NOTE – a 51:49% split in favour of investors who are contributing at least half the startup capital is standard practice in order to safeguard their interests. Under the shareholder’s agreement Billy will be reimbursed in wages for any labour he contributes, before the profit is apportioned. If you feel that this is wrong, then feel free to adjust the terms however you see fit, as this largely irrelevant to the matter at hand.


The Return

Here’s what all this means in simple terms: if Billy charges a customer £100 per hour to landscape, which incurs costs of £10 (on stuff like fuel), and sets aside £5 against the business’ fixed overheads (stuff like insurance)… then he can pay himself £50 for an hours labour… leaving a profit of £35 to be split 49/51 between Billy and yourself, netting you a return of £17.85 with Billy receiving a further £17.15 by way of his own dividend in addition to his £50 of wages (meaning Billy receives a combined £67.15 in respect of his wages and share of the business).

calculating the return (photo credit: Rawpixel.com/Shutterstock.com)

The landscaping business averages revenues of £800 per day, 5 days a week, 45 weeks of the year – that’s £180,000 per annum.  This provides you with an annual return of £32,130.  At a 5x PE (price to earnings) ratio (a basic measure of how businesses are valued) your share capital in the landscaping business is now worth £160,650 – and that’s in the ballpark of what Billy would have to offer in order to buy you out and keep all future earnings for himself.

a business is valued on price to earnings ratio (photo credit: Rasdi Abdul Rahman/Shutterstock.com)

The Capitalist

This is what it means to be a capitalist. An absentee investor need only stay alive to collect the return on their investment. In order to comprehend the nature of capital, we need to look at what actually funds those returns. Is this money for old rope, or is there actual substance to it?

what is the source of profit? (photo credit: nuvolanevicata/Shutterstock.com)

The (mostly) Orthodox View

All economists agree on three primary factors of production: land, labour, and capital.

Orthodox Neoclassical and heterodox Austrian also advance the existence of a fourth factor – entrepreneurship – which encompasses risk, organisation and coordination (and by the Neoclassical definition intellectual property).

All capitalist economists agree that profit either arises from the supply of natural resources that the capitalist owns, from efficiencies derived from the use of equipment that the capitalist owns, and in the case of Neoclassical and Austrian economists, from the positive action of entrepreneurship. Furthermore they advance the notion that the buyers and sellers must be mutually profiting from any voluntary trade otherwise they would be unable to agree a price.

All capitalist economists argue that profit cannot be attributable to waged labour since said wages compensate each worker for their labour.

do returns really arise from capital? (photo credit: Vector Tradition/Shutterstock.com)

Returning now to Billy’s Landscaping, what is the source of your return. Well Billy is the one supplying the labour and you’ve both agreed that he will be remunerated for that prior to the division of profit. You aren’t suppling any natural resources, and in terms of entrepreneurship the funds that you risked were invested in capital goods, therefore your return must arise from the machinery making Billy’s labour more efficient than it would otherwise be. And even though the tools purchased with your original £5,000 stake will eventually wear out, the gross profit generated by the use of those tools will cover the cost of their replacement, meaning that your capital will persist for as long as the business remains solvent.

replacement capital goods (photo credit: Kirkam/Shutterstock.com)

Capital Theory

While that might appear perfectly reasonable, it’s also dependent on capital being an actual thing in its own right, so precisely what is capital? This subject has been tackled by notable economists such as Eugen von Böhm-Bawerk of the Austrian School. Briefly, capital is a factor that facilitates the production of wealth, through the creation of value. Here’s a good summary on the nature of capital from Mises.org, which includes this quote:

“What is capital, then? It is composed of three things:

First, of the materials upon which men operate, when these materials have already a value communicated by human effort, which has bestowed upon them the property of exchangeability — wool, flax leather, silk, wood, etc.

Second, instruments that are used for working — tools, machines, ships, carriages, etc.

Third, provisions that are consumed during labor — victuals, fabrics, houses, etc.

Without these things the labor of man would be unproductive and almost void; yet these very things have required much work, especially at first. This is the reason that so much value has been attached to the possession of them, and also that it is perfectly lawful to exchange and to sell them, to make a profit off them if used, to gain remuneration from them if lent.”

defining a unit of capital (photo credit: FreelySky/Shutterstock.com)

Machines/tools that are used commercially (such as a bulldozer, an oil rig, or Billy’s lawnmower) are termed “capital goods”, but as Ludwig von Mises explains here:

“From the notion of capital goods one must clearly distinguish the concept of capital. The concept of capital is the fundamental concept of economic calculation, the foremost mental tool of the conduct of affairs in the market economy. Its correlative is the concept of income”.

What does von Mises mean by that? Well lets run through how capital is calculated, which is standard across all modern schools of economics:

1. Capital is heterogeneous, meaning that it is encapsulated in many different types of capital good.

  • Capital is heterogeneous.

2. Capital is quantifiable, meaning that its value can be measured.

  • Capital is quantifiable.

3. The value of capital can be objectively extrapolated from its rate of profit, which is defined as the ratio of net profit to initial investment over time.

  • The value of capital can be extrapolated from its rate of profit.

4. Value is measured in money, implying that a specific quantity of capital can be expressed in terms of its monetary value. Money is in fact an expression of capital in and of itself.

  • The quantity of capital is measured in money.

5. Since the rate of profit equates to the ratio of net profit to the investment over time, it’s necessary to know the initial quantity of capital invested in order to calculate its rate of profit.

  • Calculating the rate of profit necessitates knowing the size of the initial investment.

NOTE – If you’re struggling to fathom why the value of capital is objective rather than subjective, then this essay will help clue you in on how the Subjective Theory of Value works. But briefly… Menger (who devised STV), was quite clear from the outset the value of higher order (capital) goods could be extrapolated from their profitability.

Carl Menger
Founder of the Austrian School
Architect of the Subjective Theory of Value

Example: If a machine costs £100,000, has an operational lifespan of 10 years, and incurs £50,000 of running, maintenance and insurance costs over that time period, but its use produces £500,000 of goods or services, then it will produce a profit of £500,000 goods less £100,000 purchase price less £50,000 operating costs = £350,000 profit over 10 years.

Since a machine represents a specific quantity of capital, the rate of profit at any given moment would equate to the net profit divided by the present value of the capital.


Collating each of those points on the nature of capital:

  1. Capital is heterogenous.
  2. Capital is quantifiable.
  3. The value of capital can be extrapolated from its rate of profit.
  4. Value is measured in money.
  5. Calculating the rate of profit necessitates knowing the size of the initial investment.

Aah but… there’s a problem

When we try combining those points on the nature of capital into a cohesive and definitive statement, we arrive at something like this:

The monetary value of heterogeneous capital can be extrapolated from its rate of profit, which is in turn dependent on knowing the quantity of capital that was originally input, as valued in money.

Hmm… that’s spiralling circular reasoning; it seems that capitalists are attempting to calculate the value of capital from its rate of profit, which is in turn dependent on the quantity of capital that was initially input. Given that both are measured in money, it transpires that we’re actually trying to calculate the value of money in terms of how much money it makes!

capitalism is predicated on circular reasoning

Capital appears to be an invalid concept, since there doesn’t actually seem to be any way of quantifying it. Given that capital goods are only capable of production in the presence of other factors, in the absence of any way to measure the value produced by a unit of capital, the capital itself cannot be verified as the source of any returns being generated from its use in production. Uh oh…

The Cambridge Debates

This conundrum is known as the Cambridge Capital Controversy.  Esteemed economists from the neoclassical and post-Keynesian (aka neo-Ricardian) schools, including Robert Solow, Nobel Laureate Paul Samuelson, Joan Robinson, and Piero Sraffa, spent over a decade arguing about whether or not capital was perhaps analogous to ectoplasm… and failed to resolve the issue.  In the end they just gave up, swept the issue under the rug, and carried on as if nothing whatsoever had happened.

the Cambridge debate raged for a decade

Does any of this even matter though?  Well let’s return to Mises’ description of capital, but replace the word “capital” with the phrase “circular reasoning”:

“The concept of circular reasoning is the fundamental concept of economic calculation, the foremost mental tool of the conduct of affairs in the market economy”. Oh dear… that’s really not a good look!

In the case of the aforementioned landscaping business it becomes clear that capital itself is not actually what’s generating the return, since the value of the capital is extrapolated from its rate of profit, which is initially defined as the net profit divided by the £5,000 investment. In other words we’re continually revaluing the £5,000 investment on the basis of how much money its supposedly making at any given moment in time. Meaning, the notional return on the investment is actually being justified by – you guessed it – circular reasoning.

This leads us to the logical conclusion – that the value of the original £5,000 capital investment, was actually worth just that, £5,000… meaning that someone somewhere is somehow being ripped off in order to fabricate returns for the investor.

Here’s a nice easy to grasp summary of the capital debates (scroll down past the links at the top).

A Dialectic Theory of Value

An alternative theory of capital had already been devised decades earlier by Karl Marx. However, on p308 of “Grundrisse – Foundations of the Critique of Political Economy”, Marx’s own arithmetic alludes to surplus value being created by something other than labour. He shows that the use value of a machine can significantly exceed its depreciation. This implied a source of surplus value that wasn’t labour, undermining the base premise of the Labour Theory of Value. This created a serious dilemma for Marx, since if other inputs could also contribute surplus value then profitability needn’t inexorably fall, and socialism might not be inevitable after all… in other words that Marxian Economics would undermine Marxism.

Karl Marx ignored his own reasoning

Marx’s response to his own conclusions, was simply to leave that can of worms sitting half opened, to fester. Here’s a paper by Australian economist Steve Keen, that details this particular episode.

Property is Theft!

Pierre-Joseph Proudhon had actually figured all this out even before Marx did, he just wasn’t able to adequately explain the arithmetic although he did have an inkling that this unidentified source of value somehow stemmed from land. This is why Proudhon proclaimed “property is theft”.

Proudhon had capital sussed

Non-proviso Lockean

Murray Rothbard had an interesting take on capital by reinterpreting John Locke’s Labour Theory of Property weirdly bereft of Locke’s Proviso.  He postulated that property was essentially the original labour of the capitalist, which then somehow persisted eternally.

can ancap word salad validate capital?

Example

A worker can dig 50KGs of soil each day using just his or her bare hands, this is worth £80 per day. This is the value of that person’s labour.

the rawest expression of labour (photo credit: happy_finch/Shutterstock.com)

An entrepreneur spends their £500 of their earnings buying up 10 picks and 10 shovels.  This entrepreneur then employs 20 workers to dig on their behalf using those tools.  Thus a new capitalist is born.  Each pair of workers now manages to dig 500KG of soil each day, which is around a fivefold increase.  Since the workers’ raw labour would only amount to 50KG of production, the additional 200KG of production per worker can therefore be attributed to those tools, which remain the property of the capitalist.  Thus the £6,400 of earnings each day from this increased productivity must ‘rightfully’ belong to the capitalist.

tools increase productivity (photo credit: Yazza Gaffix/Shutterstock.com)

After 4 weeks the capitalist invests £100,000 in a mechanical digger.  The capitalist is now able to dismiss 14 workers, since only 6 workers are needed to operate that digger 24×365.  The digger is able to dig through 5,000KG per 8 hour shift, equating to extra production of 4,950KG, for a gross profit of £166,320 per week of operation, from which £16,320 of operating costs are subtracted, creating a return of £160,000 for the capitalist… and so forth.

better tools mean more profit (photo credit: Drew McArthur/Shutterstock.com)

NOTE – The perceptive will have noted that these figures trend towards the unrealistic.  That’s because the example doesn’t account for free market competition from other digger owners driving those prices down.  This is irrelevant to the problem itself, but feel free to change the numbers if doing so makes you feel better.


Capital is Just Ectoplasm

Rothbard’s fantastical narrative still fails to navigate around the problem highlighted by the Cambridge Capital Debates.  The notion that the value of someone’s ‘original labour’ can be magically multiplied by investing it in capital goods does nothing to alter the ectoplasmic nature of capital – it merely provides a fairytale as the backstory.

no… money doesn’t actually make money (photo credit: Nikki Zalewski/Shutterstock.com)

We’re still left with the aforementioned circular reasoning:

The monetary value of heterogeneous capital can be extrapolated from its rate of profit, which is in turn dependent on knowing the quantity of capital that was originally input, as valued in money.

Which is word salad for:

The value of money is dependent on how much money it makes.

An Energy Theory of Value

At the root of the Cambridge problem is the notion that money can somehow make money, but clearly that’s nonsense, so let’s look at the actual physics involved.

The raw materials used in production, the worker’s bodies, the food they consume in order to replenish the energy being expended as they labour, even planet Earth itself… all these things were ultimately created by, and depend upon, solar energy. The Sun can (as near as damnit) be viewed as the primary source of all energy used in human production, meaning economics is subject to the same laws of physics as everything else (shock horror), including “Conservation of Energy“. Production doesn’t create new energy, it simply repurposes energy originally radiated by the Sun.

the Sun is the source of all our energy (photo credit: worananphoto/Shutterstock.com)

Goods & services are in fact repackaged matter and energy, and their value ultimately arises from the Sun, rather than from capital. What economists think of as units of capital are in fact joules of energy, and as such each joule can be assigned a monetary cost/value. The notion of capital as a source of energy that can make more energy, which can be then translated back into money, therefore contradicts the First Law of Thermodynamics. Hence the entire economic basis of capitalism is false.

capital violates this

What Marx’s working actually hinted at was the presence of a hitherto unidentified fourth primary factor of production (in addition to land, capital, and labour): energy. Matter and energy are completely interchangeable. Both workers and machines consume energy. Production is just the transference of energy from one thing to another. When workers produce using machines they’re using up energy to modify materials, both their own physical energy, and whatever is being supplied to the machines. As Steve Keen describes it, “labour without energy is a corpse; capital without energy is a sculpture”.

The Exergy Theory of Value (ETV) is predicated on the joules of exergy (energy input – energy wasted) required to produce something, rather than the calorific value of the end product. It’s about work done efficiently, meaning that any valuation is unaffected by efficiency variations in production.

It could be said that labour in any society (including societies without commodities or markets) involves the expenditure of energy but so too does leisure, love-making, and tending to one’s allotment. But none of these latter activities necessarily entail commodity exchange and the production of exchange values. However, while those activities might not entail commodity exchange they are things that people invest their energy in because they consider them valuable. If someone had to choose between turning a strip of land into a parking space vs an allotment, then clearly they’d be making a value judgement. Only ETV properly explains endeavour and value across the entire spectrum of human activity.

Technically Capitalism is not Exploitation

With all this in mind, it’s possible to calculate and assign a notional energy ‘value’ (measured in joules) to a person and also to everything they possess, and thereby to track their energy balance. If they become poorer then that’s because they are experiencing an energy deficit; they aren’t being paid enough to replace the energy they’re using. An extreme example of this would be in a concentration camp where workers are literally being worked to death.

sorry Marxists – capitalism is not exploitation per se (photo credit: nuvolanevicata/Shutterstock.com)

This is problematic for Marxism because should a worker’s energy balance remain neutral, then that would imply that said worker is being reimbursed the energy they are expending, rather than being ripped off. Obviously such a scenario does not offer any actual incentive to the worker… in that they’ve effectively been enslaved (although it does represent the ideal scenario from the perspective of the capitalist).

Capitalism is Energy Theft

In theory the ETV makes it possible to calculate precisely how much surplus can be apportioned to the action of the entrepreneur, the worker, the machine, and the land. In addition to providing full economic accounting, this also highlights the ethical issue around private property. If the primary source of the returns made by the capitalist are predominantly due to the capitalist owning stuff (rather than any energy expended in entrepreneurship), then said returns are mainly derived from class privilege.

the passive income of the capitalist stems from class privilege (photo credit: nuvolanevicata/Shutterstock.com)

This means that Proudhon was correct: since the capitalist’s returns are by and large a product of structural coercion then that implies the capitalist is stealing energy from everyone else, in the form of the Earth’s natural resources. That the capitalist is paying his or her workers to strip-mine our planet for profit.

it really was that simple all along

So… in the absence of any weird ectoplasm, capitalism is really just energy theft on an industrial scale, by a dominant capitalist class, who then attempt to justify their actions by way of circular reasoning.

capitalists are really just energy vampires (photo credit: https://superrare.com/nuvolanevicataart)

This can be confirmed by incorporating thermodynamics into economics equations, effectively grounding the social science in actual physics, and thus proving that capital itself does not magically generate a return.

An Introduction to Collectivist Ansynd


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Introduction

The purpose of this guide is to introduce workers to self-management. It will outline the methodology that governs our workplace, enabling them to participate alongside us, prior to undertaking more comprehensive training.

Ownership

you can’t take it with you… (photo credit: T_Dub0v/Shutterstock.com)

Ownership is not simply possession, rather it pertains more to power, control, and responsibility. It exists in the here & now, and doesn’t accompany us into some sort of afterlife.

The power and control at a business owners’s disposal actually arises from owning responsibility… from carrying the can.

A worker cooperative is perfectly in step with this reality. In order for someone to be voted in as a cooperator, they must first assume a commensurate share of responsibility, thereby demonstrating that they are ready to participate in running the business.

Collectivist workplaces are structured in such a way as to limit the need for voting, meaning workers take most decisions autonomously. There is an equality of power, and most of that power is exercised individually rather than collectively.

Overview

a cooperative is the sum of its workers (photo credit: GAS-photo/Shutterstock.com)

Worker cooperatives come in two forms, the reformist hierarchal kind that function similarly to most other businesses, and the subversive anarchal [definition: non-hierarchal] that aim to supplant capitalism. The latter are often referred to as worker collectives, and are the subject of this guide.

A worker collective consists of workers, both paid labour and unpaid volunteers. Each worker starts out as a newbie, and on completion of coop training they graduate to probie (probationary member). Probies serve a probationary period of 10-20 months, prior to facing a vote on whether to make them a cooperator (legal member). The intent is for every worker to become a cooperator, and thereby an equal participant in and co-owner of the cooperative. Newbie and probie are not ranks per se but transitional stages towards becoming a cooperator.

Everyone is expected to actively participate in the operation of the cooperative, and to assume a level of responsibility commensurate to their time commitment. Newbies are able to exercise around 75% of the power available, including the power to reprimand other workers. For probies this rises to around 95%. The workforce of an established cooperative will therefore mainly consist of cooperators.

Those three distinct classifications of worker do form a rational hierarchy, but this exists purely to transition workers into the cooperative. Those who fail probation must be released from the cooperative before they gain full employment rights, as that would impose a permanent management hierarchy from underneath.

The cooperative is collectively owned by the cooperators, each of whom sit on the board of directors. Cooperators have a say over any decision that affects them, and because those decisions are taken by consensus, a cooperator cannot be forced to go along with anything they disagree with. In order to be voted in as a cooperator, a probationer must prove to be willing, conscientious, diligent, reasonable, constructive, and disciplined.

Organisation

example of a horizontal structure (photo credit: Eleventh Hour Photography/Shutterstock.com)

In a hierarchy power is derived from position, whereas in a horizontal organisation power is dependent on assumption of responsibility, with the horizontal structure governing the application of that power.

If a vertical organisation is analogous to a pyramid, then a horizontal one is more like a railway. Each train is autonomous, being powered by its own engine, but its passage is in accordance with the tracks, switches, signals, stations, platforms, timetables, bridges, tunnels, sidings, and buffers etc.

The structure of an anarchal workplace is a based on a methodology known as Collectivist Ansynd, which functions a little like the railway in the above analogy, with the workers being analogous to the engines.

Collectivist Ansynd

the toothed wheel represents cooperation

Ansynd is an organisational praxis: a theory, method, and practice for organising without hierarchy. It’s an abbreviation of anarcho-syndicalism, which literally means “unions without hierarchy”, where union is in the sense of people being united by a common purpose.

Collectivist ansynd refers to a current within anarcho-syndicalism, which focuses on collectivism via worker self-management. This presents a significant threat to the capitalist hegemony because management is a very expensive feature of capitalism, and successfully dispensing with it dramatically increases workplace efficiency.

The methodology is predicated on individual power and assertiveness. It recognises the inherent weaknesses of group-think, and mandates creativity and ambition over opinions and apathy. Participants are thus encouraged to become aware of their own strengths & weaknesses. A non-hierarchal workforce must collectively possess all the skills more usually encapsulated within a talented management team.

Collectivist ansynd consists of: a set of governing principles; a statute; elected officials; a functional apparatus, and a sophisticated take on democracy. It is deemed a militant praxis because each participant may exercise their power unilaterally.

Governing Principles

Anarchy is “no rulers”, period.

Rules have to come from somewhere. As soon as some person, group or other entity starts creating rules then it is de facto functioning as a ruler, end of. The must therefore be cognisant of what does and doesn’t constitute a rule. The defining characteristics of a rule are:

1. arbitrary and/or unreasonable rather than rational, and constrains the freedom of others in a way that is discriminatory and/or unequal.

2. imposed by some entity that assumes authority, regardless of whether everyone else (as in every single person, including the unborn) agrees with that or not).

3. subsequently enforced by self same authority or its agents, with sanctions mandated for breaking it.

4. It is applicable and in effect throughout a territory that said authority controls, but which is predominantly inhabited by others.

A social norm that is arbitrary and irrational, but is nevertheless imposed and enforced by a majority, would also constitute a rule.

A principle that is rational, and neither constrained by territory nor imposed nor enforced by any group in particular (although there may be consequences for breaching it), would not constitute a rule.

Rules do feature in anarchism, but only where they are constrained by membership of a particular group who agree those by consensus. If someone chooses to join a group (or coop), then that person has implicitly consented to its rules in order to be admitted. However, someone born into a group should not necessarily be constrained by all its rules (and certainly never upon reaching adulthood), since that individual did not have the option of consenting to those rules.

Rather than having a ruler, anarchy is governed by ten basic principles. Newbies should learn how to apply these, by observing the members, and asking questions. Failure to adhere to any of them automatically constitutes a breach of cooperative ansynd praxis, potentially inviting disciplinary action from other workers.

Social Cohesion

impact is what matters (photo credit: Ufuk ZIVANA/Shutterstock.com)

Carefully absorb the following principle:

Breaking that down. It’s saying that our rights are effectively granted by society; that logically this stems from a show of solidarity around individual liberty, which is only limited by everyone having access to the same level of freedom. That we are each at liberty to do anything that doesn’t in any way denigrate or undermine the corresponding freedoms of other people.

What matters, is the impact of one’s action on others, since adverse impacts might precipitate detrimental social consequences. Thus anarchists deal with impacts rather than rules (and consider context rather than wording).

Freedom of Association (FoA)

freedom of association is the most fundamental freedom of all (photo credit: khz/Shutterstock.com)

This takes two forms, FtA (Freedom to Associate) and FfA (Freedom from Association).

Under FtA, workers may choose to associate with any individual or group, except those who preach hate, bigotry or advocate tyranny. They can also choose to form their own exclusive groupings within the workplace, provided those adhere to the other principles being outlined below. FtA also allows scope to join labour unions.

Under FfA workers may choose to disassociate from one another, and any such arrangement is automatically deemed to be both mutual and all encompassing. Refusal to respect FfA is deemed to be beyond the bounds of restitution.

Solidarity

solidarity is an expression of mutual aid (photo credit: Malchev/Shutterstock.com)

The business, its reputation, the workplace, the equipment, the workforce, and the customers, together comprise the common good. Self-interest is ultimately best served by safeguarding the common good. The workforce should therefore exhibit solidarity around the common good rather than blind loyalty to one another.

Militancy

workers must police one another (photo credit: Uncle Leo/Shutterstock.com)

In the absence of hierarchy, each worker becomes empowered to deal with any personnel issues that they might encounter. The power to fairly reprimand another worker who is negligent, exhibits poor performance, is guilty of misconduct or breaches any of these principles, can be exercised unilaterally.

Restitution

assume responsibility for your actions (photo credit: jorgen mcleman/Shutterstock.com)

If a worker does something that jeopardises the common good; or which substantially and negatively impacts upon the business, the workplace, or any co-worker(s)… then they can escape a reprimand by making that right. This principle applies to misconduct, negligence, poor performance and breach of praxis. Restitution must be commensurate, and the onus to restitute lies with the offender.

This is termed “yfi yfi” (You Fuck It, You Fix It).

Collective Accountability

we are all owners (photo credit: kora_sun/Shutterstock.com)

Functionaries are obliged to report their activity to the collective. All members should monitor levels of participation, and everyone must assume responsibility for safeguarding the common good.

Rational Authority

decisions are best taken by experts (photo credit: Lightspring/Shutterstock.com)

All recurring aspects of the business are divided into zones, which are like mini departments. Ideally whomever is most experienced, and/or knowledgeable on a particular aspect, is appointed to be its ZA (zone authority), and assumes responsiblity for that thing.

Each worker must volunteer to assume their fair share of responsibility, which usually means that everyone ends up being in charge of at least one thing. This division of labour can either be allocated via the commissioner, or enacted through an election.

The smooth functioning of zones is integral to the common good. The zones and their assigned ZAs are presented on the labour matrix – you can refer to this document in order to find out who is responsible for what.

ZAs are subject to instant democratic recall but, beyond that, wield absolute authority over their zone(s). You may not interfere with how someone else manages their zone. Failure to keep on top of a zone is likely to result in recall, and failure to take on a fair share of responsibility may invite disciplinary action.

Equality

power should be accessible to everyone (photo credit: mentalmind/Shutterstock.com)

A horizontal organisation implies an equity of privilege meaning that everyone has access to the same powers and freedoms.

Since power arises from responsibility, the cooperative must endeavour to allocate responsibility evenly amongst its workforce.

Autonomy

autonomy is liberty (photo credit: zef art/Shutterstock.com)

A worker is empowered to take any decision that will have negligible impact on the business, the workplace, their colleagues, or the cooperative as a whole.

Direct Action

no one is stopping you (photo credit: Franck Boston/Shutterstock.com)

Members are co-owners rather than employees, and must therefore participate in cooperating the business. This means doing our fair share of all the stuff that would normally be handled by bosses and owners. Cooperating a business is arguably the most direct form of action there is, since it bypasses the rationale for capitalism altogether.

Statute

we write our own rules (photo credit: Nana_studio/Shutterstock.com)

The statute consists of the cooperative’s purpose, plus the outcome of each subsequent consensus process (where applicable). The statute is dynamic, and is based upon collective recollection. Aside from the mission statement it must not be compiled into a written legislature. This is mandated in order to maintain a pragmatic, flexible, and contemporary outlook, so that the cooperative is capable of adapting to ever changing circumstances.

Mission

every anarchal coop has a mission (photo credit: Vi DesignLab/Shutterstock.com)

This is a statement of the cooperative’s founding purpose. The mission is set in stone, and cannot be amended. Newbies should familiarise themselves with the cooperative’s mission statement. Members may act in accordance with the mission.

Precedent

precedent
rules that are applied consistently

By default any democratic consensus process will set a precedent, which any member is then empowered to enact, provided they can somehow demonstrate its prior existence.

Tradition

tradition
tried and tested principles

Precedent that is regularly enacted becomes tradition, and continues in effect even where the root of the underlying precedent has been lost in the mists of time. Any worker can compel adherence to a tradition.

Officers

the officers of an anarchal coop are the expeditors rather than bosses (photo credit: pathdoc/Shutterstock.com)

Cooperators must elect at least one of each of the following officers from within their own number. These roles exist to ensure the smooth running of the cooperative. Officers are subject to instant democratic recall. Find out who those people are, because you’ll likely want to interact with them at some point!

Custodian

The custodian is tasked with safeguarding the cooperative’s mission, and ensuring adherence to ansynd praxis.

The custodian must maintain strategic oversight of (but has no control over) the cooperative, and he or she also serves as the decision taker of last resort.

The custodian is subject to democratic override by members.

If you are unsure of anything then just ask the custodian for guidance.

Commissioner

The commissioner is tasked with safeguarding the common good.

The commissioner is empowered to commission zones, and to appoint (but not recall) ZAs. This is encapsulated within the labour matrix, a document listing each of the zones and their assigned ZAs. This is to expedite the division of labour, and mitigate the need to hold elections.

The commissioner must endeavour to allocate responsibility commensurate to each worker’s time commitment.

The commissioner is subject to democratic override by members.

You can request that the commissioner create a new zone for any responsibility that you’d like to assume, and this will be added to the matrix.

Agitator

The role of the agitator is to safeguard and encourage engagement within the workforce. This may relate to worker involvement and responsibility within the cooperative as a whole, or to their participation in any democratic processes that is presently underway.

If you believe that someone’s participation is lacking, then feel free to bring this up with the agitator.

Democracy

everything is underpinned by democracy (photo credit: Lightspring/Shutterstock.com)

Every single aspect of a coop, aside from its mission, is subject to some form of instant democratic intervention. However meetings and votes can be stressful, time consuming, and divisive. With this in mind, collective decision making should be reserved for issues, which are of significant impact (beyond autonomy), but aren’t zoned under rational authority, and cannot be dealt with by officers under their delegated powers.

The most appropriate form of democracy should be utilised for any given purpose, and this is open to debate. Newbies are mostly excluded from the democratic process, because their involvement often proves disruptive. A cooperator may insist on all probies being excluded from a vote, provided there’s a valid reason for such an exclusion.

Adjudication & Arbitration

fairness above all else (photo credit: Lightspring/Shutterstock.com)

This occurs in response to a disagreement, and is usually takes the form of simple majority.

Elections

collectively deciding who does what (photo credit: Lisa Kolbasa/Shutterstock.com)

Workers can force an election on any vacant zones.

At a bear minimum the cooperative should hold an AGM, where workers can request an election on any zone or official post.

Elections typically adhere to the format of a rational veto of candidates, followed by either simple majority or alternative vote.

Any worker can stand for election to a zone, but only members can vote in these elections.

Recall

power is dependent on consent (photo credit: Leremy/Shutterstock.com)

Any member can call a recall motion on any ZA or officer at any time. This is always undertaken by consensus.

Decision Making

img_0247
good ideas don’t require force
(photo credit: grant horwood, aka frymaster)

Any member can initiate a consensus motion on any issue that falls outside of autonomy and rational authority. Consensus means that the motion cannot go ahead without the consent of everyone.

Consent doesn’t necessarily indicate support for something, but rather a willingness to go along with it.

The above diagram depicts a simple process that is suitable for straightforward decisions, with a high level of support, which don’t require rigorous due diligence. The process for complex decision making is far more nuanced, with the members fixing a “consensus point” early in the process, after the specific wording of the question has been decided upon, but prior to actual discourse getting underway. This consensus point typically defaults to 60%, but any member can insist on raising it as high as they like (potentially all the way to 100%), but only during that stage of the process. The consensus point remains fixed in each of the stages thereafter.

Beyond that there’s also scope for amendments, expert veto, conditional votes, concessions, and safeguards. The process is designed protect a minority right down the the individual, without impeding progress.

consensus incorporating due diligence

It’s crucial to use whichever process is most appropriate to balance the hassle factor against due diligence.

Suspension

cooperation has a learning curve (photo credit: leolintang/Shutterstock.com)

A cooperator can rationally suspend a newbie or probie’s rights & powers for any breach of cooperative ansynd praxis. Suspension remains in effect for 4 weeks. This relegates the worker to the status of an employee in the traditional sense. Suspension will in effect make everyone else your boss.

Whilst under suspension the worker remains as a ZA and retains all their zonal responsibilities, but their authority becomes subject to cooperator override. They are excluded from the democratic process, and also relinquish the powers of autonomy, freedom of association and restitution. They can also be unilaterally recalled or dismissed by any cooperator, pending right of appeal. If you’re suspended from probation, then its recommended get your zones in order ASAP, else one of the cooperators may opt to dismiss you for negligence.

While suspension may seem harsh, it actually forms the basis of a two-strike yellow card system. This sort of safety net only applies to newbies and probies, but not cooperators.

Summary

let’s change the world together (photo credit: Marijus Auruskevicius/Shutterstock.com)

This workplace is governed by a methodology, which neatly dispenses with bosses, whilst limiting the need for voting. This is accomplished by distributing responsibility throughout the workforce, and imbuing workers with the power to tackle any issues that arise.

Collectivism is predicated on mutual respect and conscientiousness, its about treating the workplace as you’d like it to treat you.

Now lets put all this stuff into practice!