Stalag Economics

As most of my readers will know, Kevin Carson uses the term “vulgar libertarian” for the all-too-prevalent tendency in this movement of ours to treat the prevailing state capitalist order as an approximation to a free market, thus allowing the case for the latter to serve as a justification for various features of the former – an unfortunate legacy, IMHO, of the quondam alliance of libertarians and conservatives against state socialism. (Incidentally, as Carson has noted, the term is best used for the sin and not for the sinner, since very few of us commit it consistently.)

I fear I must chide my seldom-vulgarlibbin’ comrade Butler Shaffer (who after all wrote the very un-vulgarlib In Restraint of Trade: The Business Campaign Against Competition) for going the vulgarlib fallacy one better in an LRC blogpost today that treats prison camps as an approximation to the free market.

Jailhouse Rock Butler uses the fact that trade in prison camps leads to significant inequalities of wealth as evidence that free markets generate such inequalities – and so as evidence that such inequalities are unobjectionable from a libertarian standpoint.

Now I have no idea what the extent of economic inequality would be in a free market. Certainly most of the current inequalities, depending as they do on direct or indirect governmental intervention, would be absent; but I don’t claim to know that entrepreneurial skill and/or luck wouldn’t lead to new ones.

What I do claim is that a prison camp, in which all goods are doled out in fixed quantities by the guards and no one has independent access to natural resources, is an even poorer model of a free market than state capitalism is; making inferences from the prison camp to the free market is accordingly risky. Even if in such a prison camp higher economic positions are initially achieved by free exchange, they are in part maintained by the fact that nobody can compete with the present winners by going off and producing more cigarettes or whatever. A prison camp is a perfect example of a world in which production and distribution are radically separated; how goods end up being traded has no effect on the kinds or quantities of goods that will be produced in the future.

Suppose that through clever trading I’ve managed to accumulate more gumdrops than any other prisoner, and am consequently charging high prices for this scarce commodity. In a free market, this would send a price signal to encourage increased production of gumdrops, and my market share would quickly be in danger of erosion. But in the prison camp the production and (initial) distribution of gumdrops is entirely outside of the prisoners’ control, and so the forces that produce competition are suppressed.

In a free market, by contrast, the forces that produce economic inequality by rewarding entrepreneurial judgment face constant challenge from other forces that work to undo such inequality by rewarding the entrepreneurial judgment of competitors. These forces are severely hampered in a prison camp; inequalities in the latter thus tell us little about what inequalities to expect in the former.

The state capitalism that prevails in western democracies is freer than a prison camp; but, as Kevin frequently notes, access to natural resources is artificially restricted here too. (I don’t agree with all the details of Kevin’s views on land – see our exchange here – but I certainly agree with that general point.) And as Kevin further notes, much existing inequality draws support from those governmental restrictions. Thus inequality under state capitalism is likewise an unreliable predictor of how things will be under liberty.


5 Responses to Stalag Economics

  1. Tim January 2, 2007 at 8:12 pm #

    Okay, so prison camp economics is out. What about trade amongst brown capuchin monkeys? Of course these little primates could just be a bunch of lazy pinkos. Or maybe it’s empirical support to Hayek’s hypothesis that notions of social justice are an anachronistic atavism.

  2. Dain January 3, 2007 at 6:23 pm #

    I’m not so sure what Shaffer says is not without merit. The prison guard can be likened to the earth providing the means for wealth creation to all of man. Different people do different things with their share.
    I suppose in either case it’s hardly exactly fair. The prison guard may play favorites and the earth’s resources are not spread about equally. Shaffer’s point is that given an equal amount of cigarettes/rice/etc., unequal outcomes will soon surface among individuals. Heck, one guy may discreetly attempt to grow some more rice in a marshy corner of the prison camp (if that’s even possible) while another guy immediatley pigs out (if THAT’S even possible) on his stipend.

  3. Kevin Carson January 4, 2007 at 10:25 pm #

    Land is the one good of which the subjectivist claim (value is determined by utility) is true in the literal, ordinary sense.

    In the case of commodities that can be reproduced by human labor, the claim is only true in a technical, non-intuitive sense: *given* a supply of the quantity which is treated as fixed at the point of exchange, the value is determined by the utility of the last unit. When supply is treated as a dynamic factor that can be increase in response to demand, the quantity will increase until the subjective “utility” of the last unit equals the disutility of producing it. So translated out of Austrian technical terminology, the STV is simply restating Ricardo and Marshall.

    On the other hand, the supply of land cannot be increased (for all practical purposes) in response to demand. So its price is determined by its utility to the marginal buyer.

    So a prison economy, in which the supply of *all* commodities is relatively inelastic, is the ideal model for the most vulgar form of Austrianism that takes the “utility determines value” dictum at face value.

  4. Adem Kupi January 5, 2007 at 12:54 am #

    “When supply is treated as a dynamic factor that can be increase in response to demand, the quantity will increase until the subjective “utility” of the last unit equals the disutility of producing it.”

    Well said, Kevin!

    You literally stated the supply-demand connection that I hinted at so long ago.
    On the other hand, demand responds to price and substitution goods in a similar manner. If a box of chocolates just isn’t worth more than 2 dollars to you (assuming we have stable money here), no matter how rare it is, you won’t spend that much. So subjective value can act as a top-most limit on price.
    And the last factor is that nearly all goods contain a land (including resource depletion) cost factor. Very little can be produced without some place to do it in, or without irreversible physical processes. So part of all cost is subjective, and/or reducible to labor disutility*, and some part is objective, or dependent on a quasi-fixed resource supply.
    I say quasi-fixed because there are counter-factuals, but they are based on technological advancements, making the resource transformation more efficient. Like skyscrapers.

    * However labor disutility is also subjective and dependent on the supply of labor. In places like Indonesia where the supply of labor is artificially enhanced for instance, the disutility cost is much lower than it is here, where we feel much more put out to do 18 hours in a factory.
    Now, to be sure: the supply of labor is artificially enhanced here too. Grossly. But in the first world this is mostly accomplished by reducing the demand for labor artificially. Where as in the third world it’s more a matter of reducing the efficiency of labor… i.e reducing their substitution opportunities.

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