Many different conceptions of value are employed in different contexts, and more than one conception is employed in economics. But the notion of value that is most fundamental to economics is that of usefulness.

Usefulness isn't some attribute independent of context, nor does anything have the same usefulness to one person as it does to another. When context changes, value changes. When a thing that had value is moved, it does not carry its value with it; rather, it takes-on a new value associated with its new context. When a thing that had value moves from being the property of one person to being the property of another, its old value is not delivered to the new person; rather, it takes-on a new value associated with its new ownership.

Prices represent a somewhat different sort of value. Prices are quasi-quantified prioritizations, under which things may be exchanged. But, however prices are formed, they work only to the extent that they promote any exchanges that are useful to those potentially making the exchanges, and discourage any that are not. Ostensible prices that do not do so will be ignored in markets, and bring-about economic failure in other systems of allocation. Market values — prices established by markets — are those that conform to the priorities of the parties who choose to exchange. Market values, though different from usefulness, must be informed by usefulness, and thus must thus reflect the contexts of the things priced.

Monetary prices are quantities of money but not measures of market value.* Prices are first-and-foremost rankings, and treating them as quantifications has limited heuristic value; a thing may be rationally priced at $1000 without its being 1000 times as useful as something rationally priced at $1. And, though the first thing may be rationally priced at $1000 in some context, if the context is changed radically, the thing may cease to have any usefulness, so that its price should be 0. Because of contextual issues, one cannot even say that if the price of one commodity is n that of another then it will always be possible to buy n times as much of the latter as of the former with the same quantity of money.*

A great deal of the wealth in to-day's world is in the form of financial claims that have no meaning what-so-ever outside of the context of a market. If the market is eliminated, then these claims would have no usefulness and hence a rational price of 0. If the markets in which these claims might be used were somehow preserved, but the claims were seized and redistributed, then their new contexts would correspond to greatly diminished usefulness, and their rational prices would then be much smaller.

The great fallacy of popular notions that poor and middle-income people might be significantly enriched by a large-scale seizure and implicit or explicit redistribution of wealth from billionaires or from the 1% or whatever is the notion that the present prices of the seized wealth reflect an intrinsic economic property of the things seized, which property will be delivered with the things as they are transferred. Instead, the old value will evaporate, and the new value will often be 0.

This point is true even in cases in which the assets seized are not financial instruments. Imagine a community given a Lamborghini Diablo. It had more value than a Honda Fit to the millionaire who owned it; but, for the community, the Honda Fit could be more useful than a Lamborghini Diablo. The respective prices prior to redistribution were plainly poor reflections of what would be the values in the new context.

Wealth is destroyed not only when things of value are seized from the very wealthy and given to those less wealthy, but when there is any sort of large-scale redistribution; including that from the lower- and middle-income groups to the very wealthy. But further indiscriminate redistribution, as by income group, will not restore the wealth lost to past redistribution, and even in hypothetical cases in which only actual perpetrators are penalized and actual victims are compensated, there may be further loss of wealth as such.

So, no. There isn't enough money for the dreams of the Occupation movement nor for the promises made by candidates such as Bernie Sanders, because money doesn't work that way. And there isn't enough wealth, because wealth doesn't work that way. The accountings that claim otherwise are crack-pot.

*These two sentences were added and tweaked on 2020:02/02-03.

The Nature and Origin of Money

[Read more.]

The Equation of Exchange and the Price Level

[Read more.]

The Inflationary Process

[Read more.]

Commodity-Based Money

[Read more.]

The Nationalization of Money and Fiat Money

[Read more.]

Partial-Reserve Issuance — the Charge of Fraud

[Read more.]

The Effects of Inequality in the Accumulation of Money

[Read more.]

* Years ago, when I had a 'blog at LiveJournal, one of my Friends there had started or was about to start taking an introductory course on macrœconomics. I banged-out an entry from which this one is derived.

My attention was drawn this morning to What Was Gary Becker's Biggest Mistake? by Alex Tabarrok, an article published at Marginal Revolution back in mid-September.

Anyone who's read my paper on indecision should understand that I reject the proposition that a quantification may be fit to the structure of preferences. I'm currently doing work that explores the idea (previously investigated by Keynes and by Koopman) of plausibility orderings to which quantifications cannot be fit. I'm not a supporter of the theory that human behavior is well-modelled as subjective expected-utility maximization, which is a guiding theory of mainstream economics. None-the-less, I am appalled by the ham-handed attacks on this theory by people who don't understand this very simple model. Tabarrok is amongst these attackers.

Let me try to explain the model. Each choice that a person might make is not really of an outcome; it is of an action, with multiple possible outcomes. We want these outcomes understood as states of the world, because the value of things is determined by their contexts. Perhaps more than one action might share possible outcomes, but typically the probability of a given outcome varies based upon which action we choose. So far, this should be quite uncontroversial. (Comment if you want to controvert.) A model of expected-utility maximization assumes that we can quantify the probability, and that there is a utility function u() that takes outcomes as its argument, and returns a quantified valuation (under the preferences of the person modelled) of that outcome. Subjective expected-utility maximization takes the probabilities in question to be judgments by the person modelled, rather than something purely objective. The expected utility of a given action a is the probability-weighted sum of the utility values of its possible outcomes; that is p₁(a)·u(o₁) + p₂(a)·u(o₂) + … + p_n(a)·u(o_n) where there are n possible outcomes (across all actions), o_i is the i-th possible outcome (from any action) and p_i(a) is the probability of that outcome given action a.[1] (When o_j is impossible under a, p_j(a) = 0. Were there really some action whose outcome was fully determinate, then all of the probabilites for other outcomes would be 0.) For some alternative action b the expected utility would be p₁(b)·u(o₁) + p₂(b)·u(o₂) + … + p_n(b)·u(o_n) and so forth. Expected-utility maximization is choosing that action with the highest expected utility.

Becker applied this model to dealing with crime. Becker argued that punishments could be escalated to reduce crime, until potential criminals implicitly regarded the expected utility of criminal action to be inferior to that of non-criminal action. If this is true, then when two otherwise similar crimes have different perceived rates of apprehension and conviction, the commission rate of the crime with the lower rate of apprehension and conviction can be lowered to that of the other crime by making its punishment worse. In other words, graver punishments can be substituted for higher perceived rates of apprehension and conviction, and for things that affect (or effect) the way in which people value successful commission of crime.

The simplest model of a utility function is one in which utility itself increases linearly with a quantitative description of the outcome. So, for example, a person with $2 million dollars might be said to experience twice the utility of a person with $1 million dollars. Possession of such a utility function is known as risk-neutrality. For purposes of exposition, Becker explains his theory with reference to risk-neutral people. That doesn't mean that he believed that people truly are risk neutral. Tabarrok quotes a passage in which Becker explains himself by explicit reference to risk-neutrality, but Tabarrok misses the significance — because Tabarrok does not really understand the model, and confuses risk-neutrality with rationality — and proceeds as if Becker's claim hangs on a proposition that people are risk-neutral. It doesn't.

Becker's real thought doesn't even depend upon all those mathematical assumptions that allow the application of arithmetic to the issue. The real thought is simply that, for any contemplated rates of crime, we can escalate punishments to some point at which, even with very low rates of apprehension and conviction, commission will be driven below the contemplated rate. The model of people as maximizers of expected utility is here essentially a heuristic, to help us understand the active absurdity of the once fashionable claim that potential criminals are indifferent to incentives.

However, as a community shifts to relying upon punishment from relying upon other things (better policing, aid to children in developing enlightened self-interest, efforts at rehabilitation of criminals), the punishments must become increasingly … awful. And that is the moral reason that we are damned if we simply proceed as Becker said that we hypothetically could. A society of monsters licenses itself to do horrific things to people by lowering its commitment to other means of reducing crime.

[1] Another way of writing p_i(a) would be prob(o_i|a). We could write u_i for u(o_i) to and express the expected utility as p₁(a)·u₁ + p₂(a)·u₂ + … + p_n(a)·u_n but it's important here to be aware of the utility function as such.

Money is a medium of exchange. That is to say that people obtain some amount of it by exchange for the purpose of yet further exchange. It contrasts with things manufactured by them for exchange, and with things obtained for use other than in further exchange. Money arises whenever someone is clever enough to accept more of a commodity than he or she would otherwise want (at the given rate of exchange), and uses it in a further trade. What we ordinarily recognize as money is whatever money has become standard in the exchanges that we observe, but any commodity obtained in one exchange, with the intention of being exchanged yet again, and then indeed thus traded, was money.

Historically, commodity money is routinely followed by commodity-based money, with promissory notes circulating as money. There may at first seem to be no real difference between commodity money and commodity-based money, but fractional-reserve banking actually makes that difference very real, with the promises exceeding the stock of the commodity held to meet those promises, so that the amount of money exceeds the stock of the commodity. And, following upon the introduction of commodity-based money, we observe the introduction of fiat money, where notes that make no promises somehow circulate as money.[1]

Economists — not merely advocates of commodity money or of commodity-based money, but economists more widely — have a great difficulty in explaining why fiat money should have any value in a market economy. We can say a great deal about what prices must obtain if people use some given stock of notes as money for exchanges of some given set of stocks or flows of commodities, and have some given available technologies for transferring these notes, but it seems that we cannot fully explain why people agree to make these exchanges using this money, and hence we cannot explain the value of this money.

On the other hand, most economists seem to be comfortable in the explanation of commodity money and of commodity-based money. It is claimed to be the value of the commodity in non-monetary use. That is to say that to explain the value, for example, of an American silver dollar, one would find the persons who wanted to smith the silver or use it for wiring or somesuch, and see what commodities they would and could offer for that amount of silver. (To express the value in other commodities, one would have to follow a chain of offered exchanges.)

However, this explanation of the value of commodity money and of commodity-based money cannot account for the full value of an indefinitely circulating money.

Before continuing the principal discussion, I want to critique some features of neo-classical economics — the mainstream of micrœconomic theory.[2]

Neo-classical economics proceeds almost entirely within a framework of limiting cases; even when a neo-classical theorist makes a move towards greater reälism with respect to some aspect of the framework, most of the rest of the theorizing retains the familiar limiting-case features. The use of these limiting cases often produces models that are defensible on instrumentalist grounds, but certainly not when they cause whatever is the problem principally under consideration simply to leave sight.

In the case of the problem here to be raised, three of the standard presumptions of neo-classical economics that are objectionable are:

• that preferences are complete
• that goods and services are continuously divisible
• that small costs may simply be ignored

The idea that preferences are complete is that, for absolutely every two potential choices, either a person thinks that one is better than the other, or the person thinks that they are, effectively, equally good. Cases in which people instead behave in some meaningfully different way both from treating the one as better than the other and from treating the two as equally good (or equally bad) are disallowed. I've attacked the literal truth of completeness elsewhere.

The idea that goods and services are continuously divisible might be attacked on the basis of physical theory — what we know of the properties of matter. But, before we pick such nits, I think that we ought to concern ourselves with how finely the human mind actually divides things. Even the folk who carefully eye bottles of water, seeking to determine which is most full, don't get below a particular resolution. And if perfectly accurate and precise measures were always available, then we'd be lost beyond some number of digits to the right of the decimal point.[3] (Our limitations in this regard are entangled with the costs of resolution, which might bring us to the issue of small costs being ignored, except that the costs of ever finer resolution can sky-rocket!)

I don't think that the presumption that small costs may simply be ignored needs much explanation. But note that it can sometimes directly contradict the presumption of completeness of preferences! A cost corresponds to forgone goods or services, and small costs are small variations in the goods or services that one might have had.

I believe that in many other cases, these three presumptions are not a matter of great concern, though they are objectionable in explanation of the value of a money that is a commodity or is based upon a commodity. But there's a fourth presumption that is relevant and that I do not think is ever justified. Specifically

• that, when an agent is otherwise indifferent amongst choices, he or she makes that choice which would be required for the theory to work

That is to say that not only does Buridan's ass choose one of the bails of hay but, if theory won't work unless he chooses the left bail in particular, then he just does. The weaker presumption, that an indifferent agent (person or donkey) will choose, is usually based on a theory that the agent can and will flip a coin, but the idea that the agent will flip a coin contradicts expected utility theory, the mainstream of the theory of choice under risk. The stronger presumption that the agent will necessarily just happen to choose whatever is needed for the rest of the theory to work is incoherent.

In some contexts, most people understand that, for any person to agree to an exchange, he or she must expect to be better-off if the exchange takes place than if it does not. Most people lose sight of that point in a variety of contexts; some screw their eyes shut so as not to see it. Under the presumptions of neo-classical economics, it can be made to disappear.

Imagine that Ann has some quantity of blackberries, and Bob has some quantity of strawberries, and that Ann would rather have the strawberries that Bob has, and that Bob would rather have the blackberries that Ann has, and that they each feel this way even accounting for the costs of arranging and effecting a trade. In the real world, the trade will take place; and in the neo-classical world the trade will take place. Chances are, the trade would take place even if Ann were offering a slightly smaller quantity of blackberries while Bob offered the same amount of strawberries. In the real world, if we decrease the quantity of blackberries below some point, Bob may still think that the blackberries would have been worth it, except for the hassle of negotiation and transfer; in the neo-classical world, that hassle is usually considered small enough to ignore. So we leave reality behind, and can keep paring-back the offered amount of blackberries. We can do so with infinite precision, because blackberries are imagined to be continuously divisible, and because Bob is imagined to have complete preferences. Eventually, we reach the point at which the offered amount of blackberries is worth exactly as much to Bob as the strawberries that he has. But, at every place up to that point, he would agree to a trade; to put that in mathematical jargon, so long as there is any ε (no matter how tiny) of blackberries greater than the amount at which he is indifferent, neo-classical Bob will make the trade. So the claim is that, at the limit, he will still make the trade, even though he has nothing to gain. Mind you that this is a limit approached from one side. If the epsilons were all short-falls, rather that surpluses, then Bob would have been refusing right up to the limit. Still, neo-classical Bob might work well enough as a model for real-world Bob if short-falls just never occur for him. If they do, it would be quite terrible to claim that the behavior to one side of the limit (by even an ε) is the behavior when approached from the other side, and that Bob both trades and refuses to trade at the limit, or trades both ways (strawberries for blackberries or blackberries for strawberries) at the limit.[4]

The value of an additional amount, more or less, of strawberries or of blackberries relative to other possible changes, doesn't typically stay the same. In particular, as one has ever more of something, one would increasingly find more of something else relatively more useful; and as one has ever less of something, one would increasingly find more of something else less useful.[5] As a result, under the presumptions of neo-classical economics, one could expect that, by playing with the amounts of blackberries that Ann has, and the amount of strawberries that Bob has, one could produce a situation in which each valued what they had equal to what the other had. Given these presumptions, as soon as Ann and Bob have made a trade, they might be willing to make the inverting trade, so that they end-up where they were! And I've seen models in which it is implicit that just this sort of thing happens!

So long as we understand these assumptions as producing imperfect instruments, they may have great value. Newtonian physics has been empirically falsified, and never really held together, but it works fine not merely for much technology, but for investigating the basic answer to various scientific questions. Likewise for some applications of neo-classical economics. But one must not confuse artefacts of counter-factual assumptions with actual answers to whatever questions are at hand.

Imagine three people, Aya, Gus, and Tor. Aya has a pepper but wants strawberries; Gus has strawberries but wants okra; Tor has okra but wants a pepper.

Aya can get what she really wants by using okra as a medium of exchange (trading the pepper for okra and then the okra for strawberries); or Gus can get what he wants by using the pepper as a medium of exchange (trading the strawberries for the pepper and then the pepper for okra); or Tor can get what he wants by using the strawberries as a medium of exchange (trading the okra for the strawberries and then the strawberries for the pepper).

But if the only potential use that Aya has for the okra is as a medium of exchange, and likewise for Gus with the pepper and for Tor with the strawberries, then it will not make sense for Aya to use the strawberries as a medium of exchange, for Gus to use okra as a medium of exchange, nor for Tor to use the pepper as a medium of exchange. No matter what is used as money, the person responsible for its having value in exchange is also a sink for the money; once it is in his or her hands, it will cease to circulate as money.

One might imagine a larger community, in which the money had to pass through more hands to reach a sink. But the reasoning that launched the money was based upon its value to a person who would be a sink. If the money could not be expected to reach a sink, it could not be expected to reach the person who gave it value. It seems that it must go to a sink to be money.

My model of Aya, Gus, and Tor has only persons each of whom places no value on the item for which he or she could initially trade, except as a medium of exchange; and the trades considered are those in which each person gives all of his or her stock. We can imagine an economy with a large number of people, many or all of whom place some value on various or all of the sorts of commodities that might be used as money. We may presume that some goods and services are possessed by more than one person and that some goods and services are sought by more than one person. For various potential transactions, we might suppose competition both amongst those seeking the monetary commodity (for use as money or for non-monetary use) and amongst those offering the monetary commodity to them. We may conceive that many stocks of goods and of services are divisible.

When stocks of a commodity are divisible it becomes possible (and sometimes necessary) to put some portion to one use and the remainder into another use or into other uses. Various portions may be traded with various persons, and some may be put to use other than in exchange; and these different sorts of allocation of different portions may make sense because (as said earlier) as one has ever more of something, one would increasingly find more of something else relatively more useful; and as one has ever less of something, one would increasingly find more of something else less useful. It certainly becomes conceivable for some people to acquire both stocks of the monetary commodity for use as money and stocks for non-monetary use.

But, even with these added complications, it seems that the persons responsible for the monetary commodity having value in exchange are also sinks for the money; once it is in their hands, it will cease to circulate as money.

Whatever may be their priorities, rational people make only trades that they regard as improving expectations, and do not forgo greater such improvements for lesser improvements. In a neo-classical framework, that improvement might be imagined to be 0, the ghost of a departed ε, but in the real world it must be more than that. Trading with the monetary commodity is no exception to the rule that rational people do not trade unless they expect their priorities to be best served by the trade.

If a person wants a positive amount of the monetary commodity for use in trade, that means that (given his or her priorities) the anticipated value of the use of that portion as money exceeds the anticipated value of that portion in other use; it must be expected that someone will give give something worth more than that other use. We may then consider that next person. Either he or she will put the whole to non-monetary use, removing it from circulation as money, or will reserve some for monetary use. But we cannot indefinitely pass the buck if we are explaining the value of the monetary commodity by its non-monetary use. Eventually, either all of the commodity will have been removed from monetary use, or we will be back to someone whose position has already been considered. If money circulates indefinitely then it must for all participants have a greater value than they place on its non-monetary use!

My understanding of the relevant history is more limited than that of some people, but I think that some commodity money and commodity-based money has enjoyed enough circulation to indicate or at least to suggest that it might well circulate forever, that its value as money is not fully explained by its value in non-monetary use. [Addendum (2015:12/13): The recurring practice of fractional-reserve banking is only sustainable if money circulates indefinitely. Some opponents of the practice may insist that it is unsustainable; but, in any case, the monetary commodity must be fairly far removed from a sink for fractional-reserve banking to work at all, and frequent observation of fractional-reserve banking suggests that money indeed circulates indefinitely.]

If that is correct, then we want to explain the additional value. And, quite possibly, we might find in such an explanation something that will help us to explain the value of fiat money.

[1] At least passing mention should be made of the point that, if what appears to be fiat money is legal tender and there are price controls, then the money may be considered to be backed by the price-controlled commodites, or perhaps by the punishment delivered to those who fail to produce the commodities at those prices when the money is presented.

[2] There is no objection to marginalism here. Although both neo-classical economists and opponents of marginalism often treat them as if conterminous, they are not.

[3] With limited bearing on the problem of money, but of potential interest in other contexts, there is an additional issue of divisibility for commodities that are not simply measures of a substance, of space, or of time. Dividing something such as a car in two is not like dividing water into two containers. If for every proposed fractionalization (a half, a third, a fourth, &c) we could somehow find or construct some car which under natural descriptions had that fraction of each feature of another car (half as much leg-room, half as much cargo space, &c) and such that all persons regarded the corresponding multiplicity of these lesser cars as equivalent to one of the larger cars, then we might have a case for a sort of divisibility. But those conditions cannot be met.

[4] It would be then as if one claimed that, within a range from 0 to π, tan(π/2) were variously positive and negative simply whenever that makes a theory work.

[5] This is the actual law of diminishing marginal utility, though neo-classical economics gets lost in a special case of the principle.

While the word slavery gets used in many ways, its core meaning is that of a personal condition of being property of another person or of a group of persons

However, there are recurring attempts to redefine slavery, insisting that a person who reaped only subsistence from his or her labor were by definition a slave. Now, this proposed definition is really orthogonal to any proper definition.

• On the one hand, a person reaps only subsistence when living with a minimal technological infrastructure in a world of markèd scarcity. Much of humankind for most of history lived with little or no production above subsistence, regardless of whether someone else were making ownership claims against them.
• In some cases, people have had lives of relative material comfort, and yet would have been tortured or killed by their masters had they sought different employment.

(Compounding the problem with the redefinition, people who are consuming commodities far in excess of their needs for survival like to redefine subsist to include various comforts, such as electronic entertainment.)

Perhaps most of the people who abuse the world slave in this manner do so thoughtlessly; but it ties-together with an aspect of left-wing thought to afford them a significant evasion, deceiving others and deceiving themselves. That aspect is a resistence to acknowledging a relationship between wage-rates and the amount of labor employed in an economy.

One sees this failure in present support for an increase in statutory minimum wages. What these laws really say, to put things quite simply — yet perfectly truthfully — is that if an employer or would-be employer is unwilling or unable to employ a worker at or above the statutory minimum, then the employer must fire the worker, or not hire the worker in the first place. Most advocates presume that the employer will neither fire nor refrain from hiring, as if demand for labor were perfectly inflexible.

A rather pure expression of this dissociation of wage-rates from labor employment is found in the economic model of Piero Sraffa.[1] Sraffa's work is utterly unknown to most lay-people, and unfamiliar to most economists, but to economists on the far left it is an important benchmark, exactly because it claims so much of what they want to claim. However, its persuasive success is largely a matter of subscribers failing to note or to acknowledge a great deal implicit in the model. Perhaps most remarkably, in his model, the very same amount of labor is produced and consumed with absolute disregard for the wage-rate. That is to say that workers deliver the same labor (imagined as a scalar quantity) whether they are offered literally nothing in return (not even subsistence), or all of production is given to them as wages (with the same wage-rate for each worker).

When I look at the Sraffan model, I see workers behaving as if they are slaves. When their wages provide them no more than sustenance, they are as miserable slaves; when their wages provide them less than sustenance, they are as dying slaves; when their wages provide them far more than sustenance, they are as materially comfortable slaves. What makes them seem to be slaves is that they never exercise, and thus appear not to have, any freedom of choice in where they work nor in how hard they work.

(In those states of the United States that allowed private ownership of slaves, slaves were expected to deliver some fixed quota to their owners. They were not typically offered rewards for exceeding these quotas; they were punished, sometimes horrifically, for failing to meet them. I know of no other way, in the real word, to get labor production of the sort that Sraffa describes.)

In Sraffa's model, whatever production does not go to workers, goes to the owners of the other productive resources — essentially to the capitalists.[2] If one embraces Sraffa's model or something very much like it, and if one waves-away the proper meaning of slavery and instead uses it to mean one who is paid no more than sustenance, then it is easy to insist that, in a system that most favors a distinct class of capitalists, workers would be slaves, whereäs alternatives decreasingly favorable to such capitalists move workers ever further away from slavery. And if one imagines the workers getting an ever greater share exactly as production is administrated on behalf of the worker, then the movement away from slavery is a movement towards socialism.

However, if one continues to accept a model along the lines of Sraffa, yet restores the proper meaning of slavery, then one begins to see one why it had been doubly convenient to redefine the term. Because, in imagining a world in which workers never, one way or another, exercise freedom of choice in labor regardless of how production is distributed, the left has come perilously close to suggesting that workers, under socialism, would be slaves.

The underlying truth is that labor is one of the means of production. If an economy is fully socialized, then the potential worker must be employed however and wherever the best interests of the community as a whole are served, and his or her interests count no more in this decision than do those of anyone else.

This grim principle has repeatedly been illustrated in communities that have attempted a very high degree of socialism. Sometimes the attempt has been hijacked by leaders with less than sincere interest in communal well-being, but these leaders were able to make the populace their slaves because socialism required slavery of the populace. Trotsky's observation that

The old principle: who does not work shall not eat, has been replaced with a new one: who does not obey shall not eat.[3]

was true under Stalin because it or something like it would, as a practical matter, have been true under any fully realized socialism.

Meanwhile, as much as many people living in more market-oriented economies like to imagine themselves as slaves to their employers, they're fully aware that these employers cannot send agents to recapture them should they quit their jobs. To the extent that any group of persons other than ourselves exercises such ownership over us, that group is the state — the very institution usually entrusted to effect socialistic measures.

A movement towards socialism is a movement towards slavery, rather than away from it, and if one is going to bring the subject of slavery into an honest defense of socialism against all alternatives, then it is necessary somehow to make a case for slavery.

[1] The Production of Commodities by Commodities; Prelude to a Critique of Economic Theory (1960).

[2] Note how advocates of higher statutory minimum wages point with outrage at those who amass great wealth while paying workers less that some proposed statutory minimum wage, as if there were a zero-sum game being played between employer and employee.

[3] The Revolution Betrayed, ch 11 Whither the Soviet Union? § 2 The Struggle of the Bureaucracy with the Class Enemy.

As a society becomes more affluent, the marginal cost of reducing toxins from its environment decreases, and still other things may propel a culture to reduce their presence.

Of course, a substance is toxic to the extent that its ingestion, inhalation, or topical application is harmful. Part of the implication, then, of substituting less toxic products for those previously used or offered is for the new products to become more ingestible, more food-like. That's not to say that we're trying to create a world in which we do eat everything, but we're none-the-less moving towards a world in which we could eat everything.

Well, as things not intended to be eaten become more like food, of logical necessity food becomes more like things not intended to be eaten, even if the food hasn't changed at all. Indeed, even if the food is itself becoming safer, if other products are still more rapidly reducing their toxicity, then food becomes more like things not intended to be eaten.

Considered thoughtlessly the idea that food is becoming more like things not intended to be eaten seems dire. But, really, it is a natural consequence of other things becoming in some way better, without food getting any worse.

Repeatedly, someone takes note of how there's stuff in our food that is also in, say, our anti-freeze. Not the stuff that used to be in our anti-freeze, mind you, but the stuff that's now in our (far less toxic) anti-freeze. Or maybe it's not anti-freeze. Maybe it's flame-retardant, or an anti-foaming agent, or some-such. There's stuff in our food that has other uses, which makes it sound scary, because we remember that the sorts of things that once were put to those uses would do terrible things to living tissue.

And someone who hasn't made — or chooses to ignore — the connection between attempts to employ less toxic substances in those other uses gets on the radio or on Facebook or some-such, and tells us that this-or-that thing being sold as food contains this-or-that chemical which is elsewhere used to do something formidable. And a bunch of people rail as if modern life is being made ever more poisonous, when — at least in the case in question — rather the opposite is true.

The Veterans Health Administration is a con job. I'm sure that many of those working as part of it do not recognize it as a con job. I'm sure that some of those working for it recognize that it is a con job but believe that it can be something more and better, and have been struggling towards that goal. But it is a con job and it will remain a con job so long as it has anything much like its present form.

The declared purpose of the VHA[1] is to provide health-care to military veterans. This mission appeals to those voters who see veterans as deserving reward or compensation for their military service, and it appeals to those contemplating entering such service.

In theory, the provision of this health-care could be entirely by a voucher system, allowing veterans to acquire health-care at state expense but through a market of private producers. The reason that a voucher system is not used is because of its expense.

To control costs, provision has largely been by state-run facilities. Some people imagine that costs will be kept in check because of elimination of profit, because of technical efficiencies achieved through vertical integration, and because of recruitment of superior personnel willing to work for lower salaries. But the elimination of profit means the elimination of the profit-motive, which elimination in turn inhibits the search for new and better ways of doing things. Vertical integration might be able to exploit technical efficiencies, but a greater problem of economic calculation confronts any attempt to administrate a large-scale allocation programme. And the state is simply not very good at recruiting superior people on-the-cheap.

The problem of economic calculation bites especially hard, and the VHA cannot actually get its costs down to those of private provision through the market. The VHA can, however, lower its evident pecuniary costs by reducing the quantity or the quality of the health-care that it provides. In other words, it can shift the cost to veterans, in the form of unmet promises; in the form of suffering and in the form of death. That is how the VHA can and does control costs.

When the VHA was launched, there was almost surely a sincere belief that it could deliver at a discount. However, there have since been many decades for state officials to observe that it has not; there has been ample time to recognize that it cannot. Yet instead of being forthright in explaining what it would take to provide veterans with the benefits that they were promised, and instead of preparing to meet the promises now being made to recruits, the deception continues. As failure continues to come to-light, there will be further reforms that fall short of what is actually needed to meet the promises, because fraud saves the state a considerable amount of money, and protects the mythology under which the state preserves and accumulates power more generally.

I have noted that health-care could be provided to veterans by way of a voucher system, but if one respected the sensibility and character of military veterans, and trusted the strength of voters, then a better thing to do would be simply to give veterans enough money that they could buy the same amount of health-care (in part by purchasing insurance), but to allow them to spend that money as they chose. At the margin, a bit more or less of something else may reasonably be more important to some veterans than a bit more or less of health-care.

If veterans are intelligent, economically rational, and of good character, then they will use the money appropriately. If they are stupid, irrational, or sociopathic, then they may spend the money inappropriately, and later seek a bail-out from the tax-payer in the event of an emergency, and voters might give that to them.

I leave each reader with responsibility for his or her judgment on that matter.

[1] The VHA is the best-known part of the U.S. Department of Veterans Affairs, aka the Veterans Administration, to the point that VA usually refers to the VHA, and that VHA and Veterans Heath Administration aren't much used. None-the-less, I'll employ the more precise term and abbreviation hereïn.

[Every now-and-then, I'm provoked or otherwise prompted to explain the false economy of conscription. What prompts me to do so now is the ill health of James Earl Carter, since, after all, that alleged champion of human rights restarted registration for the military draft.]

There is a wide-spread belief that the burden of taxation is somehow reduced by conscripting service. Usually the service under consideration is military. The notion is that, with a conscripted force, one only has to pay an average soldier some amount M_C, whereas with a volunteer force, one has to pay an average soldier some greater amount M_V. So people think that there's a per-soldier savings of M_V - M_C This thinking is utterly wrong.

First of all, conscription involves its own peculiar costs of administration and of enforcement. Those are far more substantial than most people imagine, and even if we use an accountant's notion of cost, the difference between the annual cost of a volunteer army and that of a conscripted army would come to less than $30 per soldier.

But an accountant's notion of costs really misses the Big Picture here.

Imagine that the state got people into the service (army or whatever) by promising them M_V, but then, once they were enlisted, declared a surprise tax (peculiar to their pay) T = M_V - M_C That would be a tax exactly equal to the supposed savings. Defrauding them in this manner wouldn't have reduced the tax burden; rather, it would have enabled it.

If the state had used more overt force to get those same people to enlist — threatening them with imprisonment if they did not — the tax wouldn't be reduced; it would merely be disguised. Their financial loss would be just the same, M_V - M_C exactly that amount of tax that people mistakenly believe would be saved by using conscription. The supposed savings was no savings at all, just a tax that people failed to recognize as a tax.

However, in the real world, the draft doesn't end up getting the same people who would have been tricked by promising pay and then taxing some of it away. It draws from a larger population, some of whom might be making less money than they would in the service, but a great share of whom are making more even than M_V (the pay at which enough volunteers would be found). If someone is indifferent between her job in the private sector and the job that she has as a conscript, except for the pay, then the implicit tax that she pays is M_J - M_C where M_J was her private-sector pay. For example, if M_J was $60K and M_C is $15K, then she is paying an implicit tax of $45K.

Because of this sort of situation, even if we ignore the peculiar costs of administration and of enforcement that I mentioned earlier, the tax burden of conscription is greater than that of paying recruits enough for an all-volunteer service.

However, in the real world, people are not indifferent between jobs (except for pay). Some people are willing to take a pay cut to defend their country; and, obviously, those people might pay a lower implicit tax (if conscripted).[1] But other people wouldn't choose to go into certain lines of work — such as soldiering — for all the wealth in the world. The only thing that gets them into the conscript force is the fact that the certainty of being punished by their state is an even worse fate in their eyes. So let M_W be the wealth of the whole world; the tax paid by each of these conscripts is something greater than M_W - M_C In some cases, it can be summarized thus ∞ And that, folks, is the actual tax cost of conscription.

Registration for military service was reïntroduced by James Earl Carter in an attempt to seem efficacious after the Soviet Union invaded Afghanistan. Early in his campaign, Ronald Wilson Reagan was saying that he would end that registration; but, as it became plain that he could win the election without maintaining that promise, he walked away from it. William Jefferson Clinton, who had dodged the draft as a young man, decided that young men during his Administration should none-the-less be required to register.

[1] I say might because a revulsion towards the conscription itself could subvert that willingness.

I've not been in the proper frame-of-mind to work upon the articles that previously occupied me, so I've instead been working on a paper that I'd been meaning to write for years. Its working title is The Begged Questions in Mr. Sraffa's Theory of Price.

Piero Sraffa is notable for a number of things. He was a formidable critic of Marshallian economic theory. He identified serious problems in the formulation of von Hayek's original presentation of capital theory, at a pivotal juncture during the struggle between the Austrian School and Lord Keynes. Sraffa later identified a significant error in the capital theory of the mainstream of American Keynesianism. He was a behind-the-scenes influence upon the thinking of various economists such as Joan Robinson, and of Wittgenstein. He edited the critical edition of the works of David Ricardo.

He also wrote a short book, Production of Commodities by Means of Commodities; Prelude to a Critique of Economic Theory, that attempted to restore the position of pre-marginalist, anti-subjectivist thinking on political economy. He and his close followers are known as neo-Ricardian because their work has so much of the flavor of Ricardo and of his followers.

Neo-Ricardian thinking heavily influences the so-called Post-Keynesians (one of many different flavors of economic thought that draw upon some interpretation of Keynes's work) and many Marxists look to Sraffa's work as a serious challenge or as a source for revision of Marxian economic theory.

Sraffa's book has been out-of-print in the United Kingdom and in the United States for many years; the most recent printing of which I know was in 1983. However, copies command a significant premium, and new, expensive books about his book or otherwise about Sraffa's economic theories come out fairly often. So, though the size of Sraffa's following doesn't seem to be much growing, it also doesn't seem to be much shrinking.

But, well, his theory of price determination doesn't simply go off the rails; it is never on them. For any decent economist, it would be easy to identify where Sraffa is begging essential questions, or otherwise making unacknowledged assumptions. In particular, he doesn't eliminate the subjective element from his theory of price; instead, he merely hides it, while making presumptions about it (and about production functions) that are bizarre.

Yet I don't think that I've encountered an article that has exposed these problems. The set of decent economists and the set of those who have published articles about Production of Commodities seem not to have intersected.

(I have encountered an article written by a general-equilibrium theorist, who writes like a general-equilibrium theorist. I'll eventually want to return to it to see whether, using the obscure symbolism of his people, he has in fact pointed to any of the essential problems of Sraffa's theory.)

In the eyes of the law, a corporation is itself a person. This effects two sorts of things.

The first comes into play when the corporation is shared amongst multiple owners or ownership changes. Because the corporation may enter into contracts as a legal person, may be sued as a legal person, and may bring suit as a legal person, it is typically unnecessary to identify all the owners for purposes of contracts or of suits, and shares may be traded without explicit and complex contracts reässigning rights or responsibilities.

The second thing effected is limited liability. When a corporation is found to be at fault in some way, typically no more may be seized to satisfy its responsibilities than that assets of the corporation; other assets held by the owners are insulated from confiscation. (And when corporations are themselves permitted to file for protection as bankrupt, there may even be insulation of the corporate assets.)

It is largely because of this insulation that corporations are sometimes created to be owned by single persons, who have no intention of selling shares. (And those owners may be merely legal persons — corporations most of whose assets are now insulated by a layering of incorporation.) Unlimited liability presents some potentially enormous difficulties for the law when a company has many and variable owners; but, if such limitation is to be granted at all, any sort of minimum number to qualify for that limitation would seem to be arbitrary.

In the case of liabilities to second parties — those who have chosen to do business with the corporation — there is really no problem of morality nor otherwise of economics in limiting those liabilities. The limitations are essentially contractual conditions. (And, historically, some firms have avoided incorporation exactly to get the volume of business and to be able to charge the sorts of prices that a corporation within their industry could not.)

But liabilities to third parties — those who have not contracted with the corporation — are another matter.

An example of a liability to third parties would be a case where an airplane crashed into a residential neighborhood. The owners or residents entered into no agreement waiving damages, but if the assets of the corporation are not sufficient to make those victims whole, typically the other assets of the owners of the corporation are out-of-reach.

Incorporation confiscates the property of third parties. At the least, the right to be compensated in the event of injury is abridged.

Economic efficiency would require that an activity be avoided unless its expected value — that is to say its value accounting for possible outcomes and the various plausibilities of those outcomes — were greater than alternatives. For that to obtain, the activity must be fully insured (either self-insured or by the purchase of insurance through an agency); but, if a party is insulated from liability, then that party has a natural incentive to over-consume risk as a productive factor.

And let us be clear that corporations are a deviation from laissez-faire; free-market corporation is a contradiction-in-terms. Incorporation may be on behalf of some private party, but it is not itself a private act. It is the state that creates corporations. In exchange for registration fees and perhaps for special taxes, the state implicitly confiscates the property of third parties, and enables the owners of the corporation to over-consume risk. Where the sums extracted by the state are less than the cost of full insurance, there is more incentive to incorporate, especially in the cases where the firm is to be owned by a single individual or by a small and stable group of people. And corporate taxes are not indexed to risk. When third parties are injured, officials of the state may present themselves as rescuers or as champions of the victims, but those officials are actually amongst the victimizers. And, since over-all the monies got from registration fees and corporate taxes are less than the corresponding aggregate cost of full insurance, either some third parties injured by corporations must go uncompensated, or taxpayers of some other sort must make good the difference.

When there's an argument over whether corporations are people, oftentimes each side is simply talking past the other.

Those who insist that corporations are people are not typically expressing a position on whether the law should create such legal persons; rather, they are usually trying to communicate that the burdens imposed upon corporations are ultimately imposed upon people — that nothing that the corporation is compelled to do can be done except that it be done by human beings, and that nothing taken from a corporation is not taken from its ultimate owners, who are people.

Those who insist that corporations are not people are typically arguing that the legal fiction that a firm is a distinct person is unwarranted.

But many of those who assert that corporations are not people go on to insist that, because corporations are not persons, they may be compelled to do things that persons should not be compelled to do, and may be restrained in ways that persons should not be restrained. However, it's one thing to argue that a corporation as such is not itself a person outside of law and should not be one in the eyes of the law, and entirely another to argue that the acts of corporations are not the acts of any person and that constraints on corporations are not constraints on any people. With the corporation stripped of distinct personhood, the actual persons of the corporation are revealed, not hidden. A willful blindness is then required if they are not seen.

In the face of decisions to which he objected about what was allowed and disallowed for corporations, Bernie Sanders asserted that Ben Cohen were a person and that Jerry Greenfield were a person, but that Ben & Jerry's Homemade Holdings, Inc., were not a person. But if, while Messrs Cohen And Greenfield still owned that corporation, the law had forbidden the corporation's doing such things as hiring the homeless or required it to do such things as to devote a percentage of its capacity to the manufacture of munitions, then this imposition would have forbidden them to do these desired things or required them to do these repulsive things, and they would surely have taken that quite personally. Ben & Jerry's Homemade Holdings was not and is not a person (outside of legal fiction), but it was and is persons and the property of persons. Mr Sanders is willfully blind or a demagogue or both.

They and Mr Sanders might be quite sure that what they wanted to do were right, and that what they didn't want to do were wrong, but so are the owners of corporations who want to support political candidates or who object to paying for abortifacients. Liberty isn't simply for those who agree with some of us; it wouldn't be liberty if it were.

It might be argued that the various constraints placed upon corporations are none-the-less perfectly legitimate, as incorporation were voluntary. But if incorporation creätes a relative advantage for those who incorporate in some industry, then it ipso facto creätes a relative disadvantage for those who do not. Incorporation may then be voluntary only in the sense that participation in that industry in the first place is voluntary. In such a context, insisting that those who incorporate have voluntarily surrendered various rights would be analogous to claiming that carpenters have voluntarily surrendered those same rights.