Friedman's money defense

[Schrödinger's Cat]

There's something peculiar about Friedman's claim that someone treats their own money better than they would someone else's. Now I'm not disputing this claim, but it goes against the Chicago (and Austrian) school philosophy where corporations are seen as the natural product of a free society. If anything, it supplements a belief in industrial democracy and cooperatives.

Free market socialist Carlson points this out by lifting a quote from Adam Smith pertaining to the same subject:

"[Employees and employers at a corporation] are managers rather of other people’s money than of their own.”

http://www.anonym.to/?http://www.fee.org/Publications/the-Freeman/article.asp?aid=8271

[Self-Owner]

I really like reading Carson's stuff. In fact there's very little to disagree with in his whole article: the point that individual firms are little 'islands' of planning in an otherwise free market economy and thereby face the same economic calculation problem that Communist states do (albeit on a smaller scale) is a very good one. Rothbard, I think, used it to show that there was an upper bound on the size of firms.

I also completely agree that the ability and willingness of the government to externalise the costs of large corporations does result in much larger firms than would likely be able to survive in a truly free market.

On the other hand, I'm a little more sceptical of the claim that workers cooperatives would be the natural replacement of the traditionally owned firm. Firstly, there seem to be large incentival problems in that most cooperatives, for obvious reasons, focus on acheiving the greatest profit per person rather than simply the greatest profit. The corollary of this is that where a firm could profitably expand by reproducing their business model somewhere else, worker cooperatives would not because in doing so they would have to take on more workers and just dilute the profit per person earned. So I think for structural reasons, cooperatives would lose out to more traditionally managed firms on a free market.

Secondly, I'm not sure even workers would want a pure cooperative model. If workers in a cooperative are owners of a non-alienable share of it, their fortune is extremely tied up in the well being of that particular enterprise in that particular market: this may be a good thing to some extent, but I doubt that the risk is appealing. Wage labour, for all its faults, does serve to insulate workers in the short term from the risk of failure: if a firm goes bust, workers at least keep the money they have earned in the meantime. If a cooperative goes bust, workers lose everything.

[JimmyJazz]

I really like reading Carson's stuff. In fact there's very little to disagree with in his whole article: the point that individual firms are little 'islands' of planning in an otherwise free market economy and thereby face the same economic calculation problem that Communist states do (albeit on a smaller scale) is a very good one. Rothbard, I think, used it to show that there was an upper bound on the size of firms.

And what is that upper limit? Presumably, if Wal-Mart (market capitalization: $232 Billion) can exist, then it would be a great idea for Portugal (GDP: $223.3 Billion), Israel ($161.9 B), Chile ($163.8 B) and Vietnam ($70.0 B) to go with a fully-planned state socialist economy. To name just 4 of 144 countries worth less than Wal-Mart.

[Schrödinger's Cat]

On the other hand, I'm a little more sceptical of the claim that workers cooperatives would be the natural replacement of the traditionally owned firm. Firstly, there seem to be large incentival problems in that most cooperatives, for obvious reasons, focus on acheiving the greatest profit per person rather than simply the greatest profit. The corollary of this is that where a firm could profitably expand by reproducing their business model somewhere else, worker cooperatives would not because in doing so they would have to take on more workers and just dilute the profit per person earned. So I think for structural reasons, cooperatives would lose out to more traditionally managed firms on a free market.

Cooperatives are much more traditional than hierarchical organizations, if you look at how peasants organized themselves before the predecessors of corporations came in and privatized their land to extract rent value. Small enterprise economies can also be seen in the Silicon Valley-type of organization, which were largely co-equal establishments until they incorporated.


their fortune is extremely tied up in the well being of that particular enterprise in that particular market:

That already occurs relying on a boss.


If a cooperative goes bust, workers lose everything.

That's true for small businesses and hypothetically a free market "corporation" as well.

[Die Neue Zeit]

Wage labour, for all its faults, does serve to insulate workers in the short term from the risk of failure: if a firm goes bust, workers at least keep the money they have earned in the meantime. If a cooperative goes bust, workers lose everything.

Um, as much as I don't like the "corporate person" much, cooperative workers don't lose everything. BTW, owners can always pay themselves dividends (or have management do the payment for them) or withdraw capital in advance of earning revenue (particularly if they're in a management capacity, because this withdrawal takes the form of "salary expense").


Firstly, there seem to be large incentival problems in that most cooperatives, for obvious reasons, focus on achieving the greatest profit per person rather than simply the greatest profit. The corollary of this is that where a firm could profitably expand by reproducing their business model somewhere else, worker cooperatives would not because in doing so they would have to take on more workers and just dilute the profit per person earned.

Ever heard of "earnings per share" and dilution before? :rolleyes:

[TheCultofAbeLincoln]

There's something peculiar about Friedman's claim that someone treats their own money better than they would someone else's.

It's easy to want more government programs.

It's hard to look at the taxes taken out of your pay.

[Schrödinger's Cat]

It's easy to want more government programs.

It's hard to look at the taxes taken out of your pay.

That particular debate has already been won by welfarists.

John Rawls orchestrated a defense for welfare and democracy that left Nozick abandoning his more (right)-libertarian allies - for good reason. He effectively proved that you can make the case that NO public welfare is theft. You can't have your cake (rigid property system) and eat it too (demand no compensation to others).

[Self-Owner]

And what is that upper limit? Presumably, if Wal-Mart (market capitalization: $232 Billion) can exist, then it would be a great idea for Portugal (GDP: $223.3 Billion), Israel ($161.9 B), Chile ($163.8 B) and Vietnam ($70.0 B) to go with a fully-planned state socialist economy. To name just 4 of 144 countries worth less than Wal-Mart.

I meant of course, that there's an upper bound in a free market. Which, at the moment, there ain't. I doubt that Wal-Mart would be the same size it currently is if it had to pay for all of the costs it manages to externalise on others.

[Self-Owner]

Cooperatives are much more traditional than hierarchical organizations, if you look at how peasants organized themselves before the predecessors of corporations came in and privatized their land to extract rent value. Small enterprise economies can also be seen in the Silicon Valley-type of organization, which were largely co-equal establishments until they incorporated.

Fair enough, I didn't mean to imply that cooperatives are more recent than corporations. But I think that the general argument holds: there are reasons why coops aren't as incentivised to expand as compared to corps, which means they would often be out-competed on the market. That doesn't mean there wouldn't be any, just that if you're hoping a free market would have a lot of cooperatives I think you're mistaken.


That already occurs relying on a boss.

No, the bosses paying the workers is precisely what insulates them from risk in the short term.



That's true for small businesses and hypothetically a free market "corporation" as well.

Of course it is, but small businesses generally take a lot more risk than the average worker is willing to. I remember reading somewhere that over half of all new businesses fail within a few years: there's a very good reason why people don't all start businesses - some don't like the risk.

[Self-Owner]

Um, as much as I don't like the "corporate person" much, cooperative workers don't lose everything. BTW, owners can always pay themselves dividends (or have management do the payment for them) or withdraw capital in advance of earning revenue (particularly if they're in a management capacity, because this withdrawal takes the form of "salary expense").

The point is that a worker in a firm can, with his wages, buy a whole basket of shares of various other companies. That way, if any one of them goes down the drain his losses are limited by the fact that no industry makes up more than a small proportion of his investments. Worker cooperatives, on the other hand (and I'm talking about worker owned and run coops with inalienable shares given out) have a lot more risk in one basket.


Ever heard of "earnings per share" and dilution before? :rolleyes:Why don't you think it through, work out why maximising 'profit per worker' and maximising 'earnings per share' give incentives for substantially different actions on the part of firms, and get back to me.

[Self-Owner]

That particular debate has already been won by welfarists.

John Rawls orchestrated a defense for welfare and democracy that left Nozick abandoning his more (right)-libertarian allies - for good reason. He effectively proved that you can make the case that NO public welfare is theft. You can't have your cake (rigid property system) and eat it too (demand no compensation to others).

Actually, John Rawls was a staunch defender of the minimal state. (Ok, ok, I know that he personally liked Swedish style democracy, but there's a very plausible reading that can be given to A Theory of Justice which argues - with public choice considerations taken into account - that a minimal state is the only just one. That might be a fun thread :lol:)

Seriously though, I study political philosophy and if Nozick has lost the debate, it's news to me. Rawls barely even answered Nozick's devastating criticisms of ATOJ. And of course you can make a case that NO public welfare is theft - you can make the case that NO state-sponsered killings are murder, too. But just because you can make a case for something doesn't mean it's 'won the debate.' As for Nozick 'abandoning' libertarianism, this is massively overstated. If you look up one of the latest interviews of his life, you'll see it.

[apathy maybe]

Seriously though, I study political philosophy and if Nozick has lost the debate, it's news to me. Rawls barely even answered Nozick's devastating criticisms of ATOJ. And of course you can make a case that NO public welfare is theft - you can make the case that NO state-sponsered killings are murder, too. But just because you can make a case for something doesn't mean it's 'won the debate.' As for Nozick 'abandoning' libertarianism, this is massively overstated. If you look up one of the latest interviews of his life, you'll see it.

Yeah, I studied political philosophy too. Nozick's Anarchy, State and Utopia was destroyed from the day it came out. There are so many flaws, the whole can't stand up.

Some of the major problems the book has include:

Assuming that the "state of nature" is an "anarcho"-capitalist one (an individualist anarchist "state of nature" could not lead to his state)
The assumption that a trade doesn't affect other people (take his basketballer example, actually the player would have greater purchasing power, and thus could out bid others, and thus trade does affect third parties)
He doesn't convince that just because from his state of nature a "justified state" would come about, that the present state is justified

Etc.

Basically, he didn't convince me, nor a lot of other people. (Then again Rawls didn't convince me either, but I didn't read nearly as much Rawls.)

[Schrödinger's Cat]

As for Nozick 'abandoning' libertarianism, this is massively overstated. If you look up one of the latest interviews of his life, you'll see it.I didn't say he abandoned libertarianism. He just realized that capitalism is incompatible with an anarchist society. Rand makes a similar discovery. Once one realizes that the discussion of property acquisition isn't black/white, the idea we can mold a minarchy into our specific ideology is without substance.

Saying Rawls wasn't a welfarist is quite a stretch. The guy identified democratic socialism and democratic property systems as being the only justified systems.

[Self-Owner]

Yeah, I studied political philosophy too. Nozick's Anarchy, State and Utopia was destroyed from the day it came out. There are so many flaws, the whole can't stand up.

Some of the major problems the book has include:

Assuming that the "state of nature" is an "anarcho"-capitalist one (an individualist anarchist "state of nature" could not lead to his state)
The assumption that a trade doesn't affect other people (take his basketballer example, actually the player would have greater purchasing power, and thus could out bid others, and thus trade does affect third parties)
He doesn't convince that just because from his state of nature a "justified state" would come about, that the present state is justified

Etc.

Basically, he didn't convince me, nor a lot of other people. (Then again Rawls didn't convince me either, but I didn't read nearly as much Rawls.)

I agree with your criticisms of the first part - Nozick doesn't make a convincing case for a State. Although his argument is a lot more subtle than people often think.

But if you think the Wilt Chamberlain argument needs the assumption that trades don't affect other people, you need to read it again. It's an argument against patterned end-state theories of distributive justice, by showing that they fail on their own terms.

[Demogorgon]

On the other hand, I'm a little more sceptical of the claim that workers cooperatives would be the natural replacement of the traditionally owned firm. Firstly, there seem to be large incentival problems in that most cooperatives, for obvious reasons, focus on acheiving the greatest profit per person rather than simply the greatest profit. The corollary of this is that where a firm could profitably expand by reproducing their business model somewhere else, worker cooperatives would not because in doing so they would have to take on more workers and just dilute the profit per person earned. So I think for structural reasons, cooperatives would lose out to more traditionally managed firms on a free market.
Presuming a lack of capitalist firms (a big presumption, but bare with me), the fact that co-operatives will not expand beyond their most efficient point (which is presumably the point where profit per worker is maximised), that should be a good thing, because it means where there is greater demand for a product more firms will form rather than an existing one expanding leading to greater competition. Worth considering.

[Self-Owner]

Presuming a lack of capitalist firms (a big presumption, but bare with me), the fact that co-operatives will not expand beyond their most efficient point (which is presumably the point where profit per worker is maximised), that should be a good thing, because it means where there is greater demand for a product more firms will form rather than an existing one expanding leading to greater competition. Worth considering.

The problem lies in identifying the most efficient point as the point where profit per worker is maximised. There are a bunch of different ways to define the 'most efficient point' of production but none of them correspond to maximising profit per worker; the point where simply profit is maximised is far more likely to be efficient.

[Green Dragon]

Presuming a lack of capitalist firms (a big presumption, but bare with me), the fact that co-operatives will not expand beyond their most efficient point (which is presumably the point where profit per worker is maximised), that should be a good thing, because it means where there is greater demand for a product more firms will form rather than an existing one expanding leading to greater competition. Worth considering.

The problem though would seem to be these:

1. That prexisting coop is probably the most knowlegable in its product than the johnny come latelies. Limiting the growth of the co-op can limit the benefit to the community of what it provides.
2. If the objectibe of the co-op is to make a "profit" you have yet to explain why the workers of the existing co-op would wish to cede potential profit to the start-ups. Nor why they should want to.
3. The whole scenario asumes a static state of affairs: that the most efficient point of the co-op will remain forever true. It doesn't allow that the johnny come lately may have a better idea how to go about producing the product than the existing one. The pre-existing co-op will have to adjust. And maybe it determines that size really matters.