Chatting With a Marxist - Part 2

Shortly after I posted Chatting With a Marxist an annonimous comment appeared with a few interesting remarks and questions. I wanted to address them briefly but the amount of words written in response hinted it might be better to post it in a new blog post. Unfortunately I haven't had the time to do so until now. I'm reproducing the whole comment here and my remarks below:

You say you have a choice, be employed or be self-employed, that is not true. If you are born in a poor family you cannot start your own bicycle factory or any other business, you just have no money to do it. If you saw hardworking honest men waiting for months to get their lousy paychecks, without any other option but to starve or keep working, you wouldn't be saying so.

When you say supply of labor is not limited, that would be true for a country with a really low unemployment rate. 3-5, or even lower. You are not talking about my country. In Serbia, around 30% are unemployed, average working class pay is 150-200 euros a month, you work 10-11 hours, have one week of holiday if ur lucky, there are no workers unions in private sector, cose when you complain you get fired, and trust me, supply of new labor to replace you is limitless.

And one important thing is that proletariat is not only in factories. I had a job selling sneakers, and i had to stand for 11 hours every other day, for 200 euros a month, and sitting was strictly forbidden even if a store is empty. You have a 15 minutes break for lunch and that's it. I saw a guy get shouted at and fired for leaning on a wall while talking to a customer.

This version of capitalism is what happens when the state is not interfering to protect the worker with social programs, and minimum wage, and to protect them from being fired for trying to organize a union. That's what a truly free market does.

Interesting comments, but erroneous, in my opinion. Here's my response to a few particular statements:

You say you have a choice, be employed or be self-employed, that is not true. If you are born in a poor family you cannot start your own bicycle factory or any other business, you just have no money to do it. 

This would, incidentally, also be true for a person born in a middle class or even a rich family. It's very hard to start and run any successful factory. You have to sacrifice a lot, save and work hard and have unique skills. But a lot of successful companies, some of which became mega-big, were started out of a garage by what were then poor people, including Microsoft for example. Think about it this way... You are very much accustomed today that people work for their employers. This was not always the case. Before mass production was possible people were more or less self-employed and produced for themselves. They were very poor as a result. When factories started popping up in the industrial revolution, people now had a choice. They could stay self employed farmers doing back-breaking work 15 hours a day or find employment in a factory and work perhaps 12 hours a day in mildly better conditions and receive a slightly higher income. These were the only choices (similarly these are the only choices people have today in poor third world countries). Today we are much better off than that but the choices are similar. I used this hypothetical example to illustrate how much harder it is to make a living without capital (machines, tools, infrastructure etc.), so let's be careful condemning people who actually work hard, save and invest in it. Furthermore, anyone can become a capitalist, even a poor person. You find a job, save a portion of your income and make an investment when you are ready. As I said, it doesn't have to be much, you can start a business with very little capital these days.

When you say supply of labor is not limited, that would be true for a country with a really low unemployment rate. 3-5, or even lower. You are not talking about my country. In Serbia, around 30% are unemployed, average working class pay is 150-200 euros a month, you work 10-11 hours, have one week of holiday if ur lucky, there are no workers unions in private sector, cose when you complain you get fired, and trust me, supply of new labor to replace you is limitless.

I said the supply of labor is limited, but I figure that's what you meant. The unemployment rate is irrelevant here, the supply of labor is always going to be limited by the number of persons. When people are out of work, they are not working because they either chose to do so or because someone is preventing them from working. In either case, this has nothing to do with the employer-employee relationship and the exploitation that is presumably going on. My point was that if the worker is going to work voluntarily and is not forced to do so, to label this exploitation is absurd. I'll give an example. Say me and you get stranded on a tropical island. At first we both fish with our hands and manage to catch two fish a day each. In a few days I figure that it might be easier to catch fish with the aid of some tools. So I start saving fish I've caught and only eat one per day while saving the other. When I have saved up enough fish, I start working on fish nets and spears. I invest the saved fish in fishing equipment production, so to speak. Because I am working hard on these tools (what we call capital) for a few full days I can't engage in fishing so I need to eat the saved fish. Finally I am finished and with this equipment it is possible to catch 6 fish a day. Suppose I now give you this proposal: Please borrow my tools and catch 6 fish a day. Give me five and keep one for yourself. You might not agree, this could be worse for you (depending on how much time it takes), because you can catch 2 fish per day on your own. Now if I forced you to accept these terms, that would indeed be exploitation. But suppose I then change my proposal and say OK, you catch the fish and give me 3 while you can keep the other 3. You might accept that because now you are better off. I am also better off. But who is exploiting whom? I saved, invested and worked hard to produce capital equipment and am now employing you and paying you a salary of 3 fish a day. The truth is that there is no exploitation, we are both better off. Also, you write that salaries in Serbia are low and this is true, though not quite as much as you stated. But why is this so? Are you saying there are no wicked capitalists in Germany? Or do they all have a better conscience? Or is government reining in their exploitative ambitions? Of course not. Capitalists in Germany are plentiful, their ambitions are similar and it is certainly not government who enables high wages in Germany. Germany doesn't even have a minimum wage. The reason wages are much higher in Germany is that the amount of capital invested per capita is much higher than in Serbia, rendering the productivity of labor much higher as a result. Companies compete for scarce labor on the market and one of the ways they attract workers is to offer them a higher wage than the next company. 

Another useful way of thinking would be how to improve the conditions of this person who is receiving low income and is working in what we would deem poor conditions today. It would be to make sure he has plenty of options to choose from, and not to condemn the person who actually gave this person the job he thought at the time was the best option. And the greatest number of options arises in an environment where businesses are allowed to invest and hire employees, while government regulation always only poses costs which diminish the demand for labor and the incentive to invest.

This version of capitalism is what happens when the state is not interfering to protect the worker with social programs, and minimum wage, and to protect them from being fired for trying to organize a union. That's what a truly free market does. 

It is interesting that you write "this version of capitalism". I don't like to use this word because pretty much every person has a different definition for it. For mine, please look at my post on this subject. Government, of course, does not protect workers at all. Social programs always come with tax increases, which means companies are going to employ fewer workers and pay them less. Many very prosperous countries have no minimum wages, including Germany, as stated above. And if the minimum wage really did the trick, as you seem to think, we would have a moral duty to impose a 5000 EUR minimum wage per hour instantly. Or double that. How much would be enough? Of course then no one would have a job. As for the unions, historically the US was the least unionized but paid the highest wages in the world. The US economy grew very rapidly in the 18th century with no minimum wage laws, which were enacted only in the 1930s, very little unionization and practically non-existent labor legislation. Wages grew to the highest levels in the world. You can also find a few of my thoughts on this topic at the end ofthis post.

For more information on the topic of labor, labor unions and how wages naturally rise on the free market I recommend these two videos:

Matej Avsenak Ogorevc

Chatting With a Marxist

Yesterday I had the privilege of chatting with an aspiring, and rather attractive, I might add, Marxist. We briefly exchanged our views and unfortunately had to end the conversation early. Nevertheless, I did enjoy it. And not only for the visual aspects of it.

When she started telling me how supportive she is of a proletarian revolution, I had a few questions on the topic, as one might expect. Namely, why the focus on the proletariat. Why these people in particular and why group them like that? She replied that she prefers to view and analyze people in groups rather than as individuals but more importantly, the proletariat in particular because they are being exploited by the capitalists, predictably. How, exactly, are they being exploited? The reason for this is supposed to be the observable fact that the wage a worker receives is lower than the price the capitalist receives for the final product on the market.

My response was that this is true only insofar as the capitalist is engaged in forced labor. But if the relationship is voluntary, how can there be any exploitation involved? By definition, any voluntary exchange or contract implies that both parties to the contract expect to be better off as a result of engaging in it than they would otherwise be. The worker always has a choice. Her answer was that there is very little choice for a worker. But this is not true. Firstly, as long as we allow competition in the labor market, firms are going to compete for the limited supply of labor. What's more, there is always the choice of being self-employed and trying to create a product with your own hands in your own garage. An employee in a bicycle factory can always choose to quit his job and try to create the bicycle(s) by himself. This is difficult, true. But that is precisely my point. The capitalist lends the worker capital equipment to work with, while the worker brings in the labor services. They are both better off as a result.

Another point I made was one which I borrowed from Hans-Hermann Hoppe. Namely, a capitalist has many expenses when bringing inputs together to produce outputs, labor services being only one of them. He also has to buy or borrow capital and buy or rent buildings from his fellow capitalists. For these he also pays less than the price he receives for his products on the market. If we want to be consistent in our analysis we have to thus claim that capitalists, in doing this, are also exploiting each other. But then of course the whole edifice of Marxist though collapses instantly.

I do hope I was able to install at least a fraction of doubt in the young lady. It remains to be seen.

Meanwhile, as suggested by a friend, we concluded that perhaps indeed one day a bunch of us from both camps should get together, each reading a book recommended by the other side, and then engage in a debate. What a wonderful idea!


Matej Avsenak Ogorevc

Capitalism and Survival of the Fittest

A few days ago I got into a conversation with a friend who said (something to the effect) that capitalism was the survival of the fittest and look what a mess this got us into. Such as I am, I couldn't let it pass so I wrote a brief commentary. To be sure, this is a lengthy topic and many volumes have been written on it, so there are many things left out, naturally. Either way, here it is.

The term capitalism itself was coined by none other than Karl Marx himself. He used the term to describe an economic system where owners of capital rather than lords and aristocrats were able to make economic decisions about production in society as was the case in the manorial and feudal system. Later on classical liberals such as Ludwig von Mises and others were quite happy to use this term since it described rather well precisely what they were arguing in favor of. Namely, that economic decisions in society be left to those who were, through economy and entrepreneurship, able to amass ever greater amounts of capital by satisfying the demands of their customers. And therein lies the difference. Whereas before persons of nobility, regardless of their merit, were able to determine production and extract income from their subjects through coercion, in this new system called capitalism there were no limits nor subscribed production processes. Anyone could become a capitalist, provided only they saved and had the insight to invest in capital equipment that would prove valuable as a means of satisfying consumer demands. Private property rights became central to this economic system since any infringement on property rights would necessarily mean an expropriation of property, which greatly reduces the incentive to invest in capital. Capital will be invested in and accumulated more readily and heavily if the investor can expect to generate an income from it free from expropriation and a system with built-in disincentives to invest in capital (which is therefore destructive of capital accumulation) could hardly be called capitalism.

However, I cannot blame anyone for using the term capitalism to describe our current state of affairs, many people have done so in the past and continue to do it at present. After all, capital is a class of inanimate objects and attaching an –ism to it can hardly describe a series of interactions between individuals in a society. But I would still prefer to use the term capitalism to describe the free market and resort to the use of corporatism, fascism or socialism to describe the modern economy. Common to all these systems, which vary in degree, rather than character, is an economy centrally planned by an institution who’s decrees are enforced by violence and intimidation. And this description is much more akin to the world today than a system where private property is absolute and the only way of gaining property is through voluntary exchange and homesteading.

When you say survival of the fittest, that only begs the question – fittest for what? In the pre-capitalist society where no large scale markets existed, exchange was very limited and most people produced for their own needs, most rich people, with the exception of the few merchants, were rich because they exhibited the the greatest skills in warfare. They suppressed their fellow men and were able to extract from them because they were the fittest in physical strength and could just take what others had produced. However, with the advent of capital, i.e. tools and machinery for large scale production, one was able to become rich by producing for, and not taking from, the masses. In such a system one could only succeed, save a few exceptions, of course, by producing something people wanted and could afford. In such a system survival of the fittest means the fittest in producing things the public values and one could hardly see anything wrong with that. Virtue, rather than violence, then, becomes the norm. You will also notice that this is not descriptive of our social order today. The whole edifice of the State run society is founded in coercion, confiscation and violence.

Either way, if by survival of the fittest you mean survival of the fittest to tax, regulate, punish and coerce then yes, capitalism is what we have and it’s horrible and I denounce it. But we would also be (perhaps more so) well justified to say capitalism is the survival of the fittest in serving their customers, in which case we do not have capitalism at all.

So when you say capitalism is to blame for all this mess, you should probably qualify it with a bit more than »survival of the fittest«.


Matej Avsenak Ogorevc

Murder is Murder, Theft is Theft

If I had a euro for every time I heard »yes, your philosophy of libertarianism is all fine and well and the principle of non-aggression sounds good, but we all know that there is in any society a given number of people who will not adhere to these rules and therefore we need government to bring all these people in their place«, I'd probably be building a mansion somewhere in Thailand right now.

Once you get the chance to talk to people and show them how libertarianism is really only based on the principle that a man (and all men) should not initiate violence against a fellow human being and his property, the argument above is probably the most common one. Or, in other words, »yes, your goal seems morally correct but we all know that in practice it is not going to work.« Therefore, the non sequitur argument that we need a coercive government.

Perhaps so and we shall never have a society where aggression against a fellow human being is completely wiped out. But if we concede that this is the goal, then it seems to me that we (i.e. everyone who recognizes this as a correct social norm) should all work tirelessly towards this goal and not, contrary to our recognized ideal, allow in our society a group of people recognized rights to systematically aggress against other people, provided only that they carry the badge of the State. This seems to me so contrary to the purpose of peaceful human cooperation that I can only explain so many people believing this is because most people go through a thorough process of thought-molding called the government schooling system.

The libertarian counter-argument then, correctly stated, would be as follows: »I recognize that the initiation of aggression against people and their property is morally wrong, but I nevertheless want to allow a certain group of people, whom we call government, to have the right to aggress against any and all persons.« And it gets even worse. In our age of democracy everyone is allowed to join this group of people who have recognized rights of legal aggression. And since it is always easier to confiscate what has been produced, rather than produce it yourself, it is quite predictable that this group called government or public employees will continually grow until most people are engaged in direct or indirect expropriation and only a minority remains in production. These kinds of conditions cannot last and always lead to conflict.

Let us draw an analogy. We believe murder is wrong. But some say we must, in the name of erradicating murder, allow a certain group of people, carrying the badge of the State, recoginzed rights to murder others. What will happen is murderers will join the legions of the State to be allowed to murder without repercussions. And all people on the brink, considering murder, might also join the legions of the State since it becomes allowable behavior, provided only you carry the badge of the State. As more and more people engage in murder, this becomes socially acceptable and society disintegrates.

By the same token, we believe theft is wrong. But some say we must, in the name of eradicating theft, allow a certain group of people, carrying the badge of the State, recognized rights to steal from others. What will happen is robbers will join the legions of the State to be allowed to steal without repercussions. And all people on the brink, considering theft, might also join the legions of the State since it becomes allowable behavior, provided only you carry the badge of the State. As more and more people engage in theft, this becomes socially acceptable and society disintegrates.

Matej Avsenak Ogorevc

Did the Free Market Cause the Crisis?

Tom Woods says no. Here is an excerpt out of his recent post:

As I’ve noted elsewhere, the current system is rather far from the Misesian [i.e. the ideal of Ludwig von Mises] ideal; it includes:

(1) a coercively imposed monopoly on the production of money;

(2) monopolistic legal tender laws, which artificially privilege the money issued by the government-established central bank;

(3) a central bank with the monopoly power to create legal-tender money out of thin air, a power granted to it by the government, and with a mandate to manipulate the money supply in the purported service of maximizing output and minimizing unemployment and price inflation;

(4) interest rates influenced by a monopoly monetary authority instead of by the free market;

(5) implicit and explicit bailout guarantees for large financial institutions;

(6) artificially low borrowing costs for large institutions, since the public knows these institutions will be bailed out;

(7) artificial protection of the banks, in the form of government deposit insurance and various Federal Reserve mechanisms, thereby keeping afloat a fractional-reserve system that would be radically different under a free market; under the existing system the banks will therefore create more money out of thin air than they otherwise would.

This is just off the top of my head. A free-market banking system would have no central bank and no “monetary policy.” It would not rely on politicians to print up “interest-free money.” It would not require any guns or badges. It would preserve the purchasing power of people’s money, as it did even under the classical gold standard. It would make entrepreneurial profit-and-loss calculation far easier, without the white noise introduced by the monetary manipulations of the government or its privileged central bank.

 I would tend to agree. You can read his whole post here.

How Much Are You WIlling to Pay?

You go to a bakery and you see a woman working there who has four children. You want her to make more money? Fine, so do I. But the question is not how high her salary should be because she has four children, but rather how much more are you willing to pay for bread baked by a woman with four children. Because if you are buying there, you are the one paying her salary.

No established firm in this world pays salaries to their employees, their customers always do. I say established because in a startup business the investor has to save up money to pay for all the salaries (plus capital equipment and other expenses), sometimes for months and years, before the revenues and profits (if they ever arrive) come in, and in that case the investor is the one paying the salaries. But once a firm is making profits and is therefore able to stay on the market, the customers are always signing every paycheck every month.

Think about the BMW automobile company and imagine that for some reason people completely stopped buying their cars. How many salaries could they pay out? Not many. Maybe they would scrape by for a month or two, maybe not even that. But if the customers stop coming in, the salaries stop going out. I own a business as well and I never pay my employees out of my pocket, it's always our customers. They show up in our stores, they pay for what they find interesting and at the end of the month we use this money to pay out the salaries. If the customers stopped showing up we would have to stop paying out salaries.

This might seem obvious to some people but I write this only because I can assure you that to many it is not. Some will say "let's pass a law raising her salary and making it harder to fire her and that will take care of that." I would reply that these people have not taken the time to study the nature of human action. Such a mandate passed by the government would, as most government decrees do, only make the situation for this woman worse. Raising her salary above the market wage will cause her employment to become unprofitable and thus fewer people will want to hire her. And if you make it harder to fire her, then employers will again be afraid to hire her because the risk of her not being the right employee suddenly becomes much higher. So whereas before she actually had a job which she had chosen among the alternatives that she could choose from, now no one will be willing to hire her and she becomes jobless with four kids.

So then if the capitalists don't employ us but rather we employ each other and thus our wages depend on the number of our customers and the thickness of their wallet, rather than on the "greed" of our employers, how do we get a higher wage for this woman and indeed for everyone in society?

How to get more customers? We allow her employer the freedom to invest and thereby make her work more productive and the products more attractive in order to attract more customers. And how do we make the customers richer? We allow everyone else in society to invest in order to make labor more productive. The fact is that we are (materially - and we all need material things to survive) only as rich as our productiveness allows us to be. And we become more productive only by investing in new and better capital equipment (machines & tools) so that we can produce more with fewer resources. Then things become better and cheaper.

But people will only save and invest if they can expect to receive a profit from their investment. The bigger the share of the savings and profits that is taken away from investors, the less they will invest. The more money a central bank prints, the more this money loses value, the less people will save. Less savings equals less funds available to invest. The more the government taxes profits, the less attractive it is to invest. The more the government taxes wages, the higher the wage cost, the lower the profits. Low profits equals less investment. Less investment means we become poorer.

All the above is of course descriptive of the economic means, i.e. through production and trade, of making profits. There is also the political way, i.e. through extortion and confiscation, of making profits, but that is a whole other subject...



Thanks for the inspiration to Ludwig von Mises and his short book Economic Policy: Thoughts for Today and Tomorrow, which is available online for free here.

Matej Avsenak Ogorevc

How About I Operate on Your Kidney, Sir?

Would you trust me to perform kidney surgery on you? Probably not, and that would be a wise decision too, for I know nothing about kidney surgery. Then why would you trust politicians to make good economic decisions? Or even any good decision whatsoever for you? Why do people want to be in power? Simple, they want power. With very few exceptions, people get into politics because they have what is called libido dominandi, the lust to dominate. With political positions comes power, money, and prestige. In this kind of environment the worst of power mongers succeed and the worst cases of libido dominandi get to the very top. And I don't distinguish between the left and right either. The differences are purely cosmetic and insubstantial.

But back to economics (yay!).

All the above being said, there are a lot of "experts", such as university economists and political advisers, who give advice to all these politicians and surely then these politicians will be well informed and will make good decisions, right? Not so fast. First of all, all these supposed experts, if they are giving advice to politicians, are on their payroll. You should not expect them to give politicians advice they do not want to hear. Rather, their job becomes to invent semi scientific apologies for policies politicians are going to adopt anyway. So don't look for sound economics in the realm of politics and government run and/or funded educational institutions. This is not to say there isn't any. But the odds to find it there are rather against you.

Don't believe me? Let us do a short exercise. We have learned recently that the EU Commission will enact (new) price controls on mobile service providers in the EU for international calls, price controls downwards, of course. Now, which of the following scenarios do you think is more likely to play out: a) the mobile service providing corporations are going to say "oh well, guess our profits are just going to have to be smaller henceforth", or is it b) "since we cannot charge our preferred rates on international calls, we will have to raise our prices on domestic calls and other services in order to maintain our profitability". If you can answer this correctly (I will not be giving out any hints this time), you know more about economics than all the eurocrats combined. And trust me, there are quite a few of them. So in essence, what this move by the Commission does is transfer the cost of international calls to domestic users. In other words, the poorer people who cannot afford to travel as much will now be paying for the international calls of wealthier people when they are traveling. Brilliant institutions we have in our government, no? The excellence of their genius never ceases to amaze me. I do suppose it is also possible that they are aware of the sinister effects of their actions but... That just makes my case that much stronger.

So how would I suggest you read and watch the news then? After all, the saying "How can you tell when politicians are lying - when their lips are moving" is not very far off. My first suggestions would be learn Austrian economics. Short of that, whenever you hear a proposal from a politician, ask yourself where the money is going to come from. Who is going to lose money so that this can be undertaken? What is not going to come to life because this new political project has siphoned off the resources? What productive enterprise will see its funds stolen so that the politicians will have it their way? After all, government doesn't have any money that it didn't first confiscate from private citizens. So in short, when you see a project is being funded through coercive measures of the State, you should not support it. And by that I don't mean growing a mohawk and throwing stones at the parliament. I mean be principled and be against the initiation of force and theft against peaceful people, whether it's called taxation, tariffs, fines or any other euphemism we have become accustomed to.

Matej Avsenak Ogorevc