Book Review: Filthy Lucre

Joseph Heath. Filthy Lucre: Economics For People Who Hate Capitalism (Toronto: HarperCollins, 2009).

Heath states his goal at the outset:

I’m not interested in selling anyone on the virtues of private enterprise. This is primarily because I share the unease that most people feel with the capitalist system. And I would like to see us come up with something better than what we have now.

However, I also think that economics is important — as important for critics of capitalism as it is for its cheerleaders…. Marx clearly understood the “mainstream economics of his day, yet, in part due to his influence, very few left-wing or “radical” theorists can say the same.

Unfortunately what he means by “economics” equates to uniformly, and apparently largely unexamined, managerial-centrist assumptions that underlie most of the arguments in this book. In the Introduction he blames the “economic illiteracy of the left” for the amount of time wasted on advocacy for “schemes and policies that have no reasonable chance of success….” In particular, he chides Naomi Klein for her glowing treatment of the self-managed recuperated enterprises of Argentina in The Take, in what he calls an “intellectual vacuum” regarding “basic features of how these cooperatives are structured and financed, much less how an economy organized this way is supposed to function.”

You would never know, watching the film, that there is an extensive economic literature on the subject of cooperatives — written by socialists and nonsocialists alike — dating back over a century, that raises serious doubts about the possibility of structuring an economy along these lines.

Heath assumes the state is the only possible mechanism for overcoming the Prisoner’s Dilemma, Free Rider problems, etc. 

So we need to have a state…. What is required — and what self-interest cannot provide — is an honest enforcement agency to impose Hume’s three “fundamental laws”: to protect private property, to ensure the voluntariness of exchange, and to enforce contracts.  

He’s apparently unaware of the body of literature — by Elinor Ostrom in particular — on the commons as an alternative to both the state and the cash nexus. 

He also takes the fact that most people, most of the time, do not defect from cooperative behavior as somehow disproving the assumption that people are motivated by “rational self-interest.” His conception of “rational self-interest” seems to reflect an “economic man” assumption, in which the individual’s “self-interest” equates to a vulgar and simplistic maximization of one value — namely cash income — rather than maximizing a set of subjective values unique to the individual. 

Heath also argues for the necessity of the state based on the dependence of private property rights on state record-keeping and enforcement. Just managing property records, nationwide, cost $203 million, and the cost of protecting and enforcing then was considerably more. But his treatment of the existing model as the only, inevitable one, and failure to consider possible alternatives, is revealed in the fact that what he describes are the costs of tracking and enforcing a set of capitalist private property rights, legible from above to a territorial state, to land as an absentee-owned, marketable commodity. Medieval villages seemed to do an adequate job of tracking who had possessory rights to which furling strips in which fields, or pastured what amounts of livestock on the common, on their own. And in a society without absentee title, or the buying and selling of land by people in locations far removed from the land in question, it needn’t be a great deal more complicated than that. Heath himself noted that “possession is nine-tenths of the law” in large part because of the prohibitive expense of tracking title. And a non-capitalist, non-state property rights system would be largely based on possession.

Although he does so in the course of arguing against right-libertarians, Heath takes at face value the right-libertarian framing of the 19th century United States as characterized by a “minimal state.” He responds that the economy of the late 19th century, in which the state mostly just enforced property rights and contracts, spent as much time in recession as in expansion. But by pretending that this was a “laissez-faire” or “minimal state” era, he neglects not only the massive role of the state in setting up capitalism and the wage system in the first place — like right-libertarians, Heath ignores the role of the state in creating what he calls “private property rights” — but in creating the structure of the Gilded Age economy after the Civil War. 

The Progressive Era regulatory agenda was not, in fact, an entrance by the state into a regulatory vacuum; it was a secondary intervention by the state to correct and limit the destabilizing consequences of the previous, primary interventions by which it had created Gilded Age corporate capitalism in the first place. The US government does, indeed, render a large number of “services… to ensure the smooth functioning of the capitalist economy.” But it does so because the capitalist economy, which has existed in symbiosis with the state from the beginning, has always been prone to destabilizing crises.

Although Heath groups the myths he debunks, in equal numbers, under left-wing and right-wing headings, at times it’s difficult to understand why a particular myth was classed one way or another. Consider, for example, his reason for preferring the term “comparative advantage” to “competitive advantage,” ostensibly a right-wing myth, namely

how much this rhetoric feeds into the left-wing critique of globalization. Saying that trade creates both winners and losers is just another way of saying that trade is exploitative, which gives aid and comfort to the old-fashioned Marxist view that there is extraction of “surplus value” in these exchange relations.

For starters, “trade” as such is almost meaningless — it includes all international exchange that takes place, regardless of the property rules, subsidies, and other institutional context within which it takes place. And a great deal — if not most — international trade under neoliberal corporate globalization is in fact exploitative, and does in fact involve the extraction of a surplus by one party at the expense of another. The centerpiece of the so-called “free trade” treaties Heath celebrates is not the reduction or elimination of tariffs — i.e. actual trade barriers — but their maximalist intellectual property provisions. These IP accords play the same protectionist role in global corporate capitalism that tariffs did in the national industrial capitalism of a century ago. It’s only because of draconian international IP law that transnational corporations have been able to largely outsource all actual production to nominally independent contractors in the Global South, while retaining a legal monopoly on the right to dispose of the product. So most of what’s called “international trade” is not actually the production of goods by “Chinese companies” for export to the United States, or vice versa, but a 21st century version of the putting out system in which nominally “independent” contractors are in fact vertically integrated within the legal walls of Western capital. These IP accords, along with other provisions of the neoliberal or Washington Consensus economic order, together amount to a continuation of the same economic relations that prevailed before the postwar dissolution of European colonial empires: an extractive relationship in which countries of the Global South provide cheap labor and natural resources.

Likewise, so-called “comparative advantage” — a concept which does a lot of heavy lifting for Heath — is virtually meaningless in the present global economic order. Most “comparative advantage” exists because, thanks to the legal and institutional framework discussed in the previous paragraph, and the fact that international shipping is subsidized, it is artificially profitable to export capital.

Heath sets up this illustration as a prelude to debunking what he calls the “pauper labor fallacy” — or more commonly, the race to the bottom: 

Imagine two bakeries, across the street from one another. One of them is on the rich side of the street, and so pays its workers $10 per hour. The other is on the poor side of the street, and so pays its workers $1 per hour. All other expenses are the same, and both bakeries have access to the same equipment and technology. Workers are not allowed to cross the street, but customers are. So how can the “rich-side” bakery possibly compete with the “poor-side” bakery?

He answers by bringing in Ricardian comparative advantage. He hypothesizes that one bakery is better at making tarts and one at making bagels, and they therefore specialize in them respectively. The poor-side bakery sells its tarts to people from the rich-side, and uses the proceeds to import bagels from the rich-side bakery. The problem with this is that — for all the reasons discussed above — the model of two “sides,” each with its own independent bakery, is obsolete under corporate globalization. It’s entirely understandable that Heath’s readers might find it convincing, since most people still think of “international trade” in archaic terms like “American companies,” “Chinese companies,” “Mexican companies,” etc., all producing goods and exporting them to other countries. The general public has no idea of the extent to which so-called “international trade” actually consists of internal transfers within the de facto integrated logistical chains of global capital. For Heath’s illustration to work, the owner of the rich-side bakery would have to also own the poor-side bakery, or own the patents and trademarks on the tarts and outsource their production to the poor-side bakery.

Closely related is Heath’s resort, in defense of sweatshop labor, to the right-wing “best available alternative” talking point — ignoring the question of who set the alternatives in the first place.

Further, one need not believe in any variant of the labor theory of value to understand that there is a great deal of unequal exchange and rent extraction under a capitalist economy — arguably enough to constitute the bulk of capitalist profit. The capitalist wage system was founded on robbery (i.e., the nullification of the great majority of the population’s customary rights of possession in the land), and the resultant transformation of both labor and land into what Polanyi called “fictitious commodities.” Subtract the economic rents on these and other fictitious commodities, like intellectual property and the right to issue credit, from total profits, and there’s not a lot left.

Heath’s managerial-centrist affinity for the status quo can also be seen in his attack on the alleged left-wing fallacy of the “just price,” which he appears to conflate with any structural critique of how prices are set. There are two possible approaches, he writes, to the problem that necessities of life are unaffordable to significant segments of the population. One is to argue that the prices are too high; the other is to argue that those particular people don’t have enough money. The obvious choice is the second option: to leave all the institutional structures of corporate capitalism in place, fictitious commodities, unearned economic rents, and all, and then help out the disadvantaged with a robust welfare state. 

This perfectly illustrates the role of the welfare state under capitalism: cleaning up negative externalities like poverty. Of course, enabling people to afford subsistence goods while leaving artificial scarcities and monopolies in place has a perverse outcome; we need look only to Henry George’s account of how unearned land rents rise with the public’s purchasing power, or how health insurance premiums skyrocketed after the ACA subsidies were put in place.

The problem lies with Heath’s failure to understand that there is no such thing as immaculate “market pricing”; a market-clearing price mechanism is compatible with any number of possible institutional and property rights systems, with widely varying distributions in each. He is entirely correct that price controls have distorting effects. But the proper approach is neither to impose price controls against the background of the existing capitalist economic structure, or rely on redistribution after the fact to enable people to buy goods at the monopoly price. It is to structure property rules and institutions at the outset to avoid the distortions and irrationalities of capitalism — eliminating economic rents as much as possible, and internalizing as many consequences as possible of the decisions of economic actors — and then letting the market mechanism distribute income in the first place so as to minimize the need for welfare and other corrective actions.

His attempt at refuting the left-wing fallacy that capitalism is doomed from its crisis tendencies is limited mostly to demonstrating that the alleged problem of overproduction/underconsumption is owing entirely to liquidity preference, and can be easily remedied by Keynesian monetary and fiscal policy. This is comparable to Lincoln’s anecdote of the Jesuit who, accused of murdering ten men and a dog, triumphantly produced the dog in court. He fails to address any of the other sources of long-term crisis, like the distortion of the economy toward excessively capital-intensive forms of production as a consequence of state policy, and the resulting chronic tendency toward idle capacity and the growing share of state activity which is geared toward utilizing this capacity. He also ignores the role of economic inequality not only in diverting excess amounts of income into savings, but in the increasing investment of those savings in speculative bubbles, asset-stripping, and enshittification. And while he is entirely correct that work as such is something to be reduced and the progressive emphasis on “job-creation” is wrong-headed, he still misses the point: technological progress fails to reduce working hours because the gains are enclosed, rather than distributed, thanks to intellectual property and other monopolies. So, despite Heath’s denial, we have an economy in which increasing amounts of waste and irrationality are required to keep money circulating and capacity utilized, and the system is reaching the limits of its capacity to increase them. 

To add to the incoherence of his denial, toward the end of the chapter he stresses that “none of this threatens the market as a mechanism for coordinating economic activity. There are many problems with modern capitalism, but there are no existential threats.” News flash: markets coordinated economic activity to some extent for thousands of years before the rise of capitalism, and will likely continue to serve an important coordinating function long after its demise.   

At times, his normalcy bias, and his failure to distinguish contingent, accidental aspects of the system from its essence, result in missing the point to a spectacular degree. For example, this howler:

[The increasing cost of services relative to goods] is also why we tend to throw things away rather than get them repaired. It’s not because of some general ailment called “consumerism” — it’s because getting something repaired is incredibly expensive. One day my stove beeped loudly and the nifty digital display started blinking “Error 5.” I looked it up in the manual, which told me to call for immediate servicing…. Two days later, a guy in coveralls showed up at my door during breakfast time. He opened up the oven, yanked something out, tore open a bag, stuck something new in, mumbled something about a “broken sensor,” then handed me a bill for $169. He was in my house for less than 10 minutes. The sensor cost $70; the rest of the bill was labor and taxes. Imagine how much it would have cost if the stove itself had been broken (as opposed to just the system designed to tell me when the stove is broken).

Where to even begin? The repairman didn’t get anywhere near all of that labor charge. A sizeable chunk of it was a monopoly rent to the company, resulting from proprietary diagnostic software that only the company could read and interact with. We see the same thing with the proprietary diagnostic software in automobiles, which has a lot to do with the skyrocketing prices at dealership garages. The same phenomenon is behind an ongoing war between John Deere and the farmers who buy their equipment. And although the monopoly on diagnostic software also has a lot to do with the cost of repairing the physical mechanism, it goes way beyond that. Embedded intellectual property rents are a large portion of the material components, as well. Thanks to the role of patents in suppressing the competitive manufacture of interoperable replacement parts, and the resulting lack of incentives to design appliances for easy repair and long life, it is far more complicated and expensive to repair them than it would otherwise be, and the replacement parts themselves are marked up enormously. Planned obsolescence is a deliberate design strategy, facilitated in large part by intellectual property.

His conceptual limitation to the status quo-adjacent is also seen in his defense of rentier income, on the grounds that savings are the source of investment funds, and returns on savings are necessary in order to persuade people to save. The only alternative he can imagine is “some form of mandatory collective savings orchestrated by the state.” But “capital investment,” in material terms, is nothing but one group of workers producing physical means of production from natural resources, and providing them to another group of workers. The “savings” are simply an imaginary ownership chit enabling some third party to allocate those material resources. Any number of other institutional arrangements for accounting and coordination are possible.  

To be fair to Heath, this review has focused almost entirely on areas in which an anarchist or libertarian socialist would find fault with his arguments. He has also demolished a good number of right-libertarian and state-socialist talking points, albeit from the most centrist and status-quoist of center-left perspectives.

His best performance is his attack the right-wing obsession with “personal responsibility” and moral hazard, and conventional economists onetime (?) hostility toward “common property arrangements” on such grounds (think of all those Thanksgiving op-eds on how private property saved the Pilgrims from starvation). He responds with an explanation of insurance and risk pooling — going all the way back to hunter-gatherer societies — that to me sounds surprisingly communistic. Of course, as he acknowledges, moral hazard is a matter of degree, and risk-pooling or mutual aid arrangements may create perverse incentives for reduced vigilance or effort in areas over which one has some degree of control. The solution, he suggests, is an ad hoc approach of pooling risks in cases where the social cost of not providing aid exceeds the cost of moral hazard.  

The Center for a Stateless Society (www.c4ss.org) is a media center working to build awareness of the market anarchist alternative

Source: https://c4ss.org/content/60502