Left-Libertarian Economics: Response to Carson

Kevin Carson was good enough to drop by and comment on my posts about his book, Studies in Mutualist Political Economy (here and here). I copy the comments below with my responses:

(Kevin) Thanks again, Jason. In general, I don’t think any paradigms are falsifiable; you can add epicycles to anything. And I think a revived LTV contributes analytical insights that are obscured by vanilla-flavored marginalism (like the normal relationship between cost and price for reproducible goods, and the intersection of the Tuckerite theory of artificial property rents with the Ricardian theory of rents as a subtraction from wages).

I see the subjective mechanism for the LTV not so much as moral as — believe it or not — praxeological.

My response: Epicycles can be added to anything, but a progressive research paradigm would need to use the epicycle to generate additional hypotheses that can be tested against alternatives. I don’t see how the revived Labor Theory of Value permits this. So for reproducible goods – if the costs of reproduction are near zero, competition will force the price near zero. Patents and trademarks can prevent the price falling to marginal cost, and the additional return is a kind of economic rent. I don’t see what the LTV, considered as a purely positive theory, adds to the analysis. Considered as a normative theory, the LTV (Value with a capital V) might be used to say that, e.g., patent protection is unjust.

(Kevin) Jason: Actually, in MPE I fully acknowledge entrepreneurial profit as a frictional deviation from perfect competition. I don’t argue that competition would be perfect in a free market, but rather that the *tendency* of profit would always be toward zero when there were no entry barriers to competition. And if I’ve said that entrepreneurial profit will “cancel out,” I simply meant that it would fall to zero over time as new competitors entered the market. I fully acknowledge the value of entrepreneurial profit as an incentive — so long as entry barriers don’t enable entrepreneurs to become rentiers living off one-hit wonders.

It’s odd, though, to be an “anti-capitalist” who acknowledges that some individuals are good at being entrepreneurs, i.e., providers of capital, and that economies benefit when they allow capital to be privately owned and profit to accrue to its owners. The core of socialism, whether of the worker self-management variety or the state socialist variety, is that entrepreneurs are unnecessary parasites and that allocation of capital can be done “scientifically” by a social body.

We also have to be careful about barriers to entry, which aren’t necessarily legal in origin. Companies can establish barriers to entry in order to prolong the period of entrepreneurial profit – sometimes, even to permit it in the first place. In the absence of patents, maintaining trade secrets would be important. So-called “predatory pricing” may help a large firm retain market share – and benefit consumers. In some industries with very large economies of scale, barriers to entry may simply be inevitable.

(Kevin) I don’t see the shift toward networked local manufacturing economies as something that piggybacked on the necessary groundwork of mass production, so much as I see mass production as an unnatural deviation from other possible models of integrating electrical power into manufacturing. As Piore and Sabel put it, the Emilia-Romagna model is a rediscovery — after a long interlude — of how to integrate electrical power into industry.

It’s very hard to see how industries that a few large firms have traditionally dominated, like steel, autos, aircraft, semiconductors, & so on, were “unnaturally” created in their present form. Yes, there have been certain legal distortions here and there, but the evidence of economies of scale in some capital-intensive industries is pretty overwhelming.

The Northern Italy model seems to derive from problems of the legal system in Italy that make the “handshake contract” of the family far more trustworthy than anonymous, arm’s-length transactions. As a result, they’ve developed a comparative advantage in highly skilled-labor-intensive industries like precision machining, high-end shoe and clothing design and manufacturing, and so on. Not really a model you can export. Tyler Cowen’s thoughts on Italy’s small-business dependence are relevant here.

2 thoughts on “Left-Libertarian Economics: Response to Carson

  1. 1. It’s not clear how LTV adds anything of analytical value to existing economic theory. Marginalist microeconomic theory can more than encompass everything LTV assumes–but explains more. Which is exactly why LTV is dead.

    2. Arguments that profits fall to zero is already part of orthodox economics. Or, more accurately, that real profits fall to zero.

  2. Also, there were no patents in aerospace from about 1940 to 1970 in the USA. So patent protection can’t possibly explain the small number of firms dominating that market during that period.

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