in Property Theory and Political Economy:
Numeraire Illusion:The Final Demise of the Kaldor--Hicks Principle The Kaldor--Hicks principle (potential Pareto improvement) has fostered the modern revival of an older Marshall--Pigou tradition of welfare economics. That tradition was based on the parsing of a potential change into a change in the size of some "social pie" measured in money (e.g., Pigou's "national dividend") and a change in the distribution of the pie. By characterizing an increase in the size of the pie (i.e., a Kaldor--Hicks improvement) as an "increase in efficiency," this modernized Marshall--Pigou--Kaldor--Hicks (MPKH) tradition seeks to transcend the strictures of the Paretian treatment of efficiency (which would require actual compensation of the losers so that the whole change was a Pareto improvement). Economists can then with clear professional conscience make the policy recommendation for the increase in efficiency and put to one side the question of compensating the losers as a separate question of equity. However, this whole efficiency--equity analysis turns out to be vulnerable to a simple redescription of exactly the same total changes with a different numeraire or even a reversed numeraire (when only two goods are involved). Then the parsing into "efficiency" and "equity" parts will change and can even reverse itself so what was previously seen as the potential "compensation" is then recommended as the wealth-increasing change. Hence the "wealth maximization" principle breaks down in incoherence. The flaw is the numeraire illusion of evaluating changes in both non-numeraire goods and in the numeraire goods, and then misleadingly concluding that transfers in the numeraire goods have no effect on the size of the "social pie." Changes in a yardstick will never be revealed by the same yardstick -- but are revealed by switching to a different yardstick (or numeraire). This result undercuts the major applications of the MPKH reasoning in the standard Chicago school (wealth maximization) of law and economics, cost--benefit analysis, policy analysis, and related parts of applied welfare economics. This is a reprint from: Numeraire Illusion: The Final Demise of the Kaldor-Hicks Principle. In Theoretical Foundations of Law and Economics. Mark D. White ed., New York: Cambridge University Press: pp.96-118 (2009). Slides for a talk on this topic.
Pragmatism versus Economics Ideology in the Post-Socialist Transition: China versus Russia. Over a decade has passed since the hey-day of Western assistance to the post-socialist transition countries. We can now look back and clearly see the role that the ideology of conventional economics played in the transition. Again and again, pragmatic alternatives were ignored in favor of an institutional blitzkrieg or shock therapy to quickly “install” textbook/cartoon models of legal and economic institutions with extensive negative consequences. This history is critically reviewed but, more importantly, we also outline the intellectual basis for pragmatic approaches to social learning. Click on the title for the reprint from: Real-World Economics Review.
Inalienable Rights: A Litmus Test for Liberal Theories of Justice. Liberal-contractarian philosophies of justice see the unjust systems of slavery and autocracy in the past as being based on coercion—whereas the social order in the modern democratic market societies is based on consent and contract. However, the 'best' case for slavery and autocracy in the past was based on consent-based contractarian arguments. Hence our first task is to recover those 'forgotten' apologia for slavery and autocracy. To counter those consent-based arguments, the historical anti-slavery and democratic movements developed a theory of inalienable rights. Our second task is to recover that theory and to consider several other applications of the theory. Finally the liberal theories of justice expounded by John Rawls and by Robert Nozick are examined from this perspective. Click title above to get the reprint from the journal Law and Philosophy.
Translatio versus Concessio: Retrieving the debate about contracts of alienation with an application to today's employment contract. Liberal thought is based on the fundamental question of consent versus coercion. The autocracies and slavery systems of the past were based on coercion whereas today's democracy in the political sphere and employment system in the economy are based on consent. This paper retrieves an almost forgotten contractarian tradition, dating from at least the Middle Ages, that based political autocracy and economic slavery on explicit or implicit voluntary contracts. Hence the democratic and antislavery movements had to hammer out arguments not simply in favor of consent and against coercion, but arguments based on the distinction between contracts to alienate (translatio) sovereignty versus contracts to only delegate (concessio) self-governance rights. They argued that the alienation contracts were in a certain sense inherently invalid so that those basic rights were inalienable even with consent. These inalienable rights arguments from the democratic and antislavery movements are also retrieved, arguments that liberal thought neglects when the basic question is simplistically posed as consent versus coercion. Finally, it is noted that the basic inalienable rights argument?hat a de facto person cannot fit the de jure role of a thing even with consent?pplies equally well to the employment contract which can be seen collectively as a contract for the employees to alienate management rights over their work to the employer or individually as the contract to rent oneself to the employer for limited periods rather than to sell oneself as in the self-enslavement contract. In conclusion, the paper considers various paths to get from the employment relation in a firm to a democratic firm where the members are the people working in the firm. This is a reprint from Politics & Society (Sept. 2005). (Click on title to open memo or paper.) See slides for a talk on this paper.
Marxism as a Capitalist Tool. Just as the two sides in the Cold War agreed that Western Capitalism and Soviet Communism were 'the' two alternatives, so the two sides in the intellectual Great Debate agreed on a common framing of questions with the defenders of capitalism taking one side and Marxists taking the other side of the questions. From the viewpoint of economic democracy (e.g., a labor-managed market economy), this late Great Debate between capitalism and socialism was as misframed as would be an antebellum 'Great Debate' between the private or public ownership of slaves. Even though the Great Debate between capitalism and socialism is now in the dustbin of intellectual history, Marxism still plays an important role in sustaining the misframing of the questions so that the defenders of the present employment system do not have to face the real questions that separate that system from a system of economic democracy. In that sense, Marxism has become the ultimate capitalist tool. Click on the title for the reprint from: Journal of Socio-Economics.
The Market Mechanism of Appropriation. A theory of property needs to give an account of the whole life-cycle of a property right: how it is initiated, transferred, and terminated. Economics has focused on the transfers in the market and has almost completely neglected the question of the initiation and termination of property in normal production and consumption. Yet the market also provides a laissez-faire mechanism: when the legal authorities do not intervene ("let it be"), then the initial right is, in effect, assigned to the first seller and the terminal liability to the last buyer. But does this mechanism satisfy the juridical principle of responsibility: assign de jure responsibility in accordance with de facto responsibility? The fundamental theorem states that if all transfers are covered by voluntary contracts and all contracts are fulfilled, then the laissez-faire mechanism satisfies the responsibility principle.
Hume Implies Locke: The Fundamental Theorem of Property Theory. There is an invisible hand mechanism in the property system that underlies the invisible hand mechanism in the price system. In the life-cycle of property rights, initiation--transfers--termination, the "invisible judge" imputes the initial rights and terminal liabilities according to the public part of the life-cycle, the contractual transfers. If the legal system does not intervene, then the invisible judge laissez-faire imputes the termination of a property right to the last buyer and the initiation of a right to the first seller. When the legal system does intervene to hold a trial, it attempts to implement the principle of imputing de jure responsibility in accordance with de facto responsibility (the juridical version of the Lockean "fruits of one's labor" principle). Hence the natural question is: under what conditions does the invisible judge satisfy the responsibility principle when no trial is held? Hume emphasized two basic conditions: that all transfers in property be voluntary contracts and that all contracts be fulfilled. The fundamental theorem for the invisible hand mechanism in the property system is that if Hume's conditions are satisfied, then the invisible judge imputes in accordance with the Lockean responsibility principle. The paper mathematically formulates and proves the theorem using vector flows on graphs.
Towards a Modern Theory of Property
Whither Self-Management? Finding New Paths to Workplace Democracy. Today, there is the real possibility that self-management and workplace democracy will follow socialism into the dustbin of history. But the connection of self-management to socialism was misconceived from the beginning. Workplace democracy has its own roots in the historical struggle against slavery and against autocracy. The paper reviews the history of the theory of inalienable rights that applies not only against the self-sale contract and the political contract of subjection but also against of the self-rental or employment contract, today's contract of subjection for the workplace. The paper concludes with the current debate about corporate governance. (Keynote Address for 12th Annual Conference of International Association for the Economics of Participation, July 8, 2004, Halifax Canada.)
On the Role of Capital in "Capitalist" and in Labor-Managed Firms. This paper outlines the "fundamental myth" about the structure of property rights in a capitalist economy, namely the idea that being the residual claimant in a productive opportunity is part of a bundle of property rights known as the "ownership of the firm." Residual claimancy is contractually determined so there is no such "ownership." The fundamental myth exposes a basic fallacy in capital theory that has hitherto escaped attention in the capital theory debates. (Reprint from: Review of Radical Political Economics, Winter 2007)
The Libertarian Case for Slavery: A Note on Nozick. By J. Philmore. This is a historically important paper arguing along with Robert Nozick from a free-market libertarian viewpoint that the self-sale contract and the current employment or self-rental contract are on the same moral footing.