All Commentary
Friday, March 16, 2012

The 99% and the 1%

The economic means versus the political means.

This is drawn from my lecture at the William and Patricia Jolicoeur Economics Seminar, cosponsored by FEE and the Western New England University economics department, Springfield, Mass., March 13, 2012.

“We are the 99 percent!” That’s the battle cry of Occupy Wall Street. What are we to make of it? It’s a worthwhile question with a complex answer.

On the one hand, it is certainly the case that by historical and world standards, the 99 percent have an amazingly high standard of living. This includes most of those we call “poor” in this society. Suffice it to say that the amount of time it takes the average worker to earn the money required to buy a whole range of consumer goods has shrunk dramatically in my lifetime. That is indisputable, but it isn’t the half of it. The products are superior, and many things we take for granted weren’t available just a short time ago. Before the early 1980s you couldn’t buy a personal computer. Only a few years ago the most you could do with a mobile phone was make a call!

More Access

I am not saying no one is in dire straits, but the fact is — recession aside — more people in the United States have greater access to more affordable and superior goods than ever before. Even if the 1 percent have a larger share of total income in the United States than at some previous time, total income is far greater. The 99 percent’s absolute amount is also far greater.

But it’s not enough to say the 99 percent have never had it so good. To use an admittedly provocative analogy: Would we be happy to learn that the last generation of southern slaves lived better in material terms than earlier generations of slaves (or even free people)? Maybe they did, but so what? They were slaves.

I’m not saying the non-superrich are slaves. I’m saying that if many 1 percenters made and maintain their fortunes by unjust methods — which means coercively at the expense of others — then that is morally significant, and it doesn’t matter how well off the rest of us are by historical and contemporary world standards. If we would have been even better off had the 1 percent not unjustly captured wealth from labor’s productivity gains or consumer surplus by suppressing competition with government help, that is a legitimate grievance justifying protest.

So we must inquire whether 1 percenters (and others) have acquired their fortunes by immoral means.

Oppenheimer’s Insight

I approach this question by drawing on an insight emphasized by the left-libertarian sociologist Franz Oppenheimer (1864-1943), originator of the conquest theory of the State and inspiration to Albert Jay Nock. It is an insight found previously in the nineteenth-century French laissez fairests J. B. Say, Frédéric Bastiat, and others. In his book The State, Oppenheimer wrote:

There are two fundamentally opposed means whereby man, requiring sustenance, is impelled to obtain the necessary means for satisfying his desires. These are work and robbery, one’s own labor and the forcible appropriation of the labor of others.… I propose … to call one’s own labor and the equivalent exchange of one’s own labor for the labor of others, the “economic means” for the satisfaction of needs, while the unrequited appropriation of the labor of others will be called the “political means.”

So our inquiry is directed to whether 1 percenters make their money through the political means or the economic means. The right answer is “both.” Let’s start by acknowledging that we do not live in a free-market economy, by which I mean an economy based solely on “equality of authority” and voluntary exchange, void of all privilege founded in coercion. Quite the contrary. Corporatist privilege abounds, and so we may reasonably suspect that any large fortune is the result of a combination of the economic and political means. In any individual case one or the other may predominate. Some people are genuine market entrepreneurs. But others are largely political entrepreneurs. Since the State touches all aspects of life, we are talking about matters of degree.

While it can be difficult to determine how much any individual depends on the political means, we can enumerate some of the many devices described by that term.

Barriers to Entry

Among the political means are all the historical barriers to both competitive entry and competitive vigor that governments — national, state, and local — maintain at the behest of well-connected interests. These include impediments to foreign trade like tariffs and quotas, occupational and business licensing, land-use restrictions such as zoning, building codes, eminent domain, subsidies, government contracting, tax differentials, monopoly franchises, minimum product standards, limits on labor activity, intellectual property laws, and regulations, which bear more heavily on small and yet-to-be-launched firms than on large incumbent firms. These things were common as far back as the colonial period and persisted after the revolution and adoption of the Articles of Confederation and Constitution.

We may single out transportation subsidies, such as those relating to the cost of building the railroads and maintaining the interstate highway system, as particularly distorting. Those subsidies favor national-market business models over regional- and local-market models by socializing transportation costs. Nor should we neglect government’s various land-distributions schemes dating back to colonial times, which gave large areas of prime real estate to special interests, such as railroads, and shaped the evolution of the American economy in ways other than how a truly spontaneous consensual market order would have. The State’s engrossment of land to this day limits opportunity and mobility by foreclosing alternatives to conventional wage employment. The period often seen as closest to laissez fare — the Gilded Age — was anything but, having followed on the heels of the Civil War, which enriched particular people through military contracts, government debt speculation, and the cartelization of banking.

Let’s pause for a moment to contemplate the forest. Any government measure that inhibits competition — including from self-employment and worker-owned firms — harms consumers and workers by raising prices and reducing bargaining power. This doesn’t necessarily mean they are poorer than previously, but it means they may well be poorer than they would have been in a freed market.

IP in the Spotlight

Intellectual property deserves special attention. Property rules evolved to avert conflict and facilitate flourishing in society because physical objects, unlike ideal “objects,” are scarce and finite. Two people cannot wear the same pair of socks at the same time, but they can use “the same” idea at the same time. Ownership in ideas equates to control of people and their use of their own physical property.

I just wish to underscore the obvious monopolistic and anticompetitive effects of IP law, which by the way the U.S. government imposes on foreign countries as the price of access to our market. (Curiously, we call these “free trade” agreements.) Patent law has been romanticized as a protection for the independent inventor from big business, but in practice it accomplishes quite the opposite. Entrenched holders of patents can use the courts to bludgeon upstarts who act in ways the holders construe as patent infringements. The pooling of patents by big companies can create de facto cartels. This has a chilling effect on competition and innovation. (For more, see David Levine and Michele Boldrin’s free-market analysis, Against Intellectual Monopoly.)

One last word on IP: We live in an extraordinary time when in many industries the relative cost of physical capital is plummeting — think of what’s happened with computing power — and the relative value of know-how — human capital — is exploding. The value of many firms is now more in the minds of personnel than in the machinery. The departure of a couple of employees can represent a potential competitive challenge to an incumbent firm — unless it can control those employees through IP law.

Anger at Bankers

Occupy Wall Street has the banking establishment in mind especially when it rails against the 1 percent. Steve Jobs was a 1 percenter, and so are many sports and entertainment figures, but they are not the objects of anger. Rather it is Goldman Sachs, Bank of America, and JPMorgan Chase that get the brickbats. There is a sense that Wall Street is up to no good.

In light of the last several years, this is an entirely justifiable attitude. Big, well-connected players in banking and finance were at the heart of the housing and financial debacle, in partnership with the government, of course. Free-market advocates should hold no brief for any of them. It is important to understand that throughout American history no industry has had a cozier relationship with politicians at all levels than banking and finance.

The 1 percent as we know it is not the product of the market. Corporatism has played a large role. In a freed market, there certainly would not be income equality — people are too different to expect that. But the distance between the top and bottom would likely be much less dramatic and mobility greater. Abolishing all privileges and finding reasonable ways to rectify past injustices would put America on the road to freedom.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.