[Joseph Baines]

Hi Troy,

Thanks for your reply.  The following formulation you offer is very elegant:

“We cannot look to systems of production to tell us how much of the social product entrepreneurs ought to claim. So, let’s have the difficult discussion to decide. From a moral perspective, what should the reward for socially beneficial creativity be? It is earned not because the economy dictated but because the community decided. And the rest that is captured by anyone in excess of their contribution, by virtue of their control, is rent.”

However, what you propose here is actually what we already have! True, the ‘community’ that you envisage is no doubt much more egalitarian and democratic than the kinds of communities that presently play a decisive role in determining what is and what isn’t a legitimate income. Nonetheless, from patent law, to regulations on interstate commerce, to laws on minimum wages, to the prohibition on slavery, to provisions on health and safety, to restrictions on speculation, to anti-trust law, the moral questions about who should get what is already central to how the distribution of income and power is governed across societies. While these moral questions are often dressed up in legalese, adorned in the dry language of consumer welfare and individual rights, and obfuscated by technocratic nomenklature,  this doesn’t make the issues that they tackle any less moral. In fact, it couldn’t be any other way: precisely because there is no objective means of determining marginal productivity, societies develop intersubjective means of determining the legitimate distribution of power and income.

The key question, therefore, isn’t whether a decision should be made on “how much social products entrepreneurs ought to claim”. This “difficult decision” as you call it, is being made everyday, not by ‘the market’ as such, nor by some democratic assembly as we might wish, but rather by highly complex networks of heterogeneous actors including lobbyists, lawyers, government officials, labour unions, NGOs and much besides. The key question is whether the community that decides now, is the kind of community that we want to be making the decisions. And here Hale’s 1923 essay is once again instructive and therefore worth quoting at length:

“The channels into which industry shall flow, then, as well as the apportionment of the community’s wealth, depend upon coercive arrangements. These arrangements are put in force by various groups, some of whom derive their coercive power from control over governmental machinery, some from their own physical power to abstain from working. The arrangements are susceptible of great alteration by governmental bodies, and governments are concerning themselves more and more with them. Important interests are affected by the shape that these arrangements shall take. It is difficult to measure the interests, and even if they could be measured, there are no simple rules for determining how conflicts between them should be settled. The ” principles of justice ” supposed to govern courts do not suffice. Whatever accepted ” principles ” there may be, scarcely envisage the problems. Should they be settled on the basis of an enumeration of the persons affected? Representative government with a democratic suffrage is a crude (a very crude) device for bringing about settlements on this basis. Yet it may be doubted if the basis is a satisfactory one. Moreover the interests of vast numbers of persons outside the area where any one government holds sway may be affected by its decisions; and these interests at present obtain no representation in its councils. If the area is one rich in natural resources, it makes a great difference to many who live elsewhere how the concessions are apportioned, whether the resources are exploited at all or are locked up, how they shall be rationed (in case the supply, at the price charged, falls short of the demand), and what government shall control the disposition of any revenues derived from their taxation. Since the foreign interests have no representation in the local government, we find them bringing pxessure to bear on it through the foreign offices of their respective home governments. We find attempts to formulate ” principles ” concerning concessions  (such as the ” open door”), and we find a desire for annexation. We find the foreign governments disputing with one another over these matters, which contain the most fertile seeds of modern warfare.”

One major insight from this passage, which is also clear in the work of Nitzan and Bichler, is that the moral question of who gets what is ultimately determined by the distribution of power. This poses a severe challenge for egalitarians, since returns to power are recursive and self-reinforcing. The more wealth and income accrues to the powerful, the more power they have to further augment their gains. And unfortunately this dynamic of escalating inequality only appears to be halted by mass warfare and other life-shattering disruptions. But putting this issue aside, as Hale astutely point out, even if we were to develop a more egalitarian and democratic community to arbitrate on matters of distribution, delimiting its exact boundaries, controlling its internal dynamics, and determining the principles of justice that govern it, would be fraught with complexity.  In the face of these challenges, all we can do – following Nitzan and Bichler – is make explicit how the qualitative workings of power and authority shape quantitative patterns of income and wealth.  Mobilizing the concept of rent may  help us push back against the increasing returns to power, but it also threatens to reinforce the view that there exists a domain in which income can be generated independent of control and restriction.

[Joseph Baines]

Hi All.

Thanks for the engaging discussion, which I’ve just seen one and a half years after Troy’s initial post. And thanks Troy for your beautifully crafted presentation on youtube.

Here are my thoughts:

• There are so many conceptual problems with the category of rent that I’m dubious of Troy’s claim that it is strategically useful to employ.  In fact, its problems are so significant that it may lead us to a strategic dead-end. However, it’s worth at least critically engaging with the category of rent given its widespread currency in political economy today.
• One key problem has already been highlighted by Blair and Jonathan: there’s no way of delineating unearned income from earned income. I think this, in an of itself, is a massive shortcoming of the concept: rent qua unearned income is impossible define.

 

• This problem manifests in different ways in the annals of Marxian and mainstream economic thought.
• In Marxian thought, of course, rent is income derived not from the surplus value generated by productive labour, but rather the ownership or exclusionary control of an asset. One major problem here is that, as Nitzan and Bichler systematically lay out, there’s no way of delineating productive labour from unproductive labour, converting complex labour into abstract labour, and transforming these values into monetary quantities. And given the impossibility of putting the concept of productive labour to work in empirical research, and measuring ‘socially necessary abstract labour’,  the obverse concept of unproductive income is equally untenable.
• More fundamentally, as Nitzan and Bichler persuasively argue, all income is based on exclusionary control because in a capitalist context all income is predicated on private property. Developing Veblen’s theory of business sabotage, Nitzan and Bichler put the corporation front and center in the analysis of exclusion. But the same can be said for labour income: the fact that all labourers are in some way in possession of their bodies (as a physiological fact, even if alas in the context of slavery self-ownership is not always sanctified by the law), means that they always have the capacity to withdraw their labour, and the threat of doing so gives them leverage in pushing for a higher wage.
• Arguably Robert Hale’s  essay ‘Coercion and Distribution in a Supposedly Non-Coercive State‘ published in 1923 offers the first systematic exposition of the way in which the capital/labour relation is always and everywhere mediated by the threat of withdrawl. It’s worth quoting at some length because Hale underlines how exclusion is at the heart of every transaction, not just those which are most often associated with ‘rents’, and not just those who partake in the pecuniary operations of business:
  • “The income of each person in the community depends on the relative strength of his power of coercion, offensive and defensive. In fact it appears that what Mr. Carver calls the ” productivity ” of each factor means no more nor less than this coercive power. It is measured not by what one actually is producing, which could not be determined in the case of joint production, but by the extent to which production would fall off if one left and if the marginal laborer were put in his place-by the extent, that is, to which the execution of his threat of withdrawal would damage the employer…. Income is the price paid for not using one’s coercive weapons. One of these weapons consists of the power to withhold one’s labor. Another is the power to consume all that can be bought with one’s lawful income instead of investing part of it. Another is the power to call on the government to lock up certain pieces of land or productive equipment. Still another is the power to decline to undertake an enterprise which may be attended with risk.
• Hale’s work has been foundational to the sub-field of law and political economy precisely because he shows how the law bears so profoundly on the balance of coercive/disruptive capacities of different parties involved in exchange (whether it be in the form of patents, anti-union laws and everything in between). I think, as exponents of CasP, we’d do well to enfold some of the insights of Hale (and some of his modern-day successors such as Katharina Pistor) into the framework.

 

• On the side of mainstream economics, rent is equated with ‘super-normal’ profits, and ‘super-normal’ profits are generated when some constraints on competition are imposed by an actor with market power. The problem here is obvious: how do we define ‘normal profits’? In principle, it should be equal to the marginal productivity of capital, but as the Cambridge Controversy showed there’s no way of measuring this.
• Another option would be to use the return on US Treasury Securities as the basis for defining ‘normal’ profits beyond which ‘super-normal’ profits could be gaged. But this simply takes us to the process of capitalization in which future income streams are discounted to their present value, adjusting for risk and using the riskless rate of return as registered by the Fed fund rate. Starting with the universal ritual of capitalization as the basis of our analysis as laid out by Nitzan and Bichler, rather than somehow trying to salvage the conceptually problematic and empirically inoperable category of rent seems to be the best way to proceed.
• Moreover, rather than being a renegade concept that was simply ejected by neoclassical economics as you suggest Troy, perhaps the concept of rent offers the concept of marginal productivity analytical cover: it is the big residual which explains all that which cannot be modelled in the fairyland of perfect competition. By adopting the concept of rent, we may feel we’re moving beyond the categories of neoclassical economics, but we’re inadvertently strengthening its hold over our thinking.

 

• With all that said, there’s no denying the intuitive appeal of the concept of rent. And here I want to circle back to your comments regarding its strategic usefullness, Troy. Most people – rightly in my view – believe that capitalism is not only inherently limiting, but also extraordinarily generative. Capital is not simply based on the power of negation as Veblen would have us believe, it facilitates and simultaneously circumscribes glorious inventions and mind-blowing innovations. Capitalism creates and it orders (viz. it creorders). But concepts such as rent, market power and super-normal profits do not seem to get us any closer in figuring out out where creation ends in the capitalist creorder, and where limitation begins. And by cleaving to the concept of rent, we may fool ourselves into thinking that we can repurpose capitalism for the better, rather than focussing our attention on constructing modes of organization that operate beyond it.

 

[Author]

Replies