Machinery of Freedom: Tedious Work

The Socialist claims that Capitalism produces monotonous, mind destroying work. To this David Friedman replies as follows:

You object that capitalism works too well, that more efficient means of production drive out less efficient, leaving everyone with sterile and repetitive jobs in a soul-killing environment.

More efficient means of production do drive out less efficient means, but your definition of efficiency is too narrow. If under one arrangement a worker produces a dollar an hour more than under another, but the conditions are so much worse that he will gladly accept a wage of two dollars an hour less to work under the other, which is more efficient? For both the employer, who saves more on wages than he loses on production, and for the worker, the 'less productive' arrangement is the more efficient. The efficiency of capitalism takes account of nonmonetary as well as monetary costs and products.

Let's suppose that I build radios on an assembly line. Rather than having a single task on an assembly line, say driving 6 screws to secure a cover, I'd prefer to install the circuit boards, the display, the heat sink, the covers. Everything. Because it's less boring and improves my skills.

That will reduce output. But you can have that in Capitalism, says David Friedman, because if you are willing to accept lower wages profits can be sustained even with the reduced output.

But there's an important question Friedman hasn't asked. How much less in wages are required? Maybe I'd be willing to take a 20% reduction in wages for a 20% reduction in output. What if I had to take a 90% pay cut for a 20% reduction in output? What if the former is the case on Socialism and the later is the case on Capitalism? Then guess what? The Socialist criticism is spot on and Friedman has not rebutted it.

Take a look at Foxconn, which makes your ipad and iphone. Workers make about $17/day working 12 hour shifts. When wages are already a tiny portion of overall expenses it may not matter how much less you are willing to earn with wage labor. You could go from $17 to $0 and still see profits reduce.

Below I offer a hypothetical example under Capitalism. Investors want profits. They'll be happy to alter the work environment as long profits are sustained. So let's suppose we have 100 empolyees and they produce $500 in value each day. Let's assume their total compensation is $90/day. I have an assumed capital expense as well. Under those conditions you see $31K in profit per day. Click to enlarge.

To the right I have the same conditions except the work environment has been altered so the work is more interesting and total output decreases 20%. I assume a 10% reduction in capital expense because fewer material is used. Based on this I calculate the required wage rate in order to sustaine the $31K in profits. The wages must fall to zero. Also if the initial wage was lower than $90 paying $0 would not be low enough wages to sustain the $31K in profit. Capitalism does not permit a less monotonous reduced output work environment under these conditions.

Contrast with Socialism. I have the same initial conditions, but on Socialism there are no investors that are paid. The workers only are paid. Worker wages start much higher since the bulk of the money is not going to the investors. But to permit a 20% reduction in output in order to improve working conditions workers must be prepared to accept 22.5% less in income. Much more than they make even under monotonous Capitalist conditions, but still a sacrifice.


What you find if you increase the initial wage rate on Capitalism is that you don't necessarily have to go all the way down to $0 to sustain the payments to investors. But you still must accept a greater % reduction in wages on Capitalism than you would on Socialism.

Machinery of Freedom: Pollution

Give David Friedman a little credit for at least addressing pollution, an extremely difficult issue for Laissez-Faire capitalists. It reminds me of my days as an evangelical Christian. I was comfortable making certain arguments for Christianity. The resurrection of Jesus or the existence of God. One area where I was quite uncomfortable was evolution. The Christian rebuttals didn't sit well. They seemed convoluted. Looking back I can see that I found excuses for avoiding the issue. The same I think is true of conservatives and pollution. What can they possibly say? I found it was usually a quick reference to property rights and then try to change the subject. If you are conservative and trying to understand it you're left scratching your head a bit. I read Bjorn Lomborg's "The Skeptical Environmentalist" which is an enormous book that kind of re-assures the conservative. 600 pages to tell us "Don't worry about it." Sounds great. And now let's move on.

Friedman does offer the old "property rights" defense. "Just sue the polluters for the damages and recoup the costs." Ask the indigenous people of Ecuador how that's working out against Chevron. Enough said.

At the end of the section though Friedman does offer some plausible sounding mitigation. Let the government set a price for pollutants and just charge people. The more destruction the more you pay. Presumably you pay the amount required to reverse the damage. Sounds OK. We do this with cars. Your car causes damage to the roads, but that's not a cost that's reflected in the price you pay. It's an externality. So what do you do? You have a gas tax. Use that to reverse the damage. You know what I found interesting about that though is how similar that sounds to Al Gore and his supposedly evil carbon credits.

When conservatives talk about Al Gore and how he stands to profit from global warming legislation this is the first proof offered for why global warming "alarmism" is misplaced. "Global warming? That's just a scam so Al Gore can make money." Why the sudden skepticism about the pursuit of profits? Is there something wrong with making money?

Watch a BP commercial. They have this little green flower logo. In fact the whole company is associated with the color green. The commercials include lush rolling hills, fresh clean water, and smiling people. They are trying to give you the impression that they are all about helping the environment. Which of course is absurd. But it serves their profit motive. BP works with the American Petroleum Institute and Chamber of Commerce on propaganda campaigns to give you the impression that global warming is a liberal hoax. The reason they do that is obvious. Profits. This is blatant deception and an effort to appeal to your irrational tendencies to maximize profits. Right wingers never object to those efforts to pursue profits. It's only Al Gore. But Gore is offering a market based solution. You're supposed to not care if he's pursuing profits. If he gets a profit that's supposed to be his just reward for providing a service. Why do conservatives suddenly become so skeptical of the profit motive when it comes to helping the environment? This is David Friedman's solution for crying out loud.

It's kind of like the Heritage Foundation's health care solution back in the 90's. It's the foundation for Romney Care. Which is pretty much the same as Obama Care. Right wing solutions are fine. Until they are adopted by the left. Then they are awful.

The Machinery of Freedom: Exploitation

The concept of capitalistic exploitation is straightforward. Investors get the bulk of the money and don't have to actually do anything, except hold stock. Workers produce the product, manage the company, distribute salaries, etc. Then the money left over, that is the profits, which today are at record levels for US companies, is sent to the investor that hasn't actually done anything.

Most people that earn money in this way also earn money through labor. But what we're talking about when we talk about exploitation is the money earned by capitalists as capitalists. The shareholders of Apple Computer aren't the Chinese children forced awake at the drop of a hat, possibly at midnight, to work shifts as long as 24 hours to make i-pads and i-phones. Those children don't share the profit. They just do the work. Their incredibly hard work is a major reason Apple's profits are so large.

That doesn't seem right prima facie. Friedman of course says it is. Why? Because of the time value of money. Acquisition of capital requires savings and investment. The investor is deferring consumption. That sacrifice is the value offered, and so that sacrifice is worthy of compensation.

It is not a matter of indifference to me whether I can buy a house for my family today or ten years from now. Nor is the ten years insignificant to the man who lends me the money now and expects to receive something in exchange. The Marxist is wrong to regard interest received by a capitalist or paid by a debtor to a creditor as stolen money. It is actually payment for value received.

Let's first note the formulation offered here. Savings and investment are necessary for acquisition of tools under the institution of private property. Under laissez-faire capitalism you need the investor. That's kind of like infecting a person with an illness and selling him the antidote and telling him he should be grateful to you because after all, he'd be dead without the antidote. Fine. But what about the illness? Friedman is presumably rebutting the socialist, like Marx. And yet Friedman takes it as a given that savings and investment are necessary for acquisition of the capital needed for production. That is not an assumption Marx will grant.

But what about this claim that deferred consumption is a sacrifice. This statement is true for a poor person. Deferring consumption is a real sacrifice for someone that is hungry or lacks shelter. But is it true for the 1%? That is, for the people that actually own the bulk of the stock? Take Mitt Romney. He's worth what? Hundreds of millions? That last million dollars could either be invested or he could build a house with it. Is he indifferent towards building a house? No, he's not indifferent. He actually prefers not to consume his savings right now. Deferring consumption is not a sacrifice. It's actually his preference.

I'm exactly the same. I have a 401k where I work. There's going to come a day when I won't be able to work any more due to age. So I want to have money for that time. If I could hold my savings in my hands would that do me any good? No. I don't want to spend that money. I prefer to consume in the future, not now. So Friedman is just factually wrong that my investment in stock right now is a sacrifice for me.

A better argument I think would be a comparative one. Friedman should try and argue that this arrangement produces better outcomes than any alternative. I don't think those arguments hold up, but I just think they have more potential than this. This is a moral argument that simply rests on a false assumption.

Machinery of Freedom: Starvation

To the right is an image of a Haitian mud pie, a now staple of the diet in Haiti under normal conditions, not just earthquake conditions.

David Friedman writes:

I know of only one occasion in modern peacetime history when large numbers of people starved although food was available. It occurred under an economic system in which the decision of who needed food was made by the government. Joseph Stalin decided how much food was needed by the inhabitants of the Ukraine. What they did not 'need' was seized by the Soviet government and shipped elsewhere. During the years 1932 and 1933, some millions of Ukrainians died of starvation. During each of those years, according to Soviet figures, the Soviet Union exported about 1.8 million tons of grain. If we accept a high figure for the number who starved—say, eight million—that grain would have provided about two thousand calories a day to each of them.

Haiti in the past produced enough food for their own population, but now their food producing capacity has been undermined. Leftist governments were deposed in favor of right wing governments that favored free trade with the US. Meaning the importation of subsidized US agricultural products. This has decimated Haitian food production.

In Tanzania children fight over what little rice is available while cargo plane after cargo plane is loaded with fish taken from Lake Victoria and shipped to Europe where it can fetch an impressive price. It's more profitable to serve it in upscale European restaurants than to feed starving Africans. On capitalism the goal is profit, not fulfillment of need, so this is our expectation. India is a net exporter of food while 350 million go hungry. Brazil and other places are likewise net exporters of food while millions go without.

This does not change what Stalin did. But we must be clear about what the argument is. Friedman sounds like he's objecting to socialism. He's quoting Orwell and Marx. Is his criticism of socialism or is it of state capitalism, which is what Stalin represents? And if it's state capitalism, who are the advocates of that view?

It grates the socialist when he hears the implication that the Soviet Union represented socialism. What is socialism? Worker control of industry. How much worker control existed in the Soviet Union? About zero. This is why people like Noam Chomsky railed against the Soviet Union when it existed. This is why his books were banned by the Soviets. Chomsky has only been barred from entering countries to give lectures twice. Once was recently when he was barred by Israeli security from entering the West Bank to deliver a lecture. The only other time was when he was barred from entering Soviet controlled Czechoslovakia. He was hated by the Soviets, and with good reason. He objects to their economic arrangement since he advocates worker control of industry, not state control.

But doesn't the USSR acronym include socialism? Sure. And the R is for Republic. Was the Soviet Union a Republic? They applied the socialist label because of its positive connotations, just like they applied the Republic label. But the USSR represented neither.

Machinery of Freedom: Predictions of Marx

Here is David Friedman writing in 1973.

Much of the opposition to institutions of private property comes from popular beliefs about the effects such institutions have had in the past, beliefs largely unsupported by historical evidence. Marx was scientist enough to make predictions about the future that could be proved or disproved. Unfortunately, Marxists continue to believe his theory long after his predictions have been proved false. One of Marx's predictions was that the rich would get richer and the poor, poorer, with the middle class gradually being wiped out and the laboring class becoming impoverished. In historical capitalist societies the trend has been almost the exact reverse.

Friedman goes on to offer the (at the time) left wing explanation for the success of capitalism in the US:

Many modern liberals argue that Marx's predictions were accurate enough for laissez-faire capitalism, but that such liberal institutions as strong labor unions, minimum wage laws, and progressive income taxes prevented them from being realized.

Of course Friedman rejects that explanation, but since he wrote this labor unions have been severely weakened, minimum wage is now the lowest (in real terms) that it has been in half a century, and the tax code has become much less progressive. These are all shifts to a more laissez-faire capitalism. Seems to me that Marx' predictions were accurate.

The Machinery of Freedom: Private Property

David Friedman, son of Milton Friedman, has a free book online, available here, that's been highly recommended to me by HP. It's called The Machinery of Freedom. There's also audio apparently (here). I think I will check it out and record my thoughts at my blog here.

I did read the first chapter. It's called "In Defense of Property". Friedman writes that "property is a central economic institution of any society, and private property is the central institution of a free society".

As someone with more leftist inclinations of course that strikes me as implausible. Or perhaps it is based on a definition of freedom that I don't share. Let's think about what this means.

Suppose I own lots of land and you have none. You have nowhere to sleep so you set up a tent in one of my fields. Maybe you eat from an apple tree I own where the fruit would otherwise fall to the ground and rot.

Freedom means I can, by force, evict you from my land. Land that is vast enough that I wouldn't even see you if I didn't go looking for you. You can maybe argue that a society set up to allow me to evict you from my land somehow produces better overall outcomes for the majority of people. You could argue that there isn't a better alternative. But is it freedom?

Suppose I invent a hammer. I fashion one from metal and wood. I spend a day making products out of it and at the end of the day I go to sleep. You see my hammer and think you'd like to give it a try. No. Freedom means you are not allowed to use my hammer while I sleep. It's mine. Further, if we want to pursue policies advocated by staunch defenders of intellectual property, you can't fashion one of your own and use it. I'll let you use it, but only let you keep a portion of what you produce and the rest belongs to me. Don't like that bargain? That's fine. I'll find someone else that will take it. It won't be long before I don't actually have to work. I live off the surplus labor of others. Is this freedom?

I think defenders of property rights play off of a misconception (illustrated above). When you hear Ron Paul say property rights are sacrosanct you think to yourself that you own your toothbrush and car, so it's wrong to have someone take them from you. But that's not really what he means. Everyone, including a socialist, says you should keep your toothbrush. The argument is not about that. It's about who controls the means of production. Should workers control it? Or should investors control it? Ron Paul thinks investors should control it, not workers. The socialist thinks the reverse.

Friedman in this chapter doesn't really explain why my right to evict or my right to prevent you from using my hammer makes us free. Instead he talks about problems associated with government control as contrasted to private control. Ironically he uses media as an example. Now, keep in mind that Friedman wrote this around 1973. He says look at the diversity we see in print media vs the limited views that are present in broadcast media. You can find anything in print, but in broadcast media the FCC stops the offensive and otherwise holds back diversity.

So why shouldn't we just auction off the various broadcast frequencies to private enterprise? Would we expect then that these frequencies would become the domain of only the rich, which they would use for propagandistic purposes? No. Too costly.

What we've seen since Friedman wrote this is an extension of corporate power in media and reduction in public control. Broadcast media are now almost completely under the control of extremely rich people. And contrary to Friedman's claims about print media, the same is true in that domain. All major media are now under the control of just a few corporations. Much fewer than it was 40 years ago when Friedman wrote this. And what is the result? Our media today is absolutely dominated by the profit seeking interests of these companies and the information they share reflects that interest.

There was only one nation of peoples that literally feared Saddam Hussein in 2003. And that nation is probably the most secure nation in the world, with a military budget that was about equal to that of the rest of the world combined. Hussein on the other hand had been wiped out by the Iran/Iraq war, then the Persian Gulf War, and finally a dozen years of some of the harshest sanctions ever imposed in modern times. He was one of the most feeble threats you could find. However the media, owned by such defense contractors as GE and Westinghouse, managed to drive the population into a state of fear that led to war. War that was extremely profitable for them. Fabricated evidence was passed of as genuine. Obvious questions were downplayed.

Of course this continues today. The media today push for war with Iran. In this case we're talking about a war that the government isn't really pushing for. The media seems to want it. Greenwald discusses this here, here, and here. Precisely what Friedman says would not happen has happened and is happening again before our eyes.

There's little here in Friedman's opening chapter by way of a defense that property rights enhance freedom. Perhaps it is explained in later parts of the book.