Price as the Cost of Mobilizing People (Pt. 3 of “Why a Just and Sustainable Society Cannot be Based on Swapping Things”)

Even among those who acknowledge the myriad of problems inherent to the market system, it is still viewed by many as an indispensible tool, both on the left and the right. There is a general consensus among market advocates that “socialism has failed” because of economic reasons. The failures of socialist countries are not reflective of a system that cannot provision goods, but rather one that has been unable to withstand both the logistical challenges of building a developed country without or with little support from other countries as well as the political and military challenges of being challenged, attacked, and manipulated by the large, imperial nations like the US, China, and Russia. By overlooking the power struggles involved in the economy, today’s political theory calls for market socialism or market libertarianism out of their “economic” failures–their inability to conform to the revealed truth of how all provision must work, or their inability to solve the “economic calculation problem”.

The main intellectual bastion of the price system is that it provides some sort of key economic information to us, something representative of real economic factors represented nominally in a way that drives decisions toward economic rationality. The (lack of a) mechanism for this a major point of failure in market theory: There’s the law of supply and demand, which states that changes in price represent changes in quantities of goods on either side of the trade. There is the idea of subjective value (or marginal utility), that prices are representative in some way of value, which is itself a representation of subjective utility or socially-necessary labor. There is also the reality that most businesses today use mark-up pricing, and most prices actually have nothing to do with subjective value or supply and demand (see The Modern Corporation and Private Property).

Money costs are essentially the cost of mobilizing people to do something. This can be the cost of making a tech voluntarily run a robot factory, the cost of getting someone to sell you a chair, or the cost of getting people to organize and operate as a state. All three have money costs, and all three are considered fundamentally different activities, especially between the first two and the third. But all three also have to do with the mobilization or control of people: There is nothing else that money can represent, because nothing else has the agency to give or receive it. The criteria that go into determining this cost vary tremendously, so a “theory of value” is only ever a personal belief system, or a prevailing consensus among the current population. It is the basis by which you determine whether or not you will engage in a certain transaction, and not a process inherent to markets which transforms real value into nominal price.

Market advocates often believe in the labor theory of value or the subjective theory of value, specifically that one is the correct theory. Since people believe in both of these theories, and because prices do not form ex nihilo but from the arbitrary (and I specifically mean “arbitrary” and not “random” or “irrational”) quantifications of market participants, they are both correct, and they are also both incorrect. There is a plurality of ways to determine prices and therefore a plurality of different mechanisms affecting cost. The inability for anyone to know whether a price is determined out of labor or utility or simply markup means that any price can’t tell you anything more than the amount of money you need for that transaction. There is no embedded information about preferences, nor signals of supply and demand, nor representation of embodied labor. There is simply a quantity of money which may have been generated out of any one of these, or none of them, which represents nothing more than the quantity of money you must pay for the seller to engage with you.

Josiah Warren originally raised the concept of the injustice of profit, of “cost [as] the limit of price”. The problem here is that prices are not objective representations of the same or similar quanta. There is no baseline or boundary for what could legitimately be considered “cost” or “just compensation”. If a firm’s income all went directly to paying the workers, is there any level at which this becomes profit? If so, what is it? If not, then wouldn’t this mean that even with cost as the limit of price, prices essentially form according to what the seller has the power to charge?   Not all goods and services are equally desirable, and some are a necessity–not just consumer goods, but especially raw and intermediate goods. If those who produce or otherwise control the production of necessary goods choose to do so, they can raise their prices and begin to accumulate. A price that includes profit becomes a cost to another party as soon as the price is accepted, and causes that party to raise prices, as well as parties that depend on that party’s products, thus beginning inflation. Even a small increase in someone’s cost or “just compensation,” as Warren puts it, can lead to large and continuous increases in all other prices, because of the interdependent relationships in supply chains.

This problem carries through to the so-called ‘externality’ problem: Prices failing to capture social goods and social costs that might otherwise change the consensus of the market. However, this also falls victim to the problems above: An externality isn’t simply a failure of the seller to incorporate a cost, it is the power of the seller to take from some without reciprocating. These externalities also pervade other prices in the market, and in the case of a product that is critical for every activity, such as energy, water, or land, an externality can affect all prices. This is not something that more freedom in a market will fix. There are conditions, stemming from cost accounting on the basis of the individual agent, which will ensure externalities remain a problem forever.

For one, people have a limited bandwidth with which to care about things. This is completely trivial to observe today: People are outraged by thousands of problems around them, but they can’t possibly respond to all of them, especially given that they have significant problems of their own to worry about, often just surviving and/or taking care of their families. Economists call this problem opportunity cost, but no one seems to consider opportunity costs of caring about harms done. Without some Say’s law of punishing cheaters, this guarantees that some number of cheaters will always win.

Two, many of these externalized costs simply slip under the radar. If a corporation pollutes the ground water supply, but it only causes $10 a year worth of damage to people, each is going to care very little, certainly not enough to enter a court battle or other form of arbitration with the polluter. This is assuming you even know about the problem in the first place–we cannot possibly know of every externalized cost or every bit of social damage that a company inflicts. Because of the many-to-one relationship between customers and sellers, the small harms done to many customers amounts to a large collective benefit for the seller, one which the seller will likely get away with, without a particularly motivated and focused effort by the wronged party.

On the other hand, business leaders have a focused interest in preserving their ability to externalize costs, because it directly benefits them and their families. Industries that evolve to externalize the same sets of costs, such as carbon pollution, have a shared interest and enough organized power to exert a more targeted and sophisticated effort than resisters or protesters are typically capable of. On top of this, those industries are accumulating wealth at the cost of the wronged parties, which means they have yet another leg up on defending their ability to externalize. And of course, as entities that live and die by the dollar, businesses have a much firmer grasp on the costs to them than the general public has on the business’s (let alone all business’) costs to it. In fact, one of the key characteristics of the price system is the asymmetry of information between the business and the customer: The price of a good completely obfuscates the costs the business paid. The “externality” is simply whatever you can get away with not paying, which, when considering the nature of business and property, turns out to be a lot.

These differences give power to the business that would not exist were it not for the price system. Thus, I can only conclude that the price system is itself a form of institutionalized power. It is one that exclusively benefits those with the power to set prices, especially those with the power to set prices on critical goods and raw materials. Unless each person has an equal or nearly-equal power to price, there is no benefit to the ordinary person of the price system. The oft-repeated, supposed benefits of it to the ordinary person, such as efficient allocation of goods which leads to more wealth for everyone, should already seem ridiculous after knowing of the above problems. Because prices represent the cost of getting people to do something, the only efficiency it can give rise to is the least expensive way of getting people to do things. That is, a form of efficiency that inevitably leads to shouldering a disproportionate amount of work on those who can least afford to walk away from money, the poorest, most desperate, least skilled, or otherwise most marginalized people.  It also leads to doing business with these that externalize and take from others without just compensation.

Lowering costs is an arms race, which competing businesses continually reinforce upon one another. There is nothing in a market to stop it from tending towards the heights of low cost that capitalism has now, from deskilling labor and using poor people, immigrants, and even poorer people overseas, nor to stop it from externalizing costs onto society and the environment. Many see this as perfectly acceptable, or even a good thing, because it is ‘voluntary’ (voluntary as in no one physically threatened you, a conveniently narrow definition for ignoring all forms of coercion except physical violence) or because it makes them better off than they were before (another intellectual convenience, this time of measuring the well-being of former peasant farmers with the market/capitalist yardstick of money income). And thanks to the price system, the buyer has no idea why the cost of the good is lower.

One solution to the power problems in markets that I have seen raised is the socialization of specific parts of the market, in order to keep them really free. The question I would immediately raise is how do you determine which parts need to be socialized? It obviously cannot be through market mechanisms, since the problem is that they don’t work for these specific parts. So if it’s through a democratic or analytical process, why are we even bothering to focus on markets in the first place? If markets have a problem with giving power to people with control over critical parts of them, then what we are left with is the trivial parts, and why base a political ideology on that?

Because all political and ‘economic’ activity is embedded in a wider social context, there are no truly individual actions or individual preferences or individual motivations anywhere in a market or any other society. Preferences, abilities, motivations, these are all shaped by the wider social whole, and to say that we should leave things up to the individual or base our theory on the unit of the individual misses the fact that the individual itself has already been shaped by the social. It’s true that the individual shapes the social as well, but most of us are not in the position to substantially shape the social as individuals.

Even freedom explained from the level of the individual is facile and prone to reactionary tendencies: A society where all individuals are free is a free society; a society where some individuals are free is a society of privilege. Material privileges are not exempt from this categorization, and though a society where there is a relatively narrow gap of privileged to non-privileged people would be an improvement over our current conditions, it would still not be a free society.

Some say it’s the reality of markets now that create the importance of markets in our political theory. However, if that’s so, then don’t the many serious problems with the market system, its relative lack of comparable advantages, and the scale and severity of the problems that we have to fix with our new political systems, suggest that our ideological focus should be on what we need to look forward to, and not what we need to deal with in the present? That markets should be incorporated into our strategy, as simply one of many fronts of liberatory struggle, not into our theory as the singular or primary platform of liberation?

Prior to the Enlightenment, freedom was viewed as (and was actually) what you have the power to do. Royalty, for obvious reasons, had far more freedom than the peasants. Today, this system has hardly changed, with some having incredible freedom and power, and most having little or none. Many of those who uphold individual rights as the most important goal of a liberatory ideology are unable to see the bifurcations of society into classes, or shoulder the blame on the state alone, or refuse to conceive of class in a continuous, rather than discrete, fashion, or believe that the movement of individuals into other classes means they are no longer classes.

Of course, the sort of class system that exists today may not fit the dictionary definition of class (and actually, it does: the system of ordering a society in which people are divided into sets based on perceived social or economic status.), but the existence of a persistent separation of society into a minority with more wealth (and thus freedom), a group whose earnings grow consistently, and a majority with little or no wealth, a group whose earnings are consistently stagnant and rendered smaller through the redistributive mechanism of inflation, is not a free society. It’s a society of privilege for that minority, whether or not the composition of the majority and minority change, their relative sizes have actually gotten more extreme, with the wealthy minority’s pace of accumulation increasing over time. The lack of distinct demarcations between classes doesn’t mean they don’t exist, just like the lack of a distinct separation between a cloud and the sky doesn’t render clouds nonexistent. The fact that you can be middle class (which is what most people think they are), or richer than multiple countries’ economies put together, or so poor that grad students do anthropological studies on how unfortunate your life is, makes this a worse class system, not a non-class system.

The fact that some can ascend to privilege and also lose it, based on ability, does not make it freer: After all, one can ascend to privilege in a bureaucracy, a military, or a church, but is anyone going to seriously argue that this makes them freer?  The market is often portrayed as rewarding ability, but even with technical or social ability, it is those who are good at using markets that are most rewarded. If there is a distinct group of people that are rewarded more than everyone else, presumably with what other people wanted but they now have, in what way is this not supposed to result in the businessmen having power over the rest? Again, if markets are supposed to do anything important, that means that a class bifurcation will emerge from some using the desires of the less fortunate for the important rewards of the market to accumulate power; unless there is some counterforce to this (but as we commonly hear, you can’t possibly stop black markets from forming), there seems little reason to doubt that those who are masterful at using markets would eventually form large businesses. Large businesses may be less industrially efficient, an assertion I have seen but don’t totally believe: Money doesn’t measure the cost of industry, it measures the cost of getting people to create, use, and sell the products of industry. However, even if that is true, a business that has a lower technical efficiency would still succeed over one with an inferior ability to market its products/services, one with less power to affect the market’s conditions or its institutions, especially in a social environment where democratic decision-making is largely replaced with markets.

Can we build a liberatory system that is based on something that is innately hierarchical, like a military, church, bureaucracy, or market? I think not. Can the market make up for its hierarchies by efficiently and rationally provisioning resources to make everyone wealthier? Again, I think not. Are markets the tool necessary for dealing with scarcity, even if just in the short term? On the contrary, I think markets exacerbate scarcity, and the way it deals with scarcity by giving the privilege of consumption to those with the ability to earn more money is, to me, a socially-darwinistic method of dealing with that problem. If we have scarcity, and the question of how to deal with it is phrased as “who gets what,” we are already outside the realm of freedom, and in the realm of privilege. The proper question to ask is “what gets made?” Do markets need to be part of the path towards a liberatory society? Certainly, but that means we must look at them critically and devise alternatives, not shrug our shoulders and use it as the solution to any hard problem.

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