Part III of a Five Part Review Essay of

John Tomasi’s Free Market Fairness

The misframing about “productive property”

In Part I of this series, we saw how Tomasi used the standard consent-versus-coercion misframing of the basic issues in his new book: Free Market Fairness [2012]. In Part II, we considered the misframing involved in his treatment of the Lockean theory of property. In this Part III, we consider the conceptual misunderstanding of what Tomasi calls “productive property” which allows the basic capitalism-versus-socialism misframing of the debate about the so-called “capitalist” system. The book has also been the focus of a symposium on the Bleeding Heart Libertarians blog that features commentary from the whole spectrum of political thinkers from A to B.

In Parts I and II of this review, the points being made were relatively simple; the distinction between contracts of alienation and of delegation, or the property-theoretic application of the ordinary juridical principle of imputing legal responsibility in accordance with de facto responsibility. In this Part III, the point is actually conceptually difficult and requires some use of careful and abstract thinking.

There is a fallacy that is almost always involved in the descriptions of the current free market private property system.[1] This is the fallacy that the ownership of “capital,” “productive property” (Tomasi’s favorite phrase), or the “means of production,” includes the right to manage any production process using those assets as well as the ownership rights to the products of that productive activity.

To see the fallacious nature of the view, one only has to take a few seconds to consider the case where the ownership of the productive assets (e.g., machines, buildings, land, or other capital goods) stays the same but the assets are rented, leased, or loaned to another legal party who undertakes the productive process. Then the asset owner still has his ownership of the capital asset but has no ownership of the products or management rights over the process which might include rented or leased assets from many owners. One would think this suppose-the-capital-is-rented-out argument would be easily available to people on the right and left who constantly use phases like “productive property” or “ownership of the means of production.” But the misuse of these phrases is ubiquitous (on both the right and left) and takes many different forms. Even if a person, perchance, understood the argument in one context, they may still make the same mistake in other contexts.

For instance, one way to state the point is that “residual claimancy” is not a property right attached to the ownership of “productive property” or the “means of production”; residual claimancy is a contractual role determined by who hires what or whom in the marketplace. One would think that those who are (correctly) enamored with markets would take the trouble to understand the effects of market contracts (more on this in Part V). Those who unthinkingly talk about “ownership of the means of production” or the “private ownership of productive property” as if that ownership included residual claimancy are in effect acting like capital cannot be rented out. But the characteristic feature of the misnamed “capitalist” economy we have today is not that capital cannot be rented—but that people can be. Thus in this people-rental economy, the legal party that ends up “being the firm” in the sense of the residual claimant is determined by which way the rental or hiring contracts are made, e.g., by the owners of capital renting people, by people renting capital from its owners, or by some third party renting both the people and assets involved in a productive activity.

When stated in this simple way, it is relatively easy to get agreement that capital can be rented and thus that residual claimancy is determined by the pattern of contracts so “residual claimancy” is not “owned.” But then people will turn around and commit the fallacy in other ways—particularly when the legal party undertaking a productive activity is a corporation. Then they misinterpret the ownership of the corporation as automatically including the “ownership” of residual claimancy in any productive activity using the corporation’s assets—as if a corporation’s assets could not be rented or leased out.[2]

But the ownership of a real estate company that owns a mall does not include residual claimancy in the stores that operate in the mall. Or the ownership of an oil company or cab company does not include the residual claimancy in the operation of the gas stations or cabs leased to independent operators. Depending on the contracts, a corporation can be just the owner of assets leased to other operators or it can be the operating company using those assets in a productive activity. Thus the residual claimancy in the going concern that uses capital assets owned by a corporation is not part of the ownership of the corporation but depends on the pattern of market contracts. [3]

This confusion about what is involved in the “ownership of the means of production” is an updated version the older relationship between the ownership of land and the governance of the people living on the land. In the distant past before land became a privately-owned, rentable, and salable asset, the governance or Lordship over people using the land was considered part and parcel of the Ownership of the land. As Maitland put it: “ownership blends with lordship, rulership, sovereignty in the vague medieval dominium,….” [Maitland 1960, 174] The landlord was the Lord of the Land. But as land became simply real estate property, the basis for Lordship shifted to the contracts of subjection previous mentioned.

Then, when the question about Ownership had been severed from that about Rulership, we may see coming to the front always more plainly the supposition of the State’s origin in a Contract of Subjection made between People and Ruler. [Gierke 1958, p. 88] [DE: this also relates back to the discussion of the pactum subjectionis political alienation contract in Part I of this review]

But socialists and capitalists alike—each for their own reasons—carried over the idea that “Rulership and Ownership were blent” [Gierke 1958, p. 88] when it came to the “ownership of the means of production.”

It is not because he is a leader of industry that a man is a capitalist; on the contrary, he is a leader of industry because he is a capitalist. The leadership of industry is an attribute of capital, just as in feudal times the functions of general and judge were attributes of landed property. [Marx 1977, 450-451]

Marx’s “ownership of the means of production,” indeed Marx’s notion of “capital,” which was used to misname the current system, was based on this fallacy. By “capital” Marx did not simply mean financial or physical capital goods (which Marx called the “means of labor”); he meant those goods used by wage labor with private ownership of the means of production and where the capital owner is the “firm” in the sense of being the residual claimant. In short,

Marx’s “capital” = “means of labor” + “contractual role of being the firm.”

If one wishes to use the word “capital” in that Marxian sense, then one gives up being able to talk about the “ownership of capital” since there is no “ownership” of the contractual role of being the residual claimant. But Marx continued to talk about “capital” (in the sense that includes residual claimancy) as being owned in a linguistic move that might be called a “semantic straddle” (i.e., an invalid argument based on using the same word with two different meanings in different parts of the argument).

There is a similar ambiguity in the common notion of “owning a factory.” There is the ownership of factory buildings (and the ownership of corporations with such assets), but there is no “ownership” of the going-concern aspect of operating a factory as that is a contractual role in a market economy (residual claimancy). If the owner of a factory building leased it to an operating company, then the factory owner would not be the “firm” or residual claimant for the business being conducted in the factory. By using the same Janus-phrase “owning a factory” to straddle both meanings, one could seem to have an argument that the contractual role of operating a factory was “owned”:

“Owning the factory” = “Owning the factory building” + “contractual role of being the firm.”

For instance, when it is argued to many economists today that “owning the factory” (in the sense of operating it) is a contractual role, not an extra owned property right, the typical response is: “Yes, but it is that role which is called the ‘ownership’ role.” After thus using “ownership” to name a contractual role, they then straddle back to the old meaning and talk of “ownership” as a property right. If one wants to talk about the contractual role of residual claimancy as the “ownership role” then one loses the freedom to switch back to the other meaning of “ownership” as a property right. It is surprising hard for well-trained social scientists to resist this use of the same phrase with different meanings in the same “argument,” particularly when dealing with ideologically sensitive matters.

This confusion as to what is involved in the ownership of what Tomasi calls “productive property” is crucial to the misframing of the whole capitalism-socialism debate. The socialist side of the debate believes in the misframing as vehemently as the so-called “capitalist” side so that it will support the desired conclusion of both sides that any non-capitalist mode of production must involve social if not state ownership of the means of production.

One might imagine a debate between non-democratic and democratic government conducted by two sides with each believing that sovereignty and rulership was part of land ownership. Then the proponents of democracy would have to insist on social or public ownership of land in order to have popular control over a town while the temporal lords would insist on the private “ownership” of say a town or city—all as if governance rights were attached to the land as the “means of residence,” not to the people who reside on the land.

In fact, this debate is not hypothetical as we see from the lack of any principled commitment in (right-) libertarianism to democratic governments (in the “public” sphere, never mind the “private” sphere).

[I]f one starts a private town, on land whose acquisition did not and does not violate the Lockean proviso [of non-aggression], persons who chose to move there or later remain there would have no right to a say in how the town was run, unless it was granted to them by the decision procedures for the town which the owner had established. [Nozick 1974, p. 270]

The classical liberal bottom line is that government must be based on consent which includes the possibility of exit when consent is withdrawn. Classical liberalism and right-libertarianism are, of course, not against democratic government; the point is that democracy is only one choice among other consent-based rule-of-law governments. The libertarian point is that there should be a “democratizing choice of law, governance, and regulation” (Free Cities Institute’s website) which includes well-regulated pro-business non-democratic enclaves like old Hong-Kong and new Dubai. Libertarian or classical liberal models of consent-based non-democratic governments include the Free Cities Institute’s notion of “free cities,” Patri (grandson of Milton) Friedman’s floating seastead cities, and Paul Romer’s charter cities all of which see the resident-subjects as having agreed to a municipal pactum subjectionis as evidenced by their voluntary decision to move to and remain in the city (assuming free exit).

Tomasi’s treatment of the debate about workplace democracy is similarly misframed as being about “social” versus private ownership of the means of production. For instance, the Yugoslav notion of the self-managed firm was based on an utterly muddled notion of “social ownership.” Many social democrats in the West who defend economic democracy [e.g., Dahl 1985] still see the conventional firm as being based on the “private ownership of the means of production” (rather than the contract to rent human beings). Since they see the governance and product rights as being part of that “private ownership of productive property,” they see a “conflict” with democratic principles—which they would resolve in favor of democratic principles. Thus the democratic socialist version of this “high liberalism” wants to “socialize” those non-existent property rights—particularly in corporations that are so big that they are in some sense already “social.” Thus the misframed debate about whether residual claimancy should be privately or socially “owned” misses the point that it is not owned at all. Being the firm is a contractual role, and the key institution in the misnamed “capitalist” system is not the “private ownership of productive property” but the voluntary contract for the renting of human beings.

The real debate is not about “socializing” private property but about the abolition of not just the voluntary self-sale contract but also the voluntary self-rental contract in favor of firms that generalize the family firm and self-employed business person to a larger scale where all the people working in the firm are its legal members. Far from socializing private property, that would for the first time base the appropriation (and termination) of private property on the just basis of the juridical responsibility principle. It would perfect private property, not socialize it, as was pointed out by earlier advocates of the labor theory of property such as Thomas Hodgskin [1973 (1832)].

Of course, today’s human rental system is “a” private property system just as was the earlier private property system based upon involuntary or voluntary ownership of other persons (and which was no less vigorously defended in the name of private property). Instead of seeing the workplace democracy of jointly “self-employed” people as the perfection of private property, the “private ownership” misframing allows the defenders of the human rental system to strike a pose as the “defenders” of private property.

Tomasi ducks the debate about privately owned “free cities,” but he uses the same ownership-determines-governance misframing to smear all those who support workplace democracy as being “market socialists” who oppose private productive property. But we noted above in Parts I and II, the misframings exploited by Tomasi are actually shared by much of the left, particularly the misframing about the “private ownership of the means of production.” There are many high liberals and democratic socialists who themselves (mis-)frame their support of workplace democracy as a “socializing” of productive property. These muddle-headed democratic socialists, not to mention Marxists, [4] are a great boon to our liberal scholars and social scientists who can then defend the peculiar institution of renting people and appropriating the positive and negative fruits of their labor as “the private property system” rather than its abrogation.

References

Dahl, Robert 1985. Preface to Economic Democracy. Berkeley: University of California Press.

Ellerman, David 1992. Property & Contract in Economics: The Case for Economic Democracy. Cambridge MA: Blackwell. All my references downloadable at: www.ellerman.org .

Ellerman, David 2010. Marxism as a Capitalist Tool. Journal of Socio-Economics. 39 (6 December): 696-700.

Gierke, Otto von 1958. Political Theories of the Middle Age. Trans. F. W. Maitland, Boston: Beacon Press.

Hodgskin, Thomas 1973 (1832). The Natural and Artificial Right of Property Contrasted. Clifton NJ: Augustus M. Kelley.

Maitland, F.W. 1960. Frederic William Maitland: Historian. Berkeley: University of California Press.

Marx, Karl 1977 (1867). Capital (Volume I). Trans. B. Fowkes, New York: Vintage Books.

Nozick, Robert 1974. Anarchy, State, and Utopia. New York: Basic Books.

Tomasi, John 2012. Free Market Fairness. Princeton: Princeton University Press.