Kevin Carson on reciprocity in an (un)free market (1)

I asked Kevin Carson, a mutualist who values “free markets” for his vision on Reciprocity.

See also here for an extensive discussion of reciprocity in the context of peer to peer dynamics.

This is the first of two parts, with part one focusing more on ‘free markets’ and part two on ‘unfree markets’.

This is part of an ongoing dialogue between different ideological traditions and backgrounds, united by a common concern for the emergence of more peer to peer human dynamics.

Kevin Carson:

“The norm of reciprocity seems to be very deeply and universally ingrained in human nature. Human relations normally involve the mutual conferring of benefits, with both parties participating in a relationship because they see them as beneficial. Exploitation results from the intrusion of power relations, so that the party with superior power is able to derive a lopsided benefit from the relationship, receiving benefits from the other party while providing unequal benefits in return. Exploitation is unequal exchange resulting from an inequality of power.

The concept of “equal exchange,” specifically, has tended to assume reciprocity in terms of equal amounts of effort. According to Proudhon, it is the common sense understanding, even of illiterate peasants, that a commodity is “worth” that amount of another commodity which “can be made in the same time and with the same expense” (What is Property?) This reciprocity of effort was reflected in the medieval idea of “just price.” It also underlay the classical political economists’ conception of a “natural price.”

Both conceptions were based, as James Buchanan argued in Cost and Choice, on a common implicit understanding of man as a rational utility-maximizer. Regarding Smith’s illustration of the exchange of deer for beaver, he writes:

If, for any reason, exchange values should settle in some ratio different from that of cost values, behavior will be modified. If the individual hunter knows that he is able, on an outlay of one day’s labor, to kill two deer or one beaver, he will not choose to kill deer if the price of a beaver is three deer, even should he be a demander or final purchaser of deer alone. He can “produce” deer more cheaply through exchange under these circumstances…. Since all hunters can be expected to behave in the same way, no deer will be produced until and unless the expected exchange value returns to equality with the cost ratio.

Describing the same principle from a slightly different angle, Franz Oppenheimer argued that under the inducements of a truly free labor market, labor would distribute itself among employments until incomes became “equal”–in our terms, equal in relation to given quantities of subjectively perceived effort [Eduard Heimann, “Franz Oppenheimer’s Economic Ideas,” Social Research (February 1949)].

Oppenheimer, in “A Post-Mortem on Cambridge Economics,” quoted with approval Adam Smith’s claim that “[t]he whole of the advantages and disadvantages of the different employments of labour and stock must, in the same neighbourhood, be either perfectly equal or continually tending to equality.” He also quoted, with like approval, Johann Henirich von Thuenen’s posited equilibrium at which “labor of equal quality is equally rewarded in all branches of production….” [“A Post Mortem on Cambridge Economics (Part I),” The American Journal of Economics and Sociology 1942/43].

The principle of reciprocity is built into the normal functioning of a free market. When exchange is free and uncoerced, it is impossible for one party to benefit at another’s expense, for the reason described by Buchanan. The ratio at which goods and services are exchanged will move toward a value that reflects the respective costs of the parties, including the disutility of their labor. If one party is able to find another exchange that provides a higher degree of utility, he will choose it in preference to the lesser utility. And if one party receives a producer surplus or rent above his costs, and market entry is free from barriers, others will find it profitable to offer a better deal.

Coercive intervention, on the other hand, forces one party to a contract to accept a lower-ranking preference than he otherwise would, in order to provide the other party with his preference at a lower cost.

So if equal exchange is the norm in the absence of coercion, why do we see so much inequality in the real world? R. A. Wilson argued in The Illuminatus! Trilogy that unequal exchange would occur to a certain extent “because some traders will be shrewder than others.”

But in total freedom… such unequal exchanges will be sporadic and irregular. A phenomenon of unpredictable periodicity, mathematically speaking…. [But in the real world, we observe], instead, a mathematically smooth function, a steady profit accruing to one group and an equally steady loss accumulating for all others. Why is this…? Because the system is not free or random, any mathematician would tell you a priori. Well, then, where is the determining function, the factor that controls the other variables?… Privilege, I… call it. When A meets B in the marketplace, they do not bargain as equals. A bargains from a position of privilege; hence, he always profits and B always loses.

Anna Morgenstern, of Tranarchism blog, described the phenomenon in terms quite similar to Wilson’s:

Once a pocket of unmet demand is discovered, under anarchy, capital will flow in that direction and will arbitrage out the profit opportunity pretty rapidly. So while there will always be profit making going on somewhere in the economy, it will never consistently flow to the same people. If it does, that is prima facie evidence of violent intervention or fraud, IMO.

But since this is no free market, what we observe is the “Matthew Effect”: “To him that hath, more shall be given.” A more scientific term for it is “Pareto’s law.” A study by physicist Victor Yakovenko found that income distribution among the top 3% of the population followed a power law distribution–Pareto’s law–but that incomes for the bottom 97% more closely resembled the spread of energies of atoms in a gas.”

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