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Title: Abolish Human Rentals Author: David P. Ellerman Date: 2015 Language: en Topics: abolition, worker cooperative, wage labor Source: http://www.abolishhumanrentals.org/
Welcome to AbolishHumanRentals.org home of the modern abolitionist
movement.
This site examines the standard employment relationship, the human
rental, and
shows that it is invalid on inalienable rights grounds. The human rental
today
manifests itself as the voluntary exchange of personal labor for a
salary or
wage. A legitimate arrangement requires workplace democracy and worker
ownership whenever human labor is involved. This site is an educational
resource that seeks to promote public awareness and understanding of the
problems associated with human rentals. Inquiry into the legitimacy of
human
rentals has long been buried by a barrage of propaganda with the
complicity of
the economic establishment.
Such a fundamental question is notably absent from our education system
and
ignored by the mass media. These ideas must be revived in public
discourse. The
theory of inalienable rights is only useful to the extent it is widely
known
and consistently applied in practice. Inalienable rights are based on
the
already broadly held principle of the non-transferability of
responsibility for
one’s actions. That principle, taken to its logical conclusion, means
the
rental of humans have no more legitimacy than their sale. The issue is
not one
of coercion, willfully choosing to be rented, or the treatment and
compensation
of workers. Humans cannot choose to be rented for the same reason people
cannot
choose to sell themselves into slavery or sell their vote, regardless of
their
consent or how much they are paid. The abolition of human rentals will
be no
small task given their widespread prevalence and firm entrenchment in
the
economic system. The modern abolitionist movement must begin by
destroying the
false perception of legitimacy that human rentals currently maintain.
Inalienable rights arguments pose a lethal threat to the practice of
renting
humans. At stake is nothing less than the employment system, the labor
market,
and the stock market through which ownership of human rental contracts
are
exchanged. As with slavery, inalienable rights issues cannot be
addressed
directly by proponents of human rentals without inviting destruction of
the
system. There are only two possible responses: Silence in the hope that
inalienable rights are never widely understood, or vilification and
harassment
of the advocates in the event they gain traction. The strategy has thus
far
been successful in diverting attention from a profound idea and its
revolutionary implications.
The alternative to human rentals is universal self employment in
democratically
managed worker owned businesses, or worker cooperatives. Workplace
democracy
eliminates the alienation of decision making power, and worker ownership
means
workers appropriate any resulting profits or losses, thus bearing
financial
responsibility for their actions.
What is a human rental?
Human rentals describes how most people earn a living, they rent
themselves in
exchange for a salary or wage. The self rental typically describes the
state of
being employed by a firm. Human rentals involves two key features.
The first aspect is the agreement to follow orders within terms of the
rental.
For example some standard orders would be: produce this, provide this
service,
design this, or manage these people. The employee generally concedes
authority
over how the work is performed and under what conditions. The main issue
is the
delegation of positive governing control. The employer has the ability
to
command the worker to perform certain actions: work faster, work harder,
produce higher quality parts, etc. Or more commonly today, dump these
toxins,
deny these medical claims, issue these predatory loans, or manage public
relations so we can continue doing these things. The rented person must
obey,
or risk being fired.
The second aspect of a human rental is the transfer of responsibility
for the
actions of the person while at work. The most obvious is the transfer of
responsibility for any profit or loss that results from the worker’s
actions.
That responsibility is shifted to the owners of the business.
It is important to note that both the alienation of governing control at
work
and the transfer of responsibility cannot in fact take place. A person
can not
alienate their authority to a state or firm without a say in the
governance, at
least if one believes in inalienable rights and democratic theory. At
best a
person can choose to cooperate, which the legal system then pretends is
an
actual alienation of authority and fulfillment of the rental contract.
This is
precisely what our judicial system does with regard to human rentals
today.
The transfer of responsibility for personal actions is clearly
inalienable as
illustrated by the commission of a crime. The judicial system correctly
traces
criminal responsibility back to all persons involved. It matters little
if a
person is “hired” to commit a crime. Being contracted to provide
services in a
crime does not shift responsibility and get a hired criminal off the
hook.
However, responsibility cannot be transferred in the positive case
either, that
of productive labor. In this case the legal system closes its eyes and
pretends
that the employment contract actually transfers responsibility between
parties.
It thus allows the transfer of profit resulting from labor to be
appropriated
by another party not responsible for its creation.
Quotes
While rare, the description of the standard labor relationship as a
human
rental is not new. Here’s what a few well known economists have said.
Paul Samuelson in Economics 1976 (10th edition).
One can even say that wages are the rentals paid for the use of a man’s
personal services for a day or a week or a year. This may seem a strange
use of
terms, but on second thought, one recognizes that every agreement to
hire labor
is for some limited period of time. By outright purchase, you might
avoid ever
renting any kind of land. But in our society, labor is one of the few
productive factors that cannot legally be bought outright. Labor can
only be
rented, and the wage rate is really a rental. [p. 569]
Here is the image of the relevant part of that page.
Samuelson's Economics, 10th ed., p. 569
Samuelson also points out:
Interestingly enough most of society’s economic income cannot be
capitalized
into private property. Since slavery was abolished, human earning power
is
forbidden by law to be capitalized. A man is not even free to sell
himself: he
must rent himself at a wage. [p. 52, his emphasis]
And here is the direct image.
Samuelson's Economics, 10th ed., p. 52
The inability to capitalize labor is not strictly correct. The “marvel”
of
modern finance is that labor is capitalized whenever businesses are sold
for
more than their net asset value (for example a publicly traded firm
whose
market value is greater than its net asset value). The value of a firm
in
excess of its net asset value represents the capitalized value of the
labor of
future employees. It is the prearranged theft of the profits of future
workers.
A similar scheme in the past may have involved trading shares of a slave
owning
firm, a deceptive way to deprive slaves of their inalienable rights by
packaging the transaction as the sale of a firm in a free market. It is
an old
trick with continued application.
James Mill in Elements of Political Economy 1844.
The labourer, who receives wages, sells his labour for a day, a week, a
month,
a year, as the case may be. The manufacturer, who pays these wages, buys
the
labour, for the day, the year, or whatever period it may be. He is
equally well
the owner of labour, with the manufacturer who operates with slaves. The
only
difference is, in the mode of purchasing. The owner of the slave
purchases, at
once, the whole of the labour, which the man can ever perform: he, who
pays
wages, purchase only so much of a man’s labour as he can perform in a
day, or
any other stipulated time. Being equally, however, the owner of the
labour, so
purchased, as the owner of the slave is that of the slave, the produce,
which
is the result of this labour, combined with his capital, is all equally
his
own. In the state of society, in which we at present exist, it is in
these
circumstance that almost all production is effected: the capitalist is
the
owner of both instruments of production: and the whole of the product is
his.
Fischer, Dornbusch, and Schmalensee in Economics 1988.
The commodity that is traded in the labor market is labor services, or
hours of
labor. The corresponding price is the wage per hour. We can think of the
wage
per hour as the price at which the firm rents the services of a worker,
or the
rental rate for labor. We do not have asset prices in the labor market
because
workers cannot be bought or sold in modern societies; they can only be
rented.
(In a society with slavery, the asset price would be the price of a
slave.) [p.
323]
Fischer, Dornbusch, and Schmalensee included a useful table.
Note that none of them, as well as most academics, can find anything
wrong with
the rental of humans. As John Kenneth Galbraith said in The New
Industrial
State 1967:
One of the small but rewarding vocations of a free society is the
provision of
needed conclusions, properly supported by statistics and moral
indignation, for
those in a position to pay.
A perceptive comment which certainly applies to the economic
establishment, and
to which volumes of literature attest. Why question something as
fundamental as
the validity of human rentals, when the foundation of the entire
framework is
at stake.
As David Ellerman says
The “beauty” of an institutionalized fraud like the employment contract
is that
there is no de facto transfer that fulfills the contract. The
pseudotransfer of
labor (i.e., voluntary co-operation with the employer) has been accepted
for
centuries by the legal authorities themselves as fulfilling the
contract. The
“discovery” of the fraud thus requires extensive analysis to see that
labor is
not de facto transferable after all. And any responsible scholar and
respected
businessperson–being embedded in the institutions of the employment
system–has
every incentive not to make that discovery.
The Great Debate
David Ellerman
The Great Debate between Capitalism and Socialism is at last over. The
free
market and private property have decisively won. Does that mean the “end
of
ideology” or the “end of history”? Can we rest assured that there are no
fundamental structural flaws in the western-style economy? Our legal
system is
structured to forbid discrimination on the basis of race, but racism
persists.
Is that the only type of social problem that remains—where the structure
is
correct in principle but the implementation is flawed?
We shall argue that the current western-style economic system is
fundamentally
and structurally flawed. The problems are not just in the implementation
of
sound principles. Moreover, we shall argue that the system is flawed
because it
violates the principles of the institutions that are usually associated
with
capitalism. That is, it violates the basic principles of both private
property
and democracy. From the conventional point of view, this will seem to be
a
strange position. Isn’t capitalism usually identified with private
property and
democracy? That identification has been based on the Great
Capitalism-Socialism
Debate, on assuming that “the alternative” to capitalism is state
ownership of
businesses and one-party dictatorships. But that debate is over, and
accordingly capitalism can now be evaluated in a new light.
Since “capitalism” is so often definitionally identified with a private
property market economy, we must give a more precise definition of
“capitalism”
so that we are not just arguing about definitions. By “capitalism” we
mean
production organized on the basis of the employer-employee relationship.
We
shall also use “the employment system” or “employer-employee system” as
more
accurate but less known names of the system based on the
employer-employee
relation. The alternative is a private property market economy where
everyone
is self-employed (individually or jointly) in their workplace. A firm
where the
managers and workers are jointly working for themselves will be called a
“self-employment firm,” a “worker-owned firm” (where “worker” always
includes
all who work in the business enterprise), or a “democratic firm” in
contrast to
the conventional “capitalist firm” or “employment firm.” The basis
question is
this—the employer-employee relation or universal self-employment in the
workplace?
We shall have more that one occasion to use a slavery analogy. Consider
a
private property market economy where the workers were largely privately
owned
slaves, like the American economy before the Civil War. Suppose the
defenders
of such a system managed to restrict consideration of an alternative to
a
system of state businesses with state or socially owned slaves. The
“Great
Debate” would be between the “Athenian” model of privately owned slaves
and the
“Spartian” model of publicly owned slaves. The Athenian model would most
likely
be more efficient. Over the years, it would demonstrate its superior
efficiency
while the Spartian model might eventually collapse under its own weight.
Would
the victory of the Athenian model of private slave ownership signal the
“end of
history”? Would the victory mean that the Athenian model contained no
structural flaws, only problems of implementing otherwise correct
principles?
The Great Debate of our day has been similar except that the question
has been
the voluntary private or public hiring (or renting) of workers instead
of the
private or public ownership of workers. In spite of its political
importance,
the public-private debate has been conceptually wrong-headed from the
beginning. The real question about slavery is not the public or private
ownership of slaves but whether the master-slave relationship should be
allowed
(involuntarily or voluntarily) or should people always be self-owning
(which
implies that the right of self-determination should be inalienable even
with
consent). Today, the real question is not about the public or private
employment of workers (as it was in the capitalism-socialism debate).
The
question is: should the hiring or renting of people be allowed at all or
should
people always be self-employed in the their place of work?
Some would say that the universal self-employment system should be
presented as
a variant of capitalism rather than an alternative. That may be; there
is no
need to argue only about words. But there are conceptual and historical
reasons
to use the word “capitalism” exclusively to represent the
employer-employee
system so long as one is clear, precise, and explicit about that usage.
When
people are self-employed in their firms, then the suppliers of capital
are not
hiring the workers. Labor (in the sense of all the people, managers and
blue-collar workers, who work in the firm) is hiring capital. Since
Labor would
then be the “residual claimant” (the party receiving the profits left
from the
revenues after the costs are covered), it would be odd to call that
arrangement
a variant of “capital-ism.”
In any case, the reader has been forewarned; “capitalism” herein refers
to the
use of the employer-employee system. The alternative is a private
property
market economy based on universal self-employment.
Intimations of Structural Flaws
The end of the capitalism/socialism debate also signals the triumph of
neo-classical economics over Marxian economics. Neo-classical economics
now
reigns as a self-contained and virtually unchallenged scientific theory.
How
could there be any deep-lying structural flaws in the capitalist
(employment)
system without neo-classical economic theory discovering them? The
answer is
that basic flaws in the paradigm have always been fairly clear but that
neo-classical economics has simply decided not to investigate them.
Take for example the simplest and most fundamental of insights in
economics,
the mutual gains of voluntary trade between two or more parties. In the
absence
of externalities that violate the rights of others, economics finds no
reason
to prohibit a voluntary exchange between knowledgeable and consenting
adults.
Yet no capitalist economy allows citizens to sell or buy their political
votes.
Why not? There are certainly willing buyers and willing sellers so there
would
be mutual gains from a voluntary exchange. It is easy to understand why
representatives are not allowed to sell their votes (since it would
violate
their representative function). But why shouldn’t the ultimate primary
citizens
be allowed to sell their votes?
The prohibition of vote selling is in direct contradiction with the
simplest
recommendation of economic theory. Is the prohibition just an arcane
practice
that should be removed in the interests of greater efficiency, or does
it hint
at some deeper flaw in economic theory? What is the position of
economics on
this conflict between received theory and the legal system? Does
economics give
an uncontrived explanation of this prohibition as an “exception” to the
efficiency rule, or does economics recommend that citizens be allowed to
sell
their votes? The reader is invited to inspect the economics texts of our
day to
answer the question. We fear the reader will find little or no
discussion of
vote selling. Economics tends to duck the issue.
Consider the voluntary contract to sell labor by the lifetime. The usual
employer-employee contract is a short-term contract to buy and sell
labor. The
employer is hiring, renting, or employing the employee for some limited
time
period. But just as one can rent or buy a car or an apartment, why can’t
we
have the same choice with people? Buying a car is essentially buying all
the
services the car can provide (like rental for the lifetime of the car)
instead
of buying only a certain segment of services. Applying the same option
to
workers, there could be a voluntary contract to “buy” a worker in the
sense of
buying all the services (within the scope of the contract) the worker
could
provide over his or her working lifetime. That would be a modern
civilized form
of the old voluntary self-sale or self-enslavement contract. Yet such a
contract between knowledgeable and consenting adults is forbidden in all
capitalist economies.
Here again, does economic theory give any coherent account of the
drastically
different treatment of short-term and long-term rental contracts
(applied to
people)? Why is the long-term contract strictly forbidden when the
short-term
contract is the foundation of the system? Do economists recommend
consistently
with free market principles that lifetime labor contracts be allowed
[like
Nozick 1974 and Philmore 1982], or do they give a coherent and
uncontrived
explanation of this “exception”? The reader is again invited to consult
the
economics books of our day, but we fear that economics again ducks the
issue.
Or consider the voluntary collective contract for a people to give up
and
transfer their right to govern themselves to an emperor or autocrat. In
the
employment contract, the employees give up and transfer their right to
manage
their activities within the scope of their employment to the employer or
“master” (the original legal name was “master-servant relation”). Why
not allow
the same sort of collective contract in the political sphere? Indeed the
postulation of such a pactum subjectionis (pact of subjugation) was the
traditional sophisticated justification offered for nondemocratic
governments
[e.g., Thomas Hobbes].
In the western political democracies, the right of political
self-government is
considered to be inalienable (cannot be alienated even with consent) and
is
vouchsafed in the political constitutions. If the analogous right was
considered inalienable in the workplace, then it would imply the
adoption of
the system of universal self-employment. Collective self-employment in
the firm
is the economic analogue of political self-government or democracy. Yet
the
same societies consider it quite routine for the citizen-as-worker to
alienate
that right in the workplace (the employer is not the representative or
delegate
of the employees). Does economics give any coherent and uncontrived
explanation
of how society can be partitioned into “spheres” [e.g., the political
sphere
and the economic sphere] so the right to self-determination is
inalienable in
one sphere while being routinely alienated in another sphere? Or does
economics
consistently advocate that citizens be allowed the same latitude in
“collective
bargaining” as workers? The reader is again invited to consult the texts
of our
day to see whether or not economics avoids the issue.
Or consider the position of economics on the distinction between persons
and
things. Economics recognizes no theoretically relevant distinction
between the
actions of persons (namely, “labor”) and the services of things such as
capital
goods and natural resources. Microeconomic models routinely do not even
recognize the distinction in their notation [e.g., in a production
function
notation y = f(x1,...,xn)]; much less in the substance of the models.
The
services of humans and the services of things are both causally
efficacious;
both have a “marginal productivity” in the sense that production would
decrease
if the services were withdrawn. Thus contemporary economics has
dismissed as
misguided the earlier theoreticans who reserved a special place for the
actions
of persons [e.g., in "the labor theory "].
Yet it is quite simple to differentiate human actions from the services
of
things. Look at a court of law. The “tools” used in a crime are of
course
causally efficacious. They have a “productivity”; otherwise there would
be no
reason to use them in the commission of crimes. But the responsibility
for the
crime is traced back through the tools to the human being who used them
to
commit the crime. Only humans can be eligible for responsibility; not
things.
The court of law attempts to insure that the legal responsibility for a
crime
is imputed to the correct people, to the people who were de facto
responsible
for the crime. No liability attaches to the tools, regardless of their
productivity. The people who commit crimes are to be made liable for the
negative fruits of their labor. This principle at the root of juridical
imputation is also at the root of private property. People should also
have the
rights to the positive fruits of their labor. In this form, the
principle is
called the “labor theory of property” and it is associated with John
Locke, not
Karl Marx.
The “labor theory” is a standard topic in the history of economic
thought, and
the question of “imputation” is part of the subject matter in the
economic
theory of the firm. Yet the reader is invited to scan the entire corpus
of
contemporary economics texts to find one which even mentions the basic
legal
distinction between the actions of persons and the services of
things–which
even mentions that only persons, never things, can be responsible for
anything.
Responsibility seems to be the R-word which cannot be uttered (except
perhaps
metaphorically). We have considered a number of areas where conventional
economics is directly at odds with the legal structure of the western
democracies. Modern legal systems
· prohibit vote-selling by citizens,
· prohibit voluntary self-sale contracts between adults,
· take basic political rights of self-determination to be inalienable,
· would not recognize any political pactum subjectionis, and
· impute responsibility only to persons (never to things regardless of
their
“productivity”).
All these practices are in direct conflict with the most fundamental
recommendations of conventional economics. On the one hand, economics
does not
advocate that these practices be changed to be consistent with economic
theory
and, on the other hand, it does not give a coherent and uncontrived
explanation
of why these practices should be considered as “exceptions.” In short,
economics tends to duck these basic issues. There have always been these
intimations of structural shortcomings, lacuna, and flaws in
conventional
economics. Economics has only seemed to be coherent and complete theory
because
it chooses to ignore the paradigm-threatening discrepancies between the
theory
and the legal structure of the modern western democracies.
The Fundamental Myth of Ownership of the Firm
David Ellerman
We are presenting an analysis of economic organization quite different
from the
perspective of the Great Debate between capitalism and socialism. The
Great
Debate has focused on whether workers should be rented privately for
profit or
should always be rented by the government and employed for the public
good. The
view that people should not be rented at all was not a topic in the
classic
capitalism/socialism debate.
We present an alternative analysis that juxtaposes employment in a
private
capitalist or government-owned firm to membership in a democratic firm.
There
are powerful barriers to this conceptual reconfiguration. There are
fundamental
but flawed presuppositions shared by both sides in the classic
capitalism/socialism debate. Thus there has been little pressure to
overthrow
those common assumptions. But it is only by moving beyond the shared
myths of
the Great Debate that the ground can be cleared for a fresh start.
The Fundamental Myth is that the identity of the legal party undertaking
a
given production opportunity is determined by a property right called
“ownership of the firm” or, in the Marxist tradition, “ownership of the
means
of production.”
Both sides to the Great Debate shared the assumption that “firmhood”
(the
identity of the firm) is determined by the “ownership of the firm.” The
firm is
a “piece of property.” The difference of opinion was over who should own
that
property. State socialists argued that only the government should own
the
firms, while capitalists defended the private ownership of firms. Today,
that
debate is replaced by the “privatization debate” [see Ellerman, Vahcic,
and
Petrin, 1991] over how best to establish private ownership of the firms.
But firmhood is not determined by a property right; it is determined by
the
pattern of contracts between factor suppliers. Being the firm is a
contractual
role, not a property right.
Here again, there are many ways to misinterpret the argument. The
assertion is
quite sensitive to the meaning of words and phrases such as “firm,”
“company,”
“corporation,” “means of production,” “capital,” and so forth. The word
“firm”
has a specific technical meaning in the assertion “There is no such
property
right as the ownership of the firm.” The assertion would be nonsense if
by
“firm” one meant “corporation” since clearly corporations are owned by
their
shareholders.
A Corporation is Not Necessarily a Firm
Corporations are owned; that is no myth. But corporate capital can be
hired out
just as labor and other factors can be hired in, so the corporation is
not
necessarily the firm (i.e., the party undertaking production) even with
respect
to its own plant and equipment. It is the pattern of those hiring
contracts
that determines who is the firm.
Consider a production process for manufacturing widgets. The process is
currently being undertaken by a corporation, Widgets Unlimited, which
owns the
land, factory building, and machinery. Finance is borrowed from a bank,
raw
materials and subcomponents are purchased from suppliers, and labor
services
are purchased from the employees. By the “firm” we mean the legal party
undertaking this widget production process. Widgets Unlimited is
undoubtedly
the firm in the example. But why? Because of the ownership of the
corporation
or because of the company’s contractual role of hiring (or already
owning) the
requisite inputs to the widget production process?
The question is easily answered by considering a rearrangement or
reversal of
the input contracts without any sale in Widgets Unlimited shares.
Suppose the
workers (including managers) get together, borrow the money, lease the
production facilities for Widgets Unlimited, purchase the other inputs
from the
suppliers, and undertake the widget production process. Then the firm (=
widget
producer) changed hands from Widgets Unlimited to the new legal party of
the
associated workers without any sale of corporate shares. The Widgets
Unlimited
still own the same shares, but the corporation is no longer the firm (=
the
widget producer). It is a factor supplier to the firm. Thus the
ownership of
the corporation Widgets Unlimited was not the “ownership of the firm.”
Firmhood as a Contractual Role, Not a Property Right
There is no “ownership of the firm.” Being the firm (e.g., the widget
producer)
is a contractual role, not a property right. What is the contractual
role that
is equivalent to firmhood? It is being the party that has hired or
already
owned all the factor services used up in production so that party bears
those
costs and thus has the defensible claim on any appropriable products
(e.g.,
widgets) produced in the process. That contractual role is called the
role of
the hiring party (since it hires the other factors) or the residual
claimant
(since it nets the value of the appropriable products minus the costs of
the
inputs).
In a private property free enterprise market economy, firmhood is
determined by
the outcome of the contest or conflict–the “hiring conflict”–over who
hires
what or whom in the factor markets. In abstract terms, if Capital (= the
capital-owners) hires Labor (= the workers including the managers), then
Capital is the firm. If Labor hires capital, then Labor is the firm. A
contract
reversal between Capital and Labor reverses who is the firm. There is no
need
for Labor to “buy the firm”; it suffices to rent the capital. And if
some third
party, an entrepreneur or the state, hires both the capital and the
workers,
that party is the firm.
The winner of the hiring conflict is the hiring party, the party which
becomes
the firm. If not already a corporation, the hiring party will organize
the
“spoils of victory” by forming a corporation which it owns. For example,
if the
widget workers successfully hired the other factors to undertake
production,
they would legally encapsulate their operation in a corporation of some
type.
If the workers lost the hiring conflict and remained employees, they
would most
likely not form a corporation. In a free market economy, one tends to
find a
one-to-one correlation between being the firm and ownership of a
corporation
just as there is a perfect correlation between winning an Olympic event
and
owning an Olympic gold medal. But it would be a mistake to think that
someone
won the event because they own a gold medal. The causality was the
reverse.
Examples of Contract Reversals
A major oil company might own the facilities of a gas station but not
operate
the station as a business. The gas station facilities would be leased to
an
individual who would run the station as an independent operator. In
other
cases, an oil corporation might operate the station by hiring in the
people to
run it. Following the Mideastern oil crisis of a few years back, gas
prices
escalated and the profit potential of gas station operation increased.
Some
major oil companies which had previously leased out their stations
decided to
reverse the contracts and hire in the labor. The independent operators
were
notified that their leases would not be renewed when they expired.
However, the
oil company would be happy to hire them as employees to continue running
the
gas stations.
One independent operator in the Southwest staged a protest that made
national
television news. He barricaded himself into the station with a shotgun
and
issued statements to the press. He said the oil company was “stealing my
business.” It couldn’t “just hire me”; it had to “buy me out.” The poor
fellow
had bought the myth; he thought he “owned the firm.” In fact, he only
had the
contractual role of being the firm, and more powerful market
participants could
change that contractual role when they pleased. The oil company
correctly
pointed out it didn’t need to “buy the firm” to take over the operation
of the
station; it only needed to hire in the labor.
In another example, the owner of a department store chain decided to
endow his
employees with “ownership.” But his shares were already locked into
trusts for
his family and heirs. Thus he set up another corporation which was 100%
employee owned through an employee share ownership plan (ESOP). Then he
leased
all the fixed assets of his company and sold the inventory to the new
employee
owned company. All the employees switched over to the new corporation
which
also acquired the contractual right to do business under the original
tradename. By these contractual rearrangements, the firm changed hands
but the
original corporation didn’t. The shares were still in the family trusts.
The
original corporation changed from being the firm (= the department store
operation) to being a factor supplier to the firm.
Yet another example is the leasing movement in the Soviet Union and some
other
socialist countries [see Ellerman 1990]. Over a thousand state sector
enterprises in the USSR have leased their fixed assets to be operated by
the
collectivity of workers from the original enterprise. The new legal
entity with
the workers as its members takes over the role of being the residual
claimant
(i.e., is the firm) even though the state still holds the ideological
fetish of
the “ownership of the means of production.” The contract reversals in
both
capitalist and socialist countries reveal the falsity of the common
assumption
that “being the firm” is part and parcel of the ownership of the means
of
production.
The Role of Bargaining Power
The argument that firmhood is determined by the contractual role does
not
assume that factor suppliers actually have enough market power to change
the
direction of the contracts. The argument is about the structure of the
legal
institutions. It makes no assumption whatever about the respective
bargaining
power of the market participants. That is entirely another question.
Typically large accumulations of capital have the market power to hire
in labor
whenever desired. Democratic worker ownership within capitalist society
is
often restricted to the nooks, crannies, and backwaters of the economy.
The
bargaining power of the capital-owning class includes the social power
of
having successfully indoctrinated workers and the workers’ trade union
representatives that “their role” is to hire out labor, not to hire in
capital
and go into business. Thus the capital owners are the firm, but “being
the
firm” is not an attribute of capital. The accumulation of capital and
the
social conditioning give capital owners the power to win the hiring
conflict
(which Labor rarely contests) by hiring in labor and becoming the firm.
Having a position of market power is not itself a property right.
Parties often
lose positions of market dominance. This is the free play of market
forces, not
a violation or confiscation of property rights. Capital’s actual
property
rights (as opposed to imagined property rights) would not be violated if
the
capital owners lost the market power to hire in the other factors, and
thus
they had to hire out their capital in order to secure an economic
return.
We are now in a position to appreciate the powerful ideological role of
the
ownership-of-the-firm myth. Capital owners quite naturally do not want
their
dominant social role as being the firms to be perceived as the result of
mere
market power which could well be otherwise without violating their
“property
rights.” They are accustomed to their contractual role as the firm so,
like the
dominant classes of the past, they see it as their right, their
“ownership of
the firm.” Capital is the firm because Capital “owns the firm.” Any
change in
Capital’s role as the firm would violate “sacred private property
rights.”
The ownership-of-the-firm myth has a fundamental role in capitalist
ideology;
it transfigures a mere contractual role into a “sacred property right.”
That,
in turn, allows a most miraculous transformation of capitalism into the
defender of the principles of private property. The natural basis for
private
property appropriation is labor. Yet the employment system is founded on
denying people the right to the fruits of their labor by virtue of the
employment contract. The ownership-of-the-firm myth allows the system
founded
on denying the labor basis for private property appropriation to present
itself
as the embodiment of private property.
The Symbiotic Role of Marxism
Since the firm-ownership myth can be exposed by a simple contract
reversal
argument, how has it been such a stable part of capitalist ideology? As
if the
social power of Capital was insufficient to vouchsafe the myth, Marx
vastly
increased its credibility by giving his imprimatur. In feudal times, the
governance of people living on land was taken has an attribute of the
ownership
of that land. The landlord was Lord of the land. As Gierke put it,
“Rulership
and Ownership were blent” [1958, 88]. Marx mistakenly carried over that
idea to
capital. The command over the production process was taken as part of
the
bundle of capital ownership rights.
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 bought the myth.
Marx’s “ownership of the means of production,” indeed Marx’s notion of
“capital,” involves the mythical “ownership of the firm.” By “capital”
Marx did
not simply mean financial or physical capital goods; he meant those
goods used
by wage labor in capitalist production. Outside of capitalist
production,
“capital” becomes just the “means of labor.”
In short,
Marx’s “capital” = “means of labor” + “contractual role of being the
firm.”
If one wishes to use the word “capital” in that sense, then not all of
what is
included in “capital” can be owned. There is the ownership of the means
of
labor (financial and physical capital goods directly owned or indirectly
owned
through the legal shell of a corporation), but there is no “ownership”
of the
residual claimant’s contractual role of being the firm.
By agreeing that there is the ownership of “capital” (which includes
being the
firm), Marx swallowed the Fundamental Myth of capitalist ideology even
though
he took great pride and joy in exposing other aspects of capitalist
mythology.
It should be carefully noted that this analysis of the “ownership of the
firm”
is entirely descriptive; it is not normative. The point is not that the
“ownership of the firm” should not exist; the point is that it does not
exist.
Marx accepted that the “private ownership of the firm” does exist as a
part of
the capitalist system, and he argued that it should not exist.
By accepting the Fundamental Myth as a point of fact, Marxism becomes
the
perfect symbiotic partner and the ideal foil for capitalist ideology.
Then the
battle could rage without touching on the shared but mistaken assumption
about
the nature of the capitalist system. Like Voltaire’s god, if Marxism
didn’t
exist, capitalism would have to invent something like it as an
ideological
foil. Autocrats find real or imagined bugbears to justify their power,
and the
same psychological dynamic operates in the realm of ideology.
Marxism, which in governments means Marxist-Leninism, has been the
perfect foil
for capitalism for other reasons as well. Perhaps another slavery
analogy will
illustrate the point. The present-day capitalism/socialism debate is
analogous
to a debate over slavery where the alternative proposed by the
“abolitionists”
was the public ownership of the slaves. That would be a debate with real
stakes
since the nationalization of the slave plantations would break the
social power
of the private slave-owners. But this “Great Debate” over the private or
public
ownership of the slaves would nevertheless miss the point; the real
alternative
is for the slaves to be free and self-determining. Similarly, the
current Great
Debate over whether workers should be privately or publicly rented
misses the
point; the real alternative is for people to be jointly working for
themselves
in democratic firms.
The Firm Ownership Myth in Democratic Theory
The argument for democratic worker ownership rests on two legs,
democratic
theory and property theory. Our purpose here is to foreshadow how the
firm
ownership myth has previously distorted both democratic theory and
property
theory by shutting off certain avenues of investigation and shunting the
debate
into irrelevant detours. The idea of applying democratic principles to
the
economic enterprise is hardly a new idea. What principles behind the
capitalist
firm must be changed in order to apply democratic principles? Where is
the
conflict? If “rulership and ownership are blent” in the capitalist firm,
then
replacing capitalist rulership with workplace democracy entails
eliminating the
capitalist “ownership of the firm.” Thus democracy is perceived to be at
war
with property rights in the capitalist firm.
Most modern political theorists ignore the question of applying
democratic
principles to the firm. They are intellectually placated by being told
that the
firm is “private” whereas democracy is “public.” The inalienable human
rights
at the foundation of our political democracy do not reach the “private
sphere.”
Those political theoris ts who take democratic principles seriously
enough to
apply them to the firm still tend to misinterpret property rights by
accepting
the firm ownership myth.
The owner of capital resources, or the agent who acts on behalf of the
owner or
a number of associated owners, controls and determines, in virtue of
such
ownership, the process of production and the action of the workers who
are
engaged in the process. In its unqualified form, capitalistic
organization is a
form of autocracy or absolutism. In practice it is never unqualified. .
. We
may call it … a limited absolutism, which naturally seeks to escape its
limits,
and on which (so long as it exists) combinations of workers will as
naturally
seek to impose new limits. [Barker 1967, 105-106, emphasis added]
The preeminent democratic theorist, Robert Dahl, presented essentially
this
analysis of democracy in conflict with the “ownership of the enterprise”
in his
otherwise excellent book Preface to Economic Democracy [1985]. In this
conflict, Dahl holds that democratic principles should take precedence
over
property rights, and thus he develops the case for economic democracy.
That analysis takes a contractual role as a property right. The firm
ownership
myth includes the idea that the management rights (rulership) over the
people
using capital goods are part of the ownership of the capital. But those
positive control rights over people are not included in capital
ownership. The
negative control rights to exclude other people from using the property
are
part of the property rights so we must digress on the distinction
between
positive and negative control rights.
Another person may not use one’s property without the owner’s consent.
Thus
ownership does give a right of negative control over other people’s
actions,
the right to withhold consent and thus to specify how they will not use
the
property. The owner can decide what others will not do with his or her
property. But that is quite different from the right to control what
others
will do. They may have many other options not involving that property,
and
those property rights give the owner no control rights over which of
those
options the others will choose.
The right to tell others what not to do with one’s property is a
negative
control right. The right to tell others what to do is a positive control
or
management right. The negative control right over other’s activities is
a part
of property ownership, but the positive control right to tell others
what to do
is not a part of property ownership. How does one acquire the positive
control
right over another person’s behavior–the right to tell them what to do?
The
employment contract. Hire them.
If labor and land are to be mixed in productive work, there is no
pre-existing
property right which specifies whether the labor-owner or land-owner
directly
controls the process. Absent any contracts or agreements between the two
parties, the land-owner’s negative control rights can make the worker
into a
trespasser if he tries to use the land without consent. But
symmetrically, the
worker can make the land-owner into a kidnapper if he tries to force the
worker
to work the fields without consent. Thus when the labor and land are
mixed,
there must be a hiring contract one way or the other to determine
positive
control of the process. If the worker rents the land, he manages the
work
process. If the land-owner hires the worker, the land-owner manages the
work.
In either case, it is the hiring party which controls the use of the
commodities in the production process. In neither case does the prior
ownership
of one of the factors by itself give management rights over the
production
process mixing the factors.
Or consider a factory owner who issues orders to the people working in
the
factory. What is the legal basis for his positive control rights over
the
workers’ actions? Absent an employment contract, the ownership of the
factory
gives the factory owner the right to make the workers into trespassers
by
denying consent. It does not automatically make the workers into
servants or
employees; that requires the employment contract. The positive control
rights
over the workers are not an attribute of capital; the employer buys
those
rights in the employment contract.
Here again, many social theorists are mislead by hastily evoking that
universal
explanatory factor, “power relations.” The ownership of the factory may
well
give the factory owner the bargaining power to hire in labor. The
sequence is:
factory ownership => bargaining power => positive control via employment
contract.
Some theorists collapse the sequence and infer that factory ownership is
“tantamount” to owning the positive control rights.
Returning to democratic theory, we find no structural conflict between
democratic principles and the negative control rights which are part of
private
property ownership. In an economy run entirely on democratic principles,
consent would of course be required as usual to use other people’s
property.
The alleged conflict between democracy and property is really a conflict
between democracy and the employment relationship.
Democracy is at war with the renting of human beings, not with private
property. In the mythical picture painted by capitalist ideology,
private
property rights are the center of the capitalist universe. Our analysis
shows
that the actual center of the capitalist universe is the employment
contract.
The economic application of democratic theory (and the labor theory of
property) presented here is based on the Copernican paradigm shift to
seeing
capitalism as revolving around the employment contract instead of around
the
“private ownership of the means of production.”
The Firm Ownership Myth in Property Theory
The Fundamental Myth also distorted thought about property rights. It
influenced not only the “answers” but the way in which questions were
posed, or
rather, ill-posed.
The basic property question about production is about the ownership of
the
product.
How is it that one legal party rather than another owns the outputs of a
production process?
Where the firm ownership myth holds sway, the answer is simple; the
“owner of
the firm” owns the product. The product ownership rights are part of the
ownership of the firm. That answer detours inquiry off in the direction
of “How
is the ownership of the firm acquired?” And the standard answer is that
the
owners bought it, inherited it, or started the firm from scratch. Even
firms
which were bought or inherited must have been previously created. And
thus all
questions about property ownership in products or firms are traced back
to the
initial creation of property rights.
The creation or initiation of a property right is called the
appropriation of
the property. Philosophical treatments of appropriation (e.g., John
Locke’s
treatment) are usually set in some rather mythical original state of
nature
when property was first privately appropriated from the common patrimony
of
Nature. There is also the symmetrical matter of terminating property
rights,
but that is ignored in the philosophical treatments which tend to be
non-technical and elementary.
That is the conventional story which begins by holding that the
ownership of
the produced outputs is part of the “ownership of the firm.” But the
“ownership
of the firm” is a myth. In the previous example, the widgets produced by
the
same workers using the same machines and raw materials would be owned by
another party if there had been a prior rearrangement of the hiring
contracts.
The product is owned by the party with the contractual role of the
hiring
party. So how did the hiring party get the ownership of the outputs? Did
that
party buy the outputs from a prior owner? No, there was no previous
owner of
the outputs. The hiring party is the first owner. In other words, the
hiring
party appropriated the outputs.
Thus the recognition that there is no “ownership of the firm” leads to
the
recognition that normal day-to-day production is a site of
appropriation. That
recognition changes the debate. It means traditional theories of
appropriation
such as the labor theory of property can be applied to normal
production, not
just to some original Lockean state of nature.
Why don’t the workers have the labor claim on the produced outputs (as
well as
the symmetrical claim against them for the used-up inputs)? The firm
ownership
myth is only the first line of defense. The real defense is the
employment
contract which puts the employees in a non-responsible position of a
hired
factor “employed” by the employer. But the labor theory of property is
the
property theoretic expression of the usual juridical canon of assigning
legal
responsibility in accordance with de facto responsibility. We shall see
in an
intuitive example of the criminous employee how de facto responsibility
is not
transferable and how the law only pretends that labor has been alienated
(until
a crime has been committed). Thus the capitalist appropriation of the
product
(including the liabilities for the used-up inputs) is based not on the
“private
ownership of the means of production” but upon the legal validation of
an
inherently invalid contract which pretends that human actions are
transferable
like the services of things.
The discussion here is a prelude to show how the recognition that the
“ownership of the firm” is a myth opened up the intellectual space for
the
analysis of appropriation.
Summary
There is a “fundamental myth” accepted by both side in the Great Debate
between
capitalism and socialism. The myth can be crudely stated as the belief
that
“being the firm” is part of the bundle of property rights referred to as
“ownership of the means of production.” Any legal party that operates as
a
conventional capitalist firm actually plays two distinct roles:
· the capital-owner role of owning the means of production (the capital
assets
such as the equipment and plant) used in the production process; and
· the residual claimant role of bearing the costs of the inputs used up
in the
production process (e.g., the material inputs, the labor costs, and
used-up
services of the capital assets) and owning the producing outputs
The fundamental myth can now be stated in more precise terms as the myth
that
the residual claimant’s role is part of the property rights owned in the
capital-owner’s role, i.e., part of the ownership of the means of
production.
It is simple to show that the two roles of residual claimant and
capital-owner
can be separated without changing the ownership of the means of
production.
Rent out the capital assets. If the means of production such as the
plant and
equipment are leased out to another legal party, then the leasor retains
the
ownership of the means of production (the capital-owner role) but the
leasee
renting the assets would then have the residual claimant’s role for the
production process using those capital assets. The leasee would then
bear the
costs of the used-up capital services (which are paid for in the lease
payments) and the other input costs, and that part would own the
produced
outputs. Thus the residual claimant’s role is not part of the ownership
of the
means of production.
This “rent out the capital” argument is very easy to understand. But it
is
astonishing how difficult the argument is to understand when the
capital-owner
is a corporation. If an individual owns a machine, a “widget-maker,”
then that
ownership is independent of the residual claimant’s role in production
using
the widget-maker. The capital owner could hire in the workers to operate
the
widget-maker and to produce widgets–or the widget-maker could be hired
out to
some other party to produce widgets.
Now suppose the same individual incorporates a company and issues all
the stock
to himself in return for the widgetmaker. Instead of directly owning the
widget-maker, he is the sole owner of a corporation that owns the
widgetmaker.
Clearly this legal repackaging changes nothing in the argument about
separating
capital ownership and residual claimancy. The corporation has the
capital-owner’s role and–depending on the direction of the hiring
contracts–may
or may not have the residual claimant’s role in the production process
using
the widget-maker. The corporation (instead of the individual) could hire
in
workers to use the widget-maker to manufacture widgets, or the
corporation
could lease out the widget-maker to some other party. The process of
incorporation does not miraculously trans-substantiate the ownership of
a
capital asset into the ownership of the (net) products produced using
the
capital asset.
The residual claimant’s role is a contractual role, not a property
right. The
identity of the “firm” (in the sense of the residual claimant) is
determined by
who hires what or whom in the markets for inputs. The “firm” is the
legal party
which hires or already owns all the inputs to be consumed in production
and
which bears those costs as the inputs are used up. Another party could
take
over that contractual role through contract reversals (e.g., Labor
hiring
capital) without having to “buy the firm.”
Traditional democratic theory and property theory have both been
distorted by
the uncritical acceptance of the fundamental myth that residual
claimancy was a
property right. There is in fact no structural conflict between private
property rights in capital and democratic principles. The conflict is
between
the employment contract and democratic principles.
The Labor Theory of Property
Is Labor Peculiar?
David Ellerman
It is remarkable that the human science of “Economics” has not been able
to
find or recognize any fundamental difference between the actions of
human
beings (i.e., “labor”) and the services of things. Attempts by
economists to
recognize the “peculiarities” of labor have been noticeably barren. For
instance, Alfred Marshall [1920, Chapter IV and V of Bk. VI] noted a
number of
peculiarities:
1. workers may not be bought and sold; only rented or hired,
2. the seller must deliver the service himself,
3. labor is perishable,
4. labor-owners are often at a bargaining disadvantage, and
5. specialized labor requires long preparation time.
Professor Samuelson has also recognized the first peculiarity.
Since slavery was abolished, human earning power is forbidden by law to
be
capitalized. A man is not even free to sell himself; he must rent
himself at a
wage. [1976, 52 (emphasis in the original)]
Instead of being a characteristic of labor itself, Marshall and
Samuelson only
give an observation about present-day legal institutions; it did not
hold a
century and a quarter ago [see Philmore 1982]. Neither Marshall nor
Samuelson
offer any basic institution-free differentiation of labor from machine
services
which would account for why the services of a person may not (now) be
sold all
at once. Quite to the contrary, the (first) “fundamental theorem of
welfare
economics,” the theorem that a competitive equilibrium is allocatively
efficient (“Pareto optimal”), must assume away the first peculiarity by
presupposing that labor can be sold all at once. Complete future markets
must
be assumed for all commodities to yield the optimality of competitive
equilibrium, and “labor is a commodity.”
Now it is time to state the conditions under which private property and
free
contract will lead to an optimal allocation of resources…. The
institution of
private property and free contract as we know it is modified to permit
individuals to sell or mortgage their persons in return for present
and/or
future benefits. [Christ 1975, 334; quoted in Philmore 1982, 52].
Far from providing any analysis or rationale for Marshall’s first
peculiarity
of labor, modern economics bases one of its proudest achievements (“A
competitive equilibrium is allocatively efficient”) on the assumption
that the
perfectly competitive capitalist model incorporates what is essentially
a
voluntary contractual form of slavery [see Philmore 1982].
The second peculiarity of labor, that the seller must personally deliver
the
services, has no profound import. The employee plays two roles: the
owner of
the entity being hired out, and the entity which is hired out. Thus the
services of the entity are the services of the owner of the entity.
Marshall
notes how this peculiarity makes the laborowner particularly concerned
with the
conditions under which the labor is employed. Moreover, the mobility of
labor
is thereby as limited as the mobility of the laborer. But neither of
these
consequences is of great importance. In addition, this peculiarity does
not
even hold when there is a resale market for labor as in the ancient
practice of
laborgang contracting–which in modern times is called “employee
leasing.” The
ultimate employer contracts not with the workers but with the
intermediate
agency or contractor who, in turn, hires the workers. The contractor
selling
the labor to the employer does not personally deliver the services.
The third, fourth, and fifth “peculiarities,”
that labor is perishable,
that labor-owners are often at a bargaining dis advantage, and
that specialized labor requires long preparation time,
are not really unique to labor at all (as Marshall even indicates).
The inability of capitalist economics to recognize any unique and
relevant
characteristic of labor is an ideological blind-spot based on the desire
to
theoretically reflect the symmetrical fact that both labor services and
the
services of land and capital are salable commodities in the employment
system.
Any fundamental differentiation of labor from the other factor services
would
threaten that symmetry.
Radical economists have also attempted to find a unique and relevant
characteristic of labor (“Only labor is creative”) that would
differentiate it
from the other factor services. These attempts have not been
particularly
fruitful.
Marx attached great importance to his “discovery” of the distinction
between
labor power and labor time. Yet that distinction is not even unique to
labor.
When one rents a car for a day, one buys the right to use the car (“car
power”)
within certain limits for the day. The actual services extracted from
the car
are another matter. The car could be left in a parking lot, or driven
continuously at high speeds. To prevent being “exploited” by heavy users
of
“car time,” car rental companies typically charge not just a flat day
rate but
have also a “piece-rate” based on the intensity of use as measured by
mileage.
Marx touched on deeper themes when he differentiated human labor from
the
services of the lower animals (and things) in his description of the
labor
process.
We presuppose labour in a form in which it is an exclusively human
characteristic. A spider conducts operations which resemble those of the
weaver, and a bee would put many a human architect to shame by the
construction
of its honeycomb cells. But what distinguishes the worst architect from
the
best of bees is that the architect builds the cell in his mind before he
constructs it in wax. At the end of every labour process, a result
emerges
which had already been conceived by the worker at the beginning, hence
already
existed ideally. [Marx 1977, 283-284]
This conscious directedness and purposefulness of human action is part
of what
is now called the “intentionality” of human action [see Searle 1983].
This
characterization does has significant import, but Marx failed to connect
intentionality to his labor theory of value and exploitation (or even to
his
labor-power/labor-time distinction). This is in part because Marx tried
to
develop a labor theory of value as opposed to a labor theory of
property.
Other radical political economists of Marx’s day such as Pierre-Joseph
Proudhon, William Thompson, and Thomas Hodgskin were less successful at
developing a theoretical superstructure. But they did move in the right
direction by trying to develop the labor theory of property as expressed
in the
claim of “Labour’s Right to the Whole Product” [see Hodgskin 1832 or
Menger
(Anton) 1899].
Only Labor is Responsible
If we move from the artificially delimited field of “Economics” into the
adjacent field of Law and Jurisprudence, then it is easy to recognize a
fundamental and unique characteristic of labor. Only labor can be de
facto
responsible. The responsibility for events may not be imputed or charged
against non-persons or things. The instruments of labor and the means of
production can only serve as conductors of responsibility, never as the
source.
An instrument of labour is a thing, or a complex of things, which the
worker
interposes between himself and the object of his labour and which serves
as a
conductor, directing his activity onto that object. He makes use of the
mechanical, physical and chemical properties of some substances in order
to set
them to work on other substances as instruments of his power, and in
accordance
with his purposes. [Marx 1977, 285]
Marx did not explicitly use the concept of responsibility or cognate
notions
such as intentionality. After Marx died, the genetic code of Marxism was
fixed.
Any later attempt to introduce these notions was heresy. Moreover, these
notions would not supply an apologia for state ownership so they were of
little
use to Official Marxism.
Nevertheless, while Marx did not use the word “responsibility,” he
clearly
describes the labor process as involving people as the uniquely
responsible
agents acting through things as mere conductors of responsibility. The
responsibility for the results is imputed back through the instruments
to the
human agents using the instruments. Regardless of the “productivity” of
the
burglary tools (in the sense of causal efficacy), the responsibility for
the
burglary is imputed back through the tools solely to the burglar.
The human actor has the role of the “prime mover” without being a first
cause.
Clear thinking in jurisprudence requires differentiating between
responsibility
and causality.
If we say that a definite consequence is imputed to a definite
condition, for
instance, a reward to a merit, or a punishment to a delict, the
condition, that
is to say the human behavior which constitutes the merit or the delict,
is the
end point of imputation. But there is no such thing as an end point of
causality. The assumption of a first cause, a prima causa, which is the
analogon to the end point of imputation, is incompatible with the idea
of
causality, at least with the idea of causality implied in laws of
classical
physics. The idea of a first cause, too, is a relic of that state of
thinking
in which the principle of causality was not yet emancipated from that of
imputation. [Kelsen 1985, 365]
The natural sciences take no note of responsibility. The notion of
responsibility (as opposed to causality) is not a concept of physics and
engineering. The difference between the responsible actions of persons
and the
nonresponsible services of things would not be revealed by a simple
engineering
description of the causal consequences of the actions/services.
Therefore when
economists choose to restrict their description of the production
process to an
engineering production function, they are implicitly or explicitly
deciding to
ignore the difference between the actions of persons and the services of
things
[see Mirowski 1989 for the use of physics as a model for the human
sciences].
The Juridical Principle of Imputation
The pre-Marxian classical laborists (“Ricardian socialists”) such as
Proudhon,
Thompson, and Hodgskin tried to develop “the labor theory” as the labor
theory
of property. The most famous slogan of these classical laborists was
“Labour’s
Claim to the Whole Product.” This claim was hobbled by their failure to
clearly
include the negative product in their concept of the “whole product.”
This
allowed the orthodox caricature, “all the GNP would go to labor and none
to
property” [Samuelson 1976, 626], as if there were no liabilities for the
used-up inputs. If Labor appropriated the whole product, that would
include
appropriating the liabilities for the property used up in the production
process. Present Labor would have to pay Property (e.g., past Labor) to
satisfy
those liabilities.
The classical laborists’ development of the labor theory of property was
also
hindered by their failure to interpret the theory in terms of the
juridical
norm of legal imputation in accordance with (de facto) responsibility. A
person
or group of people are said to be de facto or factually responsible for
a
certain result if it was the purposeful result of their intentional
(joint)
actions. The assignment of de jure or legal responsibility is called
“imputation.” The basic juridical principle of imputation is that de
jure or
legal responsibility is to be imputed in accordance with de facto or
factual
responsibility. For example, the legal responsibility for a civil or
criminal
wrong should be assigned to the person or persons who committed the act,
i.e.,
to the de facto responsible party. Ronald Dworkin notes that this is
a principle about natural responsibility, and so, as a guide for
adjudication,
unites adjudication and private morality and permits the claim that a
decision
in a hard case, assigning responsibility to some party, simply
recognizes that
party’s moral responsibility. [Dworkin 1980, 589]
In the context of assigning property rights and obligations, the
juridical
principle of imputation is expressed as the labor theory of property
which
holds that people should appropriate the (positive and negative) fruits
of
their labor. Since, in the economic context, intentional human actions
are
called “labor”, we can express the equivalence as:
The Juridical Principle of Imputation: People should have the legal
responsibility for the positive and negative results of their
intentional
actions.
The Labor Theory of Property: People should legally appropriate the
positive
and negative fruits of their labor.
In other words, the juridical principle of imputation is the labor
theory of
property applied in the context of civil and criminal trials, and the
labor
theory of property is the juridical principle applied in the context of
property appropriation.
Some individuals, such as infants or the insane, are not capable of de
facto
responsible actions.
The statement that an individual is zurechnungfähig (“responsible”)
means that
a sanction can be inflicted upon him if he commits a delict. The
statement that
an individual is unzurechnungsfähig (“irresponsible”)– because, for
instance,
he is a child or insane–means that a sanction cannot be inflicted upon
him if
he commits a delict. … The idea of imputation (Zurechnung) as the
specific
connection of the delict with the sanction is implied in the juristic
judgment
that an individual is, or is not, legally responsible (zurechnungsfähig)
for
his behavior. [Kelsen 1985, 364]
Regardless of their causal efficacy, things are, a fortiori,
unzurechnungsfähig.
De facto responsibility is not a normative notion; it is a descriptive
factual
notion. The juridical principle of imputation is a normative principle
which
states that legal or de jure responsibility should be assigned in
accordance
with de facto responsibility. In the jury system, the jury is assigned
the
factual question of “officially” determining whether or not the accused
was de
facto responsible for the deed as charged. If “Guilty” then legal
responsibility is imputed accordingly.
Economics is always on “jury duty” to determine “the facts” about human
activities. These are not value judgments (where social scientists have
no
particular expertise). The economist-as-juror is only required to make
factual
descriptive judgments about de facto responsibility. In this chapter we
are not
concerned with the normative principle of juridical imputation (i.e.,
the labor
theory of property applied in the courtroom), only the descriptive
question of
responsibility. The normative and descriptive questions should be kept
conceptually distinct. That separation is difficult since, given the
juridical
principle, de facto responsibility implies de jure responsibility.
In a given productive enterprise, the descriptive question asks what set
of
people are de facto responsible for producing the product by using up
the
various inputs? The economist-as-juror faces that question. The marginal
productivity of tools (machine tools or burglary tools) is not relevant
to this
factual question of responsibility either inside or outside the
courtroom. Only
human actions can be responsible; the services provided by things cannot
be
responsible (no matter how causally efficacious). The original question
includes the question of who is responsible for using up those casually
efficacious or productive services of the tools .
The question of de facto responsibility, whether posed in a courtroom or
outside, presupposes the understanding that persons act and things
don’t. Yet
it is precisely the presupposition that is “overlooked” in economic
theory
which treats both the services of human beings and the services of
capital and
land symmetrically as “input services.” Economists choose to limit their
description of the human activity of production to an engineering
description
of the causally efficacy of the various types of input services. The
unique
responsible agency of human activities is not acknowledged.
Contract
What is the Employer-Employee Relationship?
David Ellerman
Since we contend that the whole capitalism/socialism debate has been
wrong-headed, it is incumbent on us to answer the questions:
(1) what is the root problem in both capitalism and socialism, and
(2) how would the third alternative variously called economic democracy,
democratic worker ownership, or universal self-employment solve that
problem?
The problem is the employer-employee relationship itself. Both
capitalism and
socialism (as public enterprise capitalism) have assumed that basic
relationship and have debated whether workers should all be employed by
the
government for “the Public Good” or whether they could also be privately
employed “for private greed.” Since the employment relation is so
pivotal for
the negative appraisal of both capitalism and socialism, this chapter
gives a
preliminary analysis of the employment relation.
The basic normative distinction is between:
(1) the democratic worker-owned firm (or self-employment firm) where
labor
hires capital and the workers are jointly working for themselves, and
(2) the employment firm where capital hires labor using the
employer-employee
relationship and where the equity capital can be privately owned
(including
employee-owned) or publicly owned by the government.
The difference is the hiring relationship, capital hiring labor or labor
hiring
capital. Capitalism is capital-ist not because it is private enterprise
or free
enterprise, but because capital hires labor rather than vice-versa. Thus
the
quintessential capital-ist aspect of our economy is neither private
property
nor free markets but is that legal relationship wherein capital hires
labor,
namely the employer-employee relationship. There is astonishing false
consciousness concerning the employment relationship in our society.
This can
be illustrated by an experiment conducted with beginning Economics
students.
First the students are told about the system of chattel slavery where
workers
are bought and sold as movable property. But just as a house or a car
can be
bought and sold, so one can also rent a house or car. Now instead of
buying
workers as in a slavery system, suppose we consider a system of renting
workers. The students are asked if anyone knows an economic system based
on the
renting of workers. There is usually a puzzled silence. A Black student
points
out that during slack times, plantation slaves were rented out to work
as
stevedores, as hands in factories (for example, turpentine or sugar
mills), or
as common laborers. The Professor agrees that this happened but notes
that it
was the exception rather than the rule. We need an example of a whole
economic
system based on renting people. After another pause, some students
offer,
“Well, what about feudalism?” The Professor responds that feudalism was
a
system of indirect ownership of workers. Instead of being owned as
chattel or
movable property, serfs had the security of being attached to the landed
estate
which was then owned as real property. Thus we still need an example of
a
system of renting people. After more embarrassed silence and shuffling
feet,
finally a student, by the process of elimination if by no other logic,
offers
the answer: “Well, isn’t that sort of like what we have now?”
Yes, the system of renting people is our system, the employer-employee
system.
Of course, we do not say people are rented; we say people are “hired.”
The
students would have had no difficulty thinking of an economic system
where
workers are hired. The difference a word makes! When applied to things
rather
than persons, the words “rent” and “hire” are synonyms. One could say
either
“rent a car” or “hire a car” with the only difference being that
Americans
favor “rent a car” while the British will tend to “hire a car.” But
American
and British usage agrees that when people are rented, one says “people
are
hired.”
From an abstract economic-legal viewpoint, the employer-employee
relation is
the rental relation applied to persons. What do you buy when you rent
something? You buy its services, the right to employ or use the entity
within
certain limits for a given time period. In terms of the stock-flow
distinction
in economics, to rent the stock is to buy a flow of services from the
stock.
When one rents an apartment or a car, one buys not the apartment or car
itself
but some of its services. If one rents a car for three days, one buys
three
car-days. If one rents an apartment for six months, one buys the
services, six
apartment-months. Similarly when one rents a person for eight hours, one
buys
the labor services of eight man-hours (or person-hours), i.e., the right
to
employ or use the person within the limits of the contract for an eight
hour
period.
The labor market is the market for the renting of human beings. Of all
rental
contracts, the employment contract has been the most modified and
attenuated by
social constraints. Labor legislation and the countervailing power of
unions
have both worked to mitigate the commodity nature of labor services and
to
insure that people are rented in a manner as “human” as possible. But
all of
these socially mitigating circumstances should not be taken as an excuse
to
obfuscate the basic fact that the employment contract to buy labor by
the day,
the week, or the year is the contract to hire or rent the person by the
day,
the week, or the year.
Wages as Rentals
We say that employees are “rented” rather than “hired” to awaken people
(like
the Economics students) from the dogmatic slumber in which they do not
realize
they live in an economic system based on the renting of human beings.
Often
this statement is intentionally or unintentionally misinterpreted as
being
hyperbole. For instance, the statement might be “embraced” as follows:
Yes, employees are rented and, indeed, we all sell our souls in this
system of
wage slavery.
This misinterprets the rental assertion as an example of hyperbole like
“selling our souls” or “wage slavery.” But by the standard economic
notion of a
rental contract, the rental assertion is only a statement of fact
couched in
jarring language so one might see an old reality from a different
perspective.
When capital hires labor, the wage or salary payment is the rental
payment.
One can even say that wages are the rentals paid for the use of a man’s
personal services for a day or a week or a year. This may seem a strange
use of
terms, but on second thought, one recognizes that every agreement to
hire labor
is really for some limited period of time. By outright purchase, you
might
avoid ever renting any kind of land. But in our society, labor is one of
the
few productive factors that cannot legally be bought outright. Labor can
only
be rented, and the wage rate is really a rental. [Samuelson 1976, 569]
Much of the traditional criticism of the wage contract has centered on
the size
of the wage payments or human rentals. However, the amount of the wages
will
play no role whatsoever in our analysis. Indeed, one could imagine an
equally
dehumanizing relationship where the payment would go from the employees
to the
employer. That is, apply the idea of the employment contract to
consumption
rather than production.
A “Consumption Employment Relationship”
Workers take inputs and add value to produce the outputs. Consumers do
the
opposite; they take their consumer goods, consume them, and thereby
produce
scrap or used goods of lower market value. Ordinarily consumptive labor
is
self-managed; the consumers buy the inputs, make their own consumption
decisions, and own the outputs (scrap or used goods). Consumption could
be
organized using the employment relationship. Since consumptive labor
reduces
value, the consumers would have to pay someone to employ them to consume
goods.
Instead of buying a turkey, consuming it, and owning the scraps, a
family unit
would pay someone to employ them to consume a turkey. The family would
not buy
the turkey or own the scraps. The analysis and critique developed here
of the
employment relation in production can be applied, mutatus mutandis, to
this
hypothetical consumption employment relation. The essence of the
analysis is
the role of human beings in the relationship, not the money payments one
way or
the other.
Human Leverage
Some of the implications of the employment relation can be appreciated
by
considering the notion of capital “leverage.” If the owner of $5,000 can
hire
or borrow $10,000 and put it all to work in an enterprise, the original
$5,000
is called “equity capital” while the borrowed $10,000 is “debt capital”
or
“loan capital.” The borrowing amplifies or magnifies the effects of the
equity
capital. With only $5,000 invested, $15,000 is put to work. The equity
holder
gets the profits and losses from three times the equity capital. Suppose
the
net income before 10% interest on the loan capital is $2,000.
Subtracting the
$1,000 interest (10% of $10,000) leaves a $1,000 profit on $5,000 equity
for a
20% rate of return. If there was no leverage (i.e., all the $15,000
capital was
equity capital), then the $2,000 return on the $15,000 capital would be
only a
13.3% rate of return (rather than 20%).
This amplification due to using hired capital is called “financial
leverage”
(or “gearing” in England). It should be noted that losses are also
amplified by
leverage. With less leverage, there are less interest expenses and the
remaining losses are thinned out over more equity capital. Who’s in, and
who’s
out? Loan capital, like equity capital, is being used in an enterprise,
but the
suppliers of the loan capital are outsiders to the enterprise. They are
creditors of the enterprise, while the suppliers of equity capital are
the
“insiders” (from the legal or de jure viewpoint).
The same considerations can be applied to any resources including “human
resources” (to use a popular and telling expression from modern business
jargon). Since human beings may also be rented, there is the phenomenon
of
human leverage. The net results of many peoples’ efforts can count as
the
results of one person’s effort if the one hires the many. The employment
relation allows one or a small number of people to “leverage” their
enterprise
by hiring tens, hundreds, or thousands of other people. The results of
human
leverage show up in the income distribution. Some researchers found the
income
distribution of the highest 1% of the population distinctly shooting off
with a
different trend than the other 99%.
No one would dispute the fact that the wealthy differ from the lower 99%
in the
manner that they accumulate income. While most people are paid by the
hour, or
the number of widgets they produce, the wealthy frequently accumulate
their
extra wealth by some amplification process; that process varying from
case to
case. … Perhaps one of the most common lower-level modes of
amplification is
for an individual to organize an operation with others working for him
so that
his income is amplified through the efforts of others (a modest-sized
business,
for example). [Montroll 1987, 16-17]
Using income data for 1935-36, the average amplification factor was
estimated
at 16.8.
This number is not surprising since one of the most common modes of
significant
income amplification is to organize a modest-sized business with the
order of
15-20 employees. [Montroll 1987, 18]
In fact, the business is carried out by all the people working there,
but in
law it is the enterprise of only the employer. The employees have a
legal role
like that of an instrument, indeed that of a human lever, working as a
means to
leverage or amplify the ends of the employer. The employees are not part
of the
ends of the enterprise. The employer does not act as the representative
of the
whole group of people working in the firm. The employer acts only in his
own
name, and the employees are “employed” to that end. The possibility of
human
leverage also supplies the simplest and most direct explanation for the
prevalence of employment firms in a free enterprise economy which allows
the
employment relation and where there is a sufficient supply of labor
willing to
accept the employee’s role. The choice of firm structure is exercised by
the
entrepreneur or entrepreneurial group who organizes the firm. Since (by
hypothesis) the firm is expected to be profitable, it is in the
self-interest
of the organizers to leverage the other people involved in the firm by
employing them.
The Comparison with Slavery: Voluntariness
It is crucial to understand the similarities and differences between the
employment system and slavery. When the details are stripped away, there
are
two important differences (in spite of the rhetoric about “wage
slavery”): the
voluntariness and the duration of the relationship.
In the conventional understanding, slavery was involuntary and the
employment
relation is voluntary. We accept this standard understanding of the
historical
facts. However, it is important to see how both assertions have been
challenged
in various ways. One the one hand, there is a whole school of liberal
thinkers
who argued that slavery was or could be considered as deriving from
voluntary
contractual arrangements [viz. Philmore 1982]. One the other hand, there
is an
old tradition prominently including Karl Marx which argued that the
worker’s
“choice” to sell his or her labor was a Hobson’s choice, and that the
employment contract was “socially involuntary.” But the claim that
slavery was
voluntary as a matter of historical fact is absurd. And the argument
that
employment is “socially involuntary” is a rather weak special plea. The
labor
contract would satisfy any workable juridical notion of voluntariness.
The
worker, particularly the unionized worker, has considerably more
bargaining
power than, say, the unorganized consumer who must take price as given.
The involuntariness argument is also not necessary for a critique of the
employment contract because voluntariness is a necessary but not a
sufficient
condition for the juridical validity of a contract. Indeed, if slavery
was
wrong because it was involuntary, then what about a system of voluntary
contractual slavery? In the years prior to the Civil War, there was
explicit
legislation in six states “to permit a free Negro to become a slave
voluntarily” [Gray 1958, 527; quoted in Philmore 1982, 47]. But when
slavery
was abolished, both involuntary and voluntary slavery was prohibited.
The
contract to voluntarily sell oneself is no longer considered a
juridically
valid contract.
We shall argue that the contract to voluntarily rent oneself out, i.e.,
the
employment contract, should also be considered a juridically invalid
contract.
The immediate retort is that the abolition of renting people would
violate the
“freedom of contract.” When one thus hears the rhetoric of liberal
capitalism,
it is important to remember the invalidity of the self-sale contract.
For
example, there is Sir Henry Maine’s high-minded dictum that the movement
of
progressive societies has hitherto been a movement from Status to
Contract[1861, reprinted 1972, 100]. Yet the abolition of the self-sale
contract means precisely that one’s social position as a free person
unowned by
another person is a matter of status and is not a question of contract.
Do free
marketeers consider the invalidation of the self-enslavement contract as
being
retrogressive rather than progressive because it moved personal freedom
from
the realm of Contract to the realm of Status?
Or consider the oft-heard rhetoric about “free enterprise.” Several
centuries
ago, enterprise was based on the freedom to own other human beings. And
workers
even enjoyed the freedom to sell themselves. Those freedoms have now
been
abolished. Enterprise isn’t as free as it used to be.
Since slavery was abolished, human earning power is forbidden by law to
be
capitalized. A man is not even free to sell himself: he must rent
himself at a
wage. [Samuelson 1976, 52 (his italics)]
This quotation from the predominant liberal capitalist economist of our
time is
important for several reasons. Samuelson acknowledges a major limitation
on the
“free enterprise” rhetoric, and he forthrightly recognizes that a person
rents
himself out in the employment relation. Testimony against one’s own
interest is
particularly valuable. Samuelson is not attacking the employment
relation in
favor of democratic worker ownership. He is simply giving a no-nonsense
description of the employer-employee relation without the usual
linguistic
sugar-coating involved in saying employees are “hired,” “employed,”
“given a
job,” or “invited to join the firm. Given the conventional enthusiasm
for the
freedom of enterprise to rent human beings, one might expect capitalist
philosophers and economists to promote extending these freedoms by
revalidating
the self-sale contract. Robert Nozick of Harvard University, a leading
moral
philosopher, has argued on libertarian grounds to allow all “capitalist
acts
between consenting adults.” This includes the contract of political
subjugation, the Hobbesian pactum subjectionis, wherein people renounce
their
democratic rights and voluntarily become the subjects of a ruler or
ruling
association. A group of people might sell the right to self-government
to a
“dominant protective association” and an individual might do likewise.
The comparable question about an individual is whether a free system
will allow
him to sell himself into slavery. I believe that it would. [Nozick 1974,
331]
Conventional economists constantly make social recommendations based on
a
utilitarian social philosophy that views all rights actually or
potentially as
marketable property rights (ignoring inalienable personal or human
rights) and
that views the efficiency gained from market exchange as the primary
criterion
of institutional choice. As Nobel laureate James Tobin has noted:
Any good second year graduate student in economics could write a short
examination paper proving that voluntary transactions in votes would
increase
the welfare of the sellers as well as the buyers. [Tobin 1970, 269]
Indeed, conventional economic philosophy implies: (1) that people should
be
allowed to sell their political votes, (2) that people should further be
allowed to individually or collectively sell all their democratic rights
in a
pactum subjectionis, and (3) that people should be allowed to sell all
their
labor in a voluntary self-enslavement contract. All of these contracts
could
find willing buyers and sellers among fully informed adults so they
should be
permitted according to capitalist social philosophy. Yet there is enough
social
acceptance of the natural rights philosophy descending from the
political
democratic revolutions of the past that capitalist economists and
philosophers
usually refrain from actually making such recommendations. Robert Nozick
is the
exception either because he is more intellectually forthright or perhaps
just
more fashionably naughty.
The Comparison with Slavery: Duration and Extent
In addition to voluntariness, the employment relation is distinguished
from the
historical master-slave relation by the duration and extent of the
relationship. The difference is essentially the difference between
renting and
buying. Buying a house gives one the right to the entire future stream
of
services provided by the house, while renting only procures the housing
services for a discrete time period. The slave owner owned all of the
slave’s
labor, while the employer only purchases certain labor services over a
given
time period. This relation between owning and renting people has been
understood at least since antiquity. In the third century, the Stoic
philosopher, Chrysippus, held that
no man is a slave “by nature” and that a slave should be treated as a
“laborer
hired for life,” … . [Sabine 1958, 150]
The comparison between slaves and “hirelings” was commonplace in the
South
during the antebellum debate over slavery.
Our property in man is a right and title to human labor. And where is it
that
this right and title does not exist on the part of those who have money
to buy
it? The only difference in any two cases is the tenure. [Bryan 1858, 10;
quoted
in Philmore 1982, Ê 43]
James Mill expounded on the distinction between buying and renting
people from
the employer’s viewpoint.
The only difference is, in the mode of purchasing. The owner of the
slave
purchases, at once, the whole of the labour, which the man can ever
perform:
he, who pays wages, purchases only so much of a man’s labour as he can
perform
in a day, or any other stipulated time. [James Mill 1826, Chapter I,
section
II]
If the employment contract is compared not to the historical
master-slave
relation but to a hypothetical self-sale contract, then the only basic
difference is the duration and extent of the two voluntary contracts.
Accordingly, a number of classical liberal writers condoned civilized
versions
of the self-sale contract prior to the actual abolition of all slavery.
In John
Locke’s influential Two Treatises of Government(1690), he would not
condone a
contract which gave the master the power of life of death over the
slave.
For a Man, not having the Power of his own Life, cannot, by Compact or
his own
Consent, enslave himself to any one, nor put himself under the Absolute,
Arbitrary Power of another, to take away his Life, when he pleases.
[Second
Treatise, section 23]
But once the contract was put on a civilized footing, it would be a
rather
severe form of the master-servant relationship.
For, if once Compact enter between them, and make an agreement for a
limited
Power on the one side, and Obedience on the other, the State of War and
Slavery
ceases, as long as the Compact endures…. I confess, we find among the
Jews, as
well as other Nations, that Men did sell themselves; but, ’tis plain,
this was
only to Drudgery, not to Slavery. For, it is evident, the Person sold
was not
under an Absolute, Arbitrary, Despotical Power. [Second Treatise,
section 24]
With the exception of Nozick’s libertarian atavism, the self-sale
contract has
not been a topic of active discussion since the abolition of slavery.
Yet the
self-sale contract as a sell-labor-by-the-lifetime employment contract
has had
a curious secret life in economic theory. A capitalist market economy
cannot be
fully efficient if there are restrictions on trade for any commodities
with
willing buyers and sellers. By removing the restrictions, trade will
make the
buyers and sellers better off and efficiency will be improved. There is
one
basic theorem which is so important in capitalist economics that it is
called
the “Fundamental Theorem of Welfare Economics,” namely the theorem that
a
competitive equilibrium in a capitalist economy is allocatively
efficient. If
the sale of future-dated labor services was forbidden, the Fundamental
Theorem
would not hold. A buyer and seller might each be made better off if
labor were
sold over arbitrary time periods, e.g., by the lifetime. In theoretical
models
of competitive capitalism, complete future markets are assumed to exist
for all
commodities including labor. A consumer/worker
is to choose (and carry out) a consumption plan made now for the whole
future,
i.e., a specification of the quantities of all his inputs and all his
outputs.
[Debreu 1959, 50]
In such Arrow-Debreu models [Arrow and Debreu 1954], a consumer/worker
is
viewed as making a lifetime of labor contracts all at that initial time
(not
necessarily all with the same employer). Restrictions on the sale of
future-dated labor services would be market imperfections precluding the
allocative efficiency of competitive equilibrium. The fundamental
efficiency
theorem of capitalist economic theory must assume that the self-sale or
lifetime labor contract is legally valid, even though the contract is
now
legally invalid. It is not surprising that capitalist economists
absolutely
loathe to admit this. One exception is the economist and econometrician
Carl
Christ who made the point in no less a forum than Congressional
testimony.
Now it is time to state the conditions under which private property and
free
contract will lead to an optimal allocation of resources…. The
institution of
private property and free contract as we know it is modified to permit
individuals to sell or mortgage their persons in return for present
and/or
future benefits. [Christ 1975, 334; quoted in Philmore 1982, 52].
The efficiency of perfect competition is surely the most thoroughly
analyzed
and discussed topic in mainstream economics. Yet in the textbooks or
literature
of the “science” of economics, the author has not been able to find a
single
other admission that capitalist efficiency requires that contract law be
“modified to permit individuals to sell or mortgage their persons in
return for
present and/or future benefits.” In a society allegedly free of thought
control, one would expect to find at least one textbook that would
mention such
a point.
The Language of the Employer-Employee Relation
This preliminary analysis of the employment relation must include
consideration
of the language of employment because “words tell a story.” We
previously noted
that a good many people are not even aware that they live in a society
based on
the renting of human beings. But before we suggest that “The Big Lie” or
ideological false consciousness may also exist on this side of the
erstwhile
Iron Curtain, we should check if people at least know the traditional
legal
name of the employment relation. Slaves knew they were slaves, but do
employees
know their legal name? “Employer-employee” is not the traditional name;
it is
newspeak which has only come into English usage within the last century.
Society seems to have “covered up” in the popular consciousness the fact
that
the traditional name is “master and servant.” Without special legal or
historical education, one would think “servant” refers only to
domestics. But
domestic servants are only domestic servants, while all employees are
servants
in the technical legal sense of the word. The master-servant language
was used
by the 18th century Blackstone, but in the 19th century it had acquired
such
negative connotations that it had passed out of common usage. For
instance,
John Stuart Mill has no standard name for employee/servants in his
classic
Principles of Political Economy (1848) since the oldspeak of “servants”
was
unacceptable but the newspeak of “employees” had not yet been imported
from the
French. Mill referred to employees as hired “operatives,” “workpeople,”
“labourers,” or even “the employed.” Even around the turn of this
century, the
English version “employee” of the French “employ” was not fully
accepted. In
1890, Webster’s Unabridged Dictionarynotes:
The English form of this word, viz., employee, though perfectly
conformable to
analogy, and therefore perfectly legitimate, is not sanctioned by the
usage of
good writers.
The traditional language of master and servant is still used today in
the area
of agency law, the law governing the relationships between principal and
agent,
and any involved third parties. The relevant distinction is between a
servant
(i.e., an employee) and an independent contractor. A lawyer or plumber
in
independent practice is an independent contractor while a lawyer or
plumber on
the staff of a corporation would be a servant or employee. The Chicago
economist, Ronald Coase, quoted from a lawbook to describe the “legal
relationship normally called that of ‘master and servant’ or ‘employer
and
employee’” [Coase 1937, 403].
The master must have the right to control the servant’s work, either
personally
or by another servant or agent. It is this right of control or
interference, of
being entitled to tell the servant when to work (within the hours of
service)
or when not to work, and what work to do and how to do it (within the
terms of
such service), which is the dominant characteristic in this relation and
marks
off the servant from an independent contractor, or from one employed
merely to
give to his employer the fruits or results of his labor. [Batt 1967, 8;
quoted
in Coase 1937, 403]
In addition to not being independent (e.g., not paying for one’s
inputs), the
servant is marked off from the independent contractor by the employer’s
control
over the execution of the work. An agent could be either a servant or an
independent contractor. In agency law, the distinction is quite
important for
the imputation of legal liability when a third part is injured within
the scope
of the agent’s work. If the agent worked as a servant rather than as an
independent contractor, the injured party can also sue the master or
employer
who would have a “deeper pocket” than the employee. The legal
responsibility of
the employer is called “strict liability” or “vicarious liability” since
the
injury to the third party was not actually the fruits of the employer’s
labor.
Modern labor legislation uses the newspeak of “employer-employee.” The
continuing use of the traditional “masterservant” language in agency law
is not
without controversy. Some writers consider the “master-servant” language
to be
so archaic that it can be used as technical terminology without any
undue
negative connotations. Other writers disagree.
Another interesting variation in the literature of vicarious liability
relates
to the language in which the subject is discussed. Justice Holt spoke of
“masters” and “servants,” which were current coin in 17th century
speech. These
terms are perpetuated today in many judicial decisions, and in the
Restatement
of Agency. Students should be familiar with them but should not, we
think,
acquire the habit of using them. Defenders of the Restatement contend
that
these words, precisely because they are archaic, are neutral tokens of
communication. It is clear, however, that the terms are still alive
enough to
be offensive to laborers and labor representatives. [Conrad, et.al.
1972, 104]
For our purposes it suffices to highlight the social adjustment
mechanism
involved in the evolution from “masterservant” to “employer-employee.”
When the
social role of being rented acquired excessive negative connotations,
society
changed the name rather than change the relationship itself. There are
other
examples of proposed or actual language changes to alleviate social
stress. For
instance, in the slavery debates before the Civil War, some planters
were quite
willing to admit that the “master-slave” language could be objectionable
so
they suggested some newspeak.
Slavery is the duty and obligation of the slave to labor for the mutual
benefit
of both master and slave, under a warrant to the slave of protection,
and a
comfortable subsistence, under all circumstances. The person of the
slave is
not property, no matter what the fictions of the law may say; but the
right to
his labor is property, and may be transferred like any other property,
or as
the right to the services of a minor or apprentice may be transferred….
Such is
American slavery, or as Mr. Henry Hughes happily terms it,
“Warranteeism.”
[Elliott 1860, vii]
The “warrantor-warrantee” newspeak for “master-slave” did not take hold
since
the relationship itself was soon abolished. The same social pressures
are at
work today. It “sounds bad” to say that people are rented so one is
supposed to
say s omething else.
Labor History: Servus, Serf, Servant
The etymology of the word “servant” is of interest. Western history has
seen
three general types of economic systems: slavery in ancient times,
feudalism in
the Middle Ages, and capitalism (private and public) in modern times.
The
worker’s role in this evolution can be traced in the evolution of his
name. The
Latin word for slave “servus” evolved into the French “serf” (and
Italian
“servo”) under feudalism, which in turn became “servant” under
capitalism. If
the three word version of Economics is “Supply and Demand,” the three
word
version of Labor History is “Servus, Serf, Servant.” During the Middle
Ages in
France and Italy, there were a few slaves, often of Eastern European
origin, in
addition to the multitude of serfs. The presence of the lowly slaves
caused
some linguistic dissonance since “serf,” “servo” and sometimes even the
original “servus” were used to refer to the serf who had a higher
station. In
this case, language readjusted by renaming the actual servi as “slaves.”
By the end of the thirteenth century and perhaps in imitation of the
Italians,
they were called by a name that recalled the origin of many of them and
that
gradually slipped from its ethnic meaning to a purely juridical one:
slaves,
i.e., Slavs. [Bloch 1975, 64]
The disturbing linguistic association of “serf” and “servus” also led to
newspeak for “serf.”
In order to prevent any misunderstanding and although everyday language,
unafraid of confusion with Roman law, continued to use daily the word
serf,
many notaries henceforth carefully avoided servus, judged inconveniently
equivocal, and replaced it in deeds by various synonyms, notably homme
de
corps. [Bloch 1975, Ê63-64]
In the course of its career, the word “servant” has denoted workers from
the
slave to the modern employee as if its own ontogeny had to recapitulate
the
servus-serf-servant phylogeny. Although servants are never called
“slaves”
(except as hyperbole), slaves were often called “servants” in premodern
times.
Even within recent decades, some dictionaries such as the 1959 Webster’s
New
Collegiate lists “A slave” as a second definition of “servant.” At the
same
time, lawbooks use “servant” as the technical legal term for the modern
employee. Thus the three word version of Labor History could be
shortened to
one word, “Servant.”
Summary
Most people who work, work as employees. Yet they do not know employment
is the
rental relation applied to persons and they do not know the traditional
name of
the relationship. The system of social indoctrination has been so
successful
that the employer-employee relation is not even perceived as something
that
could be different. “To be employed” has become synonymous with “having
a job,”
to be “unemployed” is to be without work so “employment” has become the
same as
work. The employment relationship is accepted as part of the furniture
of the
social universe. We have even described the opposite system without the
employment relationship as “universal self-employment” [which is akin to
describing the opposite of the slavery system as universal
self-ownership].
How could this happen? Part of the answer must be Marxism. Capitalism
has been
able to define its distinguishing features by the contrast with Marxism.
The
debate with Marxism has been focused on so many sideline issues that it
gives
new meaning to the phrase “red herring.” Since Marxist socialism models
the
economy as one big capitalist firm, the worker has the choice of being a
cog on
a private wheel or a cog on one big public wheel. It is as if slavery
apologists had been able to successfully redefine the issue as the
choice
between public or private slave plantations. By diverting the debate,
Marxism
has been an absolute godsend to capitalist apologetics. If Marxism did
not
exist, capitalist ideology would have to invent it. The
capitalism/socialism
debate has not only diverted attention away from the renting of human
beings,
it has allowed capitalism to be positively identified with democracy,
equality,
justice in property, and treating people as persons rather than things.
Yet the
employment relation inherently denies all these ideals in the workplace.
Slavery has been abolished both as an involuntary or as a voluntary
relationship. But instead of creating a form of enterprise where people
are
treated as persons rather than things, we only have a system where
workers are
rented rather than owned. The transition from workers being an owned
input to
their being a hired input was certainly a moral improvement. But the
capitalism/socialism debate has paid little attention to the alternative
form
of work where the human element is not “employed” at all by public or
private
employers where people rent only things rather than the owners of things
renting people.
Consider equality. There is a basic equality of rights in the political
sphere.
But prior to the democratic revolutions, there was a fundamental
political
inequality between ruler and the ruled where the ruler governed in his
own
name, and was not selected by and did not represent the ruled. Today in
the
economic sphere, that same type of authority relationship exists between
the
master and servant where the employer governs in his own name, and is
not
selected by and does not represent the employees. Or consider democracy.
The
capitalist democracies stands for democracy, but not in the workplace
[viz.
Dahl 1985].
In the next chapter, we will review the non-democratic tradition of
liberal
thought which founded autocracy on a voluntary contract, the pactum
subjectionis. With the triumph of the democratic revolutions inspired by
the
natural rights philosophy of the Enlightenment, that non-democratic
liberalism
retreated to the capitalist workplace where it has flourished ever since
as
part of capitalist ideology. The employment contract is the pactum
subjectionis
of the employment firm. Or consider justice in the private property
system.
Under capitalism, doesn’t everyone get what they produce, the fruits of
their
labor? We will see quite the opposite, that when labor is hired, the
fruits of
labor go elsewhere. Labor is the natural basis for the appropriation of
newly
produced property; the natural “wages” of labor are the fruits. Instead
of
somehow being the economic system realizing justice in private property,
capitalism systematically violates the basic labor principle of private
property appropriation. It is again the employment relation which sets
up the
misappropriation of private property. In each case, we trace the root
cause of
the problem to be the renting of human beings, the employer-employee
relationship.
The alternative to the employment relation is not having everyone
employed by
the state. It is having everyone working for themselves (individually or
jointly). This means restructuring companies so the membership rights
are
personal rights attached to the functional role of working in the firm.
Then
there is no human “employment” since working in the firm makes one a
member so
people are always jointly working for themselves.
Capitalization of Labor
The Marvel of Modern Finance
Since the abolition of slavery, humans ownership has been banned. People
are no
longer allowed to sell their labor by the lifetime. Instead they must
rent
themselves temporarily for a salary or wage. As Paul Samuelson says in
Economics
Interestingly enough most of society’s economic income cannot be
capitalized
into private property. Since slavery was abolished, human earning power
is
forbidden by law to be capitalized. A man is not even free to sell
himself: he
must rent himself at a wage. [p. 52, his emphasis]
We focus here on the capitalization of labor which Samuelson says is
legally
forbidden. However, the statement that labor cannot be capitalized is
not
strictly true. Human labor is forbidden to be capitalized through direct
human
ownership. But through the marvel of modern finance human labor
continues to be
capitalized. Labor capitalization today is carried out through the
ownership of
businesses. The most familiar example today is the stock market where
pieces of
businesses are regularly bought and sold.
Labor capitalization is also present in private (non worker-owned)
business
that are not actively traded on a public exchange. Labor which was once
sold
through slave markets, is today packaged with other assets and sold as a
business. By owning a business, human labor can now be owned, sold, and
traded.
The clever packaging of labor and assets into business ownership is the
marvel
of modern finance through which labor is currently capitalized. It also
serves
another function useful to maintaining the perception of legitimacy of
the
employment system, obscuring the ownership of labor. It is fairly
straightforward to see that owning a slave is owning the labor of
person. But
intermixing the labor of many people on an interchangeable basis and
combining
it with other assets in a firm diverts attention from the underlying
labor
ownership. Owners (stockholders) of a typical business today own the
labor of
the employees. The value of the employees’ future labor is incorporated
in the
price of the business. Labor ownership is represented by the difference
between
the market value of a business (the number of shares outstanding times
the
current price) and its net asset value (assets minus liabilities). That
difference, called “goodwill” is the capitalized value of labor. A few
examples
will clarify the issue.
First consider a business with some assets and liabilities, but no
employees.
What is the value of the business? In this case the answer is obvious,
the
business is worth its net assets value (assets minus liabilities). A
business
with no employees cannot produce any goods or services, and therefore
had no
expected future profit. This is true both under the current system of
human
rentals or if they were abolished.
Now consider a business with no assets or liabilities but with
employees. What
is the value of the business? Under the current system of human rentals
the
value of the business is equal to the future stream of profits
discounted to
its present value. This can be calculated if one assumes the future
profits are
known along with a risk free interest rate. With the abolition of human
rentals
the value of the business would be identically zero since only the
members
(employees) of the business could appropriate the profit.
More generally, the value of any business in the absence of human
rentals is
equal to its net asset value. This has significant implications for the
stock
market as share prices would collapse to net asset value with the
abolition of
human rentals. By analogy, one can imagine the impact of the abolition
of
slavery on the share price of a slave owning firm. The assets of the
firm would
be reduce by the value of the slaves, thus lowering the net asset value.
Other
(non-human) assets of the firm would still be owned. In a market economy
the
value of the slaves would already account for the expected future value
of
labor over their lifetime.
Goodwill Accounting I
The implications from applying simple inalienable rights arguments are
far
reaching. Take for example the requirement of worker profit
appropriation. In a
firm, only the current workers (members) are allowed to appropriate the
profit.
This has dramatic implications regarding the valuation of businesses.
Standard
finance theory teaches that the present value of a business equals the
discounted future stream of profits. But this assumes the current
“owners” are
going to appropriate the future profits, not the current members at that
time.
Clearly the profits from the future labor of workers cannot be owned in
the
present, so the standard valuation method is not correct. If the future
profits
cannot be owned in the present, then what is the value of a business?
The only
possible answer is that a firm is worth its net asset value, or the
value of
its assets minus its liabilities. This is sometime approximated at the
book
value of a firm for accounting purposes. The supposed value of a firm
above its
net asset value is called goodwill. Goodwill is an intangible asset, and
as we
have seen it can’t actually exist if member are to appropriate profit.
Generally goodwill is linked to the reputation of the firm, its brand
name, or
customer loyalty which is assumed to enhance future profits. Whether
these
profits materialize is uncertain and in any case cannot be appropriated
in the
present before they are earned. In our “market” economy the sale of
goodwill
through equity trading is actually the prearranged theft of the labor of
future
workers, in violation of their inalienable rights. Accounting practices
are
inconsistent on the issue of goodwill. Earned goodwill is not permitted
as an
asset on a firm’s the balance sheet. This makes sense because a firm
can’t
record its future expected profits as a current asset. Yet purchased
goodwill
(when another firm is acquired for more than its net asset value) is
counted as
an asset. Something than cannot be earned in the first place obviously
can’t be
sold, but this is exactly what the accounting permits. For illustrative
purposes, take the example of a sole proprietorship, a single person
firm.
Let’s say the sole proprietor built up a good reputation and decided to
sell
their firm under the current valuation methods based on the expected
future
stream of profits. After the sale the sole proprietor (also the sole
employee)
decides to quit. The firm’s value immediately collapses to the net asset
value
since there are no longer any expected future earning. Adding employees
and
wrapping the firm in a formal legal entity has allowed the underlying
transactions to be obscured. The inalienable rights arguments dictate
that
future earnings must be appropriated by the current workers, so the
value of
all legitimate (worker owned democratically managed) businesses should
be their
net asset value. Were inalienable rights of workers to be protected, the
value
of common stock would be converted to debt equal to the net asset value
of the
businesses and stripped of voting rights. Of course enormous reparations
to
past workers should also be paid.
Goodwill Accounting II
Property rights versus going-concern contractual roles
David Ellerman A basic characteristic of a property right is that it may
not
rightfully be taken away from a person without the person’s consent. A
going-concern business is typically at the center of a nexus of market
contracts which have a rather limited duration. When a current contract
expires, then a customer or supplier may decide for whatever reason to
terminate the contract and take their business elsewhere. This does not
require
the consent of the business operator. The business operator has no
property
right to force customers and suppliers to continually renew past
contracts.
Future profits may have been anticipated from the continuation of the
old
contracts, but no rights were violated if the customers or suppliers
decided
not to renew the contracts. The anticipated future property rights that
would
result from the continued contracts, e.g., future profits, might not
materialize but that is quite different from some present property right
of the
business operator being violated. The root of the controversy about
“goodwill”
is this basic distinction between:
presently owned property rights, and
possible future rights (presently not owned) resulting from a
contractual
position.
Unfortunately the confusion has been “canonized” into the basic
capitalization
formulas of finance theory. The standard formulas for the capitalized
value of
a capital asset routinely capitalize into the value of the asset the
possible
future profits that depend on a “non-owned” contractual position of the
residual claimant in some productive opportunity. Hence our task to
tease apart
the two parts of the so-called “capitalized value” into:
the part that does represent present property rights, and
the part representing anticipated but not presently owned future
profits.
It is this latter part, the capitalized value of anticipated future
profits,
that is called goodwill.
The capitalized value of an asset
Consider a simple example of a capital asset, e.g., a widget-maker
machine,
providing capital services K per period with which the labor services L
will
produce Q units of the product per period. Assume the asset provides
these
services for n periods with no maintenance required and then is finished
with
no salvage value. Let r be the competitive rental rate per unit of
capital
service so rK would be the competitive rental for the asset’s services
per
period. Anyone desiring to use the asset’s stream of capital services,
K, K,…,
K, for n periods would have the market choice to rent or buy.
Competitive
arbitrage would equate the present value of the rentals and the market
cost C
of the asset. If is the interest or discount rate per period, then the
equation
of the market cost and the discount present value of the rentals is:
Market cost of the asset = Present value of rentals (no salvage value)
What is the “value” of such a machine to the its owner? If no other
contracts
were available, then the owner might have to rent out the machine at its
rental
rate and then the value C would accrue to the owner. But suppose the
machine
owner, for whatever reason, is able to make another set of market
contracts,
namely to hire in the labor L per period at the wage rate w, and to sell
the
outputs of Q per period at the unit price p. Then the net revenue
accruing to
the business operator per period is pQ – wL. Assuming the continuation
of these
supplier and customer contracts for n periods, the net present value
accruing
to the business operator is:
Present value of anticipated business operation to asset owner
So far the analysis is straightforward and unproblematic. But now a
subtle
error creeps into the standard treatment in capital theory and finance
theory.
The present value V is characterized as the “capitalized value of the
asset” as
if the combined results of using the asset’s services K per period and
the
assumed supplier and customer contracts were all part of the property
rights of
the asset owner. The standard formulas for capitalized asset values and
business valuation are all more complex versions of this simple formula.
To
make the point explicit, one has to parse the formula into the two
parts: the
present value representing (the future recovery of the value of) present
property rights plus the present value of future profits resulting from
the
assumed “going concern” continuation of beneficial supplier and customer
contracts, i.e., the goodwill. In our simple example, the profit each
period
is:
Anticipated profit per period
so the discounted present value of the profit, namely the goodwill, is:
Goodwill = Present value of future anticipated profits
Then since pQ – wL = rK + , the capitalized value V is easily parsed
into the
sum of the asset’s market value C plus the goodwill GW:
“Capitalized value of asset” = market value of asset + goodwill. Thus
the
standard capitalized value formulas for business assets or businesses
are not
just the value of present property rights but include the value of
certain
anticipated but presently not owned future profits.
Examples in the literature
The confusions about capitalized value are also expressed in the rather
muddled
idea that these anticipated future profits are somehow “attached” to the
physical assets or the “business.”
When a man buys an investment or capital-asset, he purchases the right
to the
series of prospective returns, which he expects to obtain from selling
its
output, after deducting the running expenses of obtaining that output,
during
the life of the asset. [Keynes 1936, 135]
But the buyer of the asset buys no such right against the customers and
suppliers who may freely decide not to continue the past contracts and
thus to
change the “series of prospective returns” which the asset owner
“expects to
obtain”. Unfortunately these confusions about the property rights
involved in
owning a capital asset are carried over in modern corporate finance
theory to
the valuation of an entire going-concern business as an “asset”.
There, in valuing any specific machine we discount at the market rate of
interest the stream of cash receipts generated by the machine; plus any
scrap
or terminal value of the machine; and minus the stream of cash outlays
for
direct labor, materials, repairs, and capital additions. The same
approach, of
course, can also be applied to the firm as a whole which may be thought
of in
this context as simply a large, composite machine. [Miller and
Modigliani 1961,
415]
Miller and Modigliani [1961] give four equivalent formulas for corporate
valuation. The formulas can be shown equivalent [Ellerman 1982, 154-5]
to a
fifth formula that gives the parsing of the capitalized value into the
value of
the property rights in the underlying assets plus the goodwill (present
value
of assumed future profits). The essentials of the proof are captured in
the
simple example used here.
Accounting for goodwill
Accounting rules typically do not allow “unpurchased” goodwill to be
listed on
the balance sheet as an asset, and our analysis indicates this is
correct if
the balance sheet is to give the value of present property rights. But
some
accounting rules rather mysteriously allow “purchased goodwill” to be
recorded
as an asset. This is reminiscent of the old joke about a country bumpkin
who
comes to New York where a con man sells him the Brooklyn Bridge. Can the
buyer
then put the Brooklyn Bridge on his balance sheet since he “purchased
those
rights”? Surely the point is that the buyer cannot purchase a right
which the
seller does not own in the first place. Hence “purchased goodwill” is no
more a
present property right than unpurchased goodwill since the seller had no
such
property right to sell. Capital expended to “purchase” such a non-right
should
not be recorded as an owned asset but as a debit to equity. Some
accountants
have courageously argued for this correct procedure, e.g., George
Catlett and
Norman Olson in Accounting for Goodwill.
The amount assigned to purchased goodwill represents a disbursement of
existing
resources, or of proceeds of stock issued to effect the business
combination,
in anticipation of future earnings. The expenditure should be accounted
for as
a reduction of stockholders’ equity. [Catlett and Olson 1968, 106]
The debit to equity would then be replenished if and when the
anticipated
future profits were earned, i.e., were realized as present property
rights.
However, one should not expect conceptual clarity in the standard
literature on
this issue anytime soon. It is not just an issue about accounting for
goodwill.
As we have noted, the issue involves very basic ideas about just what is
owned
in the ownership of an asset or a corporation, and the confusion is
embedded in
the standard asset capitalization formulas of finance theory.
References
Personal Responsibility
The inalienability of personal responsibility is the foundation of the
abolitionist argument from which all else follows. If one believes in
the
principle of personal responsibility the rest can be deduced in a
straightforward manner. The basic idea is that responsibility for a
person’
actions cannot be transferred to another party. This distinguishes
humans who
have personal responsibility for their actions from things which don’t.
The
responsibility for the action of things are imputed to their human user.
To
transfer responsibility from a person would be to make them less than
human.
The legal system clearly recognized this principle in the prosecution of
crimes. All participants in a crime are held responsible. The law does
not
excuse a hired criminal because they were following orders. Hiring
contracts
cannot negate responsibility for participating in a crime because a
human
cannot alienate control of their actions, at best they can choose to
cooperate.
The inalienability of responsibility for ones actions does not disappear
when a
crime is not being committed. It holds in all cases where human action
is
involved. In particular it applies to productive labor. However, the
legal
system pretends otherwise when production is involved. It allows
financial
responsibility for profits or losses resulting from labor to be
contractually
transferred violating a principle it readily acknowledges in the
commission of
a crime. It is a massive institutional fraud on par with the judicial
support
of slavery. With regard to human rentals the fraud is much more
extensive,
being truly global in scope.
Consent
“Inalienable” Means Inalienable Even With Consent
David Ellerman
Many political theorists have taken natural rights to be alienable. The
last
chapter sketched an intellectual history of the non-democratic alienist
liberal
tradition which emphasized the transferability of natural rights. That
pervasive tradition has tried to reinterpret and appropriate the phrase
“inalienable rights” to mean rights which cannot be taken without the
consent
of the owner.
If rights were viewed as property, then inalienability might mean only
that a
man must consent to what is done with them. [Lynd 1968, p. 45]
Thus theorists professing “inalienable natural rights” could actually be
laying
the groundwork for slavery and autocracy.
And as Rousseau shrewdly observed, Pufendorf had argued that a man might
alienate his liberty just as he transferred his property by contract;
and
Grotius had said that since individuals could alienate their liberty by
becoming slaves, a whole people could do the same, and become the
subjects of a
king. Here, then, was the fatal flaw in the traditional theories of
natural
rights. [Davis 1966, 413]
In our own time, Robert Nozick’s opening proclamation, Individuals have
rights,
and there are things no person or group may do to them (without
violating their
rights) [Nozick 1974, ix] is often taken as a declaration of inalienable
natural rights. But the significance is just the opposite as Nozick goes
on to
condone both voluntary slavery [331] and voluntarily alienating the
right of
self-determination to a nondemocratic “dominant protective association”
[e.g.,
15]. Nozick has no notion of rights that are inalienable in spite of
consent. A
right which requires consent to be alienated is not an “inalienable
right”; it
is a right as opposed to a privilege. Any legal capacity which could be
taken
away without the consent of the bearer would hardly qualify as a “right”
at
all; it would only be a privilege granted and removable by others. In
what
follows, “inalienable rights” will, unless otherwise indicated, always
mean
rights which may not be alienated even with the consent of the holder of
the
rights.
The Case of the Criminous Slave: An Example of Inalienability
The theory of inalienability presented here will be illustrated with
several
intuitive examples of inalienability. Examples that illustrate a point
in an
intuitive and paradigmatic fashion are called “intuition pumps.” When
analyzing
the employment system, analogies with slavery can provide powerful
intuition
pumps. We have not been socialized into accepting slavery as part of the
furniture of the social universe so we should be able to see it
dispassionately
and objectively. A legal system of chattel slavery is but one example of
a
legal system of a system that legally treated persons as nonpersons or
things.
The ethical condemnation of the system should be based not on
utilitarian
considerations about how well or poorly the slaves were treated but on
that
fundamental contradiction or mismatch between the slave’s legal role as
a thing
and the underlying fact of the slave’s personhood. Did the legal system
really
believe that slaves were in fact not persons, or was it an official
pretense or
fiction? The fraudulent nature of the legal system was openly realized
when the
slaves committed criminal wrongs. For instance, an antebellum Alabama
court
asserted that slaves
are rational beings, they are capable of committing crimes; and in
reference to
acts which are crimes, are regarded as persons. Because they are slaves,
they
are … incapable of performing civil acts, and, in reference to all such,
they
are things, not persons. [Catterall 1926, 247]
The pretense of the slave’s thinghood was the basis for the economic
system of
slavery. But that pretense served no purpose when slaves stepped outside
the
appointed role and committed crimes.
The slave, who is but ‘a chattel’ on all other occasions, with not one
solitary
attribute of personality accorded to him, becomes ‘a person’ whenever he
is to
be punished! [Goodell 1853, 309]
The “talking instrument” in work becomes the person in crime. There are
two
contradictions here which should not be confused: (1) the formal
“inconsistency” in a legal system that treats the same individual
legally as a
thing in normal work and legally as a person when committing a crime (in
the
diagram, the formal inconsistency is trying to fit the same peg in both
a round
hole and a square hole), and (2) the substantive contradiction in a
legal
system that accepts a de facto person as fulfilling the de jure role of
a thing
(in the diagram, the substantive contradiction of trying to fit the
square peg
in the round hole). The merely formal inconsistency could be resolved by
always
legally treating a slave as a thing, e.g., by treating a criminous slave
like
an errant beast of burden that caused an injury. The problem of the two
contrasting legal roles for the self-same slave is different from the
substantive inconsistency between the legal role of the non-criminous
slave and
the factual status of the slave as a person. The legal-role/legal-role
contrast
is highlighted not to register any moral complaint but to point out the
system’s selfincriminating testimony about the factual-status/legal-role
mismatch for the non-criminous slave. In a court of law, testimony
against
one’s own interests will tend to have the most credibility. In the case
of the
criminous slave, the legal system of slavery revealed the bankruptcy of
its own
juridical foundations; it acknowledged that the slave was in fact a
responsible
person in spite of the slave’s usual legal role as a thing. Sir Henry
Maine
asserts that “the movement of the progressive societies has hitherto
been a
movement from Status to Contract.” [1861, reprinted 1972, p. 100], so
let us
progress to the case where the slave’s legal role resulted from a
self-enslavement or self-sale contract. That would not change the
essentials of
the case. The voluntary contractual slave, like the involuntary slave,
would
still be legally treated as a person when charged with a crime, and
would still
embody the fundamental contradiction between the legal role of the
non-criminous (contractual) slave and the slave’s factual status as a
person.
Outline of the Theory of Inalienability
Here is the core of the theory of inalienability. A person cannot in
fact by
consent transform himself or herself into a thing, so any contract to
that
legal effect is juridically invalid—even though it might be “validated”
by a
system of positive law (e.g., the antebellum South). A right is
inalienable
(even with consent) if the contract to alienate the right is inherently
invalid. The self-enslavement or self-sale contract is an old example of
such a
contract, while the self-rental or employment contract is a current
example. In
general, any contract to take on the legal role of a thing or non-person
is
inherently invalid because a person cannot in fact voluntarily give up
and
alienate his or her factual status as a person. I can in fact give up
and
transfer my use of this pen (or computer) to another person, but I
cannot do
the same with my own human actions—not for a lifetime and not for eight
hours a
day. The “square peg” can consent to fit into the “round hole” but it
nevertheless does not fit. Yet a legal system can “validate” a contract
treating human activity as an alienable commodity, and the system can
also
pretend that obedient co-operating workers “fulfill” the contract—until
the
revealing moment of unlawful activity. That is, the legal system can
pretend
that the “square peg” fits into the “round hole.” This argument is
called the
de facto inalienability argument since it is based on the factual
inalienability of essential human characteristic such as responsibility
and
decision-making.
The Case of the Tortious Servant
When an employee or servant commits a tort out of negligence, the
employer or
master can be held liable. The controversy in the field of agency law
surrounding this “vicarious liability” of the employer affords us
another
illuminating example of the peculiarities of the employer-employee
relationship. Justice Oliver Wendell Holmes Jr. outlined the usual norm
of
imputing or assigning legal responsibility to the de facto responsible
party—a
norm which emerges as the labor theory of property when applied to
property
appropriation.
I assume that common-sense is opposed to making one man pay for another
man’s
wrong, unless he actually has brought the wrong to pass according to the
ordinary canons of legal responsibility,—unless, that is to say, he has
induced
the immediate wrong-doer to do acts of which the wrong, or, at least,
wrong,
was the natural consequence under the circumstances known to the
defendant.
[1952, 101]
But in the doctrine of respondeat superior, the master may be held
liable for
the negligence of a servant even if the wrongful act was not commanded
by the
master and the master exercised due caution in hiring and instructing
the
servant. The servant’s act is manifestly not the master’s act, so the
master is
not de facto responsible for the act. The assignment of legal
responsibility to
the master does not follow the usual canon of legal responsibility so it
is
called “vicarious liability” or “strict liability.” The controversy over
vicarious liability is not as live today as in the past due to workers’
compensation insurance. But there are several points of interest both in
what
is said and in what is not said by the jurists commenting on vicarious
liability. We begin by reviewing the legal responsibility of the
employer and
the employee in normal lawful work. Employees bear no legal
responsibility for
the positive and negative results of their actions within the scope of
their
employment. The employer bears all the responsibility. Employees are
“employed”
as if they were instruments which serve as “perfect conductors”
transmitting
the responsibility back to the employer. When the employer is a
corporation,
the natural persons who legally fill the employer’s role are the members
or
owners of the company, the shareholders. Absentee shareholders,
particularly in
a corporation with publicly traded shares, have only a notional
connection with
the productive process in the corporation. Yet the shareholders are the
final
residual claimants in the corporation; they have the ultimate legal
responsibility for the positive and negative results of the lawful
actions of
the hired hands and heads of the people (managers and workers) working
in the
firm. What happens when an employee commits a negligent tort? As one
would
expect from the case of the criminous slave, the tortious servant
emerges from
the cocoon of non-responsibility metamorphosed into a responsible human
agent.
That is to say, although it is contrary to theory to allow a servant to
be sued
for conduct in his capacity as such, he cannot rid himself of his
responsibility as a freeman, and may be sued as a free wrong-doer. This,
of
course, is the law to-day. [Holmes 1952, 79]
An employee may be sued for a tort or civil wrong and “being an
employee” is
not a defense or shield against legal responsibility for wrongful
actions. The
law also allows the victim to sue the employer or master, although the
plaintiff cannot collect damages twice. If the employer is found legally
liable, then it is only liability in a “strict” legal sense since the
master
was presumed not to be de facto responsible. Justice Holmes attacked
strict
liability—”I therefore assume that common sense is opposed to the
fundamental
theory of agency” [1952, 102]—because it violated the usual juridical
principle
of assigning legal liability in accordance with de facto liability, a
liability
established strongly by intentional action or weakly by negligent
behavior.
Others supported vicarious liability because the employer has a “deeper
pocket”
and because liability for employee negligence should be part of the
costs of
modern business enterprise [e.g., "The Basis of Vicarious Liability" in
Laski
1921]. There has been such a focus on the employer’s liability that one
is apt
to forget the employee’s liability.
We have noticed that students sometimes slip into the fallacious
assumption
that because the employer is liable, the employee is not. This idea is
wholly
false. The law of agency, which makes employers liable, does not repeal
the law
of torts, which makes negligent individuals liable. [Conrad, et. al.
1972, 168]
The employee, after all, is the de facto responsible person. Perhaps the
most
astonishing aspect of the vicarious liability debate is the complete
failure to
apply the “ordinary canons of legal responsibility” to the normal
employment
relation. Jurists are perturbed when legal liability is assigned to the
employers who have no de facto responsibility. But there is not a word
about
the fact that the employees are jointly de facto responsible, together
with a
working employer, for the results of normal lawful work, and yet the
employees
have zero legal responsibility for the results of those actions. The
employer
has all the legal responsibility for the positive and negative results
of the
employees’ actions within the scope of lawful employment. No one in the
debate
notices that the employment relation seems to “repeal” the ordinary
canons of
legal responsibility. No deep analysis of the sociology of knowledge is
required to fathom this blind spot in legal analysis. The basic social
institutions structure the horizons of thought. The application of the
ordinary
canon of legal responsibility would reveal an inherent flaw in the
employment
relation—a result clearly beyond the pale of responsible jurisprudential
analysis in an economic civilization based on that relationship.
Employees Versus Independent Contractors
Normative principles such as the ordinary canon of legal responsibility
(a.k.a.
the labor theory of property) and the principle of democratic
self-determination all converge to attack the institution of renting
human
beings, viz. the employer-employee relationship. The alternative to
employment
is (individual or joint) self-employment. That is, the alternative to
the
private or public enterprise employment firm is the democratic business
enterprise where working in the firm qualifies one for membership in the
firm.
The smallest examples of democratic businesses are independent
business-people
operating without the benefit of hired labor. If those independent
operators
produce and/or sell a tangible appropriable product, there is no
possibility of
considering them as employees of their customers. When one buys a
pumpkin from
a farmer, there is no possibility of taking the farmer as one’s
employee. When
the product, however, is not a separate, tangible, and appropriable
commodity,
then the possibility does arise of confusing the independent contractor
with
the employee. The two legal roles are fundamentally different in theory
even
though some grey-area cases can arise in practice. It will be useful to
review
the distinction which is particularly important in agency law since the
customer is not vicariously liable for the negligent torts of an
independent
contractor. The legal role of the independent contractor does not
violate
democratic principles or the labor theory of property. The independent
contractor self-governs his or her work. Indeed, the “control test”
(testing
non-self-government) is one of the most important legal tests used to
distinguish employees from independent contractors. Ronald Coase quotes
from a
legal reference book in his classic article on the nature of the
(employment)
firm.
The master must have the right to control the servant’s work, either
personally
or by another servant or agent. It is this right of control or
interference, of
being entitled to tell the servant when to work (within the hours of
service)
and when not to work, and what work to do and how to do it (within the
terms of
such service) which is the dominant characteristic in this relation and
marks
off the servant from an independent contractor, or from one employed
merely to
give to his employer the fruits of his labour. In the latter case, the
contractor or performer is not under the employer’s control in doing the
work
or effecting the service; he has to shape and manage his work so as to
give the
result he has contracted to effect. [Batt 1929, 6]
The individual independent contractor is self-managing so that legal
role does
not violate the principle of democratic self-determination. The
independent
contractor does not alienate or transfer control over his or her
actions. The
employee sells his capacity to work during a certain time period, or, in
Marxian terms, his labor power; the employer controls the execution of
the
services. An independent contractor is not rented by the customer; only
a
certain service or effect is sold. This is particularly confusing
because the
word “hired” is sometimes applied to independent contractors as well as
to
employees. When someone “hires” a lawyer in independent practice, that
lawyer
is an independent contractor. If a corporation hires a lawyer onto its
legal
staff, that lawyer is an employee of the corporation. The independence
of the
role of independent contractors means that they legally appropriate the
positive and negative fruits of their labor. They appropriate and sell
the
positive fruits, typically an intangible service or effect (e.g.,
repairing a
faucet or painting a house). They also directly bear their costs
(appropriate
the negative fruits of their labor) even though the costs are passed on
to the
customers as part of the price of the product. For instance, an
independent
house painter might present the home owner with a bill itemizing so many
hours
of labor and so many gallons of paint. But the homeowner has not
purchased the
painter’s labor as an employer; the painter has simply itemized the
labor and
paint to “justify” the price of the entire paint job.
The Identity Fiction
The case of the tortious servant also gives us the occasion to examine
some of
the legal fictions surrounding the employer-employee relationship. We
saw in
the case of slavery how jurists could be quite explicit in describing
the slave
as having the legal role of a thing (for lawful activities). Such candor
is the
exception. There are more subtle ways to legally treat a person as a
non-person. One legal strategy to deny an individual’s legal personality
is to
“identify” the individual with another person. The baron-feme
relationship
established by the coverture marriage contract exemplified the identity
fiction
in past domestic law. A female was to pass from the cover of her father
to the
cover of her husband; always a “feme covert” instead of the anomalous
“feme
sole.” The identity fiction for the baron-feme relation was that “the
husband
and wife are one person in law” with the implicit or explicit rider,
“and that
one person is the husband.” A wife could own property and make
contracts, but
only in the name of her husband. For the employment relation, the
identity
fiction states that “the master and servant are considered as one
person” or
“the act of the servant is the act of the master.”
The identity fiction expresses an older mode of legal thought about the
employment relation; it is not needed to understand or explain the
employment
relation in modern terms. But it does catch the sense of the employee’s
instrumentality. Within the scope of lawful employment, an employee does
not
have the legal role of a responsible person. The employer has all the
legal
responsibility for the results of the acts of the employees so “the acts
of the
servants are the acts of the master.” A variation on the identity
fiction is
given by the phrase: Qui facit per alium facit per se (that which is
done
through another is done oneself). This also captures the instrumental
role of
the employee. The employer “acts through” the employees. For the sake of
legal
clarity, it is unfortunate that the identity fiction is also applied to
situations where no fiction is appropriate and it is quite unnecessary.
The
master-servant relation is usually defined to be a subset of the
principal
agent relation (hence the name “agency law”) so that a blue-collar
production
worker is technically an “agent.” But an independent contractor, such as
a
lawyer in private practice, can also be an agent. When a lawyer acts as
a
properly authorized agent to negotiate a contract, the principal is also
said
to “act through” the agent. A principal, however, “acts through” an
independent
lawyer in quite a different sense than an employer acts through, say, a
production worker. The lawyer conveys information and can perform
symbolic
legal acts (e.g., signing a contract) for the principal. The direct
physical
act of an independent contractor would, however, never count as the
direct
physical act of the principal. As Justice Holmes observed, “the precise
point
of the fiction is that the direct act of one is treated as if it were
the
direct act of another” [1952, 111-112]. Therefore the identification
fiction is
not required to account for the relationship between a principal and an
independent contractor as agent—even though sloppy habits of legal
thought
might apply identification language to that case. The identity fiction
only has
a role when the legal personality of an individual (e.g., an employee or
a feme
covert) is “subsumed” under the legal personality of an alien legal
party
(“alien” in the sense that the individual is not included in the legal
party).
What is the alternative to the employment contract or to any other
contract to
alienate and transfer control over certain of one’s activities such as
the
now-abolished self-enslavement contract or the coverture marriage
contract? The
alternative is membership—so the individual is not alien to the
redefined
broader legal party. For instance, the alternative to coverture is
marriage as
a type of domestic partnership. Each spouse is an equal partner and can
make
contracts for the partnership. The alternative to the employment
contract is
the democratic firm (also a type of generic “partnership”) where work
gives
membership. In a democratic firm, there is identification without
fiction; the
worker/member is a part of the firm.
The case of the tortious servant has given us the opportunity to make a
number
of points. It allowed us to introduce the distinction between employees
and
independent contractors. It also showed how the identity fiction was
used in
the legal conceptualization of relationships which depersonalized
certain
individuals by identifying them with another individual or an alien
legal party
(of which they are not a part). Historical examples include the
master-slave,
baron-feme, and employer-employee relationships. The overall theme of
this
chapter is inalienability. The employee contracts into a legal role
where some
other alien party has all the legal responsibility for the results of
the
employee’s lawful actions. The ordinary canon of assigning legal
responsibility
in accordance with de facto responsibility is violated. But when the
employee
commits an unlawful act such as a tort or civil wrong, the law sees no
point to
insulating the employee from that responsibility. The employee is said
to have
stepped outside the employee’s role. Then the usual legal canon applies
and the
employee may be sued for the tort. In de facto terms, the employee is,
if
anything, more responsible for the fruits of the perfectly deliberate
and
intentional actions of lawful work than for an unintentional but
negligent
tort. That capacity for de facto responsibility is in fact inalienable.
The law
pretends it has been alienated. The law pretends the act of the servant
is the
act of the master so long as the pretense is not abused by unlawful
actions.
The Case of the Criminous Employee
The unique property of labor, namely responsible agency, is not
factually
transferable. The case of the criminous employee is another parable or
“intuition pump” which illustrates that key idea in the theory of
inalienability. Suppose that an entrepreneur hired an employee for
general
services (no intimations of criminal intent). The entrepreneur similarly
hired
a van, and the owner of the van was not otherwise involved in the
entrepreneur’s activities. Eventually the entrepreneur decided to use
the
factor services he had purchased (man-hours and vanhours) to rob a bank.
After
being caught, the entrepreneur and the employee were charged with the
crime. In
court, the worker argued that he was just as innocent as the van owner.
Both
had sold the services of factors they owned to the entrepreneur. “Labor
Service
is a Commodity” [Alchian and Allen 1969, 469], as one can learn from
economics
texts. The use the entrepreneur makes of these commodities is “his own
business.” The judge would, no doubt, be unmoved by these arguments. The
judge
would point out it was plausible that the van owner was not responsible.
He had
given up and transferred the use of his van to the entrepreneur, so
unless the
van owner was otherwise personally involved, his absentee ownership of
the
factor would not give him any responsibility for the results of the
enterprise.
Absentee ownership of a factor is not a source of responsibility (a
point which
should not be forgotten in our later discussion of marginal productivity
theory
in economics). The judge would point out, however, that the worker could
not
help but be personally involved in the robbery (unless he, per imp
ossible, was
totally unaware of what he was doing, or rather as an economist might
say, of
what was being done with his man-hours). Man-hours are a peculiar
commodity in
comparison with van-hours. The worker cannot “give up and transfer” the
use of
his own person, as the van owner can the van. Employment contract or
not, the
worker remained a fully responsible agent knowingly co-operating with
the
entrepreneur. The employee and the employer share the de facto
responsibility
for the results of their joint activity, and the law will impute legal
responsibility accordingly.
All who participate in a crime with a guilty intent are liable to
punishment. A
master and servant who so participate in a crime are liable criminally,
not
because they are master and servant, but because they jointly carried
out a
criminal venture and are both criminous. [Batt 1967, 612]
It should be particularly noted that the worker is not de facto
responsible for
the crime because an employment contract which involves a crime is null
and
void. Quite the opposite. The employee is de facto responsible because
the
employee, together with the employer, committed the crime (not because
of the
legal status of the contract). It was his de facto responsibility for
the crime
which invalidated the contract, not the contractual invalidity which
made him
de facto responsible. The commission of a crime using a rented van does
not
automatically invalidate the van rental contract. The legality or
illegality of
a contract cannot somehow create de facto responsibility that would not
otherwise exist.
Defenders of the Received Truth about the employment system will have
much
difficulty understanding this argument. They might take the legal
superstructure as the reality, and thus they would lose sight of the
underlying
factual situation. It is as if one identifies guilt and innocence with
what is
decided in a court of law (i.e., with legal guilt or innocence). Such a
“legalistic” viewpoint ignores the factual question of whether the
defendant
was de facto responsible for the accused act. It is a miscarriage of
justice
when there is a mismatch between legal and factual responsibility, i.e.,
when
an innocent person is found legally guilty or when a guilty person is
found
legally innocent. A similar neglect of the underlying factual reality is
involved in the standard argument that “responsibility” is determined by
the
employment contract (when only legal responsibility is so determined).
Employees voluntarily give up their responsibility for the products of
their
labor in the employment contract. There is no inconsistency involved in
holding
the “criminous employee” responsible because he is not really an
employee. A
contract involving the commission of a crime is null and void, so he
stepped
outside of the employment contract when he committed the crime. In the
democratic firm, the workers don’t give up their responsibility to an
employer;
they are jointly selfemployed. Thus it is quite proper in that case for
them to
have the ownership of the product, but not in the case of a normal
capitalist
firm.
That argument stays at the legal level of responsibility and does not
touch the
question of the underlying factual responsibility. The point is that de
facto
responsibility is not transferable; the non-criminous employee in a
normal firm
is just as de facto responsible as the criminal. It might be helpful to
(roughly) translate the above argument into pegs-and-holes language.
Square pegs consent to fit into round holes in the employment contract.
There
is no inconsistency involved in holding the criminous peg responsible
(i.e.,
being in the square hole) since he was not really in the round hole. By
committing the crime, he stepped outside the round hole and thus fit in
the
square hole. In the democratic arrangement, the square pegs do not agree
to fit
in the round holes, so it is quite proper in that case for them to be in
the
square holes—but not in the normal capitalist arrangement (where they
have
agreed to be in round holes and have not stepped outside by committing
crimes).
“Consent” does not improve the fit of the square peg in the round hole.
The
point is that the square peg does not fit into the round hole regardless
of
whether it is legally agreed to or not. It is again helpful not to
confuse (1)
the formal “inconsistency” in a legal system that treated the same
individual
legally as a thing (e.g., in normal work) and legally as a person when
committing a crime, and (2) the substantive contradiction in a legal
system
that accepts a de facto person as fulfilling the de jure role of a thing
(e.g.,
the employee in normal work). By rendering the criminous employment
contract
null and void, the law escapes the formal “inconsistency” of having an
individual simultaneously in the legal role of a responsible person and
in the
legal role of an employed instrument. That keeps the bookkeeping
straight at
the legalistic level. The problem is not with the imputation of legal
responsibility to the criminous employee. That is a correct assignment
since
the worker was de facto responsible together with the entrepreneur for
the
results of their joint activity. The problem is with normal work when
the
employment contract is treated as being “valid.” When the “venture”
being
“jointly carried out” is non-criminal, the employee does not suddenly
become an
instrument like the van. The worker is still jointly de facto
responsible, but
then the employer gets all the legal responsibility. The problem is that
substantive contradiction in the normal employment relation wherein a de
facto
responsible person has the legal role of a “non-responsible”
instrumentality
being “employed” by the employer.
Those who place great stock in the voluntariness of the labor contract
should
heed these examples of inalienability. The criminous employee would most
certainly voluntarily alienate his responsibility for the fruits of his
labor,
i.e., for robbing the bank. He would love, for once, to be legally
treated as
just an instrument employed by the employer. But the law says no. The
law would
not validate such a contract, and yet, with no hint of personal
involvement,
there is no reason to invalidate the van owner’s contract. Why the
difference?
Does the law arbitrarily decide to validate some contracts and to
invalidate
others? No, the difference is quite clear. The van owner can in fact
give up
and alienate the use of his van; the worker cannot do the same with his
person.
It is that factual inalienability and nontransferability of the
responsible
agency of human action (a.k.a. labor services) that is the foundation of
the de
facto theory of inalienable rights.
The Case of the Part-time Robot
The example of a person who functioned as a part-time robot is another
intuition pump to illustrate the de facto inalienability argument. Since
the
argument is based on the facts about human nature, we might assume that
science
fiction technology can modify human nature enough to defeat the
argument.
Suppose that it were possible to electronically implant a small computer
in a
person’s brain so that by flipping a switch the individual was “taken
over” and
“driven” by the computer under the control of an external user or
employer.
When in the robot mode, the individual would have no ability to
deliberately
terminate or even influence his or her “actions” (or rather behaviors).
When
the computer was externally switched off, the individual would regain
conscious
control and be able to act in the usual deliberate and responsible
manner. One
could vary the example by imagining some drugs that would temporarily
turn a
person into a part-time zombie, but we will stick to the high-tech
imagery of a
computer-driven part-time robot. The part-time robotization would change
human
nature to make it safe for the employment system. The person as a
part-time
robot would not be de facto responsible for the positive or negative
fruits of
“its” services. The person as a part-time robot would not have
decision-making
direct control over “its” services. Those labor-services would be de
facto
transferable like the services of a van—so the legal validation of the
employment contract for the transfer of those robot services would not
be an
institutionalized fraud. The examp le of the part-time robot is
illuminating
from another viewpoint. Since the employment contract fits the part-time
robot
without involving any fraud, that means the employment contract applied
to
ordinary persons treats them as if they were such part-time robots
within the
scope of their employment. That is, the employment contract imputes zero
legal
responsibility to the employees for the positive or negative fruits of
their
labor as if they were part time robots employed by an employer. In
short,
renting people treats them as if they were things.
The Inalienability of Decision-Making
The inalienability of de facto responsibility is central to the labor
theory of
property and to the analysis of the employment contract as it affects
the
property relations of the firm. But the labor theory of property is only
one
leg of the analysis of the employer-employee system and of the
alternative of
democratic worker ownership or universal self-employment. The other leg
is
democratic theory. It analyzes the employment firm and the democratic or
self-employment firm as governance systems, and it views the employment
contract in the employment firm as an instrument of governance. The
general
point of the de facto inalienability analysis is that a person’s factual
status
as a person is unchanged by consent or contract. Hence any legal
contract to
take on the legal role of a non-person or thing cannot be fulfilled and
is
inherently null and void. The law can only pretend that certain
appropriate
behavior “fulfills” the contract— and that pretense is dropped when the
person
commits a crime. The intuition pumps of the criminous slave, the
tortious
servant, the criminous employee, and the part-time robot have
illustrated the
argument by focusing on responsibility, the central theme in the labor
theory
of property. The inalienability argument can also be illustrated by
focusing on
decision-making, the central theme in democratic theory. The employment
contract does not “short-circuit” or bypass an individual’s
decision-making
capacity just as it does not bypass the person’s responsible agency. The
employee is inexorably a co-decision-maker just as he or she is
inexorably
co-responsible for the results of voluntary joint activity with the
employer.
For instance in the bank robbery example, the entrepreneur may well have
taken
the initiative to rob the bank. But the employee participates in the
robbery as
a (by assumption) conscious voluntary human activity. Thus the employee
must
have also made the decision to participate in that activity. “Taking
orders” to
do X is only another way of deciding to do X. The van owner, by way of
contrast, can in fact alienate the decisions about the specific uses of
the
van. In the example of the part-time robot, the person qua person has
the role
of the van-owner, and the part-time robot has the role of the van. The
entrepreneur makes the decision to use the van to rob a bank rather
than, say,
to move furniture, and the van owner is not involved in that decision.
Both the
employee and the van owner alienate the legal control rights over the
specific
uses of their man-hours and van-hours (within certain limits) in their
respective rental contracts. The difference is at the factual level, not
the
legal level. The van owner can in fact give up any involvement in those
specific use decisions; the employee cannot.
The legal relationship of hiring an entity (i.e., buying the entity’s
services)
may be applied without any inherent fraud to the hiring of a van (or
part-time
robot); it cannot be similarly applied to hiring a responsible human
being. In
a joint or social human activity such as most production processes,
individual
responsibility may be difficult or impossible to determine, and
individual
decision-making may be equally infeasible. Responsibility is joint, and
decision-making needs to be coordinated, often around a unified center.
How
then should a joint human activity be organized recognizing that all
human
participants are de facto coresponsible and de facto co-decision-makers?
There
needs to be a unified legal party to be legally responsible for the
results of
the joint activity and to be the locus of unified decision-making
authority.
The employment firm provides a unified legal entity for the joint human
activity of production, but it legally denies the employees’
co-responsibility
and their co-decision-making (for lawful activities). It is not “their
business.” The alternative to employment is membership in a jointly
self-employed group or team. The alternative to the nonresponsible
instrumental
role of the employee is not individual legal responsibility (since it is
a
joint activity) but membership in the unified legal party that is
legally
responsible for the results of the joint activity. Thus the analysis
focusing
on responsibility leads to the notion of the democratic worker-owned
firm, a
firm where the members are the people working in the firm. The analysis
of
decision-making leads to the same conclusion. The employment contract
legally
alienates decision making just as it legally alienates
responsibility—even
though both are factually inalienable. The alternative to alienating
(“translatio”) decision-making is the delegation (“concessio”) of
decision-making authority to a unified center such as the management in
a
democratic firm. Then the decisions are made for and in the name of
those who
are managed. Thus the alternative to non-democratic management in the
employment firm is not the chaos of individual decision-making but
democratic
management which unifies and coordinates decision-making using authority
delegated from those who are managed. By delegating that authority and
ultimately accepting and ratifying the decisions in action, the workers
are
jointly (not individually) self-governing their activities in a
democratic
firm.
Misinterpretations of the De Facto Inalienability Argument
David Ellerman
There are a number of common misunderstandings of the de facto
inalienability
argument. For example, it is possible to misunderstand the point of the
case of
the criminous slave particularly when stated in contractual terms. A
contract
which involves the commission of a crime is not enforceable and is null
and
void. Hence when a contractual slave committed a crime, he or she voided
the
contract and thus stepped outside of the contractual role of a thing.
Thus the
legal system could without any actual inconsistency or embarrassment
hold the
person legally responsible for the crime. There is a right and proper
legal
reason to move the square peg from the round hole to the square hole.
This
point is quite correct but irrelevant to the substantive mismatch, the
contradiction between the legal role of the non-criminous contractual
slave and
factual status of the person [the square peg not fitting in the round
hole in
the first place]. Obviously the non-criminous slave was not in fact a
thing
that (who?) suddenly blossomed into personhood when he, she, or it
detoured
into crime. The non-criminous contractual slave had the factual status
of a
person just as the criminous slave. The real issue is the
factual-status/legal-role mismatch for the contractual slave (square
peg/round
hole mismatch). When a legal system recognizes such a contract as valid,
then
the legal system is adopting a pretense or fiction. There always seem to
be
other misunderstandings of the inalienability argument.
Surely you are arguing that the self-sale contract is invalid because
the
worker is paid too little. What adequate compensation can there be for a
lifetime of labor? Freedom is priceless so there can be no real quid pro
quo in
a self-sale contract.
That is a complete misunderstanding of the de facto inalienability
argument, an
argument which never considers the terms of the contract. The argument
is
similarly independent of assertions that slaves or servants were or are
mistreated, overworked, and exploited. The mistreatment arguments are
only
qualitative variations on the more quantitative underpayment argument.
The
underpayment analysis of the self-sale contract is as superficial as the
official Marxist argument that the problem with renting human beings is
that
they are not paid the full value of the labor they actually perform.
Another
misunderstanding concerns the role of voluntariness in the
inalienability
analysis.
Surely you are arguing that a self-sale contract is invalid because it
is
really involuntary in spite of the surface characteristic of formal
consent.
Look at the historical examples. Fearing the example set by free blacks,
there
was agitation in several slave states in the years immediately preceding
the
Civil War to require that free blacks select a master and voluntarily
resubmit
to slavery or else leave the state [see Franklin 1969; Gray 1958]. Any
such
re–enslavements would hardly pass muster as “voluntary contracts.”
The analysis is totally independent of the historical question of the
degree of
involuntariness in the self-sale contracts of the past. The de facto
inalienability critique assumes a perfectly voluntary contract. An
involuntary
“contract” would be a fortiori null and void. If “the problem” with
historical
self-sale contracts was their involuntariness, then the presupposition
is that
the contract would be acceptable if it were genuinely voluntary. Because
if the
contract embodied some deeper flaw that would render it invalid even if
perfectly voluntary, then there is no need to consider degrees of
historical
voluntariness. Yet the alienist liberal tradition that reached its
apogee in
Nozick’s acceptance of voluntary self-sale contracts [1974, 331] sees no
deeper
flaw, and thus it focuses on voluntariness. The mirror-image of this
liberal
superficiality is the official Marxist fallback argument that the wage
labor
contract is socially involuntary. If the labor-theory-of-value argument
that
wage workers are exploited because they are paid too little is found
unconvincing, then perhaps one will accept the backup argument that the
contract is socially involuntary because workers born with only their
labor
power to sell have no other real choice. Yet another misunderstanding of
the
argument concerns the rationality of the contract.
Surely you are arguing that a self-sale contract is invalid because no
rational
person would enter into such a contract. Only a person not in possession
of
their faculties would agree to the contract, and a contract by a legally
incompetent person is invalid.
Again, the de facto inalienability argument makes no presumption about
which
contracts are considered “rational” or “irrational” by the standards of
the
day.
Surely you are expressing a value judgment that a self-sale contract
should be
invalid, and thus that the right to self-determination should be
inalienable.
The de facto inalienability argument is rooted in facts–not in value
judgments.
It is a fact that I can voluntarily alienate the use of this writing
instrument
(my pen or my computer), and it is a fact that I cannot do the same for
my own
personal actions. To use the language of the employment contract, I am
inexorably the “employer” of my intentional actions (a.k.a. “labor
services”).
I can at most agree to co-operate with other people, and then we are
jointly
responsible for the results. Yet the contractual framework for the sale
and
transfer of a commodity is applied to human labor as it is applied to
pens and
computers. The law pretends that the responsible co-operation of the
employee
with the employer “fulfills” the contract for the transfer of labor. The
employer enjoys the sole de jure responsibility for the (positive and
negative)
results of the human actions. But the legal fiction of the transferred
labor
must not be abused for the commission of a crime. Then the fiction is
set aside
in favor of the facts. The worker whose labor was sold by the lifetime
or by
the hour is now recognized as co-responsible with the master for the
results of
their joint activity. The instrument in work is promoted to a partner in
crime.
A Misunderstanding of the Criminous Employee Example
One of the principal intuition pumps of de facto inalienability theory
is the
criminous employee example. There is not one but two “inconsistencies,”
and
they should not be confused; (1) the formal or legalistic inconsistency
of
treating the same person legally as a thing (e.g., in the normal
employee’s
role) and legally as a person (e.g., when committing a crime), and (2)
the
substantive inconsistency in a legal system that accepts a de facto
person as
fulfilling the de jure role of a thing (e.g., the employee in normal
work).
These inconsistencies could be restated using the analogy of the square
peg (de
facto person), the round hole (legal role of a thing), and the square
hole
(legal role of a person). In terms of the hole/peg analogy, one should
not
confuse: (1) the formal or legalistic inconsistency of treating the same
peg as
fitting in both a round hole and a square hole, and (2) the substantive
inconsistency in a legal system that accepts a square peg as fitting in
the
round hole. It is argued that once the employer and employee commit a
crime (or
conspire to do so), they step outside of and invalidate the employment
contract. They become partners carrying out a joint venture, and the law
treats
them both as being legally responsible for the results of their actions.
Thus
there is no legal inconsistency in treating the criminous ex-employee as
being
legally responsible. That is correct, and that was not the point of the
example
of the criminous employee. The fact that the criminous activity
invalidates the
employment contract does indeed keep the legal bookkeeping straight. The
substantive inconsistency is the point of the criminous employee
example. The
employee does not suddenly burst into personhood when committing a crime
and
then lapse into automatism in normal work (e.g., as in the hypothetical
part-time robot example). The person is just as much de facto
responsible for
non-criminous work as for committing a crime in co-operation with the
employer.
It is a factual point, not a legal point. The example of the criminous
employee
forcefully brings this fact to light. The foundation of the legal
framework for
the employment system is the legal validation of the employer-employee
contract, the acceptance of the employees’ de facto responsible
cooperation
with their employer as fulfilling the labor contract. It is an
institutionalized fraud. There is no testimony about this fraud as
telling as
the testimony of the legal system itself in the case of the criminous
employee.
In order to hold the employee legally responsible for his or her de
facto
responsible actions, the legal system has to render that employment
contract
null, void, and invalid. That is the correct juridical response, and we
have
only argued that it should be extended to all employment contracts.
People
should always be held legally responsible for the positive and negative
results
of their de facto responsible actions, and thus the employment contract
should
always be considered null, void, and invalid.
De Facto Inalienability Theory as a “Value Judgment”
Economists are much more comfortable about a normative argument if they
can
label it as a “value judgment”–as in “I hate pink plastic flamingos.”
Then the
interpretation of the de facto inalienability argument is as follows.
Everyone has a right to their value judgments. You think that pink
plastic
flamingos should be banned, that anchovy pizzas should be banned, and
that
employment contracts should also be banned. There are already laws
against
selling various items (e.g., certain controlled drugs, rare animals, and
dangerous firearms), and you are expressing the value judgment that
labor
should also be made non-transferable.
That is a misunderstanding of the de facto inalienability argument.
Controlled
drugs, rare animals, and dangerous firearms are all de facto alienable
and
transferable. The de facto inalienability argument was never used as an
argument against the legal sales of those items [see Rose-Ackerman 1985
for
some of the arguments]. Labor is different. It is not a value judgment
that
labor is de facto inalienable and nontransferable; that is an empirical
factual
judgment. If true, then the legal contract to transfer that which is
inherently
non-transferable would be fraudulent. There is a value judgment involved
here,
namely that inherently fraudulent contracts should not be legally
validated.
But the Defenders of the Received Truth would rather not defend the
employment
contract by taking issue with that value judgment.
“Interpreting” Employees as Independent Producers
One strategy for the Defense is simply to “reinterpret” the employment
contract
in some more palatable form–as if the contract was putty that could be
remolded
at will. For example, let’s “say” the workers are selling their outputs
instead
of their labor. However, that is not the way the employment firm is
legally
structured. In order to sell their outputs, the workers must first own
them,
and that requires paying for the inputs. One could also “say” the
workers
bought the inputs–but that is only more “flapping one’s wings in the
void”–so
let’s try another tack. Another flight of fancy is to “interpret” all
employees
as independent producers of labor. The labor services themselves are
“interpreted” as the only fruits of their labor, so in that sense the
workers
can be “said” to produce, own, and sell the fruits of their labor. In
terms of
the stylized model, the labor services L are taken as the only fruits of
the
workers’ labor; the tangible product Q is taken as being produced by the
employer who set up all the contracts. The basic idea is to sever–at the
level
of legal interpretation–the connection between the performance of the
labor L
and the production of the product Q. The employees produce only L, while
the
employer produces Q. Independent producers pay for their own inputs.
Thus to
continue the “reinterpretation,” one must also sever the connection
between
performing L and using up the non-labor inputs K. Let’s “say” the
employer uses
up K. The only activity the employees are performing is the production
of the
labor services L, and they do pay for the food, clothing, and shelter
involved
in producing that labor. Independent producers also have direct control
of
their services. Therefore, let’s “reinterpret” the employment
relationship as
not involving authority.
To speak of managing, directing, or assigning workers to various tasks
is a
deceptive way of noting that the employer continually is involved in
renegotiation of contracts on terms that must be acceptable to both
parties.
Telling an employee to type this letter rather than to file that
document is
like my telling a grocer to sell me this brand of tuna rather than that
brand
of bread. I have no contract to continue to purchase from the grocer and
neither the employer nor the employee is bound by any contractual
obligations
to continue their relationship. [Alchian and Demsetz 1972, reprinted in
Putterman 1986, 112]
Thus each employee is interpreted as an independent self-employed job
shopper
producing either typing-labor or filing-labor according to what the
customer
wants. This continuous-renegotiation view of the labor contract goes
back to
John R. Commons.
The labor contract is not a contract, it is a continuing renewal of a
contract
at every successive moment, implied simply from the fact that the
laborer keeps
at work and the employer accepts his product. . . [The employee] does
not own
the job–his employer is under no duty to keep him–he owns the liberty to
be
continuously bargaining with his employer to be kept on the job by
virtue of
continuously delivering a service which the employer continuously
accepts,
thereby impliedly renewing continuously the contract. [Commons 1968,
285-286]
This is true of any at-will rental contract, such as an at-will lease of
an
apartment, so it does not address the specific critique of the labor
contract.
The important part of the Alchian-Demsetz argument is not the point
about
continuous renegotiation but the reinterpretation of the employment
relation as
a non-authority relation like a contract with an independent producer.
The
customer is not in an authority relationship with the grocer. The
typing-labor
or filing-labor is the only product of the worker that the employer
decides to
buy (like the can of tuna or the loaf of bread). The worker produces and
sells
that labor in a made-to-order fashion in his or her labor-job-shop. This
interpretation of the labor contract can be stated using our description
of
Labor’s Product.
Labor’s Product = (Q, –K, 0) = (Q, –K, –L) + (0, 0, L) = Whole Product +
Labor.
The interpretation of the employees as independent producers of labor,
in
effect, makes an incision and cuts the causal connection between the
labor (0,
0, L) and the whole product (Q, –K, –L). The workers are pictured as
only
producing and selling the labor L; the whole product is produced by the
employer. Like the watchmaker who assembles the watch so that it will
run
correctly, the employer makes all the right contracts for L and K so
that the
whole product (Q, –K, –L) will be produced as the result. This
independent-producer interpretation of the employee’s role looks, at
first,
like a novel theory, but it turns out to be only an ingenious and
elaborate
restatement of the conventional theory. The usual theory is that the
employees
sell the labor L as a commodity, and that the employer employs the labor
L and
the other inputs K to produce the product Q. The problem with the theory
never
was its legal coherence; it hangs together beautifully. The problem was
at the
factual level. Labor did not fit the mold of a transferable commodity;
labor
services are not transferable like a can of tuna, a loaf of bread, or
the
services of an apartment or a van.
Take, for example, the idea of severing the connection between
performing the
labor L and producing the product Q. There are times when an individual
wants
to be severed from the results of his actions. For instance, the hired
killer
does not want responsibility for the fruits of his labor. That even
shows in
the language; he is a “trigger-man.” The hired killer bears no personal
animus
against the victim; he is only hired to “pull the trigger.” He would
like to
sever the labor–”pulling the trigger”–from the resulting murder. But the
facts
cannot be so easily “reinterpreted.” He together with the “entrepreneur”
is de
facto responsible for the murder. In contrast, consider the de facto
transferable services of a truck or van. A van and its owner can be
parted. The
services of the van can be severed from the owner and de facto
transferred into
the employment of another person. The van user’s employment of the van
is not
an authority relation over the will of the van owner. If the van owner
chooses
to continue the at-will rental contract when the van user chooses to use
the
van to go shopping for a can of tuna instead of going to mail a letter,
then
the van owner is, in effect, supplying the van user with
tuna-shopping-van-services rather than letter-mailing-van-services. If
labor
services could in fact be similarly severed and de facto transferred
into the
employment of another person, then there would be no de facto
inalienability
critique of the contract. But that is not the case. The imaginative
restatement
of the employee as an independent producer of labor does nothing to
change
those facts.
“Voluntary Acts Between Knowledgeable Consenting Adults”
Liberalism, and particularly libertarianism, argues that at least a
prima facie
case can be made for allowing any voluntary acts between knowledgeable
consenting adults. Does the de facto inalienability argument rule out
any such
voluntary acts between consenting adults? The (surprising) answer is
“No” [at
least not at the underlying noninstitutional level]. Understanding this
answer
requires a keen appreciation of the difference between the institutional
(de
jure) overlay and the underlying non-institutional (de facto) realities.
The de
facto inalienability argument does not rule out the de facto transfer of
labor
since it takes that to be impossible in the first place. What it rules
out is
the institutional overlay of the employment contract superimposed on the
reality where labor has in fact not been transferred. What the argument
excludes is at the institutional level, not at the underlying
non-institutional
level. It forbids the legal validation of an inherently unfulfillable
contract.
It does not forbid any non-institutionally described voluntary acts
between
knowledge consenting adults. Nozick pointedly uses the expression
“capitalist
acts between consenting adults” [1974, 163]. The adjective “capitalist”
is
institutional so Nozick is not simply arguing for allowing voluntary
acts
between knowledgeable consenting adults. He is arguing for certain
institutional superstructures to be laid over those voluntary acts.
Nozick,
with admirable consistency, argues not only for “capitalist acts” but
also for
the slavish acts involved in the voluntary self-enslavement contract
[331]–as
if there were no problem for a person to de facto fit the legal role of
a
non-person. The abolition of the employment contract, like the abolition
of the
self-sale contract, does not infringe on the freedom to make
(non-fraudulent)
contracts; it only restricts the “freedom” to make inherently
unfulfillable and
naturally invalid contracts. The employment contract is, like the
self-sale
contract was, a subtle fraud vouchsafed by the legal system itself. Yet
the
point about “voluntary acts” can be illustrated by considering a simple
fraud.
There are widgets and cheap pseudo-widgets, and it is difficult to tell
them
apart. A buyer B legally buys a widget from the seller S and pays its
price,
but S transfers a pseudo-widget to B to “fulfill” the contract. There is
a
mismatch between the legal transfers and the factual transfers. In this
case,
there are two ways to restore a transfer matching:
change the factual transfers–S furnishes a genuine widget to replace the
pseudo-widget–or,
change the legal transfers–rewrite the legal contract as a contract to
buy a
pseudo-widget–which may or may not be agreeable to B.
The point is that there is no fraud involved if B knowingly agrees to
the
rewritten contract to buy the pseudo-widget for the same money (the
price of a
real widget). If the same de facto transfers could be carried out with
no fraud
involved, then what is the point of a fraud? The point is that–without
the
fraud–the defrauded party would very likely not agree to the same de
facto
transfers. For example in a democratic firm, Labor might not want to
make a
gift of the profits to Capital. What in fact is ruled out by the
prohibition
against frauds? No voluntary acts between knowledgeable consenting
adults are
prohibited. It is the mismatch between the legal transfers and the
factual
transfers to fulfill the contract that is prohibited. In the example,
the
voluntary act of knowingly exchanging the price of a genuine widget for
a
pseudo-widget was not prohibited. While the de facto inalienability
argument
does not rule out any voluntary acts between knowledgeable adults, it
does rule
out “capitalist acts between consenting adults.” The employment contract
involves a transfer mismatch. But, since labor is de facto
non-transferable,
there is only one way to remedy the mismatch, namely rewrite the legal
transfers in some fulfillable form. Consider the simple model of the
employment
firm involving the parties Labor and Capital. In the non-institutional
factual
description of the transfers, the non-labor inputs K and a sum of money
M
(e.g., the wages wL) are factually transferred from Capital to Labor,
and Labor
produces the outputs Q and factually transfers them away (say) to
Capital. Let
us now rewrite the contracts to fit these realities of “capitalist
production,”
and let us further suppose that both parties knowingly agree to these
new
contracts. Then there would be no fraud. What do we have? Not an
employment
firm, but an example of worker-managed production possibly with
transactions at
non-market prices. The non-labor inputs K have been legally purchased by
Labor
from Capital, and the outputs Q have been legally appropriated by Labor
and
sold to Capital. The net payment $M goes from Capital to Labor. If the
transfers were at market prices then $M = $pQ – rK, but parties may
knowingly
agree to exchanges at non-market prices. Or such non-market transactions
can be
interpreted as a market transaction followed by a voluntary gift. For
instance,
Labor could knowingly agree to buy K and sell Q all for the net payment
of the
money $M = $wL. That, in effect, is the market transaction with the net
payment
$M = $pQ – rK followed by the voluntary gift of the profits pQ-rK-wL = p
from
Labor to Capital. And that, in effect, is what the fraudulent employment
contract induces Labor to do in conventional production. In a democratic
firm,
if the workers want to knowingly donate their profits to Capital or any
worthy
cause, they are free to do so. These points serve to mark the
non-consequentialist nature of the de facto inalienability critique of
the
employment contract. With a different legal overlay, the same de facto
transfers could knowingly and voluntarily take place without involving
any
fraud. This also serves to emphasize that there is no inherent conflict
between
the de facto inalienability argument and allocative efficiency or Pareto
optimality (applied to non-institutionally specified states of affairs).
In a
simple garden-variety fraud, it is presumably always possible to
ascertain that
the de facto transfer does not correspond to the agreed-to legal
transfer,
e.g., to tell the difference between a pseudo-widget and the genuine
article.
The “beauty” of an institutionalized fraud like the employment contract
is that
there is no de facto transfer that fulfills the contract; in effect,
there is
no genuine widget to contrast with the pseudo-widget. The pseudotransfer
of
labor (i.e., voluntary co-operation with the employer) has been accepted
for
centuries by the legal authorities themselves as fulfilling the
contract. The
“discovery” of the fraud thus requires extensive analysis together with
heavy
use of intuition pumps like the case of the criminious employee to see
that
labor is not de facto transferable after all. And any responsible
scholar and
respected businessperson–being embedded in the institutions of the
employment
system–has every incentive not to make that discovery.
Voluntarily Following Orders
The analysis has emphasized the property structure of production, but
the same
remarks can be applied, mutatis mutandis, to the parallel governance
structure
of production. In the employment relation, the worker W decides to do X
because
the employer or boss B says to do X. Here again, the problem does not
lie in
the factual reality of W choosing to do what B says; the problem lies in
the
legal overlay. In the employment relation, the reality, namely a rather
one-sided form of voluntary co-operation between autonomous
decision-making
individuals, is legally interpreted as B “employing” W with B as the
sole
decision maker. B is the “head,” W is the “hand.” The head makes the
decision
and then employs the hand to carry out the decision. The hired hand is
the
conductor of B’s intentions, the instrument of B’s will; it has no
“head” of
its own. In terms of the legal transfers between W and B, the employment
contract transfers the use-rights over W’s time, the direct control
rights over
W’s services, to the employer B. It is a transfer, not a delegation, of
decision-making authority. But the factual transfers cannot match that
legal
transfer. Short of some part-time robot concoction, W remains the de
facto
decision-maker over W’s actions. All W can do is to voluntarily
co-operate with
B by deciding to do as B says. The facts cannot be changed to eliminate
the
mismatch (science fiction aside); human decision-making capacity is not
de
facto transferable. The legal contract should be rewritten in a
non-fraudulent
form to fit the facts. The legal relationship between W and B is then
one of
delegation, not an alienation or transfer of decision-making capacity. W
and
all of W’s colleagues in the work process (including B) are the
decision-makers; B acts as their delegate or representative. B’s
decision
initiatives are taken in the name of the whole group, in the name of the
governed. When the workers decide to do X because the boss B says to do
X, that
would legally as well as factually be their decision–even when X is not
a
crime. Similar remarks apply to vote selling. The inalienability
critique
argued against W being permitted to sell his or her vote to B so that it
became
B’s vote. There was no inalienability critique of W casting W’s vote as
B says.
That may indicate what Hutcheson called a “weak mind” but it would not
pretend
to alienate the de facto inalienable capacity for decision-making. Would
the
abolition of the employment contract impair workers’ freedom? Workers
would not
be prevented from performing the same (non-institutionally described)
voluntary
acts as before, namely deciding to do what B says. But criminals are
today
denied the “contractual freedom” to voluntarily contract into the legal
role of
an instrument, the de jure role of a non-decision-making non-responsible
tool
employed by the employer. With the abolition of the employment contract,
that
“contractual freedom” would also be denied to all de facto responsible
decision-making persons.
Slavery
Why was Slavery Wrong? Involuntariness or Treating Persons as Things?
“Involuntariness” is the usual answer.
David Ellerman
Indeed, classical liberalism takes the most basic framing of a social
question
as: “consent or coercion?” In this view, democracy is characterized as
government “with the consent of the governed” so slavery and
non-democratic
government were both condemned for the lack of consent.
This common condemnation of slavery on the basis of involuntariness has
caused
a large amount of intellectual history to just go “down the memory
hole.” Those
who routinely condemn involuntary slavery have either forgotten or never
knew
that from Antiquity down almost to the present there have always been
those
pro-slavery writers who: (1) presented a defense of slavery based on
consent or
contract, and (2) interpreted much of historical slavery as being based
on
implicit or explicit contracts.
My focus here is not on (2), the empirical question of whether or not
any
historical slavery could be interpreted as being voluntary, but (1), the
fact
of intellectual history that so many classical authorities defended
slavery if
based on consent.
Intellectual history of the voluntary slavery contract
The Old Testament of the Bible is a convenient starting point. The Old
Testament law was that, after six years of service, any Hebrew slave was
to be
set free in the seventh year, the year of the Jubilee.
But if he says to you, “I will not go out from you,” because he loves
you and
your household, since he fares well with you, then you shall take an
awl, and
thrust it through his ear into the door, and he shall be your bondman
for ever.
[See Deut. 15:16-17; also Exodus 21:5-6.]
Much of Western jurisprudence was developed out of Roman law. In the
Institutes
of Justinian, Roman law provided three legal ways to become a slave.
Slaves either are born or become so. They are born so when their mother
is a
slave; they become so either by the law of nations, that is, by
captivity, or
by the civil law, as when a free person, above the age of twenty,
suffers
himself to be sold, that he may share the price given for him.
[Institutes Lib.
I, Tit. III, 4]
In addition to the third means of outright contractual slavery, the
other two
means were also seen as having aspects of contract. A person born of a
slave
mother and raised using the master’s food, clothing, and shelter was
considered
as being in a perpetual servitude contract to trade a lifetime of labor
for
those past and future provisions. In the natural rights tradition,
Samuel
Pufendorf (1632-94) explicitly gave that contractual interpretation.
Whereas, therefore, the Master afforded such Infant Nourishment, long
before
his Service could be of any Use to him; and whereas all the following
Services
of his Life could not much exceed the Value of his Maintenance, he is
not to
leave his Master’s Service without his Consent. But ’tis manifest, That
since
these Bondmen came into a State of Servitude not by any Fault of their
own,
there can be no Pretence that they should be otherwise dealt withal,
than as if
they were in the Condition of perpetual hired Servants. [Pufendorf 2003
(1673),
186-7]
Manumission was an early repayment or cancellation of that debt. And
Thomas
Hobbes, for example, clearly saw a “covenant” in this ancient practice
of
enslaving prisoners of war.
And this dominion is then acquired to the victor when the vanquished, to
avoid
the present stroke of death, covenants either in express words or by
other
sufficient signs of the will that, so long as his life and the liberty
of his
body is allowed him, the victor shall have the use thereof at his
pleasure. …
It is not, therefore, the victory that gives the right of dominion over
the
vanquished but his own covenant. [Hobbes 1958 (1651), Bk. II, chapter
20]
Thus all of the three legal means of becoming a slave in Roman law had
explicit
or implicit contractual interpretations.
In addition to giving a contractual interpretation to the slavery of a
child
born of a slave mother, Pufendorf noted that an explicit slavery
contract was a
lifetime version of the master-servant contract (employment contract in
modern
terms) where a servant could be hired or rented for a certain time and
would
receive wages.
But to such a Servant as voluntarily offers himself to perpetual
Servitude, the
Master is obliged to allow perpetual Maintenance, and all Necessaries
for this
Life; it being his Duty on the other hand to give his constant Labour in
all
Services whereto his Master shall command him, and whatsoever he shall
gain
thereby, he is to deliver to him. [Pufendorf 2003 (1673), 185]
John Locke’s Two Treatises of Government (1690) is a classic of liberal
thought. Locke gave a ringing condemnation of a contract which gave the
master
the power of life or death over the slave.
For a Man, not having the Power of his own Life, cannot, by Compact or
his own
Consent, enslave himself to any one, nor put himself under the Absolute,
Arbitrary Power of another, to take away his Life, when he pleases.
[Second
Treatise, §23]
Locke is ruling out a voluntary version of the old Roman slavery where
the
master could take the life of the slave with impunity. But once the
contract
was put on a more civilized footing, Locke saw no problem and nicely
renamed it
“drudgery.”
For, if once Compact enter between them, and make an agreement for a
limited
Power on the one side, and Obedience on the other, the State of War and
Slavery
ceases, as long as the Compact endures…. I confess, we find among the
Jews, as
well as other Nations, that Men did sell themselves; but, ’tis plain,
this was
only to Drudgery, not to Slavery. For, it is evident, the Person sold
was not
under an Absolute, Arbitrary, Despotical Power. [Second Treatise, §24]
Moreover, Locke agreed with Hobbes on the practice of enslaving the
captives in
a “Just War” as a quid pro quo exchange based on the on-going consent of
the
captive.
Indeed having, by his fault, forfeited his own Life, by some Act that
deserves
Death; he, to whom he has forfeited it, may (when he has him in his
Power)
delay to take it, and make use of him to his own Service, and he does
him no
injury by it. For, whenever he finds the hardship of his Slavery
out-weigh the
value of his Life, ’tis in his Power, by resisting the Will of his
Master, to
draw on himself the Death he desires. [Second Treatise, §23]
Locke seemed to have justified slavery in the Carolinas by interpreting
the
raids into Africa as just wars and the slaves as the captives [See
Laslett
1960, notes on §24, 325-26].
William Blackstone’s (1723-1780) codification of common law was quite
important
in the development of English and American jurisprudence. Like Locke,
Blackstone takes a seemingly modern moral stand to rule out a slavery
where “an
absolute and unlimited power is given to the master over the life and
fortune
of the slave.” Such a slave would be free “the instant he lands in
England.”
Yet, with regard to any right which the master may have lawfully
acquired to
the perpetual service of John or Thomas, this will remain exactly in the
same
state as before: for this is no more than the same state of subjection
for
life, which every apprentice submits to for the space of seven years, or
sometimes for a longer term. [Blackstone 1959 (1765), 72, section on
"Master
and Servant"]
The Debates about American Slavery
An interesting case study in the selectiveness of liberal intellectual
history
is the treatment of the proslavery writers in the American debates. The
proslavery position is usually presented as being based on illiberal
racist or
paternalistic arguments. Considerable attention is lavished on illiberal
paternalistic writers such as George Fitzhugh [See, for example,
Genovese 1971;
Wish 1960; or Fitzhugh 1960] while consent-based contractual defenders
of
slavery are passed over in (embarrassed?) silence.
For example, Rev. Samuel Seabury [1969 (1861)] gave a sophisticated
liberal-contractarian defense of ante-bellum slavery in the
Hobbes-Pufendorf
tradition of alienable natural rights theory.