Monday, July 05, 2004

Democracy Promotion and Globalization

This short paper reviews a Gramscian framework of political-economy as articulated in William Robinson’s “Promoting Polyarchy” (Cambridge University Press, 1996)

Globalization and neo-liberalism represent an epochal shift, the fourth in the history of world capitalism. The first, mercantilism and primitive accumulation, was ushered in with the birth of capitalism out of its feudal cocoon in Europe and outward expansion. The second, competitive, or classical capitalism, marked the industrial revolution, the rise of the bourgeoisie, and the forging of the nation-state. The third was the rise of corporate (monopoly) capitalism, the consolidation of a single world market and the nation-state system into which world capitalism became organized. Many of the contemporary leftist activists analyze the capitalist system in this (third) context.
The first epoch ran from the symbolic dates of 1492 through 1789, the second to the late nineteenth century, and the third into the early 1970s. Globalization as the fourth (or current) epoch began with the economic crisis of the 1970s and the profound restructuring of the system that has been taking place since. It features the rise of *transnational capital* and the supersession of the nation-state system as the organizing principle of capitalist development. As an epochal period, globalization constitutes not a new process but the near culmination of the centuries-long process of the spread of capitalist production relations around the world and the displacement of all pre-capitalist relations.
The capitalist system is undergoing a dramatic intensive expansion. The era of the primitive accumulation of capital is coming to an end. In the process, those cultural and political institutions that fettered capitalism are being swept aside, paving the way for the total commodification or "marketization" of social life world-wide.
Capital has achieved a newfound global mobility and is reorganizing production world-wide in accordance with the whole gamut of political and factor cost considerations. This involves the worldwide decentralization of production together with the centralization of command and control of the global economy in transnational capital. In this process, national productive apparatuses become fragmented and integrated externally into new globalized circuits of accumulation. In the contemporary economic context, there is a subtle distinction that needs to be made between a world economy and a global economy.
Various groups—popular and elite—are losing out in the shift from a world economy to a global economy. In the earlier epochs each country developed national circuits of accumulation that were linked to each other through commodity exchange and capital flows in an integrated international market (a world economy). In the emerging global economy, the globalization of the production process itself breaks down and functionally integrates these national circuits of production into global circuits of production. Globalization, therefore, is unifying the world into a single mode of production and bringing about the organic integration of different countries and regions into a global economy and society. The increasing dissolution of space barriers and the subordination of the logic of geography to that of production, what some have called "time-space compression", is without historic precedence. As Sociologist William Robinson notes, "It compels us to reconsider the geography and politics of the nation-state."
The political reorganization of world capitalism has lagged behind its economic organization, with the result that there is a disjuncture between economic globalization and the political institutionalization of new social relations unfolding under globalization. Nevertheless, as the material basis of human society changes so too does its institutional organization. From the seventeenth-century treaties of Westphalia into the 1960s, capitalism unfolded through a system of nation-states which generated concomitant national structures, institutions, and agents. Globalization has increasingly eroded these national boundaries (this is also Hardt and Negri's argument in Empire), and made it structurally impossible for individual nations to sustain independent, or even autonomous economies, polities and social structures.
A key feature of the current epoch is the supersession of the nation-state as the organizing principle of capitalism, and with it, of the inter-state system as the institutional framework of capitalist development. In the emerging global capitalist configuration, transnational or global space is coming to supplant national spaces. There is no longer anything external to the system, not in the sense that this is a "closed" system but in that there are increasingly no longer any countries or regions that remain outside of world capitalism, any pre-capitalist zones for colonization, or autonomous accumulation outside of the sphere of global capital. The internal social nexus therefore is now a global one. Referring to Robinson "Such organic social relations are always institutionalized, which makes them 'fixed' and makes their reproduction possible. As the organic and internal linkage between peoples become truly global, the whole set of nation-state institutions is becoming superseded by transnational institutions."
As opposed to "withering away," the state as a class relation is becoming transnationalized. The class practices of a new global ruling class are becoming "condensed" to borrow Poulantzas' terminology, in an emergent transnational state. In the process of globalization of capital, class fractions from different countries have fused together into new capitalist groups within transnational space. This new transnational bourgeoisie or capitalist class is that segment of the world bourgeoisie that represents transnational capital. It is comprised of the owners of the leading world-wide means of production as embodied principally in the TNCs and private financial institutions. What distinguishes this transnational capitalist class from national or local capitalist fractions is that it is involved in globalized production and manages global circuits of accumulation that give it an objective class existence and identity spatially and politically in the global system above and beyond local territories and polities.

Robinson’s Theory of Polyarchy and Gramsci’s Theory of Hegemony

Gramsci is the best known articulator of the difference between consensual and coercive domination. Hegemony in the Gramscian sense may be defined roughly as a relation between classes in which one class or fraction of class exercises leadership over other classes and strata by gaining their active consent. A Gramscian hegemony involves the internalization on the part of the subordinate classes of the moral and cultural values, the codes of practical conduct, and the worldview of the dominant classes or groups—in sum, the internalization of the social logic of the system of domination itself. This logic is imbedded in ideology, which acts as a cohesive force in social unification (in Gramsci’s phrase “cement”). But hegemony is more than ideology, and is not reducible to Marx’s “false consciousness.” Hegemony is a social relation which binds together a “bloc” of diverse classes and groups under circumstances of consensual domination, such that the subordinate groups give their “spontaneous consent” to “the direction imposed on social life” by the dominant groups. (22)
Borrowing from Croce, who borrowed from Hegel, a critical element in the Gramscian construct is the distinction and unity of political and civil society. Social control takes place on two levels: in civil society and through the state (political society), which are fused in Gramsci’s extended state. “These two levels correspond on the one hand to the function of hegemony which the dominant group exercises throughout society and on the other hand to that of ‘direct domination’ or command exercised through the State and ‘juridicial’ government.” The hegemony of a ruling class or fraction is exercised in civil society, as distinct from its coercive power exercised through the state. Civil society is the arena of those social relationships which are based on consent—political parties, trade unions, civic (voluntary) associations, the family, and so forth. (22-23)
Gramsci originally developed the concept of hegemony in its applications to relations among classes and social groups within a nation. But the premise can be applied to international relations, as been advanced elsewhere in recent international relations and development literature, and an “Italian School” has begun to emerge. However, a Gramscian theory of international relations remains sparsely developed, and most work has emphasized intra-elite relations over those between elites and subordinate classes, and has focused on intra-core and not on core-periphery relations. By contrast, Robinson highlights hegemonic relations between dominant and subordinate classes in the core-periphery context. (23)
Robinson’s analysis is as follows. It is imperative quote him at length so as not to lose any elements of his argument:

“Hegemony is exercised in relations among nations and among classes or groups in a transnational setting. The structures of asymmetry in the international political economy are sustained and international relations of power and domination exercised through variants of coercive or consensual mechanisms of transnational social control. Hegemony applied to international relations is not synonymous with their application of power by one nation over others; this is domination, or, as specifically concerns core-periphery relations, imperialism, understood as the transfer of surpluses from one country or region to another and the military, political, and ideological mechanisms which facilitate such transfer as discussed previously. Such power may be gauged as the relative ability to influence events and their outcomes in a transnational arena. Cross-national relations of domination express given correlations of international force. A critical mass of asymmetrical power in international relations may be applied in a myriad of ways that create or sustain asymmetries, such as colonial conquest and direct military intervention. During its “American century,” the United States applied such a critical mass of power, both direct (political-military) and indirect (economic), flowing from its location in the world system, to construct global empire and to exercise world domination, just as Great Britain did in the nineteenth century. Relative power may be exercised in numerous ways, and the means which it is applied can become as important as the degree of such power. A more effective means may require less application of power, or offset an absolute of relative decline. More importantly, changes in the nature of power itself may necessitate changes in the form in which it is exercised. “

Hegemony is one form in which nations or groups in a transnational setting may exercise their domination in the international arena. The foreign policy of core states may be conceived, in the broadest sense, as international engagement by groups operating through states to maintain or extend the advantages accrued from a dominant location in a symmetrical international order, including the suppression of groups that challenge those advantages. Mass movements for the democratization of social life are threats to dominant groups in a transnational setting. Yet the earlier authoritarian arrangements are increasingly unable to manage such threats. New modalities of intervention have emerged to face more complex threats. Transnational dominant classes and groups and the state apparatuses they manage may sustain core-periphery relations of domination through coercion (“straight power concepts”), such as direct colonial control, an invasion, or a CIA-orchestrated coup d’etat, and more characteristically, through the promotion of dictatorial or authoritarian social arrangements. Or, transnational social control may be achieved through foreign-policy undertakings intended to bring about spontaneous consent through the political and ideological incorporation of subordinate groups.
A Gramscian construct allows us to synthesize the structural and the behavioral levels of analysis. Hegemony is not simply something which happens, a mere superstructural derivative of economic structures. It is, in large part, the result of a permanent and persuasive effort, conducted through a multiplicity of “superstructural” agencies and instances. However, the possibility of hegemonic order is conditioned by the structure of production and social relations that flow from political economy. Therefore, policy ultimately flows from the dialectic of agency and structure, but analysis requires a methodological distinction. (24)
Regarding first the behavioral level of analysis, the US policymaking community has analyzed the dramatic changes in the international correlation of forces between the early 1970s and the early 1990s, and in the domestic political landscape in which foreign policy in constructed, which provided the basis for a reformulation of US policies and help consolidate the shift towards “democracy promotion.” State managers have perceived that absolute power has declined, and have sought to adjust policies, even if they are not cognizant of the underlying structural and historical processes at work which account for this decline. Greater cognizance on the part of the policymakers of the need to develop policies calibrated to actual power and potential, as well as the perception of decline in absolute US power, conceived in nation-state terms, has been an important part of the thinking among those who have developed “democracy promotion.” However, international asymmetries no longer correlate to nation-states and their relative power, although the disjuncture between transnationalization and an institutional system still centered around the nation-state can produce seemingly contradictory phenomena, and even illusions among state managers, most of whom do not theorize on Gramscian concepts.
Regarding the structural level of analysis, the decline in the relative power of the US nation-state and other core states in recent decades, the gradual separation of class power and state power (or the structural power of capital and the direct power of states), the disbursal of global power to geographically diffuse classes and groups operating in a transnational environment, and the requirement of democratic legitimations are all factors accounting for the absolute coercive capacity of the core in the world system. Debate over whether the United States is losing or merely reconfiguring its position as the dominant world power reflects an outdated state-centered approach which fails to appreciate changes in the nature of power under globalization, and which therefore obscures our understanding of the relation between economic and political change in society. (25)
Unlike earlier US interventionism, the new intervention focuses much more intensely on civil society itself, in contrast to formal government structures, in intervened countries. The purpose of “democracy promotion” is not to suppress but to penetrate and conquer civil society in intervened countries, that is, the complex of “private” organizations such as political parties, trade unions, the media, and so forth, and from therein, integrate subordinate classes and national groups into a hegemonic social order. Since social groups vie for control over the levers of state power (and to put their agents into positions of proximate policymakers), and since the strength of social groups in civil society is a determining factor in this struggle for state control, it is not surprising that the new political intervention emphasizes building up the forces in civil society of intervened countries which are allied with dominant groups in the United States and the core regions of the world system. This function of civil society as an arena for exercising domination runs counter to conventional (particularly pluralist) thinking on the matter, which holds that civil society is a buffer between state domination, and groups in society, and that class and group domination is diluted as civil society develops.
Gramsci analyzed “historic blocs” in individual societies, within a specific constellation of class and social forces, whose “glue”, or binding element, is ideological hegemony. With the shift from coercive to consensual forms of social control, the importance of ideology in maintaining social order increases dramatically. Coercion is the glue that sustains and reinforces social control and oppressive social relations in a dictatorship, and ideology is reduced t crude rationalization of repression. Ideology constitutes the glue that sustains social control under consensual arrangements. Ideology is more than an anthropological belief system and is not equivalent to mere illusion. It is a material force insofar as it orients and sets limits on human action by establishing generalized codes of conduct which organize entire populations. Consciousness is the medium between structure and agency, mediating between objective conditions and social action as subjective response to those conditions. Dominant ideologies therefore tend to set circumscribed frames of reference in which subordinate groups politically challenge the dominant. Under a hegemonic social order, embedded ideology are definitions of key political, economic and philosophical concepts and the ideological framework establishes the legitimacy or illegitimacy of the demands placed in the social order. I argue later that one particular concept of democracy, the polyarchic definition, has become hegemonic, and this serves hegemony by filtering out as illegitimate demands that actually call into question the social order itself.
Hegemony in the world system is transnational consensual domination in a structural situation of international asymmetries in which neither power nor wealth, nor politics and economics, are separable or dichotomous. Robinson’s notion of international hegemony is distinct from most world system theorists, for whom it is equated with structural domination alone. Robinson also differs from most in the “Italian school” such as Gill, Cox, Augelli and Murphy who focus on ideological consensus within dominant groups across nations, or transnational intra-elite consensus. By contrast, Robinson suggests that transnational domination, in order to be hegemonic, requires the ideological incorporation of both dominant and subordinate groups in the center and periphery.
Prior to globalization, leadership in the world system shifted from one core power to another over time, a process involving periodic swings between conflict and consensus among core powers and a fairly constant relation of coercive domination over the periphery. A hegemonic world social order has only become possible for the first time in human history on the current age of globalization.
The shift from authoritarian to consensual mechanisms of social control corresponds to the emergence of a global economy since the 1970s and constitutes a political exigency of macro-economic restructuring on a world scale. Globalization comprises two interwoven processes. First is the culmination of the process begun several centuries ago, in which capitalist production relations are undermining and supplanting all pre-capitalist relations across the globe, in those areas specializing in manufacturing or services and those in primary production. Second is the transition over the past several decades from the linkage of nations via commodity exchange and capital flows in an integrated international market, in which different modes of production coexisted within broader social formations and national and regional economies enjoyed autonomy despite external linkages, to the globalization of the process of production itself. This involves the restructuring of the international division of labor and the reorganization of productive structures in each nation. It has major consequences for the social and political texture of every society in the world polity. (31)
The general international division of labor was based in earlier periods on the production of manufactured goods in the peripheral areas, often under semi- or pre-capitalist relations. This “colonial” division of labor has been transformed with the appearance of the multinational corporation as the principal agent of international economic activity and several consecutive waves in the scientific and technological revolution (STR). The first STR began during or soon after World War II and focused on capital-intensive technologies (nuclear energy, new automation techniques, synthetics, computers and electronics, etc.). The second STR began in the late 1960s and includes a second generation of computerization, electronics and synthetics, and new communications technologies. The first constituted a shift from labor-intensive industrial production to capital-intensive production as the core of accumulation on a world scale; the second form from capital-intensive to technology- (and knowledge-) intensive. Several clusters of completely new industries based on high technology and scientific content—advanced electronics and computerization, telecommunications, robotics, aerospace science, biotechnology, and do forth—are coming to dominate in the North. (31-32)
These profound transformations in the technological and material structure of human society facilitate global economic restructuring, transforming the very nature of the industrial production process and, along with it, the role of human labor. It has allowed for the decentralization across the lobe of complex production processes simultaneous with the centralization of decision-making and management of global production; the complete separation of the site of management from the site of production and the geographic fragmentation of production and capital. The new ability to set up what Barnet and Muller describe as the “global factory” has allowed capital to realize across the globe what, at one time, it had to restrict to national borders: total mobility in search for the cheapest labor and the most congenial conditions for the different circuits of productions and distribution, without regard to national borders. The rich countries of the North are increasingly based n control of technology, information and services (including finances), whereas the labor-intensive phase of international production, and in some cases whole manufacturing processes, shift to the South through the “comparative advantage” of abundant, cheap labor. (32)
The globalization of production involves a hitherto unseen integration of national economies and brings with it a tendency towards uniformity, not just in the conditions of production, but in the civil and political superstructure in which social relations of production unfold. A new “social structure of accumulation” is emerging which is for the first time global. A social structure of accumulation refers to a set of mutually reinforcing social, economic, and political institutions, and cultural and ideological norms which fuse with, and facilitate, a successful pattern of capital accumulation over specific historic periods. A new global social structure of accumulation is becoming superimposed on, and is transforming, all existing national social structures of accumulation. The agent of the global economy is transnational capital, organized institutionally in global corporations, in supranational economic planning agencies and political forums, and managed by a class-conscious transnational elite based in the core of the world system. In his analysis of the structural changes in the international political economy from the late 1960s to the late 1980s, Gill argues that the international turmoil of that twenty-year period was not, in fact, reflective of the breakdown of world capitalism not of accelerated division of the centers of world capitalism (Western Europe, North America, and Japan) into competing trade and financial blocs. Rather, it was precisely the rough bumps of the emergence of transnationalized capital, concentrated in international finance capital, as the hegemonic fraction of capital at a world level. (32-33)
This transnational elite has its exact counterpart in each nation of the South, in a new breed of “technocratic” elite in Latin America, Africa, and Asia—what economists Osvaldo Sunkel and Edmundo F. Fuenzalida have called “transnational kernels” in peripheral countries. These elites in the South, the local counterparts to the global elite, are overseeing sweeping processes of social and economic restructuring. However, analysis of transnational kernels in the periphery has lagged behind analyses of the emergence of a transnational Northern-based elite. Domhoff has analyzed the ties that bind dominant elites in advanced capitalist societies, in which the ideological affinities and social cohesion is developed through formal and informal socialization processes and institutional interlocks in “private” institutions, the economy and the state. Gill, in his analysis of the Trilateral Commission, elevates the binding process to a transnational setting as regards class fractions drawn from the United States, Western Europe and Japan. Writing form the perspective of dependency theory, sociologist Peter Evans explores “problems of integration” and identifies some of the concrete mechanism by which local (Southern or peripheral) and multinational (Northern or core) capital has become inter-dependent and interpenetrated in the accumulation process. (33-34)
Robinson takes the analysis of global class formation a step further. Relations of dependency and asymmetry are not superseded by globalization. Control over the accumulation process increasingly rests on technology and its diffusion, on decision-making in a worldwide (spatial) distribution of productive resources, and the global (as distinct from local) management of these resources, which remains in general a monopoly of core country elites. And the most dynamic centers of capital accumulation on a world scale—technology, managements, finances, and knowledge-intensive services—remain concentrated in core regions. However, Robinson submits that the transnationalization of civil and political society is performing an integrative function in cohering a dominant transnational social group that is lined to overlaying North-North and North-South class constellations. Evans analyzes a contradiction between “national rationalities” of Southern elites whose interests lie in national accumulation processes and the “global rationality” of multinational capital. But the global economy provides the material basis for the supersession of this contradiction. The logics of local and global accumulation increasingly coincide.
The transnational elite has an economic project and political counterpart to that project. The economic project is neo-liberalism, a model that seeks to achieve conditions for the total mobility of capital. This model includes the elimination of state intervention in the economy and regulation by individual nation-states of the activity of capital in their territories. Neo-liberal structural adjustment programs sweeping the South seek macro-economic stability (price and exchange-rate stability, etc.) as an essential requisite for the activity of transnational capital, which must harmonize a wide range of fiscal, monetary, and industrial policies among multiple nations if it is to be able to function simultaneously, and often instantaneously, across numerous national borders. 35
The emergence of a global economy provides the material basis for a global civil society. Gramsci noted that the consolidation of the capitalist mode of production in the center countries in the nineteenth century shifted the locus of power firmly and fully into a rising civil society. Similarly, the emergence and consolidation of a global capitalist economy signals the rise of global civil society as the locus of global power and dispute for hegemony in a transnational setting. According to Cox, power at the global level should be gauged by “state-civil society complexes” not in any one nation, nut in an international correlation of force in which Great Powers have the maximum degree of external autonomy, whereas the subordinate powers are penetrated by the former. “The hegemonic concept of world order is founded not only upon the regulation of inter-state conflict but also upon a globally conceived civil society, i.e. a mode of production of global extent which brings about links among social classes encompassed buy it.” Democratization movements around the world thus develop within the context of transnational political processes and an extended civil society which transcends national bounds.
The globalization of civil society provides the basis for the first time in human history for a global order based in hegemony or consensual domination. Gramsci saw the mechanism of hegemony tied to consolidation of capitalist production relations, which separates political and civil society into distinct spheres of the social totality. Both Karl Polyani and Nico Poulantzas elevated this observation to theoretical status with their respective analyses of the formal (apparent) separation of the political and the economic under capitalism. With the transnationalization of capitalist production and the extension of commodificiation to most dispersed and remote communities around the globe civil society emerges on a global scale. Only in the age of a global civil society can we speak of a global hegemonic social order. Until globalization, transnational hegemony was limited to relations between nations and their complexes of the state and civil society among the industrialized core countries. Cox argues that the liberal world order under Pax Britannica achieved world hegemony, since Great Britain had the coercive capacity to enforce obedience and thus achieved global consent to its rules of free trade the Gold Standard, etc. But this hegemony was among Great Powers of the center of the world system, whereas the relations that mediated center and periphery—colonial and neo-colonial—were ones of coercive domination. While subordinated classes in the center were drawn into consensual domination, the colonized populations of the peripheral regions, drawn into the world system bit European and US powers, never gave their “spontaneous and active consent” to imperial domination. In contrast, in the current epoch, globalizing processes affect all elements (dominant and subordinate groups), directly and indirectly, of each society inserted into the global system, through labor markets, socializing agencies, the mass media, and other institutions. Emergent transnational pools in the South liaise in diverse ways, “inwards,” with national and local populations, and “outwards,” with their senior northern counterparts. These pools are therefore transmission belts, located in the boundaries of the national and the transnational, for the penetration of global society and hegemonic incorporation of world majorities.
Despite all the rhetoric on “electoral democracy” and emphasis on “free and fair elections,” the United States is only concerned with assuring procedurally clean elections when the circumstances or results favor US interests. In official rhetoric, the United States holds that a country is a democracy when it has a government that comes to power through reasonably free and fair elections, and that a process of democratization in a country is synonymous with organizing a national electoral process. But this rhetoric is easily cast aside. Examples of interference in the results of free and fair elections abound in Nicaragua and Chile among other nations. On the other hand, governments that come to power in Latin America and elsewhere in the 1980s and 1990s through election s that were marred by fraud, such as the 1984 elections in Panama, the 1988 and other elections in Mexico, numerous elections in El Salvador, and the 1994 elections in the Dominican Republic. Yet the United States recognized these governments as “democratic.” The United States thus held a country to be democratic either when US allies came to power through reasonably free and fair elections, or when US allies came to power in elections which were not free and fair, but which nonetheless required recognition because of broader policy concerns.
In sum, US policymakers claim that they are interested in process (free and fair elections) and not outcome (the results of these elections); in reality the principal concern is outcome. The objective of political intervention is not to organize or impose free and fair elections on a nation (in which the left, or traditional autocrats, might win) but rather, to organize an elite and impose it on the intervened country through controlled electoral processes. (111)

See Also:

Augelli and Murphy “America’s Quest for Supremacy and the Third World: A Gramscian Analysis” Pinter Publishers, 1988.

Cox “Producing Hegemony” Cambridge University Press, 1995

Gill “American Hegemony and the Trilateral Commission” Cambridge University Press, 2000

Gill (ed) “Gramsci, Historical Materialism and International Relations” Cambridge University Press, 1993

Hardt and Negri “Empire” Harvard University Press, 2000

Friday, June 25, 2004

Free Market

Free Market
by Murray N. Rothbard

Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services. Thus, when I buy a newspaper from a newsdealer for fifty cents, the newsdealer and I exchange two commodities: I give up fifty cents, and the newsdealer gives up the newspaper. Or if I work for a corporation, I exchange my labor services, in a mutually agreed way, for a monetary salary; here the corporation is represented by a manager (an agent) with the authority to hire.

Both parties undertake the exchange because each expects to gain from it. Also, each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past. Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.

This simple reasoning refutes the argument against free trade typical of the "mercantilist" period of sixteenth-to eighteenth-century Europe, and classically expounded by the famed sixteenth-century French essayist Montaigne. The mercantilists argued that in any trade, one party can benefit only at the expense of the other, that in every transaction there is a winner and a loser, an "exploiter" and an "exploited." We can immediately see the fallacy in this still-popular viewpoint: the willingness and even eagerness to trade means that both parties benefit. In modern game-theory jargon, trade is a win-win situation, a "positive-sum" rather than a "zero-sum" or "negative-sum" game.

How can both parties benefit from an exchange? Each one values the two goods or services differently, and these differences set the scene for an exchange. I, for example, am walking along with money in my pocket but no newspaper; the newsdealer, on the other hand, has plenty of newspapers but is anxious to acquire money. And so, finding each other, we strike a deal.

Two factors determine the terms of any agreement: how much each participant values each good in question, and each participant's bargaining skills. How many cents will exchange for one newspaper, or how many Mickey Mantle baseball cards will swap for a Babe Ruth, depends on all the participants in the newspaper market or the baseball card market—on how much each one values the cards as compared to the other goods he could buy. These terms of exchange, called "prices" (of newspapers in terms of money, or of Babe Ruth cards in terms of Mickey Mantles), are ultimately determined by how many newspapers, or baseball cards, are available on the market in relation to how favorably buyers evaluate these goods. In shorthand, by the interaction of their supply with the demand for them.

Given the supply of a good, an increase in its value in the minds of the buyers will raise the demand for the good, more money will be bid for it, and its price will rise. The reverse occurs if the value, and therefore the demand, for the good falls. On the other hand, given the buyers' evaluation, or demand, for a good, if the supply increases, each unit of supply—each baseball card or loaf of bread—will fall in value, and therefore, the price of the good will fall. The reverse occurs if the supply of the good decreases.

The market, then, is not simply an array, but a highly complex, interacting latticework of exchanges. In primitive societies, exchanges are all barter or direct exchange. Two people trade two directly useful goods, such as horses for cows or Mickey Mantles for Babe Ruths. But as a society develops, a step-by-step process of mutual benefit creates a situation in which one or two broadly useful and valuable commodities are chosen on the market as a medium of indirect exchange. This money-commodity, generally but not always gold or silver, is then demanded not only for its own sake, but even more to facilitate a reexchange for another desired commodity. It is much easier to pay steelworkers not in steel bars, but in money, with which the workers can then buy whatever they desire. They are willing to accept money because they know from experience and insight that everyone else in the society will also accept that money in payment.

The modern, almost infinite latticework of exchanges, the market, is made possible by the use of money. Each person engages in specialization, or a division of labor, producing what he or she is best at. Production begins with natural resources, and then various forms of machines and capital goods, until finally, goods are sold to the consumer. At each stage of production from natural resource to consumer good, money is voluntarily exchanged for capital goods, labor services, and land resources. At each step of the way, terms of exchanges, or prices, are determined by the voluntary interactions of suppliers and demanders. This market is "free" because choices, at each step, are made freely and voluntarily.

The free market and the free price system make goods from around the world available to consumers. The free market also gives the largest possible scope to entrepreneurs, who risk capital to allocate resources so as to satisfy the future desires of the mass of consumers as efficiently as possible. Saving and investment can then develop capital goods and increase the productivity and wages of workers, thereby increasing their standard of living. The free competitive market also rewards and stimulates technological innovation that allows the innovator to get a head start in satisfying consumer wants in new and creative ways.

Not only is investment encouraged, but perhaps more important, the price system, and the profit-and-loss incentives of the market, guide capital investment and production into the proper paths. The intricate latticework can mesh and "clear" all markets so that there are no sudden, unforeseen, and inexplicable shortages and surpluses anywhere in the production system.

But exchanges are not necessarily free. Many are coerced. If a robber threatens you with "Your money or your life," your payment to him is coerced and not voluntary, and he benefits at your expense. It is robbery, not free markets, that actually follows the mercantilist model: the robber benefits at the expense of the coerced. Exploitation occurs not in the free market, but where the coercer exploits his victim. In the long run, coercion is a negative-sum game that leads to reduced production, saving, and investment, a depleted stock of capital, and reduced productivity and living standards for all, perhaps even for the coercers themselves.

Government, in every society, is the only lawful system of coercion. Taxation is a coerced exchange, and the heavier the burden of taxation on production, the more likely it is that economic growth will falter and decline. Other forms of government coercion (e.g., price controls or restrictions that prevent new competitors from entering a market) hamper and cripple market exchanges, while others (prohibitions on deceptive practices, enforcement of contracts) can facilitate voluntary exchanges.

The ultimate in government coercion is socialism. Under socialist central planning the socialist planning board lacks a price system for land or capital goods. As even socialists like Robert Heilbroner now admit (see Socialism), the socialist planning board therefore has no way to calculate prices or costs or to invest capital so that the latticework of production meshes and clears. The current Soviet experience, where a bumper wheat harvest somehow cannot find its way to retail stores, is an instructive example of the impossibility of operating a complex, modern economy in the absence of a free market. There was neither incentive nor means of calculating prices and costs for hopper cars to get to the wheat, for the flour mills to receive and process it, and so on down through the large number of stages needed to reach the ultimate consumer in Moscow or Sverdlovsk. The investment in wheat is almost totally wasted.

Market socialism is, in fact, a contradiction in terms. The fashionable discussion of market socialism often overlooks one crucial aspect of the market. When two goods are indeed exchanged, what is really exchanged is the property titles in those goods. When I buy a newspaper for fifty cents, the seller and I are exchanging property titles: I yield the ownership of the fifty cents and grant it to the newsdealer, and he yields the ownership of the newspaper to me. The exact same process occurs as in buying a house, except that in the case of the newspaper, matters are much more informal, and we can all avoid the intricate process of deeds, notarized contracts, agents, attorneys, mortgage brokers, and so on. But the economic nature of the two transactions remains the same.

This means that the key to the existence and flourishing of the free market is a society in which the rights and titles of private property are respected, defended, and kept secure. The key to socialism, on the other hand, is government ownership of the means of production, land, and capital goods. Thus, there can be no market in land or capital goods worthy of the name.

Some critics of the free-market argue that property rights are in conflict with "human" rights. But the critics fail to realize that in a free-market system, every person has a property right over his own person and his own labor, and that he can make free contracts for those services. Slavery violates the basic property right of the slave over his own body and person, a right that is the groundwork for any person's property rights over nonhuman material objects. What's more, all rights are human rights, whether it is everyone's right to free speech or one individual's property rights in his own home.

A common charge against the free-market society is that it institutes "the law of the jungle," of "dog eat dog," that it spurns human cooperation for competition, and that it exalts material success as opposed to spiritual values, philosophy, or leisure activities. On the contrary, the jungle is precisely a society of coercion, theft, and parasitism, a society that demolishes lives and living standards. The peaceful market competition of producers and suppliers is a profoundly cooperative process in which everyone benefits, and where everyone's living standard flourishes (compared to what it would be in an unfree society). And the undoubted material success of free societies provides the general affluence that permits us to enjoy an enormous amount of leisure as compared to other societies, and to pursue matters of the spirit. It is the coercive countries with little or no market activity, notably under communism, where the grind of daily existence not only impoverishes people materially, but deadens their spirit.

About the Author
Murray N. Rothbard, who died in 1995, was the S. J. Hall Distinguished Professor of Economics at the University of Nevada in Las Vegas. He was also the leading Austrian economist of the last half of the 20th century.

Further Reading

Ballve, Faustino. Essentials of Economics. 1963.

Hazlitt, Henry. Economics in One Lesson. 1946.

Mises, Ludwig von. Economic Freedom and Intervention, edited by Bettina Greaves. 1990.

Rockwell, Llewellyn, Jr., ed. The Free Market Reader. 1988.

Rockwell, Llewellyn, Jr., ed., The Economics of Liberty. 1990.

Rothbard, Murray N. Power and Market: Government and the Economy, 2d ed. 1977.

Rothbard, Murray N. What Has Government Done to Our Money? 4th ed. 1990.

Free Market Anti-Capitalism

Free Market Anti-Capitalism
By Kevin Carson


Mutualism, as a variety of anarchism, goes back to P.J. Proudhon in France and Josiah Warren in the U.S. It favors, to the extent possible, an evolutionary approach to creating a new society. It emphasizes the importance of peaceful activity in building alternative social institutions within the existing society, and strengthening those institutions until they finally replace the existing statist system. As Paul Goodman put it, "A free society cannot be the substitution of a 'new order' for the old order; it is the extension of spheres of free action until they make up most of the social life."

Other anarchist subgroups, and the libertarian left generally, share these ideas to some extent. Whether known as "dual power" or "social counterpower," or "counter-economics," alternative social institutions are part of our common vision. But they are especially central to mutualists' evolutionary understanding.

Mutualists belong to a non-collectivist segment of anarchists. Although we favor democratic control when collective action is required by the nature of production and other cooperative endeavors, we do not favor collectivism as an ideal in itself. We are not opposed to money or exchange. We believe in private property, so long as it is based on personal occupancy and use. We favor a society in which all relationships and transactions are non-coercive, and based on voluntary cooperation, free exchange, or mutual aid. The "market," in the sense of exchanges of labor between producers, is a profoundly humanizing and liberating concept. What we oppose is the conventional understanding of markets, as the idea has been coopted and corrupted by state capitalism.

Our ultimate vision is of a society in which the economy is organized around free market exchange between producers, and production is carried out mainly by self-employed artisans and farmers, small producers' cooperatives, worker-controlled large enterprises, and consumers' cooperatives. To the extent that wage labor still exists (which is likely, if we do not coercively suppress it), the removal of statist privileges will result in the worker's natural wage, as Benjamin Tucker put it, being his full product.

Because of our fondness for free markets, mutualists sometimes fall afoul of those who have an aesthetic affinity for collectivism, or those for whom "petty bourgeois" is a swear word. But it is our petty bourgeois tendencies that put us in the mainstream of the American populist/radical tradition, and make us relevant to the needs of average working Americans. Most people distrust the bureaucratic organizations that control their communities and working lives, and want more control over the decisions that affect them. They are open to the possibility of decentralist, bottom-up alternatives to the present system. But they do not want an America remade in the image of orthodox, CNT-style syndicalism.

Mutualism is not "reformist," as that term is used pejoratively by more militant anarchists. Nor is it necessarily pacifistic, although many mutualists are indeed pacifists. The proper definition of reformism should hinge, not on the means we use to build a new society or on the speed with which we move, but on the nature of our final goal. A person who is satisfied with a kinder, gentler version of capitalism or statism, that is still recognizable as state capitalism, is a reformist. A person who seeks to eliminate state capitalism and replace it with something entirely different, no matter how gradually, is not a reformist.

"Peaceful action" simply means not deliberately provoking the state to repression, but rather doing whatever is possible (in the words of the Wobbly slogan) to "build the structure of the new society within the shell of the old" before we try to break the shell. There is nothing wrong with resisting the state if it tries, through repression, to reverse our progress in building the institutions of the new society. But revolutionary action should meet two criteria: 1) it should have strong popular support; and 2) it should not take place until we have reached the point where peaceful construction of the new society has reached its limits within existing society.

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