Exploitation and Austrian Economics

I’ve seen Austrian economists, and fans of Austrian economics, argue many times against the position that capitalism is exploitative, in the following sense or something like it: Under capitalism, business owners unfairly gain value at workers’ expense. I’ll call this “Marxian exploitation” for short. The Austrian arguments seem to be variants of three basic arguments:

1. Market exchanges are necessarily voluntary and mutually beneficial. Capitalism consists of market exchanges. Nothing that is voluntary and mutually beneficial can be exploitative. Therefore capitalism can’t be exploitative.

2. Marx’s microeconomic analysis (the labour theory of value, expropriation of surplus value by our friend Moneybags, etc.) is wrong. Marx’s claim that capitalism is exploitative depends on his microeconomics being correct. Therefore capitalism isn’t exploitative.

3. Workers do get paid less than what they produce, but this is not unfair. The business owners are being fairly compensated for delayed gratification or risk.

I don’t buy any of these arguments. Briefly:

1. I reject three of the four premises:

Market transactions are not necessarily voluntary, because the distribution of private property, which is enforced with violence, gives people no alternative to obtaining goods necessary for survival on the market.

Exchanges are not necessarily mutually beneficial, because people self-sabotage, and because we make exchanges based on our understandings and predictions, which can be flawed.

Exchanges that are voluntary and mutually beneficial can still be exploitative, because the definition of exploitation does not require involuntariness or loss of benefit. If one party unfairly gets more benefit than it deserves at the expense of the other getting less of a benefit than it deserves, they can both benefit, but it is still exploitative.

(I’ve defined exploitation in a way that avoids another issue – the composition fallacy. It is possible that a system consists only of transactions that are not exploitative of either parties, but that generate negative externalities, making the system as a whole exploitative over the course of many transactions.)

1. This is bad reasoning. False premises don’t entail a false conclusion. This is an argument against Marx’s argument that capitalism is exploitative, not against the conclusion that capitalism is exploitative.

2. For this argument to work, it needs to be shown that once all of the fair compensation for delayed gratification or risk is accounted for, there does not remain any unfair gain for the owners at the expense of the workers, but this argument makes no attempt to demonstrate this.

I’m working on an article that argues that an Austrian-style analytical approach to economics is a useful tool for showing why markets and capitalism *are* exploitative, or at least contain exploitative dynamics. This is a sketch:

As far as I can tell, one feature of Austrian economics that distinguishes it from other approaches is its focus on analyzing the factors of prices. Also as far as I can tell, this theory is in a primitive state, having advanced little since the days of Menger and Bohm-Bawerk. Factors affecting prices, some of which I’ve seen analyzed, include people’s inherent preferences, degree of conditioning of preferences, the distribution of property rights, knowledge, and salience. Given a population, a set of goods, and a distribution of goods over the population, there will be (by hypothesis) a set of factors that will determine who exchanges with whom, and for each transaction, the types of goods exchanged, and the amount of goods of each type exchanged. Call these the bargaining factors. People have different strengths in the bargaining factors, which means that some people will get better prices than others. For a given transaction, pricing is strictly competitive in the sense that a higher price for one party necessarily means a lower price for the other. Some of people’s strengths or weaknesses in bargaining factors will have moral valence, with the result that the prices that people pay and receive will depend, in part, on fairness. In other words, there will be exploitation in individual market transactions.

The overall thesis, to be much more concrete, is that rich people get better prices, mostly because bargaining power can be bought. In capitalist economies, the corporate form of business organizations, and capital-friendly fora for making laws and adjudicating legal disputes, enable rich people to organize and focus the bargaining advantage that money brings them in a systematic way.

Feedback appreciated.