The Real Reason Why They Oppose "Capitalism"

The "mutualists" and the "left-libertarians" oppose using the term "capitalism," not because of the negative denotations or connotations, but because they oppose the exclusive ownership of capital goods.  

Francois Tremblay said two statements that conflicted with mutualism:

Capitalists, on the other hand, complain that mutualists don’t believe in perpetual property rights, and use this to dismiss mutualism altogether.

If use/occupancy rules were applied right now, there is no doubt that the whole system of capitalism, based on private owners of the means of production who have no use/occupancy connection with them (including land), would be gone by tomorrow.

However, mutualists do not oppose the "perpetual ownership of the capital goods (or the means of production)." Benjamin Tucker only opposes the perpetual ownership of land. In all other things, however, he opposes the use-and-possession laws. As he wrote in State Socialism and Anarchism

:

Proudhon scoffed at this distinction between capital and product. He maintained that capital and product are not different kinds of wealth, but simply alternate conditions or functions of the same wealth; that all wealth undergoes an incessant transformation from capital into product and from product back into capital, the process repeating itself interminably; that capital and product are purely social terms [...] But, though opposed to socializing the ownership of capital, they aimed nevertheless to socialize its effects by making its use beneficial to all instead of a means of impoverishing the many to enrich the few. And when the light burst in upon them, they saw that this could be done by subjecting capital to the natural law of competition, thus bringing the price of its own use down to cost

Thus, Francois Tremblay's advocacy of implementing the use-and-occupancy laws on all capital goods contradict the mutualists' position, even with Proudhon's.

Forcibly supporting the compulsory use-and-occupancy laws on capital goods, however, will distort the rational allocation of resources in the economy. Let us demonstrate the effects of forcing the use-and-occupancy laws on capital.

First, forcing the use-and-occupancy laws on capital is equivalent to forcing others to borrow capital at zero percent interest. This would disrupt the price signals of capital goods, which would cause a misallocation of capital goods in the economy. Forcing the use-and-occupancy laws on capital would disrupt the free price system, as described by the marginal theory of value.

The mutualists do not appear to understand the "marginal theory of value." However, understanding the "marginal theory of value" is a prerequisite for understanding the free price system and the economic calculation problem. Thus, the mutualists do not have a complete understanding of the economic calculation problem.

Forcing the use-and-occupancy laws on capital would have a few of the same effects from the economic calculation problem, as in state-socialism. Unfortunately, Kevin Carson redefined mutualism as a decentralized version of state-socialism.

The self-identified "mutualists" misinterpret their philosophy as opposing the exclusive ownership of all capital goods. Thus, they oppose the term "capitalism" because they oppose the exclusive ownership of capital goods. As shown, forcing the occupancy-and-use laws on capital goods, however, will result in a misallocation of capital goods, which will have a few of the deleterious effects as described by the economic calculation problem.

The "non-mutualist" "left-libertarians" oppose capitalism for a different reason. They claim that the definition of "capitalism" does not equal the free market. The "non-mutualist" "left-libertarians" also oppose the word "capitalism" because since they ally with the "mutualists," they must drop the term "capitalism" in order to communicate effectively with the mutualists. Therefore, the "left-libertarians," who ally with the "mutualists," must, also, abandon the term "capitalism" to keep their alliance with the "mutualists." The self-identified "mutualists" also have a flawed gradualist strategy.

The Demise of Mutualism

Since I last blogged about my defense of mutualism, I changed my mind and began to oppose mutualism. At first impression, mutualism appears compatible with libertarianism. Mutualists, for instance, do not oppose employment, and support the free market. Also, contrary to common conceptions, mutualists do not even oppose rent and interest, as they only predict that in an anarchic society, rent and interest will fall near zero. Even though these positions held by mutualists seem consistent to the libertarian philosophy, the mutualistic theory, however, has flaws that contradicts the ethics and strategy of libertarianism. My justifications for opposing mutualism include their theory of prices, egalitarianism, Luddite ideology, gradualism, and syndicalism. Although their advocacy for the labor theory of value seems small, this, however, has potential repercussions that undermine the philosophy of libertarianism.

First of all, we will define mutualism. Mutualists support an occupancy and use theory of land. That means, as long as an individual currently uses or possesses land, he has the right to control it. However, once as he gives up using or occupuying land, he does not have the right to control it anymore. Thus, this will make land available for other individuals to use.

This occupancy and use theory of land may seem difficult to implement in a stateless society, but arbitrators can do this job by resolving disputes over occupancy and use. Hence, supporters of mutualism would argue that individuals can voluntarily join a mutualist society with the mutualistic occupancy and use laws, thus not interfering with other societies. Thus, a mutualist society and an anarcho-capitalist society can coexist, because they each respect voluntary associations.

Pierre-Joseph Proudhon first developed this theory based on the free market, and he called it mutualism. Proudhon, while supporting the free market in general, opposes the ownership of the means of production, and suggests the occupancy and use theories. Benjamin Tucker, who followed Proudhon's footsteps, begun to diverge from some of Proudhon's ideas. While Proudhon sees employment as exploitative, Spooner and Tucker did not see it that way.

Knowledge Problems

Mutualists are utilitarianists that are not tolerant of some kinds of property rights. Although they highly respect property rights, they are highly intolerant of property that is supposibly "stolen" by capitalists. They claim that they have the right reclaim the "stolen" property. Mutualists want to take over a factory by killing the boss and so they can then "homestead" the factory for all the workers to control.

There are many examples showing there violent behavior: On the Mutualist.org site, there is a statement: "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."

Murray Rothbard has written an article about how violent anarcho-communist were about taking over factories. Mutualists are the same, and they claim that they factory is "stolen" property and so they have to right to kill the owner for defense.

However, this raises serious problems. Once all the workers took over the factory, the workers might not have the knowledge to operate nor repair it. Also, the democratic-rule would be unmangeable due to lack of knowledge and also other problems such as the free rider problem. This unmangeability would undermine competition between other firms, which would cause ineffiency and utimately reduce their standard of living.

If they disagree with the current conditions, then why voluntary cooperatives already exist? If they believe that coorperative controlled communes would pay them more, then they should be widely recognized. Coorperatives do not exist in our current society because the workers get paid less than non-collective firm due to their inefficiency. Therefore, the workers are still better off working in a non-collective firm because they get paid more from increased efficiency.

But today's workers are impovished due to corruption such as licenses and regulations, not ineffiency in some firms, intrinsically.

It seems that their belief of "homesteading" the factory is based on their economic ignorance.

Interest and Rent

Proudhon and Tucker, however, claim that interest rates exist due to the money monopoly, and rent exists due to the ownership of land. They believed that once the state deregulated the printing of money, and once ownership of land has replaced with the occupancy and use theory, interest and rent will fall to zero. Thus, the mutualists also oppose profit earned interest and rent.

Spooner actively supports interest and argues that lending restrictions causes poverty.

However, Benjamin Tucker, in his essay titled State Socialism and Anarchism, he shattered the myth that mutualists oppose interest:

For, say Proudhon and Warren, if the business of banking were made free to all, more and more persons would enter into it until the competition should become sharp enough to reduce the price of lending money to the labor cost, which statistics show to be less than three-fourths of once per cent.

Tucker said that interest will fall to three-fourths of one percent, not to zero. In an anarchic society, interest rates will indeed fall, since the missing lending restrictions and greater wealth, in the absence of the state, will lead to a lower interest rate.

However, Tucker viewed that the interest rates will equal approximately three-fourths of one percent, not because of inherent interest, but due to the labor costs of operating the interest loans:

... credits of the customers and a charge therefor of less than one per cent., not as interest for the use of capital, but as pay for the labor of running the banks.

As a corollary, Tucker deduced since interest will fall, profits will also fall:

Thus the same blow that strikes interest down will send wages up. But this is not all. Down will go profits also. For merchants, instead of buying at high prices on credit, will borrow money of the banks at less than one per cent., buy at low prices for cash, and correspondingly reduce the prices of their goods to their customers.

The interest and rent theories of mutualism does, however, contradict with Rothbardian anarchism. The mutualists think that the amount of labor from the lending service determines its rates, but the Austrian theory states that the cumulative time preferences of each lender and borrower determines the rates.

In our Defense of Mutualism, we mentioned that these errors do not seem as significant detriments to libertarianism. We now, however, changed our position and will discuss about how these meager errors will produce significant consequences.

The Labor

The mutualists hold a prediction that the labor paid will eventually fall proportionally to the labor, in an anarchic society. Benjamin Tucker noted:

The abolition of this monopoly would result in a great reduction in the prices of all articles taxed, and this saving to the laborers who consume these articles would be another step toward securing to the laborer his natural wage, his entire product.

Thus, this confirms that they do not wish to "aggressively implement" the labor theory of value, but they think that the wages will natually fall toward approximately to the amont of labor exerted.

This interpretation of the labor theory of value appears as an approximation of the long-term effects of the marginal theory of value. The greater competition in an anarchic society will let workers receive wages approximately to the labor they exerted.

Flawed economic understanding

However, their advocacy of the labor theory of value over the marginal theory of value presents a problem. Since the mutualists do not understand the marginal theory of value and thus do not understand how the free price mechanism works, they confuse the "economic calculation problem" with assymetrical information. Mutualists misinterpret the economic calculation problem, since understanding the economic calculation problem requires prior knowledge of the marginal theory of value.

Mutualists use their misinterpretation of the "economic calculation problem" as a criticism of corporations. However, the economic calculation problem, as properly understood, does not apply to corporations, though mutualists say it does. The economic calculation problem only applies to the overall allocation of goods in a price system. Corporations have assymetrical information, not the "economic calculation problem." Replacing every occurance of the word "economic calculation problem" with "assymetrical information" in this article would make it correct.

Dismissing the marginal theory of value would greately undermine the mutualist movement. For example, since they oppose the marginal theory of value, mutualists may support syndicalism as a means of achieving a free society, as they try to modify wage rates according to the amount of labor.

The Syndicalism

Many mutualists advocate syndicalism or anarcho-syndicalism as a means of achieving a free society. Kevin Carson and Brad Spangler even support coercive unions.  

Voluntary unions, also have disadvantages. While voluntary unions may raise wage rates for the members, it will decrease the wage rates for the non-members. Even if every worker in every industry joined the same exact union, the economy does not have enough money pay every worker high wages. Therefore, it will cause unemployment if every worker joined the union. Many workers will thus decide to leave the union, and receive lower wages, due to threat of unemployment.

The Gradualism

Many mutualists, including Benjamin Tucker and Kevin Carson, showed signs of their advocacy of a gradualist strategy for achieving liberty. Roderick T. Long, Charles Johnson, Brad Spangler, and many of the "thick libertarians" advocate a gradualist strategy, and have mutualist sympathies.

Tucker, in his State Socialism and Anarchism essay, advocated Proudhon's gradualist idea of abolishing the tariff monopoly after abolishing the money monopoly:

Proudhon admitted, however, that to abolish this monopoly before abolishing the money monopoly would be a cruel and disastrous police, first, because the evil of scarcity of money, created by the money monopoly, would be intensified by the flow of money out of the country which would be involved in an excess of imports over exports, and, second, because that fraction of the laborers of the country which is now employed in the protected industries would be turned adrift to face starvation without the benefit of the insatiable demand for labor which a competitive money system would create.

While Kevin Carson, also, sees taxation as theft, he still supports welfare funded by a temporary progressive tax, as a means to achieve a free society, because he believes the labor theory of value and opposes the marginal theory.

The Egalitarianism and Primitivism

The mutualists see workers as having the same preferences, and see that education level does not affect wages relative to the amount of labor exerted. Mutualists thus have an egalitarian idea that all individuals have the same preferences and can have the same education. However, as Rothbard claims, this undermines the individuality of the human and undermines the division of labor.

Their ardent alliance with the so-called "green anarchists" implies a Luddite view of technology. The "green anarchists," a less extreme form of "anarcho"-primitivism, opposes the supposed "overpopulation" and opposes innovation.

The Bureaucracy

The mutualists, by no doubt, have an accurate view that bureaucracies will decrease efficiency due to mismanagement. The employment of managers and workers, especially predominant in the modern corporation, obviously has increased overhead and communication costs, and agency problems.  

In the corporation, it has several levels of hierarchy. Beginning with the shareholders, they democratically vote for the board of directors. This enables the directors to strategically make decisions for the corporation's policy, while having a limited liability barrier between the shareholders and the directors. The limited liability barrier gives the board of directors an incentive take more risky decisions than the shareholders. They board of directors, then, employ chief executive officer, who strategically manages the corporation's policies. The chief executive officer may hire a president for the daily management for his strategic decisions. The president, may, in turn, hire several vice presidents, who work in more specialized functions, such as marketing, legal compliance, and finance. The vice presidents, in turn, hire senior managers, who follows the decrees set by the vice presidents. The senior managers hire middle-level managers, who work in more specialized areas, such as hiring and firing workers and their supervisors. At the bottom of the hierarchy, the supervisors do not hire or fire the workers, but only obey the commands from the middle-level managers.

We will list the corporate hierarchy: shareholders > board of directors > CEO > president > vice president > senior manager > middle-level manager > supervisor > worker

This hierarchy has a total of nine levels. On each level, the principle-agency cost exists. So in a total of nine levels, the agency costs have propagated into a very large agency cost.

Some useful bureaucracies, such as arbitration, may exist in an anarchic society. The subscribers of an arbitrator have to follow the arbitrator's decisions, which seem authoritarian. Though dispute resolution by a third party has significant communication problems, arbitrators may exist in a free society so that individuals have a third party to resolve disputes.

Conclusion

However, as some may wonder Tucker never identified himself as a mutualist. He still follow the philosophy of Proudhon, so we have some reason to identify them as mutualists. Spooner, however, differs. He never appeared to have influence from Proudhon, and Spooner explicitly supports interest and rent, and advocate the abolishment of lending and rent restrictions. The differences between Proudhon and Tucker demonstrate mutualism as an evolving philosophy. Mutualists do not hold constant positions. For instance, some mutualists, such as Proudhon, thinks that rent and interest will fall to zero. Some Tuckerite anarchists think these will fall near zero.

Rothbardian anarchists should not support mutualism, as this equates package-dealing Rothbardian anarchism with incompatible mutualistic positions. The mutualistic advocacy of syndicalism also undermines the libertarian strategy.

An Ex Post Facto Rationalization to Labeling myself as a "Mutualist"

Proudhon developed mutualism as an economic theory based on a free market. Mutualists oppose employment, and view that individuals would predominantely work self-employed or in workers' cooperatives. Mutualists also claim that no one should own property, but should instead possess property as long as it remains in use. Proudhon, however, predicts that interest and rent will fall toward zero in a mutualistic society. Mutualists argue that in a mutualistic society, the price of a good tends to equal the proportional amount of labor exerted in production, a theory they call the labor theory of value (LTV).

We will argue mutualism as compatible to a free society, but the differences exist in ideology due to some minor theoretical and preferential disagreements.

In a free society, some competing jurisdictions would actually define the mutualistic possession theories. These possession rules may actually benefit in some areas.

Interest and rent would likely decrease as well, and might even decrease near zero, due to relaxation of loaning restrictions, but interest and rent would still exist. While Proudhon find interest and rent as normatively unoptimal, he declared that he does not want to aggressively suppress rent and interest.

Self-employment and workers' cooperatives

In a free society, individuals would likely prefer self-employment and workers' cooperatives over employment. Self-employment eliminates the costs pertaining to the principal-agent problem in employment. Workers' cooperatives, which also avoids the principal-agent problem, and may arise in response to economics of scale.

We should, however, not view workers' cooperatives as a firm in which workers democratically elects its employers. We should define a workers' cooperative as similar to the modern partnership organization with no employees, where the workers equal the ``partners" of the partnership. Kevin Carson, a mutualist, even appears to define a workers' cooperative in that way too.

The current bureaucratic corporations have a several levels of hierarchy, which implies that the principal-agent problem has multiplied several times throughout its hierarchy. Its three-tier hierarchy, from the CEO to the board of directors, and to the shareholders and the consumers implies the monopolization of corporations by the state.

The cooperative, unlike an employer paying an employee, does not have any hierarchy. Employers do not exist in any cooperative firm, but the workers themselves sell their products, and form a partnership with other workers to increase scale effiencies.

The labor theory of value

In a free society, workers would also gain wealth approximately to their proportional amount of labor, but not according to the labor theory of value as in mutualism. This difference seems minor, and largely theoretical. Many people have different interpretations of the labor theory of value. Benjamin Tucker, appearently, interpreted the labor theory of value as the workers get wages approximately proportional to their amount of labor. Therefore, we see Tucker's definitions of the LTV as exactly compatible with our view of a free society.

The labor theory of value presumes that in a free society, the all goods and services will cost approximately the amount of labor it took to produce, plus the value of all the the raw materials the product composes. This generally seems correct, since workers will compete with each other so the amount of labor evens out. This evening-out process makes workers get compensated approximately proportional to their labor, so the products that the workers made generally reflect the cost of raw materials plus the amount of labor. Contrary to some Austrian propaganda, the labor theory of value appears roughly correct in a static economy, meaning an economy with no growth, except a minor glitch in its labor valuation of natural resource extraction.

The original definition of LTV has an inaccurate theory on the pricing of natural resources. A famous example involves the diamond-water paradox. The LTV says that, in a free society, diamonds price more expensive than water because it takes more labor to drill a diamond than get water. However, it does not explain why some rare minerals cost very cheap.

The Austrian School believes in the marginal theory of value (MTV), a theory of prices based on supply and demand. Both the labor theory of value and the marginal theory of value, however, function as abstractions. The MTV also does not apply to the real world, but only an approximation. Since the marginal theory bases on rational choice theory, where the agent orders his preferences which does not change throughout time, it does not accurately explain some things such as how assymetrical information influences prices, just like how the LTV does not accurately explain the prices of some rare minerals.

We should not, however, see LTV and and the MTV as two competing theories of value. We should see these as different explanations of valuation. The LTV describes the optimal price allocation in a static economy, while the MTV describes the physics of how the prices of goods and services adjust in responce to the abundance or the scarcity of natural resources.

Conclusion

Mutualism, an economic system, can exist in a free society. We can disregard the theoretical tics---the labor theory of value, and the theory of rent and interest---from mutualism, because these have no application in real life and these function as predictions, not implementations. With regards to the possession theory of property---yes, some jurisdictions may actually enforce these rules, and may actually benefit some. But we accept the mutualistic prediction that self-employment and workers' cooperatives would predominate in a free society.

Innovation Without Patents

Libertarians see that in a free society, individuals would have more incentives to innovate, because of greater wealth and leizure time. From the absense of intellectual property in a free society, inventors would have more incentives to invent, due to decreased risk of inventing an already patented product. But supporters of intellectual property, however, see it as helpful to promote invention, even that it contradicts the non-aggression principle. Yes, because ``it's impossible to enforce morality," individuals will still advocate IP for pragmatic reasons. Even if some proponents of IP see it as immoral, they cannot help it so they still support it. We will, in response to them, thus argue that even in the absence of intellectual property, alternative systems that rewards the inventor exists in a free society.

The classical argument and criticisms

Let us start with the classical IP argument:

If the state does not reward the inventor for his inventions, then the inventor would not invent it in the first place.
Inventions always produce more good than non-invention, even at the cost of intellectual protectionism.
This is because the consumer wish to buy the invented good over others, even at a higher price from patent monopolies.

We will criticize some bad consequences of intellectual property. If two individuals made the same invention, then one will get sued. Therefore, individuals do not have much incentive to develop a new product, since the state may sue him for something already invented.

This happens often in software patents. The open source developers do not have much incentives to develop software anymore because they do not want to take the risk of getting sued, for developing software that someone else already patented.

Patent laws, also, result in firms having a monopoly over that idea. This would increase the mismanagement of many firms, and the monopoly firms tend to display bureaucratic tendencies.

Patents also forbid the improvement of many inventions over the entire patent term. Since statistics have shown that over 90% of all innovations improve an existing invention, eliminating patent laws might increase innovation.

Criticisms, however, do not entirely refute the proponents, since the proponents may think that the benefits overweigh the costs, advocating criticisms may not entirely make proponents deny their idea. Even if we have one thousand criticisms about the disadvantages of IP, the proponents may still think the benefits of IP outweigh the costs. We, therefore, will suggest better alternatives to intellectual property, instead of criticisms of IP, so the proponents of IP would have something better.

Utilizing creative destruction

Creative destruction means the destruction of some firms or sectors by innovation. As new firms with innovations enter the market, this destroys the old firms. As new firms with new innovations outcompete the old firms, the old firms will fail and the new firm would predominate. This process, even in the destruction of old firms, benefits the economy.

The classical entrepreneurial method

Entrepreneurs can utilize the creative destruction process to take rewards from their invention. As an inventor thoughts of an idea that may outcompete old firms, he forms a businesses to manufacture his invention, he could profit from it. But even temporary, some tiny inventions would profit a huge sum to the inventor, due to a high population demand for his invention.

But suppose, if an invention takes a long time to develop, and he cannot reap much profit even of high population demand, he has plenty of alternative methods to get even more profit.

Selling shorts

One example of how the inventor can profit from his invention comes from the stock market. Once an invention has released, we can imagine a large number of old businesses to fail, massive bankruptcies, and liquidation. But an inventor can exploit these business failures to profit from them. An inventor can utilize a strategy called short-selling.

The basic method goes something like this: An inventor first sell stocks that he does not own from the businesses that will fail from his invention. Then inventor establishes his own business but his idea spread quickly and other firms used his idea also. Eventually, the businesses will eventually outcompete the old businesses. Finally, after all of the old businesses failed, the inventor buys back these stocks from the failing businesses at a lower price. This would make the inventor profit at the difference of the price of the stock at the beginning and the lower price.

Though the bureaucratic corporations would not exist as much in a free society, the stock market will still exist. The inventor can leverage the stock market to profit from his invention, at almost any sector that has stocks.

Suppose an inventor, named Alice, invented a widget, called widget-A, and she keeps it secret. Alice eventually detects that widget-A would eventually outcompete widget-B, manufactured at some other firm, firm-B. As Alice reasonably believes that firm-B will go bankrupt as she releases his invention, she plans to profit from firm-B's bankruptcy.

Alice tries to profit from her invention, by selling shorts. She first borrows stock, and then sells the stock to firm-B. She starts her own firm, firm-A, to manufacture widget-A. But soon, other firms quickly used her invention and also manufactured her idea. She had only profited very little before other firms used her idea too. But she could also profit more until firm-B goes bankrupt.

Eventually, as almost every firm manufactured a widget-A from Alice's idea, firm-B that manufactures widget-B goes bankrupt. During this bankruptcy, the stocks from firm-B fell. She then buy the undervalued stocks from firm-B back, and she profit from this difference enormously.

Hacking the free price system

Every innovation, no matter how diminutive or how ineffectual, influences the free price system. If one invention enters the market, the amount of other products will probably diminish. This happens because in order to manufacture the new invention, it needs raw materials. Manufacturing the invention increases the demand of raw materials, which will reduce the demand of raw materials to make other products. Because manufacturing an innovation changes the supply and demand for other products composed of the same raw materials, one can profit by noticing this difference.

The method goes something like this. Whenever a firm manufactures a widget greater or less than it used to, it displays changes in the price system. The inventor can profit from these changes from buying and selling futures contracts, or contracts guaranteeing buying or selling a thing at some time in the future.

Suppose an inventor, named Bob, manufactures a widget that no other firm has invented. He can buy futures contracts of some other product that uses the same raw material before he releases his invention and then sell these later at a higher price.

Suppose Bob invented a new type of machine that processes milk faster and cheaper. Thus, Bob predicts that the demand for milk will increase in the future, since the cost of milk will decrease due to cheaper machinery. Conversely, the demand for yogurt and cheese, which made from the same raw material, milk, will decrease; since its prices will rise in response to increased raw milk demand.

Bob can buy yogurt and cheese first and store them at his storage tank, and promise futures contracts and sell them later at a slightly higher price. Bob will then start his own business, hoping that his invention will not spread to his competitors. Bob earns profit. However, his competitors eventually finds out his design of his machine, so he does not earn profits anymore. However, he still has yogurt and cheese stored at his storage tank, and plans to sell them at a higher price for profit.

This demonstrates that in addition to trade secrets, he can also use futures contracts to buy cheese and yogurt at low prices before high demand of milk and sell cheese and yogurt at a higher price when people highly demand milk.

This illustrates that inventors can perform a variety of things to benefit.

Contract monopoly

Bob can also agree with futures contracts to only sell from his own firm at a lower price, before he releases his invention. Then, when he releases his invention, he establishes his own firm but many others still buy from his firm because he agreed with futures contracts forcing others to buy from his firm. Therefore, Bob will profit similar to a state-granted patent monopoly, but enforced by futures contracts before he releases his invention.

Suppose that Bob has made a machine that publishes books at a cheaper cost. Before he releases his design of his machine to his competitors, he promises a futures contract with authors who agree to publish 10 books only from his version of the machine from now on. Bob can release his design of his machine to as many competitors as he wants to, but according to the promise of the futures contract, the authors still has to publish 10 books from his version of the machine, due to the futures contract promises.

We can also apply this kind of strategy to reward entrepreneurs by further exploiting the free price system. Suppose Alice invented a machine that manufactures chairs at a cheaper price. She should promise other firms to bulk-buy her cheaply manufactured price at the future, so she would earn a profit. However, she could also exploit others, such as the lumber industry, since her invention increased wood, to further profit from the free price system.

Trade secrets

Suppose an inventor discovers a new method for making software. He will sell programmers who want to use he method by selling them a trade secret. It agrees that all of his customers will not release his method. However, suppose the inventor has one hundred customers. He, however, cannot track which one released his trade secret, so he do not know which to sue.

He could, however, offer ``guards" to track that his customers, for sure, does not release his method for making software. Yes, the inventor sees it as expensive, but some inventions, he might see it as worth it. For instance, if he invented a method that will increase efficiency by one hundred times, he could license his trade secret to only a few large firms at a high price, and keeping guards to track that his licensees do not release his method.

Advanced innovation incentives

Using advanced technology, the inventor of the trade secret do not need to employ one guard to monitor every licensee. He could, alternatively, mount small wireless video cameras on each licensee's forehead, to see if one licensee released his trade secret. Thus, he does not need to employ any guards to keep track of them, since the video cameras record all of the licensee's actions 24/7. If the inventor finds out that a licensee released his trade secret, he could search the recorded video camera and seek evidence suggesting which licensee spread his trade secret, to sue him.

This seems intrusive to the privacy of the licensees, but the inventor can solve it by agreeing a privacy policy, which he promises to not let others look at the video camera's history unless the trade secret has spread.

Suppose that some innovations cannot possibly preserve as a trade secret, such as a method of combing hair, since consumers will notice that invention.

That would also enforce it by trade secrets, giving video cameras on all of the consumers to not spread.

Also, voluntary cities can set its own trade secret technologies, which can prevent communication to outsiders.

Conclusion

Utilizing short selling and futures contracts as an incentive to invent can gain huge profits. To use these methods, however, imply that the inventor must not release his invention to the market and let others reap the profits first. He must do some market transactions before he releases his idea to the market, in order to profit. Short selling and using future contracts appear similar to exploiting the market from ``inside knowledge," which means that the inventor has ``inside knowledge" of how the market would react to his invention, and then exploiting the stock market for profit.

Most importantly, an inventor can use a combination of stock market, futures contracts, trade secrets and the classical entrepreneurial method to profit big. In addition, some types of ``innovation insurance" deters some risks from the inventor. He can get help from innovation consulting firms which help him decide how to optimally exploit the stock market, futures contracts, trade secrets, and the classical entrepreneurial method.

Flaws of GDP, Factors of Inflation, and Velocity of Money

What the GDP measures

GDP (Gross Domestic Production) measures the total money used to purchase newly produced, finished goods during a year. The GDP, however, does not measure the money used to purchase used-goods.

A commonly cited refutation of GDP involves the breaking window fallacy. Breaking and repairing windows increase expenditure, which increase GDP, even it harms individual. Breaking windows forces an individual's money to spend repairing instead of using the opportunity costs things that the individual actually desire.

GDP, additionally, does not measure economic distribution. Some individuals may have a poor standard of living or also unemployed, even if the aggregate GDP compares greater than other nations. This seems true for highly corporate-capitalist economies, in which the CEOs of the corporations steals almost all of the income from others.

GDP, also does not measure the underground economy.

A more important refutation deals with the GDP measure on production without any consumption. However, production and consumption overlap, so the GDP has to judge whether production or consumption occured in its fuzzy circumstances. Volunteer work, increases both production and consumption, because the individual find it psychically pleasing to do this work. Some individuals may enjoy producing open source software, so they consider producing open source software as also consumption. For instance, individuals may use open source software as consumption since he learns how to code software better by programming open source software, but open source software has a side-effect of production. In order to measure production, the state has to arbitrarily define which products constitute production, and which products do not. But as some activities fits in between production and consumption and does not have a distinction, the state can have the power to manipulate measurement to artificially increase GDP by defining a wider variety of products as productive processes.

Taxation, may even increase GDP, since individuals must work harder to pay these taxes. If we subtract government spending from the GDPs of the Nordic states, these GDPs will literally halve.

The mainstream media commonly speaks propaganda that deals with ``growth rate" as fast or slow. We cannot judge whether an economy grows fast or slow only by its ``growth rate." Underdeveloped economies have a potentially much higher growth rate than more developed economies. As the amount of technology stays the same level in all economies, the underdeveloped economy grow faster by accumulating technology. The underdeveloped economy would grow fast not because its economy ``grows," but its economy catching-up from previous state inhibition of growth.

The growth rate of the underdeveloped economy would eventually decrease as its economy catches up with the developed economy, due to diminishing returns.

Cultural influences to GDP

Differences in culture, knowlege, and preferences of individuals may have a greater impact on GDP level. Individual ignorance, religion, and other cultural preferences like the birth rate may have a greater impact on GDP than economic.

On health care issues, the Western individual may eat much processed food, which may increase the prevelance of certain diseases. These, however, raises health care spending, which, in turn, increases overall GDP. Should individuals eat healthy, the overall GDP would decrease, as the level of health care expenditure decreases.

The pharmeceutical and psychiatry industries may increase the GDP by a lot. These industries defraud its consumers to take expensive medication, which have no beneficial use to them. As many individuals spend a great deal of money on medication, the GDP may increase by much.

Cultural traditions may also impact GDP. Holiday tranditions such as Christmas, may have a larger impact on individual spending, and may also increase GDP. Spending time in churches may increase GDP due to greater spending. If the population does not believe in religion, the GDP would decrease due to lesser consumption.

We should use birth rate as another factor. The greater the birth rate increase, the lower the per capital GDP, even if the aggregate GDP did not change. As the state records the children born to mothers in a census, the higher the birth rate, the greater the population, which would make the per capita GDP decrease.

Other factors of price increases

An increase in the price of oil, in fact, may increase the culminative prices of all goods, even in the case in which the total money supply stays constant.

The oil price increases the opportunity costs of oil consumption, which produces a net deficit of oil utilization, and also the the underutilization higher-order machinery, such as cars, that consumes oil. This underutilization of goods and services that uses oil, due to increased costs, would result in a net decrease in gross production. Since the proportion of gross production compared to money supply decreases (or the velocity of money), the overpricing of oil would result in apparent price increases through all goods and services in the economy.

We should take caution not to interpret the above paragraph as the Keynesian idea of ``cost push inflation." Their theory sets the false assumption that even if gross production stays constant, the culminative prices will increase. Our theory, however, depends on the decreases in the gross production relating to oil.

In order to demonstrate more fully why decreases in gross production would cause price increases, let us set a clearer example: If it suddenly costs several times more to produce all kinds of goods, such as food, clothing, and services, the gross production of the economy decreases. If the money supply stays constant, the ratio of goods over the supply of money would decrease, hence would result in culminative price increases.

Our former example sets an increase in the price of oil as the factor of raising the costs of production of several goods in the economy. An increase in oil would increase transportation costs, which would, in turn, raise the costs of food redistribution, and also many other goods transported throughout the economy.

This idea elaborated in the above paragraph does not contrast Austrian economics. In fact, Austrian economists well know that a decrease in GDP, while the supply of money stays constant, will raise the prices throughout the economy. We just modified this idea with the assumption that an increase in oil price results in a decrease in GDP.

But the reverse can happen too---an increase in oil prices can also increase GDP. If the demand of oil does not change much according to the prices of oil, also known as the idea of ``low elasticity of demand," then it may result in an increase in GDP, and hence decreases in prices throughout the economy.

The velocity of money

The strength of the currency, in addition to gross production, also depends on its velocity. We define the velocity of money as the total flow of money divided by its population size in a specified period of time. Different definitions exist for the velocity of money, and we should not use other statistics for the velocity of money. Other sources define the ``velocity of money" differently from us, such as the GDP divided by money supply.

We should not, however, equate the velocity of money as the gross production divided by money supply. These two unrelated units do not correlate with each other. The velocity of money may increase without any increase in GDP. For example, the velocity of money increases if individuals sell more used goods, which the GDP does not take account. An increase in the velocity of money would cause price decreases in the economy, since the demand of money increase relative to the demand of goods. A fortiori, selling more used goods, would result in a net decrease of prices in the economy, since it would increase the velocity of money while the GDP stays constant.

The velocity of money, may influence the general price level. Assume that all of the economic production halted. This causes the GDP to equal zero. But individuals would still use money to exchange used goods. This encourages the demand of money, which make the currency have a ``value" caused by a demand of used goods.

The velocity of money, however, may have no effect on the general price level. Suppose two people, Alice and Bob, prepare to deal with transactions. Alice possesses 10 ounces of gold. Bob possesses a tractor also worth 10 ounces of gold. Imagine that Alice wanted to purchase Bob's tractor for 10 ounces of gold. However, after Alice purchased it, Bob wants to reclaim his tractor by purchasing his tractor back from Alice. Now, as Alice has her 10 ounces of gold and Bob has his tractor back, this situation remains the same as the original case. However, the velocity of money has just increased by 20 ounces of gold, since Alice and Bob transferred gold twice. If Bob sold his tractor and repurchased it again, for the second time, the velocity of money would increase by 40 ounces of gold, even if both Alice and Bob now possess the same stuff as in the beginning. New imagine that Alice and Bob did the same transaction for the third, fourth, and up to an infinite number of times. They would both still, would have the same possessions, but the velocity of money has just increased tremendously. This shows that, even if the velocity of money increased multiple times, it may still have no influence other prices. Therefore, we should not consider that the velocity of money only influences the general price level.

So as we have shown above, in certain cases, the velocity do have an effect on the general price level, but in other cases, it does not have any effect at all. So, specifically, what influences the general price level besides inflation and GDP?

Answer: The proportion of money used for used-goods compared to the proportion of money used in new goods. We will show two examples of how the proportion of money used in used-goods would cause a change in the general price level (or the strength of the currency) without any change in GDP or money supply. We will show that ``recessions" and taxation can also cause an impact on the strength of the currency.

During a ``recession," the prices in the economy may decrease depite the fact that the money supply simutaneously increases. We explain this by citing the massive amounts of business liquidations during a ``recession." As liquidations involve selling business assets and thus increase the velocity of money, an increased amount of liquidation would make the currency appear stronger during a ``recession."

Many factors that influences GDP also influence the strength of the currency. High taxes, may also strenghten the currency since the GDP includes government spending as a component. An increase in savings may strengthen the currency since savings lowers the velocity of money.

The growing parasite

According to various Internet statistics, these suggest that the rate of monetary expansion in the United States exceed over 15% per year. Many observers, however, see the rate of monetary expansion as much lower.

Many countries measure its GDP according to the international dollar. International organizations set the current international dollar as equivalent to one Federal Reserve note. As the rate of monetary expansion exceeds over 15% per year, the international dollar, equivalently, loses its strength about 87% per year. Because many countries measure their GDP using the international dollar that expands 15% per year, their nominal GDPs should also increase by 15% per year, to retain a constant real GDP.

However, as we see it, the nominal GDPs in most countries do not, however, increase by 15% per year. This signifies that their GDP has decreased over the years.

To give a summary to which nations have a increasing or decreasing GDP, we test it by using this: every nation that has a nominal GDP ``growth" rate less than 15% has a decreasing GDP.

The parasite has gained tremendous momentum of leeching off an increasing 15% of income from working man annually, thus demonstrates the impossibility of reversing that trend by working within the system.

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A Primer on GDP

As Kevin Carson argued, GDP includes the cost of repairing the windows.

GDP is the measure of the output of a country. The equation for GDP is: C + I + G + (X-M)

The "C" in the equation also includes the costs of repairing a broken window. In order to have the money to pay, individuals have to work harder.

The "I" also includes malinvestment from expansion.

GDP includes the cost of government theft: taxation. GDP is the income of individuals before tax. To exclude the theft that increases the GDP, the "G" in the equation must be removed. The government spending should be substracted because individuals work harder to compensate the theft by government.

GDP increases if exports increase, and decrease if imports increase. This should be reversed. Individuals would have greater purchasing power to buy the imports if imports exceed exports. So (X-M) should be turned to (M-X).

FSK uses the median household income to estimate the GDP. He should have left out the government spending portion of the GDP and reverse the exports and imports. Besides his fallacy of using the inaccurate GDP to measure the economy, his use of "median annual income" is flawed because it is actually the median household income.

The "median household income" is inaccurate because the average number of individuals per household has became smaller.

For example, there were 108,209 households in 2006 and 94,312 households in 1900. This is an increase of 15%.

However, the population has increased from 248,709,873 to 281,421,906, which is 13.1%.

Labor Unions as Cartels

Libertarians, in general, accept the fact that the state privileges the capitalists at the expense of the workers. Even in the current state-capitalist system, we should not, however, advocate ``labor unions" to ``take the stolen wealth back." We should see labor unions as unethical.

An ethical method to compensate the ``workers" stolen wealth, involves building alternative institutions, not to work within the system. Working within the current system, would not make the workers to have any motivation to ``solve" the problem if ``labor unions" provided the stolen money back.

Working within the system, has another unethical context. As you may know, labor unions, though may raise wages for the majority of workers, causes unemployment amongst the less productive workers. Unions, therefore, constitutes as a form of aggression against the less productive. Using ``labor unions" to take the wealth ``back" equates forcing unemployment to other individuals.

Additionally, besides the fact that labor unions hurts some less productive workers, it also hurts some other innocent individuals. Suppose if some individuals work for a capitalist, who, coincidentally, does not privilege from the state. Using labor unions against all capitalists, therefore, may hurt the innocent capitalist who does not privilege from a state. We should consider labor unions as a form of collective punishment, and we should never use them as a form of ``defense" against the massive robbery. This matches with the libertarian ethical claim: ``As long as we hurt innocent individuals in the process, this constitutes aggression, and never constitutes as defense." We, thus, may consider labor unions as ``gangs" or ``cartels."

Some dispute ``aggressiveness" as an inherent attribute of labor unions. They defend the that voluntary types of labor unions may exist in a free society. Yes, we should not have any problem of them within a free society, but unions, in a free society, would probably not exist too much. Co-operatives and self-employment would replace labor unions, for example. Additionally, labor unions, even in a free society under the situation of corporations employing workers, might not even increase the wages of the workers, because of greater competition between employers. So why should we advocate labor unions in the current statist society, while, in contrast, in a free society, labor unions would probably not exist to a significant extent? We should never advocate them, as it would probably imply using the non-voluntary types of unions and as ``working within the system."

Environmentalism Leads to Starvation

The environmentalists, conservationists, and population controllers all have irrational policies of attempting to make society a better place. These three ideologies relate closely to one another, and those who believe in one of these three would probably also care about the other two. Many of them opposes technology and opposes change.

The environmentalists, conservationists, and population controllers all presume the existence of the state, heavily regulated against environmental ``exploitation" while advocating the same type of exploitation by itself. They set policies that appears to reduce pollution and poverty, while these only work as minor cookie-cutter fixes while ignoring the origin of these problems: the state.

The state works by exploiting the individuals by taxes, regulations, interventions, and slavery. The state steals from the individuals, while forcing individuals to work inefficiently, unproductively and wastefully. Without the massive waste that the state has caused, poverty will exist much less than it exists today.

In the following sections, we will discuss that we do not need a state to solve all the environmental and overpopulation problems. Though we deny that global warming and overpopulation present a problem to society, we will nevertheless present solutions of reducing of these in a free society. We will do these, just to convince those radical environmentalists to a libertarian-compatible position. (It is hard to enforce morality, unless you present consequentialist arguments defending the deontology.)

The primitivists

The philosophy of primitivism, also advocates these three policies---environmentalism, conservationism, and population control---as the three tenets of their philosophy. The primitivists advocate population reduction, to apparently reduce the supposedly ``high" demand for natural resources and food, and opposes technology as they see it as damaging to the environment. The primitivists lacks the obvious flaw that technology actually helps the environment, since it reduces waste and increases the efficiency of production.

An important policy advocate by most of the proponents of the environmentalists alike, resolves in the tariff policy. Although they have a moral stance of opposing the so-called ``free trade agreements," they also want to raise tariffs afterwards. They say that tariffs reduce pollution and the exploitation of natural resources, and almost all of the governments and organizations believe in just that. All of the organizations practicing environmentalism, including the Green Parties, actively wants to raise tariffs attempting to reduce pollution, but they just do the reverse. They say that raising tariffs would reduce the transportation of products, which would reduce gasoline and reduce carbon dioxide emissions.

However, their policy of raising tariffs does the reverse, and much greater harm to the environment than it minusculely fixes. Raising any tariff, would reduce the efficient allocation of production, which might mean that machines might even increase amount of gasoline consumption due to inefficiency.

The overpopulation solution

Raising tariffs also cause another important inefficiency: inefficiency in food production. Whenever states like China and India produces food, the state actively enforces the inefficient production of food. If one wants to see the inefficiency of food production in these states, one would see the primitive tools that they use. The high tariffs prohibit the importation of advanced farming equipment. The missing advanced farming machinery, which might even use less energy the primitive tools, has outweighed by far the presumed gasoline savings from tariffs. This sets another example of how the environmentalists harm, rather than help, the environment.

Farmers in China and India use ridiculously simple tools for farming, probably even hundreds of time as inefficient than the currently available technology would do. If the state does not exist, then tariffs forbidding the importation of machinery will ease, and the agricultural output would increase by multiple times. Food prices will lower, and much more individuals would feed themselves.

In the current world, farmers only use a small fraction of the total arable land. If farmers used all of the currently existing arable land, then food production would multiple. Non-arable land can also turn into arable land by irrigation, so increased production may form from more land for farming, in addition to the unused arable land and importation of advanced machinery.

Furthermore, the increase in technology would let farming productivity rise. Innovations in farming equipment, biotechnology and genetic engineering would increase food productivity at a rate higher than population growth.

These changes, available from current technology, would occur when the state collapses. Food productivity may increase by hundreds of times by these changes, so population a hundred times larger the current population seems not a problem.

According to the laws of economics, food prices will automatically rise when the demand of food increases. Accordingly, individuals will have less children if the population gets unsustainable, due to expensive resource costs from high demand. The population would adjust itself.

Even before the population has multiplied hundreds of times, we will probably colonize space by then.

The demographic paradox

We should even suggest that if the population grows in the first place. In fact, the population declines in the most developed nations. Birth rates falls below replacement level, meaning that the population would eventually shrink. Many economists called this phenomenon as the demographic paradox.

You may wonder the reason behind the population decline in the most developed nations. In developed nations, parents have more incentive to invest their children in education. The rate of return gained from investing additional education compares far greater than the rate of return gained from having more children. Thus, individuals see that having one highly educated child as a more economical investment than having many uneducated children.

In undeveloped nations, by contrast, parents like to have as many children as possible to help them with subsistence farming. As in the last section, the lack of farming equipment causes an inefficient proportion of human labor instead of machinery, parents in the undeveloped nations like to have as much labor as possible by having lots of children.

Unless the farmers in the undeveloped nations import advanced farming equipment, they will have many children instead of using machinery to help them farm. As productivity might increase by hundreds of times as described in the last section, individuals in the undeveloped nations would have less children when the state collapses.

As farming productivity increases in the undeveloped nations, less individuals would work as farmers. But currently, the individuals in the undeveloped nations do not have enough resources to educate their children, due to state taxes and regulations. When the state collapses, however, these individuals would instead invest their children in education instead of farming.

The reverse demographic paradox

In the last section, we have analyzed how education decreases birth rate. Parents find having less, but better educated children as a better investment than lots of children. But other factors might even increase the number of children when the state collapses. Examples includes the increased wealth when the state does not confiscate or regulate, the lack of child labor laws which motivates parents to have children work instead of consume, and the lack of compulsory education laws.

A good example of more children involves increasing wealth. Since the state taxes and regulates individuals, when the state collapses, the wealth of each individual may increase by five times. Richer individuals will have more children, as they can afford to buy resources for their children to consume.

Another side-effect of increased wealth includes less time that individuals work. Due to increased productivity in a free society, individuals do not have to work as long every day, and have more time to spend on their children. It becomes increasingly more common for only one parent in the family to work, in addition to the shorter time and longer weekends that he or she would work every day.

The lack of child labor laws would also increase wealth. The money earned by a child may outweigh the money spent on taking care of the child. Thus, some individuals might have children just to increase wealth.

Population growth benefits the economy

In a free society, the economic quality will depend solely on the current technology levels. The state will not meddle with the economy anymore and would not produce fake growth by manipulating growth statistics. In the absence of the state, the economy will only grow by increased innovation.

A larger population benefits the economy. A larger population implies that more individuals would spend their time to innovate, thus helping the economy to grow further. The increased leisure time from increased productivity will magnify the amount of time individuals would spend on innovation, instead of sustenance.

Ultimately, we should not see population growth as a vice, but a virtue.

The environmental solution

Many libertarians advocate a private rights approach for environmental pollution. The protection of property rights would give individuals an incentive to not dump waste on someone else's property. Individuals may also own portions of water, as it may reduce overfishing---a solution to conservation.

But the property rights approach to environmentalism has a fault. It suggests no solution to global warming, caused by carbon dioxide emissions. Since releasing a moderate amount of carbon dioxide does no apparent harm to neighbors, courts would not likely sue the the polluters. Under current technology, it seems difficult to measure the amount of carbon dioxide released. This also makes individuals difficult to estimate the amount of global warming, and thus impossible to reclaim monetary compensation proportional to the amount of carbon dioxide released.

The global warming solution

Proponents of a state suggest that it would solve global warming caused from carbon dioxide emissions. They suggest that without a state, individuals would still pollute since an individual derives no benefit by reducing emissions. Only in the case that most of the population in the world reduced pollution, everyone would benefit. But the some individuals would free ride, or ``cheat" by letting others reduce emissions while refraining from reducing this themselves. So they conclude that only a state can prevent the free rider problem by forcing every individual to reduce emissions.

However, solutions to this free rider problem does exist even without the state. A method to solve global warming involves the boycott. The individuals who reduced emissions can agree with each other to boycott those who not practice that themselves. To enforce the treaty, the members agreeing with the reduced emissions agreement, would also agree to refrain from trading with the non-members. This would encourage the non-members (the free riders) to agree reducing their emissions, to freely trade with everyone else.

Conclusion

We have shown that the society does not need the state to solve all three problems: global warming, conservation, overpopulation, and poverty. Most importantly, we have appeared to solve the problem that even most libertarians find it as impossible: global warming.

The primitivists has turned onto the wrong direction, hurting individuals from their policies that supposed to help.