Social Contract and Constitutions

View 693 Thursday, September 22, 2011

The Republican debates went fairly well. There wasn’t anyone on that platform that wouldn’t be preferable to Barack Obama for President of the Republic. Once again I found Newt impressive, as was Cain.

The Internet is abuzz with Elizabeth Warren, and no wonder. Those interested should listen to her speech. It’s short and done well. Here’s some of what she says:

“You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.

“Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along.”

Her supporters are enthusiastic because she is in essence pleading natural law in defense of Obama’s tax policies. It’s pretty good natural law, too. Parts of it sound conservative. She appeals to “the social contract” as opposed to the libertarian precept. She says that capitalists are greedy, which they are, and that they ought to have more sympathy for the rest of us who built the social order that allows them to get rich. Time to give some back. What’s wrong with that?

Well, to start with, social contracts aren’t Constitutions. They Social Contract is a convenient fiction, but in fact there isn’t one, and to the extent that there is anything like one, Thomas Hobbes comes a lot closer to the agreement that creates a state than Rousseau or even Thomas Aquinas. Social Contracts sound great, but you can’t sit down and read the Social Contract. Constitutions are specific. Even then they can be embraced and extended: it’s a long way from Congress shall make no law respecting an establishment of religion (which was intended to forbid Congress from establishing the Episcopal Church as a national religion, but also intended to forbid Congress from disestablishing the religions in the seven out of thirteen states which had a religion by law established) – it’s a long way from the specific language of the First Amendment to the US Supreme Court forbidding a manger in the public square.

Constitutions try to limit government. Social contracts may be seen as a limit of government power or as an empowerment, depending on your point of view.

As to the specifics, surely the man who built the factory can plead that he paid his share of the taxes that paid for the roads and operated the schools; he took his chances that his factory would be successful and people would be willing to pay enough for its products to cover his expenses and leave him a profit; and if he got lucky and made a lot of profit, isn’t he entitled to it? If he’d been unable to make his widgets for less than people wanted to pay for them, is he entitled to a subsidy because he tried? Well, maybe – if he’s trying to create Green Jobs the rules do seem to change, and the public is expected to give him a big break and maybe half a billion dollars in loans that won’t be paid back. Is that covered by the social contract? After all, the intention was good. We’re trying to save the earth and create Green Jobs.

As to defense against marauding bands, it depends on the marauders, as port operators in the state of Washington found when the unions came in to take over.

Ms. Warren sounds very reasonable because most of us sort of agree with her – there is some obligation on the part of the successful to contribute to making the society work better. It’s called providing for the common defense and promoting the general welfare. And the Constitution having set out the goal:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

They then set up the mechanism for doing that. They didn’t just say here’s your social contract, here’s a declaration of the rights and duties of the citizen, now let’s let Congress get on with it. The result was a Republic that achieved some remarkable achievements, including fulfilling a lot of Ms. Warren’s social contract, but with a rule of law. It lasted a long time, nearly as long as the Roman Republic, and it was a power in its time. Now all that is under reconsideration.

Note that what Ms. Warren says that we need the money for police and roads and fire services. It’s time for the successful to pay more because we’re broke, and without new money we won’t have roads and schools and fire and police and all those things you need in order to build and operate your factory. No political regime ever threatened to fire the bunny inspectors and the Department of Education SWAT team if the rich didn’t pay more in taxes. It’s pay more or lose the essentials.

No, the problem is that the rich have too much money and they don’t pay as much as we do and they have to pay more.

There are those who question whether soaking the rich will actually produce much more revenue: we need to be careful how close we sheer the lamb. Others say look how much they have!

And I will repeat yet one more time: if the problem is that the rich have too much money, we can debate that; but what I am hearing is not a plea for reducing the divide between rich and poor, or for breaking up great power centers into something smaller, or fulfilling a social contract. It’s simply a way to raise taxes, and the money will go to pay the salaries of those who want the taxed raised. If they want to despoil Bill Gates and Paul Allen and Eli Broad because they think they can spend the money more wisely than its present possessors, the most charitable thing I can say is “not proven”.  I’m more tempted to say Stop talking nonsense. You spend money on bunny inspectors. Why in the world should I give you more? You pay an army of bureaucrats and you want to pay more.

If you want to despoil the rich, then put the money in baskets and throw it out of airplanes. Don’t reward yourselves.

Yes, Ms. Warren, it’s true: those who get rich did so because they thrived under the blessings of liberty. Is that contrary to the actual contract signed in Philadelphia in 1787?

Social Justice and the Theory of Surplus Value

Much of Marx’s main work, Das Kapital, is devoted to the theory of value, specifically the labor theory of value, which says in essence that things have value because of the labor put into them. Said that baldly this is either trivially true or ridiculous. A statue wouldn’t be worth much without the labor of the sculptor. A gold nugget found on the street has value, and does so whether the nugget was dug out of the ground with great effort, or simply washed down out of the hills.

The naïve view of the labor theory of value confuses effort and work. That is, in physics, you can push against a wall with all your strength and continue to do so until you fall exhausted, but if you have not moved the wall, you have only expended effort: you have done no work. The classic refutation of the naive labor value theory is making a pie: an inept cook can reduce the valuable ingredients to a valueless mess that needs cleaning up, while an expert cook can make an apple pie that sells for a profit. It is fun to ridicule Marx as if he had not understood this, but it is also unfair. He understood it pretty well.

He did have a naïve view of technology and the industrial revolution. He was somewhat familiar with small factories in Thuringia, but he had no real understanding of technology and that shows in his undervaluing of management and entrepreneurship. Communist societies were able to produce technology by concentration of effort, but it took constant attention to make such things work well. Even toward the end in the USSR, when many of its economists understood the value of markets and information, only a few industries operated with any appreciable efficiency, and some, like the shoe industry, were ludicrously inefficient. As Possony used to put it, after a while the KGB didn’t want West Germany to go Communist: they understood that communism would muck the place up and West Germany was more valuable as a trading partner than it would be as a full satellite.

The labor theory of value does say that most of the value comes from labor; the labor force uses capital (technology, tools, etc.) and those have their contribution to the final value, but most of that value comes from labor. The working class puts the work into the equation, and creates goods that have more value than their labor. The bourgeoisie confiscate this surplus value as profit. Progressives want to take more of that surplus value from the bourgeoisie and give it back to the workers.

Many social theorists invoke the social contract to justify doing this. Property is theft! Oddly enough, both Marx and Max Stirner rejected this proposition, but many social contract theorists say there is an essence of truth here. And of course that justifies any scale of property taxation you might like.

Now there are those who say the proper course is to tax the rich to exactly the optimum point: when raising taxes no longer brings in more income, it is too much and time to scale back. Up to that point, though, all is well. Clearly that view accepts the notion that property is theft: the rich have no right to their wealth. We let them keep some so that they will continue to create jobs and go work hard at investing, but when they falter, we send in the tax collector. It’s really our money, and they are only its temporary custodians.

It used to be that the notion of a free country included rights to property.

The problem here is that Ms. Warren invites the rich to “worry that marauding bands would come and seize everything at your factory, and hire someone to protect against this.” The marauding bands will be tax collectors. The someone to protect against this will be lobbyists. That’s if we are lucky.

If we aren’t lucky, we can look at contemporary Mexico as a model for the future. Or perhaps Russia under the nomenklatura. Or maybe we will be partly lucky and we’ll only get Greece.

Rick Hellewell has created www.BunnyInspectors.com, a site on which you can post your candidates for government activities we’d probably be better off without. Go look at it, and if you think of something to add, post it. It’s well to have such a list. More than well.