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Life on the Monopoly Board

Here is an (trimmed down) extract from the book chapter I am currently working. I have tried to remove reference to earlier arguments in the book so it can stand alone (please quiz me on where I have failed to do this!) Because of its origin, this post is longer and “harder” than usual so feel free to run away! The argument here follows on pretty much directly from the argument in “In All Fairness”. This extract makes extensive reference to Robert Nozick’s “Entitlement Theory” which, for the purposes of this discussion simply states that property can only be transferred from one person to another voluntarily – i.e. an economy of free exchange. This rules-out things like taxation which are non-voluntary…

The second and third rules in Nozick’s Entitlement Theory, when the remainder of Nozick’s thought is taken into account, state simply that property cannot be transferred to another without the voluntary consent of the holder of the property.

The acquisition principle contains no obvious limiting factor – property can be endlessly accumulated by a property holder. Well, perhaps not endlessly – we exist in a physically limited world, so the hard limit of accumulation is all available physical property. We may also add various types of “non-tangible” property – contracts and the like – but we shouldn’t get hung up on this at the moment (ultimately they must all make some claim on the physical world). The limiting case is that in which a single person ends up owning and controlling all of the available property. The acquisition principle takes no special account of this scenario – as long as the rules were followed in acquiring the property this is as valid a state as any other. We can see from the board-game Monopoly how such accumulation might occur within a well-defined set of similar and seemingly fair rules – the game ends when only one player has property (as real estate and/or money), and the more property one controls the easier it becomes to further accumulate.

Is such a hypothetical case realistic? Perhaps not (although it is not entirely inconceivable). Is it important? Most definitely. Let’s work through an (admittedly farfetched) example. Imagine that some person produces some consumable commodity that is both short-lived and extraordinarily compelling to most consumers (it need not be so to all, just the majority) – perhaps some sort of Willy Wonka–like character. Consumers voluntarily buy and consume this product. They can’t get enough of it and always want more, so he makes more and sells it to them. “A-ha!” I hear you exclaim – “this sounds a lot like a drug and should be banned”. This is a difficult area in Nozick – everyone has acted voluntarily so, by his rules, no harm has been done. Government interference would constitute a violation of Nozick’s rules. In any case, these qualities are not essential to the argument. Assume that the product doesn’t harm the consumer in any medical sense so they can continue to consume indefinitely. Soon they spend all their money on this product. Our producer has become immensely wealthy at this point. He is making as much of his product as can be consumed. So he takes his idle wealth and starts buying up other businesses, left, right and centre. The former business owners, of course, spend their windfall on his commodity. This goes on and on until he owns all the businesses. At this point he owns all the available employment and can set wages as he pleases. This continues and eventually all property belongs to him as he need only agree to such wages as ensure the subsistence of the workers (and not even that if he wishes – he is not obliged to part with his property if he doesn’t want to). He now, and entirely compatibly with Nozick, declares rules that apply as conditions of access to his property (we might call them “laws”). Provided that he does not use coercive force to ensure their compliance, and uses solely the carrot/stick of the means of subsistence under his controls, it is entirely legitimate.

We have moved from Nozick’s definition of liberty, following his rules to the letter, until we arrive at this point. At no point did an involuntary (by the libertarian definition) transfer of property take place – it was all conducted in accordance with Nozick’s Entitlement Theory. At no stage was there a violation of negative liberty. No one ever had a gun to their head. Three more things are worth noting. First, this situation did not require that each and every person transact with our would-be dictator – it is sufficient that all the businesses ended up under his ownership. Gravity, as it were, takes care of the rest. In fact, it the initial commodity with which he made his fortune is ultimately irrelevant: this was merely the “step-up” that enabled his later acquisitions. What is relevant is the increasing degree of control that it gave him. Second, the end-state applies to all subsequent generations: we might argue that the initial generation “agreed” to their tyranny by transacting in the way that they did, but we cannot possibly hold this for their children, their children’s children etc. They simply inherit the outcome of their parents’ generations. Finally, and critically, the non-monopolists in this society cannot use coercion to assure their own needs – to do so would be a violation of libertarian negative liberty. The state here, as feared by anarchists, upholds the rights of property against the interests of the people.

It is important is that we understand what this world looks like in which a single person owns all property. It is easy to imagine. Every person except one would have to agree to whatever terms that this single monopolist demands in order simply to eat and have shelter. The monopolist can simply dictate terms that ensure that the multitude is kept alive to continue their servitude but that will in no way allow them to strengthen their own bargaining position. I hope that it would not be controversial to describe this scenario as tyranny – no person except one is truly free here. It has become a dictatorship of the first order with complete dependence on a single person. And yet Nozick would have no choice but to either insist that everyone is free in this scenario or admit to a problem with his principles. Philippe van Parijs constructs a similar illustration to demonstrate how such an appalling result can come from the strict application of libertarian property rights. His example is set on an island that is expensive or difficult to leave. In such a society, the sole property owner can

“impose on the other inhabitants any condition she fancies. If they are to be allowed to earn their livelihood, they may have to work abysmally long hours, for example, or give up their religion, or wear scarlet underwear.”

Nozick’s theory tells us explicitly that people in such a state are free. Parijs’ response is unequivocal: “On any intuitively defensive interpretation of the ideal of a free society… this is plain nonsense” (Parijs, 2003, p. 14). When liberty is compatible with dictatorship then liberty clearly has no true meaning, or a meaning so debased as to be without worth.

Monopoly enjoys a peculiarly ambiguous role within libertarianism. The Nozickian version has the least problem with it.

His theory ignores the issue with one minor exception: when an individual has control of all of a certain important resource (e.g. “the only water hole in a desert”), such that (and only if) doing so creates an emergency situation, the ownership rights may be overridden. However, he tactically adds that “the theory does not say that owners do not have these rights, but that the rights are overridden to avoid some catastrophe” (Nozick, 2009, p. 180)

In the hands of Hayek and Friedman, monopoly is a clearer problem. To them, wide dispersal of property reduces opportunity for coercion. Any monopoly creates the opportunity for coercion and is therefore antithetical to liberty. Hayek makes this point here:

“In modern society … the essential requisite for the protection of the individual against coercion is not that he possess property but that the material means which enable him to pursue any plan of action not be all in the exclusive hands of one other agent. […] The important point is that the property should be sufficiently dispersed so that the individual is not dependent on particular persons who alone can provide for him with what he needs or who alone can employ him.” (Hayek, 2006, pp. 123-4)

Milton Friedman makes a similar point:

“So long as effective freedom of exchange is maintained, the central feature of the market organization of economic activity is that it prevents one person from interfering with another in respect of most of his activities. The consumer is protected from the coercion of the seller because of the presence of other sellers with whom he can deal. The seller is protected from coercion by the consumer because of the other consumers to whom he can sell. The employee is protected from coercion by the employer because of other employers for whom he can work, and so on.” (Friedman, 2002, pp. 14-5)

So, by their account, property dispersal is an important means of undermining the potential for coercion and hence underwrites liberty. They hold this view regardless of the inherent possibility in the private property system to lead to monopoly. Of course, a major component of the ideological stance of both Hayek and Friedman is their fear that state will manifest a monopoly and that by owning the means of production they will have effectively implemented a society of servitude. Any property monopolized in the hands of the state, in their view, necessarily aids the state’s ability to act coercively. This is a valid and important concern, but no less important is the possibility that it can occur in individuals or groups that are not the state. Our hypothetical monopolist is not the state but has acquired the same characteristics of the state that are opposed by libertarians (except for the monopoly of violence which is, in any case, ruled out under libertarianism) – by threatening starvation he can determine every aspect of every life bar what they are thinking (and even this is not safe). Libertarians must object to this outcome as much as if the monopoly were held by the state.

The standard neoliberal approach to monopoly has been limited to support for antitrust laws that seek to break down commercial monopolies. It is difficult not to suspect that the economic libertarian’s concern here is more with the supposed economic efficiency effects of competition than with any impact on real liberty (and contrary to the impression one might get, these are certainly not the same thing, and not even necessarily compatible). We need to distinguish here between the process of competition and the outcome of it. The point of competition is to produce winners and eliminate losers, and as this process continues barriers to entry typically rise. It may well produce winners but there is little reason to believe that it will be effective at generating competitors in an ongoing and enduring manner. The most fundamental justification of capitalism is at odds with its general tendency: productive competition, more or less by definition, inches toward monopoly. Colin Crouch argues that the Chicago school of neoliberalism, of Milton Friedman fame, has been more concerned with the outcome of competition than the process. As such it quietly endorses the results of oligopoly and monopoly (while publicly claiming the opposite). He points out that this leads to a corporate type of “nanny state” with big business making the judgements about welfare in a way that is no better than when the same result occurs by government (and, we might add, without the merits of the democratic process) (Crouch, 2011, p. 55). The outcome that has been promoted and welcomed, he plausibly claims, is

“the destruction of small and medium-sized enterprises, the dominance of giant corporations and the replacement of the demotic idea of consumer choice by a paternalistic concern for ‘consumer welfare’.” (Crouch, 2011, p. 17)

Beyond productive competition, there is a certain faith that competition between enterprises sufficiently checks the more problematic underlying monopoly that we explored in our example – that of broader property ownership. However, the thresholds for commercial monopoly have, in neoliberal states, been set very high, and in practice to little effect. The thresholds for personal wealth monopoly have been checked by various “leftist” taxes that neoliberals have consistently opposed and, wherever possible in the democratic context, weakened. Friedman’s criterion above, that liberty depends on the maintenance of “effective freedom of exchange”, implies that productive competition is a sufficient guard for liberty (and of course, neoliberalism is all about productive competition). But our example, which consisted of nothing but freedom of exchange, suggests otherwise. It is not a sufficient guarantee if the result is possible. As long as commercial activity and not ownership is the measure of monopoly we have a genuine problem. There is no reason why our monopolist / dictator could not simply set up as many multiple companies in direct competition with each other as he likes, and thus evade an anti-trust lawsuit. This fact would say nothing about how he treats the people under his control.

Regardless of whether we follow Nozick or Hayek and Friedman here, we are left with an odd little puzzle. When there is a single producer of a good then we have monopoly and this is bad. But when there are two (or three, or whatever antitrust laws decide) then things are fine (but should we consider their relative sizes?). Similarly in Nozick, one monopoly owner of something in a catastrophe is a condition that magically creates some special obligations, but the existence of two owners is not and does not. Surely this is, at the very least, arbitrary. Not only is the setting of a threshold bizarre, but even the very fact of the threshold is puzzling. If transfers that are just, starting from a just starting point, can only ever lead to just outcomes, then it is most peculiar that they may think that a monopoly “justly” arrived at is somehow an exception that should be handled differently. The objection to productive monopoly by Hayek and Friedman doesn’t get them off the hook – if anything makes their objection more conspicuous. Despite differing with Nozick as to the significance of monopoly, they do, after all, hold to a system of free exchange that is, in its essentials, the same as Nozick’s.

The issue here is the arbitrary and exceptional handling of the monopoly state.  What does our fictitious monopolist / dictator example tell us about the threshold problem? If, as I maintain, the end-result of our story was unfreedom for all but one person, at what point did the people’s freedom disappear? This process must have involved literally billions of voluntary transactions. Is there any one point in the process that we can point to and say “this is where freedom disappeared”? Let’s modify our scenario a little. Assume that all the property in the world is now split evenly between two people instead of one. This brings us ever so slightly closer to the libertarian ideal – after all, the property is twice as dispersed. Two people cannot both be the state and everyone can now choose between them. Are the remaining people still slaves? It is difficult to see how they are not. There is no reason to believe their situation has materially changed, or that any one of the two property owners will offer them terms that might improve their circumstances. The two owners have a common interest in getting the most out of people for the least outlay. One of the most striking effects of a market is the tendency for prices and terms to converge. Our people will still need to give their services to one of two people who, in practice, will more than likely be identical. So, no great improvement then. What if the property was distributed between three people? Ten? One hundred? 1 percent of the population? 10 percent? At what point are these people free? Is it clear that their real options are improving or that the range of genuine choice is improving? And if so, then at what point or points? These are not easy questions to answer, and libertarianism offers no insight. But it seems likely that we are moving here from dictatorship to stages that we might describe as “oligarchy”, “plutocracy”, or “aristocracy”, although the thresholds to these are as arbitrary as that of monopoly. It is also clear that we are no longer in the realm of the deeply hypothetical. These are all “natural” and valid outcomes to the libertarian. They are also outcomes that come close to describing the real world. The neoliberal decades have seen a marked growth in the concentration of wealth.

The problem comes from treating monopoly as a binary state: there either is a monopoly or there isn’t, and from this the libertarian concludes that there either is a threat to liberty or there is not, or, in Nozick’s case, that there exist special obligations or not. By treating monopoly as a state we are left with treating the problems related to its existence as a curious and baffling exception to the otherwise homogenous rules of private property. But surely it cannot simply be the case that the freedom of the people in our hypothetical example exists before, and disappears after, the final transaction that placed ownership in one person’s hands. Liberty is a matter of degree, and it deteriorates as the process of wealth concentration occurs. So rather than talking about a state of monopoly we must talk about the degree of monopoly (or of concentration, or its converse – the degree of ownership dispersal, or, to get controversial, of “equality”). We must understand monopoly as being a scalar rather than a binary notion. The degree of monopoly affects many things in society: an individual’s opportunities; the dispersal of political control (and, by implication, the way in which the rules (or laws) of a society are shaped, and how they, in turn, further affect property dispersal); the potential for coercion and, at least as importantly, domination to occur; and even what a productive society actually produces (and for whom).

Monopoly, in our language of rights, poses a standard threat to liberty and to the quality of the lives of all but the monopolists. If justice is historical (and, given that we must reject this notion as implausible, even if it is not), then the injustice of monopoly lies not in the state of monopoly but in the process that produces it. The Entitlement Theory contains no inbuilt protections against monopoly, so we must treat the theory as containing an unaddressed standard threat. We must look beyond Nozick’s theory to rights against that outcome, and to the mechanisms that act as a corrective against it.

Property has the general characteristic of becoming easier to acquire the more of it one has (remember: it takes money to make money). This gives wealth-making capacity a roughly exponential characteristic. Note also that the greater the share of a society’s wealth that a person has, the closer to monopoly they are. Both of these observations suggest that to counter the threat of monopoly we must implement an opposing tendency that increases in force in a likewise roughly exponential manner. The rules of the Entitlement Theory must be supplemented with a “bias” that acts as an opposing force, becoming ever stronger the more that the tendency towards the undesired result manifests. The most obvious and empirically effective means of achieving this is are progressive taxes that increase in steepness the wealthier someone becomes. This could be a wealth tax (perhaps a progressive inheritance tax) which addresses the outcome of concentration on a periodic basis, or an income tax which addresses the inputs to the process of concentration as it occurs, or combinations of these and other mechanisms. This is our first justification for a progressive tax structure. It will not be the last.

Crouch, C. (2011). The Strange Non-Death of Neoliberalism. Polity Press.

Friedman, M. (2002). Capitalism and Freedom. University of Chicago Press.

Hayek, F. A. (2006). The Consitution Of Liberty. Routledge Classics.

Nozick, R. (2009). Anarchy, State, and Utopia. Blackwell Publishing.

Parijs, P. V. (2003). Real Freedom For All: What (If Anything) Can Justify Capitalism? Oxford University Press.

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