Sunday, October 11, 2009

The working class and freedom

I saw an idiotic comment on YouTube recently where someone who claimed to be a Rothbardian said that labor would get paid much less in a free market. Well I'm not sure if Rothbard ever addressed this directly, but Mises says otherwise and Hoppe implies otherwise.
According to Mises, the one thing that can permanently, universally raise wage rates is the application of more capital into the market, so if you want to help the working class, you should increase the amount of capital in the market.
The more capital there is looking for labor to work with it, the more valuable labor is relative to capital. Seems pretty simple, right?
Almost everything the government does right now acts to destroy capital, prevent capital formation, or restrict the application of capital. This is no accident because it makes the capital already in the hands of the existing owners more valuable, by making capital more scarce.
In a free market, the amount of total capital applied to labor would skyrocket, creating not a surplus of labor as we have now, but a permanent labor shortage. Wages would rise to eat up all profits beyond the natural rate of interest. And as Hoppe pointed out, as capital continues to grow, the natural rate of interest will fall asymptotically towards zero.
Thus, the free market is the workers paradise, not the capital owners paradise.


Mike Gogulski said...

With you here. Still want better paragraph breaks, but I agree! :)

(my captcha word is "hated"... WTF? that's sick and wrong.)

Andrea Shepard said...

Hmm. I don't know Hoppe's argument for why the natural interest rate should approach zero, but it seems to me that as long as opportunities for growth exist then they can consume any capital available at below the expectation value of the growth rate, and thus the real growth rate sets a lower bound on the real interest rate. I suppose risk and time concerns would modify that, since the real interest rate we mean is surely the risk-free instantaneous one, but I don't see much reason to believe interest rates would drop to zero as long as growth is possible.

How long that will continue to be the case is perhaps more debatable, but surely zero-growth implies no further technological progress, and we don't seem to be anywhere near ultimate physical limits on most things. I'd bet that if I ever live see zero-growth, equilibrium conditions, it'll be in the far future as an upload rather than in a world very much like this one we live in now.

Ineffabelle said...

I don't think the aggregate growth rate would bound the natural rate of interest (the marginal growth rate might, but see below). I see what you're getting at, that capital would tend to follow profit opportunities, and thus would get locked up in existing ventures.
But in a free market profit opportunities are sporadic for that very reason, because any profit opportunities rapidly become flooded with competitors, and the average rate of profit declines - while new profit opportunities pop up elsewhere, drawing capital away.
But basically, as the total amount of liquid capital in the system increases, the marginal cost of obtaining it will decrease I think.
Better technology, I think would make this process even more fluid as capital can be more easily "liquified" and "ephemeralized".
I'd expect that in a free market, stock prices of most firms would tend to gradually, but constantly, fall but with sporadic exceptions (just like all prices would), but the overall size of the various stock markets would increase gradually and constantly.