Sep 14, 2018

A Review of Posner and Weyl’s Radical Markets

A new book from Eric Posner and E. Glen Weyl avoids many mistakes commonly seen in modern arguments, only to resurrect other, long-buried, errors.

During his life, the nineteenth century political economist Henry George became wildly popular, attracting large audiences to his speeches and selling thousands of copies of his masterwork Progress and Poverty. George famously popularized the single tax, the idea that the value of land, before improvements owing to human labor, ought to be subject to a land value tax, the revenues from which would be redistributed to the commonwealth. Today, George’s ideas are seldom discussed, his legacy largely forgotten or else noted merely as a bit of historical trivia. In their book Radical Markets: Uprooting Capitalism and Democracy for a Just Society, Eric Posner, a University of Chicago law professor, and E. Glen Weyl, a Microsoft researcher and visiting senior research scholar at Yale, undertake the continuation of George’s distinctive legacy, his battle against monopoly. Radical Markets is among the most admirably ambitious works of political economy in some time, unafraid to disrupt the status quo and ignore (or, more accurately, explode) its moribund categories. Posner and Weyl deserve credit for doing what few scholars are willing or able to do, offering audacious ideas that breach canned ideological and disciplinary boundaries. This is a book for people who seek out bold thinking and fresh perspectives, and its self-conscious category defiance follows that of its inspiration. George’s relationship with both capitalism and socialism is complicated. A principled and outspoken advocate of laissez-faire free trade, he was also a consistent anti-capitalist, though that term, too, is probably misleading as applied to George. While loudly advocating the abolition of private property in land, he was nonetheless an opponent of socialism. He readily damned both: capitalism as a system of monopolies and “landlordism” (a term much more common in his day), socialism as a system unconcerned with individual rights or natural laws, one that divided mankind into “directors” and “workers.”

Given recent work on George, it is important to emphasize his free market radicalism, his consistency in the defense of individual rights and open competition. George lauded the physiocrats as “free traders in the fullest sense of the term,” as the true champions of the laissez-faire motto, “so emasculated and perverted” by the followers of Adam Smith, whom George slighted as “so called ‘English free traders.’” Like George, Murray Rothbard preferred Smith’s French precursors to the supposed father of economics and his disciples, being of the mind that Smith had set economics on the wrong course. Rothbard cites Joseph Schumpeter’s History of Economic Analysis, steeped in “the continental Walrasian and Austrian traditions” (as opposed to “British classicism”), as presenting a more accurate picture of the history of the discipline and the most important contributions thereto. (Radical Markets cites Leon Walras several times as an evangelist for free and open competition, for his “insight about the monopolistic nature of property.”) The defects of socialism, for George, could “be summed up in its want of radicalism—that is to say, of going to the root.” Posner and Weyl, too, endeavor to go to the root. They share George’s goal: “to show that laissez faire (in its full true meaning) opens the way to a realization of the noble dreams of socialism.”

As presented in 2018, the argument is anachronistic, which the authors admit. In taking it up, Posner and Weyl join the largely (and regrettably) forgotten ranks of free market anti-capitalists, of whom George is a notable example. Opposing capitalism on free market grounds, while it may seem paradoxical or oxymoronic given common usages today, was once quite common, arguably even the standard among those advocating free markets and free trade in the nineteenth century. Capitalism emerged as a term of abuse; few, if any, of the principled liberals and libertarians advocating market competition and free trade at the time imagined themselves as defending it. Indeed, as the authors point out, many associated their ideas with socialism. Their project was a radical one, a plea for the freedom of the humble individual to conduct commerce in a world and an economic system defined up to that point by power and privilege. Posner and Weyl open the preface to the book by quoting Milton Friedman’s observation that “[t]he nineteenth-century liberal was a radical,” that is, not a conservative, “favoring major changes in social institutions.” Radical Markets is an attempt to recapture a tradition that was both self-consciously radical and emphatically in favor of free market competition, to escape the left or right box and its “palpably stale” policy prescriptions. The authors propose, in the place of these increasingly obsolete ideas, “radical redesigns” based on the premise that markets “are the best way of arranging a society.” Absent monopoly, George argued, “competition could only exist to accomplish the end which co-operation aims at—to give to each what he fairly earns.” Posner and Weyl likewise see markets, “truly free markets,” at least, as capable of unlocking an enormous trove of potential, provided they are properly tuned and organized. As we shall see, their plans to tune and organize markets entail interventions of a most extreme kind.

The authors correctly point out that George’s theory placed far too much importance on his distinction between land, “freely supplied by nature” and “not the product of labor,” and what he regarded as artificial capital, created by human labor. As they say, “This distinction was, well, artificial. Factories are built from metal drawn from mines and, once built, may be monopolized just as much as land may be.” All such attempted distinctions—between land and other factors in production, between different kinds of capital, between capital and product, etc.—are ultimately arbitrary, the criteria used to hold them up subjective and artificial. George’s vain attempt to distinguish land from everything else impeded his theory, leading him to the wrong answer—opposition to private property in land and, therefore, advocacy of the single tax—to the very real monopoly problem.

Posner and Weyl set about to extend the application of this wrong answer through their “common ownership self-assessed tax” or COST. If private property is inherently monopolistic, “inhibit[ing] privately owned assets from flowing to their best use,” then it must be severely curtailed. The authors posit that “[o]nly a true, continuous auction in uses can solve the monopoly problem and hence produce allocative efficiency.” Thus, in one application of their COST proposal, a homeowner may attach to her property any value she wants, but she must be prepared both to pay taxes on that self-assessed value and, a condition still more onerous, to sell to anyone willing to pay her price. Her house, along with all others, is thus always on the market. Private property is effectively abolished, independent owners demoted to mere possessors, “lessees from society.” Large-scale land development is also cited an example of the pervasive inefficiencies the authors associate with private property and the “monopoly problem.” “Several holdouts,” they worry, “would quickly squash the project.” And, indeed, we might’ve thought that a fact such as this one would be treated as a merit of a free market and a free society, not as liability, that massive projects like the one in the authors’ example ought to be built on broad consensus. The example is especially interesting given that such large-scale development projects are known for waste and inefficiency.

Posner and Weyl argue that “private ownership of any asset, except homogenous commodities, may hamper allocative efficiency,” wasting otherwise productive resources and effecting a condition of involuntary idleness among labor. But in the examples the authors provide, it is not private property in itself that is hampering allocative efficiency, not unless we simply and automatically equate private property with monopoly as we generally understand that term—harmful, large-scale monopoly (as opposed to monopoly in the technical sense discussed below). We might instead argue that monopoly of the harmful, wasteful kind, the kind about which Posner and Weyl worry, is actually an affront to private property properly understood—and, concomitantly, that a principled embrace of private property is the best corrective for the monopoly problem. G.K. Chesterton was developing this line of thought when he remarked that to oppose as antiquated the idea of “small property” was really just to say “that all property is dead,” for nothing can “be reached upon the present lines [of monopoly capitalism] except the increasing loss of property by everybody.” Far from causing the problem of monopoly, private property is its solution. The proper question has always been how to define the contours of private property rights in such a way as to make them the servants of economic efficiency generally and protectors of the fruits of individual labor (rather than aiding the shiftless monopolist in robbing labor by begetting huge disparities of bargaining power). Chesterton’s distributism represents an understanding of the nature of the problem, as did Tucker’s individualist anarchist system of land ownership, for which the limiting principle, the safeguard against monopoly, is occupancy and use. Indeed, Chesterton argues that capitalism’s “big commercial combinations … are at least collective if not collectivist,” and in any case “certainly not private enterprise.”1 Posner and Weyl provide a helpful sketch of the transition from feudal legal and economic relations to modern industrial arrangements, specifically the disintegration of the former in favor of the allocative efficiency associated with the latter. The property decentralization associated with this episode in history counsels, perhaps, that rather than destroying private property through various new taxes and stipulations, we might instead further decentralize it while preserving its “permanent ownership” feature. The authors mistakenly believe that by and through the abrogation of private property rights, markets are radicalized and strengthened. But free markets and private property right simply cannot be neatly separated in this way, for the right to abstain from trading is as important to a truly free market as is the right to trade.

As an aspect or component of private property, law professor Eric R. Claeys observes the role of exclusive enjoyment “as a hedge protecting the owner’s power to price the land and its use at her own subjective value.” The distinctive genius of free market competition lies in the fact that it permits individuals to make these subjective, even quite arbitrary, decisions about their own property. Posner and Weyl indeed propose another form of planning by coercively limiting the range within these subjective judgments may take place, satisfied that some otherwise legitimate individual value judgments are out of bounds. One doesn’t strengthen socially beneficial free market mechanisms by stripping them of their defining characteristics. Thrusting property owners into the worried state of permanent precarity, legally unable to rely on their titles, would have serious negative consequences for investment efficiency, as the authors acknowledge. Whereas George sought to distribute to society after the fact the windfall associated with private property in land, a kind of exclusive monopoly right just by definition, Posner and Weyl want to preemptively limit individuals’ choices—in addition, of course, to redistributing income owing to individual labor (viz., income not attributable to monopoly rents).

Throughout the book, Posner and Weyl rely on this claim that “Property is Monopoly,” the title of its first chapter. It’s important not to misunderstand the significance of this idea. Private property does, strictly speaking, endow its holder with a monopoly right; we can accurately say that any title to real property creates, at least in a narrow, rather technical sense, a monopoly. This, though, is not the kind of monopoly to which George (and other nineteenth century libertarians opponents of monopoly, such as Benjamin Tucker) addressed his complaints and remedies. George’s arguments were primarily addressed to the beneficiaries of political privilege, to their ability to hold large swaths of land out of use and the injustices and economic inefficiencies thus implicated. Land monopoly, George argued, allowed the monopolizers the power to “levy tribute upon the earnings of labor” in the form of rent, and to pay starvation wages. But the speculative land monopoly George attacked was never a problem inherent in private property, not really, not as libertarians have defined it.

That free markets are today so quietly and unthinkingly associated with conservatism is among the very strangest features of popular political discourse. Misunderstandings about what is meant by markets (and “free market” and “competition”) abound, and Posner and Weyl are decidedly not undertaking to defend what they term “Market Fundamentalism.” Neither are they defending capitalism, which they associate with this ideology of Market Fundamentalism. Yet Market Fundamentalism is probably not the best term for the ideological commitment the authors oppose, as their arguments are themselves predicated on the idea that market fundamentalists aren’t really proponents of genuine free markets. As Weyl observes in an interview on the book, “The first thing about the free market system today is that we don’t have a free market system, we just think we do.”2 Of course, not everyone thinks we do, and libertarians have long been at great pains to insist that current economic practices, policies and conditions do not reflect free market principles. Nineteenth century American libertarians, in particular the individualist anarchists orbiting Benjamin Tucker’s Liberty, were particularly keen to point that out. When Posner and Weyl make the case that free markets and socialism are not antithetical, but “are actually two sides of the same coin,” they conjure the spirits of Tucker and his associates, though quite unwittingly. While libertarians who see free markets as a form of anti-capitalism still exist today (the author of this review is among them), they are few in number, a very small minority within the libertarian movement proper, often regarded as sowing confusion by refusing to simply treat capitalism as denoting a free market system.

That debate in turn raises the related question as to how much of the apparent division is semantic and how much is substantive. After all, libertarians like Henry George and Benjamin Tucker did hold views substantively different from those of contemporary libertarians on questions related, for example, to land ownership. Likewise, the ideas and policies proposed by Posner and Weyl represent, at several points, a significant departure from those of libertarians, even (perhaps especially) radical ones. They carry George’s ideas on common ownership and his mistaken remedies much further than he did, beyond land to reach virtually every aspect of economic activity.

Today, in the Information Age, ideas and human capital are much more important than any physical factor in economic production. Naturally, then, Posner and Weyl want to control these, too, through their COST idea. In the book’s conclusion, they suggest a COST on human capital whereby individuals set a price for their services and must then “stand ready to work for any employer willing to pay this wage,” which scheme would address the “threat to equality and productivity” presented by talented professionals withholding their services. They at least acknowledge the glaring problem: people might perceive this policy “as a kind of slavery,” which, of course, it is. As the entity levying tribute on labor, the authors would substitute the state for the landlord. They fail to see (what is so obvious) that all COSTs are necessarily akin to outright enslavement, that their COST schemes sanction at the very least degrees of slavery by stealing certain sticks from the bundle making up self-ownership and self-determination, transferring them to the state (“the public at large,” the authors say). Because we live and work in physical reality, trapped, as it were, self-ownership and self-determination are simply impossible without private property. In the final analysis, such prescriptions reek of the vain pursuit of perfect competition, balanced in a state of equilibrium. Being forced to pay “a large tax in return for retirement” or to sell one’s cherished home for a certain price (or else pay exorbitant taxes) means stripping individual autonomy of its meaning. Further, who could have this right and how could they obtain it? This is where Posner and Weyl’s supposed radicalism shows its limits. Real radicals want answers to these questions, too. We shouldn’t pretend, the authors submit, “that the current system is not coercive,” and they are, of course, correct that it is. Yet where they might’ve taken this opportunity to highlight actual examples of coercive privilege, ubiquitous in the present-day capitalist system, they instead suggest the luck egalitarian argument that talent is a kind of coercion, confusing the mere existence of “unequal freedom,” owing to natural differences, with coercion. Henry George and other similar radicals sought to undermine artificial privilege, not differences owing to god-given (if you’ll forgive the term) aptitudes. The authors’ COST proposals conflate the two.

In this review, I have chosen to focus more attention on the political philosophy underlying the authors’ practical proposals than the practical proposals themselves. This is hardly because the practical policy implications of the theory are uninteresting. Instead, it is because, as we have seen, the political theory driving the policies so significantly departs from certain essentially unsound frameworks we’ve been conditioned to accept. And so widespread and deep is the acceptance of these fallacies that a proper introduction to the theoretical questions should precede a discussion of concrete policy implementations. The importance of the paradigm shift upon which the thesis of the book is premised cannot be overstated: the public policy conversation that obtains today says that free markets give us monopolies perforce—even that the more free the markets, the more monopolies we are likely to see. Hence, a democratic government must intercede on behalf of the public. Libertarians have long argued that this story is confused at a very basic level, that free markets, which have never really been given a chance, would tend to break up monopolies (and would-be monopolies). That is, arrayed in opposition to free and open market competition are monopolies, underpinned by government grants of privilege. Though this account has been better able to explain history and current events, it has been difficult to communicate. By explaining that inequality is not the price of productivity and economic dynamism, that decentralized markets actually serve equality and efficiency, Posner and Weyl provide a remarkable service to libertarian ideas, even if many of their proposals look very un-libertarian.

More than anything, Radical Markets is a welcome strike at the nonviable, incoherent mess that is the left-right spectrum as commonly understood and employed. Posner and Weyl are here thinking imaginatively and originally, which is a great deal more than can be said of most public policy experts. It is a “highly speculative and idealistic” work, which fact is readily admitted by the authors—this, though, is a point very much in its favor. It rejects and transcends the banalities and false dichotomies of the prevailing conversation, confident in the power of its ideas and of ideas generally.

  1. G.K. Chesterton, The Collected Works of G.K. Chesterton (Ignatius Press 1987), page 20.
  2. In the same interview, Weyl goes on, “There’s a term in theology that’s called syncretism, which is the idea that we all worship the same God, we just see different aspects of that god. At some level, that is what we’re saying here: that in fact all of these ideologies are looking at different aspects of the same underlying truth. And Henry George said that as well. He said, if I accomplished what I sought out to, I united the truth perceived by Smith and Ricardo to the truth perceived by Proudhon and Lasalle.”