Patent Trolling: Just Another Form of Capitalism

The dawn of the information age has ushered in a new form of value in intellectual property. Patents are based upon the innovative character of new kinds of tools, business models and processes with economic value. And like all economic functions, the patent occurs in, and helps to propagate, a specific social relationship of value.

Enter the "patent troll:" an irreverent term referring to those who deal in the purchase and defense of patent rights. Patent trolls purchase troves of patents, then litigate to turn a profit on their purchase. Sometimes, the patent merchants get a cut of the proceeds from litigation executed by their customers. All this is justified as defense of intellectual property and encouragement of innovation. But this is actually a simple form of capitalism.

Profit or Society?

I want to talk about the profit motive, because despite being the cornerstone of capitalism it is highly misunderstood. All sorts of proclamations about the profit motive's success as a social and economic model are published in the media daily. Other causes for social and economic conditions are often avoided, and where profit has a clear negative bias, it is generally de-emphasized.

The profit motive is a simple form of the incentive model. Incentives are conditions in a system which reward or punish different kinds of behavior. Profits refer to one subset of incentives: those which resolve in positive or negative changes to net worth. Needless to say, human incentives are more complicated than this, and strictly for-profit business models still need to account for more different changes which may not be clearly linked to positive or negative account balances. But the capitalist system tends toward this model of profit, and incentives processes are typically explained in this way as well.

The Job Creator's Tragedy

It's tough being a job creator these days. High taxes make it virtually impossible to hire more workers and an atmosphere of uncertainty is discouraging more investment in capital. Nobody would propose raising taxes on job creators under these conditions, right?

George Washington oversees the "car in the ditch" economy on Wall St / September 16th, 1920

That's the setting for the latest tragedy, that is. The job creator, ever heroic and noble, is accosted at all sides in his attempt to get the economy back on track. He confronts the Hydra of government and the armies of ignorance in his uncompromising quest to get the economy back on track. And this truly is a tragedy - our hero could perhaps be known as Supervacuo, and his tragic weakness - the fact that the job creator has absolutely no interest in creating jobs.

Alex Tabarrok Doesn't Get It: Why Civil Society is a Victim of Capitalism and Statism

Why don't Americans think that they use government services?

In citing Yglesias, Bartlett and Rampell, Alex Tabarrok attempts a moralization about coercion - without seeing that his attack on the government is no different than an attack on capitalism. See the following:

"What Rampell et al. implicitly imagine is that the natural state is slavery and any departure from that state a government benefit. Thus, if the government taxes your saving for a college education less than your other savings, you should be grateful for how government has benefited you and your children.
And if the government doesn’t jail you today, you should be grateful for how government has granted you the benefit of liberty.
This is the attitude of a serf not an American."

Some of these are forgivable - I enjoy the Home Mortgage Interest Deduction, for instance, but I don't think of it as a social program, or rather, I wouldn't have thought to include that if I were asked the question. But by the time you get to Social Security, Unemployment and Medicare, it is shocking that people don't consider them government programs. At face value, one can only speculate that the preeminent narrative - that Tabarrok reinforces here - is successful in claiming that the market can solve problems where the state has been the only actor - since its usually unprofitable to provide services to those who cannot pay out of pocket for them. Implicitly, Tabarrok is creating a distinction between government and market forces - the latter as civil society - in an attempt to make the ignorance of government-mediation (and I use this term purely for his own benefit) of economic functions a "virtue" of our "lack of deference" to the government. But capitalism is just as prevalent in these structures, perhaps just as misrepresented, and certainly worse for civil society in creating disproportionate power relations.

Measuring Marxism: The Centralization Myth

This post is part of a series attempting to quantify Marx's theory of Socialism.

Marxism is largely a method of accounting and interpreting the mechanisms of economic power. While political power is understood to play a role, it is largely considered subservient to the role of economic motion. In times of stagnation, wherein technological changes often do not correspond with expanding markets and economic power is uniquely centralized, contemporary nodes of power are entrenched, and their social relations tend to become apparent. In such times, the condition of civil society becomes increasingly apparent, with all its nuances and relations to these power structures. Gramsci notes of this phenomenon:

"when the state trembled, a sturdy structure of civil society was at once revealed. ... Hegel's conception belongs to a period in which the spreading development of the bourgeoisie could seem limitless, so that its ethicity of universality could be asserted: all mankind will be bourgeois. But, in reality, only the social group that poses the end of  the State and its own end as the target to be achieved can create an ethical state - i.e. one which tends to put an end to the internal divisions of the ruled, etc., and to create a technically and morally unitary social organism."¹

Measuring Marxism: Where Did We Go Wrong?

 In my previous series, I assessed one aspect of the moral vision in Marxism - its relationship to individualism. This time around I want to confront the so-called "failure" of Marxism, and how can we measure his vision of socialism. This post is part of a series attempting to quantify Marx's theory of socialism.

Comprehensive privatization in China. The bureaucratization that plagued the Soviet Union. Repressive policies in nearly all 'socialist' states. The dilution of democratic apparatuses in the same. The data seem conclusive: Marxism has failed. Either that, or our measurements are off.

In fact, these failures reveal a number of conditions which do more to support Marxism than anything else. The accurate measurement of the Marxist framework has very little to do with the propaganda efforts of the NATO / Soviet blocs, which often invoke the imagery of workers' power for their own political gain.

Furthermore, it is the self-proclaimed anti-communists themselves who long ago quantified the very measurements which prove just how right Marx was.

Nothing is as Sure as U.S. Debt Payments

For all the hype about fiscal deficits, the numbers don't add up to any significant threat to the U.S. economy: The U.S. is highly unlikely to default on its debts, and debts are mostly held by private and public U.S. firms and individuals.

As Ludwig von Mises famously argued, if you print money (or create loans) you'll get inflation, and whoever gets the money first benefits from it most. But whom does inflation hurt? In a global economy, it is the relative debt/capital holdings that matter. These are called "net account balance" and "capital account balance." The U.S. far supersedes other nations in terms of net debt and net capital. What will expanded government purchases do to this dynamic? It depends on where those purchases go. If we look at the current data from the U.S. Treasury, we see that U.S. debt goes primarily to U.S. interests: 70.7 percent of U.S. debt is owed to U.S. firms or individuals.

If we decide to take Rep. Paul Ryan's advice, we will be reducing government purchases that expand net capital in the U.S. and net debt to entities in the U.S. If we follow these plans, the U.S.'s place in the global economy will contract: Capital will leave the nation.

In a nation with fiat currency, the government can simply create money. The trend in government borrowing is a testament to this fact; as Binyamin Appelbaum noted on "NewsHour": "Nothing is as sure in financial markets than that the United States government will repay its debts. And so the government gets the cheapest rates available."

(Originally at Richmond Times Dispatch: Letters to the Editor: Dean Sayers: Nothing is as Sure as U.S. Dept Payments)

Capital Volume 1 Chapter 1 Notes

This is part 1 of a series in which I'll be summarizing the framework of Marx's Capital, Volume 1. For this series I am using the translation by Ben Fowkes, © 1990 & published by Penguin Classics.

All numbered and lettered lists are as they appear in the literature; further organization is my own doing. Occasionally, notes appear outside of the section they are sourced from in the book. This was done to improve the organization and flow of the notes.

I. The Two Factors of the Commodity: Use Value and Value (Substance of value; Magnitude of Value)

-There are two kinds of value applicable to commodities:

Use-value (substance: subjectively represents usability to consumer, represents wealth)

Depository for exchange value

Exchange Value (magnitude: realized by way of market exchange)

Since magnitude of value is our subject, ‘value’ and ‘magnitude of value’ are often used interchangeably.

-…and two creative factors for value:

Labor Value (prerequisite, subsumed into commodity, creates commodity value)
A value or quantity of labor is the common denominator among commodities
Resources (See Section II)

Economic Liberals Admit it: Capitalists Own Us

"Don't tax the rich, as they create jobs," so the mantra goes. However, this line of thinking betrays the underlying structure of production: namely, that the capitalist class has executive control over the means of production - control which is a concern of public policy, as Cato and the Heritage Foundation admit by requesting policy that regards its standing. Despite that fact, policy proposals argue for diminished public input. Indeed, history shows us that such control has always underlined this graft:^1,2,3,4

• Today, the Capitalist creates jobs by allowing the working class to use the means of production and sell their labor to him.
• Before that, the Lord created jobs by allowing the working class to use the means of production and give part of their labor to him.
• Before that, the Slaver created jobs by having the working class use the means of production and he (and it was always a man - patriarchy and all that) provided basic subsistence to them.

It has always been the narrow control over the means of production that allowed the interests of a group of oligarchs to consistently stand as a barrier to the production process. Interestingly, when these power structures shifted, it was always by diminishing the returns that older systems could replicate. The oft-revered Mises agrees: it is by diminishing the surplus value on capital investment that the same is disincentivized.² Is calling for safer structures for capitalism simply another incarnation of the tactical perpetuation of power? And does this activity fit the theoretical model of consumer-driven capitalism?

Astroturfing Bankers in the Age of Jackson

In the early 1800s, the US banking system was dominated by a unique blend of proprietary bank notes held by wealthy merchants and a working class mostly limited to foreign currencies (when they were lucky enough to earn real money at all). New England merchants, ever reliant on European trade, had developed or maintained extensive connections to prominent European trading partners. The capital to valorize these products, coupled with the unique trading opportunities that a continent of untapped resources offered, were fertile ground for a rising class of bourgeois. A shipbuilding/fishing economy had given way to an international-mercantilist model, and the monetary supply could hardly keep up with growth.

As this rapid accumulation of capital progressed, a clear winner was bound to emerge - and the US Government wasn’t playing around: they were going to enthrone the financiers to their own ends. Remember, in those days money wasn’t quite as easy as it was now – loans were in the form of promissory notes or proprietary bank notes: unlike fractional reserve banking, there was little liquidity in loaned value. This was such a problem that it would cause a run on debt in 1937. For the better part of the century, the country was set to witness profound clashes between nearly monolithic financial interests - interests, it turns out, that would manipulate popular movements to push their own financial agenda, all in the name of the "free market."¹

Thomas Jefferson: Marxist

"I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property, only taking care to let their subdivisions go hand in hand with the natural affections of the human mind. The descent of property of every kind therefore to all the children, or to all the brothers and sisters, or other relations in equal degree is a politic measure, and a practicable one. Another means of silently lessening the inequality of property is to exempt all from taxation below a certain point, and to tax the higher portions of property in geometrical progression as they rise. Whenever there is in any country, uncultivated lands and unemployed poor, it is clear that the laws of property have been so far extended as to violate natural right. The earth is given as a common stock for man to labour and live on. If, for the encouragement of industry we allow it to be appropriated, we must take care that other employment be furnished to those excluded from the appropriation. If we do not the fundamental right to labour the earth returns to the unemployed." Thomas Jefferson - Letter to James Madison (Oct. 28, 1785) / My Emphasis / HT:ExiledOnline.com

 Some highlights:

• Cites the disproportionate dispensation of property as the cause of misery
• Government would do well to increasingly "subdivide property" or break up this accumulation of property
• Supports progressive taxation
• Property rights "violate natural right" when it acts as a barrier between the working class and resources (a.k.a. capital)
• Earth is "common stock"
• Labor is a fundamental right

Data on how Tax Day Loans Hurt the Poor

• A typical tax refund loan carries an APR rate of 149
• 7.2 million taxpayers used them in 2009, costing 606 million in fees, 58 million in additional charges
• 64% of those who took these loans out were eligible for the Earned Income Tax Credit, a credit for low wage-earners
• Their primary market, according to John Hewitt, CEO of Liberty Tax Service, is the 17 million Americans who do not have their money in 'traditional' banks
• "Taxpayers living in extremely low-income communities are 560% more likely to use these loans"
• Banks like Wells Fargo are closing traditional banks in these communities while they invest in predatory loan firms

  Statistics taken from Tax Day Temptation Full of Tricks and Traps by Bryce Covert New Deal 2.0

The Wage Rate and Globalization

VoxEU on the Euro and competition for capital:

"This analysis leads to the conclusion that if the underlying problem of Europe’s periphery were lack of competitiveness, it should relate to the types of products they export (vis-à-vis Germany) and not to the fact that their labour is expensive (their wage rates are substantially lower), or that labour productivity has not increased (it has significantly). The problem is that they are stuck in the manufacturing goods also produced by many other countries, especially the low-wage countries. Reducing wages would not solve the problem. What would an across-the-board reduction in nominal wages of 20%–30% achieve? The most obvious effect would be a very significant compression of demand. But would this measure restore competitiveness? We argue that it would not allow many firms to compete with German firms, which export a different basket, and in all likelihood it will not be enough to be able to compete with China’s wages." -VoxEU

This is more confirmation of the point that competition for capital along varying economies transfers market shares to economies which demand less labor compensation. This same process depresses the average for this and other standards across the board.

HT: Yves Smith at Naked Capitalism

Obama's Graft and the Woeful State of Consumer Arbitration

I've occasionally cited industrial investment in party politics as the primary motivator in party competition (a point I've largely refined from my reading of Thomas Ferguson: Golden Rule: The Investment Theory of Party Competition...). Yves Smith agrees - its donations that manage the presidential policy positions:

"Obama needs to raise an estimated $1 billion to win the 2012 election. He’s moved further and further to the right over the course of his Presidency. Why is he going to change gears and alienate one of his biggest donor groups by appointing Warren?"

Also, Yves points out to these startling statistics on the bias of consumer arbitration:

"An example we cited a few days ago, that of the settlement reached between the Minnesota attorney general and the National Arbitration Forum, illustrates this point. The [NAF] was so successful in stacking the deck on mandatory arbitrations in favor of its clients, big busineses, via the roster of arbitrators it chose that consumers won in only 4% of the cases." Yves Smith: Why Liberals Are Lame (Part 2)

Krugman on the Failure of Austerity

Krugman points out that austerity measures have reduced employment(HT:Brad Delong):

"Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

"What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong."

Marx, wrong on one count

One of the preeminent aspects of Marxism is the conflict between the capitalist, who owns the means of production, and the producer, who is represented by the working class that executes the labor required to bring the commodity-value to the table. It is precisely this conflict of interests, the competition for the value this operation provides, that leads to working-class upheavals across the globe.


Marx noted the upheavals in his day, and suspected that a new class would soon rule over the means of production once these conflicts were resolved. In terms of the shifting of value to the hands of the working class, this indeed occurred across the globe during the innovation and industrialization of many of the high-infrastructure  societies of today - a feat that the expanded employment of labor helped accomplish. This expansion of employment has helped (or is helping) create an high rate of value-exchange: when high-consumption wages (lower class wages go primarily to consumption) are a large percent of income and total value('currency'), a greater sum of money returns to the consumer to augment aggregate demand.

Libyan Oil and Consumer Demand

Auerback makes a few critical points in his recent article,The Economic Policy Behind Intervention in Libya Chases Its Own Tail (HT: Naked Capitalism). Forgive the banal usage of "we" to associate oneself with the ruling clique, and we have a viable polemic against US fiscal and foreign policy:

"We seem to have developed a very basic rule of thumb when it comes to these wars of choice: if an insurgency threatens oil supplies directly or indirectly, we move. If it doesn’t, we don’t. Hence Syria can kill thousands of insurgents (as they did in the early 1980s) and we do nothing. Yemen doesn’t have oil facilities; so we do nothing. In Bahrain we have a huge base and unrest has repercussions for the Shiite part of Saudi Arabia where the oil is. We move via the Saudis. In Libya there is oil. Again, we moved.

India, Liberalization and Real Wages

VoxEU has a report arguing that liberalization has increased the productivity of industries in India:

• First, from 1985 to 1990, average productivity rose by over 8%, while the reallocation component actually fell by more than 6%, indicating that more productive firms lost market share to less productive firms.

Why Marx Was Right - and Terry Eagleton was wrong

 Update: It turns out my criticism of Eagleton was too rash - read Joseph Rebello for a vindication of Eagleton's quotes - with the context this time.

Marginal Revolution has a blurb criticizing Eagleton, and his new book, Why Marx Was Right. Cowen quotes a few unfortunate quotes, without condescending to analyze them (that's left to the reader, of course). But the quotes are wrong in their own right, and merely vindicate Marx, if not Eagleton:

"But the so-called socialist system had its achievements, too.  China and the Soviet Union dragged their citizens out of economic backwardness into the modern industrial world, at however horrific a human cost; and the cost was so steep partly because of the hostility of the capitalist West."

...

"Revolution is generally thought to be the opposite of democracy, as the work of sinister underground minorities out to subvert the will of the majority.  In fact, as a process by which men and women assume power over their own existence through popular councils and assemblies, it is a great deal more democratic than anything on offer at the moment.  The Bolsheviks had an impressive record of open controversy within their ranks, and the idea that they should rule the country as the only political party was no part of their original programme."

Perhaps better context may help Eagleton, but its deplorable inaccuracy stands on its own right.