On incentives — i.e. on ownership

Dear reader,

You are reading this post at your own risk.  I hope you took a deep breath before jumping into these muddy waters and will now wade through them patiently.  Please be tolerant of my rambling, run-on sentences, and feel free to share your thoughts in the Comments section.


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Words have a sort of semantic inertia.  A word that economists brandish often in discussions about the alleged “impossibility” of socialism is incentives.  Thus, for instance, Friedrich Hayek (Individualism & Economic Order, 1948, http://bit.ly/aZ36i7, p. 135, my emphasis in Italics) says:

There is an essential distinction … between a permanent legal framework so devised as to provide all the necessary incentives to private initiative to bring about the adaptations required by any change and a system where such adaptations are brought about by central direction. It is this, and not the question of the maintenance of the existing order versus the introduction of new institutions, which is the real issue. In a sense both systems can be described as being the product of rational planning. But in the one case this planning is concerned only with the permanent framework of institutions and may be dispensed with if one is willing to accept the institutions which have grown in a slow historical process, while in the other it has to deal with day-to-day changes of every sort.

Let me unpack this quotation a bit to motivate my discussion on incentives — which is to say on onwership.

Years later, Gerard Debreu (Theory of Value, 1959, http://bit.ly/VcfbFQ) pinned down some of the conditions ensuring that “the interaction of the agents of a private ownership economy through markets” leads to the invisible-hand outcome figured by Adam Smith.  Debreu defined an economy as a finite set of (1) consumers (characterized by their preferences), (2) producers (characterized by their production possibilities), and (3) existing wealth.  He chose as his subject matter “a special class of economies … namely, the private ownership economies where consumers own the resources and control the producers” (p. 74).

Debreu did not elaborate on the conditions that make a private ownership economy jell historically.  But, in the passage above, Hayek had admitted that the interaction of individuals “through markets” and, therefore, its Pareto-efficient resultant as examined by Debreu, are necessarily premised on the existence of a legal framework purposefully “devised,” i.e. politically designed and implemented as the realization of a more or less systematic plan derived from the experience of a prolonged and “slow historical process.”  As much as Debreu’s theoretical work (abstract mathematical or “axiomatic,” to use Debreu’s own designation) departed from the preferred (discursive) approaches of the Austrian tradition represented by Hayek, this premise can be viewed an important addition to the conditions that Debreu decided to emphasize in his Theory of Value.

Obviously, that very set of essential “public goods,” which — again — Hayek refers to as the “permanent legal framework” of the private ownership economy,  does not result from some spontaneous interaction of individuals “through markets.”   If it were, social life and trade in markets would be one and the same thing.  However, that is not the case.  The legal precondition on which markets are erected, i.e. the state, is “devised” and constructed through some deliberately planned-out political process, and the nature and characteristics of that process are left unexamined by Hayek.

Hayek’s real concern appears to be to keep that political process tightly confined within some narrowly conceived legal bounds, separate and distinct from the more expansive economic realm.  Of course, the notion that the fundamental conditions that make it necessary for individuals to make day-to-day collective choices through political interactions, let alone through direct and unmediated social interactions, i.e. collective choices that are neither political (mediated by the state) nor economic (mediated by markets), may be expanding as technological change and human needs trend in a certain direction, thus making it increasingly necessary to bypass the markets and the state in the allocation of society’s productive forces, is entirely alien to Hayek and to most modern economists.

Yet, this is the process that Marx (Capital, 1867, vol. I, ch. 32, http://bit.ly/2gvmaA) and Engels (Anti-Dühring, 1877, ch. 24, http://bit.ly/PIoITY) believed to have discovered as an inexorable consequence of life under capitalism, a process they labeled as the “increasing socialization of production,” a process necessitating a greater and greater socialization of ownership.  And inexorable here does not mean automatic, predetermined, or teleological, but merely historically necessary, i.e. a historical result that, like everything else in history, can only flow from the concrete actions of concrete human individuals in concrete social conditions, actions that constitute an exercise of these individuals’ wills.

Google defines an incentive as “a thing that motivates or encourages one to do something.” Incentives are the motive forces that drive us to accomplish things.  Hayek, correctly in my view, suggests that the incentives for individuals to undertake actions are intimately related to social conditions (he calls them “institutions,” the “legal framework” alluded above, i.e. the state) that ensure that people can appropriate wealth.  Marx (Grundrisse, 1857, http://bit.ly/U1GGzn), quite adroitly, noted that (again, my emphasis):

All production is appropriation of nature on the part of an individual within and through a specific form of society. In this sense it is a tautology to say that property (appropriation) is a precondition of production. But it is altogether ridiculous to leap from that to a specific form of property, e.g. private property.  (Which further and equally presupposes an antithetical form, non-property.)

In fact, production is not only our appropriation of nature, but our appropriation of the existing world at large, both of the natural world and of the human-made one, through our association with other individuals.  In general, the drive to appropriate is the drive to produce.  And production is the transformation of the world (ultimately nature) to fit human purposes, i.e. a transformation “mediated, regulated, and controlled” (Marx again) by specifically human labor.   The private (or, perhaps, more adequately said, the exclusive) appropriation of the conditions and results of production is nothing but a particular social form in which this indispensably human appropriation of the world takes.  Here, I must resist the temptation to quote in extenso Hegel’s Philosophy of History (1837, http://bit.ly/97F6dv).  Much can be accomplished by examining the following passage (with my emphasis):

A second element must be introduced in order to produce actuality viz. actuation, realisation; and whose motive power is the Will, the activity of man in the widest sense. It is only by this activity that that Idea as well as abstract characteristics generally, are realised, actualised; for of themselves they are powerless. The motive power that puts them in operation, and gives them determinate existence, is the need, instinct, inclination, and passion of man.  That some conception of mine should be developed into act and existence, is my earnest desire: I wish to assert my personality in connection with it: I wish to be satisfied by its execution. If I am to exert myself for any object, it must in some way or other be my object. In the accomplishment of such or such designs I must at the same time find my satisfaction; although the purpose for which I exert myself includes a complication of results, many of which have no interest for me. This is the absolute right of personal existence to find itself satisfied in its activity and labour. If men are to interest themselves for anything, they must (so to speak) have part of their existence involved in it; find their individuality gratified by its attainment.

A few notes to extract and elaborate on a few insights contained in the passage:

  1. If Hegel’s Will is human activity in the widest sense, then the Will is Marx’s labor in the widest sense, which is to say the production of human history in its totality insofar as it is conscious (since non-conscious human activity is an activity that simply extends the scope of nature, i.e. activity that is not specifically human).
  2. The Idea, that in Hegel unfolds and materializes into everything that exists, is to be translated as what is historically necessary under concrete social circumstances.
  3. The terms “need,” “instinct,” “inclination,” and “passion” suggest that humans are, on this particular aspect, not freely exercising their Will, but merely following what is natural in them; actions we undertake, passions we suffer; we are masters of our actions, slaves of our passions; but here human actions are shown to be passions (!); we act but as vehicles of our passions; history is then construed as the process of humanization of our  passions; to be humans we must convert ourselves into instruments of our chosen designs; we can only produce freely insofar as we turn our most refined purposes into passions that buffet us and consume us as the rawest of our instinctive urges!
  4. Schematically said, the economists view choice as the combination of constraints (existing resources and technology, production possibility sets) and preferences, which presupposes that they are distinct elements.  Here, Hegel shows an aspect of the rich dialectics between constraints and preferences.
  5. Hegel shows that it is not only that today’s choices transfigure preexisting constraints and preferences into a new set of constraints imposed on future choices, but also that for constraints and preferences to combine at all they must be different quantities of one and the same quality, different points on the same continuum, the same content under a different form: If our most fanciful preferences are going to matter at all, if they are going to influence our choices, then they must themselves become effective constraints on our behavior, thus pushing our actions as if along rigid tracks.
  6. Here, Hegel brings to my mind Jorge Luis Borges’ masterful aphorism in “The Garden of Forking Paths”: “Whosoever would undertake some atrocious enterprise should act as if it were already accomplished, should impose upon himself a future as irrevocable as the past.”
  7. On the other hand, the most rigid preexisting constraints (pre-existing productive forces) are rendered as soft, plastic, and pliable as our most capricious dreams by human resourcefulness!
  8. If I am going to move a finger for something, insinuates Hegel, then it better be because it is my thing!  Indeed.  What moves us is what is ours, as human motion is appropriation of the world.  That, in a particular historical context (not 1941, of course, but exactly fifty years later!), the workers in the Soviet Union deemed it unworthy of their efforts to defend the Soviet state at any and all costs, was ipso facto a measure of the extent to which the Soviet state had become an entity alien to them; it wasn’t theirs!
  9. Here one finds again in Hegel the dialectics of ownership and alienation.  The existing society is characterized, insofar as we can use a single term to typify its current state, as alien to us.  The social relations that we, as individuals, create and recreate through our concrete interactions have grown apart from us, turned into alien forces that crush us.  The problem is our separation and opposition from our social products, processes, and premises; in a word, our alienation.
  10. Yet we humans are problem-solving animals.  We problematize the world.  The activity by which we transform the world (production) is guided, regulated, and controlled in a purposeful manner.  Our productive actions realize the purpose, which presupposes our engagement with the world.  We view the world as exists and immediately contrast it with the world as we need it or want it to be, our problem being that of going from the former to the latter.  And that process of production is immediately and necessarily a process of appropriation.
  11. Now, if alienation is the problem, appropriation is the solution.  The process of human history, viewed as a totality, consists of the increasingly purposeful way in which we construct our interactions and social structures.  Socialism, the movement of the direct producers of history to appropriate and refit our social structures, is conceived as making this originally spontaneous process rooted in our basic human attitude towards the world, i.e. appropriation, into a process that is more fully conscious, more rational (as opposed to merely sensory and instinctive), and hence more economical or humanly efficient.
  12. When Hegel refers to “the absolute right of human existence” (namely, to find “satisfaction” in and through one’s labor), he is talking, of course, not of rights, legal rights sanctioned by the state (to say it redundantly), but of might instead, i.e. of individual power, of individual freedom.  (All of these terms denote, ultimately, one and the same thing: the productive force of human labor.)
  13. With regards to the expression “satisfaction in labor,” the Latin word satisfacere entails an action directed to fulfilling the obligation imposed by a higher power, in this case by that part of oneself that thereby turns into a constraint one’s preference.
  14. The rest of society, and the rest of nature, are viewed here as the barriers — and, hence, as the necessary vehicles — to one’s individual power or freedom!
  15. The rights of any individual — and all rights are ultimately the rights of individuals and always rights of ownership over particular pieces of wealth — are, tacitly or overtly, granted by the rest of society.  Rights are social structures.
  16. Natural or divine rights are an absurdity, a contradiction in terms.  If God or Nature could grant rights to individuals, then it would be incumbent upon God or Nature to enforce those rights.  Rights that are not enforceable are a joke.  Enforcing rights requires the concrete deployment and use of resources, i.e. they require that society allocates a portion of the productive force of its labor to make such rights effective, e.g. to prevent or penalize theft, the breach of contracts, etc.
  17. If God or Nature granted rights along with the productive power required to make them practically viable, then there would be no meaningful distinction between right and might.  Right and might would be one and the same thing.  Saying that one has a natural or divine right to appropriate, say, a plot of land (necessarily at the exclusion of other would be owners) would simply be another way of saying that one has the power to appropriate it in spite of everything.
  18. If one argued that God or Nature intended for those rights to be enacted and enforced by humans, then those rights would thus be nothing different from any other human product.  To say that natural or divine rights are to be enforced by society, i.e. ultimately by the state, is to say in fact that God or Nature can only accomplish their designs with human assistance, that those rights are only made effective by and through human agency, which entails either the emasculation of God or the assertion that the forces of nature are effectively curtailed or at least circumvented by the productive force of labor.
  19. When society, through the state, grants rights to a particular individual, society is immediately imposing parallel obligations on all other individuals.  Your right is my obligation, and vice versa.  To the extent that all rights are, ultimately, rights of exclusive ownership assigned to particular individuals over particular pieces of wealth, society’s assignation of rights to an individual (again, through the state) is immediately the granting of financial assets to such individual and, correspondingly, the imposition of financial liabilities of equal size on others.
  20. Insofar as any legal action by the state, from the constitutional process to the most minuscule and idiosyncratic executive action, is tacitly or overtly an assignation of rights and corresponding obligations to particular individuals, all legal actions by the state (and the legal actions of private individuals should be included here as well, since they are — insofar as legal — realizations of the legal framework guaranteed by the state, so they are indirect actions by the state) create and assign financial assets to particular individuals and, correspondingly, financial liabilities to others.

More on these later points will be elaborated in an upcoming post on bonds.

I will wrap up this post by quoting David Hume (Enquiries Concerning the Human Understanding, 1748, http://bit.ly/g9uctr):

Had every man sufficient sagacity to perceive, at all times, the strong interest which binds him to the observance of justice and equity, and strength of mind sufficient to persevere in a steady adherence to a general and a distant interest, in opposition to the allurements of present pleasure and advantage; there had never, in that case, been any such thing as government or political society, but each man, following his natural liberty, had lived in entire peace and harmony with all others. What need of positive law where natural justice is, of itself, a sufficient restraint? Why create magistrates, where there never arises any disorder or iniquity? Why abridge our native freedom, when, in every instance, the utmost exertion of it is found innocent and beneficial? It is evident, that, if government were totally useless, it never could have place, and that the sole foundation of the duty of allegiance is the advantage, which it procures to society, by preserving peace and order among mankind.

Here, Hume suggests that, if humans create conditions of “justice and equity” that allow them to adhere to their “general and distant interest, in opposition to the allurements of present pleasure and advantage,” (or to the extent they do) then the state is no longer a necessity.

What in economics and in other social disciplines is characterized as “self-interested behavior,” “self-regarding behavior,” or (less generously) “selfishness” is, in fact, appropriation under the particular social conditions in which we live — i.e. our specifically human (i.e. conscious) (re)production, both as individuals and as a particular society, where appropriation is the opposite of alienation.  It is not self-interested behavior in general that is to be abolished, as that would abolish us as humans, but the particular social conditions that make our self-interested behavior exclusive of the self-interested behavior of others.  The specifically private or exclusive form of ownership over our productive wealth is not the only possible form of existence of this general human attitude toward the world.

It is our owning something that drives us to protect it and enhance it, as that thing is the necessary objective expression of our individual humanity.  It is our being alien to something or the something being alien to us that makes us ignore, neglect, or reject it.  The increasing consciousness of our human interdependence leads to a broader sense of ownership, which then becomes social or shared ownership.  Of course, the consciousness of our interdependence is a belated recognition of the interdependence itself, which results from the expansion of our productive force under the prevailing historical conditions.  In this light, the price system is about morality, reciprocity, fairness in our interactions and relations — in part, at least.  More on this later.

I should leave it at that.


  1. Julio, I think you are on the right track. I personally prefer the insight that throughout history human social relations have always been structured by two main social principles: competition and cooperation. I think Samuel Bowles acknowledged this.

    The point then is that competition and cooperation have many different modalities, parameters and gradations – we should to begin with distinguishing between voluntary cooperation and competition, and cooperation and competition forced by circumstance or the threat of sanctions. The analytical difficulty is that cooperation and competition are constantly being combined in human social relations – people must often compete and cooperate at the same time, and not infrequently in the same actions.

    The fundamental meaning of alienation is that people become estranged from their own life-activity, they can no longer recognize their own nature fully in what they do. The exact reasons why people become alienated or feel alienated are historically variable, of course. All kinds of facets of the social structure and the social fabric can be implicated. But what is neglected in Marxism is that alienation is never total. Alienation is always combined with the struggle to resist and overcome alienation, in the process of which people assert their real nature. People are constantly being entrapped in alienated practices but they just as constantly try to overcome them.

    I am sure that game theory can shed some light on how all this plays out, but game theory is often too simplistic insofar as it neglects how people subjectively experience their social interactions, in other words, the meaning which they attach to their interactions. Discrepancies are always possible between how people perceive their interests, and what those interests really are, from some point of view or objectively. So imputing interests to people on the stage of history may not do full justice to how the interests involved are actually understood and acted upon.

    I am not really sure that Hegel’s narrative can shed all that much light on this whole problematic, since Hegel’s philosophy – as Marx points out many times – was itself the product of a specific historical conjuncture. Moreover, it is a closed system which, by encompassing everything, bmay end up explaining nothing. I suppose the attraction of Hegel’s philosophy is that he finds a category for almost every form of human practice and human thought, and combines all the categories in a grandiose system of thought. But this says nothing yet about the validity of the categories and the way in which they are combined. Personally, I prefer “the historical materialism of real history”, which bases itself solidly on the findings of the modern sciences, rather than on a fairly speculative philosophy. The odd thing is that Marxists, obsessed with theoretical orthodoxies, often do not allow for the development of historical materialism in the light of the modern findings about the course of human history. It leads to a dogmatism which I think cannot provide an adequate orientation for action directed to the future.

  2. I could add that a big problem with Marxism is that Marx never accomplished what Hegel did, i.e. to provide a total, integrated theory of society. When Marx abstracted the tendencies of historical development from a mass of historical facts, he created a picture of the essence of the capitalist mode of production, a picture of how Capital begins to dominate the whole production and reproduction process of society. In all modesty, he called it my sketch of the development of capitalism in Western Europe.” But that was nowhere near to a picture of bourgeois society as a whole, and it was indeed an unfinished picture. Marxists subsequently have tried to create a “total theory” of society and history, but that undertaking, which culminated in the cosmology of dialectical materialism, failed even if it provided many new insights. There has been a persistent failure to integrate the theory convincingly with real history. At the end of the day, we are left with the question: if Marxism is the answer, what is the question? And what the answer to that is, is often no longer clear. It would therefore be appropriate to start off not with the answers, but with the questions themselves, and why they are important questions to ask. In what you write, it is often not easy to separate out what the questions are and what the answers are. It would be better if your narrative started out with a consideration of the questions that you think ought to be tackled, and why those questions are important to ask. Typically, when social movements arise in response to specific problems, they throw up many new questions, for which they seek to elaborate answers. But the world changes, and then the answers are, in the course of time, increasingly reduced to rhetorics. A language or a discourse is created, but gradually the language fails to address what is new in the situation coming into being. Eventually, the changes in the real world shatter the old languages, and then, indeed, we may be left only with “words”. The only way out of this pedicament, I submit, is to make a conscientious study of the facts such as they are now, not by dropping the old theories completely, but by assessing what their relevance might still be.

  3. A minor typo fyi: “Let me unpack this quotation a bit to motivate my discussion on incentives — which is to say on onwership.”

    IMO, the alienation, which we producers feel, and to some extent consciously grasp, about the collective product of our labour, is rooted in the wage system. This was true in the USSR way before 1989 see the view from the top in for example: http://www.marxists.org/reference/archive/stalin/works/1951/economic-problems/index.htm

    As you quote Hegel, ” If men are to interest themselves for anything, they must (so to speak) have part of their existence involved in it; find their individuality gratified by its attainment.” The key to unlock engagement with the socialist project is to connect the producers with the not only the creation, but also the control of the product of their labour. Of course, alienation of control and ownership of the product of labour is a given under the wage system. For as Hume implies in the quote you use, class society is premised on the lion’s share of the wealth the producers create going to the owning class, who appropriate their share through the wage system, iow, the promotion of alienation on a material and individual level:

    “It is evident, that, if government were totally useless, it never could have place, and that the sole foundation of the duty of allegiance is the advantage, which it procures to society, by preserving peace and order among mankind.”

    So, the political State is necessary in order to keep the Morlocks from devouring the Eloi–even where the use of ‘material’ vs. ‘moral’ incentives is being debated.

    Stimulating observations, Julio. I just signed up to ‘follow’ your blog.

  4. Mike,

    Re. this: “The key to unlock engagement with the socialist project is to connect the producers with the not only the creation, but also the control of the product of their labour”.

    Socialists can help the producers connect themselves with their products, exercise control over them. But that help has a limited impact. I believe that the historical experience of socialism is very humbling on this regard. Ultimately, it is incumbent on the producers themselves, especially those at the very bottom of the hierarchical division of labor” to raise up, self organize, self educate, and flatten the division of labor themselves.

    Nobody is going to connect the producers with their products other than the producers themselves. The role of the educator is ancillary to the main task — learning.

    I think.

    More in a note on Aristotle that will be posted at some point, soon I hope.

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