The economics of exploitation

[mgmcintyre]

this is a sideline post to ‘The failure of Anarcho-Capitalism.’ As that post has gone off in many different directions, I would like to talk specifically about only on thing here. a few of you have already commented directly on this and i have read those posts but feel free to re-post them here for clarification.

Please give a direct, concise, analyses of the following statement: One post, your best counter-argument, no responses -mgmcintyre

“There is no reason to engage in the ‘voluntary exchange of defensive services’ with those whom you can physically dominate. Potential customers must necessarily pay less than they stand to loose to exploiters. Therefore, potential defenders must necessarily be able to profit more by exploiting those in need of defense.”

Thanks in advance …

[Snowflake]

@mgmcintyre

Potential customers must necessarily pay less than they stand to loose to exploiters.

okay

@mgmcintyre

Therefore, potential defenders must necessarily be able to profit more by exploiting those in need of defense."

This assumes they can corner the market. We repeatedly state there is a demand for protection, not exploitation. So that out of the many firms I could choose to patronize, I will choose the one who offers me the best deal. Once they have this contract, if they try to break it and take my stuff, they might be able to get away with it but their reputation on the market will suffer, and they will have no more clients, going broke.

But this would all be pre-empted anyway, because people don’t agree to unenforceable contracts. No predatory PDA could ever get funding from consumers in the face of defensive PDAs. Defensive PDAs will have the best long term profits because they are not constantly engaged in fighting other PDAs.

See internet example. Utter failure to rebut this.

[Nonfederal_Nonreserv]

What happens when one defender faces multiple independent aggressors, each demanding all of the defender’s property?

[Snowflake]

Defense against gangs? A gang can always win. But you can make it a pyrrhic victory. Gang suffers negative profit by attacking you.

[Nonfederal_Nonreserv]

What about competing aggressors? There may be more profit in helping the defender.

[Autolykos]

Your argument implies both Hobbesianism and so-called “Social Darwinism” – a war of all against all, where the strong dominate the weak. It completely discounts the significant real-world effect of moral and ethical beliefs on human behavior. Furthermore, there seems to be an instinctive, evolutionary basis for people’s conscious moral and ethical beliefs. The vast majority of people do not kill, rape, steal, etc. because there’s some group of people with a monopoly over the use of violence; no such monopoly exists. Instead, they do not kill, rape, steal, etc. because they typically believe those actions to be morally wrong.

Were all people willing and trying to dominate others at all times, they would only submit temporarily at best; they would counter-attack at the earliest possible opportunity when they felt they had the upper hand. There is no absolute measure of “strength” – it’s highly context-dependent. Bigger, stronger people can be defeated by smaller, weaker people through sheer cunning. So who’s truly “stronger”?

Finally, I’d like to add that I will post in this thread as many times as I wish. I will not abide by any arbitrary limitations that you attempt to put forth. Hence this post is only my opening salvo in this thread.

[Consultant]

You don’t take into account the following:

• Aggressors face risks and make time and money investments to rob you, lowering the profit below the “revenue” they steal from you

• Agressors have alternative career options without those risks. For example, they could become defenders.

• Some level of crime is always acceptable, as the price would be infinite for total protection. The price of human life is a finite number, determined by the market (you yourself can pay more or less as you wish). Human action would be impossible when we value human life as infinitely valuable.

[Caley_McKibbin]

It’s called comparative advantage.

[Student]

Personally, I don’t buy any of the responses to to mgmcintyre’s statement offered thus far. I think the two best arguments were made by Sieben and Consultant, but they still didn’t win me over. Let me see if I can explain one at a time. First…

“This assumes they can corner the market. We repeatedly state there is a demand for protection, not exploitation. So that out of the many firms I could choose to patronize, I will choose the one who offers me the best deal. Once they have this contract, if they try to break it and take my stuff, they might be able to get away with it but their reputation on the market will suffer, and they will have no more clients, going broke.” - Sieben

The thing I don’t like about this argument is that there are a lot of unstated assumptions at play here. For one, Sieben seems to assume that there will naturally be a lot of firms on the defense market. But is that true? Suppose the cost of defense falls as you increase your customer base in a certain geographic area (say that it is cheaper on a per person basis to protect 1,000 people than it is to protect 1 person). This would give “large” firms a significant cost advantage. Maybe so much of an advantage that only a handful of firms would operate in this “market” and new firms would find it difficult to enter.

If that is the case, it isn’t obvious to me that competition will eliminate “exploitation”. Imagine you’re living in Iowa and the goverment of the USA was essentially a big defense company. But the company has treated you wrong for long enough and you want to “switch” defense companies. Could you do that without moving? I doubt it. And even if you did move to some other geographic area with another defense company, are you sure competition would ensure that the other defense company was better? Hey, you basically have your pick of moving to a few hundred countries now. How has voting with your feet turned out so far??

I have other complaints with Sieben’s argument (robbing from your customers may ruin your reputation, but what about robbing from other people’s customers), but I want to move on and address Consultant’s comments too.

"You don’t take into account the following:

#1 Aggressors face risks and make time and money investments to rob you, lowering the profit below the “revenue” they steal from you

#2 Agressors have alternative career options without those risks. For example, they could become defenders.

#3 Some level of crime is always acceptable, as the price would be infinite for total protection".- Consultant

She makes an excellent point in #1. It is true that in attacking you, the aggressors take on a variety of risks and costs which lowers the net benefit of the theft. So when hiring a defender, you don’t need to hire one that can dominate you, you only need to hire one that will raise the cost of stealing from you to the point that it is no longer profitable for aggressors to try. BUT I think mgmcintyre’s point still stands that if you there is no reason to trade with a defense company that can physically dominate you. And if there are indeed economies of scale in defense provision, then I think it is pretty likely that you would only be dealing with defense companies that could dominate you. So that is bad news all around!

Over all, I am still strongly inclined to agree with mgmcintyre. At least, I don’t think think his initial statement has been proven false yet.

[Autolykos]

Student, how do you (personally) define “physical domination”? How possible is it, really?

Furthermore, what problems do you see with my earlier post in this thread?

(Oops, I’ve posted twice now – so much for trying to impose your own limitations, mgmcintyre!)

[DrSammyD]

I’ve created a PDA. I have X amount of employees. x is the average extra amount I have to pay my employees to take on the risk of being outlawed by the current customary legal system. I can exploit Y amount of people, or I can defend Z amount of people. Y people make Y’ amount of money. Z people make Z’ income. Y people will resist at y average cost to being exploited. Z people won’t resist because it’s voluntary. F is the number of firms who have made the calculation that exploitation is more profitable than defense. F firms will challenge in order to exploit the same people at f average cost. D is the number of other firms who have made the calculation that defense is more profitable than exploitation. D firms will challenge exploiters at d average cost. Z people will pay z’ percentage of income for defense. I will be able to take y’ percentage of income from Y.

Each firm is in this same position and before it decides to defend or exploit has to determine which of the following formulas is greater.

Y’y’-Yy-Ff-Dd-X*x or Z’z’-Ff

There are a few things that we know about the formulas

1. Z’ will be greater than Y’ because it requires fewer resources to defend than to exploit

2. y’ will be greater than z’ for the reasons posted in the OP

3. As D increases, fewer firms will evaluate the first formula is greater than the latter

4. As F increases, both formulas will evaluate lower, and so it will be a wash.

5. If the difference between Z and Y is not greater than the difference between z’ and y’, and y and x are not big enough to make firms calculate that the latter formula is greater than the former, there exists a threshold of D which in reality makes the latter formula greater than the former

6. Every time a firm calculates the latter formula is greater than the former, that increases D, causing more of effect 3 to occur.

Actual calculation of these formulas would require market research which I do not have, but what I do have are two formulas where it has yet to be shown in all cases that the former will be greater than the latter. Intuition tells me that because the former formula has so much going against it, that the latter formula can succeed in evaluating to a higher value, creating a positive feedback loop, making the system stable against internal exploitation and thus against creation of a state/society based on an exploitive tragedy of the commons.

[ClaytonB]

The root problem is not the monopolization of security, it is the monopolization of law. More specifically, it is the widespread acceptance that there should be a dual-law/dual-morality whereby the many are prohibited from performing actions reserved to the few or, conversely, that the many are to be compelled to perform actions on behalf of the few.

Under unitary morality/law, systematic exploitation would be impossible. A profit could always be earned by breaking people out of protection rackets.

Clayton -

[Snowflake]

@Student

For one, Sieben seems to assume that there will naturally be a lot of firms on the defense market. But is that true? Suppose the cost of defense falls as you increase your customer base in a certain geographic area (say that it is cheaper on a per person basis to protect 1,000 people than it is to protect 1 person). This would give “large” firms a significant cost advantage. Maybe so much of an advantage that only a handful of firms would operate in this “market” and new firms would find it difficult to enter.

It doesn’t matter if there is only one firm. So long as there is free entry into the market there will be a force of competition.

Even in the face of ultra aggressive PDAs dominating the market, new firms could enter much the same way we imagine firms entering the current (very violent) drug market - come in with an ultra no-nonsense business model based on serving the consumer.

@Student

If that is the case, it isn’t obvious to me that competition will eliminate “exploitation”. Imagine you’re living in Iowa and the goverment of the USA was essentially a big defense company. But the company has treated you wrong for long enough and you want to “switch” defense companies. Could you do that without moving? I doubt it. And even if you did move to some other geographic area with another defense company, are you sure competition would ensure that the other defense company was better? Hey, you basically have your pick of moving to a few hundred countries now. How has voting with your feet turned out so far??

The idea is that you can have many PDAs in one jurisdiction. Everyone technically has the option to purchase their own defense, but I’m sure you agree that it would be more efficient to provide defense for groups. So patrons of defense are probably going to be apartment complexes, neighborhood associations, and insurance companies. I don’t think this poses very much of a problem though, since the fundamentals remain the same.

In this sense, you have to “vote with your feet” if you live in one of these places, but there is still free entry into the market of defense provision, as well as the ability to homestead unappropriated land. Additionally, the competition between these organizations that causes them to provide good service when it comes to housing amenities extends to provision of security.

@Student

I have other complaints with Sieben’s argument (robbing from your customers may ruin your reputation, but what about robbing from other people’s customers), but I want to move on and address Consultant’s comments too.

Other people’s customers should probably get a PDA to fight back… fighting is expensive so this all gets pre-empted.

[Student]

It doesn’t matter if there is only one firm. So long as there is free entry into the market there will be a force of competition.

As I mentioned, Increasing returns pose a barrier to entry for new firms. This is because they will have be operating at a higher cost than incumbant firms and therefore have a harder time competing with them on price. The severity of this barrier will depend on the extent of the economies to scale.

The idea is that you can have many PDAs in one jurisdiction. Everyone technically has the option to purchase their own defense, but I’m sure you agree that it would be more efficient to provide defense for groups. So patrons of defense are probably going to be apartment complexes, neighborhood associations, and insurance companies. I don’t think this poses very much of a problem though, since the fundamentals remain the same.

You seem to be operating under the unstated assumption that economies of scale in defense provision do not extend very far. For example, you defend a 100 or so people (like in a neighborhood) then per unit costs start to rise again). If that assumption doesn’t hold, and economies of scale extend further, then it would be more difficult to have multiple PDAs in smaller “jurisfiction” (geographic areas the size of cities say).

Other people’s customers should probably get a PDA to fight back… fighting is expensive so this all gets pre-empted.

Wow. Fighting is “expensive” therefore it never happens? I guess thats why we never hear of gang wars or mob battles. You should see that it all depends on the strength of the PDAs. If my PDA is significantly stronger than yours, maybe I can defeat your PDA cheaply enough that fighting with you and stealing from your customers is still worth while.

PS* To whoever asked, I am assuming that “defender dominates you” means they are “strong enough” to take what you are trying to protect at a net benefit (so the cost of fighting you for what you are trying to protect is not so high that it would prevent him from taking it from you).

[Snowflake]

@Student

As I mentioned, Increasing returns pose a barrier to entry for new firms. This is because they will have be operating at a higher cost than incumbant firms and therefore have a harder time competing with them on price. The severity of this barrier will depend on the extent of the economies to scale.

Even with nonstop economies of scale, there can still be competition among providers. Even if only one firm supplies the service, many firms can bid for the right to do so.

And the economy of scale cannot be exploited at higher prices than the next best option, which is multiple firms in the market. So there is a natural limit to “how bad” a natural monopoly can be even without direct competition.

@Student

You seem to be operating under the unstated assumption that economies of scale in defense provision do not extend very far. For example, you defend a 100 or so people (like in a neighborhood) then per unit costs start to rise again). If that assumption doesn’t hold, and economies of scale extend further, then it would be more difficult to have multiple PDAs in smaller “jurisfiction” (geographic areas the size of cities say).

Right so its up to the market to decide what the relevant units are. I think we’re used to thinking about things on the neighborhood level, and that could be correct, but in an ancap society things might be organized on much larger scales. My apartment complex could have a parent company who builds a bunch of apartment complexes all near eachother so they can have cheaper security. So its up to the market to decide. But, as stated above, it doesn’t matter how good the economy of scale is. We’d prefer it if many firms could enter the market at once, but even if this cannot be the case, anarcho capitalism still does the best job of controlling the situation.

@Student

Wow. Fighting is “expensive” therefore it never happens? I guess thats why we never hear of gang wars or mob battles. You should see that it all depends on the strength of the PDAs. If my PDA is significantly stronger than yours, maybe I can defeat your PDA cheaply enough that fighting with you and stealing from your customers is still worth while.

Gang wars and mob battles are fought for many stupid reasons. The most important of which is that an entrepreneur can’t enter the market, buy up all the gangs (so they stop shooting eachother) and run a more efficient business.

[Autolykos]

@Student

PS* To whoever asked, I am assuming that “defender dominates you” means they are “strong enough” to take what you are trying to protect at a net benefit (so the cost of fighting you for what you are trying to protect is not so high that it would prevent him from taking it from you).

I’m sure you know it was I who asked. So I can only conclude that you’re being deliberately snide and condescending by refusing to address me by name. Am I supposed to feel ashamed somehow for asking you what you mean by “dominate” and “strong enough”? Oh, sorry, but I don’t.

Moving on…

Do you mean “net benefit” as perceived by the “dominator”? Couldn’t the “dominatee” be then motivated to at least attempt to raise the “dominator’s” perceived cost of taking what he wants?

[Student]

Sieben, I don’t think you understand what the implications of economies of scale, if you are comparing this to bidding for a market-size contract.

The wikipedia article would probably help:

http://en.wikipedia.org/wiki/Economies_of_scale

And if you think gang wars are fought because other gangs create barriers to entry, I am not sure why you wouldn’t think the same thing would happen with PDAs (certainly they can kill their competition as well).

I think I might sit this out for a bit and see if consultant or mgm have any comments.

[Student]

I’m sure you know it was I who asked. So I can only conclude that you’re being deliberately snide and condescending by refusing to address me by name. Am I supposed to feel ashamed somehow for asking you what you mean by “dominate” and “strong enough”? Oh, sorry, but I don’t.

Moving on…

Do you mean “net benefit” as perceived by the “dominator”? Couldn’t the “dominatee” be then motivated to at least attempt to raise the “dominator’s” perceived cost of taking what he wants?

Sorry for the confusion. I wasnt trying to be snide. I really couldn’t remember and I didn’t want to scroll back. No offense intended.

You’re right they could, but we are already supposing that there is an aggressor trying to steal your goods and that you are trying to hire a defender to defend those goods. Now we could introduce a second problem of trying to decide how to defend against rogue defenders, but then we could just as easily add more layers (how do you defend against rogue defenders of rogue defenders and so on).

For simplicitly, I would prefer to stick with the problem as established by mgmc.

[Snowflake]

@Student

I don’t you understand what the implications of economies of scale, if you are comparing this to bidding for a market-size contract.

Whats wrong with it? Given that its most efficient for there to be one capital structure producing a certain service, you can still compete for the contract to provide it, and THEN build the capital.

@Student

And if you think gang wars are fought because other gangs create barriers to entry, I am not sure why you wouldn’t think the same thing would happen with PDAs (certainly they can kill their competition as well).

No. The government creates barriers to entry because it would attack any business trying to operate somewhat normally, with a central head office and investors etc… I think gangs create some barriers to entry but they are not unsurmountable. You can put up bullet proof windows, hire a bunch of security guards and sell drugs on the cheap inside your store. Once all the gangs’ savings are tapped out, you can de-militarize to cut down on costs.

What I’m predicting is that since gangs lose a lot of money killing eachother, you should be able to just buy up all the cartels from the drug lords and organize everything more efficiently. You can’t do this for reasons stated above.

[Autolykos]

@Student

Sorry for the confusion. I wasnt trying to be snide. I really couldn’t remember and I didn’t want to scroll back. No offense intended.

Sorry then… I stand corrected.

@Student

You’re right they could, but we are already supposing that there is an aggressor trying to steal your goods and that you are trying to hire a defender to defend those goods. Now we could introduce a second problem of trying to decide how to defend against rogue defenders, but then we could just as easily add more layers (how do you defend against rogue defenders of rogue defenders and so on).

For simplicitly, I would prefer to stick with the problem as established by mgmc.

I’ll assume your answer to my first question was yes. Now if there’s an aggressor trying to steal your goods right now, I don’t think you’ll be worried about hiring a defender. You’ll likely be too busy trying to defend yourself, IMO.

Actually I just thought of something. In the absence of a state, strong interpersonal relationships would likely be much more important. Family and kinship ties may be especially important. So I don’t think you’d hire just anyone to defend you – you’d hire someone you know and trust well. Note that at this time I’m not presupposing the existence of “PDAs” and the like.

To be honest, I’m not sure why I didn’t think of this sooner. I may be playing into mgmcintyre’s hands, but there it is.