Democracy's Future

An interview with David Ellerman.

“All firms—regardless of size—run based on hierarchies. And all polities run based on hierarchies.” 

“The basic contract is what differentiates democratic and nondemocratic firms. And the basic contract is also what differentiates democratic and nondemocratic polities.”

“Do you have a delegation contract where the managers or governors are the delegates—or representatives—of those governed?” 

“Or do you have an alienation contract where those who manage or govern do so in their own name and not in the name of those governed?” 

David Ellerman is one of the most exciting and interesting scholars out there—my 14 May 2022 piece introduces Ellerman’s argument for economic democracy. Various people responded to my 14 May 2022 piece and I used those responses—to the 14 May 2022 piece—as a basis for this short piece.

Everyone should remember that Ellerman’s 2021 book is readable for free:

• Neo-Abolitionism (2021)

I was honored and thrilled to interview Ellerman—see below my interview with him that I edited for flow and added hyperlinks to.

1) I took the following notes based on a comment that someone made, but I don’t want there to be any confusion, so everyone should keep in mind that you yourself would never use the term “socialism” to describe the system that you yourself advocate for: 

• Ellerman’s argument is strong—rhetorically speaking—because it argues for essentially socialism without using any Marxist theory or logic

• Ellerman’s argument actually directly contradicts Marxist theory and logic

• Ellerman uses a classical liberal approach to argue for essentially socialism—this is the same basic logic that was used to argue against slavery

• given that slavery was overcome with this logic, it stands to reason that if the employment contract also shows holes under this same logic—which Ellerman shows it does—then the employment contract should be removed for all the same reasons slavery was

• both the Marxist and the capitalist argue that control of the fruits of production means owning the capital of production—Ellerman says that Marxism and capitalism are actually symbiotic because they both buy into this same falsehood

• this symbiosis has allowed the capitalists to act as though they are the righteous defenders of property rights

• Ellerman gives a very simple and powerful example—the contract reversal—that shows very clearly that both the Marxist and the capitalist are incorrect and that the ownership of capital does not actually give one ownership of the fruits of production

• ownership of the fruits of production is instead clearly derived from the direction of the hiring contract—if capital hires labor then capital owns the fruits of production, but if labor hires capital then labor owns the fruits of production

• Ellerman shows that it’s not about ownership

• Ellerman shows that socialism can logically be achieved without attacking any property rights

• Ellerman demonstrates that the capitalists are not the righteous defenders of property rights that they like to think of themselves as 

• Ellerman demonstrates that a true respect for—and a genuine understanding of—property rights would lead to abolition of the employment contract

What do you think about these points?

This person has an excellent understanding of my argument. 

But this person doesn’t seem to realize that the 20th century has indelibly stamped the word “socialism” with a certain meaning—I’m more interested in changing society than in trying to change the historical meanings of words, so I don’t use the word “socialism”.

It’s true that “socialism” referred—in the 1800s—to the abolition of the wage system, but it’s not the 1800s anymore, so it’s harmful to use the word “socialism”. 

You should have no problem at all changing some terminology if you’re a bold enough person to say that you want to change the world—you could use the term “workplace democracy” or something. 

2) How would you respond to the notion that you make a strong argument but that you aren’t sufficiently knowledgeable about Marx?

I’ve never claimed to be a Marx expert, but I make sure to justify—with quotations of the relevant passages—all of my interpretations of Marx.

Warren Samuels was the dean of American institutional economics and Samuels understood my arguments—Samuels was working on a paper titled “On Precursors in the History of Economic Ideas: Is Karl Marx a Precursor of David Ellerman?”, but unfortunately Samuels passed away before he completed it.

3) One person said something to the effect of: “Ellerman only wants the state to enforce the contracts that Ellerman himself likes—Ellerman effectively wants to use the state to infringe on people’s right to enter into specific contracts.” How would you respond to that? 

This person seems to be unaware that we’ve already outlawed three voluntary contracts—the voluntary lifetime-servitude contract, coverture, and the subjection pact. 

Unfortunately, libertarians fail to face up to the challenge of providing an account of why contracts like these three have been outlawed—libertarians shouldn’t duck the issue and should either give an account for these contracts’ abolition or else advocate that these contracts should be permitted. 

The problem is that libertarians just chicken out—they don’t want to try to do this. 

George H. Smith and Randy Barnett are the exceptions—they’ve advanced good accounts of inalienable rights, although they didn’t destroy their careers and note the obvious fact that the arguments apply to the human-rental contract.

The young Robert Nozick took the route of saying that these outlawed contracts should be allowed. But he recanted—in later life—and said that some rights should be inalienable, although he never developed any theory to support that new position.

4) Why do you particularly spotlight the voluntary lifetime-servitude contract? Why not equally spotlight all three of the alienist contracts that we’ve outlawed? 

There’s a particularly close connection between the human self-sale contract and the human self-rental contract—James Mill put it the following way: 

The great capitalist, the owner of a manufactory, if he operated with slaves instead of free labourers, like the West India planter, would be regarded as owner both of the capital, and of the labour. He would be owner, in short, of both instruments of production: and the whole of the produce, without participation, would be his own.

What is the difference, in the case of the man, who operates by means of labourers receiving wages? The labourer, who receives wages, sells his labour for a day, a week, a month, or a year, as the case may be. The manufacturer, who pays these wages, buys the labour, for the day, the year, or whatever period it may be. He is equally therefore the owner of the labour, with the manufacturer who operates with slaves. The only difference is, in the mode of purchasing. The owner of the slave purchases, at once, the whole of the labour, which the man can ever perform: he, who pays wages, purchases only so much of a man’s labour as he can perform in a day, or any other stipulated time. Being equally, however, the owner of the labour, so purchased, as the owner of the slave is of that of the slave, the produce, which is the result of this labour, combined with his capital, is all equally his own. In the state of society, in which we at present exist, it is in these circumstances that almost all production is effected: the capitalist is the owner of both instruments of production: and the whole of the produce is his.

So that’s a very striking comment from Mill about the “only difference” being “in the mode of purchasing”.

5) How does a “subjection pact” work? 

In today’s libertarianism, there’s a current that accepts the notion of a nondemocratic polity—the idea is that you implicitly consent to a subjection pact if you choose to live in the community in question. 

Paul Romer talks about “charter cities” and Patri Friedman talks about “seasteads”—libertarians use the generic term “startup cities” and invoke the examples of Dubai and British-ruled Hong Kong.

The young Nozick wrote the following: 

[I]f one starts a private town, on land whose acquisition did not and does not violate the Lockean proviso [of non-aggression], persons who chose to move there or later remain there would have no right to a say in how the town was run, unless it was granted to them by the decision procedures for the town which the owner had established.

But we’ve outlawed the subjection pact in the West—the subjection pact is unconstitutional in a political democracy.

6) And regarding elections, we’ve outlawed a voluntary selling of one’s vote, correct? 

That’s right—you can’t sell anyone your vote no matter how much you want to.

Unless—as the joke goes—you’re a politician.

7) Your 2021 book advances a three-pronged argument. Why would a demonstration—that employees actually factually become non-responsible instruments when employees fulfill the human-rental contract—defeat all three prongs? 

The three prongs are all based on the same ultimate argument that the basic aspects of personhood are factually inalienable and that you have a “legalized fraud” if you have any lawful contract that legally alienates factual responsibility or factual decision-making. 

There are three prongs because you can approach the question through at least three angles, but it’s the same ultimate argument. 

8) What about the idea that nothing that you’re saying is particularly unique and that Marx knew that the “bourgeois state” has a certain “class character” and “upholds bourgeois property relations”? 

Marx and I both argue that something is rotten in capitalism—if one can think in such generalities. 

But unfortunately, Marx didn’t get “bourgeois property relations” correct. Marx supported what I call the “fundamental myth”—Marx regarded the “private ownership of the means of production” as the key institution when the actual key institution is the human-rental contract. 

So for example, the basic normative problem in Antebellum America wasn’t the private ownership of cotton farms but was instead the fact that these farms operated on the basis of owning human beings. And it’s the same basic normative problem when you look at private firms in today’s economy—the basic normative problem is that today’s firms operate on the basis of renting human beings. 

Marx’s fundamental mistake also led to the basic misnomer where we call it the “capitalist system” instead of calling it the “human-rental system”. 

And we know that we have a long way to go because my computer just suggested that I try “human-renal system” instead.

So it’s fascinating because Marxists don’t actually understand “bourgeois property relations”. 

9) Someone asked what would change for a fast-food worker if Ellerman’s vision were implemented—the answer given was: 

• the worker would be more like a business owner

• the worker would care more about their work 

• the worker would take more pride in their work

• the worker would be properly responsible for their work

• you wouldn’t have a situation where the employer takes responsibility when it suits the employer and then drops responsibility when it doesn’t suit the employer

How’s that answer? 

Not a bad description.

But people should keep in mind that my arguments are deontic and not consequentialist. 

10) You have a great apples-to-apples comparison between the human-rental system and the three outlawed voluntary contracts, so why make an apples-to-oranges comparison between the human-rental system and slavery? Slavery wasn’t a voluntary contract, so how can that be a good comparison? 

Someone would have to be very ignorant about the history of slavery to take slavery as always based on coercion. 

I never use the term “wage slavery”. And I never compare the human-rental system to slavery. 

And I always compare human self-rental contracts to human self-sale contracts and not to involuntary slavery, though I do—of course—observe that slavers’ self-apology was to say that slaves were African prisoners of war who had chosen to sell themselves into slavery.

Someone might say “Slavery is involuntary and you can’t make a comparison between something voluntary and something involuntary”—the response to that objection is to use the term “voluntary lifetime-servitude” instead of the term “slavery”.

11) How would you respond to the point that workplace democracy would yield a situation where nobody takes responsibility for anything and nothing gets done and unhealthy group dynamics arise? What if you have a tyranny of the majority at the workplace? What if you have 10 workers at a store and 6 of them vote to make the other 4 do the most annoying task? What if the majority even tries to do something ghastly or demeaning or horrible to the minority? 

Skeptics can look at democratic firms and see how well they operate. 

There are many quite successful worker co-ops.

And there are many quite successful companies where a separate legal vehicle—an ESOP trust—100% owns the company.

My 2021 book wasn’t—of course—about the topic of how a democratic firm can run well. 

And in terms of responsibility, I go to some lengths—in the 2021 book—to distinguish the plural and forward-looking “responsibilities” of one’s job in an organization from the different concept of backward-looking “factual responsibilities”. So it’s crucial not to confuse the two uses of the word “responsibilities”. 

12) What about the issue of how slow and inefficient democratic decision-making is? 

Again, my argument is deontic.

So these consequentialist points can be addressed, but that’s not the topic of my 2021 book.

13) What about the idea that hiring labor gives capital ownership of the fruits of production and that this is what capitalism is? 

Yes, “this is what capitalism is”.

But unfortunately the so-called “labor contract” can’t transfer de facto responsibility for “the fruits of production” to the capitalist—as everyone and even the legal system recognizes in the case of the hired criminal. 

14) Was slavery overcome with logic and argumentation? Or was slavery overcome through wars and changing economic conditions? 

This is a historical question about how to interpret the abolition of slavery and of the slave trade.

And the answer differs place by place—for example, the answer differs between the UK and the US.

And you’ll see if you look back that societies always want to give fundamental reasons—like inalienable rights—for abolition as opposed to just invoking something like regional rivalry. 

15) How would you respond to the point that the whole point of the state under free trade is to have the state acknowledge and enforce contracts as long as the contracts being enforced don’t invalidate any legal rights that people have as humans or invalidate any truths? And how would you respond to the question of who gets to decide which contracts are enforceable and which contracts aren’t enforceable? 

Randy Barnett has shown that—due to the fact that human labor isn’t transferable in the way that the services of a thing are transferable—a breached employment contact can’t be enforced.

But Barnett fails to note that that argument actually invalidates the employment contract in the first place and not strictly when the employment contract is “breached”—Barnett’s argument actually says that the employment contract is always “breached” as a result of the impossibility of transferring de facto responsibility. 

And if you could somehow transfer de facto responsibility then hired killers and their lawyers would be interested to learn about that. 

As for who decides what’s enforceable or not, it’s a silly question because changes in the legal system are made in whatever way changes in the legal system are made.

16) How do you respond to the idea that all successful firms run based on a hierarchy? 

All firms—regardless of size—run based on hierarchies. And all polities run based on hierarchies. 

The basic contract is what differentiates democratic and nondemocratic firms. And the basic contract is also what differentiates democratic and nondemocratic polities.

Do you have a delegation contract where the managers or governors are the delegates—or representatives—of those governed? 

Or do you have an alienation contract where those who manage or govern do so in their own name and not in the name of those governed?

The employment contract is definitely an alienation contract—nobody tries to argue that the employer is somehow the employees’ delegate or somehow the employees’ representative or somehow the employees’ agent.

And there’s a whole literature on how democratic firms are well governed—it’s not like people sit around taking votes on every issue. 

17) How would you respond to the point that selling oneself into servitude is a special situation because there’s no exit clause? 

Murray Rothbard—the libertarian—put it as follows: 

One more recourse would be permissible. Suppose that Smith, when making his agreement for lifelong voluntary obedience to the Jones Corporation, receives in exchange $1,000,000 in payment for these expected future services. Clearly, then, the Jones Corporation had transferred title to the $1,000,000 not absolutely, but conditionally on his performance of lifelong service. Smith has the absolute right to change his mind, but he no longer has the right to keep the $1,000,000. If he does so, he is a thief of the Jones Corporation’s property; he must, therefore, be forced to return the $1,000,000 plus interest.

So there is—as Rothbard says—an exit clause. 

And you could put the money in escrow and only release the money as the work is performed over time—libertarians will then say “But that’s just a long-term employment contract!” and my response is “Bingo! That’s what I’ve been trying to say!”. 

18) What about the idea that contracts can’t ever be considered servitude because servitude means that you’re compelled—by force—to carry out the tasks? 

“Servitude” refers to a voluntary relationship that’s based on voluntary obedience to someone. 

And obeying another person doesn’t somehow delete one’s factual responsibility—it would be a dream world for hired killers if that were somehow the case. 

19) Why is it OK to sell your labor to a democratic firm but not to a top-down firm? 

Workers have a membership relationship to democratic firms, whereas workers have a servitude relationship to top-down firms. 

I’ve written about democratic firms for 50 years, but democratic firms’ legal structure isn’t what the 2021 book is about. 

20) What’s the difference between a democracy and a republic? 

In US history, James Madison defined a republic as a representative democracy.

The history of democratic thought includes civic republican thought as a subcategory.

21) What’s your comment on the below interesting video about contracts? 

The video is about the typical liberal-vs.-conservative debate—both sides in that debate see nothing inherently wrong with the human-rental contract and this video isn’t really relevant to my own arguments.

But I’ll make a couple points about contracts. 

First, freedom of contract obviously doesn’t apply if a contract is invalid in the first place. This point is easy to understand in the case of a contract—like a hired-murder contract—that’s generally known to be illegal, but it’s harder to understand this in the case of the voluntary lifetime-servitude contract or in the case of coverture or in the case of the human-rental contract.

Second, large inequities of power render the usual notion of freedom of contract little more than a slogan even in the case of perfectly valid contracts. The ideal market transaction involves a single labor-supplier—i.e., a worker—bargaining with a single labor-demander like a corporation that has a million capital-suppliers. So that’s the ideal, but then it’s a forbidden “combination in constraint of trade” if workers combine in a union or if corporations combine in a cartel—that’s a hilarious and striking bias that jumps out at you in neoclassical texts.