Capitalist ‘Expropriation’: Resentment Versus Reality – OpEd

By Gary Galles*

Resentment is a toxic reagent that directly undermines harmony and social cooperation, and can lead to support for policies that will make such problems even worse. Unfortunately, most of the attention given to resentment seems to be harnessing it to enact somebody’s political agenda into law, and very little seeks to understand it with an eye to reducing it and the problems it causes.

Part of the answer may be found in the distinction between ex ante (before the fact) decisions and ex post (after the fact) views about those decisions.

For illustration, consider resentment of real estate agents. Most people choose to use agents for home sales. But they could always choose to do a FSBO (for sale by owner) instead. If they chose to employ an agent before proceeding with the sale (ex ante), they must have believed that all things considered (including the fees that would have to be paid, as well as all of the other anticipated differences having an agent would make in their efforts and costs), it would make them better off than their alternatives. In other words, they believed that the added benefits to them exceeded the added costs to them, and they benefit from the agent and the services he or she provides them.

However, the primary service real estate agents offer is information. Of particular importance to sellers is identifying buyers who are likely to be viable prospects, and attracting and stimulating their interest. But since those services are largely provided before the final negotiations and sales (and sales commissions) occur, once sellers know who the likely best candidates are, as a result of agents’ efforts, they would like to avoid paying the previously agreed fee for what they now (ex post) already know. Consequently, sellers can feel resentful about their agents, if they are comparing the ex post situation to the fees they must pay, rather than the ex ante situation, in which they committed to pay them. That can easily lead to efforts to evade their prior commitments, where sellers will be tempted to look for excuses to not live up to them, including demonizing agents, to help justify that contractual evasion as fair or ethical. Of course, if that strategy was used by every home seller, resulting in non-payment to agents, agents would disappear as a superior option for sellers, leaving the sellers worse off as a result of their desired course of action. Social cooperation would be reduced.

The same sort of mechanism that can put modern real estate agents in the cross-hairs of resentment has occurred before. For instance, there was a time when kings would force Jewish bankers (not subject to the interest rate restrictions of the Catholic Church) to make loans to them to finance their wars. After the fact, when the king wanted to walk away from the tab, he would, justified only by misrepresentation and demonization of those he forced to the lend him the money.

More recently, there was the Marxian approach of blaming capitalists for having expropriated value created solely by labor (in theory, at least). Therefore, while theft would be considered wrong, under that theory, it was honorable, even laudable, for labor to expropriate the capitalist expropriators. After all, the capitalists did it first, making the response one of recompense rather than robbery. But we should note that the purpose was not to change the rules to keep future capitalists from being paid for their services (ex ante), because that would prevent the capital from being provided in the first place. It was to take from capitalists after they had provided the capital (ex post), by reneging on the better terms they had been promised.

Today, we hear the same sorts of attacks against “the 1%” or “the rich” or any corporation that moves to offer options that are inferior or more expensive to what they once offered (say by raising the price of some subscription service). Opponents allege that their income or wealth was not earned, but expropriated from their customers. Consequently they deserve to be expropriated back, because their acts were “not fair” or “gouging” or some other asserted rhetorical sin. And on the heels of such (not actually proven) charges come proposals to tax, regulate, mandate or otherwise dictate worse terms to them after the fact.

These examples are not the only problems related to the differences between ex ante and ex post circumstances. For instance, Thomas Sowell, in his most recent book, Discrimination and Disparities, shows that the common equation of income mobility and movement as equivalent is misleading, because, mobility is an ex ante concept, while movement is an ex post concept, and a lack of movement does not prove a lack of mobility. Other things could easily account for that. But the distinction can help us understand why some seem eager to demonize and politically punish those they have chosen to deal with, after the fact, but often continue to employ those services, unlike what would be the case if they were really harmed by that voluntary arrangement. It can also help us understand why so many who aren’t directly involved in such arrangements can be convinced by mere words that what is recognized by participants as advancing their interests (because that is what they choose, given their real alternatives) is an evil. That movement toward unjustified blame, in turn, can provide the electoral impetus to impose “punishments” that harm not only those blamed, but those doing the blaming, as well.

Finally, the ex ante versus ex post distinction provides us a veracity test for claims of abusive market relationships that supposedly justify punishment of the counter-party involved. If such unfairness was real, at a point in time where both the benefits and costs were under consideration (ex ante) people would stop agreeing to those relationships. The fact that they continue such relationships when they have other options reveals they are not really abusive. On the other hand, if what is proposed is changing terms of previous voluntary arrangements, ex post, that in no way establishes the “plaintiffs” case that “defendants” were unfair to them, but it is completely consistent with their attempt to unfairly abuse those they accuse.

*About the author: Gary M. Galles is a professor of economics at Pepperdine University. He is the author of The Apostle of Peace: The Radical Mind of Leonard Read.

Source: This article was published by the MISES Institute