Nozick on business risk

Nozick accomplishes two tasks in the sixth subsection of Chapter 8 (pp. 253-262). First, he explains why so few business firms are owned or run by workers. But more importantly, he single-handedly demolishes Marxian economic theory. As usual, I will summarize Nozick’s argument in my own words. To begin with, the reason why so few business firms are worker-owned is because of the risks of investment and production, or as Nozick puts it (p. 255, emphasis in original): “It’s risky starting a new firm.” Although Nozick fails to distinguish between risk and uncertainty (see chart below), his larger point is well taken. In Nozick’s words (ibid.): “Some persons don’t want to run these risks of investing or backing new ventures, or starting new ventures themselves. Capitalist society allows the separation and bearing of these risks from other activities.” In other words, one virtue of open markets is that they allow persons to avoid or assume as much or as little business risk as they wish, depending on one’s aversion to or preference for such risk.

Moreover, Nozick identifies a major imbalance or asymmetry in some people’s attitudes towards risk and uncertainty (p.256): “Often people who do not wish to bear risks feel entitled to rewards from those who do and win; yet these same people do not feel obligated to help out by sharing the losses of those who bear risks and lose. For example, croupiers at gambling casinos expect to be well-tipped by big winners, but they do not expect to help bear some of the losses of the losers.” In short, some individuals are risk hypocrites. As an aside, although Nozick devotes only a paragraph to “risk hypocrites” (my term, not Nozick’s), the existence of this asymmetry in people’s attitudes towards risk and uncertainty could potentially undermine the foundations of John Rawls’s theory of justice. After all, contra Rawls, wouldn’t we expect people in the original position to be risk neutral, since no one knows their natural attributes until after the Rawlsian veil of ignorance is lifted? If not, why would the risk-lovers  ever agree to such a risk-averse policy as the difference principle?

But the main upshot of this discussion of business risk is that it deals Marxist economic theory a devastating blow. As Nozick notes (p. 253): “at bottom, Marxian theory explains the phenomenon of exploitation by reference to the workers not having access to the means of production.” But why is it that most workers do not control the means of production? It turns out that Nozick’s risk-based explanation of this fact is far more accurate and persuasive than the standard Marxian view. Furthermore, Nozick’s conclusion is priceless: yes, Marxian exploitation is a thing, but this exploitation does not consist of one class exploiting another. Instead, it is the Marxist intellectuals who are the exploiters, or in the eloquent words of Nozick (p. 262): “Marxian exploitation is the exploitation of people’s lack of understanding of economics.” We will continue our review of Chapter 8 of ASU in our next blog post.

Screen Shot 2018-07-26 at 7.01.43 PM

Source: Brandon Hickie, via B2C

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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1 Response to Nozick on business risk

  1. Kathy H says:

    Like the risk analysis.

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