We have reached what is perhaps the most difficult and controversial aspect of the grants economy: the problem of the legitimacy of grants, whether explicit or implicit. Closely related to this problem is a discussion of what grants are and what they are not. The discussion also includes the question of the legitimacy of exchange, which cannot really be separated from that of grants, since exchange and grants are alternative methods of organizing society. If one is regarded as legitimate in a particular case, the other must almost necessarily be regarded as illegitimate. The question of the proper boundary between the exchange economy and the grants economy lies at the root of many political and economic controversies.
Exploitation is a word that often has a far more emotional than intellectual content. The exploitation of man by man is universally recognized as a bad thing. There is a neutral use of the word, in the sense of the exploitation of opportunities or resources, although the pejorative meaning often extends even to this use. I recall the old joke that capitalism is a system in which man exploits man, while under socialism the opposite occurs.
Yet despite the fact that the word is used broadly and rhetorically, it clearly corresponds to some phenomenon in the real world, and it is important to try to give it a clear intellectual content so that we can at least distinguish exploitation from non-exploitation, or even one type of exploitation from another. Poor definitions and the failure of perceptive discrimination are perhaps the most important source of bad policy.
I therefore propose a functional definition of exploitation as a grant or one-way transfer of an exchangeable good, whether explicit or implicit, that is regarded as illegitimate at least by the donor. I have used this definition instead of the stricter one of grants made under coercion or threat, although coercion is a very significant source of the sense of illegitimacy, because not all grants made under coercion are regarded as illegitimate.
Thus, taxes collected by a state widely regarded as legitimate by taxpayers are, in a sense, collected under coercion. That is, they are coercive grants. However, taxes are accepted as legitimate because this appears to be the only response to what economists call the “free-rider principle.” As W. J. Baumol has pointed out, it is quite rational for people to vote to coerce themselves if everyone is coerced in the same way.
If states were maintained by purely voluntary contributions, it is very likely that they would not be very well supported, in which case the whole society would suffer from an insufficiency of public goods. Therefore, it is not only the element of threat or coercion that creates a sense of exploitation, but the feeling of illegitimacy. The taxpayer does not necessarily feel exploited by a state they regard as legitimate, but any taxes collected by a state considered illegitimate may be regarded as exploitation.
Some may find this definition unsatisfactory because it is not “objective,” since legitimacy is an essentially subjective phenomenon. The same objective transfer may be regarded as legitimate under certain circumstances and illegitimate under others. I can only defend the definition by saying that this is how I believe the world is, and that, however subjective legitimacy may be, and however uncertain and difficult it may be to discover the principles governing the dynamics of legitimacy, this is the meaningful concept. There is no point in developing easy concepts that are not true.
We see this even in the extreme case of a form of exploitation as obvious as slavery, which in the modern world is rightly regarded with abhorrence as a completely illegitimate form of human relationship. Today we can find an almost universal consensus that slaves are exploited, since they produce more than it costs to maintain them, and this surplus does not go to them but to their masters, who give them nothing in return.
Because of their capacity for coercion, masters can say to their slaves: “Work for me for mere subsistence, or I will kill you.” Thus, if the slave produces more than it costs to maintain them, they are in fact making a grant to the master that is no different from the grant a victim makes to a bandit. However, slave owners have claimed that it is more like the grant a taxpayer makes to the state.
Where slavery is recognized as legitimate — and there have been societies in which both slaves and their masters regarded slavery as legitimate, or simply did not raise the question — the slave is simply paying taxes in kind to a legitimate authority: the master. These implicit taxes are presumably paid for the public good of living in society, just as a citizen pays taxes to the state without there being exploitation.
Thus, the same objective situation and the same objective transfers of slavery may be regarded as exploitation under one conception of legitimacy and as non-exploitation under another, even though we may rightly regard the second perspective as “illegitimate.” We cannot avoid recognizing, in any definition, the overwhelming importance of the structure of legitimacy, of self-images and of the acceptance of exploitation.
