Don’t Break Them, Take Them: The Legal Battle To Nationalize Banks

250px-Ppstoledano
Mexican labor leader, internationalist, and Marxist Toledano who advocated for the nationalization of the oil industry in 1938.

As if the Western media did not have enough reasons to rally behind the right wing terrorists of the Venezuelan opposition protests, a great outcry arose from the powers that be when Venezuelan Minister of the Economy Ramon Lobo and the unions seized control of a General Motors factory to ensure that production halts are not used to further harm the already fragile economy. GM of course was not please about this development and ran to their imperialist US government for help – after all, these political friends tend to give them far more deference. Unfortunately for the auto manufacturer giant, Venezuela does not take kindly to such interventionist appeals, so GM’s assets were frozen. It should be noted that this was not some impulsive move solely stemming from the recent unrest: GM owes more than $665 million in damages to a local car dealership that is over 16 years delinquent. The Western media will of course ignore this fact despite that such an egregious violation of the law would probably even elicit an injunction from the capitalist courts of the US. Instead the focus is on nationalization, a word that conservatives and liberals alike have tried to make into a slur, especially in response to any attempts to condition the recent bailouts of the auto industry and banks on even lukewarm reforms.

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Beyond a Contract: Envisioning the Internet as Part of the Commons

screen-shot-2014-10-09-at-1-55-52-pmMunicipal broadband advocates in Washington state, including Socialist Alternative Seattle City Council Member Kshama Sawant, have made me a very happy woman by properly executing a policy strategy on top of consumer protection litigation. Despite its enervatingly liberal name, consumer protection litigation provide an opportunity for Marxists to penetrate the expanding realm of consumerism in our personal lives.

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No Consideration For The Alienated Worker

State Archives of Florida, Florida Memory. Working in the refining industry in the early 20th century was incredibly dangerous for the low-wage workers, whose labor built wealth that is still held today by the great-grandchildren of the capitalists of that time.

I know I have already touched on this with both the law and with contracts in particular, but invariably there is the temptation to dismiss the system wholesale as a completely disingenuous legal fiction only meant to give the veneer of legitimacy to the undemocratic operations of the capitalists. And I do not deny that the system has no democratic or empirical legitimacy. But it is important to understand how the system works nonetheless, because capitalists have constructed them meticulously to serve the different functions of dispossession and exploitation needed to create wealth and sustain the system itself. Thus we can construct a number of useful correlations between legal mechanisms and economic or political concepts in order to chip away at the system until there is sufficient consciousness to do away with it entirely.

Aside from the bourgeoisie academic Marxists who have the problematic “noble-savage” notion of the working class, most of the Left recognizes an overwhelming need for raising consciousness among the working class. Consciousness is in a dialectical relationship with alienation, and there are four kinds of alienation in Marxism:

  1. Alienation of the worker from the products of their labor
  2. Alienation of the worker from the production of their labor
  3. Alienation of the worker from the self as a producer
  4. Alienation of the worker from other workers

Consequentially, the Left has designed a number of means to counter each of these alienations, both broadly and specifically. Here a few illustrative examples.

  1. To counter alienation from the products of their labor, the adoption of profit-sharing.
  2. To counter alienation from the production of their labor, the use of collective bargaining.
  3. To counter alienation from the self as a producer, the creation of cooperatives.
  4. To counter alienation from other workers, organizing in unions.

And in turn, capitalists and their state retaliate against this resistance with:

  1. Outsourcing.
  2. Company-controlled contracts.
  3. Price undercutting
  4. Right to work laws

In my contracts class, we read a case called Plowman v. Indian Refining Company (20 F. Supp. 1 (E.D. Ill. 1937)) that relates to each of these four types of alienation, but for the sake of brevity I am going to focus on the use of “consideration” requirements to determine the enforceability of contracts, and how it was used in this case to alienate workers from the products of their labor and from themselves as producers.

Plowman is a great example of a case where the judge made his ruling not simply to resolve the legal issue but to formulate policy not even needed to resolve the issue at hand. Because in the legalistic sense, the workers did not have a bit of a case. Their administrators (the court’s ruling occurred after many of the workers had died) sought to collect money promised to them, claiming that the company had guaranteed it for life and that they had terminated the arrangement less than a year later. At evidence was a letter which read:

…Effective August 1, 1930, you will be carried on our payroll at a rate of $_______ per month. You will be relieved of all duties except that of reporting to Mr. T.E. Sullivan at the main office for the purpose of picking up your semi-monthly checks. Your group insurance will be maintained on the same basis as at present, unless you desire to have it cancelled.

[Signature of the vice-president]

There are two reasons why this letter is not enforceable that have nothing to do with consideration. The first is the lack of essential terms and the ambiguity created therein. Specifically, there is nothing in the letter to demonstrate that the offer was for payments until the end of the workers’ lives. Therefore, it fails at being an offer to enter into a legally binding contract, and is merely a notice of what the company plans to do.

The second is that the vice-president was not authorized to make this agreement. The laws around civil liability of corporations for their employees’ actions is a labyrinth of obfuscation to protect corporate actions. It is the power of agents to bind their principals, and the vagueness of its terms (i.e. agent’s actual authority is to perform “acts necessary or incidental to achieving the principal’s objectives”. Restatement (Third) of Agency § 2.02(1).) gives corporations considerable leeway.

In other words, the agreement was not binding. However, the judge created a hypothetical where both of these issues were not present so that he could address consideration. I have found few terms in contracts that more profoundly reifies social relations into commodity relations. It is a cruel irony that the term is called “consideration,” as it serves as crucial foundation for the purging of social considerations in a capitalist society.

More far-reaching than currency and a step-child of debt even more sadistic than its parent, consideration is the notion that contracts require a thing of value to be exchanged for a performance of promise. Particularly, the law wants consideration to be the inducement of benefit by detriment or detriment by benefit, the so-called bargain theory of consideration. Increasingly moving away from even feigning an interest in “fairness,” the courts do not police equivalency of this exchange, and the presence of value in either benefit or detriment is measured solely in exchange value. Consideration fills the “social welfare”-shaped hole in capitalism’s social organization. While its fellows “offer” and “acceptance” are, to a certain degree, a part of democratic organization, consideration is wholly a legal fiction of the capitalist world. What György Lukács wrote on reification demonstrates just how powerful the concept of consideration is:

Its basis is that a relation between people takes on the character of a thing and thus acquires a ‘phantom objectivity’, an autonomy that seems so strictly rational and all-embracing as to conceal every trace of its fundamental nature: the relation between people…The modern capitalist concern is based inwardly above all on calculation-Lukács “Reification and the Consciousness of the Proletariat”

Lukács goes on to write that this system renders judges into statute-dispensing machines for the capitalists. Pardoning his ignorance on the specifics, it is very much true that consideration allows judges deciding cases to weigh exchange value over social value in nearly every instance.

Plowman presents a rather blatant example of this since the plaintiffs had the audacity state that there was “moral consideration” even if there was no consideration through exchange value. “However strongly a man may be bound in conscience to fulfill his engagements,” writes Judge Lindley, “the law does not recognize their sanctity or supply any means to compel their performance.” Judge Lindley then goes on to emphasize that he of course values that old workers are provided for, and extols the virtues of the old poorhouse system. Rather, the court requiring a company to do so would be overreaching its power, a power that should be left up to the legislature. What was this moral consideration? Mostly it was the past work of the workers. And what better way to alienate workers from the products of their labor and from themselves as producers than to legally declaring that their past work (the infrastructure they built, the new workers they trained, and simply the labor by which they produced value) has no value in consideration.

As Friedrich Engels wrote in The Principles of Communism:

Labor is a commodity, like any other, and its price is therefore determined by exactly the same laws that apply to other commodities. In a regime of big industry or of free competition – as we shall see, the two come to the same thing – the price of a commodity is, on the average, always equal to its cost of production. Hence, the price of labor is also equal to the cost of production of labor. But, the costs of production of labor consist of precisely the quantity of means of subsistence necessary to enable the worker to continue working, and to prevent the working class from dying out. The worker will therefore get no more for his labor than is necessary for this purpose; the price of labor, or the wage, will, in other words, be the lowest, the minimum, required for the maintenance of life.

There is no consideration, by the capitalist or humane definition, for the alienated worker. And their denial of social welfare is heralded by the paradoxical waxing-poetic of how our society values its workers.

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Against “Fairness”

122188155_2700750283_z Contracts are the life blood of capitalism. As Pashukanis wrote, and as my contracts professor said the first day of class, everything in a capitalist legal system can be framed as a contract. The Constitution is the state’s contract with private interests and within itself between the various branches and departments of government. The criminal law is a contract where the accused bargains with the state to work out a deal to “pay their debt to society,” though of course the “debt” is actually accrued by their disruption of the flow of capital. And then of course, there are what we think of on a day-to-day basis as contracts. We sign contracts with our banks, credit card companies, and other financial service providers so that they can have the legitimacy, and thus the ability to use the power, of the state. We sign contracts when we marry, originally because women were viewed as property, and now because it is a risky economic relationship that the state demands some control over in order to alleviate a divorce’s disruption of the flow of capital. And as pictured above, US unions across the board generally hold the provision of a “good contract” by employers as their major, or even their only, platform.

I give that brief introduction because it is important for us to view the material dialectic reality of what a contract is as opposed to the deterministic framework propounded by capitalists and their states. One particular concept that I have oft-seen mythologized, even by the Left, is “fairness.” “Fairness” is an integral part of the market fables that not only purport capitalism as efficient, but as ethically and morally sound. The bourgeoisie own wealth because it is “fair” since they have worked so hard. The wealth inequality is “fair” because the poor do not work hard enough. When I am buying a sofa for my apartment, it is “fair” for my roommates to chip in, even if I make enough money to buy the sofa without their assistance.
Contracts are claimed to be the purveyor of “fairness” (as we will see, this is a mistaken view of their relationship). When an offer is made and someone accepts it, that is generally seen in the United States as “fair” unless the offer was made under force, fraud, or coercion. The focus here will be tailored particularly to unilateral contracts, because of a special interest in fairness with the upholding of these contracts. A unilateral contract is pretty much what it sounds like: it is an offer to carry out some future act (to make a promise) that demands some specified performance to make it binding (called consideration). Why fairness is important to contracts is fairly straightforward: unlike a bilateral contract, the offeree in a unilateral contract has no promise to leverage the offerer with. A good example of a unilateral contract is an insurance policy. Your payment to an insurance company is your consideration, and as such the insurance company promises to insure your health, life, property, etc. And of course we get really upset when insurance companies are “unfair”! People still go off about the tens of thousands being denied insurance for their homes after Hurricane Katrina. The tactic of finding “previous conditions” not reported in the purchase of health insurance was another example of a lack of “fairness” bemoaned by the Left of this country. But in both of these cases (speaking generally about lawsuits around “previous conditions” before the Affordable Care Act), the courts ruled in favor of the contract. And one of the most important things about contracts, a key element to its value in capitalism, is to bind the underclasses to unfair economic dynamics through the state’s authority.

One famous example of such a case was Petterson v. Pattberg (1928) in New York. Essentially this trial dealt with three people: the decease John Petterson, the executrix of his will (simply referred to as Petterson), and a man who held a bond secured by a third mortgage on the house. Pattberg’s bond on John Petterson’s property was, at the time of the execution of the will, unpaid upon the principal the sum of $5450, payable in installments of $250 in 21 days and then subsequently every three months thereafter. Pattberg wrote the plaintiff with an offer to accept cash for the mortgage reduced by $780 if the mortgage was paid on or before May 31, 1924 and the April 25th payment was given on time.” Petterson paid the April 25th payment on time. On a day in May, Petterson went to Pattberg’s home with the money for the remainder of the mortgage. Pattberg informed plaintiff that he had sold the mortgage. Petterson showed that he had the full sum, in cash, but Pattberg refused the money. And the court ruled that without Pattberg accepting the money, there was no legal reason why Pattberg could not rescind his original offer to reduce the payment by $780: it was not a full performance. This case was very controversial, and not just because the dissenting judge insinuated the Chief Justice was hypocritical. One of the most interesting statements comes from a law review commentator named Samuel Blinkoff. Blinkoff said that the “court gives the strict orthodox answer [but] it seems that the demands of good faith in business dealings would require a more liberal decision in cases of this kind” (Note, 14 Cornell L.Q. 1928). The question here is: what are the “demands of good faith in business dealings”?

In a far more recent case, Cook v. Coldwell Banker/Frank Laiben Realty Co. (1998) in Missouri, the issue of “fairness” gets revisited by the court with what appears to be a different philosophical approach. Cook was a licensed real estate agent, and Frank Laiben promised bonuses for any of their contracted agents who made a certain amount in commissions. This bonus would be paid at the end of the year. Cook quickly surpassed the “first tier” of bonuses, and by September she was in the highest tier with a thirty percent bonus. On this month, Frank Laiben informed the agents that bonuses would actually be given on March of the next year, and that agents who were not still with them at that time would not receive their bonuses. Cook stayed through the end of the year, and then started working for another company at the beginning of the next year. She sued to get her bonus and won. The court reasoned that Cook had made a “substantial” enough performance by September that Frank Laiben could not have made a new offer (to collect bonuses on March of the next year) without fulfilling his promise for the first offer (to collect bonuses at the end of the year).

Here’s the issue: why was Cook’s performance considered substantial but not the performance of Petterson or the Hurricane Katrina survivors? The answer has to do with the reproduction of surplus value in a capitalist economy, not with some fairly arbitrary doctrine of “fairness.” Rosa Luxemburg in The Accumulation of Capital expanded on Marx’s own assertion that “money in itself is not an element of actual reproduction”: Luxemburg writes “we must assume that capitalist society must always dispose of money, or a substitute, in just that quantity that is needed for its process of circulation… the capitalist class, that is to say, use the whole of their surplus value for personal consumption. Since the capitalists are the consumers of surplus value, it is not so much a paradox as a truism that they must, in the nature of thing possess the money for appropriating the objects of consumption, the natural form of this surplus value. The circulatory transaction of exchange is the necessary consequence of the fact that the individual capitalist cannot immediately consume his individual surplus value, and accordingly the individual surplus product.”

Unilateral contracts, and perhaps more importantly state enforcement of unilateral contracts or the lack thereof, are an exchange as much as any other. So it is not quite surprising then that the corporations and state have a vested in interest in ensuring that the governance of unilateral contracts creates surplus value for their consumption. Therein lies the difference between Cook and all these other cases: Cook was a member of the bourgeoisie, engaging in the standard capitalist accumulation in her labor and incentivized by the unilateral contract from Frank Laiben. Actually, it is more than standard: real estate is one of the increasingly effective and pervasive ways of accumulating whatever wages are retained by the workers. It is the surplus value extracted on top of the exploitation by their employer. It is no surprise then that the agents of capitalism do not want to disrupt a “substantial performance” by one of their agents generating value for their class.

“Fairness” can only be attributed to contracts when they are atomized, observed individually and in relative isolation. This is why, even when used to speak out against the unfairness of contracts, I want to propose that we cease using the word completely. We must stop looking at contracts, or even class action lawsuits about thousands of contracts, as isolated to the actions of one insurance company or one credit card company or one employer. Fundamentally, contracts are like any other instrument of capitalism: they are part of a massive function, programmed to extract wealth from the working class into the hands of the bourgeoisie.

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