Mr Peters,
I have heard Economics in One Lesson recommended from a number of sources in the research I did while preparing some of my previous remarks, and I think you've convinced me to visit the library this weekend and pick up a copy. I think the ideas you've espoused are interesting, and are a creative way to look at economics (compared to the works I've read, anyway). It's rare that I encounter someone bold enough to disagree with both Adam Smith and the Founders, and who isn't just running his mouth, but has substance to back it up. I've enjoyed our discussion and I may forward a few remarks after reading the book you've suggested if it's all right.
As far as the communist thing was concerned, just so I don't give the wrong idea, I didn't think you had suggested any such thing. It's just so unusual for me to discuss government intervention in the market and not uniformly object to it. By the third or so post in which I still insisted that some limited intervention was sometimes justified, I felt the role reversal pretty significantly, and didn't want to give the wrong idea.
And as far as the "sneaky" business was concerned, I didn't mean it to suggest you were being duplicitous or anything. I did feel the argument went from broad to narrow on that one issue pretty abruptly, and I guess I hadn't realized it until after it had happened.
Anyway, been nice chatting with you. Best of luck,
JKS.
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7/30/2003
First, an aside: If what I wrote implied that you are or might be a "tye-died communist" or an advocate of increased government intervention, I apologize - I didn't intend that and I don't believe it.
Second, regarding the examples of alleged harm you think are possible without certain kinds of government intervention, all of them have been thoroughly refuted (by the economists I mentioned, and others). Read Henry Hazlitt's "Economics in One Lesson" to see most of those refutations. Child labor, "price gouging" and "collusion" are all covered by this book, as I recall.
Now, about the founders. Though they were great _implementors_ of the best political philosophy ever devised to that point, they weren't philosophers themselves. There were flaws in that philosophy, and hence in their thinking. For that reason I don't agree with all of their ideas.
The fundamental flaw in that philosophy was that the concept of individual rights was not fully worked out or understood. Specifically, there was no clear understanding of what violates individual rights. Without that understanding, the founders unknowingly built _violations_ of rights into the government, or at least the justification for such (which have been used ever since to take away our liberty piece by larger piece).
What the founders didn't clearly grasp is that liberty consists of the absence of physical coercion, the absence of initiated physical force, threatened or actual. Without such force, no individual has the power to prevent another from pursuing his own happiness. This is because only physical force can negate or destroy the source of such a pursuit: a man's reasoning mind.
So long as a man can think, act on that thinking, and keep the results, his pursuit of happiness is limited only by his ambition and ability. The extent to which a man is physically prevented from doing one or more of these is the exact extent to which his pursuit of happiness is stopped.
It is on this principle that force is anti-mind that the case for laissez-faire rests, i.e., the case for the total abolition of the initiation of physical force from all human interaction.
There is nothing "sneaky" about basing a view of laissez faire on a broad principle such as this - on a principle that makes clear what was muddy in the original concept of individual rights. Force _is_ anti-mind, and the mind, i.e., reason, is the source of all human values - it's our basic means of survival.
Insisting on such a broad, yet very precise concept of "political harm" is _required_ to properly understand the issue, and to implement a political system that is consistent with the requirements of human life.
Laws against "price gouging", "collusion", "price fixing", "abuse of monopoly power" lack these virtues. All of them are (deliberately) unclear and imprecise, principally because key concepts in them are undefined and/or vague. This leads (and the history of their application shows it) to judges assigning their own often contradictory meanings to those terms, and thus to massive rights violations being perpetrated against innocent people.
Such laws toss individual rights out the window as irrelevant.
They are not.
Mark Peters
P.S. - Slander and libel are examples of _indirect_ initiation of physical force. By means of false statements, these acts harm a man's reputation, which can lead others to refuse to deal with him, causing loss of income, among other things.
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7/24/2003
Mr Peters,
I think we are close to the point where we can spare everyone else in this forum any further boredom on this subject. I'll make this my last lengthy post on this topic (though unfortunately this particular one has become unseemly long), and I'll confine any further lengthy replies to email.
I read your last essay with some interest and it answers most of my questions, though I must confess I found that it answered some of them not quite satisfactorily. I'll get to specifics in a moment, after some more general prefatory comments.
Again, I think free trade, low taxes, and minimal regulatory burden are Good Things. My biggest fear in this series of posts is that I come off sounding like some kind of tie-dyed communist or something. I'm not making a case for increased government intervention in the economy; I actually think that from where we are now much government intervention could be profitably eliminated. I'm simply disputing as too simplistic your assertion that there are no circumstances whatever where the government has any constructive role.
If you don't consider yourself a Libertarian I certainly won't try to persuade you otherwise, but your policy recommendations seem distinctively libertarian (small L) at any event. I think we are splitting hairs when we argue whether you think government is "good" or "bad," based on your particular definitions of those words.
While I agree with you that the founders insisted that any government secure individual and property rights for its citizens, I don?t really believe that they meant for its purpose to be so thoroughly limited. Read the preamble to the Constitution of the United States:
>> We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America. <<
This is a wonderful sentence that does include "secure the blessings of liberty" and "establish justice" as two of the Top Six Reasons for Founding a Constitutional Republic, but also includes some other stuff as well. Among those other things are to "promote the general welfare." The precept of liberty is a critical element, but liberty will sometimes be restricted if it is contrary to domestic tranquility, injurious to the general welfare of the nation, etc.
We're reaching a level of diminishing returns on discussions of this point. We agree on most elements of liberty and free trade, but I think that in certain, fairly rare cases these should be limited in order to subordinate them to the general welfare of the nation. We just disagree over this point, as you seem to be insisting that this should never ever ever NEVER EVER happen, and I just think that's too absolute and too extreme to be true. I would take no great pride in being a free but savage nation. I'm not clear whether you would find that an acceptable outcome so long as liberty is preserved; or whether you simply don't think that the sort of liberty you insist on could lead us to that point. Those are two separate choices, and I think it matters which of them you believe.
Labor laws are one good example of this. Back in the bad old days, kids younger than 18 could work all manner of dangerous jobs at great toll upon themselves and their future (with respect to their schooling). Assuming that they were not physically compelled to perform these jobs, and they and their employers arrived at their employment agreements voluntarily, would you suggest that the laws preventing this be overturned? Or, would you suggest that workplace safety laws (applying to adults, so we establish that we're talking about those of majority age) be overturned so that the employer and employee negotiate individually upon workplace safety as part of the "voluntary exchange" of labor for pay?
Now for a few particulars:
1a. MP (7/20/2003): "There isn't even _one_ example in history of a dominant company harming its customers in the way you suggest is possible"
1b. MP (7/22/2003): "Next, I'd like to state what I consider to be 'harm': violating somebody's rights, which means initiating physical force (or threatening it) against a person or his property. This can be called 'political' harm.
Other types of harm are _moral_ issues, not political ones, and hence the government has no legitimate role in responding to them (or acting to prevent them)."
I think at least we've gotten to the bottom of this one. I'll address the last sentence first since it's the easiest. The government responds to one form of non-physical ("political") threats already (in a non-economic context) by way of slander and libel laws. Once you insist on such a broad and general statement ("government has no legitimate role in responding to non-physical threats), it has all kinds of consequences. Be prepared to defend the idea of striking libel and slander laws from the books.
But I have a more general problem with this pair of excerpts from your previous posts. I think it's just a little bit sneaky to make so broad and universal a claim, and to later justify it by explaining that the original statement is (of course) true, provided you use the following very particular definitions of harm. I'll agree that there's not much occurrence of companies violating the physical integrity of its customers or their property. It's bad business to do so. But price gouging occurs sometimes, as does collusion among competitors, and there is no question that financial harm can be done to a consumer, even if the amounts are minor or duration is short (and even if the consumer voluntarily paid his money despite the outrageous price).
In rare circumstances, applied sparingly, the government can actually contribute to the general welfare of the nation by interfering in some really offensive transactions. Loan sharking at 1000% interest; collusion and price fixing; disaster area price gouging; abuse of monopoly power; etc. I just don't find the argument convincing that says we should never interfere in a voluntary transaction under any circumstances, no matter how egregious. That just can't be right.
2. MP: "Such companies can be handled with normal criminal law - anti-trust isn't necessary."
I'm not clear where you would draw the line between "normal" criminal law and anti-trust. The Sherman Act is itself criminal law, just like the laws that ban fraud.
>> Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony[.] << (§ 2 Sherman Act, 15 U.S.C. § 2)
3. MP: "Predatory price wars - this is one of the specific fallacies exposed by the economists I mentioned. The main thing to keep in mind here is that a successful business manager would have to be almost literally _crazy_ to try this - and his boss ought to fire him if he tries (and the board of directors should fire _him_ if he doesn't)."
I realize that yours is one interpretation, and there is much to support this idea, but this is not actually the end of the discussion on this. While what you say with respect to actual predation of this sort is generally (though probably not always) true, asymmetric information plays a role in this subject and it cuts both ways. Forgive the long excerpt, but this (from The Economist) is too on-topic to pass up:
>> The consensus of the early 1980s said that preying on would-be competitors [via predatory pricing] would be too expensive...Game theorists showed otherwise. An incumbent firm may convince entrants that it will cut prices sharply if they dare to compete. It is the credible threat of predation, not the actual making of losses, that deters competition--and issuing threats is cheap. Game theorists had made predatory pricing seem feasible again. ...
The debate takes another twist with a new book by John Lott, a fellow in law and economics at the University of Chicago...As Mr Lott says, a chief strand of the game-theory account of predatory pricing relies on the idea that incumbent firms have an advantage over would-be entrants--they know more, especially about their own costs, than newcomers do. This advantage helps them to issue a credible threat to cut prices. The role that "asymmetric information" plays in the analysis has gone largely unchallenged. This was a mistake, says Mr Lott.
For entrants, too, have privileged access to crucial information--information about their own intentions. And they are in a position to profit from this knowledge. Suppose a monopoly is enjoying high profits, deterring competition by the mere threat of predation. The stockmarket values the firm accordingly. A would-be entrant knows that once it announces its arrival, the value of the monopoly will fall (whether or not the firm actually carries out the threat to price at a loss). The entrant can short-sell the monopoly's shares before beginning to compete, thus boosting its expected returns. ...
The potential entrant's information changes things. In cases where the game-theory models say that one would be very unlikely to appear, this new factor pushes the other way, making competition more likely than before. The current presumption that threats can be credible because of asymmetric information therefore needs to be re-examined.
Mr Lott next investigates empirically a different aspect of the current consensus. For the threat of predation to be credible, the monopoly's managers must be rewarded in ways tied to output, not short-term profits (because profits would suffer if the threat were carried out). The managers must also be entrenched (for instance, protected from threat of hostile takeover); otherwise, owners could renege on their promise to disregard short-term losses. Mr Lott examines companies that have been sued for predatory pricing, comparing those that were sued successfully with the others, and also with benchmarks for similar firms that were not sued at all. Managers of accused companies were on the whole no better entrenched than the rest; and their incomes were about as much tied to short-term profits. This is consistent with the old view of predation?that the threat to price at a loss is not credible, and predation is no good as a strategy.
Mr Lott makes some other good points. For instance, he argues that government enterprises are far more likely to engage in wasteful, anti-competitive pricing than private ones (and he finds empirical evidence to support this). Yet there is a nagging omission. Mr Lott refers now and then to the antitrust action against Microsoft, making it clear that he regards it as wrong-headed. That is, of course, consistent with his free-market, Chicago-school outlook--but nowhere does he discuss Microsoft or other high-tech companies head-on.
This is a troubling gap. On Mr Lott's own analysis, Microsoft looks exceptionally well-placed to make credible threats. Could any manager be more firmly entrenched at the head of his company than Bill Gates? And Microsoft's bosses take their rewards principally in the form of increases in the value of their shares--which puts long-term profits at a premium over short-term profits. << (The Economist, "Preying on Theory," 7/8/1999)
So maybe it's possible to do, maybe it isn't; I just don't think current theory has answered this one. To suggest that we have a definitive answer here seems optimistic to me.
4. MP: "Lastly, my main objection to allegations that anti-trust remedies like breaking up a company are beneficial on net balance is that they commit a major economic fallacy. These allegations pay attention to what can be seen (the wealth produced in the aftermath), but not to what _cannot_ be seen: the wealth that did not come into existence because the original company was broken up.
It is _understandable_ that people would do this, since nobody can measure what doesn't exist, but it is a mistake, and that mistake invalidates the allegations of benefit."
This is a hard objection to accept. I previously cited two examples of wealth being created in the aftermath of a breakup; your reply that there are unmeasurable offsetting reductions in wealth is possibly true, but how much are those benefits? How do you know which is the more significant (the measurable wealth-creating instances cited or the unmeasurable wealth-destroying effects)? Really, as convinced as you are of the veracity of your theory even without the availability of numbers to support it, it sounds like this is your "gut feel." This gets back to my suggestion that part of economic theorizing today is based on political preferences. At a minimum we should acknowledge that the verdict is undecided on this one. Personally I would argue that in such cases where evidence is ambiguous, but what we've been doing seems to have produced the world's best economy, the burden of proof is on those who would argue that what we've been doing all along is wrong.
So where does that leave us? Oddly enough, for all the discussion, it leaves us in agreement on most substantive issues; our disagreement only surfaces at fairly rare and extreme edges of capitalism. I'd argue for some occasional consideration to the general welfare where you argue that such consideration is actually detrimental.
I've greatly enjoyed the discussion, and I hope you have as well.
JKS.
Return to the index for this subject.
I think we are close to the point where we can spare everyone else in this forum any further boredom on this subject. I'll make this my last lengthy post on this topic (though unfortunately this particular one has become unseemly long), and I'll confine any further lengthy replies to email.
I read your last essay with some interest and it answers most of my questions, though I must confess I found that it answered some of them not quite satisfactorily. I'll get to specifics in a moment, after some more general prefatory comments.
Again, I think free trade, low taxes, and minimal regulatory burden are Good Things. My biggest fear in this series of posts is that I come off sounding like some kind of tie-dyed communist or something. I'm not making a case for increased government intervention in the economy; I actually think that from where we are now much government intervention could be profitably eliminated. I'm simply disputing as too simplistic your assertion that there are no circumstances whatever where the government has any constructive role.
If you don't consider yourself a Libertarian I certainly won't try to persuade you otherwise, but your policy recommendations seem distinctively libertarian (small L) at any event. I think we are splitting hairs when we argue whether you think government is "good" or "bad," based on your particular definitions of those words.
While I agree with you that the founders insisted that any government secure individual and property rights for its citizens, I don?t really believe that they meant for its purpose to be so thoroughly limited. Read the preamble to the Constitution of the United States:
>> We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity, do ordain and establish this Constitution for the United States of America. <<
This is a wonderful sentence that does include "secure the blessings of liberty" and "establish justice" as two of the Top Six Reasons for Founding a Constitutional Republic, but also includes some other stuff as well. Among those other things are to "promote the general welfare." The precept of liberty is a critical element, but liberty will sometimes be restricted if it is contrary to domestic tranquility, injurious to the general welfare of the nation, etc.
We're reaching a level of diminishing returns on discussions of this point. We agree on most elements of liberty and free trade, but I think that in certain, fairly rare cases these should be limited in order to subordinate them to the general welfare of the nation. We just disagree over this point, as you seem to be insisting that this should never ever ever NEVER EVER happen, and I just think that's too absolute and too extreme to be true. I would take no great pride in being a free but savage nation. I'm not clear whether you would find that an acceptable outcome so long as liberty is preserved; or whether you simply don't think that the sort of liberty you insist on could lead us to that point. Those are two separate choices, and I think it matters which of them you believe.
Labor laws are one good example of this. Back in the bad old days, kids younger than 18 could work all manner of dangerous jobs at great toll upon themselves and their future (with respect to their schooling). Assuming that they were not physically compelled to perform these jobs, and they and their employers arrived at their employment agreements voluntarily, would you suggest that the laws preventing this be overturned? Or, would you suggest that workplace safety laws (applying to adults, so we establish that we're talking about those of majority age) be overturned so that the employer and employee negotiate individually upon workplace safety as part of the "voluntary exchange" of labor for pay?
Now for a few particulars:
1a. MP (7/20/2003): "There isn't even _one_ example in history of a dominant company harming its customers in the way you suggest is possible"
1b. MP (7/22/2003): "Next, I'd like to state what I consider to be 'harm': violating somebody's rights, which means initiating physical force (or threatening it) against a person or his property. This can be called 'political' harm.
Other types of harm are _moral_ issues, not political ones, and hence the government has no legitimate role in responding to them (or acting to prevent them)."
I think at least we've gotten to the bottom of this one. I'll address the last sentence first since it's the easiest. The government responds to one form of non-physical ("political") threats already (in a non-economic context) by way of slander and libel laws. Once you insist on such a broad and general statement ("government has no legitimate role in responding to non-physical threats), it has all kinds of consequences. Be prepared to defend the idea of striking libel and slander laws from the books.
But I have a more general problem with this pair of excerpts from your previous posts. I think it's just a little bit sneaky to make so broad and universal a claim, and to later justify it by explaining that the original statement is (of course) true, provided you use the following very particular definitions of harm. I'll agree that there's not much occurrence of companies violating the physical integrity of its customers or their property. It's bad business to do so. But price gouging occurs sometimes, as does collusion among competitors, and there is no question that financial harm can be done to a consumer, even if the amounts are minor or duration is short (and even if the consumer voluntarily paid his money despite the outrageous price).
In rare circumstances, applied sparingly, the government can actually contribute to the general welfare of the nation by interfering in some really offensive transactions. Loan sharking at 1000% interest; collusion and price fixing; disaster area price gouging; abuse of monopoly power; etc. I just don't find the argument convincing that says we should never interfere in a voluntary transaction under any circumstances, no matter how egregious. That just can't be right.
2. MP: "Such companies can be handled with normal criminal law - anti-trust isn't necessary."
I'm not clear where you would draw the line between "normal" criminal law and anti-trust. The Sherman Act is itself criminal law, just like the laws that ban fraud.
>> Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony[.] << (§ 2 Sherman Act, 15 U.S.C. § 2)
3. MP: "Predatory price wars - this is one of the specific fallacies exposed by the economists I mentioned. The main thing to keep in mind here is that a successful business manager would have to be almost literally _crazy_ to try this - and his boss ought to fire him if he tries (and the board of directors should fire _him_ if he doesn't)."
I realize that yours is one interpretation, and there is much to support this idea, but this is not actually the end of the discussion on this. While what you say with respect to actual predation of this sort is generally (though probably not always) true, asymmetric information plays a role in this subject and it cuts both ways. Forgive the long excerpt, but this (from The Economist) is too on-topic to pass up:
>> The consensus of the early 1980s said that preying on would-be competitors [via predatory pricing] would be too expensive...Game theorists showed otherwise. An incumbent firm may convince entrants that it will cut prices sharply if they dare to compete. It is the credible threat of predation, not the actual making of losses, that deters competition--and issuing threats is cheap. Game theorists had made predatory pricing seem feasible again. ...
The debate takes another twist with a new book by John Lott, a fellow in law and economics at the University of Chicago...As Mr Lott says, a chief strand of the game-theory account of predatory pricing relies on the idea that incumbent firms have an advantage over would-be entrants--they know more, especially about their own costs, than newcomers do. This advantage helps them to issue a credible threat to cut prices. The role that "asymmetric information" plays in the analysis has gone largely unchallenged. This was a mistake, says Mr Lott.
For entrants, too, have privileged access to crucial information--information about their own intentions. And they are in a position to profit from this knowledge. Suppose a monopoly is enjoying high profits, deterring competition by the mere threat of predation. The stockmarket values the firm accordingly. A would-be entrant knows that once it announces its arrival, the value of the monopoly will fall (whether or not the firm actually carries out the threat to price at a loss). The entrant can short-sell the monopoly's shares before beginning to compete, thus boosting its expected returns. ...
The potential entrant's information changes things. In cases where the game-theory models say that one would be very unlikely to appear, this new factor pushes the other way, making competition more likely than before. The current presumption that threats can be credible because of asymmetric information therefore needs to be re-examined.
Mr Lott next investigates empirically a different aspect of the current consensus. For the threat of predation to be credible, the monopoly's managers must be rewarded in ways tied to output, not short-term profits (because profits would suffer if the threat were carried out). The managers must also be entrenched (for instance, protected from threat of hostile takeover); otherwise, owners could renege on their promise to disregard short-term losses. Mr Lott examines companies that have been sued for predatory pricing, comparing those that were sued successfully with the others, and also with benchmarks for similar firms that were not sued at all. Managers of accused companies were on the whole no better entrenched than the rest; and their incomes were about as much tied to short-term profits. This is consistent with the old view of predation?that the threat to price at a loss is not credible, and predation is no good as a strategy.
Mr Lott makes some other good points. For instance, he argues that government enterprises are far more likely to engage in wasteful, anti-competitive pricing than private ones (and he finds empirical evidence to support this). Yet there is a nagging omission. Mr Lott refers now and then to the antitrust action against Microsoft, making it clear that he regards it as wrong-headed. That is, of course, consistent with his free-market, Chicago-school outlook--but nowhere does he discuss Microsoft or other high-tech companies head-on.
This is a troubling gap. On Mr Lott's own analysis, Microsoft looks exceptionally well-placed to make credible threats. Could any manager be more firmly entrenched at the head of his company than Bill Gates? And Microsoft's bosses take their rewards principally in the form of increases in the value of their shares--which puts long-term profits at a premium over short-term profits. << (The Economist, "Preying on Theory," 7/8/1999)
So maybe it's possible to do, maybe it isn't; I just don't think current theory has answered this one. To suggest that we have a definitive answer here seems optimistic to me.
4. MP: "Lastly, my main objection to allegations that anti-trust remedies like breaking up a company are beneficial on net balance is that they commit a major economic fallacy. These allegations pay attention to what can be seen (the wealth produced in the aftermath), but not to what _cannot_ be seen: the wealth that did not come into existence because the original company was broken up.
It is _understandable_ that people would do this, since nobody can measure what doesn't exist, but it is a mistake, and that mistake invalidates the allegations of benefit."
This is a hard objection to accept. I previously cited two examples of wealth being created in the aftermath of a breakup; your reply that there are unmeasurable offsetting reductions in wealth is possibly true, but how much are those benefits? How do you know which is the more significant (the measurable wealth-creating instances cited or the unmeasurable wealth-destroying effects)? Really, as convinced as you are of the veracity of your theory even without the availability of numbers to support it, it sounds like this is your "gut feel." This gets back to my suggestion that part of economic theorizing today is based on political preferences. At a minimum we should acknowledge that the verdict is undecided on this one. Personally I would argue that in such cases where evidence is ambiguous, but what we've been doing seems to have produced the world's best economy, the burden of proof is on those who would argue that what we've been doing all along is wrong.
So where does that leave us? Oddly enough, for all the discussion, it leaves us in agreement on most substantive issues; our disagreement only surfaces at fairly rare and extreme edges of capitalism. I'd argue for some occasional consideration to the general welfare where you argue that such consideration is actually detrimental.
I've greatly enjoyed the discussion, and I hope you have as well.
JKS.
Return to the index for this subject.
7/22/2003
The following necessarily leaves alot of questions unanswered, because I can't write a book in response to you (but this comes close anyway). Instead, I'm just "peeling off one layer of the onion", so to speak. I'll have something to say about some of the concretes you mentioned, but I'm going to focus on principles.
Let me start by stating that I'm not a Libertarian. The view that the government is evil or a necessary evil is wrong. Consequently, I don't agree with economists or others who think that. A government that secures individual rights is _good_ - only a government that doesn't is bad. I agree with the founders view that the purpose of government is securing individual rights.
Next, I'd like to state what I consider to be "harm": violating somebody's rights, which means initiating physical force (or threatening it) against a person or his property. This can be called "political" harm.
Other types of harm are _moral_ issues, not political ones, and hence the government has no legitimate role in responding to them (or acting to prevent them). In fact, to do so is to cause political harm, to violate individual rights, because it cannot be done except by threatening or initiating physical force. That directly contradicts the purpose of government.
Regarding my claim that there are no examples of companies engaging in voluntary exchange causing harm to consumers, I'm basing this on several things: the above meaning of "harm", the history of several companies alleged to have done this, and the principle that voluntary exchange _cannot_ cause such harm.
A company causing harm in the political sense is not engaging in voluntary exchange - it is using physical force, e.g., as with fraud. As such, it doesn't count as an example. Such companies can be handled with normal criminal law - anti-trust isn't necessary.
The history of the famous anti-trust cases I have looked into shows me that the harm was perpetrated by the _government_ against the accused company, and the accused company was guilty of nothing but excellence. The case of Alcoa is the single best example of this, but I've read similar things about Standard Oil and a handful of others.
Voluntary exchange between two parties may cause _disappointment_ to some third party, it may frustrate their desires, it may even cause that third party to go out of business (in the case of large numbers of such exchanges in a free market summing in favor of one company and against another). None of these, however, are legitimate political issues since they don't cause harm in the political sense.
Your (and often my) bitching about Microsoft products is in response to that category of non-political harm (perceived harm, anyway). We don't like it, but the government has no business doing something about it.
Now, about some of the concretes you mentioned. The "barriers to entry" problem is to be expected. Some markets simply require huge amounts of capital to get into, and somebody _without_ such capital has no right to cry foul because he can't get in. Those who do have the capital, have it because they already have a long track record of success in other markets, and hence people are willing to invest in them. Those who don't are in that situation because they don't have that track record. Customers who want what is produced in these markets can _wish_ there were more choices, but none of them can legitimately claim that because there aren't, somebody is doing something bad.
Predatory price wars - this is one of the specifc fallacies exposed by the economists I mentioned. The main thing to keep in mind here is that a successful business manager would have to be almost literally _crazy_ to try this - and his boss ought to fire him if he tries (and the board of directors should fire _him_ if he doesn't).
The premise of this fallacy is that a company has large sums of money due to good profitability, and then decides on purpose to stop making a profit and take losses in order to drive out competitors, and thus be free to charge prices free of market pressures. Even setting aside the "crazy" claim above, this cannot succeed.
Even if it drives out competitors without going bankrupt first, the instant it tried to recoup the losses by charging outrageous prices, two things would happen. First, most of its customers will become extremely disgruntled, because they will see that they are being gouged. Second, competitors who can undercut that price and still make a profit will enter the market, attracting the mad customers, and forcing the gouger to lower its prices or go out of business. That process would continue until prices settle at the lowest levels that sustain the market. The end result of that is necessarily that the crazy company will not have recouped its losses, and its reputation will have been ruinously damaged.
Note that charging _lower_ prices but still making a profit can drive out competitors who can't make a profit at that price, but that is perfectly legitimate.
Lastly, my main objection to allegations that anti-trust remedies like breaking up a company are beneficial on net balance is that they commit a major economic fallacy. These allegations pay attention to what can be seen (the wealth produced in the aftermath), but not to what _cannot_ be seen: the wealth that did not come into existence because the original company was broken up.
It is _understandable_ that people would do this, since nobody can measure what doesn't exist, but it is a mistake, and that mistake invalidates the allegations of benefit.
I apologize if I haven't addressed something you think needed to be. If I have, I'm sure you'll let me know. ;-)
Mark Peters
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7/21/2003
At least now, recognizing that I was debating someone who really has his own ideas, rather than regurgitating poorly understood philosophy digested from novels which are longer than necessary, we could get down to business.
Mr Peters,
Ah, the Austrian School. Of course. Now I've never really studied any of their serious works, though I am a little bit familiar with some of the ones you mention. I basically understand their philosophy to be pretty much Libertarianism, set to economics. There's nothing wrong with that, of course, and as a fiscal conservative, I have a great deal in common with an economic Libertarian: we both despise Keynes, we both claim that free trade benefits even its unilateral practitioners, etc.
But I have some problems with strict Libertarianism, and I have some problems with the Austrian School of economists by extension. Libertarianism has as its one great asset its total absence of self-contradiction, achieved mainly by taking an extreme but narrow position (just say "no" to government) and then insisting on its universal applicability. I find that position to be (forgive me) too simplistic to be satisfying, and as a consequence do not adhere to it.
I really don't mean to impugn the whole Austrian School of economics, which has contributed significantly to modern economic theory, especially in its innovative explanation of the business cycle. Though even there, their assertion that using fiscal and monetary policy to moderate a recession is a bad thing seems a bit extreme, and dictated by the absolute need to remain consistently on topic ("government BAD"). But I think that many other schools of post-classical economists have made contributions as well, and I can't say I wholly agree with any of them either. It seems to me that a choice of favorite modern economic system has become almost a political preference: liberals automatically love Keynes, and Libertarians automatically love the Austrians, because it results in one adhering to an economic system which won't produce predictions or solutions at odds with one's own political beliefs. Maybe that's the only reason I like Adam Smith.
Now as far as your last post is concerned, I must say that your provocative thesis has captured my attention. I want to ask a few follow-up questions to make sure I understand you correctly.
1. MP: "The main reason it is a fallacy is that when a company, dominant or not, begins displeasing its customers, it has no power to stop competitors who come on the scene in response."
Is this universally true? What about in an industry with high barriers to entry? What about a corporation which is willing to engage in a predatory price war if a new entrant comes along? If the incumbent has a sufficient cash hoard available, he could certainly outlast a new entrant; or is there something there I'm overlooking?. Or does your assertion of this powerlessness hinge on the presence of anti-trust regulators to stop such a thing?
2. MP: "There isn't even _one_ example in history of a dominant company harming its customers in the way you suggest is possible"
This claim certainly gets one's attention. It is so bold, so brash, that certainly somewhere you must have a study you can point to which backs this up. If so I would genuinely like to read it and would be grateful if you would point it out to me.
Further, are you arguing that it is impossible for a monopoly to hurt consumers the way I suggest, or merely that it's never been done?
And the last point about this claim is that this suggests that every anti-trust suit ever brought by our government must have been frivolous, even the successful ones. Microsoft lost its anti-trust case, though its penalties seem pretty minor; AT&T settled its anti-trust case and agreed to break itself up; Standard Oil was broken up into 34 companies, to name just a few obvious examples. Were all these decisions, proved in open court, wrong? I assume your answer is yes, but why? Were consumers hurt by these verdicts or was it simply an "unjust" or "unfair" result to penalize these successful companies?
3. MP: "- unless the company gained its dominance via the government."
At least we agree that state-granted, legally-enforced monopolies are bad things.
4. MP: "The only thing anti-trust activity has accomplished is the destruction of mass quantities of wealth and of the lives and careers of our best businessmen."
>> American courts do not much like breaking up successful companies. But when they do, the results are not always dire. Think of Exxon, Mobil, Amoco, Chevron: those companies, with a long and valuable history, are among the fragments of Standard Oil, broken up in 1911. In the subsequent decade, the value of Standard Oil's divided assets rose fivefold. John D. Rockefeller, lucky man, thus made more money in retirement than during his working life. << (The Economist, "Bill Rockefeller?," 4/27/2000)
>> The [1982 AT&T] breakup created an array of choices that consumers still find confusing. But it's widely agreed that it lowered long-distance prices and stimulated innovation. The companies created out of the Bell System, including those since swallowed up, are worth about $810 billion today, vs. $59 billion before the breakup. That 1,300% gain compares to a market-cap rise of just 140% for IBM over the same period. << (Business Week, "Commentary: The Lessons of the AT&T Breakup," 11/22/1999)
Please substantiate your previous comment in light of the above excerpts. And do you agree that post-breakup long distance prices are generally cheaper? If so, isn't that an instance of antitrust enforcement providing a benefit to consumers?
5. MP: "If you look at who complains about alleged abuses, you will see that it is not the customers of the accused company, but its _competitors_."
True enough, if all you're basing that on is reading the news. But I (as a consumer) bitch about my buggy, time-to-upgrade-again-where's-my-checkbook Microsoft software daily. I just don't do it in the news. I am going to assume that judges in antitrust proceedings discount competitors' claims somewhat to account for this effect.
I appreciate your willingness to participate in such a spirited debate, and I hope to learn something from your reply.
JKS.
Return to the index for this subject.
Mr Peters,
Ah, the Austrian School. Of course. Now I've never really studied any of their serious works, though I am a little bit familiar with some of the ones you mention. I basically understand their philosophy to be pretty much Libertarianism, set to economics. There's nothing wrong with that, of course, and as a fiscal conservative, I have a great deal in common with an economic Libertarian: we both despise Keynes, we both claim that free trade benefits even its unilateral practitioners, etc.
But I have some problems with strict Libertarianism, and I have some problems with the Austrian School of economists by extension. Libertarianism has as its one great asset its total absence of self-contradiction, achieved mainly by taking an extreme but narrow position (just say "no" to government) and then insisting on its universal applicability. I find that position to be (forgive me) too simplistic to be satisfying, and as a consequence do not adhere to it.
I really don't mean to impugn the whole Austrian School of economics, which has contributed significantly to modern economic theory, especially in its innovative explanation of the business cycle. Though even there, their assertion that using fiscal and monetary policy to moderate a recession is a bad thing seems a bit extreme, and dictated by the absolute need to remain consistently on topic ("government BAD"). But I think that many other schools of post-classical economists have made contributions as well, and I can't say I wholly agree with any of them either. It seems to me that a choice of favorite modern economic system has become almost a political preference: liberals automatically love Keynes, and Libertarians automatically love the Austrians, because it results in one adhering to an economic system which won't produce predictions or solutions at odds with one's own political beliefs. Maybe that's the only reason I like Adam Smith.
Now as far as your last post is concerned, I must say that your provocative thesis has captured my attention. I want to ask a few follow-up questions to make sure I understand you correctly.
1. MP: "The main reason it is a fallacy is that when a company, dominant or not, begins displeasing its customers, it has no power to stop competitors who come on the scene in response."
Is this universally true? What about in an industry with high barriers to entry? What about a corporation which is willing to engage in a predatory price war if a new entrant comes along? If the incumbent has a sufficient cash hoard available, he could certainly outlast a new entrant; or is there something there I'm overlooking?. Or does your assertion of this powerlessness hinge on the presence of anti-trust regulators to stop such a thing?
2. MP: "There isn't even _one_ example in history of a dominant company harming its customers in the way you suggest is possible"
This claim certainly gets one's attention. It is so bold, so brash, that certainly somewhere you must have a study you can point to which backs this up. If so I would genuinely like to read it and would be grateful if you would point it out to me.
Further, are you arguing that it is impossible for a monopoly to hurt consumers the way I suggest, or merely that it's never been done?
And the last point about this claim is that this suggests that every anti-trust suit ever brought by our government must have been frivolous, even the successful ones. Microsoft lost its anti-trust case, though its penalties seem pretty minor; AT&T settled its anti-trust case and agreed to break itself up; Standard Oil was broken up into 34 companies, to name just a few obvious examples. Were all these decisions, proved in open court, wrong? I assume your answer is yes, but why? Were consumers hurt by these verdicts or was it simply an "unjust" or "unfair" result to penalize these successful companies?
3. MP: "- unless the company gained its dominance via the government."
At least we agree that state-granted, legally-enforced monopolies are bad things.
4. MP: "The only thing anti-trust activity has accomplished is the destruction of mass quantities of wealth and of the lives and careers of our best businessmen."
>> American courts do not much like breaking up successful companies. But when they do, the results are not always dire. Think of Exxon, Mobil, Amoco, Chevron: those companies, with a long and valuable history, are among the fragments of Standard Oil, broken up in 1911. In the subsequent decade, the value of Standard Oil's divided assets rose fivefold. John D. Rockefeller, lucky man, thus made more money in retirement than during his working life. << (The Economist, "Bill Rockefeller?," 4/27/2000)
>> The [1982 AT&T] breakup created an array of choices that consumers still find confusing. But it's widely agreed that it lowered long-distance prices and stimulated innovation. The companies created out of the Bell System, including those since swallowed up, are worth about $810 billion today, vs. $59 billion before the breakup. That 1,300% gain compares to a market-cap rise of just 140% for IBM over the same period. << (Business Week, "Commentary: The Lessons of the AT&T Breakup," 11/22/1999)
Please substantiate your previous comment in light of the above excerpts. And do you agree that post-breakup long distance prices are generally cheaper? If so, isn't that an instance of antitrust enforcement providing a benefit to consumers?
5. MP: "If you look at who complains about alleged abuses, you will see that it is not the customers of the accused company, but its _competitors_."
True enough, if all you're basing that on is reading the news. But I (as a consumer) bitch about my buggy, time-to-upgrade-again-where's-my-checkbook Microsoft software daily. I just don't do it in the news. I am going to assume that judges in antitrust proceedings discount competitors' claims somewhat to account for this effect.
I appreciate your willingness to participate in such a spirited debate, and I hope to learn something from your reply.
JKS.
Return to the index for this subject.
7/20/2003
Here Mark disabuses me of my notion that he's a glib Randite, makes a few good points, and leaves me much more in a frame of mind conducive to an intelligent discussion. What follows tends to be much more on topic from both sides from here on out.
On 7/20/2003, Mark Peters wrote:
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On 7/20/2003, Mark Peters wrote:
Nope, it isn't my view that monopolies harm consumers. My view is that companies that have gained large market shares through voluntary means are beneficial for everybody.
We won't be able to agree on principles of classical economics, because I think classical economics contains too many errors to be of value. My heroes in economics are Von Vises, Menger, Bastiat and Henry Hazlitt not Adam Smith or other classical economists.
The view that weak or average people are somehow threatened by the existence of strong people is a fallacy about capitalism that the above thinkers exposed. The main reason it is a fallacy is that when a company, dominant or not, begins displeasing its customers, it has no power to stop competitors who come on the scene in response.
There isn't even _one_ example in history of a dominant company harming its customers in the way you suggest is possible - unless the company gained its dominance via the government. The only thing anti-trust activity has accomplished is the destruction of mass quantities of wealth and of the lives and careers of our best businessmen.
If you look at who complains about alleged abuses, you will see that it is not the customers of the accused company, but its _competitors_.
Mark Peters
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7/19/2003
Now Mark's last post certainly got my attention. Adam Smith is my favorite economist, and though a great deal of nuanced theory has developed since he wrote Wealth of Nations, the gist of it still holds true. It's not common to cite chapter and verse of Adam Smith and still have your argument slapped down, so I was somewhat at a loss here.
Mark's comment about Alan Greenspan at the end seemed to put it all together for me: In his wilder youth, Mr Greenspan wrote a number of somewhat radical economics and philosophical works endorsing a ruthless adaptation of laissez faire and libertarianism. He was also a personal friend (and philosophical bedfellow) of Ayn Rand.
I don't much like Ayn Rand. I keep suspecting I should, as from what I understand about her writing, a rigorous implementation of her philosophy would probably be beneficial to me personally. But I don't. There's too much inherent smugness to it, and the basic idea is that really really smart people shouldn't have all these restrictions placed on their ability to outcompete everyone to death, because those restrictions are just so bogus.
Probably 90% of Ayn Rand adherents I've spoken to are just so strenuously impressed by their own intellectual prowess, that having to play slightly well with others and soften the ruthlessness ever so slightly gets them all pissed off. In the post that follows there is much, much more in the same vein.
Not being sure what Mark was getting at, and starting to fear I had begun a discussion with a Randite, I kind of wandered into the weeds with this post, laying the framework for getting out quickly if I had a Randite on my hands. It turns out this wasn't really directed at Mark's main argument.
------------------------------
Mr Peters,
Thank you for your remarks disagreeing with my criticism of strict laissez faire economics. If you and I cannot agree on some of the elemental principles of classical economics, we may not be able to agree on much of anything in the end. But I'll expound a little bit on why I still cannot agree with you.
I hope that I understand your main argument to be that while a monopoly may be disadvantageous to consumers, it is a still greater evil to regulate or dismantle it by an act of government. If this is not the case, and you somehow want to suggest that a monopoly isn't bad for consumers, then we have a much deeper disagreement which I doubt we'll overcome here. That assertion would contradict every economics study I've read and you won't convince me of its veracity simply by citing Ayn Rand or Alan Greenspan circa 1971.
Now if I've understood you correctly, we don't have a disagreement on economics at all, just a difference of political philosophy. You seem to advocate some kind of pure meritocracy, wherin as long as one gains one's power or economic influence legally, there should be no limitations to how one excercises that power, no matter how ruthless. In this system, anything that coddles the weak would weaken society as a whole.
I've browsed Ayn Rand's works (I assume from your posts that you are an adherent of her philosophy, or something like it) and discussed them with friends who admire her, and I have frankly found them wanting. Quite apart from the self-impressed tone I find her philosophy to take, I believe that what she advocates is essentially a return to a Hobbsian state of nature, so long as that uninhibited state of affairs is confined to the intellectual fields, where she and her adherents believe they would excel. It all strikes me as entirely too self-serving and self-impressed to be taken seriously. And my admiration of Alan Greenspan dates to after his radical period when he and Ms Rand hung around, dreaming (it seems to me) of dominating the world with their superior intellectual powers, and pulling up the ladder after them.
The point is that any society where the weak or average are utterly at the mercy of the strongest, whether that be measured by brute strength, mental acuity, or economic clout, is not a society I could fully admire. I am a fiscal conservative and a staunch supporter of free trade; but I recognize that if a company outcompetes everyone else in the field, then every consumer is at the mercy of their whim to continue as a benevolent economic despot. It's not common that a company is that successful, and if they are they need mainly to be watched: we as a society don't break up or regulate companies which become monopolies unless they actually abuse the power they've acquired. I think that's a reasonable position which I support.
I hope I've at least been on point here with respect to our disagreement. And (since it can be hard to successfully convey the intended tone in these sort of posts), I want to point out that I meant no offense in any of my remarks, even though it seems we may disagree pretty signficantly on this.
JKS.
Return to the index for this subject.
Mark's comment about Alan Greenspan at the end seemed to put it all together for me: In his wilder youth, Mr Greenspan wrote a number of somewhat radical economics and philosophical works endorsing a ruthless adaptation of laissez faire and libertarianism. He was also a personal friend (and philosophical bedfellow) of Ayn Rand.
I don't much like Ayn Rand. I keep suspecting I should, as from what I understand about her writing, a rigorous implementation of her philosophy would probably be beneficial to me personally. But I don't. There's too much inherent smugness to it, and the basic idea is that really really smart people shouldn't have all these restrictions placed on their ability to outcompete everyone to death, because those restrictions are just so bogus.
Probably 90% of Ayn Rand adherents I've spoken to are just so strenuously impressed by their own intellectual prowess, that having to play slightly well with others and soften the ruthlessness ever so slightly gets them all pissed off. In the post that follows there is much, much more in the same vein.
Not being sure what Mark was getting at, and starting to fear I had begun a discussion with a Randite, I kind of wandered into the weeds with this post, laying the framework for getting out quickly if I had a Randite on my hands. It turns out this wasn't really directed at Mark's main argument.
------------------------------
Mr Peters,
Thank you for your remarks disagreeing with my criticism of strict laissez faire economics. If you and I cannot agree on some of the elemental principles of classical economics, we may not be able to agree on much of anything in the end. But I'll expound a little bit on why I still cannot agree with you.
I hope that I understand your main argument to be that while a monopoly may be disadvantageous to consumers, it is a still greater evil to regulate or dismantle it by an act of government. If this is not the case, and you somehow want to suggest that a monopoly isn't bad for consumers, then we have a much deeper disagreement which I doubt we'll overcome here. That assertion would contradict every economics study I've read and you won't convince me of its veracity simply by citing Ayn Rand or Alan Greenspan circa 1971.
Now if I've understood you correctly, we don't have a disagreement on economics at all, just a difference of political philosophy. You seem to advocate some kind of pure meritocracy, wherin as long as one gains one's power or economic influence legally, there should be no limitations to how one excercises that power, no matter how ruthless. In this system, anything that coddles the weak would weaken society as a whole.
I've browsed Ayn Rand's works (I assume from your posts that you are an adherent of her philosophy, or something like it) and discussed them with friends who admire her, and I have frankly found them wanting. Quite apart from the self-impressed tone I find her philosophy to take, I believe that what she advocates is essentially a return to a Hobbsian state of nature, so long as that uninhibited state of affairs is confined to the intellectual fields, where she and her adherents believe they would excel. It all strikes me as entirely too self-serving and self-impressed to be taken seriously. And my admiration of Alan Greenspan dates to after his radical period when he and Ms Rand hung around, dreaming (it seems to me) of dominating the world with their superior intellectual powers, and pulling up the ladder after them.
The point is that any society where the weak or average are utterly at the mercy of the strongest, whether that be measured by brute strength, mental acuity, or economic clout, is not a society I could fully admire. I am a fiscal conservative and a staunch supporter of free trade; but I recognize that if a company outcompetes everyone else in the field, then every consumer is at the mercy of their whim to continue as a benevolent economic despot. It's not common that a company is that successful, and if they are they need mainly to be watched: we as a society don't break up or regulate companies which become monopolies unless they actually abuse the power they've acquired. I think that's a reasonable position which I support.
I hope I've at least been on point here with respect to our disagreement. And (since it can be hard to successfully convey the intended tone in these sort of posts), I want to point out that I meant no offense in any of my remarks, even though it seems we may disagree pretty signficantly on this.
JKS.
Return to the index for this subject.
With this the discussion turns serious, as Mr Peters is advocating some pretty radical ideas all of a sudden.
On 7/19/2003, Mark Peters wrote:
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On 7/19/2003, Mark Peters wrote:
Adam Smith was wrong about monopolies. His labor theory of value is also wrong, but that's a separate issue.
The only time having a large or exclusive market share is damaging is when that market share is gained through force. And by force I mean real, physical force, as in guns and beating people up.
If you look through history, you will find that without exception, the harmful monopolies were created by such force - government force. These companies were granted legal exclusivity to their markets, and competing against them was illegal. The same sort of thing was accomplished through government subsidies.
By contrast, a company that gains such a market share through voluntary means is beneficial to everybody, not harmful. They are beneficial because voluntary exchange, i.e., trade is beneficial. Trade doesn't magically become harmful when done on a large scale.
If some outside party to a trade doesn't like it, he doesn't have any right to interfere, even if the end result is that he is out of business. This is especially true when the government is that outside party.
For the government to interfere by breaking a company up, fining it, etc. is forcibly to substitute a judge's or bureaucrat's judgment for the judgment of all the people who voluntarily traded with the company. And that is a massive violation of individual rights.
In a laissez-faire system, the initiation of such physical force or threat thereof would be banned. This is really what the concept of "limited government" means - a government limited to the function of securing individual rights, that is, of banning the initiation of physical force and enforcing that ban with appropriate laws.
Such a government is not a restriction of individual liberty. Only governments that violate people's right restrict liberty. Liberty is not the same as license.
Mark Peters
P.S. - You mentioned Alan Greenspan - at one time he understood all of this very well. I'm glad that he's the head of the fed rather than somebody else, but today he is no friend of freedom.
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7/18/2003
This is my response to Mark Peters' original post, located
here. In it he mentions laissez faire, which immediately gets my hackles up--as is obvious from the series of posts which followed.
I'm not persuaded that true laissez faire, or its political manifestation, libertarianism, are good things. I've read enough to suspect any solution which is offered as universally applicable. This strikes me as far too simplistic. And libertarianism is essentially an unnuanced position which is offered as capable of solving all ills. I could go on here but the remainder of our exchanges should make my opinions on it fairly obvious.
------------------------------
Mr Peters,
Your suggestion of a new basis for evaluating the political spectrum is interesting, but seems more useful as a philosophical theory than a basis for sound policy. I agree with you in broad principle, but pure laissez faire is not sound economic policy and would be damaging to the nation. If your reference to laissez faire was a figure of speech and not to be interpreted literally, then all the following (like much that I write!) is silly longwinded bunk and can be safely disregarded. BUT...
Individual rights were supreme to the Founding Fathers, but there has never been a suggestion that a civilized nation could allow individual rights unchecked indulgence. Our love and protection of individual rights are part of what makes us a great nation, but allowing the nation to self-destruct based on solely that principle does nothing to serve the original goal of promoting individual rights.
That was the whole point of our Constitution; the Bill of Rights, which we rightly revere, was something of an afterthought. America previously had operated under the Articles of Confederation, under which the nation was on the verge of splitting into thirteen independent, unrelated, soverign nation-states. The point being, that wishing to become a great nation by the intellectually consistent application of political precepts of liberty doesn't work if the nation itself doesn't survive and flourish as an entity.
So how is this relevant? Laissez faire is the only system of economics which is intellectually consistent with individual liberty. But the very nature of government in certain ways restricts individual liberty anyway, and certainly "the right to swing your arm stops at your neighbor's nose" is an old example of that. Liberty doesn't by itself allow a nation to become great if we're all running around whacking each other about the head, just to exercise our liberty to do so. And laissez faire has predatory
elements in it which amount to the very wealthiest among us economically whacking all of us about the head whenever they please, unchecked by any restraint. Pure laissez faire doesn't really work.
Adam Smith--which by now everyone probably realizes is my guiding authority on matters of economics, even above Alan Greenspan :)--already had pointed out that pure, unchecked laissez faire is a bad thing, as early as 1776. There should be no question that he thought free trade and commerce were Good Things:
>>The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations[.]<< (Book 4, Ch 5, Paragraph
82)
But monopolies, one ugly consequence of unchecked laissez faire, are uniformly bad, and it is proper to check their abuse. Smith mentions the adverse consequences of granting or allowing any sort of monopolies dozens of times in the book. Two quick examples:
>>If the tax had been considerable, it would have oppressed the small, and forced almost the whole retail trade into the hands of the great dealers. The competition of the former being taken away, the latter would have enjoyed a monopoly of the trade, and like all other monopolists would soon have combined to raise their profits much beyond what was necessary for the payment of the tax. The final payment, instead of falling upon the shopkeeper, would have fallen upon the consumer, with
a considerable overcharge to the profit of the shopkeeper. For these reasons the project of a tax upon shops was laid aside, and in the room of it was substituted the subsidy, 1759.<< (Book 5, Ch 2, Paragraph 103; emphasis mine)
And again:
>>By a perpetual monopoly, all the other subjects of the state are taxed very absurdly in two different ways: first, by the high price of goods, which, in the case of a free trade, they could buy much cheaper; and, secondly, by their total exclusion from a branch of business which it might be both convenient and profitable for many of them to carry on. It is for the most worthless of all purposes, too, that they are taxed in this manner. It is merely to enable the company to support the negligence, profusion, and malversation of their own servants, whose disorderly conduct seldom allows the dividend of the company to exceed the ordinary rate of profit in trades
which are altogether free, and very frequently makes it fall even a good deal short of that rate.<< (Book 5, Ch 1, Paragraph 119)
So the point of all this is that individual liberty is obviously economically important, and that the ability of everyone to make his own decisions based on his own interest serves the common good; but that unchecked capitalism becomes self-defeating when it is allowed to develop into a monopoly (which is a bad thing and should be prevented). And it's important to note that this is consistent with the apparent intent of the Federalists, who were pragmatic enough to temper their love of liberty with sufficient checks to ensure the US would flourish.
JKS.
Return to the index for this subject.
here. In it he mentions laissez faire, which immediately gets my hackles up--as is obvious from the series of posts which followed.
I'm not persuaded that true laissez faire, or its political manifestation, libertarianism, are good things. I've read enough to suspect any solution which is offered as universally applicable. This strikes me as far too simplistic. And libertarianism is essentially an unnuanced position which is offered as capable of solving all ills. I could go on here but the remainder of our exchanges should make my opinions on it fairly obvious.
------------------------------
Mr Peters,
Your suggestion of a new basis for evaluating the political spectrum is interesting, but seems more useful as a philosophical theory than a basis for sound policy. I agree with you in broad principle, but pure laissez faire is not sound economic policy and would be damaging to the nation. If your reference to laissez faire was a figure of speech and not to be interpreted literally, then all the following (like much that I write!) is silly longwinded bunk and can be safely disregarded. BUT...
Individual rights were supreme to the Founding Fathers, but there has never been a suggestion that a civilized nation could allow individual rights unchecked indulgence. Our love and protection of individual rights are part of what makes us a great nation, but allowing the nation to self-destruct based on solely that principle does nothing to serve the original goal of promoting individual rights.
That was the whole point of our Constitution; the Bill of Rights, which we rightly revere, was something of an afterthought. America previously had operated under the Articles of Confederation, under which the nation was on the verge of splitting into thirteen independent, unrelated, soverign nation-states. The point being, that wishing to become a great nation by the intellectually consistent application of political precepts of liberty doesn't work if the nation itself doesn't survive and flourish as an entity.
So how is this relevant? Laissez faire is the only system of economics which is intellectually consistent with individual liberty. But the very nature of government in certain ways restricts individual liberty anyway, and certainly "the right to swing your arm stops at your neighbor's nose" is an old example of that. Liberty doesn't by itself allow a nation to become great if we're all running around whacking each other about the head, just to exercise our liberty to do so. And laissez faire has predatory
elements in it which amount to the very wealthiest among us economically whacking all of us about the head whenever they please, unchecked by any restraint. Pure laissez faire doesn't really work.
Adam Smith--which by now everyone probably realizes is my guiding authority on matters of economics, even above Alan Greenspan :)--already had pointed out that pure, unchecked laissez faire is a bad thing, as early as 1776. There should be no question that he thought free trade and commerce were Good Things:
>>The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security is so powerful a principle that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations[.]<< (Book 4, Ch 5, Paragraph
82)
But monopolies, one ugly consequence of unchecked laissez faire, are uniformly bad, and it is proper to check their abuse. Smith mentions the adverse consequences of granting or allowing any sort of monopolies dozens of times in the book. Two quick examples:
>>If the tax had been considerable, it would have oppressed the small, and forced almost the whole retail trade into the hands of the great dealers. The competition of the former being taken away, the latter would have enjoyed a monopoly of the trade, and like all other monopolists would soon have combined to raise their profits much beyond what was necessary for the payment of the tax. The final payment, instead of falling upon the shopkeeper, would have fallen upon the consumer, with
a considerable overcharge to the profit of the shopkeeper. For these reasons the project of a tax upon shops was laid aside, and in the room of it was substituted the subsidy, 1759.<< (Book 5, Ch 2, Paragraph 103; emphasis mine)
And again:
>>By a perpetual monopoly, all the other subjects of the state are taxed very absurdly in two different ways: first, by the high price of goods, which, in the case of a free trade, they could buy much cheaper; and, secondly, by their total exclusion from a branch of business which it might be both convenient and profitable for many of them to carry on. It is for the most worthless of all purposes, too, that they are taxed in this manner. It is merely to enable the company to support the negligence, profusion, and malversation of their own servants, whose disorderly conduct seldom allows the dividend of the company to exceed the ordinary rate of profit in trades
which are altogether free, and very frequently makes it fall even a good deal short of that rate.<< (Book 5, Ch 1, Paragraph 119)
So the point of all this is that individual liberty is obviously economically important, and that the ability of everyone to make his own decisions based on his own interest serves the common good; but that unchecked capitalism becomes self-defeating when it is allowed to develop into a monopoly (which is a bad thing and should be prevented). And it's important to note that this is consistent with the apparent intent of the Federalists, who were pragmatic enough to temper their love of liberty with sufficient checks to ensure the US would flourish.
JKS.
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This was initially posted at Eject! Eject! Eject! in the comments section (related to the essay Trinity). There had been a few general comments posted previously on economics, some of which had taken something of a political or ideological bent. Mr Peters here weighed in on the matter by staking out his central principle of laissez-faire economics. This started a fairly long series of essays back and forth between us.
On 7/18/2003 Mark Peters wrote:
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On 7/18/2003 Mark Peters wrote:
My view on the prevailing concept of a "political spectrum" is that the spectrum is really a single point - and the point is false.
It's a single point because every position on the alleged spectrum takes
the same (wrong) view on fundamentals, and hence the whole thing collapses
down to one basic view. Whether left or right or in between, the idea that
individual lives are a means to an end is taken for granted, and is the moral
foundation of their politics.
For the left, our lives are a means to the ends of "society" or
"the public good". For the right, our lives are a means to the ends of God
or "tradition" - and in practice both of these often mean "society" or "the
public good".
This view is incompatible with the founding principle of the U.S.
- individual rights. People exist by permission, not by right if their lives
are a means to an end. Consequently, the left and the right both violate
our rights in countless ways. Both are based on a denial of the principle
of individual rights, and that's the false "point" I mentioned.
Instead of a spectrum for classifying political views, we just
need two buckets. All the political systems that are based on lives as a
means to an end (and hence a rejection of rights) go in one bucket; all
the political systems based on lives as ends in themselves (and hence an
acceptance of rights) go in the other bucket.
That first bucket is full: communism, socialism, fascism, religious
theocracy, monarchy, military dictatorship, mixed economy. The other bucket
has only one thing in it: capitalism ... and not the pseudo capitalism we
have today, but laissez faire.
Mark Peters
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