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Libertarian conundrum?

One of the most appealing aspects of a libertarian outlook is simplicity. It is often the case that when one examines, in greater depth, what initially appears to be a libertarian conundrum, it proves not to be. One such faux-dilemma, suggested to me by Alan K. Henderson’s comments to Andy’s post below, is the extent to which liberty can be threatened by non-state interests.

This can be the basis for populist political crusades against “Big Oil”, “Big Pharma”, even “Big Food”. The faux libertarian conundrum is the notion that we need a strong state as a guarantor of “real competition”: to break up monopolies in the interests of consumers. Yet surely such interference in the market is un-libertarian? In reality the conundrum evaporates when one examines how such monopolies arise. Put simply, monopolies wither in the free market and thrive under state regulation. Such monopolies, rightfully abhorrent to any free market capitalist or libertarian, are sustained by the very political system which seeks to regulate them. Just as the enforced “tolerance” of multiculturalism is a form of intolerance, so enforced competition is inimical to true free-market competition.

A similar dilemma is suggested by considering the plight of those in Northern Ireland who have fallen foul of paramilitaries. It matters little to a person tortured or exiled on threat of death whether his tormentors are acting for the state or a paramilitary group, Yet so-called human rights bodies such as Amnesty International, pay little attention to the human rights of such individuals, reserving their comments for infringements by state forces. Glenn Reynolds struck a chord when he cheered David Trimble for pointing this out. Needless to say this did not go down too well with some of the socialists and nationalists who comment at Slugger O’Toole. The conundrum is that surely a libertarian can agree with Amnesty’s justification: It is proper to be more concerned by state abuses than actions by private agents.

In examining this “conundrum” it also evaporates but leads to a surprising, counter-intuitive insight. In the segregated, working class urban ‘bantustans’ of Northern Ireland, paramilitaries are in a position to exert punishment and enforce exiles because they have been ceded a monopoly of violence. By the state. Local hostility to police forces means they are reluctant to carry out normal policing and individuals are prevented from defending themselves. This gives the paramilitaries a free run. Though they are nominal antagonists, the IRA effectively operates a monopoly of violence backed by the British state. The plight of its victims should be the proper concern of any agency which professes to uphold human rights.

44 comments to Libertarian conundrum?

  • I understand the apparent conundrum of big business, but I can’t quite grasp what you mean about the conundrum of paramilitary groups.

    Conventional wisdom has it that without strong law enforcement by governments we will be at the mercy of criminals and gangs with guns. Saying that the territorial monopoly of violence has been ceeded by government to another violent group which violates people’s rights hardly seems to frame the issue in any different way.

    If police powers were reduced could it then be said that government had ceeded the use of violence to the common criminal?

    Or does the argument turn on the government making effective force by the would be victims illegal?

  • Andy Duncan

    Hi Frank,

    Yes, I had a recent dinner party I was hosting spoiled by this syndrome. A guest said to me “Andy, you traitor to socialism, libertarianism is stupid because we need the government to protect us from monopolies”. It took me a while to recover from that, and a large gulp of Czech lager, but the thrust of her argument was that without state control, a company like Wal-Mart will take over all food outlets, and then exploit us by charging us “too much” for our food.

    It eventually came down to me saying that even IF Wal-Mart could eventually buy up Tescos, Sainsburys, et al, I had no problem with this, on a genuinely government-control free market, because a). they would’ve achieved this pre-eminence by serving the consumer better than any other provider, offering better products, cheaper prices etc. And b). that they would only be able to hold this ‘monopoly’ by continuing to offer a better product than anyone else could on the market.

    Tush, she said, how could she start her own supermarket to compete with them? I was obviously an idiot. I replied she wouldn’t have to, another retailer would, if they saw the opportunity, if Wal-Mart let them in by over-charging, such as WH Smiths, Boots, JD Sports, whoever.

    No, she said. You don’t understand. What if Wal-Mart take over EVERY retail outlet.

    Well, I said, every SINGLE Wal-Mart general store manager would be able to go to a bank, put up a business case, and get the funding required to buy a rival store to Wal-Mart IF he thought he could do a better job than himself of managing a store under his own ownership, rather than that of distant Wal-Mart shareholders.

    The wonder of capitalism, I said, is that successful capitalists have to keep training up their own future competition.

    The banks, I said, would be falling over themselves to offer this successful general manager money, so that they could get a piece of his action, knowing that so motivated he would do a better job as a knowledgeable owner, rather than as a waged employee, in running a food market store.

    Tush, she said, surely Wal-Mart would get a deal with government to stop their manager from doing any such thing. Bingo, I said, I believe that’s called being ‘hoist by your own petard’. If the government have no power, Wal-Mart won’t be able to use government lobbying power to crush food market opposition, only genuine consumer preference would keep them in a position of pre-eminence. And what would be wrong with them being SO GOOD, that nobody could compete with them, anyway, if that was the case? Though I said it would be a weird world in which the employee running a store couldn’t do a better job of it on his own account, with full ownership.

    Well, it was a bit heated by then. “We need governments,” she said. “It’s only governments which can stop monopoly!”.

    “Ok,” I replied, let’s agree to differ. “But if governments are so wonderful, and are so necessary to create competition in markets such as food, because competition is so good and so wonderful, and so good for us as consumers, just why the heck do they spend so much of their time trying to crush competition in markets such as health and creating market monopolies? What exactly is the difference in principle between health and food? If anything, food is even more vital than health. Without health care, most of us would get along in some form or other. Without food, we’re all dead in about a week. Can you imagine what a National Food Service would be like? Two bags of potatoes a week if we were lucky. Are the UK government also charging us TOO MUCH for decent healthcare because of their deliberate creation of health monopoly? If not, why not?”

    There was, of course, no answer. Though I fear I may have lost a future dinner guest, and any chance of an invite back to her next soiree.

    Oh, it’s fun attending a dinner party in my house, especially if you start slagging off libertarianism! :-)

    You may be unsurprised to know the number of socialists I know socially is rapidly dwindling.

    Do you have any advice to stop me losing all of these people? I still welcome their company. I just won’t sit there and smile, any more, when they promote the cause of collectivism.

  • Andy… I wonder if your comment is longer that the article upon which you are commenting?

  • Andrew Carnegie

    In reality the conundrum evaporates when one examines how such monopolies arise. Put simply, monopolies wither in the free market and thrive under state regulation.

    The American market in 1890 was the Wild West by present regulatory standards, yet it gave birth to enormous trusts like Standard Oil and U.S. Steel.

    How does this square with your theory?

  • Twn

    Mr. Carnegie asks a good question. Obviously there were purely private agreements between various businessmen involved, but a huge chunk of those trusts resulted from buying local and national political influence. There’s at least one famous old political cartoon from the trust-busting era showing a lineup of tremendously fat U.S. Senators, each with a moneybag for a head, labeled “Oil” or “Steel” or “Railroads”, etc.

  • Greystoke;

    The conundrum is not the phenomenon of paramilitary groups but about how one responds to an Amnesty type who tells you that the detention, torture and summary execution of someone by a paramilitary group is none of their concern because it wasn’t carried out by state forces. My point is that, whatever the state’s intention, the outcome is that the monopoly of violence held by paramilitaries withing their areas is backed by the state through inaction and gun control.

    Andy:

    You may be unsurprised to know the number of socialists I know socially is rapidly dwindling.

    You guessed correct! As for how to retain socialist friends, I suppose the idea is to only attack enforced collectivism in response to promotion of same. Those who are boorish enough to bring up the subject regularly or attempt to goad you to a response are best avoided anyway. I have a socialist uncle and aunt, former London schoolteacher and nurse retired to France – they regularly watch Al-Jazeera- who fall into this category.

    Andrew Carnegie:

    As Andy notes, if, by some miracle, a monopoly spontaneously arises, then it is the inevitable wish of the overwhelming majority of its customers. In reality, you can’t please all of the people all of the time. The only effective way for a monopoly or cartel to shut out new entrants is by state action or violence.

  • johnny winters

    Andy, Microsoft is a good example of how a company can exploit monopoly power to subvert fair competition. When Netscape had its IPO, it had the best and most popular browser on the market. A few years later, it was toast. Why? Because Microsoft bullied customers into adopting Internet Explorer by threatening to withhold Windows.

    Why shouldn’t this sort of behavior — which borders on extortion — be regulated?

  • Ciarán

    Yawn!

    ytet another anti-republican mini-rant lightly wrapped in a ‘deeply thought out’ theory of anti-state monopolies…

    When will it ever end Frank? When we are in the Commonwealth? when you wake up and post your snail mail in the red letter box?

    I agree with the initial concept of forced by state interference into monopolies (as wanted by Libertarians) as often throwing up conundrums,

    YET
    when you say this:
    “surely a libertarian can agree with Amnesty’s justification: It is proper to be more concerned by state abuses than actions by private agents.”

    I agree with this statement yet do not believe this evaporates as easily as you wish it to.. (sans elaboration i see)…

    It is up to the state predominantly to eradicate any paramilitarism not the locals. That the state cannot do this is another issue altogether.

    The fact that the state is carrying out attacks on it’s ‘citizens’ however is very different, although perhaps not to the victim.

    this is the problem, however, when you take the issue through the eye of the singular victim. This is not the norm in anti-crime policy as far as I know.

    If a run of the mill thief burgled my home I would expect the police (state) to look after me, BUT if the police burgled me it would be a very different case.

  • Frank, is your argument really that government should EITHER control the paramilitary groups OR allow citizens to defend themselves with effective force?

    How can the government enforce a ban on firearms if it can’t control the action of the paramilitary groups?

    If I am just demonstrating how unable I am to comprehend your point, don’t be too offended. Ciarán’s remarks above are about as clear as mud to me too.

  • Drew Bagnell

    The M$/Netscape comment is largely bogus. Did you ever
    trying using Netscape 4.0? It’s largely unrecognized, but
    MS won because they quite simply built a better browser,
    while Netscape actually went backwards.

  • Larry

    Drew, agreed. And almost anyone who owns a computer knows how to download Netscape if they prefer it as a browser.

    That this was the main thrust of the action against MS is particularly rankling to me.

  • Greystoke:

    My argument is that because the state has ceded control of certain ghettos to the respective paramilitary groups and that armed self defense is illegal, that the paramilitaries are in an analogous situation to a state perpetuated monopoly. Thus “human rights” groups have as much reason to highlight actions by paramilitaries – the de facto authority in certain areas – as they do abuses by state forces.

    Ciaran:

    For elaboration, see my explanation to Greystoke. This isn’t an “anti-republican mini-rant” at all, rather it is an argument against the way Amnesty and others ignore human rights infringements by non-state forces. It goes without saying that this goes for loyalist paramilitaries and republicans.

  • limberwulf

    There was accusation of Netscape not running as well on MS Windows as IE. I am not sure if it was proven to be the case at the time, but I know it is not the case now. If it was, this was a violation of contract, since MS grants rights by contract for other company’s programs to interface and run with Windows. This is a legit legal issue, even from a libertarian view.

    As for Netscape now, it basically sucks. At one time it was superior to IE in encryption, etc, but now IE does quite well, and if I wasnt somthing different I will more likely use Mozilla.

    Netscape was good for the market, even tho they lost. IE improved significantly since then, and it has continued to be a market leader for most things. Its a case of a good monopoly. If the monopoly company can indeed do things better than anyone else, then they should be the only players. When someone has a truly better idea that they cannot or will not compete with, the monopoly will fall.

    Markets may not correct instantly, the moves of supply and demand, the delay of consumers switching to a new brand due to lack of knowledge (you cant buy the better brand of you dont know about it) may often make things appear to be out of balance in the short term. The issue with government intervention is that even if it could be a viable short term fix (which I do not think is the case) it would remain simply a short term fix, the long term results being quite negative, whereas free market correction, while at times slower acting, is far more positive long term and always finds a balance. Bottom line, instant gratification in an economic system is jsut as damaging as it is in a person’s diet. Think long term.

  • Bombadil

    There was accusation of Netscape not running as well on MS Windows as IE. I am not sure if it was proven to be the case at the time, but I know it is not the case now. If it was, this was a violation of contract, since MS grants rights by contract for other company’s programs to interface and run with Windows. This is a legit legal issue, even from a libertarian view.

    It’s not Microsoft’s responsibility to make sure that Netscape runs well on Windows. It’s Microsoft’s responsibility to avoid sabotaging Netscape – and thats all.

    The crux of the case against MS (as I recall) was that they didn’t allow OEMs much liberty with regard to pre-installed software and desktop icons – which was a valid point, but much mitigated by the fact that the end-user had complete control over which software they used. Microsoft never, to my knowledge, hard-coded inhibitions against running any browser (or other software) into Windows.

  • veryretired

    There are two points which have been alluded to but not stated clearly.

    The first is that the stated intentions of regulation, whether to control monopolies or for any other “socially laudable” purpose, are rarely followed by consequences that fulfill the promises made. It is not only anti-business types which call for regulations, but those who are “in business” who do not want to have to keep competing with anybody who happens to come along.

    The true purpose of regulation is very often restricting entry into the market, just as artisans’ guilds and labor unions attempt to restrict the entry of unwanted competition into their respective areas of endeavor. The best current example of this is the nursing shortage. Gaining the title of RN has become more and more expensive and complex, thus reducing the numbers available.

    The business world is filled with examples of publically regulated monopolies, such as utilities, cable companies, transportation services, etc., which are happy to pay off whoever it takes to maintain their position. It is one of the great successes of collectivists’ slight of hand that the “regulators” who extort the payments are cast as the poor, corrupted, (but well meaning)
    victims of the evil capitalists.

    Secondly, anytime there emergences a dominant entity in some business, the cry goes up that this is an emergency, and immediate action must be taken to protect the ever helpless public from this predatory monster. The railroads are the classic example, although the other trusts and alleged monopolies of powerful businesses like Standard Oil, IBM, General Motors, General Electric, and Microsoft, all follow the same pattern.

    Within a few decades of having been accused of predatory powers, these various industry giants are often in trouble and struggling to survive. Have you heard anyone calling for the public to be protected against the Union Pacific, or IBM for that matter, lately?

    That such demogoguery (?) continues generation after generation is one of the clearest failures of our educational system. It is an unfortunate fact that he exposed nipple of a has-been singer can cause endless outrage and news reporting, while the dismissal of the anti-trust case against IBM, due to the progression of the computer industry past all the issues involved, at practically the same time the case against Micorsoft was filed, alleging the same kinds of supposed detrimental behavior, was barely noticed.

    It is not information we are being innundated with—it is trivia.

  • No, I think you are wrong there.

    As Judge Bork points out in his landmark “The AntiTrust Paradox”, there are times when market conditions (such as high barriers to entry) or actors in the market (such as a combination to restrain trade) can be quite oppressive.

    The barriers to entry example would include things like airplanes and trains – it takes huge companies with much capital to build or operate. If a company vertically integrates – say a train company buys the only supplier of locomotives, in order to corner the market – the barriers of entry to a potential competitor are too steep. Until the cost of travel becomes incredibly prohibitive, the sole supplier of railroad services can warp the transportation market. Ordinarily, this might not be a big deal – but the types of market that have high barriers to entry often occupy critical positions in other markets – so the train company that charges punitive rates hurts the coal and oil companies, the steel and car companies and the food companies that ship via rail.

    The other example, combinations to restrain trade, function similarly. A conspiracy between multiple players in the market to raise prices similarly warps the market. Most trusts fail at some point – the price gets high enough, that one or more players will decide to quietly back out of the agreement to keep prices high, and sell for a while at a slightly lower rate. The rest of the trust eventually breaks down, when they see the free-lance merchant reaping a windfall profit, from much higher volume at slightly lower rates.

    These are the clearest examples I can think o, to explain why many good libertarians are Chicago Boyz – fans of Friedman or Hayek, but insisting that government can play a useful role in ensuring the markets are fair.

    Another example is in the securities market. It’s easy to say that companies that lie and deceive will be punished by market forces. It’s true. Due to the interlocking nature of financial institutions, however, chalking up financial disasters that take out a chain of businesses (some honest, some not) as an “adjustment” invites social unrest. Darwinism is fine for paper models and sparrows; it invites political revolution in the real world. The term “Great Depression” ring a bell here?

    The insider trading rules (no use of special information; no buying and selling of stock on a short notice basis) are a good example of where a little government intervention can do a world of good. The rules prevent fraud – not so much in a rising market, when everybody profits, but in a falling market.

    Allowing insiders to trade rapidly, exploiting insider knowledge, allows them to exploit a knowledge advantage they have solely as a result of being fiduciaries for the shareholders. It also insulates the insiders from the consequences of bad business decisions. Since companies often hold some of their own stock, and executives almost always do, they should be tethered to the fate of their company. Allowing them to make a bad short term decision to boost stock price (e.g. misstating profits) then to sell before the price drops, would incentivize misbehavior and crooked markets.

    It’s true also that you can make a good argument in favor of efficient insider trading – but like efficient breach of contract, it is a good thing only under some circumstances. As long as humans are humans, it will remain true that some degree of trust remains critical to the markets, and the government is sometimes best positioned to do that.

    So while the unregulated market is fine in your village economy, it doesn’t have a very good history in capital markets.

  • Andrew Carnegie

    What Al said.

  • Al:

    I’m no economist but it strikes me that there are a few dubious assumptions upon which your argument rests.

    The barriers to entry example would include things like airplanes and trains – it takes huge companies with much capital to build or operate. If a company vertically integrates – say a train company buys the only supplier of locomotives, in order to corner the market – the barriers of entry to a potential competitor are too steep

    This sounds plausible but ultimately fails. The barriers to entry may be too steep for me or you, but not for someone with the capital or the cojones to borrow the money. The entry-barrier is not strictly the cost alone but the cost combined with risk and likely reward. The person with the resources might feel that there isn’t enough in it for them. This means that even in an unregulated monoply situation, there is some pressure on the monopolist to avoid over-punitive rates which would make it more attractive for entrants.

    Remember also that in an unregulated market there is no such thing as “the only supplier of locomotives”. You assume that cornering the market is desirable and beneficial. In fact, attempting to corner the market is a pretty good way of losing your shirt as the Hunt brothers found out.

  • Drew Bagnell

    Another example is in the securities market. It’s easy to say that companies that lie and deceive will be punished by market forces. It’s true. Due to the interlocking nature of financial institutions, however, chalking up financial disasters that take out a chain of businesses (some honest, some not) as an “adjustment” invites social unrest. Darwinism is fine for paper models and sparrows; it invites political revolution in the real world. The term “Great Depression” ring a bell here?

    The moral hazard on the otherside if often worse. So that
    Chrysler and Long-Term Capital Management begets
    Enron. None of these collapses destroyed the economy
    but the impact of bailing out the early ones made
    for more bad apples later.

    The insider trading rules (no use of special information; no buying and selling of stock on a short notice basis) are a good example of where a little government intervention can do a world of good. The rules prevent fraud – not so much in a rising market, when everybody profits, but in a falling market.

    If true, as my intuition also suggests, investors will
    demand contracts of the employees enforcing this. There
    remains no need for the state to legislatively intervene.

  • One difficulty any libertarian has to face when talking about monopolies is the problem of increasing returns. Ideology aside, it really is the case that some markets naturally tend to monopoly. This isn’t necessarily enough to justify government intervention, as the cure well might be worse than disease, but it is an issue that can’t be pushed aside with a bit of libertarian hand-waving.

    I strongly suggest that anyone interested in seriously addressing this issue at least take a look at a decent microeconomics textbook, like, say, Hal Varian’s Intermediate Microeconomics. The problem of monopoly is a lot more fraught with difficulties than is being let on here. As for the following comment,

    “IE improved significantly since then, and it has continued to be a market leader for most things. Its a case of a good monopoly. If the monopoly company can indeed do things better than anyone else, then they should be the only players. When someone has a truly better idea that they cannot or will not compete with, the monopoly will fall.”

    the most charitable thing that can be said about it is that the person who made it is clearly unaware of the numerous problems with Internet Explorer that Microsoft has failed to do anything about. Mozilla is so far ahead of IE in support for important new technologies like SVG, CSS, XHTML 1.1 and MathML that it staggers the mind that anyone could think Microsoft’s product any kind of “leader.” You may think these new technologies niche-oriented and of little importance in the great scheme of things, but all the promise of Tim Berners-Lee’s Semantic Web vision will continue to be no more than a dream until Microsoft gets off its behind to support them, which as a monopolist capable of setting de-facto standards it has no economic motivation to do. What is more, IE is by design little more than a gigantic security hole pretending to be a browser, unnecessarily hardwired into the operating system to preserve Microsoft’s monopoly, and burdened with a brain-dead security model whose sole rationale was to advance Microsoft’s ActiveX technology at the expense of Netscape.

    In short, the explanation of the Northern Irish situation in terms of monopolies of force may well have something to it, but it is a far cry from that to saying that monopolies everywhere are never a problem. That just isn’t true, especially not in telecommunications or the software industry. Heck, it isn’t even true with online auctions – Ebay is as natural a monopoly as they come.

  • I also forgot to mention another term one ought to keep in mind when thinking about monopolies – the network effect. The network externalities that arise from this effect are at the root of the power held by firms like Microsoft, Ebay and the local telephone monopolist. Where there is no regulator to enforce interoperability and open standards, the network effect can and does lead to a substantial deadweight loss. While some monopolies and cartels are inherently fragile, it is simply naive to think that monopolies are never in need of regulating.

  • Andrew Carnegie

    What Abiola said.

  • What Andrew said about what Al and Abiola said.

  • M. Simon

    The drug war is rent seeking by big pharma. Pot could be a significant competitor to their anti-anxiety drugs.

    Tenths of a cent a dose vs dollars.

    If you bring this point up you and your socialist friends might find you had one or two things in common.

    Then you can go on to big tobacco, and big alcohol.

    This is an obvious case of too much government protection the libs and the socialists can agree on.

    You might then nudge them on how if government can’t be trusted re: drug laws why should it be trusted to offer real constructive help in any market.

    You might then go on further and discuss the ICC in America which was set up to guard the people from railroad monoplies and ended up being run by the railroads.

  • toolkien

    I’ve been a firm believer that Big Business and Big Government walk hand in hand. Without government overstepping its bounds and creating beneficial regulatory environments, Big Business could not be fostered. ‘Large Stakes’ are only sustainable through the intervention of State. Railroads in the US, and the Barons that followed, could only have occured due to the land grants made by the US government. Without its support it would not have existed.

  • yankinulster

    Frank McGahon says:

    Local hostility to police forces means they are reluctant to carry out normal policing and individuals are prevented from defending themselves. This gives the paramilitaries a free run. Though they are nominal antagonists, the IRA effectively operates a monopoly of violence backed by the British state.

    The word “local” being operative here. I would have an easier time accepting your argument, if I believed that the state’s police force ceded authority equally to loyalist and republican paramilitaries. There is plenty of evidence that this was not the case (e.g. suspicions of police collusion with loyalists, interning scores of republican suspects (and scarcely any loyalists)).

    Indeed, what differentiates a loyalist para from an IRA man is that the latter doesn’t even accept the legitimacy of the Southern Irish government’s monopoly of force, its own armed forces. Complications ensue.

    Yet your argument regarding loyalist paramilitaries, especially in urban estates, has a good ring of truth to it…

  • All I had in mind when I made my original comment is that assault, vandalism, fraud, theft, murder, etc. originate from private as well as public interests, and that political philosophy must seek to minimize the sum of both. (On top of that, that job belngs to both sectors. Gun ownership is a prime example of private deterrents to both private and public crime.)

    Unfortunately, governments engage in intervention to eliminate activities they perceive as criminal which in truth are not. In a Mises Institute article, William L. Anderson explains this phenomenon with regard to antitrust legislation:

    The point here is that the government and private firms undertake antitrust action against companies not because business practices constitute harm to consumers, but rather because many firms are able to innovate or take advantage of favorable conditions that give them an edge over their rivals. Companies on the other side of the divide understand that one way to “level the playing field” is to use the state to inflict harm on their competitors. Of course, using the state to throttle a legitimate competitor is always harmful to consumers.

    From Standard Oil to Alcoa to Microsoft, the state has accused the best and most efficient firms of being “predatory monopolies.” Standard Oil was responsible for bringing down the price of a gallon of kerosene from 50¢ to a nickel, yet we read in the history books that John D. Rockefeller was “anti-consumer.” Alcoa gained its market share by offering high-quality aluminum at the lowest prices in the market, yet we hear from government officials and economists alike that Alcoa was a “predatory monopoly.”

    In short, companies are penalized not for collusion or other forms of fraud, but for having too much market share.

    Another example can be found in environmental policy. The problems center around the definition of “assault.” Plant wastes seeping into an aquifer properly fits the bill. But what about a plant that neglects to install equipment that reduces its emissions by an infinitesimal amount? Do auto emissions constitute “assault?” There’s also the problem of unproven environemtal threats such as human-caused global warming and ozone depletion.

  • Andrew Carnegie

    What Mrs. Tilton said.

  • steph

    “The American market in 1890 was the Wild West by present regulatory standards, yet it gave birth to enormous trusts like Standard Oil and U.S. Steel.”

    Yes and they both did so much harm to consumers. Why won’t anyone read the judge’s rulling in the Standard Oil case in which the judge conceaded that Standard Oil had greatly reduced the price of petrolium prices then ordered the firm broken up because the facts did not fit his (or the legislatures) preconceved economic notions. The reason there was so much consolidation in the late 19th century was because the reduction in transportation costs brought about by the increase in railroads revolutionized the business environment. When their were piles of small companies the market was not any more competative, the higher transportation cost limited the extent of the market for any one firm. When the market became larger with the reduction of transport costs, the less eficient firms went under in accordance with economic theory. More importantly for this discution smaller firms banded together in trusts so that they could afford to buy more efficient means of production that were result of efficiencies of scale. This is all basic history and economic theory. (Smith) “the division of labor is regulated by the extent of the market.” The same thing happens when new industies are started at first lots of small companies are started then competition and consolidation lead to a few more efficient producers. Then existing firms get laizy and a host of new firms are started. This is the normal patern of capitalism. Now of course none of this happens instantainiously. (Bohm-Bawerk) “All economic phinominon occure in and through the process of time.” But over the long run things work out and then get fucked up again and then work out again. It is called a self regulating system.

    “so the train company that charges punitive rates hurts the coal and oil companies, the steel and car companies and the food companies that ship via rail.”

    Yes all excelent sources of funding for the monopoly’s future competitor. As are the monopolies suppliers, who will be selling less because the monopoly prices of monopolist will mean fewer products sold by the monopoly and thus less business for the supplier. Again self regulating.

  • yankinulster:

    The point is that by state action or inaction, in certain ghettos, loyalist and* republican paramilitaries are in a position to “arrest”, torture, execute or exile, without trial, anyone they want. This should be the proper concern of anyone professing to uphold “human rights”. The argument that Amnesty etc. should concentrate only on state abuses of human rights falls down because the state isn’t intervening, thus the paramilitaries enjoy a state-backed monopoly whether the state likes it or not.

    Abiola, Andrew, Mrs Tilton:

    It’s not the case that monopolies are “never a problem” but it is the case that the preponderance of monopolies are state backed. If you are prepared to accept a cost of a few hypothetical, fragile, unregulated monopolies, there is a significant benefit of free competion destroying the significant number of actual resilient regulated monopolies.

    The problem with an argument which states that “a small amount” of state regulation is required is that that small amount soon becomes very big and as can be seen by Alan’s post above, terms of reference – such as defining “assault” – tend to get expanded way beyond the original intentions.

  • Andrew Carnegie

    Regarding my original comment, I contested a narrow point, specifically the contention that “monopolies wither in the free market and thrive under state regulation.” This may be true, but it’s not obviously true. Unless you are preaching to the libertarian choir here, you need to make a case that supports this claim, otherwise your argument fails. (And if you’re wondering why I don’t prove/disprove it myself, it’s because I don’t know the answer.)

  • Andrew:

    It may not be obviously true that monopolies thrive under state regulation and wither in then market (the same is true for cartels) but it is empirically and logically true. The reason it is logically true is that for a monopoly to obtain, it must be impossible for customers to choose an alternative. This can only be the case if

    1) The monopolist’s product so approaches perfection that not one single customer would choose an alternative.

    2) Competitors are forcibly prevented from offering an alternative product to customers.

    Human nature suggests 1) is unlikely – you literally cannot please everyone, leaving 2) as the most likely explanation.

  • Andrew Carnegie

    I don’t think people care if your theory is logically true; they care if it’s actually true. They like a little empirical evidence thrown their way once in a while. It gives the impression you live in the real world, and not some hermetically sealed thought experiment.

  • Andy Duncan

    johnny winters writes:

    Andy, Microsoft is a good example of how a company can exploit monopoly power to subvert fair competition…Why shouldn’t this sort of behavior — which borders on extortion — be regulated?

    Hi Johnny, don’t know if you’re still reading this thread, so late in the day. Sorry for late response. Shockingly good weekend intervened! :-)

    Microsoft don’t exploit any monopoly. They simply produce a better product than anyone else, something Grandma can install. Have you ever tried installing Mandrake Linux? Even SuSE Linux, my personal favorite, is still a total drag compared to Windows. D’ya think Grandma could install even this easiest of Linuxes, and get it to connect to the Internet?

    Maybe in a coupla’ years she will, and then MS will have some real competition on their hands.

    The short point is NOBODY has a gun held to their heads and is FORCED to buy MS. They do it of their own free will. MS still dominate the PC market because their products are easier to use and better than anybody elses, because they’ve invested so hugely in making them so good and making them so easy to use. Yes, they’re ruthless business people, but why should they be FORCED to trade with people they don’t want to trade with (eg: PC resellers who won’t pre-install MS Windows). You, or any PC seller, is free to sell PCs with Linux pre-installed, with no MS. But you and all the other potential PC resellers choose not to, because people WANT Microsoft, and wouldn’t buy pre-installed Linux boxes if you covered them in fairy dust, except for a very small market of Linux hard-core users, no doubt, I don’t know it for a fact, who ARE supplied by such Linux PC sellers. Thank God for the free market.

    Once the Novell/SCO Unix case is sorted out, I’m sure Novell will take SuSE Linux and turn it into some REAL competition for Microsoft, which in turn will make MS create better and hopefully cheaper products. Till then, I’m going to keep recommending to my uncomputer-literate clients, that they buy MS products. I know, it’s shocking, isn’t it!

    However, if you wanted to discuss Microsoft’s use of intellectual property copyrights and patents, and their proxy-use of government force to uphold these, then that would be an interesting debate. I will yield to you, on those Austro-libertarian grounds, that MS use government-granted force to maintain their customer base via IP rights. But I think that that is a whole different argument. We do not need government. Never have. Never will. All of them, and all of their rent-seeking friends, all over the world, are a bunch of useless violent bloodsuckers. The sooner we rid ourselves of them, the better.

    Rgds, AndyD

    PS> Hope, if you read this, that you had a similarly spectacularly good weekend! :-)

  • Andy Duncan

    Mr De Havilland writes:

    Andy… I wonder if your comment is longer that the article upon which you are commenting?

    Err…. Sorry, Perry. Got carried away again.

    Does anyone out there have sub-editing machine which can turn a 1000 words into 100?

    I can’t […that’s enough, Ed! ;-) ]

  • TheWobbly Guy

    Who knows? Perhaps in the future, big business ARE big government, with monopoly of force, while we wage slaves are forced into lives of eternal servitude.

    Remember, nothing’s impossible, and it only takes some filthy rich companies to decide that just maybe they’re better off serving their own needs by having their own private army and their own pet government, liberty be damned.

    Simply put, nature abhors a vacuum.

  • endlessly amused

    “One of the most appealing aspects of a libertarian outlook is simplicity.”

    Great, this one is for keeps.

  • Andy Duncan

    The Wobbly Guy writes:

    Remember, nothing’s impossible, and it only takes some filthy rich companies to decide that just maybe they’re better off serving their own needs by having their own private army and their own pet government, liberty be damned.

    Err…Wobbly Guy, do you think that this hasn’t actually happened already?

    For instance, private norwegian family brigand business, proprietor William Normandy, decides his immoral violence-based profits are getting a bit slim in France, so decides to take over the UK operation run by his business rival, Harold Wessex. So William wades over the channel, with his own private army, sorts out Harold’s private army, sets up his own pet government, and liberty be damned. Result: The British State. The bugger has been with us ever since, getting so big at one point it almost swallowed the entire world. Now that’s what I call a family business! :-)

    Its current proprietors, the UK Civil Service, think they can grow another large business by taking over the EU. I fear the French Civil Service, owners of France, have other ideas.

    Nature doesn’t give a monkeys about vacuums, only about fundamental laws. In fact, nature is full of vacuums, all the way to Alpha Centauri. That there are some heavily armed power hungry leeches, of that there is no doubt. That they’re totally incapable of controlling the violent crime wave currently sweeping Britain, in which hardly a day passes without some innocent schlepper being killed, shot, knifed, or raped, is also in no doubt.

    But in Duncanworld, in some far far galaxy a long long time in the future, I will arm myself to the teeth and buy the top policy from the Royal Scots Guards SAS Insurance Life company, you know, the “Will Sort Anyone, Guvnor, Who Spills Your Pint” policy, and take my chances, thanks.

  • johnny winter

    Well, it just so happens that I am still reading, so I’ll take the bait.

    They simply produce a better product than anyone else, something Grandma can install. Have you ever tried installing Mandrake Linux?

    No, but that’s not the issue I raised. The issue I raised was Microsoft using their monopoly product (Windows) to force customers into adopting other, non-monopoly products (Internet Explorer).

    Now, I can already hear you firing up the blow-torch over the word “force,” so let’s talk about that.

    Suppose you live in the Totally Unregulated Village. And in this village, suppose there is a man, Dick Waters, who has a monopoly on village water. Another man, Rick Mills, runs a watermill. Rick uses his watermill to run an apple-cider press.

    One day Dick Waters says to Rick Mills, “I’ve decided to go into the apple-selling business… and look at these shiny new apples! Would you like to buy them?” Rick takes a look, but quickly sees that Dick’s apples are substandard. Mick Applebaum (his current supplier) sells apples that are much better. Rick Mills says, “Thanks, Dick, but I’d rather continue buying apples from Mick.” Now, here’s the rub:

    Dick Waters says, “Oho! You’d rather buy apples from Mick Applebaum, eh? Well, you know that watermill of yours? You can just forget about running it on water from now on! Call me when you’ve changed your mind!”

    Rick Mills is no fool. He makes Dick Waters his new apple supplier, foregoing Mick Applebaum’s superior apples.

    This is what MS did vis-a-vis Compaq. MS used their monopoly in water (Windows) to force — yes, force — their apples (Internet Explorer) onto Compaq. Compaq made a decision to substitute Netscape for Internet Explorer on their desktops “in part because it recognized Navigator to be the most popular browser product with its consumers.” Not content to let consumers decide, Microsoft decided something had to be done to give Internet Explorer an edge — and here’s the edge they found:

    A threat by Microsoft Corp. to withhold its Windows operating system from Compaq Computer Corp., the nation’s biggest personal computer maker, is one of the key pieces of evidence behind the government’s antitrust move against Microsoft.

    Microsoft notified Compaq on May 30, 1996, that it was cancelling the license agreement for Windows 95 — an impossible situation for a PC manufacturer dependent on the monopolist.

    One week later Don Hardwick — group manager of Microsoft’s original equipment manufacturing division — put in writing the price for Microsoft to reverse itself.

    Hardwick demanded Compaq reinstate “Microsoft Network and Internet Explorers icons on the Windows 95 desktop on all Compaq Presario machines.”

    “If you are willing to give Microsoft a clear written assurance that the above will be implemented on all Compaq Presario machines within 60 days of the date of this letter, Microsoft will withdraw its Notice of Intent to Terminate,” Microsoft said in its June 6 letter to Celeste Dunn, vice president of Compaq’s consumer software business unit.

    I believe this kind of behavior not only hurts the consumer, it violates the first principle of open markets, which is fair competition. I believe, as you do, that markets are served when consumers are allowed to decide which products are best. In the case of Internet Explorer, however, Microsoft decided for the consumer.

    Microsoft did indeed force bad apples on their customers. I think I’ve already shown that, but I wouldn’t want you to take my word for it. So here’s what the manager of research and development at Hewlett- Packard wrote to Microsoft in 1997:

    If we had a choice of another supplier, based on your actions in this area, I assure you [that you] would not be our supplier of choice.

    How ’bout them apples?

  • Andy Duncan

    Well johnny, there’s probably just you and me here now, but I think you’re making too many assumptions, to suit your case. For instance, the man with a monopoly on water. You assume this monopoly has been fixed by God, and is unbreakable. If he’s charging a price for water which somebody else thinks they can undercut, they will. Somebody else will build a bigger deeper well, to provide an alternative source of water. Or, in other words, if someone sees MS selling a product which they can undercut, such as a better cheaper operating system, they will. Apple tried. Atari tried. IBM with OS2 tried. I don’t want to get too specific, as the computer industry does not operate outside the laws of human economics, but essentially MS had the best product, perhaps not technically, but in the sense that it had the most applications tied to it. In the same way that that your water-seller has the best well in the village. All competitors broke upon the rock of MS supremacy, because they couldn’t produce a good enough product which didn’t break everyone’s applications. This was just good business sense by Mr Gates.

    So, he doesn’t want to do business with Compaq. Why should he, if he doesn’t want to? If I’m selling water, and growing irrigated apples, and somebody is buying my water and selling it on to somebody else who grows better and cheaper irrigated apples than me, and who is cutting me up in the apple market, then I’ll stop selling water to that third party. Let them get the watersomewhere else, to sell to my competitor. It’s my water, and I’ll sell it to whoever I like.

    What you want to do is force the water-seller to open up his well to whoever wants to use it, and force him to sell to people he doesn’t want to sell to.

    Both these things crush innovation, because nobody else will be so motivated to try to create an alternative water supply, because they can help themselves to the water sellers well, against his will, and they can use his water to help make him poorer. And in the long run the rest of us will be poorer too, because with only one limited water supply, and with no-one else being motivated to try to create a new one, our village economy will reach a choke point, where the water supply becomes the rate limiting factor, and we will never progress beyond that point.

    Whereas now, with MS having essentially turned all of these judgements against it into meaningless legal pap, competitors are being forced to find other water supplies, or rival operating systems. Personally, I hold out great hopes for Novell’s involvement with SuSE Linux, sort of like a rich village outsider coming in with heavy water drilling equipment. In five year’s time I predict that with Open Office, et al, open Internet standards, and all the other market standardisations which always occur in situations like this (eg: standard rail gauges, standard electricity voltages, etc), MS are going to have a competitor worthy of the name in Novell Linux.

    And none of it imposed upon them by the blessed federal US govt. Actually, if the blessed US federal govt HAD managed to wrap MS in real chains, they would’ve left the US entirely, and moved their world base to Thames Valley Park, near me, in the UK.

    And laughed at the US supreme court for decades, in the process.

    Good will hunting, johnny. How about THEM apples? :-)

  • Cobden Bright

    Some people here don’t understand what a monopoly is. A monopoly occurs where there is only one supplier of a good, and NO SUBSTITUTES to that good.

    Microsoft is not a monopoly at all – there is more than one operating system for computers (Linux, Apple Mac), and multiple browsers available. Anyone calling Microsoft a monopoly is either economically illiterate or even more ignorant about computers than me.

    Railways are not a monopoly – not so long as goods can be shipped by land, sea, or air.

    Ebay is not a monopoly at all – you can buy and sell goods in the local newspaper, on various online trading sites, in local markets etc.

    People are confusing monopoly with dominant market position. Dominant market position is only achieved when there is a good *reason* for that market dominance. In a free market, this reason is that the dominant firm provides a more attractive product or service for consumers – otherwise the demand would not exist. With Microsoft you get lots of bundled software and easy compatability with most other PC users. With Ebay you get access to their huge customer base. With Carnegie and Rockefeller you got much cheaper steel and oil due to economies of scale – ever heard of that? Economies of scale benefit consumers, as the average price per unit can be reduced as the number of units increases. Many tasks such as research or large capital projects are much better done by a few specialising firms with huge resources, than by 100s of small firms who cannot afford huge projects or do not have the synergy benefits of all the talent in that field working in the same place.

    True monopolies in the free market have hardly ever existed – oligopolies have but their benefits are now being recognised by economists. The fact is that Wal Mart is big because it provides more goods at lower prices than having 1000s of individual retailers. It becomes dominant because it *provides what consumers want*. If it ever stops doing that, it will quickly become small.

  • johnny winter

    Your apples are rotten, Andy.

    And I’ve got to hand it to you for completely missing the point. The fact of the matter is, if Microsoft had stopped selling Windows to Compaq and kept its mouth shut, the government couldn’t have done a thing about it. Microsoft can indeed sell Windows when and where it pleases. Where Microsoft got themselves in trouble is when they EXPLICITLY THREATENED to withhold Windows unless Compaq meet their EXPLICIT DEMANDS. That is not legal. Compaq knew it, and sued.

    Again, so you won’t misunderstand:

    LEGAL: Company X stops selling monopoly product to Company Y.

    ILLEGAL: Company X threatens to stop selling monopoly product to Company Y if demands are not met.

    The first represents the free exercise of property rights. The second represents extortion.

    Your argument amounts to: extortion is good.

    Nice argument.

  • Andy Duncan

    Well, johnny, your definition of extorsion differs from mine. To me extorsion involves the threat of the use of physical force against someone else. What force would Microsoft have used against Compaq if Compaq had continued doing what Microsoft didn’t want them to do?

    Would they have sent men round with guns to Compaq HQ to blow off the kneecaps of Compaq executives?

    Would they have blown up Compaq advertising hoardings?

    Would they have broken into Compaq’s bank, and stolen their money?

    No, they would’ve stopped selling them their own Microsoft products and withdrawn themselves from a relationship with Compaq.

    Compaq would still remain free to get operating systems from any other supplier on the free market.

    It’s the use or threat of physical force which is important here. Not the semantics of various words, such as extorsion, whose often emotive meanings can be bent to mean pretty much anything you want them to mean.

    That Compaq chose to base their entire business on Microsoft products was their own lookout. If you do choose to do such a thing, for instance moving in with someone with a good income and then stopping work yourself to live off them, always make sure you stay in the good books of the person you’re relying on, or get a signed covenant from them binding them to support you however your relationship goes.

    Or let’s put it another way, as we’re obviously arguing at cross-purposes, and your feelings towards Microsoft are, I should imagine, rather strong. Let’s pick another analogous situation which provokes strong feelings:

    A. If a man finds his girlfriend screwing around with another man, and if he then subsequently threaten her that he will end their relationship, cutting her off from his income, if she doesn’t desist, is that ok for him to do?

    B. If a man finds his girlfriend screwing around with another man, and if he then subsequently threatens her that he will beat her up, and steal all of her money, if she doesn’t desist, is that ok for him to do?

    I would put it to you that case A is acceptable, and that case B isn’t, because case B involves the use of the threat of physical force, and case A doesn’t. Microsoft and Compaq is case A. Some Mafiosi extorting local businesses for protection money, or a government tax official threatening jail for non-payment, is case B.

    A true monopoly is something only a force-backed mechanism (such as a government, or a physicaly violent union, or a mafia) can create.

    If my lack of eloquence is frustrating you, try here, instead. It sums up my position, perfectly:

    Microsoft and Its Enemies: Which Is the Monopolist?

    If you still disagree with that, I’m afraid we’ll just have to agree to differ on the issue.

  • Lark

    I dont believe the threat to individual liberty posed by monopoly power can be ignored as a faux dilemma.

    The idea that monopolies will whither away after some sort of libertarian restructuring is just like the old marxist one that the state will whither away after some sort of socialist restructuring.