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The state should not control prices but property owners should be allowed to control their own prices any way they like

Amazon has just been ordered by the French state to stop delivering books for free, and in general to refrain from charging too little for books. This is just wrong, says Instapundit.

With questions like this, I come over all Paul Coulam. I start not with what might or might not seem nice, but with libertarian dogma.

Amazon owns some books. They should be allowed sell them to you for any price they like, and subject to any conditions they like. They should be allowed to offer to deliver them any way they like, for any price they like. And if you are interested, you should be allowed to say … yes! Or: no. It really should be that simple. If you have to die your hair blue before they will sell books to you, well that would be a strange business model to follow, but: the books belong to them and they should be allowed to part with them, or not, on any basis they like.

However, the principle that if you own something you should be allowed to sell it on any basis you like would also allow certain other arrangements to pertain. Suppose publishers want to sell their books (books that are their property) any way they like. Suppose, for instance, that they decide that retailers can only buy their books if retailers agree beforehand to sell those books to other people at a price which they, the publishers, not the retailers, determine. And suppose, if a retailer makes a deal like that, but subsequently break it, and the publisher then says: sorry, we don’t trust you any more, we won’t sell you any more books. Fine. It may be a bizarre way to do business, but if that’s how publishers want to do business, let them try to do it that way, and see if they can make it stick. So long as they don’t expect you and me to pay for a huge police force to punish deal-breakers, but merely punish deal-breakers by not doing any more deals with them, then, from where I sit: no problem.

If supermarkets want to be able to sell books cheaper then bookshops, well, then I guess they’d have either to find publishers who don’t price their books this way, or else go into the publishing business themselves. Again, fine.

The bizarre arrangement I just described in the previous two paragraphs actually did pertain, until in Britain (definitely) and in other EU states (guess) such arrangements were made illegal, for books, and for everything else. This change was called “the abolition of Retail Price Maintenance” and was hailed (definitely in Britain) by many deluded Free Marketeers as a Good Thing. One of the earliest IEA publications was about, and in favour of, this very change, before it actually happened. Says IEA Director John Blundell:

An early study, by Basil Yamey, urged the abolition of Retail Price Maintenance. The texture of everyone’s life has been transformed by the result. We forget that supermarkets were effectively illegal under the old price-rigging but there is no thanks in politics. Who now recalls the 1979 election scrapping of exchange controls? We had to get authorisation to take even small sums abroad.

Note the blurring together there of (a) the imposition of a government control (making a particular sort of contract illegal) and (b) the relaxing of a government control (exchange control). I think I shall write about this for my next piece for CNE Competition, where I have until now always defended supermarkets against politicised gangs of small shop-keepers. This puts the whole existence of supermarkets into a quite new light, I think you will agree. John Blundell was not trying to convince me that supermarkets are wicked, but I think he might just have done so.

More recently, I recall a case where somebody making bicycles wanted to sell these bicycles only to shops which didn’t then ever sell them for knock-down (as they saw it) prices. The retailer Halfords did want to sell them for knock-down prices. The manufacturers accordingly didn’t want to sell their bicycles – their bicycles – to Halfords. But, the British state (which is now for this and for many other purposes a mere branch office of the EUrostate) compelled these bike-makers to “sell” their bikes to Halfords even though they didn’t want to. As Instapundit might have said, but I am pretty sure never did say: this is just wrong.

The point is, there was a free market, property rights respecting way of solving the problem that the French bookselling rivals of Amazon now have, which was for those booksellers to sell only those books which publishers forbade to be discounted. That solution was made illegal. And I’m guessing that French supermarkets have a far tougher legal time of it than supermarkets do in Britain. Now the shopkeepers want the resulting arrangement, which was bound to hit them eventually, once global businesses beyond the reach of French law got involved in the French book-selling market, also to be made illegal. Foolishness.

Mind you, if the market had been allowed to decide, Amazon, like Britain’s book-discounting supermarkets, might by now also have become a publisher. It might even, by now, be publishing books in French.

Freedom, in this case and in many others, should not mean the state imposing its own idea of freedom by in fact restricting freedom (in the form of some rather odd contracts that various people want freely to make). It should mean different groups of people with different ideas about how to do things confronting each other in the market place, and the state recognising all their legitimate rights as legitimate. And the rest of us should then be allowed to choose which arrangements we prefer, with equally little state interference. If those rules had been followed in this case, of Amazon’s discounted books, my guess is that Amazon would still be discounting books, but to be sure would involve being sure about an alternative reality scenario, and you never really can be, because what free people will choose is inherently hard to predict.

14 comments to The state should not control prices but property owners should be allowed to control their own prices any way they like

  • J

    The law appears to contradict itself, in this case. The ‘grey imports’ laws protect manufacturers who want to prevent certain retailers stocking their goods, and now you tell me there are other laws that *require* manufacturers to let retailers stock their goods.

    This is crazy. It’s illegal for me to buy designer clothes in the USA, import them to the UK paying all required taxes, and then sell them from scummy basement shop on the highstreet. That (I think) is done by allowing retails to place a ‘condition of sale’ that I won’t resell the goods. Or it’s just a random law that someone paid for, not sure.

    And yet you claim this nonsense with bikes and Halfords pertains. I know some sectors are blisfully free of these kinds of restrictions, so it sounds to me like different industries have managed to lobby/bribe different laws in different areas to suit their ends in different ways. Great.

  • Pa Annoyed

    The question seems to be about whether ‘ownership’ grants you all rights to an article, or whether you can sell somebody physical possession of an article and the right to use it for some purposes, but not others. Copying is the most notable example, and software is another biggie (where they get round it by selling licences – while the software itself is still owned by the publisher). Having to agree to thirty pages of small print is common, with the codicil in the second footnote on page 26 assigning all rights to your soul if you default on any of the above conditions. And many other examples in common use.

    But you could in principle apply it to anything. You can only buy in this shop if you contract to never engage in homosexual sex again. You can only shop here or ride at the front of this bus if you’re not black, or a Jew. You can only have your water supply connected if you agree to vote for X. You can only have your leaking pipes repaired or that life-saving operation you need if I can have half an hour with your fine daughter. You can only shop here if you impose the same conditions on people who shop in your shop, and only shop in shops that are part of the club in future. That’s all fine of course if the market is free and there are other traders who will serve, but it could become a problem for some people if the goods in question are controlled by monopolies and cartels, or simply an awful lot of independently bigoted locals, and there are no other readily available sources. The theory of markets assumes that maximising profit will eliminate such practices, but sometimes people want other things more than they do profit. People are strange, sometimes.

    It’s known as restriction of trade, and is usually designed to prevent the normal process of competition providing the goods in the most cheap and efficient way possible, or to retain viable markets where they would otherwise not exist. We were discussing Digital Rights Management (DRM) a while back – this is essentially the same topic. I agree that state regulation is not a good way to stop it, but if it is an abuse of free trade (and tariffs are) and the customers want it stopped, there ought to be ways for them to use the free market to stop it.

    I count it as an application of the harm principle: you can do what you want so long as it doesn’t harm others; by impinging on their liberty to do business in this case. ‘Freedom’ does not imply the freedom to impose regulations and restrictions on others beyond a certain minimum needed to carry out the trade, any more than it implies the freedom to rob people. You can’t contract people out of their inalienable rights; like you can’t make a contract for slavery or religious conversion. People have a right to control what they own, so long as it does not harm others.

    It has to be a free market, or the most powerful corporations can simply end up replacing the state. But as you know, the state and society generally don’t agree with me. 🙂

  • Pa Annoyed: whilst all those things are possible, as long as competitors are free to enter a market, most really restrictive behaviour simply creates a market opportunity for someone else.

    No system is perfect, markets are just better than the rest.

  • Pa Annoyed

    Agreed, Perry. Like I said, “That’s all fine of course if the market is free and there are other traders who will serve… The theory of markets assumes that maximising profit will eliminate such practices…”

    That why stuff like DRM, union closed shops, segregation/discrimination, broadly-defined speculative patents, and tariff price-fixing by cartels should all be allowed.

    I agree that they shouldn’t be banned. But I think they’re bad news for market efficiency, and the means to circumvent and break them shouldn’t be banned or prevented either. As you say it’s not a problem “as long as competitors are free to enter a market”, but what if those conditions on sale are designed to prevent that happening?

    The case where competition fixes everything is easy; the test of principles is in the other situation, where competition is blocked. Brian has made his position clear – that even if it shuts down the free market, restrictive practices should still be allowed. I respect that view, and can understand why he takes that position. I just happen to disagree with it, because I think the primary purpose of our freedom to trade is to achieve the progress and efficiencies that the market promises, not contractual freedom for its own sake. People should be able to profit by making better products cheaper, not by stopping everyone else doing so.

    It’s not an easy decision, and I feel a bit queasy myself about the idea of insisting on a business trading with everyone on equal terms, but the most interesting moral dilemmas are like that. I preferred the old UK law, before the EU got involved, that allowed retail price support for individual companies but not groups of them. But general rules are hard to design – it’s an area for careful case-by-case consideration.

    In my humble opinion, anyway. Feel free to disagree. 🙂

  • but what if those conditions on sale are designed to prevent that happening?

    But they usually are. However as long as they are not force backed, they are very hard to sustain.

    I just happen to disagree with it, because I think the primary purpose of our freedom to trade is to achieve the progress and efficiencies that the market promises, not contractual freedom for its own sake.

    I utterly disagree on both moral and utilitarian grounds. The moral argument is simple: the issue is not ‘freedom to trade’, it is ‘freedom’. And trading is just something you can do with that freedom. Trading is not a special case that can be separated out from any other freedom.

    From a utilitarian perspective I think the argument is also stark in its simplicity: the alternative to allowing markets to mitigate the natural crapulousness of humanity is to use politics. Hasn’t that worked well?

  • Pa Annoyed

    “However as long as they are not force backed, they are very hard to sustain.”

    Depends what you mean by “force-backed”. There are many more ways of coercing a particular outcome than violence. Yes, they take some effort to sustain, but the potential profits make that effort worth it.

    And for that matter, why cannot I contract for force to be applied? Bouncers may be employed to eject people from the premises by force. Security guards use force to defend against thieves. Bailiffs can be hired as licensed thieves. Why shouldn’t I be ‘free’ to use violence in commercial relations whenever I choose?

    “The moral argument is simple: the issue is not ‘freedom to trade’, it is ‘freedom’. And trading is just something you can do with that freedom. Trading is not a special case that can be separated out from any other freedom.”

    I agree. There’s nothing special about trade, it was just the particular brand of freedom we were discussing. But ‘freedom’ without bounds is too general a category to be self-consistently defined, just as ‘omnipotence’ is. Do you have the freedom to restrict other people’s freedom? Could you, for example, set trading conditions forcing someone into slavery? It used to be that we could, and there are tales from medieval times of people selling themselves or their families from serfdom into slavery to pay off debts. If you take freedom to contract as you choose as a special case that supersedes all other freedoms, then slavery and slave-trading is allowed, which you must admit is an odd definition of the concept. Can you, like Shylock, demand someone’s life as payment for their debts? Can you contract to have somebody killed?

    Freedom has to be limited, so as not to impinge upon the freedoms of others. This is a logical necessity. Each freedom is weighted according to its value and they are traded off against each other, so you set a threshold on this freedom so that that one may be achieved to some degree. It’s also a necessity for efficient trade to occur: you are not ‘free’ to break a contract whenever you feel like it, with only a cost to your reputation, for example. (I am thinking here of Brian’s “but merely punish deal-breakers by not doing any more deals with them”) That sort of reputation-enforced trade tends to limit transactions to a local, short-term level, and being the basis of trade in most of the third world black economy, is a big part of the reason they’re so poor.

    The issue under question, which I agree is more a matter of opinion, is whether the freedom to be able to provide a better service at less cost and so make a living should be weighted comparably with the freedom to apply restrictions and make choices that prevent other people doing so. I don’t take either extreme, but think that some position in the middle is needed. If there is adequate competition, then I have no problem with such restrictions, but if there isn’t, then taking steps to limit (but not eliminate) the potential abuses I think increases general liberty more than it reduces it. If you have a monopoly because you can do it better than everyone else, that’s fine. If you have a monopoly because you are stopping all the people who can do it better than you from operating, you’re infringing on their freedom. The issue is whether this is a less important freedom. You evidently think it is, and that’s fine as an opinion.

    There are many alternatives to politics, varying in their effectiveness. Consumer groups, customer complaints, reputation-shredding publicity campaigns, boycotts, disruption of trade, product piracy, and hiding what you’re doing. Or for that matter, hiring gangs of thugs to go round and make threats. The market achieves the same result in the end, but is wasteful and damaging. Has politics worked well? It depends what alternatives you compare it to. Unless you are an out-and-out anarchist, the state does have some uses.

  • And for that matter, why cannot I contract for force to be applied? Bouncers may be employed to eject people from the premises by force.

    Category error. Bouncers are just applying force in defence of private property. The sort of force I am talking about (obviously I thought, but clearly not) is for example using the laws of the state or private violence such as a mafia enforcer, to prevent competition with a business.

    The trouble with your argument in my view is that it presupposes that using a political system to prevent ‘unfair’ tactics can work more often than it makes things worse or just changes where the distortion occurs. No prize for guessing what I think 😉

  • Pa Annoyed

    Ah yes. But the Mafia think their ‘turf’ is their own private property. 😉

    But anyway, all I was pointing out was that force as such is not excluded from the marketplace when used for what people see as legitimate justifications. (Like defending private property.) The difference is purely in what is seen as a legitimate justification. The essential distinction is not that they can or can not use force, but that their use of it is or is not considered legitimate.

    Whatever. It doesn’t matter that much to be worth arguing about it any more.

  • Paul Marks

    If I sell you a book on condition that you never sell it to someone with blue eyes and that you pass on this condition (that the book never be sold to someone with blue eyes) that is a contract – and whatever the demented regulations say the contract should be upheld.

    Of course it would be logical to say “I will not buy a book from an anti blue eyed people bigot like you” – but what if I was offering a book at one Dollar that everyone else sold at one hundred Dollars.

    You see the condition is built into the price – in return for my cheaper price you agree to my silly rules.

    The real estate market used to be governed by all sorts of private contact rules (covernants) that you can buy this house as long as it is not divided into flats, or ever sold to German people (or whatever).

    That is what made zoning unneeded – but governments passed regulations attacking covernants. One unintended consequence of this was population movement out of areas of cities – so called “white flight”.

    Property is actually a very complicated thing – involving all sorts of conditions that have nothing to do with government regulations. For example, there is no right to hold someone prisoner by buying land in a circle round him and forbiding him to cross it – and this has nothing to do with government regulations.

    In the book trade (and retail generally) a general rule was “I, the manufacturer, agree to sell you this product on condition that you never resell it for less than X – or sell it to anyone who will sell if for less than X (and so on)”

    All rather silly – but if that is what people want to do, that is freedom.

    The govenrment can get involved two ways.

    It can COMMAND such price fixing (via “Retail Price Maintainence” or whatever) or it can FORBID it (via “antitrust” or whatever).

    Both ways are wrong, for the “dogmatic” reasons that Brian explains.

  • The book publishing industry is based entirely on state-backed enforcement of intellectual property rights…

    What I say from this point onwards is so obvious to the Samizdata crowd that I wont bother, please assume what I have said and argue against it as you will.

  • Paul Marks

    I am not saying that I oppose intellectual property – but books still got written and published when royality payments were virtually unenforceable.

    Even as late as the 1950’s Tolkien found he could not stop “pirate” versions of the Lord of the Rings comming out in the United States.

    Oddly enough although the Constitution does give the power to Congress to secure “for a limited time to authors and inventors the exclusive right to their respective writings and discoveries” (as normal Article One, Section Eight) Congress had not really cleared the matter up.

    Perhaps because they had spent so much time doing things that have no constitutional right to do.

    With the rise of India and China (and so on) we may be going back to a time when, whatever the rights and wrongs of the issue, enforcing patents and copyrights is not practical.

    Certainly trying to base future prospertity on the hope that people in other nations will respect patents and copyrights is utterly absurd.

  • guy herbert

    Hesslethwite is wrong. Publishing and authorship existed before copyright, throve before there was any good means of enforcement, and seem to be surviving the advent of really cheap and easy piracy.

    *

    An interesting sidelight on Brian’s article is found if you contemplate that retail price maintenance was abolished for most forms of goods in Britain in the 1950s. The Net Book Agreement was allowed to continue in force by the restrictive practices court for another 40 years because it was the establishment view that books are different and that their being priced high was a good thing.

    One of the weird side effects was that guaranteed margins (and even extra discounts from publishers if your stock-turn was low enough, I kid you not) meant many UK bookshops were appalling in the 60s and 70s, and WH Smith buyers, not the publishers and authors whom the arrangment was imagined to benefit, controlled what was available for the public to read.

  • Kim du Toit

    “One of the weird side effects was that guaranteed margins… meant many UK bookshops were appalling in the 60s and 70s”

    Yes, and a great many more were not appalling. One of the things which struck me quite forcibly about England was the amazing diversity of bookstores — and diversity of content. So while RPM did create higher book prices for consumers, it also kept Britain’s many thousands of small bookstores afloat, giving Britons an astonishingly-wide choice of books—a much greater choice than in any other country, until the advent of the mega-bookstores narrowed the gap somewhat.

    One of the choices to be made is: what price diversity? Because some markets are incredibly narrow and limited in appeal, carrying products which appeal to those groups means reduced cash flow, and tying up capital in items with longer turnover times. Ordinarily, this is no problem — one simply applies a higher profit margin to account for that. But while you’re waiting for that rare item to sell, the rent has to be paid, and the lights kept on, and so on — and if you cannot make a profit with mass-market items (because, say, Asda is selling the books below your cost thanks to their greater buying power), you have two choices: go out of business, or stop tying up your money in slow-moving product.

    In both cases, the smaller “niche” markets are going to lose — and I would suggest that in book terms, that means intellectual impoverishment in society as a whole.

    Think of a bookstore which can only afford to sell John Grisham and Barbara Cartland books, and you get an idea of the bleak landscape which would face the discerning reader.

    “The free market” is a good thing; but it’s not always a good thing.

    I think I’ll write a long post about it sometime.

  • Kim du Toit

    By the way, I last discussed this topic in this post.