The One Ruler Obsession

I often teach undergraduate law & economics. Sometimes the first paper I assign is to suggest property rules to deal with conflicts regarding asteroids, orbits, and sunlight in the solar system, in the future when there’s substantial activity out there. This feels to students like a complex different situation, and in fact few understand even the basic issues.

Given just two pages to make their case, a large fraction of students (~1/3?) express fear that one person or organization will take over the entire solar system, unless property rules are designed to explicitly prevent that. And a similar fraction suggest the “property rule” of having a single government agency answer all questions. Whatever question or dispute you have, fill out a form, and the agency will decide.

Yet in my lectures I talk a lot about concepts and issues of property rights, but never mention government agency issues or scenarios, nor the scenario of one power taking over everything. And econ undergrads at my school are famous for being relatively libertarian.

I conclude that most people have a strong innate fear of power concentrations, and yet also see the creation of a single central power as an attractive general solution to complicated problems. I’ve seen the same sort of thing with a great many futuristic tech and policy issues. Whatever the question, if it seems complicated, most people are concerned about inequality, especially that it might be taken to the max, and yet they also like the idea of creating a central government-like power to deal with it.

I’ve certainly seen this in concerns about future rampaging robots (= “AI risk”). Many, perhaps most, people express concerns that one AI could take over everything, and many also like the “solution” of one good AI taking over everything.

I recently came across similar reasoning by Frederick Engels back in 1844, in his Outlines of a Critique of Political Economy. Having seen the early industrial revolution, not understanding it well, but fearing where it might lead, Engels claims that the natural outcome is extreme concentration of power. And his solution is to create a different central power (e.g., communism). Of course while there was some increase in inequality and concentration, it wasn’t remotely as bad as Engels feared, except where his words helped to inspire the creation of such concentration. Here is Engels:

Thus, competition sets capital against capital, labour against labour, landed property against landed property; and likewise each of these elements against the other two. In the struggle the stronger wins; and in order to predict the outcome of the struggle, we shall have to investigate the strength of the contestants. First of all, labour is weaker than either landed property or capital, for the worker must work to live, whilst the landowner can live on his rent, and the capitalist on his interest, or, if the need arises, on his capital or on capitalised property in land. The result is that only the very barest necessities, the mere means of subsistence, fall to the lot of labour; whilst the largest part of the products is shared between capital and landed property. Moreover, the stronger worker drives the weaker out of the market, just as larger capital drives out smaller capital, and larger landed property drives out smaller landed property. Practice confirms this conclusion. The advantages which the larger manufacturer and merchant enjoy over the smaller, and the big landowner over the owner of a single acre, are well known. The result is that already under ordinary conditions, in accordance with the law of the stronger, large capital and large landed property swallow small capital and small landed property – i.e., centralisation of property. In crises of trade and agriculture, this centralisation proceeds much more rapidly.

In general large property increases much more rapidly than small property, since a much smaller portion is deducted from its proceeds as property-expenses. This law of the centralisation of private property is as immanent in private property as all the others. The middle classes must increasingly disappear until the world is divided into millionaires and paupers, into large landowners and poor farm labourers. All the laws, all the dividing of landed property, all the possible splitting-up of capital, are of no avail: this result must and will come, unless it is anticipated by a total transformation of social conditions, a fusion of opposed interests, an abolition of private property.

Free competition, the keyword of our present-day economists, is an impossibility. Monopoly at least intended to protect the consumer against fraud, even if it could not in fact do so. The abolition of monopoly, however, opens the door wide to fraud. You say that competition carries with it the remedy for fraud, since no one will buy bad articles. But that means that everyone has to be an expert in every article, which is impossible. Hence the necessity for monopoly, which many articles in fact reveal. Pharmacies, etc., must have a monopoly. And the most important article – money – requires a monopoly most of all. Whenever the circulating medium has ceased to be a state monopoly it has invariably produced a trade crisis; and the English economists, Dr. Wade among them, do concede in this case the necessity for monopoly. But monopoly is no protection against counterfeit money. One can take one’s stand on either side of the question: the one is as difficult as the other. Monopoly produces free competition, and the latter, in turn, produces monopoly. Therefore both must fall, and these difficulties must be resolved through the transcendence of the principle which gives rise to them. (more)

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  • Andrew Luscombe

    The Marxist prescription for the western worker was to use democracy to control and mitigate the extremes of capitalism. Revolution was for places where democracy wasn’t sufficiently established or strong. Most Western countries have been ruled by political parties inspired by Engles and Marx. Looks like ithe balance has been reasonably successful, and the central power has kept extremes in check to a large degree.

    • http://juridicalcoherence.blogspot.com/ Stephen Diamond

      The Marxist prescription for the western worker was to use democracy to control and mitigate the extremes of capitalism.

      Not until Bernstein, and his tendency remained a minority; Bernstein himself ultimately recanted his revisionism. The Kautskyite majority arguably followed capitalist reformist practices, but in their prescriptions remained advocates of socialist revolution, allowing that such a revolution could occur by electoral means.

      • Andrew Luscombe

        No, Marx and Engels themselves were saying it before Bernstein.

    • Cowboydroid

      The “extremes” of capitalism were always the result of state interference in the market, favoring and punishing political friends and opponents. This was enabled by democratically elected politicians.

      • Andrew Luscombe

        Yes, because capitalism and state power are two sides of the same thing. Democracy arose beside capitalism because democratic states are politically strong and together with productive corporations they result in a strong, stable society that can evolve.

      • Cowboydroid

        Capitalism (the market kind) and state power are literally polar opposites. One relies on persuasion and voluntary cooperation and coordination as a means to an end. The other relies on coercion and the tip of the bayonet. Democracy arose because Monarchies could no longer convince society of their “divine right to rule.” So politicians came up with a new theory justifying the state’s predations on society, asserting that you implicitly consent to their rule by merely existing within the territory of their claimed jurisdiction.

        Strong and stable societies are those in which state power is minimized or outright abolished. The most powerful states rule over the most oppressed and impoverished societies.

      • Andrew Luscombe

        The front of a car is opposite to the back of a car, but both are still part of the same thing. There is no modern powerful state without corporations, and there are no large powerful corporations without a modern powerful state. Corporations, and even modern ownership are made from government rules. Government can co-opt corporate capability and capacity for it’s own ends.

      • Cowboydroid

        You understand that’s a libertarian argument right? Corporations are creatures of the state.

        But corporatism is not capitalism.

      • Andrew Luscombe

        Are there any historical examples of capitalism without corporations? How could capitalism work without a strong state defining and defending ownership of land, IP and other things used for production? The most impoverished societies on earth have week states subject to frequent overthrow and which can’t even enforce their own laws.

      • Cowboydroid

        Are there any historical examples of capitalism without corporations?

        Whatever the answer is, how does it have any impact on the discussion? If there are examples of capitalism without corporations, that would prove corporations are not necessary to the function of capitalism. But if there aren’t, it would not prove that corporations are necessary to the function of the market economy. A causal relationship is not proven by mere coincidence. There’s no theoretical explanation that says corporations are necessary to the function of the market economy.

        How could capitalism work without a strong state defining and defending ownership of land, IP and other things used for production?

        Seems here like you’re conflating corporatism with property rights. The market economy depends on property rights to function, yes. But a “strong state” is not necessary to the successful enforcement of property rights. And corporations are by nature an infringement of property rights, as they enjoy special legal status without which they would be liable in the Common Law system for infringing the rights of third parties. Corporations are not an enforcement of property rights, but creatures that enjoy privileged legal status, i.e. “rights” that aren’t available equally to all.

        The most impoverished societies on earth have week states subject to frequent overthrow and which can’t even enforce their own laws.

        North Korea? Society under the USSR? Society under the rule of Mao? All very strong governments that enforced their laws brutally, none of which were overthrown by any outside force. Citizens living in those societies were or are some of the poorest, most destitute in the world. The richest regions of the world – Hong Kong, Singapore, Lichtenstein, Luxembourg, Macau – all have small governments which promote market economies regulated by strong protection for property rights and very limited state interference.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        The richest regions of the world – Hong Kong, Singapore, Lichtenstein,
        Luxembourg, Macau – all have small governments which promote market
        economies regulated by strong protection for property rights and very
        limited state interference.

        But you just said that libited liability corporationsare a fundamental violation of market principles!

        [The obvious (or at least conventional) reason that corporations dominate advanced capitalist economies is that they are necessary for mobilizing huge amounts of capital. A “market economy” would be crushed by international market competition.]

      • Cowboydroid

        But you just said that libited liability corporationsare a fundamental violation of market principles!

        Is there something you’re not getting about those arguments?

        [The obvious (or at least conventional) reason that corporations dominate advanced capitalist economies is that they are necessary for mobilizing huge amounts of capital.

        That’s a myth individuals behind corporate entities use to justify privileged state protection of their assets against liability they would otherwise be forced to accept.

        A “market economy” would be crushed by international market competition.]

        That is an incoherent claim.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Is there something you’re not getting about those arguments?

        I’ve really got to spell it out? You can’t claim that the existence of corporations explains the problems of capitalism and at the same time claim that countries that have corporations enjoy the most important advantages of free markets.

        A “market economy” would be crushed by international market competition.]

        That is an incoherent claim.

        Incoherent to one with an interest in failing to understand. The obvious point is that legalizing limited-liability corporations confers a competitive advantage. There’s no reason to think raising huge amounts of capital for industrial projects is possible under capitalism without limited liability. (You can’t explain the universal acceptance of corporations in advanced capitalist countries by the influence of propaganda – inasmuch as even nationalization has been tried.) Abolising corporations while keeping capitalism would be analogous to enforcing a handicraft economy in an international industrial economy.

        [I suppose you’re also against bankruptcy protection and that you favor debt peonage.]

      • Cowboydroid

        I’ve really got to spell it out? You can’t claim that the existence of corporations explains the problems of capitalism and at the same time claim that countries that have corporations enjoy the most important advantages of free markets.

        That’s what I suspected you were attempting to argue, but it’s a correlation/causation fallacy.

        Countries that have murder also enjoy the benefits of free markets. That doesn’t mean free markets are made better by murder.

        Incoherent to one with an interest in failing to understand.

        No, incoherent because it is internally inconsistent.

        A market economy cannot be “crushed” by an international market process. You cannot cite a thing in opposition to itself. The claim makes absolutely no sense.

        The obvious point is that legalizing limited-liability corporations confers a competitive advantage.

        That’s akin to the claim that the import/export bank benefits American producers selling overseas. Well, sure, it benefits them, but it’s the US taxpayers underwriting that risk. Overall, the US economy suffers a net loss from the US government forcing taxpayers to underwrite loans to foreign companies. Similarly, having the government shield corporations from risk it would otherwise be forced to endure in a market governed by Common Law benefits the corporation, but it hurts the rest of society by forcing them to bear the external costs of that arrangement. These are examples of concentrated benefits and socialized losses. The losses may be dispersed so that each individual only bears a small portion, but they exist nonetheless and they do add up.

        There’s no reason to think raising huge amounts of capital for industrial projects is possible under capitalism without limited liability

        https://www.google.com/url?sa=t&source=web&rct=j&url=https://en.m.wikipedia.org/wiki/Russell%2527s_teapot&ved=0ahUKEwinr7XRjvLXAhWC4SYKHdcpDpwQFggyMAA&usg=AOvVaw1NOkZ5zNars8qb-Wg317Zn

        (You can’t explain the universal acceptance of corporations in advanced capitalist countries by the influence of propaganda – inasmuch as even nationalization has been tried.)

        Why not? The state benefits from the arrangement just as much as the corporation. The state is itself a corporation with limited liability. By creating more creatures like itself in the economic sphere, it secures for itself a steady form of revenue (through campaign contributions for Establishment candidates).

        Abolising corporations while keeping capitalism would be analogous to enforcing a handicraft economy in an international industrial economy.

        Actually, it just means removing the special protections owners of corporations enjoy to which the rest of us are not privy. There’s nothing magical or mysterious to raising large sums of capital. You certainly don’t have to violate other people’s rights to contract or security in their property to do it.

        [I suppose you’re also against bankruptcy protection and that you favor debt peonage.]

        I’m against all violations of property rights. Insofar as bankruptcy protection allows someone to spend other people’s money and not pay them back, that’s theft. Thieves deserve no special protection from the state. Nobody but the government can force you to assume debt in a market economy with strong protections for property rights.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        There’s nothing magical or mysterious to raising large sums of capital. You certainly don’t have to violate other people’s rights to contract or security in their property to do it.

        Allow me to concentrate on this point, as I know the standard libertarian answers to the other, but I have trouble imagining how you might defend the above.

        Recognizing that the rules of liability affect investment is hardly some kind of magical thinking. How could it be otherwise than that incentives to invest determine investment rates?

        I assume you understand how corporations are said to allow raising large amounts of capital: the alternative, partnership or single propietorship, means that someone’s entire wealth (and even future revenue stream) can be lost on an enterprise in which the investor owns but a tiny fraction of the enterprise. Who would invest in such enterprises, and put their entire estate at risk?

        I’m most curious about how you deny this obvious inference.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        So how exactly based on cronyism do you explain our “banks too big to fail”? [Some Austrian notion based on the evil state monopoly on currency?]

      • Cowboydroid

        You’re literally calling out one of the most blatant acts of cronyism between the state and corporations that exists. I mean, literally one of the most blatant acts of state interference in the market. Is that a rhetorical question?

    • Silva

      I remember reading this myself in an article by Marx – like “‘England’ and ‘America’ may achieve socialism by democratic reform instead of revolution” – but can’t remember which one. Can you remind me?

      • Andrew Luscombe

        I think there must be many. I have read it a number of times. The following contains one example of Marx mentioning it:
        https://www.marxists.org/archive/marx/works/1872/09/08.htm

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Could you quote the passage you construe that way?

      • Andrew Luscombe

        “You know that the institutions, mores, and traditions of various countries must be taken into consideration, and we do not deny that there are countries — such as America, England, and if I were more familiar with your institutions, I would perhaps also add Holland — where the workers can attain their goal by peaceful means.”

      • Silva

        Unsure that’s what I’d read, but yes, it’s one that fits. Thanks!

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        That’s without violent revolution, not without revolution. The socialist parties were to remain the parties of extreme left opposition, refusing entry into a coalition government with liberal capitalist parties. [Engels himself, however, protested the edited version of the book introduction you’re referring to as being too soft on bourgeois democracy.]

      • Andrew Luscombe

        Revolution often becomes shorthand for “violent revolution” in usage. It can be difficult to distinguish between democratic reform and non-violent revolution, particularly when the end goal is democratic in both cases.

        There are also cases of them talking about entering into coalitions with Bourgeois parties as they termed them. And in the west, this is what often happened.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        Tactical coalitions, yes. Coalition governments, never with bourgeois parties. This became a principle of orthodox Social Democracy. This is because the goal was always revolution, not using capitalist institutions for reform. To participate in a coalition government is to take responsibility for administering capitalism.

  • http://quitelikelyblog.wordpress.com/ Quite Likely

    There’s nothing particularly inconsistent about using centralized government power to fight inequality. The whole “the weak appeal to the king for protection from the strong” scenario has been going on for a looong time. Elites have an incentive to prey upon the masses, which is opposed by the government’s interest in having a well-functioning system as a base for its own power.

    • Cowboydroid

      Centralized power is the root of the most extreme and obvious forms of inequality imposed on society. Oppression requires power – the political kind – and there is an extreme inequality of power between a centralized government and the individual whose rights require protection.

      Where power is shared, inequality is reduced. And where it is shared and distributed most broadly, inequality is at its minimal.

      And in the opposite, where power is most concentrated, inequality is at its extreme.

      • http://quitelikelyblog.wordpress.com/ Quite Likely

        I think this is the core libertarian error: decentralized oppression is at least as common. Who is oppressing you more, the federal government or your boss? Or the impersonal hand of the market? “The government” really isn’t much more of a coherent single entity than “the market.” It’s a reflection of society, with different social actors gaining different amounts and types of influence in various ways. And given our capitalist economic system it’s by far the most democratically controlled entity in our society. There’s a lot more concentration of market power than of political power, and much of the concentration of political power that exists is caused by that concentration of economic power.

      • Cowboydroid

        I think this is the core libertarian error: decentralized oppression is at least as common.

        Lol.

        Who is oppressing you more, the federal government or your boss?

        The federal government. My boss doesn’t “oppress” me because he can’t force me to do anything or deny me the liberty to do what I like. I have a voluntary agreement with my boss that I will do work for him and he will give me money in exchange. The federal government involuntarily just takes my money and spends it on oppressing me and others.

        Or the impersonal hand of the market? “The government” really isn’t much more of a coherent single entity than “the market.” It’s a reflection of society, with different social actors gaining different amounts and types of influence in various ways.

        Kidding, right? The government is a corporation, made up of bureaucrats and politicians who claim the authority to deny you liberty. Government is no more a reflection of society than General Electric or Time Warner. The market is a reflection of society because it is the sum of all interactive and voluntary exchanges between members of society. The market is what people choose to do when allowed the liberty to do what they want.

        And given our capitalist economic system it’s by far the most democratically controlled entity in our society. There’s a lot more concentration of market power than of political power, and much of the concentration of political power that exists is caused by that concentration of economic power.

        You have that assbackwards. Political concentration of power is what allows market actors to lobby the government for protection and force competition out of the market. Political concentration of power is what causes concentration of economic influence. In markets where governments interfere less, competition is most healthy and economic growth is more robust. Where they interfere the most, competition dwindles and monopolies form, and the economy stagnates or shrinks.

      • http://quitelikelyblog.wordpress.com/ Quite Likely

        “Lol. What decentralized organization is responsible for genocide, wars of attrition, mass slavery, mass starvation? What decentralized organization was responsible for over 250 million deaths last century?”

        Well as I said markets are the obvious example. From the Irish Potato Famine to the Bengal Famine it didn’t take any specific central actor wreaking destruction to get food actively shipped away from famine regions for sale elsewhere. Another example is the kind of racial discrimination outlawed in the civil rights act: even without a government you can feel pretty oppressed in a city where a majority of business owners refuse to serve you based on your race. And then there’s the bosses example I brought up above: no one is forcing you to take any particular job, but the way our society is set up forces you to find some source of income, and for many the only options available are quite oppressive indeed.

        “Kidding, right? The government is a corporation, made up of bureaucrats and politicians who claim the authority to deny you liberty. Government is no more a reflection of society than General Electric or Time Warner.”

        Is this just a complete rejection of even the concept of democratic representation? The comparison between the government and a corporation is a fruitful one, with politicians serving as the board of directors and citizens serving as the owners who choose that board. But that of course demonstrates the difference: the government is at least in theory under the control of people in the way those other corporations are not. There’s always room for control fraud by politicians abusing their role as representatives just as company management can look out for their own interests over those of investors, but they’re at least somewhat accountable to popular preference rather than not at all.

        “You have that assbackwards. Political concentration of power is what allows market actors to lobby the government for protection and force competition out of the market. Political concentration of power is what causes concentration of economic influence. In markets where governments interfere less, competition is most healthy and economic growth is more robust. Where they interfere the most, competition dwindles and monopolies form, and the economy stagnates or shrinks.”

        I think it’s you who has this pretty exactly backwards. Consolidation and shady dealmaking between powerful dealmakers is the natural state of the free market. We’ve seen this play out in American history: monopolies and trusts dominated the economy in the laissez-faire days, retreated in the mid-20th century period of increased government intervention, and are back now that anti-trust regulations have stopped being effectively enforced.

        Markets can be very useful tools, but they need to be properly maintained. They can easily get out of competitive equilibrium and get taken over by rent-seeking monopolists if there’s no referee actively preventing that outcome.

      • Cowboydroid

        Well as I said markets are the obvious example. From the Irish Potato Famine to the Bengal Famine it didn’t take any specific central actor wreaking destruction to get food actively shipped away from famine regions for sale elsewhere.

        Nature is not a decentralized human organization. Natural disasters are not a failure of the market process. States cannot protect against famine… although they can certainly contribute (Russia starving Ukrainians in what is one of the most fertile regions of the world).

        Another example is the kind of racial discrimination outlawed in the civil rights act: even without a government you can feel pretty oppressed in a city where a majority of business owners refuse to serve you based on your race.

        Uh, sure, you can feel oppressed by someone choosing not to sell you a sandwich, but that doesn’t even remotely compare to the state committing genocide, firebombing cities, releasing chemical weapons on civilian populations, or enslaving entire races.

        And then there’s the bosses example I brought up above: no one is forcing you to take any particular job, but the way our society is set up forces you to find some source of income, and for many the only options available are quite oppressive indeed.

        Umm, the way NATURE is set up forces you to find some means of providing for your needs, or you die. That’s not anyone’s fault and it’s certainly not an “act of oppression.” Our society makes it easy by allowing you for trade your labor for a salary which you can use to buy the things you need.

        Curiously, people actually pay more in taxes than they spend on food, clothing, and shelter in the US.

        I think it’s you who has this pretty exactly backwards. Consolidation and shady dealmaking between powerful dealmakers is the natural state of the free market.

        The natural state of the market is dealmaking. What makes it “shady” is political interference. When people’s rights are violated, either the state holds the perpetrators accountable, or it accepts their bribes. Most often, it accepts their bribes.

        We’ve seen this play out in American history: monopolies and trusts dominated the economy in the laissez-faire days, retreated in the mid-20th century period of increased government intervention, and are back now that anti-trust regulations have stopped being effectively enforced.

        Monopolies are in all cases the result of political interference in markets, deal making between politicians and industry leaders. Monopolies dominated the economy as laissez-faire shrunk and disappeared and political interference increased. The economy is now more protectionist and concentrated than it’s ever been, and it is more difficult today than ever in history to start a new company and compete in the market due to the tens of thousands of regulations designed to keep competition out of the market.

        Your opinions are based almost entirely on myth and unsupported by any factual evidence from history.

        Markets can be very useful tools, but they need to be properly maintained. They can easily get out of competitive equilibrium and get taken over by rent-seeking monopolists if there’s no referee actively preventing that outcome.

        That “referee” has rigged the market in favor of the monopolists.

      • http://quitelikelyblog.wordpress.com/ Quite Likely

        It seems like you’re assuming the conclusion in your discussion of centralized versus decentralized systems. Yes, obviously decentralized systems don’t take huge dramatic actions – that’s what decentralization is about. Harm done by decentralized systems tends to be more… decentralized. There have been a lot more spontaneous pogroms than deliberate state-run genocides; more hunger from decentralized market forces than from the state screwing things up; more slaves captured by slave traders than by state actors.

        I really can’t believe you think that monopolies are always the result of government interference. That’s so 180 degrees opposite from reality. Government interference is the only way we have of fighting monopolies. The laissez-faire era was the era of monopolies. When the government started intervening more in the economy in the progressive era one of the first priorities was breaking those monopolies up. It’s of course perfectly possible for government corruption to enable monopolies, but the most common form we see that corruption take is a dismantling of anti-trust rules. Monopolists don’t need the government to enforce their monopolies for them, they just need it to get out of their way and stop trying to prevent consolidation. How do you grapple with the history of monopolies in America – rising in the laissez-faire era, declining in the more regulated mid-20th century, and rising again in the last few decades as economic policy moves back to the right?

      • Cowboydroid

        It seems like you’re assuming the conclusion in your discussion of centralized versus decentralized systems.

        For that accusation to stick, you need to demonstrate how. But it doesn’t appear you’ve done that.

        There have been a lot more spontaneous pogroms than deliberate state-run genocides;

        That’s a claim that requires sourcing. A pogrom is “an organized massacre of a particular ethnic group, in particular that of Jews in Russia or eastern Europe.”

        more hunger from decentralized market forces than from the state screwing things up;

        Again, a dubious claim that requires sourcing. Decentralized market forces have done the most to reduce hunger than any other effort in human history. States have caused more famine than any natural disaster. China lost tens of millions to famine after their idiotic attempt to wipe out the sparrow population, which was an organized government mandated effort. Ukraine lost millions after Russia took all their food. Yemen is currently about to lose more than a million to famine as a result of a blockade imposed by the US and Saudi Arabia.

        more slaves captured by slave traders than by state actors.

        Slavery was a state enforced and protected institution. It had the sanction of states and state actors on both sides of the transaction. There is no semblance of property rights in slave trading – it is a direct and blatant violation of property rights.

        I really can’t believe you think that monopolies are always the result of government interference.

        That’s because you have no idea how monopolies actually form. They all form with the assistance of the state to suppress competition.

        That’s so 180 degrees opposite from reality. Government interference is the only way we have of fighting monopolies. The laissez-faire era was the era of monopolies.

        This kind of propaganda is what is taught in public schools, but has no basis in reality and no factual support. There was never a “laissez-faire era” of US history. There has always been some amount of state protectionism, and it started increasingly rapidly at the end of the 19th century. Several industries were monopolized by the state, the state granted monopolies in other industries, and it suppressed competition in other markets. This happened after a very fast rate of growth in the 1870s spurred by the lack of

        When the government started intervening more in the economy in the progressive era one of the first priorities was breaking those monopolies up.regulations combined with a strong, gold-backed currency.

        And that’s exactly the opposite of what actually happened. It was the Progressive’s Industrial Policy which lead to the monopolization and concentration of many industries. Gabriel Kolko goes over this in detail in his scholarly work.

        There are no example in all of history of any monopolist that ever achieved its monopoly through market methods. It is nearly impossible to achieve a monopoly through market means, and impossible to exert pricing power if it is.

        Monopolists don’t need the government to enforce their monopolies for them,

        They precisely need the government to enforce their monopoly for them. It wouldn’t last otherwise.

        Your perception of economic history is entirely flawed. There is just no factual support for it. You can’t point to a single monopoly that has ever existed that didn’t get that way through the assistance of the state. AT&T, one of the worst offenders, was literally handed a monopoly by the US government.

      • http://quitelikelyblog.wordpress.com/ Quite Likely

        “There are no example in all of history of any monopolist that ever achieved its monopoly through market methods. It is nearly impossible to achieve a monopoly through market means, and impossible to exert pricing power if it is.”

        Do you really want to take this extreme of a view? Why would it be impossible? Of course some monopolies are set up or accepted by the state, but they also pop up all by themselves pretty regularly. Standard Oil was already a monopoly by 1880, and without any particular assistance from the state. State intervention is just one way of creating sufficient barriers to entry in an industry to keep a monopoly going. There are plenty of others.

      • Cowboydroid

        Can it be an “extreme” view if it’s the truth?

        The burden of proof for the assertion that monopolies are a natural result of the market process lies with the one who makes that assertion. Markets are naturally competitive; strong protection of property rights are all markets require to maintain competition and avoid concentration of selling and buying power.

        If you care to describe how you think markets naturally result in the concentration of economic power, feel free. I will address your arguments as they are presented. There are no monopolies which have ever popped up all by themselves. They are all the result of state interference in the market. You can attempt to name examples, and I will demonstrate to you why they don’t fit.

        Standard Oil was not a monopoly. The only thing Standard Oil was ever guilty of was bringing down the price of refined oil.

        John McGee, who studied the Standard Oil case in unprecedented depth, reporting his results in two seminal Journal of Law and Economics articles, contrasted its role as the legendary “archetype of predatory monopoly” in the public imagination with the evidence, and determined that “Standard Oil did not use predatory price cutting to acquire or keep monopoly power.”

        Standard Oil had no initial market power, with only about 4 percent of the market in 1870. Its output and market share grew as its superior efficiency dramatically lowered its refining costs (by 1897, they were less than one-tenth of their level in 1869), and it passed on the efficiency savings in sharply reduced prices for refined oil which fell from over 30 cents per gallon in 1869, to 10 cents in 1874, to 8 cents in 1885, and to 5.9 cents in 1897). It never achieved a monopoly (in 1911, the year of the Supreme Court decision, Standard Oil had roughly 150 competitors, including Texaco and Gulf) that would enable it to monopolistically boost consumer prices. So it can hardly be argued seriously that Rockefeller pursued a predatory strategy involving massive losses for decades without achieving the alleged monopoly payoff, which was the source of supposed consumer harm.

        State intervention is the only way of creating sufficient barriers to entry in any industry to suppress competition and promote monopolism.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        The article you cite is hardly “seminal” in the sense that it created a sea change in opinion. Most economists are unconvinced, and the necessity of antitrust law is recognized by a large body of thinking, to which the semi-libertarian Judge Posner contributed considerably. The position is indeed extreme; which doesn’t make it wrong, but does affect the “burden of proof,” of which you are so concerned.

        Your contention that Standard Oil was never a monopoly suggests you have a very limited definition of the term. Despite having competitors, Standard Oil ended up with 88% of oil revenue. It was able to leverage its size to get very low transportation costs at the expense of its rivals.

        [You wonder what makes monopoly (or oligopoly, if you prefer) possible in a market economy. The answer is high entry costs. ]

        Knockdown arguments are not usually possible in mere comments on a topic like this, but I submit I’ve produced one against your version of libertarianism: in my previous post, the economic necessity of limited liability. Feel free to take your time in answering it.

      • Cowboydroid

        The article you cite is hardly “seminal” in the sense that it created a sea change in opinion. Most economists are unconvinced, and the necessity of antitrust law is recognized by a large body of thinking

        This is an extremely weak appeal to popularity. The popularity of an argument has no bearing on its truthfulness. And it’s a fact that Standard Oil had no monopoly power. And it’s a fact that no monopolies have ever existed that achieved their position through market means.

        The position is indeed extreme; which doesn’t make it wrong, but does affect the “burden of proof,” of which you are so concerned.</blockquote

        The position that monopolies can only achieve their power through state interference is not extreme. It is unpopular, particular with economists who are employed by the state (which is a large majority.). And the burden of proof always lies with the one making the claim. And given that the natural state of the market is competition, the burden of proof that markets tend towards monopoly lies with those making that claim.

        It also stands to reason that those who claim the monopolist (the state) is required to create competition by imposing its monopolist power bear the burden of proof. This is what I would consider the more ridiculous presumption.

        Your contention that Standard Oil was never a monopoly suggests you have a very limited definition of the term. Despite having competitors, Standard Oil ended up with 88% of oil revenue. It was able to leverage its size to get very low transportation costs at the expense of its rivals.

        Uh, no. It suggests I have an accurate definition of the term. Monopolies are defined by having pricing power, not just a percentage of market share. Many companies have large percentages of market share, but no pricing power. Having a large percentage of market share affords no ability to set prices, since existing competitors can always undercut your prices and regain market share. Standard Oil ended up with 88% market share because it had lower prices, not because it somehow illegitimately forced anyone else out of the industry (having 150 competitors). It was able to leverage its size to lower prices, not raise them. And yes, its more expensive rivals suffered, and its customers benefited.

        [You wonder what makes monopoly (or oligopoly, if you prefer) possible in a market economy. The answer is high entry costs. ]

        High entry costs do not deter investors willing to throw large sums of capital at a project… unless the costs are so high that the investment doesn’t pay off given the current prices in the sector. And such a condition only exists if the state imposes unnaturally high costs through regulatory means (which Gabriel Kolko explains thoroughly in his work).

        Knockdown arguments are not usually possible in mere comments on a topic like this, but I submit I’ve produced one against your version of libertarianism: in my previous post, the economic necessity of limited liability. Feel free to take your time in answering it.

        The “economic necessity” of limited liability argument appeals entirely to results. But that is a fallacy in the form of post hoc ergo propter hoc . Large sums of capital can be mobilized without imposing unjust costs on unwitting parties. Allowing owners of capital to escape liability for illegitimately imposing costs on third parties only results in net economic loss, not gain.

      • http://quitelikelyblog.wordpress.com/ Quite Likely

        “The burden of proof for the assertion that monopolies are a natural result of the market process lies with the one who makes that assertion. Markets are naturally competitive; strong protection of property rights are all markets require to maintain competition and avoid concentration of selling and buying power.”

        This isn’t an axiom, it’s an extraordinary claim that itself needs some extraordinary evidence to be believed. Practically everywhere you look markets tend towards consolidation as economies of scale compound the advantage of the most successful competitors who proceed to buy out or outcompete their rivals. And there’s no particular ‘natural’ market mechanism to clear out a monopoly or oligopoly once it forms – the level of investment necessary to build the scale of operations needed to compete with entrenched players makes entering those markets rarely a worthwhile process – doubly so because the entrenched players inevitably have cozy relationships with with suppliers and consumers that they can use to edge out competition. A classic of the laissez-faire days was railroad companies giving special rates to major customers like Standard Oil.

        I guess maybe the issue is that you’re claiming the Standard Oil wasn’t a monopolist because it didn’t literally control 100% of the oil industry? I guess I can see that if that’s the standard you’re setting for what makes a monopoly I’m a bit more sympathetic to your mainly associating them with state intervention. But the harm from Monopoly is more of a continuum, increasing along with increased consolidation. Standard Oil was quite big enough to be a harmful concentration of economic power, as are countless corporations today that don’t have full monopoly status but are nevertheless harmfully dominant in their industries.

      • Cowboydroid

        This isn’t an axiom, it’s an extraordinary claim that itself needs some extraordinary evidence to be believed.

        There’s nothing extraordinary in the slightest about the claim that markets are competitive. The burden of proof for the claim that markets aren’t competitive lies with those making the claim.

        Practically everywhere you look markets tend towards consolidation as economies of scale compound the advantage of the most successful competitors who proceed to buy out or outcompete their rivals.

        There are no cases of this ever happening anywhere, and economies of scale do the opposite. Economies of scale make markets more competitive by allowing producers to bring down prices (which is the opposite of what a monopolist wants). Large-scale production produces competitive benefits through cost savings in advertising, selling, and less cross-shipping. Economies of scale do not cause any economic disadvantage to the community. Mergers are much more efficient than the small producers whom they displace. The consumer unequivocally benefits.

        During the late 19th century, when local governments were beginning to grant franchise monopolies, the general economic understanding was that “monopoly” was caused by government intervention, not the free market, through franchises, protectionism, and other means.

        And there’s no particular ‘natural’ market mechanism to clear out a monopoly or oligopoly once it forms

        As long as markets have free entry, there is no means any producer has of consolidating an entire market to himself. Buying out all potential competitors is capital intensive. And it becomes infinitely capital intensive once be begins raising prices. Raising prices only invites more competitors to enter the market, and the more he raises them, the more lucrative it becomes to enter the market. He must engage in a nonstop effort of buying out competitors. And the more he raises prices, the more money competitors are willing to invest in entering the market, making it more and more expensive for the monopolist to buy out his competitors. It becomes a losing effort with no return to the monopolist. And so he is either forced to keep prices low – in which case the consumer benefits – or he is forced to reluctantly concede market share to competitors.

        – the level of investment necessary to build the scale of operations needed to compete with entrenched players makes entering those markets rarely a worthwhile process

        Wrong. Economies of scale are available to any entrant with the required capital backing the venture. And as long as market prices make it a profitable venture, the monopolist who enjoys economies of scale has no means of preventing competition other than keeping prices low. If he raises prices, he invites competition.

        – doubly so because the entrenched players inevitably have cozy relationships with with suppliers and consumers that they can use to edge out competition.

        Consumers have no loyalty to producers of commodities – they will buy whoever is selling at the lowest price.

        A classic of the laissez-faire days was railroad companies giving special rates to major customers like Standard Oil.

        Railroad companies are the case study in cronyist capitalism, where governments grant privileges and monopolies to certain incumbents, and subsidize them with taxpayer dollars.

        I guess maybe the issue is that you’re claiming the Standard Oil wasn’t a monopolist because it didn’t literally control 100% of the oil industry? I guess I can see that if that’s the standard you’re setting for what makes a monopoly I’m a bit more sympathetic to your mainly associating them with state intervention.

        Not only did they not control the industry to the exclusion of competition – which is the literal definition of a monopoly and not a “technicality” as you attempt to frame it, but they were not able to exert pricing power, which is the primary harm caused by monopolists. Monopolist seek to gain exclusive control of a market not so they can be the only one selling to consumers at a low price, but so they can be the only one selling at a HIGH price, in order to reap maximum rent. And they can raise prices because there is no one else to undercut them and steal competition. This condition requires some form of government intervention to prevent competition from entering the market and undercutting the monopolist if he attempts to raise prices.

        But the harm from Monopoly is more of a continuum, increasing along with increased consolidation.

        That is precisely false. There is no more or less competition in a market with 3 players as a market with 300 players, as long as the market has no regulatory or otherwise legal restrictions on entry, and new entrants are free to sell without artificial barriers. All of the harm of monopoly comes from an entirely consolidated market where a single player gains pricing power and begins to raise prices with impunity.

        Standard Oil was quite big enough to be a harmful concentration of economic power, as are countless corporations today that don’t have full monopoly status but are nevertheless harmfully dominant in their industries.

        The only thing Standard Oil was ever guilty of was reducing the cost of refined oil. It never could exert pricing power and raise prices>. It was simply more efficient than all its competitors, who decided that the way to beat Standard Oil wasn’t in the market, but in the halls of Congress.

      • http://quitelikelyblog.wordpress.com/ Quite Likely

        >There’s nothing extraordinary in the slightest about the claim that markets are competitive. The burden of proof for the claim that markets aren’t competitive lies with those making the claim.

        You’re claiming quite a bit more than that by saying that “strong protection of property rights are all markets require to maintain competition and avoid concentration of selling and buying power,” especially in the face of so much contrary evidence in the form of the strong property rights and uncompetitive markets we see everywhere.

        >Economies of scale make markets more competitive by allowing producers to bring down prices (which is the opposite of what a monopolist wants).

        Could we possibly be using different definitions of the word “competitive”? Economies of scale do of course lower costs and thus prices, but lower prices are of course not synonymous with increased competition. A market in which a monopoly is opting not to take its monopoly rents and is instead passing the savings on to the consumer can have very low prices and zero competition.

        That’s sort of what ends up happening: let’s say Standard Oil can produce oil at half the cost of any of its smaller competitors based on economies of scale. It can beat any price its competitors could profitably offer and still sell at way above its own marginal cost of production. To compete on an even playing field a competitor would have to build an entire Standard Oil level operation to match their economies of scale, but unlike when Standard was growing to that level it couldn’t be funded by oil profits. That’s an incredibly high cost of entry, and thus a recipe for monopolization. I see you making the point that even the potential for effective conversation puts a ceiling on how high Standard could raise the price and that’s true, but it doesn’t mean they can’t walk away with a ton of monopoly rents anyway.

        >That is precisely false. There is no more or less competition in a market with 3 players as a market with 300 players, as long as the market has no regulatory or otherwise legal restrictions on entry, and new entrants are free to sell without artificial barriers. All of the harm of monopoly comes from an entirely consolidated market where a single player gains pricing power and begins to raise prices with impunity.

        Heh, tell that to modern markets. We have a lot of inefficient markets these days dominated by 2 or 3 big players. There’s definitely a lot more competition with 300 players than with 3. Concentrations of market power start to produce rents far before a company reaches 100% market share, in part because it’s just too easy for three players to explicitly or implicitly collude against the public’s interests in favor of their own. They’re protected by the fact that barriers of entry are high enough to make it difficult for new competitors to emerge, and thus develop (often anti-consumer) strategies for just competing (or not) against each other.

  • George

    In the RSS feed, the quotes aren’t working and it looks like you’re the one saying what is attributed to Engels.

  • Mark

    “And the most important article – money – requires a monopoly most of all. Whenever the circulating medium has ceased to be a state monopoly it has invariably produced a trade crisis; and the English economists, Dr. Wade among them, do concede in this case the necessity for monopoly.”

    I’m curious to see how this applies to cryptocurrencies with the inevitable rise of numerous different currencies each designed for different use cases with differing monetary policies. Especially as the technology develops with decentralised exchanges with atomic swapping.
    Can anyone point me in the direction of the historical examples that the quote points to with the trade crises following the challenges to state money monopoly?

    • Outroverse

      I’m completely out of my depth here, but might the colonial US’ currency wars serve as a kind of example?

      https://www.investopedia.com/insights/what-is-money/

      https://en.wikipedia.org/wiki/Early_American_currency

      I’m not sure whether that would be count as a crisis, but the inflation seems to have caused some issues. Then again, that’s not exactly the case with deflationary cryptocurrencies such as BTC. One thing they do have in common is that they’re not backed by a gold standard nor central banks, which might lead to volatility.

      And then again, central bank backed money does seem to have some issues of its own in the form of crises.

  • Dave Lindbergh

    In the section you quote, Engels seems to jump to conclusions without making much argument re why, other than the fallacy of infinite economies of scale.

    As scale increases, some things do indeed get cheaper. But at the same time, other things get more expensive – management, complexity, and agency problems, at least.

    At some point there’s an equilibrium and optimal size. And, usually, an entire ecosystem of various sized firms, serving specialized niches where the optimum size is different.

    It strikes me as a very naive analysis. And not supported by history (or by biological analogy).

    • http://juridicalcoherence.blogspot.com/ Stephen Diamond

      At some point there’s an equilibrium and optimal size.

      What Engels is saying is that this optimal size becomes larger as capitalism develops. I don’t think Marx or Engels produced any rigorous argument as to why the optimal size should increase as industry advances. But as an empirical matter, I don’t see how it is even disputable. Who doubts that wealth has become more concentrated and the economy increasingly oligopolized? (Even the Trump administration is worried about the latest proposed acquisition in telecom/news, and a sensational news story reports that three families own more wealth than half the U.S. population.)

      • Dave Lindbergh

        Can you point at good studies showing increasing industrial concentration over the last couple of hundred years? It’s not obvious to me that things have been steadily getting more concentrated (or that they’re not – my perception is that it’s roughly stable).

        And, clearly, a lot of the present concentration is due to political forces more than economic ones. (Protectionism for entrenched industries, existing big players rigging the market in their favor via lobbying for regulation that cripple competitors, etc.)

        I think it’s difficult to disentangle any “natural” economic effects of capitalism from political effects associated with “crony” capitalism.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        I don’t readily find studies on either side over really long periods. A quick Google search fruequently brings up this study showing dramatic increases in concentration over the past two decades: https://finance.eller.arizona.edu/sites/finance/files/grullon_11.4.16.pdf

        I have to admit that I scarcely need data to convince me that the economy is more concentrated today than 200 years ago! This is so counter-intuitive that perhaps you could explain how it could be the case. A capitalism based on industry and massive service providers is equally concentrated as one based on small farmers and handicraft industry?

      • Salem

        But it depends on what you make of the “base,” right? Think about the extraordinary breadth of the monopoly held by the East India Company, and the resulting economic concentration. It’s far from obvious that the “massive service providers” of today (Google? Walmart?) are more economically dominant than the mercantile behemoths of the past, like the EIC and VOC.

      • http://juridicalcoherence.blogspot.com/ Stephen Diamond

        According to the ultimately technological determinist theory of Marx and Engels, the base is in the first instance technological level. The basic (nonrigorous) argument is that technical progress means increasing investment in fixed capital, which squeezes out competitors.

        So, the mercantile trading companies do seem to me to represent a challenge to the Marx-Engels view. How was a high level of concentration achieved given that the technology was primitive.

        I came upon some recent research indicating that the East India Company was far more decentralized than usually thought. Very numerous traders associated with the company traded privately as well, this being legal. ( https://finance.eller.arizona.edu/sites/finance/files/grullon_11.4.16.pdf )

  • http://juridicalcoherence.blogspot.com/ Stephen Diamond

    I conclude that most people have a strong innate fear of power concentrations, and yet also see the creation of a single central power as an attractive general solution to complicated problems.

    If Boehm is right about inverted hierarchy, an innate fear of power concentration is plausible. Your comments, however, insinuate that this fear is not only innate but irrational. It wasn’t irrational for foragers, as domination by a strong man was a constant threat, at least occasionally realized.

    The threat reflects our simian past, and it involves some distortion under present conditions, for instance, excessive personalization. But the number of “strong men” in power around the globe (and the aspirations of one in particular in the U.S.) doesn’t suggest that this fear is wholly misplaced; as neither does the “iron law of oligarchy” applied to organizations.

    Face with a perceived strong man threat, humans may regress to the simian level by supporting a rival strong man. The truly human answer is the “talky collective,” which corresponds actually to the Engels line.

    • http://overcomingbias.com RobinHanson

      I agree that these fears probably made more sense in ancient forager environments.

      • xyz

        Why? It seems to me that a broad-based fear of power concentrations is a feature of many highly successful mass societies, not just hunter-foragers. Why should one regard this as an irrational fear rather than as a useful one?

        I think you may be tacitly assuming that there must be some clearly definable and simple solution to the dilemma you present, but it seems to me that history to date is consistent with the notion that mass human socialization is, on long timescales, an insoluble problem.

  • cwcwcwcwcw

    I have been thinking that lots and lots about human society can be explained by the “fact” that all human population have a significant percentage of functionally sociopathic males (it always seems to be males.) There are always men perfectly willing to make everyone else’s lives worse in order to get power, money, fame. That’s why you need a strong government: to protect yourself from these sociopaths. That’s also why you fear a strong government: it is likely at some point to be controlled by sociopaths.

    I think this trait is selected for (along with violence). Sociopaths were more likely to control early human groups and therefor had more children.

  • http://www.sanger.dk Pepper

    So as a compromise, perhaps one could try to adjust the nature of the solar wealth acquisition game so that good people will win, and thereby you’d be left with a single good person in charge?