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.
That is of course because they were simply offering a better deal than less well capitalized startups, but it doesn't mean that they're not also collecting some significant monopoly rents.
Actually, it exactly does mean they're not collecting monopoly rents. Monopoly rents require the use of force to keep out competition. Only governments can wield that kind of force.
Once you've gained a dominant market position in a free market, you must keep prices low or risk attracting competition to undercut you. There is no room to raise prices and collect monopoly rents because there is no means to keep competition out of the market.
This, like much, is unargued assertion contrary to straightforward principles. Why wouldn't high entry costs decrease competition, when capitalists can get returns without risking their entire fortune elsewhere? (Increasing marginal utility of money as its supply declines.) [Your model implicitly assumes infinite wealth.]
Nope. It's actually quite observable. Where the prices in an industry justify investment, new companies enter those markets to capture the profit. Where profit margins are slim, new companies avoid that market. High entry costs do not decrease competition where prices justify new investment. High entry costs only decrease competition where entry costs are artificially boosted such that new investment does not achieve sufficient ROI given existing market prices.
If corporations weren't economically efficient (relative to capitalist alternatives), some country would have abolished them and thrived in international competition. You require some kind of conspiracy theory in which the elite have convinced the entire world that corporations are necessary due to the longterm trend re returns to scale. (Foreseen by Engels!)
The unjustified assumption here is that monopolist corporations functioning as governments have some sort of interest in maximizing liberty and private wealth. Their interests are exactly the opposite. They seek to minimize liberty and capture as much wealth for themselves as possible. There is no conspiracy "theory," it's directly observable. The elites have managed to convince you that their rule is necessary. Once they've done that, it's small potatoes to convince you that corporations are also necessary. Government is, after all, the most monopolistic and powerful corporation that exists.
I would go so far as to say that the existence of corporations is proof that the problem of monopoly is inherent to capitalism. They are justified because of the need to amass huge capital to overcome increasing intrinsic barriers to entry based on wealth and industrial concentration.
And reality says exactly the opposite. The existence of corporations is proof that the problem of monopoly is inherent to government. They exist because of government, because politicians need partners in the market to solidify their power and rule, least they be undermined by what the market has to offer.
On Standard Oil. I would suppose that the economic harm was not done to direct customers but to the transporting companies, who were forced to submit to the coordinated bargaining power of the trust. Of course, this has indirect repercussions for consumers. (On my limited understanding of antitrust law, such a harm isn't cognizable. To that limited extent, you might be correct.)
Not sure why you keep beating this dead horse. Consumers were not harmed by Standard Oil. Consumers benefited immensely from rapidly falling prices. Yes, Standard Oil's command of the market allowed it to negotiate lower transportation costs as well, which also benefited consumers. The point is that consumers willingly handed Standard Oil massive market share because Standard Oil met their demands for lower prices and greater availability.
Surely you must see that regulations are just one thing that can create barriers to entry? You talk about government caused barriers as being "artificial" as if non-government "natural" barriers to entry don't have the same effect. If economies of scale are a significant factor than the capital necessary to compete is based in large part on how much capital the dominant player(s) in that market already have invested. When Standard Oil got started in a less consolidated market that wasn't so much, but once it achieved its dominant position in the market it became much harder to compete with them. That is of course because they were simply offering a better deal than less well capitalized startups, but it doesn't mean that they're not also collecting some significant monopoly rents. Once you're already dominating a market there's no incentive to pass any gains from further efficiency improvements on to consumers.
The corporation was created precisely out of the model of corporate donors funding the campaigns of politicians who protected their business. Anticipating that politicians are going to bite the hands that feed them is not a winning strategy. You are not going to "tax them enough" that you will produce anything resembling justice. Neither does it follow due process.
A state that does not follow due process - and thus does not follow a rule of law - isn't worth keeping. It has failed its primary purpose.
The state can "discourage" the use of incorporation by simply CANCELING all corporate charters and refusing to grant new ones. No change in tax policy needed.
How does that make any sense? Evening the score means removing the limited liability protections.
If you taxed them enough, you would effectively eliminate limited liability expense. The corporate form would become too expensive to use.
By the same process, if you tax them at all, you correspondingly discourage their use. You make noncorporate forms more attractive, more economically dominant, by increasing tho costs of corporate privileges.
If the increased tax produces more revenue, it doesn't have to go to government. Use it to reduce the personal income tax.
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.
This, like much, is unargued assertion contrary to straightforward principles. Why wouldn't high entry costs decrease competition, when capitalists can get returns without risking their entire fortune elsewhere? (Increasing marginal utility of money as its supply declines.) [Your model implicitly assumes infinite wealth.]
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 .
If corporations weren't economically efficient (relative to capitalist alternatives), some country would have abolished them and thrived in international competition. You require some kind of conspiracy theory in which the elite have convinced the entire world that corporations are necessary due to the longterm trend re returns to scale. (Foreseen by Engels!)
I would go so far as to say that the existence of corporations is proof that the problem of monopoly is inherent to capitalism. They are justified because of the need to amass huge capital to overcome increasing intrinsic barriers to entry based on wealth and industrial concentration.
On Standard Oil. I would suppose that the economic harm was not done to direct customers but to the transporting companies, who were forced to submit to the coordinated bargaining power of the trust. Of course, this has indirect repercussions for consumers. (On my limited understanding of antitrust law, such a harm isn't cognizable. To that limited extent, you might be correct.)
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.
There is no evidence of which you speak. Competitive markets are markets where property rights are ignored in favor of the incumbent producer. Don't confuse strong protectionism with "strong property rights." Protectionism is not property rights. Property rights must be protected equally for a market to function.
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.
Lower prices are the most obvious effect of increased competition. Increased competition doesn't mean an increase in the number of firms participating in a market. It means an increase in value to consumers in the market, which an increase in the number of firms may provide but only through a reduction in price and an increase in quality brought about by competition between those firms. You can have an extremely competitive market with only a few firms - in which prices are driven down and quality rises, or an extremely uncompetitive market with many firms - in which prices remain high and quality remains low.
A market in which a so-called monopolist - or firm which has majority market share - cannot take rents remains a very competitive market. That firm cannot take rents even if it wanted to as long as it remains unprotected from competition entering the market and undercutting it. It must keep prices low and quality high or risk another firm coming in and providing consumers a better value. Such a firm presumably attained its position by providing the best value to consumers in the first place, which means the consumers gave it that market position, not the government.
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.
Standard Oil's success was not due entirely to economies of scale. It started from almost nothing to achieve its market position. It could not have displaced its earlier rivals unless it somehow innovated in producing refined oil at a lower cost than its existing rivals. Which is exactly what it did. Consumers selected it because it provided a better value. It never had a monopoly, but instead drove down prices of a hotly demanded commodity, and consumers rewarded it with significant market share.
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.
You seemed to have missed the key passage in my response: "as long as the market has no regulatory or otherwise legal restrictions on entry, and new entrants are free to sell without artificial barriers." Obviously, today, we have an enormous amount of market regulation, most of it designed to keep competition out and protect the markets for the incumbent producers. Regulation drives market consolidation and the ability to capture rents because it presents smaller entrants with a high cost of entry, which larger incumbents can absorb. Smaller entrants must amass a much larger amount of capital to enter the market and compete. Barriers to entry that generate rents are the product of government regulation.
Libertarians seem to accept certain principles of British/American common law as "fair." But what is fair about common law liability? Is it "fair," for example, that the amount of liability one faces depends on how much wealth you have? Why should "deep pockets" be subject to higher level of liability than ordinary folks? (Of course, I don't see this as the most important example of unfairness, but it is one that a libertarian might appreciate.)
Common Law liability isn't perfect. It works fairly well, though. I do not believe liability should be based on anything except the amount of harm caused. You can only be liable for what you have taken from others, not for what you haven't taken. Nobody should be subjected to an unfair or arbitrary application of liability.
If one thinks holders of corporate stock receive unfair advantages, you might think one would favor taxing the corporations to even the score.
How does that make any sense? Evening the score means removing the limited liability protections. It does not mean allowing them to keep the protections but allowing the government to take a little more of their money. Government isn't taking that money to distribute to those who it determined through due process were specifically harmed by the privileges it gave. It's taking that money to spend politically. And neither does it even attempt to charge the company with liability when it takes that money. There is no rule of law behind your premise.
I'm for lowering and eliminating all taxes. I don't care which ones come first. Corporations pay for their privileges through campaign donations (to both parties). Politicians wouldn't be able to use corporations as a slush fund for reelection if the government has no power to regulate and offer protection from liability.
Libertarians seem to accept certain principles of British/American common law as "fair." But what is fair about common law liability? Is it "fair," for example, that the amount of liability one faces depends on how much wealth you have? Why should "deep pockets" be subject to higher level of liability than ordinary folks? (Of course, I don't see this as the most important example of unfairness, but it is one that a libertarian might appreciate.)
There's a curious anomaly among libertarian-leaners (not, I admit, among principled libertarians like yourself). If one thinks holders of corporate stock receive unfair advantages, you might think one would favor taxing the corporations to even the score. But the most libertarian politicians (the Freedom Caucus; Paul Ryan) propose to drastically reduce corporate taxes. You, one the other hand, might well think that all taxation is theft (are you an anarcho-capitalist?) Still, doesn't it disturb you that quasi-libertarians are advocating lower corporate taxes - without abolishing personal taxes - given that you think corporations have an unfair advantage. Shouldn't they at least have to pay for their privileges?
First, do you understand the implication of your argument? You're essentially arguing that large sums of capital can't be raised unless certain privileges and immunity from liability - privileges that regular individuals do not have - are granted to organizations chartered by the state, and that this is justified because somehow mobilizing large sums of capital has more social utility than protecting people's rights. But the reason the state exists is to protect people's rights, not to allow wealthy corporations to raise large sums of capital and risk it without consequence.
This violates the fundamental premise that all people are created equal and have equal rights.
The privilege of being released from liability beyond what one has invested in the corporation violates the rights of all who haven’t agreed and causes economic distortions. In traditional, voluntary economic relationships, there is a natural balance between risk and reward that limits the size of any going concern. When people know their own assets are at risk, some would decide against taking certain risks that have a high likelihood of failure. "Too-big-to-fail" would not exist. Once the government releases the stockholder from liability, this natural balance is destroyed.
In a normal economic relationship, entrepreneurs can pool their money together on ventures and release each other from liability and even secure contracts with customers and vendors to release each other from liability. But they cannot release themselves from liability to third parties. Potential liability to third parties acts as a natural deterrent to inordinate growth.
The current situation allows corporations put third parties at risk so they can mobilize even greater sums of capital. But this does not foster a competitive environment and does not benefit the consumer. A century of Progressive governance has lead to an enormous concentration of wealth in the hands of a small percentage of society and a few large firms dominating every economic sector.
With risk providing a natural limit to growth and free entry into the market providing significantly more competition, the largest firms must be smaller and competition and choice must increase.
>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.
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.
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.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.
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.
"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.
The Irish famine and Bengal famine were not "just nature".
They were the result of decentralized human choices to export too much food, and to grow the wrong crops.
You are correct that Ukraine's famine was the fault of Russia's centralized government.
But don't be blinded by ideology. Decentralization AND centralization ARE BOTH capable of causing famines.
That is of course because they were simply offering a better deal than less well capitalized startups, but it doesn't mean that they're not also collecting some significant monopoly rents.
Actually, it exactly does mean they're not collecting monopoly rents. Monopoly rents require the use of force to keep out competition. Only governments can wield that kind of force.
Once you've gained a dominant market position in a free market, you must keep prices low or risk attracting competition to undercut you. There is no room to raise prices and collect monopoly rents because there is no means to keep competition out of the market.
This, like much, is unargued assertion contrary to straightforward principles. Why wouldn't high entry costs decrease competition, when capitalists can get returns without risking their entire fortune elsewhere? (Increasing marginal utility of money as its supply declines.) [Your model implicitly assumes infinite wealth.]
Nope. It's actually quite observable. Where the prices in an industry justify investment, new companies enter those markets to capture the profit. Where profit margins are slim, new companies avoid that market. High entry costs do not decrease competition where prices justify new investment. High entry costs only decrease competition where entry costs are artificially boosted such that new investment does not achieve sufficient ROI given existing market prices.
If corporations weren't economically efficient (relative to capitalist alternatives), some country would have abolished them and thrived in international competition. You require some kind of conspiracy theory in which the elite have convinced the entire world that corporations are necessary due to the longterm trend re returns to scale. (Foreseen by Engels!)
The unjustified assumption here is that monopolist corporations functioning as governments have some sort of interest in maximizing liberty and private wealth. Their interests are exactly the opposite. They seek to minimize liberty and capture as much wealth for themselves as possible. There is no conspiracy "theory," it's directly observable. The elites have managed to convince you that their rule is necessary. Once they've done that, it's small potatoes to convince you that corporations are also necessary. Government is, after all, the most monopolistic and powerful corporation that exists.
I would go so far as to say that the existence of corporations is proof that the problem of monopoly is inherent to capitalism. They are justified because of the need to amass huge capital to overcome increasing intrinsic barriers to entry based on wealth and industrial concentration.
And reality says exactly the opposite. The existence of corporations is proof that the problem of monopoly is inherent to government. They exist because of government, because politicians need partners in the market to solidify their power and rule, least they be undermined by what the market has to offer.
On Standard Oil. I would suppose that the economic harm was not done to direct customers but to the transporting companies, who were forced to submit to the coordinated bargaining power of the trust. Of course, this has indirect repercussions for consumers. (On my limited understanding of antitrust law, such a harm isn't cognizable. To that limited extent, you might be correct.)
Not sure why you keep beating this dead horse. Consumers were not harmed by Standard Oil. Consumers benefited immensely from rapidly falling prices. Yes, Standard Oil's command of the market allowed it to negotiate lower transportation costs as well, which also benefited consumers. The point is that consumers willingly handed Standard Oil massive market share because Standard Oil met their demands for lower prices and greater availability.
Surely you must see that regulations are just one thing that can create barriers to entry? You talk about government caused barriers as being "artificial" as if non-government "natural" barriers to entry don't have the same effect. If economies of scale are a significant factor than the capital necessary to compete is based in large part on how much capital the dominant player(s) in that market already have invested. When Standard Oil got started in a less consolidated market that wasn't so much, but once it achieved its dominant position in the market it became much harder to compete with them. That is of course because they were simply offering a better deal than less well capitalized startups, but it doesn't mean that they're not also collecting some significant monopoly rents. Once you're already dominating a market there's no incentive to pass any gains from further efficiency improvements on to consumers.
The corporation was created precisely out of the model of corporate donors funding the campaigns of politicians who protected their business. Anticipating that politicians are going to bite the hands that feed them is not a winning strategy. You are not going to "tax them enough" that you will produce anything resembling justice. Neither does it follow due process.
A state that does not follow due process - and thus does not follow a rule of law - isn't worth keeping. It has failed its primary purpose.
The state can "discourage" the use of incorporation by simply CANCELING all corporate charters and refusing to grant new ones. No change in tax policy needed.
How does that make any sense? Evening the score means removing the limited liability protections.
If you taxed them enough, you would effectively eliminate limited liability expense. The corporate form would become too expensive to use.
By the same process, if you tax them at all, you correspondingly discourage their use. You make noncorporate forms more attractive, more economically dominant, by increasing tho costs of corporate privileges.
If the increased tax produces more revenue, it doesn't have to go to government. Use it to reduce the personal income tax.
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.
This, like much, is unargued assertion contrary to straightforward principles. Why wouldn't high entry costs decrease competition, when capitalists can get returns without risking their entire fortune elsewhere? (Increasing marginal utility of money as its supply declines.) [Your model implicitly assumes infinite wealth.]
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 .
If corporations weren't economically efficient (relative to capitalist alternatives), some country would have abolished them and thrived in international competition. You require some kind of conspiracy theory in which the elite have convinced the entire world that corporations are necessary due to the longterm trend re returns to scale. (Foreseen by Engels!)
I would go so far as to say that the existence of corporations is proof that the problem of monopoly is inherent to capitalism. They are justified because of the need to amass huge capital to overcome increasing intrinsic barriers to entry based on wealth and industrial concentration.
On Standard Oil. I would suppose that the economic harm was not done to direct customers but to the transporting companies, who were forced to submit to the coordinated bargaining power of the trust. Of course, this has indirect repercussions for consumers. (On my limited understanding of antitrust law, such a harm isn't cognizable. To that limited extent, you might be correct.)
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.
There is no evidence of which you speak. Competitive markets are markets where property rights are ignored in favor of the incumbent producer. Don't confuse strong protectionism with "strong property rights." Protectionism is not property rights. Property rights must be protected equally for a market to function.
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.
Lower prices are the most obvious effect of increased competition. Increased competition doesn't mean an increase in the number of firms participating in a market. It means an increase in value to consumers in the market, which an increase in the number of firms may provide but only through a reduction in price and an increase in quality brought about by competition between those firms. You can have an extremely competitive market with only a few firms - in which prices are driven down and quality rises, or an extremely uncompetitive market with many firms - in which prices remain high and quality remains low.
A market in which a so-called monopolist - or firm which has majority market share - cannot take rents remains a very competitive market. That firm cannot take rents even if it wanted to as long as it remains unprotected from competition entering the market and undercutting it. It must keep prices low and quality high or risk another firm coming in and providing consumers a better value. Such a firm presumably attained its position by providing the best value to consumers in the first place, which means the consumers gave it that market position, not the government.
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.
Standard Oil's success was not due entirely to economies of scale. It started from almost nothing to achieve its market position. It could not have displaced its earlier rivals unless it somehow innovated in producing refined oil at a lower cost than its existing rivals. Which is exactly what it did. Consumers selected it because it provided a better value. It never had a monopoly, but instead drove down prices of a hotly demanded commodity, and consumers rewarded it with significant market share.
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.
You seemed to have missed the key passage in my response: "as long as the market has no regulatory or otherwise legal restrictions on entry, and new entrants are free to sell without artificial barriers." Obviously, today, we have an enormous amount of market regulation, most of it designed to keep competition out and protect the markets for the incumbent producers. Regulation drives market consolidation and the ability to capture rents because it presents smaller entrants with a high cost of entry, which larger incumbents can absorb. Smaller entrants must amass a much larger amount of capital to enter the market and compete. Barriers to entry that generate rents are the product of government regulation.
Libertarians seem to accept certain principles of British/American common law as "fair." But what is fair about common law liability? Is it "fair," for example, that the amount of liability one faces depends on how much wealth you have? Why should "deep pockets" be subject to higher level of liability than ordinary folks? (Of course, I don't see this as the most important example of unfairness, but it is one that a libertarian might appreciate.)
Common Law liability isn't perfect. It works fairly well, though. I do not believe liability should be based on anything except the amount of harm caused. You can only be liable for what you have taken from others, not for what you haven't taken. Nobody should be subjected to an unfair or arbitrary application of liability.
If one thinks holders of corporate stock receive unfair advantages, you might think one would favor taxing the corporations to even the score.
How does that make any sense? Evening the score means removing the limited liability protections. It does not mean allowing them to keep the protections but allowing the government to take a little more of their money. Government isn't taking that money to distribute to those who it determined through due process were specifically harmed by the privileges it gave. It's taking that money to spend politically. And neither does it even attempt to charge the company with liability when it takes that money. There is no rule of law behind your premise.
I'm for lowering and eliminating all taxes. I don't care which ones come first. Corporations pay for their privileges through campaign donations (to both parties). Politicians wouldn't be able to use corporations as a slush fund for reelection if the government has no power to regulate and offer protection from liability.
Libertarians seem to accept certain principles of British/American common law as "fair." But what is fair about common law liability? Is it "fair," for example, that the amount of liability one faces depends on how much wealth you have? Why should "deep pockets" be subject to higher level of liability than ordinary folks? (Of course, I don't see this as the most important example of unfairness, but it is one that a libertarian might appreciate.)
There's a curious anomaly among libertarian-leaners (not, I admit, among principled libertarians like yourself). If one thinks holders of corporate stock receive unfair advantages, you might think one would favor taxing the corporations to even the score. But the most libertarian politicians (the Freedom Caucus; Paul Ryan) propose to drastically reduce corporate taxes. You, one the other hand, might well think that all taxation is theft (are you an anarcho-capitalist?) Still, doesn't it disturb you that quasi-libertarians are advocating lower corporate taxes - without abolishing personal taxes - given that you think corporations have an unfair advantage. Shouldn't they at least have to pay for their privileges?
First, do you understand the implication of your argument? You're essentially arguing that large sums of capital can't be raised unless certain privileges and immunity from liability - privileges that regular individuals do not have - are granted to organizations chartered by the state, and that this is justified because somehow mobilizing large sums of capital has more social utility than protecting people's rights. But the reason the state exists is to protect people's rights, not to allow wealthy corporations to raise large sums of capital and risk it without consequence.
This violates the fundamental premise that all people are created equal and have equal rights.
The privilege of being released from liability beyond what one has invested in the corporation violates the rights of all who haven’t agreed and causes economic distortions. In traditional, voluntary economic relationships, there is a natural balance between risk and reward that limits the size of any going concern. When people know their own assets are at risk, some would decide against taking certain risks that have a high likelihood of failure. "Too-big-to-fail" would not exist. Once the government releases the stockholder from liability, this natural balance is destroyed.
In a normal economic relationship, entrepreneurs can pool their money together on ventures and release each other from liability and even secure contracts with customers and vendors to release each other from liability. But they cannot release themselves from liability to third parties. Potential liability to third parties acts as a natural deterrent to inordinate growth.
The current situation allows corporations put third parties at risk so they can mobilize even greater sums of capital. But this does not foster a competitive environment and does not benefit the consumer. A century of Progressive governance has lead to an enormous concentration of wealth in the hands of a small percentage of society and a few large firms dominating every economic sector.
With risk providing a natural limit to growth and free entry into the market providing significantly more competition, the largest firms must be smaller and competition and choice must increase.
>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.
I'm completely out of my depth here, but might the colonial US' currency wars serve as a kind of example?
https://www.investopedia.co...
https://en.wikipedia.org/wi...
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.
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.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.
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.
"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.