Abolish Antitrust!

"That there is inequality of ability or monetary income on the free market should surprise no one. As we have seen above, men are not “equal” in their tastes, interests, abilities, or locations. Resources are not distributed “equally” over the earth.16 This inequality or diversity in abilities and distribution of resources insures inequality of income on the free market. And, since a man’s monetary assets are derived from his and his ancestors’ abilities in serving consumers on the market, it is not surprising that there is inequality of monetary wealth as well.

"The term 'free competition,' then, will prove misleading unless it is interpreted to mean free action, i.e., freedom to compete or not to compete as the individual wills.

"It should be clear from the foregoing discussion that there is nothing particularly reprehensible or destructive of consumer freedom in the establishment of a 'monopoly price' or in a cartel action. A cartel action, if it is a voluntary one, cannot injure freedom of competition and, if it proves profitable, benefits rather than injures the consumers. It is perfectly consonant with a free society, with individual self-sovereignty, and with the earning of money through serving consumers.

As Benjamin R. Tucker brilliantly concluded in dealing with the problem of cartels and competition:

'That the right to cooperate is as unquestionable as the right to compete; the right to compete involves the right to refrain from competition; cooperation is often a method of competition, and competition is always, in the larger view, a method of cooperation ... each is a legitimate, orderly, non-invasive exercise of the individual will under the social law of equal liberty....

'Viewed in the light of these irrefutable propositions, the trust, then, like every other industrial combination endeavoring to do collectively nothing but what each member of the combination might fully endeavor to do individually, is, per se, an unimpeachable institution. To assail or control or deny this form of cooperation on the ground that it is itself a denial of competition is an absurdity. It is an absurdity, because it proves too much. The trust is a denial of competition in no other sense than that in which competition itself is a denial of competition. (Italics ours.) The trust denies competition only by producing and selling more cheaply than those outside of the trust can produce and sell; but in that sense every successful individual competitor also denies competition.... The fact is that there is one denial of competition which is the right of all, and that there is another denial of competition which is the right of none. All of us, whether out of a trust or in it, have a right to deny competition by competing, but none of us, whether in a trust or out of it, have a right to deny competition by arbitrary decree, by interference with voluntary effort, by forcible suppression of initiative.'

"This is not to say, of course, that joint co-operation or combination is necessarily 'better than' competition among firms. We simply conclude that the relative extent of areas within or between firms on the free market will be precisely that proportion most conducive to the well-being of consumers and producers alike. This is the same as our previous conclusion that the size of a firm will tend to be established at the level most serviceable to the consumers."

—Murray N. Rothbard, Man, Economy, and State

Competition Is Cooperation

"The pricing process is a social process. It is consummated by an interaction of all members of the society. All collaborate and cooperate, each in the particular role he has chosen for himself in the framework of the division of labor. Competing in cooperation and cooperating in competition all people are instrumental in bringing about the result, viz., the price structure of the market, the allocation of the factors of production to the various lines of want-satisfaction, and the determination of the share of each individual. These three events are not three different matters. They are only different aspects of one indivisible phenomenon which our analytical scrutiny separates into three parts. In the market process they are accomplished uno actu. Only people prepossessed by socialist leanings who cannot free themselves from longing glances at socialist methods speak of three different processes in dealing with the market phenomena: the determination of prices, the direction of productive efforts, and distribution."

—Ludwig von Mises, Human Action

TGIF: On Fairness

Fairness and its synonyms are among the most abused words in English. By that I mean they are commonly manipulated for ideological ends. Wokeness has aggravated a situation that has existed for some time. What better way to score points for a political position than to declare that fairness demands it? The tactic puts the unprepared opponent on the back foot.

For example, people say it is unfair that some people have more than others. There are "haves" and "have-nots," although the latter phrase is either grossly exaggerated or outright dishonest. By and large, Americans are the richest people who have ever lived, and extreme poverty worldwide has declined from 90 percent to less than 10 percent in a dramatically short time.

At any rate, this condition of inequality, regardless of its explanation, is routinely thought to be unfair. Inequality of any kind—not just before the law or something similar—is "just not right."

But is it so?

Not If we see society and its division of labor as a large-scale decentralized cooperative wealth-creating effort. That's the global marketplace. In this light, income and wealth wealth and income inequality are certainly not prima facie unfair. For any large group of people, the contributions to wealth creation will vary widely. People differ in all sorts of ways, from mental agility and energy to ambition and disposition. Why wouldn't the rewards vary widely as well? Recall that when the government does not try to manipulate people, incomes and wealth are determined, not by a central decision-maker, but through countless marginal voluntary transactions. The parties agreed to transact, preferring what they received to what they gave up. There is no distribution until government comes on the scene.

In Human Action, Mises wrote:

In the market society direct compulsion and coercion are practiced only for the sake of preventing acts detrimental to social cooperation. For the rest individuals are not molested by the police power. The law-abiding citizen is free from the interference of jailers and hangmen. What pressure is needed to impel an individual to contribute his share to the cooperative effort of production is exercised by the price structure of the market. This pressure is indirect. It puts on each individual’s contribution a premium graduated according to the value which the consumers attach to this contribution. In rewarding the individual’s effort according to its value, it leaves to everybody the choice between a more or less complete utilization of his own faculties and abilities. This method cannot, of course, eliminate the disadvantages of inherent personal inferiority. But it provides an incentive to everybody to exert his faculties and abilities to the utmost. [Emphasis added.]

That certainly is reasonable, but many people reject this perspective. They need to ask themselves what the alternative is (besides equal poverty). Those critics suffer the delusion that no connection exists between production and so-called distribution. John Stuart Mill unfortunately believed this. But that cannot be. If the state expropriates the wealth of producers in Period A, they can hardly be expected to remain vulnerable to expropriation in Period B and beyond. Even an increase in top income-tax rates prompt strategies (legal and illegal) to pay less tax. You can't have your cake and eat it too.

Does a fairer alternative to the market economy exist? Mises went on:

The only alternative to this [above-mentioned] financial pressure as exercised by the market is direct pressure and compulsion as exercised by the police power. The authorities must be entrusted with the task of determining the quantity and quality of work that each individual is bound to perform. As individuals are unequal with regard to their abilities, this requires an examination of their personalities on the part of the authorities. The individual becomes an inmate of a penitentiary, as it were, to whom a definite task is assigned. If he fails to achieve what the authorities have ordered him to do, he is liable to punishment.

In other words, everyone is potentially subject to physical force, not because he aggressed against persons or property, but because he failed to fulfill the social engineers' plans. This does not make for a decent society.

We have not fully reached that point yet in America because the market is still "allowed" to operate to a significant extent. But for many intellectuals and activists, America still has too much market freedom; they would quash what is left. They don't like that "impersonal market forces"—that is, persons who freely choose with whom to do business—determine wealth and income ultimately according to the producers' ability to please consumers. The anti-market parties would shut down the market economy if they could. Meanwhile, they'll settle for increasing political impediments to free action. Government control of nominal private property of the means of production is what Mussolini meant by fascism and corporatism.

The only choice is between price and police, Mises taught:

No system of the social division of labor can do without a method that makes individuals responsible for their contributions to the joint productive effort. If this responsibility is not brought about by the price structure of the market and the inequality of wealth and income it begets, it must be enforced by the methods of direct compulsion as practiced by the police.

The police? We shouldn't like the sound of that. As Mises, no anarchist, put it elsewhere in Human Action:

Government is in the last resort the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisoning. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.

Another example of abuse of the term unfairness is that market competition is often thought to be unfair to the inferior competitors who lose out to superior competitors. Again, a key point is missed. An economy does not exist for competitors. People spontaneously generate the economic process because they want a variety of consumer goods in a world of scarcity and uncertainty—where choices must be made among alternative uses of resources and labor. It would be nice if all people could have everything at no expense, but we can't. Yet compare the modern world to previous eras.

Here's Mises on competition:

Catallactic [marketplace] competition must not be confused with prize fights and beauty contests. The purpose of such fights and contests is to discover who is the best boxer or the prettiest girl. The social function of catallactic competition is, to be sure, not to establish who is the smartest boy and to reward the winner by a title and medals. Its function is to safeguard the best satisfaction of the consumers attainable under the given state of the economic data.

Equality of opportunity is a factor neither in prize fights and beauty contests nor in any other field of competition, whether biological or social. The immense majority of people are by the physiological structure of their bodies deprived of a chance to attain the honors of a boxing champion or a beauty queen. Only very few people can compete on the labor market as opera singers and movie stars. The most favorable opportunity to compete in the field of scientific achievement is provided to the university professors. Yet, thousands and thousands of professors pass away without leaving any trace in the history of ideas and scientific progress, while many of the handicapped outsiders win glory through marvelous contributions.

Isn't that unfair? Equal opportunity, except in the sense of the abolition of legal impediments, is not an option. Under no circumstances could everyone have the same shot at a given position. But again, it's not producers but consumers who are center stage.

It is usual to find fault with the fact that catallactic competition is not open to everybody in the same way. The start is much more difficult for a poor boy than for the son of a wealthy man. But the consumers are not concerned about the problem of whether or not the men who shall serve them start their careers under equal conditions. Their only interest is to secure the best possible satisfaction of their needs.... They look at the matter from the point of view of social expediency and social welfare, not from the point of view of an alleged, imaginary, and unrealizable “natural” right of every individual to compete with equal opportunity. The realization of such a right would require placing at a disadvantage those born with better intelligence and greater will power than the average man. It is obvious that this would be absurd. [Emphasis added.]

Frédéric Bastiat said the same thing in the 19th century in demolishing the case for tariffs. Protectionists often defend their position by calling for a "level playing field" for all competitors, foreign and domestic. Yet in "Equalizing the Conditions of Production," a chapter in his Economic Sophisms, Bastiat set the record straight:

Here as elsewhere we find the advocates of protectionism taking the point of view of the producers; whereas we defend the cause of the unfortunate consumers, whom they absolutely refuse to take into consideration. The protectionists compare the field of industry to a race track. But at the race track, the race is at once
means and end. The public takes no interest in the contest aside from the contest itself. When you spur your horses on with the single end of learning which is the fastest runner, I agree that you should equalize their weights. But if your
end were getting an important and urgent piece of news to the winning post, would it be consistent for you to put obstacles in the way of the horse that had the best chance of getting there first? Yet that is what you protectionists do with respect to industry. You forget its desired result, which is man’s well-being; by dint of begging the question, you disregard this result and even go so far as to sacrifice it.

A key to the economic and pro-freedom way of thinking is to never take your eye off the consumer.

 

TGIF: Khan Controlling Trade

Lina Khan is a Washington, D.C., rock star. She is not only President Joe Biden's celebrated chief of the Federal Trade Commission (FTC); she's also a favorite of J. D. Vance, Donald Trump's pick for vice president.

This Lina Khan must really have something going for her—until you recall that Biden and Vance, and by implication Trump and Kamala Harris, reject individual freedom as an inseparable unity. In other words, personal freedom requires economic freedom and vice versa. What chance does freedom of speech and press have in a society without private property? Individual liberty in the absence of free enterprise—unsupervised by force-wielding bureaucrats—is a delusion.

Let's look at the FTC. It was created in 1914, which immediately should make you squirm. So-called progressive Woodrow Wilson was president in those days. He is a contender for the worst American of the 20th century if not of all time. Leaving aside his incredibly evil involvement of the United States in World War I, which helped make the century a slaughterhouse, he devoutly believed that the national government should be all-powerful.

Quaint ideas like limited government under a fixed constitution may have made sense in the 18th and early 19th centuries, he thought, but not in modern progressive 20th-century America. The national government (forget the several states) and its anointed, dispassionate, above-the-political-fray experts should run society. Americans should go along with whatever directives the experts think best. Any argument against that proposition was surely motivated by selfish, profit-driven, exploitative bad faith. If the untrusted market can't be abolished, then at least it should be guided by a category of person that has always had a sparkling record for trustworthiness: bureaucrats, who, unsullied by the profit motive, have the best intentions and perfect insight into the public interest. The FTC is an example of what Wilson had in mind. The marketplace will always fall short of the progressive ideal, so public-spirited bureaucrats must keep it on the right path.

The FTC's website proclaims: "Our mission is to protect consumers and promote competition." Sounds innocuous. It's not. If you've ever visited the FTC building in Washington, you've seen the two Soviet-style sculptures on the grounds. The sculptures were Michael Lantz's winning entries in a Roosevelt administration New Deal contest, which will surprise no one. (Lantz was the brother of famed Woody the Woodpecker cartoonist Walter Lantz.)

The sculptures depict a muscular human figure struggling heroically to control a wild horse that threatens to break free and run rampant through town, leaving death and destruction in its wake. The title is "Man Controlling Trade."

That's how Franklin Roosevelt and Woodrow Wilson saw trade. It's how the Federal Trade Commission sees it today: a wild animal that needs to be restrained. Today, Lina Khan the chief controller. Khan controls trade.

But the sculptures and mission make no sense. Trade is not a wild animal. It's a peaceful, cooperative activity that individual human beings engage in when they anticipate mutual benefit. Each party exchanges what he or she wants less for what he or she wants more. No exchange takes place otherwise if the parties are free. (Compare that to government eminent domain.) Historically, trade civilized human beings by demonstrating that cooperation through the division of labor is better than conflict. It's how to get rich.

Thus, likening trade to a wild beast is obscene. It's a self-aggrandizing lie by politicians, bureaucrats, and anointed experts.

The FTC says that "for over 100 years, the antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down, and keep quality up." But don't businesses already have "strong incentives ... to operate efficiently, keep prices down, and keep quality up." And don't they have an incentive not to endanger consumers? Unlike the government, businesses face consumers who are free to say, "No, thanks. I'll shop elsewhere" Yes, business people sometimes try to take advantage of consumers or have bad judgment, but that's a feature of people, not business. Who runs the government regulatory agencies, saints? At least businesses face competition. You can't say that for government.

The progressive answer is that businesses have all the power and customers have none. Nonsense. Unless the government helps business by stifling free competition, "market power" means nothing more than the "power" to please consumers better. The FTC (and the Justice Department's antitrust division) claim to serve consumers, but in reality, they just protect inferior companies from superior companies.

Lina Khan has excited attention for breathing new life into government interference with trade, especially in high-tech America. Her dubious innovation is in believing the government can't leave big tech companies, such as Amazon, alone merely because they please customers with great service and low prices. As she wrote in a law journal article in 2017, "Animating these critiques [about tech companies] is not a concern about harms to consumer welfare, but the broader set of ills and hazards that a lack of competition breeds.” (Emphasis added. HT: Saul Zimet of the Foundation for Economic Education.) Khan continued:

To revise antitrust law and competition policy for platform markets, we should be guided by two questions. First, does our legal framework capture the realities of how dominant firms acquire and exercise power in the internet economy? And second, what forms and degrees of power should the law identify as a threat to competition? Without considering these questions, we risk permitting the growth of powers that we oppose but fail to recognize.

Khan, a lawyer not an economist, speaks gobbledegook. It's a blank check for overseeing and quickly overruling free enterprise, as an end in itself—central planning without nationalization. Bureaucrats know better. They need no profit-and-loss test.

As we should know by now, drawing on Ludwig von Mises's critique of socialism, no set of bureaucrats can know what she claims the FTC can know. They can't even define the relevant market in which to "measure" alleged monopoly power because they don't know what consumers will deem as suitable alternatives to a given good when dissatisfied with its price or quality.

Moreover, the bureaucrats ignore how potential competition disciplines a sole firm as much as actual competition does—as long as the government grants no privileges. Abnormally high prices and profits in an industry are engraved invitations to potential competitors. So are perceived abuses of consumers. It's also possible that what the FTC sees as abuse the consumer sees as a good deal. (Ads tailored to one's online buying patterns may be thought superior to random ads.)

Khan is also needlessly concerned about mergers and acquisitions. Many high-tech innovators have developed remarkable new products intending to sell them to an existing tech company for lots of money with which to move on to the next innovation. Venture capitalists earn fortunes by spotting such opportunities. Khan would obstruct if not do away with that process. We'd all lose out. Has she never read Bastiat's "What Is Seen and What Is Unseen"?

Khan says that data gathering and artificial intelligence present new challenges to the marketplace that the government must meet. But the fatal flaw in all market-failure reasoning is that the alleged solution—the state—is subject to far more pervasive government failures. In the market, entrepreneurs earn profit by solving problems. No counterpart exists in the government. On the contrary, bureaucrats can prosper by not solving problems or by creating new ones, justifying larger staffs and budgets.

The basic economic fact the FTC ignores is that competition is an open-ended, dynamic discovery process driven by rivalrous entrepreneurs trying to please consumers. Technology and consumer preferences change all the time, and all businesses must keep up or lose out to better entrepreneurs. No firm—if it has zero access to government coercion—can threaten competition, not even with noncompete agreements, which are contractual terms that will fall by the wayside if they don't ultimately serve consumers. While firms cannot "threaten" competition, they can indeed "threaten" competitors by being better at pleasing consumers. Bureaucrats, who are not market participants risking their own wealth, can only pretend to know what is best from their perch in the government, which, let's remember, is a monopoly. As George Mason University Donald Boudreaux advised, if Khan has such keen insight into market shortcomings, she should become an entrepreneur. She'll make a fortune and actually help society.

(See D. T. Armentano's classic, Antitrust and Monopoly: Anatomy of a Policy Failure and other material here and here.)

TGIF: Why Is Government Stuff Called "Public"?

Government facilities and services -- which are actually disservices overall -- are called "public" while services that are efficiently responsive to the public are dubbed "private." Why is that?

That way of framing the distinction could be intended to subtly denigrate the marketplace, or "private sector," where profit "selfishly" motivates people who, in the process, improve strangers' lives every day. That sector's record is noticeably better than the "public sector's." So we're taught to believe that the government's motives are purer -- the unselfish pursuit of the "public interest" by "public servants." That supposedly makes them superior to the profit-seekers, no matter how effective real producers of wealth -- entrepreneurs, investors, managers, and workers -- are.

The Public Choice school of political economy has established the more common-sense view that people don't become morally superior to the rest of us when they take government jobs. They're just people, except that the perverse incentives unique to the political/bureaucratic realm differ drastically from the productive incentives that distinguish the enterprise realm. We should call government jobholders "public" self-servants to lay bare that basic fact. They may be sincere in their rationalizations about helping people, but that doesn't change what they do -- coerce people, starting with the taxpayers. In contrast, people in the market have to ultimately satisfy free consumers or find something else to do.

Think about what we know as the public schools. Has anyone ever heard of a school that wasn't open to members of the public? Who else is there? Great Britain has it closer to the truth. Public schools are called "private schools," and government schools are called "state schools." Since everywhere you look, parents have to pay for the lousy and expensive government system whether or not they send their kids there, and many parents can't afford to pay twice, we might call the government's facilities "conscript schools."

But they are called "public" because that's who owns them -- theoretically, but not realistically.

With other "public services," even less choice exists. Consider public utilities. Most people can't choose their water, electric, and gas companies, although this is not entirely unheard of. Since competition has appeared in places, these so-called natural monopolies don't seem so natural after all. Had competition been legal everywhere, suitable technologies might have been invented long ago.

We do find alternatives to government in ways that might strike some as surprising. Two irreplaceable centers of government are said to be the courts for resolving disputes and the police for security against harm-doers. For a long time people have sought to peacefully resolve disputes without the inefficient and at times corrupt government courts. In the Middle Ages, merchants from all over the world traded their goods at fairs in Europe. Disagreements over contracts sometimes arose. So the merchants sought a fair and efficient alternative to the local princes' courts. The outcome was the complex and spontaneous Law Merchant. Disputes arising over contracts, which in effect created private law for the parties, were taken before people who had acquired reputations for being knowledgeable, fair, and efficient. The merchants valued speedy resolutions so much that they agreed not to appeal rulings against them. It was more important to move on to the next transaction. Failure to abide by a ruling would get around and limit future opportunities.

The Law Merchant was so good that it evolved into the commercial law that much of the world operates under today. We can see signs of it in private arbitration, which today is big business. Many contracts we sign specify that disagreements will be resolved in what amount to private courts. Unfortunately, the U.S. government claims the authority to nullify arbitrators' rulings on vague grounds. If that were impossible, arbitration would likely be even more common than it is today. The government won't compete fairly.

Similarly, private security companies watch over shopping malls, factories, colleges, and other facilities. It's also a big business. The government's "services" are inadequate despite high taxes, so people find alternatives, and businesses respond, fully liable when they screw up. That doesn't happen with government police.

Who owns government facilities? Most people would say that in a democracy the public owns them. But that really isn't so. Members of the public can't sell or buy shares or do other things that real owners do. They never consented to being owners. That's just a symbolic claim. In cases of real ownership, people acquire property rights through unambiguous volitional action involving contracts with reasonably clear terms. The social contract exists only in the imagination.

Aren't the real owners of government facilities those who actually control them? A rough guide might be whoever has the authority to put up "no trespassing" signs, which adorn much "public" property. (Private property has those signs too, but that's because two kinds of private property exist: the kind that is open to the public and the kind that is not, such as homes.)

We shouldn't be led astray by the fact the people can vote for officeholders, who then in theory act as the people's agents. The accountability of those pseudo-agents to the so-called owners is virtually zero when you consider how politicians and bureaucrats can easily misdirect attention from the bad consequences of their actions and/or their culpability for those consequences. Besides, one vote barely counts, and campaigns to really change things are prohibitively expensive and subject to free-rider problems.

In contrast, accountability is powerful in for-profit society. Bankruptcy is an ever-present threat to unresponsive and irresponsible businesses, and reputation imposes significant discipline. Injured parties also can sue people in the market. Suits against the government are often not allowed or limited.

It's time to open to competition as many government functions as feasible now. What seems impossible today may not seem that way next year. So let's look for new moves toward better and cheaper services -- not to mention liberty.

TGIF: The Knowledge that Only Free Markets Disclose

As a follow-up to my recent article about F. A. Hayek's classic article "The Use of Knowledge in Society" (1945), I thought it worth extending Hayek's exploration of this area of social theory. In 1968 the Nobel laureate-economist delivered a lecture in German known in English as "Competition as a Discovery Procedure." It's an alluring title, and anyone concerned with what makes for a good and prosperous society should be familiar with Hayek's basic point.

Hayek gets right to it. He notes that standard macroeconomists are guilty of having "investigated competition primarily under assumptions which, if they were actually true, would make competition completely useless and uninteresting." By that, he meant, "If anyone actually knew everything that economic theory designated as 'data,' competition would indeed be a highly wasteful method of securing adjustment to these facts."

In other words, if all the "data" were actually accessible data, solving society's scarcity problem would be a piece of cake, at least if the government's computer was powerful enough. (I'm led to understand that, fortunately, many economists have advanced since he gave this lecture, probably in part because of his challenge.)

"Hence," Hayek went on,

it is also not surprising that some authors have concluded that we can either completely renounce the market, or that its outcomes are to be considered at most a first step toward creating a social product that we can then manipulate, correct, or redistribute in any way we please.

Unfortunately, lots of such people are still around today.

Hayek (like his teacher Ludwig von Mises) knew that he needed to show that Adam Smith's "system of natural liberty" performed a critical service to mankind that could not be otherwise performed: the production of knowledge that is needed in a changing world of scarcity in which each individual must make plans but also be ready to adjust his or her plans in light of what other free individuals are doing. And that's what Hayek did, building on Mises and others. Hayek made contributions to the economic, or "practical," case for freedom that have been woefully unappreciated. The Austrian school of economics that Hayek was part of needs to be discussed more than ever.

Just as any sort of contest would be pointless if we infallibly knew the outcome in advance, Hayek wrote, so would marketplace competition. He considered "competition systematically as a procedure for discovering facts which, if the procedure did not exist, would remain unknown or at least would not be used." (Emphasis added.)

(Although, Hayek's German title, Der Wettbewerb als Entdeckungsverfahrenh, has been translated as "competition as a discovery procedure." I regard the word process as more appropriate because, unlike procedure, it suggests improvisation, spontaneity, and serendipity. Hayek's work overflows with an understanding of what he called spontaneous, or unplanned, order.)

Hayek reiterated his theme from "The Use of Knowledge in Society" even as he extended it. He wanted to know how can we even identify goods apart from what the market discloses over time through free producer and consumer action.

Which goods are scarce, however, or which things are goods, or how scarce or valuable they are, is precisely one of the conditions that competition should discover: in each case it is the preliminary outcomes of the market process that inform individuals where it is worthwhile to search. Utilizing the widely diffused knowledge in a society with an advanced division of labor cannot be based on the condition that individuals know all the concrete uses that can be made of the objects in their environment. Their attention will be directed by the prices the market offers for various goods and services.

Bottom line: government administrators may be able to give orders, but they cannot benefit the population. The Soviet Union no doubt used up resources making things that few people wanted. Hayek went on:

This means, among other things, that each individual’s particular combination of skills and abilities—which in many regards is always unique—will not only (and not even primarily) be skills that the person in question can recite in detail or report to a government agency. Rather, the knowledge of which I am speaking consists to a great extent of the ability to detect certain conditions—an ability that individuals can use effectively only when the market tells them what kinds of goods and services are demanded, and how urgently.

It's not magic that produces the knowledge that makes abundance possible for everyone. It's freedom of action, contract, and private property in a legal-political environment in which people peacefully and cooperatively pursue their happiness. The discoveries Hayek was talking about can take place only when people can 1) freely produce and offer products and services to others and 2) freely buy or not buy according to their own judgment. This includes labor services. Without that freedom, which is limited if not precluded by central planning and less-comprehensive regulation, an economy cannot be expected to benefit a large population.

The full case for a free society obviously has a rights-based, or justice-based, component, We are reasoning social beings who seek happiness. And the also has an important epistemic component, which Mises, Hayek, and others have laid out. We want justice for all individuals, and we want them to flourish. In a world of scarcity and dispersed and tacit knowledge, the free market is required. The moral is also practical.

Appearance on the Noah Blaylock Show

I was a guest on the Noah Blaylock Show for a discussion of education and the consequences of government control of schooling. Listen to the podcast here.

TGIF: Liberty as a Problem-Solving Process

Strictly speaking, liberty isn't the solution to problems. It's what creates the framework in which solutions can be discovered. That is an important distinction because it reminds us that advocates of full-blown liberty do not offer the world a problem-free society but "only" a society in which problems are discovered and problem-solvers are mobilized as quickly, fairly, and efficiently as impossible.

To get this point across to students in lectures, I used to quote the the title of a 1970 hit record: "I beg your pardon, I never promised you a rose garden." Social troubles will not disappear with the emergence of full freedom, but the chances of spotting and addressing them will be maximized in the most just way. That's the best we can hope for in a world of scarcity and uncertainty. On the other hand, that's not too shabby, is it?

What makes this happen? The answer can be captured in a single word: incentives. In a free society people are rewarded--they profit--by spotting and solving problems or correcting errors, before others have done so. Self-interest is further aligned with the interest of others.

This aspect of social life has been developed for many decades by the most important economists, among whom I would spotlight those of the Austrian school. In the 20th century they include Ludwig von Mises, F. A. Hayek, Israel Kirzner, and Murray Rothbard, followed by a couple of later generations of social scientists who continue to work in this tradition.

If the incentive system is to work, people need to be free to offer solutions. The scientist Joseph Priestley (1733–1804), in writing about education, wrote that to discover the best methods, we need an environment characterized by "unbounded liberty, and even caprice." As Priestley also put it, "Now, of all arts, those stand the fairest chance of being brought to perfection, in which there is opportunity of making the most experiments and trials." (I wrote about Priestley's radical advocacy of freedom in education in Freedom and School Choice in American Education.)

The logic behind Priestley's idea isn't complicated. We don't always know if a method of accomplishing something will work--however good it may look on paper. It has to be tried. Since that's the case, we need a highly decentralized environment in which ideas can be tested. (I don't like the word system for what I have in mind because that suggests an overall design rather than what Hayek called "spontaneous order.") In a centralized system, trial and error would be dicey since the inevitable mistakes would be committed on a large scale, with little chance for individuals to opt out. But in a decentralized environment, mistakes are necessarily contained, readily observed by others, and then corrected by those who offer a different product or service.

Government agents face different incentives since government usually is the only game in town. In fact, they face perverse incentives: politicians and bureaucrats may prosper by the existence and even the exacerbation of problems. If an agency is failing, the solution most often is to appropriate more money! And since government centralizes approaches to problems, mistakes are committed on a large scale, especially when they are undertaken at the national level. Federalism can reduce the scale of error, but not nearly as much as the free market can because state and local governments lack other features of the marketplace.

This point turns the spotlight on another aspect of a free society: competition. Competition is what happens with one person thinks he or she has a better way of doing something than someone else does. The way to find out is to offer it to the public. This shows that competition and cooperation are two sides of the same coin, not opposites. But if the government erects obstacles to upstart competitors, the it throttles the process, and better ways of addressing problems are left on the shelf, if undiscovered at all.

Hayek called competition a "discovery procedure," which gets at a crucial point. I call competition the "universal solvent." We can find a similar idea in John Stuart Mill's On Liberty, in which he extols the truth-discovering value of the radically free exchange of ideas. (My favorite line from that book: "He who knows only his own side of the case, knows little of that.")

Freedom and competition make possible discoveries that would not have been found otherwise precisely because it is only in that environment--the market order--that people encounter circumstances and alternatives with respect to which they will demonstrate in action their true preferences--preferences they might not have expected to demonstrate. This is part of what is meant by "spontaneous order." For this reason, government planners cannot hope to simulate market outcomes. The planners are barred from ever knowing what would have happened if people were left free. As James Buchanan pointed out:

I want to argue that the “order” of the market emerges only from the process of voluntary exchange among the participating individuals. The “order” is, itself, defined as the outcome of the process that generates it. The “it,” the allocation-distribution result, does not, and cannot, exist independently of the trading process. Absent this process, there is and can be no order.”

...Individuals do not act so as to maximize utilities described in independently-existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choices), in terms of “as if” functions that are maximized. But these “as if” functions are, themselves, generated in the choosing process, not separately from such process. If viewed in this perspective, there is no means by which even the most idealized omniscient designer could duplicate the results of voluntary interchange. The potential participants do not know until they enter the process what their own choices will be. From this it follows that it is logically impossible for an omniscient designer to know, unless, of course, we are to preclude individual freedom of will.

Much more could be and has been said on this subject, but the upshot is this: the best way to expose and correct problems and errors is to leave people free.

TGIF: Bust the Conservative "Trust Busters"

When right-wing leader Sen. Josh Hawley (R-MO) recently declared that "liberty and monopoly do not go together," I fantasized that he had become a free-market anarchist. When I hear monopoly, I think government because what's the most literal of monopolies (or source of monopoly power) than the state?

Imagine my disappointment when I realized that, quite the contrary, he was embracing expanded government power over consensual interaction in the marketplace. He was introducing his aggressively named Trust-Busting for the Twenty-First Century Act. Hawley wants to be the our day's Theodore Roosevelt, also a Republican but no friend of individual liberty and free-market interaction.

Hawley says would like to break up Major League Baseball, Big Tech, Big Telecom, Big Banks, and Big Pharma, as well as limit or prohibit what other big companies can do, such as merge with or acquire other companies. It's quite a comprehensive serving of government powers from a guy who probably tells himself he favors limited government. That's how things are. Conservatives have long had higher priorities than defending peaceful interaction in all spheres. Hawley is no friend of liberty.

Like any good conservative, for Hawley many things outrank individual liberty: protection of the culture from the left, for example. In other words, when the left proposes government power as a solution to a real or imagined problem, Hawleyites propose some other expansion of government power, for example, regulation of social media and search engines on behalf of conservative groups. Mentions of liberty are mostly lip-service intended to keep some imagined coalition together.

Hawley's news release says his "new legislation [is designed] to take back control from big business and return it to the American people. Senator Hawley’s bill will crack down on mergers and acquisitions by mega-corporations and strengthen antitrust enforcement to pursue the breakup of dominant, anticompetitive firms."

As we'll see, this approach assumes that the anticompetitive power of business is an independent variable, rather than something derived from political power in countless ways. If all the intended and unintended anticompetitive laws and regulations were repealed, the Federal Register would be considerably thinner and we'd all be considerably freer. Competition would thrive. That's why I call corporate power "the most dangerous derivative"--it's generated by the government and wouldn't exist without it.

The release says, "A small group of woke mega-corporations control the products Americans can buy, the information Americans can receive, and the speech Americans can engage in. These monopoly powers control our speech, our economy, our country, and their control has only grown because Washington has aided and abetted their quest for endless power."

This is a gross overstatement, even with all the laws on the books. But to the extent Hawley is correct, it's too bad he fails to understand that he is indicting the interventionist state--that is, politicians and bureaucrats--and not of the market process, which when left alone has built-in safeguards against anticonsumer activities. It's called competition, but it must be left unmolested by the state, many of whose interventions enable firms to grow bigger than they would be in a free market. (See Milton and Rose Friedman's chapter "Who Protects the Consumer?" in Free to Choose.)

"Woke corporations want to run this country and Washington is happy to let them. It’s time to bust up them up and restore competition," the release states.

The word woke here indicates that culture is what drives Hawley and his allies. I don't mean that anything labeled "woke" is innocuous (far from it), just that Hawley wants to punish companies that take what in his view is the wrong side of today's raging political-cultural issues. He is incensed that Major League Baseball pulled its all-state game out of Atlanta because it disapproves of Republican-favored election-rule changes in Georgia. For Hawley, moving the game is an illegitimate attempt to influence public policy. His solution? Subject MLB to antitrust law. (He's joined by fellow Republicans Sen. Ted Cruz of Texas and Mike Lee of Utah.) That doesn't sound like the proposal of a small-government man.

Here are some things Hawley's bill would do:

• Ban all mergers and acquisitions by companies with market capitalization exceeding $100 billion;
• Empower the FTC to designate “dominant digital firms” exercising dominant market power in particular internet markets, which will be prohibited from buying out potential competitors;
• Prohibit dominant digital firms from privileging their own search results over those of competitors without explicit disclosure;
• Reform the Sherman and Clayton Acts to make clear that direct evidence of anticompetitive conduct is sufficient to support an antitrust claim, which will allow enforcers to effectively pursue the breakup of dominant firms and prevent antitrust cases from devolving into battles between economists;
• Replace the outdated numerically-focused standard for evaluating antitrust cases, which allows giant conglomerates to escape scrutiny by focusing on short-term considerations, with a standard emphasizing the protection of competition in the U.S.;
• Clarify that “vertical” mergers are not exempt from antitrust scrutiny;
• Drastically increase antitrust penalties by requiring companies that lose federal antitrust suits to forfeit all their profits resulting from monopolistic conduct

That's quite an undertaking (an appropriate word in both senses) for any government, considering that the mortals who would enforce such a law would lack the essential knowledge and incentives needed to do the right thing. The history of antitrust is a history of cronyism and special pleading, but what would you expect?.

The bill would expand the Progressive-era Sherman and Clayton acts in several ominous ways. For example:

In any case alleging a violation of this section 5 or section 1 in which a plaintiff establishes by a preponderance of the evidence (including direct evidence) the existence of substantial market power or the anticompetitive or otherwise detrimental effects of particular practices, a plaintiff need neither define the scope of a relevant market nor establish the share of such a market controlled by the defendant.

Even if one wrongly grants the legitimacy of antitrust law, it is absurd that the relevant market or market share of the defendant would not need to be defined by the government or other plaintiff. How would one know that a firm was monopolistic? (Years ago the government sued the major ready-to-eat cereal companies for monopolistic  activity on the basis of a narrow definition of the breakfast-food market that excluded all the alternatives to cold cereal.)

No acquisition shall be presumed not to substantially lessen competition or tend to create a monopoly only because the parties to the acquisition do not compete directly against one another at the time of the acquisition.

Again, even many people who favor antitrust distinguish between horizontal acquisitions, in which a firm buys another firm that makes the same product, and a vertical one, in which a firm buys another firm that makes the first firm's inputs or buys its products. Hawley wants to go an extra step to insure that no company valued at more than $100 billion could change a market through an acquisition. That's true conservatism!

The bill would also have new rules for what it calls a "dominant digital firm," which would be any company that is accessible through the internet and "possesses dominant market power in any market related to that website or service." Here conservatives propose to enlist the state to go after the social networks and search engines for real and alleged mistreatment of ... conservatives presumably. The Federal Trade Commission (FTC), another  creature of the Progressive movement, would be given the power to designate a person, partnership, or corporation as a dominant digital firm," at which time new rules apply. Oddly, this is the one section that acknowledges that government puts its thumb on the scale in economic matters: in determining a firm's "market power," the FTC would consider "the extent to which the firm benefits from government contracts or other privileges." That is an important point, but the solution is to withdraw the anticompetitive privileges, not to impose new restrictions.

None of this means that big business deserves nothing but praise. With some rare exceptions, many business people, as Friedman often pointed out, have long seen the government as a convenient way to get what they couldn't get through free competition. That's why antitrust was so often used not to protect consumers, but to protect less-efficient firms that fared poorly in the market. (See D. T. Armentano's classic, Antitrust and Monopoly: Anatomy of a Policy Failure.)

Moreover, we all should be bothered that the social network owners think it's right to mediate what is true and false in their customers' conversations and feeds. Social networks are private firms, but that doesn't make anything they do a good thing. Besides, we may justifiably wonder how much of what they do in this regard is done to stave off government regulation from progressives. They know the eye of the state is upon them. Further, we may also suspect that the big networks have calculated that when regulation comes, they, the experts, would be called on to write the rules--as long as they are seen as behaving well.

The argument against antitrust law is that it misconstrues the market. When free it is not a static condition but a process in perpetual motion, in which entrepreneurs are always trying to profit by better serving customers. In an unmolested market the threat of potential competition would do as much to keep a single firm on the customers' side as actual competition. So quantitative indicators are misleading. As D. T. Armentano says, high profits in an industry with one or two firms is not a barrier to new competition but an engraved invitation. Moreover, even a cartel agreement among a few sellers couldn't prevent "cheating" by parties to increase revenues; nor could it prevent new entrants from taking advantage of the dominant firms' disregard of consumer welfare.

Hawley's bill declares, "It is the policy of the United States that the principal standard for evaluating the permissibility of practices under this Act is the protection of economic competition within the United States.’’ But "competition" is too abstract a thing to protect, and history shows that such a goal opens the gates to complaints from inefficient firms (or their advocates in the regulatory bureaucracy) that claim they are victims of efficient firms' "anticompetitive" actions when in fact they are victims of their own inefficiency. 

Instead of protecting competition (aka weak firms), let's protect individual liberty for everyone.

The bill's chances of passing a Congress controlled by the Democratic Party are nonexistent of course. But this isn't because it would grant new controls over peaceful activities. Rather, it's because Hawley's motive is to rein in "woke" corporations. No doubt the Democrats will have their own antitrust bill before long.

Appearance on "Don't Tread on Anyone"

 Keith Knight interviewed me for his video/podcast "Don't Treat Anyone." Enjoy!

End Net Neutrality

My latest column for the American Institute for Economic Research is "End Net Neutrality."

Market-Based Medical Care for All

My latest article for the American Institute for Economic Research is "Market-Based Medical Care for All."

My Latest

My latest articles for the American Institute for Economic Research are:
"Competition: Just What the Doctored Ordered"
"Why Obama's Overtime Rule Will Backfire"

Does Trump Know Anything?

If Trump really wanted to run the government like a business, he'd have to abolish taxation and offer government's purported services in a competitive marketplace. Without competition and a true profit-and-loss test, government cannot be like a business. Prospective buyers must be free to say no to sellers and to go elsewhere if they wish -- and I don't mean to another country.

Brexit: Which Kind of Dependence Now?

Is Brexit a move toward British independence? Some Leave and Remain partisans may believe so, differing only over whether that's good or bad.

But, as usual, things are more complicated. We should hope that, in one respect, Britain's exit from the EU will create a kind of dependence that did not exist while it was still a member of the union. (But see Jacob T. Levy's well-argued opposition, as well as J.D. Tucille's rebuttal of the xenophobia explanation and Matt Ridley's defense of Leave.)

TGIF: Of Bumblebees and Competitive Courts

Considering that what liberty we continue to enjoy in the West is a product in large part of competing legal institutions operating within overlapping jurisdictions hundreds of years ago, it's curious that so many libertarians still believe such an order -- an essential feature of free-market, or natural-law, anarchism -- would be inimical to liberty. Why wouldn't that which produced liberty be up to preserving it?

Competition, Cooperation, and Conformity

The opposite of competition is not cooperation (which is a complement of competition) but conformity.

TGIF: Libertarian Strategy and Incremental Change

My first job in the libertarian movement, beginning in 1979, was as research director for the long-gone Council for a Competitive Economy (CCE). It was an organization of business owners who opposed the sorts of government interventions that business owners typically favor: tariffs, import quotas, eminent domain on behalf of corporations (and anyone else, really), and bailouts. In other words, it was to be a principled -- pure -- pro-free-market presence in Washington, D.C, financed by business people. (In case you are wondering: yes, it was an early Koch-backed organization, and no, business people did not rush to join.)

Obamacare: The Wrong Test

The core objection to the Patient Protection and Affordable Care Act was never the glitchy website or the deficient number of sign-ups. (It you subsidize it, they will come.) It was the predictable harm of combining government-subsidized demand, controlled supply through administered pricing, and mandated standardized insurance products (i.e., a "market" without entrepreneurship and full, free competition). These consequences will take time to reveal themselves, but they will do so in due course. The laws of economics guarantee it. (Note: Obamacare merely intensified the antimarket features of the reigning corporatist system.)

Ignoring the real objection has distorted the debate and set the success bar absurdly low.

My Case for Socializing the Means of Production

From Cato Unbound:

In a sweeping essay, Sheldon Richman explains why private property and free competition are superior to state-provided goods and services. He warns against granting "private" corporate monopolies, which are not true privatizations, but act as arms of the state. He adds that for many state activities, the best way to privatize is not to provide the service at all — as in the case of punishing victimless crimes, which no one should do. For legitimate services, he recommends a "homesteading" approach, in which stakeholders in a public service, such as a school, would receive shares in a new, independent corporation.

See the full article.