I have a co-worker who I think has the stuff to be converted but am having to hit from various angles. I want to make sure my responses to him are as productive I can be so I am hoping anyone here can help me out.
I emailed him in response to discussion we had over his fears of the cable market becoming a monopoly.
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http://fringeelements.ning.com/video/the-coercive-monopoly
Another good one is a lecture given by Tom DiLorenzo. If you want the nitty/gritty well you’ll just have to find a time to read some books =(
http://mises.org/media/3955
filc friend:1. Some people will be unable to pay for a service who would have if there were competition. The monopoly will be OK with this as long as it is a small percent of people.
Not sure how to respond to this
filc friend:2. Innovation will stagnate. The controlling company will be aware that at some point they might need to compete again but they can just raise their research budget if and when that happens. If new technologies do come about they will have incentive to hold off on releasing such technologies as a kind of surprise tactic in the event that someone else enters the market.
But that leaves the door open for competitors again. Not too mention a monopoly on the private market competes with other goods/services for the same spendable dollar. So in all cases even a monopoly has incentive to please their consumer base.
A true monopoly has a hard time reading the market. As a result their quality stifles, innovation stops as you suggested, and price goes up to cover immeasurable administrative bloat. When these things happen they are simply opening the door for competitors to come in and under-cut them. In truth though a private monopoly is not really a monopoly at all as people are not forced into purchasing their goods, and due to the way markets work a monopoly in the private sector in the absence of the state cannot last long.
filc friend: If this happens in say the synthesized lysine market the end result is increased food cost. Since the food in question is limited to processed foods it has a large affect on the poor because there is a certain level at which people are unable to stop purchasing. This means that symptom 1 happens to less of an extent or if it does happen people starve.
This is Jumping to conclusions a little bit here. Kosher foods and natural foods predate processed food. A market monopoly in processed food has to compete with those things along with compete with people who may decide to harvest their own food. It is non-Sequitar to beleive people would starve.
Economics is about what is seen AND not seen. If we try to formulate all things today based on our current market conditions we can come to all kinds of wild conclusions. For example, without Intel there would be no nano-fabrication process. But that is not true, we don't know what would happen if Intel were gone, nor do we know what would happen if Lysine were on a monopoly. Also side note, in the absence of IP laws as you pointed out there is no way lysine would be a monopoly :)
filc friend:Back to Comcast, if Comcast establishes a monopoly on high bandwidth communication both symptoms above will happen. Less people will use the internet and Comcast will have little incentive to truly improve their network at the rate they are doing it today. With education and small business relying so heavily on these technologies the potential for both areas will be drastically reduced.
If they did so a competitor could easily come along and capitalize on their stagnation by introducing an alternative.
filcs friend:In the end I think we need a balance. Turning the internet into say, a utility, would be the extreme opposite of free market. In both cases the only outcome I can foresee is a reduction in potential functionality. Too many business and educational institutes are dependant on the current infrastructure to allow a single company to have complete control. Just like we don’t allow car dealers to advertise $1 cars and then not have any available when a consumer arrives we should not allow companies like Comcast to take what is an open and useful tool and turn it into something they control. They benefitted form tax payer funded research into existing communications technologies and in exchange its not unreasonable to limit their ability to control what we have access to in our own homes.
Here is the difference. You want to shift the monopoly from a private one which does serve consumer demand to an extend and probably will be short lived to a government coerced monopoly. The state's monopoly's work outside of market laws because they use coercion to exist. The state cannot measure consumer demand, it has no economic calculation. As a result you will have more of what you described above.
If a private monopoly produces poor quality, or does not innovate for too long, or raises their rates too much a competitor will come in and eradicate them. True private monopoly's tend to be short lived because of this.
However if the state holds a legal monopoly in a sector it would be illegal for competitors to enter market in the first place. Since the state cannot read consumer demand it will perminantly establish a monopoly condition you outlined above. No innovation, No quality, high rates(via taxation). Also, in all cases government monopoly's have never increased the supply of a good or service, they have only rationed it.
The State's monopoly is perpetual. The state does not know when or where to allocate consumer resources. It can only do so arbitrarily. Side note: Voting is not consumer demand, because when you vote your decision process is not about what effects you personally, but what effects everyone else around you. Consumer demand is derived on an individual basis making individual decisions about oneself.
Here is a quick list of the differences between a private monopoly and a state run.
Private State
Temporary Perminant
Occasional Loss of Quality Perpetual distortion of quality. No benchmark for deciding what good quality is
Occasional rise of prices Perpetual increase of cost. Historical Empirical data proves this
Generaly serves most people No way of measuring who it serves and why, or if its even needed in the first place
Run on Market participation Run via force, or imposition of taxes from its community
Also if we are to be concerned with the poor as mentioned earlier, it does not follow to have a state run monopoly for a service people may not use. What about folks who don't have internet, generally speaking the poorest. Does it seem ethical to raise their taxes and force them to pay for a system that they would not participate in voluntarily?
I dont think he has grasped that there are literally no natural monopolies. the only evidence that would be admissable proof of a natural monopoly would be if it was legally or logically impossible for a competitior to compete, and that it was this way 'through nature'. as it is certainly not logically impossible. competitors can attempt to compete, even if they are inferior and will ultimately fail, and since a legal barrier to monopoly is not on the cards for a free market (it certainly is not 'natural'), one is left asking what is he afraid of?, that companies who do no evil acts, might be so good at their chosen field that a headcount of their current competition (or summing of the capital of their competition) should appear 'low' from some arbitrary standard of judgement.?
the austrian position is that competition is not a function of 'numbers of competitiors', competition relates to the freedom to 'try' and compete.
I can 'try' to compete with nike, (in generic shoes if not in 'nike' shoes), but can I even 'try' to compete with the US post office? only indirectly so as not to appear like i am competing with them (i.e. by substitutes for the kind of mail they deliver which is non-urgent). the small silver-lining fact of the matter, is that if a government has a ridiculous monopoly, and then get somewhat lazy about monopolizing its substitutes, the free market process over time undermines the importance of the monopoly (i.e. by substituting non-monopolised alternatives, e-mail, fax, telephone, as and when they are good substitutes). allthough the costs are always felt, and a boon would follow from the abolition of the monopoly (by repeal of protectionist laws) maybe that's getting off topic though....
to wrap up, when he writes ' if Comcast establishes a monopoly on...' he must say whether Comcast are lobbying for a legal monopoly. if they are he has points to make, we all do! that would suck. if Comcast just enjoy large market share, so that ignorant people call them 'monopolists' then that does not equal them being a monopoly.
Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid
Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring
The positioning hes coming from is this. At some point in time apparently in Seattle's history tax payers paid for a city fiber network. It was to act as a utility and service providers would sign agreements with the city and connect to the public fiber backbone. This would keep comcast or anyone from having a monopoly over the internet supposedly.
When I heard this however I just thought of fascism again. He argues that service providers are wasting resources by each planting their own fiber network. He said it would be cheaper if there was but one fiber network. I disagree with him, I don't know that it would be cheaper and knowing public utilities it certainly would not bring innovative improvements in the future.
To be honest I don't think we know what the exact topology is of fiber networks in Seattle so we really have no idea of how effecient or in-effecient it is. What I do know is that Seattle citizen's have paid for a city Fiber network thats gone un-used. He uses this as an argument that we should be using it, I use it as an argument of why we should have never given the state that money in the first place.
filc:He argues that service providers are wasting resources by each planting their own fiber network.
Conjecture. He is also arguing from the standpoint of a central planner. He seems small-minded to me, to think he knows enough about market forces in the internet/networking market to know what is best or most efficient.
Have you told him that most cable companies are given a monopoly by the city?
At most, I think only 5% of the adult population would need to stop cooperating to have real change.
They disagree with his prognosis that they are wasting resources if they do plant their own networks, they see profit opportunities in their competitive practices. and he is against that?
ask him gently to think about it again.
Here was my response to him. His comments are italic. They were red in my response. FYI this ended up beign a short essay but the response is intended as a casual one so it obviously needs to be edited and I'm to lazy to do so. I just proofed it for a few errors and sent it off to him. I guess I'll see what he says. I'd appreciate your comments!
Im going give you an inline response to your email and hopefully address some common misconceptions regarding monopoly and how they work amongst various types. It's important to remember that a healthy economy is one where consumer demand is being met. Not an economy where planners presume to know what consumer demand is and arbitrarily give them random goods at random volumes. Your comments are in red.
2. Innovation will stagnate. The controlling company will be aware that at some point they might need to compete again but they can just raise their research budget if and when that happens. If new technologies do come about they will have incentive to hold off on releasing such technologies as a kind of surprise tactic in the event that someone else enters the market.
If innovation stagnates for too long, or prices rise too high or quality degrades too much the monopolist has created a window of opportunity for competition to once again creep in. How does the monopolist know when or when not to allocate resources into R&D? Even the monopolist has insentive to keep his products of descent quality. The monopoly still serves consumer demand and judges feedback of consumer input. Even the monopolist's business must be dynamic to move in the market place.The second he stops servicing the desires of the consumer will be the second an alternative will arrise from the ashes.
Monopolies on a free market as well are technically not monopolies at all. A 'good' on the free market must compete for the same dollar for dollar of other various goods. The sell of a banana must compete over the sell of an apple or the sell of a spark plug. These producers attract market actors dollars away from competitors goods onto their own in hopes of derriving a profit. If a monopolist does not produce quality at a descent rate people may choose not to embark in his services any longer. At which case he will fold and if consumer demand so desires it an alternative will arrise.
Some market monopolies have a hard time reading consumer demand at times. In some cases they may end up competing against themselves of previous products or other alternatives they created. A good example of this as you know is the Vista/XP situation. Market actors voluntarily chose to remain with XP or downgrade too XP over the new Vista. Even the monopolist, if Microsoft could be called that, was forced to improve their output. However this situation occurs naturally without monopoly presence. Technological advancements are not realized in a perfectly methodical fashion. The typical argument of against monoply is that its quality stifles, innovation stops may halt, and price goes up to cover immeasurable administrative bloat. When these things happen they are simply opening the door for competitors to come in and under-cut them.
Not to mention a monopoly on the private market competes with other goods/services for the same spendable dollar. So in all cases even a monopoly has incentive to please their consumer base. Considering these factors no imperical evidence can be provided to support the concept that a market monoply can form on a free market and remain sustainable. Some have argued that it's technically possible but the proof has not yet been provided. All arguments and finger pointing of modern market monopolies have been sponsorships of the state. The cable company included.
In Human Action Mises summarizes several scenario's of the consumer in the presence of a market monopoly. He points out the fallacious arguments of Promonopolists and antimonopolists. Since the state is also a market monopoly imposed by violent force they too are subject to the same economic laws as everyone else. They would fit under the promonopolist catagory. There is however severe mechanical differenes between Monopolies of the state and a market monopolies which at least serves consumer demand to an extent. I'll get to that later.
Both sides in this heated controversy resort to fallacious arguments. The antimonopoly party is wrong in attributing to every monopoly the power to impair the situation of the buyers by restricting supply and bringing about monopoly prices. It is no less wrong in assuming that there prevails within a market economy, not hampered and sabotaged by government interference, a general tendency toward the formation of monopoly. It is a grotesque distortion of the true [p. 387] state of affairs to speak of monopoly capitalism instead of monopoly interventionism and of private cartels instead of government-made cartels. Monopoly prices would be limited to some minerals which can be mined in only a few places and to the field of local limited-space monopolies if the governments were not intent upon fostering them.[24]
The promonopoly party is wrong in crediting to the cartels the economics of big-scale production. Monopolistic concentration of production on one hand, they say, as a rule reduces average costs of production and thus increases the amount of capital and labor available for additional production. However, no cartel is needed in order to eliminate the plants producing at higher costs. Competition on the free market achieves this effect in the absence of any monopoly and of any monopoly prices. It is,on the contrary, often the purpose of government-sponsored cartelization to preserve the existence of plants and farms which the free market would force to discontinue operations precisely because they are producing at too high costs of production. The free market would have eliminated, for example, the submarginal farms and preserved only those for which production pays under the prevailing market price. But the New Deal preferred a different arrangement. It forced all farmers to a proportional restriction of output. It raised by its monopolistic policy the price of agricultural.
[1]
Human Action was originally published in the US in 1949 I beleive. You can download a free copy here. http://mises.org/Books/humanaction.pdf
If this happens in say the synthesized lysine market the end result is increased food cost. Since the food in question is limited to processed foods it has a large affect on the poor because there is a certain level at which people are unable to stop purchasing. This means that symptom 1 happens to less of an extent or if it does happen people starve.
This is jumping to conclusions a little bit here. Kosher foods and natural foods predate processed food. A market monopoly in processed food has to compete with those things along with compete with people who may decide to harvest their own food in such a situation, or someone else who found an alternative way to produce food for the masses. It is non-Sequitar to believe people would starve.
Economics is about what is seen AND not seen. If we try to formulate all things today based on our current market conditions we can come to all kinds of wild conclusions. For example, without Intel there would be no desktop processors. But that is not true, we don't know what would happen if Intel were gone, nor do we know what would happen if Lysine were on a monopoly. This is why we must root ourselves in deductive reasoning, not inductive reasoning. Also side note, in the absence of IP laws as you pointed out there is no way lysine would be a monopoly. :)
Back to Comcast, if Comcast establishes a monopoly on high bandwidth communication both symptoms above will happen. Less people will use the internet and Comcast will have little incentive to truly improve their network at the rate they are doing it today. With education and small business relying so heavily on these technologies the potential for both areas will be drastically reduced.
If they did so a competitor could easily come along and capitalize on their stagnation by introducing an alternative. Also lets not forget that most of the cable companies in the country have been granted local legal monopolies by their municipalities. The government has defended it's stance on granting cable company's legal monopolies by calling them "Natural Monopolies" but this was done so arbitrarily and to be sure no such natural monopoly existed before the state intervened. Natural Monopoly's are a myth. No economist worth his two cents would make such an economic adolescent claim. Such is the talk of politician's.
Additionaly the fact that there are other very large business, Verizon, Qwest, Clearwire, continuing to invest in expanding their network is a clear representation that they see profit opportunity in the market. We cannot disagree with this. If it was non-competitive they would not be doing this. Clearly they beleive there is still a market for expanding their networks and they beleive they can gain from it. TO disagree with this would be disagreeing with internet provider market specialists in Verizon, Clearwire, Qwest, and even comcast or any other network provider. Only in arrogance can we claim to know something they do not.
In the end I think we need a balance. Turning the internet into say, a utility, would be the extreme opposite of free market. In both cases the only outcome I can foresee is a reduction in potential functionality. Too many business and educational institutes are dependant on the current infrastructure to allow a single company to have complete control. Just like we don't allow car dealers to advertise $1 cars and then not have any available when a consumer arrives we should not allow companies like Comcast to take what is an open and useful tool and turn it into something they control. They benefitted form tax payer funded research into existing communications technologies and in exchange its not unreasonable to limit their ability to control what we have access to in our own homes.
The problem, as I understand it, is your wanting to shift a monopoly which does serve consumer demand, which arguably may not exist, to one which does NOT serve consumer demand and exists through compulsory means. It is a very common fallacy to assume that compulsory monopolies can outpreform market monopolies but it is one of the most dangerous fallacies to fall victem too. Especially if our goal is to increase economic output, by that I mean providing more goods at cheaper costs for all.
Putting aside the ethical shortcomings of compulsory insitutes we will look at such insititues at an economic level to see that they are possibly the most disasterous market entity's around. The state's monopoly's works entirely outside of market laws because they use coercion to exist and therefore do not read consumer demand. The state cannot measure consumer demand, it has no economic calculation or price metric. As a result you will have more of what you described above, technological stagnation, increased cost, lower quality. Perhaps the single biggest exposition that explains how central planning cannot calculate was revealed in Mises's Economic Calculation in the Socialist Commonwealth. [3] I have not read the book and since I already feel confident enough in my knowledge on the calculation problem it's not high in my reading list. However since his writing thousands of essays, articles, and books have been written by economists adhering to the fact that central planners cannot read consumer demand and therefore have no metric on when or where to allocate resources.
To continue, If a private monopoly produces poor quality, or does not innovate for too long, or raises their rates too much a competitor will come in and eradicate them. True private monopolies tend to be short lived because of this. When does the private monopolist know when to invest in R&D? When does he know when to be conservative? Because his indicators are now restricted to himself he will at times become a sloppy market participant offering more advantage of a more effecient competitor to arrise.
However if the state holds a legal monopoly in a sector it would be illegal for competitors to enter market in the first place. A compulsory monopolist is indefinite and perpetual. Since the state cannot read consumer demand it will perminantly establish a monopoly condition you outlined. No innovation, No quality, high rates either through taxation or monetization as witnessed currently. Also, in all cases state monopolies have never increased the supply of a good or service, they have only rationed or relocated goods and services, they have no mechanism to help them detirmine how much quantity of X to produce and where to produce and whom to produce it for.
The state does not know when or where to allocate consumer resources. It can only do so arbitrarily.
Defenders of central planning argue that a ballet box or voting could be a way to get around this. To understand why this is a fallacy it is beneficial to do some basic reading on the fundamentals of Praxeology. Voting is not a proper way of portraying consumer demand, when you vote your decisions are imposed on others along with the risks involved, you bear little risk in this process so your decision making process is entirely different than a market decision. Voting does not directly effect you personally. Praxeologically speaking, voting cannot be a method for detirming consumer demand. Demand is derived on an individual basis making individual voluntary decisions about oneself. If the voting method DID work however it would only do so with delays as consumers would have to wait for beuacracy to allocate resources.
Compulsory Monopolies also add increased administrative overhead. Since governments themselves do not produce but outsource(redirect) their production process it does not make economic sense for consumers who need a specific good to go through the government in the first place. It would be far more effecient for the consumer to go directly to the producer of said good. The compulsory Monopoly acts as a money conduit in this example getting first dibs on the consumers extorted cash. He also establishes a perminent residence in this now legit extortion racket. The other issue is one of corruption. Hayek, talks about this in the Road to Surfdom and he explains why the Worst type of people get on top in democracy. This is why you see widespread specialist interest taking control of washington and the strong fascistic types of relationships between big business and government. This not a partisan issue, this is not a flaw of republican's or demicrats. All parties suffer from this as democracy suffers from this by default. [4]
Temporary perminent
Occasional Loss of Quality Perpetual distortion of quality. No benchmark
Occasional rise of prices Perpetual increase of cost. Historical Empirical data provesthis
Run on Market participation Run via force, or violent imposition onto its commmunity
Serves Consumers Cannot measure who it serves or why. only vaguely
Because of the lack of economic calculation the State usually grows in size as a form of cancer. Like a cancer cell it consumes resources not for the good of the consumer but for it's own sake.
Also if we are to be concerned with the poor as mentioned earlier, it does not follow to have a state run monopoly for a service people may not use. What about folk who don't have internet, generally speaking the poorest? Does it seem ethical to raise their taxes and force them to pay for a system that they would not participate in voluntarily? I think Hayek states it best in the Road to Surfdom.
The belief in the community of aims and interests with fellow-men seems to presuppose a greater degree of similarity of outlook and thought than exists between men merely as human beings.
-FA Hayek
[4]
D. T. Armentano also summarizes most of the economic issues regarding various forms of Monopoly. He concludes his essay explaining Murray Rothbards view of Monopoly. At least to my knowledge most mainstream Austrian Economists would adher to Rothbard's definition. Though I cannot speak for them. To Quote Armentano.
Rothbard it will be recalled had defined monopoly as "a grant of special privilege from the State reserving a certain area of production to one particular individual or group." This definition of monopoly would appear to be immune from the sort of criticism employed above against both the neoclassical and Mises-Kirzner theories of monopoly. In the first place, we can be confident that competition is "lessened" by this sort of monopoly, and that resources are non-optimally allocated so far as consumers are concerned, since governmental monopoly restricts by law both competitive entry and, consequently, free consumer choice. Legal barriers to entry restrict entry by definition. Areas of production that are truly "naturally" monopolistic would hardly require governmental entry restrictions. Consequently, consumer choke must be distorted, and the sub-sequent resource allocations must be "inefficient," since consumers are prevented by law from making choices that differ from those already made for them by the political authority. Hence, we conclude that governmental monopoly always restricts competition, always violates consumer (and producer) sovereignty, and always "injures" consumer welfare.
It would be tempting to argue that these "restrictions" and "injuries" are, perhaps, minor in the case of "minor" legal impediments to either production or exchange. Yet, there is no satisfactory way to cardinally measure either "competition" or consumer "utility." Since utility is a completely subjective notion, and since interpersonal comparisons of utility are not possible, there is no objective way to determine how severe even "minor" state impediments to entry and competition actually are. It is completely possible, for instance, that what may appear to be an extremely inoffensive governmental regulation, i.e., setting minimum safety standards for sellers, may in fact be harmful in the extreme with respect to certain potential businessmen and specific classes of consumers.
We conclude, therefore, that any and all state restrictions are "monopolistic," competition reducing, and destructive of consumer satisfaction vis-à-vis alternative free-market situations. We also conclude, in summary, that this particular theory of monopoly is the only theory that meets all the standard critical objections and remains entirely consistent with the general Austrian Methodology.
-Armentano
[5] Emphasis mine
To conclude, if the cable companies do become monopolistic it was not done so under the environment of the free-exchange but under the assistence and sponsoship of the state. Secondly, a state run monopoly will cause far more damage then a temporary market run monopoly. We also must remember that our goals should NOT be to foster technological improvements for their own sake, but to devise systems that which fill consumer demand.
An economy that produces things that no one wants is no economy at all but a failure at allocating resources. We do not want to support arbitrary technological growth, but technological growth that people want. This means however that only the individual consumer can make those decisions as a central planner can only guess to know what consumers want.
I think Thomas DiLorenzo spoke about most of this in his lecture. I'm not sure if you've had time to listen to it but when your playing Wow I suggest it. Here's the link!
[1] See Human Action Pg 385-388 http://mises.org/humanaction/chap16sec9.asp
[2] See Cato Institute Essay http://www.cato.org/pubs/pas/pa034.html
[3] Free PDF http://mises.org/econcalc.asp
[4] The Road to Surfdom F.A. Hayek.
[5] A Critique of Neoclassical and Austrian Monopoly Theory D.T. Armentano http://mises.org/etexts/armentanomonopoly.pdf
Additional Media
Robert Carreira Article http://www.fee.org/pdf/the-freeman/carraira0705.pdf explains how compulsory monopolies follow different economic rules.
Inductive Reasoning http://en.wikipedia.org/wiki/Inductive_reasoning
Deductive Reasoning http://en.wikipedia.org/wiki/Deductive_reasoning
Video's
DiLorenzo http://www.youtube.com/user/misesmedia#p/search/1/mwH8unDcdMY
Ron Paul (Very Old :) ) http://www.youtube.com/user/misesmedia#p/search/0/8C4gRRk2i-Mc
Fringe Elements Explanation for Lamo's like me
http://fringeelements.ning.com/video/monopoly-2
holy crap. I just spell checked it on another machine and had like 50 mispellings. At any rate when my post finally shows up i'd still appreciate your comments. My response to him is pending moderation.