Libertarians hold that the free market, through the price mechanism, allocates scare resources towards their most valuable use. I have a possible counterexample to this claim, and I'm unsure of the best way to answer it.
I heard a rumor that, several years back, Disneyland bought up all of the land surrounding a competing theme-park to prevent them from expanding. Nowadays, Disneyland rents out this land but refuses to sell any of it. The most valuable use of this land would be for the expansion of the competition’s theme park (evidenced by the amount of money they would be willing to pay for it) but since Disneyland doesn’t want the additional competition, this will never happen. The land is not being put towards its most valuable end.
There is obviously nothing coercive going on in this situation, so libertarians couldn’t object to it on that basis. I’m tempted to take a hard-line approach; admit that this is a legitimate free-market use of property, and maintain that government interference won’t be a good alternative. If there’s a better way of answering this objection, I’m interested in hearing what it is.
I Samuel 8
It sounds like Disneyland is using the land to its most valuable use. I am sure there is a price at which Disneyland would sell. That price hasn't been reached yet, so Disneyland currently values the land around the other park more than the other park does.
I think it's important to dispel the myth that the free-market would lead to "efficiency". The price-mechanism doesn't necessarily lead to the most efficient usage of factors of production, it merely allows for a more relatively efficient usage of these factors.
But, does Disneyland's ownership of surrounding land around a competing theme park lead to less efficiency? Would it be more efficient if that land was redistributed to the other theme park? I'm not so sure. I think that the fact that Disneyland has felt compelled to rent it out - to make a profit - shows how the price mechanism, entrepreneurship and the free-market lead to relatively greater efficiency in usage of factors of production.
So, is a hard-line approach the only way to answer the objection? (That is, to just agree that reasources aren't always put to their most valuable ends under capitalism). I'm afraid that people would percive this as a flaw in capitalism.
I agree that by conceding that capitalism does not lead to absolute efficiency it gives room for some to believe that through centralized coordination one can make the market mechanisms more efficient. But, I'm not sure the solution is to claim that capitalism does lead to absolute efficiency; instead, we just have to stress that central planning simply does not work, nor does it make anything more efficient.
nor does it make anything more efficient.
Couldn't it be aruged that government action would make things more efficient in this particular situation?
It was more efficient for Disneyland to buy that land and rent it out, rather than allow a competitor to buy it. It was more efficient for the competitor to allow Disneyland to buy it, rather than bid up the price by offering more money for the same land.
"So, is a hard-line approach the only way to answer the objection? (That is, to just agree that reasources aren't always put to their most valuable ends under capitalism). I'm afraid that people would percive this as a flaw in capitalism."
You mean they would attack a straw man? How horrible! If Disney's would-be competitors were truly efficient then they would be able to pay the appropriate price for that piece of land. Either way, nothing is preventing the competitors from competing; they just can't compete in that location.
"If we wish to preserve a free society, it is essential that we recognize that the desirability of a particular object is not sufficient justification for the use of coercion."
We are not in a state of scarcity.
I can't imagine saying anything more absurd. Seriously, this may actually be the most embarrassing thing I've ever heard said by another human being.
Jesse,
You are confusing price with value. Dollar price serves as the common denominator for goods in a market place which makes accountancy possible. This is essential, of course, for the existence of a modern economy. However, price does not measure value.
As the Austrians have taught us, value cannot be measured. It is subjective and is revealed only at the point of action. The fact that Disney is not willing to sell at the price being offered reveals that it values the land more than the money it could get by selling it. The fact that Disney's competitors aren't willing to bid up the purchase price even more reveals that they value the money price more than the property. The fact that the consumers aren't bidding up the price of Disney's competitors such that they could overcome Disney's dominance reveals the consumers' collective value scale.
Assuming this rumor is true and is taking place in the free market, it serves as a confirmation and not a refutation of the Austrian observation that the free market allocates resources to where they are most dear.
As far as the concept of perfect efficiency is concerned--it does not exist anywhere. No perpetual motion machines for us, thank goodness. It would mean the end of us.
The fact that the consumers aren't bidding up the price of Disney's competitors such that they could overcome Disney's dominance reveals the consumers' collective value scale.
Great point. I think this is the insight that defeats the objection. Disney's ability to do what it does is entirely dependent upon their consumers choosing them over their competition in the first place.
Really? Why?
Libertarians hold that the free market, through the price mechanism, allocates scare resources towards their most valuable use.
i am not sure if valuable is always measured in dollars or money necessarily. i guess an incorrect use of resources would be called market functiong...though some may consider that a problem.
Jesse: Really? Why?
I think that something like this is what he was referring to:
From "Human Action" by Ludwig von Mises: There are doctrines flatly denying that there can be a science of economics. What is taught nowadays at most of the universities under the label of economics is practically a denial of it. He who contests the existence of economics virtually denies that man's well-being is disturbed by any scarcity of external factors. Everybody, he implies, could enjoy the perfect satisfaction of all his wishes, provided a reform succeeds in overcoming certain obstacles brought about by inappropriate man-made institutions. Nature is open-handed, it lavishly loads mankind with presents. Conditions could be paradisiac for an indefinite number of people. Scarcity is an artificial product of established practices. The abolition of such practices would result in abundance. In the doctrine of Karl Marx and his followers scarcity is a historical category only. It is the feature of the primeval history of mankind which will be forever liquidated by the abolition of private property. Once mankind has effected the leap from the realm of necessity into the realm of freedom[1] and thereby reached "the higher phase of communist society," there will be abundance and consequently it will be feasible to give "to each according to his needs."[2] There is in the vast flood of Marxian writings not the slightest allusion to the possibility that a communist society in its "higher phase" might have to face a scarcity of natural factors of production. The fact of the disutility of labor is spirited away by the assertion that to work, under communism of course, will no longer be pain but pleasure, "the primary necessity of life."[3] The unpleasant experiences of the Russian "experiment" are interpreted as caused by the capitalists' hostility, by the fact that socialism in one country only is not yet perfect and therefore has not yet been able to bring about the "higher phase," and, more recently, by the war. Then there are the radical inflationists as represented, for example, by Proudhon and by Ernest Solvay. In their opinion scarcity is created by the artificial checks upon credit expansion and other methods of increasing the quantity of money in circulation, enjoined upon the gullible public by the selfish class interests of bankers and other exploiters. They recommend unlimited public spending as the panacea. Such is the myth of potential plenty and abundance. Economics may leave it to the historians and psychologists to explain the popularity of this kind of wishful thinking and indulgence in daydreams. All that economics has to say about such idle talk is that economics deals with the problems man has to face on account of the fact that his life is conditioned by natural factors. It deals with action, i.e., with the conscious endeavors to remove as far as possible felt uneasiness. It has nothing to assert with regard to the state of affairs in an unrealizable and for human reason even inconceivable universe of unlimited opportunities. In such a world, it may be admitted, there will be no law of value, no scarcity, and no economic problems. These things will be absent because there will be no choices to be made, no action, and no tasks to be solved by reason. Beings which would have thrived in such a world would never have developed reasoning and thinking. If ever such a world were to be given to the descendants of the human race, these blessed beings would see their power to think wither away and would cease to be human. For the primary task of reason is to cope consciously with the limitations imposed upon man by nature, is to fight against scarcity. Acting and thinking man is the product of a universe of scarcity in which whatever well-being can be attained is the prize of toil and trouble, of conduct popularly called economic.
There are doctrines flatly denying that there can be a science of economics. What is taught nowadays at most of the universities under the label of economics is practically a denial of it. He who contests the existence of economics virtually denies that man's well-being is disturbed by any scarcity of external factors. Everybody, he implies, could enjoy the perfect satisfaction of all his wishes, provided a reform succeeds in overcoming certain obstacles brought about by inappropriate man-made institutions. Nature is open-handed, it lavishly loads mankind with presents. Conditions could be paradisiac for an indefinite number of people. Scarcity is an artificial product of established practices. The abolition of such practices would result in abundance. In the doctrine of Karl Marx and his followers scarcity is a historical category only. It is the feature of the primeval history of mankind which will be forever liquidated by the abolition of private property. Once mankind has effected the leap from the realm of necessity into the realm of freedom[1] and thereby reached "the higher phase of communist society," there will be abundance and consequently it will be feasible to give "to each according to his needs."[2] There is in the vast flood of Marxian writings not the slightest allusion to the possibility that a communist society in its "higher phase" might have to face a scarcity of natural factors of production. The fact of the disutility of labor is spirited away by the assertion that to work, under communism of course, will no longer be pain but pleasure, "the primary necessity of life."[3] The unpleasant experiences of the Russian "experiment" are interpreted as caused by the capitalists' hostility, by the fact that socialism in one country only is not yet perfect and therefore has not yet been able to bring about the "higher phase," and, more recently, by the war. Then there are the radical inflationists as represented, for example, by Proudhon and by Ernest Solvay. In their opinion scarcity is created by the artificial checks upon credit expansion and other methods of increasing the quantity of money in circulation, enjoined upon the gullible public by the selfish class interests of bankers and other exploiters. They recommend unlimited public spending as the panacea. Such is the myth of potential plenty and abundance. Economics may leave it to the historians and psychologists to explain the popularity of this kind of wishful thinking and indulgence in daydreams. All that economics has to say about such idle talk is that economics deals with the problems man has to face on account of the fact that his life is conditioned by natural factors. It deals with action, i.e., with the conscious endeavors to remove as far as possible felt uneasiness. It has nothing to assert with regard to the state of affairs in an unrealizable and for human reason even inconceivable universe of unlimited opportunities. In such a world, it may be admitted, there will be no law of value, no scarcity, and no economic problems. These things will be absent because there will be no choices to be made, no action, and no tasks to be solved by reason. Beings which would have thrived in such a world would never have developed reasoning and thinking. If ever such a world were to be given to the descendants of the human race, these blessed beings would see their power to think wither away and would cease to be human. For the primary task of reason is to cope consciously with the limitations imposed upon man by nature, is to fight against scarcity. Acting and thinking man is the product of a universe of scarcity in which whatever well-being can be attained is the prize of toil and trouble, of conduct popularly called economic.
If I wrote it more than a few weeks ago, I probably hate it by now.
Your example can be explained by another similar example.
Disney World. Disney bought up a whole bunch of land to create disney world.
Now alot of that land is not being used. Of course, if Disney did not buy it, it could have been bought by others and used as residential property, or strip clubs, or commercial property.
If Disney would have allowed others to build that stuff, it would have devalued the feeling you get at Disney World considerably.....
the feeling you get at Disney World being surrournded by all Disney property is worth way more to many than letting the unused property be used by someone else. This is why Disney World is the number 1 destination in the world.
And, on top of that...Disney can always add more stuff to Disney World in the future adding even more value to their "world"....
Disneyland does not have legitimate ownership of the property.
Jesse: So, is a hard-line approach the only way to answer the objection? (That is, to just agree that resources aren't always put to their most valuable ends under capitalism)
So, is a hard-line approach the only way to answer the objection? (That is, to just agree that resources aren't always put to their most valuable ends under capitalism)
No! Don't you ever concede that because it is absolutely false. You got some strange replies here (other then one or two). Resources put to use are always put to the test by the profit and loss system. That the future is uncertain and some entrepreneurial activity may prove to have been an error does not somehow prove otherwise. On the contrary, it demonstrates that the market contains within it the mechanism to detect such errors and to compel all those directing the resources to correct/change their behavior so that they are more in line with consumer preference.
The accusations against Disneyland are ignoring that the capital value of that land is directly proportional to the money making potential of that land. Disneyland could not hold on to that land without the consent of consumers. How ever it is using that land, it is obvious that the potential competitors cannot outbid the land because they cannot put it to better use, or at least they don't think they can so they are not willing to risk their investments.
Jesse: Libertarians hold that the free market, through the price mechanism, allocates scare resources towards their most valuable use. I have a possible counterexample to this claim, and I'm unsure of the best way to answer it. I heard a rumor that, several years back, Disneyland bought up all of the land surrounding a competing theme-park to prevent them from expanding. Nowadays, Disneyland rents out this land but refuses to sell any of it. The most valuable use of this land would be for the expansion of the competition’s theme park (evidenced by the amount of money they would be willing to pay for it) but since Disneyland doesn’t want the additional competition, this will never happen. The land is not being put towards its most valuable end. There is obviously nothing coercive going on in this situation, so libertarians couldn’t object to it on that basis. I’m tempted to take a hard-line approach; admit that this is a legitimate free-market use of property, and maintain that government interference won’t be a good alternative. If there’s a better way of answering this objection, I’m interested in hearing what it is.
Its not a rumor, I used to live in that area. The surrounding area was actually strawberry fields, that they bought. I really did miss the strawberry fields and the fresh cheap strawberrys. Anyway from my point of view land ownership is no handled correctly, that is why this situation is arising. Do you have a theory about how one comes to legitimately own land? I think that is where you should look for an answer.
Reasoning: Disneyland does not have legitimate ownership of the property.
And of course, it is so obvious to as why this is the case that no elaboration is necessary?
Sorry about the delayed response. Also, my Reply button doesn't seem to be working, so I am Quick Replying and quoting manually.
Me: "It would mean the end of us."
Jesse: "Really? Why?"
I defer to Mises on questions of economics. Thanks for the quote I. Ryan.
Being a more simple minded fellow, I tend to take the direct approach whenever I can. My reasoning goes like this:
Perpetual motion machines require perfect efficiency. Perfect efficiency equals 100% efficiency. 100% efficiency equals 100% certainty.
Life requires a certain amount of uncertainty (exactly how much I do not know) to exist. Too much uncertainty is not good but too little is also very bad. If all were certain, there would be no risk.
No risk equals no opportunity, which equals no motivation for action. What defines humans as human above all else is action, so if there is no action, there is no you or me.
Jesse:The land is not being put towards its most valuable end.
Add this to the list of unfounded assertions as well
Democracy means the opportunity to be everyone's slave.—Karl Kraus.
Jesse - The land is not being put towards its most valuable end.
E. R. Olovetto - Add this to the list of unfounded assertions as well
Someone has to fix the quote mechanisms here. I can't properly quote people.
I think the big problem here is that "efficiency" is a concept that requires a pre-defined objective. It is based upon perspective and goals. For example an 'efficient' automobile is said to be efficient because either it has very good power transfer for its size and energy stored, or it uses as little gasoline as possible to travel X distance. The implied goal here is to use as little gasoline as possible to get from point a to point b.
But what is 'efficient' use of land? What goal do you imply exists that one must most efficiently strive towards?
RogueMerc: But what is 'efficient' use of land?
But what is 'efficient' use of land?
That it is put to use for the satisfaction of the most urgent wants of the buying consumers.
Four Hundred Years of Dynamic Efficiency, Jesús Huerta de Soto
DD5: No! Don't you ever concede that because it is absolutely false. You got some strange replies here (other then one or two). Resources put to use are always put to the test by the profit and loss system. That the future is uncertain and some entrepreneurial activity may prove to have been an error does not somehow prove otherwise. On the contrary, it demonstrates that the market contains within it the mechanism to detect such errors and to compel all those directing the resources to correct/change their behavior so that they are more in line with consumer preference. The accusations against Disneyland are ignoring that the capital value of that land is directly proportional to the money making potential of that land. Disneyland could not hold on to that land without the consent of consumers. How ever it is using that land, it is obvious that the potential competitors cannot outbid the land because they cannot put it to better use, or at least they don't think they can so they are not willing to risk their investments.
Here's a revealing question: Is Disneyland making more money by owning (and keeping off the market) the land surrounding their competitors than their competitors would make by expanding their park into this land? Can the answer be inferred from the situation? If the answer is yes, then I think that this objection can be laid to rest. If not, then maybe it deserves a little bit more attention.
Disneyland is entitled to consumption. Holding that land off the market increases Eisner's (one presumes) utility.
Every decent man is ashamed of the government he lives under - Mencken
So let's just imagine for the sake of argument that someone else thought they had a better use for this land. If they're not going to buy it from Disney....are they going to have the government take it and then give it to them at a lower price? Is this method to become common practice? Can anyone here imagine the consequences of setting this kind of precedent?
Why buy anything from anyone? Why not just argue that the person who owns it is using it improperly and therefore it must be seized and redistributed?
Consider that a person who set up shop right outside disneyland would be free-riding off of disney's investment, harming disney's expected revenues.
The higher disney's revenues, the more money they can invest in building a park. Seen vs unseen.
Amateur economist away!
So let's just imagine for the sake of argument that someone else thought they had a better use for this land. If they're not going to buy it from Disney....are they going to have the government take it and then give it to them at a lower price? Is this method to become common practice? Can anyone here imagine the consequences of setting this kind of precedent? Why buy anything from anyone? Why not just argue that the person who owns it is using it improperly and therefore it must be seized and redistributed?
No one is saying this. My question has to do with justifing this particular situation with traditional free-market ideology.
People are free to see 'flaws' in any part of the Universe they like. One can not argue with arbitrary value judgments. The problem remains, however, that there is no alternative to the market economy. All interventions merely hamper the market economy.
If no other objections could be raised to the socialist plans than that socialism will lower the standard of living of all or at least of the immense majority, it would be impossible for praxeology to pronounce a final judgment. Men would have to decide the issue between capitalism and socialism on the ground of judgments of value and of judgments of relevance. They would have to choose between the two systems as they choose between many other things. No objective standard could be discovered which would make it possible to settle the dispute in a manner which allows no contradiction and must be accepted by every sane individual. The freedom of each man's choice and discretion would not be annihilated by inexorable necessity. However, the true state of affairs is entirely different. Man is not in a position to choose between these two systems. Human cooperation under the system of the social division of labor is possible only in the market economy. Socialism is not a realizable system of society's economic organization because it lacks any method of economic calculation. To deal with this fundamental problem is the task of the fifth part of this book. The establishment of this truth does not amount to a depreciation of the conclusiveness and the convincing power of the antisocialist argument derived from the impairment of productivity to be expected from socialism. The weight of this objection raised to the socialist plans is so overwhelming that no judicious man could hesitate to choose capitalism. Yet this would still be a choice between alternative systems of society's economic organization, preference given to one system as against another. However, such is not the alternative. Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics as it is the task of biology and chemistry to teach that potassium cyanide is not a nutriment but deadly poison.
If no other objections could be raised to the socialist plans than that socialism will lower the standard of living of all or at least of the immense majority, it would be impossible for praxeology to pronounce a final judgment. Men would have to decide the issue between capitalism and socialism on the ground of judgments of value and of judgments of relevance. They would have to choose between the two systems as they choose between many other things. No objective standard could be discovered which would make it possible to settle the dispute in a manner which allows no contradiction and must be accepted by every sane individual. The freedom of each man's choice and discretion would not be annihilated by inexorable necessity. However, the true state of affairs is entirely different. Man is not in a position to choose between these two systems. Human cooperation under the system of the social division of labor is possible only in the market economy. Socialism is not a realizable system of society's economic organization because it lacks any method of economic calculation. To deal with this fundamental problem is the task of the fifth part of this book.
The establishment of this truth does not amount to a depreciation of the conclusiveness and the convincing power of the antisocialist argument derived from the impairment of productivity to be expected from socialism. The weight of this objection raised to the socialist plans is so overwhelming that no judicious man could hesitate to choose capitalism. Yet this would still be a choice between alternative systems of society's economic organization, preference given to one system as against another. However, such is not the alternative. Socialism cannot be realized because it is beyond human power to establish it as a social system. The choice is between capitalism and chaos. A man who chooses between drinking a glass of milk and a glass of a solution of potassium cyanide does not choose between two beverages; he chooses between life and death. A society that chooses between capitalism and socialism does not choose between two social systems; it chooses between social cooperation and the disintegration of society. Socialism is not an alternative to capitalism; it is an alternative to any system under which men can live as human beings. To stress this point is the task of economics as it is the task of biology and chemistry to teach that potassium cyanide is not a nutriment but deadly poison.
Human Action, XXIV. Section 3 http://mises.org/humanaction/chap24sec3.asp
“Socialism is a fraud, a comedy, a phantom, a blackmail.” - Benito Mussolini"Toute nation a le gouvernemente qu'il mérite." - Joseph de Maistre
Jesse: No one is saying this. My question has to do with justifing this particular situation with traditional free-market ideology.
I'm unclear about the point of this exercise, this must be my fault. What are we trying to figure out here?
Are we trying to figure out if capitalism is perfect or not?
bloomj31: I'm unclear about the point of this exercise, this must be my fault. What are we trying to figure out here?
Libertarians claim that the free market puts reasources where the most demand is. This instance with Disneyland seems to be a counterexample; the land that they own could be put to a more profitable usage (from the perspective of the consumer) if it were owned by the competition.
Jesse: the land that they own could be put to a more profitable usage (from the perspective of the consumer) if it were owned by the competition.
the land that they own could be put to a more profitable usage (from the perspective of the consumer) if it were owned by the competition.
Something seems fishy here but I can't put my finger on it. Maybe someone else will be of more use here.
bloomj31:Something seems fishy here but I can't put my finger on it.
Cause there is.
Disneyland isn't using the land. And somehow Jesse has tapped into what "consumers" want, but Jesse isn't saying be an entrepreneur or try to engage in a voluntary, negotiated exchange with Disney as to what to do with the land. I think it's up to Jesse to actually think and provide a solution to his puzzle. Since you, bloom, had already wrote the other alternative action to this problem, but Jesse said he wasn't talking about that, then Jesse needs to actually talk about what he is talking about then. I'm ready to hear it.
wilderness: Disneyland isn't using the land. And somehow Jesse has tapped into what "consumers" want, but Jesse isn't saying be an entrepreneur or try to engage in a voluntary, negotiated exchange with Disney as to what to do with the land. I think it's up to Jesse to actually think and provide a solution to his puzzle. Since you, bloom, had already wrote the other alternative action to this problem, but Jesse said he wasn't talking about that, then Jesse needs to actually talk about what he is talking about then. I'm ready to hear it.
Jesse is talking about what he's talking about. I'm ready to hear a question, or an actual response to the intelligent discussion on this thread.
People are free to see 'flaws' in any part of the Universe they like. One can not argue with arbitrary value judgments.
JakobM: People are free to see 'flaws' in any part of the Universe they like. One can not argue with arbitrary value judgments. Yes. That's the reason why there's no point in arguing against market fundamentalists who reject socialism. There's nothing wrong with socialism...except for people who hate socialism because socialism doesn't mesh with their subjective values (von Mises being a perfect example of this)
I love my laptop, my hdtv, my car. Communists will be shot. Survivors will be shot again.
Jesse:Jesse is talking about what he's talking about. I'm ready to hear a question, or an actual response to the intelligent discussion on this thread.
Then offer one. Now sir, by all means, you made the claim that free markets can't do the job. You made the claim that you know what consumers really want. Yet without the entrepreneaur mentality and implementation to fulfill this hypothetical assertion into an actual experiment to see if the consumers really do want the land for something other than what the consumers are paying Disney to use it for now, then by all means, show me what you got. Show me how you figured out how you know what consumers want better than the current, and thus, actual consumer actions.
JakobM:Yes. That's the reason why there's no point in arguing against market fundamentalists who reject socialism. There's nothing wrong with socialism...except for people who hate socialism because socialism doesn't mesh with their subjective values (von Mises being a perfect example of this)
Exactly!
Yes. That's the reason why there's no point in arguing against market fundamentalists who reject socialism. There's nothing wrong with socialism...except for people who hate socialism because socialism doesn't mesh with their subjective values (von Mises being a perfect example of this)
Jesse: Here's a revealing question: Is Disneyland making more money by owning (and keeping off the market) the land surrounding their competitors than their competitors would make by expanding their park into this land? Can the answer be inferred from the situation?
Here's a revealing question: Is Disneyland making more money by owning (and keeping off the market) the land surrounding their competitors than their competitors would make by expanding their park into this land? Can the answer be inferred from the situation?
What can be inferred is only that investors do not believe that they can sufficiently profit on their investment, if at all, in order to buy off the land from Disneyland.
If somebody knows better, like all those who complain about this, why don't they buy off the land from Disneyland and make a profit?