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Wouldn't anarcho-capitalism lead to monopoly?

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Fides_et_Ratio posted on Wed, May 2 2012 8:02 PM

Hi. I am new here, and I present you the following analysis:

In an anarcho-capitalist society, there is one individual, named SuperCapitalist, who is the best manager in Earth. Compared to any other capitalist, he can accumulate capital at least as fast and profit at least 10% more per year.

SuperCapitalist approaches every other capitalist on Earth, and offers to take ownership of his capital in exchange for an eternal contract to increase that capital at least as fast as the present owner and to pay 95% of the profit (and 95% * 110% = 104.5%). They all accept.

But now SuperCapitalist is a monopolist. He lowers wages to just the minimul level for survival and procreation. This satisfies him and the other capitalists, but leaves the proletarians in a horrible condition.

Is there something wrong here? This is an honest question, I am not here to troll.

 

Regards

 

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z1235 replied on Wed, May 2 2012 8:13 PM

After entering the contract with every other capital/property holder, what is the SuperCapitalist trading/exchanging -- and with whom -- on his way of achieving his stellar returns?

 

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Yes, the problem is you're forgetting that trade is always beneficial even if one person is better at everything than another. SuperCapitalist has just two legs, two eyes and 24 hours in his day, same as everybody else. Let's say he's 1,000 times more efficient than the next most efficient capitalist (not likely, but just for the sake of argument). Then about 1,000 or so less-efficient capitalists will be able to process the same amount of information as SuperCapitalist.

One problem that I see people consistently run into is they don't realize that "economies of scale" don't increase indefinitely. Surely, you've heard the term "massive, inefficient bureaucracy" - this results from the less-talked-about diseconomies of scale. The larger your organization, the more difficult the communication/management/business problems become. 

Imagine a tech startup with 10 engineers. Communication is lightning fast - they just all sit around a table and whenever an engineer needs to communicate with one of the other 10, he simply opens his mouth and speaks. No emails, no IT departments, etc. Now, a large engineering corporation can build more complex products than 10 engineers could dream of building because they can apply hundreds or thousands of people to the task at hand. But what they can't do is just seat 1,000 engineers around a table and say "design our next SuperProduct" The laws of physics and the limits of the human brain simply render impossible the scaling of the "10 engineers in a room" model to hundreds or thousands of engineers. The same reasoning applies to business, finance, manufacturing, warehousing or anything else you care to mention.

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Just step back. How likely do you think that this is to happen? 

That's probably less likely than this scenario: What if there was an extremely convincing leader who could make people believe almost whatever he wanted. He then proceeds to convince country after country to elect him their leader. After this is done he then has a mass election to elect him supreme dictator forever. He wins. He can then do whatever he wants. 

Is this a compelling attack against democracy? This is probably a lot more likely than a single person being able to be an amazing capitalist in all situations and convincing everyone to sell to him, as well as having the desire to do this. 

A generally good piece of advice in all social theory is to gravitate away from "world domination" and "absolute monopoly" theories, because they're almost always uncompelling analyses

Also, welcome to Mises, if you have any more (although hopefully more realistic) questions, then we'll be happy to help out.

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Jorge:
SuperCapitalist approaches every other capitalist on Earth, and offers to take ownership of his capital in exchange for an eternal contract to increase that capital at least as fast as the present owner and to pay 95% of the profit (and 95% * 110% = 104.5%).

How did SuperCapitalist obtain all this capital? And how did he approach EVERY other capitalist on Earth? These are two very unlikely assumptions, to say the least.

Jorge:
But now SuperCapitalist is a monopolist. He lowers wages to just the minimul level for survival and procreation.

That theory was refuted before Marx himself wrote it: Mises Explodes Marxism

Jorge:
This satisfies him and the other capitalists, but leaves the proletarians in a horrible condition.

If the proletarians preferred other means of acquiring sustenance, they will quit and form other means (perhaps by pooling savings and becoming entrepreneurs, providing competition to the capitalists who agreed to the contract- assuming that these capitalists did not leave the contractual relationship). If the proletarians don't resort to some other means of acquiring wages, they prefer what wages they are receiving regardless of how one can seem them.

Supply and Demand affects the labor markets as well.

 

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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@TOG

Not that it really matters but if someone controlled all resources on earth, save labor, then they could name the wage they would pay and there's realistically nothing that the laborers could do about it.  Competition for labor would no longer exist, nor any incentive for paying labor its value. Mises even had a piece on a fictional scenario like this in Human Action. 

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Neodoxy:
Not that it really matters but if someone controlled all resources on earth, save labor, then they could name the wage they would pay, competition for labor would no longer reply.

Isn't this assuming that no laborer quits his job in order to compete with this monopolist, with other disenfranchised laborers by forming a pool of savings from which they can purchase capital (I guess from the monopolist), and thereby start their own firm in hopes of undercutting competition by the not-monopolist (higher wages for labor, lower prices for goods sold)?

 

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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Ah. I see. This this very rich guy will sell his goods which constantly become more and more to a public which is poorer and poorer. Eventually, he will be making 100% profit off of workers who don't actually have wages but keep working for some reason.

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Boom goes the dynamite.

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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"from which they can purchase capital (I guess from the monopolist)"

Why would someone who's gone through all the trouble of buying every single relevant resource on earth sell it? Money is a means of exchange and is therefore useless to the man who controls the other half of all transactions. What would he buy with the money that he couldn't attain otherwise? More labor? All he has to do to see that he gets more of that is wait for a little while if anyone dares to quit their job. Their only real alternative is primitive farming... And I think we can all imagine how high your wages have to be to compete with that...

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Neodoxy:
Why would someone who's gone through all the trouble of buying every single relevant resource on earth sell it?

Why would someone incur so many costs without at least attempting to make a return on his investments?

Neodoxy:
Money is a means of exchange and is therefore useless to the man who controls the other half of all transactions. What would he buy with the money that he couldn't attain otherwise? More labor? All he has to do to see that he gets more of that is wait for a little while if anyone dares to quit their job.

I don't understand what you're saying in the boldened part.

But why would workers work if they are unable to acquire goods, but for a means of doing so (money or otherwise)? Even if the money has no value to the monopolist, it would retain value to the workers as a means of acquiring goods, no? But this is besides the point. And of course, as Clayton points out above, the Ricardian Law of Association (derived praxeologically, no?) isn't abolished as a result of a monopolist- there's always an incentive to outsource production.

And don't forget Mises' criticism of socialism- in a situation in which there is a common ownership of the means of production, say a global monopolist on every capital good, no markets exist, exchange and economic calculation, therefore, are impossible. Ultimately, Wheylous hit it on the head- the scenario's unsustainable.

 

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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But ok, I'll bite. You've refuted AnCap.

I can refute democracy, too:

What if Santorum goes to 75% of the US public and convinces them to enslave the other 25%. The Constitution can then successfully be amended and we have legal slavery! Democracy is obviously unworkable.

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That's probably less likely than this scenario: What if there was an extremely convincing leader who could make people believe almost whatever he wanted. He then proceeds to convince country after country to elect him their leader. After this is done he then has a mass election to elect him supreme dictator forever. He wins. He can then do whatever he wants.

 

Capitalism is an idea.  An idea of a system where the little guy can go from nothing to everything.

Democracy is also an idea.  An idea of a system where the big guy can't screw the little guy over without consequences.

If more people believe in the latter what is far more likely to happen is not some supreme dictator elected by popular vote but an idea for a global election schema among nations.  Kind of like how in the beginning of America, state legislators elected federal legislators.  Eventually global governance would evolve from nationally appointed global legislators to global legislators elected in popular national elections the same way it has evolved in America where people are no longer elected by state legislatures but elected to Congress by popular vote.  America is the model for global governance.  A collection of sovereign states merged by compact into a larger political body.

Unfortunately for capitalsim many people have a belief the big guy doesn't give a shit about the little guy and will do whatever he can to screw the little guy over.  Somehow the big guy producing or distributing a lot of goods the little guy purchases voluntarily to make the little guy's life better is an evil thing in the minds of many.

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"Why would someone incur so many costs without at least attempting to make a return on his investments?"

The ability to use any resource on earth is probably the greatest return imaginable.

"I don't understand what you're saying in the boldened part."

I'm saying that if people quit their jobs and try to do something else then all the monopolist has to do is wait and refuse to trade with them and the people will either come crawling back or try to subsistence farm. 

"But why would workers work if they are unable to acquire goods, but for a means of doing so (money or otherwise)? Even if the money has no value to the monopolist, it would retain value to the workers as a means of acquiring goods, no?"

Sure, but then money would be nothing more than a means for a monopolist to keep the economy running in some way so as to feed his surfs. 

"But this is besides the point. And of course, as Clayton points out above, the Ricardian Law of Association (derived praxeologically, no?) isn't abolished as a result of a monopolist- there's always an incentive to outsource production."

First of all this is assuming that the monopolist realistically cared about output. The world economy could shrink to a tenth of its current size and it could still allow a man to live like the richest king to ever walk the earth. Secondly, why is it that the division of labor couldn't occur under the hopelessly underpaying rule of the monopolist?  All he would have to do would be to cut the pay of everyone dramatically and make the more valuable positions pay a large percentage more, but still a far smaller amount than what he has to pay them.

"And don't forget Mises' criticism of socialism- in a situation in which there is a common ownership of the means of production, say a global monopolist on every capital good, no markets exist, exchange and economic calculation, therefore, are impossible. Ultimately, Wheylous hit it on the head- the scenario's unsustainable."

Despite what you've been told socialism is possible and sustainable (lightning crash in background), just not in any way a utilitarian could support. The reason that socialism doesn't work is because of scarcity. In a world of scarcity there are only so many projects which one can embark on, so if there's no way to assign a numerical value to products, then they cannot be rationally allocated specifically because demand for these products is greater than their supply. If scarcity did not exist then all demands could be fulfilled and economic calculation would be irrelevant.

There is then, a way around this problem: Work below capacity. Rather than ending scarcity, allow demand to function significantly below the existing supply. If you have 10 of a good, and you can demand 11, then you must allocate them, but if you have 10 of a good, and only demand 5, then no allocation decision between different projects is necessary. Therefore, if the monopolist were to simply greatly restricts what he does exchange from what he produces or could produce, or to put it in economic jargon, if he works significantly inside the PPF, then there is no reason why he could not attain... Profit... In the psychic sense.

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Capitalism is an idea.  An idea of a system where the little guy can go from nothing to everything.

Democracy is also an idea.

From a praxeological point of view, capitalism and democracy are not merely ideas., they are factual aspects of the social order itself. Like zebras have stripes, human beings engage in exchange and negotiated decision-making. Justin Bieber is an idea, a mirage, a fad. He came into the social awareness and - soon enough - he will leave it. But the facts of the social order are not subject to fads and do not change like the weather.

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