Free Capitalist Network - Community Archive
Mises Community Archive
An online community for fans of Austrian economics and libertarianism, featuring forums, user blogs, and more.

Flaws of Free-Market Capitalism

rated by 0 users
Answered (Verified) This post has 1 verified answer | 53 Replies | 5 Followers

Not Ranked
Male
57 Posts
Points 1,650
Austen posted on Mon, May 14 2012 7:44 PM

What, if any, flaws do you think free-market capitalism has?

Answered (Verified) Verified Answer

Top 10 Contributor
Male
6,885 Posts
Points 121,845
Verified by Austen

Um, that's not a very specific question. It's kind of like asking "What, if any, flaws do you think the heliocentric model has?" The correct answer: none that we know of.

Praxeological science is not normative - it doesn't say "people ought to be capitalists" it says "here are the rules that determine the social outcomes when people behave this way or that way, respectively." If you centrally-plan an economy with an iron fist, you will have under- and over-production, starvation and eventually population collapse. This has nothing to do with whether we ought to have capitalism or not. It's like saying if you shoot a rocket at the right speed and angle, it will orbit the earth. That doesn't tell you whether you ought to launch such a rocket, only what will happen if you do.

Clayton -

http://voluntaryistreader.wordpress.com
  • | Post Points: 25

All Replies

Top 500 Contributor
254 Posts
Points 5,500
  • | Post Points: 5
Top 500 Contributor
254 Posts
Points 5,500

triknighted:

lol Nevermind

  • | Post Points: 5
Top 50 Contributor
Male
2,439 Posts
Points 44,650
Neodoxy replied on Tue, May 15 2012 11:31 PM

Most critiques used in favor of statism are quite valid in that they are indeed "market failures" from the point of view of maximizing human welfare, the problem is that the state isn't a proper solution to the problems.

1. The problem of collective goods.

This is the biggest problem that capitalism inherently has. There are services which one cannot directly charge others for because the provision of these services cannot be excluded to non-payers. The basics of the problem are very simple and undeniable. A classic example is a road. Practically everyone has an incentive to see that a road (assuming that it's actually a productive project) gets built because this will then decrease the prices of goods and services for pretty much everyone, but no one individual has the power to make any noticeable difference in the construction of the road, and therefore no profit seeking firm will produce the road unless they can then produce a tollbooth and charge a significant monopoly price for a long time. It would be cheaper for everyone to just chip in and then have the road be free to use or charge a very small toll, but no one has a direct incentive to do this.

The biggest problem, of course, is defense. This is the most important service on a free market, because only through large scale defense (so long as there are still predatory entities, statist or otherwise) can private property be upheld and the free market can sustain itself. The problem here is that no one person can affect the amount of defense provided, and so no one has a direct incentive to give money for this cause, and the defense agencies can't really charge anything directly. This is not to say that there are not solutions to roads and defense, merely that it is much less certain that these things will be provided well as opposed to, say, cheese on the free market. 

The reason why the statist examples don't work here is this: Statism suffers from the collective goods problem. No one person has an incentive to be educated upon what is really going on, no reason be educated. NO ONE PERSON CAN AFFECT AND ELECTION, and therefore no one person has any incentive to actually know what is going on, and I think that the economic literacy and state of political education in the United States and indeed around the world makes this perfectly evident. The state is the biggest collective good of all, and it is the one that can cause the most damage because it can DIRECTLY affect EVERYTHING in the economy. 

2. Externalities.

Yes, externalities exist. Some things provide benefits to people or harm people and these things are not accounted for in markets. These things would be much rarer (especially negative externalities) if we had real property right protection instead of arbitrary property rights protection, but these things certainly are real. 

Once again, however, the state is a perfect example of an externality. The existence of the state inherently leads to a huge amount of failures and losses of efficiency. So the real Marginal Social Cost (As the main stream economists call it) of the state, is far more than appears on the nation's tax bill each year. 

3. Monopolies. 

Yes, monopolies exist on a free market, and they do decrease general welfare then they would if they were under more competitive conditions. Natural monopolies tend to be especially heinous because they are even more insulated from competition and usually surround much more essential goods. Prices will be much higher for these goods and services than they would otherwise have been and this decreases the welfare of consumers and everyone except the monopoly and associated industries.

Once again, however, the state acts as a monopoly, except that it has a ying yang component to it. It doesn't have an incentive to restrict output, which is the negative aspect of a monopoly, but at the same time it doesn't have any of the redeeming factors of a monopoly, such as the wish to increase demand for its services as much as possible which can only be achieved through higher quality services in one way or other, nor does it have the incentives to cut costs as much as possible. This leads to the existence of an incredibly inefficient institution which has no incentive to cut its own output, that is no incentive not to take up an increasingly large part of the market with wasteful spending.

These are the major problems of the system. I would also include human error, but that need not be expounded upon.

 

If the free market were to be born tomorrow then it would be the role of new technologies, social entrepreneurship, and the collective action of truly free people to solve the above problems inherent in free markets consisting of traditional profit-seeking firms.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
  • | Post Points: 35
Top 25 Contributor
Male
4,922 Posts
Points 79,590

John James:
Re: Trololo

How do you stand it?  I can't watch anything non-English that doesn't provide subtitles.

The "Trololo" song is entirely non-verbal. It's in a style called вокализ (vokaliz) in Russian, which was apparently popular back in the days of the Soviet Union. So the only subtitle you need is one for the title:

Я ОЧЕНЬ РАД, ВЕДЬ Я, НАКОНЕЦ, ВОЗВРАЩАЮСЬ ДОМОЙ

The subtitle would be something like this: "I'm very glad, because I, at last, am returning home."

The keyboard is mightier than the gun.

Non parit potestas ipsius auctoritatem.

Voluntaryism Forum

  • | Post Points: 20
Top 25 Contributor
Male
4,922 Posts
Points 79,590

Neodoxy:
Most critiques used in favor of statism are quite valid in that they are indeed "market failures" from the point of view of maximizing human welfare, the problem is that the state isn't a proper solution to the problems.

The phrase "maximizing human welfare" implies that "human welfare" can be measured, i.e. it's an objective, empirical phenomenon. It's no such thing, however.

Neodoxy:
1. The problem of collective goods.

This is the biggest problem that capitalism inherently has. There are services which one cannot directly charge others for because the provision of these services cannot be excluded to non-payers. The basics of the problem are very simple and undeniable. A classic example is a road. Practically everyone has an incentive to see that a road (assuming that it's actually a productive project) gets built because this will then decrease the prices of goods and services for pretty much everyone, but no one individual has the power to make any noticeable difference in the construction of the road, and therefore no profit seeking firm will produce the road unless they can then produce a tollbooth and charge a significant monopoly price for a long time. It would be cheaper for everyone to just chip in and then have the road be free to use or charge a very small toll, but no one has a direct incentive to do this.

I think you omit at least one other possibility - that some people (likely business owners IMO) do chip in and build the road, and they pass the costs of building and maintaining it onto their customers.

On another note, if the price charged for the use of a road that one owns is a "monopoly price", then the price charged for my labor is also a "monopoly price".

Finally, I disagree with the assertion that "no one individual [necessarily] has the power to make any noticeable difference in the construction of the road". I don't see how this is necessarily the case.

Neodoxy:
The biggest problem, of course, is defense. This is the most important service on a free market, because only through large scale defense (so long as there are still predatory entities, statist or otherwise) can private property be upheld and the free market can sustain itself. The problem here is that no one person can affect the amount of defense provided, and so no one has a direct incentive to give money for this cause, and the defense agencies can't really charge anything directly. This is not to say that there are not solutions to roads and defense, merely that it is much less certain that these things will be provided well as opposed to, say, cheese on the free market.

Again, I fail to see how it's necessarily the case that "no one person can affect the amount of defense provided". And whose standard of "well" are you talking about with regards to providing roads and defense?

Neodoxy:
The reason why the statist examples don't work here is this: Statism suffers from the collective goods problem. No one person has an incentive to be educated upon what is really going on, no reason be educated. NO ONE PERSON CAN AFFECT AND ELECTION, and therefore no one person has any incentive to actually know what is going on, and I think that the economic literacy and state of political education in the United States and indeed around the world makes this perfectly evident. The state is the biggest collective good of all, and it is the one that can cause the most damage because it can DIRECTLY affect EVERYTHING in the economy.

It seems to me that an individual can affect the production of things like roads and defense much more than he can affect the outcome of an election by voting (which I assume is what you mean - there are other ways in which an individual could more significantly affect the outcome of an election).

Neodoxy:
2. Externalities.

Yes, externalities exist. Some things provide benefits to people or harm people and these things are not accounted for in markets. These things would be much rarer (especially negative externalities) if we had real property right protection instead of arbitrary property rights protection, but these things certainly are real.

This might be tangential or even moot, but aren't externalities subjective?

Neodoxy:
Once again, however, the state is a perfect example of an externality. The existence of the state inherently leads to a huge amount of failures and losses of efficiency. So the real Marginal Social Cost (As the main stream economists call it) of the state, is far more than appears on the nation's tax bill each year.

How exactly is "Marginal Social Cost" measured?

Neodoxy:
3. Monopolies. 

Yes, monopolies exist on a free market, and they do decrease general welfare then they would if they were under more competitive conditions. Natural monopolies tend to be especially heinous because they are even more insulated from competition and usually surround much more essential goods. Prices will be much higher for these goods and services than they would otherwise have been and this decreases the welfare of consumers and everyone except the monopoly and associated industries.

Again, this implies that "human welfare" can be measured somehow. Where do you think monopolies (especially natural monopolies) would exist in a free market?

Neodoxy:
Once again, however, the state acts as a monopoly, except that it has a ying yang component to it. It doesn't have an incentive to restrict output, which is the negative aspect of a monopoly, but at the same time it doesn't have any of the redeeming factors of a monopoly, such as the wish to increase demand for its services as much as possible which can only be achieved through higher quality services in one way or other, nor does it have the incentives to cut costs as much as possible. This leads to the existence of an incredibly inefficient institution which has no incentive to cut its own output, that is no incentive not to take up an increasingly large part of the market with wasteful spending.

I'd say that depends on what you think the state is providing.

The keyboard is mightier than the gun.

Non parit potestas ipsius auctoritatem.

Voluntaryism Forum

  • | Post Points: 20
Top 50 Contributor
2,679 Posts
Points 45,110
gotlucky replied on Wed, May 16 2012 10:33 AM

@Neodoxy

I thought I'd just reply to your post:

1. The problem of collective goods.

I think a good response to the problem of roads is to talk about who precisely would benefit to their use.  Let's take Newbury Street in Boston.  It's pretty trendy, and a lot of people go there to shop.  Of course, all of the people who shop there benefit from the road, but who really benefits from it existing?  The shopkeepers!  I see no reason why the shopkeepers (or far more likely, the actual owners of the buildings) would not chip in to build a road along their shops.  It could even be part of the contract for owning a building along that road - you own a building on Newbury Street, then you pay for the road's upkeep.  Having a contract may not even be necessary, but who knows, maybe some areas would have contracts and some wouldn't.

But, the response to this might be: Okay, that's all well and good.  The shopowners in Boston pay for the upkeep of the streets they are on, but what about the roads for getting into Boston?  Well, if Boston is such a great city, why can't private investors pay for roads going into the city, and people can pay to use them?  And the same goes for highways.

2. Externalities.

This is one of the uses of law.  If these externalities are criminal, then the law can deal with it.  If the externalities aren't criminal, then why should force be used to do something about it?

3. Monopolies. 

 
I was under the impression that natural monopolies do not actually occur on the free market, and that the actual monopolies that have existed were because of a partnership with the state.  Did you have any examples in mind, or were you just saying theoretically it's possible?
  • | Post Points: 35
Top 25 Contributor
Male
4,922 Posts
Points 79,590

gotlucky:
It could even be part of the contract for owning a building along that road - you own a building on Newbury Street, then you pay for the road's upkeep.

That would imply that you don't really own the buildling, wouldn't it? I think it would be more like the road is jointly owned by the adjacent businesses. If you want to become a new joint owner of the road, then you accept certain obligations that come with the ownership. Otherwise, your building may be blocked off from the road (not infringing on your property, of course).

The keyboard is mightier than the gun.

Non parit potestas ipsius auctoritatem.

Voluntaryism Forum

  • | Post Points: 20
Top 10 Contributor
6,953 Posts
Points 118,135

Autolykos:
The "Trololo" song is entirely non-verbal. It's in a style called вокализ (vokaliz) in Russian, which was apparently popular back in the days of the Soviet Union. So the only subtitle you need is one for the title:

Я ОЧЕНЬ РАД, ВЕДЬ Я, НАКОНЕЦ, ВОЗВРАЩАЮСЬ ДОМОЙ

The subtitle would be something like this: "I'm very glad, because I, at last, am returning home."

(since the forum is broken, you can't see this, but it's this.)

 

  • | Post Points: 20
Top 50 Contributor
2,679 Posts
Points 45,110
gotlucky replied on Wed, May 16 2012 11:15 AM

Autolykos:

That would imply that you don't really own the buildling, wouldn't it? I think it would be more like the road is jointly owned by the adjacent businesses. If you want to become a new joint owner of the road, then you accept certain obligations that come with the ownership. Otherwise, your building may be blocked off from the road (not infringing on your property, of course).

I was thinking more along the lines of easements, but your way seems to be clearer.  Either way, I think the argument against private roads is pretty weak.

  • | Post Points: 5
Top 25 Contributor
Male
4,922 Posts
Points 79,590

Why the implied facepalm, John? Regardless, I don't feel stupid for making that post, so try again - and harder next time! wink

The keyboard is mightier than the gun.

Non parit potestas ipsius auctoritatem.

Voluntaryism Forum

  • | Post Points: 5
Top 50 Contributor
Male
2,439 Posts
Points 44,650
Neodoxy replied on Wed, May 16 2012 11:45 AM

"The phrase "maximizing human welfare" implies that "human welfare" can be measured, i.e. it's an objective, empirical phenomenon. It's no such thing, however."

We can tell by human action what individuals prefer, and if individuals did not prefer less scarcity and lower prices then I believe that this would come through in their actions and markets would arrange themselves into situations where consumers voluntarily paid higher prices. If this were the case then most modern market successes would be failures. At any rate, I'm not saying we can measure welfare in a quantitative sense, but we can in a qualitative sense, that is to say we know that firms which provide lower prices benefit a larger number of people than firms which charge higher prices. How much this has increased human welfare, however, is beyond human measuring. 

"I think you omit at least one other possibility - that some people (likely business owners IMO) do chip in and build the road, and they pass the costs of building and maintaining it onto their customers."

That certainly is a possibility, as is (this is what I believe would be the optimal form of organization) a group of people coming together and supporting a non-profit community run road building organization. All I am saying here is that it is not as intuitive and natural for this to be built as it is for bob to open up a shop down the street to make make pretzels, and there are other cases, such as say, statues, where everyone might want X good but it is not paid for because there's no real way to pay for it. Although I have to say that once you get outside of roads and defense the collective goods become increasingly more "Boo Hoo" cases.

"Again, I fail to see how it's necessarily the case that "no one person can affect the amount of defense provided". And whose standard of "well" are you talking about with regards to providing roads and defense?"

You're right, that depends upon the size of the specific market for defense. Here we have sort of an odd case because in many ways it depends upon whether or not we're conceiving of defense within a void, because militaries are very expensive things to start up but after the fact they're actually surprisingly cheap to maintain. If we assume that modern weaponry is taken from the current statist society when the new stateless one is born, then in most cases defense could be noticeably influenced by the richest members of society. However, if the start up costs for the military were involved then these would likely be enormous. No one short of the top 10 richest people alive could influence a military budget the size of the United States, but there are tens of thousands who could influence Russia's (for the hell of it we'll assume that defense budget is what it would take to protect a large country with the greater efficiency but smaller economies of scale which would be inherent in multiple military organizations).

Buuuuuuut at any rate, there are not many people who could influence a multi billion dollar industry by giving even the totality of their income, and if war were to actually break out then the fact is that it's an extremely expensive affair. As soon as we reach the 100 billion dollar mark, even mega millionaires can only make some .X percent difference, and billionaires can only effect it by percentage points unless they sell off large amounts of their assets to pay for a single year of defense, and all this, of course, is assuming that these people believe that there is danger which needs to be defended against, or that if there is danger, that it can be stopped by the organization. 

"It seems to me that an individual can affect the production of things like roads and defense much more than he can affect the outcome of an election by voting (which I assume is what you mean - there are other ways in which an individual could more significantly affect the outcome of an election)."

Depends upon the individual and the industry. And there's no real way for any one individual, short of being a campaign manager, and there can only be so many of those, to make a noticeable influence upon a campaign... Hell if there was then Ron Paul would have easily snagged the nomination because of how dedicated his supporters are! 

At any rate, the point is that I could not, even if I spent my entire yearly income, make a noticeable difference in the production of a large roadway because those are very expensive to produce. The big problem, of course, is that there's a lot of roads which would need to be produced in the stateless society. A fortunate break for the anti-statists, however, is that many roads in developed countries are already produced. Indeed I'd argue there's an obvious surplus of roads. And this means that these things need not be produced, only maintained, which is infinitely cheaper. 

"This might be tangential or even moot, but aren't externalities subjective?"

Kind of... You could argue that a mother who has a baby who becomes a doctor is a case of an externality, and that therefore we should fund more mothers to have babies or some derp argument like that, but there are more down-to-earth examples of an externality, like the fact that if I improve my house local home prices go up and so everyone's assets increase in market value, and yet they have not had to do anything. You can argue against externalities based upon their subjectivity, or from a reducto ad absurdum standpoint, but the fact is that there are cases where people do things, or don't do things that are harmful or beneficial respectively, which others value and would pay to/not to happen if there were a market on this, but where there is none in reality.

"How exactly is "Marginal Social Cost" measured?"

By most mainstream economists it's usually done by the market value of what is lost or by what people would have paid for for it to not happen.

"Again, this implies that "human welfare" can be measured somehow. Where do you think monopolies (especially natural monopolies) would exist in a free market?"

Local area monopolies and name brand companies are the only monopolies which could really be maintained on a free market. Utilities and roads, should they be provided by independent private companies, are both examples of this. Mises does a good job of identifying them in the monopoly section of HA. The fact is that in a small town it's inefficient to have more than one water company   functioning as it can probably only uphold a single economy of scale that provides anywhere near an efficient output. On a street block realistically only one road can be provided to these houses. It's also inefficient as hell to even conceive of things like competing bridges...

We can also tell a priori that the welfare of consumers would be maximized if these firms did not charge a monopoly price.

"I'd say that depends on what you think the state is providing."

Yes it does because value is subjective. But if we look at increasing people's purchasing power and their ability to buy things they desire then it's sure as hell not doing that.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
  • | Post Points: 20
Top 50 Contributor
Male
2,439 Posts
Points 44,650
Neodoxy replied on Wed, May 16 2012 12:14 PM

@Gotlucky 

I agree that stores have pleanty of reasons to give to the production of roads, the sad irony is, however, that the more stores which are affected by the production of the road the less incentive any one store has to donate the stores production, due to the free rider problem. I'm not arguing that no one has an incentive to get these things built, just that it can be hard to charge all those responsible without massive inefficiencies, and for these instances "untraditional" markets, or other forms of collective organization, are necessary.

"This is one of the uses of law.  If these externalities are criminal, then the law can deal with it.  If the externalities aren't criminal, then why should force be used to do something about it?"

It shouldn't, at least in my opinion. It's still inefficient.

"I was under the impression that natural monopolies do not actually occur on the free market, and that the actual monopolies that have existed were because of a partnership with the state.  Did you have any examples in mind, or were you just saying theoretically it's possible?"

No, natural monopolies exist. They aren't exactly common but tell me why firms with very high start up costs and very low production costs in an area of limited demand is an impossible situation? As I said, utilities, roads, and bridges are all perfect cases of this. 

 

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
  • | Post Points: 20
Top 50 Contributor
2,679 Posts
Points 45,110

 

Neodoxy:

I agree that stores have pleanty of reasons to give to the production of roads, the sad irony is, however, that the more stores which are affected by the production of the road the less incentive any one store has to donate the stores production, due to the free rider problem. I'm not arguing that no one has an incentive to get these things built, just that it can be hard to charge all those responsible without massive inefficiencies, and for these instances "untraditional" markets, or other forms of collective organization, are necessary.

It's a pretty easy problem when the road is short or small.  After all, few people immediately adjacent to it, and it's pretty obvious that they would benefit.  So what happens when it's a longer road?  Well, I think it's likely that roads would be segmented - this block pays for this part of the road, that block pays for that part of the road.  Now, you say, "the more stores which are affected by the production of the road the less incentive any one store has to donate the stores production, due to the free rider problem."  However, I don't think this is quite accurate to reality in terms of ownership of stores.  There may be many shops on a block, or many shops in a building, but it is actually pretty rare for each and every shop owner to own the property where their shop is located.  It's actually far more common for there to be a single owner (sometimes there are a couple of owners) of the building, and the shop space is rented out.  The people who actually own the buildings have a direct incentive to have useable roads accessible.  I also think that Autolykos had a pretty good solution: joint ownership of the roads.  If you want to own a building there, you also have to buy into being a joint owner of the road there.  You have an incentive to do this as the other owners could charge you with trespassing and prevent other people from accessing your property through the road.

Basically, I don't think it's as difficult as people make it out be.  What most people don't realize is that they lose huge portions of their income to the state.  If people were not losing all this money, paying for a little upkeep here and there is far cheaper than it might first seem.  

Neodoxy:

It shouldn't, at least in my opinion. It's still inefficient.

Sorry, I'm a little confused here.  What's still inefficient?  The externalities?  Could you give an example?

Neodoxy:

No, natural monopolies exist. They aren't exactly common but tell me why firms with very high start up costs and very low production costs in an area of limited demand is an impossible situation? As I said, utilities, roads, and bridges are all perfect cases of this. 

It looks like from your examples that natural monopolies can only exist on localized levels.  Utilities are granted monopoly status by the state (cities and towns are the state too).  Some bridges can be very expensive, but so what?  If only a few hundred people might use it regularly, it's probably even more inefficient to build another (but then again, we can never know for sure).  But if it's a major bridge where thousands of people regularly use it ​per day​, then I'd say it's far more likely that someone else will come along build another bridge.

​But it seems that natural monopolies can only really exist on a localized level for any extended period of time.  And if natural monopolies are going to exist, I'd say that since they are localized, it's not really a big deal.  So I think the statists don't really have a good point here, even if they think they do.

 

  • | Post Points: 20
Top 50 Contributor
Male
2,439 Posts
Points 44,650

"Basically, I don't think it's as difficult as people make it out be.  What most people don't realize is that they lose huge portions of their income to the state.  If people were not losing all this money, paying for a little upkeep here and there is far cheaper than it might first seem."

I more or less agree, but it's not worth arguing over and I don't care to discuss it further. I still stand by my last statement:

" I'm not arguing that no one has an incentive to get these things built, just that it can be hard to charge all those responsible without massive inefficiencies, and for these instances "untraditional" markets, or other forms of collective organization, are necessary."

"What's still inefficient?  The externalities?  Could you give an example?"

Yes, externalities are by their nature cases of inefficency within the market. A classic example is vaccination. If everyone gets vaccinated then there's little loss to society, but if few people get vaccinated then (we'll ignore the people harmed for the moment) then there is inefficiency as a result of people missing work, consuming medical care and/or dying. That's sort of an odd example but it fits. There's also a classic example of a bee keeper whose bees travel around and ensure a greater degree of pollination for local farmers, yet the farmers do not pay the beekeeper for this, and so the beekeeper does not receive as much money for the actual benefit he gives to society as he actually does. If he were paid more then consumers would be better served by his expanding output and increasing the number of bees around to increase crop output. 

"It looks like from your examples that natural monopolies can only exist on localized levels.  Utilities are granted monopoly status by the state (cities and towns are the state too). "

Generally, yes, local area monopolies are generally the only real cases of natural monopolies that I know of that can exist in large areas. The monopoly enforcement here is enacted specifically because these are natural monopolies, so the reasoning is they should exist in a form "the community can control" Do you really think a small town would benefit from having two water utilities open up? 

 "Some bridges can be very expensive, but so what?  If only a few hundred people might use it regularly, it's probably even more inefficient to build another (but then again, we can never know for sure).  But if it's a major bridge where thousands of people regularly use it ​per day​, then I'd say it's far more likely that someone else will come along build another bridge."

No, what I mean here is that company X opens up a bridge and then charges a monopoly price. Well building a bridge is super expensive. Maintaining a bridge is super cheap over a long period of time. So company X charges this huge monopoly price and attracts competition. Let's say three new bridges open up and a relatively competitive price is finally reached. Well now we have 4 bridges and all the resources wasted producing them when the first bridge would have done. Valuable resources are spent producing copies of something where one is needed. This is inefficient. 

"And if natural monopolies are going to exist, I'd say that since they are localized, it's not really a big deal.  So I think the statists don't really have a good point here, even if they think they do."

For the most part, I agree. The solution is not government and the problems that accompany it, but hopefully something resembling what government is supposed to do, without its negative effects.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
  • | Post Points: 20
Top 50 Contributor
2,679 Posts
Points 45,110

Neodoxy:

I more or less agree, but it's not worth arguing over and I don't care to discuss it further. I still stand by my last statement:

Eh, I'm just pointing out that in the case of roads, statists have a pretty poor argument.

Neodoxy:

Yes, externalities are by their nature cases of inefficency within the market. A classic example is vaccination. If everyone gets vaccinated then there's little loss to society, but if few people get vaccinated then (we'll ignore the people harmed for the moment) then there is inefficiency as a result of people missing work, consuming medical care and/or dying. That's sort of an odd example but it fits. There's also a classic example of a bee keeper whose bees travel around and ensure a greater degree of pollination for local farmers, yet the farmers do not pay the beekeeper for this, and so the beekeeper does not receive as much money for the actual benefit he gives to society as he actually does. If he were paid more then consumers would be better served by his expanding output and increasing the number of bees around to increase crop output. 

Vaccines can be dealt with without a state quite easily.  People don't like to be around others that are sick.  Just look at the case of dogs and rabies.  You can't take a dog to see a vet unless it has been vaccinated for rabies (naturally, you can take your dog to see the vet to get it vaccinated, but that's it).  Of course, it's probably the law that makes it the case, but I see no reason why people wouldn't continue this practice or something similar without a state mandate.  If you can't be bothered to be vaccinated, then you probably would not get access to a lot of different things.  Especially in this day and age of advanced computing, I don't see how this could be too difficult for an anti-state solution.

In regards to the beekeeper, I think you are missing what is unseen.  Sure, people get the benefits of the pollination, but suppose they were to pay the beekeeper more so that he could expand his business.  What is seen is that the beekeeper is more wealthy, and maybe there are even more crops, but what is unseen are the other businesses that could not flourish or exist because beekeepers are making more money and expanding their businesses.  Sure, it's an externality, but is it really inefficient for society?  Maybe it's inefficient for the beekeeper, but I don't see how one could then go on to make the claim that it is now inefficient for the community as a whole.

If the beekeeper were really increasing the output of farmers crops to the point that they really benefit from this, then it would make sense for them to pay the beekeeper to encourage this behavior.  Otherwise, the farmers got a small benefit, but they didn't consider it a big enough benefit to actually pay for this particular service.  It would be inefficient for the farmers to pay the beekeeper, as the benefits would not outweigh the costs for the farmers.

Neodoxy:

Generally, yes, local area monopolies are generally the only real cases of natural monopolies that I know of that can exist in large areas. The monopoly enforcement here is enacted specifically because these are natural monopolies, so the reasoning is they should exist in a form "the community can control" Do you really think a small town would benefit from having two water utilities open up? 

But you don't really know if they are natural monopolies.  Cable television is treated as a natural monopoly, but it really isn't.  It is not necessary for there to be only one cable company per town, but that is how most communities treat it.  It could very well be the same with utilities.  Sure, it might seem at first that only one water utility should exist in any particular community, but as technology advances and costs to enter go down, it may end be up being profitable for there to be two water utility companies.  The problem with enforcing the monopoly is that it makes it impossible to know if it truly would be a monopoly or not.

Neodoxy:

No, what I mean here is that company X opens up a bridge and then charges a monopoly price. Well building a bridge is super expensive. Maintaining a bridge is super cheap over a long period of time. So company X charges this huge monopoly price and attracts competition. Let's say three new bridges open up and a relatively competitive price is finally reached. Well now we have 4 bridges and all the resources wasted producing them when the first bridge would have done. Valuable resources are spent producing copies of something where one is needed. This is inefficient. 

Well you don't really know if only one bridge is needed.  These bridges might not all be placed right next to each other (it's quite unlikely they would be anyway).  More bridges means easier access to getting across the river.  There is less traffic per bridge.  Less distance has to be travelled in order to get to a bridge.  Maybe the citizens of that particular town prefer these benefits over whatever the costs might be to having those extra bridges.

  • | Post Points: 35
Page 2 of 4 (54 items) < Previous 1 2 3 4 Next > | RSS