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Mises vs. Rothbard on monopoly?

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Wheylous posted on Wed, Jan 11 2012 4:17 PM

I just started reading MES, and I noticed in the intro that apparently Mises's theory of the monopoly was irreparably flawed and had to be completely revised.

I haven't read HA yet, so what was Mises's theory as opposed to Rothbard's?

Thanks!

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1. I heartily reccomend reading Mises before Rothbard. The basis of praxeology, price (to some extent), and economic calculation are things which one won't come out of MES with a good understanding of and they're the essential components of Austrian Economics. Rothbard is a much easier read (for the most part), both conceptually and in terms of writing style, but as someone who once disparaged entirely of Mises, I would reccomend going from Human Action to MES to Power and Market, as each greatly compliments the other.

So I would, Wheylous, heartily suggest putting your MES reading on hold and go to Mises.

2. As for the actual theory I've long claimed that Rothbard's entire monopoly theory is pretty bogus.

The basis of the difference is this: Mises believed that a monopoly price was possible when one firm or group of firms conspired to keep prices high and didn't compete with one another thusly preventing the process of driving up the price of capital in their fields and driving down prices as production expands as happens under normal competative conditions. He also greatly adhered to the doctrine of a "consumer's democracy" (inevitably one of the only strong arguments for a market economy for one who's not primarily concerned with the moral aspect of the market), which declares that inevitably the entire structure of the market economy depends upon consumer demand, and those areas given the greatest entrepreneurial attention are those where consumers spend the most, however a monopoly defies this, and keeps prices forever high to maximize profit margins. At the same time he thought that government action had little chance of actually helping the problem and that on an international free market the chances were that monopolies could not be maintained in the long run. 

Rothbard argued that there was no such thing as a monopoly price at all, just the market price. He inevitably based this off of two facts: The fact of private property and the fact that monopoly prices cannot be determined by an outside viewer. The term "consumer's democracy" is never used by Rothbard in Man, Economy, and State, except in his criticism of Mises' theory. At any rate Rothbard argued that there really was no such thing as a monopoly price as every firm attempts to maximize profit margins, and that it's hard to tell exactly when a firm is holding back production. In Rothbard's view there was only "individual sovereignty" not  one of the consumer. He did do some original work in monopoly theory that was really valuable by looking at local  area monopoly in a new way by seeing goods in different areas as inherently different goods. There's some truth in this, but it is also somewhat decieving. 

 It makes sense from their two different viewpoints. Rothbard was a heavy duty moralist who (to me, my opinion entirely) seemed honestly somewhat ready to bend the truth in order to ensure the free market's superiority. I think that this becomes clear in some of his stuff in MES in his monopoly theory and some of his assuredness in terms of the self-correction of business cycles. Meanwhile Mises when a fairly amoralistic utilitarian (although I actually believe that what Mises meant in his utilitariansm was different from what most mean when talking about it) who seemed determined to tell the whole truth and nothing but the truth, even if it harmed his own, regardless of what the conclusion was. Mises cared about the wellbeing of the common man, whilst Rothbard always seemed to me to be much more interested in defending the free market on a moral, and economic basis, with the emphasis on the former. 

Don't get me wrong, Rothbard has many really good points on monopoly in MES that destroy any real hope of government efficacy in the matter, but the points that were his originally usually leaved much to be desired.

 

Does that answer your question Wheylous?

 

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Going to respond to this - primarily because I just noticed the Mises wiki on monopoly is shite:

http://wiki.mises.org/wiki/Monopoly

And generally Mises wiki's are great. Pro tip: you don't lead off the "promoted" definition with a tripe cite to Stigler lol.

Monopolies!

If we define “monopoly” as the “single seller of a product,” we founder on insoluble problems. We cannot identify homogeneous products, except in the concrete day-to-day valuations of consumers. Furthermore, if we consider such monopoly as wicked, we must regard both Crusoe and Friday as vicious monopolists if they exchange fish and lumber on their desert island. But if Crusoe and Friday are not wicked, how can a more complex society, one necessarily less monopolistic in this sense, be at all wicked? At what point in the reduced scope of such monopoly can it be considered evil? And how can the market be held responsible for the number of people inhabiting the society? Moreover, every individual striving to be better than his fellows is thereby trying to be a “monopolist.” Is this bad? Do not both he and the rest of society benefit from his better mousetrap? Finally, there is no conceptually identifiable monopoly or monopolistic price on the free market.

Hence, a monopoly price and a monopoly by any usable definition arise only through the coercive grant of exclusive privilege by the government, and this includes all attempts to “enforce competition.”

— Murray Rothbard, Power & Market

 

As M. Rothbard sums up,

    We cannot use "restriction of production" as the test of monopoly vs. competitive price. A movement from a sub-competitive to a competitive price also involves a restriction of production of this good, coupled, of course, with an expansion of production in other lines by the released factors. There is no way whatever to distinguish such a restriction and corollary expansion from the alleged "monopoly price" situation. If the restriction is accompanied by increased leisure for the owner of the labor factor rather than increased production of some other good on the market, it is still the expansion of the yield of a consumer good - leisure. There is still no way of determining whether the "restriction" resulted in a "monopoly" or a "competitive" price or to what extent the motive of increased leisure was involved. To define a monopoly price as a price attained by selling a smaller quantity of a product at a higher price is therefore meaningless, since the same definition applies to the "competitive" price as compared with a subcompetitive price.

M. N. Rothbard, Man, Economy and State, Los Angeles, 1970, p.607.

 

“Since outright grants of monopoly or quasi monopoly would usually be considered baldly injurious to the public, governments have discovered a variety of methods of granting such privileges indirectly, as well as a variety of arguments to justify these measures. But they all have the effects common to monopoly or quasi-monopoly grants and monopoly prices when these are obtained.

The important types of monopolistic grants (monopoly and quasi monopoly) are as follows:

  1. governmentally enforced cartels which every firm in an industry is compelled to join;

  2. virtual cartels imposed by the government, such as the production quotas enforced by American agricultural policy;

  3. licenses, which require meeting government rules before a man or a firm is permitted to enter a certain line of production, and which also require the payment of a fee—a payment that serves as a penalty tax on smaller firms with less capital, which are thereby debarred from competing with larger firms;

  4. “quality” standards, which prohibit competition by what the government (not the consumers) defines as “lower-quality” products;

  5. tariffs and other measures that levy a penalty tax on competitors outside a given geographical region;

  6. immigration restrictions, which prohibit the competition of laborers, as well as entrepreneurs, who would otherwise move from another geographical region of the world market;

  7. child labor laws, which prohibit the labor competition of workers below a certain age;

  8. minimum wage laws, which, by causing the unemployment of the least value-productive workers, remove their competition from the labor markets;

  9. maximum hour laws, which force partial unemployment on those workers who are willing to work longer hours;

  10. compulsory unionism, such as the Wagner-Taft-Hartley Act imposes, causing unemployment among the workers with the least seniority or the least political influence in their union;

  11. conscription, which forces many young men out of the labor force;

  12. any sort of governmental penalty on any form of industrial or market organization, such as antitrust laws, special chain store taxes, corporate income taxes, laws closing businesses at specific hours or outlawing pushcart peddlers or door-to-door salesmen;

  13. conservation laws, which restrict production by force;

  14. patents, where independent later discoverers of a process are debarred from entering a field production.”

          — Murray Rothbard, Power & Market

 

“…Moreover, Rothbard refuted every alternative theory as nonsense, nonoperational, or false. It is nonsense, for instance, to define a monopolist as someone who has control over his price (a “price-searcher”). Every businessman has perfect control over his price (and no control at all over the quantity bought at that price by consumers). Hence, under this definition, no one exists who is not a monopolist. Likewise, is it nonsense to define a monopolist as “the only seller of any given good,” for in an objective sense, every seller of every product is always the only seller of his own unique product (brand). Thus, everyone is a monopolist with a one-hundred-percent market share of one’s own product. Yet, this circumstance does not affect in the slightest that each entrepreneur must compete at all times with every other entrepreneur for consumer spending, regardless how unique or different one’s goods may be.

On the other hand, in a subjective sense, no seller of anything can ever be established definitely as a monopolist. According to this interpretation, the term “given good” means “a good as defined by consumers.” Thus, the determination of whether or not the seller of something is its only seller, or of how large his market-share is, depends on the consumers’ definition of what this good is; that is, on their classification of particular physical objects into various groups of homogeneous goods. Not only can such classifications continually change, but different consumers can classify the same physical objects differently. Hence, in this sense the term monopolist becomes practically useless and non-operational, and all attempts to measure a product’s market share must be considered futile…”

          — Hans-Hermann Hoppe, Economics, Science and Liberty

 

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http://mises.org/journals/jls/1_4/1_4_1.pdf

Short version:

Rothbard: only govt granted monopoly exists.

Mises: One person able to manipulate the market price because he is only one in the market may also sometimes be a monoply.

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Conza88:
Going to respond to this - primarily because I just noticed the Mises wiki on monopoly is shite:

http://wiki.mises.org/wiki/Monopoly

And generally Mises wiki's are great. Pro tip: you don't lead off the "promoted" definition with a tripe cite to Stigler lol.

Then, fix it!

I used Stigler because I prefer to use the more 'mainstream' definitions for most topics and it was very compact - but see the very first section of the article that discusses the many ways in which a monopoly is defined.

It works as an introduction but it certainly can be improved. Please help out. :)

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 It makes sense from their two different viewpoints. Rothbard was a heavy duty moralist who (to me, my opinion entirely) seemed honestly somewhat ready to bend the truth in order to ensure the free market's superiority.

Interesting, I probably tend to see it in a more "amroal" Rothbardian view on this, at least as a premise for what a monopoly is- though with a different conclusion:

that is nothing can really be said about a "monopoly" as such (in a pure economic theory) - however there can be obviously major coordination problem between cutsom, law, and expectations.  The "monopoly" would exist as more of a legal (or illegal) entitiy than an economic one - and it probably could lead to some very devestating consequencs.  Perhaps it could even be said monopoly is a type of "externality"?

I don't know what territoty that puts me in- that may just be my Stirnerisms and "Lachmannia" kicking in, but that's how I tend to see it, and I was never really satisified with Mises on this point.

EDIT:

I think the logic would flow something like this:

Economics being a necessary product of human action; a monopoly could not be anything but a "random" unintelligible govt subsidy.  When defined in the realm of individual human activity it could only be taken to quasi-worthless phrasing (ex: "Everything all the time is monopoly"), after which we are based off of how these expectations and actions hedge off the institutions and customs of society.

or at least thats the gist of things, which in reterospect is probably Lachmannia.

 

"As in a kaleidoscope, the constellation of forces operating in the system as a whole is ever changing." - Ludwig Lachmann

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Mises ones remarked that Rothbard was a Schmulerite because of his position on this matter.

 

... just as the State has no money of its own, so it has no power of its own - Albert Jay Nock

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