What, if any, flaws do you think free-market capitalism has?
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 -
@Gotlucky
" Reductio ad absurdum is, in fact, a valid method of argument."
I'm on the fence about exactly how I feel about reductio ad absurdum, the fact is that you can prettymuch destroy/make any theory unappealing with it. From this standpoint you could argue that when two people drive down opposite sides of the street and one's lights leave imprints upon the other's retinas, that this is an invasion of his privacy, and that small invasions of property could be punishable by death within an anarcho-capitalist society and this would be fine.
"If we were to follow your logic, this would be a market inefficiency. Perhaps you are okay with that, in which case your opinions would be internally consistent."
I addressed this earlier, you can make really ridiculous arguments out of it, but focusing upon this is not really that relevant and detracts from the real point.
"It's the same with bridges. It's not just the number of bridges, but how long they are, where they are located, what they are constructed with, how wide they are, etc. Perhaps the first bridge is really well built and sturdy. Maybe the second one has only enough room for one lane, but it's enough to supplement the first bridge so as to reduce traffic congestion. We really just don't know. Maybe having more bridges is good for when tourists come to town, and during the off season they are superfluous. Again, we just don't know."
It's a theoretical example, so we do. Once again, to "win" here, as it were, I don't have to prove that you can measure where a monopoly price is in the real world, I just have to prove that they can exist and that a free market won't correct them through traditional markets, you have to show why this cannot happen in order to show that this case of market failure does not actually exist. Also, the simple fact with the bridges example is that if people valued the bridges that much then the competative price would be approximately the same as the monopoly price.
"You can't really say that one bridge is the optimal amount of bridges in your example. You don't even know how wide or long it is or what materials it is made out of. And I'm sure there are far more variables than those three."
See above. There's a reason why Austrians argue from theory first. At any rate, Gotlucky, do you seriously believe that a single bridge is likely to bring down its costs to the same low that competitive markets would or its costs of production, and if so why?
"The United States Postal Service is funded at wider dispersed costs. But we can see that the USPS is so inefficient that there are numerous competitors out there, and if it were legal to compete with regular mail, I'm sure that there would be more companies competing in that regard too!"
This isn't the same thing, a mail system can obviously be run through traditional market means, there's no special factors which would grant it a monopoly. Simply needing/using an economy of scale is not the same as what we're talking about.
"Anyway, the point is that widely dispersed costs does not mean that the government will do it better than a private solution."
Gotlucky, I am an anarchist. I'm not arguing that government will provide better results in the real world, although in a statist's dream world it of course would, but I never said anywhere that market failure will result in government solution.
"You are missing the point. You can't argue for something to be called a natural monopoly if you don't know if it is one. Maybe natural monopoly theory is logically consistent, and maybe it isn't."
The logical consistency of the theory is all that matters. If this is true then market failure is 1. Possible and 2. There is no reason why it can't/won't occur on the free market. I'm not going to argue that something is/isn't a natural monopoly IRL because it's 1. Not worth it, I don't really care all that much about showing why the greatest system of productivity of all time has failures beyond a theoretical standpoint and 2. It's very hard to determine, especially with government around.
"Answered this earlier in this post."
You did not properly address it. I consider this a fairly essential point as well.
Nedoxy: I'm on the fence about exactly how I feel about reductio ad absurdum, the fact is that you can prettymuch destroy/make any theory unappealing with it. From this standpoint you could argue that when two people drive down opposite sides of the street and one's lights leave imprints upon the other's retinas, that this is an invasion of his privacy, and that small invasions of property could be punishable by death within an anarcho-capitalist society and this would be fine.
It is not true that you can "destroy" any theory with reductio ad absurdum. There are two purposes to reductio ad absurdum. The first is to follow the logic and show the logical contradiction. The second is to follow the logic and demonstrate where it leads. In you example here of two people driving and shining car lights at each other, this could be used to demonstrate flaws in Natural Right's theory. But I do not believe in Natural Rights, so all it does is demonstrate the problems of a theory that I do not hold.
Neodoxy: I addressed this earlier, you can make really ridiculous arguments out of it, but focusing upon this is not really that relevant and detracts from the real point.
I completely disagree with this. Your logic leads to this conclusion. You have some different options here. One option is to show how your logic does not actually lead to this conclusion. A second option is to be okay with the conclusion and stick by it. A third option is to realize that your logic leads to absurd conclusions and either seek to refine it or abandon it. It is not my problem if your logic leads to conclusions you don't like. But you can't hand wave my counterargument away just because you don't like it.
Neodoxy: It's a theoretical example, so we do. Once again, to "win" here, as it were, I don't have to prove that you can measure where a monopoly price is in the real world, I just have to prove that they can exist and that a free market won't correct them through traditional markets, you have to show why this cannot happen in order to show that this case of market failure does not actually exist. Also, the simple fact with the bridges example is that if people valued the bridges that much then the competative price would be approximately the same as the monopoly price.
Sure, you could construct an example where you live on an island of 30 people, and only one person has medical knowledge. Anyone who gets sick is stuck with his monopoly price. Meanwhile in the real world, bridges are far more complicated and to claim that one bridge is optimal when you simply do not know if that is the case is simply absurd. There are numerous factors that go into the optimal number of bridges, nevermind traffic and tourists, there are also materials, length, width, and location (among others). So okay, you can prove that in a community of 30 people with one doctor, there is a monopoly price for the doctor's services. But in the real world, with infinite variables, you cannot make this relevant. Okay, so there exists the possibility of monopoly prices. You still cannot know the optimal number of bridges.
Neodoxy: See above. There's a reason why Austrians argue from theory first. At any rate, Gotlucky, do you seriously believe that a single bridge is likely to bring down its costs to the same low that competitive markets would or its costs of production, and if so why?
I'm not entirely sure I understand your question. I'll take a stab at it anyway. A single bridge may be the optimal number for bridges in any given area. If that's the case, and we exclude a statist monopoly from the example, then that single bridge should have low costs, because otherwise other competitors enter the market. If it's not the optimal number, then competitors will enter the market.
Neodoxy: This isn't the same thing, a mail system can obviously be run through traditional market means, there's no special factors which would grant it a monopoly. Simply needing/using an economy of scale is not the same as what we're talking about.
A road system can obviously be run through traditional market means. See what I did there? There was a time when people did not believe that mail could be run through the market. So, instead of handwaving away my argument through appeal to whatever (looks like the common sense fallacy here), you could show why you think it is actually different from roads.
Neodoxy: Gotlucky, I am an anarchist. I'm not arguing that government will provide better results in the real world, although in a statist's dream world it of course would, but I never said anywhere that market failure will result in government solution.
You mentioned Austrian Economics earlier, so here is an article about The Austrian Theory of Efficiency and the Role of Government. The problem with "market failure" is that someone has to make a subjective value judgement (redundancy is redundant) about the "market failure". You can claim that it is a market failure that the beekeeper is not getting paid for the polination, but you are making a value judgement here, something economists should not be doing as economists.
Neodoxy: The logical consistency of the theory is all that matters. If this is true then market failure is 1. Possible and 2. There is no reason why it can't/won't occur on the free market. I'm not going to argue that something is/isn't a natural monopoly IRL because it's 1. Not worth it, I don't really care all that much about showing why the greatest system of productivity of all time has failures beyond a theoretical standpoint and 2. It's very hard to determine, especially with government around.
It's great if it's consistent. Wonderful. But it also has to be applicable to the real world. So it's great that you can demonstrate that there are natural monopolies in theory. But you should stop making claims about what in the real world is a natural monopoly if you cannot know if it is a natural monopoly. Furthermore, it also important to know how long a company might have monopoly status. Does it really matter if something is a monopoly for 6 months? If on the 7th, a competitor enters the market, was the first company a natural monopoly?
Neodoxy: You did not properly address it. I consider this a fairly essential point as well.
No, I addressed it properly. The fact of the matter is that you have incomplete knowledge regarding the efficiency of the bridge. If you want to construct a scenario where there is a population of 30 and one bridge is all that is needed for their foot traffic, so be it. But back in the real world, most places rarely have one bridge, and where there is one bridge, provided there is no government monopoly, it is because it is not worth it to build two bridges.
As I have stated before, there are numerous factors that go into how many bridges there ought to be. Feel free to construct scenarios where you only need one bridge, but those are pretty useless scenarios insofar as the optimal number of bridges are concerned.
A price at which output is restricted for a consistent period of time in order to maximize profit
I would just like to state that I have nothing against thought experiments, and I use them quite a bit myself. However, you have to be careful about how you use them. If you want to prove that theoretically, one bridge could be the optimal number of bridges for a given area, and therefore there could be a monopoly price, then fine. My problem was that you were then claiming that you could which industries and companies were natural monopolies. And maybe it might be possible to do that, but with the government granting monopoly status to these "natural monopolies", there really is no way to know.
"It is not my problem if your logic leads to conclusions you don't like. But you can't hand wave my counterargument away just because you don't like it."
You are the one going on about "the real world". I don't see what paying pretty women to walk down the street has to do with "the real world" and why we would be talking about it when constructing policy. It does not matter.
"But in the real world, with infinite variables, you cannot make this relevant. Okay, so there exists the possibility of monopoly prices. You still cannot know the optimal number of bridges."
"If that's the case, and we exclude a statist monopoly from the example, then that single bridge should have low costs, because otherwise other competitors enter the market."
That inherently wastes resources compared to if a competitive bridge just opened up, and what if it's not easy to compete?
"So, instead of handwaving away my argument through appeal to whatever (looks like the common sense fallacy here), you could show why you think it is actually different from roads."
Common sense fallacy or not, I thought it was self evident to everyone why it was the case. I would also like to point out I'm not saying that a traditional market cannot run roads, merely that it would do so at a monopoly price and therefore be suboptimal. Malls are different from roads because in cities where malls are likely to be located there's a lot of buildings around where stores can open up, so if there's too high a markup then competition will occur and drive these stores out. Mailing companies are different because it's easy for a new mailing company to just open up and start shipping, especially because people tend not be to fussy with normal parcels about who mails things. Anyone with a car can act as a delivery person as long as they gain people's trust which can be easily done through transparency, experience, and contract.
"You can claim that it is a market failure that the beekeeper is not getting paid for the polination, but you are making a value judgement here, something economists should not be doing as economists."
I'm using optimal here to express what consumers, through their actions, express as a better state of affairs, and at any rate even if you say that I'm not being an economist here, then I'm merely passing normative judgments upon positive economic law as an observer. There is no problem with this as such, just as if a misanthrope hating the market economy would not be inherently wrong either. An understanding and appreciation for what is going on does not exclude having personal values or thoughts on the matter.
"But you should stop making claims about what in the real world is a natural monopoly if you cannot know if it is a natural monopoly."
"My problem was that you were then claiming that you could which industries and companies were natural monopolies. And maybe it might be possible to do that, but with the government granting monopoly status to these "natural monopolies", there really is no way to know."
Alright.
I'm not saying that I can know definitively under which situations which industries will be natural monopolies, that's not what I'm trying to do. I can show which industries are predisposed towards natural monopoly and where competition would be more difficult. Once again, I'm trying to show that the market will not always yield the best results it could and some of the mechanisms that would get in the way, that's the extent of my thesis.
Neodoxy: You are the one going on about "the real world". I don't see what paying pretty women to walk down the street has to do with "the real world" and why we would be talking about it when constructing policy. It does not matter.
It is a case of applying your logic to another case. The woman is a model. She is paid for her beauty. She gives her services away for free just by walking down the street. Applying the same logic you used in regards to the beekeeper, this is a market innefficiency.
Neodoxy: You aren't displaying an understanding of the argument in the first place, I'm saying that these are conditions under which the free market could fail.
You aren't displaying an understanding of the argument in the first place, I'm saying that these are conditions under which the free market could fail.
No, I understood it just fine. If you go way back to the beginning of our conversation, I said that I was under the impression that natural monopolies did not exist in the free market. You corrected this notion when you responded about high start up costs but low production costs, and then we both determined that this is something that occurs on a localized level. The conversation moved onward when you started in with an example about a bridge that should be a natural monopoly, because if there were competition, then there would be extra bridges when only one were needed, and therefore there would be a waste of resources.
I did not think that your thought experiment was particularly good, for all of the reasons that I have already listed. So it seems that you are not displaying an understanding of the argument we have been having. Because if you did, you would have realized that my problem was no longer with the idea of localized natural monopolies. My problem was with your examples. They do not get to the principle of the matter. I could say that the sole doctor for 30 people on an island has a monopoly on (knowledgeable) medicine, but what does this say about the real world? When is there ever 1 doctor? How would this say anything about the world, other than the fact that if we construct a scenario where there is one doctor, then there is one doctor? If there is one bridge, then there is one bridge. Okay, but so what? In the real world, the only way of knowing the optimal amount of bridges is to see what the result is on a free market. If it's one bridge, then that is the optimal number. But you are saying that you know better, that there should only be one. Anything extra is a market failure. I'm saying that you do not know better.
That has been the argument for the majority of our discussion. And yes, I have seen that you say you are an anarchist, and you don't want the government to intervene. And I believe you. But that does not change the fact that you are claiming to know the optimal number of bridges.
Neodoxy: Why is it that building materials matter? Competition and a bunch of easily isolable variables are much more likely to have an influence
Why is it that building materials matter? Competition and a bunch of easily isolable variables are much more likely to have an influence
Materials go into cost in a number of different ways. Do we use wood, stone, concrete or steel? This all goes into competitors' decisions. So materials matter very much. This is my point. You cannot know the optimal whatever from your armchair.
Neodoxy: I'm not saying I can know the optimal number of bridges in any real world case. I shouldn't need to say this again. I'm not a statist, I don't think that I'm god
I'm not saying I can know the optimal number of bridges in any real world case. I shouldn't need to say this again. I'm not a statist, I don't think that I'm god
Then your hypothetical should reflect this. The problem with your scenario is that you are saying that the optimal number is 1 in your scenario. But in the real world, you just do not know what the optimal number is. You cannot know the optimal number in your scenario, unless the sole purpose is to demonstrate that there can be a natural monopoly. But this was what my beef was originally. I asked you for examples of natural monopolies, and you provided bridges as one of your examples. You cannot know what the optimal number of bridges is from your armchair! It's like cable companies, you cannot know what the optimal number of cable companies is in a community. Sure, you agree on that point, but there is no difference with bridges. You cannot know.
Neodoxy: I can use the same argument against you. Prove to me that the optimal number of bridges are going to be produced. You can't so long as you destroy theoretical examples. The reason why bridges being monopolized and the only solution to this from a competitive standpoint would be that they are overproduced is entirely self-evident, you're trying to show that an infinite number of bridges opening up would not lead to a loss of efficiency, when this cannot be done through any but theoretical examples. If I pulled out a case study, then so what? It's really not relevant or worth talking about, as long as we can prove it can happen in theory and conditions for it are not far removed in the real world. You've already conceded the point that a monopoly price can exist
I can use the same argument against you. Prove to me that the optimal number of bridges are going to be produced. You can't so long as you destroy theoretical examples. The reason why bridges being monopolized and the only solution to this from a competitive standpoint would be that they are overproduced is entirely self-evident, you're trying to show that an infinite number of bridges opening up would not lead to a loss of efficiency, when this cannot be done through any but theoretical examples. If I pulled out a case study, then so what? It's really not relevant or worth talking about, as long as we can prove it can happen in theory and conditions for it are not far removed in the real world. You've already conceded the point that a monopoly price can exist
My goodness, the strawmen are coming out! First, by definition, whatever the free market produces is optimal. This is because that is what the community has shown through their very actions what they prefer. They have demonstrated that they prefer whatever number of bridges there are to whatever it could be. Second, I am not saying that an infinite number of bridges opening up would not lead to a loss of efficiency. I never claimed that. You were the one claiming that only one bridge was efficient. I am pointing out that you cannot know. In regards to monopoly pricing, I don't recall disagreeing with this. In fact, I just reread over our conversation, and I did not find any part of my posts to say that it wasn't the case. Perhaps you are confusing me with someone else.
Neodoxy: That inherently wastes resources compared to if a competitive bridge just opened up, and what if it's not easy to compete?
Please don't crop my quotes if it changes the meaning. I said:
gotlucky: A single bridge may be the optimal number for bridges in any given area. If that's the case, and we exclude a statist monopoly from the example, then that single bridge should have low costs, because otherwise other competitors enter the market. If it's not the optimal number, then competitors will enter the market.
A single bridge may be the optimal number for bridges in any given area. If that's the case, and we exclude a statist monopoly from the example, then that single bridge should have low costs, because otherwise other competitors enter the market. If it's not the optimal number, then competitors will enter the market.
In other words, if a single bridge is the optimal number etc etc etc. So, how is it possible that if the optimal number is 1, that it is wasting resources? As I said, don't crop if it changes the meaning. If the optimal number is 1, then it is not wasting resources, by definition.
Neodoxy: Common sense fallacy or not, I thought it was self evident to everyone why it was the case. I would also like to point out I'm not saying that a traditional market cannot run roads, merely that it would do so at a monopoly price and therefore be suboptimal.
Common sense fallacy or not, I thought it was self evident to everyone why it was the case. I would also like to point out I'm not saying that a traditional market cannot run roads, merely that it would do so at a monopoly price and therefore be suboptimal.
This is the problem. Autolykos and I have already demonstrated alternatives to monopolies taking over the world. It was a conversation you said that you didn't care to have. In fact, you said:
Neodoxy: I more or less agree, but it's not worth arguing over and I don't care to discuss it further.
I more or less agree, but it's not worth arguing over and I don't care to discuss it further.
So now it seems you want to have this conversation. Well, then I suggest you scroll back and read what Autolykos and I wrote, and we can continue that particular conversation starting there.
Neodoxy: Malls are different from roads because in cities where malls are likely to be located there's a lot of buildings around where stores can open up, so if there's too high a markup then competition will occur and drive these stores out. Mailing companies are different because it's easy for a new mailing company to just open up and start shipping, especially because people tend not be to fussy with normal parcels about who mails things. Anyone with a car can act as a delivery person as long as they gain people's trust which can be easily done through transparency, experience, and contract.
Malls are different from roads because in cities where malls are likely to be located there's a lot of buildings around where stores can open up, so if there's too high a markup then competition will occur and drive these stores out. Mailing companies are different because it's easy for a new mailing company to just open up and start shipping, especially because people tend not be to fussy with normal parcels about who mails things. Anyone with a car can act as a delivery person as long as they gain people's trust which can be easily done through transparency, experience, and contract.
Thank you for providing an argument istead of handwaving. My response in regards to roads is way back on page 2.
Neodoxy: I'm using optimal here to express what consumers, through their actions, express as a better state of affairs, and at any rate even if you say that I'm not being an economist here, then I'm merely passing normative judgments upon positive economic law as an observer. There is no problem with this as such, just as if a misanthrope hating the market economy would not be inherently wrong either. An understanding and appreciation for what is going on does not exclude having personal values or thoughts on the matter.
You are saying that you know better than the consumers. By definition, whatever a free market has is what the consumers want. Sure, we can all want private jets, but we are talking about what they want in regards to what they can purchase. You have expressed that you do not necessarily consider what the consumers to do to be optimal. But now you say otherwise. This is not consistent.
Neodoxy: Why?
Why?
I would think this is obvious. If you cannot know if a company is a natural monopoly, then you should not be claiming that it is one.
Neodoxy: You should stop making real world claims if you cannot know if something is not a natural monopoly
You should stop making real world claims if you cannot know if something is not a natural monopoly
I see what you are attempting to do here, but it is not analogous to my statement. I am not making real world claims to anything, other than that I simply do not know what the optimal number of anything is. I hope you can see the difference.
Neodoxy: Alright. I'm not saying that I can know definitively under which situations which industries will be natural monopolies, that's not what I'm trying to do. I can show which industries are predisposed towards natural monopoly and where competition would be more difficult. Once again, I'm trying to show that the market will not always yield the best results it could and some of the mechanisms that would get in the way, that's the extent of my thesis.
By definition, the free market yields the best results. That does not mean that we cannot have our own biases in regards to what we think it should be. But the free market is everyone demonstrating what their preferences are. You can say that the best results would be to tax everyone and fund NASA, but that would just be a personal opinion. Competition does improve the state of affairs, but at any given point in time, the free market is most optimal. This does not mean it can't improve. Just that that particular snapshot would be most optimal for that particular point in time.
The biggest "flaws" I have ever heard concerning free market capitalism are : natural monopolies, financial fraud and crises.