Libertarians hold that the free market, through the price mechanism, allocates scare resources towards their most valuable use. I have a possible counterexample to this claim, and I’m unsure of the best way to answer it.
I heard a rumor that, several years back, Disneyland bought up all of the land surrounding a competing theme-park to prevent them from expanding. Nowadays, Disneyland rents out this land but refuses to sell any of it. The most valuable use of this land would be for the expansion of the competition’s theme park (evidenced by the amount of money they would be willing to pay for it) but since Disneyland doesn’t want the additional competition, this will never happen. The land is not being put towards its most valuable end.
There is obviously nothing coercive going on in this situation, so libertarians couldn’t object to it on that basis. I’m tempted to take a hard-line approach; admit that this is a legitimate free-market use of property, and maintain that government interference won’t be a good alternative. If there’s a better way of answering this objection, I’m interested in hearing what it is.
It sounds like Disneyland is using the land to its most valuable use. I am sure there is a price at which Disneyland would sell. That price hasn’t been reached yet, so Disneyland currently values the land around the other park more than the other park does.
I think it’s important to dispel the myth that the free-market would lead to “efficiency”. The price-mechanism doesn’t necessarily lead to the most efficient usage of factors of production, it merely allows for a more relatively efficient usage of these factors.
But, does Disneyland’s ownership of surrounding land around a competing theme park lead to less efficiency? Would it be more efficient if that land was redistributed to the other theme park? I’m not so sure. I think that the fact that Disneyland has felt compelled to rent it out - to make a profit - shows how the price mechanism, entrepreneurship and the free-market lead to relatively greater efficiency in usage of factors of production.
So, is a hard-line approach the only way to answer the objection? (That is, to just agree that reasources aren’t always put to their most valuable ends under capitalism). I’m afraid that people would percive this as a flaw in capitalism.
So, is a hard-line approach the only way to answer the objection? (That is, to just agree that reasources aren’t always put to their most valuable ends under capitalism). I’m afraid that people would percive this as a flaw in capitalism.
I agree that by conceding that capitalism does not lead to absolute efficiency it gives room for some to believe that through centralized coordination one can make the market mechanisms more efficient. But, I’m not sure the solution is to claim that capitalism does lead to absolute efficiency; instead, we just have to stress that central planning simply does not work, nor does it make anything more efficient.
Couldn’t it be aruged that government action would make things more efficient in this particular situation?
It was more efficient for Disneyland to buy that land and rent it out, rather than allow a competitor to buy it. It was more efficient for the competitor to allow Disneyland to buy it, rather than bid up the price by offering more money for the same land.
“So, is a hard-line approach the only way to answer the objection? (That is, to just agree that reasources aren’t always put to their most valuable ends under capitalism). I’m afraid that people would percive this as a flaw in capitalism.”
You mean they would attack a straw man? How horrible! If Disney’s would-be competitors were truly efficient then they would be able to pay the appropriate price for that piece of land. Either way, nothing is preventing the competitors from competing; they just can’t compete in that location.
You are confusing price with value. Dollar price serves as the common denominator for goods in a market place which makes accountancy possible. This is essential, of course, for the existence of a modern economy. However, price does not measure value.
As the Austrians have taught us, value cannot be measured. It is subjective and is revealed only at the point of action. The fact that Disney is not willing to sell at the price being offered reveals that it values the land more than the money it could get by selling it. The fact that Disney’s competitors aren’t willing to bid up the purchase price even more reveals that they value the money price more than the property. The fact that the consumers aren’t bidding up the price of Disney’s competitors such that they could overcome Disney’s dominance reveals the consumers’ collective value scale.
Assuming this rumor is true and is taking place in the free market, it serves as a confirmation and not a refutation of the Austrian observation that the free market allocates resources to where they are most dear.
As far as the concept of perfect efficiency is concerned–it does not exist anywhere. No perpetual motion machines for us, thank goodness. It would mean the end of us.
Great point. I think this is the insight that defeats the objection. Disney’s ability to do what it does is entirely dependent upon their consumers choosing them over their competition in the first place.
Libertarians hold that the free market, through the price mechanism, allocates scare resources towards their most valuable use.
i am not sure if valuable is always measured in dollars or money necessarily. i guess an incorrect use of resources would be called market functiong…though some may consider that a problem.
There are doctrines flatly denying that there can be a science of economics. What is taught nowadays at most of the universities under the label of economics is practically a denial of it.
He who contests the existence of economics virtually denies that man’s well-being is disturbed by any scarcity of external factors. Everybody, he implies, could enjoy the perfect satisfaction of all his wishes, provided a reform succeeds in overcoming certain obstacles brought about by inappropriate man-made institutions. Nature is open-handed, it lavishly loads mankind with presents. Conditions could be paradisiac for an indefinite number of people. Scarcity is an artificial product of established practices. The abolition of such practices would result in abundance.
In the doctrine of Karl Marx and his followers scarcity is a historical category only. It is the feature of the primeval history of mankind which will be forever liquidated by the abolition of private property. Once mankind has effected the leap from the realm of necessity into the realm of freedom[1] and thereby reached “the higher phase of communist society,” there will be abundance and consequently it will be feasible to give “to each according to his needs.”[2] There is in the vast flood of Marxian writings not the slightest allusion to the possibility that a communist society in its “higher phase” might have to face a scarcity of natural factors of production. The fact of the disutility of labor is spirited away by the assertion that to work, under communism of course, will no longer be pain but pleasure, “the primary necessity of life.”[3] The unpleasant experiences of the Russian “experiment” are interpreted as caused by the capitalists’ hostility, by the fact that socialism in one country only is not yet perfect and therefore has not yet been able to bring about the “higher phase,” and, more recently, by the war.
Then there are the radical inflationists as represented, for example, by Proudhon and by Ernest Solvay. In their opinion scarcity is created by the artificial checks upon credit expansion and other methods of increasing the quantity of money in circulation, enjoined upon the gullible public by the selfish class interests of bankers and other exploiters. They recommend unlimited public spending as the panacea.
Such is the myth of potential plenty and abundance. Economics may leave it to the historians and psychologists to explain the popularity of this kind of wishful thinking and indulgence in daydreams. All that economics has to say about such idle talk is that economics deals with the problems man has to face on account of the fact that his life is conditioned by natural factors. It deals with action, i.e., with the conscious endeavors to remove as far as possible felt uneasiness. It has nothing to assert with regard to the state of affairs in an unrealizable and for human reason even inconceivable universe of unlimited opportunities. In such a world, it may be admitted, there will be no law of value, no scarcity, and no economic problems. These things will be absent because there will be no choices to be made, no action, and no tasks to be solved by reason. Beings which would have thrived in such a world would never have developed reasoning and thinking. If ever such a world were to be given to the descendants of the human race, these blessed beings would see their power to think wither away and would cease to be human. For the primary task of reason is to cope consciously with the limitations imposed upon man by nature, is to fight against scarcity. Acting and thinking man is the product of a universe of scarcity in which whatever well-being can be attained is the prize of toil and trouble, of conduct popularly called economic.
Your example can be explained by another similar example.
Disney World. Disney bought up a whole bunch of land to create disney world.
Now alot of that land is not being used. Of course, if Disney did not buy it, it could have been bought by others and used as residential property, or strip clubs, or commercial property.
If Disney would have allowed others to build that stuff, it would have devalued the feeling you get at Disney World considerably…
the feeling you get at Disney World being surrournded by all Disney property is worth way more to many than letting the unused property be used by someone else. This is why Disney World is the number 1 destination in the world.
And, on top of that…Disney can always add more stuff to Disney World in the future adding even more value to their “world”…
No! Don’t you ever concede that because it is absolutely false. You got some strange replies here (other then one or two). Resources put to use are always put to the test by the profit and loss system. That the future is uncertain and some entrepreneurial activity may prove to have been an error does not somehow prove otherwise. On the contrary, it demonstrates that the market contains within it the mechanism to detect such errors and to compel all those directing the resources to correct/change their behavior so that they are more in line with consumer preference.
The accusations against Disneyland are ignoring that the capital value of that land is directly proportional to the money making potential of that land. Disneyland could not hold on to that land without the consent of consumers. How ever it is using that land, it is obvious that the potential competitors cannot outbid the land because they cannot put it to better use, or at least they don’t think they can so they are not willing to risk their investments.
Its not a rumor, I used to live in that area. The surrounding area was actually strawberry fields, that they bought. I really did miss the strawberry fields and the fresh cheap strawberrys. Anyway from my point of view land ownership is no handled correctly, that is why this situation is arising. Do you have a theory about how one comes to legitimately own land? I think that is where you should look for an answer.
Life requires a certain amount of uncertainty (exactly how much I do not know) to exist. Too much uncertainty is not good but too little is also very bad. If all were certain, there would be no risk.
No risk equals no opportunity, which equals no motivation for action. What defines humans as human above all else is action, so if there is no action, there is no you or me.