Hello everyone. I just have some honest questions about Anarcho-capitalism. I’ll start with this. Won’t a totally free-market inevitably leads to the creation of trusts, in that when different groups are competing for survival, the most effective tactic is to absorb/annihilate the competition? Thanks.
No. One, internal ane external competition works against this. Two, consumer and supplier demand work against this. And three, the sheer amount of resources needed to be controlled by any cartel really isn’t feasible. Expanded:
-
If there are no restrictions to entry into the market, once the cartel or trust is formed and they raise their prices, they just made their industry far more attractive for investors. New firms come in with the latest equipment and methods and undercut them. Internally if the cartel is formed by many companies, they have set market shares at the time of consolidation, which means one is on top and the others have a smaller share of the market. This pisses off that second group which leads to internal struggles for different quotas or different market shares, secret price cutting, and eventually the failure of the cartel.
-
There is still only so much consumers are willing to pay for certain goods no matter what the cartel might try, and still other producers out there of other goods which would get mighty pissed at the cartel if people had to significantly curtail their spending elsewhere to satisfy cartel prices. Likewise when the cartel is formed, they too have suppliers. When the cartel cuts production and raises prices their suppliers are getting the short end of the stick. Say all soft drank companies cartelized and cut production. How would makers of aluminum cans like the fact that they’re selling less now and have few if any other buyers? How about makers of high fructose corn syrup and other sweeteners? All their markets just shrank thanks to the production restriction. They’d notice that.
-
In order to truly restrict entry into the market absent the government you’d have to bear the costs of doing so yourself. Those costs are massive. A cartel would need to control enough of every possible source of investment capital, equipment, labor, land, and transportation, to make it unfeasable to compete against them. Doing this without the government to merely make it illegal and back that up with violence is nigh impossible.
Aside from what Xahrx said, think about what you just wrote. “Different groups competing for survival” - what does that even mean? We’re talking about businesses here, not rival ant colonies in the jungle. How does one “annihilate the competition” in business? That word - “annihilate” - can only be used metaphorically in that context. A business folding doesn’t mean anyone has been captured or killed, or that any property has been damaged or destroyed. It just means that its operations have ceased because it can no longer afford to carry on. Its assets will be redistributed to others who may put them to more profitable uses.
Furthermore, a trust is a voluntary association. It’s like a club - a business club. So businesses are free to enter into one and are also free to subsequently leave it. We don’t think any business can be legitimately coerced into joining a trust (which is what I figure you mean by “absorb the competition”), because we see such coercion as aggression. If you’re also talking about corporate mergers and the like, then let me point out that any given business doesn’t have to be up for sale at any given time.
The military analogy of business competition only holds to the degree that property rights are not realized within the market. In other words, the stronger that property rights are (the freer the market), the less you can talk about business in military conquest terms.
For example, a common fallacy regarding companies with high market-segment share (often mistakenly termed “monopolies”) is that they put the squeeze on smaller competitors by cutting prices to unprofitably low levels until they put the competition out of business at which point they are again free to raise prices as high as they like.
The only problem with this story is that it doesn’t happen. It has never happened. No purely private business, however large, could afford to lose money in order to quash the competition. The minute they started raising their prices, new competitors could enter the market anew. Hence, something more than just “lots of cash in the bank” is required to maintain a real tooth-and-claw monopoly. The secret sauce is government assistance whether in the form of lobbying, regulatory favors, cartelization or outright government ownership of the monopolized industry.
In the real world which is decidedly not a free market, such militaristic analogies are frequently apt. Corporate powers engage in all sorts of brass-knuckle tactics - legal, financial and political - in order to wipe out or absorb their competition. But the important thing to note is that all corporations are creatures of the State and the statutory, regulatory framework in which they exist.
As an example of the mentality in the corporate world, my Dad works at a specialty alloy metal plant - owned by a huge metallurgical conglomerate - where they forge and fab metals that are very costly and difficult to handle. One of the operators has a knack for operating a machine called an extruder in such a way that he is able to get a couple more feet of extrusion from the raw metal than other operators. The metal in question is extremely expensive and the savings from even a tiny amount of extrusion are in the thousands of dollars. When management asked him how he does it better than everybody else, he asked them to pay him for telling them since he considered it his own personal “trade secret”. Incensed at his impertinence, corporate installed a constellation of cameras in the cockpit of the extruder to figure out what he was doing different. He never told them and they never figured it out but it goes to show the petty, tyrannical mentality of the corporate world. Workers are to work and do as they are told. They are not clever human beings who often devise ingenious methods to do things a little better.
Clayton -
Natural monopolies do not exist. Start at the bottom of 46:
http://mises.org/journals/rae/pdf/RAE9_2_3.pdf
If there are monopolies, then they are 1) created or enforced by the government or 2) actually so beneficial to consumers that the consumers crown them kings because no other competition has yet come up
Take Ma Bell, for example. Most people like to look at it as an example of a company which simply got too large. Yet people are shortsighted and neglect the fact that it was government which created the problem. Government actively prevented competition from bulding infrastructure, arguing that it is “unnecessary duplication” and gave sole monopolistic power to AT&T.
Take the other utility companies presented in the link above. Before local regulations, there was plenty of competition and eagerness to join the market. After companies decided to harness regulation to keep themselves in power, they were able to use government aggression to hold the reins of the economy.
But perhaps you think of the Gilded Age, which was supposedly a time of “laissez faire.” The truth is that this is quite far from the truth.
-
Railroad companies and other companies were subsidized by the government
-
Government used Sherman Antitrust to bust up unions, preventing capitalism from “fixing” itself. Unions were initially capitalistic constructs, with the leaders wanting to buy the means of production, not take them forcefully (see leader of Knights of Labor). The rapid rise of unions alongside big business in the US shows just how quickly a market can respond ot its own “ills.” The government, however, stopped this natural process. When looking to who has weakened customers and employees most, look to government. Like a domesticated animal used to ready food, the teeth and claws fade away.
Perhaps another argument:
Predatory pricing of Standard Oil! Lowering prices to “destroy” competition and then raising prices later. This is easily shown to be a myth on both historical and logical grounds. If you are interested, I will post more, but right now I must go.
Thank you all for your thoughtful replies. Can you please explain more about how trusts arose during the Gilded Age and why that wouldn’t happen today?
Can you please explain more about how trusts arose during the Gilded Age and why that wouldn’t happen today?
They arose by govt intervention after the companies tried to organize trusts on their own and were unable to. there was laways some company who saw there is more money to be made by not being part of the trust. Finally, those benefiting from the trust got laws passed, forcing everyone to join. In other words, laws were passed prohibiting lowering prices by “too much”.
The same thing just happened recently with online universities. They were taking business away from the bloated brick and mortar halls of higher education, so laws were passed requiring they charge a certain minimum tuition, come what may.
So of course it can happen today, and it is happening. All you need is a govt to force companies to join the trust.
To wax philosophical for a moment, the economic laws are eternal. One of them seems to be that given a free hand, every man will seek to maxmize his profit. As long as being part of a trust works for him, he’ll join. But a trust cannot create money out of nowhere. The aim of a trust is to have someone who can lower his prices and get a larger slice of the business agree to keep his prices high for the benefit of his competitors. Historically, it did not take very long for the guy losing money from membership in the trust to realize this and leave.
A lot has been written on the topic but I suggest you check out Murray Rothbard’s fantastic series of lectures called “The American Economy and the End of Laissez-Faire: 1870 to World War II”. It really gets into the nitty gritty of the period, including how the trusts were formed. All of the lectures can be found here and can be downloaded as an mp3. If you don’t want to listen to all of them (they are quite long) judging by the titles alone I think that this one is the one that deals with the anti-trust movement. However the whole series is worth a listen, I recommend downloading them onto your Ipod or MP3 and listening to them on the way to work or school.
Kevin carson also did an article on monopolies in free markets which can be found here. Carson is a mutualist (wiki for mutualism) but makes a lot arguements anarcho-“capitalists” would agree with.
Thanks for taking the time to try and understand our position, by the way. Hopefully some sort of constructive discourse will arise from this.
OOPs, forgot.
Sources for the above:
I don’t think it’s a question of whether trusts could or would happen today. As I tried to point out, trusts aren’t inherently bad. They aren’t monopolies because they can’t legitimately prevent entry and exit in the marketplace.
-
Trusts don’t have to be negative. The industries that are most likely to see monopolies/trusts are those that benefit from them such as industries that would otherwise see a lack of investment. Furthermore the threat of competition and stability of service can help to drive down prices.
-
The more abusive the monopoly the more likely that there will be competition in that industry as profit margins are driven up.
-
In a free society political pressure is more likely to go into voluntary boycott groups which would harass monopolies should they become too abusive.
-
The more abusive a monpoly the more ill will arises which will favor any upcoming company
-
In our day with internet technology and world wide trade there is A LOT of area to cover to be a true monopoly
-
The government is a great source of monpoly power
-
Small and medium sized businesses are the most competative because they are small and responsive to a smaller number of consumers
If you want to have a PM conversation with someone here to answer your questions then I’d be more than willing
I might add this:
- Trusts were not necessarily evil. I’m reading a book on the history of Standard Oil and it appears that they brought a lot of stability (and price decreases) to a market which was quite hectic and ad-hoc. Furthermore, they were environmentally-friendly, as they sought to squeeze the last bit of useful byproduct out of their raw materials (unlike the early days in the 60s with the tons of competitors). Interestingly enough (not to Austrians, that is), they themselves regulated the quality of their products and containers. They could only keep a significant market share because of brand name recognition. They could not let their name slip with bad oil products or the competition (which in fact was numerous) would come in and take their business. They could not let leaks happen in their oil barrels because they then lost oil and hence, profits.
Now, Standard Oil was also helped by the government. The government’s monopoly on land grants gives it quite large power to discriminate against some companies, and hence, the market (This article explains this). Furthermore, Standard Oil was notorious for patenting tons of its inventions. A free society would not ban the spread of ideas, because they are inherently not property (for further info, look up Stephen Kinsella’s Against Intellectual Property).
Also, tariffs greatly aided Standard Oil. Tariffs inherently aid in the creation of monopolies: Explanation of tariffs and monopoly. when there is a tariff, foreign competition (which an aspect of the free market, if you think about it; why does the free market need to end at arbitrary country boundaries?) - foreign competition gets edged out. The innovation they might have brought into the market was removed, giving Standard Oil more breathing room.
We see two things here 1) Standard Oil was not really all bad, and hence the market liked it (note that the myth of predatory pricing doesn’t hold up to logic: here) and 2) The size of Standard Oil is also due to government intervention (I am looking into the question of how many subsidies it received)
More evidence that the Gilded Age was not laissez-faire but ripe with government side-taking in the free market:
The Robber Barons and the Real Gilded Age
The Gilded Age: A Modest Revision
Lastly, remember: the economy is a complex interconnected web of interactions. Assuming (which is wrong, in this case, as shown above, but for the sake of argument, assume) - assuming that all of Standard Oil’s practices were purely free-market, that doesn’t take into account the unseen - the railroads with which Standard Oil was contracting were definitely not part of the free market due to the nature of the government-railroad land grants and interactions. If the railroad companies are not free-market ones, then this element of government monopoly will seep into contracting companies (E.g. Standard Oil will be getting an advantage from a government monopoly).
Congrats on trying to learn and asking questions!