Natural monopoly on land

Economics Economics Questions
1

Wouldn’t privatization of land result in natural monopolies?

No one owns the atmosphere, so nobody can be able to buy it from anyone. Instead, part of the troposphere is owned by the land owner residing in the crust. But above a “reasonable” height, aeroplanes can fly over it because nobody owns it.

If nobody owns land in the first place, nobody can buy it. Someone has to own the land first in order for private ownership of land to take place. The first entity that owns the land is usually the government. The government then sells the land so private transactions of land can take place.

Does claiming land that nobody owns violate the non-aggression axiom? Does privatization of part of the exosphere that nobody owns violate the non-aggression axiom? Does ownership of land without putting your “labor” into it violate the non-aggression axiom? I think these questions do not have their respective axioms to be proven.

When you buy a piece of land, it may or may not include the air above it. If it includes, how high? They are specified in a contractual agreement. It is called freedom of contract.

When you are polluting bad air to your neighbor, you are creating pollution. How about polluting photons that are representing indecent exposure images? How about polluting radio waves, cell phone waves, sattelite waves, microwaves or x-rays to your neighbor? There isn’t a clear distinction between polluting your neighbor and not polluting your neighbor. Polluting x-rays might hurt your neighbors. Polluting microwaves may hurt some of your neighbors. Of course, you don’t have to build thick walls like the walls of banks. It’s up to the government to make the distinction.

Many economics theorists would instead use an axiomatic abstraction, so they won’t have to deal with these things.

Graphs can be abstraction of private land ownership. Transportation through land is equivalent to traveling through weighted edges on a graph. The weighted edges are equivalent to the price one has to pay to travel through each landowner’s land. The shortest paths can be found using the Bellman-Ford or Dijkstra’s algorithm if there is perfect knowledge of the prices of each landowner.

If Smith’s land is surround around Jones’ land (Is creating boundaries around someone on your own private property wrong?), then Smith would probably let Jones starve to death so Smith can steal Jones’ land after he dies. Jones might instead use his cell phone and get a helicopter to transport him somewhere else. Jones would sell his land while leaving.

But if Smith’s walls are blocking his cell phone waves, Jones has no hope. However, Smith might give Jones an offer: If Jones agree to be Smith’s slave, then Smith would feed him. Jones agrees to be Smith’s slave.

A more realistic case is when your neighbors around you agree to block you. This might happen in a society where there are private roads. Private road companies would block you. They have rational motives to kill you: when you die, you have to pay the estate tax so others would pay less taxes. They could enslave you. They could force you to sell your wealth. They could be “bribed” by road companes to block you, so road companies would get rich from making roads that pass through your neighbors.

The barriers to entry on land is almost impossible. Companies has to buy expensive land to start a business. Internet companies have to buy land to connect wires. Suppose these wires are roads?

Neighboring businesses on land are much more likely to for a cartel or collude you because the barriers to entry are very high. Imagine a business owns all of your adjacent land. They do not face a threat to new firms, so they would block you.

How are you going to survive without public roads? Of course, you can limit the business blocking you by setting a contractual agreement before they build it, but it isn’t your property. Of course, your neighborhood can all agree to a contractual agreement prohibiting blocking, but if some does not want to?

Of course, when building a new community, people can form a cooperative when they move to a new area and together to build a road that can move to other places. However, I am talking to places that already are not surrounded by roads. Does the government have to first use eminant domain to these places?

Does blocking create an protectionist environment where the blocked group create a local maximum?

2

Never heard of homesteading (i.e. that thing governments never really did)? [:S]

On when it is valid, see this.

I’m curious, if you’re an Austrian, shouldn’t you be able to answer these questions yourself? Have you actually researched them?

3

I read them. I read Rothbard’s claims and others but none of them are solutions of this scenario.

4

You read what, exactly?

5

On a large enough estate, there is no problem of free riding or externalities. I, the landlord, build the roads I need in order to communicate with other estates, and I exclude noise, uglyness and other things I don’t want in my backyard. If I have a lot of workers on my estate, I may build them a village, and in order to benefit from the division of labor, I may sell them lots to build on instead of building the houses and renting them, detailing what is or isn’t allowed to be built and how it is to be used as a covenant that I own over the lot. At this point I will be in the business of running a city, much as economists claim a government is necessary to do. And, of course, I will be in competition with every other estate on the planet.

6

This is long, with many points. Let me address a few at a time.

Ownership means control. Nobody really worries about airplanes filying over their land because they can’t control that part of the troposphere so high up. Any ownership claim is absurd without the “owner” being able to actually control the property. As for nobody owning something, traditionally, pioneers claimed ownership of previously unowned property by homesteading it. Do you see a problem with homesteading?

I don’t think any of these things violate the non-aggression axiom, but there are still other differences between them. Claiming ownership of part of the exosphere is, like above, absurd, unless one can actually control that part of the exosphere. Claiming ownership of land without doing anything to it isn’t much of a claim. It requires a bit more than making the assertion, and it can always be contested if other people don’t think you’ve made a legitimate claim.

Again, you are dealing with things that have certain differences to them. Microwave and x-ray radiation is dangerous to people, and can cause real harm. But cell phone waves or radio waves might not be considered pollution at all by a person who doesn’t have a cell phone or radio, or other equipment that such waves could interfere with. Pollution is thus based upon subjective valuation. and it is up to individuals to decide what is tolerable and what is not. Voluntary guidelines could certainly be created to minimize problems, but people should always have the option of resorting to the courts if they have intolerable pollution or interference and are unable to work it out with the offending parties.

Governments, on the other hand, tend to create mandatory uniform regulations and try to define pollution as if it were objective or the same for all people, which is clearly false, and has unintended consequences.

But of course there is NOT perfect knowledge of this sort. The market IS the process for discovering such knowledge.

7

Homesteading is the solution.

If you do not have perfect knowledge, you have to visit every edge to find the shortest path, whose complexity is loglinear, plus a huge constant. If there are public roads, the shortest path can be found much quicker, since public roads do not discriminately block.

If there are no natural monopolies, why are states natural monopolies? It is because the barriers of entry for a new state to form is nearly impossibly high.

Geographical monopolies are inevitable. In an anarcho-capitalist society, it would quickly degenerate because some agents would block transportation using private property rights.

8

States are not natural monopolies. They are legal monopolies. They use violence against competitors and get away with it unpunished.

9

Um, what? Why not use a map?

Like the other guy said, states are political monopolies, not natural monopolies.

Why would somebody deliberately block transportation? I can genuinely see some people wanting to “get away from it all”, and find property that has limited access, you know, like out in the country. If they’re already smack dab in the middle of a densely populated area, then it’s a bad place to get away from it all or limit access. Most people have small properties in urban areas and are easily circumvented, anyway. They would need a LOT of urban property to cause transportation problems. And the result would be to hurt themselves financially and encourage people to avoid that area and relocate somewhere else. Thus, economic incentives discourage blocking transportation, except for valid reasons.

10

I criticise immediate privatization of transportation because roads would become monopolies, without coercive “bootstraping” techniques such as homesteading portions of road so their owners would have the incentive to attract all people without expensive tolls. The correct privatization method: First homestead some land so things such as Smith and Jones’ scenario would be impossible. Then force people to collectively agree to choose the least expensive private road firm to manage the privatized road. Then allow every individual’s neighbors to force a contract with them agreeing that their neighbor would not block the road as private property nor set tolls higher than the agreed maximum.

Of course, starting a new community, there would not be these kinds of problems. The reason: people moving to a new community must agree the coorporative, or they would not be able to move in.

11

Natural monopolies exist because for some industries, long-run marginal costs fall with firm growth. If a firm’s marginal costs fall (and firms are owned by individuals) as they gain greater market share, then natural monopolies arise, because the firm becomes more and more profitable, as it grows.

In the case of land, yes, it would, because without taxes on property or land value, there are no “costs” associated with owning land, so essentially all forms of land-ownership are monopolistic to some extent. For land-owners who profit from the use of land, long-run marginal costs fall as their amount of land ownership grows, because as they have more land, they have more resources they can exploit for profit. So, under full privatization of everything (“Market Anarchism”) you inevitably end up with landowner-based aristocracy run by a “Land-owner King” like the Ferengi Grand Nagus on Star Trek.

Libertarians deny this based on spurious reasoning. But the so-called “Libertarian” Hans Hermann-Hoppe (who I’d consider a Neo-Fascist) openly acknowledges this in his work “Democracy: The God That Failed” and sees nothing wrong with it. A market anarchist on anti-state.com, named Charno, seemed to acknowledge this as well and again, saw nothing wrong with it.

Like Rothbard, Hoppe doesn’t care about the clear ethical absurdity of his principles in action or how they are contrary to true liberty, but advocates authoritarian aristocracy on the basis of a fanatical obsession with property – which by his definition includes land.

I don’t follow how you can homestead the “gifts of nature.”

Perhaps you’re going by a Rothbardian definition of “homesteading,” which amounts to, “Take whatever you can as quickly as possible, then defend it with force.”

However, the Classical Liberal definition of homesteading put forth by John Locke involves mixing labor with land. The mere appropriation of land by itself is not “homesteading.”

12

Sigh. Back to troll us with more of your ignorance. Funnily enough, the classical liberal definition of homesteading coincides with Rothbard’s. You’d know this had you read him. But you haven’t.

13

I’ll cite a source to back up my claim if you’d like.

In the main Classical Liberal work on homesteading, John Locke’s Two Treatises of Government, he says that God gave the Earth to all mankind in common (Locke was a Christian who lived before Darwin and, unlike most Classical Liberals, he relies largely on a theological reasoning). His idea of “homesteading” is limited in the same sense as Georgism. A specific exception he makes to the appropriation of land is wells, which he says belong to the community:

http://www.gutenberg.org/etext/7370

Secondly, he argued for homesteading based upon the assumption that there is “enough and as good left in common for others.”

The reason is simple: If the appropriation if land leads to great scarcity (something Locke apparently didn’t foresee in his day, when the human population was relatively small), then land rights are arbitrary.

If one man is born first, he gets to appropriate land and the man who is born second must be his tenant to work for that land. This has nothing to do with their individual abilities, being that if the second man was born first, then the first man would be the landowner and the second man would be the tenant.

This laid the basis for Georgism, which was far more influential in Classical Liberalism than Libertarians will admit, as well as laying the basis for the mainstream economic concept of “public goods.” Well-water, back then, should not have been appropriated because it was a public good – one that was in great abundance and non-rivalrous.

Rothbard, on the other hand, glazes over Locke’s claims about public goods and ignores the implication they have for true liberty.

The result: It is exactly as I said. The Rothbardian definition of “homesteading” is vastly different from Locke’s definition of “homesteading,” because the Rothbardian definition is essentially and ambiguously limitless: Homesteading for Rothbard means, “Appropriate land as fast as you can, then defend it with violence.”

I admit I haven’t read a lot of Austrian texts, but you should certainly give me some deference, because Rothbard himself hasn’t seemed to have read a lot of Classical Liberal texts – or at least he hasn’t understood them.

He improperly cites John Locke on page 93 of “Man, Action, and State” without noting Locke’s Georgist leanings. On page 479, he makes the false assertion about a “dispute” between classical liberal theorists and Henry George, when Thomas Paine, John Locke, and a wide variety of Classical Liberals at the time expressed support for Georgism – George was the simply one who later built upon and popularized their ideas in “Progress and Poverty.”

http://mises.org/rothbard/mespm.PDF

14

If the long-run marginal costs are falling then the total supply of goods is increasing. This means that the number of active suppliers is irrelevant. The are more goods available then before.

A monopoly, correctly defined, is when someone is forbidden from supplying goods without the authorization of the monopolist. As such, there cannot be a “natural” monopoly. The idea is non sequitur.

15

Not necessarily. In general, you’re right: If long-run marginal costs fall (such as through technological growth), the supply curve shifts outward.

However, the relationship between cost and price is determined by competition. Competitive firms’ prices closely reflect costs. Uncompetitive firms’ prices can be very high above cost. Even Austrians acknowledge this, as they acknowledge that government-granted monopolies have prices that are far higher than that of competitive firms, precisely because of the lack of competition.

Now, if marginal costs fall in tandem with the growth in the size of the firm – due to the reasons I described above – then that means that the level of competition is falling at least as quickly as marginal costs, so there is an increase in price, following the elasticity of the demand curve, but no corresponding increase in supply. The result: Inefficient deadweight loss and a higher profit for the firm, at the expense of the consumer.

Here’s a chart of what I’m talking about from Wikipedia:

http://upload.wikimedia.org/wikipedia/en/e/ef/Monopoly-surpluses.svg

16

As you admit yourself in your incoherent post, it is marginal demand, not competition, that determines price equilibriums. The number of firms producing the supply is irrelevant.

The reason that government is inefficient is because it forbids other producers from increasing the supply of goods. A firm cannot do this, no matter its size.

17

No, I said in my post that price equilibriums are determined by interactions between marginal demand and marginal supply – the latter is affected by competition.

How is competition irrelevant? The number of firms are themselves what make up aggregate supply.

I find it absolutely absurd that you can claim competition is irrelevant to price, while moaning about “government monopolies”.

And what is bad about forbidding other producers from increasing the supply of goods? You just said that the number of firms producing goods doesn’t matter. As such, it shouldn’t really matter if the government says, “Only this one firm can produce this good and no others.”

After all, as you said above, it’s marginal demand which drives price, not competition. The government forbids competition but it doesn’t impact marginal demand, at least not through public enterprise, anyway.

18

In a free market, competition always exists, whether manifested in a multitude of actual firms actively competing for market share or simply the threat of entrepenuers entering an industry which is producing inefficiently or has abnormally high profits. Free market monopolies can only exist if they are so efficient and have such a small profit margin that all competitors are driven out of business and all potential competitors have no openings to produce better/cheaper. Those types of “monopolies” are the type which are a benefit to everyone.

19

The minimax algorithm: Entrepreneurs are maximizing gain and consumers are maximizing gain. Consumers are choosing the firm that make them have maximising gain. Miscellaneous firms then maximize profit by changing their good to have one competitive advantage so consumers would value their good at the top. If the barriers to entry is not infinite then the number of firms does not affect quality of the commidity. Proof: Entrepreneurs have the incentive to start a new competing firm if one firm charges monopoly prices. If there is a possible improvement, then the incentive to start a business is greater. Conversely, entrepreneurs have to have an innovative idea so the firm can gain profit. Firms that produce better products produce more competition. Consumers search for the firms that have better products. This is equivalent to a maximizing function (metaheuristic). Even if one firm occupies 100% of the market, it is still not a monopoly. Price only depends on the supply and demand. If one firm produces 99% of the commidity and the other 100 produce the rest 1%, it would not result in increased price if supply equals demand (i.e. equilibrium). Competition between landlords.

20

Morty, the assumption of “perfect competition” isn’t held even by Austrian economists.

Because if you refuse to acknowledge the existence of varying degrees of competition, you don’t really have any solid grounds upon which to explain the variations in firm sizes, profit margins, etc..